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EX-32.2 - EX-32.2 - TAILORED BRANDS INCtlrd-20161029ex322fe2199.htm
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EX-31.1 - EX-31.1 - TAILORED BRANDS INCtlrd-20161029ex31149d355.htm

 

 

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 October 29, 2016 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)

 

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 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 ☒. No ☐.

 

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

 

Large accelerated filer  ☒

 

Accelerated filer  ☐

 

 

 

Non-accelerated filer  ☐

(Do not check if a smaller reporting company)

Smaller reporting company  ☐

 

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 November 25, 2016 was 48,744,325.

 

 

 

 

 


 

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 October 29, 2016, October 31, 2015 and January 30, 2016 

 

 

 

 

Condensed Consolidated Statements of Earnings (Loss) for the Three and Nine Months Ended October 29, 2016 and October 31, 2015 

 

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the Three and Nine Months Ended October 29, 2016 and October 31, 2015 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 29, 2016 and October 31, 2015 

 

 

 

 

Notes to Condensed Consolidated Financial Statements 

 

 

 

 

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

 

29 

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk 

 

42 

 

 

 

Item 4 — Controls and Procedures 

 

42 

 

 

 

PART II — Other Information 

 

 

 

 

 

Item 1 — Legal Proceedings 

 

43 

 

 

 

Item 1A — Risk Factors 

 

43 

 

 

 

Item 6 — Exhibits 

 

43 

 

 

 

SIGNATURES 

 

44 

 

 

 

 

 

 


 

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; the loss of, or changes in, key personnel; success, or lack thereof, in executing our internal strategies and operating plans including new store and new market expansion plans, cost reduction initiatives, store rationalization plans, profit improvement plans, revenue enhancement strategies and 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, Part 1A of our Quarterly Report on Form 10-Q for the quarter ended July 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.

 

1


 

PART I – FINANCIAL INFORMATION

 

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

    

October 29,

    

October 31,

    

January 30,

 

 

 

2016

 

2015

 

2016

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

34,948

 

$

53,654

 

$

29,980

 

Accounts receivable, net

 

 

71,898

 

 

66,902

 

 

63,890

 

Inventories

 

 

1,047,915

 

 

1,060,247

 

 

1,022,504

 

Other current assets

 

 

60,190

 

 

168,071

 

 

143,546

 

Total current assets

 

 

1,214,951

 

 

1,348,874

 

 

1,259,920

 

PROPERTY AND EQUIPMENT, net

 

 

501,391

 

 

548,481

 

 

521,824

 

RENTAL PRODUCT, net

 

 

160,101

 

 

147,344

 

 

157,460

 

GOODWILL

 

 

116,026

 

 

890,991

 

 

118,586

 

INTANGIBLE ASSETS, net

 

 

172,337

 

 

568,171

 

 

178,510

 

OTHER ASSETS

 

 

10,323

 

 

8,518

 

 

8,019

 

TOTAL ASSETS

 

$

2,175,129

 

$

3,512,379

 

$

2,244,319

 

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

200,199

 

$

233,520

 

$

237,114

 

Accrued expenses and other current liabilities

 

 

280,658

 

 

265,993

 

 

256,762

 

Income taxes payable

 

 

917

 

 

13,218

 

 

 —

 

Current portion of long-term debt

 

 

7,000

 

 

7,000

 

 

42,451

 

Total current liabilities

 

 

488,774

 

 

519,731

 

 

536,327

 

LONG-TERM DEBT, net

 

 

1,588,873

 

 

1,649,206

 

 

1,613,473

 

DEFERRED TAXES AND OTHER LIABILITIES

 

 

175,179

 

 

358,059

 

 

194,605

 

Total liabilities

 

 

2,252,826

 

 

2,526,996

 

 

2,344,405

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' (DEFICIT) EQUITY:

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 —

 

 

 —

 

 

 —

 

Common stock

 

 

487

 

 

485

 

 

485

 

Capital in excess of par

 

 

466,817

 

 

452,666

 

 

455,765

 

(Accumulated deficit) retained earnings

 

 

(499,663)

 

 

541,672

 

 

(524,876)

 

Accumulated other comprehensive loss

 

 

(45,338)

 

 

(6,356)

 

 

(28,486)

 

Treasury stock, at cost

 

 

 —

 

 

(3,084)

 

 

(2,974)

 

Total shareholders' (deficit) equity

 

 

(77,697)

 

 

985,383

 

 

(100,086)

 

TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY

 

$

2,175,129

 

$

3,512,379

 

$

2,244,319

 

 

See Notes to Condensed Consolidated Financial Statements.

2


 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS (LOSS)

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

    

October 29, 2016

    

October 31, 2015

    

October 29, 2016

    

October 31, 2015

 

Net sales:

 

 

    

 

 

    

 

 

    

    

 

    

 

Retail clothing product

 

$

575,046

 

$

615,874

 

$

1,806,660

 

$

1,931,926

 

Rental services

 

 

138,724

 

 

132,443

 

 

403,564

 

 

392,621

 

Alteration and other services

 

 

49,919

 

 

53,070

 

 

149,888

 

 

160,024

 

Total retail sales

 

 

763,689

 

 

801,387

 

 

2,360,112

 

 

2,484,571

 

Corporate apparel clothing product

 

 

83,245

 

 

64,059

 

 

225,328

 

 

186,038

 

Total net sales

 

 

846,934

 

 

865,446

 

 

2,585,440

 

 

2,670,609

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail clothing product

 

 

247,978

 

 

274,348

 

 

796,215

 

 

850,782

 

Rental services

 

 

22,958

 

 

21,431

 

 

65,943

 

 

62,866

 

Alteration and other services

 

 

33,526

 

 

36,260

 

 

104,085

 

 

109,528

 

Occupancy costs

 

 

108,923

 

 

114,629

 

 

327,673

 

 

341,980

 

Total retail cost of sales

 

 

413,385

 

 

446,668

 

 

1,293,916

 

 

1,365,156

 

Corporate apparel clothing product

 

 

56,343

 

 

45,787

 

 

152,173

 

 

132,229

 

Total cost of sales

 

 

469,728

 

 

492,455

 

 

1,446,089

 

 

1,497,385

 

Gross margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail clothing product

 

 

327,068

 

 

341,526

 

 

1,010,445

 

 

1,081,144

 

Rental services

 

 

115,766

 

 

111,012

 

 

337,621

 

 

329,755

 

Alteration and other services

 

 

16,393

 

 

16,810

 

 

45,803

 

 

50,496

 

Occupancy costs

 

 

(108,923)

 

 

(114,629)

 

 

(327,673)

 

 

(341,980)

 

Total retail gross margin

 

 

350,304

 

 

354,719

 

 

1,066,196

 

 

1,119,415

 

Corporate apparel clothing product

 

 

26,902

 

 

18,272

 

 

73,155

 

 

53,809

 

Total gross margin

 

 

377,206

 

 

372,991

 

 

1,139,351

 

 

1,173,224

 

Advertising expense

 

 

45,656

 

 

47,991

 

 

138,547

 

 

143,628

 

Selling, general and administrative expenses

 

 

270,494

 

 

271,301

 

 

849,122

 

 

822,485

 

Tradename impairment charge

 

 

 —

 

 

90,100

 

 

 —

 

 

90,100

 

Operating income (loss)

 

 

61,056

 

 

(36,401)

 

 

151,682

 

 

117,011

 

Interest income

 

 

52

 

 

50

 

 

102

 

 

140

 

Interest expense

 

 

(25,476)

 

 

(26,457)

 

 

(77,853)

 

 

(79,475)

 

Gain (loss) on extinguishment of debt, net

 

 

1,808

 

 

 —

 

 

1,737

 

 

(12,675)

 

Earnings (loss) before income taxes

 

 

37,440

 

 

(62,808)

 

 

75,668

 

 

25,001

 

Provision (benefit) for income taxes

 

 

9,007

 

 

(35,654)

 

 

20,623

 

 

(5,993)

 

Net earnings (loss)

 

$

28,433

 

$

(27,154)

 

$

55,045

 

$

30,994

 

Net earnings (loss) per common share allocated to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.58

 

$

(0.56)

 

$

1.13

 

$

0.64

 

Diluted

 

$

0.58

 

$

(0.56)

 

$

1.13

 

$

0.64

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

48,655

 

 

48,339

 

 

48,570

 

 

48,258

 

Diluted

 

 

48,812

 

 

48,339

 

 

48,691

 

 

48,513

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

$

0.54

 

$

0.54

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3


 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

    

October 29,

    

October 31,

    

October 29,

    

October 31,

 

 

 

2016

 

2015

 

2016

 

2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

28,433

 

$

(27,154)

 

$

55,045

 

$

30,994

 

Currency translation adjustments

 

 

(15,075)

 

 

(2,024)

 

 

(18,246)

 

 

(378)

 

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

 

 

948

 

 

(222)

 

 

1,394

 

 

(307)

 

Comprehensive income (loss)

 

$

14,306

 

$

(29,400)

 

$

38,193

 

$

30,309

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

4


 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

 

October 29,

 

October 31,

 

 

    

2016

    

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net earnings

 

$

55,045

 

$

30,994

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

87,838

 

 

98,162

 

Rental product amortization

 

 

35,982

 

 

30,496

 

Tradename impairment charge

 

 

 —

 

 

90,100

 

(Gain) loss on extinguishment of debt, net

 

 

(1,737)

 

 

12,675

 

Amortization of deferred financing costs

 

 

4,922

 

 

5,151

 

Amortization of discount on long-term debt

 

 

728

 

 

848

 

Loss (gain) on disposition of assets

 

 

616

 

 

(833)

 

Asset impairment charges

 

 

4,293

 

 

1,695

 

Share-based compensation

 

 

13,958

 

 

12,614

 

Excess tax benefits from share-based plans

 

 

 —

 

 

(1,104)

 

Deferred tax benefit

 

 

(13,233)

 

 

(61,108)

 

Deferred rent expense and other

 

 

(1,281)

 

 

3,141

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(13,273)

 

 

7,116

 

Inventories

 

 

(32,833)

 

 

(122,294)

 

Rental product

 

 

(37,817)

 

 

(45,704)

 

Other assets

 

 

84,844

 

 

6,210

 

Accounts payable, accrued expenses and other current liabilities

 

 

(4,314)

 

 

29,778

 

Income taxes payable

 

 

(2,065)

 

 

13,357

 

Other liabilities

 

 

(4,789)

 

 

942

 

Net cash provided by operating activities

 

 

176,884

 

 

112,236

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Capital expenditures

 

 

(80,550)

 

 

(86,406)

 

Proceeds from sales of property and equipment

 

 

605

 

 

2,613

 

Net cash used in investing activities

 

 

(79,945)

 

 

(83,793)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Payments on term loan

 

 

(40,701)

 

 

(6,250)

 

Proceeds from asset-based revolving credit facility

 

 

520,550

 

 

5,500

 

Payments on asset-based revolving credit facility

 

 

(520,550)

 

 

(5,500)

 

Repurchase and retirement of senior notes

 

 

(25,000)

 

 

 —

 

Deferred financing costs

 

 

 —

 

 

(3,566)

 

Cash dividends paid

 

 

(26,438)

 

 

(26,269)

 

Proceeds from issuance of common stock

 

 

1,451

 

 

2,454

 

Tax payments related to vested deferred stock units

 

 

(1,258)

 

 

(4,538)

 

Excess tax benefits from share-based plans

 

 

 —

 

 

1,104

 

Repurchases of common stock

 

 

 —

 

 

(277)

 

Net cash used in financing activities

 

 

(91,946)

 

 

(37,342)

 

Effect of exchange rate changes

 

 

(25)

 

 

292

 

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

 

4,968

 

 

(8,607)

 

Balance at beginning of period

 

 

29,980

 

 

62,261

 

Balance at end of period

 

$

34,948

 

$

53,654

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

5


 

Table of Contents

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 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 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 will adopt ASU 2016-09 beginning in the first quarter of fiscal 2017 and we do not expect it will have a material impact on our financial position, results of operations or cash flows.  However, under certain circumstances, this guidance could have an impact on our effective tax rate as changes between tax and book treatment of equity compensation will be recognized in the provision for income taxes beginning in fiscal 2017.

