Our indebtedness contains customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios. Specifically, our ABL Facility requires us to comply with a financial maintenance covenant under certain circumstances. As a result of our $310.0 million in ABL borrowings during March 2020, the likelihood that this financial maintenance covenant may be triggered has increased and continued deterioration in operating results or other adverse factors could result in our being unable to comply with this financial maintenance covenant. If we violate this covenant and are unable to obtain a waiver from our lenders, our debt under the ABL Facility would be in default and could be accelerated by our lenders. Because of cross-default provisions in the agreements and instruments governing our indebtedness, a default under one agreement or instrument could result in a default under, and the acceleration of, our other indebtedness. In addition, the lenders under the Credit Facilities could proceed against the collateral securing that indebtedness. An acceleration of the indebtedness under our Credit Facilities would cause a cross default under the indenture governing our Senior Notes. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all. If the effects of the COVID-19 pandemic are protracted and we are unable to increase liquidity and/or effectively address our debt position, we may be forced to scale back or terminate operations and/or seek protection under applicable bankruptcy laws. This could result in a complete loss of shareholder value.
Risks Associated with our Business Strategy
As noted on page 5,discussed in Item 1. Business, our overall business strategy is focused on several initiatives. If we cannot successfully execute our business strategy, our consolidated financial condition, results of operations and cash flows could be materially adversely impacted. There are numerous risks associated with this strategy including, but not limited to, the following:
Our success depends, in part, on our ability to meet the changing style preferences and shopping expectations of our customers and manage merchandise lead times.
We believe that men’s attire is characterized by infrequent and more predictable fashion changes when compared to other apparel sectors. Our success however, is dependent in part upon our ability to meet evolving customer expectations and gauge the tastes of our customers, and to provide merchandise that satisfies customer demand in a timely manner. As some of our businesses are seasonal, we must purchase and carry a significant amount of inventory prior to peak selling seasons.
We issue purchase orders for the purchase and manufactureBecause of manufacturing lead times, we order merchandise well in advance of the applicable selling season. As a result, we are vulnerable to demand and pricing shifts. In addition, manufacturing lead times for many of our purchases are lengthy, which may make it more difficult for us to respond quickly to new or changing merchandise trends or consumer acceptance or rejection of our products. As a result, there could be a material adverse effect on our business, financial condition and results of operations if we fail to meet the changing preferences of our customers and manage merchandise lead times appropriately.
We believe our overall product mix makes our business less vulnerable to changes in merchandise trends than many fashion‑forwardfashion-forward and specialty apparel retailers; however, our sales and profitability depend upon our continued ability to effectively manage a variety of competitive challenges, including:
| anticipating and quickly responding to changing trends and consumer demands including the ongoing casualization of workplace |
| maintaining favorable brand recognition and effectively marketing our products to consumers in several diverse market segments; |
| developing innovative, |
| competitively pricing our products and providing superior service and value to our customers; |
| countering the promotional or other pricing activities of our competitors; and |
| providing |
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Increased competition or our failure to meet these competitive challenges could result in price reductions, increased marketing expenditures andand/or loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations.
Certain of our strategies, including product innovations and expanding our exclusive offerings, may present greater risks.
We are continuously assessing opportunities to improve store productivity and develop new store concepts and complementary products and services related to our core business,retail and rental businesses, including product innovations and exclusive offerings. We may expend both capital and personnelmanagement resources on such business opportunities, which may or may not be successful. Additionally, any new concept is subject to certain risks, including customer acceptance, competition, product differentiation and the ability to obtain suitable sites. There can be no assurance that we will be able to develop and grow new concepts, including product innovations and exclusive offerings, to a point where they will become profitable or generate positive cash flow.
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Our investments in omni‑channelomni-channel initiatives may not deliver the results we anticipate.
One of our strategic priorities is to further develop an omni‑channelomni-channel shopping experience for our customers through the integration ofto provide inspiring and seamless experiences in and across every channel including our store and digital shoppinge-commerce channels. We continue to explore additional ways to enhance our omni‑channel shopping experience, including further digital integration and customer personalization. These initiatives involve significant investments in information technology systems. If the implementation of our omni‑channelomni-channel initiatives is not successful, or we do not realize the return on our omni‑channelomni-channel investments that we anticipate, our operating results would be adversely affected.
We face challenges in managing our store fleet, including limited new store growth potential.
Our growth is dependent, in large part, on our ability to successfully manage our store fleet, including new stores, and expansion or remodeling of existing stores, and closure of underperforming stores.stores and other investments in our store fleet. We expect tomay continue opening new stores to increase our sales volume and profitability; however, we believe that our ability to increase the number of new stores in the U.S. and Canada may be limited. Therefore, we may not be ablelimited in our ability to achieveincrease our sales volume and profitability by increasing the same ratenumber of growth that we have historically.our stores.
In addition, our ability to manage our store fleet will depend on our ability to obtain suitable locations, negotiate acceptable lease terms, achieve sufficient levels of cash flow to support investments in our store fleet, hire qualified personnelemployees and open and operate new stores on a timely and profitable basis. Further, the results achieved by our existing stores may not be indicative of the performance or market acceptance of stores in other locations and the opening of new stores in existing markets may adversely affect sales and/or profitability of established stores in those same markets.
Any future acquisitions or divestitures could result in operating difficulties and could harm our operating results.
From time to time, we may evaluate potential acquisitions or divestitures that would further our strategic objectives. With respect to acquisitions, we will beAcquisitions are subject to a variety of risks, including risks associated with an ability to integrate acquired assets, systems or operations into our existing operations, diversion of management’s attention from core operational matters, higher costs, or unexpected difficulties or problems with acquired assets or entities, outdated or incompatible technologies, labor difficulties or an inability to realize anticipated synergies and efficiencies, whether within anticipated time frames or at all.
With respect to potential divestitures, we will also beDivestitures are similarly subject to a variety of risks, including risks associated with difficulty in finding acquirers or alternative exit strategies on terms that are favorable to us, liabilities for activities of the divested business before the transaction, including litigation claims and disputes and the need to provide transition services to a divested business, which may result in the diversion of management resources and focus, and potential impairment charges.
If one or moreany of these risks related to future acquisitions or divestitures are realized, it could have an adverse impact on our financial condition and results of operations.operations may be adversely affected.
Risks Associated with General Economic Conditions
Numerous economic conditions, all of which are outside of our control, could negatively affect the level of consumer spending on the merchandise that we offer. If these economic conditions persist for a sustained period, our consolidated
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financial condition and results of operations could be materially adversely impacted. These economic conditions include, but are not limited to, the following:
Our business is particularly sensitive to economic conditions and consumer confidence.
Our performance is subject to changes in U.S., Canadian, UK and global economic and political conditions, particularly their impact on the level of consumer discretionary spending and consumer confidence. Some of the factors that may influence consumer spending include high levels of unemployment, increases in the cost of non-discretionary consumer goods, increases in consumer debt levels and applicable interest rates, political and regulatory uncertainty, uncertainties regarding future economic prospects or a decline in consumer confidence or credit availability. Consumer confidence may also be adversely affected by national and international security concerns such as war, terrorism, public health events or natural disasters (or the threat of any of these). In addition, our reliance on certain external partners leaves us subject to certain risks should one or more of these external partners encounter financial distress, become insolvent or become insolvent.are otherwise unable to perform.
During an actual or perceived economic downturn, fewer customers may shop with us and those who do shop may limit the amounts of their purchases. As a result, we could be required to take significant markdowns and/or increase our marketing and promotional expenses in response to the lower than anticipated levels of demand for our products. In addition, promotional and/or prolonged periods of deep discount pricing by our competitors could have a material adverse effect on our business. Also, as a result of adverse market, political or economic conditions, customers may delay or postpone indefinitely roll‑outs of new corporate wear programs, which could have a material adverse effect on our corporate apparel segment.
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We have experienced fluctuations in our sales and expect our sales to fluctuate in the future.
Our success over the long-term depends in large part on our ability to increasegenerate profitable sales. For example, if sales at Men’s Wearhouse were to decrease for a sustained period of time (as was the case in fiscal 2019), the effect on our consolidated financial results would be more significant than if sales were to decrease at any of our other brands. We believe that a variety of factors affect our sales and comparable sales results including, but not limited to,to: consumer confidence and the level of consumer discretionary spending,spending; changes in economic conditions and consumer disposable income,income; spending patterns and debt levels,levels; government shutdowns; consumer credit availability,availability; weather conditions,conditions; the timing of certain holiday seasons,seasons; the number and timing of new store openings,openings; changes in the popularity of a retail center,center; the timing and level of promotional pricing or markdowns,markdowns; store closings, refreshes, relocations and remodels,remodels; changes in fashion trends (including casualization of workplace attire and custom clothing) and our merchandise mix or other competitive factors. Comparable sales fluctuations may impact our ability to leverage our fixed direct expenses, including store rent and store asset depreciation, which may adversely affect our financial condition or results of operations.
Some of our businesses are seasonal.Our business is subject to seasonality.
Our sales and net earnings are subject to seasonal fluctuations and may vary by brand. Our rental product revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is the seasonal low point. With respect to corporate apparel sales and operating results, seasonal fluctuations are not significant but the acquisition of new customers or existing customer decisions to rebrand or revise their corporate wear programs can cause significant variations in period results. Because of these fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.
Economic conditions and regulatory changes leading up to and following the United Kingdom’s likely exit from the European Union could have a material adverse effect on our corporate apparel’s business and results of operations.
In June 2016, the UK held a referendum in which voters approved an exit from the European Union (the “E.U.”), commonly referred to as “Brexit.” Negotiations are ongoing to determine the future terms of the UK’s relationship with the E.U.
The announcement of Brexit adversely impacted global markets, including currencies, and resulted in a sharp decline in the value of the British pound, as compared to the U.S. dollar and other currencies. Volatility in exchange rates is expected to continue as the UK negotiates its exit from the European Union. A weaker British pound compared to the U.S. dollar during a reporting period causes local currency results of our UK operations to be translated into fewer U.S. dollars. In fiscal 2017, net sales of our UK operations constituted approximately 6% of our consolidated net sales.
Future adverse consequences arising from Brexit may include economic uncertainty, continued volatility in current exchange rates, potential changes to duties and tariffs and legal uncertainty and potentially divergent national laws and regulations as the UK determines which E.U. laws to replace or replicate. Any of these effects of Brexit, among others, could materially adversely affect our business, results of operations and financial condition.
Risks Associated With Our Sourcing and Distribution Strategies
Our sourcing and distribution strategies are subject to numerous risks that could materially adversely impact our consolidated financial condition and results of operations. These risks include, but are not limited to, the following:
The loss of, or disruption in, our distribution centers could result in delays in the delivery of merchandise to our stores.
We rely on our distribution centers to manage the receipt, storage, sorting, packing and distribution of our merchandise. As such, we depend on the overall effective management of our distribution center operations including adherence to shipping schedules and proper functioning of our information technology and inventory control systems. Events such as disruptions in operations due to fire or other catastrophic events, government shutdowns, delays in customs clearances, software malfunctions, employee matters or shipping problems may result in delays in the delivery of merchandise to our stores or directly to customers. For example, on March 19, 2020, in light of evolving government and citizen response to COVID-19, we announced the closure of our e-commerce fulfillment centers starting March 20, 2020 through at least March 28, 2020, which resulted in the disruption of and delayed deliveries to customers. In addition, given our proximity
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to the Texas gulf coast, it is possible that a hurricane or tropical storm could damage the Houston, Texas distribution center, result in extended power outages or flood roadways into and around the distribution center, any of which would disrupt or delay deliveries to the Houston distribution center and to our stores.
Although we have disaster recovery plans and maintain business interruption and property insurance, there can be no assurance that these plans will work as intended, that our insurance will be sufficient, or that insurance proceeds will be paid timely to us, in the event any of our distribution centers are damaged or shut down for any reason, or if we incur higher costs and longer lead times in connection with a disruption at one or more of our distribution centers.
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Our business is global in scope and can be impacted by factors beyond our control.
As a result of our internationalCanadian operations and our sourcing of merchandise and rental product from manufacturers located outside of the U.S., we face the possibility of greater losses from a number of risks inherent in doing business in international markets and from a number of factors whichthat are beyond our control. Such factors that could harm our financial condition and results of operations include, among other things:
| political instability, civil strife or insurrection, or acts of terrorism, which disrupt trade with the countries where we operate or in which our contractors, suppliers or customers are located; |
| recessions in foreign economies; |
| infrastructure deficiencies, logistic and other challenges in managing our foreign operations; |
| imposition of new legislation or rules relating to imports that may limit the quantity of goods which may be imported into the U.S. from certain countries or regions; |
| obligations associated with being an importer of record, including monitoring and complying with all corresponding legal requirements; |
| imposition of new or higher duties, taxes, tariffs, quotas or other charges on imports; |
| delays in shipping due to port security considerations, labor disputes or other restrictions; |
| supply chain disruptions as a result of climate change; |
● | issues relating to compliance with domestic or international labor standards which may result in adverse publicity; |
|
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| volatile global economic, market or political environments; |
| public health crises, such as the recent outbreak of COVID-19; |
● | volatile shipping availability, fuel supplies and related costs; |
| the fluctuation in the value of the U.S. dollar relative to the local currencies used by our manufacturers; and |
| increased difficulty in protecting our intellectual property rights in foreign jurisdictions. |
In addition, if we were unexpectedly required to change manufacturers or if a significant manufacturer were unable to supply acceptable merchandise in sufficient quantities on acceptable terms, particularly as it relates to custom clothing, we could experience a disruption in the supply of merchandise or may not be able to fulfill certain customer orders.
Failure of manufacturers to adhere to applicable laws and regulations including our internal policy requirements could harm our business.
We require our third-party manufacturers to operate in compliance with applicable laws and regulations and our internal policy requirements. Our business could be adversely affected if our suppliers do not comply with applicable legal requirements, our supplier policies and practices generally acceptable in the U.S. regarding social and ethical matters and acceptable labor and sourcing practices (collectively, “Supplier Requirements”).
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The violation of our Supplier Requirements by any of our suppliers could disrupt our supply chain. In addition, any such violation could damage our reputation, which may result in decreased customer traffic to our stores, websites and call center. In the event of any violations, we may decide that it is necessary or desirable to seek alternative suppliers, which could adversely affect our business, financial condition and results of operations.
Our business could be adversely affected by increased costs of the raw materials and other resources that are important to our business.
The raw materials used to manufacture our products are subject to availability constraints and price volatility caused by high demand for fabrics, catastrophic events, weather conditions, supply conditions, government regulations, economic climate and other unpredictable factors. In addition, our transportation and labor costs are subject to price volatility caused by the price of oil, supply of labor, labor disputes, governmental regulations, economic climate, public health crises and other unpredictable factors. Increases in demand for, or the price of, raw materials, distribution services and labor, including federal and state minimum wage rates, could have a material adverse effect on our business, financial condition and results of operations.
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The increase in the costs of wool and other raw materials significant to the manufacturermanufacture of apparel and the costs of manufacturing could materially affect our results of operations to the extent they cannot be mitigated through price increases and relocation to lower cost sources of supply or other cost reductions. These increased
We source our products globally, therefore, we may be impacted by tariffs primarily with respect to certain products imported from foreign countries.
Most of our merchandise is produced in foreign countries, making the price and availability of our merchandise susceptible to international trade risks, including the imposition of tariffs. In recent years, the U.S. has imposed significant tariffs on certain goods imported from China and expressed a willingness to impose further tariffs on additional goods imported from China and other countries. Although we believe the impact of tariffs enacted to date was immaterial to our fiscal 2019 results, given the unpredictability of the imposition of future tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the impact of current or future tariffs on our ongoing operations and results is uncertain and could be significant, and we can provide no assurance that any strategies we implement to address the impact of such tariffs or other trade actions will be successful. To the extent that our supply chain, costs, could particularly impactsales or profitability are negatively affected by tariffs or other trade actions, our managed contract corporate apparel business, which tends to have more long-term contractually committed customer sales arrangements with limited price flexibility.financial condition and results of operations may be materially adversely affected.
Any significant interruption in delivery of raw materials could cause interruptions atthat may delay the manufacture of our U.S. tailored clothing factory.products.
The principal raw material used byto manufacture our U.S. tailored clothing factoryproducts is fabric. Most of the factory’s supply arrangements are seasonal. The factory doesWe do not have any long‑termlong-term agreements in place with its fabric suppliers; therefore, there can be no assurance that any of such suppliers will continue to do business with us in the future. If a particular mill were to experience a delay due to fire or natural disaster and become unable to meet the factory’sour supply needs, it could take a period of up to several months for us to arrange for and receive an alternate supply of such fabric. In addition, import and export delays caused, for example, by an extended strike at the port of entry, could prevent thethird-party manufacturers as well as our U.S. tailored clothing factory from receiving fabric or other raw materials shipped by its suppliers. Therefore, there could be a negative effect on the ability of the factory to meet its production goals if there is an unexpected loss of a supplier of fabric or other raw materials or a long interruption in shipments from any fabric or other raw material supplier.supplier, including delays related to public health crises (such as COVID-19), our business, financial condition and results of operations may be materially adversely affected.
Labor union disputes could impact our business.
Should a labor dispute arise at any one of our union work sites, anywhere along our supply chain, or at any shopping center where we have a store, we could experience shortages in product to sell in our stores or other operational disruptions. In addition, our corporate apparel business sells uniforms to companies with union workforces. It is possible that our corporate apparel business could be adversely impacted if a labor dispute arises between a company we supply uniforms to and its union.
Risks Associated with Our Information Technology Systems
We rely on various information technology systems to manage our operations. Information technology systems are subject to numerous risks including unanticipated operating problems, system failures, rapid technological change, failure of the systems to operate as anticipated, reliance on third‑partythird-party technologies, the lack of available expertise for legacy systems,
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network and software providers, computer viruses, telecommunication failures, data breaches, denial of service attacks, spamming, phishing attacks, and other similar disruptions, any of which could materially adversely impact our consolidated financial condition and results of operations. Additional risks include, but are not limited to, the following:
If we are unable to operate information systems and implement new technologies effectively, our business could be disrupted or our sales or profitability could be reduced.
The efficient operation of our business is dependent on our information systems, including our ability to operate them effectively and successfully implement new technologies, systems, controls and adequate disaster recovery systems. We also maintain multiple internet websites in the U.S. and Europe. In addition, we must protect the confidentiality of our and our customers’ data. The failure of our information systems to perform as designed or our failure to implement and operate them effectively could disrupt our business or subject us to liability and thereby harm our profitability.
We are subject to data security risks, which could have an adverse effect on our results of operations and consumer confidence in our security measures.
Cybersecurity incidents and data breaches, particularly in the retail industry, have been well publicized. Like all other retailers, we are subject to cybersecurity risks. Cybersecurity refers to the combination of technologies, processes, and procedures established to protect information technology systems and data from unauthorized access, use, manipulation, exfiltration, or damage. As part of our normal operations, we maintain and transmit confidential information as well as proprietary Companycompany information, including credit card information, and information about our customers, our employees and other third parties. As a result, like other retailers, our business may be targeted more than other businesses because third parties may focus on the amount and type of personal and business information that we maintain and transmit. To date, we believe cybersecurity incidents have not had a material adverse impact on our business. We may, however, experience them in the future, potentially with more frequency and/or sophistication and we may not be able to anticipate or prevent rapidly evolving types of cybersecurity incidents.
We are focused on safeguarding and protecting personal and business information, and we devote significant resources to maintain and regularly update our systems and processes including providing employee awareness training around cyber risks and security breaches. However, while we have implemented measures reasonably designed to detect and prevent security breaches and cyber incidents, our systems or our third‑partythird-party service providers’ systems may still be vulnerable to privacy and security incidents including attacks by unauthorized users, corruption by computer viruses or other malicious software code, emerging cybersecurity risks, inadvertent or intentional release of confidential or proprietary information, or other similar events. The occurrence of any security breach involving the misappropriation, loss
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or other unauthorized disclosure of information about us or our customers, whether by us or by one of our third‑partythird-party service providers, could, among other things:
| cause damage to our reputation; |
| allow competitors access to our proprietary business information; |
| subject us to liability for a failure to safeguard customer data; |
| subject us to financial and legal risks, including regulatory action or litigation; |
| impact our ability to process credit card transactions; and |
| require significant capital and operating expenditures to investigate and remediate the breach. |
Furthermore, the storage and transmission of such data is regulated at the international, federal, state and local levels. Privacy and information security laws and regulation changes, and compliance with those changes, may result in cost increases due to system changes and the development of new administrative processes. For example, the E.U.’s General DataCalifornia Consumer Protection Regulation ("GDPR"Act (“CCPA”), which will becomebecame effective in May 2018,on January 1, 2020, imposes significant new requirements on how we collect, process and transfer personal data with failure to meet GDPR requirements resulting in penalties of up to 4% of our worldwide revenue. data. If we or our employees fail to comply with existing or future laws and regulations or experience a data security breach, our reputation could be damaged, possibly resulting in lost future business, and we could be subjected to fines, penalties, administrative orders and other legal risks as a result of a breach or non‑compliance. non-compliance. In addition, the CCPA may restrict our ability to use personal California user and subscriber
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information in connection with our various products, services and operations, which could adversely affect our business, financial condition and results of operations.
Other Risks Affecting Our Business
Our business is subject to numerous other risks that could materially adversely impact our consolidated financial condition and results of operations. These risks include, but are not limited to, the following:
We may be negatively impacted by competition.
Both theThe men’s retail and the corporate apparel industries areindustry in which we operate is highly competitive with numerous participants. We compete with traditional department stores, other specialty men’s clothing stores, online retailers, online formalwear rental providers, off‑priceoff-price retailers, manufacturer‑ownedmanufacturer-owned and independently‑ownedindependently-owned outlet stores, independently-owned formalwear rental stores, and other corporate apparel providers, as well as their respective e-commerce channels. In addition, some of our primary competitors sell their products in stores that are located in the same shopping malls or retail centers as our stores, which results in competition for favorable site locations and lease terms in these shopping malls and retail centers. Increased competition or our failure to meet these competitive challenges could result in price reductions, increased marketing expenditures and loss of market share, any of which could have a material adverse effect on our business, financial condition and results of operations.
Our success depends on our ability to attract and retain key personnel.employees.
Our success depends upon the personal efforts and abilities of our senior management team and other key personnel.employees, including our customer facing employees. In 2019, we experienced a number of significant leadership changes including appointing a new Chief Executive Officer, the departures of our Brand President of Jos. A. Bank and our Chief Human Resources Officer and the creation of a new Chief Customer Officer role providing common leadership for our retail brands. Although we believe we have a strong management team with significant industry expertise, we face intense competition in hiring and retaining these personnelemployees and the extended loss of the services of key personnelpeople could have a material adverse effect on our business, financial condition and results of operations. In addition, our business is subject to employment laws and regulations, including minimum wage requirements, overtime pay, sick pay, paid time off and healthcare benefits. The implementation of potential regulatory changes relating to these items, among other things, could result in increased labor costs to our business and negatively impact our operating results.
Also, our continued success and the achievement of our expansion goals are dependent upon our ability to attract and retain additional qualified employees. If we are unable to retain and motivate our current personnelemployees and attract talented new personnel,employees, our business, financial condition and results of operations could be adversely affected.
The occurrence of an event that impacts our reputation could have a material adverse effect on our brands.
Our ability to maintain our reputation is critical to our brands. Our reputation could be jeopardized if we fail to maintain high standards for merchandise quality and integrity and customer service. Any negative publicity about these types of concerns may reduce demand for our merchandise. Failure to comply with ethical, social, product, labor, health and safety or environmental standards could also jeopardize our reputation and potentially lead to various adverse consumer actions, including boycotts. Public perception about our company as a whole, our products or our stores, whether justified or not, could impair our reputation, involve us in litigation, damage our brandbrands and have a material
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adverse effect on our business. In addition, if our reputation is negatively affected by the actions of our employees or otherwise, our business, financial condition and results of operations could be adversely affected. Failure to comply with local laws and regulations, to maintain an effective system of internal controls and provide accurate and timely financial statement information, or to prevent security breaches could also hurt our reputation. Damage to our reputation or loss of consumer confidence for any of these or other reasons could have a material adverse effect on our results of operations and financial condition, as well as require additional time and resources to rebuild our reputation.
We may be unable to protect our trademarks and other intellectual property rights.
We believe that our trademarks and service marks, as described in Item 1. Business, are important to our success and our competitive position due to their name recognition with our customers. We devote substantial resources to establishing and protecting our trademarks and service marks. We are not aware of any material claims of infringement or material challenges to our right to use any of our trademarks. Nevertheless, the actions we have taken, including to establish and protect our trademarks and service marks, may not be adequate to prevent others from imitating our products or to prevent
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others from seeking to block sales of our products. Other parties may also claim that some of our products infringe on their trademarks, copyrights or other intellectual property rights. In addition, the laws of certain foreign countries may not protect our proprietary rights to the same extent as do the laws of the U.S. Litigation regarding our trademarks and other intellectual property rights could adversely affect our business, financial condition and results of operations.
War, acts of terrorism, public health crises, or weather catastrophes (whether or not caused by climate change) could have a material adverse effect on our business.
In the event of war, acts of terrorism or the threat of terrorist attacks, public health crises, or weather catastrophes, (whether or not caused by climate change), consumer spending could significantly decrease for a sustained period. In addition, local authorities or shopping center management could close in response to any immediate security concern, public health concern or weather catastrophe such as hurricanes, floods, wildfires, earthquakes, or tornadoes. Similarly, war, acts of terrorism, threats of terrorist attacks, public health crises or a weather catastrophe could severely and adversely affect our offices, distribution centers, or our entire supply chain.
Certain provisions of our certificate of formation and our amended and restated bylaws, Texas law, and our short-term shareholder rights plan could prevent or delay a potential acquisition of control of our Company, which could decrease the trading price of our common stock.
Our certificate of formation, amended and restated bylaws and the laws in the State of Texas contain provisions that are intended to deter coercive takeover practices and inadequate takeover bids by making such practices or bids unacceptably expensive to the prospective acquirer and to encourage prospective acquirers to negotiate with our Board of Directors rather than to attempt a hostile takeover. Texas law also imposes restrictions on mergers and other business combinations between us and any holder of 20% or more of our outstanding common stock. In March 2020, the Board of Directors adopted a short-term shareholder rights plan, which may cause substantial dilution to a person or group that attempts to acquire control of the Company on terms not approved by our Board of Directors.
We believe that these provisions protect our shareholders from coercive or otherwise unfair takeover tactics by effectively requiring those who seek to obtain control of the Company to negotiate with our Board of Directors and by providing our Board of Directors with more time to assess any acquisition of control. However, these provisions could apply even if an acquisition of control of the Company may be considered beneficial by some shareholders and could delay or prevent an acquisition of control that our Board of Directors determines is not in the best interests of our Company and our shareholders.
Our business could be adversely impacted as a result of actions by activist shareholders or others.
We value constructive input from investors and regularly engages in dialogue with our shareholders regarding strategy and performance. The Board of Directors and management team are committed to acting in the best interests of all of our shareholders. There is no assurance that the actions taken by the Board of Directors and management in seeking to maintain constructive engagement with our shareholders will be successful, and we may be subject to formal or informal actions or requests from shareholders or others. Responding to such actions could be costly and time-consuming, divert attention of management and employees, and may have an adverse effect on our business, results of operations and cash flow and the market price of our common stock.
Fluctuations in exchange rates may cause us to experience currency exchange losses.
We are subject to exposure from fluctuations in multiple currency exchange rates including, without limitation, U.S. dollar/British pound (“GBP”) exchange rates, U.S. dollar/Canadian dollar (“CAD”) exchange rates and U.S. dollar/Euro exchange rates as a result of our direct sourcing programs and our operations in foreign countries.
Canada. Moores, our Canadian subsidiary, conducts most of its business in CAD but purchases a significant portion of its merchandise in U.S. dollars. Historically, the exchange rate between CAD and U.S. dollars has fluctuated. A decline in the value of the CAD as compared to the U.S. dollar may adversely impact our Canadian operations as the revenues and earnings of our Canadian operations will be reduced when they are translated to U.S. dollars. Also, the value of our Canadian net assets as expressed in U.S. dollars may decline. We utilize foreign currency hedging contracts related to our merchandise purchases to limit exposure to changes in U.S. dollar/CAD exchange rates; however, these hedging activities may not adequately protect our Canadian operations from exchange rate risk.
Our UK‑based corporate apparel operations sell their products and conduct their business primarily in GBP but purchase most19
Compliance with ever-changing legal, regulatory and corporate governance requirements and standards for accounting could result in increased administrative expenses or litigation and could adversely impact our business, results of operations and reported financial results.
Our policies, procedures and internal controls are designed to help us comply with all applicable laws, regulations, accounting and reporting requirements, including those imposed by the Sarbanes‑OxleySarbanes-Oxley Act of 2002, the Dodd‑FrankDodd-Frank Wall Street Reform and Consumer Protection Act, the Affordable Care Act, the payment card industry (PCI), the Public Company Accounting Oversight Board, the SEC and the NYSE. In addition, our business is subject to laws, rules and regulations promulgated by international, national, state and local authorities, including laws, rules and regulations relating to privacy, use of consumer information, credit cards and advertising. All of these laws, rules and regulations and their interpretation are subject to change and often their application may be unclear. As a result, from time to time, we are subject to inquiries, investigations, and/or litigation, including class action lawsuits, and administrative actions related to compliance with these laws, rules and regulations.
Shareholder activism, the current political environment, financial reform legislation and the current high levelinstances of government intervention and regulatory reform has led, and may continue to lead, to substantial new regulations and compliance obligations. Any changes in regulations, the imposition of additional regulations or the enactment of any new legislation that affects employment and labor, trade, product safety, transportation and logistics, health care, privacy, or environmental issues,privacy, among other things, may increase the complexity of the regulatory environment in which we operate and the related cost of compliance.
Failure to comply with the various laws and regulations, as well as changes in laws and regulations, could have an adverse impact on our reputation, financial condition or results of operations.
Legislative or regulatory initiatives related to climate change concerns may negatively affect our business.
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climate change on the environment, which could result in future tax, transportation, and utility increases, which could adversely affect our business. There is also increased focus, including by investors, customers, and other stakeholders on these and other sustainability matters, including the use of plastic, energy, waste, and worker safety. Our reputation could be damaged if we do not (or are perceived not to) act responsibly with respect to sustainability matters, which could adversely affect our business, results of operations, financial position and cash flows.
Changes in applicable tax regulations and resolutions of tax disputes could negatively affect our financial results.
We are subject to taxation in the U.S. and numerous foreign jurisdictions. We record tax expense based on our estimates of future payments, which include reserves for estimates of probable settlements of foreign and domestic tax audits. At any one time, many tax years are subject to audit by various taxing jurisdictions. The results of these audits and negotiations with taxing authorities may affect the ultimate settlement of these issues. As a result, we expect that throughout the year there could be ongoing variability in our quarterly tax rates as taxable events occur and exposures are evaluated. In addition, our effective tax rate in any given financial reporting period may be materially impacted by changes in the mix and level of earnings or losses by taxing jurisdictions or by changes to existing accounting rules or regulations.
For example, in 2017, the Tax Cuts and Jobs Act (the “Tax Reform Act”) was enacted in December 2017, which significantly changeschanged how the U.S. taxes corporations. As a result, we made certain judgments in interpretingIn the provisions offuture, the Act as well as significant estimates in calculations used in preparing our fiscal 2017 operating results. The U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Reform Act will be applied or otherwise administered that is different from our interpretation. Therefore, the ultimate impact of administered. Any new interpretations or guidance on the Tax Reform Act could have a material impact on our results in future periods may change due to changes in interpretationsof operations, financial position and assumptions we have made, guidance that may be issued, and other actions that we may take as a result of the Tax Reform Act. cash flows.
Changes to accounting standards and estimates could materially impact our results of operations, financial position and cash flows.
Generally accepted accounting principles and the related authoritative guidance for many aspects of our business, including revenue recognition, inventories, goodwill and intangible assets, leases and income taxes, are complex, continually evolving and involve subjective judgments. For example, recently issuedadopted authoritative guidance for lease accounting will resultresulted in a significant increase in our long-term assets and liabilities given we have a considerable number of operating leases and may cause the perception that we are more highly leveraged.. These and other future changes in accounting rules or changes in the underlying estimates, assumptions or judgments by our management could have a material impact on our results of operations, financial position and cash flows.
20
We could incur losses due to impairment on long‑livedlong-lived assets, goodwill and intangible assets.
Under generally accepted accounting principles, we review our long‑livedlong-lived assets for impairment whenever economic events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. Identifiable intangible assets with an indefinite useful life, including goodwill, are not amortized but are evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. In fiscal 2015, we recorded $1.24 billion of goodwill and intangible asset impairment charges related to Jos. A. Bank. In the future, significant negative industry or general economic trends disruptions to our business and unexpected significant changes or planned(including the impact of COVID-19), unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations or a significant sustained decline in the market price of our use of the assetscommon stock may result in additional impairments to our goodwill, intangible assets and other long‑livedlong-lived assets. Any reduction in or impairment of the value of long-lived assets, goodwill or intangible assets will result in a charge against earnings, which could have a material adverse impact on our reported results of operations and financial condition.
Our advertising, marketing and promotional activities have been the subject of review by state regulators and subject to lawsuits, specifically at Jos. A. Bank.lawsuits.
Jos. A. Bank has inIn the past we have been, and may from time to time in the future be, required to respond to inquiries from State Attorneys General related to itsour advertising practices. These advertising practices have also been, and continue to be, the subject of class action litigation. In addition, it is possible that the advertising, marketing and promotional activities of all our brands may be reviewed by state or other regulators or become the subject of litigation. Although we endeavor to monitor and comply with all applicable laws and regulations to ensure that all advertising, marketing and promotional activities comply with all applicable legal requirements, many of the applicable legal requirements involve subjective judgments. It is possible that any resolution we may reach with any governmental authority or the results of any litigation may materially impact our current or future planned marketing program and could have an adverse impact on our business.
We are subject to various proceedings, lawsuits, disputes, and claims, from time to time, which could adversely affect our results of operations, financial position and cash flows.
As a multinational company, we are subject to various proceedings, lawsuits, disputes, and claims (“Actions”) arising in the ordinary course of business. Many of these Actions raise complex factual and legal issues and are subject to numerous uncertainties. Actions are filed against us from time to time and include commercial, securities, intellectual property, customer, employment and data privacy claims, including class action lawsuits. Current Actions are in various procedural stages and some are covered in whole or in part by insurance. We cannot predict with assurance the outcome of any of the Actions brought against us and an adverse result in any Actions could have an adverse impact on our financial results.
18
Rights of our shareholders may be negatively affected if we issue any of the shares of preferred stock which our Board of Directors has authorized for issuance.
We have available for issuance 2,000,000 shares of preferred stock, par value $.01 per share. Our Board of Directors is authorized to issue any or all of this preferred stock, in one or more series, without any further action on the part of shareholders. The rights of our shareholders may be negatively affected if we issue a series of preferred stock in the future that has preference over our common stock with respect to the payment of dividends or distribution upon our liquidation, dissolution or winding up. See Note 1315 of Notes to Consolidated Financial Statementsthe consolidated financial statements for more information.
Our stock price is volatile and may decline regardless of our operating performance.
The market price of our common stock has fluctuated substantially in the past and may continue to do so in the future. Future announcements or management discussions concerning us or our competitors, sales and profitability results, quarterly variations in operating results or comparable sales, changes in earnings estimates by analysts or others, among other factors, could cause the market price of our common stock to fluctuate substantially. In addition, broad market and industry factors may adversely impact the market price of our common stock regardless of our actual operating performance.
21
Risks Associated with Our Indebtedness
There are numerous risks associated with our indebtedness including, but not limited to, the following:
Our current level of indebtedness could adversely affect our ability to raise additional capital to fund our operations, limit our ability to react to changes in the economy or our industry, expose us to interest rate risk to the extent of our variable rate debt and prevent us from meeting our obligations under the Credit Facilities or the indenture governing the Senior Notes.
In 2014,As of February 1, 2020, we entered into a $1.1 billion aggregate principal amount senior secured facilityhave $881.6 million outstanding our on Term Loan Facility (the “Term Loan”), which matures on April 9, 2025, subject to a springing maturity provision that would accelerate the maturity of the Term Loan Facility”).to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022. In October 2017, we amended our then existing $500.0 million asset‑basedasset-based revolving facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022 (the amended “ABL Facility”) (the ABL Facility together with the Term Loan, Facility, the “Credit Facilities”). In addition, in 2014, we issued $600.0Also, as of February 1, 2020, $173.8 million in aggregate principal amount of our 7.0% Senior Notes due 2022 (the “Senior Notes”). As are outstanding. In summary, as of February 3, 2018,1, 2020, our total indebtedness is approximately $1.4$1.1 billion. In addition, as of February 1, 2020, we havehad up to $505.5$400.5 million of additional borrowing availability under the ABL Facility, excluding letters of credit totaling approximately $37.3$26.6 million issued and outstanding. Subsequent to February 1, 2020, in response to COVID-19 and as a proactive measure, on March 16, 2020, we executed a borrowing of $260.0 million under our ABL Facility. In addition, after assessing the remaining availability under the ABL Facility and determining that additional borrowings were prudent to maximize cash on hand, on March 19, 2020 and on March 31, 2020, respectively, we borrowed an additional $25.0 million under the ABL Facility.
