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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
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, 1994
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
10 7/8% Senior Subordinated Notes due January 15, 2002 New York 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. [X]
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 15, 1995, 32,527,540 shares of the Registrant's common stock were
outstanding. The aggregate market value of common stock held by non-affiliates
of the Registrant was $185,538,000.
Certain portions of the Registrant's definitive proxy statement dated
February 28, 1995 for the Annual Meeting of Stockholders to be held April 13,
1995 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.................................................. 4
4 Submission of Matters to a Vote of Security Holders................ 6
Executive Officers of the Registrant............................... 6
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........................ 15
Changes in and Disagreements with Accountants on Accounting and
9 Financial Disclosure.............................................. 32
PART III
10 Directors and Executive Officers of the Registrant................. 32
11 Executive Compensation............................................. 32
12 Security Ownership of Certain Beneficial Owners and Management..... 33
13 Certain Relationships and Related Transactions..................... 33
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K.... 33
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 and
women's sportswear, including golfwear, and women's career apparel.
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 exclusive license agreements for specified
product lines including Tommy Hilfiger(R), Jack Nicklaus(R), Bobby Jones(R),
Austin Reed(R), Perry Ellis(R), Daniel Hechter(R), Gieves & Hawkes(R), KM 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 16 countries outside the
United States. Additionally, the Company has commenced direct marketing in
Europe and Asia, selling golfwear in these markets through distributors in 17
countries.
As described in the Restructuring Charges note to the consolidated financial
statements on page 24 of this Form 10-K, the Company undertook a comprehensive
operational and financial restructuring in 1992 (the "Restructuring") to
refocus business operations around its profitable core wholesale men's apparel
businesses and to restructure its balance sheet. As of November 30, 1994, all
operational aspects of the Restructuring have been completed.
The Company's operations currently comprise the following businesses--Men's
Apparel Group ("MAG"), Women's Apparel Group and Kuppenheimer. MAG designs,
manufactures and markets tailored clothing, slacks and sportswear to retailers
for resale to consumers. The Women's Apparel Group is comprised of Barrie Pace,
a direct mail catalog marketer of women's apparel and accessories, and
International Women's Apparel ("IWA"), which markets women's career apparel to
department and specialty stores. Kuppenheimer is a 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. The Operating Segment Information on pages 31 and 32 in the
accompanying Notes to Consolidated Financial Statements further describes the
Company's 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 1994, tailored clothing represented approximately 61% of the
Company's total sales. Men's sportswear and slacks represented approximately
31% of sales and women's apparel represented approximately 8% of sales.
1
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 and slacks are manufactured in
22 factories located in the United States. The Company also 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. The Barrie Pace catalog features branded products principally
purchased from unaffiliated sources, directed towards the business and
professional woman. IWA designs and sources women's career apparel and
sportswear for department and specialty stores under owned and licensed brand
names. 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.
At January 31, 1995, the Company operated 101 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. Included among these stores are 92 Kuppenheimer stores which remain
after the closing of approximately 80 poor performing stores related to the
Restructuring. There are also nine Sansabelt shops 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 20% 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 51% of
the Company's total fabric requirements in fiscal 1994. No other supplier
accounts for over 7% 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
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 by unaffiliated contractors
utilizing Company designs.
2
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, and men's slacks with expected retail prices over $50. Its women's
apparel sales do not represent a significant percentage of total women's
apparel sales and 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 13% and 12% of
consolidated sales in 1994 and 1993, respectively. No other customer exceeded
6% of net sales.
Trademarks, Licensing Agreements and Research
A significant portion of the Company's sales are of products carrying brands
and trademarks owned by the Company. As noted previously, the Company also
manufactures and markets products pursuant to exclusive license agreements with
others. While the terms and duration of these license agreements with others
vary, typically they provide for certain minimum payments and are subject to
renewal and renegotiation.
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 11,000 employees, of which
approximately 90% are employed in MAG, 9% at Kuppenheimer and 1% in the Women's
Apparel Group. Most of the MAG and Kuppenheimer 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 employees are covered by other union contracts.
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. 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.
3
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. 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. Peak borrowing levels occur in
late March and September, just prior to the collection of receivables from
men's tailored clothing advance order shipments.
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:
EXPIRATION
APPROXIMATE DATE OF
FLOOR AREA MATERIAL
LOCATION IN SQUARE FEET PRINCIPAL USE LEASES
- -------- -------------- --------------------------------------- ----------
Anniston, AL............ 76,000 Manufacturing 1999
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 1995
Chicago, IL............. 102,000 Executive and operating company offices 2004
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............ 63,000 Sales offices/showrooms 2000
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 *
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* 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.
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 page 26
of this Form 10-K.
ITEM 3--LEGAL PROCEEDINGS
Dior Proceedings. In 1989, Hart Schaffner & Marx ("HSM") and Christian Dior-
New York ("Dior") were adverse parties in various lawsuits filed in the Circuit
Court of Cook County, Illinois, arising out of a Trademark License Agreement
under which HSM manufactured and sold apparel products bearing Dior's
trademarks. These lawsuits were eventually settled and dismissed; however, the
settlement agreement among the parties has been the subject of an unfavorable
award in the amount of $1.3 million, plus interest and fees,
4
against HSM in a subsequent arbitration proceeding and lawsuit which was
recently affirmed on appeal. In addition, both HSM and Dior have initiated
separate arbitration proceedings against each other. Hearings have been held on
the Dior proceeding, in which Dior claims over $5 million in actual damages
plus punitive damages, but no decision is expected before March 1995. An order
denying HSM's grant of second arbitration is pending before the Illinois
Appellate Court.
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, Inc.
("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 International, N.V. (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 notices of appeal with the Illinois Appellate Court on October 29, 1993,
and December 23, 1993. The appeals were consolidated by court order on February
8, 1994. Briefs have been filed with the Appellate Court, and the parties are
awaiting scheduling of oral argument.
After consultation with counsel, management of the Company believes that
there are meritorious defenses to the Dior Proceedings and Spillyards
Litigation referred to above and that such actions will not have a material
adverse effect on the Company's business or financial condition.
HSSI Matters. On August 29, 1994, The Hastings Group, Inc. ("Hastings")
acquired substantially all of the assets of HSSI, Hartmarx' former retail
affiliate, which Hartmarx sold in 1992 to HSSA. In connection with the sale to
Hastings, HSSI, its subsidiaries and an affiliate of HSSA, Maurice L.
Rothschild & Co. ("MLR"), settled principal case controversies in their Chapter
11 bankruptcy reorganization cases. Pursuant to the settlement, which was
approved by the Bankruptcy Court in an order that became final on August 29,
1994, the litigation among Hartmarx and its subsidiaries, and HSSA, HSSI, MLR
and certain other parties pending in the Bankruptcy Court, the Circuit Court of
Cook County, Illinois and the U.S. District Court for the Northern District of
Illinois (Eastern Division) was dismissed with prejudice in September 1994.
This litigation was previously described in Hartmarx' Annual Report on Form 10-
K for the year ended November 30, 1993, Quarterly Reports on Form 10-Q for the
quarters ended February 28, 1994, May 31, 1994 and August 31, 1994 and on
Schedule 5.6, Litigation; Adverse Facts, to the Credit Agreement dated March
23, 1994, and included various proceedings involving Hartmarx or its
subsidiaries. Under the settlement, Hartmarx has been granted an allowed
administrative claim of $2.5 million in the bankruptcy case of HSSI, unsecured
claims in the bankruptcy cases of HSSI and MLR totalling approximately $16.2
million, and additional allowed subordinated claims in the HSSI bankruptcy
case. Hartmarx has also agreed to share certain distributions, if and when
received, with other unsecured creditors of HSSI. In December 1994, a Plan of
Reorganization for MLR was confirmed by the Bankruptcy Court. No Plan has yet
been proposed for HSSI. The amount of any payments with respect to Hartmarx'
claims will depend on the value of the HSSI and MLR bankruptcy estates and
whether MLR and/or HSSI Plans of Reorganization confirmed by the Court are
actually consummated. There can be no assurance as to whether any such payments
will be made or the amounts or timing of such payments.
5
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 and Mrs. Allen. 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 TO
SERVICE WITH PRESENT
NAME POSITION AGE COMPANY POSITION
---- ------------------------------- --- ------------ ----------
Elbert O. Hand..... Chairman and 55 30 1992
Chief Executive Officer
(Director since 1984)
Homi B. Patel...... President and 45 15 1993
Chief Operating Officer
(Director since January, 1994)
Wallace L. Rueckel. Executive Vice President and 51 2 1993
Chief Financial Officer
Mary D. Allen...... Executive Vice President 49 1 1994
General Counsel and Secretary
Glenn R. Morgan.... Senior Vice President, 47 15 1994
Finance and Administration,
Chief Accounting Officer
Frank A. Brenner... Vice President, Marketing 66 26 1983
Services
James E. Condon.... Vice President, Long-Term 44 17 1994
Planning
and Investor Relations
Linda J. Valentine. Vice President, Compensation 44 14 1993
and Benefits
Steven R. Davison.. Treasurer 43 10 1994
Andrew A. Zahr..... Controller 51 22 1994
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.
