UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended May 2, 2015 April 30, 2016 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 1-16097
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC.
(Exact Name of Registrant as Specified in its Charter)
Texas |
| |
(State or Other Jurisdiction of |
| (I.R.S. Employer |
Incorporation or Organization) |
| Identification Number) |
|
|
|
6380 Rogerdale Road |
|
|
Houston, Texas | 77072-1624 | |
(Address of Principal Executive Offices) |
| (Zip Code) |
(281) 776-7000
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]x. No [ ].o.
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]x. No [ ].o.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer x |
| Accelerated filer o |
|
|
|
Non-accelerated filer o | (Do not check if a smaller reporting company) | Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ].o. No [X]x.
The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at May 29, 201527, 2016 was 48,323,891 excluding 129,095 shares classified as Treasury Stock.48,646,124.
Part and Item No. | Page No. | |
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PART I |
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Item 2 | 24 | |
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Item 3 |
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| 34 |
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. These forward-lookingForward-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, futureclosings 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 economic activity and inflation;macro-economic conditions; inflation or deflation; success, or lack thereof, in executing our internal strategies and operating plans andincluding new store and new market expansion plans, as well as integrationand cost reduction initiatives; store rationalization plans; profit improvement plans; revenue enhancement strategies; the impact of acquisitions, including Jos. A. Bank Clothiers, Inc.;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; disruptiondisruptions in buying trends due to homeland security concerns;our supply chain; severe weather; foreign currency fluctuations; government export and import policies; advertising or marketing activities of competitors; and legal proceedings. Future results will also be dependent upon our ability to continue to identify and complete successful expansions and penetrations into existing and new markets and our ability to integrate such expansions with our existing operations.
These forward-lookingForward-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 31, 201530, 2016, and elsewhere herein for a more complete discussion of these and other factors that might affect our performance and financial results. These forward-lookingForward-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 statementstatements that may be made from time to time, whether as a result of new information, future developments or otherwise.otherwise, unless required to do so by law.
1All written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by this cautionary notice.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
|
| May 2, |
| May 3, |
| January 31, |
| |||
|
| 2015 |
| 2014 |
| 2015 |
| |||
ASSETS |
|
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|
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|
| |||
CURRENT ASSETS: |
|
|
|
|
|
|
| |||
Cash and cash equivalents |
| $ | 61,802 |
| $ | 95,923 |
| $ | 62,261 |
|
Accounts receivable, net |
| 83,169 |
| 67,778 |
| 73,266 |
| |||
Inventories |
| 986,457 |
| 645,772 |
| 938,336 |
| |||
Other current assets |
| 170,278 |
| 84,803 |
| 175,574 |
| |||
|
|
|
|
|
|
|
| |||
Total current assets |
| 1,301,706 |
| 894,276 |
| 1,249,437 |
| |||
|
|
|
|
|
|
|
| |||
PROPERTY AND EQUIPMENT, net |
| 560,141 |
| 406,784 |
| 566,074 |
| |||
|
|
|
|
|
|
|
| |||
TUXEDO RENTAL PRODUCT, net |
| 146,050 |
| 148,120 |
| 132,672 |
| |||
GOODWILL |
| 893,435 |
| 127,098 |
| 887,936 |
| |||
INTANGIBLE ASSETS, net |
| 664,935 |
| 57,966 |
| 668,259 |
| |||
OTHER ASSETS |
| 36,832 |
| 6,734 |
| 42,380 |
| |||
|
|
|
|
|
|
|
| |||
TOTAL ASSETS |
| $ | 3,603,099 |
| $ | 1,640,978 |
| $ | 3,546,758 |
|
|
|
|
|
|
|
|
| |||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
| |||
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| |||
CURRENT LIABILITIES: |
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 233,066 |
| $ | 168,826 |
| $ | 209,867 |
|
Accrued expenses and other current liabilities |
| 289,956 |
| 220,452 |
| 268,935 |
| |||
Income taxes payable |
| 1,328 |
| 4,277 |
| 1,609 |
| |||
Current maturities of long-term debt |
| 7,000 |
| 10,000 |
| 11,000 |
| |||
Total current liabilities |
| 531,350 |
| 403,555 |
| 491,411 |
| |||
|
|
|
|
|
|
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| |||
LONG-TERM DEBT |
| 1,679,634 |
| 85,000 |
| 1,676,232 |
| |||
DEFERRED TAXES AND OTHER LIABILITIES |
| 412,575 |
| 109,696 |
| 409,326 |
| |||
|
|
|
|
|
|
|
| |||
Total liabilities |
| 2,623,559 |
| 598,251 |
| 2,576,969 |
| |||
|
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COMMITMENTS AND CONTINGENCIES |
|
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| |||
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| |||
SHAREHOLDERS’ EQUITY: |
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|
|
| |||
Preferred stock |
| — |
| — |
| — |
| |||
Common stock |
| 485 |
| 480 |
| 482 |
| |||
Capital in excess of par |
| 442,743 |
| 417,622 |
| 440,907 |
| |||
Retained earnings |
| 538,716 |
| 580,373 |
| 537,263 |
| |||
Accumulated other comprehensive income (loss) |
| 789 |
| 33,302 |
| (5,671 | ) | |||
Treasury stock, at cost |
| (3,193 | ) | (3,407 | ) | (3,192 | ) | |||
|
|
|
|
|
|
|
| |||
Total equity attributable to common shareholders |
| 979,540 |
| 1,028,370 |
| 969,789 |
| |||
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|
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|
| |||
Non-controlling interest |
| — |
| 14,357 |
| — |
| |||
Total shareholders’ equity |
| 979,540 |
| 1,042,727 |
| 969,789 |
| |||
|
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|
|
|
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| |||
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY |
| $ | 3,603,099 |
| $ | 1,640,978 |
| $ | 3,546,758 |
|
|
| April 30, |
| May 2, |
| January 30, |
| |||
ASSETS |
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CURRENT ASSETS: |
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Cash and cash equivalents |
| $ | 36,429 |
| $ | 61,802 |
| $ | 29,980 |
|
Accounts receivable, net |
| 83,333 |
| 83,169 |
| 63,890 |
| |||
Inventories |
| 1,076,733 |
| 986,457 |
| 1,022,504 |
| |||
Other current assets |
| 77,903 |
| 165,698 |
| 143,546 |
| |||
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| |||
Total current assets |
| 1,274,398 |
| 1,297,126 |
| 1,259,920 |
| |||
|
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| |||
PROPERTY AND EQUIPMENT, net |
| 521,144 |
| 560,141 |
| 521,824 |
| |||
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|
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| |||
RENTAL PRODUCT, net |
| 174,240 |
| 146,050 |
| 157,460 |
| |||
GOODWILL |
| 121,498 |
| 893,435 |
| 118,586 |
| |||
INTANGIBLE ASSETS, net |
| 177,826 |
| 664,935 |
| 178,510 |
| |||
OTHER ASSETS |
| 7,715 |
| 9,764 |
| 8,019 |
| |||
|
|
|
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| |||
TOTAL ASSETS |
| $ | 2,276,821 |
| $ | 3,571,451 |
| $ | 2,244,319 |
|
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| |||
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
|
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| |||
|
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| |||
CURRENT LIABILITIES: |
|
|
|
|
|
|
| |||
Accounts payable |
| $ | 203,248 |
| $ | 233,066 |
| $ | 237,114 |
|
Accrued expenses and other current liabilities |
| 311,044 |
| 291,284 |
| 256,762 |
| |||
Current portion of long-term debt |
| 42,451 |
| 7,000 |
| 42,451 |
| |||
|
|
|
|
|
|
|
| |||
Total current liabilities |
| 556,743 |
| 531,350 |
| 536,327 |
| |||
|
|
|
|
|
|
|
| |||
LONG-TERM DEBT, net |
| 1,613,192 |
| 1,647,986 |
| 1,613,473 |
| |||
DEFERRED TAXES AND OTHER LIABILITIES |
| 197,116 |
| 412,575 |
| 194,605 |
| |||
|
|
|
|
|
|
|
| |||
Total liabilities |
| 2,367,051 |
| 2,591,911 |
| 2,344,405 |
| |||
|
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| |||
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
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| |||
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| |||
SHAREHOLDERS’ (DEFICIT) EQUITY: |
|
|
|
|
|
|
| |||
Preferred stock |
| — |
| — |
| — |
| |||
Common stock |
| 486 |
| 485 |
| 485 |
| |||
Capital in excess of par |
| 456,107 |
| 442,743 |
| 455,765 |
| |||
(Accumulated deficit) retained earnings |
| (535,006 | ) | 538,716 |
| (524,876 | ) | |||
Accumulated other comprehensive (loss) income |
| (11,817 | ) | 789 |
| (28,486 | ) | |||
Treasury stock, at cost |
| — |
| (3,193 | ) | (2,974 | ) | |||
|
|
|
|
|
|
|
| |||
Total shareholders’ (deficit) equity |
| (90,230 | ) | 979,540 |
| (100,086 | ) | |||
|
|
|
|
|
|
|
| |||
TOTAL LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
| $ | 2,276,821 |
| $ | 3,571,451 |
| $ | 2,244,319 |
|
See Notes to Condensed Consolidated Financial Statements.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except per share data)
(Unaudited)
|
| For the Three Months Ended |
| ||||
|
| May 2, |
| May 3, |
| ||
|
| 2015 |
| 2014 |
| ||
|
|
|
|
|
| ||
Net sales: |
|
|
|
|
| ||
Retail clothing product |
| $ | 666,862 |
| $ | 433,024 |
|
Tuxedo rental services |
| 103,129 |
| 101,663 |
| ||
Alteration and other services |
| 54,280 |
| 38,962 |
| ||
Total retail sales |
| 824,271 |
| 573,649 |
| ||
Corporate apparel clothing product |
| 60,818 |
| 56,825 |
| ||
Total net sales |
| 885,089 |
| 630,474 |
| ||
|
|
|
|
|
| ||
Cost of sales: |
|
|
|
|
| ||
Retail clothing product |
| 294,384 |
| 191,477 |
| ||
Tuxedo rental services |
| 16,084 |
| 15,317 |
| ||
Alteration and other services |
| 36,150 |
| 27,722 |
| ||
Occupancy costs |
| 113,096 |
| 72,847 |
| ||
Total retail cost of sales |
| 459,714 |
| 307,363 |
| ||
Corporate apparel clothing product |
| 43,823 |
| 39,747 |
| ||
Total cost of sales |
| 503,537 |
| 347,110 |
| ||
|
|
|
|
|
| ||
Gross margin: |
|
|
|
|
| ||
Retail clothing product |
| 372,478 |
| 241,547 |
| ||
Tuxedo rental services |
| 87,045 |
| 86,346 |
| ||
Alteration and other services |
| 18,130 |
| 11,240 |
| ||
Occupancy costs |
| (113,096 | ) | (72,847 | ) | ||
Total retail gross margin |
| 364,557 |
| 266,286 |
| ||
Corporate apparel clothing product |
| 16,995 |
| 17,078 |
| ||
Total gross margin |
| 381,552 |
| 283,364 |
| ||
|
|
|
|
|
| ||
Advertising expense |
| 50,656 |
| 28,771 |
| ||
Selling, general and administrative expenses |
| 275,607 |
| 227,312 |
| ||
|
|
|
|
|
| ||
Operating income |
| 55,289 |
| 27,281 |
| ||
|
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|
|
| ||
Interest income |
| 28 |
| 61 |
| ||
Interest expense |
| (26,483 | ) | (1,135 | ) | ||
Loss on extinguishment of debt |
| (12,675 | ) | — |
| ||
|
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|
|
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| ||
Earnings before income taxes |
| 16,159 |
| 26,207 |
| ||
Provision for income taxes |
| 5,790 |
| 9,749 |
| ||
|
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|
|
| ||
Net earnings including non-controlling interest |
| 10,369 |
| 16,458 |
| ||
Net loss attributable to non-controlling interest |
| — |
| 28 |
| ||
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Net earnings attributable to common shareholders |
| $ | 10,369 |
| $ | 16,486 |
|
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Net earnings per common share attributable to common shareholders: |
|
|
|
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| ||
Basic |
| $ | 0.22 |
| $ | 0.34 |
|
Diluted |
| $ | 0.21 |
| $ | 0.34 |
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Weighted-average common shares outstanding: |
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|
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| ||
Basic |
| 48,130 |
| 47,607 |
| ||
Diluted |
| 48,429 |
| 47,974 |
| ||
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Cash dividends declared per common share |
| $ | 0.18 |
| $ | 0.18 |
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|
| For the Three Months Ended |
| ||||
|
| April 30, 2016 |
| May 2, 2015 |
| ||
Net sales: |
|
|
|
|
| ||
Retail clothing product |
| $ | 615,668 |
| $ | 666,862 |
|
Rental services |
| 99,831 |
| 103,129 |
| ||
Alteration and other services |
| 50,743 |
| 54,280 |
| ||
Total retail sales |
| 766,242 |
| 824,271 |
| ||
Corporate apparel clothing product |
| 62,580 |
| 60,818 |
| ||
Total net sales |
| 828,822 |
| 885,089 |
| ||
|
|
|
|
|
| ||
Cost of sales: |
|
|
|
|
| ||
Retail clothing product |
| 270,355 |
| 294,384 |
| ||
Rental services |
| 15,884 |
| 16,084 |
| ||
Alteration and other services |
| 36,150 |
| 36,150 |
| ||
Occupancy costs |
| 110,135 |
| 113,096 |
| ||
Total retail cost of sales |
| 432,524 |
| 459,714 |
| ||
Corporate apparel clothing product |
| 44,457 |
| 43,823 |
| ||
Total cost of sales |
| 476,981 |
| 503,537 |
| ||
|
|
|
|
|
| ||
Gross margin: |
|
|
|
|
| ||
Retail clothing product |
| 345,313 |
| 372,478 |
| ||
Rental services |
| 83,947 |
| 87,045 |
| ||
Alteration and other services |
| 14,593 |
| 18,130 |
| ||
Occupancy costs |
| (110,135 | ) | (113,096 | ) | ||
Total retail gross margin |
| 333,718 |
| 364,557 |
| ||
Corporate apparel clothing product |
| 18,123 |
| 16,995 |
| ||
Total gross margin |
| 351,841 |
| 381,552 |
| ||
|
|
|
|
|
| ||
Advertising expense |
| 47,928 |
| 50,656 |
| ||
Selling, general and administrative expenses |
| 272,918 |
| 275,607 |
| ||
Operating income |
| 30,995 |
| 55,289 |
| ||
Interest income |
| 13 |
| 28 |
| ||
Interest expense |
| (26,502 | ) | (26,483 | ) | ||
Loss on extinguishment of debt |
| — |
| (12,675 | ) | ||
Earnings before income taxes |
| 4,506 |
| 16,159 |
| ||
Provision for income taxes |
| 2,869 |
| 5,790 |
| ||
|
|
|
|
|
| ||
Net earnings |
| $ | 1,637 |
| $ | 10,369 |
|
|
|
|
|
|
| ||
Net earnings per common share allocated to common shareholders: |
|
|
|
|
| ||
Basic |
| $ | 0.03 |
| $ | 0.22 |
|
Diluted |
| $ | 0.03 |
| $ | 0.21 |
|
|
|
|
|
|
| ||
Weighted-average common shares outstanding: |
|
|
|
|
| ||
Basic |
| 48,446 |
| 48,130 |
| ||
Diluted |
| 48,621 |
| 48,429 |
| ||
|
|
|
|
|
| ||
Cash dividends declared per common share |
| $ | 0.18 |
| $ | 0.18 |
|
See Notes to Condensed Consolidated Financial Statements.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In thousands)
(Unaudited)
|
| For the Three Months Ended |
| ||||
|
| May 2, |
| May 3, |
| ||
|
| 2015 |
| 2014 |
| ||
|
|
|
|
|
| ||
Net earnings including non-controlling interest |
| $ | 10,369 |
| $ | 16,458 |
|
Currency translation adjustments |
| 6,086 |
| 6,180 |
| ||
Unrealized gain on cash flow hedge, net of tax |
| 374 |
| 182 |
| ||
Comprehensive income including non-controlling interest |
| 16,829 |
| 22,820 |
| ||
|
|
|
|
|
| ||
Comprehensive income attributable to non-controlling interest: |
|
|
|
|
| ||
Net loss |
| — |
| 28 |
| ||
Currency translation adjustments |
| — |
| (371 | ) | ||
|
|
|
|
|
| ||
Amounts attributable to non-controlling interest |
| — |
| (343 | ) | ||
|
|
|
|
|
| ||
Comprehensive income attributable to common shareholders |
| $ | 16,829 |
| $ | 22,477 |
|
|
| For the Three Months Ended |
| ||||
|
| April 30, |
| May 2, |
| ||
|
|
|
|
|
| ||
Net earnings |
| $ | 1,637 |
| $ | 10,369 |
|
|
|
|
|
|
| ||
Currency translation adjustments |
| 16,429 |
| 6,086 |
| ||
|
|
|
|
|
| ||
Unrealized gain on cash flow hedge, net of tax |
| 240 |
| 374 |
| ||
|
|
|
|
|
| ||
Comprehensive income |
| $ | 18,306 |
| $ | 16,829 |
|
See Notes to Condensed Consolidated Financial Statements.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
|
| For the Three Months Ended |
| ||||
|
| May 2, |
| May 3, |
| ||
|
| 2015 |
| 2014 |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
Net earnings including non-controlling interest |
| $ | 10,369 |
| $ | 16,458 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 31,906 |
| 21,929 |
| ||
Tuxedo rental product amortization |
| 7,604 |
| 7,497 |
| ||
Amortization of deferred financing costs |
| 1,796 |
| 140 |
| ||
Amortization of discount on long-term debt |
| 340 |
| — |
| ||
Loss on extinguishment of debt |
| 12,675 |
| — |
| ||
Loss on disposition of assets |
| 424 |
| 1,357 |
| ||
Asset impairment charges |
| — |
| 302 |
| ||
Share-based compensation |
| 4,475 |
| 3,974 |
| ||
Excess tax benefits from share-based plans |
| (981 | ) | (3,002 | ) | ||
Deferred tax provision (benefit) |
| 7,870 |
| (4,326 | ) | ||
Deferred rent expense and other |
| 1,116 |
| 75 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| (9,629 | ) | (3,586 | ) | ||
Inventories |
| (44,162 | ) | (43,195 | ) | ||
Tuxedo rental product |
| (20,204 | ) | (12,495 | ) | ||
Other assets |
| (6,124 | ) | 12,945 |
| ||
Accounts payable, accrued expenses and other current liabilities |
| 49,858 |
| 65,288 |
| ||
Income taxes payable |
| 1,369 |
| 6,547 |
| ||
Other liabilities |
| 283 |
| (95 | ) | ||
|
|
|
|
|
| ||
Net cash provided by operating activities |
| 48,985 |
| 69,813 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
Capital expenditures |
| (30,384 | ) | (22,543 | ) | ||
|
|
|
|
|
| ||
Net cash used in investing activities |
| (30,384 | ) | (22,543 | ) | ||
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
Proceeds from asset-based revolving credit facility |
| 3,000 |
| — |
| ||
Payments on asset-based revolving credit facility |
| (3,000 | ) | — |
| ||
Payments on new term loan |
| (4,500 | ) | — |
| ||
Payments on previous term loan |
| — |
| (2,500 | ) | ||
Deferred financing costs |
| (3,566 | ) | (1,389 | ) | ||
Cash dividends paid |
| (8,863 | ) | (8,812 | ) | ||
Proceeds from issuance of common stock |
| 908 |
| 4,373 |
| ||
Tax payments related to vested deferred stock units |
| (4,506 | ) | (5,732 | ) | ||
Excess tax benefits from share-based plans |
| 981 |
| 3,002 |
| ||
Repurchases of common stock |
| (277 | ) | (251 | ) | ||
|
|
|
|
|
| ||
Net cash used in financing activities |
| (19,823 | ) | (11,309 | ) | ||
Effect of exchange rate changes |
| 763 |
| 710 |
| ||
|
|
|
|
|
| ||
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS |
| (459 | ) | 36,671 |
| ||
Balance at beginning of period |
| 62,261 |
| 59,252 |
| ||
Balance at end of period |
| $ | 61,802 |
| $ | 95,923 |
|
|
| For the Three Months Ended |
| ||||
|
| April 30, |
| May 2, |
| ||
CASH FLOWS FROM OPERATING ACTIVITIES: |
|
|
|
|
| ||
Net earnings |
| $ | 1,637 |
| $ | 10,369 |
|
Adjustments to reconcile net earnings to net cash provided by operating activities: |
|
|
|
|
| ||
Depreciation and amortization |
| 30,306 |
| 31,906 |
| ||
Rental product amortization |
| 8,304 |
| 7,604 |
| ||
Loss on extinguishment of debt |
| — |
| 12,675 |
| ||
Amortization of deferred financing costs |
| 1,666 |
| 1,796 |
| ||
Amortization of discount on long-term debt |
| 250 |
| 340 |
| ||
Share-based compensation |
| 4,118 |
| 4,475 |
| ||
Excess tax benefits from share-based plans |
| — |
| (981 | ) | ||
Loss on disposition of assets |
| 9 |
| 424 |
| ||
Asset impairment charges |
| 1,162 |
| — |
| ||
Deferred tax expense |
| 3,539 |
| 7,870 |
| ||
Deferred rent expense and other |
| 296 |
| 1,116 |
| ||
Changes in operating assets and liabilities: |
|
|
|
|
| ||
Accounts receivable |
| (18,955 | ) | (9,629 | ) | ||
Inventories |
| (44,916 | ) | (44,162 | ) | ||
Rental product |
| (23,129 | ) | (20,204 | ) | ||
Other assets |
| 65,973 |
| (6,124 | ) | ||
Accounts payable, accrued expenses and other current liabilities |
| 17,246 |
| 51,227 |
| ||
Other liabilities |
| (1,071 | ) | 283 |
| ||
|
|
|
|
|
| ||
Net cash provided by operating activities |
| 46,435 |
| 48,985 |
| ||
|
|
|
|
|
| ||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
| ||
Capital expenditures |
| (30,325 | ) | (30,384 | ) | ||
Proceeds from sales of property and equipment |
| 501 |
| — |
| ||
|
|
|
|
|
| ||
Net cash used in investing activities |
| (29,824 | ) | (30,384 | ) | ||
|
|
|
|
|
| ||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
| ||
Payments on term loan |
| (1,750 | ) | (4,500 | ) | ||
Proceeds from asset-based revolving credit facility |
| 204,014 |
| 3,000 |
| ||
Payments on asset-based revolving credit facility |
| (204,014 | ) | (3,000 | ) | ||
Deferred financing costs |
| — |
| (3,566 | ) | ||
Cash dividends paid |
| (8,921 | ) | (8,863 | ) | ||
Proceeds from issuance of common stock |
| 434 |
| 908 |
| ||
Tax payments related to vested deferred stock units |
| (1,247 | ) | (4,506 | ) | ||
Excess tax benefits from share-based plans |
| — |
| 981 |
| ||
Repurchases of common stock |
| — |
| (277 | ) | ||
|
|
|
|
|
| ||
Net cash used in financing activities |
| (11,484 | ) | (19,823 | ) | ||
|
|
|
|
|
| ||
Effect of exchange rate changes |
| 1,322 |
| 763 |
| ||
|
|
|
|
|
| ||
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS |
| 6,449 |
| (459 | ) | ||
Balance at beginning of period |
| 29,980 |
| 62,261 |
| ||
|
|
|
|
|
| ||
Balance at end of period |
| $ | 36,429 |
| $ | 61,802 |
|
See Notes to Condensed Consolidated Financial Statements.
