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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-K

For annual and transition reports pursuant to Sections 13 or 15(d)

of the Securities and Exchange Act of 1934

For the fiscal year ended November 30, 2004

OR

For the transition period from              to             

Commission File Number 1-8501

HARTMARX CORPORATION

101 North Wacker Drive, Chicago, Illinois 60606

Telephone No.: 312/372-6300

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act: NONE

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 (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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    x

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

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The aggregate market value of common stock held by non-affiliates of the Registrant as of May 31, 2004 was approximately $210,000,000.

On January 31, 2005, 36,073,970 shares of the Registrant’s common stock were outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Certain portions of the Registrant’s definitive proxy statement dated February 24, 2005 for the Annual Meeting of Stockholders to be held April 13, 2005 are incorporated by reference into Part II and Part III of this report.

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HARTMARX CORPORATION

INDEX TO ANNUAL REPORT ON FORM 10-K

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PART I

Item 1—Business

General and Operating Segments

Hartmarx Corporation, a Delaware corporation, functions essentially as a holding company, overseeing the various operations of its subsidiaries and providing these subsidiaries with resources and services in financial, administrative, legal, human resources, advertising and other areas. The management of the respective operations has responsibility for optimum use of the capital invested in them and for planning their growth and development in coordination with the strategic plans of Hartmarx and the other operating entities (collectively, the “Company”).

Established in 1872, the Company believes it is the largest manufacturer and marketer of men’s suits and sport coats (“men’s tailored clothing”) in the United States. From this established position, Hartmarx has diversified into casual pants, men’s and women’s sportswear, including golfwear, dress furnishings (shirts and ties) and women’s career apparel.

The Company operates exclusively in the apparel business. Its operations are comprised of the Men’s Apparel Group (“MAG”) and Women’s Apparel Group. MAG designs, manufactures and markets men’s tailored clothing, slacks, sportswear (including golfwear) and dress furnishings (shirts and ties); products are sold under a broad variety of business and casual apparel brands, both owned and under license, to an extensive range of retail department and specialty stores. Product price points comprise luxury, premium and moderate. The Women’s Apparel Group markets women’s career apparel, designer knitwear, sportswear and accessories to department and specialty stores under owned and licensed brand names and through a direct to consumer operation offering a wide range of apparel and accessories to business and professional women through its catalogs and e-commerce website. The Operating Segment Information in Management’s Discussion and Analysis of Financial Condition and Results of Operations, as well as in the accompanying Notes to Consolidated Financial Statements further describe the Company’s operations.

Substantially all of the Company’s products are sold to a wide variety of retail channels under established brand names or the private labels of major retailers. The Company owns two of the most recognized brands in men’s tailored clothing—Hart Schaffner Marx^®, which was introduced in 1887, and Hickey-Freeman^®, which dates from 1899. The Company also offers its products under other brands which it owns such as Exclusively Misook^®, Sansabelt^®, Racquet Club^®, Palm Beach^®, Barrie Pace^®, Aura^™, Naturalife^®, Pusser’s of the West Indies^®, Society Brand Ltd.^™, Coppley^®, Keithmoor^®, Cambridge^®, Royal Shirt^™ and Brannoch^™; and under exclusive license agreements for specified product lines including Tommy Hilfiger^®, Jack Nicklaus^®, Golden Bear^®, Bobby Jones^®, Burberry^® men’s tailored clothing, Austin Reed^®, Perry Ellis^®, Kenneth Cole^®, Ted Baker^®, DKNY Donna Karan New York^®, Jeffrey Banks^®, Jhane Barnes^®, Blassport^®, Claiborne^®, Pierre Cardin^®, Lyle & Scott^®, Wimbledon^®, Andrea Jovine^® and Starington^™. To broaden the distribution of the apparel sold under its owned and licensed trademarks, the Company has also entered into 50 license or sublicense agreements with third parties for specified product lines to produce, market and distribute apparel in 26 countries outside the United States. Additionally, the Company has direct marketing activities primarily in Europe, but also in Asia, North America and South America, selling golfwear in 18 countries.

On July 20, 2004, a wholly-owned subsidiary of the Company acquired certain assets, properties and operations of Exclusively Misook, Inc. (“Misook”), a privately-held marketer of women’s designer knitwear. This acquisition further expanded and diversified the Company’s women’s product offerings.

This 2004 Annual Report on Form 10-K contains forward-looking statements that are made in reliance upon the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Wherever possible, the Company has identified these forward-looking statements by words such as “anticipates”, “believes”, “could”, “continues”, “estimates”, “expects”, “may”, “intends”, “projects”, “plans”, “should”, “will” or the negatives

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thereof or other comparable terminology. Additionally, the Company may from time to time make other oral or written statements that are also forward-looking statements. While the Company believes that the assumptions underlying such forward-looking information are reasonable based on present conditions, forward-looking statements made by the Company are not guarantees of future performance as actual results could differ materially from those expressed or implied in the forward-looking statements as a result of various factors. Accordingly, the Company has identified various important risk factors which could cause the Company’s actual financial results to differ materially from any such results which might be projected, forecasted or estimated by the Company in written or oral forward-looking statements including, but not limited to, the following:

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Notwithstanding this quota elimination, under the terms of China’s WTO accession agreement, the United States and other WTO members may reimpose quotas on specific categories of products in the event it is determined that imports from China have created a market disruption for such categories of products (so called “safeguard quota”). China is an important source of production for certain products marketed by the Company, and the reimposition of safeguard quotas on products from China following the elimination of the existing quota regime on January 1, 2005 could cause disruption in or changes to the Company’s supply chain and could result in lower gross margins than anticipated.

Certain of the above described risk factors are also discussed in the “Liquidity and Capital Resources” caption in Management’s Discussion and Analysis of Financial Condition and Results of Operations in this Form 10-K. 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.

Products Produced and Services Rendered

The Company’s merchandising strategy is to market a wide selection of men’s tailored clothing, sportswear and dress furnishings, and women’s career apparel, designer knitwear and sportswear across a wide variety of fashion directions, price points and distribution channels. MAG represented approximately 86% of sales in 2004, 89% of sales in 2003 and 91% of sales in 2002. Women’s Apparel Group represented approximately 14% of sales in 2004, 11% of sales in 2003 and 9% of sales in 2002. As a manufacturer and marketer, the Company is responsible for the design, manufacture and sourcing of its apparel. Its men’s tailored clothing and slacks are manufactured in seven Company operated facilities located in the United States and three facilities in Canada, as well as at numerous independent contractors located principally outside of the United States. Some of the Company’s dress furnishings are produced at a Company operated facility in Canada. However, the Company utilizes domestic and foreign contract manufacturers to produce a substantial portion of its non-tailored clothing products, principally men’s and women’s sportswear, as well as women’s career apparel and sportswear in accordance with Company specifications and production schedules.

