Attached files
file | filename |
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8-K/A - 8-K/A - TAILORED BRANDS INC | a14-20296_18ka.htm |
EX-23.1 - EX-23.1 - TAILORED BRANDS INC | a14-20296_1ex23d1.htm |
Exhibit 99.3
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
On June 18, 2014, The Mens Wearhouse, Inc. (the Company or Mens Wearhouse) completed its acquisition of Jos. A. Bank Clothiers, Inc. (Jos. A. Bank or JOSB) (the Acquisition). In addition, the Company entered into a (i) $1.1 billion aggregate principal amount senior secured term loan credit agreement (the Term Loan), (ii) a $500.0 million asset-based revolving credit agreement (the ABL Facility) and (iii) $600.0 million aggregate principal amount senior notes (the Senior Notes) (such financing arrangements, collectively with the Acquisition, are referred to as the Transactions).
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of May 3, 2014 and the Unaudited Pro Forma Condensed Combined Statement of Earnings for the fiscal year ended February 1, 2014 and three months ended May 3, 2014 and the notes thereto of the Company (Unaudited Pro Forma Condensed Combined Financial Information) have been derived by the application of pro forma adjustments related to the Transactions, and the other assumptions and adjustments described in the accompanying notes herein to the historical financial statements of the Company and Jos. A. Bank.
The following Unaudited Pro Forma Condensed Combined Financial Information was prepared using the acquisition method of accounting for business combinations. The Unaudited Pro Forma Condensed Combined Balance Sheet is presented as if the Transactions took place as of May 3, 2014. The Unaudited Pro Forma Condensed Combined Statement of Earnings for the year ended February 1, 2014 and the three months ended May 3, 2014 are presented as if the Transactions occurred on February 3, 2013. Unaudited pro forma adjustments, and the assumptions on which they are based, are described in the accompanying notes to Unaudited Pro Forma Condensed Combined Financial Information, which are referred to in this section as the notes. Certain reclassifications have been made relative to Jos. A. Banks historical financial statements in order to present them on a basis consistent with those of Mens Wearhouse.
The Unaudited Pro Forma Condensed Combined Financial Information has been compiled in a manner consistent with the accounting policies adopted by Mens Wearhouse. These accounting policies are similar in most material respects to those of Jos. A. Bank. Mens Wearhouse is currently performing a more detailed review of Jos. A. Banks accounting policies. As a result of that review, differences may be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements.
The historical financial information has been adjusted in the Unaudited Pro Forma Condensed Combined Financial Information to give effect to pro forma events that are directly attributable, factually supportable, and with respect to the Unaudited Pro Forma Condensed Combined Statement of Earnings, expected to have a continuing impact on the consolidated results. The Unaudited Pro Forma Condensed Combined Financial Information is not intended to represent or be indicative of the consolidated results of operations or financial position of Mens Wearhouse that would have been reported had the Transactions been completed as of the dates presented, and should not be taken as representative of the future consolidated results of operations or financial position of Mens Wearhouse. The pro forma information presented is based on preliminary estimates of the fair values of assets acquired and liabilities assumed, available information as of the date of this filing and management assumptions, and will be revised as additional information becomes available and may differ materially from the pro forma amounts presented herein. The Unaudited Pro Forma Condensed Combined Financial Information is provided for informational purposes only. The Unaudited Pro Forma Condensed Combined Financial Information does not reflect any operating efficiencies and cost savings that we may achieve with respect to combining the companies. Synergies have been excluded from consideration because they do not meet the criteria for unaudited pro forma adjustments.
