SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
_______ OF THE SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended August 31, 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 September 30, 1997, there were 33,896,376 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 and nine months ended
August 31, 1997 and August 31, 1996. 3
Consolidated Balance Sheet as of
August 31, 1997, November 30, 1996
and August 31, 1996. 4
Condensed Consolidated Statement of
Cash Flows for the nine months ended
August 31, 1997 and August 31, 1996. 6
Notes to Consolidated Financial Statements. 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 10
PART II - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K 12
SIGNATURES 12
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
AUG. 31, AUG. 31,
---------------------- ----------------------
1997 1996 1997 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Net sales $ 185,883 $ 164,905 $ 532,736 $ 450,017
Licensing and other income 980 1,000 2,592 3,204
--------- --------- --------- ---------
186,863 165,905 535,328 453,221
--------- --------- --------- ---------
Cost of goods sold 138,853 126,221 404,291 345,363
Selling, general and administrative
expenses 36,948 30,555 108,878 95,591
--------- --------- --------- ---------
175,801 156,776 513,169 440,954
--------- --------- --------- ---------
Earnings before interest, taxes and
extraordinary gain 11,062 9,129 22,159 12,267
Interest expense 4,437 4,082 12,849 12,595
--------- --------- --------- ---------
Earnings (loss) before taxes and
extraordinary gain 6,625 5,047 9,310 (328)
Tax (provision) benefit (2,520) (1,916) (3,540) 124
--------- --------- --------- ---------
Net earnings (loss) before extraordinary
gain 4,105 3,131 5,770 (204)
Extraordinary gain, net of tax provision -- -- -- 725
--------- --------- --------- ---------
Net earnings $ 4,105 $ 3,131 $ 5,770 $ 521
========= ========= ========= =========
Earnings (loss) per share:
Before extraordinary gain $ .12 $ .09 $ .17 $ (.01)
========= ========= ========= =========
After extraordinary gain $ .12 $ .09 $ .17 $ .01
========= ========= ========= =========
Dividends per common share $ -- $ -- $ -- $ --
========= ========= ========= =========
Average number of common shares and
common share equivalents 34,532 33,093 34,111 32,965
========= ========= ========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(000'S OMITTED)
<TABLE>
<CAPTION>
AUG. 31, NOV. 30, AUG. 31,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 788 $ 2,844 $ 1,645
Accounts receivable, less allowance
of $9,399, $9,983 and $9,222 for
doubtful accounts 157,771 135,554 126,618
Inventories 183,677 165,913 133,159
Prepaid expenses 7,010 4,555 5,205
Recoverable and deferred income taxes 6,438 11,600 4,539
--------- --------- ---------
Total current assets 355,684 320,466 271,166
--------- --------- ---------
INVESTMENTS AND OTHER ASSETS 22,109 22,579 23,925
--------- --------- ---------
DEFERRED INCOME TAXES 43,285 43,285 31,081
--------- --------- ---------
PROPERTIES
Land 2,628 2,628 2,628
Buildings and building improvements 49,056 48,758 47,682
Furniture, fixtures and equipment 111,678 106,128 101,514
Leasehold improvements 16,613 16,767 17,375
--------- --------- ---------
179,975 174,281 169,199
Accumulated depreciation and amortization (134,953) (130,372) (125,450)
--------- --------- ---------
Net properties 45,022 43,909 43,749
--------- --------- ---------
TOTAL ASSETS $ 466,100 $ 430,239 $ 369,921
========= ========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(000'S OMITTED)
<TABLE>
<CAPTION>
AUG. 31, NOV. 30, AUG. 31,
1997 1996 1996
--------- --------- ---------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 30,000 $ 20,000 $ 20,000
Current maturities of long term debt 61 100 145
Accounts payable and accrued expenses 89,671 99,745 63,965
--------- --------- ---------
Total current liabilities 119,732 119,845 84,110
--------- --------- ---------
LONG TERM DEBT, less current maturities 175,637 148,428 148,524
--------- --------- ---------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value; -- -- --
2,500,000 authorized and unissued
Common shares, $2.50 par value; authorized
75,000,000; issued 33,809,072 in
Aug. 1997; 33,365,317 in November 1996
and 33,132,740 in Aug. 1996 84,523 83,413 82,832
Capital surplus 78,196 77,355 76,916
Retained earnings (deficit) 16,241 10,471 (13,563)
Unearned employee benefits (8,229) (9,273) (8,898)
--------- --------- ---------
Total shareholders' equity 170,731 161,966 137,287
--------- --------- ---------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 466,100 $ 430,239 $ 369,921
========= ========= =========
</TABLE>
(See accompanying notes to consolidated financial statements)
HARTMARX CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(000'S OMITTED)
NINE MONTHS ENDED
AUG. 31
-----------------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1997 1996
-------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings, including extraordinary gain $ 5,770 $ 521
Extraordinary gain, net of tax provision -- (725)
Reconciling items to adjust net earnings
to net cash used in operating activities:
Depreciation and amortization 6,595 7,015
Changes in:
Receivables, inventories, prepaids and
other assets (42,222) 1,110
Accounts payable and accrued expenses (10,074) (14,902)
Taxes and deferred taxes on earnings 5,162 1,949
-------- --------
Net cash used in operating activities (34,769) (5,032)
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures (7,296) (5,731)
-------- --------
Net cash used in investing activities (7,296) (5,731)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Increase in notes payable 37,099 17,909
Purchases of $14.7 million 10 7/8% Sr. Sub.
