<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 February 29, 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
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(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) 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 _______
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At March 31, 2000 there were 29,225,585 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 ended February 29, 2000
and February 28, 1999. 3
Unaudited Consolidated Balance Sheet as of
February 29, 2000, November 30, 1999 and
February 28, 1999. 4
Unaudited Condensed Consolidated Statement of
Cash Flows for the three months ended February 29, 2000
and February 28, 1999. 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
</TABLE>
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<PAGE>
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
HARTMARX CORPORATION
CONSOLIDATED STATEMENT OF EARNINGS
(UNAUDITED)
(000's Omitted)
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------
Feb. 29, 2000 Feb. 28, 1999
------------- -------------
<S> <C> <C>
Net sales $ 163,189 $ 176,402
Licensing and other income 1,078 912
------------- -------------
164,267 177,314
------------- -------------
Cost of goods sold 120,150 132,822
Selling, general and administrative expenses 38,095 38,039
------------- -------------
158,245 170,861
------------- -------------
Earnings before interest and taxes 6,022 6,453
Interest expense 4,212 4,188
------------- -------------
Earnings before taxes 1,810 2,265
Tax provision 690 860
------------- -------------
Net earnings $ 1,120 $ 1,405
============= =============
Earnings per share:
Basic $ .04 $ .04
============= =============
Diluted $ .04 $ .04
============= =============
Dividends per common share $ - $ -
============= =============
Average shares outstanding:
Basic 29,245 34,796
============= =============
Diluted 29,365 34,841
============= =============
</TABLE>
(See accompanying notes to consolidated financial statements)
-3-
<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
ASSETS
(UNAUDITED)
(000's Omitted)
<TABLE>
<CAPTION>
Feb. 29, Nov. 30, Feb. 28,
CURRENT ASSETS 2000 1999 1999
------------ ------------ ------------
<S> <C> <C> <C>
Cash and cash equivalents $ 2,110 $ 2,133 $ 2,499
Accounts receivable, less allowance
of $9,351, $8,639 and $9,083
for doubtful accounts 149,663 144,921 160,931
Inventories 168,752 176,214 205,846
Prepaid expenses 7,729 6,663 5,701
Recoverable and deferred income taxes 15,005 15,005 15,881
------------ ------------ ------------
Total current assets 343,259 344,936 390,858
------------ ------------ ------------
INVESTMENTS AND OTHER ASSETS 35,500 35,411 30,758
------------ ------------ ------------
DEFERRED INCOME TAXES 40,463 40,332 37,282
------------ ------------ ------------
PROPERTIES
Land 2,289 2,255 2,638
Buildings and building improvements 42,066 42,079 48,963
Furniture, fixtures and equipment 106,753 112,461 125,893
Leasehold improvements 19,220 19,166 18,060
------------ ------------ ------------
170,328 175,961 195,554
Accumulated depreciation and amortization (132,722) (136,967) (143,710)
------------ ------------ ------------
Net properties 37,606 38,994 51,844
------------ ------------ ------------
TOTAL ASSETS $ 456,828 $ 459,673 $ 510,742
============ ============ ============
</TABLE>
(See accompanying notes to consolidated financial statements)
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<PAGE>
HARTMARX CORPORATION
CONSOLIDATED BALANCE SHEET
LIABILITIES AND SHAREHOLDERS' EQUITY
(UNAUDITED)
(000's Omitted)
<TABLE>
<CAPTION>
Feb. 29, Nov. 30, Feb. 28,
2000 1999 1999
------------ ----------- ------------
<S> <C> <C> <C>
CURRENT LIABILITIES
Notes payable $ 15,000 $ 15,000 $ 10,000
Current maturities of long-term debt 74 73 69
Accounts payable and accrued expenses 82,478 100,152 85,686
------------ ----------- ------------
Total current liabilities 97,552 115,225 95,755
------------ ----------- ------------
LONG-TERM DEBT, less current maturities 169,548 155,300 201,940
------------ ----------- ------------
SHAREHOLDERS' EQUITY
Preferred shares, $1 par value;
2,500,000 authorized and unissued - - -
Common shares, $2.50 par value; authorized
75,000,000; issued 36,079,314 in
February 2000, 36,100,814 in
