Quarterly Report (10-q)

Date : 12/07/2017 @ 6:13AM
Source : Edgar (US Regulatory)
Stock : Tailored Brands, Inc. (TLRD)
Quote : 19.46  -1.21 (-5.85%) @ 3:59PM
Tailored Brands, Inc. share price Chart

Quarterly Report (10-q)

not

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended October 28, 2017 or

 

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

 

For the transition period from                   to                  

 

Commission file number 1-16097

 

TAILORED BRANDS, INC.

(Exact Name of Registrant as Specified in its Charter)

 

Texas

 

47-4908760

(State or Other Jurisdiction of

 

(I.R.S. Employer

Incorporation or Organization)

 

Identification Number)

 

 

 

6380 Rogerdale Road

 

 

Houston, Texas

 

77072-1624

(Address of Principal Executive Offices)

 

(Zip Code)

 

(281) 776-7000

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒. No ☐.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes ☒. No ☐.

 

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

 

Large accelerated filer  ☒

Accelerated filer  ☐

Non-accelerated filer  ☐
(Do not check if a smaller reporting company)

Smaller reporting company  ☐

Emerging Growth Company  ☐

 

 

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

 

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

 

The number of shares of common stock of the Registrant, par value $.01 per share, outstanding at November 25, 2017 was 49,243,027.

 

 

 


 

REPORT INDEX

 

 

 

 

Part and Item No.

    

Page No .

 

 

 

PART I — Financial Information  

 

 

 

 

 

Item 1 — Condensed Consolidated Financial Statements (unaudited)  

 

 

 

 

 

Condensed Consolidated Balance Sheets as of October 28, 2017, October 29, 2016 and January 28, 2017  

 

2

 

 

 

Condensed Consolidated Statements of Earnings for the Three and Nine Months Ended October 28, 2017 and October 29, 2016  

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended October 28, 2017 and October 29, 2016  

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the Nine Months Ended October 28, 2017 and October 29, 2016  

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements  

 

6

 

 

 

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

 

31

 

 

 

Item 3 — Quantitative and Qualitative Disclosures about Market Risk  

 

44

 

 

 

Item 4 — Controls and Procedures  

 

44

 

 

 

PART II — Other Information  

 

45

 

 

 

Item 1 — Legal Proceedings  

 

45

 

 

 

Item 6 — Exhibits  

 

45

 

 

 

SIGNATURES  

 

47

 

 

 

 

 


 

Forward-Looking Statements

 

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

 

Any forward-looking statements that we make herein and in future reports are not guarantees of future performance, and actual results may differ materially from those in such forward-looking statements as a result of various factors.  Factors that might cause or contribute to such differences include, but are not limited to: actions by governmental entities; domestic and international macro-economic conditions; inflation or deflation; the loss of, or changes in, key personnel; success, or lack thereof, in formulating or executing our internal strategies and operating plans including new store and new market expansion plans, cost reduction initiatives, store rationalization plans, profit improvement plans, and revenue enhancement strategies; the impact of the termination of our tuxedo rental license agreement with Macy's; changes in demand for clothing or rental product; market trends in the retail business; customer confidence and spending patterns; changes in traffic trends in our stores; customer acceptance of our merchandise strategies; performance issues with key suppliers; disruptions in our supply chain; severe weather; foreign currency fluctuations; government export and import policies; advertising or marketing activities of competitors; and legal proceedings. Please also see "Item 1A. Risk Factors" in Part I of our Annual Report on Form 10-K for the year ended January 28, 2017, as the same may be updated from time to time in our subsequent filings with the SEC, for a more complete discussion of these and other factors that might affect our performance and financial results.

 

Forward-looking statements are intended to convey the Company's expectations about the future, and speak only as of the date they are made.  We undertake no obligation to publicly update or revise any forward-looking statements that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by applicable law.  However, any further disclosures made on related subjects in our subsequent reports on Forms 10‑K, 10‑Q and 8‑K should be consulted. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995, and all written or oral forward-looking statements that are made by or attributable to us are expressly qualified in their entirety by the cautionary statements contained or referenced in this section.