THE MEN’S WEARHOUSE,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 The Men’s Wearhouse,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 that the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation.
Our business historically has been seasonal in nature and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended January 31, 2015.30, 2016.
Unless the context otherwise requires, “Company”, “we”, “us” and “our” refer to The Men’s Wearhouse,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 that 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 April 2015,March 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03,2016-09, SimplifyingCompensation-Stock Compensation. ASU 2016-09 simplifies several aspects of the Presentationaccounting for share-based payment transactions, including income tax consequences, classification of Debt Issuance Costs. The guidance requires that debt issuance costs related to a recognized debt liability be reportedawards as either equity or liabilities, and classification on the balance sheet as a direct deduction from the carrying amountstatement of that debt liability. The guidancecash flows. ASU 2016-09 is effective for fiscal years and interimpublic companies for annual reporting periods beginning after December 15, 2015,2016, and interim periods within those fiscal years with early adoption permitted. We are currently evaluating ASU 2016-09 to determine if this guidance will have a material impact on our financial position, results of operations or cash flows.
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption of ASU 2016-02 is permitted. The guidance is required to be applied retrospectively. Early adoption is permitted.adopted using the modified retrospective approach. We are currently evaluating the impact ASU 2016-02 will have not adopted ASU 2015-03on our financial position, results of operations and cash flows but upon adoption, weexpect that it will reclassifyresult in a significant increase in our debt issuance costs related to existing debtlong-term assets and liabilities from assets to liabilities on the balance sheet. At May 2, 2015,given we have $39.0 milliona significant number of debt issuance costs recorded as assets on the balance sheet.leases.
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. The new guidanceIn 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, 2016 with no2017 and early adoption permitted.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 currently evaluatingcontinuing to evaluate our method of adoption and the impact of this guidance, including the transition method,recent amendments and interpretations, may have on our financial position, results of operations and cash flows.
2. AcquisitionRestructuring and Other Charges
Jos. A. Bank
On June 18, 2014,During the fourth quarter of fiscal 2015, we acquired 100%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 the outstanding common stock ofapproximately 80 to 90 Jos. A. Bank a men’s specialty apparel retailer, for $65.00 net per share in cash, or total considerationfull line stores, the closure of approximately $1.8 billion. The acquisition was funded primarily by a $1.1 billion term loan facility, the issuance of $600.0 million in senior unsecured notes and borrowings under an asset-based credit facility (see Note 4).
We incurred integration costs related toall outlet stores at Jos. A. Bank totaling $5.8and Men’s Wearhouse (58 stores) and the closure of between 100 and 110 Men’s Wearhouse and Tux stores primarily as the result of the rollout of our shops within Macy’s stores. We expect the store rationalization and profit improvement programs to be completed in fiscal 2016.
A summary of the charges incurred in the first quarter of fiscal 2016 along with cumulative charges incurred under these initiatives since inception, all of which relate to our retail segment, is presented in the table below (amounts in thousands):
|
| For the Three |
| Cumulative |
| ||
Store asset impairment charges and accelerated depreciation |
| $ | 2,010 |
| $ | 25,156 |
|
Inventory reserve charges |
| — |
| 11,008 |
| ||
Consulting costs |
| 4,952 |
| 5,870 |
| ||
Favorable lease impairment charges |
| — |
| 5,533 |
| ||
Severance and employee-related costs |
| 3,756 |
| 3,756 |
| ||
Lease termination costs |
| 1,891 |
| 1,891 |
| ||
Other costs |
| 552 |
| 1,410 |
| ||
Total pre-tax restructuring and other charges(1) |
| $ | 13,161 |
| $ | 54,624 |
|
(1)Consists of $13.0 million for the three months ended May 2, 2015 which is included in selling, general and administrative expenses (“SG&A”) and $0.2 million included in cost of sales for the three months ended April 30, 2016.
As of April 30, 2016, we estimate that cumulatively pre-tax restructuring and other charges related to these actions will approximate $100.0 million to $110.0 million, of which approximately $60.0 million to $65.0 million are estimated to be cash expenses. Included in the estimate of total pre-tax charges are approximately:
· Approximately $50.0 million of lease termination costs;
· $40.0 million to $45.0 million of inventory and long-lived and intangible asset impairment charges relating to store closures; and
· $10.0 to $15.0 million of consulting and severance costs.
The following table is a rollforward of amounts included in accrued expenses and other current liabilities in the condensed consolidated balance sheet related to the pre-tax restructuring and other charges (amounts in thousands):
|
| Severance and |
| Lease |
| Consulting |
| Other |
| Total |
| |||||
Beginning Balance, January 30, 2016 |
| $ | — |
| $ | — |
| $ | 918 |
| $ | 858 |
| $ | 1,776 |
|
Charges, excluding non-cash items |
| 3,756 |
| 1,891 |
| 4,952 |
| 552 |
| 11,151 |
| |||||
Payments |
| (2,367 | ) | (159 | ) | (4,630 | ) | (1,209 | ) | (8,365 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
Ending Balance, April 30, 2016 |
| $ | 1,389 |
| $ | 1,732 |
| $ | 1,240 |
| $ | 201 |
| $ | 4,562 |
|
In addition to the restructuring costs described above, we incurred integration and other costs related to Jos. A. Bank totaling $3.6 million and $5.8 million for the three months ended April 30, 2016 and May 2, 2015, respectively. For the three months ended April 30, 2016, $3.1 million of the integration costs are included in SG&A and $0.5 million are included in cost of goods sold in the condensed consolidated statement of earnings. For the three months ended May 2, 2015 all such costs are included in SG&A in the condensed consolidated statement of earnings.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the preliminary estimates of the fair values of the identifiable assets acquired and liabilities assumed in the Jos. A. Bank acquisition as of June 18, 2014 and measurement period adjustments since the date of acquisition (amounts in millions):
|
|
|
|
|
| Adjusted |
| |||
|
| Preliminary |
| Measurement |
| preliminary |
| |||
|
| valuation at |
| period |
| valuation at |
| |||
|
| August 2, 2014 |
| adjustments |
| May 2, 2015 |
| |||
Cash |
| $ | 328.9 |
| $ | — |
| $ | 328.9 |
|
Accounts receivable (mainly credit card receivables) |
| 7.1 |
| 1.2 |
| 8.3 |
| |||
Inventories |
| 379.3 |
| (50.5 | ) | 328.8 |
| |||
Other current assets |
| 29.3 |
| 27.1 |
| 56.4 |
| |||
Property and equipment |
| 174.8 |
| (9.5 | ) | 165.3 |
| |||
Goodwill |
| 744.7 |
| 23.9 |
| 768.6 |
| |||
Intangible assets |
| 621.2 |
| 1.0 |
| 622.2 |
| |||
Accounts payable, accrued expenses and other current liabilities |
| (177.0 | ) | 21.6 |
| (155.4 | ) | |||
Other liabilities (mainly deferred income taxes) |
| (288.0 | ) | (14.8 | ) | (302.8 | ) | |||
Total purchase price |
| 1,820.3 |
| — |
| 1,820.3 |
| |||
Less: Cash acquired |
| (328.9 | ) |
|
| (328.9 | ) | |||
Total purchase price, net of cash acquired |
| $ | 1,491.4 |
|
|
| $ | 1,491.4 |
| |
The current estimates of the fair value of identifiable assets acquired and liabilities assumed are subject to revisions, that may result in further adjustments to the adjusted preliminary values presented above, when management’s appraisals and estimates are finalized.
Goodwill is calculated as the excess of the purchase price over the net assets acquired. The goodwill recognized is attributable to growth opportunities and expected synergies. All of the goodwill has been assigned to our retail reporting segment and is non-deductible for tax purposes.
The following table presents unaudited pro forma consolidated financial information as if the closing of our acquisition of Jos. A. Bank had occurred on February 3, 2013 (in thousands, except per share data):
|
| For the Three |
| |
|
| Months Ended |
| |
|
| May 3, 2014 |
| |
Total net sales |
| $ | 847,896 |
|
Net earnings attributable to common shareholders |
| $ | 20,197 |
|
Net earnings per common share attributable to common shareholders: |
|
|
| |
Basic |
| $ | 0.42 |
|
Diluted |
| $ | 0.42 |
|
The pro forma financial information presented above has been prepared by combining our historical results and the historical results of Jos. A. Bank and further reflects the effect of purchase accounting adjustments and the elimination of transaction costs, among other items. This pro forma information is not necessarily indicative of the results of operations that actually would have resulted had the Jos. A. Bank acquisition occurred on the date indicated above or that may result in the future and does not reflect potential synergies, integration costs or other such costs and savings.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
3. Earnings per Share
Basic earnings per common share attributableallocated to common shareholders is determined using the two-class method and is computed by dividing net earnings attributableallocated to common shareholders by the weighted-average common shares outstanding during the period. Diluted earnings per common share attributable to common shareholders reflectsreflect the more dilutive earnings per common share amount calculated using the treasury stock method or the two-class method.
The following table sets forth the computation of basic and diluted earnings per common share attributableallocated to common shareholders (in thousands, except per share amounts). Basic and diluted earnings per common share attributableallocated to common shareholders are computed using the actual net earnings availableallocated to common shareholders and the actual weighted-average common shares outstanding rather than the rounded numbers presented within our condensed consolidated statement of earnings and the accompanying notes. As a result, it may not be possible to recalculate earnings per common share attributableallocated to common shareholders in our condensed consolidated statement of earnings and the accompanying notes.
|
| For the Three Months Ended |
|
| For the Three Months Ended |
| ||||||||
|
| May 2, |
| May 3, |
|
| April 30, |
| May 2, |
| ||||
|
| 2015 |
| 2014 |
|
|
|
|
|
| ||||
Numerator |
|
|
|
|
|
|
|
|
|
| ||||
Total net earnings attributable to common shareholders |
| $ | 10,369 |
| $ | 16,486 |
| |||||||
Total net earnings |
| $ | 1,637 |
| $ | 10,369 |
| |||||||
Net earnings allocated to participating securities (restricted stock and deferred stock units) |
| (12 | ) | (65 | ) |
| (2 | ) | (12 | ) | ||||
Net earnings attributable to common shareholders |
| $ | 10,357 |
| $ | 16,421 |
| |||||||
Net earnings allocated to common shareholders |
| $ | 1,635 |
| $ | 10,357 |
| |||||||
Denominator |
|
|
|
|
|
|
|
|
|
| ||||
Basic weighted-average common shares outstanding |
| 48,130 |
| 47,607 |
|
| 48,446 |
| 48,130 |
| ||||
Dilutive effect of share-based awards |
| 299 |
| 367 |
|
| 175 |
| 299 |
| ||||
Diluted weighted-average common shares outstanding |
| 48,429 |
| 47,974 |
|
| 48,621 |
| 48,429 |
| ||||
Net earnings per common share attributable to common shareholders: |
|
|
|
|
| |||||||||
Net earnings per common share allocated to common shareholders: |
|
|
|
|
| |||||||||
Basic |
| $ | 0.22 |
| $ | 0.34 |
|
| $ | 0.03 |
| $ | 0.22 |
|
Diluted |
| $ | 0.21 |
| $ | 0.34 |
|
| $ | 0.03 |
| $ | 0.21 |
|
For the three months ended April 30, 2016 and May 2, 2015, and May 3, 2014, 0.31.2 million and 0.10.3 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, attributable to common shareholders, respectively.
4. Debt
On June 18, 2014, weThe 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, weThe 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 May 2, 2015,April 30, 2016, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make acquisitions and incur additional indebtedness. In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $35.5 million to the Term Loan lenders prior to April 29, 2016. The entire $35.5 million prepayment was made subsequent to the end of the quarter on May 2, 2016.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
We used the net proceeds from the Term Loan, the offering of the Senior Notes and the net proceeds from $340.0 million drawn on the ABL Facility to pay the approximately $1.8 billion purchase price for the acquisition of Jos. A. Bank and to repay all of our obligations under our Third Amended and Restated Credit Agreement, dated as of April 12, 2013 (as amended, the “Previous Credit Agreement”), including $95.0 million outstanding under the Previous Credit Agreement as well as settlement of the then existing interest rate swap.
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 0.28%0.64% at May 2, 2015.April 30, 2016. However, the Term Loan interest rate is subject to a LIBOR floor of 1% per annum, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.50%. In January 2015, we entered into an interest rate swap agreement, to swap variable-rate interestin which the variable rate payments for fixed-rate interest payments ondue under a notional amountportion of $520.0 million, effective in February 2015. The interest rate swap agreement matures in August 2018 and has periodic interest settlements. Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and paythe Term Loan were exchanged for a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount.(see Note 12).
OnIn April 7, 2015, weThe Men’s Wearhouse, Inc. entered into Incremental Facility Agreement No. 1 (the “Incremental Agreement”) resulting in a refinancing of $400.0 million aggregate principal amount of the Term Loan from a variable rate to a fixed rate of 5.0% per annum. The Incremental Agreement did not impact the total amount borrowed under the Term Loan, the maturity date of the Term Loan of June 18, 2021, or collateral and guarantees under the Term Loan. In connection with the Incremental Agreement, we incurred deferred financing costs of $3.6 million, which will be amortized over the life of the remaining term using the interest method. In addition, as a result of entering into the Incremental Agreement, we recorded a loss on extinguishment of debt totaling $12.7 million consisting of the elimination of unamortized deferred financing costs and OID related to the Term Loan, which is included as a separate line in the condensed consolidated statement of earnings.
As a result of the interest rate swap and the Incremental Agreement, we have converted a majority of the variable interest rate under the Term Loan to a fixed rate and, as of May 2, 2015,April 30, 2016, the Term Loan had a weighted average interest rate of 4.93%4.90%.
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 withunder an expansion feature whichthat matures on June 18, 2019, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices: (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate (“CDOR”) rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the federal funds effective rate plus 0.5% or adjusted LIBOR for a one-month period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 2.00%. The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.50% to 2.00%, and a fee on unused commitments which ranges from 0.25% to 0.375%. As of April 30, 2016, there were no borrowings outstanding under the ABL Facility.
We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims. Except forAt April 30, 2016, letters of credit totaling approximately $18.8$21.4 million were issued and outstanding, no amounts were drawn on the ABL Facility as of May 2, 2015 and we have approximately $441.4 million of borrowing availabilityoutstanding. Borrowings available under the ABL Facility as of May 2, 2015.April 30, 2016 were $438.5 million.
Senior Notes
The Senior Notes contain customary non-financial covenants and 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.
