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           May 2, 2015          or

 

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

 

For the transition period from                   to                  

 

Commission file number 1-16097

 

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 [ ].

 

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 [ ].

 

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 [  ]. No [X].

 

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at May 29, 2015 was 48,323,891 excluding 129,095 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 May 2, 2015, May 3, 2014 and January 31, 2015

2

 

 

Condensed Consolidated Statements of Earnings for the Three Months Ended May 2, 2015 and May 3, 2014

3

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended May 2, 2015 and May 3, 2014

4

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended May 2, 2015 and May 3, 2014

5

 

 

Notes to Condensed Consolidated Financial Statements

6

 

 

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

24

 

 

Item 3 – Quantitative and Qualitative Disclosures about Market Risk

33

 

 

Item 4 – Controls and Procedures

33

 

 

PART II – Other Information

 

 

 

Item 1 – Legal Proceedings

34

 

 

Item 1A – Risk Factors

34

 

 

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

35

 

 

Item 6 – Exhibits

35

 

 

SIGNATURES

36

 



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, as well as 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 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 January 31, 2015  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 that may be made from time to time, whether as a result of new information, future developments or otherwise.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

May 2,

 

May 3,

 

January 31,

 

 

 

2015

 

2014

 

2015

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

61,802

 

$

95,923

 

$

62,261

 

Accounts receivable, net

 

83,169

 

67,778

 

73,266

 

Inventories

 

986,457

 

645,772

 

938,336

 

Other current assets

 

170,278

 

84,803

 

175,574

 

 

 

 

 

 

 

 

 

Total current assets

 

1,301,706

 

894,276

 

1,249,437

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

560,141

 

406,784

 

566,074

 

 

 

 

 

 

 

 

 

TUXEDO RENTAL PRODUCT, net

 

146,050

 

148,120

 

132,672

 

GOODWILL

 

893,435

 

127,098

 

887,936

 

INTANGIBLE ASSETS, net

 

664,935

 

57,966

 

668,259

 

OTHER ASSETS

 

36,832

 

6,734

 

42,380

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,603,099

 

$

1,640,978

 

$

3,546,758

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

233,066

 

$

168,826

 

$

209,867

 

Accrued expenses and other current liabilities

 

289,956

 

220,452

 

268,935

 

Income taxes payable

 

1,328

 

4,277

 

1,609

 

Current maturities of long-term debt

 

7,000

 

10,000

 

11,000

 

Total current liabilities

 

531,350

 

403,555

 

491,411

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT

 

1,679,634

 

85,000

 

1,676,232

 

DEFERRED TAXES AND OTHER LIABILITIES

 

412,575

 

109,696

 

409,326

 

 

 

 

 

 

 

 

 

Total liabilities

 

2,623,559

 

598,251

 

2,576,969

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

485

 

480

 

482

 

Capital in excess of par

 

442,743

 

417,622

 

440,907

 

Retained earnings

 

538,716

 

580,373

 

537,263

 

Accumulated other comprehensive income (loss)

 

789

 

33,302

 

(5,671

)

Treasury stock, at cost

 

(3,193

)

(3,407

)

(3,192

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

979,540

 

1,028,370

 

969,789

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

14,357

 

 

Total shareholders’ equity

 

979,540

 

1,042,727

 

969,789

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,603,099

 

$

1,640,978

 

$

3,546,758

 

 

 

 

 

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

 

 

 

May 2,

 

May 3,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Net sales:

 

 

 

 

 

Retail clothing product

 

$

666,862

 

$

433,024

 

Tuxedo rental services

 

103,129

 

101,663

 

Alteration and other services

 

54,280

 

38,962

 

Total retail sales

 

824,271

 

573,649

 

Corporate apparel clothing product

 

60,818

 

56,825

 

Total net sales

 

885,089

 

630,474

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

Retail clothing product

 

294,384

 

191,477

 

Tuxedo rental services

 

16,084

 

15,317

 

Alteration and other services

 

36,150

 

27,722

 

Occupancy costs

 

113,096

 

72,847

 

Total retail cost of sales

 

459,714

 

307,363

 

Corporate apparel clothing product

 

43,823

 

39,747

 

Total cost of sales

 

503,537

 

347,110

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

Retail clothing product

 

372,478

 

241,547

 

Tuxedo rental services

 

87,045

 

86,346

 

Alteration and other services

 

18,130

 

11,240

 

Occupancy costs

 

(113,096

)

(72,847

)

Total retail gross margin

 

364,557

 

266,286

 

Corporate apparel clothing product

 

16,995

 

17,078

 

Total gross margin

 

381,552

 

283,364

 

 

 

 

 

 

 

Advertising expense

 

50,656

 

28,771

 

