UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the quarterly period ended October 31, 201529, 2016 or
☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to
Commission file number 1-16097
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC.
(Exact Name of Registrant as Specified in its Charter)
Texas |
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(State or Other Jurisdiction of |
| (I.R.S. Employer |
Incorporation or Organization) |
| Identification Number) |
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Houston, Texas | 77072-1624 | |
(Address of Principal Executive Offices) |
| (Zip Code) |
(281) 776-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x.☒. No o.☐.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x.☒. No o.☐.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
| Accelerated filer | ||
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Non-accelerated filer | ☐ | (Do not check if a smaller reporting company) | Smaller reporting company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o..Yes ☐. No x.☒.
The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at November 27, 201525, 2016 was 48,380,202 excluding 124,693 shares classified as Treasury Stock.48,744,325.
Part and Item No. | Page | |
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PART I — Financial Information |
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Item 1 — Condensed Consolidated Financial Statements (unaudited) |
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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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Item 3 — Quantitative and Qualitative Disclosures about Market Risk |
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Forward-Looking and Cautionary Statements
Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and press releases by the Company (as defined below) contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty. These forward-lookingForward-looking statements reflect our current views regarding certain events that could affect our financial condition or results of operations and may include, but are not limited to, references to future sales, comparable sales, earnings, margins, costs, number and costs of store openings, closings and expansions, profitability, capital expenditures, potential acquisitions, synergies from acquisitions, demand for clothing, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various economic and business trends. Forward-looking statements may be made by management orally or in writing, including, but not limited to, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and other sections of our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended.
Forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements. Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities; domestic and international economic activity and inflation;macro-economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in executing our internal strategies and operating plans andincluding new store and new market expansion plans, as well as integration of acquisitions, including Jos. A. Bank Clothiers, Inc.; cost reduction initiatives;initiatives, store rationalization plans;plans, profit improvement plans, revenue enhancement strategies;strategies and the impact of opening tuxedo shops within Macy’s stores; changes in demand for clothing; market trends in the retail business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies; advertising or marketing activities of competitors; and legal proceedings. Future results will also be dependent upon our ability to continue to identify and complete successful expansions and penetrations into existing and new markets and our ability to integrate such expansions with our existing operations.
These forward-lookingForward-looking statements are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies and third party approvals, many of which are beyond our control. Refer to “Risk Factors” contained in Part I of our Annual Report on Form 10-K for the year ended January 31, 2015,30, 2016, Part 1A of our Quarterly Report on Form 10-Q for the quarter ended May 2, 2015 and Part 1A of our Quarterly Report on Form 10-Q for the quarter ended August 1, 2015July 30, 2016, and elsewhere herein for a more complete discussion of these and other factors that might affect our performance and financial results. These forward-lookingForward-looking statements are intended to convey the Company’s expectations about the future and speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statementstatements that may be made from time to time, whether as a result of new information, future developments or otherwise.otherwise, unless required to do so by law.
All written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by this cautionary notice.
1
THE MEN’S WEARHOUSE,
PART I – FINANCIAL INFORMATION
ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
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| October 31, |
| November 1, |
| January 31, |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 53,654 |
| $ | 64,716 |
| $ | 62,261 |
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Accounts receivable, net |
| 66,902 |
| 84,054 |
| 73,266 |
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Inventories |
| 1,060,247 |
| 1,082,354 |
| 938,336 |
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Other current assets |
| 168,071 |
| 107,107 |
| 169,809 |
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Total current assets |
| 1,348,874 |
| 1,338,231 |
| 1,243,672 |
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PROPERTY AND EQUIPMENT, net |
| 548,481 |
| 569,779 |
| 566,074 |
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RENTAL PRODUCT, net |
| 147,344 |
| 129,579 |
| 132,672 |
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GOODWILL |
| 890,991 |
| 892,766 |
| 887,936 |
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INTANGIBLE ASSETS, net |
| 568,171 |
| 673,057 |
| 668,259 |
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OTHER ASSETS |
| 8,518 |
| 10,032 |
| 9,599 |
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TOTAL ASSETS |
| $ | 3,512,379 |
| $ | 3,613,444 |
| $ | 3,508,212 |
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LIABILITIES AND SHAREHOLDERS’ EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 233,520 |
| $ | 263,645 |
| $ | 209,867 |
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Accrued expenses and other current liabilities |
| 264,978 |
| 283,271 |
| 268,935 |
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Income taxes payable |
| 14,233 |
| 13,590 |
| 1,609 |
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Current maturities of long-term debt |
| 7,000 |
| 11,000 |
| 11,000 |
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Total current liabilities |
| 519,731 |
| 571,506 |
| 491,411 |
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LONG-TERM DEBT, net |
| 1,649,206 |
| 1,638,606 |
| 1,637,686 |
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DEFERRED TAXES AND OTHER LIABILITIES |
| 358,059 |
| 367,612 |
| 409,326 |
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Total liabilities |
| 2,526,996 |
| 2,577,724 |
| 2,538,423 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS’ EQUITY: |
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Preferred stock |
| — |
| — |
| — |
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Common stock |
| 485 |
| 481 |
| 482 |
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Capital in excess of par |
| 452,666 |
| 435,755 |
| 440,907 |
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Retained earnings |
| 541,672 |
| 581,956 |
| 537,263 |
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Accumulated other comprehensive (loss) income |
| (6,356 | ) | 20,829 |
| (5,671 | ) | |||
Treasury stock, at cost |
| (3,084 | ) | (3,301 | ) | (3,192 | ) | |||
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Total shareholders’ equity |
| 985,383 |
| 1,035,720 |
| 969,789 |
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TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 3,512,379 |
| $ | 3,613,444 |
| $ | 3,508,212 |
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| October 29, |
| October 31, |
| January 30, |
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| 2016 |
| 2015 |
| 2016 |
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ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 34,948 |
| $ | 53,654 |
| $ | 29,980 |
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Accounts receivable, net |
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| 71,898 |
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| 66,902 |
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| 63,890 |
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Inventories |
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| 1,047,915 |
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| 1,060,247 |
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| 1,022,504 |
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Other current assets |
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| 60,190 |
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| 168,071 |
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| 143,546 |
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Total current assets |
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| 1,214,951 |
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| 1,348,874 |
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| 1,259,920 |
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PROPERTY AND EQUIPMENT, net |
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| 501,391 |
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| 548,481 |
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| 521,824 |
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RENTAL PRODUCT, net |
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| 160,101 |
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| 147,344 |
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| 157,460 |
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GOODWILL |
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| 116,026 |
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| 890,991 |
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| 118,586 |
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INTANGIBLE ASSETS, net |
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| 172,337 |
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| 568,171 |
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| 178,510 |
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OTHER ASSETS |
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| 10,323 |
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| 8,518 |
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| 8,019 |
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TOTAL ASSETS |
| $ | 2,175,129 |
| $ | 3,512,379 |
| $ | 2,244,319 |
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LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
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CURRENT LIABILITIES: |
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Accounts payable |
| $ | 200,199 |
| $ | 233,520 |
| $ | 237,114 |
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Accrued expenses and other current liabilities |
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| 280,658 |
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| 265,993 |
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| 256,762 |
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Income taxes payable |
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| 917 |
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| 13,218 |
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| — |
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Current portion of long-term debt |
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| 7,000 |
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| 7,000 |
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| 42,451 |
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Total current liabilities |
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| 488,774 |
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| 519,731 |
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| 536,327 |
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LONG-TERM DEBT, net |
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| 1,588,873 |
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| 1,649,206 |
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| 1,613,473 |
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DEFERRED TAXES AND OTHER LIABILITIES |
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| 175,179 |
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| 358,059 |
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| 194,605 |
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Total liabilities |
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| 2,252,826 |
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| 2,526,996 |
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| 2,344,405 |
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COMMITMENTS AND CONTINGENCIES |
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SHAREHOLDERS' (DEFICIT) EQUITY: |
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Preferred stock |
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| — |
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| — |
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| — |
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Common stock |
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| 487 |
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| 485 |
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| 485 |
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Capital in excess of par |
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| 466,817 |
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| 452,666 |
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| 455,765 |
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(Accumulated deficit) retained earnings |
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| (499,663) |
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| 541,672 |
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| (524,876) |
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Accumulated other comprehensive loss |
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| (45,338) |
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| (6,356) |
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| (28,486) |
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Treasury stock, at cost |
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| — |
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| (3,084) |
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| (2,974) |
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Total shareholders' (deficit) equity |
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| (77,697) |
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| 985,383 |
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| (100,086) |
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TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
| $ | 2,175,129 |
| $ | 3,512,379 |
| $ | 2,244,319 |
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See Notes to Condensed Consolidated Financial Statements.
2
THE MEN’S WEARHOUSE,
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS) EARNINGS
(In thousands, except per share data)
(Unaudited)
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| For the Three Months Ended |
| For the Nine Months Ended |
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| For the Three Months Ended |
| For the Nine Months Ended |
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| October 31, |
| November 1, |
| October 31, |
| November 1, |
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| October 29, 2016 |
| October 31, 2015 |
| October 29, 2016 |
| October 31, 2015 |
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Net sales: |
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Retail clothing product |
| $ | 615,874 |
| $ | 634,447 |
| $ | 1,931,926 |
| $ | 1,598,199 |
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| $ | 575,046 |
| $ | 615,874 |
| $ | 1,806,660 |
| $ | 1,931,926 |
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Rental services |
| 132,443 |
| 132,690 |
| 392,621 |
| 395,449 |
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| 138,724 |
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| 132,443 |
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| 403,564 |
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| 392,621 |
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Alteration and other services |
| 53,070 |
| 52,025 |
| 160,024 |
| 135,585 |
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| 49,919 |
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| 53,070 |
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| 149,888 |
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| 160,024 |
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Total retail sales |
| 801,387 |
| 819,162 |
| 2,484,571 |
| 2,129,233 |
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| 763,689 |
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| 801,387 |
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| 2,360,112 |
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| 2,484,571 |
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Corporate apparel clothing product |
| 64,059 |
| 71,475 |
| 186,038 |
| 194,956 |
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| 83,245 |
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| 64,059 |
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| 225,328 |
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| 186,038 |
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Total net sales |
| 865,446 |
| 890,637 |
| 2,670,609 |
| 2,324,189 |
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| 846,934 |
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| 865,446 |
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| 2,585,440 |
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| 2,670,609 |
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Cost of sales: |
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Retail clothing product |
| 274,348 |
| 287,309 |
| 850,782 |
| 722,140 |
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| 247,978 |
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| 274,348 |
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| 796,215 |
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| 850,782 |
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Rental services |
| 21,431 |
| 33,538 |
| 62,866 |
| 75,083 |
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| 22,958 |
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| 21,431 |
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| 65,943 |
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| 62,866 |
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Alteration and other services |
| 36,260 |
| 37,173 |
| 109,528 |
| 97,794 |
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| 33,526 |
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| 36,260 |
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| 104,085 |
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| 109,528 |
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Occupancy costs |
| 114,629 |
| 114,325 |
| 341,980 |
| 282,595 |
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| 108,923 |
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| 114,629 |
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| 327,673 |
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| 341,980 |
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Total retail cost of sales |
| 446,668 |
| 472,345 |
| 1,365,156 |
| 1,177,612 |
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| 413,385 |
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| 446,668 |
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| 1,293,916 |
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| 1,365,156 |
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Corporate apparel clothing product |
| 45,787 |
| 49,087 |
| 132,229 |
| 135,466 |
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| 56,343 |
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| 45,787 |
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| 152,173 |
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| 132,229 |
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Total cost of sales |
| 492,455 |
| 521,432 |
| 1,497,385 |
| 1,313,078 |
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| 469,728 |
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| 492,455 |
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| 1,446,089 |
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| 1,497,385 |
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Gross margin: |
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Retail clothing product |
| 341,526 |
| 347,138 |
| 1,081,144 |
| 876,059 |
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| 327,068 |
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| 341,526 |
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| 1,010,445 |
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| 1,081,144 |
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Rental services |
| 111,012 |
| 99,152 |
| 329,755 |
| 320,366 |
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| 115,766 |
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| 111,012 |
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| 337,621 |
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| 329,755 |
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Alteration and other services |
| 16,810 |
| 14,852 |
| 50,496 |
| 37,791 |
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| 16,393 |
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| 16,810 |
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| 45,803 |
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| 50,496 |
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Occupancy costs |
| (114,629 | ) | (114,325 | ) | (341,980 | ) | (282,595 | ) |
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| (108,923) |
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| (114,629) |
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| (327,673) |
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| (341,980) |
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Total retail gross margin |
| 354,719 |
| 346,817 |
| 1,119,415 |
| 951,621 |
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| 350,304 |
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| 354,719 |
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| 1,066,196 |
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| 1,119,415 |
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Corporate apparel clothing product |
| 18,272 |
| 22,388 |
| 53,809 |
| 59,490 |
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| 26,902 |
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| 18,272 |
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| 73,155 |
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| 53,809 |
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Total gross margin |
| 372,991 |
| 369,205 |
| 1,173,224 |
| 1,011,111 |
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|
| 377,206 |
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| 372,991 |
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| 1,139,351 |
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| 1,173,224 |
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Advertising expense |
| 47,991 |
| 42,075 |
| 143,628 |
| 109,072 |
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| 45,656 |
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| 47,991 |
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| 138,547 |
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| 143,628 |
| ||||
Selling, general and administrative expenses |
| 271,301 |
| 281,955 |
| 822,485 |
| 786,879 |
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| 270,494 |
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| 271,301 |
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| 849,122 |
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| 822,485 |
| ||||
Tradename impairment charge |
| 90,100 |
| — |
| 90,100 |
| — |
|
|
| — |
|
| 90,100 |
|
| — |
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| 90,100 |
| ||||
Operating (loss) income |
| (36,401 | ) | 45,175 |
| 117,011 |
| 115,160 |
| |||||||||||||||||
Operating income (loss) |
|
| 61,056 |
|
| (36,401) |
|
| 151,682 |
|
| 117,011 |
| |||||||||||||
Interest income |
| 50 |
| 125 |
| 140 |
| 305 |
|
|
| 52 |
|
| 50 |
|
| 102 |
|
| 140 |
| ||||
Interest expense |
| (26,457 | ) | (25,131 | ) | (79,475 | ) | (39,459 | ) |
|
| (25,476) |
|
| (26,457) |
|
| (77,853) |
|
| (79,475) |
| ||||
Loss on extinguishment of debt |
| — |
| — |
| (12,675 | ) | (2,158 | ) | |||||||||||||||||
(Loss) earnings before income taxes |
| (62,808 | ) | 20,169 |
| 25,001 |
| 73,848 |
| |||||||||||||||||
(Benefit) provision for income taxes |
| (35,654 | ) | 13,168 |
| (5,993 | ) | 38,021 |
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Net (loss) earnings including non-controlling interest |
| (27,154 | ) | 7,001 |
| 30,994 |
| 35,827 |
| |||||||||||||||||
Net earnings attributable to non-controlling interest |
| — |
| (208 | ) | — |
| (292 | ) | |||||||||||||||||
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|
|
| |||||||||||||||||
Net (loss) earnings attributable to common shareholders |
| $ | (27,154 | ) | $ | 6,793 |
| $ | 30,994 |
| $ | 35,535 |
| |||||||||||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net (loss) earnings per common share allocated to common shareholders: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Gain (loss) on extinguishment of debt, net |
|
| 1,808 |
|
| — |
|
| 1,737 |
|
| (12,675) |
| |||||||||||||
Earnings (loss) before income taxes |
|
| 37,440 |
|
| (62,808) |
|
| 75,668 |
|
| 25,001 |
| |||||||||||||
Provision (benefit) for income taxes |
|
| 9,007 |
|
| (35,654) |
|
| 20,623 |
|
| (5,993) |
| |||||||||||||
Net earnings (loss) |
| $ | 28,433 |
| $ | (27,154) |
| $ | 55,045 |
| $ | 30,994 |
| |||||||||||||
Net earnings (loss) per common share allocated to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Basic |
| $ | (0.56 | ) | $ | 0.14 |
| $ | 0.64 |
| $ | 0.74 |
|
| $ | 0.58 |
| $ | (0.56) |
| $ | 1.13 |
| $ | 0.64 |
|
Diluted |
| $ | (0.56 | ) | $ | 0.14 |
| $ | 0.64 |
| $ | 0.74 |
|
| $ | 0.58 |
| $ | (0.56) |
| $ | 1.13 |
| $ | 0.64 |
|
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic |
| 48,339 |
| 48,009 |
| 48,258 |
| 47,852 |
|
|
| 48,655 |
|
| 48,339 |
|
| 48,570 |
|
| 48,258 |
| ||||
Diluted |
| 48,339 |
| 48,254 |
| 48,513 |
| 48,124 |
|
|
| 48,812 |
|
| 48,339 |
|
| 48,691 |
|
| 48,513 |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Cash dividends declared per common share |
| $ | 0.18 |
| $ | 0.18 |
| $ | 0.54 |
| $ | 0.54 |
|
| $ | 0.18 |
| $ | 0.18 |
| $ | 0.54 |
| $ | 0.54 |
|
See Notes to Condensed Consolidated Financial Statements.
3
THE MEN’S WEARHOUSE,
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS) INCOME
(In thousands)
(Unaudited)
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
|
| October 31, |
| November 1, |
| October 31, |
| November 1, |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net (loss) earnings including non-controlling interest |
| $ | (27,154 | ) | $ | 7,001 |
| $ | 30,994 |
| $ | 35,827 |
|
|
|
|
|
|
|
|
|
|
| ||||
Currency translation adjustments |
| (2,024 | ) | (12,872 | ) | (378 | ) | (6,881 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Unrealized loss on cash flow hedge, net of tax |
| (222 | ) | — |
| (307 | ) | — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Settlement of cash flow hedge, net of tax |
| — |
| — |
| — |
| 399 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive (loss) income including non-controlling interest |
| (29,400 | ) | (5,871 | ) | 30,309 |
| 29,345 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive income attributable to non-controlling interest: |
|
|
|
|
|
|
|
|
| ||||
Net earnings |
| — |
| (208 | ) | — |
| (292 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Currency translation adjustments |
| — |
| 321 |
| — |
| — |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Amounts attributable to non-controlling interest |
| — |
| 113 |
| — |
| (292 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
Comprehensive (loss) income attributable to common shareholders |
| $ | (29,400 | ) | $ | (5,758 | ) | $ | 30,309 |
| $ | 29,053 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
|
| October 29, |
| October 31, |
| October 29, |
| October 31, |
| ||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net earnings (loss) |
| $ | 28,433 |
| $ | (27,154) |
| $ | 55,045 |
| $ | 30,994 |
|
Currency translation adjustments |
|
| (15,075) |
|
| (2,024) |
|
| (18,246) |
|
| (378) |
|
Unrealized gain (loss) on cash flow hedges, net of tax |
|
| 948 |
|
| (222) |
|
| 1,394 |
|
| (307) |
|
Comprehensive income (loss) |
| $ | 14,306 |
| $ | (29,400) |
| $ | 38,193 |
| $ | 30,309 |
|
See Notes to Condensed Consolidated Financial Statements.
4
THE MEN’S WEARHOUSE,
TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
|
|
|
|
|
|
| |||||||
|
| For the Nine Months Ended |
| |||||||||||
|
| For the Nine Months Ended |
|
| October 29, |
| October 31, |
| ||||||
|
| October 31, |
| November 1, |
|
| 2016 |
| 2015 |
| ||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Net earnings including non-controlling interest |
| $ | 30,994 |
| $ | 35,827 |
| |||||||
Net earnings |
| $ | 55,045 |
| $ | 30,994 |
| |||||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Depreciation and amortization |
| 98,162 |
| 80,622 |
|
|
| 87,838 |
|
| 98,162 |
| ||
Rental product amortization |
| 30,496 |
| 30,038 |
|
|
| 35,982 |
|
| 30,496 |
| ||
Tradename impairment charge |
| 90,100 |
| — |
|
|
| — |
|
| 90,100 |
| ||
Loss on extinguishment of debt |
| 12,675 |
| 2,158 |
| |||||||||
(Gain) loss on extinguishment of debt, net |
|
| (1,737) |
|
| 12,675 |
| |||||||
Amortization of deferred financing costs |
| 5,151 |
| 3,014 |
|
|
| 4,922 |
|
| 5,151 |
| ||
Amortization of discount on long-term debt |
| 848 |
| 589 |
|
|
| 728 |
|
| 848 |
| ||
Loss (gain) on disposition of assets |
|
| 616 |
|
| (833) |
| |||||||
Asset impairment charges |
|
| 4,293 |
|
| 1,695 |
| |||||||
Share-based compensation |
| 12,614 |
| 12,254 |
|
|
| 13,958 |
|
| 12,614 |
| ||
Excess tax benefits from share-based plans |
| (1,104 | ) | (3,736 | ) |
|
| — |
|
| (1,104) |
| ||
(Gain) loss on disposition of assets |
| (833 | ) | 12,247 |
| |||||||||
Asset impairment charges |
| 1,695 |
| 302 |
| |||||||||
Deferred tax benefit |
| (61,108 | ) | (25,763 | ) |
|
| (13,233) |
|
| (61,108) |
| ||
Deferred rent expense and other |
| 3,141 |
| 2,914 |
|
|
| (1,281) |
|
| 3,141 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Accounts receivable |
| 7,116 |
| (14,430 | ) |
|
| (13,273) |
|
| 7,116 |
| ||
Inventories |
| (122,294 | ) | (158,449 | ) |
|
| (32,833) |
|
| (122,294) |
| ||
Rental product |
| (45,704 | ) | (27,587 | ) |
|
| (37,817) |
|
| (45,704) |
| ||
Other assets |
| 6,210 |
| 14,133 |
|
|
| 84,844 |
|
| 6,210 |
| ||
Accounts payable, accrued expenses and other current liabilities |
| 28,763 |
| 76,565 |
|
|
| (4,314) |
|
| 29,778 |
| ||
Income taxes payable |
| 14,372 |
| 16,725 |
|
|
| (2,065) |
|
| 13,357 |
| ||
Other liabilities |
| 942 |
| 1,594 |
|
|
| (4,789) |
|
| 942 |
| ||
|
|
|
|
|
| |||||||||
Net cash provided by operating activities |
| 112,236 |
| 59,017 |
|
|
| 176,884 |
|
| 112,236 |
| ||
|
|
|
|
|
| |||||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Capital expenditures |
| (86,406 | ) | (72,397 | ) |
|
| (80,550) |
|
| (86,406) |
| ||
Acquisition of business, net of cash |
| — |
| (1,491,393 | ) | |||||||||
Proceeds from sales of property and equipment |
| 2,613 |
| 160 |
|
|
| 605 |
|
| 2,613 |
| ||
|
|
|
|
|
| |||||||||
Net cash used in investing activities |
| (83,793 | ) | (1,563,630 | ) |
|
| (79,945) |
|
| (83,793) |
| ||
|
|
|
|
|
| |||||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Proceeds from new term loan |
| — |
| 1,089,000 |
| |||||||||
Payments on new term loan |
| (6,250 | ) | — |
| |||||||||
Payments on previous term loan |
| — |
| (97,500 | ) | |||||||||
Payments on term loan |
|
| (40,701) |
|
| (6,250) |
| |||||||
Proceeds from asset-based revolving credit facility |
| 5,500 |
| 340,000 |
|
|
| 520,550 |
|
| 5,500 |
| ||
Payments on asset-based revolving credit facility |
| (5,500 | ) | (340,000 | ) |
|
| (520,550) |
|
| (5,500) |
| ||
Proceeds from issuance of senior notes |
| — |
| 600,000 |
| |||||||||
Repurchase and retirement of senior notes |
|
| (25,000) |
|
| — |
| |||||||
Deferred financing costs |
| (3,566 | ) | (51,072 | ) |
|
| — |
|
| (3,566) |
| ||
Cash dividends paid |
| (26,269 | ) | (26,119 | ) |
|
| (26,438) |
|
| (26,269) |
| ||
Purchase of non-controlling interest |
| — |
| (6,651 | ) | |||||||||
Proceeds from issuance of common stock |
| 2,454 |
| 7,115 |
|
|
| 1,451 |
|
| 2,454 |
| ||
Tax payments related to vested deferred stock units |
| (4,538 | ) | (6,907 | ) |
|
| (1,258) |
|
| (4,538) |
| ||
Excess tax benefits from share-based plans |
| 1,104 |
| 3,736 |
|
|
| — |
|
| 1,104 |
| ||
Repurchases of common stock |
| (277 | ) | (251 | ) |
|
| — |
|
| (277) |
| ||
|
|
|
|
|
| |||||||||
Net cash (used in) provided by financing activities |
| (37,342 | ) | 1,511,351 |
| |||||||||
|
|
|
|
|
| |||||||||
Net cash used in financing activities |
|
| (91,946) |
|
| (37,342) |
| |||||||
Effect of exchange rate changes |
| 292 |
| (1,274 | ) |
|
| (25) |
|
| 292 |
| ||
|
|
|
|
|
| |||||||||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
| (8,607 | ) | 5,464 |
| |||||||||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
|
| 4,968 |
|
| (8,607) |
| |||||||
Balance at beginning of period |
| 62,261 |
| 59,252 |
|
|
| 29,980 |
|
| 62,261 |
| ||
|
|
|
|
|
| |||||||||
Balance at end of period |
| $ | 53,654 |
| $ | 64,716 |
|
| $ | 34,948 |
| $ | 53,654 |
|
See Notes to Condensed Consolidated Financial Statements.
5
1. Significant Accounting Policies
Basis of Presentation — Effective January 31, 2016, Tailored Brands, Inc., a Texas corporation (“Tailored Brands”), became the successor reporting company to The Men’s Wearhouse, Inc. (“Men’s Wearhouse”), pursuant to a holding company reorganization (the “Reorganization”). Upon completion of the Reorganization, each issued and outstanding share of common stock of Men's Wearhouse was automatically converted into one share of common stock of Tailored Brands, having the same designations, preferences, limitations, and relative rights and corresponding obligations as the shares of common stock of Men's Wearhouse. In addition, as part of the Reorganization, Men's Wearhouse's treasury shares were canceled. The consolidated assets and liabilities of Tailored Brands and its subsidiaries immediately after the Reorganization were the same as the consolidated assets and liabilities of Men's Wearhouse immediately prior to the Reorganization.
