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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, 1995
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 New York Stock Exchange
share
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
10 7/8% Senior Subordinated Notes New York Stock Exchange
due January 15, 2002
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 20, 1996, 32,908,101 shares of the Registrant's common stock
were outstanding. The aggregate market value of common stock held by non-
affiliates of the Registrant was $126,446,000.
Certain portions of the Registrant's definitive proxy statement dated
February 28, 1996 for the Annual Meeting of Stockholders to be held April 17,
1996 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................. 5
Executive Officers of the Registrant................................ 5
PART II
Market for Registrant's Common Equity and Related Stockholder
5 Matters............................................................ 6
6 Selected Financial Data............................................. 7
Management's Discussion and Analysis of Financial Condition and
7 Results of Operations.............................................. 8
8 Financial Statements and Supplementary Data......................... 13
Changes in and Disagreements with Accountants on Accounting and
9 Financial Disclosure............................................... 31
PART III
10 Directors and Executive Officers of the Registrant.................. 31
11 Executive Compensation.............................................. 32
12 Security Ownership of Certain Beneficial Owners and Management...... 32
13 Certain Relationships and Related Transactions...................... 32
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K..... 32
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 management of the respective operating subsidiaries has
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 believes it 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), 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), Nino Cerruti(R), Henry Grethel(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 30
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
primarily in Europe and Asia, selling golfwear through distributors in 18
countries.
In 1992, the Company undertook a comprehensive operational and financial
restructuring (the "Restructuring") to refocus business operations around its
profitable core wholesale men's apparel businesses and to restructure its
balance sheet. As the final step in its previously announced strategy to exit
the retail business, the Company completed the disposition of its Kuppenheimer
operation, the vertically integrated factory-direct-to-consumer manufacturer
of popular priced men's tailored clothing whose products are sold exclusively
through Kuppenheimer operated retail stores, in July 1995. Kuppenheimer's
operating results, net of tax benefit, have been reflected as a discontinued
operation in the accompanying Consolidated Statement of Earnings for the year
ended November 30, 1995 and comparable amounts relating to prior years have
been reclassified.
The Company's operations currently consist of the following businesses--
Men's Apparel Group ("MAG") and Women's Apparel Group. MAG designs,
manufactures and markets men's tailored clothing, slacks and sportswear to
retailers for resale to consumers. The Women's Apparel Group is comprised of
International Women's Apparel ("IWA"), which markets women's career apparel to
department and specialty stores, and Barrie Pace, a direct mail catalog
marketer of women's apparel and accessories. The Operating Segment Information
on pages 30 through 31 in the accompanying Notes to Consolidated Financial
Statements further describes the Company's operations.
This 1995 Annual Report on Form 10-K contains forward looking statements
that are made in reliance upon the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Such forward looking statements are
subject to risks and uncertainties. Exhibit 99 to this 1995 10-K Report
identifies important risk factors which could cause the Company's actual
financial results to differ materially from results forecast or estimated by
the Company in forward looking statements.
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
1
and distribution channels. In 1995, tailored clothing represented
approximately 61% of the Company's total sales. Sportswear (which includes
golfwear) and slacks represented approximately 30% of sales and women's
apparel represented approximately 9% of sales.
As an integrated manufacturer and marketer, the Company is responsible for
the design, manufacture and sourcing of its apparel. Substantially all of its
men's tailored clothing and slacks are manufactured in 17 Company operated
facilities located in the United States, one factory in Costa Rica and one
factory in Mexico. 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. IWA designs and sources women's
career apparel and sportswear for department and specialty stores under owned
and licensed brand names. The Barrie Pace catalog features branded products
principally purchased from unaffiliated sources, directed towards the business
and professional woman. Approximately 20% of Barrie Pace sales are of products
purchased from affiliated companies.
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 17% 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 46% of the Company's total fabric requirements in fiscal 1995. No other
supplier accounts for over 6% of the Company's total raw material
requirements. As is customary in the 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 summer and holiday seasons. 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.
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
2
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. The
Company's customers include major United States department and specialty
stores (certain of which are under common ownership and control), value-
oriented retailers and direct mail companies. The Company's largest customer,
Dillard Department Stores, represented approximately 16%, 14% and 14% of
consolidated sales in 1995, 1994 and 1993, respectively. No other customer
exceeded 7% 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 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 8,200 employees, of which
approximately 98% are employed in MAG. Most of the employees engaged in
manufacturing and distribution activities are covered by union contracts with
the Union of Needletrades, Industrial & Textile Employees. The Company
considers its employee relations to be satisfactory.
Seasonality
The men's tailored clothing business has two principal selling seasons,
spring and fall. Additional lines for the summer and holiday seasons are
marketed in men's and women's sportswear. Men's tailored clothing, especially
at higher price points, generally tends to be less sensitive to frequent
shifts in fashion trends, economic conditions and weather, as compared to
men's sportswear or women's career apparel and sportswear. While there is
typically little seasonality to the Company's sales on a quarterly basis,
seasonality can be affected by a variety of factors, including the mix of
advance and fill-in orders, the distribution of sales across retail trade
channels and overall product mix between traditional and fashion merchandise.
The Company generally receives orders from its wholesale customers
approximately five to seven months prior to shipment. Some of the Company's
operating businesses also routinely maintain in-stock positions of selected
inventory in order to fill customer orders on a quick response basis.
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.
3
ITEM 2--PROPERTIES
The Company's principal executive and administrative offices are located in
Chicago, Illinois. Its principal office, manufacturing and distribution
operations are conducted at the following locations:
APPROXIMATE EXPIRATION
FLOOR AREA DATE OF
IN SQUARE MATERIAL
LOCATION FEET PRINCIPAL USE LEASES
- -------- ----------- ------------- ----------
Anniston, AL...................... 76,000 Manufacturing 1999
Buffalo, NY....................... 115,000 Manufacturing *
Buffalo, NY....................... 280,000 Office; manufacturing; warehousing 2015
Cape Girardeau, MO................ 171,000 Manufacturing; warehousing *
Chaffee, MO....................... 78,000 Manufacturing; warehousing 1999
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
Michigan City, IN
(2 locations).................... 420,000 Office; manufacturing; warehousing *
New York, NY...................... 68,000 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 *
San Jose, Costa Rica.............. 72,000 Manufacturing *
Tolcayuca, Mexico................. 50,000 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. For information regarding the terms of the leases and
rental payments thereunder, refer to the "Leases" note to the consolidated
financial statements on page 25 of this Form 10-K.
ITEM 3--LEGAL PROCEEDINGS
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
4
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 oral arguments were heard September 19,
1995. On February 23, 1996, in a unanimous opinion, the Appellate Court
affirmed the dismissal, with prejudice, of the Third Amended Complaint. Mr.
Spillyards has twenty-one days after the date of the ruling to petition for a
rehearing before the Appellate Court or to petition for leave to appeal to the
Illinois Supreme Court.
After consultation with counsel, management of the Company believes that
there are meritorious defenses to the Spillyards Litigation referred to above
and that such action will not have a material adverse effect on the Company's
business or financial condition.
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 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 Chief 56 31 1992
Executive Officer
(Director since 1984)
Homi B. Patel........... President and Chief 46 16 1993
Operating Officer
(Director since January,
1994)
Mary D. Allen........... Executive Vice 50 1 1994
President, General
Counsel and Secretary
Glenn R. Morgan......... Executive Vice President 48 16 1995
and Chief Financial
Officer
Frank A. Brenner........ Vice President, 67 27 1983
Marketing Services
James E. Condon......... Vice President and 45 18 1995
Treasurer
Linda J. Valentine...... Vice President, 45 15 1993
Compensation and
Benefits
Andrew A. Zahr.......... Controller and Chief 52 23 1994
Accounting Officer
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 August 31, 1995, Wallace L. Rueckel, formerly Executive Vice President
and Chief Financial 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-4.
Mr. Rueckel has received the benefits accorded him pursuant to that Agreement.
5
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:
1995 1994 1993
------------- ------------- ------------
HIGH LOW HIGH LOW HIGH LOW
------ ------ ------ ------ ----- ------
First Quarter.......................... $6.375 $5.125 $7.375 $6.125 $8.25 $5.375
Second Quarter......................... 5.875 4.25 7.00 5.875 7.25 5.75
Third Quarter.......................... 6.875 4.75 6.625 5.375 6.75 5.125
Fourth Quarter......................... 6.625 4.50 6.00 5.00 7.75 5.75
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 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 20, 1996, there were approximately 6,400 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.
On December 6, 1995, the Board of Directors of the Company approved the
extension of the benefits afforded by the Company's existing rights plan by
adopting a new stockholder rights plan. The new plan, like the existing plan,
is intended to promote continuity and stability, deter coercive or partial
offers which will not provide fair value to all stockholders and enhance the
Board's ability to represent all stockholders and thereby maximize stockholder
values.
