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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1993
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 1-8501
HARTMARX CORPORATION
A DELAWARE CORPORATION IRS EMPLOYER NO. 36-3217140
101 NORTH WACKER DRIVE, CHICAGO, ILLINOIS 60606
TELEPHONE NO.: 312/372-6300
Securities registered pursuant to Section 12(b) of the Act:
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
Common Stock $2.50 par value per share New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [_]
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, and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
On February 16, 1994, 31,997,182 shares of the Registrant's common stock were
outstanding. The aggregate market value of common stock held by non-affiliates
of the Registrant was $198,863,000.
Certain portions of the Registrant's definitive proxy statement for the
annual meeting of stockholders to be held April 14, 1994, which will be filed
with the Commission subsequent to the date hereof pursuant to Regulation 14A of
the Securities Exchange Act of 1934, as amended, are incorporated by reference
into Part III of this report.
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HARTMARX CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
ITEM NO. PAGE
-------- ----
PART I
1 Business........................................................... 1
2 Properties......................................................... 4
3 Legal Proceedings.................................................. 5
4 Submission of Matters to a Vote of Security Holders................ 7
Executive Officers of the Registrant............................... 7
PART II
Market for Registrant's Common Equity and Related Stockholder
5 Matters........................................................... 7
6 Selected Financial Data............................................ 8
Management's Discussion and Analysis of Financial Condition and
7 Results of Operations............................................. 8
8 Financial Statements and Supplementary Data........................ 16
Changes in and Disagreements with Accountants on Accounting and
9 Financial Disclosure.............................................. 35
PART III
10 Directors and Executive Officers of the Registrant................. 35
11 Executive Compensation............................................. 35
12 Security Ownership of Certain Beneficial Owners and Management..... 35
13 Certain Relationships and Related Transactions..................... 36
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 36
PART I
ITEM 1--BUSINESS
General and Operating Segments
Hartmarx Corporation functions essentially as a holding company, overseeing
its various operating companies and providing them with resources and services
in the financial, administrative, legal, human resources, advertising, and
other areas. The operating subsidiaries are separate profit centers. Their
respective managements have responsibility for optimum use of the capital
invested in them and for planning their growth and development in coordination
with the strategic plans of Hartmarx and the other operating entities
(collectively, the "Company").
Established in 1872, the Company is the largest manufacturer and marketer of
men's suits, sportcoats and slacks ("men's tailored clothing") in the United
States. From this established position, Hartmarx has diversified into men's
sportswear and women's career apparel and sportswear.
Substantially all of the Company's products are sold to a wide variety of
retail channels under established brand names or the private labels of major
retailers. The Company owns two of the most recognized brands in men's tailored
clothing--Hart Schaffner & Marx(R), which was introduced in 1887, and Hickey-
Freeman(R), which dates from 1899. The Company also offers its products under
other brands which it owns such as Sansabelt(R), Kuppenheimer(R), Racquet
Club(R) and Barrie Pace(R) and under license agreements for specified product
lines including Tommy Hilfiger(R), Jack Nicklaus(R), Bobby Jones(R), Austin
Reed(R), Gieves & Hawkes(R), KM by Krizia(TM), MM by Krizia(TM), Henry
Grethel(R), Karl Lagerfeld(R), Nino Cerruti(R), Pierre Cardin(R) and
Fumagalli's(R). To broaden the distribution of the apparel sold under its owned
and licensed trademarks, the Company has also entered into over 35 license or
sublicense agreements with third parties for specified product lines to
produce, market and distribute products in 14 countries outside the United
States. Additionally, the Company has commenced direct marketing in Europe and
Asia, selling golf wear in these markets through distributors in 17 countries.
In 1992, the Company implemented a comprehensive operational and financial
restructuring (the "Restructuring") to refocus its business operations around
its profitable core wholesale men's apparel franchise and to restructure its
balance sheet. The operational aspects of the Restructuring included the sale
of Hartmarx Specialty Stores, Inc. ("HSSI"), the Company's principal retail
unit; the discontinuance of its Country Miss retail and manufacturing
operations; the closing of certain Kuppenheimer retail stores not achieving
minimum profitability requirements; the reduction of production capacity which
was no longer required to support reduced retail operations; and the sale or
closing of non-strategic manufacturing businesses which manufactured outerwear
and military and commercial uniforms. The total sales for fiscal 1992 for all
of the businesses and operations sold or discontinued in conjunction with the
Restructuring was approximately $365 million. The Company's financial
statements for fiscal 1992 include restructuring charges of $191 million. As
part of the Restructuring, the Company's borrowing facilities were consolidated
and extended in maturity, a $35 million seasonal borrowing facility was added
and shares of its common stock and a warrant to purchase its common stock were
sold for $30 million.
The Company's operations can be categorized within two operating segments--
wholesale and direct-to-consumer. The wholesale segment comprises the Men's
Apparel Group ("MAG") and International Women's Apparel ("IWA") businesses; the
direct-to-consumer segment consists principally of the Kuppenheimer and Barrie
Pace Ltd. ("Barrie Pace") businesses. The Operating Segment Information on
pages 34 and 35 of this Form 10-K further describes the Company's wholesale and
direct-to-consumer operations.
Products Produced and Services Rendered
The Company's merchandising strategy is to market a wide selection of men's
tailored clothing and sportswear and women's career apparel and sportswear
across a wide variety of fashion directions, price points and distribution
channels. In 1993, the Company's business units that primarily manufacture
men's
1
tailored clothing represented approximately 66% of the Company's sales. Those
business units that primarily manufacture men's sportswear and slacks
represented approximately 27% of consolidated sales and women's apparel
represented approximately 7% of consolidated sales.
As a vertically integrated manufacturer and marketer, the Company is
responsible for the designing, manufacturing and sourcing of its apparel.
Substantially all of its men's tailored clothing is manufactured in its own
factories, all of which are located in the United States. The Company utilizes
domestic and foreign contract manufacturers to produce its remaining products,
principally men's and women's sportswear, in accordance with Company
specifications and production schedules.
The Company's largest operating group, MAG, designs, manufactures and markets
on a wholesale basis substantially all of the Company's men's tailored clothing
through its Hart Schaffner & Marx ("HSM"), Hickey-Freeman and Intercontinental
Branded Apparel business units. Slacks and sportswear are manufactured and
marketed principally through the Trans-Apparel Group, Biltwell and Bobby Jones
business units. Kuppenheimer is the Company's vertically integrated, factory-
direct-to-consumer business. Kuppenheimer manufactures substantially all of its
tailored clothing in Company-owned facilities and sells these products
exclusively through Kuppenheimer operated stores. Kuppenheimer also offers
men's furnishings and sportswear purchased from other manufacturers. The
Women's Apparel Group is comprised of Barrie Pace, a direct mail company that
offers a wide range of apparel and accessories to the business and professional
woman, and IWA, which designs and sources women's career apparel and sportswear
for sale to department and specialty stores under owned and licensed brand
names. The Barrie Pace women's catalog features branded products, purchased
from both affiliated and unaffiliated sources.
At January 31, 1994, the Company operated 132 direct-to-consumer stores in
the United States selling apparel primarily manufactured by the Company, as
well as products purchased from unaffiliated sources. The shipment of products
manufactured by the Company to its owned stores is excluded from consolidated
sales. Kuppenheimer's 115 stores reflect the closing of 54 poor performing
stores related to the Restructuring. Seventeen Sansabelt shops are operated by
the Trans-Apparel Group, primarily carrying merchandise it manufactures.
Sources and Availability of Raw Materials
Raw materials, which include fabric, linings, thread, buttons and labels, are
obtained from domestic and foreign sources based on quality, pricing, fashion
trends and availability. The Company's principal raw material is fabric,
including woolens, cottons, polyester and blends of wool and polyester. The
Company procures and purchases its raw materials directly for its owned
manufacturing facilities and may also procure and retain ownership of fabric
relating to garments cut and assembled by contract manufacturers. In other
circumstances, fabric is procured by the contract manufacturer directly but in
accordance with the Company's specifications. For certain of its product
offerings, the Company and selected fabric suppliers jointly develop fabric for
the Company's exclusive use. Approximately 25% of the raw materials purchased
by the Company is imported from foreign mills. A substantial portion of these
purchases is denominated in United States dollars. Purchases from Burlington
Industries, Inc., the Company's largest fabric supplier, accounted for 48% of
the Company's total fabric requirements in fiscal 1993. No other supplier
accounts for over 6% of the Company's total raw material requirements. As is
customary in its industry, the Company has no long-term contracts with its
suppliers. The Company believes that a variety of alternative sources of supply
are available to satisfy its raw material requirements.
Product lines are developed primarily for two major selling seasons, spring
and fall, with smaller lines for the holiday season. The majority of the
Company's products are purchased by its customers on an advance order basis,
five to seven months prior to shipment. Seasonal commitments for a portion of
the expected requirements are made approximately three to five months in
advance of the customer order. Certain of the Company's businesses maintain in-
stock inventory programs on selected product styles giving customers the
2
capability to order electronically with resulting shipment within 24 to 48
hours. Programs with selected fabric suppliers provide for availability to
support in-stock marketing programs. The normal production process from fabric
cutting to finished production is five to six weeks for tailored suits and
sportcoats and three to four weeks for tailored slacks. A substantial portion
of sportswear and women's apparel is produced from Company designs utilizing
unaffiliated contractors.
Competition and Customers
The Company emphasizes quality, fashion, brand awareness and service in
engaging in this highly competitive business. While no manufacturer of men's
clothing accounts for more than a small percentage of the total amount of
apparel produced by the entire industry in the United States, the Company
believes it is the largest domestic manufacturer and marketer of men's tailored
clothing as well as men's slacks with expected retail prices over $50. However,
its retail sales of apparel directly to the end consumer do not represent a
significant percentage of total retail apparel sales. The Company's customers
include major United States department and specialty stores (certain of which
are under common ownership and control), mass merchandisers, value-oriented
retailers and direct mail companies. The Company's largest customer, Dillard
Department Stores, represented approximately 12% of 1993 consolidated sales. No
other customer exceeded 7% of net sales.
Research and Patents
In the apparel industry, new product development is directed primarily
towards new fashion and design changes and does not require significant
expenditures for research. The Company's fixed assets include expenditures for
new equipment developed by others. The Company does not spend material amounts
on research activities relating to the development of new equipment.
Conditions Affecting the Environment
Regulations relating to the protection of the environment have not had a
significant effect on capital expenditures, earnings or the competitive
position of the Company. The making of apparel is not energy intensive and the
Company is not engaged in producing fibers or fabrics.
Employees
The Company presently has approximately 11,200 employees, of whom
approximately 85% are employed in manufacturing-wholesale and 15% in the
direct-to-consumer businesses. Most of the men's apparel employees engaged in
manufacturing and distribution activities are covered by union contracts with
the Amalgamated Clothing and Textile Workers Union; a small number of the
women's apparel and direct-to-consumer employees are covered by other union
contracts. The Company considers its employee relations to be satisfactory.
Seasonality
The men's tailored clothing business has two principal selling seasons,
spring and fall. Additional lines for the summer and holiday seasons are
marketed in men's and women's sportswear. Men's tailored clothing, especially
at higher price points, generally tends to be less sensitive to frequent shifts
in fashion trends, economic conditions and weather, as compared to men's
sportswear or women's career apparel and sportswear. While there is typically
little seasonality to the Company's sales on a quarterly basis, seasonality can
be affected by a variety of factors, including the mix of advance and fill-in
orders, the distribution of sales across retail trade channels and overall
product mix between traditional and fashion merchandise.
3
The Company generally receives orders from its wholesale customers
approximately five to seven months prior to shipment. Some of the Company's
operating groups also routinely maintain in-stock positions of selected
inventory in order to fulfill customer orders on a quick response basis. A
summary of the order and delivery cycle for the Company's two primary selling
seasons is illustrated below:
ADVANCE ORDER
MERCHANDISE SEASON PERIOD DELIVERY PERIOD
------------------ ------------- ---------------
Fall December to March June to October
(primarily July and August)
Spring June to September December to March
(primarily January and February)
The Company's borrowing needs are typically lowest in July and January.
Financing requirements begin to rise as inventory levels increase in
anticipation of the spring and fall advance order shipping periods. Borrowings
reach their highest levels in April and October, just prior to the collection
of receivables from men's tailored clothing advance order shipments. Sales and
receivables are recorded when inventory is shipped, with payment terms
generally 30 to 60 days from the date of shipment. With respect to the tailored
clothing advance order shipments, customary industry trade terms are 60 days
from the seasonal billing dates of February 15 and August 15.
ITEM 2--PROPERTIES
The Company's principal executive and administrative offices are located in
Chicago, Illinois. Its principal office, manufacturing and distribution
operations are conducted at the following locations:
APPROXIMATE EXPIRATION
FLOOR AREA DATE OF
IN SQUARE MATERIAL
LOCATION FEET PRINCIPAL USE LEASES
- -------- ----------- ------------- ----------
Anniston, AL............ 76,000 Manufacturing 1994
Buffalo, NY............. 115,000 Manufacturing *
Buffalo, NY............. 280,000 Office; manufacturing; warehousing 1998
Cape Girardeau, MO...... 171,000 Manufacturing; warehousing *
Chaffee, MO............. 78,000 Manufacturing; warehousing 1994
Chicago, IL............. 112,000 Executive and operating company offices 1996
Chicago, IL............. 313,000 Manufacturing *
Des Plaines, IL......... 361,000 Manufacturing; warehousing *
Easton, PA.............. 220,000 Office; warehousing *
Elizabethtown, KY....... 54,000 Manufacturing *
Farmington, MO.......... 65,000 Warehousing *
Farmington, MO.......... 75,000 Manufacturing 1999
Loganville, GA.......... 179,000 Office; manufacturing; warehousing *
Michigan City, IN (2
locations)............. 420,000 Office; manufacturing; warehousing *
New York, NY............ 93,000 Sales offices/showrooms 1995
Norcross, GA............ 59,000 Office 1998
Rector, AR.............. 52,000 Manufacturing *
Rochester, NY........... 223,000 Office; manufacturing; warehousing *
Rochester, NY........... 51,000 Warehousing 1997
St. Louis, MO (2
locations)............. 88,000 Office; manufacturing 2000
Whiteville, NC.......... 105,000 Manufacturing *
Winchester, KY.......... 92,000 Manufacturing *
- --------
*Properties owned by the Registrant
The Company believes that its properties are well maintained and its
manufacturing equipment is in good operating condition and sufficient for
current production.
4
Substantially all of the Company's retail stores occupy leased premises. For
information regarding the terms of the leases and rental payments thereunder,
refer to the "Leases" note to the consolidated financial statements on pages 28
and 29 of this Form 10-K.
ITEM 3--LEGAL PROCEEDINGS
Dior Proceedings. In 1989, HSM and Christian Dior-New York, Inc. ("Dior")
were adverse parties in various lawsuits filed in the Circuit Court of Cook
County, Illinois, (the "Circuit Court") arising out of a Trademark License
Agreement under which HSM manufactured and sold apparel products bearing Dior's
trademark(s). These lawsuits were eventually settled and dismissed; however,
the settlement agreement among the parties has been the subject of an
unfavorable award against HSM in a subsequent arbitration proceeding and
lawsuit which is currently being appealed. In addition, HSM has initiated a
separate arbitration proceeding against Dior. It is the opinion of management
that neither matter will have a material effect on the Company's business or
financial condition.