 

1


 

PART I – FINANCIAL INFORMATION

 

ITEM 1 – CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

    

October 28,

    

October 29,

    

January 28,

 

 

 

2017

 

2016

 

2017

 

ASSETS

 

 

 

 

 

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

126,244

 

$

34,948

 

$

70,889

 

Accounts receivable, net

 

 

81,193

 

 

71,898

 

 

65,714

 

Inventories

 

 

973,001

 

 

1,047,915

 

 

955,512

 

Other current assets

 

 

53,566

 

 

60,190

 

 

73,602

 

Total current assets

 

 

1,234,004

 

 

1,214,951

 

 

1,165,717

 

PROPERTY AND EQUIPMENT, net

 

 

454,921

 

 

501,391

 

 

484,165

 

RENTAL PRODUCT, net

 

 

125,320

 

 

160,101

 

 

152,610

 

GOODWILL

 

 

119,125

 

 

116,026

 

 

117,026

 

INTANGIBLE ASSETS, net

 

 

169,072

 

 

172,337

 

 

171,659

 

OTHER ASSETS

 

 

8,859

 

 

10,323

 

 

6,695

 

TOTAL ASSETS

 

$

2,111,301

 

$

2,175,129

 

$

2,097,872

 

LIABILITIES AND SHAREHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

 

 

 

 

 

Accounts payable

 

$

186,862

 

$

200,199

 

$

177,380

 

Accrued expenses and other current liabilities

 

 

281,533

 

 

280,658

 

 

267,899

 

Income taxes payable

 

 

21,224

 

 

917

 

 

1,262

 

Current portion of long-term debt

 

 

8,750

 

 

7,000

 

 

13,379

 

Total current liabilities

 

 

498,369

 

 

488,774

 

 

459,920

 

LONG-TERM DEBT, net

 

 

1,467,735

 

 

1,588,873

 

 

1,582,150

 

DEFERRED TAXES, net AND OTHER LIABILITIES

 

 

160,197

 

 

175,179

 

 

163,420

 

Total liabilities

 

 

2,126,301

 

 

2,252,826

 

 

2,205,490

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

SHAREHOLDERS' DEFICIT:

 

 

 

 

 

 

 

 

 

 

Preferred stock

 

 

 —

 

 

 —

 

 

 —

 

Common stock

 

 

492

 

 

487

 

 

487

 

Capital in excess of par

 

 

485,299

 

 

466,817

 

 

470,801

 

Accumulated deficit

 

 

(469,463)

 

 

(499,663)

 

 

(538,823)

 

Accumulated other comprehensive loss

 

 

(31,328)

 

 

(45,338)

 

 

(40,083)

 

Total shareholders' deficit

 

 

(15,000)

 

 

(77,697)

 

 

(107,618)

 

TOTAL LIABILITIES AND SHAREHOLDERS’ DEFICIT

 

$

2,111,301

 

$

2,175,129

 

$

2,097,872

 

 

See Notes to Condensed Consolidated Financial Statements.

2


 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS

(In thousands, except per share data)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

    

October 28, 2017

    

October 29, 2016

    

October 28, 2017

    

October 29, 2016

 

Net sales:

 

 

    

 

 

    

 

 

    

    

 

    

 

Retail clothing product

 

$

575,203

 

$

575,046

 

$

1,753,782

 

$

1,806,660

 

Rental services

 

 

126,410

 

 

138,724

 

 

373,208

 

 

403,564

 

Alteration and other services

 

 

45,909

 

 

49,919

 

 

138,835

 

 

149,888

 

Total retail sales

 

 

747,522

 

 

763,689

 

 

2,265,825

 

 

2,360,112

 

Corporate apparel clothing product

 

 

63,296

 

 

83,245

 

 

178,657

 

 

225,328

 

Total net sales

 

 

810,818

 

 

846,934

 

 

2,444,482

 

 

2,585,440

 

Cost of sales:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail clothing product

 

 

247,293

 

 

247,978

 

 

748,802

 

 

796,215

 

Rental services

 

 

20,455

 

 

22,958

 

 

60,580

 

 

65,943

 

Alteration and other services

 

 

34,138

 

 

33,526

 

 

103,686

 

 

104,085

 

Occupancy costs

 

 

103,579

 

 

108,923

 

 

311,994

 

 

327,673

 

Total retail cost of sales

 

 

405,465

 

 

413,385

 

 

1,225,062

 

 

1,293,916

 

Corporate apparel clothing product

 

 

46,596

 

 

56,343

 

 

131,527

 

 

152,173

 

Total cost of sales

 

 

452,061

 

 

469,728

 

 

1,356,589

 

 

1,446,089

 

Gross margin:

 

 

 

 

 

 

 

 

 

 

 

 

 

