<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, 2000
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, 2000 there were 29,573,249 shares 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
Unaudited Consolidated Statement of Earnings
for the three months and nine months ended
August 31, 2000 and August 31, 1999. 3
Unaudited Consolidated Balance Sheet as of
August 31, 2000, November 30, 1999 and August
31, 1999. 4
Unaudited Condensed Consolidated Statement of
Cash Flows for the nine months ended August 31,
2000 and August 31, 1999. 6
Notes to Consolidated Financial Statements. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 11
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 13
Signatures 13
</TABLE>
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<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
HARTMARX CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF EARNINGS
(000's Omitted)
<TABLE>
<CAPTION>
Three Months Ended Aug. 31, Nine Months Ended Aug. 31,
------------------------------------- -----------------------------------
2000 1999 2000 1999
--------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Net sales $ 175,316 $ 185,566 $ 510,957 $ 534,648
Licensing and other income 822 1,068 2,323 2,242
------------ ------------ ------------ ------------
176,138 186,634 513,280 536,890
------------ ------------ ------------ ------------
Cost of goods sold 127,502 138,894 373,209 399,514
Selling, general and administrative expenses 40,221 39,243 119,595 116,088
------------ ------------ ------------ ------------
167,723 178,137 492,804 515,602
------------ ------------ ------------ ------------
Earnings before non-cash charge, interest, taxes
and extraordinary gain 8,415 8,497 20,476 21,288
Non-cash charge re: systems project termination - - - (11,195)
------------ ------------ ------------ ------------
Earnings before interest, taxes and
extraordinary gain 8,415 8,497 20,476 10,093
Interest expense 3,600 4,257 11,841 12,963
------------ ------------ ------------ ------------
Earnings (loss) before taxes and extraordinary gain 4,815 4,240 8,635 (2,870)
Tax (provision) benefit (1,825) (1,610) (3,280) 1,095
------------ ------------ ------------ ------------
Net earnings (loss) before extraordinary gain 2,990 2,630 5,355 (1,775)
Extraordinary gain, net of taxes - - 227 -
------------ ------------ ------------ ------------
Net earnings (loss) $ 2,990 $ 2,630 $ 5,582 ($1,775)
============ ============ ============ ============
Earnings (loss) per share (basic and diluted):
Before extraordinary gain $ .10 $ .08 $ .18 $ (.05)
============ ============ ============ ============
After extraordinary gain $ .10 $ .08 $ .19 $ (.05)
============ ============ ============ ============
Dividends per common share $ - $ - $ - $ -
============ ============ ============ ============
Average shares outstanding:
Basic 29,482 32,432 29,366 33,626
============ ============ ============ ============
Diluted 29,593 32,517 29,480 33,692
============ ============ ============ ============
</TABLE>
(See accompanying notes to consolidated financial statements)
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<PAGE>
HARTMARX CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
ASSETS
(000's Omitted)
<TABLE>
<CAPTION>
Aug. 31, Nov. 30, Aug. 31,
CURRENT ASSETS 2000 1999 1999
------------- ----------- -------------
<S> <C> <C> <C>
Cash and cash equivalents $ 672 $ 2,133 $ 2,054
Accounts receivable, less allowance
of $9,559, $8,639 and $9,484
for doubtful accounts 149,926 144,921 158,787
Inventories 163,363 176,214 189,121
Prepaid expenses 8,012 6,663 5,750
Recoverable and deferred income taxes 15,005 15,005 15,881
------------- ----------- -------------
Total current assets 336,978 344,936 371,593
------------- ----------- -------------
INVESTMENTS AND OTHER ASSETS 36,768 35,411 33,843
------------- ----------- -------------
DEFERRED INCOME TAXES 39,646 40,332 41,905
------------- ----------- -------------
PROPERTIES
Land 2,363 2,255 2,331
Buildings and building improvements 42,432 42,079 45,444
