<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 May 31, 1996
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
incorporation or organization) Number)
101 NORTH WACKER DRIVE
CHICAGO, ILLINOIS 60606
----------------------------- -----
(Address of principal executive offices) (Zip Code)
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 June 30, 1996, there were 33,075,248 shares of the Company's common stock
outstanding.
<PAGE>
HARTMARX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
<S> <C>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Earnings for the
three months and six months ended May 31, 1996
and May 31, 1995. 3
Consolidated Balance Sheet as of May 31 1996,
November 30, 1995 and May 31, 1995. 4
Condensed Consolidated Statement of Cash Flows
for the six months ended May 31, 1996 and
May 31, 1995. 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 4. Results of Votes of Security Holders 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
</TABLE>
2
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
<TABLE>
<CAPTION>
Three Months Ended May 31, Six Months Ended May 31,
-------------------------- -----------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $134,253 $135,029 $285,112 $284,312
Licensing and other income 990 1,351 2,204 2,647
-------- -------- -------- --------
135,243 136,380 287,316 286,959
-------- -------- -------- --------
Cost of goods sold 102,157 101,860 219,142 214,436
Selling, general and administrative expenses 31,629 34.080 65,036 67,027
-------- -------- -------- --------
133,786 135,940 284,178 281,463
-------- -------- -------- --------
Earnings before interest, taxes, discontinued
operation and extraordinary gain 1,457 440 3,138 5,496
Interest expense 4,262 5,180 8,513 10,144
-------- -------- -------- --------
Loss before taxes, discontinued operation
and extraordinary gain (2,805) (4,740) (5,375) (4,648)
Tax benefit 1,065 1,750 2,040 1,716
-------- -------- -------- --------
Loss before discontinued operation
and extraordinary gain (1,740) (2,990) (3,335) (2,932)
-------- -------- -------- --------
Discontinued operation:
Operating loss, net of tax benefit - (260) - (183)
Loss on disposition, net of $.4 million tax benefit - (18,100) - (18,100)
-------- -------- -------- --------
- (18,360) - (18,283)
-------- -------- -------- --------
Net loss before extraordinary gain (1,740) (21,350) (3,335) (21,215)
Extraordinary gain, net of tax provision 64 - 725 -
-------- -------- -------- --------
Net loss $ (1,676) $(21,350) $ (2,610) $(21,215)
======== ======== ======== ========
Loss per share:
Continuing operations $ (.05) $ (.09) $ (.10) $ (.09)
Discontinued operation - $ (.56) - $ (.56)
-------- -------- -------- --------
Before extraordinary gain $ (.05) $ (.65) $ (.10) $ (.65)
======== ======== ======== ========
After extraordinary gain $ (.05) $ (.65) $ (.08) $ (.65)
======== ======== ======== ========
Dividends per common share $ - $ - $ - $ -
======== ======== ======== ========
Average number of common shares
and common share equivalents 32,963 32,602 32,901 32,557
======== ======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
3
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(000'S OMITTED)
<TABLE>
<CAPTION>
May 31, Nov. 30, May 31,
1996 1995 1995
--------- -------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,029 $ 5,700 $ 591
Accounts receivable, less allowance
of $8,667, $7,920 and $7,612
for doubtful accounts 96,863 108,486 94,441
Inventories 155,766 154,898 163,159
Prepaid expenses 5,911 3,471 9,268
Recoverable and deferred income taxes 6,411 6,938 6,862
--------- --------- ---------
Total current assets 265,980 279,493 274,321
--------- --------- ---------
INVESTMENTS AND OTHER ASSETS 20,932 21,438 15,562
--------- --------- ---------
DEFERRED INCOME TAXES 31,081 31,081 11,817
--------- --------- ---------
NET ASSETS OF DISCONTINUED OPERATION
- - 11,825
--------- --------- ---------
PROPERTIES
Land 2,627 2,626 2,719
Buildings and building improvements 47,397 47,837 47,479
Furniture, fixtures and equipment 100,844 98,626 96,191
Leasehold improvements 17,756 18,963 18,445
--------- --------- ---------
168,624 168,052 164,834
Accumulated depreciation and amortization (123,980) (123,428) (124,162)
--------- --------- ---------
Net properties 44,644 44,624 40,672
--------- --------- ---------
TOTAL ASSETS $ 362,637 $ 376,636 $ 354,197
========= ========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
4
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
May 31, Nov. 30, May 31,
1996 1995 1995
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 20,000 $ 10,000 $ 20,000
Current maturities of long term debt 194 497 654
Accounts payable and accrued expenses 77,859 78,867 73,902
------- ------- -------
Total current liabilities 98,053 89,364 94,556
------- ------- -------
LONG TERM DEBT, less current maturities 131,428 152,781 150,870
-------- --------- ---------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 32,986,825 in May 1996,
32,759,797 in November 1995 and
32,642,549 in May 1995 82,467 81,899 81,606
Capital surplus 76,672 76,771 76,488
