not

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

~~☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934~~

For the quarterly period ended May ~~4, 2019~~2, 2020 or

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

~~☐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)~~ (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
Preferred Stock Purchase Rights	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 ~~May 31, 2019~~July 4, 2020 was ~~50,519,133.~~48,899,867.

Table of Contents

EXPLANATORY NOTE

Tailored Brands, Inc. and its subsidiaries (the "Company", "we", "us" and "our") is filing this Quarterly Report on Form 10-Q for the period ended May 2, 2020 (this “Quarterly Report”) after the original filing deadline of June 11, 2020 (the “Original Due Date”) in reliance on the 45-day extension provided by the Securities and Exchange Commission’s Order under Section 36 of the Securities Exchange Act of 1934 Modifying Exemptions From the Reporting and Proxy Delivery Requirements for Public Companies dated March 25, 2020 (Release No. 34-88465) (the “Order”).

On June 10, 2020, we filed a Current Report on Form 8-K to indicate our intention to rely on the Order for such extension. Consistent with the statements made in the Current Report on Form 8-K, we were unable to file this Quarterly Report by the Original Due Date because the Company’s day-to-day operations and business have experienced significant disruptions due to the unprecedented conditions surrounding the COVID-19 pandemic. These disruptions include, but are not limited to, the temporary closure of all corporate offices, the Company’s decision to furlough or temporarily layoff a significant portion of its employees, and work from home orders, all of which slowed the Company’s routine quarterly close process. In addition, the Company’s management team had to devote considerable time and resources to manage emerging issues impacting its operations, which also impacted the progress of the Company’s quarterly close process.

The Quarterly Report is hereby filed before the extended due date permitted under the Order, i.e., 45 days after the Original Due Date of June 11, 2020, or July 27, 2020.

REPORT INDEX


Part and Item No.		Page No.
~~Part and Item No.~~		~~Page No~~.

PART I — Financial Information

Item 1 — Condensed Consolidated Financial Statements (unaudited)

Condensed Consolidated Balance Sheets as of May 2, 2020, May 4, 2019 ~~May 5, 2018~~ and February ~~2, 2019~~1, 2020		2 3

Condensed Consolidated Statements of (Loss) Earnings for the Three Months Ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019		3 4

Condensed Consolidated Statements of Comprehensive ~~(Loss) Income~~Loss for the Three Months Ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019		4 5

Condensed Consolidated Statements of Shareholders’ (Deficit) Equity for the Three Months Ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019		5 6

Condensed Consolidated Statements of Cash Flows for the Three Months Ended May ~~4, 2019~~2, 2020 and May ~~5, 2018~~4, 2019		6 7

Notes to Condensed Consolidated Financial Statements		7 8

Item 2 — Management's Discussion and Analysis of Financial Condition and Results of Operations		35

Item 3 — Quantitative and Qualitative Disclosures about Market Risk		44 49

Item 4 — Controls and Procedures		45 49

PART II — Other Information		45 50

Item 1 — Legal Proceedings		45 50

Item 1A — Risk Factors		50

Item 6 — Exhibits		45 53

SIGNATURES		47 55

Table of Contents

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~~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~~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, store reopenings, closings, remodels, refreshes, relocations and expansions, impact of employee furloughs, workforce reductions, capital expenditures, potential acquisitions or divestitures, synergies from acquisitions, business strategies, demand for our retail clothing or rental ~~product,~~products, willingness of our customer to shop in our stores, economic conditions, changes in demand resulting from remote working arrangements, 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~~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~~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~~forward-looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: the results of management’s plans to evaluate several alternatives, including seeking a restructuring, amendment or refinancing of our debt through a private restructuring or reorganization under applicable bankruptcy laws, which may result in the total loss of shareholder value; the potential closure of up to 500 stores as well as associated opportunities to reduce and realign our store organization and supply chain infrastructure; the effects of the COVID-19 pandemic and uncertainties about its depth and duration, including the health and well-being of our employees and customers, temporary or permanent store closures, additional periods of increases in the number of COVID-19 cases, increases in the unemployment rate, furlough or temporary layoffs of our employees, our ability to increase our liquidity and preserve financial flexibility, social distancing measures and changes in consumer spending behaviors; actions or inactions by governmental entities; domestic and international ~~macro‑economic~~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 to our capital allocation policy; changes in demand for our retail clothing or rental ~~product;~~products, including changes in apparel trends and changing consumer preferences; 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;~~clothing and polished casual attire; performance issues with key suppliers; disruptions in our supply chain; severe weather; regional or national civil unrest or acts of civil disobedience; public health crises, including COVID-19; 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~~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~~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)

May 4,

May 5,

February 2,

2019

2018

2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$
29,749

$
93,166

$
55,431

Accounts receivable, net

80,623

87,411

73,073

Inventories

874,412

843,671

830,426

Other current assets

49,904

69,937

70,712

Total current assets

1,034,688

1,094,185

1,029,642

PROPERTY AND EQUIPMENT, net

428,380

437,944

439,172

OPERATING LEASE RIGHT-OF-USE ASSETS

955,970

—

—

RENTAL PRODUCT, net

103,895

128,744

99,770

GOODWILL

78,964

104,802

79,491

INTANGIBLE ASSETS, net

156,614

167,320

163,901

OTHER ASSETS

6,942

12,827

8,514

TOTAL ASSETS

$
2,765,453

$
1,945,822

$
1,820,490

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

CURRENT LIABILITIES:

Accounts payable

$
218,492

$
192,878

$
228,979

Accrued expenses and other current liabilities

316,821

350,414

282,029

Current portion of operating lease liabilities

183,011

—

—

Income taxes payable

15,923

1,740

15,968

Current portion of long-term debt

9,000

9,000

11,619

Total current liabilities

743,247

554,032

538,595

LONG-TERM DEBT, net

1,151,196

1,277,508

1,153,242

OPERATING LEASE LIABILITIES

804,895

—

—

DEFERRED TAXES, net AND OTHER LIABILITIES

70,161

151,503

125,022

Total liabilities

2,769,499

1,983,043

1,816,859

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' (DEFICIT) EQUITY:

Preferred stock

—

—

—

Common stock

504

496

501

Capital in excess of par

507,039

494,849

505,157

Accumulated deficit

(470,411)

(510,441)

(468,048)

Accumulated other comprehensive loss

(41,178)

(22,125)

(33,979)

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


	May 2,		May 4,		February 1,
	2020		2019		2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	244,170	$	12,928	$	14,420
Restricted cash		94,450		—		—
Accounts receivable, net		13,242		40,760		39,973
Inventories		734,379		767,694		696,657
Assets held for sale		2,944		—		34,935
Other current assets		72,258		46,187		49,130
Current assets - discontinued operations		—		167,119		—
Total current assets		1,161,443		1,034,688		835,115
PROPERTY AND EQUIPMENT, net		355,324		413,635		395,812
OPERATING LEASE RIGHT-OF-USE ASSETS		842,088		944,531		880,291
RENTAL PRODUCT, net		99,826		103,895		92,897
GOODWILL		—		78,964		79,271
INTANGIBLE ASSETS, net		26,896		146,983		116,843
OTHER ASSETS		14,838		6,917		18,730
NON-CURRENT ASSETS - DISCONTINUED OPERATIONS		—		35,840		—
TOTAL ASSETS	$	2,500,415	$	2,765,453	$	2,418,959
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Accounts payable	$	248,684	$	202,095	$	183,897
Accrued expenses and other current liabilities		236,205		300,689		246,110
Current portion of operating lease liabilities		209,434		180,492		186,304
Income taxes payable		—		13,949		3,416
Current portion of long-term debt		1,434,064		9,000		9,000
Current liabilities - discontinued operations		—		37,022		—
Total current liabilities		2,128,387		743,247		628,727
LONG-TERM DEBT, net		—		1,151,196		1,094,398
OPERATING LEASE LIABILITIES		689,264		795,837		726,327
DEFERRED TAXES, net AND OTHER LIABILITIES		61,089		64,791		67,813
NON-CURRENT LIABILITIES - DISCONTINUED OPERATIONS		—		14,428		—
Total liabilities		2,878,740		2,769,499		2,517,265
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' DEFICIT:
Preferred stock		—		—		—
Common stock		510		504		508
Capital in excess of par		516,459		507,039		514,397
Accumulated deficit		(838,553)		(470,411)		(568,697)
Accumulated other comprehensive loss		(46,741)		(41,178)		(34,514)
Treasury stock		(10,000)		—		(10,000)
Total shareholders' deficit		(378,325)		(4,046)		(98,306)
TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT	$	2,500,415	$	2,765,453	$	2,418,959

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF (LOSS) EARNINGS

(In thousands, except per share data)

(Unaudited)

For the Three Months Ended


May 4, 2019

May 5, 2018

Net sales:






Retail clothing product

$
594,779

$
613,644

Rental services

93,740

100,227

Alteration and other services

36,143

40,972

Total retail sales

724,662

754,843

Corporate apparel clothing product

56,725

63,121

Total net sales

781,387

817,964

Cost of sales:

Retail clothing product

268,644

276,220

Rental services

13,017

14,657

Alteration and other services

33,847

34,178

Occupancy costs

103,732

101,019

Total retail cost of sales

419,240

426,074

Corporate apparel clothing product

41,591

46,666

Total cost of sales

460,831

472,740

Gross margin:

Retail clothing product

326,135

337,424

Rental services

80,723

85,570

Alteration and other services

2,296

6,794

Occupancy costs

(103,732)

(101,019)

Total retail gross margin

305,422

328,769

Corporate apparel clothing product

15,134

16,455

Total gross margin

320,556

345,224

Advertising expense

45,043

41,233

Selling, general and administrative expenses

245,211

251,094

Operating income

30,302

52,897

Interest income

96

85

Interest expense

(18,663)

(21,981)

Loss on extinguishment of debt, net

—

(12,711)

Earnings before income taxes

11,735

18,290

Provision for income taxes

4,593

4,381

Net earnings

$
7,142

$
13,909

Net earnings per common share:

Basic

$
0.14

$
0.28

Diluted

$
0.14

$
0.27

Weighted-average common shares outstanding:

Basic

50,280

49,458

Diluted

50,587

50,720


	For the Three Months Ended
	May 2, 2020		May 4, 2019
Net sales:
Retail clothing product	$	249,142	$	594,779
Rental services		22,253		93,740
Alteration and other services		15,308		36,143
Total net sales		286,703		724,662
Cost of sales:
Retail clothing product		131,892		269,191
Rental services		4,674		13,017
Alteration and other services		19,338		33,847
Occupancy costs		101,113		103,732
Total cost of sales		257,017		419,787
Gross margin:
Retail clothing product		117,250		325,588
Rental services		17,579		80,723
Alteration and other services		(4,030)		2,296
Occupancy costs		(101,113)		(103,732)
Total gross margin		29,686		304,875
Advertising expense		22,747		44,669
Selling, general and administrative expenses		154,082		231,018
Goodwill and intangible asset impairment charges		167,966		—
Asset impairment charges		26,319		184
Gain on sale of trademarks, net		(82,690)		—
Operating (loss) income		(258,738)		29,004
Interest income		59		96
Interest expense		(17,726)		(18,663)
(Loss) earnings before income taxes		(276,405)		10,437
(Benefit) provision for income taxes		(6,517)		3,957
Net (loss) earnings from continuing operations		(269,888)		6,480
Earnings from discontinued operations, net of tax		—		662
Net (loss) earnings	$	(269,888)	$	7,142
Net (loss) earnings from continuing operations per common share:
Basic	$	(5.55)	$	0.13
Diluted	$	(5.55)	$	0.13
Net earnings from discontinued operations per common share:
Basic	$	—	$	0.01
Diluted	$	—	$	0.01
Net (loss) earnings per common share:
Basic	$	(5.55)	$	0.14
Diluted	$	(5.55)	$	0.14
Weighted-average common shares outstanding:
Basic		48,596		50,280
Diluted		48,596		50,587

See Notes to Condensed Consolidated Financial Statements.

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE ~~(LOSS) INCOME~~LOSS

(In thousands)

(Unaudited)

For the Three Months Ended

May 4,

May 5,

2019

2018

Net earnings

$
7,142

$
13,909

Currency translation adjustments

(1,585)

(14,143)

Unrealized (loss) gain on cash flow hedges, net of tax

(5,614)

2,800

Comprehensive (loss) income

$
(57)

$
2,566


	For the Three Months Ended
	May 2,		May 4,
	2020		2019

Net (loss) earnings	$	(269,888)	$	7,142
Currency translation adjustments		(3,902)		(1,585)
Unrealized loss on cash flow hedges, net of tax		(8,325)		(5,614)
Comprehensive loss	$	(282,115)	$	(57)

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		Treasury
	Common		in Excess		Accumulated		Comprehensive		Stock, at		Total
	Stock		of Par		Deficit		Loss		Cost		Deficit
BALANCES — February 1, 2020	$	508	$	514,397	$	(568,697)	$	(34,514)	$	(10,000)	$	(98,306)
Net loss		—		—		(269,888)		—		—		(269,888)
Other comprehensive loss		—		—		—		(12,227)		—		(12,227)
Reduction of dividends accrued upon cancellation of unvested equity awards		—		—		32		—		—		32
Share-based compensation		—		1,967		—		—		—		1,967
Common stock issued — 178,261 shares		2		160		—		—		—		162
Tax payments related to vested deferred stock units		—		(65)		—		—		—		(65)
BALANCES — May 2, 2020	$	510	$	516,459	$	(838,553)	$	(46,741)	$	(10,000)	$	(378,325)



							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 15)		—		—		(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 Three Months Ended
	May 2,		May 4,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) earnings	$	(269,888)	$	7,142
Adjustments to reconcile net (loss) earnings to net cash (used in) provided by operating activities:
Depreciation and amortization		25,511		26,695
Non-cash lease expense		48,675		49,969
Rental product amortization		2,285		8,348
Goodwill and intangible asset impairment charges		167,966		—
Asset impairment charges		26,319		184
Amortization of deferred financing costs		447		486
Gain on sale of trademarks, net		(82,690)		—
Gain on disposition of assets, net		(10)		—
Share-based compensation		1,967		2,398
Deferred tax expense		23,931		1,599
Other		50		85
Changes in operating assets and liabilities:
Accounts receivable		20,692		(7,504)
Inventories		(40,304)		(44,900)
Rental product		(9,759)		(12,831)
Other assets		(24,062)		(269)
Accounts payable, accrued expenses and other current liabilities		17,494		30,872
Income taxes payable		(3,416)		(28)
Operating lease and other liabilities		(26,572)		(50,452)
Net cash (used in) provided by operating activities		(121,364)		11,794
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures		(9,003)		(21,691)
Proceeds from sale of trademarks		115,000		—
Proceeds from divestiture of business, net		5,944		—
Proceeds from sales of property and equipment		2,082		—
Net cash provided by (used in) investing activities		114,023		(21,691)
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on term loan		(4,500)		(4,870)
Proceeds from asset-based revolving credit facility		357,500		399,500
Payments on asset-based revolving credit facility		(22,500)		(399,500)
Cash dividends paid		(112)		(9,590)
Proceeds from issuance of common stock		162		427
Tax payments related to vested deferred stock units		(65)		(940)
Net cash provided by (used in) financing activities		330,485		(14,973)
Effect of exchange rate changes on cash, cash equivalents and restricted cash		1,056		(812)
INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS AND RESTRICTED CASH		324,200		(25,682)
Cash, cash equivalents and restricted cash at beginning of period		14,420		55,431
Cash, cash equivalents and restricted cash at end of period⁽¹⁾	$	338,620	$	29,749

For the Three Months Ended

May 4, 2019

May 5, 2018

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings

$
7,142

$
13,909

Adjustments to reconcile net earnings to net cash provided by operating activities:

Depreciation and amortization

26,695

26,679

Operating lease right-of-use asset amortization

49,969

—

Rental product amortization

8,348

8,756

Loss on extinguishment of debt, net

—

12,711

Amortization of deferred financing costs and discount on long-term debt

486

1,333

Loss on disposition of assets

—

3,618

Asset impairment charges

184

269

Share-based compensation

2,398

4,581

Deferred tax benefit

1,599

748

Other

85

73

Changes in operating assets and liabilities:

Accounts receivable

(7,504)

(10,871)

Inventories

(44,900)

(11,886)

Rental product

(12,831)

(14,377)

Other assets

(269)

8,124

Accounts payable, accrued expenses and other current liabilities

30,872

82,755

Income taxes payable

(28)

(4,301)

Other liabilities

(50,452)

(1,893)

Net cash provided by operating activities

11,794

120,228

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

(21,691)

(10,980)

Proceeds from divestiture of business

—

17,732

Net cash (used in) provided by investing activities

(21,691)

6,752

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on original term loan

—

(993,420)

Proceeds from new term loan

—

895,500

Payments on new term loan

(4,870)

(2,250)

Proceeds from asset-based revolving credit facility

399,500

1,500

Payments on asset-based revolving credit facility

(399,500)

(1,500)

Repurchase and retirement of senior notes

—

(18,240)

Deferred financing costs

—

(5,576)

Cash dividends paid

(9,590)

(9,618)

Proceeds from issuance of common stock

427

3,649

Tax payments related to vested deferred stock units

(940)

(5,025)

Net cash used in financing activities

(14,973)

(134,980)

Effect of exchange rate changes

(812)

(2,441)

DECREASE IN CASH AND CASH EQUIVALENTS

(25,682)

(10,441)

Balance at beginning of period

55,431

103,607

Balance at end of period

$
29,749

$
93,166

(1)

Includes restricted cash of $94.5 million at May 2, 2020.

See Notes to Condensed Consolidated Financial Statements.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Significant Accounting Policies

Basis of Presentation — The condensed consolidated financial statements herein include the accounts of Tailored Brands, Inc. and its subsidiaries (the "Company") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC"). As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted. We believe the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation.

Our business results historically have fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended February ~~2, 2019.~~1, 2020.

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.”) requires management to make estimates and assumptions that affect the reported amounts and related disclosures. Actual amounts could differ from those estimates.

As discussed in Note 4, during the third quarter of 2019, we completed the sale of our corporate apparel business. Amounts presented on the condensed consolidated balance sheet and condensed consolidated statements of (loss) earnings for all prior periods related to the corporate apparel business have been reclassified as discontinued operations. Unless noted otherwise, discussion in these notes to the condensed consolidated financial statements pertain to our continuing operations.

Impact of the COVID-19 Pandemic — The outbreak of the novel coronavirus (“COVID-19”) had a significant impact on our business, financial condition, results of operations and cash flows for the three months ended May 2, 2020. On March 17, 2020, we announced the temporary closure of our retail locations in the U.S. and Canada which continued through the end of our first quarter. In conjunction with our decision to extend the temporary closure of our stores, we also furloughed all of our U.S. store employees, most of our U.S. distribution network and the majority of our office employees, and we implemented the temporary layoff of all Canadian store employees and a significant portion of Canadian employees in our Canadian distribution network and offices.

During the three months ended May 2, 2020, we recorded a total of $194.3 million of non-cash impairment charges related to goodwill, intangible and long-lived assets. See Notes 3 and 16 for additional information.

Also, we took steps to increase our liquidity and preserve financial flexibility including borrowings of $310.0 million under our $550 million asset-based credit facility (the “ABL Facility”), significantly reducing inventory purchases, capital expenditures, advertising spend and store and other general and administrative costs, as well as furloughing a significant portion of our employees and implementing temporary salary reductions. Also, during the first quarter of fiscal 2020, we suspended rent payments under our operating leases for April and May and negotiated rent deferrals for some of our stores, with repayment of such deferred amounts, beginning at the end of 2020 into 2021. See Note 15 for additional information related to the accounting for these rent deferrals.