November 1999 and 35,749,863
in February 1999. 90,198 90,252 89,375
Capital surplus 83,425 83,834 83,810
Retained earnings 53,031 51,911 51,736
Unearned employee benefits (6,566) (7,161) (8,878)
Common shares in treasury, at cost,
6,883,565 at February 2000,
6,677,952 at November 1999 and
610,700 at February 1999. (30,360) (29,688) (2,996)
------------ ----------- ------------
Total shareholders' equity 189,728 189,148 213,047
------------ ----------- ------------
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY $ 456,828 $ 459,673 $ 510,742
============ =========== ============
</TABLE>
(See accompanying notes to consolidated financial statements)
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<PAGE>
HARTMARX CORPORATION
CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(UNAUDITED)
(000's Omitted)
<TABLE>
<CAPTION>
Three Months Ended
Feb. 29, 2000 Feb. 28, 1999
------------- -------------
<S> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents
Cash Flows from operating activities:
Net earnings $ 1,120 $ 1,405
Reconciling items to adjust net earnings to
net cash used in operating activities:
Depreciation and amortization 1,878 1,955
Changes in:
Receivables, inventories, prepaids and other assets 1,899 (15,553)
Accounts payable and accrued expenses (17,674) (21,446)
Taxes and deferred taxes on earnings (131) 1,222
------------ ------------
Net cash used in operating activities (12,908) (32,417)
------------ ------------
Cash Flows from investing activities:
Capital expenditures (789) (1,829)
Cash paid for acquisition - (658)
------------ ------------
Net cash used in investing activities (789) (2,487)
------------ ------------
Cash Flows from financing activities:
Increase in borrowings under Credit Facility 24,335 31,100
Increase (decrease) in other long-term debt, including
purchase of 10 7/8% Senior Subordinated Notes (10,121) 328
Purchase of treasury shares (1,163) (2,996)
Other equity transactions 623 3,679
------------ ------------
Net cash provided by financing activities 13,674 32,111
------------ ------------
Net decrease in cash and cash equivalents (23) (2,793)
Cash and cash equivalents at beginning of period 2,133 5,292
------------ ------------
Cash and cash equivalents at end of period $ 2,110 $ 2,499
============ ============
Supplemental cash flow information:
Net cash paid (received) during the period for:
Interest expense $ 6,600 $ 6,600
Income taxes 800 (800)
</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>
Feb. 29, Nov. 30, Feb. 28,
2000 1999 1999
------------ ----------- -----------
<S> <C> <C> <C>
Borrowings under Credit Facility $ 89,949 $ 65,614 $ 106,200
10 7/8% Senior Subordinated Notes, net 74,701 84,769 84,825
Industrial development bonds 17,344 17,344 17,364
Other debt 2,628 2,646 3,620
------------ ----------- -----------
184,622 170,373 212,009
Less - current 15,074 15,073 10,069
------------ ----------- -----------
Long-term debt $ 169,548 $ 155,300 $ 201,940
============ =========== ===========
</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, administrative
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<PAGE>
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 at least $50 million of
the Notes have been retired or refinanced 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 February 29, 2000, the weighted average borrowing rate under the
Credit Facility was 7.8%. 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.
Note 4
Inventories at each date consisted of (000's omitted):
<TABLE>
<CAPTION>
Feb. 29, Nov. 30, Feb. 28,
2000 1999 1999
-------------- ------------- -------------
<S> <C> <C> <C>
Raw materials $ 54,310 $ 58,352 $ 53,534
Work-in-process 17,671 19,269 24,832
Finished goods 96,771 98,593 127,480
-------------- ------------- -------------
$ 168,752 $ 176,214 $ 205,846
============== ============= =============
</TABLE>
Inventories are stated at the lower of cost or market. At February 29, 2000,
November 30, 1999 and February 28, 1999, approximately 41%, 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
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 months
ended and as of February 29, 2000 and February 28, 1999 is summarized as follows
(in millions):
<TABLE>
<CAPTION>
Men's Women's
Apparel Apparel
Group Group Adj. Consol.