Selling, general and administrative expenses

 

275,607

 

227,312

 

 

 

 

 

 

 

Operating income

 

55,289

 

27,281

 

 

 

 

 

 

 

Interest income

 

28

 

61

 

Interest expense

 

(26,483

)

(1,135

)

Loss on extinguishment of debt

 

(12,675

)

 

 

 

 

 

 

 

Earnings before income taxes

 

16,159

 

26,207

 

Provision for income taxes

 

5,790

 

9,749

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

10,369

 

16,458

 

Net loss attributable to non-controlling interest

 

 

28

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

 

$

10,369

 

$

16,486

 

 

 

 

 

 

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

Basic

 

$

0.22

 

$

0.34

 

Diluted

 

$

0.21

 

$

0.34

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

Basic

 

48,130

 

47,607

 

Diluted

 

48,429

 

47,974

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

May 2,

 

May 3,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

$

10,369

 

$

16,458

 

Currency translation adjustments

 

6,086

 

6,180

 

Unrealized gain on cash flow hedge, net of tax

 

374

 

182

 

Comprehensive income including non-controlling interest

 

16,829

 

22,820

 

 

 

 

 

 

 

Comprehensive income attributable to non-controlling interest:

 

 

 

 

 

Net loss

 

 

28

 

Currency translation adjustments

 

 

(371

)

 

 

 

 

 

 

Amounts attributable to non-controlling interest

 

 

(343

)

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

16,829

 

$

22,477

 

 

 

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

May 2,

 

May 3,

 

 

 

2015

 

2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including non-controlling interest

 

$

10,369

 

$

16,458

 

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

 

 

 

 

 

Depreciation and amortization

 

31,906

 

21,929

 

Tuxedo rental product amortization

 

7,604

 

7,497

 

Amortization of deferred financing costs

 

1,796

 

140

 

Amortization of discount on long-term debt

 

340

 

 

Loss on extinguishment of debt

 

12,675

 

 

Loss on disposition of assets

 

424

 

1,357

 

Asset impairment charges

 

 

302

 

Share-based compensation

 

4,475

 

3,974

 

Excess tax benefits from share-based plans

 

(981

)

(3,002

)

Deferred tax provision (benefit)

 

7,870

 

(4,326

)

Deferred rent expense and other

 

1,116

 

75

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(9,629

)

(3,586

)

Inventories

 

(44,162

)

(43,195

)

Tuxedo rental product

 

(20,204

)

(12,495

)

Other assets

 

(6,124

)

12,945

 

Accounts payable, accrued expenses and other current liabilities

 

49,858

 

65,288

 

Income taxes payable

 

1,369

 

6,547

 

Other liabilities

 

283

 

(95

)

 

 

 

 

 

 

Net cash provided by operating activities

 

48,985

 

69,813

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(30,384

)

(22,543

)

 

 

 

 

 

 

Net cash used in investing activities

 

(30,384

)

(22,543

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from asset-based revolving credit facility

 

3,000

 

 

Payments on asset-based revolving credit facility

 

(3,000

)

 

Payments on new term loan

 

(4,500

)

 

Payments on previous term loan

 

 

(2,500

)

Deferred financing costs

 

(3,566

)

(1,389

)

Cash dividends paid

 

(8,863

)

(8,812

)

Proceeds from issuance of common stock

 

908

 

4,373

 

Tax payments related to vested deferred stock units

 

(4,506

)

(5,732

)

Excess tax benefits from share-based plans

 

981

 

3,002

 

Repurchases of common stock

 

(277

)

(251

)

 

 

 

 

 

 

Net cash used in financing activities

 

(19,823

)

(11,309

)

Effect of exchange rate changes

 

763

 

710

 

 

 

 

 

 

 

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(459

)

36,671

 

Balance at beginning of period

 

62,261

 

59,252

 

Balance at end of period

 

$

61,802

 

$

95,923

 

 

 

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.

 

Our business historically has been seasonal in nature and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended January 31, 2015.

 

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.

 

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 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Simplifying the Presentation of Debt Issuance Costs. The guidance requires that debt issuance costs related to a recognized debt liability be reported on the balance sheet as a direct deduction from the carrying amount of that debt liability. The guidance is effective for fiscal years and interim periods beginning after December 15, 2015, and is required to be applied retrospectively.  Early adoption is permitted.  We have not adopted ASU 2015-03 but upon adoption, we will reclassify our debt issuance costs related to existing debt liabilities from assets to liabilities on the balance sheet.  At May 2, 2015, we have $39.0 million of debt issuance costs recorded as assets on the balance sheet.

 

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.  The guidance allows for either a full retrospective or a modified retrospective transition method.  We are currently evaluating the impact of this guidance, including the transition method, on our financial position, results of operations and cash flows.

