Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended August 1, 2015 or

 

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

 

For the transition period from                   to                  

 

Commission file number 1-16097

 

THE MEN’S WEARHOUSE, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Texas

 

74-1790172

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

 

 

 

6380 Rogerdale Road

 

 

Houston, Texas

 

77072-1624

(Address of Principal Executive Offices)

 

(Zip Code)

 

(281) 776-7000

(Registrant’s telephone number, including area code)

 

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

 

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

 

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

 

Large accelerated filer         x

 

Accelerated filer    o

 

 

 

Non-accelerated filer       o

(Do not check if a smaller reporting company)

Smaller reporting company o

 

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

 

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at August 28, 2015 was 48,356,661 excluding 124,693 shares classified as Treasury Stock.

 

 

 



Table of Contents

 

REPORT INDEX

 

Part and Item No.

 

Page No.

 

 

 

PART I — Financial Information

 

 

 

 

 

 

Item 1 — Condensed Consolidated Financial Statements (unaudited)

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheets as of August 1, 2015, August 2, 2014 and January 31, 2015

 

2

 

 

 

 

 

Condensed Consolidated Statements of Earnings for the Three and Six Months Ended August 1, 2015 and August 2, 2014

 

3

 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended August 1, 2015 and August 2, 2014

 

4

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 1, 2015 and August 2, 2014

 

5

 

 

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

 

 

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

 

26

 

 

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

 

39

 

 

 

 

 

Item 4 — Controls and Procedures

 

39

 

 

 

 

PART II — Other Information

 

 

 

 

 

 

 

Item 1 — Legal Proceedings

 

40

 

 

 

 

 

Item 1A — Risk Factors

 

40

 

 

 

 

 

Item 6 — Exhibits

 

40

 

 

 

 

SIGNATURES

 

41

 



Table of Contents

 

Forward-Looking and Cautionary Statements

 

Certain statements made in this Quarterly Report on Form 10-Q and in other public filings and press releases by the Company (as defined below) contain “forward-looking” information (as defined in the Private Securities Litigation Reform Act of 1995) that involves risk and uncertainty.  These forward-looking statements reflect our current views regarding certain events that could affect our financial condition or results of operations and may include, but are not limited to, references to future sales, comparable sales, earnings, margins, costs, number and costs of store openings, closings, and expansions, 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; disruptions in our supply chain; 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, Part 1A of our Quarterly Report on Form 10-Q for the quarter ended May 2, 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.

 

All written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by this cautionary notice.

 

1



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

August 1,
2015

 

August 2,
2014

 

January 31,
2015

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

73,403

 

$

67,235

 

$

62,261

 

Accounts receivable, net

 

70,392

 

89,195

 

73,266

 

Inventories

 

956,976

 

1,044,520

 

938,336

 

Other current assets

 

153,350

 

99,744

 

169,809

 

 

 

 

 

 

 

 

 

Total current assets

 

1,254,121

 

1,300,694

 

1,243,672

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

551,920

 

573,911

 

566,074

 

 

 

 

 

 

 

 

 

RENTAL PRODUCT, net

 

148,037

 

146,464

 

132,672

 

GOODWILL

 

891,316

 

874,955

 

887,936

 

INTANGIBLE ASSETS, net

 

661,973

 

676,861

 

668,259

 

OTHER ASSETS

 

8,985

 

10,349

 

9,599

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

3,516,352

 

$

3,583,234

 

$

3,508,212

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

176,560

 

$

214,766

 

$

209,867

 

Accrued expenses and other current liabilities

 

268,376

 

273,974

 

268,935

 

Income taxes payable

 

2,326

 

1,201

 

1,609

 

Current maturities of long-term debt

 

7,000

 

11,000

 

11,000

 

 

 

 

 

 

 

 

 

Total current liabilities

 

454,262

 

500,941

 

491,411

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT, net

 

1,649,487

 

1,636,831

 

1,637,686

 

DEFERRED TAXES AND OTHER LIABILITIES

 

393,628

 

393,413

 

409,326

 

 

 

 

 

 

 

 

 

Total liabilities

 

2,497,377

 

2,531,185

 

2,538,423

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

485

 

481

 

482

 

Capital in excess of par

 

448,036

 

423,169

 

440,907

 

Retained earnings

 

577,648

 

583,903

 

537,263

 

Accumulated other comprehensive (loss) income

 

(4,110

)

33,380

 

(5,671

)

Treasury stock, at cost

 

(3,084

)

(3,303

)

(3,192

)

 

 

 

 

 

 

 

 

Total equity attributable to common shareholders

 

1,018,975

 

1,037,630

 

969,789

 

 

 

 

 

 

 

 

 

Non-controlling interest

 

 

14,419

 

 

 

 

 

 

 

 

 

 

Total shareholders’ equity

 

1,018,975

 

1,052,049

 

969,789

 

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

 

$

3,516,352

 

$

3,583,234

 

$

3,508,212

 

 

See Notes to Condensed Consolidated Financial Statements.

