<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 1998
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
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(State or other jurisdiction of (I.R.S. Employer Identification number)
incorporation or organization)
101 North Wacker Drive
Chicago, Illinois 60606
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(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
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At March 31, 1998 there were 34,337,064 shares of the Company's common stock
outstanding.
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HARTMARX CORPORATION
INDEX
<TABLE>
<CAPTION>
Page
Number
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Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
<S> <C>
Consolidated Statement of Earnings for the
three months ended February 28, 1998 and
February 28, 1997. 3
Consolidated Balance Sheet as of February 28, 1998,
November 30, 1997 and February 28, 1997. 4
Condensed Consolidated Statement of Cash Flows
for the three months ended February 28, 1998
and February 28, 1997. 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>
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,
-------------------------------
1998 1997
-------- --------
<S> <C> <C>
Net sales $179,324 $177,118
Licensing and other income 426 819
-------- --------
179,750 177,937
-------- --------
Cost of goods sold 135,248 136,733
Selling, general and administrative expenses 36,009 35,001
-------- --------
171,257 171,734
-------- --------
Earnings before interest and taxes 8,493 6,203
Interest expense 4,453 4,033
-------- --------
Earnings before taxes 4,040 2,170
Tax provision 1,535 825
-------- --------
Net earnings $ 2,505 $ 1,345
======== ========
Earnings per share:
Basic $ .07 $ .04
======== ========
Diluted $ .07 $ .04
======== ========
Dividends per common share $ - $ -
======== ========
Average shares outstanding:
Basic 34,254 33,469
======== ========
Diluted 34,707 33,620
======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
3
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(000's Omitted)
<TABLE>
<CAPTION>
Feb. 28, Nov. 30, Feb. 28,
1998 1997 1997
--------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 798 $ 1,626 $ 1,295
Accounts receivable, less allowance
of $9,873, $9,803 and $10,298
for doubtful accounts 156,670 136,854 153,352
Inventories 197,551 193,780 161,243
Prepaid expenses 6,260 4,332 6,232
Recoverable and deferred income taxes 20,152 20,152 8,245
--------- --------- ---------
Total current assets 381,431 356,744 330,367
--------- --------- ---------
INVESTMENTS AND OTHER ASSETS 25,378 25,230 23,702
--------- --------- ---------
DEFERRED INCOME TAXES 41,597 42,627 43,285
--------- --------- ---------
PROPERTIES
Land 2,645 2,645 2,628
Buildings and building improvements 49,206 49,003 48,776
Furniture, fixtures and equipment 113,012 110,860 106,072
Leasehold improvements 16,704 16,597 16,976
--------- --------- ---------
181,567 179,105 174,452
Accumulated depreciation and amortization (134,999) (133,323) (132,212)
--------- --------- ---------
Net properties 46,568 45,782 42,240
--------- --------- ---------
TOTAL ASSETS $ 494,974 $ 470,383 $ 439,594
========= ========= =========
</TABLE>
(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,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 20,000 $ 20,000 $ 20,000
Current maturities of long term debt 63 62 60
Accounts payable and accrued expenses 87,248 100,098 95,450
-------- -------- --------
Total current liabilities 107,311 120,160 115,510
-------- -------- --------
LONG TERM DEBT, less current maturities 192,042 157,939 160,031
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 34,301,097 in
February 1998, 34,219,401 in
November 1997 and 33,484,329
in February 1997. 85,753 85,549 83,711
Capital surplus 80,131 79,934 77,460
Retained earnings 38,216 35,711 11,816
Unearned employee benefits (8,479) (8,910) (8,934)
-------- -------- --------
Total shareholders' equity 195,621 192,284 164,053
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $494,974 $470,383 $439,594
======== ======== ========
</TABLE>
(See accompanying notes to consolidated financial statements)
5
<PAGE>
HARTMARX CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(000's Omitted)
<TABLE>
<CAPTION>
Three Months Ended February 28,
------------------------------
1998 1997