Mary D. Allen became Executive Vice President, General Counsel and Secretary
in September 1994. Prior to joining the Company, she was employed by JMB Realty
Corporation for seven years during which she served in various capacities, most
recently as senior vice president.
On April 1, 1994, Carey M. Stein, formerly Executive Vice President,
Secretary, General Counsel and Chief Administrative Officer, terminated his
employment with the Company, such termination being deemed to be for good
reason, as that term is defined under his Employment Agreement with the
Company, attached hereto as exhibit 10-F-3. Mr. Stein has received the benefits
accorded him pursuant to that Agreement.
6
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:
1994 1993 1992
------------ ----------- ----------
HIGH LOW HIGH LOW HIGH LOW
----- ----- ----- ----- ----- ----
First Quarter............................ $7.375 $6.125 $8.25 $5.375 8.625 6.25
Second Quarter........................... 7.00 5.875 7.25 5.75 7.00 5.50
Third Quarter............................ 6.625 5.375 6.75 5.125 6.625 4.875
Fourth Quarter........................... 6.00 5.00 7.75 5.75 5.75 3.00
The most recent quarterly dividend paid was in November, 1991, in the amount
of $.15 per share. The current financing agreements restrict the payment of
dividends to 50% of 1994 consolidated net income, as defined, subject to a
cumulative maximum amount of $22.5 million. The current financing agreements
also contain various restrictive covenants pertaining to minimum net worth,
additional debt incurrence, capital expenditures, asset sales, operating
leases, 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 was in compliance with all covenants under these
agreements.
As of February 15, 1995, there were approximately 6,900 stockholders of the
Company's $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.
7
ITEM 6--SELECTED FINANCIAL DATA
The following table summarizes data from the Company's annual financial
statements for the years 1990 through 1994 and the notes thereto; the Company's
complete annual financial statements and notes thereto for fiscal 1994 appear
elsewhere herein.
INCOME STATEMENT DATA
IN THOUSANDS, EXCEPT PER
SHARE DATA
FOR YEARS ENDED NOVEMBER
30 1994 1993 1992 1991 1990
------------------------ -------- -------- ---------- ---------- ----------
Net sales............... $717,706 $731,980 $1,053,949 $1,215,310 $1,295,840
Other income............ 7,412 5,980 9,566 10,761 14,286
Cost of sales........... 505,564 505,179 703,645 781,303 806,237
Operating expenses...... 187,765 203,502 374,785 467,470 492,147
Restructuring and retail
consolidation charges.. -- -- 190,800 13,500 77,600
Earnings (loss) before
interest and taxes..... 31,789 29,279 (205,715) (36,202) (65,858)
Interest expense........ 21,214 22,869 21,135 23,793 28,952
Earnings (loss) before
taxes and extraordinary
charge................. 10,575 6,410 (226,850) (59,995) (94,810)
Tax (provision) benefit. 9,435 (190) 6,605 21,630 33,265
Earnings (loss) before
extraordinary charge... 20,010 6,220 (220,245) (38,365) (61,545)
Extraordinary charge,
net of tax benefit..... (3,862) -- -- -- --
Net earnings (loss)..... 16,148 6,220 (220,245) (38,365) (61,545)
Net earnings (loss) per
share:
before extraordinary
charge................ .62 .20 (8.59) (1.74) (3.11)
after extraordinary
charge................ .50 .20 (8.59) (1.74) (3.11)
Cash dividends per
share.................. -- -- -- .60 .90
Average number of common
shares and equivalents. 32,243 31,375 25,629 22,056 19,786
BALANCE SHEET DATA
IN THOUSANDS, EXCEPT PER
SHARE DATA
AT NOVEMBER 30
------------------------
Cash.................... $ 2,823 $ 1,507 $ 22,356 $ 6,571 $ 2,731
Accounts receivable..... 114,597 120,442 159,772 134,748 132,719
Inventories............. 183,347 193,818 216,751 404,995 409,599
Other current assets.... 11,670 21,948 30,894 32,318 32,845
Net properties.......... 51,543 56,477 66,846 149,656 172,470
Other assets/deferred
taxes.................. 28,220 10,919 15,340 11,560 11,803
Total assets............ 392,200 405,111 511,959 739,848 762,167
Accounts payable,
accrued expenses and
taxes.................. 76,049 63,001 126,932 167,191 181,499
Total debt.............. 187,784 233,113 314,602 285,649 288,130
Shareholders' equity.... 128,367 108,997 70,425 287,008 292,538
Equity per share........ 3.95 3.41 2.72 11.32 14.60
OTHER DATA
IN THOUSANDS
FOR YEARS ENDED NOVEMBER
30
------------------------
Earnings (loss) before
interest, taxes,
depreciation,
amortization and
extraordinary charge... $ 43,822 $ 43,386 $ (178,768) $ (2,393) $ (30,639)
Depreciation and
amortization of fixed
assets................. 12,033 14,107 26,947 33,809 35,219
Capital expenditures.... 7,124 5,953 9,546 15,488 21,621
Management's Discussion and Analysis of Financial Condition and Results of
Operations, along with the Financing, Taxes on Earnings and Restructuring
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
Results for 1994 reflected the second consecutive year of earnings
improvement following the now completed 1992 Restructuring ("Restructuring"),
as pre-tax earnings increased 65% over 1993. The Company further strengthened
its financial condition during 1994 through the refinancing of substantially
all of its borrowings (the "1994 Refinancing"), which, among other things,
lengthened maturities and shifted $115 million of borrowings from variable to
fixed rate debt.
8
The Company's businesses currently comprise: (i) Men's Apparel Group ("MAG"),
which designs, manufactures and markets men's tailored clothing on a wholesale
basis, principally through its Hart Schaffner & Marx, 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 business and professional women through its
catalogs, and International Women's Apparel ("IWA"), which markets women's
career apparel and sportswear to department and specialty stores under owned
and licensed brand names. The Restructuring refocused the principal business
operations around the profitable MAG whereby substantial retail operations and
other non-core businesses of the Company were sold or liquidated.
RESULTS OF OPERATIONS
Consolidated 1994 sales were $717.7 million compared to $732.0 million in
1993 and $1.054 billion in 1992. The 2.0% decline in 1994 compared to 1993
principally resulted from fewer stores at Kuppenheimer along with the sale of
the Fashionaire uniform business during 1993, as sales increased 2% excluding
these factors. The 30.5% decline from 1992 to 1993 was substantially
attributable to the disposition or discontinuance of various businesses as a
result of the Restructuring, as sales in 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 to HSSI, a retail business formerly owned by the Company and sold
in September, 1992).
Consolidated 1994 pre-tax income increased 65% to $10.6 million from $6.4
million in 1993; the 1992 pre-tax loss was $226.9 million, which included
$190.8 million related to the Restructuring and the aggregate operating losses
associated with businesses sold or discontinued as part of the Restructuring.
As discussed below, results for 1994 reflected recognition of non-cash income
tax benefits of $9.4 million associated with operating loss carryforwards
expected to be realized in future periods. After considering this tax benefit,
consolidated net earnings were $20.0 million or $.62 per share (prior to the
$3.9 million or $.12 per share extraordinary charge associated with the early
repayment of loans associated with the 1994 Refinancing). This compared
favorably to 1993 net earnings of $6.2 million or $.20 per share. The net loss
for 1992 was $220.2 million or $8.59 per share.
The following summarizes sales and earnings before interest and taxes
("EBIT") for the Company's principal business groups (in millions):
YEAR ENDED NOVEMBER
30,
------------------------
1994 1993 1992
------ ------ --------
Sales:
Men's Apparel Group.......................... $569.7 $553.9 $ 630.4
Kuppenheimer................................. 95.8 125.8 136.8
Women's Apparel Group........................ 52.2 52.3 32.7
Other, net of intergroup sales............... -- -- 254.0
------ ------ --------
Total...................................... $717.7 $732.0 $1,053.9
====== ====== ========
EBIT:
Men's Apparel Group.......................... $ 46.3 $ 43.2 $ 37.2
Kuppenheimer................................. 1.7 (1.0) (12.2)
Women's Apparel Group........................ (4.1) (2.9) 1.7
Other and adjustments........................ (12.1) (10.0) (232.4)
------ ------ --------
Total...................................... $ 31.8 $ 29.3 $ (205.7)
====== ====== ========
9
MAG sales were $570 million in 1994, $554 million in 1993 and $630 million in
1992. The improvement in 1994 compared to 1993 reflected the initial season
introduction of Tommy Hilfiger tailored clothing and slacks, along with
increases in other brands, which more than offset the impact of the reduction
in sales to HSSI and its successor. Sales to HSSI and its successor declined to
$27 million in 1994 from $36 million in 1993 and $67 million in 1992. Prior to
the September, 1992 disposition of HSSI, such sales were considered
intercompany and not included in consolidated sales. The 12.1% MAG sales
decrease in 1993 compared to 1992 was substantially attributable to
discontinuing or selling the outerwear and uniform manufacturing businesses and
lower sales to HSSI. MAG EBIT improved to $46 million in 1994 from $43 million
in 1993 and $37 million in 1992. The EBIT improvement in 1994 compared to 1993
reflected higher sales while results for 1992 included sales and losses
associated with sold and discontinued businesses. Tailored clothing represented
the most significant contributor to earnings in each year.
