<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 August 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 Number)
incorporation or organization)
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 September 30, 1996, there were 33,169,854 shares of the Company's common
stock outstanding.
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HARTMARX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
------
Part I - FINANCIAL INFORMATION
<S> <C>
ITEM 1. Financial Statements
Consolidated Statement of Earnings for the
three months and nine months ended August 31, 1996
and August 31, 1995. 3
Consolidated Balance Sheet as of August 31 1996,
November 30, 1995 and August 31, 1995. 4
Condensed Consolidated Statement of Cash Flows
for the nine months ended August 31, 1996 and
August 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 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
</TABLE>
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<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
August 31, August 31,
------------------ ------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $164,905 $166,659 $450,017 $ 450,971
Licensing and other income 1,000 1,551 3,204 4,198
-------- -------- -------- ---------
165,905 168,210 453,221 455,169
-------- -------- -------- ---------
Cost of goods sold 126,221 127,456 345,363 341,892
Selling, general and administrative expenses 30,555 32,429 95,591 99,456
-------- -------- -------- ---------
156,776 159,885 440,954 441,348
-------- -------- -------- ---------
Earnings before interest, taxes, discontinued
operation and extraordinary gain 9,129 8,325 12,267 13,821
Interest expense 4,082 4,875 12,595 15,019
-------- -------- -------- ---------
Earnings (loss) before taxes, discontinued
operation and extraordinary gain 5,047 3,450 (328) (1,198)
Tax benefit (provision) (1,916) (1,275) 124 441
-------- -------- -------- ---------
Earnings (loss) before discontinued
operation and extraordinary gain 3,131 2,175 (204) (757)
-------- -------- -------- ---------
Discontinued operation:
Operating loss, net of tax benefit - - - (183)
Loss on disposition,
net of $.4 million tax benefit - - - (18,100)
-------- -------- -------- ---------
- - - (18,283)
-------- -------- -------- ---------
Net earnings (loss) before extraordinary gain 3,131 2,175 (204) (19,040)
Extraordinary gain, net of tax provision - - 725 -
-------- -------- -------- ---------
Net earnings (loss) $ 3,131 $ 2,175 $ 521 ($ 19,040)
======== ======== ======== =========
Earnings (loss) per share:
Continuing operations $ .09 $ .07 $ (.01) $ (.02)
Discontinued operation - - - $ (.56)
-------- -------- -------- ---------
Before extraordinary gain $ .09 $ .07 $ (.01) $ (.58)
======== ======= ======== =========
After extraordinary gain $ .09 $ .07 $ .01 $ (.58)
======== ======= ======== =========
Dividends per common share $ - $ - $ - $ -
======== ======= ======== =========
Average number of common shares and
common share equivalents 33,093 32,679 32,965 32,598
======== ======= ======== =========
</TABLE>
(See accompanying notes to consolidated financial statements)
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HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(000'S OMITTED)
<TABLE>
<CAPTION>
August 31, November 30, August 31,
1996 1995 1995
---------- ------------ ----------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,645 $ 5,700 $ 1,423
Accounts receivable, less allowance
of $9,222, $7,920 and $7,611
for doubtful accounts 126,618 108,486 147,458
Inventories 133,159 154,898 143,445
Prepaid expenses 5,205 3,471 6,054
Recoverable and deferred income taxes 4,539 6,938 5,777
-------- -------- --------
Total current assets 271,166 279,493 304,157
-------- -------- --------
OTHER ASSETS 23,925 21,438 21,231
-------- -------- --------
DEFERRED INCOME TAXES 31,081 31,081 11,817
-------- -------- --------
PROPERTIES
Land 2,628 2,626 2,610
Buildings and building improvements 47,682 47,837 46,510
Furniture, fixtures and equipment 101,514 98,626 96,567
Leasehold improvements 17,375 18,963 19,767
-------- -------- --------
169,199 168,052 165,454
Accumulated depreciation and amortization (125,450) (123,428) (123,975)
-------- -------- --------
Net properties 43,749 44,624 41,479
-------- -------- --------
TOTAL ASSETS $369,921 $376,636 $378,684
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
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<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
August 31, November 30, August 31,
1996 1995 1995
---------- ------------ ----------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 20,000 $ 10,000 $ 20,000
Current maturities of long term debt 145 497 578
Accounts payable and accrued expenses 63,965 78,867 60,887
-------- -------- --------
Total current liabilities 84,110 89,364 81,465
-------- -------- --------
LONG TERM DEBT, less current maturities 148,524 152,781 185,551
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 33,132,740 in August
1996, 32,759,797 in November 1995 and
32,713,149 in August 1995 82,832 81,899 81,782
Capital surplus 76,916 76,771 76,643
Retained earnings (deficit) (13,563) (14,084) (36,271)
Unearned employee benefits (8,898) (10,095) (10,486)
-------- -------- --------
Total shareholders' equity 137,287 134,491 111,668
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $369,921 $376,636 $378,684
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
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<PAGE>
HARTMARX CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(000'S OMITTED)
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
