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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 ~~November 3, 2018~~May 4, 2019 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)

Securities registered pursuant to Section 12(b) of the Act:


Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	TLRD	New York Stock Exchange

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 every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒. No ☐.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ☒	Accelerated filer ☐	Non-accelerated filer ☐
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 ~~November 30, 2018~~May 31, 2019 was ~~50,095,866.~~50,519,133.

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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 ~~November 3,~~May 4, 2019, May 5, 2018 ~~October 28, 2017~~ and February ~~3, 2018~~2, 2019		2

Condensed Consolidated Statements of Earnings for the Three ~~and Nine~~ Months Ended ~~November 3,~~May 4, 2019 and May 5, 2018 ~~and October 28, 2017~~		3

Condensed Consolidated Statements of Comprehensive (Loss) Income for the Three ~~and Nine~~ Months Ended ~~November 3,~~May 4, 2019 and May 5, 2018 ~~and October 28, 2017~~		4

Condensed Consolidated Statements of ~~Cash Flows~~Shareholders’ (Deficit) Equity for the ~~Nine~~Three Months Ended ~~November 3,~~May 4, 2019 and May 5, 2018 ~~and October 28, 2017~~		5

Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 4, 2019 and May 5, 2018		6

Notes to Condensed Consolidated Financial Statements		67

Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations		3735

Item 3 — Quantitative and Qualitative Disclosures about Market Risk		5244

Item 4 — Controls and Procedures		5345

PART II — Other Information		5445

Item 1 — Legal Proceedings		54

~~Item 1A — Risk Factors~~		5445

Item 6 — Exhibits		5545

SIGNATURES		5747

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Forward-Looking Statements

Certain statements made in this Quarterly Report on Form 10‑Q 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, 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‑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 or inactions 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 and revenue enhancement strategies; changes in demand for clothing or rental product; market trends in the retail or rental business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies, including custom clothing; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies, including the enactment of duties or tariffs; the impact of the United Kingdom’s proposed exit from the European Union; advertising or marketing activities of competitors; the impact of cybersecurity threats or data breaches; legal proceedings and the impact of climate change.

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 and 8-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.

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)


	November 3,		October 28,		February 3,		May 4,		May 5,		February 2,
	2018		2017		2018		2019		2018		2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	68,425	$	126,244	$	103,607	$	29,749	$	93,166	$	55,431
Accounts receivable, net		80,696		81,193		79,783		80,623		87,411		73,073
Inventories		875,003		973,001		851,931		874,412		843,671		830,426
Other current assets		70,433		53,566		78,252		49,904		69,937		70,712
Total current assets		1,094,557		1,234,004		1,113,573		1,034,688		1,094,185		1,029,642
PROPERTY AND EQUIPMENT, net		430,878		454,921		460,674		428,380		437,944		439,172
OPERATING LEASE RIGHT-OF-USE ASSETS								955,970		—		—
RENTAL PRODUCT, net		102,540		125,320		123,730		103,895		128,744		99,770
GOODWILL		79,475		119,125		120,292		78,964		104,802		79,491
INTANGIBLE ASSETS, net		164,833		169,072		168,987		156,614		167,320		163,901
OTHER ASSETS		17,257		8,859		12,699		6,942		12,827		8,514
TOTAL ASSETS	$	1,889,540	$	2,111,301	$	1,999,955	$	2,765,453	$	1,945,822	$	1,820,490
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	235,958	$	186,862	$	145,106	$	218,492	$	192,878	$	228,979
Accrued expenses and other current liabilities		302,322		281,533		285,537		316,821		350,414		282,029
Current portion of operating lease liabilities								183,011		—		—
Income taxes payable		16,277		21,224		6,121		15,923		1,740		15,968
Current portion of long-term debt		9,000		8,750		7,000		9,000		9,000		11,619
Total current liabilities		563,557		498,369		443,764		743,247		554,032		538,595
LONG-TERM DEBT, net		1,167,906		1,467,735		1,389,808		1,151,196		1,277,508		1,153,242
OPERATING LEASE LIABILITIES								804,895		—		—
DEFERRED TAXES, net AND OTHER LIABILITIES		148,590		160,197		164,191		70,161		151,503		125,022
Total liabilities		1,880,053		2,126,301		1,997,763		2,769,499		1,983,043		1,816,859
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
SHAREHOLDERS' (DEFICIT) EQUITY:
Preferred stock		—		—		—		—		—		—
Common stock		501		492		492		504		496		501
Capital in excess of par		501,835		485,299		491,648		507,039		494,849		505,157
Accumulated deficit		(464,993)		(469,463)		(479,166)		(470,411)		(510,441)		(468,048)
Accumulated other comprehensive loss		(27,856)		(31,328)		(10,782)		(41,178)		(22,125)		(33,979)
Total shareholders' equity (deficit)		9,487		(15,000)		2,192
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY (DEFICIT)	$	1,889,540	$	2,111,301	$	1,999,955
Total shareholders' (deficit) equity								(4,046)		(37,221)		3,631
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY							$	2,765,453	$	1,945,822	$	1,820,490

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 Nine Months Ended				For the Three Months Ended
	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017		May 4, 2019		May 5, 2018
Net sales:
Retail clothing product	$	588,447	$	575,203	$	1,807,879	$	1,753,782	$	594,779	$	613,644
Rental services		124,697		126,410		350,019		373,208		93,740		100,227
Alteration and other services		38,597		45,909		116,600		138,835		36,143		40,972
Total retail sales		751,741		747,522		2,274,498		2,265,825		724,662		754,843
Corporate apparel clothing product		61,006		63,296		179,643		178,657		56,725		63,121
Total net sales		812,747		810,818		2,454,141		2,444,482		781,387		817,964
Cost of sales:
Retail clothing product		253,758		247,293		789,003		748,802		268,644		276,220
Rental services		17,319		20,455		51,342		60,580		13,017		14,657
Alteration and other services		33,022		34,138		100,949		103,686		33,847		34,178
Occupancy costs		101,521		103,579		304,312		311,994		103,732		101,019
Total retail cost of sales		405,620		405,465		1,245,606		1,225,062		419,240		426,074
Corporate apparel clothing product		44,392		46,596		131,674		131,527		41,591		46,666
Total cost of sales		450,012		452,061		1,377,280		1,356,589		460,831		472,740
Gross margin:
Retail clothing product		334,689		327,910		1,018,876		1,004,980		326,135		337,424
Rental services		107,378		105,955		298,677		312,628		80,723		85,570
Alteration and other services		5,575		11,771		15,651		35,149		2,296		6,794
Occupancy costs		(101,521)		(103,579)		(304,312)		(311,994)		(103,732)		(101,019)
Total retail gross margin		346,121		342,057		1,028,892		1,040,763		305,422		328,769
Corporate apparel clothing product		16,614		16,700		47,969		47,130		15,134		16,455
Total gross margin		362,735		358,757		1,076,861		1,087,893		320,556		345,224
Advertising expense		37,338		38,664		117,232		120,804		45,043		41,233
Selling, general and administrative expenses		246,305		243,466		739,654		750,995		245,211		251,094
Goodwill impairment charge		23,991		—		23,991		—
Operating income		55,101		76,627		195,984		216,094		30,302		52,897
Interest income		207		159		414		324		96		85
Interest expense		(18,757)		(24,412)		(61,602)		(75,200)		(18,663)		(21,981)
(Loss) gain on extinguishment of debt, net		(9,420)		2,539		(30,253)		6,535
Loss on extinguishment of debt, net										—		(12,711)
Earnings before income taxes		27,131		54,913		104,543		147,753		11,735		18,290
Provision for income taxes		13,256		18,021		27,521		50,551		4,593		4,381
Net earnings	$	13,875	$	36,892	$	77,022	$	97,202	$	7,142	$	13,909
Net earnings per common share:
Basic	$	0.28	$	0.75	$	1.55	$	1.98	$	0.14	$	0.28
Diluted	$	0.27	$	0.75	$	1.52	$	1.97	$	0.14	$	0.27
Weighted-average common shares outstanding:
Basic		50,000		49,206		49,766		49,040		50,280		49,458
Diluted		50,722		49,430		50,764		49,251		50,587		50,720
Cash dividends declared per common share	$	0.18	$	0.18	$	0.54	$	0.54

See Notes to Condensed Consolidated Financial Statements.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME

(In thousands)

(Unaudited)


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	November 3,		October 28,		November 3,		October 28,		May 4,		May 5,
	2018		2017		2018		2017		2019		2018

Net earnings	$	13,875	$	36,892	$	77,022	$	97,202	$	7,142	$	13,909
Currency translation adjustments		(4,056)		(5,257)		(26,023)		10,857		(1,585)		(14,143)
Unrealized gain (loss) on cash flow hedges, net of tax		4,980		2,110		8,949		(2,102)
Comprehensive income	$	14,799	$	33,745	$	59,948	$	105,957
Unrealized (loss) gain on cash flow hedges, net of tax										(5,614)		2,800
Comprehensive (loss) income									$	(57)	$	2,566

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ (DEFICIT) EQUITY

(In thousands)

(Unaudited)



							Accumulated
			Capital				Other		Total
	Common		in Excess		Accumulated		Comprehensive		Equity
	Stock		of Par		Deficit		Loss		(Deficit)
BALANCES —February 2, 2019	$	501	$	505,157	$	(468,048)	$	(33,979)	$	3,631
Net earnings		—		—		7,142		—		7,142
Other comprehensive loss		—		—		—		(7,199)		(7,199)
Cumulative adjustment upon ASC 842 adoption (see Note 12)		—		—		(402)		—		(402)
Cash dividends — $0.18 per share		—		—		(9,103)		—		(9,103)
Share-based compensation		—		2,398		—		—		2,398
Common stock issued — 306,505 shares		3		424		—		—		427
Tax payments related to vested deferred stock units		—		(940)		—		—		(940)
BALANCES — May 4, 2019	$	504	$	507,039	$	(470,411)	$	(41,178)	$	(4,046)



							Accumulated
			Capital				Other		Total
	Common		in Excess		Accumulated		Comprehensive		Equity
	Stock		of Par		Deficit		Loss		(Deficit)
BALANCES —February 3, 2018	$	492	$	491,648	$	(479,166)	$	(10,782)	$	2,192
Net earnings		—		—		13,909		—		13,909
Other comprehensive loss		—		—		—		(11,343)		(11,343)
Cumulative adjustment upon ASC 606 adoption (see Note 5)		—		—		(35,824)		—		(35,824)
Cash dividends — $0.18 per share		—		—		(9,360)		—		(9,360)
Share-based compensation		—		4,581		—		—		4,581
Common stock issued — 445,932 shares		4		3,645		—		—		3,649
Tax payments related to vested deferred stock units		—		(5,025)		—		—		(5,025)
BALANCES — May 5, 2018	$	496	$	494,849	$	(510,441)	$	(22,125)	$	(37,221)

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)


	For the Nine Months Ended				For the Three Months Ended
	November 3, 2018		October 28, 2017		May 4, 2019		May 5, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings	$	77,022	$	97,202	$	7,142	$	13,909
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		78,088		78,929		26,695		26,679
Operating lease right-of-use asset amortization						49,969		—
Rental product amortization		30,720		32,779		8,348		8,756
Goodwill impairment charge		23,991		—
Loss (gain) on extinguishment of debt, net		30,253		(6,535)
Loss on extinguishment of debt, net						—		12,711
Amortization of deferred financing costs and discount on long-term debt		2,936		5,391		486		1,333
Loss on disposition of assets		8,599		1,407		—		3,618
Asset impairment charges		504		2,867		184		269
Share-based compensation		11,555		14,850		2,398		4,581
Deferred tax benefit		(2,956)		(243)		1,599		748
Deferred rent expense and other		395		422
Other						85		73
Changes in operating assets and liabilities:
Accounts receivable		(5,661)		(13,192)		(7,504)		(10,871)
Inventories		(49,739)		(13,569)		(44,900)		(11,886)
Rental product		(14,665)		(6,554)		(12,831)		(14,377)
Other assets		10,560		16,632		(269)		8,124
Accounts payable, accrued expenses and other current liabilities		70,924		24,394		30,872		82,755
Income taxes payable		10,313		19,870		(28)		(4,301)
Other liabilities		(5,022)		(2,112)		(50,452)		(1,893)
Net cash provided by operating activities		277,817		252,538		11,794		120,228
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(46,927)		(55,956)		(21,691)		(10,980)
Proceeds from divestiture of business		17,755		—		—		17,732
Acquisition of business, net of cash		—		(457)
Proceeds from sales of property and equipment		—		2,157
Net cash used in investing activities		(29,172)		(54,256)
Net cash (used in) provided by investing activities						(21,691)		6,752
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on original term loan		(993,420)		(9,879)		—		(993,420)
Proceeds from new term loan		895,500		—		—		895,500
Payments on new term loan		(6,750)		—		(4,870)		(2,250)
Proceeds from asset-based revolving credit facility		465,500		235,900		399,500		1,500
Payments on asset-based revolving credit facility		(407,000)		(235,900)		(399,500)		(1,500)
Repurchase and retirement of senior notes		(199,365)		(106,731)		—		(18,240)
Deferred financing costs		(6,713)		(2,464)		—		(5,576)
Cash dividends paid		(27,833)		(26,895)		(9,590)		(9,618)
Proceeds from issuance of common stock		6,149		1,334		427		3,649
Tax payments related to vested deferred stock units		(7,510)		(1,682)		(940)		(5,025)
Net cash used in financing activities		(281,442)		(146,317)		(14,973)		(134,980)
Effect of exchange rate changes		(2,385)		3,390		(812)		(2,441)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS		(35,182)		55,355
DECREASE IN CASH AND CASH EQUIVALENTS						(25,682)		(10,441)
Balance at beginning of period		103,607		70,889		55,431		103,607
Balance at end of period	$	68,425	$	126,244	$	29,749	$	93,166

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.

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 February ~~3, 2018.~~2, 2019.

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 Not Yet Adopted — We have considered all new accounting pronouncements not yet adopted 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 August ~~2017,~~2018, the Financial Accounting Standards Board ~~("FASB"~~(“FASB”) iissued ASU 2018-15, ~~ssued~~ ~~Accounting Standards Update ("ASU")~~ ~~ASU 2017-12,~~ ~~Derivatives~~Intangibles-Goodwill and ~~Hedging: Targeted Improvements to~~Other-Internal Use Software: Customer’s Accounting for ~~Hedging Activities~~Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU ~~2017-12 amends~~2018-15 aligns the ~~existing hedge accounting model~~requirements for capitalizing implementation costs incurred in ~~order~~a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to ~~enable entities to better portray the economics of their risk management activities in their financial statements.~~develop or obtain internal-use software. ASU ~~2017-12~~2018-15 is effective for public companies for annual reporting periods beginning after December 15, ~~2018,~~2019, 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~~2018-15 is permitted. We ~~do not expect~~are currently evaluating the ~~adoption of~~impact ASU ~~2017-12 to~~2018-15 may 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. ~~In July 2018, the FASB issued ASU 2018-11,~~ ~~Leases - Targeted Improvements, that provided a practical expedient that removed the requirement to restate prior period financial statements upon adoption of the standard, which we plan to elect.~~ 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. Furthermore, we have selected a lease accounting system and are implementing processes and controls around that system to enable the preparation of the required financial information for this standard. While we are still evaluating the impact ASU 2016-02 will have on our consolidated financial statements and 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.~~

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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. During the third quarter of 2018, no amounts were recorded related to the divestiture. For ~~the nine months ended November 3,~~fiscal 2018, the total loss on ~~the~~ divestiture of ~~the~~ MW Cleaners ~~business totaled~~was $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 was 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. All termination-related costs were paid in fiscal 2017.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.3. Earnings Per Share

Basic earnings per common share is computed by dividing net earnings by the weighted-average common shares outstanding during the period. Diluted earnings per common share is calculated using the treasury stock method. Basic and diluted earnings per common share are computed using the actual net earnings 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 in our condensed consolidated statement of earnings and the accompanying notes. The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share amounts):


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	November 3,		October 28,		November 3,		October 28,		May 4,		May 5,
	2018		2017		2018		2017		2019		2018
Numerator
Net earnings	$	13,875	$	36,892	$	77,022	$	97,202	$	7,142	$	13,909
Denominator
Basic weighted-average common shares outstanding		50,000		49,206		49,766		49,040		50,280		49,458
Dilutive effect of share-based awards		722		224		998		211		307		1,262
Diluted weighted-average common shares outstanding		50,722		49,430		50,764		49,251		50,587		50,720
Net earnings per common share:
Basic	$	0.28	$	0.75	$	1.55	$	1.98	$	0.14	$	0.28
Diluted	$	0.27	$	0.75	$	1.52	$	1.97	$	0.14	$	0.27

For the three ~~and nine~~ months ended ~~November 3,~~May 4, 2019 and May 5, 2018, ~~0.8~~2.0 million and 0.6 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively. For the three and nine months ended October 28, 2017, 2.2 million and 2.10.4 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

5.4. Debt

In 2014, The Men's Wearhouse entered into a term loan credit agreement that provided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the "Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original Term Loan, the "Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Original Term Loan were reduced by an $11.0 million original issue discount ("OID"), which was presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the Original Term Loan. In addition, in 2014, The Men's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "Senior Notes").

In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. In April 2018, The Men’s Wearhouse refinanced its Original Term Loan, and in October 2018, amended its term loan to reduce the interest rate margin. See Credit Facilities section below for additional information.

The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios. Should our total leverage ratio and secured leverage ratio exceed certain thresholds specified in the agreements, we would be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of ~~November 3, 2018,~~May 4, 2019, our total leverage ratio and secured leverage ratio are below ~~these thresholds and we believe these ratios will remain below~~ the thresholds specified in the agreements, ~~for the foreseeable future,~~ which results in the elimination of these additional restrictions. In addition, as a result of the refinancing of our Original Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Credit Facilities

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

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

The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018. Proceeds from the New Term Loan were reduced by a $4.5 million OID, which was presented as a reduction of the outstanding balance on the New Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the New Term Loan.

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

The New Term Loan bears interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%). In October 2018, we amended the New Term Loan resulting in a reduction in the interest rate margin of 25 basis points. As a result of the amendment, the margins for borrowings under the New Term Loan are 3.25% for LIBOR and 2.25% for the base rate and the OID was eliminated. In connection with the October 2018 amendment of the New Term Loan, we incurred deferred financing costs of $1.1 million, which will be amortized over the life of the New Term Loan using the interest method. The maturity date for the New Term Loan remains April 9, 2025, and all other material provisions of the New Term Loan remain unchanged.

The interest rate on the New Term Loan is based on 1-month LIBOR, which was ~~2.32%~~2.47% at ~~November 3, 2018,~~May 4, 2019, plus the applicable margin of 3.25%, resulting in a total interest rate of ~~5.57%~~5.72%. We have two interest rate swap agreements where the variable rates due under the New Term Loan have been exchanged for a fixed rate, including an interest rate swap entered into during June 2018. At ~~November 3, 2018,~~May 4, 2019, the total notional amount under these interest rate swaps is ~~$715.0~~$710.0 million. Please see Note 15 for additional information on our interest rate swaps.

As a result of our interest rate swaps, 80% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, as of ~~November 3, 2018,~~May 4, 2019, the New Term Loan had a weighted average interest rate of ~~5.69%~~5.77%.

In connection with the April 2018 refinancing of the New Term Loan, we incurred deferred financing costs of $5.6 million, which was to be amortized over the life of the New Term Loan using the interest method. In addition, as a result of the refinancing, we recorded a loss on extinguishment of debt totaling $11.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Original Term Loan, which is included as a separate line in the condensed consolidated statement of earnings.

In connection with the October 2018 amendment of the New Term Loan, we incurred deferred financing costs of $1.1 million, which will be amortized over the life of the New Term Loan using the interest method. In addition, we recorded a loss on extinguishment of debt totaling $9.4 million consisting of the elimination of unamortized deferred financing costs and OID, which is included as a separate line in the condensed consolidated statement of earnings.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in October 2022, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate ("CDOR") rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 1.75%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%. As of ~~November 3, 2018, $58.5~~May 4, 2019, $48.5 million in borrowings were outstanding under the ABL Facility at a weighted average interest rate of approximately 5.3%. During the ~~nine~~three months ended ~~November 3, 2018,~~May 4, 2019, the maximum borrowing outstanding under the ABL Facility was ~~$104.5~~$100.0 million.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At May 4, 2019, letters of credit totaling approximately $38.7 million were issued and outstanding. Borrowings available under the ABL Facility as of May 4, 2019 were $424.9 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, 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 November 3, 2018, letters of credit totaling approximately $33.8 million were issued and outstanding. Borrowings available under the ABL Facility as of November 3, 2018 were $457.7 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 inon January 1 and July 1 of each year.

We may redeem some or all of the Senior Notes at any time on or after July 1, 2017 at the redemption prices set forth in the indenture governing the Senior Notes. Upon the occurrence of certain specific changes of control, we may be required to offer to purchase the Senior Notes at 101% of their aggregate principal amount plus accrued and unpaid interest thereon to the date of purchase.

During ~~the second quarter of~~fiscal 2018, we completed a partial redemption of $175.0 million in face value of our Senior Notes. The Senior Notes were redeemed at a redemption price equal to $1,035 per $1,000 principal amount, plus accrued and unpaid interest.As

Long-Term Debt

During the first quarter of 2019, in accordance with the provisions of the New Term Loan, we made a ~~result,~~mandatory excess cash flow payment of $2.6 million to the Term Loan lenders.