 

2.  Acquisition

 

Jos. A. Bank

 

On June 18, 2014, we acquired 100% 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 integration costs related to Jos. A. Bank totaling $5.8 million for the three months ended May 2, 2015 which is included in selling, general and administrative expenses (“SG&A”) in the condensed consolidated statement of earnings.

 

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Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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):

 

 

 

 

 

 

 

Adjusted

 

 

 

Preliminary

 

Measurement

 

preliminary

 

 

 

valuation at

 

period

 

valuation at

 

 

 

August 2, 2014

 

adjustments

 

May 2, 2015

 

Cash

 

$

328.9

 

$

 

$

328.9

 

Accounts receivable (mainly credit card receivables)

 

7.1

 

1.2

 

8.3

 

Inventories

 

379.3

 

(50.5

)

328.8

 

Other current assets

 

29.3

 

27.1

 

56.4

 

Property and equipment

 

174.8

 

(9.5

)

165.3

 

Goodwill

 

744.7

 

23.9

 

768.6

 

Intangible assets

 

621.2

 

1.0

 

622.2

 

Accounts payable, accrued expenses and other current liabilities

 

(177.0

)

21.6

 

(155.4

)

Other liabilities (mainly deferred income taxes)

 

(288.0

)

(14.8

)

(302.8

)

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.

 

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

 

 

 

May 3, 2014

 

Total net sales

 

$

847,896

 

Net earnings attributable to common shareholders

 

$

20,197

 

Net earnings per common share attributable to common shareholders:

 

 

 

Basic

 

$

0.42

 

Diluted

 

$

0.42

 

 

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.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

May 2,

 

May 3,

 

 

 

2015

 

2014

 

Numerator

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

10,369

 

$

16,486

 

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

 

(12

)

(65

)

Net earnings attributable to common shareholders

 

$

10,357

 

$

16,421

 

Denominator

 

 

 

 

 

Basic weighted-average common shares outstanding

 

48,130

 

47,607

 

Dilutive effect of share-based awards

 

299

 

367

 

Diluted weighted-average common shares outstanding

 

48,429

 

47,974

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

Basic

 

$

0.22

 

$

0.34

 

Diluted

 

$

0.21

 

$

0.34

 

 

For the three months ended May 2, 2015 and May 3, 2014, 0.3 million and 0.1 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share attributable to common shareholders, respectively.

 

4.  Debt

 

On June 18, 2014, we entered into a term loan credit agreement that 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 (“OID”), 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, on June 18, 2014, we issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the “Senior Notes”).

 

The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios, as well as a restriction on our ability to pay dividends on our common stock in excess of $10.0 million per quarter.  Since entering into these financing arrangements and as of May 2, 2015, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements, which was anticipated when we entered into these arrangements.  As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make acquisitions and incur additional indebtedness.

 

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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 of 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 the Previous Credit Agreement as well as settlement of the then existing interest rate swap.

 

Credit Facilities

 

The Term Loan is guaranteed, jointly and severally, by certain of our U.S. subsidiaries and will mature on June 18, 2021.  The interest rate on the Term Loan is based on 3-month LIBOR, which was approximately 0.28% at May 2, 2015.    However, the Term Loan interest rate is 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%.  In January 2015, we entered into an interest rate swap agreement to swap variable-rate interest payments for fixed-rate interest payments on a notional amount of $520.0 million, effective in February 2015.  The interest rate swap agreement matures in August 2018 and has periodic interest settlements.  Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and pay a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount.

 

On April 7, 2015, we entered into Incremental Facility Agreement No. 1 (the “Incremental Agreement”) resulting in a refinancing of $400.0 million aggregate principal amount of the Term Loan from a variable rate to a fixed rate of 5.0% per annum.  The Incremental Agreement did not impact the total amount borrowed under the Term Loan, the maturity date of the Term Loan of June 18, 2021, or collateral and guarantees under the Term Loan.  In connection with the Incremental Agreement, we incurred deferred financing costs of $3.6 million, which will be amortized over the life of the remaining term using the interest method.  In addition, as a result of entering into the Incremental Agreement, we recorded a loss on extinguishment of debt totaling $12.7 million consisting of the elimination of unamortized deferred financing costs and OID related to the Term Loan, which is included as a separate line in the condensed consolidated statement of earnings.

 

As a result of the interest rate swap and the Incremental Agreement, we have converted a majority of the variable interest rate under the Term Loan to a fixed rate and, as of May 2, 2015, the Term Loan had a weighted average interest rate of 4.93%.

