<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
X OF THE SECURITIES EXCHANGE ACT OF 1934
- - ---------
For quarterly period ended August 31, 1994
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
- - ---------
For the transition period from ____________ to ____________
Commission file number 1-8501
HARTMARX CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3217140
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 NORTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
---------------------- -----
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code 312/372-6300
------------
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
------- -------
At September 30, 1994, there were 32,396,893 shares of the Company's common
stock outstanding.
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HARTMARX CORPORATION
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Earnings for the
three months and nine months ended August 31, 1994
and August 31, 1993. 3
Consolidated Balance Sheet as of August 31,
1994, November 30, 1993 and August 31, 1993. 4
Condensed Consolidated Statement of Cash Flows
for the nine months ended August 31, 1994 and
August 31, 1993. 6
Notes to Consolidated Financial Statements. 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 10
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 15
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $196,105 $188,993 $538,016 $547,831
Licensing and other income 1,857 2,139 4,999 4,242
-------- -------- -------- --------
197,962 191,132 543,015 552,073
-------- -------- -------- --------
Cost of goods sold 142,892 135,457 385,210 385,229
Selling, administrative and
occupancy expenses 46,119 48,306 142,238 152,488
-------- -------- -------- --------
189,011 183,763 527,448 537,717
-------- -------- -------- --------
Earnings before interest, taxes
and extraordinary charge 8,951 7,369 15,567 14,356
Interest expense 5,326 5,459 15,902 17,161
-------- -------- -------- --------
Earnings (loss) before taxes and
extraordinary charge 3,625 1,910 (335) (2,805)
Tax provision (benefit) 110 - (10) -
-------- -------- -------- --------
Earnings (loss) before
extraordinary charge 3,515 1,910 (325) (2,805)
Extraordinary charge, net of
$120 tax benefit - - (3,862) -
-------- -------- -------- --------
Net earnings (loss) $ 3,515 $ 1,910 $ (4,187) $ (2,805)
======== ======== ======== ========
Earnings (loss) per share:
before extraordinary charge $.11 $.06 $(.01) $(.09)
==== ==== ===== =====
after extraordinary charge $.11 $.06 $(.13) $(.09)
==== ==== ===== =====
Dividends per common share $ - $ - $ - $ -
==== ==== ===== =====
Average number of common shares
and common share equivalents 32,381 31,835 32,176 31,140
======== ======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
3
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HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(000'S OMITTED)
<TABLE>
<CAPTION>
Aug. 31, Nov. 30, Aug. 31,
1994 1993 1993
--------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 2,153 $ 1,507 $ 2,592
Accounts receivable, less allowance
of $9,367, $9,914 and $10,265
for doubtful accounts 151,019 120,442 147,595
Inventories 170,688 193,818 181,295
Prepaid expenses 14,987 15,346 20,791
Recoverable income taxes 123 659 275
Deferred income taxes 6,396 5,943 5,950
--------- --------- ---------
Total current assets 345,366 337,715 358,498
--------- --------- ---------
OTHER ASSETS 16,238 10,919 10,706
--------- --------- ---------
PROPERTIES
Land 3,871 3,882 3,877
Building and building improvements 58,274 58,345 56,409
Furniture, fixtures and equipment 111,925 114,574 112,694
Leasehold improvements 28,656 32,155 33,204
--------- --------- ---------
202,726 208,956 206,184
Accumulated depreciation and amortization (151,240) (152,479) (149,708)
--------- --------- ---------
Net properties 51,486 56,477 56,476
-------- -------- ---------
TOTAL ASSETS $ 413,090 $ 405,111 $ 425,680
========= ========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
4
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HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
Aug. 31, Nov. 30, Aug. 31,
1994 1993 1993
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 20,000 $ 25,000 $ 50,000
Current maturities of long term debt 695 697 710
Accounts payable and accrued expenses 68,651 63,001 63,628
-------- -------- --------
Total current liabilities 89,346 88,698 114,338
-------- -------- --------
LONG TERM DEBT, less current maturities
Notes payable 96,300 128,696 133,096
10 7/8% Senior Subordinated Notes, net 99,362 - -
Industrial development bonds 20,400 20,643 20,605
Other debt, extending to 2003 558 858 1,052
Notes payable to insurance companies - 45,000 45,000
ESOP loan guarantee - 12,219 12,219
-------- -------- --------
216,620 207,416 211,972
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 32,377,187 in August 1994,
31,951,464 in November 1993 and
31,877,950 in August 1993 80,943 79,878 79,695
Capital surplus 75,798 74,256 74,021
Retained earnings (deficit) (37,566) (33,379) (42,404)
Unearned employee benefits (12,051) (11,758) (11,942)
-------- -------- --------
107,124 108,997 99,370
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $413,090 $405,111 $425,680
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
5
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HARTMARX CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
Nine Months Ended August 31,
-----------------------------
1994 1993
--------- ---------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss), including extraordinary charge $ (4,187) $ (2,805)
Extraordinary charge, net of tax benefit 3,862 -
