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 April 30, 2016 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

 

TAILORED BRANDS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Texas

 

47-4908760

(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 May 27, 2016 was 48,646,124.

 

 

 



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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 April 30, 2016, May 2, 2015 and January 30, 2016

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Three Months Ended April 30, 2016 and May 2, 2015

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended April 30, 2016 and May 2, 2015

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Three Months Ended April 30, 2016 and May 2, 2015

 

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

 

32

 

 

 

Item 4 — Controls and Procedures

 

32

 

 

 

PART II — Other Information

 

 

 

 

 

Item 1 — Legal Proceedings

 

33

 

 

 

Item 6 — Exhibits

 

33

 

 

 

SIGNATURES

 

34

 



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.  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, profitability, capital expenditures, potential acquisitions, synergies from acquisitions, demand for clothing, market trends in the retail and corporate apparel clothing business, currency fluctuations, inflation and various economic and business trends.  Forward-looking statements may be made by management orally or in writing, including, but not limited to, Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q and other sections of our filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended, and the Securities Act of 1933, as amended.

 

Forward-looking statements are not guarantees of future performance and a variety of factors could cause actual results to differ materially from the anticipated or expected results expressed in or suggested by these forward-looking statements.  Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities; domestic and international macro-economic conditions; inflation or deflation; success, or lack thereof, in executing our internal strategies and operating plans including new store and new market expansion plans, and cost reduction initiatives; store rationalization plans; profit improvement plans; revenue enhancement strategies; the impact of opening tuxedo shops within Macy’s stores; changes in demand for clothing; market trends in the retail business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies; 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.

 

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 30, 2016, and elsewhere herein for a more complete discussion of these and other factors that might affect our performance and financial results. 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 statements that may be made from time to time, whether as a result of new information, future developments or otherwise, unless required to do so by law.

 

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.

 

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Table of Contents

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

April 30,
2016

 

May 2,
2015

 

January 30,
2016

 

ASSETS

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

36,429

 

$

61,802

 

$

29,980

 

Accounts receivable, net

 

83,333

 

83,169

 

63,890

 

Inventories

 

1,076,733

 

986,457

 

1,022,504

 

Other current assets

 

77,903

 

165,698

 

143,546

 

 

 

 

 

 

 

 

 

Total current assets

 

1,274,398

 

1,297,126

 

1,259,920

 

 

 

 

 

 

 

 

 

PROPERTY AND EQUIPMENT, net

 

521,144

 

560,141

 

521,824

 

 

 

 

 

 

 

 

 

RENTAL PRODUCT, net

 

174,240

 

146,050

 

157,460

 

GOODWILL

 

121,498

 

893,435

 

118,586

 

INTANGIBLE ASSETS, net

 

177,826

 

664,935

 

178,510

 

OTHER ASSETS

 

7,715

 

9,764

 

8,019

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$

2,276,821

 

$

3,571,451

 

$

2,244,319

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

Accounts payable

 

$

203,248

 

$

233,066

 

$

237,114

 

Accrued expenses and other current liabilities

 

311,044

 

291,284

 

256,762

 

Current portion of long-term debt

 

42,451

 

7,000

 

42,451

 

 

 

 

 

 

 

 

 

Total current liabilities

 

556,743

 

531,350

 

536,327

 

 

 

 

 

 

 

 

 

LONG-TERM DEBT, net

 

1,613,192

 

1,647,986

 

1,613,473

 

DEFERRED TAXES AND OTHER LIABILITIES

 

197,116

 

412,575

 

194,605

 

 

 

 

 

 

 

 

 

Total liabilities

 

2,367,051

 

2,591,911

 

2,344,405

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS’ (DEFICIT) EQUITY:

 

 

 

 

 

 

 

Preferred stock

 

 

 

 

Common stock

 

486

 

485

 

485

 

Capital in excess of par

 

456,107

 

442,743

 

455,765

 

(Accumulated deficit) retained earnings

 

(535,006

)

538,716

 

(524,876

)

Accumulated other comprehensive (loss) income

 

(11,817

)

789

 

(28,486

)

Treasury stock, at cost

 

 

(3,193

)

(2,974

)

 

 

 

 

 

 

 

 

Total shareholders’ (deficit) equity

 

(90,230

)

979,540

 

(100,086

)

 

 

 

 

 

 

 

 

TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY

 

$

2,276,821

 

$

3,571,451

 

$

2,244,319

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

April 30, 2016

 

May 2, 2015

 

Net sales:

 

 

 

 

 

Retail clothing product

 

$

615,668

 

$

666,862

 

Rental services

 

99,831

 

103,129

 

Alteration and other services

 

50,743

 

54,280

 

Total retail sales

 

766,242

 

824,271

 

Corporate apparel clothing product

 

62,580

 

60,818

 

Total net sales

 

828,822

 

885,089

 

 

 

 

 

 

 

Cost of sales:

 

 

 

 

 

Retail clothing product

 

270,355

 

294,384

 

Rental services

 

15,884

 

