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 August 2, 2014 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 Road

 

 

Houston, Texas

 

77072-1624

(Address of Principal Executive Offices)

 

(Zip Code)

 

(281) 776-7000

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes 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 August 29, 2014 was 48,054,215 excluding 133,597 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 (unaudited)

 

 

 

 

 

Condensed Consolidated Balance Sheets as of August 2, 2014, August 3, 2013 and February 1, 2014

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Three and Six Months Ended August 2, 2014 and August 3, 2013

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended August 2, 2014 and August 3, 2013

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 2, 2014 and August 3, 2013

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

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

 

21

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

 

35

 

 

 

Item 4 — Controls and Procedures

 

35

 

 

 

PART II — Other Information

 

 

 

 

 

Item 1 — Legal Proceedings

 

36

 

 

 

Item 1A — Risk Factors

 

37

 

 

 

Item 6 — Exhibits

 

40

 

 

 

SIGNATURES

 

41

 



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, synergies, 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, such as Jos. A. Bank Clothiers, Inc.; 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 forward-looking statements are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control. The following factors, among others, could cause actual results to differ materially from those expressed or implied in the forward-looking statements: (1) the possibility that the expected benefits from the Jos. A. Bank transaction will not be realized within the anticipated time period, (2) the risks related to the costs and difficulties related to the integration of Jos. A. Bank’s business and operations with Men’s Wearhouse’s business and operations, (3) the inability to obtain, or delays in obtaining, cost savings and synergies from the transaction, (4) unexpected costs, charges or expenses resulting from the transaction, (5) litigation relating to the transaction, (6) the inability to retain key personnel and (7) the possible disruption that may be caused by the transaction to the business and operations of Men’s Wearhouse and its relationships with customers, employees and other third parties.

 

These forward-looking statements are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive uncertainties and contingencies and third party approvals, many of which are beyond our control.  Refer to “Risk Factors” contained in Part I of our Annual Report on Form 10-K for the year ended February 1, 2014 and elsewhere herein 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 undertake no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise.

 

1



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

August 2,
2014

 

August 3,
2013

 

February 1,
2014

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

67,235

 

$

32,488

 

$

59,252

 

Accounts receivable, net

 

89,195

 

56,083

 

63,153

 

Inventories

 

1,044,520

 

599,811

 

599,486

 

Other current assets

 

105,475

 

71,835

 

93,206

 

 

 

 

 

 

 

 

 

Total current assets

 

1,306,425

 

760,217

 

815,097

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

573,911

 

397,129

 

408,162

 

 

 

 

 

 

 

 

 

TUXEDO RENTAL PRODUCT, net

 

146,464

 

144,171

 

142,816

 

GOODWILL

 

874,955

 

76,510

 

126,003

 

INTANGIBLE ASSETS, net

 

676,861

 

30,022

 

58,027

 

OTHER ASSETS

 

45,983

 

6,485

 

5,125

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,624,599

 

$

1,414,534

 

$

1,555,230

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

214,766

 

$

136,629

 

$

148,762

 

Accrued expenses and other current liabilities

 

273,974

 

172,446

 

175,797

 

Income taxes payable

 

1,201

 

3,554

 

730

 

Current maturities of long-term debt

 

11,000

 

 

10,000

 

 

 

 

 

 

 

 

 

Total current liabilities

 

500,941

 

312,629

 

335,289

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT

 

1,678,196

 

 

87,500

 

DEFERRED TAXES AND OTHER LIABILITIES

 

393,413

 

86,836

 

109,292

 

 

 

 

 

 

 

 

 

Total liabilities

 

2,572,550

 

399,465

 

532,081

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

481

 

708

 

476

 

Capital in excess of par

 

423,169

 

382,519

 

412,043

 

Retained earnings

 

583,903

 

1,162,933

 

572,712

 

Accumulated other comprehensive income

 

33,380

 

26,234

 

27,311

 

Treasury stock, at cost

 

(3,303

)

(569,860

)

(3,407

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

1,037,630

 

1,002,534

 

1,009,135

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

14,419

 

12,535

 

14,014

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

1,052,049

 

1,015,069

 

1,023,149

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,624,599

 

$

1,414,534

 

$

1,555,230

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



Table of Contents

 

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 Six Months Ended

 

 

 

August 2,
2014

 

August 3,
2013

 

August 2,
2014

 

August 3,
2013

 

Net sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

$

530,728

 

$

408,683

 

$

963,752

 

$

832,420

 

Tuxedo rental services

 

161,096

 

147,701

 

262,759

 

246,183

 

Alteration and other services

 

44,598

 

37,056

 

83,560

 

75,018

 

Total retail sales

 

736,422

 

593,440

 

1,310,071

 

1,153,621

 

Corporate apparel clothing product sales

 

66,656

 

53,815

 

123,481

 

110,170

 

Total net sales

 

803,078

 

647,255

 

1,433,552

 

1,263,791

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

243,354

 

177,578

 

434,831

 

363,061

 

Tuxedo rental services

 

26,228

 

22,578

 

41,545

 

37,076

 

Alteration and other services

 

32,899

 

28,926

 

60,621

 

57,344

 

Occupancy costs

 

95,423

 

72,791

 

168,270

 

144,065

 

Total retail cost of sales

 

397,904

 

301,873

 

705,267

 

601,546

 

Corporate apparel clothing product cost of sales

 

46,632

 

36,588

 

86,379

 

75,531

 

Total cost of sales

 

444,536

 

338,461

 

791,646

 

677,077

 

 

 

 

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

287,374

 

231,105

 

528,921

 

469,359

 

Tuxedo rental services

 

134,868

 

125,123

 

221,214

 

209,107

 

Alteration and other services

 

11,699

 

8,130

 

22,939

 

17,674

 

Occupancy costs

 

(95,423

)

(72,791

)

(168,270

)

(144,065

)

Total retail gross margin

 

338,518

 

291,567

 

604,804

 

552,075

 

Corporate apparel clothing product gross margin

 

20,024

 

17,227

 

37,102

 

34,639

 

Total gross margin

 

358,542

 

308,794

 

641,906

 

586,714

 

 

 

 

 

 

 

 

 

 

 

Selling, general and administrative expenses

 

315,838

 

232,505

 

571,921

 

457,872

 

Goodwill impairment charge

 

 

9,501

 

 

9,501

 

Operating income

 

42,704

 

66,788

 

69,985

 

119,341

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

119

 

181

 

180

 

302

 

Interest expense

 

(13,193

)

(540

)

(14,328

)

(884

)

Loss on extinguishment of debt

 

(2,158

)

 

(2,158

)