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Sources and Availability of Raw Materials

Raw materials, which include fabric, linings, thread, buttons and labels, are obtained from domestic and foreign sources based on quality, pricing, fashion trends and availability. The Company’s principal raw material is fabric, including woolens, cottons, polyester and blends of wool and polyester. The Company procures and purchases its raw materials directly for its owned manufacturing facilities and may also procure and retain ownership of fabric relating to garments cut and assembled by contract manufacturers. In other circumstances, fabric is procured by the contract manufacturer directly but in accordance with the Company’s specifications. For certain of its product offerings, the Company and selected fabric suppliers jointly develop fabric for the Company’s exclusive use. Approximately 70% of the raw materials purchased by the Company is acquired from foreign mills. Purchases from foreign mills, especially with respect to higher quality fabrics, have increased in recent years reflecting both enhanced diversity of available styles relative to United States sourced fabric and reduced duties on such foreign purchases. A substantial portion of these purchases is denominated in United States dollars. Purchases from the Company’s largest fabric supplier represented approximately 8% of the Company’s total fabric requirements in fiscal 2004 compared to 5% in 2003 and approximately 8% in 2002. No other supplier accounts for over 7% of the Company’s fiscal 2004 total raw material requirements. As is customary in the industry, the Company has no long-term contracts with its suppliers. The Company believes that a variety of alternative sources of supply are available to satisfy its raw material requirements.

Product lines are developed primarily for two major selling seasons, spring and fall, with smaller lines for the summer and holiday seasons. The majority of the Company’s products are purchased by its customers on an advance order basis, five to seven months prior to shipment. Seasonal commitments for a portion of the expected requirements are made approximately three to five months in advance of the customer order. Certain of the Company’s businesses maintain in-stock inventory programs on selected product styles giving customers the capability to order electronically with resulting shipment within one to two business days. Programs with selected fabric suppliers provide for availability to support in-stock marketing programs. The normal production process from fabric cutting to finished production is five to six weeks for tailored suits and sport coats and three to four weeks for tailored slacks. A substantial portion of sportswear and women’s apparel is produced by unaffiliated contractors utilizing Company designs.

Competition and Customers

The Company emphasizes quality, fashion, brand awareness and service in engaging in this highly competitive business. While no manufacturer of men’s clothing accounts for more than a small percentage of the total amount of apparel produced by the entire industry in the United States, the Company believes it is the largest domestic manufacturer and marketer of men’s tailored clothing and men’s slacks with expected retail prices over $50. The Company’s women’s apparel sales do not represent a significant percentage of the total market for women’s apparel sales. The Company’s customers include major department and specialty stores (certain of which are under common ownership and control), value-oriented retailers and direct mail companies. The Company’s largest customer, Dillard’s Department Stores, represented approximately 23%, 26% and 21% of consolidated sales in 2004, 2003 and 2002, respectively. No other customer exceeded 10% of net sales. The Company’s top ten customers represented approximately 55% of sales in 2004, 56% in 2003 and 54% in 2002.

Advance Orders

As of November 30, 2004 and 2003, advance orders for the next Spring season aggregated approximately $158 million and $179 million, respectively, all of which will be or were shipped within the subsequent six months. Backlog information is not necessarily indicative of sales to be expected for the following year due to the level of in-stock EDI replenishment programs with many retailers and differences between years when the retailer places orders for the Company’s products. As described in Item 7, Management’s Discussion and Analysis of Financial Condition and Results of Operations, the Company expects a fiscal 2005 revenue increase in the low to mid-single digits.

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Geographic Distribution of Sales

For the fiscal years ended November 30, 2004, 2003 and 2002, the geographic distribution of sales was as follows (in rounded whole percents):

Trademarks, Licensing Agreements and Research

A significant portion of the Company’s sales are of products carrying brands and trademarks owned by the Company. As noted previously, the Company also manufactures and markets products pursuant to exclusive license agreements with others. While the terms and duration of these license agreements vary, typically they provide for certain minimum payments and are subject to renewal and renegotiation.

The Company has recently entered into new license agreements with Jeffrey Banks, Jhane Barnes, Bill Blass and Donna Karan, principally relating to tailored clothing product categories. Sales will be initiated during 2005 relating to these product lines and are not expected to be significant. The Evan Picone license agreement expired December 31, 2004 and was not renewed. Annual sales of Evan Picone products during 2004 were approximately $14 million.

In the apparel industry, new product development is directed primarily towards new fashion and design changes and does not require significant expenditures for research. The Company’s fixed assets include expenditures for new equipment developed by others. The Company does not spend material amounts on research activities relating to the development of new equipment.

Conditions Affecting the Environment

Regulations relating to the protection of the environment have not had a significant effect on capital expenditures, earnings or the competitive position of the Company. The making of apparel is not energy intensive, and the Company is not engaged in producing fibers or fabrics.

Employees

The Company presently has approximately 4,000 employees, of which approximately 93% are employed in MAG. Most of the employees engaged in manufacturing and distribution activities in the United States and Canada are covered by union contracts with UNITE HERE, formerly the Union of Needletrades, Industrial & Textile Employees. The Company considers its employee relations to be satisfactory.

Seasonality; Working Capital

The men’s tailored clothing business has two principal selling seasons, spring and fall. Additional lines for the summer and holiday seasons are marketed in men’s and women’s sportswear. Men’s tailored clothing, especially at higher price points, generally tends to be less sensitive to frequent shifts in fashion trends, economic conditions and weather, as compared to men’s sportswear or women’s career apparel and sportswear. While there is typically little seasonality to the Company’s sales on a quarterly basis, seasonality can be affected by a variety of factors, including the mix of advance and fill-in orders, the distribution of sales across retail trade channels and overall product mix between traditional and fashion merchandise. The Company generally receives advance

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orders from its wholesale customers approximately five to seven months prior to shipment. Some of the Company’s operating businesses also routinely maintain in-stock positions of selected inventory in order to fill customer orders on a quick response basis.

