HARTMARX CORP/DE - 10-Q Quarterly Report

Back to GetFilings.com

UNITED STATES
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 May 31, 2003

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
------------

- -------------------------------------------------------------------------------
Former Name, Former Address and Former Fiscal Year, if Changed Since Last Report

Indicate by check mark |X| 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 (or for such shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes |x| No _____

Indicate by check mark |X| whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act). Yes |x| No _____

At June 30, 2003 there were 34,648,751 shares of the Company's common
stock outstanding.

HARTMARX CORPORATION

INDEX

Page
Number

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

Unaudited Consolidated Statement of Earnings
for the three months and six months ended
May 31, 2003 and May 31, 2002. 3

Unaudited Condensed Consolidated Balance Sheet
as of May 31, 2003, November 30, 2002 and
May 31, 2002. 4

Unaudited Condensed Consolidated Statement of
Cash Flows for the six months ended May 31, 2003
and May 31, 2002. 6

Notes to Unaudited Consolidated Financial Statements. 7

Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 17

Item 3. Quantitative and Qualitative Disclosures
About Market Risk 21

Item 4. Controls and Procedures 22

Part II - OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K 23

Signatures 23

Section 302 Certification of Chief Executive Officer 24

Section 302 Certification of Chief Financial Officer 26

2

Part I - FINANCIAL INFORMATION

Item 1. Financial Statements

HARTMARX CORPORATION
UNAUDITED CONSOLIDATED STATEMENT OF EARNINGS
(000's Omitted)

3

HARTMARX CORPORATION
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEET
ASSETS
(000's Omitted)

5

HARTMARX CORPORATION
UNAUDITED CONDENSED CONSOLIDATED STATEMENT
OF CASH FLOWS
(000's Omitted)

6

HARTMARX CORPORATION

NOTES TO UNAUDITED 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 presented. Results
of operations for any interim period are not necessarily indicative of results
for any other periods or for the full year. These unaudited 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, 2002. Certain prior year amounts have been reclassified to
conform to the current year's presentation.

Note 2

As previously discussed in the Company's Annual Report on Form 10-K for the
year ended November 30, 2002, as a result of the fiscal 2002 year-end review
performed by the Company's internal auditors at its International Women's
Apparel subsidiary, the Company became aware of certain accounting
irregularities. The Company promptly notified both its Audit Committee and its
independent accountants. As a result of the review, the Company has restated
its previously issued financial statements for the years ended November 30,
2001 and November 30, 2000. Unaudited quarterly financial information for the
first three quarters of the year ended November 30, 2002 was also restated.
The restatements primarily arose from the correction of certain balance sheet
and income statement items, which among other things, relate to (1) the timing
of allowances granted to customers and (2) various other accruals and
valuation adjustments which were not recorded in the appropriate accounting
period. The effect of the restatement on the net loss for the three months
ended May 31, 2002 was to increase the previously reported net loss of $.5
million to a loss of $.9 million and increase the diluted loss per share from
$.01 to $.03, and for the six months ended May 31, 2002 was to increase the
previously reported net loss of $1.0 million to a loss of $2.0 million and
increase the diluted loss per share from $.03 to $.06.

The following table presents the amounts previously reported in the
Consolidated Statement of Earnings for each of the second and third quarters
of fiscal 2002 and the restated amounts (000's omitted, except per share
amounts).

7

* The amounts shown as previously reported for the second and third quarters
of fiscal year 2002 are as reported in the Company's Quarterly Report on Form
10-Q for those interim periods. The restated amounts for net sales, earnings
(loss) and earnings (loss) per share were reported in the Company's Annual
Report on Form 10-K for the fiscal year ended November 30, 2002. Also, the
previously reported extraordinary loss incurred in the third quarter of 2002
related to the refinancing of the Company's senior credit facility has been
reclassified pursuant to Statement of Financial Accounting Standards No. 145,
"Recission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement
No. 13, and Technical Corrections".

As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 2002, consolidated retained earnings have been
retroactively restated to reflect an increase of $4.8 million effective for
periods prior to December 1, 1999. This increase resulted from the reversal of
certain balance sheet accruals and valuation allowances established in prior
years for which specific needs were not required as of November 30, 1999. This
adjustment had no impact on earnings for the period ended

8

May 31, 2002. Accordingly, at May 31, 2002, total assets as previously
reported were reduced by $3.2 million, total liabilities were decreased by
$1.1 million, total shareholders' equity and equity per share were reduced by
$2.1 million and $.06, respectively, due to the above described items. A
comparison of the previously reported to restated amounts as May 31, 2002 and
August 31, 2002 are as follows (000's omitted):

Unless otherwise expressly stated, all financial information in this Quarterly
Report on Form 10-Q is presented inclusive of these restatements.