---------- -----------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from operating activities:
Net earnings $ 2,505 $ 1,345
Reconciling items to adjust net earnings to
net cash used in operating activities:
Depreciation and amortization 2,051 2,209
Changes in:
Receivables, inventories, prepaids and other assets (25,893) (15,912)
Accounts payable and accrued expenses (12,850) (4,295)
Taxes and deferred taxes on earnings 1,030 3,355
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Net cash used in operating activities (33,157) (13,298)
-------- --------
Cash Flows from investing activities:
Capital expenditures (2,588) (538)
-------- --------
Net cash used in investing activities (2,588) (538)
-------- --------
Cash Flows from financing activities:
Increase in notes payable 34,100 11,600
Decrease in other long term debt (15) (55)
Other equity transactions 832 742
-------- --------
Net cash provided by financing activities 34,917 12,287
-------- --------
Net decrease in cash and cash equivalents (828) (1,549)
Cash and cash equivalents at beginning of period 1,626 2,844
-------- --------
Cash and cash equivalents at end of period $ 798 $ 1,295
======== ========
Supplemental cash flow information:
Net cash paid (received) during the period for:
Interest expense $ 6,700 $ 6,000
Income taxes 500 (700)
</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, 1997.
Note 2
The calculation of basic earnings per share for each period is computed based on
the weighted average number of common shares outstanding and excludes all
dilution. The calculation of diluted earnings per share reflects the potential
dilution that would occur if securities or other contracts to issue common stock
were exercised or converted into common stock 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>
Feb. 28, Nov. 30, Feb. 28,
1998 1997 1997
-------- -------- ---------
<S> <C> <C> <C>
Notes payable $107,000 $ 72,900 $ 75,000
10 7/8% Senior Subordinated Notes, net 85,001 84,982 84,927
Industrial development bonds 17,390 17,396 17,440
Other debt 2,714 2,723 2,724
-------- -------- --------
212,105 178,001 180,091
Less - current 20,063 20,062 20,060
-------- -------- --------
Long term debt $192,042 $157,939 $160,031
======== ======== ========
</TABLE>
7
<PAGE>
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, January
1996 and October 1997, among other things, resulted in a reduction in the fees,
administrative charges and effective borrowing rates, adjustment or elimination
of certain covenants and the extension of the term from March 1997 to July 2000.
The Notes and Credit Facility contain various restrictive covenants covering
ratios relating to maximum funded debt to EBITDA and minimum fixed charge
coverage, additional debt incurrence, capital expenditures, asset sales,
operating leases, 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.
Note 4
Inventories at each date consisted of (000's omitted):
<TABLE>
<CAPTION>
Feb. 28, Nov. 30, Feb. 28,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Raw materials $ 58,382 $ 54,741 $ 48,410
Work-in-process 30,573 35,959 25,817
Finished goods 108,596 103,080 87,016
-------- -------- --------
$197,551 $193,780 $161,243
======== ======== ========
</TABLE>
Inventories are stated at the lower of cost or market. At February 28, 1998,
November 30, 1997 and February 28, 1997, approximately 36%, 40% 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.
8
<PAGE>
HARTMARX CORPORATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Liquidity and Capital Resources
November 30, 1997 to February 28, 1998
- --------------------------------------
Since November 30, 1997, net accounts receivable increased $19.8 million or
14.5% to $156.7 million, reflecting the normal seasonal increase from tailored
clothing shipments in the Men's Apparel Group. Inventories of $197.6 million
increased $3.8 million or 1.9%, as the normal decrease due to seasonal shipments
of tailored clothing in the Men's Apparel Group was offset by extended lead
times associated with additional off-shore sourcing. Net properties increased
$.8 million to $46.6 million reflecting capital additions exceeding depreciation
expense. Total debt, including current maturities, increased $34.1 million to
$212.1 million, reflecting normal seasonal working capital requirements, and
represented 52.0% of total capitalization compared to 48.1% at November 30,
1997.