The extent to which COVID-19 impacts our operations will depend on future developments, which are highly uncertain, including, among others, the duration of the outbreak, additional periods of increases in the number of COVID-19 cases, new information that may emerge concerning the severity of COVID-19 and the actions, especially those taken by governmental authorities, to contain the pandemic or reduce its impact. We currently expect the impact of COVID-19 on our business and results of operations, including our net sales, earnings and cash flows will be significantly negative for the remainder of fiscal 2020.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Going Concern — The accompanying condensed consolidated financial statements have been prepared in conformity with generally accepted accounting principles in the United States (“GAAP”) applicable to a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business.

In accordance with the accounting guidance related to the presentation of financial statements, when preparing financial statements for each annual and interim period, management evaluates whether there are conditions or events that, when considered in the aggregate, raise substantial doubt about a company’s ability to continue as a going concern within one year after the date the financial statements are issued. In making its assessment, management considered our current financial condition and liquidity sources, including current funds available, forecasted future cash flows and obligations due over the next twelve months.

We have considered the projected impact of COVID-19 on our cash flows and analyzed our future compliance with the financial covenants under our ABL Facility, including an additional discretionary reserve imposed against our borrowing base, as described in Note 19, and based on such projections and analysis, we will not remain in compliance with the fixed charge coverage ratio covenant under the ABL Facility beginning in the fourth quarter of fiscal 2020. If we violate this covenant and are unable to obtain an amendment or waiver from our lenders, we will be in default under the ABL Facility and our debt could be accelerated by the lenders under the ABL Facility. Because of cross-default provisions in the agreements and instruments governing our indebtedness, a default under the ABL Facility would result in a default under, and could result in the acceleration of, our other indebtedness unless we are able to obtain an amendment or waiver from our lenders. See Note 6 for additional information on our ABL Facility.

In addition, as described in Note 19, we elected not to make the approximate $6.1 million interest payment due and payable on July 1, 2020, with respect to our 7.00% Senior Notes due 2022 (the "Senior Notes"). We elected to enter into the 30-day grace period with respect to this interest payment. During the grace period, we may elect to pay the interest and thereby remain in compliance with the provisions of our Senior Notes. If an event of default under the indenture governing the Senior Notes occurs as a result of such non-payment, it would result in a cross-event of default under both the Company’s term loan facility and the ABL Facility unless we are able to obtain an amendment or waiver from our lenders. As of the date of this filing, we have determined it is not probable that we will make the approximate $6.1 million interest payment; however, we may decide to make the interest payment prior to expiration of the grace period. See Note 6 for additional information on our Senior Notes.

Absent obtaining a waiver from our lenders or negotiating an agreement to avoid acceleration of our indebtedness, we will be in default on all of our indebtedness and we do not have sufficient liquidity to repay the amounts due under our indebtedness, consisting of our term loan, Senior Notes and ABL Facility. Furthermore, our current forecast for our financial condition and liquidity sources also raises doubt as to our ability to meet other obligations, including interest payments related to our indebtedness and operating lease obligations over the next twelve months. These conditions raise substantial doubt about our ability to continue as a going concern within one year after these condensed consolidated financial statements are issued. As of May 2, 2020, our outstanding indebtedness has been classified as current on our condensed consolidated balance sheets.

As a result of the conditions described above, we have engaged advisors to assist with management’s plans to evaluate several alternatives, including seeking a restructuring, amendment or refinancing of our debt through a private restructuring or reorganization under applicable bankruptcy laws. Management is also evaluating various alternatives to improve our liquidity, including but not limited to, lease concessions and deferrals, further reductions of operating and capital expenditures, and raising additional capital. However, there can be no assurances that we will be able to successfully restructure our indebtedness or improve our financial position and liquidity. Management’s plans are not yet finalized and are subject to numerous uncertainties including negotiations with our lenders and conditions in the credit and capital markets. As a result, we have concluded that management’s plans do not alleviate substantial doubt about our ability to continue as a going concern.

Accordingly, these condensed consolidated financial statements do not reflect any adjustments related to the recoverability of assets and satisfaction of liabilities that might be necessary should we be unable to continue as a going concern.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Recent Accounting Pronouncements Adopted — In December 2019, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2019-12, Income Taxes – Simplifying the Accounting for Income Taxes. The guidance removes certain exceptions for recognizing deferred taxes for equity method investments, performing intra-period allocation, and calculating income taxes in interim periods. The ASU also adds guidance to reduce complexity in certain areas, including recognizing deferred taxes for goodwill and allocating taxes to members of a consolidated group, among others. This guidance is effective for interim and annual reporting periods beginning after December 15, 2020. Early adoption of the standard is permitted, including adoption in interim or annual periods for which financial statements have not yet been issued. The transition requirements are dependent upon each amendment within this update and will be applied either prospectively or retrospectively. We adopted ASU 2019-12 in the first quarter of fiscal 2020 on a prospective basis. The adoption of ASU 2019-12 did not have a material impact on our financial position, results of operations, or cash flows.

In August 2018, the FASB issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for public companies for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years. Early adoption of ASU 2018-15 is permitted. We adopted ASU 2018-15 in the first quarter of fiscal 2020 and the adoption did not have a material impact on our financial position, results of operations or cash flows.

During the first quarter of fiscal 2020, we adopted ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments, which required us to measure all expected credit losses for financial instruments held at the reporting date based on historical experience, current conditions and reasonable supportable forecasts. This replaced the existing incurred loss model and is applicable to the measurement of credit losses on financial assets, including trade receivables. The adoption of ASU 2016-13 did not have a material impact on our financial position, results of operations or cash flows.

In March 2020, the SEC adopted amendments to reduce and simplify the financial disclosure requirements for guarantors and issuers of guaranteed registered securities, and affiliates of such issuers whose securities are collateralized. The amendments will be effective January 4, 2021, but voluntary compliance with the amendments in advance of January 4, 2021 is permitted. As a result of these amendments, starting with this Quarterly Report, we have elected to provide the simplified financial disclosure requirements, within "Management's Discussion and Analysis of Financial Condition and Results of Operations" herein.

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.~~ as disclosed below:

In ~~August 2018,~~March 2020, the ~~Financial Accounting Standards Board (“FASB”)~~FASB issued ASU ~~2018-15,~~ ~~Intangibles-Goodwill~~2020-04, Facilitation of the Effects of Reference Rate Reform on Financial Reporting, which aims to address accounting consequences that could result from the global markets’ anticipated transition away from the use of the London Interbank Offered Rate (“LIBOR”) and ~~Other-Internal Use Software: Customer’s Accounting~~other interbank offered rates to alternative reference rates. The amendments in this update provide optional expedients and exceptions for ~~Implementation Costs Incurred~~applying GAAP to contracts, hedging relationships, and other transactions affected by reference rate reform if certain criteria are met. The amendments in ~~a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement~~this update apply only to contracts, hedging relationships, and other transactions that ~~is a service contract with the requirements for capitalizing implementation costs incurred~~reference LIBOR or another reference rate expected to ~~develop or obtain internal-use software. ASU 2018-15 is~~be discontinued because of reference rate reform. The optional amendments are effective for ~~public companies for annual reporting periods beginning after~~all entities as of March 12, 2020 and through December ~~15, 2019, and interim periods within those fiscal years. Early adoption~~31, 2022. We intend to elect to apply certain of ~~ASU 2018-15 is permitted. We are currently~~the optional expedients when evaluating the impact ~~ASU 2018-15 may have~~of reference rate reform on our ~~financial position, results~~debt and derivative instruments that reference LIBOR.

Table of ~~operations or cash flows~~.Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

2. ~~Divestiture~~Sale of ~~MW Cleaners~~Joseph Abboud Trademarks

On ~~February 28, 2018,~~March 4, 2020, we closed on our previously announced transaction to sell the Joseph Abboud trademarks to WHP Global (“WHP”) for $115.0 million. We also entered into a ~~definitive~~licensing agreement with WHP for the exclusive rights to ~~divest our MW Cleaners business~~sell and rent Joseph Abboud branded apparel and related merchandise in the U.S. and Canada. As of February 1, 2020, the book value of the Joseph Abboud trademarks was $30.0 million and was included within assets held for ~~approximately $18.0 million, subject to certain adjustments, and the transaction closed on March 3, 2018.~~ sale.

During the ~~first quarter of 2018,~~three months ended May 2, 2020, we received cash proceeds of ~~$17.7~~$115.0 million and recorded a ~~loss~~gain on the ~~divestiture~~sale of the Joseph Abboud transaction totaling ~~$3.6~~$82.7 million, which reflects the excess of the sale price over the book value, less approximately $2.3 million in related transaction costs, and is included ~~within selling, general and administrative expenses (“SG&A”)~~as a separate line in the condensed consolidated statement of (loss) earnings.

Per the provisions of the credit agreement governing our term loan, we plan to reinvest these proceeds in our business over a 365-day period commencing on March 4, 2020. As a result, the proceeds of the sale, reduced by estimated taxes payable related to the sale and transaction related costs, were deposited in a separate account administered by the term loan agent and are presented as restricted cash on the condensed consolidated balance sheet as of May 2, 2020. As of May 2, 2020, the restricted cash balance totaled $94.5 million and is primarily restricted for the purchase of property, equipment and other tangible assets to be used in the operations of the business, such as capital expenditures and purchase of rental product.

3. Goodwill and Other Intangible Assets

Goodwill

Changes in the net carrying amount of goodwill for the three months ended May 2, 2020 are as follows (in thousands):



	Total
Balance at February 1, 2020	$	79,271
Goodwill impairment charge		(78,029)
Translation adjustment		(1,242)
Balance at May 2, 2020	$	—

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. As of February 1, 2020, goodwill totaled $79.3 million, with $58.3 million allocated to our Men’s Wearhouse reporting unit and $21.0 million allocated to our Moores reporting unit.

During the first quarter of 2020, we determined that a triggering event occurred as we concluded that the length of time that the market price of our common stock had been depressed constituted a significant sustained decline in our market capitalization. In addition, the impact of COVID-19 on our sales, profitability and cash flows resulted in a reduction to our operating forecasts reflecting the uncertainty of the current environment. As a result, we performed an interim goodwill impairment test.

After completion of the interim goodwill impairment test, we concluded that goodwill was fully impaired and recorded a non-cash goodwill impairment charge of $78.0 million during the first quarter of 2020, which is included as a separate line on the condensed consolidated statement of (loss) earnings. As of May 2, 2020, May 4, 2019, and February 1, 2020, accumulated goodwill impairment totaled $858.0 million, $780.0 million and $780.0 million, respectively.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

that are discounted using a weighted-average cost of capital analysis that reflects current market conditions. The market comparable approach primarily considers earnings and ~~relates~~other multiples of comparable companies and applies those multiples to certain key drivers of the reporting unit. We believe these two approaches are appropriate valuation techniques and we weighted the two approaches 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 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). During the first quarter of 2020, our estimates of the potential future cash flows for our reporting units were significantly reduced reflecting the impact of COVID-19.

●

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 10.0% for the Men’s Wearhouse reporting unit and 10.5% for the Moores reporting unit, which are 100 and 50 basis points, respectively, higher than the last annual test, reflecting the increasing uncertainty resulting from COVID-19.

●

Selection of comparable companies within the industry. The determination of the market comparable involves a degree of judgment. Historically, for purposes of the market comparable approach, valuations were determined by calculating average earnings multiples of relevant key drivers from a group of companies that are comparable to the reporting unit being tested and applying those earnings multiples to the key drivers of the reporting unit. For the interim goodwill impairment test, based on our estimates of the future cash flows of the reporting units, we determined that revenue multiples should also be used for the market comparable approach. For the Men’s Wearhouse reporting unit, a revenue multiple of 0.2 and an earnings multiple of 2.2 were used. For the Moores reporting unit, a revenue multiple of 0.2 was used. The decrease in the market multiples of comparable companies within the industry also primarily reflects the impact of COVID-19 and an increasingly uncertain environment.

●

Reconciliation of the total fair values of our reporting units to our market capitalization. After completing an estimate of the fair value of each reporting unit, we also compared the total fair value of all of our reporting units to our market capitalization, including consideration of a control premium. As a result of the significant sustained decline in our market capitalization, the implied control premium identified in this reconciliation process was not within a reasonable range.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

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):


	May 2,		May 4,		February 1,
	2020		2019		2020
Amortizable intangible assets:
Carrying amount:
Trademarks, tradenames and franchise agreements	$	13,506	$	13,506	$	13,506
Accumulated amortization:
Trademarks, tradenames and franchise agreements		(9,910)		(9,723)		(9,863)
Total amortizable intangible assets, net		3,596		3,783		3,643
Indefinite-lived intangible assets:
Trademarks and tradename		23,300		143,200		113,200
Total intangible assets, net	$	26,896	$	146,983	$	116,843

During the first quarter of 2020, based on the impact of COVID-19 on the performance of the Jos. A. Bank brand, we determined that a triggering event occurred related to our ~~retail segment.~~Jos. A. Bank tradename, an indefinite-lived intangible asset. As a result, we completed an interim impairment test, which resulted in a non-cash impairment charge of $89.9 million, which is included together with the goodwill impairment charge in a separate line on the condensed consolidated statement of (loss) earnings. As of May 2, 2020, the book value of the Jos. A. Bank tradename is $23.3 million.

If events or circumstances change that would more likely than not reduce the fair value of our Jos. A. Bank tradename, we may be required to record additional impairment charges, which could have a material effect on our results of operations and financial condition.

We estimated the fair value of the Jos. A. Bank tradename based on an income approach using the relief-from-royalty method. This approach is dependent upon a number of factors, including estimates of future growth and trends, royalty rates, discount rates and other variables. For the interim impairment test, our estimates of the revenues and profitability associated with the Jos. A. Bank brand were significantly reduced, primarily reflecting the impact of COVID-19. In addition, we reduced the royalty rate used to estimate the fair value of the Jos. A. Bank tradename to 0.5%, reflecting the impact of the uncertain environment resulting from COVID-19. The weighted-average cost of capital used to discount the cash flows for the interim goodwill impairment test was 14.0%, which is 100 basis points higher than the last annual test, also reflecting the increasing uncertainty resulting from COVID-19.

Amortization expense associated with intangible assets subject to amortization totaled less than $0.1 million for the three months ended May 2, 2020 and May 4, 2019. Amortization expense associated with intangible assets subject to amortization at May 2, 2020 is estimated to be $0.1 million for the remainder of fiscal ~~2018,~~2020, and $0.2 million eachyearfor fiscal years 2021-2025.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4. Discontinued Operations

On August 16, 2019, we completed the ~~total loss~~sale of MWUK Limited, our UK corporate apparel operations conducted under the Dimensions, Alexandra, and Yaffy brand names to Project Dart Bidco Limited, pursuant to a Share Purchase Agreement entered into on ~~divestiture~~August 16, 2019. In addition, we also completed the sale of ~~MW Cleaners~~Twin Hill Acquisition Company, Inc. (“Twin Hill”), our U.S. corporate apparel operation, to TH Holdco Inc., pursuant to a Stock Purchase Agreement entered into on August 16, 2019. The aggregate consideration for all of the outstanding equity of MWUK Limited and Twin Hill (collectively, the “corporate apparel business”) was ~~$3.8 million.~~approximately $62 million, subject to certain working capital adjustments. After consideration of working capital adjustments and other related items, we received $49.3 million in cash during the third quarter of 2019 and $5.9 million in cash in the first quarter of fiscal 2020.

We determined that the sale of the ~~MW Cleaners~~corporate apparel business ~~did not represent~~represents a strategic shift ~~and~~that will ~~not~~ have a major effect on our ~~consolidated~~ results of operations ~~financial position or cash flows. Accordingly, we~~and, as a result, have ~~not~~reported the disposal as discontinued operations. We have presented the ~~sale as a~~results of the corporate apparel business within discontinued ~~operation~~operations in the condensed consolidated ~~financial statements.~~statement of (loss) earnings for all periods presented. Certain costs previously allocated to the corporate apparel business for segment reporting purposes do not qualify for classification within discontinued operations and have been reallocated to continuing operations.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

The related assets and liabilities of the corporate apparel business are presented as current and non-current assets and liabilities of discontinued operations in the condensed consolidated balance sheet as of May 4, 2019. The following table provides details of the carrying amounts of major classes of assets and liabilities related to discontinued operations as of May 4, 2019 (in thousands):


	May 4,
	2019
ASSETS
Cash and cash equivalents	$	16,821
Accounts receivable, net		39,863
Inventories		106,718
Other current assets		3,717
Total current assets		167,119
Property and equipment, net		14,745
Other assets		21,095
Total assets	$	202,959

LIABILITIES
Accounts payable	$	16,397
Accrued expenses and other current liabilities		20,625
Total current liabilities		37,022
Other liabilities		14,428
Total liabilities	$	51,450

The following table provides details of the amounts reflected in earnings from discontinued operations, net of tax in the condensed consolidated statements of (loss) earnings for the three months ended May 4, 2019 (in thousands):


	For the Three
	Months Ended
	May 4, 2019
Net sales	$	56,725
Cost of sales		41,044
Selling, general and administrative expenses		14,383
Earnings from discontinued operations before taxes		1,298
Income tax expense		636
Earnings from discontinued operations, net of tax	$	662

The cash flows related to discontinued operations have not been segregated, and are included in the condensed consolidated statement of cash flows. The following table provides selected information on cash flows related to discontinued operations for the three months ended May 4, 2019 (in thousands):


	For the Three
	Months Ended
	May 4, 2019
Depreciation and amortization	$	1,442
Capital expenditures	$	1,155

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3.TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

5. (Loss) Earnings Per Share

Basic (loss) earnings per common share is computed by dividing net (loss) earnings by the weighted-average common shares outstanding during the period. Diluted (loss) earnings per common share is calculated using the treasury stock method. Basic and diluted (loss) earnings per common share are computed using the actual net (loss) earnings and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our condensed consolidated statement of (loss) earnings and the accompanying notes. As a result, it may not be possible to recalculate (loss) earnings per common share in our condensed consolidated statement of (loss) earnings and the accompanying notes. The following table sets forth the computation of basic and diluted (loss) earnings per common share (in thousands, except per share amounts):


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

					For the Three Months Ended
					May 2,		May 4,
					2020		2019
Numerator
Net earnings	$	7,142	$	13,909
Net (loss) earnings from continuing operations					$	(269,888)	$	6,480
Earnings from discontinued operations, net of tax						—		662
Net (loss) earnings					$	(269,888)	$	7,142
Denominator
Basic weighted-average common shares outstanding		50,280		49,458		48,596		50,280
Dilutive effect of share-based awards		307		1,262		—		307
Diluted weighted-average common shares outstanding		50,587		50,720		48,596		50,587
Net earnings per common share:

Net (loss) earnings from continuing operations per common share:
Basic	$	0.14	$	0.28	$	(5.55)	$	0.13
Diluted	$	0.14	$	0.27	$	(5.55)	$	0.13
Net earnings from discontinued operations per common share:
Basic					$	—	$	0.01
Diluted					$	—	$	0.01
Net (loss) earnings per common share:
Basic					$	(5.55)	$	0.14
Diluted					$	(5.55)	$	0.14

For the three months ended May 2, 2020 and May 4, 2019, ~~and May 5, 2018, 2.0~~4.0 million and ~~0.4~~2.0 million anti-dilutive shares of common stock were excluded from the calculation of diluted (loss) earnings per common share, respectively.