Sales and receivables are recognized when the following criteria are met: persuasive evidence of an agreement exists, delivery has occurred, the price is fixed and determinable and collectability is reasonably assured. Payment terms are generally 30 to 60 days from the date of shipment. With respect to the tailored clothing advance order shipments, customary industry trade terms are 60 days. In-stock shipments generally have 30 day terms. Peak borrowing levels occur towards the end of March and September, just prior to the collection of receivables from men’s tailored clothing advance order shipments. Additional borrowing availability under the Credit Facility is usually lowest in January and July, and highest in May and November.

Availability of Reports Filed with the Securities and Exchange Commission, Code of Conduct, Corporate Governance Guidelines and Charters for Committees of the Board of Directors

We make available free of charge through our website, www.hartmarx.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports as soon as reasonably practicable after such material is electronically filed with the Securities and Exchange Commission. Also available on our website under the heading “Investor Information” are current copies of the Company’s Code of Conduct and Ethics, its Corporate Governance Guidelines and Charters for the Audit and Finance, Compensation and Stock Option, and Nominating and Governance Committees of the Board of Directors. Print copies of the current Corporate Governance Guidelines, or the respective committee charters are also available at no charge to stockholders upon request addressed to the Corporate Secretary at Hartmarx Corporation, 101 North Wacker Drive, Chicago, IL 60606. Our internet website and the information contained therein or incorporated therein are not intended to be and are not incorporated into this Annual Report on Form 10-K.

Item 2—Properties

The Company’s principal executive and administrative offices are located in Chicago, Illinois. Its office, manufacturing and distribution operations are conducted at the following locations:

* Properties owned by the Registrant

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The Company believes that its properties are well maintained and its manufacturing equipment is in good operating condition and sufficient for current production. For information regarding the terms of the leases and rental payments thereunder, refer to the “Commitments and Contingencies” note to the Consolidated Financial Statements of this Form 10-K.

The Company intends to implement a significant renovation of its Hickey-Freeman manufacturing and distribution facility in Rochester, New York, commencing in 2005, at an estimated cost of $7.5 million. In connection with this project, the Company has entered into agreements with various local and state governmental agencies, in which the various agencies will reimburse the Company for $5.0 million of the renovation costs in the form of participating grants. Among other things, the terms of the governmental grant monies require that a minimum employment level be maintained at the facility through 2011. If the required minimum employment level is not maintained, a portion of the grant monies could be converted into loans based on a sliding amortization schedule through 2011. The facility’s employment levels have been substantially in excess of the minimum level for a number of years and the Company expects that employment will exceed the minimum level through 2011.

Substantially all of the Company’s assets, including real property and equipment, are pledged as security under its senior credit facility or subject to mortgages with other lenders.

Item 3—Legal Proceedings

The Company is involved in various claims and lawsuits incidental to its business. In the opinion of management, these claims and lawsuits will not have a material adverse effect on the Company’s business, financial position, results of operations or cash flows.

Item 4—Submission of Matters to a Vote of Security Holders

None.

Executive Officers of the Company

Each of the executive officers of the Company listed below has served the Company in various executive capacities for at least the past five years. Each corporate officer is elected annually by the Board of Directors, normally for a one-year term and is subject to removal powers of the Board.

Mr. Patel was elected to his current position as Chairman, President and Chief Executive Officer in July 2004. From April 2002 to April 2004, he served as President and Chief Executive Officer. From February 1993 to April 2002, he served as President and Chief Operating Officer.

Mr. Morgan was elected to his current position as Executive Vice President, Chief Financial Officer and Treasurer in April 2001. From September 1995 to April 2001, he served as Executive Vice President and Chief Financial Officer.

Mr. Proczko was elected to his current position as Senior Vice President, General Counsel and Secretary in December 2001. From January 2000 to December 2001, he served as Vice President, Corporate Counsel and Secretary. From March 1993 to January 2000, he served as Assistant General Counsel.

Mr. Zahr was elected to his current position as Vice President and Controller in April 1998.

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PART II

Item 5—Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Hartmarx Corporation common stock is traded on the New York and Chicago Stock Exchanges. The quarterly composite price ranges of the Company’s common stock for the past three fiscal years were as follows:

The most recent quarterly dividend paid was in November 1991, in the amount of $.15 per share. Generally, dividends may be paid so long as excess borrowing availability, as set forth in the Credit Facility, exceeds $25 million, after reflecting the payment of such dividends.

As of January 31, 2005, there were approximately 3,600 holders of the Common Stock. The number of holders was estimated by adding the number of registered holders furnished by the Company’s registrar together with the number of participants in the Company’s Savings Investment and Stock Ownership Plan.

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Item 6—Selected Financial Data

The following table summarizes data for the fiscal years 2000 through 2004. The Company’s complete audited financial statements and notes thereto for the three years ended November 30, 2004 appear elsewhere in this Annual Report on Form 10-K.

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Certain prior year amounts have been reclassified to conform to the current year’s presentation. Management’s Discussion and Analysis of Financial Condition and Results of Operations and Notes to Consolidated Financial Statements provide additional information relating to the comparability of the information presented above.

Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview

The Company operates exclusively in the apparel business. Its operations are comprised of the Men’s Apparel Group (“MAG”) and Women’s Apparel Group. MAG designs, manufactures and markets men’s tailored clothing, slacks, sportswear (including golfwear) and dress furnishings (shirts and ties). Products are sold at luxury, premium and moderate price points under a broad variety of apparel brands, both owned and under license, to an extensive range of retail channels. The Women’s Apparel Group markets women’s career apparel, designer knitwear, sportswear and accessories to department and specialty stores under owned and licensed brand names and through a direct to consumer operation offering a wide range of apparel and accessories to business and professional women through catalogs and its e-commerce website.

The Company’s principal operational challenges have been to address the following:

Implementation of the Company’s operational strategies during the three year period ended November 30, 2004 resulted in an improvement in pre-tax earnings to $25.9 million in 2004 from $14.4 million in 2003 and $1.4 million in 2002. The three year earnings improvement was attributable principally to the higher sales in 2004 as well as increased operating margins and lower interest costs. Operating margins as a percentage of sales increased to 5.5% in 2004 from 4.0% in 2003 and 3.7% in 2002, and the pre-tax margin on sales improved to 4.4% in 2004 from 2.6% in 2003 and .2% in 2002. Consolidated revenues were $586.4 million in 2004, $561.8 million in 2003 and $570.3 million in 2002. Total debt declined from $171.6 million at the beginning of fiscal 2002 to $102.0 million at November 30, 2004.