Kuppenheimer sales of $96 million in 1994 declined 24% from $126 million in
1993, which reflected both a 45 store reduction associated with Kuppenheimer's
repositioning and a 7% decrease in comparable store sales. The comparable store
decrease was 6% in 1993 and 5% in 1992. Kuppenheimer operated 92 stores at year
end 1994 compared to 137 in 1993 and 169 in 1992. The 8% Kuppenheimer sales
decline in 1993 compared to 1992 was attributable to both fewer stores and the
comparable stores decrease. Kuppenheimer's earnings improved to almost $2
million in 1994 following losses of $1 million in 1993 and $12 million in 1992.
The favorable results in 1994 compared to 1993 were principally attributable to
administrative expense reductions which more than offset the effect of the
lower comparable store sales. Kuppenheimer's results for 1992 included
restructuring charges associated with its now completed store closing program.
Women's Apparel Group sales were $52 million in 1994, $52 million in 1993 and
$33 million in 1992. Catalog sales continued to increase in each year. In the
IWA business, new product lines were added in 1993, two of which were
discontinued during 1994. Women's Apparel Group loss before interest and taxes
was $4 million in 1994 and $3 million in 1993 following $2 million earnings in
1992. The IWA business incurred losses in each year, principally associated
with the two unprofitable product lines which were discontinued in 1994. The
Barrie Pace business was profitable in each year, although 1994 results were
unfavorably impacted compared to 1993 from lower relative response rates on an
increased number and size of catalogs distributed.
Gross Margins. The consolidated gross margin percentage of sales was 29.6% in
1994, 31.0% in 1993 and 33.2% in 1992, a decline which primarily resulted from
the change in business mix. The MAG businesses generally produce a lower gross
margin percentage to sales (and lower selling, administrative and occupancy
expenses) compared to Kuppenheimer and represented 79% of consolidated sales in
1994 compared to 76% in 1993 and 60% in 1992. Gross margins reflected income of
$2.3 million in 1994, down from $3.6 million in 1993 and $3.3 million in 1992
associated with the reduction of inventories maintained on a LIFO cost basis;
LIFO income produced a favorable impact on consolidated gross margin of .3% in
1994, .5% in 1993 and .3% in 1992. The MAG gross margin percentage in 1994 was
approximately even with 1993 following a slight improvement compared to 1992.
Gross margins in the Kuppenheimer business were slightly ahead in 1994 compared
to 1993 and 1992. In the women's businesses, the gross margin ratios declined
in 1994, principally from inventory dispositions associated with discontinued
product lines in the IWA business; however, margins also declined in the
catalog business due to a greater proportion of units sold at less than full
price. Women's gross margin in 1993 was unfavorable compared to 1992,
attributable to lower margins at IWA, as Barrie Pace margins improved.
Selling, Administrative and Occupancy Expenses. Selling, administrative and
occupancy expenses declined to $188 million in 1994 from $204 million in 1993
and $375 million in 1992, principally reflecting discontinued businesses but
also from expense reduction programs effected in continuing businesses.
Expenses as a percentage of sales decreased to 26.2% in 1994 compared to 27.8%
in 1993 and 35.6% in 1992. The percentage decline in each period reflected in
part the greater proportion of MAG sales with its lower operating expense ratio
to sales compared to both Kuppenheimer and the Women's Apparel Group.
10
Operating expenses declined both in dollars and as a percentage of sales in
both MAG and Kuppenheimer in 1994 compared to 1993; Women's Apparel Group
expenses experienced a small increase resulting from additional catalogs and
pages distributed in 1994 compared to 1993 and lower relative response rates.
MAG operating expenses declined in 1993 compared to 1992 principally from sold
or liquidated operations although the percentage to sales was approximately the
same. Kuppenheimer's operating expenses declined substantially both in dollars
and as a percentage of sales in 1993 as compared to 1992.
Advertising expenditures, which are included in the selling, administrative
and occupancy expenses, declined to $18 million in 1994 from $20 million in
1993 and $33 million in 1992, representing 2.5%, 2.7% and 3.1% of consolidated
sales, respectively. The decline in 1994 compared to 1993 was principally
attributable to lower dollar expenditures at Kuppenheimer from its fewer stores
and at IWA due to the discontinuance of two brands during the year. Advertising
expenditures for 1994 in MAG increased both in dollars and as a percentage of
sales compared to 1993, reflecting in part the introduction of Tommy Hilfiger
tailored clothing and slacks. The dollar and percentage declines in 1993
compared to 1992 were principally attributable to the disposition of HSSI and
discontinuing other businesses.
Statement of Financial Accounting Standards No. 106, Employers' Accounting
for Post-Retirement Benefits Other Than Pensions ("FAS 106"), was adopted by
the Company effective December 1, 1993. As required retiree contributions
offset the cost of the Company sponsored medical program, no transition
obligation existed upon adoption of FAS 106 and there was no effect on either
net earnings or shareholders' equity. Statement of Financial Accounting
Standards No. 112, Employers' Accounting for Post-Employment 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 will not have a material impact on its results of
operations or financial condition.
Other Income. Licensing and other income aggregated $7.4 million in 1994,
$6.0 million in 1993 and $9.6 million in 1992. This caption principally
comprised licensing income in 1994 and 1993 and also included service charges
on the retail receivables in 1992.
Interest Expense. Interest expense was $21 million in 1994, $23 million in
1993 and $21 million in 1992. The $2 million decrease in 1994 compared to 1993
was attributable to lower average borrowings, principally from working capital
reductions and earnings. The 1994 Refinancing shifted $115 million of
borrowings from rates variable with changes in the prime rate to fixed rate
debt averaging close to 11%. The Company's weighted average short term
borrowing rate declined to 7.5% in 1994 from 7.9% in 1993, despite the general
increase in interest rates during 1994, due to the favorable effect from the
1994 Refinancing. The $2 million increase in 1993 compared to 1992 was
attributable to higher interest rates associated with a prior refinancing
completed in December 1992, along with higher financing fees and amortization
costs. Interest expense included non-cash amortization of financing fees and
expenses of $1.7 million in 1994, $2.0 million in 1993 and a nominal amount in
1992. The effective interest rate for all borrowings, including amortization
costs, was 9.6% in 1994, 9.0% in 1993 and 7.2% in 1992.
Income Taxes. The recorded tax provision or benefit in each year reflected
the fiscal 1992 adoption of Statement of Financial Accounting Standards No.
109, Accounting for Income Taxes ("FAS 109"). FAS 109 requires, among other
things, the recognition of deferred tax assets, including the future benefit
associated with net operating loss carryforwards, a periodic evaluation of the
likelihood that the deferred tax assets are realizable and the establishment of
a valuation allowance, in certain circumstances, to offset deferred tax assets
to the extent realization is not considered more likely than not.
During 1992, only a nominal tax benefit was recorded due to the uncertainty
that the substantial operating loss carryforwards would be realized after
considering the 1990-1992 operating losses and absence of available carrybacks
to prior tax years. Approximately $2 million of the valuation allowance
offsetting the deferred tax asset was reversed during 1993 associated with 1993
pre-tax income for financial reporting; the
11
1993 effective tax rate of 3% was applicable to state income taxes. In the
fourth quarter of fiscal 1994, the Company reevaluated its deferred tax asset
and reversed a portion of its valuation allowance, resulting in a recognized
tax benefit of $9.4 million. Among the factors considered in the recognition
were:
. a second year of profitability in 1994 following the operating losses
during the 1990-1992 period;
. a history of sustained profitability of the core MAG businesses, even
during the 1990-1992 loss years which had been caused principally by
the businesses subsequently sold or discontinued pursuant to the
Restructuring;
. the Company's expected future operating income;
. termination of litigation related to a business sold in 1992, which
eliminated the possibility of a large contingent liability in the
event of an adverse ruling;
. the substantial portion of the available operating loss carryforwards
do not expire until the 2007-2009 period;
. the expected impact of temporary differences between taxable income
and income reported for financial statement purposes.
After giving effect to the benefit from the recognition of a portion of
future net operating loss carryforwards, the remaining valuation reserve at
November 30, 1994 was $55.5 million. 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. (Also see "Liquidity and Capital Resources" for further
discussion of deferred tax assets and remaining net operating loss
carryforwards.)