Notes, net -- (13,037)
Decrease in other long term debt (85) (439)
Other equity transactions 2,995 2,275
-------- --------
Net cash provided by financing activities 40,009 6,708
-------- --------
Net decrease in cash and cash equivalents (2,056) (4,055)
Cash and cash equivalents at beginning of period 2,844 5,700
-------- --------
Cash and cash equivalents at end of period $ 788 $ 1,645
======== ========
SUPPLEMENTAL CASH FLOW INFORMATION
Net cash paid (received) during period for:
Interest expense $ 14,000 $ 14,700
Income taxes -- (2,500)
(See accompanying notes to consolidated financial statements)
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
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):
Aug. 31, Nov. 30, Aug. 31,
1997 1996 1996
-------- -------- --------
Notes payable $100,600 $ 63,400 $ 63,500
10 7/8% Senior Subordinated Notes,
net 84,964 84,909 84,890
Industrial development bonds 17,402 17,487 17,534
Other debt 2,732 2,732 2,745
-------- -------- --------
205,698 168,528 168,669
Less - current 30,061 20,100 20,145
-------- -------- --------
Long term debt $175,637 $148,428 $148,524
======== ======== ========
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 occurrence, 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 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):
Aug. 31, Nov. 30, Aug. 31,
1997 1996 1996
-------- -------- --------
Raw materials $ 56,564 $ 49,248 $ 37,663
Work-in-process 28,397 25,151 18,317
Finished goods 98,716 91,514 77,179
-------- -------- --------
$183,677 $165,913 $133,159
======== ======== ========
Inventories are stated at the lower of cost or market. At August 31,
1997, November 30, 1996 and August 31, 1996, approximately 35%, 49% and
40% 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
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
August 31, 1997 and August 31, 1996.
The provisions of Statement of Financial Accounting Standards No. 130
"Reporting Comprehensive Income" are effective for the Company's fiscal
year commencing December 1, 1998. In addition to net income,
comprehensive income includes all non-owner changes in equity. Such
changes include, for example, cumulative foreign currency translation
adjustments, certain minimum pension liabilities and unrealized gains and
losses on available-for-sale securities. The Statement requires
presentation of prior period financial statements for comparability
purposes. As the Company did not have any items in the current year or in
prior periods presented which would be considered non-owner changes in
equity, adoption of this standard would have no affect on the Company's
financial statement disclosures.
Statement of Financial Accounting Standards No. 131, "Disclosures about
Segments of an Enterprise and Related Information" establishes new
standards for reporting information about operating segments in interim
and annual financial statements. This statement is effective for the
Company's fiscal year beginning December 1, 1998. The Company is
currently evaluating the impact of this statement in relation to the
current disclosures contained in its interim and annual consolidated
financial statements.
HARTMARX CORPORATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
LIQUIDITY AND CAPITAL RESOURCES
November 30, 1996 to August 31, 1997
Since November 30, 1996, net accounts receivable increased $22.2 million
or 16.4% to $157.8 million reflecting the normal seasonal fluctuations in
the Men's Apparel Group. Inventories of $183.7 million increased $17.8
million or 10.7% in anticipation of higher sales and longer manufacturing
lead times from additional off-shore sourcing. Net properties of $45.0
million increased $1.1 million as capital additions exceeded depreciation
expense for the nine months. Accounts payable and accrued expenses
declined $10.1 million from the seasonal payments in the Men's Apparel
Group. Total debt of $205.7 million was $37.2 million higher and
represented 54.6% of total capitalization compared to 51.0% at November
30, 1996. The Company's normal seasonality results in a higher debt
capitalization at August 31 compared to November 30, when borrowings are
lower.
August 31, 1996 to August 31, 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 August 31, 1996 result largely from this acquisition.
Net accounts receivable increased $31.2 million to $157.8 million; the
increase was principally attributable to receivables related to the Plaid
brands and to the earlier collection of certain receivables last year.