The Unaudited Pro Forma Condensed Combined Financial Information has been derived from, and should be read in conjunction with, each of the Companys and Jos. A. Banks historical financial statements.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
AS OF MAY 3, 2014
(In thousands)
|
|
Company |
|
Jos. A. Bank |
|
Presentation |
|
Pro Forma |
|
Note |
|
Combined |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
|
$ |
95,923 |
|
$ |
338,420 |
|
$ |
|
|
$ |
(334,343 |
) |
(A) |
|
$ |
100,000 |
|
Accounts receivable, net |
|
67,778 |
|
18,278 |
|
|
|
|
|
|
|
86,056 |
| |||||
Inventories |
|
645,772 |
|
330,250 |
|
|
|
45,957 |
|
(C) |
|
1,021,979 |
| |||||
Prepaid expenses and other current assets |
|
|
|
28,891 |
|
(28,891 |
) |
|
|
|
|
|
| |||||
Deferred tax asset - current |
|
|
|
25,406 |
|
(25,406 |
) |
|
|
|
|
|
| |||||
Other current assets |
|
84,803 |
|
|
|
54,297 |
|
(31,465 |
) |
(B), (D) |
|
107,635 |
| |||||
Total current assets |
|
894,276 |
|
741,245 |
|
|
|
(319,851 |
) |
|
|
1,315,670 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
PROPERTY AND EQUIPMENT, net |
|
406,784 |
|
150,980 |
|
|
|
19,936 |
|
|
|
577,700 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
TUXEDO RENTAL PRODUCT, net |
|
148,120 |
|
|
|
|
|
|
|
|
|
148,120 |
| |||||
GOODWILL |
|
127,098 |
|
|
|
|
|
722,199 |
|
(E) |
|
849,297 |
| |||||
INTANGIBLE ASSETS, net |
|
57,966 |
|
|
|
|
|
621,200 |
|
(E) |
|
679,166 |
| |||||
OTHER ASSETS |
|
6,734 |
|
278 |
|
|
|
37,887 |
|
(A), (B) |
|
44,899 |
| |||||
TOTAL ASSETS |
|
$ |
1,640,978 |
|
$ |
892,503 |
|
$ |
|
|
$ |
1,081,371 |
|
|
|
$ |
3,614,852 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND SHAREHOLDERS EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
|
$ |
168,826 |
|
$ |
47,696 |
|
$ |
18,456 |
|
$ |
|
|
|
|
$ |
234,978 |
|
Accrued expenses and other current liabilities |
|
220,452 |
|
98,137 |
|
(18,456 |
) |
|
|
|
|
300,133 |
| |||||
Income taxes payable |
|
4,277 |
|
|
|
|
|
|
|
|
|
4,277 |
| |||||
Current maturities of long-term debt |
|
10,000 |
|
|
|
|
|
1,000 |
|
(B) |
|
11,000 |
| |||||
Total current liabilities |
|
403,555 |
|
145,833 |
|
|
|
1,000 |
|
|
|
550,388 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LONG-TERM DEBT |
|
85,000 |
|
|
|
|
|
1,622,821 |
|
(B) |
|
1,707,821 |
| |||||
DEFERRED TAXES AND OTHER LIABILITIES |
|
109,696 |
|
|
|
51,292 |
|
245,548 |
|
(A), (F) |
|
406,536 |
| |||||
DEFERRED RENT |
|
|
|
40,469 |
|
(40,469 |
) |
|
|
|
|
|
| |||||
DEFERRED TAX LIABILITY |
|
|
|
9,463 |
|
(9,463 |
) |
|
|
|
|
|
| |||||
OTHER NON-CURRENT LIABILITIES |
|
|
|
1,360 |
|
(1,360 |
) |
|
|
|
|
|
| |||||
Total liabilities |
|
598,251 |
|
197,125 |
|
|
|
1,869,369 |
|
|
|
2,664,745 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
SHAREHOLDERS EQUITY |
|
1,042,727 |
|
695,378 |
|
|
|
(787,998 |
) |
(G) |
|
950,107 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
TOTAL LIABILITIES AND SHAREHOLDERS EQUITY |
|
$ |
1,640,978 |
|
$ |
892,503 |
|
$ |
|
|
$ |
1,081,371 |
|
|
|
$ |
3,614,852 |
|
(1) See Note 1 to the Unaudited Pro Forma Condensed Combined Financial Information for a description of the reclassifications included in this column.
(2) See Notes 2 and 3 to the Unaudited Pro Forma Condensed Combined Financial Information.