 

2



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

August 1,
2015

 

August 2,
2014

 

August 1,
2015

 

August 2,
2014

 

Net sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

$

649,190

 

$

530,728

 

$

1,316,052

 

$

963,752

 

Rental services

 

157,049

 

161,096

 

260,178

 

262,759

 

Alteration and other services

 

52,674

 

44,598

 

106,954

 

83,560

 

Total retail sales

 

858,913

 

736,422

 

1,683,184

 

1,310,071

 

Corporate apparel clothing product

 

61,161

 

66,656

 

121,979

 

123,481

 

Total net sales

 

920,074

 

803,078

 

1,805,163

 

1,433,552

 

 

 

 

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

282,050

 

243,354

 

576,434

 

434,831

 

Rental services

 

25,351

 

26,228

 

41,435

 

41,545

 

Alteration and other services

 

37,118

 

32,899

 

73,268

 

60,621

 

Occupancy costs

 

114,255

 

95,423

 

227,351

 

168,270

 

Total retail cost of sales

 

458,774

 

397,904

 

918,488

 

705,267

 

Corporate apparel clothing product

 

42,619

 

46,632

 

86,442

 

86,379

 

Total cost of sales

 

501,393

 

444,536

 

1,004,930

 

791,646

 

 

 

 

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

 

 

 

 

Retail clothing product

 

367,140

 

287,374

 

739,618

 

528,921

 

Rental services

 

131,698

 

134,868

 

218,743

 

221,214

 

Alteration and other services

 

15,556

 

11,699

 

33,686

 

22,939

 

Occupancy costs

 

(114,255

)

(95,423

)

(227,351

)

(168,270

)

Total retail gross margin

 

400,139

 

338,518

 

764,696

 

604,804

 

Corporate apparel clothing product

 

18,542

 

20,024

 

35,537

 

37,102

 

Total gross margin

 

418,681

 

358,542

 

800,233

 

641,906

 

 

 

 

 

 

 

 

 

 

 

Advertising expense

 

44,981

 

38,226

 

95,637

 

66,997

 

Selling, general and administrative expenses

 

275,577

 

277,612

 

551,184

 

504,924

 

Operating income

 

98,123

 

42,704

 

153,412

 

69,985

 

Interest income

 

62

 

119

 

90

 

180

 

Interest expense

 

(26,535

)

(13,193

)

(53,018

)

(14,328

)

Loss on extinguishment of debt

 

 

(2,158

)

(12,675

)

(2,158

)

Earnings before income taxes

 

71,650

 

27,472

 

87,809

 

53,679

 

Provision for income taxes

 

23,871

 

15,104

 

29,661

 

24,853

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

47,779

 

12,368

 

58,148

 

28,826

 

Net earnings attributable to non-controlling interest

 

 

(112

)

 

(84

)

 

 

 

 

 

 

 

 

 

 

Net earnings attributable to common shareholders

 

$

47,779

 

$

12,256

 

$

58,148

 

$

28,742

 

 

 

 

 

 

 

 

 

 

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.99

 

$

0.26

 

$

1.20

 

$

0.60

 

Diluted

 

$

0.98

 

$

0.25

 

$

1.20

 

$

0.60

 

 

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

Basic

 

48,304

 

47,939

 

48,217

 

47,773

 

Diluted

 

48,544

 

48,143

 

48,487

 

48,059

 

 

 

 

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

$

0.36

 

$

0.36

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

August 1,
2015

 

August 2,
2014

 

August 1,
2015

 

August 2,
2014

 

 

 

 

 

 

 

 

 

 

 

Net earnings including non-controlling interest

 

$

47,779

 

$

12,368

 

$

58,148

 

$

28,826

 

Currency translation adjustments

 

(4,440

)

(189

)

1,646

 

5,991

 

Unrealized loss on cash flow hedge, net of tax

 

(459

)

 

(85

)

 

Settlement of cash flow hedge, net of tax

 

 

217

 

 

399

 

Comprehensive income including non-controlling interest

 

42,880

 

12,396

 

59,709

 

35,216

 

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to non-controlling interest:

 

 

 

 

 

 

 

 

 

Net earnings

 

 

(112

)

 

(84

)

Currency translation adjustments

 

 

50

 

 

(321

)

 

 

 

 

 

 

 

 

 

 

Amounts attributable to non-controlling interest

 

 

(62

)

 

(405

)

 

 

 

 

 

 

 

 

 

 

Comprehensive income attributable to common shareholders

 

$

42,880

 

$

12,334

 

$

59,709

 

$

34,811

 

 

See Notes to Condensed Consolidated Financial Statements.