Spillyards Litigation. In September 1992, David Spillyards, represented to be
the holder of approximately 1,800 shares of common stock of the Company, filed
a class action complaint in the Circuit Court of Cook County, Illinois, against
the Company, its directors and former director Harvey A. Weinberg. The
complaint claimed that the Company's directors breached certain duties owed to
the Company's shareholders and sought certification as a class action, the
appointment of Mr. Spillyards' counsel as class counsel and related damages.
The complaint, which also included a derivative action, alleged that the
purpose of the sale of the Company's principal retail unit, HSSI, to HSSA
Group, Ltd. ("HSSA"), was to benefit Mr. Weinberg (who was also alleged to have
been a director of the Company at the time of the announcement of the sale).
The complaint was subsequently amended to include additional allegations
pertaining to the ultimate sale of 5,714,286 shares of common stock of the
Company and a three-year warrant for 1,649,600 shares of common stock of the
Company to Traco (the "Traco Agreement"). The complaint, as amended, was
dismissed on November 30, 1992 and Mr. Spillyards was given permission by the
Court to file another amended complaint, which was filed on December 28, 1992
(the "Second Amended Complaint"). The Second Amended Complaint, denominated as
a class action and derivative complaint, again challenged certain aspects of
the Traco Agreement and alleged that the Company made certain misleading
representations in its July 17, 1991 prospectus. After the Company's motion to
dismiss the Second Amended Complaint was granted on June 24, 1993, Mr.
Spillyards filed a Third Amended Complaint (purportedly asserting new issues
regarding the Traco Agreement), which was again dismissed on September 29,
1993. Mr. Spillyards filed notice of appeals with the Illinois Appellate Court
on October 29, 1993 and December 23, 1993. The appeals were consolidated by
court order on February 8, 1994.
HSSI Matters. On September 18, 1992, the Company sold the common stock of
HSSI (the "HSSI Stock") to HSSA, for a promissory note in the principal amount
of $43 million due September 18, 1994 (the "HSSA Note"), which was subject to
adjustment based on inventories to be taken after the closing and was
subsequently adjusted to $35 million. Pursuant to a Stock Pledge Agreement (the
"Pledge Agreement"), the HSSA Note was secured by a pledge of the HSSI Stock
and HSSI also guaranteed the obligations of HSSA under the HSSA Note. The
Company believes that HSSA is 100% owned by the three sons of the sole
shareholders of Maurice L. Rothschild & Co. ("MLR") and at least one of the
shareholders of HSSA is also a director of MLR.
On November 23, 1993, after the Company determined that certain obligations
under the HSSA Note and related documents had been breached, the Company
exercised certain of its rights under the Pledge Agreement to, among other
things, cause the HSSI Stock to be voted to elect a new Board of Directors.
On November 23, 1993 and December 2, 1993, HSSI filed complaints against MLR
in the Circuit Court, seeking (i) to enjoin MLR from foreclosing under an
inventory credit agreement between HSSI and MLR pursuant to which MLR provided
credit support to HSSI, (ii) over $4 million in compensatory damages and
5
(iii) $30 million in punitive damages for, among other things, breach of
contract and conversion. On January 28, 1994, both of these actions were
removed by MLR to federal court to be administered in the HSSI Chapter 11 case.
On November 29, 1993, HSSA filed a complaint for declaratory and preliminary
and permanent injunctive relief against the Company in the Circuit Court,
seeking an order declaring, among other things, that HSSA is and remains the
owner of HSSI. The complaint alleges that the Company improperly and wrongfully
seized ownership of HSSI. HSSA's request for a temporary restraining order in
this regard was denied and the case remains before the Circuit Court. On
January 24, 1994, HSSA was granted leave, subject to pending objections, to
file an amended complaint. The amended complaint seeks actual damages in an
unspecified amount and punitive damages of at least $10 million for, among
other things, breach of contract, tortious interference with contract and
conversion. The Circuit Court has reserved ruling on the propriety of the
filing of the amended complaint. Primarily, these theories of liability are
based on claims that the Company unilaterally and wrongfully took the HSSI
Stock in the absence of an event of default and in the absence of any notice to
HSSA and failed to dispose of the HSSI Stock in a commercially reasonable
manner, all in breach of the Company's obligations under the HSSA Note, the
Stock Purchase Agreement, the Pledge Agreement and Part 5 of Article 9 of the
Illinois Commercial Code.
On December 3, 1993, HSM and certain other subsidiaries of the Company filed
a complaint against MLR in the Circuit Court seeking damages for goods sold
pursuant to orders of MLR for shipment to HSSI and other retailers to which MLR
provides credit support.
On December 21, 1993, HSSI and 25 affiliates filed voluntary petitions for
relief under Chapter 11 of the United States Bankruptcy Code (the "Bankruptcy
Code") in the United States Bankruptcy Court for the Northern District of
Illinois, Eastern Division (the "Bankruptcy Court").
On January 19, 1994, the Company filed a complaint against the directors of
HSSA in the Circuit Court seeking damages for wrongfully causing HSSI to make
distributions, returns of capital and compensation and other payments to
principals of HSSA in violation of the HSSA Note.
On January 24, 1994, HSSI filed a complaint in the Bankruptcy Court against
MLR which included many of the claims asserted in the Circuit Court case
described above and which additionally seeks (i) to equitably subordinate the
claim asserted by MLR in HSSI's bankruptcy case and (ii) monetary damages from
the former directors of HSSI and related parties for breach of fiduciary duty.
Also on January 24, 1994, MLR filed a complaint (which was amended on February
4, 1994) against the Company and six subsidiaries, among others, in the Circuit
Court seeking actual damages of $19 million and punitive damages of over $100
million for tortious interference with contract and interference with
prospective economic advantage. These theories of liability are based, in part,
on claims that no default existed under the HSSA Note and that the subsequent
sale of the HSSI Stock was improper because the Company did not give notice of
the time or location of the sale of the HSSI Stock. MLR further alleges that
counsel for the Company conceded in the hearing on HSSA's unsuccessful attempt
to obtain a temporary restraining order that HSSA was entitled to such notice.
On February 4, 1994, MLR filed a voluntary petition for relief under Chapter
11 of the Bankruptcy Code in the Bankruptcy Court and filed an adversary
proceeding against the Company to recover a payment of approximately $4.8
million to the Company as a voidable preference under the Bankruptcy Code. The
preference action was dismissed without prejudice on February 10, 1994.
After consultation with counsel, management of the Company believes that the
Company has meritorious defenses to the actions against the Company referred to
above and that such actions will not have a material adverse effect on the
Company's business or financial condition.
6
ITEM 4--SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Executive Officers of the Registrant
Each of the executive officers of the Registrant listed below has served the
Registrant or its subsidiaries in various executive capacities for the past
five years, with the exception of Mr. Rueckel. Each officer is elected annually
by the Board of Directors, normally for a one-year term and is subject to
removal powers of the Board.
YEARS
OF ELECTED
SERVICE TO
WITH PRESENT
NAME POSITION AGE COMPANY POSITION
---- -------- --- ------- --------
Elbert O. Hand.......... Chairman and 54 29 1992
Chief Executive Officer
(Director since 1984)
Homi B. Patel........... President and 44 14 1993
Chief Operating Officer
(Director since January, 1994)
Wallace L. Rueckel...... Executive Vice President and 49 1 1993
Chief Financial Officer
Carey M. Stein.......... Executive Vice President, 46 16 1993
Secretary and General Counsel
and Chief Administrative Officer
Glenn R. Morgan......... Senior Vice President 46 14 1993
and Controller,
Chief Accounting Officer
Frank A. Brenner........ Vice President, Marketing Services 65 25 1983
James E. Condon......... Vice President and Treasurer 43 16 1986
Linda J. Valentine...... Vice President, Compensation 43 13 1993
and Benefits
Kenneth A. Hoffman...... President--Men's Apparel Group 50 26 1991
Wallace L. Rueckel became Executive Vice President and Chief Financial
Officer in March 1993. Prior to joining the Company, he served as a key
financial officer at Guardian Industries and its affiliates for nine years. Mr.
Stein is presently on a medical leave of absence from the Company.
PART II
ITEM 5--MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Hartmarx common shares are traded on the New York and Chicago Stock
Exchanges. The quarterly composite price ranges of the Company's common stock
for the past three years were as follows:
1991 1992 1993
-------------- ------------- ------------
HIGH LOW HIGH LOW HIGH LOW
------- ------ ------ ------ ----- ------
First Quarter......................... $ 9.875 $6.625 $8.625 $6.25 $8.25 $5.375
Second Quarter........................ 13.25 9.625 7.00 5.50 7.25 5.75
Third Quarter......................... 12.375 7.50 6.625 4.875 6.75 5.125
Fourth Quarter........................ 9.00 7.00 5.75 3.00 7.75 5.75
7
The most recent quarterly dividend paid was in November, 1991, in the amount
of $.15 per share. Cash dividends may not be declared or paid during the term
of the Company's current financing agreements. The current financing agreements
also include various restrictive covenants pertaining to capital expenditures,
asset sales, operating leases, minimum working capital and current ratio, debt
leverage, consolidated tangible net worth, earnings before interest, taxes,
depreciation and amortization, and interest coverage. The Company is prohibited
from purchasing or redeeming its stock, warrants, rights or options, or from
making certain acquisitions, without lender consent. Consolidated tangible net
worth at November 30, 1993, as defined, was approximately $130 million compared
to the minimum required level of $107 million. The ratio of consolidated funded
indebtedness to consolidated tangible net worth, as defined, was 1.8 compared
to the maximum permitted ratio of 2.7.
As of February 16, 1994, there were approximately 7,400 stockholders of its
$2.50 par value common stock. The number of stockholders was estimated by
adding the number of registered holders furnished by the Company's registrar
and the number of participants in the Hartmarx Employee Stock Ownership Plan.
ITEM 6--SELECTED FINANCIAL DATA
The following table summarizes data from the Company's annual financial
statements for the years 1989 through 1993 and the notes thereto; the Company's
complete annual financial statements and notes thereto for fiscal 1993 are on
pages 18 through 35 of this Form 10-K.
IN THOUSANDS/FOR YEARS 1989 1990 1991 1992 1993
ENDED NOVEMBER 30 ---------- ---------- ---------- ---------- --------
Net sales............... $1,296,993 $1,295,840 $1,215,310 $1,053,949 $731,980
Gross profit............ 514,412 489,603 434,007 350,304 226,801
Earnings (loss) before
interest, taxes,
restructuring and
retail consolidation
charges................ 56,193 11,742 (22,702) (14,915) 29,279
Earnings (loss) before
interest, taxes,
depreciation and
amortization........... 87,231 (30,639) (2,393) (178,768) 43,386
Earnings (loss) before
interest and taxes..... 56,193 (65,858) (36,202) (205,715) 29,279
Interest expense........ 28,418 28,952 23,793 21,135 22,869
Earnings (loss) before
taxes.................. 27,775 (94,810) (59,995) (226,850) 6,410
Tax provision (benefit). 10,365 (33,265) (21,630) (6,605) 190
Net earnings (loss)..... 17,410 (61,545) (38,365) (220,245) 6,220
Net earnings (loss) per
common share
equivalent............. .89 (3.11) (1.74) (8.59) .20
Cash dividends per
share.................. 1.17 1/2 .90 .60 -- --
Average number of common
shares and equivalents. 19,567 19,786 22,056 25,629 31,375
IN THOUSANDS/AT NOVEMBER
30
Accounts receivable..... $ 210,555 $ 132,719 $ 134,748 $ 159,772 $120,442
Inventories............. 473,999 409,599 404,995 216,751 193,818
Working capital......... 420,799 334,888 231,290 236,952 249,017
Net properties.......... 192,802 172,470 149,656 66,846 56,477
Total assets............ 907,965 762,167 739,848 511,959 405,111
Long term debt.......... 270,969 226,623 105,498 248,713 207,416
Total debt.............. 376,216 288,130 285,649 314,602 233,113
Shareholders' equity.... 360,134 292,538 287,008 70,425 108,997
Equity per share........ 18.37 14.60 11.32 2.72 3.41
Management's Discussion and Analysis of Financial Condition and Results of
Operations, along with the Financing, Sale of Receivables, Taxes on Earnings
and Restructuring and Retail Consolidation Charges footnotes to the
consolidated financial statements provide additional information relating to
the comparability of the information presented above.
ITEM 7--MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Fiscal 1993 results reflect the strengthening of the Company's financial
condition as a result of the Restructuring commenced in 1992, which refocused
the Company's business operations around its profitable core wholesale men's
apparel franchise and restructured its balance sheet. See "Business--General
and
8
Operating Segments." The Company's continuing businesses currently comprise:
(i) MAG, which designs, manufactures and markets men's tailored clothing, on a
wholesale basis, principally through its HSM, Intercontinental Branded Apparel
and Hickey-Freeman business units, and slacks and sportswear, principally
through its Trans-Apparel Group, Biltwell and Bobby Jones business units; (ii)
Kuppenheimer, the vertically integrated factory-direct-to-consumer manufacturer
of popular priced men's tailored clothing whose products are sold, along with
related apparel procured from unaffiliated third parties, exclusively through
Kuppenheimer operated retail stores; and (iii) Women's Apparel Group, comprised
of Barrie Pace, a direct mail business offering a wide range of apparel and
accessories to the business and professional woman through its catalogs, and
IWA, which markets women's career apparel and sportswear to department and
specialty stores under owned and licensed brand names. For financial reporting
purposes, the Company's business units are identified as the wholesale segment,
which principally consists of MAG and IWA, and the direct-to-consumer
("consumer") segment, which is principally comprised of Kuppenheimer and Barrie
Pace.
RESULTS OF OPERATIONS
Consolidated 1993 sales were $732.0 million compared to $1.054 billion in
1992 and $1.215 billion in 1991. The 1993 sales decline of 30.5% compared to
1992 and the 13.3% decrease in 1992 compared to 1991 were substantially
attributable to the disposition or discontinuance of various businesses as a
result of the Restructuring. Over this period, sales of the Company's
continuing businesses experienced small increases, principally related to the
start-up of IWA and growth at Barrie Pace and in men's tailored clothing
(excluding the sales of the Company's continuing businesses to HSSI.)
Consolidated 1993 pre-tax income was $6.4 million compared to pre-tax losses
of $226.9 million in 1992 and $60.0 million in 1991. Results for 1992
reflected, in addition to $190.8 million of restructuring charges, the
aggregate operating losses associated with businesses sold or discontinued in
connection with the Restructuring. Results for 1991 included a $13.5 million
pre-tax charge taken to consolidate the Company's retail operations. Over this
period, pre-tax earnings for the Company's continuing businesses showed a small
improvement, principally related to reductions in corporate expenses. Net
income for 1993 was $6.2 million or $.20 per share and reflected an effective
tax rate of 3.0%. As discussed below, the Company's deferred tax assets include
significant operating loss carryforwards available to offset future taxable
income, which are substantially offset by valuation allowances due to
uncertainties associated with the realization of such tax benefits. The net
loss for 1992 was $220.2 million or $8.59 per share, which reflected a tax
benefit of 2.9%. The net loss of $38.4 million or $1.74 per share in 1991
reflected a full tax benefit of 36.1%.