 

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

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

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 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 factory and 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 for the three and nine months ended October 29, 2016 along with cumulative charges incurred under these initiatives since inception is presented in the table below (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

For the Three Months Ended

    

For the Nine Months Ended

    

 

 

 

 

 

October 29,

 

October 29,

 

 

 

 

 

 

2016

 

2016

 

Cumulative

 

Lease termination costs

 

$

8,667

 

$

37,004

 

$

37,004

 

Store asset impairment charges and accelerated depreciation, net of deferred rent

 

 

(844)

 

 

2,330

 

 

25,476

 

Consulting costs

 

 

1,806

 

 

13,583

 

 

14,501

 

Inventory reserve charges

 

 

 —

 

 

 —

 

 

11,008

 

Favorable lease impairment charges

 

 

 —

 

 

 —

 

 

5,533

 

Severance and employee-related costs

 

 

481

 

 

4,643

 

 

4,643

 

Other costs

 

 

839

 

 

1,565

 

 

2,423

 

Total pre-tax restructuring and other charges(1)

 

$

10,949

 

$

59,125

 

$

100,588

 


(1)

Consists of $12.4 million included in selling, general and administrative expenses (“SG&A”) offset by a $1.5 million reduction in cost of sales for the three months ended October 29, 2016. Consists of $61.8 million included in SG&A offset by a $2.7 million reduction in cost of sales for the nine months ended October 29, 2016. For the three and nine months ended October 29, 2016 and cumulatively since inception of the initiatives, of the total amounts recorded in the table above, $9.1 million, $42.7 million and $82.6 million relate to our retail segment and the remainder are recorded in shared services.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

As of October 29, 2016, we estimate that cumulative pre-tax restructuring and other charges related to these actions will approximate $114.0 million to $120.0 million, of which approximately $72.0 million to $75.0 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;

·

$42.0 million to $45.0 million of inventory and long-lived and intangible asset impairment charges, including accelerated depreciation relating to store closures; and

·

$22.0 million to $25.0 million of consulting, severance and other 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

 

Lease

 

 

 

 

 

 

 

 

 

 

 

 

Employee-

 

Termination

 

Consulting

 

Other

 

 

 

 

 

    

Related Costs

    

Costs

    

Costs

    

Costs

    

Total

 

Beginning Balance, January 30, 2016

 

$

 —

 

$

 —

 

$

918

 

$

858

 

$

1,776

 

Charges, excluding non-cash items

 

 

4,643

 

 

37,004

 

 

13,583

 

 

1,565

 

 

56,795

 

Payments

 

 

(4,179)

 

 

(30,562)

 

 

(13,983)

 

 

(2,398)

 

 

(51,122)

 

Ending Balance, October 29, 2016

 

$

464

 

$

6,442

 

$

518

 

$

25

 

$

7,449

 

 

In addition to the restructuring costs described above, we incurred integration and other costs related to Jos. A. Bank totaling $1.4 million and $5.0 million for the three months ended October 29, 2016 and October 31, 2015, respectively. For the three months ended October 29, 2016, $0.9 million of the integration costs are included in SG&A and $0.5 million are included in cost of sales in the condensed consolidated statement of earnings (loss).  For the three months ended October 31, 2015, $5.2 million of the integration costs are included in SG&A offset by a $0.2 million reduction in in cost of sales in the condensed consolidated statement of earnings (loss). 

 

For the nine months ended October 29, 2016 and October 31, 2015, we incurred integration and other costs related to Jos. A. Bank totaling $7.1 million and $15.9 million, respectively. For the nine months ended October 29, 2016, $5.5 million of the integration costs are included in SG&A and $1.6 million are included in cost of sales in the condensed consolidated statement of earnings (loss).  For the nine months ended October 31, 2015, $15.6 million of the integration costs are included in SG&A and $0.3 million are included in cost of sales in the condensed consolidated statement of earnings (loss). 

 

3.  Earnings (Loss) per Share    

 

Basic earnings (loss) per common share allocated to common shareholders is determined using the two-class method and is computed by dividing net earnings (loss) allocated to common shareholders by the weighted-average common shares outstanding during the period.  Diluted earnings (loss) per common share reflect the more dilutive earnings (loss) per common share amount calculated using the treasury stock method or the two-class method. 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Basic and diluted earnings (loss) per common share allocated to common shareholders are computed using the actual net earnings (loss) 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 (loss) and the accompanying notes.  As a result, it may not be possible to recalculate earnings (loss) per common share allocated to common shareholders in our condensed consolidated statement of earnings (loss) and the accompanying notes. The following table sets forth the computation of basic and diluted earnings (loss) per common share allocated to common shareholders (in thousands, except per share amounts):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

October 29,

 

October 31,

 

October 29,

 

October 31,

 

 

    

2016

    

2015

    

2016

    

2015

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings (loss)

 

$

28,433

 

$

(27,154)

 

$

55,045

 

$

30,994

 

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

 

 

(33)

 

 

 —

 

 

(65)

 

 

(31)

 

Net earnings (loss) allocated to common shareholders

 

$

28,400

 

$

(27,154)

 

$

54,980

 

$

30,963

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

48,655

 

 

48,339

 

 

48,570

 

 

48,258

 

Dilutive effect of share-based awards

 

 

157

 

 

 —

 

 

121

 

 

255

 

Diluted weighted-average common shares outstanding

 

 

48,812

 

 

48,339

 

 

48,691

 

 

48,513

 

Net earnings (loss) per common share allocated to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.58

 

$

(0.56)

 

$

1.13

 

$

0.64

 

Diluted

 

$

0.58

 

$

(0.56)

 

$

1.13

 

$

0.64

 

 

For the three and nine months ended October 29, 2016,  1.9 million and 1.7 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings (loss) per common share, respectively. For the three and nine months ended October 31, 2015, 0.4 million and 0.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings (loss) 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 October 29, 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.

 

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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 0.89% at October 29, 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 (loss).

 

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 October 29, 2016, the Term Loan had a weighted average interest rate of 4.89%.  

 

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 October 29, 2016, there were no borrowings outstanding under the ABL Facility.  During the three and nine months ended October 29, 2016, the maximum borrowing outstanding under the ABL Facility was $68.5 million.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  At October 29, 2016, letters of credit totaling approximately $28.9 million were issued and outstanding. Borrowings available under the ABL Facility as of October 29, 2016 were $427.2 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. 

 

Long-Term Debt

 

On May 2, 2016, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment of $35.5 million on the Term Loan.  As a result of this prepayment, we recorded a loss on extinguishment of debt totaling $0.9 million consisting of the elimination of unamortized deferred financing costs and OID related to the Term Loan. 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

In addition, during the third quarter of 2016, we repurchased and retired $18.5 million of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility.  As a result, we recorded a net gain on extinguishment totaling $1.8 million, which reflects a $2.1 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs totaling $0.3 million related to the Senior Notes. 

 

For the nine months ended October 29, 2016, as a result of our excess cash flow prepayment and the repurchase and retirement of a total of $25.0 million of Senior Notes, we recorded a net gain on extinguishment totaling $1.7 million, which reflects a $3.1 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $1.4 million, which is included as a separate line in the condensed consolidated statement of earnings (loss).

 

The following table provides details on our long-term debt as of October 29, 2016, October 31, 2015 and January 30, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

October 29,

 

October 31,

 

January 30,

 

 

    

2016

    

2015

    

2016

 

Term Loan (net of unamortized OID of $4.4 million at October 29, 2016, $5.6 million at October 31, 2015 and $5.4 million at January 30, 2016)

 

$

1,044,173

 

$

1,085,392

 

$

1,083,891

 

Senior Notes

 

 

575,000

 

 

600,000

 

 

600,000

 

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

 

 

(23,300)

 

 

(29,186)

 

 

(27,967)

 

Total long-term debt, net

 

 

1,595,873

 

 

1,656,206

 

 

1,655,924

 

Current portion of long-term debt

 

 

(7,000)

 

 

(7,000)

 

 

(42,451)

 

Total long-term debt, net of current portion

 

$

1,588,873

 

$

1,649,206

 

$

1,613,473

 

 

 

5.  Supplemental Cash Flows    

 

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

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

 

October 29,

 

October 31,

 

 

    

2016

    

2015

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

62,450

 

$

61,895

 

Cash (refunded) paid for income taxes, net

 

$

(44,961)

 

$

32,932

 

 

 

 

 

 

 

 

 

Schedule of noncash investing and financing activities:

 

 

 

 

 

 

 

Cash dividends declared

 

$

9,572

 

$

9,028

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $7.8 million and $7.3 million at October 29, 2016 and October 31, 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 October 29, 2016, October 31, 2015 and January 30, 2016 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 29,

 

October 31,

 

January 30,

 

 

    

2016

    

2015

    

2016

 

Finished goods

 

$

963,036

 

$

1,006,182

 

$

919,623

 

Raw materials and merchandise components

 

 

84,879

 

 

54,065

 

 

102,881

 

Total inventories

 

$

1,047,915

 

$

1,060,247

 

$

1,022,504

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

7.  Income Taxes 

 

Our effective income tax rate increased to 24.1% for the third quarter of 2016 from a benefit of (56.8)% for the third quarter of 2015 primarily as a result of the Jos. A. Bank tradename impairment charge of $90.1 million in last year’s third quarter, which generated a book loss in our U.S. entities and significantly impacted our effective tax rate.  In addition, the effective tax rate for the third quarter of 2016 is impacted by lower U.S. income as compared to income earned in foreign jurisdictions, which have lower statutory tax rates.

 

Our effective income tax rate increased to 27.3% for the first nine months of 2016 from a benefit of (24.0)% for the first nine months of 2015 primarily due to the impact of the aforementioned Jos. A. Bank tradename impairment charge, which resulted in our effective tax rate being a benefit for the first nine months of 2015.  In addition, the effective tax rate for the first nine months of 2016 is impacted by lower U.S. income as compared to income earned in foreign jurisdictions, which have lower statutory tax rates.

 

Lastly, we are currently undergoing several federal, foreign and state audits which we are vigorously defending and currently do not believe should result in any material change to tax expense.

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 29,

 

October 31,

 

January 30,

 

 

    

2016

    

2015

    

2016

 

Prepaid expenses

 

$

39,935

 

$

42,824

 

$

42,166

 

Tax receivable

 

 

4,697

 

 

69,830

 

 

85,153

 

Current deferred tax assets

 

 

 —

 

 

38,736

 

 

 —

 

Other

 

 

15,558

 

 

16,681

 

 

16,227

 

Total other current assets

 

$

60,190

 

$

168,071

 

$

143,546

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

    

October 29,

    

October 31,

    

January 30,

 

 

 

2016

 

2015

 

2016

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

70,631

 

$

71,921

 

$

75,373

 

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

 

 

36,021

 

 

35,486

 

 

27,505

 

Unredeemed gift certificates

 

 

34,693

 

 

34,477

 

 

40,884

 

Accrued workers compensation and medical costs

 

 

30,818

 

 

28,408

 

 

30,877

 

Customer deposits, prepayments and refunds payable

 

 

29,371

 

 

25,715

 

 

25,218

 

Accrued interest

 

 

25,884

 

 

27,207

 

 

16,282

 

Loyalty program reward certificates

 

 

10,704

 

 

8,181

 

 

9,215

 

Cash dividends declared

 

 

9,572

 

 

9,028

 

 

9,150

 

Accrued royalties

 

 

7,977

 

 

6,630

 

 

3,727

 

Lease termination and other store closure costs

 

 

6,442

 

 

92

 

 

 —

 

Other

 

 

18,545

 

 

18,848

 

 

18,531

 

Total accrued expenses and other current liabilities

 

$

280,658

 

$

265,993

 

$

256,762

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 29,

    

October 31,

 

January 30,

 

 

    

2016

    

2015

    

2016

 

Deferred and other income tax liabilities

 

$

102,243

 

$

275,213

 

$

112,469

 

Deferred rent and landlord incentives

 

 

61,641

 

 

65,764

 

 

66,075

 

Unfavorable lease liabilities

 

 

5,394

 

 

9,129

 

 

8,279

 

Other

 

 

5,901

 

 

7,953

 

 

7,782

 

Total deferred taxes and other liabilities

 

$

175,179

 

$

358,059

 

$

194,605

 

 

 

9.  Accumulated Other Comprehensive (Loss) Income    

 

The following table summarizes the components of accumulated other comprehensive (loss) income for the nine months ended October 29, 2016 (in thousands and net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

Cash Flow

 

Pension

 

 

 

 

 

    

Translation

    

Hedges

    

Plan

    

Total

 

BALANCE— January 30, 2016

 

$

(26,659)

 

$

(2,007)

 

$

180

 

$

(28,486)

 

Other comprehensive (loss) income before reclassifications

 

 

(18,246)

 

 

354

 

 

 —

 

 

(17,892)

 

Amounts reclassified from accumulated other comprehensive loss

 

 

 —

 

 

1,040

 

 

 —

 

 

1,040

 

Net other comprehensive (loss) income

 

 

(18,246)

 

 

1,394

 

 

 —

 

 

(16,852)

 

BALANCE— October 29, 2016

 

$

(44,905)

 

$

(613)

 

$

180

 

$

(45,338)

 

 

The following table summarizes the components of accumulated other comprehensive (loss) income for the nine months ended October 31, 2015 (in thousands and net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

Interest Rate

 

Pension

 

 

 

 

 

     

Translation

    

Swap

    

Plan

    

Total

 

BALANCE— January 31, 2015

 

$

(4,232)

 

$

(1,665)

 

$

226

 

$

(5,671)

 

Other comprehensive income (loss) before reclassifications

 

 

(378)

 

 

(1,531)

 

 

 

 

(1,909)

 

Amounts reclassified from accumulated other comprehensive income

 

 

 —

 

 

1,224

 

 

 

 

1,224

 

Net current-period other comprehensive loss

 

 

(378)

 

 

(307)

 

 

 —

 

 

(685)

 

BALANCE— October 31, 2015

 

$

(4,610)

 

$

(1,972)

 

$

226

 

$

(6,356)

 

 

Amounts reclassified from other comprehensive (loss) income for the nine months ended October 29, 2016 and October 31, 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 (loss).