We have entered into a registration rights agreement regarding the Senior Notes pursuant to which we agreed, among other things, to use our commercially reasonable efforts to consummate an exchange offer of the Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, on or before July 13, 2015. On May 26, 2015, we commenced the exchange offer which is currently scheduled to expire on June 23, 2015.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Long-Term Debt
The following table provides details on our long-term debt as of April 30, 2016, May 2, 2015 May 3, 2014 and January 31, 201530, 2016 (in thousands):
|
| May 2, |
| May 3, |
| January 31, |
|
| April 30, |
| May 2, |
| January 30, |
| ||||||
|
| 2015 |
| 2014 |
| 2015 |
|
|
|
|
|
|
|
| ||||||
Term Loan (net of unamortized original issue discount of $6.1 million at May 2, 2015 and $10.0 million at January 31, 2015) |
| $ | 1,086,634 |
| $ | — |
| $ | 1,087,232 |
| ||||||||||
Term Loan (net of unamortized OID of $5.1 million at April 30, 2016, $6.1 million at May 2, 2015 and $5.4 million at January 30, 2016 |
| $ | 1,082,392 |
| $ | 1,086,634 |
| $ | 1,083,891 |
| ||||||||||
Senior Notes |
| 600,000 |
| — |
| 600,000 |
|
| 600,000 |
| 600,000 |
| 600,000 |
| ||||||
Term loan under Previous Credit Agreement |
| — |
| 95,000 |
| — |
| |||||||||||||
Total long-term debt |
| 1,686,634 |
| 95,000 |
| 1,687,232 |
| |||||||||||||
Less: Deferred financing costs related to the Term Loan and Senior Notes |
| (26,749 | ) | (31,648 | ) | (27,967 | ) | |||||||||||||
Total long-term debt, net |
| 1,655,643 |
| 1,654,986 |
| 1,655,924 |
| |||||||||||||
Current portion of long-term debt |
| (7,000 | ) | (10,000 | ) | (11,000 | ) |
| (42,451 | ) | (7,000 | ) | (42,451 | ) | ||||||
Total long-term debt, net of current portion |
| $ | 1,679,634 |
| $ | 85,000 |
| $ | 1,676,232 |
|
| $ | 1,613,192 |
| $ | 1,647,986 |
| $ | 1,613,473 |
|
5. Supplemental Cash Flows
Supplemental disclosure of cash flow information is as follows (in thousands):
|
| For the Three Months Ended |
| ||||
|
| May 2, |
| May 3, |
| ||
|
| 2015 |
| 2014 |
| ||
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 25,834 |
| $ | 1,026 |
|
Cash paid (refunded) for income taxes, net |
| $ | 5,030 |
| $ | (6,308 | ) |
|
|
|
|
|
| ||
Schedule of noncash investing and financing activities: |
|
|
|
|
| ||
Cash dividends declared |
| $ | 8,764 |
| $ | 8,725 |
|
|
| For the Three Months Ended |
| ||||
|
| April 30, |
| May 2, |
| ||
|
|
|
|
|
| ||
Cash paid for interest |
| $ | 13,676 |
| $ | 25,834 |
|
Cash (refunded) paid for income taxes, net |
| $ | (60,204 | ) | $ | 5,030 |
|
Schedule of noncash investing and financing activities:
|
|
|
| ||||
Cash dividends declared |
| $ | 9,025 |
| $ | 8,764 |
|
We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $9.9 million and $11.0 million at April 30, 2016 and $8.0 million at May 2, 2015, and May 3, 2014, respectively. Capital expenditure purchases are recorded as cash outflows from investing activities in the condensed consolidated statement of cash flows in the period they are paid.
6. Inventories
The following table provides details on our inventories as of April 30, 2016, May 2, 2015 May 3, 2014 and January 31, 201530, 2016 (in thousands):
|
| May 2, |
| May 3, |
| January 31, |
| ||||||
|
| 2015 |
| 2014 |
| 2015 |
| ||||||
Finished goods |
| $ |
| 952,116 |
| $ |
| 599,403 |
| $ |
| 883,323 |
|
Raw materials and merchandise components |
| 34,341 |
| 46,369 |
| 55,013 |
| ||||||
Total inventories |
| $ |
| 986,457 |
| $ |
| 645,772 |
| $ |
| 938,336 |
|
|
| April 30, |
| May 2, |
| January 30, |
| |||
Finished goods |
| $ | 1,018,401 |
| $ | 952,116 |
| $ | 919,623 |
|
Raw materials and merchandise components |
| 58,332 |
| 34,341 |
| 102,881 |
| |||
|
|
|
|
|
|
|
| |||
Total inventories |
| $ | 1,076,733 |
| $ | 986,457 |
| $ | 1,022,504 |
|
THE MEN’S WEARHOUSE,7. Income Taxes
Our effective income tax rate increased to 63.7% for the first quarter of 2016 from 35.8% for the first quarter of 2015 primarily due to low U.S. book income and the impact of non-recurring true-up items recorded in the first quarter of 2016.
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
7.8. Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes and Other Liabilities
Other current assets consist of the following (in thousands):
|
| May 2, |
| May 3, |
| January 31, |
|
| April 30, |
| May 2, |
| January 30, |
| |||||||||
|
| 2015 |
| 2014 |
| 2015 |
|
|
|
|
|
|
|
| |||||||||
Prepaid expenses |
| $ | 41,995 |
| $ | 39,974 |
| $ | 42,166 |
| |||||||||||||
Tax receivable |
| $ |
| 86,761 |
| $ |
| 3,039 |
| $ |
| 87,916 |
|
| 22,561 |
| 86,761 |
| 85,153 |
| |||
Prepaid expenses |
| 39,974 |
| 35,782 |
| 39,375 |
| ||||||||||||||||
Current deferred tax assets |
| 23,631 |
| 38,536 |
| 23,777 |
|
| — |
| 23,631 |
| — |
| |||||||||
Other |
| 19,912 |
| 7,446 |
| 24,506 |
|
| 13,347 |
| 15,332 |
| 16,227 |
| |||||||||
Total other current assets |
| $ |
| 170,278 |
| $ |
| 84,803 |
| $ |
| 175,574 |
|
| $ | 77,903 |
| $ | 165,698 |
| $ | 143,546 |
|
Accrued expenses and other current liabilities consist of the following (in thousands):
|
| May 2, |
| May 3, |
| January 31, |
| |||
|
| 2015 |
| 2014 |
| 2015 |
| |||
Accrued salary, bonus, sabbatical, vacation and other benefits |
| $ | 69,922 |
| $ | 47,181 |
| $ | 83,515 |
|
Customer deposits, prepayments and refunds payable |
| 59,830 |
| 58,955 |
| 24,540 |
| |||
Unredeemed gift certificates |
| 37,071 |
| 14,242 |
| 39,563 |
| |||
Sales, value added, payroll, property and other taxes payable |
| 36,199 |
| 25,313 |
| 28,765 |
| |||
Accrued workers compensation and medical costs |
| 28,816 |
| 21,862 |
| 28,814 |
| |||
Accrued interest |
| 14,161 |
| 380 |
| 15,715 |
| |||
Cash dividends declared |
| 8,764 |
| 8,725 |
| 8,987 |
| |||
Loyalty program reward certificates |
| 7,293 |
| 6,433 |
| 6,889 |
| |||
Accrued strategic professional fees |
| 4,888 |
| 24,605 |
| 7,566 |
| |||
Other |
| 23,012 |
| 12,756 |
| 24,581 |
| |||
Total accrued expenses and other current liabilities |
| $ | 289,956 |
| $ | 220,452 |
| $ | 268,935 |
|
|
| April 30, |
| May 2, |
| January 30, |
| |||
Customer deposits, prepayments and refunds payable |
| $ | 67,497 |
| $ | 59,830 |
| $ | 25,218 |
|
Accrued salary, bonus, sabbatical, vacation and other benefits |
| 63,774 |
| 69,922 |
| 75,373 |
| |||
Sales, value added, payroll, property and other taxes payable |
| 40,917 |
| 37,527 |
| 27,505 |
| |||
Unredeemed gift certificates |
| 37,712 |
| 37,071 |
| 40,884 |
| |||
Accrued workers compensation and medical costs |
| 29,145 |
| 28,816 |
| 30,877 |
| |||
Accrued interest |
| 27,134 |
| 14,161 |
| 16,282 |
| |||
Loyalty program reward certificates |
| 10,076 |
| 7,293 |
| 9,215 |
| |||
Cash dividends declared |
| 9,025 |
| 8,764 |
| 9,150 |
| |||
Accrued royalties |
| 2,167 |
| — |
| 3,727 |
| |||
Accrued strategic professional fees |
| 325 |
| 4,888 |
| 737 |
| |||
Other |
| 23,272 |
| 23,012 |
| 17,794 |
| |||
|
|
|
|
|
|
|
| |||
Total accrued expenses and other current liabilities |
| $ | 311,044 |
| $ | 291,284 |
| $ | 256,762 |
|
Deferred taxes and other liabilities consist of the following (in thousands):
|
| May 2, |
| May 3, |
| January 31, |
| ||||||
|
| 2015 |
| 2014 |
| 2015 |
| ||||||
Non-current deferred and other income tax liabilities |
| $ |
| 331,728 |
| $ |
| 52,381 |
| $ |
| 328,271 |
|
Deferred rent and landlord incentives |
| 62,737 |
| 55,948 |
| 61,475 |
| ||||||
Unfavorable lease liabilities |
| 11,062 |
| 278 |
| 12,040 |
| ||||||
Other |
| 7,048 |
| 1,089 |
| 7,540 |
| ||||||
Total deferred taxes and other liabilities |
| $ |
| 412,575 |
| $ |
| 109,696 |
| $ |
| 409,326 |
|
April 30, May 2, January 30, Deferred and other income tax liabilities $ 116,115 $ 331,728 $ 112,469 Deferred rent and landlord incentives 66,192 62,737 66,075 Unfavorable lease liabilities 7,465 11,062 8,279 Other 7,344 7,048 7,782 Total deferred taxes and other liabilities $ 197,116 $ 412,575 $ 194,605 11
2016
2015
2016
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
8.9. Accumulated Other Comprehensive (Loss) Income (Loss)
The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended April 30, 2016 (in thousands and net of tax):
|
| Foreign |
| Interest Rate |
| Pension |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — January 30, 2016 |
| $ | (26,659 | ) | $ | (2,007 | ) | $ | 180 |
| $ | (28,486 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss) before reclassifications |
| 16,429 |
| (125 | ) | — |
| 16,304 |
| ||||
Amounts reclassified from accumulated other comprehensive loss |
| — |
| 365 |
| — |
| 365 |
| ||||
Net current-period other comprehensive income |
| 16,429 |
| 240 |
| — |
| 16,669 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — April 30, 2016 |
| $ | (10,230 | ) | $ | (1,767 | ) | $ | 180 |
| $ | (11,817 | ) |
The following table summarizes the components of accumulated other comprehensive (loss) income for the three months ended May 2, 2015 (in thousands and net of tax):
|
| Foreign |
|
|
|
|
|
|
| ||||
|
| Currency |
| Interest Rate |
| Pension |
|
|
| ||||
|
| Translation |
| Swap |
| Plan |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — January 31, 2015 |
| $ | (4,232 | ) | $ | (1,665 | ) | $ | 226 |
| $ | (5,671 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive (loss) income before reclassifications |
| 6,086 |
| (34 | ) | — |
| 6,052 |
| ||||
Amounts reclassified from accumulated other comprehensive income |
| — |
| 408 |
| — |
| 408 |
| ||||
Net current period other comprehensive income |
| 6,086 |
| 374 |
| — |
| 6,460 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE —May 2, 2015 |
| $ | 1,854 |
| $ | (1,291 | ) | $ | 226 |
| $ | 789 |
|
The following table summarizes the components of accumulated other comprehensive income for the three months ended May 3, 2014 (in thousands and net of tax):
|
| Foreign |
|
|
|
|
|
|
| ||||
|
| Currency |
| Interest Rate |
| Pension |
|
|
| ||||
|
| Translation |
| Swap |
| Plan |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — February 1, 2014 |
| $ | 27,710 |
| $ | (399 | ) | $ | — |
| $ | 27,311 |
|
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income before reclassifications |
| 6,180 |
| 19 |
| — |
| 6,199 |
| ||||
Other comprehensive income attributable to non-controlling interest |
| (371 | ) | — |
| — |
| (371 | ) | ||||
Amounts reclassified from accumulated other comprehensive income |
| — |
| 163 |
| — |
| 163 |
| ||||
Net current period other comprehensive income |
| 5,809 |
| 182 |
| — |
| 5,991 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE —May 3, 2014 |
| $ | 33,519 |
| $ | (217 | ) | $ | — |
| $ | 33,302 |
|
|
| Foreign |
| Interest Rate |
| Pension |
| Total |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — January 31, 2015 |
| $ | (4,232 | ) | $ | (1,665 | ) | $ | 226 |
| $ | (5,671 | ) |
|
|
|
|
|
|
|
|
|
| ||||
Other comprehensive income (loss) before reclassifications |
| 6,086 |
| (34 | ) | — |
| 6,052 |
| ||||
Amounts reclassified from accumulated other comprehensive income |
| — |
| 408 |
| — |
| 408 |
| ||||
Net current-period other comprehensive income |
| 6,086 |
| 374 |
| — |
| 6,460 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
BALANCE — May 2, 2015 |
| $ | 1,854 |
| $ | (1,291 | ) | $ | 226 |
| $ | 789 |
|
Amounts reclassified from other comprehensive (loss) income for the three months ended April 30, 2016 and May 2, 2015, and May 3, 2014, respectively, relate to changes in fair value for our interest rate swapsswap, which wereis recorded within interest expense in the condensed consolidated statementsstatement of earnings.
TAILORED BRANDS, INC. AND SUBSIDIARIES
9.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10. Share-Based Compensation Plans
For a discussion of our share-based compensation plans refer to Note 1113 in our Annual Report on Form 10-K for the fiscal year ended January 31, 2015.30, 2016.
We account for share-based awards in accordance with the authoritative guidance regarding share-based payments, which requires the compensation cost resulting from all share-based payment transactions be recognized in the financial statements. The amount of compensation cost is measured based on the grant-date fair value of the instrument issued and is recognized over the vesting period. Share-based compensation expense recognized for the three months ended April 30, 2016 and May 2, 2015 was $4.1 million and May 3, 2014 was $4.5 million, and 4.0 million, respectively.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Non-Vested Deferred Stock Units, Performance Units and Restricted Stock Shares
The following table summarizes the activity of time-based and performance-based awards for the three months ended May 2, 2015:April 30, 2016:
|
|
|
| Weighted-Average |
| ||||||
|
| Shares |
| Grant-Date Fair Value |
| ||||||
|
| Time- |
| Performance- |
| Time- |
| Performance- |
| ||
|
| Based |
| Based |
| Based |
| Based |
| ||
Non-Vested at January 31, 2015 |
| 378,518 |
| 170,789 |
| $ | 42.67 |
| $ | 43.94 |
|
Granted |
| 344,620 |
| 28,660 |
| 52.28 |
| 52.75 |
| ||
Vested(1) |
| (228,837 | ) | (18,977 | ) | 43.81 |
| 46.41 |
| ||
Forfeited |
| (10,529 | ) | (20,000 | ) | 34.58 |
| 33.09 |
| ||
Non-Vested at May 2, 2015 |
| 483,772 |
| 160,472 |
| $ | 49.16 |
| $ | 46.58 |
|
|
| Units |
| Weighted-Average |
| ||||||
|
| Time- |
| Performance- |
| Time- |
| Performance- |
| ||
Non-Vested at January 30, 2016 |
| 478,106 |
| 168,656 |
| $ | 49.60 |
| $ | 47.87 |
|
Granted |
| 705,636 |
| 258,168 |
| 17.43 |
| 17.43 |
| ||
Vested (1) |
| (214,585 | ) | — |
| 49.26 |
| — |
| ||
Forfeited |
| (11,804 | ) | (59,943 | ) | 51.92 |
| 33.72 |
| ||
Non-Vested at April 30, 2016 |
| 957,353 |
| 366,881 |
| $ | 25.94 |
| $ | 28.76 |
|
___________
(1) Includes 85,24771,128 shares relinquished for tax payments related to vested deferred stock units for the three months ended May 2, 2015.April 30, 2016.
On April 3, 2013, our Board of Directors approved a change in the form of award agreements to be issued for grants of deferred stock units (“DSUs”) to participants under our 2004 Long-Term Incentive Plan. As revised, the award agreements provide that dividend equivalents, if any, will be accrued during the vesting period for such DSU awards and paid out only upon vesting of the underlying DSUs. As such, grants of DSU awards on or after April 3, 2013 earn dividends throughout the vesting period which are subject to the same vesting terms as the underlying share award. Grants of DSUs generally vest over a period of three years. DSU awards granted prior to April 3, 2013 are entitled to receive non-forfeitable dividend equivalents, if any, when and if paid to shareholders of record at the payment date. Included in the non-vested time-based awards as of May 2, 2015April 30, 2016 are 17,57611,288 DSUs granted prior to April 3, 2013.
Of the 28,660The performance units granted in the first quarterthree months of 2015, 22,645 units2016 represent a contingent right to receive one shareearn shares of common stock, and vest after our 2017 fiscal year, subject to ourthe achievement of a cumulativeCompany-specific performance target for fiscal years 2015-2017.
The remaining 6,015 performance units granted in the first quarter of 2015 represent a contingent right to receive up to 2.25 shares of common stock and vest after our 2017 fiscal year, subject to our achievement of a performance target for fiscal 2017.2016-2017. Assuming the performance target is achieved, 50% of the numberaward will vest on the two year anniversary of performance units earnedthe grant date and the remaining 50% of the award will be adjusted basedvest on multipliers related to (1) the Company’s adjusted earnings per share for fiscal 2017 and (2)three year anniversary of the Company’s relative total shareholder return (“TSR”) compared to the TSR of certain peer companies over a pre-defined period.
grant date. Performance units that are unvested at the end of the performance period will lapse and be forfeited. The performance units earn dividends throughout the vesting period and are subject to the same vesting terms as the underlying performance-based awards.
Performance-based DSUs granted in April 2014 (“April 2014 performance-based DSUs”) represented a contingent right to receive one share of common stock and vested over a one year period, subject to our achievement of a performance target for 2014. Having met the performance target for 2014, the April 2014 performance-based DSUs vested in accordance with their terms in April 2015.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table summarizes the activity of restricted stock for the three months ended May 2, 2015:April 30, 2016:
|
|
|
| Weighted-Average |
|
| Shares |
| Weighted- |
| ||
|
| Shares |
| Grant-Date Fair Value |
| |||||||
Non-Vested at January 31, 2015 |
| 67,790 |
| $ | 37.05 |
| ||||||
Non-Vested at January 30, 2016 |
| 33,157 |
| $ | 27.93 |
| ||||||
Granted |
| 3,276 |
| 57.23 |
|
| 18,646 |
| 17.37 |
| ||
Vested |
| (22,498 | ) | 30.57 |
|
| — |
| — |
| ||
Forfeited |
| (19,360 | ) | 27.77 |
|
| — |
| — |
| ||
Non-Vested at May 2, 2015 |
| 29,208 |
| $ | 50.47 |
| ||||||
Non-Vested at April 30, 2016 |
| 51,803 |
| $ | 24.13 |
|
Restricted stock awards receive non-forfeitable dividends, if any, when and if paid to shareholders of record at the payment date.
