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, 1997
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
incorporation or organization) Identification 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 March 31, 1997 there were 33,584,508 shares of the Company's common
stock outstanding.
HARTMARX CORPORATION
INDEX
Page
Number
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statement of Earnings for the
three months ended February 28, 1997 and
February 29, 1996. 3
Consolidated Balance Sheet as of February 28,
1997, November 30, 1996 and February 29, 1996. 4
Condensed Consolidated Statement of Cash Flows
for the three months ended February 28, 1997
and February 29, 1996. 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 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 11
PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(000'S OMITTED)
THREE MONTHS ENDED
FEBRUARY 28, 1997 FEBRUARY 29, 1996
<S> <C> <C>
Net sales $ 177,118 $ 150,859
Licensing and other income 819 1,214
------------- -------------
177,937 152,073
------------- -------------
Cost of goods sold 136,733 116,985
Selling, general and administrative expenses 35,001 33,407
------------- -------------
171,734 150,392
------------- -------------
Earnings before interest, taxes and extraordinary gain 6,203 1,681
Interest expense 4,033 4,251
------------- -------------
Earnings (loss) before taxes and extraordinary gain 2,170 (2,570)
Tax (provision) benefit (825) 975
------------- -------------
Earnings (loss) before extraordinary gain 1,345 (1,595)
Extraordinary gain, net of tax provision - 661
------------- -------------
Net earnings (loss) for the period $ 1,345 $ (934)
============= =============
Earnings (loss) per share:
Before extraordinary gain $ .04 $ (.05)
============= =============
============= =============
After extraordinary gain $ .04 $ (.03)
============= =============
Dividends per common share $ $
============= =============
Average number of common shares and
common share equivalents 33,620 32,837
============= =============
(See accompanying notes to consolidated financial statements)
</TABLE>
<TABLE>
<CAPTION>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(000'S OMITTED)
FEB. 28, NOV. 30, FEB. 29,
1997 1996 1996
--------------- ---------------- ----------------
CURRENT ASSETS
<S> <C> <C> <C>
Cash and cash equivalents $ 1,295 $ 2,844 $ 632
Accounts receivable, less allowance 153,352 135,554 142,680
of $10,298, $9,983 and $9,205 for
doubtful accounts
Inventories 161,243 165,913 141,655
Prepaid expenses 6,232 4,555 5,811
Recoverable and deferred income taxes 8,245 11,600 5,154
--------------- ---------------- ----------------
Total current assets 330,367 320,466 295,932
--------------- ---------------- ----------------
INVESTMENTS AND OTHER ASSETS 23,702 22,579 21,597
--------------- ---------------- ----------------
DEFERRED INCOME TAXES 43,285 43,285 31,081
--------------- ---------------- ----------------
PROPERTIES
Land 2,628 2,628 2,626
Buildings and building improvements 48,776 48,758 47,358
Furniture, fixtures and equipment 106,072 106,128 100,203
Leasehold improvements 16,976 16,767 18,471
--------------- ---------------- ----------------
174,452 174,281 168,658
Accumulated depreciation and amortization (132,212) (130,372) (124,638)
--------------- ---------------- ----------------
Net properties 42,240 43,909 44,020
--------------- ---------------- ----------------
TOTAL ASSETS $439,594 $430,239 $392,630
=============== ================ ================
(See accompanying notes to consolidated financial statements)
</TABLE>
<TABLE>
<CAPTION>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(000'S OMITTED)
FEB. 28, NOV. 30, FEB. 29,
1997 1996 1996
---------------- --------------- ----------------
CURRENT LIABILITIES
<S> <C> <C> <C>
Notes payable $ 20,000 $ 20,000 $ 10,000
Current maturities of long-term debt 60 100 447
Accounts payable and accrued expenses 95,450 99,745 67,024
---------------- --------------- ----------------
Total current liabilities 115,510 119,845 77,471
---------------- --------------- ----------------
LONG-TERM DEBT, less current maturities 160,031 148,428 180,707
---------------- --------------- ----------------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 33,484,329 in
February 1997, 33,365,317 in
November 1996 and 32,939,539
in February 1996 83,711 83,413 82,349
Capital surplus 77,460 77,355 76,801
Retained earnings (deficit) 11,816 10,471 (15,018)
Unearned employee benefits (8,934) (9,273) (9,680)
---------------- --------------- ----------------
Total shareholders' equity 164,053 161,966 134,452
---------------- --------------- ----------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $439,594 $430,239 $392,630
================ =============== ================
</TABLE>
(See accompanying notes to consolidated financial statements)
<TABLE>
<CAPTION>
HARTMARX CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(000'S OMITTED)
THREE MONTHS ENDED
