Quarterly report pursuant to Section 13 or 15(d)

Acquisitions

v2.4.0.8
Acquisitions
9 Months Ended
Nov. 01, 2014
Acquisitions  
Acquisitions

2.  Acquisitions

 

Jos. A. Bank

 

On June 18, 2014, we acquired all of the outstanding common stock of Jos. A. Bank, a men’s specialty apparel retailer, for $65.00 net per share in cash, or total consideration of approximately $1.8 billion. The acquisition was funded primarily by a $1.1 billion term loan facility, the issuance of $600.0 million in senior unsecured notes and borrowings under an asset-based credit facility (see Note 4).

 

We incurred acquisition and integration costs related to Jos. A. Bank totaling $27.3 million and $88.2 million for the three and nine months ended November 1, 2014, respectively, of which $10.6 million is included in cost of sales for the three and nine months ended November 1, 2014, respectively, and the remainder is included in selling, general and administrative expenses (“SG&A”) in the condensed consolidated statements of earnings.  In addition, we recorded an extinguishment of debt totaling $2.2 million, which is included as a separate line in the condensed consolidated statements of earnings for the nine months ended November 1, 2014.  Lastly, we incurred deferred financing costs of $51.1 million, with $7.6 million classified as other current assets and $43.5 million classified as non-current assets.  Deferred financing costs incurred in relation to the financing arrangements discussed in Note 4 will be amortized over the contractual term of each financing arrangement.

 

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

 

 

 

Preliminary
valuation at
August 2, 2014

 

Measurement
period
adjustments

 

Adjusted
preliminary
valuation at
November 1, 2014

 

Cash

 

$

328.9

 

$

 

$

328.9

 

Accounts receivable

 

7.1

 

1.6

 

8.7

 

Inventories

 

379.3

 

(51.1

)

328.2

 

Other current assets

 

29.3

 

17.6

 

46.9

 

Property and equipment

 

174.8

 

(5.5

)

169.3

 

Goodwill

 

744.7

 

19.9

 

764.6

 

Intangible assets

 

621.2

 

1.0

 

622.2

 

Accounts payable, accrued expenses and other current liabilities

 

(177.0

)

12.3

 

(164.7

)

Other liabilities (mainly deferred income taxes)

 

(288.0

)

4.2

 

(283.8

)

Total purchase price

 

1,820.3

 

 

1,820.3

 

Less: Cash acquired

 

(328.9

)

 

 

(328.9

)

Total purchase price, net of cash acquired

 

$

1,491.4

 

 

 

$

1,491.4

 

 

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

 

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

 

Intangible assets consist of four separately identified assets.  First, we identified the Jos. A. Bank tradename as an indefinite-lived intangible asset with a fair value of $539.1 million.  The Jos. A. Bank tradename is not subject to amortization but will be evaluated at least annually for impairment.  Second, we identified a customer relationship intangible asset with a fair value of $54.0 million which we expect to amortize over a useful life of seven years.  Third, we recognized an intangible asset of $24.4 million for favorable Jos. A. Bank leases (as compared to prevailing market rates) which will be amortized over the remaining lease terms, including an assumed renewal.  Lastly, we recognized an intangible asset related to the Jos. A. Bank franchise store agreements of $4.7 million which we expect to amortize over 25 years.

 

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

 

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

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

November 1,
2014

 

November 2,
2013

 

November 1,
2014

 

November 2,
2013

 

 

 

 

 

 

 

 

 

 

 

Total net sales

 

$

890,636 

 

$

896,358 

 

$

2,668,460 

 

$

2,588,733 

 

Net earnings attributable to common shareholders

 

$

28,133 

 

$

26,679 

 

$

90,978 

 

$

76,749 

 

Net earnings per common share attributable to common shareholders:

 

 

 

 

 

 

 

 

 

Basic

 

$

0.58 

 

$

0.56 

 

$

1.94 

 

$

1.55 

 

Diluted

 

$

0.58 

 

$

0.55 

 

$

1.92 

 

$

1.54 

 

 

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

 

Material non-recurring adjustments included in the pro forma financial information above consists of the step up of Jos. A. Bank inventory to its fair value, which is recorded as an adjustment to cost of sales based on when the acquired inventory is expected to be sold.  For the three and nine months ended November 2, 2013, $14.0 million and $32.1 million of adjustments to cost of sales are included in the calculation of net income, respectively.

 

JA Holding

 

On August 6, 2013, we acquired all of the outstanding common stock of JA Holding, the parent company of the American clothing brand Joseph Abboud® and a U.S. tailored clothing factory, for approximately $94.9 million in cash consideration.  We believe this transaction will accelerate our strategy of offering exclusive brands with broad appeal at attractive prices.  The cash paid at closing was funded by $100.0 million borrowed under the term loan component of our previous credit agreement (see Note 4).

 

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

 

($ in millions)

 

 

 

Accounts receivable

 

$

12.8

 

Inventories

 

6.5

 

Other assets

 

3.1

 

Property and equipment

 

7.3

 

Goodwill

 

53.9

 

Tradename

 

30.0

 

Accounts payable, accrued expenses and other current liabilities

 

(7.2

)

Other liabilities

 

(11.5

)

Total purchase price

 

$

94.9

 

 

Goodwill is calculated as the excess of the purchase price over the net assets acquired.  The acquisition resulted in goodwill primarily related to growth opportunities as we believe this transaction will accelerate our strategy of offering exclusive brands with broad appeal at attractive prices.  All of the goodwill has been assigned to our retail reportable segment and is non-deductible for tax purposes.  Acquired intangible assets consist of the Joseph Abboud tradename which is not subject to amortization but will be evaluated at least annually for impairment.

 

The results of operations for JA Holding were included in the condensed consolidated statements of earnings beginning on August 6, 2013, and were not significant to our consolidated results.  The impact of the acquisition on our results of operations, as if the acquisition had been completed as of the beginning of the periods presented, is not significant.