------- ------- ---------- -------
<S> <C> <C> <C> <C>
2000
----
Net sales $149.8 $13.4 $ - $163.2
Earnings (loss) before taxes 8.1 1.0 (7.3) 1.8
Total assets 336.5 28.4 91.9 456.8
1999
----
Net sales $163.6 $12.8 - $176.4
Earnings (loss) before taxes 7.9 1.2 (6.8) 2.3
Total assets 398.4 28.8 83.5 510.7
</TABLE>
During the three months ended February 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 benefited. Group results exclude any allocation of general
corporate expense, interest expense or income taxes.
Amounts included in the "adjustment" column for earnings before taxes consist
principally of interest expense and general corporate expenses. 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 February 29, 2000
- --------------------------------------
Since November 30, 1999, net accounts receivable increased $4.7 million or 3.3%
to $149.7 million, reflecting the normal seasonal increase from tailored
clothing shipments in the Men's Apparel Group. Inventories of $168.8 million
declined $7.5 million or 4.2% due to seasonal shipments of tailored clothing in
the Men's Apparel Group. Net properties decreased $1.4 million to $37.6 million
as depreciation expense exceeded capital additions. Total debt, including
current maturities, increased $14.2 million to $184.6 million, reflecting normal
seasonal working capital requirements, and represented 49% of total
capitalization at February 29, 2000 compared to 47% at November 30, 1999. During
the first quarter of 2000, the Company purchased $10.1 million par value of its
10 7/8% Senior Subordinated Notes at a small discount to par, resulting in a
nominal gain, which has been included in Licensing and Other Income. Also during
the first quarter of fiscal 2000, the Company repurchased .3 million of its
shares at an average cost of $3.67 per share, completing the aggregate 7 million
authorized share repurchase programs, aggregating approximately $31 million of
stock purchases.
February 28, 1999 to February 29, 2000
- --------------------------------------
Net accounts receivable of $149.7 million decreased $11.3 million or 7%,
reflecting the lower sales compared to the prior period. Inventories of $168.8
million declined $37.1 million or 18%, 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 $37.6
million decreased $14.2 million, primarily attributable to the write-off of
systems development costs in May 1999, as well as depreciation expense exceeding
capital additions. Free cash flow, primarily from earnings and working capital
reductions, enabled the Company to purchase approximately $28 million of
treasury stock during the trailing year ended February 29, 2000, while still
reducing debt by over $27 million. Total debt was $184.6 million compared to
$212.0 million a year ago and represented 49% of total capitalization at
February 29, 2000 compared to 50% at February 28, 1999.
Results of Operations
First Quarter 2000 Compared to First Quarter 1999
- -------------------------------------------------
First quarter consolidated sales were $163.2 million compared to $176.4 million
in 1999. Among general product categories, sportswear and womenswear increases
were more than offset by a decline in the tailored clothing product lines. The
tailored clothing declines reflected a soft retail environment for tailored
clothing as well as the planned deemphasis on brands and programs. Sportswear
and other non-tailored clothing product categories represented approximately 25%
of total first quarter revenues. Last year, temporary shipping delays from
distribution software systems caused a shift of certain sportswear deliveries
into the second quarter. Women's Apparel Group revenues, which represented 8%
and 7% of consolidated sales in 2000 and 1999, respectively, improved
approximately $.6 million, or 4%.
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<PAGE>
The consolidated gross margin percentage to sales increased to 26.4% compared to
24.7% last year, as all product categories reflected improvement with the most
significant change in the moderate tailored clothing, reflecting improved
sourcing and reductions in lower margin products and programs. Consolidated
selling, general and administrative expenses were $38.1 million in the current
period compared to $38.0 million in 1999 and the ratio to sales increased to
23.3% in 2000 from 21.6% in 1999 as a result of the lower sales; among other
things, the current period includes approximately $.3 million of incremental
external expenses associated with Year 2000 remediation costs. Licensing and
other income of $1.1 million increased $.2 million compared to the previous
period.