16,084

 

Alteration and other services

 

36,150

 

36,150

 

Occupancy costs

 

110,135

 

113,096

 

Total retail cost of sales

 

432,524

 

459,714

 

Corporate apparel clothing product

 

44,457

 

43,823

 

Total cost of sales

 

476,981

 

503,537

 

 

 

 

 

 

 

Gross margin:

 

 

 

 

 

Retail clothing product

 

345,313

 

372,478

 

Rental services

 

83,947

 

87,045

 

Alteration and other services

 

14,593

 

18,130

 

Occupancy costs

 

(110,135

)

(113,096

)

Total retail gross margin

 

333,718

 

364,557

 

Corporate apparel clothing product

 

18,123

 

16,995

 

Total gross margin

 

351,841

 

381,552

 

 

 

 

 

 

 

Advertising expense

 

47,928

 

50,656

 

Selling, general and administrative expenses

 

272,918

 

275,607

 

Operating income

 

30,995

 

55,289

 

Interest income

 

13

 

28

 

Interest expense

 

(26,502

)

(26,483

)

Loss on extinguishment of debt

 

 

(12,675

)

Earnings before income taxes

 

4,506

 

16,159

 

Provision for income taxes

 

2,869

 

5,790

 

 

 

 

 

 

 

Net earnings

 

$

1,637

 

$

10,369

 

 

 

 

 

 

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

Basic

 

$

0.03

 

$

0.22

 

Diluted

 

$

0.03

 

$

0.21

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

Basic

 

48,446

 

48,130

 

Diluted

 

48,621

 

48,429

 

 

 

 

 

 

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

April 30,
2016

 

May 2,
2015

 

 

 

 

 

 

 

Net earnings

 

$

1,637

 

$

10,369

 

 

 

 

 

 

 

Currency translation adjustments

 

16,429

 

6,086

 

 

 

 

 

 

 

Unrealized gain on cash flow hedge, net of tax

 

240

 

374

 

 

 

 

 

 

 

Comprehensive income

 

$

18,306

 

$

16,829

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

For the Three Months Ended

 

 

 

April 30,
2016

 

May 2,
2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net earnings

 

$

1,637

 

$

10,369

 

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

 

 

 

 

 

Depreciation and amortization

 

30,306

 

31,906

 

Rental product amortization

 

8,304

 

7,604

 

Loss on extinguishment of debt

 

 

12,675

 

Amortization of deferred financing costs

 

1,666

 

1,796

 

Amortization of discount on long-term debt

 

250

 

340

 

Share-based compensation

 

4,118

 

4,475

 

Excess tax benefits from share-based plans

 

 

(981

)

Loss on disposition of assets

 

9

 

424

 

Asset impairment charges

 

1,162

 

 

Deferred tax expense

 

3,539

 

7,870

 

Deferred rent expense and other

 

296

 

1,116

 

Changes in operating assets and liabilities:

 

 

 

 

 

Accounts receivable

 

(18,955

)

(9,629

)

Inventories

 

(44,916

)

(44,162

)

Rental product

 

(23,129

)

(20,204

)

Other assets

 

65,973

 

(6,124

)

Accounts payable, accrued expenses and other current liabilities

 

17,246

 

51,227

 

Other liabilities

 

(1,071

)

283

 

 

 

 

 

 

 

Net cash provided by operating activities

 

46,435

 

48,985

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Capital expenditures

 

(30,325

)

(30,384

)

Proceeds from sales of property and equipment

 

501

 

 

 

 

 

 

 

 

Net cash used in investing activities

 

(29,824

)

(30,384

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Payments on term loan

 

(1,750

)

(4,500

)

Proceeds from asset-based revolving credit facility

 

204,014

 

3,000

 

Payments on asset-based revolving credit facility

 

(204,014

)

(3,000

)

Deferred financing costs

 

 

(3,566

)

Cash dividends paid

 

(8,921

)

(8,863

)

Proceeds from issuance of common stock

 

434

 

908

 

Tax payments related to vested deferred stock units

 

(1,247

)

(4,506

)

Excess tax benefits from share-based plans

 

 

981

 

Repurchases of common stock

 

 

(277

)

 

 

 

 

 

 

Net cash used in financing activities

 

(11,484

)

(19,823

)

 

 

 

 

 

 

Effect of exchange rate changes

 

1,322

 

763

 

 

 

 

 

 

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

6,449

 

(459

)

Balance at beginning of period

 

29,980

 

62,261

 

 

 

 

 

 

 

Balance at end of period

 

$

36,429

 

$

61,802

 

 

See Notes to Condensed Consolidated Financial Statements.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1.  Significant Accounting Policies

 

Basis of Presentation — Effective January 31, 2016, Tailored Brands, Inc., a Texas corporation (“Tailored Brands”), became the successor reporting company to The Men’s Wearhouse, Inc. (“Men’s Wearhouse”), pursuant to a holding company reorganization (the “Reorganization”).  Upon completion of the Reorganization, each issued and outstanding share of common stock of Men’s Wearhouse was automatically converted into one share of common stock of Tailored Brands, having the same designations, preferences, limitations, and relative rights and corresponding obligations as the shares of common stock of Men’s Wearhouse.  In addition, as part of the Reorganization, Men’s Wearhouse’s treasury shares were canceled.  The consolidated assets and liabilities of Tailored Brands and its subsidiaries immediately after the Reorganization were the same as the consolidated assets and liabilities of Men’s Wearhouse immediately prior to the Reorganization.