Our indebtedness could have important consequences, including:
| increasing our vulnerability to adverse economic, industry or competitive developments; |
| requiring a substantial portion of cash flow from operations to be dedicated to the payment of principal and interest on our indebtedness, therefore reducing our ability to use our cash flow to fund our operations, capital expenditures and future business opportunities; |
| making it more difficult for us to satisfy our obligations with respect to our indebtedness and any failure to comply with the obligations of any of our debt instruments, including restrictive covenants and borrowing conditions, could result in an event of default under the Credit Facilities and the indenture governing the Senior Notes; |
| restricting us from making strategic acquisitions or causing us to make |
| limiting our ability to obtain additional financing for working capital, capital expenditures, product development, debt service requirements, acquisitions and general corporate or other purposes; and |
| limiting our flexibility in planning for, or reacting to, changes in our business or market conditions and placing us at a competitive disadvantage compared to our competitors who have less debt than we do and who therefore may be able to take advantage of opportunities that our indebtedness prevents us from exploiting. |
Despite our high indebtedness level, we will still be able to incur significant additional amounts of debt, which could exacerbate the risks associated with our substantial indebtedness.
We and our subsidiaries may be able to incur substantial additional indebtedness in the future. Although the Credit Facilities and the indenture governing the Senior Notes contain restrictions on the incurrence of additional indebtedness, these restrictions are subject to a number of significant qualifications and exceptions, and, under certain circumstances, the amount of indebtedness that could be incurred in compliance with these restrictions could be substantial. If new debt is added to our and our subsidiaries’ existing debt levels, the related risks that we now face would increase. In addition, the Credit Facilities and the indenture governing the Senior Notes will not prevent us from incurring obligations that do not constitute indebtedness under those agreements.
1922
We may not be able to generate sufficient cash to service all of our indebtedness and fund our working capital and capital expenditures, and we may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on our indebtedness will depend upon our future operating performance and on our ability to generate cash flow in the future, which is subject to general economic, financial, business, competitive, legislative, regulatory and other factors that are beyond our control. There can be no assurance that our business will generate sufficient cash flow from operations, or that future borrowings, including borrowings under the ABL Facility, will be available to us in an amount sufficient to enable us to pay our indebtedness or to fund our other liquidity needs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations—Liquidity and Capital Resources.”
If our cash flows and capital resources are insufficient to fund our debt service obligations, we could face substantial liquidity problems and could be forced to reduce or delay investment and capital expenditures or to dispose of material assets or operations, seek additional equity capital or restructure or refinance our indebtedness. We may not be able to affect any such alternative measures, if necessary, on commercially reasonable terms or at all and, even if successful, such alternative actions may not allow us to meet our scheduled debt service obligations. The Credit Facilities and the indenture that governs the Senior Notes contain restrictions on our ability to dispose of assets and use the proceeds from any such disposition.
In addition, we rely on our subsidiaries to generate cash. Accordingly, repayment of our indebtedness, is dependent, to a certain extent, on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Each of our subsidiaries are distinct legal entities and they do not have any obligation to pay amounts due on the notesSenior Notes or to make funds available for that purpose (other than the subsidiary guarantors in connection with their guarantees) or other obligations in the form of loans, distributions or otherwise. Our subsidiaries may not generate sufficient cash from operations to enable us to make principal and interest payments on our indebtedness or to fund our and our subsidiaries’ other cash obligations.
If we cannot make scheduled payments on our debt, we will be in default and, as a result, the holders of the Senior Notes could declare all outstanding principal and interest to be due and payable, the lenders under the Credit Facilities could declare all outstanding amounts under such facilities due and payable and, with respect to the ABL Facility, terminate their commitments to loan money, and, in each case, foreclose against the assets securing the borrowings under the Credit Facilities, and we could be forced into bankruptcy or liquidation.
If our indebtedness is accelerated, we may need to refinance all or a portion of our indebtedness before maturity. There can be no assurance that we will be able to refinance any of our indebtedness, including the Credit Facilities, on commercially reasonable terms or at all. There can be no assurance that we will be able to obtain sufficient funds to enable us to repay or refinance our debt obligations on commercially reasonable terms, or at all.
The agreements and instruments governing our debt impose restrictions that may limit our operating and financial flexibility.
The Credit Facilities and the indenture governing the Senior Notes contain a number of significant restrictions and covenants that may limit our ability to:
| incur additional indebtedness; |
| sell assets or consolidate or merge with or into other companies; |
| pay dividends or repurchase or redeem capital stock; |
| make certain investments; |
| issue capital stock of our subsidiaries; |
| incur liens; |
| prepay, redeem or repurchase subordinated debt; and |
| enter into certain types of transactions with our affiliates. |
23
These covenants could have the effect of limiting our flexibility in planning for or reacting to changes in our business and the markets in which we compete. In addition, the ABL Facility requires us to comply with a financial maintenance covenant under certain circumstances. OperatingAs a result of our $310.0 million borrowings in March 2020, the likelihood that this financial maintenance covenant may be triggered has increased and continued deterioration in operating results below current levels or other adverse factors including a significant increase in interest rates, could result in our being unable to comply with the financial covenants contained in the ABL Facility, if applicable. If we violate this covenant and are unable to obtain a waiver from our lenders, our debt under the ABL Facility would be in default and could be accelerated by our lenders. Because of cross‑defaultcross-default provisions in the agreements and instruments governing our indebtedness, a default under one agreement or instrument could result in a default under, and the acceleration of, our other indebtedness. In addition, the lenders under the Credit Facilities could proceed against the collateral securing that indebtedness.
20
If our indebtedness is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if we are able to obtain new financing, it may not be on commercially reasonable terms, on terms that are acceptable to us, or at all. If our debt is in default for any reason, our business, financial condition and results of operations could be materially and adversely affected. In addition, complying with these covenants may also cause us to take actions that make it more difficult for us to successfully execute our business strategy and compete against companies that are not subject to such restrictions.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.
We are exposed to interest rate risk through our variable rate borrowings under the Credit Facilities. Borrowings under such facilities bear interest at a variable rate, based on a LIBOR rate, plus an applicable margin. Interest rates are currently at historically low levels but are expected tomay increase. AsShould interest rates increase, our debt service obligations on the variable rate indebtedness increase even though the amount borrowed remains the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. As LIBOR is above the 1% LIBOR floor provision on our Term Loan,Currently, we are exposed to interest rate risk on our Term Loan.Loan and borrowings on our ABL Facility. To partially mitigate such interest rate risk, we entered into interest rate swaps to exchange variable interest rate payments for fixed interest rate payments for a portion of the outstanding Term Loan balance. At February 3, 2018,1, 2020, the notional amount of the interest rate swaps totaled $410.0$705.0 million. In addition, in 2015, we entered into the Incremental Facility Agreement No. 1 to the credit agreement governing the Term Loan to refinance $400.0 million principal amount of term loans that bore interest at a variable rate with $400.0 million principal amount of new term loans, which bear interest at a fixed rate of 5.0% per annum.
After consideration of the swaps and the refinancing, asAs of February 3, 2018, 87%1, 2020, approximately 80% of our total debtTerm Loan was at a fixed rate with the remainder at a variable rate. As a result, we believe our interest rate risk is substantially mitigated. AtAfter considering the impact of these interest rate swaps, at February 3, 2018,1, 2020, the effect of a one percentage point change in interest rates would result in an approximate $1.8 million change in annual interest expense on our Term Loan. At February 3, 2018,1, 2020, assuming all capacity under the ABL Facility is fully drawn, each one percentage point change in interest rates would result in approximately aan approximate $5.5 million change in annual interest expense.
Uncertainty relating to the LIBOR calculation process and potential phasing out of LIBOR may adversely affect our results of operations.
On July 27, 2017, the UK’s Financial Conduct Authority, which regulates LIBOR, announced that it intends to phase out LIBOR by the end of 2021. It is unclear if at that time LIBOR will cease to exist or if new methods of calculating LIBOR will be established such that it continues to exist after 2021. The U.S. Federal Reserve, in conjunction with the Alternative Reference Rates Committee, a steering committee comprised of large U.S. financial institutions, announced replacement of U.S. dollar LIBOR with a new index calculated by short-term repurchase agreements, backed by U.S. Treasury securities called the Secured Overnight Financing Rate (“SOFR”). The first publication of SOFR was released in April 2018. Since the initial publication of SOFR in 2018, daily changes in SOFR have at times been more volatile than daily changes in comparable benchmark or market rates.
Whether or not SOFR attains market traction as a LIBOR replacement tool remains in question and the future of LIBOR at this time is uncertain, which also may impact the accounting for our existing interest rate swaps. If LIBOR rates are no longer available, we may incur significant expenses in effecting the transition and may be subject to disputes or litigation related to our Credit Facilities over the appropriateness or comparability to LIBOR of the substitute indices, which could have an adverse effect on our results of operations. We will continue to monitor developments with respect to the phasing out of LIBOR and will work to minimize the impact of any LIBOR transition.
| | | | | | | | | | | | | |
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
2124
As of February 3, 2018,1, 2020, we operated 1,3511,324 retail apparel and rental stores in 50 states and the District of Columbia and Puerto Rico and 126 retail apparel stores in ten Canadian provinces. As of February 3, 2018,1, 2020, our stores aggregated approximately 9.39.1 million square feet. Almost all of these stores are leased, generally for five to ten year initial terms with one or more renewal options after ourthe initial term. The following tables set forth the location, by state, territory or province, of these stores:
| | | | | | | | | | | |
|
| |
| Men’s |
| |
| |
| |
|
| | Men’s | | Wearhouse | | Jos. A. | | | | |
|
United States | | Wearhouse(1) | | and Tux | | Bank | | K&G | | Total |
|
Texas |
| 61 |
| 1 |
| 44 |
| 12 |
| 118 | |
California |
| 80 |
| 2 |
| 28 |
| 1 |
| 111 | |
Florida |
| 49 |
| 6 | | 35 |
| 5 |
| 95 | |
New York |
| 41 |
| 1 | | 25 |
| 3 |
| 70 | |
Pennsylvania |
| 29 |
| 2 | | 29 |
| 3 |
| 63 | |
Illinois |
| 32 |
| 3 | | 21 |
| 6 |
| 62 | |
Ohio |
| 25 |
| 3 |
| 19 |
| 5 |
| 52 | |
Virginia |
| 20 |
| 4 | | 24 |
| 3 |
| 51 | |
Michigan |
| 23 |
| 5 | | 13 |
| 7 |
| 48 | |
North Carolina |
| 17 |
| 5 | | 22 |
| 4 |
| 48 | |
New Jersey |
| 20 |
| | | 22 |
| 5 |
| 47 | |
Maryland |
| 18 |
| 2 | | 20 |
| 6 |
| 46 | |
Georgia |
| 19 |
| | | 20 |
| 5 |
| 44 | |
Massachusetts |
| 23 |
| 1 | | 17 |
| 3 |
| 44 | |
Indiana |
| 14 |
| 1 | | 9 |
| 2 |
| 26 | |
Colorado |
| 14 |
| 1 | | 8 |
| 2 |
| 25 | |
Tennessee |
| 14 |
| | | 9 |
| 2 |
| 25 | |
Connecticut |
| 11 |
| | | 10 |
| 2 |
| 23 | |
Washington |
| 16 |
| 1 | | 4 |
| 2 |
| 23 | |
Alabama |
| 11 |
| | | 10 |
| 1 |
| 22 | |
Arizona |
| 15 |
| | | 7 |
| |
| 22 | |
South Carolina |
| 11 |
| 1 | | 9 | | 1 |
| 22 | |
Minnesota |
| 14 |
| | | 5 |
| 2 |
| 21 | |
Louisiana |
| 12 |
| 1 | | 4 |
| 3 |
| 20 | |
Missouri |
| 13 |
| | | 6 |
| 1 |
| 20 | |
Wisconsin |
| 13 |
| | | 4 |
| 1 |
| 18 | |
Kansas |
| 7 |
| 2 | | 4 | | 1 |
| 14 | |
Kentucky |
| 7 |
| 1 | | 6 |
| |
| 14 | |
Oregon |
| 11 | | | | 1 | | |
| 12 | |
Iowa |
| 9 | | | | 2 | | |
| 11 | |
Oklahoma |
| 5 | | | | 5 | | 1 |
| 11 | |
Utah |
| 8 | | | | 3 |
| |
| 11 | |
Mississippi |
| 6 |
| | | 3 | | |
| 9 | |
New Hampshire |
| 5 |
| | | 4 | | |
| 9 | |
Nevada |
| 6 | | | | 3 | | |
| 9 | |
Arkansas |
| 5 | | | | 3 | | |
| 8 | |
Nebraska |
| 4 | | | | 3 | | |
| 7 | |
Delaware |
| 3 | | | | 2 | | |
| 5 | |
District of Columbia |
| 2 | | | | 3 | | |
| 5 | |
New Mexico |
| 4 | | | | 1 | | |
| 5 | |
Rhode Island |
| 1 |
| 1 | | 3 | | |
| 5 | |
West Virginia |
| 2 | | | | 3 | | |
| 5 | |
Idaho |
| 3 | | | | 1 | | |
| 4 | |
North Dakota |
| 3 | | | | | | |
| 3 | |
Alaska |
| 2 |
| | | | | |
| 2 | |
Maine |
| 2 | | | | | | |
| 2 | |
Montana |
| 2 | | | | | | |
| 2 | |
South Dakota |
| 2 | | | | | | |
| 2 | |
Hawaii |
| 1 | | | | | | |
| 1 | |
Vermont |
| 1 | | | | | | |
| 1 | |
Wyoming |
| 1 | | | | | | |
| 1 | |
Total |
| 717 |
| 44 |
| 474 |
| 89 |
| 1,324 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Men’s |
|
|
|
|
|
|
|
|
| Men’s |
| Wearhouse |
| Jos. A. |
|
|
|
|
|
United States |
| Wearhouse(1) |
| and Tux |
| Bank |
| K&G |
| Total |
|
Texas |
| 62 |
| 1 |
| 45 |
| 12 |
| 120 |
|
California |
| 80 |
| 3 |
| 29 |
| 1 |
| 113 |
|
Florida |
| 47 |
| 6 |
| 37 |
| 5 |
| 95 |
|
New York |
| 43 |
| 1 |
| 25 |
| 4 |
| 73 |
|
Pennsylvania |
| 29 |
| 4 |
| 30 |
| 3 |
| 66 |
|
Illinois |
| 32 |
| 3 |
| 21 |
| 6 |
| 62 |
|
Ohio |
| 25 |
| 3 |
| 19 |
| 5 |
| 52 |
|
Virginia |
| 19 |
| 4 |
| 25 |
| 3 |
| 51 |
|
Michigan |
| 23 |
| 5 |
| 14 |
| 7 |
| 49 |
|
Maryland |
| 18 |
| 3 |
| 21 |
| 6 |
| 48 |
|
North Carolina |
| 17 |
| 5 |
| 22 |
| 4 |
| 48 |
|
Georgia |
| 20 |
| 1 |
| 21 |
| 5 |
| 47 |
|
New Jersey |
| 19 |
| 1 |
| 22 |
| 5 |
| 47 |
|
Massachusetts |
| 23 |
| 1 |
| 18 |
| 3 |
| 45 |
|
Indiana |
| 14 |
| 1 |
| 9 |
| 2 |
| 26 |
|
Colorado |
| 14 |
| 1 |
| 8 |
| 2 |
| 25 |
|
Connecticut |
| 12 |
|
|
| 11 |
| 2 |
| 25 |
|
Tennessee |
| 14 |
|
|
| 9 |
| 2 |
| 25 |
|
Missouri |
| 13 |
| 1 |
| 9 |
| 1 |
| 24 |
|
Washington |
| 16 |
| 1 |
| 4 |
| 2 |
| 23 |
|
Alabama |
| 11 |
|
|
| 10 |
| 1 |
| 22 |
|
Arizona |
| 15 |
|
|
| 7 |
|
|
| 22 |
|
South Carolina |
| 11 |
| 1 |
| 9 |
| 1 |
| 22 |
|
Minnesota |
| 14 |
|
|
| 5 |
| 2 |
| 21 |
|
Louisiana |
| 12 |
| 1 |
| 4 |
| 3 |
| 20 |
|
Wisconsin |
| 13 |
|
|
| 4 |
| 1 |
| 18 |
|
Kansas |
| 7 |
| 2 |
| 4 |
| 1 |
| 14 |
|
Kentucky |
| 7 |
| 1 |
| 6 |
|
|
| 14 |
|
Oregon |
| 11 |
|
|
| 2 |
|
|
| 13 |
|
Utah |
| 8 |
|
|
| 4 |
|
|
| 12 |
|
Iowa |
| 9 |
|
|
| 2 |
|
|
| 11 |
|
Oklahoma |
| 5 |
|
|
| 5 |
| 1 |
| 11 |
|
Mississippi |
| 6 |
|
|
| 3 |
|
|
| 9 |
|
New Hampshire |
| 5 |
|
|
| 4 |
|
|
| 9 |
|
Nevada |
| 6 |
|
|
| 3 |
|
|
| 9 |
|
Arkansas |
| 5 |
|
|
| 3 |
|
|
| 8 |
|
Nebraska |
| 4 |
|
|
| 3 |
|
|
| 7 |
|
New Mexico |
| 4 |
|
|
| 2 |
|
|
| 6 |
|
District of Columbia |
| 2 |
|
|
| 3 |
|
|
| 5 |
|
Delaware |
| 3 |
|
|
| 2 |
|
|
| 5 |
|
Rhode Island |
| 1 |
| 1 |
| 3 |
|
|
| 5 |
|
West Virginia |
| 2 |
|
|
| 3 |
|
|
| 5 |
|
Idaho |
| 3 |
|
|
| 1 |
|
|
| 4 |
|
North Dakota |
| 3 |
|
|
|
|
|
|
| 3 |
|
Alaska |
| 2 |
|
|
|
|
|
|
| 2 |
|
Maine |
| 2 |
|
|
|
|
|
|
| 2 |
|
Montana |
| 2 |
|
|
|
|
|
|
| 2 |
|
South Dakota |
| 2 |
|
|
|
|
|
|
| 2 |
|
Hawaii |
| 1 |
|
|
|
|
|
|
| 1 |
|
Puerto Rico |
| 1 |
|
|
|
|
|
|
| 1 |
|
Vermont |
| 1 |
|
|
|
|
|
|
| 1 |
|
Wyoming |
| 1 |
|
|
|
|
|
|
| 1 |
|
Total |
| 719 |
| 51 |
| 491 |
| 90 |
| 1,351 |
|
| (1) |
| Includes one Joseph Abboud store in New |
2225
| | | |
Canada | Moores | ||
Ontario |
| 54 | |
Quebec |
| 25 | |
British Columbia |
| 16 | |
Alberta |
| 15 | |
Manitoba |
| 5 | |
Nova Scotia |
| 4 | |
New Brunswick |
| 3 | |
Saskatchewan |
| 2 | |
Newfoundland |
| 1 | |
Prince Edward Island |
| 1 | |
Total |
| 126 | |
We own or lease properties in various parts of the U.S. and Canada to facilitate the distribution of retail and rental product to our stores. We own or lease properties in various parts of the U.S.Total owned and UK to facilitate the distribution of our corporate apparel product. Total leased and owned space for distribution is approximately 2.33.2 million square feet and 3.32.0 million square feet, respectively.
In addition, we have primary office locations in Houston, Texas, Fremont, California, New York, New York and Hampstead, Maryland with additional satellite offices in other parts of the U.S., Canada, Europe and Asia.Canada. We lease approximately 0.50.4 million square feet and own approximately 0.3 million square feet of office space.
We are involved in various routine legal proceedings, including ongoing litigation. Management believes that none of these matters will have a material adverse effect on our financial position, results of operations or cash flows. See Note 1820 of Notes to Consolidated Financial Statementsthe consolidated financial statements for a discussion of our legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
2326
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock trades on the NYSE under the symbol “TLRD.” The following table sets forth, on a per share basis for the periods indicated, the high and low sale prices per share for our common stock as reported by the NYSE and the quarterly dividends declared on each share of common stock:
|
|
|
|
|
|
|
|
|
|
|
|
| High |
| Low |
| Dividend |
| |||
Fiscal Year 2017 |
|
|
|
|
|
|
|
|
|
|
First quarter |
| $ | 24.11 |
| $ | 12.00 |
| $ | 0.18 |
|
Second quarter |
|
| 14.35 |
|
| 9.40 |
|
| 0.18 |
|
Third quarter |
|
| 16.78 |
|
| 10.00 |
|
| 0.18 |
|
Fourth quarter |
|
| 26.03 |
|
| 14.57 |
|
| 0.18 |
|
Fiscal Year 2016 |
|
|
|
|
|
|
|
|
|
|
First quarter |
| $ | 19.21 |
| $ | 11.68 |
| $ | 0.18 |
|
Second quarter |
|
| 17.93 |
|
| 10.90 |
|
| 0.18 |
|
Third quarter |
|
| 17.38 |
|
| 13.06 |
|
| 0.18 |
|
Fourth quarter |
|
| 28.76 |
|
| 14.12 |
|
| 0.18 |
|
On March 23, 2018,20, 2020, there were approximately 885815 shareholders of record and approximately 11,70017,200 beneficial shareholders of our common stock.
The quarterly cash dividend of $0.18 per share declared by our Board of Directors (the “Board”) in January 2018 is payable on March 29, 2018 to shareholders of record on March 19, 2018.
The Credit Facilities and the indenture governing the Senior Notes contain covenants that, among other things, currently limit the Company’s ability to pay dividends on the Company’s common stock in excess of $10.0 million per quarter. See Note 6 of Notes to Consolidated Financial Statements for additional information on our financing arrangements.
The information required by this item regarding securities authorized for issuance under equity compensation plans is incorporated by reference from Item 12 of this Form 10‑K.10-K.
Issuer Purchases of Equity Securities
We did not purchase any of our equity securities during the fourth quarter of fiscal 2017.2019. In March 2013, the Board approved a share repurchase program for our common stock. At February 3, 2018,1, 2020, the remaining balance available under the Board’s authorization was $48.0$38.0 million.
Sales of Unregistered Securities
During fiscal 2015, we issued 8,804 shares of common stock to Joseph Abboud pursuant to the terms of the consulting agreement between the Company and Mr. Abboud. The shares of common stock were not registered under the Securities Act of 1933, as amended (the “Securities Act”) pursuant to the exemption from registration requirements provided by Section 4(a)(2) of the Securities Act, as a transaction by an issuer not involving a public offering. The offering was not a “public offering” as defined in Section 4(a)(2) due to the insubstantial number of persons involved in the transaction, size of the offering, manner of the offering and number of securities offered.
24
Performance Graph
The following Performance Graph and related information shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or Securities Exchange Act of 1934, each as amended, except to the extent that the Company specifically incorporates it by reference into such filing.
The following graph compares, as of each of the dates indicated, the percentage change in the Company’s cumulative total shareholder return on its common stock with the cumulative total return of the S&P 500 Index and a subset of companies in the S&P Retail Select Index (“Select Group”).
The graph assumes that the value of the investment in our common stock and each index was $100 at February 2, 2013January 31, 2015 and that all dividends paid by those companies included in the indices were reinvested. The graph is based on historical data and is not necessarily indicative of future performance.
| | | | | | | | | | | | | | | | | | | |
|
| January 31, |
| January 30, |
| January 28, |
| February 3, |
| February 2, |
| February 1, |
| ||||||
| | 2015 | | 2016 | | 2017 | | 2018 | | 2019 | | 2020 |
| ||||||
Measurement Period (Fiscal Year Covered) | | | | | | | | | | | | | | | | | | | |
Tailored Brands, Inc. | | $ | 100.00 | | $ | 30.09 | | $ | 44.62 | | $ | 55.56 | | $ | 31.28 | | $ | 10.87 | |
S&P 500 Index | |
| 100.00 | |
| 99.33 | |
| 120.06 | |
| 147.48 | |
| 147.40 | |
| 179.17 | |
Select Group(1) | |
| 100.00 | |
| 102.88 | |
| 101.23 | |
| 111.53 | |
| 124.97 | |
| 139.31 | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| February 2, |
| February 1, |
| January 31, |
| January 30, |
| January 28, |
| February 3, |
| ||||||
|
| 2013 |
| 2014 |
| 2015 |
| 2016 |
| 2017 |
| 2018 |
| ||||||
Measurement Period (Fiscal Year Covered) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tailored Brands, Inc. |
| $ | 100.00 |
| $ | 167.71 |
| $ | 164.61 |
| $ | 49.64 |
| $ | 73.62 |
| $ | 91.61 |
|
S&P 500 Index |
|
| 100.00 |
|
| 120.30 |
|
| 137.42 |
|
| 136.50 |
|
| 164.99 |
|
| 202.66 |
|
Select Group(1) |
|
| 100.00 |
|
| 113.40 |
|
| 138.35 |
|
| 141.85 |
|
| 139.29 |
|
| 152.79 |
|
| (1) |
| For purposes of this graph, the select group currently consists of the following companies: Abercrombie & Fitch Co., American Eagle Outfitters, Inc., Boot Barn Holdings, Inc., Burlington Stores, Inc., Caleres, Inc., Chico’s FAS, Inc., |
The foregoing graph is based on historical data and is not necessarily indicative of future performance.
2527
ITEM 6. SELECTED FINANCIAL DATA
The following selected statement of earnings (loss) data and, balance sheet and cash flow information for the fiscal years indicated has been derived from our audited consolidated financial statements. The Selected Financial Data should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statementsconsolidated financial statements and notes thereto. Effective January��31, 2016, Tailored Brands, Inc., became the successor reporting company to The Men’s Wearhouse, Inc. pursuant to a holding company reorganization. Amounts in the following tables for periods prior to January 31, 2016, refer to Men’s Wearhouse, which was the parent company and the registrant prior to the reorganization, and, for periods after the reorganization, to Tailored Brands, which is the current parent holding company, in each case including its consolidated subsidiaries.
References herein to years are to the Company’s 52‑week52-week or 53‑week53-week fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. For example, references to “2017”“2019” mean the fiscal year ended February 3, 2018.1, 2020. All fiscal years for which financial information is included herein had 52 weeks with the exception of fiscal 2017, which ended on February 3, 2018 and had 53 weeks. Amounts presented for all periods in the following tables excludes our corporate apparel business, which is presented as discontinued operations. See Note 2 for additional information.
|
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|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| |||||||||||||||||||||
|
| (Dollars and shares in thousands, except per share and per |
| |||||||||||||||||||||||||||||
|
| square foot data) |
| |||||||||||||||||||||||||||||
Statement of Earnings (Loss) Data(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
| | | | | | | | | | | | | | | | | ||||||||||||||||
|
| 2019 (1) |
| 2018 (2) |
| 2017 |
| 2016 |
| 2015 |
| |||||||||||||||||||||
| | (Dollars and shares in thousands, except per share and per |
| |||||||||||||||||||||||||||||
| | square foot data) |
| |||||||||||||||||||||||||||||
Statement of Earnings (Loss) Data: | | | | | | | | | | | | | | | | | ||||||||||||||||
Total net sales |
| $ | 3,304,346 |
| $ | 3,378,703 |
| $ | 3,496,271 |
| $ | 3,252,548 |
| $ | 2,473,233 |
| | $ | 2,881,261 | | $ | 3,004,511 | | $ | 3,053,021 | | $ | 3,098,401 | | $ | 3,252,474 | |
Total gross margin |
|
| 1,408,766 |
|
| 1,441,468 |
|
| 1,484,423 |
|
| 1,358,614 |
|
| 1,089,010 |
| |
| 1,168,612 | |
| 1,310,608 | |
| 1,341,428 | |
| 1,352,958 | |
| 1,413,459 | |
Goodwill and intangible asset impairment charges |
|
| 1,500 |
|
| — |
|
| 1,243,354 |
|
| — |
|
| 11,349 |
| |
| — | |
| — | |
| 1,500 | |
| — | |
| 1,243,354 | |
Operating income (loss) |
|
| 229,416 |
|
| 132,826 |
|
| (1,077,296) |
|
| 73,210 |
|
| 129,628 |
| |
| 97,838 | |
| 225,562 | |
| 216,096 | |
| 106,222 | |
| (1,086,029) | |
Net earnings (loss) attributable to common shareholders |
|
| 96,703 |
|
| 24,956 |
|
| (1,026,719) |
|
| (387) |
|
| 83,791 |
| ||||||||||||||||
Net earnings (loss) from continuing operations | |
| 25,367 | |
| 98,596 | |
| 87,017 | |
| 7,158 | |
| (1,034,799) | | ||||||||||||||||
Per Common Share Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Diluted net earnings (loss) per common share allocated to common shareholders |
| $ | 1.95 |
| $ | 0.51 |
| $ | (21.26) |
| $ | (0.01) |
| $ | 1.70 |
| ||||||||||||||||
Diluted net earnings (loss) from continuing operations per common share allocated to common shareholders | | $ | 0.51 | | $ | 1.94 | | $ | 1.76 | | $ | 0.15 | | $ | (21.43) | | ||||||||||||||||
Cash dividends declared |
| $ | 0.72 |
| $ | 0.72 |
| $ | 0.72 |
| $ | 0.72 |
| $ | 0.72 |
| | $ | 0.36 | | $ | 0.72 | | $ | 0.72 | | $ | 0.72 | | $ | 0.72 | |
Weighted-average common shares outstanding—diluted |
|
| 49,468 |
|
| 48,786 |
|
| 48,288 |
|
| 47,899 |
|
| 49,162 |
| |
| 49,929 | |
| 50,725 | |
| 49,468 | |
| 48,786 | |
| 48,288 | |
Operating Information: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| | | | | | | | | | | | | | | | |
Percentage increase/(decrease) in comparable sales(3): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Percentage increase/(decrease) in comparable sales(4): | | | | | | | | | | | | | | | | | ||||||||||||||||
Men’s Wearhouse |
|
| (1.1)% |
|
| (0.6)% |
|
| 4.9% |
|
| 3.9% |
|
| 0.7% |
| |
| (3.5)% | |
| 0.8% | |
| (1.1)% | |
| (0.6)% | |
| 4.9% | |
Jos. A. Bank |
|
| 5.4% |
|
| (9.5)% |
|
| (16.3)% |
|
| — |
|
| — |
| |
| (2.3)% | |
| 1.4% | |
| 5.4% | |
| (9.5)% | |
| (16.3)% | |
Moores |
|
| (2.0)% |
|
| (2.6)% |
|
| (1.7)% |
|
| 8.6% |
|
| (4.1)% |
| |
| (5.4)% | |
| 2.4% | |
| (2.0)% | |
| (2.6)% | |
| (1.7)% | |
K&G |
|
| (3.1)% |
|
| (2.4)% |
|
| 5.0% |
|
| 3.7% |
|
| (5.5)% |
| |
| (0.3)% | |
| 1.5% | |
| (3.1)% | |
| (2.4)% | |
| 5.0% | |
Average net sales per square foot(4): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Average net sales per square foot(5): | | | | | | | | | | | | | | | | | ||||||||||||||||
Men’s Wearhouse |
| $ | 407 |
| $ | 407 |
| $ | 411 |
| $ | 399 |
| $ | 386 |
| | $ | 388 | | $ | 404 | | $ | 407 | | $ | 407 | | $ | 411 | |
Jos. A. Bank |
| $ | 267 |
| $ | 252 |
| $ | 261 |
|
| — |
|
| — |
| | $ | 259 | | $ | 265 | | $ | 267 | | $ | 252 | | $ | 261 | |
Moores |
| $ | 355 |
| $ | 368 |
| $ | 370 |
| $ | 372 |
| $ | 345 |
| | $ | 341 | | $ | 357 | | $ | 355 | | $ | 368 | | $ | 370 | |
K&G |
| $ | 156 |
| $ | 156 |
| $ | 160 |
| $ | 152 |
| $ | 145 |
| | $ | 158 | | $ | 162 | | $ | 156 | | $ | 156 | | $ | 160 | |
Average square footage(5): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Average square footage(6): | | | | | | | | | | | | | | | | | ||||||||||||||||
Men’s Wearhouse |
|
| 5,616 |
|
| 5,620 |
|
| 5,642 |
|
| 5,667 |
|
| 5,710 |
| |
| 5,613 | |
| 5,613 | |
| 5,616 | |
| 5,620 | |
| 5,642 | |
Men’s Wearhouse and Tux |
|
| 1,510 |
|
| 1,483 |
|
| 1,397 |
|
| 1,387 |
|
| 1,387 |
| |
| 1,489 | |
| 1,496 | |
| 1,510 | |
| 1,483 | |
| 1,397 | |
Jos. A. Bank |
|
| 4,698 |
|
| 4,715 |
|
| 4,665 |
|
| 4,653 |
|
| — |
| |
| 4,716 | |
| 4,711 | |
| 4,698 | |
| 4,715 | |
| 4,665 | |
Moores |
|
| 6,250 |
|
| 5,897 |
|
| 6,289 |
|
| 6,334 |
|
| 6,358 |
| |
| 6,186 | |
| 6,249 | |
| 6,250 | |
| 5,897 | |
| 6,289 | |
K&G |
|
| 22,945 |
|
| 23,226 |
|
| 23,619 |
|
| 23,784 |
|
| 23,710 |
| |
| 22,896 | |
| 22,357 | |
| 22,945 | |
| 23,226 | |
| 23,619 | |
26
28
| | | | | | | | | | | | | | | | | ||
|
| 2019 |
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| |||||||
| | (Dollars in thousands) |
| |||||||||||||||
Number of retail stores: | | | | | | | | | | | | | | | | | ||
Open at beginning of the period |
| | 1,464 | | | 1,477 |
| | 1,667 |
| | 1,724 |
| | 1,758 | | ||
Opened(7) |
| | 3 | | | 3 |
| | 4 |
| | 178 |
| | 42 | | ||
Closed |
| | (17) | | | (16) |
| | (194) |
| | (235) |
| | (76) | | ||
Open at end of the period |
| | 1,450 |
| | 1,464 |
| | 1,477 |
| | 1,667 |
| | 1,724 | | ||
Men’s Wearhouse(8) |
| | 717 | | | 720 |
| | 719 |
| | 716 |
| | 714 | | ||
Men’s Wearhouse and Tux |
| | 44 | | | 46 |
| | 51 |
| | 58 |
| | 160 | | ||
Tuxedo Shops @ Macy’s |
| | — | | | — |
| | — |
| | 170 |
| | 12 | | ||
Jos. A. Bank(9) |
| | 474 | | | 484 |
| | 491 |
| | 506 |
| | 625 | | ||
Moores |
| | 126 | | | 126 |
| | 126 |
| | 126 |
| | 124 | | ||
K&G |
| | 89 | | | 88 |
| | 90 |
| | 91 |
| | 89 | | ||
Total |
| | 1,450 |
| | 1,464 |
| | 1,477 |
| | 1,667 |
| | 1,724 | | ||
Cash Flow Information: | | | | | | | | | | | | | | | | | ||
Capital expenditures | | $ | 85,811 | | $ | 78,608 | | $ | 91,552 | | $ | 96,254 | | $ | 111,419 | | ||
Depreciation and amortization | |
| 102,622 | |
| 99,743 | | | 101,911 | |
| 110,566 | |
| 127,437 | | ||
Repurchases of common stock | |
| 10,000 | |
| — | | | — | |
| — | |
| 277 | | ||
| | | | | | | | | | | | | | | | |
|
| February 1, |
| February 2, |
| February 3, |
| January 28, |
| January 30, |
| |||||
| | 2020 | | 2019 | | 2018 | | 2017 | | 2016 |
| |||||
Balance Sheet Information: | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | 14,420 | | $ | 32,671 | | $ | 84,271 | | $ | 42,248 | | $ | 9,699 | |
Inventories | |
| 696,657 | |
| 724,086 | |
| 732,924 | |
| 844,036 | |
| 906,662 | |
Working capital | |
| 206,388 | |
| 359,696 | |
| 549,135 | |
| 574,304 | |
| 594,792 | |
Total assets | |
| 2,418,959 | |
| 1,624,043 | |
| 1,761,606 | |
| 1,872,827 | |
| 2,009,787 | |
Long-term debt, including current portion | |
| 1,103,398 | |
| 1,164,861 | |
| 1,396,808 | |
| 1,595,529 | |
| 1,655,924 | |
Total (deficit) equity | |
| (98,306) | |
| 3,631 | |
| 2,192 | |
| (107,618) | |
| (100,086) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| 2013 |
| |||||
|
| (Dollars in thousands) |
| |||||||||||||
Number of retail stores: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at beginning of the period |
|
| 1,667 |
|
| 1,724 |
|
| 1,758 |
|
| 1,124 |
|
| 1,143 |
|
Acquired from Jos. A. Bank(6) |
|
| — |
|
| — |
|
| — |
|
| 624 |
|
| — |
|
Opened(7) |
|
| 4 |
|
| 178 |
|
| 42 |
|
| 60 |
|
| 25 |
|
Closed |
|
| (194) |
|
| (235) |
|
| (76) |
|
| (50) |
|
| (44) |
|
Open at end of the period |
|
| 1,477 |
|
| 1,667 |
|
| 1,724 |
|
| 1,758 |
|
| 1,124 |
|
Men’s Wearhouse(8) |
|
| 719 |
|
| 716 |
|
| 714 |
|
| 698 |
|
| 661 |
|
Men’s Wearhouse and Tux |
|
| 51 |
|
| 58 |
|
| 160 |
|
| 210 |
|
| 248 |
|
Tuxedo Shops @ Macy’s |
|
| — |
|
| 170 |
|
| 12 |
|
| — |
|
| — |
|
Jos. A. Bank(6) |
|
| 491 |
|
| 506 |
|
| 625 |
|
| 636 |
|
| — |
|
Moores |
|
| 126 |
|
| 126 |
|
| 124 |
|
| 123 |
|
| 121 |
|
K&G |
|
| 90 |
|
| 91 |
|
| 89 |
|
| 91 |
|
| 94 |
|
Total |
|
| 1,477 |
|
| 1,667 |
|
| 1,724 |
|
| 1,758 |
|
| 1,124 |
|
Cash Flow Information(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
| $ | 94,958 |
| $ | 99,694 |
| $ | 115,498 |
| $ | 96,420 |
| $ | 108,200 |
|
Depreciation and amortization |
|
| 106,493 |
|
| 115,205 |
|
| 132,329 |
|
| 112,659 |
|
| 88,749 |
|
Repurchases of common stock |
|
| — |
|
| — |
|
| 277 |
|
| 251 |
|
| 152,129 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| February 3, |
| January 28, |
| January 30, |
| January 31, |
| February 1, |
| |||||
|
| 2018 |
| 2017 |
| 2016 |
| 2015 |
| 2014 |
| |||||
Balance Sheet Information(1): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
| $ | 103,607 |
| $ | 70,889 |
| $ | 29,980 |
| $ | 62,261 |
| $ | 59,252 |
|
Inventories |
|
| 851,931 |
|
| 955,512 |
|
| 1,022,504 |
|
| 938,336 |
|
| 599,486 |
|
Working capital |
|
| 669,809 |
|
| 705,797 |
|
| 723,593 |
|
| 752,261 |
|
| 479,808 |
|
Total assets |
|
| 1,999,955 |
|
| 2,097,872 |
|
| 2,244,319 |
|
| 3,508,212 |
|
| 1,555,230 |
|
Long-term debt, including current portion |
|
| 1,396,808 |
|
| 1,595,529 |
|
| 1,655,924 |
|
| 1,648,686 |
|
| 97,500 |
|
Total equity (deficit) |
|
| 2,192 |
|
| (107,618) |
|
| (100,086) |
|
| 969,789 |
|
| 1,023,149 |
|
| (1) |
|
|
| (2) |
| Effective February 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all related amendments (“ASC 606”), to all contracts using the modified retrospective approach. The comparative period information has not been restated and continues to be reported under the accounting standards in effect for the periods presented. See Note 7 |
| (3) | On March 3, 2018, we divested the MW Cleaners business; see Note 3 of the consolidated financial statements for additional information. In addition, during 2015, the performance of Jos. A. Bank was far below our expectations. As a result, we recorded a total of $1.24 billion in goodwill and intangible asset impairment charges. |
| (4) |
| Comparable sales is defined as net sales from stores open at least twelve months at period end, excluding stores where the square footage has changed by more than 25% within the past year, and |
| (5) |
| Average net sales per square foot is calculated by dividing total square footage for all stores owned or open the entire year into net sales for those stores. The calculation for Men’s Wearhouse includes Men’s Wearhouse and Tux stores and excludes tuxedo shops within Macy’s. For comparability purposes, the calculation for Jos. A. Bank excludes factory stores for all periods presented. The calculation for Moores is based upon the Canadian dollar. For fiscal 2017, the calculation excludes total sales for the 53rd week. |
| (6) |
| Average square footage is calculated by dividing the total square footage for all stores open at the end of the period by the number of stores open at the end of such period. For comparability purposes, the Jos. A. Bank information excludes factory stores for all periods presented. |
| (7) |
|
|
| For 2016 and 2015 includes 158 and 12 tuxedo shops within Macy’s, respectively. |
| (8) |
|
|
| (9) | Excludes 14 franchise stores for all periods presented. |
2729
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
Background
We are thea leading omni-channel specialty retailer of men’s tailored clothingmenswear, including suits, formalwear, and the largest men’s formalwear provider in the United Statesa broad selection of polished and business casual offerings. We help our customers look and feel their best by delivering personalized products and services through our convenient network of stores and e-commerce sites. Our brands include Men’s Wearhouse, Jos. A. Bank, Moores Clothing for Men (“U.S.”Moores”) and Canada and help men dress for work and special occasions. We serve our customers through an expansive omni-channel network that includes over 1,400 locations in the U.S. and Canada as well as our branded e-commerce websites at www.menswearhouse.com, www.josbank.com, and www.josephabboud.com.K&G.
