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 1, 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 November 28, 2014 was 48,101,138 excluding 133,497 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 November 1, 2014, November 2, 2013 and February 1, 2014

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended November 1, 2014 and November 2, 2013

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended November 1, 2014 and November 2, 2013

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended November 1, 2014 and November 2, 2013

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

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

 

22

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

 

36

 

 

 

Item 4 — Controls and Procedures

 

36

 

 

 

PART II — Other Information

 

 

 

 

 

Item 1 — Legal Proceedings

 

37

 

 

 

Item 1A — Risk Factors

 

38

 

 

 

Item 6 — Exhibits

 

38

 

 

 

SIGNATURES

 

39

 



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, including 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; 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 related to the Jos. A. Bank transaction, 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 our 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 Jos. A. Bank transaction to our business and operations, including 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, Part 1A of our Quarterly Report on Form 10-Q for the quarter ended August 2, 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)

 

 

 

November 1,
2014

 

November 2,
2013

 

February 1,
2014

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

64,716

 

$

64,764

 

$

59,252

 

Accounts receivable, net

 

84,054

 

80,180

 

63,153

 

Inventories

 

1,082,354

 

640,197

 

599,486

 

Other current assets

 

112,872

 

77,918

 

93,206

 

 

 

 

 

 

 

 

 

Total current assets

 

1,343,996

 

863,059

 

815,097

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

569,779

 

407,261

 

408,162

 

 

 

 

 

 

 

 

 

TUXEDO RENTAL PRODUCT, net

 

129,579

 

142,272

 

142,816

 

GOODWILL

 

892,766

 

128,597

 

126,003

 

INTANGIBLE ASSETS, net

 

673,057

 

60,325

 

58,027

 

OTHER ASSETS

 

44,250

 

4,937

 

5,125

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,653,427

 

$

1,606,451

 

$

1,555,230

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

263,645

 

$

165,596

 

$

148,762

 

Accrued expenses and other current liabilities

 

283,271

 

168,120

 

175,797

 

Income taxes payable

 

13,590

 

10,034

 

730

 

Current maturities of long-term debt

 

11,000

 

10,000

 

10,000

 

 

 

 

 

 

 

 

 

Total current liabilities

 

571,506

 

353,750

 

335,289

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT

 

1,678,589

 

90,000

 

87,500

 

DEFERRED TAXES AND OTHER LIABILITIES

 

367,612

 

104,950

 

109,292

 

 

 

 

 

 

 

 

 

Total liabilities

 

2,617,707

 

548,700

 

532,081

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

481

 

704

 

476

 

Capital in excess of par

 

435,755

 

404,506

 

412,043

 

Retained earnings

 

581,956

 

1,177,945

 

572,712

 

Accumulated other comprehensive income

 

20,829

 

31,060

 

27,311

 

Treasury stock, at cost

 

(3,301

)

(569,792

)

(3,407

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

1,035,720

 

1,044,423

 

1,009,135

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

13,328

 

14,014

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

1,035,720

 

1,057,751

 

1,023,149

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,653,427

 

$

1,606,451

 

$

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 Nine Months Ended

 

 

 

November 1,
2014

 

November 2,
2013

 

November 1,
2014

 

November 2,
2013

 

Net sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

$

634,447

 

$

415,985

 

$

1,598,199

 

$

1,248,405

 

Tuxedo rental services

 

132,690

 

122,177

 

395,449

 

368,360

 

Alteration and other services

 

52,025

 

37,363

 

135,585

 

112,381

 

Total retail sales

 

819,162

 

575,525

 

2,129,233

 

1,729,146

 

Corporate apparel clothing product

 

71,475

 

73,365

 

194,956

 

183,535

 

Total net sales

 

890,637

 

648,890

 

2,324,189

 

1,912,681

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

287,309

 

181,442

 

722,140

 

544,503

 

Tuxedo rental services

 

33,538

 

19,313

 

75,083

 

56,389

 

Alteration and other services

 

37,173

 

28,412

 

97,794

 

85,756

 

Occupancy costs

 

114,325

 

73,456

 

282,595

 

217,521

 

Total retail cost of sales

 

472,345

 

302,623

 

1,177,612

 

904,169

 

Corporate apparel clothing product

 

49,087

 

52,765

 

135,466

 

128,296

 

Total cost of sales

 

521,432

 

355,388

 

1,313,078

 

1,032,465

 

 

 

 

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

347,138

 

234,543

 

876,059

 

703,902

 

Tuxedo rental services

 

99,152

 

102,864

 