Reconciling items to adjust net income to
net cash provided by operating activities:
Depreciation and amortization 10,444 12,551
Changes in:
Receivables, inventories and prepaids (8,359) 36,932
Other assets (2,654) 3,698
Accounts payable and accrued expenses 3,983 (60,937)
Taxes on earnings 203 7,490
Adjustment of properties to net realizable value 19 1,635
--------- --------
Net cash provided by (used in) operating activities 3,311 (1,436)
--------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,114) (2,707)
Proceeds from sale of subsidiary - 4,500
--------- --------
Net cash provided by (used in) investing activities (4,114) 1,793
--------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of 10 7/8% Sr. Sub. Notes, net 96,572 -
Proceeds from issuance of Credit Facility, net 132,727 -
Payment of borrowings under Override Agreement (235,999) -
Increase in notes payable 6,380 -
Decrease in notes payable under Override Agreement - (51,200)
Decrease in other long term debt (545) (671)
Proceeds from equity sale - 29,880
Other equity transactions 2,314 1,870
--------- --------
Net cash provided by (used in) financing activities 1,449 (20,121)
--------- --------
Net increase (decrease) in cash and cash equivalents 646 (19,764)
Cash and cash equivalents at beginning of period 1,507 22,356
--------- --------
Cash and cash equivalents at end of period $ 2,153 $ 2,592
========= ========
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid (received) during period for:
Interest expense $ 13,900 $ 16,800
Income taxes (100) (7,500)
</TABLE>
(See accompanying notes to consolidated financial statements)
6
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HARTMARX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying financial statements are unaudited, but in the opinion of
management include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations and
financial position for the applicable period. Results of operations for any
interim period are not necessarily indicative of results for any other periods
or for the full year. These interim financial statements should be read in
conjunction with the financial statements and related notes contained in the
Annual Report on Form 10-K for the year ended November 30, 1993. Certain prior
year amounts have been reclassified to conform to the presentation in the
current period. 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. Since the retiree
contributions offset the full cost of the available medical programs, no
transition obligation existed at adoption and, accordingly, there was no effect
on either net income or shareholders' equity.
NOTE 2
The calculation of earnings (loss) per share for each period is computed 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. None of the 2,500,000 authorized preferred shares for Hartmarx
Corporation have been issued.
NOTE 3
As described in the "Restructuring and Retail Consolidation Charges" footnote to
the 1993 Annual Report on Form 10-K, fiscal 1992 third quarter and full year
results included pre-tax restructuring charges aggregating $190.8 million ("the
Restructuring"). All operational aspects of the Restructuring have been
completed. At August 31, 1994, accrued restructuring charges of $4 million were
included in the accounts payable and accrued expenses caption in the
accompanying balance sheet ($8 million at November 30, 1993 and $13 million at
August 31, 1993) principally relating to remaining lease, severance and employee
benefit obligations.
NOTE 4
On March 23, 1994, the Company issued $100 million principal amount of 10 7/8%
Senior Subordinated Notes due January 15, 2002 ("the Notes") in a public
offering, and also entered into a new three year financing agreement ("the
Credit
7
<PAGE>
Facility") with a group of nine lenders providing for maximum borrowings of $175
million (including a $25 million letter of credit facility) secured by
inventories, accounts receivable and intangibles of the Company and its
subsidiaries. Proceeds from these two transactions were utilized to repay $236
million of borrowings then outstanding related to the Override Agreement, the
Company's principal lending facility then in effect. The Override Agreement and
related Bridge Facility were terminated upon completion of the Notes and Credit
Facility transactions.
Borrowing availability under the Credit Facility is being utilized for general
corporate purposes. Borrowings are subject to a borrowing base formula based
upon eligible accounts receivable and inventory and are maintained at rates
which are (i) 1.5% over the greater of (a) a rate based on the weighted average
of rates of the 90-day commercial paper rate or (b) the base rate of a major
bank or (ii) LIBOR plus 2.50%. The Credit Facility contains certain provisions
for these rates to decline upon the achievement of certain operating performance
ratios. Financing fees pertaining to the Notes and Credit Facility aggregated
$5.9 million and are being amortized over the life of the respective agreements.
Certain other fees are also payable under the Credit Facility and Notes based on
services provided.
The Notes and Credit Facility contain various restrictive covenants pertaining
to minimum net worth, additional debt incurrence, capital expenditures, asset
sales, operating leases, and ratios relating to minimum accounts payable to
inventory, maximum funded debt to EBITDA and minimum fixed charge coverage, as
well as other customary covenants, representations and warranties, funding
conditions and events of default. At August 31, 1994, the Company was in
compliance with the above noted covenants.