4.6. Debt

In 2014, our subsidiary The Men's Wearhouse, Inc. (“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~~“Original Term ~~Loan"~~Loan”) and a $500.0 million asset-based revolving credit ~~agreement~~facility (the ~~"ABL Facility", and together with the Original Term Loan, the "Credit Facilities"~~“Original ABL Facility”) with certain of our other U.S. subsidiaries and Moores the Suit People ~~Inc.~~Corp. (“Moores the Suit People” or “Moores”), 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").~~Notes.

In October 2017, ~~The~~ Men’s Wearhouse amended the Original 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~~the Original Term Loan, and in October 2018, amended its term loan (the term loan, as so refinanced and amended, the “Term Loan” and, together with the ABL Facility, the “Credit Facilities”) to reduce the interest rate margin. See Credit Facilities section below for additional information.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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 May ~~4, 2019,~~2, 2020, our total leverage ~~ratio~~ and secured leverage ~~ratio~~ratios are ~~below~~above the maximum thresholds specified therefor in the ~~agreements, which results in~~agreement governing the ~~elimination of these additional restrictions. In addition, as~~Term Loan. As a result, we are subject to additional restrictions, primarily related to the size 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~~any incremental term loan facilities being limited to a maximum of ~~$15.0~~$250.0 million.

In addition, our ABL Facility contains certain covenants and restrictions, including instances where lenders could assume control of our cash (commonly referred to as cash dominion) and the imposition of a financial maintenance covenant, which would become effective if availability falls below various thresholds. The requirement for cash dominion is triggered when Availability (as defined in the ABL Facility) is less than the greater of (1) 12.5% of the Line Cap (as defined in the ABL Facility), which as of May 2, 2020 was $62.1 million, ~~per quarter.~~or (2) $60.5 million. The requirement to comply with the financial maintenance covenant (a fixed charge coverage ratio) is triggered when Availability is less than the greater of (1) 10% of the Line Cap, which as of May 2, 2020 was $49.7 million, or (2) $44.0 million.

On March 16, 2020, in an abundance of caution and as a proactive measure, due to uncertainty regarding the potential impact of COVID-19 and our liquidity projections, we borrowed $260.0 million under our ABL Facility. Furthermore, after assessing the remaining Availability under the ABL Facility and determining that additional borrowings were prudent to maximize cash on hand, on each of March 19, 2020 and March 31, 2020, respectively, we borrowed an additional $25.0 million under the ABL Facility.

~~Table~~As of ~~Contents~~May 2, 2020, $385.0 million in borrowings were outstanding under the ABL Facility (which was also the maximum borrowing outstanding during the first quarter of 2020) with a weighted average interest rate of approximately 1.9%. In addition, at May 2, 2020, letters of credit totaling approximately $22.9 million were issued and outstanding primarily as collateral for workers’ compensation claims. Availability under the ABL Facility as of May 2, 2020 was $88.8 million, which exceeds the cash dominion and fixed charge coverage ratio minimum thresholds (such that cash dominion and fixed charge coverage testing did not apply). Availability under the ABL Facility may decrease in the event the agent under our ABL Facility imposes reserves against borrowing base. See Note 19 for additional information about the imposition of a reserve after May 2, 2020.

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

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

The ~~New~~ Term Loan ~~will amortize~~amortizes in an annual amount equal to 1.0% of the principal amount of the ~~New~~ Term Loan, payable quarterly ~~commencing~~(which commenced on May 1, ~~2018.~~ ~~Proceeds from the New~~2018). The Term Loan ~~were reduced by a $4.5 million OID, which was presented as a reduction of the outstanding balance~~matures 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 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.~~rate. 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 ~~2.47%~~0.30% at May ~~4, 2019,~~2, 2020. However, the Term Loan interest rate is subject to a LIBOR floor of 1%, plus the applicable margin of 3.25%, ~~resulting~~results in a total interest rate of ~~5.72%~~

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

4.25%. We have ~~two~~2 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.~~rate. At May ~~4, 2019,~~2, 2020, the total notional amount under these interest rate swaps is ~~$710.0~~$705.0 million. Please see Note 1517 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 May ~~4, 2019,~~2, 2020, the ~~New~~ Term Loan had a weighted average interest rate of ~~5.77%~~5.62%.

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~~which 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 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 three months ended May 4, 2019, the maximum borrowing outstanding under the ABL Facility was $100.0 million.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~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.~~People. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors.

Senior Notes

The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and each of our U.S. subsidiaries (collectively, the “Guarantors”). The Senior Notes and the related guarantees are senior unsecured obligations of Men’s Wearhouse, as issuer, and the Guarantors, respectively, and will rank equally with all of Men’s Wearhouse’s and each Guarantor's present and future senior indebtedness. The Senior Notes will mature in July 2022. Interest on the Senior Notes is payable on January 1 and July 1 of each year. See Note 19 for additional information related to the payment of interest on the Senior Notes.

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 (the “Indenture”). 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.

Long-Term Debt

As discussed in Note 1, there is substantial doubt about our ability to continue as a going concern within one year after these condensed consolidated financial statements are issued. As we have determined it is not probable that we will make the interest payment on our Senior Notes described in Note 1, all debt has been reclassified to current on the condensed consolidated balance sheets as of May 2, 2020. The following table provides details on our long-term debt as of May 2, 2020, May 4, 2019 and February 1, 2020 (in thousands):

May 2,

May 4,

February 1,

2020

2019

2020

Term Loan

877,130

886,130

881,630

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 on January 1 and July 1 of each year.173,816

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.228,607

During 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.

~~Long-Term Debt~~173,816

ABL Facility

~~During the first quarter of 2019, in accordance with the provisions of the New Term Loan, we made a mandatory excess cash flow payment of $2.6 million~~385,000

48,500

50,000

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

In connection with the April 2018 refinancing of the New Term Loan, 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 addition, during the first quarter of 2018, we repurchased and retired $17.6 million in face value of Senior Notes through open market repurchases. As a result, we recorded a net loss on extinguishment totaling $0.9 million, consisting of a $0.6 million loss upon repurchase and the elimination of unamortized deferred financing costs totaling $0.3 million related to the Senior Notes.(1,882)

~~The following table provides details on our~~(3,041)

(2,048)

Total long-term debt, asnet

1,434,064

1,160,196

1,103,398

Current portion of ~~May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):~~long-term debt

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

(1,434,064)

(9,000)

Total long-term debt, net of current portion

—

1,151,196

1,094,398

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

7. Revenue Recognition

Revenues

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


	For the Three Months Ended
	May 2, 2020		May 4, 2019
Net sales:
Men's tailored clothing product	$	139,925	$	342,955
Men's non-tailored clothing product		100,115		228,982
Women's clothing product		7,184		19,214
Other ⁽¹⁾		1,918		3,628
Total retail clothing product		249,142		594,779
Rental services		22,253		93,740
Alteration and other services		15,308		36,143
Total net sales	$	286,703	$	724,662

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~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 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 recognize allowances for estimated sales returns on a gross basis rather than a net basis on the condensed consolidated balance sheets.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~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


May 4, 2019

May 5, 2018

Net sales:





Men's tailored clothing product

$
342,955

$
355,737

Men's non-tailored clothing product

228,982

235,606

Women's clothing product

19,214

19,582

Other (1)

3,628

2,719

Total retail clothing product

594,779

613,644

Rental services

93,740

100,227

Alteration services

36,143

38,421

Retail dry cleaning services (2)

—

2,551

Total alteration and other services

36,143

40,972

Total retail sales

724,662

754,843

Corporate apparel clothing product

56,725

63,121

Total net sales

$
781,387

$
817,964

⁽¹⁾

(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~~while licensing revenues consist primarily of ~~the merchandise, net~~minimum guaranteed royalty amounts recognized over an elapsed time period. As a result 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, historically, did not expire. ~~During the fourth quarter of 2018, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019.~~ Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from the date of issuance. We believe our loyalty programs represents a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer. Therefore, we record our obligation for future point redemptions using a deferred revenue model.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~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 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 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~~Joseph Abboud trademarks (see Note 2), licensing revenue ~~for gift cards for which the likelihood of redemption is deemed to~~will no longer 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. recognized.

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


	For the Three Months Ended
	May 2, 2020		May 4, 2019
Net sales:
Men's Wearhouse⁽¹⁾	$	166,438	$	427,772
Jos. A. Bank		71,634		166,886
K&G		33,287		87,697
Moores		15,344		42,307
Total net sales	$	286,703	$	724,662

~~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 $6.4 million at 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 $3.3 million at 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.

~~Table~~
(1) Consists primarily of ~~Contents~~
~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~
~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~
~~(Unaudited)~~
~~Contract Liabilities~~
~~The following table summarizes the opening~~Men's Wearhouse, Men's Wearhouse 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)

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 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 9 for additional information on our accrued expenses and other current liabilities.
Tux.

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

Loyalty Program

We maintain a customer loyalty program for our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores brands in which customers receive points for purchases. Points are generally equivalent to dollars spent on a 1-to-one basis, excluding any sales tax dollars, and, historically, did not expire. During the fourth quarter of 2018, we finalized our decision to implement an expiration policy for loyalty program points beginning in the second quarter of fiscal 2019, which was completed. Upon reaching 500 points, customers are issued a $50 rewards certificate which they may redeem for purchases at our stores or online. Generally, reward certificates earned must be redeemed no later than six months from

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

the date of issuance, although we have extended the expiration date on reward certificates as a result of COVID-19. We believe our loyalty programs represent a customer option that is a material right and, accordingly, is a performance obligation in the contract with our customer. Therefore, we record our obligation for future point redemptions using a deferred revenue model.

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

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.

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 $2.7 million at May 2, 2020, 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 $1.3 million at May 2, 2020.

Table of Contents

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 1, 2020		(Decrease)		May 2, 2020
Contract liabilities	$	121,535	$	(8)	$	121,527


	Balance at		Increase		Balance at
	February 2, 2019		(Decrease)		May 4, 2019
Contract liabilities	$	121,796	$	40,771	$	162,567

Contract liabilities include cash payments received from customers in advance of our performance, including amounts which are refundable. These liabilities primarily consist of customer deposits related to rental product or custom clothing transactions since we typically receive payment from our customers prior to our performance and deferred revenue related to our loyalty programs and unredeemed gift cards. These amounts are primarily included as “Customer deposits, prepayments and refunds payable,” “Loyalty program liabilities” and “Unredeemed gift cards,” respectively, within the accrued expenses and other current liabilities line item on our condensed consolidated balance sheet. Please see Note 11 for additional information on our accrued expenses and other current liabilities.

The decrease in the contract liability balance at May 2, 2020 compared to May 4, 2019 is primarily related to the impact of COVID-19 on our rental product business, which resulted in a significant decrease in customer deposits for rental product transactions.

The amount of revenue recognized for the three months ended May 2, 2020 and May 4, 2019 that was included in the respective opening contract liability balance was $37.0 million and $52.1 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.

8. Supplemental Cash Flows

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


	For the Three Months Ended
	May 2,		May 4,
	2020		2019

Cash paid for interest	$	17,009	$	13,763
Cash paid for income taxes, net	$	3,248	$	6,455

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities and current liabilities – discontinued operations of approximately $4.1 million and $5.9 million at May 2, 2020 and May 4, 2019, 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.

9. Inventories

The following table provides details on our inventories as of May 2, 2020, May 4, 2019 and February 1, 2020 (in thousands):


	May 2,		May 4,		February 1,
	2020		2019		2020
Finished goods	$	622,532	$	643,763	$	554,706
Raw materials and merchandise components		111,847		123,931		141,951
Total inventories	$	734,379	$	767,694	$	696,657

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10. Income Taxes

Our effective income tax rate from continuing operations for the first quarter of 2020 was 2.4% compared to 37.9% for the first quarter of 2019. The decrease in the effective income tax rate is primarily due to the valuation allowance established.

The significant impact of COVID-19 on our sales, profitability, and cash flows resulted in a reduction to our operating forecasts, reflecting the uncertainty of the current environment. As a result, management performed an assessment of the need for additional valuation allowances against deferred tax assets, weighing both positive and negative evidence. Through the three months ended May 2, 2020, the Company’s results reflect a three-year cumulative loss from U.S. operations. Historically, the Company reflected a three-year profit. The three-year cumulative loss arising this quarter limits the ability to consider other positive evidence, such as projections of future results, to assess the realizability of deferred tax assets. As a result, it is “more likely than not” that the net deferred tax asset will not be realized in the future; therefore, the provision for income tax for first quarter 2020 includes a non-cash charge for valuation allowance of $59.1 million on a significant portion of the Company’s deferred tax assets. The recognition of the valuation allowance does not result in or limit the Company’s ability to utilize these deferred tax assets in the future.

On March 27, 2020, the U.S. federal government officially signed The Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) into law. ASC 740, “Accounting for Income Taxes”, requires companies to recognize the effect of tax law changes in the period of enactment. The CARES Act allows companies a five-year carryback for net operating losses (“NOLs”) arising in tax years 2018, 2019, and 2020. The Company is projecting to generate a taxable loss for the year ending January 30, 2021, which the Company will be able to carryback to the 2015-2019 tax years. As a result of the higher tax rates in some of these tax years, the Company has estimated a $5.6 million income tax benefit associated with carryback.

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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11. 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 May 2, 2020, May 4, 2019 and February 1, 2020 (in thousands):


	May 2,		May 4,		February 1,
	2020		2019		2020
Prepaid expenses	$	21,985	$	31,159	$	28,111
Tax receivable		42,097		4,492		12,010
Other		8,176		10,536		9,009
Total other current assets	$	72,258	$	46,187	$	49,130

The following table provides details on our accrued expenses and other current liabilities as of May 2, 2020, May 4, 2019 and February 1, 2020 (in thousands):


	May 2,		May 4,		February 1,
	2020		2019		2020
Customer deposits, prepayments and refunds payable	$	47,830	$	81,355	$	39,527
Unrealized loss on interest rate swaps		42,910		2,084		7,701
Loyalty program liabilities		37,445		44,893		43,692
Accrued salary, bonus, sabbatical, vacation and other benefits		31,427		51,579		58,264
Unredeemed gift cards		28,011		28,352		30,024
Accrued workers compensation and medical costs		19,602		22,282		20,954
Sales, value added, payroll, property and other taxes payable		6,875		32,333		18,208
Accrued interest		5,402		6,241		5,552
Accrued royalties		2,856		1,270		2,543
Accrued dividends		237		9,993		380
Other		13,610		20,307		19,265
Total accrued expenses and other current liabilities	$	236,205	$	300,689	$	246,110

The following table provides details on our deferred taxes, net and other liabilities as of May 2, 2020, May 4, 2019 and February 1, 2020 (in thousands):


	May 2,		May 4,		February 1,
	2020		2019		2020
Deferred and other income tax liabilities, net	$	56,203	$	47,638	$	36,373
Unrealized loss on interest rate swaps		—		12,719		26,885
Other		4,886		4,434		4,555
Total deferred taxes, net and other liabilities	$	61,089	$	64,791	$	67,813

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12. Accumulated Other Comprehensive Loss

The following table summarizes the components of accumulated other comprehensive loss for the three months ended May 2, 2020 (in thousands):


	Foreign
	Currency		Cash Flow		Pension
	Translation		Hedges		Plan		Total
BALANCE— February 1, 2020	$	(7,782)	$	(26,368)	$	(364)	$	(34,514)
Other comprehensive loss before reclassifications		(3,902)		(10,434)		—		(14,336)
Amounts reclassified from accumulated other comprehensive loss		—		2,109		—		2,109
Net other comprehensive loss		(3,902)		(8,325)		—		(12,227)
BALANCE— May 2, 2020	$	(11,684)	$	(34,693)	$	(364)	$	(46,741)

The following table summarizes the components of accumulated other comprehensive loss for the three months ended May 4, 2019 (in thousands):


	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)		(6,795)		—		(8,380)
Amounts reclassified from accumulated other comprehensive loss		—		(635)		—		(635)
Tax Effect		—		1,816		—		1,816
Net other comprehensive loss		(1,585)		(5,614)		—		(7,199)
BALANCE— May 4, 2019	$	(31,405)	$	(9,928)	$	155	$	(41,178)

Amounts reclassified from other comprehensive loss for the three months ended May 2, 2020 relate to changes in the fair value of our interest rate swaps which is recorded within interest expense in the condensed consolidated statement of (loss) earnings. Amounts reclassified from other comprehensive loss for the three months ended May 4, 2019 relate to changes in the fair value of our interest rate swaps which is recorded within interest expense in the condensed consolidated statement of (loss) earnings and changes in the fair value of cash flow hedges related to inventory purchases for our divested corporate apparel business, which is recorded within cost of sales in the condensed consolidated statement of (loss) earnings.

13. Share Repurchases

In March 2013, our Board of Directors (the “Board”) approved a share repurchase program for our common stock. At May 2, 2020, the remaining balance available under the Board’s authorization was $38.0 million. NaN shares were repurchased during the first quarter of 2020 and 2019, respectively.

Share repurchases are accounted for under the cost method whereby the entire cost of the acquired stock is recorded as treasury stock.

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14. Share-Based Compensation Plans

For a discussion of our share-based compensation plans, please see Note 15 in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020. During the three months ended May 2, 2020, we decided to delay the grant of fiscal 2020 long-term incentive award grants to employees as a result of the impact of COVID-19.

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 three months ended May 2, 2020:


			Weighted-Average
	Units		Grant-Date Fair Value
	Time-	Performance-	Time-		Performance-
	Based	Based	Based		Based
Non-Vested at February 1, 2020	471,509	165,812	$	17.81	$	17.33
Granted	—	—		—		—
Vested⁽¹⁾	(103,542)	—		27.73		—
Forfeited	(55,278)	(6,974)		11.00		17.49
Non-Vested at May 2, 2020	312,689	158,838	$	15.84	$	17.32

(1)	Includes 34,993 shares relinquished for tax payments related to vested DSUs for the three months ended May 2, 2020.

As of May 2, 2020, we have unrecognized compensation expense related to non-vested DSUs of $3.2 million, which is expected to be recognized over a weighted-average period of 0.9 years.

Stock Options and Stock Appreciation Rights (“SARs”)

The following table summarizes the activity of stock options for the three months ended May 2, 2020:


		Weighted-
	Number of	Average
	Shares	Exercise Price
Outstanding at February 1, 2020	3,952,587	$	11.53
Granted	—		—
Exercised	—		—
Forfeited	(181,024)		7.39
Expired	(77,509)		14.16
Outstanding at May 2, 2020	3,694,054	$	11.68
Exercisable at May 2, 2020	1,663,130	$	16.19

The following table summarizes the activity of SARs for the three months ended May 2, 2020:



		Weighted-
	Number of	Average
	Shares	Exercise Price
Outstanding at February 1, 2020	414,476	$	7.62
Granted	—		—
Exercised	—		—
Forfeited	—		—
Expired	—		—
Outstanding at May 2, 2020	414,476	$	7.62
Exercisable at May 2, 2020	138,158	$	7.62

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As of May 2, 2020, we have unrecognized compensation expense related to non-vested stock options and SARs of $6.8 million, which is expected to be recognized over a weighted-average period of 1.5 years.