Our U.S. retail stores are operatedoperate under the Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank, Joseph Abboud and K&G brand names and are operatedlocated in 50 states and the District of Columbia and Puerto Rico.Columbia. Our Canadian stores are operatedoperate under the Moores brand name and operateare located in 10 Canadian provinces. As of February 3, 2018,1, 2020, the Company operated 1,4771,450 stores throughout the U.S., Puerto Rico and Canada. In addition, at February 3, 2018, we operated 38 retail dry cleaning, laundry and heirlooming facilities through MW Cleaners in Texas. On February 28, 2018, we entered into a definitive agreement to divest our MW Cleaners business
See Note 2 of the consolidated financial statements for approximately $18.0 million, subject to certain adjustments, andinformation concerning the transaction closed on March 3, 2018.
In June 2015, we entered into an agreement with Macy’s, Inc. to operate men’s tuxedo rental shops inside Macy’s department stores. During the first quarterdivestiture of fiscal 2017, we reached an agreement with Macy’s to wind down these operations. All 170 tuxedo shops within Macy’s closed in the second quarter of 2017.
Additionally, we operate an international corporate apparel business with operations in both the United Kingdom (“UK”) and the U.S. Our UK-based business is the largest provider of corporate apparel in the UK under the Dimensions, Alexandra and Yaffy brands. In the U.S., our corporate apparel business operates underon August 16, 2019. Subsequent to this divestiture, we reassessed our segment presentation and determined that the Twin Hill brand name. Our corporate apparel business provides corporate clothing uniformsresults of our four retail brands, Men’s Wearhouse, Jos. A. Bank, Moores and workwearK&G are separate operating segments that should continue to workforces through multiple channels including managed corporate accounts, catalogsbe aggregated into a reportable segment and, the internet at www.dimensions.co.uk, www.alexandra.co.uk, and www.twinhill.com.
We operate twoas a result, we have only one reportable segments as determined by the way we manage, evaluate and internally report our business activities: Retail and Corporate Apparel. See Item 1, “Business” of this Annual Report on Form 10‑K as well as Note 17 of Notes to Consolidated Financial Statements and the discussion included in “Results of Operations” below for additional information and disclosures regarding our reporting segments.segment.
All fiscal years for which financial information is included herein had 52 weeks with the exception of fiscal 2017, which ended on February 3, 2018 and had 53 weeks.
Summary of Fiscal 2019 Financial Performance
During fiscal 2017,2019, we delivered positive comparablefocused our efforts to position the Company for long-term success by executing on our three key strategic initiatives: (1) offering personalized products and services, (2) providing inspiring and seamless experiences in and across every channel and (3) telling the stories of our brands in the digital channels where our customers are increasingly spending their time. Although we believe we are making progress on these initiatives, we experienced lower than anticipated full year net sales for our retail brands asand gross margins in fiscal 2019, primarily related to a whole, with Men’s Wearhouse comparable sales improving throughout the year and turning positive in our fourth quarter, and Jos. A. Bank reporting positive mid-single-digit comparable sales for the year. We believe our strategy to engage more customers across all channels and to drive customer traffic helped us deliver improvement3% decrease in comparable sales and increased promotional activities.
From a balance sheet and liquidity perspective, we plantook several actions intended to build on theseaccelerate debt reduction and provide additional financial flexibility to invest in our customer-facing transformation strategies.
We launched new marketing campaigns to build awareness aboutThese actions included: 1) the products and services we provide to men of all shapes and sizes which we believe is bringing new customers into our stores where we provide them with superior service and selection, including custom suiting at a highly competitive price. In fiscal 2017, we also continued to grow our custom business and enhance our omni-channel capabilities, both online and in-store. These initiatives are partsale of our strategycorporate apparel business with the proceeds used to deliver a superior customer experience in order to increase market share and drive long-term sustainable growth. In fiscal 2017, our custom clothing business more than doubled versus the prior year to over $100repurchase approximately $55 million or approximately 4% of retail clothing product net sales.
We also continued to make progress toward strengthening our balance sheet. During fiscal 2017, we reduced our outstanding debt by approximately $200 million by repurchasing and retiring over $150 million face value of our senior notes, 2) suspension of our quarterly cash dividend, which will make available approximately $36.5 million of cash on an annualized basis and repaying over $503) an agreement to sell the Joseph Abboud trademarks for $115 million, which closed on March 4, 2020. Per the provisions of our term loan. In 2018,loan, we plan to furtherreinvest these proceeds in our business.
Recent Developments
Fiscal 2020 got off to a solid start, with total retail comparable sales up 2.4% for the month of February and all brands positive. However, beginning in early March 2020, a major global health pandemic related to the outbreak of the novel coronavirus (“COVID-19”) resulted in a significant decrease in store traffic and comparable sales as well as cancellations of high school proms and other special events, coinciding with heightened actions taken by governments and citizens to curb the spread of virus. In response, we are taking aggressive and prudent actions to reduce expenses, and defer discretionary capital expenditures and inventory purchases to preserve our debt, invest behindcash.
On March 16, 2020, in an abundance of caution and as a proactive measure, we executed a borrowing of $260.0 million under our growth initiativesABL Facility. Furthermore, after assessing the remaining availability under the ABL Facility and returndetermining that additional borrowings were prudent to maximize cash on hand, on March 19, 2020 and on March 31, 2020, respectively, we borrowed an additional $25.0 million under the ABL Facility.
On March 17, 2020, we announced the temporary closure of our retail locations in the U.S. and Canada starting March 17, 2020 through March 28, 2020. On March 19, 2020, we announced the closure of our e-commerce fulfillment centers starting March 20, 2020 through March 28, 2020. On March 26, 2020, we extended the temporary closing of our retail stores until at least May 4, 2020. In conjunction with our decision to extend the temporary closure of our stores, we also furloughed all of our U.S. store employees as well as a significant portion of employees in our U.S. distribution network
30
and offices, and we implemented the temporary layoff of all Canadian store employees and a significant portion of Canadian employees in our Canadian distribution network and offices. Furthermore, in light of our store closures, we have taken certain actions with respect to some or all of our existing leases, including engaging with landlords to discuss rent reductions and/or rent deferrals, or discontinuing payment.
Effective March 29, 2020, the base salary of our Chief Executive Officer will be reduced by 50%. The base salary of all other named executive officers and other executives directly reporting to our shareholders via our dividend.
28
Key operating metrics for the year ended February 3, 2018 include:
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|
|
Key liquidity metrics for the year ended February 3, 2018 include:
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|
Items Affecting Comparability of Results
The comparabilityother members of our resultssenior management team will be also be reduced. The Board of Directors has been impactedalso agreed to a 50% reduction in its retainer fees. Effective April 5, 2020, all employees with a base salary in excess of $100,000 will have their salaries reduced by certain items, including costs to terminate10%.
On March 31, 2020, we announced that, after instituting enhanced social distancing and sanitation protocols that meet or exceed those recommended by the Centers for Disease Control and Prevention (“CDC”), our tuxedo rental license agreement with Macy’s, restructuring and other costs related to our store rationalization program and profit improvement programs, asset impairment charges related to tuxedo shops within Macy’s, the 2015 impairment of Jos. A. Bank’s goodwill and other intangible assets, and purchase accounting, acquisition and integration costs for Jos. A. Bank. A summary of the effect of these items on pretax income for each applicable fiscal year is presented below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Year | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Costs to terminate Macy's agreement (1) |
| $ | 16.0 |
| $ | — |
| $ | — |
Asset impairment charges related to tuxedo shops within Macy's |
|
| 1.2 |
|
| 14.0 |
|
| — |
Impairment of goodwill and intangible assets |
|
| 1.5 |
|
| — |
|
| 1,243.4 |
Restructuring and other charges (2) |
|
| — |
|
| 68.1 |
|
| 35.9 |
Integration costs related to Jos. A. Bank |
|
| — |
|
| 8.8 |
|
| 18.7 |
Purchase accounting charges related to Jos. A. Bank |
|
| — |
|
| — |
|
| 10.7 |
Loss on extinguishment of debt |
|
| — |
|
| — |
|
| 12.7 |
Other (3) |
|
| — |
|
| 5.4 |
|
| 7.1 |
Total |
| $ | 18.7 |
| $ | 96.3 |
| $ | 1,328.5 |
|
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|
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|
|
The following table summarizes the costs in the above table by line item in our statements of earnings (loss):
|
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|
|
|
|
|
|
|
|
| Fiscal Year | |||||||
|
| 2017 |
| 2016 |
| 2015 | |||
Cost of sales |
| $ | 1.4 |
| $ | (1.3) |
| $ | 14.4 |
Selling, general and administrative expenses |
|
| 14.6 |
|
| 78.2 |
|
| 30.8 |
Goodwill and intangible asset impairment charges |
|
| 1.5 |
|
| — |
|
| 1,243.4 |
Asset impairment charges |
|
| 1.2 |
|
| 19.4 |
|
| 27.2 |
Loss on extinguishment of debt |
|
| — |
|
| — |
|
| 12.7 |
Total |
| $ | 18.7 |
| $ | 96.3 |
| $ | 1,328.5 |
29
2018 Initiatives
In fiscal 2018, we remain focused on three key growth strategies: expand our custom business and make buying a custom suit as easy and affordable as buying a suit off the rack, strengthen our brands and grow market share by communicating the quality selection and service we provide at a great value, and enhance our omni-channel experience by combining the high-touch service we offer in our stores with the convenience of online shopping.
Store Information
During fiscal 2017, we opened four Men’s Wearhouse stores and closed 194 stores/tuxedo shops (170 shops within Macy’s, 15 Jos. A. Bank stores, seven Men’s Wearhouse and Tux stores, one Men’s Wearhouse store and one K&G store). The closure of the 194 stores was largely the result of our agreement with Macy’s to wind down operations of our tuxedo shops within Macy’s. In the future, wee-commerce fulfillment centers were reopened. We will continue to monitor this ongoing situation, relying on recommendations from the CDC, the World Health Organization (“WHO”) and government officials to regularly evaluate the renewed operations at our store fleet for opportunities to optimizee-commerce fulfillment centers and determine when currently closed facilities will reopen.
While we cannot reasonably estimate the impact of COVID-19 on our cost structure.
In fiscal 2018, we plan to open approximately three new Men’s Wearhouse stores and to relocate approximately eight existing stores across our retail brands. We also plan to close eight Jos. A. Bank stores, two Men’s Wearhouse and Tux stores, two K&G stores and one Men’s Wearhouse store.
Results of Operations
The following table sets forth ourfinancial position, results of operations expressed asand cash flows, we do expect such impact to be significantly negative. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain, including, among others, the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities, to contain the pandemic or treat its impact. As events are rapidly changing, additional impacts may arise that we are not aware of currently.
Key Performance Indicators
We consider a percentagevariety of operational and financial measures in assessing the performance of our business. The key measures we use to determine how our business is performing are net sales, for the periods indicated:
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| Fiscal Year(1) |
| ||||
|
| 2017 |
| 2016 |
| 2015 |
|
Net sales: |
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|
|
Retail clothing product |
| 73.8 | % | 72.4 | % | 74.4 | % |
Rental services |
| 13.0 |
| 13.5 |
| 12.7 |
|
Alteration and other services |
| 5.6 |
| 5.8 |
| 6.0 |
|
Total retail sales |
| 92.4 |
| 91.7 |
| 93.0 |
|
Corporate apparel clothing product |
| 7.6 |
| 8.3 |
| 7.0 |
|
Total net sales |
| 100.0 | % | 100.0 | % | 100.0 | % |
Cost of sales(2): |
|
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|
Retail clothing product |
| 44.4 |
| 44.7 |
| 44.6 |
|
Rental services |
| 16.3 |
| 18.1 |
| 17.3 |
|
Alteration and other services |
| 75.7 |
| 70.2 |
| 69.7 |
|
Occupancy costs |
| 13.6 |
| 13.9 |
| 14.0 |
|
Total retail cost of sales |
| 56.0 |
| 56.3 |
| 56.5 |
|
Corporate apparel clothing product |
| 73.8 |
| 68.7 |
| 71.1 |
|
Total cost of sales |
| 57.4 |
| 57.3 |
| 57.5 |
|
Gross margin(2): |
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|
Retail clothing product |
| 55.6 |
| 55.3 |
| 55.4 |
|
Rental services |
| 83.7 |
| 81.9 |
| 82.7 |
|
Alteration and other services |
| 24.3 |
| 29.8 |
| 30.3 |
|
Occupancy costs |
| (13.6) |
| (13.9) |
| (14.0) |
|
Total retail gross margin |
| 44.0 |
| 43.7 |
| 43.5 |
|
Corporate apparel clothing product |
| 26.2 |
| 31.3 |
| 28.9 |
|
Total gross margin |
| 42.6 |
| 42.7 |
| 42.5 |
|
Advertising expense |
| 5.2 |
| 5.6 |
| 5.9 |
|
Selling, general and administrative expenses |
| 30.3 |
| 32.5 |
| 31.1 |
|
Goodwill and intangible asset impairment charges |
| 0.0 |
| — |
| 35.6 |
|
Asset impairment charges |
| 0.1 |
| 0.6 |
| 0.8 |
|
Operating income (loss) |
| 6.9 |
| 3.9 |
| (30.8) |
|
Interest income |
| 0.0 |
| 0.0 |
| 0.0 |
|
Interest expense |
| (3.0) |
| (3.1) |
| (3.0) |
|
Gain (loss) on extinguishment of debt, net |
| 0.2 |
| 0.1 |
| (0.4) |
|
Earnings (loss) before income taxes |
| 4.1 |
| 0.9 |
| (34.2) |
|
Provision (benefit) for income taxes |
| 1.2 |
| 0.2 |
| (4.8) |
|
Net earnings (loss) |
| 2.9 | % | 0.7 | % | (29.4) | % |
|
|
|
|
30
2017 Compared with 2016
Net Sales
Total netcomparable sales, decreased $74.4 million, or 2.2%, to $3,304.3 million for fiscal 2017 as compared to fiscal 2016.
Total retail sales decreased $45.4 million, or 1.5%, to $3,053.0 million for fiscal 2017 as compared to fiscal 2016 due to a $6.1 million decrease in clothing product revenues, a $29.1 million decrease in rental services revenuegross margin, operating income and a $10.2 million decrease in alteration and other services revenues. The decrease in total retail sales is further described below:earnings per share.
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Comparable sales is defined as net sales (excluding alteration and other services sales) from stores open at least twelve12 months at period end, excluding stores where the square footage has changed by more than 25% within the past year, and includes e-commerce sales. WeWhile our customers may engage with us through multiple channels, we operate our business using an omni‑channelomni-channel approach and do not differentiate e‑commercee-commerce sales from our other channels.
We believe that comparable sales is a useful measure as it allows management and investors to evaluate the sales performance of our business while eliminating the impact of new and closed stores. Management uses comparable sales to evaluate the effectiveness of our selling and merchandising strategies and to compare our performance against that of other peer companies using similar measures.
Definitions and calculations of comparable sales differ among companies in the retail industry; therefore comparable sales metrics disclosed by us may not be comparable to similar data disclosed by other retailers.
Key Metrics for Fiscal 2019
Key operating metrics for continuing operations for the year ended February 1, 2020 include:
| ● | Net sales decreased 4.1% primarily due to a decrease of 3.0% in comparable sales and the impact of a $17.6 million reduction of the deferred revenue liability as a result of changes made to our loyalty programs during the fourth quarter of 2018. |
| ● | Total comparable sales decreased 3.0% with Men’s Wearhouse decreasing 3.5%, Jos. A. Bank decreasing 2.3%, Moores decreasing 5.4% and K&G decreasing 0.3%. |
| ● | As a percentage of sales, gross margin decreased 300 basis points primarily as a result of increased promotional activities and deleveraging of occupancy costs. |
| ● | Operating income was $97.8 million in fiscal 2019, compared to operating income of $225.6 million in fiscal 2018. |
| ● | Diluted earnings per share were $0.51 in fiscal 2019, compared to diluted earnings per share of $1.94 in fiscal 2018. |
31
Key liquidity metrics for the year ended February 1, 2020 include:
| ● | Cash and cash equivalents at the end of fiscal 2019 were $14.4 million, a decrease of $18.3 million compared to the end of fiscal 2018, primarily due to the decrease in sales and the use of cash on hand for costs related to our multi-year cost savings and operational excellence programs, and debt reduction. |
| ● | Cash provided by operating activities was $99.6 million in fiscal 2019 compared to $322.7 million in fiscal 2018. The decrease was primarily driven by lower net earnings after adjusting for non-cash items other than non-cash lease expense and timing fluctuations in accounts payable, accrued liabilities and other current liabilities. |
| ● | Capital expenditures were $88.5 million in fiscal 2019 compared to $82.3 million in fiscal 2018. |
| ● | Total debt at the end of fiscal 2019 was approximately $1.1 billion, down $61.5 million compared to the end of fiscal 2018. During fiscal 2019, we repurchased and retired $54.8 million in face value of our 7% Senior Notes due 2022 (“Senior Notes”) and repaid $9.4 million on our Term Loan Facility (“Term Loan”). |
| ● | We had $50.0 million borrowings outstanding on our revolving credit facility as of February 1, 2020. |
| ● | We repurchased 2.4 million shares for a total of $10.0 million at an average price of $4.28. |
Items Affecting Comparability of Results from Continuing Operations
The following table depicts the effect on pretax income from continuing operations related to certain items that have impacted the comparability of our results in 2019, 2018 and 2017 (dollars in millions):
| | | | | | | | | |
| | Fiscal Year | |||||||
| | 2019 |
| 2018 |
| 2017 | |||
Costs related to multi-year cost savings and operational excellence programs (1) | | $ | 27.1 | | $ | — | | $ | — |
Costs related to the agreement to sell the Joseph Abboud trademarks(2) | | | 17.4 | | | — | | | — |
Loss on extinguishment of debt (3) | | | — | | | 29.4 | | | — |
Loyalty program changes(4) | | | — | | | (17.6) | | | — |
CEO retirement costs | | | — | | | 6.4 | | | — |
Closure of rental product distribution center(5) | | | — | | | 5.0 | | | — |
Loss on divestiture of MW Cleaners(6) | | | — | | | 3.8 | | | — |
Costs to terminate Macy's agreement(7) | | | — | | | — | | | 16.0 |
Goodwill impairment charge | | | — | | | — | | | 1.5 |
Asset impairment charges related to tuxedo shops within Macy's | | | — | | | — | | | 1.2 |
Total | | $ | 44.5 | | $ | 27.0 | | $ | 18.7 |
| (1) | Consists of $17.9 million in consulting costs, $5.7 million in severance costs, $2.9 million of rental product write-offs related to the closure of a distribution center in Canada and $0.6 million in lease termination costs. |
| (2) | Consists of a $13.4 million write-off of inventory related to the closure of the Joseph Abboud store and e-commerce site, $2.6 million of impairment/accelerated depreciation charges for the Joseph Abboud store and $1.4 million of other transaction-related costs. |
| (3) | Consists of $11.9 million related to the refinancing of our Term Loan, $9.4 million related to the repricing of the Term Loan, and $8.1 million related to the partial redemption of our Senior Notes. See Note 6 of the consolidated financial statements for additional information. |
| (4) | Consists of afavorable non-cash adjustment to net sales totaling $17.6 million reflecting the impact of changes made to our loyalty programs in the fourth quarter of 2018. See Note 7 of the consolidated financial statements for additional information. |
| (5) | Consists of $4.0 million of rental product write-offs, $0.4 million of severance costs, $0.3 million of closure related costs and $0.3 million of accelerated depreciation. |
| (6) | See Note 3 of the consolidated financial statements for additional information. |
| (7) | See Note 4 of the consolidated financial statements for additional information. |
32
The following table summarizes the items in the above table by line item in our statements of (loss) earnings:
| | | | | | | | | |
| | Fiscal Year | |||||||
| | 2019 |
| 2018 |
| 2017 | |||
Net sales | | $ | — | | $ | (17.6) | | $ | — |
Cost of sales | | | 16.5 | | | 4.1 | | | 1.4 |
Selling, general and administrative expenses | | | 28.0 | | | 11.1 | | | 15.8 |
Goodwill impairment charge | |
| — | |
| — | |
| 1.5 |
Loss on extinguishment of debt | |
| — | |
| 29.4 | |
| — |
Total | | $ | 44.5 | | $ | 27.0 | | $ | 18.7 |
Store Information
During fiscal 2019, we opened two Men’s Wearhouse stores and one K&G store and closed 17 stores (ten Jos. A. Bank stores, five Men’s Wearhouse stores, and two Men’s Wearhouse and Tux stores).
Results of Operations
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:
| | | | | | | |
| | Fiscal Year(1) | | ||||
| | 2019 |
| 2018 |
| 2017 |
|
Net sales: | | | | | | | |
Retail clothing product | | 81.9 | % | 81.7 | % | 79.9 | % |
Rental services | | 13.3 | | 13.3 | | 14.0 | |
Alteration and other services | | 4.8 | | 5.0 | | 6.1 | |
Total net sales | | 100.0 | % | 100.0 | % | 100.0 | % |
Cost of sales(2): | | | | | | | |
Retail clothing product | | 47.0 | | 44.6 | | 44.5 | |
Rental services | | 14.8 | | 14.8 | | 16.3 | |
Alteration and other services | | 94.9 | | 88.0 | | 75.7 | |
Occupancy costs | | 14.4 | | 13.5 | | 13.6 | |
Total cost of sales | | 59.4 | | 56.4 | | 56.1 | |
Gross margin(2): | | | | | | | |
Retail clothing product | | 53.0 | | 55.4 | | 55.5 | |
Rental services | | 85.2 | | 85.2 | | 83.7 | |
Alteration and other services | | 5.1 | | 12.0 | | 24.3 | |
Occupancy costs | | (14.4) | | (13.5) | | (13.6) | |
Total gross margin | | 40.6 | | 43.6 | | 43.9 | |
Advertising expense | | 5.5 | | 5.5 | | 5.6 | |
Selling, general and administrative expenses | | 31.6 | | 30.6 | | 31.2 | |
Goodwill impairment charge | | — | | — | | 0.0 | |
Operating income | | 3.4 | | 7.5 | | 7.1 | |
Interest income | | 0.0 | | 0.0 | | 0.0 | |
Interest expense | | (2.5) | | (2.6) | | (3.3) | |
(Loss) gain on extinguishment of debt, net | | (0.0) | | (1.0) | | 0.2 | |
Earnings before income taxes | | 0.9 | | 3.9 | | 4.0 | |
Provision for income taxes | | 0.1 | | 0.6 | | 1.1 | |
Net earnings from continuing operations | | 0.9 | | 3.3 | | 2.9 | |
(Loss) earnings from discontinued operations, net of tax | | (3.7) | | (0.5) | | 0.3 | |
Net (loss) earnings | | (2.9) | % | 2.8 | % | 3.2 | % |
| (1) | Percentage line items may not sum to totals due to the effect of rounding. |
| (2) | Calculated as a percentage of related sales. |
33
2019 Compared with 2018
The following discussion of our results of operations relates to our continuing operations. See Note 2 to the consolidated financial statements for information concerning discontinued operations.
Net Sales
Total net sales decreased $123.3 million, or 4.1%, to $2,881.3 million for fiscal 2019 as compared to fiscal 2018 primarily due to a $96.4 million decrease in clothing product revenues primarily due to the decrease in comparable sales and anniversarying last year’s $17.6 million favorable adjustment related to changes to our loyalty programs. In addition, rental services revenue decreased $15.6 million primarily reflecting a decrease in rental transactions, while alterations and other services revenue decreased $11.3 million. The decrease in total net sales is further described below:
| | | |
(in millions) | Amount attributed to | ||
$ | (55.8) | 3.5% decrease in comparable sales at Men's Wearhouse. | |
| (15.7) | 2.3% decrease in comparable sales at Jos. A. Bank. | |
| (0.9) | 0.3% decrease in comparable sales at K&G. | |
| (10.9) | 5.4% decrease in comparable sales at Moores(1). | |
| (6.4) | Decrease in non-comparable sales. | |
| (3.3) | Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate. | |
| (30.3) | Other (primarily due to the impact of changes to our loyalty programs in 2018 and a decrease in alterations revenue). | |
$ | (123.3) | Decrease in total net sales. | |
| (1) | Comparable sales percentages for Moores are calculated using Canadian dollars. |
The decrease in comparable sales at Men's Wearhouse resulted primarily from a decrease in average unit retail (net selling prices) while both transactions for clothing and units per transaction were essentially flat. At Men's Wearhouse, rental service comparable sales decreased 3.1% primarily due to a decrease in number of rentals. The decrease in comparable sales at Jos. A. Bank resulted primarily from decreases in both average unit retail and transactions partially offset by an increase in units per transaction. The decrease in comparable sales at K&G resulted primarily from a decrease in both units per transaction and transactions partially offset by an increase in average unit retail. The decrease in comparable sales at Moores resulted primarily from a decrease in transactions while both average unit retail and units per transaction were essentially flat.
Gross Margin
Procurement and distribution costs are included in determining our retail clothing product gross margins. Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of sales while others, like us, include all or a portion of such costs in cost of sales and exclude them from selling, general and administrative expenses (“SG&A”). Distribution costs are not included in determining our rental services gross margin as these costs are included in SG&A expenses.
Our total gross margin decreased $142.0 million, or 10.8%, to $1,168.6 million for fiscal 2019 as compared to fiscal 2018 primarily due to the decrease in sales and the write-off of $13.4 million of inventory related to the closure of our Joseph Abboud store and e-commerce site. Total gross margin as a percentage of sales decreased to 40.6% in fiscal 2019 from 43.6% in fiscal 2018 primarily due to increased promotional activities, deleveraging of occupancy costs and the aforementioned write-off of Joseph Abboud inventory.
Occupancy costs increased $9.9 million primarily due to increased lease costs and the impact of store refreshes and other enhancements of our store fleet. Occupancy costs include store related operating lease costs, utilities, repairs and maintenance, security, property taxes and depreciation and, as a percentage of sales, increased to 14.4% in fiscal 2019 from 13.5% in fiscal 2018 primarily due to deleveraging from lower sales.
Advertising Expense
Advertising expense decreased to $159.1 million in fiscal 2019 from $165.2 million in fiscal 2018, a decrease of $6.2 million or 3.7%. The decrease in advertising expense was driven primarily by reductions in television advertising reflecting a shift to more efficient online advertising. As a percentage of total net sales, advertising expense was flat at 5.5% in fiscal 2019 compared to fiscal 2018.
34
Selling, General and Administrative Expenses
SG&A expenses decreased to $911.7 million in fiscal 2019 from $919.8 million in fiscal 2018, a decrease of $8.1 million or 0.9%. As a percentage of total net sales, these expenses increased to 31.6% in fiscal 2019 from 30.6% in fiscal 2018. The components of this 1.0% increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:
| | | | | |
% |
| in millions |
| Attributed to | |
0.6 | | $ | 16.9 |
| In fiscal 2019, we incurred certain costs that impact the comparability of our results totaling $28.0 million including $24.0 million related to our multi-year cost savings and operational excellence programs and $4.0 million relating to the agreement to sell the Joseph Abboud trademarks. In fiscal 2018, costs that impacted the comparability of our results totaled $11.1 million including $6.4 million related to the retirement of our former CEO, a $3.8 million loss on divestiture of our MW Cleaners business and $0.9 million related to the closure of a rental product distribution center. As a percentage of sales, these costs increased to 1.0% in fiscal 2019 from 0.4% in fiscal 2018. |
0.2 | |
| (9.5) |
| Store salaries decreased $9.5 million and increased as a percentage of sales to 13.7% in fiscal 2019 from 13.5% in fiscal 2018 primarily due to deleveraging from lower sales. |
0.2 | |
| (15.5) |
| Other SG&A expenses decreased $15.5 million primarily due to lower incentive and share-based compensation costs as well as lower employee-related benefit and travel and entertainment costs. As a percentage of sales, other SG&A expenses increased to 16.9% in fiscal 2019 from 16.7% in fiscal 2018 due to deleveraging from lower sales. |
1.0 | | $ | (8.1) |
| Total |
Interest Expense
Interest expense decreased to $71.3 million in fiscal 2019 from $79.6 million in fiscal 2018, a decrease of $8.3 million or 10.4%, due to repayment of our indebtedness including repurchase and retirement of $54.8 million face value of our Senior Notes and $9.4 million of payments on our Term Loan.
Net Loss on Extinguishment of Debt
Net loss on extinguishment of debt was $0.1 million in fiscal 2019 compared to a net loss on extinguishment of $30.3 million in fiscal 2018. The net loss on extinguishment in fiscal 2019 relates to open market repurchases of our Senior Notes. The $30.3 million net loss on extinguishment in fiscal 2018 consists of the elimination of unamortized deferred financing costs and original issue discount (“OID”) related to the refinancing and repricing of our Term Loan totaling $21.4 million and an $8.9 million loss on extinguishment related to our Senior Notes.
Provision for Income Tax
In fiscal 2019, our effective income tax rate from continuing operations was 6.1% and is lower than the U.S. statutory rate primarily due to benefit from foreign tax credits offset by a net increased valuation allowance. Our foreign jurisdictions in which we operate had taxable income, which requires us to provide for income tax, specifically, our operations in Canada and Hong Kong. For fiscal 2019, the statutory tax rates were approximately 26% in Canada and 16.5% in Hong Kong. For fiscal 2019, tax expense for our operations in foreign jurisdictions totaled $4.1 million.
In future periods, our income tax expense from continuing operations and related effective income tax rate may be impacted by many factors, including our geographic mix of earnings and changes in tax laws.
In addition, if our financial results in fiscal 2020 generate a loss or certain deferred tax liabilities decrease, we may need to establish a valuation allowance on our U.S. deferred tax assets, which could have a material impact on our financial condition and results of operations. Lastly, we are currently undergoing several federal, foreign and state audits; however, we currently do not believe these audits will result in any material change to tax expense in the future.
Net Earnings from Continuing Operations
Net earnings from continuing operations were $25.4 million for fiscal 2019 compared with net earnings from continuing operations of $98.6 million for fiscal 2018.
35
2018 Compared with 2017
The following discussion of our results of operations relates to our continuing operations. See Note 2 to the consolidated financial statements for information concerning discontinued operations.
Net Sales
Total net sales decreased $48.5 million, or 1.6%, to $3,004.5 million in fiscal 2018 as compared to fiscal 2017 due to a $29.2 million decrease in rental services revenue primarily reflecting a decrease in units rented and a $34.2 million decrease in alteration and other services revenue primarily reflecting the divestiture of MW Cleaners. These decreases were offset by a $14.9 million increase in clothing product revenues primarily due to the increase in comparable sales and the $17.6 million adjustment related to the changes to our loyalty programs, partially offset by the impact of the 53rd week in 2017. The decrease in total net sales is further described below:
| | | |
(in millions) |
| Amount Attributed to | |
$ | 13.2 |
| 0.8% increase in comparable sales at Men's Wearhouse. |
| 9.7 |
| 1.4% increase in comparable sales at Jos. A. Bank. |
| 4.4 |
| 1.5% increase in comparable sales at K&G. |
| 4.9 |
| 2.4% increase in comparable sales at Moores(1). |
| (66.3) |
| Decrease in non-comparable sales (primarily due to the impact of the 53rd week and closed stores). |
| (2.1) |
| Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate. |
| (12.3) |
| Other (primarily due to divestiture of MW Cleaners offset by the impact of changes to our loyalty programs). |
$ | (48.5) |
| Decrease in total net sales. |
| (1) | Comparable sales percentages for Moores are calculated using Canadian dollars. |
The increase in comparable sales at Men's Wearhouse resulted primarily from increases in both average unit retail (net selling prices). and transactions for clothing, partially offset by a decrease in units per transaction. At Men's Wearhouse, rental service comparable sales decreased 2.0%4.9% primarily reflectingdue to a consumer shift to purchase suits for special occasions.decrease in number of rentals. The increase in comparable sales at Jos. A. Bank resulted primarily from an increase in transactions partially offset by a decrease in units per transaction, while average unit retail while units per transaction werewas flat. The decreaseincrease in comparable sales at K&G resulted primarily from lower transactions partially offset by increases in units per transaction and average unit retail. The decrease at Moores resulted primarily from decreases in both units per transaction and average unit retail, that more than offset a slight increase in transactions.
Total corporate apparel clothing product sales decreased $29.0 million for fiscal 2017 as compared to fiscal 2016 primarily due to anniversarying last year's rollout of a large new uniform program and the impact of a weaker British pound this year compared to last year of approximately $5.6 million, partially offset by a $5.0 million benefitdecrease in transactions. The increase in comparable sales at Moores resulted primarily from the 53rd week.increases in both average unit retail and transactions partially offset by a decrease in units per transaction.
Gross Margin
Procurement and distribution costs are included in determining our retail and corporate apparel clothing product gross margins. Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of sales while others, like us, include all or a portion of such costs in cost of sales and exclude them from SG&A expenses. Distribution costs are not included in determining our rental services gross margin as these costs are included in SG&A expenses.
Our total gross margin decreased $32.7$30.8 million, or 2.3%, to $1,408.8$1,310.6 million for fiscal 20172018 as compared to fiscal 20162017 primarily due to the decrease in corporate apparel net sales. Total retail segment gross margin decreased $10.8 million, or 0.8%, in fiscal 2017 as compared to fiscal 2016 primarily due to the decreaseaforementioned decreases in rental services revenue.and alteration and other services revenue partially offset by the impact of the changes to our loyalty programs.
For the retail segment, totalTotal gross margin as a percentage of related sales increaseddecreased to 44.0%43.6% in fiscal 20172018 from 43.7%43.9% in fiscal 2016.2017. The increase in the retail segment gross margin percentagedecrease was primarily due to the resultmix shift from rental services to retail clothing sales and the divestiture of leverage from occupancy costs.the MW Cleaners business.
Occupancy costs decreased $15.3$9.9 million primarily due to the impact of the MW Cleaners divestiture and the closure of our store rationalization efforts.tuxedo shops within Macy’s in 2017. Occupancy costs as a percentage of retail sales, which is relatively constant on a per store basis and includesinclude store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation decreased to 13.6% in fiscal 2017 from 13.9% in fiscal 2016.
