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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

For the quarterly period ended ~~July 29,~~October 28, 2017 or

☐TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-16097

TAILORED BRANDS, INC.

(Exact Name of Registrant as Specified in its Charter)

Texas		47-4908760
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification Number)

6380 Rogerdale Road
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 ☒. No ☐.

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 ☒. No ☐.

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 ☐

Non-accelerated filer ☐	(Do not check if a smaller reporting company)
Smaller reporting company ☐	Emerging Growth Company ☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).Yes ☐. No ☒.

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at ~~August 26,~~November 25, 2017 was ~~49,195,390.~~49,243,027.

Table of Contents

REPORT INDEX


Part and Item No.		Page No.

PART I — Financial Information

Item 1 — Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of ~~July~~October 28, 2017, October 29, ~~2017, July 30,~~ 2016 and January 28, ~~201~~20177		2

Condensed Consolidated Statements of Earnings for the Three and ~~Six~~Nine Months Ended ~~July 29,~~October 28, 2017 and ~~July 30,~~October 29, 2016		3

Condensed Consolidated Statements of Comprehensive Income for the Three and ~~Six~~Nine Months Ended ~~July 29,~~October 28, 2017 and ~~July 30,~~October 29, 2016		4

Condensed Consolidated Statements of Cash Flows for the ~~Six~~Nine Months Ended ~~July 29,~~October 28, 2017 and ~~July 30,~~October 29, 2016		5

Notes to Condensed Consolidated Financial Statements		6

Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations		3031

Item 3 — Quantitative and Qualitative Disclosures about Market Risk		4344

Item 4 — Controls and Procedures		4344

PART II — Other Information		4445

Item 1 — Legal Proceedings		4445

Item 6 — Exhibits		4445

SIGNATURES		4647

Table of Contents

Forward-Looking Statements

Certain information included in this report or in other materials we have filed or will file with the Securities and Exchange Commission ("SEC") (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995), including, but not limited to, statements regarding our future financial performance and financial condition. Words such as "expects," "anticipates," "envisions," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," variations of such words and similar expressions are intended to identify such forward-looking statements. Forward-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, margins, costs, earnings, number and costs of store openings, closings, remodels, relocations and expansions, capital expenditures, potential acquisitions, synergies from acquisitions, business strategies, demand for clothing or rental product, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various political, legal, regulatory, social, economic and business trends. Forward-looking statements are based upon management's current beliefs or expectations and are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies and third party approvals, many of which are beyond our control.

Any forward-looking statements that we make herein and in future reports are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities; domestic and international macro-economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in formulating or executing our internal strategies and operating plans including new store and new market expansion plans, cost reduction initiatives, store rationalization plans, profit improvement plans, and revenue enhancement strategies; the impact of the termination of our tuxedo rental license agreement with Macy's; changes in demand for clothing or rental product; 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. Please also see "Item 1A. Risk Factors" in Part I of our Annual Report on Form 10-K for the year ended January 28, 2017, as the same may be updated from time to time in our subsequent filings with the SEC, for a more complete discussion of these and other factors that might affect our performance and financial results.

Forward-looking statements are intended to convey the Company's expectations about the future, and speak only as of the date they are made. We undertake no obligation to publicly update or revise any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable law. However, any further disclosures made on related subjects in our subsequent reports on Forms ~~10-K, 10-Q~~10‑K, 10‑Q and ~~8-K~~8‑K should be consulted. This discussion is provided as permitted by the Private ~~Securites~~Securities Litigation Reform Act of 1995, and all written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)


	July 29,		July 30,		January 28,		October 28,		October 29,		January 28,
	2017		2016		2017		2017		2016		2017
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	112,741	$	11,430	$	70,889	$	126,244	$	34,948	$	70,889
Accounts receivable, net		71,900		84,348		65,714		81,193		71,898		65,714
Inventories		944,783		1,023,603		955,512		973,001		1,047,915		955,512
Other current assets		55,432		81,113		73,602		53,566		60,190		73,602
Total current assets		1,184,856		1,200,494		1,165,717		1,234,004		1,214,951		1,165,717
PROPERTY AND EQUIPMENT, net		459,530		510,520		484,165		454,921		501,391		484,165
RENTAL PRODUCT, net		139,397		171,469		152,610		125,320		160,101		152,610
GOODWILL		119,880		118,307		117,026		119,125		116,026		117,026
INTANGIBLE ASSETS, net		170,113		174,752		171,659		169,072		172,337		171,659
OTHER ASSETS		5,948		9,012		6,695		8,859		10,323		6,695
TOTAL ASSETS	$	2,079,724	$	2,184,554	$	2,097,872	$	2,111,301	$	2,175,129	$	2,097,872
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	140,156	$	169,820	$	177,380	$	186,862	$	200,199	$	177,380
Accrued expenses and other current liabilities		276,616		295,707		267,899		281,533		280,658		267,899
Income taxes payable		6,310		1,150		1,262		21,224		917		1,262
Current portion of long-term debt		8,750		14,000		13,379		8,750		7,000		13,379
Total current liabilities		431,832		480,677		459,920		498,369		488,774		459,920
LONG-TERM DEBT, net		1,532,255		1,600,402		1,582,150		1,467,735		1,588,873		1,582,150
DEFERRED TAXES, net AND OTHER LIABILITIES		162,313		192,125		163,420		160,197		175,179		163,420
Total liabilities		2,126,400		2,273,204		2,205,490		2,126,301		2,252,826		2,205,490
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Preferred stock		—		—		—		—		—		—
Common stock		491		486		487		492		487		487
Capital in excess of par		478,174		461,143		470,801		485,299		466,817		470,801
Accumulated deficit		(497,160)		(519,068)		(538,823)		(469,463)		(499,663)		(538,823)
Accumulated other comprehensive loss		(28,181)		(31,211)		(40,083)		(31,328)		(45,338)		(40,083)
Total shareholders' deficit		(46,676)		(88,650)		(107,618)		(15,000)		(77,697)		(107,618)
TOTAL LIABILITIES AND SHAREHOLDERS' DEFICIT	$	2,079,724	$	2,184,554	$	2,097,872
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT							$	2,111,301	$	2,175,129	$	2,097,872

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016		October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
Net sales:
Retail clothing product	$	594,994	$	615,946	$	1,178,579	$	1,231,614	$	575,203	$	575,046	$	1,753,782	$	1,806,660
Rental services		151,978		165,009		246,798		264,840		126,410		138,724		373,208		403,564
Alteration and other services		46,026		49,226		92,926		99,969		45,909		49,919		138,835		149,888
Total retail sales		792,998		830,181		1,518,303		1,596,423		747,522		763,689		2,265,825		2,360,112
Corporate apparel clothing product		57,760		79,503		115,361		142,083		63,296		83,245		178,657		225,328
Total net sales		850,758		909,684		1,633,664		1,738,506		810,818		846,934		2,444,482		2,585,440
Cost of sales:
Retail clothing product		248,630		277,882		501,509		548,237		247,293		247,978		748,802		796,215
Rental services		23,957		27,101		40,125		42,985		20,455		22,958		60,580		65,943
Alteration and other services		35,076		34,409		69,548		70,559		34,138		33,526		103,686		104,085
Occupancy costs		103,326		108,615		208,415		218,750		103,579		108,923		311,994		327,673
Total retail cost of sales		410,989		448,007		819,597		880,531		405,465		413,385		1,225,062		1,293,916
Corporate apparel clothing product		43,073		51,373		84,931		95,830		46,596		56,343		131,527		152,173
Total cost of sales		454,062		499,380		904,528		976,361		452,061		469,728		1,356,589		1,446,089
Gross margin:
Retail clothing product		346,364		338,064		677,070		683,377		327,910		327,068		1,004,980		1,010,445
Rental services		128,021		137,908		206,673		221,855		105,955		115,766		312,628		337,621
Alteration and other services		10,950		14,817		23,378		29,410		11,771		16,393		35,149		45,803
Occupancy costs		(103,326)		(108,615)		(208,415)		(218,750)		(103,579)		(108,923)		(311,994)		(327,673)
Total retail gross margin		382,009		382,174		698,706		715,892		342,057		350,304		1,040,763		1,066,196
Corporate apparel clothing product		14,687		28,130		30,430		46,253		16,700		26,902		47,130		73,155
Total gross margin		396,696		410,304		729,136		762,145		358,757		377,206		1,087,893		1,139,351
Advertising expense		39,888		44,963		82,140		92,891		38,664		45,656		120,804		138,547
Selling, general and administrative expenses		248,343		305,709		507,529		578,628		243,466		270,494		750,995		849,122
Operating income		108,465		59,632		139,467		90,626		76,627		61,056		216,094		151,682
Interest income		98		37		165		50		159		52		324		102
Interest expense		(25,167)		(25,876)		(50,788)		(52,377)		(24,412)		(25,476)		(75,200)		(77,853)
Gain (loss) on extinguishment of debt, net		3,281		(71)		3,996		(71)
Gain on extinguishment of debt, net										2,539		1,808		6,535		1,737
Earnings before income taxes		86,677		33,722		92,840		38,228		54,913		37,440		147,753		75,668
Provision for income taxes		28,206		8,747		32,530		11,616		18,021		9,007		50,551		20,623
Net earnings	$	58,471	$	24,975	$	60,310	$	26,612	$	36,892	$	28,433	$	97,202	$	55,045
Net earnings per common share allocated to common shareholders:
Basic	$	1.19	$	0.51	$	1.23	$	0.55	$	0.75	$	0.58	$	1.98	$	1.13
Diluted	$	1.19	$	0.51	$	1.23	$	0.55	$	0.75	$	0.58	$	1.97	$	1.13
Weighted-average common shares outstanding:
Basic		49,107		48,609		48,958		48,527		49,206		48,655		49,040		48,570
Diluted		49,172		48,639		49,162		48,630		49,430		48,812		49,251		48,691
Cash dividends declared per common share	$	0.18	$	0.18	$	0.36	$	0.36	$	0.18	$	0.18	$	0.54	$	0.54

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	July 29,		July 30,		July 29,		July 30,		October 28,		October 29,		October 28,		October 29,
	2017		2016		2017		2016		2017		2016		2017		2016

Net earnings	$	58,471	$	24,975	$	60,310	$	26,612	$	36,892	$	28,433	$	97,202	$	55,045
Currency translation adjustments		14,773		(19,600)		16,114		(3,171)		(5,257)		(15,075)		10,857		(18,246)
Unrealized (loss) gain on cash flow hedges, net of tax		(746)		206		(4,212)		446
Unrealized gain (loss) on cash flow hedges, net of tax										2,110		948		(2,102)		1,394
Comprehensive income	$	72,498	$	5,581	$	72,212	$	23,887	$	33,745	$	14,306	$	105,957	$	38,193

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	For the Six Months Ended				For the Nine Months Ended
	July 29,		July 30,		October 28,		October 29,
	2017		2016		2017		2016
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	60,310	$	26,612	$	97,202	$	55,045
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		53,407		60,275		78,929		87,838
Rental product amortization		21,205		23,176		32,779		35,982
(Gain) loss on extinguishment of debt, net		(3,996)		71
Gain on extinguishment of debt, net						(6,535)		(1,737)
Amortization of deferred financing costs and discount on long-term debt		3,661		3,798		5,391		5,650
Loss on disposition of assets		1,381		49		1,407		616
Asset impairment charges		2,867		3,864		2,867		4,293
Share-based compensation		8,095		8,739		14,850		13,958
Deferred tax (benefit) expense		(242)		1,890
Deferred tax benefit						(243)		(13,233)
Deferred rent expense and other		309		(637)		422		(1,281)
Changes in operating assets and liabilities:
Accounts receivable		(4,832)		(22,955)		(13,192)		(13,273)
Inventories		15,701		(2,223)		(13,569)		(32,833)
Rental product		(8,521)		(35,952)		(6,554)		(37,817)
Other assets		16,112		64,513		16,632		84,844
Accounts payable, accrued expenses and other current liabilities		(28,444)		(29,412)		24,394		(4,314)
Income taxes payable		4,964		1,150		19,870		(2,065)
Other liabilities		(1,448)		(2,654)		(2,112)		(4,789)
Net cash provided by operating activities		140,529		100,304		252,538		176,884
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(33,973)		(55,912)		(55,956)		(80,550)
Acquisition of business, net of cash		(457)		—		(457)		—
Proceeds from sales of property and equipment		2,157		605		2,157		605
Net cash used in investing activities		(32,273)		(55,307)		(54,256)		(79,945)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan		(8,129)		(38,951)		(9,879)		(40,701)
Proceeds from asset-based revolving credit facility		181,550		305,549		235,900		520,550
Payments on asset-based revolving credit facility		(181,550)		(305,549)		(235,900)		(520,550)
Repurchase and retirement of senior notes		(45,167)		(5,546)		(106,731)		(21,924)
Deferred financing costs						(2,464)		—
Cash dividends paid		(18,033)		(17,676)		(26,895)		(26,438)
Proceeds from issuance of common stock		927		932		1,334		1,451
Tax payments related to vested deferred stock units		(1,644)		(1,258)		(1,682)		(1,258)
Net cash used in financing activities		(72,046)		(62,499)		(146,317)		(88,870)
Effect of exchange rate changes		5,642		(1,048)		3,390		(3,101)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		41,852		(18,550)
INCREASE IN CASH AND CASH EQUIVALENTS						55,355		4,968
Balance at beginning of period		70,889		29,980		70,889		29,980
Balance at end of period	$	112,741	$	11,430	$	126,244	$	34,948

See Notes to Condensed Consolidated Financial Statements.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation — The condensed consolidated financial statements herein include the accounts of 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.

Our business results historically have 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 28, 2017.

Unless the context otherwise requires, "Company", "we", "us" and "our" refer to 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 financial position, results of operations, or cash flows, based on current information, except for those listed below.

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases. ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2016-02 is permitted. The guidance is required to be adopted using the modified retrospective approach. We are currently evaluating the impact ASU 2016-02 will have on our financial position, results of operations and cash flows but expect that it will result in a significant increase in our long-term assets and liabilities given we have a ~~significant~~considerable number of operating 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.

Based on our preliminary assessment, we determined that the adoption of ASU 2014-09 will impact the timing of revenue recognition related to our customer loyalty program and gift cards. Upon adoption, for our customer loyalty program, we will no longer use the incremental cost method approach, rather we will use a deferred revenue model. For income from breakage of gift cards, which is currently recognized as a reduction of selling, general and administrative expenses ("SG&A") when the redemption of the gift card is remote, the new guidance requires classification within net sales with breakage recognized proportionately over the expected redemption period. Additionally, under the new guidance, we expect to recognize allowances for estimated sales returns on a gross basis rather than net basis on the condensed consolidated balance sheets. We are ~~continuing ourassessment for~~in the process of finalizing and quantifying the effects of the areas described above including additional disclosure requirements. We will adopt ASU 2014-09 on February 4, 2018, under the modified retrospective approach, which ~~may identify other impacts, and evaluating the transition methods for adoption and additional disclosure requirements.~~will result in a cumulative adjustment to retained earnings.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. Termination of Tuxedo Rental License Agreement with Macy's

During the first quarter of fiscal 2017, we reached an agreement with Macy's to wind down operations under the tuxedo rental license agreement established between Macy's and The Men's Wearhouse, Inc. ("The Men's Wearhouse") in 2015. The winding down of our tuxedo shops within Macy's is complete and all tuxedo shops within Macy's closed in the second quarter of 2017.

As a result of the agreement, during the first quarter of fiscal 2017, we incurred $17.2 million of termination-related costs, of which $14.6 million ~~are~~were cash charges. These costs ~~include~~included $12.3 million related to contract termination, $1.4 million of rental product write-offs, $1.2 million of asset impairment charges and $2.3 million of other costs, all of which relate to our retail segment. Of the $17.2 million in termination-related costs, $15.8 million is recorded in SG&A and $1.4 million is included in cost of sales in the condensed consolidated statement of earnings. At ~~July 29,~~October 28, 2017, ~~$1.7~~$0.4 million of such costs are included in accrued expenses and other current liabilities in the condensed consolidated balance sheet.