In connection with the April 2018 refinancing of the New Term Loan, we recorded a ~~net~~ loss on extinguishment of debt totaling ~~$8.1~~$11.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Original Term Loan, which is included as a separate line in the condensed consolidated statement of earnings. ~~The net loss on extinguishment reflects a $6.1 million loss upon repurchase~~In addition, during the first quarter of ~~the Senior Notes~~2018, we repurchased and ~~the elimination of unamortized deferred financing costs totaling $2.0 million related to the Senior Notes.~~

~~For the nine months ended November 3, 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~~retired $17.6 million in face value of Senior Notes through open market ~~transactions in the first quarter of 2018,~~repurchases. As a result, we recorded a net loss on extinguishment totaling ~~$8.9~~$0.9 million, ~~which is included as~~consisting of a ~~separate line in the condensed consolidated statement of earnings. The net loss on extinguishment reflects a $6.7~~$0.6 million loss upon repurchase and the elimination of unamortized deferred financing costs totaling ~~$2.2~~$0.3 million related to the Senior Notes.

The following table provides details on our long-term debt as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):


	May 4,		May 5,		February 2,
	2019		2018		2019
Term Loan (net of unamortized OID of $0.0 million at May 4, 2019, $4.5 million at May 5, 2018, and $0.0 million at February 2, 2019)	$	886,130	$	893,299	$	891,000
Senior Notes		228,607		403,607		228,607
ABL Facility		48,500		—		48,500
Less: Deferred financing costs related to the Term Loan and Senior Notes		(3,041)		(10,398)		(3,246)
Total long-term debt, net		1,160,196		1,286,508		1,164,861
Current portion of long-term debt		(9,000)		(9,000)		(11,619)
Total long-term debt, net of current portion	$	1,151,196	$	1,277,508	$	1,153,242

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~Long-Term Debt~~

~~The following table provides details on our long-term debt as of November 3, 2018, October 28, 2017 and February 3, 2018 (in thousands):~~

November 3,

October 28,

February 3,


2018

2017

2018

Term Loan (net of unamortized OID of $0.0 million at November 3, 2018, $3.4 million at October 28, 2017, and $3.0 million at February 3, 2018)

$
893,250

$
1,033,514

$
990,465

Senior Notes

228,607

460,000

421,209

ABL Facility

58,500

—

—

Less: Deferred financing costs related to the Term Loan and Senior Notes

(3,451)

(17,029)

(14,866)

Total long-term debt, net

1,176,906

1,476,485

1,396,808

Current portion of long-term debt

(9,000)

(8,750)

(7,000)

Total long-term debt, net of current portion

$
1,167,906

$
1,467,735

$
1,389,808

6.5. Revenue Recognition

Adoption of ASC 606

Effective February 4, 2018, we adopted ASC 606, Revenue from Contracts with Customers and all related amendments (“ASC 606”), to all contracts using the modified retrospective approach. We recognized the cumulative effect of initially applying ASC 606 as an adjustment to the opening balance of retained earnings. The adoption had no impact to our previously reported results of operations or cash flows. ~~The comparative period information has not been restated and continues to be reported under the accounting standards in effect for the period presented.~~

The following table depicts the cumulative effect of the changes made to our February 3, 2018 balance sheet for the adoption of ASC 606 (in thousands):


	Reported				Adjusted
	Balance at		Impact of		Balance at
	February 3,		Adoption of		February 3,
	2018		ASC 606		2018
Assets:
Accounts receivable, net	$	79,783	$	(303)	$	79,480
Inventories		851,931		(17,837)		834,094
Other current assets		78,252		2,753		81,005
Liabilities:
Accrued expenses and other current liabilities		285,537		32,378		317,915
Deferred taxes, net and other liabilities		164,191		(11,941)		152,250
Equity:
Accumulated deficit		(479,166)		(35,824)		(514,990)

The adoption of ASC 606 primarily impacted the timing of revenue recognition related to our customer loyalty program, gift cards and e-commerce sales within our retail segment, as discussed in more detail below. In addition, for our corporate apparel segment, certain deferred revenue balances along with related inventory amounts were eliminated as part of the cumulative adjustment to opening retained earnings. Also, for estimated sales returns, we ~~now~~ recognize allowances for estimated sales returns on a gross basis rather than a net basis on the condensed consolidated balance sheets.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Revenues

The following table depicts the disaggregation of revenue by major source (in thousands):


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017		May 4, 2019		May 5, 2018
Net sales:
Men's tailored clothing product	$	342,972	$	330,618	$	1,055,213	$	1,004,430	$	342,955	$	355,737
Men's non-tailored clothing product		227,069		227,520		691,780		690,312		228,982		235,606
Women's clothing product		15,109		14,795		52,138		52,722		19,214		19,582
Other (1)		3,297		2,270		8,748		6,318		3,628		2,719
Total retail clothing product		588,447		575,203		1,807,879		1,753,782		594,779		613,644
Rental services		124,697		126,410		350,019		373,208		93,740		100,227
Alteration services		38,597		37,238		114,049		112,851		36,143		38,421
Retail dry cleaning services (2)		—		8,671		2,551		25,984		—		2,551
Total alteration and other services		38,597		45,909		116,600		138,835		36,143		40,972
Total retail sales		751,741		747,522		2,274,498		2,265,825		724,662		754,843
Corporate apparel clothing product		61,006		63,296		179,643		178,657		56,725		63,121
Total net sales	$	812,747	$	810,818	$	2,454,141	$	2,444,482	$	781,387	$	817,964

⁽¹⁾

Other consists of franchise and licensing revenues and gift card breakage. Franchise revenues are generally recognized at a point in time while licensing revenues consist primarily of minimum guaranteed royalty amounts recognized over an elapsed time period.

⁽²⁾

On March 3, 2018, we completed the divestiture of our MW Cleaners business. Please see Note 2 for additional information.

Please see Note 16 for additional information regarding our reporting segments.

Retail Segment

For retail clothing product revenue, we transfer control and recognize revenue at a point in time, upon sale or shipment of the merchandise, net of actual sales returns and an accrual for estimated sales returns. For rental and alteration services, we transfer control and recognize revenue at a point in time, upon receipt by the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.

Loyalty Program

We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a one‑to‑one basis, excluding any sales tax dollars, and, dohistorically, did not expire. During the fourth quarter of 2018, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance. We believe our loyalty ~~program~~programs represents a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer. Therefore, we ~~will~~ record our obligation for future point redemptions using a deferred revenue model. In prior years, we used an incremental cost approach where we accrued the estimated costs of the anticipated certificate redemptions when the certificates were issued and charged such costs to cost of sales.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

is recorded in deferred revenue on our condensed consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.

We account for points earned and certificates issued that will ~~never~~not be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.

Our estimate of the expected usage of points and certificates requires significant management judgment. Current and future changes to our assumptions or to loyalty program rules may result in material changes to the deferred revenue balance as well as recognized revenues from the loyalty program. For example, during fiscal 2018, we plan to test potential changes to our loyalty program in order to improve the effectiveness of the program, such as redemption of points into a rewards certificate prior to reaching 500 points.programs.

Gift Card Breakage

Proceeds from the sale of gift cards are recorded as a liability and are recognized as net sales from products and services when the cards are redeemed. Our gift cards do not have expiration dates. In addition, we recognize revenue for gift cards for which the likelihood of redemption is deemed to be remote and for which there is no legal obligation to remit the value of such unredeemed gift cards to any relevant jurisdictions (commonly referred to as gift card breakage) under the redemption recognition method. This method records gift card breakage as revenue on a proportional basis over the redemption period based on our historical gift card breakage rate. We review our gift card breakage estimate based on our historical redemption patterns. ~~In prior years, we recognized income from breakage of gift cards as a reduction of SG&A when the likelihood of redemption of the gift card was remote.~~

Sales Returns

Revenue from merchandise product sales is reported net of sales returns, which includes an estimate of future returns based on historical return rates, with a corresponding reduction to cost of sales. Our refund liability for sales returns was ~~$6.1~~$6.4 million at ~~November 3, 2018,~~May 4, 2019, which is included in accrued and other current liabilities and represents the expected value of the refund that will be due to our customers. We also have a corresponding asset included in other current assets that represents the right to recover products from customers associated with sales returns of ~~$2.7~~$3.3 million at ~~November 3, 2018. In prior years, we recognized an accrual for estimated sales returns on a net basis.~~May 4, 2019.

Corporate Apparel Segment

For our corporate apparel segment, we sell corporate clothing and uniforms to workforces under a contract or by purchase order. We transfer control and recognize revenue at a point in time, generally upon delivery of the product to the customer. Revenue is measured as the amount of consideration we expect to receive in exchange for transferring goods or providing services. Sales, use and value added taxes we collect from our customers and are remitted to governmental agencies are excluded from revenue.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Contract Liabilities

The following table summarizes the opening and closing balances of our contract liabilities (in thousands):


	Balance at		Increase		Balance at
	February 2, 2019		(Decrease)		May 4, 2019
Contract liabilities	$	122,828	$	43,074	$	165,902

Balance at

Increase

Balance at


February 3, 2018

(Decrease)

November 3, 2018

As Adjusted

Contract liabilities

$
141,552

$
556

$
142,108


	Balance at		Increase		Balance at
	February 3, 2018		(Decrease)		May 5, 2018
	As Adjusted
Contract liabilities	$	141,552	$	46,791	$	188,343

Contract liabilities include cash payments received from customers in advance of our performance, including amounts which are refundable. These liabilities primarily consist of customer deposits related to rental product or custom clothing

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

transactions since we typically receive payment from our customers prior to our performance and deferred revenue related to our loyalty programs and unredeemed gift cards. These amounts are included as “Customer deposits, prepayments and refunds payable,” “Loyalty program liabilities” and “Unredeemed gift cards,” respectively, within the accrued expenses and other current liabilities line item on our condensed consolidated balance sheet. Please see Note 109 for additional information on our accrued expenses and other current liabilities.

The amount of revenue recognized for the three ~~and nine~~ months ended ~~November 3,~~May 4, 2019 and May 5, 2018 that was included in the respective opening contract liability balance was ~~$10.1~~$52.2 million and ~~$76.4~~$41.7 million, respectively. This revenue primarily consists of recognition of deposits for completed transactions as well as redeemed certificates related to our loyalty program and gift card redemptions.

~~Practical Expedients and Impact on Fiscal 2018 Results~~

6. Supplemental Cash Flows

~~Due to the short term nature~~Supplemental disclosure of a significant portion of our contracts with customers, we have elected to apply the practical expedients under ASC 606 to: (1) not adjust the consideration for the effects of a significant financing component, (2) recognize incremental costs of obtaining a contractcash flow information is as ~~expense when incurred and (3) not disclose the value of our unsatisfied performance obligations for contracts with an original expected duration of one year or less.~~ follows (in thousands):


	For the Three Months Ended
	May 4,		May 5,
	2019		2018

Cash paid for interest	$	13,763	$	13,380
Cash paid for income taxes, net	$	6,455	$	2,128

~~In accordance with ASC 606,~~

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $5.9 million and $4.7 million at May 4, 2019 and May 5, 2018, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the ~~following tables reflect the impact on our fiscal 2018~~ condensed consolidated statement of ~~earnings~~cash flows in the period they are paid. Please see Note 12 for other cash flow disclosures related to leases.

7. Inventories

The following table provides details on our inventories as of May 4, 2019, May 5, 2018 and ~~balance sheet as if we had continued to apply accounting standards in effect last year (“Legacy GAAP”)~~February 2, 2019 (in ~~thousands, except per share amounts)~~thousands):

Statement of Earnings

For the Three Months Ended November 3, 2018

As

Amounts Under

Effect of Change


Reported

Legacy GAAP

Increase/(Decrease)

Net sales:

Total retail sales

$
751,741

$
753,195

$
1,454

Corporate apparel clothing product

61,006

62,353

1,347

Costs and expenses:

Total retail cost of sales

405,620

406,430

810

Total corporate apparel clothing product cost of sales

44,392

45,516

1,124

Selling, general and administrative expenses

246,305

245,918

(387)

Provision for income taxes

13,256

13,869

613

Net earnings

13,875

14,516

641

Diluted net earnings per common share

$
0.27

$
0.29

$
0.02


	May 4,		May 5,		February 2,
	2019		2018		2019
Finished goods	$	745,607	$	749,746	$	682,610
Raw materials and merchandise components		128,805		93,925		147,816
Total inventories	$	874,412	$	843,671	$	830,426

For the Nine Months Ended November 3, 2018

As

Amounts Under

Effect of Change


Reported

Legacy GAAP

Increase/(Decrease)

Net sales:

Total retail sales

$
2,274,498

$
2,273,821

$
(677)

Corporate apparel clothing product

179,643

186,249

6,606

Costs and expenses:

Total retail cost of sales

1,245,606

1,246,396

790

Total corporate apparel clothing product cost of sales

131,674

137,045

5,371

Selling, general and administrative expenses

739,654

738,522

(1,132)

Provision for income taxes

27,521

27,758

237

Net earnings

77,022

77,685

663

Diluted net earnings per common share

$
1.52

$
1.53

$
0.01

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Balance Sheet

November 3, 2018

As

Amounts Under

Effect of Change


Reported

Legacy GAAP

Increase/(Decrease)

Assets:

Accounts receivable, net

$
80,696

$
82,850

$
2,154

Inventories

875,003

886,627

11,624

Other current assets

70,433

67,774

(2,659)

Liabilities:

Accrued expenses and other current liabilities

302,322

245,074

(57,248)

Deferred taxes, net and other liabilities

148,590

136,623

(11,967)

Equity:

Accumulated deficit

$
(464,993)

$
(428,506)

$
36,487

~~7. Supplemental Cash Flows~~

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

For the Nine Months Ended

November 3,

October 28,

2018

2017

Cash paid for interest

$
55,856

$
66,628

Cash paid for income taxes, net

$
3,331

$
17,798

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $12.9 million and $7.1 million at November 3, 2018 and October 28, 2017, 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.

8. ~~Inventories~~

~~The following table provides details on our inventories as of November 3, 2018, October 28, 2017 and February 3, 2018 (in thousands):~~

November 3,

October 28,

February 3,


2018

2017

2018

Finished goods

$
762,586

$
873,030

$
739,668

Raw materials and merchandise components

112,417

99,971

112,263

Total inventories

$
875,003

$
973,001

$
851,931

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

9. Income Taxes

In December 2017, the U.S. enacted comprehensive tax legislation commonly referred to as the Tax Cuts and Jobs Act (the “Tax Reform Act”). The changes included in the Tax Reform Act are broad and complex, including, but not limited to reducing the U.S. federal corporate tax rate from 35% to 21% effective January 1, 2018. Our federal income tax expense for fiscal 2018 is based on the new rate.

Our effective income tax rate increased to ~~48.9%~~39.1% for the ~~third~~first quarter of 2019 from 24.0% for the first quarter of 2018 ~~from 32.8% for the third quarter of 2017~~ primarily due to an increase in the ~~non-deductibility of the goodwill impairment charge and certain executive compensation costs partially offset by the impact of the Tax Reform Act.~~

~~Our effective income~~discrete tax rate decreased to 26.3% for the first nine months of 2018 from 34.2% for the first nine months of 2017 primarily from enactment of the Tax Reform Act, the release of $3.1 million of state valuation allowances and anniversarying last year’s $2.2 million of tax deficienciesexpense related to the ~~vesting of stock-based~~net excess shortfalls from share-based awards ~~recorded~~vesting in the first ~~nine months of 2017 resulting from the adoption of new accounting guidance related to stock-based compensation.~~

~~Shortly after the Tax Reform Act was enacted, the SEC issued Staff Accounting Bulletin No. 118,~~ ~~Income Tax Accounting Implications of the Tax Cuts and Jobs Act~~ (“SAB 118”) which provides guidance on accounting for the Tax Reform Act’s impact. SAB 118 provides a measurement period, which in no case should extend beyond one year from the Tax Reform Act enactment date, during which a company acting in good faith may complete the accounting for the impacts of the Tax Reform Act. In accordance with SAB 118, a company must reflect the income tax effects of the Tax Reform Act in the reporting period in which the accounting is complete. To the extent that a company’s accounting for certain income tax effects of the Tax Reform Act is incomplete, a company can determine a reasonable estimate for those effects and record a provisional estimate in the financial statements in the first reporting period in which a reasonable estimate can be determined.

At the end of fiscal 2017, we recorded a provisional discrete net tax benefit of $0.3 million related to the Tax Reform Act as well as a provisional estimate of incremental withholding liabilities on our investment in foreign earnings totaling $17.3 million as we no longer intend to permanently reinvest our foreign earnings from Canada.

~~During the first nine months of 2018, there have been no material updates to these provisional amounts; however, we expect a favorable SAB 118 adjustment in the fourth~~ quarter of 2018. While we have made a reasonable estimate of the impact of the Tax Reform Act, we are continuing to finalize the consequences of tax reform, including analyzing additional information related to the Tax Reform Act as supplemental legislation, regulatory guidance, or evolving technical interpretations become available. We expect that our transition tax and the temporary differences that existed on the date of enactment will be presumed final once our federal return is filed. 2019.

Additionally, we are currently undergoing several tax 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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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~10.~~9. Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes, net and Other Liabilities

The following table provides details on our other current assets as of ~~November 3,~~May 4, 2019, May 5, 2018 ~~October 28, 2017~~ and February ~~3, 2018~~2, 2019 (in thousands):


	November 3,		October 28,		February 3,		May 4,		May 5,		February 2,
	2018		2017		2018		2019		2018		2019
Prepaid expenses	$	56,030	$	44,473	$	47,545	$	33,850	$	44,438	$	56,361
Tax receivable		965		506		20,368		5,090		12,814		584
Other		13,438		8,587		10,339		10,964		12,685		13,767
Total other current assets	$	70,433	$	53,566	$	78,252	$	49,904	$	69,937	$	70,712

The decrease in prepaid expenses as of May 4, 2019, is due to the impact on prepaid rent resulting from the adoption of Accounting Standards Codification 842, Leases (“ASC 842”), effective February 3, 2019. Please see Note 12 for additional information.

The following table provides details on our accrued expenses and other current liabilities as of ~~November 3,~~May 4, 2019, May 5, 2018 ~~October 28, 2017~~ and February ~~3, 2018~~2, 2019 (in thousands):


	November 3,		October 28,		February 3,		May 4,		May 5,		February 2,
	2018		2017		2018		2019		2018		2019
Customer deposits, prepayments and refunds payable							$	85,985	$	87,849	$	40,620
Accrued salary, bonus, sabbatical, vacation and other benefits	$	70,378	$	79,753	$	84,767		54,528		56,066		81,503
Loyalty program liabilities		64,944		11,199		9,106		44,893		65,597		44,434
Customer deposits, prepayments and refunds payable		44,792		37,822		59,633
Sales, value added, payroll, property and other taxes payable		30,233		30,220		29,409		37,821		37,605		25,547
Unredeemed gift cards		26,279		34,552		39,609		28,352		29,921		32,178
Accrued workers compensation and medical costs		25,675		27,860		25,244		22,357		24,639		23,974
Accrued dividends		10,320		10,789		11,128		9,993		10,870		10,480
Accrued interest		6,055		19,550		3,281		6,241		10,608		1,828
Accrued royalties		3,287		6,020		5,032		1,270		4,009		1,286
Lease termination and other store closure costs		480		1,027		427
Other		19,879		22,741		17,901		25,381		23,250		20,179
Total accrued expenses and other current liabilities	$	302,322	$	281,533	$	285,537	$	316,821	$	350,414	$	282,029

The increase in loyalty program liabilities and the decrease in unredeemed gift cards is primarily driven by the adoption of ASC 606, effective February 4, 2018. Please see Note 6 for additional information.

The following table provides details on our deferred taxes, net and other liabilities as of ~~November 3,~~May 4, 2019, May 5, 2018 ~~October 28, 2017~~ and February ~~3, 2018~~2, 2019 (in thousands):


	November 3,		October 28,		February 3,			May 4,		May 5,		February 2,
	2018		2017		2018			2019		2018		2019
Deferred and other income tax liabilities, net	$	83,179	$	91,760	$	95,314		$	52,948	$	83,357	$	53,479
Deferred rent and landlord incentives		58,458		60,040		60,136			—		58,957		57,505
Unfavorable lease liabilities		2,085		3,279		2,910			—		2,631		1,797
Other		4,868		5,118		5,831			17,213		6,558		12,241
Total deferred taxes, net and other liabilities	$	148,590	$	160,197	$	164,191		$	70,161	$	151,503	$	125,022
The elimination of deferred rent and landlord incentives and unfavorable lease liabilities is due to the adoption of ASC 842, effective February 3, 2019. Please see Note 12 for additional information.							The elimination of deferred rent and landlord incentives and unfavorable lease liabilities is due to the adoption of ASC 842, effective February 3, 2019. Please see Note 12 for additional information.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~11.~~10. Accumulated Other Comprehensive (Loss) Income

The following table summarizes the components of accumulated other comprehensive (loss) income for the ~~nine~~three months ended ~~November 3, 2018~~May 4, 2019 (in thousands and net of tax):

Foreign

Currency

Cash Flow

Pension


Translation

Hedges

Plan

Total

BALANCE— February 3, 2018

$
(11,116)

$
145

$
189

$
(10,782)

Other comprehensive (loss) income before reclassifications

(26,023)

6,992

—

(19,031)

Amounts reclassified from accumulated other comprehensive loss

—

1,957

—

1,957

Net current-period other comprehensive (loss) income

(26,023)

8,949

—

(17,074)

BALANCE— November 3, 2018

$
(37,139)

$
9,094

$
189

$
(27,856)


	Foreign
	Currency		Cash Flow		Pension
	Translation		Hedges		Plan		Total
BALANCE— February 2, 2019	$	(29,820)	$	(4,314)	$	155	$	(33,979)
Other comprehensive loss before reclassifications		(1,585)		(5,098)		—		(6,683)
Amounts reclassified from accumulated other comprehensive loss		—		(516)		—		(516)
Net current-period other comprehensive loss		(1,585)		(5,614)		—		(7,199)
BALANCE— May 4, 2019	$	(31,405)	$	(9,928)	$	155	$	(41,178)

The following table summarizes the components of accumulated other comprehensive (loss) income for the ~~nine~~three months ended ~~October 28, 2017~~May 5, 2018 (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)


	Foreign
	Currency		Cash Flow		Pension
	Translation		Hedges		Plan		Total
BALANCE— February 3, 2018	$	(11,116)	$	145	$	189	$	(10,782)
Other comprehensive (loss) income before reclassifications		(14,143)		2,087		—		(12,056)
Amounts reclassified from accumulated other comprehensive income		—		713		—		713
Net current-period other comprehensive (loss) income		(14,143)		2,800		—		(11,343)
BALANCE— May 5, 2018	$	(25,259)	$	2,945	$	189	$	(22,125)

Amounts reclassified from other comprehensive (loss) income for the ~~nine~~three months ended ~~November 3,~~May 4, 2019 and May 5, 2018 ~~and 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.