The condensed consolidated financial statements herein include the accounts of The Men’s Wearhouse,Tailored Brands, Inc. and its subsidiaries (the “Company”) and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation, as further described below in Recent Accounting Pronouncements.presentation.
Our business results historically has been seasonal in naturehave fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended January 31, 2015.30, 2016.
Unless the context otherwise requires, “Company”, “we”, “us” and “our” refer to The Men’s Wearhouse,Tailored Brands, Inc. and its subsidiaries.
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States (“U.S.” GAAP”) requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates.
Recent Accounting Pronouncements — We have considered all new accounting pronouncements and have concluded 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, except for those listed below.
In November 2015,March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-17, Balance Sheet Classification of Deferred Taxes2016-09, Compensation-Stock Compensation. ASU 2015-172016-09 simplifies several aspects of the presentationaccounting for share-based payment transactions, including income tax consequences, classification of deferred taxes by requiring deferred tax assetsawards as either equity or liabilities, and liabilities be classified as noncurrentclassification on the balance sheet.statement of cash flows. ASU 2015-172016-09 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years. The guidance may be adopted prospectively or retrospectively andyears with early adoption is permitted. We are currently evaluatingwill adopt ASU 2015-17 to determine if this guidance2016-09 beginning in the first quarter of fiscal 2017 and we do not expect it will have a material impact on our financial position, results of operations or cash flows. However, under certain circumstances, this guidance could have an impact on our effective tax rate as changes between tax and book treatment of equity compensation will be recognized in the provision for income taxes beginning in fiscal 2017.
In July 2015,February 2016, the FASB issued ASU No. 2015-11, Simplifying2016-02, Leases. ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the Measurementbalance sheet and disclosing key information about leasing arrangements. The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of Inventory.lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2015-11 simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value. ASU 2015-11 applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method. ASU 2015-112016-02 is effective for public companies for annual reporting periods beginning after December 15, 2016,2018, and interim periods within those fiscal years. Early adoption of ASU 2015-112016-02 is permitted. The guidance is required to be adopted
6
using the modified retrospective approach. We are currently evaluating the impact ASU 2015-11 to determine if this guidance2016-02 will have a material impact on our financial position, results of operations orand cash flows.
In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The guidance requires debt issuance costs related to a recognized debt liability be reported on the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance is effective for fiscal years and interim periods beginning after December 15, 2015, and is required to be applied retrospectively. Early adoption is permitted and we adopted ASU 2015-03 in the second quarter of 2015. Subsequently, in August 2015, the FASB issued No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements. ASU 2015-15 codifies the SEC’s positionflows but expect that it would be allowable for an entity to deferwill result in a significant increase in our long-term assets and present debt issuance costs as an asset and subsequently amortize the deferred debt issuance costs ratably over the termliabilities given we have a significant number of the line-of-credit arrangement, regardless of whether there are any outstanding borrowings on the line-of-credit arrangement.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
For the current quarter, we retrospectively adjusted our November 1, 2014 balance sheet by decreasing current assets by $5.8 million, other assets by $34.2 million and long-term debt by $40.0 million, and upon adoption, adjusted our January 31, 2015 balance sheet by decreasing current assets by $5.7 million, other assets by $32.8 million and long-term debt by $38.5 million. In accordance with ASU 2015-15, we will continue presenting debt issuance costs for our asset-based revolving credit facility as an asset because of the potential volatility of borrowings and repayments under the facility. The adoption of this guidance had no impact on our results of operations or cash flows. See Note 4 for a summary of the reclassifications for all periods presented.leases.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers,, to clarify the principles used to recognize revenue for all entities. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of ASU 2014-09 by one year. As a result of this deferral, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted for annual reporting periods beginning after December 15, 2016. The guidance allows for either a full retrospective or a modified retrospective transition method. We are currently evaluatingcontinuing to evaluate our method of adoption and the impact of this guidance, including the transition method,recent amendments and interpretations, may have on our financial position, results of operations and cash flows.
2. AcquisitionRestructuring and Other Charges
Jos. A. Bank
On June 18, 2014,During the fourth quarter of fiscal 2015, we acquired 100%began implementing initiatives intended to reduce costs and improve operating performance. These initiatives include a store rationalization program which identified approximately 250 stores to be closed as well as a profit improvement program to drive operating efficiencies and improve our expense structure. The store rationalization program includes the closure of the outstanding common stock ofapproximately 80 to 90 Jos. A. Bank a men’s specialty apparel retailer, for $65.00 net per sharefull line stores, the closure of all factory and outlet stores at Jos. A. Bank and Men’s Wearhouse (58 stores) and the closure of between 100 and 110 Men’s Wearhouse and Tux stores primarily as the result of the rollout of our shops within Macy’s stores. We expect the store rationalization and profit improvement programs to be completed in cash, or total consideration of approximately $1.8 billion. The acquisition was funded primarily by a $1.1 billion term loan facility, the issuance of $600.0 million in senior unsecured notes and borrowings under an asset-based credit facility (see Note 4).fiscal 2016.
WeA summary of the charges incurred for the three and nine months ended October 29, 2016 along with cumulative charges incurred under these initiatives since inception is presented in the table below (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
|
|
| ||
|
| October 29, |
| October 29, |
|
|
|
| ||
|
| 2016 |
| 2016 |
| Cumulative |
| |||
Lease termination costs |
| $ | 8,667 |
| $ | 37,004 |
| $ | 37,004 |
|
Store asset impairment charges and accelerated depreciation, net of deferred rent |
|
| (844) |
|
| 2,330 |
|
| 25,476 |
|
Consulting costs |
|
| 1,806 |
|
| 13,583 |
|
| 14,501 |
|
Inventory reserve charges |
|
| — |
|
| — |
|
| 11,008 |
|
Favorable lease impairment charges |
|
| — |
|
| — |
|
| 5,533 |
|
Severance and employee-related costs |
|
| 481 |
|
| 4,643 |
|
| 4,643 |
|
Other costs |
|
| 839 |
|
| 1,565 |
|
| 2,423 |
|
Total pre-tax restructuring and other charges(1) |
| $ | 10,949 |
| $ | 59,125 |
| $ | 100,588 |
|
(1) | Consists of $12.4 million included in selling, general and administrative expenses (“SG&A”) offset by a $1.5 million reduction in cost of sales for the three months ended October 29, 2016. Consists of $61.8 million included in SG&A offset by a $2.7 million reduction in cost of sales for the nine months ended October 29, 2016. For the three and nine months ended October 29, 2016 and cumulatively since inception of the initiatives, of the total amounts recorded in the table above, $9.1 million, $42.7 million and $82.6 million relate to our retail segment and the remainder are recorded in shared services. |
7
As of October 29, 2016, we estimate that cumulative pre-tax restructuring and other charges related to these actions will approximate $114.0 million to $120.0 million, of which approximately $72.0 million to $75.0 million are estimated to be cash expenses. Included in the estimate of total pre-tax charges are approximately:
· | Approximately $50.0 million of lease termination costs; |
· | $42.0 million to $45.0 million of inventory and long-lived and intangible asset impairment charges, including accelerated depreciation relating to store closures; and |
· | $22.0 million to $25.0 million of consulting, severance and other costs. |
The following table is a rollforward of amounts included in accrued expenses and other current liabilities in the condensed consolidated balance sheet related to the pre-tax restructuring and other charges (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Severance and |
| Lease |
|
|
|
|
|
|
|
|
|
| ||
|
| Employee- |
| Termination |
| Consulting |
| Other |
|
|
|
| ||||
|
| Related Costs |
| Costs |
| Costs |
| Costs |
| Total |
| |||||
Beginning Balance, January 30, 2016 |
| $ | — |
| $ | — |
| $ | 918 |
| $ | 858 |
| $ | 1,776 |
|
Charges, excluding non-cash items |
|
| 4,643 |
|
| 37,004 |
|
| 13,583 |
|
| 1,565 |
|
| 56,795 |
|
Payments |
|
| (4,179) |
|
| (30,562) |
|
| (13,983) |
|
| (2,398) |
|
| (51,122) |
|
Ending Balance, October 29, 2016 |
| $ | 464 |
| $ | 6,442 |
| $ | 518 |
| $ | 25 |
| $ | 7,449 |
|
In addition to the restructuring costs described above, we incurred integration and other costs related to Jos. A. Bank totaling $4.7$1.4 million and $15.5$5.0 million for the three and nine months ended October 29, 2016 and October 31, 2015, respectively, which isrespectively. For the three months ended October 29, 2016, $0.9 million of the integration costs are included in selling, generalSG&A and administrative expenses (“SG&A”)$0.5 million are included in cost of sales in the condensed consolidated statement of earnings (loss) earnings.. For the three andmonths ended October 31, 2015, $5.2 million of the integration costs are included in SG&A offset by a $0.2 million reduction in in cost of sales in the condensed consolidated statement of earnings (loss).
For the nine months ended November 1, 2014,October 29, 2016 and October 31, 2015, we incurred $27.3 million and $44.7 million, respectively, of integration and other costs related to Jos. A. Bank totaling $7.1 million and $15.9 million, respectively. For the nine months ended October 29, 2016, $5.5 million of which $10.6the integration costs are included in SG&A and $1.6 million isare included in cost of sales for the three and nine months ended November 1, 2014, respectively, and the remainder is included in SG&A in the condensed consolidated statement of earnings (loss) earnings.. For the nine months ended November 1, 2014, we incurred acquisition-related costs for Jos. A. Bank totaling $43.5 million. For the three and nine months ended October 31, 2015, $15.6 million of the integration costs are included in SG&A and $0.3 million are included in cost of sales in the three months ended November 1, 2014, we did not incur any acquisition-related costs.condensed consolidated statement of earnings (loss).
The following table summarizes the final allocation of fair values of the identifiable assets acquired and liabilities assumed in the Jos. A. Bank acquisition (amounts in millions):
Cash |
| $ | 328.9 |
|
Accounts receivable (mainly credit card receivables) |
| 8.3 |
| |
Inventories |
| 328.0 |
| |
Other current assets |
| 56.4 |
| |
Property and equipment |
| 165.3 |
| |
Goodwill |
| 769.0 |
| |
Intangible assets |
| 622.2 |
| |
Accounts payable, accrued expenses and other current liabilities |
| (155.0 | ) | |
Other liabilities (mainly deferred income taxes) |
| (302.8 | ) | |
Total purchase price |
| 1,820.3 |
| |
Less: Cash acquired |
| (328.9 | ) | |
Total purchase price, net of cash acquired |
| $ | 1,491.4 |
|
Within the measurement period which closed during the second quarter of 2015, we made purchase accounting adjustments primarily related to deferred income taxes. None of these measurement period adjustments had a material impact on the purchase price allocation. Goodwill is calculated as the excess of the purchase price over the net assets acquired. The goodwill recognized is attributable to growth opportunities and expected synergies. All of the goodwill has been assigned to our retail reporting segment and is non-deductible for tax purposes.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table presents unaudited pro forma consolidated financial information as if the closing of our acquisition of Jos. A. Bank had occurred on February 3, 2013 (in thousands, except3. Earnings (Loss) per share data):
|
| For the Nine |
| |
|
|
|
| |
Total net sales |
| $ | 2,668,460 |
|
Net earnings attributable to common shareholders |
| $ | 76,349 |
|
Net earnings per common share allocated to common shareholders: |
|
|
| |
Basic |
| $ | 1.59 |
|
Diluted |
| $ | 1.58 |
|
The pro forma financial information presented above has been prepared by combining our historical results and the historical results of Jos. A. Bank and further reflects the effect of purchase accounting adjustments and the elimination of transaction costs, among other items. This pro forma information is not necessarily indicative of the results of operations that actually would have resulted had the Jos. A. Bank acquisition occurred on the date indicated above or that may result in the future and does not reflect potential synergies, integration costs or other such costs and savings.
3. (Loss) Earnings per Share
Basic earnings (loss) earnings per common share allocated to common shareholders is determined using the two-class method and is computed by dividing net earnings (loss) earnings allocated to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings (loss) earnings per common share reflect the more dilutive earnings (loss) earnings per common share amount calculated using the treasury stock method or the two-class method.
The following table sets forth the computation
8
Basic and diluted earnings (loss) earnings per common share allocated to common shareholders are computed using the actual net earnings (loss) earnings allocated to common shareholders and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our condensed consolidated statement of earnings (loss) earnings and the accompanying notes. As a result, it may not be possible to recalculate earnings (loss) earnings per common share allocated to common shareholders in our condensed consolidated statement of earnings (loss) earnings and the accompanying notes. The following table sets forth the computation of basic and diluted earnings (loss) per common share allocated to common shareholders (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||||||||||
|
| October 31, |
| November 1, |
| October 31, |
| November 1, |
|
| October 29, |
| October 31, |
| October 29, |
| October 31, |
| ||||||||
|
|
|
|
|
|
|
|
|
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||||||
Numerator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Total net (loss) earnings attributable to common shareholders |
| $ | (27,154 | ) | $ | 6,793 |
| $ | 30,994 |
| $ | 35,535 |
| |||||||||||||
Net earnings (loss) |
| $ | 28,433 |
| $ | (27,154) |
| $ | 55,045 |
| $ | 30,994 |
| |||||||||||||
Net earnings allocated to participating securities (restricted stock and deferred stock units) |
| — |
| (14 | ) | (31 | ) | (100 | ) |
|
| (33) |
|
| — |
|
| (65) |
|
| (31) |
| ||||
Net (loss) earnings allocated to common shareholders |
| $ | (27,154 | ) | $ | 6,779 |
| $ | 30,963 |
| $ | 35,435 |
| |||||||||||||
Net earnings (loss) allocated to common shareholders |
| $ | 28,400 |
| $ | (27,154) |
| $ | 54,980 |
| $ | 30,963 |
| |||||||||||||
Denominator |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted-average common shares outstanding |
| 48,339 |
| 48,009 |
| 48,258 |
| 47,852 |
|
|
| 48,655 |
|
| 48,339 |
|
| 48,570 |
|
| 48,258 |
| ||||
Dilutive effect of share-based awards |
| — |
| 245 |
| 255 |
| 272 |
|
|
| 157 |
|
| — |
|
| 121 |
|
| 255 |
| ||||
Diluted weighted-average common shares outstanding |
| 48,339 |
| 48,254 |
| 48,513 |
| 48,124 |
|
|
| 48,812 |
|
| 48,339 |
|
| 48,691 |
|
| 48,513 |
| ||||
Net (loss) earnings per common share allocated to common shareholders: |
|
|
|
|
|
|
|
|
| |||||||||||||||||
Net earnings (loss) per common share allocated to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Basic |
| $ | (0.56 | ) | $ | 0.14 |
| $ | 0.64 |
| $ | 0.74 |
|
| $ | 0.58 |
| $ | (0.56) |
| $ | 1.13 |
| $ | 0.64 |
|
Diluted |
| $ | (0.56 | ) | $ | 0.14 |
| $ | 0.64 |
| $ | 0.74 |
|
| $ | 0.58 |
| $ | (0.56) |
| $ | 1.13 |
| $ | 0.64 |
|
For the three and nine months ended October 29, 2016, 1.9 million and 1.7 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings (loss) per common share, respectively. For the three and nine months ended October 31, 2015, 0.4 million and 0.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings (loss) earnings per common share, respectively. For each of the three and nine months ended November 1, 2014, 0.2 million anti-dilutive shares of common stock were excluded from the calculation of diluted (loss) earnings per common share.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
4. Debt
On June 18, 2014, weThe Men's Wearhouse, Inc. entered into a term loan credit agreement that provides for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”) and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”, and together with the Term Loan, the “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 as a reduction of the outstanding balance on the Term Loan on the balance sheet and will be amortized to interest expense over the contractual life of the Term Loan. In addition, on June 18, 2014, weThe Men’s Wearhouse, Inc. issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).
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, as well as a restriction on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Since entering into these financing arrangements and as of October 31, 2015,29, 2016, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make acquisitions and incur additional indebtedness.
We used the net proceeds from the Term Loan, the offering
9
Credit Facilities
The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature on June 18, 2021. The interest rate on the Term Loan is based on 3-month LIBOR, which was approximately 0.33%0.89% at October 31, 2015.29, 2016. However, the Term Loan interest rate is subject to a LIBOR floor of 1% per annum, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.50%. In January 2015, we entered into an interest rate swap agreement, to swap variable-rate interestin which the variable rate payments for fixed-rate interest payments ondue under a notional amountportion of $520.0 million, effective in February 2015. The interest rate swap agreement matures in August 2018 and has periodic interest settlements. Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and paythe Term Loan were exchanged for a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount.(see Note 12).
OnIn April 7, 2015, weThe Men's Wearhouse, Inc. 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 of June 18, 2021, or collateral and guarantees under the Term Loan. In connection with the Incremental Agreement, we incurred deferred financing costs of $3.6 million, which will be amortized over the life of the remaining term using the interest method. In addition, as a result of entering into the Incremental Agreement, we recorded a loss on extinguishment of debt totaling $12.7 million consisting of the elimination of unamortized deferred financing costs and OID related to the Term Loan, which is included as a separate line in the condensed consolidated statement of earnings (loss) earnings..
As a result of the interest rate swap and the Incremental Agreement, we have converted a majority of the variable interest rate under the Term Loan to a fixed rate and, as of October 31, 2015,29, 2016, the Term Loan had a weighted average interest rate of 4.92%4.89%.
The ABL Facility provides for a senior secured asset-based revolving credit facility of $500.0 million, with possible future increases to $650.0 million withunder an expansion feature whichthat matures on June 18, 2019, 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 federal funds effective rate plus 0.5% or adjusted LIBOR for a one-month 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 2.00%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited) As of October 29, 2016, there were no borrowings outstanding under the ABL Facility. During the three and nine months ended October 29, 2016, the maximum borrowing outstanding under the ABL Facility was $68.5 million.
We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims. Except forAt October 29, 2016, letters of credit totaling approximately $25.7$28.9 million were issued and outstanding, no amounts were drawn on the ABL Facility as of October 31, 2015 and we have approximately $436.5 million of borrowing availabilityoutstanding. Borrowings available under the ABL Facility as of October 31, 2015.29, 2016 were $427.2 million.
Senior Notes
The Senior Notes contain customary non-financial covenants and 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 Company and the guarantors, respectively, and will rank equally with all of the Company's and each guarantor's present and future senior indebtedness. The Senior Notes will mature on July 1, 2022. Interest on the Senior Notes is payable on January 1 and July 1 of each year.
We had entered intoLong-Term Debt
On May 2, 2016, in accordance with the terms of the Credit Facilities, we made a registration rights agreement regardingmandatory excess cash flow prepayment of $35.5 million on the Term Loan. As a result of this prepayment, we recorded a loss on extinguishment of debt totaling $0.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Term Loan.
10
In addition, during the third quarter of 2016, we repurchased and retired $18.5 million of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility. As a result, we recorded a net gain on extinguishment totaling $1.8 million, which reflects a $2.1 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs totaling $0.3 million related to the Senior Notes pursuant to which we agreed, among other things, to useNotes.
For the nine months ended October 29, 2016, as a result of our commercially reasonable efforts to consummate an exchange offerexcess cash flow prepayment and the repurchase and retirement of thea total of $25.0 million of Senior Notes, for substantially identical notes registered underwe recorded a net gain on extinguishment totaling $1.7 million, which reflects a $3.1 million gain upon repurchase partially offset by the Securities Actelimination of 1933,unamortized deferred financing costs of $1.4 million, which is included as amended, on or before July 13, 2015. On June 24, 2015,a separate line in the exchange offer was completed.
Long-Term Debtcondensed consolidated statement of earnings (loss).
The following table provides details on our long-term debt as of October 29, 2016, October 31, 2015 November 1, 2014 and January 31, 201530, 2016 (in thousands):
|
| October 31, |
| November 1, |
| January 31, |
|
|
|
|
|
|
|
|
|
|
| |||
Term Loan (net of unamortized original issue discount of $5.6 million at |
|
|
|
|
|
|
| |||||||||||||
October 31, 2015, $10.4 million at November 1, 2014 and $10.0 million at January 31, 2015 |
| $ | 1,085,392 |
| $ | 1,089,589 |
| $ | 1,087,232 |
| ||||||||||
|
| October 29, |
| October 31, |
| January 30, |
| |||||||||||||
|
| 2016 |
| 2015 |
| 2016 |
| |||||||||||||
Term Loan (net of unamortized OID of $4.4 million at October 29, 2016, $5.6 million at October 31, 2015 and $5.4 million at January 30, 2016) |
| $ | 1,044,173 |
| $ | 1,085,392 |
| $ | 1,083,891 |
| ||||||||||
Senior Notes |
| 600,000 |
| 600,000 |
| 600,000 |
|
|
| 575,000 |
|
| 600,000 |
|
| 600,000 |
| |||
Less: Deferred financing costs related to the Term Loan and Senior Notes |
| (29,186 | ) | (39,983 | ) | (38,546 | ) |
|
| (23,300) |
|
| (29,186) |
|
| (27,967) |
| |||
Total long-term debt, net |
| 1,656,206 |
| 1,649,606 |
| 1,648,686 |
|
|
| 1,595,873 |
|
| 1,656,206 |
|
| 1,655,924 |
| |||
Current portion of long-term debt |
| (7,000 | ) | (11,000 | ) | (11,000 | ) |
|
| (7,000) |
|
| (7,000) |
|
| (42,451) |
| |||
Total long-term debt, net of current portion |
| $ | 1,649,206 |
| $ | 1,638,606 |
| $ | 1,637,686 |
|
| $ | 1,588,873 |
| $ | 1,649,206 |
| $ | 1,613,473 |
|
5. Supplemental Cash Flows
Supplemental disclosure of cash flow information is as follows (in thousands):
|
|
|
|
|
|
|
| |||||||
|
| For the Nine Months Ended |
| |||||||||||
|
| For the Nine Months Ended |
|
| October 29, |
| October 31, |
| ||||||
|
| October 31, |
| November 1, |
|
| 2016 |
| 2015 |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 61,895 |
| $ | 8,409 |
|
| $ | 62,450 |
| $ | 61,895 |
|
Cash paid for income taxes, net |
| $ | 32,932 |
| $ | 32,085 |
| |||||||
Cash (refunded) paid for income taxes, net |
| $ | (44,961) |
| $ | 32,932 |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||
Schedule of noncash investing and financing activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Cash dividends declared |
| $ | 9,028 |
| $ | 8,882 |
|
| $ | 9,572 |
| $ | 9,028 |
|
Increase in capital in excess of par due to purchase of non-controlling interest |
| $ | — |
| $ | 7,410 |
|
We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $7.3$7.8 million and $8.4$7.3 million at October 29, 2016 and October 31, 2015, and November 1, 2014, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the condensed consolidated statement of cash flows in the period they are paid.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
6. Inventories
The following table provides details on our inventories as of October 29, 2016, October 31, 2015 November 1, 2014 and January 31, 201530, 2016 (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| October 29, |
| October 31, |
| January 30, |
| |||||||||||||
|
| October 31, |
| November 1, |
| January 31, |
|
| 2016 |
| 2015 |
| 2016 |
| ||||||
Finished goods |
| $ | 1,006,182 |
| $ | 1,039,871 |
| $ | 883,323 |
|
| $ | 963,036 |
| $ | 1,006,182 |
| $ | 919,623 |
|
Raw materials and merchandise components |
| 54,065 |
| 42,483 |
| 55,013 |
|
|
| 84,879 |
|
| 54,065 |
|
| 102,881 |
| |||
Total inventories |
| $ | 1,060,247 |
| $ | 1,082,354 |
| $ | 938,336 |
|
| $ | 1,047,915 |
| $ | 1,060,247 |
| $ | 1,022,504 |
|
11
7. Income Taxes
Our effective income tax rate decreasedincreased to 56.8%24.1% for the third quarter of 2016 from a benefit of (56.8)% for the third quarter of 2015 from 65.3%primarily as a result of the Jos. A. Bank tradename impairment charge of $90.1 million in last year’s third quarter, which generated a book loss in our U.S. entities and significantly impacted our effective tax rate. In addition, the effective tax rate for the third quarter of 2014 and2016 is impacted by lower U.S. income as compared to income earned in foreign jurisdictions, which have lower statutory tax rates.
Our effective income tax rate increased to 27.3% for the first nine months of 2016 from a benefit of (24.0)% for the first nine months of 2015 from 51.5%primarily due to the impact of the aforementioned Jos. A. Bank tradename impairment charge, which resulted in our effective tax rate being a benefit for the first nine months of 2014. Our2015. In addition, the effective income tax rates in 2014 were significantly impacted by non-deductible transaction costs related to the Jos. A. Bank acquisition. In the third quarter of 2015, we recorded a $90.1 million non-cash tradename impairment charge for the Jos. A. Bank tradename (see Note 12), which generated a book loss for our combined U.S. entities. This loss in the U.S. combined with income in foreign jurisdictions with lower tax rates resulted in a negative effective income tax rate for the first nine months of 2015.2016 is impacted by lower U.S. income as compared to income earned in foreign jurisdictions, which have lower statutory tax rates.
Lastly, we are currently undergoing several federal, foreign and state audits which we are vigorously defending and currently do not believe should result in any material change to tax expense.
8. Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes and Other Liabilities
Other current assets consist of the following (in thousands):
|
| October 31, |
| November 1, |
| January 31, |
|
|
|
|
|
|
|
|
|
|
| |||
|
|
|
|
|
|
|
|
| October 29, |
| October 31, |
| January 30, |
| ||||||
|
| 2016 |
| 2015 |
| 2016 |
| |||||||||||||
Prepaid expenses |
| $ | 39,935 |
| $ | 42,824 |
| $ | 42,166 |
| ||||||||||
Tax receivable |
| $ | 69,830 |
| $ | 26,556 |
| $ | 87,916 |
|
|
| 4,697 |
|
| 69,830 |
|
| 85,153 |
|
Prepaid expenses |
| 42,824 |
| 48,354 |
| 39,375 |
| |||||||||||||
Current deferred tax assets |
| 38,736 |
| 12,929 |
| 23,777 |
|
|
| — |
|
| 38,736 |
|
| — |
| |||
Other |
| 16,681 |
| 19,268 |
| 18,741 |
|
|
| 15,558 |
|
| 16,681 |
|
| 16,227 |
| |||
Total other current assets |
| $ | 168,071 |
| $ | 107,107 |
| $ | 169,809 |
|
| $ | 60,190 |
| $ | 168,071 |
| $ | 143,546 |
|
Accrued expenses and other current liabilities consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
| ||||||||||
|
| October 29, |
| October 31, |
| January 30, |
| |||||||||||||
|
| October 31, |
| November 1, |
| January 31, |
|
| 2016 |
| 2015 |
| 2016 |
| ||||||
Accrued salary, bonus, sabbatical, vacation and other benefits |
| $ | 71,921 |
| $ | 79,165 |
| $ | 83,515 |
|
| $ | 70,631 |
| $ | 71,921 |
| $ | 75,373 |
|
Sales, value added, payroll, property and other taxes payable |
|
| 36,021 |
|
| 35,486 |
|
| 27,505 |
| ||||||||||
Unredeemed gift certificates |
| 34,477 |
| 32,511 |
| 39,563 |
|
|
| 34,693 |
|
| 34,477 |
|
| 40,884 |
| |||
Sales, value added, payroll, property and other taxes payable |
| 34,472 | �� | 31,075 |
| 28,765 |
| |||||||||||||
Accrued workers compensation and medical costs |
| 28,408 |
| 25,331 |
| 28,814 |
|
|
| 30,818 |
|
| 28,408 |
|
| 30,877 |
| |||
Customer deposits, prepayments and refunds payable |
|
| 29,371 |
|
| 25,715 |
|
| 25,218 |
| ||||||||||
Accrued interest |
| 27,207 |
| 27,572 |
| 15,715 |
|
|
| 25,884 |
|
| 27,207 |
|
| 16,282 |
| |||
Customer deposits, prepayments and refunds payable |
| 25,715 |
| 24,275 |
| 24,540 |
| |||||||||||||
Loyalty program reward certificates |
|
| 10,704 |
|
| 8,181 |
|
| 9,215 |
| ||||||||||
Cash dividends declared |
| 9,028 |
| 8,882 |
| 8,987 |
|
|
| 9,572 |
|
| 9,028 |
|
| 9,150 |
| |||
Loyalty program reward certificates |
| 8,181 |
| 8,073 |
| 6,889 |
| |||||||||||||
Accrued royalties |
| 6,630 |
| 8,392 |
| 2,825 |
|
|
| 7,977 |
|
| 6,630 |
|
| 3,727 |
| |||
Accrued strategic professional fees |
| 1,141 |
| 12,126 |
| 7,566 |
| |||||||||||||
Lease termination and other store closure costs |
|
| 6,442 |
|
| 92 |
|
| — |
| ||||||||||
Other |
| 17,798 |
| 25,869 |
| 21,756 |
|
|
| 18,545 |
|
| 18,848 |
|
| 18,531 |
| |||
Total accrued expenses and other current liabilities |
| $ | 264,978 |
| $ | 283,271 |
| $ | 268,935 |
|
| $ | 280,658 |
| $ | 265,993 |
| $ | 256,762 |
|
12
Deferred taxes and other liabilities consist of the following (in thousands):
|
| October 31, |
| November 1, |
| January 31, |
| |||
Non-current deferred and other income tax liabilities |
| $ | 275,213 |
| $ | 287,851 |
| $ | 328,271 |
|
Deferred rent and landlord incentives |
| 65,764 |
| 60,189 |
| 61,475 |
| |||
Unfavorable lease liabilities |
| 9,129 |
| 12,966 |
| 12,040 |
| |||
Other |
| 7,953 |
| 6,606 |
| 7,540 |
| |||
Total deferred taxes and other liabilities |
| $ | 358,059 |
| $ | 367,612 |
| $ | 409,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| October 29, |
| October 31, |
| January 30, |
| |||
|
| 2016 |
| 2015 |
| 2016 |
| |||
Deferred and other income tax liabilities |
| $ | 102,243 |
| $ | 275,213 |
| $ | 112,469 |
|
Deferred rent and landlord incentives |
|
| 61,641 |
|
| 65,764 |
|
| 66,075 |
|
Unfavorable lease liabilities |
|
| 5,394 |
|
| 9,129 |
|
| 8,279 |
|
Other |
|
| 5,901 |
|
| 7,953 |
|
| 7,782 |
|
Total deferred taxes and other liabilities |
| $ | 175,179 |
| $ | 358,059 |
| $ | 194,605 |
|
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
9. Accumulated Other Comprehensive (Loss) Income
The following table summarizes the components of accumulated other comprehensive (loss) income for the nine months ended October 29, 2016 (in thousands and net of tax):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign |
|
|
|
|
|
|
|
|
|
| |
|
| Currency |
| Cash Flow |
| Pension |
|
|
|
| |||
|
| Translation |
| Hedges |
| Plan |
| Total |
| ||||
BALANCE— January 30, 2016 |
| $ | (26,659) |
| $ | (2,007) |
| $ | 180 |
| $ | (28,486) |
|
Other comprehensive (loss) income before reclassifications |
|
| (18,246) |
|
| 354 |
|
| — |
|
| (17,892) |
|
Amounts reclassified from accumulated other comprehensive loss |
|
| — |
|
| 1,040 |
|
| — |
|
| 1,040 |
|
Net other comprehensive (loss) income |
|
| (18,246) |
|
| 1,394 |
|
| — |
|
| (16,852) |
|
BALANCE— October 29, 2016 |
| $ | (44,905) |
| $ | (613) |
| $ | 180 |
| $ | (45,338) |
|
The following table summarizes the components of accumulated other comprehensive (loss) income for the nine months ended October 31, 2015 (in thousands and net of tax):
|
| Foreign |
| Interest Rate |
| Pension |
| Total |
| ||||
BALANCE — January 31, 2015 |
| $ | (4,232 | ) | $ | (1,665 | ) | $ | 226 |
| $ | (5,671 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive loss before reclassifications |
| (378 | ) | (734 | ) | — |
| (1,112 | ) | ||||
Amounts reclassified from accumulated other comprehensive loss |
| — |
| 427 |
| — |
| 427 |
| ||||
Net current-period other comprehensive loss |
| (378 | ) | (307 | ) | — |
| (685 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — October 31, 2015 |
| $ | (4,610 | ) | $ | (1,972 | ) | $ | 226 |
| $ | (6,356 | ) |
The following table summarizes the components of accumulated other comprehensive income for the nine months ended November 1, 2014 (in thousands and net of tax):
|
| Foreign |
| Interest Rate |
| Pension |
| Total |
| ||||
BALANCE — February 1, 2014 |
| $ | 27,710 |
| $ | (399 | ) | $ | — |
| $ | 27,311 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive loss before reclassifications |
| (6,881 | ) | — |
| — |
| (6,881 | ) | ||||
Amounts reclassified from accumulated other comprehensive income |
| — |
| 399 |
| — |
| 399 |
| ||||
Net current-period other comprehensive (loss) income |
| (6,881 | ) | 399 |
| — |
| (6,482 | ) | ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — November 1, 2014 |
| $ | 20,829 |
| $ | — |
| $ | — |
| $ | 20,829 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Foreign |
|
|
|
|
|
|
|
|
|
| |
|
| Currency |
| Interest Rate |
| Pension |
|
|
|
| |||
|
| Translation |
| Swap |
| Plan |
| Total |
| ||||
BALANCE— January 31, 2015 |
| $ | (4,232) |
| $ | (1,665) |
| $ | 226 |
| $ | (5,671) |
|
Other comprehensive income (loss) before reclassifications |
|
| (378) |
|
| (1,531) |
|
| — |
|
| (1,909) |
|
Amounts reclassified from accumulated other comprehensive income |
|
| — |
|
| 1,224 |
|
| — |
|
| 1,224 |
|
Net current-period other comprehensive loss |
|
| (378) |
|
| (307) |
|
| — |
|
| (685) |
|
BALANCE— October 31, 2015 |
| $ | (4,610) |
| $ | (1,972) |
| $ | 226 |
| $ | (6,356) |
|
Amounts reclassified from other comprehensive (loss) income for the nine months ended October 29, 2016 and October 31, 2015, and November 1, 2014, respectively, relate to changes in fair value for our interest rate swapsswap, which wereis recorded within interest expense in the condensed consolidated statement of earnings (loss) earnings..
10. Non-Controlling InterestShare-Based Compensation Plans
In September 2014, we exercised our option and completed the purchase of the remaining 14% interest in our UK operations from the minority interest holders. As a result, we eliminated the non-controlling interest balance and recorded an increase in capital in excess of par of $7.4 million less the $6.7 million in cash consideration paid to the former minority interest holders.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11. Share-Based Compensation Plans
For a discussion of our share-based compensation plans refer to Note 1113 in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015.30, 2016. In June 2016 our shareholders approved the Tailored Brands, Inc. 2016 Long-Term Incentive Plan (the “2016 LTIP”), which replaced our 2004 Long-Term Incentive Plan (the “2004 LTIP”). Awards are no longer available for grant under the 2004 LTIP but outstanding awards under the 2004 LTIP remain in effect in accordance with the terms of the awards and the 2004 LTIP. The number of shares of our common stock authorized for awards under the 2016 LTIP is 6.4 million, subject to adjustments. Under the 2016 LTIP, 18,328 awards have been issued as of October 29, 2016.
We account for share-based awards in accordance with the authoritative guidance regarding share-based payments, which requires the compensation cost resulting from all share-based payment transactions be recognized in the financial
13
statements. The amount of compensation cost is measured based on the grant-date fair value of the instrument issued and is recognized over the vesting period. Share-based compensation expense recognized for the three and nine months ended October 31, 201529, 2016 was $4.2$5.2 million and $12.6$14.0 million, respectively. Share-based compensation expense recognized for the three and nine months ended November 1, 2014October 31, 2015 was $4.3$4.2 million and $12.3$12.6 million, respectively.
Non-Vested Deferred Stock Units, Performance Units and Restricted Stock
The following table summarizes the activity of time-based and performance-based awards for the nine months ended October 31, 2015:29, 2016:
|
| Units |
| Weighted-Average |
| ||||||
|
| Time- |
| Performance-Based |
| Time- |
| Performance- Based |
| ||
Non-Vested at January 31, 2015 |
| 378,518 |
| 170,789 |
| $ | 42.67 |
| $ | 43.94 |
|
Granted |
| 360,967 |
| 36,844 |
| 52.60 |
| 57.32 |
| ||
Vested (1) |
| (231,764 | ) | (18,977 | ) | 43.69 |
| 46.41 |
| ||
Forfeited |
| (19,552 | ) | (20,000 | ) | 40.17 |
| 33.09 |
| ||
Non-Vested at October 31, 2015 |
| 488,169 |
| 168,656 |
| $ | 49.63 |
| $ | 47.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Weighted-Average |
| ||||
|
| Units |
| Grant-Date Fair Value |
| ||||||
|
| Time- |
| Performance- |
| Time- |
| Performance- |
| ||
|
| Based |
| Based |
| Based |
| Based |
| ||
Non-Vested at January 30, 2016 |
| 478,106 |
| 168,656 |
| $ | 49.60 |
| $ | 47.87 |
|
Granted |
| 830,002 |
| 258,168 |
|
| 16.68 |
|
| 17.43 |
|
Vested(1) |
| (216,936) |
| — |
|
| 49.01 |
|
| — |
|
Forfeited |
| (24,426) |
| (59,943) |
|
| 39.49 |
|
| 33.72 |
|
Non-Vested at October 29, 2016 |
| 1,066,746 |
| 366,881 |
| $ | 24.34 |
| $ | 28.76 |
|
| (1) | Includes 71,896 shares relinquished for tax payments related to vested deferred stock units for the nine months ended October 29, 2016. |
On April 3, 2013, our Board of Directors approved a change in the form of award agreements to be issued for grants of deferred stock units (“DSUs”) to participants under our 2004 Long-Term Incentive Plan.. As revised, the award agreements provide that dividend equivalents, if any, will be accrued during the vesting period for such DSU awards and paid out only upon vesting of the underlying DSUs. As such, grants of DSU awards on or after April 3, 2013 earn dividends throughout the vesting period which are subject to the same vesting terms as the underlying share award. Grants of DSUs generally vest over a period of three years. DSU awards granted prior to April 3, 2013 are entitled to receive non-forfeitable dividend equivalents, if any, when and if paid to shareholders of record at the payment date. Included in the non-vested time-based awards as of October 31, 201529, 2016 are 17,57611,288 DSUs granted prior to April 3, 2013.
Of the 36,844The performance units granted in the first nine months of 2015, 22,645 units2016 represent a contingent right to receive one shareearn shares of common stock, and vest after our 2017 fiscal year, subject to ourthe achievement of a cumulativeCompany-specific performance target for fiscal years 2015-2017.
The remaining 14,199 performance units granted in the first nine months of 2015 represent a contingent right to receive up to 2.25 shares of common stock and vest after our 2017 fiscal year, subject to our achievement of a performance target for fiscal 2017.2016-2017. Assuming the performance target is achieved, 50% of the numberaward will vest on the two year anniversary of performance units earnedthe grant date and the remaining 50% of the award will be adjusted basedvest on multipliers related to (1) the Company’s adjusted earnings per share for fiscal 2017 and (2)three year anniversary of the Company’s relative total shareholder return (“TSR”) compared to the TSR of certain peer companies over a pre-defined period.
grant date. Performance units that are unvested at the end of the performance period will lapse and be forfeited. The performance units earn dividends throughout the vesting period andthat are subject to the same vesting terms as the underlying performance-based awards.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Performance-based DSUs granted in April 2014 (“April 2014 performance-based DSUs”) represented a contingent right to receive one share of common stock and vested over a one year period, subject to our achievement of a performance target for 2014. Having met the performance target for 2014, the April 2014 performance-based DSUs vested in accordance with their terms in April 2015.
The following table summarizes the activity of restricted stock for the nine months ended October 31, 2015:29, 2016:
|
| Shares |
| Weighted- |
|
|
|
|
|
|
| |
Non-Vested at January 31, 2015 |
| 67,790 |
| $ | 37.05 |
| ||||||
|
|
|
| Weighted- |
| |||||||
|
| Shares |
| Grant-Date |
| |||||||
Non-Vested at January 30, 2016 |
| 33,157 |
| $ | 27.93 |
| ||||||
Granted |
| 12,425 |
| 50.31 |
|
| 18,646 |
|
| 17.37 |
| |
Vested |
| (44,398 | ) | 40.25 |
|
| (6,951) |
|
| 58.44 |
| |
Forfeited |
| (19,360 | ) | 27.77 |
|
| — |
|
| — |
| |
Non-Vested at October 31, 2015 |
| 16,457 |
| $ | 49.37 |
| ||||||
Non-Vested at October 29, 2016 |
| 44,852 |
| $ | 18.81 |
|
Restricted stock awards receive non-forfeitable dividends, if any, when and if paid to shareholders of record at the payment date.
14
As of October 31, 2015,29, 2016, we have unrecognized compensation expense related to non-vested DSUs, performance units, and shares of restricted stock of approximately $22.3$24.6 million, which is expected to be recognized over a weighted-average period of 1.71.5 years.
Stock Options
The following table summarizes the activity of stock options for the nine months ended October 31, 2015:29, 2016:
|
| Shares |
| Weighted- |
|
|
|
|
|
|
| |
Outstanding at January 31, 2015 |
| 660,283 |
| $ | 38.28 |
| ||||||
|
|
|
| Weighted- |
| |||||||
|
| Number of |
| Average |
| |||||||
|
| Shares |
| Exercise Price |
| |||||||
Outstanding at January 30, 2016 |
| 681,117 |
| $ | 39.65 |
| ||||||
Granted |
| 41,951 |
| 57.91 |
|
| 593,509 |
|
| 17.43 |
| |
Exercised |
| (19,617 | ) | 33.02 |
|
| — |
|
| — |
| |
Forfeited |
| — |
| — |
|
| (3,051) |
|
| 48.31 |
| |
Expired |
| — |
| — |
|
| (1,525) |
|
| 48.31 |
| |
Outstanding at October 31, 2015 |
| 682,617 |
| $ | 39.64 |
| ||||||
Exercisable at October 31, 2015 |
| 301,070 |
| $ | 31.83 |
| ||||||
Outstanding at October 29, 2016 |
| 1,270,050 |
| $ | 29.23 |
| ||||||
Exercisable at October 29, 2016 |
| 450,630 |
| $ | 36.25 |
|
The weighted-average grant date fair value of the 41,951593,509 stock options granted during the nine months ended October 31, 201529, 2016 was $18.63$5.18 per share. The following table summarizes the weighted-average assumptions used to fair value stock options at the date of grant using the Black-Scholes option pricing model for the nine months ended October 31, 2015:29, 2016:
| |||
| |||
|
|
|
|
|
|
|
|
October 29, | |||
2016 | |||
Risk-free interest rates | 1.22% | ||
Expected lives |
| 5.0 years |
|
Dividend yield |
|
|
|
Expected volatility |
|
|
|
As of October 31, 2015,29, 2016, we have unrecognized compensation expense related to non-vested stock options of approximately $3.9$4.5 million, which is expected to be recognized over a weighted-average period of 1.51.4 years.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
12.11. Goodwill and Other Intangible Assets
Please refer to Note 3 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended January 30, 2016 for information on impairment charges recorded in fiscal 2015 related to goodwill and intangible assets for Jos. A. Bank.
Goodwill
Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the nine months ended October 31, 201529, 2016 are as follows (in thousands):
|
| Retail |
| Corporate |
| Total |
| |||
Balance at January 31, 2015 |
| $ | 861,180 |
| $ | 26,756 |
| $ | 887,936 |
|
Adjustments to purchase price allocation of acquired businesses |
| 3,062 |
| — |
| 3,062 |
| |||
Translation adjustment |
| (608 | ) | 601 |
| (7 | ) | |||
Balance at October 31, 2015 |
| $ | 863,634 |
| $ | 27,357 |
| $ | 890,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Corporate |
|
|
|
| |
|
| Retail |
| Apparel |
| Total |
| |||
Balance at January 30, 2016 |
| $ | 93,201 |
| $ | 25,385 |
| $ | 118,586 |
|
Translation adjustment |
|
| 921 |
|
| (3,481) |
|
| (2,560) |
|
Balance at October 29, 2016 |
| $ | 94,122 |
| $ | 21,904 |
| $ | 116,026 |
|
15
Goodwill is evaluated for impairment at least annually. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock. No impairment evaluation was considered necessary during the first nine months ended October 29, 2016.
Based on Jos. A. Bank’s results, as well as the recent significant decline in our market capitalization, we concluded that a triggering event occurred that required an interim goodwill impairment test. During the third quarter of 2015, Jos. A. Bank’s results were impacted by significantly lower than forecasted revenue results primarily due to a greater than expected decline in traffic resulting from our transition away from the historical promotional strategy at Jos. A. Bank. While the short term decline is greater than we expected, we have implemented several strategies that we expect to offset the decline in revenues resulting in a stable profit model to generate cash flows over the long-term. Based on the results of our interim goodwill impairment test, as of October 31, 2015, we concluded that our goodwill was not impaired. However, if we determine we are not likely to meet our projections of future cash flows or if our market capitalization remains at current levels, among other factors, it is possible our annual impairment test in the fourth quarter of 2015 could result in a material impairment of the Jos. A. Bank goodwill. As of October 31, 2015, goodwill associated with the Jos. A. Bank reporting unit totaled $769.0 million.
Intangible Assets
The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):
|
| October 31, |
| November 1, |
| January 31, |
| |||
|
|
|
|
|
|
|
| |||
Amortizable intangible assets: |
|
|
|
|
|
|
| |||
Carrying amount: |
|
|
|
|
|
|
| |||
Trademarks and tradenames |
| $ | 16,516 |
| $ | 16,628 |
| $ | 16,448 |
|
Favorable leases |
| 24,118 |
| 24,400 |
| 24,400 |
| |||
Customer relationships |
| 85,515 |
| 86,699 |
| 84,788 |
| |||
Total carrying amount |
| 126,149 |
| 127,727 |
| 125,636 |
| |||
Accumulated amortization: |
|
|
|
|
|
|
| |||
Trademarks and tradenames |
| (9,679 | ) | (9,261 | ) | (9,331 | ) | |||
Favorable leases |
| (4,025 | ) | (1,130 | ) | (1,883 | ) | |||
Customer relationships |
| (24,507 | ) | (14,659 | ) | (16,468 | ) | |||
Total accumulated amortization |
| (38,211 | ) | (25,050 | ) | (27,682 | ) | |||
Total amortizable intangible assets, net |
| 87,938 |
| 102,677 |
| 97,954 |
| |||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
| |||
Trademarks and tradename, gross |
| 570,333 |
| 570,380 |
| 570,305 |
| |||
Impairment of Jos. A. Bank tradename |
| (90,100 | ) | — |
| — |
| |||
Trademarks and tradename, net |
| 480,233 |
| 570,380 |
| 570,305 |
| |||
Total intangible assets, net |
| $ | 568,171 |
| $ | 673,057 |
| $ | 668,259 |
|
|
|
|
|
|
|
|
|
|
|
|
|
| October 29, |
| October 31, |
| January 30, |
| |||
|
| 2016 |
| 2015 |
| 2016 |
| |||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
Carrying amount: |
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
| $ | 15,897 |
| $ | 16,516 |
| $ | 16,292 |
|
Favorable leases |
|
| 14,381 |
|
| 24,118 |
|
| 14,675 |
|
Customer relationships |
|
| 24,750 |
|
| 85,515 |
|
| 29,129 |
|
Total carrying amount |
|
| 55,028 |
|
| 126,149 |
|
| 60,096 |
|
Accumulated amortization: |
|
|
|
|
|
|
|
|
|
|
Trademarks and tradenames |
|
| (9,930) |
|
| (9,679) |
|
| (9,728) |
|
Favorable leases |
|
| (4,045) |
|
| (4,025) |
|
| (2,739) |
|
Customer relationships |
|
| (12,891) |
|
| (24,507) |
|
| (13,459) |
|
Total accumulated amortization |
|
| (26,866) |
|
| (38,211) |
|
| (25,926) |
|
Total amortizable intangible assets, net |
|
| 28,162 |
|
| 87,938 |
|
| 34,170 |
|
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
Trademarks and tradename, net |
|
| 144,175 |
|
| 480,233 |
|
| 144,340 |
|
Total intangible assets, net |
| $ | 172,337 |
| $ | 568,171 |
| $ | 178,510 |
|
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.2 million and $3.7 million for the three and nine months ended October 29, 2016. Pre-tax amortization expense associated with intangible assets subject to amortization totaled $3.4 million and $10.5 million for the three and nine months ended October 31, 2015, respectively. Pre-tax amortization associated with intangible assets subject to amortization at October 29, 2016 is estimated to be $1.2 million for the remainder of fiscal 2016, $4.2 million for fiscal 2017, $4.0 million for fiscal 2018, $3.8 million for fiscal 2019 and $3.6 million for fiscal 2020.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
As discussed above, duringIn the third quarter of 2015, we concluded that a triggering event occurred that required an interim impairment test for the Jos. A. Bank tradename. The fair value of the Jos. A. Bank tradename was estimated using a relief from royalty method, which calculatescalculated the present value of savings resulting from the right to sell products without having to pay a royalty fee. Critical assumptions that arewere used in this method includeincluded future sales projections, an estimated royalty rate and a discount rate. Based on ourthis analysis, during the third quarter of 2015, we concluded that the Jos. A. Bank tradename was impaired and recorded a non-cash impairment charge of $90.1 million, which is included as a separate line in the condensed statement of earnings (loss) earnings,, and relates to our retail segment. In addition, should the downward revenue trend accelerate during the fourth quarter of 2015 from what we expect or if other valuation inputs such as the royalty rate or discount rate change, it is possible our annual impairment test in the fourth quarter of 2015 could result in an additional impairment charge for the Jos. A. Bank tradename. As of October 31, 2015, after giving effect to the impairment charge, the book value of the Jos. A. Bank tradename was $449.0 million.
The pre-tax amortization expense associated with intangible assets subject to amortization totaled $3.4 million and $10.5 million for the three and nine months ended October 31, 2015, respectively. The pre-tax amortization expense associated with intangible assets subject to amortization totaled $3.5 million and $6.5 million for the three and nine months ended November 1, 2014, respectively. Pre-tax amortization associated with intangible assets subject to amortization at October 31, 2015 is estimated to be $3.9 million for the remainder of fiscal year 2015, $13.7 million for fiscal year 2016, $13.2 million for fiscal year 2017, $12.8 million for fiscal year 2018 and $12.6 million for fiscal year 2019.
For further information on our goodwill and tradename analysis, see the discussion in Management’s Discussion and Analysis in the “Executive Overview” section beginning on page 27 and the “Critical Accounting Policies and Estimates” section beginning on page 40, of this Form 10-Q.
13.12. Derivative Financial Instruments
As discussed in Note 4, in January 2015, we entered into an interest rate swap agreement on a notional amount of $520.0 million that matures in August 2018 with periodic interest settlements. At October 29, 2016, the notional amount totaled $390.0 million. Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and pay a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount. We have designated the 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 interest rate. At October 31, 2015,29, 2016, the fair value of the interest rate swap was a liability of $3.2$1.9 million with $2.4$1.6 million recorded in accrued expenses and other current liabilities and $0.8$0.3 million in other liabilities in
16
our condensed consolidated balance sheet. The effective portion of the swap is reported as a component of accumulated other comprehensive (loss) income. There was no hedge ineffectiveness at October 31, 2015.29, 2016. 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, $2.4$1.6 million of the effective portion of the interest rate swap is expected to be reclassified from accumulated other comprehensive (loss) income into earnings. If, at any time, the interest rate swap is determined to be ineffective, in whole or in part, due to changes in the interest rate swap or underlying debt agreements, the fair value of the portion of the interest rate swap determined to be ineffective will be recognized as a gain or loss in the statement of earnings for the applicable period.period.
14.Furthermore, as a result of recent exchange rate fluctuations in Europe, we have entered into derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro. We have designated these instruments as cash flow hedges of the variability in exchange rates for those foreign currencies. At October 29, 2016, the fair value of these cash flow hedges was a liability of $0.6 million recorded in accrued expenses and other current liabilities in our consolidated balance sheet. The effective portion of the hedges is reported as a component of accumulated other comprehensive (loss) income. There was no hedge ineffectiveness at October 29, 2016. 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, $0.3 million of the effective portion of the cash flow hedges is expected to be reclassified from accumulated other comprehensive (loss) income into earnings.