The Company has continued to expand its non-tailored clothing product offerings through internally developed programs, new licensing arrangements and acquisitions. On July 20, 2004, the Company acquired certain assets, properties and operations of Exclusively Misook, Inc. (“Misook”), a designer and marketer of upscale women’s knit products sold through leading specialty and department stores. The purchase price for Misook as of the acquisition date was $32.6 million. As described in the Notes to Consolidated Financial Statements, additional contingent consideration will be due as Misook achieves certain specified financial performance targets. The acquisition of Misook, which provides for strategic growth opportunities in womenswear and further diversification of non-tailored product categories, contributed over $11 million in revenues and approximately $.04 in earnings per diluted share to 2004 results. In 2001, the Company acquired the Consolidated Apparel Group (“CAG”), a marketer of moderate priced men’s sportswear. These product diversification actions, along with the introductions of Bobby Jones and Nicklaus golfwear in earlier years, have opened up or expanded distribution channels for the Company’s products, such as through “green grass” and resort shops for golfwear and warehouse clubs for moderate-priced sportswear. Although representing only a small percentage of consolidated revenues, direct-to-consumer marketing is increasing, including internet-based marketing for certain womenswear and higher end sportswear products. Sales of non-tailored apparel (men’s sportswear, golfwear, slacks and womenswear) increased to 47% of total sales in 2004 from 44% in 2003, and is expected to increase further in fiscal 2005 from the full year of Misook business.

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The Company began reducing the number of its domestically owned tailored clothing facilities during the 1990’s in response to declining demand, and initiated sourcing of moderate-priced tailored clothing from non-domestic unaffiliated contractors in order to lower costs and improve margins. During 2001, the recessionary economic climate and generally weak apparel sales at retail resulted in the Company accelerating its gross margin improvement and cost reduction actions initiated previously. The actions during 2001 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 and several administrative offices, early voluntary retirement programs and other administrative workforce reductions. Accordingly, in fiscal 2001, the Company reported a restructuring charge of $11.6 million, which included costs for severance and related fringe benefits, estimated closing costs for owned facilities or exit costs for leased facilities and the write-down of fixed assets to estimated fair values for facilities closed or to be closed. One additional manufacturing facility was closed in 2002, completing the restructuring program.

The improved results in 2002, 2003 and 2004 reflected the effects of actions taken regarding product line diversification, administrative cost reductions and working capital management. Consolidated gross margins increased during this three-year period to 32.4% in 2004 from 30.2% in 2003 and 28.8% in 2002, reflecting the changing product mix, lower product costs, improved manufacturing utilization of owned manufacturing facilities, and the elimination of lower margin programs and product offerings. Selling, general and administrative expenses increased to $160.2 million in 2004 from $148.8 million in 2003 and $150.2 million in 2002, reflecting the effect of the change in product mix, acquisitions and incremental costs related to documentation and testing of internal controls as required by the Sarbanes-Oxley Act. Based on current business conditions, the Company anticipates a low to mid single digit sales increase in 2005 compared to 2004, principally in the non-tailored product categories. Net earnings in 2005 are anticipated to increase from 2004 in the range of 30% to 40% from the higher sales and improvement in operating margins.

Results of Operations

Consolidated revenues were $586.4 million in 2004 compared to $561.8 million in 2003 and $570.3 million in 2002. Operating earnings improved to $32.4 million in 2004 from $22.6 million in 2003 and $21.1 million in 2002. Results for 2002 included settlement proceeds of $4.5 million related to a legal action initiated in 1999 against the provider of an enterprise resource planning software, and $.4 million of restructuring charges, principally related to the closing of one manufacturing facility.

The following summarizes sales and operating earnings for the Company’s business segments (in millions):

In the above table for 2002, the $.4 million restructuring charge is reflected as a reduction to MAG operating earnings and the $4.5 million of settlement proceeds is included in the “Other and adjustments” caption, which represents expenses not directly allocated to a particular operating segment.

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Men’s Apparel Group

MAG revenues were $506.7 million in 2004, $501.7 million in 2003 and $521.1 million in 2002. The revenue increase in 2004 compared to 2003 was attributable to higher tailored clothing product revenues; sportswear revenues were up slightly as higher priced sportswear sales were largely offset by declines in moderate priced sportswear sales to the warehouse club channel. In general, wholesale selling prices for comparable products were approximately even in 2004 compared to 2003. Tailored clothing average wholesale selling prices increased slightly from 2003, reflecting a shift in product mix in 2004 compared to the prior year and fewer off-price dispositions. Unit sales of tailored clothing product categories changed from the prior year as follows: suits increased approximately 2%; sport coats decreased approximately 6%. Slack product categories increased approximately 21% in units while average wholesale selling prices decreased approximately 8% reflecting a shift in product mix to lower priced casual pants. While unit sales of sportswear products decreased 6%, average wholesale prices were approximately 7% higher than 2003 reflecting product mix changes to higher priced products. The revenue decline in 2003 compared to 2002 was primarily attributable to lower tailored clothing product revenues, reflecting both lower tailored clothing advance orders and in-stock shipments, partially offset by higher sportswear product sales. Actions initiated in prior years to reduce revenues in lower profit potential moderate priced tailored clothing product categories resulted in a reduction in sales of approximately $14 million from 2002 to 2003. Tailored clothing average wholesale selling prices increased slightly in 2003 from 2002, reflecting the shift in product mix with fewer moderate price products in 2003 than the prior year. Unit sales of tailored clothing product categories declined from the prior year as follows: suits approximately 6% and sport coats approximately 5%. The slack product categories decreased approximately 22% and average wholesale selling prices increased approximately 8% reflecting a shift in product mix. Unit sales of sportswear products increased 7%, and selling prices decreased 3% compared to 2002.

MAG operating earnings were $41.0 million in 2004 compared to $29.9 million in 2003 and $30.6 million in 2002, with tailored clothing products representing the most significant contributor to earnings and cash flow in each year. The increase in MAG operating earnings in 2004 from 2003, reflected the higher sales and a higher gross margin ratio to sales (30.3% vs. 28.4%). Operating expenses were $114.9 million compared to $114.4 million in 2003. Tailored clothing represented the principal product category contributor to the earnings increase. Although MAG revenues declined $19.4 million in 2003 from 2002, operating earnings were only $.7 million lower, reflecting a higher gross margin rate (28.4% vs. 27.4%) from the higher sportswear sales and the continuing favorable gross margin effects of restructuring actions taken in prior years. Operating expenses of $114.4 million in 2003 were $.3 million higher than the prior year.