~~12.~~11. Share-Based Compensation Plans

For a discussion of our share-based compensation plans, please see Note 1314 in our Annual Report on Form 10-K for the fiscal year ended February ~~3, 2018.~~2, 2019.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Non-Vested Deferred Stock Units and Performance Units

The following table summarizes the activity of time-based and performance-based awards (collectively, "DSUs") for the ~~nine~~three months ended ~~November 3, 2018:~~May 4, 2019:


			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 February 3, 2018	1,014,689	993,631	$	18.13	$	19.55
Non-Vested at February 2, 2019							939,086	336,906	$	22.60		$	18.59
Granted	627,770	254,895		27.44		28.33	—	—		—			—
Vested(1)	(592,025)	(131,074)		21.04		23.45	(326,826)	(28,686)		22.43			17.43
Forfeited	(151,398)	(730,623)		19.45		21.84	(55,406)	(23,755)		22.88			18.94
Non-Vested at November 3, 2018	899,036	386,829	$	23.26	$	19.68
Non-Vested at May 4, 2019							556,854	284,465	$	22.77		$	18.68

⁽¹⁾

Includes ~~264,794~~121,995 shares relinquished for tax payments related to vested DSUs for the ~~nine~~three months ended ~~November 3, 2018.~~May 4, 2019.

As of ~~November 3, 2018,~~May 4, 2019, we have unrecognized compensation expense related to non-vested DSUs of ~~$18.8~~$11.7 million, which is expected to be recognized over a weighted-average period of ~~1.5~~1.4 years.

Stock Options and Stock Appreciation Rights (“SARs”)

The following table summarizes the activity of stock options for the ~~nine~~three months ended ~~November 3, 2018:~~

May 4, 2019:


		Weighted-
	Number of	Average
	Shares	Exercise Price			Weighted-
Outstanding at February 3, 2018	1,527,176	$	21.97
				Number of	Average
				Shares	Exercise Price
Outstanding at February 2, 2019				1,252,072	$	23.64
Granted	232,430		28.09	3,042,310		7.62
Exercised	(256,111)		19.22	—		—
Forfeited	(210,327)		16.42	(30,286)		17.47
Expired	(41,096)		51.18	(32,271)		33.79
Outstanding at November 3, 2018	1,252,072	$	23.64
Exercisable at November 3, 2018	676,059	$	28.33
Outstanding at May 4, 2019				4,231,825	$	12.09
Exercisable at May 4, 2019				818,982	$	26.46

~~The weighted-average grant~~During the first quarter of 2019, we granted SARs, which vest ratably over a period of three years, and will be settled in stock. Each vested SAR entitles the holder to the right of the difference between the value of our common stock on the date of exercise and the common stock price on the date of grant. We use the Black-Scholes option pricing model to estimate the fair value of SARs on the ~~232,430 stock options granted during the nine months ended November 3, 2018 was $10.29 per share.~~ date of grant.

The following table summarizes the ~~weighted-average assumptions used to fair value the stock options at the date~~activity of ~~grant using the Black-Scholes option model~~SARs for the ~~nine~~three months ended ~~November 3, 2018:~~

May 4, 2019:

~~For the Nine Months Ended~~

~~November 3,~~

~~2018~~

~~Risk-free interest rate~~



		Weighted-
	Number of	Average
	Shares	Exercise Price
Outstanding at February 2, 2019	—	$	—
Granted	414,476		7.62
Exercised	—		—
Forfeited	—		—
Expired	—		—
Outstanding at May 4, 2019	414,476	$	7.62
Exercisable at May 4, 2019	—	$	—

~~2.70%~~

~~Expected lives~~

~~5.0 years~~

~~Dividend yield~~

~~4.21%~~

~~Expected volatility~~

~~56.55%~~

~~As of November 3, 2018, we have unrecognized compensation expense related to non-vested stock options of $2.5 million, which is expected to be recognized over a weighted-average period of 1.5 years.~~

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The weighted-average grant date fair value of the 3,042,310 stock options and 414,476 SARs granted during the three months ended May 4, 2019 was $3.01 per share. The following table summarizes the weighted-average assumptions used to fair value the stock options and SARs at the date of grant using the Black-Scholes option model for the three months ended May 4, 2019:


		For the Three Months Ended
		May 4,
		2019
Risk-free interest rate		2.39%
Expected lives		5.0 years
Dividend yield		4.34%
Expected volatility		62.32%

As of May 4, 2019, we have unrecognized compensation expense related to non-vested stock options and SARs of $12.1 million, which is expected to be recognized over a weighted-average period of 1.9 years.

Cash Settled Awards

~~During 2017, we~~We have granted stock-based awards to certain employees, which vest over a period of three years, and will be settled in cash ("cash settled awards"). The fair value of the cash settled awards at each reporting period is based on the price of our common ~~stock and includes a market condition.~~stock. 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 ~~November 3, 2018,~~May 4, 2019, the liability associated with the cash settled awards was ~~$3.9~~$3.4 million with ~~$2.5~~$2.1 million recorded in accrued expenses and other current liabilities and ~~$1.4~~$1.3 million recorded in other liabilities in the condensed consolidated balance sheets.

The following table summarizes the activity of cash settled awards, based on their initial grant date values, for the ~~nine~~three months ended ~~November 3, 2018~~May 4, 2019 (in thousands):


	Cash Settled Awards		Cash Settled Awards
Non-Vested at February 3, 2018	$	8,353
Non-Vested at February 2, 2019			$	5,072
Granted		—		4,237
Vested		(2,677)		—
Forfeited		(497)		(199)
Non-Vested at November 3, 2018	$	5,179
Non-Vested at May 4, 2019			$	9,110

As of ~~November 3, 2018,~~May 4, 2019, we have unrecognized compensation expense related to non-vested cash settled awards of ~~$2.5~~$4.7 million, which is expected to be recognized over a weighted-average period of ~~1.2~~1.8 years.

Share-Based Compensation Expense

Share-based compensation expense, including cash settled awards, recognized for the three ~~and nine~~ months ended ~~November 3,~~May 4, 2019 and May 5, 2018, was ~~$3.0~~$1.9 million and ~~$14.9~~$6.5 million, ~~respectively,~~respectively.

Table of ~~which $0.7 million, net~~Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

12. Leases

Adoption of ASC 842

Effective February 3, 2019, we adopted ASU No. 2016-02, Leases (Topic 842), and all related amendments (“ASC 842”) using the modified retrospective approach. As part of the adoption, we made the following elections:

We elected the package of practical expedients under which we did not reassess our prior conclusions about lease identification, lease classification and initial direct costs.

We elected to not separate lease and non-lease components for all leases.

We elected to exempt leases with an initial term of twelve months or less from balance sheet recognition.

We elected the land easement practical expedient under which we did not reassess whether existing land easements not accounted for as leases under previous guidance are or contain leases under ASC 842.

We did not elect the hindsight practical expedient for all leases.

In addition, in July 2018, the FASB approved an optional transition method that removed the requirement to restate prior period financial statements upon adoption of the standard with a cumulative-effect adjustment to retained earnings in the period of adoption and we elected to apply this transition method. As a result, the comparative period information has not been restated and continues to be reported under the accounting standards in effect for the period presented. The adoption of ASC 842 had no impact to our previously reported results of ~~forfeited awards, was~~operations or cash flows.

The following table depicts the cumulative effect of the changes made to our February 2, 2019 balance sheet for the adoption of ASC 842 effective on February 3, 2019 (in thousands):


	Reported				Adjusted
	Balance at		Impact of		Balance at
	February 2,		Adoption of		February 3,
	2019		ASC 842		2019
Assets:
Other current assets	$	70,712	$	(20,754)	$	49,958

Operating lease right-of-use assets		—		896,270		896,270
Intangible assets, net		163,901		(6,682)		157,219

Current Liabilities:
Accrued expenses and other current liabilities		282,029		(151)		281,878
Current portion of operating lease liabilities		—		183,726		183,726

Noncurrent Liabilities:
Operating lease liabilities		—		745,116		745,116
Deferred taxes, net and other liabilities		125,022		(59,455)		65,567

Equity:
Accumulated deficit		(468,048)		(402)		(468,450)

The adoption of ASC 842 primarily resulted in the recognition of operating lease liabilities totaling $928.8 million, based upon the present value of the remaining minimum rental payments using discount rates as of the adoption date, with $183.7 million within current liabilities and $745.1 million in noncurrent liabilities. In addition, we recorded corresponding right-of-use assets totaling $896.3 million based upon the operating lease liabilities adjusted for favorable lease intangible assets, previously included within intangible assets, net and deferred rent and unfavorable lease liabilities, previously included

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

within deferred taxes, net and other liabilities. In addition, we recorded a $0.4 million cumulative effect of initially applying ASC 842 as an adjustment to the opening balance of accumulated deficit.

Lease Information

We lease store locations, office and warehouse facilities, vehicles and equipment under various non-cancelable operating leases expiring in various years through 2030.

Substantially all of our stores are leased, generally for five to ten year initial terms. Certain store leases include one or more options to renew, with renewal terms that range from one to ten years. Management uses its judgment to determine if a renewal option is reasonably certain of being exercised including consideration of the significant investment related to the ~~retirement~~identification, opening and operation of these store locations. In addition, under our real estate leases, we pay costs such as real estate taxes and common area maintenance and certain of our ~~former Chief Executive Officer. Share-based compensation~~lease agreements include rental payments based on a percentage of retail sales over contractual levels. These costs are generally considered variable lease payments, and are recognized when deemed probable of payment. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, we sublease certain real estate to third parties. Amounts related to subleases were immaterial to the condensed consolidated financial statements.

Operating lease right-of-use assets and operating lease liabilities are recognized at the lease commencement date. Operating lease liabilities represent the present value of lease payments. Operating lease right-of-use assets represent our right to use an underlying asset and are based upon the operating lease liabilities adjusted for prepayments or accrued lease payments, lease incentives and impairment of operating lease right-of-use assets. To determine the present value of the lease payments, we estimated our incremental borrowing rate based on our current credit rating as well as comparisons to comparable borrowing rates of similarly-rated companies.

The components of lease cost are as follows (in thousands):


	For the Three Months Ended
	May 4, 2019
Operating lease cost	$	62,904
Variable lease cost		19,261
Total lease cost	$	82,165

Operating lease expense is recognized on a straight-line basis over the lease term. Total lease costs for ~~the three~~stores and ~~nine months ended October 28, 2017 was $8.2 million and $17.2 million, respectively.~~our distribution network are included in cost of sales while other total lease costs are included in SG&A expenses.

Supplemental balance sheet information related to operating leases consists of the following (in thousands):


	May 4, 2019
Operating lease right-of-use assets	$	955,970

Current portion of operating lease liabilities	$	183,011
Noncurrent portion operating lease liabilities		804,895
Total operating lease liabilities	$	987,906

Lease term and discount rate for operating leases were as follows:


		May 4, 2019
Weighted average remaining lease term		4.2 years

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(Unaudited)

Weighted average discount rate

5.29%

Supplemental disclosures of cash flow information consists of the following (in thousands):


	For the Three Months Ended
	May 4, 2019
Cash paid for operating leases	$	63,656
Operating lease assets obtained in exchange for operating lease liabilities	$	1,005,762

At May 4, 2019, we have approximately $987.9 million of non-cancelable operating lease commitments and no finance leases. The following table summarizes the undiscounted annual future minimum lease payments, as of May 4, 2019, for each of the next five years and in the aggregate (in thousands):


	Operating Leases
Year 1	$	233,838
Year 2		243,151
Year 3		212,209
Year 4		168,647
Year 5		123,415
Thereafter		172,641
Total lease payments	$	1,153,901
Less: Interest		(165,995)
Present value of lease liabilities	$	987,906

As of May 4, 2019, we executed certain real estate leases that had not yet commenced with lease liabilities totaling $4.6 million which are not reflected in the above table. These leases are expected to commence during fiscal 2019.

Disclosures Related to Periods Prior to Adoption of ASC 842

As previously disclosed in our 2018 Annual Report on Form 10-K and under the accounting standards then in effect, minimum future rental payments under non-cancelable leases as of February 2, 2019 for each of the next five years and in the aggregate are as follows (in thousands):



Fiscal Year	Operating Leases
2019	$	239,711
2020		209,596
2021		175,962
2022		134,208
2023		88,187
Thereafter		141,084
Total lease payments	$	988,748

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

13. Goodwill and Other Intangible Assets

Goodwill

~~Goodwill allocated to our reportable segments and changes~~Changes in the net carrying amount of goodwill, all of which relates to our retail segment, for the ~~nine~~three months ended ~~November 3, 2018~~May 4, 2019 are as follows (in thousands):

Corporate


Retail

Apparel

Total

Balance at February 3, 2018

$
94,305

$
25,987

$
120,292

Goodwill impairment charge

—

(23,991)

(23,991)

Goodwill of divested business (see Note 2)

(13,588)

—

(13,588)

    Translation adjustment

(1,242)

(1,996)

(3,238)

Balance at November 3, 2018

$
79,475

$
—

$
79,475



	Total
Balance at February 2, 2019	$	79,491
Translation adjustment		(527)
Balance at May 4, 2019	$	78,964

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 three months ended May 4, 2019.

Intangible Assets

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


	May 4,		May 5,		February 2,
	2019		2018		2019
Amortizable intangible assets:
Carrying amount:
Trademarks, tradenames and franchise agreements	$	16,074	$	16,155	$	16,067
Favorable leases		—		12,967		11,844
Customer relationships		26,623		27,477		26,553
Total carrying amount		42,697		56,599		54,464
Accumulated amortization:
Trademarks, tradenames and franchise agreements		(10,877)		(10,594)		(10,796)
Favorable leases		—		(5,178)		(5,162)
Customer relationships		(19,455)		(17,790)		(18,851)
Total accumulated amortization		(30,332)		(33,562)		(34,809)
Total amortizable intangible assets, net		12,365		23,037		19,655
Indefinite-lived intangible assets:
Trademarks and tradename		144,249		144,283		144,246
Total intangible assets, net	$	156,614	$	167,320	$	163,901

The elimination of favorable leases is due to the adoption of ASC 842, effective February 3, 2019. Please see Note 12 for additional information.

Amortization expense associated with intangible assets subject to amortization totaled $0.6 million and $1.0 million for the three months ended May 4, 2019 and May 5, 2018. Amortization associated with intangible assets subject to amortization at May 4, 2019 is estimated to be $1.9 million for the remainder of fiscal 2019, $2.5 million for fiscal 2020, $2.5 million for fiscal 2021, $1.4 million for fiscal 2022 and $0.3 million for fiscal 2023.

2022

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(Unaudited)

During the third quarter of 2018, sales, profitability and cash flow of our corporate apparel reporting unit underperformed in comparison to our forecast. The performance of our corporate apparel business was and continues to be impacted by increasing uncertainty surrounding Brexit, which is resulting in lower replenishment demand from existing accounts in the United Kingdom (“UK”). In addition, in the third quarter of 2018, we received notification from a significant U.S. customer of their decision not to renew their existing agreement with us in 2019. As a result of the continued uncertainty surrounding Brexit and the notification from our U.S. customer, we appropriately lowered our forecast of sales, profitability and cash flow for the corporate apparel reporting unit for the fourth quarter of 2018 and future years.

As a result of the factors above, we determined that a triggering event occurred during the third quarter of 2018 and an interim goodwill impairment test for our corporate apparel reporting unit was required. We concluded that the reporting unit’s goodwill was fully impaired and recorded a non-cash goodwill impairment charge of $24.0 million during the third quarter of 2018, which is included as a separate line in the condensed consolidated statement of earnings. As of November 3, 2018, October 28, 2017, and February 3, 2018, accumulated goodwill impairment totaled $804.0 million, $778.5 million and $780.0 million, respectively.

Consistent with the procedures followed in our annual impairment test, we estimated the fair value of the reporting unit using a combined income and market comparable approach. Our income approach uses projected future cash flows that are discounted using a weighted‑average cost of capital analysis that reflects current market conditions. The market comparable approach primarily considers market price multiples of comparable companies and applies those price multiples to certain key drivers of the reporting unit. We believe these two approaches are appropriate valuation techniques and we weighted the two values equally as an estimate of reporting unit fair value for the purposes of our impairment testing.

Management judgment is a significant factor in the goodwill impairment evaluation process. The computations require management to make estimates and assumptions. Critical assumptions used in the interim impairment test for the corporate apparel reporting unit included:

The potential future cash flows of the reporting unit. The income approach relies on the timing and estimates of future cash flows. The projections use management’s estimates of economic and market conditions over the projected period, including growth rates in revenue, gross margin and expense (all Level 3 inputs in the fair value hierarchy).

Selection of an appropriate discount rate. The income approach requires the selection of an appropriate discount rate, which is based on a weighted‑average cost of capital analysis. The discount rate is affected by changes in short‑term interest rates and long‑term yield as well as variances in the typical capital structure of marketplace participants. The weighted‑average cost of capital used to discount the cash flows for the interim goodwill impairment test was 13.5%, which is 100 basis points higher than the last annual test, reflecting the increasing uncertainty surrounding Brexit.

Selection of comparable companies within the industry. For purposes of the market comparable approach, valuations were determined by calculating average price multiples of relevant key drivers from a group of companies that are comparable to the reporting unit being tested and applying those price multiples to the key drivers of the reporting unit. The determination of the market comparable also involves a degree of judgment. Earnings multiples used in the market comparable approach for the interim goodwill impairment test ranged from 5.5 to 8.0.

During the third quarter of 2018, we also performed an interim impairment test of the intangible assets of the corporate apparel reporting unit totaling $10.7 million, consisting of a customer relationship asset with a carrying value of $8.2 million and tradenames with a carrying value of $2.5 million and determined, as of November 3, 2018, that none were impaired.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Intangible Assets~~

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

November 3,

October 28,

February 3,


2018

2017

2018

Amortizable intangible assets:

Carrying amount:

Trademarks, tradenames and franchise agreements

$
16,048

$
16,074

$
16,273

Favorable leases

12,695

13,475

13,229

Customer relationships

26,343

26,612

28,713

Total carrying amount

55,086

56,161

58,215

Accumulated amortization:

Trademarks, tradenames and franchise agreements

(10,709)

(10,404)

(10,558)

Favorable leases

(5,629)

(4,856)

(5,010)

Customer relationships

(18,153)

(16,078)

(17,992)

Total accumulated amortization

(34,491)

(31,338)

(33,560)

Total amortizable intangible assets, net

20,595

24,823

24,655

Indefinite-lived intangible assets:

Trademarks and tradename

144,238

144,249

144,332

Total intangible assets, net

$
164,833

$
169,072

$
168,987

Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.0 million and $2.9 million for the three and nine months ended November 3, 2018. Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.0 million and $3.1 million for the three and nine months ended October 28, 2017. Pre-tax amortization associated with intangible assets subject to amortization at November 3, 2018 is estimated to be $0.9 million for the remainder of fiscal 2018, $3.7 million for fiscal 2019, $3.5 million for fiscal 2020, $3.4 million for fiscal 2021 and $2.1 million for fiscal 2022.

14. 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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~~(Unaudited)~~

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
November 3, 2018—
May 4, 2019—
Assets:
Derivative financial instruments	$	—	$	12,587	$	—	$	12,587		$	—		$	1,864		$	—		$	1,864
Liabilities:
Derivative financial instruments	$	—	$	797	$	—	$	797		$	—		$	14,803		$	—		$	14,803
February 3, 2018—
May 5, 2018—
Assets:
Derivative financial instruments	$	—	$	4,019	$	—	$	4,019		$	—		$	5,639		$	—		$	5,639
Liabilities:
Derivative financial instruments	$	—	$	2,307	$	—	$	2,307		$	—		$	83		$	—		$	83
October 28, 2017—
February 2, 2019—
Assets:
Derivative financial instruments	$	—	$	235	$	—	$	235		$	—		$	3,074		$	—		$	3,074
Liabilities:
Derivative financial instruments	$	—	$	2,198	$	—	$	2,198		$	—		$	9,307		$	—		$	9,307

~~Derivative~~At May 4, 2019, derivative financial instruments are comprised of (1) interest rate swap agreements to minimize our exposure to interest rate changes on our outstanding indebtedness, (2) 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 and (3) 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 (4) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to intercompany loans denominated in a currency different from the operating entity’s functional currency.

