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Table of Contents

not

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended August 3, 2019 or

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

For the transition period from to

Commission file number 1-16097

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)

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

TLRD

New York Stock Exchange

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 . No .

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes . No .

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer  

Accelerated filer  

Non-accelerated filer  

Smaller reporting company  

Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

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

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at August 31, 2019 was 50,642,547.

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 3, 2019, August 4, 2018 and February 2, 2019

2

Condensed Consolidated Statements of Earnings for the Three and Six Months Ended August 3, 2019 and August 4, 2018

3

Condensed Consolidated Statements of Comprehensive Income for the Three and Six Months Ended August 3, 2019 and August 4, 2018

4

Condensed Consolidated Statements of Shareholders’ Equity (Deficit) for the Three and Six Months Ended August 3, 2019 and August 4, 2018

5

Condensed Consolidated Statements of Cash Flows for the Six Months Ended August 3, 2019 and August 4, 2018

6

Notes to Condensed Consolidated Financial Statements

7

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

38

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

52

Item 4 — Controls and Procedures

52

PART II — Other Information

53

Item 1 — Legal Proceedings

53

Item 6 — Exhibits

53

SIGNATURES

55

Table of Contents

Forward-Looking Statements

Certain statements made in this Quarterly Report on Form 10-Q or in other materials we have filed or will file with the Securities and Exchange Commission (“SEC”) (as well as information included in oral statements or other written statements made or to be made by us) contains or may contain forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995), including, but not limited to, statements regarding our future financial performance and financial condition.  Words such as “expects,” “anticipates,” “envisions,” “targets,” “goals,” “projects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of such words and similar expressions are intended to identify such forward-looking statements.  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, margins, costs, earnings, number and costs of store openings, closings, remodels, refreshes, relocations and expansions, capital expenditures, potential acquisitions or divestitures, synergies from acquisitions, business strategies, demand for clothing or rental product, economic conditions, market trends in the retail business, currency fluctuations, inflation and various political, legal, regulatory, social, economic and business trends. Forward-looking statements are based upon management’s current beliefs or expectations and are inherently subject to significant business, economic and competitive risks, uncertainties and contingencies and third party approvals, many of which are beyond our control.

Any forward-looking statements that we make herein and in future reports are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various factors. Factors that might cause or contribute to such differences include, but are not limited to: actions or inactions by governmental entities; domestic and international macro-economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in formulating or executing our internal strategies and operating plans including new store and new market expansion plans; cost reduction initiatives and revenue enhancement strategies; changes to our capital allocation policy; changes in demand for clothing or rental product; market trends in the retail or rental business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies, including custom clothing; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies, including the enactment of duties or tariffs; advertising or marketing activities of competitors; the impact of cybersecurity threats or data breaches; legal proceedings and the impact of climate change.

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, except as required by applicable law. However, any further disclosures made on related subjects in our subsequent reports on Forms 10-K, 10-Q and 8-K should be consulted.  This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

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PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

    

August 3,

    

August 4,

    

February 2,

 

2019

2018

2019

ASSETS

CURRENT ASSETS:

Cash and cash equivalents

$

19,476

$

68,215

$

55,431

Accounts receivable, net

 

65,176

 

65,099

 

73,073

Inventories

 

846,952

 

786,510

 

830,426

Other current assets

 

63,882

 

87,491

 

70,712

Total current assets

 

995,486

 

1,007,315

 

1,029,642

PROPERTY AND EQUIPMENT, net

 

421,188

 

427,107

 

439,172

OPERATING LEASE RIGHT-OF-USE ASSETS

 

918,541

 

 

RENTAL PRODUCT, net

 

99,085

 

111,345

 

99,770

GOODWILL

 

79,283

 

103,686

 

79,491

INTANGIBLE ASSETS, net

 

155,309

 

165,881

 

163,901

OTHER ASSETS

 

5,806

 

13,497

 