In addition, we are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries. As a result, from time to time, we may enter into derivative instruments to hedge our foreign exchange risk. We have not elected to apply hedge accounting to these derivative instruments. At October 29, 2016, the fair value of our derivative instruments was an asset of $0.8 million included in other current assets in our consolidated balance sheet.
For the three and nine months ended October 29, 2016, we recognized net pre-tax gains of $0.4 million and $2.3 million, respectively, in cost of sales in the condensed consolidated statement of earnings (loss) for our derivative financial instruments not designated as cash flow hedges. For the three and nine months ended October 31, 2015, we recognized a net pre-tax gain of $0.4 million and a net pre-tax loss of $1.0 million, respectively, in cost of sales in the condensed consolidated statement of earnings (loss) for our derivative financial instruments not designated as cash flow hedges.
13. 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.
Assets and Liabilities that are Measured at Fair Value on a Recurring Basis
For the periods presented and described in Note 12, derivative financial instruments were the only assets and liabilities measured at fair value on a recurring basis. These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs, which we classify as a Level 2 input within the fair value hierarchy.
17
Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis
Long-lived assets, such as property and equipment, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.
During the nine months ended October 29, 2016, we incurred $2.1 million of asset impairment charges, which is included within SG&A expenses in our condensed consolidated statement of earnings (loss), primarily related to store locations to be closed and underperforming stores. We estimated the fair value of the 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, which we classify as Level 3 within the fair value hierarchy.
In addition, during the nine months October 29, 2016, we recorded a $2.2 million impairment charge related to a long-lived asset reclassified as held for sale, which is included within SG&A expenses in our condensed consolidated statement of earnings (loss). We estimated the fair value of the asset held for sale using market values for similar assets which would fall within Level 2 of the fair value hierarchy.
During the third quarter of 2015, we recorded an impairment charge related to our Jos. A. Bank tradename totaling $90.1 million. The fair value of the Jos. A. Bank tradename was based on our own judgments about the assumptions that market participants would use in pricing the asset, which we classified as Level 3 within the fair value hierarchy.
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 October 29, 2016, October 31, 2015, November 1, 2014, and January 31, 2015,30, 2016, 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.
The fair values of our Term Loan and the term loan under the Previous Credit Agreement 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. Beginning in June 2015, the fair value of our Senior Notes is based on quoted prices in active markets, which we classify as a Level 1 input within the fair value hierarchy. In prior periods, the fair value of our Senior Notes was based on trading data in active markets, which we classified as a Level 2 input within the fair value hierarchy. The table below shows the fair value and carrying value of our long-term debt, including current maturitiesportion (in thousands):
|
| October 31, 2015 |
| November 1, 2014 |
| January 31, 2015 |
| ||||||
|
| Carrying |
| Estimated Fair |
| Carrying |
| Estimated Fair |
| Carrying |
| Estimated Fair |
|
Long-term debt, net |
| 1,656,206 |
| 1,711,104 |
| 1,649,606 |
| 1,718,902 |
| 1,648,686 |
| 1,706,546 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| October 29, 2016 |
| October 31, 2015 |
| January 30, 2016 |
| ||||||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| ||||||
|
| Amount |
| Fair Value |
| Amount |
| Fair Value |
| Amount |
| Fair Value |
| ||||||
Long-term debt, including current portion |
| $ | 1,595,873 |
| $ | 1,556,661 |
| $ | 1,656,206 |
| $ | 1,711,104 |
| $ | 1,655,924 |
| $ | 1,410,651 |
|
Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis
Long-lived assets, such as property and equipment, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or14. Segment Reporting
In the first quarter of 2016, we revised our segment reporting presentation to reflect 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 12, during the third quarter of 2015,how we recorded an impairment chargemanage our business, including resource allocation and performance assessment. Specifically, we are now presenting expenses related to our Jos. A. Bank tradename totaling $90.1 million. The fair valueshared services platform separately from the results of the Jos. A. Bank tradename was based on our own judgments about the assumptions that market participants would useoperating segments to promote enhanced comparability of our operating segments. Previously, these shared service expenses were primarily included in pricing the asset, which we classified as Level 3 within the fair value hierarchy.
15. Segment Reportingour retail segment. Comparable prior period information has been recast to reflect our revised segment presentation.
Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.
18
The retail segment includes the results from our four retail merchandising brands: Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men (“Moores”) and K&G. These four brands are operating segments that have been aggregated into the retail reportable segment. MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on our revenues or expenses. Specialty apparel merchandise offered by our four retail merchandising concepts include suits, suit separates, sport coats, slacks, business casual, sportswear, outerwear, dress and casual shirts, shoes and accessories for men. Ladies’ career apparel, sportswear and accessories, including shoes, as well as children’s apparel isare also offered at most of our K&G stores. Tuxedo and suit rentals are offered at our Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank and Moores retail stores and our tuxedo shops within Macy’s stores.
The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the U.S. and Dimensions, Alexandra, and Yaffy in the United Kingdom (“UK”). The two corporate apparel and uniform concepts are operating segments that have been aggregated into the reportable corporate apparel segment. The corporate apparel segment provides corporate, which provide clothing uniforms and workwear to workforces. The Twin Hill and UK operations constitute one operating segment.
We measure segment profitability based on operating income, defined as income before interest expense, interest income, gain (loss) on extinguishment of debt, net and income taxes, before shared service expenses. Shared service expenses include costs incurred and non-controlling interest. Corporate expenses and assetsdirected primarily by our corporate offices that are not allocated to the retail segment.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIESsegments.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NetAdditional net sales by brand and reportable segment areinformation is as follows (in thousands):
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
Net sales: |
| October 31, |
| November 1, |
| October 31, |
| November 1, |
| ||||
MW(1) |
| $ | 465,396 |
| $ | 436,107 |
| $ | 1,391,782 |
| $ | 1,307,417 |
|
Jos. A. Bank |
| 198,936 |
| 233,313 |
| 636,704 |
| 347,005 |
| ||||
K&G |
| 72,733 |
| 72,835 |
| 257,448 |
| 251,474 |
| ||||
Moores |
| 55,862 |
| 68,724 |
| 173,281 |
| 199,302 |
| ||||
MW Cleaners |
| 8,460 |
| 8,183 |
| 25,356 |
| 24,035 |
| ||||
Total retail segment |
| 801,387 |
| 819,162 |
| 2,484,571 |
| 2,129,233 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Dimensions and Alexandra (UK) |
| 53,444 |
| 59,704 |
| 155,474 |
| 163,809 |
| ||||
Twin Hill |
| 10,615 |
| 11,771 |
| 30,564 |
| 31,147 |
| ||||
Total corporate apparel segment |
| 64,059 |
| 71,475 |
| 186,038 |
| 194,956 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Total net sales |
| $ | 865,446 |
| $ | 890,637 |
| $ | 2,670,609 |
| $ | 2,324,189 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
|
| October 29, 2016 |
| October 31, 2015 |
| October 29, 2016 |
| October 31, 2015 |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
|
|
|
|
MW(1) |
| $ | 461,806 |
| $ | 465,396 |
| $ | 1,386,347 |
| $ | 1,391,782 |
|
Jos. A. Bank |
|
| 165,992 |
|
| 198,936 |
|
| 530,482 |
|
| 636,704 |
|
K&G |
|
| 70,874 |
|
| 72,733 |
|
| 252,007 |
|
| 257,448 |
|
Moores |
|
| 56,520 |
|
| 55,862 |
|
| 166,203 |
|
| 173,281 |
|
MW Cleaners |
|
| 8,497 |
|
| 8,460 |
|
| 25,073 |
|
| 25,356 |
|
Total retail segment |
|
| 763,689 |
|
| 801,387 |
|
| 2,360,112 |
|
| 2,484,571 |
|
Total corporate apparel segment |
|
| 83,245 |
|
| 64,059 |
|
| 225,328 |
|
| 186,038 |
|
Total net sales |
| $ | 846,934 |
| $ | 865,446 |
| $ | 2,585,440 |
| $ | 2,670,609 |
|
| (1) | MW includes Men’s Wearhouse, Men’s Wearhouse and Tux, Joseph Abboud and tuxedo shops within Macy’s. |
The following table sets forth supplemental products and services sales information for the Company (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
|
| For the Three Months Ended |
| For the Nine Months Ended |
| |||||||||||||||||||||
|
| For the Three Months Ended |
| For the Nine Months Ended |
|
| October 29, 2016 |
| October 31, 2015 |
| October 29, 2016 |
| October 31, 2015 |
| ||||||||||||
Net sales: |
| October 31, |
| November 1, |
| October 31, |
| November 1, |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Men’s tailored clothing product |
| $ | 351,269 |
| $ | 351,071 |
| $ | 1,109,665 |
| $ | 878,746 |
| |||||||||||||
Men’s non-tailored clothing product |
| 245,250 |
| 263,053 |
| 756,699 |
| 655,566 |
| |||||||||||||||||
Ladies’ clothing product |
| 16,228 |
| 16,575 |
| 56,827 |
| 56,224 |
| |||||||||||||||||
Men's tailored clothing product |
| $ | 326,741 |
| $ | 351,269 |
| $ | 1,025,495 |
| $ | 1,109,665 |
| |||||||||||||
Men's non-tailored clothing product |
|
| 230,146 |
|
| 245,250 |
|
| 718,233 |
|
| 756,699 |
| |||||||||||||
Ladies' clothing product |
|
| 15,626 |
|
| 16,228 |
|
| 55,940 |
|
| 56,827 |
| |||||||||||||
Other |
| 3,127 |
| 3,748 |
| 8,735 |
| 7,663 |
|
|
| 2,533 |
|
| 3,127 |
|
| 6,992 |
|
| 8,735 |
| ||||
Total retail clothing product |
| 615,874 |
| 634,447 |
| 1,931,926 |
| 1,598,199 |
|
|
| 575,046 |
|
| 615,874 |
|
| 1,806,660 |
|
| 1,931,926 |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Rental services |
| 132,443 |
| 132,690 |
| 392,621 |
| 395,449 |
|
|
| 138,724 |
|
| 132,443 |
|
| 403,564 |
|
| 392,621 |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Alteration services |
| 44,610 |
| 43,842 |
| 134,668 |
| 111,550 |
|
|
| 41,422 |
|
| 44,610 |
|
| 124,815 |
|
| 134,668 |
| ||||
Retail dry cleaning services |
| 8,460 |
| 8,183 |
| 25,356 |
| 24,035 |
|
|
| 8,497 |
|
| 8,460 |
|
| 25,073 |
|
| 25,356 |
| ||||
Total alteration and other services |
| 53,070 |
| 52,025 |
| 160,024 |
| 135,585 |
|
|
| 49,919 |
|
| 53,070 |
|
| 149,888 |
|
| 160,024 |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Corporate apparel clothing product |
| 64,059 |
| 71,475 |
| 186,038 |
| 194,956 |
|
|
| 83,245 |
|
| 64,059 |
|
| 225,328 |
|
| 186,038 |
| ||||
|
|
|
|
|
|
|
|
|
| |||||||||||||||||
Total net sales |
| $ | 865,446 |
| $ | 890,637 |
| $ | 2,670,609 |
| $ | 2,324,189 |
|
| $ | 846,934 |
| $ | 865,446 |
| $ | 2,585,440 |
| $ | 2,670,609 |
|
19
Operating income (loss) income by reportable segment, shared service expense, and the reconciliation to earnings (loss) earnings before income taxes is as follows (in thousands):
|
| For the Three Months Ended |
| For the Nine Months Ended | |||||||||
Operating (loss) income: |
| October 31, |
| November 1, |
| October 31, |
| November 1, |
| ||||
Retail |
| $ | (38,971 | ) | $ | 39,848 |
| $ | 110,739 |
| $ | 106,117 |
|
Corporate apparel |
| 2,570 |
| 5,327 |
| 6,272 |
| 9,043 |
| ||||
Operating (loss) income |
| (36,401 | ) | 45,175 |
| 117,011 |
| 115,160 |
| ||||
Interest income |
| 50 |
| 125 |
| 140 |
| 305 |
| ||||
Interest expense |
| (26,457 | ) | (25,131 | ) | (79,475 | ) | (39,459 | ) | ||||
Loss on extinguishment of debt |
| — |
| — |
| (12,675 | ) | (2,158 | ) | ||||
(Loss) earnings before income taxes |
| $ | (62,808 | ) | $ | 20,169 |
| $ | 25,001 |
| $ | 73,848 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended |
| ||||||||
|
| October 29, 2016 |
| October 31, 2015 |
| October 29, 2016 |
| October 31, 2015 |
| ||||
Operating income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 97,629 |
| $ | 512 |
| $ | 278,732 |
| $ | 233,143 |
|
Corporate apparel |
|
| 10,314 |
|
| 2,623 |
|
| 24,288 |
|
| 6,429 |
|
Shared service expense |
|
| (46,887) |
|
| (39,536) |
|
| (151,338) |
|
| (122,561) |
|
Operating income |
|
| 61,056 |
|
| (36,401) |
|
| 151,682 |
|
| 117,011 |
|
Interest income |
|
| 52 |
|
| 50 |
|
| 102 |
|
| 140 |
|
Interest expense |
|
| (25,476) |
|
| (26,457) |
|
| (77,853) |
|
| (79,475) |
|
Gain (loss) on extinguishment of debt, net |
|
| 1,808 |
|
| — |
|
| 1,737 |
|
| (12,675) |
|
Earnings (loss) before income taxes |
| $ | 37,440 |
| $ | (62,808) |
| $ | 75,668 |
| $ | 25,001 |
|
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
As a result of our revised segment presentation, total assets for our reportable segments have changed. There were no changes to consolidated total assets. Total assets by reportable segment are as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
| October 29, |
| October 31, |
| January 30, |
| |||
|
| 2016 |
| 2015 |
| 2016 |
| |||
Segment assets: |
|
|
|
|
|
|
|
|
|
|
Retail |
| $ | 1,719,572 |
| $ | 2,802,991 |
| $ | 1,705,728 |
|
Corporate apparel |
|
| 196,085 |
|
| 216,920 |
|
| 211,820 |
|
Shared services(1) |
|
| 259,472 |
|
| 492,468 |
|
| 326,771 |
|
Total assets |
| $ | 2,175,129 |
| $ | 3,512,379 |
| $ | 2,244,319 |
|
(1) | Shared service assets consist primarily of cash and cash equivalents, assets related to our distribution network and tax-related assets. |
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16.15. Legal Matters
On July 30, 2013, Matthew B. Johnson, et al., on behalf of themselves and all Ohio residents similarly situated (the “Johnson Plaintiffs”),March 29, 2016, Peter Makhlouf filed a putative class action Complaintlawsuit against Jos. A. Bankthe Company and its Chief Executive Officer ("CEO"), Douglas S. Ewert, in the U.S.United States District Court for the Southern District of Ohio, Eastern DistrictTexas (Case No. 2:13-cv-756)4:16-cv-00838). The Complaintcomplaint attempts to allege claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of persons who purchased or otherwise acquired the Company's securities between June 18, 2014 and December 9, 2015. In particular, the complaint alleges among other things, deceptive salesthat the Company and marketing practices byits CEO made certain statements about the Company's acquisition and subsequent integration of Jos. A. Bank relating to its use of the words “free”that were false and “regular price.” The Complaint seeks, among other relief, certification of the complaint as a class action, compensatory damages, declaratory relief, injunctive reliefmisleading and costs and disbursements (including attorneys’ fees). On August 19, 2014, the Court dismissed the class claims and certain other breach of contract claims. On June 9, 2015, the Court also dismissed the plaintiffs’ claim for injunctive relief. Based on the two favorable court rulings, we do notomitted material facts. We believe that this case will have a material adverse effect on our financial position, results of operations or cash flows.
In December 2013, Jos. A. Bank received a subpoena from the Ohio Attorney General requiring the production of certain information relating to its advertisingclaims are without merit and marketing practices. Jos. A. Bank produced information in response to the subpoena, cooperated with further information requests and had ongoing communications with the Ohio Attorney General’s office. On October 9, 2015, the Attorney General’s office issued a letter advising the Company that it was taking no further action at this time. We consider the matter closed.
On July 9, 2014, David Lucas and Eric Salerno, on behalf of themselves and all California residents similarly situated, filed a putative class action Complaint against Jos. A. Bank in the U.S. District Court for Southern California (Case No. ‘14CV1631LAB JLB). The Complaint alleges, among other things, that Jos. A. Bank violated the California Unfair Competition Law and the California Consumers Legal Remedies Act with its comparative price advertising, price discounts and free apparel promotions. The Complaint seeks, among other relief, certification of the case as a class action, permanent injunction, actual and compensatory damages, restitution including disgorgement of profits and unjust enrichment, costs and attorney fees. We intend to vigorously defend the case.lawsuit 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.
17.16. Condensed Consolidating Information
As discussed in Note 4, The Men’s Wearhouse, Inc. (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,
20
Inc. (the "Parent") and certain of our U.S. subsidiaries (collectively, the(the “Guarantors”). Our Canadian and U.K. 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 Issuer, Guarantors and Non-Guarantors operated as independent entities. Certain of our current Guarantor subsidiaries did not exist and were created as part of the Reorganization. As a result, prior periods presented have been retrospectively adjusted and contain certain allocations to reflect our current organizational structure.
21
The Men’s Wearhouse, Inc.
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
October 31, 201529, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||||||||
|
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 771 |
| $ | 2,128 |
| $ | 50,755 |
| $ | — |
| $ | 53,654 |
|
| $ | — |
| $ | 5,435 |
| $ | 1,984 |
| $ | 27,529 |
| $ | — |
| $ | 34,948 |
|
Accounts receivable, net |
| 21,452 |
| 353,807 |
| 33,203 |
| (341,560 | ) | 66,902 |
|
|
| 7,373 |
|
| 17,112 |
|
| 455,368 |
|
| 31,140 |
|
| (439,095) |
|
| 71,898 |
| |||||
Inventories |
| 252,520 |
| 652,080 |
| 155,647 |
| — |
| 1,060,247 |
|
|
| — |
|
| 253,482 |
|
| 459,159 |
|
| 335,274 |
|
| — |
|
| 1,047,915 |
| |||||
Other current assets |
| 90,352 |
| 69,646 |
| 8,073 |
| — |
| 168,071 |
|
|
| 7,102 |
|
| 22,155 |
|
| 42,995 |
|
| 6,963 |
|
| (19,025) |
|
| 60,190 |
| |||||
Total current assets |
| 365,095 |
| 1,077,661 |
| 247,678 |
| (341,560 | ) | 1,348,874 |
|
|
| 14,475 |
|
| 298,184 |
|
| 959,506 |
|
| 400,906 |
|
| (458,120) |
|
| 1,214,951 |
| |||||
Property and equipment, net |
| 311,313 |
| 197,503 |
| 39,665 |
| — |
| 548,481 |
|
|
| — |
|
| 249,797 |
|
| 217,156 |
|
| 34,438 |
|
| — |
|
| 501,391 |
| |||||
Rental product, net |
| 121,983 |
| 7,150 |
| 18,211 |
| — |
| 147,344 |
|
|
| — |
|
| 139,386 |
|
| 3,677 |
|
| 17,038 |
|
| — |
|
| 160,101 |
| |||||
Goodwill |
| 6,159 |
| 837,532 |
| 47,300 |
| — |
| 890,991 |
|
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 41,356 |
|
| — |
|
| 116,026 |
| |||||
Intangible assets, net |
| 213 |
| 546,937 |
| 21,021 |
| — |
| 568,171 |
|
|
| — |
|
| 105 |
|
| 157,788 |
|
| 14,444 |
|
| — |
|
| 172,337 |
| |||||
Investments in subsidiaries |
| 2,418,994 |
| — |
| — |
| (2,418,994 | ) | — |
|
|
| (67,257) |
|
| 1,375,395 |
|
| — |
|
| — |
|
| (1,308,138) |
|
| — |
| |||||
Other assets |
| 40,961 |
| 858 |
| 8,831 |
| (42,132 | ) | 8,518 |
|
|
| 3,257 |
|
| 6,004 |
|
| 939 |
|
| 7,623 |
|
| (7,500) |
|
| 10,323 |
| |||||
Total assets |
| $ | 3,264,718 |
| $ | 2,667,641 |
| $ | 382,706 |
| $ | (2,802,686 | ) | $ | 3,512,379 |
|
| $ | (49,525) |
| $ | 2,075,031 |
| $ | 1,407,576 |
| $ | 515,805 |
| $ | (1,773,758) |
| $ | 2,175,129 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
| $ | 399,292 |
| $ | 128,803 |
| $ | 46,985 |
| $ | (341,560 | ) | $ | 233,520 |
|
| $ | 16,216 |
| $ | 337,499 |
| $ | 99,597 |
| $ | 185,982 |
| $ | (439,095) |
| $ | 200,199 |
|
Accrued expenses and other current liabilities |
| 146,102 |
| 111,308 |
| 21,801 |
| — |
| 279,211 |
|
|
| 9,617 |
|
| 143,023 |
|
| 105,446 |
|
| 42,514 |
|
| (19,025) |
|
| 281,575 |
| |||||
Current maturities of long-term debt |
| 7,000 |
| — |
| — |
| — |
| 7,000 |
| ||||||||||||||||||||||||
Current portion of long-term debt |
|
| — |
|
| 7,000 |
|
| — |
|
| — |
|
| — |
|
| 7,000 |
| ||||||||||||||||
Total current liabilities |
| 552,394 |
| 240,111 |
| 68,786 |
| (341,560 | ) | 519,731 |
|
|
| 25,833 |
|
| 487,522 |
|
| 205,043 |
|
| 228,496 |
|
| (458,120) |
|
| 488,774 |
| |||||
Long-term debt, net |
| 1,649,206 |
| — |
| 33,432 |
| (33,432 | ) | 1,649,206 |
|
|
| — |
|
| 1,588,873 |
|
| — |
|
| — |
|
| — |
|
| 1,588,873 |
| |||||
Deferred taxes and other liabilities |
| 77,735 |
| 277,783 |
| 11,241 |
| (8,700 | ) | 358,059 |
|
|
| 2,339 |
|
| 65,893 |
|
| 104,512 |
|
| 9,935 |
|
| (7,500) |
|
| 175,179 |
| |||||
Shareholders’ equity |
| 985,383 |
| 2,149,747 |
| 269,247 |
| (2,418,994 | ) | 985,383 |
| ||||||||||||||||||||||||
Total liabilities and shareholders’ equity |
| $ | 3,264,718 |
| $ | 2,667,641 |
| $ | 382,706 |
| $ | (2,802,686 | ) | $ | 3,512,379 |
| |||||||||||||||||||
Shareholders' (deficit) equity |
|
| (77,697) |
|
| (67,257) |
|
| 1,098,021 |
|
| 277,374 |
|
| (1,308,138) |
|
| (77,697) |
| ||||||||||||||||
Total liabilities and shareholders' (deficit) equity |
| $ | (49,525) |
| $ | 2,075,031 |
| $ | 1,407,576 |
| $ | 515,805 |
| $ | (1,773,758) |
| $ | 2,175,129 |
|
22
The Men’s Wearhouse, Inc.
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
November 1, 2014October 31, 2015
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||||||||
|
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 1,214 |
| $ | 8,719 |
| $ | 54,783 |
| $ | — |
| $ | 64,716 |
|
| $ | — |
| $ | 771 |
| $ | 2,128 |
| $ | 50,755 |
| $ | — |
| $ | 53,654 |
|
Accounts receivable, net |
| 13,165 |
| 194,027 |
| 44,240 |
| (167,378 | ) | 84,054 |
|
|
| 5,766 |
|
| 13,382 |
|
| 356,111 |
|
| 33,203 |
|
| (341,560) |
|
| 66,902 |
| |||||
Inventories |
| 161,148 |
| 756,770 |
| 164,436 |
| — |
| 1,082,354 |
|
|
| — |
|
| 252,520 |
|
| 652,080 |
|
| 155,647 |
|
| — |
|
| 1,060,247 |
| |||||
Other current assets |
| 59,408 |
| 40,427 |
| 7,272 |
| — |
| 107,107 |
|
|
| 15,727 |
|
| 49,061 |
|
| 95,210 |
|
| 8,073 |
|
| — |
|
| 168,071 |
| |||||
Total current assets |
| 234,935 |
| 999,943 |
| 270,731 |
| (167,378 | ) | 1,338,231 |
|
|
| 21,493 |
|
| 315,734 |
|
| 1,105,529 |
|
| 247,678 |
|
| (341,560) |
|
| 1,348,874 |
| |||||
Property and equipment, net |
| 304,461 |
| 224,315 |
| 41,003 |
| — |
| 569,779 |
|
|
| — |
|
| 272,192 |
|
| 236,624 |
|
| 39,665 |
|
| — |
|
| 548,481 |
| |||||
Rental product, net |
| 97,330 |
| 13,094 |
| 19,155 |
| — |
| 129,579 |
|
|
| — |
|
| 121,983 |
|
| 7,150 |
|
| 18,211 |
|
| — |
|
| 147,344 |
| |||||
Goodwill |
| 6,159 |
| 834,929 |
| 51,678 |
| — |
| 892,766 |
|
|
| — |
|
| 6,159 |
|
| 837,532 |
|
| 47,300 |
|
| — |
|
| 890,991 |
| |||||
Intangible assets, net |
| 320 |
| 648,031 |
| 24,706 |
| — |
| 673,057 |
|
|
| — |
|
| 213 |
|
| 546,937 |
|
| 21,021 |
|
| — |
|
| 568,171 |
| |||||
Investments in subsidiaries |
| 2,352,986 |
| — |
| — |
| (2,352,986 | ) | — |
|
|
| 983,834 |
|
| 2,570,579 |
|
| — |
|
| — |
|
| (3,554,413) |
|
| — |
| |||||
Other assets |
| 69,178 |
| 680 |
| 9,980 |
| (69,806 | ) | 10,032 |
|
|
| 13,353 |
|
| 24,616 |
|
| 3,850 |
|
| 8,831 |
|
| (42,132) |
|
| 8,518 |
| |||||
Total assets |
| $ | 3,065,369 |
| $ | 2,720,992 |
| $ | 417,253 |
| $ | (2,590,170 | ) | $ | 3,613,444 |
|
| $ | 1,018,680 |
| $ | 3,311,476 |
| $ | 2,737,622 |
| $ | 382,706 |
| $ | (3,938,105) |
| $ | 3,512,379 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
| $ | 193,913 |
| $ | 182,338 |
| $ | 54,772 |
| $ | (167,378 | ) | $ | 263,645 |
|
| $ | 18,891 |
| $ | 393,176 |
| $ | 116,028 |
| $ | 46,985 |
| $ | (341,560) |
| $ | 233,520 |
|
Accrued expenses and other current liabilities |
| 105,604 |
| 161,769 |
| 29,488 |
| — |
| 296,861 |
|
|
| 9,592 |
|
| 142,648 |
|
| 105,170 |
|
| 21,801 |
|
| — |
|
| 279,211 |
| |||||
Current maturities of long-term debt |
| 11,000 |
| — |
| — |
| — |
| 11,000 |
| ||||||||||||||||||||||||
Current portion of long-term debt |
|
| — |
|
| 7,000 |
|
| — |
|
| — |
|
| — |
|
| 7,000 |
| ||||||||||||||||
Total current liabilities |
| 310,517 |
| 344,107 |
| 84,260 |
| (167,378 | ) | 571,506 |
|
|
| 28,483 |
|
| 542,824 |
|
| 221,198 |
|
| 68,786 |
|
| (341,560) |
|
| 519,731 |
| |||||
Long-term debt, net |
| 1,638,606 |
| — |
| 59,906 |
| (59,906 | ) | 1,638,606 |
|
|
| — |
|
| 1,649,206 |
|
| — |
|
| 33,432 |
|
| (33,432) |
|
| 1,649,206 |
| |||||
Deferred taxes and other liabilities |
| 80,526 |
| 285,293 |
| 11,693 |
| (9,900 | ) | 367,612 |
|
|
| 4,814 |
|
| 135,612 |
|
| 215,092 |
|
| 11,241 |
|
| (8,700) |
|
| 358,059 |
| |||||
Shareholders’ equity |
| 1,035,720 |
| 2,091,592 |
| 261,394 |
| (2,352,986 | ) | 1,035,720 |
| ||||||||||||||||||||||||
Total liabilities and shareholders’ equity |
| $ | 3,065,369 |
| $ | 2,720,992 |
| $ | 417,253 |
| $ | (2,590,170 | ) | $ | 3,613,444 |
| |||||||||||||||||||
Shareholders' equity |
|
| 985,383 |
|
| 983,834 |
|
| 2,301,332 |
|
| 269,247 |
|
| (3,554,413) |
|
| 985,383 |
| ||||||||||||||||
Total liabilities and shareholders' equity |
| $ | 1,018,680 |
| $ | 3,311,476 |
| $ | 2,737,622 |
| $ | 382,706 |
| $ | (3,938,105) |
| $ | 3,512,379 |
|
23
The Men’s Wearhouse, Inc.