Furniture, fixtures and equipment 107,731 112,461 115,862
Leasehold improvements 20,238 19,166 19,227
------------- ----------- -------------
172,764 175,961 182,864
Accumulated depreciation and amortization (136,271) (136,967) (143,518)
------------- ----------- -------------
Net properties 36,493 38,994 39,346
------------- ----------- -------------
TOTAL ASSETS $ 449,885 $ 459,673 $ 486,687
============= =========== =============
</TABLE>
(See accompanying notes to consolidated financial statements)
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<PAGE>
HARTMARX CORPORATION
UNAUDITED CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(000's Omitted)
<TABLE>
<CAPTION>
Aug. 31, Nov. 30, Aug. 31,
2000 1999 1999
--------------- ------------ ---------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 25,000 $ 15,000 $ 10,000
Current maturities of long-term debt 76 73 68
Accounts payable and accrued expenses 95,711 100,152 76,065
--------------- ------------ ---------------
Total current liabilities 120,787 115,225 86,133
--------------- ------------ ---------------
LONG-TERM DEBT, less current maturities 133,704 155,300 202,335
--------------- ------------ ---------------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 36,200,564 at
August 2000, 36,100,814 at
November 1999 and 36,038,693
at August 1999. 90,501 90,252 90,098
Capital surplus 82,639 83,834 83,977
Retained earnings 57,493 51,911 48,556
Unearned employee benefits (5,882) (7,161) (7,700)
Common shares in treasury, at cost,
6,670,341 at August 2000,
6,677,952 at November 1999 and
3,564,100 at August 1999. (29,357) (29,688) (16,712)
--------------- ------------ ---------------
Total shareholders' equity 195,394 189,148 198,219
--------------- ------------ ---------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 449,885 $ 459,673 $ 486,687
=============== ============ ===============
</TABLE>
(See accompanying notes to consolidated financial statements)
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<PAGE>
HARTMARX CORPORATION
UNAUDITED CONDENSED CONSOLIDATED
STATEMENT OF CASH FLOWS
(000's Omitted)
<TABLE>
<CAPTION>
Nine Months Ended
August 31,
----------------------------------
2000 1999
------------- ------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from Operating Activities:
Net earnings (loss) $ 5,582 $ (1,775)
Reconciling items to adjust net earnings (loss) to net cash
provided by (used in) operating activities:
Extraordinary gain, net (227) -
Non-cash charge - 11,195
Depreciation and amortization 5,864 5,946
Changes in:
Receivables, inventories, prepaids and other assets 5,463 6,731
Accounts payable and accrued expenses (4,441) (35,711)
Taxes and deferred taxes on earnings 564 (3,423)
------------- ------------
Net cash provided by (used in) operating activities 12,805 (17,037)
------------- ------------
Cash Flows from Investing Activities:
Capital expenditures (3,253) (5,979)
Cash paid for acquisition - (1,610)
------------- ------------
Net cash used in investing activities (3,253) (7,589)
------------- ------------
Cash Flows from Financing Activities:
Increase in borrowings under Credit Facility 11,140 32,500
Purchase of 10 7/8% Senior Subordinated Notes (22,763) (92)
Decrease in other long term debt (54) (54)
Purchase of treasury shares (1,163) (16,712)
Other equity transactions 1,827 5,746
------------- ------------
Net cash provided by (used in) financing activities (11,013) 21,388
------------- ------------
Net decrease in cash and cash equivalents (1,461) (3,238)
Cash and cash equivalents at beginning of period 2,133 5,292
------------- ------------
Cash and cash equivalents at end of period $ 672 $ 2,054
============= ============
Supplemental Cash Flow Information
Net cash paid during period for:
Interest expense $ 14,500 $ 15,500
Income taxes 2,700 1,700
</TABLE>
(See accompanying notes to consolidated financial statements)
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<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,
financial position and cash flows 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,
1999.