 

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.  In June 2016 our shareholders approved the Tailored Brands, Inc. 2016 Long-Term Incentive Plan (the “2016 LTIP”), which replaced our 2004 Long-Term Incentive Plan (the “2004 LTIP”).  Awards are no longer available for grant under the 2004 LTIP but outstanding awards under the 2004 LTIP remain in effect in accordance with the terms of the awards and the 2004 LTIP.  The number of shares of our common stock authorized for awards under the 2016 LTIP is 6.4 million, subject to adjustments.  Under the 2016 LTIP, 18,328 awards have been issued as of October 29, 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

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

statements. The amount of compensation cost is measured based on the grant-date fair value of the instrument issued and is recognized over the vesting period.  Share-based compensation expense recognized for the three and nine months ended October 29, 2016 was $5.2 million and $14.0 million, respectively. Share-based compensation expense recognized for the three and nine months ended October 31, 2015 was $4.2 million and $12.6 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 nine months ended October 29, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-Average

 

 

 

Units

 

Grant-Date Fair Value

 

 

 

Time-

 

Performance-

 

Time-

 

Performance-

 

 

    

Based

    

Based

    

Based

    

Based

 

Non-Vested at January 30, 2016

 

478,106

 

168,656

 

$

49.60

 

$

47.87

 

Granted

 

830,002

 

258,168

 

 

16.68

 

 

17.43

 

Vested(1)

 

(216,936)

 

 —

 

 

49.01

 

 

 —

 

Forfeited

 

(24,426)

 

(59,943)

 

 

39.49

 

 

33.72

 

Non-Vested at October 29, 2016

 

1,066,746

 

366,881

 

$

24.34

 

$

28.76

 


(1)

Includes 71,896 shares relinquished for tax payments related to vested deferred stock units for the nine months ended October 29, 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”).  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 October 29, 2016 are 11,288 DSUs granted prior to April 3, 2013.

 

The  performance units granted in the first nine 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 that are subject to the same vesting terms as the underlying performance-based awards.

 

The following table summarizes the activity of restricted stock for the nine months ended October 29, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-
Average

 

 

    

Shares

    

Grant-Date
Fair Value

 

Non-Vested at January 30, 2016

 

33,157

 

$

27.93

 

Granted

 

18,646

 

 

17.37

 

Vested

 

(6,951)

 

 

58.44

 

Forfeited

 

 —

 

 

 —

 

Non-Vested at October 29, 2016

 

44,852

 

$

18.81

 

 

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

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

As of October 29, 2016, we have unrecognized compensation expense related to non-vested DSUs, performance units, and shares of restricted stock of approximately $24.6 million, which is expected to be recognized over a weighted-average period of 1.5 years.

 

Stock Options

 

The following table summarizes the activity of stock options for the nine months ended October 29, 2016:

 

 

 

 

 

 

 

 

 

 

 

 

Weighted-

 

 

 

Number of

 

Average

 

 

    

Shares

    

Exercise Price

 

Outstanding at January 30, 2016

 

681,117

 

$

39.65

 

Granted

 

593,509

 

 

17.43

 

Exercised

 

 —

 

 

 —

 

Forfeited

 

(3,051)

 

 

48.31

 

Expired

 

(1,525)

 

 

48.31

 

Outstanding at October 29, 2016

 

1,270,050

 

$

29.23

 

Exercisable at October 29, 2016

 

450,630

 

$

36.25

 

 

The weighted-average grant date fair value of the 593,509 stock options granted during the nine months ended October 29, 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 nine months ended October 29, 2016: 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

 

October 29,

 

 

    

2016

 

Risk-free interest rates

 

1.22%

 

Expected lives

 

5.0 years

 

Dividend yield

 

4.13%

 

Expected volatility

 

47.95%

 

 

As of October 29, 2016, we have unrecognized compensation expense related to non-vested stock options of approximately $4.5 million, which is expected to be recognized over a weighted-average period of 1.4 years.

 

11.  Goodwill and Other Intangible Assets

 

Please refer to Note 3 of the Notes to Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended January 30, 2016 for information on impairment charges recorded in fiscal 2015 related to goodwill and intangible assets for Jos. A. Bank.

 

Goodwill

 

Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the nine months ended October 29, 2016 are as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Corporate

 

 

 

 

 

    

Retail

    

Apparel

    

Total

 

Balance at January 30, 2016

 

$

93,201

 

$

25,385

 

$

118,586

 

Translation adjustment

 

 

921

 

 

(3,481)

 

 

(2,560)

 

Balance at October 29, 2016

 

$

94,122

 

$

21,904

 

$

116,026

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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 impairment evaluation was considered necessary during the first nine months ended October 29, 2016.

 

Intangible Assets 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

    

October 29,

    

October 31,

 

January 30,

 

 

    

2016

    

2015

    

2016

 

Amortizable intangible assets:

 

 

 

 

 

 

 

 

 

 

Carrying amount:

 

 

 

 

 

 

 

 

 

 

Trademarks and tradenames

 

$

15,897

 

$

16,516

 

$

16,292

 

Favorable leases

 

 

14,381

 

 

24,118

 

 

14,675

 

Customer relationships

 

 

24,750

 

 

85,515

 

 

29,129

 

Total carrying amount

 

 

55,028

 

 

126,149

 

 

60,096

 

Accumulated amortization:

 

 

 

 

 

 

 

 

 

 

Trademarks and tradenames

 

 

(9,930)

 

 

(9,679)

 

 

(9,728)

 

Favorable leases

 

 

(4,045)

 

 

(4,025)

 

 

(2,739)

 

Customer relationships

 

 

(12,891)

 

 

(24,507)

 

 

(13,459)

 

Total accumulated amortization

 

 

(26,866)

 

 

(38,211)

 

 

(25,926)

 

Total amortizable intangible assets, net

 

 

28,162

 

 

87,938

 

 

34,170

 

Indefinite-lived intangible assets:

 

 

 

 

 

 

 

 

 

 

Trademarks and tradename, net

 

 

144,175

 

 

480,233

 

 

144,340

 

Total intangible assets, net

 

$

172,337

 

$

568,171

 

$

178,510

 

 

Pre-tax amortization expense associated with intangible assets subject to amortization totaled $1.2 million and $3.7 million for the three and nine months ended October 29, 2016. Pre-tax amortization expense associated with intangible assets subject to amortization totaled $3.4 million and $10.5 million for the three and nine months ended October 31, 2015, respectively.  Pre-tax amortization associated with intangible assets subject to amortization at October 29, 2016 is estimated to be $1.2 million for the remainder of fiscal 2016, $4.2 million for fiscal 2017, $4.0 million for fiscal 2018, $3.8 million for fiscal 2019 and $3.6 million for fiscal 2020.

 

In the third quarter of 2015, we concluded that a triggering event occurred that required an interim impairment test for the Jos. A. Bank tradename.  The fair value of the Jos. A. Bank tradename was estimated using a relief from royalty method, which calculated the present value of savings resulting from the right to sell products without having to pay a royalty fee.  Critical assumptions that were used in this method included future sales projections, an estimated royalty rate and a discount rate.  Based on this analysis, during the third quarter of 2015, we concluded that the Jos. A. Bank tradename was impaired and recorded a non-cash impairment charge of $90.1 million, which is included as a separate line in the condensed statement of earnings (loss), and relates to our retail segment. 

 

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 October 29, 2016, the notional amount totaled $390.0 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 October 29, 2016, the fair value of the interest rate swap was a liability of $1.9 million with $1.6 million recorded in accrued expenses and other current liabilities and $0.3 million in other liabilities in

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

our condensed 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 October 29, 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.

 

Over the next 12 months, $1.6 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.

 

Furthermore, as a result of recent exchange rate fluctuations in Europe, we have entered into derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro.  We have designated these instruments as cash flow hedges of the variability in exchange rates for those foreign currencies.  At October 29, 2016, the fair value of these cash flow hedges was a liability of $0.6 million recorded in accrued expenses and other current liabilities in our consolidated balance sheet.  The effective portion of the hedges is reported as a component of accumulated other comprehensive (loss) income.  There was no hedge ineffectiveness at October 29, 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. Over the next 12 months, $0.3 million of the effective portion of the cash flow hedges is expected to be reclassified from accumulated other comprehensive (loss) income into earnings.

 

In addition, we are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries.  As a result, from time to time, we may enter into derivative instruments to hedge our foreign exchange risk.  We have not elected to apply hedge accounting to these derivative instruments.  At October 29, 2016, the fair value of our derivative instruments was an asset of $0.8 million included in other current assets in our consolidated balance sheet. 

 

For the three and nine months ended October 29, 2016, we recognized net pre-tax gains of $0.4 million and $2.3 million, respectively, in cost of sales in the condensed consolidated statement of earnings (loss) for our derivative financial instruments not designated as cash flow hedges.  For the three and nine months ended October 31, 2015, we recognized a net pre-tax gain of $0.4 million and a net pre-tax loss of $1.0 million, respectively, in cost of sales in the condensed consolidated statement of earnings (loss) for our derivative financial instruments not designated as cash flow hedges.

 

 

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. 

 

Assets and Liabilities that are Measured at Fair Value on a Recurring Basis

 

For the periods presented and described in Note 12, derivative financial instruments were the only assets and liabilities measured at fair value on a recurring basis.  These derivative financial instruments are recorded in the condensed consolidated balance sheets at fair value based upon observable market inputs, which we classify as a Level 2 input within the fair value hierarchy. 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Assets and Liabilities that are Measured at Fair Value on a Non-Recurring Basis

 

Long-lived assets, such as property and equipment, goodwill and identifiable intangibles, are periodically evaluated for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If the asset carrying amount exceeds its fair value, an impairment charge is recognized in the amount by which the carrying amount exceeds the fair value of the asset. 

 

During the nine months ended October 29, 2016, we incurred $2.1 million of asset impairment charges, which is included within SG&A expenses in our condensed consolidated statement of earnings (loss), primarily related to store locations to be closed and underperforming stores.  We estimated the fair value of the long-lived assets based on an income approach using projected future cash flows discounted using a weighted-average cost of capital analysis that reflects current market conditions, which we classify as Level 3 within the fair value hierarchy.

 

In addition, during the nine months October 29, 2016, we recorded a $2.2 million impairment charge related to a long-lived asset reclassified as held for sale, which is included within SG&A expenses in our condensed consolidated statement of earnings (loss).  We estimated the fair value of the asset held for sale using market values for similar assets which would fall within Level 2 of the fair value hierarchy.

 

During the third quarter of 2015, we recorded an impairment charge related to our Jos. A. Bank tradename totaling $90.1 million.  The fair value of the Jos. A. Bank tradename was based on our own judgments about the assumptions that market participants would use in pricing the asset, which we classified as Level 3 within the fair value hierarchy.

 

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 October 29, 2016, October 31, 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):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 29, 2016

 

October 31, 2015

 

January 30, 2016

 

 

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

Carrying

 

Estimated

 

 

    

Amount

    

Fair Value

    

Amount

    

Fair Value

    

Amount

    

Fair Value

 

Long-term debt, including current portion

 

$

1,595,873

 

$

1,556,661

 

$

1,656,206

 

$

1,711,104

 

$

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 now presenting expenses related to our shared services platform separately 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.

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

The retail segment includes the results from our four retail merchandising brands: Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men (“Moores”) and K&G.  These four brands are operating segments that have been aggregated into the retail reportable segment.  MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on our revenues or expenses.  Specialty apparel merchandise offered by our four retail merchandising concepts include suits, suit separates, sport coats, slacks, business casual, sportswear, outerwear, dress and casual shirts, shoes and accessories for men. Ladies’ career apparel, sportswear and accessories, including shoes, as well as children’s apparel are 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 our 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”), which provide clothing uniforms and workwear to workforces.  The Twin Hill and UK operations constitute one operating segment.

 

We measure segment profitability based on operating income, defined as income before interest expense, interest income, gain (loss) on extinguishment of debt, net 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.

 

Additional net sales information is as follows (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

    

October 29, 2016

    

October 31, 2015

    

October 29, 2016

    

October 31, 2015

 

Net sales:

 

 

    

 

 

    

 

 

    

 

 

    

 

MW(1)

 

$

461,806

 

$

465,396

 

$

1,386,347

 

$

1,391,782

 

Jos. A. Bank

 

 

165,992

 

 

198,936

 

 

530,482

 

 

636,704

 

K&G

 

 

70,874

 

 

72,733

 

 

252,007

 

 

257,448

 

Moores

 

 

56,520

 

 

55,862

 

 

166,203

 

 

173,281

 

MW Cleaners

 

 

8,497

 

 

8,460

 

 

25,073

 

 

25,356

 

Total retail segment

 

 

763,689

 

 

801,387

 

 

2,360,112

 

 

2,484,571

 

Total corporate apparel segment

 

 

83,245

 

 

64,059

 

 

225,328

 

 

186,038

 

Total net sales

 

$

846,934

 

$

865,446

 

$

2,585,440

 

$

2,670,609

 


(1)

MW includes Men’s Wearhouse, Men’s Wearhouse and Tux, Joseph Abboud and tuxedo shops within Macy’s.