 

The condensed consolidated financial statements herein include the accounts of Tailored Brands, 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 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.

 

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 30, 2016.

 

Unless the context otherwise requires, “Company”, “we”, “us” and “our” refer to Tailored Brands, 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. GAAP”) 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 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 March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-09, Compensation-Stock Compensation.   ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows.  ASU 2016-09 is effective for public companies for annual reporting periods beginning after December 15, 2016, and interim periods within those fiscal years with early adoption permitted.  We are currently evaluating ASU 2016-09 to determine if this guidance will have a material impact on our financial position, results of operations or cash flows.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases.  ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP.  ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption of ASU 2016-02 is permitted.  The guidance is required to be adopted using the modified retrospective approach.  We are currently evaluating the impact ASU 2016-02 will have on our financial position, results of operations and cash flows but expect that it will result in a significant increase in our long-term assets and liabilities given we have a significant number of leases.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 continuing to evaluate our method of adoption and the impact of this guidance, including recent amendments and interpretations, may have on our financial position, results of operations and cash flows.

 

2.  Restructuring and Other Charges

 

During the fourth quarter of fiscal 2015, we began implementing initiatives intended to reduce costs and improve operating performance.  These initiatives include a store rationalization program which identified approximately 250 stores to be closed as well as a profit improvement program to drive operating efficiencies and improve our expense structure.  The store rationalization program includes the closure of approximately 80 to 90 Jos. A. Bank full line stores, the closure of all outlet stores at Jos. A. Bank and Men’s Wearhouse (58 stores) and the closure of between 100 and 110 Men’s Wearhouse and Tux stores primarily as the result of the rollout of our shops within Macy’s stores.  We expect the store rationalization and profit improvement programs to be completed in fiscal 2016.

 

A summary of the charges incurred in the first quarter of fiscal 2016 along with cumulative charges incurred under these initiatives since inception, all of which relate to our retail segment, is presented in the table below (amounts in thousands):

 

 

 

For the Three
Months Ended
April 30,
2016

 

Cumulative

 

Store asset impairment charges and accelerated depreciation

 

$

2,010

 

$

25,156

 

Inventory reserve charges

 

 

11,008

 

Consulting costs

 

4,952

 

5,870

 

Favorable lease impairment charges

 

 

5,533

 

Severance and employee-related costs

 

3,756

 

3,756

 

Lease termination costs

 

1,891

 

1,891

 

Other costs

 

552

 

1,410

 

Total pre-tax restructuring and other charges(1)

 

$

13,161

 

$

54,624

 

 


(1)Consists of $13.0 million included in selling, general and administrative expenses (“SG&A”) and $0.2 million included in cost of sales for the three months ended April 30, 2016.

 

As of April 30, 2016, we estimate that cumulatively pre-tax restructuring and other charges related to these actions will approximate $100.0 million to $110.0 million, of which approximately $60.0 million to $65.0 million are estimated to be cash expenses.  Included in the estimate of total pre-tax charges are approximately:

 

·                  Approximately $50.0 million of lease termination costs;

·                  $40.0 million to $45.0 million of inventory and long-lived and intangible asset impairment charges relating to store closures; and

·                  $10.0 to $15.0 million of consulting and severance costs.

 

The following table is a rollforward of amounts included in accrued expenses and other current liabilities in the condensed consolidated balance sheet related to the pre-tax restructuring and other charges (amounts in thousands):

 

 

 

Severance and
Employee-
Related Costs

 

Lease
Termination
Costs

 

Consulting
Costs

 

Other
Costs

 

Total

 

Beginning Balance, January 30, 2016

 

$

 

$

 

$

918

 

$

858

 

$

1,776

 

Charges, excluding non-cash items

 

3,756

 

1,891

 

4,952

 

552

 

11,151

 

Payments

 

(2,367

)

(159

)

(4,630

)

(1,209

)

(8,365

)

 

 

 

 

 

 

 

 

 

 

 

 

Ending Balance, April 30, 2016

 

$

1,389

 

$

1,732

 

$

1,240

 

$

201

 

$

4,562

 

 

In addition to the restructuring costs described above, we incurred integration and other costs related to Jos. A. Bank totaling $3.6 million and $5.8 million for the three months ended April 30, 2016 and May 2, 2015, respectively. For the three months ended April 30, 2016, $3.1 million of the integration costs are included in SG&A and $0.5 million are included in cost of goods sold in the condensed consolidated statement of earnings.  For the three months ended May 2, 2015 all such costs are included in SG&A in the condensed consolidated statement of earnings.

