Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended November 2, 2013 or

 

o         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

 

THE MEN’S WEARHOUSE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Texas

 

74-1790172

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

 

 

 

6380 Rogerdale

 

 

Houston, Texas

 

77072-1624

(Address of Principal Executive Offices)

 

(Zip Code)

 

(281) 776-7000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes x. No o.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes x. No o.

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer         x

 

Accelerated filer    o

 

 

 

Non-accelerated filer       o               (Do not check if a smaller reporting company)

 

Smaller reporting company o

 

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

 

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at December 2, 2013 was 47,465,192 excluding 23,052,987 shares classified as Treasury Stock.

 

 

 



Table of Contents

 

REPORT INDEX

 

Part and Item No.

 

Page No.

 

 

 

PART I — Financial Information

 

 

 

 

 

Item 1 — Condensed Consolidated Financial Statements

 

 

 

 

 

General Information

 

1

 

 

 

Condensed Consolidated Balance Sheets as of November 2, 2013 (unaudited), October 27, 2012 (unaudited) and February 2, 2013

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended November 2, 2013 (unaudited) and October 27, 2012 (unaudited)

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended November 2, 2013 (unaudited) and October 27, 2012 (unaudited)

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 2, 2013 (unaudited) and October 27, 2012 (unaudited)

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements (unaudited)

 

6

 

 

 

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

 

23

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

 

39

 

 

 

Item 4 — Controls and Procedures

 

39

 

 

 

PART II — Other Information

 

 

 

 

 

Item 1 — Legal Proceedings

 

40

 

 

 

Item 1A — Risk Factors

 

40

 

 

 

Item 2— Unregistered Sales of Equity Securities and Use of Proceeds

 

41

 

 

 

Item 6 — Exhibits

 

42

 

 

 

SIGNATURES

 

42

 



Table of Contents

 

Forward-Looking and Cautionary Statements

 

Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and press releases by the Company (as defined below) contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty.  These forward-looking statements may include, but are not limited to, references to sales, earnings, margins, costs, number and costs of store openings, future capital expenditures, acquisitions, demand for clothing, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various economic and business trends.  Forward-looking statements may be made by management orally or in writing, including, but not limited to, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and other sections of our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended.

 

Forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities; domestic and international economic activity and inflation; success, or lack thereof, in executing our internal operating plans and new store and new market expansion plans, including integration of acquisitions; performance issues with key suppliers; disruption in buying trends due to homeland security concerns; severe weather; foreign currency fluctuations; government export and import policies; aggressive advertising or marketing activities of competitors; and legal proceedings.  Future results will also be dependent upon our ability to continue to identify and complete successful expansions and penetrations into existing and new markets and our ability to integrate such expansions with our existing operations.  These statements also include financing assumptions about our offer to acquire Jos. A. Bank that may not be realized.  Refer to “Risk Factors” contained in Part I of our Annual Report on Form 10-K  for the year ended February 2, 2013 for a more complete discussion of these and other factors that might affect our performance and financial results.   These 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 are under no obligation (and expressly disclaim any such obligation) to update or revise any forward-looking statement that may be made from time to time, whether as a result of new information, future developments or otherwise.

 

PART I.  FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

GENERAL INFORMATION

 

The condensed consolidated financial statements herein include the accounts of The Men’s Wearhouse, Inc. and its subsidiaries 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 that 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 statement of the results for the three and nine months ended November 2, 2013 and October 27, 2012.

 

Our business historically has been seasonal in nature, and 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 for the year ended February 2, 2013 and the related notes thereto included in the Company’s Annual Report on Form 10-K for the year then ended filed with the SEC.

 

Unless the context otherwise requires, “Company”, “we”, “us” and “our” refer to The Men’s Wearhouse, Inc. and its subsidiaries.

 

1



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

 

 

 

November 2,
2013

 

October 27,
2012

 

February 2,
2013

 

 

 

(Unaudited)

 

(Unaudited)

 

 

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,764

 

$

138,016

 

$

156,063

 

Accounts receivable, net

 

80,180

 

82,966

 

63,010

 

Inventories

 

640,197

 

623,860

 

556,531

 

Other current assets

 

77,918

 

68,519

 

79,549

 

 

 

 

 

 

 

 

 

Total current assets

 

863,059

 

913,361

 

855,153

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

407,261

 

379,969

 

389,118

 

 

 

 

 

 

 

 

 

TUXEDO RENTAL PRODUCT, net

 

142,272

 

118,202

 

126,825

 

GOODWILL

 

128,597

 

88,473

 

87,835

 

INTANGIBLE ASSETS, net

 

60,325

 

31,992

 

32,442

 

OTHER ASSETS

 

4,937

 

4,431

 

4,974

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

1,606,451

 

$

1,536,428

 

$

1,496,347

 

 

 

 

 

 

 

 

 

LIABILITIES AND EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

165,596

 

$

170,549

 

$

123,983

 

Accrued expenses and other current liabilities

 

168,120

 

149,244

 

164,344

 

Income taxes payable

 

10,034

 

4,939

 

5,856

 

Current maturities of long-term debt

 

10,000

 

 

 

 

 

 

 

 

 

 

 

Total current liabilities

 

353,750

 

324,732

 

294,183

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT

 

90,000

 

 

 

DEFERRED TAXES AND OTHER LIABILITIES

 

104,950

 

92,057

 

92,929

 

 

 

 

 

 

 

 

 

Total liabilities

 

548,700

 

416,789

 

387,112

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (Note 4 and Note 15)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

704

 

725

 

725

 

Capital in excess of par

 

404,506

 

380,099

 

386,254

 

Retained earnings

 

1,177,945

 

1,202,922

 

1,190,246

 

Accumulated other comprehensive income

 

31,060

 

40,735

 

36,924

 

Treasury stock, at cost

 

(569,792

)

(517,894

)

(517,894

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

1,044,423

 

1,106,587

 

1,096,255

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

13,328

 

13,052

 

12,980

 

 

 

 

 

 

 

 

 

Total equity

 

1,057,751

 

1,119,639

 

1,109,235

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND EQUITY

 

$

1,606,451

 

$

1,536,428

 

$

1,496,347

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

November 2,
2013

 

October 27,
2012

 

November 2,
2013

 

October 27,
2012

 

Net sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

$

415,985

 

$

401,692

 

$

1,248,405

 

$

1,235,185

 

Tuxedo rental services

 

122,177

 

124,648

 

368,360

 

