HARTMARX CORPORATION
NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1—Summary of Accounting
Policies
Principal Business
Activity
—
Hartmarx Corporation and its subsidiaries (“the Company”) operate exclusively in the apparel business. The Company is responsible for the design, manufacture and sourcing of its apparel brands, both owned and under
license, across a wide variety of fashion directions, price points and distribution channels. Its men’s tailored clothing and slacks are manufactured in Company operated facilities located in the United States and Canada, as well as at numerous
independent contractors located principally outside of the United States. 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 sportswear, as well as women’s career apparel, designer knitwear and sportswear, including denim products, in accordance with Company specifications and production schedules.
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 accounting principles generally accepted in the United
States of America and, accordingly, include amounts based on informed estimates and judgments of management with consideration given to materiality. Significant estimates which are incorporated in the accompanying consolidated financial statements
include allowances pertaining to receivables, net realizable value of inventories, realization of deferred tax assets, impairment of goodwill and intangible assets, the determination of discount rates and other assumptions associated with various
employee benefit expenses and obligations, and share based compensation. Actual results could differ from those estimates.
Revenue Recognition / Accounts Receivable
—Sales are recognized when the following criteria are met: persuasive evidence of an agreement
exists, delivery has occurred, the price is fixed and determinable and collectibility is reasonably assured. Revenues are net of anticipated returns, discounts and allowances. Shipping and handling revenues charged to customers are included in
revenues. Sales taxes, if any, are excluded from revenues. Income from licensing arrangements, which is reflected in the Licensing and Other Income caption in the accompanying Consolidated Statement of Earnings, is recorded when received as minimum
royalties are normally received in the period to which they relate and amounts due for excess royalties cannot be reasonably estimated prior to the receipt of the reports from the licensees as provided for under the various licensing agreements.
Co-op advertising is included as a component of Selling, General and Administrative Expenses.
Trade accounts receivable are recorded at the invoiced amount, do not bear interest and are net of anticipated returns, allowances and discounts. The allowance for doubtful accounts is the Company’s best estimate
of the amount of probable credit losses in existing accounts receivable. The allowance is determined based on historical write-off experience and the current retailer environment. The allowance for doubtful accounts is reviewed regularly. Balances
over 90 days past due and over a specified amount are reviewed individually for collectibility; other balances are considered on a pooled basis considering the agings of balances. Account balances are charged off against the allowance when it is
probable the receivable will not be recovered. There is no off-balance sheet credit exposure related to the Company’s customers.
Cost of Goods Sold
—Cost of goods sold includes the following components: product cost, including inbound freight, duties, internal inspection
costs, internal transfer costs, production labor and other manufacturing overhead costs. The warehousing, picking and packing of finished products are included as a component of Selling, General and Administrative Expenses and totaled $21.3 million
in 2007, $22.2 million in 2006 and $20.0 million in 2005.
37
Selling, General and Administrative Expenses
—Selling, general and administrative expenses
include costs incurred subsequent to the receipt of finished goods at the Company’s distribution facilities, such as the cost of inspection, stocking, warehousing, picking and packing. Selling, general and administrative expenses also include
product design costs, selling costs, advertising, promotion and marketing expenses, professional fees, other general and administrative expenses and other administrative overhead costs.
Advertising expenditures, including co-op advertising, 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 $20.8 million in 2007, $24.7 million in 2006 and $23.2 million in 2005 are included in Selling, General and Administrative Expenses in the accompanying Consolidated Statement of Earnings. Prepaid expenses at November 30, 2007 include
deferred advertising costs of $1.7 million ($1.6 million at November 30, 2006), which will be reflected as an expense during the quarterly period benefitted. Included in these amounts are $1.1 million at November 30, 2007 and $1.1 million
at November 30, 2006 relating to direct response advertising associated with the Women’s Apparel Group catalog operations.
Cash and Cash Equivalents
—The Company considers as cash equivalents all highly liquid investments with an original maturity of three months or
less. Checks drawn in excess of bank balances are included as a component of accounts payable.
Inventories
—Inventories are stated at the lower of cost or market. At November 30, 2007 and 2006, approximately 43% and 45%, respectively, of the Company’s total inventories are valued using the
last-in, first-out (LIFO) method representing certain tailored clothing work in process and finished goods in the Men’s Apparel Group. The first-in, first-out (FIFO) method is used for substantially all raw materials and the remaining
inventories. For inventory carried at the lower of FIFO cost or market, adjustments are charged to operations in the period in which the facts giving rise to the adjustments become known. The Company periodically evaluates the composition of its
inventories for identification of obsolete or slow moving inventory. Quantities not expected to be sold in the normal course of business are written down to expected net realizable value.
Property, Plant and Equipment
—Properties are stated at cost less accumulated depreciation. Additions, major
renewals and betterments are capitalized; maintenance and repairs which do not extend asset lives are charged against earnings. Profit or loss on disposition of properties is reflected in earnings, and the related asset costs and accumulated
depreciation are removed from the respective accounts. Depreciation is generally computed on the straight-line method based on useful lives of 20 to 45 years for buildings, 5 to 20 years for building improvements and 3 to 15 years for furniture,
fixtures and equipment. Leasehold improvements are amortized over the terms of the respective leases or useful lives, whichever is shorter. During fiscal 2007 and 2006, impairment charges of $.3 million and $.6 million, respectively, were recorded
related to Company facilities no longer in use. During fiscal 2005, no impairments of property, plant and equipment were recorded, as there were no events or changes in circumstances which indicated that the carrying amount was not recoverable.
Goodwill and Intangible Assets
—Goodwill represents
the excess of the purchase price paid over the value of net assets of businesses acquired. Goodwill is allocated to the respective reporting unit at the time of acquisition. Goodwill is not amortized, but is tested for impairment on an annual basis,
or more frequently if impairment indicators arise. Impairment tests, which involve the use of estimates related to the fair market values of the reporting units with which goodwill is associated, are performed annually during the second quarter.
Impairment losses, if any, resulting from impairment tests would be reflected in operating income in the Consolidated Statement of Earnings. During fiscal 2007, no impairment adjustment relating to goodwill was determined to be required. Aggregate
goodwill was $37.0 million and $28.0 million at November 30, 2007 and 2006, respectively, with the increase primarily attributable to acquisitions consummated during 2007, along with current year earnouts payable as of November 30, 2007
related to acquisitions made in prior years.
38
The estimated lives and the method of amortization for the components of intangible assets are as
follows:
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Intangible Asset
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Life
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Amortization Method
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Tradenames
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Indefinite
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Not amortized
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Customer relationships
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10 years
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Estimated weighted cash flows over life
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Supply agreement
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5 years
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Straight line over life
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Design services agreement
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5 years
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Estimated weighted cash flows over life
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Covenant not to compete
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4 years to 10 years
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Estimated weighted cash flows over life
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License agreement
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5 years
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Estimated weighted cash flows over life
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License rights
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Initial term of license agreement,
usually 5 years or less
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Straight line over life
|
Intangible assets, net
of accumulated amortization, aggregated $63.1 million and $55.5 million at November 30, 2007 and 2006, respectively. Accumulated amortization was $10.4 million and $7.3 million at November 30, 2007 and 2006, respectively. Amortization
expense of intangible assets was $3.1 million in 2007, $2.9 million in 2006 and $2.2 million in 2005.
The amounts allocated to Tradenames at November 30, 2007 and 2006 were $55.5 million and $46.8 million, respectively; the $8.8 million recorded in
fiscal 2007 related to the Zooey and Monarchy acquisitions and the remaining $46.7 million was attributable to the Sweater.com acquisition in August 2006, the Simply Blue acquisition in October 2005 and the Misook acquisition in July 2004.
Impairment tests are performed on an annual basis at the same time as the impairment tests for Goodwill are performed, or more frequently if impairment indicators arise. During fiscal 2007 and 2006, no impairment adjustment relating to intangible
assets was determined to be required. The intangibles related to customer relationships, covenant not to compete, supply agreement, design services agreement and license agreement are also attributable to the Zooey, Monarchy, Sweater.com, Simply
Blue and Misook acquisitions and aggregated $7.6 million at November 30, 2007 and $8.7 million at November 30, 2006.
Amortization of intangible assets with finite lives is recognized over their estimated useful lives using a method of amortization that reflects the
pattern in which the economic benefits of the intangible assets are consumed or otherwise realized, which is up to 10 years for some intangible assets. Intangible assets with finite lives are reviewed for impairment periodically if events or changes
in circumstances indicate that the carrying amount may not be recoverable. If expected future undiscounted cash flows from operations are less than their carrying amounts, an asset is determined to be impaired and a loss would be recorded for the
amount by which the carrying value of the asset exceeds its fair value. During fiscal 2007 and 2006, no impairment adjustments relating to intangible assets with finite lives was determined to be required.
Prepaid Expenses and Other Non-Current Assets, net
—Amounts
included in prepaid expenses primarily consist of prepaid operating expenses including advertising, rent, taxes and insurance. Other non-current assets primarily consist of deferred financing costs, cash surrender value of life insurance, software
acquisition and related costs. Capitalized software acquisition costs, net of amortization were $11.8 million and $3.4 million at November 30, 2007 and 2006, respectively. Capitalized software acquisition and related costs are amortized on a
straight line basis over the period benefitted, generally three to seven years, commencing in the period the software is placed in service.
Deferred financing costs, net of accumulated amortization, related to the Company’s borrowing agreements in effect at November 30, 2007 and
2006, aggregated $.9 million and $1.3 million, respectively. These costs are amortized over the term of the financing agreement. Accumulated amortization was $3.8 million and $3.4 million
39
at November 30, 2007 and 2006, respectively. Amortization expense of deferred financing costs related to the Company’s current borrowing
arrangements was $.4 million in 2007, $.4 million in 2006 and $.5 million in 2005.
The approximate amortization of deferred financing fees over the next five years is as follows: $.4 million in 2008, $.2 million in 2009, $.1 million in 2010 and 2011, and $.05 million in 2012.
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed
of
—If facts and circumstances indicate that the cost of fixed assets or other assets, including amortizable intangible 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 would be required. Long-lived assets to be disposed of are reported at the lower of the carrying amount or fair
value less estimated costs to sell.
Accounts Payable,
Accrued Payrolls and Accrued Expenses
—Liabilities for accounts payable, accrued payrolls and accrued expenses are carried at cost which is the fair value of the consideration expected to be paid in the future for goods and services
received.
The Company may be subject to certain claims and
assessments related to legal, contractual or tax matters in the ordinary course of business. For those matters where it is probable that a loss has been incurred and the loss, or range of loss, can be reasonably estimated, an appropriate provision
for loss has been recorded in the consolidated financial statements. In other instances, provisions have not been recorded because of the uncertainties related to both the probable outcome and the amount or range of loss.
The Company retains certain financial risks for insuring a portion of its
workers’ compensation and certain non-union employee group health claims. Operations are charged with the cost of claims reported and an estimate of claims incurred but not reported. Insurance accruals include estimated settlements for known
claims, as well as accruals of estimates, some of which are actuarially determined, of incurred but not reported claims. The determination of insurance claims and the appropriateness of the related accruals are reviewed and updated at regular
intervals. Stop loss coverage for an individual workers’ compensation claim takes effect upon the claim exceeding $250,000. The individual lifetime limit for claims under the group medical plan is $1 million. These limits are taken into
consideration in determining the respective accruals for group medical insurance and workers’ compensation.
Income Taxes
—Deferred tax assets and liabilities are determined based on the differences between the financial statement and tax basis of
assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. The Company recognizes net deferred tax assets, whose realization is dependent on taxable earnings in future years, after
concluding that it is more likely than not that the deferred tax asset would be realized in the future. No valuation allowances have been recognized in the consolidated financial statements.
The Company has undistributed earnings of foreign subsidiaries of
approximately $9.4 million which have not been provided for in its income tax provision as the earnings are considered permanently invested outside of the United States. If the earnings are repatriated to the United Sates, the earnings will be
subject to United States taxation at that time. The amount of deferred tax liability that would be recognized associated with the undistributed earnings was approximately $.2 million at November 30, 2007, representing the approximate excess of
the United States tax liability over the creditable foreign taxes paid that would result from a full remittance of undistributed earnings.
The Company receives a United States income tax benefit upon the exercise of the majority of employee stock options. The benefit is equal to the
difference between the fair market value of the stock at the time of the exercise and the option price, times the approximate tax rate. The benefit associated with the exercise of employee stock options has been reflected as a reduction to income
taxes payable and a credit to capital surplus in the consolidated balance sheet.
40
Retirement Plans
—The Company and its subsidiaries maintain benefit plans covering
substantially all employees other than those covered by multi-employer plans. Pension expense for the Company’s defined benefit plans is determined using the projected unit credit method. Retirement expense under each multi-employer plan is
based upon a percentage of the employer’s union payroll established by bargaining agreements; such expenses are funded as accrued.
Other Comprehensive Income
—Other comprehensive income includes all changes in equity from non-owner sources, adjustments to recognize the
funded status of pension plans, foreign currency translation adjustments and adjustments to the fair value of foreign exchange contracts qualifying for hedge accounting.
Foreign Currency Translation
—Assets and liabilities of the Company’s foreign subsidiaries are principally located in
Canada. They are translated at current exchange rates. Income and expense items are translated at average rates during the year. Translation gains and losses are reported as a component of accumulated other comprehensive income (loss) and included
as a component of Shareholders’ Equity.
Forward
Foreign Exchange Contracts
—The Company is exposed to foreign exchange risk for the purchase of inventories or receipt of royalties when denominated in foreign currencies. The Company does not hold financial instruments for trading purposes
or engage in currency speculation. The Company enters into foreign exchange forward contracts from time to time in the ordinary course of business to limit the currency risks associated with foreign exchange rate fluctuations related to purchases of
Euro denominated inventory or receipt of royalties in foreign currencies. Foreign exchange contracts are generally for amounts not to exceed forecasted purchase obligations or receipts 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 typically settled by actual delivery of goods or receipt of funds. The effects of movements in currency exchange rates on these instruments, which have not been
significant, are recognized in earnings in the period in which the purchase obligations are satisfied or funds are received. These forward foreign exchange contracts have been designated as cash flow hedges for accounting purposes; accordingly, the
changes in fair value of the derivative instruments are included in other comprehensive income. Fair values for such contracts are generally obtained from counter parties. At November 30, 2007, the Company had the following foreign exchange
contracts outstanding (in millions):
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Accounts Receivable Collections in Canadian Dollars
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.7
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Licensing revenues in Yen
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77.7
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Gross U.S. Dollar equivalents
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$
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1.4
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At November 30,
2006, the Company did not have any outstanding foreign exchange contracts.
Fair Value of Financial Instruments
—Financial instruments consist primarily of cash, accounts receivable, accounts payable and long-term debt. The carrying amounts of cash, accounts receivable and accounts
payable approximate 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.
The following methods and assumptions were used in estimating the fair value of financial instruments:
Cash and cash equivalents
—The amounts reported approximate market value.
Long-term debt
—The market value of debt at November 30, 2007, of which a major portion is variable rate
debt, approximates its carrying value of $120.7 million, based on the terms, interest rates and maturities currently available for similar debt instruments.
Foreign exchange contracts
—The amounts reported are estimated using quoted market prices for similar instruments, when applicable.
41
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, value-oriented retailers, catalogs and through electronic commerce channels. The Company performs
periodic credit evaluations of its customers’ financial condition and generally does not require collateral. While concentrations of credit risk with respect to trade accounts receivable are somewhat mitigated due to the large number and
diversity of customers comprising the Company’s customer base, the Company’s ten largest customers represented approximately 50%, 54% and 55% of consolidated sales in 2007, 2006 and 2005, respectively. Management believes that the risk
associated with trade accounts receivable is adequately provided for in the allowance for doubtful accounts.
In fiscal 2007, sales to two customers represented approximately 21% and 13% of sales. In fiscal 2006, sales to two customers represented approximately
21% and 12% of sales. Accounts receivable from the largest customer represented approximately 24% of the Company’s gross accounts receivable at November 30, 2007 and 21% of gross accounts receivable at November 30, 2006.
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 rise. In the last three years, the Company has not used derivative financial instruments to manage interest rate risk.
Leases
—In the ordinary course of business, the Company enters into lease agreements for manufacturing,
warehouse/distribution, office and retail space as well as leases for certain plant and equipment. The leases have varying terms and expirations and frequently have provisions to extend or renew the lease agreement, among other terms and conditions,
as negotiated. At inception, the lease is assessed to determine whether the lease qualifies as a capital or operating lease. Assets leased under operating leases and the related lease obligations are not recognized as assets and liabilities,
respectively, in the consolidated balance sheet.
When a
non-cancelable operating lease includes any fixed escalation clauses and lease incentives for rent holidays or build-out contributions, rent expense is recognized on a straight-line basis over the initial term of the lease from the date of
possession of the space. The excess between the average rental amount charged to expense and amounts payable under the lease is recorded either in accrued expenses or in non-current liabilities in the accompanying consolidated balance sheets.
Contingent rents, including those based on a percentage of retail sales over stated levels, and rental payment increases based on a contingent future event are recognized as the expense is incurred.
Stock Based Compensation
—Effective December 1, 2005, the
Company adopted the provisions of SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS No. 123R”), which requires the Company to recognize expense for the grant date fair value of its employee stock option awards.
The Company recognizes the expense of all share-based awards on a straight-line basis over the employee’s requisite service period (generally the vesting period of the award).
Prior to December 1, 2005, the Company accounted for its stock option plans under the recognition and measurement
provisions of Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees,” and related Interpretations (“APB 25”), as permitted by SFAS No. 123, “Accounting for Stock-Based
Compensation.” The Company elected to adopt the modified-prospective transition method as provided by SFAS No. 123(R). Under that transition method, share-based compensation cost recognized in fiscal 2006 includes: (a) compensation
expense for all share-based awards granted prior to, but not yet vested, as of December 1, 2005, based on the grant date fair value estimated in accordance with the original provisions of SFAS No. 123, and (b) compensation expense for
all share-based awards granted subsequent to December 1, 2005, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123(R).
42
Financial statement amounts for the prior periods presented have not been restated to reflect the fair value method of expensing share based compensation.
The Company uses the short cut method to calculate the pool of windfall tax benefits.
As a result of adopting SFAS No. 123(R) on December 1, 2005, the Company’s earnings before taxes and net earnings for the year ended November 30, 2006 were lower by $1.4 million pre-tax and $.9
million after tax. In 2007, the Company’s earnings before taxes and net earnings for the year ended November 30, 2007 were lower by $1.4 million pre-tax and $.9 million after-tax. Prior to the adoption of SFAS No. 123(R), the Company
presented all tax benefits of deductions resulting from the exercise of stock options as operating cash flows in the Statement of Cash Flows. Effective December 1, 2005 and in accordance with SFAS No. 123(R), the Company changed its cash
flow presentation so that the cash flows resulting from the tax benefits arising from tax deductions in excess of the compensation cost recognized for those options (excess tax benefits) are now classified as financing cash flows.
The Company estimates the fair value of its option awards using the
Black-Scholes option valuation model that uses the assumptions noted in the following table. The stock volatility for each grant is measured using the weighted average of historical daily price changes of the Company’s common stock over the
most recent period equal to the expected life of the grant. The expected term of options granted is derived from historical data to estimate option exercises and employee terminations, and represents the period of time that options granted are
expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The weighted average fair value of options granted in 2007 and 2006 was
calculated to be $2.46 and $2.97 per share using the following assumptions for the years ended November 30, 2007 and 2006, respectively:
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2007
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2006
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Risk-free interest rate
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4.4
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%
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4.3
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%
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Expected life (in years)
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3.6
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3.6
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Expected volatility
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44
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%
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44
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%
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Expected dividend yield
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0
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%
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0
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%
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The Company did not
recognize compensation expense for employee stock based awards for the year ended November 30, 2005 when the exercise price of the awards equaled the market price of the underlying stock on the date of grant. The Company did recognize
compensation expense under APB 25 relating to certain restricted stock awards.
43
The following table illustrates the effects on net earnings and earnings per share if the Company had
applied the fair value recognition provisions of SFAS No. 123(R) to employee stock based awards under the Company’s stock option plans during the year ended November 30, 2005. For purposes of this pro forma disclosure, the value of
the options is amortized to expense on a straight-line basis over the vesting period and forfeitures are recognized as they occur (amounts in millions, except per share amounts):
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Year Ended
November 30,
2005
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Net earnings, as reported
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$
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23.6
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Add: Total stock-based compensation expense determined under intrinsic value based method for all awards, net of related tax
effect.
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.2
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Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax effect
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(1.2
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)
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Pro forma net earnings
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$
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22.6
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Earnings per share:
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Basic—as reported
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$
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.65
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pro forma
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$
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.62
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Diluted—as reported
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$
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.63
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pro forma
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$
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.61
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The weighted average
fair value of options granted was estimated to be $3.46 in 2005. The fair value of each option granted in 2005 is estimated at the date of grant using the Black-Scholes option-pricing model. The following weighted average assumptions were used for
grants in 2005:
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2005
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Risk-free interest rate
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3.6
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%
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Expected life (in years)
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4
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Expected volatility
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50
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%
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Expected dividend yield
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0
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%
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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 (000’s omitted):
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Year Ended November 30,
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2007
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2006
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2005
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Basic
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35,974
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36,427
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36,433
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Dilutive effect of:
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Stock options and awards
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—
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562
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730
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Restricted stock awards
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—
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92
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49
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Diluted
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35,974
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37,081
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37,212
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|
|
|
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44
For the years ended November 30, 2007, 2006 and 2005, the following number of options and restricted
stock awards were not included in the computation of diluted earnings per share, as the average price of the Company’s common stock was below the grant or award price for the respective year or where inclusion would otherwise be anti-dilutive
(000’s omitted):
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Year Ended November 30,
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2007
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2006
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2005
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Anti-dilutive:
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Stock options
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1,885
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837
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2
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Restricted stock awards
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622
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—
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192
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Recent Accounting
Pronouncements
The Company adopted SFAS No. 154,
“Accounting for Changes and Error Corrections—a replacement of APB Opinion No. 20 and FASB Statement No. 3” as of December 1, 2006. SFAS No. 154 changes the requirements with regard to the accounting for and
reporting a change in an accounting principle. The provisions of SFAS No. 154 require, unless impracticable, retrospective application to prior periods presented in financial statements for all voluntary changes in an accounting principle and
changes required by the adoption of a new accounting pronouncement in the unusual instance that the new pronouncement does not indicate a specific transition method. SFAS No. 154 also requires that a change in depreciation, amortization or
depletion method for long-lived, non-financial assets be accounted for as a change in an accounting estimate, which requires prospective application of the new method. Adoption of SFAS No. 154 had no effect on the Company’s financial
condition, results of operations or cash flows.
In June 2006,
the FASB issued FIN 48, “Accounting for Uncertainty in Income Taxes—an interpretation of SFAS No. 109.” FIN 48 clarifies the accounting for uncertainty in income taxes recognized in the financial statements in accordance with
SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes that a company should use a more-likely-than-not recognition threshold based on the technical merits of the tax position taken. Tax positions that meet the
more-likely-than-not recognition threshold should be measured in order to determine the tax benefit to be recognized in the financial statements. FIN 48 is effective for the Company’s 2008 fiscal year beginning December 1, 2007.
The
Company expects the impact of adoption will result in an increase to retained earnings of no more than $1 million.
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements.” SFAS 157 defines fair value, establishes a framework for
measuring fair value in accordance with generally accepted accounting principles and expands disclosure about fair value measurements. SFAS No. 157 is effective for the Company’s 2009 fiscal year beginning December 1, 2008. The
Company is currently evaluating the impact, if any, that adoption of SFAS No. 157 will have on its financial statements.
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an
amendment of FASB Statements No. 87, 88, 106 and 132R” (SFAS No. 158). The Company adopted SFAS No. 158 effective as of November 30, 2007. This statement requires employers to recognize, on a prospective basis, the funded
status of their defined benefit pension and other postretirement plans on their consolidated balance sheet and recognize as a component of other comprehensive income, net of tax, the gains or losses and prior service costs or credits that arise
during the period but are not recognized as components of net periodic benefit costs. SFAS No. 158 also requires certain additional disclosures in the notes to financial statements. The adoption of SFAS No. 158 as of November 30, 2007
resulted in a decrease of total assets by $20.5 million, an increase of total liabilities by $6.8 million and a reduction to total Shareholders’ Equity by $27.3 million. The adoption of SFAS 158 does not affect the Company’s results of
operations. Adoption of SFAS No. 158 has no effect on the Company’s compliance with its debt covenants.
45
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and
Financial Liabilities; Including an Amendment of FASB Statement No. 115.” SFAS No. 159 gives entities the option to measure eligible items at fair value at specified dates. Unrealized gains and losses on the eligible items for which
the fair value option has been elected should be reported in earnings. SFAS 159 is effective for the Company’s 2008 fiscal year beginning December 1, 2007. The Company expects the adoption of SFAS No. 159 will not have a material
impact on its financial statements.
In December 2007, the FASB
issued SFAS No. 141(R), “Business Combinations”, and FASB No. 160, “Noncontrolling Interests in Consolidated Finance Statements, an amendment of ARB No. 51.” SFAS No. 141(R) will change how business
acquisitions are accounted for and will impact financial statements both on the acquisition date and in subsequent periods. SFAS 160 will change the accounting and reporting for minority interests, which will be recharacterized as noncontrolling
interests and classified as a component of equity. Early adoption is prohibited for both standards. The provisions of SFAS No. 141(R) and SFAS No. 160, effective for the Company’s 2010 fiscal year beginning December 1, 2009, are
to be applied prospectively.
NOTE 2—Acquisitions
The following summarizes acquisition activities during the three year period
ended November 30, 2007:
On August 14, 2007, the
Company acquired certain assets and operations of Monarchy, LLC, a designer and marketer of premium casual sportswear to leading specialty stores nationwide principally under the Monarchy and Manchester Escapes brands. The purchase price for
Monarchy as of the acquisition date was $12 million plus assumption of certain liabilities. Additional cash purchase consideration is due if Monarchy achieves certain specified financial performance targets over a seven-year period commencing
December 1, 2007. This additional contingent cash purchase consideration is calculated based on a formula applied to operating results. A minimum level of performance, as defined in the purchase agreement, must be achieved during any of the
annual periods in order for the additional cash consideration to be paid. At the minimum level of performance (annualized operating earnings, as defined in the purchase agreement, of at least $3.0 million), additional annual consideration of $.75
million would be paid over the seven-year period commencing December 1, 2007. The amount of consideration increases with increased level of earnings and there is no maximum amount of incremental purchase price.
Effective December 11, 2006, the Company acquired certain assets and
operations related to the Zooey brand, marketed principally to upscale women’s specialty stores. The purchase price for Zooey as of the acquisition date was $3.0 million. Additional cash purchase consideration is due if Zooey achieves certain
specified financial performance targets over a five-year period commencing December 1, 2006. This additional contingent cash purchase consideration is calculated based on a formula applied to operating results. A minimum level of performance,
as defined in the purchase agreement, must be achieved during any of the annual periods in order for the additional consideration to be paid. At the minimum level of performance (annualized operating earnings, as defined in the purchase agreement,
of at least $1.0 million), additional annual consideration of $.15 million would be paid over the five-year period commencing December 1, 2006. The amount of consideration increases with increased levels of earnings and there is no maximum
amount of incremental purchase price. No additional consideration was recorded for the fiscal year ended November 30, 2007.
On August 29, 2006, the Company acquired certain assets, properties and operations of Sweater.com, Inc. (“Sweater.com”), a designer and
marketer of high quality women’s knitwear, tops and related products sold to leading specialty stores under its One Girl Who ... and b.chyll brands and directly through its Sweater.com website. The purchase price for Sweater.com as of the
acquisition date was $12.4 million. Additional cash purchase consideration is due if Sweater.com achieves certain specified financial performance targets over a five-year period commencing December 1, 2006. This additional contingent cash
purchase consideration is calculated based on a formula applied to operating results. A minimum level of performance, as defined in the purchase agreement, must be achieved during any of the annual periods in order for the additional cash
consideration to be
46
paid. At the minimum level of performance (annualized operating earnings, as defined in the purchase agreement, of at least $2.0 million), additional annual
consideration of $.5 million would be paid over the five year period commencing December 1, 2006. The amount of consideration increases with increased level of earnings and there is no maximum amount of incremental purchase price. No additional
consideration was recorded for the year ended November 30, 2007.
On October 31, 2005, the Company acquired certain assets, properties and operations of Simply Blue, Inc. and Seymour Blue, LLC (together “Simply Blue”), a designer and marketer of upscale women’s denim products sold
through leading specialty and department stores. The purchase price for Simply Blue as of the acquisition date was $21 million. Additional cash purchase consideration is due if Simply Blue achieves certain specified financial performance targets
over a five-year period commencing December 1, 2005. This additional contingent cash purchase consideration is calculated based on a formula applied to operating results. A minimum level of performance, as defined in the purchase agreement,
must be achieved during any of the periods in order for the additional consideration to be paid. At the minimum level of performance (annualized operating earnings, as defined, of at least $6.7 million), additional annual consideration of $1.3
million, less deductions as defined, would be paid over the five year period commencing December 1, 2005. The amount of consideration increases with increased levels of earnings and there is no maximum amount of incremental purchase price. The
additional consideration for fiscal 2007 of approximately $1.7 million was included in Other Accrued Expenses at November 30, 2007 and is payable during fiscal 2008.
The acquisitions of Monarchy, Zooey, Sweater.com and Simply Blue are expected to provide for strategic growth opportunities in premium
casual sportswear and womenswear and further diversification of product categories.
These acquisitions are being accounted for under the purchase method of accounting. Accordingly, the results of Monarchy, Zooey, Sweater.com and Simply Blue are included in the consolidated financial statements from
the respective acquisition dates. Monarchy results of operations and assets are included in the Men’s Apparel Group segment, while Sweater.com, Zooey and Simply Blue results of operations and assets are included in the Women’s Apparel
Group segment.
47
The Company has allocated the purchase price to the Monarchy, Zooey, Sweater.com and Simply Blue assets
acquired and liabilities assumed at estimated fair values, considering a number of factors, including the assistance of an independent third party appraisal. For Sweater.com, the excess of fair value of the net assets acquired compared to the amount
paid as of the acquisition date has been reflected as “estimated amount due seller”, in accordance with SFAS No. 141 (“Business Combinations”). Any contingent consideration payable subsequent to the acquisition date is first
applied to reduce the amount recorded as “estimated amount due seller”, and thereafter to goodwill. For Monarchy, Zooey and Simply Blue, any contingent consideration payable subsequent to acquisition will increase goodwill. The following
table summarizes the estimated fair values of the assets acquired and liabilities assumed at the respective date of acquisition (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monarchy
|
|
|
Zooey
|
|
|
Sweater.
com
|
|
|
Simply
Blue
|
|
|
Cash consideration
|
|
$
|
12,000
|
|
|
$
|
3,000
|
|
|
$
|
12,354
|
|
|
$
|
21,000
|
|
|
Direct acquisition costs
|
|
|
125
|
|
|
|
75
|
|
|
|
135
|
|
|
|
150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
12,125
|
|
|
$
|
3,075
|
|
|
$
|
12,489
|
|
|
$
|
21,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allocation of purchase price:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
6
|
|
|
$
|
125
|
|
|
Accounts receivable
|
|
|
2,371
|
|
|
|
18
|
|
|
|
1,315
|
|
|
|
2,101
|
|
|
Inventories
|
|
|
2,749
|
|
|
|
604
|
|
|
|
2,620
|
|
|
|
945
|
|
|
Other current assets
|
|
|
456
|
|
|
|
58
|
|
|
|
312
|
|
|
|
454
|
|
|
Intangible assets
|
|
|
9,460
|
|
|
|
1,255
|
|
|
|
8,765
|
|
|
|
16,200
|
|
|
Goodwill
|
|
|
1,920
|
|
|
|
1,414
|
|
|
|
—
|
|
|
|
2,077
|
|
|
Property, plant and equipment
|
|
|
202
|
|
|
|
24
|
|
|
|
228
|
|
|
|
116
|
|
|
Other assets
|
|
|
—
|
|
|
|
—
|
|
|
|
52
|
|
|
|
21
|
|
|
Current liabilities
|
|
|
(5,033
|
)
|
|
|
(298
|
)
|
|
|
(475
|
)
|
|
|
(889
|
)
|
|
Estimated amount due seller
|
|
|
—
|
|
|
|
—
|
|
|
|
(334
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
12,125
|
|
|
$
|
3,075
|
|
|
$
|
12,489
|
|
|
$
|
21,150
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of the
Intangible Assets listed in the above table as of the acquisition date were determined by the Company with the assistance of an independent third party appraisal and were as follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Monarchy
|
|
Zooey
|
|
Sweater.com
|
|
Simply Blue
|
|
|
|
Amount
|
|
Life
|
|
Amount
|
|
Life
|
|
Amount
|
|
Life
|
|
Amount
|
|
Life
|
|
Tradename
|
|
$
|
8,130
|
|
Indefinite
|
|
$
|
625
|
|
Indefinite
|
|
$
|
6,540
|
|
Indefinite
|
|
$
|
11,850
|
|
Indefinite
|
|
Customer relationships
|
|
|
1,080
|
|
10 years
|
|
|
600
|
|
10 years
|
|
|
2,050
|
|
10 years
|
|
|
2,650
|
|
10 years
|
|
License agreement
|
|
|
|
|
|
|
|
|
|
|
|
|
75
|
|
5 years
|
|
|
1,450
|
|
5 years
|
|
Covenant not to compete
|
|
|
250
|
|
5 years
|
|
|
30
|
|
10 years
|
|
|
100
|
|
10 years
|
|
|
250
|
|
10 years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,460
|
|
|
|
$
|
1,255
|
|
|
|
$
|
8,765
|
|
|
|
$
|
16,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The tradenames were
deemed to have an indefinite life and, accordingly, are not being amortized, but are subject to periodic impairment testing at future periods in accordance with SFAS No. 142 (“Goodwill and Other Intangible Assets”). The customer
relationships, design services agreement, covenant not to compete and license agreement are being amortized based on estimated weighted cash flows over their life.
Each of the acquisitions was financed utilizing borrowing availability under the Company’s Credit Facility.
Pro forma amounts are not included for Monarchy, Zooey, Sweater.com and
Simply Blue, as the amounts would not be significant.
48
NOTE 3—Financing
At November 30, 2007 and 2006, long term debt was comprised of the following (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
2006
|
|
Borrowings under Credit Facility
|
|
$
|
92,099
|
|
$
|
79,670
|
|
Industrial development bonds
|
|
|
15,500
|
|
|
17,250
|
|
Mortgages and other debt
|
|
|
13,146
|
|
|
16,435
|
|
|
|
|
|
|
|
|
|
Total debt
|
|
|
120,745
|
|
|
113,355
|
|
Less—current
|
|
|
5,850
|
|
|
25,040
|
|
|
|
|
|
|
|
|
|
Long term debt
|
|
$
|
114,895
|
|
$
|
88,315
|
|
|
|
|
|
|
|
|
Effective
August 30, 2002, the Company entered into a new $200 million senior revolving credit facility (“Credit Facility”) replacing a $200 million facility scheduled to mature in June 2003. Pursuant to an amendment dated January 3, 2005,
and effective January 1, 2005, the Credit Facility was amended, extending its original term by three years, to February 28, 2009; the Company retained its option to extend the term for an additional year, to February 28, 2010. The
Company paid $.4 million to the lender group related to the January 2005 Credit Facility amendment. The Credit Facility provides for a $50 million letter of credit sub-facility. Interest rates under the Credit Facility are based on a spread in
excess of LIBOR or prime as the benchmark rate and on the level of excess availability. The weighted average interest rate was approximately 6.6% at November 30, 2007, based on LIBOR and prime rate loans. The Credit Facility provides for an
unused commitment fee of .375% per annum based on the $200 million maximum less the outstanding borrowings and letters of credit issued. Eligible receivables and inventories provide the principal collateral for the borrowings, along with
certain other tangible and intangible assets of the Company.
The Credit Facility includes various events of default and contains certain restrictions on the operation of the business, including covenants pertaining to minimum net worth, operating leases, incurrence or existence of additional
indebtedness and liens, asset sales and limitations on dividends, as well as other customary covenants, representations and warranties, and events of default. During fiscal 2007 and as of November 30, 2007, the Company was in compliance with
all covenants under the Credit Facility and its other borrowing agreements. At November 30, 2007, the Company had approximately $16 million of letters of credit outstanding, relating to either contractual commitments for the purchase of
inventories from unrelated third parties or for such matters as workers’ compensation requirements in lieu of cash deposits. Such letters of credit are issued pursuant to the Company’s Credit Facility and are considered as usage for
purposes of determining borrowing availability. During fiscal 2007, additional availability levels ranged from $32 million to $99 million. At November 30, 2007, additional borrowing availability under the Credit Facility was approximately $70
million.
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 $4.9 million at November 30, 2007. Interest rates on the various
borrowing agreements were 7.25% at November 30, 2007 (average of 7.4% at November 30, 2006). The two IDBs, totaling $15.5 million, are each callable by the Company at par.
Mortgages and other debt includes $13.1 million remaining principal amount of mortgages on two of its owned manufacturing
facilities, which mature in 2011 and 2016. Interest rates range from 7.5% to 7.7% per annum (average of 7.7% at November 30, 2007 and 2006).
Accrued interest, included in the Other Accrued Expenses caption in the accompanying Consolidated Balance Sheet, was $1.1 million at November 30,
2007 and $1.2 million at November 30, 2006.
49
The approximate principal reductions during the next five fiscal years are as follows: $5.9 million in
2008, $88.0 million in 2009, $1.0 million in 2010, $6.5 million in 2011 and $.8 million in 2012. The $5.9 million of principal reduction in 2008 reflects $.9 million of required payments and $5 million represents the Company’s estimate of
additional debt reduction during fiscal 2008.
NOTE 4—Borrowings Under
Principal Credit Facility
The following summarizes
information concerning borrowings under the Company’s revolving credit facility in place during the applicable periods, all of which were variable rate borrowings (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Outstanding at November 30
|
|
$
|
92,099
|
|
|
$
|
79,670
|
|
|
$
|
85,089
|
|
|
Maximum month end balance during the year
|
|
|
114,542
|
|
|
|
121,545
|
|
|
|
110,481
|
|
|
Average amount outstanding during the year
|
|
|
85,033
|
|
|
|
84,042
|
|
|
|
75,609
|
|
|
Weighted daily average interest rate during the year
|
|
|
7.0
|
%
|
|
|
6.7
|
%
|
|
|
5.0
|
%
|
|
Weighted average interest rate on borrowings at November 30
|
|
|
6.6
|
%
|
|
|
7.2
|
%
|
|
|
5.9
|
%
|
NOTE 5—Inventories
Inventories at each date consisted of (000’s
omitted):
|
|
|
|
|
|
|
|
|
|
|
November 30
|
|
|
|
2007
|
|
2006
|
|
Raw materials
|
|
$
|
39,022
|
|
$
|
38,621
|
|
Work in process
|
|
|
6,238
|
|
|
5,756
|
|
Finished goods
|
|
|
97,139
|
|
|
102,063
|
|
|
|
|
|
|
|
|
|
|
|
$
|
142,399
|
|
$
|
146,440
|
|
|
|
|
|
|
|
|
The excess of current
cost over LIFO costs for inventories valued using LIFO was $31.2 million in 2007 and $29.8 million in 2006.
50
NOTE 6—Goodwill and Intangible Assets
Intangible assets by category are summarized below (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
2006
|
|
Intangible assets with finite lives:
|
|
|
|
|
|
|
|
Gross carrying amount:
|
|
|
|
|
|
|
|
Customer relationships
|
|
$
|
9,380
|
|
$
|
7,700
|
|
Supply agreement
|
|
|
4,400
|
|
|
4,400
|
|
Design services agreement
|
|
|
1,450
|
|
|
1,450
|
|
Covenant not to compete
|
|
|
980
|
|
|
700
|
|
License agreement
|
|
|
75
|
|
|
75
|
|
Other
|
|
|
1,700
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
17,985
|
|
|
16,025
|
|
|
|
|
|
|
|
|
|
Accumulated amortization:
|
|
|
|
|
|
|
|
Customer relationships
|
|
|
3,937
|
|
|
2,219
|
|
Supply agreement
|
|
|
2,958
|
|
|
2,078
|
|
Design services agreement
|
|
|
1,194
|
|
|
884
|
|
Covenant not to compete
|
|
|
562
|
|
|
422
|
|
License agreement
|
|
|
42
|
|
|
11
|
|
Other
|
|
|
1,700
|
|
|
1,700
|
|
|
|
|
|
|
|
|
|
|
|
|
10,393
|
|
|
7,314
|
|
|
|
|
|
|
|
|
|
Total intangible assets with finite lives, net
|
|
|
7,592
|
|
|
8,711
|
|
Indefinite lived intangible assets: Tradenames
|
|
|
55,535
|
|
|
46,790
|
|
|
|
|
|
|
|
|
|
Total intangible assets, net
|
|
$
|
63,127
|
|
$
|
55,501
|
|
|
|
|
|
|
|
|
The increase reflected
the acquisition of Zooey and Monarchy in fiscal 2007 offset by amortization of intangible assets with finite lives of Misook, Simply Blue, Sweater.com, Zooey and Monarchy.
Based on the current estimated useful lives assigned to the Company’s intangible assets with finite lives, amortization expense for
fiscal 2008, 2009, 2010, 2011 and 2012 is projected to total $2.7 million, $1.9 million, $1.0 million, $.7 million and $.5 million, respectively.
The changes in the carrying amount of goodwill for the years ended November 30, 2007 and 2006 are as follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Men’s
Apparel
Group
|
|
Women’s
Apparel
Group
|
|
Total
|
|
Balance, November 30, 2005
|
|
$
|
24,156
|
|
$
|
2,077
|
|
$
|
26,233
|
|
Simply Blue fiscal 2006 earnout payable
|
|
|
—
|
|
|
1,691
|
|
|
1,691
|
|
Translation effect
|
|
|
33
|
|
|
—
|
|
|
33
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2006
|
|
|
24,189
|
|
|
3,768
|
|
|
27,957
|
|
Simply Blue fiscal 2007 earnout payable
|
|
|
—
|
|
|
1,643
|
|
|
1,643
|
|
Misook fiscal 2007 earnout payable
|
|
|
—
|
|
|
3,822
|
|
|
3,822
|
|
Monarchy and Zooey acquisitions
|
|
|
1,920
|
|
|
1,414
|
|
|
3,334
|
|
Translation effect
|
|
|
221
|
|
|
—
|
|
|
221
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, November 30, 2007
|
|
$
|
26,330
|
|
$
|
10,647
|
|
$
|
36,977
|
|
|
|
|
|
|
|
|
|
|
|
51
NOTE 7—Taxes on Earnings
The tax provision (benefit) is summarized as follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
2005
|
|
Federal
|
|
$
|
26
|
|
|
$
|
141
|
|
$
|
356
|
|
State and local
|
|
|
571
|
|
|
|
585
|
|
|
1,983
|
|
Foreign
|
|
|
—
|
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current
|
|
|
597
|
|
|
|
726
|
|
|
2,339
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(2,506
|
)
|
|
|
3,120
|
|
|
11,998
|
|
State and local
|
|
|
(758
|
)
|
|
|
—
|
|
|
—
|
|
Foreign
|
|
|
96
|
|
|
|
620
|
|
|
468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred
|
|
|
(3,168
|
)
|
|
|
3,740
|
|
|
12,466
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision (benefit)
|
|
$
|
(2,571
|
)
|
|
$
|
4,466
|
|
$
|
14,805
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings (loss) before
taxes applicable to the United States and foreign is summarized as follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
2005
|
|
United States
|
|
$
|
(6,853
|
)
|
|
$
|
10,088
|
|
$
|
37,443
|
|
Foreign
|
|
|
104
|
|
|
|
1,664
|
|
|
917
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(6,749
|
)
|
|
$
|
11,752
|
|
$
|
38,360
|
|
|
|
|
|
|
|
|
|
|
|
|
The difference between
the tax provision (benefit) reflected in the accompanying statement of earnings (loss) and the amount computed by applying the federal statutory tax rate to earnings (loss) before taxes is summarized as follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30,
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
Tax provision (benefit) computed at statutory rate
|
|
$
|
(2,295
|
)
|
|
$
|
3,996
|
|
|
$
|
13,042
|
|
State and local taxes on earnings, net of federal tax benefit
|
|
|
(123
|
)
|
|
|
386
|
|
|
|
1,309
|
|
Foreign
|
|
|
61
|
|
|
|
54
|
|
|
|
156
|
|
Compensation in excess of $1 million
|
|
|
—
|
|
|
|
473
|
|
|
|
28
|
|
Meals and entertainment
|
|
|
296
|
|
|
|
255
|
|
|
|
244
|
|
Renewal community tax credits
|
|
|
(270
|
)
|
|
|
(1,029
|
)
|
|
|
—
|
|
Tax over book loss—foreign investment
|
|
|
(391
|
)
|
|
|
—
|
|
|
|
—
|
|
Other—net
|
|
|
151
|
|
|
|
331
|
|
|
|
26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total tax provision (benefit)
|
|
$
|
(2,571
|
)
|
|
$
|
4,466
|
|
|
$
|
14,805
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52
The significant components of the net deferred tax asset at November 30, 2007 and 2006 were as
follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Deferred Tax Assets:
|
|
|
|
|
|
|
|
|
|
Net operating loss carryforwards
|
|
$
|
26,698
|
|
|
$
|
27,259
|
|
|
AMT credit carryforwards
|
|
|
6,297
|
|
|
|
6,202
|
|
|
Employment-related liabilities
|
|
|
6,284
|
|
|
|
6,240
|
|
|
Inventory
|
|
|
11,242
|
|
|
|
6,909
|
|
|
Receivables
|
|
|
4,075
|
|
|
|
3,255
|
|
|
Pension
|
|
|
5,363
|
|
|
|
—
|
|
|
Other
|
|
|
10,430
|
|
|
|
10,265
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax assets
|
|
|
70,389
|
|
|
|
60,130
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Liabilities:
|
|
|
|
|
|
|
|
|
|
Tax over book depreciation
|
|
|
(246
|
)
|
|
|
(508
|
)
|
|
Amortization
|
|
|
(3,101
|
)
|
|
|
(1,809
|
)
|
|
Pension
|
|
|
—
|
|
|
|
(12,674
|
)
|
|
Prepaids and other
|
|
|
(7,064
|
)
|
|
|
(5,827
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(10,411
|
)
|
|
|
(20,818
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets
|
|
$
|
59,978
|
|
|
$
|
39,312
|
|
|
|
|
|
|
|
|
|
|
|
|
Amounts recognized in Consolidated Balance Sheet:
|
|
|
|
|
|
|
|
|
|
Current
|
|
$
|
21,590
|
|
|
$
|
21,990
|
|
|
Non-current
|
|
|
38,388
|
|
|
|
17,322
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
59,978
|
|
|
$
|
39,312
|
|
|
|
|
|
|
|
|
|
|
|
The Company has
recorded a net deferred tax asset of $60.0 million and $39.3 million as of November 30, 2007 and 2006, respectively. There was no valuation allowance offsetting the deferred tax asset as the Company has concluded it is more likely than not that
the deferred tax asset would be fully realized. The net tax asset recorded considers recent earnings history plus 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).
Federal income taxes have not been provided on aggregate undistributed earnings of $9.4 million of the Company’s Canadian based foreign subsidiaries.
The Company intends to permanently invest these earnings in its foreign operations.
At November 30, 2007, the Company had approximately $76 million of federal tax operating loss carryforwards available to offset future taxable income; in general, the substantial portion of such carryforwards
must be utilized within fifteen years of incurring the net operating loss. The loss carryforwards for years prior to 2001 aggregate approximately $56 million of which $54 million expire in the 2008-2009 period and $2 million will expire in 2010.
Fully utilizing the $54 million of available operating loss carryforwards expiring by the end of fiscal 2009 would require average annual taxable earnings of approximately $27 million over the 2008-2009 period before consideration of available tax
planning strategies. The estimated $13 million of tax operating losses attributable to the fiscal year ended November 30, 2001 will be available for utilization through November 30, 2021 and the $7 million of tax operating losses
attributable to the fiscal year ended November 30, 2002 will be available for utilization through November 30, 2022. AMT tax credit carryforwards of $6.3 million can be carried forward indefinitely.
53
NOTE 8—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, 2007, total minimum rentals under noncancellable operating leases were as follows (000’s omitted):
|
|
|
|
|
|
Year
|
|
Amount
|
|
2008
|
|
$
|
13,966
|
|
2009
|
|
|
13,191
|
|
2010
|
|
|
11,488
|
|
2011
|
|
|
8,936
|
|
2012
|
|
|
7,532
|
|
Thereafter
|
|
|
25,258
|
|
|
|
|
|
|
Total minimum rentals due
|
|
$
|
80,371
|
|
|
|
|
|
Rental expense,
including rentals under short term leases, aggregated $15.9 million, $14.6 million and $13.8 million in fiscal 2007, 2006 and 2005, respectively.
Most leases provide for additional payments of real estate taxes, insurance and other operating expenses applicable to the property, generally over a base
amount. Total rental expense includes such base amounts and the additional expense payments.
At November 30, 2007, the Company had approximately $16 million of letters of credit outstanding relating to either contractual commitments for the purchase of inventories from unrelated third parties or for such
matters as workers’ compensation requirements in lieu of cash deposits. Such letters of credit are issued pursuant to the Company’s $200 million Credit Facility and are considered as usage for purposes of determining the maximum available
credit line and excess availability. The Company has also entered into surety bond arrangements aggregating approximately $12 million with unrelated parties for the purposes of satisfying workers’ compensation deposit requirements of various
states where the Company has operations.
The Company has
employment agreements in place covering certain of its corporate and subsidiary officers providing for the payment of base salaries and contingent additional compensation; severance amounts would be payable in lieu of compensation in the event of
involuntary termination by the Company. Aggregate annual base salaries for these covered employees are approximately $4.6 million. In the event of a change in control and termination of employment, as defined in the agreements, the Company would be
required to make severance payments in lieu of compensation under the employment agreements.
In fiscal 2005, the Company completed a significant modernization of its Hickey-Freeman manufacturing and distribution facility in Rochester, New York, at a cost of $8.0 million. In connection with this project, the
Company entered into agreements with various local and state governmental agencies, and such agencies agreed to reimburse the Company $5.0 million of the renovation costs in the form of participating grants; an additional $.7 million was received
related to this modernization from non-governmental sources. Among other things, the terms of the governmental grant monies require that a minimum employment level be maintained at the facility through 2011. If the required minimum employment level
is not maintained, a portion of the grant monies could be converted into loans based on a sliding amortization schedule through 2011. The facility’s employment levels have been substantially in excess of the minimum level for a number of years
and the Company expects that employment will exceed the minimum level through 2011.
54
The Company manufactures and markets certain of its product offerings pursuant to exclusive license
agreements with unaffiliated licensors for specified product lines. Royalty amounts are generally based on a stipulated percentage of revenues, although certain of these agreements contain provisions for the payment of minimum annual royalty
amounts. The licensing agreements are generally for a three to five year term with additional renewal options, provided that minimum sales levels are achieved. Under terms of the agreements currently in place, the Company has minimum obligations of
approximately $13 million in 2008, $7 million in 2009, $3 million in 2010, $2 million in 2011 and $2 million in 2012. Additionally, there are certain license agreements that have a perpetual term and annual minimum payments under these agreements
are approximately $2 million.
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, results of operations or cash flows.
Additional cash purchase consideration is payable to the
extent that Monarchy, Zooey, Sweater.com, Simply Blue and/or Misook achieve certain specified financial performance targets over a seven-year period for Monarchy commencing December 1, 2007 and over five year periods commencing December 1,
2006 for Zooey and Sweater.com, December 1, 2005 for Simply Blue and August 1, 2004 for Misook. These additional contingent cash purchase considerations are calculated based on a formula applied to the respective operating results of each
entity. A minimum level of performance, as defined in each purchase agreement, must be achieved during any of the periods in order for additional consideration to be paid. Regarding Misook, at the minimum level of performance (annualized operating
earnings, as defined, of at least $12 million), additional annual consideration of $3.6 million would be paid applicable to the five year period following the acquisition; the additional consideration applicable to fiscal 2007 was approximately $4.7
million, payable in 2008, and has been recorded as an increase in Goodwill and Accrued Expenses. Regarding Simply Blue, annualized operating earnings, as defined, of at least $6.7 million would result in additional annual consideration of $1.3
million applicable to the five year period commencing December 1, 2005. The additional consideration applicable to Simply Blue for fiscal 2007 was approximately $1.7 million, payable in 2008, and has been recorded as an increase in Goodwill and
Accrued Expenses. Regarding Sweater.com, annualized operating earnings as defined of at least $2.0 million would result in annual consideration of $.5 million applicable to the five year period commencing December 1, 2006. Regarding Zooey,
annualized operating earnings as defined of at least $1.0 million would result in annual consideration of $.15 million. Regarding Monarchy, at the minimum level of performance (annualized operating earnings, as defined in the purchase agreement, of
at least $3.0 million) additional annual consideration of $.75 million would be paid. The amount of consideration increases with increased levels of earnings and there is no maximum amount of incremental purchase price associated with these
acquisitions.
NOTE 9—Employee Benefits
Pension Plans
The Company’s principal pension plan is a non-contributory defined
benefit pension plan covering substantially all eligible U.S. non-union employees who have elected to participate in the plan and who participate in the Company’s defined contribution plan, as well as certain union employees who participate
pursuant to the terms of collective bargaining agreements. Non-union employees hired subsequent to March 31, 2003 are not eligible to participate in the principal Company sponsored pension 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
per year of credited service. 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 $225,000 for 2007,
$220,000 for 2006 and $210,000 for 2005 and is subject to indexing increases in subsequent years. 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 a non-qualified supplemental basis. The Company also sponsors a non-contributory defined benefit pension plan for its non-union Canadian employees.
55
The Company’s non-qualified supplemental pension plan, which covers certain U.S. employees, provides
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 but for limitations imposed by income tax regulations.
Company contributions to its pension plans are intended to
provide for benefits attributed to service to date and also for those expected to be earned in the future. The Company contributed $2.5 million to its pension plans during fiscal 2007, $7.9 million during fiscal 2006 and $7.2 million during fiscal
2005. Also, the Company contributed $.3 million, $1.2 million and $.4 million in 2007, 2006 and 2005, respectively, to trusts for one employee related to the non-qualified supplemental pension plan.
Effective November 30, 2007, the Company adopted SFAS No. 158,
“Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans, an amendment of FASB Statements No. 87, 88, 106 and 132(R).” The statement requires an employer to record non-cash adjustments to recognize the
funded status of each of its defined pension and postretirement benefit plans as a net asset or liability in its statement of financial position with the offsetting amount in accumulated other comprehensive income. Any changes to the funded status
during the year will be recognized prospectively through charges to accumulated other comprehensive income.
The following table summarizes the effect of applying SFAS No. 158 on the Company’s consolidated balance sheet as of November 30, 2007
(000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Caption
|
|
Before
Application
of SFAS
No. 158
|
|
Adjustments
|
|
|
After
Application
of SFAS
No. 158
|
|
|
Prepaid/intangible pension asset
|
|
$
|
37,607
|
|
$
|
(37,607
|
)
|
|
$
|
—
|
|
|
Deferred income taxes–non current
|
|
|
21,248
|
|
|
17,140
|
|
|
|
38,388
|
|
|
Accrued pension liability
|
|
|
8,084
|
|
|
6,798
|
|
|
|
14,882
|
|
|
Accumulated other comprehensive income (loss)
|
|
|
4,504
|
|
|
(27,265
|
)
|
|
|
(22,761
|
)
|
Pre-tax amounts in
accumulated other comprehensive loss as of November 30, 2007 that have not yet been recognized as components of net periodic benefit cost were as follows:
|
|
|
|
|
|
|
|
2007
|
|
Net actuarial loss
|
|
$
|
15,706
|
|
Prior service cost
|
|
|
28,699
|
|
|
|
|
|
|
|
|
$
|
44,405
|
|
|
|
|
|
The prior service cost
for the Company’s defined benefit and non-qualified supplemental pension plans that will be amortized from accumulated other comprehensive loss into net periodic pension expense over the next fiscal year is $3.4 million. The Company is
expecting the net actuarial loss to remain unchanged at $15.7 million.
Components of net periodic pension expense for the Company’s defined benefit and non-qualified supplemental pension plans for the three years ended November 30, 2007 were as follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Service cost
|
|
$
|
4,945
|
|
|
$
|
5,195
|
|
|
$
|
5,317
|
|
|
Interest cost
|
|
|
14,943
|
|
|
|
14,515
|
|
|
|
14,514
|
|
|
Expected return on plan assets
|
|
|
(21,749
|
)
|
|
|
(19,644
|
)
|
|
|
(18,943
|
)
|
|
Recognized net actuarial (gain) loss
|
|
|
(92
|
)
|
|
|
50
|
|
|
|
(720
|
)
|
|
Net amortization
|
|
|
3,482
|
|
|
|
3,464
|
|
|
|
3,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net periodic pension expense
|
|
$
|
1,529
|
|
|
$
|
3,580
|
|
|
$
|
3,554
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
56
The following sets forth the information related to the change in the benefit obligation and change in
plan assets for the Company’s defined benefit and non-qualified supplemental pension plans at November 30 (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
|
2007
|
|
|
2006
|
|
|
Change in Benefit Obligation
|
|
|
|
|
|
|
|
|
|
Benefit obligation at beginning of year
|
|
$
|
275,983
|
|
|
$
|
270,330
|
|
|
Service cost
|
|
|
4,945
|
|
|
|
5,195
|
|
|
Interest cost
|
|
|
14,943
|
|
|
|
14,515
|
|
|
Actuarial (gain) loss
|
|
|
(5,061
|
)
|
|
|
1,251
|
|
|
Other changes in benefit obligation
|
|
|
—
|
|
|
|
—
|
|
|
Benefits paid
|
|
|
(16,888
|
)
|
|
|
(15,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Benefit obligation at end of year
|
|
|
273,922
|
|
|
|
275,983
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in Plan Assets
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
|
256,121
|
|
|
|
231,690
|
|
|
Employer contributions
|
|
|
2,810
|
|
|
|
9,147
|
|
|
Actual return on plan assets
|
|
|
16,997
|
|
|
|
30,592
|
|
|
Benefits paid
|
|
|
(16,888
|
)
|
|
|
(15,308
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
|
259,040
|
|
|
|
256,121
|
|
|
|
|
|
|
|
|
|
|
|
|
Funded status
|
|
|
(14,882
|
)
|
|
|
(19,862
|
)
|
|
Unrecognized net actuarial loss
|
|
|
—
|
|
|
|
15,921
|
|
|
Unrecognized prior service cost
|
|
|
—
|
|
|
|
32,182
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(14,882
|
)
|
|
$
|
28,241
|
|
|
|
|
|
|
|
|
|
|
|
|
Recorded as follows:
|
|
|
|
|
|
|
|
|
|
Accrued pension liability
|
|
$
|
(14,882
|
)
|
|
$
|
(8,309
|
)
|
|
Prepaid/intangible pension asset
|
|
|
—
|
|
|
|
36,550
|
|
|
|
|
|
|
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(14,882
|
)
|
|
$
|
28,241
|
|
|
|
|
|
|
|
|
|
|
|
The accumulated
benefit obligations of the Company’s pension plans as of the measurement dates in 2007, 2006 and 2005 were $258 million, $257 million and $256 million, respectively. The accumulated benefit obligation represents the present value of pension
benefits (whether vested or unvested) attributed to employee service rendered before the measurement date and based on employee service and compensation prior to that date. The accumulated benefit obligation differs from the projected benefit
obligation in that it includes no assumption about future compensation levels. At November 30, 2007 and 2006, the assets of the Company’s principal pension plan exceeded the plan’s accumulated benefit obligation and the Company was
not required to record a minimum pension liability and offsetting intangible pension asset, deferred tax and charge to accumulated other comprehensive income in its financial statements.
Information for pension plans with an accumulated benefit obligation in excess of plan assets is as follows (000’s
omitted):
|
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
2006
|
|
Projected benefit obligation
|
|
$
|
9,507
|
|
$
|
9,694
|
|
Accumulated benefit obligation
|
|
|
5,531
|
|
|
5,214
|
|
Fair value of plan assets
|
|
|
1,972
|
|
|
1,798
|
57
Additional information (000’s omitted):
|
|
|
|
|
|
|
|
|
|
November 30,
|
|
|
|
2007
|
|
2006
|
|
Decrease in minimum liability, net of tax, included in other comprehensive income
|
|
—
|
|
$
|
9,895
|
The weighted-average
actuarial assumptions used in measuring the net periodic benefit cost and plan obligations for the three years ending November 30, 2007 were:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
2006
|
|
|
2005
|
|
|
Net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
5.50
|
%
|
|
5.50
|
%
|
|
5.75
|
%
|
|
Long-term rate of return on plan assets
|
|
8.75
|
%
|
|
8.75
|
%
|
|
8.75
|
%
|
|
Rate of compensation increase
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
|
Plan obligations:
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
5.80
|
%
|
|
5.50
|
%
|
|
5.50
|
%
|
|
Rate of compensation increase
|
|
4.00
|
%
|
|
4.00
|
%
|
|
4.00
|
%
|
In determining the
discount rate, the Company considered the average duration of its pension liabilities in relation to the rate derived by reference to the Citigroup Pension Discount Curve. In determining the expected long-term rate of return on plan assets, the
Company considers the investment allocation of plan assets along with the long-term return rates (both historical and anticipated) of equity, fixed-income and alternative investments as an indicator of future returns of similar investments in the
plan portfolio. Investment management and other fees paid out of plan assets are factored into the determination of asset return assumptions. Salary increase assumptions are based upon historical experience and anticipated future management actions.
The RP2000 Blended Healthy Employees and Retiree Tables were used for mortality assumptions at November 30, 2007.
The Company’s investment asset allocation ranges for each major asset class and the actual asset allocations at November 30, 2007 and 2006 by
asset category are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan Assets at
November 30,
|
|
|
|
|
Allocation
Range
|
|
2007
|
|
|
2006
|
|
|
Asset Category
|
|
|
|
|
|
|
|
|
|
Equity securities
|
|
65% - 80%
|
|
76
|
%
|
|
78
|
%
|
|
Debt securities
|
|
15% - 25%
|
|
12
|
%
|
|
12
|
%
|
|
Cash
|
|
2% - 5%
|
|
4
|
%
|
|
3
|
%
|
|
Real Estate/Other
|
|
5% - 10%
|
|
8
|
%
|
|
7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
100
|
%
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
The plans’ assets
consist primarily of publicly traded common stocks and corporate debt instruments, or funds which invest in those securities. Venture capital funds and private equity funds, representing approximately 5% of plan assets at November 30, 2007, are
included in the Real Estate/Other caption above. Plan assets attributable to the Company’s non-U.S. pension plan represent approximately $7 million of the total $259 million of aggregate assets of the Company’s pension plans. The target
asset allocation is generally at the midpoint of the expected range noted above. The actual asset allocation at any specific date may vary from the allocation range due to market conditions and other factors, such as market appreciation in one asset
category relative to the other asset categories. At November 30, 2007, plan assets included approximately 2.4 million shares of the Company’s common stock with a market value of approximately $9.5 million. The market related value of
plan assets is determined using fair value as of each November 30.
58
The investment objectives for the pension plan assets (the Funds) are designed to generate returns that
will enable the Funds to meet their future obligations. The precise amount for which these obligations will be settled depends on future events, including the life expectancy of the plan participants and salary inflation. The obligations are
estimates developed by using actuarial assumptions, based on the current economic environment. This strategy balances the requirements to generate returns, using higher-returning assets such as equity securities, with the need to control risk in the
Funds with less volatile assets, such as fixed-income securities. Risks include, among others, the likelihood of the plans becoming underfunded, thereby increasing their dependence on contributions from the Company. The assets are managed by
professional investment firms and performance is evaluated against specific benchmarks.
The Company makes periodic cash contributions to its defined benefit plans within the minimum and maximum amounts as prescribed for the jurisdictions in which the Company operates. During fiscal 2008, the Company
expects to contribute within a range of $3 million to $4 million to its pension plans.
The following benefit payments, which reflect expected future service, as appropriate, are expected to be paid (in millions):
|
|
|
|
|
|
Year
|
|
Amount
|
|
2008
|
|
$
|
15.8
|
|
2009
|
|
|
16.0
|
|
2010
|
|
|
16.3
|
|
2011
|
|
|
16.6
|
|
2012
|
|
|
17.3
|
|
2013 - 2017
|
|
|
99.6
|
The Company’s
Canadian operation also makes collectively-bargained payments to a group registered retirement savings plan (similar to a defined contribution plan) which is not administered by the Company’s Canadian operation. The contribution rate of
applicable payroll is based on the amounts negotiated between the union and the Company’s Canadian operation. Annual expense relating to this plan was approximately $.5 million in 2007 and $.3 million in 2006 and 2005.
Savings Investment and Stock Ownership Plan
The Company offers a qualified defined contribution plan, the Hartmarx
Savings Investment and Stock Ownership Plan (“SIPSOP”), which is a combined salary reduction plan under Section 401(k) of the Internal Revenue Code and an after-tax savings plan. SIPSOP is available to most non-union U.S. employees.
Eligible participants in SIPSOP can invest from 1% to 16% of earnings among several investment alternatives, including a Company stock fund. Participation in SIPSOP is required to earn retirement benefits for eligible employees under the
Company’s principal pension plan for employees hired prior to April 2003. An employer contribution is made based on the employee’s level of participation, and is invested in common stock of the Company, although participants can
subsequently elect investments from among several investment alternatives. While employee contributions up to 16% of earnings are permitted, contributions in excess of 6% are not subject to an employer contribution. The employer contribution is
fifty percent of the first 6% of earnings contributed by the employee. The Company’s expense is based upon the cost and market value of shares allocated to employees’ accounts. The Company’s annual expense and annual contributions
were $1.1 million in 2007 and $1.2 million in 2006 and 2005. At November 30, 2007, the assets of SIPSOP funds had a market value of approximately $73.6 million, of which approximately $7.5 million was invested in 1,871,383 shares of the
Company’s common stock.
Health Care 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 employees and their eligible dependents. The Company does not sponsor health and insurance programs for its retired employees.
59
NOTE 10—Stock Option Plans and Restricted Stock
The Company has in effect the 1998 Incentive Stock Plan (“1998
Plan”), the 2003 Incentive Stock Plan (“2003 Plan”), the 2006 Incentive Stock Plan (“2006 Plan”) (collectively, the “Employee Plans”), the 1995 Stock Plan for Non-Employee Directors (“1995 Director Plan”)
and the 2006 Stock Compensation Plan for Non-Employee Directors (“2006 Director Plan”) (collectively, the “Director Plans”) under which officers, key employees and directors (with respect to the 2006 Director 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. The 2006 Director Plan also allows for the awarding of Deferred Director Stock Awards to non-employee directors. Options
granted to employees in 2007, 2006 and 2005 have five year terms. Options which were outstanding at November 30, 2007 granted to employees in 2004 and prior years have ten year terms. Options granted to employees are priced at the average of
the high and low of the Company’s stock price on the grant date of the award as approved by the Compensation and Stock Option Committee of the Board of Directors (the “Compensation Committee”). Fair market value option awards to
outside directors are priced at the average of the high and the low of the Company’s stock price on the date of the award, usually the day of the Company’s annual meeting of shareholders. Options granted to employees under the Employee
Plans generally become exercisable in cumulative one-third installments on each of the first three anniversaries of the grant date; however, for participants employed by the Company for at least three years on the first anniversary of the grant
date, all or any portion of the options granted are exercisable beginning on the first anniversary of the date of grant. For participants employed by the Company for at least two years but less than three years on the first anniversary of the grant
date, two-thirds of the options granted are exercisable beginning one year after the date of grant. No additional grants will be made under the 1998 and 2003 Plans. Following stockholder approval of the 2006 Incentive Stock Plan in April 2006,
shares covered by grants or awards under the terms of the 1998 or 2003 Plans which terminate, lapse or are forfeited will be added to the aggregate number of shares authorized under the 2006 Plan and will become available for grants under the 2006
Plan. Options granted under the 2006 Plan are evidenced by agreements that set forth the terms, conditions and limitations for such grants, including the term of the award, limitations on exercisability, and other provisions as determined by the
Compensation Committee.
The Employee Plans also provide for
the discretionary grant of stock appreciation rights in conjunction with the stock option, which allows the holder to receive cash, stock or a combination of stock and cash equal to the gain in market price from the date of grant until its exercise.
Under certain circumstances, the entire gain attributable to rights granted under the 1998, 2003 and 2006 Plans may be paid in cash; in the case of stock appreciation rights granted in tandem with a stock option, the cash payment under the 1998 Plan
and the 2003 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. There were no stock appreciation rights outstanding at November 30, 2007 or
November 30, 2006. The Employee 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. The 2006 Plan also allows
for the granting of restricted stock units enabling the holder to receive awards of common stock subject to terms and conditions specified at the time such an award is granted.
As of November 30, 2007, there are 489,700 options outstanding under the 1998 Plan, 884,510 options outstanding under
the 2003 Plan and 314,000 options outstanding under the 2006 Plan.
Information regarding employee stock option activity for the year ended November 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Exercise
Price
|
|
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
(1)
(000’s
omitted)
|
|
Balance at November 30, 2006
|
|
1,809,950
|
|
|
$
|
5.38
|
|
|
|
|
|
|
Granted
|
|
332,000
|
|
|
|
6.51
|
|
|
|
|
|
|
Exercised
|
|
(313,140
|
)
|
|
|
3.04
|
|
|
|
|
|
|
Expired or forfeited
|
|
(140,600
|
)
|
|
|
6.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at November 30, 2007
|
|
1,688,210
|
|
|
$
|
5.93
|
|
3.21
|
|
$
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at November 30, 2007
|
|
1,352,750
|
|
|
$
|
5.76
|
|
3.06
|
|
$
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
(1)
|
Based on the difference between the closing market price on the last trading day of the year and the grant price of in-the-money options.
|
Stock compensation expense recognized by the Company for the year ended
November 30, 2007 related to employee stock option awards and principally included in Selling, General and Administrative Expense in the Consolidated Statement of Earnings was approximately $1.4 million pre-tax and $.9 million after-tax.
Shares issued upon the exercise of stock options are normally
from authorized but unissued common shares of the Company. However, to the extent that the Company has treasury shares outstanding, such shares may be reissued upon the exercise of stock options.
Information on employee stock options outstanding and exercisable at
November 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Range of Prices
|
|
Number
Outstanding
|
|
Weighted Average
|
|
|
|
Weighted Average
|
|
|
|
Remaining
Life
in
Years
|
|
Price
|
|
Number
Exercisable
|
|
Remaining
Life in
Years
|
|
Price
|
|
$2.50 to $2.64
|
|
402,500
|
|
3.9
|
|
$
|
2.54
|
|
402,500
|
|
3.9
|
|
$
|
2.54
|
|
$3.28 to $4.30
|
|
207,200
|
|
3.8
|
|
$
|
4.00
|
|
207,200
|
|
3.8
|
|
$
|
4.00
|
|
$6.49 to $9.54
|
|
1,078,510
|
|
2.9
|
|
$
|
7.57
|
|
743,050
|
|
2.4
|
|
$
|
8.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,688,210
|
|
3.2
|
|
$
|
5.93
|
|
1,352,750
|
|
|
|
$
|
5.76
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
A summary of the
status of the Company’s nonvested stock options as of November 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
|
|
November 30, 2006
|
|
404,614
|
|
|
$
|
3.01
|
|
Granted
|
|
332,000
|
|
|
$
|
2.47
|
|
Vested
|
|
(364,334
|
)
|
|
$
|
3.00
|
|
Expired or forfeited
|
|
(36,820
|
)
|
|
$
|
2.63
|
|
|
|
|
|
|
|
|
|
November 30, 2007
|
|
335,460
|
|
|
$
|
2.50
|
|
|
|
|
|
|
|
|
The fair value of
options vested in fiscal 2007 was $1.1 million.
As of
November 30, 2007, there was approximately $.1 million of unrecognized compensation cost related to nonvested stock options which is expected to be recognized in fiscal 2008.
On December 3, 2007, the Company granted 327,500 employee stock options and on January 2, 2008, the Company
granted 20,000 employee stock options.
With respect to the
Company’s long term incentive plan restricted stock awards pursuant to the 1998, 2003 and 2006 Plans, compensation expense is measured at fair value on the date of grant based on the number of shares awarded and the quoted market price of the
Company’s stock. The Company has assumed no forfeitures as the impact of expected forfeitures is immaterial. In accordance with SFAS No. 123(R), Unearned Employee Benefits, which had been reported as a separate component of
Shareholders’ Equity prior to December 1, 2005, is now included in Capital Surplus. Restricted stock awards vest at the earlier of five years from the date of grant, retirement at age 65 or the Company’s share price exceeding
performance measures established at the date of grant. Compensation expense is recognized on a straight-line basis over the vesting period, or on an accelerated basis if the share price exceeds the vesting threshold price for thirty consecutive
days. The restricted stock awards resulted in compensation expense included in Selling, General and Administrative Expense of $.9 million in fiscal 2007, $.7 million in fiscal 2006 and $.4 million in fiscal 2005.
61
As of November 30, 2007, unrecognized compensation cost associated with restricted stock awards was
approximately $2.9 million, which will be recognized as follows: $1.0 million in 2008, $.9 million in 2009, $.6 million in 2010, $.3 million in 2011 and $.1 million in 2012. However, if the vesting thresholds are achieved prior to the end of the
five year term, the related compensation expense will be accelerated.
Information regarding long term incentive plan restricted stock awards for the year ended November 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Number of
Shares
|
|
|
Weighted
Average
Grant Date
Fair Value
Per Share
|
|
Balance November 30, 2006
|
|
536,500
|
|
|
$
|
7.96
|
|
Granted
|
|
169,500
|
|
|
$
|
7.42
|
|
Forfeited
|
|
(84,000
|
)
|
|
$
|
8.13
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2007
|
|
622,000
|
|
|
$
|
7.79
|
|
|
|
|
|
|
|
|
At November 30,
2007, none of the outstanding restricted stock awards were vested. The vesting threshold for restricted stock awards outstanding is as follows:
|
|
|
|
|
|
|
|
Number of
Shares
|
|
Vesting
Threshold
|
|
Latest
Vesting Date
|
|
163,500
|
|
$
|
11.00
|
|
August 4, 2009
|
|
155,500
|
|
$
|
14.00
|
|
August 3, 2010
|
|
140,500
|
|
$
|
10.00
|
|
August 8, 2011
|
|
162,500
|
|
$
|
12.00
|
|
April 10, 2012
|
The Director Plans
provide for possible annual grants under the 1995 Director Plan of Director Dollar Stock Options (“DDSO”) to non-employee members of the Board of Directors at market value on the date of grant. In addition, under the 1995 Director Plan,
each non-employee director had the right to make an irrevocable election to receive a DDSO in lieu of all or part of his or her retainer. The number of whole shares which could 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. DDSOs are exercisable in full six months after the date of grant or earlier in the event of death or disability. Under the 2006 Director Plan, upon election (or re-election,
as the case may be) to the Board by stockholders at an annual meeting, each non-employee director is entitled to receive a stock option grant of 5,000 options at the fair market value on the date of grant; no DDSOs may be granted under the 2006
Director Plan. Under the 2006 Director Plan, an option is forfeited if Board service terminates before the option vests (six months after grant) for reasons other than death or disability. Each non-employee director is also eligible for a possible
annual grant of a Director Deferred Stock Award (“DDSA”) equal to the number of DDSA units computed by dividing the director’s annual retainer by the fair market value of a share on the date of the annual meeting. Pursuant to the
terms of the 2006 Director Plan, each non-employee director receives a DDSA award upon election (or re-election, as the case may be) to the Board by stockholders at an annual meeting. In 2007, each non-employee director received an award of 2,681
units. Prior to 1998, each non-employee director received a DDSA equal to 150 units and for years 2000-2004, no DDSA’s were awarded. A DDSA 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 and any fractional units are payable in cash. Dividend equivalents may be earned on qualifying DDSOs and DDSA units and allocated to directors’ respective accounts in accordance with the
terms of the Director Plans. DDSOs are charged to expense at the time the director elects to receive the DDSO. DDSAs vest at the time of grant and are charged to expense at the time the grant is made to the director. Dividend equivalents, if any,
would be charged to expense at the time the dividend would be declared.
62
Stock compensation expense related to non-employee director stock options and DDSAs and included in
Selling, General and Administrative Expense in the Consolidated Statement of Earnings for fiscal 2007 was approximately $.27 million pre-tax and approximately $.17 million after tax. For fiscal 2006, these amounts were $.29 million pre-tax and
approximately $.17 million after tax.
The fair value of
options granted to directors was calculated to be $2.83 per share in 2007 and $3.15 per share in 2006, using the same option valuation model and assumptions similar to those for employee stock option awards.
For fiscal 2005, stock compensation expense included in Selling, General and
Administrative Expense related to DDSAs was $.16 million pre-tax and $.10 million after-tax. No fair value or DDSOs were granted to non-employee directors in fiscal 2005.
Information regarding director stock option activity for the year ended November 30, 2007 is as follows:
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
|
|
Shares
|
|
|
Weighted
Average
Price
|
|
Balance November 30, 2006
|
|
171,387
|
|
|
$
|
3.76
|
|
Grants:
|
|
|
|
|
|
|
|
Fair market value options
|
|
40,000
|
|
|
|
7.46
|
|
DDSA
|
|
21,448
|
|
|
|
—
|
|
Exercises:
|
|
|
|
|
|
|
|
$1.00 Option
|
|
(10,782
|
)
|
|
|
1.00
|
|
Fair market value options
|
|
(9,362
|
)
|
|
|
5.21
|
|
Cancellations:
|
|
|
|
|
|
|
|
Fair market value options
|
|
(15,443
|
)
|
|
|
7.69
|
|
|
|
|
|
|
|
|
|
Balance November 30, 2007
|
|
197,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
Weighted
Average
Price
|
|
Remaining
Contractual
Term
|
|
Aggregate
Intrinsic
Value
(000’s
omitted)
|
|
Balance at November 30, 2007 consists of:
|
|
|
|
|
|
|
|
|
|
|
|
$1.00 Option
|
|
10,553
|
|
$
|
1.00
|
|
1.1
|
|
$
|
32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DDSA
|
|
86,985
|
|
|
—
|
|
—
|
|
|
—
|
|
Fair market value options
|
|
99,710
|
|
|
7.56
|
|
3.3
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
197,248
|
|
$
|
3.87
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At November 30,
2007, 170,521 shares were available for future director stock options and DDSAs (216,526 at November 30, 2006.)
63
For the three years ended November 30, 2007, the total intrinsic value for awards exercised,
representing the difference between the underlying stock’s market price and the exercise price for options exercised or for restricted stock awards and the difference between the underlying stock market price and the value of the restricted
stock award on the day the restricted stock award vested, was as follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
Intrinsic value:
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
$
|
1,389
|
|
$
|
954
|
|
$
|
3,755
|
|
Restricted stock awards
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,389
|
|
$
|
954
|
|
$
|
3,755
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax benefit realized from option or award exercise under all share based arrangements
|
|
$
|
529
|
|
$
|
363
|
|
$
|
1,455
|
|
|
|
|
|
|
|
|
|
|
|
At November 30,
2007 2,507,458 shares were reserved for options and restricted stock awards outstanding, and 1,532,780 shares were available for future stock options and/or restricted stock awards (1,826,930 shares available at November 30, 2006).
NOTE 11—Share Repurchase Authorization
In October 2005, the Company’s Board of Directors authorized a share
repurchase program to acquire up to two million of the Company’s common shares. Repurchases under this authorization commenced in April 2006 and were completed in October 2007 at an average cost of $6.47 per share. In October 2007, the
Company’s Board authorized up to three million additional shares for repurchase from time to time based on prevailing market conditions and other factors. As of November 30, 2007, 710,232 shares have been repurchased pursuant to this
second authorization at an average cost of $4.79 per share; 423,400 shares were repurchased subsequent to November 30, 2007 through February 4, 2008 and additional shares may be repurchased as conditions warrant. The current authorization
expires on December 31, 2009.
NOTE 12—Other Comprehensive Income
The pre-tax amounts, the related income tax (provision)
benefit and after-tax amounts allocated to each component of the change in other comprehensive income (loss) in each year was as follows (000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pre-Tax
|
|
|
Tax
|
|
|
After-Tax
|
|
|
Year ended November 30, 2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of foreign exchange contracts
|
|
$
|
(17
|
)
|
|
$
|
7
|
|
|
$
|
(10
|
)
|
|
Foreign currency translation adjustment
|
|
|
2,091
|
|
|
|
—
|
|
|
|
2,091
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
2,074
|
|
|
$
|
7
|
|
|
$
|
2,081
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended November 30, 2006
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
|
|
$
|
16,157
|
|
|
$
|
(6,262
|
)
|
|
$
|
9,895
|
|
|
Fair value of foreign exchange contracts
|
|
|
(2
|
)
|
|
|
1
|
|
|
|
(1
|
)
|
|
Foreign currency translation adjustment
|
|
|
257
|
|
|
|
—
|
|
|
|
257
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
16,412
|
|
|
$
|
(6,261
|
)
|
|
$
|
10,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended November 30, 2005
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum pension liability
|
|
$
|
(10,494
|
)
|
|
$
|
4,024
|
|
|
$
|
(6,470
|
)
|
|
Fair value of foreign exchange contracts
|
|
|
(192
|
)
|
|
|
70
|
|
|
|
(122
|
)
|
|
Foreign currency translation adjustment
|
|
|
386
|
|
|
|
—
|
|
|
|
386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(10,300
|
)
|
|
$
|
4,094
|
|
|
$
|
(6,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
64
The change in Accumulated Other Comprehensive Income (Loss) was as follows, all amounts are net of tax
(000’s omitted):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Minimum
Pension
Liability
|
|
|
Fair Value
of Foreign
Exchange
Contracts
|
|
|
Foreign
Currency
Translation
Adjustment
|
|
Adjustment
Pursuant to
SFAS No.
158
|
|
|
Accumulated
Other
Comprehensive
Income
(Loss)
|
|
|
Balance Nov. 30, 2004
|
|
$
|
(3,425
|
)
|
|
$
|
123
|
|
|
$
|
1,780
|
|
$
|
—
|
|
|
$
|
(1,522
|
)
|
|
Change in fiscal 2005
|
|
|
(6,470
|
)
|
|
|
(122
|
)
|
|
|
386
|
|
|
—
|
|
|
|
(6,206
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Nov. 30, 2005
|
|
|
(9,895
|
)
|
|
|
1
|
|
|
|
2,166
|
|
|
—
|
|
|
|
(7,728
|
)
|
|
Change in fiscal 2006
|
|
|
9,895
|
|
|
|
(1
|
)
|
|
|
257
|
|
|
—
|
|
|
|
10,151
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Nov. 30, 2006
|
|
|
—
|
|
|
|
—
|
|
|
|
2,423
|
|
|
—
|
|
|
|
2,423
|
|
|
Change in fiscal 2007
|
|
|
—
|
|
|
|
(10
|
)
|
|
|
2,091
|
|
|
(27,265
|
)
|
|
|
(25,184
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Nov. 30, 2007
|
|
$
|
—
|
|
|
$
|
(10
|
)
|
|
$
|
4,514
|
|
$
|
(27,265
|
)
|
|
$
|
(22,761
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOTE 13—Operating Segment
Information
The Company is engaged in the manufacturing
and marketing of apparel and has two operating segments for purposes of allocating resources and assessing performance, which are based on products distributed. The Company’s customers comprise major department and specialty stores, value
oriented retailers and direct mail companies. Products are sold over a wide range of price points under a broad variety of apparel brands, both owned and under license, to an extensive range of retail channels. The Company’s operations are
comprised of the Men’s Apparel Group and Women’s Apparel Group. The Men’s Apparel Group designs, manufactures and markets tailored clothing, slacks, sportswear (including golfwear) and dress furnishings (shirts and ties). The
Women’s Apparel Group designs and markets women’s career apparel, designer knitwear, sportswear, including denim products, and accessories to retailers and to individuals who purchase women’s apparel through its catalogs and
e-commerce websites.
Information on the Company’s
operations for the three years ended November 30, 2007 is summarized as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2007
|
|
Men’s
Apparel
Group
|
|
Women’s
Apparel
Group
|
|
Adj.
|
|
|
Consol.
|
|
|
Sales
|
|
$
|
432.9
|
|
$
|
129.5
|
|
$
|
—
|
|
|
$
|
562.4
|
|
|
Earnings (loss) before taxes
|
|
|
2.1
|
|
|
13.6
|
|
|
(22.4
|
)
|
|
|
(6.7
|
)
|
|
Total assets at year end
|
|
|
282.0
|
|
|
104.7
|
|
|
73.2
|
|
|
|
459.9
|
|
|
Depreciation and amortization
|
|
|
4.7
|
|
|
0.7
|
|
|
0.1
|
|
|
|
5.5
|
|
|
Capital additions
|
|
|
17.1
|
|
|
0.9
|
|
|
—
|
|
|
|
18.0
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2006
|
|
Men’s
Apparel
Group
|
|
Women’s
Apparel
Group
|
|
Adj.
|
|
|
Consol.
|
|
Sales
|
|
$
|
479.7
|
|
$
|
118.2
|
|
$
|
—
|
|
|
$
|
597.9
|
|
Earnings (loss) before taxes
|
|
|
23.4
|
|
|
12.2
|
|
|
(23.8
|
)
|
|
|
11.8
|
|
Total assets at year end
|
|
|
286.9
|
|
|
98.6
|
|
|
87.6
|
|
|
|
473.1
|
|
Depreciation and amortization
|
|
|
5.5
|
|
|
0.8
|
|
|
—
|
|
|
|
6.3
|
|
Capital additions
|
|
|
3.1
|
|
|
0.4
|
|
|
0.1
|
|
|
|
3.6
|
65
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2005
|
|
Men’s
Apparel
Group
|
|
Women’s
Apparel
Group
|
|
Adj.
|
|
|
Consol.
|
|
Sales
|
|
$
|
511.1
|
|
$
|
87.1
|
|
$
|
—
|
|
|
$
|
598.2
|
|
Earnings (loss) before taxes
|
|
|
51.3
|
|
|
8.9
|
|
|
(21.8
|
)
|
|
|
38.4
|
|
Total assets at year end
|
|
|
312.4
|
|
|
87.0
|
|
|
95.2
|
|
|
|
494.6
|
|
Depreciation and amortization
|
|
|
4.5
|
|
|
0.6
|
|
|
—
|
|
|
|
5.1
|
|
Capital additions
|
|
|
12.8
|
|
|
0.9
|
|
|
0.1
|
|
|
|
13.8
|
Sales from the
Men’s Apparel Group to the Women’s Apparel Group were $.3 million for the years ended November 30, 2007 and 2006 and $.1 million for the year ended November 30, 2005. These sales have been eliminated from Men’s Apparel Group
sales. During all periods, 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; indirect operating expenses are allocated to the
groups benefitted. Group results exclude any allocation of general corporate expense, interest expense or income taxes.
Amounts included in the “adjustment” column for earnings (loss) before taxes consist principally of interest expense and general corporate
expenses. Adjustments of total assets are for cash, deferred income taxes, investments, other assets, corporate properties and the prepaid/intangible pension asset. Adjustments of depreciation and amortization and net property additions are for
corporate properties.
Sales and long-lived assets by
geographic region are as follows (in millions):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales
Years Ended November 30,
|
|
Long-Lived
Assets November 30,
|
|
|
|
2007
|
|
2006
|
|
2005
|
|
2007
|
|
2006
|
|
USA
|
|
$
|
538.7
|
|
$
|
574.6
|
|
$
|
576.1
|
|
$
|
147.9
|
|
$
|
159.4
|
|
Canada
|
|
|
22.1
|
|
|
21.8
|
|
|
20.5
|
|
|
4.0
|
|
|
3.2
|
|
All Other
|
|
|
1.6
|
|
|
1.5
|
|
|
1.6
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
562.4
|
|
$
|
597.9
|
|
$
|
598.2
|
|
$
|
151.9
|
|
$
|
162.6
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sales by Canadian
subsidiaries to customers in the United States are included in USA sales. Sales to customers in countries other than USA or Canada are included in All Other.
Long-lived assets includes the prepaid/intangible pension asset, net properties, goodwill, intangible assets and other assets.
Quarterly Financial Summary (Unaudited)
Unaudited quarterly financial data for the fiscal years ended
November 30, 2007 and 2006 are as follows (000’s omitted, except per share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2007
|
|
1
st
Quarter
|
|
|
2
nd
Quarter
|
|
3
rd
Quarter
|
|
4
th
Quarter
|
|
|
Net sales
|
|
$
|
120,045
|
|
|
$
|
155,935
|
|
$
|
135,202
|
|
$
|
151,234
|
|
|
Gross profit
|
|
|
40,123
|
|
|
|
55,884
|
|
|
46,708
|
|
|
35,591
|
|
|
Net earnings (loss)
|
|
|
(3,412
|
)
|
|
|
5,379
|
|
|
542
|
|
|
(6,687
|
)
|
|
Diluted earnings (loss) per share
|
|
|
(.09
|
)
|
|
|
.15
|
|
|
.01
|
|
|
(.19
|
)
|
66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended November 30, 2006
|
|
1
st
Quarter
|
|
2
nd
Quarter
|
|
3
rd
Quarter
|
|
4
th
Quarter
|
|
Net sales
|
|
$
|
144,204
|
|
$
|
152,566
|
|
$
|
137,691
|
|
$
|
163,429
|
|
Gross profit
|
|
|
48,295
|
|
|
49,644
|
|
|
47,545
|
|
|
47,788
|
|
Net earnings
|
|
|
2,585
|
|
|
3,880
|
|
|
490
|
|
|
331
|
|
Diluted earnings per share
|
|
|
.07
|
|
|
.10
|
|
|
.01
|
|
|
.01
|
The results of
operations of Sweater.com, Zooey and Monarchy are included in the consolidated financial statements from the respective acquisition dates of August 29, 2006, December 11, 2006 and August 14, 2007, respectively.