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

    

October 29, 2016

    

October 31, 2015

    

October 29, 2016

    

October 31, 2015

 

Net sales:

 

 

    

 

 

    

 

 

    

 

 

    

 

Men's tailored clothing product

 

$

326,741

 

$

351,269

 

$

1,025,495

 

$

1,109,665

 

Men's non-tailored clothing product

 

 

230,146

 

 

245,250

 

 

718,233

 

 

756,699

 

Ladies' clothing product

 

 

15,626

 

 

16,228

 

 

55,940

 

 

56,827

 

Other

 

 

2,533

 

 

3,127

 

 

6,992

 

 

8,735

 

Total retail clothing product

 

 

575,046

 

 

615,874

 

 

1,806,660

 

 

1,931,926

 

Rental services

 

 

138,724

 

 

132,443

 

 

403,564

 

 

392,621

 

Alteration services

 

 

41,422

 

 

44,610

 

 

124,815

 

 

134,668

 

Retail dry cleaning services

 

 

8,497

 

 

8,460

 

 

25,073

 

 

25,356

 

Total alteration and other services

 

 

49,919

 

 

53,070

 

 

149,888

 

 

160,024

 

Corporate apparel clothing product

 

 

83,245

 

 

64,059

 

 

225,328

 

 

186,038

 

Total net sales

 

$

846,934

 

$

865,446

 

$

2,585,440

 

$

2,670,609

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

    

October 29, 2016

    

October 31, 2015

    

October 29, 2016

    

October 31, 2015

 

Operating income (loss):

 

 

    

 

 

    

 

 

    

 

 

    

 

Retail

 

$

97,629

 

$

512

 

$

278,732

 

$

233,143

 

Corporate apparel

 

 

10,314

 

 

2,623

 

 

24,288

 

 

6,429

 

Shared service expense

 

 

(46,887)

 

 

(39,536)

 

 

(151,338)

 

 

(122,561)

 

Operating income

 

 

61,056

 

 

(36,401)

 

 

151,682

 

 

117,011

 

Interest income

 

 

52

 

 

50

 

 

102

 

 

140

 

Interest expense

 

 

(25,476)

 

 

(26,457)

 

 

(77,853)

 

 

(79,475)

 

Gain (loss) on extinguishment of debt, net

 

 

1,808

 

 

 —

 

 

1,737

 

 

(12,675)

 

Earnings (loss) before income taxes

 

$

37,440

 

$

(62,808)

 

$

75,668

 

$

25,001

 

 

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):

 

 

 

 

 

 

 

 

 

 

 

 

 

    

October 29,

    

October 31,

 

January 30,

 

 

    

2016

    

2015

    

2016

 

Segment assets:

 

 

 

 

 

 

 

 

 

 

Retail

 

$

1,719,572

 

$

2,802,991

 

$

1,705,728

 

Corporate apparel

 

 

196,085

 

 

216,920

 

 

211,820

 

Shared services(1)

 

 

259,472

 

 

492,468

 

 

326,771

 

Total assets

 

$

2,175,129

 

$

3,512,379

 

$

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.

 

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.

 

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,

20


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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.

 

21


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

October 29, 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

 

$

 —

 

$

5,435

 

$

1,984

 

$

27,529

 

$

 —

 

$

34,948

 

Accounts receivable, net

 

 

7,373

 

 

17,112

 

 

455,368

 

 

31,140

 

 

(439,095)

 

 

71,898

 

Inventories

 

 

 —

 

 

253,482

 

 

459,159

 

 

335,274

 

 

 —

 

 

1,047,915

 

Other current assets

 

 

7,102

 

 

22,155

 

 

42,995

 

 

6,963

 

 

(19,025)

 

 

60,190

 

Total current assets

 

 

14,475

 

 

298,184

 

 

959,506

 

 

400,906

 

 

(458,120)

 

 

1,214,951

 

Property and equipment, net

 

 

 —

 

 

249,797

 

 

217,156

 

 

34,438

 

 

 —

 

 

501,391

 

Rental product, net

 

 

 —

 

 

139,386

 

 

3,677

 

 

17,038

 

 

 —

 

 

160,101

 

Goodwill

 

 

 —

 

 

6,160

 

 

68,510

 

 

41,356

 

 

 —

 

 

116,026

 

Intangible assets, net

 

 

 —

 

 

105

 

 

157,788

 

 

14,444

 

 

 —

 

 

172,337

 

Investments in subsidiaries

 

 

(67,257)

 

 

1,375,395

 

 

 —

 

 

 —

 

 

(1,308,138)

 

 

 —

 

Other assets

 

 

3,257

 

 

6,004

 

 

939

 

 

7,623

 

 

(7,500)

 

 

10,323

 

Total assets

 

$

(49,525)

 

$

2,075,031

 

$

1,407,576

 

$

515,805

 

$

(1,773,758)

 

$

2,175,129

 

LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

16,216

 

$

337,499

 

$

99,597

 

$

185,982

 

$

(439,095)

 

$

200,199

 

Accrued expenses and other current liabilities

 

 

9,617

 

 

143,023

 

 

105,446

 

 

42,514

 

 

(19,025)

 

 

281,575

 

Current portion of long-term debt

 

 

 —

 

 

7,000

 

 

 —

 

 

 —

 

 

 —

 

 

7,000

 

Total current liabilities

 

 

25,833

 

 

487,522

 

 

205,043

 

 

228,496

 

 

(458,120)

 

 

488,774

 

Long-term debt, net

 

 

 —

 

 

1,588,873

 

 

 —

 

 

 —

 

 

 —

 

 

1,588,873

 

Deferred taxes and other liabilities

 

 

2,339

 

 

65,893

 

 

104,512

 

 

9,935

 

 

(7,500)

 

 

175,179

 

Shareholders' (deficit) equity

 

 

(77,697)

 

 

(67,257)

 

 

1,098,021

 

 

277,374

 

 

(1,308,138)

 

 

(77,697)

 

Total liabilities and shareholders' (deficit) equity

 

$

(49,525)

 

$

2,075,031

 

$

1,407,576

 

$

515,805

 

$

(1,773,758)

 

$

2,175,129

 

 

22


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Tailored Brands, Inc.

Condensed Consolidating Balance Sheet

October 31, 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

 

$

 —

 

$

771

 

$

2,128

 

$

50,755

 

$

 —

 

$

53,654

 

Accounts receivable, net

 

 

5,766

 

 

13,382

 

 

356,111

 

 

33,203

 

 

(341,560)

 

 

66,902

 

Inventories

 

 

 —

 

 

252,520

 

 

652,080

 

 

155,647

 

 

 —

 

 

1,060,247

 

Other current assets

 

 

15,727

 

 

49,061

 

 

95,210

 

 

8,073

 

 

 —

 

 

168,071

 

Total current assets

 

 

21,493

 

 

315,734

 

 

1,105,529

 

 

247,678

 

 

(341,560)

 

 

1,348,874

 

Property and equipment, net

 

 

 —

 

 

272,192

 

 

236,624

 

 

39,665

 

 

 —

 

 

548,481

 

Rental product, net

 

 

 —

 

 

121,983

 

 

7,150

 

 

18,211

 

 

 —

 

 

147,344

 

Goodwill

 

 

 —

 

 

6,159

 

 

837,532

 

 

47,300

 

 

 —

 

 

890,991

 

Intangible assets, net

 

 

 —

 

 

213

 

 

546,937

 

 

21,021

 

 

 —

 

 

568,171

 

Investments in subsidiaries

 

 

983,834

 

 

2,570,579

 

 

 —

 

 

 —

 

 

(3,554,413)

 

 

 —

 

Other assets

 

 

13,353

 

 

24,616

 

 

3,850

 

 

8,831

 

 

(42,132)

 

 

8,518

 

Total assets

 

$

1,018,680

 

$

3,311,476

 

$

2,737,622

 

$

382,706

 

$

(3,938,105)

 

$

3,512,379

 

LIABILITIES AND SHAREHOLDERS' EQUITY

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

18,891

 

$

393,176

 

$

116,028

 

$

46,985

 

$

(341,560)

 

$

233,520

 

Accrued expenses and other current liabilities

 

 

9,592

 

 

142,648

 

 

105,170

 

 

21,801

 

 

 —

 

 

279,211

 

Current portion of long-term debt

 

 

 —

 

 

7,000

 

 

 —

 

 

 —

 

 

 —

 

 

7,000

 

Total current liabilities

 

 

28,483

 

 

542,824

 

 

221,198

 

 

68,786

 

 

(341,560)

 

 

519,731

 

Long-term debt, net

 

 

 —

 

 

1,649,206

 

 

 —

 

 

33,432

 

 

(33,432)

 

 

1,649,206

 

Deferred taxes and other liabilities

 

 

4,814

 

 

135,612

 

 

215,092

 

 

11,241

 

 

(8,700)

 

 

358,059

 

Shareholders' equity

 

 

985,383

 

 

983,834

 

 

2,301,332

 

 

269,247

 

 

(3,554,413)

 

 

985,383

 

Total liabilities and shareholders' equity

 

$

1,018,680

 

$

3,311,476

 

$

2,737,622

 

$

382,706

 

$

(3,938,105)

 

$

3,512,379

 

 

 

23


 

Table of Contents

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 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

 

 

 

 

24


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Tailored Brands, Inc.

Condensed Consolidating Statement of Earnings (Loss)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tailored

 

The Men’s

 

Guarantor

 

Non-Guarantor

 

 

    

 

 

    

 

 

    

Brands, Inc.

    

Wearhouse, Inc.

    

Subsidiaries

    

Subsidiaries

    

Eliminations

    

Consolidated

 

Three Months Ended October 29, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 —

 

$

460,432

 

$

466,476

 

$

105,474

 

$

(185,448)

 

$

846,934

 

Cost of sales

 

 

 —

 

 

230,110

 

 

361,117

 

 

63,949

 

 

(185,448)

 

 

469,728

 

Gross margin

 

 

 —

 

 

230,322

 

 

105,359

 

 

41,525

 

 

 —

 

 

377,206

 

Operating expenses

 

 

974

 

 

146,398

 

 

153,439

 

 

29,662

 

 

(14,323)

 

 

316,150

 

Operating (loss) income

 

 

(974)

 

 

83,924

 

 

(48,080)

 

 

11,863

 

 

14,323

 

 

61,056

 

Other income and expenses, net

 

 

 —

 

 

 —

 

 

14,323

 

 

 —

 

 

(14,323)

 

 

 —

 

Interest income

 

 

 —

 

 

60

 

 

517

 

 

49

 

 

(574)

 

 

52

 

Interest expense

 

 

(8)

 

 

(25,890)

 

 

 —

 

 

(152)

 

 

574

 

 

(25,476)

 

Gain on extinguishment of debt, net

 

 

 —

 

 

1,808

 

 

 —

 

 

 —

 

 

 —

 

 

1,808

 

(Loss) earnings before income taxes

 

 

(982)

 

 

59,902

 

 

(33,240)

 

 

11,760

 

 

 —

 

 

37,440

 

(Benefit) provision for income taxes

 

 

(247)

 

 

14,763

 

 

(8,119)

 

 

2,610

 

 

 —

 

 

9,007

 

(Loss) earnings before equity in net income of subsidiaries

 

 

(735)

 

 

45,139

 

 

(25,121)

 

 

9,150

 

 

 —

 

 

28,433

 

Equity in earnings of subsidiaries

 

 

29,168

 

 

(15,971)

 

 

 —

 

 

 —

 

 

(13,197)

 

 

 —

 

Net earnings (loss)

 

$

28,433

 

$

29,168

 

$

(25,121)

 

$

9,150

 

$

(13,197)

 

$

28,433

 

Comprehensive income (loss)

 

$

14,306

 

$

30,116

 

$

(25,121)

 

$

(5,925)

 

$

930

 

$

14,306

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Three Months Ended October 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 —

 

$

464,380

 

$

448,712

 

$

109,306

 

$

(156,952)

 

$

865,446

 

Cost of sales

 

 

 —

 

 

241,412

 

 

340,652

 

 

67,343

 

 

(156,952)

 

 

492,455

 

Gross margin

 

 

 —

 

 

222,968

 

 

108,060

 

 

41,963

 

 

 —

 

 

372,991

 

Operating expenses

 

 

783

 

 

182,912

 

 

200,671

 

 

29,487

 

 

(4,461)

 

 

409,392

 

Operating (loss) income

 

 

(783)

 

 

40,056

 

 

(92,611)

 

 

12,476

 

 

4,461

 

 

(36,401)

 

Other income and expenses, net

 

 

 —

 

 

4,461

 

 

 —

 

 

 —

 

 

(4,461)

 

 

 —

 

Interest income

 

 

 —

 

 

682

 

 

1,003

 

 

40

 

 

(1,675)

 

 

50

 

Interest expense

 

 

 —

 

 

(27,278)

 

 

(579)

 

 

(275)

 

 

1,675

 

 

(26,457)

 

(Loss) earnings before income taxes

 

 

(783)

 

 

17,921

 

 

(92,187)

 

 

12,241

 

 

 —

 

 

(62,808)

 

(Benefit) provision for income taxes

 

 

(254)

 

 

5,654

 

 

(41,735)

 

 

681

 

 

 —

 

 

(35,654)

 

(Loss) earnings before equity in net income of subsidiaries

 

 

(529)

 

 

12,267

 

 

(50,452)

 

 

11,560

 

 

 —

 

 

(27,154)

 

Equity in earnings of subsidiaries

 

 

(26,625)

 

 

(38,892)

 

 

 —

 

 

 —

 

 

65,517

 

 

 —

 

Net (loss) earnings 

 

$

(27,154)

 

$

(26,625)

 

$

(50,452)

 

$

11,560

 

$

65,517

 

$

(27,154)

 

Comprehensive (loss) income

 

$

(29,400)

 

$

(26,847)

 

$

(50,452)

 

$

9,536

 

$

67,763

 

$

(29,400)

 

 

 

25


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Tailored Brands, Inc.