Women’s Apparel Group

Women’s Apparel Group sales, comprising approximately 14% of consolidated sales in 2004 compared to 11% in 2003 and 9% in 2002, aggregated $79.7 million in 2004, $60.1 million in 2003 and $49.2 million in 2002. The 2004 revenue increase was principally attributable to the inclusion of $11.3 million of Misook sales following the July 2004 acquisition and the effect of a one year private label program, which commenced in the Fall of 2003 and was substantially completed during the second fiscal quarter of 2004. This private label program aggregated $12.9 million in 2004 compared to $9.6 million in 2003. Excluding the impact of the private label program, unit sales of women’s apparel increased approximately 34%; approximately one-half of the unit increase was attributable to Misook. Average selling prices declined less than 1%, with an increase attributable to Misook offsetting a decline in the other product lines taken as a whole. The 2003 revenue increase was principally attributable to the one year private label program described above, as well as from higher direct-to-consumer website sales. Excluding the private label program, unit sales of women’s apparel from 2002 to 2003 increased approximately 2% and average selling prices increased about 8%.

Women’s Apparel Group generated operating earnings of $7.5 million compared to $4.3 million in 2003 and a loss of $.9 million in 2002. The operating earnings improvement in 2004 from 2003 was principally attributable to both the increased sales and improved operating margins. In fiscal 2004, the Misook business contributed

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approximately $2.7 million to operating earnings. Segment gross margins improved to 46.0% from 45.2%, primarily from the inclusion of Misook and the new program, while operating expenses, which included the Misook operating expenses, increased $6.3 million to $29.1 million. The operating earnings improvement in 2003 from 2002 was principally attributable to both the increased sales and improved operating margins. Gross margins improved to 45.2% from 43.9%, while operating expenses increased $.2 million to $22.8 million.

Gross Margins. The consolidated gross margin percentage of sales was 32.4% in 2004, 30.2% in 2003 and 28.8% in 2002. The improvement in the 2004 gross margin rate compared to 2003 as well as 2003 compared to 2002 reflected the ongoing programs to improve manufacturing utilization in owned facilities, reduced duties on fabric purchases, additional utilization of off-shore contractors for moderate priced tailored clothing, and from product mix changes with sportswear and womenswear products realizing a higher gross margin rate on sales compared to tailored clothing. As previously noted, MAG and Women’s Apparel Group gross margins each improved in 2004 compared to 2003 and in 2003 compared to 2002.

Gross margins may not be comparable to those of other entities, since some entities include all of the costs related to their distribution network in arriving at gross margin, whereas the Company included $18.9 million in 2004, $19.0 million in 2003 and $17.7 million in 2002 of costs related to warehousing, picking and packing of finished products as a component in Selling, General and Administrative Expense.

Selling, General and Administrative Expenses. Selling, general and administrative expenses were $160.2 million in 2004, $148.8 million in 2003 and $150.2 million in 2002. As a percentage of sales, the expense ratio was 27.3% in 2004 compared to 26.5% in 2003 and 26.3% in 2002. The increase relative to sales in the respective years in part reflected changes in revenue mix towards men’s sportswear and women’s products with higher gross margin and operating expense ratios to sales. The dollar increase in 2004 compared to 2003 included incremental expenses of $3.0 million related to the Misook business, $1.1 million of incremental expenses associated with additional Bobby Jones stores and $4.4 million of professional fees related to the documentation and testing of internal controls over financial reporting as required by the Sarbanes-Oxley Act, partially offset by a real estate tax refund relating to the Company’s corporate office. The small dollar decrease in 2003 compared to 2002 reflected the continuing effect of the restructuring actions taken in prior years and overall employment declines, although the expense ratio increased slightly due to the lower sales.

Advertising expenditures, including costs related to the Barrie Pace direct-to-consumer catalog operation, were $22.8 million in 2004, $20.3 million in 2003 and $21.6 million in 2002, representing 3.9%, 3.6% and 3.8% of consolidated sales, respectively. The $2.5 million increase in 2004 from 2003 primarily reflected higher expenditures to advertise tailored clothing products. The $1.3 million decline in 2003 was principally in the women’s apparel segment, reflecting fewer catalog pages and mailings due to a greater emphasis on lower cost website opportunities.

Operating Earnings. Operating earnings were $32.4 million in 2004, $22.6 million in 2003 and $21.1 million in 2002, representing 5.5%, 4.0% and 3.7% of sales, respectively. As noted previously, fiscal 2002 included settlement proceeds of $4.5 million related to a legal action initiated in 1999 against the provider of an enterprise resource planning software. The restructuring charge in 2002 consisted of $.9 million related to the costs of closing one manufacturing facility, partially offset by $.5 million of favorable adjustments from proceeds received in disposing of three production and administrative facilities.

Interest Expense. Interest expense was $6.5 million in 2004, $7.4 million in 2003 and $15.5 million in 2002, representing 1.1% of sales in 2004, 1.3% in 2003 and 2.7% in 2002. The decrease in 2004 from 2003 was principally attributable to lower average borrowings as average borrowing rates were about the same. The $8.1 million decrease in 2003 from 2002 was principally attributable to the August 2002 refinancing, which enabled the Company to retire $40 million of high cost debt during the August 2002 through January 2003 period and reduce the effective interest rate on borrowings under its senior credit facility. Interest expense included non-cash amortization of financing fees and expenses of $.6 million in 2004, $.6 million in 2003 and $1.6 million in 2002.

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Fiscal 2003 and 2002 also included $.1 million and $2.1 million, respectively, of interest expense representing debt discount amortization related to the now retired 12.5% senior unsecured notes. The effective interest rate for all borrowings, including non-cash amortization costs, was 5.5% in 2004, 5.5% in 2003 and 10.7% in 2002. The Company’s weighted average short term borrowing rate for the year was 3.8% in 2004, 3.8% in 2003 and 6.5% in 2002.