Corporate apparel gross margin decreased $21.9 million, or 24.9%, to $65.8 million for fiscal 2017 compared to fiscal 2016. For the corporate apparel segment, total gross marginand, as a percentage of relatedtotal net sales, decreased to 26.2%13.5% in fiscal 20172018 from 31.3%13.6% in fiscal 2016 primarily due to the impact of last year's rollout of a large new uniform program as well as the impact of unfavorable currency fluctuations on previously negotiated pricing arrangements with our UK customers.
31
2017.
36
Advertising Expense
Advertising expense decreased to $173.4$165.2 million in fiscal 2018 from $172.0 million in fiscal 2017, from $190.0 million in fiscal 2016, a decrease of $16.5$6.8 million or 8.7%3.9%. The decrease in advertising expense was driven primarily by reductions in television advertising reflecting a shift to digital advertising. As a percentage of total net sales, advertising expense decreased to 5.2%5.5% in fiscal 20172018 from 5.6% in fiscal 2016.2017.
Selling, General and Administrative Expenses
SG&A expenses decreased to $1,000.9$919.8 million in fiscal 2018 from $951.8 million in fiscal 2017, from $1,099.3 million in fiscal 2016, a decrease of $98.4$32.0 million or 9.0%3.4%. As a percentage of total net sales, these expenses decreased to 30.3%30.6% in fiscal 20172018 from 32.5%31.2% in fiscal 2016.2017. The components of this 2.2%0.6% decrease in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:
|
|
|
|
|
|
% |
| in millions |
| Attributed to | |
(1.9) |
| $ | (63.6) |
| Decrease in restructuring, integration and other items as a percentage of sales to 0.4% in fiscal 2017 from 2.3% in fiscal 2016. In fiscal 2017, these costs totaled $14.6 million related to costs to terminate the Macy's agreement. In fiscal 2016, these costs totaled $78.2 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs. |
(0.3) |
|
| (21.2) |
| Store salaries decreased $21.2 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.5% in fiscal 2017 from 12.8% in fiscal 2016. |
| (0.0) |
|
| (13.6) |
| Other SG&A expenses as a percentage of sales was 17.4% in both fiscal 2017 and fiscal 2016. Other SG&A expenses decreased $13.6 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts partially offset by increased incentive compensation expense. |
(2.2) |
| $ | (98.4) |
| Total |
| | | | | |
% |
| in millions |
| Attributed to | |
(0.1) | | $ | (4.6) |
| In fiscal 2018, we incurred certain costs that impact the comparability of our results totaling $11.1 million including $6.4 million related to the retirement of our former CEO, a $3.8 million loss on divestiture of our MW Cleaners business and $0.9 million related to the closure of a rental product distribution center. In fiscal 2017, costs that impacted the comparability of our results totaled $15.7 million and primarily related to costs to terminate the Macy's agreement. As a percentage of sales, these costs decreased to 0.4% in fiscal 2018 from 0.5% in fiscal 2017. |
— | |
| (6.6) | | Store salaries decreased $6.6 million primarily due to the impact of the 53rd week in 2017 as well as the divestiture of MW Cleaners. As a percentage of sales, store salaries were flat at 13.5% for both fiscal 2018 and fiscal 2017. |
(0.5) | |
| (20.8) | | Other SG&A expenses decreased $20.8 million primarily due to the impact of the 53rd week in 2017, lower operating costs resulting from the divestiture of MW Cleaners and lower share-based and incentive compensation expense. As a percentage of sales, other SG&A expenses decreased to 16.7% in fiscal 2018 from 17.2% in fiscal 2017. |
(0.6) | % | $ | (32.0) | | Total |
In the retail segment, SG&A expenses as a percentage of related net sales decreased to 24.7% in fiscal 2017 from 27.1% in fiscal 2016. Retail segment SG&A expenses decreased $86.0 million primarily due to decreases in store-related costs from our store rationalization efforts as well as a decrease in restructuring and other costs, primarily related to last year’s lease termination costs partially offset by costs to terminate Macy’s agreement in 2017.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased to 21.1% in fiscal 2017 from 21.7% in fiscal 2016. Corporate apparel segment SG&A expenses decreased $7.7 million primarily due to the impact of a weaker British pound this year compared to last year.
Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A. Shared service SG&A expenses as a percentage of total net sales decreased to 5.8% in fiscal 2017 from 5.9% in fiscal 2016. Shared service SG&A expenses decreased $4.7 million primarily due to decreases in costs associated with last year’s profit improvement program partially offset by increased incentive compensation expense.
Goodwill Impairment Charge
The goodwill impairment charge of $1.5 million in fiscal 2017 related to the divestiture of our MW Cleaners business. No such charges were incurred in fiscal 2016.
Asset Impairment Charges
Non‑cash asset impairment charges were $3.5 million in fiscal 2017 as compared to $19.4 million in fiscal 2016. The asset impairment charges in fiscal 2017 primarily consist of $2.3 million related to underperforming stores and $1.2 million related to fixed assets in our tuxedo shops within Macy’s. The asset impairment charges in fiscal 2016 primarily consist of $14.0 million related to fixed assets in our tuxedo shops within Macy’s, $2.5 million primarily related to stores closed as part of our store rationalization program and $2.9 million related to a long-lived asset reclassified as held for sale. See Impairment of Long‑Lived Assets as discussed in “Critical Accounting Polices and Estimates” and Note 1 of Notes to Consolidated Financial Statements for further details.
Interest Expense
Interest expense decreased to $79.6 million in fiscal 2018 from $100.5 million in fiscal 2017, from $103.1 million in fiscal 2016, a decrease of $2.7$20.9 million or 2.6%20.8%, due to repayment of our indebtedness including repurchase and retirement of $153.8$192.6 million face value of our senior notesSenior Notes and $53.4$102.4 million of payments on our term loan.Term Loan.
32
Net (Loss) Gain on Extinguishment of Debt
Net gainloss on extinguishment of debt was $30.3 million in fiscal 2018 compared to a net gain on extinguishment of $5.4 million in fiscal 2017 compared to $1.72017. The $30.3 million in fiscal 2016. Net gainsnet loss on extinguishment of debt primarily relatein fiscal 2018 consists of the elimination of unamortized deferred financing costs and OID related to the repurchasingrefinancing and repricing of our senior notes.Term Loan totaling $21.4 million and an $8.9 million loss on extinguishment related to our Senior Notes.
The net gain on extinguishment in fiscal 2017 relates to open market repurchases of our Senior Notes.
Provision for Income Tax
In December 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The changes included in the Tax Reform Act are broad and complex, which impacted our consolidated financial statements in both fiscal 2018 and 2017 including, but not limited to: reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and requiring a one-time transition tax on certain unrepatriated earnings of non-U.S. subsidiaries that may electively be paid over eight years. The transition tax will resultresulted in certain previously untaxed non-U.S. earnings being included in the U.S. federal and state 2017 taxable income.
The Tax Reform Act also enacted new tax laws which include, but are not limited to: a Base Erosion Anti-abuse Tax (“BEAT”), which is a new minimum tax, generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, a provision designed to tax currently global intangible low taxed income (“GILTI”), a provision that may
37
limit the amount of currently deductible interest expense, the repeal of the domestic production incentives, limitations on the deductibility of certain executive compensation, and limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.
Shortly after the Tax Reform Act was enacted, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provides guidance on accounting for the Tax Reform Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Reform Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Reform Act. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Reform Act in the reporting period in which the accounting is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Reform Act is incomplete, a company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined.
As a result, in fiscal 2017, we have recorded a provisional discrete net tax benefit of $0.3 million related to the Tax Reform Act, inwhich consisted of a benefit from deferred tax remeasurement offset by additional provision for transition tax. During the fourth quarter of fiscal 2017.
Furthermore, as a result2018, we completed our accounting for the effects of the Tax Reform Act we analyzed our global working capital requirements and the potentialrecorded a discrete net tax liabilities that would be incurred if certain non-U.S. subsidiaries made distributions, which include local country withholdingbenefit of $6.1 million, including finalization of deferred tax remeasurement, transition tax and potential U.S. state taxation. In prior years, no provisiona rate change for U.S. income taxes or Canadian withholding taxes had been made on the cumulative undistributed earnings of foreign companies because we intended to permanently reinvest all the foreign earnings outside the U.S. In response to the Tax Reform Act, we no longer intend to permanently reinvest our foreign earnings. As a result, the Company has included a provisional estimate of incremental withholding liabilities on its investment in foreign earnings totaling $17.3 million.
The final transition impacts of the Tax Reform Act may differ from the estimates provided elsewhere in this report, possibly materially, due to, among other things, changes in interpretations of the Tax Reform Act, any legislative action to address questions that arise because of the Tax Reform Act, any changes in accounting standards for income taxes or related interpretations in response to the Tax Reform Act, or any updates or changes to estimates we have utilized to calculate the transition impacts, including impacts from changes to current year earnings estimates and foreign exchange rates of foreign subsidiaries.remeasurement on previously taxed earnings and profits.
In fiscal 2017,2018, our effective income tax rate from continuing operations was 28.3%15.2% and is lower than the U.S. statutory rate primarily due to foreign earningsthe impact of the Tax Reform Act and the lowerusage of tax rates in these jurisdictions and the release of specific uncertain tax position liabilities. These rate reductionscredits, which are partially offset by the change in our position on permanently reinvested foreign earnings and certain valuation allowances. Our foreign jurisdictions in which we operate had taxable income, which requires us to provide forstate income tax specifically, our operations in Canada, Hong Kong, and the UK. For fiscal 2017, the statutory tax rates were approximately 26% in Canada, 16% in Hong Kong, and 19% in the UK. For fiscal 2017, tax expense for our operations in foreign jurisdictions totaled $28.7 million.
Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings, changes in tax law and rates, such asrelated to the Tax Reform Act changes in rules related to accounting for income taxes, or adverse outcomes from tax audits that are in process or future tax audits in various jurisdictions in which we operate. Currently, we expect our effective tax rate in future periods to be close to the statutory U.S. combined federal and state tax rate, or approximately 25%.
In addition, if our financial results in fiscal 2018 generate a loss or certain deferred tax liabilities decrease, we may need to establish a valuation allowance on our U.S. deferred tax assets, which could have a material impact on our financial condition and results of operations.
Net Earnings
Net earnings were $96.7 million for fiscal 2017 compared with net earnings of $25.0 million for fiscal 2016.
33
2016 Compared with 2015
Net Sales
Total net sales decreased $117.6 million, or 3.4%, to $3,378.7 million for fiscal 2016 as compared to fiscal 2015.
Total retail sales decreased $154.1 million, or 4.7%, to $3,098.4 million for fiscal 2016 as compared to fiscal 2015 due mainly to a $154.0 million decrease in retail clothing product revenues primarily at our Jos. A. Bank brand as we transitioned away from the Jos. A. Bank historical promotional model. Total retail sales were also impacted by a $14.2 million decrease in alteration and other services revenues offset by a $14.1 million increase in rental services revenues. The decrease in total retail sales is further described below:
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Comparable sales is defined as net sales from stores open at least twelve months at period end, excluding stores where the square footage has changed by more than 25% within the past year, and includes e-commerce sales. We operate our business using an omni‑channel approach and do not differentiate e‑commerce sales from our other channels.
The decrease in comparable sales at Men’s Wearhouse resulted primarily from decreased transactions that more than offset increased average unit retail while units per transaction were essentially flat. At Men’s Wearhouse, rental service comparable sales increased 3.0% primarily due to an increase in rental rates.The decrease at Jos. A. Bank was driven by decreased transactions that more than offset increased units per transaction and a slight increase in average unit retail. The decrease at Moores was driven by decreased transactions and units per transaction that more than offset increased average unit retail. The decrease at K&G was driven by decreased transactions that more than offset increased units per transaction and average unit retail.
Total corporate apparel clothing product sales increased $36.5 million to $280.3 million for fiscal 2016 as compared to fiscal 2015 primarily due to the impact of a large new uniform program. The rollout of the new uniform program commenced in June 2016 and was completed during the third quarter of 2016. The increase in corporate apparel sales was partially offset by the impact of a weaker British pound this year compared to fiscal 2015 of approximately $26.1 million.
Gross Margin
Procurement and distribution costs are included in determining our retail and corporate apparel clothing product gross margins. Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of sales while others, like us, include all or a portion of such costs in cost of sales and exclude them from SG&A expenses. Distribution costs are not included in determining our rental services gross margin as these costs are included in SG&A expenses.
Our total gross margin decreased $43.0 million, or 2.9%, to $1,441.5 million for fiscal 2016 as compared to fiscal 2015. Total retail segment gross margin decreased $60.3 million, or 4.3%, in fiscal 2016 as compared to fiscal 2015 primarily due to lower sales at Jos. A. Bank.
For the retail segment, total gross margin as a percentage of related sales increased from 43.5% in fiscal 2015 to 43.7% in fiscal 2016. The slight increase in the retail segment gross margin percentage was primarily the result of the mix effect of higher margin rental services revenue and slight leverage on occupancy costs.
Occupancy costs decreased $24.2 million primarily due to our store rationalization efforts. Occupancy costs as a percentage of retail sales, which is relatively constant on a per store basis and includes store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation, decreased slightly to 13.9% in fiscal 2016 from 14.0% in fiscal 2015.
34
Corporate apparel gross margin increased $17.3 million or 24.6% from fiscal 2015 to $87.7 million in fiscal 2016. For the corporate apparel segment, total gross margin as a percentage of related sales increased from 28.9% in fiscal 2015 to 31.3% in fiscal 2016 primarily due to the impact of a large new uniform program as well as pre-tax gains on foreign currency hedging transactions.
Advertising Expense
Advertising expense decreased to $190.0 million in fiscal 2016 from $205.0 million in fiscal 2015, a decrease of $15.0 million or 7.3%. The decrease in advertising expense was driven by reductions in marketing spend, primarily in television and digital advertising, in response to the softening sales trend, primarily in the fourth quarter of fiscal 2016. As a percentage of total net sales, these expenses decreased from 5.9% in fiscal 2015 to 5.6% in fiscal 2016.
Selling, General and Administrative Expenses
SG&A expenses increased to $1,099.3 million in fiscal 2016 from $1,085.9 million in fiscal 2015, an increase of $13.4 million or 1.2%. As a percentage of total net sales, these expenses increased from 31.1% in fiscal 2015 to 32.5% in fiscal 2016. The components of this 1.4% net increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:
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% |
| in millions |
| Attributed to | |
1.7 |
| $ | 55.5 |
| Increase in restructuring, integration and other items as a percentage of sales from 0.6% in fiscal 2015 to 2.3% in fiscal 2016. For fiscal 2016, these costs totaled $78.2 million, related primarily to restructuring and other costs including our store rationalization and profit improvement programs. For fiscal 2015, these costs totaled $22.7 million related primarily to Jos. A. Bank acquisition and integration costs, separation costs with former executives and costs associated with our profit improvement plan, partially offset by a $1.8 million gain on the sale of property. |
(0.4) |
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| (32.2) |
| Decrease in other SG&A expenses as a percentage of sales from 17.8% in fiscal 2015 to 17.4% in fiscal 2016. Other SG&A expenses decreased $32.2 million primarily due to cost reduction initiatives, the impact of store closures and a decrease in amortization of intangible assets as a result of the impairment charges recorded in fiscal 2015. |
0.1 |
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| (9.9) |
| Store salaries decreased $9.9 million primarily due to cost reduction initiatives and the impact of store closures yet increased as a percentage of sales from 12.7% in fiscal 2015 to 12.8% in fiscal 2016 primarily due to deleverage resulting from lower retail sales. |
1.4 | % | $ | 13.4 |
| Total |
In the retail segment, SG&A expenses as a percentage of related net sales increased from 26.4% in fiscal 2015 to 27.1% in fiscal 2016 primarily due to deleverage resulting from lower retail sales. Retail segment SG&A expenses decreased $19.3 million primarily due to cost reduction initiatives and the impact of store closures partially offset by lease termination costs.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased from 24.9% in fiscal 2015 to 21.7% in fiscal 2016 primarily due to leverage from higher sales. Corporate apparel segment SG&A expenses increased $0.1 million.
Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A. Shared service SG&A expenses as a percentage of total net sales increased from 4.7% in fiscal 2015 to 5.9% in fiscal 2016. Shared service SG&A expenses increased $32.6 million primarily due to costs associated with our profit improvement program and higher incentive compensation accruals.
Goodwill and Intangible Asset Impairment Charges
There were no goodwill and intangible asset impairment charges recorded in fiscal 2016. For further details on fiscal 2015 goodwill and intangible asset impairment charges, see Goodwill and Other Indefinite-Lived Intangible Assets as discussed in “Critical Accounting Polices and Estimates” and Note 7 of Notes to Consolidated Financial Statements for further details.
Asset Impairment Charges
Non‑cash asset impairment charges were $19.4 million in fiscal 2016 as compared to $27.5 million in fiscal 2015. The asset impairment charges in fiscal 2016 primarily consist of $14.0 million related to fixed assets in our tuxedo shops within Macy’s, $2.5 million primarily related to stores closed as part of our store rationalization program and $2.9 million related to a long-lived asset reclassified as held for sale. The asset impairment charges in fiscal 2015 resulted primarily from our store rationalization program, which resulted in store closures in fiscal 2016. See Impairment of Long‑Lived Assets as discussed in “Critical Accounting Polices and Estimates” and Note 1 of Notes to Consolidated Financial Statements for further details.
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Interest Expense
Interest expense decreased to $103.1 million in fiscal 2016 from $106.0 million in fiscal 2015, a decrease of $2.8 million or 2.7%, due to repayment of our indebtedness including $42.5 million on our term loan and repurchase and retirement of $25.0 million face value of our senior notes.
Provision for Income Tax
In fiscal 2016, our effective income tax rate was 21.0% and is lower than the U.S. statutory rate primarily due to foreign earnings and the lowerwith higher tax rates in these jurisdictions. Our foreign jurisdictions in which we operate had taxable income, which requires us to provide for income tax, specifically, our operations in Canada and the UK.Hong Kong. For fiscal 2016,2018, the statutory tax rates were approximately 26% in Canada and the UK were approximately 27% and 20%, respectively, which negatively impacted our effective tax rate due to the loss16.5% in the U.S.Hong Kong. For fiscal 2016,2018, tax expense for our operations in foreign jurisdictions totaled $10.3$8.0 million.
Net Earnings (Loss)from Continuing Operations
Net earnings from continuing operations were $25.0$98.6 million for fiscal 20162018 compared with a net lossearnings from continuing operations of $1,026.7$87.0 million for fiscal 2015.2017.
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Liquidity and Capital Resources
Our primary sources of working capital are cash flows from operations and available borrowings under our revolving credit agreement, as described below. The following table provides details on our cash and cash equivalents and working capital position as of February 3, 20181, 2020 and January 28, 2017February 2, 2019 (in thousands):
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| February 3, |
| January 28, |
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| 2018 |
| 2017 |
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| February 1, |
| February 2, | | |||||||||
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| 2020 |
| 2019 |
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Cash and cash equivalents |
| $ | 103,607 |
| $ | 70,889 |
| | $ | 14,420 | | $ | 32,671 | |
Working capital |
| $ | 669,809 |
| $ | 705,797 |
| | $ | 206,388 | | $ | 359,696 | |
The decrease in working capital from February 1, 2020 compared to February 2, 2019 is primarily due to the adoption of new accounting guidance related to leases, specifically the current portion of operating lease liabilities which totals $186.3 million as of February 1, 2020. See Note 17 for additional information.
We hold cash and cash equivalents at various foreign subsidiaries, which totaled $49.6$12.0 million at February 3, 2018.1, 2020. As a result of reductions to the U.S. taxation of dividends from foreign subsidiaries under the Tax Reform Act, in future years, we may decide to repatriate amounts from our foreign subsidiaries. Although the cash and cash equivalents held by our foreign subsidiaries may be more readily available to meet domestic cash requirements, they would continue to be subject to applicable foreign withholding tax that would be incurred upon repatriation.
In 2014, The Men’sMen's Wearhouse entered into a term loan credit agreement that providesprovided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”"Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”"ABL Facility", and together with the Original Term Loan, the “Credit Facilities”"Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People, Inc., one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Term Loan were reduced by an $11.0 million original issue discount (“OID”), which is presented on the balance sheet as a reduction of the outstanding balance on the Term Loan and is amortized to interest expense over the contractual life of the Term Loan. In addition, in 2014, The Men’sMen's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”"Senior Notes").
In October 2017, weThe Men’s Wearhouse amended our then existing $500.0 millionthe ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. In April 2018, The Men’s Wearhouse refinanced its Original Term Loan, and, in October 2018, amended its term loan to reduce the interest rate margin. See Credit Facilities section below for additional information.
The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios. In addition, we are currently restricted on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Historically,Should our total leverage ratio and secured leverage ratio were above the maximumsexceed certain thresholds specified in the agreements. As a result,agreements, we werewould be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of February 3, 2018,1, 2020, our total leverage ratio and secured leverage ratio wereis below the maximumsmaximum specified in the agreements, however, our secured leverage ratio is above the maximum level. As a result, we are now subject to additional restrictions, primarily related to the size of any incremental term loan facilities being limited to a maximum of $250 million. In addition, as a result of the refinancing of the Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter. See Note 13 for additional information on the suspension of our dividend in 2019.
Credit Facilities
In April 2018, we believe these ratiosrefinanced our Original Term Loan. Immediately prior to the refinancing, the Original Term Loan consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and $400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum. Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.
As a result, we refinanced $900.0 million in aggregate principal amount of term loans then outstanding with a new Term Loan totaling $900.0 million (the “New Term Loan”). Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0.
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The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018. The New Term Loan extends the maturity date of the Original Term Loan from June 18, 2021 until April 9, 2025, subject to a springing maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain belowoutstanding on April 1, 2022.
The New Term Loan bears interest at a rate per annum equal to an applicable margin plus, at the maximums specifiedCompany’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%). In October 2018, we amended the New Term Loan resulting in a reduction in the agreements, which willinterest rate margin of 25 basis points. As a result inof the elimination of these additional restrictions.
Credit Facilities
Theamendment, the margins for borrowings under the New Term Loan is guaranteed, jointlyare 3.25% for LIBOR and severally, by Tailored Brands, Inc.2.25% for the base rate. The maturity date for the New Term Loan remains April 9, 2025, and certainall other material provisions of our U.S. subsidiaries and will mature in 2021. the New Term Loan remain unchanged.
The interest rate on the New Term Loan is based on 1-month LIBOR, which was 1.58%1.66% at February 3, 2018,1, 2020, plus the applicable margin which is currently 3.50%of 3.25%, resulting in a total interest rate of 5.08%4.91%. In January 2015, we entered into anWe have two interest rate swap agreement, in whichagreements where the variable rate paymentsrates due under a portion of the New Term Loan werehave been exchanged for a fixed rate. In April 2017, we entered into an additional
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interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate. At February 3, 2018,1, 2020, the total notional amount under ourthese interest rate swaps is $410.0$705.0 million. See Note 1619 for additional information on our interest rate swaps.
In 2015, The Men’s Wearhouse entered into Incremental Facility Agreement No. 1 (the “Incremental Agreement”) resulting in a refinancing of $400.0 million aggregate principal amount of the Term Loan from a variable rate to a fixed rate of 5.0% per annum. The Incremental Agreement did not impact the total amount borrowed under the Term Loan, the maturity date of the Term Loan, or collateral and guarantees under the Term Loan.
As a result of theour interest rate swaps, and the Incremental Agreement, we have converted a significant portion80% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, as of February 3, 2018,1, 2020, the New Term Loan had a weighted average interest rate of 5.22%5.63%.
In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature that matures in October 2022, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate (“CDOR”) rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%. As of February 3, 2018, there1, 2020, $50.0 million in borrowings were no borrowings outstanding under the ABL Facility.Facility at a weighted average interest rate of approximately 3.2%. During fiscal 2017, we borrowed and repaid amounts under our ABL Facility with2019, the maximum borrowing outstanding at any point in timeunder the ABL Facility was $100.0 million.
We utilize letters of credit primarily as collateral for workers compensation claims. At February 1, 2020, letters of credit totaling $34.7approximately $26.6 million were issued and outstanding. Borrowings available under the ABL Facility as of February 1, 2020 were $400.5 million.
The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, certain of its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc.People. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors.
Senior Notes
The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The Senior Notes and the related guarantees are senior unsecured obligations of The Men’s Wearhouse, Inc. and the guarantors, respectively, and will rank equally with all of The Men’s Wearhouse, Inc.’s and each guarantor’s present and future senior indebtedness. The Senior Notes will mature in July 2022. Interest on the Senior Notes is payable on January 1 and July 1 of each year.
We may redeem some or all of the Senior Notes at any time on or after July 1, 2017 at the redemption prices set forth in the indenture governing the Senior Notes. As of February 1, 2020, the redemption price is 101.75% of the face value and steps down to 100% of the face value on July 1, 2020. Upon the occurrence of certain specific changes of control, we may be required to offer to purchase the Senior Notes at 101% of their aggregate principal amount plus accrued and unpaid interest thereon to the date of purchase.
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Cash Provided by Operating Activities
Net cash provided by operating activities was $99.6 million and $322.7 million for 2019 and 2018, respectively. The adoption of new lease accounting guidance in 2019 resulted in the recognition of non-cash lease expense totaling $194.5 million and a corresponding use of cash totaling approximately $195.8 million related to operating lease liabilities included in other liabilities. As the adoption of the lease accounting guidance did not materially impact our cash flow from operations for 2019, our explanation of the year-over-year decrease excludes these amounts.
The $223.0 million decrease in cash flow from operations was driven primarily by a $123.7 million decrease in our net earnings, after adjusting for non-cash items other than non-cash lease expense, primarily driven by the decrease in our operating income this year compared to last year and an $83.0 million change in accounts payable, accrued expenses and other current liabilities primarily related to fluctuations in accounts payable due to timing of inventory receipts and related vendor payments, vendor payment terms and capital expenditure projects.
In addition, cash flow from operations was negatively impacted by an increase in net cash paid for taxes totaling $26.6 million primarily due to a $15.0 million tax refund received last year and an approximate $14.3 million planned increase in purchases of rental product. These unfavorable impacts were partially offset by a $30.7 million decrease in inventories related to our strategies to evolve our inventory offerings.
Net cash provided by operating activities was $322.7 million and $350.8 million for 2018 and 2017, respectively. The $28.1 million decrease was driven by higher inventory purchases compared to last year. The increase in inventory purchases was partially offset by higher net earnings, after adjusting for certain items primarily related to extinguishment of debt and goodwill impairment as well as favorable fluctuations in accounts payable, accrued expenses and other current liabilities primarily due to timing.
Cash Used in Investing Activities
Net cash used in investing activities was $43.2 million and $64.5 million for 2019 and 2018, respectively. The $21.4 million decrease was primarily driven by a $27.3 million increase in net proceeds from business divestitures.
Net cash used in investing activities was $64.5 million and $89.9 million for 2018 and 2017, respectively. The $25.4 million decrease was primarily driven by $17.8 million of net proceeds from the divestiture of MW Cleaners as well as a timing shift of certain capital expenditure projects to fiscal 2019.
Cash Used in Financing Activities
Net cash used in financing activities was $100.0 million and $302.7 million for 2019 and 2018, respectively. The $202.7 million decrease primarily reflects the impact of a decrease in debt repayments in 2019 compared to 2018.
Net cash used in financing activities was $302.7 million and $236.9 million for 2018 and 2017, respectively. The $65.8 million increase primarily reflects the impact of additional debt repayments in 2018 compared to 2017.
Capital allocation policy update — On September 11, 2019, after extensive review, the Company announced an update to the Company’s capital allocation policy. Effective in the fourth quarter of 2019, our quarterly cash dividend was suspended and the cash was redeployed for accelerated debt reduction and opportunistic share repurchases. Suspending the quarterly cash dividend of $0.18 per share is expected to make available approximately $36.5 million on an annualized basis.
Share repurchase program— In March 2013, the Board approved a share repurchase program for our common stock. During fiscal 2019, we repurchased 2,336,852 shares through open market repurchases at a cost of $10.0 million for an average price of $4.28 per share. During fiscal 2018 and 2017, no shares were repurchased in open market transactions under the Board’s authorization. At February 1, 2020, the remaining balance available under the authorization was $38.0 million.
Dividends— Cash dividends paid were approximately $28.1 million, $36.9 million and $35.8 million during fiscal 2019, 2018 and 2017, respectively. In fiscal 2019, a dividend of $0.18 per share was declared in each of the first two quarters, for an annual dividend of $0.36 per share. In fiscal 2018 and 2017, a dividend of $0.18 per share was declared in each quarter, for an annual dividend of $0.72 per share, respectively.
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Future sources and uses of cash
Our primary uses of cash are to finance working capital requirements of our operations and to repay our indebtedness. In addition, we will use cash to fund capital expenditures, income taxes, operating leases, opportunistic share repurchases and various other commitments and obligations, as they arise.
Beginning in March 2020, in response to the outbreak of COVID-19, we have taken aggressive and prudent actions to reduce expenses and defer discretionary capital expenditures and inventory purchases to preserve our cash and liquidity. In addition to these efforts, in an abundance of caution and as a proactive measure, on March 16, 2020, we executed a borrowing of $260.0 million under our ABL Facility. Furthermore, after assessing the remaining availability under the ABL Facility and determining that additional borrowings were prudent to maximize cash on hand, on March 19, 2020 and on March 31, 2020, respectively, we borrowed an additional $25.0 million under the ABL Facility.
Although we have not yet finalized our outlook for capital expenditures in fiscal 2020, we currently expect capital expenditures to decrease substantially compared to fiscal 2019, primarily as a result of actions taken in response to the COVID-19 outbreak. Capital expenditures for 2020 will include costs for store refreshes and other enhancements of our store fleet and investments in technology.
As described more fully in Item 1A, current and future domestic and global economic conditions, including the impact of COVID-19, could negatively affect our future operating results as well as our existing cash and cash equivalents balances and availability under our ABL Facility. In addition, conditions in the financial markets could limit our access to further capital resources, if needed, and could increase associated costs. Because of the COVID-19 pandemic, there is significant uncertainty surrounding the potential impact on our results of operations and cash flows. We are proactively taking measures to increase available cash on hand including, but not limited to, significant reductions in discretionary operating expenses, reducing inventory purchases and capital expenditures, extension of vendor payment terms, employee furloughs, salary reductions, discussions with our landlords regarding rent reductions and/or rent deferrals and, as described above, borrowings under our ABL Facility.
Contractual Obligations
As of February 1, 2020, we are obligated to make cash payments in connection with our long-term debt, operating leases and other contractual obligations in the amounts listed below. In addition, we utilize letters of credit primarily as collateral for workers compensation claims. At February 1, 2020, letters of credit totaling approximately $26.6 million were issued and outstanding.
| | | | | | | | | | | | | | | | |
| | Payments Due by Period |
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(In millions) |
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Contractual obligations | | Total | | <1 Year | | 1��- 3 Years | | 4 - 5 Years | | > 5 Years |
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Long-term debt(1) | | $ | 1,393.9 | | $ | 72.0 | | $ | 362.0 | | $ | 111.4 | | $ | 848.5 | |
Operating leases(2) | |
| 1,053.7 | |
| 228.9 | |
| 434.3 | |
| 256.3 | |
| 134.2 | |
Other contractual obligations(3) | |
| 50.0 | |
| 30.2 | |
| 18.1 | |
| 1.7 | |
| — | |
Total contractual obligations(4) | | $ | 2,497.6 | | $ | 331.1 | | $ | 814.4 | | $ | 369.4 | | $ | 982.7 | |
| (1) | Includes interest payments of $63.0 million within one year, $120.2 million between one and three years, $93.4 million between four and five years and $11.8 million beyond five years, at current interest rates including the impact of our interest rate swaps. The payments due by period do not consider amounts which may become payable under the excess cash flow provision of our New Term Loan. Interest on our ABL borrowings is excluded from the amounts presented in the table due to our inability to predict the timing and settlement of our ABL borrowings. See Notes 6 and 19 of the consolidated financial statements for additional information. |
| (2) | We lease retail business locations, office and warehouse facilities and equipment under various operating leases. See Note 17 of the consolidated financial statements for additional information. |
| (3) | Other contractual obligations consist primarily of commitments for products and services used in the normal course of business as well as minimum payments under our agreement with Vera Wang that gives us the exclusive right to “Black by Vera Wang” tuxedo products and our partnership with Kenneth Cole. |
| (4) | Excluded from the table above is $0.6 million related to uncertain tax positions. These amounts are not included due to our inability to predict the timing of the settlement of these amounts. See Note 9 of the consolidated financial statements for additional information. |
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In the normal course of business, we issue purchase orders to suppliers for merchandise. The purchase orders represent executory contracts requiring performance by the suppliers, including the delivery of the merchandise prior to a specified cancellation date and compliance with product specifications, quality standards and other requirements. In the event of the supplier’s failure to meet the agreed upon terms and conditions, we may cancel the order.
Off-Balance Sheet Arrangements
Other than other contractual obligations and letters of credit discussed above, we do not have any off-balance sheet arrangements that are material to our financial position or results of operations.
Inflation
We believe the impact of inflation on the results of operations during the periods presented has been minimal. However, there can be no assurance that our business will not be affected by inflation in the future.
Critical Accounting Policies and Estimates
The preparation of our consolidated financial statements requires the appropriate application of accounting policies in accordance with generally accepted accounting principles. In many instances, this also requires management to make estimates and assumptions about future events that affect the amounts and disclosures included in our financial statements. We base our estimates on historical experience and various assumptions that we believe are reasonable under our current business model. However, because future events and conditions and their effects cannot be determined with certainty, actual results will differ from our estimates and such differences could be material to our financial statements.
Our accounting policies are described in Note 1 of the consolidated financial statements. We consistently apply these policies and periodically evaluate the reasonableness of our estimates in light of actual events. Historically, we have found our accounting policies to be appropriate and our estimates and assumptions reasonable. Our critical accounting policies, which are those most significant to the presentation of our financial position and results of operations and those that require significant judgment or complex estimates by management, are discussed below.
Revenue Recognition— For retail clothing product revenue, we transfer control and recognize revenue at a point in time, upon sale or shipment of the merchandise, net of actual sales returns and an accrual for estimated sales returns. For rental and alteration services, we transfer control and recognize revenue at a point in time, upon receipt of the completed service by the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.
Loyalty Program Accounting—Effective February 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all related amendments (“ASC 606”). As a result, we no longer use the incremental cost method approach but record our obligation for future point redemptions using a deferred revenue model.
We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a one-to-one basis, excluding any sales tax dollars, and do not expire. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance.
When loyalty program members earn points, we recognize a portion of the transaction as revenue for merchandise product sales or services and defer a portion of the transaction representing the value of the related points. The value of the points is recorded in deferred revenue on our consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.
We account for points earned and certificates issued that will not be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.
During the fourth quarter of 2018, we redeemed certain loyalty members’ cumulative outstanding points into reward certificates prior to them reaching 500 total points, and these certificates expired on February 2, 2019. In addition, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of
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fiscal 2019, which was completed. As a result of these changes in the loyalty programs, during the fourth quarter of 2018, we recorded a decrease to our deferred revenue liability related to outstanding loyalty program points of $17.6 million, $14.3 million net of income taxes, or $0.28 earnings per diluted share.
Our estimate of the expected usage of points and certificates requires significant management judgment. Current and future changes to our assumptions or to loyalty program rules may result in material changes to the deferred revenue balance as well as recognized revenues from our loyalty programs.
Inventories—Our inventory is carried at the lower of cost and net realizable value. Cost is determined based on the average cost method. Our inventory cost also includes estimated procurement and distribution costs (warehousing, freight, hangers and merchandising costs) associated with the inventory, with the balance of such costs included in cost of sales. Procurement and distribution costs are generally allocated to inventory based on the ratio of annual product purchases to inventory cost. If this ratio were to change significantly, it could materially affect the amount of procurement and distribution costs included in cost of sales. We make assumptions, based primarily on historical experience, as to items in our inventory that may be damaged, obsolete or salable only at marked down prices to reflect the net realizable value of these items. If actual damages, obsolescence or market demand is significantly different from our estimates, additional inventory write-downs could be required.
Impairment of Long-Lived Assets—Long-lived assets, such as property and equipment, operating lease right-of-use assets and identifiable intangibles with finite useful lives, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated for impairment at the lowest level of which there are identifiable cash flows, which is generally at a store level. Assets are reviewed using factors including, but not limited to, our future operating plans and projected cash flows. The determination of whether impairment has occurred is based on an estimate of undiscounted future cash flows directly related to the assets, compared to the carrying value of the assets. If the sum of the undiscounted future cash flows of the assets does not exceed the carrying value of the assets, full or partial impairment may exist. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset. See Notes 1 and 4 to the consolidated financial statements for additional information.
Fair value is determined using an income approach, which requires discounting the estimated future cash flows associated with the asset. Estimating future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales, costs and useful lives of assets. Significant judgment is also involved in selecting the appropriate discount rate to be applied in determining the estimated fair value of an asset. Changes to our key assumptions related to future performance, market conditions and other economic factors can significantly affect our impairment evaluation and result in future impairment charges. Unanticipated long-term adverse market conditions may cause individual stores to become unprofitable and can result in an impairment charge for the long-lived assets in those stores. For example, as a result of our temporary store closures in response to the outbreak of COVID-19, we may incur impairments to certain long-lived assets in our stores during fiscal 2020.