Condensed Consolidating Statement of Earnings (Loss)

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tailored

 

The Men’s

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

 

Brands, Inc.

 

Wearhouse, Inc.

 

Subsidiaries

 

Subsidiaries

 

Eliminations

 

Consolidated

 

Nine Months Ended October 29, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

1,382,515

 

$

1,300,852

 

$

315,060

 

$

(412,987)

 

$

2,585,440

 

Cost of sales

 

 

 

 

676,761

 

 

992,265

 

 

190,050

 

 

(412,987)

 

 

1,446,089

 

Gross margin

 

 

 

 

705,754

 

 

308,587

 

 

125,010

 

 

 

 

1,139,351

 

Operating expenses

 

 

2,554

 

 

452,661

 

 

486,419

 

 

88,958

 

 

(42,923)

 

 

987,669

 

Operating  (loss) income

 

 

(2,554)

 

 

253,093

 

 

(177,832)

 

 

36,052

 

 

42,923

 

 

151,682

 

Other income and expenses, net

 

 

 

 

 

 

42,923

 

 

 

 

(42,923)

 

 

 

Interest income

 

 

2

 

 

70

 

 

1,393

 

 

89

 

 

(1,452)

 

 

102

 

Interest expense

 

 

(13)

 

 

(78,932)

 

 

 —

 

 

(360)

 

 

1,452

 

 

(77,853)

 

Gain on extinguishment of debt, net

 

 

 

 

1,737

 

 

 

 

 

 

 

 

1,737

 

(Loss) earnings before income taxes

 

 

(2,565)

 

 

175,968

 

 

(133,516)

 

 

35,781

 

 

 

 

75,668

 

(Benefit) provision for income taxes

 

 

(671)

 

 

46,915

 

 

(34,900)

 

 

9,279

 

 

 

 

20,623

 

(Loss) earnings before equity in net income of subsidiaries

 

 

(1,894)

 

 

129,053

 

 

(98,616)

 

 

26,502

 

 

 

 

55,045

 

Equity in earnings of subsidiaries

 

 

56,939

 

 

(72,114)

 

 

 

 

 

 

15,175

 

 

 

Net earnings (loss)

 

$

55,045

 

$

56,939

 

$

(98,616)

 

$

26,502

 

$

15,175

 

$

55,045

 

Comprehensive income (loss)

 

$

38,193

 

$

58,333

 

$

(98,616)

 

$

8,256

 

$

32,027

 

$

38,193

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Nine Months Ended October 31, 2015

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net sales

 

$

 

$

1,388,910

 

$

1,369,352

 

$

328,755

 

$

(416,408)

 

$

2,670,609

 

Cost of sales

 

 

 

 

701,191

 

 

1,010,107

 

 

202,495

 

 

(416,408)

 

 

1,497,385

 

Gross margin

 

 

 

 

687,719

 

 

359,245

 

 

126,260

 

 

 

 

1,173,224

 

Operating expenses

 

 

2,138

 

 

470,716

 

 

505,267

 

 

90,649

 

 

(12,557)

 

 

1,056,213

 

Operating (loss) income

 

 

(2,138)

 

 

217,003

 

 

(146,022)

 

 

35,611

 

 

12,557

 

 

117,011

 

Other income and expenses, net

 

 

 

 

11,543

 

 

1,014

 

 

 

 

(12,557)

 

 

 

Interest income

 

 

 

 

1,831

 

 

2,672

 

 

103

 

 

(4,466)

 

 

140

 

Interest expense

 

 

 

 

(81,579)

 

 

(1,535)

 

 

(827)

 

 

4,466

 

 

(79,475)

 

Loss on extinguishment of debt, net

 

 

 

 

(12,675)

 

 

 

 

 

 

 

 

(12,675)

 

(Loss) earnings before income taxes

 

 

(2,138)

 

 

136,123

 

 

(143,871)

 

 

34,887

 

 

 

 

25,001

 

(Benefit) provision for income taxes

 

 

(706)

 

 

44,778

 

 

(58,691)

 

 

8,626

 

 

 

 

(5,993)

 

(Loss) earnings before equity in net income of subsidiaries

 

 

(1,432)

 

 

91,345

 

 

(85,180)

 

 

26,261

 

 

 

 

30,994

 

Equity in earnings of subsidiaries

 

 

32,426

 

 

(58,919)

 

 

 

 

 

 

26,493

 

 

 —

 

Net earnings (loss)

 

 

30,994

 

 

32,426

 

 

(85,180)

 

 

26,261

 

 

26,493

 

 

30,994

 

Comprehensive income (loss)

 

$

30,309

 

$

32,119

 

$

(85,180)

 

$

25,883

 

$

27,178

 

$

30,309

 

 

26


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Tailored Brands, Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended October 29, 2016

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tailored

 

The Men’s

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

    

Brands, Inc.

    

Wearhouse, Inc.

    

Subsidiaries

    

Subsidiaries

    

Eliminations

    

Consolidated

 

Net cash provided by (used in) operating activities

 

$

26,245

 

$

156,148

 

$

36,198

 

$

(15,269)

 

$

(26,438)

 

$

176,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 —

 

 

(40,273)

 

 

(37,055)

 

 

(3,222)

 

 

 —

 

 

(80,550)

 

Intercompany activities

 

 

 —

 

 

(19,025)

 

 

 —

 

 

 —

 

 

19,025

 

 

 —

 

Proceeds from sale of property and equipment

 

 

 —

 

 

 —

 

 

598

 

 

7

 

 

 —

 

 

605

 

Net cash used in investing activities

 

 

 —

 

 

(59,298)

 

 

(36,457)

 

 

(3,215)

 

 

19,025

 

 

(79,945)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on term loan

 

 

 —

 

 

(40,701)

 

 

 —

 

 

 —

 

 

 —

 

 

(40,701)

 

Proceeds from asset-based revolving credit facility

 

 

 —

 

 

517,500

 

 

 —

 

 

3,050

 

 

 —

 

 

520,550

 

Payments on asset-based revolving credit facility

 

 

 —

 

 

(517,500)

 

 

 —

 

 

(3,050)

 

 

 —

 

 

(520,550)

 

Repurchase and retirement of senior notes

 

 

 —

 

 

(25,000)

 

 

 —

 

 

 —

 

 

 —

 

 

(25,000)

 

Intercompany activities

 

 

 —

 

 

(26,438)

 

 

 —

 

 

19,025

 

 

7,413

 

 

 —

 

Cash dividends paid

 

 

(26,438)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(26,438)

 

Proceeds from issuance of common stock

 

 

1,451

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

1,451

 

Tax payments related to vested deferred stock units

 

 

(1,258)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(1,258)

 

Net cash (used in) provided by financing activities

 

 

(26,245)

 

 

(92,139)

 

 

 —

 

 

19,025

 

 

7,413

 

 

(91,946)

 

Effect of exchange rate changes

 

 

 —

 

 

 —

 

 

 —

 

 

(25)

 

 

 —

 

 

(25)

 

Increase (decrease) in cash and cash equivalents

 

 

 —

 

 

4,711

 

 

(259)

 

 

516

 

 

 —

 

 

4,968

 

Cash and cash equivalents at beginning of period

 

 

 —

 

 

724

 

 

2,243

 

 

27,013

 

 

 —

 

 

29,980

 

Cash and cash equivalents at end of period

 

$

 —

 

$

5,435

 

$

1,984

 

$

27,529

 

$

 —

 

$

34,948

 

 

27


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

Tailored Brands, Inc.

Condensed Consolidating Statement of Cash Flows

For the Nine Months Ended October 31, 2015

(in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Tailored

 

The Men’s

 

Guarantor

 

Non-Guarantor

 

 

 

 

 

 

 

 

    

Brands, Inc.

    

Wearhouse, Inc.

    

Subsidiaries

    

Subsidiaries

    

Eliminations

    

Consolidated

 

Net cash provided by operating activities

 

$

27,680

 

$

55,665

 

$

35,437

 

$

19,723

 

$

(26,269)

 

$

112,236

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

 

 —

 

 

(39,657)

 

 

(38,347)

 

 

(8,402)

 

 

 —

 

 

(86,406)

 

Proceeds from sale of property and equipment

 

 

 —

 

 

2,586

 

 

27

 

 

 —

 

 

 —

 

 

2,613

 

Net cash used in investing activities

 

 

 —

 

 

(37,071)

 

 

(38,320)

 

 

(8,402)

 

 

 —

 

 

(83,793)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Payments on term loan

 

 

 —

 

 

(6,250)

 

 

 —

 

 

 —

 

 

 —

 

 

(6,250)

 

Proceeds from asset-based revolving credit facility

 

 

 —

 

 

5,500

 

 

 —

 

 

 —

 

 

 —

 

 

5,500

 

Payments on asset-based revolving credit facility

 

 

 —

 

 

(5,500)

 

 

 —

 

 

 —

 

 

 —

 

 

(5,500)

 

Deferred financing costs

 

 

 —

 

 

(3,566)

 

 

 —

 

 

 —

 

 

 —

 

 

(3,566)

 

Intercompany activities

 

 

 —

 

 

(26,269)

 

 

 —

 

 

 —

 

 

26,269

 

 

 —

 

Cash dividends paid

 

 

(26,269)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(26,269)

 

Proceeds from issuance of common stock

 

 

2,454

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

2,454

 

Tax payments related to vested deferred stock units

 

 

(4,538)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(4,538)

 

Excess tax benefits from share-based plans

 

 

950

 

 

 —

 

 

154

 

 

 —

 

 

 —

 

 

1,104

 

Repurchases of common stock

 

 

(277)

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

(277)

 

Net cash (used in) provided by financing activities

 

 

(27,680)

 

 

(36,085)

 

 

154

 

 

 —

 

 

26,269

 

 

(37,342)

 

Effect of exchange rate changes

 

 

 —

 

 

 —

 

 

 —

 

 

292

 

 

 —

 

 

292

 

(Decrease) increase in cash and cash equivalents

 

 

 —

 

 

(17,491)

 

 

(2,729)

 

 

11,613

 

 

 —

 

 

(8,607)

 

Cash and cash equivalents at beginning of period

 

 

 —

 

 

18,262

 

 

4,857

 

 

39,142

 

 

 —

 

 

62,261

 

Cash and cash equivalents at end of period

 

$

 —

 

$

771

 

$

2,128

 

$

50,755

 

$

 —

 

$

53,654

 

 

 

 

 

 

 

 

 

28


 

ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS

OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

We encourage you to read this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (“MD&A”) in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended January 30, 2016.  References herein to years are to our 52-week or 53-week fiscal year, which ends on the Saturday nearest January 30 in the following calendar year.  For example, references to “2016” mean the 52-week fiscal year ending January 28, 2017.

 

Executive Overview

 

Background

 

We are the largest specialty retailer of men’s suits and the largest provider of apparel rental product in the U.S. and Canada with 1,710 stores including tuxedo shops within Macy’s stores.  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.  Refer to Note 14 of Notes to Condensed Consolidated Financial Statements and the discussion included in “Results of Operations” below for additional information and disclosures regarding our reporting segments.

 

We conduct our retail segment as a specialty apparel retailer offering suits, suit separates, sport coats, slacks, business casual, sportswear, outerwear, dress and casual shirts, shoes and accessories, primarily for men.  We offer our products and services through multiple brands including The Men’s Wearhouse/Men’s Wearhouse and Tux (“Men’s Wearhouse”), Jos. A. Bank, Moores Clothing for Men (“Moores”), K&G and Joseph Abboud and through multiple channels including physical stores, online at www.menswearhouse.com, www.josbank.com and www.josephabboud.com, and our call center.  Our stores are located throughout the United States (“U.S.”), Puerto Rico and Canada and carry a wide selection of exclusive and non-exclusive merchandise brands.  Tuxedo and suit rentals are offered at our Men’s Wearhouse, Jos. A. Bank and Moores retail stores and our tuxedo shops within Macy’s stores.  In addition, we offer our customers alteration services and most of our K&G stores offer ladies’ career apparel, sportswear, accessories and shoes and children’s apparel.  We also conduct retail dry cleaning, laundry and heirlooming operations through MW Cleaners in Texas.

 

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”).  These operations provide corporate clothing uniforms and workwear to workforces through multiple channels including managed corporate accounts, catalogs and the internet at www.dimensions.co.uk and www.alexandra.co.uk.

 

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 now presenting expenses related to our shared services platform separately 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.

 

Third Quarter Discussion

 

Our improved profitability this quarter reflects solid progress on our cost reduction initiatives as we continue to navigate the turnaround of Jos. A. Bank and a choppy retail environment.

 

Men’s Wearhouse’s 0.1% comparable sales increase reflects the softening traffic trend we initially saw after Father’s Day, which has continued.  While the retail environment remains challenging, we have experienced positive response to premium clothing, custom clothing and performance wear, including the recently launched Kenneth Cole performance wear offering.  We plan to drive greater awareness of these innovative offerings and view them as significant growth drivers in 2017.  In addition, we continued to strengthen our omnichannel capabilities during the third quarter, which we believe will help drive additional traffic as we make it easy for customers to shop with us both online and in-store. 