Earnings before interest and taxes (EBIT) were $6.0 million in 2000 compared to
$6.5 million last year; EBIT represented 3.7% of net sales in each period,
reflecting improved gross margins offset by a higher operating expense ratio
compared to the prior year. Interest expense of $4.2 million was even with last
year, reflecting lower average borrowings but higher average rates. Consolidated
pre-tax earnings were $1.8 million compared to $2.3 million last year. After
reflecting the applicable tax provision, consolidated earnings were $1.1 million
compared to $1.4 million a year ago. Basic and diluted earnings per share were
$.04 in each period.
Year 2000 Disclosure
As of the date of this report, the Company has not experienced any significant
operating difficulties related to the Year 2000 issue. The Company's Year 2000
efforts encompassed testing, upgrading, enhancing and remediating when necessary
its computer systems, operations systems, microprocessors and other significant
computer-based devices and applications. The Company also communicated with a
significant portion of its customers, suppliers and vendors to determine the
extent to which the Company may have been vulnerable to those third parties'
failure to remediate their own Year 2000 issues. This process of addressing Year
2000 issues was essentially completed by the end of November 1999 for the
substantial portion of the Company's internal systems, related software and
compatability with various third party applications.
The aggregate costs incurred relating to ensuring compliance and remediation of
the current systems, including both internal costs of existing employees as well
as external contractor and software remediation costs, are estimated at
approximately $3.5 million, $3.0 million of which was expensed in periods prior
to fiscal 2000, and $.5 million which has been expensed in fiscal 2000; as noted
above, the current period included incremental Year 2000 remediation costs
compared to the prior year.
The Company recognizes the importance of ensuring its operations will not be
adversely affected by Year 2000 issues and that issues related to Year 2000
remediation constitute an uncertainty. Its procedures are believed to have been
effective to identify and manage the risks associated with Year 2000 compliance,
and the probability of a serious Year 2000 issue arising at this time is low.
However, there can be no assurance that its remediation process has been fully
effective. A reasonable worst case scenario could be a failure by a significant
third party in the Company's supply chain to remediate its Year 2000
deficiencies, which could impair the Company's ability to manufacture products,
process customer orders or ship goods to its customers. Additionally, failure by
the Company to fully remediate its systems could impair the Company's ability to
take customer orders, manufacture and ship products, invoice customers or
collect payments. The failure to identify and remediate the Company's systems or
the failure of key third parties who do business with the Company or
governmental agencies to fully remediate their systems that interface with the
Company's systems could result in system failures or errors or business
interruptions, which could have a material adverse effect on the Company's
results of operations and financial condition.
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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 first 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
April 12, 2000 By /s/ GLENN R. MORGAN
-------------------------
Glenn R. Morgan
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
April 12, 2000 By /s/ ANDREW A. ZAHR
------------------------
Andrew A. Zahr
Vice President and Controller
(Principal Accounting Officer)
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<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> NOV-30-1999
<PERIOD-START> DEC-01-1999
<PERIOD-END> FEB-28-2000
<CASH> 2,110
<SECURITIES> 0
<RECEIVABLES> 149,663
<ALLOWANCES> (9,351)
<INVENTORY> 168,752
<CURRENT-ASSETS> 343,259
<PP&E> 170,328
<DEPRECIATION> (132,722)
<TOTAL-ASSETS> 456,828
<CURRENT-LIABILITIES> 97,552
<BONDS> 169,548
0
0
<COMMON> 90,198
<OTHER-SE> 99,530
<TOTAL-LIABILITY-AND-EQUITY> 456,828
<SALES> 163,189
<TOTAL-REVENUES> 164,267
<CGS> 120,150
<TOTAL-COSTS> 120,150
<OTHER-EXPENSES> 38,095
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,212
<INCOME-PRETAX> 1,810
<INCOME-TAX> 690
<INCOME-CONTINUING> 1,120
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,120
<EPS-BASIC> .04
<EPS-DILUTED> .04
</TABLE>