3. Restructuring and Other Charges

During the fourth quarter of fiscal 2015, we began implementing initiatives intended to reduce costs and improve operating performance. These initiatives included a store rationalization program as well as a profit improvement program to drive operating efficiencies and improve our expense structure. These programs were substantially completed in fiscal 2016 and resulted in the closure of 75 Jos. A. Bank full line stores, the closure of 56 factory and outlet stores at Jos. A. Bank and Men's Wearhouse and the closure of 102 Men's Wearhouse and Tux stores.

No charges were incurred under these initiatives for the three and nine months ended October 28, 2017. A summary of the charges incurred in the three and nine months ended October 29, 2016 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, 2016		October 29, 2016
Lease termination costs	$	8,667	$	37,004
Store asset impairment charges and accelerated depreciation, net of deferred rent		(844)		2,330
Consulting costs		1,806		13,583
Severance and employee-related costs		481		4,643
Other costs		839		1,565
Total pre-tax restructuring and other charges(1)	$	10,949	$	59,125

(1) Consists of $12.4 million in SG&A offset by a $1.5 million reduction in cost of sales for the three months ended October 29, 2016. Of the total amount recorded for the three months ended October 29, 2016, $9.1 million relates to our retail segment and $1.8 million relates to shared services. 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. Of the total amount recorded for the nine months ended October 29, 2016, $42.7 million relates to our retail segment and $16.4 million relates to shared services.

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(Unaudited)

No charges were incurred under these initiatives for the three and six months ended July 29, 2017. A summary of the charges incurred in the three and six months ended July 30, 2016 incurred under these initiatives since inception is presented in the table below (amounts in thousands):

For the Three Months Ended
For the Six Months Ended

July 30, 2016
July 30, 2016

Lease termination costs

$
26,446
$
28,337

Store asset impairment charges and accelerated depreciation, net of deferred rent

1,164

3,174

Consulting costs

6,825

11,777

Severance and employee-related costs

406

4,162

Other costs

174

726

Total pre-tax restructuring and other charges(1)

$
35,015
$
48,176

~~(1)~~ Consists of $36.4 million in SG&A offset by a $1.4 million reduction in cost of sales for the three months ended July 30, 2016. Of the total amount recorded for the three months ended July 30, 2016, $27.9 million relates to our retail segment and $7.1 million relates to shared services. Consists of $49.4 million included in SG&A offset by a $1.2 million reduction in cost of sales for the six months ended July 30, 2016. Of the total amount recorded for the six months ended July 30, 2016, $33.6 million relates to our retail segment and $14.6 million relates to shared services.

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								Severance and		Lease
	Employee-		Termination		Consulting		Other				Employee-		Termination		Consulting		Other
	Related Costs		Costs		Costs		Costs		Total		Related Costs		Costs		Costs		Costs		Total
Beginning Balance, January 28, 2017	$	986	$	4,834	$	60	$	25	$	5,905	$	986	$	4,834	$	60	$	25	$	5,905
Charges, excluding non-cash items		—		—		—		—		—		—		—		—		—		—
Payments		(504)		(3,434)		(60)		(25)		(4,023)		(504)		(4,377)		(60)		(25)		(4,966)
Ending Balance, July 29, 2017	$	482	$	1,400	$	—	$	—	$	1,882
Ending Balance, October 28, 2017											$	482	$	457	$	—	$	—	$	939

In addition to the restructuring costs described above, for the three months ended ~~July 30,~~October 29, 2016, we incurred integration and other costs related to Jos. A. Bank totaling ~~$2.0~~$1.4 million, of which ~~$1.5~~$0.9 million are included in SG&A and $0.5 million are included in cost of sales in the condensed consolidated statement of earnings.

For the ~~six~~nine months ended ~~July 30,~~October 29, 2016, we incurred integration and other costs related to Jos. A. Bank totaling ~~$5.6~~$7.1 million, of which ~~$4.6~~$5.5 million are included in SG&A and ~~$1.0~~$1.6 million are included in cost of sales in the condensed consolidated statement of earnings.

4. Earnings Per Share

Basic earnings per common share allocated to common shareholders is computed by dividing net earnings by the weighted-average common shares outstanding during the period. Diluted earnings per common share reflect the more dilutive earnings per common share amount calculated using the treasury stock method or the two-class method. For the three and ~~six~~nine months ended ~~July 29,~~October 28, 2017, the treasury stock method is used to calculate diluted earnings per common share while the two-class method was used for the three and ~~six~~nine months ended ~~July 30,~~October 29, 2016.

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(Unaudited)

Basic and diluted earnings per common share allocated to common shareholders are computed using the actual net 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 and the accompanying notes. As a result, it may not be possible to recalculate earnings per common share allocated to common shareholders in our condensed

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

consolidated statement of earnings and the accompanying notes. The following table sets forth the computation of basic and diluted earnings per common share allocated to common shareholders (in thousands, except per share amounts):


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	July 29,		July 30,		July 29,		July 30,		October 28,		October 29,		October 28,		October 29,
	2017		2016		2017		2016		2017		2016		2017		2016
Numerator
Net earnings	$	58,471	$	24,975	$	60,310	$	26,612	$	36,892	$	28,433	$	97,202	$	55,045
Net earnings allocated to participating securities (restricted stock and deferred stock units)		—		(31)		—		(31)		—		(33)		—		(65)
Net earnings allocated to common shareholders	$	58,471	$	24,944	$	60,310	$	26,581	$	36,892	$	28,400	$	97,202	$	54,980
Denominator
Basic weighted-average common shares outstanding		49,107		48,609		48,958		48,527		49,206		48,655		49,040		48,570
Dilutive effect of share-based awards		65		30		204		103		224		157		211		121
Diluted weighted-average common shares outstanding		49,172		48,639		49,162		48,630		49,430		48,812		49,251		48,691
Net earnings per common share allocated to common shareholders:
Basic	$	1.19	$	0.51	$	1.23	$	0.55	$	0.75	$	0.58	$	1.98	$	1.13
Diluted	$	1.19	$	0.51	$	1.23	$	0.55	$	0.75	$	0.58	$	1.97	$	1.13

For the three and ~~six~~nine months ended ~~July 29,~~October 28, 2017, ~~2.5~~2.2 million and ~~2.0~~2.1 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively. For the three and ~~six~~nine months ended ~~July 30,~~October 29, 2016, ~~2.0~~1.9 million and ~~1.6~~1.7 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

5. Debt

In 2014, The Men's Wearhouse 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, in 2014, The Men's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "Senior Notes").

In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. See Credit Facilities section below for additional information.

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agreements, which was anticipated when we entered into these arrangements. As a result, we were subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of ~~July 29,~~October 28, 2017, our total leverage ratio and secured leverage ratio were below the maximums specified in the agreements ~~but~~and we believe these ratios ~~may increase above~~will remain below the maximums specified in the agreements during the remainder of fiscal ~~2017. Currently, we believe our total leverage ratio and secured leverage ratio will remain below the maximums specified in the agreements during fiscal 2018~~2017 and beyond, which will result in the elimination of these additional restrictions. In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $4.6 million to the Term

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Loan lenders prior to April 28, 2017. On May 2, 2017, the entire $4.6 million prepayment was made together with normal principal and interest payments on the Term Loan.

Credit Facilities

The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature in June 2021. The interest rate on the Term Loan is based on 1-month LIBOR, which was ~~approximately 1.23%~~1.24% at ~~July 29,~~October 28, 2017, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of ~~4.73%~~4.74%. In January 2015, we entered into an interest rate swap agreement, in which the variable rate payments due under a portion of the Term Loan were exchanged for a fixed rate. In April 2017, we entered into an additional interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate. At ~~July 29,~~October 28, 2017, the total notional amount under our interest rate swaps is ~~$540.0~~$490.0 million. See Note 14 for additional information on our interest rate swaps.

In 2015, The Men's Wearhouse entered into Incremental Facility Agreement No. 1 (the "Incremental Agreement") resulting in a refinancing of $400.0 million aggregate principal amount of the Term Loan from a variable rate to a fixed rate of 5.0% per annum. The Incremental Agreement did not impact the total amount borrowed under the Term Loan, the maturity date of the Term Loan, or collateral and guarantees under the Term Loan.

As a result of our interest rate swaps and the Incremental Agreement, we have converted a significant portion of the variable interest rate under the Term Loan to a fixed rate and, as of ~~July 29,~~October 28, 2017, the Term Loan had a weighted average interest rate of ~~5.14%~~5.13%.

~~The~~

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(Unaudited)

In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of ~~$500.0~~$550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in ~~June 2019,~~October 2022, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate ("CDOR") rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the ~~federal funds effective~~New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to ~~2.00%~~1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from ~~1.50%~~1.25% to ~~2.00%~~1.75%, and a fee on unused commitments ~~which ranges from~~of 0.25% ~~to 0.375%~~. As of ~~July 29,~~October 28, 2017, there were no borrowings outstanding under the ABL Facility. During the ~~six~~nine months ended ~~July 29,~~October 28, 2017, the maximum borrowing outstanding under the ABL Facility was $34.7 million.

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At ~~July 29,~~October 28, 2017, letters of credit totaling approximately ~~$33.4~~$38.7 million were issued and outstanding. Borrowings available under the ABL Facility as of ~~July 29,~~October 28, 2017 were ~~$466.6~~$511.3 million.

Senior Notes

The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The Senior Notes and the related guarantees are senior unsecured obligations of the 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 in July 2022. Interest on the Senior Notes is payable in January and July of each year.

Long-Term Debt

During the ~~second~~third quarter of 2017, we repurchased and retired ~~$42.6~~$65.0 million in face value 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 ~~$3.3~~$2.5 million, which is included as a separate line in the condensed consolidated statement of

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

earnings. The net gain on extinguishment reflects a ~~$4.0~~$3.4 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs totaling ~~$0.7~~$0.9 million related to the Senior Notes.

For the ~~six~~nine months ended ~~July 29,~~October 28, 2017, as a result of the repurchase and retirement of a total of ~~$50.0~~$115.0 million in face value of Senior Notes and our excess cash flow prepayment, we recorded a net gain on extinguishment totaling ~~$4.0~~$6.5 million, which reflects a ~~$4.8~~$8.2 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of ~~$0.8~~$1.7 million, which is included as a separate line in the condensed consolidated statement of earnings.

The following table provides details on our long-term debt as of ~~July~~October 28, 2017, October 29, ~~2017, July 30,~~ 2016 and January 28, 2017 (in thousands):


	July 29,		July 30,		January 28,		October 28,		October 29,		January 28,
	2017		2016		2017		2017		2016		2017
Term Loan (net of unamortized OID of $3.6 million at July 29, 2017, $4.6 million at July 30, 2016, and $4.1 million at January 28, 2017)	$	1,035,030	$	1,045,686	$	1,042,660
Term Loan (net of unamortized OID of $3.4 million at October 28, 2017, $4.4 million at October 29, 2016, and $4.1 million at January 28, 2017)							$	1,033,514	$	1,044,173	$	1,042,660
Senior Notes		525,000		593,500		575,000		460,000		575,000		575,000
Less: Deferred financing costs related to the Term Loan and Senior Notes		(19,025)		(24,784)		(22,131)		(17,029)		(23,300)		(22,131)
Total long-term debt, net		1,541,005		1,614,402		1,595,529		1,476,485		1,595,873		1,595,529
Current portion of long-term debt		(8,750)		(14,000)		(13,379)		(8,750)		(7,000)		(13,379)
Total long-term debt, net of current portion	$	1,532,255	$	1,600,402	$	1,582,150	$	1,467,735	$	1,588,873	$	1,582,150

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

6. Supplemental Cash Flows

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


	For the Six Months Ended				For the Nine Months Ended
	July 29,		July 30,		October 28,		October 29,
	2017		2016		2017		2016

Cash paid for interest	$	51,052	$	48,746	$	66,628	$	62,450
Cash paid (refunded) for income taxes, net	$	14,591	$	(52,547)	$	17,798	$	(44,961)

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately ~~$6.9~~$7.1 million and ~~$11.8~~$7.8 million at ~~July 29,~~October 28, 2017 and ~~July 30,~~October 29, 2016, 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.

Cash dividends declared of ~~$9.4~~$9.2 million and $9.0 million at ~~July 29,~~October 28, 2017 and ~~July 30,~~October 29, 2016, respectively, are included in accrued expenses and other current liabilities.

7. Inventories

The following table provides details on our inventories as of ~~July~~October 28, 2017, October 29, ~~2017, July 30,~~ 2016 and January 28, 2017 (in thousands):


	July 29,		July 30,		January 28,		October 28,		October 29,		January 28,
	2017		2016		2017		2017		2016		2017
Finished goods	$	841,101	$	929,428	$	846,585	$	873,030	$	963,036	$	846,585
Raw materials and merchandise components		103,682		94,175		108,927		99,971		84,879		108,927
Total inventories	$	944,783	$	1,023,603	$	955,512	$	973,001	$	1,047,915	$	955,512

8. Income Taxes

Our effective income tax rate increased to ~~32.5%~~32.8% for the ~~second~~third quarter of 2017 from ~~25.9%~~24.1% for the ~~second~~third quarter of 2016 primarily due to higher U.S. income as compared to income earned in foreign jurisdictions this year compared to last year.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Our effective income tax rate increased to ~~35.0%~~34.2% for the first ~~six~~nine months of 2017 from ~~30.4%~~27.3% for the first ~~six~~nine months of 2016 primarily due to higher U.S. income as compared to income earned in foreign jurisdictions this year compared to last year. In addition, the effective income tax rate for the first ~~six~~nine months of 2017 was impacted by $2.2 million of tax deficiencies related to the vesting of stock-based awards resulting from the adoption of new accounting guidance related to stock-based compensation. See Note 11 for additional information.

Additionally, we are currently undergoing several federal, foreign and state audits; however, we currently do not believe these audits will result in any material charge to tax expense in the future.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

9. Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes, net and Other Liabilities

Other current assets consist of the following (in thousands):


	July 29,		July 30,		January 28,		October 28,		October 29,		January 28,
	2017		2016		2017		2017		2016		2017
Prepaid expenses	$	45,718	$	47,088	$	47,057	$	44,473	$	43,778	$	47,057
Tax receivable		2,428		21,037		15,794		506		4,697		15,794
Other		7,286		12,988		10,751		8,587		11,715		10,751
Total other current assets	$	55,432	$	81,113	$	73,602	$	53,566	$	60,190	$	73,602

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


	July 29,		July 30,		January 28,		October 28,		October 29,		January 28,
	2017		2016		2017		2017		2016		2017
Accrued salary, bonus, sabbatical, vacation and other benefits	$	61,431	$	64,580	$	72,589	$	79,753	$	70,631	$	72,589
Customer deposits, prepayments and refunds payable		54,043		47,993		28,384		37,822		29,371		28,384
Unredeemed gift cards		36,245		36,217		40,865		34,552		34,693		40,865
Sales, value added, payroll, property and other taxes payable		33,472		34,589		31,188		30,220		36,021		31,188
Accrued workers compensation and medical costs		27,009		30,786		31,609		27,860		30,818		31,609
Accrued interest		12,477		16,067		15,457		19,550		25,884		15,457
Loyalty program reward certificates								11,199		10,704		9,840
Accrued dividends		10,456		9,307		9,842		10,789		9,572		9,842
Loyalty program reward certificates		9,226		9,963		9,840
Accrued royalties		4,515		7,545		3,720		6,020		7,977		3,720
Lease termination and other store closure costs		3,135		20,918		4,834		1,027		6,442		4,834
Other		24,607		17,742		19,571		22,741		18,545		19,571
Total accrued expenses and other current liabilities	$	276,616	$	295,707	$	267,899	$	281,533	$	280,658	$	267,899

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


	July 29,		July 30,		January 28,		October 28,		October 29,		January 28,
	2017		2016		2017		2017		2016		2017
Deferred and other income tax liabilities, net	$	90,957	$	115,735	$	92,079	$	91,760	$	102,243	$	92,079
Deferred rent and landlord incentives		60,467		63,367		61,215		60,040		61,641		61,215
Unfavorable lease liabilities		3,760		6,141		4,693		3,279		5,394		4,693
Other		7,129		6,882		5,433		5,118		5,901		5,433
Total deferred taxes, net and other liabilities	$	162,313	$	192,125	$	163,420	$	160,197	$	175,179	$	163,420

