REPORT INDEX

Forward-Looking Statements

Certain information includedstatements made in this reportQuarterly Report on Form 10‑Q or in other materials we have filed or will file with the Securities and Exchange Commission ("SEC"(“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-lookingforward‑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,"“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-lookingForward‑looking statements reflect our current views regarding certain events that could affect our financial condition or results of operations and may include, but are not limited to, references to future sales, comparable sales, margins, costs, earnings, number and costs of store openings, closings, remodels, refreshes, relocations and expansions, capital expenditures, potential acquisitions or divestitures, synergies from acquisitions, business strategies, demand for clothing or rental product, economic conditions, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various political, legal, regulatory, social, economic and business trends. Forward-lookingForward‑looking statements are based upon management'smanagement’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-lookingforward‑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-lookingforward‑looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: actions or inactions by governmental entities; domestic and international macro-economicmacro‑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,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;strategies, including custom clothing; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies;policies, including the enactment of duties or tariffs; advertising or marketing activities of competitors; the impact of cybersecurity threats or data breaches 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-lookingForward‑looking statements are intended to convey the Company'sCompany’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-lookingforward‑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‑Q10-K, 10-Q and 8‑K8-K should be consulted.  This discussion is provided as permitted by the Private 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.

PART I – FINANCIAL INFORMATION

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(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.February 3, 2018.

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,August 2017, the Financial Accounting Standards Board ("FASB") issued issued Accounting Standards Update ("ASU")ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. ASU 2017-12 amends the existing hedge accounting model in order to enable entities to better portray the economics of their risk management activities in their financial statements. ASU 2017-12 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years.  The guidance must be applied on a modified retrospective basis, while presentation and disclosure requirements set forth under ASU 2017-12 are required prospectively in all interim periods and fiscal years ending after the date of adoption.  Early adoption of ASU 2017-12 is permitted.  We do not expect the adoption of ASU 2017-12 to have a material impact on our financial position, results of operations or cash flows.

In February 2016, the FASB issued 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.  approach, which provides an entity the option to apply the guidance at the beginning of the earliest comparative period presented, or at the beginning of the period in which it is adopted.  We have completed our review of the guidance and have made progress in our assessment phase including finalizing the practical expedient and accounting policy elections we will make upon adoption. While we are currentlystill evaluating the impact ASU 2016-02 will have on our consolidated financial position, results of operationsstatements and cash flows but related disclosures, we expect that it will result in a significant increase in our long-term assets and liabilities given we have a 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 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 will result in a cumulative adjustment to retained earnings.

2.  Divestiture of MW Cleaners

On February 28, 2018, we entered into a definitive agreement to divest our MW Cleaners business for approximately $18.0 million, subject to certain adjustments, and the transaction closed on March 3, 2018.  During the first quarter of 2018, we received cash proceeds of $17.7 million and recorded a loss on the divestiture totaling $3.6 million, which is included within selling, general and administrative expenses (“SG&A”) in the condensed consolidated statement of earnings, and relates to our retail segment.  During the second quarter of 2018, we recorded a $0.2 million unfavorable final working capital adjustment, which is included in SG&A in the condensed consolidated statement of earnings, and relates to our retail segment.  For the six months ended August 4, 2018, the total loss on the divestiture of the MW Cleaners business totaled $3.8 million.

We determined that the sale of the MW Cleaners business did not represent a strategic shift and will not have a major effect on our consolidated results of operations, financial position or cash flows.  Accordingly, we have not presented the sale as a discontinued operation in the condensed consolidated financial statements. 

3.  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 completewas completed in fiscal 2017 and all tuxedo shops within Macy's closed in the second quarter of 2017. 

As a result of the agreement, during the first quarter of fiscal 2017, we incurred $17.2 million of termination-related costs, of which $14.6 million were cash charges.  These costs included $12.3 million related to contract termination, $1.4 million of rental product write-offs, $1.2 million of asset impairment charges and $2.3 million of other costs, 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 October 28, 2017, $0.4 million of suchAll termination-related costs are includedwere paid in accrued expenses and other current liabilities in the condensed consolidated balance sheet.fiscal 2017.

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):

(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.