 

4



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Six Months Ended

 

 

 

August 1,
2015

 

August 2,
2014

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings including non-controlling interest

 

$

58,148

 

$

28,826

 

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

 

 

 

 

 

Depreciation and amortization

 

65,213

 

49,778

 

Rental product amortization

 

19,995

 

19,961

 

Amortization of deferred financing costs

 

3,485

 

1,121

 

Amortization of discount on long-term debt

 

598

 

196

 

Loss on extinguishment of debt

 

12,675

 

2,158

 

Loss on disposition of assets

 

886

 

1,641

 

Asset impairment charges

 

260

 

302

 

Share-based compensation

 

8,429

 

8,036

 

Excess tax benefits from share-based plans

 

(1,094

)

(3,687

)

Deferred tax benefit

 

(12,641

)

(9,120

)

Deferred rent expense and other

 

2,499

 

1,174

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

3,937

 

(18,905

)

Inventories

 

(17,697

)

(62,689

)

Rental product

 

(35,965

)

(23,192

)

Other assets

 

7,911

 

2,372

 

Accounts payable, accrued expenses and other current liabilities

 

(25,405

)

12,289

 

Income taxes payable

 

2,723

 

4,191

 

Other liabilities

 

957

 

(573

)

 

 

 

 

 

 

Net cash provided by operating activities

 

94,914

 

13,879

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(56,764

)

(40,837

)

Acquisition of business, net of cash

 

 

(1,491,393

)

 

 

 

 

 

 

Net cash used in investing activities

 

(56,764

)

(1,532,230

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from new term loan

 

 

1,089,000

 

Payments on new term loan

 

(4,500

)

 

Payments on previous term loan

 

 

(97,500

)

Proceeds from asset-based revolving credit facility

 

5,500

 

340,000

 

Payments on asset-based revolving credit facility

 

(5,500

)

(340,000

)

Proceeds from issuance of senior notes

 

 

600,000

 

Deferred financing costs

 

(3,566

)

(50,938

)

Cash dividends paid

 

(17,561

)

(17,460

)

Proceeds from issuance of common stock

 

1,961

 

6,167

 

Tax payments related to vested deferred stock units

 

(4,506

)

(6,869

)

Excess tax benefits from share-based plans

 

1,094

 

3,687

 

Repurchases of common stock

 

(277

)

(251

)

 

 

 

 

 

 

Net cash (used in) provided by financing activities

 

(27,355

)

1,525,836

 

 

 

 

 

 

 

Effect of exchange rate changes

 

347

 

498

 

 

 

 

 

 

 

INCREASE IN CASH AND CASH EQUIVALENTS

 

11,142

 

7,983

 

Balance at beginning of period

 

62,261

 

59,252

 

 

 

 

 

 

 

Balance at end of period

 

$

73,403

 

$

67,235

 

 

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, as further described below in Recent Accounting Pronouncements.

 

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 July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-11, Simplifying the Measurement of Inventory. ASU 2015-11 simplifies the subsequent measurement of inventory by requiring inventory to be measured at the lower of cost and net realizable value.  ASU 2015-11 applies only to inventories for which cost is determined by methods other than last-in first-out and the retail inventory method.  ASU 2015-11 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years.  Early adoption of ASU 2015-11 is permitted.  We are currently evaluating ASU 2015-11 to determine if this guidance will have a material impact on our financial position, results of operations or cash flows.

 

In April 2015, the FASB issued 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 and we adopted this ASU in the second quarter of 2015.

 

Upon adoption, we adjusted our August 2, 2014 balance sheet by decreasing current assets by $5.7 million, other assets by $35.7 million and long-term debt by $41.4 million and adjusted our January 31, 2015 balance sheet by decreasing current assets by $5.7 million, other assets by $32.8 million and long-term debt by $38.5 million.  We elected to continue presenting debt issuance costs for our asset-based revolving credit facility as an asset because of the potential volatility of borrowings and repayments under the facility.  The adoption of this guidance had no impact on our results of operations or cash flows.  See Note 4 for a summary of the reclassifications for all periods presented.