320,366

 

311,971

 

Alteration and other services

 

14,852

 

8,951

 

37,791

 

26,625

 

Occupancy costs

 

(114,325

)

(73,456

)

(282,595

)

(217,521

)

Total retail gross margin

 

346,817

 

272,902

 

951,621

 

824,977

 

Corporate apparel clothing product

 

22,388

 

20,600

 

59,490

 

55,239

 

Total gross margin

 

369,205

 

293,502

 

1,011,111

 

880,216

 

 

 

 

 

 

 

 

 

 

 

Advertising expense

 

42,075

 

22,630

 

109,072

 

68,584

 

Selling, general and administrative expenses

 

281,955

 

210,867

 

786,879

 

622,785

 

Goodwill impairment charge

 

 

 

 

9,501

 

Operating income

 

45,175

 

60,005

 

115,160

 

179,346

 

 

 

 

 

 

 

 

 

 

 

Interest income

 

125

 

30

 

305

 

332

 

Interest expense

 

(25,131

)

(1,220

)

(39,459

)

(2,104

)

Loss on extinguishment of debt

 

 

 

(2,158

)

 

Earnings before income taxes

 

20,169

 

58,815

 

73,848

 

177,574

 

Provision for income taxes

 

13,168

 

20,337

 

38,021

 

63,162

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

7,001

 

38,478

 

35,827

 

114,412

 

Net earnings attributable to non-controlling interest

 

(208

)

(274

)

(292

)

(174

)

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

 

$

6,793

 

$

38,204

 

$

35,535

 

$

114,238

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

$

0.80

 

$

0.74

 

$

2.30

 

Diluted

 

$

0.14

 

$

0.79

 

$

0.74

 

$

2.29

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

48,009

 

47,536

 

47,852

 

49,329

 

Diluted

 

48,254

 

47,873

 

48,124

 

49,598

 

 

 

 

 

 

 

 

 

 

 

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 1,
2014

 

November 2,
2013

 

November 1,
2014

 

November 2,
2013

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

$

7,001

 

$

38,478

 

$

35,827

 

$

114,412

 

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

(12,872

)

5,843

 

(6,881

)

(5,192

)

 

 

 

 

 

 

 

 

 

 

(Unrealized) realized loss on cash flow hedge, net of tax

 

 

(498

)

399

 

(498

)

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income including non-controlling interest

 

(5,871

)

43,823

 

29,345

 

108,722

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to non-controlling interest:

 

 

 

 

 

 

 

 

 

Net earnings

 

(208

)

(274

)

(292

)

(174

)

 

 

 

 

 

 

 

 

 

 

Currency translation adjustments

 

321

 

(519

)

 

(174

)

 

 

 

 

 

 

 

 

 

 

Amounts attributable to non-controlling interest

 

113

 

(793

)

(292

)

(348

)

 

 

 

 

 

 

 

 

 

 

Comprehensive (loss) income attributable to common shareholders

 

$

(5,758

)

$

43,030

 

$

29,053

 

$

108,374

 

 

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 1,
2014

 

November 2,
2013

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including non-controlling interest

 

$

35,827

 

$

114,412

 

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

 

 

 

 

 

Depreciation and amortization

 

80,622

 

65,672

 

Tuxedo rental product amortization

 

30,038

 

28,712

 

Amortization of deferred financing costs

 

3,014

 

383

 

Amortization of discount on long-term debt

 

589

 

 

Loss on extinguishment of debt

 

2,158

 

 

Loss (gain) on disposition of assets

 

12,247

 

(992

)

Goodwill impairment charge

 

 

9,501

 

Asset impairment charges

 

302

 

182

 

Share-based compensation

 

12,254

 

12,718

 

Excess tax benefits from share-based plans

 

(3,736

)

(1,532

)

Deferred tax (benefit) provision

 

(25,763

)

285

 

Deferred rent expense and other

 

2,914

 

2,331

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(14,430

)

(3,658

)

Inventories

 

(158,449

)

(79,344

)

Tuxedo rental product

 

(27,587

)

(45,101

)

Other assets

 

14,133

 

7,408

 

Accounts payable, accrued expenses and other current liabilities

 

76,565

 

42,887

 

Income taxes payable

 

16,725

 

5,139

 

Other liabilities

 

1,594

 

380

 

 

 

 

 

 

 

Net cash provided by operating activities

 

59,017

 

159,383

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(72,397

)

(81,521

)

Acquisition of businesses, net of cash

 

(1,491,393

)

(95,693

)

Proceeds from sales of property and equipment

 