Note 3

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. At May 31, 2003
and 2002, options to purchase 2,866,765 shares and 3,055,691 shares,
respectively, of the Company's common stock were outstanding at prices ranging
from $2.50 to $8.09. None of these options were included in the computation of
diluted earnings per share, as the average market price per share of the
Company's common stock was below the grant price. None of the 2,500,000
authorized preferred shares for Hartmarx Corporation have been issued.

The Company accounts for its employee stock based compensation plans under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related Interpretations. No stock-based
employee compensation cost is reflected in net earnings, as all options

9

granted under those plans had an exercise price equal to or greater than the
market value of the underlying common stock on the date of grant. The
following table illustrates the effect on net earnings (loss) and earnings
(loss) per share if the Company had applied the fair value recognition
provisions of FASB Statement No. 123, Accounting for Stock-Based Compensation,
to stock-based employee compensation (in millions, except per share data).

The fair value of each option granted in the respective period is estimated at
the date of grant using the Black-Scholes option-pricing model. The
Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Company's stock options have characteristics significantly different from
those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its stock options.

Note 4

Long-term debt comprised the following (000's omitted):

10

On January 16, 2002, the Company completed an exchange offer for its then
outstanding 10 7/8% senior subordinated notes ("Old Notes") due in January
2002, originally issued as part of a $100 million public offering in March
1994. For each $1,000 principal amount of Old Notes outstanding, the Company
paid $200 in cash and issued $800 principal amount of new 12 1/2% senior
unsecured notes ("New Notes") due September 15, 2003 and 93 shares of common
stock. Upon completion of the exchange offer, all of the $34.7 million of Old
Notes then outstanding were retired and $25.3 million face value of New Notes
and 2.9 million shares of common stock were issued. The New Notes were
recorded at estimated fair value, net of unamortized debt discount. The New
Notes were callable at face value in whole or in part at any time prior to
maturity.

Effective August 30, 2002, the Company entered into a new $200 million senior
revolving credit facility ("Credit Facility"), replacing a $200 million
facility scheduled to mature in June 2003. Among other things, the Credit
Facility resulted in lower borrowing rates. All borrowings under the replaced
facility, including the $15 million 10.25% term loan then outstanding, were
repaid. This resulted in a fiscal 2002 third quarter refinancing expense of
$2.8 million, which was recorded as an extraordinary charge of $1.7 million,
net of income tax benefit, or $.05 per share. The new Credit Facility has a
three and one-half year term with an additional one year renewal at the
Company's option (i.e., until February 2007), and also provides for a $50
million letter of credit sub-facility. Interest rates under the new facility
are based on a spread in excess of either LIBOR or prime as the benchmark rate
and on the level of excess availability. The weighted average interest rate
was approximately 3.9% at May 31, 2003, based on LIBOR and prime rate loans.
The facility provides for an unused commitment fee of 3/8% per annum based on
the $200 million maximum, less the outstanding borrowings and letters of
credit issued. Eligible receivables and inventories provide the principal
collateral for the borrowings, along with certain other tangible and
intangible assets of the Company.

The retirement of the New Notes in whole or in part prior to their September
2003 maturity were permitted under the Credit Facility, subject to minimum
excess availability levels after giving effect to such retirements. On
November 26, 2002, the Company retired $15 million face value of outstanding
New Notes. This resulted in a fiscal 2002 fourth quarter refinancing expense
of $1.3 million, reflected as an extraordinary charge of $.8 million, net of
income tax benefit, or $.03 per share, related to the write off of unamortized
debt discount and issue costs. On January 21, 2003, the Company retired the
remaining $10.3 million face value of outstanding New Notes. This early
retirement resulted in a fiscal 2003 first quarter pre-tax charge of $.8
million, related to the write-off of the remaining unamortized debt discount
and issue costs, and reflected as refinancing expense in the accompanying
Unaudited Consolidated Statement of Earnings.

The Credit Facility includes various events of default and contains certain
restrictions on the operation of the business, including covenants pertaining
to minimum net worth, operating leases, incurrence or existence of additional
indebtedness and liens, and asset sales, as well as other customary covenants,
representations and warranties, and events of default. During fiscal 2003 and
as of May 31, 2003, the Company was in compliance with all covenants under the
Credit Facility and its other borrowing agreements. At May 31, 2003, the
Company had approximately $27 million of letters of credit outstanding,
relating to either contractual commitments for the purchase of inventories
from unrelated third parties or for such matters as workers' compensation
requirements in lieu of cash deposits. Such letters of credit are issued
pursuant to the Company's Credit Facility and are considered as usage for
purposes of determining borrowing availability. At May 31, 2003, borrowing
availability under the Credit Facility was approximately $49 million.

Mortgages and other debt includes the Company's ongoing guarantee of a $2.5
million industrial development bond, bearing interest at 8 1/2%, retained by a
former subsidiary and due September 1, 2007. The Company pays interest on this
debt semi-annually and there is no collateral for this debt.