Goodwill and Other Indefinite-Lived Intangible Assets—As of February 1, 2020, goodwill totaled $79.3 million, with $58.3 million allocated to our Men’s Wearhouse reporting unit and $21.0 million allocated to our Moores reporting unit. Goodwill and other indefinite-lived intangible assets are initially recorded at their fair values. Identifiable intangible assets with an indefinite useful life, including goodwill, are not amortized but are evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock.
Fiscal 2019 Annual Impairment Assessment Results
Our goodwill assessment consists of either using a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a quantitative impairment test, if necessary. In performing the qualitative assessment, we consider many factors in evaluating whether the carrying value of the asset may not be recoverable, including macroeconomic conditions, retail industry considerations, recent financial performance and declines in stock price and market capitalization. For our annual 2019 impairment tests, we applied the quantitative approach test for all reporting units.
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We estimated the fair values of each of our reporting units using a combined income and market comparable approach. Our income approach uses projected future cash flows that are discounted using a weighted-average cost of capital analysis that reflects current market conditions. The market comparable approach primarily considers earnings multiples of comparable companies and applies those multiples to certain key drivers of the reporting unit.
Management judgment is a significant factor in the goodwill impairment evaluation process. The computations require management to make estimates and assumptions. Actual values may differ significantly from these judgments, particularly if there are significant adverse changes in the operating environment for our reporting units. Critical assumptions that are used as part of these evaluations include:
| ● | The potential future cash flows of the reporting unit. The income approach relies on the timing and estimates of future cash flows. The projections use management’s estimates of economic and market conditions over the projected period, including growth rates in revenue, gross margin and expense. The cash flows are based on our most recent business operating plans and various growth rates have been assumed for years beyond the current business plan period. |
| ● | Selection of an appropriate discount rate. The income approach requires the selection of an appropriate discount rate, which is based on a weighted-average cost of capital analysis. The discount rate is affected by changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of marketplace participants. Given current economic conditions, it is possible that the discount rate will fluctuate in the near-term. The weighted-average cost of capital used to discount the cash flows for the annual goodwill impairment test for the reporting units that have goodwill ranged from 9.0% to 10.0%. |
| ● | Selection of comparable companies within the industry. For purposes of the market comparable approach, valuations were determined by calculating average earnings multiples of relevant key drivers from a group of companies that are comparable to the reporting unit being tested and applying those earnings multiples to the key drivers of the reporting unit. While the market earnings multiple is not an assumption, a presumption that it provides an indicator of value of the reporting unit is inherent in the valuation. The determination of the market comparable also involves a degree of judgment. Earnings multiples used in the market comparable approach for the annual goodwill impairment test for the reporting units that have goodwill ranged from 6.3 to 7.5. |
We believe these two approaches are appropriate valuation techniques, and we weighted the two values equally as an estimate of reporting unit fair value for the purposes of our impairment testing. In addition, we compared the total fair values of our reporting units to our market capitalization and noted that the implied control premium was within what we consider to be a reasonable range. As the reporting units have fair values that significantly exceed their carrying values, as of February 1, 2020, no reporting units are currently deemed “at risk” for goodwill impairment.
If the current market price of our stock further decreases or does not increase from current levels in the near future, or if other events or circumstances change (such as the impact of COVID-19) that would more likely than not reduce the fair value of our reporting units below their respective carrying values, all or a portion of our goodwill may be impaired in future periods and such an impairment charge could have a material effect on our results of operations and financial condition.
As of February 1, 2020, our indefinite-lived intangible assets consisted of the Jos. A. Bank tradename with a carrying value of $113.2 million. Indefinite-lived intangible assets are not subject to amortization but are reviewed at least annually for impairment. The indefinite-lived intangible asset impairment evaluation is performed by comparing the fair value of the indefinite-lived intangible assets to their carrying values. Similar to the goodwill approach described above, our annual impairment assessment for indefinite-lived intangible assets contemplates the use of either a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a quantitative impairment test. In 2019, we applied the quantitative approach test to our Jos. A. Bank tradename.
We estimated the fair value of the Jos. A. Bank tradename based on an income approach using the relief-from-royalty method. This approach is dependent upon a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. If the carrying value exceeds its estimated fair value, an impairment loss is recognized in the amount by which the carrying amount exceeds the estimated fair value of the asset.
45
As of February 1, 2020, we determined that there is no impairment of our Jos. A. Bank tradename. However, if events or circumstances change that would more likely than not reduce the fair value of the Jos. A. Bank tradename below its carrying value, we may be required to record an impairment charge, which could have a material effect on our results of operations and financial condition. For example, as a result of our temporary store closures in response to the outbreak of COVID-19, we may incur an impairment charge during fiscal 2020 related to the Jos. A. Bank tradename as revenue attributable to the Jos. A. Bank brand is a significant input to the relief-from-royalty method.
Income Taxes—Income taxes are accounted for using the asset and liability method. Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and are subsequently adjusted to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. The deferred tax assets are reduced, if necessary, by a valuation allowance if the future realization of those tax benefits is not more likely than not.
Significant judgment is required in determining the provision for income taxes, related taxes payable and deferred tax assets and liabilities since, in the ordinary course of business, there are transactions and calculations where the ultimate tax outcome is uncertain. Additionally, our tax returns are subject to audit by various domestic and foreign tax authorities that could result in material adjustments or differing interpretations of the tax laws. Although we believe that our estimates are reasonable and are based on the best available information at the time we prepare the provision, actual results could differ from these estimates resulting in a final tax outcome that may be materially different from that which is reflected in our consolidated financial statements.
The changes included in the Tax Reform Act are broad and complex and, in the future, the U.S. Treasury Department, the IRS, and other standard-setting bodies could interpret or issue guidance on how provisions of the Tax Reform Act will be applied or otherwise administered. Any new interpretations or guidance on the Tax Reform Act could have a material impact on our results of operations, financial position and cash flows.
The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the consolidated financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Additionally, interest and/or penalties related to uncertain tax positions are recognized in income tax expense. Significant judgment is required in determining our uncertain tax positions. We have established reserves for uncertain tax positions using our best judgment and adjust these reserves, as warranted, due to changing facts and circumstances. A change in our uncertain tax positions, in any given period, could have a significant impact on our financial position, results of operations and cash flows for that period.
Recent Accounting Pronouncements
Except as discussed in Note 1 of the consolidated financial statements, we have considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition, or cash flows, based on current information.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Foreign Currency Risk
We are subject to exposure from fluctuations in U.S. dollar/Canadian dollar (“CAD”) exchange rates as a result of our direct sourcing programs and our operations in Canada. Moores, our Canadian subsidiary, conducts most of its business in CAD but purchases a significant portion of its merchandise in U.S. dollars. Historically, the exchange rate between CAD and U.S. dollars has fluctuated. A decline in the value of the CAD as compared to the U.S. dollar may adversely impact our Canadian operations as the revenues and earnings of our Canadian operations will be reduced when they are translated to U.S. dollars. Also, the value of our Canadian net assets as expressed in U.S. dollars may decline. We utilize foreign currency hedging contracts related to our merchandise purchases to limit exposure to changes in U.S. dollar/CAD exchange rates; however, these hedging activities may not adequately protect our Canadian operations from exchange rate risk.
As the foreign exchange forward contracts are with financial institutions, we are exposed to credit risk in the event of nonperformance by these parties. However, due to the creditworthiness of these major financial institutions, full performance is anticipated.
46
For information on our derivative instruments, see Note 19 of the consolidated financial statements. A hypothetical 10% increase or decrease in applicable February 1, 2020 forward rates for these derivative financial instruments could impact their fair value by $0.5 million. However, it should be noted that any change in the value of these contracts, whether real or hypothetical, would be significantly offset by an inverse change in the value of the underlying hedged item.
Interest Rate Risk
As discussed in Note 6 and Note 19 of the consolidated financial statements, we have undertaken steps to mitigate our exposure to changes in interest rates on our Term Loan. As of February 1, 2020, 80% of the variable interest rate under our Term Loan has been converted to a fixed rate. At February 1, 2020, the effect of one percentage point change in interest rates would result in an approximate $1.8 million change in annual interest expense on our Term Loan.
In addition, borrowings under our ABL Facility bear a floating rate of interest. As of February 1, 2020, the outstanding borrowings under the ABL Facility were $50.0 million. At February 1, 2020, the effect of a one percentage point change in interest rates would result in an approximate $0.5 million change in annual interest expense on our ABL borrowings.
We also have exposure to market rate risk for changes in interest rates as those rates relate to our cash and cash equivalents. We do not believe our cash and cash equivalents are subject to material interest rate risk, however, future investment income earned on our cash equivalents will fluctuate in line with short-term interest rates.
47
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tailored Brands, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Tailored Brands, Inc. and subsidiaries (the "Company") as of February 1, 2020 and February 2, 2019, the related consolidated statements of (loss) earnings, comprehensive (loss) income, shareholders' (deficit) equity, and cash flows, for each of the three years in the period ended February 1, 2020, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of February 1, 2020 and February 2, 2019, and the results of its operations and its cash flows for each of the three years in the period ended February 1, 2020, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated April 8, 2020, expressed an unqualified opinion on the Company's internal control over financial reporting.
Change in Accounting Principle
As discussed in Note 17 to the financial statements, effective February 3, 2019 the Company adopted Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 842, Leases, using the modified retrospective transition approach. As discussed in Note 7 to the financial statements, effective February 4, 2018 the Company adopted FASB ASC Topic 606, Revenue from Contracts with Customers, using the modified retrospective transition approach.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/DELOITTE & TOUCHE LLP
Houston, Texas
April 8, 2020
We have served as the Company’s auditor since at least 1991; however, an earlier year could not be reliably determined.
48
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
| | | | | | | |
|
| February 1, |
| February 2, |
| ||
| | 2020 | | 2019 |
| ||
ASSETS | | | | | | | |
CURRENT ASSETS: | | | | | | | |
Cash and cash equivalents | | $ | 14,420 | | $ | 32,671 | |
Accounts receivable, net | |
| 39,973 | |
| 34,686 | |
Inventories | |
| 696,657 | |
| 724,086 | |
Assets held for sale | |
| 34,935 | |
| — | |
Other current assets | |
| 49,130 | |
| 66,823 | |
Current assets - discontinued operations | | | — | | | 171,376 | |
Total current assets | |
| 835,115 | |
| 1,029,642 | |
PROPERTY AND EQUIPMENT, AT COST: | | | | | | | |
Land | |
| 17,181 | |
| 19,162 | |
Buildings | |
| 149,942 | |
| 151,071 | |
Leasehold improvements | |
| 650,778 | |
| 628,572 | |
Furniture, fixtures and equipment | |
| 575,986 | |
| 647,241 | |
| |
| 1,393,887 | |
| 1,446,046 | |
Less accumulated depreciation and amortization | |
| (998,075) | |
| (1,021,730) | |
PROPERTY AND EQUIPMENT, net | |
| 395,812 | |
| 424,316 | |
OPERATING LEASE RIGHT-OF-USE ASSETS | |
| 880,291 | |
| — | |
RENTAL PRODUCT, net | |
| 92,897 | |
| 99,770 | |
GOODWILL | |
| 79,271 | |
| 79,491 | |
INTANGIBLE ASSETS, net | |
| 116,843 | |
| 153,711 | |
OTHER ASSETS | |
| 18,730 | |
| 8,489 | |
NON-CURRENT ASSETS - DISCONTINUED OPERATIONS | | | — | | | 25,071 | |
TOTAL ASSETS | | $ | 2,418,959 | | $ | 1,820,490 | |
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY | | | | | | | |
CURRENT LIABILITIES: | | | | | | | |
Accounts payable | | $ | 183,897 | | $ | 204,775 | |
Accrued expenses and other current liabilities | |
| 246,110 | |
| 268,698 | |
Current portion of operating lease liabilities | |
| 186,304 | |
| — | |
Income taxes payable | |
| 3,416 | |
| 13,478 | |
Current portion of long-term debt | |
| 9,000 | |
| 11,619 | |
Current liabilities - discontinued operations | | | — | | | 40,025 | |
Total current liabilities | |
| 628,727 | |
| 538,595 | |
LONG-TERM DEBT, net | |
| 1,094,398 | |
| 1,153,242 | |
OPERATING LEASE LIABILITIES | |
| 726,327 | |
| — | |
DEFERRED TAXES, net AND OTHER LIABILITIES | |
| 67,813 | |
| 119,545 | |
NON-CURRENT LIABILITIES - DISCONTINUED OPERATIONS | | | — | | | 5,477 | |
Total liabilities | |
| 2,517,265 | |
| 1,816,859 | |
COMMITMENTS AND CONTINGENCIES | | | | | | | |
SHAREHOLDERS' (DEFICIT) EQUITY: | | | | | | | |
Preferred stock, $0.01 par value, 2,000,000 shares authorized, 0 shares issued | |
| — | |
| — | |
Common stock, $0.01 par value, 100,000,000 shares authorized, 50,909,984 and 50,180,832 shares issued | |
| 508 | |
| 501 | |
Capital in excess of par | |
| 514,397 | |
| 505,157 | |
Accumulated deficit | |
| (568,697) | |
| (468,048) | |
Accumulated other comprehensive loss | |
| (34,514) | |
| (33,979) | |
Treasury stock, 2,336,852 and 0 shares, at cost | | | (10,000) | | | — | |
Total shareholders' (deficit) equity | |
| (98,306) | |
| 3,631 | |
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY | | $ | 2,418,959 | | $ | 1,820,490 | |
The accompanying notes are an integral part of these consolidated financial statements.
49
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS
For the Years Ended
February 1, 2020, February 2, 2019, and February 3, 2018
(In thousands, except per share amounts)
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
Net sales: | | |
| | |
| | |
| |
Retail clothing product | | $ | 2,358,392 | | $ | 2,454,747 | | $ | 2,439,817 | |
Rental services | |
| 383,521 | |
| 399,146 | |
| 428,355 | |
Alteration and other services | |
| 139,348 | |
| 150,618 | |
| 184,849 | |
Total net sales | |
| 2,881,261 | |
| 3,004,511 | |
| 3,053,021 | |
Cost of sales: | | | | | | | | | | |
Retail clothing product | |
| 1,107,642 | |
| 1,096,032 | |
| 1,085,799 | |
Rental services | |
| 56,750 | |
| 59,243 | |
| 69,973 | |
Alteration and other services | |
| 132,302 | |
| 132,591 | |
| 139,840 | |
Occupancy costs | |
| 415,955 | |
| 406,037 | |
| 415,981 | |
Total cost of sales | |
| 1,712,649 | |
| 1,693,903 | |
| 1,711,593 | |
Gross margin: | | | | | | | | | | |
Retail clothing product | |
| 1,250,750 | |
| 1,358,715 | |
| 1,354,018 | |
Rental services | |
| 326,771 | |
| 339,903 | |
| 358,382 | |
Alteration and other services | |
| 7,046 | |
| 18,027 | |
| 45,009 | |
Occupancy costs | |
| (415,955) | |
| (406,037) | |
| (415,981) | |
Total gross margin | |
| 1,168,612 | |
| 1,310,608 | |
| 1,341,428 | |
Advertising expense | |
| 159,052 | |
| 165,248 | |
| 172,001 | |
Selling, general and administrative expenses | |
| 911,722 | |
| 919,798 | |
| 951,831 | |
Goodwill impairment charge | |
| — | |
| — | |
| 1,500 | |
Operating income | | | 97,838 | | | 225,562 | | | 216,096 | |
Interest income | |
| 523 | |
| 563 | |
| 564 | |
Interest expense | |
| (71,272) | |
| (79,570) | |
| (100,471) | |
(Loss) gain on extinguishment of debt, net | | | (77) | | | (30,253) | | | 5,445 | |
Earnings before income taxes | |
| 27,012 | |
| 116,302 | |
| 121,634 | |
Provision for income taxes | |
| 1,645 | |
| 17,706 | |
| 34,617 | |
Net earnings from continuing operations | |
| 25,367 | |
| 98,596 | |
| 87,017 | |
(Loss) earnings from discontinued operations, net of tax | |
| (107,643) | |
| (15,356) | |
| 9,686 | |
Net (loss) earnings | | $ | (82,276) | | $ | 83,240 | | $ | 96,703 | |
Net earnings from continuing operations per common share: | | | | | | | | | | |
Basic | | $ | 0.51 | | $ | 1.98 | | $ | 1.77 | |
Diluted | | $ | 0.51 | | $ | 1.94 | | $ | 1.76 | |
Net (loss) earnings from discontinued operations per common share: | | | | | | | | | | |
Basic | | $ | (2.16) | | $ | (0.31) | | $ | 0.20 | |
Diluted | | $ | (2.16) | | $ | (0.30) | | $ | 0.20 | |
Net (loss) earnings per common share: | | | | | | | | | | |
Basic | | $ | (1.65) | | $ | 1.67 | | $ | 1.97 | |
Diluted | | $ | (1.65) | | $ | 1.64 | | $ | 1.95 | |
Weighted-average common shares outstanding: | | | | | | | | | | |
Basic | |
| 49,774 | |
| 49,856 | |
| 49,094 | |
Diluted | |
| 49,929 | |
| 50,725 | |
| 49,468 | |
The accompanying notes are an integral part of these consolidated financial statements.
50
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
For the Years Ended
February 1, 2020, February 2, 2019 and February 3, 2018
(In thousands)
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
| | 2019 |
| 2018 |
| 2017 |
| |||
Net (loss) earnings | | $ | (82,276) | | $ | 83,240 | | $ | 96,703 | |
Currency translation adjustments, net of tax | |
| (4,847) | | | (18,704) | |
| 29,089 | |
Unrealized (loss) gain on cash flow hedges, net of tax | |
| (22,054) | | | (4,459) | |
| 227 | |
Adjustment to minimum pension liability, net of tax | |
| (519) | | | (34) | |
| (15) | |
Release of cumulative foreign currency translation adjustment to loss from discontinued operations | | | 26,885 | | | — | | | — | |
Comprehensive (loss) income | | $ | (82,811) | | $ | 60,043 | | $ | 126,004 | |
The accompanying notes are an integral part of these consolidated financial statements.
51
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY
(In thousands, except shares)
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | ||
| | | | | | | | | Accumulated | | | | |
| |||||
| | | | Capital | | | | Other | | Treasury | | Total |
| ||||||
| | Common | | in Excess | | Accumulated | | Comprehensive | | Stock, at | | (Deficit) | | ||||||
| | Stock | | of Par | | Deficit | | Loss | | Cost | | Equity |
| ||||||
BALANCES — January 28, 2017 |
| $ | 487 |
| $ | 470,801 |
| $ | (538,823) |
| $ | (40,083) |
| $ | — |
| $ | (107,618) | |
Net earnings |
| | — |
| | — |
| | 96,703 |
| | — |
| | — |
| | 96,703 | |
Other comprehensive income |
| | — |
| | — |
| | — |
| | 29,301 |
| | — |
| | 29,301 | |
Cash dividends — $0.72 per share |
| | — |
| | — |
| | (37,046) |
| | — |
| | — |
| | (37,046) | |
Share-based compensation |
| | — |
| | 20,636 |
| | — |
| | — |
| | — |
| | 20,636 | |
Common stock issued — 504,156 shares |
| | 5 |
| | 1,898 |
| | — |
| | — |
| | — |
| | 1,903 | |
Tax payments related to vested deferred stock units |
| | — |
| | (1,687) |
| | — |
| | — |
| | — |
| | (1,687) | |
BALANCES — February 3, 2018 |
| | 492 |
| | 491,648 |
| | (479,166) |
| | (10,782) |
| | — |
| | 2,192 | |
Net earnings |
| | — |
| | — |
| | 83,240 |
| | — |
| | — |
| | 83,240 | |
Other comprehensive loss |
| | — |
| | — |
| | — |
| | (23,197) |
| | — |
| | (23,197) | |
Cumulative adjustment upon ASC 606 adoption (see Note 7) | | | — | | | — | | | (35,824) | | | — | | | — | | | (35,824) | |
Cash dividends — $0.72 per share |
| | — |
| | — |
| | (36,298) |
| | — |
| | — |
| | (36,298) | |
Share-based compensation |
| | — |
| | 14,770 |
| | — |
| | — |
| | — |
| | 14,770 | |
Common stock issued — 892,976 shares |
| | 9 |
| | 6,640 |
| | — |
| | — |
| | — |
| | 6,649 | |
Tax payments related to vested deferred stock units |
| | — |
| | (7,901) |
| | — |
| | — |
| | — |
| | (7,901) | |
BALANCES —February 2, 2019 |
| | 501 |
| | 505,157 |
| | (468,048) |
| | (33,979) |
| | — |
| | 3,631 | |
Net loss |
| | — | | | — | | | (82,276) | | | — | | | — |
| | (82,276) | |
Other comprehensive loss |
| | — | | | — | | | — | | | (27,420) | | | — |
| | (27,420) | |
Cumulative adjustment upon ASC 842 adoption (see Note 17) | | | — | | | — | | | (402) | | | — | | | — | | | (402) | |
Cash dividends — $0.36 per share |
| | — | | | — | | | (17,971) | | | — | | | — |
| | (17,971) | |
Release of cumulative foreign currency translation adjustment to loss from discontinued operations |
| | — | | | — | | | — | | | 26,885 | | | — |
| | 26,885 | |
Share-based compensation |
| | — | | | 8,902 | | | — | | | — | | | — |
| | 8,902 | |
Common stock issued —729,152 shares |
| | 7 | | | 1,554 | | | — | | | — | | | — |
| | 1,561 | |
Tax payments related to vested deferred stock units |
| | — | | | (1,216) | | | — | | | — | | | — |
| | (1,216) | |
Treasury stock repurchased — 2,336,852 shares |
| | — |
| | — |
| | — |
| | — |
| | (10,000) |
| | (10,000) | |
BALANCES — February 1, 2020 | | $ | 508 | | $ | 514,397 | | $ | (568,697) | | $ | (34,514) | | $ | (10,000) | | $ | (98,306) | |
The accompanying notes are an integral part of these consolidated financial statements.
52
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended
February 1, 2020, February 2, 2019 and February 3, 2018
(In thousands)
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
CASH FLOWS FROM OPERATING ACTIVITIES: | | | | | | | | |
| |
Net (loss) earnings | | $ | (82,276) | | $ | 83,240 | | $ | 96,703 | |
Adjustments to reconcile net (loss) earnings to net cash provided by operating activities: | | | | | | | | | | |
Depreciation and amortization | |
| 107,174 | |
| 104,216 | |
| 106,493 | |
Non-cash lease expense | |
| 194,529 | |
| — | |
| — | |
Rental product amortization | |
| 34,289 | |
| 35,058 | |
| 38,021 | |
Goodwill impairment charge | |
| — | |
| 23,991 | |
| 1,500 | |
Loss (gain) on extinguishment of debt, net | | | 77 | | | 30,253 | | | (5,445) | |
Amortization of deferred financing costs and discount on long-term debt | | | 1,878 | | | 3,422 | | | 7,066 | |
Loss on divestiture of business | | | 83,513 | | | 3,766 | | | — | |
Loss on release of cumulative foreign currency translation adjustment | | | 26,885 | | | — | | | — | |
Loss on disposition of assets | |
| 2,628 | |
| 4,821 | |
| 1,237 | |
Asset impairment charges | |
| 3,404 | |
| 1,026 | |
| 3,547 | |
Share-based compensation | |
| 8,902 | |
| 14,770 | |
| 20,636 | |
Deferred tax benefit | |
| (13,461) | |
| (8,009) | |
| (5,763) | |
Other | |
| 80 | |
| 272 | |
| 938 | |
Changes in operating assets and liabilities: | | | | | | | | | | |
Accounts receivable | |
| 3,161 | |
| 2,264 | |
| (9,440) | |
Inventories | |
| 26,243 | |
| (4,482) | |
| 114,652 | |
Rental product | |
| (30,513) | | | (16,217) | |
| (9,582) | |
Other assets | |
| (20,015) | |
| 9,385 | |
| (5,956) | |
Accounts payable, accrued expenses and other current liabilities | |
| (39,325) | |
| 43,706 | |
| (10,843) | |
Income taxes payable | | | (11,750) | | | 9,993 | | | 4,650 | |
Operating lease and other liabilities | |
| (195,782) | |
| (18,803) | |
| 2,354 | |
Net cash provided by operating activities | |
| 99,641 | |
| 322,672 | |
| 350,768 | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | |
Capital expenditures | |
| (88,502) | |
| (82,286) | |
| (94,958) | |
Proceeds from divestiture of business, net | | | 45,034 | | | 17,755 | | | — | |
Acquisition of business, net of cash | |
| — | |
| — | |
| (457) | |
Proceeds from sales of property and equipment | |
| 311 | |
| — | |
| 5,480 | |
Net cash used in investing activities | |
| (43,157) | |
| (64,531) | |
| (89,935) | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | |
Payments on original term loan | | | — | | | (993,420) | | | (53,379) | |
Proceeds from new term loan | | | — | | | 895,500 | | | — | |
Payments on new term loan | | | (9,370) | |
| (9,000) | |
| — | |
Proceeds from asset-based revolving credit facility | | | 1,333,000 | | | 655,500 | | | 276,300 | |
Payments on asset-based revolving credit facility | | | (1,331,500) | |
| (607,000) | |
| (276,300) | |
Repurchase and retirement of senior notes | | | (54,425) | | | (199,365) | | | (145,371) | |
Deferred financing costs | | | — | |
| (6,713) | |
| (2,580) | |
Cash dividends paid | | | (28,071) | |
| (36,946) | |
| (35,761) | |
Proceeds from issuance of common stock | | | 1,561 | | | 6,649 | | | 1,903 | |
Tax payments related to vested deferred stock units | | | (1,216) | |
| (7,901) | |
| (1,687) | |
Repurchases of common stock | | | (10,000) | |
| — | |
| — | |
Net cash used in financing activities | | | (100,021) | |
| (302,696) | |
| (236,875) | |
Effect of exchange rate changes | |
| 2,526 | |
| (3,621) | |
| 8,760 | |
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS | |
| (41,011) | |
| (48,176) | |
| 32,718 | |
Balance at beginning of period | |
| 55,431 | |
| 103,607 | |
| 70,889 | |
Balance at end of period | | $ | 14,420 | | $ | 55,431 | | $ | 103,607 | |
53
| | | | | | | | | | |
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: | | | | | | | | | | |
Cash paid for: | | | | | | | | | | |
Interest | | $ | 65,669 | | $ | 77,571 | | $ | 106,372 | |
Income taxes, net | | $ | 38,031 | | $ | 11,431 | | $ | 39,537 | |
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES: | | | | | | | | | | |
Accounts receivable related to the sale of corporate apparel business | | $ | 6,048 | | $ | — | | $ | — | |
We had unpaid capital expenditure purchases included in accounts payable, accrued expenses and other current liabilities and current liabilities – discontinued operations of approximately $2.8 million, $11.7 million and $2.9 million in fiscal 2019, 2018 and 2017, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the consolidated statement of cash flows in the period in which they are paid.
The accompanying notes are an integral part of these consolidated financial statements.
54
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business—Tailored Brands, Inc. and its subsidiaries (the “Company”, “we”, “us”, and “our”) is a leading omni-channel specialty apparel retailer of menswear, including suits, formalwear and a broad selection of polished and business casual offerings. We also offer a full selection of special occasion offerings including tuxedo and suit rental product (collectively “rental product”). We serve our customers through an expansive omni-channel network including over 1,400 stores in the United States (“U.S.”) and Canada as well as our branded e-commerce websites at www.menswearhouse.com and www.josbank.com.
Our retail stores operate under the Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank Clothiers (“Jos. A. Bank”), Moores Clothing for Men (“Moores”) and K&G names and carry a wide selection of exclusive and non-exclusive merchandise brands. In addition, we offer our customers alteration services and most of our K&G stores also offer women’s career and casual apparel, sportswear and accessories, including shoes, and children’s apparel. Also, prior to its divestiture in 2018, we conducted retail dry cleaning, laundry and heirlooming operations through MW Cleaners in Texas. See Note 3 for information on our divestiture of MW Cleaners.
On August 16, 2019, we completed the sale of MWUK Limited, our UK corporate apparel operations conducted by Dimensions, Alexandra, and Yaffy to Project Dart Bidco Limited, pursuant to a Share Purchase Agreement entered into on that same date. In addition, we also completed the sale of Twin Hill Acquisition Company, Inc. (“Twin Hill”), to TH Holdco Inc., pursuant to a Stock Purchase Agreement entered into on August 16, 2019. The aggregate consideration for all of the outstanding equity of MWUK Limited and Twin Hill (collectively, the “corporate apparel business”) was approximately $62 million, subject to certain working capital adjustments. See Note 2 for additional information. Unless noted otherwise, discussion in these notes to the consolidated financial statements pertain to our continuing operations.
We follow the standard fiscal year of the retail industry, which is a 52-week or 53-week period ending on the Saturday closest to January 31. The periods presented in these financial statements are the fiscal years ended February 1, 2020 (“fiscal 2019”), February 2, 2019 (“fiscal 2018”), and February 3, 2018 (“fiscal 2017”). Each of these periods had 52 weeks except for fiscal 2017, which consisted of 53 weeks.
Principles of Consolidation— The consolidated financial statements include the accounts of Tailored Brands, Inc. and its subsidiaries. Intercompany accounts and transactions have been eliminated in the consolidated financial statements.
Reclassifications— Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates— The preparation of financial statements in conformity with accounting principles generally accepted in the U.S. 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.
Segment information— As a result of the sale of our corporate apparel business, we reassessed our segment reporting presentation. We determined that the results from our 4 retail brands: Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank, K&G and Moores represent separate operating segments that should continue to be aggregated into a reportable segment and, as a result, we have only 1 reportable segment. See Note 7 for revenue information by brand and by major source. Long-lived assets of our Canadian operations were $32.3 million and $36.6 million as of February 1, 2020 and February 2, 2019, respectively.
Cash and Cash Equivalents— Cash and cash equivalents includes all cash in banks, cash on hand and all highly liquid investments with an original maturity of three months or less.
Accounts Receivable—Accounts receivable consists of our receivables from third-party credit card providers and other trade receivables. Collectability is reviewed regularly and recorded net of an allowance for uncollectible accounts, which is adjusted as necessary. As of February 1, 2020 and February 2, 2019, the allowance for uncollectible accounts was $0.8 million and $0.9 million, respectively.
55
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Inventories—Inventories are valued at the lower of cost and net realizable value. Cost is determined based on the average cost method. Our inventory cost also includes estimated procurement and distribution costs (warehousing, freight, hangers and merchandising costs) associated with the inventory, with the balance of such costs included in cost of sales. Procurement and distribution costs are generally allocated to inventory based on the ratio of annual product purchases to inventory cost. We make assumptions, based primarily on historical experience, as to items in our inventory that may be damaged, obsolete or salable only at marked down prices to reflect the net realizable value of these items.
Assets Held for Sale—Assets held for sale are measured at the lower of their carrying amount or fair value less costs to sell. As of February 1, 2020, assets held for sale totaled $34.9 million including $30.0 million related to the Joseph Abboud tradename, which we sold in the first quarter of 2020. See Note 23 for additional information. The remaining $4.9 million of assets held for sale are primarily related to recently closed distribution centers which we intend to sell in fiscal 2020. As we believe the fair value less costs to sell for the assets held for sale exceeds their carrying amount, no adjustment to their carrying value was recorded in fiscal 2019.
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 period of disposal and the resulting gain or loss is credited or charged to earnings.
Buildings are depreciated using the straight-line method over their estimated useful lives of 10 to 25 years. Depreciation of leasehold improvements is computed on the straight-line method over the term of the lease, which is generally five to ten years based on the initial lease term plus first renewal option periods that are reasonably certain of being exercised, or the useful life of the assets, whichever is shorter. Furniture, fixtures and equipment are depreciated using primarily the straight-line method over their estimated useful lives of two to 15 years.
Depreciation expense was $102.4 million, $98.1 million and $100.1 million for fiscal 2019, 2018 and 2017, respectively.
Rental Product—Rental product is amortized to cost of sales based on the cost of each unit rented. The cost of each unit rented is estimated based on the number of times the unit is expected to be rented and the average cost of the rental product. Lost, damaged and retired rental product is also charged to cost of sales. Rental product is amortized to expense generally over a four year period. We make assumptions, based primarily on historical experience, as to the number of times each unit can be rented. Amortization expense was $34.3 million, $35.1 million and $38.0 million for fiscal 2019, 2018 and 2017, respectively.
Impairment of Long-Lived Assets—Long-lived assets, such as property and equipment, operating lease right-of-use assets and identifiable intangibles with finite useful lives, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated for impairment at the lowest level of which there are identifiable cash flows, which is generally at a store level. Assets are reviewed using factors including, but not limited to, our future operating plans and projected cash flows. The determination of whether impairment has occurred is based on an estimate of undiscounted future cash flows directly related to the assets, compared to the carrying value of the assets. If the sum of the undiscounted future cash flows of the assets does not exceed the carrying value of the assets, full or partial impairment may exist. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset. Fair value is determined using an income approach, which requires discounting the estimated future cash flows associated with the asset.
Asset impairment charges totaled $3.4 million, $1.0 million and $3.5 million for fiscal 2019, 2018 and 2017, respectively. The $3.4 million and $1.0 million of asset impairment charges recorded in fiscal 2019 and 2018, respectively, relates to long-lived assets at our Joseph Abboud store and other underperforming stores. Of the $3.5 million recorded in fiscal 2017, $1.2 million relates to fixed assets in our tuxedo shops within Macy’s (see Note 4 for additional information) and the remainder relates to underperforming stores.
56
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Goodwill and Other Indefinite-Lived Intangible Assets—Goodwill and other indefinite-lived intangible assets are initially recorded at their fair values. Identifiable intangible assets with an indefinite useful life, including goodwill, are not amortized but are evaluated annually for impairment. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock.
For purposes of our goodwill impairment evaluation, each of our merchandising brands are separate reporting units. Goodwill has been assigned to the reporting units based on prior business combinations related to the reporting units and our annual impairment assessment occurs on the last day of the second month of our fiscal fourth quarter.
Our goodwill assessment consists of either using a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a quantitative impairment test, if necessary. In performing the qualitative assessment, we consider many factors in evaluating whether the carrying value of the asset may not be recoverable, including macroeconomic conditions, retail industry considerations, recent financial performance and declines in stock price and market capitalization.
Indefinite-lived intangible assets are not subject to amortization but are reviewed at least annually for impairment. The indefinite-lived intangible asset impairment evaluation is performed by comparing the fair value of the indefinite-lived intangible assets to their carrying values. Similar to the goodwill approach described above, our annual impairment assessment for indefinite-lived intangible assets contemplates the use of either a qualitative approach to determine whether it is more likely than not that the fair value of the assets is less than their respective carrying values or a quantitative impairment test, if necessary.
We estimate the fair values of these intangible assets based on an income approach using the relief-from-royalty method. This approach is dependent upon a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables. We base our fair value estimates on assumptions we believe to be reasonable, but which are unpredictable and inherently uncertain. If the carrying value exceeds its estimated fair value, an impairment loss is recognized in the amount by which the carrying amount exceeds the estimated fair value of the asset.
As a result of our annual impairment evaluations, we believe that, as of February 1, 2020, none of our goodwill and indefinite-lived intangible assets are impaired.
Derivative Financial Instruments—Derivative financial instruments are recorded in the consolidated balance sheet at fair value as other current assets, other assets, accrued expenses and other current liabilities or other liabilities. For derivative instruments for which hedge accounting was not designated, the gain or loss is recorded in cost of sales in the consolidated statements of (loss) earnings. For derivative instruments that qualify for hedge accounting treatment, the effective portion of the derivative is recorded as a component of other comprehensive income (loss) and reclassified to earnings in the period when the hedged item affects earnings. Gains and losses on derivative instruments are reflected within cash flow from operating activities on the statement of cash flows. See Note 19 for further information regarding our derivative instruments.
Self-Insurance— We self-insure significant portions of our workers’ compensation and employee medical costs. We estimate our liability for future payments under these programs based on historical experience and various assumptions as to participating employees, health care costs, number of claims and other factors, including industry trends and information provided to us by third parties. We also use actuarial estimates. If the number of claims or the costs associated with those claims were to increase significantly over our estimates, additional charges to earnings could be necessary to cover required payments.
Sabbatical Leave—Beginning in fiscal 2016, employees no longer earn a sabbatical leave and, as a result, we are no longer accruing benefits for sabbatical leave. The accrued liability for sabbatical leave earned prior to fiscal 2016, which is included in accrued expenses and other current liabilities in the consolidated balance sheets, was $1.5 million and $2.4 million as of fiscal 2019 and 2018, respectively.
57
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes—Income taxes are accounted for using the asset and liability method. Deferred tax liabilities or assets are established for temporary differences between financial and tax reporting bases and subsequently adjusted to reflect changes in enacted tax rates expected to be in effect when the temporary differences reverse. The deferred tax assets are reduced, if necessary, by a valuation allowance if the future realization of those tax benefits is not more likely than not.See Note 9 for further information regarding income taxes, including impacts related to the Tax Cuts and Jobs Act (the “Tax Reform Act”).
The tax benefit from an uncertain tax position is recognized only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured based on the largest benefit that has a greater than 50% likelihood of being realized upon settlement. Interest and/or penalties related to uncertain tax positions are recognized in income tax expense.
Revenue Recognition—Effective February 4, 2018, we adopted Accounting Standards Codification 606, Revenue from Contracts with Customers ("ASC 606"). Under ASC 606, revenue is recognized when performance obligations under the terms of the contracts with our customers are satisfied. See Note 7 for additional discussion related to revenue recognition.
Leases— Effective February 3, 2019, we adopted ASC 842, Leases ("ASC 842"). The adoption of ASC 842 resulted in a significant increase in our assets and liabilities given our considerable number of operating leases.See Note 17 for additional discussion related to leases.