Refinancing Expense. Fiscal 2003 included $.8 million 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 12.5% senior unsecured notes. The $4.2 million of refinancing expense in 2002 comprised $2.8 million related to the write-off of unamortized financing fees under a replaced credit facility and $1.4 million attributable to the write-off of unamortized debt discount and financing fees from the early retirement of $15 million of $25.3 million of 12.5% senior unsecured notes.

Pre-Tax Earnings and Net Earnings. Pre-tax earnings improved to $25.9 million in 2004 compared to $14.4 million in 2003 and $1.4 million in 2002. The Company’s effective income tax rate was 38.8% in 2004, 39.5% in 2003, and 39.1% in 2002; the lower effective tax rate in 2004 reflected recognition of available benefits of tax operating losses in Canada. Net earnings were $15.9 million or $.44 per diluted share in 2004 compared to $8.7 million or $.25 per diluted share in 2003 and $.9 million or $.03 per diluted share in 2002.

Liquidity and Capital Resources

Total debt at November 30, 2004 of $102.0 million declined $2.4 million compared to the year earlier level. Excluding the $32.6 million paid for Misook in July 2004 and its subsequent earnings contribution, debt declined approximately $30 million during fiscal 2004, principally from cash provided by operating activities. The $25.7 million of borrowings classified as current at November 30, 2004 reflects anticipated debt reduction during fiscal 2005. Total cash provided by operating activities aggregated $36.9 million in 2004, $15.1 million in 2003 and $58.0 million in 2002. The increase in 2004 compared to 2003 primarily reflected the increase in earnings. The higher amount in 2002 compared to 2003 was principally attributable to the significant reduction in working capital during fiscal 2002. As discussed below, the Company has significant federal tax operating loss carryforwards available to offset current taxable income otherwise payable. Net cash used in investing activities was $38.2 million in 2004, $4.0 million in 2003 and $3.5 million in 2002; the increase in 2004 was principally attributable to the Misook acquisition. The $.7 million cash provided by financing activities in 2004 reflected higher equity sale transactions, net of the small overall debt reduction during the year. During 2003 and 2002, net cash used in financing activities was $14.9 million and $49.2 million, respectively, principally reflecting debt repayments. Total debt, including borrowings classified as short term, represented 32% of the Company’s total $324 million capitalization at November 30, 2004, compared to 35% at November 30, 2003. The lower debt capitalization ratio was attributable to the higher shareholders’ equity at November 30, 2004 compared to 2003, from the increased earnings, higher equity sales and the reduction of the minimum liability related to the Company’s pension plan.

The information provided below describing the Company’s debt, credit facilities, guarantees and future commitments is included here to facilitate a review of the Company’s liquidity, pursuant to the Securities and Exchange Commission (“SEC”) Financial Reporting Release No. 61.

On January 16, 2002, the Company completed an exchange offer for its then outstanding 10.875% senior subordinated notes (“Old Notes”) due in January 2002, originally issued in March 1994 as part of a $100 million public offering. For each $1,000 principal amount of Old Notes outstanding, the Company paid $200 in cash and issued $800 principal amount of 12.5% 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.

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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 new Credit Facility resulted in lower borrowing rates. All borrowings under the replaced facility, including a $15 million 10.25% term loan then outstanding, were repaid. In November 2002, $15 million face value of the New Notes were retired and the remaining $10.3 million of New Notes were retired in January 2003.

The Credit Facility had a three and one-half year term (i.e., through February 2006) with an additional one year renewal at the Company’s option (i.e., through February 2007), and also provides for a $50 million letter of credit sub-facility. Interest rates under the Credit 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 4.4% at November 30, 2004, based on LIBOR and prime rate loans. The facility provides for an unused commitment fee of .375% 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. At November 30, 2004, the stated interest rate on all borrowings on a weighted average basis was approximately 5.5% compared to 4.9% at November 30, 2003.

Pursuant to an amendment dated as of January 3, 2005, and effective January 1, 2005, the Credit Facility was amended, extending its term by three years to February 28, 2009; the Company retains its option to extend the term for an additional year, to February 25, 2010. Interest rates under the Facility continue to be based on a spread in excess of either LIBOR or prime as the benchmark rate and on the level of excess availability. The anticipated effect of the amendment on interest rates is to lower the Company’s interest rate spread by 75 basis points for LIBOR borrowings and 25 basis points for prime rate borrowings, considering the Company’s anticipated availability position during 2005.

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 2004 and as of November 30, 2004, 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. Risk factors are described in Item 1—Business of this Form 10-K. The following summarizes certain of the risk factors included in Item 1:

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At November 30, 2004, the Company had approximately $22.6 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. Availability levels on any date are impacted by the level of outstanding borrowings under the Credit Facility, the level of eligible receivables and inventory and outstanding letters of credit. Availability levels generally decline towards the end of the first and third quarters and increase during the second and fourth quarters. During fiscal 2004, additional availability levels ranged from $35 million to $101 million. At November 30, 2004, additional borrowing availability under the credit facility was $101 million. The Company has also entered into surety bond arrangements aggregating approximately $11.5 million with unrelated parties, primarily for the purposes of satisfying workers’ compensation deposit requirements of various states where the Company has operations. At November 30, 2004, there were an aggregate of approximately $3.5 million of outstanding foreign exchange contracts primarily attributable to approximately 2.3 million Canadian dollars related to anticipated U.S. dollar collections by the Company’s Canadian business in the next six months and approximately 189 million Japanese yen, primarily related to anticipated licensing revenues to be received in the next nine months. Other than the Company’s ongoing guarantee of a $2.5 million industrial development bond included as a component of consolidated debt, 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’s various borrowing arrangements are described in the accompanying Notes to the Consolidated Financial Statements and 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.

Off-Balance Sheet Arrangements. 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.

The Company believes that its liquidity and expected cash flows are sufficient to finance its operations after due consideration of its various borrowing arrangements, other contractual obligations and earnings prospects. The accompanying Notes to Consolidated Financial Statements contain information regarding payments required under existing borrowing arrangements, lease obligation commitments and other contractual obligations. The following presents a summary of the Company’s significant contractual obligations (in millions):

Purchase commitments represent outstanding purchase commitments primarily related to the purchase of raw materials and finished goods.