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
January 31, 201530, 2016
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||||||||
|
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 18,262 |
| $ | 4,857 |
| $ | 39,142 |
| $ | — |
| $ | 62,261 |
|
| $ | — |
| $ | 724 |
| $ | 2,243 |
| $ | 27,013 |
| $ | — |
| $ | 29,980 |
|
Accounts receivable, net |
| 20,304 |
| 422,930 |
| 35,303 |
| (405,271 | ) | 73,266 |
|
|
| — |
|
| 23,067 |
|
| 392,944 |
|
| 29,845 |
|
| (381,966) |
|
| 63,890 |
| |||||
Inventories |
| 285,309 |
| 510,651 |
| 142,376 |
| — |
| 938,336 |
|
|
| — |
|
| 253,472 |
|
| 630,407 |
|
| 138,625 |
|
| — |
|
| 1,022,504 |
| |||||
Other current assets |
| 105,507 |
| 58,792 |
| 5,510 |
| — |
| 169,809 |
|
|
| 19,037 |
|
| 79,964 |
|
| 36,308 |
|
| 8,237 |
|
| — |
|
| 143,546 |
| |||||
Total current assets |
| 429,382 |
| 997,230 |
| 222,331 |
| (405,271 | ) | 1,243,672 |
|
|
| 19,037 |
|
| 357,227 |
|
| 1,061,902 |
|
| 203,720 |
|
| (381,966) |
|
| 1,259,920 |
| |||||
Property and equipment, net |
| 306,597 |
| 221,454 |
| 38,023 |
| — |
| 566,074 |
|
|
| — |
|
| 254,335 |
|
| 230,209 |
|
| 37,280 |
|
| — |
|
| 521,824 |
| |||||
Rental product, net |
| 107,908 |
| 8,318 |
| 16,446 |
| — |
| 132,672 |
|
|
| — |
|
| 124,468 |
|
| 16,224 |
|
| 16,768 |
|
| — |
|
| 157,460 |
| |||||
Goodwill |
| 6,159 |
| 834,470 |
| 47,307 |
| — |
| 887,936 |
|
|
| — |
|
| 6,160 |
|
| 68,510 |
|
| 43,916 |
|
| — |
|
| 118,586 |
| |||||
Intangible assets, net |
| 293 |
| 645,388 |
| 22,578 |
| — |
| 668,259 |
|
|
| — |
|
| 186 |
|
| 159,530 |
|
| 18,794 |
|
| — |
|
| 178,510 |
| |||||
Investments in subsidiaries |
| 2,405,680 |
| — |
| — |
| (2,405,680 | ) | — |
|
|
| (109,188) |
|
| 1,439,187 |
|
| - |
|
| - |
|
| (1,329,999) |
|
| — |
| |||||
Other assets |
| 42,279 |
| 681 |
| 9,671 |
| (43,032 | ) | 9,599 |
|
|
| — |
|
| 6,914 |
|
| 992 |
|
| 8,513 |
|
| (8,400) |
|
| 8,019 |
| |||||
Total assets |
| $ | 3,298,298 |
| $ | 2,707,541 |
| $ | 356,356 |
| $ | (2,853,983 | ) | $ | 3,508,212 |
|
| $ | (90,151) |
| $ | 2,188,477 |
| $ | 1,537,367 |
| $ | 328,991 |
| $ | (1,720,365) |
| $ | 2,244,319 |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
| $ | 449,102 |
| $ | 120,499 |
| $ | 45,537 |
| $ | (405,271 | ) | $ | 209,867 |
|
| $ | — |
| $ | 419,187 |
| $ | 153,717 |
| $ | 46,176 |
| $ | (381,966) |
| $ | 237,114 |
|
Accrued expenses and other current liabilities |
| 145,943 |
| 101,363 |
| 23,238 |
| — |
| 270,544 |
|
|
| 7,602 |
|
| 154,014 |
|
| 75,676 |
|
| 19,470 |
|
| — |
|
| 256,762 |
| |||||
Current maturities of long- term debt |
| 11,000 |
| — |
| — |
| — |
| 11,000 |
| ||||||||||||||||||||||||
Current portion of long-term debt |
|
| — |
|
| 42,451 |
|
| - |
|
| — |
|
| — |
|
| 42,451 |
| ||||||||||||||||
Total current liabilities |
| 606,045 |
| 221,862 |
| 68,775 |
| (405,271 | ) | 491,411 |
|
|
| 7,602 |
|
| 615,652 |
|
| 229,393 |
|
| 65,646 |
|
| (381,966) |
|
| 536,327 |
| |||||
Long-term debt, net |
| 1,637,686 |
| — |
| 33,432 |
| (33,432 | ) | 1,637,686 |
|
|
| — |
|
| 1,613,473 |
|
| - |
|
| — |
|
| — |
|
| 1,613,473 |
| |||||
Deferred taxes and other liabilities |
| 84,778 |
| 323,376 |
| 10,772 |
| (9,600 | ) | 409,326 |
|
|
| 2,333 |
|
| 68,540 |
|
| 121,531 |
|
| 10,601 |
|
| (8,400) |
|
| 194,605 |
| |||||
Shareholders’ equity |
| 969,789 |
| 2,162,303 |
| 243,377 |
| (2,405,680 | ) | 969,789 |
| ||||||||||||||||||||||||
Total liabilities and shareholders’ equity |
| $ | 3,298,298 |
| $ | 2,707,541 |
| $ | 356,356 |
| $ | (2,853,983 | ) | $ | 3,508,212 |
| |||||||||||||||||||
Shareholders' (deficit) equity |
|
| (100,086) |
|
| (109,188) |
|
| 1,186,443 |
|
| 252,744 |
|
| (1,329,999) |
|
| (100,086) |
| ||||||||||||||||
Total liabilities and shareholders' (deficit) equity |
| $ | (90,151) |
| $ | 2,188,477 |
| $ | 1,537,367 |
| $ | 328,991 |
| $ | (1,720,365) |
| $ | 2,244,319 |
|
24
The Men’s Wearhouse, Inc.
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss) Earnings
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||||||||
Three months ended October 31, 2015: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||||||||||||||||||
Three Months Ended October 29, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net sales |
| $ | 464,380 |
| $ | 448,712 |
| $ | 109,306 |
| $ | (156,952 | ) | $ | 865,446 |
|
| $ | — |
| $ | 460,432 |
| $ | 466,476 |
| $ | 105,474 |
| $ | (185,448) |
| $ | 846,934 |
|
Cost of sales |
| 241,412 |
| 340,652 |
| 67,343 |
| (156,952 | ) | 492,455 |
|
|
| — |
|
| 230,110 |
|
| 361,117 |
|
| 63,949 |
|
| (185,448) |
|
| 469,728 |
| |||||
Gross margin |
| 222,968 |
| 108,060 |
| 41,963 |
| — |
| 372,991 |
|
|
| — |
|
| 230,322 |
|
| 105,359 |
|
| 41,525 |
|
| — |
|
| 377,206 |
| |||||
Operating expenses |
| 186,467 |
| 197,899 |
| 29,487 |
| (4,461 | ) | 409,392 |
|
|
| 974 |
|
| 146,398 |
|
| 153,439 |
|
| 29,662 |
|
| (14,323) |
|
| 316,150 |
| |||||
Operating income (loss) |
| 36,501 |
| (89,839 | ) | 12,476 |
| 4,461 |
| (36,401 | ) | ||||||||||||||||||||||||
Operating (loss) income |
|
| (974) |
|
| 83,924 |
|
| (48,080) |
|
| 11,863 |
|
| 14,323 |
|
| 61,056 |
| ||||||||||||||||
Other income and expenses, net |
| 4,461 |
| — |
| — |
| (4,461 | ) | — |
|
|
| — |
|
| — |
|
| 14,323 |
|
| — |
|
| (14,323) |
|
| — |
| |||||
Interest income |
| 682 |
| 1,003 |
| 40 |
| (1,675 | ) | 50 |
|
|
| — |
|
| 60 |
|
| 517 |
|
| 49 |
|
| (574) |
|
| 52 |
| |||||
Interest expense |
| (27,278 | ) | (579 | ) | (275 | ) | 1,675 |
| (26,457 | ) |
|
| (8) |
|
| (25,890) |
|
| — |
|
| (152) |
|
| 574 |
|
| (25,476) |
| |||||
Earnings (loss) before income taxes |
| 14,366 |
| (89,415 | ) | 12,241 |
| — |
| (62,808 | ) | ||||||||||||||||||||||||
Provision (benefit) for income taxes |
| 8,524 |
| (44,859 | ) | 681 |
| — |
| (35,654 | ) | ||||||||||||||||||||||||
Earnings (loss) before equity in net loss of subsidiaries |
| 5,842 |
| (44,556 | ) | 11,560 |
| — |
| (27,154 | ) | ||||||||||||||||||||||||
Equity in loss of subsidiaries |
| (32,996 | ) | — |
| — |
| 32,996 |
| — |
| ||||||||||||||||||||||||
Net (loss) earnings attributable to common shareholders |
| $ | (27,154 | ) | $ | (44,556 | ) | $ | 11,560 |
| $ | 32,996 |
| $ | (27,154 | ) | |||||||||||||||||||
Comprehensive (loss) income |
| $ | (29,400 | ) | $ | (44,556 | ) | $ | 9,536 |
| $ | 35,020 |
| $ | (29,400 | ) | |||||||||||||||||||
Gain on extinguishment of debt, net |
|
| — |
|
| 1,808 |
|
| — |
|
| — |
|
| — |
|
| 1,808 |
| ||||||||||||||||
(Loss) earnings before income taxes |
|
| (982) |
|
| 59,902 |
|
| (33,240) |
|
| 11,760 |
|
| — |
|
| 37,440 |
| ||||||||||||||||
(Benefit) provision for income taxes |
|
| (247) |
|
| 14,763 |
|
| (8,119) |
|
| 2,610 |
|
| — |
|
| 9,007 |
| ||||||||||||||||
(Loss) earnings before equity in net income of subsidiaries |
|
| (735) |
|
| 45,139 |
|
| (25,121) |
|
| 9,150 |
|
| — |
|
| 28,433 |
| ||||||||||||||||
Equity in earnings of subsidiaries |
|
| 29,168 |
|
| (15,971) |
|
| — |
|
| — |
|
| (13,197) |
|
| — |
| ||||||||||||||||
Net earnings (loss) |
| $ | 28,433 |
| $ | 29,168 |
| $ | (25,121) |
| $ | 9,150 |
| $ | (13,197) |
| $ | 28,433 |
| ||||||||||||||||
Comprehensive income (loss) |
| $ | 14,306 |
| $ | 30,116 |
| $ | (25,121) |
| $ | (5,925) |
| $ | 930 |
| $ | 14,306 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Three months ended November 1, 2014: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Three Months Ended October 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net sales |
| $ | 435,285 |
| $ | 453,905 |
| $ | 128,429 |
| $ | (126,982 | ) | $ | 890,637 |
|
| $ | — |
| $ | 464,380 |
| $ | 448,712 |
| $ | 109,306 |
| $ | (156,952) |
| $ | 865,446 |
|
Cost of sales |
| 344,575 |
| 227,532 |
| 76,307 |
| (126,982 | ) | 521,432 |
|
|
| — |
|
| 241,412 |
|
| 340,652 |
|
| 67,343 |
|
| (156,952) |
|
| 492,455 |
| |||||
Gross margin |
| 90,710 |
| 226,373 |
| 52,122 |
| — |
| 369,205 |
|
|
| — |
|
| 222,968 |
|
| 108,060 |
|
| 41,963 |
|
| — |
|
| 372,991 |
| |||||
Operating expenses |
| 178,233 |
| 114,729 |
| 34,331 |
| (3,263 | ) | 324,030 |
|
|
| 783 |
|
| 182,912 |
|
| 200,671 |
|
| 29,487 |
|
| (4,461) |
|
| 409,392 |
| |||||
Operating (loss) income |
| (87,523 | ) | 111,644 |
| 17,791 |
| 3,263 |
| 45,175 |
|
|
| (783) |
|
| 40,056 |
|
| (92,611) |
|
| 12,476 |
|
| 4,461 |
|
| (36,401) |
| |||||
Other income and expenses, net |
| 3,658 |
| (395 | ) | — |
| (3,263 | ) | — |
|
|
| — |
|
| 4,461 |
|
| — |
|
| — |
|
| (4,461) |
|
| — |
| |||||
Interest income |
| 329 |
| 12 |
| 108 |
| (324 | ) | 125 |
|
|
| — |
|
| 682 |
|
| 1,003 |
|
| 40 |
|
| (1,675) |
|
| 50 |
| |||||
Interest expense |
| (25,032 | ) | (40 | ) | (383 | ) | 324 |
| (25,131 | ) |
|
| — |
|
| (27,278) |
|
| (579) |
|
| (275) |
|
| 1,675 |
|
| (26,457) |
| |||||
(Loss) earnings before income taxes |
| (108,568 | ) | 111,221 |
| 17,516 |
| — |
| 20,169 |
|
|
| (783) |
|
| 17,921 |
|
| (92,187) |
|
| 12,241 |
|
| — |
|
| (62,808) |
| |||||
(Benefit) provision for income taxes |
| (39,908 | ) | 48,891 |
| 4,185 |
| — |
| 13,168 |
|
|
| (254) |
|
| 5,654 |
|
| (41,735) |
|
| 681 |
|
| — |
|
| (35,654) |
| |||||
(Loss) earnings before equity in net income of subsidiaries |
| (68,660 | ) | 62,330 |
| 13,331 |
| — |
| 7,001 |
|
|
| (529) |
|
| 12,267 |
|
| (50,452) |
|
| 11,560 |
|
| — |
|
| (27,154) |
| |||||
Equity in earnings of subsidiaries |
| 75,661 |
| — |
| — |
| (75,661 | ) | — |
|
|
| (26,625) |
|
| (38,892) |
|
| — |
|
| — |
|
| 65,517 |
|
| — |
| |||||
Net earnings including non-controlling interest |
| 7,001 |
| 62,330 |
| 13,331 |
| (75,661 | ) | 7,001 |
| ||||||||||||||||||||||||
Net earnings attributable to non-controlling interest |
| (208 | ) | — |
| (208 | ) | 208 |
| (208 | ) | ||||||||||||||||||||||||
Net earnings attributable to common shareholders |
| $ | 6,793 |
| $ | 62,330 |
| $ | 13,123 |
| $ | (75,453 | ) | $ | 6,793 |
| |||||||||||||||||||
Net (loss) earnings |
| $ | (27,154) |
| $ | (26,625) |
| $ | (50,452) |
| $ | 11,560 |
| $ | 65,517 |
| $ | (27,154) |
| ||||||||||||||||
Comprehensive (loss) income |
| $ | (5,758 | ) | $ | 62,330 |
| $ | 251 |
| $ | (62,581 | ) | $ | (5,758 | ) |
| $ | (29,400) |
| $ | (26,847) |
| $ | (50,452) |
| $ | 9,536 |
| $ | 67,763 |
| $ | (29,400) |
|
25
The Men’s Wearhouse, Inc.
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||||||||
Nine months ended October 31, 2015: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Net sales |
| $ | 1,388,910 |
| $ | 1,369,352 |
| $ | 328,755 |
| $ | (416,408 | ) | $ | 2,670,609 |
| |||||||||||||||||||
Cost of sales |
| 701,191 |
| 1,010,107 |
| 202,495 |
| (416,408 | ) | 1,497,385 |
| ||||||||||||||||||||||||
Gross margin |
| 687,719 |
| 359,245 |
| 126,260 |
| — |
| 1,173,224 |
| ||||||||||||||||||||||||
Operating expenses |
| 563,251 |
| 414,870 |
| 90,649 |
| (12,557 | ) | 1,056,213 |
| ||||||||||||||||||||||||
Operating income (loss) |
| 124,468 |
| (55,625 | ) | 35,611 |
| 12,557 |
| 117,011 |
| ||||||||||||||||||||||||
Other income and expenses, net |
| 11,543 |
| 1,014 |
| — |
| (12,557 | ) | — |
| ||||||||||||||||||||||||
Interest income |
| 1,831 |
| 2,672 |
| 103 |
| (4,466 | ) | 140 |
| ||||||||||||||||||||||||
Interest expense |
| (81,579 | ) | (1,535 | ) | (827 | ) | 4,466 |
| (79,475 | ) | ||||||||||||||||||||||||
Loss on extinguishment of debt |
| (12,675 | ) | — |
| — |
| — |
| (12,675 | ) | ||||||||||||||||||||||||
Earnings (loss) before income taxes |
| 43,588 |
| (53,474 | ) | 34,887 |
| — |
| 25,001 |
| ||||||||||||||||||||||||
Provision (benefit) for income taxes |
| 18,152 |
| (32,771 | ) | 8,626 |
| — |
| (5,993 | ) | ||||||||||||||||||||||||
Earnings (loss) before equity in net income of subsidiaries |
| 25,436 |
| (20,703 | ) | 26,261 |
| — |
| 30,994 |
| ||||||||||||||||||||||||
Equity in earnings of subsidiaries |
| 5,558 |
| — |
| — |
| (5,558 | ) | — |
| ||||||||||||||||||||||||
Net earnings (loss) attributable to common shareholders |
| $ | 30,994 |
| $ | (20,703 | ) | $ | 26,261 |
| $ | (5,558 | ) | $ | 30,994 |
| |||||||||||||||||||
Comprehensive income (loss) |
| $ | 30,309 |
| $ | (20,703 | ) | $ | 25,883 |
| $ | (5,180 | ) | $ | 30,309 |
| |||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||||||||
Nine months ended November 1, 2014: |
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||||||||||
Nine Months Ended October 29, 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net sales |
| $ | 1,303,738 |
| $ | 1,051,976 |
| $ | 363,111 |
| $ | (394,636 | ) | $ | 2,324,189 |
|
| $ | — |
| $ | 1,382,515 |
| $ | 1,300,852 |
| $ | 315,060 |
| $ | (412,987) |
| $ | 2,585,440 |
|
Cost of sales |
| 774,707 |
| 713,272 |
| 219,735 |
| (394,636 | ) | 1,313,078 |
|
|
| — |
|
| 676,761 |
|
| 992,265 |
|
| 190,050 |
|
| (412,987) |
|
| 1,446,089 |
| |||||
Gross margin |
| 529,031 |
| 338,704 |
| 143,376 |
| — |
| 1,011,111 |
|
|
| — |
|
| 705,754 |
|
| 308,587 |
|
| 125,010 |
|
| — |
|
| 1,139,351 |
| |||||
Operating expenses |
| 593,263 |
| 212,373 |
| 100,921 |
| (10,606 | ) | 895,951 |
|
|
| 2,554 |
|
| 452,661 |
|
| 486,419 |
|
| 88,958 |
|
| (42,923) |
|
| 987,669 |
| |||||
Operating (loss) income |
| (64,232 | ) | 126,331 |
| 42,455 |
| 10,606 |
| 115,160 |
|
|
| (2,554) |
|
| 253,093 |
|
| (177,832) |
|
| 36,052 |
|
| 42,923 |
|
| 151,682 |
| |||||
Other income and expenses, net |
| 9,477 |
| 1,129 |
| — |
| (10,606 | ) | — |
|
|
| — |
|
| — |
|
| 42,923 |
|
| — |
|
| (42,923) |
|
| — |
| |||||
Interest income |
| 1,314 |
| 343 |
| 262 |
| (1,614 | ) | 305 |
|
|
| 2 |
|
| 70 |
|
| 1,393 |
|
| 89 |
|
| (1,452) |
|
| 102 |
| |||||
Interest expense |
| (39,643 | ) | (370 | ) | (1,060 | ) | 1,614 |
| (39,459 | ) |
|
| (13) |
|
| (78,932) |
|
| — |
|
| (360) |
|
| 1,452 |
|
| (77,853) |
| |||||
Loss on extinguishment of debt |
| (2,158 | ) | — |
| — |
| — |
| (2,158 | ) | ||||||||||||||||||||||||
Gain on extinguishment of debt, net |
|
| — |
|
| 1,737 |
|
| — |
|
| — |
|
| — |
|
| 1,737 |
| ||||||||||||||||
(Loss) earnings before income taxes |
| (95,242 | ) | 127,433 |
| 41,657 |
| — |
| 73,848 |
|
|
| (2,565) |
|
| 175,968 |
|
| (133,516) |
|
| 35,781 |
|
| — |
|
| 75,668 |
| |||||
(Benefit) provision for income taxes |
| (27,733 | ) | 55,672 |
| 10,082 |
| — |
| 38,021 |
|
|
| (671) |
|
| 46,915 |
|
| (34,900) |
|
| 9,279 |
|
| — |
|
| 20,623 |
| |||||
(Loss) earnings before equity in net income of subsidiaries |
| (67,509 | ) | 71,761 |
| 31,575 |
| — |
| 35,827 |
|
|
| (1,894) |
|
| 129,053 |
|
| (98,616) |
|
| 26,502 |
|
| — |
|
| 55,045 |
| |||||
Equity in earnings of subsidiaries |
| 103,336 |
| — |
| — |
| (103,336 | ) | — |
|
|
| 56,939 |
|
| (72,114) |
|
| — |
|
| — |
|
| 15,175 |
|
| — |
| |||||
Net earnings including non-controlling interest |
| 35,827 |
| 71,761 |
| 31,575 |
| (103,336 | ) | 35,827 |
| ||||||||||||||||||||||||
Net earnings attributable to non-controlling interest |
| (292 | ) | — |
| (292 | ) | 292 |
| (292 | ) | ||||||||||||||||||||||||
Net earnings attributable to common shareholders |
| $ | 35,535 |
| $ | 71,761 |
| $ | 31,283 |
| $ | (103,044 | ) | $ | 35,535 |
| |||||||||||||||||||
Comprehensive income |
| $ | 29,053 |
| $ | 71,761 |
| $ | 24,402 |
| $ | (96,163 | ) | $ | 29,053 |
| |||||||||||||||||||
Net earnings (loss) |
| $ | 55,045 |
| $ | 56,939 |
| $ | (98,616) |
| $ | 26,502 |
| $ | 15,175 |
| $ | 55,045 |
| ||||||||||||||||
Comprehensive income (loss) |
| $ | 38,193 |
| $ | 58,333 |
| $ | (98,616) |
| $ | 8,256 |
| $ | 32,027 |
| $ | 38,193 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Nine Months Ended October 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||||||||||||
Net sales |
| $ | — |
| $ | 1,388,910 |
| $ | 1,369,352 |
| $ | 328,755 |
| $ | (416,408) |
| $ | 2,670,609 |
| ||||||||||||||||
Cost of sales |
|
| — |
|
| 701,191 |
|
| 1,010,107 |
|
| 202,495 |
|
| (416,408) |
|
| 1,497,385 |
| ||||||||||||||||
Gross margin |
|
| — |
|
| 687,719 |
|
| 359,245 |
|
| 126,260 |
|
| — |
|
| 1,173,224 |
| ||||||||||||||||
Operating expenses |
|
| 2,138 |
|
| 470,716 |
|
| 505,267 |
|
| 90,649 |
|
| (12,557) |
|
| 1,056,213 |
| ||||||||||||||||
Operating (loss) income |
|
| (2,138) |
|
| 217,003 |
|
| (146,022) |
|
| 35,611 |
|
| 12,557 |
|
| 117,011 |
| ||||||||||||||||
Other income and expenses, net |
|
| — |
|
| 11,543 |
|
| 1,014 |
|
| — |
|
| (12,557) |
|
| — |
| ||||||||||||||||
Interest income |
|
| — |
|
| 1,831 |
|
| 2,672 |
|
| 103 |
|
| (4,466) |
|
| 140 |
| ||||||||||||||||
Interest expense |
|
| — |
|
| (81,579) |
|
| (1,535) |
|
| (827) |
|
| 4,466 |
|
| (79,475) |
| ||||||||||||||||
Loss on extinguishment of debt, net |
|
| — |
|
| (12,675) |
|
| — |
|
| — |
|
| — |
|
| (12,675) |
| ||||||||||||||||
(Loss) earnings before income taxes |
|
| (2,138) |
|
| 136,123 |
|
| (143,871) |
|
| 34,887 |
|
| — |
|
| 25,001 |
| ||||||||||||||||
(Benefit) provision for income taxes |
|
| (706) |
|
| 44,778 |
|
| (58,691) |
|
| 8,626 |
|
| — |
|
| (5,993) |
| ||||||||||||||||
(Loss) earnings before equity in net income of subsidiaries |
|
| (1,432) |
|
| 91,345 |
|
| (85,180) |
|
| 26,261 |
|
| — |
|
| 30,994 |
| ||||||||||||||||
Equity in earnings of subsidiaries |
|
| 32,426 |
|
| (58,919) |
|
| — |
|
| — |
|
| 26,493 |
|
| — |
| ||||||||||||||||
Net earnings (loss) |
|
| 30,994 |
|
| 32,426 |
|
| (85,180) |
|
| 26,261 |
|
| 26,493 |
|
| 30,994 |
| ||||||||||||||||
Comprehensive income (loss) |
| $ | 30,309 |
| $ | 32,119 |
| $ | (85,180) |
| $ | 25,883 |
| $ | 27,178 |
| $ | 30,309 |
|
26
The Men’s Wearhouse, Inc.