Advertising—Advertising costs are expensed as incurred or, in the case of media production costs, when the advertisement first appears.
New Store Costs—Promotion and other costs associated with the opening of new stores are expensed as incurred.
Store Closures and Relocations—Costs associated with store closures or relocations are charged to expense when the liability is incurred.
Share-Based Compensation—In recognizing share-based compensation, we follow the provisions of the authoritative guidance regarding share-based awards. This guidance establishes fair value as the measurement objective in accounting for stock awards and requires the application of a fair value based measurement method in accounting for compensation cost, which is recognized over the requisite service period.
During the first quarter of fiscal 2017, we adopted Accounting Standards Update (“ASU”) No. 2016-09, Compensation-Stock Compensation. ASU 2016-09 simplified several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The recognition of excess tax benefits and deficiencies related to the vesting of stock-based awards in the statement of earnings and presentation of excess tax benefits on the statement of cash flows were adopted prospectively, with no adjustments made to prior periods. In addition, upon adoption, we did not change our policy on accounting for forfeitures, which is to estimate the number of awards expected to be forfeited and adjusting the estimate as needed. Overall, the adoption of ASU 2016-09 did not have a material impact on our financial statements.
We use the Black-Scholes option pricing model to estimate the fair value of stock options and stock appreciation rights on the date of grant. The fair value of deferred stock units, performance units, and restricted stock is determined based on the number of shares granted and the quoted closing price of our common stock on the date of grant. Awards settled in cash are classified as liabilities and the fair value of awards settled in cash will be remeasured at each reporting period until the awards are settled.
The value of the portion of the award that is ultimately expected to vest is recognized as expense over the requisite service period. Compensation expense for performance-based awards is recorded based on the amount of the award ultimately expected to vest and the level and likelihood of the performance condition to be met. For grants with a service condition
58
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
only that are subject to graded vesting, we recognize expense on a straight-line basis over the requisite service period for the entire award.
Share-based compensation expense, including cash settled awards, recognized for fiscal 2019, 2018 and 2017 was $8.6 million, $17.7 million and $24.1 million, respectively. Total income tax benefit recognized in net (loss) earnings for share-based compensation arrangements was $2.2 million, $4.4 million and $9.1 million for fiscal 2019, 2018 and 2017, respectively. See Note 15 for additional disclosures regarding share-based compensation.
Foreign Currency Translation—Assets and liabilities of foreign subsidiaries are translated into U.S. dollars at the exchange rates in effect at each balance sheet date. Equity is translated at applicable historical exchange rates. Income, expense and cash flow items are translated at average exchange rates during the year. Resulting translation adjustments are reported as a separate component of comprehensive (loss) income.
Comprehensive (Loss) Income—Comprehensive (loss) income includes all changes in equity during the periods presented that result from transactions and other economic events other than transactions with shareholders. We present comprehensive (loss) income in a separate statement in the accompanying consolidated financial statements.
(Loss) earnings per share— Basic (loss) earnings per common share is computed by dividing net (loss) earnings by the weighted-average common shares outstanding during the period. Diluted (loss) earnings per common share is calculated using the treasury stock method. See Note 5 for disclosures regarding (loss) earnings per share.
Treasury stock— Treasury stock purchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock. Gains and losses on the subsequent reissuance of shares are credited or charged to capital in excess of par value using the average-cost method. Upon retirement of treasury stock, the amounts in excess of par value are charged entirely to accumulated deficit.
Recent Accounting Pronouncements—We have considered all new accounting pronouncements and have concluded that the following new pronouncements may have a material impact on our results of operations, financial condition, or cash flows.
In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for public companies for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of ASU 2018-15 is permitted. We will adopt ASU 2018-15 in the first quarter of fiscal 2020 and do not expect the adoption to have a material impact on our financial position, results of operations or cash flows.
59
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. DISCONTINUED OPERATIONS
On August 16, 2019, we completed the sale of MWUK Limited, our UK corporate apparel operations conducted under the Dimensions, Alexandra, and Yaffy brand names to Project Dart Bidco Limited, pursuant to a Share Purchase Agreement entered into on August 16, 2019. In addition, we also completed the sale of Twin Hill Acquisition Company, Inc. (“Twin Hill”), our U.S. corporate apparel operation, to TH Holdco Inc., pursuant to a Stock Purchase Agreement entered into on August 16, 2019. The aggregate consideration for all of the outstanding equity of MWUK Limited and Twin Hill (collectively, the “corporate apparel business”) was approximately $62 million, subject to certain working capital adjustments. After consideration of working capital adjustments and other related items, we received $49.3 million in cash during the third quarter of 2019 and approximately $6.0 million will be received in the first quarter of fiscal 2020. During the fourth quarter of 2019, we recorded an additional working capital adjustment totaling $0.6 million, which was paid in the first quarter of 2020. Prior to its sale, the corporate apparel business was its own reportable segment.
We determined that the sale of the corporate apparel business represents a strategic shift that will have a major effect on our results of operations and, as a result, have reported the disposal as discontinued operations. We have presented the results of the corporate apparel business including the loss on the sale of the corporate apparel business within loss from discontinued operations, net in the consolidated statement of (loss) earnings for all periods presented. Certain costs previously allocated to the corporate apparel business for segment reporting purposes do not qualify for classification within discontinued operations and have been reallocated to continuing operations. In addition, the goodwill impairment charge of $24.0 million recorded during the third quarter of 2018 and related to the corporate apparel business has been reclassified to discontinued operations.
Also, U.S. GAAP requires cumulative foreign currency translation adjustment balances to be released into earnings once the sale or liquidation of the net assets of a foreign entity occurs. As we sold the operating entities associated with the corporate apparel business during the third quarter of 2019, we determined the cumulative foreign currency translation adjustment balance totaling $26.9 million should be released to earnings and classified within loss from discontinued operations.
The related assets and liabilities of the corporate apparel business are presented as current and non-current assets and liabilities of discontinued operations in the consolidated balance sheets as of February 2, 2019. The following table provides details of the carrying amounts of major classes of assets and liabilities related to discontinued operations as of February 2, 2019 (in thousands):
| | | |
| February 2, | | |
| 2019 | | |
ASSETS | | | |
Cash and cash equivalents | $ | 22,760 | |
Accounts receivable, net | | 38,387 | |
Inventories | | 106,340 | |
Other current assets | | 3,889 | |
Total current assets | | 171,376 | |
Property and equipment, net | | 14,856 | |
Other assets | | 10,215 | |
Total assets | $ | 196,447 | |
| | | |
LIABILITIES | | | |
Accounts payable | $ | 24,204 | |
Accrued expenses and other current liabilities | | 15,821 | |
Total current liabilities | | 40,025 | |
Other liabilities | | 5,477 | |
Total liabilities | $ | 45,502 | |
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TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides details of the amounts reflected in (loss) earnings from discontinued operations, net of tax in the consolidated statements of (loss) earnings for fiscal 2019, 2018 and 2017 (in thousands):
| | | | | | | | | |
| | Fiscal Year | |||||||
|
| 2019 |
| 2018 |
| 2017 | |||
Net sales | | $ | 117,444 | | $ | 235,391 | | $ | 251,325 |
Cost of sales | | | 85,042 | | | 168,532 | | | 183,987 |
Selling, general and administrative expenses | | | 30,049 | | | 56,491 | | | 54,018 |
Goodwill impairment charge | | | — | | | 23,991 | | | — |
Interest expense, net | | | — | | | 3 | | | |
Loss on sale of corporate apparel business | | | 83,513 | | | — | | | — |
Loss on release of cumulative foreign currency translation adjustment | | | 26,885 | | | — | | | — |
(Loss) earnings from discontinued operations before taxes | | | (108,045) | | | (13,626) | | | 13,320 |
Income tax (benefit) expense | | | (402) | | | 1,730 | | | 3,634 |
(Loss) earnings from discontinued operations, net of tax | | $ | (107,643) | | $ | (15,356) | | $ | 9,686 |
The cash flows related to discontinued operations have not been segregated, and are included in the consolidated statements of cash flows. The following table provides selected information on cash flows related to discontinued operations for fiscal 2019, 2018 and 2017 (in thousands):
| | | | | | | | | |
| | Fiscal Year | |||||||
|
| 2019 |
| 2018 | | 2017 | |||
Depreciation and amortization | | $ | 3,102 | | $ | 6,501 | | $ | 6,197 |
Capital expenditures | | | 2,691 | | | 3,744 | | | 3,663 |
Significant non-cash operating and investing items: | | | | | | | | | |
Goodwill impairment charge | | | — | | | 23,991 | | | — |
Loss on divestiture of business | | | 83,513 | | | — | | | — |
Loss on release of cumulative foreign currency translation adjustment | | | 26,885 | | | — | | | — |
Receivable related to sale of corporate apparel business | | $ | 6,048 | | $ | — | | $ | — |
3. DIVESTITURE OF MW CLEANERS
On February 28, 2018, we entered into a definitive agreement to divest our MW Cleaners business for approximately $18.0 million, subject to certain adjustments, and the transaction closed on March 3, 2018. During fiscal 2018, we received cash proceeds of $17.8 million and recorded a total loss on the divestiture totaling $3.8 million, which is included within SG&A in the consolidated statement of (loss) earnings. During the fourth quarter of fiscal 2017, based on an indicator of the fair value of the business, we recorded a goodwill impairment charge of $1.5 million for MW Cleaners.
We determined that the sale of the MW Cleaners business did not represent a strategic shift and will not have a major effect on our consolidated results of operations, financial position or cash flows. Accordingly, we have not presented the sale as a discontinued operation in the consolidated financial statements.
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TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
4. TERMINATION OF TUXEDO RENTAL LICENSE AGREEMENT WITH MACY’S
During the first quarter of fiscal 2017, we reached an agreement with Macy's to wind down operations under the tuxedo rental license agreement established between Macy's and The Men's Wearhouse in 2015. During fiscal 2017, we completed the winding down of our operations related to our tuxedo shops within Macy's and all tuxedo shops within Macy's closed in the second quarter of 2017.
As a result of the agreement, during the first quarter of fiscal 2017, we incurred $17.2 million of termination-related costs, of which $14.6 million were cash charges. These costs included $12.3 million related to contract termination, $1.4 million of rental product write-offs, $1.2 million of asset impairment charges and $2.3 million of other costs. Of the $17.2 million in termination-related costs, $15.8 million is recorded in SG&A and $1.4 million is included in cost of sales in the consolidated statement of (loss) earnings. At February 3, 2018, all termination-related costs had been paid.
5.(LOSS) EARNINGS PER SHARE
Basic and diluted (loss) earnings per common share are computed using the actual net (loss) earnings and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our consolidated statement of (loss) earnings and the accompanying notes. As a result, it may not be possible to recalculate (loss) earnings per common share in our consolidated statement of (loss) earnings and the accompanying notes. The following table sets forth the computation of basic and diluted (loss) earnings per common share (in thousands, except per share amounts):
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
| | | | | | | | | | |
|
| 2019 |
| 2018 |
| 2017 |
| |||
Numerator | | | | | | | | | | |
Net earnings from continuing operations | | $ | 25,367 | | $ | 98,596 | | $ | 87,017 | |
(Loss) earnings from discontinued operations, net of tax | |
| (107,643) | |
| (15,356) | |
| 9,686 | |
Net (loss) earnings | | $ | (82,276) | | $ | 83,240 | | $ | 96,703 | |
Denominator | | | | | | | | | | |
Basic weighted-average common shares outstanding | |
| 49,774 | |
| 49,856 | |
| 49,094 | |
Dilutive effect of share-based awards | |
| 155 | |
| 869 | |
| 374 | |
Diluted weighted-average common shares outstanding | |
| 49,929 | |
| 50,725 | |
| 49,468 | |
| | | | | | | | | | |
Net earnings from continuing operations per common share: | | | | | | | | | | |
Basic | | $ | 0.51 | | $ | 1.98 | | $ | 1.77 | |
Diluted | | $ | 0.51 | | $ | 1.94 | | $ | 1.76 | |
Net (loss) earnings from discontinued operations per common share: | | | | | | | | | | |
Basic | | $ | (2.16) | | $ | (0.31) | | $ | 0.20 | |
Diluted | | $ | (2.16) | | $ | (0.30) | | $ | 0.20 | |
Net (loss) earnings per common share: | | | | | | | | | | |
Basic | | $ | (1.65) | | $ | 1.67 | | $ | 1.97 | |
Diluted | | $ | (1.65) | | $ | 1.64 | | $ | 1.95 | |
For fiscal 2019, 2018 and 2017, 3.9 million, 0.8 million, and 1.8 million anti-dilutive shares of common stock were excluded from the calculation of diluted (loss) earnings per common share, respectively.
62
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6.DEBT
In 2014, The Men's Wearhouse entered into a term loan credit agreement that provided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the "Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original Term Loan, the "Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People, one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Original Term Loan were reduced by an $11.0 million original issue discount ("OID"), which was presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and amortized to interest expense over the contractual life of the Original Term Loan. In addition, in 2014, The Men's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "Senior Notes").
In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. In April 2018, The Men’s Wearhouse refinanced its Original Term Loan, and in October 2018, amended its term loan to reduce the interest rate margin. See Credit Facilities section below for additional information.
The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios. Should our total leverage ratio and secured leverage ratio exceed certain thresholds specified in the agreements, we would be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of February 1, 2020 our total leverage is below the maximum specified in the agreements, however, our secured leverage ratio is above the maximum level. As a result, we are now subject to additional restrictions, primarily related to the size of any incremental term loan facilities being limited to a maximum of $250.0 million. In addition, as a result of the refinancing of the Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter. See Note 13 for additional information on the suspension of our dividend in 2019.
Credit Facilities
In April 2018, we refinanced our Original Term Loan. Immediately prior to the refinancing, the Original Term Loan consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and $400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum. Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.
As a result, we refinanced $900.0 million in aggregate principal amount of term loans then outstanding with a new Term Loan totaling $900.0 million (the “New Term Loan”). Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0. As noted above, we are currently limited to a maximum of $250.0 million for such incremental borrowings.
The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018. Proceeds from the New Term Loan were reduced by a $4.5 million OID, which was presented as a reduction of the outstanding balance on the New Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the New Term Loan. The New Term Loan extends the maturity date of the Original Term Loan from June 18, 2021 until April 9, 2025, subject to a springing maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.
The New Term Loan bears interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%). In October 2018, we amended the New Term Loan resulting in a reduction in the interest rate margin of 25 basis points. As a result of the amendment, the margins for borrowings under the New Term Loan are 3.25% for LIBOR and 2.25% for the base rate and the OID was eliminated. In
63
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
connection with the October 2018 amendment of the New Term Loan, we incurred deferred financing costs of $1.1 million, which will be amortized over the life of the New Term Loan using the interest method. The maturity date for the New Term Loan remains April 9, 2025, and all other material provisions of the New Term Loan remain unchanged.
The interest rate on the New Term Loan is based on 1-month LIBOR, which was 1.66% at February 1, 2020, plus the applicable margin of 3.25%, resulting in a total interest rate of 4.91%. We have 2 interest rate swap agreements where the variable rates due under the New Term Loan have been exchanged for a fixed rate. At February 1, 2020, the total notional amount under these interest rate swaps is $705.0 million. See Note 19 for additional information on our interest rate swaps.
As a result of our interest rate swaps, 80% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, as of February 1, 2020, the New Term Loan had a weighted average interest rate of 5.63%.
In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature that matures in October 2022, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate (“CDOR”) rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%. As of February 1, 2020, $50.0 million in borrowings were outstanding under the ABL Facility at a weighted average interest rate of approximately 3.2%. During fiscal 2019, the maximum borrowing outstanding under the ABL Facility was $100.0 million.
We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases.claims. At February 3, 2018,1, 2020, letters of credit totaling approximately $37.3$26.6 million were issued and outstanding. Borrowings available under the ABL Facility as of February 3, 20181, 2020 were $505.5$400.5 million.
The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, and certain of its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors.
Senior Notes
The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The Senior Notes and the related guarantees are senior unsecured obligations of the Men’s Wearhouse, Inc. and the guarantors, respectively, and will rank equally with all of The Men’s Wearhouse Inc.’s and each guarantor’s present and future senior indebtedness. The Senior Notes will mature in July 2022. Interest on the Senior Notes is payable on January 1 and July 1 of each year.
We may redeem some or all of the Senior Notes at any time on or after July 1, 2017 at the redemption prices set forth in the indenture governing the Senior Notes. As of February 1, 2020, the redemption price is 101.75% of the face value and steps down to 100% of the face value on July 1, 2020. Upon the occurrence of certain specific changes of control, we may be required to offer to purchase the Senior Notes at 101% of their aggregate principal amount plus accrued and unpaid interest thereon to the date of purchase.
During fiscal 2019, we repurchased and retired $54.8 million in face value of Senior Notes through open market repurchases. As a result, we recorded a net loss on extinguishment totaling $0.1 million, consisting of the elimination of unamortized deferred financing costs totaling $0.5 million partially offset by a $0.4 million gain upon repurchase, which is included as a separate line in the consolidated statement of (loss) earnings.
64
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Long-Term Debt
The following table provides details on our long-term debt as of February 1, 2020 and February 2, 2019 (in thousands):
The following table provides principal payments due on long-term debt in the next five fiscal years and the remaining years thereafter (in thousands):
| | | | |
Fiscal Year |
| | |
|
2020 |
| $ | 9,000 | |
2021 | |
| 9,000 | |
2022 | |
| 232,816 | |
2023 | |
| 11,250 | |
2024 | |
| 6,750 | |
Thereafter | |
| 836,630 | |
Total long-term debt | |
| 1,105,446 | |
Deferred financing costs | |
| (2,048) | |
Total long-term debt, net | | $ | 1,103,398 | |
| | | | |
| | |||
65
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7.REVENUE RECOGNITION
Adoption of ASC 606
Effective February 4, 2018, we adopted ASC 606 to all contracts using the modified retrospective approach. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings. The adoption had no impact to our previously reported results of operations or cash flows.
The following table depicts the cumulative effect of the changes made to our February 3, 2018 balance sheet for the adoption of ASC 606 (in thousands):
| | | | | | | | | | |
| | Reported | | | | Adjusted | | |||
| | Balance at | | Impact of | | Balance at | | |||
| | February 3, | | Adoption of | | February 3, | | |||
|
| 2018 |
| ASC 606 |
| 2018 |
| |||
Assets: | | | | | | | | | | |
Accounts receivable, net | | $ | 36,288 | | $ | (303) | | $ | 35,985 | |
Other current assets | |
| 77,228 | |
| 2,753 | |
| 79,981 | |
Current assets - discontinued operations | | | 182,862 | | | (17,837) | | | 165,025 | |
Liabilities: | | | | | | | | | | |
Accrued expenses and other current liabilities | | | 246,946 | | | 52,673 | | | 299,619 | |
Current liabilities - discontinued operations | | | 62,188 | | | (20,295) | | | 41,893 | |
Deferred taxes, net and other liabilities | | | 160,163 | | | (12,555) | | | 147,608 | |
Non-current liabilities - discontinued operations | | | 4,028 | | | 614 | | | 4,642 | |
Equity: | | | | | | | | | | |
Accumulated deficit | | $ | (479,166) | | $ | (35,824) | | $ | (514,990) | |
The adoption of ASC 606 primarily impacted the timing of revenue recognition related to our customer loyalty programs, gift cards and e-commerce sales, as discussed in more detail below. In addition, for our corporate apparel business, which has been reclassified to discontinued operations, certain deferred revenue balances along with related inventory amounts were eliminated as part of the cumulative adjustment to opening retained earnings. Also, for estimated sales returns, we now recognize allowances for estimated sales returns on a gross basis rather than a net basis on the consolidated balance sheets.
66
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenues
The following table sets forth supplemental products and services sales information for the Company (in thousands):
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
Net sales: | | |
| | |
| | |
| |
Men's tailored clothing product | | $ | 1,305,913 | | $ | 1,385,320 | | $ | 1,351,881 | |
Men's non-tailored clothing product | |
| 971,509 | |
| 988,973 | |
| 1,008,663 | |
Women's clothing product | | | 68,354 | |
| 68,518 | |
| 70,630 | |
Other (1) | |
| 12,616 | |
| 11,936 | |
| 8,643 | |
Total retail clothing product | |
| 2,358,392 | |
| 2,454,747 | |
| 2,439,817 | |
Rental services | |
| 383,521 | |
| 399,146 | |
| 428,355 | |
Alteration services | |
| 139,348 | |
| 148,067 | |
| 150,005 | |
Retail dry cleaning services (2) | |
| — | |
| 2,551 | |
| 34,844 | |
Total alteration and other services | |
| 139,348 | |
| 150,618 | |
| 184,849 | |
Total net sales | | $ | 2,881,261 | | $ | 3,004,511 | | $ | 3,053,021 | |
| (1) | Other consists of franchise and licensing revenues and gift card breakage. Franchise revenues are generally recognized at a point in time while licensing revenues consist primarily of minimum guaranteed royalty amounts recognized over an elapsed time period. |
| (2) | On March 3, 2018,
| |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Additional net sales information is as follows (in thousands):
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
Net sales: | | |
| | |
| | |
| |
Men's Wearhouse(1) | | $ | 1,655,924 | | $ | 1,741,983 | | $ | 1,742,668 | |
Jos. A. Bank | | | 706,040 | | | 722,887 | | | 735,149 | |
K&G | |
| 318,363 | |
| 319,476 | |
| 323,994 | |
Moores | |
| 200,934 | |
| 217,614 | |
| 216,366 | |
MW Cleaners(2) | |
| — | |
| 2,551 | |
| 34,844 | |
Total net sales | | $ | 2,881,261 | | $ | 3,004,511 | | $ | 3,053,021 | |
| (1) | Consists of |
| (2) | On March 3, 2018, we completed the divestiture of our MW
| ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
67
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The table below presents information related to geographic areas in which we operate, with net sales classified based primarily on the geographic area where our customer is located (in thousands):
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
Net sales: | | |
| | |
| | |
| |
U.S. | | $ | 2,680,327 | | $ | 2,786,897 | | $ | 2,836,655 | |
Canada | |
| 200,934 | |
| 217,614 | |
| 216,366 | |
Total net sales | | $ | 2,881,261 | | $ | 3,004,511 | | $ | 3,053,021 | |
For retail clothing product revenue, we transfer control and recognize revenue at a point in time, upon sale or shipment of the merchandise, net of actual sales returns and an accrual for estimated sales returns. For rental and alteration services, we transfer control and recognize revenue at a point in time, upon receipt of the completed service by the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.
Loyalty Programs
We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a 1-to-one basis, excluding any sales tax dollars, and, historically, did not expire. During the fourth quarter of 2018, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019, which was completed. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance. We believe our loyalty programs represents a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer. Therefore, we record our obligation for future point redemptions using a deferred revenue model.
When loyalty program members earn points, we recognize a portion of the transaction as revenue for merchandise product sales or services and defer a portion of the transaction representing the value of the related points. The value of the points is recorded in deferred revenue on our consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.
We account for points earned and certificates issued that will not be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.
During the fourth quarter of 2018, we redeemed certain loyalty members’ cumulative outstanding points into reward certificates prior to them reaching 500 total points, and these certificates expired on February 2, 2019. In addition, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019, which was completed. As a result of these changes in the loyalty programs, in fiscal 2018, we recorded a decrease to our deferred revenue liability related to outstanding loyalty program points of $17.6 million, $14.3 million net of income taxes, or $0.28 earnings per diluted share.
Our estimate of the expected usage of points and certificates requires significant management judgment. Current and future changes to our assumptions or to loyalty program rules may result in material changes to the deferred revenue balance as well as recognized revenues from the loyalty programs.
68
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Gift Card Breakage
Proceeds from the sale of gift cards are recorded as a liability and are recognized as net sales from products and services when the cards are redeemed. Our gift cards do not have expiration dates. In addition, we recognize revenue for gift cards for which the likelihood of redemption is deemed to be remote and for which there is no legal obligation to remit the value of such unredeemed gift cards to any relevant jurisdictions (commonly referred to as gift card breakage) under the redemption recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate. We review our gift card breakage estimate based on our historical redemption patterns. Pre-tax breakage income of $3.5 and $3.1 million was recognized during fiscal 2019 and 2018, respectively. In prior years, we recognized income from breakage of gift cards as a reduction of SG&A when the likelihood of redemption of the gift card was remote. Pre-tax breakage income of $3.2 million was recognized during fiscal 2017.
Sales Returns
Revenue from merchandise product sales is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. Our refund liability for sales returns was $5.8 million and $6.4 million at February 1, 2020 and February 2, 2019, respectively, which is included in accrued and other current liabilities and represents the expected value of the refund that will be due to our customers. We also have a corresponding asset included in other current assets that represents the right to recover products from customers associated with sales returns of $3.0 million and $3.2 million at February 1, 2020 and February 2, 2019, respectively.
Contract Liabilities
The following table summarizes the opening and closing balances of our contract liabilities (in thousands):
| | | | | | | | | | |
| | Balance at | | Increase | | Balance at | | |||
|
| February 2, 2019 |
| (Decrease) |
| February 1, 2020 | | |||
Contract liabilities | | $ | 121,796 | | $ | (261) | | $ | 121,535 | |
| | | | | | | | | | |
| | Balance at | | Increase | | Balance at | | |||
|
| February 3, 2018 |
| (Decrease) |
| February 2, 2019 | | |||
| | As Adjusted | | | | | | | | |
Contract liabilities | | $ | 139,809 | | $ | (18,013) | | $ | 121,796 | |
Contract liabilities include cash payments received from customers in advance of our performance, including amounts which are refundable. These liabilities primarily consist of customer deposits related to rental product or custom clothing transactions since we typically receive payment from our customers prior to our performance and deferred revenue related to our loyalty programs and unredeemed gift cards. These amounts are primarily included as “Customer deposits, prepayments and refunds payable,” “Loyalty program liabilities” and “Unredeemed gift cards,” respectively, within the accrued expenses and other current liabilities line item on our consolidated balance sheets. See Note 11 for additional information on our accrued expenses and other current liabilities.
The amount of revenue recognized for fiscal 2019 and 2018 that was included in the opening contract liability balance was $81.7 million and $100.0 million, respectively. This revenue primarily consists of recognition of deposits for completed transactions as well as redeemed certificates related to our loyalty program and gift card redemptions. Fiscal 2018 also includes the impact of changes related to our loyalty programs of $17.6 million.
69
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8.GOODWILL AND INTANGIBLE ASSETS
Goodwill
Changes in the net carrying amount of goodwill for the years ended February 1, 2020 and February 2, 2019 are as follows (in thousands):
| | | |
| | | |
|
| Total | |
Balance at February 3, 2018 | | $ | 94,305 |
Goodwill of divested business (see Note 3) | | | (13,588) |
Translation adjustment | |
| (1,226) |
Balance at February 2, 2019 | | $ | 79,491 |
Translation adjustment | |
| (220) |
Balance at February 1, 2020 | | $ | 79,271 |
As of February 1, 2020 and February 2, 2019, accumulated goodwill impairment totaled $780.0 million.
Intangible Assets
The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):
| | | | | | | |
| | February 1, |
| February 2, |
| ||
|
| 2020 |
| 2019 |
| ||
Amortizable intangible assets: | | | | | | | |
Carrying amount: | | | | | | | |
Trademarks, tradenames and franchise agreements | | $ | 13,506 | | $ | 13,506 | |
Favorable leases | | | — | | | 11,844 | |
Total carrying amount | |
| 13,506 | |
| 25,350 | |
Accumulated amortization: | | | | | | | |
Trademarks, tradenames and franchise agreements | |
| (9,863) | |
| (9,677) | |
Favorable leases | | | — | | | (5,162) | |
Total accumulated amortization | |
| (9,863) | |
| (14,839) | |
Total amortizable intangible assets, net | |
| 3,643 | |
| 10,511 | |
Indefinite-lived intangible assets: | | | | | | | |
Trademarks and tradename | |
| 113,200 | |
| 143,200 | |
Total intangible assets, net | | $ | 116,843 | | $ | 153,711 | |
The elimination of favorable leases is due to the adoption of ASC 842, effective February 3, 2019. See Note 17 for additional information. The decrease in trademarks, tradenames and franchise agreements and the elimination of customer relationships is due to the sale of our corporate apparel business. See Note 2 for additional information. In addition, the decrease in indefinite-lived trademarks and tradenames reflects the reclassification of the Joseph Abboud tradename totaling $30.0 million as an asset held for sale in the consolidated balance sheets due to the sale of the Joseph Abboud trademarks which closed on March 4, 2020. See Note 23 for additional information.
Amortization expense associated with intangible assets subject to amortization totaled approximately $0.2 million, $1.6 million and $1.8 million for fiscal 2019, 2018 and 2017, respectively. Amortization expense associated with intangible assets subject to amortization at February 1, 2020 is estimated to be approximately $0.2 million each year for fiscal years 2020-2024.
70
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
9. INCOME TAXES
The following table summarizes the goodwill and other intangible asset impairment charges related to Jos. A. Bank recorded in fiscal 2015 (amounts in thousands):
|
|
|
|
|
Goodwill impairment charge |
| $ | 769,021 |
|
Tradename impairment charge |
|
| 425,900 |
|
Customer relationship impairment charge |
|
| 41,474 |
|
Favorable lease impairment charge |
|
| 6,959 |
|
Total goodwill and intangible asset impairment charges |
| $ | 1,243,354 |
|
63
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
8. INCOME TAXES
Earnings (loss) before income taxes (in thousands):
|
|
|
|
|
|
|
|
|
|
| |
|
| Fiscal Year |
| ||||||||
|
| 2017 |
| 2016 |
| 2015 |
| ||||
United States |
| $ | 90,399 |
| $ | (9,986) |
| $ | (1,242,022) |
| |
Foreign |
|
| 44,555 |
|
| 41,567 |
|
| 46,261 |
| |
Total |
| $ | 134,954 |
| $ | 31,581 |
| $ | (1,195,761) |
| |
The provision (benefit) for income taxes consists of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| Fiscal Year |
| |||||||
|
| 2017 |
| 2016 |
| 2015 |
| |||
Current tax expense: |
|
|
|
|
|
|
|
|
|
|
Federal |
| $ | 25,701 |
| $ | 18,545 |
| $ | 5,615 |
|
State |
|
| 5,067 |
|
| 912 |
|
| 1,877 |
|
Foreign |
|
| 13,246 |
|
| 11,156 |
|
| 8,307 |
|
Deferred tax (benefit) expense: |
|
|
|
|
|
|
|
|
|
|
Federal and state |
|
| (21,187) |
|
| (23,135) |
|
| (185,440) |
|
Foreign |
|
| 15,424 |
|
| (853) |
|
| 599 |
|
Total |
| $ | 38,251 |
| $ | 6,625 |
| $ | (169,042) |
|
In December 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The changes included in the Tax Reform Act are broad and complex, which impacted our consolidated financial statements in fiscal 2017 including, but not limited to: reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and requiring a one-time transition tax on certain unrepatriated earnings of non-U.S. subsidiaries that may electively be paid over eight years. The transition tax resulted in certain previously untaxed non-U.S. earnings being included in the U.S. federal and state 2017 taxable income.
The Tax Reform Act also enacted new tax laws which include, but are not limited to: a Base Erosion Anti-abuse Tax (“BEAT”), which is a new minimum tax, generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, a provision designed to tax currently global intangible low taxed income (“GILTI”), a provision that may limit the amount of currently deductible interest expense, the repeal of the domestic production incentives, limitations on the deductibility of certain executive compensation, and limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.
Shortly after the Tax Reform Act was enacted, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provides guidance on accounting for the Tax Reform Act’s impact. SAB 118 provides details on our earnings before income taxes (in thousands):
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
United States | | $ | (17,678) | | $ | 73,775 | | $ | 90,629 | |
Foreign | |
| 44,690 | |
| 42,527 | |
| 31,005 | |
Total | | $ | 27,012 | | $ | 116,302 | | $ | 121,634 | |
The provision for income taxes consists of the following (in thousands):
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
Current tax expense: | | |
| | |
| | |
| |
Federal | | $ | 4,231 | | $ | 7,295 | | $ | 25,578 | |
State | |
| 2,196 | |
| 4,853 | |
| 5,055 | |
Foreign | |
| 4,726 | |
| 13,764 | |
| 10,049 | |
Deferred tax (benefit) expense: | | | | | | | | | | |
Federal and state | |
| (8,919) | |
| (2,472) | |
| (21,607) | |
Foreign | |
| (589) | |
| (5,734) | |
| 15,542 | |
Total | | $ | 1,645 | | $ | 17,706 | | $ | 34,617 | |
In December 2017, the U.S. enacted the Tax Reform Act. The changes included in the Tax Reform Act are broad and complex, which impacted our consolidated financial statements in fiscal 2017 and fiscal 2018 including, but not limited to: reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018 and requiring a one-time transition tax on certain unrepatriated earnings of non-U.S. subsidiaries that may electively be paid over eight years. The transition tax resulted in certain previously untaxed non-U.S. earnings being included in the U.S. federal and state 2017 taxable income.
The Tax Reform Act also enacted new tax laws which include, but are not limited to: a Base Erosion Anti-abuse Tax (“BEAT”), which is a new minimum tax, generally eliminating U.S. federal income taxes on dividends from foreign subsidiaries, a provision designed to tax currently global intangible low taxed income (“GILTI”), a provision that may limit the amount of currently deductible interest expense, the repeal of the domestic production incentives, limitations on the deductibility of certain executive compensation, and limitations on the utilization of foreign tax credits to reduce the U.S. income tax liability.
Shortly after the Tax Reform Act was enacted, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act (“SAB 118”) which provides guidance on accounting for the Tax Reform Act’s impact. SAB 118 provided a measurement period, which in no case should extend beyond one year from the Tax Reform Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Reform Act. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Reform Act in the reporting period in which the accounting is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Reform Act is incomplete, a company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined.
As a result, in fiscal 2017, we recorded a provisional discrete net tax benefit of $0.3 million related to the Tax Reform Act, which consisted of a benefit from deferred tax remeasurement offset by additional provision for transition tax. During the fourth quarter of fiscal 2018, we completed our accounting for the effects of the Tax Reform Act and recorded a discrete net tax benefit of $6.1 million, including finalization of deferred tax remeasurement, transition tax and a rate change for foreign exchange remeasurement on previously taxed earnings and profits.
71
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, during 2018, we finalized our policy and have elected to use the period cost method for GILTI provisions and therefore have not recorded deferred taxes for basis differences expected to reverse in future periods.
A reconciliation of the statutory federal income tax rate to our effective tax rate is as follows:
| | | | | | | |
| | Fiscal Year |
| ||||
|
| 2019 |
| 2018 |
| 2017 |
|
Federal statutory rate | | 21.0 | % | 21.0 | % | 33.7 | % |
State income taxes, net of federal benefit |
| (1.5) | | 4.1 | | 1.4 | |
Uncertain tax positions |
| 0.1 | | (0.5) | | (15.1) | |
Foreign tax rate differential |
| (21.7) | | 4.3 | | (1.9) | |
Amortizable tax goodwill |
| — | | (4.3) | | (1.2) | |
Foreign income taxed in the U.S. | | 15.8 | | 1.8 | | — | |
Return to provision | | (6.5) | | (4.2) | | (2.5) | |
Valuation allowance |
| 34.5 | | 1.0 | | 7.9 | |
Tax credits |
| (45.6) | | (6.1) | | (9.9) | |
Impact of change to permanent reinvestment of foreign earnings | | 2.1 | | 4.6 | | 14.2 | |
Impact of Tax Reform Act | | — | | (5.2) | | (0.2) | |
Inventory donations | | (7.1) | | (1.7) | | (1.3) | |
Stock compensation | | 9.2 | | — | | 2.3 | |
Impact of ASC 810 | | 3.7 | | 0.6 | | — | |
Meals and entertainment |
| 2.4 | | 0.5 | | 0.4 | |
Other |
| (0.3) | | (0.7) | | 0.7 | |
|
| 6.1 | % | 15.2 | % | 28.5 | % |
In fiscal 2019, our effective income tax rate was 6.1% and is lower than the U.S. statutory rate primarily due to benefits from foreign tax credits offset by a net increased valuation allowance. In fiscal 2018, our effective income tax rate from continuing operations was 15.2% and is lower than the U.S. statutory rate primarily due to the impact of the Tax Reform Act and usage of tax credits, which are partially offset by state income tax changes related to the Tax Reform Act and foreign earnings with higher tax rates in these jurisdictions.
In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that a portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. As of February 1, 2020, it is more likely than not that we will realize the benefits of the deferred tax assets, except as discussed below.
During 2019, valuation allowances recorded against deferred tax assets increased by $9.4 million. The increase in valuation allowances related to charitable contributions and various state tax attributes of $14.7 million and was primarily driven by uncertainties regarding the future realization of tax attributes recorded in multiple jurisdictions. The increase in valuation allowances was partially offset by a decrease of $5.3 million related to tax credits due to sustained profitability which allows us to release the valuation allowance on these tax attributes.
At February 1, 2020, we had tax attributes including federal net operating loss (“NOL”), state NOL and U.S. capital loss carryforwards of approximately $6.2 million, $236.7 million and $21.1 million, respectively. The federal NOL can be can be carried forward indefinitely, the state NOL carryforwards will expire between fiscal 2020 and 2039, and the capital loss can be carried forward 5 years. At February 1, 2020, we also had $15.8 million of foreign tax credit carryforwards, which will expire between fiscal 2021 and fiscal 2029.
At February 1, 2020 and February 2, 2019, we had net non-current deferred tax liabilities of $22.0 million and $43.0 million, respectively. We have a valuation allowance of $30.1 million against certain state deferred tax assets and foreign tax credits for which we have concluded it is more likely than not that we will not recognize the asset.