 

Our Jos. A. Bank turnaround is gaining traction.  Jos. A. Bank’s comparable sales decline of 9.8%  in the third quarter was better than expected, particularly since we were up against last year’s final “Buy-One-Get-Three Free” event in October.  While there is still work to be done, we are encouraged by the healthier trends we are seeing at Jos. A. Bank that reflect

29


 

our investments in elevating the brand and customer experience through marketing, merchandising and a more engaging sales experience.    

 

We are on track to achieve our targeted $50 million of cost savings for fiscal 2016.  In addition, we continue to make progress on our store base rationalization initiative.  During the third quarter, we closed 83 stores, including 74 Men’s Wearhouse and Tux stores, bringing our total year-to-date closures to 187 stores.  We expect to close approximately 63 stores in the fourth quarter of fiscal 2016 for a total of approximately 250 store closures during fiscal 2016.  

 

Key operating metrics for the quarter ended October 29, 2016 include:

 

·

Net sales decrease of 2.1%

·

Comparable sales increased 0.1% at Men’s Wearhouse while comparable sales decreased at Jos. A. Bank, Moores and K&G by 9.8%, 0.4% and 3.0%, respectively.

·

Operating income increased to $61.1 million compared to an operating loss of $36.4 million in the third quarter of fiscal 2015.  Results for the third quarter of fiscal 2015 included a pre-tax, non-cash tradename impairment charge for Jos. A. Bank of $90.1 million.

·

Diluted earnings per share of $0.58 compared to diluted loss per share of $0.56 in the third quarter of fiscal 2015.

 

Key liquidity metrics for the nine months ended October 29, 2016 include:

 

·

Cash provided by operating activities was $176.9 million for the first nine months of fiscal 2016 compared to $112.2 million for the first nine months of fiscal 2015.

·

Capital expenditures were $80.6 million for the first nine months of fiscal 2016 compared to $86.4 million for the first nine months of fiscal 2015.

·

We repaid $40.7 million on our term loan, repurchased and retired $25.0 million of senior notes and had no borrowings outstanding on our revolving credit facility as of October 29, 2016.

·

Dividends paid totaled $26.4 million for the nine months ended October 29, 2016.

 

Items Affecting Comparability of Results

 

The comparability of our results has been impacted by certain items, including restructuring and other costs consisting of costs related to our profit improvement and store rationalization programs and integration costs for Jos. A. Bank.  A summary of the effect of these items on pretax income for each applicable period is presented below (dollars in millions):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Quarter Ended

 

For the Nine Months Ended

 

 

 

October 29,

 

October 31,

 

October 29,

 

October 31,

 

 

    

2016

    

2015

    

2016

    

2015

 

Tradename impairment charge

 

$

 —

 

$

90.1

 

$

 —

 

$

90.1

 

Restructuring and other charges (1)

 

 

10.9

 

 

 —

 

 

59.1

 

 

 —

 

Integration costs related to Jos. A. Bank(2)

 

 

1.4

 

 

5.0

 

 

7.1

 

 

15.9

 

Purchase accounting adjustment for the step up of Jos. A. Bank inventory

 

 

 —

 

 

 —

 

 

 —

 

 

0.8

 

Other purchase accounting related charges

 

 

 —

 

 

2.2

 

 

(0.6)

 

 

7.0

 

(Gain) loss on extinguishment of debt, net

 

 

(1.8)

 

 

 —

 

 

(1.7)

 

 

12.7

 

Separation costs with a former executive

 

 

 —

 

 

 —

 

 

 —

 

 

3.7

 

Other

 

 

 —

 

 

0.1

 

 

2.6

 

 

0.1

 

Total (3)

 

$

10.5

 

$

97.4

 

$

66.5

 

$

130.3

 


(1)

See Note 2 to the condensed consolidated financial statements for additional information on restructuring and other costs.

(2)

For the quarters ended October 29, 2016 and October 31, 2015, integration costs related to Jos. A. Bank included $0.1 million and $0.5 million of severance costs, respectively.  For the nine months ended October 29, 2016 and October 31, 2015, integration costs related to Jos. A. Bank included $2.0 million and $5.9 million of severance and employee-related costs, respectively.

(3)

For the quarter ended October 29, 2016, includes $13.3 million within selling, general and administrative expenses (“SG&A”) offset by a $1.0 million reduction in cost of sales and a $1.8 million gain on extinguishment of debt, net.

30


 

For the quarter ended October 31, 2015, includes $90.1 million for a tradename impairment charge and $7.4 million within SG&A offset by a $0.1 reduction in cost of sales.  For the nine months ended October 29, 2016, includes $69.9 million within SG&A offset by a $1.7 million reduction in cost of sales and a $1.7 million gain on extinguishment of debt, net. For the nine months ended October 31, 2015, includes $90.1 million for the tradename impairment charge, $25.5 million included in SG&A, $2.0 million in cost of sales and a $12.7 million loss on extinguishment of debt.  Tradename impairment charge and gain (loss) on extinguishment of debt, net amounts are shown as separate lines in the condensed consolidated statement of earnings (loss).

 

Store Data

 

The following table presents information with respect to retail apparel stores and tuxedo shops within Macy’s stores in operation during each of the respective fiscal periods:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

For the Year Ended

 

 

 

October 29,

 

October 31,

 

October 29,

 

October 31,

 

January 30,

 

 

     

2016

    

2015

    

2016

    

2015

    

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

Open at beginning of period:

 

1,767

 

1,754

 

1,724

 

1,758

 

1,758

 

Opened (1)(2)

 

26

 

18

 

173

 

32

 

42

 

Closed

 

(83)

 

(24)

 

(187)

 

(42)

 

(76)

 

Open at end of the period

 

1,710

 

1,748

 

1,710

 

1,748

 

1,724

 

 

 

 

 

 

 

 

 

 

 

 

 

Men’s Wearhouse(2) 

 

713

 

709

 

713

 

709

 

714

 

Men’s Wearhouse and Tux

 

61

 

183

 

61

 

183

 

160

 

Tuxedo shops @ Macy’s

 

170

 

12

 

170

 

12

 

12

 

Jos. A. Bank(3)

 

550

 

633

 

550

 

633

 

625

 

Moores

 

126

 

123

 

126

 

123

 

124

 

K&G

 

90

 

88

 

90

 

88

 

89

 

 

 

1,710

 

1,748

 

1,710

 

1,748

 

1,724

 


(1)

Includes 158 tuxedo shops within Macy’s stores opened in 2016.

(2)

Includes one Joseph Abboud store opened in 2015.

(3)

Excludes franchise stores.

 

During the third quarter of 2016, we opened 26 stores/tuxedo shops (20 tuxedo shops within Macy’s stores, four Men’s Wearhouse stores, one Jos. A. Bank store and one K&G store).  We closed 83 stores (74 Men’s Wearhouse and Tux stores, eight Jos. A. Bank stores and one Men’s Wearhouse store).

 

Seasonality

 

Our sales and net earnings are subject to seasonal fluctuations.  Our rental revenues are heavily concentrated in the second and third quarters (prom and wedding season) while the fourth quarter is considered the seasonal low point.  In addition, Jos. A. Bank has historically experienced increased customer traffic during the holiday season and its increased marketing efforts during the holiday season have historically resulted in sales and net earnings generated in the fourth quarter, which are significantly larger as compared to the other three quarters.  This trend did not occur in the fourth quarter of 2015 as a result of our decision to change the brand’s promotional strategy.  We currently expect this trend to resume at some point in the future.  With respect to our corporate apparel sales and operating results, seasonal fluctuations are not significant but the acquisition of new customers or existing customer decisions to rebrand or revise their corporate wear programs can cause significant variations in period results.  Because of these fluctuations in our sales, results for any quarter are not necessarily indicative of the results that may be achieved for the full year.

 

31


 

Results of Operations

 

For the Three Months Ended October 29, 2016 Compared to the Three Months Ended October 31, 2015

 

The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:

 

 

 

 

 

 

 

 

 

For the Three Months Ended(1)

 

 

 

October 29,

 

October 31,

 

 

    

2016

    

2015

 

Net sales:

 

 

 

 

 

Retail clothing product

 

67.9

%  

71.2

%

Rental services

 

16.4

 

15.3

 

Alteration and other services

 

5.9

 

6.1

 

Total retail sales

 

90.2

 

92.6

 

Corporate apparel clothing product

 

9.8

 

7.4

 

Total net sales

 

100.0

%  

100.0

%

Cost of sales(2):

 

 

 

 

 

Retail clothing product

 

43.1

 

44.5

 

Rental services

 

16.5

 

16.2

 

Alteration and other services

 

67.2

 

68.3

 

Occupancy costs

 

14.3

 

14.3

 

Total retail cost of sales

 

54.1

 

55.7

 

Corporate apparel clothing product

 

67.7

 

71.5

 

Total cost of sales

 

55.5

 

56.9

 

Gross margin(2):

 

 

 

 

 

Retail clothing product

 

56.9

 

55.5

 

Rental services

 

83.5

 

83.8

 

Alteration and other services

 

32.8

 

31.7

 

Occupancy costs

 

(14.3)

 

(14.3)

 

Total retail gross margin

 

45.9

 

44.3

 

Corporate apparel clothing product

 

32.3

 

28.5

 

Total gross margin

 

44.5

 

43.1

 

Advertising expense

 

5.4

 

5.5

 

Selling, general and administrative expenses

 

31.9

 

31.3

 

Tradename impairment charge

 

 —

 

10.4

 

Operating income (loss)

 

7.2

 

(4.2)

 

Interest income

 

0.0

 

0.0

 

Interest expense

 

(3.0)

 

(3.1)

 

Gain on extinguishment of debt, net

 

0.2

 

 —

 

Earnings (loss) before income taxes

 

4.4

 

(7.3)

 

Provision (benefit) for income taxes

 

1.1

 

(4.1)

 

Net earnings (loss)

 

3.4

%  

(3.1)

%


(1)

Percentage line items may not sum to totals due to the effect of rounding.

(2)

Calculated as a percentage of related sales.

32


 

Net Sales

 

Total net sales decreased $18.5 million, or 2.1%, to $846.9 million for the third quarter of 2016 as compared to the third quarter of 2015.

 

Total retail sales decreased $37.7 million, or 4.7%, to $763.7 million for the third quarter of 2016 as compared to the third quarter of 2015 primarily due to a $40.8 million decrease in clothing product revenues primarily at our Jos. A. Bank brand and a $3.2 million decrease in alteration and other services revenues, partially offset by a $6.3 million increase in rental service revenues.  The net decrease is attributable to the following:

 

 

 

 

 

(in millions)

    

Amount Attributed to

$

0.5

 

0.1% increase in comparable sales at Men's Wearhouse.

 

(16.6)

 

9.8% decrease in comparable sales at Jos. A. Bank.

 

(2.1)

 

3.0% decrease in comparable sales at K&G.

 

(0.2)

 

0.4% decrease in comparable sales at Moores(1).

 

(15.2)

 

Decrease in non-comparable sales (primarily due to closed stores).

 

0.3

 

Increase in net sales resulting from change in U.S./Canadian dollar exchange rate.

 

(4.4)

 

Other (primarily decrease in alteration revenues).

$

(37.7)

 

Decrease in total retail sales.


(1)

Comparable sales percentages for Moores are calculated using Canadian dollars.

 

Comparable sales exclude the net sales of a store for any month of one period if the store was not owned or open throughout the same month of the prior period and include e-commerce net sales.  We operate our business using an omnichannel approach and do not differentiate e-commerce sales from our other channels. 

 

The slight increase at Men’s Wearhouse resulted primarily from higher rental services revenue while comparable sales for clothing decreased primarily due to decreases in average transactions per store and units sold per transaction partially offset by increased average unit retails (net selling prices).  The decrease at Jos. A. Bank resulted primarily from decreased average transactions per store and decreased average unit retails partially offset by higher units per transaction and higher rental services revenue. The decrease at K&G resulted from lower average transactions per store partially offset by an increase in average unit retails and units sold per transaction. The decrease at Moores resulted from decreased average transactions per store partially offset by increased average unit retails with units sold per transaction essentially flat.  At Men’s Wearhouse, rental service comparable sales increased 4.9% due to an increase in rental rates partially offset by a decrease in unit rentals.

 

Total corporate apparel clothing product sales increased $19.2 million for the third quarter of 2016 as compared to the third quarter of 2015 primarily due to the impact of a large new uniform program.  The rollout of the new uniform program commenced in June 2016, was completed during the third quarter of 2016 and has now transitioned to a standard replenishment phase. The increase in corporate apparel sales was partially offset by the impact of a weaker British pound this year compared to last year. 

 

Gross Margin

 

Buying and distribution costs are included in determining our retail and corporate apparel clothing product gross margins.  Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of goods sold while others, like us, include all or a portion of such costs in cost of goods sold and exclude them from SG&A expenses.  Distribution costs are not included in determining our rental services gross margin but are included in SG&A expenses.

 

Our total gross margin increased $4.2 million, or 1.1%, to $377.2 million in the third quarter of 2016 as compared to the third quarter of 2015.  Total retail segment gross margin decreased $4.4 million, or 1.2%, from the same prior year quarter to $350.3 million in the third quarter of 2016 primarily due to lower sales at Jos. A. Bank. 