These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs, primarily pricing models based on current market rates. Derivative financial instruments in an asset position are included within other current assets or other assets in the 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. Please see Note 15 for further information regarding our derivative instruments.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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

Long-lived assets, such as property and equipment, and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset.

During the three ~~and nine~~ months ended ~~November 3,~~May 4, 2019 and May 5, 2018, we incurred $0.2 million and ~~$0.5~~$0.3 million ~~respectively,~~ of asset impairment charges, which is included within SG&A expenses in our condensed consolidated statement of earnings, related to underperforming stores. In addition, during the nine months ended November 3, 2018, we recognized a writeoff of $4.0 million of rental product related to the closure of a rental product distribution center, which is included within cost of sales in our condensed consolidated statement of earnings.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

During the nine months ended 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 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.

Fair Value of Financial Instruments

Our financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities and our Term Loan and Senior Notes. Management estimates that, as of ~~November 3,~~May 4, 2019, May 5, 2018, ~~October 28, 2017,~~ and February ~~3, 2018,~~2, 2019, the carrying value of our financial instruments, other than our Term Loan and Senior Notes, approximated their fair value due to the highly liquid or short-term nature of these instruments. We believe that the borrowings under our ABL Facility approximate their fair value because interest rates are adjusted on a short-term basis.

The fair values of our Term Loan were valued based upon observable market data provided by a third party for similar types of debt, which we classify as a Level 2 input within the fair value hierarchy. The fair value of our Senior Notes is based on quoted prices in active markets, which we classify as 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):

November 3, 2018

October 28, 2017

February 3, 2018

Carrying

Estimated

Carrying

Estimated

Carrying

Estimated

Amount(1)

Fair Value

Amount(1)

Fair Value

Amount(1)

Fair Value

Term Loan and Senior Notes, including current portion

$
1,118,406

$
1,130,202

$
1,476,485

$
1,461,283

$
1,396,808

$
1,407,449

⁽¹⁾

The carrying value of the Term Loan and Senior Notes, including current portion is net of deferred financing costs of $3.5 million, $17.0 million and $14.9 million as of November 3, 2018, October 28, 2017 and February 3, 2018, respectively.


	May 4, 2019				May 5, 2018				February 2, 2019
	Carrying		Estimated		Carrying		Estimated		Carrying		Estimated
	Amount(1)		Fair Value		Amount(1)		Fair Value		Amount(1)		Fair Value
Term Loan and Senior Notes, including current portion	$	1,111,696	$	1,076,471	$	1,286,508	$	1,321,637	$	1,116,361	$	1,120,296

(1) The carrying value of the Term Loan and Senior Notes, including current portion is net of deferred financing costs of $3.0 million, $10.4 million and $3.2 million as of May 4, 2019, May 5, 2018 and February 2, 2019, respectively.

15. Derivative Financial Instruments

Effective February 3, 2019, we adopted ASU 2017-12, Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities. The adoption of ASU 2017-12 did not have an impact on our financial position, results of operations or cash flows.

In April 2017, we entered into an interest rate swap ~~agreement~~contract on an initial notional amount of $260.0 million that matures in June 2021 with periodic interest settlements. At ~~November 3, 2018,~~May 4, 2019, the notional amount totaled ~~$370.0~~$330.0 million. Under this interest rate swap ~~agreement,~~contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 5.31% (including the applicable margin of 3.25%) on the outstanding notional amount. ~~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 June 2018, we entered into an interest rate swap ~~agreement~~contract on an initial notional amount of $320.0 million that matures in April 2025 with periodic interest settlements. At ~~November 3, 2018,~~May 4, 2019, the notional amount totaled ~~$345.0~~$380.0 million. Under this interest rate swap ~~agreement,~~contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 6.18% (including the applicable margin of 3.25%) on the outstanding notional amount. ~~We have designated 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 November 3, 2018, the fair value of the interest rate swaps was a net asset of $11.1 million with $2.3 million recorded in other current assets and $9.6 million recorded in other assets offset by $0.8 million recorded in accrued expenses and other current liabilities 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 November 3, 2018.

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(Unaudited)

~~Changes~~

We have designated each interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark rate and the fair value of the swaps is reported as a component of accumulated other comprehensive (loss) income. For both swaps, changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings.

Over the next 12 months, ~~$1.5~~$0.9 million of the ~~effective portion of~~amounts related to the interest rate swaps is expected to be reclassified from accumulated other comprehensive (loss) income into earnings within interest expense. If, at any time, an 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~~We also utilize derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro. At ~~November 3, 2018,~~May 4, 2019, the notional amount of the British pound and Euro instruments totaled ~~$25.6~~$24.7 million and ~~$8.9~~$7.8 million, respectively, and mature at various times through December 2019. We have designated these instruments as cash flow hedges of the variability in exchange rates for those foreign currencies. ~~At November 3, 2018, the~~The fair value of these ~~cash flow hedges was an asset of $0.7 million recorded in other current assets in our condensed consolidated balance sheet. The effective portion of the~~ hedges is reported as a component of accumulated other comprehensive (loss) ~~income. Hedge ineffectiveness at November 3, 2018 was immaterial. Changes~~income and 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, ~~$1.8~~$0.7 million of the ~~effective portion of the~~amounts related to these cash flow hedges is expected to be reclassified as expense into cost of sales from accumulated other comprehensive (loss) income.

In addition, we are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs, specifically related to the Canadian dollar. As a result, from time to time, we may enter into derivative instruments to hedge this foreign exchange risk. At ~~November 3, 2018,~~May 4, 2019, the notional amount of these instruments totaled ~~$4.6~~$5.7 million. We have not elected to apply hedge accounting to these derivative instruments. Amounts related to these transactions were immaterial to our condensed consolidated financial statements.

The following table provides details on our derivative instruments recorded in the condensed consolidated balance sheets as of May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):


	May 4, 2019			May 5, 2018			February 2, 2019
	Balance	Estimated		Balance	Estimated		Balance	Estimated
	Sheet Location	Fair Value		Sheet Location	Fair Value		Sheet Location	Fair Value
Interest rate contracts	Other current assets	$	1,154	Other current assets	$	1,018	Other current assets	$	1,610
Interest rate contracts	Other assets		489	Other assets		4,341	Other assets		1,355
Foreign exchange contracts	Other current assets		221	Other current assets		280	Other current assets		109
Total assets		$	1,864		$	5,639		$	3,074

Interest rate contracts	Accrued expenses and other current liabilities	$	2,084	Accrued expenses and other current liabilities	$	—	Accrued expenses and other current liabilities	$	1,625
Interest rate contracts	Deferred taxes, net and other liabilities		12,719	Deferred taxes, net and other liabilities		—	Deferred taxes, net and other liabilities		7,605
Foreign exchange contracts	Accrued expenses and other current liabilities		—	Accrued expenses and other current liabilities		83	Accrued expenses and other current liabilities		77
Total liabilities		$	14,803		$	83		$	9,307

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The following table provides details on our derivative instruments recorded in the condensed consolidated statements of earnings and comprehensive (loss) income for the three months ended May 4, 2019 and May 5, 2018 (in thousands):


	Amount of Gain/(Loss) Recognized in Other Comprehensive Loss, net of tax				Location of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings	Amount of Gain/(Loss) Reclassified from Accumulated Other Comprehensive Loss into Earnings
	For the Three Months Ended					For the Three Months Ended
	May 4, 2019		May 5, 2018			May 4, 2019		May 5, 2018
Derivatives in Cash Flow Hedging Relationships:
Interest rate contracts	$	(5,195)	$	1,040	Interest expense	$	14	$	154
Foreign exchange contracts		97		1,047	Cost of sales		(530)		559
Total	$	(5,098)	$	2,087		$	(516)	$	713

16. 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. Prior to its divestiture, MW Cleaners was also aggregated in the retail segment as its operations did not have 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, formalwear, 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, ~~(loss) 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.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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


	For the Three Months Ended				For the Nine Months Ended				For the Three Months Ended
	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017		May 4, 2019		May 5, 2018
Net sales:
Men's Wearhouse(1)	$	454,927	$	448,955	$	1,347,933	$	1,327,773	$	427,772	$	447,809
Jos. A. Bank		169,318		162,685		510,821		504,238		166,886		169,076
K&G		72,610		69,604		245,535		244,098		87,697		89,280
Moores		54,886		57,607		167,658		163,732		42,307		46,127
MW Cleaners(2)		—		8,671		2,551		25,984		—		2,551
Total retail segment		751,741		747,522		2,274,498		2,265,825		724,662		754,843
Total corporate apparel segment		61,006		63,296		179,643		178,657		56,725		63,121
Total net sales	$	812,747	$	810,818	$	2,454,141	$	2,444,482	$	781,387	$	817,964

⁽¹⁾

Consists of Men's Wearhouse, Men's Wearhouse and Tux ~~tuxedo shops within Macy's (all 170 of which were closed during the second quarter of 2017)~~ and Joseph Abboud.

⁽²⁾

On March 3, 2018, we completed the divestiture of our MW Cleaners business. Please see Note 2 for additional information.

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(Unaudited)

Operating income ~~(loss)~~ 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 Nine Months Ended				For the Three Months Ended
	November 3, 2018		October 28, 2017		November 3, 2018		October 28, 2017		May 4, 2019		May 5, 2018
Operating income:
Retail	$	127,621	$	123,628	$	360,484	$	352,273	$	78,191	$	98,721
Corporate apparel		(20,879)		3,072		(18,127)		7,150		580		1,583
Shared service expense		(51,641)		(50,073)		(146,373)		(143,329)		(48,469)		(47,407)
Operating income		55,101		76,627		195,984		216,094		30,302		52,897
Interest income		207		159		414		324		96		85
Interest expense		(18,757)		(24,412)		(61,602)		(75,200)		(18,663)		(21,981)
(Loss) gain on extinguishment of debt, net		(9,420)		2,539		(30,253)		6,535
Loss on extinguishment of debt, net										—		(12,711)
Earnings before income taxes	$	27,131	$	54,913	$	104,543	$	147,753	$	11,735	$	18,290

~~The results of the corporate apparel reportable segment were materially impacted by a non-cash goodwill impairment charge of $24.0 million. Please see Note 13 for additional information.~~

~~Since February 3, 2018, total assets for our reportable segments have materially changed primarily as a result of the goodwill impairment charge for the corporate apparel business.~~ Total assets by reportable segment and shared services are as follows (in thousands):


	November 3,		October 28,		February 3,		May 4,		May 5,		February 2,
	2018		2017		2018		2019		2018		2019
Segment assets:
Retail	$	1,424,320	$	1,559,247	$	1,434,992	$	2,253,710	$	1,423,995	$	1,375,902
Corporate apparel		180,046		216,391		222,872		187,775		205,715		175,488
Shared services(1)		285,174		335,663		342,091		323,968		316,112		269,100
Total assets(2)	$	1,889,540	$	2,111,301	$	1,999,955	$	2,765,453	$	1,945,822	$	1,820,490

⁽¹⁾

Shared service assets consist primarily of cash and cash equivalents, assets related to our distribution network and tax-related assets.

⁽²⁾

The increase in total assets, as of May 4, 2019, is related to the recognition of operating lease right-of-use assets resulting from the adoption of ASC 842, effective February 3, 2019. Please see Note 12 for additional information.

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

17. Legal Matters

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 on what constitutes a “week” and the Court recently issued an order granting the plaintiff’s motion and denying our motion on what period constitutes a “week.” On or about August 17, 2018, we entered into a settlement agreement for an immaterial amount consisting of a combination of cash and coupons. The Court approved the settlement ~~agreement, which is subject to preliminary~~ and ~~final approval of the Court, will not have a material adverse effect on our financial position, results of operations or cash flows.~~we consider this matter closed.

On August 2, 2017, two American Airlines employees, Thor Zurbriggen and Dena Catan, 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 alleged claims for strict liability, negligence, and medical monitoring based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On September 28, 2017, the plaintiffs filed an amended complaint adding nine additional named plaintiffs, adding American Airlines, Inc. as a defendant, and adding claims for civil battery and intentional infliction of emotional distress. Plaintiffs filed a Seconded Amended Complaint on October 4, 2018 on behalf of 39 named plaintiffs, adding PSA Airlines, Inc. and Envoy Air Inc. as defendants, adding new factual allegations and adding a new claim of fraud against American. The Second Amended Complaint included plaintiffs

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(Unaudited)

from the Onody (Case No. 1:18-cv-02303) and Joy (Case No. 1:18-cv-05808) matters we reported in prior filings. As a result, on October 16, 2018, the judge dismissed the separate Onody and Joy matters. We have timely answered the Second Amended Complaint and the matter will proceed in due course. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

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. On December 11, 2017, the Company filed a demurrer to Plaintiff’s complaint. On February 20, 2018, the Court granted our demurrer and dismissed the plaintiffs’ Complaint. Plaintiffs filed an amended complaint on April 10, 2018 and again on April 27, 2018, which added allegations regarding Plaintiffs’ alleged injuries and named Tailored Brands as a defendant. This case was consolidated for pretrial purposes only with other complaints containing identical allegations, including the Agnello, Hughes, Mackonochie and Wagoner cases that were disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

On October 30, 2017, Melodie Agnello, 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. On December 11, 2017, the Company filed a demurrer to plaintiff’s complaint. On February 20, 2018, the Court granted our demurrer and dismissed the plaintiffs’ Complaint. Plaintiffs filed an amended complaint on April 27, 2018, which added allegations regarding Plaintiffs’ alleged injuries and named Tailored Brands as a defendant. 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

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~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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 April 27, 2018, Alexandra Hughes, and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary and Tailored Brands in the Superior Court for the State of California for the County of Alameda (Case No. RG18902727). 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.

On April 27, 2018, Rosemary Mackonochie, and numerous other American Airlines employees filed a lawsuit against our Twin Hill subsidiary and Tailored Brands in the Superior Court for the State of California for the County of Alameda (Case No. RG18902720). 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.

On August 31, 2018, Michele Wagoner and several other American Airlines employees filed a lawsuit against our Twin Hill subsidiary and Tailored Brands in the Superior Court for the State of California for the County of Alameda (Case No. RG18919080). 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.

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

18. Condensed Consolidating Information

As discussed in Note 5,4, The Men's Wearhouse (the "Issuer") issued $600.0 million in aggregate principal amount of 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.

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(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

~~November 3, 2018~~May 4, 2019

(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	$	—	$	981	$	2,239	$	65,205	$	—	$	68,425	$	—	$	2,183	$	2,181	$	25,385	$	—	$	29,749
Accounts receivable, net		—		25,010		237,715		86,644		(268,673)		80,696		—		30,420		198,709		73,193		(221,699)		80,623
Inventories		—		149,157		531,826		194,020		—		875,003		—		158,236		508,423		207,753		—		874,412
Other current assets		220		26,657		35,121		8,435		—		70,433		—		11,821		28,760		20,823		(11,500)		49,904
Total current assets		220		201,805		806,901		354,304		(268,673)		1,094,557		—		202,660		738,073		327,154		(233,199)		1,034,688
Property and equipment, net		—		190,905		206,167		33,806		—		430,878		—		188,799		205,847		33,734		—		428,380
Operating lease right-of-use assets														—		497,803		393,007		65,160		—		955,970
Rental product, net		—		83,554		4,367		14,619		—		102,540		—		80,358		9,576		13,961		—		103,895
Goodwill		—		6,160		52,128		21,187		—		79,475		—		6,160		52,128		20,676		—		78,964
Intangible assets, net		—		—		154,144		10,689		—		164,833		—		—		146,984		9,630		—		156,614
Investments in subsidiaries		157,114		1,344,748		—		—		(1,501,862)		—		161,131		1,218,358		—		—		(1,379,489)		—
Other assets		—		16,046		660		80,786		(80,235)		17,257		—		6,091		596		4,755		(4,500)		6,942
Total assets	$	157,334	$	1,843,218	$	1,224,367	$	515,391	$	(1,850,770)	$	1,889,540	$	161,131	$	2,200,229	$	1,546,211	$	475,070	$	(1,617,188)	$	2,765,453
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	134,700	$	188,583	$	91,014	$	90,334	$	(268,673)	$	235,958	$	153,249	$	124,061	$	89,060	$	73,821	$	(221,699)	$	218,492
Accrued expenses and other current liabilities		7,952		170,406		105,087		35,154		—		318,599		4,973		211,236		87,843		40,192		(11,500)		332,744
Current portion of operating lease liabilities														—		96,742		72,403		13,866		—		183,011
Current portion of long-term debt		—		9,000		—		—		—		9,000		—		9,000		—		—		—		9,000
Total current liabilities		142,652		367,989		196,101		125,488		(268,673)		563,557		158,222		441,039		249,306		127,879		(233,199)		743,247
Long-term debt, net		—		1,167,906		—		—		—		1,167,906		—		1,151,196		—		—		—		1,151,196
Operating lease liabilities														—		426,659		325,652		52,584		—		804,895
Deferred taxes, net and other liabilities		5,195		150,209		47,637		25,784		(80,235)		148,590		6,955		20,204		28,785		18,717		(4,500)		70,161
Shareholders' equity		9,487		157,114		980,629		364,119		(1,501,862)		9,487
Total liabilities and shareholders' equity	$	157,334	$	1,843,218	$	1,224,367	$	515,391	$	(1,850,770)	$	1,889,540
Shareholders' (deficit) equity														(4,046)		161,131		942,468		275,890		(1,379,489)		(4,046)
Total liabilities and shareholders' (deficit) equity													$	161,131	$	2,200,229	$	1,546,211	$	475,070	$	(1,617,188)	$	2,765,453

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(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

~~October~~May ~~28, 2017~~5, 2018

(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	$	—	$	20,224	$	1,941	$	104,079	$	—	$	126,244	$	—	$	42,740	$	2,830	$	47,596	$	—	$	93,166
Accounts receivable, net		7,414		19,518		287,688		35,137		(268,564)		81,193		—		32,045		305,987		82,311		(332,932)		87,411
Inventories		—		198,429		458,603		315,969		—		973,001		—		175,630		482,648		185,393		—		843,671
Other current assets		7,275		87,450		26,185		7,889		(75,233)		53,566		2,784		15,505		47,364		4,284		—		69,937
Total current assets		14,689		325,621		774,417		463,074		(343,797)		1,234,004		2,784		265,920		838,829		319,584		(332,932)		1,094,185
Property and equipment, net		—		207,432		212,213		35,276		—		454,921		—		196,932		206,794		34,218		—		437,944
Rental product, net		—		107,222		2,327		15,771		—		125,320		—		102,286		10,127		16,331		—		128,744
Goodwill		—		6,160		68,510		44,455		—		119,125		—		6,160		53,422		45,220		—		104,802
Intangible assets, net		—		—		155,884		13,188		—		169,072		—		—		154,960		12,360		—		167,320
Investments in subsidiaries		77,901		1,308,676		—		—		(1,386,577)		—		97,019		1,381,326		—		—		(1,478,345)		—
Other assets		—		7,780		821		6,558		(6,300)		8,859		—		11,450		668		81,544		(80,835)		12,827
Total assets	$	92,590	$	1,962,891	$	1,214,172	$	578,322	$	(1,736,674)	$	2,111,301	$	99,803	$	1,964,074	$	1,264,800	$	509,257	$	(1,892,112)	$	1,945,822
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable	$	87,758	$	189,756	$	81,409	$	96,503	$	(268,564)	$	186,862	$	116,382	$	255,384	$	82,563	$	71,481	$	(332,932)	$	192,878
Accrued expenses and other current liabilities		18,911		139,577		109,718		102,508		(67,957)		302,757		14,868		172,654		125,516		39,116		—		352,154
Current portion of long-term debt		—		8,750		—		—		—		8,750		—		9,000		—		—		—		9,000
Total current liabilities		106,669		338,083		191,127		199,011		(336,521)		498,369		131,250		437,038		208,079		110,597		(332,932)		554,032
Long-term debt, net		—		1,467,735		—		—		—		1,467,735		—		1,277,508		—		—		—		1,277,508
Deferred taxes, net and other liabilities		921		79,172		83,342		10,338		(13,576)		160,197		5,774		152,509		46,910		27,145		(80,835)		151,503
Shareholders' (deficit) equity		(15,000)		77,901		939,703		368,973		(1,386,577)		(15,000)		(37,221)		97,019		1,009,811		371,515		(1,478,345)		(37,221)
Total liabilities and shareholders' (deficit) equity	$	92,590	$	1,962,891	$	1,214,172	$	578,322	$	(1,736,674)	$	2,111,301	$	99,803	$	1,964,074	$	1,264,800	$	509,257	$	(1,892,112)	$	1,945,822

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(Unaudited)

