<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATESSECURITIES 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, 1998
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:
<TABLE>
<CAPTION>
Name of each exchange
Title of each class on which registered
- ------------------- -----------------------
<S> <C>
Common Stock $2.50 par value per share New York Stock Exchange
Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
10 7/8% Senior Subordinated Notes due New York Stock Exchange
January 15, 2002
</TABLE>
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 16, 1999, 34,652,113 shares of the Registrant's common stock
were outstanding. The aggregate market value of common stock held by non-
affiliates of the Registrant was approximately $160,000,000.
Certain portions of the Registrant's definitive proxy statement dated
February 25, 1999 for the Annual Meeting of Stockholders to be held April 14,
1999 are incorporated by reference into Part III of this report.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
HARTMARX CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
ITEM No. Page
-------- ----
PART I
<C> <S> <C>
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
7A Quantitative and Qualitative Disclosures About Market Risk..... 14
8 Financial Statements and Supplementary Data.................... 15
Changes in and Disagreements with Accountants on Accounting and
9 Financial Disclosure........................................... 35
PART III
10 Directors and Executive Officers of the Registrant............. 35
11 Executive Compensation......................................... 35
12 Security Ownership of Certain Beneficial Owners and Management. 35
13 Certain Relationships and Related Transactions................. 35
PART IV
Exhibits, Financial Statement Schedules and Reports on Form 8-
14 K.............................................................. 35
</TABLE>
<PAGE>
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 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, dress furnishings
(shirts and ties), 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), Palm
Beach(R), Brannoch(R), Barrie Pace(R), Hawksley & Wight(R), Desert Classic(R),
Pusser's of the West Indies(R), Cambridge(R), Coppley(R) and Keithmoor(R); and
under exclusive license agreements for specified product lines including Tommy
Hilfiger(R), Jack Nicklaus(R), Bobby Jones(R), Burberry(R), Austin Reed(R),
Perry Ellis(R), Kenneth Cole(R), Evan-Picone(R), Daniel Hechter(R), Gieves &
Hawkes(R), Pringle(R), Claiborne(R), Pierre Cardin(R), Alan Flusser(R), KM by
Krizia(TM) and Robert Comstock(TM). To broaden the distribution of the apparel
sold under its owned and licensed trademarks, the Company has also entered
into over 25 license or sublicense agreements with third parties for specified
product lines to produce, market and distribute products in 13 countries
outside the United States. Additionally, the Company has commenced direct
marketing primarily in Europe, but also in Asia, North America and South
America, selling golfwear in 23 countries.
The Company and its subsidiaries are engaged in the manufacturing and
marketing of quality men's and women's apparel to independent retailers and
through catalogs. Its operations currently consist of the following groups--
Men's Apparel Group ("MAG") and Women's Apparel Group. MAG designs,
manufactures and markets men's tailored clothing, slacks and sportswear,
including golfwear and dress furnishings, to retailers for resale to
consumers. The Women's Apparel Group markets women's career apparel to
department and specialty stores and women's apparel and accessories through a
direct mail catalog. The Operating Segment Information on pages 33 and 34 in
the accompanying Notes to Consolidated Financial Statements further describes
the Company's operations.
The Company has expanded its product offerings through acquisitions in the
last three years. Effective December 1, 1998, a wholly-owned subsidiary of the
Company acquired 100% of the capital stock of The Coppley, Noyes and Randall
Limited ("Coppley"), a leading Canadian manufacturer and marketer of men's
tailored clothing and other apparel. In November 1998, the Company purchased
the wholesale apparel business of Pusser's Ltd., primarily an operator of
restaurants, pubs and retail stores carrying nautical and tropical sportswear
apparel and other products marketed under the Pusser's name. Assets acquired
include the trademarks associated with all apparel products along with
inventories associated with the wholesale business. On November 26, 1996, a
wholly-owned subsidiary of the Company purchased substantially all of the
license rights to manufacture and market men's tailored suits, sportcoats and
slacks under the Burberry, Claiborne and Evan-Picone brands, as well as
ownership of the Palm Beach, Brannoch and other names, and the current assets,
properties and operations of the Plaid Clothing Group, Inc., now PCG Corp. I,
and its subsidiaries ("Plaid"), pursuant to an Asset Purchase Agreement.
In July 1995, as the final step in the Company's 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
were sold exclusively through Kuppenheimer operated retail stores.
Kuppenheimer's operating results for 1995 and 1994, net of tax benefit, have
been reflected as a discontinued operation in the accompanying Selected
Financial Data.
1
<PAGE>
This 1998 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 1998 10-K Report
identifies important risk factors which could cause the Company's actual
financial results to differ materially from results forecasted 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, sportswear and dress furnishings, and women's career
apparel and sportswear across a wide variety of fashion directions, price
points and distribution channels. In 1998, tailored clothing (suits and
sportcoats) represented approximately 65% of the Company's total sales.
Sportswear (which includes golfwear), slacks, dress furnishings, and other
apparel products represented approximately 27% of sales. Women's Apparel Group
represented approximately 8% of sales.
As an integrated manufacturer and marketer, the Company is responsible for
the design, manufacture and sourcing of its apparel. The majority of its men's
tailored clothing and slacks are manufactured in fifteen Company operated
facilities located in the United States, three facilities in Canada, 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, Hickey-Freeman, Intercontinental
Branded Apparel, Plaid since 1997, and, beginning in 1999, Coppley business
units. Slacks and sportswear are manufactured and marketed principally through
the Trans-Apparel Group, Biltwell, Bobby Jones, Robert Comstock and, beginning
in 1999, Pusser's business units. The Women's Apparel Group designs and
sources women's career apparel and sportswear for department and specialty
stores under owned and licensed brand names through its International Women's
Apparel business unit. The Barrie Pace catalog features branded products
principally purchased from unaffiliated sources, directed towards the business
and professional woman. Approximately one-third of Barrie Pace sales are of
products provided by 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 30% 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 approximately one-third of the Company's total fabric requirements in
fiscal 1998. No other supplier accounts for over 5% of the Company's total raw
material requirements. As is customary in its industry, the Company has no
long-term contracts with its suppliers. The Company believes that a variety of
alternative sources of supply are available to satisfy its raw material
requirements.
Product lines are developed primarily for two major selling seasons, spring
and fall, with smaller lines for the 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
2
<PAGE>
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 largest domestic manufacturer and marketer of men's
tailored clothing and men's slacks with expected retail prices over $50. The
Company's 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%, 15% and 18% of consolidated sales in 1998, 1997 and 1996,
respectively. No other customer exceeded 9% 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 9,200 employees, of which
approximately 97% are employed in MAG. Most of the employees engaged in
manufacturing and distribution activities in the United States and Canada 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
3
<PAGE>
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.
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:
<TABLE>
<CAPTION>
Approximate Expiration
floor area date of
in square material
Location feet Principal Use leases
- -------- ----------- ------------- ----------
<S> <C> <C> <C>
Anniston, AL............ 76,000 Manufacturing 2005
Buffalo, NY............. 115,000 Manufacturing *
Buffalo, NY............. 280,000 Manufacturing; warehousing; office 2015
Cape Girardeau, MO...... 171,000 Manufacturing; warehousing *
Chicago, IL............. 102,000 Executive and operating company offices 2004
Des Plaines, IL......... 361,000 Manufacturing; warehousing *
Easton, PA.............. 220,000 Warehousing; office *
Elizabethtown, KY....... 54,000 Manufacturing *
Erlanger, KY............ 225,000 Warehousing 2004
Farmington, MO.......... 65,000 Warehousing *
Farmington, MO.......... 75,000 Manufacturing 2000
Knoxville, TN........... 231,000 Manufacturing *
Michigan City, IN (2
locations)............. 420,000 Manufacturing; warehousing; office *
New York, NY............ 74,000 Sales offices/showrooms 2005
Rector, AR.............. 52,000 Manufacturing *
Rochester, NY........... 223,000 Manufacturing; warehousing; office *
Somerset, KY............ 225,000 Manufacturing *
Whiteville, NC.......... 105,000 Manufacturing *
Winchester, KY.......... 92,000 Manufacturing *
Hamilton, Ontario,
Canada (3 locations)... 163,000 Manufacturing; warehousing; office 2003
San Jose, Costa Rica.... 72,000 Manufacturing *
Tolcayuca, Mexico....... 50,000 Manufacturing *
</TABLE>
- --------
*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 27 of this Form 10-K.
Item 3--Legal Proceedings
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and lawsuits will not
have a material adverse effect on the Company's financial position or results
of operations.
4
<PAGE>
Item 4--Submission of Matters to a Vote of Security Holders
None.
Executive Officers of the Registrant
Each of the executive officers of the Registrant listed below has served the
Registrant or its subsidiaries in various executive capacities for the past
five years, with the exception of Mr. Wohlschlaeger. 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.
<TABLE>
<CAPTION>
Years
of
Service
with
Name Position Age Company
---- -------- --- -------
<S> <C> <C> <C>
Elbert O. Hand.......... Chairman and Chief Executive Officer
(Director since 1984) 59 34
Homi B. Patel........... President and Chief Operating Officer
(Director since January, 1994) 49 19
Glenn R. Morgan......... Executive Vice President and Chief Financial Officer 51 19
Frederick G.
Wohlschlaeger.......... Senior Vice President, General Counsel and Secretary 48 2
James E. Condon......... Vice President and Treasurer 48 21
Linda J. Valentine...... Vice President, Compensation and Benefits 48 18
Andrew A. Zahr.......... Vice President and Controller; Chief Accounting Officer 55 26
</TABLE>
Mr. Hand was elected to his current position as Chairman and Chief Executive
Office in October 1992.
Mr. Patel was elected to his current position as President and Chief
Operating Officer in February 1993.
Mr. Morgan was elected to his current position as Executive Vice President
and Chief Financial Officer in September 1995. From July 1994 to September
1995, he served as Senior Vice President, Finance and Administration. From
February 1993 to July 1994, he served as Senior Vice President and Controller.
Mr. Wohlschlaeger was elected Senior Vice President, General Counsel and
Secretary in July 1997. Prior to joining the Company, he was employed by
Morton International, Inc. for seven years, most recently serving as Vice
President for Legal Affairs and Group Counsel of a significant operating
group.
Mr. Condon was elected to his current position as Vice President and
Treasurer in September 1995. From July 1994 to September 1995, he served as
Vice President, Planning and Investor Relations. From October 1986 to July
1994, he served as Vice President and Treasurer.
Ms. Valentine was elected to her current position as Vice President,
Compensation and Benefits in February 1993.
Mr. Zahr was elected to his current position as Vice President and
Controller in April 1998. From July 1994 to April 1998, he served as
Controller. From July 1980 to July 1994, he served as Assistant Controller and
Director of Accounting.
5
<PAGE>
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:
<TABLE>
<CAPTION>
1998 1997 1996
--------------- -------------- -------------
High Low High Low High Low
------- ------- ------- ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
First Quarter...................... $8.50 $7.0625 $ 6.00 $4.875 $4.625 $3.75
Second Quarter..................... 9.00 7.375 10.125 5.50 6.50 3.875
Third Quarter...................... 8.00 6.50 10.00 7.125 6.375 4.625
Fourth Quarter..................... 7.1875 4.375 9.375 7.25 5.375 4.25
</TABLE>
The most recent quarterly dividend paid was in November 1991, in the amount
of $.15 per share. The current financing agreement contains a limitation on
restricted payments, as defined, which includes dividends, to a cumulative
maximum amount of $17.5 million. The current financing agreements also contain
various restrictive covenants pertaining to additional debt incurrence,
capital expenditures, asset sales, operating leases, and ratios relating to
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 16, 1999, there were approximately 5,675 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.
In December 1998, the Board of Directors authorized the Company to purchase
up to 1,500,000 shares of its common stock in open market transactions. As of
February 16, 1999, 469,000 shares had been purchased pursuant to this
authorization at an average price of $4.97 per share. These purchases are
includable in the restricted payments limitation described above.
The Company had previously authorized the Trustee of its retirement plan to
purchase up to one million shares of the Company's common stock in open market
transactions. These purchases were completed as of September 30, 1998. The
plan's aggregate holdings at February 16, 1999 were 1,519,612 shares.
6
<PAGE>
Item 6 -- Selected Financial Data
The following table summarizes data for the years 1994 through 1998. The
Company's complete annual financial statements and notes thereto for fiscal
1998 appear elsewhere herein.
<TABLE>
<CAPTION>
Income Statement Data
In Thousands, Except Per Share
Data
For Years Ended November 30(2) 1998 1997(1) 1996(1) 1995(1) 1994(1)
------------------------------ -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales....................... $725,002 $718,135 $610,180 $595,272 $621,847
Licensing and other income...... 1,882 3,375 4,263 6,429 7,277
Cost of sales................... 540,545 544,003 463,533 447,414 459,295
Operating expenses.............. 144,121 143,482 127,699 132,806 139,720
Earnings before interest, taxes,
discontinued operation and
extraordinary items............ 42,218 34,025 23,211 21,481 30,109
Interest expense................ 18,633 17,480 16,681 19,851 20,988
Earnings before taxes,
discontinued operation and
extraordinary items............ 23,585 16,545 6,530 1,630 9,121
Tax (provision) benefit......... (8,965) 8,695 17,300 19,800 9,992
Earnings before discontinued
operation and extraordinary
items.......................... 14,620 25,240 23,830 21,430 19,113
Discontinued operation, net of
tax............................ -- -- -- (18,283) 897
Net earnings before
extraordinary items............ 14,620 25,240 23,830 3,147 20,010
Extraordinary items, net of tax. -- -- 725 -- (3,862)
Net earnings.................... 14,620 25,240 24,555 3,147 16,148
Diluted earnings (loss) per
share:
continuing operations.......... .42 .74 .72 .66 .59
discontinued operation......... -- -- -- (.56) .03
before extraordinary items..... .42 .74 .72 .10 .62
after extraordinary items...... .42 .74 .74 .10 .50
Cash dividends per share........ -- -- -- -- --
Diluted average number of common
shares and equivalents......... 34,885 34,167 33,021 32,631 32,243
<CAPTION>
Balance Sheet Data
In Thousands, Except Per Share
Data
At November 30
------------------------------
<S> <C> <C> <C> <C> <C>
Cash............................ $ 5,292 $ 1,626 $ 2,844 $ 5,700 $ 2,823
Accounts receivable............. 131,342 136,854 135,554 108,486 114,597
Inventories..................... 207,679 193,780 165,913 154,898 183,347
Other current assets............ 19,115 24,484 16,155 10,409 11,670
Net properties.................. 51,034 45,782 43,909 44,624 51,543
Other assets/deferred taxes..... 70,260 67,857 65,864 52,519 28,220
Total assets.................... 484,722 470,383 430,239 376,636 392,200
Accounts payable, accrued
expenses and taxes............. 93,768 100,098 99,745 78,867 76,049
Total debt...................... 179,994 178,001 168,528 163,278 187,784
Shareholders' equity............ 210,960 192,284 161,966 134,491 128,367
Equity per share................ 6.06 5.62 4.85 4.11 3.95
<CAPTION>
Other Data
In Thousands
For Years Ended November 30(2)
------------------------------
<S> <C> <C> <C> <C> <C>
Earnings before interest, taxes,
depreciation, amortization,
discontinued operation and
extraordinary items............ $ 49,450 $ 41,673 $ 31,469 $ 30,069 $ 39,502
Depreciation and amortization of
fixed assets................... 7,232 7,648 8,258 8,588 9,393
Capital expenditures............ 12,753 10,086 8,207 8,441 6,173
</TABLE>
- --------
(1) 1994 through 1997 included favorable non-cash income tax adjustments to the
tax valuation reserve related to recognition of net operating loss
carryforwards of $13.4 million, $20.6 million, $19.9 million and $15.0
million, respectively. Excluding this adjustment, net earnings before
discontinued operation and extraordinary items, and diluted earnings per
share would have been $5.7 million or $.18 per share in 1994; $1.0 million
or $.03 per share in 1995; $4.0 million or $.12 per share in 1996 and $10.3
million or $.30 per share in 1997.
(2) 1995 and 1994 reflect the Company's former retail business, Kuppenheimer,
as a discontinued operation.
7
<PAGE>
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
Results of Operations
Consolidated results for 1998 reflected a 43% increase in pre-tax earnings
to $23.6 million in 1998 from $16.5 million in 1997. Full year sales were
$725.0 million compared to $718.1 million in 1997. The improved operating
performance in 1998 compared to 1997 was primarily attributable to an increase
in gross margins to 25.4% of sales from 24.2% a year ago and the continued
strength in the premium price point businesses of Hart Schaffner & Marx and
Hickey-Freeman. The 17.7% revenue increase in 1997 from $610.2 million in 1996
reflected, among other things, the sales associated with the acquisition of
assets and license rights from the Plaid Clothing Group, Inc. at fiscal year
end 1996. The pre-tax earnings increase to $16.5 million in 1997 from $6.5
million in 1996 included Plaid's results, along with higher earnings from the
Hart Schaffner & Marx, Hickey-Freeman and Women's Apparel Group product lines.
The Company operates exclusively in the apparel business. Its operations are
comprised 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, Hickey-Freeman, Intercontinental Branded Apparel and,
since 1997, Plaid business units; slacks and sportswear (including golfwear)
are marketed principally through its Trans-Apparel Group, Biltwell, Bobby
Jones and Robert Comstock Apparel business units; and (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.
The following summarizes sales and earnings before interest and taxes
("EBIT") for the Company's business groups (in millions):
<TABLE>
<CAPTION>
Year Ended November
30,
----------------------
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Sales:
Men's Apparel Group............................. $665.0 $658.5 $559.1
Women's Apparel Group........................... 60.0 59.6 51.1
------ ------ ------
Total......................................... $725.0 $718.1 $610.2
====== ====== ======
EBIT:
Men's Apparel Group............................. $ 43.9 $ 36.3 $ 30.3
Women's Apparel Group........................... 6.8 6.7 3.6
Other and adjustments........................... (8.5) (9.0) (10.7)
------ ------ ------
Total......................................... $ 42.2 $ 34.0 $ 23.2
====== ====== ======
</TABLE>
Consolidated sales were $725.0 million in 1998, $718.1 million in 1997 and
$610.2 million in 1996. Revenues in 1998 reflected continued strength of the
Hart Schaffner & Marx and Hickey-Freeman brands, as well as incremental sales
from newer initiatives, including Hart Schaffner & Marx sportswear, Hickey-
Freeman furnishings, Desert Classic golfwear and Kenneth Cole tailored
clothing, which were largely offset by declines associated with brands or
programs being reduced or eliminated which do not have the likelihood of
achieving acceptable long term profitability. The 17.7% consolidated revenue
increase in 1997 compared to 1996 was principally attributable to the Plaid
brands acquired at the end of the Company's 1996 fiscal year, increases at
Hart Schaffner & Marx and to an increase in Women's Apparel Group sales from
an additional product line and strong in-stock sales.
8
<PAGE>
MAG sales were $665 million in 1998, $659 million in 1997 and $559 million
in 1996. The 1% increase in 1998 compared to 1997 reflected continued strength
in the premium priced tailored clothing brands, principally Hart Schaffner &
Marx and Hickey-Freeman, and the newer product initiatives described above,
mostly offset by declines from brands or programs with lower longer term
profit potential which are being deemphasized. The 17.8% increase in 1997
compared to 1996 principally reflected the Plaid brands acquired in November
1996 and the continuing strength of the premium priced tailored clothing
brands and improvements in Bobby Jones golfwear. MAG EBIT improved to $44
million in 1998 from $36 million in 1997 and $30 million in 1996. Tailored
clothing represented the most significant contributor to earnings in each
year. The $8 million improvement in 1998 EBIT compared to 1997 was primarily
attributable to gross margin improvement in the premium priced tailored
clothing lines and golfwear and sportswear businesses; also, there was a
favorable product mix change with lower relative moderate tailored clothing
sales which have lower gross margins compared to premium tailored clothing and
sportswear. Although product cost reductions during 1998 were realized in the
moderate tailored clothing lines principally from more off-shore sourcing,
continuing competitive pressures in the moderate priced product lines have
largely prevented wholesale price increases. The $6 million improvement in
1997 EBIT compared to 1996 was primarily attributable to improvements in the
premium priced tailored clothing product lines and inclusion of the Plaid
results; competitive pressures in the moderately priced product lines
precluded wholesale price increases, although gross margins improved slightly
in 1997 compared to 1996 from cost reductions achieved in part from more off-
shore sourcing.
Women's Apparel Group sales, comprising approximately 8% of the consolidated
total in each year, aggregated $60 million in 1998 and 1997 and $51 million in
1996. Revenues in 1998 were approximately even with 1997, following a 16.8%
increases in 1997 compared to 1996. During 1998, growth in the Hawksley &
Wight line and the introduction of Austin Reed knits largely offset the
decline in Austin Reed separates, while catalog sales were about even with
1997. The 1997 increase compared to 1996 reflected the growth of the Austin
Reed brand and the introduction of Hawksley & Wight. Women's Apparel Group
earnings before interest and taxes were $7 million in 1998 and 1997, up from
$4 million in 1996. The improvement in 1997 compared to 1996 was primarily
attributable to improved gross margins in the wholesale businesses and from
expense reduction actions in the catalog business.
Gross Margins. The consolidated gross margin percentage of sales was 25.4%
in 1998, 24.2% in 1997 and 24.0% in 1996. The 1.2% improvement in the 1998
gross margin rate compared to 1997 reflected higher gross margin rates in
premium priced tailored clothing, sportswear, golfwear and women's product
lines. Gross margins in moderate tailored clothing declined, reflecting the
competitive pressures on wholesale prices in this product category which more
than offset the favorable impact of lower costs from increased off-shore
sourcing. Moderate tailored clothing represented a lower percentage of
consolidated sales in 1998 compared to 1997, a trend which is expected to
continue in 1999. The .2% gross margin improvement in 1997 compared to 1996
reflected continued strength in the premium priced tailored clothing lines and
in the women's businesses. While wholesale prices in the moderately priced
product lines remained very competitive, there was a small gross margin
improvement as costs were lowered from increased off-shore sourcing. The
transition to more off-shore sourcing to ultimately improve gross margins in
the moderate priced lines was initiated through the 1995 acquisition of
production facilities in Mexico and Costa Rica. Start-up costs associated with
these off-shore facilities adversely affected the gross margin rate by .4% in
1996 and .2% in 1997; there was no unfavorable impact on 1998 gross margins.
LIFO expense was $.9 million in 1998, $.3 million in 1997 and $.1 million in
1996.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $144 million in 1998, $143 million in 1997 and
$128 million in 1996. As a percentage of sales, the expense rate declined to
19.9% in 1998 from 20.0% in 1997 and 20.9% in 1996, and reflected, among other
things, the increased sharing of administrative services among the individual
operating units. The improved ratio in 1997 compared to 1996 was also
attributable to the elimination of less efficient and certain redundant
administrative functions associated with the assets acquired from Plaid at
fiscal year end 1996.
9
<PAGE>
Advertising expenditures, including costs related to the Barrie Pace
catalog, were $26 million in 1998 compared to $23 million in 1997 and $20
million in 1996, representing 3.6%, 3.3% and 3.2% of consolidated sales,
respectively. The increases in 1998 and 1997 primarily reflected higher MAG
advertising expenditures, including amounts related to the new product lines;
1998 also included a higher percentage associated with the distribution of
Barrie Pace catalogs.
Licensing and Other Income. This caption is principally comprised of income
generated from licensing and aggregated $1.9 million in 1998, $3.4 million in
1997 and $4.3 million in 1996. The decline in 1998 compared to 1997 and in
1997 compared to 1996 reflected the economic conditions in Asia, especially
Japan and Korea, where a significant portion of the Company's licensing income
is generated. Additionally, a portion of the decline in 1997 compared to 1996
related to the sale of certain license rights in prior years. While the
economies in Asia have not yet demonstrated a recovery to their previous
levels, licensing income is not expected to decline at the rates experienced
in recent years.
Earnings before Interest, Taxes, Discontinued Operation and Extraordinary
Items ("EBIT"). EBIT was $42.2 million in 1998, $34.0 million in 1997 and
$23.2 million in 1996, representing 5.8%, 4.7% and 3.8% of sales,
respectively. The improvement in 1998 compared to 1997 was principally
attributable to the higher gross margin ratio to sales. The increase in 1997
from 1996 was principally attributable to the lower operating expense ratio to
sales.
Interest Expense. Interest expense was $18.6 million in 1998, $17.5 million
in 1997 and $16.7 million in 1996. As a percentage of sales, interest expense
was 2.6% in 1998 compared to 2.4% in 1997 and 2.7% in 1996. The dollar
increase in 1998 from 1997 reflected higher average borrowings attributed to
higher working capital requirements. The dollar increase in 1997 from 1996
reflected higher average borrowings, principally attributable to the $27
million paid for the assets acquired from Plaid. The effective interest rate
for all borrowings, including amortization costs, was 9.3% in 1998, 9.7% in
1997 and 9.9% in 1996. Interest expense in 1997 and 1996 was favorably
impacted by approximately $.5 million and $.4 million, respectively, from the
repurchase of $14.7 million face value of the Company's 10 7/8% senior
subordinated debentures utilizing revolving credit facility availability. The
Company's weighted average short term borrowing rate was 7.2% in 1998, 7.5% in
1997 and 7.4% in 1996. Interest expense included non-cash amortization of
financing fees and expenses of $.8 million in 1998 and $1.0 million in 1997
and 1996.
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.
The Company's effective tax rate of 38% of pre-tax income resulted in a tax
provision of $9.0 million in 1998; in years prior to 1998, favorable
adjustments to the then existing tax valuation reserves resulted in net tax
benefits being recognized as described below.
During fiscal 1997, the Company concluded that the more likely than not
criteria appropriately justified the recognition of the remaining amount of
the tax benefits previously unrecognized associated with available net
operating loss carryforwards. Accordingly, after giving effect to the benefit
of future operating loss carryforwards and other timing differences
recognized, the valuation reserve at November 30, 1997 was reduced to zero
from $15.0 million at November 30, 1996, and this adjustment was reflected in
the net tax benefit of $8.7 million recognized in fiscal 1997. This compares
to the net tax benefit recognized of $17.3 million in fiscal 1996, which
included reductions in the tax valuation reserve of $19.9 million.
In 1996, a portion, but not all, of the then remaining valuation allowance
was deemed appropriate taking into consideration, among other things, the
following: the level of pre-tax earnings in relation to both historical
amounts earned during the 1980's and the significant operating losses incurred
in the early 1990's; the level of
10
<PAGE>
profitability of the core MAG businesses, even during the 1990-1992 loss years
which included operating losses from retail businesses subsequently sold or
liquidated; the Company's income prospects in future years after consideration
of available operating loss carryforwards which expire during the 2007-2010
period.
Utilization of available operating loss carryforwards of $134 million as of
November 30, 1998 by fiscal year end 2007 requires average annual taxable
earnings of approximately $15 million. (Also see "Liquidity and Capital
Resources" for further discussion under deferred tax assets and remaining
operating loss carryforwards.)
Net Earnings. Net earnings for 1998 were $14.6 million or $.42 per diluted
share after reflecting an effective income tax rate of 38%. Net earnings for
1997 and 1996 included the favorable non-cash income tax adjustments to the
tax valuation reserve related to recognition of net operating loss
carryforwards discussed above of $15.0 million and $19.9 million,
respectively. After considering these tax benefits, consolidated net earnings
before extraordinary gain were $25.2 million or $.74 per diluted share in 1997
and $23.8 million or $.72 per diluted share in 1996. Excluding these favorable
adjustments and applying the Company's normal tax rate of 38% to pre-tax
earnings, net earnings before extraordinary gain would have been $10.3 million
or $.30 per diluted share in 1997 and $4.0 million or $.12 per diluted share
in 1996. Fiscal 1996 consolidated results also included a $.7 million or $.02
per share extraordinary gain associated with the purchase of $14.7 million of
the Company's 10 7/8% Senior Subordinated Debentures. After consideration of
the extraordinary gain, net earnings were $24.6 million or $.74 per share in
1996.
Liquidity and Capital Resources
The current financing structure has been in place since March 1994, at which
time the Company issued $100 million of public senior subordinated debentures,
entered into a $175 million Revolving Credit Facility with a nine member
lending group ("Credit Facility") and privately placed $15.5 million of
industrial development bonds maturing in 2015 issued by development
authorities in prior years. This 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, January 1996 and October 1997, among other things,
resulted in a reduction in the fees, administrative charges and effective
borrowing rates, adjustment or elimination of certain covenants and extension
of the term from March 1997 to July 2000. The Credit Facility contains certain
restrictions on the operation of the Company's business, including covenants
pertaining to capital expenditures, asset sales, operating leases, incurrence
of additional indebtedness, ratios relating to 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 $13 million in 1998 compared
to net cash used in operating activities of $6 million in 1997 and net cash
provided by operating activities of $26 million in 1996. The improvement in
1998 compared to 1997 was attributable to the improvement in earnings;
although working capital requirements increased both in 1998 and 1997, the
1997 increase was more significant. The change in 1997 compared to 1996 was
attributable to the higher working capital requirements, primarily
inventories, partially offset by the current earnings. At November 30, 1998,
net accounts receivable of $131.3 million decreased $5.5 million from November
30, 1997, primarily attributable to improved collections. The allowance for
doubtful accounts was $8.2 million compared to $9.8 million last year,
representing 5.9% of gross receivables in 1998 and 6.7% in 1997; 1998 included
higher write-offs of receivables which had been reserved in prior years.
Inventories of $207.7 million at November 30, 1998 increased $13.9 million or
7.2% from November 30, 1997, primarily attributable to expanded lead times
associated with increased off-shore production, earlier production scheduling
and amounts required to support expanded in-stock programs. Inventory turn
slowed compared to 1997 due to the higher average levels during the year.
11
<PAGE>
Recoverable and deferred income taxes at November 30, 1998 aggregated $55.0
million compared to $62.8 million at November 30, 1997. As noted previously,
the valuation allowance was zero at November 30, 1998 and 1997. Approximately
$39 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,
1998, the Company had approximately $134 million of federal tax operating loss
carryforwards available to offset future taxable income.
At November 30, 1998, net properties were $51.0 million compared to $45.8
million at November 30, 1997. Capital additions during 1998 were $12.8 million
compared to $10.0 million in 1997. Depreciation expense was $7.2 million in
1998 and $7.6 million in 1997. The capital expenditure limitations contained
in the Company's current borrowing agreements have not and are not expected to
delay capital expenditures otherwise planned by the Company. The Company has
had under review the comprehensive upgrading, consolidation and integration of
its principal management information systems utilized in the operation of its
businesses (the "Project"), along with a review of non-Project systems and
compatibility with various third party systems on which the Company relies.
PricewaterhouseCoopers LLP, as a consultant to the Company, has been actively
engaged in the design and implementation of the Project in concert with the
senior management of the Company. During 1998, the Company capitalized
approximately $7.5 million of costs related to the acquisition of new
information systems. Through November 30, 1998, the Company has incurred
approximately $17 million, of which approximately $15 million has been
capitalized. In accordance with appropriate accounting policy, capitalized
costs will be amortized over five years from the time the new systems are
fully operational. (Also see "Year 2000" for further information.)
At November 30, 1998, total debt of $180.0 million was $2.0 million higher
than the year earlier level. The $10.0 million of notes payable classified as
current at November 30, 1998 reflects the anticipated debt reduction during
fiscal 1999 under the Company's revolving credit facility arrangements. Total
debt, including short term borrowings and current maturities, represented 46%
of the total $391 million capitalization at November 30, 1998, compared to 48%
at November 30, 1997, with the improvement principally resulting from the
trailing year earnings. Total additional borrowing availability at November
30, 1998 under the revolving credit facility was approximately $80 million.
Shareholders' equity of $211.0 million at November 30, 1998 represented
$6.06 book value per share compared to $5.62 book value per share at November
30, 1997. The $18.7 million equity increase during 1998 reflected the net
earnings for the year, ongoing equity sales to employee benefit plans,
proceeds from the exercise of stock options and recognition of previously
unearned employee benefits principally associated with the Company's employee
stock ownership plan. Dividends have not been paid since 1991. 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 $211.0 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.
Year 2000 Disclosure
The Company is addressing Year 2000 issues for its computer systems,
operations systems, microprocessors and other significant computer-based
devices and applications. A significant portion of the new systems
enhancements will emanate from purchased software for which written
representation has been received from the application vendors that such
software is Year 2000 compliant. In this context, Year 2000 compliance is
being addressed, whether relating to new systems that comprise a part of the
Project or with respect to existing management information systems that may
continue to be utilized beyond January 1, 2000. Although it was initially
expected that new systems and software included in the Project would
substantially address Year 2000 issues, the Company and its consultant
currently assess that existing systems for the most part will continue in
operation beyond January 1, 2000. Efforts are currently underway to upgrade,
enhance and test these existing
12
<PAGE>
systems and software requirements, including compatibility with the various
third-party applications. To date, the Company has also commenced testing of
its systems upgrade as part of the Project at two operating units and no Year
2000 defects have been noted. The Project cost total is currently not expected
to exceed $25 million, of which only a nominal amount is attributable to Year
2000 compliance.
As stated, the Company initially intended that the new systems and software
included in the Project would be substantially operational by the end of 1999,
in order to address Year 2000 compliance. The Company is therefore currently
implementing its primary contingency plan, which includes testing, upgrading
and remediating when necessary its existing systems and software, a process
which is expected to be completed by August 1999. The costs to be incurred
which relate to ensuring compliance and remediation of the current systems,
which includes both internal costs of existing employees as well as external
contractor and software remediation costs, is estimated to be approximately $2
million, of which $.2 million was expensed during 1998. The remaining amount
will be expensed as incurred during 1999.
The Company has also established formal communications with significant
suppliers and customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. To date, the Company has surveyed approximately 200 of its customers,
vendors and suppliers. The customers surveyed accounted for over 67% of 1998
sales and inventory suppliers surveyed represented over 60% of 1998 inventory
purchases. Additionally, the Company has identified the critical systems
provided by other third party service providers (e.g., financial institutions
and utilities suppliers). While the Company must necessarily rely to some
extent on the representations of these third parties and their statements or
certifications of compliance to certain government agencies regarding Year
2000 capabilities, the Company is also in various stages of Year 2000 testing
and implementation of the systems and/or upgrades provided by third parties.
The most reasonably likely worst case scenario is difficult to identify.
However, a reasonable worst case scenario could be a failure by a significant
third party in the Company's supply chain to remediate its Year 2000
deficiencies, which could impair the Company's ability to manufacture
products, process customer orders or ship goods to its customers.
Additionally, failure by the Company to fully remediate its systems could
impair the Company's ability to take customer orders, manufacture and ship
products, invoice customers or collect payments.
The Company recognizes that issues related to Year 2000 remediation
constitute a known uncertainty and the importance of ensuring its operations
will not be adversely affected by Year 2000 issues. Its procedures are
anticipated to be effective to identify and manage the risks associated with
Year 2000 compliance. However, there can be no assurance that the process can
be completed as described above or that the remediation process will be fully
effective. The failure to identify and remediate the Company's systems or the
failure of key third parties who do business with the Company or governmental
agencies to timely remediate their systems that interface with the Company's
systems could result in system failures or errors or business interruptions,
which could have a material adverse effect on the Company's results of
operations and financial condition.
Outlook
The Company's long term earnings growth objectives comprise revenue
increases, gross margin rate improvements and declining operating expenses and
financing costs relative to sales. From a product perspective, the Company
expects to sustain its pre-eminent position in tailored clothing, continue to
broaden its product offerings in branded sportswear, dress furnishings (shirts
and ties) and golfwear, and to maintain its current womenswear focus. The
small revenue increase in 1998 compared to 1997 resulted, in part, from de-
emphasizing those product lines and brands which do not offer the longer term
prospects for adequate gross margins, primarily in the moderate tailored
clothing category. Further revenue reductions in the moderate tailored
clothing category can be anticipated during 1999, which would largely offset
the incremental sales from the Coppley and Pusser's acquisitions.
13
<PAGE>
The Company's established position in tailored clothing has been enhanced
with the addition of the Coppley, Cambridge and other brands acquired in the
December 1998 acquisition of Coppley, a manufacturer and marketer in Canada
which also exports into the United States. The continued strength of the Hart
Schaffner & Marx and Hickey-Freeman brands, along with newer initiatives, such
as tailored clothing licensed under the Kenneth Cole label and the upward
repositioning of men's tailored clothing licensed under the Burberry label,
are anticipated to offset, in part, revenue declines from expired license
arrangements and other low margin tailored clothing business which will be
foregone.
Product categories other than tailored clothing represent important sources
for future revenue and earnings growth. The Hickey-Freeman and Hart Schaffner
& Marx premium price point brands are being more broadly positioned as full
"collection" product offerings rather than more limited clothing brands.
Hickey-Freeman introduced its sportswear line in Fall 1996, with its emphasis
on casual dressing for its affluent core customer and revenues increased both
in 1997 and 1998. Initial deliveries of Hickey-Freeman dress furnishings were
made in Fall 1998. Hart Schaffner & Marx introduced its line of casual
products for the Fall 1997 season and demand has increased each season; dress
furnishings will be delivered commencing with the Fall 1999 season. The Tommy
Hilfiger casual slack business, first introduced in Fall 1996, has expanded
its product offerings from two to six fabric categories and a full in-stock
reorder service is an important component of this business. Pusser's of the
West Indies sportswear business, acquired at the end of fiscal 1998, is in its
early stages, so there will be only a nominal revenue impact in fiscal 1999.
Golfwear will continue to be marketed under three principal brands-- Bobby
Jones, Jack Nicklaus and Desert Classic, each directed to a particular niche;
additional golf lines are also under consideration. The Austin Reed and
Hawksley & Wight women's lines of tailored coats, pants, skirts and dresses
are expected to grow modestly, while maintaining the current excellent return
on investment.
Although the Company does not have extensive direct sales to foreign
markets, the economic difficulties currently experienced by many of the Asian
economies has had an adverse impact on the Company's licensing revenues, which
are principally Asian based. A small percentage of products are sourced from
Asia (principally certain golf products and women's styles) and the Company
has benefited marginally from a reduction in prices for these product lines
due to the weakened Asian currencies relative to the U. S. dollar.
The Company's percentage of debt to total capitalization at November 30,
1998 was at its lowest level since 1989, and both the Pusser's and Coppley
acquisitions were financed from existing borrowing capacity. In December 1998,
the Company's Board authorized the purchase of up to 1.5 million common shares
of the Company's stock in open market transactions; as of February 16, 1999,
469,000 shares have purchased at an average price of $4.97. The Company's $85
million of convertible debentures were callable at 103.1 of par effective
January 15, 1999, and at 101.6 of par commencing January 15, 2000. Refinancing
these debentures during 1999 either in the public or private market prior to
maturity is being considered. The Company's $175 million revolving credit
facility is in effect to July 2000 and extending or refinancing this facility
are considerations during 1999, depending upon financial market conditions. We
anticipate that the Company will have sufficient capital resources available
to address growth opportunities, whether generated internally or through
acquisitions.
Item 7A--Quantitative and Qualitative Disclosures About Market Risk
The Company enters into foreign exchange forward contracts from time to time
to limit the currency risks associated with purchase obligations denominated
in foreign currencies. The Company does not hold financial instruments for
trading purposes or engage in currency speculation. Foreign exchange contracts
are generally in amounts approximating forecasted purchase obligations and
require the Company to exchange U.S. dollars for foreign currencies at rates
agreed to at the inception of the contracts. These contracts are closed by
either cash settlement or actual delivery of goods. The effects of movements
in currency exchange rates on these instruments, which are not significant,
are recognized in the period in which the purchase obligations are satisfied.
As of November 30, 1998, the Company had entered into foreign exchange
contracts, primarily for approximately 38 billion Italian lira (approximately
$23 million) related to inventory purchases in fiscal 1999.
14
<PAGE>
Item 8--Financial Statements and Supplementary Data
<TABLE>
<CAPTION>
Page
----
<S> <C>
Financial Statements:
Report of Independent Accountants....................................... 16
Consolidated Statement of Earnings for the three years ended November
30, 1998............................................................... 17
Consolidated Balance Sheet at November 30, 1998 and 1997................ 18
Consolidated Statement of Cash Flows for the three years ended November
30, 1998............................................................... 19
Consolidated Statement of Shareholders' Equity for the three years ended
November 30, 1998...................................................... 20
Notes to Consolidated Financial Statements.............................. 21
Financial Statement Schedules
Schedule VIII--Valuation and Qualifying Accounts...................... F-1
Schedules and notes not included have been omitted because they are not
applicable or the required information is included in the consolidated
financial statements and notes thereto.
Supplementary Data:
Quarterly Financial Summary (unaudited)................................. 34
</TABLE>
15
<PAGE>
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, 1998 and
1997, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1998, 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.
PricewaterhouseCoopers LLP
Chicago, Illinois
January 20, 1999
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.
16
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000's Omitted)
<TABLE>
<CAPTION>
Fiscal Year Ended November
30,
---------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales.......................................... $725,002 $718,135 $610,180
Licensing and other income......................... 1,882 3,375 4,263
-------- -------- --------
726,884 721,510 614,443
-------- -------- --------
Cost of goods sold................................. 540,545 544,003 463,533
Selling, general and administrative expenses....... 144,121 143,482 127,699
-------- -------- --------
684,666 687,485 591,232
-------- -------- --------
Earnings before interest, taxes and extraordinary
gain.............................................. 42,218 34,025 23,211
Interest expense................................... 18,633 17,480 16,681
-------- -------- --------
Earnings before taxes and extraordinary gain....... 23,585 16,545 6,530
Tax (provision) benefit............................ (8,965) 8,695 17,300
-------- -------- --------
Net earnings before extraordinary gain............. 14,620 25,240 23,830
Extraordinary gain, net of $.4 million tax
provision......................................... -- -- 725
-------- -------- --------
Net earnings....................................... $ 14,620 $ 25,240 $ 24,555
======== ======== ========
Earnings per share:
Basic:
Before extraordinary gain...................... $ 0.42 $ 0.75 $ 0.72
======== ======== ========
After extraordinary gain....................... $ 0.42 $ 0.75 $ 0.74
======== ======== ========
Diluted:
Before extraordinary gain...................... $ 0.42 $ 0.74 $ 0.72
======== ======== ========
After extraordinary gain....................... $ 0.42 $ 0.74 $ 0.74
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
17
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
November 30,
--------------------
1998 1997
--------- ---------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents.............................. $ 5,292 $ 1,626
Accounts receivable, less allowance for doubtful
accounts of $8,210 in 1998 and $9,803 in 1997......... 131,342 136,854
Inventories............................................ 207,679 193,780
Prepaid expenses....................................... 3,234 4,332
Recoverable and deferred income taxes.................. 15,881 20,152
--------- ---------
Total current assets................................. 363,428 356,744
--------- ---------
INVESTMENTS AND OTHER ASSETS............................. 31,174 25,230
--------- ---------
DEFERRED INCOME TAXES.................................... 39,086 42,627
--------- ---------
PROPERTIES
Land................................................... 2,638 2,645
Buildings and building improvements.................... 48,873 49,003
Furniture, fixtures and equipment...................... 118,521 110,860
Leasehold improvements................................... 18,020 16,597
--------- ---------
188,052 179,105
Accumulated depreciation and amortization.............. (137,018) (133,323)
--------- ---------
Net properties......................................... 51,034 45,782
--------- ---------
TOTAL ASSETS............................................. $ 484,722 $ 470,383
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable.......................................... $ 10,000 $ 20,000
Current maturities of long term debt................... 67 62
Accounts payable....................................... 37,987 38,690
Accrued payrolls....................................... 18,517 18,564
Other accrued expenses................................. 37,264 42,844
--------- ---------
Total current liabilities............................ 103,835 120,160
--------- ---------
LONG TERM DEBT, less current maturities.................. 169,927 157,939
--------- ---------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value; 2,500,000 authorized
and unissued.......................................... -- --
Common shares, $2.50 par value; authorized 75,000,000;
issued 34,839,431 in 1998 and 34,219,401 in 1997...... 87,099 85,549
Capital surplus........................................ 81,994 79,934
Retained earnings...................................... 50,331 35,711
Unearned employee benefits............................. (8,464) (8,910)
--------- ---------
Shareholders' equity................................... 210,960 192,284
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 484,722 $ 470,383
========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
18
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF CASH FLOWS
(000's Omitted)
<TABLE>
<CAPTION>
Fiscal Year Ended November
30,
----------------------------
1998 1997 1996
Increase (Decrease) in Cash and Cash Equivalents -------- -------- --------
<S> <C> <C> <C>
Cash Flows from operating activities:
Net earnings, including extraordinary gain........ $ 14,620 $ 25,240 $ 24,555
Reconciling items to adjust net earnings to net
cash provided by (used in) operating activities:
Extraordinary gain, net......................... -- -- (725)
Depreciation and amortization................... 7,994 8,644 9,269
Changes in:
Accounts receivable........................... 5,512 (1,300) (8,800)
Inventories................................... (13,162) (27,867) 16,171
Prepaid expenses.............................. 738 (26) (242)
Other assets.................................. (4,003) (2,759) (187)
Accounts payable and accrued expenses......... (6,330) 353 3,425
Taxes and deferred taxes...................... 7,812 (7,894) (17,316)
-------- -------- --------
Net cash provided by (used in) operating activities. 13,181 (5,609) 26,150
-------- -------- --------
Cash Flows from investing activities:
Capital expenditures.............................. (12,753) (10,086) (8,207)
Cash paid for acquisitions........................ (2,737) -- (27,993)
-------- -------- --------
Net cash used in investing activities............... (15,490) (10,086) (36,200)
-------- -------- --------
Cash Flows from financing activities:
Increase in notes payable......................... 2,200 9,500 17,810
Purchase of 10 7/8% Senior Subordinated
Debentures, net.................................. (220) -- (13,037)
Decrease in other long term debt.................. (61) (101) (499)
Other equity transactions......................... 4,056 5,078 2,920
-------- -------- --------
Net cash provided by financing activities........... 5,975 14,477 7,194
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents........................................ 3,666 (1,218) (2,856)
Cash and cash equivalents at beginning of year...... 1,626 2,844 5,700
-------- -------- --------
Cash and cash equivalents at end of year............ $ 5,292 $ 1,626 $ 2,844
======== ======== ========
Supplemental cash flow information
Net cash paid (received) during year for:
Interest expense................................ $ 18,200 $ 16,000 $ 16,100
Income taxes.................................... 1,200 900 (2,600)
</TABLE>
(See accompanying notes to consolidated financial statements)
19
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(000's Omitted)
<TABLE>
<CAPTION>
Par Value
of Retained Unearned
Common Capital Earnings Employee
Stock Surplus (Deficit) Benefits
--------- ------- --------- --------
<S> <C> <C> <C> <C>
Balance at November 30, 1995............ $81,899 $76,771 $(14,084) $(10,095)
Net earnings for the year............. 24,555
Issuance of 473,020 shares, primarily
to employee benefit plans............ 1,183 992
Long-term incentive plan awards for
132,500 shares....................... 331 456 (787)
Allocation of unearned employee
benefits............................. (864) 1,609
------- ------- -------- --------
Balance at November 30, 1996............ 83,413 77,355 10,471 (9,273)
Net earnings for the year............. 25,240
Issuance of 357,699 shares, primarily
to employee benefit plans............ 895 1,507
Stock options exercised (292,619
shares issued upon exercise of
293,646 options and awards).......... 732 937
Long-term incentive plan awards for
132,500 shares, net of forfeitures... 331 710 (1,041)
Issuance of 71,266 shares for
Restricted Stock Awards.............. 178 187
Allocation of unearned employee
benefits............................. (762) 1,404
------- ------- -------- --------
Balance at November 30, 1997............ 85,549 79,934 35,711 (8,910)
Net earnings for the year............. 14,620
Issuance of 312,659 shares, primarily
to employee benefit plans............ 782 1,298
Stock options exercised (119,371
shares issued upon exercise of
119,371 options)..................... 298 445
Long-term incentive plan awards for
188,000 shares, net of forfeitures... 470 1,070 (1,540)
Allocation of unearned employee
benefits............................. (753) 1,986
------- ------- -------- --------
Balance at November 30, 1998............ $87,099 $81,994 $ 50,331 $ (8,464)
======= ======= ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
20
<PAGE>
HARTMARX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Summary of Accounting Policies
Principal Business Activity -- The Company and its subsidiaries (the
"Company") are engaged in the manufacturing and marketing of quality men's and
women's apparel. The Company's products are sold principally in the United
States.
Principles of Consolidation -- The consolidated financial statements include
the accounts of the Company and all subsidiaries. Certain prior year amounts
have been reclassified to conform to the current year presentation. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
Use of Estimates -- The financial statements have been prepared in
conformity with generally accepted accounting principles and, accordingly,
include amounts based on informed estimates and judgments of management with
consideration given to materiality. Actual results could differ from those
estimates, but management believes such differences will not materially affect
the Company's financial position, results of operations or cash flows.
Revenue Recognition -- Sales are recognized at the time the order is
shipped. Catalog sales are net of expected returns and exclude sales tax.
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, 1998 and 1997, approximately 41% 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, 3 to 15 years for furniture, fixtures and equipment and 3 to 5
years for software. 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 Assests -- 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 pre-tax cash flows associated with the asset to the asset's
carrying value to determine if a write-down to market value or discounted pre-
tax 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
21
<PAGE>
are expected. Advertising costs of $25.9 million in 1998, $23.4 million in
1997 and $19.5 million in 1996 are included in the accompanying Statement of
Earnings. Prepaid expenses at November 30, 1998 include deferred advertising
costs of $1.0 million ($1.4 million at November 30, 1997), 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 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 Plan -- A contributory health insurance plan has been made
available to non-union retired employees and eligible dependents whereby
retirees electing to receive the coverage made contributions to offset the
cost of the retiree plan. Effective January 1, 1998, the plan became an
insured plan and retirees electing to receive the coverage make the required
premium payments to the insurance company providing benefits under the plan.
Effective August 1, 1998, the plan is no longer offered to new retirees.
Approximately 150 retired employees are currently participating.
Other Postemployment Benefits -- Postemployment benefit expense, which is
recorded in accordance with Statement of Financial Accounting Standards No.
112, "Employers' Accounting for Postemployment Benefits", was not significant
in any of the three years ended November 30, 1998.
Stock Options -- The Company has elected to follow APB 25 and related
Interpretations under which the Company uses the intrinsic value method of
measuring stock compensation cost. Under this method, compensation cost is the
excess, if any, of the quoted market price of the Company's stock over the
amount the individual must pay for the stock.
Concentrations of Credit Risk and Financial Instruments -- Financial
instruments which subject the Company to credit risk are primarily trade
accounts receivable. The Company sells its products to department stores,
specialty retail stores, off-price marketers and catalog businesses. The
Company performs periodic credit evaluations of its customers' financial
condition and generally does not require collateral. Concentrations of credit
risk with respect to trade accounts receivable are mitigated due to the large
number and diversity of customers comprising the Company's customer base.
Management believes that the risk associated with trade accounts receivable is
adequately provided for in the allowance for doubtful accounts.
The largest customer represented approximately 16%, 15% and 18% of
consolidated sales in 1998, 1997 and 1996, respectively, and no other customer
exceeded 9% of consolidated sales for the three years ended November 30, 1998.
Accounts receivable from the largest customer represented approximately 12%
and 10% of the Company's gross accounts receivable at November 30, 1998 and
1997, respectively.
The Company enters into foreign exchange forward contracts from time to time
to limit the currency risks associated with purchase obligations denominated
in foreign currencies. The Company does not hold financial instruments for
trading purposes or engage in currency speculation. Foreign exchange contracts
are generally in amounts approximating forecasted purchase obligations and
require the Company to exchange U.S. dollars for foreign currencies at rates
agreed to at the inception of the contracts. These contracts are closed by
either cash settlement or actual delivery of goods and are included in cost of
goods sold in the accompanying Statement of Earnings. The effects of movements
in currency exchange rates on these instruments, which are not significant,
are recognized in the period in which the purchase obligations are satisfied.
As of November 30, 1998, the Company had entered into foreign exchange
contracts, primarily for Italian Lira, for approximately $23 million ($33
million at November 30, 1997), related to future inventory purchases.
From time to time, the Company has entered into interest rate protection
agreements; however, in fiscal 1998, 1997 or 1996, the Company did not enter
into any such agreements.
22
<PAGE>
Per Share Information -- The calculation of basic earnings per share in each
year is based on the weighted-average number of common shares outstanding. The
calculation of diluted earnings per share reflects the potential dilution that
would occur if securities or other contracts to issue common stock were
exercised or converted into common stock using the treasury stock method. The
number of shares used in computing basic and diluted earnings per share were
as follows, which includes both allocated and unallocated shares held by The
Hartmarx Employee Stock Ownership Plan (000's omitted):
<TABLE>
<CAPTION>
Year Ended
November 30, Basic Diluted
------------ ------ -------
<S> <C> <C>
1998.................................................... 34,486 34,885
1997.................................................... 33,748 34,167
1996.................................................... 33,021 33,021
</TABLE>
Recent Accounting Pronouncements -- The provisions of Statement of Financial
Accounting Standards No. 130--"Reporting Comprehensive Income" ("FAS 130") is
effective for the Company's 1999 fiscal year commencing December 1, 1998. FAS
130 requires disclosure of transactions from non-owner sources which affect
shareholders' equity in a separate financial statement for the period in which
they are recognized.
Statement of Financial Accounting Standards No. 131--"Disclosures About
Segments of an Enterprise and Related Information" ("FAS 131") is effective
for the Company's 1999 fiscal year. FAS 131 establishes new standards for
reporting information about operating segments in the footnotes of both
interim and annual financial statements.
Statement of Financial Accounting Standards No. 133--"Accounting for
Derivative Instruments and Hedging Activities" ("FAS 133") is required to be
adopted by the Company for its fiscal fourth quarter beginning September 1,
1999. FAS 133 requires disclosures of the objectives for holding or issuing
derivative instruments, the context to understand the objectives and the
strategies for achieving the objectives, as well as disclosures related to the
impact of derivatives as reflected in the statement of comprehensive income.
The Company believes that adoption of these statements will not have a
significant effect on its reported financial position, results of operations,
cash flows or on its financial statement disclosures.
Acquisitions
In November 1998, the Company completed the acquisition of the wholesale
apparel business of Pusser's, Ltd., primarily an operator of restaurants, pubs
and retail stores carrying tropical and nautical sportswear apparel as well as
other products marketed under the Pusser's name. Assets acquired include the
trademarks associated with all apparel products along with inventories related
to the wholesale business. Amounts paid for the trademarks and inventories
aggregated $2.7 million; additional amounts may be payable in future years
based on revenues or operating earnings associated with the trademarks.
On November 26, 1996, the Company purchased substantially all of the license
rights, current assets, properties and operations of the Plaid Clothing Group,
Inc. and its subsidiaries ("Plaid") pursuant to an asset purchase agreement.
Plaid has been operating as a debtor-in-possession under Chapter XI of the
United States Bankruptcy Code since July 17, 1995. Consideration for the
assets acquired consisted of a cash payment at closing of $27.1 million and
assumption of $7.1 million of accounts payable and other scheduled accrued
liabilities, and an additional payment of $1.4 million in January 1998,
representing 2% of the first year sales of certain product categories acquired
in the transaction less $.5 million. Plaid's unsecured creditors are also
expected to receive the proceeds equivalent to 125,000 shares of the Company's
common stock.
In October 1996, the Company, along with an unaffiliated entity, formed
Robert Comstock Apparel, Inc. ("Comstock") which purchased certain receivables
and inventory from a corporation owned by Robert Comstock, a designer of
quality leather clothing. The Company and Robert Comstock each have a 50%
interest in Comstock.
23
<PAGE>
The results of operations of Pusser's, Plaid and Comstock since the date of
their respective acquisition are included in the accompanying financial
statements.
Subsequent Events
Effective December 1, 1998, the Company acquired 100% of the capital stock
of The Coppley, Noyes and Randall Limited ("Coppley"), a Canadian based
manufacturer and marketer of men's apparel. Aggregate consideration associated
with the acquisition, including cash paid at closing, amounts payable in the
future (based upon the completion of a certified audit), and debt assumed is
expected to be approximately $11,500,000. Coppley's 1998 sales expressed in
U.S. dollars were approximately $30 million.
In December 1998, the Board of Directors authorized the Company to purchase
up to 1,500,000 shares of its common stock in open market transactions. As of
January 20, 1999, 180,000 shares had been purchased pursuant to this
authorization at an average cost of $4.86 per share.
Financing
During fiscal 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 then 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.
Credit Facility amendments in July 1995, November 1995, January 1996, and
October 1997, among other things, resulted in a reduction in fees,
administrative charges, and effective borrowing rates, adjustment or
elimination of certain covenants and the 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 currently either (i) LIBOR plus 1.25% or
(ii) .5% below 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 currently contain various restrictive
covenants covering ratios relating to maximum funded debt to EBITDA and
minimum fixed charge coverage, additional debt incurrence, capital
expenditures, asset sales, operating leases, 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.
During fiscal 1996, the Company purchased $14.7 million face value of its
Notes (substantially all of which occurred in the first quarter) at a
discount, resulting in an extraordinary gain of $.7 million or $.02 per share,
net of $.4 million tax provision. During fiscal 1998, the Company purchased
$.2 million face value of its Notes at a small premium, resulting in a nominal
loss, which has been reflected in Licensing and Other Income.
At November 30, 1998 and 1997, long term debt, less current maturities,
comprised the following (000's omitted):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Notes payable.......................................... $ 75,100 $ 72,900
10 7/8% Senior Subordinated Notes, net................. 84,837 84,982
Industrial development bonds........................... 17,371 17,396
Other debt............................................. 2,686 2,723
-------- --------
179,994 178,001
Less--current maturities............................... 10,067 20,062
-------- --------
Long term debt......................................... $169,927 $157,939
======== ========
</TABLE>
24
<PAGE>
Industrial development bonds ("IDBs"), which mature on varying dates through
2015, were issued by development authorities for the purchase or construction
of various manufacturing facilities having a carrying value of $9.4 million at
November 30, 1998. Interest rates on the various borrowing agreements range
from 5.0% to 8.5% (average of 7.4% at November 30, 1998 and 1997). 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.
Other long term debt includes installment notes and mortgages and the
Company's ongoing guarantee of a $2.5 million industrial development bond
retained by a former subsidiary due September 1, 2007. Interest rates ranged
from 8% to 8.5% per annum (average of 8.4% at November 30, 1998 and November
30, 1997).
Accrued interest included in the Other Accrued Expenses caption in the
accompanying balance sheet was $4.9 million at November 30, 1998 and $5.2
million at November 30, 1997.
The approximate principal reductions required during the next five fiscal
years, including reductions under the Credit Facility which expires in 2000
and the Senior Subordinated Notes which are due in 2002, are as follows: $.1
million in 1999; $75.2 million in 2000; $.1 million in 2001; $85.1 million in
2002 and a nominal amount in 2003. The Senior Subordinated Notes are callable
at 103.1 of par commencing on January 15, 1999, 101.6 of par at January 15,
2000 and 100.0 of par at January 15, 2001.
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
had 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 ratably over the term of the
loan 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):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Principal payments.................................. $1,211 $1,101 $1,002
Interest payments................................... 833 943 1,042
------ ------ ------
Total loan payments made by ESOP.................... $2,044 $2,044 $2,044
====== ====== ======
</TABLE>
As of November 30, 1998, 402,233 of the 620,155 shares of common stock have
been allocated to the accounts of the ESOP participants. There were 217,922
shares committed to be released and the fair market value of those unearned
ESOP shares was approximately $1.3 million.
Notes Payable
The following summarizes information concerning notes payable (000's
omitted):
<TABLE>
<CAPTION>
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Outstanding at November 30.................. $ 75,100 $ 72,900 $63,400
Maximum month end balance during the year... 120,700 104,900 83,500
Average amount outstanding during the year.. 97,500 74,200 60,700
Weighted daily average interest rate during
the year................................... 7.2% 7.5% 7.4%
Weighted average interest rate on borrowings
at November 30............................. 6.6% 7.4% 7.9%
</TABLE>
25
<PAGE>
Inventories
Inventories at fiscal year end were as follows (000's omitted):
<TABLE>
<CAPTION>
November 30
--------------------------
1998 1997 1996
-------- -------- --------
<S> <C> <C> <C>
Raw materials.................................. $ 48,969 $ 54,741 $ 49,248
Work in process................................ 30,904 35,959 25,151
Finished goods................................. 127,806 103,080 91,514
-------- -------- --------
$207,679 $193,780 $165,913
======== ======== ========
</TABLE>
The excess of current cost over LIFO costs for certain inventories was $36.1
million at November 30, 1998, $35.2 million at November 30, 1997 and $34.9
million at November 30, 1996.
Taxes on Earnings
The tax (provision) benefit is summarized as follows (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Federal........................................ $ (434) $ (556) $ 881
State and local................................ (1,103) (940) (285)
------- ------- -------
Total current.............................. (1,537) (1,496) 596
------- ------- -------
Federal........................................ (7,428) (4,794) (3,196)
State and local................................ -- -- --
------- ------- -------
Total deferred............................. (7,428) (4,794) (3,196)
------- ------- -------
Change in valuation allowance.................. -- 14,985 19,900
------- ------- -------
Total tax (provision) benefit.................. $(8,965) $ 8,695 $17,300
======= ======= =======
</TABLE>
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 pre-tax income, taking into account the applicability of
enacted tax rate changes, is summarized as follows (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Earnings before taxes and extraordinary gain.. $23,585 $16,545 $ 6,530
======= ======= =======
Tax provision computed at statutory rate...... $(8,019) $(5,625) $(2,220)
State and local taxes on earnings, net of
federal tax benefit.......................... (728) (620) (188)
Change in valuation allowance................. -- 14,985 19,900
Other--net.................................... (218) (45) (192)
------- ------- -------
Total tax (provision) benefit................. $(8,965) $ 8,695 $17,300
======= ======= =======
</TABLE>
At November 30, 1998 and 1997, there was no valuation allowance offsetting
the deferred tax asset. A portion of the Company's deferred tax asset had been
reserved in prior years 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 asset recorded considers 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).
26
<PAGE>
In fiscal 1997 and 1996, $6.3 million and $2.6 million, respectively, of the
valuation allowance offsetting the deferred tax asset was reversed. The
Company reevaluated its deferred income tax asset and reversed additional
valuation allowance related to this asset of $8.7 million and $17.3 million in
the fourth quarters of 1997 and 1996.
At November 30, 1997, the Company had a net deferred tax asset of $62.8
million comprised of deferred tax assets of $84.0 million less deferred tax
liabilities aggregating $21.2 million. The principal deferred tax assets
included operating loss carryforwards of $50.3 million, alternative minimum
tax credit carryforwards ("AMT") of $5.7 million, $22.4 million attributable
to expenses deducted in the financial statements not currently deductible for
tax purposes and $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). Deferred tax liabilities included excess
tax over book depreciation of $2.0 million and $11.6 million related to
employee benefits, principally pensions.
At November 30, 1998, the Company had a net deferred tax asset of $55.0
million comprised of deferred tax assets of $78.9 million less deferred tax
liabilities aggregating $23.9 million. The principal deferred tax assets
included net operating loss carryforwards of $47.0 million, AMT and other tax
credit carryforwards of $6.1 million, $20.7 million attributable to expenses
deducted in the financial statements not currently deductible for tax purposes
and $5.1 million attributable to TRA items. Deferred tax liabilities included
excess tax over book depreciation of $2.0 million and $12.0 million related to
employee benefits, principally pensions.
As of November 30, 1998, the Company had approximately $134.4 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. AMT tax credit carryforwards of $5.9 million can be carried
forward indefinitely.
Leases
The Company and its subsidiaries lease office space, manufacturing,
warehouse and distribution facilities, showrooms 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, 1998, total minimum rentals under noncancellable operating
leases were as follows (000's omitted):
<TABLE>
<CAPTION>
Years Amount
----- -------
<S> <C>
1999............................. $ 6,725
2000............................. 5,946
2001............................. 5,025
2002............................. 4,696
2003............................. 4,396
Thereafter....................... 12,642
-------
Total minimum rentals due........ $39,430
=======
</TABLE>
Rental expense, including rentals under short term leases, aggregated $10.9
million, $11.2 million and $10.3 million in fiscal 1998, 1997 and 1996,
respectively.
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.
27
<PAGE>
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. The contribution rate of applicable payroll is
based on the amounts negotiated between the union and the participating
industry employers. Pension costs relating to multi-employer plans were
approximately $6.4 million in 1998, $7.6 million in 1997 and $7.9 million in
1996. The Multi-Employer Pension Plan Amendments 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 has
been substantially in excess of the plan assets currently available for such
benefits. The employer participants in this underfunded multi-employer plan
along with the Union of Needletrades, Industrial & Textile Employees ("UNITE")
and the Pension Benefit Guaranty Corporation ("PBGC") entered into an
agreement during 1996 intended to provide further clarity regarding the future
of the plan. Among other things, employee benefits were frozen at existing
levels and each employer's current and future contribution rate was frozen at
10.33% of wages. Each participating employer's maximum contingent withdrawal
liability was individually capped as of December 31, 1994 and is being reduced
by approximately 90% of the amounts contributed subsequent to January 1, 1996.
Withdrawal liabilities arising from the bankruptcy of any participating
employer will no longer be reallocated to the remaining participating
employers. If a funding deficiency, as defined under the Act, occurs in the
future, each employer's mass withdrawal liability would be fixed at the
December 31, 1994 amount less the cumulative credited contributions (the "net
withdrawal liability"). That net withdrawal liability would be payable over 20
years in quarterly installments plus interest at a fixed annualized rate of
6.2%. Through September 30, 1998, approximately $15.5 million of the
contributions made by the Company were applied to reduce the amount which
would represent its contingent net withdrawal liability, estimated at
approximately $56.1 million as of September 30, 1998.
Effective October 1, 1998, the Company entered into a separate agreement
with the trustees of the underfunded multi-employer plan as discussed above,
along with UNITE which, among other things, provides for an assumption by the
Company sponsored pension plan of the retirement liabilities of certain
current and retired employees of the Company who were participants in the
underfunded multi-employer plan. The Company's remaining contingent net
actuarial withdrawal liability to the underfunded multi-employer plan of
approximately $56.1 million was satisfied by the assumption of a near
equivalent amount of these liabilities. Also effective October 1, 1998, the
Company ceased future contributions to the multi-employer plan for the
applicable employees (aggregating approximately $6 million on an annualized
basis). The costs associated with the accrual of benefits going forward along
with the interest associated with prior service cost will be reflected by the
Company sponsored pension plan. This agreement is subject to approval from the
Internal Revenue Service and the Pension Benefit Guaranty Corporation.
The Company sponsored pension plan is a non-contributory defined benefit
pension plan covering substantially all eligible non-union employees and
certain union employees who have elected to participate in the plan. Under
this pension plan, non-union 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; union
employee benefits are based on collectively bargained amounts. 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 ($160,000 limitation for
1998).
Company contributions, if any, are intended to provide for benefits
attributed to service to date and also for those expected to be earned in the
future. It is the Company's policy to fund the plans on a current basis to the
28
<PAGE>
extent deductible under existing tax laws and regulations. There were no
employer contributions allowed or made in each of the three years ended
November 30, 1998.
The Company adopted the disclosure provision of Statement of Financial
Accounting Standards No. 132, "Employers' Disclosures About Pensions and Other
Postretirement Benefits", for its fiscal year ended November 30, 1998.
Components of net periodic benefit cost for the three years ended November
30, 1998 were as follows (000's omitted):
<TABLE>
<CAPTION>
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Service cost.................................. $(4,546) $(3,820) $(3,273)
Interest cost................................. (9,397) (8,300) (7,995)
Expected return on plan assets................ 16,832 14,720 13,277
Recognized net actuarial gain................. 1,949 1,275 --
Net amortization.............................. (351) 29 178
------- ------- -------
Net periodic pension income................... $ 4,487 $ 3,904 $ 2,187
======= ======= =======
</TABLE>
The above amounts are prior to consideration of periodic pension expense of
$1.4 million in 1998, $1.5 million in 1997 and $1.3 million in 1996 related to
the Company's non-qualified supplemental pension plan covering certain
employees providing for incremental pension payments from the Company's funds
so that total pension payments equal amounts that would have been payable from
the Company's principal pension plan if it were not for the limitations
imposed by income tax regulations. The related amounts recognized in the
consolidated balance sheet at November 30 , 1998 and 1997 were $7.9 million
and $6.5 million, respectively.
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, 1998, the plan assets included 1,519,612 shares
of the Company's stock with a market value of approximately $8.9 million.
The following sets forth the information related to the change in the
benefit obligation and change in plan assets of the principal pension plan at
November 30 (000's omitted):
<TABLE>
<CAPTION>
November 30,
-----------------------
1998 1997
-------- --------
<S> <C> <C> <C>
Change in Benefit
Obligation
Benefit obligation at
beginning of year...... $117,858 $108,490
Service cost............ 4,546 3,820
Interest cost........... 9,397 8,300
Amendments.............. 56,890 808
Actuarial (gain) or
loss................... 14,322 3,653
Benefits paid........... (8,104) (7,213)
-------- --------
Benefit obligation at
end of year............ 194,909 117,858
-------- --------
Change in Plan Assets
Fair value of plan
assets at beginning of
year................... 194,258 173,801
Actual return on plan
assets................. 16,499 27,670
Benefits paid........... (8,104) (7,213)
-------- --------
Fair value of plan
assets at end of year.. 202,653 194,258
-------- --------
Funded status........... 7,744 76,400
Unrecognized net
actuarial gain......... (25,108) (41,711)
Unrecognized prior
service cost........... 55,767 (773)
-------- --------
Prepaid benefit cost.... $ 38,403 $ 33,916
======== ========
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----- -----
<S> <C> <C>
Weighted-Average Assumptions as of November 30
Discount rate............................................... 6.75% 7.50%
Expected return on plan assets.............................. 8.75% 8.75%
Rate of compensation increase............................... 5.00% 5.50%
</TABLE>
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 is 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. Through June 30, 1998, the
employer contribution was one-fourth of the first 1% of earnings contributed
by the employee plus one-twentieth thereafter. Effective July 1, 1998, the
employer contribution was increased to one-fourth of the first, second and
third 1% of earnings and one-tenth 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 was $1.2 million in 1998, $1.2 million in 1997 and $1.3 million in
1996. The Company's annual contributions were $2.1 million in each of the
respective years. At November 30, 1998, the assets of SIP and ESOP funds had a
market value of approximately $62.6 million, of which approximately $12.1
million was invested in 2,029,670 shares of the Company's common stock.
Health Care and Post Retirement Benefits
Certain of the Company's subsidiaries make contributions to multi-employer
union health and welfare funds pursuant to collective bargaining agreements.
These payments are based upon wages paid to the Company's active union
employees.
Health and insurance programs are also made available to non-union active
and retired employees and their eligible dependents. As of January 1, 1998,
the retiree plan became an insured plan and retirees electing to receive the
coverage make premium payments to the insurance company providing benefits
under the retiree plan; these premium payments cover the full cost of benefits
under the Plan. As of August 1, 1998, the retiree plan was closed to new
retirees.
Stock Purchase Rights
On December 6, 1995, the Company's Board of Directors approved a new
Stockholder Rights Plan, which took effect immediately upon the expiration of
the then existing Rights on January 31, 1996. A dividend of one Right per
common share was distributed to stockholders of record January 31, 1996. Each
Right, expiring January 31, 2006, represents a right to buy 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. 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
30
<PAGE>
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 $.01 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. Until exercise, a Right holder, as such, has no
rights as a stockholder of the Company.
Stock Option Plans and Restricted Stock
The Company has in effect the 1985 Stock Option Plan ("1985 Plan"), the 1988
Stock Option Plan ("1988 Plan"), the 1995 Incentive Stock Plan ("1995 Plan")
and the 1998 Incentive Stock Plan ("1998 Plan") under which officers, key
employees and directors may be granted options to purchase the Company's
common stock at prices equal to or exceeding the fair market value at date of
grant. Generally, options under the 1985 Plan 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 Plan have exercise provisions similar to the
1985 plan, although some grants become exercisable in cumulative one-third
installments on each of the first three anniversaries of the grant date. No
additional grants will be made under the 1985, 1988 and 1995 Plans. Following
the stockholder adoption of the 1998 Incentive Stock Plan in April 1998,
shares covered by grants or awards under the terms of the 1985, 1988 or 1995
Plans which terminate, lapse or are forfeited will be added to the aggregate
number of shares authorized under the 1998 Plan and will be made available for
grants under the 1998 Plan. Options granted under the 1998 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, vesting may be
accelerated for options granted under the various plans.
The 1988, 1995 and 1998 Plans also provide for the discretionary grant of
stock appreciation rights in conjunction with the option, which allows the
holder a combination of stock and cash equal to the gain in market price from
the grant until its exercise. 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 and the 1998 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 and 1998 Plans also allow for
granting of restricted stock awards enabling the holder to obtain full
ownership rights subject to terms and conditions specified at the time each
award is granted.
During 1998, long term incentive plan restricted stock awards were made to
28 executives aggregating 204,000 shares, at a weighted average price of
$8.09. These awards vest at the earliest of ten years from the date of grant,
age 65 retirement, the Company's stock price equalling or exceeding $12.50 for
thirty consecutive calendar days or as otherwise authorized by the
Compensation Committee of the Board of Directors. During 1997, long term
incentive plan restricted stock awards for 142,500 shares, at a weighted
average price of $7.72, were made to 18 executives, of which awards for 8,500
shares were cancelled during 1998 pertaining to executives no longer with the
Company. These awards vest at the earliest of ten years from the date of
grant, age 65 retirement, the Company's stock price exceeding $11.50 for
thirty consecutive calendar days or as otherwise authorized by the
Compensation Committee of the Board of Directors. During 1996, long term
incentive plan restricted stock awards for 132,500 shares, at a weighted
average price of $5.94, were made to 20 executives, of which awards for 17,500
shares have been subsequently cancelled pertaining to executives no
31
<PAGE>
longer with the Company. These awards vest at the earliest of ten years from
date of grant, age 65 retirement, the Company stock price exceeding $9.00 for
thirty consecutive calendar days or as otherwise authorized by the
Compensation Committee of the Board of Directors. As of November 30, 1998,
none of the awards had vested. Expense is being recognized over the
anticipated vesting period of the awards.
Information regarding employee stock option activity for the three years
ended November 30, 1998 is as follows:
<TABLE>
<CAPTION>
Price Per Share
Number of -----------------------
Shares Range Average
--------- --------------- -------
<S> <C> <C> <C>
Balance at November 30, 1995........... 2,264,168 $5.25 to $30.81 $ 6.50
Granted.............................. 249,000 $5.94 5.94
Expired or terminated................ (97,823) $5.25 to $30.81 9.48
---------
Balance at November 30, 1996........... 2,415,345 $5.25 to $30.81 6.32
Granted.............................. 378,000 $7.72 to $ 8.06 7.74
Exercised............................ (216,940) $5.25 to $ 6.88 5.66
Expired or terminated................ (100,218) $5.25 to $30.81 12.05
---------
Balance at November 30, 1997........... 2,476,187 $5.25 to $21.31 6.37
Granted.............................. 498,000 $7.31 to $ 8.09 8.06
Exercised............................ (86,934) $5.25 to $ 6.88 5.82
Expired or terminated................ (90,072) $5.25 to $21.31 14.64
---------
Balance at November 30, 1998........... 2,797,181 $5.25 to $16.00 6.42
=========
</TABLE>
At November 30, 1998, 3,250,181 shares were reserved for options and
restricted stock awards outstanding and 1,133,485 shares were available for
future stock options and/or restricted stock awards (35,921 shares available
at November 30, 1997).
Information on exercisable employee stock options at each date is as
follows:
<TABLE>
<CAPTION>
Options Average
Date Exercisable Price
---- ----------- -------
<S> <C> <C>
November 30, 1998.................................... 2,155,570 $6.07
November 30, 1997.................................... 1,963,591 $6.17
November 30, 1996.................................... 1,712,812 $6.64
</TABLE>
Information on employee stock options outstanding and exercisable at
November 30, 1998 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
---------------
Remaining Weighted
Range of Number Life Number Average
Prices Outstanding in Years Price Exercisable Price
-------- ----------- --------- ----- ----------- --------
<S> <C> <C> <C> <C> <C>
$5.25......................... 1,098,742 4.1 $5.25 992,412 $5.25
$5.69 to $7.06................ 833,189 5.6 6.39 827,523 6.39
$7.31 to $16.00............... 865,250 9.0 7.94 335,635 7.76
--------- ----- --------- -----
2,797,181 $6.42 2,155,570 $6.07
========= ===== ========= =====
</TABLE>
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 $1.00 and the exercise price is $1.00. DSOs are exercisable in full six
months after the date of grant or earlier in the event of death, disability or
termination of services. Each non-employee director is also eligible for an
annual grant of a Director Deferred Stock Award ("DDSA") equal to the number
of DDSA units computed by dividing
32
<PAGE>
the director's annual retainer by the market value of a share on the date of
the annual meeting. Prior to 1998, each non-employee director received a DDSA
equal to 150 units. A unit equals 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. Information regarding director stock
option activity for the three years ended November 30, 1998 is as follows:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- -------------
Avg. Avg. Avg.
Shares Price Shares Price Shares Price
------- ----- ------- ----- ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance beginning of year.......... 270,604 $5.45 313,986 $5.09 270,374 $5.33
Granted:
Fair Market Value................ 19,776 8.09 18,664 7.50 24,888 5.63
$1.00 Option..................... 11,284 1.00 13,460 1.00 17,974 1.00
DDSA............................. 19,776 -- 1,200 -- 1,200 --
Exercises:
Fair Market Value................ (11,490) 6.09 (40,760) 6.01 -- --
$1.00 Option..................... (20,947) 1.00 (31,608) 1.00 -- --
DDSA............................. -- -- (4,338) -- (450) --
Expired:
Fair Market Value................ (14,448) 15.57 -- -- -- --
------- ----- ------- ----- ------- -----
Balance end of year................ 274,555 $4.85 270,604 $5.45 313,986 $5.09
======= ===== ======= ===== ======= =====
</TABLE>
At November 30, 1998, 129,815 shares were available for future DSOs and
DDSAs.
The weighted average fair value of options granted was estimated to be
$4.13, $3.92 and $2.94 in 1998, 1997 and 1996, respectively. The fair value of
each option granted in the respective year is estimated at the date of grant
using the Black-Scholes option-pricing model utilizing expected volatility
calculations based on historical data from December 1, 1992 (25% to 39%), the
first day of the fiscal year subsequent to the Company's 1992 restructuring,
and risk free rates based on U.S. government strip bonds on the date of grant
with maturities equal to the expected option term (5.45% to 6.94%). The
expected lives are between five and ten years and no dividends are assumed.
Pro-forma information related to stock based compensation is as follows (in
millions):
<TABLE>
<CAPTION>
1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Additional compensation expense..................... $ 2.1 $ 1.0 $ 1.5
Pro forma net earnings, before extraordinary gain... 13.3 24.5 22.9
Pro forma diluted earnings per share, before
extraordinary gain................................. .38 .72 .69
</TABLE>
Legal Proceedings
The Company is involved in various claims and lawsuits incidental to its
business. In the opinion of management, these claims and lawsuits in the
aggregate will not have a material adverse effect on the Company's financial
position or results of operations.
Operating Segment Information
The Company is engaged in one line of business; the manufacturing and
marketing of apparel. The Company has separated its business as follows: 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, which markets women's career apparel, sportswear and
accessories to department and specialty stores, as well as through a direct
mail catalog.
33
<PAGE>
Information on the Company's operations for the three years ended November
30, 1998 is summarized as follows (in millions):
<TABLE>
<CAPTION>
Men's Women's
Apparel Apparel
1998 Group Group Adj. Consol.
- ---- ------- ------- ----- -------
<S> <C> <C> <C> <C>
Sales............................................ $665.0 $60.0 -- $725.0
Earnings (loss) before taxes..................... 43.9 6.8 (27.1) 23.6
Gross assets at year end......................... 364.3 29.8 90.6 484.7
Depreciation and amortization.................... 6.4 0.4 0.4 7.2
Property additions............................... 11.3 1.3 0.2 12.8
<CAPTION>
Men's Women's
Apparel Apparel
1997 Group Group Adj. Consol.
- ---- ------- ------- ----- -------
<S> <C> <C> <C> <C>
Sales............................................ $658.5 $59.6 -- $718.1
Earnings (loss) before taxes..................... 36.3 6.7 (26.5) 16.5
Gross assets at year end......................... 349.4 25.6 95.4 470.4
Depreciation and amortization.................... 6.9 0.4 0.4 7.7
Property additions............................... 9.6 0.2 0.3 10.1
<CAPTION>
Men's Women's
Apparel Apparel
1996 Group Group Adj. Consol.
- ---- ------- ------- ----- -------
<S> <C> <C> <C> <C>
Sales............................................ $559.1 $51.1 -- $610.2
Earnings (loss) before taxes..................... 30.3 3.6 (27.4) 6.5
Gross assets at year end......................... 328.8 21.3 80.1 430.2
Depreciation and amortization.................... 7.4 0.4 0.5 8.3
Property additions............................... 7.8 0.2 0.2 8.2
</TABLE>
Operating expenses incurred by the Company in generating sales are charged
against the respective group's sales; indirect operating expenses are
allocated to the groups benefited. Group results exclude any allocation of
general corporate expense, interest expense or income taxes.
Amounts included in the "adjustment" column for earnings before taxes
consist of interest expense and general corporate expenses. Adjustments of
gross assets are for cash, recoverable and deferred income taxes, corporate
properties, investments and other assets. Adjustments of depreciation and
amortization and net property additions are for corporate properties.
Quarterly Financial Summary (Unaudited)
Selected quarterly financial and common share information for each of the
four quarters in fiscal 1998 and 1997 is as follows (000's omitted):
<TABLE>
<CAPTION>
First Second Third Fourth
1998 Quarter Quarter Quarter Quarter (1)
---- -------- -------- -------- -----------
<S> <C> <C> <C> <C>
Sales.............................. $179,324 $167,492 $195,203 $182,983
Gross profit....................... 44,076 42,630 48,755 48,996
Earnings before taxes.............. 4,040 1,655 8,445 9,445
Net earnings....................... 2,505 1,025 5,235 5,855
Earnings per share:
Basic............................ .07 .03 .15 .17
Diluted.......................... .07 .03 .15 .17
</TABLE>
34
<PAGE>
<TABLE>
<CAPTION>
1997
----
<S> <C> <C> <C> <C>
Sales................................. $177,118 $169,735 $185,883 $185,399
Gross profit.......................... 40,385 41,030 47,030 45,687
Earnings before taxes................. 2,170 515 6,625 7,235
Net earnings.......................... 1,345 320 4,105 19,470
Earnings per share:
Basic............................... .04 .01 .12 .57
Diluted............................. .04 .01 .12 .57
</TABLE>
- --------
(1) 1997 fourth quarter included $15.0 million favorable non-cash income tax
adjustment to the tax valuation reserve related to recognition of net
operating loss carryforwards. Excluding this adjustment, net earnings for
the fourth quarter 1997 would have been $4.5 million or $.13 per share,
basic and diluted.
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 5 of the Proxy Statement for the 1999 Annual Meeting
is incorporated herein by reference.
Information on Executive Officers of the Registrant is included as a
separate caption in Part I of this Form 10-K Annual Report.
Item 11--Executive Compensation
Information contained under the caption "Executive Officer Compensation" on
pages 6 to 10 and "Information about Nominees for Directors" on pages 2 to 5
of the Proxy Statement for the 1999 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 1999 Annual Meeting
under the captions "Security Ownership of Directors and Officers" on page 17
and "Ownership of Common Stock" on page 18 is incorporated herein by
reference.
Item 13--Certain Relationships and Related Transactions
Information contained in the Proxy Statement for the 1999 Annual Meeting
under the caption "Information About Nominees for Directors" on pages 2 to 5
is incorporated herein by reference.
PART IV
Item 14--Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a)(1) Financial Statements
Financial statements for Hartmarx Corporation listed in the Index to
Financial Statements and Supplementary Data on page 15 are filed as part of
this Annual Report.
(a)(2) Financial Statement Schedules
35
<PAGE>
Financial Statement Schedules for Hartmarx Corporation listed in the
Index to Financial Statements and Supplementary Data on page 15 are filed
as part of this Annual Report.
<TABLE>
<CAPTION>
Page
----
<S> <C>
Consent of Independent Accountants...................................... F-1
(a)(3) Index to Exhibits................................................ 37
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed in the fourth quarter of 1998.
36
<PAGE>
HARTMARX CORPORATION
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No.
and
Applicable
Section of
601 of
Regulation
S-K
-----------
<C> <S>
*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 (Exhibit 3-A-3 to Form 10-K
for the year ended November 30, 1995), (1).
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 (Exhibit
4-B-1 to Form 10-K for the year ended November 30, 1995), (1).
*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
(Exhibit 4-C-4 to Form
10-K for the year ended November 30, 1995), (1).
*4-C-5 Amendment No. 5 dated January 30, 1996 to the Credit Agreement
(Exhibit 4-C-5 to Form 10-K for the year ended November 30, 1995),
(1).
*4-C-6 Amendment No. 6 dated October 15, 1997 to the Credit Agreement
(Exhibit 4-C-6 to Form 10-K for the year ended November 30, 1997),
(1).
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
and
Applicable
Section of
601 of
Regulation
S-K
-----------
<C> <S>
4-C-7 Amendment No. 7 dated December 21, 1998 to the Credit Agreement.
*10-A 1998 Incentive Stock Plan (Exhibit A to Proxy Statement of the
Company relating to the 1998 Annual Meeting), (1). **
*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 Item (2)--"The Management Incentive
Plan" on pages 13 to 16 in the Proxy Statement of the Company
relating to the 1999 Annual Meeting), (1). **
*10-C Description of Hartmarx Long Term Incentive Plan (Information to
be included under the caption "REPORT OF THE COMPENSATION
COMMITTEE--Executive Compensation Program--Long-Term Incentives"
on page 12 in the Proxy Statement of the Company relating to the
1999 Annual Meeting), (1). **
*10-D-1 Form of Deferred Compensation Agreement, as amended, between the
Company and Directors Abboud, Farley, Jacobs and Marshall (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, Farley, Jacobs
and Marshall (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, Wohlschlaeger and Condon
(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,
Wohlschlaeger and Condon (Exhibit 10-E-2 to Form 10-K for the year
ended November 30, 1994), (1). **
*10-F-1 Employment Agreement dated August 1, 1996 between the Company and
Elbert O. Hand. (Exhibit 10-F-1 to Form 10-K for the year ended
November 30, 1996), (1) **
*10-F-2 Employment Agreement dated August 1, 1996 between the Company and
Homi B. Patel. (Exhibit 10-F-2 to Form 10-K for the year ended
November 30, 1996), (1) **
*10-F-3 Employment Agreement dated August 1, 1996 between the Company and
Glenn R. Morgan. (Exhibit 10-F-4 to Form 10-K for the year ended
November 30, 1996), (1) **
*10-F-4 Employment Agreement dated July 1, 1997 between the Company and
Frederick G. Wohlschlaeger (Exhibit 10-A-1 to Form 10-Q for the
period ended May 31, 1997), (1) **
*10-G-1 Severance Agreement dated August 1, 1996 between the Company and
Elbert O. Hand. (Exhibit 10-G-1 to Form 10-K for the year ended
November 30, 1996), (1) **
*10-G-2 Severance Agreement dated August 1, 1996 between the Company and
Homi B. Patel. (Exhibit
10-G-2 to Form 10-K for the year ended November 30, 1996), (1) **
*10-G-3 Severance Agreement dated August 1, 1996 between the Company and
Glenn R. Morgan. (Exhibit 10-G-4 to Form 10-K for the year ended
November 30, 1996), (1) **
*10-G-4 Severance Agreement dated July 1, 1997 between the Company and
Frederick G. Wohlschlaeger. (Exhibit 10-A-2 to Form 10-Q for the
period ended May 31, 1997), (1) **
*10-G-5 Form of Severance Agreement between the Company and Executive
Officer James E. Condon (Exhibit 10-F-5 to Form 10-K for the year
ended November 30, 1993), (1). **
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
and
Applicable
Section of
601 of
Regulation
S-K
-----------
<C> <S>
*10-G-6 Form of Amendment to Severance Agreement between the Company and
Executive Officer James E. Condon (Exhibit 10-F-6 to Form 10-K for
the year ended November 30, 1994), (1). **
*10-G-7 Amendment to Severance Agreement between the Company and Executive
Officer James E. Condon (Exhibit 10-G-7 to Form 10-K for the year
ended November 30, 1997), (1). **
10-G-8 Form of Severance Agreement between the Company and Executive
Officers Linda J. Valentine and Andrew A. Zahr.
*10-H Form of Indemnity Agreement between the Company and Directors
Abboud, Bakhsh, Cole, Farley, Hand, Jacobs, Marshall, Patel,
Rohlfs, Scott and Strubel (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 (Exhibit 10-I
to Form 10-K for the year ended November 30, 1995), (1). **
*10-J-1 Asset Purchase Agreement dated November 5, 1996 among HMX/PBP
Company, Hartmarx Corporation and Plaid Clothing Group, Inc. and
certain affiliates (Exhibit 2.1 to Form 8-K filed December 10,
1996), (1).
*10-J-2 Amendment No. 1, dated November 26, 1996 to the Asset Purchase
Agreement (Exhibit 2.2 to Form 8-K filed December 10, 1996), (1).
12 Statement of Computation Ratios.
21 Subsidiaries of the Registrant.
23 Consent of Independent Accountants included on page F-1 of this
Form 10-K.
24 Powers of Attorney, as indicated on page 40 of this Form 10-K.
27 Financial Data Schedules.
99 Forward Looking Statements.
</TABLE>
- --------
*Exhibits incorporated herein by reference. (1) File No. 1-8501
**Management contract or compensatory plan or arrangement required to be filed
as an exhibit to this Form 10-K pursuant to Item 14(c) of Form 10-K.
39
<PAGE>
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)
By: /s/ Glenn R. Morgan and By: /s/ Frederick G. Wohlschlaeger
Glenn R. Morgan Frederick G. Wohlschlaeger
Executive Vice President and Senior Vice President,
Chief Financial Officer General Counsel and Secretary
Date: February 25, 1999
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
Samaual A. T. Bakhsh* Michael B. Rohlfs*
- ------------------------------------- -------------------------------------
Samaual A. T. Bakhsh, Director Michael B. Rohlfs, Director
Jeffrey A. Cole* Stuart L. Scott*
- ------------------------------------- -------------------------------------
Jeffrey A. Cole, Director Stuart L. Scott, Director
Raymond F. Farley* Ella D. Strubel*
- ------------------------------------- -------------------------------------
Raymond F. Farley, Director Ella D. Strubel, Director
Donald P. Jacobs* Andrew A. Zahr*
- ------------------------------------- -------------------------------------
Donald P. Jacobs, Director Andrew A. Zahr
Vice President and Controller
Glenn R. Morgan* Principal Accounting Officer
- -------------------------------------
Glenn R. Morgan
Executive Vice President,
Chief Financial Officer
By: /s/ Glenn R. Morgan
----------------------------------
Glenn R. Morgan
By: /s/ Frederick G. Wohlschlaeger
----------------------------------
Frederick G. Wohlschlaeger
- --------
*Pursuant to Power of Attorney
Date: February 25, 1999
40
<PAGE>
HARTMARX CORPORATION
SCHEDULE VIII--VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED NOVEMBER 30, 1998, 1997, and 1996
(000's Omitted)
<TABLE>
<CAPTION>
Reserve for Doubtful
Accounts Fiscal Year
Ended November 30,
--------------------------
1998 1997 1996
-------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year........................ $ 9,803 $ 9,983 $ 7,920
Charged to costs and expenses....................... 2,220 2,261 3,490
Deductions from reserves (1)........................ (3,813) (2,441) (2,327)
Reserve related to acquired business................ -- -- 900
-------- ------- -------
Balance at end of year.............................. $ 8,210 $ 9,803 $ 9,983
======== ======= =======
</TABLE>
- --------
(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, 33-30549 and 33-03169)
of Hartmarx Corporation of our report dated January 20, 1999 appearing on page
16 of this Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 25, 1999
F-1
<PAGE>
EXHIBIT 3-B
BY-LAWS
OF
HARTMARX CORPORATION
(Formed under the laws of the State of Delaware)
As Adopted by the Board of Directors as of August 6, 1998
ARTICLE I
STOCKHOLDERS
Section 1. Annual Meeting. A meeting of the stockholders for the election
of directors and the transaction of only such other business as is properly
brought before the meeting in accordance with these By-Laws shall be held
annually on a day between April 1 and April 20, inclusive, to be designated by
the Board of Directors and in the absence of such designation, on the first
Monday in April, or, if it be a public holiday, on the next succeeding business
day.
To be properly brought before the meeting, business must be either (a)
specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board, (b) otherwise properly brought before the meeting by
or at the direction of the Board, or (c) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an annual meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be delivered to or
mailed and received at the principal executive offices of the Corporation, no
earlier than December 15 and no later than February 15 immediately preceding the
annual meeting of stockholders. A stockholder's notice to the Secretary shall
set forth as to each matter the stockholder proposes to bring before the annual
meeting (i) a brief description of the business desired to be brought before the
annual meeting and the reasons for conducting such business at the annual
meeting, (ii) the name and record address of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, and (iv) any material interest of the
stockholder in such business.
The Chairman of an annual meeting shall, if the facts warrant, determine
and declare to the meeting that business was not properly brought before the
meeting in accordance with the provisions of this Section 1, and if he should so
determine, he shall so declare to the meeting and any such business not properly
brought before the meeting shall not be transacted.
<PAGE>
Section 2. Special Meetings. Special meetings of the stockholders may be
called by the Board of Directors or, subject to the control of the Board, by the
Chairman, or in his absence, the President.
Section 3. Place of Meetings. Meetings of stockholders shall be held at
such place, within or without the State of Delaware, as may be fixed by the
Board of Directors. If no place is so fixed, such meetings shall be held at the
office of the Corporation in the City of Chicago, in the State of Illinois.
Section 4. Notice of Meetings. Notice of each meeting of stockholders
shall be given in writing and shall state the place, date and hour of the
meeting and the purpose or purposes for which the meeting is called. Notice of a
special meeting shall indicate that it is being issued by or at the direction of
the person or persons calling or requesting the meeting.
If, at any meeting, action is proposed to be taken which would, if taken,
entitle objecting stockholders to receive payment for their shares of stock, the
notice shall include a statement of that purpose and to that effect.
A copy of the notice of each meeting shall be given, personally or by
first class mail, not less than ten nor more than sixty days before the date of
the meeting, to each stockholder entitled to vote at such meeting. If mailed,
such notice is given when deposited in the United States mail, with postage
thereon prepaid, directed to the stockholder at his address as it appears on the
record of stockholders, or, if he shall have filed with the Secretary of the
Corporation a written request that notices to him be mailed to some other
address, then directed to him at such other address.
When a meeting is adjourned to another time or place, it shall not be
necessary to give any notice of the adjourned meeting if the time and place to
which the meeting is adjourned are announced at the meeting at which the
adjournment is taken, and at the adjourned meeting any business may be
transacted that might have been transacted on the original date of the meeting.
However, if the adjournment is for more than thirty (30) days, or if after the
adjournment, the Board of Directors fixes a new record date for the adjourned
meeting, a notice of the adjourned meeting shall be given to each stockholder of
record on the new record date entitled to notice under the preceding paragraphs
of this Section 4.
Section 5. Waiver of Notice. Notice of any meeting need not be given to
any stockholder who submits a signed waiver of notice, in person or by proxy,
whether before or after the meeting. The attendance of any stockholder at a
meeting, in person or by proxy, without protesting prior to the conclusion of
the meeting the lack of notice of such meeting, shall constitute a waiver of
notice by him.
2
<PAGE>
Section 6. Inspectors of Election. The Board of Directors shall, in
advance of any stockholders' meeting, appoint one or more inspectors to act at
the meeting or any adjournment thereof and to make a written report thereof. The
Board of Directors may designate one or more alternate inspectors to replace any
inspector who fails to act. If no inspector or alternate is able to act, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting. Each inspector, before entering upon the discharge of his duties,
shall take and sign an oath faithfully to execute his duties of inspector with
strict impartiality and according to the best of his ability.
The inspector(s) shall ascertain the number of shares outstanding and the
voting power of each, determine the shares represented at the meeting, the
existence of a quorum and the validity of proxies and ballots, count all votes
and ballots, determine and retain for a reasonable period a record of the
disposition of any challenges made to any determination by the inspector(s),
certify their determination of the number of shares represented at the meeting
and their count of all votes and ballots, and do such other acts as are proper
to conduct the election or vote with fairness to all stockholders. The
inspector(s) may appoint or retain other persons or entities to assist the
inspector(s) in the performance of the duties of the inspector(s). Any record
or certificate made by the inspectors shall be prima facie evidence of the facts
stated and of the vote as certified by said inspector(s).
Section 7. List of Stockholders at Meetings. The Secretary shall provide
a complete list of the stockholders entitled to vote at the ensuing election,
arranged in alphabetical order, with the address of each, and the number of
shares held by each. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
Section 8. Qualification of Voters. Unless otherwise provided in the
Certificate of Incorporation, every stockholder of record shall be entitled at
every meeting of stockholders to one vote for every share of stock standing in
his name on the record of stockholders.
Treasury shares as of the record date and shares held as of the record date
by another domestic or foreign corporation of any type or kind, if a majority of
the shares entitled to vote in the election of directors of such other
corporation is held as of the record date by the Corporation, shall not be
shares entitled to vote or to be counted in determining the total number of
outstanding shares.
3
<PAGE>
Shares held by an administrator, executor, guardian, conservator,
committee, or other fiduciary, except a trustee, may be voted by him, either in
person or by proxy, without transfer of such shares into his name. Shares held
by a trustee may be voted by him, either in person or by proxy, only after the
shares have been transferred into his name as trustee or into the name of his
nominee.
Shares standing in the name of another domestic or foreign corporation of
any type or kind may be voted by such officer, agent or proxy as the By-Laws of
such corporation may provide, or, in the absence of such provision, as the board
of directors of such corporation may determine.
A stockholder shall not sell his vote or issue a proxy to vote to any
person for any sum of money or anything of value except as permitted by law.
Section 9. Quorum of Stockholders. The holders of not less than one-third
of the shares of stock entitled to vote thereat shall constitute a quorum at a
meeting of stockholders for the transaction of any business, provided that when
a specified item of business is required to be voted on by a class or series,
voting as a class, the holders of not less than one-third of the shares of such
class or series of stock shall constitute a quorum for the transaction of such
specified item of business.
When a quorum is once present to organize a meeting, it is not broken by
the subsequent withdrawal of any stockholders.
The stockholders who are present in person or by proxy and who are entitled
to vote may, by a majority of votes cast, adjourn the meeting despite the
absence of a quorum.
Section 10. Proxies. Every stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent without a meeting may authorize
another person or persons to act for him by proxy.
Every proxy must be signed by the stockholder or his attorney-in-fact. No
proxy shall be valid after the expiration of three years from the date thereof
unless otherwise provided in the proxy. Every proxy shall be revocable at the
pleasure of the stockholder executing it, except as otherwise provided by law.
The authority of the holder of a proxy to act shall not be revoked by the
incompetence or death of the stockholder who executed the proxy unless, before
the authority is exercised, written notice of an adjudication of such
incompetence or of such death is received by the Secretary or any Assistant
Secretary.
4
<PAGE>
Section 11. Vote of Stockholders. Directors shall, except as otherwise
required by law, be elected by a plurality of the votes cast at a meeting of
stockholders by the holders of shares entitled to vote in the election.
Whenever any corporate action, other than the election of directors, is to
be taken by vote of the stockholders, it shall, except as otherwise required by
law or the Certificate of Incorporation or the By-Laws, be authorized by a
majority of the votes cast at a meeting of stockholders by the holders of shares
entitled to vote thereon.
Section 12. Fixing Record Date. For the purpose of determining the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to or dissent from any proposal
without a meeting, or for the purpose of determining stockholders entitled to
receive payment of any dividend or the allotment of any rights, or for the
purpose of any other action, the Board of Directors may fix, in advance, a date
as the record date for any such determination of stockholders. Such date shall
not be more than sixty nor less than ten days before the date of such meeting,
nor more than sixty days prior to any other action.
When a determination of stockholders of record entitled to notice of or to
vote at any meeting of stockholders has been made as provided in this section,
such determination shall apply to any adjournment thereof, unless the Board of
Directors fixes a new record date for the adjourned meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 1. Power of Board and Qualification of Directors. The business of
the Corporation shall be managed by the Board of Directors. Each director shall
be at least twenty-one years of age.
Section 2. Number of Directors. Effective August 6, 1998 the number of
directors constituting the entire Board of Directors through the current terms
of the incumbent directors, shall be eleven; thereafter, the number shall be
ten. A majority of the total number of directors authorized by this By-Law may
amend this By-Law, to change the number of directors, provided, however, that no
decrease in the number of directors shall shorten the term of an incumbent
director.
Section 3. Election and Term of Directors. At each annual meeting of
stockholders, directors shall be elected to hold office until the next annual
meeting and until their successors have been elected and qualified.
5
<PAGE>
Only persons who are nominated in accordance with the following procedures
shall be eligible for election as directors. Nominations for the election of
directors may be made by the Board of Directors or by a committee appointed by
the Board of Directors, or by any stockholder entitled to vote in the election
of directors generally, provided that such stockholder has given actual written
notice of such stockholder's nomination or nominations to the Secretary of the
Corporation (a) with respect to an election to be held at an annual meeting of
stockholders, no earlier than December 15 and no later than February 15
immediately preceding the annual meeting of stockholders, and (b) with respect
to an election to be held at a special meeting of stockholders for the election
of directors, no later than the close of business on the fifteenth day following
(i) the date on which notice of such meeting is first given to stockholders or
(ii) the date on which public disclosure of such meeting is first made,
whichever is earlier.
Each such notice shall set forth: (a) the name and record address of the
stockholder who intends to make the nomination and the name, age, business
address and residence address of the person or persons to be nominated; (b) a
representation that the stockholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice and stating the number of shares held by such stockholder; (c) a
description of all arrangements or understandings involving any stockholder,
each such nominee and any other person or persons (naming such person or
persons) pursuant to which the nomination or nominations are to be made by the
stockholder or relating to the Corporation or its securities or to such
nominee's service as a director if elected; (d) such other information regarding
such nominee proposed by such stockholder as would be required to be disclosed
in solicitations for proxies for election of Directors pursuant to Rule 14a
under the Securities Exchange Act of 1934, as amended; and (e) the consent of
each nominee to serve as a director of the Corporation if so elected. The
Corporation may require any proposed nominee to furnish such other information
as may reasonably be required by the Corporation to determine the eligibility of
such proposed nominee to serve as a director of the Corporation.
The Chairman of the meeting shall, if the facts warrant, determine and
declare to the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare to the
meeting and the defective nomination shall be disregarded.
Section 4. Quorum of Directors and Action by the Board. A majority of the
entire Board of Directors shall constitute a quorum for the transaction of
business, and, except where otherwise provided in these By-Laws, the vote of a
majority of the directors present at a meeting at the time of such vote, if a
quorum is then present, shall be the act of the Board.
6
<PAGE>
Section 5. Meetings of the Board. An annual meeting of the Board of
Directors shall be held in each year directly after the annual meeting of
stockholders. Regular meetings of the Board shall be held at such times as may
be fixed by the Board. Special meetings of the Board may be held at any time
upon the call of the Chairman, or in his absence, the President, or upon the
call of any two directors.
Meetings of the Board of Directors shall be held at such places as may be
fixed by the Board for annual and regular meetings and in the notice of meeting
for special meetings.
No notice need be given of annual or regular meetings of the Board of
Directors. Notice of each special meeting of the Board shall be given to each
director either by mail not later than noon, Chicago time, on the third day
prior to the meeting or by telegram, written message or orally to the director
not later than noon, Chicago time, on the day prior to the meeting. Notices are
deemed to have been given: by mail, when deposited in the United States mail; by
telegram at the time of filing; and by messenger at the time of delivery.
Notices by mail, telegram or messenger shall be sent to each director at the
address designated by him for that purpose, or, if none has been so designated,
at his last known residence or business address.
Notice of a meeting of the Board of Directors need not be given to any
director who submits a signed waiver of notice whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to him.
A notice, or waiver of notice, need not specify the purpose of any meeting
of the Board of Directors.
A majority of directors present, whether or not a quorum is present, may
adjourn any meeting to another time and place. Notice of any adjournment of a
meeting to another time or place shall be given, in the manner described above,
to the directors who were not present at the time of the adjournment and, unless
such time and place are announced at the meeting, to the other directors.
Section 5.1. Participation in Meetings of the Board or Committees Thereof
by Means of Telephone or Similar Equipment. Any one or more members of the Board
of Directors, the Executive Committee, or any other Committee of the Board may
participate in a meeting of such Board or Committee by means of a conference
telephone or similar communications equipment allowing all persons participating
in the meeting to hear each other at the same time. Participation by such means
shall constitute presence in person at a meeting.
7
<PAGE>
Section 5.2. Action of the Board or Committees Thereof by Unanimous Written
Consent. Any action required or permitted to be taken by the Board of Directors,
the Executive Committee, or any other Committee of the Board of Directors may be
taken without a meeting if all members of the Board or of the Committee consent
in writing to the adoption of a resolution authorizing the action. The
resolution and the written consents thereto by the members of the Board or
Committee shall be filed with the minutes of the proceedings of the Board or
Committee.
Section 6. Resignations. Any director of the Corporation may resign at any
time by giving written notice to the Board of Directors or to the Chairman or
the Secretary of the Corporation. Such resignation shall take effect at the time
specified therein; and unless otherwise specified therein the acceptance of such
resignation shall not be necessary to make it effective.
Section 7. Removal of Directors. Any or all of the directors may be
removed, with or without cause, by the holders of a majority of the shares then
entitled to vote at an election of directors at a meeting of the stockholders or
by the unanimous written consent of all stockholders entitled to vote.
Section 8. Newly Created Directorships and Vacancies. Newly created
directorships resulting from an increase in the number of directors and
vacancies occurring in the Board of Directors for any reason may be filled by
vote of a majority of the directors then in office, although less than a quorum
exists. A director elected to fill a vacancy shall be elected to hold office for
the unexpired term of his predecessor.
Section 9. Compensation of Directors. The Board of Directors shall have
authority to fix the compensation of directors for services in any capacity.
Section 10. Indemnification.
(a) General Indemnification. Each person who was or is made a party or is
threatened to be made a party to or is involved in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, and any
appeal therefrom (hereinafter, collectively, a "proceeding"), by reason of the
fact that he or she, or a person of whom he or she is the legal representative,
is, was or had agreed to become a director of the Corporation or is, was or had
agreed to become an officer of the Corporation or is or was serving at the
request of the Corporation as a director, officer, employee or agent of another
corporation or of a partnership, joint venture, trust or other enterprise,
including service with respect to employee benefit plans, shall be indemnified
and held harmless by the Corporation to the fullest extent permitted under the
General Corporation Law of the State of Delaware (the "DGCL"), as the same now
exists or may hereafter be amended (but, in the case of any such amendment, only
to the extent that such amendment permits the Corporation to provide broader
indemnification rights than the
8
<PAGE>
DGCL permitted the Corporation to provide prior to such amendment), against all
expenses, liabilities and losses (including attorneys' fees, judgments, fines,
excise taxes or penalties and amounts paid or to be paid in settlement)
reasonably incurred or suffered by such person in connection therewith;
provided, that a person seeking indemnity in connection with a proceeding (or
part thereof) initiated by such person against the Corporation or any director,
officer, employee or agent of the Corporation shall not be entitled to the
foregoing indemnification unless the Corporation has joined in or consented to
such proceeding (or part thereof).
(b) Expenses. Expenses, including attorneys' fees, incurred by a person
referred to in paragraph (a) of this Section 10 in defending or otherwise being
involved in a proceeding shall be paid by the Corporation in advance of the
final disposition of such proceeding, including any appeal therefrom, upon
receipt of an undertaking (the "Undertaking") by or on behalf of such person to
repay such amount if it shall ultimately be determined that he or she is not
entitled to be indemnified by the Corporation.
(c) Non-Exclusivity of Rights. The rights conferred on any person by this
Section 10 shall not be exclusive of any other right which such person may have
or hereafter acquire under any statute, provision of the Certificate of
Incorporation, By-Law, agreement, vote of stockholders or disinterested
directors or otherwise. The Board of Directors shall have the authority, by
resolution, to provide for such other indemnification of directors, officers,
employees or agents as it shall deem appropriate.
(d) Insurance. The Corporation may purchase and maintain insurance to
protect itself and any director, officer, employee or agent of the Corporation
or another corporation, partnership, joint venture, trust or other enterprise
against any expenses, liabilities or losses, whether or not the Corporation
would have the power to indemnify such person against such expenses, liabilities
or losses under the DGCL.
(e) Enforceability. The provisions of this Section 10 shall be applicable
to all proceedings commenced after its adoption, whether such arise out of
events, acts, omissions or circumstances which occurred or existed prior or
subsequent to such adoption, and shall continue as to a person who has ceased to
be a director or officer and shall inure to the benefit of the heirs, executors
and administrators of such person. This Section 10 shall be deemed to grant each
person who, at any time that this Section 10 is in effect, serves or agrees to
serve in any capacity which entitles him or her to indemnification hereunder
rights against the Corporation to enforce the provisions of this Section 10, and
any repeal or other modification of this Section 10 or any repeal or
modification of the DGCL or any other applicable law shall not limit any rights
of indemnification then existing or arising out of events, acts, omissions or
circumstances occurring or existing prior to such repeal or modification,
including, without limitation, the right to indemnification for proceedings
commenced after such repeal or modification
9
<PAGE>
to enforce this Section 10 with regard to acts, omissions, events or
circumstances occurring or existing prior to such repeal or modification.
(f) Severability. If this Section 10 or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each director and officer of the
Corporation as to costs, charges and expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement with respect to any proceeding,
whether civil, criminal, administrative or investigative, including an action by
or in the right of the Corporation, to the full extent permitted by any
applicable portion of this Section 10 that shall not have been invalidated and
to the full extent permitted by applicable law.
Section 11. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from among its members
an Executive Committee, consisting of four or more directors, which shall have
all the authority of the Board, except that the Executive Committee shall have
no authority as to the following matters:
(1) Amending the Certificate of Incorporation;
(2) Adopting an agreement of merger or consolidation;
(3) Recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets;
(4) Recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution;
(5) Amending the By-Laws of the Corporation;
(6) Declaring a dividend; or
(7) Authorizing the issuance of stock.
The Board of Directors may designate one or more directors (who may or may
not be officers and employees of the Corporation) as alternate members of the
Executive Committee, who may replace any absent member or members for all
purposes, including the constituting of a quorum at any meeting of such
Committee.
Three members of the Executive Committee shall constitute a quorum for the
transaction of business, and the vote of a majority of the members present at a
meeting at the time of such vote if a quorum is then present, shall be the act
of such Committee. Meetings of the Executive Committee may be called by any
member of the Executive
10
<PAGE>
Committee, and notices thereof shall be given to each member of the Executive
Committee in the same manner as notices to directors are provided for in the
case of notices of special meetings of the Board of Directors, but notice may in
any case be waived.
The Executive Committee shall serve at the pleasure of the Board of
Directors.
Section 12. Audit and Finance Committee. The Audit and Finance Committee of
the Board of Directors will consist of three or more directors, none of whom
shall be an officer or employee of the Corporation. The number of members of the
Committee will be determined each year at the annual meeting of the Board of
Directors.
The Audit and Finance Committee will maintain, through regularly scheduled
meetings, communications between the directors and independent accountants and
will provide assistance to the Board in fulfilling its fiduciary and statutory
responsibilities related to corporate accounting, integrity of financial
controls, and reporting practices. The Committee will also review the financial
policies and procedures of the Corporation and oversee and make recommendations
to the Board concerning the Corporation's investment and dividend policies and
methods of financing corporate operations. The Committee will also have overall
oversight responsibility for the investment and management of the assets of the
Corporation's pension plans, the appointment of investment managers and plan
trustees and the operation of the various benefits committees. The Committee
will make periodic reports to the entire Board on such matters as the Committee
or the Board may specify.
Section 13. Compensation and Stock Option Committee. The Compensation and
Stock Option Committee of the Board of Directors will consist of three or more
directors, none of whom shall be an officer or employee of the Corporation. The
number of members of the Committee will be determined each year at the annual
meeting of the Board of Directors.
The Compensation and Stock Option Committee will exercise the full powers
of the entire Board with respect to fixing the compensation to be paid from time
to time to all officers and employees of the Corporation and its subsidiaries
whose compensation is above the minimum level determined by the Committee from
time to time to be appropriate for control by directors of the Corporation. The
Committee will also grant all stock options and make other determinations
necessary or advisable for the administration of all stock option plans and
similar plans. The Committee will make periodic reports to the entire Board on
such matters as the Committee or the Board may specify.
11
<PAGE>
Section 14. Nominating and Governance Committee. The Nominating and
Governance Committee of the Board of Directors will consist of three or more
directors. The number of members of the Committee will be determined each year
at the annual meeting of the Board of Directors.
The Nominating and Governance Committee will review and make recommendation
to the entire Board concerning the qualification and selection of candidates for
election as directors and officers of the Corporation. The Committee will also
advise and make recommendations to the Board on all matters pertaining to
directorship and corporate governance practices and the Corporation's position
and practices on significant issues of corporate public responsibility.
Section 15. Management Operations Committee. The Management Operations
Committee of the Board of Directors will consist of one or more directors, each
of whom shall also be an employee or officer of the Corporation. The Board of
Directors shall establish from time to time by resolution the composition,
functions and responsibilities of the Management Operations Committee.
Section 16. Other Committees. The Board of Directors, by resolution
adopted by a majority of the entire Board, may designate from among its members
committees other than those described in the foregoing By-Laws. Any such
Committee of which a majority of the members shall not be officers or employees
of the Corporation may be authorized by the resolution establishing it to have
all of the authority of the Board with respect to matters delegated to it by
said resolution. No resolution establishing and delegating authority to a
committee pursuant to this section shall confer authority as to any of the
matters listed in Section 11 of this Article, Paragraphs (1) - (6) inclusive.
ARTICLE III
OFFICERS
Section 1. Officers. The officers of the Corporation shall consist of a
Chairman, a President, a Secretary and a Treasurer. In addition, the Board of
Directors may elect one or more Executive Vice Presidents, Senior Vice
Presidents, or Vice Presidents, a General Counsel, a Controller, Assistant
Secretaries, Assistant Treasurers, Assistant General Counsels, group officers,
divisional officers and such other officers as the Board of Directors may
determine, and the respective provisions of these By-Laws with respect to the
duties and powers of such additional officers shall be applicable only during
any time such additional officers shall be elected and acting. The Chairman
shall be a member of the Board of Directors. Other officers of the Corporation
may, but need
12
<PAGE>
not, be members of the Board of Directors. Any two or more offices may be held
by the same person, except the offices of Chairman and Secretary, or President
and Secretary.
Section 2. Term of Office and Removal. All officers of the Corporation
shall be elected annually by the Board of Directors as soon as may be
practicable after the annual election of directors. Vacancies may be filled, or
new offices created and filled, at any meeting of the Board of Directors. Each
officer elected by the Board of Directors shall hold office for the term for
which he is elected, and until his successor has been elected and qualified.
Unless otherwise provided in the resolution of the Board of Directors electing
an officer, his term of office shall extend to and expire at the meeting of the
Board following the next annual meeting of stockholders. Any officer may be
removed by the Board, with or without cause, at any time. Removal of an officer
without cause shall be without prejudice to his contract rights, if any, and the
election of an officer shall not of itself create contract rights.
Section 3. Powers and Duties. The officers of the Corporation shall have
such authority and perform such duties in the management of the Corporation, as
may be prescribed in these By-Laws or by the Board of Directors and, to the
extent not so prescribed, they shall have such authority and perform such duties
in the management of the Corporation, subject to the control of the Board, as
generally pertain to their respective offices. Securities of other corporations
held by the Corporation may be voted by any officer designated by the Board and,
in the absence of any such designation, by the Chairman, the President, any Vice
President, the Secretary or the Treasurer. The Board may require any officer,
agent or employee to give security for the faithful performance of his duties.
Section 4. Books to be Kept. The Corporation shall keep (a) correct and
complete books and records of account, (b) minutes of the proceedings of the
stockholders, Board of Directors, Executive Committee and any other committees
of directors, and (c) a current list of the directors and officers and their
residence addresses; and the Corporation shall also keep at its office in the
State of Illinois, or at the office of its transfer agent or registrar in the
State of Illinois, if any, a record containing the names and addresses of all
stockholders, the number and class of shares held by each and the dates when
they respectively became the owners of record thereof.
The Board of Directors may determine whether and to what extent and at what
times and places and under what conditions and regulations any accounts, books,
records or other documents of the Corporation, other than the stock ledger and
list of stockholders, shall be open to inspection, and no creditor, security
holder or other person shall have any right to inspect any accounts, books,
records or other documents of the Corporation except as conferred by the Statute
or as so authorized by the Board or an officer of the Corporation.
13
<PAGE>
Section 5. Checks, Notes, etc. All checks and drafts on, and withdrawals
from, the Corporation's accounts with banks or other financial institutions, and
all bills of exchange, notes and other instruments for the payment of money,
drawn, made, indorsed, or accepted by the Corporation, shall be signed on its
behalf by the person or persons thereunto authorized by, or pursuant to
resolution of, the Board of Directors.
ARTICLE IV
DUTIES OF OFFICERS
Section 1. Chairman. The Chairman shall preside at all meetings of the
stockholders and of the Board of Directors, and shall have such other duties and
powers as may be assigned to him by the Board of Directors or the Executive
Committee.
Section 2. President. The President shall have such duties and powers as
may be assigned to him by the Board of Directors or the Executive Committee. In
the absence of the Chairman, he shall preside at meetings of the stockholders
and of the Board of Directors.
Section 3. Vice Presidents. The Vice Presidents, which shall include any
Executive Vice Presidents or Senior Vice Presidents, shall have such duties and
powers as may be assigned to them by the Chairman, the President, the Board of
Directors or the Executive Committee.
Section 4. Secretary. The Secretary shall: (a) keep the minutes of meetings
of the stockholders, the Board of Directors and the Executive Committee in one
or more books provided for that purpose; (b) see that all notices are duly given
in accordance with the provisions of these By-Laws or as required by law; (c) be
custodian of the corporate record books and of the seal of the Corporation, and
see that the seal of the Corporation is affixed to all documents, the execution
of which on behalf of the Corporation under its seal is duly authorized in
accordance with the provisions of these By-Laws; and (d) in general perform all
duties incident to the office of the Secretary and such other duties as from
time to time may be assigned to him by the Board of Directors, the Executive
Committee, the Chairman or the President.
Section 5. General Counsel. The General Counsel shall give legal counsel
and advice to the Board of Directors and its committees. He shall be the chief
attorney at law for the Corporation and its subsidiaries, shall be the head of
the Corporation's Legal Department, and shall select, engage and approve payment
of fees to attorneys retained to represent the Corporation or its subsidiaries
in litigation or otherwise.
14
<PAGE>
Section 6. Treasurer. The Treasurer shall have charge and custody of all
funds and securities of the Corporation. He shall deposit or invest all monies
and other valuable effects of the Corporation in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors or the Executive Committee or in such short-term investments as he
shall select with the approval of the Chairman or the President. He shall
disburse funds of the Corporation as may be ordered by the Board of Directors or
the Executive Committee, taking proper vouchers for such disbursements. He shall
render to the Chairman, the President, the Board of Directors and the Executive
Committee, whenever any thereof may require it, an account of his transactions
as Treasurer and of the financial position of the Corporation.
Section 7. Controller. The Controller shall be the chief accounting officer
of the Corporation. He shall, when proper, approve all bills for purchases,
payrolls and similar instruments providing for disbursement of money by the
Corporation, for payment by the Treasurer. He shall be in charge of and maintain
books of account and accounting records of the Corporation. He shall perform
such other acts as are usually performed by the controller of a corporation. He
shall render to the Chairman, the President, the Board of Directors and the
Executive Committee, such reports as any thereof may require.
Section 8. Assistant Secretaries, Assistant Treasurers and Assistant
General Counsels. The Assistant Secretaries, Assistant Treasurers and Assistant
General Counsels shall have such duties and powers as may be assigned by the
Secretary, the Treasurer or the General Counsel respectively, or by the
Chairman, the President, the Board of Directors or the Executive Committee.
Section 9. Divisional and Group Officers. The divisional officers and group
officers shall have such duties and powers with respect to their divisions or
groups as may be assigned to them by the Chairman, the President, the Board of
Directors or the Executive Committee.
ARTICLE V
FORMS OF CERTIFICATES AND LOSS
AND TRANSFER OF STOCK
Section 1. Forms of Stock Certificates. The shares of stock of the
Corporation shall be represented by certificates, in such forms as the Board of
Directors may prescribe, signed by the Chairman, the President or a Vice
President, and the Secretary, an Assistant Secretary, the Treasurer or an
Assistant Treasurer, and may be sealed with the seal of the Corporation or a
facsimile thereof. The signatures of the officers upon a certificate may be
facsimiles if the certificate is countersigned by a transfer agent or registered
by a registrar other than the Corporation or its employee. In case any officer
15
<PAGE>
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer before such certificate is issued, it may
be issued by the Corporation with the same effect as if he were such officer at
the date of issue.
Each certificate representing shares of stock shall state upon the face
thereof:
(1) That the Corporation is formed under the laws of the State of
Delaware;
(2) The name of the person or persons to whom issued; and
(3) The number and class of stock, and the designation of the series, if
any, which such certificate represents.
Section 2. Transfers of Stock. Shares of stock of the Corporation shall be
transferable on the stock ledger upon presentment to the Corporation or a
transfer agent of a certificate or certificates representing the shares of stock
requested to be transferred, with proper endorsement on the certificate or on a
separate accompanying document, together with such evidence of the payment of
transfer taxes and compliance with other provisions of law as the Corporation or
its transfer agent may require.
Section 3. Lost, Stolen or Destroyed Stock Certificates. No certificate for
shares of stock of the Corporation shall be issued in place of any certificate
alleged to have been lost, destroyed or wrongfully taken, except if and to the
extent required by the Board of Directors, upon:
(1) Production of evidence of loss, destruction or wrongful taking;
(2) Delivery of a bond indemnifying the Corporation and its agents against
any claim that may be made against it or them on account of the
alleged loss, destruction or wrongful taking of the replaced
certificate or the issuance of the new certificate; and
(3) Compliance with such other reasonable requirements as may be imposed.
16
<PAGE>
ARTICLE VI
OTHER MATTERS
Section 1. Corporate Seal. The Board of Directors may adopt a corporate
seal, alter such seal at pleasure, and authorize it to be used by causing it or
a facsimile to be affixed or impressed or reproduced in any other manner.
Section 2. Fiscal Year. The fiscal year of the Corporation shall begin on
the first day of December in each year and end on the thirtieth day of November
in each year.
Section 3. Amendments. By-Laws of the Corporation may be adopted, amended
or repealed by vote of the holders of the shares of stock at the time entitled
to vote in the election of any directors. By-Laws may also be adopted, amended
or repealed by the Board of Directors, but any By-Law adopted by the Board may
be amended or repealed by the stockholders entitled to vote thereon as
hereinabove provided.
If any By-Law regulating an impending election of directors is adopted,
amended or repealed by the Board of Directors, there shall be set forth in the
notice of the next meeting of stockholders for the election of directors the By-
Law so adopted, amended or repealed, together with a concise statement of the
changes made.
-------------------------------------
Frederick G. Wohlschlaeger, Secretary
17
<PAGE>
EXHIBIT 4-C-7
EXECUTION
HARTMARX CORPORATION
SEVENTH AMENDMENT TO CREDIT AGREEMENT
This SEVENTH AMENDMENT TO CREDIT AGREEMENT (this "Amendment") is dated as
of December 21, 1998 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
BANKAMERICA BUSINESS CREDIT, INC. as co-agents ("Co-Agents") and, for purposes
of Section 3 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, Managing
Agent and Co-Agents, as amended by the First Amendment to Credit Agreement dated
as of August 26, 1994 among Borrower, Lenders, Managing Agent and Co-Agents, by
the Second Amendment to Credit Agreement dated as of March 20, 1995 among
Borrower, Lenders, Managing Agent and Co-Agents, by the Third Amendment to
Credit Agreement dated as of June 30, 1995 among Borrower, Lenders, Managing
Agent, Co-Agents and consented to by Guarantors, by the Fourth Amendment to
Credit Agreement dated as of November 30, 1995 by and among Borrower, Lenders,
Managing Agent, Co-Agents and consented to by Guarantors, by the Fifth Amendment
to Credit Agreement dated as of January 30, 1996 by and among Borrower, Lenders,
Managing Agent, Co-Agents and consented to by Guarantors and by the Sixth
Amendment to Credit Agreement dated as of October 15, 1997 by and among
Borrower, Lenders, Managing Agent, Co-Agents and consented to by Guarantors (the
"Credit Agreement"; capitalized terms used herein without definition shall have
the same meanings herein as set forth in the Credit Agreement). Unless otherwise
indicated, Section and subsection references contained herein shall be to the
corresponding Sections and subsections of the Credit Agreement.
RECITALS
WHEREAS, Borrower has informed Managing Agent and Lenders that, (x)
pursuant to that certain Agreement (the "Coppley Acquisition Agreement") made as
of November 29, 1998 by and among Keithmoor Limited, a corporation incorporated
under the laws of the Province of Ontario ("Keithmoor"), Paul McWhinnie, an
individual residing in the City of Hamilton ("McWhinnie"), 1315751 Ontario Inc.,
a corporation incorporated under the laws of the Province of Ontario and a
direct wholly-owned subsidiary of Borrower ("Ontario Inc.") and The Coppley,
Noyes and Randall
1
<PAGE>
Limited, a corporation incorporated under the laws of the Province of Ontario
("Coppley"), Ontario Inc. intends to acquire from Keithmoor and McWhinnie on the
date hereof (the "Coppley Closing Date") all of the issued and outstanding
shares of Coppley (the "Coppley Acquisition") and (y) immediately after the
consummation of such acquisition, Coppley shall, pursuant to applicable law, be
amalgamated with and into Ontario Inc., with Ontario Inc. the surviving
corporation;
WHEREAS, pursuant to the terms of the Coppley Acquisition Agreement, (a)
the total consideration payable by Ontario Inc. in respect of the Coppley
Acquisition shall be (i) an amount equal to the sum of $525,800 (Canadian), to
be payable by Ontario Inc. to McWhinnie and Keithmoor on the Coppley Closing
Date and (y) $7,724,200.00 (Canadian), to be provided by Ontario Inc. to Coppley
to pay Keithmoor in respect of the Keithmoor Debt (as defined in the Coppley
Acquisition Agreement) (the sum of the amounts payable pursuant to the preceding
clauses (x) and (y), the "Initial Coppley Consideration") and (ii) the delivery
of a promissory note (which shall be subordinated to the Obligations) issued by
Coppley (x) to Keithmoor in the aggregate amount of $2,103,200.00 (Canadian) and
(y) to Keithmoor in the aggregate amount of $6,146,800.00 (Canadian), subject to
adjustment as provided in Section 3.3 of the Coppley Acquisition Agreement (the
promissory notes referred to in the preceding clauses (x) and (y), the "Coppley
Seller Notes") and (b) the Coppley Seller Notes shall be guaranteed by Borrower
(the "Coppley Guaranty").
WHEREAS, Ontario Inc. intends to finance the Initial Coppley Consideration
by (i) obtaining an intercompany loan from Borrower in the aggregate principal
amount of $12,000,000 and (ii) selling 100% of the issued and outstanding stock
of Ontario Inc. to Borrower.
WHEREAS, immediately prior to the Coppley Closing Date, Coppley financed a
portion of its working capital needs pursuant to that certain Letter Agreement
by and among Canadian Imperial Bank of Commerce ("CIBC") and Coppley dated as of
August 17, 1998 (the "Existing Coppley Credit Facility").
WHEREAS, following the consummation of the amalgamation of Coppley with and
into Ontario Inc., Ontario Inc. will finance a portion of its working capital
needs pursuant to the Existing Coppley Credit Facility; and
WHEREAS, Borrower and Lenders desire, subject to the terms and conditions
set forth herein, to (i) amend the Credit Agreement to permit the Coppley
Acquisition, and (ii) to make certain other amendments to 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. AMENDMENTS TO THE CREDIT AGREEMENT
1.1 Amendments to Section 1: Definitions
A. Subsection 1.1 of the Credit Agreement is hereby amended by adding
thereto the
2
<PAGE>
following definitions, which shall be inserted in proper alphabetical order:
"CIBC" has the meaning assigned that term in the Seventh Amendment.
"Coppley" has the meaning assigned that term in the Seventh Amendment.
"Coppley Acquisition" has the meaning assigned that term in the
Seventh Amendment.
"Coppley Acquisition Agreement" has the meaning assigned that term in
the Seventh Amendment.
"Coppley Closing Date" has the meaning assigned that term in the
Seventh Amendment.
"Coppley Documents" means the Coppley Acquisition Agreement, Coppley
Seller Notes, Coppley Guaranty and Existing Coppley Credit Facility and all
material agreements delivered with or in connection with the foregoing,
collectively.
"Coppley Guaranty" has the meaning assigned that term in the Seventh
Amendment.
"Coppley Seller Notes" has the meaning assigned that term in the
Seventh Amendment.
"Existing Coppley Credit Facility" has the meaning assigned that term
in the Seventh Amendment.
"Ontario Inc." has the meaning assigned to that term in the Seventh
Amendment.
"Seventh Amendment" means that certain Seventh Amendment to this
Agreement.
B. Subsection 1.1 of the Credit Agreement is hereby amended by adding the
following sentence to the definition of "Borrowing Base" immediately after the
last sentence contained therein:
"Notwithstanding anything to the contrary contained herein, from and
after the Coppley Closing Date the Borrowing Base shall be reduced in an
amount equal to the sum of (i) the aggregate outstanding principal amount
of the intercompany loans made by Borrower to Ontario Inc. from time to
time plus (ii) the aggregate amount of the equity Investment made by
Borrower in Ontario Inc. on or before the Coppley Closing Date plus (iii)
the sum of the aggregate principal amount of each other loan, advance,
capital contribution, investment or other transfer made by Borrower or any
of its Subsidiaries in, to or with respect to
3
<PAGE>
Ontario Inc. plus (iv) the aggregate outstanding amount principal of the
Coppley Seller Notes.
1.2 Amendment to Section 7: Borrower's Negative Covenants
A. Indebtedness. Subsection 7.1 of Credit Agreement is hereby amended by
(i) inserting the phrase "; provided further that, notwithstanding anything to
the contrary contained herein, (x) Ontario Inc. shall not become or remain
liable with respect to Indebtedness to Borrower in an aggregate principal amount
in excess of $12,000,000 at any time outstanding (and it is hereby acknowledged
and agreed that the proceeds of such Indebtedness should not be used for any
purposes other than (i) to finance a portion of the Initial Coppley
Consideration, (ii) to finance Ontario Inc.'s working capital needs and (iii)
for Ontario Inc.'s general corporate purposes)" immediately prior to the second
reference to ";" contained in clause (iv) thereof, (ii) deleting the reference
to "and" contained in clause (x) thereof, deleting the reference to "."
contained in clause (xi) thereof and substituting "; and" therefore and
inserting the phrase "(xii) from and after the Coppley Closing Date and the
amalgamation of Coppley with and into Ontario Inc., Ontario Inc. may become and
remain liable with respect to the Indebtedness outstanding (x) under the
Existing Coppley Credit Facility; provided that the aggregate principal amount
of such Indebtedness shall not exceed $5,000,000 (Canadian) at any time
outstanding (and it is hereby acknowledged and agreed that the proceeds of such
Indebtedness should not be used for any purposes other than (i) to finance a
portion of the Initial Coppley Consideration, (ii) to finance Ontario Inc.'s
working capital needs and (iii) for Ontario Inc.'s general corporate purposes)
and (y) under the Coppley Seller Notes; provided (i) the Coppley Seller Notes
shall be subordinated to the Obligations in form and substance satisfactory to
Managing Agent and (ii) the aggregate principal amount of such Indebtedness
shall not exceed $8,250,000 (Canadian) (as such amount may be adjusted pursuant
to Section 3.3 of the Coppley Acquisition Agreement) at any time outstanding "
therein.
B. Liens and Related Matters. Subsection 7.2(A) of the Credit Agreement is
amended by (i) deleting the reference to "; and" contained in clause (v) thereof
and substituting ";" therefor, (ii) inserting the phrase ": provided further
that, from and after the Coppley Acquisition Date and the amalgamation of
Coppley with and into Ontario Inc., the property of Ontario Inc. may be
encumbered by the Liens set forth on Schedule 1 annexed to the Seventh Amendment
and by this reference incorporated herein" immediately prior to the reference to
"." contained in clause (vi) thereof, (iii) deleting the reference to "."
contained in clause (vi) thereof and substituting "; and (vii) Liens on the
property of Ontario Inc. securing the Coppley Seller Notes; provided that such
Liens shall be subject to (x) the Liens in favor of Collateral Agent securing
Ontario Inc.'s obligations under the Guaranty and (y) the Lien in favor of
Borrower (which shall have been assigned to Collateral Agent) securing Ontario
Inc.'s obligations to Borrower with respect to any intercompany loan made by
Borrower to Ontario pursuant to subsection 7.1(iv)" therefor.
C. Investments; Joint Ventures. Subsection 7.3 of the Credit Agreement is
amended
4
<PAGE>
by (i) inserting the phrase "; provided that (x) the aggregate principal amount
of intercompany loans made by Borrower to Ontario Inc. shall not exceed
$12,000,000 at any time outstanding (and it is hereby acknowledged and agreed
that the proceeds of such Indebtedness should not be used for any purposes other
than (i) to finance a portion of the Initial Coppley Consideration, (ii) to
finance Ontario Inc.'s working capital needs and (iii) for Ontario Inc.'s
general corporate purposes) and (y) Subsidiaries of Borrower shall not make any
intercompany loans to Ontario Inc. or any of its Subsidiaries" immediately prior
to the reference to ";" contained in clause (ii) thereof and (ii) inserting the
phrase "; provided that the aggregate amount of Borrower's equity Investment in
Ontario Inc. shall not exceed $4,000,000" immediately prior to the reference to
"." contained in clause (xi) thereof.
D. Contingent Obligations. Subsection 7.4 of the Credit Agreement is
amended by deleting the reference to "." contained in clause (viii) thereof and
substituting the phrase "; and (ix) Borrower may become and remain liable with
respect to the Coppley Guaranty; provided that notwithstanding anything to the
contrary contained in this Agreement, the aggregate principal amount of such
Contingent Obligations shall not at any time exceed the aggregate amount of the
Coppley Seller Notes as permitted hereunder.
E. Restriction on Fundamental Changes; Asset Sales. Subsection 7.7 of the
Credit Agreement is amended by inserting the following after the last paragraph
thereof:
"Notwithstanding anything to the contrary contained herein, Ontario
Inc. may consummate the Coppley Acquisition; provided that (v) immediately
after the consummation of the Coppley Acquisition, Coppley shall be
amalgamated with and into Ontario Inc., (w) the condition precedent set
forth in clause (vii) of this subsection 7.7 shall be satisfied with
respect to the Coppley Acquisition on or before December 31, 1998 (it being
understood and agreed that (x) the first priority security interest of
Collateral Agent in the Collateral of Ontario Inc. shall be subject to the
Liens to the extent set forth on Schedule 1 annexed to the Seventh
Amendment and incorporated herein by this reference and (y) Ontario Inc.
shall not be subject to the requirement of subsection 6.11 of the Credit
Agreement relating to (i) Collateral Access Agreements until 60 days after
the Coppley Closing Date and (ii) Cash Management Letters), (x) the Coppley
Documents (including, without limitation, the subordination provisions
thereof) shall be in form and substance satisfactory to Managing Agent, (y)
Borrower and its Subsidiaries (excluding Ontario, Inc. and its
Subsidiaries) shall not make loans, advances, investments, capital
contributions or other transfers to Ontario Inc. or its Subsidiaries other
than the intercompany loan permitted by subsection 7.1(iv) and the equity
Investment permitted by subsection 7.3(xi)) and (z) solely for purposes of
subsection 7.12 of the Credit Agreement, Ontario Inc. and its Subsidiaries
shall be deemed to be Affiliates of Borrower and not Subsidiaries of
Borrower. Each of Borrower and each other Credit Party hereby acknowledges
and agrees that from and after the Coppley Closing Date, the Coppley
Documents
5
<PAGE>
shall be "Related Documents" hereunder."
F. Events of Default. Subsection 8.2 of the Credit Agreement is hereby
amended by adding the following proviso at the end of thereof:
"; provided that for purposes of the Coppley Documents only, each of
the references to "3,000,000" contained in clause (i) or (ii) of this
subsection 8.2 shall be deemed to be a reference to "4,000,000".
SECTION 2. 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:
no event has occurred and is continuing which constitutes an Event of
Default or Potential Event of Default;
the representations and warranties of Borrower and the other Credit
Parties (including, without limitation, Ontario Inc.) 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;
each of Borrower and the other Credit Parties (including, without
limitation, Ontario Inc.) 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;
Borrower and the Guarantors (including, without limitation, Ontario
Inc.) have all requisite corporate power and authority to enter into this
Amendment, to consummate the transactions contemplated by this Amendment
and the transactions contemplated by, and perform its obligations under,
the Credit Agreement;
the execution of this Amendment, and the consummation of the
transactions contemplated by this Amendment, have been duly authorized by
all necessary corporate action on the part of Borrower and the Guarantors
(including, without limitation, Ontario Inc.); and
(f) the execution and delivery by Borrower and the Guarantors
(including, without limitation, Ontario Inc.) of this Amendment, and the
consummation of the transactions contemplated by this Amendment by Borrower
and the Guarantor (including, without limitation, Ontario Inc.), does not
and will not (i) violate any provision of any
6
<PAGE>
law or any governmental rule or regulation applicable to Borrower, the
Guarantors (including, without limitation, Ontario Inc.) or any of their
respective Subsidiaries, any constating documents of Borrower, the
Guarantors (including, without limitation, Ontario Inc.) or any order,
judgment or decree of any court or other agency of government binding on
Borrower, the Guarantors (including, without limitation, Ontario Inc.) or
any or 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
(including, without limitation, Ontario Inc.) 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
(including, without limitation, Ontario Inc.) 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 (including, without
limitation, Ontario Inc.) 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.
7
<PAGE>
SECTION 4. MISCELLANEOUS
4.1 References to and Effect on the Credit Agreement and Other Loan Documents.
(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 Expense.
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 AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE INTERNAL LAWS OF THE STATE OF NEW YORK (INCLUDING WITHOUT LIMITATION SECTION
5-1401 OF THE GENERAL OBLIGATIONS LAW OF THE STATE OF NEW YORK), WITHOUT REGARD
TO 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;
8
<PAGE>
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 the 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.
[Remainder of page intentionally left blank]
9
<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:
Glenn R. Morgan, Executive Vice President and
Chief Financial Officer
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 SUBURBANS, INC.
DIRECT ROUTE MARKETING CORPORATION
E-TOWN SPORTSWEAR CORPORATION
FAIRWOOD-WELLS, INC.
GLENEAGLES, INC.
PUSSER'S OF THE WEST INDIES APPAREL COMPANY
(formerly known as TAG APPAREL, INC.)
HANDMACHER FASHIONS FACTORY OUTLET, INC.
HANDMACHER-VOGEL, INC.
HARTMARX INTERNATIONAL, INC.
HART SCHAFFNER & MARX
HART SERVICES, INC.
THOS. HEATH CLOTHES, INC.
TAG LICENSING, INC. (formerly known as HGA
LICENSING, INC.)
HICKEY-FREEMAN CO., INC.
HIGGINS, FRANK & HILL, INC.
S-1
<PAGE>
NOVAPPAREL, INC. (formerly known as HMXUS,
INC.)
HOOSIER FACTORIES, INCORPORATED
HSM UNIVERSITY, INC.
INTERCONTINENTAL APPAREL, INC.
INTERNATIONAL WOMEN'S APPAREL, INC.
JAYMAR-RUBY, INC.
JRSS, INC.
KUPPENHEIMER MEN'S CLOTHIERS DADEVILLE, INC.
MEN'S QUALITY BRANDS, INC.
NATIONAL CLOTHING COMPANY, INC.
106 REAL ESTATE CORP.
PLAID CLOTHING COMPANY, INC. (formerly known
as HMX/PBP COMPANY)
RECTOR SPORTSWEAR CORPORATION
ROBERTS INTERNATIONAL CORPORATION
SALHOLD, INC.
SEAFORD CLOTHING CO.
SOCIETY BRAND, LTD.
ROBERT SURREY, INC.
TAILORED TREND, INC.
THORNGATE UNIFORMS, INC.
TRADE FINANCE INTERNATIONAL LIMITED
UNIVERSAL DESIGN GROUP, LTD.
M. WILE & COMPANY, INC.
WINCHESTER CLOTHING COMPANY
YORKE SHIRT CORPORATION
By:
----------------------------------------------
Glenn R. Morgan
Vice President of each of the foregoing
S-2
<PAGE>
LENDERS:
GENERAL ELECTRIC CAPITAL CORPORATION,
individually, as Managing Agent and as Collateral
Agent
By:
----------------------------------------------
Name:
Title:
S-3
<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:
Name:
Title:
S-4
<PAGE>
BANKAMERICA BUSINESS CREDIT, INC.,
individually and as Co-Agent
By:
------------------------------
Name:
Title:
S-5
<PAGE>
THE FIRST NATIONAL BANK OF CHICAGO, individually and as Issuing Lender for
Existing Letters of Credit
By:
------------------------------
Name:
Title:
S-6
<PAGE>
MANUFACTURERS AND TRADERS TRUST COMPANY
By:
Name:
Title:
S-7
<PAGE>
HARRIS TRUST AND SAVINGS BANK
By:
Name:
Title:
S-8
<PAGE>
THE NORTHERN TRUST COMPANY
By:
Name:
Title:
S-9
<PAGE>
THE CHASE MANHATTAN BANK (formerly known as
Chemical Bank)
By:
Name: Jonathan E. Twichell
Title: Vice President
S-10
<PAGE>
SANWA BUSINESS CREDIT CORPORATION
By:
Name:
Title:
S-11
<PAGE>
EXHIBIT 10-G-8
[Date]
[Name of Officer]
[Company Name]
[Street Address]
[City, State, Zip Code]
Dear [Name]:
Hartmarx Corporation ("Hartmarx") has been authorized by its Board of
Directors to take appropriate steps approved by the Compensation and Stock
Option Committee to induce your continued attention to your assigned duties as
an important Company executive in the event of a potential CHANGE IN CONTROL,
although not now contemplated, of Hartmarx.
Accordingly, if you agree to remain employed by Hartmarx and/or any
subsidiary of Hartmarx (collectively, the Company) until a CHANGE IN CONTROL,
Hartmarx agrees to pay you the severance benefit described below ("Severance
Payment") in the event of the termination of your employment at any time during
the twenty-four (24) month period next following a CHANGE IN CONTROL for any
reason other than (i) your death, disability or retirement; (ii) by the Company
for Cause (as hereinafter defined); or (iii) by you for other than Good Reason
(as hereinafter defined).
The initial term of this agreement continues through November 30, 1999,
and shall automatically be extended for one additional year on each December 1
thereafter unless the Company gives you written notice not later than August 30
immediately preceding any December 1 that it does not wish to extend this
agreement, provided, however, that if any of the following events shall occur
during the initial or extended period, then the agreement shall continue for a
period of twenty-four (24) months beyond the month in which such a CHANGE IN
CONTROL shall be deemed to have occurred. A CHANGE IN CONTROL shall be deemed to
have occurred if:
(A) any Person is or becomes the Beneficial Owner, directly or indirectly,
of securities of the Company representing 25% or more of the combined
voting power of the Company's then outstanding securities, excluding
any Person who becomes such a Beneficial Owner in connection with a
transaction described in clause (i) of paragraph (C) below; or
<PAGE>
[Name]
[Date]
Page - 2 -
(B) during any period of two consecutive years (not including any period
prior to the date of this Agreement), individuals who at the beginning
of such period constitute the Board of Directors of the Company
("Board") (together with any new directors whose election by the Board
or whose nomination for election by the shareholders of the Company
was approved by a vote of at least 66 2/3% of the directors of the
Company then still in office who were either directors at the
beginning of such period or whose election or nomination for election
was previously so approved) cease for any reason to constitute a
majority of the Board then in office; or
(C) there is consummated a merger or consolidation of the Company (or any
direct or indirect subsidiary of the Company) with any other
corporation, other than (i) a merger or consolidation which would
result in the voting securities of the Company outstanding immediately
prior to such merger or consolidation continuing to represent (either
by remaining outstanding or by being converted into voting securities
of the surviving entity or any parent thereof) at least 75% of the
combined voting power of the voting securities of the Company or such
surviving entity or any parent thereof outstanding immediately after
such merger or consolidation, or (ii) a merger or consolidation
effected to implement a recapitalization of the Company (or similar
transaction) in which no Person is or becomes the Beneficial Owner,
directly or indirectly, of securities of the Company representing 25%
or more of the combined voting power of the Company's then outstanding
securities; or
(D) the stockholders of the Company approve a plan of complete liquidation
or dissolution of the Company or there is consummated an agreement for
the sale or disposition by the Company of all or substantially all of
the Company's assets, other than a sale or disposition by the Company
of all or substantially all of the Company's assets to an entity at
least 75% of the combined voting power of the voting securities of
which are owned by Persons in substantially the same proportions as
their ownership of the Company immediately prior to such sale.
<PAGE>
[Name]
[Date]
Page - 3 -
Notwithstanding the foregoing, a CHANGE IN CONTROL shall not be deemed to
occur in the event of a Management CHANGE IN CONTROL. A Management CHANGE IN
CONTROL shall mean a CHANGE IN CONTROL pursuant to which you (alone or with
others) acquires or retains, directly or indirectly, the power to direct or
cause the direction of the management and policies of the Company (whether
through the ownership of voting securities, by contract, or otherwise) and which
is directly or indirectly attributable to a public announcement by you (or
others acting in concert with you) of an intention to take actions which, if
consummated, would constitute such Management CHANGE IN CONTROL. In addition, no
"CHANGE IN CONTROL" shall be deemed to have occurred if there is consummated any
transaction or series of integrated transactions immediately following which the
record holders of the common stock of the Company immediately prior to such
transaction or series of transactions continue to have substantially the same
proportionate ownership in an entity which owns all or substantially all of the
assets of the Company immediately following such transaction or series of
transactions.
"Person" shall mean any person (as defined in Section 3(a)(9) of the
Securities Exchange Act (the "Exchange Act"), as such term is modified in
Sections 13(d) and 14(d) of the Exchange Act) other than (i) any employee plan
established by the Company, (ii) the Company or any of its affiliates (as
defined in Rule 12b-2 promulgated under the Exchange Act), (iii) an underwriter
temporarily holding securities pursuant to an offering of such securities, or
(iv) a corporation owned, directly or indirectly, by stockholders of the Company
in substantially the same proportions as their ownership of the Company.
"Beneficial Owner" shall mean beneficial owner as defined in Rule 13d-3
under the Exchange Act.
The Severance Payment will be equal to (i) 50% of your Annual Compensation
plus one-twelfth (1/12) of your Annual Compensation for each of your full or
partial years of employment by the Company at the time of your termination, up
to twelve years if you are under age 50, otherwise, up to eighteen years; plus
(ii) the excess of the value of all shares of Hartmarx common stock issuable
upon exercise of then outstanding stock options granted to you under any
Hartmarx stock option plan (whether or not then exercised or fully exercisable),
over the aggregate exercise price of such options. All such options shall be
cancelled upon the making of said payment. For purposes of calculating your
Severance Payment, the term "Annual Compensation" means the average annual rate
of compensation payable to you by the Company for the three (3) calendar years
immediately preceding the calendar year in which a CHANGE IN CONTROL occurs,
including, without limitation, all compensation income recognized as a result of
your exercise of Hartmarx stock options (or Stock Appreciation Rights) or the
<PAGE>
[Name]
[Date]
Page -4-
sale of the stock so acquired, or earned by you but not paid for any reason
other than your agreement to postpone and defer such payment. In the event that
you have not been employed by the Company for at least three (3) calendar years
immediately preceding the calendar year in which a CHANGE IN CONTROL occurs,
"Annual Compensation" shall mean the average annual rate of compensation payable
to you by the Company for such period of time as you have been employed by the
Company immediately preceding the calendar year in which a CHANGE IN CONTROL
occurs, including, without limitation, all compensation income recognized as a
result of your exercise of Hartmarx stock options (or Stock Appreciation Rights)
or the sale of the stock so acquired, or earned by you but not paid for any
reason other than your agreement to postpone and defer such payment.
Termination of your employment for "Cause" means termination because of (i)
your willful and continued failure to substantially perform your duties with the
Company (other than resulting from your disability or after you have notified
the Company that you intend to terminate your employment for Good Reason) after
a written demand for substantial performance is delivered to you by the Board,
which demand specifically identifies the manner in which the Board believes you
have not substantially performed your duties; or (ii) your willful engaging in
conduct which is demonstrably and materially injurious to the Company; provided,
however, that no act or failure to act on your part shall be deemed "willful"
unless done, or omitted to be done, in bad faith and without reasonable belief
that your action or omission was in the best interest of the Company.
Termination of your employment for "Good Reason" means your termination after
the Company has taken any action without your express written consent, which
directly or indirectly reduces or deprives you of any material benefit enjoyed
by you or any of your beneficiaries immediately prior to a CHANGE IN CONTROL,
including, without limitation, the occurrence of any of the following:
(A) the assignment to you of any duties inconsistent with your status as
[Title and Company Name], or a substantial adverse alteration in the
nature or status of your responsibilities from those in effect
immediately prior to a CHANGE IN CONTROL;
(B) a reduction in your annual base salary and/or bonus opportunity as in
effect immediately prior to a CHANGE IN CONTROL;
(C) the Company's requiring you to be based anywhere 50 miles or more
outside the metropolitan area of the city in which you are principally
engaged or performing your duties for the Company immediately prior to
a CHANGE IN CONTROL;
<PAGE>
[Name]
[Date]
Page -5-
(D) the Company's failure to: (i) pay you any portion of your
compensation, including bonus and/or deferred compensation, within
seven (7) days of its due date; (ii) continue any compensation or
benefit plan in which you participate, or to continue your
participation therein on a basis not materially less favorable, both
in terms of the amount of benefits provided and the level of your
participation relative to other participants; (iii) continue to
provide you with benefits substantially similar to those you enjoy at
the time of a CHANGE IN CONTROL; (iv) to provide you with the number
of paid vacation days to which you may then be entitled on the basis
of years of service with the Company in accordance with the Company's
normal vacation policy in effect at the time of a CHANGE IN CONTROL;
or (v) to obtain a satisfactory agreement from any successor to assume
and agree to perform this Agreement.
If you are employed by the Company upon a CHANGE IN CONTROL and
simultaneously or thereafter become eligible to receive a Severance Payment, it
will be paid to you, in a lump sum, immediately upon your termination of
employment in addition to all other amounts to which you may be entitled under
any employment agreement(s) and/or compensation plan(s) of the Company. If any
part of the Severance Payment is subject to the Excise Tax imposed by Section
4999 of the Internal Revenue Code (the "Code"), Hartmarx will also pay you an
additional amount such that the net amount retained by you, after deduction of
any such tax and any federal, state and local income tax upon the payment
provided for by this paragraph, shall be equal to the Severance Payment plus any
other payments or benefits treated as "parachute payments" within the meaning of
Section 280G(b)(2) of the Code. Hartmarx will also pay or reimburse you for all
legal fees and expenses which you incur to obtain any benefit (including the
Severance Payment) to be provided to you pursuant to this letter. If you should
die while any amount if payable to you hereunder, such amount shall be paid to
your devisee, legatee or other designee or, if there is no such designee, to
your estate.
Nothing in this letter is intended to give you the right to be retained in
the employ of Hartmarx or any of its subsidiaries or to interfere with the
Company's right to discharge you at any time for any reason. Prior to a CHANGE
IN CONTROL, you will have no right or interest whatsoever in or to the Severance
Payment or any portion thereof.
<PAGE>
[Name]
[Date]
Page -6-
Upon receiving this letter, please sign the copy enclosed for that purpose
where indicated (acknowledging your agreement to the foregoing) and return it as
soon as possible.
Very truly yours,
HARTMARX CORPORATION
By:
--------------------------------
E.O. Hand, Chairman and
Chief Executive Officer
AGREED AND ACCEPTED:
- ----------------------------
[Name of Officer]
<PAGE>
EXHIBIT 12
HARTMARX CORPORATION
STATEMENT OF COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
-------------------------------------------------------
1998 1997 1996 1995 1994
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Earnings from continuing
operations before provision for
income taxes per Consolidated
Statement of Earnings $23,585 $16,545 $ 7,700 $ 1,630 $ 5,139
Add:
Interest Expense /(a)/ 18,633 17,480 16,681 20,001 21,214
Portion of rents representative
of the interest factor/ (a) (b)/ 3,622 3,736 3,424 6,114 8,054
-------------------------------------------------------
Income as adjusted $45,840 $37,761 $27,805 $27,745 $34,407
=======================================================
Fixed charges:
Interest expense /(a)/ $18,633 $17,480 $16,681 $20,001 $21,214
Portion of rents representative
of the interest factor /(a) (b)/ 3,622 3,736 3,424 6,114 8,054
-------------------------------------------------------
Fixed charges $22,255 $21,216 $20,105 $26,115 $29,268
=======================================================
Ratio of earnings to fixed charges 2.06 1.78 1.38 1.06 1.18
=======================================================
</TABLE>
(a) Includes amounts related to discontinued operations for 1995 and 1994.
(b) Represents one-third of rent expense which management believes represents a
reasonable approximation of the interest component of rent expense.
<PAGE>
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
Jurisdiction in
Name which Incorporated
---- ------------------
<S> <C>
HARTMARX CORPORATION (Registrant)............................ Delaware
Coppley Apparel Group Limited .......................... Ontario, Canada
Direct Route Marketing Corporation...................... New Hampshire
Hart Schaffner & Marx................................... New York
American Apparel Brands, Inc....................... New York
National Clothing Company, Inc..................... New York
Winchester Clothing Company........................ Kentucky
Hickey-Freeman Co., Inc................................. New York
International Women's Apparel, Inc...................... Texas
Jaymar-Ruby, Inc. (d/b/a Trans-Apparel Group)........... Indiana
Anniston Sportswear Corporation.................... Indiana
E-Town Sportswear Corporation................. Kentucky
Rector Sportswear Corporation................. Arkansas
Biltwell Company, Inc.............................. Missouri
Men's Quality Brands, Inc............................... New York
M. Wile & Company, Inc. (d/b/a Intercontinental
Branded Apparel)...................................... New York
Intercontinental Apparel, Inc...................... Delaware
Novapparel, Inc......................................... Delaware
Plaid Clothing Company, Inc............................. Delaware
Pusser's of the West Indies Apparel Company............. Delaware
Universal Design Group, Ltd............................. New York
-----------------------------------------------------------------
</TABLE>
The names of 32 subsidiaries are omitted, as such subsidiaries, considered
in the aggregate as a single subsidiary, would not constitute a significant
subsidiary. The Registrant owns, directly or indirectly, 100% of the voting
securities of both the named and unnamed subsidiaries, except for one of the
unnamed subsidiaries, which is owned 50.1% by a wholly-owned subsidiary of the
Registrant. All of the above subsidiaries (including unnamed subsidiaries) are
included in the consolidated financial statements of the Registrant and its
subsidiaries.
<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> 12-MOS
<FISCAL-YEAR-END> NOV-30-1998
<PERIOD-END> NOV-30-1998
<CASH> 5,292
<SECURITIES> 0
<RECEIVABLES> 131,342
<ALLOWANCES> (8,210)
<INVENTORY> 207,679
<CURRENT-ASSETS> 363,428
<PP&E> 188,052
<DEPRECIATION> (137,018)
<TOTAL-ASSETS> 484,722
<CURRENT-LIABILITIES> 103,835
<BONDS> 169,927
0
0
<COMMON> 87,099
<OTHER-SE> 123,861
<TOTAL-LIABILITY-AND-EQUITY> 484,722
<SALES> 725,002
<TOTAL-REVENUES> 726,884
<CGS> 540,545
<TOTAL-COSTS> 684,666
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 18,633
<INCOME-PRETAX> 23,585
<INCOME-TAX> 8,965
<INCOME-CONTINUING> 14,620
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,620
<EPS-PRIMARY> .42
<EPS-DILUTED> .42
</TABLE>
<PAGE>
EXHIBIT 99
FORWARD LOOKING STATEMENTS
Written and oral statements provided by the Company from time to time may
contain certain forward looking information, as that term is defined by the
Private Securities Litigation Reform Act of 1995 (the "Act") and in releases
made by the Securities and Exchange Commission ("SEC"). The cautionary
statements which follow are being made pursuant to the provisions of the Act and
with the intention of obtaining the benefits of the "safe harbor" provisions of
the Act. While the Company believes that the assumptions underlying such forward
looking information are reasonable based on present conditions, forward looking
statements made by the Company are not guarantees of future performance and
actual results may differ materially from those in the forward looking
statements as a result of various factors. Accordingly, the Company has
identified important factors which could cause the Company's actual financial
results to differ materially from any such results which might be projected,
forecasted or estimated by the Company in written or oral forward looking
statements:
. The overall retail economy in the United States could affect retailers'
expectations of future apparel product sales. A more pessimistic evaluation
compared to 1998 could adversely affect both the advance order and in-stock
product lines marketed by the Company. The Company's sales and earnings
could be adversely impacted to the extent that the financial strength of
its existing or new retail customers worsens.
. The Company's largest customer represented approximately 16% of
consolidated sales in fiscal 1998. The Company's second largest customer in
1998 represented approximately 9% of consolidated sales. The Company
believes it maintains an excellent business relationship with these
customers and sales volume for 1999 is anticipated to approximate recent
historical levels. However, an unanticipated decline in sales with the
Company's largest customers would adversely affect profitability as it
would be difficult to immediately replace this business with new customers
or increase volume with other existing customers.
. Substantially all of the Company's men's and women's sportswear, men's
dress furnishings, women's career wear and a portion of its tailored suits,
sportcoats and slack production are manufactured utilizing independent
contractors, mostly located outside of the United States. The percentage of
product manufactured or assembled outside of the United States is
increasing. The Company is dependent upon the contractors' ability to
deliver such products on a timely basis. Labor, delivery, or transportation
difficulties regarding contractor sourced products which result in delays
not readily controllable by the Company could negatively affect operating
profits. Also, unanticipated political or economic disruptions in these
countries and/or currency fluctuations could adversely impact overall
Company profitability.
. Continuation of the trend towards more casual dressing in the workplace
could reduce the demand for the Company's tailored clothing products,
especially for tailored suits. While
<PAGE>
the Company markets several sportswear and casual product lines, consumer
receptiveness to the Company's casual and sportswear products may be less
than anticipated.
. Sales derived from products which utilize licensed brand names represent an
important current component of the Company's overall revenue and
profitability. The Company also serves as a licensing agent for several of
its principal licensors. While the Company believes the relationships with
its principal licensors to be favorable and the termination of any single
licensing agreement would not have a material adverse effect on its
business taken as a whole, the long-term prospects of the Company assume
the continuation of a significant percentage of existing licensing
arrangements and ongoing consumer acceptance of the products sold under
these licensed brands.
. The conditions in the moderate priced tailored clothing product category
remain intensely competitive. To address these conditions, the Company has
been, among other things, reducing overall product costs, including
increased off-shore sourcing and introducing new brands with higher gross
margin potential, and placing less emphasis on brands which do not have the
potential of achieving acceptable profit margins. While gross margin
enhancement programs produced some beneficial impact in 1998, the overall
operating profit contribution remains low. If these efforts do not meet
with consumer acceptance, sales and profitability could be adversely
affected.
. The Company competes with numerous manufacturers and distributors of
apparel products, both foreign and domestic. Currency valuation changes
versus the U.S. dollar arising from the economic difficulties experienced
in many of the Asian economies during 1998 has, among other things, reduced
the cost of products imported into the United States from these countries.
The Company sources only a limited percentage of products from Asia
(principally certain golf products and women's styles). The Company's
ability to generate sufficient margins from products not sourced from Asia
(such as suits, sportcoats, tailored and casual slacks) could be adversely
affected to the extent that competitors can source these products from Asia
at lower costs in sufficient quantities at comparable quality levels.
. Fabric purchases from the Company's largest supplier approximated one-third
of the total fabric requirements in fiscal 1998. As is customary in the
industry, there are no long-term contracts with fabric suppliers. The
Company believes that there are alternative sources of supply available to
satisfy its raw material requirements. However, a prolonged, unanticipated
disruption of scheduled deliveries from this or other suppliers would
adversely affect production scheduling and ultimately the Company's ability
to meet customer delivery dates.
. The Company is addressing Year 2000 issues for its computer systems,
operations systems, microprocessors and other significant computer-based
devices and applications. The Company has had under review the
comprehensive upgrading, consolidation and integration of its principal
management information systems utilized in the operation
<PAGE>
of its businesses ("Project") along with a review of non-Project systems
and compatibility with various third party systems on which the Company
relies.
During 1997, the Company commenced the Project, which encompasses
substantial enhancements to the Company's existing hardware configurations
and software applications related to its sales, manufacturing, distribution
and accounting operations. A significant portion of the new system
enhancements will emanate from purchased software for which written
representation has been received from the application vendors that such
software is Year 2000 compliant. In this context, Year 2000 compliance is
being addressed, whether relating to new systems that comprise a part of
the Project or with respect to existing management information systems that
may continue to be used beyond January 1, 2000. Although it was initially
expected that the new systems and software included in the Project would
substantially address Year 2000 issues, the Company and its consultant
currently assess that existing systems for the most part will continue in
operation beyond January 1, 2000. Efforts are currently underway to
upgrade, enhance and test these existing systems and software requirements,
including compatability with the various third-party applications. To date,
the Company has commenced its systems upgrade at two operating units and no
Year 2000 defects have been noted. As stated, the Company initially
intended that the new systems and software included in the Project would be
substantially operational by the end of 1999, in order to address year 2000
compliance. The Company is, therefore, currently implementing its primary
contingency plan, which includes testing, upgrading and remediating when
necessary its existing systems and software, a process which is expected to
be completed by August 1999.
The Company has also established formal communications with significant
suppliers and customers to determine the extent to which the Company is
vulnerable to those third parties' failure to remediate their own Year 2000
issues. Additionally, the Company has identified the critical systems
provided by other third party service providers (e.g., financial
institutions and utilities suppliers). While the Company must necessarily
rely to some extent on the representations of these third parties and their
statements or certifications of compliance to certain government agencies
regarding Year 2000 capabilities, the Company is also in various stages of
Year 2000 testing and implementation of the systems and/or upgrades
provided by third parties.
The Company recognizes that issues related to Year 2000 remediation
constitute a known uncertainty and the importance of ensuring its
operations will not be adversely affected by Year 2000 issues. Its
procedures are anticipated to be effective to identify and manage the risks
associated with Year 2000 compliance. However, there can be no assurance
that the process can be completed as described above or that the
remediation process will be fully effective. The failure to identify and
remediate the Company's systems or the failure of key third parties who do
business with the Company or governmental agencies to timely remediate
their systems that interface with the Company's systems could result
<PAGE>
in system failures or errors or business interruptions, which could have a
material adverse effect on the Company's results of operations and
financial condition.
. During 1998, the Company's variable rate debt (based on the Prime or LIBOR
rates in effect from time to time) averaged approximately $98 million under
its Revolving Credit Facility. The Company anticipates that such variable
borrowings will be comparable during 1999 at rates averaging approximately
7%. An unexpected increase in total borrowings and/or in the borrowing
rates under the Revolving Credit Facility would adversely affect
profitability.
. The Company is not aware of and has assumed no significant adverse impact
of pending or threatened litigation matters.
. The Company acquired the trademarks and wholesale apparel business of
Pussers, Ltd. in November 1998, and in December 1998, acquired the capital
stock of Coppley, Noyes and Randall, a leading Canadian manufacturer and
marketer of men's tailored clothing and other apparel. If the results of
operations of these businesses do not achieve the levels anticipated, the
Company's profitability could be adversely affected. The Company has
assumed that no other acquisitions will occur during the remainder of 1999.
The above noted review of factors pursuant to the Act should not be construed as
exhaustive or as any admission regarding the adequacy of disclosures made by the
Company.
