<PAGE>
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM 10-K
(Mark
One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended November 30, 1999
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 No. 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>
Title of each class Name of each exchange on which registered
------------------- -----------------------------------------
<S> <C>
Common Stock, $2.50 par value per New York Stock Exchange
share Chicago Stock Exchange
Preferred Stock Purchase Rights New York Stock Exchange
Chicago Stock Exchange
10 7/8% Senior Subordinated Notes New York Stock Exchange
due
January 15, 2002
</TABLE>
Securities registered pursuant to Section 12(g) of the Act: NONE
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
--- ---
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 ]
On February 14, 2000, 29,194,471 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 $90,000,000.
Certain portions of the Registrant's definitive proxy statement dated
February 25, 2000 for the Annual Meeting of Stockholders to be held April 13,
2000 are incorporated by reference into Part III of this report.
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<PAGE>
HARTMARX CORPORATION
INDEX TO ANNUAL REPORT ON FORM 10-K
<TABLE>
<CAPTION>
ITEM
No. Page
---- ----
PART I
<S> <C> <C>
1 Business.............................................................................. 1
2 Properties............................................................................ 5
3 Legal Proceedings..................................................................... 5
4 Submission of Matters to a Vote of Security Holders................................... 6
Executive Officers of the Registrant.................................................. 6
PART II
5 Market for Registrant's Common Equity and Related Stockholder Matters................. 7
6 Selected Financial Data............................................................... 8
7 Management's Discussion and Analysis of Financial Condition and Results of Operations. 9
7A Quantitative and Qualitative Disclosures About Market Risk............................ 15
8 Financial Statements and Supplementary Data........................................... 15
9 Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.. 35
PART III
10 Directors and Executive Officers of the Registrant.................................... 35
11 Executive Compensation................................................................ 35
12 Security Ownership of Certain Beneficial Owners and Management........................ 35
13 Certain Relationships and Related Transactions........................................ 36
PART IV
14 Exhibits, Financial Statement Schedules and Reports on Form 8-K....................... 36
</TABLE>
<PAGE>
PART I
Item 1--Business
General and Operating Segments
Hartmarx Corporation, a Delaware corporation, functions essentially as a
holding company, overseeing its various operations and providing resources and
services in financial, administrative, legal, human resources, advertising and
other areas. The management of the respective operations 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.
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, slacks and sportswear (including
golfwear) and dress furnishings (shirts and ties); products are sold under a
broad variety of business and casual apparel brands, both owned and under
license to an extensive range of retail, catalog and e-commerce channels; 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 Operating Segment
Information on page 9 in Item 7 and on page 34 in the accompanying Notes to
Consolidated Financial Statements further describes the Company's operations.
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), Keithmoor(R) and
Royal Shirt(TM); 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 of Scotland(R), Claiborne(R),
Pierre Cardin(R), Alan Flusser(R) and KM by Krizia(TM). To broaden the
distribution of the apparel sold under its owned and licensed trademarks, the
Company has also entered into over 20 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 direct marketing activities primarily in Europe, but also in Asia, North
America and South America, selling golfwear in 21 countries.
The Company has expanded its product offerings through acquisitions in the
last few years. On August 27, 1999, a wholly owned subsidiary of the Company
acquired 100% of the capital stock of The Royal Shirt Company, Ltd. ("Royal"),
a Canadian based manufacturer and marketer of dress and sport shirts.
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. ("Pusser's") from an entity which
operates 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. Royal, Coppley and
Pusser's are hereafter referred to as "the new businesses". On November 26,
1996, a wholly-owned subsidiary of the Company purchased substantially all of
the license rights to manufacture
1
<PAGE>
and market men's tailored suits, sportcoats and slacks under the Burberry(R),
Claiborne(R) and Evan-Picone(R) brands, as well as ownership of the Palm
Beach(R), Brannoch(R) and other names, and the current assets, properties and
operations of the Plaid Clothing Group, Inc., now PCG Corp. I, and its
subsidiaries ("Plaid").
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, net of tax benefit, have been
reflected as a discontinued operation in the accompanying Selected Financial
Data.
This 1999 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. Wherever possible, the Company has
identified these forward-looking statements by words such as "anticipates",
"believes", "estimates", "expects", "projects", "plans" and similar phrases.
Additionally, the Company may from time to time make other oral or written
statements that are also forward-looking statements. 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 various important risk
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
including, but not limited to the following:
. The overall retail economy in the United States could affect retailers'
expectations of future apparel product sales. A more pessimistic
evaluation compared to 1999 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 18% of
consolidated sales in fiscal 1999. The Company's second largest customer
in 1999 represented approximately 7% of consolidated sales. The Company
believes it maintains an excellent business relationship with these
customers, and sales volume for 2000 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 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 revenues 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.
2
<PAGE>
. The conditions in the tailored clothing market with retail suit prices
between $325 and $675 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. If these efforts do not meet with consumer acceptance, sales and
profitability could be adversely affected.
. Fabric purchases from the Company's largest supplier approximated one-
fourth of the total fabric requirements in fiscal 1999, down from
approximately one-third in the prior year. 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.
. During 1999, the Company's variable rate debt (based on the Prime or
LIBOR rates in effect from time to time) averaged approximately $94
million under its Revolving Credit Facility. 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 assumes no obligation to update publicly or release any revisions
to any forward-looking statements, whether as a result of new information,
future events or otherwise.
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. MAG represented 93% of sales in 1999 and 92%
in 1998 and 1997. Women's Apparel Group represented approximately 7% of sales
in 1999 and 8% in 1998 and 1997. 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 twelve Company operated facilities located in the United
States, three facilities in Canada, one factory in Costa Rica and one factory
in Mexico. Some of its dress furnishings are produced at a Company-operated
facility in Canada. The Company utilizes domestic and foreign contract
manufacturers to produce its remaining products, principally men's and women's
sportswear, as well as women's career apparel and sportswear in accordance
with Company specifications and production schedules. Approximately one-third
of the catalog 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 one-third 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-fourth of the Company's total
fabric requirements in fiscal 1999. 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
3
<PAGE>
contracts with its suppliers. The Company believes that a variety of
alternative sources of supply are available to satisfy its raw material
requirements.
Product lines are developed primarily for two major selling seasons, spring
and fall, with smaller lines for the summer and holiday seasons. The majority
of the Company's products are purchased by its customers on an advance order
basis, five to seven months prior to shipment. Seasonal commitments for a
portion of the expected requirements are made approximately three to five
months in advance of the customer order. Certain of the Company's businesses
maintain in-stock inventory programs on selected product styles giving
customers the capability to order electronically with resulting shipment
within 24 to 48 hours. Programs with selected fabric suppliers provide for
availability to support in-stock marketing programs. The normal production
process from fabric cutting to finished production is five to six weeks for
tailored suits and sportcoats and three to four weeks for tailored slacks. A
substantial portion of sportswear and women's apparel is produced by
unaffiliated contractors utilizing Company designs.
Competition and Customers
The Company emphasizes quality, fashion, brand awareness and service in
engaging in this highly competitive business. While no manufacturer of men's
clothing accounts for more than a small percentage of the total amount of
apparel produced by the entire industry in the United States, the Company
believes it is the 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 department
and specialty stores (certain of which are under common ownership and
control), value-oriented retailers and direct mail companies. Sales in the
United States were approximately 97% of total revenues. The Company's largest
customer, Dillard Department Stores, represented approximately 18%, 16% and
15% of consolidated sales in 1999, 1998 and 1997, respectively. No other
customer exceeded 7% of net sales.
Trademarks, Licensing Agreements and Research
A significant portion of the Company's sales are of products carrying
brands and trademarks owned by the Company. As noted previously, the Company
also manufactures and markets products pursuant to exclusive license
agreements with others. While the terms and duration of these license
agreements vary, typically they provide for certain minimum payments and are
subject to renewal and renegotiation.
In the apparel industry, new product development is directed primarily
towards new fashion and design changes and does not require significant
expenditures for research. The Company's fixed assets include expenditures for
new equipment developed by others. The Company does not spend material amounts
on research activities relating to the development of new equipment.
Conditions Affecting the Environment
Regulations relating to the protection of the environment have not had a
significant effect on capital expenditures, earnings or the competitive
position of the Company. The making of apparel is not energy intensive, and
the Company is not engaged in producing fibers or fabrics.
Employees
The Company presently has approximately 8,000 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; Working Capital
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,
4
<PAGE>
especially at higher price points, generally tends to be less sensitive to
frequent shifts in fashion trends, economic conditions and weather, as
compared to men's sportswear or women's career apparel and sportswear. While
there is typically little seasonality to the Company's sales on a quarterly
basis, seasonality can be affected by a variety of factors, including the mix
of advance and fill-in orders, the distribution of sales across retail trade
channels and overall product mix between traditional and fashion merchandise.
The Company generally receives orders from its wholesale customers
approximately five to seven months prior to shipment. Some of the Company's
operating businesses also routinely maintain in-stock positions of selected
inventory in order to fill customer orders on a quick response basis.
Sales and receivables are recorded when inventory is shipped, with payment
terms generally 30 to 60 days from the date of shipment. With respect to the
tailored clothing advance order shipments, customary industry trade terms are
60 days from the seasonal billing dates of February 15 and August 15. The
Company's borrowing needs are typically lowest in July and January. Financing
requirements begin to rise as inventory levels increase in anticipation of the
spring and fall advance order shipping periods. Peak borrowing levels occur in
late March and September, just prior to the collection of receivables from
men's tailored clothing advance order shipments.
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
floor area
in square Expiration date
Location feet Principal Use of material leases
-------- ----------- ------------- ------------------
<S> <C> <C> <C>
Anniston, AL............ 76,000 Manufacturing 2005
Buffalo, NY............. 280,000 Manufacturing; warehousing; office 2015
Cape Girardeau, MO...... 171,000 Manufacturing; warehousing *
Chicago, IL............. 102,000 Executive and administrative 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 *
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 *
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 "Commitments and Contingencies" 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.
5
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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 in various executive capacities for the past five years. 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) 60 35
Homi B. Patel........... President and Chief Operating Officer (Director since 1994) 50 20
Glenn R. Morgan......... Executive Vice President and Chief Financial Officer 52 20
James E. Condon......... Vice President and Treasurer 49 22
Taras R. Proczko........ Vice President, Corporate Counsel and Secretary 45 19
Linda J. Valentine...... Vice President, Compensation and Benefits 49 19
Andrew A. Zahr.......... Vice President and Controller; Chief Accounting Officer 56 27
</TABLE>
Mr. Hand was elected to his current position as Chairman and Chief
Executive Officer 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.
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.
Mr. Proczko was elected to his current position as Vice President,
Corporate Counsel and Secretary in January 2000. From March 1993 to December
1999, he served as Assistant General Counsel.
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.
Mr. Frederick G. Wohlschlaeger served as Senior Vice President, General
Counsel and Secretary from July 1997 to January 2000, when he resigned to
accept a position at another company.
6
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PART II
Item 5--Market for Registrant's Common Equity and Related Stockholder Matters
Hartmarx common stock is traded on the New York and Chicago Stock
Exchanges. The quarterly composite price ranges of the Company's common stock
for the past three fiscal years were as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- --------------
High Low High Low High Low
------- ------- ------- ------- ------- ------
<S> <C> <C> <C> <C> <C> <C>
First Quarter.................... $6.125 $3.9375 $8.50 $7.0625 $ 6.00 $4.875
Second Quarter................... 5.25 4.3125 9.00 7.375 10.125 5.50
Third Quarter.................... 5.0625 3.625 8.00 6.50 10.00 7.125
Fourth Quarter................... 4.9375 3.6875 7.1875 4.375 9.375 7.25
</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 $12.5 million for any four consecutive fiscal quarters. The
current financing agreements also contain limitations on share repurchases
related to borrowing availability as well as various restrictive covenants
pertaining to additional debt incurrence, capital expenditures, asset sales,
operating leases, and ratios relating to maximum funded debt to earnings
before interest, taxes, depreciation and amortization ("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 14, 2000, there were approximately 4,726 holders of the
Company's common stock. The number of holders was estimated by adding the
number of registered holders furnished by the Company's registrar together
with the number of participants in the Hartmarx Employee Stock Ownership Plan.
The Board of Directors has authorized the purchases of 7 million shares of
the Company's common stock (1.5 million shares in December 1998, 2 million
shares in March 1999 and 3.5 million shares in August 1999). Through November
30, 1999, a total of 6,667,993 shares were repurchased at an average price of
$4.45 per share. An additional 332,007 shares were repurchased from December
1, 1999 through January 28, 2000 at an average cost of $3.70 per share.
In May 1999, the Company authorized the Trustee of its retirement plan to
purchase up to one million shares of the Company's common stock in open market
transactions; a total of 245,600 shares have been purchased pursuant to this
authorization through February 14, 2000 at an average price of $4.74 per
share. The plan's aggregate holdings at February 14, 2000 were 1,765,212
shares.
7
<PAGE>
Item 6--Selected Financial Data
The following table summarizes data for the fiscal years 1995 through 1999.
The Company's complete annual financial statements and notes thereto for
fiscal 1999 appear elsewhere in this Annual Report on Form 10-K.
<TABLE>
<CAPTION>
Income Statement Data
In Thousands, Except Per
Share Data
For Years Ended November
30 1999(/1/) 1998 1997(/2/) 1996(/2/) 1995(/2/), (/3/)
- ------------------------ --------- -------- --------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Net sales............... $726,805 $725,002 $718,135 $610,180 $595,272
Licensing and other
income................. 2,894 1,882 3,375 4,263 6,429
Cost of sales........... 541,730 540,545 544,003 463,533 447,414
Operating expenses...... 156,560 144,121 143,482 127,699 132,806
Earnings before non-cash
charge, interest,
taxes,
discontinued operation
and extraordinary gain. 31,409 42,218 34,025 23,211 21,481
Non-cash charge re:
termination of systems
project................ 11,195 -- -- -- --
Earnings before
interest, taxes,
discontinued operation
and extraordinary gain. 20,214 42,218 34,025 23,211 21,481
Interest expense........ 17,669 18,633 17,480 16,681 19,851
Earnings before taxes,
discontinued operation
and extraordinary gain. 2,545 23,585 16,545 6,530 1,630
Tax (provision) benefit. (965) (8,965) 8,695 17,300 19,800
Earnings before
discontinued operation
and extraordinary gain. 1,580 14,620 25,240 23,830 21,430
Discontinued operation,
net of tax............. -- -- -- -- (18,283)
Net earnings before
extraordinary gain..... 1,580 14,620 25,240 23,830 3,147
Extraordinary gain, net
of tax................. -- -- -- 725 --
Net earnings............ 1,580 14,620 25,240 24,555 3,147
Diluted earnings (loss)
per share:
continuing operations.. .05 .42 .74 .72 .66
discontinued operation. -- -- -- -- (.56)
before extraordinary
gain.................. .05 .42 .74 .72 .10
after extraordinary
gain.................. .05 .42 .74 .74 .10
Cash dividends per
share.................. -- -- -- -- --
Diluted average number
of common shares and
equivalents............ 32,861 34,885 34,167 33,021 32,631
<CAPTION>
Balance Sheet Data
In Thousands, Except Per
Share Data
At November 30
- ------------------------
<S> <C> <C> <C> <C> <C>
Cash.................... $ 2,133 $ 5,292 $ 1,626 $ 2,844 $ 5,700
Accounts receivable..... 144,921 131,342 136,854 135,554 108,486
Inventories............. 176,214 207,679 193,780 165,913 154,898
Other current assets.... 21,668 19,115 24,484 16,155 10,409
Net properties.......... 38,994 51,034 45,782 43,909 44,624
Other assets/deferred
taxes.................. 75,743 70,260 67,857 65,864 52,519
Total assets............ 459,673 484,722 470,383 430,239 376,636
Accounts payable,
accrued expenses and
taxes.................. 100,152 93,768 100,098 99,745 78,867
Current maturities of
long-term debt......... 15,073 10,067 20,062 20,100 10,497
Long-term debt.......... 155,300 169,927 157,939 148,428 152,781
Shareholders' equity.... 189,148 210,960 192,284 161,966 134,491
Equity per share........ 6.43 6.06 5.62 4.85 4.11
<CAPTION>
Other Data
In Thousands
For Years Ended November
30 (3)
- ------------------------
<S> <C> <C> <C> <C> <C>
Earnings before non-cash
charge, interest,
taxes, depreciation,
amortization,
discontinued operation
and extraordinary gain
....................... $ 38,492 $ 49,450 $ 41,673 $ 31,469 $ 30,069
Depreciation and
amortization of fixed
assets................. 7,083 7,232 7,648 8,258 8,588
Capital expenditures.... 7,820 12,753 10,086 8,207 8,441
</TABLE>
- --------
(1) 1999 results reflect a second quarter non-cash writedown of systems
development costs of $11.2 million (pre-tax), $6.9 million (after-tax) or
$.21 per share.
(2) 1995 through 1997 included favorable non-cash income tax adjustments to
the tax valuation reserve related to recognition of net operating loss
carryforwards of $20.6 million, $19.9 million and $15.0 million,
8
<PAGE>
respectively. Excluding this adjustment in each year, net earnings before
discontinued operation and extraordinary gain and diluted earnings per
share would have been $1.0 million or $.03 per share, respectively, in
1995; $4.0 million or $.12 per share, respectively, in 1996 and $10.3
million or $.30 per share, respectively, in 1997.
(3) 1995 reflects the Company's former retail business, Kuppenheimer, as a
discontinued operation.
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
Operating performance for 1999 reflected strong cash flow, resulting in a
$10 million debt reduction from year end 1998, despite lower operating
earnings and $30 million of share repurchases. Consolidated revenues of $726
million in 1999 were slightly higher than last year's $725 million and $718
million in 1997. Earnings before interest, taxes and a non-recurring charge
declined to $31.4 million in 1999 compared to $42.2 million in 1998 and $34.0
million in 1997. Results for 1999 also included a non-cash pre-tax charge of
$11.2 million ($6.9 million or $.21 per share net of tax) to reflect the
write-down of capitalized development costs related to the termination of an
enterprise resource planning system ("the non-cash charge").
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, slacks, sportswear (including golfwear)
and dress furnishings (shirts and ties); products are sold under a broad
variety of business and casual apparel brands, both owned and under license,
to an extensive range of retail, catalog and e-commerce channels; 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.
Results of Operations
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,
----------------------
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Sales:
Men's Apparel Group............................. $672.6 $665.0 $658.5
Women's Apparel Group........................... 54.2 60.0 59.6
------ ------ ------
Total......................................... $726.8 $725.0 $718.1
====== ====== ======
EBIT:
Men's Apparel Group............................. $ 37.9 $ 43.9 $ 36.3
Women's Apparel Group........................... 5.7 6.8 6.7
Other and adjustments........................... (12.2) (8.5) (9.0)
------ ------ ------
Total......................................... $ 31.4 $ 42.2 $ 34.0
====== ====== ======
</TABLE>
EBIT above excludes the $11.2 million non-cash charge previously noted.
MAG sales were $673 million in 1999, $665 million in 1998 and $659 million
in 1997. Revenues in 1999 reflected approximately $36 million attributable to
new businesses, as well as growth of the Kenneth Cole and Evan Picone brands
and introduction of Hart Schaffner & Marx and Hickey-Freeman dress
furnishings. These increases were mostly offset by unit declines attributable
to the generally difficult retail environment for business apparel and planned
reductions associated with brands or programs which were being deemphasized
which do not have the likelihood of achieving acceptable long term
profitability rates. The 1% increase in 1998 compared
9
<PAGE>
to 1997 reflected continued strength in the Hart Schaffner & Marx and Hickey-
Freeman brands as well as incremental sales from newer initiatives, including
Hart Schaffner & Marx sportswear, Desert Classic golfwear and Kenneth Cole
tailored clothing, which were largely offset by declines in brands or programs
being reduced or eliminated. MAG EBIT was $38 million in 1999 compared to $44
million in 1998 and $36 million in 1997, with tailored clothing products
representing the most significant contributor to earnings in each year. The $6
million decline in 1999 EBIT compared to 1998 was primarily attributable to
the decline in sales from comparable operations, partially offset by EBIT from
new businesses. The $8 million improvement in 1998 EBIT compared to 1997 was
primarily attributable to gross margin improvement.
Women's Apparel Group sales, comprising approximately 7% of the
consolidated total in 1999 and 8% in the preceding two years, aggregated $54
million in 1999, $60 million in 1998 and $60 million in 1997. Revenues in 1999
were adversely affected by lower in-stock business because of the soft retail
business and the trend away from women's tailored coats; catalog sales were
slightly higher. 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. Women's Apparel
Group EBIT was $6 million in 1999 compared to $7 million in each of 1998 and
1997. The decline in 1999 was primarily attributable to the lower sales.
Gross Margins. The consolidated gross margin percentage of sales was 25.5%
in 1999, 25.4% in 1998 and 24.2% in 1997. The slight improvement in the 1999
gross margin rate principally reflected the effect of the new businesses,
which have higher gross margins and operating expense ratios than existing
businesses. Gross margins in the moderate priced tailored clothing product
lines improved in the latter part of the year from lower product costs and
favorable product mix changes related to the repositioning efforts previously
discussed; however, this gross margin enhancement was largely offset from
lower sales of higher margin tailored clothing products sold at the higher
price points and lower gross margins realized on the disposition of excess
sportswear units. The 1.2% improvement in the 1998 gross margin rate compared
to 1997 reflected higher gross margin rates in both MAG and the Women's
Apparel Group. LIFO income was $.8 million in 1999, resulting from product
cost reductions, compared to expense of $.9 million in 1998 and $.3 million in
1997. Start-up costs associated with the Company's owned off-shore facilities
adversely affected the gross margin rate by .2% in 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses were $157 million in 1999, $144 million in 1998 and
$143 million in 1997. As a percentage of sales, the expense rate was 21.5% in
1999 compared to 19.9% in 1998 and 20.0% in 1997. The 1999 dollar increase is
primarily attributable to new businesses and approximately $2 million of
incremental expenditures attributable to Year 2000 remediation, as the dollar
amount of expenses for comparable operations were about the same as the prior
year. The increase relative to sales reflected both new businesses with their
higher operating ratios existing at the time of acquisition and the inability
to immediately lower non-variable expenses for comparable operations resulting
from the declines associated with lower in-stock business.
Advertising expenditures, including costs related to the Barrie Pace
catalog, were $28 million in 1999 compared to $26 million in 1998 and $23
million in 1997, representing 3.9%, 3.6% and 3.3% of consolidated sales,
respectively. The increase in 1999 compared to 1998 reflected the new
businesses and higher MAG advertising expenditures in support of new product
lines; the 1998 increase compared to 1997 reflected new product lines as well
as 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 $2.9 million in 1999, $1.9 million in
1998 and $3.4 million in 1997. The increase in 1999 compared to 1998 reflected
the improvement in the economic conditions in Asia, especially Japan and
Korea, where a significant portion of the Company's licensing income is
generated. The decline in 1998 compared to 1997 reflected the unfavorable
economic conditions in Asia.
Earnings before Non-Cash Charge, Interest and Taxes ("EBIT"). EBIT was
$31.4 million in 1999, $42.2 million in 1998 and $34.0 million in 1997,
representing 4.3%, 5.8% and 4.7% of sales, respectively. The decline in 1999
compared to 1998 was principally attributable to the higher operating expense
ratio to sales. The improvement in 1998 compared to 1997 was principally
attributable to the higher gross margin ratio to sales.
10
<PAGE>
Non-Cash Charge. The non-cash charge of $11.2 million in 1999 reflected the
second quarter writedown of capitalized systems development costs related to
the termination of an enterprise resource planning system project, which had
been anticipated to be implemented Company-wide. The principal project
software had been installed at one company representing less than 5% of
consolidated sales and after extensive evaluation, the Company, in
consultation with its advisors, concluded that company-wide implementation
would not be appropriate.
Interest Expense. Interest expense was $17.7 million in 1999, $18.6 million
in 1998 and $17.5 million in 1997. As a percentage of sales, interest expense
represented 2.4% in 1999 compared to 2.6% in 1998 and 2.4% in 1997. The dollar
decrease in 1999 from 1998 reflected lower average borrowings during the year,
as well as lower average borrowing rates earlier in the year. The dollar
increase in 1998 from 1997 reflected higher average borrowings attributed to
higher working capital requirements. The effective interest rate for all
borrowings, including amortization costs, was 8.5% in 1999, 9.3% in 1998 and
9.7% in 1997. Interest expense in 1997 was favorably impacted by approximately
$.5 million 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
6.6% in 1999, 7.2% in 1998 and 7.5% in 1997. Interest expense included non-
cash amortization of financing fees and expenses of $.5 million in 1999, $.8
million in 1998 and $1.0 million in 1997.
Pre-Tax Earnings. Pre-tax earnings before consideration of the non-cash
charge declined to $13.7 million from $23.6 million last year and $16.5
million in 1997.
Income Taxes. The Company's effective tax rate of 38% of pre-tax income
resulted in a tax provision of $1.0 million in 1999 and $9.0 million in 1998.
In 1997, a favorable adjustment to a then existing tax valuation reserve
resulted in a net tax benefit being recognized as described below.
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.
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.
Utilizing the $131 million of available operating loss carryforwards in
existence as of November 30, 1999 by the expiration over the 2007-2010 years
would require average annual taxable earnings of approximately $16 million.
(Also see "Liquidity and Capital Resources" for further discussion of the
deferred tax assets and remaining operating loss carryforwards.)
Net Earnings. Comparable net earnings were $8.5 million or $.26 per diluted
share in 1999 (before consideration of the non-cash charge) compared to $14.6
million or $.42 per diluted share in 1998 and $10.3 million or $.30 per
diluted share in 1997 (excluding the favorable non-cash income tax adjustment
to the tax valuation reserve related to recognition of net operating loss
carryforwards discussed above). Reported earnings per share after
consideration of the unusual items in 1999 and 1997 were $1.6 million or $.05
per diluted share in 1999, $14.6 million or $.42 per diluted share in 1998 and
$25.2 million or $.74 per diluted share in 1997.
Liquidity and Capital Resources
During fiscal 1994, the Company issued $100 million of public senior
subordinated debentures (the "Notes") and also entered into a then three-year
financing agreement (the "Credit Facility") with a group of
11
<PAGE>
lenders providing for maximum borrowings of $175 million (including a letter
of 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.
Credit 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 Credit Facility term
from March 1997 to July 2000. In August 1999, the Company completed an
amendment and extension of the Credit Facility. Among other things, the Credit
Facility now provides for maximum borrowings of $200 million. The term of the
Credit Facility was extended from July 2000 to June 2003 (provided that at
least $50 million of the Notes have been retired or refinanced by July 15,
2001), along with increased flexibility with respect to the repurchase of
Company stock and future refinancing of the Company's long term borrowings.
The Credit Facility is secured by inventories, accounts receivable and
intangibles of the Company and its subsidiaries. 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
is in compliance with all the covenants under the respective borrowing
agreements.
Net cash provided by operating activities was $39 million in 1999 compared
to $13 million in 1998 and net cash used in operating activities of $6 million
in 1997. The significant improvement in 1999 compared to 1998, despite the
lower earnings, was attributable to the Company's efforts regarding inventory
reductions. This favorable cash flow in 1999 allowed the Company to purchase
approximately 6.7 million of its shares for $30 million and to make two
acquisitions during the year, while still reducing debt by $10 million. The
1998 improvement in cash provided by operating activities compared to 1997 was
attributable to the higher earnings, as working capital requirements increased
both in 1998 and 1997.
At November 30, 1999, net accounts receivable of $144.9 million increased
$13.6 million from November 30, 1998, primarily attributable to new
businesses. The allowance for doubtful accounts was $8.6 million compared to
$8.2 million last year, representing 5.6% of gross receivables in 1999 and
5.9% in 1998. Inventories of $176.2 million at November 30, 1999, including
$8.0 million attributable to new businesses, declined $31.5 million or 15.2%
from November 30, 1998. During 1999, inventories were reduced in response to
the generally lackluster environment at retail for non-casual apparel
products, as well as the de-emphasis or elimination of certain brands or
programs that did not offer the prospects of adequate profitability over the
longer term; prior year end balances reflected earlier production scheduling
and expanded lead times associated with increased off-shore production.
Inventory turn was comparable to 1998.
Recoverable and deferred income taxes at November 30, 1999 aggregated $55.3
million compared to $55.0 million at November 30, 1998. Approximately $40
million of the total deferred income taxes has been classified as non-current,
principally associated with the benefit recognized attributable to expected
future utilization of operating loss carryforwards. At November 30, 1999, the
Company had approximately $131 million of federal tax operating loss
carryforwards available to offset future taxable income.
At November 30, 1999, net properties were $39.0 million compared to $51.0
million at November 30, 1998. The decrease was primarily attributable to the
write-off of capitalized development costs related to the non-cash charge.
Capital additions excluding expenditures associated with the terminated
systems project were $6.4 million in 1999 compared to $6.0 million in 1998 and
$6.4 million in 1997. Depreciation expense was $7.1 million in 1999, $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.
12
<PAGE>
Total debt at November 30, 1999 of $170.4 million declined $9.6 million
compared to the year earlier level. The $15.0 million of notes payable
classified as current at November 30, 1999 reflects the anticipated debt
reduction during fiscal 2000 under the Company's borrowing arrangements. Total
debt, including short term borrowings and current maturities, represented 47%
of the Company's total $360 million capitalization at November 30, 1999,
compared to 46% at November 30, 1998; the slightly higher debt capitalization
ratio, despite the drop in total debt levels, reflected the substantial
treasury stock purchases, which reduced equity, as noted below. Total
additional borrowing availability at November 30, 1999 under the revolving
credit facility was approximately $109 million.
Shareholders' equity of $189.1 million at November 30, 1999 represented
$6.43 book value per share compared to $6.06 book value per share at November
30, 1998. The $21.8 million equity decrease during 1999 reflected the purchase
of 6.7 million treasury shares aggregating close to $30 million at an average
cost of $4.45 per share, partially offset by 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.
Subsequent to fiscal 1999 year end, an additional .3 million shares have been
repurchased completing the aggregate 7 million authorized share repurchase
programs. 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 $189.1 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
As of the date of this report, the Company has not incurred any significant
operating difficulties related to the Year 2000 issue. The Company's Year 2000
efforts encompassed testing, upgrading, enhancing and remediating when
necessary its computer systems, operations systems, microprocessors and other
significant computer-based devices and applications. The Company also
communicated with a significant portion of its customers, suppliers and
vendors to determine the extent to which the Company may have been vulnerable
to those third parties' failure to remediate their own Year 2000 issues. This
process of addressing Year 2000 issues was essentially completed by the end of
November 1999 for the substantial portion of the Company's internal systems,
related software and compatability with various third party applications.
The costs incurred relating to ensuring compliance and remediation of the
current systems, which included both internal costs of existing employees as
well as external contractor and software remediation costs, are estimated to
be approximately $3.5 million, of which $3.0 million has been expensed through
November 30, 1999, including $2.8 million in fiscal 1999. The remaining
estimated amount will be expensed as incurred during fiscal 2000.
The Company recognizes the importance of ensuring its operations will not
be adversely affected by Year 2000 issues and that issues related to Year 2000
remediation constitute an uncertainty. Its procedures are believed to have
been effective to identify and manage the risks associated with Year 2000
compliance, and the probability of a serious Year 2000 issue arising at this
time is low. However, there can be no assurance that its remediation process
has been fully effective. 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 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 fully remediate their
systems that interface with the Company's systems could result in system
13
<PAGE>
failures or errors or business interruptions, which could have a material
adverse effect on the Company's results of operations and financial condition.
Outlook
Increasing shareholder value through long-term earnings growth remains a
key objective; this would be achieved from a combination of revenue increases,
improvements in the gross margin rate and declining operating expenses and
financing costs relative to sales. From a product perspective, the Company
expects to sustain its preeminent position in tailored clothing, continue to
broaden its product offerings in branded sportswear, dress furnishings and
golfwear, and to maintain its current womenswear focus.
As expected, revenues in 1999 were about even with the prior year, with the
incremental sales from new businesses essentially offsetting reductions from
the lackluster environment for business apparel, expired licensing
arrangements and other low margin business which was foregone. Earnings in
fiscal 2000 are expected to improve from 1999, principally from better
operating margins. Revenues are anticipated to approximate 1999 levels,
assuming no new acquisitions during 2000, as modest unit declines in tailored
clothing products are anticipated to be about offset by increases in non-
tailored clothing offerings. Acquisitions will be pursued which provide
opportunities for wider product offerings, channel diversification or
operational synergies.
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, while continuing their very strong market
position for tailored clothing, are being more broadly positioned as full
"collection" product offerings rather than more limited tailored clothing
brands. Hickey-Freeman introduced its sportswear lines several years ago, with
emphasis on casual dressing for its affluent core customer; its line of dress
shirts and ties were introduced in Fall 1998, and the unit growth experienced
in 1999 is expected to continue into 2000. Hart Schaffner & Marx introduced
its line of casual products for the Fall 1997 season and its dress furnishings
were first delivered commencing with the Fall 1999 season. The Tommy Hilfiger
casual slack business has a wide product offering supported by a full in-stock
reorder service which is an important component of this business. Pusser's of
the West Indies sportswear brand had its initial introduction to specialty
retailers during 1999; while currently only a very small percentage of
consolidated sales, this product line has revenue and earnings growth
potential over the next several years as its distribution is widened. Golfwear
is currently marketed under the Bobby Jones and Jack Nicklaus brands through
both the "green grass" and "traditional" retail channels, and revenue growth
is anticipated in 2000. In the Women's Apparel Group, the Austin Reed and
Hawksley & Wight women's lines of tailored coats, pants, shirts and dresses
continued to achieve an excellent return on investment despite revenue
declines during 1999; the Company's catalog distribution was augmented with an
internet sales capability during 1999, which is anticipated to increase in
2000. Additional internet-based initiatives are being evaluated by the Company
during 2000.
Despite the lower reported earnings and earnings per share in 1999, strong
cash flow enabled the Company to achieve a $10 million debt reduction by year-
end, even after reflecting Company share purchases aggregating approximately
$30 million and $14 million expended for acquisitions and related working
capital requirements. Free cash flow, which continues to be enhanced from the
utilization of tax operating loss carryforwards, was approximately $13 million
or $.39 per share. During the first few months of fiscal 2000, the Company
completed the remaining purchases pursuant to the 7 million share repurchase
authorizations initiated during 1999, representing close to 20% of the
outstanding shares at the inception of the repurchase program; further share
repurchases are not contemplated at this time. The expansion of its Credit
Facility to $200 million from $175 million and extension of maturity as
described earlier created additional flexibility with respect to financing
alternatives in the future. The Company anticipates that sufficient capital
resources will be available to address growth opportunities generated
internally or through acquisitions. The Company's $85 million of subordinated
debentures outstanding as of November 30, 1999 are callable at 101.6 of par,
effective January 15, 2000. Refinancing of these debentures in either the
public or private market, or a partial repurchase in open market transactions
prior to maturity, are alternatives which will be actively considered during
2000, depending upon financial market conditions; between December 1, 1999 and
February 14, 2000, $10.1 million of the debentures were acquired in open
market purchases at prices slightly less than par value.
14
<PAGE>
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 earnings in the period in which
the purchase obligations are satisfied. As of November 30, 1999, the Company
had entered into foreign exchange contracts, aggregating approximately $20
million corresponding to approximately 24 billion Italian lira, 7 million
Canadian dollars and 162 million Japanese yen, primarily related to inventory
purchases in fiscal 2000.
The Company is subject to the risk of fluctuating interest rates in the
normal course of business, primarily as a result of borrowings under its
Credit Facility, which bear interest at variable rates. The variable rates may
fluctuate over time based on economic conditions, and the Company could be
subject to increased interest payments if market interest rates fluctuate. The
Company does not expect that change in the interest rates would have a
material adverse effect on the Company's results of operations. In the last
three years, the Company has not used derivative financial instruments to
manage interest rate risk.
The Company generally views as long-term its investments in foreign
subsidiaries with a functional currency other than the U.S. dollar. Therefore,
the Company does not generally hedge these investments, and there were no
hedges of this nature at November 30, 1999.
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,
1999.................................................................... 17
Consolidated Balance Sheet at November 30, 1999 and 1998................. 18
Consolidated Statement of Cash Flows for the three years ended November
30, 1999................................................................ 19
Consolidated Statement of Shareholders' Equity for the three years ended
November 30, 1999....................................................... 20
Notes to Consolidated Financial Statements............................... 21
Financial Statement Schedules
Schedule II--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).................................. 35
</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, 1999 and
1998, and the results of their operations and their cash flows for each of the
three years in the period ended November 30, 1999, in conformity with
accounting principles generally accepted in the United States. 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
auditing standards generally accepted in the United States, 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 12, 2000
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,
---------------------------- ---
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C> <C>
Net sales..................................... $726,805 $725,002 $718,135
Licensing and other income.................... 2,894 1,882 3,375
-------- -------- --------
729,699 726,884 721,510
-------- -------- --------
Cost of goods sold............................ 541,730 540,545 544,003
Selling, general and administrative expenses.. 156,560 144,121 143,482
-------- -------- --------
698,290 684,666 687,485
-------- -------- --------
31,409 42,218 34,025
Non-cash charge re: termination of systems
project...................................... 11,195 -- --
-------- -------- --------
Earnings before interest and taxes............ 20,214 42,218 34,025
Interest expense.............................. 17,669 18,633 17,480
-------- -------- --------
Earnings before taxes......................... 2,545 23,585 16,545
Tax (provision) benefit....................... (965) (8,965) 8,695
-------- -------- --------
Net earnings.................................. $ 1,580 $ 14,620 $ 25,240
======== ======== ========
Earnings per share:
Basic....................................... $ .05 $ .42 $ .75
======== ======== ========
Diluted..................................... $ .05 $ .42 $ .74
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
17
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
(000's Omitted)
<TABLE>
<CAPTION>
November 30,
--------------------
1999 1998
--------- ---------
ASSETS
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.............................. $ 2,133 $ 5,292
Accounts receivable, less allowance for doubtful
accounts of $8,639 in 1999 and $8,210 in 1998......... 144,921 131,342
Inventories............................................ 176,214 207,679
Prepaid expenses....................................... 6,663 3,234
Recoverable and deferred income taxes.................. 15,005 15,881
--------- ---------
Total current assets................................. 344,936 363,428
--------- ---------
INVESTMENTS AND OTHER ASSETS............................. 35,411 31,174
--------- ---------
DEFERRED INCOME TAXES.................................... 40,332 39,086
--------- ---------
PROPERTIES
Land................................................... 2,255 2,638
Buildings and building improvements.................... 42,079 48,873
Furniture, fixtures and equipment...................... 112,461 118,521
Leasehold improvements................................. 19,166 18,020
--------- ---------
175,961 188,052
Accumulated depreciation and amortization.............. (136,967) (137,018)
--------- ---------
Net properties......................................... 38,994 51,034
--------- ---------
TOTAL ASSETS............................................. $ 459,673 $ 484,722
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Notes payable.......................................... $ 15,000 $ 10,000
Current maturities of long term debt................... 73 67
Accounts payable....................................... 40,351 37,987
Accrued payrolls....................................... 18,518 18,517
Other accrued expenses................................. 41,283 37,264
--------- ---------
Total current liabilities............................ 115,225 103,835
--------- ---------
LONG TERM DEBT........................................... 155,300 169,927
--------- ---------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value; 2,500,000 authorized
and unissued.......................................... -- --
Common shares, $2.50 par value; authorized 75,000,000;
issued 36,100,814 in 1999 and 34,839,431 in 1998...... 90,252 87,099
Capital surplus........................................ 83,834 81,994
Retained earnings...................................... 51,911 50,331
Unearned employee benefits............................. (7,161) (8,464)
Common shares in treasury, at cost, 6,677,952 at
November 30, 1999 and -0- at November 30, 1998........ (29,688) --
--------- ---------
Shareholders' equity................................... 189,148 210,960
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $ 459,673 $ 484,722
========= =========
</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,
----------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from operating activities:
Net earnings................................... $ 1,580 $ 14,620 $ 25,240
Reconciling items to adjust net earnings to net
cash provided by (used in) operating
activities:
Non-cash charge.............................. 11,195 -- --
Depreciation and amortization................ 7,535 7,994 8,644
Changes in:
Accounts receivable........................ (3,899) 5,512 (1,300)
Inventories................................ 38,244 (13,162) (27,867)
Prepaid expenses........................... (3,387) 738 (26)
Other assets............................... 687 (4,003) (2,759)
Accounts payable and accrued expenses...... (11,624) (6,330) 353
Taxes and deferred taxes................... (973) 7,812 (7,894)
-------- -------- --------
Net cash provided by (used in) operating
activities...................................... 39,358 13,181 (5,609)
-------- -------- --------
Cash Flows from investing activities:
Capital expenditures........................... (7,820) (12,753) (10,086)
Cash paid for acquisitions..................... (1,610) (2,737) --
-------- -------- --------
Net cash used in investing activities............ (9,430) (15,490) (10,086)
-------- -------- --------
Cash Flows from financing activities:
Increase (decrease) in borrowings under Credit
Facility...................................... (9,486) 2,200 9,500
Decrease in other long term debt............... (209) (281) (101)
Purchase of treasury shares.................... (29,711) -- --
Other equity transactions...................... 6,319 4,056 5,078
-------- -------- --------
Net cash provided by (used in) financing
activities...................................... (33,087) 5,975 14,477
-------- -------- --------
Net increase (decrease) in cash and cash
equivalents..................................... (3,159) 3,666 (1,218)
Cash and cash equivalents at beginning of year... 5,292 1,626 2,844
-------- -------- --------
Cash and cash equivalents at end of year......... $ 2,133 $ 5,292 $ 1,626
======== ======== ========
Supplemental cash flow information
Net cash paid during year for:
Interest expense............................. $ 17,500 $ 18,200 $ 16,000
Income taxes................................. 1,300 1,200 900
</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 Unearned
Common Capital Retained Employee Treasury
Stock Surplus Earnings Benefits Shares
------------ ------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
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) --
Net earnings for the year.. 1,580
Issuance of 1,048,567
shares, primarily to
employee benefit plans.... 2,621 1,989
Long-term incentive plan
awards for 175,750 shares. 439 533 (972)
Allocation of unearned
employee benefits......... (868) 2,275
Stock options exercised
(37,066 shares issued upon
exercise of 42,221
options).................. 93 186 23
Purchase of treasury
shares.................... (29,711)
------- ------- ------- ------- --------
Balance at November 30, 1999. $90,252 $83,834 $51,911 $(7,161) $(29,688)
======= ======= ======= ======= ========
</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. 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.
Fair Value of Financial Instruments -- The carrying amounts of accounts
receivable and accounts payable approximates fair value due to their short-
term nature. The carrying amount of debt and credit facilities approximate
fair value due to their stated interest rate approximating a market rate.
These estimated fair value amounts have been determined using available market
information or other appropriate valuation methodologies.
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, 1999 and 1998, approximately 41% of the Company's total
inventories at each year end, 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 Assets -- If facts and circumstances indicate that
the cost of fixed assets or other assets may be impaired, an evaluation of
recoverability would be performed by comparing the estimated future
undiscounted 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.
Comprehensive Income -- Effective December 1, 1998, the Company adopted the
provisions of Statement of Financial Accounting Standards No. 130 --
"Reporting Comprehensive Income", which 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. Adoption of
this statement had no effect on the Company's reported financial position,
results of operations or cash flows for the periods ended November 30, 1999,
as these transactions were nominal.
21
<PAGE>
Revenue Recognition -- Sales are recognized at the time the order is
shipped, and returns are netted against sales. Catalog sales are net of
expected returns and exclude sales tax. Income from licensing arrangements is
recorded when received.
Advertising Costs -- Advertising expenditures relating to the manufacturing
and marketing businesses are expensed in the period the advertising initially
takes place. Direct response advertising costs, consisting primarily of
catalog preparation, printing and postage expenditures, are amortized over the
period during which the benefits are expected. Advertising costs of $28.2
million in 1999, $25.9 million in 1998 and $23.4 million in 1997 are included
in the accompanying Statement of Earnings. Prepaid expenses at November 30,
1999 include deferred advertising costs of $1.3 million ($1.0 million at
November 30, 1998), 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 140 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, 1999.
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 on the date
of grant 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, catalogs and through electronic
commerce channels. 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 only customer that exceeded 10% of consolidated revenues represented
approximately 18%, 16% and 15% of sales in 1999, 1998 and 1997, respectively.
Accounts receivable from the largest customer represented approximately 14%
and 12% of the Company's gross accounts receivable at November 30, 1999 and
1998, 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, 1999, the Company had entered
into foreign exchange contracts for Italian Lire, Canadian dollars and
Japanese yen, for approximately $20 million ($23 million at November 30,
1998), related to future inventory purchases.
22
<PAGE>
From time to time, the Company has entered into interest rate protection
agreements; however, in fiscal 1999, 1998 or 1997, the Company did not enter
into any such agreements.
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>
1999..................................................... 32,790 32,861
1998..................................................... 34,486 34,885
1997..................................................... 33,748 34,167
</TABLE>
Recent Accounting Pronouncements -- Statement of Financial Accounting
Standards No. 133 -- "Accounting for Derivative Instruments and Hedging
Activities" ("FAS 133"), as amended by Statement of Financial Accounting
Standards No. 137, is required to be adopted by the Company for its fiscal
fourth quarter beginning September 1, 2000. 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 this statement 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., from an entity which operates 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.
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. On August 27, 1999, the Company
acquired 100% of the capital stock of The Royal Shirt Company, Ltd. ("Royal"),
a Canadian based manufacturer and marketer of dress and sport shirts for men
and women. Royal continues as a manufacturing resource for products marketed
by the Company. Regarding the Coppley and Royal acquisitions, the fair value
of assets acquired was $20.3 million and liabilities were $18.7 million.
The results of operations of Pusser's, Coppley and Royal since the date of
their respective acquisition are included in the accompanying financial
statements.
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 $35 million letter of credit facility) secured by
eligible inventories, accounts receivable and the intangibles of the Company
and its subsidiaries. Various 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 Credit
Facility term from March 1997 to July 2000.
23
<PAGE>
In August 1999, the Company completed an amendment and extension of the
Credit Facility. Among other things, the Credit Facility now provides for
maximum borrowings of $200 million, up from $175 million, (including a $50
million letter of credit facility, up from $35 million). The term of the
Credit Facility was extended from July 2000 to June 2003 (provided that at
least $50 million of the Notes have been retired or refinanced by July 15,
2001), along with increased flexibility with respect to the repurchase of
Company stock and future refinancing of the Company's long term borrowings.
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 1.00%-1.50% or (ii) the
prime rate of a major bank. Financing fees pertaining to the Notes and Credit
Facility, as amended, are being amortized over the life of the respective
agreements. Certain other fees are also payable under the Credit Facility and
Notes based on services provided.
The Notes and Credit Facility 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 all the covenants under the
respective borrowing agreements.
During fiscal 1999 and 1998, the Company purchased $.1 million and $.2
million, respectively, face value of its Notes at a small premium, resulting
in a nominal loss, which has been reflected in Licensing and Other Income in
the respective years.
At November 30, 1999 and 1998, long term debt, less current maturities,
comprised the following (000's omitted):
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Borrowings under Credit Facility....................... $ 65,614 $ 75,100
10 7/8% Senior Subordinated Notes, net................. 84,769 84,837
Industrial development bonds........................... 17,344 17,371
Other debt............................................. 2,646 2,686
-------- --------
170,373 179,994
Less--current.......................................... 15,073 10,067
-------- --------
Long term debt......................................... $155,300 $169,927
======== ========
</TABLE>
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, 1999. Interest rates on the various borrowing
agreements range from 5.0% to 8.5% (average of 7.6% at November 30, 1999 and
7.4% at November 30, 1998). 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 8.5% at November 30, 1999 and 8.4% at
November 30, 1998).
Accrued interest included in the Other Accrued Expenses caption in the
accompanying balance sheet was $4.6 million at November 30, 1999 and $4.9
million at November 30, 1998.
The approximate principal reductions required during the next five fiscal
years, including reductions under the Senior Subordinated Notes which are due
in 2002 and the Credit Facility which expires in 2003, are as follows: $.1
million in 2000; $.1 million in 2001; $85.0 million in 2002; $65.6 million in
2003; and zero in 2004. The Senior Subordinated Notes are callable at 103.1%
of par effective on January 15, 1999, dropping to 101.6% of par at January 15,
2000 and at par on January 15, 2001.
24
<PAGE>
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 1994, 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. In 1994, 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>
1999 1998 1997
------ ------ ------
<S> <C> <C> <C>
Principal payments.................................. $1,331 $1,211 $1,101
Interest payments................................... 714 833 943
------ ------ ------
Total loan payments made by ESOP.................... $2,045 $2,044 $2,044
====== ====== ======
</TABLE>
As of November 30, 1999, 445,818 of the 620,155 shares of common stock
owned by the ESOP have been allocated to the accounts of the ESOP
participants. There were 174,337 shares committed to be released, and the fair
market value of those unearned ESOP shares was approximately $.7 million.
Notes Payable
The following summarizes information concerning notes payable (000's
omitted):
<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Outstanding at November 30................. $ 65,614 $ 75,100 $ 72,900
Maximum month end balance during the year.. 115,500 120,700 104,900
Average amount outstanding during the year. 93,800 97,500 74,200
Weighted daily average interest rate during
the year.................................. 6.6% 7.2% 7.5%
Weighted average interest rate on
borrowings at November 30................. 7.0% 6.6% 7.4%
</TABLE>
Inventories
Inventories at fiscal year end were as follows (000's omitted):
<TABLE>
<CAPTION>
November 30
--------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Raw materials.................................. $ 58,352 $ 48,969 $ 54,741
Work in process................................ 19,269 30,904 35,959
Finished goods................................. 98,593 127,806 103,080
-------- -------- --------
$176,214 $207,679 $193,780
======== ======== ========
</TABLE>
The excess of current cost over LIFO costs for certain inventories was
$35.3 million in 1999, $36.1 million at November 30, 1998 and $35.2 million at
November 30, 1997.
25
<PAGE>
Taxes on Earnings
The tax (provision) benefit is summarized as follows (000's omitted):
<TABLE>
<CAPTION>
1999 1998 1997
----- ------- -------
<S> <C> <C> <C>
Federal......................................... $ (80) $ (434) $ (556)
State and local................................. 100 (1,103) (940)
Foreign......................................... (936) -- --
----- ------- -------
Total current............................... (916) (1,537) (1,496)
----- ------- -------
Federal......................................... (99) (7,428) (4,794)
State and local................................. -- -- --
Foreign......................................... 50 -- --
----- ------- -------
Total deferred.............................. (49) (7,428) (4,794)
----- ------- -------
Change in valuation allowance................... -- -- 14,985
----- ------- -------
Total tax (provision) benefit................... $(965) $(8,965) $ 8,695
===== ======= =======
</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>
1999 1998 1997
------ ------- -------
<S> <C> <C> <C>
Earnings before taxes.......................... $2,545 $23,585 $16,545
====== ======= =======
Tax provision computed at statutory rate....... $ (865) $(8,019) $(5,625)
State and local taxes on earnings, net of
federal tax benefit........................... 66 (728) (620)
Foreign........................................ (82) -- --
Change in valuation allowance.................. -- -- 14,985
Other--net..................................... (84) (218) (45)
------ ------- -------
Total tax (provision) benefit.................. $ (965) $(8,965) $ 8,695
====== ======= =======
</TABLE>
At November 30, 1999 and 1998, 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).
The Company periodically reevaluated its deferred income tax asset during
the 1997 fiscal year and reversed the then remaining valuation allowance of
$15 million.
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 operating loss carryforwards of $47.0 million, alternative minimum
tax credit carryforwards ("AMT") and other tax credit carryforwards of $6.1
million, $20.7 million attributable to expenses deducted in the financial
26
<PAGE>
statements not currently deductible for tax purposes and $5.1 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 $12.0 million related to employee benefits, principally
pensions.
At November 30, 1999, the Company had a net deferred tax asset of $55.3
million comprised of deferred tax assets of $76.8 million less deferred tax
liabilities aggregating $21.5 million. The principal deferred tax assets
included net operating loss carryforwards of $45.7 million, AMT and other tax
credit carryforwards of $6.1 million, $19.8 million attributable to expenses
deducted in the financial statements not currently deductible for tax purposes
and $5.2 million attributable to TRA items. Deferred tax liabilities included
excess tax over book depreciation of $1.4 million and $9.0 million related to
employee benefits, principally pensions.
As of November 30, 1999, the Company had approximately $131 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 $6.0 million can be carried
forward indefinitely.
Commitments and Contingencies
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, 1999, total minimum rentals under noncancellable operating
leases were as follows (000's omitted):
<TABLE>
<CAPTION>
Years Amount
----- -------
<S> <C>
2000............................................................. $ 6,541
2001............................................................. 5,537
2002............................................................. 5,097
2003............................................................. 4,732
2004............................................................. 4,520
Thereafter....................................................... 11,605
-------
Total minimum rentals due........................................ $38,032
=======
</TABLE>
Rental expense, including rentals under short term leases, aggregated $10.7
million, $10.9 million and $11.2 million in fiscal 1999, 1998 and 1997,
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.
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.
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
27
<PAGE>
costs relating to multi-employer plans were approximately $1.4 million in
1999, $6.4 million in 1998 and $7.6 million in 1997. As discussed elsewhere in
this footnote, certain current pension costs and obligations related to a
multi-employer plan were assumed by the Company's single employer plan,
effective as of October 1, 1998. 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 benefit accruals 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, terminated vested and retired employees of the Company who were
participants in the underfunded multi-employer plan. This agreement has been
approved by the Internal Revenue Service and the Pension Benefit Guaranty
Corporation. 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, are being reflected by the Company
sponsored pension plan.
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
1999).
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
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, 1999.
28
<PAGE>
Components of net periodic benefit cost for the three years ended November
30, 1999 were as follows (000's omitted):
<TABLE>
<CAPTION>
1999 1998 1997
-------- ------- -------
<S> <C> <C> <C>
Service cost................................. $ (6,537) $(4,546) $(3,820)
Interest cost................................ (12,788) (9,397) (8,300)
Expected return on plan assets 17,649 16,832 14,720
Recognized net actuarial gain................ 1,108 1,949 1,275
Net amortization............................. (2,459) (351) 29
-------- ------- -------
Net periodic pension income (expense)........ $ (3,027) $ 4,487 $ 3,904
======== ======= =======
</TABLE>
The above amounts are prior to consideration of periodic pension expense of
$1.7 million in 1999, $1.4 million in 1998 and $1.5 million in 1997 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 reflected in the
consolidated balance sheet at November 30, 1999 and 1998 were $9.6 million and
$7.9 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, 1999, the plan assets of $202.7
million included 1,737,712 shares of the Company's stock with a market value
of approximately $6.6 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,
------------------
1999 1998
-------- --------
<S> <C> <C>
Change in Benefit Obligation
Benefit obligation at beginning of year............. $194,909 $117,858
Service cost........................................ 6,537 4,546
Interest cost....................................... 12,788 9,397
Amendments.......................................... 2,588 56,890
Actuarial (gain) or loss............................ (17,384) 14,322
Benefits paid....................................... (12,434) (8,104)
-------- --------
Benefit obligation at end of year................... 187,004 194,909
-------- --------
Change in Plan Assets
Fair value of plan assets at beginning of year...... 202,653 194,258
Actual return on plan assets........................ 10,852 16,499
Benefits paid....................................... (12,434) (8,104)
-------- --------
Fair value of plan assets at end of year............ 201,071 202,653
-------- --------
Funded status....................................... 14,067 7,744
Unrecognized net actuarial gain..................... (34,587) (25,108)
Unrecognized prior service cost..................... 55,896 55,767
-------- --------
Prepaid benefit cost................................ $ 35,376 $ 38,403
======== ========
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Weighted-Average Assumptions as of November 30
Discount rate....................................... 7.50% 6.75%
Expected return on plan assets...................... 8.75% 8.75%
Rate of compensation increase....................... 5.00% 5.00%
</TABLE>
29
<PAGE>
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. Effective July 1, 1999, the
employer contribution was increased to one-fourth of the first 6% of earnings
contributed by the employee. 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
$1.3 million in 1999 and $1.2 million in 1998 and 1997, respectively. The
Company's annual contributions were $2.0 million in each of the respective
years. At November 30, 1999, the assets of SIP and ESOP funds had a market
value of approximately $65.6 million, of which approximately $8.5 million was
invested in 2,209,153 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 and
with common shares issued subsequently. This dividend distribution of the
Rights was not taxable to the Company or its stockholders. 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.
Separate certificates for Rights will not be distributed, nor will the
Rights be exercisable, unless an Acquiring Person, as defined in the 1995
Rights Agreement, acquires 15 percent or more, or announces an offer that
could result in acquiring 15 percent or more, of the Company's common shares.
Following an acquisition of 15 percent or more of the Company's common shares
(a "Stock Acquisition"), each Right holder, except the 15 percent or more
stockholder, has the right to receive, upon exercise, common shares valued at
twice the then applicable exercise price of the Right (or, under certain
circumstances, cash, property or other Company securities), unless the 15
percent or more stockholder has offered to acquire all of the outstanding
shares of the Company under terms that a majority of the independent directors
of the Company have determined to be fair and in the best interest of the
Company and its stockholders. Similarly, unless certain conditions are met, if
the Company engages in a merger or other business combination following a
Stock Acquisition where it does not survive or survives with a change or
exchange of its common shares or if 50 percent or more of its assets, earning
power or cash flow is sold or transferred, the Rights will become exercisable
for shares of the acquiror's stock
30
<PAGE>
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 (with respect to the 1988 Plan) may be granted
options to purchase the Company's common stock at prices equal to or exceeding
the fair market value at the 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 the date of grant;
however, all or any portion of the shares granted are exercisable during the
period beginning one year after the date of grant for participants employed by
the Company for at least five years. Options granted under the 1988 Plan, 1995
Plan and 1998 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.
Information regarding employee stock option activity for the three years
ended November 30, 1999 is as follows:
<TABLE>
<CAPTION>
Price Per Share
------------------------
Number of Weighted
Shares Range Average
--------- --------------- --------
<S> <C> <C> <C>
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
Granted............................. 498,250 $3.84 to $5.66 5.42
Expired or terminated............... (55,247) $5.25 to $8.09 6.35
---------
Balance at November 30, 1999.......... 3,240,184 $3.84 to $16.00 6.27
=========
</TABLE>
31
<PAGE>
At November 30, 1999, 3,868,934 shares were reserved for options and
restricted stock awards outstanding, and 545,275 shares were available for
future stock options and/or restricted stock awards (1,133,485 shares
available at November 30, 1998).
Information on exercisable employee stock options at each date is as
follows:
<TABLE>
<CAPTION>
Options Average
Date Exercisable Price
---- ----------- -------
<S> <C> <C>
November 30, 1999.................................... 2,632,178 $6.44
November 30, 1998.................................... 2,155,570 $6.07
November 30, 1997.................................... 1,963,591 $6.17
</TABLE>
Information on employee stock options outstanding and exercisable at
November 30, 1999 is as follows:
<TABLE>
<CAPTION>
Weighted
Average
---------------
Remaining Weighted
Number Life in Number Average
Range of Prices Outstanding Years Price Exercisable Price
- --------------- ----------- --------- ----- ----------- --------
<S> <C> <C> <C> <C> <C>
$3.84 to $5.25................. 1,165,745 3.6 $5.22 989,248 $5.25
$5.53 to $7.06................. 1,224,189 6.1 6.10 832,149 6.37
$7.72 to $16.00................ 850,250 8.0 7.96 810,781 7.95
--------- ----- --------- -----
3,240,184 $6.27 2,632,178 $6.44
========= ===== ========= =====
</TABLE>
Information regarding long term incentive restricted stock plan awards
pursuant to the 1995 Plan and 1998 Plan for the three years ended November 30,
1999 is as follows:
<TABLE>
<CAPTION>
Number Price Per Share
of ----------------------- Vesting
Shares Average Range Threshold
------- ------- --------------- ---------
<S> <C> <C> <C> <C>
Balance November 30, 1996..... 132,500 $5.94 $5.94 $ 9.00
Granted to 18 executives...... 142,500 $7.72 $7.72 $11.50
Cancelled..................... (10,000) $5.94 $5.94
-------
Balance November 30, 1997..... 265,000 $6.90 $5.94 to $7.72
Granted to 28 executives...... 204,000 $8.09 $8.09 $12.50
Cancelled..................... (16,000) $6.89 $5.94 to $7.72
-------
Balance November 30, 1998..... 453,000 $7.43 $5.94 to $8.09
Granted to 28 executives...... 175,750 $5.53 $5.53 $ 9.00
-------
Balance November 30, 1999..... 628,750 $6.90 $5.53 to $8.09
=======
</TABLE>
All of the above awards vest at the earliest of ten years from the date of
grant, retirement at age 65, the Company's stock price exceeding the vesting
threshold price for thirty consecutive calendar days, as shown above, or as
otherwise authorized by the Compensation and Stock Option Committee of the
Board of Directors. As of November 30, 1999, none of the awards had vested.
Expense is being recognized over the anticipated vesting period of the awards.
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 service. 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, 1999 is as follows:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- --------------
Avg. Avg. Avg.
Shares Price Shares Price Shares Price
------- ------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C> <C>
Balance beginning of year........ 274,555 $ 4.85 270,604 $ 5.45 313,986 $5.09
Granted:
Fair Market Value.............. 36,882 4.88 19,776 8.09 18,664 7.50
$1.00 Option................... 20,619 1.00 11,284 1.00 13,460 1.00
DDSA........................... 36,882 -- 19,776 -- 1,200 --
Exercises:
Fair Market Value.............. -- -- (11,490) 6.09 (40,760) 6.01
$1.00 Option................... (42,221) 1.00 (20,947) 1.00 (31,608) 1.00
DDSA........................... -- -- -- -- (4,338) --
Expired:
Fair Market Value.............. (36,837) 11.08 (14,448) 15.57 -- --
------- ------ ------- ------ ------- -----
Balance end of year.............. 289,880 $ 3.73 274,555 $ 4.85 270,604 $5.45
======= ====== ======= ====== ======= =====
</TABLE>
At November 30, 1999, 41,726 shares were available for future DSOs and DDSAs.
The weighted average fair value of options granted was estimated to be
$2.68, $4.13 and $3.92 in 1999, 1998 and 1997, 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 (4.81% 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>
1999 1998 1997
---- ----- -----
<S> <C> <C> <C>
Additional compensation expense......................... $1.8 $ 2.1 $ 1.0
Pro forma net earnings.................................. 0.5 13.3 24.5
Pro forma diluted earnings per share.................... .02 .38 .72
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options which have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions including the expected stock price volatility.
Because the Company's stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a
reliable single measure of the fair value of its stock options. The pro forma
amounts may not be representative of the future effects on reported net income
and net income per share that will result from the future granting of stock
options, since the pro forma compensation expense is allocated over the
periods in which options become exercisable and new options awards are granted
each year.
Non-Cash Charge Re: Systems Project Termination
Results for the fiscal year ended November 30, 1999 include a second
quarter non-cash pre-tax charge of $11.2 million ($6.9 million or $.21 per
share net of tax) to reflect a writedown of capitalized development costs
related to the termination of an enterprise resource planning system project
which had been anticipated to be
33
<PAGE>
implemented company-wide. The project software had been installed at one
operating company representing less than 5% of consolidated sales, and, after
extensive evaluation, the Company, in consultation with its advisors,
concluded that company-wide implementation would not be appropriate. Although
legal action has been initiated against the principal software provider to
recover damages incurred, no recovery has been assumed in determining the
reported non-cash charge.
Operating Segment Information
The Company is engaged in the manufacturing and marketing of apparel. The
Company's customers comprise major department and specialty stores, value
oriented retailers and direct mail companies. The Company's Men's Apparel
Group designs, manufactures and markets tailored clothing, slacks, sportswear
and dress furnishings; the Women's Apparel Group markets women's career
apparel, sportswear and accessories to both retailers and to individuals who
purchase women's apparel through a direct mail catalog.
Effective December 1, 1998, the Company adopted the provisions of Statement
of Financial Accounting Standards No. 131--"Disclosures About Segments of an
Enterprise and Related Information". Information on the Company's operations
for the three years ended November 30, 1999 is summarized as follows (in
millions):
<TABLE>
<CAPTION>
Men's Women's
Apparel Apparel
1999 Group Group Adj. Consol.
- ---- ------- ------- ------ -------
<S> <C> <C> <C> <C>
Sales........................................... $672.6 $54.2 $ -- $726.8
Earnings (loss) before taxes.................... 37.9 5.7 (41.1) 2.5
Gross assets at year end........................ 338.8 28.1 92.8 459.7
Depreciation and amortization................... 6.3 0.5 0.3 7.1
Property additions.............................. 7.0 0.6 0.2 7.8
<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
</TABLE>
During the years ended November 30, 1999, 1998 and 1997, there were no
intergroup sales, and there was no change in the basis of measurement of group
earnings or loss.
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 principally of interest expense and general corporate expenses; the
1999 earnings before tax amount also includes the non-cash charge. Adjustments
of gross assets are for cash, recoverable and deferred income taxes,
investments, other assets and corporate properties. Adjustments of
depreciation and amortization and net property additions are for corporate
properties.
34
<PAGE>
Quarterly Financial Summary (Unaudited)
Selected quarterly financial and common share information for each of the
four quarters in fiscal 1999 and 1998 is as follows (000's omitted):
<TABLE>
<CAPTION>
First Second Third Fourth
1999 Quarter Quarter(1) Quarter Quarter
---- -------- ---------- -------- --------
<S> <C> <C> <C> <C>
Sales............................... $176,402 $172,680 $185,566 $192,157
Gross profit........................ 43,580 44,882 46,672 49,941
Earnings (loss) before taxes........ 2,265 (9,375) 4,240 5,415
Net earnings (loss)................. 1,405 (5,810) 2,630 3,355
Earnings (loss) per share:
Basic............................. .04 (.17) .08 .11
Diluted........................... .04 (.17) .08 .11
<CAPTION>
1998
----
<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>
- --------
(1) 1999 second quarter included a pre-tax non-cash non-recurring charge of
$11.2 million ($6.9 million or $.21 per share after-tax) relating to the
write-off of systems project development costs. Excluding this adjustment,
earnings before taxes for the second quarter would have been $1.8 million,
and net earnings for the second quarter would have been $1.1 million or
$.04 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 2000 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 Annual Report on Form 10-K.
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 2000 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 2000 Annual Meeting
under the captions "Security Ownership of Directors and Officers" on page 14
and "Ownership of Common Stock" on page 15 is incorporated herein by
reference.
35
<PAGE>
Item 13--Certain Relationships and Related Transactions
Information contained in the Proxy Statement for the 2000 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
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 1999.
36
<PAGE>
HARTMARX CORPORATION
Index to Exhibits
<TABLE>
<CAPTION>
Exhibit No.
and
Applicable
Section of
601 of
Regulation
S-K
----------- ---
<C> <S> <C>
*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 Amended and Restated Credit Agreement, dated as of August
18, 1999, among the Company, the Lenders listed therein and
General Electric Capital Corporation, as Managing Agent and
Collateral Agent (Exhibit 4-C to Form 10-Q for the quarter
ended August 31, 1999), (1).
*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 "REPORT OF THE
COMPENSATION COMMITTEE--Executive Compensation Program--
Short-Term Incentives" on pages 11 and 12 in the Proxy
Statement of the Company relating to the 2000 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 2000 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). **
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
and
Applicable
Section of
601 of
Regulation
S-K
----------- ---
<C> <S> <C>
*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). **
*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 Taras R. Proczko, Linda J. Valentine and
Andrew A. Zahr (Exhibit 10-G-8 to Form 10-K for the year
ended November 30, 1998), (1). **
10-H-1 Supplemental Benefit Compensation Agreement dated December
23, 1999 between the Company and Elbert O. Hand. **
10-H-2 Supplemental Benefit Compensation Agreement dated December
23, 1999 between the Company and Homi B. Patel. **
*10-I 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). **
</TABLE>
38
<PAGE>
<TABLE>
<CAPTION>
Exhibit No.
and
Applicable
Section of
601 of
Regulation
S-K
----------- ---
<C> <S> <C>
*10-J Deferred Compensation Plan effective January 1, 1996
(Exhibit 10-I to Form 10-K for the year ended November 30,
1995), (1). **
*10-K-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-K-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.
Consent of Independent Accountants included on page F-1 of
23 this Form 10-K.
Powers of Attorney, as indicated on page 40 of this Form 10-
24 K.
27 Financial Data Schedules.
</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)
/s/ Glenn R. Morgan /s/ Taras R. Proczko
By: ___________________________ and By: ________________________________
Glenn R. Morgan Taras R. Proczko
Executive Vice President and Vice President, Corporate Counsel
Chief Financial Officer and Secretary
Date: February 25, 2000
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
/s/ Glenn R. Morgan
By: _________________________________
Glenn R. Morgan
/s/ Taras R. Proczko
By: _________________________________
Taras R. Proczko
- --------
*Pursuant to Power of Attorney
Date: February 25, 2000
40
<PAGE>
HARTMARX CORPORATION
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
FOR FISCAL YEARS ENDED NOVEMBER 30, 1999, 1998, and 1997
(000's Omitted)
<TABLE>
<CAPTION>
Reserve for Doubtful
Accounts
Fiscal Year Ended
November 30,
-------------------------
1999 1998 1997
------- ------- -------
<S> <C> <C> <C>
Balance at beginning of year......................... $ 8,210 $ 9,803 $ 9,983
Charged to costs and expenses........................ 1,769 2,220 2,261
Deductions from reserves(1).......................... (1,926) (3,813) (2,441)
Reserve related to acquired businesses............... 586 -- --
------- ------- -------
Balance at end of year............................... $ 8,639 $ 8,210 $ 9,803
======= ======= =======
</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 12, 2000 appearing on page
16 of this Form 10-K.
PricewaterhouseCoopers LLP
Chicago, Illinois
February 25, 2000
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 5, 1999
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 an annual meeting, business must be: (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. 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 November 15 and no later then
December 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 address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (iii) the class and number of shares of the Corporation which are
beneficially owned by the stockholder, (iv) any material interest of the
stockholder in such business, and (v) any other information that is required to
be provided by the stockholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "Securities Exchange Act"), in his
capacity as a proponent to a stockholder proposal. Notwithstanding the
foregoing, in order to include information with respect to a stockholder
proposal in the proxy statement and form of proxy for a stockholder's meeting,
stockholders must provide notice as required by the regulations promulgated
under the Securities Exchange Act. Notwithstanding anything in these By-Laws to
the contrary, no business shall be
<PAGE>
conducted at any annual meeting except in accordance with the procedures set
forth in this Section 1.
The Chairman of the annual meeting shall, if the facts warrant, determine
and declare at the meeting that business was not properly brought before the
meeting and in accordance with the provisions of this Section 1, and, if he
should so determine, he shall so declare at the meeting that any such business
not properly brought before the meeting shall not be transacted.
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.
2
<PAGE>
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.
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
3
<PAGE>
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.
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.
Only persons who are nominated in accordance with the procedures set
forth in this Section 3 shall be eligible for election as directors. Nominations
of persons for
5
<PAGE>
election to the Board of Directors of the Corporation may be made at a meeting
of the stockholders by or at the direction of the Board of Directors, or by a
committee appointed by the Board of Directors, or by any stockholder of the
Corporation entitled to vote in the election of directors at the meeting who
complies with the notice procedures set forth in this Section 3. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation (a) with respect to an election to be held at an annual
meeting of stockholders, no earlier than November 15 and no later than December
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.
Such stockholder's notice shall set forth (a) as to each person, if any,
whom the stockholder proposes to nominate for election or re-election as a
director: (i) the name, age, business address and residence address of such
person, (ii) the principal occupation or employment of such person, (iii) the
class and number of shares of the Corporation which are beneficially owned by
such person, (iv) a description of all arrangements or understandings involving
the stockholder and each 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, and (v) any other information relating to such person
that is required to be disclosed in solicitations for proxies for elections of
directors pursuant to Regulation 14A under the Securities Exchange Act
(including without limitation such person's written consent to being named in
the proxy statement, if any, as a nominee and to serving as a director if
elected); and (b) as to such stockholder giving notice, the information required
to be provided pursuant to Article I, Section 1. At the request of the Board,
any person nominated by a stockholder for election as a director shall furnish
to the Secretary of the Corporation that information required to be set forth in
the stockholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a Director of the Corporation unless nominated
in accordance with the provisions of this Section 3.
The Chairman of the meeting shall, if the facts warrant, determine and
declare at the meeting that a nomination was not made in accordance with the
foregoing procedure, and if he should so determine, he shall so declare at 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.
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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 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,
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<PAGE>
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 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
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<PAGE>
occurring or existing prior to such repeal or modification, including, without
limitation, the right to indemnification for proceedings commenced after such
repeal or modification to enforce this Section 10 with regard to acts,
omissions, events or circumstances occur ring 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
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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.
Section 14. Nominating and Governance Committee. The Nominating and
Governance Committee of the Board of Directors will consist of three or more
directors.
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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
recommendations to the entire Board concerning the qualifications 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 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
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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.
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.
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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.
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.
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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
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.
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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.
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
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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
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EXHIBIT 10-H-1
ELBERT O. HAND
SUPPLEMENTAL BENEFIT COMPENSATION AGREEMENT
-------------------------------------------
This Agreement, effective as of December 23, 1999, by and between
Hartmarx Corporation ("Company"), and Elbert O. Hand, executive employee of
Company or a subsidiary of Company ("Employee"),
WITNESSETH:
WHEREAS, Company wishes to provide to Employee retirement benefits
that cannot be provided under the Hartmarx Retirement Income Plan maintained by
Company (the "RIP") because of limitations that apply to the RIP under Sections
415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, in order to allow Employee to accumulate personal assets to
be used for retirement which, when taken together with Employee's benefits under
the RIP, provide a benefit to Employee at retirement equivalent (on an after-tax
basis) to what Employee would have received under the RIP (on an after-tax
basis) but for said limitations under the Code, Company and Employee desire to
enter into this Agreement pursuant to which: (i) Employee directs Company to
deposit certain cash compensation payments for Employee directly into a
segregated account established on behalf of Employee (as described in paragraph
5 below); and (ii) Company will pay certain tax gross up payments;
NOW, THEREFORE, in consideration of their mutual undertakings, Company
and Employee agree as follows:
1. Deposits to Segregated Account. As of the last day of each
calendar year, beginning with the effective date, the Plan Administration
Committee of the Company (the "Committee") shall determine the Present Value of
Employee's After-Tax Supplemental Benefits (as defined below). If the Present
Value of Employee's After-Tax Supplemental Benefits is more than the Adjusted
Market Value of assets held in Employee's segregated account projected as of the
date of determination, Company will deposit the difference in the segregated
account on or before the last day of that calendar year. The amount of the
deposit made by Company to the segregated account shall be treated as cash
compensation taxable to Employee in the year deposited to the account.
2. Funding Assumptions. The factors listed below shall be used in the
determination of deposits to Employee's segregated account as provided under
paragraph 1 above.
(a) Employee's "After-Tax Supplemental Benefit" determined as of the
last day of any calendar year shall mean: (i) the difference
between (A) the periodic benefit that would be payable under the
RIP to the Employee (or his beneficiary) upon Employee's
retirement at age 65
<PAGE>
or, if Employee has attained age 65, Employee's retirement as at
the date of determination (assuming Employee terminated service
on the date of determination and accrued no further benefits
under the RIP) if the limitations on benefits under the Code had
not applied to the RIP, and (B) the periodic benefit payable to
the Employee under the RIP after application of those
limitations; less (ii) Applicable Income Taxes (as defined below)
related to such difference determined under (i) above.
(b) The "Present Value" of Employee's After-Tax Supplemental Benefits
shall be determined using reasonable actuarial assumptions as
determined from time to time by the Committee for this purpose.
Actuarial assumptions applied for similar purposes under the RIP
are hereby deemed reasonable for purposes of this Agreement.
(c) "Applicable Income Taxes" shall mean federal (including Federal
Insurance Contributions Act ("FICA"), if applicable), state and
local income taxes (using, in each case, the nominal tax rate in
effect for the highest individual income tax bracket for the
calendar year in which such taxes are determined, rather than the
highest effective tax bracket rate after considering the phase-
out of lower bracket rates, personal exemptions, deductions, tax
preference items, etc.) that would have been payable by Employee
if the Company paid the Employee the amount described in
subparagraph 2(a)(i) above in the calendar year with respect to
which the amount is deposited, provided, that federal income
taxes shall be considered net of state and local income tax
benefits.
(d) The "Adjusted Market Value" of assets held in the segregated
account shall mean the market value of assets in the segregated
account on the date of determination, plus the sum of the amount
of any withdrawals or distributions from the segregated account
and Applicable Interest. "Applicable Interest" shall mean the
interest that would have been credited to such withdrawals or
distributions each year (assuming such amounts had not been
distributed) at a rate equal to the average of the six-month
treasury bill rates for such year, or such other reasonable
interest rate assumptions as the Committee in its discretion may
adopt from time to time.
3. Special Rules for Initial Funding Contributions.
------------------------------------------------
Notwithstanding the requirements of paragraph 2 above, and in
accordance with the Company's intent to spread the first deposit over a five-
year period, in the first year in which deposits are required to be made by the
Company to the Employee's segregated account under this Agreement
-2-
<PAGE>
and for each of the three subsequent calendar years, Company shall reduce the
deposit otherwise required by the following percentages:
Year One -- 80%
Year Two -- 75%
Year Three -- 66 2/3%
Year Four -- 50%.
For each calendar year that this Agreement is in effect after the fourth
calendar year, the Company shall deposit the full amount described in paragraph
1, above. In the event of:
(i) a change in control (as defined in the most recent severance
agreement entered into by the Employee and the Company
("Severance Agreement")) of the ownership of the Company, along
with any attempt by the Company to discontinue or delay deposit
of the installment payments described herein, and accompanied by
the reasonable written request by the Employee for acceleration
of funding by the Company; or
(ii) the death of the Employee or the discharge by the Company of
Employee from the employment of Company or a subsidiary of
Company without cause (as defined in the most recent employment
agreement entered into by the Employee and the Company
("Employment Agreement"));
prior to the end of the five-year period described above, the percentage
reductions described in the first sentence of this paragraph 3 shall not apply,
and in the event of a change in control, discontinuance or delay of installment
payments by the Company and written request by the Employee for acceleration of
funding, all such payments must be deposited by the Company into the Employee's
segregated account within ten (10) days of such discontinuance or delay and
receipt of Employee's reasonable request by the Company. In the event of a
voluntary termination of the Employee's employment initiated by the Employee
(regardless of whether such termination is considered for good reason under the
Employment Agreement) prior to the expiration of the five-year period, the
Company shall continue to make the deposits in the form and at the times
described in the first sentence of this paragraph 3 during the remainder of the
five-year period. In the event the Company terminates this Agreement prior to
the expiration of the five-year period, the Company shall continue to make the
deposits in the form and at the times described in the first sentence of this
paragraph 3 during the remainder of the five-year period; provided, however,
that with respect to the calculation of the funding amount described in
subparagraph 2(a), the Employee shall be deemed to have terminated employment
with the Company as of the date the Company terminates this Agreement.
Notwithstanding the foregoing, in the event that (i) the Employee is discharged
by the Company for cause as defined in the Employment Agreement, (ii) the
Employee breaches the confidentiality and nondisparagement provisions of
paragraph seven of the Employment Agreement, or (iii) the Employee withdraws
funds from the account prior to termination of employment with the Company, no
further deposits shall be made to the Employee's segregated account by the
Company under this Agreement.
-3-
<PAGE>
4. Tax Gross Up Payments to Employee. In addition to any cash payment
made under paragraph 1 above, Company shall make a tax gross up payment to
Employee for each calendar year during the term of this Agreement that Company
makes a cash deposit into Employee's segregated account or there is a balance in
Employee's segregated account. The tax gross up payment shall approximate:
(a) the amount necessary to compensate Employee for the net increase
in Employee's federal (including FICA), state and local income
taxes as a result of the inclusion in his or her taxable income
of the income earned on Employee's segregated account as well as
any deposits made under paragraph 1 for that year; plus
(b) an amount necessary to compensate Employee for the net increase
in the taxes described in (a) above as a result of the inclusion
in his or her taxable income of any payment made pursuant to this
paragraph 4.
Payment of the tax gross up to Employee shall be made by Company directly from
its general corporate assets. Payment of the tax gross up to Employee for any
deposit made to the segregated account pursuant to paragraph 1 shall be made on
or before the last day of the calendar year and payment of the tax gross up to
Employee for any income earned on the segregated account for the year shall be
made as soon as practicable after the end of the calendar year.
5. Establishment of Segregated Account. Employee agrees to establish
a segregated account in the form of a grantor trust between Employee and the
Northern Trust Company in the form attached to this Agreement, or a savings
account or such other form of segregated account generally available to the
public from a financial institution as the Committee considers acceptable (the
name and location of which institution shall be indicated in an attachment
hereto), for the purpose of receiving and holding the cash deposits made
pursuant to paragraph 1 above and any interest which is earned on the
outstanding balances in the segregated account. Employee may elect to transfer
all of the assets of his segregated account to another acceptable form of
segregated account provided he gives the Committee 60 days advance written
notice of such transfer.
6. Termination of Agreement. This Agreement shall terminate after
the earliest to occur of:
(a) the date Employee dies,
(b) the date Employee withdraws any assets from the segregated
account while employed by the Company,
(c) the date Employee terminates employment for any reason (subject
to the Company's obligation to make the remainder of its funding
contributions during the five-year funding period described in,
and subject to the terms and conditions of, paragraph 3), and
-4-
<PAGE>
(d) the date the Company notifies Employee that it has terminated the
Agreement.
Except as provided in the following sentence and in the special five-year
funding rules described in paragraph 3, upon termination of this Agreement
Company shall have no obligation to make any further cash payments or tax gross
up payments to Employee. If termination of this Agreement occurs under (a), (c)
or (d) above, and subject to the special five-year funding rules described in
paragraph 3, Company shall make a final deposit into Employee's segregated
account equal to the difference (if any) between the Adjusted Market Value of
the assets in Employee's segregated account as of the date payment is to be made
and the Present Value of Employee's After-Tax Supplemental Benefits. This final
deposit shall be made no later than the last day of the calendar year in which
this Agreement terminates, or as soon as reasonably practicable thereafter, but
in no event later than 30 days after the date of termination of this Agreement.
For purposes of this final deposit, Employee's After-Tax Supplemental Benefits
shall be determined as of the date the final deposit is to be made.
7. Administration of Agreement. This Agreement shall be administered
by the Committee. The Committee may delegate administrative authority to
officers of Company, including the power to adopt administrative rules and
regulations; provided, however, that the Committee's interpretation and
construction of any provisions of this Agreement shall be binding and conclusive
on the parties hereto.
8. Amendment of Agreement. With the mutual consent of the parties
hereto, this Agreement may be amended from time to time.
IN WITNESS WHEREOF, Company and Employee have executed this Agreement
on the day and year first above written.
HARTMARX CORPORATION
By
---------------------------------
ELBERT O. HAND
/s/
-----------------------------------
[signature]
Soc. Sec. No.
----------------------
-5-
<PAGE>
EXHIBIT 10-H-2
HOMI B. PATEL
SUPPLEMENTAL BENEFIT COMPENSATION AGREEMENT
-------------------------------------------
This Agreement, effective as of December 23, 1999, by and between
Hartmarx Corporation ("Company"), and Homi B. Patel, executive employee of
Company or a subsidiary of Company ("Employee"),
WITNESSETH:
WHEREAS, Company wishes to provide to Employee retirement benefits
that cannot be provided under the Hartmarx Retirement Income Plan maintained by
Company (the "RIP") because of limitations that apply to the RIP under Sections
415 and 401(a)(17) of the Internal Revenue Code of 1986, as amended (the
"Code"); and
WHEREAS, in order to allow Employee to accumulate personal assets to
be used for retirement which, when taken together with Employee's benefits under
the RIP, provide a benefit to Employee at retirement equivalent (on an after-tax
basis) to what Employee would have received under the RIP (on an after-tax
basis) but for said limitations under the Code, Company and Employee desire to
enter into this Agreement pursuant to which: (i) Employee directs Company to
deposit certain cash compensation payments for Employee directly into a
segregated account established on behalf of Employee (as described in paragraph
5 below); and (ii) Company will pay certain tax gross up payments;
NOW, THEREFORE, in consideration of their mutual undertakings, Company
and Employee agree as follows:
1. Deposits to Segregated Account. As of the last day of each
calendar year, beginning with the effective date, the Plan Administration
Committee of the Company (the "Committee") shall determine the Present Value of
Employee's After-Tax Supplemental Benefits (as defined below). If the Present
Value of Employee's After-Tax Supplemental Benefits is more than the Adjusted
Market Value of assets held in Employee's segregated account projected as of the
date of determination, Company will deposit the difference in the segregated
account on or before the last day of that calendar year. The amount of the
deposit made by Company to the segregated account shall be treated as cash
compensation taxable to Employee in the year deposited to the account.
2. Funding Assumptions. The factors listed below shall be used in the
determination of deposits to Employee's segregated account as provided under
paragraph 1 above.
(a) Employee's "After-Tax Supplemental Benefit" determined as of the
last day of any calendar year shall mean: (i) the difference
between (A) the periodic benefit that would be payable under the
RIP to the Employee (or his beneficiary) upon Employee's
retirement at age 65
<PAGE>
or, if Employee has attained age 65, Employee's retirement as at
the date of determination (assuming Employee terminated service
on the date of determination and accrued no further benefits
under the RIP) if the limitations on benefits under the Code had
not applied to the RIP, and (B) the periodic benefit payable to
the Employee under the RIP after application of those
limitations; less (ii) Applicable Income Taxes (as defined below)
related to such difference determined under (i) above.
(b) The "Present Value" of Employee's After-Tax Supplemental Benefits
shall be determined using reasonable actuarial assumptions as
deter mined from time to time by the Committee for this purpose.
Actuarial assumptions applied for similar purposes under the RIP
are hereby deemed reasonable for purposes of this Agreement.
(c) "Applicable Income Taxes" shall mean federal (including Federal
Insurance Contributions Act ("FICA"), if applicable), state and
local income taxes (using, in each case, the nominal tax rate in
effect for the highest individual income tax bracket for the
calendar year in which such taxes are determined, rather than the
highest effective tax bracket rate after considering the phase-
out of lower bracket rates, personal exemptions, deductions, tax
preference items, etc.) that would have been payable by Employee
if the Company paid the Employee the amount described in
subparagraph 2(a)(i) above in the calendar year with respect to
which the amount is deposited, provided, that federal income
taxes shall be considered net of state and local income tax
benefits.
(d) The "Adjusted Market Value" of assets held in the segregated
account shall mean the market value of assets in the segregated
account on the date of determination, plus the sum of the amount
of any withdrawals or distributions from the segregated account
and Applicable Interest. "Applicable Interest" shall mean the
interest that would have been credited to such withdrawals or
distributions each year (assuming such amounts had not been
distributed) at a rate equal to the average of the six-month
treasury bill rates for such year, or such other reasonable
interest rate assumptions as the Committee in its discretion may
adopt from time to time.
3. Special Rules for Initial Funding Contributions.
------------------------------------------------
Notwithstanding the requirements of paragraph 2 above, and in
accordance with the Company's intent to spread the first deposit over a five-
year period, in the first year in which deposits
-2-
<PAGE>
are required to be made by the Company to the Employee's segregated account
under this Agreement and for each of the three subsequent calendar years,
Company shall reduce the deposit otherwise required by the following
percentages:
Year One -- 80%
Year Two -- 75%
Year Three -- 66 2/3%
Year Four -- 50%.
For each calendar year that this Agreement is in effect after the fourth
calendar year, the Company shall deposit the full amount described in paragraph
1, above. In the event of:
(i) a change in control (as defined in the most recent severance
agreement entered into by the Employee and the Company
("Severance Agreement")) of the ownership of the Company, along
with any attempt by the Company to discontinue or delay deposit
of the installment payments described herein, and accompanied by
the reasonable written request by the Employee for acceleration
of funding by the Company; or
(ii) the death of the Employee or the discharge by the Company of
Employee from the employment of Company or a subsidiary of
Company without cause (as defined in the most recent employment
agreement entered into by the Employee and the Company
("Employment Agreement"));
prior to the end of the five-year period described above, the percentage
reductions described in the first sentence of this paragraph 3 shall not apply,
and in the event of a change in control, discontinuance or delay of installment
payments by the Company and written request by the Employee for acceleration of
funding, all such payments must be deposited by the Company into the Employee's
segregated account within ten (10) days of such discontinuance or delay and
receipt of Employee's reasonable request by the Company. In the event of a
voluntary termination of the Employee's employment initiated by the Employee
(regardless of whether such termination is considered for good reason under the
Employment Agreement) prior to the expiration of the five-year period, the
Company shall continue to make the deposits in the form and at the times
described in the first sentence of this paragraph 3 during the remainder of the
five-year period. In the event the Company terminates this Agreement prior to
the expiration of the five-year period, the Company shall continue to make the
deposits in the form and at the times described in the first sentence of this
paragraph 3 during the remainder of the five-year period; provided, however,
that with respect to the calculation of the funding amount described in
subparagraph 2(a), the Employee shall be deemed to have terminated employment
with the Company as of the date the Company terminates this Agreement.
Notwithstanding the foregoing, in the event that (i) the Employee is discharged
by the Company for cause as defined in the Employment Agreement, (ii) the
Employee breaches the confidentiality and nondisparagement provisions of
paragraph seven of the Employment Agreement, or (iii) the Employee withdraws
funds from the account prior to termination of employment with the
-3-
<PAGE>
Company, no further deposits shall be made to the Employee's segregated account
by the Company under this Agreement.
4. Tax Gross Up Payments to Employee. In addition to any cash payment
made under paragraph 1 above, Company shall make a tax gross up payment to
Employee for each calendar year during the term of this Agreement that Company
makes a cash deposit into Employee's segregated account or there is a balance in
Employee's segregated account. The tax gross up payment shall approximate:
(a) the amount necessary to compensate Employee for the net increase
in Employee's federal (including FICA), state and local income
taxes as a result of the inclusion in his or her taxable income
of the income earned on Employee's segregated account as well as
any deposits made under paragraph 1 for that year; plus
(b) an amount necessary to compensate Employee for the net increase
in the taxes described in (a) above as a result of the inclusion
in his or her taxable income of any payment made pursuant to this
paragraph 4.
Payment of the tax gross up to Employee shall be made by Company directly from
its general corporate assets. Payment of the tax gross up to Employee for any
deposit made to the segregated account pursuant to paragraph 1 shall be made on
or before the last day of the calendar year and payment of the tax gross up to
Employee for any income earned on the segregated account for the year shall be
made as soon as practicable after the end of the calendar year.
5. Establishment of Segregated Account. Employee agrees to establish
a segregated account in the form of a grantor trust between Employee and the
Northern Trust Company in the form attached to this Agreement, or a savings
account or such other form of segregated account generally available to the
public from a financial institution as the Committee considers acceptable (the
name and location of which institution shall be indicated in an attachment
hereto), for the purpose of receiving and holding the cash deposits made
pursuant to paragraph 1 above and any interest which is earned on the
outstanding balances in the segregated account. Employee may elect to transfer
all of the assets of his segregated account to another acceptable form of
segregated account provided he gives the Committee 60 days advance written
notice of such transfer.
6. Termination of Agreement. This Agreement shall terminate after
the earliest to occur of:
(a) the date Employee dies,
(b) the date Employee withdraws any assets from the segregated
account while employed by the Company,
-4-
<PAGE>
(c) the date Employee terminates employment for any reason (subject
to the Company's obligation to make the remainder of its funding
contributions during the five-year funding period described in,
and subject to the terms and conditions of, paragraph 3), and
(d) the date the Company notifies Employee that it has terminated the
Agreement.
Except as provided in the following sentence and in the special five-year
funding rules described in paragraph 3, upon termination of this Agreement
Company shall have no obligation to make any further cash payments or tax gross
up payments to Employee. If termination of this Agreement occurs under (a), (c)
or (d) above, and subject to the special five-year funding rules described in
paragraph 3, Company shall make a final deposit into Employee's segregated
account equal to the difference (if any) between the Adjusted Market Value of
the assets in Employee's segregated account as of the date payment is to be made
and the Present Value of Employee's After-Tax Supplemental Benefits. This final
deposit shall be made no later than the last day of the calendar year in which
this Agreement terminates, or as soon as reasonably practicable thereafter, but
in no event later than 30 days after the date of termination of this Agreement.
For purposes of this final deposit, Employee's After-Tax Supplemental Benefits
shall be determined as of the date the final deposit is to be made.
7. Administration of Agreement. This Agreement shall be administered
by the Committee. The Committee may delegate administrative authority to
officers of Company, including the power to adopt administrative rules and
regulations; provided, however, that the Committee's interpretation and
construction of any provisions of this Agreement shall be binding and conclusive
on the parties hereto.
8. Amendment of Agreement. With the mutual consent of the parties
hereto, this Agreement may be amended from time to time.
IN WITNESS WHEREOF, Company and Employee have executed this Agreement
on the day and year first above written.
HARTMARX CORPORATION
By
-----------------------------------------
/s/ HOMI B. PATEL
--------------------------------------------
[signature]
Soc. Sec. No.
------------------------------
-5-
<PAGE>
EXHIBIT 12
HARTMARX CORPORATION
STATEMENT OF COMPUTATION OF RATIOS
(IN THOUSANDS, EXCEPT RATIOS)
(UNAUDITED)
<TABLE>
<CAPTION>
YEARS ENDED NOVEMBER 30,
--------------------------------------------------
<S> <C> <C> <C> <C> <C>
1999/(1)/ 1998 1997 1996 1995
---------- ------- ------- ------- -------
Earnings from continuing
operations before provision for
income taxes per Consolidated
Statement of Earnings $ 2,545 $23,585 $16,545 $ 7,700 $ 1,630
Add:
Interest Expense /(a)/ 17,669 18,633 17,480 16,681 20,001
Portion of rents representative
of the interest factor/ (a) (b)/ 3,565 3,622 3,736 3,424 6,114
--------------------------------------------------
Income as adjusted $ 23,779 $45,840 $37,761 $27,805 $27,745
================================================
Fixed charges:
Interest expense /(a)/ $ 17,669 $18,633 $17,480 $16,681 $20,001
Portion of rents representative
of the interest factor /(a) (b)/ 3,565 3,622 3,736 3,424 6,114
------------------------------------------------
Fixed charges $ 21,234 $22,255 $21,216 $20,105 $26,115
================================================
Ratio of earnings to fixed charges 1.12 2.06 1.78 1.38 1.06
================================================
</TABLE>
(1) 1999 earnings from continuing operations before provision for income taxes
includes a non-cash writedown of systems development costs of $11,195.
Excluding this charge, income as adjusted would have been $34,974 and the
ratio of earnings to fixed charges would have been 1.65.
(a) Includes amounts related to discontinued operation for 1995.
(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
Royal Shirt Company Limited............................ Ontario, Canada
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-30-1999
<PERIOD-START> DEC-01-1998
<PERIOD-END> NOV-30-1999
<CASH> 2,133
<SECURITIES> 0
<RECEIVABLES> 144,921
<ALLOWANCES> (8,639)
<INVENTORY> 176,214
<CURRENT-ASSETS> 344,936
<PP&E> 175,961
<DEPRECIATION> (136,967)
<TOTAL-ASSETS> 459,673
<CURRENT-LIABILITIES> 115,225
<BONDS> 155,300
0
0
<COMMON> 90,252
<OTHER-SE> 98,896
<TOTAL-LIABILITY-AND-EQUITY> 459,673
<SALES> 726,805
<TOTAL-REVENUES> 729,699
<CGS> 541,730
<TOTAL-COSTS> 698,290
<OTHER-EXPENSES> 11,195
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,669
<INCOME-PRETAX> 2,545
<INCOME-TAX> 965
<INCOME-CONTINUING> 1,580
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,580
<EPS-BASIC> .05
<EPS-DILUTED> .05
</TABLE>