Cash Settled Awards

We have granted stock-based awards to certain employees, which vest over a period of three years, and will be settled in cash ("cash settled awards"). The fair value of the cash settled awards at each reporting period is based on the price of our common stock. The fair value of the cash settled awards will be re-measured at each reporting period until the awards are settled. Cash settled awards are classified as liabilities in the condensed consolidated balance sheets. At May 2, 2020, the liability associated with the cash settled awards was $1.1 million and was recorded in accrued expenses and other current 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 three months ended May 2, 2020 (in thousands):


	Cash Settled Awards
Non-Vested at February 1, 2020	$	6,220
Granted		—
Vested		(1,245)
Forfeited		(205)
Non-Vested at May 2, 2020	$	4,770

As of May 2, 2020, we have unrecognized compensation expense related to non-vested cash settled awards of $1.4 million, which is expected to be recognized over a weighted-average period of 1.5 years.

Share-Based Compensation Expense

Share-based compensation expense, including cash settled awards, recognized for the three months ended May 2, 2020 and May 4, 2019, was $2.0 million and $1.9 million, respectively.

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


	Reported				Adjusted
	Balance at		Impact of		Balance at
	February 2,		Adoption of		February 3,
	2019		ASC 842		2019
Assets:
Other current assets	$	66,823	$	(20,557)	$	46,266
Current assets - discontinued operations		171,376		(197)		171,179

Operating lease right-of-use assets		—		884,231		884,231
Intangible assets, net		153,711		(6,682)		147,029
Non-current assets - discontinued operations		25,071		12,039		37,110

Current Liabilities:
Accrued expenses and other current liabilities		268,698		(151)		268,547
Current portion of operating lease liabilities		—		181,379		181,379
Current liabilities - discontinued operations		40,025		2,346		42,371

Noncurrent Liabilities:
Operating lease liabilities		—		735,482		735,482
Deferred taxes, net and other liabilities		119,545		(59,316)		60,229
Noncurrent liabilities - discontinued operations		5,477		9,496		14,973

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

The adoption of ASC 842 primarily resulted in the recognition of operating lease liabilities totaling $869.2 million, based upon the present value of the remaining minimum rental payments using discount rates as of the adoption date, with $183.6 million within current liabilities and $685.7 million in noncurrent liabilities. In addition, we recorded corresponding right-of-use assets totaling $868.8 million based upon the operating lease liabilities adjusted for favorable lease intangible assets, previously included within intangible assets, net and deferred rent and unfavorable lease liabilities, previously included within deferred taxes, net and other liabilities. In addition, we recorded a $0.4 million cumulative effect of initially applying ASC 842 as an adjustment to the opening balance of accumulated deficit.

Lease Information

We lease store locations, office and warehouse facilities, vehicles and equipment under various non-cancelable operating leases expiring in various years through fiscal 2031. 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.

During the first quarter of fiscal 2020, we negotiated rent deferrals (primarily for April and May lease payments) for some of our stores, with repayment of such deferred amounts beginning at the end of 2020 into 2021. In April 2020, the FASB allowed entities to make a policy election regarding how to account for lease concessions resulting directly from COVID-19. Rather than analyzing each lease contract individually, entities can elect to apply the modification framework under

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ASC 842 or account for concessions outside of the modification framework. We elected the relief provided by the FASB to not review each lease contract individually. As the rent deferrals result in cash flows that are substantially the same as the original lease agreement, we were permitted to account for the rent deferrals either within the modification framework under ASC 842 or outside the modification framework and elected to treat the negotiated rent deferrals as modifications under ASC 842 resulting in re-measurement of the lease liability and a corresponding change to the right-of-use asset.

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


	For the Three Months Ended		For the Three Months Ended
	May 2, 2020		May 4, 2019
Operating lease cost	$	62,195	$	62,111
Variable lease cost		18,294		19,149
Total lease cost	$	80,489	$	81,260

Operating lease expense is recognized on a straight-line basis over the lease term. Total lease costs for stores and our distribution network are included in cost of sales while other total lease costs are included in SG&A expenses.

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


	May 2, 2020
Operating lease right-of-use assets	$	842,088

Current portion of operating lease liabilities	$	209,434
Noncurrent portion operating lease liabilities		689,264
Total operating lease liabilities	$	898,698

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


		May 2, 2020
Weighted average remaining lease term		4.9 years
Weighted average discount rate		5.25%

At May 2, 2020, we have approximately $898.7 million of non-cancelable operating lease commitments and 0 finance leases. The following table summarizes the undiscounted annual future minimum lease payments, as of May 2, 2020, for each of the next five years and in the aggregate (in thousands):


	Operating Leases
Year 1	$	246,914
Year 2		233,005
Year 3		186,720
Year 4		140,744
Year 5		98,021
Thereafter		117,090
Total lease payments	$	1,022,494
Less: Interest		(123,796)
Present value of lease liabilities	$	898,698

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16. Fair Value Measurements

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value. The hierarchy can be described as follows: Level 1- observable inputs such as quoted prices in active markets; Level 2- inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.

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


	Fair Value Measurements at Reporting Date
	Using
	Quoted Prices
	in Active		Significant
	Markets for		Other		Significant
	Identical		Observable		Unobservable
	Instruments		Inputs		Inputs
(in thousands)	(Level 1)		(Level 2)		(Level 3)		Total
May 2, 2020—
Assets:
Derivative financial instruments	$	—	$	115	$	—	$	115
Liabilities:
Derivative financial instruments	$	—	$	42,910	$	—	$	42,910
May 4, 2019—
Assets:
Derivative financial instruments	$	—	$	1,693	$	—	$	1,693
Liabilities:
Derivative financial instruments	$	—	$	14,803	$	—	$	14,803
February 1, 2020—
Assets:
Derivative financial instruments	$	—	$	7	$	—	$	7
Liabilities:
Derivative financial instruments	$	—	$	34,586	$	—	$	34,586

At May 2, 2020, derivative financial instruments are comprised of interest rate swap agreements to minimize our exposure to interest rate changes on our outstanding indebtedness and foreign currency forward exchange contracts primarily entered into related to our direct sourcing programs, specifically related to the Canadian dollar.

These derivative financial instruments are recorded in the 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 17 for further information regarding our derivative instruments.

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

Long-lived assets, such as property and equipment, operating lease right-of-use assets 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.

In addition to the impairment charges described in Note 3, we also incurred asset impairment charges related to long-lived assets at our stores. During the three months ended May 2, 2020, primarily as a result of COVID-19, we determined that certain long-lived assets at our stores were unable to recover their carrying amount reflecting the impact of the temporary store closures and the expectation that such impact will be significantly unfavorable to our business for at least the remainder of 2020. As a result, for the three months ended May 2, 2020, we incurred $26.3 million of asset impairment charges which are included in a separate line on the condensed consolidated statement of (loss) earnings. During the three months ended May 4, 2019, we incurred $0.2 million of asset impairment charges related to underperforming stores.

We estimated the fair value of the long-lived assets based on an income approach using projected future cash flows discounted using a weighted-average cost of capital analysis that reflects current market conditions, which we classify as Level 3 within the fair value hierarchy.

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 May 2, 2020, May 4, 2019, and February 1, 2020, 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):


	May 2, 2020				May 4, 2019				February 1, 2020
	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	$	1,049,064	$	400,652	$	1,111,696	$	1,076,471	$	1,053,398	$	896,851

⁽¹⁾The carrying value of the Term Loan and Senior Notes, including current portion is net of deferred financing costs of $1.9 million, $3.0 million and $2.0 million as of May 2, 2020, May 4, 2019 and February 1, 2020, respectively.

17. Derivative Financial Instruments

In April 2017, we entered into an interest rate swap contract on an initial notional amount of $260.0 million that matures in June 2021 with periodic interest settlements. At May 2, 2020, the notional amount totaled $270.0 million. Under this interest rate swap contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 5.31% (including the applicable margin of 3.25%) on the outstanding notional amount.

In June 2018, we entered into an interest rate swap contract on an initial notional amount of $320.0 million that matures in April 2025 with periodic interest settlements. At May 2, 2020, the notional amount totaled $435.0 million. Under this interest rate swap contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 6.18% (including the applicable margin of 3.25%) on the outstanding notional amount.

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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. For both swaps, changes in fair value are reclassified from accumulated other comprehensive loss into earnings in the same period that the hedged item affects earnings. Over the next 12 months, $11.7 million of the amounts related to the interest rate swaps is expected to be reclassified from accumulated other comprehensive loss into earnings within interest expense.

Historically, we also utilized derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro. As a result of the sale of our corporate apparel business, these instruments were cancelled during the third quarter of 2019.

In addition, we are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs, specifically related to the Canadian dollar. As a result, from time to time, we may enter into derivative instruments to hedge this foreign exchange risk. We have not elected to apply hedge accounting to these derivative instruments. At May 2, 2020, the notional amount of these instruments totaled $2.6 million. 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 2, 2020, May 4, 2019 and February 1, 2020 (in thousands):


	May 2, 2020			May 4, 2019			February 1, 2020
	Balance	Estimated		Balance	Estimated		Balance	Estimated
	Sheet Location	Fair Value		Sheet Location	Fair Value		Sheet Location	Fair Value
Interest rate contracts	Other current assets	$	—	Other current assets	$	1,154	Other current assets	$	—
Interest rate contracts	Other assets		—	Other assets		489	Other assets		—
Foreign exchange contracts	Other current assets		115	Other current assets		50	Other current assets		7
Total assets		$	115		$	1,693		$	7

Interest rate contracts	Accrued expenses and other current liabilities	$	42,910	Accrued expenses and other current liabilities	$	2,084	Accrued expenses and other current liabilities	$	7,701
Interest rate contracts	Deferred taxes, net and other liabilities		—	Deferred taxes, net and other liabilities		12,719	Deferred taxes, net and other liabilities		26,885
Total liabilities		$	42,910		$	14,803		$	34,586

The following table provides details on our derivative instruments recorded in the condensed consolidated statements of (loss) earnings and comprehensive loss for the three months ended in May 2, 2020 and May 4, 2019 (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 2, 2020		May 4, 2019			May 2, 2020		May 4, 2019
Derivatives in Cash Flow Hedging Relationships:
Interest rate contracts	$	(10,434)	$	(5,195)	Interest expense	$	2,109	$	14

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(Unaudited)

18. Legal Matters

On August 2, 2017, 2 American Airlines, Inc. (“American Airlines”) employees, Thor Zurbriggen and Dena Catan, filed a putative class action lawsuit against our then-existing subsidiary Twin Hill in the United States District Court for the Northern District of Illinois (Case No. 1:17-cv-05648). The complaint alleged claims for strict liability, negligence, and medical monitoring based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On September 28, 2017, the plaintiffs filed an amended complaint adding 9 additional named plaintiffs, adding American Airlines as a defendant, and adding claims for civil battery and intentional infliction of emotional distress. Plaintiffs filed a Second 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 by the defendants against American Airlines. The Second Amended Complaint included plaintiffs from the Onody (Case No. 1:18-cv-02303) and Joy (Case No. 1:18-cv-05808) matters we reported in prior filings. As a result, on October 16, 2018, the judge dismissed the separate Onody and Joy matters. We have timely answered the Second Amended Complaint and the matter will proceed in due course. We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

On September 27, 2017, Heather Poole and numerous other American Airlines employees filed a lawsuit against our then-existing subsidiary Twin Hill in the Superior Court for the State of California for the County of Alameda (Case No. RG17876798). The complaint attempts to allege claims for strict liability and negligence based on allegedly defective uniforms Twin Hill supplied to American Airlines for its employees. On December 11, 2017, the Company filed a demurrer to Plaintiff’s complaint. On February 20, 2018, the Court granted our demurrer and dismissed the plaintiffs’ Complaint. Plaintiffs filed an amended complaint on April 10, 2018 and again on April 27, 2018, which added allegations regarding Plaintiffs’ alleged injuries and named Tailored Brands, Inc. as a defendant. This case was consolidated for pretrial purposes only with other complaints containing identical allegations, including the Agnello, Hughes, Mackonochie and Wagoner cases that were disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended February 2, 2019.

We believe that any lawsuit filed on the basis of the safety of the Twin Hill uniforms supplied to American Airlines is without merit, and we intend to contest this action vigorously. Twin Hill has substantial and convincing evidence of the uniforms' safety and fitness for their intended purpose, and we believe that there is no evidence linking any of the plaintiffs' alleged injuries to our uniforms. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

On August 16, 2019, we completed the sale of Twin Hill to a third-party pursuant to a Stock Purchase Agreement, but remain responsible for the above referenced American Airlines matters.

On December 23, 2019, Himelda Mendez on behalf of herself and all others similarly situated, filed separate lawsuits against Jos. A. Bank Clothiers, Inc. (“Jos. A. Bank”), Men’s Wearhouse and JA Apparel Corp. dba Joseph Abboud (“Joseph Abboud”), each in the United States District Court for the Southern District of New York (Case No. 1:19-cv-11756-KPF, Case No. 1:19-cv-11765-RA and Case No. 1:19-cv-11807-VEC, respectively). Each complaint alleges that the applicable entity’s failure to offer Braille gift cards violates the Americans with Disabilities Act (“ADA”), the New York State Human Rights Law and the New York City Human Rights Law. On May 22, 2020, we entered into an arrangement with the plaintiff to settle each of these matters for a de minimus amount. We expect the court to formally dismiss each matter in short order. As a result of the settlements, the court entered an order dismissing each case on June 18, 2020.

In addition to the foregoing matters, we are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business. Management does not believe that any such 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)

19. Subsequent Events

ABL Facility

As discussed in Note 6, Availability under our ABL Facility as of May 2, 2020 was $88.8 million, which exceeded the minimum Availability thresholds that would have resulted in the application of cash dominion and fixed charge coverage ratio testing. On June 19, 2020, JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent under the ABL Facility, notified us of its intention to impose a total discretionary reserve of $44.6 million, with such reserve to be implemented evenly over the next two months. Effective as of May 30, 2020, $22.3 million of the total reserve was imposed against our borrowing base. On July 20, 2020, the Company and JPM agreed to reduce the total discretionary reserve from $44.6 million to $41.5 million and, as such, effective as of July 4, 2020, the remaining reserve of $19.2 million was imposed against our borrowing base. On July 24, 2020, the Company repaid $10.0 million of the borrowings outstanding under the ABL Facility, reducing outstanding borrowings under the ABL Facility to $375.0 million.

As of the date of this filing, even after the imposition of this reserve, our Availability under the ABL Facility exceeded both the cash dominion and fixed charge coverage ratio minimum thresholds (such that cash dominion and fixed charge coverage testing did not apply). However, the implementation of this reserve and reduction in our borrowing base has materially impacted our liquidity. We will continue to actively manage our liquidity and engage with our lenders and other stakeholders with respect to the same.

Senior Notes

On July 1, 2020, Men’s Wearhouse elected not to make the interest payment due and payable on July 1, 2020 of approximately $6.1 million (the “Interest Payment”) with respect to its Senior Notes. Men’s Wearhouse has a 30-day grace period to make the Interest Payment before such non-payment constitutes an “event of default” under the Indenture. If an event of default under the Indenture occurs as a result of such non-payment, it would result in a cross-event of default under our Credit Facilities. Men’s Wearhouse has elected to enter into the 30-day grace period with respect to the Interest Payment. During the grace period, Men’s Wearhouse may elect to pay the Interest Payment and thereby remain in compliance with the Indenture. As of the date of this filing, we have determined it is not probable that we will make the approximate $6.1 million interest payment; however, we may decide to make the interest payment prior to expiration of the grace period.

Recent Business Developments

On May 7, 2020, we began to open stores in the U.S. and Canada with enhanced safety protocols and have safely reopened approximately 96% of our store fleet as of July 21, 2020. Given the current uncertain operating environment due to COVID-19, it is difficult to predict the future performance of our business. While we cannot reasonably estimate the impact of COVID-19 on our financial position, results of operations and cash flows, we do expect such impact to be significantly negative for the remainder of fiscal 2020.

On July 21, 2020, we announced that, as a result of the unprecedented and industrywide business disruptions resulting from COVID-19, we are implementing a series of operating and organizational changes. Specifically, we will make organizational changes that will result in the elimination of approximately 20% of our corporate positions by the end of the fiscal second quarter. In connection with these corporate personnel changes, we expect to record a pre-tax charge of approximately $6 million in the second quarter of fiscal 2020 for severance payments and other termination costs, all of which are cash costs. In addition, we have identified up to 500 retail stores for potential closure over time as well as associated opportunities to reduce and realign our store organization and supply chain infrastructure and organization to best serve our go-forward store footprint and e-commerce business. We have not yet quantified the costs related to potential store closures and the corresponding store organization and supply chain infrastructure and organization realignment. We expect such charges to include significant cash and non-cash amounts, primarily related to severance and long-lived asset impairment.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

During the three months ended May 2, 2020, in response to COVID-19, we implemented temporary base salary reductions for officers and employees with a salary of $100,000 or more ranging from 10% to 50% and reduced the Board’s cash retainer fees by 50%. As a result of the opening of most of our stores and the return of many employees from furlough and to enable us to retain and continue to motivate our employees during the volatile and uncertain environment created by COVID-19, effective June 21, 2020, we restored base salaries for all employees who were subject to a temporary base salary reduction.

In addition, effective June 26, 2020, we restored the cash retainer fees for our Board to their pre-COVID-19 amounts. Also, on June 26, 2020, the Board decided to delay the grant of its annual equity retainer, consistent with our decision to delay fiscal 2020 long-term incentive award grants to employees as a result of the impact of COVID-19.

As of May 2, 2020, assets held for sale totaled $2.9 million relating to an owned distribution center and an owned store. During the second quarter of 2020, we completed the sale of both properties for total proceeds of $13.4 million, net of transaction costs.

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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 1, 2020. 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 "2020" mean the 52-week fiscal year ending January 30, 2021.

Executive Overview

Background

We are a leading omni-channel specialty retailer of menswear, including suits, formalwear, and a broad selection of polished and business casual offerings. We help our customers look and feel their best by delivering personalized products and services through our convenient network of stores and e-commerce sites. Our brands include Men’s Wearhouse, Jos. A. Bank, Moores Clothing for Men (“Moores”) and K&G.

Recent Developments

Going Concern

As discussed in Note 1 and Note 19 to the condensed consolidated financial statements and in “Liquidity and Financial Resources” herein, the impact of the outbreak of the novel coronavirus (“COVID-19”), reductions in our liquidity reflecting the implementation of a discretionary reserve on our $550 million asset-based credit facility (the “ABL Facility”) and our election to not make the interest payment due on July 1, 2020 with respect to our 7.00% Senior Notes due 2022 (the "Senior Notes"), have raised substantial doubt about our ability to continue as a going concern within one year of the date that our condensed consolidated financial statements are issued.

As a result of the conditions described above, we have engaged advisors to assist with management’s plans to evaluate several alternatives, including seeking a restructuring, amendment or refinancing of our debt through a private restructuring or reorganization under applicable bankruptcy laws. Management is also evaluating various alternatives to improve our liquidity, including but not limited to, lease concessions and deferrals, further reductions of operating and capital expenditures, and raising additional capital. However, there can be no assurances that we will be able to successfully restructure our indebtedness or improve our financial position and liquidity. Management’s plans are not yet finalized and are subject to numerous uncertainties including negotiations with our lenders and conditions in the credit and capital markets. As a result of the foregoing factors, we have concluded that management’s plans do not alleviate substantial doubt about our ability to continue as a going concern.