8,514

TOTAL ASSETS

$

2,674,698

$

1,828,831

$

1,820,490

LIABILITIES AND SHAREHOLDERS' EQUITY

CURRENT LIABILITIES:

Accounts payable

$

187,946

$

145,981

$

228,979

Accrued expenses and other current liabilities

 

289,810

 

313,319

 

282,029

Current portion of operating lease liabilities

 

185,800

 

 

Income taxes payable

 

10,102

 

6,659

 

15,968

Current portion of long-term debt

 

9,000

 

9,000

 

11,619

Total current liabilities

 

682,658

 

474,959

 

538,595

LONG-TERM DEBT, net

 

1,145,651

 

1,207,377

 

1,153,242

OPERATING LEASE LIABILITIES

 

763,865

 

 

DEFERRED TAXES, net AND OTHER LIABILITIES

 

77,961

 

146,484

 

125,022

Total liabilities

 

2,670,135

 

1,828,820

 

1,816,859

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS' EQUITY:

Preferred stock

 

 

 

Common stock

 

506

 

498

 

501

Capital in excess of par

 

510,021

 

498,670

 

505,157

Accumulated deficit

 

(445,392)

 

(470,377)

 

(468,048)

Accumulated other comprehensive loss

 

(60,572)

 

(28,780)

 

(33,979)

Total shareholders' equity

 

4,563

 

11

 

3,631

TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY

$

2,674,698

$

1,828,831

$

1,820,490

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

For the Six Months Ended

    

August 3, 2019

    

August 4, 2018

    

August 3, 2019

    

August 4, 2018

 

Net sales:

    

    

    

    

    

Retail clothing product

$

580,900

$

605,788

$

1,175,679

$

1,219,432

Rental services

 

120,329

 

125,095

 

214,069

 

225,322

Alteration and other services

 

34,916

 

37,031

 

71,059

 

78,003

Total retail sales

 

736,145

 

767,914

 

1,460,807

 

1,522,757

Corporate apparel clothing product

 

53,343

 

55,516

 

110,068

 

118,637

Total net sales

 

789,488

 

823,430

 

1,570,875

 

1,641,394

Cost of sales:

Retail clothing product

 

259,047

 

259,025

 

527,691

 

535,245

Rental services

 

19,773

 

19,366

 

32,790

 

34,023

Alteration and other services

 

33,614

 

33,749

 

67,461

 

67,927

Occupancy costs

 

104,585

 

101,772

 

208,317

 

202,791

Total retail cost of sales

 

417,019

 

413,912

 

836,259

 

839,986

Corporate apparel clothing product

 

38,742

 

40,616

 

80,333

 

87,282

Total cost of sales

 

455,761

 

454,528

 

916,592

 

927,268

Gross margin:

Retail clothing product

 

321,853

 

346,763

 

647,988

 

684,187

Rental services

 

100,556

 

105,729

 

181,279

 

191,299

Alteration and other services

 

1,302

 

3,282

 

3,598

 

10,076

Occupancy costs

 

(104,585)

 

(101,772)

 

(208,317)

 

(202,791)

Total retail gross margin

 

319,126

 

354,002

 

624,548

 

682,771

Corporate apparel clothing product

 

14,601

 

14,900

 

29,735

 

31,355

Total gross margin

 

333,727

 

368,902

 

654,283

 

714,126

Advertising expense

 

33,164

 

38,661

 

78,207

 

79,894

Selling, general and administrative expenses

 

239,973

 

242,255

 

485,184

 

493,349

Operating income

60,590

87,986

90,892

140,883

Interest income

 

157

 

122

 

253

 

207

Interest expense

 

(18,258)

 

(20,864)

 

(36,921)

 

(42,845)

Loss on extinguishment of debt, net

(8,122)

(20,833)

Earnings before income taxes

 

42,489

 

59,122

 

54,224

 

77,412

Provision for income taxes

 

8,223

 

9,884

 

12,816

 

14,265

Net earnings

$

34,266

$

49,238

$

41,408

$

63,147

Net earnings per common share:

Basic

$

0.68

$

0.99

$

0.82

$

1.27

Diluted

$

0.68

$

0.97

$

0.82

$

1.24

Weighted-average common shares outstanding:

Basic

 

50,547

 

49,840

 

50,414

 

49,649

Diluted

 

50,624

 

50,851

 

50,606

 

50,785

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

 

For the Six Months Ended

    

August 3,

    

August 4,

    

August 3,

    

August 4,

 

2019

2018

 

2019

2018

Net earnings

 

$

34,266

 

$

49,238

$

41,408

$

63,147

Currency translation adjustments

 

(7,329)

 

(7,824)

 

(8,914)

 

(21,967)

Unrealized (loss) gain on cash flow hedges, net of tax

 

(12,065)

 

1,169

 

(17,679)

 

3,969

Comprehensive income

 

$

14,872

 

$

42,583

$

14,815

$

45,149

See Notes to Condensed Consolidated Financial Statements.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY (DEFICIT)

(In thousands)

(Unaudited)

Accumulated

 

Capital

Other

Total

 

Common

in Excess

Accumulated

Comprehensive

Equity

Stock

of Par

Deficit

Loss

(Deficit)

 

BALANCES — February 2, 2019

 

$

501

 

$

505,157

 

$

(468,048)

 

$

(33,979)

 

$

3,631

Net earnings

 

7,142

7,142

Other comprehensive loss

 

(7,199)

(7,199)

Cumulative adjustment upon ASC 842 adoption (see Note 12)

(402)

(402)

Cash dividends — $0.18 per share

 

(9,103)

(9,103)

Share-based compensation

 

2,398

2,398

Common stock issued — 306,505 shares

 

3

424

427

Tax payments related to vested deferred stock units

 

(940)

(940)

BALANCES — May 4, 2019

 

$

504

 

$

507,039

 

$

(470,411)

 

$

(41,178)

 

$

(4,046)

Net earnings

 

34,266

34,266

Other comprehensive loss

 

(19,394)

(19,394)

Cash dividends — $0.18 per share

 

(9,247)

(9,247)

Share-based compensation

 

2,644

2,644

Common stock issued — 155,210 shares

 

2

450

452

Tax payments related to vested deferred stock units

 

(112)

(112)

BALANCES — August 3, 2019

$

506

$

510,021

$

(445,392)

$

(60,572)

$

4,563

Accumulated

 

Capital

Other

Total

 

Common

in Excess

Accumulated

Comprehensive

Equity

Stock

of Par

Deficit

Loss

(Deficit)

 

BALANCES — February 3, 2018

 

$

492

 

$

491,648

 

$

(479,166)

 

$

(10,782)

 

$

2,192

Net earnings

 

13,909

13,909

Other comprehensive loss

 

(11,343)

(11,343)

Cumulative adjustment upon ASC 606 adoption (see Note 5)

(35,824)

(35,824)

Cash dividends — $0.18 per share

 

(9,360)

(9,360)

Share-based compensation

 

4,581

4,581

Common stock issued — 445,932 shares

 

4

3,645

3,649

Tax payments related to vested deferred stock units

 

(5,025)

(5,025)

BALANCES — May 5, 2018

 

$

496

 

$

494,849

 

$

(510,441)

 

$

(22,125)

 

$

(37,221)

Net earnings

 

49,238

49,238

Other comprehensive loss

 

(6,655)

(6,655)

Cash dividends — $0.18 per share

 

(9,174)

(9,174)

Share-based compensation

 

4,835

4,835

Common stock issued — 178,647 shares

 

2

462

464

Tax payments related to vested deferred stock units

 

(1,476)

(1,476)

BALANCES — August 4, 2018

$

498

$

498,670

$

(470,377)

$

(28,780)

$

11

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TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

For the Six Months Ended

 

    

August 3, 2019

    

August 4, 2018

 

CASH FLOWS FROM OPERATING ACTIVITIES:

Net earnings

$

41,408

$

63,147

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

Depreciation and amortization

 