 

Earnings before income taxes

 

27,472

 

66,429

 

53,679

 

118,759

 

Provision for income taxes

 

15,104

 

23,451

 

24,853

 

42,825

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

12,368

 

42,978

 

28,826

 

75,934

 

Net (earnings) loss attributable to non-controlling interest

 

(112

)

(35

)

(84

)

100

 

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

 

$

12,256

 

$

42,943

 

$

28,742

 

$

76,034

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

$

0.86

 

$

0.60

 

$

1.50

 

Diluted

 

$

0.25

 

$

0.85

 

$

0.60

 

$

1.50

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

47,939

 

49,843

 

47,773

 

50,225

 

Diluted

 

48,143

 

50,133

 

48,059

 

50,460

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

$

0.36

 

$

0.36

 

 

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 Six Months Ended

 

 

 

August 2,
2014

 

August 3,
2013

 

August 2,
2014

 

August 3,
2013

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

$

12,368

 

$

42,978

 

$

28,826

 

$

75,934

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

(189

)

(7,819

)

5,991

 

(11,035

)

 

 

 

 

 

 

 

 

 

 

Settlement of cash flow hedge, net of tax

 

217

 

 

399

 

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income including non-controlling interest

 

12,396

 

35,159

 

35,216

 

64,899

 

 

 

 

 

 

 

 

 

 

 

Comprehensive (income) loss attributable to non-controlling interest:

 

 

 

 

 

 

 

 

 

Net (earnings) loss

 

(112

)

(35

)

(84

)

100

 

Currency translation adjustments

 

50

 

229

 

(321

)

345

 

 

 

 

 

 

 

 

 

 

 

Amounts attributable to non-controlling interest

 

(62

)

194

 

(405

)

445

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

12,334

 

$

35,353

 

$

34,811

 

$

65,344

 

 

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 Six Months Ended

 

 

 

August 2,
2014

 

August 3,
2013

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including non-controlling interest

 

$

28,826

 

$

75,934

 

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

 

 

 

 

 

Depreciation and amortization

 

49,778

 

43,450

 

Tuxedo rental product amortization

 

19,961

 

19,004

 

Amortization of deferred financing costs

 

1,121

 

243

 

Amortization of discount on long-term debt

 

196

 

 

Loss on extinguishment of debt

 

2,158

 

 

Loss on disposition of assets

 

1,641

 

1,001

 

Goodwill impairment charge

 

 

9,501

 

Asset impairment charges

 

302

 

46

 

Share-based compensation

 

8,036

 

9,069

 

Excess tax benefits from share-based plans

 

(3,687

)

(1,114

)

Deferred tax benefit

 

(9,120

)

(5,301

)

Deferred rent expense and other

 

1,174

 

1,923

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(18,905

)

5,663

 

Inventories

 

(62,689

)

(47,956

)

Tuxedo rental product

 

(23,192

)

(37,224

)

Other assets

 

2,372

 

6,342

 

Accounts payable, accrued expenses and other current liabilities

 

12,289

 

23,061

 

Income taxes payable

 

4,191

 

(1,488

)

Other liabilities

 

(573

)

(912

)

 

 

 

 

 

 

Net cash provided by operating activities

 

13,879

 

101,242

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(40,837

)

(52,261

)

Acquisition of business, net of cash

 

(1,491,393

)

 

Proceeds from sales of property and equipment

 

 

191

 

 

 

 

 

 

 

Net cash used in investing activities

 

(1,532,230

)

(52,070

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from new term loan

 

1,089,000

 

 

Payments on previous term loan

 

(97,500

)

 

Proceeds from asset-based revolving credit facility

 

340,000

 

 

Payments on asset-based revolving credit facility

 

(340,000

)

 

Proceeds from bond issuance

 

600,000

 

 

Deferred financing costs

 

(50,938

)

(1,776

)

Cash dividends paid

 

(17,460

)

(18,350

)

Proceeds from issuance of common stock

 

6,167

 

5,409

 

Tax payments related to vested deferred stock units

 

(6,869

)

(3,865

)

Excess tax benefits from share-based plans

 

3,687

 

1,114

 

Repurchases of common stock

 

(251

)

(152,129

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

1,525,836

 

(169,597

)

 

 

 

 

 

 

Effect of exchange rate changes

 

498

 

(3,150

)

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

7,983

 

(123,575

)

Balance at beginning of period

 

59,252

 

156,063

 

 

 

 

 

 

 

Balance at end of period

 

$

67,235

 

$

32,488

 

 

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.  Certain prior period amounts have been reclassified to conform to the current period presentation.

 

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 1, 2014.

 

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

 

On June 18, 2014, we acquired Jos. A. Bank Clothiers, Inc. (“Jos. A. Bank”), a men’s specialty apparel retailer, for total cash consideration of approximately $1.8 billion.  Based on the manner in which we manage, evaluate and internally report our operations, we determined that Jos. A. Bank is an operating segment that meets the criteria for aggregation into our retail reportable segment.  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 2 and 14 for additional details on these acquisitions and our 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, except for those listed below.

 

In April 2014, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2014-08, Reporting Discontinued Operations and Disposals of Components of an Entity, which changes the criteria for determining which disposals can be presented as discontinued operations and modifies related disclosure requirements.  The new guidance is effective for annual and interim periods beginning after December 15, 2014, with early adoption permitted.  The new guidance will be applicable for disposal transactions, if any, that we initiate after the adoption date.  The adoption of this guidance is not expected to have a material impact on our financial position, results of operations or cash flows.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities.  The new guidance is effective for annual and interim periods beginning after December 15, 2016 with no early adoption permitted.  We are currently evaluating the impact, if any, the adoption of this guidance will have on our financial position, results of operations or cash flows.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2. Acquisitions

 

Jos. A. Bank

 

On June 18, 2014, we acquired all of the outstanding common stock of Jos. A. Bank, a men’s specialty apparel retailer, for $65.00 net per share in cash, or total consideration of approximately $1.8 billion. The acquisition was funded primarily by a $1.1 billion term loan facility, the issuance of $600 million in senior unsecured notes and borrowings under an asset-based credit facility (see Note 4).

 

We incurred acquisition and integration costs related to Jos. A. Bank totaling $40.8 million and $60.9 million for the three and six months ended August 2, 2014, respectively, which is included in selling, general and administrative expenses (“SG&A”) in the condensed consolidated statements of earnings as well as an extinguishment of debt totaling $2.2 million, which is included as a separate line in the condensed consolidated statements of earnings.  In addition, we incurred deferred financing costs of $50.9 million, with $7.5 million classified as other current assets and $43.4 million classified as non-current assets.  Deferred financing costs incurred in relation to the financing arrangements discussed in Note 4 will be amortized over the contractual term of each financing arrangement.