Retail clothing product

 

 

327,910

 

 

327,068

 

 

1,004,980

 

 

1,010,445

 

Rental services

 

 

105,955

 

 

115,766

 

 

312,628

 

 

337,621

 

Alteration and other services

 

 

11,771

 

 

16,393

 

 

35,149

 

 

45,803

 

Occupancy costs

 

 

(103,579)

 

 

(108,923)

 

 

(311,994)

 

 

(327,673)

 

Total retail gross margin

 

 

342,057

 

 

350,304

 

 

1,040,763

 

 

1,066,196

 

Corporate apparel clothing product

 

 

16,700

 

 

26,902

 

 

47,130

 

 

73,155

 

Total gross margin

 

 

358,757

 

 

377,206

 

 

1,087,893

 

 

1,139,351

 

Advertising expense

 

 

38,664

 

 

45,656

 

 

120,804

 

 

138,547

 

Selling, general and administrative expenses

 

 

243,466

 

 

270,494

 

 

750,995

 

 

849,122

 

Operating income

 

 

76,627

 

 

61,056

 

 

216,094

 

 

151,682

 

Interest income

 

 

159

 

 

52

 

 

324

 

 

102

 

Interest expense

 

 

(24,412)

 

 

(25,476)

 

 

(75,200)

 

 

(77,853)

 

Gain on extinguishment of debt, net

 

 

2,539

 

 

1,808

 

 

6,535

 

 

1,737

 

Earnings before income taxes

 

 

54,913

 

 

37,440

 

 

147,753

 

 

75,668

 

Provision for income taxes

 

 

18,021

 

 

9,007

 

 

50,551

 

 

20,623

 

Net earnings

 

$

36,892

 

$

28,433

 

$

97,202

 

$

55,045

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.75

 

$

0.58

 

$

1.98

 

$

1.13

 

Diluted

 

$

0.75

 

$

0.58

 

$

1.97

 

$

1.13

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

49,206

 

 

48,655

 

 

49,040

 

 

48,570

 

Diluted

 

 

49,430

 

 

48,812

 

 

49,251

 

 

48,691

 

Cash dividends declared per common share

 

$

0.18

 

$

0.18

 

$

0.54

 

$

0.54

 

 

See Notes to Condensed Consolidated Financial Statements.

 

3


 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

    

October 28,

    

October 29,

    

October 28,

    

October 29,

 

 

 

2017

 

2016

 

2017

 

2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

36,892

 

$

28,433

 

$

97,202

 

$

55,045

 

Currency translation adjustments

 

 

(5,257)

 

 

(15,075)

 

 

10,857

 

 

(18,246)

 

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

 

 

2,110

 

 

948

 

 

(2,102)

 

 

1,394

 

Comprehensive income

 

$

33,745

 

$

14,306

 

$

105,957

 

$

38,193

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

4


 

TAILORED BRANDS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

 

October 28,

 

October 29,

 

 

    

2017

    

2016

 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net earnings

 

$

97,202

 

$

55,045

 

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

 

 

 

 

 

 

 

Depreciation and amortization

 

 

78,929

 

 

87,838

 

Rental product amortization

 

 

32,779

 

 

35,982

 

Gain on extinguishment of debt, net

 

 

(6,535)

 

 

(1,737)

 

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

 

 

5,391

 

 

5,650

 

Loss on disposition of assets

 

 

1,407

 

 

616

 

Asset impairment charges

 

 

2,867

 

 

4,293

 

Share-based compensation

 

 

14,850

 

 

13,958

 

Deferred tax benefit

 

 

(243)

 

 

(13,233)

 

Deferred rent expense and other

 

 

422

 

 

(1,281)

 

Changes in operating assets and liabilities:

 

 

 

 

 

 

 

Accounts receivable

 

 

(13,192)

 

 

(13,273)

 

Inventories

 

 

(13,569)

 

 

(32,833)

 

Rental product

 

 

(6,554)

 

 

(37,817)

 

Other assets

 

 

16,632

 

 

84,844

 

Accounts payable, accrued expenses and other current liabilities

 

 

24,394

 

 

(4,314)

 

Income taxes payable

 

 

19,870

 

 

(2,065)

 

Other liabilities

 

 

(2,112)

 

 

(4,789)

 

Net cash provided by operating activities

 

 

252,538

 

 

176,884

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Capital expenditures

 

 

(55,956)

 

 

(80,550)

 

Acquisition of business, net of cash

 