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended October 31, 201529, 2016
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||||||||
Net cash provided by operating activities |
| $ | 73,276 |
| $ | 19,237 |
| $ | 19,723 |
| $ | — |
| $ | 112,236 |
| |||||||||||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||||||||||||||||||
Net cash provided by (used in) operating activities |
| $ | 26,245 |
| $ | 156,148 |
| $ | 36,198 |
| $ | (15,269) |
| $ | (26,438) |
| $ | 176,884 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures |
| (55,857 | ) | (22,147 | ) | (8,402 | ) | — |
| (86,406 | ) |
|
| — |
|
| (40,273) |
|
| (37,055) |
|
| (3,222) |
|
| — |
|
| (80,550) |
| |||||
Proceeds from sales of property and equipment |
| 2,586 |
| 27 |
| — |
| — |
| 2,613 |
| ||||||||||||||||||||||||
Intercompany activities |
|
| — |
|
| (19,025) |
|
| — |
|
| — |
|
| 19,025 |
|
| — |
| ||||||||||||||||
Proceeds from sale of property and equipment |
|
| — |
|
| — |
|
| 598 |
|
| 7 |
|
| — |
|
| 605 |
| ||||||||||||||||
Net cash used in investing activities |
| (53,271 | ) | (22,120 | ) | (8,402 | ) | — |
| (83,793 | ) |
|
| — |
|
| (59,298) |
|
| (36,457) |
|
| (3,215) |
|
| 19,025 |
|
| (79,945) |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Payments on new term loan |
| (6,250 | ) | — |
| — |
| — |
| (6,250 | ) | ||||||||||||||||||||||||
Payments on term loan |
|
| — |
|
| (40,701) |
|
| — |
|
| — |
|
| — |
|
| (40,701) |
| ||||||||||||||||
Proceeds from asset-based revolving credit facility |
| 5,500 |
| — |
| — |
| — |
| 5,500 |
|
|
| — |
|
| 517,500 |
|
| — |
|
| 3,050 |
|
| — |
|
| 520,550 |
| |||||
Payments on asset-based revolving credit facility |
| (5,500 | ) | — |
| — |
| — |
| (5,500 | ) |
|
| — |
|
| (517,500) |
|
| — |
|
| (3,050) |
|
| — |
|
| (520,550) |
| |||||
Deferred financing costs |
| (3,566 | ) | — |
| — |
| — |
| (3,566 | ) | ||||||||||||||||||||||||
Repurchase and retirement of senior notes |
|
| — |
|
| (25,000) |
|
| — |
|
| — |
|
| — |
|
| (25,000) |
| ||||||||||||||||
Intercompany activities |
|
| — |
|
| (26,438) |
|
| — |
|
| 19,025 |
|
| 7,413 |
|
| — |
| ||||||||||||||||
Cash dividends paid |
| (26,269 | ) | — |
| — |
| — |
| (26,269 | ) |
|
| (26,438) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (26,438) |
| |||||
Proceeds from issuance of common stock |
| 2,454 |
| — |
| — |
| — |
| 2,454 |
|
|
| 1,451 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 1,451 |
| |||||
Tax payments related to vested deferred stock units |
| (4,538 | ) | — |
| — |
| — |
| (4,538 | ) |
|
| (1,258) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (1,258) |
| |||||
Excess tax benefits from share-based plans |
| 950 |
| 154 |
| — |
| — |
| 1,104 |
| ||||||||||||||||||||||||
Repurchases of common stock |
| (277 | ) | — |
| — |
| — |
| (277 | ) | ||||||||||||||||||||||||
Net cash (used in) provided by financing activities |
| (37,496 | ) | 154 |
| — |
| — |
| (37,342 | ) |
|
| (26,245) |
|
| (92,139) |
|
| — |
|
| 19,025 |
|
| 7,413 |
|
| (91,946) |
| |||||
Effect of exchange rate changes |
| — |
| — |
| 292 |
| — |
| 292 |
|
|
| — |
|
| — |
|
| — |
|
| (25) |
|
| — |
|
| (25) |
| |||||
(Decrease) increase in cash and cash equivalents |
| (17,491 | ) | (2,729 | ) | 11,613 |
| — |
| (8,607 | ) | ||||||||||||||||||||||||
Increase (decrease) in cash and cash equivalents |
|
| — |
|
| 4,711 |
|
| (259) |
|
| 516 |
|
| — |
|
| 4,968 |
| ||||||||||||||||
Cash and cash equivalents at beginning of period |
| 18,262 |
| 4,857 |
| 39,142 |
| — |
| 62,261 |
|
|
| — |
|
| 724 |
|
| 2,243 |
|
| 27,013 |
|
| — |
|
| 29,980 |
| |||||
Cash and cash equivalents at end of period |
| $ | 771 |
| $ | 2,128 |
| $ | 50,755 |
| $ | — |
| $ | 53,654 |
|
| $ | — |
| $ | 5,435 |
| $ | 1,984 |
| $ | 27,529 |
| $ | — |
| $ | 34,948 |
|
27
The Men’s Wearhouse, Inc.
Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the Nine Months Ended November 1, 2014October 31, 2015
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Tailored |
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
|
| |||||||||
Net cash provided by (used in) operating activities |
| $ | 360,468 |
| $ | (324,183 | ) | $ | 22,732 |
| $ | — |
| $ | 59,017 |
| |||||||||||||||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||||||||||||||||||
Net cash provided by operating activities |
| $ | 27,680 |
| $ | 55,665 |
| $ | 35,437 |
| $ | 19,723 |
| $ | (26,269) |
| $ | 112,236 |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures |
| (51,329 | ) | (13,510 | ) | (7,558 | ) | — |
| (72,397 | ) |
|
| — |
|
| (39,657) |
|
| (38,347) |
|
| (8,402) |
|
| — |
|
| (86,406) |
| |||||
Acquisition of business, net of cash |
| (1,820,308 | ) | 328,915 |
| — |
| — |
| (1,491,393 | ) | ||||||||||||||||||||||||
Proceeds from sales of property and equipment |
| 160 |
| — |
| — |
| — |
| 160 |
| ||||||||||||||||||||||||
Net cash (used in) provided by investing activities |
| (1,871,477 | ) | 315,405 |
| (7,558 | ) | — |
| (1,563,630 | ) | ||||||||||||||||||||||||
Proceeds from sale of property and equipment |
|
| — |
|
| 2,586 |
|
| 27 |
|
| — |
|
| — |
|
| 2,613 |
| ||||||||||||||||
Net cash used in investing activities |
|
| — |
|
| (37,071) |
|
| (38,320) |
|
| (8,402) |
|
| — |
|
| (83,793) |
| ||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Proceeds from new term loan |
| 1,089,000 |
| — |
| — |
| — |
| 1,089,000 |
| ||||||||||||||||||||||||
Payments on previous term loan |
| (97,500 | ) | — |
| — |
| — |
| (97,500 | ) | ||||||||||||||||||||||||
Payments on term loan |
|
| — |
|
| (6,250) |
|
| — |
|
| — |
|
| — |
|
| (6,250) |
| ||||||||||||||||
Proceeds from asset-based revolving credit facility |
| 340,000 |
| — |
| — |
| — |
| 340,000 |
|
|
| — |
|
| 5,500 |
|
| — |
|
| — |
|
| — |
|
| 5,500 |
| |||||
Payments on asset-based revolving credit facility |
| (340,000 | ) | — |
| — |
| — |
| (340,000 | ) |
|
| — |
|
| (5,500) |
|
| — |
|
| — |
|
| — |
|
| (5,500) |
| |||||
Proceeds from issuance of senior notes |
| 600,000 |
| — |
| — |
| — |
| 600,000 |
| ||||||||||||||||||||||||
Deferred financing costs |
| (51,072 | ) | — |
| — |
| — |
| (51,072 | ) |
|
| — |
|
| (3,566) |
|
| — |
|
| — |
|
| — |
|
| (3,566) |
| |||||
Intercompany activities |
|
| — |
|
| (26,269) |
|
| — |
|
| — |
|
| 26,269 |
|
| — |
| ||||||||||||||||
Cash dividends paid |
| (26,119 | ) | — |
| — |
| — |
| (26,119 | ) |
|
| (26,269) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (26,269) |
| |||||
Purchase of non-controlling interest |
| (6,651 | ) | — |
| — |
| — |
| (6,651 | ) | ||||||||||||||||||||||||
Proceeds from issuance of common stock |
| 7,115 |
| — |
| — |
| — |
| 7,115 |
|
|
| 2,454 |
|
| — |
|
| — |
|
| — |
|
| — |
|
| 2,454 |
| |||||
Tax payments related to vested deferred stock units |
| (6,907 | ) | — |
| — |
| — |
| (6,907 | ) |
|
| (4,538) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (4,538) |
| |||||
Excess tax benefits from share-based plans |
| 3,194 |
| 542 |
| — |
| — |
| 3,736 |
|
|
| 950 |
|
| — |
|
| 154 |
|
| — |
|
| — |
|
| 1,104 |
| |||||
Repurchases of common stock |
| (251 | ) | — |
| — |
| — |
| (251 | ) |
|
| (277) |
|
| — |
|
| — |
|
| — |
|
| — |
|
| (277) |
| |||||
Net cash provided by financing activities |
| 1,510,809 |
| 542 |
| — |
| — |
| 1,511,351 |
| ||||||||||||||||||||||||
Net cash (used in) provided by financing activities |
|
| (27,680) |
|
| (36,085) |
|
| 154 |
|
| — |
|
| 26,269 |
|
| (37,342) |
| ||||||||||||||||
Effect of exchange rate changes |
| — |
| — |
| (1,274 | ) | — |
| (1,274 | ) |
|
| — |
|
| — |
|
| — |
|
| 292 |
|
| — |
|
| 292 |
| |||||
(Decrease) increase in cash and cash equivalents |
| (200 | ) | (8,236 | ) | 13,900 |
| — |
| 5,464 |
|
|
| — |
|
| (17,491) |
|
| (2,729) |
|
| 11,613 |
|
| — |
|
| (8,607) |
| |||||
Cash and cash equivalents at beginning of period |
| 1,414 |
| 16,955 |
| 40,883 |
| — |
| 59,252 |
|
|
| — |
|
| 18,262 |
|
| 4,857 |
|
| 39,142 |
|
| — |
|
| 62,261 |
| |||||
Cash and cash equivalents at end of period |
| $ | 1,214 |
| $ | 8,719 |
| $ | 54,783 |
| $ | — |
| $ | 64,716 |
|
| $ | — |
| $ | 771 |
| $ | 2,128 |
| $ | 50,755 |
| $ | — |
| $ | 53,654 |
|
28
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For supplemental information, we suggest thatWe encourage you to read this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) be read in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended January 31, 2015.30, 2016. References herein to years are to our 52-week or 53-week fiscal year, which ends on the Saturday nearest January 3130 in the following calendar year. For example, references to “2015”“2016” mean the 52-week fiscal year ending January 30, 2016.28, 2017.
Executive Overview
Background
We are the largest specialty retailer of men’s suits and the largest provider of apparel rental product in the U.S. and Canada with 1,7481,710 stores including tuxedo shops within Macy’s stores. Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities. Refer to Note 1514 of Notes to Condensed Consolidated Financial Statements and the discussion included in “Results of Operations” below for additional information and disclosures regarding our reporting segments.
We conduct our retail segment as a specialty apparel retailer offering suits, suit separates, sport coats, slacks, business casual, sportswear, outerwear, dress and casual shirts, shoes and accessories, primarily for men. We offer our products and services through multiple brands and channels including The Men’s Wearhouse/Men’s Wearhouse and Tux (“Men’s Wearhouse”), Jos. A. Bank, Moores Clothing for Men (“Moores”), K&G and the InternetJoseph Abboud and through multiple channels including physical stores, online at www.menswearhouse.com, www.josbank.com and www.josephabboud.com.www.josephabboud.com, and our call center. Our stores are located throughout the United States (“U.S.”), Puerto Rico and Canada and carry a wide selection of exclusive and non-exclusive merchandise brands. Tuxedo and suit rentals are offered at our Men’s Wearhouse, Jos. A. Bank and Moores retail stores and our tuxedo shops within Macy’s stores. In addition, we offer our customers alteration services and most of our K&G stores offer ladies’ career apparel, sportswear, accessories and shoes and children’s apparel. We also conduct retail dry cleaning, laundry and heirlooming operations through MW Cleaners in Texas.
We operate twoThe corporate apparel providers —segment includes the results from our UK-basedcorporate apparel and uniform operations the largest providerconducted by Twin Hill in the UK under theU.S. and Dimensions, Alexandra, and Yaffy brands, and our Twin Hill operations in the U.S.United Kingdom (“UK”). These operations provide corporate clothing uniforms and workwear to workforces through multiple channels including managed corporate accounts, catalogs and the internet at www.dimensions.co.uk and www.alexandra.co.uk.
In the first quarter of 2016, we will launch a holding company called Tailored Brands. We believe that the holding company structure will allow usrevised our segment reporting presentation to further leveragereflect changes in how we manage our business, including resource allocation and performance assessment. Specifically, we are now presenting expenses related to our shared services platform and support, nurture and augmentseparately from the results of our familyoperating segments to promote enhanced comparability of brands.our operating segments. Previously, these shared service expenses were primarily included in our retail segment. Comparable prior period information has been recast to reflect our revised segment presentation.
On June 18, 2014,Third Quarter Discussion
Our improved profitability this quarter reflects solid progress on our cost reduction initiatives as we acquired 100% ofcontinue to navigate the outstanding common stockturnaround of Jos. A. Bank and a men’s specialty apparel retailer,choppy retail environment.
Men’s Wearhouse’s 0.1% comparable sales increase reflects the softening traffic trend we initially saw after Father’s Day, which has continued. While the retail environment remains challenging, we have experienced positive response to premium clothing, custom clothing and performance wear, including the recently launched Kenneth Cole performance wear offering. We plan to drive greater awareness of these innovative offerings and view them as significant growth drivers in 2017. In addition, we continued to strengthen our omnichannel capabilities during the third quarter, which we believe will help drive additional traffic as we make it easy for $65.00 net per share in cash, or total consideration of approximately $1.8 billion. We believe thatcustomers to shop with us both online and in-store.
Our Jos. A. Bank turnaround is gaining traction. Jos. A. Bank’s business modelcomparable sales decline of 9.8% in conjunction with our business model will create meaningful opportunities for future growth and operational synergies. The comparability of our resultsthe third quarter was better than expected, particularly since we were up against last year’s final “Buy-One-Get-Three Free” event in October. While there is affectedstill work to be done, we are encouraged by the inclusion ofhealthier trends we are seeing at Jos. A. Bank’s results forBank that reflect
29
our investments in elevating the entire nine month period ended October 31, 2015, while last year’s operations include Jos. A. Bank’s results beginning on June 18, 2014.brand and customer experience through marketing, merchandising and a more engaging sales experience.
On June 10, 2015, we entered into a 10-year agreement with Macy’s, Inc.We are on track to operate men’s tuxedo rental shops inside 300 Macy’s stores. Asachieve our targeted $50 million of October 31, 2015, we had opened 12 tuxedo shops within Macy’s stores, Tuxedo Shop @ Macy’s, with the remainder to open duringcost savings for fiscal 2016. In addition, we will collaborate with Macy’scontinue to develop an online tuxedo rental shopmake progress on www.macys.com.
Third Quarter Discussionour store base rationalization initiative. During the third quarter, we closed 83 stores, including 74 Men’s Wearhouse and Tux stores, bringing our total year-to-date closures to 187 stores. We expect to close approximately 63 stores in the fourth quarter of fiscal 2016 for a total of approximately 250 store closures during fiscal 2016.
Key performanceoperating metrics for the quarter ended October 31, 201529, 2016 include:
· | Net sales decrease of 2.1% |
· | Comparable sales increased 0.1% at Men’s Wearhouse while comparable sales decreased at Jos. A. Bank, Moores and K&G by 9.8%, 0.4% and 3.0%, respectively. |
· | Operating income increased to $61.1 million compared to an operating loss of $36.4 million in the third quarter of fiscal 2015. Results for the third quarter of fiscal 2015 included a pre-tax, non-cash tradename impairment charge for Jos. A. Bank of $90.1 million. |
· | Diluted earnings per share of $0.58 compared to diluted loss per share of $0.56 in the third quarter of fiscal 2015. |
· Net sales decrease of 2.8%
· Comparable sales increase at Men’s Wearhouse and K&G of 5.3% and 3.7%, respectively, while comparable sales at Jos. A. Bank and Moores decreased 14.6% and 5.4%, respectively.
· ResultsKey liquidity metrics for the third quarternine months ended October 29, 2016 include:
· | Cash provided by operating activities was $176.9 million for the first nine months of fiscal 2016 compared to $112.2 million for the first nine months of fiscal 2015. |
· | Capital expenditures were $80.6 million for the first nine months of fiscal 2016 compared to $86.4 million for the first nine months of fiscal 2015. |
· | We repaid $40.7 million on our term loan, repurchased and retired $25.0 million of senior notes and had no borrowings outstanding on our revolving credit facility as of October 29, 2016. |
· | Dividends paid totaled $26.4 million for the nine months ended October 29, 2016. |
Items Affecting Comparability of 2015 and 2014 include acquisition, integrationResults
The comparability of our results has been impacted by certain items, including restructuring and other costs consisting of $5.1 million and $27.3 million, respectively, primarilycosts related to our profit improvement and store rationalization programs and integration costs for Jos. A. Bank.
· Pre-tax, non-cash Jos. A. Bank tradename impairment charge A summary of $90.1 million
· Diluted loss per sharethe effect of $0.56these items on pretax income for each applicable period is presented below (dollars in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Quarter Ended |
| For the Nine Months Ended |
| ||||||||
|
| October 29, |
| October 31, |
| October 29, |
| October 31, |
| ||||
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| ||||
Tradename impairment charge |
| $ | — |
| $ | 90.1 |
| $ | — |
| $ | 90.1 |
|
Restructuring and other charges (1) |
|
| 10.9 |
|
| — |
|
| 59.1 |
|
| — |
|
Integration costs related to Jos. A. Bank(2) |
|
| 1.4 |
|
| 5.0 |
|
| 7.1 |
|
| 15.9 |
|
Purchase accounting adjustment for the step up of Jos. A. Bank inventory |
|
| — |
|
| — |
|
| — |
|
| 0.8 |
|
Other purchase accounting related charges |
|
| — |
|
| 2.2 |
|
| (0.6) |
|
| 7.0 |
|
(Gain) loss on extinguishment of debt, net |
|
| (1.8) |
|
| — |
|
| (1.7) |
|
| 12.7 |
|
Separation costs with a former executive |
|
| — |
|
| — |
|
| — |
|
| 3.7 |
|
Other |
|
| — |
|
| 0.1 |
|
| 2.6 |
|
| 0.1 |
|
Total (3) |
| $ | 10.5 |
| $ | 97.4 |
| $ | 66.5 |
| $ | 130.3 |
|
(1) | See Note 2 to the condensed consolidated financial statements for additional information on restructuring and other costs. |
(2) | For the quarters ended October 29, 2016 and October 31, 2015, integration costs related to Jos. A. Bank included $0.1 million and $0.5 million of severance costs, respectively. For the nine months ended October 29, 2016 and October 31, 2015, integration costs related to Jos. A. Bank included $2.0 million and $5.9 million of severance and employee-related costs, respectively. |
(3) | For the quarter ended October 29, 2016, includes $13.3 million within selling, general and administrative expenses (“SG&A”) offset by a $1.0 million reduction in cost of sales and a $1.8 million gain on extinguishment of debt, net. |
During the third quarter, our Men’s Wearhouse brand performed well, generating a comparable sales increase
30
For the quarter ended October 31, 2015, includes $90.1 million for a tradename impairment charge and $7.4 million within SG&A offset by a $0.1 reduction in cost of sales. For the nine months ended October 29, 2016, includes $69.9 million within SG&A offset by a $1.7 million reduction in cost of sales and a $1.7 million gain on extinguishment of debt, net. For the nine months ended October 31, 2015, includes $90.1 million for the tradename impairment charge, $25.5 million included in SG&A, $2.0 million in cost of sales and a $12.7 million loss on extinguishment of debt. Tradename impairment charge and gain (loss) on extinguishment of debt, net amounts are shown as separate lines in the condensed consolidated statement of earnings (loss). |
Subsequent to our acquisition of Jos. A. Bank on June 18, 2014, we focused on (a) integrating the people, processes and systems, including point-of-sale, merchandising, and back office, (b) realizing significant cost synergies, (c) introducing new, updated and expanded assortments in the Jos. A. Bank stores, (d) making changes to the Jos. A. Bank promotional and brand building strategies, and (e) identifying and implementing new revenue growth initiatives, including the expansion of tuxedo and suit rental into all Jos. A. Bank stores.
While we have had success in many of these initiatives, we have been challenged in growing revenue opportunities. After we completed the integration, we were able to develop a firmer grasp of the Jos. A. Bank business and promotional model. As our understanding of the Jos. A. Bank business grew, we discovered that the historical promotional pricing model at Jos. A. Bank had been delivering diminishing returns over time, and we realized that attaining revenue synergies was going to require eliminating the most unhealthy promotional offers.
Moreover, during the second and third quarters of 2015, the effectiveness of the existing Jos. A. Bank promotional model began to deteriorate more quickly than we had anticipated. As a result, we made the decision to accelerate the transition away from the harmful promotional cadence by removing the most excessive offers (the Buy-One-Get-Three Free or more events), and began seeking sustainable volume and margin growth.
As noted above, Jos. A. Bank experienced a comparable sales decrease of 14.6%, which was far below our expectations. This decrease was primarily driven by a decline in traffic as we reduced the number of Buy-One-Get-Two Free and Buy-One-Get Three Free events towards the end of the third quarter in anticipation of a final Buy-One-Get-Three Free event, which occurred on October 22 through 25, 2015. Based on this third quarter trend, we currently expect comparable sales at Jos. A. Bank to further deteriorate significantly during the fourth quarter of 2015.
While we expected some top-line volatility as we changed the promotional model, we did not anticipate that the impact on top-line sales from the traffic decline would occur to the degree it did. Despite these results, we continue to believe that transitioning away from the unsustainable promotional strategy we inherited from Jos. A. Bank and the introduction of our new promotional strategy will provide a foundation for long-term profitability at the Jos. A. Bank brand. Although we anticipate continuing declines in traffic and in units per transaction, we have introduced new promotional offers that do not require large quantity purchases and are better aligned with how our customers have told us they prefer to shop. Our customer research indicates while our existing customers appreciate our quality and value, many dislike being forced to buy in quantity and many of our prospective Jos. A. Bank customers found our promotional offers confusing and causing them to question the quality of our products.
On November 5, 2015, we announced our preliminary results for the third quarter and an updated fiscal 2015 outlook. Based on Jos. A. Bank’s results in the third quarter of 2015 as well as the recent significant decline in our market capitalization that occurred subsequent to our November 5th announcement, we concluded a triggering event occurred that required an interim test for impairment of its tradename and goodwill. Based on our analysis, we concluded that the Jos. A. Bank tradename was impaired and recorded a non-cash impairment charge of $90.1 million. We further concluded, based on our analysis that there was no goodwill impairment, as of October 31, 2015. However, if we determine we are not likely to meet the projections used in our interim impairment tests or if our market capitalization remains at current levels, it is possible that our annual impairment tests in the fourth quarter of 2015 could result in a material impairment of the Jos. A. Bank goodwill and an additional impairment of its tradename. For additional information on our tradename and goodwill analysis, see Note 12 to Condensed Consolidated Financial Statements and the discussion under “Critical Accounting Policies and Estimates” beginning on page 40 of this Form 10-Q.