Pursuant to the new Rights Agreement, dated as of December 6, 1995, by and
between the Company and First Chicago Trust Company of New York, as Rights
Agent, one Right has been issued for each outstanding share of common stock,
par value $2.50 per share, of the Company upon the expiration of the Company's
existing rights (January 31, 1996). Each of the new Rights will entitle the
registered holder to purchase from the Company one one-thousandth of a share
of Series A Junior Participating Preferred Stock, par value $1.00 per share,
at a price of $25 per Right. The Rights, however, will not become exercisable
unless and until, among other things, any person acquires 15% or more of the
outstanding common stock. If a person acquires 15% or more of the outstanding
common stock (subject to certain conditions and exceptions more fully
described in the Rights Agreement), each Right will entitle the holder (other
than the person who acquired 15% or more of the outstanding common stock) to
purchase common stock of the Company having a market value equal to twice the
exercise price of a Right. The new Rights are redeemable under certain
circumstances at $.01 per Right and will expire, unless earlier redeemed, on
January 31, 2006.
The foregoing summary description of the Rights does not purport to be
complete and is qualified in its entirety by reference to the Rights
Agreement, a copy of which is incorporated by reference as Exhibit 4-A to this
Annual Report on Form 10-K.
6
ITEM 6--SELECTED FINANCIAL DATA
The following table summarizes data for the years 1991 through 1995. The
Company's complete annual financial statements and notes thereto for fiscal
1995 appear elsewhere herein.
INCOME STATEMENT DATA
IN THOUSANDS, EXCEPT PER
SHARE DATA
FOR YEARS ENDED NOVEMBER 30
(A) 1995 1994 1993 1992 1991
--------------------------- -------- -------- -------- --------- --------
Net sales................... $595,272 $621,847 $606,148 $ 684,171 $705,035
Licensing and other income.. 6,429 7,277 5,823 3,478 989
Cost of sales............... 447,414 459,295 444,335 507,200 530,286
Operating expenses.......... 132,806 139,720 137,315 153,267 158,619
Restructuring charges....... -- -- -- 35,100 --
Earnings (loss) before
interest, taxes,
discontinued operations and
extraordinary charge....... 21,481 30,109 30,321 (7,918) 17,119
Interest expense............ 19,851 20,988 22,639 21,062 23,539
Earnings (loss) before
taxes, discontinued
operations and
extraordinary charge....... 1,630 9,121 7,682 (28,980) (6,420)
Tax (provision) benefit..... 19,800 9,992 (273) 870 2,315
Earnings (loss) before
discontinued operations and
extraordinary charge....... 21,430 19,113 7,409 (28,110) (4,105)
Discontinued operations, net
of tax..................... (18,283) 897 (1,189) (192,135) (34,260)
Net earnings (loss) before
extraordinary charge....... 3,147 20,010 6,220 (220,245) (38,365)
Extraordinary charge, net of
tax benefit................ -- (3,862) -- -- --
Net earnings (loss)......... 3,147 16,148 6,220 (220,245) (38,365)
Net earnings (loss) per
share:
continuing operations..... .66 .59 .24 (1.10) (.19)
discontinued operations... (.56) .03 (.04) (7.49) (1.55)
before extraordinary
charge................... .10 .62 .20 (8.59) (1.74)
after extraordinary
charge................... .10 .50 .20 (8.59) (1.74)
Cash dividends per share.... -- -- -- -- .60
Average number of common
shares and equivalents..... 32,631 32,243 31,375 25,629 22,056
BALANCE SHEET DATA
IN THOUSANDS, EXCEPT PER
SHARE DATA
AT NOVEMBER 30
------------------------
Cash........................ $ 5,700 $ 2,823 $ 1,507 $ 22,356 $ 6,571
Accounts receivable......... 108,486 114,597 120,442 159,772 134,748
Inventories................. 154,898 183,347 193,818 216,751 404,995
Other current assets........ 10,409 11,670 21,948 30,894 32,318
Net properties.............. 44,624 51,543 56,477 66,846 149,656
Other assets/deferred taxes. 52,519 28,220 10,919 15,340 11,560
Total assets................ 376,636 392,200 405,111 511,959 739,848
Accounts payable, accrued
expenses and taxes......... 78,867 76,049 63,001 126,932 167,191
Total debt.................. 163,278 187,784 233,113 314,602 285,649
Shareholders' equity........ 134,491 128,367 108,997 70,425 287,008
Equity per share............ 4.11 3.95 3.41 2.72 11.32
OTHER DATA
IN THOUSANDS
FOR YEARS ENDED NOVEMBER 30
(A)
---------------------------
Earnings before interest,
taxes, depreciation,
amortization, discontinued
operations and
extraordinary charge....... $ 30,069 $ 39,502 $ 39,917 $ 3,350 $ 29,594
Depreciation and
amortization of fixed
assets..................... 8,588 9,393 9,596 11,268 12,475
Capital expenditures........ 8,441 6,173 5,467 4,331 9,824
- --------
(A) 1994 and prior years restated to reflect the Company's former retail
businesses (Kuppenheimer, HSSI and Country Miss retail), as discontinued
operations.
7
Management's Discussion and Analysis of Financial Condition and Results of
Operations, along with the Financing and Taxes on Earnings 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
Consolidated 1995 results for continuing operations reflected generally weak
apparel sales at retail along with inventory liquidations of several
competitors operating in bankruptcy, which adversely impacted sales and
profitability, most significantly of the moderately priced brands and private
label products. Despite the decline in pre-tax earnings from continuing
operations to $1.6 million in 1995 from $9.1 million in 1994 and $7.7 million
in 1993, total debt of $163.3 million at November 30, 1995 declined $24.5
million from 1994, attributable to both the disposition of the Kuppenheimer
business and from working capital reductions.
The Company's businesses currently consist of: (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 (including golfwear) principally through its Trans-Apparel
Group, Biltwell and Bobby Jones business units; (ii) Women's Apparel Group,
comprised of International Women's Apparel ("IWA"), which markets women's
career apparel and sportswear to department and specialty stores under owned
and licensed brand names, and Barrie Pace, a direct mail business offering a
wide range of apparel and accessories to business and professional women
through its catalogs. In July, 1995, the Company completed the disposition of
its Kuppenheimer business, the vertically integrated factory-direct-to-
consumer manufacturer of popular priced men's tailored clothing whose products
are sold exclusively through Kuppenheimer operated retail stores. This
disposition completed the Company's previously announced strategy to eliminate
its retail businesses; accordingly, Kuppenheimer's operating results prior to
disposition, net of tax benefit, have been reflected as a discontinued
operation in the accompanying Consolidated Statement of Earnings for the year
ended November 30, 1995 and comparable amounts relating to prior years have
been reclassified. Discontinued operation also reflects the loss on
disposition of Kuppenheimer aggregating $18.1 million, net of tax benefit,
representing the loss on the sale of stock, expenses directly related to the
disposition and operating losses from the measurement date to the disposition
date.
RESULTS OF OPERATIONS
Consolidated 1995 sales from continuing operations were $595.3 million
compared to $621.8 million in 1994 and $606.1 million in 1993. The 4.3%
decline in 1995 compared to 1994 was principally attributable to the
moderately priced branded and private label product lines, as the higher price
point brands, such as Hickey-Freeman, Hart Schaffner & Marx and Bobby Jones,
achieved increases. The 2.6% increase in 1994 compared to 1993 was principally
attributable to the initial season introduction of Tommy Hilfiger tailored
clothing and slacks.
Consolidated 1995 pre-tax income from continuing operations decreased to
$1.6 million from $9.1 million in 1994 and $7.7 million in 1993. As discussed
below, results for 1995 and 1994 reflected recognition of non-cash income tax
benefits of $19.8 million and $10.0 million, respectively, associated with
operating loss carryforwards expected to be realized in future periods. After
considering this tax benefit, consolidated 1995 net earnings before
discontinued operation and extraordinary charge were $21.4 million or $.66 per
share compared to $19.1 million or $.59 per share in 1994 and $7.4 million or
$.24 per share in 1993. The loss on discontinued operation in 1995 aggregated
$18.3 million or $.56 per share, consisting of an $18.1 million loss on the
sale of Kuppenheimer and $.2 million operating loss incurred before
disposition. In 1994, Kuppenheimer's after-tax earnings were $.9 million or
$.03 per share following an after-tax loss of $1.2 million or $.04 per share
in 1993. Fiscal 1994 consolidated results included a $3.9 million or $.12 per
share extraordinary charge associated with the early repayment of loans
associated with the 1994 debt refinancing. After consideration of the
discontinued operation and extraordinary charge, net earnings were $3.1
million or $.10 per share in 1995, $16.1 million or $.50 per share in 1994 and
$6.2 million or $.20 per share in 1993.