357,261

 

Alteration and other services

 

37,363

 

37,701

 

112,381

 

112,975

 

Total retail sales

 

575,525

 

564,041

 

1,729,146

 

1,705,421

 

Corporate apparel clothing product sales

 

73,365

 

66,933

 

183,535

 

174,429

 

Total net sales

 

648,890

 

630,974

 

1,912,681

 

1,879,850

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

181,442

 

176,501

 

544,503

 

549,145

 

Tuxedo rental services

 

19,313

 

16,497

 

56,389

 

48,745

 

Alteration and other services

 

28,412

 

28,003

 

85,756

 

83,706

 

Occupancy costs

 

73,456

 

71,198

 

217,521

 

209,263

 

Total retail cost of sales

 

302,623

 

292,199

 

904,169

 

890,859

 

Corporate apparel clothing product cost of sales

 

52,765

 

48,078

 

128,296

 

123,988

 

Total cost of sales

 

355,388

 

340,277

 

1,032,465

 

1,014,847

 

 

 

 

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

234,543

 

225,191

 

703,902

 

686,040

 

Tuxedo rental services

 

102,864

 

108,151

 

311,971

 

308,516

 

Alteration and other services

 

8,951

 

9,698

 

26,625

 

29,269

 

Occupancy costs

 

(73,456

)

(71,198

)

(217,521

)

(209,263

)

Total retail gross margin

 

272,902

 

271,842

 

824,977

 

814,562

 

Corporate apparel clothing product gross margin

 

20,600

 

18,855

 

55,239

 

50,441

 

Total gross margin

 

293,502

 

290,697

 

880,216

 

865,003

 

 

 

 

 

 

 

 

 

 

 

Goodwill impairment charge

 

 

 

9,501

 

 

Selling, general and administrative expenses

 

233,497

 

218,188

 

691,369

 

659,957

 

Operating income

 

60,005

 

72,509

 

179,346

 

205,046

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

30

 

166

 

332

 

437

 

Interest expense

 

(1,220

)

(302

)

(2,104

)

(1,243

)

Earnings before income taxes

 

58,815

 

72,373

 

177,574

 

204,240

 

Provision for income taxes

 

20,337

 

23,304

 

63,162

 

69,021

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

38,478

 

49,069

 

114,412

 

135,219

 

Net earnings attributable to non-controlling interest

 

(274

)

(226

)

(174

)

(99

)

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

 

$

38,204

 

$

48,843

 

$

114,238

 

$

135,120

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share attributable to common shareholders (Note 2):

 

 

 

 

 

 

 

 

 

Basic

 

$

0.80

 

$

0.95

 

$

2.30

 

$

2.63

 

Diluted

 

$

0.79

 

$

0.95

 

$

2.29

 

$

2.62

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding (Note 2):

 

 

 

 

 

 

 

 

 

Basic

 

47,536

 

50,699

 

49,329

 

50,781

 

Diluted

 

47,873

 

50,919

 

49,598

 

51,029

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

$

0.54

 

$

0.54

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

November 2,
2013

 

October 27,
2012

 

November 2,
2013

 

October 27,
2012

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

$

38,478

 

$

49,069

 

$

114,412

 

$

135,219

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments, net of tax

 

5,843

 

4,727

 

(5,192

)

4,108

 

 

 

 

 

 

 

 

 

 

 

Unrealized loss on cash flow hedge, net of tax

 

(498

)

 

(498

)

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income including non-controlling interest

 

43,823

 

53,796

 

108,722

 

139,327

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to non-controlling interest:

 

 

 

 

 

 

 

 

 

Net earnings

 

(274

)

(226

)

(174

)

(99

)

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments, net of tax

 

(519

)

(294

)

(174

)

(294

)

 

 

 

 

 

 

 

 

 

 

Amounts attributable to non-controlling interest

 

(793

)

(520

)

(348

)

(393

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

43,030

 

$

53,276

 

$

108,374

 

$

138,934

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Nine Months Ended

 

 

 

November 2,
2013

 

October 27,
2012

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including non-controlling interest

 

$

114,412

 

$

135,219

 

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

 

 

 

 

 

Depreciation and amortization

 

65,672

 

61,798

 

Tuxedo rental product amortization

 

28,712

 

25,330

 

(Gain) loss on disposition of assets

 

(992

)

1,853

 

Goodwill impairment charge

 

9,501

 

 

Asset impairment charges

 

182

 

314

 

Share-based compensation

 

12,718

 

12,172

 

Excess tax benefits from share-based plans

 

(1,532

)

(2,737

)

Deferred tax provision

 

285

 

6,677

 

Deferred rent expense and other

 

2,331

 

60

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(3,658

)

(25,027

)

Inventories

 

(79,344

)

(49,278

)

Tuxedo rental product

 

(45,101

)

(43,666

)

Other assets

 

7,791

 

(2,906

)

Accounts payable, accrued expenses and other current liabilities

 

42,887

 

40,407

 

Income taxes payable

 

5,139

 

3,510

 

Other liabilities

 

380

 

2,783

 

 

 

 

 

 

 

Net cash provided by operating activities

 

159,383

 

166,509

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(81,521

)

(90,085

)

Acquisition of business, net of cash

 

(95,693

)

 

Proceeds from sales of property and equipment

 

4,127

 

25

 

 

 

 

 

 

 

Net cash used in investing activities

 

(173,087

)

(90,060

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of common stock

 

8,291

 

6,918

 

Proceeds from term loan

 

100,000

 

 

Cash dividends paid

 

(26,979

)

(27,832

)

Deferred financing costs

 

(1,776

)

 

Tax payments related to vested deferred stock units

 

(3,865

)

(4,421

)

Excess tax benefits from share-based plans

 

1,532

 

2,737

 

Repurchases of common stock

 

(152,129

)

(41,296

)

 

 

 

 

 

 

Net cash used in financing activities

 

(74,926

)

(63,894

)

 

 

 

 

 

 

Effect of exchange rate changes

 

(2,669

)

155

 

 

 

 

 

 

 

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(91,299

)

12,710

 

Balance at beginning of period

 

156,063

 

125,306

 

 

 

 

 

 

 

Balance at end of period

 

$

64,764

 

$

138,016

 

 

See Notes to Condensed Consolidated Financial Statements.

 

5



Table of Contents

 

THE MEN’S WEARHOUSE, 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 The Men’s Wearhouse, 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 that 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.  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, 2013.