10. Accumulated Other Comprehensive (Loss) Income

The following table summarizes the components of accumulated other comprehensive (loss) income for the nine months ended October 28, 2017 (in thousands and net of tax):


	Foreign
	Currency		Cash Flow		Pension
	Translation		Hedges		Plan		Total
BALANCE— January 28, 2017	$	(40,205)	$	(82)	$	204	$	(40,083)
Other comprehensive income (loss) before reclassifications		10,857		(4,240)		—		6,617
Amounts reclassified from accumulated other comprehensive loss		—		2,138		—		2,138
Net current-period other comprehensive income (loss)		10,857		(2,102)		—		8,755
BALANCE— October 28, 2017	$	(29,348)	$	(2,184)	$	204	$	(31,328)

1213

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~10. Accumulated Other Comprehensive (Loss) Income~~

The following table summarizes the components of accumulated other comprehensive (loss) income for the ~~six~~nine months ended ~~July~~October 29, ~~2017 (in thousands and net of tax):~~

Foreign

Currency

Cash Flow

Pension


Translation

Hedges

Plan

Total

BALANCE— January 28, 2017

(40,205)

(82)

204

(40,083)

Other comprehensive income (loss) before reclassifications

16,114

(5,482)

—

10,632

Amounts reclassified from accumulated other comprehensive loss

—

1,270

—

1,270

Net current-period other comprehensive income (loss)

16,114

(4,212)

—

11,902

BALANCE— July 29, 2017

$
(24,091)

$
(4,294)

$
204

$
(28,181)

~~The following table summarizes the components of accumulated other comprehensive (loss) income for the six months ended July 30,~~ 2016 (in thousands and net of tax):


	Foreign								Foreign
	Currency		Cash Flow		Pension				Currency		Cash Flow		Pension
	Translation		Hedges		Plan		Total		Translation		Hedges		Plan		Total
BALANCE— January 30, 2016	$	(26,659)	$	(2,007)	$	180	$	(28,486)	$	(26,659)	$	(2,007)	$	180	$	(28,486)
Other comprehensive loss before reclassifications		(3,171)		(276)		—		(3,447)
Other comprehensive (loss) income before reclassifications										(18,246)		354		—		(17,892)
Amounts reclassified from accumulated other comprehensive loss		—		722		—		722		—		1,040		—		1,040
Net current-period other comprehensive (loss) income		(3,171)		446		—		(2,725)		(18,246)		1,394		—		(16,852)
BALANCE— July 30, 2016	$	(29,830)	$	(1,561)	$	180	$	(31,211)
BALANCE— October 29, 2016									$	(44,905)	$	(613)	$	180	$	(45,338)

Amounts reclassified from other comprehensive (loss) income for the ~~six~~nine months ended ~~July 29,~~October 28, 2017 relate to changes in the fair value of our interest rate swaps which is recorded within interest expense in the condensed consolidated statement of earnings and changes in the fair value of cash flow hedges related to inventory purchases, which is recorded within cost of sales in the condensed consolidated statement of earnings. Amounts reclassified from other comprehensive (loss) income for the ~~six~~nine months ended ~~July 30,~~October 29, 2016 relate to changes in the fair value of our interest rate swap, which is recorded within interest expense in the condensed consolidated statement of earnings.

11. Share-Based Compensation Plans

For a discussion of our share-based compensation plans, refer to Note 13 in our Annual Report on Form 10-K for the fiscal year ended January 28, 2017.

During the first quarter of fiscal 2017, we adopted ASU No. 2016-09, Compensation-Stock Compensation. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The recognition of excess tax benefits and deficiencies related to the vesting of stock-based awards in the statement of earnings and presentation of excess tax benefits on the statement of cash flows were adopted prospectively, with no adjustments made to prior periods. See Note 8 for additional information. In addition, upon adoption, we did not change our policy on accounting for forfeitures, which is to estimate the number of awards expected to be forfeited and adjusting the estimate as needed. Overall, the adoption of ASU 2016-09 did not have a material impact on our financial statements.

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~~(Unaudited)~~

Non-Vested Deferred Stock Units, Performance Units and Restricted Stock

The following table summarizes the activity of time-based and performance-based awards (collectively, "DSUs") ~~awards~~ for the ~~six~~nine months ended ~~July 29,~~October 28, 2017:


			Weighted-Average						Weighted-Average
	Units		Grant-Date Fair Value				Units		Grant-Date Fair Value
	Time-	Performance-	Time-		Performance-		Time-	Performance-	Time-		Performance-
	Based	Based	Based		Based		Based	Based	Based		Based
Non-Vested at January 28, 2017	1,061,965	523,948	$	24.31	$	28.28	1,061,965	523,948	$	24.31	$	28.28
Granted	428,881	507,528		11.35		11.36	472,708	542,528		11.48		11.45
Vested(1)	(449,248)	—		25.49		—	(455,925)	—		25.38		—
Forfeited	(26,193)	(737)		23.85		54.26	(51,271)	(41,942)		20.78		22.26
Non-Vested at July 29, 2017	1,015,405	1,030,739	$	18.31	$	19.93
Non-Vested at October 28, 2017							1,027,477	1,024,534	$	18.10	$	19.61

⁽¹⁾

Includes ~~123,~~125,~~050~~806 shares relinquished for tax payments related to vested DSUs for the ~~six~~nine months ended ~~July 29,~~October 28, 2017.

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The following table summarizes the activity of restricted stock for the ~~six~~nine months ended ~~July 29,~~October 28, 2017:


		Weighted- Average			Weighted- Average
	Shares	Grant-Date Fair Value		Shares	Grant-Date Fair Value
Non-Vested at January 28, 2017	36,878	$	15.56	36,878	$	15.56
Granted	—		—	—		—
Vested	(36,878)		15.56	(36,878)		15.56
Forfeited	—		—	—		—
Non-Vested at July 29, 2017	—	$	—
Non-Vested at October 28, 2017				—	$	—

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

As of ~~July 29,~~October 28, 2017, we have unrecognized compensation expense related to non-vested DSUs of approximately ~~$24.1~~$22.0 million, which is expected to be recognized over a weighted-average period of ~~1.7~~1.6 years.

Stock Options

The following table summarizes the activity of stock options for the ~~six~~nine months ended ~~July 29,~~October 28, 2017:


		Weighted-			Weighted-
	Number of	Average		Number of	Average
	Shares	Exercise Price		Shares	Exercise Price
Outstanding at January 28, 2017	1,194,690	$	29.70	1,194,690	$	29.70
Granted	550,804		11.36	630,083		11.54
Exercised	—		—	—		—
Forfeited	(1,553)		52.27	(50,856)		16.25
Expired	(40,243)		41.23	(40,243)		41.23
Outstanding at July 29, 2017	1,703,698	$	23.48
Exercisable at July 29, 2017	726,137	$	33.22
Outstanding at October 28, 2017				1,733,674	$	23.23
Exercisable at October 28, 2017				736,137	$	33.33

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~~(Unaudited)~~

The weighted-average grant date fair value of the ~~550,804~~630,083 stock options granted during the ~~six~~nine months ended ~~July 29,~~October 28, 2017 was ~~$3.80~~$3.86 per share. The following table summarizes the weighted-average assumptions used to fair value the stock options at the date of grant using the Black-Scholes option model for the ~~six~~nine months ended ~~July 29,~~October 28, 2017:


		For the ~~Six~~Nine Months Ended
		~~July 29,~~October 28,
		2017
Risk-free interest rates		~~1.76%~~1.75%
Expected lives		5.0 years
Dividend yield		~~4.68%~~4.69%
Expected volatility		55.12%

As of ~~July 29,~~October 28, 2017, we have unrecognized compensation expense related to non-vested stock options of approximately ~~$4.2~~$3.7 million, which is expected to be recognized over a weighted-average period of ~~1.5~~1.4 years.

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Cash Settled Awards

During ~~the second quarter of~~ 2017, we granted stock-based awards to certain employees, which vest over a period of three years, and will be settled in cash ("cash settled awards"). The fair value of the cash settled awards at each reporting period is based on the price of our common stock and includes a market condition. The fair value of the cash settled awards will be remeasured at each reporting period until the awards are settled. Cash settled awards are classified as liabilities in the condensed consolidated balance sheets. At ~~July 29,~~October 28, 2017, the liability associated with the cash settled awards was ~~$0.9~~$2.3 million with ~~$0.5~~$1.4 million recorded in accrued expenses and other current liabilities and ~~$0.4~~$0.9 million recorded in other liabilities in the condensed consolidated balance sheets.

The following table summarizes the activity of cash settled awards for the ~~six~~nine months ended ~~July 29,~~October 28, 2017 (in thousands):


	Cash Settled Awards			Cash Settled Awards
Non-Vested at January 28, 2017	$	—		$	—
Granted		8,184	��		8,377
Vested		—			—
Forfeited		(31)			(149)
Non-Vested at July 29, 2017	$	8,153
Non-Vested at October 28, 2017				$	8,228

Share-Based Compensation Expense

Share-based compensation expense, including cash settled awards, recognized for the three and ~~six~~nine months ended ~~July 29,~~October 28, 2017 was ~~$4.2~~$8.2 million and ~~$9.0~~$17.2 million, respectively. Share-based compensation expense recognized for the three and ~~six~~nine months ended ~~July 30,~~October 29, 2016 was ~~$4.6~~$5.2 million and ~~$8.7~~$14.0 million, respectively. There were no cash settled awards granted during 2016.

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~~(Unaudited)~~

12. Goodwill and Other Intangible Assets

Goodwill

Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the ~~six~~nine months ended ~~July 29,~~October 28, 2017 are as follows (in thousands):


			Corporate						Corporate
	Retail		Apparel		Total		Retail		Apparel		Total
Balance at January 28, 2017	$	94,511	$	22,515	$	117,026	$	94,511	$	22,515	$	117,026
Goodwill of acquired business		—		695		695		—		695		695
Translation adjustment		1,173		986		2,159		433		971		1,404
Balance at July 29, 2017	$	95,684	$	24,196	$	119,880
Balance at October 28, 2017							$	94,944	$	24,181	$	119,125

The goodwill of acquired business resulted from an immaterial acquisition by our United Kingdom ("UK") based operations. 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 ~~six~~nine months ended ~~July 29,~~October 28, 2017.

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Intangible Assets

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


	July 29,		July 30,		January 28,		October 28,		October 29,		January 28,
	2017		2016		2017		2017		2016		2017
Amortizable intangible assets:
Carrying amount:
Trademarks, tradenames and franchise agreements	$	16,076	$	16,097	$	15,966	$	16,074	$	15,897	$	15,966
Favorable leases		13,475		14,381		13,826		13,475		14,381		13,826
Customer relationships		26,630		26,862		25,483		26,612		24,750		25,483
Total carrying amount		56,181		57,340		55,275		56,161		55,028		55,275
Accumulated amortization:
Trademarks, tradenames and franchise agreements		(10,302)		(9,886)		(10,055)		(10,404)		(9,930)		(10,055)
Favorable leases		(4,481)		(3,529)		(3,961)		(4,856)		(4,045)		(3,961)
Customer relationships		(15,534)		(13,432)		(13,804)		(16,078)		(12,891)		(13,804)
Total accumulated amortization		(30,317)		(26,847)		(27,820)		(31,338)		(26,866)		(27,820)
Total amortizable intangible assets, net		25,864		30,493		27,455		24,823		28,162		27,455
Indefinite-lived intangible assets:
Trademarks and tradename		144,249		144,259		144,204		144,249		144,175		144,204
Total intangible assets, net	$	170,113	$	174,752	$	171,659	$	169,072	$	172,337	$	171,659

Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.0 million and ~~$2.1~~$3.1 million for the three and ~~six~~nine months ended ~~July 29,~~October 28, 2017. Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.2 million and ~~$2.5~~$3.7 million for the three and ~~six~~nine months ended and ~~July 30,~~October 29, 2016. Pre-tax amortization associated with intangible assets subject to amortization at ~~July 29,~~October 28, 2017 is estimated to be ~~$2.1~~$1.1 million for the remainder of fiscal 2017, $3.8 million for fiscal 2018, $3.6 million for fiscal 2019, ~~$3.4~~$3.5 million for fiscal 2020 and ~~$3.3~~$3.4 million for fiscal 2021.

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~~(Unaudited)~~

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.

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


	Fair Value Measurements at Reporting Date								Fair Value Measurements at Reporting Date
	Using								Using
	Quoted Prices								Quoted Prices
	in Active		Significant						in Active		Significant
	Markets for		Other		Significant				Markets for		Other		Significant
	Identical		Observable		Unobservable				Identical		Observable		Unobservable
	Instruments		Inputs		Inputs				Instruments		Inputs		Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total		(Level 1)		(Level 2)		(Level 3)		Total
July 29, 2017—
October 28, 2017—
Assets:
Derivative financial instruments	$	—	$	3	$	—	$	3	$	—	$	235	$	—	$	235
Liabilities:
Derivative financial instruments	$	—	$	6,170	$	—	$	6,170	$	—	$	2,198	$	—	$	2,198
January 28, 2017—
Assets:
Derivative financial instruments	$	—	$	460	$	—	$	460	$	—	$	460	$	—	$	460
Liabilities:
Derivative financial instruments	$	—	$	2,413	$	—	$	2,413	$	—	$	2,413	$	—	$	2,413
July 30, 2016—
October 29, 2016—
Assets:
Derivative financial instruments	$	—	$	1,734	$	—	$	1,734	$	—	$	753	$	—	$	753
Liabilities:
Derivative financial instruments	$	—	$	2,557	$	—	$	2,557	$	—	$	2,520	$	—	$	2,520

Derivative financial instruments are comprised of (1) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted purchases of certain inventories denominated in a currency different from the operating entity's functional currency, (2) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted revenues from our UK operations denominated in a currency different from the UK's functional currency and (3) interest rate swap agreements to minimize our exposure to interest rate changes on our outstanding indebtedness. These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs. Derivative financial instruments in an asset position are included within other current assets in the condensed consolidated balance sheets. Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities or noncurrent liabilities in the condensed consolidated balance sheets. See Note 14 for further information regarding our derivative instruments.

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

Long-lived assets, such as property and equipment, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be

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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 ~~six~~nine months ended ~~July 29,~~October 28, 2017, we incurred $2.9 million of asset impairment charges, which is included within SG&A expenses in our condensed consolidated statement of earnings, primarily related to underperforming stores as well as long-lived assets related to our now-terminated tuxedo rental license agreement with Macy's. 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.

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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 ~~July~~October 28, 2017, October 29, ~~2017, July 30,~~ 2016, and January 28, 2017, the carrying value of our financial instruments, other than long-term debt, approximated their fair value due to the highly liquid or short-term nature of these instruments.

The fair values of our Term Loan were valued based upon observable market data provided by a third party for similar types of debt, which we classify as a Level 2 input within the fair value hierarchy. The fair value of our Senior Notes is based on quoted prices in active markets, which we classify as a Level 1 input within the fair value hierarchy. The table below shows the fair value and carrying value of our long-term debt, including current portion (in thousands):


	July 29, 2017				July 30, 2016				January 28, 2017					October 28, 2017				October 29, 2016				January 28, 2017
	Carrying		Estimated		Carrying		Estimated		Carrying		Estimated			Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
	Amount(1)		Fair Value		Amount(1)		Fair Value		Amount(1)		Fair Value			Amount(1)		Fair Value		Amount(1)		Fair Value		Amount(1)		Fair Value
Long-term debt, including current portion	$	1,541,005	$	1,465,502	$	1,614,402	$	1,555,785	$	1,595,529	$	1,556,200		$	1,476,485	$	1,461,283	$	1,595,873	$	1,556,661	$	1,595,529	$	1,556,200
(1) The carrying value of the long-term debt, including current portion is net of deferred financing costs of $19.0 million, $24.8 million and $22.1 million as of July 29, 2017, July 30, 2016 and January 28, 2017, respectively.
(1) The carrying value of the long-term debt, including current portion is net of deferred financing costs of $17.0 million, $23.3 million and $22.1 million as of October 28, 2017, October 29, 2016 and January 28, 2017, respectively.													(1) The carrying value of the long-term debt, including current portion is net of deferred financing costs of $17.0 million, $23.3 million and $22.1 million as of October 28, 2017, October 29, 2016 and January 28, 2017, respectively.