(3) See Note 3 to the Unaudited Pro Forma Condensed Combined Financial Information.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Year Ended February 1, 2014
(In thousands, except per share amounts)
|
|
Company |
|
Jos. A. Bank |
|
Presentation |
|
Pro Forma |
|
Note |
|
Combined |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
|
2,473,233 |
|
1,032,166 |
|
|
|
|
|
|
|
3,505,399 |
| |||||
Cost of sales |
|
1,384,223 |
|
435,578 |
|
154,925 |
|
49,218 |
|
(H) |
|
2,023,944 |
| |||||
Gross margin |
|
1,089,010 |
|
596,588 |
|
(154,925 |
) |
(49,218 |
) |
|
|
1,481,455 |
| |||||
Goodwill impairment charge |
|
9,501 |
|
|
|
|
|
|
|
|
|
9,501 |
| |||||
Asset impairment charges |
|
2,216 |
|
|
|
1,041 |
|
|
|
|
|
3,257 |
| |||||
Selling, general and administrative expenses |
|
947,665 |
|
|
|
338,596 |
|
(10,688 |
) |
(I) |
|
1,275,573 |
| |||||
Sales and marketing including occupancy costs |
|
|
|
416,469 |
|
(416,469 |
) |
|
|
|
|
|
| |||||
General and administrative |
|
|
|
78,093 |
|
(78,093 |
) |
|
|
|
|
|
| |||||
Operating income |
|
129,628 |
|
102,026 |
|
|
|
(38,530 |
) |
|
|
193,124 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
|
385 |
|
393 |
|
|
|
(578 |
) |
(J) |
|
200 |
| |||||
Interest expense |
|
(3,205 |
) |
(44 |
) |
|
|
(100,243 |
) |
(K) |
|
(103,492 |
) | |||||
Earnings before income taxes |
|
126,808 |
|
102,375 |
|
|
|
(139,351 |
) |
|
|
89,832 |
| |||||
Provision for income taxes |
|
42,591 |
|
39,049 |
|
|
|
(54,068 |
) |
(L) |
|
27,572 |
| |||||
Net earnings including non-controlling interest |
|
84,217 |
|
63,326 |
|
|
|
(85,283 |
) |
|
|
62,260 |
| |||||
Net earnings attributable to non-controlling interest |
|
(426 |
) |
|
|
|
|
|
|
|
|
(426 |
) | |||||
Net earnings attributable to common shareholders |
|
$ |
83,791 |
|
$ |
63,326 |
|
$ |
|
|
$ |
(85,283 |
) |
|
|
$ |
61,834 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net earnings per common share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic |
|
$ |
1.71 |
|
$ |
2.26 |
|
|
|
|
|
|
|
$ |
1.26 |
| ||
Diluted |
|
$ |
1.70 |
|
$ |
2.26 |
|
|
|
|
|
|
|
$ |
1.25 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic |
|
48,849 |
|
27,981 |
|
|
|
(27,981 |
) |
(M) |
|
48,849 |
| |||||
Diluted |
|
49,162 |
|
28,053 |
|
|
|
(28,053 |
) |
(M) |
|
49,162 |
| |||||
(1) See Note 1 to the Unaudited Pro Forma Condensed Combined Financial Information for a description of the reclassifications included in this column.
(2) See Notes 2 and 3 to the Unaudited Pro Forma Condensed Combined Financial Information.
(3) See Note 3 to the Unaudited Pro Forma Condensed Combined Financial Information.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF EARNINGS
For the Three Months Ended May 3, 2014
(In thousands, except per share amounts)
|
|
Company |
|
Jos. A. Bank |
|
Presentation |
|
Pro Forma |
|
Note |
|
Combined |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net sales |
|
630,474 |
|
217,422 |
|
|
|
|
|
|
|
847,896 |
| |||||
Cost of sales |
|
347,110 |
|
85,552 |
|
39,794 |
|
2,314 |
|
(H) |
|
474,770 |
| |||||
Gross margin |
|
283,364 |
|
131,870 |
|
(39,794 |
) |
(2,314 |
) |
|
|
373,126 |
| |||||
Selling, general and administrative expenses |
|
256,083 |
|
|
|
152,781 |
|
(93,530 |
) |
(I) |
|
315,334 |
| |||||
Sales and marketing including occupancy costs |
|
|
|
96,921 |
|
(96,921 |
) |
|
|
|
|
|
| |||||
General and administrative |
|
|
|
20,264 |
|
(20,264 |
) |
|
|
|
|
|
| |||||
Strategic activity costs |
|
|
|
75,390 |
|
(75,390 |
) |
|
|
|
|
|
| |||||
Operating income (loss) |
|
27,281 |
|
(60,705 |
) |
|
|
91,216 |
|
|
|
57,792 |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Interest income |
|
61 |
|
61 |
|
|
|
(72 |
) |
(J) |
|
50 |
| |||||
Interest expense |
|
(1,135 |
) |
(11 |
) |
|
|
(24,623 |
) |
(K) |
|
(25,769 |
) | |||||
Earnings (loss) before income taxes |
|
26,207 |
|
(60,655 |
) |
|
|
66,521 |
|
|
|
32,073 |
| |||||
Provision (benefit) for income taxes |
|
9,749 |
|
(23,518 |
) |
|
|
25,810 |
|
(L) |
|
12,041 |
| |||||
Net earnings (loss) including non-controlling interest |
|
16,458 |
|
(37,137 |
) |
|
|
40,711 |
|
|
|
20,032 |
| |||||
Net loss attributable to non-controlling interest |
|
28 |
|
|
|
|
|
|
|
|
|
28 |
| |||||
Net earnings (loss) attributable to common shareholders |
|
$ |
16,486 |
|
$ |