 

The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Jos. A. Bank acquisition as of June 18, 2014.  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 (amounts in millions):

 

Cash

 

$

328.9

 

Accounts receivable

 

7.1

 

Inventories

 

379.3

 

Other current assets

 

29.3

 

Property and equipment

 

174.8

 

Goodwill

 

744.7

 

Intangible assets

 

621.2

 

Accounts payable, accrued expenses and other current liabilities

 

(177.0

)

Other liabilities (mainly deferred income taxes)

 

(288.0

)

Total purchase price

 

1,820.3

 

Less: Cash acquired

 

(328.9

)

Total purchase price, net of cash acquired

 

$

1,491.4

 

 

Goodwill is calculated as the excess of the purchase price over the net assets acquired.  The goodwill recognized is attributable to growth opportunities and expected synergies.  All of the goodwill has been assigned to our retail reporting segment and is non-deductible for tax purposes.

 

Intangible assets consist of four separately identified assets.  First, we identified the Jos. A. Bank tradename as an indefinite-lived intangible asset with a fair value of $539.1 million.  The Jos. A. Bank tradename is not subject to amortization but will be evaluated at least annually for impairment.  Second, we identified a customer relationship intangible asset with a fair value of $53.0 million which we expect to amortize over a useful life of seven years.  Third, we recognized an intangible asset of $24.4 million for favorable Jos. A. Bank leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms, including an assumed renewal.  Lastly, we recognized an intangible asset related to the Jos. A. Bank franchise store agreements of $4.7 million which we expect to amortize over 25 years.  The allocation of the purchase price to intangible assets as well as their estimated useful lives is preliminary and may be adjusted.

 

The results of operations of Jos. A. Bank are included in our results of operations from the acquisition date.  From June 18, 2014 through August 2, 2014, Jos. A. Bank generated net sales of $113.7 million and a net loss of $4.1 million, including $2.6 million of integration costs, primarily severance related, and $7.7 million of purchase accounting adjustments, primarily consisting of the step up of inventory recognized as additional cost of sales and amortization of intangible assets.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table presents unaudited pro forma consolidated financial information as if the closing of our acquisition of Jos. A. Bank had occurred on February 3, 2013 (in thousands, except per share data):

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

August 2, 2014

 

August 3, 2013

 

August 2, 2014

 

August 3, 2013

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

929,928

 

$

879,784

 

$

1,777,824

 

$

1,692,375

 

Net earnings attributable to common shareholders

 

$

44,180

 

$

32,282

 

$

64,270

 

$

48,534

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.92

 

$

0.65

 

$

1.34

 

$

0.96

 

Diluted

 

$

0.92

 

$

0.64

 

$

1.33

 

$

0.96

 

 

The pro forma financial information presented above has been prepared by combining our historical results and the historical results of Jos. A. Bank and further reflects the effect of purchase accounting adjustments and the elimination of transaction costs, among other items.  This pro forma information is not necessarily indicative of the results of operations that actually would have resulted had the Jos. A. Bank acquisition occurred on the date indicated above or that may result in the future and does not reflect potential synergies, integration costs or other such costs and savings.

 

Material non-recurring adjustments included in the pro forma financial information above consists of the step up of Jos. A. Bank inventory to its fair value, which is recorded as an adjustment to cost of goods sold based on when the acquired inventory is expected to be sold.  For the three and six months ended August 3, 2013, $10.5 million and $20.3 million of adjustments to cost of sales are included in the calculation of net income, respectively.

 

JA Holding

 

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 $94.9 million in cash consideration.  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 component of our previous credit agreement (see Note 4).

 

The following table summarizes fair values of the identifiable assets acquired and liabilities assumed in the JA Holding acquisition (amounts in millions):

 

Accounts receivable

 

$

12.8

 

Inventories

 

6.5

 

Other assets

 

3.1

 

Property and equipment

 

7.3

 

Goodwill

 

53.9

 

Tradename

 

30.0

 

Accounts payable, accrued expenses and other current liabilities

 

(7.2

)

Other liabilities

 

(11.5

)

 

 

 

 

Total purchase price

 

$

94.9

 

 

Goodwill is calculated as the excess of the purchase price over the net assets acquired.  The acquisition resulted in goodwill primarily related to growth opportunities as we believe this transaction will accelerate our strategy of offering exclusive brands with broad appeal at attractive prices.  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.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The results of operations for JA Holding were included in the condensed consolidated statements of earnings beginning on August 6, 2013 and were not significant to our consolidated results.  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.

 

3.  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 Six Months
Ended

 

 

 

August 2,
2014

 

August 3,
2013

 

August 2,
2014

 

August 3,
2013

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

12,256

 

$

42,943

 

$

28,742

 

$

76,034

 

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

 

(30

)

(139

)

(91

)

(474

)

Net earnings attributable to common shareholders

 

$

12,226

 

$

42,804

 

$

28,651

 

$

75,560

 

Denominator

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

47,939

 

49,843

 

47,773

 

50,225

 

Dilutive effect of share-based awards

 

204

 

290

 

286

 

235

 

Diluted weighted-average common shares outstanding

 

48,143

 

50,133

 

48,059

 

50,460

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.26

 

$

0.86

 

$

0.60

 

$

1.50

 

Diluted

 

$

0.25

 

$

0.85

 

$

0.60

 

$

1.50

 

 

For each of the three and six months ended August 2, 2014, 0.1 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share.  For the three and six months ended August 3, 2013, 0.2 million and 0.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

 

4.  Debt

 

On June 18, 2014, we entered into a term loan credit agreement which provides for a senior secured term loan in the aggregate principal amount of $1.1 billion (the “Term Loan”) and a $500.0 million asset-based revolving credit agreement (the “ABL Facility”, and together with the Term Loan, the “New Credit Facilities”) with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers.  In addition, we issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).  Proceeds from the Term Loan were reduced by an $11.0 million original issue discount, which is presented as a reduction of the outstanding balance on the Term Loan on the balance sheet and will be amortized to interest expense over the contractual life of the Term Loan.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

We used the net proceeds from the Term Loan, the offering of the Senior Notes and the net proceeds from $340.0 million drawn on the ABL Facility to pay the approximately $1.8 billion purchase price for the acquisition of Jos. A. Bank and to repay all our obligations under our Third Amended and Restated Credit Agreement, dated as of April 12, 2013 (as amended from time to time prior to the date hereof, the “Previous Credit Agreement”), including $95.0 million outstanding under our previous term loan as well as settlement of the interest rate swap associated with such term loan.  The loans under the ABL Facility were subsequently repaid in full promptly following the closing of the Jos. A. Bank acquisition using the cash acquired from Jos. A. Bank.