Earlier in fiscal 1994, two industrial development bonds (IDBs) aggregating
$15.5 million associated with the Override Agreement, were refinanced
independent of the Override Agreement. The $7.5 million IDB matures on July 1,
2014, while the $8.0 million IDB is due on July 1, 2015. The effective interest
rate on these obligations is 7.5%.
As a result of the refinancing noted above, in the second fiscal quarter of
1994, the Company recorded an extraordinary charge of $3.9 million, net of a
$.1 million tax benefit, representing the loss from early extinguishment of the
Override debt.
8
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NOTE 5
Inventories at each date consisted of (000's omitted):
Aug. 31, Nov. 30, Aug. 31,
1994 1993 1993
-------- -------- --------
Raw materials $ 41,513 $ 44,370 $ 45,281
Work-in-process 26,326 26,468 23,380
Finished goods 102,849 122,980 112,634
-------- -------- --------
$170,688 $193,818 $181,295
======== ======== ========
Inventories are stated at the lower of cost or market. Approximately 20%, 23%
and 13% of the Company's inventories, primarily work-in-process and finished
goods, are valued using the last-in, first-out (LIFO) method at August 31, 1994,
November 30, 1993 and August 31, 1993, respectively. The first-in, first-out
(FIFO) method is used for substantially all raw materials and the remaining
inventories.
9
<PAGE>
HARTMARX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
November 30, 1993 to August 31, 1994
- - ------------------------------------
As described in Note 4 to the accompanying interim financial statements, in
March 1994 the Company issued $100 million principal amount of 10 7/8% Senior
Subordinated Notes due January 15, 2002 ("the Notes") in a public offering, and
also entered into a new three year financing agreement ("the Credit Facility")
with a group of lenders providing for maximum borrowings of $175 million
(including a $25 million letter of credit facility) secured by inventories,
accounts receivable and intangibles of the Company and its subsidiaries.
Proceeds from these two transactions were utilized to repay $236 million of
borrowings then outstanding related to the Override Agreement, the Company's
principal lending facility then in effect. This repayment also reflected the
$12.2 million purchase of the note of the Company's Employee Stock Ownership
Plan from an Override lender, which had been guaranteed by the Company. The
Override Agreement and related Bridge Facility were terminated upon completion
of the Notes and Credit Facility transactions. Borrowing availability under the
Credit Facility is being utilized for general corporate purposes. Earlier in
fiscal 1994, two industrial development bonds ("IDBs") aggregating $15.5 million
associated with the Override Agreement, were refinanced independent of the
Override Agreement.
Since November 30, 1993, net accounts receivable increased $30.6 million or
25.4% to $151.0 million, reflecting the normal seasonal fluctuations in the
Men's Apparel Group. The allowance for doubtful accounts declined to $9.4
million from $9.9 million, principally attributable to amounts written off
related to the Restructuring. Inventories of $170.7 million declined $23.1
million or 11.9%, principally due to seasonal decreases in the Men's Apparel
Group and fewer Kuppenheimer stores. Other assets increased $5.3 million,
principally attributable to costs associated with the issuance of the Notes and
Credit Facility. Net properties decreased $5.0 million to $51.5 million
reflecting depreciation exceeding additions; capital expenditures for fiscal
1994 are expected to approximate $11 million for the year and would be
approximately $1.5 million less than annual depreciation expense. The Company's
revolving Credit Facility provides for annual limitations of capital
expenditures; however, these limitations are not expected to result in delaying
capital expenditures otherwise planned by the Company. Total debt, including
current maturities, increased $4.2 million to $237.3 million and represented
68.9% of total capitalization compared to 68.1% at November 30, 1993. The
Company's normal seasonality results in a higher debt capitalization ratio at
August 31 compared to November 30, when borrowings are lower.
10
<PAGE>
August 31, 1993 to August 31, 1994
- - ----------------------------------
Net accounts receivable increased $3.4 million or 2.3% to $151.0 million,
principally attributable to higher sales in the Men's Apparel Group. The
allowance for doubtful accounts declined to $9.4 million from $10.3 million,
principally due to amounts written of related to the Restructuring. Inventories
of $170.7 million declined $10.6 million or 5.9%, principally attributable to
fewer Kuppenheimer stores. Other assets increased principally from costs
related to the issuance of the Notes and Credit Facility. Net properties of
$51.5 million declined $5.0 million, primarily reflecting depreciation expense
exceeding capital additions. Accounts payable and accrued expenses increased
$5.0 million, principally attributable to the timing of payment of accounts
payable in 1993, partially offset by payments related to the Restructuring.
Total debt of $237.3 million decreased $25.4 million and represented 68.9% of
total capitalization compared to 72.6% last year. The lower percentage this
year primarily reflected the repayment of debt from working capital reductions,
along with higher equity from the trailing year earnings and the proceeds from
stock sales to employee benefit plans.