11

Note 5

Inventories at each date consisted of (000's omitted):

May 31, Nov. 30, May 31,
2003 2002 2002
------------ ---------- ---------
Raw materials $ 46,254 $ 43,007 $ 46,151
Work-in-process 10,074 7,312 5,646
Finished goods 88,646 64,856 69,519
-------- -------- --------
$144,974 $115,175 $121,316
======== ======== ========

Inventories are stated at the lower of cost or market. At May 31, 2003,
November 30, 2002 and May 31, 2002, approximately 50%, 48% and 49% 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 6

The Company is engaged in the 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 six
months ended and as of May 31, 2003 and 2002 is summarized as follows (in
millions):

For the three and six months ended May 31, 2002, Men's Apparel Group results
include a restructuring charge of $.9 million.

During the three and six month periods ended May 31, 2003 and 2002, 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; 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 (loss) before taxes
consist principally of interest expense, general corporate expenses and in
2002, the $4.5 million settlement re: termination of systems project.
Adjustments of total assets are for cash, recoverable and deferred income
taxes, investments, other assets and corporate properties, including the
intangible pension asset. The Men's Apparel Group total assets include
goodwill related to acquisitions.

Note 7

During fiscal 2001, the Company initiated a number of gross margin improvement
and cost reduction actions in response to the weak sales of apparel at retail
and reduced consumer confidence. These actions included the wind-up of certain
moderate tailored clothing operations, the closing of six facilities engaged
in fabric cutting and sewing operations, one distribution center, several
administrative offices, early voluntary retirement programs and other
administrative workforce reductions affecting approximately 1,600 employees,
most of whom were production employees. During fiscal 2002, the Company closed
one additional sewing facility affecting approximately 150 production
employees and supervisors and realized favorable adjustments related to the
fiscal 2001 provision for estimated realizable fair values of fixed assets
which were sold in 2002, as well as insignificant adjustments to the amounts
provided in 2001.

The remaining restructuring liability balance at May 31, 2003, representing
lease obligations through November 2010, consisted of the following (000's
omitted):

13

Lease Termination
Costs
----------------------
Balance November 30, 2002 $ 1,450
Payments during 2003 (89)
-----------
Balance at May 31, 2003 $ 1,361
===========

Note 8

Comprehensive income (loss), which includes all changes in the Company's
equity during the period, except transactions with stockholders, was as
follows (000's omitted):

Accumulated Other Comprehensive Income (Loss) consists of the following (000's
omitted):

As of November 30, 2002 $ (14,114)
Current period change in:
Fair value of foreign exchange contracts, net of tax 265
Currency translation adjustment, net of tax 507
----------
As of May 31, 2003 $ (13,342)
==========

Note 9

Effective December 1, 2002, the Company adopted the Financial Accounting
Standards Board SFAS No. 143, "Accounting for Asset Retirement Obligations"
and SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets". SFAS 143 addresses financial accounting and reporting obligations
associated with the retirement of tangible long-lived assets and the
associated asset retirement costs. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of long-lived assets. Adoption of
these statements has had no effect on the Company's reported financial
position, results of operations, cash flows or financial statement
disclosures.

14

Effective December 1, 2002, the Company adopted SFAS No. 145, "Recission of
FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No. 13, and
Technical Corrections". SFAS 145, among other things, proscribes that any gain
or loss on extinguishment of debt that does not meet the criteria in Opinion
30, as amended, no longer be classified as an extraordinary item. Accordingly,
refinancing expense of $.8 million related to the January 2003 retirement of
the remaining $10.3 million of 12.5% Senior Unsecured Notes, representing the
write-off of unamortized debt discount and issue costs, has been reflected in
a separate caption in the determination of earnings before taxes in the
Unaudited Consolidated Statement of Earnings. The extraordinary items recorded
in the third and fourth quarters of fiscal 2002 relating to the refinancing of
the Company's Credit Facility and early retirement of New Notes will be
reclassified in the consolidated statement of earnings in a separate caption
in the period in which they occurred.

Effective January 1, 2003, the Company adopted SFAS No. 146, "Accounting for
Costs Associated with Exit or Disposal Activities", which modified certain of
the accounting for restructuring related costs. SFAS 146 is effective for
restructuring actions initiated after December 31, 2002. SFAS 146 addresses,
among other things, recording a liability for a cost associated with an exit
or disposal activity when the liability is incurred and that fair value is the
objective for initial measurement of the liability. In the first six months of
fiscal 2003, the Company did not have any restructuring activities initiated
after December 31, 2002, and adoption of this statement has had no effect on
the Company's reported financial position, results of operations, cash flows
or financial statement disclosures.

Effective January 1, 2003, the Company adopted FASB Interpretation No. 45
("FIN 45") "Guarantor's Accounting and Disclosure Requirements for Guarantees
Including Indirect Guarantees of Indebtedness of Others". FIN 45 is applicable
for any guarantees issued or modified after December 31, 2002 and the
disclosure requirements are effective for the Company's first quarter ended
February 28, 2003. FIN 45 elaborates on the disclosures required by a
guarantor in its interim and annual financial statements about obligations
under certain guarantees that it has issued. FIN 45 also clarifies that a
guarantor is required to recognize, at the inception of a guarantee, a
liability for the fair value of that obligation. Adoption of this statement
has had no effect on the Company's reported financial position, results of
operations or cash flows.