 

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts and related disclosures.  Actual amounts could differ from those estimates.

 

On August 6, 2013, we acquired JA Holding, Inc. (“JA Holding”), the parent company of the American clothing brand Joseph Abboud® and a U.S. tailored clothing factory.  Based on the manner in which we manage, evaluate and internally report our operations, we determined that JA Holding is a component of our Men’s Wearhouse brand and therefore has been included in our retail reportable segment.  See Notes 3 and 14 for additional details on our acquisition and segments.

 

Recent Accounting Pronouncements — We have considered all new accounting pronouncements and have concluded that there are no new pronouncements that may have a material impact on our results of operations, financial condition, or cash flows, based on current information.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2.  Earnings per Share

 

Basic earnings per common share attributable to common shareholders is determined using the two-class method and is computed by dividing net earnings attributable to common shareholders by the weighted-average common shares outstanding during the period.  Diluted earnings per common share attributable to common shareholders reflects the more dilutive earnings per common share amount calculated using the treasury stock method or the two-class method.

 

The following table sets forth the computation of basic and diluted earnings per common share attributable to common shareholders (in thousands, except per share amounts). Basic and diluted earnings per common share attributable to common shareholders are computed using the actual net earnings available to common shareholders and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our condensed consolidated statement of earnings and the accompanying notes.  As a result, it may not be possible to recalculate earnings per common share attributable to common shareholders in our condensed consolidated statement of earnings and the accompanying notes.

 

 

 

For the Three Months
Ended

 

For the Nine Months
Ended

 

 

 

November 2,
 2013

 

October 27,
 2012

 

November 2,
2013

 

October 27,
2012

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

38,204

 

$

48,843

 

$

114,238

 

$

135,120

 

Net earnings allocated to participating securities (restricted stock and deferred stock units)

 

(181

)

(541

)

(659

)

(1,649

)

Net earnings attributable to common shareholders

 

$

38,023

 

$

48,302

 

$

113,579

 

$

133,471

 

Denominator

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

47,536

 

50,699

 

49,329

 

50,781

 

Effect of dilutive securities:

 

 

 

 

 

 

 

 

 

Stock options and equity-based compensation

 

337

 

220

 

269

 

248

 

Diluted weighted-average common shares outstanding

 

47,873

 

50,919

 

49,598

 

51,029

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.80

 

$

0.95

 

$

2.30

 

$

2.63

 

Diluted

 

$

0.79

 

$

0.95

 

$

2.29

 

$

2.62

 

 

For the three and nine months ended November 2, 2013, 0.2 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.  For the three and nine months ended October 27, 2012, 0.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share for each period, respectively.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.  Acquisition

 

On August 6, 2013, we acquired all of the outstanding common stock of JA Holding, the parent company of the American clothing brand Joseph Abboud® and a U.S. tailored clothing factory, for approximately $97.5 million in cash consideration, subject to certain adjustments.  The total net cash consideration after these adjustments was approximately $95.7 million.  We believe this transaction will accelerate our strategy of offering exclusive brands with broad appeal at attractive prices.  The cash paid at closing was funded by $100.0 million borrowed under the term loan provision of our Credit Agreement (see Note 4).

 

The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the JA Holding acquisition as of August 6, 2013.  The preliminary estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, which may result in adjustments to the preliminary values presented below, when management’s appraisals and estimates are finalized.

 

($ in millions)

 

 

 

Accounts receivable

 

$

12.8

 

Inventories

 

6.1

 

Other assets

 

2.0

 

Property and equipment

 

7.7

 

Goodwill

 

51.1

 

Tradename

 

30.0

 

Accounts payable, accrued expenses and other current liabilities

 

(7.2

)

Other liabilities

 

(6.8

)

 

 

 

 

Total purchase price

 

$

95.7

 

 

Goodwill is calculated as the excess of the purchase price over the net assets acquired.  All of the goodwill has been assigned to our retail reportable segment and is non-deductible for tax purposes.  Acquired intangible assets consist of the Joseph Abboud tradename which is not subject to amortization but will be evaluated at least annually for impairment.

 

The results of operations for JA Holding are included in the condensed consolidated statements of earnings beginning on August 6, 2013.  The impact of the acquisition on our results of operations, as if the acquisition had been completed as of the beginning of the periods presented, is not significant.

 

4.  Debt

 

On April 12, 2013, we entered into a Third Amended and Restated Credit Agreement (the “Credit Agreement”), with a group of banks to amend and restate our existing credit facility, which provided us with a revolving credit facility that was scheduled to mature on January 26, 2016.

 

On August 6, 2013, we borrowed $100.0 million under the term loan (the “Term Loan”) provision of our Credit Agreement which will be repaid over five years, with 10% payable annually in quarterly installments and the remainder due at maturity.  The interest rate on the Term Loan is based on the monthly LIBOR rate plus 1.75%.  In conjunction with the Term Loan, we also entered into an interest rate swap for $100.0 million, in which the variable rate payments due under the Term Loan were exchanged for a fixed rate of 1.27%, resulting in a combined interest rate of 3.02%.  See Note 13 for additional details on the interest rate swap.

 

The Credit Agreement provides for a total senior revolving credit facility of $300.0 million, with possible future increases to $450.0 million under an expansion feature, which matures on April 12, 2018.  The Credit Agreement is secured by the stock of certain of our subsidiaries.  The Credit Agreement has several borrowing and interest rate options including the following indices:  (i) adjusted LIBO rate, (ii) adjusted EURIBO rate, (iii) CDOR rate, (iv) Canadian prime rate or (v) an alternate base rate (equal to the greater of the prime rate, the federal funds rate plus 0.5% or the adjusted LIBO rate for a one-month period plus 1.0%).  Advances under the Credit Agreement bear interest at a rate per annum using the applicable indices plus a

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

varying interest rate margin of up to 2.50%.  The Credit Agreement also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.75% to 2.50%, and a fee on unused commitments which ranges from 0.35% to 0.50%.  As of November 2, 2013, there were no borrowings outstanding under the senior revolving credit facility.

 

The Credit Agreement contains certain restrictive and financial covenants, including the requirement to maintain certain financial ratios.  The restrictive provisions in the Credit Agreement reflect an overall covenant structure that is generally representative of a commercial loan made to an investment-grade company.  Our debt, however, is not rated and we have not sought, and are not seeking, a rating of our debt.  We were in compliance with the covenants in the Credit Agreement as of November 2, 2013.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers’ compensation claims.  At November 2, 2013, letters of credit totaling approximately $22.6 million were issued and outstanding.   Borrowings available under our Credit Agreement at November 2, 2013 were $277.4 million.