160

 

4,127

 

 

 

 

 

 

 

Net cash used in investing activities

 

(1,563,630

)

(173,087

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from new term loan

 

1,089,000

 

 

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

 

(51,072

)

(1,776

)

Proceeds from previous term loan

 

 

100,000

 

Payments on previous term loan

 

(97,500

)

 

Cash dividends paid

 

(26,119

)

(26,979

)

Purchase of non-controlling interest

 

(6,651

)

 

Proceeds from issuance of common stock

 

7,115

 

8,291

 

Tax payments related to vested deferred stock units

 

(6,907

)

(3,865

)

Excess tax benefits from share-based plans

 

3,736

 

1,532

 

Repurchases of common stock

 

(251

)

(152,129

)

 

 

 

 

 

 

Net cash provided by (used in) financing activities

 

1,511,351

 

(74,926

)

 

 

 

 

 

 

Effect of exchange rate changes

 

(1,274

)

(2,669

)

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

5,464

 

(91,299

)

Balance at beginning of period

 

59,252

 

156,063

 

 

 

 

 

 

 

Balance at end of period

 

$

64,716

 

$

64,764

 

 

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 15 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 $600.0 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 $27.3 million and $88.2 million for the three and nine months ended November 1, 2014, respectively, of which $10.6 million is included in cost of sales for the three and nine months ended November 1, 2014, respectively, and the remainder is included in selling, general and administrative expenses (“SG&A”) in the condensed consolidated statements of earnings.  In addition, we recorded an extinguishment of debt totaling $2.2 million, which is included as a separate line in the condensed consolidated statements of earnings for the nine months ended November 1, 2014.  Lastly, we incurred deferred financing costs of $51.1 million, with $7.6 million classified as other current assets and $43.5 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 and measurement period adjustments since the date of acquisition (amounts in millions):

 

 

 

Preliminary
valuation at
August 2, 2014

 

Measurement
period
adjustments

 

Adjusted
preliminary
valuation at
November 1, 2014

 

Cash

 

$

328.9

 

$

 

$

328.9

 

Accounts receivable

 

7.1

 

1.6

 

8.7

 

Inventories

 

379.3

 

(51.1

)

328.2

 

Other current assets

 

29.3

 

17.6

 

46.9

 

Property and equipment

 

174.8

 

(5.5

)

169.3

 

Goodwill

 

744.7

 

19.9

 

764.6

 

Intangible assets

 

621.2

 

1.0

 

622.2

 

Accounts payable, accrued expenses and other current liabilities

 

(177.0

)

12.3

 

(164.7

)

Other liabilities (mainly deferred income taxes)

 

(288.0

)

4.2

 

(283.8

)

Total purchase price

 

1,820.3

 

 

1,820.3

 

Less: Cash acquired

 

(328.9

)

 

 

(328.9

)

Total purchase price, net of cash acquired

 

$

1,491.4

 

 

 

$

1,491.4

 

 

The current estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, that may result in further adjustments to the adjusted preliminary values presented above, when management’s appraisals and estimates are finalized.

 

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 $54.0 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.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The results of operations of Jos. A. Bank are included in our results of operations from the acquisition date.  From June 18, 2014 through November 1, 2014, Jos. A. Bank generated net sales of $347.0 million and a net loss of $8.3 million, including $11.5 million of pre-tax integration costs, primarily contract termination and severance related, and $20.6 million of pre-tax purchase accounting adjustments, primarily consisting of the step up of inventory recognized as additional cost of sales and amortization of intangible assets.

 

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 Nine Months Ended

 

 

 

November 1,
2014

 

November 2,
2013

 

November 1,
2014

 

November 2,
2013

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

890,636

 

$

896,358

 

$

2,668,460

 

$

2,588,733

 

Net earnings attributable to common shareholders

 

$

28,133

 

$

26,679

 

$

90,978

 

$

76,749

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.58

 

$

0.56

 

$

1.94

 

$

1.55

 

Diluted

 

$

0.58

 

$

0.55

 

$

1.92

 

$

1.54

 

 

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 sales based on when the acquired inventory is expected to be sold.  For the three and nine months ended November 2, 2013, $14.0 million and $32.1 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):

 

($ 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

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

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 Nine Months
Ended

 

 

 

November 1,
2014

 

November 2,
2013

 

November 1,
2014

 

November 2,
2013

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

6,793

 

$

38,204

 

$

35,535

 

$

114,238

 

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

 

(14

)

(181

)

(100

)

(659

)

Net earnings attributable to common shareholders

 