(37,137 |
) |
$ |
|
|
$ |
40,711 |
|
|
|
$ |
20,060 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Net earnings (loss) per common share attributable to common shareholders: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic |
|
$ |
0.34 |
|
$ |
(1.33 |
) |
|
|
|
|
|
|
$ |
0.42 |
| ||
Diluted |
|
$ |
0.34 |
|
$ |
(1.33 |
) |
|
|
|
|
|
|
$ |
0.42 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Weighted-average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Basic |
|
47,607 |
|
27,992 |
|
|
|
(27,992 |
) |
(M) |
|
47,607 |
| |||||
Diluted |
|
47,974 |
|
27,992 |
|
|
|
(27,992 |
) |
(M) |
|
47,974 |
| |||||
(1) See Note 1 to the Unaudited Pro Forma Condensed Combined Financial Information for a description of the reclassifications included in this column.
(2) See Notes 2 and 3 to the Unaudited Pro Forma Condensed Combined Financial Information.
(3) See Note 3 to the Unaudited Pro Forma Condensed Combined Financial Information.
Notes to Unaudited Pro Forma Condensed Combined Financial Information
(in thousands)
Note 1 Basis of Presentation
The following Unaudited Pro Forma Condensed Combined Balance Sheet as of May 3, 2014 and the Unaudited Pro Forma Condensed Combined Statement of Earnings for the fiscal year ended February 1, 2014 and three months ended May 3, 2014 of the Company have been derived by the application of pro forma adjustments related to the Transactions, and the other assumptions and adjustments described in the accompanying notes herein to the historical financial statements of the Company and Jos. A. Bank.
The Unaudited Pro Forma Condensed Combined Financial Information was prepared using the acquisition method of accounting for business combinations. The Unaudited Pro Forma Condensed Combined Balance Sheet is presented as if the Transactions took place as of May 3, 2014. The Unaudited Pro Forma Condensed Combined Statement of Earnings for the year ended February 1, 2014 and the three months ended May 3, 2014 are presented as if the Transactions occurred on February 3, 2013. Unaudited pro forma adjustments, and the assumptions on which they are based, are described in Note 3 below.
The Unaudited Pro Forma Condensed Combined Financial Information has been compiled in a manner consistent with the accounting policies adopted by Mens Wearhouse. These accounting policies are similar in most material respects to those of Jos. A. Bank. Mens Wearhouse is currently performing a more detailed review of Jos. A. Banks accounting policies. As a result of that review, differences may be identified between the accounting policies of the two companies that, when conformed, could have a material impact on the combined financial statements.
Certain reclassifications have been made relative to Jos. A. Banks historical financial statements in order to present them on a basis consistent with those of Mens Wearhouse, including for balance sheet purposes: (1) condensing Jos A. Banks prepaid expenses and other current assets and current deferred tax asset into other current assets, (2) reclassifying Jos. A. Banks accrued advertising and accrued property, plant and equipment expenses from accrued expenses and other current liabilities into accounts payable and (3) condensing Jos. A. Banks non-current liabilities into one line item.
As disclosed in Mens Wearhouses historical audited financial statements, Men Wearhouses 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 Mens Wearhouse, include all or a portion of such costs in costs of goods sold. As such, for income statement purposes, certain buying, distribution and occupancy costs for Jos. A. Bank were reclassified from Jos. A. Banks sales and marketing and general and administrative line items to cost of goods sold to conform to Mens Wearhouses calculation of gross margin.
In addition, for all periods presented, sales and marketing, general and administrative, and strategic activity cost expense line items included in the Jos. A. Bank historical presentation were combined with Mens Wearhouses selling and general administrative line item for presentation purposes. Also, for the year ended February 1, 2014, asset impairment charges included in Jos. A. Banks sales and marketing line item were reclassified to its own line item to conform to the Mens Wearhouse presentation.