8
The following summarizes sales and earnings before interest and taxes
("EBIT") for the Company's continuing business groups (in millions):
YEAR ENDED NOVEMBER
30,
----------------------
1995 1994 1993
------ ------ ------
Sales:
Men's Apparel Group............................. $547.1 $569.6 $553.9
Women's Apparel Group........................... 48.2 52.2 52.2
------ ------ ------
Total......................................... $595.3 $621.8 $606.1
====== ====== ======
EBIT:
Men's Apparel Group............................. $ 32.1 $ 46.3 $ 43.2
Women's Apparel Group........................... (1.3) (4.1) (2.9)
Other and adjustments........................... (9.3) (12.1) (10.0)
------ ------ ------
Total......................................... $ 21.5 $ 30.1 $ 30.3
====== ====== ======
MAG sales were $547 million in 1995, $570 million in 1994 and $554 million
in 1993. The decrease in 1995 compared to 1994 reflected the generally weak
retail environment for apparel and inventory liquidations of several
competitors operating in bankruptcy, which primarily affected the sales and
margins in moderately priced branded and private label product lines. The
businesses positioned in the upper end of the tailored clothing market, which
include the Hickey-Freeman and Hart Schaffner & Marx brands, produced a 4%
sales increase. Sales of Bobby Jones golfwear, also marketed at the upper end
price points, increased significantly. Sales in each year were also impacted
by the declining volume with The Hastings Group, Inc. ("Hastings"), the
successor business to HSSI, Incorporated, which was sold by Hartmarx in
September, 1992. Sales to Hastings declined to $15 million in 1995 from $27
million in 1994 and $36 million in 1993. The sales 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 Hastings. MAG EBIT was $32
million in 1995 compared to $46 million in 1994 and $43 million in 1993. The
decline in 1995 EBIT compared to 1994 primarily reflected the lower sales, the
industry-wide conditions adversely affecting gross margins and LIFO expense of
$2.1 million in 1995 compared to LIFO income of $2.3 million in 1994. The EBIT
improvement in 1994 compared to 1993 primarily reflected higher sales.
Tailored clothing represented the most significant contributor to earnings in
each year.
Women's Apparel Group sales, comprising approximately 8% of the consolidated
total in each year, aggregated $48 million in 1995 and $52 million in 1994 and
1993. Sales at IWA decreased in 1995, principally attributable to two product
lines discontinued in 1994. Barrie Pace catalog sales declined slightly in
1995, after increasing in 1994. Women's Apparel Group loss before interest and
taxes was $1 million in 1995, $4 million in 1994 and $3 million in 1993. The
IWA business operated at a breakeven in 1995 after incurring losses in the
preceding two years principally associated with the two unprofitable product
lines now discontinued. The Barrie Pace business had a small loss in 1995
following lower earnings in 1994 than in 1993, as 1995 and 1994 results were
unfavorably impacted by lower relative response rates on an increased number
and size of catalogs distributed and higher postage and paper costs.
Gross Margins. The consolidated gross margin percentage of sales was 24.8%
in 1995, 26.1% in 1994 and 26.7% in 1993. Gross margins reflected LIFO expense
of $2.1 million in 1995 compared to income of $2.3 million in 1994 and $3.6
million in 1993. LIFO expense produced an unfavorable impact on consolidated
gross margin of .4% in 1995 compared to a favorable impact on consolidated
gross margin of .4% in 1994 and .6% in 1993. The MAG gross margin percentage
declined in 1995 compared to 1994; 1994 gross margin rates were approximately
even with 1993. The 1995 reduction compared to 1994 was principally
attributable to the moderately priced and private label tailored clothing
product lines which have been those most susceptible to the industry margin
pressures. The gross margin percentage of sales was also influenced by the
effect of LIFO as described above. In the women's businesses, the gross margin
ratio improved in 1995, principally from inventory dispositions in 1994
associated with discontinued product lines in the IWA business; however,
margins declined
9
in the catalog business due to a greater proportion of units sold at less than
full price. Women's gross margin ratio in 1994 was unfavorable compared to
1993, principally attributable to inventory dispositions in the IWA business.
Selling, Administrative and Occupancy Expenses. Selling, administrative and
occupancy expenses declined to $133 million in 1995 from $140 million in 1994
and $137 million in 1993, and also decreased as a percentage of sales to 22.3%
in 1995 from 22.5% in 1994 and 22.7% in 1993. Operating expenses declined from
the lower sales in both MAG and the Women's Apparel Group in 1995 compared to
1994, but also from expense reduction programs effected in continuing
businesses. Operating expenses in 1995 were unfavorably impacted by a non-
recurring $3.7 million charge related to the settlement in 1995 of 1992
licensing program disputes, partially offset by a $2.8 million gain on the
sale of a former production site, which together adversely affected the
current year expense to sales ratio by .2%. In 1994, MAG expenses declined and
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.
Advertising expenditures, including costs related to the Barrie Pace
catalog, were $22 million in 1995 compared to $19 million in 1994 and $17
million in 1993, representing 3.6%, 3.0% and 2.9% of consolidated sales,
respectively. The increase in each year reflected higher expenditures in MAG
related to the introduction of new brands and increased advertising for the
higher priced branded products, along with costs associated with distributing
more catalogs in the Barrie Pace business.
Statement of Financial Accounting Standards No. 112, Employers' Accounting
for Post-Employment Benefits, was adopted by the Company effective December 1,
1994. This statement requires the recognition of obligations related to
benefits provided by an employer to former or inactive employees after
employment but before retirement. As the Company's accounting practices were
substantially consistent with the provision of this statement, adoption did
not impact financial condition or results of operations. In 1995, the Company
adopted Emerging Issues Task Force 93-6 relating to ESOP accounting. Adoption
of this statement had no material effect on either net income or shareholders'
equity. Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" (FAS 123), is effective for the Company's fiscal
year beginning December 1, 1996. The Company has concluded it will comply with
FAS 123 by appropriate footnote disclosure of the effect of stock options.
Licensing and Other Income. This caption is principally comprised of income
generated from licensing and aggregated $6.4 million in 1995, $7.3 million in
1994 and $5.8 million in 1993. The decline in 1995 from 1994 principally
related to the 1994 sale of certain international license rights. The increase
in 1994 from 1993 was primarily attributable to the non-recurring sale of
license rights noted above.
Interest Expense. Interest expense was $20 million in 1995, $21 million in
1994 and $23 million in 1993. The decline in each year was principally
attributable to lower average borrowings, primarily from working capital
reductions and cash earnings, partially offset by higher rates in 1995. The
1994 Refinancing, as described in the Liquidity and Capital Resources caption
below, lengthened maturities by shifting $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 was 8.5% in
1995, 7.5% in 1994 and 7.9% in 1993. Interest expense included non-cash
amortization of financing fees and expenses of $1.4 million in 1995, $1.7
million in 1994 and $2.0 million in 1993. The effective interest rate for all
borrowings, including amortization costs, was 10.4% in 1995, 9.6% in 1994 and
9.0% in 1993.
Income Taxes. The recorded tax provision or benefit in each year was
determined in accordance with 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 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.
10
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 1993 effective tax rate of 3% was applicable to state
income taxes. During fiscal 1995 and 1994, the Company reevaluated its
deferred tax asset and reversed a portion of its valuation allowance,
resulting in a recognized tax benefit of $19.8 million and $10.0 million,
respectively. Among the factors considered in the recognition were:
. 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 1992
Restructuring;
. a third year of consolidated profitability in 1995 following the
operating losses during the 1990-1992 period;
. the Company's income prospects after consideration of the available
operating loss carryforwards, the substantial portion of which do not
expire until the 2007-2010 period;
. 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 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 operating loss carryforwards, the remaining valuation reserve at
November 30, 1995 was $34.9 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 operating loss carryforwards.)
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 debentures, a $175 million Revolving Credit Facility with
a nine member lending group and the private placement of $15.5 million of
industrial development bonds issued by development authorities in prior years
and maturing in 2015. 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.
The Credit Facility is secured by inventories, accounts receivable and
intangibles of the Company and its subsidiaries. Facility amendments in July
1995, November 1995 and January 1996, among other things, resulted in a
reduction in the fees, administrative charges and effective borrowing rates,
adjustment of certain covenants and extension of the term from March 1997 to
July 2000. The 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 to EBITDA and minimum fixed charge coverage, as well as
other customary covenants, representations and warranties, and events of
default. The Company was in compliance with the above noted covenants.
Net cash provided by operating activities was $22 million in 1995 compared
to $56 million in 1994 and $30 million in 1993. The decline in 1995 compared
to 1994 was principally attributable to a smaller reduction in working capital
than in 1994 and the lower earnings. The improvement in 1994 compared to 1993
was principally attributable to higher earnings and a reduction in working
capital requirements. At November 30, 1995, net accounts receivable of $108.5
million declined $6.1 million or 5.3% compared to November 30, 1994,
principally reflecting the lower sales. The allowance for doubtful accounts
was $7.9 million compared to $7.4 million last year, representing 6.8% of
gross receivables in 1995 compared to 6.0% in 1994. The increase reflected
increased exposure of certain retail customers. Inventories of $154.9 million
at November 30, 1995 declined $28.4 million or 15.5% compared to November 30,
1994 principally attributable to the disposition of Kuppenheimer. Inventory
turn in continuing businesses declined slightly.
11
Recoverable and deferred income taxes at November 30, 1995 aggregated $38.0
million compared to $16.8 million at November 30, 1994. The balance at
November 30, 1995 reflected a valuation allowance of $34.9 million ($55.5
million in 1994) principally related to tax assets associated with prior
years' operating losses. As discussed previously under "Income Taxes", the
Company has evaluated and will continue to evaluate 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 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. Approximately $31.1 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
operating loss carryforwards. At November 30, 1995, the Company had
approximately $186 million of federal tax operating loss carryforwards
available to offset future taxable income.