Extraordinary Charge. Net earnings before extraordinary charge were $20.0
million in 1994 compared to earnings of $6.2 million in 1993 and a loss of
$220.2 million in 1992. Fiscal 1994 reflected a $3.9 million extraordinary
charge, net of a $.1 million state tax benefit, associated with the early
extinguishment of debt resulting from the 1994 Refinancing. Net earnings after
the extraordinary charge were $16.1 million or $.50 per share.
LIQUIDITY AND CAPITAL RESOURCES
During fiscal 1994, the Company replaced its $307 million borrowing facility,
originally due to mature on December 30, 1995, with $100 million of public
subordinated notes, a $175 million revolving credit facility with a bank
lending group and the private placement of $15.5 million of industrial
development bonds. The 1994 Refinancing accomplished several of the Company's
objectives, including extending maturities, reducing the level of borrowings
subject to interest rate variability and establishing a separate working
capital facility providing greater flexibility in addressing the Company's
seasonal borrowing requirements.
As described in the accompanying Notes to Financial Statements, the $100
million principal amount of 10 7/8% senior subordinated notes is due January
15, 2002 (the "Notes"). The three year revolving financing agreement (the
"Credit Facility") provides for maximum borrowings of $175 million (including a
$25 million letter of credit facility) secured by inventories, accounts
receivable and intangibles of the Company and its subsidiaries. Proceeds from
these two transactions were utilized to repay $236 million of borrowings then
outstanding related to the Company's principal lending facility then in effect.
This repayment also reflected the purchase of the $12.2 million note of the
Company's employee stock ownership plan from a lender, which had been
guaranteed by the Company. The prior lending facility was terminated upon
completion of the Notes and Credit Facility transactions. Earlier in fiscal
1994, two industrial development bonds aggregating $15.5 million associated
with the prior lending facility were refinanced.
The Credit Facility contains certain 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, ratios relating to minimum accounts payable to inventory, maximum
funded debt
12
to EBITDA and minimum fixed charge coverage, as well as other customary
covenants, representations and warranties, and events of default. The
collective operating and financial covenants currently in effect are less
burdensome compared to those under the prior lending facility. The Company does
not expect that the current restrictions will cause significant limitations on
the Company's financial flexibility.
As indicated in the accompanying Consolidated Statement of Cash Flows, the
net cash provided by operating activities was $56 million in 1994 compared to
$30 million in 1993 and net cash used in operating activities of $7 million in
1992. The improvement in 1994 compared to 1993 was principally attributable to
the higher earnings and reduction in working capital requirements. Net accounts
receivable of $114.6 million at November 30, 1994 declined $5.8 million or 4.9%
compared to November 30, 1993, reflecting improved collections. The allowance
for doubtful accounts declined to $7.4 million from $9.9 million in 1993
representing 6.0% of gross receivables in 1994 as compared to 7.6% in 1993,
reflecting the write off of receivables previously reserved associated with the
Restructuring. Inventories of $183.3 million at November 30, 1994 declined
$10.5 million or 5.4% compared to November 30, 1993 principally attributable to
fewer Kuppenheimer stores. Inventory turn in continuing businesses improved.
Prepaid expenses declined from $15.3 million at November 30, 1993 to $6.7
million at November 30, 1994, principally attributable to worker's compensation
deposits which, during 1994, were converted to letter of credit arrangements.
Recoverable and deferred income taxes at November 30, 1994 aggregated $16.8
million compared to $6.6 million at November 30, 1993. The balance at November
30, 1994 reflected a valuation allowance of $55.5 million ($68.9 million in
1993) principally related to tax assets associated with prior years' operating
losses. As discussed previously, the Company has assessed 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 method for those inventories
currently valued under the LIFO valuation method). Future reversals of the
valuation allowance in whole or in part represent a contingent asset which
would increase earnings and shareholders' equity. Also, see discussion under
"Income Taxes". Approximately $11.8 million of the total deferred income taxes
has been classified as non-current, principally associated with the benefit
recognized attributable to expected utilization of future net operating loss
carryforwards. At November 30, 1994, the Company had over $180 million of
federal tax net operating loss carryforwards available to offset future taxable
income.
At November 30, 1994, net properties were $51.5 million compared to $56.5
million in 1993. The decline principally reflected depreciation expense
exceeding capital additions. Capital additions during 1994 were $7.1 million
compared to $6.0 million in 1993. The capital expenditure limitations contained
in the Company's present borrowing agreements are not expected to result in
delaying capital expenditures otherwise planned by the Company. Capital
additions during the next several years applicable to existing businesses are
expected to be principally funded from cash generated from operations. The
Company is also assessing the merits of acquiring foreign production facilities
for suit and trouser manufacturing.
At November 30, 1994, total debt of $187.8 million declined by $45.3 million
compared to November 30, 1993, principally from cash generated from earnings
and lower working capital requirements. The $20 million of notes payable
classified as current at November 30, 1994 reflected the anticipated seasonal
repayments within fiscal 1995. Total debt, including short term borrowings and
current maturities, represented 59% of the total $316 million capitalization at
November 30, 1994, compared to 68% at November 30, 1993; the lower percentage
reflected 1994 earnings, the debt reduction and equity sales to employee
benefit plans during the year. Total borrowing availability was $95 million at
November 30, 1994.
Shareholders' equity of $128.4 million at November 30, 1994 represented $3.95
book value per share compared to $3.41 book value per share at November 30,
1993. The $19.4 million increase during 1994 reflected the net earnings for the
year, ongoing equity sales to employee benefit plans and recognition of
previously unearned employee benefits principally associated with the Company's
employee stock ownership
13
plan. Dividends were not paid in either fiscal 1994 or 1993. The current Credit
Facility restricts, but does not prohibit, the payment of dividends.
Considering the impact of inflation, the current value of net assets would be
higher than the Company's $128 million book value after reflecting the
Company's use of LIFO inventory method and increases in the value of the
properties since acquisition. Earnings would be lower than reported, assuming
higher depreciation expense without a corresponding reduction in taxes.
OUTLOOK
The Company completed 1994 as a multi-product manufacturing and marketing
apparel organization with substantial and sustained market share of its long
standing tailored clothing products. Market share was increased in
complementary product lines, such as sportswear, slacks and golfwear utilizing
distribution channels similar to its tailored clothing offerings.
The outlook for 1995 anticipates continued emphasis on the core manufacturing
and marketing businesses comprising the Men's Apparel Group, product line and
brand extensions closely associated with existing strengths and competencies,
debt reduction from earnings generated from operations and close monitoring of
working capital requirements. Two unprofitable product lines in the IWA
wholesale business, now discontinued, were the principal contributors to the
operating loss in the Women's Apparel Group; the investment in the IWA business
has been reduced, and there is now a more focused concentration on classic and
career product lines with less fashion risk. The size and number of catalogs
distributed by the Barrie Pace business were substantially increased during
1994 with the objective of obtaining new customers; postage and paper cost
increases effective for fiscal 1995 will make profitable sales growth in the
near term more challenging. Kuppenheimer returned to profitability during 1994
following operating losses in 1992 and 1993, and the completion of its
downsizing plan resulted in both working capital and net property reductions.
In October, 1994, an investment bank was retained to review alternative
strategies for Kuppenheimer with the objective of redeploying the Company's
investment in this business to the wholesale businesses, where growth prospects
are believed to be more favorable.
As anticipated, sales to the Company's former retail subsidiary declined
during 1994, and represented approximately one-fourth of the 1990 peak volume
with this customer. While further reductions are anticipated for 1995, a
substantial portion of the revenue reduction has been replaced through new and
existing customers. During 1994, the litigation between the Company and the
purchasers of HSSI was resolved.
Ongoing quick response and electronic data interchange relationships with
major customers, enabling the rapid replenishment of inventory for selected
product styles and enhanced service capability, are expected to continue as an
important factor of product distribution. International licensing programs
continue to expand. The passage of NAFTA and GATT will result in gradual
reductions in duties and quotas for both finished apparel and fabric. The
Company has historically utilized foreign sources for both fabric and certain
finished apparel products and such usage is expected to increase especially for
its sportswear and more casual product lines. The Company contemplates
complementing its current production capacity by adding additional production
capabilities in Latin America.
Following the successful 1994 launch of Tommy Hilfiger tailored clothing and
slacks, the Company recently entered into agreements for the licensing of Perry
Ellis and Daniel Hechter tailored clothing through the newly formed Novapparel
subsidiary, effective for Fall, 1995 shipments. The Company continues its
growth emphasis in men's slacks and sportswear, which include the golf inspired
collections under the Jack Nicklaus and Bobby Jones brands; women's golf lines
have been added for 1995 under these labels and a new "Jack Nicklaus Signature"
sportswear line will be distributed principally to department stores. Although
these new product lines will not generate significant volume and earnings in
1995, enhanced market share and earnings growth will augment the Company's more
established brands and product lines.