 

The ABL Facility provides for a senior secured asset-based revolving credit facility of $500.0 million, with possible future increases to $650.0 million with 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 LIBOR, (ii) Canadian Dollar Offered 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 adjusted LIBOR 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%.

 

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 May 2, 2015 and we have approximately $441.4 million of borrowing availability under the ABL Facility as of May 2, 2015.

 

Senior Notes

 

The Senior Notes contain 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 will mature on July 1, 2022.  Interest on the Senior Notes is payable on January 1 and July 1 of each year.

 

We have 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.  On May 26, 2015, we commenced the exchange offer which is currently scheduled to expire on June 23, 2015.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Long-Term Debt

 

The following table provides details on our long-term debt as of May 2, 2015, May 3, 2014 and January 31, 2015 (in thousands):

 

 

 

May 2,

 

May 3,

 

January 31,

 

 

 

2015

 

2014

 

2015

 

Term Loan (net of unamortized original issue discount of $6.1 million at May 2, 2015 and $10.0 million at January 31, 2015)

 

$

1,086,634

 

$

 

$

1,087,232

 

Senior Notes

 

600,000

 

 

600,000

 

Term loan under Previous Credit Agreement

 

 

95,000

 

 

Total long-term debt

 

1,686,634

 

95,000

 

1,687,232

 

Current portion of long-term debt

 

(7,000

)

(10,000

)

(11,000

)

Total long-term debt, net of current portion

 

$

1,679,634

 

$

85,000

 

$

1,676,232

 

 

5.  Supplemental Cash Flows

 

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

 

 

 

For the Three Months Ended

 

 

 

May 2,

 

May 3,

 

 

 

2015

 

2014

 

 

 

 

 

 

 

Cash paid for interest

 

$

25,834

 

$

1,026

 

Cash paid (refunded) for income taxes, net

 

$

5,030

 

$

(6,308

)

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Cash dividends declared

 

$

8,764

 

$

8,725

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $11.0 million and $8.0 million at May 2, 2015 and May 3, 2014, 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.  Inventories

 

The following table provides details on our inventories as of May 2, 2015, May 3, 2014 and January 31, 2015 (in thousands):

 

 

 

May 2,

 

May 3,

 

January 31,

 

 

 

2015

 

2014

 

2015

 

Finished goods

 

$

 

952,116

 

$

 

599,403

 

$

 

883,323

 

Raw materials and merchandise components

 

34,341

 

46,369

 

55,013

 

Total inventories

 

$

 

986,457

 

$

 

645,772

 

$

 

938,336

 

 

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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):

 

 

 

May 2,

 

May 3,

 

January 31,

 

 

 

2015

 

2014

 

2015

 

Tax receivable

 

$

 

86,761

 

$

 

3,039

 

$

 

87,916

 

Prepaid expenses

 

39,974

 

35,782

 

39,375

 

Current deferred tax assets

 

23,631

 

38,536

 

23,777

 

Other

 

19,912

 

7,446

 

24,506

 

Total other current assets

 

$

 

170,278

 

$

 

84,803

 

$

 

175,574

 

 

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

 

 

 

May 2,

 

May 3,

 

January 31,

 

 

 

2015

 

2014

 

2015

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

69,922

 

$

47,181

 

$

83,515

 

Customer deposits, prepayments and refunds payable

 

59,830

 

58,955

 

24,540

 

Unredeemed gift certificates

 

37,071

 

14,242

 

39,563

 

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

 

36,199

 

25,313

 

28,765

 

Accrued workers compensation and medical costs

 

28,816

 

21,862

 

28,814

 

Accrued interest

 

14,161

 

380

 

15,715

 

Cash dividends declared

 

8,764

 

8,725

 

8,987

 

Loyalty program reward certificates

 

7,293

 

6,433

 

6,889

 

Accrued strategic professional fees

 

4,888

 

24,605

 

7,566

 

Other

 

23,012

 

12,756

 

24,581

 

Total accrued expenses and other current liabilities

 

$

289,956

 

$

220,452

 

$

268,935

 

 

 

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

 

 

 

May 2,

 

May 3,

 

January 31,

 

 

 

2015

 

2014

 

2015

 

Non-current deferred and other income tax liabilities

 

$

 

331,728

 

$

 

52,381

 

$

 

328,271

 

Deferred rent and landlord incentives

 

62,737

 

55,948

 

61,475

 

Unfavorable lease liabilities

 

11,062

 

278

 

12,040

 

Other

 

7,048

 

1,089

 

7,540

 

Total deferred taxes and other liabilities

 

$

 

412,575

 

$

 

109,696

 

$

 

409,326

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

8.  Accumulated Other Comprehensive Income (Loss)

 

The following table summarizes the components of accumulated other comprehensive income (loss) for the three months ended May 2, 2015 (in thousands and net of tax):