53,810

 

52,719

Non-cash lease expense

 

98,683

 

Rental product amortization

 

19,047

 

19,755

Loss on extinguishment of debt, net

20,833

Amortization of deferred financing costs and discount on long-term debt

972

2,228

Loss on disposition of assets

 

2,946

 

7,768

Asset impairment charges

 

184

 

269

Share-based compensation

 

5,042

 

9,416

Deferred tax expense (benefit)

 

2,828

 

(2,240)

Other

 

134

 

247

Changes in operating assets and liabilities:

Accounts receivable

 

5,952

 

10,461

Inventories

 

(22,507)

 

42,186

Rental product

 

(21,450)

(12,102)

Other assets

 

(15,621)

 

(9,372)

Accounts payable, accrued expenses and other current liabilities

 

(30,928)

 

(3,497)

Income taxes payable

(5,789)

697

Other liabilities

 

(101,388)

 

(4,524)

Net cash provided by operating activities

 

33,323

 

197,991

CASH FLOWS FROM INVESTING ACTIVITIES:

Capital expenditures

 

(39,092)

 

(24,645)

Proceeds from divestiture of business

17,755

Net cash used in investing activities

 

(39,092)

 

(6,890)

CASH FLOWS FROM FINANCING ACTIVITIES:

Payments on original term loan

(993,420)

Proceeds from new term loan

895,500

Payments on new term loan

(7,120)

 

(4,500)

Proceeds from asset-based revolving credit facility

673,500

199,500

Payments on asset-based revolving credit facility

(677,000)

 

(95,000)

Repurchase and retirement of senior notes

(199,365)

Deferred financing costs

 

(5,644)

Cash dividends paid

(18,784)

 

(18,744)

Proceeds from issuance of common stock

879

4,113

Tax payments related to vested deferred stock units

(1,052)

 

(6,501)

Net cash used in financing activities

(29,577)

 

(224,061)

Effect of exchange rate changes

 

(609)

 

(2,432)

DECREASE IN CASH AND CASH EQUIVALENTS

 

(35,955)

 

(35,392)

Balance at beginning of period

 

55,431

 

103,607

Balance at end of period

$

19,476

$

68,215

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 — 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.

Our business results historically have fluctuated throughout the year 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 February 2, 2019.

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 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 Not Yet Adopted — We have considered all new accounting pronouncements not yet adopted and have concluded there are no new pronouncements that may have a material impact on our financial position, results of operations, or cash flows, based on current information, except for those listed below.  

In August 2018, the Financial Accounting Standards Board (“FASB”) issued ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. ASU 2018-15 aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. ASU 2018-15 is effective for public companies for annual reporting periods beginning after December 15, 2019, and interim periods within those fiscal years.  Early adoption of ASU 2018-15 is permitted.  We are currently evaluating the impact ASU 2018-15 may have on our financial position, results of operations or cash flows.

2. Divestiture of MW Cleaners

On February 28, 2018, we entered into a definitive agreement to divest our MW Cleaners business for approximately $18.0 million, subject to certain adjustments, and the transaction closed on March 3, 2018.  During the first quarter of 2018, we received cash proceeds of $17.7 million and recorded a loss on the divestiture totaling $3.6 million, which is included within selling, general and administrative expenses (“SG&A”) in the condensed consolidated statement of earnings, and relates to our retail segment.  For fiscal 2018, the total loss on divestiture of MW Cleaners was $3.8 million.

We determined that the sale of the MW Cleaners business did not represent a strategic shift and will not have a major effect on our consolidated results of operations, financial position or cash flows. Accordingly, we have not presented the sale as a discontinued operation in the condensed consolidated financial statements.