In January 2003, the Financial Accounting Standards Board issued FIN 46
"Consolidation of Variable Interest Entities, An Interpretation of APB No.
51". FIN 46 provides guidance on the identification of entities for which
control is achieved through means other than through voting rights ("variable
interest entities" or "VIE") and how to determine when and which business
enterprises should consolidate the VIE. This new model for consolidation
applies to entities (1) where the equity investors (if any) do not have a
controlling financial interest or (2) whose equity investment at risk is
insufficient to finance that entity's activities without receiving additional
subordinated financial support from other parties. In addition, FIN 46
requires that both the primary beneficiary and all other enterprises with a
significant variable interest in a VIE make additional disclosures. FIN 46
applies immediately to VIEs created after January 31, 2003 and to VIEs in
which an enterprise obtains an interest after that date. It applies in the
first fiscal year or interim period beginning after June 15, 2003, to VIEs in
which an enterprise holds a variable interest that it acquired before February
1, 2003. The interpretation applies to the Company as of the beginning of
fiscal 2003. As the Company does not have any VIEs, adoption of this statement
has had no effect on the Company's reported financial condition, results of
operations, cash flows or financial statement disclosures.

As of December 1, 2002, the Company adopted the disclosure requirement of SFAS
No. 148, "Accounting for Stock Based Compensation--Transition and Disclosure".
For companies that have made the voluntary decision to change its method of
accounting for stock-based employee compensation to the fair-value method,
SFAS 148 provides two additional alternative transition methods for
recognizing expense related

15

to stock based compensation. SFAS 148 also amends the disclosure requirements
of SFAS 123 so that entities will have to (1) make more prominent disclosures
regarding the pro forma effects of using the fair-value method of accounting
for stock-based compensation, (2) present those disclosures in a more
accessible format in the footnotes to the annual financial statements, and (3)
include those disclosures in interim financial statements. Should the Company
voluntarily change its method of accounting for stock based employee
compensation, SFAS 148's transition guidance and provisions for annual
disclosures are effective for the Company's fiscal year ending November 30,
2003. Adoption of this statement has had no effect on the Company's reported
financial position, results of operations or cash flows.

In June 2003, the Financial Accounting Standards Board issued SFAS No. 149,
"Amendments of Statement 133 on Derivative Instruments and Hedging
Activities". SFAS 149 amends SFAS 133 and certain other FASB standards for
decisions made by the FASB as part of the Derivatives Implementation Group
process. Among other changes, the standard clarifies the definition of a
derivative financial instrument. SFAS 149 is generally effective for contracts
entered into or modified after June 30, 2003. The provisions of SFAS 149 that
relate to SFAS 133 Implementation Issues that have been effective for fiscal
quarters that began prior to June 15, 2003 should continue to be applied in
accordance with their respective dates. In addition, certain provisions of
SFAS 149 that apply to forward purchases or sales of when-issued securities or
other securities that do not yet exist are applicable to both existing
contracts and new contracts entered into after June 30, 2003. Adoption of this
statement is not anticipated to have an effect on the Company's reported
financial position, results of operations, cash flows or financial statement
disclosures.

In June 2003, the Financial Accounting Standards Board issued SFAS No. 150,
"Accounting for Certain Financial instruments with Characteristics of Both
Liabilities and Equity". SFAS 150 establishes standards for issuers of
financial instruments with characteristics of both liabilities and equity
related to the classification and measurement of those instruments. It
requires the issuer to classify a financial instrument as a liability, or
asset in some cases, that was previously classified as equity. SFAS 150
requires an issuer to classify certain financial instruments, as defined, as
liabilities, or assets in certain circumstances. SFAS 150 applies to issuers'
classification and measurement of freestanding financial instruments,
including those that comprise more than one option or forward contract. It
does not apply to features that are embedded in a financial instrument that is
not a derivative in its entirety. The effective date of SFAS 150 is for
financial instruments entered into or modified after May 31, 2003. Otherwise,
it is effective for public entities at the beginning of the first interim
period beginning after June 15, 2003. SFAS 150 is to be implemented by
reporting the cumulative effect of a change in accounting principle for
financial instruments created prior to the issuance date of the standard and
still in existence at the beginning of the interim period of adoption.
Restatement of prior years' financial statements is not permitted. As the
Company does not currently have any of the financial instruments, as defined
in SFAS 150, adoption of this statement will have no effect on the Company's
reported financial position, results of operations, cash flows or financial
statement disclosures.