Note 2 Preliminary Purchase Price Allocation
The pro forma purchase price allocation below has been developed based on preliminary estimates of fair value using the historical financial statements of Jos. A. Bank as of May 3, 2014.
Current assets |
|
748,744 |
(i) | |
Property, plant and equipment, net |
|
170,916 |
(ii) | |
Intangible and other assets |
|
621,478 |
(iii) | |
Current liabilities |
|
(145,833 |
) | |
Other non-current liabilities |
|
(297,196 |
)(iv) | |
Goodwill |
|
722,199 |
(v) | |
Total purchase price |
|
$ |
1,820,308 |
|
(i) |
Historical current assets was increased by approximately $7.5 million as a result of an increase of $46.0 million to reflect an adjustment of Jos. A. Banks inventory to fair value and to conform to Mens Wearhouses inventory methodology and the establishment of a $7.1 million income tax receivable. These increases were partially offset by the elimination of $1.9 million of Jos. A. Bank prepaid expenses, which the Company deemed did not meet the criteria for recognition as an asset for purchase price allocation purposes, the elimination of Jos. A. Banks current deferred tax asset of $25.4 million and the recording of an $18.3 million deferred tax liability as a result of purchase price adjustments, which is included in current assets as the combined company has a net current deferred tax asset balance. |
|
|
(ii) |
Historical property, plant and equipment, net was increased by approximately $19.9 million to reflect an adjustment to fair value. |
|
|
(iii) |
Intangible and other assets were increased by approximately $621.2 million and consist of four separately identified assets. First, the Company identified the Jos. A. Bank tradename as an indefinite-lived intangible asset with a fair value of $539.1 million. Second, the Company identified a customer relationship intangible asset with a fair value of $53.0 million, which the Company expects to amortize over a useful life of 7 years. Third, the Company recognized an intangible asset of $24.4 million for favorable Jos. A. Bank leases (as compared to prevailing market rates), which will be amortized over the remaining lease terms, including an assumed renewal. Lastly, the Company recognized an intangible asset related to the Jos. A. Bank franchise store agreements of $4.7 million, which the Company expects to amortize over 25 years. The allocation of the purchase price to acquired intangible assets is based on preliminary fair value estimates and is subject to final management analysis, with the assistance of third party valuation advisors. |
|
|
(iv) |
Historical non-current liabilities were increased by approximately $245.9 million consisting of $272.3 million in deferred tax liabilities to be recorded as a result of the purchase price adjustments to fair value, primarily related to the recognized intangible assets. This amount was calculated using a tax rate of 38.8%, which approximates the Companys statutory rate. Additionally, non-current liabilities were increased by $14.1 million related to the recognition of an intangible liability for unfavorable Jos. A. Bank leases (as compared to prevailing market rates), which will be amortized over the expected remaining lease terms. These increases were offset by a decrease of $40.5 million to reflect the elimination of Jos. A. Banks deferred rent balances as of May 3, 2014 as these amounts are not assigned any fair value during purchase price allocation. |
|
|
(v) |
Goodwill was increased by $722.2 million to reflect the excess of the consideration paid to consummate the Acquisition over the fair value of the assets acquired. |
Note 3 Unaudited Pro Forma Adjustments
Unaudited Pro Forma Condensed Combined Balance Sheet
(A) Sources and Uses
Sources of funds: |
|
|
| |
Available cash and cash equivalents(1) |
|
$ |
333,987 |
|
Term Loan |
|
1,089,000 |
| |
Senior Notes |
|
600,000 |
| |
ABL Facility |
|
29,821 |
| |
Total sources of funds |
|
$ |
2,052,808 |
|
Use of funds: |
|
|
| |
Cash payments to Jos. A. Bank stockholders(2) |
|
$ |
1,820,308 |
|
Refinance Mens Wearhouse current term loan |
|
95,000 |
| |
Transaction costs(3) |
|
90,280 |
| |
New debt issuance costs(4) |
|
47,220 |
| |
Total use of funds |
|
$ |
2,052,808 |
|
(1) Available cash and cash equivalents used to fund the Acquisition is based on maintaining a minimum combined company pro forma cash balance of $100.0 million after the Transactions are completed.
(2) Based on 28,004,839 shares of Jos. A. Bank common stock outstanding as of June 18, 2014, less 100 shares of Jos. A. Bank common stock owned by the Company, multiplied by $65.00.