 

(457)

 

 

 —

 

Proceeds from sales of property and equipment

 

 

2,157

 

 

605

 

Net cash used in investing activities

 

 

(54,256)

 

 

(79,945)

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Payments on term loan

 

 

(9,879)

 

 

(40,701)

 

Proceeds from asset-based revolving credit facility

 

 

235,900

 

 

520,550

 

Payments on asset-based revolving credit facility

 

 

(235,900)

 

 

(520,550)

 

Repurchase and retirement of senior notes

 

 

(106,731)

 

 

(21,924)

 

Deferred financing costs

 

 

(2,464)

 

 

 —

 

Cash dividends paid

 

 

(26,895)

 

 

(26,438)

 

Proceeds from issuance of common stock

 

 

1,334

 

 

1,451

 

Tax payments related to vested deferred stock units

 

 

(1,682)

 

 

(1,258)

 

Net cash used in financing activities

 

 

(146,317)

 

 

(88,870)

 

    Effect of exchange rate changes

 

 

3,390

 

 

(3,101)

 

INCREASE IN CASH AND CASH EQUIVALENTS

 

 

55,355

 

 

4,968

 

Balance at beginning of period

 

 

70,889

 

 

29,980

 

Balance at end of period

 

$

126,244

 

$

34,948

 

 

See Notes to Condensed Consolidated Financial Statements.

 

 

 

5


 

Table of Contents

TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

1. Significant Accounting Policies    

 

Basis of Presentation — The condensed consolidated financial statements herein include the accounts of Tailored Brands, Inc. and its subsidiaries (the "Company") and have been prepared without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (the "SEC").  As applicable under such regulations, certain information and footnote disclosures have been condensed or omitted.  We believe the presentation and disclosures herein are adequate to make the information not misleading, and the condensed consolidated financial statements reflect all elimination entries and normal recurring adjustments which are necessary for a fair presentation of the financial position, results of operations and cash flows at the dates and for the periods presented. Certain prior period amounts have been reclassified to conform to the current period presentation.

 

Our business results historically have fluctuated throughout the year and, as a result, the operating results of the interim periods presented are not necessarily indicative of the results that may be achieved for the full year. These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying notes included in our Annual Report on Form 10-K for the year ended January 28, 2017.

 

Unless the context otherwise requires, "Company", "we", "us" and "our" refer to Tailored Brands, Inc. and its subsidiaries.

 

The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States ("U.S. GAAP") requires management to make estimates and assumptions that affect the reported amounts and related disclosures.  Actual amounts could differ from those estimates.

 

Recent Accounting Pronouncements — We have considered all new accounting pronouncements and have concluded there are no new pronouncements that may have a material impact on our financial position, results of operations, or cash flows, based on current information, except for those listed below. 

 

In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2016-02, Leases.  ASU 2016-02 increases transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.  The main difference between previous U.S. GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. ASU 2016-02 is effective for public companies for annual reporting periods beginning after December 15, 2018, and interim periods within those fiscal years.  Early adoption of ASU 2016-02 is permitted.  The guidance is required to be adopted using the modified retrospective approach.  We are currently evaluating the impact ASU 2016-02 will have on our financial position, results of operations and cash flows but expect that it will result in a significant increase in our long-term assets and liabilities given we have a considerable number of operating leases.

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, to clarify the principles used to recognize revenue for all entities. In August 2015, the FASB issued ASU No. 2015-14 which deferred the effective date of ASU 2014-09 by one year.  As a result of this deferral, ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017 and early adoption is permitted for annual reporting periods beginning after December 15, 2016.  The guidance allows for either a full retrospective or a modified retrospective transition method. 

 

Based on our preliminary assessment, we determined that the adoption of ASU 2014-09 will impact the timing of revenue recognition related to our customer loyalty program and gift cards. Upon adoption, for our customer loyalty program, we will no longer use the incremental cost method approach, rather we will use a deferred revenue model.  For income from breakage of gift cards, which is currently recognized as a reduction of selling, general and administrative expenses ("SG&A") when the redemption of the gift card is remote, the new guidance requires classification within net sales with breakage recognized proportionately over the expected redemption period. Additionally, under the new guidance, we expect to recognize allowances for estimated sales returns on a gross basis rather than net basis on the condensed consolidated balance sheets. We are in the process of finalizing and quantifying the effects of the areas described above including additional disclosure requirements.  We will adopt ASU 2014-09 on February 4, 2018, under the modified retrospective approach, which will result in a cumulative adjustment to retained earnings.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

2.  Termination of Tuxedo Rental License Agreement with Macy's

 

During the first quarter of fiscal 2017, we reached an agreement with Macy's to wind down operations under the tuxedo rental license agreement established between Macy's and The Men's Wearhouse, Inc. ("The Men's Wearhouse") in 2015. The winding down of our tuxedo shops within Macy's is complete and all tuxedo shops within Macy's closed in the second quarter of 2017. 