At November 30, 1995, net properties of $44.6 million declined $6.9 million
from November 30, 1994, principally attributable to the disposition of
Kuppenheimer. Capital additions for continuing businesses during 1995 were
$8.4 million compared to $6.2 million in 1994. Depreciation expense for
continuing businesses was $8.6 million in 1995 and $9.4 million in 1994.
Capital additions during the next several years are expected to be principally
funded from cash generated from operating activities. The capital expenditure
limitations contained in the Company's current borrowing agreements are not
expected to result in delaying capital expenditures otherwise planned by the
Company.
Total debt of $163.3 million at November 30, 1995 excludes the $2.5 million
industrial development bond assumed by Kuppenheimer and declined $24.5 million
compared to November 30, 1994, principally from cash generated from operating
activities and the proceeds from the disposition of Kuppenheimer. The $10
million of notes payable classified as current at November 30, 1995 reflects
anticipated debt reduction during fiscal 1996 under the Company's long term
borrowing arrangements. Total debt, including short term borrowings and
current maturities, represented 55% of the total $298 million capitalization
at November 30, 1995, compared to 59% at November 30, 1994, with the
improvement principally resulting from the debt reduction. Total borrowing
availability was approximately $108 million at November 30, 1995.
Shareholders' equity of $134.5 million at November 30, 1995 represented
$4.11 book value per share compared to $3.95 book value per share at November
30, 1994. The $6.1 million increase during 1995 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 plan. Dividends have not been paid since
1991 and no dividends are anticipated to be declared during fiscal 1996. 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 $134 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 current industry-wide conditions in this difficult retail environment,
characterized by generally weak sales of apparel at retail, increasing
retailer bankruptcies, and wholesale pricing pressures especially in the
moderately priced tailored clothing segment, are not anticipated to improve
for at least the first half of fiscal 1996. The Company's largest customers,
which include leading department, specialty and value retailers, are believed
to be financially strong and annualized 1996 volume is expected to be
comparable to 1995 levels. However, consolidated 1996 sales volume will likely
be less than 1995 due to reductions from customers who have filed bankruptcy,
which include, among others, Hastings, in October 1995, and Barney's and
Today's Man in January 1996. Hastings is being liquidated and its $16 million
sales volume in 1995 will be lost. The Company has resumed shipments with
other companies in bankruptcy on a debtor-in-possession post-petition basis
but
12
cannot determine at this time the sales which will ultimately result with
these customers during 1996. Regardless of these current conditions, cost
reduction actions are being implemented by continuing emphasis towards
lowering product costs by expanding off-shore sourcing capabilities, reducing
selling, administrative and general expenses in both the Corporate and
subsidiary entities, and debt reduction.
From a product perspective, emphasis on the Company's core manufacturing and
marketing businesses comprising the Men's Apparel Group will continue,
typified by product line and brand extensions closely associated with existing
strengths and competencies. The Company delivered the initial tailored
clothing line under the Perry Ellis and Daniel Hechter labels in Fall, 1995.
Also in 1995, a suits separates program was introduced into a limited number
of Sears stores and additional Sears stores are expected to participate in the
Spring, 1996 season. The golf inspired collections marketed by the Bobby Jones
division of Hickey-Freeman and the Jack Nicklaus division were augmented by
the introduction of women's golf lines marketed under these brand labels.
These products, along with the "Jack Nicklaus Signature" sportswear line
distributed principally to department stores, collectively contributed to a
39% golfwear sales increase in 1995 vs. 1994 and increased sales volume is
anticipated for 1996. Hickey-Freeman sportswear, with emphasis on casual
dressing for the affluent Hickey-Freeman core customer, will encompass a
separately designed line of sportcoats, slacks, sweaters and shirts for its
initial product introduction in the Fall of 1996. Also in current development
is a casual presentation of Hart Schaffner & Marx sportswear which will be
offered for 1997 deliveries. In the Women's Apparel Group, the Austin Reed
women's line of tailored coats, pants and dresses will be augmented by a more
moderately priced Hawksley & Wight line with initial shipments commencing for
the Spring, 1996 season.
The Company continually assesses its borrowing availability and requirements
under its Revolving Credit Facility, along with the interest rates payable
under its various borrowing arrangements. During the first quarter of 1996,
the Company acquired $10 million face value of its 10 7/8% subordinated
debentures through open market purchases. These purchases will result in a
gain of approximately $.7 million, net of a $.4 million tax provision, which
will be reflected as an extraordinary item in the first quarter of fiscal 1996
ending February 29, 1996. Based on the various interest rates in effect as of
November 30, 1995, the purchases consummated to-date will result in annualized
interest savings of approximately $.3 million. Under the amended terms of the
Company's Revolving Credit Facility, approximately $10 million of additional
debenture repurchases are allowable.
While industry conditions are unfavorable currently, the combination of the
Company's well regarded and time-honored brands, anticipated product line
extensions, and continuing emphasis on cost control and debt reduction
covering all aspects of operations should collectively contribute to a
stronger performance upon improvement of the current external environment.
ITEM 8--FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
PAGE
----
Financial Statements:
Report of Independent Accountants...................................... 14
Consolidated Statement of Earnings for the three years ended November
30, 1995.............................................................. 16
Consolidated Balance Sheet at November 30, 1995 and 1994............... 17
Consolidated Statement of Cash Flows for the three years ended November
30, 1995.............................................................. 18
Consolidated Statement of Shareholders' Equity for the three years
ended November 30, 1995............................................... 19
Notes to Consolidated Financial Statements............................. 20
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)................................ 31
13
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, 1995 and
1994, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1995, 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, 1996
14
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 and Finance 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 and Finance 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.
15
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
FISCAL YEAR ENDED NOVEMBER
30,
----------------------------
1995 1994 1993
-------- -------- --------
Net sales........................................ $595,272 $621,847 $606,148
Licensing and other income....................... 6,429 7,277 5,823
-------- -------- --------
601,701 629,124 611,971
-------- -------- --------
Cost of goods sold............................... 447,414 459,295 444,335
Selling, general and administrative expenses..... 132,806 139,720 137,315
-------- -------- --------
580,220 599,015 581,650
-------- -------- --------
Earnings before interest, taxes, discontinued
operation and extraordinary charge.............. 21,481 30,109 30,321
Interest expense................................. 19,851 20,988 22,639
-------- -------- --------
Earnings before taxes, discontinued operation and
extraordinary charge............................ 1,630 9,121 7,682
Tax (provision) benefit.......................... 19,800 9,992 (273)
-------- -------- --------
Earnings before discontinued operation and
extraordinary charge............................ 21,430 19,113 7,409
-------- -------- --------
Discontinued operation:
Operating earnings (loss), net of tax benefit.. (183) 897 (1,189)
Loss on disposition, net of $.4 million tax
benefit....................................... (18,100) -- --
-------- -------- --------
(18,283) 897 (1,189)
-------- -------- --------
Net earnings before extraordinary charge......... 3,147 20,010 6,220
Extraordinary charge, net of $120 tax benefit.... -- (3,862) --
-------- -------- --------
Net earnings..................................... $ 3,147 $ 16,148 $ 6,220
======== ======== ========
Earnings per share:
Continuing operations.......................... $ .66 $ .59 $ .24
Discontinued operation......................... $ (.56) $ .03 $ (.04)
-------- -------- --------
Before extraordinary charge.................... $ .10 $ .62 $ .20
======== ======== ========
After extraordinary charge..................... $ .10 $ .50 $ .20
======== ======== ========
(See accompanying notes to consolidated financial statements)
16
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
(000'S OMITTED)
NOVEMBER 30,
--------------------
1995 1994
ASSETS --------- ---------
CURRENT ASSETS
Cash and cash equivalents.............................. $ 5,700 $ 2,823
Accounts receivable, less allowance for doubtful
accounts of $7,920 in 1995 and $7,368 in 1994......... 108,486 114,597
Inventories............................................ 154,898 183,347
Prepaid expenses....................................... 3,471 6,672
Recoverable and deferred income taxes.................. 6,938 4,998
--------- ---------
Total current assets................................. 279,493 312,437
--------- ---------
INVESTMENTS AND OTHER ASSETS............................. 21,438 16,403
--------- ---------
DEFERRED INCOME TAXES.................................... 31,081 11,817
--------- ---------
PROPERTIES
Land................................................... 2,626 3,877
Buildings and building improvements.................... 47,837 58,498
Furniture, fixtures and equipment...................... 98,626 112,850
Leasehold improvements................................. 18,963 27,964
--------- ---------
168,052 203,189
Accumulated depreciation and amortization.............. (123,428) (151,646)
--------- ---------
Net properties....................................... 44,624 51,543
--------- ---------
TOTAL ASSETS............................................. $ 376,636 $ 392,200
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable.......................................... $ 10,000 $ 20,000
Current maturities of long term debt................... 497 699
Accounts payable....................................... 33,877 38,455
Accrued payrolls....................................... 17,276 19,818
Other accrued expenses................................. 27,714 17,776
--------- ---------
Total current liabilities............................ 89,364 96,748
--------- ---------
LONG TERM DEBT, less current maturities.................. 152,781 167,085
--------- ---------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value; 2,500,000 authorized
and unissued.......................................... -- --
Common shares, $2.50 par value; authorized 75,000,000;
issued 32,759,797 in 1995 and 32,477,800 in 1994...... 81,899 81,194
Capital surplus........................................ 76,771 76,063
Retained earnings (deficit)............................ (14,084) (17,231)
Unearned employee benefits............................. (10,095) (11,659)
--------- ---------
Shareholders' equity................................... 134,491 128,367
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 376,636 $ 392,200
========= =========
(See accompanying notes to consolidated financial statements)
17
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(000'S OMITTED)
FISCAL YEAR ENDED NOVEMBER
30,
----------------------------
1995 1994 1993
-------- -------- --------
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from operating activities:
Net earnings including discontinued operation
and extraordinary
charge........................................ $ 3,147 $ 16,148 $ 6,220
Reconciling items to adjust net earnings to net
cash provided by operating activities:
Depreciation and amortization................ 9,987 13,771 16,061
Changes in:
Accounts receivable........................ 5,608 5,845 42,330
Inventories................................ (2,044) 10,471 12,901
Prepaid expenses........................... 1,718 7,402 1,773
Other assets............................... (5,103) (3,152) 3,156
Accounts payable and accrued expenses...... 11,087 11,381 (61,763)
Taxes and deferred taxes................... (21,204) (10,093) 7,113
Adjustment of properties to net realizable
value....................................... -- -- 1,901
Loss on sale of discontinued operation......... 18,100 -- --
Cash provided by discontinued operation........ 392 -- --
Extraordinary charge........................... -- 3,862 --
-------- -------- --------
Net cash provided by operating activities........ 21,688 55,635 29,692
-------- -------- --------
Cash Flows from investing activities:
Cash received re disposition, net of subsidiary
cash.......................................... 12,000 -- 4,500
Capital expenditures........................... (8,441) (7,124) (5,953)
Cash paid for acquisitions..................... (3,380) -- --
-------- -------- --------
Net cash provided by (used in) investing
activities.................................... 179 (7,124) (1,453)
-------- -------- --------
Cash Flows from financing activities:
Proceeds from issuance of 10 7/8% Sr. Sub.