Furthermore, although management’s projections indicate non-compliance with the fixed charge coverage ratio beginning in the fourth quarter of fiscal 2020, it is likely that we will pursue a reorganization under applicable bankruptcy laws prior to the occurrence of such non-compliance or well in advance of such date, possibly as soon as during the third quarter of fiscal 2020. Should we reorganize under applicable bankruptcy laws, there will likely not be any value distributed to our shareholders and our shares could be cancelled for no consideration.

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Operational Update

Following the end of the first quarter of fiscal 2020, we began the process of reopening our stores to serve our customers while prioritizing the health and safety of our employees and customers and operating in accordance with recommended guidelines. As of July 21, 2020, we have safely reopened approximately 96% of our store fleet across the U.S. and Canada. We believe ongoing government actions in response to COVID-19, additional periods of increases in the number of COVID-19 cases, social distancing measures and changes in consumer spending behaviors will continue to impact our business and we believe the impact on our operations will be significantly negative for the rest of fiscal 2020.

On July 21, 2020, we announced that, as a result of the unprecedented and industrywide business disruptions resulting from COVID-19, we are implementing a series of operating and organizational changes. Specifically, we will make organizational changes that will result in the elimination of approximately 20% of our corporate positions by the end of the fiscal second quarter. In connection with these corporate personnel changes, we expect to record a pre-tax charge of approximately $6 million in the second quarter of fiscal 2020 for severance payments and other termination costs, all of which are cash costs. In addition, we have identified up to 500 retail stores for potential closure as well as associated opportunities to reduce and realign our store organization and supply chain infrastructure and organization to best serve our go-forward store footprint and e-commerce business. We have not yet quantified the costs related to potential store closures and the corresponding store organization and supply chain infrastructure and organization realignment. We expect such charges to include significant cash and non-cash amounts, primarily related to severance and long-lived asset impairment.

During the three months ended May 2, 2020, in response to COVID-19, we implemented temporary base salary reductions for officers and employees with a salary of $100,000 or more ranging from 10% to 50% and reduced the Board of Directors’ (the “Board”) cash retainer fees by 50%. To enable us to retain and continue to motivate our employees during the volatile and uncertain environment created by COVID-19, effective June 21, 2020, we restored base salaries for all employees who were subject to a temporary base salary reduction. In addition, effective June 26, 2020, we restored the cash retainer fees for our Board to their pre-COVID-19 amounts.

COVID-19 remains a rapidly evolving situation. We continue to actively monitor developments that may cause us to take further actions that alter our business operations as may be required by federal, state or local authorities or that we determine are in the best interests of our employees, customers, suppliers and stockholders.

First Quarter Discussion

Our quarter ended May 2, 2020 got off to a solid start with total comparable sales up 2.4% for the month of February and all brands delivering positive comparable sales. In March 2020, COVID-19 began to significantly impact our results of operations. On March 17, 2020, we announced the immediate temporary closure of all retail locations which was extended through the end of the first quarter of 2020.

In response to COVID-19, we took several actions to preserve financial liquidity and financial flexibility including:

●

Borrowing $310 million under our ABL Facility

●

Significantly reducing or deferring operating expenses, capital expenditures and inventory purchases

●

Extending payment terms with suppliers and vendors

●

Suspending rent payments under our operating leases for April and May ~~5, 2018~~and negotiating rent deferrals for some of our stores, with repayment of such deferred amounts beginning at the end of 2020 into 2021

●

Implementing temporary base salary reductions for officers and employees with a salary of $100,000 or more ranging from 10% to 50% and reducing the Board’s cash retainer fees by 50% (which were all reinstated in late June 2020), and

●

Furloughing or temporarily laying off all of our store employees, most of our distribution network employees and the majority of our corporate employees (while paying both the Company and employee portions of health premiums for medical, dental and vision for affected employees).

From a liquidity perspective, as of May 2, 2020, our cash and cash equivalents totaled $244.2 million. As described above, we continue to employ measures to maintain ample liquidity and maximize available cash on hand. As of May 2, 2020, our outstanding borrowings under our ABL Facility totaled $385.0 million. In addition, our remaining Availability (as defined in the ABL Facility) was $88.8 million, which exceeds any minimum thresholds that would trigger adverse circumstances or potential default under the ABL Facility or our other outstanding indebtedness. See Note 19 to the condensed consolidated financial statements and “Liquidity and Financial Resources” herein for additional information on the imposition of a discretionary reserve on our ABL Facility.

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We believe the impact of COVID-19 makes many of the operating metrics that we report in the normal course of business to be less meaningful. As such, we have elected not to report comparable sales for our retail brands as our stores were closed for over half of the first quarter of 2020 and believe other operating metrics such as operating income and earnings per share are less meaningful to investors to assess performance.

Key operating metrics for continuing operations for the three months ended May 2, 2020 include:

●

Net sales decreased $438.0 million, or 60.4%, primarily due to the temporary closure of our stores in response to COVID-19.

●

Gross margin decreased $275.2 million. As a percentage of sales, gross margin was ~~included~~10.4% reflecting deleveraging of occupancy costs.

●

We recorded $194.3 million of goodwill, intangible and long-lived asset impairment charges primarily driven by the significant sustained decrease in ~~the respective opening contract liability balance was $52.2 million and $41.7 million, respectively. This revenue primarily consists of recognition of deposits for completed transactions~~our stock price as well as ~~redeemed certificates related~~the impact of COVID-19.

●

We recorded a gain on the previously announced sale of the Joseph Abboud trademarks totaling $82.7 million.

●

Operating loss was $258.7 million compared to ~~our loyalty program and gift card redemptions.~~

~~6. Supplemental Cash Flows~~

~~Supplemental disclosure~~operating income of ~~cash flow information is as 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

~~We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $5.9~~$29.0 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 condensed consolidated statement of 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 February 2, 2019 (in thousands):~~

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

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~8. Income Taxes~~

~~Our effective income tax rate increased to 39.1%~~ for the first quarter of 2019 from 24.0% for the first quarter of 2018 primarily due to an increase in the discrete tax expense related to the net excess shortfalls from share-based awards vesting in the first quarter of 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.~~

~~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 May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):~~

May 4,

May 5,

February 2,


2019

2018

2019

Prepaid expenses

$
33,850

$
44,438

$
56,361

Tax receivable

5,090

12,814

584

Other

10,964

12,685

13,767

Total other current assets

$
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 May 4, 2019, May 5, 2018 and February 2, 2019 (in thousands):~~

May 4,

May 5,

February 2,

2019

2018

2019

Customer deposits, prepayments and refunds payable

$
85,985

$
87,849

$
40,620

Accrued salary, bonus, sabbatical, vacation and other benefits

54,528

56,066

81,503

Loyalty program liabilities

44,893

65,597

44,434

Sales, value added, payroll, property and other taxes payable

37,821

37,605

25,547

Unredeemed gift cards

28,352

29,921

32,178

Accrued workers compensation and medical costs

22,357

24,639

23,974

Accrued dividends

9,993

10,870

10,480

Accrued interest

6,241

10,608

1,828

Accrued royalties

1,270

4,009

1,286

Other

25,381

23,250

20,179

Total accrued expenses and other current liabilities

$
316,821

$
350,414

$
282,029

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

May 4,

May 5,

February 2,


2019

2018

2019

Deferred and other income tax liabilities, net

$
52,948

$
83,357

$
53,479

Deferred rent and landlord incentives

—

58,957

57,505

Unfavorable lease liabilities

—

2,631

1,797

Other

17,213

6,558

12,241

Total deferred taxes, net and other liabilities

$
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.

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

~~The following table summarizes the components of accumulated other comprehensive (loss) income~~same period last year.

●

Loss per share was $5.55 for the three months ended May ~~4, 2019 (in thousands and net~~2, 2020 compared to diluted earnings per share of ~~tax):~~

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~~$0.13 for the ~~three months ended May 5, 2018 (in thousands~~same period last year.

Key liquidity metrics for the three months ended May 2, 2020 include:

●

Cash and ~~net~~cash equivalents at the end 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

(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 three months ended May 4, 2019 and May 5, 2018 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.

~~11. Share-Based Compensation Plans~~

~~For a discussion of our share-based compensation plans, please see Note 14 in our Annual Report on Form 10-K for the fiscal year ended February 2, 2019.~~

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~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 three months ended May 4, 2019:~~

Weighted-Average

Units

Grant-Date Fair Value

Time-

Performance-

Time-

Performance-


Based

Based

Based

Based

Non-Vested at February 2, 2019

939,086

336,906

$
22.60

$
18.59

Granted

—

—

—

—

Vested(1)

(326,826)

(28,686)

22.43

17.43

Forfeited

(55,406)

(23,755)

22.88

18.94

Non-Vested at May 4, 2019

556,854

284,465

$
22.77

$
18.68

⁽¹⁾

~~Includes 121,995 shares relinquished for tax payments related to vested DSUs for the three months ended May 4, 2019.~~

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

~~Stock Options and Stock Appreciation Rights (“SARs”)~~

~~The following table summarizes the activity of stock options for the three months ended May 4, 2019:~~

Weighted-

Number of

Average

Shares

Exercise Price

Outstanding at February 2, 2019

1,252,072

$
23.64

Granted

3,042,310

7.62

Exercised

—

—

Forfeited

(30,286)

17.47

Expired

(32,271)

33.79

Outstanding at May 4, 2019

4,231,825

$
12.09

Exercisable at May 4, 2019

818,982

$
26.46

~~During~~ the first quarter of ~~2019, we granted SARs, which vest ratably over a period~~2020 were $244.2 million primarily reflecting borrowings of three years, and will be settled in stock. Each vested SAR entitles the holder to the right of the difference between the value of our common stock on the date of exercise and the common stock price on the date of grant. We use the Black-Scholes option pricing model to estimate the fair value of SARs on the date of grant.

~~The following table summarizes the activity of SARs for the three months ended May 4, 2019:~~

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

—

$
—

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~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~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~~

We have granted stock-based awards to certain employees, which vest over a period of three years, and will be settled in cash ("cash settled awards"). The fair value of the cash settled awards at each reporting period is based on the price of our common stock. The fair value of the cash settled awards will be remeasured at each reporting period until the awards are settled. Cash settled awards are classified as liabilities in the condensed consolidated balance sheets. At May 4, 2019, the liability associated with the cash settled awards was $3.4 million with $2.1 million recorded in accrued expenses and other current liabilities and $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 three months ended May 4, 2019 (in thousands):~~

Cash Settled Awards
Non-Vested at February 2, 2019

$
5,072
Granted

4,237
Vested

—
Forfeited

(199)
Non-Vested at May 4, 2019

$
9,110

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

~~Share-Based Compensation Expense~~

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

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~~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 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$310.0 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

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~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~~response 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 identification, opening and operation of these store locations. In addition, under our real estate leases, we pay costs such as real estate taxes and common area maintenance and certain of our lease agreements include rental payments based on a percentage of retail sales over contractual levels. These costs are generally considered variable lease payments, and are recognized when deemed probable of payment. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants. In addition, we sublease certain real estate to third parties. Amounts related to subleases were immaterial to the 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

~~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~~

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(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

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~13. Goodwill and Other Intangible Assets~~

~~Goodwill~~

~~Changes in the net carrying amount of goodwill, all of which relates to our retail segment, for the three months ended May 4, 2019 are as follows (in thousands):~~

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.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~14. Fair Value Measurements~~

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

Fair Value Measurements at Reporting Date

Using

Quoted Prices

in Active

Significant

Markets for

Other

Significant

Identical

Observable

Unobservable

Instruments

Inputs

Inputs

(in thousands)

(Level 1)

(Level 2)

(Level 3)

Total

May 4, 2019—









Assets:

Derivative financial instruments

$
—

$
1,864

$
—

$
1,864

Liabilities:

Derivative financial instruments

$
—

$
14,803

$
—

$
14,803

May 5, 2018—









Assets:

Derivative financial instruments

$
—

$
5,639

$
—

$
5,639

Liabilities:

Derivative financial instruments

$
—

$
83

$
—

$
83

February 2, 2019—

Assets:

Derivative financial instruments

$
—

$
3,074

$
—

$
3,074

Liabilities:

Derivative financial instruments

$
—

$
9,307

$
—

$
9,307

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.

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.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~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 months ended May 4, 2019 and May 5, 2018, we incurred $0.2 million and $0.3 million of asset impairment charges, which is included within SG&A expenses in our condensed consolidated statement of earnings, related to underperforming stores.

~~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 May 4, 2019, May 5, 2018, and February 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.~~

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 contract on an initial notional amount of $260.0 million that matures in June 2021 with periodic interest settlements. At May 4, 2019, the notional amount totaled $330.0 million. Under this interest rate swap contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 5.31% (including the applicable margin of 3.25%) on the outstanding notional amount.

In June 2018, we entered into an interest rate swap contract on an initial notional amount of $320.0 million that matures in April 2025 with periodic interest settlements. At May 4, 2019, the notional amount totaled $380.0 million. Under this interest rate swap contract, we receive a floating rate based on 1-month LIBOR and pay a fixed rate of 6.18% (including the applicable margin of 3.25%) on the outstanding notional amount.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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, $0.9 million of the amounts related to the interest rate swaps is expected to be reclassified from accumulated other comprehensive (loss) income into earnings within interest expense.

~~We also utilize derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro.~~ At May 4, 2019, the notional amount of the British pound and Euro instruments totaled $24.7 million and $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. The fair value of these hedges is reported as a component of accumulated other comprehensive (loss) 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, $0.7 million 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 May 4, 2019, the notional amount of these instruments totaled $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

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~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 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.

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

For the Three Months Ended


May 4, 2019

May 5, 2018

Net sales:





Men's Wearhouse(1)

$
427,772

$
447,809

Jos. A. Bank

166,886

169,076

K&G

87,697

89,280

Moores

42,307

46,127

MW Cleaners(2)

—

2,551

Total retail segment

724,662

754,843

Total corporate apparel segment

56,725

63,121

Total net sales

$
781,387

$
817,964

⁽¹⁾

~~Consists of Men's Wearhouse, Men's Wearhouse and Tux and Joseph Abboud.~~

⁽²⁾

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

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

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

For the Three Months Ended


May 4, 2019

May 5, 2018

Operating income:





Retail

$
78,191

$
98,721

Corporate apparel

580

1,583

Shared service expense

(48,469)

(47,407)

Operating income

30,302

52,897

Interest income

96

85

Interest expense

(18,663)

(21,981)

Loss on extinguishment of debt, net

—

(12,711)

Earnings before income taxes

$
11,735

$
18,290

~~Total assets by reportable segment and shared services are as follows (in thousands):~~

May 4,

May 5,

February 2,


2019

2018

2019

Segment assets:

Retail

$
2,253,710

$
1,423,995

$
1,375,902

Corporate apparel

187,775

205,715

175,488

Shared services (1)

323,968

316,112

269,100

Total assets (2)

$
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.~~

~~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 and 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

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(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.

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.

~~18. Condensed Consolidating Information~~

As discussed in Note 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.

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Tailored Brands, Inc.~~

~~Condensed Consolidating Balance Sheet~~

~~May 4, 2019~~

~~(in thousands)~~

Tailored

The Men’s

Guarantor

Non-Guarantor






Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$
—

$
2,183

$
2,181

$
25,385

$
—

$
29,749

Accounts receivable, net

—

30,420

198,709

73,193

(221,699)

80,623

Inventories

—

158,236

508,423

207,753

—

874,412

Other current assets

—

11,821

28,760

20,823

(11,500)

49,904

Total current assets

—

202,660

738,073

327,154

(233,199)

1,034,688

Property and equipment, net

—

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

—

80,358

9,576

13,961

—

103,895

Goodwill

—

6,160

52,128

20,676

—

78,964

Intangible assets, net

—

—

146,984

9,630

—

156,614

Investments in subsidiaries

161,131

1,218,358

—

—

(1,379,489)

—

Other assets

—

6,091

596

4,755

(4,500)

6,942

Total assets

$
161,131

$
2,200,229

$
1,546,211

$
475,070

$
(1,617,188)

$
2,765,453

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

CURRENT LIABILITIES:

Accounts payable

$
153,249

$
124,061

$
89,060

$
73,821

$
(221,699)

$
218,492

Accrued expenses and other current liabilities

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

Total current liabilities

158,222

441,039

249,306

127,879

(233,199)

743,247

Long-term debt, net

—

1,151,196

—

—

—

1,151,196

Operating lease liabilities

—

426,659

325,652

52,584

—

804,895

Deferred taxes, net and other liabilities

6,955

20,204

28,785

18,717

(4,500)

70,161

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

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Tailored Brands, Inc.~~

~~Condensed Consolidating Balance Sheet~~

~~May~~ ~~5, 2018~~

~~(in thousands)~~

Tailored

The Men’s

Guarantor

Non-Guarantor






Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$
—

$
42,740

$
2,830

$
47,596

$
—

$
93,166

Accounts receivable, net

—

32,045

305,987

82,311

(332,932)

87,411

Inventories

—

175,630

482,648

185,393

—

843,671

Other current assets

2,784

15,505

47,364

4,284

—

69,937

Total current assets

2,784

265,920

838,829

319,584

(332,932)

1,094,185

Property and equipment, net

—

196,932

206,794

34,218

—

437,944

Rental product, net

—

102,286

10,127

16,331

—

128,744

Goodwill

—

6,160

53,422

45,220

—

104,802

Intangible assets, net

—

—

154,960

12,360

—

167,320

Investments in subsidiaries

97,019

1,381,326

—

—

(1,478,345)

—

Other assets

—

11,450

668

81,544

(80,835)

12,827

Total assets

$
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

$
116,382

$
255,384

$
82,563

$
71,481

$
(332,932)

$
192,878

Accrued expenses and other current liabilities

14,868

172,654

125,516

39,116

—

352,154

Current portion of long-term debt

—

9,000

—

—

—

9,000

Total current liabilities

131,250

437,038

208,079

110,597

(332,932)

554,032

Long-term debt, net

—

1,277,508

—

—

—

1,277,508

Deferred taxes, net and other liabilities

5,774

152,509

46,910

27,145

(80,835)

151,503

Shareholders' (deficit) equity

(37,221)

97,019

1,009,811

371,515

(1,478,345)

(37,221)

Total liabilities and shareholders' (deficit) equity

$
99,803

$
1,964,074

$
1,264,800

$
509,257

$
(1,892,112)

$
1,945,822

~~Table of Contents~~

~~TAILORED BRANDS, INC. AND SUBSIDIARIES~~

~~NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~Tailored Brands, Inc.~~

~~Condensed Consolidating Balance Sheet~~

~~February 2, 2019~~

~~(in thousands)~~

Tailored

The Men’s

Guarantor

Non-Guarantor






Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$
—

$
970

$
1,496

$
52,965

$
—

$
55,431

Accounts receivable, net

—

23,954

264,884

82,204

(297,969)

73,073

Inventories

—

149,923

461,153

219,350

—

830,426

Other current assets

—

30,699

37,969

7,314

(5,270)

70,712

Total current assets

—

205,546

765,502

361,833

(303,239)

1,029,642

Property and equipment, net

—

194,290

209,814

35,068

—

439,172

Rental product, net

—

81,809

3,426

14,535

—

99,770

Goodwill

—

6,160

52,128

21,203

—

79,491

Intangible assets, net

—

—

153,712

10,189

—

163,901

Investments in subsidiaries

160,057

1,234,005

—

—

(1,394,062)

—

Other assets

—

7,590

665

5,059

(4,800)

8,514

Total assets

$
160,057

$
1,729,400

$
1,185,247

$
447,887

$
(1,702,101)

$
1,820,490

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$
142,701

$
201,799

$
69,485

$
112,963

$
(297,969)

$
228,979

Accrued expenses and other current liabilities

6,697

146,683

109,654

40,233

(5,270)

297,997

Current portion of long-term debt

—

11,619

—

—

—

11,619

Total current liabilities

149,398

360,101

179,139

153,196

(303,239)

538,595

Long-term debt, net

—

1,153,242

—

—

—

1,153,242

Deferred taxes, net and other liabilities

7,028

56,000

45,069

21,725

(4,800)

125,022

Shareholders' equity

3,631

160,057

961,039

272,966

(1,394,062)

3,631

Total liabilities and shareholders' equity

$
160,057

$
1,729,400

$
1,185,247

$
447,887

$
(1,702,101)

$
1,820,490

~~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






Brands, Inc.