Inventories of $183.7 million increased $50.5 million; the increase was
attributable to inventories associated with the acquired Plaid brands,
expanded lead times associated with increased off-shore production and
anticipated higher sales. Net properties of $45.0 million increased $1.3
million, primarily reflecting capital additions exceeding depreciation
expense. Accounts payable and accrued expenses of $89.7 million increased
$25.7 million, primarily attributable to the Plaid acquisition. Total
debt of $205.7 million increased $37.0 million, reflecting the $27
million paid for the Plaid assets and higher working capital related to
the year-to-date and anticipated sales increases, partially offset by the
improved trailing year earnings; debt represented 54.6% of total
capitalization at August 31, 1997 compared to 55.1% at August 31, 1996.
RESULTS OF OPERATIONS
Third Quarter 1997 Compared to Third Quarter 1996
Consolidated sales of $185.9 million increased $21.0 million or 12.7%,
primarily attributable to the acquired Plaid brands. Men's Apparel Group
sales increased approximately 12%, which included the Plaid brands. Sales
in the women's businesses increased 18% and represented approximately 8%
of consolidated sales in each period. The consolidated gross margin
percentage to sales improved to 25.3% compared to 23.5% last year,
attributable to the men's businesses. Consolidated selling, general and
administrative expenses of $36.9 million represented 19.9% of sales this
year compared to 18.5% last year.
Earnings before interest and taxes increased $1.9 million to $11.1
million. Interest expense of $4.4 million increased by $.4 million,
reflecting higher average borrowings and included amortization of
financing fees of $.2 million in both periods. Consolidated pre-tax
earnings were $6.6 million in 1997 compared to $5.0 million in 1996.
After reflecting the applicable tax provision, consolidated earnings were
$4.1 million or $.12 per share compared to $3.1 million or $.09 per share
in 1996.
Nine Months 1997 Compared to Nine Months 1996
Consolidated sales increased $82.7 million or 18.4% to $532.7 from $450.0
million in 1996; the revenue increase associated with the Plaid brands
acquired represented approximately 15%. Men's Apparel Group sales
increased approximately 18%, 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 revenue increase
of approximately 10%. The businesses which market moderately priced
clothing continued to operate in a difficult environment and experienced
a 5% sales decline. Golfwear revenues improved approximately 10%. Women's
Apparel Group revenues, which represented 8% of consolidated sales in
each year, increased approximately 23%.
The consolidated gross margin percentage to sales increased to 24.1% from
23.3% last year. Gross margin rates improved in both the Men's Apparel
Group and Women's Apparel Group. Consolidated selling, general and
administrative expenses were $108.9 million compared to $95.6 million in
1996 and represented 20.4% of sales in 1997 compared to 21.2% of sales in
1996.
Earnings before interest, taxes and extraordinary gain (EBIT) were $22.2
million in 1997 compared to $12.3 million last year; EBIT represented
4.2% of sales in 1997 compared to 2.7% in 1996. The improvement was
primarily attributable to the higher sales and improved gross margin and
operating expense ratios to sales. The improved performance compared to
the prior year was principally attributable to the men's businesses
positioned at the premium price points, the women's businesses and the
results attributable to the Plaid brands. Interest expense increased
slightly to $12.8 million from $12.6 million last year and included
amortization of financing fees of $.8 million in each year. Consolidated
pre-tax earnings were $9.3 million compared to a pre-tax loss of $.3
million last year. After reflecting the applicable tax provision or
benefit, consolidated earnings were $5.8 million or $.17 per share
compared to a loss of $.2 million or $.01 per share in the year earlier
period. The prior period results also included an extraordinary gain, net
of $.4 million tax provision, of $.7 million, or $.02 per share, related
to public market purchases of $14.7 million face value of the Company's
10 7/8% Senior Subordinated Debentures.
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 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
October 14, 1997 By: /s/GLENN R. MORGAN
--------------------------------
Glenn R. Morgan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
October 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 CONSOLIDATED
STATEMENT OF EARNINGS AND THE CONSOLIDATED BALANCE
SHEET AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> NOV-30-1997
<PERIOD-END> AUG-31-1997
<PERIOD-TYPE> 9-MOS
<CASH> 788
<SECURITIES> 0
<RECEIVABLES> 157,771
<ALLOWANCES> (9,399)
<INVENTORY> 183,677
<CURRENT-ASSETS> 355,684
<PP&E> 179,975
<DEPRECIATION> (134,953)
<TOTAL-ASSETS> 466,100
<CURRENT-LIABILITIES> 119,732
<BONDS> 175,637
0
0
<COMMON> 84,523
<OTHER-SE> 86,208
<TOTAL-LIABILITY-AND-EQUITY> 466,100
<SALES> 532,736
<TOTAL-REVENUES> 535,328
<CGS> 404,291
<TOTAL-COSTS> 404,291
<OTHER-EXPENSES> 108,878
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,849
<INCOME-PRETAX> 9,310
<INCOME-TAX> 3,540
<INCOME-CONTINUING> 5,770
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,770
<EPS-PRIMARY> .17
<EPS-DILUTED> .17
</TABLE>