---------------------------------------
FEB. 28, FEB. 29,
1997 1996
--------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net earnings (loss), including extraordinary gain $ 1,345 $ (934)
Extraordinary gain, net of tax provision - (661)
Reconciling items to adjust net earnings (loss)
to net cash used in operating activities:
Depreciation and amortization 2,209 2,405
Changes in:
Receivables, inventories and prepaids (14,805) (23,291)
Other assets (1,107) 490
Accounts payable and accrued expenses (4,295) (11,843)
Taxes and deferred taxes on earnings 3,355 1,784
--------------- --------------
Net cash used in operating activities (13,298) (32,050)
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (538) (1,769)
--------------- --------------
Net cash used in investing activities (538) (1,769)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 11,600 36,553
Purchase of $10 million principal amount of
10 7/8% Senior Subordinated Debentures, net - (8,590)
Decrease in other long-term debt (55) (107)
Proceeds from other equity transactions 742 895
--------------- --------------
Net cash provided by financing activities 12,287 28,751
--------------- --------------
Net decrease in cash and cash equivalents (1,549) (5,068)
Cash and cash equivalents at beginning of period 2,844 5,700
--------------- --------------
Cash and cash equivalents at end of period $ 1,295 $ 632
=============== ==============
SUPPLEMENTAL CASH FLOW INFORMATION:
Net cash paid (received) during the period
for:
Interest expense $ 6,000 $ 7,300
Income taxes (700) (2,400)
(See accompanying notes to consolidated financial statements)
</TABLE>
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, 1996.
NOTE 2
The calculation of earnings (loss) per share for each period is computed
on the basis of 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 has been issued.
The provisions of Statement of Financial Accounting Standards No. 128,
"Earnings Per Share" (FAS 128), are effective for the Company's fiscal
year commencing December 1, 1997. There would have been no change in the
earnings per share as reflected in the accompanying Consolidated
Statement of Earnings had FAS 128 been effective in the periods ended
February 28, 1997 and February 29, 1996.
NOTE 3
Long-term debt comprised the following (000's omitted):
<TABLE>
<CAPTION>
Feb. 28, Nov. 30, Feb. 29,
1997 1996 1996
--------------- --------------- ---------------
<S> <C> <C> <C>
Notes payable $ 75,000 $ 63,400 $ 83,500
10 7/8% Senior Subordinated Notes, net 84,927 84,909 89,543
Industrial development bonds 17,440 17,487 17,805
Other debt 2,724 2,732 306
--------------- --------------- ---------------
180,091 168,528 191,154
Less current 20,060 20,100 10,447
--------------- --------------- ---------------
Long term debt $160,031 $148,428 $180,707
=============== =============== ===============
</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
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 quarter of 1996, the Company purchased $10 million face
value of its Notes 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>
Feb. 28, Nov. 30, Feb. 29,
1997 1996 1996
--------------- --------------- ----------------
<S> <C> <C> <C>
Raw materials $ 48,410 $ 49,248 $ 40,128
Work-in-process 25,817 25,151 21,300
Finished goods 87,016 91,514 80,227
--------------- --------------- ----------------
$161,243 $165,913 $141,655
=============== =============== ================
</TABLE>
Inventories are stated at the lower of cost or market. At February 28,
1997, November 30, 1996 and February 29, 1996, approximately 47%, 49% and
39% 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.
HARTMARX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
November 30, 1996 to February 28, 1997
Since November 30, 1996, net accounts receivable increased $17.8 million
or 13.1% to $153.4 million, reflecting the normal seasonal increase from
tailored clothing shipments in the Men's Apparel Group. Inventories of
$161.2 million declined $4.7 million or 2.8%, principally due to seasonal
shipments of tailored clothing in the Men's Apparel Group. Net properties
decreased $1.7 million to $42.2 million reflecting depreciation expense
exceeding capital additions. Total debt, including current maturities,
increased $11.6 million to $180.1 million, reflecting normal seasonal
working capital requirements, and represented 52.3% of total
capitalization compared to 51.0% at November 30, 1996.
February 29, 1996 to February 28, 1997
On November 26, 1996, a wholly-owned subsidiary of the Company purchased
substantially all of the license rights, current assets, properties and
operations of the Plaid Clothing Group, Inc. and its subsidiaries
("Plaid") pursuant to an Asset Purchase Agreement. The increases in
accounts receivable, inventories and accounts payable and accrued
expenses from February 29, 1996 result largely from this acquisition.
Net accounts receivable of $153.4 million increased $10.7 million.