 

5.  Supplemental Cash Flows

 

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

 

 

 

For the Nine Months Ended

 

 

 

November 2,
2013

 

October 27,
2012

 

Cash paid for:

 

 

 

 

 

Interest

 

$

1,300

 

$

934

 

Income taxes, net

 

$

50,505

 

$

59,230

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Additional capital in excess of par resulting from tax benefit related to share-based plans

 

$

1,026

 

$

2,676

 

Cash dividends declared

 

$

8,847

 

$

9,240

 

 

We had unpaid capital expenditure purchases included in accounts payable, accrued expenses and other current liabilities of approximately $10.8 million and $13.2 million at November 2, 2013 and October 27, 2012, 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.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6.  Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes and Other Liabilities

 

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

 

 

 

November 2,
 2013

 

October 27,
 2012

 

February 2,
 2013

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

34,600

 

$

33,660

 

$

35,403

 

Current deferred tax assets

 

31,726

 

23,769

 

26,607

 

Tax receivable

 

833

 

1,834

 

8,040

 

Other

 

10,759

 

9,256

 

9,499

 

 

 

 

 

 

 

 

 

Total other current assets

 

$

77,918

 

$

68,519

 

$

79,549

 

 

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

 

 

 

November 2,
 2013

 

October 27,
 2012

 

February 2,
 2013

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

48,488

 

$

42,276

 

$

55,555

 

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

 

23,553

 

23,331

 

23,801

 

Accrued workers compensation and medical costs

 

22,570

 

18,714

 

19,146

 

Customer deposits, prepayments and refunds payable

 

18,897

 

19,060

 

20,276

 

Unredeemed gift certificates

 

12,633

 

12,210

 

15,535

 

Cash dividends declared

 

8,847

 

9,240

 

9,260

 

Accrued royalties

 

8,069

 

5,559

 

1,890

 

Loyalty program reward certificates

 

7,552

 

7,856

 

6,930

 

Other

 

17,511

 

10,998

 

11,951

 

 

 

 

 

 

 

 

 

Total accrued expenses and other current liabilities

 

$

168,120

 

$

149,244

 

$

164,344

 

 

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

 

 

 

November 2,
 2013

 

October 27,
 2012

 

February 2,
 2013

 

Deferred rent and landlord incentives

 

$

55,172

 

$

51,477

 

$

52,814

 

Non-current deferred and other income tax liabilities

 

47,867

 

36,498

 

38,810

 

Other

 

1,911

 

4,082

 

1,305

 

 

 

 

 

 

 

 

 

Total deferred taxes and other liabilities

 

$

104,950

 

$

92,057

 

$

92,929

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7.  Equity and Non-Controlling Interest

 

On October 9, 2013, the Board of Directors (the “Board”) declared a dividend of one preferred share purchase right (a “Right”) for each outstanding share of our common stock.  The dividend was payable on October 21, 2013 (the “Record Date”) to shareholders of record as of the close of business on that date.  Each Right entitles the registered holder to purchase from the Company one one-thousandth of a share of Series A Junior Participating Preferred Stock, par value $0.01 per share (the “Preferred Shares”), of the Company at a price of $160.00 per one-thousandth of a Preferred Share, subject to adjustment.  The description and terms of the Rights are set forth in a Rights Agreement (the “Rights Agreement”) dated as of October 10, 2013, between the Company and American Stock Transfer & Trust Company, LLC, as Rights Agent (the “Rights Agent”).  The Rights become exercisable in the event any person or group acquires 10% (or 15% in the case of a passive institutional investor) or more of our common stock or following the commencement of, or announcement of an intention to make, a tender offer or exchange offer of the Company’s common stock, and until such time are inseparable from and trade with the Company’s common stock.  The Rights Agreement expires on September 30, 2014 unless the Rights are earlier redeemed or exchanged by the Company.

 

A reconciliation of the total carrying amount of our equity accounts for the nine months ended November 2, 2013 is as follows (in thousands):

 

 

 

Common
Stock

 

Capital
in Excess
of Par

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income

 

Treasury
Stock, at
Cost

 

Total Equity
Attributable to
Common
Shareholders

 

Non-
Controlling

Interest

 

Total Equity

 

BALANCES — February 2, 2013

 

$

725

 

$

386,254

 

$

1,190,246

 

$

36,924

 

$

(517,894

)

$

1,096,255

 

$

12,980

 

$

1,109,235

 

Net earnings

 

 

 

114,238

 

 

 

114,238

 

174

 

114,412

 

Other comprehensive (loss) income

 

 

 

 

(5,864

)

 

(5,864

)

174

 

(5,690

)

Cash dividends

 

 

 

(26,566

)

 

 

(26,566

)

 

(26,566

)

Share-based compensation

 

 

12,718

 

 

 

 

12,718

 

 

12,718

 

Common stock issued under share-based award plans and to stock discount plan

 

6

 

8,285

 

 

 

 

8,291

 

 

8,291

 

Tax payments related to vested deferred stock units

 

 

(3,865

)

 

 

 

(3,865

)

 

(3,865

)

Tax benefit related to share-based plans

 

 

1,026

 

 

 

 

1,026

 

 

1,026

 

Treasury stock reissued

 

 

88

 

 

 

231

 

319

 

 

319

 

Repurchases of common stock

 

(27

)

 

(99,973

)

 

(52,129

)

(152,129

)

 

(152,129

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES — November 2, 2013

 

$

704

 

$

404,506

 

$

1,177,945

 

$

31,060

 

$

(569,792

)

$

1,044,423

 

$

13,328

 

$

1,057,751

 

 

A reconciliation of the total carrying amount of our equity accounts for the nine months ended October 27, 2012 is as follows (in thousands):

 

 

 

Common
Stock

 

Capital
in Excess
of Par

 

Retained
Earnings

 

Accumulated
Other
Comprehensive
Income

 

Treasury
Stock, at
Cost

 

Total Equity
Attributable to
Common
Shareholders

 

Non-
Controlling

 Interest

 

Total Equity

 

BALANCES — January 28, 2012

 

$

718

 

$

362,735

 

$

1,095,535

 

$

36,921

 

$

(476,749

)

$

1,019,160

 

$

12,659

 

$

1,031,819

 

Net earnings

 

 

 

135,120

 

 

 

135,120

 

99

 

135,219

 