 

As a result of the agreement, during the first quarter of fiscal 2017, we incurred $17.2 million of termination-related costs, of which $14.6 million were cash charges.  These costs included $12.3 million related to contract termination, $1.4 million of rental product write-offs, $1.2 million of asset impairment charges and $2.3 million of other costs, all of which relate to our retail segment. Of the $17.2 million in termination-related costs, $15.8 million is recorded in SG&A and $1.4 million is included in cost of sales in the condensed consolidated statement of earnings.  At October 28, 2017, $0.4 million of such costs are included in accrued expenses and other current liabilities in the condensed consolidated balance sheet.

 

3.  Restructuring and Other Charges

 

During the fourth quarter of fiscal 2015, we began implementing initiatives intended to reduce costs and improve operating performance.  These initiatives included a store rationalization program as well as a profit improvement program to drive operating efficiencies and improve our expense structure. These programs were substantially completed in fiscal 2016 and resulted in the closure of 75 Jos. A. Bank full line stores, the closure of 56 factory and outlet stores at Jos. A. Bank and Men's Wearhouse and the closure of 102 Men's Wearhouse and Tux stores.

 

No charges were incurred under these initiatives for the three and nine months ended October 28, 2017.  A summary of the charges incurred in the three and nine months ended October 29, 2016 incurred under these initiatives since inception is presented in the table below (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

For the Nine Months Ended

 

 

 

October 29, 2016

October 29, 2016

 

Lease termination costs

 

$

8,667

$

37,004

 

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

 

 

(844)

 

2,330

 

Consulting costs

 

 

1,806

 

13,583

 

Severance and employee-related costs

 

 

481

 

4,643

 

Other costs

 

 

839

 

1,565

 

Total pre-tax restructuring and other charges (1)

 

$

10,949

$

59,125

 


(1) Consists of $12.4 million in SG&A offset by a $1.5 million reduction in cost of sales for the three months ended October 29, 2016.  Of the total amount recorded for the three months ended October 29, 2016, $9.1 million relates to our retail segment and $1.8 million relates to shared services. Consists of $61.8 million included in SG&A offset by a $2.7 million reduction in cost of sales for the nine months ended October 29, 2016.  Of the total amount recorded for the nine months ended October 29, 2016, $42.7 million relates to our retail segment and $16.4 million relates to shared services.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

The following table is a rollforward of amounts included in accrued expenses and other current liabilities in the condensed consolidated balance sheet related to the pre-tax restructuring and other charges (amounts in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Severance and

 

Lease

 

 

 

 

 

 

 

 

 

 

 

 

Employee-

 

Termination

 

Consulting

 

Other

 

 

 

 

 

    

Related Costs

    

Costs

    

Costs

    

Costs

    

Total

 

Beginning Balance, January 28, 2017

 

$

986

 

$

4,834

 

$

60

 

$

25

 

$

5,905

 

Charges, excluding non-cash items

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

 

 —

 

Payments

 

 

(504)

 

 

(4,377)

 

 

(60)

 

 

(25)

 

 

(4,966)

 

Ending Balance, October 28, 2017

 

$

482

 

$

457

 

$

 —

 

$

 —

 

$

939

 

 

In addition to the restructuring costs described above, for the three months ended October 29, 2016, we incurred integration and other costs related to Jos. A. Bank totaling $1.4 million, of which $0.9 million are included in SG&A and $0.5 million are included in cost of sales in the condensed consolidated statement of earnings. 

 

For the nine months ended October 29, 2016, we incurred integration and other costs related to Jos. A. Bank totaling $7.1 million, of which $5.5 million are included in SG&A and $1.6 million are included in cost of sales in the condensed consolidated statement of earnings.