14
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Financial Statements:
Report of Independent Accountants....................................... 16
Consolidated Statement of Earnings for the three years ended November
30, 1994............................................................... 17
Consolidated Balance Sheet at November 30, 1994 and 1993................ 18
Consolidated Statement of Cash Flows for the three years ended November
30, 1994............................................................... 19
Consolidated Statement of Shareholders' Equity for the three years ended
November 30, 1994...................................................... 20
Notes to Consolidated Financial Statements.............................. 21
Financial Statement Schedules
Schedule VIII--Valuation and Qualifying Accounts...................... 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)................................. 32
15
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, 1994 and
1993, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1994, 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 LLP
Chicago, Illinois
January 9, 1995
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 or 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.
16
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
FISCAL YEAR ENDED NOVEMBER
30,
------------------------------
1994 1993 1992
-------- -------- ----------
Net sales...................................... $717,706 $731,980 $1,053,949
Licensing and other income..................... 7,412 5,980 9,566
-------- -------- ----------
725,118 737,960 1,063,515
-------- -------- ----------
Cost of goods sold............................. 505,564 505,179 703,645
Selling, administrative and occupancy expenses. 187,765 203,502 374,785
Restructuring charge........................... -- -- 190,800
-------- -------- ----------
693,329 708,681 1,269,230
-------- -------- ----------
Earnings (loss) before interest, taxes and
extraordinary charge.......................... 31,789 29,279 (205,715)
Interest expense............................... 21,214 22,869 21,135
-------- -------- ----------
Earnings (loss) before taxes and extraordinary
charge........................................ 10,575 6,410 (226,850)
Tax (provision) benefit........................ 9,435 (190) 6,605
-------- -------- ----------
Earnings (loss) before extraordinary charge.... 20,010 6,220 (220,245)
Extraordinary charge, net of $120 tax benefit.. (3,862) -- --
-------- -------- ----------
Net earnings (loss)............................ $ 16,148 $ 6,220 $ (220,245)
======== ======== ==========
Earnings (loss) per share:
Primary and fully diluted:
before extraordinary charge................... $ .62 $ .20 $ (8.59)
after extraordinary charge.................... $ .50 $ .20 $ (8.59)
(See accompanying notes to consolidated financial statements)
17
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
(000'S OMITTED)
NOVEMBER 30,
------------------
1994 1993
ASSETS -------- --------
CURRENT ASSETS
Cash and cash equivalents................................ $ 2,823 $ 1,507
Accounts receivable, less allowance for doubtful accounts
of $7,368 in 1994 and $9,914 in 1993.................... 114,597 120,442
Inventories.............................................. 183,347 193,818
Prepaid expenses......................................... 6,672 15,346
Recoverable and deferred income taxes.................... 4,998 6,602
-------- --------
Total current assets................................... 312,437 337,715
-------- --------
INVESTMENTS AND OTHER ASSETS............................... 16,403 10,919
-------- --------
DEFERRED INCOME TAXES...................................... 11,817 --
-------- --------
PROPERTIES
Land..................................................... 3,877 3,882
Buildings and building improvements...................... 58,498 58,345
Furniture, fixtures and equipment........................ 112,850 114,574
Leasehold improvements................................... 27,964 32,155
-------- --------
203,189 208,956
Accumulated depreciation and amortization................ (151,646) (152,479)
-------- --------
Net properties......................................... 51,543 56,477
-------- --------
TOTAL ASSETS............................................... $392,200 $405,111
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable............................................ $ 20,000 $ 25,000
Current maturities of long term debt..................... 699 697
Accounts payable......................................... 38,455 30,246
Accrued payrolls......................................... 19,818 18,351
Other accrued expenses................................... 17,776 14,404
-------- --------
Total current liabilities.............................. 96,748 88,698
-------- --------
LONG TERM DEBT, less current maturities.................... 167,085 207,416
-------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value; 2,500,000 authorized and
unissued................................................ -- --
Common shares, $2.50 par value; authorized 75,000,000;
issued 32,477,800 in 1994 and 31,951,464 in 1993........ 81,194 79,878
Capital surplus.......................................... 76,063 74,256
Retained earnings (deficit).............................. (17,231) (33,379)
Unearned employee benefits............................... (11,659) (11,758)
-------- --------
Shareholders' equity..................................... 128,367 108,997
-------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................. $392,200 $405,111
======== ========
(See accompanying notes to consolidated financial statements)
18
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(000'S OMITTED)
FISCAL YEAR ENDED NOVEMBER
30,
----------------------------
1994 1993 1992
-------- ------- ---------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from operating activities:
Net earnings (loss), including extraordinary
charge........................................ $ 16,148 $ 6,220 $(220,245)
Extraordinary charge, net of tax benefit....... 3,862 -- --
Reconciling items to adjust net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization................ 13,771 16,061 26,947
Loss on sale of subsidiary................... -- 136,000
Changes in:
Accounts receivable:
Sale of receivables...................... -- -- (58,000)
Other changes............................ 5,845 42,330 23,076
Inventories................................ 10,471 12,901 68,944
Prepaid expenses........................... 7,402 1,773 (10,215)
Other assets............................... (3,152) 3,156 (4,280)
Accounts payable and accrued expenses...... 11,381 (61,763) 8,541
Taxes and deferred taxes................... (10,093) 7,113 10,439
Adjustment of properties to net realizable
value....................................... -- 1,901 11,510
-------- ------- ---------
Net cash provided by (used in) operating
activities.................................... 55,635 29,692 (7,283)
-------- ------- ---------
Cash Flows from investing activities:
Capital expenditures........................... (7,124) (5,953) (9,546)
Cash received re disposition, net of subsidiary
cash.......................................... -- 4,500 --
-------- ------- ---------
Net cash used in investing activities.......... (7,124) (1,453) (9,546)
-------- ------- ---------
Cash Flows from financing activities:
Proceeds from issuance of 10 7/8% Sr. Sub.
Notes, net.................................... 96,572 -- --
Proceeds from new Credit Facility, net......... 132,727 -- --
Payment of borrowings under Override Agreement. (235,999) -- --
Decrease in notes payable...................... (43,020) -- --
Increase (decrease) in notes payable under
Override Agreement............................ -- (80,600) 30,796
Decrease in other long term debt............... (697) (840) (1,133)
Proceeds from equity sale...................... -- 29,880 --
Proceeds from other equity transactions........ 3,222 2,472 2,951
-------- ------- ---------
Net cash provided by (used in) financing
activities.................................... (47,195) (49,088) 32,614
-------- ------- ---------
Net increase (decrease) in cash and cash
equivalents................................... 1,316 (20,849) 15,785
Cash and cash equivalents at beginning of year. 1,507 22,356 6,571
-------- ------- ---------
Cash and cash equivalents at end of year....... $ 2,823 $ 1,507 $ 22,356
======== ======= =========
Supplemental cash flow information
Net cash paid (received) during the year for:
Interest expense............................. $ 16,700 $23,800 $ 22,200
Income taxes................................. 800 (6,900) (17,000)
(See accompanying notes to consolidated financial statements)
19
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(000'S OMITTED)
PAR VALUE RETAINED UNEARNED
OF CAPITAL EARNINGS EMPLOYEE TREASURY
COMMON STOCK SURPLUS (DEFICIT) BENEFITS SHARES
------------ ------- --------- -------- --------
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
employee 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, primarily to
employee benefit plans.. 823 898 10 3
Private placement of
common stock............ 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) --
Net earnings for the
year.................... 16,148
Issuance of 309,815
shares, primarily to
employee benefit plans.. 774 843
Stock options exercised
(7,079 shares including
6,250 shares issued upon
exercise of 6,250 $1.00
Director Stock Options). 18 22
Issuance of 209,442
shares for Restricted
Stock Awards............ 524 942 (1,466)
Allocation of unearned
employee benefits....... 1,565
------- ------- --------- -------- --------
Balance at November 30,
1994...................... $81,194 $76,063 $ (17,231) $(11,659) $ --
======= ======= ========= ======== ========
(See accompanying notes to consolidated financial statements)
20
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 29% and 23% of the Company's inventories at November 30, 1994 and
1993, respectively, representing certain 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
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 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--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.
Retirement Plans--The Company and its subsidiaries maintain benefit plans
covering substantially all employees other than those covered by multi-employer
plans. Pension expense or income for the Company's principal defined benefit
plan is determined using the projected unit credit method. Pension 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--A contributory health insurance program is 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, if the Company
continues to make this program available. Effective December 1, 1993, the
Company adopted Statement of Financial Accounting
21
Standards No. 106--Employers' Accounting for Postretirement Benefits Other Than
Pensions. This statement requires recognition of a liability for postretirement
benefits as the employee renders service, rather than as claims are paid or
incurred. Adoption of the statement had no impact on cash flows. Since the
required retiree contributions offset the cost of the available medical
program, no transition obligation existed at adoption and, accordingly, there
was no effect on either net income or shareholders' equity.