Notes, net.................................... -- 96,572 --
Proceeds from Credit Facility financing........ -- 132,727 --
Payment of borrowings under prior financing
agreement..................................... -- (235,999) --
Decrease in notes payable...................... (21,310) (43,020) (80,600)
Decrease in other long term debt............... (657) (697) (840)
Proceeds from equity sale...................... -- -- 29,880
Proceeds from other equity transactions........ 2,977 3,222 2,472
-------- -------- --------
Net cash used in financing activities.......... (18,990) (47,195) (49,088)
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents................................... 2,877 1,316 (20,849)
Cash and cash equivalents at beginning of year. 2,823 1,507 22,356
-------- -------- --------
Cash and cash equivalents at end of year....... $ 5,700 $ 2,823 $ 1,507
======== ======== ========
Supplemental cash flow information
Net cash paid (received) during the year for:
Interest expense............................. $ 19,000 $ 16,700 $ 23,800
Income taxes................................. 1,400 800 (6,900)
(See accompanying notes to consolidated financial statements)
18
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(000'S OMITTED)
PAR VALUE RETAINED UNEARNED
OF COMMON CAPITAL EARNINGS EMPLOYEE TREASURY
STOCK SURPLUS (DEFICIT) BENEFITS SHARES
--------- ------- --------- -------- --------
Balance at November 30, 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) --
Net earnings for the year.... 3,147
Issuance of 278,160 shares,
primarily to employee
benefit plans............... 695 697
Stock options exercised
(3,837 shares issued upon
exercise of 3,837 $1.00
Director Stock Options)..... 10 11
Allocation of unearned
employee benefits........... 1,564
------- ------- -------- -------- --------
Balance at November 30, 1995... $81,899 $76,771 $(14,084) $(10,095) $ --
======= ======= ======== ======== ========
(See accompanying notes to consolidated financial statements)
19
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 catalogs. The
consolidated financial statements include the accounts of the Company and all
subsidiaries. During 1995, the Company acquired a slack manufacturing facility
in Mexico and a coat and slack manufacturing factory in Costa Rica. The
activities of these facilities since the respective date of acquisition, which
were not significant, are included in the accompanying financial statements.
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.
Revenue Recognition--Sales are recognized at the time the order is shipped.
Catalog sales are net of expected returns and exclude sales taxes.
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. At
November 30, 1995 and 1994, approximately 42% and 40% of the Company's total
inventories, respectively, are valued using the last-in, first-out (LIFO)
method, representing certain work in process and finished goods. 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.
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.
Impairment of Long-Lived Assets--If facts and circumstances indicate that
the cost of fixed assets or other assets may be impaired, an evaluation of
recoverability would be performed by comparing the estimated future
undiscounted cash flows associated with the asset to the asset's carrying
value to determine if a write-down to market value or discounted cash flow
value would be required.
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.
Advertising Costs--Advertising expenditures relating to the manufacturing
and marketing businesses are expensed in the period the advertising initially
takes place. Direct response advertising costs, consisting primarily of
catalog preparation, printing and postage expenditures, are amortized over the
period during which the benefits are expected. Recognition of advertising
costs is in conformance with the provisions of The American Institute of
Certified Public Accountants Statement of Position 93-7, "Reporting of
Advertising Costs". Advertising costs of $21.7 million in 1995, $18.8 million
in 1994 and $17.4 million in 1993 are included in the accompanying Statement
of Earnings. Prepaid expenses at November 30, 1995 includes deferred
advertising costs of $2.1 million ($5.1 million at November 30, 1994), which
will be reflected as an expense during the quarterly period benefited.
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
20
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 170 retired employees are currently participating. Employees who
were participating in and eligible to receive medical benefits under the
Hartmarx Group Life Insurance, Medical and Dental Plan, and were also
participating in the Hartmarx Savings-Investment Plan and the Hartmarx
Retirement Income Plan at the time of retirement are eligible to participate
in the Plan. Effective December 1, 1993, the Company adopted Statement of
Financial Accounting 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--Effective December 1, 1994, the Company
adopted Statement of Financial Accounting Standards No. 112--Employers'
Accounting for Postemployment Benefits. This statement requires the
recognition of obligations related to benefits provided by an employer to
former or inactive employees after employment but before retirement. As the
Company's accounting practices were substantially consistent with the
provisions of this statement, adoption did not impact financial condition or
results of operations.
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. Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-Based Compensation" (FAS 123), is effective for the
Company's fiscal year beginning December 1, 1996. The Company has concluded it
will comply with FAS 123 by appropriate footnote disclosure of the effect of
stock options.
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 per share was 32,631,000 in 1995, 32,243,000 in 1994 and 31,375,000
in 1993. The three year warrant to purchase 1,649,600 shares of common stock
of the Company at an exercise price of $6.50 per share was not exercised prior
to its expiration on September 20, 1995. This warrant had been issued in
connection with the 1992 sale of 5,714,286 shares of common stock of the
Company to Traco International, N.V.
SALE OF SUBSIDIARY
On July 27, 1995, the Company completed the sale of the capital stock of
Kuppenheimer, its vertically integrated factory direct-to-consumer business.
Under the terms of the Agreement, the Company received $12 million cash at
closing and is expected to receive an additional $2 million plus interest
payable over the next four years. In connection with the Company's ongoing
guaranty of a $2.5 million industrial development bond retained by
Kuppenheimer, the purchaser has issued a separate $2.5 million note for the
purchase of associated real estate secured by a first mortgage on that
property. Kuppenheimer's operating results, net of tax benefit, have been
reflected as a discontinued operation in the accompanying Consolidated
Statement of Earnings for the year ended November 30, 1995, and comparable
amounts relating to prior years have been reclassified, in
21
accordance with Accounting Principles Board Opinion No. 30. Discontinued
operation also reflects a loss on disposition of $18.1 million, net of tax
benefit, representing the loss on the sale of stock, expenses directly related
to the disposition and operating losses from the measurement date to the
disposition date.
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. The Credit Facility was amended in July 1995 and
November 1995, which among other things, resulted in the lowering of the
effective borrowing rate, a reduction in fees and administrative charges,
adjustment of certain covenants, and extension of the term from March 1997 to
July 2000.
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 1.50% or (ii) the prime rate of a
major bank. Financing fees pertaining to the Notes and Credit Facility, as
amended, 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.
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, 1995 and 1994, long term debt, less current maturities,
comprised the following (000's omitted):
1995 1994
-------- --------
Notes payable.......................................... $ 45,590 $ 66,900
10 7/8% Senior Subordinated Notes, net................. 99,470 99,383
Industrial development bonds........................... 17,853 20,643
Other debt, extending to 2003.......................... 365 858
-------- --------
163,278 187,784
Less--current.......................................... 10,497 20,699
-------- --------
Long term debt......................................... $152,781 $167,085
======== ========
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 $11.3 million at
November 30, 1995. Interest rates on the various borrowing agreements range
from 5.5% to 8.5% (average of 7.5% at November 30, 1995 and 7.4% at November
30, 1994). The two IDBs totaling $15.5 million are callable by the Company
beginning July 1, 2000 at a 3% premium, declining to par on July 1, 2003.