 

4.  Earnings Per Share    

 

Basic earnings per common share allocated to common shareholders is computed by dividing net earnings by the weighted-average common shares outstanding during the period.  Diluted earnings per common share reflect the more dilutive earnings per common share amount calculated using the treasury stock method or the two-class method.  For the three and nine months ended October 28, 2017, the treasury stock method is used to calculate diluted earnings per common share while the two-class method was used for the three and nine months ended October 29, 2016.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended

 

For the Nine Months Ended

 

 

 

October 28,

 

October 29,

 

October 28,

 

October 29,

 

 

    

2017

    

2016

    

2017

    

2016

 

Numerator

 

 

 

 

 

 

 

 

 

 

 

 

 

Net earnings

 

$

36,892

 

$

28,433

 

$

97,202

 

$

55,045

 

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

 

 

 —

 

 

(33)

 

 

 —

 

 

(65)

 

Net earnings allocated to common shareholders

 

$

36,892

 

$

28,400

 

$

97,202

 

$

54,980

 

Denominator

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic weighted-average common shares outstanding

 

 

49,206

 

 

48,655

 

 

49,040

 

 

48,570

 

Dilutive effect of share-based awards

 

 

224

 

 

157

 

 

211

 

 

121

 

Diluted weighted-average common shares outstanding

 

 

49,430

 

 

48,812

 

 

49,251

 

 

48,691

 

Net earnings per common share allocated to common shareholders:

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.75

 

$

0.58

 

$

1.98

 

$

1.13

 

Diluted

 

$

0.75

 

$

0.58

 

$

1.97

 

$

1.13

 

 

For the three and nine months ended October 28, 2017, 2.2 million and 2.1 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.  For the three and nine months ended October 29, 2016, 1.9 million and 1.7 million anti-dilutive shares of common stock were excluded from the calculation of diluted earnings per common share, respectively.

 

5.  Debt

 

In 2014, The Men's Wearhouse 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, in 2014, The Men's Wearhouse issued $600.0 million in aggregate principal amount of 7.00% Senior Notes due 2022 (the "Senior Notes").

 

In October 2017, The Men’s Wearhouse amended the ABL Facility in part to increase the principal amount available to $550.0 million and extend the maturity date to October 2022.  See Credit Facilities section below for additional information. 

 

The Credit Facilities and the Senior Notes contain customary non-financial and financial covenants, including fixed charge coverage ratios, total leverage ratios and secured leverage ratios.  In addition, we are currently restricted on our ability to pay dividends on our common stock in excess of $10.0 million per quarter. Since entering into these financing arrangements, our total leverage ratio and secured leverage ratio have been above the maximums specified in the

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

agreements, which was anticipated when we entered into these arrangements. As a result, we were subject to certain additional restrictions, including limitations on our ability to make significant acquisitions and incur additional indebtedness. As of October 28, 2017, our total leverage ratio and secured leverage ratio were below the maximums specified in the agreements and we believe these ratios will remain below the maximums specified in the agreements during the remainder of fiscal 2017 and beyond, which will result in the elimination of these additional restrictions. In addition, in accordance with the terms of the Credit Facilities, we made a mandatory excess cash flow prepayment offer of $4.6 million to the Term Loan lenders prior to April 28, 2017.  On May 2, 2017, the entire $4.6 million prepayment was made together with normal principal and interest payments on the Term Loan.

 

Credit Facilities

 

The Term Loan is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries and will mature in June 2021.  The interest rate on the Term Loan is based on 1-month LIBOR, which was 1.24% at October 28, 2017, plus the applicable margin which is currently 3.50%, resulting in a total interest rate of 4.74%.  In January 2015, we entered into an interest rate swap agreement, in which the variable rate payments due under a portion of the Term Loan were exchanged for a fixed rate.  In April 2017, we entered into an additional interest rate swap agreement to exchange variable rate payments under a portion of the Term Loan for a fixed rate.  At October 28, 2017, the total notional amount under our interest rate swaps is $490.0 million.  See Note 14 for additional information on our interest rate swaps.

 

In 2015, The Men's Wearhouse 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, or collateral and guarantees under the Term Loan. 

 

As a result of our interest rate swaps and the Incremental Agreement, we have converted a significant portion of the variable interest rate under the Term Loan to a fixed rate and, as of October 28, 2017, the Term Loan had a weighted average interest rate of 5.13%.