As of May 2, 2015,April 30, 2016, we have unrecognized compensation expense related to non-vested DSUs, performance units, and shares of restricted stock of approximately $27.2$29.3 million, which is expected to be recognized over a weighted-average period of 1.91.8 years.
Stock Options
The following table summarizes the activity of stock options for the three months ended May 2, 2015:April 30, 2016:
|
|
|
| Weighted- |
|
| Shares |
| Weighted- |
| ||
|
| Number of |
| Average |
| |||||||
|
| Shares |
| Exercise Price |
| |||||||
|
|
|
|
|
| |||||||
Options outstanding at January 31, 2015 |
| 660,283 |
| $ | 38.28 |
| ||||||
Outstanding at January 30, 2016 |
| 681,117 |
| $ | 39.65 |
| ||||||
Granted |
| 19,241 |
| 52.50 |
|
| 593,509 |
| 17.43 |
| ||
Exercised |
| (2,500 | ) | 29.87 |
|
| — |
| — |
| ||
Forfeited |
| — |
| — |
|
| (3,051 | ) | 48.31 |
| ||
Expired |
| — |
| — |
|
| — |
| — |
| ||
Outstanding at May 2, 2015 |
| 677,024 |
| $ | 38.72 |
| ||||||
Exercisable at May 2, 2015 |
| 308,187 |
| $ | 32.16 |
| ||||||
Outstanding at April 30, 2016 |
| 1,271,575 |
| $ | 29.26 |
| ||||||
Exercisable at April 30, 2016 |
| 442,155 |
| $ | 36.55 |
|
The weighted-average grant date fair value of the 19,241593,509 stock options granted during the three months ended May 2, 2015April 30, 2016 was $17.24$5.18 per share. The following table summarizes the weighted-average assumptions used to fair value stock options at the date of grant using the Black-Scholes option pricing model for the three months ended May 2, 2015:April 30, 2016:
|
| For the Three | |
|
| ||
|
|
|
|
|
|
| |
Risk-free interest rate | 1.22 | % | |
Expected lives |
| 5.0 years |
|
Dividend yield |
|
| % |
Expected volatility |
|
| % |
As of May 2, 2015,April 30, 2016, we have unrecognized compensation expense related to non-vested stock options of approximately $4.3$5.9 million, which is expected to be recognized over a weighted-average period of 1.81.6 years.
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
10.11. Goodwill and Other Intangible Assets
Goodwill
Goodwill allocated to our reportable segments and changes in the net carrying amount of goodwill for the three months ended May 2, 2015April 30, 2016 are as follows (in thousands):
|
|
|
| Corporate |
|
|
| |||
|
| Retail |
| Apparel |
| Total |
| |||
Balance, January 31, 2015 |
| $ | 861,180 |
| $ | 26,756 |
| $ | 887,936 |
|
Goodwill of acquired business |
| 4,361 |
| — |
| 4,361 |
| |||
Translation adjustment |
| 995 |
| 143 |
| 1,138 |
| |||
Balance, May 2, 2015 |
| $ | 866,536 |
| $ | 26,899 |
| $ | 893,435 |
|
As discussed in Note 2, the preliminary estimates of the fair value of the identifiable assets acquired and liabilities assumed for the Jos. A. Bank acquisition, including goodwill, are not yet final and are subject to revisions until management’s appraisals and estimates are finalized, which may result in adjustments to the preliminary values as reported for the retail reportable segment at May 2, 2015.
|
| Retail |
| Corporate |
| Total |
| |||
Balance at January 30, 2016 |
| $ | 93,201 |
| $ | 25,385 |
| $ | 118,586 |
|
Translation adjustment |
| 2,303 |
| 609 |
| 2,912 |
| |||
Balance at April 30, 2016 |
| $ | 95,504 |
| $ | 25,994 |
| $ | 121,498 |
|
Goodwill is evaluated for impairment at least annually. A more frequent evaluation is performed if events or circumstances indicate that impairment could have occurred. Such events or circumstances could include, but are not limited to, new significant negative industry or economic trends, unanticipated changes in the competitive environment, decisions to significantly modify or dispose of operations and a significant sustained decline in the market price of our stock. No additional impairment evaluation was considered necessary during the first quarter of fiscal 2015.three months ended April 30, 2016.
Intangible Assets
The gross carrying amount and accumulated amortization of our identifiable intangible assets are as follows (in thousands):
|
| May 2, |
| May 3, |
| January 31, |
| |||||||||||||
|
| 2015 |
| 2014 |
| 2015 |
| |||||||||||||
|
|
|
|
|
|
|
|
| April 30, |
| May 2, |
| January 30, |
| ||||||
Amortizable intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Carrying amount: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trademarks and tradenames |
| $ | 16,464 |
| $ | 12,096 |
| $ | 16,448 |
|
| $ | 16,361 |
| $ | 16,464 |
| $ | 16,292 |
|
Favorable leases |
| 24,400 |
| — |
| 24,400 |
|
| 14,562 |
| 24,400 |
| 14,675 |
| ||||||
Customer relationships |
| 84,960 |
| 34,492 |
| 84,788 |
|
| 29,661 |
| 84,960 |
| 29,129 |
| ||||||
Total carrying amount |
| 125,824 |
| 46,588 |
| 125,636 |
|
| 60,584 |
| 125,824 |
| 60,096 |
| ||||||
Accumulated amortization: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trademarks and tradenames |
| (9,445 | ) | (9,090 | ) | (9,331 | ) |
| (9,857 | ) | (9,445 | ) | (9,728 | ) | ||||||
Favorable leases |
| (2,636 | ) | — |
| (1,883 | ) |
| (3,057 | ) | (2,636 | ) | (2,739 | ) | ||||||
Customer relationships |
| (19,120 | ) | (10,882 | ) | (16,468 | ) |
| (14,213 | ) | (19,120 | ) | (13,459 | ) | ||||||
Total accumulated amortization |
| (31,201 | ) | (19,972 | ) | (27,682 | ) |
| (27,127 | ) | (31,201 | ) | (25,926 | ) | ||||||
Total amortizable intangible assets, net |
| 94,623 |
| 26,616 |
| 97,954 |
|
| 33,457 |
| 94,623 |
| 34,170 |
| ||||||
Indefinite-lived intangible assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Trademarks and tradename |
| 570,312 |
| 31,350 |
| 570,305 |
| |||||||||||||
Trademarks and tradename, net |
| 144,369 |
| 570,312 |
| 144,340 |
| |||||||||||||
Total intangible assets, net |
| $ | 664,935 |
| $ | 57,966 |
| $ | 668,259 |
|
| $ | 177,826 |
| $ | 664,935 |
| $ | 178,510 |
|
The pretaxPre-tax amortization expense associated with intangible assets subject to amortization totaled $3.4$1.3 million and $0.8$3.4 million for the three months ended April 30, 2016 and May 2, 2015, and May 3, 2014, respectively. PretaxPre-tax amortization associated with intangible assets subject to amortization at May 2, 2015April 30, 2016 is estimated to be $10.3$3.4 million for the remainder of fiscal year 2015, $13.7 million for each of the fiscal years 2016, and 2017, and $13.6$4.4 million for fiscal year2017, $4.1 million for fiscal 2018, $3.9 million for fiscal 2019 and 2019.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES$3.8 million for fiscal 2020.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
11.12. Derivative Financial Instruments
As discussed in Note 4, in January 2015, we entered into an interest rate swap agreement on a notional amount of $520.0 million that matures in August 2018 with periodic interest settlements. At April 30, 2016, the notional amount totaled $450.0 million. Under this interest rate swap agreement, we receive a floating rate based on 3-month LIBOR and pay a fixed rate of 5.03% (including the applicable margin of 3.50%) on the outstanding notional amount. We have designated the interest rate swap as a cash flow hedge of the variability of interest payments under the Term Loan due to changes in the LIBOR benchmark interest rate. At May 2, 2015,April 30, 2016, the fair value of the interest rate swap was a net liability of $2.1$2.9 million with $2.4$2.1 million recorded in accrued expenses and other current liabilities and $0.3$0.8 million in other assetsliabilities in our consolidated balance sheet. The effective portion of the swap is reported as a component of accumulated other comprehensive (loss) income. There was no hedge ineffectiveness at May 2, 2015.April 30, 2016. Changes in fair value are reclassified from accumulated other comprehensive (loss) income into earnings in the same period that the hedged item affects earnings.
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Over the next 12 months, $2.4$2.1 million of the effective portion of the interest rate swap is expected to be reclassified from accumulated other comprehensive (loss) income into earnings. If, at any time, the interest rate swap is determined to be ineffective, in whole or in part, due to changes in the interest rate swap or underlying debt agreements, the fair value of the portion of the interest rate swap determined to be ineffective will be recognized as a gain or loss in the statement of earnings for the applicable period.
12.13. 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. There were no transfers into or out of Level 1 and Level 2 during the three months ended May 2, 2015.
Fair Value of Financial Instruments
Our financial instruments consist of cash, accounts receivable, accounts payable, accrued expenses and other current liabilities and long-term debt. Management estimates that, as of April 30, 2016, May 2, 2015, May 3, 2014, and January 31, 2015,30, 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 and the term loan under the Previous Credit Agreement 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. TheBeginning 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 classifyclassified 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 maturitiesportion (in thousands):
|
| May 2, 2015 |
| May 3, 2014 |
| January 31, 2015 |
| ||||||||||||
|
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| Carrying |
| Estimated |
| ||||||
|
| Amount |
| Fair Value |
| Amount |
| Fair Value |
| Amount |
| Fair Value |
| ||||||
Long-term debt, including current maturities |
| $ | 1,686,634 |
| $ | 1,737,050 |
| $ | 95,000 |
| $ | 95,000 |
| $ | 1,687,232 |
| $ | 1,706,546 |
|
|
| April 30, 2016 |
| May 2, 2015 |
| January 30, 2016 |
| ||||||||||||
|
| Carrying |
| Estimated Fair |
| Carrying |
| Estimated Fair |
| Carrying |
| Estimated Fair |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Long-term debt, including current portion |
| $ | 1,655,643 |
| $ | 1,583,132 |
| $ | 1,654,986 |
| $ | 1,737,050 |
| $ | 1,655,924 |
| $ | 1,410,651 |
|
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES14. Segment Reporting
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
13. Segment ReportingIn the first quarter of 2016, we revised our segment reporting presentation to reflect changes in how we manage our business, including resource allocation and performance assessment. Specifically, we are presenting expenses related to our shared services platform separate from the results of our operating segments to promote enhanced comparability of our operating segments. Previously, these shared service expenses were primarily included in our retail segment. Comparable prior period information has been recast to reflect our revised segment presentation.
Our operations are conducted in two reportable segments, retail and corporate apparel, based on the way we manage, evaluate and internally report our business activities.
The retail segment includes the results from our four retail merchandising brands: Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank, Moores Clothing for Men (“Moores”) and K&G. These four brands are operating segments that have been aggregated into the retail reportable segment. MW Cleaners is also aggregated in the retail segment as these operations have not had a significant effect on our revenues or expenses. Specialty apparel merchandise offered by our four retail merchandising concepts include suits, suit separates, sport coats, slacks, business casual, sportswear, outerwear, dress and
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
casual shirts, shoes and accessories for men. Ladies’ career apparel, sportswear and accessories, including shoes, andas well as children’s apparel is also offered at most of our K&G stores. Tuxedo and suit rentals are offered at our Men’s Wearhouse/Men’s Wearhouse and Tux, Jos. A. Bank and Moores retail stores and tuxedo shops within Macy’s stores.
The corporate apparel segment includes the results from our corporate apparel and uniform operations conducted by Twin Hill in the U.S. and Dimensions, Alexandra, and Yaffy in the United Kingdom (“UK”). The two corporate apparel and uniform concepts are operating segments that have been aggregated into the reportable corporate apparel segment. The corporate apparel segment provides corporate clothing uniforms and workwear to workforces.
We measure segment profitability based on operating income, defined as income before interest expense, interest income and income taxes, before shared service expenses. Shared service expenses include costs incurred and non-controlling interest. Corporate expenses and assetsdirected primarily by our corporate offices that are not allocated to the retail segment.segments.
Net sales by brand and reportable segment are as follows (in thousands):
|
| For the Three Months Ended |
| |||||||||||
|
| May 2, |
| May 3, |
|
| For the Three Months Ended |
| ||||||
|
| 2015 |
| 2014 |
|
| April 30, 2016 |
| May 2, 2015 |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
| ||||
MW (1) |
| $ | 456,376 |
| $ | 420,979 |
|
| $ | 441,646 |
| $ | 456,376 |
|
Jos. A. Bank |
| 216,062 |
| — |
|
| 178,450 |
| 216,062 |
| ||||
K&G |
| 94,759 |
| 95,996 |
| |||||||||
Moores |
| 47,520 |
| 52,502 |
|
| 43,229 |
| 47,520 |
| ||||
K&G |
| 95,996 |
| 92,421 |
| |||||||||
MW Cleaners |
| 8,317 |
| 7,747 |
|
| 8,158 |
| 8,317 |
| ||||
Total retail segment |
| 824,271 |
| 573,649 |
|
| 766,242 |
| 824,271 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Dimensions and Alexandra (UK) |
| 53,542 |
| 52,240 |
| |||||||||
Twin Hill |
| 8,578 |
| 8,244 |
|
| 9,038 |
| 8,578 |
| ||||
Dimensions and Alexandra (UK) |
| 52,240 |
| 48,581 |
| |||||||||
Total corporate apparel segment |
| 60,818 |
| 56,825 |
|
| 62,580 |
| 60,818 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total net sales |
| $ | 885,089 |
| $ | 630,474 |
|
| $ | 828,822 |
| $ | 885,089 |
|
(1)MW includes Men’s Wearhouse andstores, Men’s Wearhouse and Tux stores, Joseph Abboud store, tuxedo shops within Macy’s and JA Holding.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The following table sets forth supplemental products and services sales information for the Company (in thousands):
|
| For the Three Months Ended |
| |||||||||||
|
| May 2, |
| May 3, |
|
| For the Three Months Ended |
| ||||||
|
| 2015 |
| 2014 |
|
| April 30, 2016 |
| May 2, 2015 |
| ||||
Net sales: |
|
|
|
|
|
|
|
|
|
| ||||
Men’s tailored clothing product |
| $ | 386,336 |
| $ | 239,436 |
|
| $ | 349,528 |
| $ | 386,336 |
|
Men’s non-tailored clothing product |
| 256,010 |
| 171,106 |
|
| 241,933 |
| 256,010 |
| ||||
Ladies clothing product |
| 21,632 |
| 20,851 |
| |||||||||
Ladies’ clothing product |
| 21,846 |
| 21,632 |
| |||||||||
Other |
| 2,884 |
| 1,631 |
|
| 2,361 |
| 2,884 |
| ||||
Total retail clothing product |
| 666,862 |
| 433,024 |
|
| 615,668 |
| 666,862 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Tuxedo rental services |
| 103,129 |
| 101,663 |
| |||||||||
Rental services |
| 99,831 |
| 103,129 |
| |||||||||
|
|
|
|
|
|
|
|
|
|
| ||||
Alteration services |
| 45,963 |
| 31,215 |
|
| 42,585 |
| 45,963 |
| ||||
Retail dry cleaning services |
| 8,317 |
| 7,747 |
|
| 8,158 |
| 8,317 |
| ||||
Total alteration and other services |
| 54,280 |
| 38,962 |
|
| 50,743 |
| 54,280 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Corporate apparel clothing product |
| 60,818 |
| 56,825 |
|
| 62,580 |
| 60,818 |
| ||||
|
|
|
|
|
|
|
|
|
|
| ||||
Total net sales |
| $ | 885,089 |
| $ | 630,474 |
|
| $ | 828,822 |
| $ | 885,089 |
|
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Operating income by reportable segment and the reconciliation to earnings before income taxes is as follows (in thousands):
|
| For the Three Months Ended |
| |||||||||||
|
| May 2, |
| May 3, |
|
| For the Three Months Ended |
| ||||||
|
| 2015 |
| 2014 |
|
| April 30, 2016 |
| May 2, 2015 |
| ||||
Operating income: |
|
|
|
|
|
|
|
|
|
| ||||
Retail |
| $ | 54,033 |
| $ | 26,525 |
|
| $ | 79,877 |
| $ | 95,306 |
|
Corporate apparel |
| 1,256 |
| 756 |
|
| 2,054 |
| 1,312 |
| ||||
Operating income |
| 55,289 |
| 27,281 |
|
| 81,931 |
| 96,618 |
| ||||
Shared service expense |
| (50,936 | ) | (41,329 | ) | |||||||||
Interest income |
| 28 |
| 61 |
|
| 13 |
| 28 |
| ||||
Interest expense |
| (26,483 | ) | (1,135 | ) |
| (26,502 | ) | (26,483 | ) | ||||
Loss on extinguishment of debt |
| (12,675 | ) | — |
|
| — |
| (12,675 | ) | ||||
Earnings before income taxes |
| $ | 16,159 |
| $ | 26,207 |
|
| $ | 4,506 |
| $ | 16,159 |
|
As a result of our revised segment presentation, total assets for our reportable segments have changed. There were no changes to consolidated total assets. Total assets by reportable segment are as follows (in thousands):
|
| April 30, |
| May 2, |
| January 30, |
| |||
Segment assets: |
|
|
|
|
|
|
| |||
Retail |
| $ | 1,769,230 |
| $ | 2,969,047 |
| $ | 1,705,728 |
|
Corporate apparel |
| 238,293 |
| 212,145 |
| 211,820 |
| |||
Shared services(1) |
| 269,298 |
| 390,259 |
| 326,771 |
| |||
Total assets |
| $ | 2,276,821 |
| $ | 3,571,451 |
| $ | 2,244,319 |
|
(1) Shared service assets consist primarily of cash and cash equivalents, assets related to our distribution network and tax-related assets.