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Other long term obligations comprise minimum obligations related to licensing and employment agreements. With respect to licensing arrangements, the Company manufactures and markets certain of its product offerings pursuant to exclusive license agreements with unaffiliated licensors for specified product lines. Royalty amounts are generally based on a stipulated percentage of revenues, although certain of these agreements contain provisions for the payment of minimum annual royalty amounts. The licensing agreements are generally for a three to five year term with additional renewal options, provided that minimum sales levels are achieved. Under terms of the current agreements, the Company has minimum payments of approximately $17 million in 2005, $22 million in 2006 and 2007, $10 million in 2008 and 2009, and $1 million in 2010. Additionally, there are certain license agreements that have a perpetual term and annual minimum payments under these agreements are approximately $1 million.

The Company has employment agreements in place covering certain of its corporate and subsidiary officers providing for the payment of base salaries and contingent additional compensation; severance amounts would be payable in lieu of compensation in the event of involuntary termination by the Company. Aggregate annual base salaries for these covered employees are approximately $2.2 million. In the event of a change in control and termination of employment, as defined in the agreements, the Company would be required to make severance payments in lieu of compensation under the employment agreements in addition to reimbursement payments to eliminate the effect of any excess personal income taxes, if any, associated with these payments.

The Company intends to implement a significant renovation of its Hickey-Freeman manufacturing and distribution facility in Rochester, New York, commencing in 2005, at an estimated cost of $7.5 million. In connection with this project, the Company has entered into agreements with various local and state governmental agencies, in which the various agencies will reimburse the Company for $5.0 million of the renovation costs in the form of participating grants. Among other things, the terms of the governmental grant monies require that a minimum employment level be maintained at the facility through 2011. If the required minimum employment level is not maintained, a portion of the grant monies could be converted into loans based on a sliding amortization schedule through 2011. The facility’s employment levels have been substantially in excess of the minimum level for a number of years and the Company expects that employment will exceed the minimum level through 2011.

Pension Plans. At November 30, 2004, the accumulated benefit obligation related to the Company’s pension plans was approximately $244 million. The Company contributed $10.5 million to the plans in fiscal 2004, $8.9 million in 2003 and $12.6 million in 2002. Contributions to be made during fiscal 2005 are currently estimated to be within a range of $6 million to $8 million. Funding requirements applicable to fiscal 2006 and subsequent years will be determined, in part, after consideration of fair market value of plan assets at the end of fiscal 2005 and the appropriate discount rate; however, it is not anticipated that funding requirements in 2006 will be significantly different than that experienced over the past several years.

Pension expense for the Company’s plans reflected in the accompanying financial statements, including amounts applicable to the non-qualified supplemental pension plan, was $6.6 million in 2004, $9.0 million in 2003 and $8.8 million in 2002. The principal assumptions to be utilized for 2005 in the determination of annual pension expense for financial reporting purposes are as follows:

In determining the discount rate, the Company utilizes the yield on high quality fixed income investments, principally those representing the AA bond rating which approximates the average duration of the pension obligations. The asset return assumption takes into consideration historical and expected long term returns based upon the weighted allocation of equities, fixed income and other asset components comprising the plan’s assets at November 30, 2004. The rate of compensation increase considers both historical and anticipated rates of future

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salary and other contingent compensation. The following illustrates the sensitivity to a one quarter percent (.25%) change in assumptions on annual pension expense based upon the most recent available actuarial valuation during 2004 and asset levels at November 30, 2004 (in millions):

Other Balance Sheet Components Impacting Liquidity. During 2004, the principal working capital components (i.e., receivables and inventories net of accounts payable and accrued expenses) had a small year over year aggregate increase following a small increase in requirements during 2003 compared to 2002. At November 30, 2004, net accounts receivable of $119.0 million increased $1.3 million or 1% from November 30, 2003. Inventories at November 30, 2004 were $130.1 million compared to $124.0 million at November 30, 2003 and $115.2 million at November 30, 2002. The increase at each year end compared to the prior year was principally attributable to the earlier production or receipt of goods relating to anticipated shipments in the following season.

Deferred income taxes at November 30, 2004 aggregated $56.0 million compared to $68.2 million at November 30, 2003. Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes”, requires, among other things, (1) the recognition of deferred tax assets, including the future benefit associated with operating loss carryforwards, (2) a periodic evaluation of the likelihood that the deferred tax assets are realizable and (3) the establishment of a valuation allowance to offset deferred tax assets to the extent realization is not considered more likely than not. The Company has concluded that it is more likely than not that there would be sufficient taxable earnings to fully utilize the operating loss carryforwards and its deferred tax assets will be fully realized and a tax valuation allowance is not required. Approximately $34 million of the total deferred income taxes has been classified as non-current, principally associated with the benefit recognized attributable to expected future utilization of operating loss carryforwards. At November 30, 2004, the Company had approximately $119 million of federal tax operating loss carryforwards available to offset future taxable income. Approximately $98 million of the $119 million of available operating loss carryforwards expire over the 2007-2009 periods, $2 million expiring in 2010 and the remainder expiring through 2022. The American Jobs Creation Act of 2004 is not expected to have a significant future impact on the Company’s determination of taxable income, effective tax rate, or utilization of tax operating loss carryforwards.

At November 30, 2004, net properties of $27.6 million decreased by $1.7 million, as capital additions were more than offset by depreciation expense. Capital additions were $4.2 million in 2004 compared to $2.6 million in 2003 and $3.4 million in 2002. Capital additions for 2005 are anticipated to be in the $5 million to $7 million range related to both owned manufacturing facilities, including costs related to upgrading the Company’s facility in Rochester, New York, and additional Bobby Jones stores. Covenants under existing lending arrangements are not restricting capital additions otherwise being considered by the Company. Depreciation expense was $5.6 million in 2004, $5.9 million in 2003 and $6.3 million in 2002.

Shareholders’ equity of $221.8 million at November 30, 2004 represented $6.16 book value per share compared to $5.49 book value per share at November 30, 2003. The $29.3 million equity increase during 2004 reflected the net earnings for the year, proceeds from the exercise of stock options, ongoing equity sales to employee benefit plans and the reduction of the minimum liability related to the Company’s pension plan. Dividends have not been paid since 1991.

Critical Accounting Policies

The information provided below describing critical accounting policies is pursuant to Securities and Exchange Commission Financial Reporting Release No. 60 directing registrants to include a discussion of “critical” accounting policies or methods used in the preparation of financial statements.