72
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Total deferred tax assets and liabilities and the related temporary differences as of February 1, 2020 and February 2, 2019 were as follows (in thousands):
| | | | | | | |
|
| February 1, |
| February 2, |
| ||
| | 2020 | | 2019 |
| ||
Deferred tax assets: | | | | | | | |
Accrued rent and other expenses | | $ | 20,439 | | $ | 27,098 | |
Accrued compensation | |
| 10,408 | |
| 17,667 | |
Accrued inventory reserves | |
| 8,159 | |
| 5,654 | |
Interest rate swap | | | 8,649 | | | 1,558 | |
Operating lease liabilities | |
| 218,257 | |
| 9,249 | |
Other | |
| 98 | |
| 6,617 | |
Tax attributes | |
| 56,955 | |
| 32,030 | |
Total deferred tax assets | |
| 322,965 | |
| 99,873 | |
Valuation allowance | |
| (30,123) | |
| (20,686) | |
Net deferred tax assets | |
| 292,842 | |
| 79,187 | |
Deferred tax liabilities: | | | | | | | |
Property and equipment | |
| (40,656) | |
| (47,287) | |
Capitalized inventory costs | |
| (12,050) | |
| (12,538) | |
Intangibles | |
| (40,558) | |
| (41,176) | |
Investment in foreign subsidiaries | | | (11,239) | | | (12,321) | |
Operating lease right-of-use assets | | | (206,023) | | | — | |
Other | | | (4,356) | | | (8,863) | |
Total deferred tax liabilities | |
| (314,882) | |
| (122,185) | |
Net deferred tax liabilities | | $ | (22,040) | | $ | (42,998) | |
In accordance with the guidance regarding accounting for uncertainty in income taxes, we classify uncertain tax positions as non-current income tax liabilities unless expected to be paid within one year and recognize interest and/or penalties related to income tax matters in income tax expense. As of February 1, 2020 and February 2, 2019, the total amount of accrued interest related to uncertain tax positions was $0.1 million and $0.1 million, respectively.
The following table summarizes the activity related to our uncertain tax positions (in thousands):
| | | | | | | |
|
| February 1, |
| February 2, |
| ||
| | 2020 | | 2019 |
| ||
Gross uncertain tax positions, beginning balance | | $ | 619 | | $ | 1,154 | |
Increase in tax positions for prior years | |
| — | |
| — | |
Decrease in tax positions for prior years | |
| — | |
| (535) | |
Increase in tax positions due to business combinations | | | — | | | — | |
Increase in tax positions for current year | |
| — | |
| — | |
Decrease in tax positions for current year | |
| — | |
| — | |
Settlements | |
| — | |
| — | |
Lapse from statute of limitations | |
| — | |
| — | |
Gross uncertain tax positions, ending balance | | $ | 619 | | $ | 619 | |
Of the $0.6 million in uncertain tax positions as of February 1, 2020, $0.6 million, if recognized, would reduce our income tax expense and effective tax rate. We do not expect material changes in the total amount of uncertain tax positions within the next 12 months as the outcome of tax matters is uncertain and unforeseen results can occur.
We are subject to routine compliance examinations on tax matters by various tax jurisdictions in the ordinary course of business. Tax return years which are open to examinations range from fiscal 2014 through fiscal 2018. Our tax jurisdictions primarily consist of the United States, Canada, the United Kingdom, and Hong Kong as well as their states, territories, provinces and other political subdivisions. We are currently under IRS examination for fiscal year 2016. A number of U.S. state examinations are ongoing.
73
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
10. INVENTORIES
The following table provides details on our inventories as of February 1, 2020 and February 2, 2019 (in thousands):
| | | | | | | |
| | February 1, | | February 2, |
| ||
|
| 2020 |
| 2019 |
| ||
Finished goods | | $ | 554,706 | | $ | 581,953 | |
Raw materials and merchandise components | |
| 141,951 | |
| 142,133 | |
Total inventories | | $ | 696,657 | | $ | 724,086 | |
11. OTHER CURRENT ASSETS, ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES AND DEFERRED TAXES AND OTHER LIABILITIES
The following table provides details on our other current assets as of February 1, 2020 and February 2, 2019 (in thousands):
| | | | | | | |
| | February 1, | | February 2, |
| ||
|
| 2020 |
| 2019 |
| ||
Prepaid expenses | | $ | 28,111 | | $ | 53,455 | |
Tax receivable | | | 12,010 | | | — | |
Other | |
| 9,009 | |
| 13,368 | |
Total other current assets | | $ | 49,130 | | $ | 66,823 | |
The decrease in prepaid expenses is primarily due to the impact on prepaid rent resulting from the adoption of ASC 842, effective February 3, 2019. See Note 17 for additional information. The following table provides details on our accrued expenses and other current liabilities as of February 1, 2020 and February 2, 2019 (in thousands):
| | | | | | | |
|
| February 1, |
| February 2, | | ||
| | 2020 | | 2019 | | ||
Accrued salary, bonus, sabbatical, vacation and other benefits | | $ | 58,264 | | $ | 78,297 | |
Loyalty program liabilities | |
| 43,692 | |
| 44,434 | |
Customer deposits, prepayments and refunds payable | |
| 39,527 | |
| 38,436 | |
Unredeemed gift cards | | | 30,024 | | | 32,178 | |
Sales, value added, payroll, property and other taxes payable | |
| 18,208 | |
| 20,930 | |
Accrued workers compensation and medical costs | |
| 20,954 | |
| 23,893 | |
Accrued dividends | |
| 380 | |
| 10,480 | |
Accrued interest | |
| 5,552 | |
| 1,828 | |
Unrealized loss on interest rate swaps | | | 7,701 | | | 1,625 | |
Accrued royalties | | | 2,543 | | | 1,286 | |
Other | |
| 19,265 | |
| 15,311 | |
Total accrued expenses and other current liabilities | | $ | 246,110 | | $ | 268,698 | |
The following table provides details on our deferred taxes, net and other liabilities as of February 1, 2020 and February 2, 2019 (in thousands):
| | | | | | | |
| | February 1, |
| February 2, |
| ||
|
| 2020 | | 2019 |
| ||
Deferred and other income tax liabilities, net | | $ | 36,373 | | $ | 48,199 | |
Unrealized loss on interest rate swaps | | | 26,885 | | | 7,605 | |
Deferred rent and landlord incentives | | | — | | | 57,351 | |
Unfavorable lease liabilities | | | — | | | 1,797 | |
Other | |
| 4,555 | |
| 4,593 | |
Total deferred taxes, net and other liabilities | | $ | 67,813 | | $ | 119,545 | |
The elimination of deferred rent and landlord incentives and unfavorable lease liabilities is due to the adoption of ASC 842, effective February 3, 2019. See Note 17 for additional information.
74
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12. ACCUMULATED OTHER COMPREHENSIVE (LOSS) INCOME
The following table summarizes the components of accumulated other comprehensive (loss) income during fiscal 2019, 2018 and 2017 (in thousands and net of tax):
| | | | | | | | | | | | | |
| | Foreign | | | | | | | | | | | |
| | Currency | | Cash Flow | | Pension | | | |
| |||
|
| Translation |
| Hedges |
| Plan |
| Total |
| ||||
BALANCE— January 28, 2017 | | $ | (40,205) | | $ | (82) | | $ | 204 | | $ | (40,083) | |
Other comprehensive (loss) income before reclassifications | |
| 29,089 | | | (3,359) | | | (20) | |
| 25,710 | |
Amounts reclassified from accumulated other comprehensive loss | |
| — | | | 4,682 | | | — | |
| 4,682 | |
Tax effect | |
| — | | | (1,096) | | | 5 | |
| (1,091) | |
Net other comprehensive income (loss) | |
| 29,089 | |
| 227 | | | (15) | |
| 29,301 | |
BALANCE— February 3, 2018 | |
| (11,116) | | | 145 | | | 189 | |
| (10,782) | |
Other comprehensive loss before reclassifications | |
| (18,704) | | | (8,393) | | | (45) | |
| (27,142) | |
Amounts reclassified from accumulated other comprehensive loss | |
| — | | | 2,178 | | | | |
| 2,178 | |
Tax effect | | | — | | | 1,756 | | | 11 | | | 1,767 | |
Net other comprehensive loss | |
| (18,704) | |
| (4,459) | | | (34) | |
| (23,197) | |
BALANCE— February 2, 2019 | | | (29,820) | | | (4,314) | | | 155 | | | (33,979) | |
Other comprehensive loss before reclassifications | |
| (4,847) | | | (30,578) | | | (701) | |
| (36,126) | |
Amounts reclassified from accumulated other comprehensive loss | |
| — | | | 1,250 | | | — | |
| 1,250 | |
Release of cumulative foreign currency translation adjustment to loss from discontinued operations (see Note 2) | |
| 26,885 | | | — | | | — | |
| 26,885 | |
Tax effect | | | — | | | 7,274 | | | 182 | | | 7,456 | |
Net other comprehensive income (loss) | |
| 22,038 | |
| (22,054) | | | (519) | |
| (535) | |
BALANCE— February 1, 2020 | | $ | (7,782) | | $ | (26,368) | | $ | (364) | | $ | (34,514) | |
Amounts reclassified from other comprehensive (loss) income in fiscal 2019 related to changes in the fair value of our interest rate swaps, which is recorded in interest expense in the consolidated statement of (loss) earnings and the impact of the cancellation of cash flow hedges related to inventory purchases for our divested corporate apparel business. Amounts reclassified from other comprehensive (loss) income in fiscal 2018 and 2017 related to changes in the fair value of our interest rate swaps which is recorded in interest expense in the consolidated statement of (loss) earnings and changes in the fair value of cash flow hedges related to inventory purchases, which is recorded within cost of sales in the consolidated statement of (loss) earnings.
13. DIVIDENDS
On September 11, 2019, after extensive review, the Company announced an update to the Company’s capital allocation policy. Effective in the fourth quarter of fiscal, 2019, our quarterly cash dividend was suspended and the cash was redeployed for accelerated debt reduction and opportunistic share repurchases.
Cash dividends paid were approximately $28.1 million, $36.9 million and $35.8 million during fiscal 2019, 2018 and 2017, respectively. In fiscal 2019, a dividend of $0.18 per share was declared in each of the first two quarters, for an annual dividend of $0.36 per share. In fiscal 2018 and 2017, a dividend of $0.18 per share was declared in each quarter, for an annual dividend of $0.72 per share, respectively.
75
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. SHARE REPURCHASES
In March 2013, our Board approved a share repurchase program for our common stock. During the third quarter of 2019, we repurchased 2,336,852 shares through open market repurchases at a cost of $10.0 million for an average price of $4.28 per share. At February 1, 2020, the remaining balance available under the Board’s authorization was $38.0 million. NaN shares were repurchased during fiscal 2018 or fiscal 2017.
15. EQUITY AND SHARE-BASED COMPENSATION PLANS
Preferred Stock
Our Board is authorized to issue up to 2,000,000 shares of preferred stock and to determine the dividend rights and terms, redemption rights and terms, liquidation preferences, conversion rights, voting rights and sinking fund provisions of those shares without any further vote or act by Company shareholders. There was 0 issued preferred stock as of February 1, 2020 and February 2, 2019, respectively.
Stock Plans
In June 2016, our shareholders approved the Tailored Brands, Inc. 2016 Long-Term Incentive Plan (the “2016 LTIP”), which will be used for equity grants after June 2016. As amended in 2017, the 2016 LTIP provides for an aggregate of up to 9,300,000 shares, subject to adjustment, of our common stock (or the fair market value thereof) with respect to which stock options, stock appreciation rights, restricted stock, deferred stock units and performance based awards may be granted to full-time key employees and to non-employee directors of the Company.
In addition, we continue to administer the 2004 Long-Term Incentive Plan (the “2004 LTIP”) and the 1996 Long-Term Incentive Plan (“1996 Plan”) as a result of awards which remain outstanding pursuant to such plans. Awards are no longer available for grant under the 2004 LTIP and 1996 Plan.
Stock options and stock appreciation rights granted under these plans vest annually in varying increments over a period from one to three years and must be exercised within ten years of the date of grant. Grants of deferred stock units, performance units or restricted stock generally vest over a period from one to three years.
As of February 1, 2020, 3,676,509 shares were available for grant under the 2016 LTIP and 8,680,893 shares of common stock were reserved for future issuance under the existing plans.
Non-Vested Deferred Stock Units, Performance Units and Restricted Stock
The following table summarizes the activity of time-based and performance-based (collectively, “DSUs”) awards during fiscal 2019:
| | | | | | | | | | | |
| | | | | | Weighted-Average |
| ||||
| | Units | | Grant-Date Fair Value |
| ||||||
| | Time- | | Performance- | | Time- | | Performance- |
| ||
|
| Based |
| Based |
| Based |
| Based |
| ||
Non-Vested at February 2, 2019 | | 939,086 |
| 336,906 | | $ | 22.60 | | $ | 18.59 | |
Granted |
| 164,662 |
| — | |
| 5.53 | |
| — | |
Vested(1) |
| (487,020) |
| (73,064) | |
| 21.61 | |
| 23.27 | |
Forfeited |
| (145,219) |
| (98,030) | |
| 22.11 | |
| 17.25 | |
Non-Vested at February 1, 2020 |
| 471,509 |
| 165,812 | | $ | 17.81 | | $ | 17.33 | |
| (1) | Includes 173,360 shares relinquished for tax payments related to vested DSUs in fiscal 2019. |
76
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes additional information about DSUs:
| | | | | | | | | | |
| | Fiscal Year |
| |||||||
|
| 2019 |
| 2018 |
| 2017 |
| |||
DSUs issued | | | 164,662 | | | 941,328 | | | 1,015,236 | |
Weighted average grant date fair value | | $ | 5.53 | | $ | 26.81 | | $ | 11.47 | |
We have determined the performance targets for the 165,812 outstanding performance units are not probable of achievement and are not expected to vest. Performance units that are unvested at the end of the performance period will lapse and be forfeited.
The fair value of shares vested was $12.2 million, $17.2 million and $11.6 million in fiscal 2019, 2018 and 2017, respectively. As of February 1, 2020, the intrinsic value of non-vested DSUs was $2.5 million. As of February 1, 2020, we have unrecognized compensation expense related to non-vested DSUs of approximately $4.8 million which is expected to be recognized over a weighted-average period of 0.9 years.
Stock Options and Stock Appreciation Rights (“SARs”)
The following table summarizes the activity of stock options during fiscal 2019:
| | | | | | | | | | | |
| | | | | | | Weighted- | | | |
|
| | | | | | | Average | | Aggregate |
| |
| | | | Weighted- | | Remaining | | Intrinsic |
| ||
| | Number of | | Average | | Contractual | | Value |
| ||
|
| Shares |
| Exercise Price |
| Term |
| (in thousands) |
| ||
Outstanding at February 2, 2019 |
| 1,252,072 | | $ | 23.64 | | | | | | |
Granted |
| 3,258,797 | |
| 7.42 | | | | | | |
Exercised |
| — | |
| — | | | | | | |
Forfeited |
| (415,327) | | | 10.44 | | | | | | |
Expired |
| (142,955) | | | 26.98 | | | | | | |
Outstanding at February 1, 2020 |
| 3,952,587 | | $ | 11.53 |
| 8.5 | Years | $ | — | |
Vested and expected to vest at February 1, 2020 |
| 3,814,766 | | $ | 11.68 |
| 8.4 | Years | $ | — | |
Exercisable at February 1, 2020 |
| 830,093 | | $ | 24.59 |
| 5.8 | Years | $ | — | |
During the first quarter of 2019, we granted SARs, which vest ratably over a period of three years, and will be settled in stock. Each vested SAR entitles the holder to the right of the difference between the value of our common stock on the date of exercise and the common stock price on the date of grant. We use the Black-Scholes option pricing model to estimate the fair value of SARs on the date of grant.
The following table summarizes the activity of SARs during fiscal 2019:
| | | | | | | | | | | |
| | | | | | | Average | | Aggregate | | |
| | | | Weighted- | | Remaining | | Intrinsic | | ||
| | Number of | | Average | | Contractual | | Value | | ||
|
| Shares |
| Exercise Price |
| Term |
| (in thousands) | | ||
Outstanding at February 2, 2019 |
| — | | $ | — | | | | | | |
Granted |
| 414,476 | |
| 7.62 | | | | | | |
Exercised |
| — | |
| — | | | | | | |
Forfeited |
| — | |
| — | | | | | | |
Expired |
| — | |
| — | | | | | | |
Outstanding at February 1, 2020 |
| 414,476 | | $ | 7.62 |
| 9.2 | Years | $ | — | |
Vested and expected to vest at February 1, 2020 |
| 414,476 | | $ | 7.62 |
| 9.2 | Years | $ | — | |
Exercisable at February 1, 2020 |
| — | | $ | — |
| — | Years | $ | — | |
77
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The weighted-average grant date fair value of stock options granted during fiscal 2019, 2018 and 2017 was $2.98, $10.29 and $3.86, respectively. The weighted-average grant date fair value of the SARs granted during fiscal 2019 was $3.01 per share. The fair value of stock options and SARs is estimated on the date of grant using the Black-Scholes option pricing model using the following weighted-average assumptions:
| | | | | | | |
| | | | | | | |
| | Fiscal Year | | ||||
|
| 2019 |
| 2018 |
| 2017 |
|
Risk-free interest rate | | 2.35% | | 2.70% | | 1.75% | |
Expected lives | | 5.0 years | | 5.0 years | | 5.0 years | |
Dividend yield(1) | | 4.09% | | 4.21% | | 4.69% | |
Expected volatility | | 62.65% | | 56.55% | | 55.12% | |
| | | | | | | |
| (1) | Awards granted after announcement of the suspension of our dividend assume a dividend yield of 0%. |
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant. The expected lives represents the period of time the stock options and SARs are expected to be outstanding after their grant date. The dividend yield is based on the average of the annual dividend divided by the market price of our common stock at the time of declaration. The expected volatility is based on historical volatility of our common stock. There were 0 stock options or SARs exercised during fiscal 2019. The total intrinsic value of stock options exercised during fiscal 2018 and 2017 was $1.7 million and less than $0.1 million, respectively. As of February 1, 2020, we have unrecognized compensation expense related to non-vested stock options and SARs of approximately $8.3 million which is expected to be recognized over a weighted-average period of 1.5 years.
Cash Settled Awards
We have granted stock-based awards to certain employees, which vest over a period of three years, and will be settled in cash ("cash settled awards"). The fair value of the cash settled awards at each reporting period is based on the price of our common stock. The fair value of the cash settled awards will be remeasured at each reporting period until the awards are settled. At February 1, 2020, the liability associated with the cash settled awards was $1.7 million and was recorded in accrued expenses and other current liabilities in the consolidated balance sheets. At February 2, 2019, the liability associated with the cash settled awards was $3.8 million with $2.4 million recorded in accrued expenses and other current liabilities and $1.4 million recorded in other liabilities in the consolidated balance sheets.
The following table summarizes the activity of cash settled awards during fiscal 2019 (in thousands):
| | | |
|
| Cash Settled Awards | |
Non-Vested at February 2, 2019 |
| $ | 5,072 |
Granted |
| | 4,480 |
Vested |
| | (2,426) |
Forfeited |
| | (906) |
Non-Vested at February 1, 2020 |
| $ | 6,220 |
As of February 1, 2020, we have unrecognized compensation expense related to non-vested cash settled awards of approximately $2.2 million which is expected to be recognized over a weighted-average period of 1.6 years.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16.RETIREMENT AND STOCK PURCHASE PLANS
We have 401(k) savings plans which allow eligible employees to save for retirement on a tax deferred basis. Employer matching contributions under the 401(k) savings plans are made based on a formula set by the Board from time to time. During fiscal 2019, 2018 and 2017, our matching contributions for the plans charged to operations were $3.1 million, $2.6 million and $2.7 million, respectively.
We also maintain a noncontributory defined benefit pension plan and a post-retirement benefit plan which cover certain union and nonunion employees at Jos. A. Bank. The plans provide for eligible employees to receive benefits based principally on years of service. Amounts related to the defined benefit pension and post-retirement benefit plans were immaterial to our consolidated financial statements.
In addition, we have an Employee Stock Purchase Plan (“ESPP”) which allows employees to authorize after-tax payroll deductions to be used for the purchase of shares of our common stock at 85% of the lesser of the fair market value of our common stock on the first day of the offering period or the fair market value of our common stock on the last day of the offering period. In 2018, our shareholders approved amendments to the ESPP including increasing the number of shares available for purchase by 1,000,000 shares, resulting in a total of 3,137,500 shares available for purchase under the ESPP. We make 0 contributions to this plan but pay all brokerage, service and other costs incurred. A participant may not purchase more than 125 shares during any calendar quarter.
During fiscal 2019, 2018 and 2017, employees purchased 344,433 shares, 103,081 shares and 167,673 shares, respectively, under the ESPP, the weighted-average fair value of which was $4.53, $16.76 and $10.74 per share, respectively. We recognized approximately $0.6 million of share-based compensation expense related to the ESPP for each of fiscal 2019, 2018 and 2017, respectively. As of February 1, 2020, 783,442 shares were reserved for future issuance under the ESPP.
17. LEASES
Adoption of ASC 842
Effective February 3, 2019, we adopted ASC 842 using the modified retrospective approach. As part of the adoption, we made the following elections:
| ● | We elected the package of practical expedients under which we did not reassess our prior conclusions about lease identification, lease classification and initial direct costs. |
| ● | We elected to not separate lease and non-lease components for all leases. |
| ● | We elected to exempt leases with an initial term of twelve months or less from balance sheet recognition. |
| ● | We elected the land easement practical expedient under which we did not reassess whether existing land easements not accounted for as leases under previous guidance are or contain leases under ASC 842. |
| ● | We did not elect the hindsight practical expedient for all leases. |
In addition, in July 2018, the FASB approved an optional transition method that removed the requirement to restate prior period financial statements upon adoption of the standard with a cumulative-effect adjustment to retained earnings in the period of adoption and we elected to apply this transition method. As a result, the comparative period information has not been restated and continues to be reported under the accounting standards in effect for the period presented. The adoption of ASC 842 had no impact to our previously reported results of operations or cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table depicts the cumulative effect of the changes made to our February 2, 2019 balance sheet for the adoption of ASC 842 effective on February 3, 2019 (in thousands):
| | | | | | | | | |
| | Reported | | | | Adjusted | |||
| | Balance at | | Impact of | | Balance at | |||
| | February 2, | | Adoption of | | February 3, | |||
|
| 2019 |
| ASC 842 |
| 2019 | |||
Assets: | | | | | | | | | |
Other current assets | | $ | 66,823 | | $ | (20,557) | | $ | 46,266 |
Current assets - discontinued operations | | | 171,376 | | | (197) | | | 171,179 |
| | | | | | | | | |
Operating lease right-of-use assets | | | — | | | 884,231 | | | 884,231 |
Intangible assets, net | | | 153,711 | | | (6,682) | | | 147,029 |
Non-current assets - discontinued operations | | | 25,071 | | | 12,039 | | | 37,110 |
| | | | | | | | | |
Current Liabilities: | | | | | | | | | |
Accrued expenses and other current liabilities | | | 268,698 | | | (151) | | | 268,547 |
Current portion of operating lease liabilities | | | — | | | 181,379 | | | 181,379 |
Current liabilities - discontinued operations | | | 40,025 | | | 2,346 | | | 42,371 |
| | | | | | | | | |
Noncurrent Liabilities: | | | | | | | | | |
Operating lease liabilities | | | — | | | 735,482 | | | 735,482 |
Deferred taxes, net and other liabilities | | | 119,545 | | | (59,316) | | | 60,229 |
Noncurrent liabilities - discontinued operations | | | 5,477 | | | 9,496 | | | 14,973 |
| | | | | | | | | |
Equity: | | | | | | | | | |
Accumulated deficit | | $ | (468,048) | | $ | (402) | | $ | (468,450) |
The adoption of ASC 842 primarily resulted in the recognition of operating lease liabilities totaling $869.2 million, based upon the present value of the remaining minimum rental payments using discount rates as of the adoption date, with $183.6 million within current liabilities and $685.7 million in noncurrent liabilities. In addition, we recorded corresponding right-of-use assets totaling $868.8 million based upon the operating lease liabilities adjusted for favorable lease intangible assets, previously included within intangible assets, net and deferred rent and unfavorable lease liabilities, previously included within deferred taxes, net and other liabilities. In addition, we recorded a $0.4 million cumulative effect of initially applying ASC 842 as an adjustment to the opening balance of accumulated deficit.
Lease Information
We lease store locations, office and warehouse facilities, vehicles and equipment under various non-cancelable operating leases expiring in various years through 2032.
Substantially all of our stores are leased, generally for five to ten year initial terms. Certain store leases include one or more options to renew, with renewal terms that range from one to ten years. Management uses its judgment to determine if a renewal option is reasonably certain of being exercised including consideration of the significant investment related to the identification, opening and operation of these store locations. In addition, under our real estate leases, we pay costs such as real estate taxes and common area maintenance and certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels. These costs are generally considered variable lease payments, and are recognized when deemed probable of payment. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, we sublease certain real estate to third parties. Amounts related to subleases were immaterial to the consolidated financial statements.
Operating lease right-of-use assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments. Operating lease right-of-use assets represent our
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, lease incentives and impairment of operating lease right-of-use assets. To determine the present value of the lease payments, we estimated our incremental borrowing rate based on our current credit rating as well as comparisons to comparable borrowing rates of similarly-rated companies.
The components of lease cost are as follows (in thousands):
| | | |
| | February 1, 2020 | |
Operating lease cost | | $ | 248,975 |
Variable lease cost | | | 73,929 |
Total lease cost | | $ | 322,904 |
Operating lease expense is recognized on a straight-line basis over the lease term. Total lease costs for stores and our distribution network are included in cost of sales while other total lease costs are included in SG&A expenses.
Supplemental balance sheet information related to operating leases consists of the following (in thousands):
| | |
| February 1, 2020 | |
Operating lease right-of-use assets | $ | 880,291 |
| | |
Current portion of operating lease liabilities | $ | 186,304 |
Noncurrent portion operating lease liabilities | | 726,327 |
Total operating lease liabilities | $ | 912,631 |
Lease term and discount rate for operating leases were as follows:
| | |
| | February 1, 2020 |
Weighted average remaining lease term | | 5.6 years |
Weighted average discount rate | | 5.22% |
Supplemental disclosures of cash flow information consists of the following (in thousands):
| | | |
| | February 1, 2020 | |
Cash paid for operating leases | | $ | 254,605 |
Operating lease assets obtained in exchange for operating lease liabilities | | $ | 1,074,670 |
At February 1, 2020, we have approximately $912.6 million of non-cancelable operating lease commitments and 0 finance leases. The following table summarizes the undiscounted annual future minimum lease payments, as of February 1, 2020, for each of the next five years and in the aggregate (in thousands):
| | |
| Operating Leases | |
Year 1 | $ | 228,872 |
Year 2 | | 237,532 |
Year 3 | | 196,783 |
Year 4 | | 149,501 |
Year 5 | | 106,826 |
Thereafter | | 134,146 |
Total lease payments | $ | 1,053,660 |
Less: Interest | | (141,029) |
Present value of lease liabilities | $ | 912,631 |
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TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Disclosures Related to Periods Prior to Adoption of ASC 842
As previously disclosed in our 2018 Annual Report on Form 10-K and under the accounting standards then in effect, our operating leases generally contain rent escalation clauses, rent holidays, contingent rent provisions and occasionally leasehold incentives. Rent expense for operating leases is recognized on a straight-line basis over the term of the lease, which is generally five to ten years based on the initial lease term plus first renewal option periods that are reasonably assured. Rent expense for stores is included in cost of sales as a part of occupancy cost and other rent is included in SG&A. The lease terms commence when we take possession with the right to control use of the leased premises, which normally includes a construction period and, for stores, is approximately 60 days prior to the date rent payments begin.
Deferred rent that results from recognition of rent expense on a straight-line basis is included in other liabilities. Landlord incentives received for reimbursement of leasehold improvements is also included in other liabilities and amortized as a reduction to rent expense over the term of the lease. Contingent rentals are generally based on percentages of sales and are recognized as store rent expense as they accrue.
Rent expense for operating leases for fiscal 2018 and 2017 was $247.9 million and $251.3 million respectively, and includes contingent rentals of $1.8 million and $2.1 million, respectively. Minimum future rental payments under non-cancelable leases as of February 2, 2019 for each of the next five years and in the aggregate are as follows (in thousands):
| | | | |
|
| |
| |
Fiscal Year | | Operating Leases | | |
2019 | | $ | 236,539 | |
2020 | |
| 206,652 | |
2021 | |
| 173,294 | |
2022 | |
| 131,800 | |
2023 | |
| 86,127 | |
Thereafter | |
| 140,256 | |
Total lease payments | | $ | 974,668 | |
18. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value. The hierarchy can be described as follows: Level 1- observable inputs such as quoted prices in active markets; Level 2 - inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
| | | | | | | | | | | | | |
| | Fair Value Measurements at Reporting Date | | | |
| |||||||
| | Using | | | |
| |||||||
| | Quoted Prices | | | | | | | | | |
| |
| | in Active | | Significant | | | | | | |
| ||
| | Markets for | | Other | | Significant | | | |
| |||
| | Identical | | Observable | | Unobservable | | | |
| |||
| | Instruments | | Inputs | | Inputs | | | |
| |||
(in thousands) |
| (Level 1) |
| (Level 2) |
| (Level 3) |
| Total |
| ||||
February 1, 2020— | | |
| | |
| | |
| | |
| |
Assets: | | | | | | | | | | | | | |
Derivative financial instruments | | $ | — | | $ | 7 | | $ | — | | $ | 7 | |
Liabilities: | | | | | | | | | | | | | |
Derivative financial instruments | | $ | — | | $ | 34,586 | | $ | — | | $ | 34,586 | |
February 2, 2019— | | | | | | | | | | | | | |
Assets: | | | | | | | | | | | | | |
Derivative financial instruments | | $ | — | | $ | 2,965 | | $ | — | | $ | 2,965 | |
Liabilities: | | | | | | | | | | | | | |
Derivative financial instruments | | $ | — | | $ | 9,307 | | $ | — | | $ | 9,307 | |
At February 1, 2020, derivative financial instruments are comprised of interest rate swap agreements to minimize our exposure to interest rate changes on our outstanding indebtedness and foreign currency forward exchange contracts primarily entered into related to our direct sourcing programs, specifically related to the Canadian dollar.
These derivative financial instruments are recorded in the consolidated balance sheets at fair value based upon observable market inputs, primarily pricing models based on current market rates. Derivative financial instruments in an asset position are included within other current assets or other assets in the consolidated balance sheets. Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities or noncurrent liabilities in the consolidated balance sheets. See Note 19 for further information regarding our derivative instruments.
Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis
Long-lived assets, such as property and equipment, operating lease right-of-use assets, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.
As discussed in Note 1, during fiscal 2019, 2018 and 2017, we incurred $3.4 million, $1.0 million and $3.5 million, respectively, of asset impairment charges, which is included within SG&A expenses in our consolidated statement of (loss) earnings, primarily related to underperforming stores. The estimated fair value of the impaired long-lived assets was $1.4 million, $0.6 million and $0.7 million, respectively. In addition, during fiscal 2019, we recognized a writeoff of $2.9 million of rental product related to the closure of a Canadian distribution center, which is included within cost of sales in our consolidated statement of (loss) earnings. We estimated the fair value of these long-lived assets based on an income approach using projected future cash flows discounted using a weighted-average cost of capital analysis that reflects current market conditions. The fair values of long-lived assets are based on our own judgments about the assumptions that market participants would use in pricing the asset and on observable market data, when available. We classify these measurements as Level 3 within the fair value hierarchy.
During fiscal 2017, we recorded a goodwill impairment charge related to MW Cleaners totaling $1.5 million. We estimated the fair value of the MW Cleaners business based on an estimate provided to us by a market participant, which we classified as Level 2 within the fair value hierarchy.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value of Financial Instruments
Our financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt. Management estimates that, as of February 1, 2020 and February 2, 2019, the carrying value of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities approximated their fair value due to the highly liquid or short-term nature of these instruments. We believe that the borrowings under our ABL Facility approximate their fair value because interest rates are adjusted on a short-term basis.
The fair values of our Term Loan were valued based upon observable market data provided by a third party for similar types of debt, which we classify as a Level 2 input within the fair value hierarchy. The fair value of our Senior Notes is based on quoted prices in active markets, which we classify as Level 1 input within the fair value hierarchy. The table below shows the fair value and carrying value of our Term Loan and Senior Notes (in thousands):
| | | | | | | | | | | | | |
| | February 1, 2020 | | February 2, 2019 | | ||||||||
| | Carrying | | Estimated | | Carrying | | Estimated | | ||||
|
| Amount(1) |
| Fair Value |
| Amount(1) |
| Fair Value | | ||||
Term Loan and Senior Notes, including current portion | | $ | 1,053,398 | | $ | 896,851 | | $ | 1,116,361 | | $ | 1,120,296 | |
| | | | | | | | | | | | | |
(1) The carrying value of the Term Loan and Senior Notes, including current portion is net of deferred financing costs of $2.0 million and $3.2 million as of February 1, 2020 and February 2, 2019, respectively. | | ||||||||||||
19. DERIVATIVE FINANCIAL INSTRUMENTS
Effective February 3, 2019, we adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The adoption of ASU 2017-12 did not have an impact on our financial position, results of operations or cash flows.
In April 2017, we entered into an interest rate swap contract on an initial notional amount of $260.0 million that matures in June 2021 with periodic interest settlements. At February 1, 2020, the notional amount totaled $320.0 million. Under this interest rate swap contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 5.31% (including the applicable margin of 3.25%) on the outstanding notional amount.
In June 2018, we entered into an interest rate swap contract on an initial notional amount of $320.0 million that matures in April 2025 with periodic interest settlements. At February 1, 2020, the notional amount totaled $385.0 million. Under this interest rate swap contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 6.18% (including the applicable margin of 3.25%) on the outstanding notional amount.
We have designated each interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark rate and the fair value of the swaps is reported as a component of accumulated other comprehensive (loss) income. For both swaps, changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings. Over the next 12 months, $7.7 million of the amounts related to the interest rate swaps is expected to be reclassified from accumulated other comprehensive (loss) income into earnings within interest expense.
Historically, we also utilized derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro. As a result of the sale of our corporate apparel business, these instruments were cancelled during the third quarter of 2019 and any amounts included in accumulated other comprehensive (loss) income were reclassified to expense and included within loss from discontinued operations.
In addition, we are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs, specifically related to the Canadian dollar. As a result, from time to time, we may enter into derivative instruments to hedge this foreign exchange risk. We have not elected to apply hedge accounting to these derivative instruments. At February 1, 2020, the notional amount of these instruments totaled $5.3 million. Amounts related to these transactions were immaterial to our consolidated financial statements.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides details on our derivative instruments recorded in the consolidated balance sheets as of February 1, 2020 and February 2, 2019 (in thousands):
| | | | | | | | | | | | |
| | February 1, 2020 | | February 2, 2019 | ||||||||
| | Balance | | Estimated | | Balance | | Estimated | ||||
|
| Sheet Location |
| Fair Value |
| Sheet Location |
| Fair Value | ||||
Interest rate contracts | | Other current assets | | $ | — | | Other current assets | | $ | 1,610 | ||
Interest rate contracts | | Other assets | | | — | | Other assets | | | 1,355 | ||
Foreign exchange contracts | | Other current assets | | | 7 | | Other current assets | | | — | ||
Total assets | | | | | $ | 7 | | | | | $ | 2,965 |
| | | | | | | | | | | | |
Interest rate contracts | | Accrued expenses and other current liabilities | | $ | 7,701 | | Accrued expenses and other current liabilities | | $ | 1,625 | ||
Interest rate contracts | | Deferred taxes, net and other liabilities | | | 26,885 | | Deferred taxes, net and other liabilities | | | 7,605 | ||
Foreign exchange contracts | | Accrued expenses and other current liabilities | | | — | | Accrued expenses and other current liabilities | | | 77 | ||
Total liabilities | | | | | $ | 34,586 | | | | | $ | 9,307 |
The following table provides details on our derivative instruments recorded in the consolidated statements of (loss) earnings and comprehensive (loss) income during fiscal 2019 and 2018 (in thousands):
| | | | | | | | | | | | | |
| | Amount of Gain/(Loss) Recognized in Other Comprehensive Loss, net of tax | | Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings | Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings | ||||||||
| | For the Year Ended | | | For the Year Ended | ||||||||
|
| February 1, 2020 |
| February 2, 2019 | | | February 1, 2020 |
| February 2, 2019 | ||||
Derivatives in Cash Flow Hedging Relationships: | | |
| | |
| | | |
| | |
|
Interest rate contracts | | $ | (22,931) | | $ | (8,296) | | Interest expense | $ | 1,692 | | $ | 818 |
20. COMMITMENTS AND CONTINGENCIES
Legal Proceedings
On August 2, 2017, 2 American Airlines employees, Thor Zurbriggen and Dena Catan, filed a putative class action lawsuit against our then-existing subsidiary Twin Hill in the United States District Court for the Northern District of Illinois (Case No. 1:17-cv-05648). The complaint alleged claims for strict liability, negligence, and medical monitoring based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On September 28, 2017, the plaintiffs filed an amended complaint adding 9 additional named plaintiffs, adding American Airlines, Inc. as a defendant, and adding claims for civil battery and intentional infliction of emotional distress. Plaintiffs filed a Seconded Amended Complaint on October 4, 2018 on behalf of 39 named plaintiffs, adding PSA Airlines, Inc. and Envoy Air Inc. as defendants, adding new factual allegations and adding a new claim of fraud against American. The Second Amended Complaint included plaintiffs from the Onody (Case No. 1:18-cv-02303) and Joy (Case No. 1:18-cv-05808) matters we reported in prior filings. As a result, on October 16, 2018, the judge dismissed the separate Onody and Joy matters. We have timely answered the Second Amended Complaint and the matter will proceed in due course. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On September 27, 2017, Heather Poole and numerous other American Airlines employees filed a lawsuit against our then-existing subsidiary Twin Hill in the Superior Court for the State of California for the County of Alameda (Case No. RG17876798). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On December 11, 2017, the Company filed a demurrer to Plaintiff’s complaint. On February 20, 2018, the Court granted our demurrer and dismissed the plaintiffs’ Complaint. Plaintiffs filed an amended complaint on April 10, 2018 and again on April 27, 2018, which added allegations regarding Plaintiffs’ alleged injuries and named Tailored Brands as a defendant. This case was consolidated for pretrial purposes only with other complaints containing identical allegations, including the Agnello, Hughes, Mackonochie and Wagoner cases that were disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
On August 16, 2019, we completed the sale of Twin Hill to a third-party pursuant to a Stock Purchase Agreement, but remain responsible for the above referenced American Airlines matters.