 

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TAILORED BRANDS, 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

 

 

 

April 30,
2016

 

May 2,
2015

 

 

 

 

 

 

 

Numerator

 

 

 

 

 

Total net earnings

 

$

1,637

 

$

10,369

 

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

 

(2

)

(12

)

Net earnings allocated to common shareholders

 

$

1,635

 

$

10,357

 

Denominator

 

 

 

 

 

Basic weighted-average common shares outstanding

 

48,446

 

48,130

 

Dilutive effect of share-based awards

 

175

 

299

 

Diluted weighted-average common shares outstanding

 

48,621

 

48,429

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

Basic

 

$

0.03

 

$

0.22

 

Diluted

 

$

0.03

 

$

0.21

 

 

For the three months ended April 30, 2016 and May 2, 2015, 1.2 million and 0.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

 

4.  Debt

 

On June 18, 2014, The Men’s Wearhouse, Inc. 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, The Men’s Wearhouse, Inc. 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 April 30, 2016, 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.  In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $35.5 million to the Term Loan lenders prior to April 29, 2016.  The entire $35.5 million prepayment was made subsequent to the end of the quarter on May 2, 2016.

 

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Table of Contents

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Credit Facilities

 

The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and 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 0.64% at April 30, 2016. 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, in which the variable rate payments due under a portion of the Term Loan were exchanged for a fixed rate (see Note 12).

 

In April 2015, The Men’s Wearhouse, Inc. 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 April 30, 2016, the Term Loan had a weighted average interest rate of 4.90%.

 

The ABL Facility provides for a senior secured revolving credit facility of $500.0 million, with possible future increases to $650.0 million under an expansion feature that matures on June 18, 2019, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and 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 (“CDOR”) rate, (iii) Canadian prime rate or (iv) an 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%.  As of April 30, 2016, there were no borrowings outstanding under the ABL Facility.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At April 30, 2016, letters of credit totaling approximately $21.4 million were issued and outstanding.  Borrowings available under the ABL Facility as of April 30, 2016 were $438.5 million.

 

Senior Notes

 

The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries.  The Senior Notes and the related guarantees are senior unsecured obligations of the Company and the guarantors, respectively, and will rank equally with all of the Company’s and each guarantor’s present and future senior indebtedness.  The Senior Notes will mature on July 1, 2022.  Interest on the Senior Notes is payable on January 1 and July 1 of each year.

 

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Table of Contents

 

TAILORED BRANDS, 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 April 30, 2016, May 2, 2015 and January 30, 2016 (in thousands):

 

 

 

April 30,
2016

 

May 2,
2015

 

January 30,
2016

 

 

 

 

 

 

 

 

 

Term Loan (net of unamortized OID of $5.1 million at April 30, 2016, $6.1 million at May 2, 2015 and $5.4 million at January 30, 2016

 

$

1,082,392

 

$

1,086,634

 

$

1,083,891

 

Senior Notes

 

600,000

 

600,000

 

600,000

 

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

 

(26,749

)

(31,648

)

(27,967

)

Total long-term debt, net

 

1,655,643

 

1,654,986

 

1,655,924

 

Current portion of long-term debt

 

(42,451

)

(7,000

)

(42,451

)

Total long-term debt, net of current portion

 

$

1,613,192

 

$

1,647,986

 

$

1,613,473

 

 

5.  Supplemental Cash Flows

 

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

 

 

 

For the Three Months Ended

 

 

 

April 30,
2016

 

May 2,
2015

 

 

 

 

 

 

 

Cash paid for interest

 

$

13,676

 

$

25,834

 

Cash (refunded) paid for income taxes, net

 

$

(60,204

)

$

5,030

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

Cash dividends declared

 

$

9,025

 

$

8,764

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $9.9 million and $11.0 million at April 30, 2016 and May 2, 2015, 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 April 30, 2016, May 2, 2015 and January 30, 2016 (in thousands):

 

 

 

April 30,
2016

 

May 2,
2015

 

January 30,
2016

 

Finished goods

 

$

1,018,401

 

$

952,116

 

$

919,623

 

Raw materials and merchandise components

 

58,332

 

34,341

 

102,881

 

 

 

 

 

 

 

 

 

Total inventories

 

$

1,076,733

 

$

986,457

 

$

1,022,504

 

 

7.  Income Taxes

 

Our effective income tax rate increased to 63.7% for the first quarter of 2016 from 35.8% for the first quarter of 2015 primarily due to low U.S. book income and the impact of non-recurring true-up items recorded in the first quarter of 2016.