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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 is computed by dividing net earnings by the weighted-average common shares outstanding during the period.  Diluted earnings per common share is calculated using the treasury stock method.  Basic and diluted earnings per common share are computed using the actual net earnings 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 in our condensed consolidated statement of earnings and the accompanying notes. The following table sets forth the computation of basic and diluted earnings per common share (in thousands, except per share amounts):

For the Three Months Ended

For the Six Months Ended

August 3,

August 4,

August 3,

August 4,

    

2019

    

2018

    

2019

    

2018

 

Numerator

Net earnings

$

34,266

$

49,238

$

41,408

$

63,147

Denominator

Basic weighted-average common shares outstanding

 

50,547

 

49,840

 

50,414

 

49,649

Dilutive effect of share-based awards

 

77

 

1,011

 

192

 

1,136

Diluted weighted-average common shares outstanding

 

50,624

 

50,851

 

50,606

 

50,785

Net earnings per common share:

Basic

$

0.68

$

0.99

$

0.82

$

1.27

Diluted

$

0.68

$

0.97

$

0.82

$

1.24

For the three and six months ended August 3, 2019, 4.6 million and 3.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively. For the three and six months ended August 4, 2018, 0.7 million and 0.5 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

4. Debt

In 2014, The Men's Wearhouse entered into a term loan credit agreement that provided for a senior secured term loan in the aggregate principal amount of $1.1 billion (the "Original Term Loan") and a $500.0 million asset-based revolving credit agreement (the "ABL Facility", and together with the Original Term Loan, the "Credit Facilities") with certain of our U.S. subsidiaries and Moores the Suit People, one of our Canadian subsidiaries, as co-borrowers. Proceeds from the Original Term Loan were reduced by an $11.0 million original issue discount ("OID"), which was presented as a reduction of the outstanding balance on the Original Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the Original Term Loan. In addition, in 2014, The Men's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "Senior Notes").

In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022. In April 2018, The Men’s Wearhouse refinanced its Original Term Loan, and in October 2018, amended its term loan to reduce the interest rate margin. See Credit Facilities section below for additional information.

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.  Should our total leverage ratio and secured leverage ratio exceed certain thresholds specified in the agreements, we would be subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of August 3, 2019, our total leverage ratio is below the maximum specified in the agreements, however, our secured leverage ratio is above the maximum level.  As a result, we are now subject to additional restrictions, primarily related to the size of any incremental term loan facilities being limited to a maximum of $250 million. In addition, as a result of the refinancing of our Original Term Loan and amending of our ABL Facility, our ability to pay dividends on our common stock has increased from a maximum of $10.0 million per quarter to a maximum of $15.0 million per quarter.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

Credit Facilities

In April 2018, we refinanced our Original Term Loan.  Immediately prior to the refinancing, the Original Term Loan consisted of $593.4 million in aggregate principal amount with an interest rate of LIBOR plus 3.50% (with a floor of 1.0%) and $400.0 million in aggregate principal amount with a fixed rate of 5.0% per annum.  Upon entering into the refinancing, we made a prepayment of $93.4 million on the Original Term Loan using cash on hand.

 

As a result, we refinanced $900.0 million in aggregate principal amount of term loans then outstanding with a new Term Loan totaling $900.0 million (the “New Term Loan”).  Additionally, we may continue to request additional term loans or incremental equivalent debt borrowings, all of which are uncommitted, in an aggregate amount up to the greater of (1) $250.0 million and (2) an aggregate principal amount such that, on a pro forma basis (giving effect to such borrowings), our senior secured leverage ratio will not exceed 2.5 to 1.0.

The New Term Loan will amortize in an annual amount equal to 1.0% of the principal amount of the New Term Loan, payable quarterly commencing on May 1, 2018.  Proceeds from the New Term Loan were reduced by a $4.5 million OID, which was presented as a reduction of the outstanding balance on the New Term Loan on the balance sheet and was to be amortized to interest expense over the contractual life of the New Term Loan.  The New Term Loan extends the maturity date of the Original Term Loan from June 18, 2021 until April 9, 2025, subject to a maturity provision that would accelerate the maturity of the New Term Loan to April 1, 2022 if any of the Company’s obligations under its Senior Notes remain outstanding on April 1, 2022.