Retained earnings (deficit) (16,694) (14,084) (38,446)
Unearned employee benefits (9,289) (10,095) (10,877)
------- ------- -------
Total shareholders' equity 133,156 134,491 108,771
------- ------- -------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $362,637 $376,636 $354,197
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
5
<PAGE>
HARTMARX CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
Six Months Ended May 31,
------------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1995
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss, including discontinued operation and extraordinary gain $(2,610) $(21,215)
Reconciling items to adjust net loss to
net cash provided by operating activities:
Extraordinary gain, net of tax provision (725) -
Depreciation and amortization 4,690 5,268
Changes in:
Receivables, inventories and prepaids 8,315 5,604
Other assets 760 132
Accounts payable and accrued expenses (1,008) 6,122
Taxes and deferred taxes 527 (1,864)
Loss on sale of discontinued operation - 18,100
Cash provided by discontinued operation - 567
-------- --------
Net cash provided by operating activities 9,949 12,714
-------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (4,199) (2,887)
-------- ---------
Net cash used in investing activities (4,199) (2,887)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of $13.5 million principal amount of
10 7/8% Senior Subordinated Debentures (11,879) -
Increase (decrease) in notes payable 558 (13,300)
Decrease in other long term debt (375) (378)
Other equity transactions 1,275 1,619
-------- ---------
Net cash used in financing activities (10,421) (12,059)
-------- ---------
Net decrease in cash and cash equivalents (4,671) (2,232)
Cash and cash equivalents at beginning of period 5,700 2,823
Cash and cash equivalents at end of period -------- ---------
1,029 $ 591
======== =========
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid (received) during period for:
Interest expense $ 8,500 $ 8,600
Income taxes (2,100) 100
</TABLE>
(See accompanying notes to consolidated financial statements)
6
<PAGE>
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, 1995. Certain prior
year amounts have been reclassified to conform to the presentation in the
current period.
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 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
Long-term debt comprised the following (000's omitted):
<TABLE>
<CAPTION>
May 31, Nov. 30, May 31,
1996 1995 1995
--------- --------- ---------
<S> <C> <C> <C>
Notes payable $ 47,700 $ 45,590 $ 53,600
10 7/8% Senior Subordinated Notes, net 86,079 99,470 99,427
Industrial development bonds 17,559 17,853 17,947
Other debt 284 365 550
-------- -------- --------
151,622 163,278 171,524
Less - current 20,194 10,497 20,654
-------- -------- --------
Long term debt $131,428 $152,781 $150,870
======== ======== ========
</TABLE>
During fiscal 1994, the Company issued $100 million principal amount of 10 7/8%
Senior Subordinated Notes due January 15, 2002 ("Notes") in a public offering,
and also entered into a then three year financing agreement ("Credit Facility")
with a group of lenders providing for maximum borrowings of $175 million
(including a $25 million letter of credit facility) secured by eligible
inventories, accounts receivable and the
7
<PAGE>
intangibles of the Company and its subsidiaries. Credit Facility amendments in
July 1995, November 1995 and January 1996, among other things, resulted in a
reduction in the fees, administrative charges and effective borrowing rates,
adjustment of certain covenants and the extension of the term from March 1997 to
July 2000. The Credit Facility contains various restrictive covenants pertaining
to minimum net worth, additional debt incurrence, capital expenditures, asset
sales, operating leases, and ratios relating to minimum accounts payable to
inventory, maximum funded debt to EBITDA and minimum fixed charge coverage, as
well as other customary covenants, representations and warranties, funding
conditions and events of default. The Company was in compliance with the above
noted covenants.
During the first half of 1996, the Company purchased $13.5 million face value of
its Notes (including $3.5 million in the second quarter) at a discount,
resulting in an extraordinary gain, net of $.4 million tax provision, of $.7
million or $.02 per share.
Note 4
Inventories at each date consisted of (000's omitted):
<TABLE>
<CAPTION>
May 31, Nov. 30, May 31,
1996 1995 1995
-------- -------- --------
<S> <C> <C> <C>
Raw materials $ 42,203 $ 39,617 $ 37,191
Work-in-process 23,085 21,687 25,567
Finished goods 90,478 93,594 100,401
------- ------- -------
$155,766 $154,898 $163,159
======== ======== ========
</TABLE>
Inventories are stated at the lower of cost or market. At May 31, 1996, November
30, 1995 and May 31, 1995, approximately 43%, 42% and 47% of the Company's total
inventories, respectively, are valued using the last-in, first-out (LIFO) method
representing certain work-in-process and finished goods. The first-in, first-out
(FIFO) method is used for substantially all raw materials and the remaining
inventories.