RESULTS OF OPERATIONS
Third Quarter 1994 Compared to Third Quarter 1993
- - -------------------------------------------------
Consolidated sales increased $7.1 million or 3.8% to $196.1 million from $189.0
million in 1993. The Company's continuing operations produced a $19 million
sales gain after excluding the effects of underperforming Kuppenheimer store
locations, which have been closed in the past year, and the reduction in sales
to HSSI, the Company's former specialty stores unit. Sales in the Men's Apparel
Group increased approximately 9% which reflects the first season shipments of
the new Tommy Hilfiger tailored clothing and slacks collection, partially offset
by the lower sales to HSSI. Kuppenheimer's sales declined approximately 30%,
reflecting the closing of more than 40 stores; comparable store sales also
declined. Sales in the women's businesses increased approximately 12%,
principally attributable to the Barrie Pace catalog business.
The consolidated gross margin percentage to sales was 27.1% compared to 28.3%
last year. The Men's Apparel Group comprised a greater percentage of
consolidated sales in 1994 compared to 1993, while Kuppenheimer's proportionate
percentage declined; as gross margins are lower in the Men's Apparel Group
compared to Kuppenheimer (along with a lower selling, administrative and
occupancy expense ratio to sales), this mix change represented the principal
factor causing the lower gross margin percentage to sales. The Men's Apparel
Group and Kuppenheimer gross margin rates improved slightly compared to the
prior period. Gross margins in the women's businesses declined principally
related to two unprofitable product lines at International Women's Apparel
("IWA") which have now been discontinued. Consolidated selling, administrative
and occupancy expenses declined $2.2 million to $46.1 million and represented
23.5% of sales compared to 25.6% last year. The lower percentage to sales
reflected in part the greater proportion of Men's Apparel Group sales to total
sales. Men's Apparel Group expenses increased, but were lower as a percentage
of sales. Kuppenheimer
11
<PAGE>
achieved both a dollar decrease in operating expenses and a reduced percentage
to sales, reflecting the major expense reduction programs undertaken in the past
two years. In the women's businesses, expenses and the percentage to sales
ratio were slightly unfavorable to 1993. Interest expense declined $.1 million
to $5.3 million, primarily attributable to lower average borrowings; interest
expense included amortization of financing fees of $.4 million in 1994 and $.5
million in 1993. Consolidated earnings for 1994 were $3.5 million or $.11 per
share compared to earnings of $1.9 million or $.06 per share in 1993.
Earnings before interest, taxes and depreciation ("EBITDA") were $11.9 million
in 1994 compared to $10.8 million in 1993. Earnings before interest expense and
taxes ("EBIT") were $9.0 million in 1994 compared to $7.4 million last year;
however, EBITDA improved $2.4 million compared to 1993 and EBIT improved $2.9
million after considering the effect of the lower sales to HSSI.
Nine Months 1994 Compared to Nine Months 1993
- - ---------------------------------------------
Consolidated sales were $538.0 million compared to $547.8 million in 1993.
Revenues increased approximately $26 million in 1994 compared to 1993 after
considering the closing of under-performing Kuppenheimer stores, the reduction
in sales to HSSI and the disposition of a non-core uniform business. Sales to
HSSI declined to $20 million in 1994 from $36 million in 1993. Revenues in the
continuing Men's Apparel Group businesses, excluding the sales to HSSI,
increased approximately 9% and included the new Tommy Hilfiger lines.
Kuppenheimer sales declined 23%, principally attributable to approximately 40
fewer stores; comparable store sales also declined. Year-to-date sales in the
women's businesses increased slightly, as the increase at Barrie Pace was
partially offset by a decline at IWA from its discontinued product lines.
The consolidated gross margin percentage to sales was 28.4% compared to 29.7%
last year with the decrease principally attributable to the greater proportion
of Men's Apparel Group sales and declining percentage of Kuppenheimer sales, as
described previously. The Men's Apparel Group and Kuppenheimer gross margin
rates were each slightly higher than 1993. Gross margins in the women's
businesses declined, principally attributable to IWA. Selling, administrative
and occupancy expenses declined $10.3 million to $142.2 million and represented
26.4% of sales compared to 27.8% last year. The lower percentage to sales
reflected in part the greater proportion of Men's Apparel Group sales to total
sales. Men's Apparel Group expenses were even with 1993 and lower as a
percentage of sales. Kuppenheimer achieved dollar decreases in operating
expenses and a lower expense ratio to sales, reflecting fewer stores and
implemented expense reduction programs. The ratio in the women's business
increased, attributable to Barrie Pace from additional catalogs distributed.