 

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Table of Contents

 

TAILORED BRANDS, 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):

 

 

 

April 30,
2016

 

May 2,
2015

 

January 30,
2016

 

 

 

 

 

 

 

 

 

Prepaid expenses

 

$

41,995

 

$

39,974

 

$

42,166

 

Tax receivable

 

22,561

 

86,761

 

85,153

 

Current deferred tax assets

 

 

23,631

 

 

Other

 

13,347

 

15,332

 

16,227

 

Total other current assets

 

$

77,903

 

$

165,698

 

$

143,546

 

 

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

 

 

 

April 30,
2016

 

May 2,
2015

 

January 30,
2016

 

Customer deposits, prepayments and refunds payable

 

$

67,497

 

$

59,830

 

$

25,218

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

63,774

 

69,922

 

75,373

 

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

 

40,917

 

37,527

 

27,505

 

Unredeemed gift certificates

 

37,712

 

37,071

 

40,884

 

Accrued workers compensation and medical costs

 

29,145

 

28,816

 

30,877

 

Accrued interest

 

27,134

 

14,161

 

16,282

 

Loyalty program reward certificates

 

10,076

 

7,293

 

9,215

 

Cash dividends declared

 

9,025

 

8,764

 

9,150

 

Accrued royalties

 

2,167

 

 

3,727

 

Accrued strategic professional fees

 

325

 

4,888

 

737

 

Other

 

23,272

 

23,012

 

17,794

 

 

 

 

 

 

 

 

 

Total accrued expenses and other current liabilities

 

$

311,044

 

$

291,284

 

$

256,762

 

 

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

 

 

 

April 30,
2016

 

May 2,
2015

 

January 30,
2016

 

Deferred and other income tax liabilities

 

$

116,115

 

$

331,728

 

$

112,469

 

Deferred rent and landlord incentives

 

66,192

 

62,737

 

66,075

 

Unfavorable lease liabilities

 

7,465

 

11,062

 

8,279

 

Other

 

7,344

 

7,048

 

7,782

 

Total deferred taxes and other liabilities

 

$

197,116

 

$

412,575

 

$

194,605

 

 

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Table of Contents

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.  Accumulated Other Comprehensive (Loss) Income

 

The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended April 30, 2016 (in thousands and net of tax):

 

 

 

Foreign
Currency
Translation

 

Interest Rate
Swap

 

Pension
Plan

 

Total

 

 

 

 

 

 

 

 

 

 

 

BALANCE — January 30, 2016

 

$

(26,659

)

$

(2,007

)

$

 180

 

$

(28,486

)

 

 

 

 

 

 

 

 

 

 

Other comprehensive income (loss) before reclassifications

 

16,429

 

(125

)

 

16,304

 

Amounts reclassified from accumulated other comprehensive loss

 

 

365

 

 

365

 

Net current-period other comprehensive income

 

16,429

 

240

 

 

16,669

 

 

 

 

 

 

 

 

 

 

 

BALANCE — April 30, 2016

 

$

(10,230

)

$

(1,767

)

$

180

 

$

(11,817

)

 

The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended May 2, 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

 

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

 

 

Amounts reclassified from other comprehensive (loss) income for the three months ended April 30, 2016 and May 2, 2015, respectively, relate to changes in fair value for our interest rate swap, which is recorded within interest expense in the condensed consolidated statement of earnings.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

10.  Share-Based Compensation Plans

 

For a discussion of our share-based compensation plans refer to Note 13 in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

 

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 April 30, 2016 and May 2, 2015 was $4.1 million and $4.5 million, respectively.

 

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

 

The following table summarizes the activity of time-based and performance-based awards for the three months ended April 30, 2016:

 

 

 

Units

 

Weighted-Average
Grant-Date Fair Value

 

 

 

Time-
Based

 

Performance-
Based

 

Time-
Based

 

Performance-
Based

 

Non-Vested at January 30, 2016

 

478,106

 

168,656

 

$

49.60

 

$

47.87

 

Granted

 

705,636

 

258,168

 

17.43

 

17.43

 

Vested (1)

 

(214,585

)

 

49.26

 

 

Forfeited

 

(11,804

)

(59,943

)

51.92

 

33.72

 

Non-Vested at April 30, 2016

 

957,353

 

366,881

 

$

25.94

 

$

28.76

 

 


(1)          Includes 71,128 shares relinquished for tax payments related to vested deferred stock units for the three months ended April 30, 2016.

 

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 April 30, 2016 are 11,288 DSUs granted prior to April 3, 2013.

 

The performance units granted in the first three months of 2016 represent a contingent right to earn shares of common stock, subject to the achievement of a Company-specific performance target for fiscal 2016-2017.  Assuming the performance target is achieved, 50% of the award will vest on the two year anniversary of the grant date and the remaining 50% of the award will vest on the three year anniversary of the grant date.  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.