Other Post-Employment 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 of the statement will not have a material impact on its
results of operations or 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 32,243,000 in 1994, 31,375,000 in 1993 and 25,629,000 in
1992. 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. The warrant
expires on September 20, 1995.
FINANCING
On March 23, 1994, the Company issued $100 million principal amount of 10
7/8% Senior Subordinated Notes due January 15, 2002 ("Notes") in a public
offering, and also entered into a new three year financing agreement ("Credit
Facility") with a group of lenders providing for maximum borrowings of $175
million (including a $25 million letter of credit facility) secured by eligible
inventories, accounts receivable and the intangibles of the Company and its
subsidiaries. Proceeds from these two transactions ("1994 Refinancing") were
utilized to repay $236 million of borrowings then outstanding related to the
Company's principal lending facility then in effect. The prior facility was
terminated upon completion of the Notes and Credit Facility transactions.
Borrowing availability under the Credit Facility is being utilized for
general corporate purposes. Borrowings are subject to a borrowing base formula
based upon eligible accounts receivable and inventories at rates selected by
the Company which are either (i) LIBOR plus 2.50% or (ii) 1.5% over the base
rate of a major bank. The Credit Facility contains certain provisions for these
rates to decline upon the achievement of certain operating performance ratios.
Financing fees pertaining to the Notes and Credit Facility aggregated $5.9
million and are being amortized over the life of the respective agreements.
Certain other fees are also payable under the Credit Facility and Notes based
on services provided.
The Notes and Credit Facility contain various restrictive covenants
pertaining to minimum net worth, additional debt incurrence, capital
expenditures, asset sales, operating leases, 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 was in
compliance with the above noted covenants.
22
Earlier in fiscal 1994, two industrial development bonds ("IDBs") aggregating
$15.5 million were refinanced. The $7.5 million IDB matures on July 1, 2014,
while the $8.0 million IDB is due on July 1, 2015. The effective interest rate
on these obligations is 7.5%. As a result of the 1994 Refinancing noted above,
the Company recorded an extraordinary charge of $3.9 million, net of a $.1
million tax benefit, in the second fiscal quarter of 1994 representing the loss
from early extinguishment of the prior debt.
At November 30, 1994 and 1993, long term debt, less current maturities,
comprised the following (000's omitted):
1994 1993
-------- --------
Notes payable.......................................... $ 66,900 $153,696
10 7/8% Senior Subordinated Notes, net................. 99,383 --
Industrial development bonds........................... 20,643 20,943
Other debt, extending to 2003.......................... 858 1,255
Notes payable to insurance companies................... -- 45,000
ESOP loan guarantee.................................... -- 12,219
-------- --------
187,784 233,113
Less--current maturities............................... 20,699 25,697
-------- --------
Long term debt......................................... $167,085 $207,416
======== ========
Industrial development bonds, 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 $12.5 million at
November 30, 1994. Interest rates on the various borrowing agreements range
from 5.5% to 8.5% (average of 7.4% at November 30, 1994 and 4.4% at November
30, 1993). The two IDBs totaling $15.5 million refinanced during fiscal 1994
are callable by the Company beginning July 1, 2000 at a 3% premium, declining
to par on July 1, 2003.
Other long term debt includes installment notes and mortgages with interest
rates ranging from 8% to 11.5% per annum (average of 9.9% at November 30, 1994
and 10.2% at November 30, 1993).
Accrued interest included in the Other Accrued Expenses caption in the
accompanying balance sheet was $5.7 million at November 30, 1994 and $1.2
million at November 30, 1993.
The approximate principal reductions required during the next five fiscal
years, including reductions under the Credit Facility which expires in 1997,
are as follows: $.7 million in 1995; $.5 million in 1996; $67.0 million in
1997; $.1 million in 1998; $.1 million in 1999.
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. Prior to the 1994 Refinancing, the ESOP loan was guaranteed by the
Company and, accordingly, the amount outstanding had been included in the
Company's consolidated balance sheet as a liability and shareholders' equity
has been reduced for the amount representing unearned employee benefits. As
part of the 1994 Refinancing, the Company purchased the remaining interest in
the loan from the financial institution holding the ESOP note. Company
contributions to 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 unearned employee
benefits are correspondingly reduced.
Information related to loan repayments by the ESOP are as follows (000's
omitted):
1994 1993 1992
------ ------ ------
Principal payments.................................. $ 526 $ -- $ 342
Interest payments................................... 1,171 1,041 1,100
------ ------ ------
Total loan payments made by ESOP.................... $1,697 $1,041 $1,442
====== ====== ======
As of November 30, 1994, 227,896 of the 620,155 shares of common stock have
been allocated to the accounts of the ESOP participants.
23
NOTES PAYABLE
The following summarizes information concerning notes payable (000's
omitted):
1994 1993 1992
------- -------- --------
Outstanding at November 30..................... $66,900 $153,696 $234,296
Maximum month end balance during the year...... 158,635 206,196 234,296
Average amount outstanding during the year..... 112,900 174,300 213,000
Weighted daily average interest rate during the
year.......................................... 7.5% 7.9% 7.0%
Weighted average interest rate on borrowings at
November 30................................... 8.2% 8.0% 7.0%
As more fully discussed in the Financing Note, in March 1994 the Company
entered into a new three year Credit Facility through March 22, 1997. At
November 30, 1994, $20 million of the aggregate $66.9 million of borrowings
outstanding was classified as current, representing expected seasonal
repayments within the fiscal 1995 year.
The Company enters into interest rate protection agreements from time to time
based on management's assessment of market conditions; however, none were in
effect at November 30, 1994. Payments made or received relating to the interest
rate protection agreements in effect during fiscal 1994, 1993 and 1992 were not
significant.
RESTRUCTURING CHARGES
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 of November 30, 1994, all
operational aspects of the Restructuring have been completed; accrued
restructuring charges of $3.6 million were included in the Other Accrued
Expenses caption in the accompanying balance sheet ($8 million at November 30,
1993) principally relating to remaining severance and other employee benefit
obligations.
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's costs of administering the program as agent for the purchaser were
included in the licensing and other income caption in the accompanying
Consolidated Statement of Earnings for fiscal 1992. The agreement terminated
effective October 10, 1992.
INVENTORIES
Inventories at fiscal year end were as follows (000's omitted):
NOVEMBER 30
--------------------------
1994 1993 1992
-------- -------- --------
Raw materials.................................. $ 42,296 $ 44,370 $ 52,018
Work in process................................ 29,015 26,468 29,657
Finished goods................................. 112,036 122,980 135,076
-------- -------- --------
$183,347 $193,818 $216,751
======== ======== ========
The excess of current cost over LIFO costs for certain inventories was $32.7
million at November 30, 1994, $35.0 million at November 30, 1993 and $38.7
million at November 30, 1992.
24
TAXES ON EARNINGS
The net tax provision (benefit) is summarized as follows (000's omitted):
1994 1993 1992
-------- ------ -------
Federal....................................... $ (375) $2,435 $(8,262)
State and local............................... 325 256 (286)
-------- ------ -------
Total current............................... (50) 2,691 (8,548)
-------- ------ -------
Federal....................................... 3,975 (320) 1,943
State and local............................... -- (66) --
-------- ------ -------
Total deferred.............................. 3,975 (386) 1,943
-------- ------ -------
Change in valuation allowance................. (13,360) (2,115) --
-------- ------ -------
Total tax provision (benefit)............... $ (9,435) $ 190 $(6,605)
======== ====== =======
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 (000's omitted):
1994 1993 1992
-------- ------- ---------
Income (loss) from continuing operations... $ 10,575 $ 6,410 $(226,850)
======== ======= =========
Tax (benefit) provision computed at
statutory rate............................ $ 3,596 $ 2,179 $ (77,129)
State and local taxes on earnings, net of
federal tax benefit....................... 217 122 (286)
Change in valuation allowance.............. (13,360) (2,115) 69,870
Other--net................................. 112 4 940
-------- ------- ---------
Total tax (benefit) provision............ $ (9,435) $ 190 $ (6,605)
======== ======= =========
A substantial portion of the Company's deferred tax assets are reserved
through the establishment of a tax valuation allowance. The valuation allowance
was recorded upon consideration of the operating losses incurred during the
1990-1992 fiscal years and related uncertainty associated with realization of
the tax benefit of net operating loss carryforwards, which is ultimately
dependent upon the generation of future earnings by the Company. The net tax
assets recorded consider amounts recoverable from carrying back operating
losses to prior years, amounts expected to be realized through future earnings
and available tax planning realization strategies (such as the ability to adopt
the FIFO inventory valuation method for those inventories currently valued
under the LIFO valuation method).
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 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 $48.1 million, alternative minimum tax credit carryforwards
("AMT") 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.