Note 5
On July 27, 1995, the Company sold the capital stock of Kuppenheimer, its
vertically integrated factory direct-to-consumer business. Kuppenheimer's
results of operations for the periods ended May 31, 1995, net of tax benefit,
have been reflected as a discontinued operation in the accompanying Consolidated
Statement of Earnings. The accompanying balance sheet as of May 31, 1995
reflects Kuppenheimer's assets less liabilities, debt assumed and the loss on
disposition as a separate caption entitled "Net Assets of Discontinued
Operation".
8
<PAGE>
HARTMARX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
November 30, 1995 to May 31, 1996
- ---------------------------------
Since November 30, 1995, net accounts receivable decreased $11.6 million or
10.7% to $96.9 million, reflecting the normal seasonal fluctuations in the Men's
Apparel Group. The allowance for doubtful accounts was $8.7 million compared to
$7.9 million; the increase reflected increased credit exposure of certain
customers. Inventories of $155.8 million increased $.9 million or .6%. Net
properties of $44.6 million were unchanged, as property additions and
depreciation expense were each approximately $4.2 million for the six months.
Capital expenditures for the full year are anticipated to be approximately $1
million greater than depreciation expense. Total debt of $151.6 million
declined $11.7 million principally from seasonal working capital reductions and
represented 53.2% of total capitalization compared to 54.8% at November 30,
1995.
May 31, 1995 to May 31, 1996
- ----------------------------
Net accounts receivable of $96.9 million increased $2.4 million. The allowance
for doubtful accounts increased to $8.7 million, representing 8.2% of gross
receivables compared to $7.6 million and 7.5%, respectively, at May 31, 1995,
reflecting increased credit exposure of certain customers. Inventories of
$155.8 million declined $7.4 million or 4.5%, principally attributable to the
tailored clothing businesses. Net properties of $44.6 million increased $4.0
million, primarily reflecting the acquisition of manufacturing facilities in
Mexico and Costa Rica. Total debt of $151.6 million decreased $19.9 million,
principally attributable to the disposition of Kuppenheimer, and represented
53.2% of total capitalization compared to 61.2% last year. The lower percentage
this year primarily reflected the repayment of debt and higher equity from the
trailing year earnings and the proceeds from stock sales to employee benefit
plans.
RESULTS OF OPERATIONS
Second Quarter 1996 Compared to Second Quarter 1995
- ---------------------------------------------------
Consolidated sales of $134.3 million were approximately even with 1995's $135.0
million. The businesses positioned in the upper end of the tailored clothing
market experienced a 3% sales decline attributable to lower volumes with several
retail customers which have filed bankruptcy. The businesses which market
moderately priced clothing continued to operate in a difficult environment and
experienced a 3% sales decline and reduced profitability. Golfwear revenues
increased over 20%. Sales in the women's businesses increased 2% and
represented approximately 9% of consolidated sales in each period.
The consolidated gross margin percentage to sales was 23.9% compared to 24.6%
last year, principally reflecting lower gross margin rates in the moderately
priced private label tailored clothing and slack segments and start up costs
associated with off-shore manufacturing facilities. Consolidated selling,
general and administrative expenses declined $2.5 million to $31.6 million and
represented 23.6% of sales compared
9
<PAGE>
to 25.2% last year. The prior period included a non-recurring $3.7 million
charge related to the settlement of 1992 licensing program disputes, partially
offset by a $2.8 million gain on the sale of a former production site. Earnings
before interest, taxes, discontinued operation and extraordinary gain of $1.5
million increased $1.0 million compared to 1995. Interest expense declined $.9
million to $4.3 million, attributable to lower average borrowings and the effect
of the debenture purchases; interest expense included amortization of financing
fees of $.3 million in 1996 and $.4 million in 1995.
The consolidated pre-tax loss before discontinued operation and extraordinary
gain was $2.8 million in 1996 compared to a loss of $4.7 million in 1995. After
reflecting the applicable tax benefit, the consolidated loss before discontinued
operation and extraordinary gain was $1.7 million or $.05 per share compared to
a loss of $3.0 million or $.09 per share in 1995. As discussed in Note 5 in the
accompanying Notes to Consolidated Financial Statements, the Kuppenheimer
business was sold in July 1995 and, accordingly, its results of operations for
the three and six month periods ended May 31, 1995 have been reflected as a
discontinued operation. Discontinued operation in 1995, net of tax benefit,
consisted of an operating loss of $.3 million plus the loss on disposition of
$18.1 million.