On December 23, 2019, Himelda Mendez on behalf of herself and all others similarly situated, filed a lawsuit against Jos. A. Bank Clothiers, Inc. in the United States District Court for the Southern District of New York (Case No. 1:19-cv-11756-KPF). The complaint alleges the Company’s failure to offer Braille gift cards violates the Americans with Disabilities Act (“ADA”), the New York State Human Rights Law (“NYSHRL”), and the New York City Human Rights Law (“NYCHRL”). We believe the lawsuit is without merit, and we intend to contest this action vigorously. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
On December 23, 2019, Himelda Mendez on behalf of herself and all others similarly situated, filed a lawsuit against The Men’s Wearhouse, Inc. in the United States District Court for the Southern District of New York (Case No. 1:19-cv-11765-RA). The complaint alleges the Company’s failure to offer Braille gift cards violates the ADA, the NYSHRL, and the NYCHRL. We believe the lawsuit is without merit, and we intend to contest this action vigorously. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
On December 26, 2019, Himelda Mendez on behalf of herself and all others similarly situated, filed a lawsuit against JA Apparel Corp. dba Joseph Abboud in the United States District Court for the Southern District of New York (Case No. 1:19-cv-11807-VEC). The complaint alleges the Company’s failure to offer Braille gift cards violates the ADA, the NYSHRL, and the NYCHRL. We believe the lawsuit is without merit, and we intend to contest this action vigorously. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
In addition, we are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business. Management does not believe that any of these matters will have a material adverse effect on our financial position, results of operations or cash flows.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
21.CONDENSED CONSOLIDATING FINANCIAL INFORMATION
As discussed in Note 6, The Men’s Wearhouse (the “Issuer”) issued $600.0 million in aggregate principal amount of 7.00% Senior Notes. The Senior Notes are guaranteed jointly and severally, on an unsecured basis by Tailored Brands, Inc. (the “Parent”) and certain of our U.S. subsidiaries (the “Guarantors”). Our foreign subsidiaries (collectively, the “Non-Guarantors”) are not guarantors of the Senior Notes. Each of the Guarantors is 100% owned and all guarantees are joint and several. In addition, the guarantees are full and unconditional except for certain automatic release provisions related to the Guarantors.
These automatic release provisions are considered customary and include the sale or other disposition of all or substantially all of the assets or all of the capital stock of any subsidiary guarantor, the release or discharge of a guarantor’s guarantee of the obligations under the Term Loan other than a release or discharge through payment thereon, the designation in accordance with the Indenture of a guarantor as an unrestricted subsidiary or the satisfaction of the requirements for defeasance or discharge of the Senior Notes as provided for in the Indenture.
The tables in the following pages present the condensed consolidating financial information for the Parent, the Issuer, the Guarantors and the Non-Guarantors, together with eliminations, as of and for the periods indicated. The consolidating financial information may not necessarily be indicative of the financial positions, results of operations or cash flows had the Parent, the Issuer, Guarantors and Non-Guarantors operated as independent entities.
| | | | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | |
87
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
February 1, 2020
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| | Tailored | | The Men’s | | Guarantor | | Non-Guarantor | | |
| | |
| | ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | 961 | | $ | 1,495 | | $ | 11,964 | | $ | — | | $ | 14,420 | |
Accounts receivable, net | | | — | | | 28,603 | | | 345,683 | | | 49,043 | | | (383,356) | | | 39,973 | |
Inventories | | | — | | | 136,228 | | | 420,339 | | | 140,090 | | | — | | | 696,657 | |
Other current assets | | | 10,379 | | | 11,145 | | | 56,192 | | | 16,349 | | | (10,000) | | | 84,065 | |
Total current assets | | | 10,379 | | | 176,937 | | | 823,709 | | | 217,446 | | | (393,356) | | | 835,115 | |
Property and equipment, net | | | — | | | 173,271 | | | 199,396 | | | 23,145 | | | — | | | 395,812 | |
Operating lease right-of-use assets | | | — | | | 458,209 | | | 368,748 | | | 53,334 | | | — | | | 880,291 | |
Rental product, net | | | — | | | 81,370 | | | 2,370 | | | 9,157 | | | — | | | 92,897 | |
Goodwill | | | — | | | 6,160 | | | 52,128 | | | 20,983 | | | — | | | 79,271 | |
Intangible assets, net | | | — | | | — | | | 116,843 | | | — | | | — | | | 116,843 | |
Investments in subsidiaries | | | 86,771 | | | 1,180,304 | | | — | | | — | | | (1,267,075) | | | — | |
Other assets | | | — | | | 10,269 | | | 8,367 | | | 3,694 | | | (3,600) | | | 18,730 | |
Total assets | | $ | 97,150 | | $ | 2,086,520 | | $ | 1,571,561 | | $ | 327,759 | | $ | (1,664,031) | | $ | 2,418,959 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 189,526 | | $ | 236,592 | | $ | 68,845 | | $ | 72,290 | | $ | (383,356) | | $ | 183,897 | |
Accrued expenses and other current liabilities | | | 2,207 | | | 148,929 | | | 91,349 | | | 17,041 | | | (10,000) | | | 249,526 | |
Current portion of operating lease liabilities | | | — | | | 99,195 | | | 75,229 | | | 11,880 | | | — | | | 186,304 | |
Current portion of long-term debt | | | — | | | 9,000 | | | — | | | — | | | — | | | 9,000 | |
Total current liabilities | | | 191,733 | | | 493,716 | | | 235,423 | | | 101,211 | | | (393,356) | | | 628,727 | |
Long-term debt, net | | | — | | | 1,094,398 | | | — | | | — | | | — | | | 1,094,398 | |
Operating lease liabilities | | | — | | | 381,150 | | | 303,040 | | | 42,137 | | | — | | | 726,327 | |
Deferred taxes, net and other liabilities | | | 3,723 | | | 30,485 | | | 23,022 | | | 14,183 | | | (3,600) | | | 67,813 | |
Shareholders' (deficit) equity | | | (98,306) | | | 86,771 | | | 1,010,076 | | | 170,228 | | | (1,267,075) | | | (98,306) | |
Total liabilities and shareholders' equity | | $ | 97,150 | | $ | 2,086,520 | | $ | 1,571,561 | | $ | 327,759 | | $ | (1,664,031) | | $ | 2,418,959 | |
88
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
February 2, 2019
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| | Tailored | | The Men’s | | Guarantor | | Non-Guarantor | | |
| | |
| | ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS | | | | | | | | | | | | | | | | | | | |
CURRENT ASSETS: | | | | | | | | | | | | | | | | | | | |
Cash and cash equivalents | | $ | — | | $ | 970 | | $ | 1,434 | | $ | 30,267 | | $ | — | | $ | 32,671 | |
Accounts receivable, net | | | — | | | 23,954 | | | 255,091 | | | 53,610 | | | (297,969) | | | 34,686 | |
Inventories | | | — | | | 149,923 | | | 429,952 | | | 144,211 | | | — | | | 724,086 | |
Other current assets | | | — | | | 30,699 | | | 37,621 | | | 3,773 | | | (5,270) | | | 66,823 | |
Current assets - discontinued operations | | | — | | | — | | | 41,404 | | | 129,972 | | | — | | | 171,376 | |
Total current assets | | | — | | | 205,546 | | | 765,502 | | | 361,833 | | | (303,239) | | | 1,029,642 | |
Property and equipment, net | | | — | | | 194,290 | | | 207,934 | | | 22,092 | | | — | | | 424,316 | |
Rental product, net | | | — | | | 81,809 | | | 3,426 | | | 14,535 | | | — | | | 99,770 | |
Goodwill | | | — | | | 6,160 | | | 52,128 | | | 21,203 | | | — | | | 79,491 | |
Intangible assets, net | | | — | | | — | | | 153,711 | | | — | | | — | | | 153,711 | |
Investments in subsidiaries | | | 160,057 | | | 1,234,005 | | | — | | | — | | | (1,394,062) | | | — | |
Other assets | | | — | | | 7,590 | | | 640 | | | 5,059 | | | (4,800) | | | 8,489 | |
Non-current assets - discontinued operations | | | — | | | — | | | 1,906 | | | 23,165 | | | — | | | 25,071 | |
Total assets | | $ | 160,057 | | $ | 1,729,400 | | $ | 1,185,247 | | $ | 447,887 | | $ | (1,702,101) | | $ | 1,820,490 | |
LIABILITIES AND SHAREHOLDERS' EQUITY | | | | | | | | | | | | | | | | | | | |
CURRENT LIABILITIES: | | | | | | | | | | | | | | | | | | | |
Accounts payable | | $ | 142,701 | | $ | 201,799 | | $ | 67,044 | | $ | 91,200 | | $ | (297,969) | | $ | 204,775 | |
Accrued expenses and other current liabilities | | | 6,697 | | | 146,683 | | | 105,022 | | | 29,044 | | | (5,270) | | | 282,176 | |
Current portion of long-term debt | | | — | | | 11,619 | | | — | | | — | | | — | | | 11,619 | |
Current liabilities - discontinued operations | | | — | | | — | | | 7,073 | | | 32,952 | | | — | | | 40,025 | |
Total current liabilities | | | 149,398 | | | 360,101 | | | 179,139 | | | 153,196 | | | (303,239) | | | 538,595 | |
Long-term debt, net | | | — | | | 1,153,242 | | | — | | | — | | | — | | | 1,153,242 | |
Deferred taxes, net and other liabilities | | | 7,028 | | | 56,000 | | | 43,495 | | | 17,822 | | | (4,800) | | | 119,545 | |
Non-current liabilities - discontinued operations | | | — | | | — | | | 1,574 | | | 3,903 | | | — | | | 5,477 | |
Shareholders' equity | | | 3,631 | | | 160,057 | | | 961,039 | | | 272,966 | | | (1,394,062) | | | 3,631 | |
Total liabilities and shareholders' equity | | $ | 160,057 | | $ | 1,729,400 | | $ | 1,185,247 | | $ | 447,887 | | $ | (1,702,101) | | $ | 1,820,490 | |
89
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| | Tailored | | The Men’s | | Guarantor | | Non-Guarantor | | | | | | | | ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Year Ended February 1, 2020 | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | — | | $ | 1,650,102 | | $ | 1,586,697 | | $ | 719,517 | | $ | (1,075,055) | | $ | 2,881,261 | |
Cost of sales | | | — | | | 916,900 | | | 1,268,680 | | | 602,124 | | | (1,075,055) | | | 1,712,649 | |
Gross margin | | | — | | | 733,202 | | | 318,017 | | | 117,393 | | | — | | | 1,168,612 | |
Operating expenses | | | 3,071 | | | 652,665 | | | 527,887 | | | 86,926 | | | (199,775) | | | 1,070,774 | |
Operating (loss) income | | | (3,071) | | | 80,537 | | | (209,870) | | | 30,467 | | | 199,775 | | | 97,838 | |
Other income and expenses, net | | | — | | | — | | | 198,981 | | | 794 | | | (199,775) | | | — | |
Interest (expense) income, net | | | (4,132) | | | (70,779) | | | 4,851 | | | (689) | | | — | | | (70,749) | |
Loss on extinguishment of debt, net | | | — | | | (77) | | | — | | | — | | | — | | | (77) | |
(Loss) earnings before income taxes | | | (7,203) | | | 9,681 | | | (6,038) | | | 30,572 | | | — | | | 27,012 | |
(Benefit) provision for income taxes | | | (2,847) | | | (7,370) | | | 7,516 | | | 4,346 | | | — | | | 1,645 | |
(Loss) earnings before equity in net income of subsidiaries | | | (4,356) | | | 17,051 | | | (13,554) | | | 26,226 | | | — | | | 25,367 | |
Equity in (loss) earnings of subsidiaries | | | (77,920) | | | (65,539) | | | — | | | — | | | 143,459 | | | — | |
Net (loss) earnings from continuing operations | | | (82,276) | | | (48,488) | | | (13,554) | | | 26,226 | | | 143,459 | | | 25,367 | |
Net (loss) earnings from discontinued operations, net of tax | | | — | | | (29,432) | | | 2,013 | | | (80,224) | | | — | | | (107,643) | |
Net (loss) earnings | | $ | (82,276) | | $ | (77,920) | | $ | (11,541) | | $ | (53,998) | | $ | 143,459 | | $ | (82,276) | |
Comprehensive (loss) income | | $ | (82,811) | | $ | (99,678) | | $ | (11,541) | | $ | (59,660) | | $ | 170,879 | | $ | (82,811) | |
| | | | | | | | | | | | | | | | | | | |
Year Ended February 2, 2019 | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | — | | $ | 1,735,743 | | $ | 1,519,548 | | $ | 450,247 | | $ | (701,027) | | $ | 3,004,511 | |
Cost of sales | | | — | | | 886,137 | | | 1,172,665 | | | 336,128 | | | (701,027) | | | 1,693,903 | |
Gross margin | | | — | | | 849,606 | | | 346,883 | | | 114,119 | | | — | | | 1,310,608 | |
Operating expenses | | | 4,489 | | | 538,469 | | | 531,206 | | | 67,145 | | | (56,263) | | | 1,085,046 | |
Operating (loss) income | | | (4,489) | | | 311,137 | | | (184,323) | | | 46,974 | | | 56,263 | | | 225,562 | |
Other income and expenses, net | | | — | | | — | | | 55,582 | | | 681 | | �� | (56,263) | | | — | |
Interest (expense) income, net | | | (3,950) | | | (85,011) | | | 7,949 | | | 2,005 | | | — | | | (79,007) | |
Loss on extinguishment of debt, net | | | — | | | (30,253) | | | — | | | — | | | — | | | (30,253) | |
(Loss) earnings before income taxes | | | (8,439) | | | 195,873 | | | (120,792) | | | 49,660 | | | — | | | 116,302 | |
(Benefit) provision for income taxes | | | (1,056) | | | 35,334 | | | (25,295) | | | 8,723 | | | — | | | 17,706 | |
(Loss) earnings before equity in net income of subsidiaries | | | (7,383) | | | 160,539 | | | (95,497) | | | 40,937 | | | — | | | 98,596 | |
Equity in earnings (loss) of subsidiaries | | | 90,623 | | | (69,916) | | | — | | | — | | | (20,707) | | | — | |
Net earnings (loss) from continuing operations | | | 83,240 | | | 90,623 | | | (95,497) | | | 40,937 | | | (20,707) | | | 98,596 | |
Net earnings (loss) from discontinued operations, net of tax | | | — | | | — | | | 3,208 | | | (18,564) | | | — | | | (15,356) | |
Net earnings (loss) | | $ | 83,240 | | $ | 90,623 | | $ | (92,289) | | $ | 22,373 | | $ | (20,707) | | $ | 83,240 | |
Comprehensive income (loss) | | $ | 60,043 | | $ | 83,146 | | $ | (92,323) | | $ | 6,687 | | $ | 2,490 | | $ | 60,043 | |
90
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| | Tailored | | The Men’s | | Guarantor | | Non-Guarantor | | |
| | | | | ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Year Ended February 3, 2018 | | | | | | | | | | | | | | | | | | | |
Net sales | | $ | — | | $ | 1,737,651 | | $ | 1,596,153 | | $ | 543,558 | | $ | (824,341) | | $ | 3,053,021 | |
Cost of sales | | | — | | | 897,429 | | | 1,213,089 | | | 425,416 | | | (824,341) | | | 1,711,593 | |
Gross margin | | | — | | | 840,222 | | | 383,064 | | | 118,142 | | | — | | | 1,341,428 | |
Operating expenses | | | 3,453 | | | 648,569 | | | 546,290 | | | 73,683 | | | (146,663) | | | 1,125,332 | |
Operating (loss) income | | | (3,453) | | | 191,653 | | | (163,226) | | | 44,459 | | | 146,663 | | | 216,096 | |
Other income and expenses, net | | | — | | | — | | | 145,002 | | | 1,661 | | | (146,663) | | | — | |
Interest (expense) income, net | | | (442) | | | (105,009) | | | 6,606 | | | (1,062) | | | — | | | (99,907) | |
Gain on extinguishment of debt, net | | | — | | | 5,445 | | | — | | | — | | | — | | | 5,445 | |
(Loss) earnings before income taxes | | | (3,895) | | | 92,089 | | | (11,618) | | | 45,058 | | | — | | | 121,634 | |
(Benefit) provision for income taxes | | | (3,444) | | | 54,744 | | | (42,247) | | | 25,564 | | | — | | | 34,617 | |
(Loss) earnings before equity in net income of subsidiaries | | | (451) | | | 37,345 | | | 30,629 | | | 19,494 | | | — | | | 87,017 | |
Equity in earnings of subsidiaries | | | 97,154 | | | 59,809 | | | — | | | — | | | (156,963) | | | — | |
Net earnings from continuing operations | | | 96,703 | | | 97,154 | | | 30,629 | | | 19,494 | | | (156,963) | | | 87,017 | |
Net earnings from discontinued operations, net of tax | | | — | | | — | | | 3,436 | | | 6,250 | | | — | | | 9,686 | |
Net earnings | | $ | 96,703 | | $ | 97,154 | | $ | 34,065 | | $ | 25,744 | | $ | (156,963) | | $ | 96,703 | |
Comprehensive income | | $ | 126,004 | | $ | 100,186 | | $ | 34,050 | | $ | 52,028 | | $ | (186,264) | | $ | 126,004 | |
91
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended February 1, 2020
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| | Tailored | | The Men’s | | Guarantor | | Non-Guarantor | | | | | | ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net cash provided by (used in) operating activities | | $ | 37,726 | | $ | 463,543 | | $ | 50,116 | | $ | (400,173) | | $ | (51,571) | | $ | 99,641 | |
| | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | — | | | (28,542) | | | (50,117) | | | (9,843) | | | — | | | (88,502) | |
Proceeds from divestiture of business, net | | | — | | | — | | | — | | | 45,034 | | | — | | | 45,034 | |
Proceeds from sales of property and equipment | | | — | | | 311 | | | — | | | — | | | — | | | 311 | |
Intercompany activities | | | — | | | (359,023) | | | — | | | (40,953) | | | 399,976 | | | — | |
Net cash (used in) provided by investing activities | | | — | | | (387,254) | | | (50,117) | | | (5,762) | | | 399,976 | | | (43,157) | |
| | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | |
Payments on new term loan | | | — | | | (9,370) | | | — | | | — | | | — | | | (9,370) | |
Proceeds from asset-based revolving credit facility | | | — | | | 1,333,000 | | | — | | | — | | | — | | | 1,333,000 | |
Payments on asset-based revolving credit facility | | | — | | | (1,331,500) | | | — | | | — | | | — | | | (1,331,500) | |
Repurchase and retirement of senior notes | | | — | | | (54,425) | | | — | | | — | | | — | | | (54,425) | |
Intercompany activities | | | — | | | (14,003) | | | — | | | 362,408 | | | (348,405) | | | — | |
Cash dividends paid | | | (28,071) | | | — | | | — | | | — | | | — | | | (28,071) | |
Proceeds from issuance of common stock | | | 1,561 | | | — | | | — | | | — | | | — | | | 1,561 | |
Tax payments related to vested deferred stock units | | | (1,216) | | | — | | | — | | | — | | | — | | | (1,216) | |
Repurchases of common stock | | | (10,000) | | | — | | | — | | | — | | | — | | | (10,000) | |
Net cash (used in) provided by financing activities | | | (37,726) | | | (76,298) | | | — | | | 362,408 | | | (348,405) | | | (100,021) | |
Effect of exchange rate changes | | | — | | | — | | | — | | | 2,526 | | | — | | | 2,526 | |
Increase (decrease) in cash and cash equivalents | | | — | | | (9) | | | (1) | | | (41,001) | | | — | | | (41,011) | |
Cash and cash equivalents at beginning of period | | | — | | | 970 | | | 1,496 | | | 52,965 | | | — | | | 55,431 | |
Cash and cash equivalents at end of period | | $ | — | | $ | 961 | | $ | 1,495 | | $ | 11,964 | | $ | — | | $ | 14,420 | |
92
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended February 2, 2019
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| | Tailored | | The Men’s | | Guarantor | | Non-Guarantor | | | | | | | | ||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net cash provided by (used in) operating activities | | $ | 38,198 | | $ | 674,432 | | $ | 29,247 | | $ | (382,259) | | $ | (36,946) | | $ | 322,672 | |
| | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | — | | | (26,731) | | | (47,686) | | | (7,869) | | | — | | | (82,286) | |
Proceeds from divestiture of business, net | | | — | | | — | | | 17,755 | | | — | | | — | | | 17,755 | |
Intercompany activities | | | — | | | (321,970) | | | — | | | 75,135 | | | 246,835 | | | — | |
Net cash (used in) provided by investing activities | | | — | | | (348,701) | | | (29,931) | | | 67,266 | | | 246,835 | | | (64,531) | |
| | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | |
Payments on original term loan | | | — | | | (993,420) | | | — | | | — | | | — | | | (993,420) | |
Proceeds from new term loan | | | — | | | 895,500 | | | — | | | — | | | — | | | 895,500 | |
Payments on new term loan | | | — | | | (9,000) | | | — | | | — | | | — | | | (9,000) | |
Proceeds from asset-based revolving credit facility | | | — | | | 655,500 | | | — | | | — | | | — | | | 655,500 | |
Payments on asset-based revolving credit facility | | | — | | | (607,000) | | | — | | | — | | | — | | | (607,000) | |
Repurchase and retirement of senior notes | | | — | | | (199,365) | | | — | | | — | | | — | | | (199,365) | |
Deferred financing costs | | | — | | | (6,713) | | | — | | | — | | | — | | | (6,713) | |
Intercompany activities | | | — | | | (112,081) | | | — | | | 321,970 | | | (209,889) | | | — | |
Cash dividends paid | | | (36,946) | | | — | | | — | | | — | | | — | | | (36,946) | |
Proceeds from issuance of common stock | | | 6,649 | | | — | | | — | | | — | | | — | | | 6,649 | |
Tax payments related to vested deferred stock units | | | (7,901) | | | — | | | — | | | — | | | — | | | (7,901) | |
Net cash (used in) provided by financing activities | | | (38,198) | | | (376,579) | | | — | | | 321,970 | | | (209,889) | | | (302,696) | |
Effect of exchange rate changes | | | — | | | — | | | — | | | (3,621) | | | — | | | (3,621) | |
(Decrease) increase in cash and cash equivalents | | | — | | | (50,848) | | | (684) | | | 3,356 | | | — | | | (48,176) | |
Cash and cash equivalents at beginning of period | | | — | | | 51,818 | | | 2,180 | | | 49,609 | | | — | | | 103,607 | |
Cash and cash equivalents at end of period | | $ | — | | $ | 970 | | $ | 1,496 | | $ | 52,965 | | $ | ��� | | $ | 55,431 | |
93
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
Year Ended February 3, 2018
(in thousands)
| | | | | | | | | | | | | | | | | | | |
| | Tailored | | The Men’s | | Guarantor | | Non-Guarantor | | |
| | |
| | ||||
|
| Brands, Inc. |
| Wearhouse, Inc. | | Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net cash provided by (used in) operating activities | | $ | 35,545 | | $ | 520,678 | | $ | 61,823 | | $ | (231,517) | | $ | (35,761) | | $ | 350,768 | |
| | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM INVESTING ACTIVITIES: | | | | | | | | | | | | | | | | | | | |
Capital expenditures | | | — | | | (25,729) | | | (63,681) | | | (5,548) | | | — | | | (94,958) | |
Acquisition of business, net of cash | | | — | | | — | | | — | | | (457) | | | — | | | (457) | |
Intercompany activities | | | — | | | (285,500) | | | — | | | (75,135) | | | 360,635 | | | — | |
Proceeds from sale of property and equipment | | | — | | | 3,323 | | | 2,157 | | | — | | | — | | | 5,480 | |
Net cash used in investing activities | | | — | | | (307,906) | | | (61,524) | | | (81,140) | | | 360,635 | | | (89,935) | |
| | | | | | | | | | | | | | | | | | | |
CASH FLOWS FROM FINANCING ACTIVITIES: | | | | | | | | | | | | | | | | | | | |
Payments on original term loan | | | — | | | (53,379) | | | — | | | — | | | — | | | (53,379) | |
Proceeds from asset-based revolving credit facility | | | — | | | 276,300 | | | — | | | — | | | — | | | 276,300 | |
Payments on asset-based revolving credit facility | | | — | | | (276,300) | | | — | | | — | | | — | | | (276,300) | |
Repurchase and retirement of senior notes | | | — | | | (145,371) | | | — | | | — | | | — | | | (145,371) | |
Deferred financing costs | | | — | | | (2,580) | | | — | | | — | | | — | | | (2,580) | |
Intercompany activities | | | — | | | 39,374 | | | — | | | 285,500 | | | (324,874) | | | — | |
Cash dividends paid | | | (35,761) | | | — | | | — | | | — | | | — | | | (35,761) | |
Proceeds from issuance of common stock | | | 1,903 | | | — | | | — | | | — | | | — | | | 1,903 | |
Tax payments related to vested deferred stock units | | | (1,687) | | | — | | | — | | | — | | | — | | | (1,687) | |
Net cash (used in) provided by financing activities | | | (35,545) | | | (161,956) | | | — | | | 285,500 | | | (324,874) | | | (236,875) | |
Effect of exchange rate changes | | | — | | | — | | | — | | | 8,760 | | | — | | | 8,760 | |
Increase (decrease) in cash and cash equivalents | | | — | | | 50,816 | | | 299 | | | (18,397) | | | — | | | 32,718 | |
Cash and cash equivalents at beginning of period | | | — | | | 1,002 | | | 1,881 | | | 68,006 | | | — | | | 70,889 | |
Cash and cash equivalents at end of period | | $ | — | | $ | 51,818 | | $ | 2,180 | | $ | 49,609 | | $ | — | | $ | 103,607 | |
94
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
22. QUARTERLY RESULTS OF OPERATIONS (Unaudited)
Our quarterly results of operations reflect all adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. The consolidated results of operations by quarter for fiscal 2019 and 2018 are presented below (in thousands, except per share amounts):
| | | | | | | | | | | | | |
| | Fiscal 2019 Quarters Ended (1) |
| ||||||||||
| | May 4, | | August 3, | | November 2, | | February 1, |
| ||||
|
| 2019 (2) |
| 2019 (3) |
| 2019 (4) |
| 2020 (5) |
| ||||
Net sales | | $ | 724,662 | | $ | 736,145 | | $ | 729,481 | | $ | 690,973 | |
Gross margin | |
| 304,875 | |
| 318,875 | |
| 308,028 | |
| 236,834 | |
Net earnings (loss) from continuing operations | | | 6,480 | | | 29,656 | | | 27,788 | | | (38,557) | |
Earnings (loss) from discontinued operations, net of tax | | | 662 | | | 4,610 | | | (117,378) | | | 4,463 | |
Net earnings (loss) | | | 7,142 | | | 34,266 | | | (89,590) | | | (34,094) | |
Net earnings (loss) from continuing operations per common share: | | | | | | | | | | | | | |
Basic | | $ | 0.13 | | $ | 0.59 | | $ | 0.56 | | $ | (0.80) | |
Diluted | | $ | 0.13 | | $ | 0.59 | | $ | 0.56 | | $ | (0.80) | |
Net earnings (loss) from discontinued operations per common share: | | | | | | | | | | | | | |
Basic | | $ | 0.01 | | $ | 0.09 | | $ | (2.36) | | $ | 0.09 | |
Diluted | | $ | 0.01 | | $ | 0.09 | | $ | (2.35) | | $ | 0.09 | |
Net earnings (loss) per common share: | | | | | | | | | | | | | |
Basic | | $ | 0.14 | | $ | 0.68 | | $ | (1.80) | | $ | (0.70) | |
Diluted | | $ | 0.14 | | $ | 0.68 | | $ | (1.80) | | $ | (0.70) | |
| | | | | | | | | | | | | |
| | Fiscal 2018 Quarters Ended (1) |
| ||||||||||
| | May 5, | | August 4, | | November 3, | | February 2, |
| ||||
|
| 2018 (6) |
| 2018 (7) |
| 2018 (8) |
| 2019 (9) |
| ||||
Net sales | | $ | 754,843 | | $ | 767,914 | | $ | 751,741 | | $ | 730,013 | |
Gross margin | |
| 328,291 | |
| 353,545 | |
| 345,494 | |
| 283,278 | |
Net earnings from continuing operations | | | 12,287 | | | 47,724 | | | 34,787 | | | 3,798 | |
Earnings (loss) from discontinued operations, net of tax | | | 1,622 | | | 1,514 | | | (20,912) | | | 2,420 | |
Net earnings | | | 13,909 | | | 49,238 | | | 13,875 | | | 6,218 | |
Net earnings from continuing operations per common share: | | | | | | | | | | | | | |
Basic | | $ | 0.25 | | $ | 0.96 | | $ | 0.70 | | $ | 0.08 | |
Diluted | | $ | 0.24 | | $ | 0.94 | | $ | 0.69 | | $ | 0.08 | |
Net earnings (loss) from discontinued operations per common share: | | | | | | | | | | | | | |
Basic | | $ | 0.03 | | $ | 0.03 | | $ | (0.42) | | $ | 0.05 | |
Diluted | | $ | 0.03 | | $ | 0.03 | | $ | (0.41) | | $ | 0.05 | |
Net earnings per common share: | | | | | | | | | | | | | |
Basic | | $ | 0.28 | | $ | 0.99 | | $ | 0.28 | | $ | 0.12 | |
Diluted | | $ | 0.27 | | $ | 0.97 | | $ | 0.27 | | $ | 0.12 | |
| (1) | Due to the method of calculating weighted-average shares outstanding, the sum of the quarterly per share amounts may not equal net earnings (loss) per common share for the respective years. |
| (2) | Includes pre-tax expenses of $4.4 million relating to multi-year cost savings and operational excellence programs. Of the $4.4 million, $0.2 million is included in cost of sales and $4.2 million is included in SG&A. |
95
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
| (3) | Includes pre-tax expenses of $11.3 million relating to multi-year cost savings and operational excellence programs. Of the $11.3 million, $2.9 million is included in cost of sales and $8.4 million is included in SG&A. |
| (4) | Includes pre-tax expenses of $6.2 million relating to multi-year cost savings and operational excellence programs within SG&A. In addition, within provision for income taxes, includes the net release of $5.9 million of valuation allowances. |
| (5) | Includes pre-tax expenses of $17.4 million relating to the agreement to sell the Joseph Abboud trademarks and $5.3 million relating to multi-year cost savings and operational excellence programs. Of the $22.7 million, $13.4 million is included in cost of sales and $9.3 million is included in SG&A. |
| (6) | Includes pre-tax expenses of $15.5 million with $11.9 million relating to the refinancing of the Term Loan and $3.6 million relating to the loss upon divestiture of the MW Cleaners business. Of the $15.5 million, $3.6 million is included in SG&A and $11.9 million is included in loss on extinguishment of debt. |
| (7) | Includes pre-tax expenses of $12.7 million with $8.1 million relating to the partial redemption of Senior Notes, $4.4 million relating to the closure of a rental product distribution center and $0.2 million relating to the divestiture of the MW Cleaners business. Of the $12.7 million, $4.0 million is included in cost of sales, $0.6 million is included in SG&A and $8.1 million is included in loss on extinguishment of debt. |
| (8) | Includes pre-tax expenses of $16.4 million with $9.4 million relating to the repricing of the Term Loan, $6.4 million relating to CEO retirement costs and $0.6 million relating to the closure of a rental product distribution center. Of the $16.4 million, less than $0.1 million is included in cost of sales, $7.0 million is included in SG&A, and $9.4 million is included in loss on extinguishment of debt. |
| (9) | Includes a $17.6 million increase in net sales reflecting the impact of changes related to our loyalty programs. In addition, within provision for income taxes, includes a discrete net tax benefit of $6.1 million related to the completion of our accounting for the effects of the Tax Reform |
96
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
23.SUBSEQUENT EVENTS
Sale of Joseph Abboud Trademarks
On March 4, 2020, we closed on our previously announced transaction to sell the Joseph Abboud trademarks to WHP Global (“WHP”) for $115 million. The Company has also entered into a licensing agreement with WHP for the exclusive rights to sell and rent Joseph Abboud branded apparel and related merchandise in the U.S. and Canada.
Recent Developments
Beginning in early March 2020, a major global health pandemic related to the outbreak of the novel coronavirus (“COVID-19”) resulted in a significant decrease in store traffic and comparable sales as well as cancellations of high school proms and other special events, coinciding with heightened actions taken by governments and citizens to curb the spread of virus. In response, we are taking aggressive and prudent actions to reduce expenses, and defer discretionary capital expenditures and inventory purchases to preserve our cash. In addition to these efforts, in an abundance of caution and as a proactive measure, on March 16, 2020, we executed a borrowing of $260.0 million under our ABL Facility. Furthermore, after assessing the remaining availability under the ABL Facility and determining that additional borrowings were prudent to maximize cash on hand, on March 19, 2020 and on March 31, 2020, respectively, we borrowed an additional $25.0 million under the ABL Facility.
On March 17, 2020, we announced the temporary closure of our retail locations in the U.S. and Canada starting March 17, 2020 through March 28, 2020. On March 19, 2020, we announced the closure of our e-commerce fulfillment centers starting March 20, 2020 through March 28, 2020. On March 26, 2020, we extended the temporary closing of our retail stores until at least May 4, 2020. In conjunction with our decision to extend the temporary closure of our stores, we have also furloughed all of our U.S. store employees as well as a significant portion of employees in our U.S. distribution network and offices, and we implemented the temporary layoff of all Canadian store employees and a significant portion of Canadian employees in our Canadian distribution network and offices. Furthermore, in light of our store closures, we have taken certain actions with respect to some or all of our existing leases, including engaging with landlords to discuss rent reductions and/or rent deferrals, or discontinuing payment.
Effective March 29, 2020, the base salary of our Chief Executive Officer will be reduced by 50%. The base salary of all other named executive officers and other executives directly reporting to our Chief Executive Officer will be reduced by 25%. In addition, the base salaries of other members of our senior management team will be also be reduced. The Board of Directors has also agreed to a 50% reduction in its retainer fees. Effective April 5, 2020, all employees with a base salary in excess of $100,000 will have their salaries reduced by 10%.
On March 31, 2020, we announced that, after instituting enhanced social distancing and sanitation protocols that meet or exceed those recommended by the Centers for Disease Control and Prevention (“CDC”), our e-commerce fulfillment centers were reopened. We will continue to monitor this ongoing situation, relying on recommendations from the CDC, the World Health Organization (“WHO”) and government officials to regularly evaluate the renewed operations at our e-commerce fulfillment centers and determine when currently closed facilities will reopen.
While we cannot reasonably estimate the impact of COVID-19 on our financial position, results of operations and cash flows, we do expect such impact to be significantly negative. The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain, including, among others, the duration of the outbreak, new information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities, to contain the pandemic or treat its impact. As events are rapidly changing, additional impacts may arise that we are not aware of currently.
97
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective and that the information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended February 1, 2020 that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
Management’s Annual Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. Our internal control over financial reporting is a process designed under the supervision of our principal executive and principal financial officers, and overseen by our Board of Directors, and implemented by management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in Internal Control—Integrated Framework (2013). Based on such assessment, management concluded that, as of February 1, 2020, our internal control over financial reporting is effective based on those criteria.
Deloitte & Touche LLP has audited our internal control over financial reporting as of February 1, 2020; their report is included in Item 9A, which follows.
98
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the shareholders and the Board of Directors of Tailored Brands, Inc.
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of Tailored Brands, Inc. and subsidiaries (the “Company”) as of February 1, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of February 1, 2020, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended February 1, 2020, of the Company and our report dated April 8, 2020, expressed an unqualified opinion on those financial statements and included an explanatory paragraph regarding the Company’s adoption of new accounting standards.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management's Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Houston, Texas
April 8, 2020
99
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Except as set forth below, the information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders to be held June 26, 2020.
The Company has adopted a Code of Ethics and Business Conduct that applies to all directors, officers and employees. A copy of such policy is posted on the Company’s website, www.tailoredbrands.com, under the heading “Investors - Corporate Governance.”
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders to be held June 26, 2020.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders to be held June 26, 2020.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders to be held June 26, 2020.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated herein by reference from our Proxy Statement for the Annual Meeting of Shareholders to be held June 26, 2020.
100
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| (a) | Financial Statements and
The following consolidated financial statements of the Company are included in Part II, Item 8:
Exhibits filed with this annual report on Form 10-K are incorporated herein by reference as set forth in the Index to Exhibits beginning on the next page. ITEM 16. FORM 10-K SUMMARY None. 101 Exhibit Index
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