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

Currency

 

Interest Rate

 

Pension

 

 

 

 

 

Translation

 

Swap

 

Plan

 

Total

 

 

 

 

 

 

 

 

 

 

 

BALANCE — January 31, 2015

 

$

 (4,232

)

$

 (1,665

)

$

 226

 

$

(5,671

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive (loss) income before reclassifications

 

6,086

 

(34

)

 

6,052

 

Amounts reclassified from accumulated other comprehensive income

 

 

408

 

 

408

 

Net current period other comprehensive income

 

6,086

 

374

 

 

6,460

 

 

 

 

 

 

 

 

 

 

 

BALANCE —May 2, 2015

 

$

 1,854

 

$

(1,291

)

$

 226

 

$

 789

 

 

The following table summarizes the components of accumulated other comprehensive income for the three months ended May 3, 2014 (in thousands and net of tax):

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

Currency

 

Interest Rate

 

Pension

 

 

 

 

 

Translation

 

Swap

 

Plan

 

Total

 

 

 

 

 

 

 

 

 

 

 

BALANCE — February 1, 2014

 

$

 27,710

 

$

 (399

)

$

 —

 

$

 27,311

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassifications

 

6,180

 

19

 

 

6,199

 

Other comprehensive income attributable to non-controlling interest

 

(371

)

 

 

(371

)

Amounts reclassified from accumulated other comprehensive income

 

 

163

 

 

163

 

Net current period other comprehensive income

 

5,809

 

182

 

 

5,991

 

 

 

 

 

 

 

 

 

 

 

BALANCE —May 3, 2014

 

$

 33,519

 

$

 (217

)

$

 —

 

$

 33,302

 

 

Amounts reclassified from other comprehensive income for the three months ended May 2, 2015 and May 3, 2014, respectively, relate to changes in fair value for interest rate swaps which were recorded within interest expense in the condensed consolidated statements of earnings.

 

9.  Share-Based Compensation Plans

 

For a discussion of our share-based compensation plans refer to Note 11 in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015.

 

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 months ended May 2, 2015 and May 3, 2014 was $4.5 million and 4.0 million, respectively.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 three months ended May 2, 2015:

 

 

 

 

 

Weighted-Average

 

 

 

Shares

 

Grant-Date Fair Value

 

 

 

Time-

 

Performance-

 

Time-

 

Performance-

 

 

 

Based

 

Based

 

Based

 

Based

 

Non-Vested at January 31, 2015

 

378,518

 

170,789

 

$

42.67

 

$

43.94

 

Granted

 

344,620

 

28,660

 

52.28

 

52.75

 

Vested(1)

 

(228,837

)

(18,977

)

43.81

 

46.41

 

Forfeited

 

(10,529

)

(20,000

)

34.58

 

33.09

 

Non-Vested at May 2, 2015

 

483,772

 

160,472

 

$

49.16

 

$

46.58

 

 

___________

(1)          Includes 85,247 shares relinquished for tax payments related to vested deferred stock units for the three months ended May 2, 2015.

 

On April 3, 2013, our Board of Directors 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 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 May 2, 2015 are 17,576 DSUs granted prior to April 3, 2013.

 

Of the 28,660 performance units granted in the first quarter of 2015, 22,645 units represent a contingent right to receive one share of common stock and vest after our 2017 fiscal year, subject to our achievement of a cumulative performance target for fiscal years 2015-2017.

 

The remaining 6,015 performance units granted in the first quarter of 2015 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 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 certain peer companies over a pre-defined period.

 

Performance units that are unvested at the end of the performance period will lapse and be forfeited.  The 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”) represented a contingent right to receive one share of common stock and vested over a one year period, subject to our achievement of a performance target for 2014.  Having met the performance target for 2014, the April 2014 performance-based DSUs vested in accordance with their terms in April 2015.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table summarizes the activity of restricted stock for the three months ended May 2, 2015:

 

 

 

 

 

Weighted-Average

 

 

 

Shares

 

Grant-Date Fair Value

 

Non-Vested at January 31, 2015

 

67,790

 

$

37.05

 

Granted

 

3,276

 

57.23

 

Vested

 

(22,498

)

30.57

 

Forfeited

 

(19,360

)

27.77

 

Non-Vested at May 2, 2015

 

29,208

 

$

50.47

 

 

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

 

As of May 2, 2015, we have unrecognized compensation expense related to non-vested DSUs, performance units, and shares of restricted stock of approximately $27.2 million, which is expected to be recognized over a weighted-average period of 1.9 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the three months ended May 2, 2015:

 

 

 

 

 

Weighted-

 

 

 

Number of

 

Average

 

 

 

Shares

 

Exercise Price

 

 

 