Wholesale and Consumer Segments. Wholesale segment sales, which represent
products manufactured by the Company and sold to unaffiliated retailers for
resale to consumers, were $567 million in 1993, $592 million in 1992 and $578
million in 1991. The 4.2% decrease in 1993 as compared to 1992 was
substantially attributable to the sale or closing of non-strategic
manufacturing businesses which manufactured outerwear and commercial and
military uniforms. This decrease in sales was partially offset by a slight
increase in sales of the Company's continuing businesses and by $37 million of
sales to HSSI being reflected in consolidated sales in 1993 compared to $18
million in 1992 which represented only those sales to HSSI subsequent to the
Company's disposition of HSSI in September 1992. Prior to this disposition,
sales to HSSI were considered intercompany and not reflected in consolidated
sales. In 1992, such intercompany sales to HSSI were over $50 million. The 2.5%
increase in wholesale segment sales in 1992 over 1991 was principally
attributable to the introduction of new women's apparel brands and a slight
increase in men's apparel sales, which were attributable to $18 million of
sales to HSSI subsequent to its disposition by the Company. As a result of the
Restructuring, the percentage of wholesale segment sales to consolidated sales
increased to 77.5% in 1993 as compared to 56.2% in 1992 and 47.6% in 1991.
Also as a result of the Restructuring, sales in the consumer segment
(identified for reporting purposes in prior years as the retail segment)
declined to $165 million in 1993 from $462 million in 1992 and $637 million in
1991, and, as a result, represented 22.5% of consolidated sales in 1993
compared to 43.8% in 1992 and 52.4% in 1991. The consumer segment was
principally comprised of the Kuppenheimer and Barrie Pace
9
businesses during 1993. The consumer segment in 1992 and 1991 also included
HSSI and the operations of the Old Mill stores. The 64.3% decrease in 1993
compared to 1992 and the 27.6% reduction in 1992 compared to 1991 were
substantially attributable to the disposition of HSSI and discontinuance of the
Old Mill stores as part of the Restructuring. Barrie Pace continued to
experience sales increases during this period. Kuppenheimer's full year
comparable store sales declined 6% in 1993, 5% in 1992 and 4% in 1991. Consumer
segment sales for 1992 reflected declines in comparable store sales at HSSI and
Country Miss, prior to the sale or discontinuance of the stores, of
approximately 13% and 9%, respectively. Consumer segment sales as a percentage
of total sales are expected to decline further in the future, reflecting fewer
Kuppenheimer stores as a result of the Restructuring and the Company's emphasis
on its wholesale businesses.
Wholesale segment earnings before interest and taxes, which include the
manufacturing gross margin on products sold to unaffiliated retailers, were $37
million in 1993, $25 million in 1992 and $27 million in 1991. Men's tailored
clothing represented a substantial portion of segment earnings in each year.
Wholesale segment earnings for 1992 included an $8 million restructuring charge
associated with discontinued businesses. The remaining 1993 increase compared
to 1992 was principally attributable to improvements within the slacks and
sportswear businesses. Also, the operating losses associated with women's
wholesale apparel were reduced in each year.
Consumer segment earnings before interest and taxes include the gross margin
between retail selling price and cost associated with products manufactured by
the Company and products purchased from unaffiliated sources. Consumer segment
earnings were $2.5 million in 1993 compared to losses of $199 million in 1992
and $41 million in 1991. Segment results for 1993 include earnings in the
Barrie Pace catalog business, partially offset by an operating loss at
Kuppenheimer, which was principally attributable to its lower comparable store
sales. Consumer segment results include $168 million in restructuring charges
in 1992 and a $13.5 million provision associated with the consolidation of
retail operations in 1991, actions which followed previous programs to improve
retail operations through selective store closings and expense reductions. In
addition to the non-recurring charges described above, additional factors
contributing to the consumer segment losses in 1992 and 1991 were lower
comparable store sales, high markdowns relative to sales and certain occupancy
and administrative costs which did not decrease proportionately with the lower
sales.
Gross Margins. The consolidated gross margin percentage of sales was 31.0% in
1993, 33.2% in 1992 and 35.7% in 1991, a decline which primarily resulted from
the Company's change in business mix as a result of the Restructuring.
Wholesale sales generally produce a lower gross margin ratio to sales (and
lower selling, administrative and occupancy expenses) compared to the consumer
segment and represented 77.5% of consolidated sales in 1993 compared to 56.2%
in 1992 and 47.6% in 1991. The percentage of wholesale sales to total sales is
expected to increase in 1994 due to fewer stores operated by Kuppenheimer.
While the consolidated ratio of gross margin to sales declined in 1993 compared
to 1992, gross margin in both the wholesale and consumer segments improved
compared to 1992. Current year results included $3.6 million of income
resulting from lower LIFO inventories compared to $3.3 million of LIFO income
in 1992; LIFO income in 1993 produced a .5% favorable impact on gross margin in
1993 compared to a .3% favorable impact in 1992. The consolidated gross margin
percentage decline in 1992 compared to 1991 also reflected lower consumer
segment margins, as wholesale margins were approximately even.
Selling, Administrative and Occupancy Expenses. Selling, administrative and
occupancy expenses represented 27.8% of sales in 1993 compared to 35.6% in 1992
and 38.5% in 1991. Consolidated expenses of $204 million in 1993 declined by
approximately $171 million compared to 1992. The lower dollar level and
percentage of sales ratio of these expenses reflected the disposition of HSSI,
the effect of expense reduction programs in ongoing businesses and the greater
proportion of wholesale business with its lower operating expense ratio to
sales compared to the consumer segment. Both the dollar level and corresponding
ratio to sales are expected to decline further in 1994 from the reduced level
of retail operations compared to 1993. Wholesale segment operating expenses in
1993 declined in comparison to 1992 principally from discontinued businesses,
although the percentage of sales was approximately the same. Consumer segment
operating
10
expenses declined substantially, both in dollars and as a percentage to sales
in 1993 as compared to 1992, and in 1992 as compared to 1991, reflecting the
disposition of HSSI, the wind down of the Old Mill retail store operations,
expense reduction programs in ongoing businesses and the greater proportion of
consolidated sales represented by the wholesale businesses. Aggregate 1992
expenses of $375 million declined by approximately $93 million from 1991,
attributable to the disposition of HSSI and closing most of the Old Mill retail
stores in 1992.
Advertising expenditures, which are included in Selling, Administrative and
Occupancy Expenses, declined to $20 million in 1993 from $33 million in 1992
and $48 million in 1991, representing 2.7%, 3.1% and 4.0% of consolidated
sales, respectively. The dollar and percentage declines in each year were
principally attributable to the disposition of HSSI and the wind down of the
Old Mill retail stores, although wholesale segment advertising expenditures
also declined both in dollars and as a percentage of sales in each year.
Advertising expenditures applicable to wholesale operations are expected to
increase during 1994 relating to both new and existing brands.
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions ("FAS 106"), requires the
recognition of an obligation related to employee service pursuant to a
postretirement benefit plan and is mandatory for the Company's fiscal year
ending November 30, 1994. As retiree contributions offset the full cost of the
Company-sponsored medical programs, no transition obligation is expected upon
adoption of FAS 106 and there would be no effect on either net earnings or
shareholders' equity.
Statement of Financial Accounting Standards No. 112, Employers' Accounting
for Postemployment Benefits, requires the recognition of obligations related to
benefits provided by an employer to former or inactive employees after
employment but before retirement, and is mandatory for the Company's fiscal
year ending November 30, 1995. The Company believes that adoption is not
expected to have a material impact on its financial condition.
Other Income. Finance charges, interest and other income aggregated $6.0
million in 1993, $9.6 million in 1992 and $10.8 million in 1991. Other income
was comprised principally of licensing income in 1993, and also included
service charges on the retail receivables of HSSI in 1992 and 1991. The
decrease in each year was principally attributable to the impact of the
receivables sale program, described in the accompanying Notes to Consolidated
Financial Statements, which commenced in June 1990 and terminated in October
1992.
Interest Expense. Interest expense was $23 million in 1993, $21 million in
1992 and $24 million in 1991. The increase of approximately $2 million in 1993
compared to 1992 was attributable to increased interest rates associated with
the Company's refinancing along with higher financing fee amortization. On a
weighted average basis, total borrowing rates increased by approximately 1%;
this rate increase was mitigated by lower average borrowings from reduced
working capital requirements and the $30 million equity investment. The
decrease of approximately $3 million in 1992 compared to 1991 reflected a 1.5%
decline in average bank borrowing rates; total borrowings averaged $10 million
higher during 1992 compared to 1991, in part attributable to the termination of
the receivable sale program during 1992.
Income Taxes. The effective tax provision (benefit) rate was 3.0% in 1993,
(2.9)% in 1992 and (36.1)% in 1991. The effective tax rates for 1993 and 1992
reflect the adoption of Statement of Financial Accounting Standards No. 109,
Accounting for Income Taxes ("FAS 109"), in the 1992 fiscal year.
A substantial portion of the Company's tax assets are reserved by a tax
valuation allowance aggregating $69 million at November 30, 1993. This
valuation allowance reflects the uncertainties associated with the realization
of the available tax benefit of net operating loss carryforwards, after giving
consideration to the Company's recent operating losses. Although the Company
achieved income during 1993 for financial reporting purposes, a tax operating
loss resulted from the reversal of temporary differences associated with
11
the Restructuring. The realization of the tax benefit arising from $137 million
of net operating loss carryforwards at November 30, 1993 requires the
generation of future taxable income. The net operating loss carryforwards
expire in 2008. Approximately $2 million of the valuation allowance offsetting
the deferred tax asset, associated with 1993 pre-tax income for financial
reporting, was reversed during 1993. The 1993 effective tax provision rate was
applicable to state income taxes. Upon the determination that the realization
of some or all of the remaining reserved tax asset is more likely than not,
earnings for the applicable year and shareholders' equity would be increased
accordingly.
The 1991 benefit rate reflected the recoverable federal and state income
taxes from the carryback of operating losses to prior years.
CASH FLOW AND FINANCIAL CONDITION
In connection with the Restructuring, the Company consolidated and extended
its borrowing facilities in December, 1992 pursuant to which, among other
things, (i) the maturity of $307 million of the Company's outstanding
indebtedness was consolidated and extended until December 30, 1995 pursuant to
the terms of the Override Agreement, (ii) an additional seasonal borrowing
availability of $35 million was obtained under the Bridge Facility and (iii)
certain restrictive covenants with respect to the Company's indebtedness were
added and existing covenants were adjusted to reflect the condition of the
Company following the commencement of the Restructuring. The Company also
raised $30 million through the sale of shares of its common stock and a warrant
to purchase additional common shares in a private placement to Traco
International, N.V. Borrowings under the Override Agreement and Bridge Facility
(collectively, "the Agreements") substantially replaced or amended the
provisions of the principal financing agreements existing as of November 30,
1992, and are secured by substantially all assets of the Company and its
subsidiaries, subject to a priority of up to $15 million for trade creditors.
At November 30, 1992, total debt was $314.6 million and reflected full
utilization of then available lines. Upon execution of the Agreements and
related private equity placement, borrowings and other arrangements under the
predecessor Multiple Option Facility and various other agreements were
superceded. The $307 million Override Agreement matures December 30, 1995. The
Bridge Facility, originally $35 million and maturing November 30, 1993, was
extended by the Company for one year at the $15 million commitment level, which
satisfied the $20 million commitment reduction required as of November 30, 1993
under the Agreements. Additional required commitment reductions are $10 million
on May 31, 1994 and $15 million on each of November 30, 1994 and May 31, 1995,
with the balance expiring December 30, 1995. Additional commitment reductions
may be required to the extent of certain asset sales, equity proceeds and
available working capital based on calculations specified in the Agreements.
The Agreements include various restrictive covenants pertaining to capital
expenditures, asset sales, operating leases, minimum working capital and
current ratio, debt leverage, consolidated tangible net worth, earnings before
interest, taxes, depreciation and amortization and interest coverage. Cash
dividends may not be declared or paid during the term of the Agreements and the
Company is prohibited from purchasing or redeeming its stock, warrants, rights
or options, or from making certain acquisitions or investments without specific
lender consent. Any borrowings under the Bridge Facility would be repaid for a
minimum thirty day period during 1993 and for two thirty day periods in 1994.
During 1993, the Company did not borrow under the Bridge Facility and no other
commitment reductions were required. At November 30, 1993, the Company had $89
million of borrowing availability under the Agreements.
During 1993, the Company continued to evaluate refinancing alternatives,
including, but not limited to, extending the maturities of a portion of its
borrowings. In January 1994, two industrial development bonds ("IDBs")
aggregating $15.5 million, associated with the Override Agreement, were
refinanced independent of the Override Agreement. The refinanced bonds bear a
fixed coupon rate of 7.25% and were issued at a discount to yield 7.5%. The
$7.5 million IDB matures on July 1, 2014 while the $8.0 million IDB matures on
July 1, 2015. The Company, at its option, may redeem the IDBs beginning July 1,
2000 at a 3% premium,
12
declining to par on July 1, 2003. The IDBs are now unsecured obligations of
Hartmarx Corporation and include certain customary covenants, representations
and warranties in events of default, but do not contain financial covenants or
cross default provisions.
In January 1994, the Company filed a Registration Statement with respect to a
proposed public offering of $100 million aggregate principal amount of its
senior subordinated notes due 2002 ("Notes"). The ultimate issuance of these
Notes is contingent upon several factors, including a public market environment
acceptable to the Company with respect to interest rates. In addition, the
issuance of the Notes would require the Company to obtain either the consent of
the existing Override Agreement and Bridge Facility lenders or a new credit
facility which, in conjunction with the subordinated debt issue, would provide
sufficient availability to repay and terminate the Agreements.
As discussed in the accompanying Notes to Consolidated Financial Statements,
the Company executed a commitment letter ("Financing Commitment") on January
11, 1994 with General Electric Capital Corporation as managing agent ("Managing
Agent") with respect to a proposed new credit facility for an aggregate maximum
amount of $175 million ("New Credit Facility"). The Financing Commitment is
subject to, among other things, (i) there being no material adverse change in
the business or financial condition of the Company and its subsidiaries taken
as a whole and (ii) definitive documentation for the New Credit Facility
acceptable to the Managing Agent. The Financing Commitment terminates if, among
other things, the Notes are not issued by April 30, 1994. Assuming that the New
Credit Facility was consummated as of March 31, 1994 and the Agreements
cancelled, the Company would expect to record an extraordinary pre-tax charge
in fiscal 1994 of approximately $4 million, representing the loss from early
extinguishment of debt.
