<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, 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
-------- ----------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
101 North Wacker Drive 60606
Chicago, Illinois -----
(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, 1998 there were 34,399,375 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, 1998
and May 31, 1997. 3
Consolidated Balance Sheet as of May 31 1998,
November 30, 1997 and May 31, 1997. 4
Condensed Consolidated Statement of Cash Flows
for the six months ended May 31, 1998 and
May 31, 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 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,
-------------------------- ------------------------
1998 1997 1998 1997
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales $167,492 $169,735 $346,816 $346,853
Licensing and other income 398 793 824 1,612
-------- -------- -------- --------
167,890 170,528 347,640 348,465
-------- -------- -------- --------
Cost of goods sold 124,862 128,705 260,110 265,438
Selling, general and administrative expenses 36,574 36,929 72,583 71,930
-------- -------- -------- --------
161,436 165,634 332,693 337,368
-------- -------- -------- --------
Earnings before interest and taxes 6,454 4,894 14,947 11,097
Interest expense 4,799 4,379 9,252 8,412
-------- -------- -------- --------
Earnings before taxes 1,655 515 5,695 2,685
Tax provision 630 195 2,165 1,020
-------- -------- -------- --------
Net earnings $ 1,025 $ 320 $ 3,530 $ 1,665
======== ======== ======== ========
Earnings per share:
Basic $.03 $.01 $.10 $.05
==== ==== ==== ====
Diluted $.03 $.01 $.10 $.05
==== ==== ==== ====
Dividends per common share $ - $ - $ - $ -
==== ==== ==== ====
Average shares outstanding:
Basic 34,335 33,590 34,295 33,522
====== ====== ====== ======
Diluted 34,903 34,168 34,807 33,896
====== ====== ====== ======
</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,
1998 1997 1997
--------- --------- ---------
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 1,241 $ 1,626 $ 1,202
Accounts receivable, less allowance of
$9,221, $9,803 and $9,745 for
doubtful accounts 121,370 136,854 121,137
Inventories 215,680 193,780 184,926
Prepaid expenses 5,227 4,332 6,292
Recoverable and deferred income taxes 20,152 20,152 8,599
--------- --------- ---------
Total current assets 363,670 356,744 322,156
--------- --------- ---------
INVESTMENTS AND OTHER ASSETS 26,801 25,230 24,362
--------- --------- ---------
DEFERRED INCOME TAXES 41,525 42,627 43,285
--------- --------- ---------
PROPERTIES
Land 2,645 2,645 2,628
Buildings and building improvements 49,223 49,003 48,960
Furniture, fixtures and equipment 115,879 110,860 106,417
Leasehold improvements 17,613 16,597 16,443
--------- --------- ---------
185,360 179,105 174,448
Accumulated depreciation and amortization (136,548) (133,323) (133,242)
--------- --------- ---------
Net properties 48,812 45,782 41,206
--------- --------- ---------
TOTAL ASSETS $ 480,808 $ 470,383 $ 431,009
========= ========= =========
</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,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 20,000 $ 20,000 $ 20,000
Current maturities of long term debt 65 62 60
Accounts payable and accrued expenses 84,094 100,098 98,329
-------- -------- --------
Total current liabilities 104,159 120,160 118,389
-------- -------- --------
LONG TERM DEBT, less current maturities 179,143 157,939 147,035
-------- -------- --------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 34,377,724 in
May 1998; 34,219,401 in November 1997
and 33,664,859 in May 1997. 85,944 85,549 84,162
Capital surplus 80,296 79,934 77,851
Retained earnings 39,241 35,711 12,136
Unearned employee benefits (7,975) (8,910) (8,564)
-------- -------- --------
Total shareholders' equity 197,506 192,284 165,585
-------- -------- --------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $480,808 $470,383 $431,009
======== ======== ========
</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 1998 1997
-------- -------
<S> <C> <C>
Cash Flows from Operating Activities:
Net earnings $ 3,530 $ 1,665
Reconciling items to adjust net earnings
to net cash used in operating activities:
Depreciation and amortization 4,438 4,435
Changes in:
Receivables, inventories, prepaids and other assets (9,447) (8,245)
Accounts payable and accrued expenses (16,004) (1,416)
Taxes and deferred taxes on earnings 1,102 3,001
-------- -------
Net cash used in operating activities (16,381) (560)
-------- -------
Cash Flows from Investing Activities:
Capital expenditures (6,866) (1,566)
-------- -------
Net cash used in investing activities (6,866) (1,566)
-------- -------
Cash Flows from Financing Activities:
Increase (decrease) in notes payable 21,200 (1,400)
Decrease in other long term debt (30) (70)
Other equity transactions 1,692 1,954
-------- -------
Net cash provided by financing activities 22,862 484
-------- -------
Net decrease in cash and cash equivalents (385) (1,642)
Cash and cash equivalents at beginning of period 1,626 2,844
-------- -------
Cash and cash equivalents at end of period $ 1,241 $ 1,202
======== =======
Supplemental Cash Flow Information
Net cash paid (received) during period for:
Interest expense $ 9,100 $ 7,600
Income taxes 1,000 (200)
</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>
May 31, Nov. 30, May 31,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Notes payable $ 94,100 $ 72,900 $ 62,000