14. Derivative Financial Instruments

As discussed in Note 5, in January 2015, we entered into an interest rate swap agreement on an initial notional amount of $520.0 million that matures in August 2018 with periodic interest settlements. At ~~July 29,~~October 28, 2017, the notional amount totaled ~~$260.0~~$200.0 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.

In addition, in April 2017, we entered into an interest rate swap agreement on an initial notional amount of $260.0 million that matures in June 2021 with periodic interest settlements. At ~~July 29,~~October 28, 2017, the notional amount totaled ~~$280.0~~$290.0 million. Under this interest rate swap agreement, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 5.56% (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 ~~July 29,~~October 28, 2017, the fair value of the interest rate swaps was a net liability of ~~$4.3~~$1.8 million with ~~$2.7~~$1.9 million recorded in accrued expenses and other current liabilities ~~and $1.6~~offset by $0.1 million recorded in other ~~liabilities~~assets in our condensed consolidated balance sheet. The effective portion of the swaps is reported as a component of accumulated other comprehensive (loss) income. There was no hedge ineffectiveness at ~~July 29,~~October 28, 2017. Changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings.

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~~(Unaudited)~~

Over the next 12 months, ~~$2.7~~$1.8 million of the effective portion of the interest rate swaps is expected to be reclassified from accumulated other comprehensive (loss) income into earnings within interest expense. If, at any time, either 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.

Also, 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 ~~July 29,~~October 28, 2017, the fair value of these cash flow hedges was a liability of ~~$1.2~~$0.2 million recorded in accrued expenses and other current liabilities in our condensed consolidated balance sheet. The effective portion of the

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hedges is reported as a component of accumulated other comprehensive (loss) income. Hedge ineffectiveness at ~~July 29,~~October 28, 2017 was immaterial. 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, ~~$1.7~~$1.5 million of the effective portion of the cash flow hedges is expected to be reclassified as expense into cost of sales from accumulated other comprehensive (loss) ~~income into earnings within cost of sales.~~income.

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.~~specifically related to the Canadian dollar. As a result, from time to time, we may enter into derivative instruments to hedge ~~our~~this foreign exchange risk. We have not elected to apply hedge accounting to these derivative instruments. At ~~July 29,~~October 28, 2017, the fair value of our derivative instruments was ~~a liability~~an asset of ~~$0.7~~$0.1 million included in ~~accrued expenses and~~ other ~~current liabilities~~assets in our condensed consolidated balance sheet.

For the three and ~~six~~nine months ended ~~July 29,~~October 28, 2017, we recognized net pre-tax ~~losses~~gains of ~~$0.8~~$0.7 million and ~~$0.6~~$0.2 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges. For the three and ~~six~~nine months ended ~~July 30,~~October 29, 2016, we recognized net pre-tax gains of ~~$2.7~~$0.4 million and ~~$1.8~~$2.3 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

15. Segment Reporting

Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.

The retail segment includes the results from our four retail merchandising brands: Men's Wearhouse/Men's Wearhouse and Tux, 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, denim, sportswear, outerwear, dress shirts, shoes and accessories for men. Women's career and casual apparel, sportswear and accessories, including shoes, and children's apparel is offered at most of our K&G stores. Rental product is offered at our Men's Wearhouse/Men's Wearhouse and Tux, Jos. A. Bank and Moores retail stores.

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Dimensions, Alexandra, and Yaffy in the UK and Twin Hill in the U.S., which provide corporate apparel uniforms and workwear to workforces.

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 directed primarily by our corporate offices that are not allocated to segments.

1920

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(Unaudited)

Additional net sales information is as follows (in thousands):


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016		October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
Net sales:
MW(1)	$	458,751	$	482,895	$	878,818	$	924,541	$	448,955	$	461,806	$	1,327,773	$	1,386,347
Jos. A. Bank		174,325		186,040		341,553		364,490		162,685		165,992		504,238		530,482
K&G		85,811		86,374		174,494		181,133		69,604		70,874		244,098		252,007
Moores		65,312		66,454		106,125		109,683		57,607		56,520		163,732		166,203
MW Cleaners		8,799		8,418		17,313		16,576		8,671		8,497		25,984		25,073
Total retail segment		792,998		830,181		1,518,303		1,596,423		747,522		763,689		2,265,825		2,360,112
Total corporate apparel segment		57,760		79,503		115,361		142,083		63,296		83,245		178,657		225,328
Total net sales	$	850,758	$	909,684	$	1,633,664	$	1,738,506	$	810,818	$	846,934	$	2,444,482	$	2,585,440

⁽¹⁾

MW includes Men's Wearhouse, Men's Wearhouse and Tux, tuxedo shops within Macy's and Joseph Abboud.

The following table sets forth supplemental products and services sales information for the Company (in thousands):


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016		October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
Net sales:
Men's tailored clothing product	$	341,182	$	349,226	$	673,812	$	698,754	$	330,618	$	326,741	$	1,004,430	$	1,025,495
Men's non-tailored clothing product		234,093		246,154		462,792		488,087		227,520		230,146		690,312		718,233
Women's clothing product		18,100		18,468		37,927		40,314		14,795		15,626		52,722		55,940
Other		1,619		2,098		4,048		4,459		2,270		2,533		6,318		6,992
Total retail clothing product		594,994		615,946		1,178,579		1,231,614		575,203		575,046		1,753,782		1,806,660
Rental services		151,978		165,009		246,798		264,840		126,410		138,724		373,208		403,564
Alteration services		37,227		40,808		75,613		83,393		37,238		41,422		112,851		124,815
Retail dry cleaning services		8,799		8,418		17,313		16,576		8,671		8,497		25,984		25,073
Total alteration and other services		46,026		49,226		92,926		99,969		45,909		49,919		138,835		149,888
Corporate apparel clothing product		57,760		79,503		115,361		142,083		63,296		83,245		178,657		225,328
Total net sales	$	850,758	$	909,684	$	1,633,664	$	1,738,506	$	810,818	$	846,934	$	2,444,482	$	2,585,440

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


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	July 29, 2017		July 30, 2016		July 29, 2017		July 30, 2016		October 28, 2017		October 29, 2016		October 28, 2017		October 29, 2016
Operating income:
Retail	$	155,221	$	101,227	$	228,646	$	181,102	$	123,628	$	97,629	$	352,273	$	278,732
Corporate apparel		2,103		11,920		4,078		13,974		3,072		10,314		7,150		24,288
Shared service expense		(48,859)		(53,515)		(93,257)		(104,450)		(50,073)		(46,887)		(143,329)		(151,338)
Operating income		108,465		59,632		139,467		90,626		76,627		61,056		216,094		151,682
Interest income		98		37		165		50		159		52		324		102
Interest expense		(25,167)		(25,876)		(50,788)		(52,377)		(24,412)		(25,476)		(75,200)		(77,853)
Gain (loss) on extinguishment of debt, net		3,281		(71)		3,996		(71)
Gain on extinguishment of debt, net										2,539		1,808		6,535		1,737
Earnings before income taxes	$	86,677	$	33,722	$	92,840	$	38,228	$	54,913	$	37,440	$	147,753	$	75,668

2021

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

16. Legal Matters

On March 29, 2016, a putative class action lawsuit was filed against the Company and its Chief Executive Officer, Douglas S. Ewert, in the United States District Court for the Southern District of Texas (Case No. 4:16-cv-00838). The complaint 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 (the "Class Period"). On May 26, 2017, Lead Plaintiff Strathclyde Pension Fund filed an Amended Complaint alleging that during the Class Period Defendants omitted facts about the Company's Jos. A. Bank's business, financial status, and operations, the omission of which rendered Defendants' statements about the Jos. A. Bank business false or misleading. The amended complaint also named Jon W. Kimmins, the Company's former Chief Financial Officer, and Mary Beth Blake, the Company's current Brand President, Jos. A. Bank, as additional named defendants. We believe that the claims are without merit and are defending the 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.

On February 17, 2016, Anthony Oliver filed a putative class action lawsuit against our Men's Wearhouse subsidiary in the United States District Court for the Central District of California (Case No. 2:16-cv-01100). The complaint attempts to allege claims under the Telephone Consumer Protection Act. In particular the complaint alleges that the Company sent unsolicited text messages to cellular telephones beginning October 1, 2013 to the present day. After we demonstrated that the Company had the plaintiff's permission to send him texts, the plaintiff filed an amended complaint alleging the Company sent text messages exceeding the number plaintiff had agreed to receive each week. The parties filed cross-motions for summary judgment and the case is stayed pending the Court's decision on those motions. We believe that the claims are without merit and intend to defend the 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.

On August 2, 2017, two American Airlines employees filed a putative class action lawsuit against our Twin Hill subsidiary in the United States District Court for the Northern District of Illinois (Case No. 1:17-cv-05648). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On September 28, 2017, the plaintiffs filed an amended complaint adding nine additional named plaintiffs and adding claims for civil battery and intentional infliction of emotional distress. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

On September 27, 2017, Heather Poole and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary in the Superior Court for the State of California for the County of Alameda (Case No. RG17876798). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

On October 30, 2017, Denise Mumma and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary in the Superior Court for the State of California for the County of Alameda (Case No. RG17880635). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

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.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

17. Condensed Consolidating Information

As discussed in Note 5, The Men's Wearhouse (the "Issuer") issued $600.0 million in aggregate principal amount of 7.00% Senior Notes. The Senior Notes are guaranteed jointly and severally, on an unsecured basis by Tailored Brands, Inc. (the "Parent") and certain of our U.S. subsidiaries (the "Guarantors"). Our foreign subsidiaries (collectively, the "Non-Guarantors") are not guarantors of the Senior Notes. Each of the Guarantors is 100% owned and all guarantees are joint and several. In addition, the guarantees are full and unconditional except for certain automatic release provisions related to the Guarantors.

These automatic release provisions are considered customary and include the sale or other disposition of all or substantially all of the assets or all of the capital stock of any subsidiary guarantor, the release or discharge of a guarantor's guarantee of the obligations under the Term Loan other than a release or discharge through payment thereon, the designation in accordance with the Indenture of a guarantor as an unrestricted subsidiary or the satisfaction of the requirements for defeasance or discharge of the Senior Notes as provided for in the Indenture.

The tables in the following pages present the condensed consolidating financial information for the Parent, the Issuer, the Guarantors and the Non-Guarantors, together with eliminations, as of and for the periods indicated. The consolidating financial information may not necessarily be indicative of the financial positions, results of operations or cash flows had the Issuer, Guarantors and Non-Guarantors operated as independent entities.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Tailored Brands, Inc.~~

~~Condensed Consolidating Balance Sheet~~

~~July 29, 2017~~

~~(in thousands)~~

Tailored

The Men's

Guarantor

Non-Guarantor






Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$
—

$
13,482

$
1,924

$
97,335

$
—

$
112,741

Accounts receivable, net

7,380

18,103

430,884

102,613

(487,080)

71,900

Inventories

—

186,831

403,875

354,077

—

944,783

Other current assets

7,310

204,477

26,431

9,346

(192,132)

55,432

Total current assets

14,690

422,893

863,114

563,371

(679,212)

1,184,856

Property and equipment, net

—

218,122

204,641

36,767

—

459,530

Rental product, net

—

116,525

4,894

17,978

—

139,397

Goodwill

—

6,160

68,510

45,210

—

119,880

Intangible assets, net

—

24

156,307

13,782

—

170,113

Investments in subsidiaries

(16,512)

1,436,555

—

—

(1,420,043)

—

Other assets

—

4,790

897

6,861

(6,600)

5,948

Total assets

$
(1,822)

$
2,205,069

$
1,298,363

$
683,969

$
(2,105,855)

$
2,079,724

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

CURRENT LIABILITIES:

Accounts payable

$
26,528

$
480,565

$
60,420

$
59,723

$
(487,080)

$
140,156

Accrued expenses and other current liabilities

17,967

119,314

113,058

217,443

(184,856)

282,926

Current portion of long-term debt

—

8,750

—

—

—

8,750

Total current liabilities

44,495

608,629

173,478

277,166

(671,936)

431,832

Long-term debt, net

—

1,532,255

—

—

—

1,532,255

Deferred taxes, net and other liabilities

359

80,697

84,509

10,624

(13,876)

162,313

Shareholders' (deficit) equity

(46,676)

(16,512)

1,040,376

396,179

(1,420,043)

(46,676)

Total liabilities and shareholders' (deficit) equity

$
(1,822)

$
2,205,069

$
1,298,363

$
683,969

$
(2,105,855)

$
2,079,724

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

~~July 30, 2016~~October 28, 2017

(in thousands)


	Tailored		The Men's		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	1,245	$	1,813	$	8,372	$	—	$	11,430	$	—	$	20,224	$	1,941	$	104,079	$	—	$	126,244
Accounts receivable, net		7,373		18,217		256,591		28,754		(226,587)		84,348		7,414		19,518		287,688		35,137		(268,564)		81,193
Inventories		—		198,656		686,178		138,769		—		1,023,603		—		198,429		458,603		315,969		—		973,001
Other current assets		3,562		18,087		52,709		44,082		(37,327)		81,113		7,275		87,450		26,185		7,889		(75,233)		53,566
Total current assets		10,935		236,205		997,291		219,977		(263,914)		1,200,494		14,689		325,621		774,417		463,074		(343,797)		1,234,004
Property and equipment, net		—		254,315		219,595		36,610		—		510,520		—		207,432		212,213		35,276		—		454,921
Rental product, net		—		142,198		11,066		18,205		—		171,469		—		107,222		2,327		15,771		—		125,320
Goodwill		—		6,160		68,510		43,637		—		118,307		—		6,160		68,510		44,455		—		119,125
Intangible assets, net		—		132		158,351		16,269		—		174,752		—		—		155,884		13,188		—		169,072
Investments in subsidiaries		(82,294)		1,394,831		—		—		(1,312,537)		—		77,901		1,308,676		—		—		(1,386,577)		—
Other assets		1,498		6,457		935		7,922		(7,800)		9,012		—		7,780		821		6,558		(6,300)		8,859
Total assets	$	(69,861)	$	2,040,298	$	1,455,748	$	342,620	$	(1,584,251)	$	2,184,554	$	92,590	$	1,962,891	$	1,214,172	$	578,322	$	(1,736,674)	$	2,111,301
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	7,008	$	247,569	$	98,318	$	43,512	$	(226,587)	$	169,820	$	87,758	$	189,756	$	81,409	$	96,503	$	(268,564)	$	186,862
Accrued expenses and other current liabilities		9,431		193,497		109,835		21,421		(37,327)		296,857		18,911		139,577		109,718		102,508		(67,957)		302,757
Current portion of long-term debt		—		14,000		—		—		—		14,000		—		8,750		—		—		—		8,750
Total current liabilities		16,439		455,066		208,153		64,933		(263,914)		480,677		106,669		338,083		191,127		199,011		(336,521)		498,369
Long-term debt, net		—		1,600,402		—		—		—		1,600,402		—		1,467,735		—		—		—		1,467,735
Deferred taxes, net and other liabilities		2,350		67,124		119,773		10,678		(7,800)		192,125		921		79,172		83,342		10,338		(13,576)		160,197
Shareholders' (deficit) equity		(88,650)		(82,294)		1,127,822		267,009		(1,312,537)		(88,650)		(15,000)		77,901		939,703		368,973		(1,386,577)		(15,000)
Total liabilities and shareholders' (deficit) equity	$	(69,861)	$	2,040,298	$	1,455,748	$	342,620	$	(1,584,251)	$	2,184,554	$	92,590	$	1,962,891	$	1,214,172	$	578,322	$	(1,736,674)	$	2,111,301

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

~~January 28, 2017~~October 29, 2016

(in thousands)