14.15. Legal Matters
On July 30, 2013, Matthew B. Johnson, et al., on behalf of themselves and all Ohio residents similarly situated (the “Johnson Plaintiffs”),March 29, 2016, Peter Makhlouf filed a putative class action Complaintlawsuit against Jos. A. Bankthe Company and its Chief Executive Officer (“CEO”), Douglas S. Ewert, in the U.S.United States District Court for the Southern District of Ohio, Eastern DistrictTexas (Case No. 2:13-cv-756)4:16-cv-00838). The Complaint alleges, among other things, deceptive salescomplaint attempts to allege claims under Sections 10(b) and marketing practices by Jos. A. Bank relating to its use20(a) of the words “free”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 “regular price.” The Complaint seeks, among other relief, class certification, compensatory damages, declaratory relief, injunctive reliefDecember 9, 2015. In particular, the complaint alleges that the Company and costsits CEO made certain statements about the Company’s acquisition and disbursements (including attorneys’ fees). Upon the motionsubsequent integration of Jos. A. Bank that were false and misleading and omitted material facts. We believe that the U.S. District Court dismissed the Complaint,claims are without prejudice,merit and the Johnson Plaintiffs filed a First Amended Class Action Complaint in the same U.S. District Court making substantially the same allegations as in the original Complaint. On February 21, 2014, Jos. A. Bank filed a motion to dismiss and, on August 19, 2014, the Court dismissed the class claims and certain other breach of contract claims. We intend to vigorously defend against the remaining claims.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 December 2013, Jos. A. Bank received a subpoena from the Ohio Attorney General requiring the production of certain information relating to its advertising and marketing practices. Jos. A. Bank produced information in response to the subpoena, cooperated with further information requests and is having ongoing communications with the Ohio Attorney General’s office. The range of loss, if any, is not reasonably estimable at this time. We do not believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
On July 9, 2014, David Lucas and Eric Salerno, on behalf of themselves and all California residents similarly situated, filed a putative class action Complaint against Jos. A. Bank in the U.S. District Court for Southern California (Case No. ‘14CV1631LAB JLB). The Complaint alleges, among other things, that Jos. A. Bank violated the California Unfair Competition Law and the California Consumers Legal Remedies Act with its comparative price advertising, price discounts and free apparel promotions. The Complaint seeks, among other relief, certification of the case as a class action, permanent injunction, actual and compensatory damages, restitution including disgorgement of profits and unjust enrichment, costs and attorney fees. We believe that the claims are without merit and intend to vigorously defend the case. The range of loss, if any, is not reasonably estimable at this time. We do not currently believe, however, that it will have a material adverse effect on our financial position, results of operations or cash flows.
In addition, we are involved in various routine legal proceedings, including ongoing litigation, incidental to the conduct of our business. Management does not believe that any of these matters will have a material adverse effect on our financial position, results of operations or cash flows.
TAILORED BRANDS, INC. AND SUBSIDIARIES
15.NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
16. Condensed Consolidating Information
As discussed in Note 4, The Men’s Wearhouse, Inc. (the “Issuer”) issued $600.0 million in aggregate principal amount of 7.00% Senior Notes. The Senior Notes are guaranteed jointly and severally, on an unsecured basis by Tailored Brands, Inc. (the “Parent”) and certain of our U.S. subsidiaries (collectively, the(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.
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Men’s Wearhouse,Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
May 2, 2015April 30, 2016
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Wearhouse Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 21,889 |
| $ | 4,798 |
| $ | 35,115 |
| $ | — |
| $ | 61,802 |
|
Accounts receivable, net |
| 31,050 |
| 367,908 |
| 37,016 |
| (352,805 | ) | 83,169 |
| |||||
Inventories |
| 251,227 |
| 582,638 |
| 152,592 |
| — |
| 986,457 |
| |||||
Other current assets |
| 110,398 |
| 50,749 |
| 9,131 |
| — |
| 170,278 |
| |||||
Total current assets |
| 414,564 |
| 1,006,093 |
| 233,854 |
| (352,805 | ) | 1,301,706 |
| |||||
Property, plant and equipment, net |
| 307,618 |
| 212,451 |
| 40,072 |
| — |
| 560,141 |
| |||||
Tuxedo rental product, net |
| 112,303 |
| 15,474 |
| 18,273 |
| — |
| 146,050 |
| |||||
Goodwill |
| 6,160 |
| 838,830 |
| 48,445 |
| — |
| 893,435 |
| |||||
Intangible assets, net |
| 266 |
| 642,659 |
| 22,010 |
| — |
| 664,935 |
| |||||
Investments in subsidiaries |
| 2,436,438 |
| — |
| — |
| (2,436,438 | ) | — |
| |||||
Other assets |
| 69,272 |
| 875 |
| 9,417 |
| (42,732 | ) | 36,832 |
| |||||
Total assets |
| $ | 3,346,621 |
| $ | 2,716,382 |
| $ | 372,071 |
| $ | (2,831,975 | ) | $ | 3,603,099 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
| $ | 421,947 |
| $ | 114,764 |
| $ | 49,160 |
| $ | (352,805 | ) | $ | 233,066 |
|
Accrued expenses and other current liabilities |
| 174,239 |
| 93,061 |
| 23,984 |
| — |
| 291,284 |
| |||||
Current maturities of long-term debt |
| 7,000 |
| — |
| — |
| — |
| 7,000 |
| |||||
Total current liabilities |
| 603,186 |
| 207,825 |
| 73,144 |
| (352,805 | ) | 531,350 |
| |||||
Long-term debt |
| 1,679,634 |
| — |
| 33,432 |
| (33,432 | ) | 1,679,634 |
| |||||
Deferred taxes and other liabilities |
| 84,261 |
| 326,135 |
| 11,479 |
| (9,300 | ) | 412,575 |
| |||||
Shareholders’ equity |
| 979,540 |
| 2,182,422 |
| 254,016 |
| (2,436,438 | ) | 979,540 |
| |||||
Total liabilities and shareholders’ equity |
| $ | 3,346,621 |
| $ | 2,716,382 |
| $ | 372,071 |
| $ | (2,831,975 | ) | $ | 3,603,099 |
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | — |
| $ | 7,950 |
| $ | 3,231 |
| $ | 25,248 |
| $ | — |
| $ | 36,429 |
|
Accounts receivable, net |
| — |
| 17,235 |
| 293,596 |
| 35,703 |
| (263,201 | ) | 83,333 |
| ||||||
Inventories |
| — |
| 211,358 |
| 714,712 |
| 150,663 |
| — |
| 1,076,733 |
| ||||||
Other current assets |
| 9,769 |
| 41,038 |
| 18,629 |
| 8,467 |
| — |
| 77,903 |
| ||||||
Total current assets |
| 9,769 |
| 277,581 |
| 1,030,168 |
| 220,081 |
| (263,201 | ) | 1,274,398 |
| ||||||
Property, plant and equipment, net |
| — |
| 252,683 |
| 228,714 |
| 39,747 |
| — |
| 521,144 |
| ||||||
Rental product, net |
| — |
| 141,427 |
| 13,990 |
| 18,823 |
| — |
| 174,240 |
| ||||||
Goodwill |
| — |
| 6,160 |
| 68,510 |
| 46,828 |
| — |
| 121,498 |
| ||||||
Intangible assets, net |
| — |
| 159 |
| 159,051 |
| 18,616 |
| — |
| 177,826 |
| ||||||
Investments in subsidiaries |
| (88,520 | ) | 1,447,307 |
| — |
| — |
| (1,358,787 | ) | — |
| ||||||
Other assets |
| — |
| 6,637 |
| 952 |
| 8,226 |
| (8,100 | ) | 7,715 |
| ||||||
Total assets |
| $ | (78,751 | ) | $ | 2,131,954 |
| $ | 1,501,385 |
| $ | 352,321 |
| $ | (1,630,088 | ) | $ | 2,276,821 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | — |
| $ | 310,830 |
| $ | 113,982 |
| $ | 41,637 |
| $ | (263,201 | ) | $ | 203,248 |
|
Accrued expenses and other current liabilities |
| 9,129 |
| 184,955 |
| 90,879 |
| 26,081 |
| — |
| 311,044 |
| ||||||
Current portion of long-term debt |
| — |
| 42,451 |
| — |
| — |
| — |
| 42,451 |
| ||||||
Total current liabilities |
| 9,129 |
| 538,236 |
| 204,861 |
| 67,718 |
| (263,201 | ) | 556,743 |
| ||||||
Long-term debt, net |
| — |
| 1,613,192 |
| — |
| — |
| — |
| 1,613,192 |
| ||||||
Deferred taxes and other liabilities |
| 2,350 |
| 69,046 |
| 122,428 |
| 11,392 |
| (8,100 | ) | 197,116 |
| ||||||
Shareholders’ (deficit) equity |
| (90,230 | ) | (88,520 | ) | 1,174,096 |
| 273,211 |
| (1,358,787 | ) | (90,230 | ) | ||||||
Total liabilities and shareholders’ (deficit) equity |
| $ | (78,751 | ) | $ | 2,131,954 |
| $ | 1,501,385 |
| $ | 352,321 |
| $ | (1,630,088 | ) | $ | 2,276,821 |
|
The Men’s Wearhouse, Inc.
Condensed Consolidating Balance Sheet
May 3, 2014
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Wearhouse Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
| |||||
Cash and cash equivalents |
| $ | 50,675 |
| $ | 1,738 |
| $ | 43,510 |
| $ | — |
| $ | 95,923 |
|
Accounts receivable, net |
| 21,317 |
| 61,146 |
| 37,186 |
| (51,871 | ) | 67,778 |
| |||||
Inventories |
| 265,318 |
| 229,042 |
| 151,412 |
| — |
| 645,772 |
| |||||
Other current assets |
| 61,932 |
| 14,453 |
| 8,418 |
| — |
| 84,803 |
| |||||
Total current assets |
| 399,242 |
| 306,379 |
| 240,526 |
| (51,871 | ) | 894,276 |
| |||||
Property, plant and equipment, net |
| 304,381 |
| 62,060 |
| 40,343 |
| — |
| 406,784 |
| |||||
Tuxedo rental product, net |
| 117,186 |
| 8,831 |
| 22,103 |
| — |
| 148,120 |
| |||||
Goodwill |
| 7,564 |
| 65,720 |
| 53,814 |
| — |
| 127,098 |
| |||||
Intangible assets, net |
| 374 |
| 30,000 |
| 27,592 |
| — |
| 57,966 |
| |||||
Investments in subsidiaries |
| 590,196 |
| — |
| — |
| (590,196 | ) | — |
| |||||
Other assets |
| 66,195 |
| 363 |
| 10,582 |
| (70,406 | ) | 6,734 |
| |||||
Total assets |
| $ | 1,485,138 |
| $ | 473,353 |
| $ | 394,960 |
| $ | (712,473 | ) | $ | 1,640,978 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
| |||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Accounts payable |
| $ | 79,674 |
| $ | 99,551 |
| $ | 41,472 |
| $ | (51,871 | ) | $ | 168,826 |
|
Accrued expenses and other current liabilities |
| 176,450 |
| 22,499 |
| 25,780 |
| — |
| 224,729 |
| |||||
Current maturities of long-term debt |
| 10,000 |
| — |
| — |
| — |
| 10,000 |
| |||||
Total current liabilities |
| 266,124 |
| 122,050 |
| 67,252 |
| (51,871 | ) | 403,555 |
| |||||
Long-term debt |
| 85,000 |
| — |
| 59,906 |
| (59,906 | ) | 85,000 |
| |||||
Deferred taxes and other liabilities |
| 91,287 |
| 15,867 |
| 13,042 |
| (10,500 | ) | 109,696 |
| |||||
Shareholders’ equity |
| 1,042,727 |
| 335,436 |
| 254,760 |
| (590,196 | ) | 1,042,727 |
| |||||
Total liabilities and shareholders’ equity |
| $ | 1,485,138 |
| $ | 473,353 |
| $ | 394,960 |
| $ | (712,473 | ) | $ | 1,640,978 |
|
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Men’s Wearhouse,Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
January 31,30, 2016
(in thousands)
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Cash and cash equivalents |
| $ | — |
| $ | 724 |
| $ | 2,243 |
| $ | 27,013 |
| $ | — |
| $ | 29,980 |
|
Accounts receivable, net |
| — |
| 23,067 |
| 392,944 |
| 29,845 |
| (381,966 | ) | 63,890 |
| ||||||
Inventories |
| — |
| 253,472 |
| 630,407 |
| 138,625 |
| — |
| 1,022,504 |
| ||||||
Other current assets |
| 19,037 |
| 79,964 |
| 36,308 |
| 8,237 |
| — |
| 143,546 |
| ||||||
Total current assets |
| 19,037 |
| 357,227 |
| 1,061,902 |
| 203,720 |
| (381,966 | ) | 1,259,920 |
| ||||||
Property, plant and equipment, net |
| — |
| 254,335 |
| 230,209 |
| 37,280 |
| — |
| 521,824 |
| ||||||
Rental product, net |
| — |
| 124,468 |
| 16,224 |
| 16,768 |
| — |
| 157,460 |
| ||||||
Goodwill |
| — |
| 6,160 |
| 68,510 |
| 43,916 |
| — |
| 118,586 |
| ||||||
Intangible assets, net |
| — |
| 186 |
| 159,530 |
| 18,794 |
| — |
| 178,510 |
| ||||||
Investments in subsidiaries |
| (109,188 | ) | 1,439,187 |
| — |
| — |
| (1,329,999 | ) | — |
| ||||||
Other assets |
| — |
| 6,914 |
| 992 |
| 8,513 |
| (8,400 | ) | 8,019 |
| ||||||
Total assets |
| $ | (90,151 | ) | $ | 2,188,477 |
| $ | 1,537,367 |
| $ | 328,991 |
| $ | (1,720,365 | ) | $ | 2,244,319 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
LIABILITIES AND SHAREHOLDERS’ (DEFICIT) EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Accounts payable |
| $ | — |
| $ | 419,187 |
| $ | 153,717 |
| $ | 46,176 |
| $ | (381,966 | ) | $ | 237,114 |
|
Accrued expenses and other current liabilities |
| 7,602 |
| 154,014 |
| 75,676 |
| 19,470 |
| — |
| 256,762 |
| ||||||
Current portion of long-term debt |
| — |
| 42,451 |
| — |
| — |
| — |
| 42,451 |
| ||||||
Total current liabilities |
| 7,602 |
| 615,652 |
| 229,393 |
| 65,646 |
| (381,966 | ) | 536,327 |
| ||||||
Long-term debt, net |
| — |
| 1,613,473 |
| — |
| — |
| — |
| 1,613,473 |
| ||||||
Deferred taxes and other liabilities |
| 2,333 |
| 68,540 |
| 121,531 |
| 10,601 |
| (8,400 | ) | 194,605 |
| ||||||
Shareholders’ (deficit) equity |
| (100,086 | ) | (109,188 | ) | 1,186,443 |
| 252,744 |
| (1,329,999 | ) | (100,086 | ) | ||||||
Total liabilities and shareholders’ (deficit) equity |
| $ | (90,151 | ) | $ | 2,188,477 |
| $ | 1,537,367 |
| $ | 328,991 |
| $ | (1,720,365 | ) | $ | 2,244,319 |
|
TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Tailored Brands, Inc.
Condensed Consolidating Balance Sheet
May 2, 2015
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| |||||||||||
|
| Wearhouse Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||||||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
CURRENT ASSETS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Cash and cash equivalents |
| $ | 18,262 |
| $ | 4,857 |
| $ | 39,142 |
| $ | — |
| $ | 62,261 |
|
| $ | — |
| $ | 21,889 |
| $ | 4,798 |
| $ | 35,115 |
| $ | — |
| $ | 61,802 |
|
Accounts receivable, net |
| 20,304 |
| 422,930 |
| 35,303 |
| (405,271 | ) | 73,266 |
|
| — |
| 22,121 |
| 376,837 |
| 37,016 |
| (352,805 | ) | 83,169 |
| |||||||||||
Inventories |
| 285,309 |
| 510,651 |
| 142,376 |
| — |
| 938,336 |
|
| — |
| 251,227 |
| 582,638 |
| 152,592 |
| — |
| 986,457 |
| |||||||||||
Other current assets |
| 111,272 |
| 58,792 |
| 5,510 |
| — |
| 175,574 |
|
| 22,672 |
| 90,661 |
| 43,234 |
| 9,131 |
| — |
| 165,698 |
| |||||||||||
Total current assets |
| 435,147 |
| 997,230 |
| 222,331 |
| (405,271 ) |
| 1,249,437 |
|
| 22,672 |
| 385,898 |
| 1,007,507 |
| 233,854 |
| (352,805 | ) | 1,297,126 |
| |||||||||||
Property, plant and equipment, net |
| 306,597 |
| 221,454 |
| 38,023 |
| — |
| 566,074 |
|
| — |
| 272,982 |
| 247,087 |
| 40,072 |
| — |
| 560,141 |
| |||||||||||
Tuxedo rental product, net |
| 107,908 |
| 8,318 |
| 16,446 |
| — |
| 132,672 |
| ||||||||||||||||||||||||
Rental product, net |
| — |
| 112,303 |
| 15,474 |
| 18,273 |
| — |
| 146,050 |
| ||||||||||||||||||||||
Goodwill |
| 6,159 |
| 834,470 |
| 47,307 |
| — |
| 887,936 |
|
| — |
| 6,160 |
| 838,830 |
| 48,445 |
| — |
| 893,435 |
| |||||||||||
Intangible assets, net |
| 293 |
| 645,388 |
| 22,578 |
| — |
| 668,259 |
|
| — |
| 266 |
| 642,659 |
| 22,010 |
| — |
| 664,935 |
| |||||||||||
Investments in subsidiaries |
| 2,405,680 |
| — |
| — |
| (2,405,680 | ) | — |
|
| 965,431 |
| 2,458,986 |
| — |
| — |
| (3,424,417 | ) | — |
| |||||||||||
Other assets |
| 75,060 |
| 681 |
| 9,671 |
| (43,032 | ) | 42,380 |
|
| — |
| 34,279 |
| 8,800 |
| 9,417 |
| (42,732 | ) | 9,764 |
| |||||||||||
Total assets |
| $ | 3,336,844 |
| $ | 2,707,541 |
| $ | 356,356 |
| $ | (2,853,983 | ) | $ | 3,546,758 |
|
| $ | 988,103 |
| $ | 3,270,874 |
| $ | 2,760,357 |
| $ | 372,071 |
| $ | (3,819,954 | ) | $ | 3,571,451 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
LIABILITIES AND SHAREHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
CURRENT LIABILITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||
Accounts payable |
| $ | 449,102 |
| $ | 120,499 |
| $ | 45,537 |
| $ | (405,271 | ) | $ | 209,867 |
|
| $ | — |
| $ | 392,705 |
| $ | 144,006 |
| $ | 49,160 |
| $ | (352,805 | ) | $ | 233,066 |
|
Accrued expenses and other current liabilities |
| 145,943 |
| 101,363 |
| 23,238 |
| — |
| 270,544 |
|
| 8,563 |
| 173,491 |
| 85,246 |
| 23,984 |
| — |
| 291,284 |
| |||||||||||
Current maturities of long-term debt |
| 11,000 |
| — |
| — |
| — |
| 11,000 |
| ||||||||||||||||||||||||
Current portion of long-term debt |
| — |
| 7,000 |
| — |
| — |
| — |
| 7,000 |
| ||||||||||||||||||||||
Total current liabilities |
| 606,045 |
| 221,862 |
| 68,775 |
| (405,271 | ) | 491,411 |
|
| 8,563 |
| 573,196 |
| 229,252 |
| 73,144 |
| (352,805 | ) | 531,350 |
| |||||||||||
Long-term debt |
| 1,676,232 |
| — |
| 33,432 |
| (33,432 | ) | 1,676,232 |
| ||||||||||||||||||||||||
Long-term debt, net |
| — |
| 1,647,986 |
| — |
| 33,432 |
| (33,432 | ) | 1,647,986 |
| ||||||||||||||||||||||
Deferred taxes and other liabilities |
| 84,778 |
| 323,376 |
| 10,772 |
| (9,600 | ) | 409,326 |
|
| — |
| 84,261 |
| 326,135 |
| 11,479 |
| (9,300 | ) | 412,575 |
| |||||||||||
Shareholders’ equity |
| 969,789 |
| 2,162,303 |
| 243,377 |
| (2,405,680 | ) | 969,789 |
|
| 979,540 |
| 965,431 |
| 2,204,970 |
| 254,016 |
| (3,424,417 | ) | 979,540 |
| |||||||||||
Total liabilities and shareholders’ equity |
| 3,336,844 |
| $ | 2,707,541 |
| $ | 356,356 |
| $ | (2,853,983 | ) | $ | 3,546,758 |
|
| $ | 988,103 |
| $ | 3,270,874 |
| $ | 2,760,357 |
| $ | 372,071 |
| $ | (3,819,954 | ) | $ | 3,571,451 |
|
TAILORED BRANDS, INC. AND SUBSIDIARIES
The Men’s Wearhouse,NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
For the Three Months Ended April 30, 2016
(in thousands)
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net sales |
| $ | — |
| $ | 440,498 |
| $ | 403,227 |
| $ | 96,770 |
| $ | (111,673 | ) | $ | 828,822 |
|
Cost of sales |
| — |
| 220,547 |
| 305,394 |
| 62,713 |
| (111,673 | ) | 476,981 |
| ||||||
Gross margin |
| — |
| 219,951 |
| 97,833 |
| 34,057 |
| — |
| 351,841 |
| ||||||
Operating expenses |
| 717 |
| 148,487 |
| 156,913 |
| 28,415 |
| (13,686 | ) | 320,846 |
| ||||||
Operating (loss) income |
| (717 | ) | 71,464 |
| (59,080 | ) | 5,642 |
| 13,686 |
| 30,995 |
| ||||||
Other income and expenses, net |
| — |
| — |
| 13,686 |
| — |
| (13,686 | ) | — |
| ||||||
Interest income |
| 2 |
| 5 |
| 307 |
| 8 |
| (309 | ) | 13 |
| ||||||
Interest expense |
| — |
| (26,688 | ) | (11 | ) | (112 | ) | 309 |
| (26,502 | ) | ||||||
(Loss) earnings before income taxes |
| (715 | ) | 44,781 |
| (45,098 | ) | 5,538 |
| — |
| 4,506 |
| ||||||
(Benefit) provision for income taxes |
| (203 | ) | 14,544 |
| (13,045 | ) | 1,573 |
| — |
| 2,869 |
| ||||||
(Loss) earnings before equity in net loss of subsidiaries |
| (512 | ) | 30,237 |
| (32,053 | ) | 3,965 |
| — |
| 1,637 |
| ||||||
Equity in earnings (loss) of subsidiaries |
| 2,149 |
| (28,088 | ) | — |
| — |
| 25,939 |
| — |
| ||||||
Net earnings (loss) |
| $ | 1,637 |
| $ | 2,149 |
| $ | (32,053 | ) | $ | 3,965 |
| $ | 25,939 |
| $ | 1,637 |
|
Comprehensive income (loss) |
| $ | 18,306 |
| $ | 2,389 |
| $ | (32,053 | ) | $ | 20,394 |
| $ | 9,270 |
| $ | 18,306 |
|
Tailored Brands, Inc.