Note 2
The calculation of basic earnings per share for each period is based on the
weighted average number of common shares outstanding. 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>
Aug. 31, Nov. 30, Aug. 31,
2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Borrowings under Credit Facility $ 76,754 $ 65,614 $ 107,600
10 7/8% Senior Subordinated Notes, net 62,090 84,769 84,800
Industrial development bonds 17,322 17,344 17,351
Other debt 2,614 2,646 2,652
------------ ------------ ------------
158,780 170,373 212,403
Less - current 25,076 15,073 10,068
------------ ------------ ------------
Long-term debt $ 133,704 $ 155,300 $ 202,335
============ ============ ============
</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 $35 million letter of credit facility) secured by eligible
inventories, accounts receivable and the intangibles of the Company and its
subsidiaries. Various Credit Facility amendments in July 1995, November 1995,
January 1996 and October 1997, among other things, resulted in a reduction in
fees,
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<PAGE>
administrative charges and effective borrowing rates, adjustment or elimination
of certain covenants and the extension of the Credit Facility term from March
1997 to July 2000.
In August 1999, the Company completed an amendment and extension of the Credit
Facility. Among other things, the Credit Facility now provides for maximum
borrowings of $200 million, up from $175 million, (including a $50 million
letter of credit facility, up from $35 million). The term of the Credit Facility
was extended from July 2000 to June 2003 (provided that no more than $35 million
of the Notes remain outstanding by July 15, 2001), along with increased
flexibility with respect to the repurchase of Company stock and future
refinancing of the Company's long term borrowings. Borrowing availability under
the Credit Facility is being utilized for general corporate purposes. Borrowings
are subject to a borrowing base formula based upon eligible accounts receivable
and inventories at rates based either on LIBOR or the prime rate of a major
bank; as of August 31, 2000, the weighted average borrowing rate under the
Credit Facility was 8.8%. Financing fees pertaining to the Notes and Credit
Facility, as amended, are being amortized over the life of the respective
agreements. Certain other fees are also payable under the Credit Facility and
Notes based on services provided.
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 all the covenants under the respective borrowing agreements.
During the nine months ended August 31, 2000, the Company acquired $22.8 million
face value of its Notes in several open market transactions, principally in the
second quarter. An after-tax extraordinary gain of $.2 million or $.01 per share
was recorded in the second quarter, reflecting purchases made at a discount to
par value.
Note 4
Inventories at each date consisted of (000's omitted):
Aug. 31, Nov. 30, Aug. 31,
2000 1999 1999
----------- ------------ ------------
Raw materials $ 58,611 $ 58,352 $ 47,932
Work-in-process 14,623 19,269 21,141
Finished goods 90,129 98,593 120,048
----------- ------------ ------------
$ 163,363 $ 176,214 $ 189,121
=========== ============ ============
Inventories are stated at the lower of cost or market. At August 31, 2000,
November 30, 1999 and August 31, 1999, approximately 45%, 41% and 46% 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.
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<PAGE>
Note 5
Results for the nine months ended August 31, 1999 included a non-cash pre-tax
charge of $11.2 million ($6.9 million or $.21 per share net of tax) to reflect a
writedown of capitalized development costs related to the termination of an
enterprise resource planning system project which had been anticipated to be
implemented company-wide ("the non-cash charge"). The project software had been
installed at one operating company representing less than 5% of consolidated
sales and after extensive evaluation, the Company, in consultation with its
advisors, concluded that company-wide implementation would not be appropriate.
Legal action has been initiated against the principal software provider to
recover damages incurred; in accordance with generally accepted accounting
principles, no recovery has been assumed in determining the reported non-cash
charge.
Note 6
The Company is engaged in manufacturing and marketing of apparel. The Company's
customers comprise major department and specialty stores, value oriented
retailers and direct mail companies. The Company 's Men's Apparel Group designs,
manufactures and markets tailored clothing, slacks, sportswear and dress
furnishings; the Women's Apparel Group markets women's career apparel,
sportswear and accessories to both retailers and to individuals who purchase
women's apparel through a direct mail catalog.
Information on the Company's operations and total assets for the three and nine
month periods ended and as of August 31, 2000 and 1999 is summarized as follows
(in millions):
<TABLE>
<CAPTION>
Men's Women's
Apparel Apparel
Three Months Ended August 31, Group Group Adj. Consol.