---------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1996 1995
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss), including discontinued operation
and extraordinary gain $ 521 $(19,040)
Reconciling items to adjust net earnings (loss) to
net cash used in operating activities:
Extraordinary gain, net of tax provision (725) -
Depreciation and amortization 7,015 7,810
Changes in:
Receivables, inventories and prepaids 1,873 (24,825)
Other assets (763) (4,430)
Accounts payable and accrued expenses (14,902) (6,893)
Taxes and deferred taxes 1,949 (779)
Loss on sale of discontinued operation - 18,100
Cash provided by discontinued operation - 446
-------- --------
Net cash used in operating activities (5,032) (29,611)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (5,731) (5,776)
Cash received re sale of subsidiary, net of subsidiary cash - 12,000
Cash paid for acquisition - (1,205)
------- -------
Net cash provided by (used in) investing activities (5,731) 5,019
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchases of $14.7 million principal amount
of 10 7/8% Senior Subordinated Debentures, net (13,037) -
Increase in notes payable 17,909 21,421
Decrease in other long term debt (439) (516)
Other equity transactions 2,275 2,341
-------- -------
Net cash provided by financing activities 6,708 23,246
-------- -------
Net decrease in cash and cash equivalents (4,055) (1,346)
Cash and cash equivalents at beginning of period 5,700 2,769
------- -------
Cash and cash equivalents at end of period $ 1,645 $ 1,423
========= =========
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid (received) during period for:
Interest expense $ 14,700 $ 17,100
Income taxes (2,500) 300
</TABLE>
(See accompanying notes to consolidated financial statements)
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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, 1995.
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>
Aug. 31, Nov. 30, Aug. 31,
1996 1995 1995
--------- -------- ---------
<S> <C> <C> <C>
Notes payable $ 63,500 $ 45,590 $ 88,321
10 7/8% Senior Subordinated Notes, net 84,890 99,470 99,449
Industrial development bonds 17,534 17,853 17,905
Other debt 2,745 365 454
-------- -------- --------
168,669 163,278 206,129
Less - current 20,145 10,497 20,578
-------- -------- --------
Long term debt $148,524 $152,781 $185,551
======== ======== ========
</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
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<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 nine months ended August 31, 1996, the Company purchased $14.7
million face value of its Notes (substantially all of which were recorded in the
first quarter) at a discount, resulting in an extraordinary gain of $.7 million
or $.02 per share, net of $.4 million tax provision.
NOTE 4
Inventories at each date consisted of (000's omitted):
<TABLE>
<CAPTION>
Aug. 31, Nov. 30, Aug. 31,
1996 1995 1995
-------- -------- ---------
<S> <C> <C> <C>
Raw materials $ 37,663 $ 39,617 $ 35,169
Work-in-process 18,317 21,687 21,626
Finished goods 77,179 93,594 86,650
-------- -------- --------
$133,159 $154,898 $143,445
======== ======== ========
</TABLE>
Inventories are stated at the lower of cost or market. At August 31, 1996,
November 30, 1995 and August 31, 1995, approximately 40%, 42% and 42% 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 1995, net of tax benefit, have been reflected as a
discontinued operation in the accompanying Consolidated Statement of Earnings.
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<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 August 31, 1996
- ------------------------------------
Since November 30, 1995, net accounts receivable increased $18.1 million or
16.7% to $126.6 million, reflecting the normal seasonal fluctuations in the
Men's Apparel Group. The allowance for doubtful accounts was $9.2 million
compared to $7.9 million; the increase reflected increased credit exposure of
certain customers. Inventories of $133.2 million declined $21.7 million or
14.0%, principally due to seasonal decreases in the Men's Apparel Group. Net
properties decreased $.9 million to $43.7 million as depreciation expense
exceeded capital additions. Accounts payable and accrued expenses declined $14.9
million, principally from the seasonal payments in the Men's Apparel Group.
Total debt of $168.7 million increased $5.4 million and represented 55.1% of
total capitalization compared to 54.8% at November 30, 1995. The Company's
normal seasonality results in a higher debt capitalization ratio at August 31
compared to November 30, when borrowings are lower.
August 31, 1995 to August 31, 1996
- ----------------------------------
Net accounts receivable declined $20.8 million or 14.1% to $126.6 million,
principally attributable to the earlier collection of receivables. The allowance
for doubtful accounts increased $1.6 million to $9.2 million and represented
6.8% and 4.9% of gross receivables in 1996 and 1995, respectively, reflecting
increased credit exposure of certain customers. Inventories of $133.2 million
declined $10.3 million or 7.2% principally in the Men's Apparel Group. Net
properties of $43.7 million increased $2.3 million, primarily attributable to
the acquisition of manufacturing facilities in Mexico and Costa Rica. Total debt
of $168.7 million declined $37.5 million and represented 55.1% of total
capitalization compared to 64.9% last year. The improved percentage this year
reflected the repayment of debt and higher equity from the trailing year
earnings and proceeds from stock sales to employee benefit plans.