 

For the retail segment, total gross margin as a percentage of related sales increased from 44.3% in the third quarter of 2015 to 45.9% in the third quarter of 2016 as a result of anniversarying lower gross margins in last year’s third quarter, resulting from the clearance of merchandise through the e-commerce channel, primarily at our Men’s Wearhouse brand.

 

33


 

Occupancy costs decreased $5.7 million primarily due to our store rationalization efforts. Occupancy costs as a percentage of retail sales, which is relatively constant on a per store basis and includes store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation, was essentially flat at 14.3% for both the third quarters of 2016 and 2015.

 

Corporate apparel gross margin increased $8.6 million, or 47.2%, in the third quarter of 2016.  For the corporate apparel segment, total gross margin as a percentage of related sales increased from 28.5% in the third quarter of 2015 to 32.3% in the third quarter of 2016 primarily due to the impact of a large new uniform program.

 

Advertising Expense

 

Advertising expense decreased to $45.7 million in the third quarter of 2016 from $48.0 million in the third quarter of 2015, a decrease of $2.3 million, or 4.9%.  As a percentage of total net sales, advertising expense decreased from 5.5% in the third quarter of 2015 to 5.4% in the third quarter of 2016. 

 

Selling, General and Administrative Expenses

 

SG&A expenses decreased to $270.5 million in the third quarter of 2016 from $271.3 million in the third quarter of 2015, a decrease of $0.8 million, or 0.3%.  As a percentage of total net sales, these expenses increased from 31.3% in the third quarter of 2015 to 31.9% in the third quarter of 2016 primarily reflecting deleveraging from lower sales.  The components of this 0.6% net increase in SG&A expenses as a percentage of total net sales and the related dollar changes were as follows:

 

 

 

 

 

 

 

%

    

in millions

    

Attributed to

1.0

 

$

8.0

 

Increase in restructuring, integration and other items as a percentage of sales from 0.6% in the third quarter of 2015 to 1.6% in the third quarter of 2016.  For the third quarter of 2016, these costs totaled $13.3 million, related primarily to restructuring and other costs. For the third quarter of 2015, these costs totaled $5.3 million related primarily to Jos. A. Bank integration and other costs and asset impairment charges, partially offset by a gain on the sale of property.

0.1

 

 

(2.0)

 

Increase in other SG&A expenses as a percentage of sales from 17.7% in the third quarter of 2015 to 17.8% in the third quarter of 2016 primarily due to deleverage in net sales. Other SG&A expenses decreased $2.0 million primarily due to cost reduction initiatives and a decrease in amortization of intangible assets as a result of the impairment charges recorded in the fourth quarter of 2015 partially offset by higher incentive compensation accruals.

(0.5)

 

 

(6.8)

 

Store salaries decreased $6.8 million and decreased as a percentage of sales from 13.1% in the third quarter of 2015 to 12.6% in the third quarter of 2016 primarily due to cost reduction initiatives.

0.6

 

$

(0.8)

 

Total

 

In the retail segment, SG&A expenses as a percentage of related net sales increased from 27.0% in the third quarter of 2015 to 27.2% in the third quarter of 2016 primarily due to deleveraging resulting from lower retail sales.  Retail segment SG&A expenses decreased $9.2 million primarily due to cost reduction initiatives.

 

In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased from 23.6% in the third quarter of 2015 to 19.4% in the third quarter of 2016 primarily due to leverage from higher sales.  Corporate apparel segment SG&A expenses increased $1.0 million.

 

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A.  Shared service SG&A expenses as a percentage of total net sales increased from 4.6% in the third quarter of 2015 to 5.5% in the third quarter of 2016.  Shared service SG&A expenses increased $7.4 million primarily due to higher incentive compensation accruals and costs associated with our profit improvement program.

 

Tradename Impairment Charge

 

During the third quarter of 2015, we concluded that a triggering event occurred that required an interim impairment test for the Jos. A. Bank tradename.  Based on our analysis, we concluded that the Jos. A. Bank tradename was impaired and recorded a non-cash, pre-tax impairment charge of $90.1 million. 

34


 

 

Provision for Income Tax

 

Our effective income tax rate increased to 24.1% for the third quarter of 2016 from a benefit of (56.8)% for the third quarter of 2015 primarily as a result of the Jos. A. Bank tradename impairment charge of $90.1 million in last year’s third quarter, which generated a book loss in our U.S. entities and significantly impacted our effective tax rate.  In addition, the effective tax rate for the third quarter of 2016 is impacted by lower U.S. income as compared to income earned in foreign jurisdictions.

 

For the third quarter of 2016 and 2015, the statutory tax rates in Canada and the UK were approximately 26% and 20%, respectively.  For the third quarter of 2016 and 2015, tax expense for our operations in foreign jurisdictions totaled $2.7 million and $2.8 million, respectively.

 

Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings and changes in tax laws.  Currently, we expect our effective tax rate in future periods to be lower than the statutory U.S. combined federal and state tax rate based on the expected geographic mix of earnings.  In addition, if our financial results in fiscal 2016 generate a loss or certain deferred tax liabilities decrease, we may need to establish a valuation allowance on our U.S. deferred tax assets, which could have a material impact on our financial condition and results of operations.   Lastly, we are currently undergoing several federal, foreign and state audits which we are vigorously defending and currently do not believe should result in any material change to tax expense.

 

Net Earnings (Loss)

 

Net earnings were $28.4 million for the third quarter of 2016 compared with a net loss of $27.2 million for the third quarter of 2015.

 

35


 

For the Nine Months Ended October 29, 2016 Compared to the Nine Months Ended October 31, 2015

 

The following table sets forth our results of operations expressed as a percentage of net sales for the periods indicated:

 

 

 

 

 

 

 

 

 

For the Nine Months Ended(1)

 

 

 

October 29,

 

October 31,

 

 

    

2016

    

2015

 

Net sales:

 

 

 

 

 

Retail clothing product

 

69.9

%  

72.3

%

Rental services

 

15.6

 

14.7

 

Alteration and other services

 

5.8

 

6.0

 

Total retail sales

 

91.3

 

93.0

 

Corporate apparel clothing product

 

8.7

 

7.0

 

Total net sales

 

100.0

%  

100.0

%

Cost of sales(2):

 

 

 

 

 

Retail clothing product

 

44.1

 

44.0

 

Rental services

 

16.3

 

16.0

 

Alteration and other services

 

69.4

 

68.4

 

Occupancy costs

 

13.9

 

13.8

 

Total retail cost of sales

 

54.8

 

54.9

 

Corporate apparel clothing product

 

67.5

 

71.1

 

Total cost of sales

 

55.9

 

56.1

 

Gross margin(2):

 

 

 

 

 

Retail clothing product

 

55.9

 

56.0

 

Rental services

 

83.7

 

84.0

 

Alteration and other services

 

30.6

 

31.6

 

Occupancy costs

 

(13.9)

 

(13.8)

 

Total retail gross margin

 

45.2

 

45.1

 

Corporate apparel clothing product

 

32.5

 

28.9

 

Total gross margin

 

44.1

 

43.9

 

Advertising expense

 

5.4

 

5.4

 

Selling, general and administrative expenses

 

32.8

 

30.8

 

Tradename impairment charge

 

 —

 

3.4

 

Operating income

 

5.9

 

4.4

 

Interest income

 

0.0

 

0.0

 

Interest expense

 

(3.0)

 

(3.0)

 

Gain (loss) on extinguishment of debt, net

 

0.1

 

(0.5)

 

Earnings before income taxes

 

2.9

 

0.9

 

Provision for income taxes

 

0.8

 

(0.2)

 

Net earnings

 

2.1

%  

1.2

%


(1)

Percentage line items may not sum to totals due to the effect of rounding.

(2)

Calculated as a percentage of related sales.

36


 

Net Sales

 

Total net sales decreased $85.2 million, or 3.2%, to $2,585.4 million for the first nine months of 2016 as compared to the first nine months of 2015.

 

Total retail sales decreased $124.5 million, or 5.0%, to $2,360.1 million for the first nine months of 2016 as compared to the first nine months of 2015 primarily due to a $125.3 million decrease in clothing product revenues primarily at our Jos. A. Bank brand and a $10.1 million decrease in alteration and other services revenues, partially offset by a $10.9 million increase in rental service revenues. The net decrease is attributable to the following:

 

 

 

 

 

 

(in millions)

    

Amount Attributed to

$

(1.7)

 

0.1% decrease in comparable sales at Men’s Wearhouse.

 

 

(77.9)

 

14.2% decrease in comparable sales at Jos. A. Bank.

 

(3.6)

 

1.5% decrease in comparable sales at K&G.

 

(2.9)

 

1.8% decrease in comparable sales at Moores(1).

 

(20.5)

 

Decrease in non-comparable sales (primarily due to closed stores).

 

(4.8)

 

Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate.

 

(13.1)

 

Other (primarily decrease in alteration revenues).

$

(124.5)

 

Decrease in total retail sales.


(1)

Comparable sales percentages for Moores are calculated using Canadian dollars.

 

Comparable sales exclude the net sales of a store for any month of one period if the store was not owned or open throughout the same month of the prior period and include e-commerce net sales.  We operate our business using an omnichannel approach and do not differentiate e-commerce sales from our other channels.    

 

The slight decrease at Men’s Wearhouse resulted primarily from decreases in average transactions per store and units sold per transaction partially offset by increased average unit retails and higher rental services revenue.  The decrease at Jos. A. Bank resulted primarily from decreased average transactions per store partially offset by higher units per transaction, increased average unit retails and higher rental services revenue. The decrease at K&G resulted from lower average transactions per store partially offset by an increase in average unit retails and higher units per transaction. The decrease at Moores resulted from decreased average transactions per store and units sold per transaction partially offset by increased average unit retails.  At Men’s Wearhouse, rental service comparable sales increased 2.2% due to an increase in rental rates partially offset by a decrease in unit rentals.

 

Total corporate apparel clothing product sales increased $39.3 million for the first nine months of 2016 as compared to the first nine months of 2015 primarily due to the impact of a large new uniform program.  The rollout of the new uniform program commenced in June 2016, was completed during the third quarter of 2016 and has now transitioned to a standard replenishment phase.  The increase in corporate apparel sales was partially offset by the impact of a weaker British pound this year compared to last year. 

 

Gross Margin

 

Buying and distribution costs are included in determining our retail and corporate apparel clothing product gross margins. Our gross margin may not be comparable to other specialty retailers, as some companies exclude costs related to their distribution network from cost of goods sold while others, like us, include all or a portion of such costs in cost of goods sold and exclude them from SG&A expenses.  Distribution costs are not included in determining our rental services gross margin but are included in SG&A expenses.

 

Our total gross margin decreased $33.9 million, or 2.9%, to $1,139.4 million in the first nine months of 2016 as compared to the first nine months of 2015.  Total retail segment gross margin decreased $53.2 million, or 4.8%, from the same prior year nine months to $1,066.2 million in the first nine months of 2016 primarily due to lower sales at Jos. A. Bank. 

 

For the retail segment, total gross margin as a percentage of related sales increased from 45.1% in the first nine months of 2015 to 45.2% in the first nine months of 2016 as a result of anniversarying lower gross margins in last year’s third quarter, resulting from the clearance of merchandise through the e-commerce channel, primarily at our Men’s Wearhouse brand partially offset by the impact of the closing of the factory/outlet stores during the second quarter of 2016. 

 

37


 

Occupancy costs decreased $14.3 million primarily due to our store rationalization efforts.  Occupancy costs as a percentage of retail sales, which is relatively constant on a per store basis and includes store related rent, common area maintenance, utilities, repairs and maintenance, security, property taxes and depreciation, increased from 13.8% to 13.9% for the first nine months of 2016 compared to the first nine months of 2015, primarily due to deleveraging of occupancy costs from lower sales at Jos. A. Bank.

 

Corporate apparel gross margin increased $19.3 million, or 36.0%, in the first nine months of 2016.  For the corporate apparel segment, total gross margin as a percentage of related sales increased from 28.9% in the first nine months of 2015 to 32.5% in the first nine months of 2016 due to the impact of a large new uniform program as well as pre-tax gains on foreign currency hedging transactions.

 

Advertising Expense

 

Advertising expense decreased to $138.5 million in the first nine months of 2016 from $143.6 million in the first nine months of 2015, a decrease of $5.1 million, or 3.5%.  As a percentage of total net sales, advertising expense was 5.4% in the first nine months of 2016 which was flat compared to the first nine months of 2015.

 

Selling, General and Administrative Expenses

 

SG&A expenses increased to $849.1 million in the first nine months of 2016 from $822.5 million in the first nine months of 2015, an increase of $26.6 million or 3.2%.  As a percentage of total net sales, these expenses increased from 30.8% in the first nine months of 2015 to 32.8% in the first nine months of 2016.  The components of this 2.0% increase in SG&A expenses as a percentage of total net sales and the related absolute dollar changes were as follows:

 

 

 

 

 

 

 

%

    

in millions

    

Attributed to

2.0

 

$

50.5

 

Increase in restructuring, integration and other items as a percentage of sales from 0.7% in the first nine months of 2015 to 2.7% in the first nine months of 2016.  For the first nine months of 2016, these costs totaled $69.9 million, related primarily to restructuring and other costs.  For the first nine months of 2015, these costs totaled $19.4 million related primarily to separation costs with a former executive and integration and other costs related to Jos. A. Bank and asset impairment charges, partially offset by a gain on the sale of property.