 

 

 

 

Options outstanding at January 31, 2015

 

660,283

 

$

38.28

 

Granted

 

19,241

 

52.50

 

Exercised

 

(2,500

)

29.87

 

Forfeited

 

 

 

Expired

 

 

 

Outstanding at May 2, 2015

 

677,024

 

$

38.72

 

Exercisable at May 2, 2015

 

308,187

 

$

32.16

 

 

The weighted-average grant date fair value of the 19,241 stock options granted during the three months ended May 2, 2015 was $17.24 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 three months ended May 2, 2015:

 

 

 

For the Three

 

 

 

Months Ended

 

 

 

May 2, 2015

 

Risk-free interest rates

 

1.40

%

Expected lives

 

5.0 years

 

Dividend yield

 

1.38

%

Expected volatility

 

40.77

%

 

As of May 2, 2015, we have unrecognized compensation expense related to non-vested stock options of approximately $4.3 million, which is expected to be recognized over a weighted-average period of 1.8 years.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

10.  Goodwill and Other Intangible Assets

 

Goodwill

 

Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the three months ended May 2, 2015 are as follows (in thousands):

 

 

 

 

 

Corporate

 

 

 

 

 

Retail

 

Apparel

 

Total

 

Balance, January 31, 2015

 

$

861,180

 

$

26,756

 

$

887,936

 

Goodwill of acquired business

 

4,361

 

 

4,361

 

Translation adjustment

 

995

 

143

 

1,138

 

Balance, May 2, 2015

 

$

866,536

 

$

26,899

 

$

893,435

 

 

As discussed 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 May 2, 2015.

 

Goodwill is evaluated for impairment at least annually.  A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock.  No additional impairment evaluation was considered necessary during the first quarter of fiscal 2015.

 

Intangible Assets

 

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

 

 

 

May 2,

 

May 3,

 

January 31,

 

 

 

2015

 

2014

 

2015

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks and tradenames

 

$

16,464

 

$

12,096

 

$

16,448

 

Favorable leases

 

24,400

 

 

24,400

 

Customer relationships

 

84,960

 

34,492

 

84,788

 

Total carrying amount

 

125,824

 

46,588

 

125,636

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks and tradenames

 

(9,445

)

(9,090

)

(9,331

)

Favorable leases

 

(2,636

)

 

(1,883

)

Customer relationships

 

(19,120

)

(10,882

)

(16,468

)

Total accumulated amortization

 

(31,201

)

(19,972

)

(27,682

)

Total amortizable intangible assets, net

 

94,623

 

26,616

 

97,954

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks and tradename

 

570,312

 

31,350

 

570,305

 

Total intangible assets, net

 

$

664,935

 

$

57,966

 

$

668,259

 

 

The pretax amortization expense associated with intangible assets subject to amortization totaled $3.4 million and $0.8 million for the three months ended May 2, 2015 and May 3, 2014, respectively.  Pretax amortization associated with intangible assets subject to amortization at May 2, 2015 is estimated to be $10.3 million for the remainder of fiscal year 2015, $13.7 million for each of the fiscal years 2016 and 2017, and $13.6 million for fiscal year 2018 and 2019.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

11.  Derivative Financial Instruments

 

As discussed in Note 4, in January 2015, we entered into an interest rate swap agreement on a notional amount of $520.0 million that matures in August 2018 with periodic interest settlements.  We have designated the interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark interest rate.  At May 2, 2015, the fair value of the interest rate swap was a net liability of $2.1 million with $2.4 million recorded in accrued expenses and other current liabilities and $0.3 million in other assets in our consolidated balance sheet.  The effective portion of the swap is reported as a component of accumulated other comprehensive income.  There was no hedge ineffectiveness at May 2, 2015.  Changes in fair value are reclassified from accumulated other comprehensive income into earnings in the same period that the hedged item affects earnings.

 

Over the next 12 months, $2.4 million of the effective portion of the interest rate swap is expected to be reclassified from accumulated other comprehensive income into earnings.  If, at any time, the interest rate swap is determined to be ineffective, in whole or in part, due to changes in the interest rate swap or underlying debt agreements, the fair value of the portion of the interest rate swap determined to be ineffective will be recognized as a gain or loss in the statement of earnings for the applicable period.

 

12.  Fair Value Measurements

 

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.  The authoritative guidance for fair value measurements establishes a three-tier fair value hierarchy, categorizing the inputs used to measure fair value.  The hierarchy can be described as follows:  Level 1- observable inputs such as quoted prices in active markets; Level 2- inputs other than the quoted prices in active markets that are observable either directly or indirectly; and Level 3- unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.  The fair value hierarchy also requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value.  There were no transfers into or out of Level 1 and Level 2 during the three months ended May 2, 2015.