Other comprehensive income

 

 

 

 

3,814

 

 

3,814

 

294

 

4,108

 

Cash dividends

 

 

 

(27,733

)

 

 

(27,733

)

 

(27,733

)

Share-based compensation

 

 

12,172

 

 

 

 

12,172

 

 

12,172

 

Common stock issued under share-based award plans and to stock discount plan

 

7

 

6,911

 

 

 

 

6,918

 

 

6,918

 

Tax payments related to vested deferred stock units

 

 

(4,421

)

 

 

 

(4,421

)

 

(4,421

)

Tax benefit related to share-based plans

 

 

2,676

 

 

 

 

2,676

 

 

2,676

 

Treasury stock reissued

 

 

26

 

 

 

151

 

177

 

 

177

 

Repurchases of common stock

 

 

 

 

 

(41,296

)

(41,296

)

 

(41,296

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCES — October 27, 2012

 

$

725

 

$

380,099

 

$

1,202,922

 

$

40,735

 

$

(517,894

)

$

1,106,587

 

$

13,052

 

$

1,119,639

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.  Accumulated Other Comprehensive Income

 

The following table summarizes the components of accumulated other comprehensive income for the nine months ended November 2, 2013 (in thousands and net of tax):

 

 

 

Foreign
Currency
Translation

 

Interest Rate
Swap

 

Total

 

BALANCE — February 2, 2013

 

$

36,924

 

$

 

$

36,924

 

 

 

 

 

 

 

 

 

Other comprehensive loss before reclassifications

 

(5,192

)

(498

)

(5,690

)

Other comprehensive income attributable to non-controlling interest

 

(174

)

 

(174

)

Amounts reclassified from accumulated other comprehensive income

 

 

 

 

Net current-period other comprehensive loss

 

(5,366

)

(498

)

(5,864

)

 

 

 

 

 

 

 

 

BALANCE — November 2, 2013

 

$

31,558

 

$

(498

)

$

31,060

 

 

9.  Share Repurchases and Reissuances

 

In March 2013, the Board approved a $200.0 million share repurchase program for our common stock.  This approval amended and replaced our existing $150.0 million share repurchase program authorized by the Board in January 2011, which had a remaining authorization of $45.2 million at the time of amendment.

 

In July 2013, we entered into an accelerated share repurchase agreement (“ASR Agreement”) with J.P. Morgan Securities LLC (“JPMorgan”), as agent for JPMorgan Chase Bank, National Association, London Branch, to purchase $100.0 million of our common stock.  In July, we paid $100.0 million to JPMorgan and received an initial delivery of 2,197,518 shares.  The value of the initial shares received was approximately $85.0 million, reflecting a $38.68 price per share which was recorded as a retirement of the shares for purposes of calculating earnings per share at that time.  In September 2013, JPMorgan delivered an additional 455,769 shares valued at approximately $15.0 million, reflecting a $32.91 price per share which was recorded as a retirement of the shares for purposes of calculating earnings per share and reduced our shares outstanding as of November 2, 2013.

 

In addition to the ASR Agreement, during the first nine months of fiscal 2013, 1,489,318 shares at a cost of $52.0 million were repurchased in open market transactions at an average price per share of $34.89 under the Board’s March 2013 authorization.  At November 2, 2013, the remaining balance available under the Board’s March 2013 authorization was $48.0 million.

 

During the first nine months of fiscal 2012, 1,121,484 shares at a cost of $41.0 million were repurchased at an average price per share of $36.59 under the January 2011 authorization.

 

During the nine months ended November 2, 2013 and October 27, 2012, 5,378 shares and 7,041 shares, respectively, at a cost of $0.2 million and $0.3 million, respectively, were repurchased at an average price per share of $30.03 and $37.28, respectively, in private transactions to satisfy tax withholding obligations arising upon the vesting of certain restricted stock.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table summarizes our total common stock repurchases (in thousands, except share data and average price per share):

 

 

 

For the Nine Months Ended

 

 

 

November 2,
2013

 

October 27,
2012

 

 

 

 

 

 

 

Shares repurchased

 

4,147,983

 

1,128,525

 

Total costs

 

$

152,129

 

$

41,296

 

Average price per share

 

$

36.68

 

$

36.59

 

 

For the nine months ended November 2, 2013 and October 27, 2012, 9,482 treasury shares and 6,295 treasury shares, respectively, of our common stock were reissued pursuant to a two-year services agreement with an unrelated third party.  The fair value of the common stock issued during the nine months ended November 2, 2013 and October 27, 2012 was approximately $0.3 million and $0.2 million, respectively.

 

10.  Share-Based Compensation Plans

 

For a discussion of our share-based compensation plans refer to Note 9 in our Annual Report on Form 10-K for the fiscal year ended February 2, 2013.

 

We account for share-based awards in accordance with the authoritative guidance regarding share-based payments, which requires the compensation cost resulting from all share-based payment transactions be recognized in the financial statements. The amount of compensation cost is measured based on the grant-date fair value of the instrument issued and is recognized over the vesting period.  Share-based compensation expense recognized for the three and nine months ended November 2, 2013 was $3.6 million and $12.7 million, respectively.  Share-based compensation expense recognized for the three and nine months ended October 27, 2012 was $3.9 million and $12.2 million, respectively.

 

Non-Vested Deferred Stock Units and Restricted Stock Shares

 

The following table summarizes the activity of time-based and performance-based deferred stock units for the nine months ended November 2, 2013:

 

 

 

Shares

 

Weighted-Average
Grant-Date
 Fair Value

 

 

 

Time-
Based

 

Performance-
Based

 

Time-
Based

 

Performance-
Based

 

Non-Vested at February 2, 2013

 

471,369

 

 

$

36.22

 

$

 

Granted

 

455,448

 

97,668

 

33.10

 

33.09

 

Vested (1)

 

(325,763

)

 

38.19

 

 

Forfeited

 

(26,883

)

(15,110

)

32.58

 

33.09

 

Non-Vested at November 2, 2013

 

574,171

 

82,558

 

$

32.81

 

$

33.09

 

 


(1) Includes 110,740 shares relinquished for tax payments related to vested deferred stock units for the nine months ended November 2, 2013.