 

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Table of Contents

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table summarizes the activity of restricted stock for the three months ended April 30, 2016:

 

 

 

Shares

 

Weighted-
Average
Grant-Date
Fair Value

 

Non-Vested at January 30, 2016

 

33,157

 

$

27.93

 

Granted

 

18,646

 

17.37

 

Vested

 

 

 

Forfeited

 

 

 

Non-Vested at April 30, 2016

 

51,803

 

$

24.13

 

 

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

 

As of April 30, 2016, we have unrecognized compensation expense related to non-vested DSUs, performance units, and shares of restricted stock of approximately $29.3 million, which is expected to be recognized over a weighted-average period of 1.8 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the three months ended April 30, 2016:

 

 

 

Shares

 

Weighted-
Average
Exercise
Price

 

Outstanding at January 30, 2016

 

681,117

 

$

39.65

 

Granted

 

593,509

 

17.43

 

Exercised

 

 

 

Forfeited

 

(3,051

)

48.31

 

Expired

 

 

 

Outstanding at April 30, 2016

 

1,271,575

 

$

29.26

 

Exercisable at April 30, 2016

 

442,155

 

$

36.55

 

 

The weighted-average grant date fair value of the 593,509 stock options granted during the three months ended April 30, 2016 was $5.18 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 April 30, 2016:

 

 

 

For the Three
Months Ended

 

 

 

April 30,
2016

 

 

 

 

 

Risk-free interest rate

 

1.22

%

Expected lives

 

5.0 years

 

Dividend yield

 

4.13

%

Expected volatility

 

47.95

%

 

As of April 30, 2016, we have unrecognized compensation expense related to non-vested stock options of approximately $5.9 million, which is expected to be recognized over a weighted-average period of 1.6 years.

 

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Table of Contents

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

11.  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 April 30, 2016 are as follows (in thousands):

 

 

 

Retail

 

Corporate
Apparel

 

Total

 

Balance at January 30, 2016

 

$

93,201

 

$

25,385

 

$

118,586

 

Translation adjustment

 

2,303

 

609

 

2,912

 

Balance at April 30, 2016

 

$

95,504

 

$

25,994

 

$

121,498

 

 

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 three months ended April 30, 2016.

 

Intangible Assets

 

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

 

 

 

April 30,
2016

 

May 2,
2015

 

January 30,
2016

 

Amortizable intangible assets:

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

Trademarks and tradenames

 

$

16,361

 

$

16,464

 

$

16,292

 

Favorable leases

 

14,562

 

24,400

 

14,675

 

Customer relationships

 

29,661

 

84,960

 

29,129

 

Total carrying amount

 

60,584

 

125,824

 

60,096

 

Accumulated amortization:

 

 

 

 

 

 

 

Trademarks and tradenames

 

(9,857

)

(9,445

)

(9,728

)

Favorable leases

 

(3,057

)

(2,636

)

(2,739

)

Customer relationships

 

(14,213

)

(19,120

)

(13,459

)

Total accumulated amortization

 

(27,127

)

(31,201

)

(25,926

)

Total amortizable intangible assets, net

 

33,457

 

94,623

 

34,170

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

Trademarks and tradename, net

 

144,369

 

570,312

 

144,340

 

Total intangible assets, net

 

$

177,826

 

$

664,935

 

$

178,510

 

 

Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.3 million and $3.4 million for the three months ended April 30, 2016 and May 2, 2015, respectively.  Pre-tax amortization associated with intangible assets subject to amortization at April 30, 2016 is estimated to be $3.4 million for the remainder of fiscal 2016, $4.4 million for fiscal 2017, $4.1 million for fiscal 2018, $3.9 million for fiscal 2019 and $3.8 million for fiscal 2020.

 

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.  At April 30, 2016, the notional amount totaled $450.0 million.  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.  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 April 30, 2016, the fair value of the interest rate swap was a liability of $2.9 million with $2.1 million recorded in accrued expenses and other current liabilities and $0.8 million in other liabilities in our consolidated balance sheet.  The effective portion of the swap is reported as a component of accumulated other comprehensive (loss) income.  There was no hedge ineffectiveness at April 30, 2016.  Changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings.

 

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Table of Contents

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Over the next 12 months, $2.1 million of the effective portion of the interest rate swap is expected to be reclassified from accumulated other comprehensive (loss) 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.

 

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 April 30, 2016, May 2, 2015, and January 30, 2016, 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 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.   Beginning in June 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 portion (in thousands):

 

 

 

April 30, 2016

 

May 2, 2015

 

January 30, 2016

 

 

 

Carrying
Amount

 

Estimated Fair
Value

 

Carrying
Amount

 

Estimated Fair
Value

 

Carrying
Amount

 

Estimated Fair
Value

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Long-term debt, including current portion

 

$

1,655,643

 

$

1,583,132

 

$

1,654,986

 

$

1,737,050

 

$

1,655,924

 

$

1,410,651

 

 

14.  Segment Reporting

 

In the first quarter of 2016, we revised our segment reporting presentation to reflect changes in how we manage our business, including resource allocation and performance assessment.  Specifically, we are presenting expenses related to our shared services platform separate from the results of our operating segments to promote enhanced comparability of our operating segments.  Previously, these shared service expenses were primarily included in our retail segment.  Comparable prior period information has been recast to reflect our revised segment presentation.

 

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

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 and tuxedo shops within Macy’s 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 and income taxes, before shared service expenses.  Shared service expenses include costs incurred and directed primarily by our corporate offices that are not allocated to segments.