 

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.  In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of ASU 2014-09 by one year.  As a result of this deferral, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted for annual reporting periods beginning after December 15, 2016.  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.

 

6



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 and other costs related to Jos. A. Bank totaling $5.0 million and $10.8 million for the three and six months ended August 1, 2015, respectively, which is included in selling, general and administrative expenses (“SG&A”) in the condensed consolidated statement of earnings.  For the three and six months ended August 1, 2015, we did not incur any acquisition-related costs.  For the three and six months ended August 2, 2014, we incurred acquisition-related costs for Jos. A. Bank totaling $26.4 million and $43.5 million, respectively, as well as $14.4 million and $17.4 million of integration and other costs related to Jos. A. Bank which are all included in SG&A in the condensed consolidated statement of earnings.

 

The following table summarizes the final allocation of fair values of the identifiable assets acquired and liabilities assumed in the Jos. A. Bank acquisition (amounts in millions):

 

Cash

 

$

328.9

 

Accounts receivable (mainly credit card receivables)

 

8.3

 

Inventories

 

328.0

 

Other current assets

 

56.4

 

Property and equipment

 

165.3

 

Goodwill

 

769.0

 

Intangible assets

 

622.2

 

Accounts payable, accrued expenses and other current liabilities

 

(155.0

)

Other liabilities (mainly deferred income taxes)

 

(302.8

)

Total purchase price

 

1,820.3

 

Less: Cash acquired

 

(328.9

)

Total purchase price, net of cash acquired

 

$

1,491.4

 

 

During the six months ended August 1, 2015, we made certain measurement period adjustments primarily related to deferred income taxes.  None of these measurement period adjustments had a material impact on the purchase price allocation.  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
August 2, 2014

 

For the Six
Months Ended
August 2, 2014

 

 

 

 

 

 

 

Total net sales

 

$

929,928

 

$

1,777,824

 

Net earnings attributable to common shareholders

 

$

42,848

 

$

63,045

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

Basic

 

$

0.89

 

$

1.32

 

Diluted

 

$

0.89

 

$

1.31

 

 

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.

 

7



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

3.  Earnings per Share

 

Basic earnings per common share allocated to common shareholders is determined using the two-class method and is computed by dividing net earnings allocated to common shareholders by the weighted-average common shares outstanding during the period.  Diluted earnings per common share reflect 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 allocated to common shareholders (in thousands, except per share amounts). Basic and diluted earnings per common share allocated to common shareholders are computed using the actual net earnings allocated 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 allocated to common shareholders in our condensed consolidated statement of earnings and the accompanying notes.

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

 

 

August 1,
2015

 

August 2,
2014

 

August 1,
2015

 

August 2,
2014

 

 

 

 

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

 

 

 

 

Total net earnings attributable to common shareholders

 

$

47,779

 

$

12,256

 

$

58,148

 

$

28,742

 

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

 

(47

)

(30

)

(64

)

(91

)

Net earnings allocated to common shareholders

 

$

47,732

 

$

12,226

 

$

58,084

 

$

28,651

 

Denominator

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

48,304

 

47,939

 

48,217

 

47,773

 

Dilutive effect of share-based awards

 

240

 

204

 

270

 

286

 

Diluted weighted-average common shares outstanding

 

48,544

 

48,143

 

48,487

 

48,059

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.99

 

$

0.26

 

$

1.20

 

$

0.60

 

Diluted

 

$

0.98

 

$

0.25

 

$

1.20

 

$

0.60

 

 

For the three and six months ended August 1, 2015, 0.1 million and 0.2 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.  For each of the three and six months ended August 2, 2014, 0.1 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share.

 

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 August 1, 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.

 

8



Table of Contents

 

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 0.31% at August 1, 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 August 1, 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 $24.1 million issued and outstanding, no amounts were drawn on the ABL Facility as of August 1, 2015 and we have approximately $423.6 million of borrowing availability under the ABL Facility as of August 1, 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 had 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 June 24, 2015, the exchange offer was completed.