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

February ~~3, 2018~~2, 2019

(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	$	—	$	51,818	$	2,180	$	49,609	$	—	$	103,607	$	—	$	970	$	1,496	$	52,965	$	—	$	55,431
Accounts receivable, net		—		23,712		368,328		58,573		(370,830)		79,783		—		23,954		264,884		82,204		(297,969)		73,073
Inventories		—		207,504		445,126		199,301		—		851,931		—		149,923		461,153		219,350		—		830,426
Other current assets		3,666		26,951		38,217		9,418		—		78,252		—		30,699		37,969		7,314		(5,270)		70,712
Total current assets		3,666		309,985		853,851		316,901		(370,830)		1,113,573		—		205,546		765,502		361,833		(303,239)		1,029,642
Property and equipment, net		—		203,204		220,979		36,491		—		460,674		—		194,290		209,814		35,068		—		439,172
Rental product, net		—		103,664		3,658		16,408		—		123,730		—		81,809		3,426		14,535		—		99,770
Goodwill		—		6,160		67,010		47,122		—		120,292		—		6,160		52,128		21,203		—		79,491
Intangible assets, net		—		—		155,438		13,549		—		168,987		—		—		153,712		10,189		—		163,901
Investments in subsidiaries		128,458		1,424,647		—		—		(1,553,105)		—		160,057		1,234,005		—		—		(1,394,062)		—
Other assets		—		11,183		805		81,846		(81,135)		12,699		—		7,590		665		5,059		(4,800)		8,514
Total assets	$	132,124	$	2,058,843	$	1,301,741	$	512,317	$	(2,005,070)	$	1,999,955	$	160,057	$	1,729,400	$	1,185,247	$	447,887	$	(1,702,101)	$	1,820,490
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable	$	110,326	$	281,838	$	57,756	$	66,016	$	(370,830)	$	145,106	$	142,701	$	201,799	$	69,485	$	112,963	$	(297,969)	$	228,979
Accrued expenses and other current liabilities		14,061		87,597		155,813		34,187		—		291,658		6,697		146,683		109,654		40,233		(5,270)		297,997
Current portion of long-term debt		—		7,000		—		—		—		7,000		—		11,619		—		—		—		11,619
Total current liabilities		124,387		376,435		213,569		100,203		(370,830)		443,764		149,398		360,101		179,139		153,196		(303,239)		538,595
Long-term debt, net		—		1,389,808		—		—		—		1,389,808		—		1,153,242		—		—		—		1,153,242
Deferred taxes, net and other liabilities		5,545		164,142		46,641		28,998		(81,135)		164,191		7,028		56,000		45,069		21,725		(4,800)		125,022
Shareholders' equity		2,192		128,458		1,041,531		383,116		(1,553,105)		2,192		3,631		160,057		961,039		272,966		(1,394,062)		3,631
Total liabilities and shareholders' equity	$	132,124	$	2,058,843	$	1,301,741	$	512,317	$	(2,005,070)	$	1,999,955	$	160,057	$	1,729,400	$	1,185,247	$	447,887	$	(1,702,101)	$	1,820,490

3231

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
Three Months Ended November 3, 2018
Three Months Ended May 4, 2019
Net sales	$	—	$	453,316	$	369,749	$	149,863	$	(160,181)	$	812,747	$	—	$	426,123	$	413,108	$	176,599	$	(234,443)	$	781,387
Cost of sales		—		219,036		283,803		107,354		(160,181)		450,012		—		228,071		326,923		140,280		(234,443)		460,831
Gross margin		—		234,280		85,946		42,509		—		362,735		—		198,052		86,185		36,319		—		320,556
Operating expenses		1,443		135,498		133,986		27,658		(14,942)		283,643		844		139,646		134,833		28,648		(13,717)		290,254
Goodwill impairment charge		—		—		1,294		22,697		—		23,991
Operating (loss) income		(1,443)		98,782		(49,334)		(7,846)		14,942		55,101		(844)		58,406		(48,648)		7,671		13,717		30,302
Other income and expenses, net		—		—		14,942		—		(14,942)		—		—		—		13,717		—		(13,717)		—
Interest expense, net		(1,062)		(20,017)		1,970		559		—		(18,550)
Interest (expense) income, net														(1,155)		(18,479)		1,475		(408)		—		(18,567)
(Loss) earnings before income taxes														(1,999)		39,927		(33,456)		7,263		—		11,735
(Benefit) provision for income taxes														(466)		8,067		(5,081)		2,073		—		4,593
(Loss) earnings before equity in net income of subsidiaries														(1,533)		31,860		(28,375)		5,190		—		7,142
Equity in earnings (loss) of subsidiaries														8,675		(23,185)		—		—		14,510		—
Net earnings (loss)													$	7,142	$	8,675	$	(28,375)	$	5,190	$	14,510	$	7,142
Comprehensive (loss) income													$	(57)	$	3,494	$	(28,375)	$	3,172	$	21,709	$	(57)


Three Months Ended May 5, 2018
Net sales													$	—	$	446,247	$	381,421	$	127,667	$	(137,371)	$	817,964
Cost of sales														—		224,973		290,943		94,195		(137,371)		472,740
Gross margin														—		221,274		90,478		33,472		—		345,224
Operating expenses														882		137,273		138,395		28,443		(12,666)		292,327
Operating (loss) income														(882)		84,001		(47,917)		5,029		12,666		52,897
Other income and expenses, net														—		—		12,666		—		(12,666)		—
Interest (expense) income, net														(764)		(23,666)		2,014		520		—		(21,896)
Loss on extinguishment of debt, net		—		(9,420)		—		—		—		(9,420)		—		(12,711)		—		—		—		(12,711)
(Loss) earnings before income taxes		(2,505)		69,345		(32,422)		(7,287)		—		27,131		(1,646)		47,624		(33,237)		5,549		—		18,290
(Benefit) provision for income taxes		(505)		17,304		(6,844)		3,301		—		13,256		(658)		11,073		(8,011)		1,977		—		4,381
(Loss) earnings before equity in net income of subsidiaries		(2,000)		52,041		(25,578)		(10,588)		—		13,875		(988)		36,551		(25,226)		3,572		—		13,909
Equity in earnings (loss) of subsidiaries		15,875		(36,166)		—		—		20,291		—		14,897		(21,654)		—		—		6,757		—
Net earnings (loss)	$	13,875	$	15,875	$	(25,578)	$	(10,588)	$	20,291	$	13,875	$	13,909	$	14,897	$	(25,226)	$	3,572	$	6,757	$	13,909
Comprehensive income (loss)	$	14,799	$	20,300	$	(25,578)	$	(14,089)	$	19,367	$	14,799	$	2,566	$	16,091	$	(25,226)	$	(8,965)	$	18,100	$	2,566


Three Months Ended October 28, 2017
Net sales	$	—	$	447,936	$	404,531	$	242,893	$	(284,542)	$	810,818
Cost of sales		—		227,612		317,262		191,729		(284,542)		452,061
Gross margin		—		220,324		87,269		51,164		—		358,757
Operating expenses		917		135,740		134,433		27,465		(16,425)		282,130
Operating (loss) income		(917)		84,584		(47,164)		23,699		16,425		76,627
Other income and expenses, net		—		—		16,425		—		(16,425)		—
Interest expense, net		(129)		(27,789)		1,543		2,122		—		(24,253)
Gain on extinguishment of debt, net		—		2,539		—		—		—		2,539
(Loss) earnings before income taxes		(1,046)		59,334		(29,196)		25,821		—		54,913
(Benefit) provision for income taxes		(337)		19,267		(9,441)		8,532		—		18,021
(Loss) earnings before equity in net income of subsidiaries		(709)		40,067		(19,755)		17,289		—		36,892
Equity in earnings (loss) of subsidiaries		37,601		(2,466)		—		—		(35,135)		—
Net earnings (loss)	$	36,892	$	37,601	$	(19,755)	$	17,289	$	(35,135)	$	36,892
Comprehensive income (loss)	$	33,745	$	39,114	$	(19,755)	$	12,629	$	(31,988)	$	33,745

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

Tailored

The Men’s

Guarantor

Non-Guarantor


Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Nine Months Ended November 3, 2018

Net sales

$
—

$
1,343,248

$
1,137,489

$
442,055

$
(468,651)

$
2,454,141

Cost of sales

—

664,219

862,803

318,909

(468,651)

1,377,280

Gross margin

—

679,029

274,686

123,146

—

1,076,861

Operating expenses

3,408

405,344

405,062

85,165

(42,093)

856,886

Goodwill impairment charge

—

—

1,294

22,697

—

23,991

Operating (loss) income

(3,408)

273,685

(131,670)

15,284

42,093

195,984

Other income and expenses, net

—

—

42,093

—

(42,093)

—

Interest expense, net

(2,749)

(66,141)

6,115

1,587

—

(61,188)

Loss on extinguishment of debt, net

—

(30,253)

—

—

—

(30,253)

(Loss) earnings before income taxes

(6,157)

177,291

(83,462)

16,871

—

104,543

(Benefit) provision for income taxes

(1,624)

37,882

(17,412)

8,675

—

27,521

(Loss) earnings before equity in net income of subsidiaries

(4,533)

139,409

(66,050)

8,196

—

77,022

Equity in earnings (loss) of subsidiaries

81,555

(57,854)

—

—

(23,701)

—

Net earnings (loss)

$
77,022

$
81,555

$
(66,050)

$
8,196

$
(23,701)

$
77,022

Comprehensive income (loss)

$
59,948

$
87,072

$
(66,050)

$
(14,395)

$
(6,627)

$
59,948

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 income (loss)

$
105,957

$
100,578

$
(47,164)

$
37,886

$
(91,300)

$
105,957

3432

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 November 3, 2018~~

~~(in thousands)~~

Tailored

The Men’s

Guarantor

Non-Guarantor


Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Net cash provided by (used in) operating activities

$
29,194

$
470,656

$
11,157

$
(205,357)

$
(27,833)

$
277,817

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

—

(12,962)

(28,853)

(5,112)

—

(46,927)

Proceeds from divestiture of business

—

—

17,755

—

—

17,755

Intercompany activities

—

(228,450)

—

—

228,450

—

Net cash used in investing activities

—

(241,412)

(11,098)

(5,112)

228,450

(29,172)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on original term loan

—

(993,420)

—

—

—

(993,420)

Proceeds from new term loan

—

895,500

—

—

—

895,500

Payments on new term loan

—

(6,750)

—

—

—

(6,750)

Proceeds from asset-based revolving credit facility

—

465,500

—

—

—

465,500

Payments on asset-based revolving credit facility

—

(407,000)

—

—

—

(407,000)

Repurchase and retirement of senior notes

—

(199,365)

—

—

—

(199,365)

Deferred financing costs

—

(6,713)

—

—

—

(6,713)

Intercompany activities

—

(27,833)

—

228,450

(200,617)

—

Cash dividends paid

(27,833)

—

—

—

—

(27,833)

Proceeds from issuance of common stock

6,149

—

—

—

—

6,149

Tax payments related to vested deferred stock units

(7,510)

—

—

—

—

(7,510)

Net cash (used in) provided by financing activities

(29,194)

(280,081)

—

228,450

(200,617)

(281,442)

Effect of exchange rate changes

—

—

—

(2,385)

—

(2,385)

(Decrease) increase in cash and cash equivalents

—

(50,837)

59

15,596

—

(35,182)

Cash and cash equivalents at beginning of period

—

51,818

2,180

49,609

—

103,607

Cash and cash equivalents at end of period

$
—

$
981

$
2,239

$
65,205

$
—

$
68,425

~~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 Three Months Ended May 4, 2019

(in thousands)


	Tailored		The Men’s		Guarantor		Non-Guarantor
	Brands, Inc.		Wearhouse, Inc.		Subsidiaries		Subsidiaries		Eliminations		Consolidated
Net cash provided by (used in) operating activities	$	10,103	$	133,345	$	12,909	$	(134,973)	$	(9,590)	$	11,794

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—		(7,742)		(12,224)		(1,725)		—		(21,691)
Intercompany activities		—		(121,430)		—		(11,500)		132,930		—
Net cash used in investing activities		—		(129,172)		(12,224)		(13,225)		132,930		(21,691)

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on new term loan		—		(4,870)		—		—		—		(4,870)
Proceeds from asset-based revolving credit facility		—		399,500		—		—		—		399,500
Payments on asset-based revolving credit facility		—		(399,500)		—		—		—		(399,500)
Intercompany activities		—		1,910		—		121,430		(123,340)		—
Cash dividends paid		(9,590)		—		—		—		—		(9,590)
Proceeds from issuance of common stock		427		—		—		—		—		427
Tax payments related to vested deferred stock units		(940)		—		—		—		—		(940)
Net cash (used in) provided by financing activities		(10,103)		(2,960)		—		121,430		(123,340)		(14,973)
Effect of exchange rate changes		—		—		—		(812)		—		(812)
Increase (decrease) in cash and cash equivalents		—		1,213		685		(27,580)		—		(25,682)
Cash and cash equivalents at beginning of period		—		970		1,496		52,965		—		55,431
Cash and cash equivalents at end of period	$	—	$	2,183	$	2,181	$	25,385	$	—	$	29,749

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~~Three Months Ended ~~October 28, 2017~~May 5, 2018

(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 (used in) operating activities	$	27,243	$	404,404	$	34,049	$	(186,263)	$	(26,895)	$	252,538	$	10,994	$	196,189	$	(10,744)	$	(66,593)	$	(9,618)	$	120,228

CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		—		(15,413)		(36,146)		(4,397)		—		(55,956)		—		(3,238)		(6,338)		(1,404)		—		(10,980)
Acquisition of business, net of cash		—		—		—		(457)		—		(457)
Proceeds from divestiture of business														—		—		17,732		—		—		17,732
Intercompany activities		—		(223,800)		—		—		223,800		—		—		(68,425)		—		—		68,425		—
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)
Net cash (used in) provided by investing activities														—		(71,663)		11,394		(1,404)		68,425		6,752

CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on original term loan		—		(9,879)		—		—		—		(9,879)		—		(993,420)		—		—		—		(993,420)
Proceeds from new term loan														—		895,500		—		—		—		895,500
Payments on new term loan														—		(2,250)		—		—		—		(2,250)
Proceeds from asset-based revolving credit facility		—		235,900		—		—		—		235,900		—		1,500		—		—		—		1,500
Payments on asset-based revolving credit facility		—		(235,900)		—		—		—		(235,900)		—		(1,500)		—		—		—		(1,500)
Repurchase and retirement of senior notes		—		(106,731)		—		—		—		(106,731)		—		(18,240)		—		—		—		(18,240)
Deferred financing costs		—		(2,464)		—		—		—		(2,464)		—		(5,576)		—		—		—		(5,576)
Intercompany activities		—		(26,895)		—		223,800		(196,905)		—		—		(9,618)		—		68,425		(58,807)		—
Cash dividends paid		(26,895)		—		—		—		—		(26,895)		(9,618)		—		—		—		—		(9,618)
Proceeds from issuance of common stock		1,334		—		—		—		—		1,334		3,649		—		—		—		—		3,649
Tax payments related to vested deferred stock units		(1,682)		—		—		—		—		(1,682)		(5,025)		—		—		—		—		(5,025)
Net cash (used in) provided by financing activities		(27,243)		(145,969)		—		223,800		(196,905)		(146,317)		(10,994)		(133,604)		—		68,425		(58,807)		(134,980)
Effect of exchange rate changes		—		—		—		3,390		—		3,390		—		—		—		(2,441)		—		(2,441)
Increase in cash and cash equivalents		—		19,222		60		36,073		—		55,355
(Decrease) increase in cash and cash equivalents														—		(9,078)		650		(2,013)		—		(10,441)
Cash and cash equivalents at beginning of period		—		1,002		1,881		68,006		—		70,889		—		51,818		2,180		49,609		—		103,607
Cash and cash equivalents at end of period	$	—	$	20,224	$	1,941	$	104,079	$	—	$	126,244	$	—	$	42,740	$	2,830	$	47,596	$	—	$	93,166

3634

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 February ~~3, 2018.~~2, 2019. 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 ~~"2018"~~"2019" mean the 52-week fiscal year ending February ~~2, 2019.~~1, 2020.

Executive Overview

Background

We are ~~the~~a leading specialty retailer of men’s tailored clothing, and the largest men’s formalwear provider in the United States (“U.S.”) and ~~Canada and~~Canada. We help men look and feel their best by offering a broad selection of clothing including suits, suit separates, sport coats, slacks, formalwear, business casual, denim, sportswear, outerwear, dress ~~for work~~shirts, shoes and ~~special occasions.~~accessories. We serve our customers through an expansive omni-channel network that includes over 1,400 stores in the U.S. and Canada as well as our branded e-commerce websites at www.menswearhouse.com, www.josbank.com, and www.josephabboud.com.

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. Please see Note 16 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.

~~Leadership Transition Discussion~~

On August 28, 2018, we reported that Douglas S. Ewert announced his intention to retire as Chief Executive Officer (“CEO”) and as a member of our Board of Directors (the “Board”), effective September 30, 2018. Dinesh Lathi, Non-Executive Chairman of the Board, was appointed Executive Chairman. In light of Mr. Lathi’s new role, the Board appointed Theo Killion as lead independent director. To ensure an orderly transition, Mr. Ewert agreed to serve as a strategic advisor until the end of the calendar year. The Board has initiated a comprehensive search process to identify a successor CEO. As a result of Mr. Ewert’s retirement, in the third quarter of 2018, we recorded a total of $6.4 million in costs including $5.4 million of severance and consulting costs, $0.7 million related to the accelerated vesting of certain share-based awards (net of the impact of forfeited awards) and $0.3 million of other costs.

~~We also announced that Bruce Thorn resigned from his position as President and Chief Operating Officer, effective August 31, 2018 to pursue another opportunity.~~

~~Third~~First Quarter Discussion

During the ~~third~~first quarter of ~~2018, retail segment~~2019, comparable sales ~~increased 2.3% with~~for all retail brands ~~generating positive~~were negative, primarily reflecting challenging weather conditions in February and the Easter shift, which resulted in a later prom season and consequently, lower rental revenues. Although our Jos. A. Bank brand saw improving trends during the first quarter, Men’s Wearhouse comparable ~~sales. Our~~ sales ~~growth was driven~~did not improve primarily ~~by custom suiting, which sold at an average rate of $5 million per week. During~~due to continued traffic headwinds. We are already implementing and continue to explore new strategies to improve the ~~third quarter, we executed well on~~comparable sales trend across our ~~custom growth strategy including improving our custom offering’s speed, selection and service, making custom even more compelling to customers.~~retail portfolio.

In addition, during the ~~third~~first quarter, ~~of 2018,~~ we ~~also executed~~made progress on our ~~strategies~~strategic initiatives. Our custom business posted another strong quarter as we continued to reduce inventories and debt to improve capital efficiency and strengthen our balance sheet. Inventories at the end of third quarter of 2018 decreased approximately 10.0% compared to the end of the third quarter of 2017. We also repriced our term loan, reducing the interest rate by 25 basis points, which lowers our annual cash interest expense by more than $2 million. ~~Our total debt has decreased approximately $300.0 million versus a year ago.~~

~~Also, we recorded a non-cash goodwill impairment charge of $24.0 million related~~respond to our ~~corporate apparel reporting unit, which is included as a separate line~~customers’ demand for personalized products and services that help men look their best in the ~~condensed consolidated statement~~moments that matter. Our e-commerce team executed a robust portfolio of ~~earnings. Please see Note 13~~user experience and personalization tests, a number of ~~the Notes to Condensed Consolidated Financial Statements~~which generated improvement. Finally, as we seek an optimized creative mix between promotional and ~~Goodwill~~storytelling advertising and ~~Other Indefinite-Lived Intangible Assets~~ ~~within ‘‘Critical Accounting Policies~~an enhanced channel mix between broadcast and ~~Estimates’’~~digital, we launched new brand campaigns for ~~further details.~~both Men’s Wearhouse and Jos. A. Bank that are being leveraged across channels.

~~Table of Contents~~

Key operating metrics for the quarter ended ~~November 3, 2018~~May 4, 2019 include:

Net sales ~~increased 0.2%~~decreased 4.5% primarily due to ~~an increase~~a decrease in retail segment comparable ~~sales partially offset by the impact of our MW Cleaners divestiture.~~sales.

Comparable sales ~~increased 1.7%~~decreased 4.5% at Men’s Wearhouse, ~~3.8%~~0.7% at Jos. A. Bank, ~~4.0%~~0.5% at K&G and ~~1.2%~~4.6% at Moores. Overall, comparable sales for our retail segment ~~increased 2.3%~~decreased 3.2%.

Operating income was ~~$55.1~~$30.3 million for the ~~third~~first quarter of ~~2018~~2019 compared to operating income of ~~$76.6~~$52.9 million in the ~~third~~first quarter of ~~2017.~~2018.

Diluted earnings per share were ~~$0.27~~$0.14 for the ~~third~~first quarter of ~~2018~~2019 compared to diluted earnings per share of ~~$0.75~~$0.27 in the ~~third~~first quarter of ~~2017.~~2018.

Key liquidity metrics for the ~~nine~~three months ended ~~November 3, 2018~~May 4, 2019 include:

Cash and cash equivalents at the end of the ~~third~~first quarter of ~~2018~~2019 were ~~$68.4~~$29.7 million, a decrease of ~~$57.8~~$63.4 million compared to the end of the ~~third~~first quarter of ~~2017,~~2018 primarily resulting from the ~~use of cash on hand~~decrease in comparable sales as well as the ~~second quarter of 2018 to fund a portion~~impact of the ~~partial redemption of $175.0 million in face value of our Senior Notes.~~Easter shift.