February 28, 1997 to February 28, 1998
- --------------------------------------
Net accounts receivable of $156.7 million increased $3.3 million or 2.2%.
Inventories of $197.6 million increased $36.3 million, primarily attributable to
increased cycle times associated with additional off-shore sourcing. Net
properties of $46.6 million increased $4.3 million, reflecting capital additions
exceeding depreciation expense. Total debt of $212.1 million increased $32.0
million, reflecting working capital increases, partially offset by the trailing
year earnings; debt represented 52.0% of total capitalization at February 28,
1998 compared to 52.3% at February 28, 1997.
Results of Operations
First Quarter 1998 Compared to First Quarter 1997
- -------------------------------------------------
Consolidated sales increased $2.2 million or 1.2% to $179.3 million from $177.1
million in 1997. Men's Apparel Group sales increased 1.3%. The modest increase
in first quarter sales reflected strength in the Company's major brands,
partially offset by declines from two designer lines with expiring licensing
agreements which will not be renewed. Excluding these lines, tailored clothing
sales increased 5% in the first quarter. Women's Apparel Group revenues, which
represented 8% of consolidated sales in each year, increased approximately 1.2%.
The consolidated gross margin percentage to sales improved to 24.6% from 22.8%
last year. The Men's Apparel Group gross margin rate improved, attributable in
part to the favorable effect of increased off-shore sourcing, but also from
stronger margins in most product categories; gross margins in the Women's
Apparel Group remained strong, although slightly lower than the prior period.
Consolidated selling, general and administrative expenses were $36.0 million
compared to $35.0 million in 1997 and represented 20.1% of
9
<PAGE>
sales in 1998 compared to 19.8% of sales in 1997. Licensing and other income
declined $.4 million from the previous year, reflecting the economic conditions
in Asia, especially Japan and Korea, where a significant portion of the
Company's licensing income is generated.
Earnings before interest and taxes (EBIT) increased to $8.5 million in 1998
compared to $6.2 million last year. EBIT represented 4.7% of sales in 1998
compared to 3.5% in 1997. The improvement was attributable to the higher gross
margin ratio to sales in the Men's Apparel Group. Interest expense increased to
$4.5 million from $4.0 million last year from higher borrowings. Consolidated
pre-tax earnings were $4.0 million compared to $2.2 million last year. After
reflecting the applicable tax provision, consolidated earnings were $2.5 million
compared to $1.3 million a year ago. Basic and diluted earnings per share were
$.07 in 1998 compared to $.04 in 1997.
10
<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 first quarter of 1998.
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 7, 1998 By /s/ GLENN R. MORGAN
-------------------------------
Glenn R. Morgan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
April 7, 1998 By /s/ ANDREW A. ZAHR
-----------------------
Andrew A. Zahr
Controller
(Principal Accounting Officer)
11
<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-30-1998
<PERIOD-END> FEB-28-1998
<CASH> 798
<SECURITIES> 0
<RECEIVABLES> 156,670
<ALLOWANCES> (9,873)
<INVENTORY> 197,551
<CURRENT-ASSETS> 381,431
<PP&E> 181,567
<DEPRECIATION> (134,999)
<TOTAL-ASSETS> 494,974
<CURRENT-LIABILITIES> 107,311
<BONDS> 192,042
0
0
<COMMON> 85,753
<OTHER-SE> 109,868
<TOTAL-LIABILITY-AND-EQUITY> 494,974
<SALES> 179,324
<TOTAL-REVENUES> 179,750
<CGS> 135,248
<TOTAL-COSTS> 135,248
<OTHER-EXPENSES> 36,009
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,453
<INCOME-PRETAX> 4,040
<INCOME-TAX> 1,535
<INCOME-CONTINUING> 2,505
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,505
<EPS-PRIMARY> .07
<EPS-DILUTED> .07
</TABLE>