Wearhouse, Inc.

Subsidiaries

Subsidiaries

Eliminations

Consolidated

Three Months Ended May 4, 2019

Net sales

$
—

$
426,123

$
413,108

$
176,599

$
(234,443)

$
781,387

Cost of sales

—

228,071

326,923

140,280

(234,443)

460,831

Gross margin

—

198,052

86,185

36,319

—

320,556

Operating expenses

844

139,646

134,833

28,648

(13,717)

290,254

Operating (loss) income

(844)

58,406

(48,648)

7,671

13,717

30,302

Other income and expenses, net

—

—

13,717

—

(13,717)

—

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

—

(12,711)

—

—

—

(12,711)

(Loss) earnings before income taxes

(1,646)

47,624

(33,237)

5,549

—

18,290

(Benefit) provision for income taxes

(658)

11,073

(8,011)

1,977

—

4,381

(Loss) earnings before equity in net income of subsidiaries

(988)

36,551

(25,226)

3,572

—

13,909

Equity in earnings (loss) of subsidiaries

14,897

(21,654)

—

—

6,757

—

Net earnings (loss)

$
13,909

$
14,897

$
(25,226)

$
3,572

$
6,757

$
13,909

Comprehensive income (loss)

$
2,566

$
16,091

$
(25,226)

$
(8,965)

$
18,100

$
2,566

~~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 Three Months Ended~~ ~~May 5, 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

$
10,994

$
196,189

$
(10,744)

$
(66,593)

$
(9,618)

$
120,228

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

—

(3,238)

(6,338)

(1,404)

—

(10,980)

Proceeds from divestiture of business

—

—

17,732

—

—

17,732

Intercompany activities

—

(68,425)

—

—

68,425

—

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

—

(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

—

1,500

—

—

—

1,500

Payments on asset-based revolving credit facility

—

(1,500)

—

—

—

(1,500)

Repurchase and retirement of senior notes

—

(18,240)

—

—

—

(18,240)

Deferred financing costs

—

(5,576)

—

—

—

(5,576)

Intercompany activities

—

(9,618)

—

68,425

(58,807)

—

Cash dividends paid

(9,618)

—

—

—

—

(9,618)

Proceeds from issuance of common stock

3,649

—

—

—

—

3,649

Tax payments related to vested deferred stock units

(5,025)

—

—

—

—

(5,025)

Net cash (used in) provided by financing activities

(10,994)

(133,604)

—

68,425

(58,807)

(134,980)

Effect of exchange rate changes

—

—

—

(2,441)

—

(2,441)

(Decrease) increase in cash and cash equivalents

—

(9,078)

650

(2,013)

—

(10,441)

Cash and cash equivalents at beginning of period

—

51,818

2,180

49,609

—

103,607

Cash and cash equivalents at end of period

$
—

$
42,740

$
2,830

$
47,596

$
—

$
93,166

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

~~Executive Overview~~

~~Background~~

We are a leading specialty retailer of men’s tailored clothing, and the largest men’s formalwear provider in the United States (“U.S.”) 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 shirts, shoes and 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.

~~First Quarter Discussion~~

During the first quarter of 2019, comparable sales for all retail brands 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 did not improve primarily due to continued traffic headwinds. We are already implementing and continue to explore new strategies to improve the comparable sales trend across our retail portfolio.

In addition, during the first quarter, we made progress on our strategic initiatives. Our custom business posted another strong quarter as we continued to respond to our customers’ demand for personalized products and services that help men look their best in the moments that matter. Our e-commerce team executed a robust portfolio of user experience and personalization tests, a number of which generated improvement. Finally, as we seek an optimized creative mix between promotional and storytelling advertising and an enhanced channel mix between broadcast and digital, we launched new brand campaigns for both Men’s Wearhouse and Jos. A. Bank that are being leveraged across channels.

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

~~Net sales decreased 4.5% primarily due to a decrease in retail segment comparable sales.~~

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

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

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

~~Key liquidity metrics for the three months ended May 4, 2019 include:~~

Cash and cash equivalents at the end of the first quarter of 2019 were $29.7 million, a decrease of $63.4 million compared to the end of the first quarter of 2018 primarily resulting from the decrease in comparable sales as well as the impact of the Easter shift.

~~Cash provided by operating activities was $11.8 million for the first three months of 2019 compared to $120.2 million for the first three months of 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 $21.7 million for the first three months of 2019 compared to $11.0 million for the first three months of 2018.~~

~~We had $48.5 million of borrowings outstanding on our revolving credit facility as of May 4, 2019.~~

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

~~Table of Contents~~

~~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 2019 and 2018 (dollars in millions):~~

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 4 to the condensed consolidated financial statements for additional information.~~

⁽³⁾

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

⁽⁴⁾

For the three months ended May 4, 2019, $0.2 million is included in cost of sales and $4.2 million is included in selling, general and administrative expenses ("SG&A"). For the three months ended May 5, 2018, $3.6 million is included in SG&A and $11.9 million is included in loss on extinguishment of debt.

~~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.

~~Table of Contents~~

~~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 Year Ended

May 4,

May 5,

February 2,


2019

2018

2019

Open at beginning of period:

1,464

1,477

1,477

Opened

—

1

3

Closed

(2)

(2)

(16)

Open at end of the period

1,462

1,476

1,464

Men’s Wearhouse(1)

720

720

720

Men’s Wearhouse and Tux

46

50

46

Jos. A. Bank (2)

482

491

484

Moores

126

126

126

K&G

88

89

88

1,462

1,476

1,464

⁽¹⁾

~~Includes one Joseph Abboud store.~~

⁽²⁾

~~Excludes franchise stores.~~

~~During the first quarter of 2019, we 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.

~~Table of Contents~~

~~Results of Operations~~

~~For the Three Months Ended May 4, 2019 Compared to the Three Months Ended 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)

May 4,

May 5,


2019

2018

Net sales:

Retail clothing product

76.1
%
75.0
%

Rental services

12.0

12.3

Alteration and other services

4.6

5.0

Total retail sales

92.7

92.3

Corporate apparel clothing product

7.3

7.7

Total net sales

100.0
%
100.0
%

Cost of sales(2):

Retail clothing product

45.2

45.0

Rental services

13.9

14.6

Alteration and other services

93.6

83.4

Occupancy costs

14.3

13.4

Total retail cost of sales

57.9

56.4

Corporate apparel clothing product

73.3

73.9

Total cost of sales

59.0

57.8

Gross margin(2):

Retail clothing product

54.8

55.0

Rental services

86.1

85.4

Alteration and other services

6.4

16.6

Occupancy costs

(14.3)

(13.4)

Total retail gross margin

42.1

43.6

Corporate apparel clothing product

26.7

26.1

Total gross margin

41.0

42.2

Advertising expense

5.8

5.0

Selling, general and administrative expenses

31.4

30.7

Operating income

3.9

6.5

Interest income

0.0

0.0

Interest expense

(2.4)

(2.7)

Loss on extinguishment of debt, net

—

(1.6)

Earnings before income taxes

1.5

2.2

Provision for income taxes

0.6

0.5

Net earnings

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 decreased $36.6 million, or 4.5%, to $781.4 million for the first quarter of 2019 as compared to the first quarter of 2018.~~

Total retail sales decreased $30.2 million, or 4.0%, to $724.7 million for the first quarter of 2019 as compared to the first quarter of 2018 primarily due to a $18.9 million decrease in clothing product sales, driven by a decrease in comparable sales at all of our retail brands, a $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. The decrease in total retail sales is further described below:


~~(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. We operate our business using an omni-channel approach and do not differentiate e-commerce sales from our other channels.

~~The decrease in comparable sales at Men's Wearhouse resulted primarily from a decrease in both transactions for clothing and units per transaction partially~~COVID-19 offset by ~~an increase~~cash outflows necessary to operate the business while stores were temporarily closed.

●

Cash used in average unit retail (net selling prices). 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 partially offset by an increase in average unit retail. The decrease at K&G resulted from a decrease in both transactions and units per transaction partially offset by an increase in average unit retail. The decrease at Moores resulted primarily from a decrease in both transactions and units per transaction partially offset by an increase in average unit retail.

Total corporate apparel clothing product sales decreased $6.4 million for the first quarter of 2019 as compared to the first quarter of 2018 primarily due to lower replenishment demand in the U.S. as well as the impact of a weaker British pound this year compared to last year of approximately $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 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 Loss on Extinguishment of Debt~~

There was no net loss on extinguishment of debt for the first quarter of 2019. For the first quarter of 2018, 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 the 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 39.1% for the first quarter of 2019 from 24.0% for the first quarter of 2018 primarily due to an increase in the discrete tax expense related to the net excess shortfalls from share-based awards vesting in the first quarter of 2019.

For the 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. For the first quarters of 2019 and 2018, tax expense for our operations in foreign jurisdictions totaled $2.4 million and $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 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.

~~Net Earnings~~

~~Net earnings were $7.1 million for the first quarter of 2019 compared with net earnings of $13.9 million for the first quarter of 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 May 4, 2019, May 5, 2018 and February 2, 2019:

May 4,

May 5,

February 2,


2019

2018

2019
Cash and cash equivalents

$
29,749

$
93,166

$
55,431
Working capital

$
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").

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 May 4, 2019, our total leverage ratio and secured leverage ratio are below the thresholds specified in the agreements 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~~

~~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 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 2.47% at May 4, 2019, plus the applicable margin of 3.25%, resulting in a total interest rate of 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 May 4, 2019, the total notional amount under these interest rate swaps is $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 May 4, 2019, the New Term Loan had a weighted average interest rate of 5.77%.

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 May 4, 2019, $48.5 million in borrowings were outstanding under the ABL Facility at a weighted average interest rate of approximately 5.3%.

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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.

~~Cash Flow Activities~~

~~Operating activities —~~ ~~Net cash provided by~~ operating activities was ~~$11.8 million and $120.2~~$121.4 million for the first three months of ~~2019 and 2018, respectively. The $108.4 million decrease was driven by lower net earnings, an increase in inventories~~2020 primarily reflecting the ~~decrease in comparable sales at Men’s Wearhouse, and fluctuations in accounts payable, accrued expenses and other current liabilities primarily due~~impact of COVID-19.

●

Capital expenditures were $9.0 million for the first three months of 2020 compared to ~~timing.~~

~~Investing activities —~~ ~~Net cash used in investing activities was~~ $21.7 million for the first three months of 2019 ~~compared~~as we significantly reduced and or deferred payment on our capital spend in response to COVID-19.

●

Total debt at the end of the first quarter of 2020 was approximately $1.4 billion. During the first quarter of 2020, we made two scheduled $2.3 million payments on our term loan, while borrowings outstanding on our ABL Facility increased $335.0 million.

Items Affecting Comparability of Results from Continuing Operations

Besides the impact of COVID-19 on our results of operations for the first quarter of 2020, the following table depicts the effect on pretax income from continuing operations related to certain other items that have impacted the comparability of our results in 2020 and 2019 (dollars in millions):


	For the Three Months Ended
	May 2,		May 4,
	2020		2019
Goodwill, intangible and long-lived asset impairment charges⁽¹⁾	$	192.3	$	—
Net gain related to the sale of Joseph Abboud trademarks⁽²⁾		(82.7)		—
Consulting and other business advisory costs		2.2		—
Costs related to multi-year cost savings and operational excellence programs⁽³⁾		2.1		4.4
Total ⁽⁴⁾	$	113.9	$	4.4

(1)	Consists of $89.9 million related to the Jos. A. Bank tradename, $78.0 million related to goodwill and $24.4 million related to long-lived assets. See Note 3 and Note 16 to the condensed consolidated financial statements for additional information.

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

(3)

For the three months ended May 2, 2020, consists of $2.2 million in severance costs and $0.1 million in other costs, offset by a $0.2 million net gain related to the sale of a distribution center in the U.S. For the three months ended May 4, 2019, consists of $3.1 million in consulting costs, $1.1 million in severance costs and $0.2 million in lease termination costs.

(4)

For the three months ended May 2, 2020, $4.3 million is included in selling, general and administrative expenses ("SG&A"), $168.0 million is included in goodwill and intangible asset impairment charges, $82.7 million is included in gain on sale of trademarks, net, and $24.4 million is included in asset impairment charges. For the three months ended May 4, 2019, $0.2 million is included in cost of sales and $4.2 million is included in SG&A.

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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 Year Ended
	May 2,	May 4,	February 1,
	2020	2019	2020

Open at beginning of period:	1,450	1,464	1,464
Opened	—	—	3
Closed	(5)	(2)	(17)
Open at end of the period	1,445	1,462	1,450

Men’s Wearhouse⁽¹⁾	714	720	717
Men’s Wearhouse and Tux	44	46	44
Jos. A. Bank ⁽²⁾	472	482	474
Moores	126	126	126
K&G	89	88	89
	1,445	1,462	1,450

(1)	Includes one Joseph Abboud store that was closed in the first quarter of 2020.

(2)	Excludes franchise stores.

During the first quarter of 2020, we closed five stores (two Men’s Wearhouse stores, two Jos. A. Bank stores and one Joseph Abboud store).

Prior to the outbreak of COVID-19, we completed a review of our store fleet and identified approximately 100 stores we anticipate closing as their leases expire over the next several years, weighted heavily towards 2020 and 2021. In fiscal 2020, we expect to close approximately 40 Jos. A. Bank stores and approximately ten Men’s Wearhouse stores as their leases expire. In addition, on July 21, 2020, we announced that after a re-evaluation of our store fleet, we identified up to an additional 400 stores for closure over time.

Seasonality

Prior to the COVID-19 outbreak, our sales and net earnings were 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. Because of these fluctuations, results for any quarter are not necessarily indicative of the results that may be achieved for the full year. In addition, we expect COVID-19 to significantly impact our results for the remainder of fiscal 2020.

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Results of Operations

For the Three Months Ended May 2, 2020 Compared to the Three Months Ended May 4, 2019

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


	May 2,		May 4,
	2020		2019
Net sales:
Retail clothing product	86.9	%	82.1	%
Rental services	7.8		12.9
Alteration and other services	5.3		5.0
Total net sales	100.0	%	100.0	%
Cost of sales⁽²⁾:
Retail clothing product	52.9		45.3
Rental services	21.0		13.9
Alteration and other services	126.3		93.6
Occupancy costs	35.3		14.3
Total cost of sales	89.6		57.9
Gross margin⁽²⁾:
Retail clothing product	47.1		54.7
Rental services	79.0		86.1
Alteration and other services	(26.3)		6.4
Occupancy costs	(35.3)		(14.3)
Total gross margin	10.4		42.1
Advertising expense	7.9		6.2
Selling, general and administrative expenses	53.7		31.9
Goodwill and intangible asset impairment charges	58.6		—
Asset impairment charges	9.2		0.0
Gain on sale of trademarks, net	(28.8)		—
Operating (loss) income	(90.2)		4.0
Interest income	0.0		0.0
Interest expense	(6.2)		(2.6)
(Loss) earnings before income taxes	(96.4)		1.4
(Benefit) provision for income taxes	(2.3)		0.5
Net (loss) earnings from continuing operations	(94.1)		0.9
Earnings from discontinued operations, net of tax	—		0.1
Net (loss) earnings	(94.1)	%	1.0	%

(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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The following discussion of our results of operations relates to our continuing operations. Please see Note 4 of notes to the condensed consolidated financial statements for information concerning discontinued operations.

Net Sales

Total net sales decreased $438.0 million, or 60.4%, to $286.7 million for the first quarter of 2020 as compared to the first quarter of 2019 primarily due to a $345.7 million decrease in clothing product sales, a $71.5 million decrease in rental service revenues and a $20.8 million decrease in alteration and other services revenues. These decreases were primarily driven by the temporary closure of our retail stores and cancellation of high school proms and other events due to COVID-19.

Gross Margin

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

Our total gross margin decreased $275.2 million, or 90.3%, to $29.7 million in the first quarter of 2020 as compared to the first quarter of 2019 primarily resulting from the impact of store closures and lower sales due to COVID-19. As a percentage of total sales, gross margin decreased to 10.4% in the first quarter of 2020 from 42.1% in the first quarter of 2019.

Occupancy costs, which includes store related operating lease costs, utilities, repairs and maintenance, security, property taxes and depreciation, decreased $2.6 million. Occupancy costs as a percentage of total net sales increased to 35.3% in the first quarter of 2020 as compared to 14.3% in the first quarter of 2019 due to deleveraging from lower sales.

Advertising Expense

Advertising expense decreased to $22.7 million, or 49.1%, from $44.7 million in the first quarter of 2019. The decrease in advertising expense was primarily driven by reductions in advertising spend in response to COVID-19. As a percentage of total net sales, advertising expense increased to 7.9% in the first quarter of 2020 from 6.2% in the first quarter of 2019 due to deleveraging from lower sales.

Selling, General and Administrative Expenses

In the first quarter of 2020, SG&A expenses decreased to $154.1 million, or 33.3%, from $231.0 million in the first quarter of 2019. As a percentage of total net sales, SG&A expenses increased to 53.7% in the first quarter of 2020 from 31.9% in the first quarter of 2019, primarily due to deleveraging from lower sales. The components of this 21.8% 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	$	0.1	In the first quarter of 2020, we incurred certain costs that impact the comparability of our results totaling $4.3 million, including $2.2 million related to consulting and other business advisory costs and $2.1 million related to our multi-year cost savings and operational excellence programs. In the first quarter of 2019, costs that impacted the comparability of our results totaled $4.2 million related to our multi-year cost savings and operational excellence programs.
5.4		(46.3)	Store salaries decreased $46.3 million resulting from the impact of temporary store closures and reflecting the furlough/temporary layoff of employees. Store salaries as a percentage of sales increased to 19.5% in the first quarter of 2020 from 14.1% in the first quarter of 2019 primarily due to deleveraging from lower sales.
15.5		(30.7)	Other SG&A expenses decreased $30.7 million primarily due to lower non-store expenses primarily resulting from employee furloughs and the temporary closure of our offices. As a percentage of sales, other SG&A expenses increased to 32.7% in the first quarter of 2020 from 17.2% in the first quarter of 2019 due to deleveraging from lower sales.
21.8	$	(76.9)	Total

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Goodwill and Intangible Asset Impairment Charges

We recorded goodwill and intangible asset impairment charges totaling $168.0 million, with $78.0 million related to goodwill and $89.9 million related to our Jos. A. Bank tradename. See Note 3 to the condensed consolidated financial statements for additional information.