------------- --------------- ------------ --------------
2000
<S> <C> <C> <C> <C>
Sales $ 159.7 $ 15.6 $ - $ 175.3
Earnings (loss) before taxes 9.8 1.4 (6.4) 4.8
1999
Sales $ 171.8 $ 13.8 $ - $ 185.6
Earnings (loss) before taxes 10.1 1.1 (7.0) 4.2
Nine Months Ended August 31,
2000
Sales $ 468.0 $ 42.9 $ - $ 510.9
Earnings (loss) before taxes and
extraordinary gain 26.1 3.4 (20.9) 8.6
Total assets 327.9 31.8 90.2 449.9
1999
Sales $ 495.9 $ 38.7 $ - $ 534.6
Earnings (loss) before taxes 26.6 3.4 (32.9) (2.9)
Total assets 363.3 29.7 93.7 486.7
</TABLE>
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<PAGE>
During the periods ended August 31, 2000 and 1999, there were no intergroup
sales and there was no change in the basis of measurement of group earnings or
loss.
Operating expenses incurred by the Company in generating sales are charged
against the respective group's sales; indirect operating expenses are allocated
to the groups benefitted. Group results exclude any allocation of general
corporate expense, interest expense or income taxes.
Amounts included in the "adjustment" column for earnings before taxes and
extraordinary gain consist principally of interest expense and general corporate
expenses; the 1999 amount for the nine months also includes the pre-tax non-cash
charge of $11.2 million. Adjustments of gross assets are for cash, recoverable
and deferred income taxes, investments, other assets and corporate properties.
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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, 1999 to August 31, 2000
------------------------------------
Since November 30, 1999, net accounts receivable increased $5.0 million or 3% to
$149.9 million, reflecting seasonal fluctuations from tailored clothing
shipments in the Men's Apparel Group. Inventories of $163.4 million declined
$12.9 million or 7% due to seasonal shipments of tailored clothing in the Men's
Apparel Group, as well as from planned reductions in certain tailored clothing
product lines and programs. Net properties decreased $2.5 million to $36.5
million as depreciation expense exceeded capital additions. Total debt,
including current maturities, declined $11.6 million to $158.8 million,
reflecting working capital reductions, and represented 45% of total
capitalization at August 31, 2000 compared to 47% at November 30, 1999. During
fiscal 2000, the Company repurchased .3 million of its shares in open market
transactions at an average cost of $3.67 per share, completing the aggregate 7
million of authorized share repurchase programs initiated during 1999,
aggregating approximately $31 million of stock purchases. Also, during fiscal
2000, the Company acquired $22.8 million par value of its 10 7/8% Senior
Subordinated Notes at a discount to par, utilizing availability under its
Revolving Credit Facility.
August 31, 1999 to August 31, 2000
----------------------------------
Net accounts receivable of $149.9 million decreased $8.9 million or 6%,
primarily attributable to the lower sales. Inventories of $163.4 million
declined $25.8 million or 14%, reflecting the deemphasis or elimination of
certain brands or programs that did not offer the prospects of adequate
profitability over the longer term, as well as the generally lackluster
environment at retail for non-casual apparel products. Net properties of $36.5
million decreased $2.9 million, primarily attributable to lower capital
expenditures. Accounts payable and accrued expenses increased $19.6 million to
$95.7 million primarily attributable to the timing of payments. Free cash flow,
primarily from earnings and working capital reductions, enabled the Company to
purchase approximately $14.2 million of treasury stock during the trailing year
ended August 31, 2000, while still reducing debt by $53.6 million. Total debt
was $158.8 million compared to $212.4 million a year ago and represented 45% of
total capitalization at August 31, 2000 compared to 52% at August 31, 1999.