$

6,779

 

$

38,023

 

$

35,435

 

$

113,579

 

Denominator

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

48,009

 

47,536

 

47,852

 

49,329

 

Dilutive effect of share-based awards

 

245

 

337

 

272

 

269

 

Diluted weighted-average common shares outstanding

 

48,254

 

47,873

 

48,124

 

49,598

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.14

 

$

0.80

 

$

0.74

 

$

2.30

 

Diluted

 

$

0.14

 

$

0.79

 

$

0.74

 

$

2.29

 

 

For each of the three and nine months ended November 1, 2014 and November 2, 2013, 0.2 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 “Credit Facilities”) with certain of our U.S. subsidiaries and Moores the Suit People Inc., one of our Canadian subsidiaries, as co-borrowers.  Proceeds from the 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.  In addition, we issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).

 

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, 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.

 

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 Credit Facilities contain customary non-financial covenants and the respective obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, certain of its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of, the Company, the co-borrowers and the respective guarantors.  The Credit Facilities contain customary restrictive covenants, with respect to which we were in compliance as of November 1, 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 $18.8 million issued and outstanding, no amounts were drawn on the ABL Facility as of November 1, 2014 and we have approximately $446.6 million of borrowing availability under the ABL Facility as of November 1, 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.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

We have also entered into a registration rights agreement regarding the Senior Notes pursuant to which we agreed, among other things, to use our commercially reasonable efforts to consummate an exchange offer of the Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, on or before July 13, 2015.

 

Long-Term Debt

 

The following table provides details on our long-term debt as of November 1, 2014, November 2, 2013 and February 1, 2014 (in thousands).

 

 

 

November 1,
2014

 

November 2,
2013

 

February 1,
2014

 

Term Loan (net of unamortized original issue discount of $10.4 million)

 

$

1,089,589

 

$

 

$

 

Senior Notes

 

600,000

 

 

 

Term loan under Previous Credit Agreement

 

 

100,000

 

97,500

 

Total long-term debt

 

1,689,589

 

100,000

 

97,500

 

Current portion of long-term debt

 

(11,000

)

(10,000

)

(10,000

)

Total long-term debt, net of current portion

 

$

1,678,589

 

$

90,000

 

$

87,500

 

 

5.  Supplemental Cash Flows

 

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

 

 

 

For the Nine Months Ended

 

 

 

November 1,
2014

 

November 2,
2013

 

 

 

 

 

 

 

Cash paid for interest

 

$

8,409

 

$

1,300

 

Cash paid for income taxes, net

 

$

32,085

 

$

50,505

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Cash dividends declared

 

$

8,882

 

$

8,847

 

Increase in capital in excess of par due to purchase of non-controlling interest (Note 10)

 

$

7,410

 

$

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $8.4 million and $10.8 million at November 1, 2014 and November 2, 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 34.6% for the three months ended November 2, 2013 to 65.3% for the three months ended November 1, 2014 and from 35.6% for the nine months ended November 2, 2013 to 51.5% for the nine months ended November 1, 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.  Inventories

 

The following table provides details on our inventories as of November 1, 2014, November 2, 2013 and February 1, 2014 (in thousands):

 

 

 

November 1,
2014

 

November 2,
2013

 

February 1,
2014

 

Finished goods

 

$

1,039,871

 

$

597,756

 

$

544,962

 

Raw materials and merchandise components

 

42,483

 

42,441

 

54,524

 

Total inventories

 

$

1,082,354

 

$

640,197

 

$

599,486

 

 

8.  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 1,
2014

 

November 2,
2013

 

February 1,
2014

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

48,354

 

$

34,600

 

$

33,747

 

Tax receivable

 

26,556

 

833

 

17,276

 

Current deferred tax assets

 

12,929

 

31,726

 

33,148

 

Deferred financing costs

 

7,550

 

 

 

Other

 

17,483

 

10,759

 

9,035

 

Total other current assets

 

$

112,872

 

$

77,918

 

$

93,206

 

 

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

 

 

 

November 1,
2014

 

November 2,
2013

 

February 1,
2014

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

79,165

 

$

48,488

 

$

58,127

 

Unredeemed gift certificates

 

32,511

 

12,633

 

15,589

 

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

 

31,075

 

23,553

 

19,184

 

Accrued interest

 

27,572

 

488

 

410

 

Accrued workers compensation and medical costs

 

25,331

 

22,570

 

22,055

 

Customer deposits, prepayments and refunds payable

 

24,275

 

18,897

 

22,617

 

Accrued strategic professional fees

 