RESULTS OF OPERATIONS
Third Quarter 1996 Compared to Third Quarter 1995
- -------------------------------------------------
Third quarter consolidated sales of $164.9 million were slightly below last
year's $166.7 million. Men's Apparel Group sales declined approximately 2% from
1995, principally attributable to businesses which market moderately priced
clothing. Revenues in the women's businesses, which comprised approximately 8%
of the consolidated total in each year, increased 12%.
The consolidated gross margin percentage to sales of 23.5% was the same as last
year, as improvements in the women's businesses were approximately offset by
start-up costs associated with off-shore manufacturing facilities. Consolidated
selling, general and administrative expenses declined $1.9 million to $30.6
million and represented 18.5% of sales compared to 19.5% last year. Earnings
before interest expense and taxes were $9.1 million in 1996 compared to $8.3
million last year. Interest expense declined $.8 million to $4.1
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<PAGE>
million, attributable to lower average borrowings and the effect of the
debenture purchases. Interest expense included amortization of financing fees of
$.3 million in each period.
Pre-tax earnings were $5.0 million in 1996 compared to $3.5 million in 1995.
After reflecting the applicable tax provision, consolidated earnings for 1996
were $3.1 million or $.09 per share compared to $2.2 million or $.07 per share
in 1995.
Nine Months 1996 Compared to Nine Months 1995
- ---------------------------------------------
Consolidated sales for the nine months were $450.0 million compared to $451.0
million in 1995. Men's Apparel Group sales were approximately even, as
approximately $18 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 experienced a small
increase while revenues declined approximately 4% in businesses marketing
moderately priced clothing; golfwear revenues increased 17% for the nine months.
Sales in the women's businesses, comprising approximately 8% of total revenues
in each year, increased approximately 2%, reflecting an increase in wholesale
shipments.
The consolidated gross margin percentage to sales was 23.3% this year compared
to 24.2% 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 slightly improved for the
businesses operating in the higher priced market. Gross margin rates were also
adversely affected by start-up costs associated with off-shore manufacturing
facilities. Gross margins in the women's businesses improved, attributable to
the International Women's Apparel wholesale business. Selling, general and
administrative expenses declined $3.9 million to $95.6 million and represented
21.2% of sales compared to 22.1% last year. The decrease in dollars and as a
percentage of sales primarily reflected decreases at the Men's Apparel Group.
Interest expense declined $2.4 million to $12.6 million, primarily attributable
to lower average borrowings and the debenture purchases; interest expense
included amortization of financing fees of $.8 million in 1996 and $1.1 million
in 1995.
The pre-tax loss was $.3 million compared to a loss of $1.2 million in 1995.
After reflecting the applicable tax benefit, the consolidated loss for 1996
before discontinued operation and extraordinary gain was $.2 million or $.01 per
share compared to a loss of $.8 million or $.02 per share in 1995. The
discontinued operation in 1995 related to the Kuppenheimer business and
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 $14.7
million face value of the Company's 10 7/8% Senior Subordinated Debentures. The
net earnings after discontinued operation and the extraordinary gain were $.5
million or $.01 per share in 1996 compared to a net loss of $19.0 million or
$.58 per share in 1995.
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<PAGE>
PART II - OTHER INFORMATION
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 third quarter of 1996.
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
October 14, 1996 By: /s/ GLENN R. MORGAN
----------------------------------
Glenn R. Morgan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
October 14, 1996 By: /s/ ANDREW A. ZAHR
----------------------------------
Andrew A. Zahr
Controller
(Principal Accounting Officer)
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<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> 9-MOS
<FISCAL-YEAR-END> NOV-30-1996
<PERIOD-END> AUG-31-1996
<CASH> 1,645
<SECURITIES> 0
<RECEIVABLES> 126,618
<ALLOWANCES> (9,222)
<INVENTORY> 133,159
<CURRENT-ASSETS> 271,166
<PP&E> 169,199
<DEPRECIATION> (125,450)
<TOTAL-ASSETS> 369,921
<CURRENT-LIABILITIES> 84,110
<BONDS> 148,524
<COMMON> 82,832
0
0
<OTHER-SE> 54,455
<TOTAL-LIABILITY-AND-EQUITY> 369,921
<SALES> 450,017
<TOTAL-REVENUES> 453,221
<CGS> 345,363
<TOTAL-COSTS> 440,954
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,595
<INCOME-PRETAX> (328)
<INCOME-TAX> (124)
<INCOME-CONTINUING> (204)
<DISCONTINUED> 0
<EXTRAORDINARY> 725
<CHANGES> 0
<NET-INCOME> 521
<EPS-PRIMARY> .01
<EPS-DILUTED> .01
</TABLE>