 

On April 3, 2013, our Board approved a change in the form of award agreements to be issued for grants of deferred stock units (“DSUs”) to participants under our 2004 Long-Term Incentive Plan.  As revised, the award agreements provide that dividend equivalents, if any, will be accrued during the vesting period for such DSU awards and paid out only upon vesting of the underlying DSUs.  As such, grants of DSU awards on or after April 3, 2013 earn dividends throughout the vesting period which are subject to the same vesting terms as the underlying share award.  Grants of DSUs generally vest over a period of from one to three years.  DSU awards granted prior to April 3, 2013 are entitled to receive non-forfeitable dividend equivalents, if any, when and if paid to shareholders of record at the payment date.  Included in the non-vested time-based awards as of November 2, 2013 are 142,428 deferred stock units granted prior to April 3, 2013.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The performance-based DSUs represent a contingent right to receive one share of common stock and generally vest in one-third tranches over a three-year period, subject to our achievement of a performance target during an applicable performance period.  Any unvested performance-based DSUs at the end of the performance period are rolled over and become eligible to vest in subsequent performance periods.  Any performance-based DSUs that are unvested at the end of all vesting periods will lapse and be forfeited as of such time.  The performance-based DSUs earn dividends throughout the vesting period and are subject to the same vesting terms as the underlying performance-based awards.

 

The following table summarizes the activity of restricted stock for the nine months ended November 2, 2013:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-Vested at February 2, 2013

 

99,847

 

$

28.55

 

Granted

 

19,417

 

38.63

 

Vested

 

(37,369

)

29.77

 

Forfeited

 

 

 

Non-Vested at November 2, 2013

 

81,895

 

$

30.38

 

 

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

 

As of November 2, 2013, we have unrecognized compensation expense related to non-vested deferred stock units and shares of restricted stock of approximately $14.4 million, which is expected to be recognized over a weighted-average period of 1.3 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the nine months ended November 2, 2013:

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Outstanding at February 2, 2013

 

1,024,768

 

$

25.54

 

Granted

 

19,080

 

33.09

 

Exercised

 

(299,231

)

20.29

 

Forfeited

 

(25,012

)

19.58

 

Expired

 

(5

)

7.97

 

Outstanding at November 2, 2013

 

719,600

 

$

28.13

 

Exercisable at November 2, 2013

 

410,453

 

$

27.41

 

 

The weighted-average grant date fair value of the 19,080 stock options granted during the nine months ended November 2, 2013 was $13.10 per share.  The following table summarizes the weighted-average assumptions used to fair value stock options at the date of grant using the Black-Scholes option pricing model for the nine months ended November 2, 2013.

 

 

 

For the Nine
Months Ended

 

 

 

November 2,
2013

 

 

 

 

 

Risk-free interest rate

 

0.76%

 

Expected lives

 

5.0 years

 

Dividend yield

 

2.20%

 

Expected volatility

 

55.00%

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The assumptions presented in the table above represent the weighted-average of the applicable assumptions used to fair value stock options.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.  The expected lives represents the period of time the options are expected to be outstanding after their grant date.  The dividend yield is based on the average of the annual dividend divided by the market price of our common stock at the time of declaration.  Expected volatility is based on historical volatility of our common stock.

 

As of November 2, 2013, we have unrecognized compensation expense related to non-vested stock options of approximately $2.8 million which is expected to be recognized over a weighted-average period of 2.0 years.

 

Employee Stock Discount Plan

 

The Employee Stock Discount Plan (“ESDP”) allows employees to authorize after-tax payroll deductions to be used for the purchase of up to 2,137,500 shares of our common stock at 85% of the lesser of the fair market value on the first day of the offering period or the fair market value on the last day of the offering period.  We make no contributions to this plan but pay all brokerage, service and other costs incurred.  The plan, as amended, allows participants to purchase no more than 125 shares during any calendar quarter.

 

During the nine months ended November 2, 2013, employees purchased 80,043 shares under the ESDP, which had a weighted-average share price of $27.71 per share.  As of November 2, 2013, 768,405 shares were reserved for future issuance under the ESDP.

 

11.  Goodwill and Other Intangible Assets

 

Goodwill

 

Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the nine months ended November 2, 2013 are as follows (in thousands):

 

 

 

Retail

 

Corporate
Apparel

 

Total

 

Balance at February 2, 2013

 

$

59,995

 

$

27,840

 

$

87,835

 

Goodwill of acquired business

 

51,108

 

 

51,108

 

Impairment charge

 

(9,501

)

 

(9,501

)

Translation adjustment

 

(1,213

)

368

 

(845

)

Balance at November 2, 2013

 

$

100,389

 

$

28,208

 

$

128,597

 

 

The goodwill of acquired business resulted from our acquisition of JA Holding.  As indicated in Note 3, the preliminary estimates of the fair value of the identifiable assets acquired and liabilities assumed for the JA Holding acquisition are not yet final and are subject to revisions until management’s appraisals and estimates are finalized, including goodwill, which may result in adjustments to the preliminary values as reported for the retail reportable segment at November 2, 2013.

 

Goodwill is evaluated for impairment annually as of our fiscal year end.  A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred.  During the second quarter of fiscal 2013, based on estimates provided to us by market participants during our review of strategic alternatives for the K&G brand, we concluded that the carrying value of the K&G brand exceeded its fair value.  Based on further analysis, it was determined that the entire carrying value of K&G’s goodwill was impaired, resulting in a non-cash goodwill impairment charge of $9.5 million.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Intangible Assets

 

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

 

 

 

November 2,
2013

 

October 27,
2012

 

February 2,
2013

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

$

14,288

 

$

12,503

 

$

14,502

 

Customer relationships

 

32,543

 

32,893

 

32,098

 

Total carrying amount

 

46,831

 

45,396

 

46,600

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

(8,882

)

(8,518

)

(8,663

)

Customer relationships

 

(8,898

)

(6,173

)

(6,751

)

Total accumulated amortization

 

(17,780

)

(14,691

)

(15,414

)

Total amortizable intangible assets, net

 

29,051

 

30,705

 

31,186

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks and tradename

 

31,274

 

1,287

 

1,256

 

Total intangible assets, net

 

$

60,325

 

$

31,992

 

$

32,442

 

 

The increase in indefinite-lived intangible assets at November 2, 2013 relates to the Joseph Abboud tradename acquired in our acquisition of JA Holding.  See Note 3 for additional details.