 

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

 

 

 

For the Three Months Ended

 

 

 

April 30, 2016

 

May 2, 2015

 

Net sales:

 

 

 

 

 

MW(1)

 

$

441,646

 

$

456,376

 

Jos. A. Bank

 

178,450

 

216,062

 

K&G

 

94,759

 

95,996

 

Moores

 

43,229

 

47,520

 

MW Cleaners

 

8,158

 

8,317

 

Total retail segment

 

766,242

 

824,271

 

 

 

 

 

 

 

Dimensions and Alexandra (UK)

 

53,542

 

52,240

 

Twin Hill

 

9,038

 

8,578

 

Total corporate apparel segment

 

62,580

 

60,818

 

 

 

 

 

 

 

Total net sales

 

$

828,822

 

$

885,089

 

 


(1) MW includes Men’s Wearhouse stores, Men’s Wearhouse and Tux stores, Joseph Abboud store, tuxedo shops within Macy’s and JA Holding.

 

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

 

 

 

For the Three Months Ended

 

 

 

April 30, 2016

 

May 2, 2015

 

Net sales:

 

 

 

 

 

Men’s tailored clothing product

 

$

349,528

 

$

386,336

 

Men’s non-tailored clothing product

 

241,933

 

256,010

 

Ladies’ clothing product

 

21,846

 

21,632

 

Other

 

2,361

 

2,884

 

Total retail clothing product

 

615,668

 

666,862

 

 

 

 

 

 

 

Rental services

 

99,831

 

103,129

 

 

 

 

 

 

 

Alteration services

 

42,585

 

45,963

 

Retail dry cleaning services

 

8,158

 

8,317

 

Total alteration and other services

 

50,743

 

54,280

 

 

 

 

 

 

 

Corporate apparel clothing product

 

62,580

 

60,818

 

 

 

 

 

 

 

Total net sales

 

$

828,822

 

$

885,089

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

For the Three Months Ended

 

 

 

April 30, 2016

 

May 2, 2015

 

Operating income:

 

 

 

 

 

Retail

 

$

79,877

 

$

95,306

 

Corporate apparel

 

2,054

 

1,312

 

Operating income

 

81,931

 

96,618

 

Shared service expense

 

(50,936

)

(41,329

)

Interest income

 

13

 

28

 

Interest expense

 

(26,502

)

(26,483

)

Loss on extinguishment of debt

 

 

(12,675

)

Earnings before income taxes

 

$

4,506

 

$

16,159

 

 

As a result of our revised segment presentation, total assets for our reportable segments have changed.  There were no changes to consolidated total assets.  Total assets by reportable segment are as follows (in thousands):

 

 

 

April 30,
2016

 

May 2,
2015

 

January 30,
2016

 

Segment assets:

 

 

 

 

 

 

 

Retail

 

$

1,769,230

 

$

2,969,047

 

$

1,705,728

 

Corporate apparel

 

238,293

 

212,145

 

211,820

 

Shared services(1)

 

269,298

 

390,259

 

326,771

 

Total assets

 

$

2,276,821

 

$

3,571,451

 

$

2,244,319

 

 


(1) Shared service assets consist primarily of cash and cash equivalents, assets related to our distribution network and tax-related assets.

 

15.  Legal Matters

 

On March 29, 2016, Peter Makhlouf filed a putative class action lawsuit against the Company and its Chief Executive Officer (“CEO”), Douglas S. Ewert, in the United States District Court for the Southern District of Texas (Case No. 4:16-cv-00838). The complaint attempts to allege claims under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934 on behalf of a putative class of persons who purchased or otherwise acquired the Company’s securities between June 18, 2014 and December 9, 2015.  In particular, the complaint alleges that the Company and its CEO made certain statements about the Company’s acquisition and subsequent integration of Jos. A. Bank that were false and misleading and omitted material facts.  We believe that the claims are without merit and intend to defend the lawsuit vigorously.  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 believe that the claims are without merit and 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.

 

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TAILORED BRANDS, 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 jointly and severally, on an unsecured basis by Tailored Brands, Inc. (the “Parent”) and certain of our U.S. subsidiaries (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 Parent, 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.  Certain of our current Guarantor subsidiaries did not exist and were created as part of the Reorganization.  As a result, prior periods presented have been retrospectively adjusted and contain certain allocations to reflect our current organizational structure.

 

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

April 30, 2016

(in thousands)

 

 

 

Tailored

 

The Men’s

 

Guarantor

 

Non-
Guarantor

 

 

 

 

 

 

 

Brands, Inc.