Six Months 1996 Compared to Six Months 1995
- -------------------------------------------
First half consolidated sales were $285.1 million compared to $284.3 million in
1995. Men's Apparel Group sales increased slightly, as over $13 million of
reduced sales to customers operating in bankruptcy was replaced with business to
new or existing customers. The businesses positioned in the upper end of the
tailored clothing market achieved a 2% sales increase. The businesses marketing
moderately priced clothing continued to operate in a difficult environment and
experienced a 4% decrease in sales and reduced profitability. Golfwear revenues
increased 21% for the six months. Sales in the women's businesses declined 3%
and comprised approximately 8% of total sales in each year.
The consolidated gross margin percentage to sales was 23.1% compared to 24.6%
last year. The Men's Apparel Group gross margin rate was lower reflecting
industry-wide conditions significantly affecting the moderately priced product
categories; gross margin rates were stable for the businesses positioned in the
higher priced market. Gross margin rates were also unfavorably impacted by
start-up costs associated with off-shore manufacturing facilities. Gross
margins in the women's businesses improved, attributable to International
Women's Apparel. Selling, general and administrative expenses declined $2.0
million to $65.0 million and represented 22.8% of sales compared to 23.6% last
year. The current period included non-recurring severance related charges
associated with cost reduction programs, while the prior period included $.9
million of non-recurring expense as noted previously. Interest expense
declined $1.6 million to $8.5 million, primarily attributable to lower average
borrowings; interest expense included amortization of financing fees of $.5
million in 1996 and $.8 million in 1995.
The pre-tax loss before discontinued operation and extraordinary gain was $5.4
million compared to a loss of $4.6 million in 1995. After reflecting the
applicable tax benefit, the consolidated loss for 1996 before discontinued
operation and extraordinary gain was $3.3 million or $.10 per share compared to
a loss of $2.9 million or $.09 per share in 1995. The discontinued operation in
1995 consisted of an operating loss of $.2 million plus the loss on disposition
of $18.1 million. The current year includes an extraordinary gain of $.7
million, net of $.4 million tax provision, related to public market purchases of
$13.5 million face value of the Company's 10 7/8% Senior Subordinated
Debentures. The net loss after discontinued operation and the extraordinary
gain was $2.6 million or $.08 per share in 1996 compared to a loss of $21.2
million or $.65 per share in 1995.
10
<PAGE>
PART II - OTHER INFORMATION
ITEM 4. RESULTS OF VOTES OF SECURITY HOLDERS
The annual meeting of the stockholders of the Registrant was held on April
17, 1996. The Directors listed in the Registrant's Proxy Statement for the
Annual Meeting of Stockholders dated February 28, 1996 were elected for one year
terms with voting for each as follows:
<TABLE>
<CAPTION>
Director For Abstentions
- -------- --- -----------
<S> <C> <C>
A. Robert Abboud 28,804,616 829,781
Samawal A. Bakhsh 29,110,678 523,719
Jeffrey A. Cole 29,094,015 540,382
Raymond F. Farley 29,057,223 577,174
Elbert O. Hand 29,043,737 590,660
Donald P. Jacobs 29,004,609 629,788
Charles Marshall 29,071,874 562,523
Homi B. Patel 29,069,112 565,285
Michael B. Rohlfs 29,125,493 508,904
Stuart L. Scott 29,093,032 541,365
</TABLE>
The reappointment of Price Waterhouse LLP as independent auditors was
ratified with 29,410,036 shares for, 135,972 shares opposed and 88,389 shares
abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Exhibit 27 Financial Data Schedules
(b) No reports on Form 8-K were filed in the second quarter of 1996.
11
<PAGE>
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
July 15, 1996 By: /s/GLENN R. MORGAN
-----------------------------------
Glenn R. Morgan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
July 15, 1996 By: /s/ANDREW A. ZAHR
-----------------------------------
Andrew A. Zahr
Controller
(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> 6-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> MAY-31-1996
<CASH> 1,029
<SECURITIES> 0
<RECEIVABLES> 96,863
<ALLOWANCES> (8,667)
<INVENTORY> 155,766
<CURRENT-ASSETS> 265,980
<PP&E> 168,624
<DEPRECIATION> (123,980)
<TOTAL-ASSETS> 362,637
<CURRENT-LIABILITIES> 98,053
<BONDS> 131,428
<COMMON> 82,467
0
0
<OTHER-SE> 50,689
<TOTAL-LIABILITY-AND-EQUITY> 362,637
<SALES> 285,112
<TOTAL-REVENUES> 287,316
<CGS> 219,142
<TOTAL-COSTS> 284,178
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,513
<INCOME-PRETAX> (5,375)
<INCOME-TAX> (2,040)
<INCOME-CONTINUING> (3,335)
<DISCONTINUED> 0
<EXTRAORDINARY> 725
<CHANGES> 0
<NET-INCOME> (2,610)
<EPS-PRIMARY> (.08)
<EPS-DILUTED> (.08)
</TABLE>