Asset Impairment Charges

We recorded asset impairment charges totaling $26.3 million in the first quarter of 2020 compared to $0.2 million in the first quarter of 2019. The asset impairment charges in the first quarter of 2020 primarily related to the impact of COVID-19, including the temporary closure of our stores and the expectation that such impact will be significantly unfavorable to our business for at least the remainder of 2020. The asset impairment charges in the first quarter of 2019 related to underperforming stores.

Gain on Sale of Trademarks, net

We recorded a gain on the sale of our Joseph Abboud trademarks, net of transaction costs, totaling $82.7 million. See Note 2 to the condensed consolidated financial statements for additional information.

(Benefit) Provision for Income Tax

For the first quarters of 2020 and 2019, the statutory tax rates in U.S., Canada, and Hong Kong were approximately 21%, 26% and 16.5%, respectively. For the first quarter of 2020, tax benefit for our continuing operations in foreign jurisdictions was $8.6 million. For the first quarter of 2019, tax expense for our continuing operations in foreign jurisdictions totaled $2.2 million.

Our continuing operations income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings, changes in tax laws, and valuation allowance. 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.

Net (Loss) Earnings from Continuing Operations

Net loss from continuing operations was $269.9 million for the first quarter of 2020 compared with net earnings from continuing operations of $6.5 million for the first quarter of 2019.

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Liquidity and Capital Resources

Our primary sources of working capital are cash flows from operations and available borrowings under our ABL Facility, as described below. The following table provides details on our cash and cash equivalents and working capital position as of May 2, 2020, May 4, 2019 and February 1, 2020:


	May 2,		May 4,		February 1,
	2020		2019		2020
Cash and cash equivalents	$	244,170	$	12,928	$	14,420
Restricted cash	$	94,450	$	—	$	—
Working capital	$	(966,944)	$	161,344	$	206,388

The decrease in working capital from May 2, 2020 compared to February 1, 2020 is primarily due to all debt being reclassified to current resulting from our determination of substantial doubt about our ability to continue as a going concern. See Notes 1 and 6 for additional information.

In October 2017, Men’s Wearhouse amended the Original 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, Men’s Wearhouse refinanced the Original Term Loan, and in October 2018, amended its term loan (the term loan, as so refinanced and amended, the “Term Loan” and, together with the ABL Facility, the “Credit Facilities”) 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 May 2, 2020, our total leverage and secured leverage ratios are above the maximum thresholds specified therefor in the agreement governing the Term Loan. As a result, we are subject to additional restrictions, primarily related to the size of any incremental term loan facilities being limited to a maximum of $250.0 million.

In addition, our ABL Facility contains certain covenants and restrictions, including instances where lenders could assume control of our cash (commonly referred to as cash dominion) and the imposition of a financial maintenance covenant, which would become effective if availability falls below various thresholds. The requirement for cash dominion is triggered when Availability (as defined in the ABL Facility) is less than the greater of (1) 12.5% of the Line Cap (as defined in the ABL Facility), which as of May 2, 2020 was $62.1 million, or (2) $60.5 million. The requirement to comply with the financial maintenance covenant (a fixed charge coverage ratio) is triggered when Availability is less than the greater of (1) 10% of the Line Cap, which as of May 2, 2020 was $49.7 million, or (2) $44.0 million.

As of May 2, 2020, $385.0 million in borrowings were outstanding under the ABL Facility (which was also the maximum borrowing outstanding during the first quarter of 2020) with a weighted average interest rate of approximately 1.9%. In addition, at May 2, 2020, letters of credit totaling approximately $22.9 million were issued and outstanding primarily as collateral for workers’ compensation claims. Availability under the ABL Facility as of May 2, 2020 was $88.8 million, which exceeds the cash dominion and fixed charge coverage ratio minimum thresholds (such that cash dominion and fixed charge coverage testing did not apply). Availability under the ABL Facility may decrease in the event the agent under our ABL Facility imposes reserves against borrowing base. See “Future Sources and Uses of Cash” below for additional information.

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Credit Facilities

In April 2018, we refinanced the Original Term Loan, resulting in our Term Loan facility totaling $900.0 million. Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0. As noted above, we are currently limited to a maximum of $250.0 million for such incremental borrowings.

The Term Loan amortizes in an annual amount equal to 1.0% of the principal amount of the Term Loan, payable quarterly (which commenced on May 1, 2018). The Term Loan matures on April 9, 2025, subject to a maturity provision that would accelerate the maturity of the Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.

The 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 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 Term Loan are 3.25% for LIBOR and 2.25% for the base rate. In connection with the October 2018 amendment of the Term Loan, we incurred deferred financing costs of $1.1 million, which will be amortized over the life of the Term Loan using the interest method. The maturity date for the Term Loan remains April 9, 2025, and all other material provisions of the Term Loan remain unchanged.

The interest rate on the Term Loan is based on 1-month LIBOR, which was 0.30% at May 2, 2020. However, the Term Loan interest rate is subject to a LIBOR floor of 1%, plus the applicable margin of 3.25%, results in a total interest rate of 4.25%. We have two interest rate swap agreements where the variable rates due under the Term Loan have been exchanged for a fixed rate. At May 2, 2020, the total notional amount under these interest rate swaps is $705.0 million. Please see Note 17 for additional information on our interest rate swaps.

As a result of our interest rate swaps, 80% of the variable interest rate under the Term Loan has been converted to a fixed rate and, as of May 2, 2020, the Term Loan had a weighted average interest rate of 5.62%.

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, which 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%.

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, Men’s Wearhouse and its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors.

The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and each of our U.S. subsidiaries (collectively, the “Guarantors”). The Senior Notes and the related guarantees are senior unsecured obligations of Men’s Wearhouse, as issuer, and the Guarantors, respectively, and will rank equally with all of Men’s Wearhouse’s and each Guarantor's present and future senior indebtedness. The Senior Notes will mature in July 2022. Interest on the Senior Notes is payable on January 1 and July 1 of each year. See “Future Sources and Uses of Cash” below for additional information.

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Cash Flow Activities

Operating activities — Net cash used in operating activities was $121.4 million compared to net cash provided by operating activities of $11.8 million for the first three months of 2020 and 2019, respectively.

The $133.2 million decrease in cash flow from operations was driven primarily by a $152.3 million decrease in our net earnings, after adjusting for non-cash items, primarily due to the decrease in our operating income resulting from the impact of COVID-19. The $152.3 million decrease was partially offset by a $28.2 million change in accounts receivable reflecting the collection of credit card receivables during the quarter as credit card receivables at the end of the quarter were significantly lower as a result of our temporary store closures.

Investing activities — Net cash provided by investing activities was $114.0 million for the first three months of 2020 compared to net cash used in investing activities of $21.7 million for the first three months of 2019. The $135.7 million change was primarily driven by the $115.0 million in proceeds related to the sale of the Joseph Abboud trademarks, $5.9 million of proceeds from last year’s sale of the corporate apparel business and a $12.7 million decrease in capital expenditures primarily reflecting the impact of deferral of capital expenditures due to COVID-19.

Although we have not yet finalized our outlook for capital expenditures in fiscal 2020, we currently expect capital expenditures to decrease substantially compared to fiscal 2019, primarily as a result of actions taken in response to the COVID-19 outbreak. Capital expenditures for 2020 will include costs for store refreshes and other enhancements of our store fleet and investments in technology.

Financing activities — Net cash provided by financing activities was $330.5 million for the first three months of 2020 compared to net cash used in financing activities of $15.0 million for the first three months of 2019. The $345.5 million increase primarily reflects the impact of ABL borrowings mainly in response to COVID-19 and last year’s decision to suspend our quarterly dividend.

Restricted cash — As a result of the sale of the Joseph Abboud trademarks, per the provisions of the credit agreement governing our Term Loan, the proceeds of the sale, reduced by estimated taxes payable related to the sale and transaction related costs, were deposited in a separate account administered by the term loan agent and is presented as restricted cash on the condensed consolidated balance sheet as of May 2, 2020. As of May 2, 2020, the restricted cash balance totaled $94.5 million and is primarily restricted for the purchase of property, equipment and other tangible assets to be used in the operations of the business, such as capital expenditures and purchase of rental product.

Dividends — Cash dividends paid were $0.1 million and $9.6 million for the first three months of 2020 and 2019, respectively. On September 11, 2019, after extensive review, the Company announced an update to the Company’s capital allocation policy. Effective in the fourth quarter of 2019, our quarterly cash dividend was suspended and the cash was redeployed for accelerated debt reduction and opportunistic share repurchases. The cash dividends paid in the first three months of 2020 relate to accrued dividends paid upon vesting of certain share-based awards.

Share repurchase program — In March 2013, the Board approved a share repurchase program for our common stock. No shares were repurchased during the first quarters of 2020 and 2019, respectively. At May 2, 2020, the remaining balance available under the Board's authorization was $38.0 million.

Future Sources and Uses of Cash

Our primary uses of cash are to finance working capital requirements of our operations and to repay our indebtedness. In addition, we will use cash to fund capital expenditures, income taxes, operating leases and various other commitments and obligations, as they arise.

In response to COVID-19, we proactively took measures to increase available cash on hand including, but not limited to, significant reductions in discretionary operating expenses, reducing inventory purchases and capital expenditures, extension of vendor payment terms, employee furloughs, temporary salary reductions, discussions with our landlords regarding rent reductions and/or rent deferrals and, as described above, borrowings under our ABL Facility. We closely monitor the amounts and timing of our sources and uses of funds, particularly as they affect our ability to maintain compliance with the financial covenant of our ABL Facility.

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Following the end of the first quarter of 2020, the status of our liquidity position and indebtedness has been impacted by certain events:

●

On June 19, 2020, JPMorgan Chase Bank, N.A. (“JPM”), as administrative agent under the ABL Facility, notified us of its intention to impose a total discretionary reserve of $44.6 million, with such reserve to be implemented evenly over the next two months. Effective as of May 30, 2020, $22.3 million of the total reserve was imposed against our borrowing base. On July 20, 2020, the Company and JPM agreed to reduce the total discretionary reserve from $44.6 million to $41.5 million and, as such, effective as of July 4, 2020, the remaining reserve of $19.2 million was imposed against our borrowing base. On July 24, 2020, the Company repaid $10.0 million of the borrowings outstanding under the ABL Facility, reducing outstanding borrowings under the ABL Facility to $375.0 million. As of the date of this filing, even after the imposition of this reserve, our Availability under the ABL Facility exceeded both the cash dominion and fixed charge coverage ratio minimum thresholds (such that cash dominion and fixed charge coverage testing did not apply). However, the implementation of this reserve and reduction in our borrowing base has materially impacted our liquidity. We will continue to actively manage our liquidity and engage with our lenders and other stakeholders with respect to the same.

●

On July 1, 2020, Men’s Wearhouse elected not to make the interest payment due and payable on July 1, 2020 of approximately $6.1 million (the “Interest Payment”) with respect to its Senior Notes. Men’s Wearhouse has a 30-day grace period to make the Interest Payment before such non-payment constitutes an “event of default” under the indenture governing the Senior Notes (the “Indenture”). If an event of default under the Indenture occurs as a result of such non-payment, it would result in a cross-event of default under our Credit Facilities. Men’s Wearhouse has elected to enter into the 30-day grace period with respect to the Interest Payment. During the grace period, Men’s Wearhouse may elect to pay the Interest Payment and thereby remain in compliance with the Indenture. As of the date of this filing, we have determined it is not probable that we will make the approximate $6.1 million interest payment; however, we may decide to make the interest payment prior to expiration of the grace period.

In addition, over the last several months, both Standard & Poor’s Rating Service and Moody’s Investor Service have downgraded their credit ratings for the Company. These downgrades, and any future reductions in our credit ratings, could result in reduced access to the credit and capital markets. As a result of these actions, we believe our current ability to access the credit and capital market is significantly limited.

We have considered the projected impact of COVID-19 on our cash flows and analyzed our future compliance with the financial covenants under our ABL Facility, including the discretionary reserve imposed against our borrowing base, as described in Note 19, and based on such projections and analysis, we will not remain in compliance with the fixed charge coverage ratio covenant under the ABL Facility beginning in the fourth quarter of fiscal 2020. If we violate this covenant and are unable to obtain an amendment or waiver from our lenders, we will be in default under the ABL Facility and our debt could be accelerated by the lenders under the ABL Facility. Because of cross-default provisions in the agreements and instruments governing our indebtedness, a default under the ABL Facility would result in a default under, and could result in the acceleration of, our other indebtedness unless we are able to obtain an amendment or waiver from our lenders.

As a result of the conditions described above, we have engaged advisors to assist with management’s plans to evaluate several alternatives, including seeking a restructuring, amendment or refinancing of existing debt through a private restructuring or reorganization under applicable bankruptcy laws. Management is also evaluating various alternatives to improve our liquidity, including but not limited to, lease concessions and deferrals, further reductions of operating and capital expenditures, and raising additional capital. However, there can be no assurances that we will be able to successfully restructure our indebtedness or improve our financial position and liquidity. Management’s plans are not yet finalized and are subject to numerous uncertainties including negotiations with our lenders and conditions in the credit and capital markets.

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Supplemental Guarantor Financial Information

Men’s Wearhouse (the “Issuer”) issued $600.0 million in aggregate principal amount of 7.00% Senior Notes. See Note 6 of the notes to the condensed consolidated financial statements for a description of the terms and conditions of the Senior Notes. The Senior Notes are guaranteed on an unsecured basis by Tailored Brands, Inc. (the “Parent”) and each of our U.S. subsidiaries (the “Subsidiary Guarantors” and together with the Parent, the “Guarantors”). The Senior Notes and the related guarantees are senior unsecured obligations of the Issuer and the Guarantors, respectively, and will rank equally with all of the Issuer’s and each Guarantor’s present and future senior indebtedness. Our foreign subsidiaries (collectively, the “Non-Guarantors”) are not guarantors of the Senior Notes. Each of the Subsidiary Guarantors is directly or indirectly 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 Subsidiary 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 following tables present summarized information for the Parent, Issuer and the Subsidiary Guarantors on a combined basis after elimination of (i) intercompany transactions and balances among the Parent, Issuer and Subsidiary Guarantors and (ii) equity in earnings from and investments in any subsidiary that is a Non-Guarantor. Amounts due from the Non-Guarantors are disclosed separately.


	May 2,		February 1,
	2020		2020
Summarized Balance Sheet
Total current assets⁽¹⁾	$	1,021,978	$	665,523
Noncurrent assets⁽²⁾		1,258,212		1,477,131

Total current liabilities	$	2,055,800	$	534,765
Noncurrent liabilities		697,433		1,832,218

(1)	Includes $57.6 million and $47.9 million as of May 2, 2020 and February 1, 2020, respectively, due from Non-Guarantors.

(2)	Includes $3.3 million and $3.6 million as of May 2, 2020 and February 1, 2020, respectively, due from Non-Guarantors.


	For the Three Months Ended May 2, 2020		For the Fiscal Year Ended February 1, 2020
Summarized Statement of Earnings
Net sales	$	271,359	$	2,680,327
Gross margin		28,940		1,087,152
Net (loss) earnings from continuing operations		(247,981)		2,770
Net loss	$	(247,981)	$	(104,873)

In addition, we rely on our subsidiaries to generate cash. Accordingly, repayment of our indebtedness, is dependent, to a certain extent, on the generation of cash flow by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Each of our subsidiaries are distinct legal entities and they do not have any obligation to pay amounts due on the Senior Notes or to make funds available for that purpose (other than the Subsidiary Guarantors in connection with their guarantees) or other obligations in the form of loans, distributions or otherwise. Other than as described herein, there are no material restrictions on transfers of cash to the Guarantors that may affect payment of amounts due under the Senior Notes.

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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 1, 2020 except for as noted below. As discussed in Note 1, there is substantial doubt about our ability to continue as a going concern within one year after these condensed consolidated financial statements are issued. As we have determined it is not probable that we will make the interest payment on our Senior Notes described in Note 1, all debt has been reclassified to current on the condensed consolidated balance sheets as of May 2, 2020. See Note 6 and “Liquidity and Financial Resources” for additional information.

In addition, in conjunction with the sale of the Joseph Abboud trademarks, we entered into a licensing agreement for the exclusive rights to sell and rent Joseph Abboud branded apparel and related merchandise in the U.S. and Canada. The licensing agreement has an initial term of five years and minimum contractual obligations for royalty payments over the initial term totaling $92.5 million.

Critical Accounting Policies and Estimates

The preparation of our condensed consolidated financial statements requires the appropriate application of accounting policies in accordance with generally accepted accounting principles. In many instances, this also requires management to make estimates and assumptions about future events that affect the amounts and disclosures included in our financial statements. We base our estimates on historical experience and various assumptions that we believe are reasonable under our current business model. However, because future events and conditions and their effects cannot be determined with certainty, actual results will differ from our estimates and such differences could be material to our financial statements. There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020 except as described below:

Goodwill and Other Indefinite-Lived Intangible Assets

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

●

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●

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 ~~investing activities~~changes in short-term interest rates and long-term yield as well as variances in the typical capital structure of ~~$6.8 million~~marketplace participants. The weighted-average cost of capital used to discount the cash flows for the ~~first three months~~interim goodwill impairment test was 10.0% for the Men’s Wearhouse reporting unit and 10.5% for the Moores reporting unit, which are 100 and 50 basis points, respectively, higher than the last annual test, reflecting the increasing uncertainty surrounding the current market as of ~~2018.~~result of COVID-19.

●

Selection of comparable companies within the industry. The ~~net change~~determination of ~~$28.4 million was primarily driven~~the market comparable involves a degree of judgment. Historically, for purposes of the market comparable approach, valuations were determined by ~~$17.7 million~~calculating average earnings multiples of ~~net proceeds~~relevant key drivers from a group of companies that are comparable to the ~~divestiture~~reporting unit being tested and applying those earnings multiples to the key drivers of ~~MW Cleaners~~the reporting unit. For the interim goodwill impairment test, based on our estimates of the future cash flows of the reporting units, we determined that revenue multiples should also be used for the market comparable approach. For the Men’s Wearhouse reporting unit, a revenue multiple of 0.2 and an ~~increase~~earnings multiple of 2.2 were used. For the Moores reporting unit, a revenue multiple of 0.2 was used. The decrease in ~~capital expenditures resulting from projects that shifted from fiscal 2018 to fiscal 2019.~~

~~Financing activities —~~ ~~Net cash used in financing activities was $15.0 million and $135.0 million for~~ the ~~first three months~~market multiples of ~~2019 and 2018, respectively. The $120.0 million decrease~~comparable companies within the industry also primarily reflects the impact of ~~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 May 4, 2019, the remaining balance available under the Board's authorization was $48.0 million. During the first three months of 2019COVID-19 and ~~2018, no shares were repurchased in open market transactions under the Board's authorization.~~

~~Dividends —~~ ~~Cash dividends paid were $9.6 million for the first three months of 2019 and 2018, respectively. During each~~an increasingly uncertain environment.

●

Reconciliation of the ~~quarters ended May 4, 2019 and May��5, 2018, 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~~total fair values of our ~~operations and~~reporting units to ~~repay~~ our ~~indebtedness. In addition,~~market capitalization. After completing an estimate of the fair value of each reporting unit, we ~~will use cash~~also compared the total fair value of all of our reporting units to ~~fund capital expenditures, income taxes, dividend payments, operating leases and various other commitments and obligations, as they arise.~~

~~During~~our market capitalization, including consideration of a control premium. As a result of the ~~first three months of 2019,~~significant sustained decline in our market capitalization, the implied control premium identified in this reconciliation process was not within a reasonable range.