	Tailored		The Men's		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	1,002	$	1,881	$	68,006	$	—	$	70,889	$	—	$	5,435	$	1,984	$	27,529	$	—	$	34,948
Accounts receivable, net		7,376		15,499		476,742		56,777		(490,680)		65,714		7,373		17,112		455,368		31,140		(439,095)		71,898
Inventories		—		230,264		438,167		287,081		—		955,512		—		253,482		459,159		335,274		—		1,047,915
Other current assets		12,773		134,225		28,436		8,448		(110,280)		73,602		7,102		22,155		42,995		6,963		(19,025)		60,190
Total current assets		20,149		380,990		945,226		420,312		(600,960)		1,165,717		14,475		298,184		959,506		400,906		(458,120)		1,214,951
Property and equipment, net		—		232,090		216,248		35,827		—		484,165		—		249,797		217,156		34,438		—		501,391
Rental product, net		—		131,287		3,369		17,954		—		152,610		—		139,386		3,677		17,038		—		160,101
Goodwill		—		6,160		68,510		42,356		—		117,026		—		6,160		68,510		41,356		—		116,026
Intangible assets, net		—		78		157,270		14,311		—		171,659		—		105		157,788		14,444		—		172,337
Investments in subsidiaries		(109,788)		1,425,622		—		—		(1,315,834)		—		(67,257)		1,375,395		—		—		(1,308,138)		—
Other assets		—		5,615		959		7,321		(7,200)		6,695		3,257		6,004		939		7,623		(7,500)		10,323
Total assets	$	(89,639)	$	2,181,842	$	1,391,582	$	538,081	$	(1,923,994)	$	2,097,872	$	(49,525)	$	2,075,031	$	1,407,576	$	515,805	$	(1,773,758)	$	2,175,129
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	15,352	$	509,572	$	82,337	$	60,799	$	(490,680)	$	177,380	$	16,216	$	337,499	$	99,597	$	185,982	$	(439,095)	$	200,199
Accrued expenses and other current liabilities		2,627		111,617		129,420		135,777		(110,280)		269,161		9,617		143,023		105,446		42,514		(19,025)		281,575
Current portion of long-term debt		—		13,379		—		—		—		13,379		—		7,000		—		—		—		7,000
Total current liabilities		17,979		634,568		211,757		196,576		(600,960)		459,920		25,833		487,522		205,043		228,496		(458,120)		488,774
Long-term debt, net		—		1,582,150		—		—		—		1,582,150		—		1,588,873		—		—		—		1,588,873
Deferred taxes, net and other liabilities		—		74,912		85,477		10,231		(7,200)		163,420		2,339		65,893		104,512		9,935		(7,500)		175,179
Shareholders' (deficit) equity		(107,618)		(109,788)		1,094,348		331,274		(1,315,834)		(107,618)		(77,697)		(67,257)		1,098,021		277,374		(1,308,138)		(77,697)
Total liabilities and shareholders' (deficit) equity	$	(89,639)	$	2,181,842	$	1,391,582	$	538,081	$	(1,923,994)	$	2,097,872	$	(49,525)	$	2,075,031	$	1,407,576	$	515,805	$	(1,773,758)	$	2,175,129

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating ~~Statement of Earnings (Loss)~~Balance Sheet

January 28, 2017

(in thousands)

Tailored

The Men's

Guarantor

Non-Guarantor






Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Three Months Ended July 29, 2017

Net sales

$
—

$
457,870

$
369,476

135,125

$
(111,713)

$
850,758

Cost of sales

—

208,789

265,051

91,935

(111,713)

454,062

Gross margin

—

249,081

104,425

43,190

—

396,696

Operating expenses

779

134,389

138,023

28,904

(13,864)

288,231

Operating (loss) income

(779)

114,692

(33,598)

14,286

13,864

108,465

Other income and expenses, net

—

—

14,138

(274)

(13,864)

—

Interest income

242

1,689

1,909

93

(3,835)

98

Interest expense

—

(27,018)

(206)

(1,778)

3,835

(25,167)

Gain on extinguishment of debt, net

—

3,281

—

—

—

3,281

(Loss) earnings before income taxes

(537)

92,644

(17,757)

12,327

—

86,677

(Benefit) provision for income taxes

(167)

30,215

(6,205)

4,363

—

28,206

(Loss) earnings before equity in net income of subsidiaries

(370)

62,429

(11,552)

7,964

—

58,471

Equity in earnings of subsidiaries

58,841

(3,588)

—

—

(55,253)

—

Net earnings (loss)

$
58,471

$
58,841

$
(11,552)

$
7,964

$
(55,253)

$
58,471

Comprehensive income (loss)

$
72,498

$
58,544

$
(11,552)

$
22,288

$
(69,280)

$
72,498

Three Months Ended July 30, 2016

Net sales

$
—

$
481,585

$
431,149

$
112,816

$
(115,866)

$
909,684

Cost of sales

—

226,104

325,754

63,388

(115,866)

499,380

Gross margin

—

255,481

105,395

49,428

—

410,304

Operating expenses

863

157,776

176,067

30,881

(14,915)

350,672

Operating (loss) income

(863)

97,705

(70,672)

18,547

14,915

59,632

Other income and expenses, net

—

—

14,915

—

(14,915)

—

Interest income

—

5

580

32

(580)

37

Interest expense

(5)

(26,355)

—

(96)

580

(25,876)

Loss on extinguishment of debt

—

(71)

—

—

—

(71)

(Loss) earnings before income taxes

(868)

71,284

(55,177)

18,483

—

33,722

(Benefit) provision for income taxes

(221)

17,608

(13,736)

5,096

—

8,747

(Loss) earnings before equity in net income of subsidiaries

(647)

53,676

(41,441)

13,387

—

24,975

Equity in earnings of subsidiaries

25,622

(28,054)

—

—

2,432

—

Net (loss) earnings

$
24,975

$
25,622

$
(41,441)

$
13,387

$
2,432

$
24,975

Comprehensive (loss) income

$
5,581

$
25,828

$
(41,441)

$
(6,213)

$
21,826

$
5,581


	Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	—	$	1,002	$	1,881	$	68,006	$	—	$	70,889
Accounts receivable, net		7,376		15,499		476,742		56,777		(490,680)		65,714
Inventories		—		230,264		438,167		287,081		—		955,512
Other current assets		12,773		134,225		28,436		8,448		(110,280)		73,602
Total current assets		20,149		380,990		945,226		420,312		(600,960)		1,165,717
Property and equipment, net		—		232,090		216,248		35,827		—		484,165
Rental product, net		—		131,287		3,369		17,954		—		152,610
Goodwill		—		6,160		68,510		42,356		—		117,026
Intangible assets, net		—		78		157,270		14,311		—		171,659
Investments in subsidiaries		(109,788)		1,425,622		—		—		(1,315,834)		—
Other assets		—		5,615		959		7,321		(7,200)		6,695
Total assets	$	(89,639)	$	2,181,842	$	1,391,582	$	538,081	$	(1,923,994)	$	2,097,872
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	15,352	$	509,572	$	82,337	$	60,799	$	(490,680)	$	177,380
Accrued expenses and other current liabilities		2,627		111,617		129,420		135,777		(110,280)		269,161
Current portion of long-term debt		—		13,379		—		—		—		13,379
Total current liabilities		17,979		634,568		211,757		196,576		(600,960)		459,920
Long-term debt, net		—		1,582,150		—		—		—		1,582,150
Deferred taxes, net and other liabilities		—		74,912		85,477		10,231		(7,200)		163,420
Shareholders' (deficit) equity		(107,618)		(109,788)		1,094,348		331,274		(1,315,834)		(107,618)
Total liabilities and shareholders' (deficit) equity	$	(89,639)	$	2,181,842	$	1,391,582	$	538,081	$	(1,923,994)	$	2,097,872

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Statement of Earnings (Loss)

(in thousands)


	Tailored		The Men's		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Six Months Ended July 29, 2017
Three Months Ended October 28, 2017
Net sales	$	—	$	876,795	$	741,740	$	270,383	$	(255,254)	$	1,633,664	$	—	$	447,936	$	404,531	$	242,893	$	(284,542)	$	810,818
Cost of sales		—		421,288		543,682		194,812		(255,254)		904,528		—		227,612		317,262		191,729		(284,542)		452,061
Gross margin		—		455,507		198,058		75,571		—		729,136		—		220,324		87,269		51,164		—		358,757
Operating expenses		1,682		290,172		271,555		54,856		(28,596)		589,669		917		135,740		134,433		27,465		(16,425)		282,130
Operating (loss) income		(1,682)		165,335		(73,497)		20,715		28,596		139,467		(917)		84,584		(47,164)		23,699		16,425		76,627
Other income and expenses, net		—		—		28,870		(274)		(28,596)		—		—		—		16,425		—		(16,425)		—
Interest income		352		2,991		3,581		155		(6,914)		165
Interest expense		—		(54,212)		(320)		(3,170)		6,914		(50,788)
Interest expense, net														(129)		(27,789)		1,543		2,122		—		(24,253)
Gain on extinguishment of debt, net		—		3,996		—		—		—		3,996		—		2,539		—		—		—		2,539
(Loss) earnings before income taxes		(1,330)		118,110		(41,366)		17,426		—		92,840		(1,046)		59,334		(29,196)		25,821		—		54,913
Provision (benefit) for income taxes		1,778		38,684		(13,957)		6,025		—		32,530
(Benefit) provision for income taxes														(337)		19,267		(9,441)		8,532		—		18,021
(Loss) earnings before equity in net income of subsidiaries		(3,108)		79,426		(27,409)		11,401		—		60,310		(709)		40,067		(19,755)		17,289		—		36,892
Equity in earnings of subsidiaries		63,418		(16,008)		—		—		(47,410)		—
Equity in earnings (loss) of subsidiaries														37,601		(2,466)		—		—		(35,135)		—
Net earnings (loss)	$	60,310	$	63,418	$	(27,409)	$	11,401	$	(47,410)	$	60,310	$	36,892	$	37,601	$	(19,755)	$	17,289	$	(35,135)	$	36,892
Comprehensive (loss) income	$	72,212	$	61,464	$	(27,409)	$	25,257	$	(59,312)	$	72,212
Comprehensive income (loss)													$	33,745	$	39,114	$	(19,755)	$	12,629	$	(31,988)	$	33,745

Six Months Ended July 30, 2016

Three Months Ended October 29, 2016
Net sales	$	—	$	922,083	$	834,376	$	209,586	$	(227,539)	$	1,738,506	$	—	$	460,432	$	466,476	$	105,474	$	(185,448)	$	846,934
Cost of sales		—		446,651		631,148		126,101		(227,539)		976,361		—		230,110		361,117		63,949		(185,448)		469,728
Gross margin		—		475,432		203,228		83,485		—		762,145		—		230,322		105,359		41,525		—		377,206
Operating expenses		1,580		306,263		332,980		59,296		(28,600)		671,519		974		146,398		153,439		29,662		(14,323)		316,150
Operating (loss) income		(1,580)		169,169		(129,752)		24,189		28,600		90,626		(974)		83,924		(48,080)		11,863		14,323		61,056
Other income and expenses, net		—		—		28,600		—		(28,600)		—		—		—		14,323		—		(14,323)		—
Interest income		2		10		876		40		(878)		50
Interest expense		(5)		(53,042)		—		(208)		878		(52,377)
Loss on extinguishment of debt, net		—		(71)		—		—		—		(71)
Interest expense, net														(8)		(25,830)		517		(103)		—		(25,424)
Gain on extinguishment of debt, net														—		1,808		—		—		—		1,808
(Loss) earnings before income taxes		(1,583)		116,066		(100,276)		24,021		—		38,228		(982)		59,902		(33,240)		11,760		—		37,440
(Benefit) provision for income taxes		(424)		32,152		(26,781)		6,669		—		11,616		(247)		14,763		(8,119)		2,610		—		9,007
(Loss) earnings before equity in net income of subsidiaries		(1,159)		83,914		(73,495)		17,352		—		26,612		(735)		45,139		(25,121)		9,150		—		28,433
Equity in earnings (loss) of subsidiaries		27,771		(56,143)		—		—		28,372		—		29,168		(15,971)		—		—		(13,197)		—
Net earnings (loss)		26,612		27,771		(73,495)		17,352		28,372		26,612	$	28,433	$	29,168	$	(25,121)	$	9,150	$	(13,197)	$	28,433
Comprehensive income (loss)	$	23,887	$	28,217	$	(73,495)	$	14,181	$	31,097	$	23,887	$	14,306	$	30,116	$	(25,121)	$	(5,925)	$	930	$	14,306

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Statement of ~~Cash Flows~~

~~For the Six Months Ended July 29, 2017~~Earnings (Loss)

(in thousands)

Tailored

The Men's

Guarantor

Non-Guarantor


Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net cash provided by (used in) operating activities

$
18,750

$
288,017

$
17,196

$
(165,401)

$
(18,033)

$
140,529

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

—

(11,384)

(19,310)

(3,279)

—

(33,973)

Acquisition of business, net of cash

—

—

—

(457)

—

(457)

Intercompany activities

—

(192,824)

—

—

192,824

—

Proceeds from sale of property and equipment

—

—

2,157

—

—

2,157

Net cash used in investing activities

—

(204,208)

(17,153)

(3,736)

192,824

(32,273)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on term loan

—

(8,129)

—

—

—

(8,129)

Proceeds from asset-based revolving credit facility

—

181,550

—

—

—

181,550

Payments on asset-based revolving credit facility

—

(181,550)

—

—

—

(181,550)

Repurchase and retirement of senior notes

—

(45,167)

—

—

—

(45,167)

Intercompany activities

—

(18,033)

—

192,824

(174,791)

—

Cash dividends paid

(18,033)

—

—

—

—

(18,033)

Proceeds from issuance of common stock

927

—

—

—

—

927

Tax payments related to vested deferred stock units

(1,644)

—

—

—

—

(1,644)

Net cash (used in) provided by financing activities

(18,750)

(71,329)

—

192,824

(174,791)

(72,046)

Effect of exchange rate changes

—

—

—

5,642

—

5,642

Increase in cash and cash equivalents

—

12,480

43

29,329

—

41,852

Cash and cash equivalents at beginning of period

—

1,002

1,881

68,006

—

70,889

Cash and cash equivalents at end of period

$
—

$
13,482

$
1,924

$
97,335

$
—

$
112,741


	Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Nine Months Ended October 28, 2017
Net sales	$	—	$	1,324,731	$	1,146,271	$	513,276	$	(539,796)	$	2,444,482
Cost of sales		—		648,900		860,944		386,541		(539,796)		1,356,589
Gross margin		—		675,831		285,327		126,735		—		1,087,893
Operating expenses		2,599		425,912		405,988		82,321		(45,021)		871,799
Operating (loss) income		(2,599)		249,919		(120,661)		44,414		45,021		216,094
Other income and expenses, net		—		—		45,295		(274)		(45,021)		—
Interest expense, net		223		(79,010)		4,804		(893)		—		(74,876)
Gain on extinguishment of debt, net		—		6,535		—		—		—		6,535
(Loss) earnings before income taxes		(2,376)		177,444		(70,562)		43,247		—		147,753
Provision (benefit) for income taxes		1,441		57,951		(23,398)		14,557		—		50,551
(Loss) earnings before equity in net income of subsidiaries		(3,817)		119,493		(47,164)		28,690		—		97,202
Equity in earnings (loss) of subsidiaries		101,019		(18,474)		—		—		(82,545)		—
Net earnings (loss)	$	97,202	$	101,019	$	(47,164)	$	28,690	$	(82,545)	$	97,202
Comprehensive (loss) income	$	105,957	$	100,578	$	(47,164)	$	37,886	$	(91,300)	$	105,957

Nine Months Ended October 29, 2016
Net sales	$	—	$	1,382,515	$	1,300,852	$	315,060	$	(412,987)	$	2,585,440
Cost of sales		—		676,761		992,265		190,050		(412,987)		1,446,089
Gross margin		—		705,754		308,587		125,010		—		1,139,351
Operating expenses		2,554		452,661		486,419		88,958		(42,923)		987,669
Operating (loss) income		(2,554)		253,093		(177,832)		36,052		42,923		151,682
Other income and expenses, net		—		—		42,923		—		(42,923)		—
Interest expense, net		(11)		(78,862)		1,393		(271)		—		(77,751)
Gain on extinguishment of debt, net		—		1,737		—		—		—		1,737
(Loss) earnings before income taxes		(2,565)		175,968		(133,516)		35,781		—		75,668
(Benefit) provision for income taxes		(671)		46,915		(34,900)		9,279		—		20,623
(Loss) earnings before equity in net income of subsidiaries		(1,894)		129,053		(98,616)		26,502		—		55,045
Equity in earnings (loss) of subsidiaries		56,939		(72,114)		—		—		15,175		—
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