16

HARTMARX CORPORATION

Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations

As previously discussed in the Company's Annual Report on Form 10-K for the
year ended November 30, 2002, during the fiscal 2002 year-end review performed
by the Company's internal auditors at its International Women's Apparel
("IWA") subsidiary, the Company became aware of certain accounting
irregularities. The Company promptly notified both its Audit Committee and its
independent accountants. Under the direction and oversight of the Audit
Committee and with the assistance of outside legal advisors and accounting
consultants, the Company conducted an investigation into these and related
accounting issues as well as a more complete evaluation of accounting
practices and internal control processes throughout the Company. As a result
of this process, the Company has restated its previously issued financial
statements for the years ended November 30, 2001 and November 30, 2000.
Unaudited quarterly financial information for the first three quarters of the
year ended November 30, 2002 was also restated.

The restatements primarily arose from the correction of certain balance sheet
and income statement items, which among other things, relate to (1) the timing
of allowances granted to customers and (2) various other accruals and
valuation adjustments which were not recorded in the appropriate accounting
period. At the direction of the Audit Committee, the Company has implemented
enhancements to its financial organization, systems and controls at its IWA
subsidiary in response to issues raised by the restatement. The effect of the
restatement on the net loss for the three months ended May 31, 2002 was to
increase the previously reported net loss of $.5 million to a loss of $.9
million and increase the diluted loss per share from $.01 to $.03, and for the
six months ended May 31, 2002 was to increase the previously reported net loss
of $1.0 million to a loss of $2.0 million and increase the diluted loss per
share from $.03 to $.06.

As previously reported in the Company's Annual Report on Form 10-K for the
fiscal year ended November 30, 2002, consolidated retained earnings have been
retroactively restated to reflect an increase of $4.8 million effective for
periods prior to December 1, 1999. This increase resulted from the reversal of
certain balance sheet accruals and valuation allowances established in prior
years for which specific needs were not required as of November 30, 1999. This
adjustment had no impact on earnings for the period ended May 31, 2002.
Accordingly, at May 31, 2002, total assets as previously reported were reduced
by $3.2 million, total liabilities were decreased by $1.1 million, total
shareholders' equity and equity per share were reduced by $2.1 million and
$.06, respectively, due to the above described items.

Unless otherwise expressly stated, all financial information in this Quarterly
Report on Form 10-Q is presented inclusive of these restatements.

Liquidity and Capital Resources

November 30, 2002 to May 31, 2003

Since November 30, 2002, net accounts receivable decreased $15.3 million or
12.1% to $110.9 million, reflecting the normal seasonal change from tailored
clothing shipments in the Men's Apparel Group. Inventories of $145.0 million
increased $29.8 million or 25.9% reflecting seasonal factors preceding
anticipated tailored clothing shipments in the third quarter, earlier
production of finished products and higher in-stock inventory levels. Net
properties decreased $1.9 million to $30.6 million as depreciation expense

17

exceeded capital additions. Total debt, including current maturities,
increased $1.0 million to $124.4 million. Total debt represented 41% of total
capitalization at May 31, 2003 and November 30, 2002.

In addition to the information provided below relating to debt, credit
facilities, guarantees, future commitments, liquidity and risk factors, the
reader should also refer to the Company's Annual Report on Form 10-K for the
year ended November 30, 2002.

On January 16, 2002, the Company completed an exchange offer for its then
outstanding 10 7/8% senior subordinated notes ("Old Notes"), originally issued
as part of a $100 million public offering in March 1994. For each $1,000
principal amount of Old Notes outstanding, the Company paid $200 in cash and
issued $800 principal amount of 12 1/2% senior unsecured notes ("New Notes")
due September 15, 2003 and 93 shares of common stock. Upon completion of the
exchange offer, all of the $34.7 million of Old Notes then outstanding were
retired and $25.3 million face value of New Notes and 2.9 million shares of
common stock were issued. The New Notes were recorded at estimated fair value,
net of unamortized debt discount. The New Notes were callable at face value in
whole or in part at any time prior to maturity.

Effective August 30, 2002, the Company entered into a new $200 million senior
revolving credit facility ("Credit Facility"), replacing a $200 million
facility scheduled to mature in June 2003. Among other things, the Credit
Facility resulted in lower borrowing rates. All borrowings under the replaced
facility, including the $15 million 10.25% term loan then outstanding, were
repaid. The new Credit Facility has a three and one-half year term with an
additional one year renewal at the Company's option (i.e., until February
2007), and also provides for a $50 million letter of credit sub-facility.
Interest rates under the new facility are based on a spread in excess of
either LIBOR or prime as the benchmark rate and on the level of excess
availability. The weighted average interest rate was 3.9% at May 31, 2003,
based on LIBOR and prime rate loans. The facility provides for an unused
commitment fee of 3/8% per annum, based on the $200 million maximum, less the
outstanding borrowings and letters of credit issued. Eligible receivables and
inventories provide the principal collateral for the borrowings, along with
certain other tangible and intangible assets of the Company. The retirement of
the New Notes in whole or in part prior to their September 2003 maturity were
permitted under the Credit Facility, subject to minimum excess availability
levels after giving effect to such retirements. On November 26, 2002, $15
million face value of the New Notes were retired and the remaining $10.3
million of New Notes were retired on January 21, 2003. The weighted average
interest rate on all borrowings was approximately 4.9% at May 31, 2003
compared to 8.5% at May 31, 2002.