 

The pretax amortization expense associated with intangible assets subject to amortization totaled approximately $0.8 million for the three months ended November 2, 2013 and October 27, 2012, respectively.  The pretax amortization expense associated with intangible assets subject to amortization totaled approximately $2.5 million and $2.4 million for the nine months ended November 2, 2013 and October 27, 2012, respectively, and approximately $3.3 million for the year ended February 2, 2013.  Pretax amortization associated with intangible assets subject to amortization at November 2, 2013 is estimated to be $0.9 million for the remainder of fiscal year 2013, $3.3 million for fiscal year 2014, $3.2 million for each of the fiscal years 2015 and 2016 and $3.1 million for fiscal year 2017.

 

12.  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.

 

There were no transfers into or out of Level 1 and Level 2 during the nine months ended November 2, 2013 or October 27, 2012, respectively, or during the year ended February 2, 2013.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

Fair Value Measurements at Reporting Date Using

 

 

 

(in thousands)

 

Quoted Prices
 in Active
Markets for
Identical
Instruments
(Level 1)

 

Significant
Other
Observable
Inputs
(Level 2)

 

Significant
Unobservable
Inputs
(Level 3)

 

Total

 

At November 2, 2013-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

1

 

$

 

$

1

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

944

 

$

 

$

944

 

 

 

 

 

 

 

 

 

 

 

At February 2, 2013-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,054

 

$

 

$

 

$

20,054

 

Derivative financial instruments

 

$

 

$

215

 

$

 

$

215

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

17

 

$

 

$

17

 

 

 

 

 

 

 

 

 

 

 

At October 27, 2012-

 

 

 

 

 

 

 

 

 

Assets:

 

 

 

 

 

 

 

 

 

Cash equivalents

 

$

20,044

 

$

 

$

 

$

20,044

 

Liabilities:

 

 

 

 

 

 

 

 

 

Derivative financial instruments

 

$

 

$

318

 

$

 

$

318

 

 

Cash equivalents consist of money market instruments that have original maturities of three months or less.  The carrying value of cash equivalents approximates fair value due to the highly liquid and short-term nature of these instruments.

 

Derivative financial instruments are comprised of (1) foreign currency forward exchange contracts primarily entered into to minimize our foreign currency exposure related to forecasted purchases of certain inventories denominated in a currency different from the operating entity’s functional currency and (2) an interest rate swap agreement to minimize our exposure to interest rate changes on our outstanding indebtedness.  These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs.  Derivative financial instruments in an asset position are included within other current assets in the condensed consolidated balance sheets.  Derivative financial instruments in a liability position are included within accrued expenses and other current liabilities or noncurrent liabilities in the condensed consolidated balance sheets.  Refer to Note 13 for further information regarding our derivative instruments.

 

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

 

Long-lived assets, such as property and equipment, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be 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.  The fair values of long-lived assets held-for-use are based on our own judgments about the assumptions that market participants would use in pricing the asset and on observable market data, when available.  We classify these measurements as Level 3 within the fair value hierarchy.  For the three and nine months ended November 2, 2013, we recorded charges for the impairment of long-lived assets of approximately $0.1 million and

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

$0.2 million, respectively, which are included within selling, general and administrative (“SG&A”) expenses in our condensed consolidated statement of earnings.  The asset impairment charges reduced the carrying amounts of the applicable long-lived assets, primarily leasehold improvements for certain Men’s Wearhouse and Tux and K&G stores, to their fair values as of November 2, 2013. For the three and nine months ended October 27, 2012, we recorded charges for the impairment of long-lived assets of $0.2 million and $0.3 million, respectively, which are included within SG&A expenses in our condensed consolidated statement of earnings.  The asset impairment charges reduced the carrying amounts of the applicable long-lived assets, primarily leasehold improvements for certain Men’s Wearhouse and Tux stores, to their fair values of zero as of October 27, 2012.

 

During the second quarter of fiscal 2013, we recorded a goodwill impairment charge related to our K&G brand totaling $9.5 million.  We estimated the fair value of the K&G brand based on estimates provided to us by market participants, which we classified as Level 2 within the fair value hierarchy.

 

Fair Value of Financial Instruments

 

Our financial instruments, other than those presented in the disclosures above, consist of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities.  Management estimates that, as of November 2, 2013, October 27, 2012, and February 2, 2013, the carrying value of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities approximate their fair value due to the highly liquid or short-term nature of these instruments.

 

13.  Derivative Financial Instruments

 

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 significant portion of forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts.  We have not elected to apply hedge accounting to these transactions denominated in a foreign currency.  These foreign currency derivative financial instruments are recorded in the condensed consolidated balance sheet at fair value determined by comparing the cost of the foreign currency to be purchased under the contracts using the exchange rates obtained under the contracts (adjusted for forward points) to the hypothetical cost using the spot rate at period end.

 

In addition, we are exposed to interest rate risk associated with our outstanding indebtedness.  In connection with this indebtedness, we entered into an interest rate swap in which the variable rate payments due under our Term Loan were exchanged for a fixed rate.  Our risk management policy is to hedge our exposure to fluctuations in interest rates using this swap agreement. The interest rate swap derivative financial instrument is recorded in the condensed consolidated balance sheet at fair value which approximates the amount at which the swap could be settled using projected future interest rates as provided by counterparties.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The tables below disclose the fair value of the derivative financial instruments included in the condensed consolidated balance sheets as of November 2, 2013, February 2, 2013 and October 27, 2012 (in thousands):

 

 

 

Asset Derivatives

 

Liability Derivatives

 

 

 

Balance Sheet
Location

 

Fair Value

 

Balance Sheet 
Location

 

Fair Value

 

Derivatives not designated as hedging instruments:

 

 

 

 

 

 

 

 

 

At November 2, 2013-Foreign exchange forward contracts

 

Other current assets

 

$

1

 

Accrued expenses and other current liabilities

 

$

128

 

 

 

 

 

 

 

 

 

 

 

At February 2, 2013-Foreign exchange forward contracts

 

Other current assets

 

$

215

 

Accrued expenses and other current liabilities

 

$

17

 

 

 

 

 

 

 

 

 

 

 

At October 27, 2012-Foreign exchange forward contracts

 

Other current assets

 

$

 

Accrued expenses and other current liabilities

 

$

318

 

Derivatives designated as hedging instruments:

 

 

 

 

 

 

 

 

 

At November 2, 2013-Interest rate swap

 

Other noncurrent assets

 

$

 

Other noncurrent liabilities

 

$

816

 

 

At November 2, 2013, we had six contracts to purchase Euros for an aggregate notional amount of US$0.1 million maturing in various increments at various dates through January 2014, one contract to purchase United States dollars (“USD”) for an aggregate notional amount of Canadian dollars (“CAD”) $0.1 million maturing in November 2013 and 72 contracts to purchase USD for an aggregate notional amount of pounds Sterling (“GBP”) £18.7 million maturing in various increments at various dates through April 2014.  For the three and nine months ended November 2, 2013, we recognized a net pre-tax loss of $0.7 million and a net pre-tax gain of $0.5 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

At February 2, 2013, we had four contracts maturing in varying increments to purchase Euros for an aggregate notional amount of US$1.2 million maturing at various dates through May 2013, 10 contracts maturing in varying increments to purchase USD for an aggregate notional amount of CAD $4.1 million maturing at various dates through May 2013 and 16 contracts maturing in varying increments to purchase USD for an aggregate notional amount of GBP £14.0 million maturing at various dates through June 2013.