Interest expense declined $1.3 million to $15.9 million, primarily attributable
to lower average borrowings; interest expense included amortization of financing
fees of $1.4 million in each year. The loss before extraordinary charge was $.3
million or $.01 per share in 1994 compared to a loss of $2.8 million or $.09 per
share in 1993. An extraordinary charge of $3.9 million or $.12 per share was
recorded in the second quarter of 1994 associated with the early payment of
loans in connection with the Company's debt financing. The net loss in 1994
after the extraordinary charge was $4.2 million or $.13 per share.
12
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EBITDA was $24.7 million compared to $25.5 million last year and EBIT was $15.6
million in 1994 compared to $14.4 million in 1993. After considering the effect
of lower sales to HSSI, sales of the closed Kuppenheimer stores and disposition
of a non-core uniform business, EBITDA improved approximately $2.3 million and
EBIT improved by approximately $4.4 million over the nine month period of 1993.
13
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
HSSI Matters. On August 29, 1994, The Hastings Group, Inc. ("Hastings")
acquired substantially all of the assets of HSSI, Inc. ("HSSI"), the Company's
former retail affiliate which the Company sold in 1992 to HSSA Group, Ltd.
("HSSA"). In connection with the sale to Hastings, HSSI, its subsidiaries and
an affiliate of HSSA, Maurice L. Rothschild & Co. ("MLR"), settled principal
case controversies in their Chapter 11 bankruptcy reorganization cases.
Pursuant to the settlement, which was approved by the Bankruptcy Court in an
order that became final on August 29, 1994, the litigation among the Company and
its subsidiaries, and HSSA, HSSI, MLR and certain other parties pending in the
Bankruptcy Court, the Circuit Court of Cook County, Illinois and the District
Court for the Northern District of Illinois (Eastern Division) was dismissed
with prejudice in September, 1994. This litigation was previously described in
the Company's Annual Report on Form 10-K for the year ended November 30, 1993
and Quarterly Reports on Form 10-Q for the quarters ended February 28, 1994 and
May 31, 1994 and included various proceedings involving the Company or its
subsidiaries. Under the settlement, the Company has been granted an allowed
administrative claim of $2.5 million in the bankruptcy case of HSSI, unsecured
claims in the bankruptcy cases of HSSI and MLR totalling approximately $16.2
million, and additional allowed subordinated claims in the HSSI bankruptcy case.
The amount of any payments with respect to these claims will depend on the value
of the HSSI and MLR bankruptcy estates and there can be no assurance as to
whether any such payments will be made or the amounts or timing of such
payments. The Company has also agreed to share certain distributions, if and
when received, with other unsecured creditors of HSSI. The Company and its
subsidiaries will continue as creditors with allowed claims in the ongoing HSSI
and MLR bankruptcy cases and any collection of the Company's claims may depend
upon the adoption and approval of a plan of reorganization of the HSSI and MLR
estates. There can be no assurance as to the provisions of any such plan of
reorganization that may be proposed or, if proposed, whether any such plan will
be confirmed by the Bankruptcy Court, or, if confirmed, whether any such plan
will be consummated by HSSI or MLR.
Dior Proceedings. In 1989, Hart Schaffner & Marx ("HSM"), a wholly owned
subsidiary of the Company, and Christian Dior-New York, Inc. ("Dior") were
adverse parties in various lawsuits filed in the Circuit Court of Cook County,
Illinois, arising out of a Trademark License Agreement under which HSM
manufactured and sold apparel products bearing Dior's trademark(s). These
lawsuits were eventually settled and dismissed pursuant to a settlement
agreement. Disputes arising out of the settlement agreement resulted in an
unfavorable award against HSM in a subsequent arbitration proceeding and lawsuit
in 1993, which was appealed. In October 1994, the appeal of the unfavorable
award was denied. In addition, HSM has initiated a separate arbitration
proceeding against Dior.
It is the opinion of management that the above noted matters will not have a
material adverse effect on the Company's business or financial condition.
14
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 4-E-1 Amendment No. 1 dated August 26, 1994 to the Credit
Agreement.
Exhibit 27 Financial Data Schedules.
(b) No reports on Form 8-K were filed during the third quarter of 1994.
SIGNATURES
Pursuant to the requirements 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
October 14, 1994 By: WALLACE L. RUECKEL
-----------------------------------
Wallace L. Rueckel
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
October 14, 1994 By: GLENN R. MORGAN
-----------------------------------
Glenn R. Morgan
Senior Vice President
Finance and Administration
(Principal Accounting Officer)
15
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EXHIBIT 4-E-1
HARTMARX CORPORATION
FIRST AMENDMENT TO CREDIT AGREEMENT
This FIRST AMENDMENT TO CREDIT AGREEMENT (this ``AMENDMENT'') is dated as
of August 26, 1994 and entered into by and among HARTMARX CORPORATION, a
Delaware corporation ("BORROWER"), the LENDERS LISTED ON THE SIGNATURE PAGES
HEREOF (each individually referred to as a "LENDER" and collectively as
"LENDERS"), GENERAL ELECTRIC CAPITAL CORPORATION as Managing Agent and
Collateral Agent for Lenders ("MANAGING AGENT") and THE BANK OF NEW YORK and
CONTINENTAL BANK, N.A. as co-agents and, for purposes of Section 4 hereof, the
GUARANTORS IDENTIFIED ON THE SIGNATURE PAGES HEREOF, (collectively the
"GUARANTORS"), and is made with reference to that certain Credit Agreement
dated as of March 23, 1994, among Borrower, Lenders and Agent ( the "CREDIT
AGREEMENT"; capitalized terms used herein without definition shall have the
same meanings herein as set forth in the Credit Agreement).