Receivables decreased $6.2 million excluding the amount related to the
Plaid asset purchase, principally reflecting improved collections which
more than offset the effect of the higher sales. The allowance for
doubtful accounts was $10.3 million and represented 6.3% of gross
receivables compared to $9.2 million and 6.1%, respectively, at February
29, 1996. Inventories of $161.2 million increased $19.6 million;
inventories decreased $8.6 million excluding the amount related to the
Plaid asset purchase, principally attributable to inventory reductions in
the moderately priced businesses. Net properties of $42.2 million
declined $1.8 million, primarily reflecting depreciation expense
exceeding capital additions. Accounts payable and accrued expenses of
$95.5 million increased $28.4 million, primarily attributable to the
Plaid acquisition. Total debt of $180.1 million reflected the $27 million
paid for the Plaid assets yet declined $11.1 million, largely from the
trailing year earnings and working capital reductions; debt represented
52.3% of total capitalization at February 28, 1997 compared to 58.7% at
February 29, 1996.
RESULTS OF OPERATIONS
First Quarter 1997 Compared to First Quarter 1996
Consolidated sales increased $26.3 million or 17.4% to $177.1 million
from $150.9 million in 1996; the revenue increase associated with the
Plaid brands acquired represented 14.7%. Men's Apparel Group sales
increased approximately 16%, primarily attributable to the Plaid brands.
The Hickey-Freeman and Hart Schaffner & Marx businesses positioned at the
upper end of the tailored clothing market had a combined 7% revenue
increase. The businesses which market moderately priced clothing
continued to operate in a difficult environment and experienced a 7%
sales decline and reduced profitability. Women's Apparel Group revenues,
which represented 8% of consolidated sales in 1997 and 7% in 1996,
increased approximately 34%.
The consolidated gross margin percentage to sales improved to 22.8% from
22.5% last year. The Men's Apparel Group gross margin rate was lower,
attributable to the moderately priced product categories; gross margins
in the Women's Apparel Group improved, primarily attributable to
International Women's Apparel. Consolidated selling, general and
administrative expenses were $35.0 million compared to $33.4 million in
1996 and represented 19.8% of sales in 1997 compared to 22.1% of sales in
1996; the prior period included non-recurring severance-related charges
associated with cost reduction programs, which adversely affected the
1996 ratio to sales by .5%.
Earnings before interest, taxes and extraordinary gain (EBIT) were $6.2
million in 1997 compared to $1.7 million last year; EBIT represented 3.5%
of sales in 1997 compared to 1.1% in 1996. The improvement was primarily
attributable to the higher sales, improved gross margin ratio and lower
operating expense ratio to sales. The Women's Apparel Group represented
approximately one-half of the increase with the remainder reflecting
improvement in the higher priced point businesses. Interest expense
declined to $4.0 million from $4.3 million last year and included
amortization of financing fees of $.2 million in each year. Consolidated
pretax earnings were $2.2 million compared to a pretax loss of $2.6
million last year. After reflecting the applicable tax provision or
benefit, the consolidated earnings were $1.3 million compared to a loss
of $1.6 million a year ago. The prior period results also included an
extraordinary gain, net of $.4 million tax provision, of $.7 million
related to public market purchases of $10 million face value of the
Company's 10 7/8% Senior Subordinated Debentures.
PART II -- OTHER INFORMATION
ITEM 5. OTHER INFORMATION
Effective April 7, 1997, Mary D. Allen accepted a position with
an unaffiliated company and resigned as Executive Vice
President, General Counsel and Secretary.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
Exhibit 27 Financial Data Schedules
(b) No reports on Form 8-K, other than those referenced in Item
14(b) of the 1996 Annual Report on Form 10-K, were filed
in the first quarter of 1997.
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 14, 1997 By /s/ GLENN R. MORGAN
-----------------------
Glenn R. Morgan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
April 14, 1997 By /s/ ANDREW A. ZAHR
----------------------
Andrew A. Zahr
Controller
(Principal Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE CONSOLIDAT-
ED STATEMENT OF EARNINGS AND THE CONSOLI-
DATED BALANCE SHEET AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINAN-
CIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> FEB-28-1997
<PERIOD-TYPE> 3-MOS
<CASH> 1,295
<SECURITIES> 0
<RECEIVABLES> 153,352
<ALLOWANCES> (10,298)
<INVENTORY> 161,243
<CURRENT-ASSETS> 330,367
<PP&E> 174,452
<DEPRECIATION> (132,212)
<TOTAL-ASSETS> 439,594
<CURRENT-LIABILITIES> 115,510
<BONDS> 160,031
0
0
<COMMON> 83,771
<OTHER-SE> 80,342
<TOTAL-LIABILITY-AND-EQUITY> 439,594
<SALES> 177,118
<TOTAL-REVENUES> 177,937
<CGS> 136,733
<TOTAL-COSTS> 171,734
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,033
<INCOME-PRETAX> 2,170
<INCOME-TAX> 825
<INCOME-CONTINUING> 1,345
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,345
<EPS-PRIMARY> .04
<EPS-DILUTED> .04
</TABLE>