In addition, during the first quarter of 2020, based on the impact of COVID-19 on the performance of the Jos. A. Bank brand, we determined that a triggering event occurred related to our Jos. A. Bank tradename, an indefinite-lived intangible asset. As a result, we completed an interim impairment test, which resulted in a non-cash impairment charge of $89.9 million. As of May 2, 2020, the book value of the Jos. A. Bank tradename is $23.3 million.

If events or circumstances change that would more likely than not reduce the fair value of our Jos. A. Bank tradename including store rationalization decisions (as described in Note 19), we may be required to record additional impairment charges, which could have a material effect on our results of operations and financial condition. The following table highlights the potential impairment charge related to changes in certain key assumptions used in determining the fair value of the Jos. A. Bank tradename, assuming all other assumptions remain constant:


	Potential
	Impairment
	Charges
	(Dollars in millions)
25 basis point decrease in the royalty rate	$	9.8
100 basis point increase in the discount rate	$	1.7
10% decrease in sales	$	2.0

Impairment of Long-Lived Assets—Long-lived assets, such as property and equipment, operating lease right-of-use assets and identifiable intangibles with finite useful lives, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Assets are grouped and evaluated for impairment at the lowest level of which there are identifiable cash flows, which is generally at a store level. Assets are reviewed using factors including, but not limited to, our future operating plans and projected cash flows. The determination of whether impairment has occurred is based on an estimate of undiscounted future cash flows directly related to the assets,

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compared to the carrying value of the assets. If the sum of the undiscounted future cash flows of the assets does not exceed the carrying value of the assets, full or partial impairment may exist. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset. See Note 16 to the condensed consolidated financial statements for additional information.

Fair value is determined using an income approach, which requires discounting the estimated future cash flows associated with the asset. Estimating future cash flows requires management to make assumptions and to apply judgment, including forecasting future sales, costs and useful lives of assets. Significant judgment is also involved in selecting the appropriate discount rate to be applied in determining the estimated fair value of an asset. Changes to our assumptions related to future performance, store rationalization decisions (as described in Note 19), market conditions and other economic factors (including the impact of COVID-19) can significantly impact our impairment evaluation and may result in future impairment charges, which could have a material effect on our results of operations and financial condition.

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.

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 6 and Note 17 of the notes to the condensed consolidated financial statements, we have undertaken steps to mitigate our exposure to changes in interest rates on our Term Loan. As of May 2, 2020, 80% of the variable interest rate under the Term Loan has been converted to a fixed rate. At May 2, 2020, the effect of one percentage point change in interest rates would result in an approximate $1.7 million change in annual interest expense on our Term Loan.

In addition, borrowings under our ABL Facility bear a floating rate of interest. As of May 2, 2020, the outstanding borrowings under the ABL Facility were $385.0 million. At May 2, 2020, the effect of a one percentage point change in interest rates would result in an approximate $3.9 million change in annual interest expense on our ABL borrowings.

ITEM 4 — CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

The Company's management, with the participation of the Company's principal executive officer ("CEO") and principal financial officer ("CFO"), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective to ensure information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

Changes in Internal Controls over Financial Reporting

There were no changes in the Company's internal control over financial reporting that occurred during the fiscal first quarter ended May 2, 2020 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 18 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 our Annual Report on Form 10-K for the fiscal year ended February 1, 2020. Many of the risk factors described in our most recent Annual Report on Form 10-K are, and will continue to be, exacerbated by the COVID-19 pandemic and any worsening of the economic environment and discretionary consumer spending. Otherwise, there has not been a material change to the risk factors set forth therein, except for the following discussion which supplements and/or update risk factors previously disclosed and should be considered in conjunction with the Risk Factors section in our Annual Report on Form 10-K for the fiscal year ended February 1, 2020:

We have determined that there is substantial doubt about our ability to continue as a going concern. Although we are evaluating several alternatives, it is likely that we will pursue a reorganization under applicable bankruptcy laws, possibly as soon as during the third quarter of fiscal 2020, which begins on August 2, 2020.

Like many other retailers, the novel coronavirus (“COVID-19”) has had a significant impact on our business and results of operations. We have considered the projected impact of COVID-19 on our cash flows and analyzed our future compliance with the financial covenants under our ABL Facility, including an additional discretionary reserve imposed against our borrowing base, as described in Note 19, and based on such projections and analysis, we will not remain in compliance with the fixed charge coverage ratio covenant under the ABL Facility beginning in the fourth quarter of fiscal 2020. If we violate this covenant and are unable to obtain an amendment or waiver from our lenders, we will be in default under the ABL Facility and our debt could be accelerated by the lenders under the ABL Facility. Because of cross-default provisions in the agreements and instruments governing our indebtedness, a default under the ABL Facility would result in a default under, and could result in the acceleration of, our other indebtedness unless we are able to obtain an amendment or waiver from our lenders.

In addition, we elected not to make the approximate $6.1 million interest payment due and payable on July 1, 2020, with respect to our Senior Notes and, as such, have entered into the 30-day grace period with respect to this interest payment. During the grace period, we may elect to pay the interest and thereby remain in compliance with the provisions of our Senior Notes. If an event of default under the indenture governing the Senior Notes occurs as a result of such non-payment, it would result in a cross-event of default under both the Company’s term loan facility and the ABL Facility unless we are able to obtain an amendment or waiver from our lenders. As of the date of this filing, we have determined it is not probable that we will make the approximate $6.1 million interest payment; however, we may decide to make the interest payment prior to expiration of the grace period.

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If our indebtedness is accelerated, we may not be able to repay our debt or borrow sufficient funds to refinance it. We may not be able to obtain new financing on commercially reasonable terms, on terms that are acceptable to us, or at all. If our debt is in default for any reason, our business, financial condition and results of operations could be materially and adversely affected.

Furthermore, over the last several months, both Standard & Poor’s Rating Service and Moody’s Investor Service have downgraded their credit ratings for the Company. These downgrades, and any future reductions in our credit ratings, could result in reduced access to the credit and capital markets. As a result of these actions, we believe our current ability to access the credit and capital market is significantly limited.

Doubts regarding our ability to continue as a going concern could have an adverse impact on our relationships with customers, vendors, suppliers, landlords, employees, and others, which in turn could materially adversely affect our business, results of operations and financial condition.

Doubts regarding our ability to continue as a going concern could result in the further loss of confidence by customers, vendors, suppliers, landlords, employees and others, which in turn could materially adversely affect our business, results of operations and financial condition. Concerns about our financial condition could adversely impact the payment terms we can obtain from some of our vendors and suppliers. Some landlords may refuse to lease sites to us or to renew existing store leases in light of the uncertainty regarding our ability to continue as a going concern. We depend on our ability to retain our key employees at all levels of our business and on our ability to attract new qualified personnel. If we are unable to retain our key employees and we do not succeed in attracting new qualified personnel as a result of the uncertainty regarding our ability to continue as a going concern, our business and results of operations could suffer. Doubts regarding our ability to continue as a going concern may adversely impact our customers’ perceptions of our business and our continued viability, which in turn could further negatively impact our revenues. Further declines in our revenues as a result of these perceptions or otherwise may have a material adverse impact our cash flows, results of operations and financial condition.

Our business continues to be adversely affected by the recent coronavirus outbreak.

As described in our most recent Annual Report on Form 10-K, the U.S. and other countries are experiencing a major global health pandemic related to COVID-19, which has adversely impacted, and will continue to adversely impact, our operations in a number of ways, including supply chain disruptions, temporary or permanent store closures, reduced traffic to our stores when they reopen, cancellations of large gatherings such as proms and weddings, and disruptions to our employees working at our stores, distribution centers and offices.

In addition to the risks described in our most recent Annual Report on Form 10-K, we note the following additional risks related to COVID-19:

●

As we ~~borrowed and repaid amounts under our ABL Facility with the maximum borrowing outstanding at any point in time totaling $100.0 million.~~

~~The Company has not yet finalized its outlook for capital expenditures for fiscal 2019 but continues~~begin to ~~expect a moderate increase in capital expenditures compared to fiscal 2018. Capital expenditures will include costs for store refreshes~~reopen stores and other ~~enhancements~~corporate facilities, we must develop and communicate new and/or modified health and safety procedures that comply with local, state and federal guidelines. These guidelines include, but are not limited to: testing, contact tracing, cleaning and disinfecting, training, social distancing, and travel restrictions. Further, we must ensure appropriate Personal Protective Equipment (“PPE”) and sanitation

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supplies are available, which will increase costs to our ~~store fleet, investments in technology,~~business. Failing to follow health & safety guidelines, including providing necessary PPE and ~~investment in other corporate assets.~~

~~Additionally, market conditions~~sanitation supplies, may ~~produce attractive opportunities for~~subject 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 Facilitieslegal, operational, reputational 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~~risks.

While we have taken measures to adhere to these health and safety procedures, the unpredictable nature of COVID-19 may result in unexpected outcomes. For example, whether there is a “second wave” or additional periods of increases in the number of COVID-19 cases in future periods may impact areas in which we operate. A future outbreak in our stores, distribution center, or corporate headquarters could result in temporary closure of these facilities. Inadequate response by us, perceived or otherwise, could impact our results of operations, our reputation, and/or our ability to retain and motivate our current employees.

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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 2, 2019.~~

~~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. 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 2, 2019.

~~Other Matters~~

● During ~~2018, the 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 ~~2019,~~2020, we ~~believe~~notified our vendors that due to the impact ~~has been immaterial to our results~~ of ~~operations. Additionally, on May 5, 2019, the U.S. announced the possibility~~COVID-19, we are extending payment terms by 90 days until further notice and additional extension of tariffs on other categories of U.S. imports from China that, if enacted, could have a more significant impact on our results of operations. To mitigate this risk, we have been reducing the penetration of Chinese-made direct-sourced product and also successfully completed negotiations with ourpayment terms for certain vendors ~~who have agreed to absorb the majority of any impact for production that remains in China.~~may be contemplated. As a result, ~~currently,~~ we ~~believe~~may experience business interruptions with vendors who refuse to provide goods and services until such payments have been made. These actions may subject us to legal, operational, reputational and financial risks.

●

During the first quarter of fiscal 2020, we suspended rent payments under our operating leases for April and May and negotiated rent deferrals for a majority of our stores, with repayment of such deferred amounts at later dates, beginning at the end of 2020 into 2021. There can be no assurance that ~~additional tariffs on goods imported from China would~~our landlords will agree to rent deferrals and we expect to continue to explore and take these and similar actions with respect to our landlords, which may subject us to legal, operational, reputational and financial risks.

●

Our ability to maintain our reputation is critical to our brands. Our reputation could be jeopardized if we fail to maintain high standards for merchandise quality and integrity and customer service. As a result of the temporary closure of our stores and the furlough/temporary layoff of employees, we were unable to provide our typical level of high quality customer service, which may result in decreased customer demand for our merchandise or customers switching to our competitors. Damage to our reputation or loss of consumer confidence in our brands may have a ~~minimal~~material impact on our results of operations, ~~for fiscal 2019.~~

~~ITEM 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~

~~Market risks relating~~as we all require additional time and resources to rebuild our ~~operations result primarily from changes in foreign currency exchange rates and changes in interest rates.~~reputation.

~~We are exposed to market risk associated with foreign currency exchange rate fluctuations as~~
● As a result of our ~~direct sourcing programs~~decision to furlough/temporarily layoff a significant portion of our employees across the organization and ~~our operations in foreign countries.  In connection with our direct sourcing programs,~~should the furlough/temporary layoff period continue for an extended period of time, it may become more difficult to ensure that employees return from furlough/temporary layoff, or that employees are willing to return to work for the Company. As a result, we may ~~enter into merchandise purchase commitments that are denominated~~experience disruptions in ~~a currency different from the functional currency~~our business operations including maintaining an effective structure 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 4 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 May 4, 2019, 80% of the variable interest rate under the New Term Loan has been converted to a fixed rate.  At 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 May 4, 2019, the outstanding borrowings under the ABL Facility were $48.5 million. At May 4, 2019, the effect of a one percentage point change
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~~in interest rates would result in an approximate $0.5 million change in annual interest expense on our ABL borrowings.~~
~~ITEM 4 — CONTROLS AND PROCEDURES~~
~~Evaluation of Disclosure Controls and Procedures~~
The Company's management, with the participation of the Company's principal executive officer ("CEO") and principal financial officer ("CFO"), evaluated the effectiveness of the Company's disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report.  Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company's disclosure controls and procedures were effective to ensure information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to the Company's management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.
~~Changes in Internal Controls over Financial Reporting~~
~~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~~reporting.

●

Our success depends upon the ~~fiscal first quarter ended May 4, 2019 that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.~~

~~PART II. OTHER INFORMATION~~

~~ITEM 1 — LEGAL PROCEEDINGS~~

~~For a description~~personal efforts and abilities of our ~~legal proceedings, see Note~~management team and other key employees, including our customer facing employees. The impact of COVID-19 on the retail sector and the Company’s overall performance impacts our ability to retain and motivate our current employees and attract talented new employees. Failure to attract and retain key employees may have a material adverse impact on our results of operations.

War, acts of terrorism, civil unrest, civil disobedience, public health crises, or weather catastrophes could have a material adverse effect on our business.

In the event of war, acts of terrorism or the threat of terrorist attacks, regional or national civil unrest or acts of civil disobedience, public health crises, or weather catastrophes, consumer spending could significantly decrease for a sustained period. In addition, the Company, local authorities, or shopping center management could close stores, distribution centers or corporate offices in response to any immediate safety or security concerns, public health concern or weather catastrophe such as hurricanes, floods, wildfires, earthquakes, or tornadoes. Similarly, war, acts of terrorism, threats of terrorist attacks, regional or national civil unrest or acts of civil disobedience, public health crises or a weather catastrophe could severely and adversely affect our stores, offices, distribution centers, or our entire supply chain.

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If we cannot meet the NYSE continued listing requirements, the NYSE may delist our common shares.

On July 22, 2020, we received written notice (the “Notice”) from the New York Stock Exchange (the “NYSE”) that we are no longer in compliance with the NYSE continued listing standards set forth in (i) Section 802.01B of the NYSE Listed Company Manual (the “Manual”), which prohibits the average global market capitalization of listed companies over a consecutive 30 trading-day period from being less than $50,000,000 at the same time stockholders’ equity is less than $50,000,000; and (ii) Section 802.01C of the Manual, which requires listed companies to maintain an average closing share price of at least $1.00 over a consecutive 30 trading-day period. As noted in the Notice, as of July 17, 2020, the 30 trading-day average closing price of our common shares was $0.97 per share, the 30 trading-day average global market capitalization was approximately $47.2 million and its last reported stockholders’ equity was approximately ($98.3) million as of February 1, 2020.

In accordance with Section 802.02 of the NYSE Listed Company Manual (the “Manual”), we have ten business days from receipt of the Notice to confirm to the NYSE receipt of the Notice and our intent to cure the deficiencies. Under NYSE rules, we may cure the deficiency and regain compliance during the 18-month period following receipt of the Notice. If we fail to regain compliance with Sections 802.01B and 802.01C during the cure period, its common stock will be subject to the NYSE’s suspension and delisting procedures.

No assurance can be given that we will be able to regain compliance with these requirements or maintain compliance with the other continued listing requirements set forth in the Manual. Failure to maintain our NYSE listing could negatively impact us and our stockholders by reducing the willingness of investors to hold our common stock because of the resulting decreased price, liquidity and trading of our common stock, limited availability of price quotations, and reduced news coverage. These developments may also require brokers trading in our common stock to adhere to more stringent rules and may limit our ability to raise capital by issuing additional shares in the future. Delisting may adversely impact the perception of our financial condition and cause reputational harm with investors and parties conducting business with us. In addition, the perceived decreased value of employee equity incentive awards may reduce their effectiveness in encouraging performance and retention.

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 beginning on the next page.

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EXHIBIT INDEX

Exhibit
Number

Exhibit Index

3.1

—

Statement of Designations of Series A Preferred Stock of Tailored Brands, Inc. (incorporated by reference from Exhibit 3.1 to the Company’s Current Report on Form 8-K filed with the Commission on April 7, 2020).

4.1

—

Statement of Designations of Series A Preferred Stock of Tailored Brands, Inc. (included as Exhibit 3.1).

4.2

—

Rights Agreement, dated as of March 30, 2020, between Tailored Brands, Inc. and American Stock Transfer & Trust Company, LLC, as rights agent (incorporated by reference from Exhibit 4.1 to the Company’s Current Report on Form 8-K filed with the Commission on March 31, 2020).

10.1

—

Tailored Brands, Inc. 2016 Long-Term Incentive Plan, as amended and restated (incorporated by reference to Appendix A to the Company’s proxy statement on Schedule 14A relating to the 2020 Annual Meeting of Shareholders of the ~~Notes~~Company filed with the Commission on May 14, 2020 (File No. 1-16097).

—

List of Guarantor Subsidiaries (filed herewith).

31.1

—

Certification of Periodic Report Pursuant to Section 302 of the ~~Condensed Consolidated~~Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith).

31.2

—

Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial ~~Statements~~Officer (filed herewith).

32.1

—

Certification of ~~this~~Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith). †

32.2

—

Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith). †

101.1

—

The following financial information from Tailored Brands, Inc.’s Quarterly Report on Form ~~10-Q.~~

~~ITEM 6 — EXHIBITS~~

~~Exhibits~~10-Q for the three months ended May 2, 2020 formatted in iXBRL (Inline eXtensible Business Reporting Language) and filed ~~with this quarterly report on Form 10-Q are incorporated herein by reference as set forth in~~electronically herewith: (i) the ~~Index to Exhibits on page 46.~~

~~Table~~Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of ~~Contents~~

~~EXHIBIT INDEX~~

Exhibit Number		~~Exhibit Index~~

~~10.1~~	—	Letter Agreement by and between Tailored Brands, Inc. and Dinesh S. Lathi dated 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 April 26, 2019).
~~10.2~~	—	Amendment No. 3 to ABL Facility, dated as of April 30, 2019, by and among the Company, and the other Co-Borrowers, the U.S. ABL Administrative Agent, the Canadian Administrative Agent and the ABL Lenders (filed herewith).
~~10.3~~	—	~~Amendment No. 2 to the Tailored Brands, Inc. 2016 Long-Term Incentive Plan, dated June 4, 2019 (filed herewith).~~
~~10.4~~	—	~~Form of Cash-Based Award Agreement, (for executives, including named executive officers) under the 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 Officer (filed herewith).~~
~~31.2~~	—	~~Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith).~~
~~32.1~~	—	~~Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith). †~~
~~32.2~~	—	~~Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith). †~~
~~101.1~~	—	The following financial information from Tailored Brands, Inc.’s Quarterly Report on Form 10‑Q for the three months ended 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;(Loss) Earnings; (iii) the Condensed Consolidated Statements of Comprehensive Loss; (iv) the Condensed Consolidated Statements of Shareholders’ (Deficit) Equity; (v) the Condensed Consolidated Statements of Cash Flows; and (vi) the Notes to Condensed Consolidated Financial Statements.
104	—	The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended May 2, 2020, formatted in Inline XBRL (included within Exhibit 101).

†

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: June 13, 2019~~	~~TAILORED BRANDS, INC.~~

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SIGNATURES

Dated: July 27, 2020
TAILORED BRANDS, INC.

By
/s/ JACK P. CALANDRA

Jack P. Calandra

Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer and Principal Accounting Officer)

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