The New Credit Facility is expected to contain restrictions on the operation
of the Company's business, including covenants pertaining to capital
expenditures, asset sales, operating leases, minimum net worth and incurrence
of additional indebtedness, and ratios relating to minimum accounts payable to
inventory, maximum funded debt to EBITDA and minimum fixed charge coverage, as
well as other customary covenants, representations and warranties, funding
conditions and events of default. The Company does not believe that the
restrictions contained in these financial and operating covenants will cause
significant limitations on the Company's financial flexibility. In addition,
the terms of the New Credit Facility will require the obligations under the New
Credit Facility to be reduced to no more than $135 million for a minimum of 30
consecutive days during the period between April 1 and June 30 during each
fiscal year.
As noted above, the proposed Notes and New Credit Facility are subject to
certain conditions precedent. While the consummation of the above noted
transactions are believed to be beneficial to the longer term interests of the
Company, the Company believes its existing arrangements provide sufficient
borrowing availability and flexibility to currently operate its businesses in
the normal course. However, if the Notes and New Credit Facility transactions
are not completed, the Company would need to enter into new financing
agreements by the December 30, 1995 expiration of the Override Agreement.
As indicated in the accompanying Consolidated Statement of Cash Flows, the
net cash provided by operating activities was $30 million in 1993 compared to
net cash used in operating activities of $7 million in 1992 and $11 million in
1991. The cash and cash equivalent balance at November 30, 1993 was $1.5
million, compared to $22.4 million at November 30, 1992 which reflected
approximately $13 million of short-term investments and the full utilization of
then available credit lines. Net accounts receivable of $120.4 million at
November 30, 1993 declined $39.3 million or 24.6% compared to November 30,
1992, principally attributable to the Restructuring, and 1992 receivables
included certain consumer receivables which have subsequently been collected or
written off. The allowance for doubtful accounts decreased to $9.9 million from
$16.0 million in 1992, representing 7.6% of gross receivables in 1993 compared
to 9.1% in 1992; the 1992 reserve reflected increased requirements for the then
remaining consumer receivables. Inventories of $193.8 million at November 30,
1993 declined $22.9 million or 10.6% from November 30, 1992, attributable to
both improvements in ongoing operations and the completion of inventory
liquidations in the Old Mill retail stores and uniform businesses during fiscal
1993. Inventory turn in continuing businesses improved.
13
Recoverable income taxes of $.7 million at November 30, 1993 and $8.2 million
at November 30, 1992 arise from the carryback of operating losses to prior
years. Deferred income taxes were $5.9 million at November 30, 1993 compared to
$5.6 million in 1992. The November 30, 1993 balance reflects a $69 million
valuation allowance ($71 million in 1992) related to a substantial portion of
the tax asset resulting from prior years' operating losses. The Company has and
will continue to assess the necessity for the valuation allowance taking into
consideration such factors as earnings trends and prospects, anticipated
reversal of temporary differences between financial and taxable income, the
expiration or limitations of net operating loss carryforwards and available tax
planning strategies (including the ability to adopt the FIFO inventory
valuation method for those inventories currently valued under the LIFO
valuation method). A future reversal of the valuation allowance in whole or in
part represents a contingent asset which would increase earnings and
shareholders' equity. Also, see discussion under "Income Taxes" above.
At November 30, 1993, net properties were $56.5 million compared to $66.8
million in 1992. The decline principally reflected depreciation expense
exceeding capital additions by approximately $8 million. Capital additions in
1993 were $6.0 million compared to $9.5 million in 1992 which included
additions relating to businesses discontinued pursuant to the Restructuring;
capital additions for 1992 in continuing businesses were $8.1 million. The
Company's current borrowing agreements provide for annual limitations of
capital expenditures, including $9.9 million applicable to 1994. These
limitations are not expected to result in delaying capital expenditures
otherwise planned by the Company. Upon consummation of the New Credit Facility,
the permitted capital expenditures are anticipated to increase from the current
levels. Capital expenditures in the next several years are expected to be
funded from cash generated from operations and principally utilized for
productivity improvements in various manufacturing locations.
The operational aspects of the Restructuring have been substantially
completed. Following the sale of HSSI in September, 1992, all of the Old Mill
stores were closed. The store closings associated with Kuppenheimer were
substantially completed by January 1994. Production facilities supporting the
above noted reduced retail operations have been closed or sold along with
facilities related to the rainwear and military and commercial uniform
businesses. At November 30, 1993, approximately $8 million of accrued
restructuring charges were reflected in the accompanying balance sheet,
representing rent, severance and other employee benefits.
At November 30, 1993, total debt of $233.1 million declined by $81.5 million
as compared to November 30, 1992, as a result of the application of proceeds of
the $30 million equity investment and approximately $21 million of cash and
equivalents to the reduction of outstanding indebtedness, lower working capital
requirements related to both ongoing and discontinued businesses, and lower
capital expenditures. The $25 million of notes payable classified as current at
November 30, 1993 reflects the anticipated seasonal repayments within fiscal
1994. Long-term debt was $207.4 million at November 30, 1993, representing 66%
of the total $316.4 million capitalization, compared to 78% at November 30,
1992; the lower percentage reflected 1993 net earnings, the debt reduction and
equity sales during the year. Total debt, including short- term borrowings and
current maturities, represented 68% of total capitalization at November 30,
1993, compared to 82% at November 30, 1992.
Shareholders' equity of $109.0 million at November 30, 1993 increased $38.6
million during 1993 and represented $3.41 book value per share at year end
compared to $2.72 book value per share at November 30, 1992 ($100.4 million or
$3.18 per share on a pro forma basis reflecting the $30 million equity proceeds
and issuance of 5.7 million additional shares). The increase reflected the net
income for the year, the private placement of equity, ongoing equity sales to
employee benefit plans and recognition of previously unearned employee benefits
associated with the Company's Employee Stock Ownership Plan. Dividends were not
paid in fiscal 1993 or 1992 and dividend payments are prohibited under the
current lending facility. The proposed terms of the Notes and New Credit
Facility restrict the payment of dividends. Consolidated tangible net worth at
November 30, 1993, as defined in the current Agreements, was $130 million
compared to $107 million required under the Agreements.
14
Considering the impact of inflation, earnings would be lower than reported
due to assuming higher depreciation expense without a corresponding reduction
in taxes. The current value of net assets would be higher than the Company's
$109 million book value after reflecting the Company's use of the LIFO
inventory method and increases in the value of the properties since
acquisition.
HSSI has continued as a customer of the Company subsequent to its
disposition, although its purchases of the Company's products are declining.
The Company's fiscal 1993 sales to HSSI were approximately $37 million
(representing 5% of the Company's fiscal 1993 total sales), a decrease from the
approximate $67 million wholesale value of shipments produced by the Company's
continuing businesses for HSSI in 1992. In connection with the 1992 sale to
HSSA, HSSI agreed to purchase from the Company, in each of the two twelve-month
periods following the closing of the sale, products having an aggregate
wholesale purchase price of at least $35 million. On December 21, 1993, HSSI
and 25 affiliates filed voluntary petitions for relief under Chapter 11 of the
United States Bankruptcy Code and are currently operating as debtors-in-
possession. Any supply agreement entered into between the Company and HSSI
prior to December 21, 1993 may be deemed an executory contract subject to
assumption or rejection by HSSI under the United States Bankruptcy Code, and
there can be no assurance that HSSI will assume any such supply agreement if
such agreement is deemed an executory contract. When HSSI's Chapter 11
petitions were filed, HSSI's total outstanding indebtedness to the Company
(excluding its guaranty of a $35 million promissory note of HSSA, the original
direct obligor, to the Company) was approximately $4.5 million. MLR has
extended credit support to HSSI and others in connection with purchases from
the Company and, as a result, has total outstanding indebtedness to the Company
at November 30, 1993 of approximately $10.8 million (including interest
charges). The foregoing amounts of indebtedness of HSSI and MLR have not been
adjusted for amounts received by the Company aggregating approximately $4.8
million in November 1993. On February 4, 1994, MLR filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code. For
additional information concerning these and other legal proceedings involving
HSSI and the Company, see "Part I, Item 3--Legal Proceedings".
Under current circumstances, there can be no assurance that the Company will
have any future sales to HSSI, that the Company will be able to collect amounts
owed by HSSI or MLR, that MLR will provide any future credit support to HSSI or
that either HSSI or MLR will continue as a going concern, events which could
adversely affect the Company's total revenues or earnings. For the two months
ended January 31, 1994, sales to HSSI aggregated $4.8 million and were on a
cash-in-advance basis. While there can be no assurance that a decrease in
business with HSSI can be fully replaced in the next several years, new retail
customers have been added and volume with existing customers has increased in
various markets where HSSI operates or has vacated.
Debt reduction and extension of debt maturities continue to be a priority for
the Company, as demonstrated by the Notes and the New Credit Facility.
Following the Restructuring, the Company has continued to focus its operating
and capital resources principally on its wholesale apparel businesses. The
Company intends to maintain its position as the market leader in men's tailored
clothing, while continuing to expand in men's slacks and sportswear, which
includes the golf-inspired collections under the Jack Nicklaus(R) and Bobby
Jones(R) brands. As anticipated, unit volume with HSSI declined significantly
in 1993 compared to 1992, and further reductions are likely in 1994. The
Company intends to mitigate the impact of reduced volume with HSSI by adding
new customers and increasing volume with existing accounts, as well as by
introducing new brands. Ongoing quick response and electronic data interchange
relationships with major customers, enabling the rapid replenishment of
inventory for selected product styles and enhanced service capabilities, are
expected to continue as an important element of product distribution. The
Company intends to continue its international licensing programs, while
gradually developing merchandising and marketing expertise to sell branded
apparel directly in international markets, which could include joint ventures,
acquisitions and selling agencies.
Conditions in the women's wholesale and men's direct-to-consumer businesses
resulted in operating losses in 1993 for the IWA and Kuppenheimer operations.
As a result, specific marketing and expense
15
reduction actions have been implemented with the objective of improving results
in these businesses. The Company is reviewing the profitability prospects and
strategic direction of the IWA business, and may discontinue one or more of
IWA's product lines or modify its distribution channels. Kuppenheimer's total
sales are expected to decline due to fewer stores. Its merchandising strategy
has been refocused to emphasize three distinct fashion silhouettes, each having
a defined brand identification. The Company intends to expand the profitable
Barrie Pace catalog business through increasing catalog circulation and by
broadening its merchandise mix to include women's sportswear and more informal
career apparel, while continuing to target the upscale and professional woman.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Financial Statements:
Report of Independent Accountants....................................... 17
Consolidated Statement of Earnings for the three years ended November
30, 1993............................................................... 18
Consolidated Balance Sheet at November 30, 1992 and 1993................ 19
Consolidated Statement of Cash Flows for the three years ended November
30, 1993............................................................... 20
Consolidated Statement of Shareholders' Equity for the three years ended
November 30, 1993...................................................... 21
Notes to Consolidated Financial Statements.............................. 22
Financial Statement Schedules:
Schedule VIII--Valuation and Qualifying Accounts...................... F-1
Schedule IX--Short Term Borrowings.................................... F-1
Schedule X--Supplementary Income Statement Information................ F-1
Schedules and notes not included have been omitted because they are not
applicable or the required information is included in the consolidated
financial statements and notes thereto.
Supplementary Data:
Quarterly Financial Summary (unaudited)................................... 35
16
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board
of Directors of Hartmarx Corporation
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Hartmarx Corporation and its subsidiaries at November 30, 1993 and
1992, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1993, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of Hartmarx Corporation's management; our responsibility is to
express an opinion on these financial statements based on our audits. We
conducted our audits of these statements in accordance with generally accepted
auditing standards which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE
Chicago, Illinois
January 12, 1994,
except as to the
Legal Proceedings
Note on page 33
which is as of
February 4, 1994
RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management of Hartmarx Corporation is responsible for the preparation of the
Company's financial statements. These financial statements have been prepared
in accordance with generally accepted accounting principles and necessarily
include certain amounts based on management's reasonable best estimates and
judgments, giving due consideration to materiality.
In fulfilling its responsibility, management has established cost-effective
systems of internal controls, policies and procedures with respect to the
Company's accounting, administrative procedures and reporting practices which
are believed to be of high quality and integrity. Such controls include
approved accounting, control and business practices and a program of internal
audit. The Company's business ethics policy, which is regularly communicated to
all key employees of the organization, is designed to maintain high ethical
standards in the conduct of Company affairs. Although no system can ensure that
all errors or irregularities have been eliminated, management believes that the
internal accounting controls in place provide reasonable assurance that assets
are safeguarded against loss from unauthorized use of disposition, that
transactions are executed in accordance with management's authorization, and
that financial records are reliable for preparing financial statements and
maintaining accountability for assets.
The Audit Committee of the Board of Directors meets periodically with the
Company's independent public accountants, management and internal auditors to
review auditing and financial reporting matters. This Committee is responsible
for recommending the selection of independent accountants, subject to
ratification by shareholders. Both the internal and independent auditors have
unrestricted access to the Audit Committee, without Company management present,
to discuss audit plans and results, their opinions regarding the adequacy of
internal accounting controls, the quality of financial reporting and other
relevant matters.