Results of Operations
Third Quarter 2000 Compared to Third Quarter 1999
-------------------------------------------------
Third quarter consolidated sales of $175.3 million declined 5.5% compared to
$185.6 million in 1999, attributable to the Men's Apparel Group. Women's Apparel
Group revenues, which increased by $1.8 million, represented 9% and 7% of
consolidated sales in 2000 and 1999, respectively. Among general product
categories, men's tailored clothing shipments were lower than the prior period,
reflecting the planned deemphasis of certain brands and programs, as well as the
soft retail environment generally for tailored suits. Sportswear and other
non-tailored clothing product categories, including women's, represented
approximately 27% of third quarter revenues compared to 23% in the year earlier
period.
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<PAGE>
The consolidated gross margin percentage to sales increased to 27.3% compared to
25.2% last year, reflecting the stated actions noted above to reduce lower
margin business and improve overall product sourcing. Consolidated selling,
general and administrative expenses were $40.2 million in the current period
compared to $39.2 million in 1999 and the ratio to sales increased to 22.9% in
2000 from 21.1% in 1999; the current period included incremental costs related
to sportswear product lines development and higher circulation expenses
associated with the increase in women's catalog sales. The prior period included
$.8 million of incremental Year 2000 remediation costs.
Earnings before interest and taxes (EBIT) were $8.4 million in 2000 compared to
$8.5 million last year; EBIT improved to 4.8% of net sales versus 4.6% a year
ago, attributable to the improved gross margins. Interest expense of $3.6
million declined from $4.3 million last year, reflecting lower average
borrowings, partially offset by higher average rates. Consolidated pre-tax
earnings were $4.8 million this period compared to $4.2 million last year.
Consolidated net earnings this year were $3.0 million or $.10 per basic and
diluted share compared to $2.6 million or $.08 per share last year.
Nine Months 2000 Compared to Nine Months 1999
---------------------------------------------
Consolidated sales decreased $23.7 million or 4.4% to $510.9 million from $534.6
million in 1999, reflecting a $27.9 million or 5.6% decline in Men's Apparel
Group revenues which was only partially offset by womenswear increases. Within
the Men's Apparel Group, sportswear product revenues increased, attributable to
both golfwear and other sportswear product categories; tailored clothing product
revenues declined, reflecting both previously stated plans to reduce revenues in
lower profit potential product categories and lackluster consumer demand for
suits. Women's Apparel Group revenues, which represented 8% and 7% of
consolidated sales in 2000 and 1999, respectively, increased approximately $4.3
million or 11.1%, primarily in the catalog business. Sportswear and other
non-tailored clothing product categories, including women's, represented 27% of
total sales compared to 24% in the year earlier period.
The consolidated gross margin percentage to sales was 27.0% compared to 25.3%
last year, with the increase principally attributable to the Men's Apparel
Group, largely from product mix changes and improved sourcing. Consolidated
selling, general and administrative expenses were $119.6 million in the current
period compared to $116.1 million in 1999, and represented 23.4% of sales in
2000 compared to 21.7% of sales in 1999. The current year included, among other
things, incremental costs associated with the sportswear product lines
development and expenses associated with the higher women's catalog sales.
Earnings before interest, taxes, the non-cash charge in 1999, and extraordinary
gain this year were $20.5 million in 2000 compared to $21.3 million last year
and represented 4.0% of sales in each period. Interest expense decreased to
$11.8 million from $13.0 million last year, principally due to lower borrowings,
partially offset by higher average borrowing rates. Consolidated pre-tax
earnings before the extraordinary gain were $8.6 million this year compared to
$8.3 million last year excluding the non-cash charge. The pre-tax loss in 1999
after the non-cash charge was $2.9 million. Consolidated net earnings before the
extraordinary gain were $5.4 million or $.18 per basic and diluted share this
year compared to $9.2 million or $.15 per share last year excluding the non-cash
charge; after reflecting the non-cash charge, the 1999 loss for the nine months
was $1.8 million or $.05 per share. This year, net earnings were $5.6 million or
$.19 per share including the extraordinary gain.
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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 2000.
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 11, 2000 By /s/ GLENN R. MORGAN
-----------------------------------------
Glenn R. Morgan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
October 11, 2000 By /s/ ANDREW A. ZAHR
-----------------------------------------
Andrew A. Zahr
Vice President and Controller
(Principal Accounting Officer)
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