 

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 May 2, 2015, May 3, 2014, and January 31, 2015, 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 for similar types of debt, which we classify as a Level 2 input within the fair value hierarchy.  The fair value of our Senior Notes is based on 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, including current maturities (in thousands):

 

 

 

May 2, 2015

 

May 3, 2014

 

January 31, 2015

 

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

Amount

 

Fair Value

 

Long-term debt, including current maturities

 

$

1,686,634

 

$

1,737,050

 

$

95,000

 

$

95,000

 

$

1,687,232

 

$

1,706,546

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

13.  Segment Reporting

 

Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.

 

The retail segment includes the results from our four retail merchandising brands: Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men (“Moores”) and K&G.  These four brands are operating segments that have been aggregated into the retail reportable segment.  MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on our revenues or expenses.  Specialty apparel merchandise offered by our four retail merchandising concepts include suits, suit separates, sport coats, slacks, business casual, sportswear, outerwear, dress and casual 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.

 

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.  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.

 

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

 

 

 

For the Three Months Ended

 

 

 

May 2,

 

May 3,

 

 

 

2015

 

2014

 

Net sales:

 

 

 

 

 

MW (1)

 

$

456,376

 

$

420,979

 

Jos. A. Bank

 

216,062

 

 

Moores

 

47,520

 

52,502

 

K&G

 

95,996

 

92,421

 

MW Cleaners

 

8,317

 

7,747

 

Total retail segment

 

824,271

 

573,649

 

 

 

 

 

 

 

Twin Hill

 

8,578

 

8,244

 

Dimensions and Alexandra (UK)

 

52,240

 

48,581

 

Total corporate apparel segment

 

60,818

 

56,825

 

 

 

 

 

 

 

Total net sales

 

$

885,089

 

$

630,474

 

 

(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 the Company (in thousands):

 

 

 

For the Three Months Ended

 

 

 

May 2,

 

May 3,

 

 

 

2015

 

2014

 

Net sales:

 

 

 

 

 

Men’s tailored clothing product

 

$

386,336

 

$

239,436

 

Men’s non-tailored clothing product

 

256,010

 

171,106

 

Ladies clothing product

 

21,632

 

20,851

 

Other

 

2,884

 

1,631

 

Total retail clothing product

 

666,862

 

433,024

 

 

 

 

 

 

 

Tuxedo rental services

 

103,129

 

101,663

 

 

 

 

 

 

 

Alteration services

 

45,963

 

31,215

 

Retail dry cleaning services

 

8,317

 

7,747

 

Total alteration and other services

 

54,280

 

38,962

 

 

 

 

 

 

 

Corporate apparel clothing product

 

60,818

 

56,825

 

 

 

 

 

 

 

Total net sales

 

$

885,089

 

$

630,474

 

 

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

 

 

 

For the Three Months Ended

 

 

 

May 2,

 

May 3,

 

 

 

2015

 

2014

 

Operating income:

 

 

 

 

 

Retail

 

$

54,033

 

$

26,525

 

Corporate apparel

 

1,256

 

756

 

Operating income

 

55,289

 

27,281

 

Interest income

 

28

 

61

 

Interest expense

 

(26,483

)

(1,135

)

Loss on extinguishment of debt

 

(12,675

)

 

Earnings before income taxes

 

$

16,159

 

$

26,207

 

 

14.  Legal Matters

 

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.  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.

 

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.  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.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.  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.

 

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.

 

15. Condensed Consolidating Information

 

As discussed in Note 4, The Men’s Wearhouse, Inc. (the “Issuer”) issued $600.0 million in aggregate principal amount of 7.00% Senior Notes.  The Senior Notes are guaranteed by certain of our U.S. subsidiaries (collectively, the “Guarantors”).  Our Canadian and U.K. subsidiaries (collectively, the “Non-Guarantors”) are not guarantors of the Senior Notes.  Each of the Guarantors is 100% owned and all guarantees are joint and several.  In addition, the guarantees are full and unconditional except for certain automatic release provisions related to the Guarantors.

 

These automatic release provisions are considered customary and include the sale or other disposition of all or substantially all of the assets or all of the capital stock of any subsidiary guarantor, the release or discharge of a guarantor’s guarantee of the obligations under the Term Loan other than a release or discharge through payment thereon, the designation in accordance with the Indenture of a guarantor as an unrestricted subsidiary or the satisfaction of the requirements for defeasance or discharge of the Senior Notes as provided for in the Indenture.

 

The tables in the following pages present the condensed consolidating financial information for the Issuer, the Guarantors and the Non-Guarantors, together with eliminations, as of and for the periods indicated.  The consolidating financial information may not necessarily be indicative of the financial positions, results of operations or cash flows had the Issuer, Guarantors and Non-Guarantors operated as independent entities.