17
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
FISCAL YEAR ENDED NOVEMBER 30,
--------------------------------
1991 1992 1993
---------- ---------- --------
Net sales..................................... $1,215,310 $1,053,949 $731,980
Finance charges, interest and other income.... 10,761 9,566 5,980
---------- ---------- --------
1,226,071 1,063,515 737,960
---------- ---------- --------
Cost of goods sold............................ 781,303 703,645 505,179
Selling, administrative and occupancy
expenses..................................... 467,470 374,785 203,502
Restructuring and retail consolidation
charges...................................... 13,500 190,800 --
Interest expense.............................. 23,793 21,135 22,869
---------- ---------- --------
1,286,066 1,290,365 731,550
---------- ---------- --------
Earnings (loss) before taxes.................. (59,995) (226,850) 6,410
Tax provision (benefit)....................... (21,630) (6,605) 190
---------- ---------- --------
Net earnings (loss) for the year.............. $ (38,365) $ (220,245) $ 6,220
========== ========== ========
Earnings (loss) per common share and common
share equivalent............................. $ (1.74) $ (8.59) $ .20
========== ========== ========
(See accompanying notes to consolidated financial statements)
18
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
(000'S OMITTED)
NOVEMBER 30,
--------------------
1992 1993
ASSETS --------- ---------
CURRENT ASSETS
Cash and cash equivalents.............................. $ 22,356 $ 1,507
Accounts receivable, less allowance for doubtful
accounts of $16,022 in 1992 and $9,914 in 1993........ 159,772 120,442
Inventories............................................ 216,751 193,818
Prepaid expenses....................................... 17,179 15,346
Recoverable income taxes............................... 8,158 659
Deferred income taxes.................................. 5,557 5,943
--------- ---------
Total current assets................................. 429,773 337,715
--------- ---------
INVESTMENTS AND OTHER ASSETS............................. 15,340 10,919
--------- ---------
PROPERTIES
Land................................................... 4,006 3,882
Buildings and building improvements.................... 57,790 58,345
Furniture, fixtures and equipment...................... 122,482 114,574
Leasehold improvements................................. 39,099 32,155
--------- ---------
223,377 208,956
Accumulated depreciation and amortization.............. (156,531) (152,479)
--------- ---------
Net properties....................................... 66,846 56,477
--------- ---------
TOTAL ASSETS............................................. $ 511,959 $ 405,111
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable to banks................................. $ 65,000 $ 25,000
Current maturities of long term debt................... 889 697
Accounts payable....................................... 56,016 30,246
Accrued payrolls....................................... 18,517 18,351
Other accrued expenses................................. 52,399 14,404
--------- ---------
Total current liabilities............................ 192,821 88,698
--------- ---------
LONG TERM DEBT, less current maturities.................. 248,713 207,416
--------- ---------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value; 2,500,000 authorized
and unissued.......................................... -- --
Common shares, $2.50 par value; authorized 75,000,000;
issued 28,106,439 in 1992 and 31,951,464 in 1993...... 70,266 79,878
Capital surplus........................................ 63,810 74,256
Retained earnings (deficit)............................ (17,758) (33,379)
Unearned employee benefits............................. (12,496) (11,758)
--------- ---------
103,822 108,997
Common shares in treasury, at cost, 2,198,864 in 1992
and none in 1993...................................... (33,397) --
--------- ---------
Shareholders' equity................................... 70,425 108,997
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 511,959 $ 405,111
========= =========
(See accompanying notes to consolidated financial statements)
19
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(000'S OMITTED)
FISCAL YEAR ENDED NOVEMBER
30,
-----------------------------
1991 1992 1993
-------- --------- --------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from operating activities:
Net earnings (loss)........................... $(38,365) $(220,245) $ 6,220
Reconciling items to adjust net earnings
(loss) to net cash provided by operating
activities:
Depreciation and amortization............... 33,809 26,947 14,107
Loss on sale of subsidiary.................. -- 136,000 --
Changes in:
Accounts receivable:
Sale of receivables..................... (2,000) (58,000) --
Other changes........................... (29) 23,076 42,330
Inventories............................... 4,604 68,944 12,901
Prepaid expenses.......................... 431 (10,215) 1,786
Other assets.............................. 243 (4,280) 4,364
Accounts payable and accrued expenses..... (6,907) 8,541 (61,030)
Taxes on earnings......................... (7,305) 10,439 7,113
Adjustment of properties to net realizable
value...................................... 4,493 11,510 1,901
-------- --------- --------
Net cash provided by (used in) operating
activities................................... (11,026) (7,283) 29,692
-------- --------- --------
Cash Flows from investing activities:
Capital expenditures.......................... (15,488) (9,546) (5,953)
Cash received re disposition, net of
subsidiary cash.............................. -- -- 4,500
-------- --------- --------
Net cash used in investing activities......... (15,488) (9,546) (1,453)
-------- --------- --------
Cash Flows from financing activities:
Increase (decrease) in notes payable to banks. (3,850) 30,796 (80,600)
Increase (decrease) in other long term debt... 2,014 (1,133) (840)
Proceeds from equity sale..................... 38,550 -- 29,880
Proceeds from other equity transactions....... 7,283 2,951 2,472
Payment of dividends.......................... (13,643) -- --
-------- --------- --------
Net cash provided by (used in) financing
activities................................... 30,354 32,614 (49,088)
-------- --------- --------
Net increase (decrease) in cash and cash
equivalents.................................. 3,840 15,785 (20,849)
Cash and cash equivalents at beginning of
year......................................... 2,731 6,571 22,356
-------- --------- --------
Cash and cash equivalents at end of year...... $ 6,571 $ 22,356 $ 1,507
======== ========= ========
Supplemental cash flow information:
Net cash paid (received) during the year for:
Interest expense............................ $ 24,300 $ 22,200 $ 23,800
Income taxes................................ (14,300) (17,000) (6,900)
(See accompanying notes to consolidated financial statements)
20
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(000'S OMITTED)
PAR VALUE RETAINED UNEARNED
OF COMMON CAPITAL EARNINGS EMPLOYEE TREASURY
STOCK SURPLUS (DEFICIT) BENEFITS SHARES
--------- ------- --------- -------- --------
Balance at November 30, 1990. $58,889 $42,939 $ 266,841 $(13,850) $(62,281)
Net loss for the year...... (38,365)
Cash dividends:
Common shares, $.60 per
share................... (13,643)
Disposition of 1,020,015
treasury shares........... (7,484) (7,615) 22,382
Issuance of 4,300,100
shares of common stock.... 10,751 27,799
Allocation of unearned
employee benefits......... 645
------- ------- --------- -------- --------
Balance at November 30, 1991. 69,640 63,254 207,218 (13,205) (39,899)
Net loss for the year...... (220,245)
Issuance of 242,822 shares
to employee benefit plans. 607 546
Stock options exercised
(7,815 shares issued upon
exercise of 7,815 $1.00
Director Stock Options)... 19 10
Disposition of 296,493
treasury shares........... (4,731) 6,502
Allocation of unearned em-
ployee benefits........... 709
------- ------- --------- -------- --------
Balance at November 30, 1992. 70,266 63,810 (17,758) (12,496) (33,397)
Net earnings for the year.. 6,220
Issuance of 329,482 shares,
principally to employee
benefit plans............. 823 898 10 3
Private placement of common
stock and warrant......... 8,789 9,548 (21,851) 33,394
Allocation of unearned
employee benefits......... 738
------- ------- --------- -------- --------
Balance at November 30, 1993
............................ $79,878 $74,256 $ (33,379) $(11,758) $ --
======= ======= ========= ======== ========
(See accompanying notes to consolidated financial statements)
21
HARTMARX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SUMMARY OF ACCOUNTING POLICIES
Principles of Consolidation--The Company and its subsidiaries ("the Company")
are engaged in the manufacturing and marketing of quality men's and women's
apparel to independent retailers and through owned retail stores and catalogs.
The consolidated financial statements include the accounts of the Company and
all subsidiaries. All significant intercompany accounts and transactions have
been eliminated in consolidation. Certain prior year amounts have been
reclassified to conform to the current year's presentation.
Cash and Cash Equivalents--The Company considers as cash equivalents all
highly liquid investments with an original maturity of three months or less.
Inventories--Inventories are stated at the lower of cost or market.
Approximately 18% and 23% of the Company's inventories at November 30, 1992 and
1993, respectively, primarily work in process and finished goods, are valued
using the last-in, first-out (LIFO) method. The first-in, first-out (FIFO)
method is used for substantially all raw materials and the remaining
manufacturing and retail inventories.
Property, Plant and Equipment--Properties are stated at cost. Additions,
major renewals and betterments are capitalized; maintenance and repairs which
do not extend asset lives are charged against earnings. Profit or loss on
disposition of properties is reflected in earnings and the related asset costs
and accumulated depreciation are removed from the respective accounts.
Depreciation is generally computed on the straight line method based on useful
lives of 20 to 45 years for buildings, 5 to 20 years for building improvements
and 3 to 15 years for furniture, fixtures and equipment. Leasehold improvements
are amortized over the terms of the respective leases.
Revenue Recognition--Wholesale sales are recognized at the time the order is
shipped. Retail sales, which include sales of merchandise and leased department
income, are net of returns and exclude sales taxes.
Store Opening/Closing Costs--Non-capital expenditures incurred for new or
remodeled retail stores are expensed upon construction completion. When a store
is closed, the remaining investment in fixtures and leasehold improvements, net
of expected salvage, is charged against earnings; the present value of any
remaining lease liability, net of expected sublease recovery, is also expensed.
Intangibles--Intangible assets are included in "Investments and Other Assets"
at cost, less amortization, which is provided on a straight-line basis over
their economic lives, usually 10 years or less.
Income Taxes--Effective December 1, 1991, the Company adopted Statement of
Financial Accounting Standards No. 109--Accounting for Income Taxes, which
requires recognition of deferred tax assets and liabilities for the expected
future tax consequences of events that have been included in the financial
statements or tax returns. Under this method, deferred tax assets and
liabilities are determined based on the differences between the financial
statement and tax bases of assets and liabilities using enacted tax rates in
effect for the year in which the differences are expected to reverse.
Prior to fiscal 1992, the provision (benefit) for income taxes was based on
income and expenses included in the accompanying consolidated statement of
earnings whereby timing differences were classified as deferred tax assets or
liabilities based on the respective tax rates then in effect.
Retirement Plans--The Company and its subsidiaries maintain benefit plans
covering substantially all employees other than those covered by multi-employer
plans. In accordance with Statement of Financial Accounting Standards No. 87--
Employers' Accounting for Pensions, pension expense or income for the Company's
principal defined benefit plan is determined using the projected unit credit
method. Pension
22
expense under each multi-employer plan is based upon a percentage of the
employer's union payroll established by industry-wide collective bargaining
agreements; such pension expenses are funded as accrued.
Retiree Medical Program--Certain health and insurance programs are made
available to non-union retired employees and eligible dependents. Approximately
175 retired employees are currently participating; substantially all non-union
employees employed prior to September 1, 1993 could ultimately remain eligible
upon attaining retirement age while employed by the Company. These retiree
programs, after considering retiree contributions which offset the full cost,
did not have a significant effect on earnings. Statement of Financial
Accounting Standards No. 106--Employers' Accounting for Postretirement Benefits
Other Than Pensions is mandatory for the Company's fiscal year ending November
30, 1994. Adoption of the statement will have no impact on cash flows. Since
the retiree contributions offset the full cost of the available medical
programs, no transition obligation is expected upon adoption and, accordingly,
there would be no effect on either net income or shareholders' equity.
Other Postemployment Benefits--Statement of Financial Accounting Standards
No. 112--Employers' Accounting for Postemployment Benefits requires the
recognition of obligations related to benefits provided by an employer to
former or inactive employees after employment but before retirement, and is
mandatory for the Company's fiscal year ending November 30, 1995. The Company
believes that adoption is not expected to have a material impact on its
financial condition.
Stock Options--When stock options are exercised, common stock is credited for
the par value of shares issued and capital surplus is credited with the
consideration in excess of par. For stock appreciation rights, compensation
expense is recognized on the aggregate difference between the market price of
the Company's stock and the option price only when circumstances indicate that
the right, and not the option, will be exercised. Compensation expense related
to restricted stock awards is recognized over the vesting period. For director
stock options and director deferred stock awards, compensation expense is
recognized at the date the option is granted or the award is made to the
outside director.
Per Share Information--The computation of earnings or loss per share in each
year is based on the weighted average number of common shares outstanding. When
dilutive, stock options and warrants are included as share equivalents using
the treasury stock method. The number of shares used in computing the earnings
(loss) per share was 22,056,000 in 1991, 25,629,000 in 1992 and 31,375,000 in
1993. Primary and fully diluted earnings per share are the same for each of
these years. In July 1991, the Company sold 4.3 million shares of common stock,
pursuant to a public offering. Net proceeds of $38.5 million were used to repay
bank borrowings. Effective December 30, 1992, the Company completed the sale to
an unrelated third party of 5,714,286 shares of its common stock along with a
three year warrant to purchase an additional 1,649,600 shares at an exercise
price of $6.50 per share, for an aggregate price of $30 million. If this
transaction had occurred as of December 1, 1992, the net earnings per share for
the year would have been the same as the reported net earnings of $.20 per
share.
FINANCING
In December 1992, the Company and its subsidiaries entered into new financing
agreements with its principal lenders ("Override Agreement" and "Bridge
Facility", collectively "the Agreements") aggregating $307 million, which
substantially replaced or amended the provisions of prior agreements covering
the Company's $196 million Multiple Option Revolving Credit Facility with 13
banks, $45 million of insurance term loans, $38 million of bank term loans, the
ESOP loan guarantee and guarantees related to certain industrial development
bonds having aggregate borrowings of $15.5 million. The Agreements also
provided for additional seasonal borrowings of up to $35 million during 1993.
At November 30, 1993, $226.4 million of the total $233.1 million debt
outstanding related to borrowings under the provisions of the Agreements.
Borrowings under the Agreements are secured by substantially all assets of the
Company and its subsidiaries, subject to a priority of up to $15 million for
trade creditors.
23
The Override Agreement is in effect through December 30, 1995. The Bridge
Facility, originally $35 million and maturing on November 30, 1993, has been
extended by the Company for one year and currently provides for a $15 million
commitment through November 30, 1994. In addition to the aggregate commitment
reduction of $20 million on November 30, 1993, the Agreements provide for
additional commitment reductions of $10 million on May 31, 1994, $15 million on
November 30, 1994 and May 31, 1995, with the balance expiring on December 30,
1995; additional commitment and principal reductions may be required to the
extent of certain asset sales, equity proceeds and excess working capital based
on calculations specified in the Agreements. Generally, principal payments
apply first to the Bridge Facility and then to the Override Agreement. The
Bridge Facility also requires that borrowings, if any, be repaid for a minimum
30 day period during 1993 and for two 30 day periods in 1994; the Company may
reborrow after these periods. The Company had no borrowings under the Bridge
Facility during 1993. Borrowings under the Override Agreement bear interest at
prime plus 2% for bank lenders, 10.3% for the insurance lenders, and 9.19%
related to the ESOP loan guaranteed by the Company. Borrowings under the Bridge
Facility bear interest at prime plus 1.5%. Fees pertaining to the Agreements
aggregating $3.8 million were paid as of the closing date and certain other
fees principally based on utilization are also payable. An additional $2.4
million is payable at the expiration of the Override Agreement.
The Agreements, as amended, include various restrictive covenants pertaining
to capital expenditures, asset sales, operating leases, minimum working capital
and current ratio, debt leverage, consolidated tangible net worth, interest
coverage and earnings before interest, taxes, depreciation and amortization.
Cash dividends may not be declared or paid during the term of the Agreements
and the Company is prohibited from purchasing or redeeming its stock, warrants,
rights or options, or from making certain acquisitions without lender consent.
The Company is in compliance with the various covenants contained in the
Agreements. At November 30, 1993, working capital and the current ratio, as
defined, were $274.7 million and 5.4, respectively, compared to the minimum
required levels of $261.5 million and 4.9, respectively. Consolidated tangible
net worth, as defined, was approximately $130 million compared to the minimum
required level of $107 million. The ratio of consolidated funded indebtedness
to consolidated tangible net worth, as defined, was 1.8 compared to the maximum
permitted ratio of 2.7.
At November 30, 1992 and 1993, long term debt, less current maturities,
comprised the following (000's omitted):
1992 1993
-------- --------
Notes payable to banks................................. $234,296 $153,696
Notes payable to insurance companies................... 45,000 45,000
Industrial development bonds........................... 21,355 20,943
ESOP loan guarantee.................................... 12,219 12,219
Other debt, extending to 2003.......................... 1,732 1,255
-------- --------
314,602 233,113
Less--current maturities............................... 65,889 25,697
-------- --------
Long term debt......................................... $248,713 $207,416
======== ========
The industrial development bonds (IDBs), which mature on varying dates
through 2015, were issued by development authorities for the purchase or
construction of various manufacturing facilities having a carrying value of $13
million at November 30, 1993. Interest rates on the various borrowing
agreements range from 7/8 of 1% to 8.5% (average of 4.1% at November 30, 1992
and 4.4% at November 30, 1993). In January 1994, two IDBs aggregating $15.5
million, associated with the Override Agreement, were refinanced independent of
the Override Agreement. The $7.5 million IDB matures on July 1, 2014, while the
$8.0 million IDB is due on July 1, 2015. The IDBs are callable by the Company
beginning July 1, 2000 at a 3% premium, declining to par on July 1, 2003; the
effective interest rate on these obligations is 7.5%.