R E C I T A L S
- - - - - - - -
WHEREAS, Borrower and Lenders desire to amend the Credit Agreement as set
forth below;
NOW, THEREFORE, in consideration of the premises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
SECTION 1
AMENDMENT
1.1 AMENDMENTS TO THE CREDIT AGREEMENT.
----------------------------------
A. INTEREST PAYMENTS. Subsection 2.2C of the Credit Agreement is hereby
amended to read in its entirety as follows:
"C. INTEREST PAYMENTS. Subject to the provisions of subsections
2.2E and 2.6D, interest on each Loan shall be payable in arrears on
and to each Interest Payment Date applicable to that Loan and at
maturity (including final maturity)."
<PAGE>
B. COMMITMENT FEE PAYMENT DATES. Subsection 2.3A of the Credit Agreement
is hereby amended by deleting the reference to "March 31, June 30, September 30
and December 31" and substituting "April 1, July 1, October 1, and January
1" therefor.
C. MECHANICS OF ISSUANCE OF LETTERS OF CREDIT. The final proviso
contained in subsection 3.1B(i) is amended to read in its entirety as follows:
"provided further that anything to the contrary in this Agreement
notwithstanding, Borrower may, with Issuing Lender's consent,
electronically request the issuance of Letters of Credit by Issuing Lender,
in which such event Borrower shall be deemed for all purposes hereunder and
the other Loan Documents to have delivered a written Notice of Issuance of
Letter of Credit hereunder."
D. CASH MANAGEMENT SYSTEM. Subsection 5.19 of the Credit Agreement is
hereby amended by inserting "and Schedule 1.1C" immediately after the second
reference to "Schedule 5.19" contained therein.
E. COLLATERAL ACCESS AGREEMENTS. Subsection 6.12 (i) of the Credit
Agreement is hereby amended by deleting the proviso contained therein and
substituting the following therefor:
"; provided that on and after the 60th day following the Closing Date, the
Inventory at such Remaining Locations shall not be excluded from the
Borrowing Base solely as a result of the non-delivery of a Collateral
Access Agreement therefor, but Collateral Agent shall reserve from
availability under the Borrowing Base an amount equal to the aggregate of
three months rent for all Remaining Locations for which a Collateral Access
Agreement has not been delivered as of such date, rounded to the next
highest multiple of $1,000,000;"
F. INVESTMENTS; JOINT VENTURES.
(i) The first paragraph of Subsection 7.3 is hereby amended to read in its
entirety as follows:
"Borrower shall not, and shall not permit any of its Subsidiaries to,
directly or indirectly, make or own any Investment in any Person, including
any Joint Venture, or acquire by purchase or otherwise all or substantially
all the business, property or fixed assets of, or stock or other evidence
of beneficial ownership of, any Person, except:"
(ii) Subsection 7.3 is hereby further amended by amending paragraph (viii)
to read in its entirety as follows:
"(viii) Borrower and its Subsidiaries may make investments in Joint
Ventures and/or acquire by purchase or otherwise all or substantially all
the business,
2
<PAGE>
property or fixed assets of, or stock or other evidence of beneficial
ownership of, any Person; provided that, the aggregate of such Investments
or acquisitions does not exceed $7,500,000 at any time (whether in the form
of cash or fair market value of property contributed to such ventures or
distributed in respect of such acquisitions);
G. RESTRICTED JUNIOR PAYMENTS.
(i) Subsection 7.5 (A) of the Credit Agreement is hereby amended to read in
its entirety as follows:
"(A) an aggregate amount for any four consecutive fiscal quarter period
ending as of the most recently reported fiscal quarter not to exceed the
lesser of (1) the sum of (a) $10,000,000 plus (b) 25% of Consolidated Net
Income for such period (or less 100% of consolidated net losses for such
period, as the case may be) and (2) 50% of the Consolidated Net Income for
such four consecutive fiscal quarter period, and"
(ii) Subsection 7.5 is hereby further amended by deleting the reference to
"$30,000,000" contained in subdivision (B) thereof and substituting
"$22,500,000" therefor.