(0.2)

 

 

(17.2)

 

Decrease in other SG&A expenses as a percentage of sales from 17.5% in the first nine months of 2015 to 17.3% in the first nine months of 2016. Other SG&A expenses decreased $17.2 million primarily due to cost reduction initiatives and a decrease in amortization of intangible assets as a result of the impairment charges recorded in the fourth quarter of 2015.

0.2

 

 

(6.7)

 

Store salaries decreased $6.7 million primarily due to cost reduction initiatives yet increased as a percentage of sales from 12.6% in the first nine months of 2015 to 12.8% in the first nine months of 2016 primarily due to deleverage resulting from lower retail sales.

2.0

 

$

26.6

 

Total

 

In the retail segment, SG&A expenses as a percentage of related net sales increased from 26.3% in the first nine months of 2015 to 27.6% in the first nine months of 2016 primarily due to deleverage resulting from lower retail sales.  Retail segment SG&A expenses decreased $3.8 million primarily due to cost reduction initiatives partially offset by lease termination costs.

 

In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased from 24.6% in the first nine months of 2015 to 21.1% in the first nine months of 2016 primarily due to leverage from higher sales.  Corporate apparel segment SG&A expenses increased $1.6 million.

 

Shared service expenses represent costs not specifically related to the operations of our business segments and are included in SG&A.  Shared service SG&A expenses as a percentage of total net sales increased from 4.6% in the first nine months of 2015 to 5.9% in the first nine months of 2016.  Shared service SG&A expenses increased $28.8 million primarily due to costs associated with our profit improvement program.

 

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Tradename Impairment Charge

 

During the first nine months of 2015, we concluded that a triggering event occurred that required an interim impairment test for the Jos. A. Bank tradename.  Based on our analysis, we concluded that the Jos. A. Bank tradename was impaired and recorded a non-cash, pre-tax impairment charge of $90.1 million. 

 

Provision for Income Tax

 

Our effective income tax rate increased to 27.3% for the first nine months of 2016 from a benefit of (24.0)% for the first nine months of 2015 primarily due to the impact of the aforementioned Jos. A. Bank tradename impairment charge, which resulted in our effective tax rate being a benefit for the first nine months of 2015.  In addition, the effective tax rate for the first nine months of 2016 is impacted due to lower U.S. income as compared to income earned in foreign jurisdictions.

 

For the first nine months of 2016 and 2015, the statutory tax rates in Canada and the UK were approximately 26% and 20%, respectively.  For the first nine months of 2016 and 2015, tax expense for our operations in foreign jurisdictions totaled $9.3 million and $8.1 million, respectively.

 

Our income tax expense and effective income tax rate in future periods may be impacted by many factors, including our geographic mix of earnings and changes in tax laws.  Currently, we expect our effective tax rate in future periods to be lower than the statutory U.S. combined federal and state tax rate based on the expected geographic mix of earnings.  In addition, if our financial results in fiscal 2016 generate a loss or certain deferred tax liabilities decrease, we may need to establish a valuation allowance on our U.S. deferred tax assets, which could have a material impact on our financial condition and results of operations. Lastly, we are currently undergoing several federal, foreign and state audits which we are vigorously defending and currently do not believe should result in any material change to tax expense.

 

Net Earnings

 

Net earnings were $55.0 million for the first nine months of 2016 compared with net earnings of $31.0 million for the first nine months of 2015.

 

Liquidity and Capital Resources

 

At October 29, 2016, October 31, 2015 and January 30, 2016, cash and cash equivalents totaled $34.9 million, $53.7 million and $30.0 million, respectively, and working capital totaled $726.2 million, $829.1 million and $723.6 million, respectively.  Our primary sources of working capital are cash flows from operations and available borrowings under our financing arrangements, as described below.

 

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.  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 October 29, 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. 

 

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 0.89% at October 29, 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 to swap variable-rate interest payments for fixed-rate interest payments on a notional amount of $520.0 million, effective in February 2015.  The interest rate swap agreement matures in August 2018 and has

39


 

periodic interest settlements.  Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and pay a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount.  At October 29, 2016, the notional amount totaled $390.0 million.

 

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 our 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 existing Term Loan.

 

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 October 29, 2016, the Term Loan had a weighted average interest rate of 4.89%.

 

The ABL Facility provides for a senior secured asset-based revolving credit facility of $500.0 million, with possible future increases to $650.0 million with an expansion feature, which matures on June 18, 2019, and is guaranteed, jointly and severally, by certain of our U.S. subsidiaries.  The ABL Facility has several borrowing and interest rate options including the following indices:  (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate, (iii) Canadian prime rate or (iv) alternate base rate (equal to the greater of the prime rate, the federal funds effective rate plus 0.5% or adjusted LIBOR for a one-month period plus 1.0%).  Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 2.00%.  The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%.

 

We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims.  Except for letters of credit totaling approximately $28.9 million issued and outstanding, no amounts were drawn on the ABL Facility as of October 29, 2016 and we have approximately $427.2 million of borrowing availability under the ABL Facility as of October 29, 2016.

 

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, certain of its U.S. subsidiaries and, in the case of the ABL Facility, Moores The Suit People Inc. 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.

 

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

 

Cash Flow Activities

 

Operating activities — Net cash provided by operating activities was $176.9 million and $112.2 million for the first nine months of 2016 and 2015, respectively.  The $64.6 million increase was driven by changes in other assets related to income tax refunds and a decrease in inventory purchases as we normalize inventory levels, particularly at Jos. A. Bank.  These favorable impacts were partially offset by an increase in accounts receivable driven by the rollout of a large new uniform program and the impact of restructuring and other costs.

 

Investing activities — Net cash used in investing activities was $79.9 million and $83.8 million for the first nine months of 2016 and 2015, respectively.

 

Financing activities — Net cash used in financing activities was $91.9 million and $37.3 million for the first nine months of 2016 and 2015, respectively.  The $54.6 million increase primarily reflects the impact of a $35.5 million prepayment on our Term Loan and the repurchase of $25.0 million of our Senior Notes.

 

Share repurchase program — The Board of Directors (the “Board”) had previously approved a $200.0 million share repurchase program for our common stock.  During the first nine months of 2016 and 2015, no shares were repurchased

40


 

in open market transactions under the Board’s authorization.  At October 29, 2016, the remaining balance available under the Board’s authorization was $48.0 million.

 

Dividends — Cash dividends paid were approximately $26.4 million and $26.3 million for the first nine months of 2016 and 2015, respectively.  During each of the quarters ended October 29, 2016 and October 31, 2015, we declared quarterly dividends of $0.18 per share.

 

Future Sources and Uses of Cash

 

Our primary uses of cash are to finance working capital requirements of our operations and to repay our indebtedness.  In addition, we will use cash to fund capital expenditures, income taxes, costs related to our store rationalization and profit improvement programs including lease termination payments, dividend payments and various other commitments and obligations, as they arise.

 

During the course of the year, we borrowed and repaid amounts under our ABL Facility primarily due to costs incurred under our store rationalization and profit improvement programs.  During the nine months ended October 29, 2016, the maximum borrowing outstanding at any point in time was $68.5 million.

 

Capital expenditures are anticipated to be in the range of $110.0 to $120.0 million for 2016.  This amount includes the anticipated costs to open 158 shops within Macy’s stores, 10 to 15 Men’s Wearhouse stores, three Jos. A. Bank stores, two Moores stores, and two K&G stores and to expand and/or relocate approximately 5 to 10 existing Men’s Wearhouse stores, two to six existing Jos. A. Bank stores and one existing K&G store.  During the first nine months of 2016, we opened 173 stores/tuxedo shops (158 tuxedo shops within Macy’s stores, nine Men’s Wearhouse stores, three Jos. A. Bank stores, two Moores stores and one K&G store).  Capital expenditures for 2016 will also include integration projects for Jos. A. Bank, point-of-sale and other computer equipment and systems, store remodeling, and investment in other corporate assets.  The actual amount of future capital expenditures will depend in part on the number of new stores opened and the terms on which new stores are leased and the timing of our Jos. A. Bank integration projects, as well as on industry trends consistent with our anticipated operating plans.

 

Current and future domestic and global economic conditions could negatively affect our future operating results as well as our existing cash and cash equivalents balances.  In addition, conditions in the financial markets could limit our access to further capital resources, if needed, and could increase associated costs.  We believe based on our current business plan that our existing cash and cash flows from operations and availability under our ABL Facility will be sufficient to fund our operating cash requirements, repayment of current indebtedness, costs related to our store rationalization and profit improvement plans including lease termination payments, planned store openings, relocations and remodels and other capital expenditures.

 

Contractual Obligations

 

There have been no material changes to our contractual obligations as discussed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

 

Critical Accounting Policies and Estimates

 

The preparation of our condensed consolidated financial statements requires the appropriate application of accounting policies in accordance with generally accepted accounting principles.  In many instances, this also requires management to make estimates and assumptions about future events that affect the amounts and disclosures included in our financial statements.  We base our estimates on historical experience and various assumptions that we believe are reasonable under our current business model.  However, because future events and conditions and their effects cannot be determined with certainty, actual results will differ from our estimates and such differences could be material to our financial statements.  There have been no significant changes to our critical accounting policies and estimates as discussed in our Annual Report on Form 10-K for the fiscal year ended January 30, 2016.

41


 

 

ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Market risks relating to our operations result primarily from changes in foreign currency exchange rates and changes in interest rates.

 

We are exposed to market risk associated with foreign currency exchange rate fluctuations as a result of our direct sourcing programs and our operations in foreign countries.  In connection with our direct sourcing programs, we may enter into merchandise purchase commitments that are denominated in a currency different from the functional currency of the operating entity.  Our risk management policy is to hedge a portion of forecasted merchandise purchases for our direct sourcing programs that bear foreign exchange risk using foreign exchange forward contracts.  In addition, as a result of recent exchange rate fluctuations in Europe, we have entered into derivative instruments to hedge our foreign exchange risk, specifically related to the British pound and Euro. 

 

As the foreign exchange forward contracts are with financial institutions, we are exposed to credit risk in the event of nonperformance by these parties but due to the creditworthiness of these major financial institutions, full performance is anticipated.

 

As discussed in Note 4 and Note 12 of the Notes to the Condensed Consolidated Financial Statements, we have undertaken steps to mitigate our exposure to changes in interest rates on our indebtedness.  As of October 29, 2016, 84% of our total debt was at a fixed rate with the remainder at a variable rate.  In addition, due to the existence of a LIBOR floor of 1.0% per annum on the portion of our debt subject to a variable rate, we believe our interest rate risk is substantially mitigated.  At October 29, 2016, the effect of one percentage point change in interest rates would result in an approximate $2.6 million change in annual interest expense on our Term Loan.

 

ITEM 4 - CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s management, with the participation of the Company’s principal executive officer (“CEO”) and principal financial officer (“CFO”), evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of the period covered by this report.  Based on this evaluation, the CEO and CFO have concluded that, as of the end of such period, the Company’s disclosure controls and procedures were effective to ensure information that is required to be disclosed by the Company in the reports it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Company’s management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

 

Changes in Internal Controls over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting that occurred during the fiscal third quarter ended October 29, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

42


 

PART II.  OTHER INFORMATION

 

ITEM 1 — LEGAL PROCEEDINGS

 

For a description of our legal proceedings, see Note 15 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.

 

ITEM 1A — RISK FACTORS

 

For a more detailed explanation of the factors affecting our business, please refer to the Risk Factors section in the Form 10-K for the fiscal year ended January 30, 2016.  Except as described in Part 1A of our Quarterly Report on Form 10-Q for the quarterly period ended July 30, 2016 and which is incorporated herein, there has not been a material change to the risk factors set forth in the Form 10-K for the fiscal year ended January 30, 2016.

 

ITEM 6 — EXHIBITS

 

Exhibits filed with this quarterly report on Form 10-Q are incorporated herein by reference as set forth in the Index to Exhibits on page 45.

43


 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, Tailored Brands, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

Dated:  December 8, 2016

TAILORED BRANDS, INC.

 

 

 

 

 

 

By

/s/ JON W. KIMMINS

 

 

Jon W. Kimmins

 

 

Executive Vice President, Chief Financial Officer, Treasurer and

 

 

Principal Financial Officer

 

 

44


 

EXHIBIT INDEX

 

Exhibit
Number

 

    

 

Exhibit Index

 

 

 

 

 

31.1

 

 

Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (filed herewith).

31.2

 

 

Certification of Periodic Report Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (filed herewith).

32.1

 

 

Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Executive Officer (furnished herewith). †

32.2

 

 

Certification of Periodic Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 by the Chief Financial Officer (furnished herewith). †

101.1

 

 

The following financial information from Tailored Brands, Inc.’s Quarterly Report on Form 10-Q for the three and nine months ended October 29, 2016, formatted in XBRL (Extensible Business Reporting Language) and filed electronically herewith: (i) the Condensed Consolidated Balance Sheets; (ii) the Condensed Consolidated Statements of Earnings (Loss); (iii) the Condensed Consolidated Statements of Comprehensive Income (Loss); (iv) the Condensed Consolidated Statements of Cash Flows; and (v) the Notes to Condensed Consolidated Financial Statements.


This exhibit will not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liability of that section.  Such exhibit shall not be deemed incorporated into any filing under the Securities Act of 1933, as amended or the Securities Exchange Act of 1934, as amended. 

45