Other long term debt includes installment notes and mortgages with interest
rates ranging from 8% to 11.5% per annum. (Average interest rate of 10.3% at
November 30, 1992 and 10.2% at November 30, 1993.)
24
The approximate principal requirements during the next five fiscal years,
including reductions under the Override Agreement, are as follows: $.7 million
in 1994; $.7 million in 1995; $211.5 million in 1996; $.1 million in 1997; $.1
million in 1998.
In January 1994, the Company filed a Registration Statement with respect to a
proposed public offering of $100 million aggregate principal amount of its
senior subordinated notes ("Notes"), due 2002. The ultimate issuance of these
Notes is contingent upon several factors, including a public market environment
acceptable to the Company with respect to interest rates. In addition, the
issuance of the Notes would require the Company to obtain either the consent of
the existing lenders under the Agreements or a new credit facility which, in
conjunction with the subordinated debt issue, would provide sufficient
availability to repay and terminate the Agreements. On January 11, 1994, the
Company executed a commitment letter ("Financing Commitment") with General
Electric Capital Corporation as managing agent ("Managing Agent") with respect
to a proposed new credit facility ("New Credit Facility"). The Financing
Commitment is subject to, among other things, (i) there being no material
adverse change in the business or financial condition of the Company and its
subsidiaries taken as a whole and (ii) definitive documentation for the New
Credit Facility acceptable to the Managing Agent. The Financing Commitment
terminates if, among other things, the Notes are not issued by April 30, 1994.
The New Credit Facility would be a three year secured revolving credit
facility in an aggregate maximum amount of $175 million (including a $25
million letter of credit facility), subject to a borrowing base formula based
upon 85% of eligible accounts receivable and 55% of eligible inventory. The New
Credit Facility would be used to repay borrowings under the Override Agreement
and Bridge Facility, to finance ongoing working capital and letter of credit
requirements and for general corporate purposes. The New Credit Facility would
be secured by a first priority security interest in substantially all of the
current and intangible assets of the Company and its subsidiaries. The New
Credit Facility is expected to include a negative pledge on all assets of the
Company and its subsidiaries, be guaranteed by the subsidiaries of the Company
and contain various restrictive covenants pertaining to net worth, additional
debt incurrence, fixed charge coverage, as well as other customary covenants.
Borrowing under the New Credit Facility would be established as either base
rate or LIBOR loans, as the Company may elect. Base rate loans would be priced
at the greater of (a) a rate based on the weighted average of various 90-day
commercial paper rates or (b) the base rate of a bank to be selected by the
Managing Agent plus 1.50%. LIBOR loans would be priced at LIBOR plus 2.50%.
On December 1, 1988 The Hartmarx Employee Stock Ownership Plan ("ESOP")
borrowed $15 million from a financial institution and purchased from the
Company 620,155 shares of treasury stock at the market value of $24.19 per
share. The loan is guaranteed by the Company and, accordingly, the amount
outstanding has been included in the Company's consolidated balance sheet as a
liability, net of a $.6 million payment made by the Company to the financial
institution holding the ESOP note, and shareholders' equity has been reduced
for the amount representing unearned employee benefits. Company contributions
to the ESOP plus the dividends accumulated on unallocated Company common stock
held by the ESOP are used to repay loan principal and interest. The common
stock is allocated to ESOP participants as the loan principal and interest is
repaid or accrued and amounts reflected as the loan guarantee and unearned
employee benefits are correspondingly reduced. Information related to dividends
received and loan repayments by the ESOP are as follows (000's omitted):
1991 1992 1993
------ ------ ------
Dividends received from Hartmarx Corporation........ $ 316 $ -- $ --
====== ====== ======
Principal payments.................................. $ 645 $ 342 $ --
Interest payments................................... 1,072 1,100 1,041
------ ------ ------
Total loan payments made by ESOP.................... $1,717 $1,442 $1,041
====== ====== ======
As of November 30, 1993, 188,394 shares of common stock have been allocated
to the accounts of the ESOP participants.
25
NOTES PAYABLE TO BANKS
The following summarizes information concerning notes payable to banks (000's
omitted):
1991 1992 1993
-------- -------- --------
Outstanding at November 30....................... $203,500 $234,296 $153,696
Maximum month end balance during the year........ 229,200 234,296 206,196
Average amount outstanding during the year....... 207,200 213,000 174,300
Weighted daily average interest rate during the
year............................................ 8.5% 7.0% 7.9%
Weighted average interest rate on borrowings at
November 30..................................... 7.7% 7.0% 8.0%
As more fully discussed in the Financing Note, in December, 1992 the Company
entered into a new three year financing agreement through December 30, 1995. At
November 30, 1993, $25 million of the aggregate $153.7 million of bank
borrowings outstanding was classified as current, representing expected
seasonal repayments within the fiscal 1994 year.
The Company enters into interest rate protection agreements from time to
time, based on management's assessment of market conditions, with several
currently in effect covering $100 million of borrowings. Payments to the
Company would occur to the extent the prime interest rate exceeds 6.0%. The
payments made for the rate protection agreements in effect during each of the
three years ended November 30, 1993 were nominal.
RESTRUCTURING AND RETAIL CONSOLIDATION CHARGES
Consistent with the Company's strategies to concentrate operations around its
profitable manufacturing and wholesale businesses and to refinance its capital
structure, fiscal 1992 third quarter and full year results included pre-tax
restructuring charges aggregating $190.8 million ("the Restructuring"). The
Restructuring comprised the direct costs associated with businesses and
facilities sold or disposed of and included the loss on the sale of stock of
Hartmarx Specialty Stores, Inc. ("HSSI"), the parent company of the Company's
principal retail unit. Restructuring components applicable to other operations
sold or liquidated included impairment of leasehold improvements, fixtures and
other properties, anticipated lease settlement obligations, severance, advisory
fees and costs to liquidate inventories. As further discussed in the Taxes on
Earnings footnote, a tax benefit relating to the restructuring charges was not
recorded. At November 30, 1993, accrued restructuring charges of $8 million
were included in the accrued expense caption in the accompanying balance sheet
($34 million at November 30, 1992) principally relating to lease, severance and
employee benefit obligations.
The operational aspects of the Restructuring have been substantially
implemented. Following the sale of the HSSI business in September, 1992 for a
note due on September 18, 1994, all of the Old Mill stores operated by the
Company's Country Miss subsidiary were closed. The store closings associated
with Kuppenheimer were substantially completed by January, 1994. Production
facilities supporting the above noted operations have been closed or sold along
with facilities related to the rainwear and military and commercial uniform
businesses.
The note received in connection with the sale of HSSI, originally $43
million, was subsequently adjusted to $35 million, including interest, based on
the value of physical inventories. This note has been accounted for on a cash
collection basis. Accordingly, no value was assigned to the note in calculating
the loss on the sale. During 1993, HSSA Group, Ltd., the original direct
obligor of the note, breached certain of its obligations under the note and
ancillary agreements and, on November 23, 1993, the Company exercised certain
of its rights to cause, among other things, the common stock of HSSI to be
voted to elect a new Board of Directors.
26
Fiscal 1991 fourth quarter and full year results included a pre-tax provision
of $13.5 million for expenses associated with the consolidation of certain
retail administrative functions of HSSI and Kuppenheimer, including severance,
lease settlements, and other one time costs.
SALE OF RECEIVABLES
In June 1990, the Company entered into an agreement with an unrelated third
party to sell up to $60 million of undivided interests in a designated pool of
accounts receivable, principally related to revolving charge accounts. The
Company acted as an agent for the purchaser by performing recordkeeping and
collection functions on the interests sold, and was obligated to pay the
purchaser's carrying cost plus fees typical in such transactions, which are
included in the finance charges, interest and other income caption in the
accompanying Consolidated Statement of Earnings for fiscal 1992 and 1991. The
agreement terminated effective October 10, 1992. At November 30, 1992 and 1993,
no sold receivables were outstanding under the program.
INVENTORIES
Inventories at fiscal year end were as follows (000's omitted):
NOVEMBER 30,
--------------------------
1991 1992 1993
-------- -------- --------
Raw materials.................................. $ 54,389 $ 52,018 $ 44,370
Work in process................................ 38,408 29,657 26,468
Finished goods................................. 312,198 135,076 122,980
-------- -------- --------
$404,995 $216,751 $193,818
======== ======== ========
The excess of current cost over LIFO costs for certain inventories was $42.0
million at November 30, 1991, $38.7 million at November 30, 1992 and $35.0
million at November 30, 1993.
TAXES ON EARNINGS
The accompanying financial statements reflect the adoption of Statement of
Financial Accounting Standards No. 109, Accounting for Income Taxes ("FAS
109"), as of December 1, 1991, the commencement of the Company's 1992 fiscal
year. Previously, accounting for income taxes was based on the provisions of
Accounting Principles Board Opinion No. 11. Among other things, FAS 109
requires an asset and liability approach in the measurement of deferred taxes,
which are adjusted to reflect changes in statutory tax rates, and permits the
recognition of net deferred tax assets subject to an ongoing assessment of
realization.
The net tax provision (benefit) is summarized as follows (000's omitted):
1991 1992 1993
-------- ------- -------
Federal....................................... $ (6,644) $(8,262) $ 2,435
State and local............................... (147) (286) 256
-------- ------- -------
Total current............................... (6,791) (8,548) 2,691
-------- ------- -------
Federal....................................... (14,520) 1,943 (320)
State and local............................... (319) -- (66)
-------- ------- -------
Total deferred.............................. (14,839) 1,943 (386)
-------- ------- -------
Change in valuation allowance................. -- -- (2,115)
-------- ------- -------
Total tax provision (benefit)............. $(21,630) $(6,605) $ 190
======== ======= =======
A substantial portion of the Company's tax assets are reserved in accordance
with FAS 109. The valuation allowance was recorded upon consideration of the
operating losses incurred during the 1990-1992
27
fiscal years and related uncertainty associated with realization of the tax
benefit of net operating loss carryforwards, which require the generation of
future income from operations. The net tax assets recorded consider amounts
recoverable from carrying back operating losses to prior years and available
tax planning strategies (such as the ability to adopt the FIFO inventory
valuation method for those inventories currently valued under the LIFO
valuation method). During 1993, $2.1 million of the valuation allowance
offsetting the deferred tax asset, associated with 1993 pre-tax income for
financial reporting, was reversed. The valuation allowance offsetting the
deferred tax asset will continue to be evaluated in future periods on an
ongoing basis.
The difference between the tax benefit reflected in the accompanying
statement of earnings and the amount computed by applying the federal statutory
tax rate to the pre-tax income (loss), taking into account the applicability of
enacted tax rate changes, is summarized as follows:
PERCENT OF PRE-
TAX INCOME (LOSS)
---------------------
1991 1992 1993
----- ----- -----
Tax benefit computed at statutory rate.................. (34.0)% (34.0)% 34.0%
State and local taxes on earnings, net of federal tax
benefit................................................ (.5) (.1) 1.9
Change in valuation allowance........................... -- 30.8 (34.0)
Other--net.............................................. (1.6) .4 1.1
----- ----- -----
Effective tax rate...................................... (36.1)% (2.9)% 3.0%
===== ===== =====
At November 30, 1992, the Company had a net deferred tax asset of $5.6
million comprised of deferred tax assets of $103.1 million less deferred tax
liabilities aggregating $26.6 million and a $70.9 million valuation allowance.
The principal deferred tax assets included $9.2 million attributable to Tax
Reform Act of 1986 ("TRA") items (allowance for bad debts, accrued vacation and
capitalization of certain inventory costs for tax purposes), net operating loss
carryforwards of $59.2 million, alternative minimum tax credit carryforwards
("AMT") of $4.0 million, and $23.5 million attributable to expenses deducted in
the financial statements not currently deductible for tax purposes, principally
related to the Restructuring. Deferred tax liabilities included excess tax over
book depreciation of $6.7 million and $8.8 million related to employee
benefits, principally pensions.
At November 30, 1993, the Company had a net deferred tax asset of $5.9
million comprised of deferred tax assets of $93.7 million less deferred tax
liabilities aggregating $18.9 million and a $68.9 million valuation allowance.
The principal deferred tax assets included $9.4 million attributable to TRA
items, net operating loss carryforwards of $48.1 million, AMT credit
carryforwards of $4.0 million, and $31.4 million attributable to expenses
deducted in the financial statements not currently deductible for tax purposes,
including expenses related to the Restructuring. Deferred tax liabilities
included excess tax over book depreciation of $4.2 million and $6.9 million
related to employee benefits, principally pensions.
As of November 30, 1993, the Company had approximately $137 million of tax
net operating loss carryforwards available to offset future income tax
liabilities. In general, such carryforwards must be utilized within fifteen
years of incurring the net operating loss; the loss carryforward expires in
2008. Foreign tax credit carryforwards of $.8 million are also available, the
substantial portion of which expire in 1996. The $4.0 million of AMT tax credit
carryforwards can be carried forward indefinitely.
LEASES
The Company and its subsidiaries lease office, manufacturing,
warehouse/distribution, showroom and retail space, automobiles, computers and
other equipment under various noncancellable operating leases. A number of the
leases contain renewal options ranging up to 10 years. Some retail leases
provide for contingent rental payments, generally based on the sales volume of
the retail unit.
28
At November 30, 1993, total minimum rentals are as follows (000's omitted):
YEARS AMOUNT
----- -------
1994............................. $20,569
1995............................. 17,394
1996............................. 12,049
1997............................. 7,736
1998............................. 5,529
Thereafter....................... 5,531
-------
Total minimum rentals due........ $68,808
=======
Rental expense, including rentals under short term leases, comprised the
following (000's omitted):
1991 1992 1993
------- ------- -------
Minimum rentals................................ $64,630 $58,742 $28,440
Contingent rentals............................. 4,916 2,418 112
Sublease income................................ (1,070) (896) (570)
------- ------- -------
Total rental expense......................... $68,476 $60,264 $27,982
======= ======= =======
Most leases provide for additional payments of real estate taxes, insurance,
and other operating expenses applicable to the property, generally over a base
period level. Total rental expense includes such base period expenses and the
additional expense payments, as part of the minimum rentals.
EMPLOYEE BENEFITS
Pension Plans
The Company participates with other companies in the apparel industry in
making collectively-bargained contributions to pension funds covering most of
its union employees. The contribution rate of applicable payroll is based on
the actuarially recommended amount necessary to fund the costs of the benefits.
Pension costs relating to multi-employer plans were approximately $12 million
in 1991, $10 million in 1992 and $8 million in 1993.
The Multi-Employer Pension Plan Amendment Act of 1980 amended ERISA to
establish funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal from or
termination of such plans, whereupon separate actuarial calculations would be
made to determine the Company's position with respect to multi-employer plans.