 

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

In October 2017, we amended our ABL Facility, which now provides for a senior secured revolving credit facility of $550.0 million, with possible future increases to $650.0 million under an expansion feature, that matures in October 2022, and is guaranteed, jointly and severally, by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The ABL Facility has several borrowing and interest rate options including the following indices:  (i) adjusted LIBOR, (ii) Canadian Dollar Offered Rate ("CDOR") rate, (iii) Canadian prime rate or (iv) an alternate base rate (equal to the greater of the prime rate, the New York Federal Reserve Bank (“NYFRB”) rate plus 0.5% or adjusted LIBOR for a one-month interest period plus 1.0%). Advances under the ABL Facility bear interest at a rate per annum using the applicable indices plus a varying interest rate margin of up to 1.75%.  The ABL Facility also provides for fees applicable to amounts available to be drawn under outstanding letters of credit which range from 1.25% to 1.75%, and a fee on unused commitments of 0.25%.  As of October 28, 2017, there were no borrowings outstanding under the ABL Facility.  During the nine months ended October 28, 2017, the maximum borrowing outstanding under the ABL Facility was $34.7 million.

 

We utilize letters of credit primarily as collateral for workers compensation claims and to secure inventory purchases.  At October 28, 2017, letters of credit totaling approximately $38.7 million were issued and outstanding. Borrowings available under the ABL Facility as of October 28, 2017 were $511.3 million.

 

Senior Notes

 

The Senior Notes are guaranteed, jointly and severally, on an unsecured basis by Tailored Brands, Inc. and certain of our U.S. subsidiaries. The Senior Notes and the related guarantees are senior unsecured obligations of the Company and the guarantors, respectively, and will rank equally with all of the Company's and each guarantor's present and future senior indebtedness. The Senior Notes will mature in July 2022.  Interest on the Senior Notes is payable in January and July of each year.

 

Long-Term Debt

 

During the third quarter of 2017, we repurchased and retired $65.0 million in face value of Senior Notes through open market transactions, which were consummated via borrowings on our ABL Facility.  As a result, we recorded a net gain on extinguishment totaling $2.5 million, which is included as a separate line in the condensed consolidated statement of earnings.  The net gain on extinguishment reflects a $3.4 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs totaling $0.9 million related to the Senior Notes. 

 

For the nine months ended October 28, 2017, as a result of the repurchase and retirement of a total of $115.0 million in face value of Senior Notes and our excess cash flow prepayment, we recorded a net gain on extinguishment totaling $6.5 million, which reflects a $8.2 million gain upon repurchase partially offset by the elimination of unamortized deferred financing costs of $1.7 million, which is included as a separate line in the condensed consolidated statement of earnings.

 

The following table provides details on our long-term debt as of October 28, 2017, October 29, 2016 and January 28, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 28,

 

October 29,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Term Loan (net of unamortized OID of $3.4 million at October 28, 2017, $4.4 million at October 29, 2016, and $4.1 million at January 28, 2017)

 

$

1,033,514

 

$

1,044,173

 

$

1,042,660

 

Senior Notes

 

 

460,000

 

 

575,000

 

 

575,000

 

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

 

 

(17,029)

 

 

(23,300)

 

 

(22,131)

 

Total long-term debt, net

 

 

1,476,485

 

 

1,595,873

 

 

1,595,529

 

Current portion of long-term debt

 

 

(8,750)

 

 

(7,000)

 

 

(13,379)

 

Total long-term debt, net of current portion

 

$

1,467,735

 

$

1,588,873

 

$

1,582,150

 

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

6.  Supplemental Cash Flows

 

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

 

 

 

 

 

 

 

 

 

 

 

For the Nine Months Ended

 

 

 

October 28,

 

October 29,

 

 

    

2017

    

2016

 

 

 

 

 

 

 

 

 

Cash paid for interest

 

$

66,628

 

$

62,450

 

Cash paid (refunded) for income taxes, net

 

$

17,798

 

$

(44,961)

 

 

We had unpaid capital expenditure purchases included in accounts payable and accrued expenses and other current liabilities of approximately $7.1 million and $7.8 million at October 28, 2017 and October 29, 2016, 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. 

 

Cash dividends declared of $9.2 million and $9.0 million at October 28, 2017 and October 29, 2016, respectively, are included in accrued expenses and other current liabilities.

 

7.  Inventories

 

The following table provides details on our inventories as of October 28, 2017, October 29, 2016 and January 28, 2017 (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 28,

 

October 29,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Finished goods

 

$

873,030

 

$

963,036

 

$

846,585

 

Raw materials and merchandise components

 

 

99,971

 

 

84,879

 

 

108,927

 

Total inventories

 

$

973,001

 

$

1,047,915

 

$

955,512

 

 

8.  Income Taxes

 

Our effective income tax rate increased to 32.8% for the third quarter of 2017 from 24.1% for the third quarter of 2016 primarily due to higher U.S. income as compared to income earned in foreign jurisdictions this year compared to last year.