Store Data
The following table presents information with respect to retail apparel stores and tuxedo shops within Macy’s stores in operation during each of the respective fiscal periods:
|
| For the Three Months |
| For the Nine Months |
| For the Year |
| ||||
|
| October 31, |
| November 1, |
| October 31, |
| November 1, |
| January 31, |
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at beginning of period: |
| 1,754 |
| 1,756 |
| 1,758 |
| 1,124 |
| 1,124 |
|
Acquired from Jos. A. Bank(1) |
| — |
| — |
| — |
| 624 |
| 624 |
|
Opened (2) |
| 18 |
| 20 |
| 32 |
| 45 |
| 60 |
|
Closed |
| (24 | ) | (16 | ) | (42 | ) | (33 | ) | (50 | ) |
Open at end of the period |
| 1,748 |
| 1,760 |
| 1,748 |
| 1,760 |
| 1,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Men’s Wearhouse(2) |
| 709 |
| 686 |
| 709 |
| 686 |
| 698 |
|
Men’s Wearhouse and Tux |
| 183 |
| 223 |
| 183 |
| 223 |
| 210 |
|
Tuxedo shops @ Macy’s |
| 12 |
| — |
| 12 |
| — |
| — |
|
Jos. A. Bank(1) |
| 633 |
| 637 |
| 633 |
| 637 |
| 636 |
|
Moores |
| 123 |
| 122 |
| 123 |
| 122 |
| 123 |
|
K&G |
| 88 |
| 92 |
| 88 |
| 92 |
| 91 |
|
|
| 1,748 |
| 1,760 |
| 1,748 |
| 1,760 |
| 1,758 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| For the Three Months Ended |
| For the Nine Months Ended |
| For the Year Ended |
| ||||
|
| October 29, |
| October 31, |
| October 29, |
| October 31, |
| January 30, |
|
|
| 2016 |
| 2015 |
| 2016 |
| 2015 |
| 2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Open at beginning of period: |
| 1,767 |
| 1,754 |
| 1,724 |
| 1,758 |
| 1,758 |
|
Opened (1)(2) |
| 26 |
| 18 |
| 173 |
| 32 |
| 42 |
|
Closed |
| (83) |
| (24) |
| (187) |
| (42) |
| (76) |
|
Open at end of the period |
| 1,710 |
| 1,748 |
| 1,710 |
| 1,748 |
| 1,724 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Men’s Wearhouse(2) |
| 713 |
| 709 |
| 713 |
| 709 |
| 714 |
|
Men’s Wearhouse and Tux |
| 61 |
| 183 |
| 61 |
| 183 |
| 160 |
|
Tuxedo shops @ Macy’s |
| 170 |
| 12 |
| 170 |
| 12 |
| 12 |
|
Jos. A. Bank(3) |
| 550 |
| 633 |
| 550 |
| 633 |
| 625 |
|
Moores |
| 126 |
| 123 |
| 126 |
| 123 |
| 124 |
|
K&G |
| 90 |
| 88 |
| 90 |
| 88 |
| 89 |
|
|
| 1,710 |
| 1,748 |
| 1,710 |
| 1,748 |
| 1,724 |
|
| (1) | Includes 158 tuxedo shops within Macy’s stores opened in 2016. |
(2) | Includes one Joseph Abboud store opened in 2015. |
(3) | Excludes franchise stores. |
During the first nine monthsthird quarter of 2015,2016, we opened 3226 stores/tuxedo shops (12 Men’s Wearhouse stores, 12(20 tuxedo shops within Macy’s stores, sixfour Men’s Wearhouse stores, one Jos. A. Bank stores, one Joseph Abboud store and one MooresK&G store). We closed 4283 stores (27(74 Men’s Wearhouse and Tux stores, nineeight Jos. A. Bank stores three K&G stores, twoand one Men’s Wearhouse stores and one Moores store).
Seasonality
Our sales and net earnings are subject to seasonal fluctuations. Our rental revenues are heavily concentrated in the second and third quarters due to prom(prom and wedding seasonsseason) while the fourth quarter is considered the seasonal low point for rentals.point. In addition, Jos. A. Bank has historically experienced increased customer traffic during the holiday season and its increased marketing efforts during the holiday season have historically resulted in sales and net earnings generated in the fourth quarter, thatwhich are significantly larger as compared to the other three quarters. This trend did not occur in the fourth quarter of 2015 as a result of our decision to change the brand’s promotional strategy. We do not currently know whetherexpect this trend will continueto resume at some point in the current year’s fourth quarter given the change in promotional strategy.future. With respect to our 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 in our sales, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.
31
Results of Operations
For the Three Months Ended October 29, 2016 Compared to the Three Months Ended October 31, 2015 Compared to the Three Months Ended November 1, 2014
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:
|
|
|
|
|
| |||||
|
| For the Three Months |
|
| For the Three Months Ended(1) |
| ||||
|
| October 31, |
| November 1, |
|
| October 29, |
| October 31, |
|
|
| 2015 |
| 2014 |
|
| 2016 |
| 2015 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 71.2 | % | 71.2 | % |
| 67.9 | % | 71.2 | % |
Rental services |
| 15.3 |
| 14.9 |
|
| 16.4 |
| 15.3 |
|
Alteration and other services |
| 6.1 |
| 5.8 |
|
| 5.9 |
| 6.1 |
|
Total retail sales |
| 92.6 |
| 92.0 |
|
| 90.2 |
| 92.6 |
|
Corporate apparel clothing product |
| 7.4 |
| 8.0 |
|
| 9.8 |
| 7.4 |
|
Total net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
Cost of sales (2): |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 44.5 |
| 45.3 |
|
| 43.1 |
| 44.5 |
|
Rental services |
| 16.2 |
| 25.3 |
|
| 16.5 |
| 16.2 |
|
Alteration and other services |
| 68.3 |
| 71.5 |
|
| 67.2 |
| 68.3 |
|
Occupancy costs |
| 14.3 |
| 14.0 |
|
| 14.3 |
| 14.3 |
|
Total retail cost of sales |
| 55.7 |
| 57.7 |
|
| 54.1 |
| 55.7 |
|
Corporate apparel clothing product |
| 71.5 |
| 68.7 |
|
| 67.7 |
| 71.5 |
|
Total cost of sales |
| 56.9 |
| 58.6 |
|
| 55.5 |
| 56.9 |
|
Gross margin (2): |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 55.5 |
| 54.7 |
|
| 56.9 |
| 55.5 |
|
Rental services |
| 83.8 |
| 74.7 |
|
| 83.5 |
| 83.8 |
|
Alteration and other services |
| 31.7 |
| 28.6 |
|
| 32.8 |
| 31.7 |
|
Occupancy costs |
| (14.3 | ) | (14.0 | ) |
| (14.3) |
| (14.3) |
|
Total retail gross margin |
| 44.3 |
| 42.3 |
|
| 45.9 |
| 44.3 |
|
Corporate apparel clothing product |
| 28.5 |
| 31.3 |
|
| 32.3 |
| 28.5 |
|
Total gross margin |
| 43.1 |
| 41.5 |
|
| 44.5 |
| 43.1 |
|
Advertising expense |
| 5.5 |
| 4.7 |
|
| 5.4 |
| 5.5 |
|
Selling, general and administrative expenses |
| 31.3 |
| 31.7 |
|
| 31.9 |
| 31.3 |
|
Tradename impairment charge |
| 10.4 |
| — |
|
| — |
| 10.4 |
|
Operating (loss) income |
| (4.2 | ) | 5.1 |
| |||||
Operating income (loss) |
| 7.2 |
| (4.2) |
| |||||
Interest income |
| 0.0 |
| 0.0 |
|
| 0.0 |
| 0.0 |
|
Interest expense |
| (3.1 | ) | (2.8 | ) |
| (3.0) |
| (3.1) |
|
(Loss) earnings before income taxes |
| (7.3 | ) | 2.3 |
| |||||
(Benefit) provision for income taxes |
| (4.1 | ) | 1.5 |
| |||||
Net (loss) earnings including non-controlling interest |
| (3.1 | ) | 0.8 |
| |||||
Net earnings attributable to non-controlling interest |
| — |
| 0.0 |
| |||||
Net (loss) earnings attributable to common shareholders |
| (3.1 | )% | 0.8 | % | |||||
Gain on extinguishment of debt, net |
| 0.2 |
| — |
| |||||
Earnings (loss) before income taxes |
| 4.4 |
| (7.3) |
| |||||
Provision (benefit) for income taxes |
| 1.1 |
| (4.1) |
| |||||
Net earnings (loss) |
| 3.4 | % | (3.1) | % |
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
(2) | Calculated as a percentage of related sales. |
32
(1)Percentage line items may not sum to totals due to the effectTable of rounding.Contents
(2)Calculated as a percentage of related sales.
Net Sales
Total net sales decreased $25.2$18.5 million, or 2.8%2.1%, to $865.4$846.9 million for the third quarter of 20152016 as compared to the third quarter of 2014.2015.
Total retail sales decreased $17.8$37.7 million, or 2.2%4.7%, to $801.4$763.7 million for the third quarter of 20152016 as compared to the third quarter of 20142015 primarily due to a $40.8 million decrease in clothing product salesrevenues primarily at our Jos. A. Bank brand and unfavorable currency fluctuations at our Canadian operations,a $3.2 million decrease in alteration and other services revenues, partially offset by increased sales at Men’s Wearhouse.a $6.3 million increase in rental service revenues. The net decrease is attributable to the following:
|
| |||
|
|
|
|
|
( |
|
| ||
$ | 0.5 | 0.1% increase in comparable sales at Men's Wearhouse. | ||
(16.6) | 9.8% decrease in comparable sales at Jos. A. Bank. | |||
| ||||
|
|
| ||
| ||||
|
|
| ||
(15.2) |
| Decrease in non-comparable sales (primarily due to closed stores). | ||
| 0.3 |
| Increase | |
|
| |||
|
|
| ||
|
|
| ||
| ||||
|
|
| Other (primarily decrease in alteration revenues). | |
$ |
|
| Decrease in total retail sales. |
(1) | Comparable sales percentages for Moores are calculated using Canadian dollars. |
(1)Comparable sales percentages for Moores are calculated using Canadian dollars.
Comparable sales exclude the net sales of a store for any month of one period if the store was not owned or open throughout the same month of the prior period and include e-commerce net sales. We operate our business using an omnichannel approach and do not differentiate e-commerce sales from our other channels.
The slight increase at Men’s Wearhouse resulted primarily from increasedhigher rental services revenue while comparable sales for clothing decreased primarily due to decreases in average transactions per store that more than offset decreasedand units sold per transaction whilepartially offset by increased average unit retails (net selling prices) were flat.. The decrease at Jos. A. Bank resulted primarily from decreased average transactions per store and decreased average unit retails partially offset by increasedhigher units sold per transaction.transaction and higher rental services revenue. The increasedecrease at K&G resulted from increasedlower average transactions per store andpartially offset by an increase in average unit retails whileand units sold per transaction were flat.transaction. The decrease at Moores resulted from decreased average transactions per store partially offset by increased average unit retails with units sold per transaction and average unit retails, driven by macroeconomic conditions in Canada.essentially flat. At Men’s Wearhouse, rental service comparable sales increased 0.7%4.9% due to an increase in rental rates partially offset by a decrease in unit rentals.
Total corporate apparel clothing product sales decreased $7.4increased $19.2 million for the third quarter of 20152016 as compared to the third quarter of 2014. UK corporate apparel sales decreased $6.3 million2015 primarily due mainly to the impact of a large new uniform program. The rollout of the new uniform program commenced in June 2016, was completed during the third quarter of 2016 and has now transitioned to a standard replenishment phase. The increase in corporate apparel sales was partially offset by the impact of a weaker British pound Sterling this year compared to last year as well as lower sales from existing customer programs. U.S. corporate apparel sales decreased $1.1 million primarily due to lower sales from existing customer programs.year.
Gross Margin
Buying and distribution costs are included in determining our retail and corporate apparel clothing product gross margins. Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of goods sold while others, like us, include all or a portion of such costs in cost of goods sold and exclude them from SG&A expenses. Distribution costs are not included in determining our rental services gross margin but are included in SG&A expenses.
Our total gross margin increased $3.8$4.2 million, or 1.0%1.1%, to $373.0$377.2 million in the third quarter of 20152016 as compared to the third quarter of 2014. During the third quarter of 2014, $11.8 million of an inventory valuation step up for Jos. A. Bank and a $10.6 million charge to rationalize our rental inventory to allow for more productive rental styles were recognized and negatively impacted last year’s gross margin results.
2015. Total retail segment gross margin increased $7.9decreased $4.4 million, or 2.3%1.2%, from the same prior year quarter to $354.7$350.3 million in the third quarter of 2015. As2016 primarily due to lower sales at Jos. A. Bank.
For the retail segment, total gross margin as a percentage of related sales retail segment gross margin increased from 42.3% in the third quarter of 2014 to 44.3% in the third quarter of 2015 driven primarily by an increaseto 45.9% in the rental services gross margin rate as last year’s rate was impacted by the $10.6 million charge to rationalize our rental inventory as well as a higher retail clothing product gross margin rate, which was impacted last year by the inventory step up at Jos. A. Bank. However, during the third quarter of 2015, retail segment2016 as a result of anniversarying lower gross margin was negatively impacted bymargins in last year’s third quarter, resulting from the clearance of merchandise through ourthe e-commerce channel, primarily at our Men’s Wearhouse.Wearhouse brand.
33
Occupancy costs increased $0.3decreased $5.7 million while occupancyprimarily 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, increased from 14.0% towas essentially flat at 14.3% for both the third quarterquarters of 2015 compared to the third quarter of 2014, primarily due to deleverage resulting from lower retail sales.2016 and 2015.
Corporate apparel gross margin decreased $4.1increased $8.6 million, or 18.4%47.2%, in the third quarter of 2015 primarily due to unfavorable currency impacts at our UK operations and changes in the sales mix.2016. For the corporate apparel segment, total gross margin as a percentage of related sales decreasedincreased from 31.3% in the third quarter of 2014 to 28.5% in the third quarter of 2015 to 32.3% in the third quarter of 2016 primarily due to unfavorable currency impacts at our UK operations.the impact of a large new uniform program.
Advertising Expense
Advertising expense increaseddecreased to $45.7 million in the third quarter of 2016 from $48.0 million in the third quarter of 2015, from $42.1 million in the third quartera decrease of 2014, an increase of $5.9$2.3 million, or 14.1%4.9%. The increase was primarily due to a shift in timing of marketing initiatives. As a percentage of total net sales, advertising expense increaseddecreased from 4.7% in the third quarter of 2014 to 5.5% in the third quarter of 2015.2015 to 5.4% in the third quarter of 2016.
Selling, General and Administrative Expenses
SG&A expenses decreased to $270.5 million in the third quarter of 2016 from $271.3 million in the third quarter of 2015, from $282.0 million in the third quarter of 2014, a decrease of $10.7$0.8 million, or 3.8%0.3%. As a percentage of total net sales, these expenses decreasedincreased from 31.7% in the third quarter of 2014 to 31.3% in the third quarter of 2015.2015 to 31.9% in the third quarter of 2016 primarily reflecting deleveraging from lower sales. The components of this 0.4%0.6% net decreaseincrease in SG&A expenses as a percentage of total net sales and the related absolute dollar changes were as follows:
% |
| in millions |
| Attributed to |
| |
(1.4 | ) | $ | (12.2 | ) | Decrease in acquisition, integration and other items as a percentage of sales from 1.9% in the third quarter of 2014 to 0.5% in the third quarter of 2015. For the third quarter of 2015 these costs totaled $4.8 million, related primarily to Jos. A. Bank integration and other costs, asset impairment charges, partially offset by a gain on the sale of property. For the third quarter of 2014, these costs totaled $17.0 million, related primarily to Jos. A. Bank acquisition and integration costs. |
|
0.7 |
| 3.3 |
| Increase in store salaries as a percentage of sales from 11.9% in the third quarter of 2014 to 12.6% in the third quarter of 2015 primarily due to deleverage resulting from lower retail sales. Store salaries on an absolute dollar basis increased $3.3 million primarily due to higher commissions at Men’s Wearhouse resulting from higher net sales. |
| |
0.3 |
| (1.8 | ) | Increase in other SG&A expenses as a percentage of sales from 17.5% in the third quarter of 2014 to 17.8% in the third quarter of 2015. On an absolute dollar basis, other SG&A expenses decreased $1.8 million primarily due to decreases in non-store payroll costs, including incentive compensation, partially offset by higher benefit costs. |
| |
(0.4 | )% | $ | (10.7 | ) | Total |
|
|
|
|
|
|
|
% |
| in millions |
| Attributed to | |
1.0 |
| $ | 8.0 |
| Increase in restructuring, integration and other items as a percentage of sales from 0.6% in the third quarter of 2015 to 1.6% in the third quarter of 2016. For the third quarter of 2016, these costs totaled $13.3 million, related primarily to restructuring and other costs. For the third quarter of 2015, these costs totaled $5.3 million related primarily to Jos. A. Bank integration and other costs and asset impairment charges, partially offset by a gain on the sale of property. |
0.1 |
|
| (2.0) |
| Increase in other SG&A expenses as a percentage of sales from 17.7% in the third quarter of 2015 to 17.8% in the third quarter of 2016 primarily due to deleverage in net sales. Other SG&A expenses decreased $2.0 million primarily due to cost reduction initiatives and a decrease in amortization of intangible assets as a result of the impairment charges recorded in the fourth quarter of 2015 partially offset by higher incentive compensation accruals. |
(0.5) |
|
| (6.8) |
| Store salaries decreased $6.8 million and decreased as a percentage of sales from 13.1% in the third quarter of 2015 to 12.6% in the third quarter of 2016 primarily due to cost reduction initiatives. |
0.6 |
| $ | (0.8) |
| Total |
In the retail segment, SG&A expenses as a percentage of related net sales decreasedincreased from 32.4%27.0% in the third quarter of 20142015 to 32.0%27.2% in the third quarter of 2015. On an absolute dollar basis,2016 primarily due to deleveraging resulting from lower retail sales. Retail segment SG&A expenses decreased $9.3$9.2 million primarily due to decreases in acquisition, integration and other items compared to the third quarter of 2014.cost reduction initiatives.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales increaseddecreased from 23.2%23.6% in the third quarter of 20142015 to 23.7%19.4% in the third quarter of 2015. On an absolute dollar basis, corporate2016 primarily due to leverage from higher sales. Corporate apparel segment SG&A expenses decreased $1.4increased $1.0 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 4.6% in the third quarter of 2015 to 5.5% in the third quarter of 2016. Shared service SG&A expenses increased $7.4 million primarily due to higher incentive compensation accruals and costs associated with our profit improvement program.
Tradename Impairment Charge
During the third quarter of 2015, we concluded that a triggering event occurred that required an interim impairment test for the Jos. A. Bank tradename. Based on our analysis, we concluded that the Jos. A. Bank tradename was impaired and recorded a non-cash, pre-tax impairment charge of $90.1 million. Refer to Note 12
34
Provision for Income Tax
Our effective income tax rate decreased from 65.3%increased to 24.1% for the third quarter of 2014 to 56.8%2016 from a benefit of (56.8)% for the third quarter of 2015 primarily due toas a decrease in permanent items, consistingresult of non-deductible transaction costs related to the Jos. A. Bank acquisition in 2014 and the Jos. A. Bank tradename impairment charge of $90.1 million in 2015, resultinglast year’s third quarter, which generated a book loss in our U.S. entities and significantly impacted our effective tax rate. In addition, the effective tax rate being a benefit for the third quarter of 2015. Furthermore, the2016 is impacted by lower U.S. income as compared to income earned in foreign jurisdictions in which we operate had profitability which require us to provide for income tax, specifically, our operations in Canada and the United Kingdom. jurisdictions.
For the third quarter of 20152016 and 2014,2015, the statutory tax rates in Canada and the United KingdomUK were approximately 26% and 20%, respectively, which favorably impacted our effective tax rate.respectively. For the third quarter of 20152016 and 2014,2015, tax expense for our operations in foreign jurisdictions totaled $2.8$2.7 million and $3.7$2.8 million, respectively.
Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings and changes in tax laws. Currently, we expect our effective tax rate in future periods to be lower than the statutory U.S. combined federal and state tax rate based on the expected geographic mix of earnings. In addition, if there are additional impairment charges and/or our financial results in the fourth quarter of 2015 cause us to be infiscal 2016 generate a cumulative 3-year loss position,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 Loss Attributable Lastly, we are currently undergoing several federal, foreign and state audits which we are vigorously defending and currently do not believe should result in any material change to Common Shareholderstax expense.
Net Earnings (Loss)
Net earnings were $28.4 million for the third quarter of 2016 compared with a net loss attributable to common shareholders wasof $27.2 million for the third quarter of 2015 compared with net earnings2015.
35
For the third quarter of 2014.
ForNine Months Ended October 29, 2016 Compared to the Nine Months Ended October 31, 2015 Compared to the Nine Months Ended November 1, 2014
The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:
|
|
|
|
|
| |||||
|
| For the Nine Months |
|
| For the Nine Months Ended(1) |
| ||||
|
| October 31, |
| November 1, |
|
| October 29, |
| October 31, |
|
|
| 2015 |
| 2014 |
|
| 2016 |
| 2015 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 72.3 | % | 68.8 | % |
| 69.9 | % | 72.3 | % |
Rental services |
| 14.7 |
| 17.0 |
|
| 15.6 |
| 14.7 |
|
Alteration and other services |
| 6.0 |
| 5.8 |
|
| 5.8 |
| 6.0 |
|
Total retail sales |
| 93.0 |
| 91.6 |
|
| 91.3 |
| 93.0 |
|
Corporate apparel clothing product |
| 7.0 |
| 8.4 |
|
| 8.7 |
| 7.0 |
|
Total net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
Cost of sales (4): |
|
|
|
|
| |||||
Cost of sales(2): |
|
|
|
|
| |||||
Retail clothing product |
| 44.0 |
| 45.2 |
|
| 44.1 |
| 44.0 |
|
Rental services |
| 16.0 |
| 19.0 |
|
| 16.3 |
| 16.0 |
|
Alteration and other services |
| 68.4 |
| 72.1 |
|
| 69.4 |
| 68.4 |
|
Occupancy costs |
| 13.8 |
| 13.3 |
|
| 13.9 |
| 13.8 |
|
Total retail cost of sales |
| 54.9 |
| 55.3 |
|
| 54.8 |
| 54.9 |
|
Corporate apparel clothing product |
| 71.1 |
| 69.5 |
|
| 67.5 |
| 71.1 |
|
Total cost of sales |
| 56.1 |
| 56.6 |
|
| 55.9 |
| 56.1 |
|
Gross margin (4): |
|
|
|
|
| |||||
Gross margin(2): |
|
|
|
|
| |||||
Retail clothing product |
| 56.0 |
| 54.8 |
|
| 55.9 |
| 56.0 |
|
Rental services |
| 84.0 |
| 81.0 |
|
| 83.7 |
| 84.0 |
|
Alteration and other services |
| 31.6 |
| 27.9 |
|
| 30.6 |
| 31.6 |
|
Occupancy costs |
| (13.8 | ) | (13.3 | ) |
| (13.9) |
| (13.8) |
|
Total retail gross margin |
| 45.1 |
| 44.7 |
|
| 45.2 |
| 45.1 |
|
Corporate apparel clothing product |
| 28.9 |
| 30.5 |
|
| 32.5 |
| 28.9 |
|
Total gross margin |
| 43.9 |
| 43.6 |
|
| 44.1 |
| 43.9 |
|
Advertising expense |
| 5.4 |
| 4.7 |
|
| 5.4 |
| 5.4 |
|
Selling, general and administrative expenses |
| 30.8 |
| 33.9 |
|
| 32.8 |
| 30.8 |
|
Tradename impairment charge |
| 3.4 |
| — |
|
| — |
| 3.4 |
|
Operating income |
| 4.4 |
| 5.0 |
|
| 5.9 |
| 4.4 |
|
Interest income |
| 0.0 |
| 0.0 |
|
| 0.0 |
| 0.0 |
|
Interest expense |
| (3.0 | ) | (1.7 | ) |
| (3.0) |
| (3.0) |
|
Loss on extinguishment of debt |
| (0.5 | ) | (0.1 | ) | |||||
Gain (loss) on extinguishment of debt, net |
| 0.1 |
| (0.5) |
| |||||
Earnings before income taxes |
| 0.9 |
| 3.2 |
|
| 2.9 |
| 0.9 |
|
(Benefit) provision for income taxes |
| (0.2 | ) | 1.6 |
| |||||
Net earnings including non-controlling interest |
| 1.2 |
| 1.5 |
| |||||
Net earnings attributable to non-controlling interest |
| — |
| 0.0 |
| |||||
Net earnings attributable to common shareholders |
| 1.2 | % | 1.5 | % | |||||
Provision for income taxes |
| 0.8 |
| (0.2) |
| |||||
Net earnings |
| 2.1 | % | 1.2 | % |
(1) | Percentage line items may not sum to totals due to the effect of rounding. |
(2) | Calculated as a percentage of related sales. |
36
(3)Percentage line items may not sum to totals due to the effectTable of rounding.Contents
(4)Calculated as a percentage of related sales.
Net Sales
Total net sales increased $346.4decreased $85.2 million, or 14.9%3.2%, to $2,670.6$2,585.4 million for the first nine months of 20152016 as compared to the first nine months of 2014.2015.
Total retail sales increased $355.3decreased $124.5 million, or 16.7%5.0%, to $2,484.6$2,360.1 million for the first nine months of 20152016 as compared to the first nine months of 20142015 primarily due mainly to $289.7a $125.3 million of incremental sales fromdecrease in clothing product revenues primarily at our Jos. A. Bank in the first nine months of 2015brand and increasesa $10.1 million decrease in clothing product and alteration and other services revenues, from our other brands, partially offset by unfavorable currency fluctuations at our Canadian operations and a decrease$10.9 million increase in rental services revenue of $9.7 million.service revenues. The net increasedecrease is attributable to the following:
(in millions) | Amount Attributed to | |||
$ |
|
|
| |
|
| |||
| (77.9) |
|
| |
(3.6) | 1.5% decrease in comparable sales at K&G. | |||
| (2.9) |
|
| |
| (20.5) |
|
| |
| (4.8) |
|
| |
|
|
| ||
|
| Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate. | ||
| (13.1) |
| Other | |
$ |
|
|
|
| (1) | Comparable sales percentages for Moores are calculated using Canadian dollars. |
Comparable sales for Men’s Wearhouse, K&G and Moores exclude the net sales of a store for any month of one period if the store was not owned or open throughout the same month of the prior period and include e-commerce net sales. We operate our business using an omnichannel approach and do not differentiate e-commerce sales from our other channels.