Condensed Consolidating Statement of Earnings (Loss)
For the Three Months Ended May 2, 2015
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Wearhouse Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net sales |
| $ | 455,494 |
| $ | 442,549 |
| $ | 99,761 |
| $ | (112,715 | ) | $ | 885,089 |
|
Cost of sales |
| 231,450 |
| 319,750 |
| 65,052 |
| (112,715 | ) | 503,537 |
| |||||
Gross margin |
| 224,044 |
| 122,799 |
| 34,709 |
| — |
| 381,552 |
| |||||
Operating expenses |
| 194,025 |
| 107,282 |
| 28,036 |
| (3,080 | ) | 326,263 |
| |||||
Operating income |
| 30,019 |
| 15,517 |
| 6,673 |
| 3,080 |
| 55,289 |
| |||||
Other income and expenses, net |
| 3,080 |
| — |
| — |
| (3,080 | ) | — |
| |||||
Interest income |
| 556 |
| 818 |
| 24 |
| (1,370 | ) | 28 |
| |||||
Interest expense |
| (27,097 | ) | (481 | ) | (275 | ) | 1,370 |
| (26,483 | ) | |||||
Loss on extinguishment of debt |
| (12,675 | ) | — |
| — |
| — |
| (12,675 | ) | |||||
(Loss) earnings before income taxes |
| (6,117 | ) | 15,854 |
| 6,422 |
| — |
| 16,159 |
| |||||
Provision for income taxes |
| 50 |
| 3,880 |
| 1,860 |
| — |
| 5,790 |
| |||||
(Loss) earnings before equity in net income of subsidiaries |
| (6,167 | ) | 11,974 |
| 4,562 |
| — |
| 10,369 |
| |||||
Equity in earnings of subsidiaries |
| 16,536 |
| — |
| — |
| (16,536 | ) | — |
| |||||
Net earnings attributable to common shareholders |
| $ | 10,369 |
| $ | 11,974 |
| $ | 4,562 |
| $ | (16,536 | ) | $ | 10,369 |
|
Comprehensive income |
| $ | 16,829 |
| $ | 11,974 |
| $ | 10,648 |
| $ | (22,622 | ) | $ | 16,829 |
|
Tailored The Men’s Guarantor Non- Brands, Inc. Wearhouse, Inc. Subsidiaries Subsidiaries Eliminations Consolidated Net sales $ — $ 455,494 $ 442,549 $ 99,761 $ (112,715 ) $ 885,089 Cost of sales — 231,450 319,750 65,052 (112,715 ) 503,537 Gross margin — 224,044 122,799 34,709 — 381,552 Operating expenses 673 146,187 154,447 28,036 (3,080 ) 326,263 Operating (loss) income (673 ) 77,857 (31,648 ) 6,673 3,080 55,289 Other income and expenses, net — 3,080 — — (3,080 ) — Interest income — 556 818 24 (1,370 ) 28 Interest expense — (27,097 ) (481 ) (275 ) 1,370 (26,483 ) Loss on extinguishment of debt — (12,675 ) — — — (12,675 ) (Loss) earnings before income taxes (673 ) 41,721 (31,311 ) 6,422 — 16,159 (Benefit) provision for income taxes (272 ) 16,837 (12,635 ) 1,860 — 5,790 (Loss) earnings before equity in net loss of subsidiaries (401 ) 24,884 (18,676 ) 4,562 — 10,369 Equity in earnings (loss) of subsidiaries 10,770 (14,114 ) — — 3,344 — Net earnings (loss) $ 10,369 $ 10,770 $ (18,676 ) $ 4,562 $ 3,344 $ 10,369 Comprehensive income (loss) $ 16,829 $ 11,144 $ (18,676 ) $ 10,648 $ (3,116 ) $ 16,829 21
Guarantor
THE MEN’S WEARHOUSE,TAILORED BRANDS, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Men’s Wearhouse,Tailored Brands, Inc.
Condensed Consolidating Statement of EarningsCash Flows
For the Three Months Ended May 3, 2014April 30, 2016
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Wearhouse Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net sales |
| $ | 419,348 |
| $ | 252,658 |
| $ | 101,083 |
| $ | (142,615 | ) | $ | 630,474 |
|
Cost of sales |
| 213,215 |
| 210,813 |
| 65,697 |
| (142,615 | ) | 347,110 |
| |||||
Gross margin |
| 206,133 |
| 41,845 |
| 35,386 |
| — |
| 283,364 |
| |||||
Operating expenses |
| 201,370 |
| 28,328 |
| 29,767 |
| (3,382 | ) | 256,083 |
| |||||
Operating income |
| 4,763 |
| 13,517 |
| 5,619 |
| 3,382 |
| 27,281 |
| |||||
Other income and expenses, net |
| 3,008 |
| 374 |
| — |
| (3,382 | ) | — |
| |||||
Interest income |
| 478 |
| 150 |
| 57 |
| (624 | ) | 61 |
| |||||
Interest expense |
| (1,284 | ) | (152 | ) | (323 | ) | 624 |
| (1,135 | ) | |||||
Earnings before income taxes |
| 6,965 |
| 13,889 |
| 5,353 |
| — |
| 26,207 |
| |||||
Provision for income taxes |
| 7,008 |
| 1,609 |
| 1,132 |
| — |
| 9,749 |
| |||||
(Loss) earnings before equity in net income of subsidiaries |
| (43 | ) | 12,280 |
| 4,221 |
| — |
| 16,458 |
| |||||
Equity in earnings of subsidiaries |
| 16,501 |
| — |
| — |
| (16,501 | ) | — |
| |||||
Net earnings including non-controlling interest |
| 16,458 |
| 12,280 |
| 4,221 |
| (16,501 | ) | 16,458 |
| |||||
Net loss attributable to non-controlling interest |
| 28 |
| — |
| 28 |
| (28 | ) | 28 |
| |||||
Net earnings attributable to common shareholders |
| $ | 16,486 |
| $ | 12,280 |
| $ | 4,249 |
| $ | (16,529 | ) | $ | 16,486 |
|
Comprehensive income |
| $ | 22,477 |
| $ | 12,280 |
| $ | 10,429 |
| $ | (22,709 | ) | $ | 22,477 |
|
|
| Tailored |
| The Men’s |
| Guarantor |
| Non- |
|
|
|
|
| ||||||
|
| Brands, Inc. |
| Wearhouse, Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| ||||||
Net cash provided by (used in) operating activities |
| $ | 9,734 |
| $ | 34,076 |
| $ | 13,365 |
| $ | (1,819 | ) | $ | (8,921 | ) | $ | 46,435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Capital expenditures |
| — |
| (16,179 | ) | (12,878 | ) | (1,268 | ) | — |
| (30,325 | ) | ||||||
Proceeds from sale of property and equipment |
| — |
| — |
| 501 |
| — |
| — |
| 501 |
| ||||||
Net cash used in investing activities |
| — |
| (16,179 | ) | (12,377 | ) | (1,268 | ) | — |
| (29,824 | ) | ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Payments on term loan |
| — |
| (1,750 | ) | — |
| — |
| — |
| (1,750 | ) | ||||||
Proceeds from asset-based revolving credit facility |
| — |
| 201,000 |
| — |
| 3,014 |
| — |
| 204,014 |
| ||||||
Payments on asset-based revolving credit facility |
| — |
| (201,000 | ) | — |
| (3,014 | ) | — |
| (204,014 | ) | ||||||
Cash dividends paid |
| (8,921 | ) | — |
| — |
| — |
| — |
| (8,921 | ) | ||||||
Intercompany financing activities |
| — |
| (8,921 | ) | — |
| — |
| 8,921 |
| — |
| ||||||
Proceeds from issuance of common stock |
| 434 |
| — |
| — |
| — |
| — |
| 434 |
| ||||||
Tax payments related to vested deferred stock units |
| (1,247 | ) | — |
| — |
| — |
| — |
| (1,247 | ) | ||||||
Net cash used in financing activities |
| (9,734 | ) | (10,671 | ) | — |
| — |
| 8,921 |
| (11,484 | ) | ||||||
Effect of exchange rate changes |
| — |
| — |
| — |
| 1,322 |
| — |
| 1,322 |
| ||||||
Increase (decrease) in cash and cash equivalents |
| — |
| 7,226 |
| 988 |
| (1,765 | ) | — |
| 6,449 |
| ||||||
Cash and cash equivalents at beginning of period |
| — |
| 724 |
| $ | 2,243 |
| $ | 27,013 |
| $ | — |
| $ | 29,980 |
| ||
Cash and cash equivalents at end of period |
| $ | — |
| $ | 7,950 |
| $ | 3,231 |
| $ | 25,248 |
| $ | — |
| $ | 36,429 |
|
The Men’s Wearhouse,Tailored Brands, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 2, 2015
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Wearhouse Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net cash provided by (used in) operating activities |
| $ | 44,953 |
| $ | 5,799 |
| $ | (1,767 | ) | $ | — |
| $ | 48,985 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures |
| (21,503 | ) | (5,858 | ) | (3,023 | ) | — |
| (30,384 | ) | |||||
Net cash used in investing activities |
| (21,503 | ) | (5,858 | ) | (3,023 | ) | — |
| (30,384 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Proceeds from asset-based revolving credit facility |
| 3,000 |
| — |
| — |
| — |
| 3,000 |
| |||||
Payments on asset-based revolving credit facility |
| (3,000 | ) | — |
| — |
| — |
| (3,000 | ) | |||||
Payments on new term loan |
| (4,500 | ) | — |
| — |
| — |
| (4,500 | ) | |||||
Deferred financing costs |
| (3,566 | ) | — |
| — |
| — |
| (3,566 | ) | |||||
Cash dividends paid |
| (8,863 | ) | — |
| — |
| — |
| (8,863 | ) | |||||
Proceeds from issuance of common stock |
| 908 |
| — |
| — |
| — |
| 908 |
| |||||
Tax payments related to vested deferred stock units |
| (4,506 | ) | — |
| — |
| — |
| (4,506 | ) | |||||
Excess tax benefits from share-based plans |
| 981 |
| — |
| — |
| — |
| 981 |
| |||||
Repurchases of common stock |
| (277 | ) | — |
| — |
| — |
| (277 | ) | |||||
Net cash used in financing activities |
| (19,823 | ) | — |
| — |
| — |
| (19,823 | ) | |||||
Effect of exchange rate changes |
| — |
| — |
| 763 |
| — |
| 763 |
| |||||
Increase (decrease) in cash and cash equivalents |
| 3,627 |
| (59 | ) | (4,027 | ) | — |
| (459 | ) | |||||
Cash and cash equivalents at beginning of period |
| 18,262 |
| 4,857 |
| 39,142 |
| — |
| 62,261 |
| |||||
Cash and cash equivalents at end of period |
| $ | 21,889 |
| $ | 4,798 |
| $ | 35,115 |
| $ | — |
| $ | 61,802 |
|
Tailored The Men’s Guarantor Non- Brands, Inc. Wearhouse, Inc. Subsidiaries Subsidiaries Eliminations Consolidated Net cash provided by (used in) operating activities $ 11,757 $ 36,993 $ 10,865 $ (1,767 ) $ (8,863 ) $ 48,985 CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures — (16,437 ) (10,924 ) (3,023 ) — (30,384 ) Net cash used in investing activities — (16,437 ) (10,924 ) (3,023 ) — (30,384 ) CASH FLOWS FROM FINANCING ACTIVITIES: Payments on term loan — (4,500 ) — — — (4,500 ) Proceeds from asset-based revolving credit facility — 3,000 — — — 3,000 Payments on asset-based revolving credit facility — (3,000 ) — — — (3,000 ) Deferred financing costs — (3,566 ) — — — (3,566 ) Cash dividends paid (8,863 ) — — — — (8,863 ) Intercompany financing activities — (8,863 ) — — 8,863 — Proceeds from issuance of common stock 908 — — — — 908 Tax payments related to vested deferred stock units (4,506 ) — — — — (4,506 ) Excess tax benefits from share-based plans 981 — — — — 981 Repurchases of common stock (277 ) — — — — (277 ) Net cash used in financing activities (11,757 ) (16,929 ) — — 8,863 (19,823 ) Effect of exchange rate changes — — — 763 — 763 Increase (decrease) in cash and cash equivalents — 3,627 (59 ) (4,027 ) — (459 ) Cash and cash equivalents at beginning of period — 18,262 $ 4,857 $ 39,142 $ — $ 62,261 Cash and cash equivalents at end of period $ — $ 21,889 $ 4,798 $ 35,115 $ — $ 61,802 22
Guarantor
THE MEN’S WEARHOUSE, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The Men’s Wearhouse, Inc.
Condensed Consolidating Statement of Cash Flows
For the Three Months Ended May 3, 2014
(in thousands)
|
| The Men’s |
| Guarantor |
| Non-Guarantor |
|
|
|
|
| |||||
|
| Wearhouse Inc. |
| Subsidiaries |
| Subsidiaries |
| Eliminations |
| Consolidated |
| |||||
Net cash provided by (used in) operating activities |
| $ | 78,972 |
| $ | (13,444 | ) | $ | 4,285 |
| $ | — |
| $ | 69,813 |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM INVESTING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Capital expenditures |
| (18,402 | ) | (1,773 | ) | (2,368 | ) | — |
| (22,543 | ) | |||||
Net cash used in investing activities |
| (18,402 | ) | (1,773 | ) | (2,368 | ) | — |
| (22,543 | ) | |||||
|
|
|
|
|
|
|
|
|
|
|
| |||||
CASH FLOWS FROM FINANCING ACTIVITIES: |
|
|
|
|
|
|
|
|
|
|
| |||||
Payments on previous term loan |
| (2,500 | ) | — |
| — |
| — |
| (2,500 | ) | |||||
Deferred financing costs |
| (1,389 | ) | — |
| — |
| — |
| (1,389 | ) | |||||
Cash dividends paid |
| (8,812 | ) | — |
| — |
| — |
| (8,812 | ) | |||||
Proceeds from issuance of common stock |
| 4,373 |
| — |
| — |
| — |
| 4,373 |
| |||||
Tax payments related to vested deferred stock units |
| (5,732 | ) | — |
| — |
| — |
| (5,732 | ) | |||||
Excess tax benefits from share-based plans |
| 3,002 |
| — |
| — |
| — |
| 3,002 |
| |||||
Repurchases of common stock |
| (251 | ) | — |
| — |
| — |
| (251 | ) | |||||
Net cash used in financing activities |
| (11,309 | ) | — |
| — |
| — |
| (11,309 | ) | |||||
Effect of exchange rate changes |
| — |
| — |
| 710 |
| — |
| 710 |
| |||||
Increase (decrease) in cash and cash equivalents |
| 49,261 |
| (15,217 | ) | 2,627 |
| — |
| 36,671 |
| |||||
Cash and cash equivalents at beginning of period |
| 1,414 |
| 16,955 |
| 40,883 |
| — |
| 59,252 |
| |||||
Cash and cash equivalents at end of period |
| $ | 50,675 |
| $ | 1,738 |
| $ | 43,510 |
| $ | — |
| $ | 95,923 |
|
ITEM 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
For supplemental information, it is suggested thatWe encourage you to read this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” be read(“MD&A”) in conjunction with the corresponding section included in our Annual Report on Form 10-K for the year ended January 31, 2015.30, 2016. References herein to years are to our 52-week or 53-week fiscal year, which ends on the Saturday nearest January 3130 in the following calendar year. For example, references to “2015”“2016” mean the 52-week fiscal year ending January 30, 2016.28, 2017.