12,126

 

2,850

 

9,338

 

Cash dividends declared

 

8,882

 

8,847

 

8,963

 

Accrued royalties

 

8,392

 

8,069

 

2,087

 

Loyalty program reward certificates

 

8,073

 

7,552

 

6,321

 

Other

 

25,869

 

14,173

 

11,106

 

Total accrued expenses and other current liabilities

 

$

283,271

 

$

168,120

 

$

175,797

 

 

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

 

 

 

November 1,
 2014

 

November 2,
 2013

 

February 1,
 2014

 

Non-current deferred and other income tax liabilities

 

$

287,851

 

$

47,867

 

$

51,604

 

Deferred rent and landlord incentives

 

60,189

 

55,172

 

55,923

 

Unfavorable lease liabilities

 

12,966

 

423

 

321

 

Other

 

6,606

 

1,488

 

1,444

 

Total deferred taxes and other liabilities

 

$

367,612

 

$

104,950

 

$

109,292

 

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.  Accumulated Other Comprehensive Income

 

The following table summarizes the components of accumulated other comprehensive income for the nine months ended November 1, 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

 

(6,881

)

 

(6,881

)

Amounts reclassified from accumulated other comprehensive income

 

 

399

 

399

 

Net current-period other comprehensive income

 

(6,881

)

399

 

(6,482

)

 

 

 

 

 

 

 

 

BALANCE — November 1, 2014

 

$

20,829

 

$

 

$

20,829

 

 

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 nine months ended November 1, 2014.

 

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

 

 

10.  Non-Controlling Interest and Share Repurchases

 

Non-Controlling Interest

 

In September 2014, we exercised our option and completed the purchase of the remaining 14% interest in our UK operations from the minority interest holders.  As a result, we eliminated the non-controlling interest balance and recorded an increase in capital in excess of par of $7.4 million less the $6.7 million in cash consideration paid to the former minority interest holders.

 

Share Repurchases

 

In March 2013, our Board of Directors (the “Board”) approved a $200.0 million share repurchase program for our common stock.  At November 1, 2014, the remaining balance available under the Board’s March 2013 authorization was $48.0 million.

 

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

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 2013, 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.  In September 2013, JPMorgan delivered an additional 455,769 shares valued at approximately $15.0 million, reflecting a $32.91 price per share.  All repurchased shares under the ASR Agreement were immediately retired.

 

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.

 

11.  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 nine months ended November 1, 2014 was $4.3 million and $12.3 million, respectively.  Share-based compensation expense recognized for the three and nine months ended November 2, 2013 was $3.6 million and $12.7 million, respectively.

 

Non-Vested Deferred Stock Units, Performance Units and Restricted Stock Shares

 

The following table summarizes the activity of time-based and performance-based awards for the nine months ended November 1, 2014:

 

 

 

Units

 

Weighted-Average
Grant-Date
 Fair Value

 

 

 

Time-
Based

 

Performance-Based(2)

 

Time-
Based

 

Performance- Based

 

Non-Vested at February 1, 2014

 

573,042

 

82,558

 

$

32.95

 

$

33.09

 

Granted

 

258,940

 

91,440

 

47.79

 

53.31

 

Vested (1) 

 

(417,159

)

(1,134

)

32.74

 

33.09

 

Forfeited

 

(23,185

)

 

37.70

 

 

Non-Vested at November 1, 2014

 

391,638

 

172,864

 

$

42.70

 

$

43.79

 

 


(1)

Includes 141,594 shares relinquished for tax payments related to vested deferred stock units for the nine months ended November 1, 2014.

(2)

Includes 18,789 and 72,651 of units granted in April 2014 and September 2014, respectively, which are further described below.

 

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 1, 2014 are 36,137 DSUs granted prior to April 3, 2013.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Performance units granted in September 2014 (“September 2014 performance units”) represent a contingent right to receive up to 2.25 shares of common stock and vest after our 2017 fiscal year, subject to our achievement of a performance target for fiscal 2017.  Assuming the performance target is achieved, the number of September 2014 performance units earned will be adjusted based on multipliers related to (1) the Company’s adjusted earnings per share for fiscal 2017 and (2) the Company’s relative total shareholder return (“TSR”) compared to the TSR of other peer companies over a pre-defined period.  Any September 2014 performance units that are unvested at the end of the performance period will lapse and be forfeited.  The September 2014 performance units 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 April 2014 (“April 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 April 2014 performance-based DSUs that are unvested at the end of the one year period will lapse and be forfeited.  The April 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.  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 nine months ended November 1, 2014:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-Vested at February 1, 2014