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended October 28, 2017

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	27,243	$	404,404	$	34,049	$	(186,263)	$	(26,895)	$	252,538

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—		(15,413)		(36,146)		(4,397)		—		(55,956)
Acquisition of business, net of cash		—		—		—		(457)		—		(457)
Intercompany activities		—		(223,800)		—		—		223,800		—
Proceeds from sale of property and equipment		—		—		2,157		—		—		2,157
Net cash used in investing activities		—		(239,213)		(33,989)		(4,854)		223,800		(54,256)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan		—		(9,879)		—		—		—		(9,879)
Proceeds from asset-based revolving credit facility		—		235,900		—		—		—		235,900
Payments on asset-based revolving credit facility		—		(235,900)		—		—		—		(235,900)
Repurchase and retirement of senior notes		—		(106,731)		—		—		—		(106,731)
Deferred financing costs		—		(2,464)		—		—		—		(2,464)
Intercompany activities		—		(26,895)		—		223,800		(196,905)		—
Cash dividends paid		(26,895)		—		—		—		—		(26,895)
Proceeds from issuance of common stock		1,334		—		—		—		—		1,334
Tax payments related to vested deferred stock units		(1,682)		—		—		—		—		(1,682)
Net cash (used in) provided by financing activities		(27,243)		(145,969)		—		223,800		(196,905)		(146,317)
Effect of exchange rate changes		—		—		—		3,390		—		3,390
Increase in cash and cash equivalents		—		19,222		60		36,073		—		55,355
Cash and cash equivalents at beginning of period		—		1,002		1,881		68,006		—		70,889
Cash and cash equivalents at end of period	$	—	$	20,224	$	1,941	$	104,079	$	—	$	126,244

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Statement of Cash Flows

For the ~~Six~~Nine Months Ended ~~July 30,~~October 29, 2016

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor						Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated		Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Net cash provided by operating activities	$	18,002	$	55,289	$	22,725	$	21,964	$	(17,676)	$	100,304
Net cash provided by (used in) operating activities													$	26,245	$	153,072	$	36,198	$	(12,193)	$	(26,438)	$	176,884

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—		(29,922)		(23,753)		(2,237)		—		(55,912)		—		(40,273)		(37,055)		(3,222)		—		(80,550)
Intercompany activities		—		37,327		—		—		(37,327)		—		—		(19,025)		—		—		19,025		—
Proceeds from sale of property and equipment		—		—		598		7		—		605		—		—		598		7		—		605
Net cash provided by (used in) investing activities		—		7,405		(23,155)		(2,230)		(37,327)		(55,307)
Net cash used in investing activities														—		(59,298)		(36,457)		(3,215)		19,025		(79,945)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan		—		(38,951)		—		—		—		(38,951)		—		(40,701)		—		—		—		(40,701)
Proceeds from asset-based revolving credit facility		—		302,500		—		3,049		—		305,549		—		517,500		—		3,050		—		520,550
Payments on asset-based revolving credit facility		—		(302,500)		—		(3,049)		—		(305,549)		—		(517,500)		—		(3,050)		—		(520,550)
Repurchase and retirement of senior notes		—		(5,546)		—		—		—		(5,546)		—		(21,924)		—		—		—		(21,924)
Intercompany activities		—		(17,676)		—		(37,327)		55,003		—		—		(26,438)		—		19,025		7,413		—
Cash dividends paid		(17,676)		—		—		—		—		(17,676)		(26,438)		—		—		—		—		(26,438)
Proceeds from issuance of common stock		932		—		—		—		—		932		1,451		—		—		—		—		1,451
Tax payments related to vested deferred stock units		(1,258)		—		—		—		—		(1,258)		(1,258)		—		—		—		—		(1,258)
Net cash used in financing activities		(18,002)		(62,173)		—		(37,327)		55,003		(62,499)
Net cash (used in) provided by financing activities														(26,245)		(89,063)		—		19,025		7,413		(88,870)
Effect of exchange rate changes		—		—		—		(1,048)		—		(1,048)		—		—		—		(3,101)		—		(3,101)
Increase (decrease) in cash and cash equivalents		—		521		(430)		(18,641)		—		(18,550)		—		4,711		(259)		516		—		4,968
Cash and cash equivalents at beginning of period		—		724		2,243		27,013		—		29,980		—		724		2,243		27,013		—		29,980
Cash and cash equivalents at end of period	$	—	$	1,245	$	1,813	$	8,372	$	—	$	11,430	$	—	$	5,435	$	1,984	$	27,529	$	—	$	34,948

2930

Table of Contents

ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

We encourage you to read this "Management's Discussion and Analysis of Financial Condition and Results of Operations" ("MD&A") in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended January 28, 2017. References herein to years are to our 52-week or 53-week fiscal year, which ends on the Saturday nearest January 31 in the following calendar year. For example, references to "2017" mean the 53-week fiscal year ending February 3, 2018.

Executive Overview

Background

We are athe leading ~~authority on helping~~specialty retailer of men’s suits and the largest men’s formalwear provider in the United States (“U.S.”) and Canada and help men ~~dress~~love the way they look for work and special ~~occasions and everyday life.~~occasions. We serve our customers through an expansive omni-channel network that includes over 1,400 locations in the ~~United States ("~~U.S.") and Canada as well as our branded e-commerce websites. 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 15 of Notes to Condensed Consolidated Financial Statements and the discussion included in "Results of Operations" below for additional information and disclosures regarding our reportable segments.

~~Second~~Third Quarter Discussion

~~We saw improved trends in our comparable sales across all retail brands in~~In the ~~second quarter of 2017. We delivered greater profitability in the second~~third quarter of 2017, ~~compared to the~~we posted positive comparable sales at Jos. A. Bank and sequential comparable sales improvement at Men’s Wearhouse and K&G, resulting in our second consecutive quarter of ~~2016 as a result of our focus on disciplined cost management and a more efficient operating structure. However, while we have several growth initiatives underway to increase transactions and~~positive comparable sales ~~the~~for our retail ~~environment remains challenging.~~segment.

We ~~are executing~~launched new marketing campaigns to build awareness about the solutions we provide to men of all shapes and sizes which we believe is bringing new customers into our ~~plan to innovate the best men's specialty retailer of the future. Our~~stores where we provide them with superior service and selection, including custom ~~suit business continues~~suiting at a highly competitive price. We continued to grow our custom business and ~~exemplifies our unique ability to deliver exclusivity, personalization and fit at unsurpassed value and convenience. We are advancing~~enhance our omni-channel capabilities, ~~with new services such as guided shopping, which makes it easy for men~~both online and in-store. These initiatives are part of our strategy to ~~find the perfect look. In addition, we are reaching our customers across all channels~~deliver a superior customer experience in order to ~~let them know what we stand for – helping men love how they look.~~increase market share and drive long-term sustainable growth.

We also continued to make progress toward strengthening our balance sheet. During the third quarter, we repurchased and retired $65.0 million face value of senior notes, resulting in year-to-date repurchases of $115.0 million. We remain ~~focused on operational excellence~~committed to a balanced capital allocation strategy, investing to support our growth initiatives, returning cash to shareholders through our dividend and ~~fiscal discipline. Our rationalized store footprint and more efficient expense structure enable us to generate strong~~using excess free cash flow ~~that we are deploying towards capital investment, dividend payment and debt reduction.~~to reduce debt.

Key operating metrics for the quarter ended ~~July 29,~~October 28, 2017 include:

Net sales decreased ~~6.5%~~4.3% primarily due to the impact of last year's store ~~closures.~~closures as well as the anniversarying of last year’s rollout of a large new uniform program for our corporate apparel segment.

Comparable sales increased ~~7.8%~~4.9% at Jos. A. Bank ~~and 0.3% at Moores~~ while comparable sales decreased ~~2.2%~~1.0% at Men's Wearhouse, 2.6% at Moores and ~~1.7%~~0.6% at K&G. Overall, comparable sales for our retail segment increased 0.1%.

Operating income was ~~$108.5~~$76.6 million for the ~~second~~third quarter of 2017 compared to operating income of ~~$59.6~~$61.1 million in the ~~second~~third quarter of 2016.

Diluted earnings per share ~~of $1.19~~were $0.75 for the ~~second~~third quarter of 2017 compared to diluted earnings per share of ~~$0.51~~$0.58 in the ~~second~~third quarter of 2016.

Key liquidity metrics for the ~~six~~nine months ended ~~July 29,~~October 28, 2017 include:

Cash and cash equivalents at the end of the ~~second~~third quarter of 2017 were ~~$112.7~~$126.2 million, an increase of ~~$101.3~~$91.3 million compared to the end of the ~~second~~third quarter of 2016.

Cash provided by operating activities was ~~$140.5~~$252.5 million for the first ~~six~~nine months of 2017 compared to ~~$100.3~~$176.9 million for the first ~~six~~nine months of 2016.

Capital expenditures were ~~$34.0~~$56.0 million for the first ~~six~~nine months of fiscal 2017 compared to ~~$55.9~~$80.6 million for the first ~~six~~nine months of fiscal 2016.

We repaid ~~$8.1~~$9.9 million on our term loan, repurchased and retired ~~$50.0~~$115.0 million in face value of senior notes and had no borrowings outstanding on our revolving credit facility as of ~~July 29,~~October 28, 2017.

Dividends paid totaled ~~$18.0~~$26.9 million for the ~~six~~nine months ended ~~July 29,~~October 28, 2017.

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Items Affecting Comparability of Results

The comparability of our results has been impacted by certain items, including costs to terminate our tuxedo rental license agreement with Macy's, restructuring and other costs consisting of costs related to our profit improvement and store rationalization programs and integration costs for Jos. A. Bank. A summary of the effect of these items on pretax income for each applicable period is presented below (dollars in millions):


	For the Three Months Ended				For the Six Months Ended				For the Three Months Ended				For the Nine Months Ended
	July 29,		July 30,		July 29,		July 30,		October 28,		October 29,		October 28,		October 29,
	2017		2016		2017		2016		2017		2016		2017		2016
Costs to terminate Macy's agreement (1)	$	—	$	—	$	17.2	$	—	$	—	$	—	$	17.2	$	—
Restructuring and other charges(2)		—		35.0		—		48.2		—		10.9		—		59.1
Integration costs related to Jos. A. Bank(3)		—		2.0		—		5.6		—		1.4		—		7.1
Purchase accounting related charges for Jos. A. Bank		—		—		—		(0.6)		—		—		—		(0.6)
Other		—		2.4		—		2.7		—		—		—		2.6
Total (4)	$	—	$	39.4	$	17.2	$	55.9	$	—	$	12.3	$	17.2	$	68.2

⁽¹⁾

See Note 2 to the condensed consolidated financial statements for additional information.

⁽²⁾

See Note 3 to the condensed consolidated financial statements for additional information.

⁽³⁾

For the three months ended ~~July 30,~~October 29, 2016, integration costs related to Jos. A. Bank included ~~$0.3~~$0.1 million of severance costs. For the ~~six~~nine months ended ~~July 30,~~October 29, 2016, integration costs related to Jos. A. Bank included $2.0 million of severance costs.

⁽⁴⁾

For the three months ended ~~July 30,~~October 29, 2016, consists of ~~$40.2~~$13.3 million included in selling, general and administrative expenses ("SG&A") offset by a ~~$0.8~~$1.0 million reduction in cost of sales. For the ~~six~~nine months ended ~~July 29,~~October 28, 2017, $15.8 million is included in SG&A and $1.4 million is included in cost of sales. For the ~~six~~nine months ended ~~July 30,~~October 29, 2016, ~~consists of $56.6~~includes $69.9 million ~~included~~ in SG&A offset by a ~~$0.7~~$1.7 million reduction in cost of sales.

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 Ended		For the Six Months Ended		For the Year Ended	For the Three Months Ended		For the Nine Months Ended		For the Year Ended
	July 29,	July 30,	July 29,	July 30,	January 28,	October 28,	October 29,	October 28,	October 29,	January 28,
	2017	2016	2017	2016	2017	2017	2016	2017	2016	2017

Open at beginning of period:	1,663	1,846	1,667	1,724	1,724	1,484	1,767	1,667	1,724	1,724
Opened (1)	1	7	2	147	178	2	26	4	173	178
Closed (2)	(180)	(86)	(185)	(104)	(235)	(6)	(83)	(191)	(187)	(235)
Open at end of the period	1,484	1,767	1,484	1,767	1,667	1,480	1,710	1,480	1,710	1,667

Men's Wearhouse(3)	718	710	718	710	716
Men's Wearhouse and Tux	54	135	54	135	58
Tuxedo shops @ Macy's	—	150	—	150	170
Men’s Wearhouse(3)						720	713	720	713	716
Men’s Wearhouse and Tux						51	61	51	61	58
Tuxedo shops @ Macy’s						—	170	—	170	170
Jos. A. Bank(4)	496	557	496	557	506	493	550	493	550	506
Moores	126	126	126	126	126	126	126	126	126	126
K&G	90	89	90	89	91	90	90	90	90	91
	1,484	1,767	1,484	1,767	1,667	1,480	1,710	1,480	1,710	1,667

⁽¹⁾

Includes ~~138 and~~ 158 tuxedo shops within Macy's stores opened in the ~~six~~nine months ended ~~July 30,~~October 29, 2016 and in the year ended January 28, ~~2017, respectively.~~2017.

⁽²⁾

All 170 tuxedo shops within Macy's stores were closed induring the ~~three months ended July 29,~~second quarter of 2017.

⁽³⁾

Includes one Joseph Abboud store.

⁽⁴⁾

Excludes franchise stores.

During the ~~second~~third quarter of 2017, we opened ~~one~~two Men's Wearhouse ~~store~~stores and closed ~~180~~six stores ~~(all 170 tuxedo shops within Macy's stores, seven~~(three Jos. A. Bank stores ~~two~~and three Men's Wearhouse and Tux ~~stores and one K&G store)~~stores).

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Seasonality

Our sales and net earnings are subject to seasonal fluctuations. Our rental service revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is the seasonal low point. In addition, Jos. A. Bank has generally experienced increased customer traffic during the holiday season and its increased marketing efforts during the holiday season have generally resulted in significantly larger sales and net earnings generated in the fourth quarter, as compared to the other three quarters. With respect to corporate apparel sales and operating results, seasonal fluctuations are not significant but the acquisition of new customers or existing customer decisions to rebrand or revise their corporate wear programs can cause significant variations in period results. Because of these fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.

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Results of Operations

For the Three Months Ended ~~July 29,~~October 28, 2017 Compared to the Three Months Ended ~~July 30,~~October 29, 2016

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


	For the Three Months Ended(1)				For the Three Months Ended(1)
	July 29,		July 30,		October 28,		October 29,
	2017		2016		2017		2016
Net sales:
Retail clothing product	69.9	%	67.7	%	70.9	%	67.9	%
Rental services	17.9		18.1		15.6		16.4
Alteration and other services	5.4		5.4		5.7		5.9
Total retail sales	93.2		91.3		92.2		90.2
Corporate apparel clothing product	6.8		8.7		7.8		9.8
Total net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales(2):
Retail clothing product	41.8		45.1		43.0		43.1
Rental services	15.8		16.4		16.2		16.5
Alteration and other services	76.2		69.9		74.4		67.2
Occupancy costs	13.0		13.1		13.9		14.3
Total retail cost of sales	51.8		54.0		54.2		54.1
Corporate apparel clothing product	74.6		64.6		73.6		67.7
Total cost of sales	53.4		54.9		55.8		55.5
Gross margin(2):
Retail clothing product	58.2		54.9		57.0		56.9
Rental services	84.2		83.6		83.8		83.5
Alteration and other services	23.8		30.1		25.6		32.8
Occupancy costs	(13.0)		(13.1)		(13.9)		(14.3)
Total retail gross margin	48.2		46.0		45.8		45.9
Corporate apparel clothing product	25.4		35.4		26.4		32.3
Total gross margin	46.6		45.1		44.2		44.5
Advertising expense	4.7		4.9		4.8		5.4
Selling, general and administrative expenses	29.2		33.6		30.0		31.9
Operating income	12.7		6.6		9.5		7.2
Interest income	0.0		0.0		0.0		0.0
Interest expense	(3.0)		(2.8)		(3.0)		(3.0)
Gain (loss) on extinguishment of debt, net	0.4		(0.0)
Gain on extinguishment of debt, net					0.3		0.2
Earnings before income taxes	10.2		3.7		6.8		4.4
Provision for income taxes	3.3		1.0		2.2		1.1
Net earnings	6.9	%	2.7	%	4.5	%	3.4	%

⁽¹⁾

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

⁽²⁾

Calculated as a percentage of related sales.