The Credit Facility includes various events of default and contains certain
restrictions on the operation of the business, including covenants pertaining
to minimum net worth, operating leases, incurrence or existence of additional
indebtedness and liens, and asset sales, as well as other customary covenants,
representations and warranties, and events of default. During fiscal 2003 and
as of May 31, 2003, the Company was in compliance with all covenants under the
Credit Facility and its other borrowing agreements.

There are several factors which can affect the Company's ability to remain in
compliance with the financial covenants currently contained in its Credit
Facility, and to a lesser extent, in its other borrowing arrangements. The
following summarizes certain of the most significant risk factors:

o The apparel environment is cyclical and the level of consumer spending on
apparel can decline during recessionary periods when disposable income
declines. The tailored clothing market relating to suits has experienced unit
declines over the past several years. If the tailored clothing market
continues to decline, sales and profitability would be adversely affected.

18

o Continuation of widespread casual dressing in the workplace could further
reduce the demand for tailored clothing products, especially for tailored
suits. While the Company markets several sportswear and casual product lines,
consumer receptiveness to these casual and sportswear product offerings may
not offset the declines in the tailored clothing unit sales.

o The Company's customers include major U.S. retailers (certain of which
are under common ownership and control), several of whom reported declines in
sales during 2002. The ten largest customers represented approximately 54% of
consolidated sales during fiscal 2002 with the largest customer representing
approximately 21% of sales. A decision by the controlling management of a
group of stores or any other significant customer, whether motivated by
competitive conditions, financial difficulties or otherwise, to decrease the
amount of merchandise purchased from the Company, or change their manner of
doing business, could have a material adverse effect on the Company's
financial conditions and results of operations.

At May 31, 2003, the Company had approximately $27 million of letters of
credit outstanding, relating to either contractual commitments for the
purchase of inventories from unrelated third parties or for such matters as
workers' compensation requirements in lieu of cash deposits. Such letters of
credit are issued pursuant to the Company's Credit Facility and are considered
as usage for purposes of determining borrowing availability. At May 31, 2003,
borrowing availability under the Credit Facility was approximately $49
million. The Company has also entered into surety bond arrangements
aggregating $11.0 million with unrelated parties for the purposes of
satisfying workers' compensation deposit requirements of various states where
the Company has operations. At May 31, 2003, there were an aggregate of $3.8
million of outstanding foreign exchange contracts primarily related to
anticipated inventory purchases to be made in the next six months and
anticipated licensing revenues to be received in the next nine months. The
Company has not committed to and has not provided any guarantees of other
lines of credit, repurchase obligations, etc., with respect to the obligations
for any unconsolidated entity or to any unrelated third party.

The Company believes its liquidity and expected cash flows are sufficient to
finance its operations. The Company's various borrowing arrangements are
either fixed rate or variable rate borrowing arrangements. None of the
arrangements have rating agency "triggers" which would impact either the
borrowing rate or borrowing commitment. The Company has not entered into off
balance sheet financing arrangements, other than operating leases, and has
made no financial commitments or guarantees with any unconsolidated
subsidiaries or special purpose entities. All of the Company's subsidiaries
are wholly owned and included in the accompanying consolidated financial
statements. There have been no related party transactions nor any other
transactions which have not been conducted on an arm's-length basis.

May 31, 2002 to May 31, 2003

Net accounts receivable of $110.9 million at May 31, 2003 decreased $1.3
million or 1.2%, principally reflecting the lower sales. Inventories of $145.0
million increased $23.7 million or 19.5%, reflecting earlier production of
finished product and lower than expected in-stock sales, which adversely
affected both inventory and debt; additionally, last year's inventory levels
were lower than normal, attributable to out-of-stock conditions in selected
product categories. Net properties of $30.6 million decreased $3.5 million, as
capital additions were more than offset by higher depreciation expense. Debt
levels have been favorably affected by the higher cash earnings but have been
adversely impacted by the higher working capital. At May 31, 2003, total debt
of $124.4 million was $.3 million lower than the year earlier level. Total
debt represented 41% of total capitalization at May 31, 2003 compared to 40%
at May 31, 2002.

19

Results of Operations

Second Quarter 2003 Compared to Second Quarter 2002

Second quarter consolidated sales were $127.0 million compared to $130.5
million in 2002; the 2.7% decline was principally attributable to the Men's
Apparel Group and reflected the generally weak retail environment with lower
in-stock sales being partially offset by higher sportswear sales. Women's
Apparel Group revenues, which represented approximately 9% of consolidated
sales in each period, were slightly ahead of the prior period. Aggregate
sportswear and other non-tailored clothing product categories, including
women's, represented approximately 46% of total second quarter revenues
compared to 45% a year ago.