 

In addition, as a result of the termination of the Previous Credit Agreement, we recorded a loss on extinguishment of debt totaling $2.2 million consisting of the elimination of unamortized deferred financing costs.

 

New Credit Facilities

 

The Term Loan is guaranteed, jointly and severally, by certain of our U.S. subsidiaries.  The interest rate on the Term Loan is based on monthly LIBOR, subject to a LIBOR floor of 1% per annum, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.50%.  The Term Loan will mature on June 18, 2021.

 

The ABL Facility provides for a senior secured revolving credit facility of $500.0 million, with possible future increases to $650.0 million under an expansion feature, which matures on June 18, 2019 and is guaranteed, jointly and severally, by certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices:  (i) adjusted LIBO rate, (ii) CDOR rate, (iii) Canadian prime rate or (iv) alternate base rate (equal to the greater of the prime rate, the federal funds effective rate plus 0.5% or the adjusted LIBO rate for a one-month period plus 1.0%).  Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 2.00%.  The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%.

 

The New Credit Facilities contain customary non-financial covenants and the respective obligations under the New Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, certain of its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. The New 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 New Credit Facilities contain customary restrictive covenants, with respect to which we were in compliance as of August 2, 2014.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  Except for letters of credit totaling approximately $20.7 million issued and outstanding, no amounts were drawn on the ABL Facility as of August 2, 2014.

 

Senior Notes

 

The indenture governing the Senior Notes contains customary non-financial covenants and the Senior Notes are guaranteed, jointly and severally, on an unsecured basis by 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 on July 1, 2022.  Interest on the Senior Notes will be payable on January 1 and July 1 of each year, beginning on January 1, 2015.

 

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.  At any time prior to July 1, 2017, we will have the option to redeem some or all of the Senior Notes at a redemption price of 100% of the principal amount of the Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to the date of redemption.  We may also redeem up to a maximum of 35% of the original aggregate principal amount of the Senior Notes with the proceeds of certain equity offerings prior to July 1, 2017 at a redemption price of 107% of the principal amount of the Senior Notes plus accrued and unpaid interest, if any.  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.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

We have also entered into a registration rights agreement regarding the Senior Notes pursuant to which we agreed, among other things, to exchange the Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, on or before the 390th day after the issuance of the Senior Notes.

 

Long-Term Debt

 

We did not hold any long-term debt as of August 3, 2013.  Except for the $95.0 million outstanding with respect to the term loan under the Previous Credit Agreement and letters of credit totaling approximately $21.6 million issued and outstanding, no amounts were outstanding under the Previous Credit Agreement as of May 3, 2014 and June 18, 2014.  The following table provides details on our long-term debt as of August 2, 2014 and February 1, 2014 (in thousands).

 

 

 

August 2,
2014

 

February 1,
2014

 

Term Loan (net of unamortized original issue discount of $10.8 million)

 

$

1,089,196

 

$

 

Senior Notes

 

600,000

 

 

Term loan under Previous Credit Agreement

 

 

97,500

 

Total long-term debt

 

1,689,196

 

97,500

 

Current portion of long-term debt

 

(11,000

)

(10,000

)

Total long-term debt, net of current portion

 

$

1,678,196

 

$

87,500

 

 

5.  Supplemental Cash Flows

 

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

 

 

 

For the Six Months Ended

 

 

 

August 2,
2014

 

August 3,
2013

 

 

 

 

 

 

 

Cash paid for interest

 

$

8,051

 

$

301

 

Cash paid for income taxes, net

 

$

28,950

 

$

43,209

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Cash dividends declared

 

$

8,803

 

$

9,279

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $21.1 million and $14.5 million at August 2, 2014 and August 3, 2013, 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.

 

6.  Income Taxes

 

Our effective income tax rate increased from 35.3% for the second quarter of 2013 to 55.0% for the second quarter of 2014 and from 36.1% for the first six months of 2013 to 46.3% for the first six months of 2014 primarily because certain Jos. A. Bank transaction costs may not be deductible.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

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

 

 

 

August 2,
2014

 

August 3,
2013

 

February 1,
2014

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

49,362

 

$

35,731

 

$

33,747

 

Current deferred tax asset

 

11,172

 

25,463

 

33,148

 

Deferred financing costs

 

7,502

 

 

 

Tax receivable

 

22,952

 

1,437

 

17,276

 

Other

 

14,487

 

9,204

 

9,035

 

Total other current assets

 

$

105,475

 

$

71,835

 

$

93,206

 

 

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

 

 

 

August 2,
2014

 

August 3,
2013

 

February 1,
2014

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

70,328

 

$

44,188

 

$

58,127

 

Customer deposits, prepayments and refunds payable

 

43,902

 

37,363

 

22,617

 

Unredeemed gift certificates

 

33,732

 

13,387

 

15,589

 

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

 

27,920

 

19,929

 

19,184

 

Accrued workers compensation and medical costs

 

24,562

 

21,742

 

22,055

 

Accrued strategic professional fees

 

16,181

 

1,437

 

9,338

 

Cash dividends declared

 

8,803

 

9,279

 

8,963

 

Loyalty program reward certificates

 

7,179

 

7,085

 

6,321

 

Accrued royalties

 

7,436

 

7,041

 

2,087

 

Accrued interest

 

5,269

 

408

 

410

 

Other

 

28,662

 

10,587

 

11,106

 

Total accrued expenses and other current liabilities

 

$

273,974

 

$

172,446

 

$

175,797

 

 

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

 

 

 

August 2,
2014

 

August 3,
2013

 

February 1,
2014

 

Non-current deferred and other income tax liabilities

 

$

316,844

 

$

32,159

 

$

51,604

 

Deferred rent and landlord incentives

 

56,474

 

53,615

 

55,923

 

Unfavorable lease liabilities

 

13,892

 

424

 

321

 

Other

 

6,203

 

638

 

1,444

 

Total deferred taxes and other liabilities

 

$

393,413

 

$

86,836

 

$

109,292

 

 

8.  Accumulated Other Comprehensive Income

 

The following table summarizes the components of accumulated other comprehensive income for the six months ended August 2, 2014 (in thousands and net of tax):

 

 

 

Foreign
Currency
Translation

 

Interest Rate
Swap

 

Total

 

BALANCE — February 1, 2014

 

$

27,710

 

$

(399

)

$

27,311

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassifications

 

5,991

 

 

5,991

 

Other comprehensive income attributable to non-controlling interest

 

(321

)

 

(321

)

Amounts reclassified from accumulated other comprehensive income

 

 

399

 

399

 

Net current-period other comprehensive income

 

5,670

 

399

 

6,069

 

 

 

 

 

 

 

 

 

BALANCE — August 2, 2014

 

$

33,380

 

$

 

$

33,380

 

 

Amounts reclassified from other comprehensive income related to the termination of our interest rate swap were recorded within interest expense in the condensed consolidated statement of earnings for the quarter ended August 2, 2014.  There were no reclassifications from other comprehensive income for the quarter ended August 3, 2013.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.  Share Repurchases

 

In March 2013, our Board of Directors (the “Board”) approved a $200.0 million share repurchase program for our common stock.  At August 2, 2014, the remaining balance available under the Board’s March 2013 authorization was $48.0 million.