H. RESTRICTIONS ON FUNDAMENTAL CHANGES; ASSETS SALES. Subsection 7.7 is
hereby amended by adding the following new paragraph (vii) at the conclusion
thereof (and making the appropriate grammatical corrections resulting
therefrom):
"(vii) Borrower and Subsidiaries may make the Investments, including
investments in Joint Ventures, and acquisitions permitted pursuant to
subsection 7.3"
SECTION 2
BORROWERS' REPRESENTATIONS AND WARRANTIES
In order to induce Lenders to enter into this Amendment, Borrower
represents and warrants to Lenders that after giving effect to this Amendment in
the manner contemplated by Section 4.6 of this Amendment, each of the following
is true and correct:
(a) no event has occurred and is continuing which constitutes an Event
of Default or Potential Event of Default;
(b) the representations and warranties of Borrower and the other
Credit Parties contained in the Credit Agreement and the other Loan
Documents are true and correct on and as of the date hereof and as of the
Effective Date (as defined below) to the same extent as though made on and
as of the date hereof and as of the Effective Date except to the extent
such representations and warranties specifically relate to an earlier date,
in which case they are true and correct in all material respects as of such
earlier date;
3
<PAGE>
(c) each of Borrower and the other Credit Parties has performed all
agreements on its part to be performed prior to the date hereof as set
forth in the Credit Agreement and the other Loan Documents;
(d) Borrower and the Guarantors have all requisite corporate power and
authority to enter into this Amendment and to carry out the transactions
contemplated by, and perform its obligations under, the Credit Agreement;
(e) the execution of this Amendment has been duly authorized by all
necessary corporate action on the part of Borrower and the Guarantors; and
(f) the execution and delivery by Borrower and the Guarantors of this
Amendment does not and will not (i) violate any provision of any law or any
governmental rule or regulation applicable to Borrower, the Guarantors or
any of their respective Subsidiaries, the Certificate of Incorporation of
Borrower, the Guarantors or any of their respective Subsidiaries or any
order, judgment or decree of any court or other agency of government
binding on Borrower, the Guarantors or any of their respective
Subsidiaries, (ii) conflict with, result in a breach of or constitute (with
due notice or lapse of time or both) a default under any Contractual
Obligation of Borrower, the Guarantors or any of their respective
Subsidiaries, (iii) result in or require the creation or imposition of any
Lien upon any of the properties or assets of Borrower, the Guarantors or
any of their respective Subsidiaries (other than any Liens created under
any of the Loan Documents in favor of Collateral Agent on behalf of
Lenders), or (iv) require any approval of stockholders or any approval or
consent of any Person under any Contractual Obligation of Borrower, the
Guarantors or any of their respective Subsidiaries.
SECTION 3
GUARANTORS
Each of the Guarantors hereby consents to this Amendment and agrees that
each Loan Document to which it is a party shall continue in full force and
effect and shall be valid and enforceable and shall not be impaired or affected
by the execution of this Amendment and is hereby ratified and confirmed.
SECTION 4
MISCELLANEOUS
4.1 REFERENCES TO AND EFFECT ON THE CREDIT AGREEMENT AND OTHER LOAN
DOCUMENTS.
4
<PAGE>
(i) On and after the Effective Date, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof", "herein" or
words of like import referring to the Credit Agreement, and each reference
in the other Loan Documents to the "Credit Agreement", "thereunder",
"thereof" or words of like import referring to the Credit Agreement,
shall mean and be a reference to the Credit Agreement as amended hereby;
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed; and
(iii) The execution, delivery and performance of this Amendment shall
not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of any
Agent or any Lender under, the Credit Agreement or any of the other Loan
Documents.
4.2 FEES AND EXPENSES. Borrower acknowledges that all costs, fees and
expenses as described in subsection 10.2 of the Credit Agreement incurred by
Managing Agent and its counsel with respect to this Amendment and the documents
and transactions contemplated hereby shall be for the account of Borrower.
4.3 HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
4.4 APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF NEW
YORK, WITHOUT REGARD TO COMMON LAW CONFLICTS OF LAWS PRINCIPLES.
4.5 COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
4.6 EFFECTIVENESS. This Amendment shall become effective (such date being
the "EFFECTIVE DATE") upon the execution of a counterpart hereof by Requisite
Lenders, the Borrower and the Guarantors and receipt by Borrower and Managing
Agent of written or telephone notification of such execution and authorization
of delivery thereof.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their respective officers thereunto duly
authorized as of the date first written above.
BORROWER:
HARTMARX CORPORATION
By: ____________________________________________
Name: Wallace L. Rueckel
Title: Executive Vice President and Chief Financial
Officer
S-1
<PAGE>
GUARANTORS:
AMERICAN APPAREL BRANDS, INC.
ANNISTON SPORTSWEAR CORPORATION
BLLTWELL COMPANY, INC.
BRIAR, INC.
C.M. CLOTHING, INC.
C.M. OUTLET CORP.
CHICAGO TROUSER COMPANY, LTD.
COUNTRY MISS, INC.
COUNTRY MISS INTERNATIONAL LIMITED
COUNTRY SUBURBANS, INC.
DIRECT ROUTE MARKETING CORPORATION
E-TOWN SPORTSWEAR CORPORATION
FAIRWOOD-WELLS, INC.
GLENEAGLES, INC.
HENRY GRETHEL APPAREL, INC.
HANDMACHER FASHIONS FACTORY OUTLET, INC.
HANDMACHER-VOGEL, INC.
HARTMARX INTERNATIONAL, INC.
HART SCHAFFNER & MARX
HART SERVICES, INC.
THOS. HEATH CLOTHES, INC.
HGA LICENSING, INC.
HICKEY-FREEMAN CO., INC.
HIGGINS, FRANK & HILL, INC.
HMXUS, INC.
HOOSIER FACTORIES, INCORPORATED
HSM UNIVERSITY, INC.
INTERCONTINENTAL APPAREL, INC.
INTERNATIONAL WOMEN'S APPAREL, INC.
JAYMAR-RUBY, INC.
JRSS, INC.
KUPPENHEIMER MANUFACTURING COMPANY, INC.
KUPPENHEIMER MEN'S CLOTHIERS DADEVILLE, INC.
MEN'S QUALITY BRANDS, INC.
NATIONAL CLOTHING COMPANY, INC.
106 REAL ESTATE CORP.
RECTOR SPORTSWEAR CORPORATION
ROBERTS INTERNATIONAL CORPORATION
S-2
<PAGE>
SALHOLD, INC.
SEAFORD CLOTHING CO.
SOCIETY BRAND, LTD.
ROBERT SURREY, INC.
TAILORED TREND, INC.
THORNGATE, LTD.
THORNGATE UNIFORMS, INC.
TRADE FINANCE INTERNATIONAL LIMITED
UNIVERSAL DESIGN GROUP, LTD.
WALTON MANUFACTURING COMPANY
M. WILE & COMPANY, INC.
WINCHESTER CLOTHING COMPANY
YORKE SHIRT CORPORATION
By: _______________________________________
Name: Wallace L. Rueckel
Title: Vice President of each of the foregoing
(except for Country Miss International
Limited) and a Director of Country Miss
International Limited
S-3
<PAGE>
LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION,
individually, as Managing Agent and as Collateral Agent
By: ________________________________________________
Title: ________________________________________________
S-4
<PAGE>
THE BANK OF NEW YORK,
Individually, as Co-Agent and as Issuing Lender for the
Letters of Credit (other than the Existing Letters of
Credit)
By: _______________________________________
Title: _______________________________________
S-5
<PAGE>
CONTINENTAL BANK N.A.
Individually and as Co-Agent
By: ___________________________________
Title: ___________________________________
S-6
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Issuing Lender for Existing Letters
of Credit
By: _________________________________________
Title: _________________________________________
S-7
<PAGE>
MANUFACTURERS AND TRADERS TRUST COMPANY
By: __________________________________
Title: __________________________________
S-8
<PAGE>
HARRIS TRUST AND SAVINGS BANK
By: ____________________________________
Title: ____________________________________
S-9
<PAGE>
THE NORTHERN TRUST COMPANY
By: ____________________________________
Title: ____________________________________
S-10
<PAGE>
CHEMICAL BANK
By: __________________________________
Title: __________________________________
S-11
<PAGE>
SANWA BUSINESS CREDIT CORPORATION
By: _________________________________
Title: _________________________________
S-12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> This schedule contains summary financial information extracted from
the consolidated statement of earnings and the consolidated balance sheet and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> NOV-30-1994
<PERIOD-END> AUG-31-1994
<CASH> 2,153
<SECURITIES> 0
<RECEIVABLES> 151,019
<ALLOWANCES> (9,367)
<INVENTORY> 170,688
<CURRENT-ASSETS> 345,366
<PP&E> 202,726
<DEPRECIATION> (151,240)
<TOTAL-ASSETS> 413,090
<CURRENT-LIABILITIES> 89,346
<BONDS> 216,620
<COMMON> 80,943
0
0
<OTHER-SE> 26,181
<TOTAL-LIABILITY-AND-EQUITY> 413,090
<SALES> 538,016
<TOTAL-REVENUES> 543,015
<CGS> 385,210
<TOTAL-COSTS> 527,448
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 15,902
<INCOME-PRETAX> (335)
<INCOME-TAX> (10)
<INCOME-CONTINUING> (325)
<DISCONTINUED> 0
<EXTRAORDINARY> (3,862)
<CHANGES> 0
<NET-INCOME> (4,187)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