 

Our effective income tax rate increased to 34.2% for the first nine months of 2017 from 27.3% for the first nine months of 2016 primarily due to higher U.S. income as compared to income earned in foreign jurisdictions this year compared to last year.  In addition, the effective income tax rate for the first nine months of 2017 was impacted by $2.2 million of tax deficiencies related to the vesting of stock-based awards resulting from the adoption of new accounting guidance related to stock-based compensation.  See Note 11 for additional information.

 

Additionally, we are currently undergoing several federal, foreign and state audits; however, we currently do not believe these audits will result in any material charge to tax expense in the future.

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

9.  Other Current Assets, Accrued Expenses and Other Current Liabilities and Deferred Taxes, net and Other Liabilities 

 

Other current assets consist of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 28,

 

October 29,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Prepaid expenses

 

$

44,473

 

$

43,778

 

$

47,057

 

Tax receivable

 

 

506

 

 

4,697

 

 

15,794

 

Other

 

 

8,587

 

 

11,715

 

 

10,751

 

Total other current assets

 

$

53,566

 

$

60,190

 

$

73,602

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

    

October 28,

    

October 29,

    

January 28,

 

 

 

2017

 

2016

 

2017

 

Accrued salary, bonus, sabbatical, vacation and other benefits

 

$

79,753

 

$

70,631

 

$

72,589

 

Customer deposits, prepayments and refunds payable

 

 

37,822

 

 

29,371

 

 

28,384

 

Unredeemed gift cards

 

 

34,552

 

 

34,693

 

 

40,865

 

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

 

 

30,220

 

 

36,021

 

 

31,188

 

Accrued workers compensation and medical costs

 

 

27,860

 

 

30,818

 

 

31,609

 

Accrued interest

 

 

19,550

 

 

25,884

 

 

15,457

 

Loyalty program reward certificates

 

 

11,199

 

 

10,704

 

 

9,840

 

Accrued dividends

 

 

10,789

 

 

9,572

 

 

9,842

 

Accrued royalties

 

 

6,020

 

 

7,977

 

 

3,720

 

Lease termination and other store closure costs

 

 

1,027

 

 

6,442

 

 

4,834

 

Other

 

 

22,741

 

 

18,545

 

 

19,571

 

Total accrued expenses and other current liabilities

 

$

281,533

 

$

280,658

 

$

267,899

 

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

October 28,

    

October 29,

 

January 28,

 

 

    

2017

    

2016

    

2017

 

Deferred and other income tax liabilities, net

 

$

91,760

 

$

102,243

 

$

92,079

 

Deferred rent and landlord incentives

 

 

60,040

 

 

61,641

 

 

61,215

 

Unfavorable lease liabilities

 

 

3,279

 

 

5,394

 

 

4,693

 

Other

 

 

5,118

 

 

5,901

 

 

5,433

 

Total deferred taxes, net and other liabilities

 

$

160,197

 

$

175,179

 

$

163,420

 

 

10.  Accumulated Other Comprehensive (Loss) Income

 

The following table summarizes the components of accumulated other comprehensive (loss) income for the nine months ended October 28, 2017 (in thousands and net of tax):

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

Cash Flow

 

Pension

 

 

 

 

 

    

Translation

    

Hedges

    

Plan

    

Total

 

BALANCE— January 28, 2017

 

$

(40,205)

 

$

(82)

 

$

204

 

$

(40,083)

 

Other comprehensive income (loss) before reclassifications

 

 

10,857

 

 

(4,240)

 

 

 —

 

 

6,617

 

Amounts reclassified from accumulated other comprehensive loss

 

 

 —

 

 

2,138

 

 

 —

 

 

2,138

 

Net current-period other comprehensive income (loss)

 

 

10,857

 

 

(2,102)

 

 

 —

 

 

8,755

 

BALANCE— October 28, 2017

 

$

(29,348)

 

$

(2,184)

 

$

204

 

$

(31,328)

 

 

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TAILORED BRANDS, INC. AND SUBSIDIARIES

 

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign

 

 

 

 

 

 

 

 

 

 

 

 

Currency

 

Cash Flow

 

Pension