 

Wearhouse, Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

7,950

 

$

3,231

 

$

25,248

 

$

 

$

36,429

 

Accounts receivable, net

 

 

17,235

 

293,596

 

35,703

 

(263,201

)

83,333

 

Inventories

 

 

211,358

 

714,712

 

150,663

 

 

1,076,733

 

Other current assets

 

9,769

 

41,038

 

18,629

 

8,467

 

 

77,903

 

Total current assets

 

9,769

 

277,581

 

1,030,168

 

220,081

 

(263,201

)

1,274,398

 

Property, plant and equipment, net

 

 

252,683

 

228,714

 

39,747

 

 

521,144

 

Rental product, net

 

 

141,427

 

13,990

 

18,823

 

 

174,240

 

Goodwill

 

 

6,160

 

68,510

 

46,828

 

 

121,498

 

Intangible assets, net

 

 

159

 

159,051

 

18,616

 

 

177,826

 

Investments in subsidiaries

 

(88,520

)

1,447,307

 

 

 

(1,358,787

)

 

Other assets

 

 

6,637

 

952

 

8,226

 

(8,100

)

7,715

 

Total assets

 

$

(78,751

)

$

2,131,954

 

$

1,501,385

 

$

352,321

 

$

(1,630,088

)

$

2,276,821

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

310,830

 

$

113,982

 

$

41,637

 

$

(263,201

)

$

203,248

 

Accrued expenses and other current liabilities

 

9,129

 

184,955

 

90,879

 

26,081

 

 

311,044

 

Current portion of long-term debt

 

 

42,451

 

 

 

 

42,451

 

Total current liabilities

 

9,129

 

538,236

 

204,861

 

67,718

 

(263,201

)

556,743

 

Long-term debt, net

 

 

1,613,192

 

 

 

 

1,613,192

 

Deferred taxes and other liabilities

 

2,350

 

69,046

 

122,428

 

11,392

 

(8,100

)

197,116

 

Shareholders’ (deficit) equity

 

(90,230

)

(88,520

)

1,174,096

 

273,211

 

(1,358,787

)

(90,230

)

Total liabilities and shareholders’ (deficit) equity

 

$

(78,751

)

$

2,131,954

 

$

1,501,385

 

$

352,321

 

$

(1,630,088

)

$

2,276,821

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

January 30, 2016

(in thousands)

 

 

 

Tailored

 

The Men’s

 

Guarantor

 

Non-
Guarantor

 

 

 

 

 

 

 

Brands, Inc.

 

Wearhouse, Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

724

 

$

2,243

 

$

27,013

 

$

 

$

29,980

 

Accounts receivable, net

 

 

23,067

 

392,944

 

29,845

 

(381,966

)

63,890

 

Inventories

 

 

253,472

 

630,407

 

138,625

 

 

1,022,504

 

Other current assets

 

19,037

 

79,964

 

36,308

 

8,237

 

 

143,546

 

Total current assets

 

19,037

 

357,227

 

1,061,902

 

203,720

 

(381,966

)

1,259,920

 

Property, plant and equipment, net

 

 

254,335

 

230,209

 

37,280

 

 

521,824

 

Rental product, net

 

 

124,468

 

16,224

 

16,768

 

 

157,460

 

Goodwill

 

 

6,160

 

68,510

 

43,916

 

 

118,586

 

Intangible assets, net

 

 

186

 

159,530

 

18,794

 

 

178,510

 

Investments in subsidiaries

 

(109,188

)

1,439,187

 

 

 

(1,329,999

)

 

Other assets

 

 

6,914

 

992

 

8,513

 

(8,400

)

8,019

 

Total assets

 

$

(90,151

)

$

2,188,477

 

$

1,537,367

 

$

328,991

 

$

(1,720,365

)

$

2,244,319

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

 

$

419,187

 

$

153,717

 

$

46,176

 

$

(381,966

)

$

237,114

 

Accrued expenses and other current liabilities

 

7,602

 

154,014

 

75,676

 

19,470

 

 

256,762

 

Current portion of long-term debt

 

 

42,451

 

 

 

 

42,451

 

Total current liabilities

 

7,602

 

615,652

 

229,393

 

65,646

 

(381,966

)

536,327

 

Long-term debt, net

 

 

1,613,473

 

 

 

 

1,613,473

 

Deferred taxes and other liabilities

 

2,333

 

68,540

 

121,531

 

10,601

 

(8,400

)

194,605

 

Shareholders’ (deficit) equity

 

(100,086

)

(109,188

)

1,186,443

 

252,744

 

(1,329,999

)

(100,086

)

Total liabilities and shareholders’ (deficit) equity

 

$

(90,151

)

$

2,188,477

 

$

1,537,367

 

$

328,991

 

$

(1,720,365

)

$

2,244,319

 

 

20



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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

May 2, 2015

(in thousands)

 

 

 

Tailored

 

The Men’s

 

Guarantor

 

Non-
Guarantor

 

 

 

 

 

 

 

Brands, Inc.

 

Wearhouse, Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

 

$

21,889

 

$

4,798

 

$

35,115

 

$

 

$

61,802

 

Accounts receivable, net

 

 

22,121

 

376,837

 

37,016

 

(352,805

)

83,169

 

Inventories

 

 

251,227

 

582,638

 

152,592

 

 

986,457

 

Other current assets

 

22,672

 

90,661

 

43,234

 

9,131

 

 

165,698

 

Total current assets

 

22,672

 

385,898

 

1,007,507

 

233,854