Cash provided by operating activities was ~~$277.8~~$11.8 million for the first ~~nine~~three months of ~~2018~~2019 compared to ~~$252.5~~$120.2 million for the first ~~nine~~three months of ~~2017.~~2018, reflecting lower net earnings, an increase in inventories due to the decrease in comparable sales and unfavorable timing fluctuations in accounts payable, accrued liabilities and other current liabilities.

Capital expenditures were ~~$46.9~~$21.7 million for the first ~~nine~~three months of ~~2018~~2019 compared to ~~$56.0~~$11.0 million for the first ~~nine~~three months of ~~2017.~~2018.

We ~~repaid $100.2 million on our term loan, repurchased and retired $192.6 million in face value of Senior Notes and have $58.5~~had $48.5 million of borrowings outstanding on our revolving credit facility as of ~~November 3, 2018.~~May 4, 2019.

Dividends paid totaled ~~$27.8~~$9.6 million for the first ~~nine~~three months of ~~2018.~~2019.

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Items Affecting Comparability of Results

The following table depicts the effect on pretax income for certain items that have impacted the comparability of our results in ~~2018~~2019 and ~~2017~~2018 (dollars in millions):

For the Three Months Ended

For the Nine Months Ended

November 3,

October 28,

November 3,

October 28,


2018

2017

2018

2017

Goodwill impairment charge(1)

$
24.0

$
—

$
24.0

$
—

Loss on extinguishment of debt (2)

9.4

—

29.4

—

CEO retirement costs

6.4

—

6.4

—

Closure of rental product distribution center (3)

0.6

—

5.0

—

Loss on divestiture of MW Cleaners (4)

—

—

3.8

—

Costs to terminate Macy's agreement (5)

—

—

—

17.2

Total (6)

$
40.4

$
—

$
68.6

$
17.2


	For the Three Months Ended
	May 4,		May 5,
	2019		2018
Costs related to multi-year cost savings and operational excellence programs (1)	$	4.4	$	—
Loss on extinguishment of debt related to refinancing of Term Loan (2)		—		11.9
Loss on divestiture of MW Cleaners (3)		—		3.6
Total (4)	$	4.4	$	15.5

⁽¹⁾

Consists of $3.1 million in consulting costs, $1.1 million in severance costs and $0.2 million in lease termination costs.

⁽²⁾

Please see Note 134 to the condensed consolidated financial statements for additional information.

⁽²⁾

For the three months ended November 3, 2018, consists of $9.4 million related to the repricing of the Term Loan. For the nine months ended November 3, 2018, consists of $11.9 million related to the refinancing of our Term Loan, $9.4 million related to the repricing of the Term Loan, and $8.1 million related to the partial redemption of our Senior Notes. Please see Note 5 to the condensed consolidated financial statements for additional information.

⁽³⁾

For the three months ended November 3, 2018, consists of $0.3 million of closure related costs, $0.2 million of severance and $0.1 million of accelerated depreciation. For the nine months ended November 3, 2018, consists of $4.0 million of rental product writeoffs, $0.4 million of severance costs, $0.3 million of closure related costs and $0.3 million of accelerated depreciation.

⁽⁴⁾

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

⁽⁵⁾

~~Please see Note 3 to the condensed consolidated financial statements for additional information.~~

⁽⁶⁾⁽⁴⁾

For the three months ended ~~November 3, 2018, less than $0.1~~May 4, 2019, $0.2 million is included in cost of sales ~~$7.0~~and $4.2 million is included in selling, general and administrative expenses ("SG&A")~~, $24.0~~. For the three months ended May 5, 2018, $3.6 million is included in ~~goodwill impairment charges~~SG&A and ~~$9.4~~$11.9 million is included in loss on extinguishment of debt. For the nine months ended November 3, 2018, $4.1 million in cost of sales, $11.1 million is included in SG&A, $24.0 million is included in goodwill impairment charges and $29.4 million is included in loss on extinguishment of debt. For the nine months ended October 28, 2017, $1.4 million is included in cost of sales and $15.8 million is included in SG&A.

Update on 2019 Initiatives

As discussed above, during the first quarter of 2019, we have been focused on initiatives to address three customer needs: delivering personalized products and services, creating inspiring and seamless experiences in and across every channel and building brands that stand for something more than just price. Addressing these areas is critical and will require incremental investments in people, analytics and technology.

Also, we have completed the first phase of a comprehensive review of our operations including an assessment of SG&A expenses and business processes across the organization to identify cost savings opportunities. We are moving forward on several initiatives that we believe will generate cost savings in the latter half of fiscal 2019. However, many of the identified opportunities require additional testing and review to ensure we continue to deliver a superior customer experience and, therefore, we have developed a timeline to complete this review later in 2019.

In addition, we are committed to an ongoing evaluation of our portfolio of businesses and maximizing value for our shareholders. Such an evaluation may result in the consideration of a range of options related to our corporate apparel business, some of which could result in additional non-cash losses in future periods.

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Store Data

The following table presents information with respect to retail apparel stores in operation during each of the respective fiscal periods:


	For the Three Months Ended		For the Nine Months Ended		For the Year Ended	For the Three Months Ended		For the Year Ended
	November 3,	October 28,	November 3,	October 28,	February 3,	May 4,	May 5,	February 2,
	2018	2017	2018	2017	2018	2019	2018	2019

Open at beginning of period:	1,469	1,484	1,477	1,667	1,667	1,464	1,477	1,477
Opened	2	2	3	4	4	—	1	3
Closed ~~(1)~~	(2)	(6)	(11)	(191)	(194)	(2)	(2)	(16)
Open at end of the period	1,469	1,480	1,469	1,480	1,477	1,462	1,476	1,464

Men’s Wearhouse(2)	721	720	721	720	719
Men’s Wearhouse(1)						720	720	720
Men’s Wearhouse and Tux	49	51	49	51	51	46	50	46
Jos. A. Bank ~~(3)~~(2)	485	493	485	493	491	482	491	484
Moores	126	126	126	126	126	126	126	126
K&G	88	90	88	90	90	88	89	88
	1,469	1,480	1,469	1,480	1,477	1,462	1,476	1,464

⁽¹⁾

~~All 170 tuxedo shops within Macy's stores were closed during the second quarter of 2017.~~

⁽²⁾

Includes one Joseph Abboud store.

⁽³⁾⁽²⁾

Excludes franchise stores.

During the ~~third~~first quarter of ~~2018,~~2019, we ~~opened two Men’s Wearhouse stores and~~ closed two Jos. A. Bank stores.

Seasonality

Our sales and net earnings are subject to seasonal fluctuations and may vary by brand. Typically, our rental product revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is the seasonal low point. With respect to corporate apparel sales and operating results, seasonal fluctuations are not significant but the acquisition of new customers or existing customer decisions to rebrand or revise their corporate wear programs can cause significant variations in period results. Because of these fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.

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Results of Operations

For the Three Months Ended ~~November 3, 2018~~May 4, 2019 Compared to the Three Months Ended ~~October 28, 2017~~May 5, 2018

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)
	November 3,		October 28,		May 4,		May 5,
	2018		2017		2019		2018
Net sales:
Retail clothing product	72.4	%	70.9	%	76.1	%	75.0	%
Rental services	15.3		15.6		12.0		12.3
Alteration and other services	4.7		5.7		4.6		5.0
Total retail sales	92.5		92.2		92.7		92.3
Corporate apparel clothing product	7.5		7.8		7.3		7.7
Total net sales	100.0	%	100.0	%	100.0	%	100.0	%
Cost of sales(2):
Retail clothing product	43.1		43.0		45.2		45.0
Rental services	13.9		16.2		13.9		14.6
Alteration and other services	85.6		74.4		93.6		83.4
Occupancy costs	13.5		13.9		14.3		13.4
Total retail cost of sales	54.0		54.2		57.9		56.4
Corporate apparel clothing product	72.8		73.6		73.3		73.9
Total cost of sales	55.4		55.8		59.0		57.8
Gross margin(2):
Retail clothing product	56.9		57.0		54.8		55.0
Rental services	86.1		83.8		86.1		85.4
Alteration and other services	14.4		25.6		6.4		16.6
Occupancy costs	(13.5)		(13.9)		(14.3)		(13.4)
Total retail gross margin	46.0		45.8		42.1		43.6
Corporate apparel clothing product	27.2		26.4		26.7		26.1
Total gross margin	44.6		44.2		41.0		42.2
Advertising expense	4.6		4.8		5.8		5.0
Selling, general and administrative expenses	30.3		30.0		31.4		30.7
Goodwill impairment charge	3.0		—
Operating income	6.8		9.5		3.9		6.5
Interest income	0.0		0.0		0.0		0.0
Interest expense	(2.3)		(3.0)		(2.4)		(2.7)
(Loss) gain on extinguishment of debt, net	(1.2)		0.3
Loss on extinguishment of debt, net					—		(1.6)
Earnings before income taxes	3.3		6.8		1.5		2.2
Provision for income taxes	1.6		2.2		0.6		0.5
Net earnings	1.7	%	4.5	%	0.9	%	1.7	%

⁽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 ~~increased $1.9~~decreased $36.6 million, or ~~0.2%~~4.5%, to ~~$812.7~~$781.4 million for the ~~third~~first quarter of ~~2018~~2019 as compared to the ~~third~~first quarter of ~~2017.~~2018.

Total retail sales ~~increased $4.2~~decreased $30.2 million, or ~~0.6%~~4.0%, to ~~$751.7~~$724.7 million for the ~~third~~first quarter of ~~2018~~2019 as compared to the ~~third~~first quarter of ~~2017~~2018 primarily due to a ~~$13.2~~$18.9 million ~~increase~~decrease in clothing product sales, driven by ~~an increase~~a decrease in comparable sales at all of our retail ~~brands. This increase was partially offset by~~brands, a ~~$7.3~~$6.5 million decrease in rental service revenues primarily reflecting a later prom season this year and the continuing trend to purchase suits for special occasions, and a $4.8 million decrease in alteration and other services revenues primarily reflecting the impact of our divestiture of MW ~~Cleaners and a $1.7 million~~Cleaners. The decrease ~~in rental service revenues. The increase~~ in total retail sales is further described below:

(in millions)

Amount Attributed to
$
7.1

1.7% increase in comparable sales at Men's Wearhouse.

5.8

3.8% increase in comparable sales at Jos. A. Bank.

2.6

4.0% increase in comparable sales at K&G.

0.6

1.2% increase in comparable sales at Moores(1).

(2.9)

Decrease in non-comparable sales.

(2.4)

Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate.

(6.6)

Other (primarily resulting from divestiture of MW Cleaners).
$
4.2

Increase in total retail sales.


(in millions)		Amount Attributed to
$	(19.1)	4.5% decrease in comparable sales at Men's Wearhouse.
	(1.0)	0.7% decrease in comparable sales at Jos. A. Bank.
	(0.4)	0.5% decrease in comparable sales at K&G.
	(1.9)	4.6% decrease in comparable sales at Moores(1).
	(2.4)	Decrease in non-comparable sales.
	(1.9)	Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate.
	(3.5)	Other (primarily resulting from divestiture of MW Cleaners).
$	(30.2)	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, excluding stores where the square footage has changed by more than 25% within the past year, and includes e-commerce sales. ~~Due to the 53-week to 52-week calendar shift, comparable sales for the third quarter of 2018 are compared with the 13-week period ended November 4, 2017.~~ We operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels.

The ~~increase~~decrease in comparable sales at Men's Wearhouse resulted primarily from a decrease in both transactions for clothing and units per transaction partially offset by an increase in average unit retail (net selling prices) ~~partially offset by~~. Rental service comparable sales at Men��s Wearhouse decreased 6.0%, primarily reflecting a later prom season this year due to the Easter shift and the continuing trend to purchase suits for special occasions. The decrease at Jos. A. Bank resulted primarily from a decrease in both units per transaction and transactions ~~for clothing. Rental service comparable sales~~partially offset by an increase in average unit retail. The decrease at ~~Men’s Wearhouse decreased 0.6%. The increase at Jos. A. Bank~~K&G resulted ~~primarily~~ from ~~an increase~~a decrease in both transactions and ~~average unit retail~~units per transaction partially offset by ~~a decrease in units per transaction. The increase at K&G resulted from~~ an increase in ~~transactions, units per transaction and~~ average unit retail. The ~~increase~~decrease at Moores resulted primarily from a decrease in both transactions and units per transaction partially offset by an increase in ~~transactions partially offset by a decrease in units per transaction, while~~ average unit ~~retail was flat.~~retail.

Total corporate apparel clothing product sales decreased ~~$2.3~~$6.4 million for the ~~third~~first quarter of ~~2018~~2019 as compared to the ~~third~~first quarter of ~~2017~~2018 primarily due to lower ~~sales~~replenishment demand in the ~~United Kingdom (“UK”)~~U.S. as well as the impact of a weaker British pound this year compared to last year of approximately ~~$0.6~~$3.2 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 ~~increased $4.0~~decreased $24.7 million, or ~~1.1%~~7.1%, to ~~$362.7~~$320.6 million in the ~~third~~first quarter of ~~2018~~2019 as compared to the ~~third~~first quarter of ~~2017~~2018 primarily as a result of ~~higher retail clothing product revenue.~~lower sales. Total retail segment gross margin ~~increased $4.1~~decreased $23.3 million in the ~~third~~first quarter of ~~2018~~2019 compared to same period last year.

For the retail segment, total gross margin as a percentage of related sales ~~increased~~decreased to ~~46.0%~~42.1% in the ~~third~~first quarter of 2019 from 43.6% in the first quarter of 2018 ~~from 45.8% in the third quarter of 2017~~ primarily due to ~~leveraging~~deleveraging of occupancy costs as a percent of ~~sales.~~sales as well as the mix shift from rental services to retail clothing sales.

Occupancy costs, which includes store related ~~rent, common area maintenance,~~operating lease costs, utilities, repairs and maintenance, security, property taxes and depreciation, ~~decreased $2.1~~increased $2.7 million primarily due to the impact of ~~our divestiture~~store refreshes and other enhancements of ~~MW Cleaners.~~our

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store fleet. Occupancy costs as a percentage of retail sales ~~decreased~~increased to ~~13.5%~~14.3% in the ~~third~~first quarter of ~~2018~~2019 as compared to ~~13.9%~~13.4% in the ~~third~~first quarter of ~~2017.~~

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2018.

Corporate apparel gross margin decreased ~~$0.1~~$1.3 million, or ~~0.5%~~8.0%, to ~~$16.6~~$15.1 million for the ~~third~~first quarter of ~~2018~~2019 compared to the ~~third~~first quarter of ~~2017.~~2018. For the corporate apparel segment, total gross margin as a percentage of related sales increased to ~~27.2%~~26.7% in the ~~third~~first quarter of 2019 from 26.1% in the first quarter of 2018 ~~from 26.4% in the third quarter of 2017~~ primarily due to ~~the impact of renegotiated pricing arrangements with our UK customers.~~customer mix.

Advertising Expense

Advertising expense ~~decreased~~increased to ~~$37.3~~$45.0 million in the ~~third~~first quarter of 2019 from $41.2 million in the first quarter of 2018, ~~from $38.7 million in the third quarter~~an increase of ~~2017, a decrease of $1.3~~$3.8 million, or ~~3.4%.~~9.2%, reflecting the launch of new brand campaigns for Men’s Wearhouse and Jos. A. Bank, and more expensive local instead of more economical national broadcast media to support planned tests. As a percentage of total net sales, advertising expense ~~decreased~~increased to ~~4.6%~~5.8% in the ~~third~~first quarter of ~~2018~~2019 from ~~4.8%~~5.0% in the ~~third~~first quarter of ~~2017.~~2018.

Selling, General and Administrative Expenses

SG&A expenses ~~increased~~decreased to ~~$246.3~~$245.2 million in the ~~third~~first quarter of 2019 from $251.1 million in the first quarter of 2018, ~~from $243.5 million in the third quarter~~a decrease of ~~2017, an increase of $2.8~~$5.9 million, or ~~1.2%~~2.3%. As a percentage of total net sales, these expenses increased to ~~30.3%~~31.4% in the ~~third~~first quarter of ~~2018~~2019 from ~~30.0%~~30.7% in the ~~third~~first quarter ~~2017.~~of 2018. The components of this ~~0.3%~~0.7% net increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:

%

in millions

Attributed to
0.9

$
7.0

Increase in non-recurring items as a percentage of sales to 0.9% in the third quarter of 2018 from 0.0% in the third quarter of 2017.  In the third quarter of 2018, these costs consisted of $6.4 million related to the retirement of our former CEO and $0.6 million related to the closure of a rental product distribution center.  For the third quarter of 2017, we incurred no such costs.
0.2

2.1

Store salaries increased $2.1 million primarily due to higher commissions and increased as a percentage of sales to 12.4% in the third quarter of 2018 from 12.2% in the third quarter of 2017.
(0.8)

(6.3)

Decrease in other SG&A expenses as a percentage of sales to 17.0% in the third quarter of 2018 from 17.8% in the third quarter of 2017.  Other SG&A expenses decreased $6.3 million primarily due to decreases in share-based compensation expense and lower operating costs resulting from the divestiture of MW Cleaners.
0.3

$
2.8

Total


%	in millions		Attributed to
—	$	0.6	For the first quarter of 2019, we incurred certain costs that impact the comparability of our results consisting of $4.2 million related to our multi-year cost savings and operational excellence programs. For the first quarter of 2018, similar costs totaled $3.6 million related to a loss on divestiture of our MW Cleaners business. As a percentage of sales, these costs were flat at 0.5% for both the first quarter of 2019 and 2018.
0.6		(0.3)	Store salaries decreased $0.3 million and increased as a percentage of sales to 13.2% in the first quarter of 2019 from 12.6% in the first quarter of 2018 primarily due to deleveraging from lower sales.
0.1		(6.2)	Other SG&A expenses decreased $6.2 million primarily due to lower share-based compensation, travel and entertainment and employee-related benefit costs. As a percentage of sales, other SG&A expenses increased to 17.8% in the first quarter of 2019 from 17.7% in the first quarter of 2018.
0.7	$	(5.9)	Total

In the retail segment, SG&A expenses ~~increased $1.3 million. As a percentage of related net sales, SG&A expenses were flat at 24.1% in the third quarter of 2018 compared~~decreased $6.7 million primarily due to ~~the third quarter of 2017.~~

~~In the corporate apparel segment, SG&A expenses were flat.~~lower employee-related benefit, travel and entertainment and share-based compensation costs. As a percentage of related net sales, SG&A expenses increased to ~~21.8%~~25.2% in the ~~third~~first quarter of 2019 from 25.1% in the first quarter of 2018 primarily due to deleveraging from ~~21.0%~~lower sales.

In the corporate apparel segment, SG&A expenses decreased $0.3 million. As a percentage of related net sales, SG&A expenses increased to 25.0% in the ~~third~~first quarter of ~~2017.~~2019 from 22.9% in the first quarter of 2018 primarily due to deleveraging from lower sales.

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A and increased ~~$1.5~~$1.1 million. As a percentage of total net sales, SG&A expenses increased to ~~6.4%~~6.2% in the ~~third~~first quarter of 2019 from 5.8% in the first quarter of 2018 primarily due to deleveraging from ~~6.2% in the third quarter of 2017.~~

~~Goodwill Impairment Charge~~

During the third quarter of 2018, we recorded a non-cash goodwill impairment charge of $24.0 million related to our corporate apparel reporting unit, which is included as a separate line in the condensed consolidated statement of earnings. ~~Please see Note 13 of the Notes to Condensed Consolidated Financial Statements and~~ ~~Goodwill and Other Indefinite-Lived Intangible Assets~~ ~~within ‘‘Critical Accounting Policies and Estimates’’ for further details.~~lower sales.

Net ~~(Loss) Gain~~Loss on Extinguishment of Debt

~~The $9.4 million~~There was no net loss on extinguishment of debt infor the ~~third~~first quarter of 2019. For the first quarter of 2018, ~~relates to the amending~~net loss on extinguishment of ~~the New Term Loan resulting in a reduction in the interest rate margin of 25 basis points~~debt was $12.7 million and c~~onsists~~consisted of the ~~elimination~~eliminated of unamortized deferred financing costs and original issue discount (“OID”).

~~The $2.5~~ related to the refinancing of our Term Loan totaling $11.9 million ~~net gain on extinguishment of debt in~~with the ~~third quarter of 2017 relates~~remainder related to open market repurchases of our Senior Notes.

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Provision for Income Tax

Our effective income tax rate increased to ~~48.9%~~39.1% for the ~~third~~first quarter of 2019 from 24.0% for the first quarter of 2018 ~~from 32.8% for the third quarter of 2017~~ primarily due to an increase in the ~~non-deductibility~~discrete tax expense related to the net excess shortfalls from share-based awards vesting in the first quarter of ~~the goodwill impairment charge and certain executive compensation costs partially offset by the impact of the Tax Reform Act.~~2019.

For the ~~third quarter~~first quarters of 2019 and 2018, the statutory tax rates in U.S., Canada, UK and Hong Kong were approximately 21%, 26%, 19% and 16.5%, respectively. ~~In addition, we recorded a Canadian withholding tax of 5% based on the removal of the permanent reinvestment representation in the fourth quarter of 2017.~~ For the ~~third quarter of 2017, the statutory tax rates in U.S., Canada, UK and Hong Kong were approximately 35%, 26%, 19% and 16.5%, respectively. For the third~~first quarters of ~~2018~~2019 and ~~2017,~~2018, tax expense for our operations in foreign jurisdictions totaled ~~$3.3~~$2.4 million and ~~$6.2~~$2.0 million, respectively.

Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including ~~finalization of provisional items with respect to the Tax Reform Act, and~~ our geographic mix of earnings and changes in tax laws.

In addition, if our financial results in fiscal ~~2018~~2019 generate a loss or certain deferred tax liabilities decrease, we may need to establish aadditional valuation ~~allowance~~allowances 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 tax audits, however, we currently do not believe these audits will result in any material charge to tax expense in the future.

~~Net Earnings~~Gross Margin

Our total gross margin decreased $24.7 million, or 7.1%, to $320.6 million in the first quarter of 2019 as compared to the first quarter of 2018 primarily as a result of lower sales. Total retail segment gross margin decreased $23.3 million in the first quarter of 2019 compared to same period last year.

For the retail segment, total gross margin as a percentage of related sales decreased to 42.1% in the first quarter of 2019 from 43.6% in the first quarter of 2018 primarily due to deleveraging of occupancy costs as a percent of sales as well as the mix shift from rental services to retail clothing sales.

Occupancy costs, which includes store related operating lease costs, utilities, repairs and maintenance, security, property taxes and depreciation, increased $2.7 million primarily due to the impact of store refreshes and other enhancements of our

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store fleet. Occupancy costs as a percentage of retail sales increased to 14.3% in the first quarter of 2019 as compared to 13.4% in the first quarter of 2018.

Corporate apparel gross margin decreased $1.3 million, or 8.0%, to $15.1 million for the first quarter of 2019 compared to the first quarter of 2018. For the corporate apparel segment, total gross margin as a percentage of related sales increased to 26.7% in the first quarter of 2019 from 26.1% in the first quarter of 2018 primarily due to customer mix.

Advertising Expense

Advertising expense increased to $45.0 million in the first quarter of 2019 from $41.2 million in the first quarter of 2018, an increase of $3.8 million, or 9.2%, reflecting the launch of new brand campaigns for Men’s Wearhouse and Jos. A. Bank, and more expensive local instead of more economical national broadcast media to support planned tests. As a percentage of total net sales, advertising expense increased to 5.8% in the first quarter of 2019 from 5.0% in the first quarter of 2018.

Selling, General and Administrative Expenses

SG&A expenses decreased to $245.2 million in the first quarter of 2019 from $251.1 million in the first quarter of 2018, a decrease of $5.9 million, or 2.3%. As a percentage of total net sales, these expenses increased to 31.4% in the first quarter of 2019 from 30.7% in the first quarter of 2018. The components of this 0.7% net increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:


%	in millions		Attributed to
—	$	0.6	For the first quarter of 2019, we incurred certain costs that impact the comparability of our results consisting of $4.2 million related to our multi-year cost savings and operational excellence programs. For the first quarter of 2018, similar costs totaled $3.6 million related to a loss on divestiture of our MW Cleaners business. As a percentage of sales, these costs were flat at 0.5% for both the first quarter of 2019 and 2018.
0.6		(0.3)	Store salaries decreased $0.3 million and increased as a percentage of sales to 13.2% in the first quarter of 2019 from 12.6% in the first quarter of 2018 primarily due to deleveraging from lower sales.
0.1		(6.2)	Other SG&A expenses decreased $6.2 million primarily due to lower share-based compensation, travel and entertainment and employee-related benefit costs. As a percentage of sales, other SG&A expenses increased to 17.8% in the first quarter of 2019 from 17.7% in the first quarter of 2018.
0.7	$	(5.9)	Total

In the retail segment, SG&A expenses decreased $6.7 million primarily due to lower employee-related benefit, travel and entertainment and share-based compensation costs. As a percentage of related net sales, SG&A expenses increased to 25.2% in the first quarter of 2019 from 25.1% in the first quarter of 2018 primarily due to deleveraging from lower sales.

In the corporate apparel segment, SG&A expenses decreased $0.3 million. As a percentage of related net sales, SG&A expenses increased to 25.0% in the first quarter of 2019 from 22.9% in the first quarter of 2018 primarily due to deleveraging from lower sales.

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A and increased $1.1 million. As a percentage of total net sales, SG&A expenses increased to 6.2% in the first quarter of 2019 from 5.8% in the first quarter of 2018 primarily due to deleveraging from lower sales.

Net ~~earnings were $13.9 million~~Loss on Extinguishment of Debt

There was no net loss on extinguishment of debt for the ~~third~~first quarter of 2019. For the first quarter of 2018, ~~compared~~net loss on extinguishment of debt was $12.7 million and consisted of the eliminated of unamortized deferred financing costs and original issue discount (“OID”) related to the refinancing of our Term Loan totaling $11.9 million with ~~net earnings~~the remainder related to open market repurchases of ~~$36.9 million for the third quarter of 2017.~~our Senior Notes.

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~~For the Nine Months Ended November 3, 2018 Compared to the Nine Months Ended October 28, 2017~~

Provision for Income Tax

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

For the Nine Months Ended(1)

November 3,

October 28,


2018

2017

Net sales:

Retail clothing product

73.7
%
71.7
%
Rental services

14.3

15.3

Alteration and other services

4.8

5.7

Total retail sales

92.7

92.7

Corporate apparel clothing product

7.3

7.3

Total net sales

100.0
%
100.0
%
Cost of sales(2):

Retail clothing product

43.6

42.7

Rental services

14.7

16.2

Alteration and other services

86.6

74.7

Occupancy costs

13.4

13.8

Total retail cost of sales

54.8

54.1

Corporate apparel clothing product

73.3

73.6

Total cost of sales

56.1

55.5

Gross margin(2):

Retail clothing product

56.4

57.3

Rental services

85.3

83.8

Alteration and other services

13.4

25.3

Occupancy costs

(13.4)

(13.8)

Total retail gross margin

45.2

45.9

Corporate apparel clothing product

26.7

26.4

Total gross margin

43.9

44.5

Advertising expense

4.8

4.9

Selling, general and administrative expenses

30.1

30.7

Goodwill impairment charge

1.0

—

Operating income

8.0

8.8

Interest income

0.0

0.0

Interest expense

(2.5)

(3.1)

(Loss) gain on extinguishment of debt, net

(1.2)

0.3

Earnings before income taxes

4.3

6.0

Provision for income taxes

1.1

2.1

Net earnings

3.1
%
4.0
%

⁽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~~Our effective income tax rate increased ~~$9.7 million, or 0.4%,~~ to ~~$2,454.1 million~~39.1% for the first ~~nine months~~quarter of ~~2018 as compared to the first nine months of 2017.~~

~~Total retail sales increased $8.7 million, or 0.4%, to $2,274.5 million~~2019 from 24.0% for the first ~~nine months~~quarter of 2018 ~~as compared to the first nine months of 2017 due to a $54.1 million increase in clothing product revenues~~ primarily due to an increase in ~~comparable sales partially offset by a $23.2 million decrease~~the discrete tax expense related to the net excess shortfalls from share-based awards vesting in ~~rental services revenue primarily reflecting a consumer shift to purchase suits for special occasions and a $22.2 million decrease in alteration and other services revenues primarily reflecting~~ the ~~impact~~first quarter of ~~our divestiture of MW Cleaners. The increase in total retail sales is further described below:~~

(in millions)

Amount Attributed to
$
24.6

2.0% increase in comparable sales at Men's Wearhouse.

10.7

2.3% increase in comparable sales at Jos. A. Bank.

3.8

1.7% increase in comparable sales at K&G.

3.7

2.3% increase in comparable sales at Moores(1).

(14.6)

Decrease in non-comparable sales.

0.4

Increase in net sales resulting from change in U.S./Canadian dollar exchange rate.

(19.9)

Other (primarily resulting from divestiture of MW Cleaners).
$
8.7

Increase 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, excluding stores where the square footage has changed by more than 25% within the past year, and includes e-commerce sales. We operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels. 2019.

~~The increase~~For the first quarters of 2019 and 2018, the statutory tax rates in ~~comparable sales at Men's Wearhouse resulted primarily from an increase~~U.S., Canada, UK and Hong Kong were approximately 21%, 26%, 19% and 16.5%, respectively. For the first quarters of 2019 and 2018, tax expense for our operations in ~~both transactions for clothing~~foreign jurisdictions totaled $2.4 million and average unit retail partially offset by a decrease in units per transaction. At Men's Wearhouse, rental service comparable sales decreased 5.6% primarily reflecting a consumer shift to purchase suits for special occasions. The increase at Jos. A. Bank resulted primarily from an increase in transactions partially offset by a decrease in average unit retail and units per transaction. The increase at K&G resulted from an increase in both units per transaction and average unit retail partially offset by a decrease in transactions. The increase at Moores resulted from an increase in transactions and a slight increase in average unit retail partially offset by a slight decrease in units per transaction. $2.0 million, respectively.

~~Total corporate apparel clothing product sales increased $1.0 million for the first nine months~~Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of ~~2018 as compared to the first nine months of 2017 primarily due to a stronger British pound this year compared to last year of approximately $5.9 million partially offset by a decrease~~earnings and changes in ~~sales at the UK.~~tax laws.

In addition, if our financial results in fiscal 2019 generate a loss or certain deferred tax liabilities decrease, we may need to establish additional valuation allowances 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 tax audits, however, we currently do not believe these audits will result in any material charge to tax expense in the future.

Gross Margin

Our total gross margin decreased ~~$11.0~~$24.7 million, or ~~1.0%~~7.1%, to ~~$1,076.9~~$320.6 million in the first ~~nine months~~quarter of ~~2018~~2019 as compared to the first ~~nine months~~quarter of ~~2017.~~2018 primarily as a result of lower sales. Total retail segment gross margin decreased ~~$11.9~~$23.3 million ~~or 1.1%,~~ in the first ~~nine months~~quarter of ~~2018~~2019 compared to ~~the~~ same period last ~~year primarily due to lower rental service revenue as well as lower alteration and other services revenue primarily resulting from our divestiture of MW Cleaners.~~year.

For the retail segment, total gross margin as a percentage of ~~retail~~related sales decreased to ~~45.2%~~42.1% in the first ~~nine months~~quarter of 2019 from 43.6% in the first quarter of 2018 ~~from 45.9% in the nine months~~primarily due to deleveraging of ~~2017 driven primarily by deeper discounts on seasonal merchandise in support of our strategy to move to a more efficient inventory model partially offset by lower~~ occupancy costs as a percent of ~~sales.~~ sales as well as the mix shift from rental services to retail clothing sales.

Occupancy costs, which includes store related ~~rent, common area maintenance,~~operating lease costs, utilities, repairs and maintenance, security, property taxes and depreciation, ~~decreased $7.7~~increased $2.7 million primarily due to the impact of ~~our divestiture~~store refreshes and other enhancements of ~~MW Cleaners and~~our

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~~the closure of our tuxedo shops within Macy’s in 2017.~~store fleet. Occupancy costs as a percentage of retail sales ~~decreased~~increased to 14.3% in the first quarter of 2019 as compared to 13.4% in the first ~~nine months~~quarter of ~~2018 from 13.8% in the first nine months of 2017.~~2018.

Corporate apparel gross margin ~~increased $0.8~~decreased $1.3 million, or ~~1.8%~~8.0%, into $15.1 million for the first ~~nine months~~quarter of ~~2018 as~~2019 compared to the first ~~nine months~~quarter of ~~2017.~~2018. For the corporate apparel segment, total gross margin as a percentage of related sales increased to 26.7% in the first ~~nine months~~quarter of ~~2018~~2019 from ~~26.4%~~26.1% in the first ~~nine months~~quarter of ~~2017.~~2018 primarily due to customer mix.

Advertising Expense

Advertising expense ~~decreased~~increased to ~~$117.2~~$45.0 million in the first ~~nine months~~quarter of ~~2018~~2019 from ~~$120.8~~$41.2 million in the first ~~nine months~~quarter of ~~2017, a decrease~~2018, an increase of ~~$3.6~~$3.8 million, or ~~3.0%. The decrease in advertising expense was driven primarily by reductions in television advertising~~9.2%, reflecting ~~a shift~~the launch of new brand campaigns for Men’s Wearhouse and Jos. A. Bank, and more expensive local instead of more economical national broadcast media to ~~digital advertising, as well as the timing of marketing spend.~~support planned tests. As a percentage of total net sales, advertising expense ~~was 4.8%~~increased to 5.8% in the first ~~nine months~~quarter of ~~2018 compared to 4.9%~~2019 from 5.0% in the first ~~nine months~~quarter of ~~2017.~~2018.

Selling, General and Administrative Expenses

SG&A expenses decreased to ~~$739.7~~$245.2 million in the first ~~nine months~~quarter of ~~2018~~2019 from ~~$751.0~~$251.1 million in the first ~~nine months~~quarter of ~~2017,~~2018, a decrease of ~~$11.3~~$5.9 million, or ~~1.5%~~2.3%. As a percentage of total net sales, these expenses ~~decreased~~increased to ~~30.1%~~31.4% in the first ~~nine months~~quarter of ~~2018~~2019 from 30.7% in the first ~~nine months~~quarter of ~~2017.~~2018. The components of this ~~0.6% decrease~~0.7% net increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:

%

in millions

Attributed to
(0.2)

$
(4.7)

Decrease in non-recurring items as a percentage of sales to 0.4% in the first nine months of 2018 from 0.6% in the first nine months of 2017.  For the first nine months of 2018, these costs totaled $11.1 million including $6.4 million related to the retirement of our former CEO, a $3.8 million loss on divestiture of our MW Cleaners business and $0.9 million related to the closure of a rental product distribution center.  For the first nine months of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement.
(0.1)

(1.2)

Store salaries decreased $1.2 million primarily due to the divestiture of MW Cleaners partially offset by higher store commissions and decreased as a percentage of sales to 12.5% in the first nine months of 2018 from 12.6% in the first nine months of 2017.
(0.3)

(5.4)

Other SG&A expenses decreased $5.4 million primarily due to lower operating costs resulting from the divestiture of MW Cleaners and a decrease in share-based compensation expense offset by higher employee-related benefit costs.  As a percentage of sales, other SG&A expenses decreased to 17.2% in the first nine months of 2018 from 17.5% in the first nine months of 2017.
(0.6)

$
(11.3)

Total


%	in millions		Attributed to
—	$	0.6	For the first quarter of 2019, we incurred certain costs that impact the comparability of our results consisting of $4.2 million related to our multi-year cost savings and operational excellence programs. For the first quarter of 2018, similar costs totaled $3.6 million related to a loss on divestiture of our MW Cleaners business. As a percentage of sales, these costs were flat at 0.5% for both the first quarter of 2019 and 2018.
0.6		(0.3)	Store salaries decreased $0.3 million and increased as a percentage of sales to 13.2% in the first quarter of 2019 from 12.6% in the first quarter of 2018 primarily due to deleveraging from lower sales.
0.1		(6.2)	Other SG&A expenses decreased $6.2 million primarily due to lower share-based compensation, travel and entertainment and employee-related benefit costs. As a percentage of sales, other SG&A expenses increased to 17.8% in the first quarter of 2019 from 17.7% in the first quarter of 2018.
0.7	$	(5.9)	Total

In the retail segment, SG&A expenses decreased ~~$16.5~~$6.7 million primarily due to ~~anniversarying last year’s costs to terminate the Macy’s agreement.~~lower employee-related benefit, travel and entertainment and share-based compensation costs. As a percentage of related net sales, SG&A expenses ~~decreased~~increased to ~~24.3%~~25.2% in the first ~~nine months~~quarter of ~~2018~~2019 from 25.1% in the first ~~nine months~~quarter of ~~2017.~~2018 primarily due to deleveraging from lower sales.

In the corporate apparel segment, SG&A expenses ~~increased $2.2~~decreased $0.3 million. As a percentage of related net sales, SG&A expenses increased to 25.0% in the first quarter of 2019 from 22.9% in the first ~~nine months~~quarter of 2018 primarily due to deleveraging from ~~21.8% in the first nine months of 2017.~~lower sales.

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A and increased ~~$3.0 million primarily due to costs related to the retirement of our former CEO.~~$1.1 million. As a percentage of total net sales, SG&A expenses increased to ~~6.0%~~6.2% in the first ~~nine months~~quarter of ~~2018~~2019 from ~~5.9%~~5.8% in the first ~~nine months~~quarter of ~~2017.~~2018 primarily due to deleveraging from lower sales.

~~Goodwill Impairment Charge~~Net Loss on Extinguishment of Debt

~~During~~There was no net loss on extinguishment of debt for the first ~~nine months~~quarter of 2019. For the first quarter of 2018, ~~we recorded a non-cash goodwill impairment charge~~net loss on extinguishment of ~~$24.0~~debt was $12.7 million and consisted of the eliminated of unamortized deferred financing costs and original issue discount (“OID”) related to the refinancing of our ~~corporate apparel reporting unit, which is included as a separate line in~~Term Loan totaling $11.9 million with the ~~condensed consolidated statement~~remainder related to open market repurchases of ~~earnings. Please see Note 13 of the Notes to Condensed Consolidated Financial Statements and~~ ~~Goodwill and Other Indefinite-Lived Intangible Assets~~ ~~within ‘‘Critical Accounting Policies and Estimates’’ for further details.~~our Senior Notes.

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~~Net (Loss) Gain on Extinguishment of Debt~~

The $30.3 million net loss on extinguishment of debt in the first nine months of 2018 consists of the elimination of unamortized deferred financing costs and OID related to the refinancing and repricing of our Term Loan totaling $21.4 million and an $8.9 million loss on extinguishment related to our Senior Notes.

~~The $6.5 million net gain on extinguishment of debt in the first nine months of 2017 relates to open market repurchases of our Senior Notes.~~

Provision for Income Tax

Our effective income tax rate ~~decreased~~increased to ~~26.3%~~39.1% for the first ~~nine months~~quarter of ~~2018~~2019 from ~~34.2%~~24.0% for the first ~~nine months~~quarter of ~~2017~~2018 primarily ~~from enactment of~~due to an increase in the ~~Tax Reform Act, the release of $3.1 million of state valuation allowances and anniversarying last year’s $2.2 million of~~discrete tax ~~deficiencies~~expense related to the ~~vesting of stock-based~~net excess shortfalls from share-based awards ~~recorded~~vesting in the first ~~six months~~quarter of ~~2017 resulting from the adoption of new accounting guidance related to stock-based compensation.~~2019.

For the first ~~nine months~~quarters of 2019 and 2018, the statutory tax rates in U.S., Canada, UK and Hong Kong were approximately 21%, 26%, 19% and 16.5%, respectively. For the first ~~nine months~~quarters of ~~2017, the statutory tax rates in U.S., Canada, UK~~2019 and ~~Hong Kong were approximately 35%, 26%, 19% and 16.5%, respectively. For the first nine months of~~ 2018, ~~and 2017,~~ tax expense for our operations in foreign jurisdictions totaled ~~$8.7~~$2.4 million and ~~$12.2~~$2.0 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.

In addition, if our financial results in fiscal ~~2018~~2019 generate a loss or certain deferred tax liabilities decrease, we may need to establish aadditional valuation ~~allowance~~allowances 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;~~tax audits, however, we currently do not believe these audits will result in any material ~~change~~charge to tax expense in the future.

Net Earnings

Net earnings were ~~$77.0~~$7.1 million for the first ~~nine months~~quarter of ~~2018~~2019 compared with net earnings of ~~$97.2~~$13.9 million for the first ~~nine months~~quarter of ~~2017.~~2018.

Liquidity and Capital Resources

Our primary sources of working capital are cash flows from operations and available borrowings under our revolving credit agreement, as described below. The following table provides details on our cash and cash equivalents and working capital position as of ~~November 3,~~May 4, 2019, May 5, 2018 ~~October 28, 2017~~ and February ~~3, 2018:~~2, 2019:


	November 3,		October 28,		February 3,		May 4,		May 5,		February 2,
	2018		2017		2018		2019		2018		2019
Cash and cash equivalents	$	68,425	$	126,244	$	103,607	$	29,749	$	93,166	$	55,431
Working capital	$	531,000	$	735,635	$	669,809	$	291,441	$	540,153	$	491,047

The decrease in working capital from May 4, 2019 compared to February 2, 2019 is primarily due to the adoption of new accounting guidance related to leases, specifically the current portion of operating lease liabilities totaling $183.0 million. Please see Note 12 of the Notes to the Condensed Consolidated Financial Statements for additional information.

In 2014, The Men's Wearhouse entered into a term loan credit agreement that provided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the "Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original Term Loan, the "Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Original Term Loan were reduced by an $11.0 million OID, which was presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the Original Term Loan. In addition, in 2014, The Men's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "Senior Notes").

~~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. Should our total leverage ratio and secured leverage ratio exceed certain thresholds specified in the agreements, we would be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of ~~November 3, 2018,~~May 4, 2019, our total leverage ratio and secured leverage ratio are below ~~these thresholds and we believe these ratios will remain below~~ the thresholds specified in the agreements ~~for the foreseeable future,~~ which results in the

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elimination of these additional restrictions. In addition, as a result of the refinancing of our Original Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter.

Credit Facilities

~~Table of Contents~~

of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%. As of ~~November 3, 2018, $58.5~~May 4, 2019, $48.5 million in borrowings were outstanding under the ABL Facility at a weighted average interest rate of approximately 5.3%.

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases. At ~~November 3, 2018,~~May 4, 2019, letters of credit totaling approximately ~~$33.8~~$38.7 million were issued and outstanding. Borrowings available under the ABL Facility as of ~~November 3, 2018~~May 4, 2019 were ~~$457.7~~$424.9 million.