 

9



Table of Contents

 

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 August 1, 2015, August 2, 2014 and January 31, 2015 (in thousands):

 

 

 

August 1,
2015

 

August 2,
2014

 

January 31,
2015

 

Term Loan (net of unamortized original issue discount of $5.9 million at August 1, 2015, $10.8 million at August 2, 2014 and $10.0 million at January 31, 2015)

 

$

1,086,892

 

$

1,089,196

 

$

1,087,232

 

Senior Notes

 

600,000

 

600,000

 

600,000

 

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

 

(30,405

)

(41,365

)

(38,546

)

Total long-term debt, net

 

1,656,487

 

1,647,831

 

1,648,686

 

Current portion of long-term debt

 

(7,000

)

(11,000

)

(11,000

)

Total long-term debt, net of current portion

 

$

1,649,487

 

$

1,636,831

 

$

1,637,686

 

 

5.  Supplemental Cash Flows

 

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

 

 

 

For the Six Months Ended

 

 

 

August 1,
2015

 

August 2,
2014

 

 

 

 

 

 

 

Cash paid for interest

 

$

47,381

 

$

8,051

 

Cash paid for income taxes, net

 

$

28,554

 

$

28,950

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Cash dividends declared

 

$

8,913

 

$

8,803

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $8.5 million and $21.1 million at August 1, 2015 and August 2, 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 August 1, 2015, August 2, 2014 and January 31, 2015 (in thousands):

 

 

 

August 1,
2015

 

August 2,
2014

 

January 31,
2015

 

Finished goods

 

$

891,394

 

$

956,333

 

$

883,323

 

Raw materials and merchandise components

 

65,582

 

88,187

 

55,013

 

Total inventories

 

$

956,976

 

$

1,044,520

 

$

938,336

 

 

7.  Income Taxes

 

Our effective income tax rate decreased to 33.3% for the second quarter of 2015 from 55.0% for the second quarter of 2014 and to 33.8% for the first six months of 2015 from 46.3% for the first six months of 2014.  Our effective income tax rates in 2014 were significantly impacted by non-deductible transaction costs related to the Jos. A. Bank acquisition.

 

10



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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):

 

 

 

August 1,
2015

 

August 2,
2014

 

January 31,
2015

 

 

 

 

 

 

 

 

 

Tax receivable

 

$

68,852

 

$

22,952

 

$

87,916

 

Prepaid expenses

 

45,057

 

49,362

 

39,375

 

Current deferred tax assets

 

25,544

 

11,172

 

23,777

 

Other

 

13,897

 

16,258

 

18,741

 

Total other current assets

 

$

153,350

 

$

99,744

 

$

169,809

 

 

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

 

 

 

August 1,
2015

 

August 2,
2014

 

January 31,
2015

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

70,795

 

$

70,328

 

$

83,515

 

Customer deposits, prepayments and refunds payable

 

45,752

 

43,902

 

24,540

 

Unredeemed gift certificates

 

35,488

 

33,732

 

39,563

 

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

 

31,397

 

27,920

 

28,765

 

Accrued workers compensation and medical costs

 

25,646

 

24,562

 

28,814

 

Accrued interest

 

17,205

 

5,269

 

15,715

 

Cash dividends declared

 

8,913

 

8,803

 

8,987

 

Loyalty program reward certificates

 

7,508

 

7,179

 

6,889

 

Accrued royalties

 

6,794

 

7,436

 

2,825

 

Accrued strategic professional fees

 

1,400

 

16,181

 

7,566

 

Other

 

17,478

 

28,662

 

21,756

 

Total accrued expenses and other current liabilities

 

$

268,376

 

$

273,974

 

$

268,935

 

 

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

 

 

 

August 1,
2015

 

August 2,
2014

 

January 31,
2015

 

Non-current deferred and other income tax liabilities

 

$

312,664

 

$

316,844

 

$

328,271

 

Deferred rent and landlord incentives

 

63,431

 

56,474

 

61,475

 

Unfavorable lease liabilities

 

10,046

 

13,892

 

12,040

 

Other

 

7,487

 

6,203

 

7,540

 

Total deferred taxes and other liabilities

 

$

393,628

 

$

393,413

 

$

409,326

 

 

9.  Accumulated Other Comprehensive Income (Loss)

 

The following table summarizes the components of accumulated other comprehensive income (loss) for the six months ended August 1, 2015 (in thousands and net of tax):

 

 

 

Foreign
Currency
Translation

 

Interest Rate
Swap

 

Pension Plan

 

Total

 

BALANCE — January 31, 2015

 

$

(4,232

)

$

(1,665

)

$

226

 

$

(5,671

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassifications

 

1,646

 

(493

)

 

1,153

 

Amounts reclassified from accumulated other comprehensive income

 

 

408

 

 

408

 

Net current-period other comprehensive income (loss)

 

1,646

 

(85

)

 

1,561

 

 

 

 

 

 

 

 

 

 

 

BALANCE — August 1, 2015

 

$

(2,586

)

$

(1,750

)

$

226

 