The principal Company sponsored pension plan is a non-contributory defined
benefit pension plan covering substantially all eligible non-union employees.
Certain of the Company's subsidiaries have other defined benefit and
contribution plans, in which the aggregate expense was $.6 million in 1991, $.3
million in 1992 and nominal in 1993. Under the principal pension plan,
retirement benefits are a function of years of service and average compensation
levels during the highest five consecutive salary years occurring during the
last ten years before retirement. To the extent that the calculated retirement
benefit under the formula specified in the plan exceeds the maximum allowable
under the provisions of the tax regulations, the excess is provided on an
unfunded basis. Under the provisions of the Omnibus Budget Reconciliation Act
of 1993, the annual compensation limit that can be taken into account for
computing benefits and contributions under qualified plans was reduced from
$235,840 to $150,000, effective as of January 1, 1994.
It is the Company's policy to fund the plans on a current basis to the extent
deductible under existing tax laws and regulations. Such contributions are
intended to provide for benefits attributed to service to date and also for
those expected to be earned in the future.
29
Pension data covering the principal plan for the three years ended November
30, 1993 included the following components in accordance with Statement of
Financial Accounting Standards No. 87--Employers' Accounting for Pensions
(000's omitted):
1991 1992 1993
------- ------- -------
Service cost--benefits earned during the
period...................................... $(5,921) $(4,869) $(4,150)
Interest cost on projected benefit
obligation.................................. (7,222) (7,554) (7,607)
Return on plan assets........................ 19,025 15,674 17,452
Net amortization and deferral................ (6,362) (1,438) (3,235)
------- ------- -------
Net periodic pension income (expense)........ $ (480) $ 1,813 $ 2,460
======= ======= =======
The above amounts do not include periodic pension expense related to the
benefits provided on an unfunded basis of $.2 million in 1991, $.3 million in
1992, and $.6 million in 1993.
The Company sold its Hartmarx Specialty Stores subsidiary ("HSSI") in 1992
and the accrual of further pension benefits related to HSSI employees ceased as
of the sale date. This event qualified as a curtailment under the provisions of
Statement of Financial Accounting Standards No. 88. The projected benefit
obligation exceeded the accumulated benefit obligation for employees of HSSI
and, accordingly, the accompanying financial statements for 1992 reflect an
additional pre-tax pension gain of $5.0 million, which was considered in the
determination of the 1992 restructuring charge.
Plan assets consist primarily of publicly traded common stocks and corporate
debt instruments, and units of certain trust funds administered by the Trustee
of the plan. At November 30, 1993, the plan assets included 519,612 shares of
the Company's stock with a market value of $3.6 million.
The following sets forth the funded status of the principal pension plan at
November 30 (000's omitted):
NOVEMBER 30,
------------------
1992 1993
-------- --------
Actuarial present value of benefit obligations:
Vested benefits.......................................... $(70,571) $(95,341)
Non-vested benefits...................................... (1,105) (949)
-------- --------
Accumulated benefit obligation........................... (71,676) (96,290)
Effect of projected future compensation levels........... (15,497) (16,992)
-------- --------
Projected benefit obligation............................... (87,173) (113,282)
Plan assets, at fair value................................. 125,379 135,013
-------- --------
Plan assets in excess of projected benefit obligation...... 38,206 21,731
Unrecognized net (gain) loss............................... (10,905) 4,653
Unrecognized prior service cost............................ 592 516
Unrecognized net transition asset.......................... (10,723) (7,270)
-------- --------
Prepaid pension cost....................................... $ 17,170 $ 19,630
======== ========
The weighted average discount rate used in determining the projected benefit
obligation was 8 3/4% in 1992 and 7% in 1993. The assumed rate of increase in
future compensation levels was 6% in 1992 and 5.5% in 1993, and the expected
long term rate of return on the Company sponsored plan assets was 8 3/4% in
1992 and 1993.
Savings Investment and Employee Stock Ownership Plans
The Company offers an employee savings-investment plan, The Hartmarx Savings-
Investment Plan ("SIP"), which is a qualified salary reduction plan under
Section 401(k) of the Internal Revenue Code.
30
Eligible participants in SIP can invest from 1% to 16% of earnings among
several investment alternatives, including a company stock fund. Employees
participating in this plan automatically participate in The Hartmarx Employee
Stock Ownership Plan ("ESOP"). Participation in SIP is required to earn
retirement benefits under the Company's principal pension plan. An employer
contribution is made through the ESOP, based on the employee's level of
participation, and invested in common stock of the Company. While employee
contributions up to 16% of earnings are permitted, contributions in excess of
6% are not subject to an employer contribution. In 1992 and 1993, the employer
contribution was one-fourth of the first 1% contributed by the employee plus
one-twentieth thereafter. During 1991, the employer contribution was one-fourth
of employee's contribution up to the 6% limit. The Company's expense related to
the ESOP is based upon the principal and interest payments on the ESOP loan,
the dividends on unallocated ESOP shares, and the cost and market value of
shares allocated to employees' accounts. The Company's annual expense, which
approximates the Company's annual contributions, was $2.8 million in 1991, $2.1
million in 1992 and $2.2 million in 1993. At November 30, 1993, the assets of
SIP and ESOP funds had a market value of approximately $39.1 million, of which
approximately $17.4 million was invested in 2,491,059 shares of the Company's
common stock.
Health Care and Postretirement Benefits
Certain of the Company's subsidiaries make contributions to multi-employer
union health and welfare funds pursuant to collective bargaining agreements.
These payments are based upon wages paid to the Company's active union
employees.
Health and insurance programs are also made available to non-union active and
retired employees and their eligible dependents. Retirees, who elect to receive
the coverage, make contributions which offset the full cost of the retiree
program. Statement of Financial Accounting Standards No. 106--Employers'
Accounting for Postretirement Benefits Other than Pensions requires the
recognition of an obligation related to employee service pursuant to a
postretirement benefit plan and is mandatory for the Company's fiscal year
ending November 30, 1994. Adoption of the statement will have no impact on cash
flows. Since the retiree contributions offset the full cost of the available
medical programs, no transition obligation is expected upon adoption and,
accordingly, there would be no effect on either net income or shareholders'
equity.
EQUITY SALE
On September 21, 1992, the Company entered into an agreement with Traco
International, N.V., a Netherlands Antilles Corporation ("Traco"), pursuant to
which Traco agreed to purchase 5,714,286 shares of common stock of the Company
and receive a three-year warrant to purchase an additional 1,649,600 shares of
common stock of the Company at an exercise price of $6.50 per share, for an
aggregate purchase price of $30 million. The agreement was completed effective
as of December 30, 1992. Traco is also party to an agreement with the Company
providing representation on the Company's Board of Directors and restricting
Traco's rights to acquire, sell and vote the Company's shares.
STOCK PURCHASE RIGHTS
A dividend of one Right per common share was distributed to stockholders of
record January 31, 1986, and effective July 12, 1989, the Agreement governing
the Rights was amended. Each common share, adjusted for the May 1986 3-for-2
stock split, now represents .6667 Right. Each Right, expiring January 31, 1996,
continues to represent a right to buy from the Company 1/100th of a share of
Series B Junior Participating Preferred Stock, $1.00 par value, at a price of
$120. This dividend distribution of the Rights was not taxable to the Company
or its stockholders.
Separate certificates for Rights will not be distributed, nor will the Rights
be exercisable, unless a person or group acquires 15 percent or more, or
announces an offer to acquire 15 percent or more, of the Company's
31
common shares. Following an acquisition of 15 percent or more of the Company's
common shares (a "Stock Acquisition"), each Right holder, except the 15 percent
or more stockholder, has the right to receive, upon exercise, common shares
valued at TWICE the then applicable exercise price of the Right (or, under
certain circumstances, cash, property or other Company securities), unless the
15 percent or more stockholder has offered to acquire all of the outstanding
shares of the Company under terms that a majority of the independent directors
of the Company have determined to be fair and in the best interest of the
Company and its stockholders. Similarly, unless certain conditions are met, if
the Company engages in a merger or other business combination following a Stock
Acquisition where it does not survive or survives with a change or exchange of
its common shares or if 50 percent or more of its assets, earning power or cash
flow is sold or transferred, the Rights will become exercisable for shares of
the acquiror's stock having a value of TWICE the exercise price (or, under
certain circumstances, cash or property). The Rights are not exercisable,
however, until the Company's right of redemption described below has expired.
Generally, Rights may be redeemed for $.033 cents each (in cash, common
shares or other consideration the Company deems appropriate) until the earlier
of (i) the tenth day following public announcement that a 15 percent or greater
position has been acquired in the Company's stock or (ii) the final expiration
of the Rights. In connection with the previously discussed sale of 5.7 million
shares of common stock and three year warrant to purchase an additional 1.6
million shares ("stock sale"), the Agreement governing the Rights was amended
to exclude the stock sale from qualifying as an event which would give rise to
the distribution or exercisability of the Rights. Until exercise, a Right
holder, as such, has no rights as a stockholder of the Company.
At the annual meeting in April 1993, a majority of the stockholders voted in
favor of a non-binding stockholder proposal calling for either the submission
of the Rights Plan to a binding shareholder vote or a redemption of the Rights.
However, the Company's current financing agreements prohibit the purchase or
redemption of the Rights.
STOCK OPTION PLANS
The Company has stock option plans under which officers and key employees may
be granted options to purchase the Company's common stock at prices equal to
the fair market value at date of grant. Generally, options under the 1982 and
1985 Stock Option Plans are exercisable to the extent of 25% each year
(cumulative) from the second through the fifth year, and expire ten years after
date of grant; however, all or any portion of the shares granted are
exercisable during the period beginning one year after date of grant for
participants employed by the Company for at least five years. A portion of the
options granted under the 1988 Stock Option Plan have exercise provisions
similar to the other plans; the remaining grants become exercisable over a
three to five year period based upon the achievement of company-wide
performance goals. Under certain circumstances, the vesting may be accelerated.
All options expire ten years after date of grant under the Plans.
The 1982, 1985 and 1988 Plans also provide for the discretionary grant of
stock appreciation rights in conjunction with the option, which allows the
holder a combination of stock and cash equal to the gain in market price from
the grant until its exercise; the cash payment is limited to one-half of the
gain. Under certain circumstances, the entire gain attributable to rights
granted under the 1988 Plan may be paid in cash. When options and stock
appreciation rights are granted in tandem, the exercise of one cancels the
other. The 1985 and 1988 Plans provide for the discretionary grant of
restricted stock awards which allows the holder to obtain full ownership rights
subject to terms and conditions specified at the time each award is granted.
The 1988 Plan provides for an annual grant of Director Stock Options (DSO) to
outside members of the Board of Directors at market value on the date of grant.
In addition, each outside director may make an irrevocable election to receive
a DSO in lieu of all or part of his or her retainer. The number of whole shares
to be granted is based on the annual retainer divided by the market value minus
one dollar and the exercise price is $1. Each outside director is also eligible
for an annual grant of a Director Deferred Stock Award
32
(DDSA) equal to 150 DDSA units, with a unit equal to one share of the Company's
common stock; DDSA units are payable in shares of common stock upon death,
disability or termination of service. Dividend equivalents may be earned on
qualifying DSO and DDSA units and allocated to directors' respective accounts
in accordance with the terms of the Plan. During fiscal 1993, 23,336 DSO were
granted, no DSO were exercised and 64,132 DSO were outstanding at November 30,
1993.
Stock options outstanding at November 30, 1993 included 265,989 shares
granted in tandem with stock appreciation rights. Activity for 1992 included
the October 14th grant of 326,500 stock options at $5.25 per share, which
exceeded the market price of $3.83 per share, to employees who agreed to the
cancellation of 1,035,606 options granted to them from 1983 through 1992. In
general, one-third of these options are exercisable on each of the first three
anniversaries of the grant date. Options for 503,140 shares were exercisable at
November 30, 1993 at prices ranging from $5.25 to $30.81. At November 30, 1993,
2,012,161 shares were reserved for options and restricted stock awards granted
or to be granted including 496,181 shares for future stock options and/or
restricted stock awards (958,770 at November 30, 1992).
Information regarding stock option activity for the three years ended
November 30, 1993 is as follows:
NUMBER OF
SHARES PRICE PER SHARE
---------- ----------------
Balance at November 30, 1990................ 1,532,750 $ 6.00 to $31.62
Granted................................... 326,000 $ 7.31 to $12.50
Expired or terminated..................... (86,166) $10.81 to $31.62
----------
Balance at November 30, 1991................ 1,772,584 $ 6.00 to $31.62
Granted................................... 458,655 $ 5.25 to $ 7.25
Expired or terminated..................... (1,342,798) $ 6.00 to $31.62
----------
Balance at November 30, 1992................ 888,441 $ 5.25 to $30.81
Granted................................... 368,000 $ 6.88 to $ 7.06
Expired or terminated..................... (230,650) $ 5.25 to $30.81
----------
Balance at November 30, 1993................ 1,025,791 $ 5.25 to $30.81
==========
LEGAL PROCEEDINGS
The Company is involved in certain litigation as described in "Item 3--Legal
Proceedings." The Company believes that it has meritorious defenses to the
actions against the Company referred to under such caption and that such
actions will not have a material adverse effect on the Company's financial
condition.
33
OPERATING SEGMENT INFORMATION
The Company is engaged in the business of manufacturing and marketing apparel
to unaffiliated retailers (identified below as the wholesale segment) and
directly to consumers through its owned retail stores and catalogs (identified
below as the direct-to-consumer segment and previously called the retail
segment). Information on the Company's wholesale and direct-to-consumer
operations for the three years ended November 30, 1993 is summarized as follows
(in millions):
1991
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
Sales to unaffiliated customers.......... $578.0 $637.3 -- $1,215.3
Earnings (loss) before taxes............. 27.2 (41.2) (46.0) (60.0)
Gross assets at year end................. 328.0 372.7 39.1 739.8
Depreciation and amortization............ 9.6 23.6 0.6 33.8
Property additions....................... 7.2 8.2 0.1 15.5
1992
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
Sales to unaffiliated customers.......... $592.3 $461.6 -- $1,053.9
Earnings (loss) before taxes............. 24.8 (198.5) (53.2) (226.9)
Gross assets at year end................. 367.4 98.4 46.2 512.0
Depreciation and amortization............ 10.8 15.8 0.3 26.9
Property additions....................... 4.2 5.3 -- 9.5
1993
----------------------------------
DIRECT-
TO-
WHOLESALE CONSUMER ADJ. CONSOL.
--------- -------- ----- --------
Sales to unaffiliated customers.......... $567.3 $164.7 -- $ 732.0
Earnings (loss) before taxes............. 36.8 2.5 (32.9) 6.4
Gross assets at year end................. 313.4 73.3 18.4 405.1
Depreciation and amortization............ 9.1 4.9 0.1 14.1
Property additions....................... 5.3 0.6 -- 5.9
The largest customer represents approximately 12% of consolidated sales in
1993. The wholesale segment reflects products sold to unaffiliated retailers
for resale to consumers, principally from the Men's Apparel Group. The direct-
to-consumer segment reflects sales to end consumers through owned retail stores
and catalogs, comprised of products manufactured by the Company's subsidiaries
as well as products purchased from unaffiliated sources. In 1993, approximately
76% of Kuppenheimer's sales and 6% of Barrie Pace catalog sales represented
products manufactured by the Company. Prior to the disposition of HSSI to an
unaffiliated third party in September, 1992, sales of those products
manufactured by certain of the Company's subsidiaries and sold by HSSI were
reported in the direct-to-consumer segment upon their ultimate sale to
consumers. Direct-to-consumer segment sales for 1992 included approximately
$250 million related to sales made by HSSI prior to its disposition and $34
million related to the Old Mill stores.