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Men’s Wearhouse, Inc.

Condensed Consolidating Balance Sheet

May 2, 2015

(in thousands)

 

 

 

The Men’s

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

Wearhouse Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,889

 

$

4,798

 

$

35,115

 

$

 

$

61,802

 

Accounts receivable, net

 

31,050

 

367,908

 

37,016

 

(352,805

)

83,169

 

Inventories

 

251,227

 

582,638

 

152,592

 

 

986,457

 

Other current assets

 

110,398

 

50,749

 

9,131

 

 

170,278

 

Total current assets

 

414,564

 

1,006,093

 

233,854

 

(352,805

)

1,301,706

 

Property, plant and equipment, net

 

307,618

 

212,451

 

40,072

 

 

560,141

 

Tuxedo rental product, net

 

112,303

 

15,474

 

18,273

 

 

146,050

 

Goodwill

 

6,160

 

838,830

 

48,445

 

 

893,435

 

Intangible assets, net

 

266

 

642,659

 

22,010

 

 

664,935

 

Investments in subsidiaries

 

2,436,438

 

 

 

(2,436,438

)

 

Other assets

 

69,272

 

875

 

9,417

 

(42,732

)

36,832

 

Total assets

 

$

3,346,621

 

$

2,716,382

 

$

372,071

 

$

(2,831,975

)

$

3,603,099

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

421,947

 

$

114,764

 

$

49,160

 

$

(352,805

)

$

233,066

 

Accrued expenses and other current liabilities

 

174,239

 

93,061

 

23,984

 

 

291,284

 

Current maturities of long-term debt

 

7,000

 

 

 

 

7,000

 

Total current liabilities

 

603,186

 

207,825

 

73,144

 

(352,805

)

531,350

 

Long-term debt

 

1,679,634

 

 

33,432

 

(33,432

)

1,679,634

 

Deferred taxes and other liabilities

 

84,261

 

326,135

 

11,479

 

(9,300

)

412,575

 

Shareholders’ equity

 

979,540

 

2,182,422

 

254,016

 

(2,436,438

)

979,540

 

Total liabilities and shareholders’ equity

 

$

3,346,621

 

$

2,716,382

 

$

372,071

 

$

(2,831,975

)

$

3,603,099

 

 

The Men’s Wearhouse, Inc.

Condensed Consolidating Balance Sheet

May 3, 2014

(in thousands)

 

 

 

The Men’s

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

Wearhouse Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

50,675

 

$

1,738

 

$

43,510

 

$

 

$

95,923

 

Accounts receivable, net

 

21,317

 

61,146

 

37,186

 

(51,871

)

67,778

 

Inventories

 

265,318

 

229,042

 

151,412

 

 

645,772

 

Other current assets

 

61,932

 

14,453

 

8,418

 

 

84,803

 

Total current assets

 

399,242

 

306,379

 

240,526

 

(51,871

)

894,276

 

Property, plant and equipment, net

 

304,381

 

62,060

 

40,343

 

 

406,784

 

Tuxedo rental product, net

 

117,186

 

8,831

 

22,103

 

 

148,120

 

Goodwill

 

7,564

 

65,720

 

53,814

 

 

127,098

 

Intangible assets, net

 

374

 

30,000

 

27,592

 

 

57,966

 

Investments in subsidiaries

 

590,196

 

 

 

(590,196

)

 

Other assets

 

66,195

 

363

 

10,582

 

(70,406

)

6,734

 

Total assets

 

$

1,485,138

 

$

473,353

 

$

394,960

 

$

(712,473

)

$

1,640,978

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

79,674

 

$

99,551

 

$

41,472

 

$

(51,871

)

$

168,826

 

Accrued expenses and other current liabilities

 

176,450

 

22,499

 

25,780

 

 

224,729

 

Current maturities of long-term debt

 

10,000

 

 

 

 

10,000

 

Total current liabilities

 

266,124

 

122,050

 

67,252

 

(51,871

)

403,555

 

Long-term debt

 

85,000

 

 

59,906

 

(59,906

)

85,000

 

Deferred taxes and other liabilities

 

91,287

 

15,867

 

13,042

 

(10,500

)

109,696

 

Shareholders’ equity

 

1,042,727

 

335,436

 

254,760

 

(590,196

)

1,042,727

 

Total liabilities and shareholders’ equity

 

$

1,485,138

 

$

473,353

 

$

394,960

 

$

(712,473

)

$

1,640,978

 

 

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THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Men’s Wearhouse, Inc.

Condensed Consolidating Balance Sheet

January 31, 2015

(in thousands)