22
Other long term debt includes installment notes and mortgages with interest
rates ranging from 8% to 11.5% per annum (average of 8.7% at November 30, 1995
and 9.9% at November 30, 1994).
Accrued interest included in the Other Accrued Expenses caption in the
accompanying balance sheet was $5.2 million at November 30, 1995 and $5.7
million at November 30, 1994.
The approximate principal reductions required during the next five fiscal
years, including reductions under the Credit Facility which expires in 2000,
are as follows: $.5 million in 1996; $.1 million in 1997; $.1 million in 1998;
$.1 million in 1999; $45.7 million in 2000.
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):
1995 1994 1993
------ ------ ------
Principal payments.................................. $ 911 $ 526 $ --
Interest payments................................... 1,133 1,171 1,041
------ ------ ------
Total loan payments made by ESOP.................... $2,044 $1,697 $1,041
====== ====== ======
As of November 30, 1995, 271,481 of the 620,155 shares of common stock have
been allocated to the accounts of the ESOP participants.
NOTES PAYABLE
The following summarizes information concerning notes payable (000's
omitted):
1995 1994 1993
------- ------- --------
Outstanding at November 30................... $45,590 $66,900 $153,696
Maximum month end balance during the year.... 93,821 158,635 206,196
Average amount outstanding during the year... 72,300 112,900 174,300
Weighted daily average interest rate during
the year.................................... 8.5% 7.5% 7.9%
Weighted average interest rate on borrowings
at November 30.............................. 7.5% 8.2% 8.0%
The Company has entered 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, 1995 and 1994. In 1995, no payments were made
or received relating to interest rate protection agreements and payments made
or received relating to the interest rate protection agreements in effect
during fiscal 1994 and 1993 were not significant.
INVENTORIES
Inventories at fiscal year end were as follows (000's omitted):
NOVEMBER 30
--------------------------
1995 1994 1993
-------- -------- --------
Raw materials.................................. $ 39,617 $ 42,296 $ 44,370
Work in process................................ 21,687 29,015 26,468
Finished goods................................. 93,594 112,036 122,980
-------- -------- --------
$154,898 $183,347 $193,818
======== ======== ========
23
The excess of current cost over LIFO costs for certain inventories was $34.8
million at November 30, 1995, $32.7 million at November 30, 1994 and $35.0
million at November 30, 1993.
TAXES ON EARNINGS
The net tax provision (benefit) is summarized as follows (000's omitted):
1995 1994 1993
-------- -------- -------
Federal..................................... $ (833) $ (375) $ (659)
State and local............................. 106 231 273
-------- -------- -------
Total current........................... (727) (144) (386)
-------- -------- -------
Federal..................................... 1,527 3,512 3,182
State and local............................. -- -- --
-------- -------- -------
Total deferred.......................... 1,527 3,512 3,182
-------- -------- -------
Change in valuation allowance............... (20,600) (13,360) (2,523)
-------- -------- -------
Total tax provision (benefit)........... $(19,800) $ (9,992) $ 273
======== ======== =======
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, taking into account the applicability of
enacted tax rate changes, is summarized as follows (000's omitted):
1995 1994 1993
-------- -------- -------
Income from continuing operations........... $ 1,630 $ 9,121 $ 7,682
======== ======== =======
Tax provision computed at statutory rate.... $ 554 $ 3,101 $ 2,612
State and local taxes on earnings, net of
federal tax benefit........................ 70 155 180
Change in valuation allowance............... (20,600) (13,360) (2,523)
Other--net.................................. 176 112 4
-------- -------- -------
Total tax (benefit) provision............... $(19,800) $ (9,992) $ 273
======== ======== =======
A portion of the Company's deferred tax assets are reserved through the
establishment of a tax valuation allowance. The valuation allowance was
originally 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 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).
In fiscal 1995, 1994 and 1993, $.8 million, $3.4 million and $2.5 million,
respectively, of the valuation allowance offsetting the deferred tax asset
associated with pre-tax income for financial reporting, was reversed. The
Company reevaluated its deferred income tax asset and reversed additional
valuation allowance related to this asset of $19.8 million and $10.0 million in
the fourth quarters of 1995 and 1994, respectively. 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 Tax
Reform Act of 1986 ("TRA") items (allowance for bad debts, accrued vacation and
capitalization of certain inventory costs for tax purposes), operating loss
carryforwards of $64.4 million, alternative minimum tax credit carryforwards
24
("AMT") of $4.7 million, and $17.5 million attributable to expenses deducted
in the financial statements not currently deductible for tax purposes.
Deferred tax liabilities included excess tax over book depreciation of $4.0
million and $7.4 million related to employee benefits, principally pensions.
At November 30, 1995, the Company had a net deferred tax asset of $35.7
million comprised of deferred tax assets of $94.0 million less deferred tax
liabilities aggregating $23.4 million and a $34.9 million valuation allowance.
The principal deferred tax assets included $4.3 million attributable to TRA
items, operating loss carryforwards of $65.0 million, AMT credit carryforwards
of $4.8 million, and $19.4 million attributable to expenses deducted in the
financial statements not currently deductible for tax purposes. Deferred tax
liabilities included excess tax over book depreciation of $2.4 million and
$10.2 million related to employee benefits, principally pensions.
As of November 30, 1995, the Company had approximately $186 million of tax
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 2010. Foreign tax credit carryforwards of $.4 million are also
available, which expire in 1996. The $4.8 million of AMT tax credit
carryforwards can be carried forward indefinitely.
LEASES
The Company and its subsidiaries lease office, manufacturing,
warehouse/distribution, showroom and outlet stores, automobiles, computers and
other equipment under various noncancellable operating leases. A number of the
leases contain renewal options ranging up to 10 years.
At November 30, 1995, total minimum rentals under noncancellable operating
leases are as follows (000's omitted):
YEARS AMOUNT
----- -------
1996............................. $ 6,109
1997............................. 5,610
1998............................. 4,866
1999............................. 4,559
2000............................. 3,499
Thereafter....................... 8,748
-------
Total minimum rentals due........ $33,391
=======
Rental expense for continuing operations, including rentals under short term
leases, comprised the following (000's omitted):
1995 1994 1993
------- ------- -------
Minimum rentals................................ $11,679 $13,212 $12,962
Sublease income................................ (577) (409) (570)
------- ------- -------
Total rental expense........................... $11,102 $12,803 $12,392
======= ======= =======
Most leases provide for additional payments of real estate taxes, insurance,
and other operating expenses applicable to the property, generally over a base
period level. Total rental expense includes such base period expenses and the
additional expense payments, as part of the minimum rentals.
EMPLOYEE BENEFITS
Pension Plans
The Company participates with other companies in the apparel industry in
making collectively-bargained payments to pension funds, which are not
administered by the Company, covering most of its union employees.
25
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 for continuing operations were approximately
$8.5 million in 1995, $8.7 million in 1994 and $7.6 million in 1993. The
Multi-Employer Pension Plan Amendment Act of 1980 ("the Act") amended ERISA to
establish funding requirements and obligations for employers participating in
multi-employer plans, principally related to employer withdrawal or
termination of such plans. The present value of accumulated benefits of one
multi-employer plan is substantially in excess of the plan assets available
for such benefits; if current actuarial assumptions are realized, including
those relating to contractions in contributions by participating employers,
the ratio of assets to liabilities would increase so that plan assets would
eventually be sufficient to cover the accumulated benefit obligation. Under
the provisions of the Act, if the plan terminates or the Company withdraws
from the plan prior to the achievement of a fully funded status, the Company
could be subject to a substantial withdrawal liability, as defined.
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 1995, 1994
and 1993. Under the principal pension plan, retirement benefits are a function
of years of service and average compensation levels during the highest five
consecutive salary years occurring during the last ten years before
retirement. To the extent that the calculated retirement benefit under the
formula specified in the plan exceeds the maximum allowable under the
provisions of the tax regulations, the excess is provided on an unfunded
basis. Under the provisions of the Omnibus Budget Reconciliation Act of 1993,
the annual compensation limit that can be taken into account for computing
benefits and contributions under qualified plans was reduced from $235,840 to
$150,000, effective as of January 1, 1994, subject to indexing increases in
subsequent years.
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, 1995 included the following components in accordance with Statement of
Financial Accounting Standards No. 87--Employers' Accounting for Pensions
(000's omitted):
1995 1994 1993
-------- ------- -------
Service cost--benefits earned during the
period..................................... $ (3,250) $(4,309) $(4,150)
Interest cost on projected benefit
obligation................................. (7,851) (7,467) (7,607)
Return on plan assets....................... 33,058 (179) 17,452
Net amortization and deferral............... (18,534) 15,376 (3,235)
-------- ------- -------
Net periodic pension income................. $ 3,423 $ 3,421 $ 2,460
======== ======= =======
The above amounts are prior to consideration of the periodic pension expense
related to the benefits provided on an unfunded basis of $.9 million in 1995,
$1.5 million in 1994, and $.6 million in 1993.
The Company sold its Kuppenheimer business in July 1995 and the accrual of
further pension benefits related to Kuppenheimer 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
Kuppenheimer and, accordingly, a pre-tax pension gain of $1.5 million was
recorded and included in the determination of the loss on sale of discontinued
operation.
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, 1995, the plan assets included 519,612 shares of
the Company's stock with a market value of $2.3 million.