(3) In accordance with applicable accounting guidance, transaction costs are expensed as they are incurred.
(4) See Note (B) below.
Concurrent with the refinancing of Mens Wearhouses previous term loan, Mens Wearhouse settled its interest rate swap. The following adjustments were made to the Unaudited Pro Forma Condensed Combined Balance Sheet to reflect the settlement of the interest rate swap:
|
|
Cash |
|
Non- |
|
Non- |
|
Retained |
|
Accumulated |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Cash payment to settle interest rate swap |
|
$ |
(356 |
) |
$ |
|
|
$ |
(356 |
) |
$ |
|
|
$ |
|
|
Reclassification of loss on interest rate swap from other comprehensive income to retained earnings |
|
|
|
|
|
|
|
(217 |
) |
217 |
| |||||
Elimination of deferred tax asset on interest rate swap |
|
|
|
(139 |
) |
|
|
(139 |
) |
|
| |||||
The following table provides a summary of the uses of cash and cash equivalents for the various transactions described in Note (A):
|
|
Cash and cash |
| |
|
|
|
| |
Mens Wearhouse balance as of May 3, 2014 |
|
$ |
95,923 |
|
Jos. A. Banks balance as of May 3, 2014 |
|
338,420 |
| |
Use of available cash and cash equivalents to fund the Acquisition |
|
(333,987 |
) | |
Mens Wearhouse payment to settle interest rate swap |
|
(356 |
) | |
Combined company pro forma cash and cash equivalents |
|
$ |
100,000 |
|
(B) Debt
The adjustments to long-term debt are comprised of the following items:
Current Portion of Long-Term Debt: |
|
|
| |
Current portion of Term Loan |
|
$ |
11,000 |
|
Refinancing of previous term loan |
|
(10,000 |
) | |
Net change in current maturities of long-term debt |
|
$ |
1,000 |
|
Long-Term Debt: |
|
|
| |
Non-current portions of Term Loan, ABL Facility and Senior Notes |
|
$ |
1,707,821 |
|
Refinancing of previous term loan |
|
(85,000 |
) | |
Net change in long-term debt |
|
$ |
1,622,821 |
|
Deferred financing fees of $47.2 million, which generally represent upfront and arranger fees based on a percentage of the debt issued, have been recorded, with $7.0 million classified as other current assets and $40.2 million classified as non-current assets. The proceeds from the Term Loan were reduced by an $11.0 million original issue discount, which is presented as a reduction of the outstanding balance on the Term Loan on the balance sheet.
Deferred financing fees incurred in relation to the Term Loan and ABL Facility will be amortized over the contractual term of such facilities and fees to be incurred in connection with the Senior Notes will be amortized over the contractual term of the Senior Notes. Amounts related to the original issue discount will be amortized over the contractual term of the Term Loan.
Deferred financing fees of $2.2 million relating to Mens Wearhouses previous credit facility have been eliminated from other non-current assets with a corresponding decrease to retained earnings. No adjustment has been made to the Unaudited Pro Forma Condensed Combined Statements of Earnings for these costs as they are non-recurring.
(C) Inventories
As discussed in Note 2, the adjustment to inventories consists of an increase of $46.0 million to reflect an adjustment of Jos. A. Banks inventory to fair value and to conform to Mens Wearhouses inventory methodology.
(D) Other current assets
The adjustment to other current assets of a decrease of $31.5 million consists of the establishment of a $7.1 million income tax receivable and the recognition of deferred financing fees totaling $7.0 million as discussed in (B). These increases were more than offset by the elimination of $1.9 million of Jos. A. Bank prepaid expenses, which the Company deemed did not meet the criteria for recognition as an asset for purchase price allocation purposes, the elimination of Jos. A. Banks current deferred tax asset of $25.4 million and the recording of an $18.3 million deferred tax liability as a result of purchase price adjustments, which is included in current assets as the combined company has a net current deferred tax asset balance.
(E) Goodwill and other intangible assets
The adjustment to goodwill consists of $722.2 million while the adjustment to intangible assets, net consists of $621.2 million. See Note 2 for the estimated purchase price allocation. The pro forma purchase price allocation is preliminary and subject to the final outcome of managements analysis to be conducted, with the assistance of third party valuation advisors. The residual amount of the purchase price has been allocated to goodwill. The final purchase price allocation may differ materially from the pro forma amounts presented herein.