On June 18, 2014, we acquired 100% of the outstanding common stock of Jos. A. Bank, a men’s specialty apparel retailer, for $65.00 net per share in cash, or total consideration of approximately $1.8 billion. We believe that Jos. A. Bank’s business model in conjunction with our business model will create meaningful opportunities for future growth and operational synergies.Executive Overview
Background
We are the largest specialty retailer of men’s suits and the largest provider of rental product in the U.S. and Canada with 1,846 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, as well as tuxedo rentals.men. We offer our products and services through multiple brands and channels including The Men’s Wearhouse/Men’s Wearhouse and Tux (“Men’s Wearhouse”), Jos. A. Bank, Moores Clothing for Men (“Moores”), K&G, Joseph Abboud and the Internet at www.menswearhouse.com,, www.josbank.com and www.josephabboud.com.www.josephabboud.com. 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 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.
Additionally, weWe operate two corporate apparel providers – ourproviders. Our UK-based operations, the largest provider of corporate apparel in the UK, operate under the Dimensions, Alexandra, and Yaffy brands, and our Twin Hillbrands. Our operations in the U.S. operate under the Twin Hill brand. 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.www.alexandra.co.uk.
ReferIn the first quarter of 2016, we revised our segment reporting presentation to Note 13reflect changes in how we manage our business, including resource allocation and performance assessment. Specifically, we are presenting expenses related to our shared services platform separate from the results of Notesour operating segments to Condensed Consolidated Financial Statements for additional information and disclosures regardingpromote enhanced comparability of our reportable segments and the discussionoperating segments. Previously, these shared service expenses were primarily included in “Results of Operations” below.our retail segment. Comparable prior period information has been recast to reflect our revised segment presentation.
OverviewFirst Quarter Discussion
HighlightsOur first quarter results were mixed as we navigated the difficult consumer and retail environment and cycled a strong performance in last year’s first quarter. While our net sales decline of 6.4% was slightly below our expectation, our focus on lowering operating expenses brought operating income and earnings per share in-line with our plan. Men’s Wearhouse reported a modestly below-plan comparable sales decline of 3.5% while our Jos. A. Bank comparable sales decline of 16.0% was better than our expectation, despite anniversarying significant Buy-One-Get-Three Free events in the same period last year. In May 2016, Men’s Wearhouse posted a comparable sales increase in the mid-single-digit range and Jos. A. Bank and Moores also saw improving trends.
Importantly, we are making progress on our transition plan for Tailored Brands. We are executing on our profit improvement program, organizational realignment, store base rationalization, and cost reductions. We remain committed to stabilizing, resizing, and rebuilding the founding of the Jos. A. Bank business to a base from which we can profitably grow on a go-forward basis.
Key operating metrics for the quarter ended April 30, 2016 include:
· Net sales decrease of 6.4%
· Comparable sales decreases at Men’s Wearhouse, Jos. A. Bank and Moores of 3.5%, 16.0% and 3.9%, respectively, while comparable sales at K&G increased 0.2%.
· Operating income decreased to $31.0 million compared to $55.3 million in the first quarter of fiscal 2015.
· Diluted earnings per share of $0.03 compared to diluted earnings per share of $0.21 in the first quarter of fiscal 2015.
Key liquidity metrics for the quarter ended April 30, 2016 include:
· Cash provided by operating activities was $46.4 million compared to $49.0 million for the prior comparable period.
· Capital expenditures were $30.3 million in the first quarter of fiscal 2016 compared to $30.4 million for the first quarter of fiscal 2015.
· We repaid $1.8 million on our term loan and had no borrowings outstanding on our ABL facility as of April 30, 2016.
· Dividends paid totaled $8.9 million for the quarter ended April 30, 2016.
Items Affecting Comparability of Results
The comparability of our performanceresults 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 |
| ||||
|
| April 30, |
| May 2, |
| ||
|
|
|
|
|
| ||
Restructuring and other charges(1) |
| $ | 13.2 |
| $ | — |
|
Integration costs related to Jos. A. Bank(2) |
| 3.6 |
| 5.8 |
| ||
Purchase accounting adjustment for the step up of Jos. A. Bank inventory |
| — |
| 0.7 |
| ||
Other purchase accounting related charges |
| (0.6 | ) | 2.4 |
| ||
Loss on extinguishment of debt related to Jos. A. Bank financing arrangements |
| — |
| 12.7 |
| ||
Separation costs with a former executive |
| — |
| 3.7 |
| ||
Other |
| 0.3 |
| — |
| ||
|
|
|
|
|
| ||
Total |
| $ | 16.5 |
| $ | 25.3 |
|
(1) Consists of $5.0 million of consulting costs, $3.8 million of severance and employee-related costs, $2.0 million of store asset impairment charges and accelerated depreciation, $1.9 million of lease termination costs and $0.5 million of other costs.
(2) For the quarter ended April 30, 2016, integration costs related to Jos. A. Bank include $1.7 million of severance costs. For the quarter ended May 2, 2015, which includes Jos. A. Bank’s results, integration costs non-operating items and purchase accounting adjustments, compared to the quarter ended May 3, 2014 are presented below, followed by a more comprehensive discussion under “Results of Operations”:
·Revenues for the first quarter of 2015 increased by $254.6 million or 40.4%, to $885.1 million compared to revenues of $630.5 million in the first quarter of 2014.
·Gross margin for the first quarter of 2015 increased by $98.2 million or 34.7%, to $381.6 million compared to $283.4 million in the first quarter of 2014. Gross margin as a percentage of total net sales for the first quarter of 2015 was 43.1% compared to 44.9% for the first quarter of 2014.
·Advertising expense for the first quarter of 2015 increased by $21.9 million or 76.1%, to $50.7 million compared to advertising expense of $28.8 million in the first quarter of 2014. Advertising expense as a percentage of total net sales for the first quarter 2015 was 5.7% compared to 4.6% for the first quarter of 2014.
·Selling, general and administrative (“SG&A”) expenses for the first quarter of 2015 increased by $48.3 million or 21.3%, to $275.6 million compared to SG&A expenses of $227.3 million in the first quarter of 2014. SG&A expenses as a percentage of total net sales for the first quarter of 2015 was 31.1% compared to 36.1% for the first quarter of 2014.
·Interest expense for the first quarter of 2015 increased by $25.3 million to $26.5 million compared to interest expense of $1.1 million in the first quarter of 2014.
·Results for the first quarter of 2015 include $3.6 million consisting primarily of separation costs with former executives and $5.9$3.8 million of integration costs primarily related to Jos. A. Bank recorded within SG&A. In addition, as a result of our debt refinancing, we recorded a loss on extinguishment of debt totaling $12.7 million consisting of the elimination of unamortized deferred financing costsseverance and OID related to the Term Loan.employee-related costs.
·Net earnings attributable to common shareholders for the first quarter of 2015 decreased by $6.1 million or 37.1%, to $10.4 million compared to $16.5 million for the first quarter of 2014.
·Diluted earnings per common share attributable to common shareholders decreased by $0.13 or 38.2% to $0.21 per share for the first quarter of 2015 compared to $0.34 per share for the first quarter of fiscal 2014.
·During the quarter ended May 2, 2015, we paid cash dividends of $8.9 million.
Store dataData
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 |
| For the Year |
| ||
|
| Ended |
| Ended |
| ||
|
| May 2, |
| May 3, |
| January 31, |
|
|
| 2015 |
| 2014 |
| 2015 |
|
|
|
|
|
|
|
|
|
Number of retail stores: |
|
|
|
|
|
|
|
Open at beginning of the period |
| 1,758 |
| 1,124 |
| 1,124 |
|
Acquired from Jos. A. Bank (1) |
| — |
| — |
| 624 |
|
Opened (2) |
| 8 |
| 10 |
| 60 |
|
Closed |
| (8 | ) | (6 | ) | (50 | ) |
Open at end of the period |
| 1,758 |
| 1,128 |
| 1,758 |
|
|
|
|
|
|
|
|
|
Men’s Wearhouse (2) |
| 702 |
| 670 |
| 698 |
|
Men’s Wearhouse and Tux |
| 207 |
| 244 |
| 210 |
|
Jos. A. Bank (1) |
| 636 |
| — |
| 636 |
|
Moores |
| 124 |
| 120 |
| 123 |
|
K&G |
| 89 |
| 94 |
| 91 |
|
Total |
| 1,758 |
| 1,128 |
| 1,758 |
|
|
| For the Three Months |
| For the Year |
| ||
|
| April 30, |
| May 2, |
| January 30, |
|
|
|
|
|
|
|
|
|
Open at beginning of period: |
| 1,724 |
| 1,758 |
| 1,758 |
|
Opened (1)(2) |
| 140 |
| 8 |
| 42 |
|
Closed |
| (18 | ) | (8 | ) | (76 | ) |
Open at end of the period |
| 1,846 |
| 1,758 |
| 1,724 |
|
|
|
|
|
|
|
|
|
Men’s Wearhouse(2) |
| 716 |
| 702 |
| 714 |
|
Men’s Wearhouse and Tux |
| 153 |
| 207 |
| 160 |
|
Tuxedo shops @ Macy’s |
| 148 |
| — |
| 12 |
|
Jos. A. Bank(3) |
| 615 |
| 636 |
| 625 |
|
Moores |
| 125 |
| 124 |
| 124 |
|
K&G |
| 89 |
| 89 |
| 89 |
|
|
| 1,846 |
| 1,758 |
| 1,724 |
|
_______
(1) Excludes 15 franchise stores.Includes 136 tuxedo shops within Macy’s stores opened in 2016.
(2) Includes one Joseph Abboud store.store opened in 2015.
(3)Excludes franchise stores.
During the first three monthsquarter of 2015,2016, we opened eight140 stores/tuxedo shops (136 tuxedo shops within Macy’s stores, (fivetwo Men’s Wearhouse stores, one Joseph Abboud store, one Jos. A. Bank store and one Moores store). We closed eight18 stores (three(11 Jos. A. Bank stores and seven Men’s Wearhouse and Tux stores, two Men’s Wearhouse stores, two K&G stores and one Jos. A. Bank store)stores).
Seasonality
Our sales and net earnings are subject to seasonal fluctuations. Our tuxedo 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 for tuxedo rentals.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, thatwhich 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 cadence. We currently expect this trend to resume 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.
Results of Operations
For the Three Months Ended May 2, 2015 comparedApril 30, 2016 Compared to the Three Months Ended May 3, 20142, 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) |
|
| For the Three Months |
| ||||
|
| May 2, |
| May 3, |
|
| April 30, |
| May 2, |
|
|
| 2015 |
| 2014 |
|
| 2016 |
| 2015 |
|
Net sales: |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 75.3 | % | 68.7 | % |
| 74.3 | % | 75.3 | % |
Tuxedo rental services |
| 11.7 |
| 16.1 |
| |||||
Rental services |
| 12.0 |
| 11.7 |
| |||||
Alteration and other services |
| 6.1 |
| 6.2 |
|
| 6.1 |
| 6.1 |
|
Total retail sales |
| 93.1 |
| 91.0 |
|
| 92.4 |
| 93.1 |
|
Corporate apparel clothing product |
| 6.9 |
| 9.0 |
|
| 7.6 |
| 6.9 |
|
Total net sales |
| 100.0 | % | 100.0 | % |
| 100.0 | % | 100.0 | % |
Cost of sales(2): |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 44.1 |
| 44.2 |
|
| 43.9 |
| 44.1 |
|
Tuxedo rental services |
| 15.6 |
| 15.1 |
| |||||
Rental services |
| 15.9 |
| 15.6 |
| |||||
Alteration and other services |
| 66.6 |
| 71.2 |
|
| 71.2 |
| 66.6 |
|
Occupancy costs |
| 13.7 |
| 12.7 |
|
| 14.4 |
| 13.7 |
|
Total retail cost of sales |
| 55.8 |
| 53.6 |
|
| 56.5 |
| 55.8 |
|
Corporate apparel clothing product |
| 72.1 |
| 69.9 |
|
| 71.0 |
| 72.1 |
|
Total cost of sales |
| 56.9 |
| 55.1 |
|
| 57.5 |
| 56.9 |
|
Gross margin(2): |
|
|
|
|
|
|
|
|
|
|
Retail clothing product |
| 55.9 |
| 55.8 |
|
| 56.1 |
| 55.9 |
|
Tuxedo rental services |
| 84.4 |
| 84.9 |
| |||||
Rental services |
| 84.1 |
| 84.4 |
| |||||
Alteration and other services |
| 33.4 |
| 28.8 |
|
| 28.8 |
| 33.4 |
|
Occupancy costs |
| (13.7 | ) | (12.7 | ) |
| (14.4 | ) | (13.7 | ) |
Total retail gross margin |
| 44.2 |
| 46.4 |
|
| 43.5 |
| 44.2 |
|
Corporate apparel clothing product |
| 27.9 |
| 30.1 |
|
| 29.0 |
| 27.9 |
|
Total gross margin |
| 43.1 |
| 44.9 |
|
| 42.5 |
| 43.1 |
|
Advertising expense |
| 5.7 |
| 4.6 |
|
| 5.8 |
| 5.7 |
|
Selling, general and administrative expenses |
| 31.1 |
| 36.1 |
|
| 32.9 |
| 31.1 |
|
Operating income |
| 6.3 |
| 4.3 |
|
| 3.7 |
| 6.3 |
|
Interest income |
| 0.0 |
| 0.0 |
|
| 0.0 |
| 0.0 |
|
Interest expense |
| (3.0 | ) | (0.2 | ) |
| (3.2 | ) | (3.0 | ) |
Loss on extinguishment of debt |
| (1.4 | ) | 0.0 |
|
| — |
| (1.4 | ) |
Earnings before income taxes |
| 1.8 |
| 4.2 |
|
| 0.5 |
| 1.8 |
|
Provision for income taxes |
| 0.7 |
| 1.5 |
|
| 0.4 |
| 0.7 |
|
Net earnings including non-controlling interest |
| 1.2 |
| 2.6 |
| |||||
Net loss attributable to non-controlling interest |
| 0.0 |
| 0.0 |
| |||||
Net earnings attributable to common shareholders |
| 1.2 | % | 2.6 | % | |||||
Net earnings |
| 0.2 | % | 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.
Net Sales
Total net sales increased $254.6decreased $56.3 million, or 40.4%6.4%, to $885.1$828.8 million for the first quarter of 20152016 as compared to the first quarter of 2014.2015.
Total retail sales increased $250.6decreased $58.0 million, or 43.7%7.0%, to $824.3$766.2 million for the first quarter of 20152016 as compared to the first quarter of 20142015 primarily due mainly to $216.1a $51.2 million of net sales from Jos. A. Bank in the first quarter of 2015 and increasesdecrease in clothing product revenues of $33.7primarily at our Jos. A. Bank and Men’s Wearhouse brands, a $3.3 million from ourdecrease in rental service revenues and a $3.5 million decrease in alteration and other brands.services revenues. The net increasedecrease is attributable to the following:
(in millions) |
| Amount attributed to | |
$ | 216.1 |
| Increase in net sales from Jos. A. Bank. |
26.4 |
| 6.8% increase in comparable sales at Men’s Wearhouse/Men’s Wearhouse and Tux. | |
0.3 |
| 0.8% increase in comparable sales at Moores(1). | |
6.2 |
| 7.3% increase in comparable sales at K&G. | |
12.7 |
| Increase from net sales of stores opened in 2014, relocated stores and expanded stores not yet included in comparable sales(2). | |
0.8 |
| Increase in net sales from new stores opened in 2015(2). | |
(7.5 | ) | Decrease in net sales resulting from closed stores. | |
(6.0 | ) | Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate. | |
1.6 |
| Other(2). | |
$ | 250.6 |
| Increase in total retail sales. |
(in millions) |
| Amount Attributed to | |
$ | (14.7 | ) | 3.5% decrease in comparable sales at Men’s Wearhouse. |
(30.2 | ) | 16.0% decrease in comparable sales at Jos. A. Bank. | |
(1.7 | ) | 3.9% decrease in comparable sales at Moores(1). | |
0.2 |
| 0.2% increase in comparable sales at K&G. | |
(4.7 | ) | Decrease in non-comparable sales. | |
(2.4 | ) | Decrease in net sales resulting from change in U.S./Canadian dollar exchange rate. | |
(4.5 | ) | Other. | |
$ | (58.0 | ) | Decrease in total retail sales. |
___________
(1) Comparable sales percentages for Moores are calculated using Canadian dollars.
(2)Excludes Jos. A. Bank.
Comparable sales for Men’s Wearhouse/Men’s Wearhouse and Tux, Moores and K&G exclude the net sales of a store for any month of one period if the store was not open throughout the same month of the prior period and include e-commerce net sales. The inclusionWe operate our business using an omnichannel approach and do not differentiate e-commerce sales from our other channels. In addition, as a result of e-commerce netour decision to close all factory stores at Jos. A. Bank, we have excluded the results of these stores from our comparable sales did not have a significant effect on comparable sales.calculation for Jos. A. Bank.
The increasedecrease at Men’s Wearhouse/Men’s Wearhouse and Tux resulted primarily from increased average transactions per store for clothing product, average unit retails (net selling prices) and units sold per transaction. The increase at Moores resulted from increased average unit retails that more than offset decreases indecreased average transactions per store and units sold per transaction.transaction that more than offset increased average unit retails (net selling prices). The decrease at Jos. A. Bank resulted primarily from decreased average transactions per store partially offset by higher units per transaction and higher rental revenue. The increase at K&G resulted from increased units sold per transaction offset by decreased average transactions per store while average unit retails were flat. The decrease at Moores resulted from decreased average transactions per store and units sold per transaction andpartially offset by increased average unit retails were essentially flat.retails. At Men’s Wearhouse/Men’s Wearhouse, and Tux, tuxedo rental service comparable sales decreased 1.2%4.8% due to a decrease in unit rentals partially offset by an increase in rental rates.
Total corporate apparel clothing product sales increased $4.0$1.8 million for the first quarter of 20152016 as compared to the first quarter of 2014.2015. UK corporate apparel sales increased $3.7$1.3 million due mainly to an increase inhigher sales from existing customer programs partially offset by the impact of a weaker pound Sterling this year compared to last year. U.S. corporate apparel sales increased $0.3$0.5 million primarily due primarily to increased sales from existing customer programs.
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. Tuxedo distributionDistribution costs are not included in determining our tuxedo rental services gross margin but are included in SG&A expenses.
Our total gross margin increased $98.2decreased $29.7 million, or 34.7%7.8%, to $381.6$351.8 million in the first quarter of 20152016 as compared to the first quarter of 2014.2015. Total retail segment gross margin increased $98.3decreased $30.8 million, or 36.9%8.5%, from the same prior year quarter to $364.6$333.7 million in the first quarter of 2015. The dollar increase in gross margin was primarily driven by $82.9 million of gross margin generated by Jos. A. Bank as well higher gross margins at our other brands.