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Net Sales

Total net sales decreased ~~$58.9~~$36.1 million, or ~~6.5%~~4.3%, to ~~$850.8~~$810.8 million for the ~~second~~third quarter of 2017 as compared to the ~~second~~third quarter of 2016.

Total retail sales decreased ~~$37.2~~$16.2 million, or ~~4.5%~~2.1%, to ~~$793.0~~$747.5 million for the ~~second~~third quarter of 2017 as compared to the ~~second~~third quarter of 2016 primarily due to a ~~$21.0 million decrease in clothing product revenues primarily reflecting the impact of last year's store closures, a $13.0~~$12.3 million decrease in rental service revenues partially reflecting the impact of last year’s store closures and a ~~$3.2~~$4.0 million decrease in alteration and other services revenues. The ~~net~~ decrease in total retail sales is ~~attributable to the following:~~further described below:


(in millions)		Amount Attributed to
$	~~(9.6)~~(4.3)	~~2.2%~~1.0% decrease in comparable sales at Men's Wearhouse.
	~~11.8~~7.1	~~7.8%~~4.9% increase in comparable sales at Jos. A. Bank.
	~~(1.4)~~(0.4)	~~1.7%~~0.6% decrease in comparable sales at K&G.
	~~0.2~~(1.5)	~~0.3% increase~~2.6% decrease in comparable sales at Moores(1).
	~~(33.1)~~(14.9)	Decrease in non-comparable sales (primarily due to closed stores).
	~~(1.4)~~2.6	~~Decrease~~Increase in net sales resulting from change in U.S./Canadian dollar exchange rate.
	~~(3.7)~~(4.8)	Other (primarily decrease in alteration revenues).
$	~~(37.2)~~(16.2)	Decrease in total retail sales.

⁽¹⁾

Comparable sales percentages for Moores are calculated using Canadian dollars.

Comparable sales is defined as net sales from stores open at least twelve months at period end and includes e-commerce sales. We operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels.

The decrease in comparable sales at Men's Wearhouse resulted primarily from ~~a decrease~~lower rental services revenue while comparable sales for clothing increased slightly primarily due to an increase in transactions and ~~a slight decrease in~~ units per transaction partially offset by ~~an increase~~a decrease in average unit retail (net selling prices). At Men's Wearhouse, rental service comparable sales decreased 4.3% primarily reflecting a consumer shift to purchase suits for special occasions. The increase at Jos. A. Bank resulted primarily from an increase in transactions and units per transaction that more than offset a decrease in average unit retail. The decrease at K&G resulted from lower transactions partially offset by an increase in units per transaction and average unit retail. The increase at Moores resulted from increases in both average unit retail ~~and transactions~~ that more than offset a decrease in units per transaction. ~~At Men's Wearhouse, rental service comparable sales decreased 2.1%~~The decrease at K&G resulted primarily ~~due to a~~from lower transactions partially offset by increases in average unit retail and units per transaction. The decrease at Moores resulted primarily from decreases in both units per transaction and transactions that more than offset an increase in average unit ~~rentals as well as a slight decrease in rental rates.~~retail.

Total corporate apparel clothing product sales decreased ~~$21.7~~$19.9 million for the ~~second~~third quarter of 2017 as compared to the ~~second~~third quarter of 2016 primarily due to anniversarying last year's rollout of a large new uniform program ~~as well as~~partially offset by the impact of a ~~weaker~~stronger British pound this year compared to last year of approximately ~~$3.7~~$1.1 million.

Gross Margin

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

Our total gross margin decreased ~~$13.6~~$18.4 million, or ~~3.3%~~4.9%, to ~~$396.7~~$358.8 million in the ~~second~~third quarter of 2017 as compared to the ~~second~~third quarter of 2016 primarily as a result of lower corporate apparel net sales. Total retail segment gross margin decreased ~~$0.2~~$8.2 million in the ~~second~~third quarter of 2017 compared to same period last ~~year.~~year primarily due to lower sales.

For the retail segment, total gross margin as a percentage of related sales ~~increased~~decreased slightly to ~~48.2%~~45.8% in the ~~second~~third quarter of 2017 from ~~46.0%~~45.9% in the ~~second~~third quarter of ~~2016 primarily as a result of anniversarying lower gross margins in last year's second quarter, driven by clearance activity in preparation of our closing of our factory/outlet stores.~~ 2016.

~~Table of Contents~~

Occupancy costs, ~~decreased $5.3 million primarily due to our store rationalization efforts. Occupancy costs as a percentage of retail sales,~~ which ~~is relatively constant on a per store basis and~~ includes store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation decreased $5.3 million primarily due to ~~13.0%~~our store rationalization efforts in 2016. Occupancy costs as a percentage of retail sales decreased to 13.9% for the ~~second~~third quarter of 2017 from ~~13.1%~~14.3% for the ~~second~~third quarter of 2016.

Table of Contents

Corporate apparel gross margin decreased ~~$13.4~~$10.2 million, or ~~47.8%~~37.9%, in the ~~second~~third quarter of 2017. For the corporate apparel segment, total gross margin as a percentage of related sales decreased to ~~25.4%~~26.4% in the ~~second~~third quarter of 2017 from ~~35.4%~~32.3% in the ~~second~~third quarter of 2016 primarily due to the impact of last year's rollout of a large new uniform program as well as the impact of unfavorable currency fluctuations on previously negotiated pricing arrangements with our United Kingdom ("UK") customers.

Advertising Expense

Advertising expense decreased to ~~$39.9~~$38.7 million in the ~~second~~third quarter of 2017 from ~~$45.0~~$45.7 million in the ~~second~~third quarter of 2016, a decrease of ~~$5.1~~$7.0 million, or ~~11.3%~~15.3%. The decrease in advertising expense was driven primarily by reductions in television advertising reflecting a ~~mix~~ shift to digital advertising, as well as the timing of marketing ~~campaigns that will launch later in 2017.~~spend. As a percentage of total net sales, advertising expense decreased to ~~4.7%~~4.8% in the ~~second~~third quarter of 2017 from ~~4.9%~~5.4% in the ~~second~~third quarter of 2016.

Selling, General and Administrative Expenses

SG&A expenses decreased to ~~$248.3~~$243.5 million in the ~~second~~third quarter of 2017 from ~~$305.7~~$270.5 million in the ~~second~~third quarter of 2016, a decrease of ~~$57.4~~$27.0 million, or ~~18.8%~~10.0%. As a percentage of total net sales, these expenses decreased to ~~29.2%~~30.0% in the ~~second~~third quarter of 2017 from ~~33.6%~~31.9% in the ~~second~~third quarter of 2016. The components of this ~~4.4%~~1.9% net decrease in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:

%

in millions

Attributed to
(4.4)

$
(40.2)

Decrease in restructuring, integration and other items as a percentage of sales from 4.4% in fiscal 2016 to 0.0% in fiscal 2017.  For fiscal 2017, we incurred no such costs.  For fiscal 2016, these costs totaled $40.2 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs.
(0.4)

(10.9)

Store salaries decreased $10.9 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.0% in the second quarter of 2017 from 12.4% in the second quarter of 2016.
0.4

(6.3)

Increase in other SG&A expenses as a percentage of sales to 17.1% in the second quarter of 2017 from 16.7% in the second quarter of 2016  primarily due to deleveraging from lower sales. Other SG&A expenses decreased $6.3 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts.
(4.4)

$
(57.4)

Total


%	in millions		Attributed to
(1.6)	$	(13.3)	Decrease in restructuring, integration and other items as a percentage of sales from 1.6% in the third quarter of 2016 to 0.0% in the third quarter of fiscal 2017. In the third quarter of 2017, we incurred no such costs. In the third quarter of 2016, these costs totaled $13.3 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs.
(0.3)		(7.4)	Store salaries decreased $7.4 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.2% in the third quarter of 2017 from 12.5% in the third quarter of 2016.
—		(6.3)	Other SG&A expenses as a percentage of sales was flat at 17.8% from the third quarter of 2016 to the third quarter of 2017. Other SG&A expenses decreased $6.3 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts partially offset by increased incentive compensation expense.
(1.9)	$	(27.0)	Total

In the retail segment, SG&A expenses as a percentage of related net sales decreased to ~~23.6%~~24.1% in the ~~second~~third quarter of 2017 from ~~28.5%~~27.2% in the ~~second~~third quarter of 2016. SG&A expenses decreased ~~$49.2~~$27.4 million primarily due to decreases in store-related costs resulting from our store rationalization efforts as well as ~~the impact of~~a decrease in restructuring and other costs, primarily related to last year's lease termination costs.

In the corporate apparel segment, SG&A expenses as a percentage of related net sales increased to ~~21.2%~~21.0% in the ~~second~~third quarter of 2017 from ~~19.8%~~19.4% in the ~~second~~third quarter of 2016 primarily due to deleveraging from lower sales. Corporate apparel segment SG&A expenses decreased ~~$3.5~~$2.9 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 ~~decreased~~increased to ~~5.7%~~6.2% in the ~~second~~third quarter of 2017 from ~~5.9%~~5.5% in the ~~second~~third quarter of ~~2016.~~2016 primarily due to deleveraging from lower sales. Shared service SG&A expenses ~~decreased $4.7~~increased $3.2 million primarily due to ~~decreases in costs associated with last year's profit improvement program.~~increased incentive compensation expense.

Net Gain on Extinguishment of Debt

Net gain on extinguishment of debt was $2.5 million in the third quarter of 2017 compared to $1.8 million in the third quarter of 2016. Net gains on extinguishment of debt relate to the repurchasing of our senior notes.

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Provision for Income Tax

For the ~~second quarters~~third quarter of 2017, ~~and 2016,~~ the statutory tax rates in Canada and the UK were approximately 26% and 19%, respectively. For the third quarter of 2016, the statutory tax rate in Canada and the UK were approximately 26% and 20%, respectively. For the ~~second~~third quarter of 2017 and 2016, tax expense for our operations in foreign jurisdictions totaled ~~$4.4~~$6.2 million and ~~$5.1~~$2.7 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 our financial results in fiscal 2017 generate a loss or certain deferred tax liabilities decrease, we may need to establish a valuation allowance on our U.S. deferred tax assets, which could have a material impact on our financial condition and results of operations. Lastly, we are currently undergoing several federal, foreign and state audits; however, we currently do not believe these audits will result in any material change to tax expense in the future.

Net Earnings

Net earnings were ~~$58.5~~$36.9 million for the ~~second~~third quarter of 2017 compared with net earnings of ~~$25.0~~$28.4 million for the ~~second~~third quarter of 2016.

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For the ~~Six~~Nine Months Ended ~~July 29,~~October 28, 2017 Compared to the ~~Six~~Nine Months Ended ~~July 30,~~October 29, 2016

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


	For the Six Months Ended(1)				For the Nine Months Ended(1)
	July 29,		July 30,		October 28,		October 29,
	2017		2016		2017		2016
Net sales:
Retail clothing product	72.1	%	70.8	%	71.7	%	69.9	%
Rental services	15.1		15.2		15.3		15.6
Alteration and other services	5.7		5.8		5.7		5.8
Total retail sales	92.9		91.8		92.7		91.3
Corporate apparel clothing product	7.1		8.2		7.3		8.7
Total net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales(2):
Retail clothing product	42.6		44.5		42.7		44.1
Rental services	16.3		16.2		16.2		16.3
Alteration and other services	74.8		70.6		74.7		69.4
Occupancy costs	13.7		13.7		13.8		13.9
Total retail cost of sales	54.0		55.2		54.1		54.8
Corporate apparel clothing product	73.6		67.5		73.6		67.5
Total cost of sales	55.4		56.2		55.5		55.9
Gross margin(2):
Retail clothing product	57.4		55.5		57.3		55.9
Rental services	83.7		83.8		83.8		83.7
Alteration and other services	25.2		29.4		25.3		30.6
Occupancy costs	(13.7)		(13.7)		(13.8)		(13.9)
Total retail gross margin	46.0		44.8		45.9		45.2
Corporate apparel clothing product	26.4		32.5		26.4		32.5
Total gross margin	44.6		43.8		44.5		44.1
Advertising expense	5.0		5.3		4.9		5.4
Selling, general and administrative expenses	31.1		33.3		30.7		32.8
Operating income	8.5		5.2		8.8		5.9
Interest income	0.0		0.0		0.0		0.0
Interest expense	(3.1)		(3.0)		(3.1)		(3.0)
Gain (loss) on extinguishment of debt, net	0.2		(0.0)
Gain on extinguishment of debt, net					0.3		0.1
Earnings before income taxes	5.7		2.2		6.0		2.9
Provision for income taxes	2.0		0.7		2.1		0.8
Net earnings	3.7	%	1.5	%	4.0	%	2.1	%

⁽¹⁾

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

⁽²⁾

Calculated as a percentage of related sales.

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Net Sales

Total net sales decreased ~~$104.8~~$141.0 million, or ~~6.0%~~5.5%, to ~~$1,633.7~~$2,444.5 million for the first ~~six~~nine months of 2017 as compared to the first ~~six~~nine months of 2016.

Total retail sales decreased ~~$78.1~~$94.3 million, or ~~4.9%~~4.0%, to ~~$1,518.3~~$2,265.8 million for the first ~~six~~nine months of 2017 as compared to the first ~~six~~nine months of 2016 due to a ~~$53.0~~$52.9 million decrease in clothing product revenues primarily reflecting the impact of last year's store closures, ~~an $18.0~~a $30.4 million decrease in rental services revenue and ~~a $7.0~~an $11.1 million decrease in alteration and other services revenues. The decrease in total retail sales is further described below:


(in millions)		Amount Attributed to
$	~~(22.3)~~(26.7)	~~2.6%~~2.1% decrease in comparable sales at Men's Wearhouse.
	~~17.0~~24.1	~~5.7%~~5.4% increase in comparable sales at Jos. A. Bank.
	~~(8.0)~~(8.4)	~~4.7%~~3.5% decrease in comparable sales at K&G.
	~~(2.0)~~(3.4)	~~1.9%~~2.2% decrease in comparable sales at Moores(1).
	~~(53.9)~~(68.8)	Decrease in non-comparable sales (primarily due to closed stores).
	~~(1.8)~~0.8	~~Decrease~~Increase in net sales resulting from change in U.S./Canadian dollar exchange rate.
	~~(7.1)~~(11.9)	Other (primarily decrease in alteration revenues).
$	~~(78.1)~~(94.3)	Decrease in total retail sales.

⁽¹⁾

Comparable sales percentages for Moores are calculated using Canadian dollars.

The decrease in comparable sales at Men's Wearhouse resulted primarily from a decrease in transactions ~~and a slight decrease in units per transaction~~ partially offset by an increase in average unit ~~retail.~~retail while units per transaction were flat. At Men's Wearhouse, rental service comparable sales decreased 2.5% primarily reflecting a consumer shift to purchase suits for special occasions. The increase at Jos. A. Bank resulted primarily from an increase in transactions ~~and~~partially offset by a decrease in units per transaction ~~that more than offset a decrease in~~and average unit retail. The decrease at K&G resulted from lower transactions partially offset by an increase in units per transaction and average unit retail. The decrease at Moores resulted from a decrease in units per transaction partially offset by ~~a slight~~an increase in average unit retail while transactions were essentially flat. ~~At Men's Wearhouse, rental service comparable sales decreased 1.6% primarily due to a decrease in unit rentals as well as a slight decrease in rental rates.~~

Total corporate apparel clothing product sales decreased ~~$26.7~~$46.7 million for the first ~~six~~nine months of 2017 as compared to the first ~~six~~nine months of 2016 primarily due to anniversarying last year's rollout of a large new uniform program as well as the impact of a weaker British pound this year compared to last year of approximately ~~$10.6~~$9.4 million.