 

During the first six months of fiscal 2014, no shares were repurchased in open market transactions under the Board’s March 2013 authorization.

 

In July 2013, we entered into an accelerated share repurchase agreement (“ASR Agreement”) with J.P. Morgan Securities LLC (“JP Morgan”), as agent for JPMorgan Chase Bank, National Association, London Branch, to purchase $100.0 million of our common stock.  We paid $100.0 million to JPMorgan and received an initial delivery of 2,197,518 shares (which was approximately 85% of the number of shares repurchased in connection with this transaction), and reduced our shares outstanding as of August 3, 2013.  The value of the initial shares received on the date of purchase 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.  In accordance with authoritative guidance, we recorded the remaining $15.0 million as a forward contract indexed to our common stock within capital in excess of par.  The ASR Agreement was subsequently completed in the third quarter of 2013.

 

In addition to the ASR Agreement, during the first six 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.

 

10.  Share-Based Compensation Plans

 

For a discussion of our share-based compensation plans refer to Note 10 in our Annual Report on Form 10-K for the fiscal year ended February 1, 2014.

 

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 six months ended August 2, 2014 was $4.0 million and $8.0 million, respectively.  Share-based compensation expense recognized for the three and six months ended August 3, 2013 was $4.6 million and $9.1 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 (“DSUs”) for the six months ended August 2, 2014:

 

 

 

Shares

 

Weighted-Average
Grant-Date
 Fair Value

 

 

 

Time-
Based

 

Performance-
Based

 

Time-
Based

 

Performance-
Based

 

Non-Vested at February 1, 2014

 

573,042

 

82,558

 

$

32.95

 

$

33.09

 

Granted

 

218,231

 

18,789

 

47.26

 

47.26

 

Vested (1) 

 

(414,233

)

(1,134

)

32.73

 

33.09

 

Forfeited

 

(19,110

)

 

35.66

 

 

Non-Vested at August 2, 2014

 

357,930

 

100,213

 

$

41.79

 

$

35.75

 

 


(1) Includes 140,793 shares relinquished for tax payments related to vested deferred stock units for the six months ended August 2, 2014.

 

On April 3, 2013, our Board approved a change in the form of award agreements to be issued for grants of 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 August 2, 2014 are 36,137 DSUs granted prior to April 3, 2013.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Performance-based DSUs granted in 2014 (“2014 performance-based DSUs”) represent a contingent right to receive one share of common stock and vest over a one year period, subject to our achievement of a performance target for 2014.  Any 2014 performance-based DSUs that are unvested at the end of the one year period will lapse and be forfeited as of such time.  The 2014 performance-based DSUs earn dividends throughout the vesting period and are subject to the same vesting terms as the underlying performance-based awards.

 

Performance-based DSUs granted in 2013 (“2013 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 2013 performance-based DSUs at the end of the performance period are rolled over and become eligible to vest in subsequent performance periods.  Any 2013 performance-based DSUs that are unvested at the end of all vesting periods will lapse and be forfeited as of such time.  The 2013 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 six months ended August 2, 2014:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-Vested at February 1, 2014

 

80,919

 

$

31.36

 

Granted

 

7,100

 

49.28

 

Vested

 

(33,833

)

34.35

 

Forfeited

 

 

 

Non-Vested at August 2, 2014

 

54,186

 

$

32.76

 

 

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

 

As of August 2, 2014, we have unrecognized compensation expense related to non-vested DSUs and shares of restricted stock of approximately $13.2 million, which is expected to be recognized over a weighted-average period of 1.2 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the six months ended August 2, 2014:

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Outstanding at February 1, 2014

 

645,990

 

$

28.80

 

Granted

 

110,576

 

47.26

 

Exercised

 

(167,865

)

26.21

 

Forfeited

 

(60,000

)

17.18

 

Expired

 

 

 

Outstanding at August 2, 2014

 

528,701

 

$

34.81

 

Exercisable at August 2, 2014

 

264,337

 

$

31.30

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The weighted-average grant date fair value of the 110,576 stock options granted during the six months ended August 2, 2014 was $16.41 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 six months ended August 2, 2014.

 

 

 

For the Six
Months Ended

 

 

 

August 2,
2014

 

 

 

 

 

Risk-free interest rate

 

1.75%

 

Expected lives

 

5.0 years

 

Dividend yield

 

1.80%

 

Expected volatility

 

44.43%

 

 

As of August 2, 2014, we have unrecognized compensation expense related to non-vested stock options of approximately $3.1 million which is expected to be recognized over a weighted-average period of 1.9 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.  During the six months ended August 2, 2014, employees purchased 41,793 shares under the ESDP, which had a weighted-average share price of $42.30 per share.  As of August 2, 2014, 698,545 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 six months ended August 2, 2014 are as follows (in thousands):

 

 

 

Retail

 

Corporate
Apparel

 

Total

 

Balance at February 1, 2014

 

$

96,919

 

$

29,084

 

$

126,003

 

Goodwill of acquired businesses

 

747,828

 

 

747,828

 

Translation adjustment

 

483

 

641

 

1,124

 

Balance at August 2, 2014

 

$

845,230

 

$

29,725

 

$

874,955

 

 

The goodwill of acquired businesses resulted primarily from our acquisition of Jos. A. Bank.  As indicated in Note 2, the preliminary estimates of the fair value of the identifiable assets acquired and liabilities assumed for the Jos. A. Bank acquisition, including goodwill, are not yet final and are subject to revisions until management’s appraisals and estimates are finalized, which may result in adjustments to the preliminary values as reported for the retail reportable segment at August 2, 2014.

 

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. 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 additional impairment evaluation was considered necessary during the second quarter of fiscal 2014.