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Cash Flow Activities

Operating activities — Net cash provided by operating activities was ~~$277.8~~$11.8 million and ~~$252.5~~$120.2 million for the first ~~nine~~three months of ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~$25.3~~$108.4 million ~~increase~~decrease was driven by ~~higher~~lower net earnings, ~~after adjusting for certain items~~an increase in inventories primarily ~~related to extinguishment of debt~~reflecting the decrease in comparable sales at Men’s Wearhouse, and ~~goodwill impairment as well as favorable~~ fluctuations in accounts payable, accrued expenses and other current liabilities primarily due to ~~timing, partially offset by an increase in inventories ahead of the fourth quarter holiday season.~~timing.

Investing activities — Net cash used in investing activities was ~~$29.2 million and $54.3~~$21.7 million for the first ~~nine~~three months of ~~2018 and 2017.~~2019 compared to net cash provided by investing activities of $6.8 million for the first three months of 2018. The net change of ~~$25.1~~$28.4 million was primarily driven by ~~$17.8~~$17.7 million of net proceeds from the divestiture of MW ~~Cleaners.~~Cleaners and an increase in capital expenditures resulting from projects that shifted from fiscal 2018 to fiscal 2019.

Financing activities — Net cash used in financing activities was ~~$281.4~~$15.0 million and ~~$146.3~~$135.0 million for the first ~~nine~~three months of ~~2018~~2019 and ~~2017,~~2018, respectively. The ~~$135.1~~$120.0 million ~~increase~~decrease primarily reflects the impact of ~~additional~~a reduction in 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 ~~November 3, 2018,~~May 4, 2019, the remaining balance available under the Board's authorization was $48.0 million. During the first ~~nine~~three months of ~~2018~~2019 and ~~2017,~~2018, no shares were repurchased in open market transactions under the Board's authorization.

Dividends — Cash dividends paid were ~~$27.8 million and $26.9~~$9.6 million for the first ~~nine~~three months of ~~2018~~2019 and ~~2017,~~2018, respectively. During each of the quarters ended ~~November 3,~~May 4, 2019 and May��5, 2018, ~~and October 28, 2017,~~ 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 first ~~nine~~three months of ~~2018,~~2019, we borrowed and repaid amounts under our ABL Facility with the maximum borrowing outstanding at any point in time totaling ~~$104.5~~$100.0 million.

~~Capital expenditures are now anticipated to be approximately $90.0 million~~The Company has not yet finalized its outlook for ~~2018. This amount includes the anticipated costs to open approximately three Men's Wearhouse stores and to relocate approximately seven stores across our retail brands. The balance of the~~ capital expenditures for ~~2018~~fiscal 2019 but continues to expect a moderate increase in capital expenditures compared to fiscal 2018. Capital expenditures will ~~be used~~include costs for store refreshes and other enhancements of our

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store fleet, investments in ~~computer equipment and systems, distribution facilities improvements,~~technology, and investment in other corporate assets.

Additionally, market conditions may produce attractive opportunities for us to make acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. We may use cash on hand, together with cash flow from operations, borrowings under our Credit Facilities and issuances of debt or equity securities, to take advantage of any acquisition opportunities.

Current and future domestic and global economic conditions could negatively affect our future operating results as well as our existing cash and cash equivalents balances. In addition, conditions in the financial markets could limit our access to further capital resources, if needed, and could increase associated costs. We believe based on our current business plan that

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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 February ~~3, 2018, except as related to long-term debt which are summarized below:~~ 2, 2019.

Payments Due by Period

(In millions)










Contractual obligations

Total

<1 Year

1 - 3 Years

4 - 5 Years

> 5 Years

Long-term debt(1)

$
1,573.5

$
76.6

$
147.3

$
424.7

$
924.9

⁽¹⁾

Includes interest payments of $67.6 million within one year, $131.6 million between one and three years, $119.6 million between four and five years and $74.4 million beyond five years, at current interest rates including the impact of our interest rate swaps. The payments due by period do not consider amounts which may become payable under the excess cash flow provision of our New Term Loan. Interest on our ABL borrowings is excluded from the amounts presented in the table due to our inability to predict the timing and settlement of our ABL borrowings. See Notes 5 and 15 of Notes to the Condensed Consolidated Financial Statements for additional information.

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~~Other than the adoption of the new lease accounting standard as discussed in Note 12 of the Notes to the Condensed Consolidated 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 February ~~3, 2018 except as follows.~~2, 2019.

~~Goodwill and~~ Other ~~Indefinite-Lived Intangible Assets~~Matters

During 2018, the ~~third~~U.S. imposed tariffs on certain goods imported from China and expressed a willingness to impose further tariffs on additional goods imported from China. For tariffs enacted through the first quarter of ~~2018, sales, profitability and cash flow of our corporate apparel reporting unit underperformed in comparison~~2019, we believe the impact has been immaterial to our ~~forecast. The performance~~results of operations. Additionally, on May 5, 2019, the U.S. announced the possibility of tariffs on other categories of U.S. imports from China that, if enacted, could have a more significant impact on our ~~corporate apparel business was~~results of operations. To mitigate this risk, we have been reducing the penetration of Chinese-made direct-sourced product and ~~continues~~also successfully completed negotiations with our vendors who have agreed to ~~be impacted by increasing uncertainty surrounding Brexit, which is resulting~~absorb the majority of any impact for production that remains in lower replenishment demand from existing accounts in the UK. In addition, in the third quarter of 2018, we received notification from a significant U.S. customer of their decision not to renew their existing agreement with us in 2019.China. As a result, ~~of the continued uncertainty surrounding Brexit and the notification~~currently, we believe that additional tariffs on goods imported from ~~our U.S. customer, we appropriately lowered our forecast of sales, profitability and cash flow for the corporate apparel reporting unit for the fourth quarter of 2018 and future years.~~

AsChina would have a result of the factors above, we determined that a triggering event occurred during the third quarter of 2018 and an interim goodwill impairment test for our corporate apparel reporting unit was required. We concluded that the reporting unit’s goodwill was fully impaired and recorded a non-cash goodwill impairment charge of $24.0 million during the third quarter of 2018, which is included as a separate line in the condensed consolidated statement of earnings.

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~~As of November 3, 2018, goodwill totaled $79.5 million, with $58.3 million allocated to our Men’s Wearhouse reporting unit and $21.2 million allocated to our Moores reporting unit.Based~~minimal impact on our ~~lastannual impairment evaluation, the fair values~~results of ~~these reporting units significantly exceeded their carrying values and, therefore, as of November 3, 2018, no reporting units are deemed “at risk”~~operations for ~~goodwill impairment.~~fiscal 2019.

Estimating future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales, costs and useful lives of assets. Significant judgment is also involved in selecting the appropriate discount rate to be applied in determining the estimated fair value of an asset. Changes to our key assumptions related to future performance, market conditions and other economic factors can significantly affect our impairment evaluation and may trigger the need for future impairment tests possibly resulting in future impairment charges related to intangible assets of the corporate apparel reporting unit.

We are committed to an ongoing evaluation of our portfolio of businesses and maximizing value for our shareholders. Such an evaluation may result in the consideration of a range of options related to our corporate apparel business, some of which could result in additional non-cash losses in future periods.

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~~Loyalty Program Accounting~~

~~Effective February 4, 2018, we adopted ASC 606,~~ ~~Revenue from Contracts with Customers~~ and all related amendments (“ASC 606”). As a result, we no longer use the incremental cost method approach but will record our obligation for future point redemptions using a deferred revenue model.

When loyalty program members earn points, we recognize a portion of the transaction as revenue for merchandise product sales or services and defer a portion of the transaction representing the value of the related points. The value of the points is recorded in deferred revenue on our condensed consolidated balance sheet and recognized into revenue when the points are converted into a rewards certificate and the certificate is used.

We account for points earned and certificates issued that will never be redeemed by loyalty members, which we refer to as breakage. We review our breakage estimates at least annually based upon the latest available information regarding redemption and expiration patterns.

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 54 and Note 15 of the Notes to the Condensed Consolidated Financial Statements, we have undertaken steps to mitigate our exposure to changes in interest rates on our New Term Loan. As of ~~November 3, 2018,~~May 4, 2019, 80% of the variable interest rate under the New Term Loan has been converted to a fixed rate. At ~~November 3, 2018,~~May 4, 2019, the effect of one percentage point change in interest rates would result in an approximate $1.8 million change in annual interest expense on our New Term Loan.

In addition, borrowings under our ABL Facility bear a floating rate of interest. As of ~~November 3, 2018,~~May 4, 2019, the outstanding borrowings under the ABL Facility were ~~$58.5~~$48.5 million. At ~~November 3, 2018,~~May 4, 2019, the effect of a one percentage point change

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in interest rates would result in an approximate ~~$0.6~~$0.5 million change in annual interest expense on our ABL borrowings.

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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 ("~~Executive Chairman"~~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 ~~Executive Chairman~~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 ~~Executive Chairman~~CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

During the fiscal first quarter ended May 4, 2019, we adopted new guidance for lease accounting. We implemented changes to our internal controls related to leases, including the development of new accounting policies, enhanced contract review requirements and information technology systems to assist in the ongoing application and related disclosures for the new guidance.

There were no other changes in the Company's internal control over financial reporting that occurred during the fiscal ~~third~~first quarter ended ~~November 3, 2018~~May 4, 2019 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 17 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

~~ITEM 1A — RISK FACTORS~~

For a more detailed explanation of the factors affecting our business, please refer to the Risk Factors section in the Form 10-K for the fiscal year ended February 3, 2018. There has not been a material change to the risk factors set forth in the Form 10-K for the fiscal year ended February 3, 2018, except for the following risk factors which supplement and/or update risk factors previously disclosed and should be considered in conjunction with the Risk Factors section in the Form 10-K for the fiscal year ended February 3, 2018:

~~We source our products globally, therefore, we may be impacted by tariffs recently imposed and proposed by the U.S. with respect to certain products imported from China.~~

In fiscal 2017, we reported that our retail brands sourced approximately 66% of direct sourced merchandise from Asia (39% from China) while 11% was sourced in the U.S. (primarily from our U.S. factory), 6% was sourced in Mexico and 17% was sourced in other regions. The Company’s historical practice was to include raw materials sourced in foreign countries even if the finished goods using those raw materials were manufactured in a different country. As the U.S. has recently imposed tariffs on certain imports from China, we believe revising our historical practice to report the amount of finished goods manufactured in foreign countries is more meaningful to investors to evaluate the impact of current or future tariffs on imports from China. For fiscal 2017, our revised metrics reflect that our retail brands sourced approximately 74% of direct sourced merchandise from Asia (30% from China) while 9% was sourced in the U.S. (primarily from our U.S. factory), 6% was sourced in Mexico and 11% was sourced in other regions.

During 2018, the U.S. imposed tariffs on goods imported from China and expressed a willingness for further tariffs on additional goods imported from China. As a result, we are evaluating the potential impact of the effective and proposed tariffs on our supply chain, costs, sales and profitability and are considering strategies to address such impact. Given the uncertainty regarding the scope and duration of the effective and proposed tariffs, as well as the potential for additional trade actions by the U.S. or other countries, the impact on our operations and results is uncertain and could be significant, and we can provide no assurance that any strategies we implement to address the impact of such tariffs or other trade actions will be successful. To the extent that our supply chain, costs, sales or profitability are negatively affected by the tariffs or other trade actions, our business, financial condition and results of operations may be materially adversely affected.

~~Our corporate apparel business faces risks relating to the United Kingdom’s 2016 referendum, which called for its exit from the European Union.~~

The June 2016 referendum result in the United Kingdom (“UK”) to exit the European Union (“EU”) (commonly known as “Brexit”), and the subsequent commencement of the official withdrawal process by the UK government in March 2017, has created uncertainties affecting our business operations in the UK. For the first nine months of 2018, net sales of our UK operations constituted approximately 6% of our consolidated net sales.

In the near term, we believe this uncertainty has caused some of our UK customers and potential customers to curtail spending on their uniform programs. In the longer term, any impact from Brexit on our corporate apparel business will depend, in part, on the outcome of tariff, trade, regulatory and other negotiations. Although it is unknown what the result of those negotiations will be, it is possible that new terms may disrupt trade and the movement of goods, services and people between the UK and the EU or other countries, disrupt the stability of the EU generally, as well as create legal, political and global economic uncertainty. These and other potential implications may adversely affect our corporate apparel business, results of operations and financial condition.

The decrease in sales for our UK operations, combined with the notification received by a significant U.S. customer of their decision not to renew their existing agreement with us in 2019, resulted in the lowering of our forecast of sales, profitability

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and cash flow for the corporate apparel reporting unit for the fourth quarter of 2018 and future years. As a result, we concluded that the goodwill of the corporate apparel business was fully impaired and recorded a non-cash goodwill impairment charge of $24.0 million during the third quarter of 2018. Please see Note 13 of the Notes to Condensed Consolidated Financial Statements and ~~Goodwill and Other Indefinite-Lived Intangible Assets~~ ~~within ‘‘Critical Accounting Policies and Estimates’’ for further details.~~

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 ~~56.~~46.

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EXHIBIT INDEX

Exhibit Number		Exhibit Index

10.1	—	~~Separation~~Letter Agreement by and between Tailored ~~Shared Services, LLC~~Brands, Inc. and ~~Douglas~~Dinesh S. ~~Ewert~~Lathi dated ~~August 28, 2018~~April 19, 2019 and effective March 27, 2019 (incorporated by reference from Exhibit 10.1 to the Company’s Current Report on Form 8-K (Amendment No. 2) filed with the Commission on ~~August 28, 2018)~~April 26, 2019).
10.2	—	~~Consulting Agreement~~Amendment No. 3 to ABL Facility, dated as of April 30, 2019, by and ~~between Tailored Shared Services, LLC~~among the Company, and ~~Douglas S. Ewert dated August 28, 2018 (incorporated by reference from Exhibit 10.2 to~~ the ~~Company’s Current Report on Form 8-K filed with~~other Co-Borrowers, the ~~Commission on August 28, 2018)~~U.S. ABL Administrative Agent, the Canadian Administrative Agent and the ABL Lenders (filed herewith).
10.3	—	Amendment No. ~~3 to Term Loan, dated as of October 10, 2018, by and among The Men’s Wearhouse, Inc., the Administrative Agent and the Term Lenders (incorporated by reference from Exhibit 10.1~~2 to the ~~Company’s Current Report on~~ Tailored Brands, Inc. 2016 Long-Term Incentive Plan, dated June 4, 2019 (filed herewith).
10.4	—	Form ~~8-K filed with~~of Cash-Based Award Agreement, (for executives, including named executive officers) under the ~~Commission on October 10, 2018)~~Tailored Brands, Inc. 2016 Long-Term Incentive Plan, as amended (filed herewith).
31.1	—	Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive ~~Chairman~~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 ~~Chairman~~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 nine~~ months ended ~~November 3, 2018~~May 4, 2019 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 (Loss) Income; (iv) the Condensed Consolidated Statements of Shareholders’ (Deficit) Equity; (v) the Condensed Consolidated Statements of Cash Flows; and ~~(v)~~(vi) 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: ~~December~~June 13, ~~2018~~2019	TAILORED BRANDS, INC.


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

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Statement of Earnings
	For the Three Months Ended November 3, 2018
	As		Amounts Under		Effect of Change
	Reported		Legacy GAAP		Increase/(Decrease)
Net sales:
Total retail sales	$	751,741	$	753,195	$	1,454
Corporate apparel clothing product		61,006		62,353		1,347
Costs and expenses:
Total retail cost of sales		405,620		406,430		810
Total corporate apparel clothing product cost of sales		44,392		45,516		1,124
Selling, general and administrative expenses		246,305		245,918		(387)
Provision for income taxes		13,256		13,869		613
Net earnings		13,875		14,516		641
Diluted net earnings per common share	$	0.27	$	0.29	$	0.02


Balance Sheet	November 3, 2018
	As		Amounts Under		Effect of Change
	Reported		Legacy GAAP		Increase/(Decrease)
Assets:
Accounts receivable, net	$	80,696	$	82,850	$	2,154
Inventories		875,003		886,627		11,624
Other current assets		70,433		67,774		(2,659)
Liabilities:
Accrued expenses and other current liabilities		302,322		245,074		(57,248)
Deferred taxes, net and other liabilities		148,590		136,623		(11,967)
Equity:
Accumulated deficit	$	(464,993)	$	(428,506)	$	36,487


			Corporate
	Retail		Apparel		Total
Balance at February 3, 2018	$	94,305	$	25,987	$	120,292
Goodwill impairment charge		—		(23,991)		(23,991)
Goodwill of divested business (see Note 2)		(13,588)		—		(13,588)
Translation adjustment		(1,242)		(1,996)		(3,238)
Balance at November 3, 2018	$	79,475	$	—	$	79,475


(in millions)		Amount Attributed to
$	7.1	1.7% increase in comparable sales at Men's Wearhouse.
	5.8	3.8% increase in comparable sales at Jos. A. Bank.
	2.6	4.0% increase in comparable sales at K&G.
	0.6	1.2% increase in comparable sales at Moores(1).
	(2.9)	Decrease in non-comparable sales.
	(2.4)	Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate.
	(6.6)	Other (primarily resulting from divestiture of MW Cleaners).
$	4.2	Increase in total retail sales.


%	in millions		Attributed to
0.9	$	7.0	Increase in non-recurring items as a percentage of sales to 0.9% in the third quarter of 2018 from 0.0% in the third quarter of 2017. In the third quarter of 2018, these costs consisted of $6.4 million related to the retirement of our former CEO and $0.6 million related to the closure of a rental product distribution center. For the third quarter of 2017, we incurred no such costs.
0.2		2.1	Store salaries increased $2.1 million primarily due to higher commissions and increased as a percentage of sales to 12.4% in the third quarter of 2018 from 12.2% in the third quarter of 2017.
(0.8)		(6.3)	Decrease in other SG&A expenses as a percentage of sales to 17.0% in the third quarter of 2018 from 17.8% in the third quarter of 2017. Other SG&A expenses decreased $6.3 million primarily due to decreases in share-based compensation expense and lower operating costs resulting from the divestiture of MW Cleaners.
0.3	$	2.8	Total


	For the Nine Months Ended(1)
	November 3,		October 28,
	2018		2017
Net sales:
Retail clothing product	73.7	%	71.7	%
Rental services	14.3		15.3
Alteration and other services	4.8		5.7
Total retail sales	92.7		92.7
Corporate apparel clothing product	7.3		7.3
Total net sales	100.0	%	100.0	%
Cost of sales(2):
Retail clothing product	43.6		42.7
Rental services	14.7		16.2
Alteration and other services	86.6		74.7
Occupancy costs	13.4		13.8
Total retail cost of sales	54.8		54.1
Corporate apparel clothing product	73.3		73.6
Total cost of sales	56.1		55.5
Gross margin(2):
Retail clothing product	56.4		57.3
Rental services	85.3		83.8
Alteration and other services	13.4		25.3
Occupancy costs	(13.4)		(13.8)
Total retail gross margin	45.2		45.9
Corporate apparel clothing product	26.7		26.4
Total gross margin	43.9		44.5
Advertising expense	4.8		4.9
Selling, general and administrative expenses	30.1		30.7
Goodwill impairment charge	1.0		—
Operating income	8.0		8.8
Interest income	0.0		0.0
Interest expense	(2.5)		(3.1)
(Loss) gain on extinguishment of debt, net	(1.2)		0.3
Earnings before income taxes	4.3		6.0
Provision for income taxes	1.1		2.1
Net earnings	3.1	%	4.0	%


(in millions)		Amount Attributed to
$	24.6	2.0% increase in comparable sales at Men's Wearhouse.
	10.7	2.3% increase in comparable sales at Jos. A. Bank.
	3.8	1.7% increase in comparable sales at K&G.
	3.7	2.3% increase in comparable sales at Moores(1).
	(14.6)	Decrease in non-comparable sales.
	0.4	Increase in net sales resulting from change in U.S./Canadian dollar exchange rate.
	(19.9)	Other (primarily resulting from divestiture of MW Cleaners).
$	8.7	Increase in total retail sales.


%	in millions		Attributed to
(0.2)	$	(4.7)	Decrease in non-recurring items as a percentage of sales to 0.4% in the first nine months of 2018 from 0.6% in the first nine months of 2017. For the first nine months of 2018, these costs totaled $11.1 million including $6.4 million related to the retirement of our former CEO, a $3.8 million loss on divestiture of our MW Cleaners business and $0.9 million related to the closure of a rental product distribution center. For the first nine months of 2017, these costs totaled $15.8 million related to costs to terminate the Macy's agreement.
(0.1)		(1.2)	Store salaries decreased $1.2 million primarily due to the divestiture of MW Cleaners partially offset by higher store commissions and decreased as a percentage of sales to 12.5% in the first nine months of 2018 from 12.6% in the first nine months of 2017.
(0.3)		(5.4)	Other SG&A expenses decreased $5.4 million primarily due to lower operating costs resulting from the divestiture of MW Cleaners and a decrease in share-based compensation expense offset by higher employee-related benefit costs. As a percentage of sales, other SG&A expenses decreased to 17.2% in the first nine months of 2018 from 17.5% in the first nine months of 2017.
(0.6)	$	(11.3)	Total


	Payments Due by Period
(In millions)
Contractual obligations	Total		<1 Year		1 - 3 Years		4 - 5 Years		> 5 Years
Long-term debt(1)	$	1,573.5	$	76.6	$	147.3	$	424.7	$	924.9