(F) Deferred taxes and other liabilities
As discussed in Note 2, the adjustment to deferred taxes and other liabilities of $245.5 million reflects an increase of $272.3 million in deferred tax liabilities as a result of the purchase price allocation and the recognition of an intangible liability for unfavorable Jos. A. Bank leases totaling $14.1 million offset by an adjustment of $40.5 million associated with elimination of Jos. A. Banks deferred rent liabilities and $0.4 million related to settlement of the Mens Wearhouse interest rate swap discussed in (A). The actual amounts recorded for deferred taxes may differ materially from the pro forma amounts presented herein.
(G) Equity
The historical stockholders equity of Jos. A. Bank is eliminated during the purchase price allocation. In addition, as discussed in (A) and (B) above, Mens Wearhouse settled its interest rate swap and existing deferred financing fees related to Mens Wearhouses previous credit facility have been eliminated. See the calculation of the pro forma adjustments to the components of equity below:
|
|
Common |
|
Capital in |
|
Accumulated |
|
Retained |
|
Total Equity |
| |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Elimination of Jos. A. Bank equity balances |
|
$ |
(279 |
) |
$ |
(96,256 |
) |
$ |
63 |
|
$ |
(598,906 |
) |
$ |
(695,378 |
) |
Reclassification of loss on interest rate swap from other comprehensive income to retained earnings |
|
|
|
|
|
217 |
|
(356 |
) |
(139 |
) | |||||
Elimination of deferred financing fees related to Mens Wearhouses previous credit facility |
|
|
|
|
|
|
|
(2,201 |
) |
(2,201 |
) | |||||
Estimated Mens Wearhouse transaction fees |
|
|
|
|
|
|
|
(90,280 |
) |
(90,280 |
) | |||||
Total pro forma adjustment |
|
$ |
(279 |
) |
$ |
(96,256 |
) |
$ |
280 |
|
$ |
(691,743 |
) |
$ |
(787,998 |
) |
Unaudited Pro Forma Condensed Combined Statement of Earnings
(H) Cost of goods sold
As a result of the elimination of Jos. A. Banks deferred rent liabilities, the amortization of deferred rent liabilities as a reduction of rent expense has been eliminated resulting in an increase in Jos. A. Bank occupancy costs, which is shown as an adjustment to cost of goods sold to conform to the Mens Wearhouse presentation. A summary of the increase in occupancy costs for each period presented in the Unaudited Pro Forma Condensed Combined Statement of Earnings is shown below:
|
|
Fiscal Year |
|
Three |
| ||
|
|
|
|
|
| ||
Increase in Jos. A. Bank occupancy costs |
|
$ |
7,885 |
|
$ |
1,084 |
|
Jos. A. Banks inventory was increased to reflect an adjustment to fair value and to conform to Mens Wearhouses inventory methodology. The adjustment to fair value would be recognized as the acquired inventory is sold, which is assumed to occur within the first eighteen months following the closing of the transaction. A summary of the increase in cost of goods sold for each period presented in the Unaudited Pro Forma Condensed Combined Statement of Earnings impacted is shown below:
|
|
Fiscal Year |
|
Three |
| ||
|
|
|
|
|
| ||
Increase in cost of goods sold related to fair value adjustment of Jos. A. Banks inventory |
|
$ |
37,997 |
|
$ |
396 |
|
Jos. A. Banks property, plant and equipment was increased to reflect an adjustment to fair value. This adjustment will result in additional depreciation and amortization expense. A summary of the additional depreciation and amortization expense to be recorded within cost of goods sold for each period presented in the Unaudited Pro Forma Condensed Combined Statement of Earnings is shown below:
|
|
Fiscal Year |
|
Three |
| ||
|
|
|
|
|
| ||
Increase in depreciation and amortization expense related to fair value adjustment of Jos. A. Banks property, plant and equipment |
|
$ |
3,336 |
|
$ |
834 |
|
(I) Selling, general and administrative expenses (SG&A)
In accordance with accounting guidance, transaction costs are expensed as they are incurred. No adjustment has been made to the Unaudited Pro Forma Condensed Combined Statements of Earnings for transaction costs incurred as these costs are not expected to have a continuing impact on the combined company. In addition, historical transaction costs incurred are also not expected to have a continuing impact on the combined company and have been eliminated from the Unaudited Pro Forma Condensed Combined Statements of Earnings for each period presented. A summary of the transaction costs eliminated for each period presented in the Unaudited Pro Forma Condensed Combined Statement of Earnings is shown below:
|
|
Fiscal Year |
|
Three |
| ||
|
|
|
|
|
| ||
Transaction costs recorded by Mens Wearhouse and Jos. A. Bank |
|
$ |
(18,576 |
) |
$ |
(95,489 |
) |
Jos. A. Banks property, plant and equipment was increased to reflect an adjustment to fair value. This adjustment will result in additional depreciation and amortization expense. A summary of the additional depreciation and amortization expense to be recorded within SG&A for each period presented in the Unaudited Pro Forma Condensed Combined Statement of Earnings is shown below:
|
|
Fiscal Year |
|
Three |
| ||
|
|
|
|
|
| ||
Increase in depreciation and amortization expense related to fair value adjustment of Jos. A. Banks property, plant and equipment |
|
$ |
225 |
|
$ |
56 |
|
Lastly, the recognition of intangible assets and liabilities will result in additional amortization expense. A summary of the additional amortization expense for each period presented in the Unaudited Pro Forma Condensed Combined Statement of Earnings is shown below:
|
|
Fiscal Year |
|
Three |
| ||
|
|
|
|
|
| ||
Amortization expense increase related to recognized intangibles |
|
$ |
7,663 |
|
$ |
1,903 |
|
(J) Interest Income
Decreases in interest income reflect lower interest income related to the use of $334.3 million of cash and investments, see (A) above, to partially fund the Acquisition. The amounts were calculated using an average return of 0.2% on a pro forma cash balance of $100.0 million after the Transactions were completed. A summary of the interest income amounts eliminated for each Unaudited Pro Forma Condensed Combined Statement of Earnings is shown below:
|
|
Fiscal Year |
|
Three |
| ||
|
|
|
|
|
| ||
Elimination of interest income |
|
$ |
578 |
|
$ |
72 |
|
(K) Interest Expense
To consummate the Acquisition, the Company entered into a (i) $1.1 billion Term Loan, (ii) a $500.0 million ABL Facility and (iii) $600.0 million of Senior Notes. Interest on the Term Loan and ABL Facility will be variable, while interest on the Senior Notes will be fixed. Borrowings made in connection with the Transactions under the Term Loan, ABL Facility and Senior Notes reflect a weighted average interest rate of approximately 5.3%. The adjustment to interest expense for each period presented in the Unaudited Pro Forma Condensed Combined Statement of Earnings is below:
|
|
Fiscal Year |
|
Three |
| ||
|
|
|
|
|
| ||
Interest expense on financing incurred in connection with the Transactions |
|
$ |
91,905 |
|
$ |
22,898 |
|
Ongoing fees related to financing incurred in connection with the Transactions |
|
2,338 |
|
584 |
| ||
Eliminate amortization of deferred financing fees on Mens Wearhouses previous credit facility |
|
(523 |
) |
(139 |
) | ||
Eliminate interest expense related to Mens Wearhouse previous term loan |
|
(1,493 |
) |
(728 |
) | ||
Eliminate commitment fees paid on Mens Wearhouses previous credit facility |
|
(1,063 |
) |
(262 |
) | ||
Amortization of deferred financing costs and original issue discount recorded in connection with the Transactions |
|
9,079 |
|
2,270 |
| ||
Total adjustment to interest expense |
|
$ |
100,243 |
|
$ |
24,623 |
|
A hypothetical 1/8% increase (or decrease) in current interest rates on the Senior Notes and ABL Facility would increase (or decrease) our pro forma interest expense by $0.8 million per annum, respectively. However, certain terms of our Term Loan limit our exposure to short-term interest rate fluctuations, specifically the existence of a LIBOR floor of 1% per annum. As current monthly LIBOR rates are significantly below the LIBOR floor of 1% per annum, the Term Loan effectively has a fixed interest rate unless monthly LIBOR rates were to increase above the floor of 1%. Therefore, a 1/8% change in current LIBOR interest rates would have no impact on our pro forma interest expense for the Term Loan.
(L) Income taxes
The pro forma condensed combined income tax provision has been adjusted for the tax effect of adjustments to income before income taxes at the estimated statutory rate, including state income taxes, of 38.8% for the periods presented. The effective tax rate of the combined company could be significantly different depending on post-acquisition activities.
(M) Basic and diluted shares
Basic and diluted earnings per share calculations were computed using the two-class method and are based on the Mens Wearhouse basic and diluted weighted-average shares only as no new shares were issued as part of the Acquisition.