 

80,919

 

$

31.36

 

Granted

 

26,084

 

49.81

 

Vested

 

(40,125

)

35.19

 

Forfeited

 

 

 

Non-Vested at November 1, 2014

 

66,878

 

$

37.00

 

 

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

 

As of November 1, 2014, we have unrecognized compensation expense related to non-vested DSUs and shares of restricted stock of approximately $16.4 million, which is expected to be recognized over a weighted-average period of 1.8 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the nine months ended November 1, 2014:

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Outstanding at February 1, 2014

 

645,990

 

$

28.80

 

Granted

 

253,836

 

49.16

 

Exercised

 

(170,340

)

26.19

 

Forfeited

 

(60,000

)

17.18

 

Expired

 

 

 

Outstanding at November 1, 2014

 

669,486

 

$

38.23

 

Exercisable at November 1, 2014

 

264,222

 

$

31.31

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The weighted-average grant date fair value of the 253,836 stock options granted during the nine months ended November 1, 2014 was $16.84 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 1, 2014:

 

 

 

For the Nine
Months Ended

 

 

 

November 1,
2014

 

 

 

 

 

Risk-free interest rate

 

1.79%

 

Expected lives

 

5.0 years

 

Dividend yield

 

1.59%

 

Expected volatility

 

42.79%

 

 

As of November 1, 2014, we have unrecognized compensation expense related to non-vested stock options of approximately $5.0 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.  During the nine months ended November 1, 2014, employees purchased 63,700 shares under the ESDP, which had a weighted-average share price of $41.67 per share.  As of November 1, 2014, 676,638 shares were reserved for future issuance under the ESDP.

 

12.  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 1, 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

 

767,804

 

 

767,804

 

Translation adjustment

 

(294

)

(747

)

(1,041

)

Balance at November 1, 2014

 

$

864,429

 

$

28,337

 

$

892,766

 

 

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 November 1, 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 third quarter of fiscal 2014.

 

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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 1,
2014

 

November 2,
2013

 

February 1,
2014

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

$

41,028

 

$

14,288

 

$

12,012

 

Customer relationships

 

86,699

 

32,543

 

33,602

 

Total carrying amount

 

127,727

 

46,831

 

45,614

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks, tradenames, and other intangibles

 

(10,391

)

(8,882

)

(9,007

)

Customer relationships

 

(14,659

)

(8,898

)

(9,895

)

Total accumulated amortization

 

(25,050

)

(17,780

)

(18,902

)

Total amortizable intangible assets, net

 

102,677

 

29,051

 

26,712

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks and tradename

 

570,380

 

31,274

 

31,315

 

Total intangible assets, net

 

$

673,057

 

$

60,325

 

$

58,027

 

 

The pretax amortization expense associated with intangible assets subject to amortization totaled $3.5 million and $0.8 million for the three months ended November 1, 2014 and November 2, 2013, respectively.  The pretax amortization expense associated with intangible assets subject to amortization totaled $6.5 million and $2.5 million for the nine months ended November 1, 2014 and November 2, 2013, respectively.  Pretax amortization associated with intangible assets subject to amortization at November 1, 2014 is estimated to be $3.5 million for the remainder of fiscal year 2014, $13.9 million for each of the fiscal years 2015 and 2016, $13.8 for fiscal year 2017 and $13.7 million for fiscal year 2018.

 

13.  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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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 November 1, 2014, November 2, 2013, and February 1, 2014, the carrying value of cash, accounts receivable, accounts payable and accrued expenses and other current liabilities approximated 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 trading data in active markets, which we classify as a Level 2 input within the fair value hierarchy.  The table below shows the fair value and carrying value of our long-term debt (in thousands):

 

 

 

November 1,
2014

 

November 2,
2013

 

February 1,
2014

 

Carrying value

 

$

1,689,589

 

$

100,000

 

$

97,500

 

Estimated fair value

 

1,718,902

 

100,000

 

97,500

 

 

14.  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 November 1, 2014, November 2, 2013, or February 1, 2014, respectively.

 

For the three and nine months ended November 1, 2014, we recognized net pre-tax gains of $0.8 million and $0.3 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 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.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

15.  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.