For the retail segment, total gross margin as2016. As a percentage of related sales, retail segment gross margin decreased from 46.4% in the first quarter of 2014 to 44.2% in the first quarter of 2015 to 43.5% in the first quarter of 2016 driven primarily by the inclusiondeleveraging of salesoccupancy costs from the Jos. A. Bank acquisition, as well as a lower tuxedo gross margin rate primarily due to increased royalty rates. sales.
Occupancy costs increased $40.2decreased $3.0 million primarily due to Jos. A. Bankwhile occupancy costs. 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 12.7%13.7% to 13.7%14.4% for the first quarter of 20152016 compared to the first quarter of 2014,2015, primarily due to the impact of Jos A. Bank’s occupancy costs, which are higher as a percentage of sales than our other brands.deleveraging resulting from lower retail sales.
Corporate apparel gross margin decreased $0.1increased $1.1 million, or 0.5%6.6%, in the first quarter of 2015.2016. For the corporate apparel segment, total gross margin as a percentage of related sales decreasedincreased from 30.1% in the first quarter of 2014 to 27.9% in the first quarter of 2015 to 29.0% in the first quarter of 2016 primarily due to changes in the sales mix at our U.S. operations as well as unfavorable currency impacts at our UK operations.mix.
Advertising Expense
Advertising expense increaseddecreased to $47.9 million in the first quarter of 2016 from $50.7 million in the first quarter of 2015, from $28.8 million in the first quartera decrease of 2014, an increase of $21.9$2.7 million, or 76.1%5.4%. The increase was primarily due to Jos. A. Bank advertising costs as well as increased advertising expense to support branding initiatives. As a percentage of total net sales, advertising expense increased from 4.6% in the first quarter of 2014 to 5.7% in the first quarter of 2015.2015 to 5.8% in the first quarter of 2016 primarily due to deleveraging resulting from lower sales.
Selling, General and Administrative Expenses
SG&A expenses increaseddecreased to $272.9 million in the first quarter of 2016 from $275.6 million in the first quarter of 2015, from $227.3 million in the first quartera decrease of 2014, an increase of $48.3$2.7 million, or 21.3%1.0%. The dollar increase in SG&A expenses was driven by operating expenses for Jos. A. Bank, which includes amortization of intangible assets recorded in connection with the Jos. A. Bank acquisition partially offset by a decrease in acquisition, integration and non-operating costs compared to the first quarter of 2014. As a percentage of total net sales, these expenses decreasedincreased from 36.1% in the first quarter of 2014 to 31.1% in the first quarter of 2015.2015 to 32.9% in the first quarter of 2016 primarily reflecting deleveraging from lower sales. The components of this 5.0%1.8% net decreaseincrease in SG&A expenses as a percentage of total net sales and the related absolute dollar changes were as follows:
% |
| in millions |
| Attributed to | |
(3.1 | ) | $ | (16.9 | ) | Decrease in acquisition, integration and non-operating costs as a percentage of sales from 4.2% in the first quarter of fiscal 2014 to 1.1% in the first quarter of fiscal 2015. For the first quarter of fiscal 2015, these costs totaled $9.6 million, related primarily to separation costs for former executives and integration costs related to Jos. A. Bank. For the first quarter of fiscal 2014, these costs totaled $26.5 million, related primarily to Jos. A. Bank acquisition costs and other cost reduction initiatives. |
(2.2 | ) | 29.8 |
| Decrease in other SG&A expenses as a percentage of sales from 19.3% in the first quarter of fiscal 2014 to 17.1% in the first quarter of fiscal 2015. On an absolute dollar basis, other SG&A expenses increased $29.8 million primarily due to the inclusion of Jos. A. Bank’s other SG&A expenses. | |
0.2 |
| 2.7 |
| Increase in amortization of intangible assets as a percentage of sales from 0.1% in the first quarter of fiscal 2014 to 0.3% in the first quarter of fiscal 2015. Amortization of intangible assets on an absolute dollar basis increased $2.7 million primarily due to intangible assets recorded in connection with the Jos. A. Bank acquisition. | |
0.1 |
| 32.7 |
| Increase in store salaries as a percentage of sales from 12.5% in the first quarter of fiscal 2014 to 12.6% in the first quarter of fiscal 2015. Store salaries on an absolute dollar basis increased $32.7 million primarily due to the impact of Jos. A. Bank store salaries and higher commissions at our other brands associated with increased retail sales. | |
(5.0 | ) | $ | 48.3 |
| Total |
% |
| in millions |
| Attributed to | |
0.9 |
| $ | 6.8 |
| Increase in restructuring, integration and other items as a percentage of sales from 1.1% in the first quarter of 2015 to 2.0% in the first quarter of 2016. For the first quarter of 2016, these costs totaled $16.4 million, related primarily to restructuring and other costs and Jos. A. Bank integration costs. For the first quarter of 2015, these costs totaled $9.6 million, related primarily separation costs for a former executive and integration costs related to Jos. A. Bank. |
0.8 |
| (0.1 | ) | Store salaries decreased $0.1 million but increased as a percentage of sales from 12.6% in the first quarter of 2015 to 13.4% in the first quarter of 2016 primarily due to deleverage resulting from lower retail sales. | |
0.1 |
| (9.4 | ) | Increase in other SG&A expenses as a percentage of sales from 17.5% in the first quarter of 2015 to 17.6% in the first quarter of 2016. Other SG&A expenses decreased $9.4 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. | |
1.8 | % | $ | (2.7 | ) | Total |
In the retail segment, SG&A expenses as a percentage of related net sales decreasedincreased from 36.9%26.6% in the first quarter of 20142015 to 31.6%26.9% in the first quarter of 2015. On an absolute dollar basis, retail2016. Retail segment SG&A expenses increased $48.8decreased $12.7 million primarily due to operating expenses for Jos. A. Bank, which includes amortization of intangible assets recorded in connection with the Jos. A. Bank acquisition partially offset by a decrease in acquisition, integration and non-operating costs compared to the first quarter of 2014.cost reduction initiatives.
In the corporate apparel segment, SG&A expenses as a percentage of related net sales decreased from 27.7% in the first quarter of 2014 to 25.1% in the first quarter of 2015. On an absolute dollar basis, corporate apparel segment SG&A expenses decreased $0.5 million.
Interest Expense
Interest expense increased to $26.5 million25.0% in the first quarter of 2015 from $1.1 millionto 24.9% in the first quarter of 2014 due to interest incurred on borrowings entered into in connection with the Jos. A. Bank acquisition.2016. Corporate apparel segment SG&A expenses increased $0.4 million.
Loss on Extinguishment of Debt
As a result of our debt refinancing in April 2015, we recorded a loss on extinguishment of debt totaling $12.7 million consisting of the elimination of unamortized deferred financingShared service expenses represent costs and OIDnot specifically related to the Term Loan.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 4.7% in the first quarter of 2015 to 6.1% in the first quarter of 2016. Shared service SG&A expenses increased $9.6 million primarily due to costs associated with our profit improvement program.
Provision for Income Tax
Our effective income tax rate decreased from 37.2%increased to 63.7% for the first quarter of 2014 to2016 from 35.8% for the first quarter of 2015 primarily becausedue to low U.S. book income and the impact of changesnon-recurring true-up items recorded in the mixfirst quarter of income earned2016.
For the first quarter of 2016 and 2015, the statutory tax rates in Canada and the U.S.UK were approximately 26% and 20%, respectively, which favorably impacted our effective tax rate. For the first quarter of 2016 and 2015, tax expense for our operations in foreign jurisdictions this year compared to last year which decreased our overalltotaled $1.6 million and $2.7 million, respectively.
Our income tax expense and effective income tax rate.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.
Net Earnings Attributable to Common Shareholders
Net earnings attributable to common shareholders were $1.6 million for the first quarter of 2016 compared with net earnings of $10.4 million for the first quarter of 2015 compared with net earnings of $16.5 million for the first quarter of 2014.2015.
Liquidity and Capital Resources
At April 30, 2016, May 2, 2015 May 3, 2014 and January 31, 2015,30, 2016, cash and cash equivalents totaled $36.4 million, $61.8 million $95.9 million and $62.3$30.0 million, respectively, and working capital of $770.4totaled $717.7 million, $490.7$765.8 million and $758.0$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, weThe 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, weThe 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 May 2, 2015,April 30, 2016, our total leverage ratio and secured leverage ratio were above the maximums specified in the agreements, which was anticipated when we entered into these arrangements. As a result, we are currently subject to certain additional restrictions, including limitations on our ability to make acquisitions and incur additional indebtedness. In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $35.5 million to the Term Loan lenders prior to April 29, 2016. The entire $35.5 million prepayment was made subsequent to the end of the quarter on May 2, 2016.
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 0.28%0.64% at May 2, 2015.April 30, 2016. However, the Term Loan interest rate is subject to a LIBOR floor of 1% per annum, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.50%. In January 2015, we entered into an interest rate swap agreement
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 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.
OnIn April 7, 2015, weThe 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 May 2, 2015,April 30, 2016, the Term Loan had a weighted average interest rate of 4.93%4.90%.
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 $21.4 million issued and outstanding, no amounts were drawn on the ABL Facility as of April 30, 2016 and we have approximately $438.5 million of borrowing availability under the ABL Facility as of April 30, 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 indenture governing the Senior Notes contains customary non-financial covenants and 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 1of1 of each year.
We may redeem some or all of the Senior Notes at any time on or after July 1, 2017 at the redemption prices set forth in the indenture governing the Senior Notes. At any time prior to July 1, 2017, we will have the option to redeem some or all of the Senior Notes at a redemption price of 100% of the principal amount of the Senior Notes to be redeemed, plus a “make-whole” premium and accrued and unpaid interest, if any, to the date of redemption. We may also redeem up to a maximum of 35% of the original aggregate principal amount of the Senior Notes with the proceeds of certain equity offerings prior to July 1, 2017 at a redemption price of 107% of the principal amount of the Senior Notes plus accrued and unpaid interest, if any. Upon the occurrence of certain specific changes of control, we may be required to offer to purchase the Senior Notes at 101% of their aggregate principal amount plus accrued and unpaid interest thereon to the date of purchase.
We have entered into a registration rights agreement regarding the Senior Notes pursuant to which we agreed, among other things, to use our commercially reasonable efforts to consummate an exchange offer of the Senior Notes for substantially identical notes registered under the Securities Act of 1933, as amended, on or before July 13, 2015. On May 26, 2015, we commenced the exchange offer which is currently scheduled to expire on June 23, 2015.
We utilize letters of credit primarily to secure inventory purchases and as collateral for workers compensation claims. Except for letters of credit totaling approximately $18.8 million issued and outstanding, no amounts were drawn on the ABL Facility as of May 2, 2015 and we have approximately $441.4 million of borrowing availability under the ABL Facility as of May 2, 2015.
Cash flow activitiesFlow Activities
Operating activities –— Net cash provided by operating activities was $49.0$46.4 million and $69.8$49.0 million for the first three months of 20152016 and 2014,2015, respectively. The $20.8$2.6 million decrease was primarily due to changes in working capital related todriven by fluctuations in accounts payable, accrued expenses and other current liabilities and a decrease in net earnings after adjusting for non-cash items partially offset by changes in other current assets primarily related to income tax receivables.refunds.
Investing activities –— Net cash used in investing activities was $30.4$29.8 million and $22.5$30.4 million for the first three months of 2016 and 2015, and 2014, respectively. The $7.9 million increase was primarily driven by new store openings, remodels and/or relocations and investments related to the integration of Jos. A. Bank.
Financing activities –— Net cash used in financing activities was $19.8$11.5 million and $11.3$19.8 million for the first three months of 20152016 and 2014,2015, respectively. The $8.5$8.3 million increasedecrease primarily reflects a decrease in cash used in financing activities was primarily driven by paymentsrequired repayments on our Term Loan an increase inas well as deferred financing costs resulting fromrelated to the refinancing of $400.0 million of our debt refinancing as well as a decrease in proceeds from issuance of common stock.Term Loan last year.
Share repurchase program –— In March 2013, the The Board of Directors (the “Board”) had previously approved a $200.0 million share repurchase program for our common stock, which amended and replaced our then existing share repurchase program authorized by the Board in January 2011. At January 31, 2015, the remaining balance available under the Board’s March 2013 authorization was $48.0 million.stock. During the first three months of 20152016 and 2014,2015, no shares were repurchased in open market transactions under the Board’s March 2013 authorization. At April 30, 2016, the remaining balance available under the Board’s March 2013 authorization was $48.0 million.
Dividends – —Cash dividends paid were approximately $8.9 million and $8.8 million for For each of the first three months of 2016 and 2015, and 2014, respectively.cash dividends paid totaled $8.9 million. During each of the three monthsquarters ended April 30, 2016 and May 2, 2015, and May 3, 2014, we declared quarterly dividends of $0.18 per share.
Future sourcesSources and usesUses of cashCash
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, integration costs associated with Jos. A. Bank,related to our store rationalization and profit improvement programs including lease termination payments, dividend payments, operating leases and various other commitments and obligations, as they arise.
Capital expenditures are anticipated to be in the range of $120.0$110.0 to $130.0$120.0 million for 2015.2016. This amount includes the anticipated costs to open approximately 25166 shops within Macy’s stores, 15 to 20 Men’s Wearhouse stores, three to sixMoores stores, two Jos. A. Bank stores and three Moorestwo K&G stores and to expand and/or relocate approximately 138 to 12 existing Men’s Wearhouse stores, four to eight existing Jos. A. Bank storestores and threeone existing Moores stores.K&G store. During the first three months of 2015,2016, we opened eight140 stores/tuxedo shops (136 tuxedo shops within Macy’s stores, (fivetwo Men’s Wearhouse stores, one Joseph Abboud store, one Jos. A. Bank store and one Moores store). Capital expenditures for 20152016 will also include integration projects for Jos. A. Bank, point-of-sale and other computer equipment and systems, store remodeling, distribution facilities 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.
Additionally, market conditions may produce attractive opportunities for us to make acquisitions. Any such acquisitions may be undertaken as an alternative to opening new stores. We may use cash on hand, together with cash flow from operations, borrowings under our Credit Facilities and issuances of debt or equity securities, to take advantage of any acquisition opportunities.
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 additionalfurther 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 indebtedness,store rationalization and profit improvement plans including lease termination payments, planned store openings, relocations and remodels, other capital expenditures and integration costs associated with Jos. A. Bank.
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 31, 2015.30, 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 31, 2015.30, 2016.
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.
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 1112 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 May 2, 2015, 89%April 30, 2016, 86% 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% per annum on the portion of our debt subject to a variable rate, we believe our interest rate risk is substantially mitigated. At May 2, 2015,April 30, 2016, the effect of one percentage point change in interest rates would result in an approximate $1.8$2.4 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 that 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 first quarter ended May 2, 2015April 30, 2016 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
On June 18, 2014, we acquired Jos. A. Bank. We excluded the operations of Jos. A. Bank from the scope of our Sarbanes-Oxley Section 404 report on internal controls for the year ended January 31, 2015. We are in the process of implementing our internal control structure over the acquired operations and expect that this effort will be completed in fiscal 2015.
In 2013, the Committee of Sponsoring Organizations of the Treadway Commission (COSO) issued an updated version of its Internal Control – Integrated Framework, referred to as the 2013 COSO Framework to replace the 1992 Framework. Management’s assessment of the overall effectiveness of our internal controls over financial reporting for the year ending January 30, 2016 will be based on the 2013 COSO Framework and we do not expect the change to materially impact our overall control structure over financial reporting.
For a description of our legal proceedings, see Note 1415 of the Notes to the Condensed Consolidated Financial Statements of this Quarterly Report on Form 10-Q.
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 31, 2015. There has not been a material change to the risk factors set forth in the Form 10-K for the fiscal year ended January 31, 2015, except for the following risk factor which has been updated as set out below:
Our variable rate indebtedness subjects us to interest rate risk, which could cause our debt service obligations to increase.
We are exposed to interest rate risk through our variable rate borrowings under the Credit Facilities. Borrowings under such facilities bear interest at a variable rate, based on an adjusted LIBOR, plus an applicable margin. Interest rates are currently at relatively low levels. If interest rates increase, our debt service obligations on the variable rate indebtedness will increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, will correspondingly decrease. Assuming all capacity under the ABL Facility is fully drawn, each one percentage point change in interest rates would result in approximately a $5.0 million change in annual interest expense. Assuming LIBOR surpassed the 1% LIBOR floor provision on our Term Loan, we would be exposed to interest rate risk on the Term Loan. To partially mitigate such interest rate risk, we entered into an interest rate swap to exchange variable interest rate payments for fixed interest rate payments for a portion of the outstanding Term Loan balance. In addition, we entered into the Incremental Facility Agreement No. 1 to the credit agreement governing the Term Loan Facility to refinance $400.0 million principal amount of term loans that bore interest at a variable rate with $400.0 million principal amount of new term loans, which bear interest at a fixed rate of 5.0% per annum. After consideration of the swap and the refinancing, each one percentage point change in interest rates would result in an approximate $1.8 million change in annual interest expense on our Term Loan.
ITEM 2 – UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following table presents information with respect to purchases of common stock of the Company made during the quarter ended May 2, 2015 as defined by Rule 10b-18(a)(3) under the Exchange Act:
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| Total |
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|
|
| Number of |
| Approximate |
| ||
|
|
|
|
|
| Shares |
| Dollar Value of |
| ||
|
|
|
|
|
| Purchased |
| Shares that |
| ||
|
|
|
|
|
| as Part of |
| May Yet Be |
| ||
|
|
|
|
|
| Publicly |
| Purchased |
| ||
|
| Total Number |
| Average |
| Announced |
| Under the |
| ||
|
| of Shares |
| Price Paid |
| Plans or |
| Plans or |
| ||
Period |
| Purchased |
| Per Share |
| Programs |
| Programs |
| ||
|
|
|
|
|
|
|
| (In thousands) |
| ||
|
|
|
|
|
|
|
| (2) |
| ||
|
|
|
|
|
|
|
|
|
| ||
February 1, 2015 through February 28, 2015 |
| 5,799 | (1) | $ | 47.82 |
| — |
| $ | 48,032 |
|
|
|
|
|
|
|
|
|
|
| ||
March 1, 2015 through April 4, 2015 |
| — |
| $ | — |
| — |
| $ | 48,032 |
|
|
|
|
|
|
|
|
|
|
| ||
April 5, 2015 through May 2, 2015 |
| — |
| $ | — |
| — |
| $ | 48,032 |
|
|
|
|
|
|
|
|
|
|
| ||
Total |
| 5,799 |
| $ | 47.82 |
| — |
| $ | 48,032 |
|
(1)Represents shares repurchased to satisfy tax withholding obligations arising upon the vesting of certain restricted stock.
(2)In March 2013, our Board of Directors (the “Board”) approved a $200.0 million share repurchase program for our common stock. At May 2, 2015, the remaining balance available under the Board’s March 2013 authorization was $48.0 million.
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 37.35.
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant, The Men’s Wearhouse,Tailored Brands, Inc., has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Dated: June |
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| By | /s/ JON W. KIMMINS |
| Jon W. Kimmins | |
| Executive Vice President, Chief Financial Officer, Treasurer and Principal Financial Officer |
† 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.
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