Wholesale segment earnings before taxes reflect the manufacturing gross
margin associated with products sold to unaffiliated retailers. The earnings
(loss) before taxes of the direct-to-consumer segment reflect the gross margin
between retail selling price and cost associated with products manufactured by
the Company and those purchased from unaffiliated sources. Segment results for
1992 include pre-tax restructuring charges of $190.8 million, principally
attributable to the disposition and liquidation of retail operations. Direct-
to-consumer segment assets reflect the disposition of HSSI during 1992. The
direct-to-consumer segment results for 1991 include the $13.5 million of
expenses provided for the retail consolidation.
34
Operating expenses incurred by the Company in generating sales are charged
against the respective segment's sales; indirect operating expenses are
allocated to the segments benefited. Segment results exclude any allocation of
general corporate expense, interest expense or income taxes.
Adjustments of earnings before taxes consist of interest expense and general
corporate expenses. Adjustments of gross assets are for cash, recoverable
income taxes and corporate properties, investments and other assets.
Adjustments of depreciation and amortization and net property additions are for
corporate properties.
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
Selected quarterly financial and common share information for each of the
four quarters in fiscal 1992 and 1993 is as follows (000's omitted):
FIRST SECOND THIRD FOURTH
1992 QUARTER QUARTER QUARTER QUARTER
- ---- -------- -------- -------- --------
Net sales............................... $304,740 $273,584 $264,065 $211,560
Gross profit............................ 103,386 102,119 80,379 64,420
Net earnings (loss)..................... (6,595) (5,670) (213,605) 5,625
Net earnings (loss) per share........... (.26) (.22) (8.30) .22
FIRST SECOND THIRD FOURTH
1993 QUARTER QUARTER QUARTER QUARTER
- ---- -------- -------- -------- --------
Net sales............................... $186,931 $171,907 $188,993 $184,149
Gross profit............................ 53,993 55,073 53,536 64,199
Net earnings (loss)..................... (1,235) (3,480) 1,910 9,025
Net earnings (loss) per share........... (.04) (.11) .06 .29
The net loss for the third quarter of 1992 includes $190.8 million or $7.44
per share after-tax restructuring charge. The full year 1992 loss per share was
$8.59 compared to $8.56 when aggregating the individual quarters, the
difference attributable to the number of outstanding shares during the third
quarter when the restructuring charge was recorded.
ITEM 9--CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10--DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information to be included under the caption "Information About Nominees For
Directors" contained in the section entitled "Election of Directors" in the
Company's definitive Proxy Statement for the annual meeting of stockholders to
be held April 14, 1994 (the "Proxy Statement") which will be filed with the
Commission pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended, is incorporated herein by reference.
Information on Executive Officers of the Registrant is included as a separate
caption in Part I of this Form 10-K Annual Report.
ITEM 11--EXECUTIVE COMPENSATION
Information to be included under the captions "Executive Officer
Compensation" and "Information About Nominees for Directors" in the Proxy
Statement is incorporated herein by reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information to be included under the captions "Information About Nominees for
Directors" and "Ownership of Common Stock" in the Proxy Statement is
incorporated herein by reference.
35
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information to be included under the caption "Information About Nominees for
Directors" in the Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14--EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a)(1) Financial Statements
Financial statements for Hartmarx Corporation listed in the Index to
Financial Statements and Supplementary Data on page 16 are filed as part of
this Annual Report.
(a)(2) Financial Statement Schedules
Financial Statement Schedules for Hartmarx Corporation listed in the
Index to Financial Statements and Supplementary Data on page 16 are filed
as part of this Annual report.
PAGE
----
Consent of Independent Accountants....................................... F-2
(a)(3) Index to Exhibits................................................. 37
(b) Reports on Form 8-K
The Registrant did not file any reports on Form 8-K during the quarter
ended November 30, 1993.
36
HARTMARX CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO.
AND
APPLICABLE
SECTION OF
601 OF
REGULATION
S-K
-----------
3-A Restated Certificate of Incorporation.
3-A-1 Certificate of Stock Designation for Series B Junior
Participating Preferred Stock.
3-A-2 Certificate of Amendment for increase in authorized
shares of Common Stock.
3-A-3 Certificate of Amendment adding Article Fourteenth
limiting director liability as provided under Delaware
General Corporation Law (S) 102(b)(7).
*3-A-4 Amended Certificate of Designation for Series B Junior
Participating Preferred Stock (Exhibit 3-A-4 to Form 10-
K for the year ended November 30, 1992), (1).
3-B By-laws of the Company as amended to the date hereof.
*4-A Rights Agreement, dated as of January 17, 1986, between
the Company and The First National Bank of Chicago
(Exhibit 1 to Registration Statement on Form 8-A
effective January 31, 1986), (1).
*4-A-1 Amendment to Rights Agreement, dated as of July 12,
1989, among the Company, The First National Bank of
Chicago and First Chicago Trust Company of New York
(Exhibit 4-B-1 to Form 10-Q for the quarter ended May
31, 1989), (1).
*4-A-2 Second Amendment to Rights Agreement, dated as of
September 20, 1992, between the Company and First
Chicago Trust Company of New York (Exhibit 4-A-2 to Form
10-K for the year ended November 30, 1992), (1).
*4-A-3 Third Amendment to Rights Agreement, dated as of
December 30, 1992, between the Company and First Chicago
Trust Company of New York (Exhibit 4-A-3 to Form
10-K for the year ended November 30, 1992), (1).
*4-B Override Agreement, dated as of December 30, 1992, among
the Company and certain of the Company's subsidiaries
named therein as Borrowers, certain financial
institutions named therein as Lenders, and The First
National Bank of Chicago as MOF Agent for certain
Lenders and as Collateral Agent for all of the Lenders
(Exhibit 4-B to Form
10-K for the year ended November 30, 1992), (1).
*4-B-1 Amendment No. 1, Waiver No. 1 and Consent No. 1, dated
as of May 21, 1993, to Certain Override Documents
(Exhibit 4-B-1 to Form 10-Q for the quarter ended May
31, 1993), (1).
4-B-2 Amendment No. 2, Waiver No. 2 and Consent No. 2, dated
as of December 20, 1993, to Certain Override Documents.
*4-C Senior Bridge Loan and Letter of Credit Agreement, dated
as of December 30, 1992, for $35,000,000 among certain
of the Company's subsidiaries as Borrowers and
Guarantors, the Company and certain other subsidiaries
of the Company as Guarantors, certain financial
institutions named therein, National Westminster Bank
PLC, New York Branch, as Agent, and The First National
Bank of Chicago as Co-Agent and as Collateral Agent
(Exhibit 4-C to Form 10-K for the year ended November
30, 1992), (1).
37
EXHIBIT NO.
AND
APPLICABLE
SECTION OF
601 OF
REGULATION
S-K
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*4-C-1 Amendment No. 1, Waiver No. 1 and Consent No. 1, dated
May 21, 1993, to Senior Bridge Loan and Letter of Credit
Agreement and Other Loan Documents (Exhibit
4-C-1 to Form 10-Q for the quarter ended May 31, 1993),
(1).
4-C-2 Amendment No. 2, Waiver No. 2 and Consent No. 2, dated
December 20, 1993, to Senior Bridge Loan and Letter of
Credit Agreement and Other Loan Documents.
*9-A Stockholders Agreement, dated as of September 20, 1992,
between the Company and Traco International, N.V.
(Exhibit 9-A to Form 10-K for the year ended November
30, 1992), (1).
*10-B-1 1988 Stock Option Plan (Exhibit A to Proxy Statement of
the Company relating to the 1988 Annual Meeting, (1).**
10-B-2 1985 Stock Option Plan, as amended.**
10-C-1 Hartmarx Long-Term Incentive Plan.**
10-C-2 Description of Hartmarx Management Incentive Plan.**
10-D-1 Form of Deferred Compensation Agreement, as amended,
between the Company and Directors Abboud, Baldrige,
Farley, Jacobs, Marshall and Segnar.**
*10-D-2 Form of First Amendment to Director Deferred
Compensation Agreement between the Company and Directors
Abboud, Baldrige, Farley, Jacobs, Marshall and Segnar
(Exhibit 10-D-2 to Form 10-K for the year ended November
30, 1989), (1).**
10-E-1 Form of Deferred Compensation Agreement, as amended,
between the Company and Messrs. Hand, Patel, Stein and
Morgan.**
*10-E-2 Form of First Amendment to Executive Deferred
Compensation Agreement between the Company and Messrs.
Hand, Patel, Stein and Morgan (Exhibit 10-E-2 to Form
10-K for the year ended November 30, 1989), (1).**
*10-F-1 Employment Agreement between the Company and Elbert O.
Hand (Exhibit 10-F-1 to Form 10-K for the year ended
November 30, 1992), (1).**
*10-F-2 Employment Agreement between the Company and Homi B.
Patel (Exhibit 10-F-2 to Form 10-K for the year ended
November 30, 1992), (1).**
*10-F-3 Employment Agreement between the Company and Carey M.
Stein (Exhibit 10-F-3 to Form 10-K for the year ended
November 30, 1992), (1).**
*10-F-4 Consulting Agreement between the Company and Jerome Dorf
(Exhibit 10-F-4 to Form 10-K for the year ended November
30, 1992), (1).**
10-F-5 Form of Severance Agreement between the Company and
Executive Officers Frank A. Brenner, James E. Condon,
Kenneth A. Hoffman and Glenn R. Morgan.**
*10-F-6 Form of Amendment to Severance Agreement between the
Company and Executive Officers Frank A. Brenner, James
E. Condon, Kenneth A. Hoffman and Glenn R. Morgan
(Exhibit 10-F-9 to Form 10-K for the year ended November
30, 1989), (1).**
10-F-7 Employment Agreement between the Company and Wallace L.
Rueckel.**
10-G-1 Form of Indemnity Agreement between the Company and
Directors Abboud, Baldrige, Cole, Farley, Hand, Jacobs,
Marsh, Marshall, Olson, Othman, Patel, Scott and Segnar.
21 Subsidiaries of the Registrant.
38
EXHIBIT NO.
AND
APPLICABLE
SECTION OF
601 OF
REGULATION
S-K
-----------
23 Consent of Independent Accountants included on page F-2
of this Form 10-K.
24 Powers of Attorney, as indicated on page 40 of this Form
10-K.
- --------
*Exhibits incorporated herein by reference. (1) File No. 1-8501
**Management contract or compensatory plan or arrangement required to be
filed as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.
39
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
Hartmarx Corporation
(Registrant)
/s/ Wallace L. Rueckel /s/ Glenn R. Morgan
By:__________________________________ and By:______________________________
Wallace L. Rueckel Glenn R. Morgan
Executive Vice President and Chief Financial Officer
Senior Vice President and
Controller and Chief Accounting
Officer
Date: February 25, 1994
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATE INDICATED.
Elbert O. Hand* Homi B. Patel*
- ------------------------------------- -------------------------------------
Elbert O. Hand Homi B. Patel
Chairman, Chief Executive Officer, President, Chief Operating Officer,
Director Director
A. Robert Abboud* Charles Marshall*
- ------------------------------------- -------------------------------------
A. Robert Abboud, Director Charles Marshall, Director
Letitia Baldrige* Charles K. Olson*
- ------------------------------------- -------------------------------------
Letitia Baldrige, Director Charles K. Olson, Director
Jeffrey A. Cole* Talat M. Othman*
- ------------------------------------- -------------------------------------
Jeffrey A. Cole, Director Talat M. Othman, Director
Raymond F. Farley* Stuart L. Scott*
- ------------------------------------- -------------------------------------
Raymond F. Farley, Director Stuart L. Scott, Director
Donald P. Jacobs* Sam F. Segnar*
- ------------------------------------- -------------------------------------
Donald P. Jacobs, Director Sam F. Segnar, Director
Miles L. Marsh* /s/ Wallace L. Rueckel
- ------------------------------------- -------------------------------------
Miles L. Marsh, Director Wallace L. Rueckel
Executive Vice President Chief
Financial Officer Principal
Financial Officer
/s/ Wallace L. Rueckel
*By:_________________________________ Glenn R. Morgan*
Wallace L. Rueckel, Attorney-in-fact -------------------------------------
Glenn R. Morgan
Senior Vice President, Controller
Principal Accounting Officer
- --------
Date: February 25, 1994
40
HARTMARX CORPORATION
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED NOVEMBER 30, 1991, 1992 AND 1993
(000'S OMITTED)
RESERVE FOR DOUBTFUL
ACCOUNTS
YEAR ENDED NOVEMBER 30,
-------------------------
1991 1992 1993
------- ------- -------
Balance at beginning of year......................... $13,980 $15,153 $16,022
Charged to costs and expenses........................ 7,225 6,813 3,868
Deductions from reserves(1).......................... (6,052) (5,944) (9,976)
------- ------- -------
Balance at end of year............................... $15,153 $16,022 $ 9,914
======= ======= =======
- --------
(1) Notes and accounts written off as uncollectible, net of recoveries of
accounts previously written off as uncollectible.
SCHEDULE IX--SHORT TERM BORROWINGS
FOR FISCAL YEARS ENDED NOVEMBER 30, 1991, 1992 AND 1993
(000'S OMITTED)
NOTES PAYABLE TO BANKS
FOR BORROWINGS CLASSIFIED
AS SHORT TERM
YEAR ENDED NOVEMBER 30,
---------------------------
1991 1992 1993
-------- -------- -------
Balance at end of year............................ $178,500 $ 65,000 $25,000
Maximum amount outstanding at any month end during
the year......................................... 178,500 234,296 50,000
Average amount outstanding during the year........ 66,262 163,853 49,231
Weighted average interest rate on balance at end
of year.......................................... 7.7% 7.0% 8.0%
Weighted average interest rate during the year.... 8.5% 7.0% 7.9%
SCHEDULE X--SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR FISCAL YEARS ENDED NOVEMBER 30, 1991, 1992 AND 1993
(000'S OMITTED)
CHARGED TO COSTS AND
EXPENSES
FOR THE YEAR ENDED
NOVEMBER 30,
-----------------------
1991 1992 1993
------- ------- -------
Depreciation and amortization.......................... $33,809 $26,947 $14,107
Advertising costs...................................... 48,249 33,185 20,056
F-1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (Commission File Nos. 33-21549 and 33-42202) of Hartmarx
Corporation of our report dated January 12, 1994, except as to the Legal
Proceedings Note, which is as of February 4, 1994, appearing on page 17 of this
Form 10-K.
PRICE WATERHOUSE
Chicago, Illinois
February 25, 1994
F-2