 

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THE MEN’S WEARHOUSE, 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):

 

 

 

August 2,
2014

 

August 3,
2013

 

February 1,
2014

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

$

41,185

 

$

14,423

 

$

12,012

 

Customer relationships

 

87,376

 

31,244

 

33,602

 

Total carrying amount

 

128,561

 

45,667

 

45,614

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

(9,557

)

(8,981

)

(9,007

)

Customer relationships

 

(12,588

)

(7,886

)

(9,895

)

Total accumulated amortization

 

(22,145

)

(16,867

)

(18,902

)

Total amortizable intangible assets, net

 

106,416

 

28,800

 

26,712

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks and tradenames

 

570,445

 

1,222

 

31,315

 

Total intangible assets, net

 

$

676,861

 

$

30,022

 

$

58,027

 

 

The pretax amortization expense associated with intangible assets subject to amortization totaled $2.2 million and $0.8 million for the three months ended August 2, 2014 and August 3, 2013, respectively.  The pretax amortization expense associated with intangible assets subject to amortization totaled $3.0 million and $1.6 million for the six months ended August 2, 2014 and August 3, 2013, respectively.  Pretax amortization associated with intangible assets subject to amortization at August 2, 2014 is estimated to be $7.0 million for the remainder of fiscal year 2014, $13.9 million for each of the fiscal years 2015, 2016 and 2017 and $13.8 million for fiscal year 2018.

 

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.

 

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

 

For the periods presented, derivative financial instruments were the only assets and liabilities measured at fair value on a recurring basis and were immaterial.  These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs, which we classify as a Level 2 input within the fair value hierarchy.

 

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.  Impairment charges for long-lived assets are included within SG&A expenses in our condensed consolidated statement of earnings.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

During the second quarter of fiscal 2013, we recorded a goodwill impairment charge related to our K&G brand totaling $9.5 million, which reduced the K&G goodwill balance to zero.  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 consist of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt.  Management estimates that, as of August 2, 2014, August 3, 2013, and February 1, 2014, 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.

 

The fair values of our Term Loan and the term loan under the Previous Credit Agreement were valued based upon observable market data provided by a third party, 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 (in thousands):

 

 

 

August 2,
2014

 

February 1,
2014

 

Carrying value

 

$

1,689,196

 

$

97,500

 

Estimated fair value

 

1,717,131

 

97,500

 

 

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.  For all periods presented, derivative asset and liability balances were immaterial.  We had no derivative financial instruments with credit-risk-related contingent features underlying the agreements as of August 2, 2014, August 3, 2013, or February 1, 2014, respectively.

 

For the three and six months ended August 2, 2014, we recognized a net pre-tax gain of $0.1 million and a net pre-tax loss of $0.6 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.  For the three and six months ended August 3, 2013, we recognized net pre-tax gains of $0.5 million and $1.2 million, respectively, in cost of sales in the condensed consolidated statement of earnings for our derivative financial instruments not designated as cash flow hedges.

 

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 five retail merchandising brands: Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men (“Moores”) and K&G.  These five 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 five 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.  Tuxedo rentals are offered at our Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank and Moores retail stores and ladies’ career apparel, sportswear and accessories, including shoes, and children’s apparel is offered at most of our K&G stores.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the 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.

 

We measure segment profitability based on operating income, defined as income before interest expense, interest income, income taxes and non-controlling interest.  Corporate expenses and assets are allocated to the retail segment.

 

From June 18, 2014 through August 2, 2014, Jos. A. Bank generated net sales of $113.7 million.  Net sales by brand and reportable segment are as follows (in thousands):

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

August 2, 2014

 

August 3, 2013

 

August 2, 2014

 

August 3, 2013

 

Net sales:

 

 

 

 

 

 

 

 

 

MW (1)

 

$

450,331

 

$

426,597

 

$

871,310

 

$

828,432

 

Jos. A. Bank

 

113,692

 

 

113,692

 

 

Moores

 

78,076

 

74,544

 

130,578

 

128,315

 

K&G

 

86,218

 

84,860

 

178,639

 

182,200

 

MW Cleaners

 

8,105

 

7,439

 

15,852

 

14,674

 

Total retail segment

 

736,422

 

593,440

 

1,310,071

 

1,153,621

 

 

 

 

 

 

 

 

 

 

 

Twin Hill

 

11,132

 

9,977

 

19,376

 

17,936

 

Dimensions and Alexandra (UK)

 

55,524

 

43,838

 

104,105

 

92,234

 

Total corporate apparel segment

 

66,656

 

53,815

 

123,481

 

110,170

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

803,078

 

$

647,255

 

$

1,433,552

 

$

1,263,791

 

 


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

 

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

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

August 2, 2014

 

August 3, 2013

 

August 2, 2014

 

August 3, 2013

 

Net sales:

 

 

 

 

 

 

 

 

 

Men’s tailored clothing product

 

$

288,239

 

$

226,479

 

$

527,675

 

$

461,323

 

Men’s non-tailored clothing product

 

221,407

 

164,305

 

392,513

 

331,078

 

Ladies’ clothing product

 

18,798

 

17,899

 

39,649

 

40,019

 

Other

 

2,284

 

 

3,915

 

 

Total retail clothing product

 

530,728

 

408,683

 

963,752

 

832,420

 

 

 

 

 

 

 

 

 

 

 

Tuxedo rental services

 

161,096

 

147,701

 

262,759

 

246,183

 

 

 

 

 

 

 

 

 

 

 

Alteration services

 

36,493

 

29,617

 

67,708

 

60,344

 

Retail dry cleaning services

 

8,105

 

7,439

 

15,852

 

14,674

 

Total alteration and other services

 

44,598

 

37,056

 

83,560

 

75,018

 

 

 

 

 

 

 

 

 

 

 

Corporate apparel clothing product

 

66,656

 

53,815

 

123,481

 

110,170

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

803,078

 

$

647,255

 

$

1,433,552

 

$

1,263,791

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

August 2, 2014

 

August 3, 2013

 

August 2, 2014

 

August 3, 2013

 

Retail

 

$

39,744

 

$

65,088

 

$

66,269

 

$

116,558

 

Corporate apparel

 

2,960

 

1,700

 

3,716

 

2,783

 

Operating income

 

42,704

 

66,788

 

69,985

 

119,341

 

Interest income

 

119

 

181

 

180

 

302

 

Interest expense

 

(13,193

)

(540

)

(14,328

)

(884

)

Loss on extinguishment of debt

 

(2,158

)

 

(2,158

)

 

Earnings before income taxes

 

$

27,472

 

$

66,429

 

$

53,679

 

$

118,759

 

 