The New Term Loan bears interest at a rate per annum equal to an applicable margin plus, at the Company’s option, either LIBOR (with a floor of 1.0%) or the base rate (with a floor of 2.0%).  In October 2018, we amended the New Term Loan resulting in a reduction in the interest rate margin of 25 basis points.  As a result of the amendment, the margins for borrowings under the New Term Loan are 3.25% for LIBOR and 2.25% for the base rate and the OID was eliminated.  In connection with the October 2018 amendment of the New Term Loan, we incurred deferred financing costs of $1.1 million, which will be amortized over the life of the New Term Loan using the interest method.  The maturity date for the New Term Loan remains April 9, 2025, and all other material provisions of the New Term Loan remain unchanged.  For the first six months ended August 4, 2018, we recorded a loss on extinguishment of debt totaling $11.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Original Term Loan.

The interest rate on the New Term Loan is based on 1-month LIBOR, which was 2.23% at August 3, 2019, plus the applicable margin of 3.25%, resulting in a total interest rate of 5.48%.  We have two interest rate swap agreements where the variable rates due under the New Term Loan have been exchanged for a fixed rate, including an interest rate swap entered into during June 2018.  At August 3, 2019, the total notional amount under these interest rate swaps is $710.0 million.  Please see Note 15 for additional information on our interest rate swaps.

As a result of our interest rate swaps, 80% of the variable interest rate under the New Term Loan has been converted to a fixed rate and, as of August 3, 2019, the New Term Loan had a weighted average interest rate of 5.73%.

In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in October 2022, 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 New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest 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 1.75%.  The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%.  As of August 3, 2019, $45.0 million in borrowings were outstanding under the ABL Facility at a weighted average interest rate

9

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

of approximately 3.7%. During the six months ended August 3, 2019, the maximum borrowing outstanding under the ABL Facility was $100.0 million.

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases.  At August 3, 2019, letters of credit totaling approximately $29.2 million were issued and outstanding. Borrowings available under the ABL Facility as of August 3, 2019 were $401.9 million.

The obligations under the Credit Facilities are secured on a senior basis by a first priority lien on substantially all of the assets of the Company, The Men’s Wearhouse and its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People. The Credit Facilities and the related guarantees and security interests granted thereunder are senior secured obligations of, and will rank equally with all present and future senior indebtedness of the Company, the co-borrowers and the respective guarantors.  

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 in July 2022.  Interest on the Senior Notes is payable on January 1 and July 1 of each year.

We may redeem some or all of the Senior Notes at any time on or after July 1, 2017 at the redemption prices set forth in the indenture governing the Senior Notes.  Upon the occurrence of certain specific changes of control, we may be required to offer to purchase the Senior Notes at 101% of their aggregate principal amount plus accrued and unpaid interest thereon to the date of purchase.

During the second quarter of 2018, we completed a partial redemption of $175.0 million in face value of our Senior Notes. The Senior Notes were redeemed at a redemption price equal to $1,035 per $1,000 principal amount, plus accrued and unpaid interest. As a result, we recorded a net loss on extinguishment totaling $8.1 million, which is included as a separate line in the condensed consolidated statement of earnings.  The net loss on extinguishment reflects a $6.1 million loss upon repurchase of the Senior Notes and the elimination of unamortized deferred financing costs totaling $2.0 million related to the Senior Notes.  

For the six months ended August 4, 2018, as a result of the partial redemption of $175.0 million in face value of our Senior Notes as well as the repurchase and retirement of $17.6 million in face value of Senior Notes through open market transactions, we recorded a net loss on extinguishment totaling $8.9 million, which is included as a separate line in the condensed consolidated statement of earnings.  The net loss on extinguishment reflects a $6.7 million loss upon repurchase and the elimination of unamortized deferred financing costs totaling $2.2 million related to the Senior Notes.

Long-Term Debt

The following table provides details on our long-term debt as of August 3, 2019, August 4, 2018 and February 2, 2019 (in thousands):

August 3,

August 4,

February 2,