26
The following sets forth the funded status of the principal pension plan at
November 30 (000's omitted):
NOVEMBER 30,
--------------------
1995 1994
--------- ---------
Actuarial present value of benefit obligations:
Vested benefits.................................. $ (98,213) $ (90,790)
Non-vested benefits.............................. (418) (606)
--------- ---------
Accumulated benefit obligation................... (98,631) (91,396)
Effect of projected future compensation levels... (12,499) (10,867)
--------- ---------
Projected benefit obligation....................... (111,130) (102,263)
Plan assets, at fair value....................... 153,053 127,522
--------- ---------
Plan assets in excess of projected benefit
obligation...................................... 41,923 25,259
Unrecognized net (gain) loss..................... (12,568) 2,998
Unrecognized prior service cost.................. (1,044) (1,389)
Unrecognized net transition asset................ (364) (3,817)
--------- ---------
Prepaid pension cost........................... $ 27,947 $ 23,051
========= =========
The weighted average discount rate used in determining the projected benefit
obligation was 7.25% in 1995 and 8% in 1994. The assumed rate of increase in
future compensation levels was 5.5% in 1995 and 1994, and the expected long
term rate of return on the Company sponsored plan assets was 8.75% in 1995 and
1994.
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 401(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 $2.1 million in 1995, $2.3 million in 1994
and $2.2 million in 1993. At November 30, 1995, the assets of SIP and ESOP
funds had a market value of approximately $37.4 million, of which
approximately $9.8 million was invested in 2,167,085 shares of the Company's
common stock.
In 1995, the Company adopted Emerging Issues Task Force 93-6 relating to
ESOP accounting. Adoption of this statement had no material effect on either
net income or shareholders' equity.
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
27
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.
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, September 20, 1992 and
December 30, 1992, the Agreement governing the Rights was amended. Each common
share, adjusted for the May, 1986 3-for-2 stock split, represents .6667 Right.
Each Right, expiring January 31, 1996, represents 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 December 1992 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.
On December 6, 1995, the Company's Board of Directors approved a new
Stockholder Rights Plan, declaring a dividend of one new Right for each
outstanding share of Common Stock, to be effective upon the expiration of the
existing Rights on January 31, 1996. The new Rights, which have a ten-year
term, represent a Right to purchase from the Company 1/1000th of a share of
Series A Junior Participating Preferred Stock, $1.00 par value, at a price of
$25 per Right. As in the current plan, Rights would not be distributed unless
a person or group acquires or announces an offer that would result in
acquiring 15 percent or more of the Company's common shares. Other provisions
of the new Rights Plan are similar to the current plan as described above,
except that the redemption price has been changed to $.01 per Right and
certain constraints on the Board's amendment powers have been eliminated.
STOCK OPTION PLANS AND RESTRICTED STOCK
The Company has in effect stock option plans under which officers, key
employees and directors may be granted options to purchase the Company's
common stock at prices equal or exceeding 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. Options granted under the 1988 Stock Option
Plan have exercise provisions similar to the other plans, although some grants
become exercisable in
28
cumulative one-third installments on each of the first three anniversaries of
the grant date. No additional grants may be made under the 1982 and 1985
Plans, and no additional grants will be made under the 1988 Plan. Following
the stockholder adoption of the 1995 Incentive Stock Plan ("1995 Plan"),
shares covered by grants or awards under the terms of the 1982, 1985 or 1988
Plans which terminate, lapse or are forfeited on or after April 13, 1995, will
be added to the aggregate number of shares authorized under the 1995 Plan and
will be made available for grants under the 1995 Plan. Options granted under
the 1995 Plan are evidenced by agreements that set forth the terms, conditions
and limitations for such grants, including the term of the award, limitations
or exercisability, and other provisions as determined by the Compensation and
Stock Option Committee of the Board of Directors. Under certain circumstances,
the vesting may be accelerated under options granted under the various plans.
The 1988 Plan and the 1995 Plan 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. Under certain circumstances, the entire gain
attributable to rights granted under the 1988 Plan may be paid in cash; the
cash payment under the 1995 Plan is limited to one-half the gain. When options
and stock appreciation rights are granted in tandem, the exercise of one
cancels the other. The 1995 Plan provides 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 1995 Stock Plan for Non-Employee Directors ("Director Plan") provides
for an annual grant of Director Stock Options ("DSO") to non-employee members
of the Board of Directors at market value on the date of grant, similar to
grants available under the 1988 plan. In addition, each non-employee 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
unpaid annual retainer divided by the market value of a share on such date
minus one dollar and the exercise price is $1. Each non-employee 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 Director Plan. During fiscal 1995, 66,963
DSO and DDSA were granted, and 3,837 DSO were exercised. At November 30, 1995,
270,374 DSO and DDSA were outstanding and 258,037 shares were available for
future DSO and DDSA. At November 30, 1994, 207,248 DSO and DDSA under the 1988
Plan were outstanding.
Stock options outstanding at November 30, 1995 included 100,722 shares
granted in tandem with stock appreciation rights. Options for 1,191,724 shares
were exercisable at November 30, 1995 at prices ranging from $5.25 to $30.81.
At November 30, 1995, 2,264,168 shares were reserved for options outstanding
and 701,563 shares were available for future stock options and/or restricted
stock awards (7,358 at November 30, 1994).
Information regarding stock option activity for the three years ended
November 30, 1995 is as follows:
NUMBER OF
SHARES PRICE PER SHARE
--------- ---------------
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
Granted...................................... 994,500 $5.25
Expired or terminated........................ (182,132) $5.25 to $30.81
---------
Balance at November 30, 1995................... 2,264,168 $5.25 to $30.81
=========
29
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
action against the Company referred to under such caption and that such action
will not have a material adverse effect on the Company's financial condition.
OPERATING SEGMENT INFORMATION
The Company is engaged in the business of manufacturing and marketing of
men's and women's apparel. The Company's businesses currently consist of the
following groups: Men's Apparel Group, which designs, manufactures and markets
tailored clothing, slacks and sportswear to retailers for resale to consumers;
and Women's Apparel Group, comprised of International Women's Apparel, which
markets women's career apparel and sportswear to department and specialty
stores, and Barrie Pace, a direct mail catalog marketer of apparel and
accessories. The largest customer represented approximately 16% and 14% of
consolidated sales in 1995 and 1994, respectively. The Kuppenheimer business
was sold in July 1995 and is reflected in the accompanying statement of
earnings as a discontinued operation.
Information on the Company's operations for the three years ended November
30, 1995 is summarized as follows (in millions):
1995
-------------------------------
MEN'S WOMEN'S
APPAREL APPAREL
GROUP GROUP ADJ. CONSOL.
------- ------- ------ -------
Sales..................................... $547.1 $48.2 $ -- $595.3
Earnings (loss) before taxes.............. 32.1 (1.3) (29.2) 1.6
Gross assets at year end.................. 294.0 19.5 63.1 376.6
Depreciation and amortization............. 7.7 0.6 0.3 8.6
Property additions........................ 7.5 0.1 0.8 8.4
1994
-------------------------------
MEN'S WOMEN'S
APPAREL APPAREL
GROUP GROUP ADJ. CONSOL.
------- ------- ------ -------
Sales..................................... $569.6 $52.2 $ -- $621.8
Earnings (loss) before taxes.............. 46.3 (4.1) (33.1) 9.1
Gross assets at year end.................. 294.0 25.1 73.1 392.2
Depreciation and amortization............. 8.6 .6 0.2 9.4
Property additions........................ 5.2 .2 1.7 7.1
1993
-------------------------------
MEN'S WOMEN'S
APPAREL APPAREL
GROUP GROUP ADJ. CONSOL.
------- ------- ------ -------
Sales..................................... $553.9 $52.2 $ -- $606.1
Earnings (loss) before taxes.............. 43.2 (2.9) (32.6) 7.7
Gross assets at year end.................. 293.7 31.2 80.2 405.1
Depreciation and amortization............. 8.8 .7 0.1 9.6
Property additions........................ 5.2 .2 .5 5.9
Men's Apparel Group 1993 sales include $4.6 million related to businesses
subsequently sold or discontinued.
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.
30
Amounts included in the "adjustment" column for earnings before taxes
consist of interest expense for continuing operations and general corporate
expenses. Adjustments of gross assets are for cash, recoverable and deferred
income taxes, corporate properties, investments and other assets, and gross
assets related to Kuppenheimer at November 30, 1994 and 1993. Adjustments of
depreciation and amortization and net property additions are for corporate
properties and property additions related to Kuppenheimer for 1994 and 1993.