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):

In addition to the restructuring costs described above, for the three months ended October 29, 2016, we incurred integration and other costs related to Jos. A. Bank totaling $1.4 million, of which $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 nine months ended October 29, 2016, we incurred integration and other costs related to Jos. A. Bank totaling $7.1 million, of which $5.5 million are included in SG&A and $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 amountis calculated using the treasury stock method or the two-class method.  For the three and nine months ended 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 nine months ended October 29, 2016.

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 October 28, 2017, our total leverage ratio and secured leverage ratio were below the maximums specified in the agreements and we believe these ratios will remain below the maximums specified in the agreements during the remainder of fiscal 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 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

TheIn April 2018, we refinanced our Original Term Loan.  Immediately prior to the refinancing, the Original Term Loan consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and $400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum.  Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.

As a result, we refinanced $900.0 million in aggregate principal amount of term loans then outstanding with a new Term Loan totaling $900.0 million (the “New Term Loan”).  Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0.

The New Term Loan will bear interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%).  The margins for borrowings under the New Term Loan are 3.50% for LIBOR and 2.50% for the base rate.  The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018.  Proceeds from the New Term Loan were reduced by a $4.5 million OID, which is guaranteed, jointly and severally, by Tailored Brands, Inc. and certainpresented as a reduction of our U.S. subsidiariesthe outstanding balance on the New Term Loan on the balance sheet and will mature inbe amortized to interest expense over the contractual life of the New Term Loan. 

The New Term Loan extends the maturity date of the Original Term Loan from June 2021.  18, 2021 until April 9, 2025, subject to a springing maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.

The interest rate on the New Term Loan is based on 1-month LIBOR, which was 1.24%2.08% at October 28, 2017,August 4, 2018, plus the applicable margin which is currentlyof 3.50%, resulting in a total interest rate of 4.74%5.58%.  In January 2015, we entered into anWe have two interest rate swap agreement, in whichagreements where the variable rate paymentsrates due under a portion of the New Term Loan werehave been exchanged for a fixed rate.  In April 2017, we entered into an additionalrate, including a new interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate.entered into during June 2018.  At October 28, 2017,August 4, 2018, the total notional amount under ourthese interest rate swaps is $490.0$715.0 million.  SeePlease see Note 1415 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 portion80% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, asrate.  As of October 28, 2017,August 4, 2018, the New Term Loan had a weighted average interest rate of 5.13%5.90%.

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, The Men’s Wearhouse and 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. 

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases.  At October 28, 2017,August 4, 2018, letters of credit totaling approximately $38.7$33.9 million were issued and outstanding. Borrowings available under the ABL Facility as of October 28, 2017August 4, 2018 were $511.3$332.1 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 thirdsecond quarter of 2017,2018, we repurchased and retired $65.0completed a partial redemption of $175.0 million in face value of our Senior Notes.  The Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility.  redeemed at a redemption price equal to $1,035 per $1,000 principal amount, plus accrued and unpaid interest.As a result, we recorded a net gainloss on extinguishment totaling $2.5$8.1 million, which is included as a separate line in the condensed consolidated statement of earnings.  The net gainloss on extinguishment reflects a $3.4$6.1 million gainloss upon repurchase partially offset byof the Senior Notes and the elimination of unamortized deferred financing costs totaling $0.9$2.0 million related to the Senior Notes. 

For the ninesix months ended October 28, 2017,August 4, 2018, as a result of the partial redemption of $175.0 million in face value of our Senior Notes as well as the repurchase and retirement of a total of $115.0$17.6 million in face value of Senior Notes and our excess cash flow prepayment,through open market transactions, we recorded a net gainloss on extinguishment totaling $6.5 million, which reflects a $8.2 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $1.7$8.9 million, which is included as a separate line in the condensed consolidated statement of earnings.  The net loss on extinguishment reflects a $6.7 million loss upon repurchase and the elimination of unamortized deferred financing costs totaling $2.2 million related to the Senior Notes.

Long-Term Debt

The following table provides details on our long-term debt as of October 28,August 4, 2018, July 29, 2017 October 29, 2016 and January 28, 2017February 3, 2018 (in thousands):