The consolidated gross margin percentage to sales was 30.9% compared to 27.3%
last year. The higher gross margin rate compared to last year reflected an
improved gross margin rate in most product categories, less surplus
inventories and continued efficient manufacturing utilization. Consolidated
selling, general and administrative expenses declined to $36.3 million in the
current period from $36.9 million in 2002 on the lower sales; the ratio to
sales was 28.6% in 2003 compared to 28.3% in 2002.

Earnings before interest and taxes (EBIT) were $3.5 million in 2003 compared
to $2.8 million last year. The prior year results included $4.5 million
settlement proceeds related to a legal action initiated in 1999 against the
provider of an enterprise resource planning software ("settlement proceeds"),
as well as a $.9 million restructuring charge ("restructuring charge"),
primarily related to the closing of one manufacturing facility. EBIT
represented 2.8% of net sales in 2003 and 2.2% of net sales in 2002, with the
improvement attributable to the higher gross margin ratio compared to the
prior year. Interest expense was $1.9 million this period compared to $4.4
million last year. The significant decline from last year's second quarter was
attributable to the drop in the weighted average interest rate principally due
to the now completed refinancing actions discussed previously, the reduced
average outstanding borrowings, and the $.9 million lower non-cash
amortization of debt discount and financing fees. Consolidated pre-tax
earnings were $1.7 million compared to a loss of $1.6 million last year. After
reflecting the applicable tax provision or benefit, consolidated net earnings
were $1.0 million this period compared to a loss of $.9 million last year. The
basic and diluted earnings per share was $.03 compared to a loss of $.03 per
share in 2002.

Six Months 2003 Compared to Six Months 2002

Consolidated sales were $258.8 million compared to $269.9 million in 2002; the
4.1% decline was principally attributable to the Men's Apparel Group. Within
the Men's Apparel Group, tailored clothing product revenues represented the
principal component of the decline, reflecting both lower tailored clothing
Spring `03 advances orders and lower in-stock clothing shipments, partially
offset by increased sportswear product sales. Women's Apparel Group revenues,
which represented approximately 9% of consolidated sales in 2003 and 2002,
decreased approximately $.8 million. Aggregate sportswear and other
non-tailored clothing product categories, including women's, represented 42%
of first half sales versus 41% a year ago. The consolidated gross margin
percentage to sales was 30.2% compared to 27.1% last year, reflecting an
improved gross margin rate in most product categories, less surplus
inventories and continued efficient manufacturing utilization. Consolidated
selling, general and administrative expenses were $71.1 million in the current
period compared to $72.9 million in 2002, and represented 27.5% of sales in
2003 compared to 27.0% of sales in 2002.

20

EBIT was $8.0 million in 2003 compared to $5.2 million in 2002 and represented
3.1% of sales in 2003 compared to 1.9% of sales in 2002. Results for 2002
included the previously discussed $4.5 million of settlement proceeds less the
$.9 million restructuring charge. Interest expense decreased to $3.8 million
from $8.6 million last year; the decline was principally attributable to the
refinancing actions discussed previously, which resulted in lower average
interest rates and $1.4 million less non-cash amortization of debt discount
and financing fees. The current period also included $.8 million pre-tax
refinancing expense related to the write off of unamortized debt discount and
issue costs from the January 2003 early retirement of the then outstanding
$10.3 million of 12 1/2% senior unsecured notes. Consolidated pre-tax earnings
were $3.4 million this year compared to a loss of $3.3 million last year.
After reflecting the applicable tax provision or benefit, consolidated net
earnings were $2.1 million or $.06 per basic and diluted share this year
compared to a loss of $2.0 million or $.06 per share last year.

The recent retail environment has continued to be weak with many apparel
retailers reporting comparable store sales declines. While this environment,
if continuing, could adversely affect the Company's operating results for the
second half of 2003, the Company remains focused on those areas which are more
controllable with the objective of achieving improved operating margins and
reduced interest expense. Restructuring actions initiated in 2001 were
completed in 2002, which lowered both manufacturing and administrative costs
through reduced production overheads, fewer warehousing and administrative
facilities and headcount reductions. Additional administrative combinations
initiated during 2002 have been completed in 2003 and will reduce operating
costs during the second half of 2003. During 2002, the Company put in place a
financing structure complementing its operational strategies with increased
borrowing capacity under a new credit facility compared to the facility it
replaced. Based on the Company's current capital structure and anticipated
borrowing levels and rates, interest expense in 2003 is running significantly
below prior year levels. During 2003, full year pre-tax earnings are expected
to improve considerably compared to 2002.