$

(4,110

)

 

11



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

Foreign
Currency
Translation

 

Interest Rate
Swap

 

Pension Plan

 

Total

 

BALANCE — February 1, 2014

 

$

27,710

 

$

(399

)

$

 

$

27,311

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive income before reclassifications

 

5,991

 

 

 

5,991

 

Other comprehensive income attributable to non-controlling interest

 

(321

)

 

 

(321

)

Amounts reclassified from accumulated other comprehensive income

 

 

399

 

 

399

 

Net current-period other comprehensive income

 

5,670

 

399

 

 

6,069

 

 

 

 

 

 

 

 

 

 

 

BALANCE — August 2, 2014

 

$

33,380

 

$

 

$

 

$

33,380

 

 

Amounts reclassified from other comprehensive income for the six months ended August 1, 2015 and August 2, 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.

 

10.  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 and six months ended August 1, 2015 was $3.9 million and $8.4 million, respectively.  Share-based compensation expense recognized for the three and six months ended August 2, 2014 was $4.0 million and $8.0 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 six months ended August 1, 2015:

 

 

 

Units

 

Weighted-Average
Grant-Date Fair Value

 

 

 

Time-
Based

 

Performance-
Based

 

Time-
Based

 

Performance-
Based

 

Non-Vested at January 31, 2015

 

378,518

 

170,789

 

$

42.67

 

$

43.94

 

Granted

 

357,260

 

36,844

 

52.63

 

57.32

 

Vested (1)

 

(228,837

)

(18,977

)

43.81

 

46.41

 

Forfeited

 

(13,354

)

(20,000

)

38.15

 

33.09

 

Non-Vested at August 1, 2015

 

493,587

 

168,656

 

$

49.48

 

$

47.87

 

 


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

 

12



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 August 1, 2015 are 17,576 DSUs granted prior to April 3, 2013.

 

Of the 36,844 performance units granted in the first six months 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 14,199 performance units granted in the first six months 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.

 

The following table summarizes the activity of restricted stock for the six months ended August 1, 2015:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-Vested at January 31, 2015

 

67,790

 

$

37.05

 

Granted

 

6,951

 

58.44

 

Vested

 

(25,414

)

32.95

 

Forfeited

 

(19,360

)

27.77

 

Non-Vested at August 1, 2015

 

29,967

 

$

51.49

 

 

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

 

As of August 1, 2015, we have unrecognized compensation expense related to non-vested DSUs, performance units, and shares of restricted stock of approximately $25.4 million, which is expected to be recognized over a weighted-average period of 1.8 years.

 

13



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Stock Options

 

The following table summarizes the activity of stock options for the six months ended August 1, 2015:

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Outstanding at January 31, 2015

 

660,283

 

$

38.28

 

Granted

 

41,951

 

57.91

 

Exercised

 

(19,617

)

33.02

 

Forfeited

 

 

 

Expired

 

 

 

Outstanding at August 1, 2015

 

682,617

 

$

39.64

 

Exercisable at August 1, 2015

 

301,070

 

$

31.83

 

 

The weighted-average grant date fair value of the 41,951 stock options granted during the six months ended August 1, 2015 was $18.63 per share.  The following table summarizes the weighted-average assumptions used to fair value stock options at the date of grant using the Black-Scholes option pricing model for the six months ended August 1, 2015:

 

 

 

For the Six
Months Ended

 

 

 

August 1,
2015

 

Risk-free interest rate

 

1.51%

 

Expected lives

 

5.0 years

 

Dividend yield

 

1.38%

 

Expected volatility

 

39.74%

 

 

As of August 1, 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 1.6 years.

 

11.  Goodwill and Other Intangible Assets

 

Goodwill

 

Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the six months ended August 1, 2015 are as follows (in thousands):

 

 

 

Retail

 

Corporate
Apparel

 

Total

 

Balance at January 31, 2015

 

$

861,180

 

$

26,756

 

$

887,936

 

Adjustments to preliminary purchase price allocation of acquired businesses

 

3,062

 

 

3,062

 

Translation adjustment

 

(617

)

935

 

318

 

Balance at August 1, 2015

 

$

863,625

 

$

27,691

 

$

891,316

 

 

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 six months of fiscal 2015.