 

At October 27, 2012, we had five contracts to purchase Euros for an aggregate notional amount of US$0.7 million maturing in various increments at various dates through January 2013, 10 contracts to purchase USD for an aggregate notional amount of CAD $4.6 million maturing in various increments at various dates through March 2013 and 15 contracts to purchase USD for an aggregate notional amount of GBP £10.9 million maturing in various increments at various dates through March 2013.  For the three and nine months ended October 27, 2012, we recognized a net pre-tax loss of $0.7 million and $0.9 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

In August 2013, we entered into a $100.0 million Term Loan due April 2018 with variable-rate interest payments (see Note 4).  To minimize the impact of changes in interest rates on our interest payments, in August 2013, we entered into an interest rate swap agreement with a financial institution to swap variable-rate interest payments for fixed-rate interest payments on a notional amount of $100.0 million.  The interest rate swap agreement matures in April 2018 and has periodic interest

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

settlements, both consistent with the terms of our Term Loan.  We have designated the interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark interest rate.

 

Under this agreement, the Company receives a floating rate based on the 1-month LIBOR rate and pays a fixed rate of 3.02% (including the applicable margin of 1.75%) on the outstanding notional amount.  The swap fixed rate was structured to mirror the payment terms of the Term Loan.  At November 2, 2013, the fair value of the interest rate swap was a liability of $0.8 million and was recorded in the Company’s condensed consolidated balance sheet within other noncurrent liabilities with the effective portion of the loss reported as a component of accumulated other comprehensive income.  There was no hedge ineffectiveness during the three months ended November 2, 2013.  Changes in fair value are reclassified from accumulated other comprehensive income into earnings in the same period that the hedged item affects earnings.  Over the next 12 months, approximately $1.0 million of the effective portion of the loss is expected to be reclassified from accumulated other comprehensive income into earnings.

 

If, at any time, the swap is determined to be ineffective, in whole or in part, due to changes in the interest rate swap or underlying debt agreements, the fair value of the portion of the swap determined to be ineffective will be recognized as a gain or loss in the statement of earnings for the applicable period.

 

We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of November 2, 2013, February 2, 2013 or October 27, 2012, respectively.

 

14.  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, Moores Clothing for Men (“Moores”) and K&G.  These four brands are operating segments that have been aggregated into the retail reportable segment based on their similar economic characteristics, products, production processes, target customers and distribution methods.  MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on our revenues or expenses.  Specialty apparel merchandise offered by our four retail merchandising concepts include suits, suit separates, sport coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories for men.  Ladies’ career apparel, sportswear and accessories, including shoes, and children’s apparel is offered at most of our K&G stores and tuxedo rentals are offered at our Men’s Wearhouse, Men’s Wearhouse and Tux and Moores retail stores.

 

On August 6, 2013, we acquired JA Holding, the parent company of the American clothing brand Joseph Abboud® and a U.S. tailored clothing factory.  Based on the manner in which we manage, evaluate and internally report our operations, we determined that JA Holding is a component of our Men’s Wearhouse brand and therefore has been included in our retail reportable segment.  See Note 3 for additional details on our acquisition.

 

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the United States (“U.S.”) and Dimensions, Alexandra and Yaffy in the United Kingdom (“UK”).  The two corporate apparel and uniform concepts are operating segments that have been aggregated into the reportable corporate apparel segment based on their similar economic characteristics, products, production processes, target customers and distribution methods.  The corporate apparel segment provides corporate clothing uniforms and workwear to workforces.

 

Operating income is the primary measure of profit we use to make decisions on allocating resources to our operating segments and to assess the operating performance of each operating segment.  It is defined as income before interest expense, interest income, income taxes and non-controlling interest.  Corporate expenses and assets are allocated to the retail segment.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Net sales by brand and reportable segment are as follows (in thousands):

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

November 2,
2013

 

October 27,
2012

 

November 2,
2013

 

October 27,
2012

 

Net sales:

 

 

 

 

 

 

 

 

 

MW (1)

 

$

427,625

 

$

407,403

 

$

1,256,057

 

$

1,208,384

 

Moores

 

67,467

 

72,316

 

195,782

 

206,155

 

K&G

 

72,785

 

77,316

 

254,985

 

270,403

 

MW Cleaners

 

7,648

 

7,006

 

22,322

 

20,479

 

Total retail segment

 

575,525

 

564,041

 

1,729,146

 

1,705,421

 

 

 

 

 

 

 

 

 

 

 

Twin Hill

 

11,263

 

8,371

 

29,199

 

21,654

 

Dimensions and Alexandra (UK)

 

62,102

 

58,562

 

154,336

 

152,775

 

Total corporate apparel segment

 

73,365

 

66,933

 

183,535

 

174,429

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

648,890

 

$

630,974

 

$

1,912,681

 

$

1,879,850

 

 


(1)  MW includes Men’s Wearhouse and Men’s Wearhouse and Tux stores and JA Holding.

 

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

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

November 2,
2013

 

October 27,
2012

 

November 2,
2013

 

October 27,
2012

 

Net sales:

 

 

 

 

 

 

 

 

 

Men’s tailored clothing product

 

$

229,895

 

$

225,428

 

$

691,218

 

$

683,372

 

Men’s non-tailored clothing product

 

168,271

 

158,313

 

499,349

 

491,037

 

Ladies’ clothing product

 

16,096

 

17,951

 

56,115

 

60,776

 

Other

 

1,723

 

 

1,723

 

 

 

 

 

 

 

 

 

 

 

 

Total retail clothing product

 

415,985

 

401,692

 

1,248,405

 

1,235,185

 

 

 

 

 

 

 

 

 

 

 

Tuxedo rental services

 

122,177

 

124,648