25
In fiscal 1994 and 1993, $4.0 million and $2.1 million, respectively, of the
valuation allowance offsetting the deferred tax asset associated with pre-tax
income for financial reporting, was reversed. In the fourth quarter of 1994,
the Company further reevaluated its deferred income tax asset and reversed $9.4
million of additional valuation allowance related to this asset. The valuation
allowance offsetting the deferred tax asset will continue to be evaluated in
future periods.
At November 30, 1994, the Company had a net deferred tax asset of $16.4
million comprised of deferred tax assets of $92.9 million less deferred tax
liabilities aggregating $21.0 million and a $55.5 million valuation allowance.
The principal deferred tax assets included $5.5 million attributable to TRA
items, net operating loss carryforwards of $64.4 million, AMT credit
carryforwards of $4.7 million, and $17.5 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 $4.0 million and $7.4 million related to
employee benefits, principally pensions.
As of November 30, 1994, the Company had approximately $184 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 carryforwards expire from
2007 to 2009. Foreign tax credit carryforwards of $.7 million are also
available, which expire in 1995 and 1996. The $4.7 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.
At November 30, 1994, total minimum rentals under noncancellable operating
leases are as follows (000's omitted):
YEARS AMOUNT
----- -------
1995............................. $15,840
1996............................. 12,806
1997............................. 10,538
1998............................. 7,281
1999............................. 5,571
Thereafter....................... 11,555
-------
Total minimum rentals due........ $63,591
=======
Rental expense, including rentals under short term leases, comprised the
following (000's omitted):
1994 1993 1992
------- ------- -------
Minimum rentals................................ $24,677 $28,440 $58,742
Contingent rentals............................. 177 112 2,418
Sublease income................................ (409) (570) (896)
------- ------- -------
Total rental expense........................... $24,445 $27,982 $60,264
======= ======= =======
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.
26
EMPLOYEE BENEFITS
Pension Plans
The Company participates with other companies in the apparel industry in
making collectively-bargained payments 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 $9 million in
1994, $8 million in 1993 and $10 million in 1992.
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 nominal in 1994 and
1993, and $.3 million in 1992. 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.
Pension data covering the principal plan for the three years ended November
30, 1994 included the following components in accordance with Statement of
Financial Accounting Standards No. 87--Employers' Accounting for Pensions
(000's omitted):
1994 1993 1992
------- ------- -------
Service cost--benefits earned during the
period...................................... $(4,309) $(4,150) $(4,869)
Interest cost on projected benefit
obligation.................................. (7,467) (7,607) (7,554)
Return on plan assets........................ (179) 17,452 15,674
Net amortization and deferral................ 15,376 (3,235) (1,438)
------- ------- -------
Net periodic pension income.................. $ 3,421 $ 2,460 $ 1,813
======= ======= =======
The above amounts do not include periodic pension expense related to the
benefits provided on an unfunded basis of $1.5 million in 1994, $.6 million in
1993, and $.3 million in 1992.
In 1992 pursuant to the Restructuring, the Company sold HSSI 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, 1994, the plan assets included 519,612 shares of
the Company's stock with a market value of $2.8 million.
27
The following sets forth the funded status of the principal pension plan at
November 30 (000's omitted):
NOVEMBER 30,
--------------------
1994 1993
--------- ---------
Actuarial present value of benefit obligations:
Vested benefits.................................. $ (90,790) $ (95,341)
Non-vested benefits.............................. (606) (949)
--------- ---------
Accumulated benefit obligation................... (91,396) (96,290)
Effect of projected future compensation levels... (10,867) (16,992)
--------- ---------
Projected benefit obligation....................... (102,263) (113,282)
Plan assets, at fair value......................... 127,522 135,013
--------- ---------
Plan assets in excess of projected benefit
obligation........................................ 25,259 21,731
Unrecognized net loss.............................. 2,998 4,653
Unrecognized prior service cost.................... (1,389) 516
Unrecognized net transition asset.................. (3,817) (7,270)
--------- ---------
Prepaid pension cost............................. $ 23,051 $ 19,630
========= =========
The weighted average discount rate used in determining the projected benefit
obligation was 8% in 1994 and 7% in 1993. The assumed rate of increase in
future compensation levels was 5.5% in 1994 and 1993, and the expected long
term rate of return on the Company sponsored plan assets was 8.75% in 1994 and
1993.
Savings Investment and Employee Stock Ownership Plans
The Company offers a qualified defined contribution plan, the Hartmarx
Savings-Investment Plan ("SIP"), which is a combined salary reduction plan
under Section 40l(k) of the Internal Revenue Code and an after-tax savings
plan. 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 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,
although participants age 55 and over can elect investments from among several
investment alternatives. While employee contributions up to 16% of earnings are
permitted, contributions in excess of 6% are not subject to an employer
contribution. The employer contribution is one-fourth of the first 1%
contributed by the employee plus one-twentieth thereafter. The Company's
expense related to the ESOP is based upon the principal and interest payments
on the ESOP loan, the dividends, if any, 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 $2.3
million in 1994, $2.2 million in 1993 and $2.1 million in 1992. At November 30,
1994, the assets of SIP and ESOP funds had a market value of approximately
$36.6 million, of which approximately $13.5 million was invested in 2,503,713
shares of the Company's common stock.
Health Care and Post Retirement 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 cost of the retiree program.
Statement of Financial Accounting Standards No. 106--Employers' Accounting for
Post Retirement Benefits Other Than Pensions was adopted by the Company on
December 1, 1993. Since the required contributions by the retirees offset the
cost of the available medical program, no transition obligation existed at
adoption and there was no effect on either net income or shareholders' equity.
28
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. The warrant expires on September 20, 1995. 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 that could result in acquiring 15 percent or more, of the
Company's 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 $.05 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.
STOCK OPTION PLANS AND RESTRICTED STOCK
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 majority of the
options granted under the 1988 Stock Option Plan have exercise provisions
similar to the other plans; the remaining grants, which consist of the October
1992 regrants, become exercisable in cumulative one-third installments on each
of the
29
first three anniversaries of the grant date. Under certain circumstances, the
vesting may be accelerated. All options expire ten years after date of grant
under the Plans.
The 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 ("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 1994, 55,781
DSO and DDSA were granted, 6,250 DSO were exercised and 207,248 DSO and DDSA
were outstanding at November 30, 1994.
Stock options outstanding at November 30, 1994 included 251,846 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 859,120 shares were exercisable at
November 30, 1994 at prices ranging from $5.25 to $30.81. At November 30, 1994,
1,451,800 shares were reserved for options outstanding and 7,358 shares were
available for future stock options and/or restricted stock awards (496,181 at
November 30, 1993).
Information regarding stock option activity for the three years ended
November 30, 1994 is as follows:
NUMBER OF
SHARES PRICE PER SHARE
---------- ---------------
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
Granted.................................... 467,700 $5.56 to $ 6.81
Exercised.................................. (829) $5.25
Expired or terminated...................... (40,862) $5.25 to $30.25
----------
Balance at November 30, 1994................. 1,451,800 $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.
30
OPERATING SEGMENT INFORMATION
The Company is engaged in the business of manufacturing and marketing of
men's and women's apparel to unaffiliated retailers and directly to consumers
through owned retail stores and catalogs. The Company's businesses currently
comprise the following groups: Men's Apparel Group, which designs, manufactures
and markets tailored clothing, slacks and sportswear to retailers for resale to
consumers; Women's Apparel Group, comprised of Barrie Pace, a direct mail
catalog marketer of apparel and accessories, and International Women's Apparel,
which markets women's career apparel and sportswear to department and specialty
stores; and Kuppenheimer ("Kupp"), 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. The largest customer
represents approximately 13% and 12% of consolidated sales in 1994 and 1993,
respectively.
Information on the Company's operations for the three years ended November
30, 1994 is summarized as follows (in millions):
1994
---------------------------------------
MEN'S WOMEN'S
APPAREL APPAREL
GROUP GROUP KUPP ADJ. CONSOL.
------- ------- ------ ------ -------
Sales................... $569.7 $52.2 $ 95.8 -- $717.7
Earnings (loss) before
taxes.................. 46.3 (4.1) 1.7 (33.3) 10.6
Gross assets at year
end.................... 294.0 25.1 41.3 31.8 392.2
Depreciation and
amortization........... 8.6 .6 2.6 .2 12.0
Property additions...... 5.2 .2 .9 .8 7.1
1993
---------------------------------------
MEN'S WOMEN'S
APPAREL APPAREL
GROUP GROUP KUPP ADJ. CONSOL.