The increaseslight decrease at Men’s Wearhouse resulted primarily from increased average unit retails and average transactions per store that more than offset a decrease in units sold per transaction. The increase at K&G resulted from increasesdecreases in average transactions per store and average unit retails while units sold per transaction were flat.partially offset by increased average unit retails and higher rental services revenue. The decrease at Jos. A. Bank resulted primarily from decreased average transactions per store partially offset by higher units per transaction, increased average unit retails and higher rental services revenue. The decrease at K&G resulted from lower average transactions per store partially offset by an increase in average unit retails and higher units per transaction. The decrease at Moores resulted from decreases indecreased average transactions per store and units sold per transaction partially offset by increased average unit retails. At Men’s Wearhouse, rental service comparable sales decreased 1.4%increased 2.2% due to an increase in rental rates partially offset by a decrease in unit rentals partially offset by an increase in rental rates.
Comparable sales for Jos. A. Bank decreased by 8.6%, and are calculated in the same manner as our other brands except that it is based on Jos. A. Bank’s entire first nine months of 2014, a portion of which was prior to the acquisition on June 18, 2014.rentals.
Total corporate apparel clothing product sales decreased $8.9increased $39.3 million for the first nine months of 20152016 as compared to the first nine months of 2014. UK corporate apparel sales decreased $8.3 million2015 primarily due to the impact of a large new uniform program. The rollout of the new uniform program commenced in June 2016, was completed during the third quarter of 2016 and has now transitioned to a standard replenishment phase. The increase in corporate apparel sales was partially offset by the impact of a weaker British pound Sterling this year compared to last year. U.S. corporate apparel sales decreased $0.6 million primarily due to lower sales from existing customer programs.
Gross Margin
Buying and distribution costs are included in determining our retail and corporate apparel clothing product gross margins. Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of goods sold while others, like us, include all or a portion of such costs in cost of goods sold and exclude them from SG&A expenses. Distribution costs are not included in determining our rental services gross margin but are included in SG&A expenses.
Our total gross margin increased $162.1decreased $33.9 million, or 16.0%2.9%, to $1,173.2$1,139.4 million in the first nine months of 20152016 as compared to the first nine months of 2014. During the first nine months of 2015 and 2014, $0.8 million and $17.6 million, respectively, of inventory valuation step up related to Jos. A. Bank were recognized and negatively impacted gross margin results. In addition, during the nine months of 2014, gross margin was impacted by a $10.6 million charge to rationalize our rental inventory to allow for more productive rental styles.
2015. Total retail segment gross margin increased $167.8decreased $53.2 million, or 17.6%4.8%, from the same prior year nine months to $1,119.4$1,066.2 million in the first nine months of 2015. The dollar increase in gross margin was2016 primarily driven by an increase of $135.7 million in gross margin generated bydue to lower sales at Jos. A. Bank.
For the retail segment, total gross margin as a percentage of related sales increased from 44.7% in the first nine months of 2014 to 45.1% in the first nine months of 2015 driven primarily by an increaseto 45.2% in the rental servicesfirst nine months of 2016 as a result of anniversarying lower gross margin rate asmargins in last year’s rate was impactedthird quarter, resulting from the clearance of merchandise through the e-commerce channel, primarily at our Men’s Wearhouse brand partially offset by the $10.6 million charge to rationalize our rental inventory as well as a higher retail clothing product gross margin rate, which was also impacted last year byimpact of the inventory step up at Jos. A. Bank.closing of the factory/outlet stores during the second quarter of 2016.
37
Occupancy costs increased $59.4decreased $14.3 million primarily due to incremental Jos. A. Bank occupancy costs.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, increased from 13.3%13.8% to 13.8%13.9% for the first nine months of 20152016 compared to the first nine months of 2014,2015, primarily due to the impactdeleveraging of Jos A. Bank’s occupancy costs which are higher as a percentage offrom lower sales than our other brands.at Jos. A. Bank.
Corporate apparel gross margin decreased $5.7increased $19.3 million, or 9.6%36.0%, in the first nine months of 2015.2016. For the corporate apparel segment, total gross margin as a percentage of related sales decreasedincreased from 30.5% in the first nine months of 2014 to 28.9% in the first nine months of 2015 primarilyto 32.5% in the first nine months of 2016 due to changes in the sales miximpact of a large new uniform program as well as unfavorablepre-tax gains on foreign currency impacts at our UK operations.hedging transactions.
Advertising Expense
Advertising expense increaseddecreased to $138.5 million in the first nine months of 2016 from $143.6 million in the first nine months of 2015, from $109.1 million in the first nine monthsa decrease of 2014, an increase of $34.6$5.1 million, or 31.7%3.5%. The increase was primarily due to Jos. A. Bank advertising costs as well as increased advertising expense to support branding initiatives. As a percentage of total net sales, advertising expense increased from 4.7%was 5.4% in the first nine months of 20142016 which was flat compared to 5.4% in the first nine months of 2015.
Selling, General and Administrative Expenses
SG&A expenses increased to $849.1 million in the first nine months of 2016 from $822.5 million in the first nine months of 2015, from $786.9 million in the first nine months of 2014, an increase of $35.6$26.6 million or 4.5%3.2%. As a percentage of total net sales, these expenses decreasedincreased from 33.9% in the first nine months of 2014 to 30.8% in the first nine months of 2015.2015 to 32.8% in the first nine months of 2016. The components of this 3.1% net decrease2.0% increase in SG&A expenses as a percentage of total net sales and the related absolute dollar changes were as follows:
% |
| in millions |
| Attributed to |
| |
(3.0 | ) | $ | (66.9 | ) | Decrease in acquisition, integration and other items as a percentage of sales from 3.7% in the first nine months of 2014 to 0.7% in the first nine months of 2015. For the first nine months of 2015, these costs totaled $19.5 million related primarily to separation costs with a former executive, integration and other costs related to Jos. A. Bank and asset impairment charges, partially offset by a gain on the sale of property. For the first nine months of 2014, these costs totaled $86.4 million, related primarily to Jos. A. Bank acquisition and integration costs and other cost reduction initiatives. |
|
0.5 |
| 53.9 |
| Increase in store salaries as a percentage of sales from 12.0% in the first nine months of 2014 to 12.5% in the first nine months of 2015. Store salaries on an absolute dollar basis increased $53.9 million primarily due to the impact of Jos. A. Bank store salaries and higher commissions at Men’s Wearhouse resulting from higher net sales. |
| |
0.1 |
| 4.0 |
| Increase in amortization of intangible assets as a percentage of sales from 0.3% in the first nine months of 2014 to 0.4% in the first nine months of 2015. Amortization of intangible assets on an absolute dollar basis increased $4.0 million primarily due to intangible assets recorded in connection with the Jos. A. Bank acquisition. |
| |
(0.7 | ) | 44.6 |
| Decrease in other SG&A expenses as a percentage of sales from 17.8% in the first nine months of 2014 to 17.1% in the first nine months of 2015. On an absolute dollar basis, other SG&A expenses increased $44.6 million primarily due to the inclusion of Jos. A. Bank’s other SG&A expenses. |
| |
(3.1 | )% | $ | 35.6 |
| Total |
|
|
|
|
|
|
|
% |
| in millions |
| Attributed to | |
2.0 |
| $ | 50.5 |
| Increase in restructuring, integration and other items as a percentage of sales from 0.7% in the first nine months of 2015 to 2.7% in the first nine months of 2016. For the first nine months of 2016, these costs totaled $69.9 million, related primarily to restructuring and other costs. For the first nine months of 2015, these costs totaled $19.4 million related primarily to separation costs with a former executive and integration and other costs related to Jos. A. Bank and asset impairment charges, partially offset by a gain on the sale of property. |
(0.2) |
|
| (17.2) |
| Decrease in other SG&A expenses as a percentage of sales from 17.5% in the first nine months of 2015 to 17.3% in the first nine months of 2016. Other SG&A expenses decreased $17.2 million primarily due to cost reduction initiatives and a decrease in amortization of intangible assets as a result of the impairment charges recorded in the fourth quarter of 2015. |
0.2 |
|
| (6.7) |
| Store salaries decreased $6.7 million primarily due to cost reduction initiatives yet increased as a percentage of sales from 12.6% in the first nine months of 2015 to 12.8% in the first nine months of 2016 primarily due to deleverage resulting from lower retail sales. |
2.0 |
| $ | 26.6 |
| Total |
In the retail segment, SG&A expenses as a percentage of related net sales decreasedincreased from 34.7%26.3% in the first nine months of 20142015 to 31.3%27.6% in the first nine months of 2015. On an absolute dollar basis,2016 primarily due to deleverage resulting from lower retail sales. Retail segment SG&A expenses increased $38.5decreased $3.8 million primarily due to operating expenses for Jos. A. Bank,cost reduction initiatives partially offset by a decrease in acquisition, integration and other items compared to the first nine months of 2014.lease termination costs.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased from 25.1%24.6% in the first nine months of 20142015 to 24.7%21.1% in the first nine months of 2015. On an absolute dollar basis, corporate2016 primarily due to leverage from higher sales. Corporate apparel segment SG&A expenses decreased $2.9increased $1.6 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 4.6% in the first nine months of 2015 to 5.9% in the first nine months of 2016. Shared service SG&A expenses increased $28.8 million mainlyprimarily due to the impact of a weaker pound Sterling.costs associated with our profit improvement program.
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Tradename Impairment Charge
During the first nine months of 2015, we concluded that a triggering event occurred that required an interim impairment test for the Jos. A. Bank tradename. Based on our analysis, we concluded that the Jos. A. Bank tradename was impaired and recorded a non-cash, pre-tax impairment charge of $90.1 million. Refer to Note 12 of Notes to Condensed Consolidated Financial Statements and as previously discussed in MD&A on page 27 for additional information.
Interest Expense
Interest expense increased to $79.5 million in the first nine months of 2015 from $39.5 million in the first nine months of 2014, an increase of $40.0 million, or 101.4%, due to incremental interest incurred on borrowings entered into in connection with the Jos. A. Bank acquisition.
Loss on Extinguishment of Debt
During the first nine months of 2015, we recorded a loss on extinguishment of debt totaling $12.7 million consisting of the elimination of unamortized deferred financing costs and original issue discount related to the Term Loan compared with a loss on extinguishment of debt totaling $2.2 million recorded in the first nine months of 2014.
Provision for Income Tax
Our effective income tax rate decreased from 51.5%increased to 27.3% for the first nine months of 2014 to2016 from a benefit of (24.0)% for the first nine months of 2015 primarily due to the impact of the aforementioned Jos. A. Bank tradename impairment charge, in 2015, which generated a book lossresulted in our U.S. entities and caused our effective tax rate being a benefit for the first nine months of 2015. In addition, the effective tax rate for the first nine months of 2016 is impacted due to be lower than the statutory U.S. combined federal and state tax rate. Furthermore, theincome as compared to income earned in foreign jurisdictions in which we operate had profitability which require us to provide for income tax, specifically, our operations in Canada and the United Kingdom. jurisdictions.
For the first nine months of 20152016 and 2014,2015, the statutory tax rates in Canada and the United KingdomUK were approximately 26% and 20%, respectively, which favorably impacted our effective tax rate.respectively. For the first nine months of 20152016 and 2014,2015, tax expense for our operations in foreign jurisdictions totaled $8.1$9.3 million and $9.8$8.1 million, respectively.
Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings and changes in tax laws. Currently, we expect our effective tax rate in future periods to be lower than the statutory United StatesU.S. combined federal and state tax rate based on the expected geographic mix of earnings. In addition, if there are additional impairment charges and/or our financial results in the fourth quarter of 2015 cause us to be infiscal 2016 generate a cumulative 3-year loss position,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 which we are vigorously defending and currently do not believe should result in any material change to tax expense.
Net Earnings Attributable to Common Shareholders
Net earnings attributable to common shareholders were $55.0 million for the first nine months of 2016 compared with net earnings of $31.0 million for the first nine months of 2015 compared with net earnings of $35.5 million for the first nine months of 2014.2015.
Liquidity and Capital Resources
At October 29, 2016, October 31, 2015 November 1, 2014 and January 31, 2015,30, 2016, cash and cash equivalents totaled $34.9 million, $53.7 million $64.7 million and $62.3$30.0 million, respectively, and working capital totaled $726.2 million, $829.1 million $766.7 million and $752.3$723.6 million, respectively. Our primary sources of working capital are cash flows from operations and available borrowings under our financing arrangements, as described below.
On June 18, 2014, weThe Men’s Wearhouse, Inc. entered into a term loan credit agreement that provides for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”) and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”, and together with the Term Loan, the “Credit Facilities”) with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. In addition, on June 18, 2014, weThe Men’s Wearhouse, Inc. issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).
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, as well as a restriction on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Since entering into these financing arrangements and as of October 31, 2015,29, 2016, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make acquisitions and incur additional indebtedness.
The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature on June 18, 2021. The interest rate on the Term Loan is based on 3-month LIBOR, which was approximately 0.33%0.89% at October 31, 2015.29, 2016. However, the Term Loan interest rate is subject to a LIBOR floor of 1% per annum, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.50%. In January 2015, we entered into an interest rate swap agreement to swap variable-rate interest payments for fixed-rate interest payments on a notional amount of $520.0 million, effective in February 2015. The interest rate swap agreement matures in August 2018 and has
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periodic interest settlements. Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and pay a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount.At October 29, 2016, the notional amount totaled $390.0 million.
OnIn April 7, 2015, weThe Men’s Wearhouse, Inc. entered into Incremental Facility Agreement No. 1 (the “Incremental Agreement”) resulting in a refinancing of $400.0 million aggregate principal amount of our 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 of June 18, 2021, or collateral and guarantees under the existing Term Loan.
As a result of the interest rate swap and the Incremental Agreement, we have converted a majority of the variable interest rate under the Term Loan to a fixed rate and, as of October 31, 2015,29, 2016, the Term Loan had a weighted average interest rate of 4.92%4.89%.
The ABL Facility provides for a senior secured asset-based revolving credit facility of $500.0 million, with possible future increases to $650.0 million with an expansion feature, which matures on June 18, 2019, and is guaranteed, jointly and severally, by 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, (iii) Canadian prime rate or (iv) alternate base rate (equal to the greater of the prime rate, the federal funds effective rate plus 0.5% or adjusted LIBOR for a one-month 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 2.00%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%.
We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims. Except for letters of credit totaling approximately $28.9 million issued and outstanding, no amounts were drawn on the ABL Facility as of October 29, 2016 and we have approximately $427.2 million of borrowing availability under the ABL Facility as of October 29, 2016.
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. 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.
The indenture governing the Senior Notes contains customary non-financial covenants and 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 will mature on July 1, 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. At any time prior to July 1, 2017, we will have the option to redeem some or all of the Senior Notes at a redemption price of 100% of the principal amount of the Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to the date of redemption. We may also redeem up to a maximum of 35% of the original aggregate principal amount of the Senior Notes with the proceeds of certain equity offerings prior to July 1, 2017 at a redemption price of 107% of the principal amount of the Senior Notes plus accrued and unpaid interest, if any. 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.
Cash Flow Activities
We had entered into a registration rights agreement regarding the Senior Notes pursuant to which we agreed, among other things, to use our commercially reasonable efforts to consummate an exchange offer of the Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, on or before July 13, 2015. On June 24, 2015, the exchange offer was completed.
We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims. Except for letters of credit totaling approximately $25.7 million issued and outstanding, no amounts were drawn on the ABL Facility as of October 31, 2015 and we have approximately $436.5 million of borrowing availability under the ABL Facility as of October 31, 2015.
Cash Flow Activities
Operating activities — Net cash provided by operating activities was $112.2$176.9 million and $59.0$112.2 million for the first nine months of 20152016 and 2014,2015, respectively. The $53.2$64.6 million increase was driven by an increasechanges in net earnings adjusted for the non-cash tradename impairment charge,other assets related to income tax refunds and a decrease in inventory purchases driven by the rollout of Joseph Abboud merchandise in the prior year, and changes in credit card receivables.as we normalize inventory levels, particularly at Jos. A. Bank. These favorable impacts were partially offset by fluctuationsan increase in accounts payable, accrued expensesreceivable driven by the rollout of a large new uniform program and the impact of restructuring and other current liabilities, primarily driven by accrued Jos. A. Bank transaction costs in the prior year, as well as, increased purchases of rental product.costs.
Investing activities — Net cash used in investing activities was $83.8$79.9 million and $1,563.6$83.8 million for the first nine months of 2016 and 2015, and 2014, respectively. The $1,479.8 million decrease was driven by last year’s acquisition of Jos. A. Bank partially offset by an increase in capital expenditures for new store openings, remodels and/or relocations and investments related to the integration of Jos. A. Bank.
Financing activities — Net cash used in financing activities was $91.9 million and $37.3 million for the first nine months of 2016 and 2015, compared to net cash provided by financing activitiesrespectively. The $54.6 million increase primarily reflects the impact of $1,511.4a $35.5 million for the first nine months of 2014. The $1,548.7 million change in our financing activities was primarily driven by last year’s proceedsprepayment on our Term Loan and issuancethe repurchase of $25.0 million of our Senior Notes.
Share repurchase program — In March 2013, the The Board of Directors (the “Board”) had previously approved a $200.0 million share repurchase program for our common stock, which amendedstock. During the first nine months of 2016 and replaced our then existing share repurchase program authorized by2015, no shares were repurchased
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in open market transactions under the Board in January 2011.Board’s authorization. At January 31, 2015,October 29, 2016, the remaining balance available under the Board’s March 2013 authorization was $48.0 million. During the first nine months of 2015 and 2014, no shares were repurchased in open market transactions under the Board’s March 2013 authorization.
Dividends — Cash dividends paid were approximately $26.3$26.4 million and $26.1$26.3 million for the first nine months of 20152016 and 2014,2015, respectively. During each of the quarters ended October 29, 2016 and October 31, 2015, and November 1, 2014, we declared quarterly dividends of $0.18 per share.
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, integration costs associated with Jos. A. Bank,related to our store rationalization and profit improvement programs including lease termination payments, dividend payments operating leases and various other commitments and obligations, as they arise.
During the course of the year, we borrowed and repaid amounts under our ABL Facility primarily due to costs incurred under our store rationalization and profit improvement programs. During the nine months ended October 29, 2016, the maximum borrowing outstanding at any point in time was $68.5 million.
Capital expenditures are anticipated to be in the range of $120.0$110.0 to $130.0$120.0 million for 2015.2016. This amount includes the anticipated costs to open approximately 20158 shops within Macy’s stores, 10 to 15 Men’s Wearhouse stores, six to ninethree Jos. A. Bank stores, two Moores stores, and two MooresK&G stores and to expand and/or relocate approximately 125 to 10 existing Men’s Wearhouse stores, two to six existing Jos. A. Bank stores and one existing Moores stores.K&G store. During the first nine months of 2015,2016, we opened 32173 stores/tuxedo shops (12 Men’s Wearhouse stores, 12(158 tuxedo shops within Macy’s sixstores, nine Men’s Wearhouse stores, three Jos. A. Bank stores, one Joseph Abboud storetwo Moores stores and one MooresK&G store). Capital expenditures for 20152016 will also include integration projects for Jos. A. Bank, point-of-sale and other computer equipment and systems, store remodeling, distribution facilities and investment in other corporate assets. The actual amount of future capital expenditures will depend in part on the number of new stores opened and the terms on which new stores are leased and the timing of our Jos. A. Bank integration projects, as well as on industry trends consistent with our anticipated operating plans.
Additionally, market conditions may produce attractive opportunities for us to make acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. We may use cash on hand, together with cash flow from operations, borrowings under our Credit Facilities and issuances of debt or equity securities, to take advantage of any acquisition opportunities.
Current and future domestic and global economic conditions could negatively affect our future operating results as well as our existing cash and cash equivalents balances. In addition, conditions in the financial markets could limit our access to additionalfurther capital resources, if needed, and could increase associated costs. We believe based on our current business plan that our existing cash and cash flows from operations and availability under our ABL Facility will be sufficient to fund our operating cash requirements, repayment of current indebtedness, costs related to our indebtedness,store rationalization and profit improvement plans including lease termination payments, planned store openings, relocations and remodels and other capital expenditures and integration costs associated with Jos. A. Bank.expenditures.
Contractual Obligations
There have been no material changes to our contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015.30, 2016.
Critical Accounting Policies and Estimates
The preparation of our condensed 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. There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015 except for the update below to regarding goodwill and other indefinite-lived intangible assets.30, 2016.
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Goodwill and Other Indefinite-Lived Intangible Assets
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 used to estimate the fair value of a reporting unit include the timing and estimates of future cash flows of the reporting unit and selection of an appropriate discount rate.
To estimate the future cash flows of a reporting unit, management uses 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 current business operating plans and various growth rates have been assumed for years beyond the current business plan period.
Management uses a weighted-average cost of capital analysis to determine an appropriate discount rate, which is used in the estimate of the fair value of a reporting unit. 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. For the 2014 Valuation, the weighted-average cost of capital used to discount the cash flows for the Jos. A. Bank reporting unit was 11.0%.
For the nine months ended October 31, 2015, Jos. A. Bank experienced a decrease in sales and profitability, which were significantly below our expectations. Also, we expect the comparable sales decrease to accelerate in the fourth quarter of 2015 resulting from both a decline in traffic and a previously expected decline in units per transaction as customers adapt to the shift in promotional strategy. Several factors could impact the estimated fair value of the Jos. A. Bank reporting unit including, but not limited to: (i) additional information obtained from customers’ reaction to the shift in promotional strategy, (ii) modifications to our Jos. A. Bank real estate strategy, (iii) our inability to realize higher gross margins to offset the expected decline in revenues and (iv) an increase in the discount rate. Furthermore, our market capitalization significantly decreased since the 2014 Valuation. Given the relatively small excess of fair value over carrying value as of the 2014 Valuation, if we determine we are not likely to meet our projections of future cash flows or if our market capitalization remains at current levels, among other factors, it is possible our annual impairment test in the fourth quarter of 2015 could result in a material impairment of the Jos. A. Bank goodwill. As of October 31, 2015, goodwill associated with the Jos. A. Bank reporting unit totaled $769.0 million.
As it relates to estimating the fair value of the Jos. A. Bank tradename, management uses a relief from royalty method, which calculates the present value of savings resulting from the right to sell products without having to pay a royalty fee. Critical assumptions that are used in this method include future sales projections, an estimated royalty rate and a discount rate. Although we recorded an impairment charge of $90.1 million on the Jos. A. Bank tradename asset, should the downward revenue trend accelerate during the fourth quarter of 2015 from what we expect or if other valuation inputs such as the royalty rate or discount rate change, it is possible our annual impairment test in the fourth quarter of 2015 could result in an additional impairment charge for the Jos. A. Bank tradename. As of October 31, 2015, after giving effect to the impairment charge, the book value of the Jos. A. Bank tradename was $449.0 million.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Market risks relating to our operations result primarily from changes in foreign currency exchange rates and changes in interest rates.
We are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries. In connection with our direct sourcing programs, we may enter into merchandise purchase commitments that are denominated in a currency different from the functional currency of the operating entity. Our risk management policy is to hedge a portion of forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts. In addition, as a result of recent exchange rate fluctuations in Europe, we have entered into derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro.
As the foreign exchange forward contracts are with financial institutions, we are exposed to credit risk in the event of nonperformance by these parties but due to the creditworthiness of these major financial institutions, full performance is anticipated.
As discussed in Note 4 and Note 1312 of the Notes to the Condensed Consolidated Financial Statements, we have undertaken steps to mitigate our exposure to changes in interest rates on our indebtedness. As of October 31, 2015, 88%29, 2016, 84% of our total debt was at a fixed rate with the remainder at a variable rate. In addition, due to the existence of a LIBOR floor of 1%1.0% per annum on the portion of our debt subject to a variable rate, we believe our interest rate risk is substantially mitigated. At October 31, 2015,29, 2016, the effect of one percentage point change in interest rates would result in an approximate $2.0$2.6 million change in annual interest expense on our Term Loan.
ITEM 4 - 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 to ensure 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 Controls over Financial Reporting
There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal third quarter ended October 31, 201529, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
On June 18, 2014, we acquired Jos. A. Bank. We excluded the operations
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In 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued an updated version of its Internal Control — Integrated Framework, referred to as the 2013 COSO Framework to replace the 1992 Framework. Management’s assessment of the overall effectiveness of our internal controls over financial reporting for the year ending January 30, 2016 will be based on the 2013 COSO Framework and we do not expect the change to materially impact our overall control structure over financial reporting.
For a description of our legal proceedings, see Note 1615 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
For a more detailed explanation of the factors affecting our business, please refer to the Risk Factors section in the Form 10-K for the fiscal year ended January 31, 2015.30, 2016. Except as described in Part 1A of our Quarterly Report on Form 10-Q for the quarterly periodsperiod ended May 2, 2015 and August 1, 2015July 30, 2016 and which areis incorporated herein, there has not been a material change to the risk factors set forth in the Form 10-K for the fiscal year ended January 31, 2015, except for the following risk factor which has been updated as shown below:30, 2016.
We could incur losses due to impairment in the carrying value of our goodwill or indefinite-lived intangible assets.
Under generally accepted accounting principles, we review our goodwill and indefinite-lived intangible assets for impairment at least annually and when circumstances suggest that there may be an impairment. Based on Jos. A. Bank’s results in the third quarter of 2015 as well as the recent significant decline in our market capitalization, we concluded that a triggering event occurred that required an interim impairment test on goodwill and the Jos. A. Bank indefinite-lived tradename asset. Based on our analyses, as of October 31, 2015, we concluded that our goodwill was not impaired, but that the Jos. A. Bank tradename was impaired, resulting in a non-cash impairment charge of $90.1 million. If we determine we are not likely to meet our projections of future cash flows or if our market capitalization remains at current levels, among other factors, it is possible our annual impairment tests in the fourth quarter of 2015 could result in a material impairment of the Jos. A. Bank goodwill and an additional impairment of its tradename. The amount of any impairment could be significant and could have a material adverse effect on our financial position or results of operations.
Exhibits filed with this quarterly report on Form 10-Q are incorporated herein by reference as set forth in the Index to Exhibits on page 44.45.
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SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Dated: December By /s/ JON W. KIMMINS Jon W. Kimmins Executive Vice President, Chief Financial Officer, Treasurer and Principal Financial OfficerThe Men’s Wearhouse,Tailored Brands, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.10, 20158, 2016THE MEN’S WEARHOUSE,TAILORED BRANDS, INC.
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Exhibit | Exhibit Index | |||
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31.1 |
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| Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith). |
31.2 |
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| Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith). |
32.1 |
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| Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith). † |
32.2 |
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| Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith). † |
101.1 |
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| The following financial information from |
†This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section. Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended.