<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
X OF THE SECURITIES EXCHANGE ACT OF 1934
--------
For quarterly period ended February 28, 1995
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
________ OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to ____________
Commission file number 1-8501
HARTMARX CORPORATION
--------------------
(Exact name of registrant as specified in its charter)
DELAWARE 36-3217140
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 NORTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
---------------------- -----
(Address of principal executive (Zip Code)
offices)
Registrant's telephone number,
including area code 312/372-6300
------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months, and (2) has been subject to such filing requirements
for the past 90 days.
Yes X No
------- -------
At March 31, 1995, there were 32,593,743 shares of the Company's common stock
outstanding.
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HARTMARX CORPORATION
INDEX
Page
Number
------
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Earnings for the
three months ended February 28, 1995 and
February 28, 1994. 3
Consolidated Balance Sheet as of February 28,
1995, November 30, 1994 and February 28, 1994. 4
Condensed Consolidated Statement of Cash Flows
for the three months ended February 28, 1995
and February 28, 1994. 6
Notes to Consolidated Financial Statements. 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 9
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
2
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
<TABLE>
<CAPTION>
Three Months Ended February 28,
-------------------------------
1995 1994
-------- --------
<S> <C> <C>
Net sales $171,471 $177,891
Licensing and other income 1,296 1,487
-------- --------
172,767 179,378
-------- --------
Cost of goods sold 123,107 127,688
Selling, administrative and
occupancy expenses 44,425 47,317
-------- --------
167,532 175,005
-------- --------
Earnings before interest and taxes 5,235 4,373
Interest expense 5,020 5,113
-------- --------
Earnings (loss) before taxes 215 (740)
Tax (provision) benefit (80) 20
-------- --------
Net earnings (loss) for the period $ 135 $ (720)
======== ========
Earnings (loss) per common share
and common share equivalent $ - $ (.02)
======== ========
Dividends per common share $ - $ -
======== ========
Average number of common shares
and common share equivalents 32,543 31,976
======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
3
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HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(000'S OMITTED)
<TABLE>
<CAPTION>
Feb. 28, Nov. 30, Feb. 28,
1995 1994 1994
-------- -------- --------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,820 $ 2,823 $ 1,118
Accounts receivable, less allowance
of $7,880, $7,368 and $10,663
for doubtful accounts 135,425 114,597 135,337
Inventories 178,331 183,347 177,962
Prepaid expenses 7,783 6,672 18,740
Recoverable and deferred income taxes 4,767 4,998 6,684
-------- -------- --------
Total current assets 328,126 312,437 339,841
-------- -------- --------
</TABLE>
OTHER ASSETS 16,026 16,403 11,419
-------- -------- --------
DEFERRED INCOME TAXES 11,817 11,817 -
-------- -------- --------
PROPERTIES
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Land 3,852 3,877 3,876
Buildings and building improvements 58,095 58,498 58,959
Furniture, fixtures and equipment 112,129 112,850 112,581
Leasehold improvements 27,700 27,964 30,006
-------- -------- --------
201,776 203,189 205,422
Accumulated depreciation and amortization (151,607) (151,646) (151,072)
-------- -------- --------
Net properties 50,169 51,543 54,350
-------- -------- --------
</TABLE>
TOTAL ASSETS $406,138 $392,200 $405,610
======== ======== ========
(See accompanying notes to consolidated financial statements)
4
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HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
Feb. 28, Nov. 30, Feb. 28,
1995 1994 1994
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $20,000 $ 20,000 $ 35,000
Current maturities of long term debt 663 699 703
Accounts payable and accrued expenses 70,339 76,049 58,954
-------- -------- --------
Total current liabilities 91,002 96,748 94,657
-------- -------- --------
</TABLE>
LONG TERM DEBT, less current maturities
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Notes payable 65,700 46,900 123,635
10 7/8% Senior Subordinated Notes, net 99,405 99,383 -
Industrial development bonds 20,305 20,352 20,594
Other debt 383 450 755
Notes payable to insurance companies - - 44,880
ESOP loan guarantee - - 12,186
-------- -------- --------
185,793 167,085 202,050
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 32,565,139 in February 1995,
32,477,800 in November 1994 and
32,021,381 in February 1994. 81,413 81,194 80,053
Capital surplus 76,294 76,063 74,522
Retained earnings (deficit) (17,096) (17,231) (34,099)
Unearned employee benefits (11,268) (11,659) (11,573)
-------- -------- --------
Total shareholders' equity 129,343 128,367 108,903
-------- -------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $406,138 $392,200 $405,610
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
5
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HARTMARX CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
Three Months Ended February 28,
---------------------------------
1995 1994
-------- -------
<S> <C> <C>
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) $ 135 $ (720)
Reconciling items to adjust net earnings (loss)
to net cash provided by operating activities:
Depreciation and amortization 3,120 3,663
Changes in:
Receivables, inventories and prepaids (16,925) (2,435)
Other assets 20 (832)
Accounts payable and accrued expenses (5,710) (4,247)
Taxes and deferred taxes 231 (82)
Adjustment of properties to net realizable value (83) 93
-------- -------
Net cash used in operating activities (19,212) (4,560)
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (1,282) (1,095)
-------- -------
Net cash used in investing activities (1,282) (1,095)
-------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 18,800 4,939
Decrease in other long term debt (150) (299)
Proceeds from other equity transactions 841 626
-------- -------
Net cash provided by financing activities 19,491 5,266
-------- -------
Net decrease in cash and cash equivalents (1,003) (389)
Cash and cash equivalents at beginning of period 2,823 1,507
-------- -------
Cash and cash equivalents at end of period $ 1,820 $ 1,118
======== =======
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid (received) during period for:
Interest expense $ 3,200 $ 4,700
Income taxes (300) 100
</TABLE>
(See accompanying notes to consolidated financial statements)
6
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HARTMARX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1
The accompanying financial statements are unaudited, but in the opinion of
management include all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of the results of operations and
financial position for the applicable period. Results of operations for any
interim period are not necessarily indicative of results for any other periods
or for the full year. These interim financial statements should be read in
conjunction with the financial statements and related notes contained in the
Annual Report on Form 10-K for the year ended November 30, 1994. Certain prior
year amounts have been reclassified to conform to the presentation in the
current period. Effective December 1, 1994, the Company adopted Statement of
Financial Accounting Standards No. 112 ("FAS 112"), Employers' Accounting for
Postemployment Benefits. This statement requires the recognition of obligations
related to benefits provided by an employer to former or inactive employees
after employment but before retirement. As the Company's accounting practices
were substantially consistent with the provisions of FAS 112, adoption did not
impact either financial condition or results of operations.
NOTE 2
The calculation of earnings (loss) per share for each period is computed based
on the weighted average number of common shares outstanding. When dilutive,
stock options and warrants are included as share equivalents using the treasury
stock method. None of the 2,500,000 authorized preferred shares for Hartmarx
Corporation have been issued.
NOTE 3
On March 23, 1994, the Company issued $100 million principal amount of 10 7/8%
Senior Subordinated Notes due January 15, 2002 ("Notes") in a public offering,
and also entered into a new three year financing agreement ("Credit Facility")
with a group of lenders providing for maximum borrowings of $175 million
(including a $25 million letter of credit facility) secured by eligible
inventories, accounts receivable and the intangibles of the Company and its
subsidiaries. Proceeds from these two transactions were utilized to repay $236
million of borrowings then outstanding related to the Company's principal
lending facility then in effect. The prior facility was terminated upon
completion of the Notes and Credit Facility transactions. The current financing
agreements contain various restrictive covenants pertaining to minimum net
worth, payment of dividends, additional debt incurrence, capital expenditures,
asset sales, operating leases, and ratios relating to minimum accounts payable
to inventory, maximum funded debt to EBITDA and minimum fixed charge coverage,
as well as other customary covenants, representations and warranties, funding
conditions and events of default. The Company was in compliance with all
covenants under these agreements.
7
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NOTE 4
Inventories at each date consisted of (000's omitted):
<TABLE>
<CAPTION>
Feb. 28, Nov. 30, Feb. 28,
1995 1994 1994
-------- -------- --------
<S> <C> <C> <C>
Raw materials $ 44,410 $ 42,296 $ 40,736
Work-in-process 27,132 29,015 25,260
Finished goods 106,789 112,036 111,966
-------- -------- --------
$178,331 $183,347 $177,962
======== ======== ========
</TABLE>
Inventories are stated at the lower of cost or market. Approximately 25%, 29%
and 18% of the Company's inventories, primarily work-in-process and finished
goods, are valued using the last-in, first-out (LIFO) method at February 28,
1995, November 30, 1994 and February 28, 1994, respectively. The first-in,
first-out (FIFO) method is used for substantially all raw materials and the
remaining inventories.
8
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HARTMARX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Changes in Financial Condition from November 30, 1994 to February 28, 1995
- - --------------------------------------------------------------------------
Since November 30, 1994, net accounts receivable increased $20.8 million or
18.2% to $135.4 million, reflecting the normal seasonal increase from tailored
clothing shipments in the Men's Apparel Group. Inventories of $178.3 million
declined $5.0 million or 2.7%, principally due to seasonal shipments of tailored
clothing in the Men's Apparel Group. Net properties decreased $1.4 million to
$50.2 million reflecting depreciation exceeding additions. Total debt,
including current maturities, increased $18.7 million to $206.5 million,
reflecting normal seasonal working capital requirements, and represented 61.5%
of total capitalization compared to 59.4% at November 30, 1994.
Changes in Financial Condition from February 28, 1994 to February 28, 1995
- - --------------------------------------------------------------------------
Net accounts receivable of $135.4 million were virtually unchanged from the year
earlier level. The allowance for doubtful accounts decreased $2.8 million to
$7.9 million and represented 5.5% and 7.3% of gross receivables in 1995 and
1994, respectively, reflecting the write off of receivables previously reserved
associated with the 1992 Restructuring. Inventories of $178.3 million increased
slightly from last year with increases in tailored clothing inventories
associated with anticipated higher volumes offset by declines at Kuppenheimer
from 23 fewer stores and women's from marketing fewer wholesale brands. Prepaid
expenses of $7.8 million declined $11.0 million, principally attributable to
converting several workers compensation cash deposits to letter of credit
arrangements and the timing of payment of insurance related items. Net
properties of $50.2 million declined $4.2 million, primarily reflecting
depreciation expense exceeding capital additions. Accounts payable and accrued
expenses increased $11.4 million, principally attributable to the timing of
payment of invoices. Total debt of $206.5 million decreased $31.3 million
compared to February 28, 1994 and represented 61.5% of total capitalization
compared to 68.6% last year. The lower percentage this year reflected the
repayment of debt, along with higher equity from the trailing year earnings and
the proceeds from stock sales to employee benefit plans.
Results of Operations -- First Quarter 1995 Compared to First Quarter 1994
- - --------------------------------------------------------------------------
Consolidated sales declined $6.4 million or 3.6% to $171.5 million from $178.0
million in 1994. Men's Apparel Group sales increased approximately 1%.
Kuppenheimer's sales declined approximately 24%, attributable to 23 fewer stores
and a 12% decline in comparable store sales. The women's businesses were
essentially unchanged as increases in the Barrie Pace catalog were offset by a
decline at International Women's Apparel associated with fashion brands
discontinued in late 1994.
Gross margin rates improved at all operating groups, although the consolidated
gross margin percentage to sales of 28.2% was unchanged from the previous
period. The Men's Apparel Group comprised a greater percentage of consolidated
sales in 1995 compared to 1994, while Kuppenheimer's proportionate percentage
declined; as gross margins are lower in the Men's Apparel Group compared to
Kuppenheimer (along with a lower selling, administrative and occupancy expense
ratio to sales), this mix change caused the gross margin percentage to sales to
remain unchanged from 1994. Consolidated selling,
9
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administrative and occupancy expenses declined $2.9 million to $44.4 million and
represented 25.9% of sales compared to 26.6% last year with all operating groups
achieving dollar decreases in operating expenses. Kuppenheimer's operating
expense ratio to sales was unfavorable to 1994, attributable to its lower sales.
Earnings before interest, taxes and depreciation were $8.0 million in 1995
compared to $7.5 million in 1994. Earnings before interest expense and taxes
were $5.2 million in 1995 compared to $4.4 million last year. Interest expense
declined $.1 million to $5.0 million as the favorable effect from lower average
borrowings was substantially offset by higher rates; interest expense included
amortization of financing fees of $.4 million in 1995 and $.5 million in 1994.
Consolidated pre-tax earnings for 1995 were $.2 million compared to a loss
of $.7 million in 1994. After reflecting the applicable tax provision or
benefit, consolidated net earnings were $.1 million in 1995 compared to a net
loss of $.7 million in 1994.
In October, 1994, the Company retained an advisor to review alternatives
relating to Kuppenheimer, with the objective of redeploying the Company's
investment in this business to its wholesale businesses, where growth prospects
are believed to be more favorable. Several parties have indicated an interest
in the possible acquisition of this business; however, discussions have not
sufficiently progressed to determine the likelihood of sale and proceeds.
As further discussed in Item 1 - Legal Proceedings of this Form 10-Q, on March
15, 1995 the Company received notice that an arbitration panel awarded Christian
Dior-New York ("Dior") $3.7 million pertaining to a dispute arising from a 1992
agreement to terminate the licensing relationship between Dior and a subsidiary
of the Company. The Company's legal counsel is currently reviewing this matter
and the award is expected to be contested. As Dior products are no longer
marketed by the Company, the ongoing operations of the Company are unaffected by
the decision. Due to the likely appeal and uncertainty associated with the
ultimate timing and outcome of this matter, the accompanying Statement of
Earnings does not reflect any charge associated with this award.
On March 31, 1995, the Company sold the land and building formerly utilized by a
subsidiary for production. The pre-tax gain on this transaction of
approximately $3 million will be reflected in the Company's second quarter
results.
10
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Dior Proceedings. In 1989, Hart Schaffner & Marx ("HSM") and Christian
Dior-New York ("Dior") were adverse parties in various lawsuits filed in the
Circuit Court of Cook County, Illinois, arising out of a Trademark License
Agreement under which HSM manufactured and sold apparel products bearing Dior's
trademarks. These lawsuits were dismissed pursuant to a settlement agreement
which terminated the licensing relationship in 1992. Disputes arising out of
the settlement agreement led to an unfavorable arbitration award in the amount
of $1.3 million, plus interest and fees, against HSM in 1992 which was affirmed
on appeal in 1994. Also in 1994, Dior initiated a second arbitration proceeding
against HSM in which it claimed over $5 million in actual damages plus punitive
damages. In March, 1995, the second arbitration panel awarded Dior $3.7 million
in actual damages and HSM is expected to file a petition seeking to set aside
the award. HSM initiated a separate arbitration proceeding against Dior in 1994
and an order denying HSM's grant of second arbitration is pending before the
Illinois Appellate Court.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K were filed during the first quarter of 1995.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
HARTMARX CORPORATION
April 3, 1995 By /s/ WALLACE L. RUECKEL
--------------------------------
Wallace L. Rueckel
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
April 3, 1995 By /s/ GLENN R. MORGAN
--------------------------------
Glenn R. Morgan
Senior Vice President,
Finance and Administration
(Principal Accounting Officer)
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF EARNINGS AND THE CONSOLIDATED BALANCE SHEET AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1995
<PERIOD-END> FEB-28-1995
<CASH> 1,820
<SECURITIES> 0
<RECEIVABLES> 135,425
<ALLOWANCES> (7,880)
<INVENTORY> 178,331
<CURRENT-ASSETS> 328,126
<PP&E> 201,776
<DEPRECIATION> (151,607)
<TOTAL-ASSETS> 406,138
<CURRENT-LIABILITIES> 91,002
<BONDS> 185,793
<COMMON> 81,413
0
0
<OTHER-SE> (28,364)
<TOTAL-LIABILITY-AND-EQUITY> 406,138
<SALES> 171,471
<TOTAL-REVENUES> 172,767
<CGS> 123,107
<TOTAL-COSTS> 167,532
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,020
<INCOME-PRETAX> 215
<INCOME-TAX> (80)
<INCOME-CONTINUING> 135
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 135
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