------- ------- ------ ------ -------
Sales................... $553.9 $52.3 $125.8 -- $732.0
Earnings (loss) before
taxes.................. 43.2 (2.9) (1.0) (32.9) 6.4
Gross assets at year
end.................... 293.7 31.2 61.8 18.4 405.1
Depreciation and
amortization........... 8.8 .7 4.5 .1 14.1
Property additions...... 5.2 .2 .5 -- 5.9
1992
-------------------------------------------------
MEN'S WOMEN'S
APPAREL APPAREL
GROUP GROUP KUPP OTHER ADJ. CONSOL.
------- ------- ------ ------ ------- --------
Sales................... $630.4 $32.7 $136.8 $307.3 (53.3) $1,053.9
Earnings (loss) before
taxes.................. 37.2 1.7 (12.2) (200.4) (53.2) (226.9)
Gross assets at year
end.................... 354.9 18.9 78.9 13.1 46.2 512.0
Depreciation and
amortization........... 10.5 .5 5.6 10.0 .3 26.9
Property additions...... 3.9 .2 4.1 1.3 -- 9.5
Men's Apparel Group sales include $4.6 million in 1993 and $36.3 million in
1992 related to businesses subsequently sold or discontinued. Men's Apparel
Group and Women's Apparel Group sales in 1992 include $51.1 million and $2.2
million, respectively, of intersegment sales to HSSI, the Company's retail
specialty store business prior to its September, 1992 disposition. Earnings
(loss) before taxes for 1992 include pre-tax restructuring charges of $190.8
million, principally attributable to the disposition and liquidation of retail
operations. The "Other" column for 1992 reflects sales of retail businesses of
approximately $252 million
31
related to HSSI and $55 million to Country Miss, which were sold or
discontinued as a result of the 1992 Restructuring; the loss before taxes
includes both the operating losses and restructuring charges applicable to
these businesses.
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.
Sales under the "Adjustment" column represent intergroup sales, if any,
during the respective period. Adjustments of earnings before taxes consist of
interest expense and general corporate expenses. Adjustments of gross assets
are for cash, recoverable and deferred income taxes, 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 1994 and 1993 is as follows (000's omitted):
SECOND
FIRST QUARTER THIRD FOURTH
QUARTER (1) QUARTER QUARTER
-------- -------- -------- --------
1994
----
Sales............................... $177,891 $164,020 $196,105 $179,690
Gross profit........................ 50,203 49,390 53,213 59,336
Net earnings (loss) before
extraordinary charge............... (720) (3,120) 3,515 20,335
Net earnings (loss)................. (720) (6,982) 3,515 20,335
Net earnings (loss) per share:
before extraordinary charge........ (.02) (.10) .11 .63
after extraordinary charge......... (.02) (.22) .11 .63
1993
----
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
- --------
(1) The net loss for the second quarter of 1994 includes $3.9 million or $.12
per share extraordinary charge related to early extinguishment of debt.
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 contained under the caption "Information About Nominees For
Directors" on pages 2 to 7 of the Proxy Statement for the 1995 Annual Meeting
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 contained under the caption "Executive Officer Compensation" on
pages 7 to 11 and "Information about Nominees for Directors" on pages 2 to 7 of
the Proxy Statement for the 1995 Annual Meeting is incorporated herein by
reference.
32
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the Proxy Statement for the 1995 Annual Meeting
under the captions "Information About Nominees for Directors" on pages 2 to 7
and "Ownership of Common Stock" on pages 21 to 22 is incorporated herein by
reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained in the Proxy Statement for the 1995 Annual Meeting
under the caption "Information About Nominees for Directors" on pages 2 to 7 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 15 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 15 are filed
as part of this Annual Report.
PAGE
----
Consent of Independent Accountants....................................... F-1
(a)(3) Index to Exhibits................................................. 34
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the quarter ended
November 30, 1994.
33
HARTMARX CORPORATION
INDEX TO EXHIBITS
EXHIBIT NO.
AND
APPLICABLE
SECTION OF
601 OF REG-
ULATION S-K
-----------
*3-A Restated Certificate of Incorporation (Exhibit 3-A to
Form 10-K for the year ended November 30, 1993), (1).
*3-A-1 Certificate of Stock Designation for Series B Junior
Participating Preferred Stock (Exhibit 3-A-1 to Form 10-
K for the year ended November 30, 1993), (1).
*3-A-2 Certificate of Amendment for increase in authorized
shares of Common Stock (Exhibit 3-A-2 to Form 10-K for
the year ended November 30, 1993), (1).
*3-A-3 Certificate of Amendment adding Article Fourteenth
limiting director liability as provided under Delaware
General Corporation Law (S) 102(b)(7) (Exhibit 3-A-3 to
Form 10-K for the year ended November 30, 1993), (1).
*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.
*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-D Indenture, dated as of March 15, 1994, between the
Company and Bank One Wisconsin Trust Company, N.A.,
Trustee, relating to the 10 7/8% Senior Subordinated
Notes due 2002 of Hartmarx Corporation (Exhibit 4-D to
Form 10-Q for the quarter ended February 28, 1994), (1).
*4-E Credit Agreement, dated as of March 23, 1994, among the
Company, the Lenders listed therein and General Electric
Capital Corporation, as Managing Agent and Collateral
Agent (Exhibit 4-E to Form 10-Q for the quarter ended
February 28, 1994), (1).
*4-E-1 Amendment No. 1 dated August 26, 1994 to the Credit
Agreement (Exhibit 4-E-1 to Form 10-Q for the quarter
ended August 31, 1994), (1).
*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. **
*10-B-2 1985 Stock Option Plan, as amended (Exhibit 10-B-2 to
Form 10-K for the year ended November 30, 1993), (1). **
34
EXHIBIT NO.
AND
APPLICABLE
SECTION OF
601 OF REG-
ULATION S-K
-----------
*10-C-2 Description of Hartmarx Management Incentive Plan
(Exhibit 10-C-2 to Form 10-K for the year ended November
30, 1993), (1). **
*10-D-1 Form of Deferred Compensation Agreement, as amended,
between the Company and Directors Abboud, Baldrige,
Farley, Jacobs, Marshall and Segnar (Exhibit 10-D-1 to
Form 10-K for the year ended November 30, 1993), (1). **
10-D-2 Form of First Amendment to Director Deferred
Compensation Agreement between the Company and Directors
Abboud, Baldrige, Farley, Jacobs, Marshall and Segnar.
**
*10-E-1 Form of Deferred Compensation Agreement, as amended,
between the Company and Messrs. Hand, Patel, Morgan and
Brenner (Exhibit 10-E-1 to Form 10-K for the year ended
November 30, 1993), (1). **
10-E-2 Form of First Amendment to Executive Deferred
Compensation Agreement between the Company and Messrs.
Hand, Patel, Morgan and Brenner. **
*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-5 Form of Severance Agreement between the Company and
Executive Officers Frank A. Brenner, James E. Condon and
Glenn R. Morgan (Exhibit 10-F-5 to Form 10-K for the
year ended November 30, 1993), (1). **
10-F-6 Form of Amendment to Severance Agreement between the
Company and Executive Officers Frank A. Brenner, James
E. Condon and Glenn R. Morgan. **
*10-F-7 Employment Agreement between the Company and Wallace L.
Rueckel. (Exhibit
10-F-7 to Form 10-K for the year ended November 30,
1993), (1). **
10-F-8 Employment Agreement between the Company and Mary D.
Allen. **
*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
(Exhibit 10-G-1 to Form 10-K for the year ended November
30, 1993), (1).
12 Statement of Computation Ratios.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants included on page F-1
of this Form 10-K.
24 Powers of Attorney, as indicated on page 36 of this Form
10-K.
27 Financial Data Schedules.
- --------
* 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.
35
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, Finance
and Administration
Date: February 27, 1995
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* Wallace L. Rueckel*
- ------------------------------------ ------------------------------------
Miles L. Marsh, Director Wallace L. Rueckel
Executive Vice President, Principal
/s/ Wallace L. Rueckel Financial Officer
By:_________________________________
Wallace L. Rueckel Glenn R. Morgan*
------------------------------------
/s/ Mary D. Allen Glenn R. Morgan
By:_________________________________ Senior Vice President
Mary D. Allen Principal Accounting Officer
- --------
* Pursuant to Power of Attorney
Date: February 27, 1995
36
HARTMARX CORPORATION
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED NOVEMBER 30, 1994, 1993, AND 1992
(000'S OMITTED)
RESERVE FOR DOUBTFUL
ACCOUNTS FISCAL YEAR
ENDED NOVEMBER 30,
-------------------------
1994 1993 1992
------- ------- -------
Balance at beginning of year......................... $ 9,914 $16,022 $15,153
Charged to costs and expenses........................ 2,591 3,868 6,813
Deductions from reserves (1)......................... (5,137) (9,976) (5,944)
------- ------- -------
Balance at end of year............................... $ 7,368 $ 9,914 $16,022
======= ======= =======
- --------
(1) Notes and accounts written off as uncollectible, net of recoveries of
accounts previously written off as uncollectible.
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 9, 1995 appearing on page 16 of this
Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 27, 1995
F-1