 

14



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Intangible Assets

 

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

 

 

 

August 1,
2015

 

August 2,
2014

 

January 31,
2015

 

 

 

 

 

 

 

 

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks and tradenames

 

$

16,554

 

$

16,785

 

$

16,448

 

Favorable leases

 

24,400

 

24,400

 

24,400

 

Customer relationships

 

85,918

 

87,376

 

84,788

 

 Total carrying amount

 

126,872

 

128,561

 

125,636

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks and tradenames

 

(9,577

)

(9,180

)

(9,331

)

Favorable leases

 

(3,575

)

(377

)

(1,883

)

Customer relationships

 

(22,096

)

(12,588

)

(16,468

)

 Total accumulated amortization

 

(35,248

)

(22,145

)

(27,682

)

 Total amortizable intangible assets, net

 

91,624

 

106,416

 

97,954

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

  Trademarks and tradename

 

570,349

 

570,445

 

570,305

 

 Total intangible assets, net

 

$

661,973

 

$

676,861

 

$

668,259

 

 

The pretax amortization expense associated with intangible assets subject to amortization totaled $3.6 million and $7.1 million for the three and six months ended August 1, 2015, respectively.  The pretax amortization expense associated with intangible assets subject to amortization totaled $2.2 million and $3.0 million for the three and six months ended August 2, 2014, respectively.  Pretax amortization associated with intangible assets subject to amortization at August 1, 2015 is estimated to be $6.8 million for the remainder of fiscal year 2015, $13.9 million for fiscal year 2016, $13.3 million for fiscal year 2017, $12.9 million for fiscal year 2018 and $12.7 million for fiscal year 2019.

 

12.  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 August 1, 2015, the fair value of the interest rate swap was a liability of $2.9 million with $2.5 million recorded in accrued expenses and other current liabilities and $0.4 million in other liabilities 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 August 1, 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, $2.5 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.

 

15



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

Fair Value of Financial Instruments

 

Our financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt.  Management estimates that, as of August 1, 2015, August 2, 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.  As of August 1, 2015, the fair value of our Senior Notes is based on quoted prices in active markets, which we classify as a Level 1 input within the fair value hierarchy.  In prior periods, the fair value of our Senior Notes was based on trading data in active markets, which we classified 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):

 

 

 

August 1, 2015

 

August 2, 2014

 

January 31, 2015

 

 

 

Carrying
Amount

 

Estimated Fair
Value

 

Carrying
Amount

 

Estimated Fair
Value

 

Carrying
Amount

 

Estimated Fair
Value

 

Long-term debt

 

1,656,487

 

1,737,325

 

1,647,831

 

1,717,131

 

1,648,686

 

1,706,546

 

 

14.  Segment Reporting

 

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

 

The retail segment includes the results from our four retail merchandising brands: Men’s Wearhouse/Men’s Wearhouse and Tux, 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, as well as children’s apparel is also offered at most of our K&G stores.  Tuxedo and suit 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.

 

16



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

Net sales:

 

August 1,
2015

 

August 2,
2014

 

August 1,
2015

 

August 2,
2014

 

MW (1)

 

$

470,010

 

$

450,331

 

$

926,386

 

$

871,310

 

Jos. A. Bank

 

221,706

 

113,692

 

437,768

 

113,692

 

Moores

 

69,899

 

78,076

 

117,419

 

130,578

 

K&G

 

88,719

 

86,218

 

184,715

 

178,639

 

MW Cleaners

 

8,579

 

8,105

 

16,896

 

15,852

 

Total retail segment

 

858,913

 

736,422

 

1,683,184

 

1,310,071

 

 

 

 

 

 

 

 

 

 

 

Dimensions and Alexandra (UK)

 

49,790

 

55,524

 

102,030

 

104,105

 

Twin Hill

 

11,371

 

11,132

 

19,949

 

19,376

 

Total corporate apparel segment

 

61,161

 

66,656

 

121,979

 

123,481

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

920,074

 

$

803,078

 

$

1,805,163

 

$

1,433,552

 

 


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

 

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

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

Net sales:

 

August 1,
2015

 

August 2,
2014

 

August 1,
2015

 

August 2,
2014

 

Men’s tailored clothing product

 

$

372,060

 

$

288,239

 

$

758,396

 

$

527,675

 

Men’s non-tailored clothing product

 

255,439

 

221,407

 

511,449

 

392,513

 

Ladies’ clothing product

 

18,967

 

18,798

 

40,599

 

39,649

 

Other

 

2,724

 

2,284

 

5,608

 

3,915

 

Total retail clothing product

 

649,190

 

530,728

 

1,316,052

 

963,752

 

 

 

 

 

 

 

 

 

 

 

Rental services

 

157,049

 

161,096

 

260,178

 

262,759

 

 

 

 

 

 

 

 

 

 

 

Alteration services

 

44,095

 