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The Company’s significant accounting policies are contained in the accompanying Notes to Consolidated Financial Statements. The financial statements have been prepared in conformity with generally accepted accounting principles and, accordingly, include amounts based on informed estimates and judgments of management with due consideration given to materiality. Accordingly, actual results could differ from those estimates. The Company has discussed its critical accounting policies with the Audit and Finance Committee of the Board of Directors. The following represents those critical accounting policies where materially different amounts would be reported under different conditions or using different assumptions.

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Recent Accounting Pronouncements

In fiscal 2004, the Company adopted Financial Accounting Standards Board FIN 46 “Consolidation of Variable Interest Entities—An Interpretation of APB No. 51”. As the Company does not have an interest in any VIEs, adoption of this statement has had no effect on the Company’s reported financial position, results of operations, cash flows or financial statement disclosures.

As of March 1, 2004, the Company adopted the disclosure requirements of Financial Accounting Standards Board No. 132 (Revised 2003)—“Employers’ Disclosures about Pensions and Other Postretirement Benefits”.

In December 2004, the Financial Accounting Standards Board (“FASB”) issued SFAS No. 123 (revised 2004) “Share-Based Payment”, which requires companies to recognize in the income statement the grant date fair value of stock options and other equity-based compensation issued to employees and disallows the use of the intrinsic value method of accounting for stock options, but expresses no preference for a type of valuation model. This statement supersedes Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees”, but does not change the accounting guidance for share-based payment transactions with parties other than employees provided in SFAS No. 123 as originally issued. SFAS No. 123 (revised 2004) is effective as of the beginning of the Company’s fourth quarter of fiscal 2005. While the Company has not yet determined the precise impact that this statement will have on its financial condition and results of operations for fiscal 2005, assuming future annual stock option awards are comparable to prior years annual awards and the Black-Scholes method is used to compute the value of the awards, the annualized impact on diluted earnings per share is expected to be in the range of $.03 to $.04.

In November 2004, FASB issued SFAS No. 151 “Inventory Costs, an Amendment of ARB No. 43, Chapter 4”. FAS 151 clarifies the accounting for abnormal amounts of idle facility expense, freight, handling costs and wasted material and requires that these items be recognized as current period charges. FAS 151 applies only to inventory costs incurred during periods beginning after the effective date and also requires that the allocation of fixed production overhead to conversion costs be based on the normal capacity of the production facilities. FAS 151 is effective for the Company’s fiscal year beginning December 1, 2005. The Company does not anticipate that implementation of this statement will have a material impact on its financial condition, results of operations or cash flows.

In December 2004, FASB issued SFAS No. 153 “Exchanges of Nonmonetary Assets, An Amendment of APB Opinion No. 29”. FAS 153 eliminates the exception for exchange of similar productive assets and replaces it with a general exception for exchanges of non-monetary assets that do not have commercial substance. FAS 153 is effective for non-monetary assets and exchanges occurring in fiscal periods beginning after June 15, 2005, the Company’s third fiscal quarter. As the Company does not engage in exchanges of non-monetary assets, the Company does not anticipate that implementation of this statement will have an impairment on its financial conditions, results of operations or cash flows.

Outlook

The improving economy and stock market recovery during the second half of fiscal 2004 are positive indicators for 2005, although consumer spending for apparel in the department store channel continues to be lackluster. Based on current conditions, the Company expects a fiscal 2005 revenue increase in the low to mid single digits. In the Men’s Apparel Group, a small increase in tailored clothing product categories from the introduction of new licensing programs is expected to be partially offset by the non-renewal of a license which generated approximately $14 million of revenues during 2004; sportswear product lines are anticipated to be about even with last year, as increases at the higher price points, from expected growth in the Bobby Jones and Ted Baker lines, will likely be mitigated by a realignment of moderate priced sportswear focused on more nationally recognized brands such as Pierre Cardin. The Women’s Apparel Group revenues, which represented approximately 14% of total sales in 2004, are anticipated to increase in the range of 25% to 30%, principally from the incremental impact of Misook for the full year, partially offset by the conclusion during 2004 of a one year private label program.

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Operating margins are expected to improve on the higher sales due to both product mix and the administrative structure currently in place. Debt reduction is also anticipated, excluding acquisitions, which should result in lower interest expense even though short-term rates are expected to increase during 2005. The January 2005 extension of the Company’s $200 million senior credit facility to February 2009 with an option to February 2010 provides additional flexibility for the Company to implement its operating strategies. Net earnings are anticipated to increase in the 30%—40% range for the full year over 2004’s $15.9 million or $.44 per diluted share, with increases expected to commence in the second quarter of fiscal 2005.

The Company’s longer term objectives are to increase revenues and continue pre-tax margin improvements, with growth realized from a combination of both internal revenue growth and from acquisitions. The Company continues to pursue prudent acquisitions which can produce positive cash flows, are accretive to earnings in the near to mid-term, and which do not create excessive debt leverage.

Item 7A—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, primarily 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, which have not been significant, are recognized in earnings in the period in which the purchase obligations are satisfied or funds are received. As of November 30, 2004, the Company had entered into foreign exchange contracts, aggregating approximately $3.5 million principally attributable to approximately 2.3 million Canadian dollars related to anticipated U.S. dollar collections by the Company’s Canadian business in the next six months and approximately 189 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 annual interest expense by approximately $.7 million based on borrowings under the Credit Facility at November 30, 2004. 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 various monthly periods of 2003 and 2004. The ten largest customers represented approximately 55% of consolidated sales during fiscal 2004 with the largest customer representing approximately 23% 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.

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Item 8—Financial Statements and Supplementary Data

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON FINANCIAL STATEMENTS

To the Shareholders and Board

of Directors of Hartmarx Corporation

In our opinion, the consolidated financial statements listed in the accompanying index present fairly, in all material respects, the financial position of Hartmarx Corporation and its subsidiaries at November 30, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended November 30, 2004 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. These financial statements and financial statement schedule are the responsibility of Hartmarx Corporation’s management. Our responsibility is to express an opinion on these financial statements and financial statement schedule based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

PricewaterhouseCoopers LLP

Chicago, Illinois

February 14, 2005

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HARTMARX CORPORATION

CONSOLIDATED STATEMENT OF EARNINGS

(000’s Omitted)

(See accompanying notes to consolidated financial statements)

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HARTMARX CORPORATION

CONSOLIDATED BALANCE SHEET

(000’s Omitted)

(See accompanying notes to consolidated financial statements)

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HARTMARX CORPORATION

CONSOLIDATED STATEMENT OF CASH FLOWS

(000’s Omitted)