Gross Margin

Our total gross margin decreased ~~$33.0~~$51.5 million, or ~~4.3%~~4.5%, to ~~$729.1~~$1,087.9 million in the first ~~six~~nine months of 2017 as compared to the first ~~six~~nine months of 2016. Total retail segment gross margin decreased ~~$17.2~~$25.4 million, or 2.4%, in the first ~~six~~nine months of 2017 compared to the same period last year primarily due to lower ~~sales across our retail brands.~~sales.

For the retail segment, total gross margin as a percentage of retail sales increased to ~~46.0%~~45.9% in the first ~~six~~nine months of 2017 from ~~44.8%~~45.2% in the first ~~six~~nine months of 2016 driven primarily as a result of anniversarying lower gross margins in last ~~year's second quarter,~~year, driven by clearance activity in preparation of our closing of our factory/outlet stores.

Occupancy costs, ~~decreased $10.3 million primarily due to our store rationalization efforts. Occupancy costs as a percentage of retail sales,~~ which ~~is relatively constant on a per store basis and~~ includes store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation ~~was flat at 13.7% for both~~decreased $15.7 million primarily due to our store rationalization efforts in 2016. Occupancy costs as a percentage of retail sales decreased from 13.9% in the first ~~six~~nine months of ~~2017 and 2016.~~2016 to 13.8% in the first nine months of 2017.

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Corporate apparel gross margin decreased ~~$15.8~~$26.0 million, or ~~34.2%~~35.6%, in the first ~~six~~nine months of 2017 as compared to the first ~~six~~nine months of 2016. For the corporate apparel segment, total gross margin as a percentage of related sales decreased to 26.4% in the first ~~six~~nine months of 2017 from 32.5% in the first ~~six~~nine months of 2016 primarily due to the impact of last year's rollout of a large new uniform program as well as the impact of unfavorable currency fluctuations on previously negotiated pricing arrangements with our UK customers.

Advertising Expense

Advertising expense decreased to ~~$82.1~~$120.8 million in the first ~~six~~nine months of 2017 from ~~$92.9~~$138.5 million in the first ~~six~~nine months of 2016, a decrease of ~~$10.8~~$17.7 million, or ~~11.6%~~12.8%. The decrease in advertising expense was driven primarily by reductions in television advertising reflecting a ~~mix~~ shift to digital advertising, as well as the timing of marketing ~~campaigns that will launch later in 2017.~~spend. As a percentage of total net sales, advertising expense was ~~5.0%~~4.9% in the first ~~six~~nine months of 2017 compared to ~~5.3%~~5.4% in the first ~~six~~nine months of 2016.

Selling, General and Administrative Expenses

SG&A expenses decreased to ~~$507.5~~$751.0 million in the first ~~six~~nine months of 2017 from ~~$578.6~~$849.1 million in the first ~~six~~nine months of 2016, a decrease of ~~$71.1~~$98.1 million, or ~~12.3%~~11.6%. As a percentage of total net sales, these expenses decreased to ~~31.1%~~30.7% in the first ~~six~~nine months of 2017 from ~~33.3%~~32.8% in the first ~~six~~nine months of 2016. The components of this ~~2.2%~~2.1% decrease in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:

%

in millions

Attributed to
(2.3)

$
(40.8)

Decrease in restructuring, integration and other items as a percentage of sales to 1.0% in the first six months of 2017 from 3.3% in the first six months of 2016.  For the first six months of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement.  For the first six months of 2016, these costs totaled $56.6 million related primarily to restructuring and other costs.
(0.2)

(16.7)

Store salaries decreased $16.7 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.7% in the first six months of 2017 from 12.9% in the first six months of 2016.
0.3

(13.6)

Increase in other SG&A expenses as a percentage of sales to 17.4% in the first six months of 2017 from 17.1% in the first six months of 2016 primarily due to deleveraging from lower sales. Other SG&A expenses decreased $13.6 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts.
(2.2)

$
(71.1)

Total


%	in millions		Attributed to
(2.1)	$	(54.1)	Decrease in restructuring, integration and other items as a percentage of sales to 0.6% in the first nine months of 2017 from 2.7% in the first nine months of 2016. For the first nine months of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement. For the first nine months of 2016, these costs totaled $69.9 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs.
(0.2)		(24.0)	Store salaries decreased $24.0 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.6% in the first nine months of 2017 from 12.8% in the first nine months of 2016.
0.2		(20.0)	Increase in other SG&A expenses as a percentage of sales to 17.5% in the first nine months of 2017 from 17.3% in the first nine months of 2016 primarily due to deleveraging from lower sales. Other SG&A expenses decreased $20.0 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts.
(2.1)	$	(98.1)	Total

In the retail segment, SG&A expenses as a percentage of related net sales decreased to ~~25.6%~~25.1% in the first ~~six~~nine months of 2017 from ~~27.7%~~27.6% in the first ~~six~~nine months of 2016. SG&A expenses decreased ~~$54.1~~$81.5 million primarily due to decreases in store-related costs resulting from our store rationalization efforts as well as ~~the impact of~~a decrease in restructuring and other costs, primarily related to last year's lease termination costs partially offset by costs to terminate the Macy's agreement in 2017.

In the corporate apparel segment, SG&A expenses as a percentage of related net sales increased to ~~22.2%~~21.8% in the first ~~six~~nine months of 2017 from ~~22.1%~~21.1% in the first ~~six~~nine months of 2016 primarily due to deleverage from lower sales. Corporate apparel segment SG&A expenses decreased ~~$5.8 million.~~$8.6 million primarily due to the impact of a weaker British pound this year compared to last year.

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A. Shared service SG&A expenses as a percentage of total net sales ~~decreased to 5.7%~~was flat at 5.9% in the first ~~six~~nine months of 2017 ~~from 6.0% in~~compared to the first ~~six~~nine months of 2016. Shared service SG&A expenses decreased ~~$11.2~~$8.0 million primarily due to decreases in costs associated with last year's profit improvement ~~program.~~program partially offset by increased incentive compensation expense.

Net Gain on Extinguishment of Debt

Net gain on extinguishment of debt was $6.5 million in the first nine months of 2017 compared to $1.7 million in the first nine months of 2016. Net gains on extinguishment of debt primarily relate to the repurchasing of our senior notes.

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Provision for Income Tax

Our effective income tax rate increased to ~~35.0%~~34.2% for the first ~~six~~nine months of 2017 from ~~30.4%~~27.3% for the first ~~six~~nine months of 2016 primarily due to higher U.S. income as ~~a result~~compared to income earned in foreign jurisdictions this year compared to last year as well as the recognition of $2.2 million of tax deficiencies related to the vesting of stock-based awards resulting from the adoption of new accounting guidance related to stock-based compensation.

For the first ~~six~~nine months of 2017, the statutory tax rates in Canada and the UK were approximately 26% and 19%, respectively. For the first nine months of 2016, the statutory tax ~~rates~~rate in Canada and the UK were approximately 26% and 20%, respectively. For the first ~~six~~nine months of 2017 and 2016, tax expense for our operations in foreign jurisdictions totaled ~~$6.0~~$12.2 million and ~~$6.6~~$9.3 million, respectively.

Net Earnings

Net earnings were ~~$60.3~~$97.2 million for the first ~~six~~nine months of 2017 compared with net earnings of ~~$26.6~~$55.0 million for the first ~~six~~nine months of 2016.

Liquidity and Capital Resources

At July 29, 2017, July 30, 2016 and January 28, 2017, cash and cash equivalents totaled $112.7 million, $11.4 million and $70.9 million, respectively, and working capital totaled $753.0 million, $719.8 million and $705.8 million, respectively. Our primary sources of working capital are cash flows from operations and available borrowings under our ~~financing arrangements,~~revolving credit agreement, as described below. The following table provides details on our cash and cash equivalents and working capital position as ofOctober 28, 2017, October 29, 2016 and January 28, 2017 (in thousands):


	October 28,		October 29,		January 28,
	2017		2016		2017
Cash and cash equivalents	$	126,244	$	34,948	$	70,889
Working capital	$	735,635	$	726,177	$	705,797

In October 2017, The Men’s Wearhouse amended the ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in October 2022, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate ("CDOR") rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%.

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At October 28, 2017, letters of credit totaling approximately $38.7 million were issued and outstanding. As of October 28, 2017, there were no borrowings outstanding under the ABL Facility. Borrowings available under the ABL Facility as of October 28, 2017 were $511.3 million.

Table of Contents

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~~ratios. In addition, we are currently restricted on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Since entering into these financing arrangements, our total leverage ratio and secured leverage ratio have been above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we were subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of ~~July 29,~~October 28, 2017, our total leverage ratio and secured leverage ratio were below the maximums specified in the agreements ~~but~~and we believe these ratios ~~may increase above~~will remain below the maximums specified in the agreements during the remainder of fiscal ~~2017. Currently, we believe our total leverage ratio and secured leverage ratio will remain below the maximums specified in the agreements during fiscal 2018~~2017 and beyond, which will result in the elimination of these additional restrictions.

~~Table of Contents~~

The ABL Facility provides for a senior secured revolving credit facility of $500.0 million, with possible future increases to $650.0 million under an expansion feature that matures in June 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%. As of July 29, 2017, there were no borrowings outstanding under the ABL Facility.

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At July 29, 2017, letters of credit totaling approximately $33.4 million were issued and outstanding. Borrowings available under the ABL Facility as of July 29, 2017 were $466.6 million.

The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, certain of its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. 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 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 in July 2022. Interest on the Senior Notes is payable in January and July of each year.

Cash Flow Activities

Operating activities — Net cash provided by operating activities was ~~$140.5~~$252.5 million and ~~$100.3~~$176.9 million for the first ~~six~~nine months of 2017 and 2016, respectively. The ~~$40.2~~$75.7 million increase was driven by higher net earnings compared to last year, ~~as well as a~~ planned ~~reduction~~reductions in rental product ~~purchases~~ and ~~a decrease in~~ inventory purchases, primarily resulting from our store rationalization efforts, as well as timing of income tax payments, partially offset by a decrease in other assets related to prior year income tax refunds.

Investing activities — Net cash used in investing activities was ~~$32.3~~$54.3 million and ~~$55.3~~$79.9 million for the first ~~six~~nine months of 2017 and 2016, respectively. The ~~$23.0~~$25.7 million decrease was driven by a decrease in capital expenditures primarily due to ~~the prior year opening of tuxedo shops within Macy's and~~ last year's investments to expand our distribution ~~center expansion project.~~capacity.

Financing activities — Net cash used in financing activities was ~~$72.0~~$146.3 million and ~~$62.5~~$88.9 million for the first ~~six~~nine months of 2017 and 2016, respectively. The ~~$9.5~~$57.4 million increase primarily reflects the impact of additional debt repayments this year compared to last year.

Share repurchase program — In March 2013, the Board of Directors (the "Board") approved a share repurchase program for our common stock. At ~~July 29,~~October 28, 2017, the remaining balance available under the Board's authorization was $48.0 million. During the first ~~six~~nine months of 2017 and 2016, no shares were repurchased in open market transactions under the Board's authorization.

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Dividends — Cash dividends paid were ~~approximately $18.0~~$26.9 million and ~~$17.7~~$26.4 million for the first ~~six~~nine months of 2017 and 2016, respectively. During each of the quarters ended ~~July 29,~~October 28, 2017 and ~~July 30,~~October 29, 2016, 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, dividend payments, operating leases and various other commitments and obligations, as they arise.

During the course of the first ~~six~~nine months of 2017, we borrowed and repaid amounts under our ABL Facility with the maximum borrowing outstanding at any point in time totaling $34.7 million.

Capital expenditures are anticipated to be approximately $90.0 million for 2017. This amount includes the anticipated costs to open four Men's Wearhouse stores and to relocate or remodel approximately 10 ~~to 15~~ stores. The balance of the capital expenditures for 2017 will be used for store refreshes, point-of-sale and other computer equipment and systems, distribution facilities and investment in other corporate assets.

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 further 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 and capital 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 28, 2017. As a result of the termination of the tuxedo rental license agreement with Macy's, our total other contractual obligations decreased by $114.9 million.

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 28, 2017.

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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, 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 5 and Note 14 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 ~~July 29,~~October 28, 2017, ~~94%~~90% of our total debt was at a fixed rate with the remainder at a variable rate. As a result, we believe our interest rate risk is substantially mitigated. At ~~July 29,~~October 28, 2017, the effect of one percentage point change in interest rates would result in an approximate ~~$1.0~~$1.5 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 ~~second~~third quarter ended ~~July 29,~~October 28, 2017 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II. OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

For a description of our legal proceedings, see Note 16 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

ITEM 6 — EXHIBITS

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 ~~45.~~46.

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EXHIBIT INDEX

Exhibit Number		Exhibit Index

10.1	—	~~Tailored Brands, Inc. 2016 Long-Term Incentive Plan,~~Amendment No. 2 to ABL Facility (including Annex A), dated as ~~amended (incorporated~~of October 25, 2017, by ~~reference from Appendix A to the Company’s proxy statement on Schedule 14A relating to the 2017 Annual Meeting of Shareholders of~~and among the Company, ~~filed with~~and the ~~Commission on May 4, 2017 (File No. 1‑16097)~~).
~~10.2~~	—	~~Tailored Brands, Inc. Amended~~other Co-Borrowers, the U.S. ABL Administrative Agent, the Canadian ABL Administrative Agent and ~~Restated Senior Executive Change in Control Severance Plan~~the ABL Lenders (filed herewith).
31.1	—	Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith).
31.2	—	Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith).
32.1	—	Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith). †
32.2	—	Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith). †
101.1	—	The following financial information from Tailored Brands, Inc.’s Quarterly Report on Form 10‑Q for the three and ~~six~~nine months ended ~~July 29,~~October 28, 2017 formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Income; (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.

†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.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Tailored Brands, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Dated: ~~September~~December 7, 2017	TAILORED BRANDS, INC.


	By	/s/ JACK P. CALANDRA
		Jack P. Calandra
		Executive Vice President, Chief Financial Officer and Treasurer

4647


%	in millions		Attributed to
(4.4)	$	(40.2)	Decrease in restructuring, integration and other items as a percentage of sales from 4.4% in fiscal 2016 to 0.0% in fiscal 2017. For fiscal 2017, we incurred no such costs. For fiscal 2016, these costs totaled $40.2 million related primarily to restructuring and other costs including our store rationalization and profit improvement programs.
(0.4)		(10.9)	Store salaries decreased $10.9 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.0% in the second quarter of 2017 from 12.4% in the second quarter of 2016.
0.4		(6.3)	Increase in other SG&A expenses as a percentage of sales to 17.1% in the second quarter of 2017 from 16.7% in the second quarter of 2016 primarily due to deleveraging from lower sales. Other SG&A expenses decreased $6.3 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts.
(4.4)	$	(57.4)	Total


%	in millions		Attributed to
(2.3)	$	(40.8)	Decrease in restructuring, integration and other items as a percentage of sales to 1.0% in the first six months of 2017 from 3.3% in the first six months of 2016. For the first six months of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement. For the first six months of 2016, these costs totaled $56.6 million related primarily to restructuring and other costs.
(0.2)		(16.7)	Store salaries decreased $16.7 million primarily due to our store rationalization efforts and decreased as a percentage of sales to 12.7% in the first six months of 2017 from 12.9% in the first six months of 2016.
0.3		(13.6)	Increase in other SG&A expenses as a percentage of sales to 17.4% in the first six months of 2017 from 17.1% in the first six months of 2016 primarily due to deleveraging from lower sales. Other SG&A expenses decreased $13.6 million primarily due to decreases in employee-related benefit costs as well as decreases in store-related costs resulting from our store rationalization efforts.
(2.2)	$	(71.1)	Total