36,493

 

90,058

 

67,708

 

Retail dry cleaning services

 

8,579

 

8,105

 

16,896

 

15,852

 

Total alteration and other services

 

52,674

 

44,598

 

106,954

 

83,560

 

 

 

 

 

 

 

 

 

 

 

Corporate apparel clothing product

 

61,161

 

66,656

 

121,979

 

123,481

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

920,074

 

$

803,078

 

$

1,805,163

 

$

1,433,552

 

 

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

 

 

 

For the Three Months Ended

 

For the Six Months Ended

 

Operating income:

 

August 1,
2015

 

August 2,

2014

 

August 1,
2015

 

August 2,
2014

 

Retail

 

$

95,677

 

$

39,744

 

$

149,710

 

$

66,269

 

Corporate apparel

 

2,446

 

2,960

 

3,702

 

3,716

 

Operating income

 

98,123

 

42,704

 

153,412

 

69,985

 

Interest income

 

62

 

119

 

90

 

180

 

Interest expense

 

(26,535

)

(13,193

)

(53,018

)

(14,328

)

Loss on extinguishment of debt

 

 

(2,158

)

(12,675

)

(2,158

)

Earnings before income taxes

 

$

71,650

 

$

27,472

 

$

87,809

 

$

53,679

 

 

17



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

15.  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, certification of the complaint as a class action, compensatory damages, declaratory relief, injunctive relief and costs and disbursements (including attorneys’ fees).  On August 19, 2014, the Court dismissed the class claims and certain other breach of contract claims.  On June 9, 2015, the Court also dismissed the plaintiffs’ claim for injunctive relief.  Based on the two favorable court rulings, we do not believe that this case 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 currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

 

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 currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.

 

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

 

18



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

16. 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.

 

The Men’s Wearhouse, Inc.

Condensed Consolidating Balance Sheet

August 1, 2015

(in thousands)

 

 

 

The Men’s

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

Wearhouse, Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

21,430

 

$

2,924

 

$

49,049

 

$

 

$

73,403

 

Accounts receivable, net

 

24,846

 

401,294

 

31,857

 

(387,605

)

70,392

 

Inventories

 

254,232

 

559,884

 

142,860

 

 

956,976

 

Other current assets

 

91,236

 

54,256

 

7,858

 

 

153,350

 

Total current assets

 

391,744

 

1,018,358

 

231,624

 

(387,605

)

1,254,121

 

Property and equipment, net

 

304,750

 

208,356

 

38,814

 

 

551,920

 

Rental product, net

 

121,776

 

7,338

 

18,923

 

 

148,037

 

Goodwill

 

6,159

 

837,532

 

47,625

 

 

891,316

 

Intangible assets, net

 

239

 

639,745

 

21,989

 

 

661,973

 

Investments in subsidiaries

 

2,454,012

 

 

 

(2,454,012

)

 

Other assets

 

41,426

 

860

 

9,131

 

(42,432

)

8,985

 

Total assets

 

$

3,320,106

 

$

2,712,189

 

$

368,106

 

$

(2,884,049

)

$

3,516,352

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

425,968

 

$

98,494

 

$

39,703

 

$

(387,605

)

$

176,560

 

Accrued expenses and other current liabilities

 

144,116

 

102,689

 

23,897

 

 

270,702

 

Current maturities of long-term debt

 

7,000

 

 

 

 

7,000

 

Total current liabilities

 

577,084

 

201,183

 

63,600

 

(387,605

)

454,262

 

Long-term debt, net

 

1,649,487

 

 

33,432

 

(33,432

)

1,649,487

 

Deferred taxes and other liabilities

 

74,560

 

316,706

 

11,362

 

(9,000

)

393,628

 

Shareholders’ equity

 

1,018,975

 

2,194,300

 

259,712

 

(2,454,012

)

1,018,975

 

Total liabilities and shareholders’ equity

 

$

3,320,106

 

$

2,712,189

 

$

368,106

 

$

(2,884,049

)

$

3,516,352

 

 

19



Table of Contents

 

THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The Men’s Wearhouse, Inc.

Condensed Consolidating Balance Sheet

August 2, 2014

(in thousands)

 

 

 

The Men’s

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

Wearhouse, Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

5,652

 

$

14,107

 

$

47,476

 

$

 

$

67,235

 

Accounts receivable, net

 

16,985

 

353,011

 

46,028

 

(326,829

)

89,195

 

Inventories

 

259,736

 

631,128

 

153,656

 

 

1,044,520

 

Other current assets

 

72,829

 

19,070