As a result of the Jos. A. Bank acquisition, total assets for our retail reportable segment have materially changed since February 1, 2014.  Total assets by reportable segment are as follows (in thousands):

 

 

 

August 2,
2014

 

August 3,
2013

 

February 1,
2014

 

Segment assets:

 

 

 

 

 

 

 

Retail

 

$

3,370,217

 

$

1,184,257

 

$

1,306,677

 

Corporate apparel

 

254,382

 

230,777

 

248,553

 

Total assets

 

$

3,624,599

 

$

1,414,534

 

$

1,555,230

 

 

15.  Legal Matters

 

A former licensee of JA Apparel, Corp., a subsidiary of JA Holding (“JA Apparel”), initiated an arbitration proceeding against JA Apparel under license agreements which the former licensee terminated.  The former licensee alleges that JA Apparel breached the license agreements for the manufacture of certain Joseph Abboud® branded merchandise.  We do not believe that JA Apparel breached the license agreements and we believe that the former licensee wrongfully terminated the license agreements.  We intend to defend this matter vigorously.  The range of loss, if any, is not reasonably estimable at this time.  We do not believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

 

On August 29, 2012, Patrick Edward Camasta, individually and as the representative of a class of similarly situated persons, filed a putative class action Complaint against Jos. A. Bank in the Circuit Court of the Nineteenth Judicial Circuit, Lake County, Illinois (Case No. 12CH4405) alleging, among other things, that Jos. A. Bank’s pattern and practice of advertising its normal retail prices as temporary price reductions violate the Illinois Consumer Fraud and Deceptive Business Practices Act and the Illinois Uniform Deceptive Trade Practices Act.  The Complaint seeks, among other relief, certification of the case as a class action, actual and punitive damages, attorney fees and costs and injunctive relief.  After removal to the United States District Court for the Northern District of Illinois, Eastern Division (Case No. 12 CV 7782), upon the motion of Jos. A. Bank, the U.S. District Court dismissed the Complaint, without prejudice, and Camasta filed a First Amended Class Action Complaint in the same U.S. District Court making substantially the same allegations as in the original Complaint, which the Court dismissed, with prejudice.  Camasta appealed the dismissal to the U.S. Court of Appeals for the Seventh Circuit and, on August 1, 2014, the Court of Appeals affirmed the dismissal.

 

On July 30, 2013, Matthew B. Johnson, et al., on behalf of themselves and all Ohio residents similarly situated (the “Johnson Plaintiffs”), filed a putative class action Complaint against Jos. A. Bank in the U.S. District Court for the Southern District of Ohio, Eastern District (Case No. 2:13-cv-756).  The Complaint alleges, among other things, deceptive sales and marketing practices by Jos. A. Bank relating to its use of the words “free” and “regular price.”  The Complaint seeks, among other relief, class certification, compensatory damages, declaratory relief, injunctive relief and costs and disbursements (including attorneys’ fees).  Upon the motion of Jos. A. Bank, the U.S. District Court dismissed the Complaint, without prejudice, and the Johnson Plaintiffs filed a First Amended Class Action Complaint in the same U.S. District Court making substantially the same allegations as in the original Complaint.  On February 21, 2014, Jos. A. Bank filed a motion to dismiss and, on August 19, 2014, the Court dismissed the class claims and certain other breach of contract claims.  We intend to vigorously defend against the remaining claims.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In December 2013, Jos. A. Bank received a subpoena from the Ohio Attorney General requiring the production of certain information relating to its advertising and marketing practices.  Jos. A. Bank produced information in response to the subpoena, cooperated with further information requests and is having ongoing communications with the Ohio Attorney General’s office.

 

On July 9, 2014, David Lucas and Eric Salerno, on behalf of themselves and all California residents similarly situated, filed a putative class action Complaint against Jos. A. Bank in the U.S. District Court for Southern California (Case No. ‘14CV1631LAB JLB).  The Complaint alleges, among other things, that Jos. A. Bank violated the California Unfair Competition Law and the California Consumers Legal Remedies Act with its comparative price advertising, price discounts and free apparel promotions.  The Complaint seeks, among other relief, certification of the case as a class action, permanent injunction, actual and compensatory damages, restitution including disgorgement of profits and unjust enrichment, costs and attorney fees.  We intend to vigorously defend the case.

 

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.

 

16.  Subsequent Event

 

Pursuant to the terms of the purchase agreement entered into in connection with our acquisition of Dimensions in 2010, we were granted the option to purchase the non-controlling interest holder’s 14% interest in our UK operations during fiscal 2014.  On August 29, 2014, we delivered the requisite notice of our intent to exercise such option.  The purchase is expected to be completed during the third quarter of fiscal 2014 for purchase consideration of approximately $7.0 million.

 

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ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

General

 

For supplemental information, it is suggested that “Management’s Discussion and Analysis of Financial Condition and Results of Operations” be read in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended February 1, 2014.  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 “2014” mean the 52-week fiscal year ending January 31, 2015.

 

On June 18, 2014, we acquired all of the outstanding common stock of Jos. A. Bank, a men’s specialty apparel retailer, for $65.00 net per share in cash, or total consideration of approximately $1.8 billion.  The acquisition was funded primarily by a $1.1 billion term loan facility, the issuance of $600 million in unsecured senior notes and borrowings under an asset-based credit facility.  Borrowings under the ABL Facility were subsequently repaid in full promptly following the closing of the Jos. A. Bank acquisition using the cash acquired from Jos. A. Bank.

 

Based on the manner in which we manage, evaluate and internally report our operations, we determined that Jos. A. Bank is an operating segment that meets the criteria for aggregation into our retail reportable segment.

 

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.

 

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.

 

We conduct our retail segment as a specialty apparel retailer offering suits, suit separates, sport coats, slacks, sportswear, outerwear, dress shirts, shoes and accessories for men, and tuxedo rentals.  We offer our products and services through multiple brands and channels including The Men’s Wearhouse, Men’s Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men (“Moores”), K&G and the Internet at www.menswearhouse.com and www.josbank.com.  Our stores are located throughout the United States (“U.S.”) and Canada and carry a wide selection of exclusive and non-exclusive merchandise brands.  In addition, we offer our customers alteration services and most of our K&G stores offer ladies’ career apparel, sportswear, accessories and shoes and children’s apparel.  MW Cleaners is also aggregated in the retail segment, as these operations have not had a significant effect on our revenues or expenses.  MW Cleaners conducts retail dry cleaning, laundry and heirlooming operations in the Houston, Texas area.