 

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 November 1, 2014, Jos. A. Bank generated net sales of $347.0 million.  Net sales by brand and reportable segment are as follows (in thousands):

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

November 1,
2014

 

November 2,
2013

 

November 1,
2014

 

November 2,
2013

 

Net sales:

 

 

 

 

 

 

 

 

 

MW (1)

 

$

436,107

 

$

427,625

 

$

1,307,417

 

$

1,256,057

 

Jos. A. Bank

 

233,313

 

 

347,005

 

 

Moores

 

68,724

 

67,467

 

199,302

 

195,782

 

K&G

 

72,835

 

72,785

 

251,474

 

254,985

 

MW Cleaners

 

8,183

 

7,648

 

24,035

 

22,322

 

Total retail segment

 

819,162

 

575,525

 

2,129,233

 

1,729,146

 

 

 

 

 

 

 

 

 

 

 

Twin Hill

 

11,771

 

11,263

 

31,147

 

29,199

 

Dimensions and Alexandra (UK)

 

59,704

 

62,102

 

163,809

 

154,336

 

Total corporate apparel segment

 

71,475

 

73,365

 

194,956

 

183,535

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

890,637

 

$

648,890

 

$

2,324,189

 

$

1,912,681

 

 


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

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 1,
2014

 

November 2,
2013

 

November 1,
2014

 

November 2,
2013

 

Net sales:

 

 

 

 

 

 

 

 

 

Men’s tailored clothing product

 

$

351,071

 

$

229,895

 

$

878,746

 

$

691,218

 

Men’s non-tailored clothing product

 

263,053

 

168,271

 

655,566

 

499,349

 

Ladies’ clothing product

 

16,575

 

16,096

 

56,224

 

56,115

 

Other

 

3,748

 

1,723

 

7,663

 

1,723

 

Total retail clothing product

 

634,447

 

415,985

 

1,598,199

 

1,248,405

 

 

 

 

 

 

 

 

 

 

 

Tuxedo rental services

 

132,690

 

122,177

 

395,449

 

368,360

 

 

 

 

 

 

 

 

 

 

 

Alteration services

 

43,842

 

29,715

 

111,550

 

90,059

 

Retail dry cleaning services

 

8,183

 

7,648

 

24,035

 

22,322

 

Total alteration and other services

 

52,025

 

37,363

 

135,585

 

112,381

 

 

 

 

 

 

 

 

 

 

 

Corporate apparel clothing product

 

71,475

 

73,365

 

194,956

 

183,535

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

890,637

 

$

648,890

 

$

2,324,189

 

$

1,912,681

 

 

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 Nine Months Ended

 

 

 

November 1,
2014

 

November 2,

2013

 

November 1,
2014

 

November 2,
2013

 

Operating income:

 

 

 

 

 

 

 

 

 

Retail

 

$

39,848

 

$

55,882

 

$

106,117

 

$

172,440

 

Corporate apparel

 

5,327

 

4,123

 

9,043

 

6,906

 

Operating income

 

45,175

 

60,005

 

115,160

 

179,346

 

Interest income

 

125

 

30

 

305

 

332

 

Interest expense

 

(25,131

)

(1,220

)

(39,459

)

(2,104

)

Loss on extinguishment of debt

 

 

 

(2,158

)

 

Earnings before income taxes

 

$

20,169

 

$

58,815

 

$

73,848

 

$

177,574

 

 

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):

 

 

 

November 1,
2014

 

November 2,
2013

 

February 1,
2014

 

Segment assets:

 

 

 

 

 

 

 

Retail

 

$

3,402,411

 

$

1,357,175

 

$

1,306,677

 

Corporate apparel

 

251,016

 

249,276

 

248,553

 

Total assets

 

$

3,653,427

 

$

1,606,451

 

$

1,555,230

 

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

16.  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.  The arbitration proceedings have concluded but a decision has not been rendered.  We will continue 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 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.

 

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.

 

Please see the discussion under Part II, Item 1, Legal Proceedings, regarding a hearing scheduled for February 9, 2015 in the matter of State-Boston Retirement System v. Wildrick, et al. and the ability for shareholders of Men’s Wearhouse to file objections with the Court prior thereto.

 

In addition, we are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business.  Management does not believe that any of these matters will have a material adverse effect on our financial position, results of operations or cash flows.

 

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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 $600.0 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, www.josbank.com and www.josephabboud.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 15 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 have completed our review of strategic alternatives for our K&G operations.  As part of the review, we considered offers to acquire the K&G business, none of which were acceptable.  We have concluded that continuing to operate K&G as a wholly-owned subsidiary of the Company and part of the Company’s overall portfolio will provide the most value to shareholders.