This quarterly report on Form 10-Q contains forward-looking statements made in
reliance upon the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The statements could be significantly impacted by such
factors as the level of consumer spending for men's and women's apparel, the
prevailing retail environment, the Company's relationships with its suppliers,
customers, lenders, licensors and licensees, actions of competitors that may
impact the Company's business and the impact of unforeseen economic changes,
such as interest rates, or in other external economic and political factors
over which the Company has no control. The reader is also directed to the
Company's 2002 Annual Report on Form 10-K for additional factors that may
impact the Company's results of operations and financial condition.
Forward-looking statements are not guarantees as actual results could differ
materially from those expressed or implied in forward-looking statements. The
Company undertakes no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future
events or otherwise.

Item 3 -- Quantitative and Qualitative Disclosures About Market Risk

The Company does not hold financial instruments for trading purposes or engage
in currency speculation. The Company enters into foreign exchange forward
contracts from time to time to limit the currency risks associated with
purchase obligations denominated in foreign currencies. Foreign exchange
contracts are generally for amounts not to exceed forecasted purchase
obligations or receipts and require the Company to exchange U.S. dollars for
foreign currencies at rates agreed to at the inception of the contracts. These
contracts are typically settled by actual delivery of goods or receipt of
funds. The effects of movements in currency exchange rates on these
instruments are recognized in earnings in the period in which the purchase
obligations are satisfied or funds are received. As of May 31, 2003, the
Company had entered into foreign exchange contracts, aggregating approximately
$3.8 million corresponding to approximately $3.2 million

21

Euros primarily related to inventory purchases in the next six months and 56
million Japanese yen primarily related to anticipated licensing revenues to be
received in the next nine months.

The Company is subject to the risk of fluctuating interest rates in the normal
course of business, primarily as a result of the variable rate borrowings
under its Credit Facility. Rates may fluctuate over time based on economic
conditions, and the Company could be subject to increased interest payments if
market interest rates rise rapidly. A 1% change in the effective interest rate
on the Company's anticipated borrowings under its Credit Facility would impact
interest expense by approximately $.9 million. In the last three years, the
Company has not used derivative financial instruments to manage interest rate
risk.

The Company's customers include major U.S. retailers (certain of which are
under common ownership and control), several of whom reported declines in
sales during 2002. The ten largest customers represented approximately 54% of
consolidated sales during fiscal 2002 with the largest customer representing
approximately 21% of sales. A decision by the controlling management of a
group of stores or any other significant customer, whether motivated by
competitive conditions, financial difficulties or otherwise, to decrease the
amount of merchandise purchased from the Company, or change their manner of
doing business, could have a material adverse effect on the Company's
financial conditions and results of operations.

Item 4 - Controls and Procedures

(A) Evaluation of Disclosure Controls and Procedures. The Company's
Chief Executive Officer and Chief Financial Officer have evaluated the
effectiveness of the Company's disclosure controls and procedures, as such
term is defined in Rule 13a-14(c) and 15d-14(c) under the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as of a date within 90 days
prior to the filing date of this quarterly report (the "Evaluation Date").
Based on such evaluation, such officers have concluded that, as of the
Evaluation Date, the Company's disclosure controls and procedures are
effective in bringing to their attention on a timely basis material
information relating to the Company (including its consolidated subsidiaries)
required to be included in the Company's periodic filings under the Exchange
Act.

(B) Changes in Internal Controls. Since the Evaluation Date, there
have not been any significant changes in the Company's internal controls or in
other factors that could significantly affect such controls.

22

Part II -- OTHER INFORMATION

Item 6. Exhibits and Reports on Form 8-K

(A) Exhibits:

10-A 2003 Incentive Stock Plan

99.1 Certification by Chief Executive Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

99.2 Certification of Chief Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.

(B) Reports on Form 8-K:

On March 3, 2003, the Company filed Form 8-K announcing that on
February 28, 2003, it had filed Form 12b-25 Notification of Late
Filing in connection with a delay in filing its Annual Report on
Form 10-K for the fiscal year ended November 30, 2002.

On March 17, 2003, the Company filed Form 8-K announcing results
of operations for the year ended November 30, 2002.

On April 7, 2003, the Company filed Form 8-K announcing results
of operations for the first quarter ended February 28, 2003.

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 14, 2003 By /s/ GLENN R. MORGAN
-------------------------------
Glenn R. Morgan
Executive Vice President,
Chief Financial Officer and Treasurer

(Principal Financial Officer)

July 14, 2003 By /s/ ANDREW A. ZAHR
------------------------------
Andrew A. Zahr
Vice President and Controller

(Principal Accounting Officer)

23

CERTIFICATION

I, Homi B. Patel, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hartmarx
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,

24

including any corrective actions with regard to significant deficiencies
and material weaknesses.

Dated: July 14, 2003

/s/ HOMI B. PATEL
---------------------------------
Homi B. Patel
President and Chief Executive Officer

25

CERTIFICATION

I, Glenn R. Morgan, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hartmarx
Corporation;

2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period
covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and

6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,

26

including any corrective actions with regard to significant deficiencies
and material weaknesses.

Dated: July 14, 2003

/s/ GLENN R. MORGAN
------------------------------------
Glenn R. Morgan
Executive Vice President,
Chief Financial Officer and Treasurer

27