 

The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the U.S. and Dimensions, Alexandra and Yaffy in the United Kingdom (“UK”).  These operations provide corporate clothing uniforms and workwear to workforces through multiple channels including managed corporate accounts, catalogs and the Internet.

 

Refer to Note 14 of Notes to Condensed Consolidated Financial Statements for additional information and disclosures regarding our reportable segments and the discussion included in “Results of Operations” below.

 

We continue to evaluate strategic alternatives for our K&G operations.  We believe that our core strengths lie primarily in our service culture and specialty men’s apparel retailing, and that we will be better able to focus our efforts on these core operations by taking this action.

 

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Table of Contents

 

Overview

 

Highlights of our performance for the quarter ended August 2, 2014, which includes the results of Jos. A. Bank from June 18, 2014, acquisition and integration costs, non-operating items and purchase accounting adjustments compared to the quarter ended August 3, 2013 are presented below, followed by a more comprehensive discussion under “Results of Operations”:

 

·                  Revenues for the second quarter of 2014 increased by $155.8 million or 24.1%, to $803.1 million compared to revenues of $647.3 million in the second quarter of 2013.

·                  Gross margin for the second quarter of 2014 increased by $49.7 million or 16.1%, to $358.5 million compared to $308.8 million in the second quarter of 2013.  Gross margin as a percentage of total net sales for the second quarter of 2014 was 44.6% compared to 47.7% for the second quarter of 2013.

·                  Selling, general and administrative (“SG&A”) expenses for the second quarter of 2014 increased by $83.3 million or 35.8% to $315.8 million compared to SG&A expenses of $232.5 million in the second quarter of 2013.  SG&A expenses as a percentage of total net sales for the second quarter of 2014 was 39.3% compared to 35.9% for the second quarter of 2013.

·                  Interest expense for the second quarter of 2014 increased by $12.7 million to $13.2 million compared to interest expense of $0.5 million in the second quarter of 2013.  Interest expense as a percentage of total net sales for the second quarter 2014 was 1.6% compared to 0.1% for the second quarter of 2013.

·                  Net earnings attributable to common shareholders for the second quarter of 2014 decreased by $30.7 million or 71.5%, to $12.3 million compared to $42.9 million for the second quarter of 2013.

·                  Diluted earnings per common share attributable to common shareholders decreased 70.6% to $0.25 per share for the second quarter of 2014 compared to $0.85 per share for the second quarter of fiscal 2013.

 

Highlights of our performance for the six months ended August 2, 2014, which includes the results of Jos. A. Bank from June 18, 2014, acquisition and integration costs, non-operating items and purchase accounting adjustments compared to the six months ended August 3, 2013 are presented below, followed by a more comprehensive discussion under “Results of Operations”:

 

·                  Revenues for the first six months of 2014 increased by $169.8 million or 13.4%, to $1,433.6 million compared to revenues of $1,263.8 million in the first six months of 2013.

·                  Gross margin for the first six months of 2014 increased by $55.2 million or 9.4%, to $641.9 million compared to $586.7 million in the first six months of 2013.  Gross margin as a percentage of total net sales for the first six months of 2014 was 44.8% compared to 46.4% for the first six months of 2013.

·                  SG&A expenses for the first six months of 2014 increased by $114.0 million or 24.9% to $571.9 million compared to SG&A expenses of $457.9 million in the first six months of 2013.  SG&A expenses as a percentage of total net sales for the first six months of 2014 was 39.9% compared to 36.2% for the first six months of 2013.

·                  Interest expense for the first six months of 2014 increased by $13.4 million to $14.3 million compared to interest expense of $0.9 million in the first six months of 2013.  Interest expense as a percentage of total net sales for the first six months of 2014 was 1.0% compared to 0.1% for the first six months of 2013.

·                  Net earnings attributable to common shareholders for the first six months of 2014 decreased by $47.3 million or 62.2%, to $28.7 million compared to $76.0 million for the first six months of 2013.

·                  Diluted earnings per common share attributable to common shareholders decreased 60.0% to $0.60 per share for the first six months of 2014 compared to $1.50 per share for the first six months of 2013.

·                  During the first six months of 2014, we paid cash dividends of $17.5 million.

 

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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 Six Months
 Ended

 

For the Year
Ended

 

 

 

August 2,
2014

 

August 3,
2013

 

August 2,
2014

 

August 3,
2013

 

February 1,
2014

 

 

 

 

 

 

 

 

 

 

 

 

 

Stores open at beginning of period:

 

1,128

 

1,141

 

1,124

 

1,143

 

1,143

 

Opened

 

15

 

9

 

25

 

15

 

25

 

Acquired from Jos. A. Bank(1) 

 

624

 

 

624

 

 

 

Closed

 

(11

)

(13

)

(17

)

(21

)

(44

)

Stores open at end of period

 

1,756

 

1,137

 

1,756

 

1,137

 

1,124

 

 

 

 

 

 

 

 

 

 

 

 

 

Stores open at end of period:

 

 

 

 

 

 

 

 

 

 

 

Men’s Wearhouse

 

679

 

652

 

679

 

652

 

661

 

Jos. A. Bank(1) 

 

629

 

 

629

 

 

 

Men’s Wearhouse and Tux

 

233

 

269

 

233

 

269

 

248

 

Moores

 

121

 

120

 

121

 

120

 

121

 

K&G

 

94

 

96

 

94

 

96

 

94

 

 

 

1,756

 

1,137

 

1,756

 

1,137

 

1,124

 

 


(1)         Excludes 15 franchise stores.

 

During the first six months of 2014, we opened 20 stores (19 Men’s Wearhouse stores and one Moores store) and closed 17 stores (one Men’s Wearhouse store and one Moores store due to lease expiration and 15 Men’s Wearhouse and Tux stores: 11 due to lease expiration and four due to substandard performance).  Since June 18, 2014, we opened five Jos. A. Bank stores.

 

Seasonality

 

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

 

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Table of Contents

 

Results of Operations

 

For the Three Months Ended August 2, 2014 compared to the Three Months Ended August 3, 2013

 

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)

 

 

 

August 2,

 

August 3,

 

 

 

2014

 

2013

 

Net sales:

 

 

 

 

 

Retail clothing product

 

66.1

%

63.1

%

Tuxedo rental services

 

20.1

 

22.8

 

Alteration and other services

 

5.6

 

5.7

 

Total retail sales

 

91.7

 

91.7

 

Corporate apparel clothing product sales

 

8.3

 

8.3

 

Total net sales

 

100.0

%

100.0

%

Cost of sales (2):

 

 

 

 

 

Retail clothing product

 

45.9

 

43.5

 

Tuxedo rental services

 

16.3

 

15.3

 

Alteration and other services