 

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Overview

 

Highlights of our performance for the quarter ended November 1, 2014, which includes Jos. A. Bank’s results, acquisition and integration costs, non-operating items and purchase accounting adjustments, compared to the quarter ended November 2, 2013 are presented below, followed by a more comprehensive discussion under “Results of Operations”:

 

·      Revenues for the third quarter of 2014 increased by $241.7 million or 37.3%, to $890.6 million compared to revenues of $648.9 million in the third quarter of 2013.

·      Gross margin for the third quarter of 2014 increased by $75.7 million or 25.8%, to $369.2 million compared to $293.5 million in the third quarter of 2013.  Gross margin as a percentage of total net sales for the third quarter of 2014 was 41.5% compared to 45.2% for the third quarter of 2013.

·      Advertising expense for the third quarter of 2014 increased by $19.4 million to $42.1 million compared to advertising expense of $22.6 million in the third quarter of 2013.  Advertising expense as a percentage of total net sales for the third quarter 2014 was 4.7% compared to 3.5% for the third quarter of 2013.

·      Selling, general and administrative (“SG&A”) expenses for the third quarter of 2014 increased by $71.1 million or 33.7%, to $282.0 million compared to SG&A expenses of $210.9 million in the third quarter of 2013.  SG&A expenses as a percentage of total net sales for the third quarter of 2014 was 31.7% compared to 32.5% for the third quarter of 2013.

·      Results for the third quarter of 2014 include the recognition of $11.8 million of inventory valuation step up for Jos. A. Bank and a $10.6 million charge for tuxedo inventory rationalization, which were recorded within cost of sales as well as $17.0 million of acquisition and integration costs primarily related to Jos. A. Bank recorded within SG&A.

·      Interest expense for the third quarter of 2014 increased by $23.9 million to $25.1 million compared to interest expense of $1.2 million in the third quarter of 2013.  Interest expense as a percentage of total net sales for the third quarter 2014 was 2.8% compared to 0.2% for the third quarter of 2013.

·      Net earnings attributable to common shareholders for the third quarter of 2014 decreased by $31.4 million or 82.2%, to $6.8 million compared to $38.2 million for the third quarter of 2013.

·      Diluted earnings per common share attributable to common shareholders decreased 82.3% to $0.14 per share for the third quarter of 2014 compared to $0.79 per share for the third quarter of fiscal 2013.

 

Highlights of our performance for the nine months ended November 1, 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 nine months ended November 2, 2013 are presented below, followed by a more comprehensive discussion under “Results of Operations”:

 

·      Revenues for the first nine months of 2014 increased by $411.5 million or 21.5%, to $2,324.2 million compared to revenues of $1,912.7 million in the first nine months of 2013.

·      Gross margin for the first nine months of 2014 increased by $130.9 million or 14.9%, to $1,011.1 million compared to $880.2 million in the first nine months of 2013.  Gross margin as a percentage of total net sales for the first nine months of 2014 was 43.5% compared to 46.0% for the first nine months of 2013.

·      Advertising expense for the first nine months of 2014 increased by $40.5 million to $109.1 million compared to advertising expense of $68.6 million in the first nine months of 2013.  Advertising expense as a percentage of total net sales for the first nine months of 2014 was 4.7% compared to 3.6% for the first nine months of 2013.

·      SG&A expenses for the first nine months of 2014 increased by $164.1 million or 26.4%, to $786.9 million compared to SG&A expenses of $622.8 million in the first nine months of 2013.  SG&A expenses as a percentage of total net sales for the first nine months of 2014 was 33.9% compared to 32.6% for the first nine months of 2013.

·      Results for the first nine months of 2014 include the recognition of $17.6 million of inventory valuation step up for Jos. A. Bank and a $10.6 million charge for tuxedo inventory rationalization, which were recorded within cost of sales as well as $86.4 million of acquisition and integration costs primarily related to Jos. A. Bank and other cost reduction initiatives recorded within SG&A.

·      Interest expense for the first nine months of 2014 increased by $37.4 million to $39.5 million compared to interest expense of $2.1 million in the first nine months of 2013.  Interest expense as a percentage of total net sales for first nine months of 2014 was 1.7% compared to 0.1% for the first nine months of 2013.

·      Net earnings attributable to common shareholders for the first nine months of 2014 decreased by $78.7 million or 68.9%, to $35.5 million compared to $114.2 million for the first nine months of 2013.

·      Diluted earnings per common share attributable to common shareholders decreased 67.7% to $0.74 per share for the first nine months of 2014 compared to $2.29 per share for the first nine months of fiscal 2013.

·      During the first nine months of 2014, we paid cash dividends of $26.1 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 Nine Months
 Ended