10 7/8% Senior Subordinated Notes, net 85,019 84,982 84,946
Industrial development bonds 17,383 17,396 17,409
Other debt 2,706 2,723 2,740
-------- -------- --------
199,208 178,001 167,095
Less - current 20,065 20,062 20,060
-------- -------- --------
Long-term debt $179,143 $157,939 $147,035
======== ======== ========
</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, 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
7
<PAGE>
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>
May 31, Nov. 30, May 31,
1998 1997 1997
-------- -------- --------
<S> <C> <C> <C>
Raw materials $ 54,646 $ 54,741 $ 57,097
Work-in-process 36,113 35,959 27,897
Finished goods 124,921 103,080 99,932
-------- -------- --------
$215,680 $193,780 $184,926
======== ======== ========
</TABLE>
Inventories are stated at the lower of cost or market. At May 31, 1998,
November 30, 1997 and May 31, 1997, approximately 40%, 40% and 48% 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. 130 --
"Reporting Comprehensive Income" ("FAS 130"), Statement of Financial Accounting
Standards No. 131 -- "Disclosures about Segments of an Enterprise and Related
Information" ("FAS 131"), Statement of Financial Accounting Standards No. 132 --
"Employers' Disclosures about Pensions and Other Postretirement Benefits" ("FAS
132") are each effective for the Company's fiscal year commencing December 1,
1998.
FAS 130 requires disclosure of transactions from non-owner sources which affect
shareholders' equity in a separate financial statement for the period in which
they are recognized. FAS 131 establishes new standards for reporting
information about operating segments in the footnotes of both interim and annual
financial statements. FAS 132 requires additional disclosures concerning
pensions and other postretirement benefits.
Statement of Financial Accounting Standards No. 133 - "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133") is required to be adopted by the
Company for its fiscal fourth quarter beginning September 1, 1999. FAS 133
requires disclosures of the objectives for holding or issuing derivative
instruments, the context to understand the objectives and the strategies for
achieving the objectives, as well as disclosures related to the impact of
derivatives as reflected in the statement of comprehensive income.
The adoption of these statements is not expected to have a significant effect
on the Company's reported financial position or results of operations.
Management is currently evaluating the effect of these pronouncements on its
financial statement disclosures.
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 May 31, 1998
- ---------------------------------
Since November 30, 1997, net accounts receivable decreased $15.5 million or
11.3% to $121.4 million reflecting the normal seasonal fluctuations in the Men's
Apparel Group. Inventories of $215.7 million increased $21.9 million or 11.3%,
primarily reflecting the extended lead times associated with additional off-
shore sourcing, earlier production scheduling and amounts necessary to support
expanded in-stock programs. Net properties of $48.8 million increased $3.0
million as capital additions exceeded depreciation expense. Total debt,
including current maturities, increased $21.2 million to $199.2 million and
represented 50.2% of total capitalization compared to 48.1% at November 30,
1997.
May 31, 1997 to May 31, 1998
- ----------------------------
Net accounts receivable of $121.4 million were comparable to last year's $121.1
million. Inventories of $215.7 million increased $30.8 million, primarily
attributable to increased cycle times associated with additional off-shore
sourcing, earlier production scheduling and amounts necessary to support
expanded in-stock programs. Net properties of $48.8 million increased $7.6
million, primarily relating to expenditures associated with purchased management
information systems which are anticipated to be fully operational in 1999.
Total debt of $199.2 million increased $32.1 million, reflecting higher working
capital requirements, partially offset by the trailing year earnings; debt
represented 50.2% of total capitalization at each period.
Results of Operations
Second Quarter 1998 Compared to Second Quarter 1997
- ---------------------------------------------------
Consolidated sales were $167.5 million compared to $169.7 million for the year
earlier period. Men's Apparel Group sales declined 1.6%, primarily attributable
to two designer lines with expiring licensing agreements which will not be
renewed. Revenues from the tailored clothing product lines were stable.
Casualwear revenues, which include golfwear, improved and represented about 20%
of sales compared to 18% last year. Sales in the women's businesses increased 2%
and represented approximately 8% of consolidated sales in each period.
The consolidated gross margin percentage to sales was 25.5% compared to 24.2%
last year. The Men's Apparel Group gross margin rate improved from both the
tailored clothing and casualwear product lines; gross margins in the Women's
Apparel Group remained strong, but were slightly lower than the year earlier
period. Consolidated selling, general and administrative expenses were $36.6
million compared to $36.9 million last year and represented 21.8% of sales in
each period. Licensing income, which has been adversely affected by economic
conditions in the Far East, declined $.4 million.