QUARTERLY FINANCIAL SUMMARY (UNAUDITED)
Selected quarterly financial and common share information for each of the
four quarters in fiscal 1995 and 1994 is as follows (000's omitted):
FIRST SECOND THIRD FOURTH
1995 QUARTER QUARTER(1) QUARTER QUARTER
---- -------- ---------- -------- --------
Sales............................ $149,283 $135,029 $166,659 $144,301
Gross profit..................... 36,707 33,169 39,203 38,779
Net earnings (loss) before
discontinued operation.......... 58 (2,990) 2,175 22,187
Net earnings (loss).............. 135 (21,350) 2,175 22,187
Earnings (loss) per share:
continuing operations.......... -- (.09) .07 .68
discontinued operation......... -- (.56) -- --
net............................ -- (.65) .07 .68
1994
----
Sales............................ $148,544 $138,078 $177,358 $157,867
Gross profit..................... 35,692 35,296 44,024 47,540
Net earnings (loss) before
discontinued operation and
extraordinary charge............ (1,866) (4,051) 4,481 20,549
Net earnings (loss) before
extraordinary charge............ (720) (3,120) 3,515 20,335
Net earnings (loss).............. (720) (6,982) 3,515 20,335
Earnings (loss) per share:
continuing operations.......... (.05) (.13) .14 .63
discontinued operation......... .03 .03 (.03) --
before extraordinary charge.... (.02) (.10) .11 .63
after extraordinary charge..... (.02) (.22) .11 .63
- --------
(1) The second quarter of 1995 includes a loss of $18.3 million or $.56 per
share related to the disposition of Kuppenheimer.
The second quarter of 1994 includes a $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 6 of the Proxy Statement for the 1996 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.
31
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 6
of the Proxy Statement for the 1996 Annual Meeting is incorporated herein by
reference.
ITEM 12--SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information contained in the Proxy Statement for the 1996 Annual Meeting
under the captions "Information About Nominees for Directors" on pages 2 to 6
and "Ownership of Common Stock" on pages 15 to 16 is incorporated herein by
reference.
ITEM 13--CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information contained in the Proxy Statement for the 1996 Annual Meeting
under the caption "Information About Nominees for Directors" on pages 2 to 6
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 13 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 13 are filed
as part of this Annual Report.
PAGE
----
Consent of Independent Accountants....................................... F-1
(a)(3) Index to Exhibits................................................. 33
(b) Reports on Form 8-K
Registrant did not file any reports on Form 8-K during the quarter ended
November 30, 1995.
32
HARTMARX CORPORATION
INDEX TO EXHIBITS
EXHIBIT
NO. AND
APPLICABLE
SECTION OF
601 OF
REGULATION
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 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-2 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-3 Certificate of Designation, Preferences and Rights of Series A
Junior Participating Preferred Stock.
3-B By-laws of the Company, as amended to the date hereof.
*4-A Rights Agreement, dated as of December 6, 1995, between the
Company and First Chicago Trust Company of New York, as Rights
Agent, which includes as Exhibit A the Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock and as Exhibit B the form of
Rights Certificate (Exhibit 4.1 to Form 8-K filed December 29,
1995), (1).
*4-B 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-B-1 Instrument of Resignation, Appointment and Acceptance, dated
July 31, 1995, accepting the resignation of Bank One Wisconsin
Trust Company, N.A. and appointing Bank One Columbus, N.A. as
successor Paying Agent, Registrar and Trustee under the
Indenture.
*4-C 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-C-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).
*4-C-2 Amendment No. 2 dated March 20, 1995 to the Credit Agreement
(Exhibit 4-E-2 to Form 10-Q for the quarter ended May 31,
1995), (1).
*4-C-3 Amendment No. 3 dated July 6, 1995 to the Credit Agreement
(Exhibit 4-E-3 to Form 10-Q for the quarter ended May 31,
1995), (1).
4-C-4 Amendment No. 4 dated November 30, 1995 to the Credit
Agreement.
4-C-5 Amendment No. 5 dated January 30, 1996 to the Credit Agreement.
*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).
9-A-1 Amendment to Stockholders Agreement, dated as of December 30,
1992.
*10-A 1995 Incentive Stock Plan (Exhibit A to Proxy Statement of the
Company relating to the 1995 Annual Meeting), (1). **
33
*10-A-1 1995 Stock Plan for Non-Employee Directors (Exhibit B to
Proxy Statement of the Company relating to the 1995 Annual
Meeting), (1). **
*10-B Description of Hartmarx Management Incentive Plan
(Information to be included under the caption "REPORT OF
THE COMPENSATION AND STOCK OPTION COMMITTEE--Executive
Compensation Program--Short-Term Incentives" on page 13 in
the Proxy Statement of the Company relating to the 1996
Annual Meeting), (1). **
*10-C Description of Hartmarx Long Term Incentive Plan
(Information to be included under the caption "REPORT OF
THE COMPENSATION AND STOCK OPTION COMMITTEE--Executive
Compensation Program--Long-Term Incentives" on page 13 in
the Proxy Statement of the Company relating to the 1996
Annual Meeting), (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 (Exhibit 10-
D-2 to Form 10-K for the year ended November 30, 1994),
(1). **
*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 (Exhibit 10-E-2 to Form 10-K for the
year ended November 30, 1994), (1). **
*10-F-1 Employment Agreement between the Company and Elbert O.
Hand (Exhibit 10-F-1 to
Form 10-K for the year ended November 30, 1992), (1). **
*10-F-2 Employment Agreement between the Company and Homi B. Patel
(Exhibit 10-F-2 to
Form 10-K for the year ended November 30, 1992), (1). **
*10-F-3 Employment Agreement between the Company and Carey M.
Stein (Exhibit 10-F-3 to
Form 10-K for the year ended November 30, 1992), (1). **
*10-F-4 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-5 Employment Agreement between the Company and Mary D. Allen
(Exhibit 10-F-8 to
Form 10-K for the year ended November 30, 1994), (1). **
10-F-6 Employment Agreement between the Company and Glenn R.
Morgan. **
*10-G-1 Form of Severance Agreement between the Company and
Executive Officers Frank A. Brenner and James E. Condon
(Exhibit 10-F-5 to Form 10-K for the year ended November
30, 1993), (1). **
*10-G-2 Form of Amendment to Severance Agreement between the
Company and Executive Officers Frank A. Brenner and James
E. Condon (Exhibit 10-F-6 to Form 10-K for the year ended
November 30, 1994), (1). **
*10-H Form of Indemnity Agreement between the Company and
Directors Abboud, Bakhsh, Baldrige, Cole, Farley, Hand,
Jacobs, Marsh, Marshall, Othman, Patel, Rohlfs, Scott and
Segnar (Exhibit 10-G-1 to Form 10-K for the year ended
November 30, 1993), (1). **
10-I Deferred Compensation Plan effective January 1, 1996. **
*10-J Stock Purchase Agreement, dated as of May 8, 1995, among
the Company, Kupp Acquisition Corp. and Kuppenheimer
Manufacturing Company, Inc. (Exhibit 2 to Form 8-K filed
August 11, 1995), (1). **
34
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.
99 Forward Looking Statements.
- --------
* 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/ Glenn R. Morgan /s/ Mary D. Allen
By: _________________________________ and By: _____________________________
Glenn R. Morgan Mary D. Allen
Executive Vice President and Executive Vice President,
Chief Financial Officer Secretary and General Counsel
Date: February 27, 1996
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 President, Chief Operating
Officer, Director Officer, Director
A. Robert Abboud* Charles Marshall*
- ------------------------------------- -------------------------------------
A. Robert Abboud, Director Charles Marshall, Director
Samawal A. Bakhsh* Talat M. Othman*
- ------------------------------------- -------------------------------------
Samawal A. Bakhsh, Director Talat M. Othman, Director
Letitia Baldrige* Michael B. Rohlfs*
- ------------------------------------- -------------------------------------
Letitia Baldrige, Director Michael B. Rohlfs, Director
Jeffrey A. Cole* Stuart L. Scott*
- ------------------------------------- -------------------------------------
Jeffrey A. Cole, Director Stuart L. Scott, Director
Raymond F. Farley* Sam F. Segnar*
- ------------------------------------- -------------------------------------
Raymond F. Farley, Director Sam F. Segnar, Director
Donald P. Jacobs* Glenn R. Morgan*
- ------------------------------------- -------------------------------------
Donald P. Jacobs, Director Glenn R. Morgan
Executive Vice President,
Miles L. Marsh* Chief Financial Officer
- -------------------------------------
Miles L. Marsh, Director Andrew A. Zahr
-------------------------------------
/s/ Glenn R. Morgan Andrew A. Zahr
By: _________________________________ Controller and
Glenn R. Morgan Principal Accounting Officer
/s/ Mary D. Allen
By: _________________________________
Mary D. Allen
- --------
*Pursuant to Power of Attorney
Date: February 27, 1996
36
HARTMARX CORPORATION
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED NOVEMBER 30, 1995, 1994, AND 1993
(000'S OMITTED)
RESERVE FOR DOUBTFUL ACCOUNTS
FISCAL YEAR ENDED NOVEMBER 30,
----------------------------------
1995 1994 1993
---------- ---------- ----------
Balance at beginning of year................ $ 7,368 $ 9,914 $ 16,022
Charged to costs and expenses............... 2,783 2,591 3,868
Deductions from reserves (1)................ (2,231) (5,137) (9,976)
---------- ---------- ----------
Balance at end of year...................... $ 7,920 $ 7,368 $ 9,914
========== ========== ==========
- --------
(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. 33-58653 and 33-42202) of
Hartmarx Corporation of our report dated January 9, 1996 appearing on page 14
of this Form 10-K.
PRICE WATERHOUSE LLP
Chicago, Illinois
February 26, 1996
F-1