9
<PAGE>
Earnings before interest and taxes ("EBIT") increased $1.6 million to $6.5
million. Interest expense of $4.8 million increased by $.4 million from the
higher average borrowings and included amortization of financing fees of $.3
million in each period. Consolidated pre-tax earnings improved to $1.6 million
in 1998 compared to $.5 million in 1997. After reflecting the applicable tax
provision, consolidated earnings were $1.0 million compared to $.3 million in
1997. Basic and diluted earnings per share were $.03 in the current period and
$.01 in the prior period.
Six Months 1998 Compared to Six Months 1997
- -------------------------------------------
Consolidated sales were $346.8 million this year compared to last year's $346.9
million. Men's Apparel Group sales decreased slightly, reflecting declines from
two designer lines with expiring licensing agreements which will not be renewed.
Excluding these lines, which represented approximately 6% of full year 1997
consolidated sales, consolidated sales would have increased 2% in the six months
ended May 31, 1998. Revenues from newer programs, such as Hickey-Freeman
furnishings, Hart Schaffner & Marx sportswear, Kenneth Cole tailored clothing
and Desert Classic golfwear in effect replaced private label and other branded
product lines which are being deemphasized. Women's Apparel Group revenues,
which represented 8% of consolidated sales in each year, increased approximately
2%.
The consolidated gross margin percentage to sales improved to 25.0% from 23.5%
last year. The Men's Apparel Group gross margin rate improved from both the
tailored clothing and casualwear product lines; gross margins in the Women's
Apparel Group remained strong, although lower than the prior year. Consolidated
selling, general and administrative expenses were $72.6 million compared to
$71.9 million in 1997 and represented 20.9% of sales in 1998 compared to 20.7%
of sales in 1997. Licensing income, which is largely derived from foreign
sources, declined $.8 million for the six months, reflecting the economic
conditions in the Far East.
EBIT increased to $14.9 million in 1998 compared to $11.1 million last year and
represented 4.3% of sales in 1998 compared to 3.2% in 1997. The earnings
improvement was attributable to the 1.5% higher gross margin ratio. Interest
expense increased to $9.3 million from $8.4 million last year from higher
average borrowings and included amortization of financing fees of $.5 million in
each year. Consolidated pre-tax earnings more than doubled to $5.7 million from
$2.7 million last year. After reflecting the applicable tax provision,
consolidated earnings were $3.5 million compared to $1.7 million in the year
earlier period. Basic and diluted earnings per share were $.10 in 1998 and
$.05 in 1997.
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
9, 1998. The Directors listed in the Registrant's Proxy Statement for the
Annual Meeting of Stockholders dated February 27, 1998 were elected for one year
terms with voting for each as follows:
<TABLE>
<CAPTION>
Director For Abstentions
-------- --- -----------
<S> <C> <C>
A. Robert Abboud 31,027,382 645,746
Samawal A. Bakhsh 28,467,695 3,205,433
Jeffrey A. Cole 31,191,431 481,697
Raymond F. Farley 31,118,103 485,025
Elbert O. Hand 31,217,941 455,187
Donald P. Jacobs 31,169,442 503,686
Charles Marshall 31,256,605 416,523
Homi B. Patel 31,213,994 459,134
Michael B. Rohlfs 31,252,055 421,073
Stuart L. Scott 31,230,751 442,377
</TABLE>
The 1998 Incentive Stock Plan was ratified with 24,778,551 shares for,
6,700,945 shares opposed and 193,632 shares abstaining.
The reappointment of Price Waterhouse LLP as independent auditors was
ratified with 31,458,214 shares for, 98,429 shares opposed and 116,485 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 1998.
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 13, 1998 By: /s/GLENN R. MORGAN
-------------------
Glenn R. Morgan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
July 13, 1998 By: /s/ANDREW A. ZAHR
------------------
Andrew A. Zahr
Vice President and 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-30-1998
<PERIOD-END> MAY-31-1998
<CASH> 1,241
<SECURITIES> 0
<RECEIVABLES> 121,370
<ALLOWANCES> (9,221)
<INVENTORY> 215,680
<CURRENT-ASSETS> 363,670
<PP&E> 185,360
<DEPRECIATION> (136,548)
<TOTAL-ASSETS> 480,808
<CURRENT-LIABILITIES> 104,159
<BONDS> 179,143
0
0
<COMMON> 85,944
<OTHER-SE> 111,562
<TOTAL-LIABILITY-AND-EQUITY> 480,808
<SALES> 346,816
<TOTAL-REVENUES> 347,640
<CGS> 260,110
<TOTAL-COSTS> 260,110
<OTHER-EXPENSES> 72,583
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,252
<INCOME-PRETAX> 5,695
<INCOME-TAX> 2,165
<INCOME-CONTINUING> 3,530
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,530
<EPS-PRIMARY> .10
<EPS-DILUTED> .10
</TABLE>
