<PAGE>
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 THE QUARTERLY PERIOD ENDED DECEMBER 31, 1997.
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: 0-20850
HAGGAR CORP.
(Exact name of the registrant as specified in the charter)
NEVADA 75-2187001
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
6113 LEMMON AVENUE
DALLAS, TEXAS 75209
(Address of principal executive offices)
TELEPHONE NUMBER (214) 352-8481
(Registrant's telephone number including area code)
Indicate by a 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 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
--- ---
As of February 13, 1998, there were 8,551,382 shares of the Registrant's Common
Stock outstanding.
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations
(Three months ended December 31, 1997 and 1996) 3
Consolidated Balance Sheets
(As of December 31, 1997 and September 30, 1997) 4
Consolidated Statements of Cash Flows
(Three months ended December 31, 1997 and 1996) 5
Notes to Consolidated Financial Statements 6-8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 9-11
Part II. Other Information.
Item 6. Exhibits and Reports on Form 8-K 12
Signature 12
2
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
Three Months Ended
December 31,
---------------------
1997 1996
-------- --------
<S> <C> <C>
Net sales $102,471 $104,157
Cost of goods sold 71,558 73,419
-------- --------
Gross profit 30,913 30,738
Selling, general and administrative expenses (28,931) (27,797)
Royalty income, net 525 403
-------- --------
Operating income 2,507 3,344
Other income (expense), net 203 (72)
Interest expense (872) (977)
-------- --------
Income from operations before provision
for income taxes 1,838 2,295
Provision for income taxes 708 912
-------- --------
Net income $ 1,130 $ 1,383
-------- --------
-------- --------
Net income per share - Basic and Diluted $ 0.13 $ 0.16
-------- --------
-------- --------
Weighted average shares outstanding
- Basic 8,551 8,551
-------- --------
-------- --------
Weighted average shares outstanding
- Diluted 8,597 8,556
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
3
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
December 31, September 30,
1997 1997
(unaudited)
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 14,205 $ 2,176
Accounts receivable, net 50,791 70,969
Inventories 102,547 105,242
Deferred tax benefit 10,073 10,073
Other current assets 3,675 3,833
-------- --------
Total current assets 181,291 192,293
Property, plant, and equipment, net 67,606 68,697
Other assets 2,507 1,063
-------- --------
Total Assets $251,404 $262,053
-------- --------
-------- --------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,149 $ 28,423
Accrued liabilities 36,438 26,195
Accrued wages and other employee
compensation 2,571 3,481
Accrued workers' compensation
expense 4,947 4,948
Short-term borrowings 3,007 2,362
Current portion of long-term debt 3,856 330
-------- --------
Total current liabilities 60,968 65,739
Long-term debt 25,220 31,800
-------- --------
Total liabilities 86,188 97,539
STOCKHOLDERS' EQUITY
Common stock - par value $0.10 per
share; 25,000,000 shares authorized
and 8,560,636 shares issued at
December 31, 1997 and
September 30, 1997 856 856
Additional paid-in capital 41,641 41,641
Retained earnings 122,720 122,018
-------- --------
165,217 164,515
Less - Treasury stock, 9,254 shares at
par value (1) (1)
-------- --------
Total stockholders' equity 165,216 164,514
-------- --------
Total Liabilities and Stockholders' Equity $251,404 $262,053
-------- --------
-------- --------
</TABLE>
The accompanying notes are an integral part of
these consolidated financial statements.
4
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
<TABLE>
Three Months Ended
December 31,
------------------
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $1,130 $1,383
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,209 2,675
Gain on disposal of property, plant, and equipment - (19)
Changes in assets and liabilities-
Accounts receivable, net 20,178 28,090
Inventories 2,695 4,723
Current deferred tax benefit - (2,367)
Other current assets 158 284
Accounts payable (18,274) (10,904)
Accrued liabilities 10,243 3,480
Accrued wages and other employee compensation (910) (961)
Accrued workers' compensation expense (1) (149)
-------- --------
Net cash provided by operating activities 18,428 26,235
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant, and equipment, net (2,118) (2,416)
Proceeds from sale of property, plant, and equipment, net - 64
(Increase) decrease in other assets (1,444) 168
-------- --------
Net cash used in investing activities (3,562) (2,184)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from short-term borrowings 645 1,014
Proceeds from issuance of long-term debt 18,000 26,000
Payments on long-term debt (21,054) (39,154)
Payments of cash dividends (428) (428)
-------- --------
Net cash used in financing activities (2,837) (12,568)
Increase in cash and cash equivalents 12,029 11,483
Cash and cash equivalents, beginning of period 2,176 2,944
-------- --------
Cash and cash equivalents, end of period $14,205 $14,427
-------- --------
-------- --------
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 1,431 $ 1,246
Income taxes $ 19 $ 54
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS.
The consolidated balance sheet as of December 31, 1997, and the consolidated
statements of operations and cash flows for the three months ended December
31, 1997 and 1996, have been prepared by Haggar Corp. (the "Company") without
audit. In the opinion of management, all necessary adjustments (which
include only normal recurring adjustments) to present fairly the consolidated
financial position, results of operations, and cash flows of the Company at
December 31, 1997, and for all other periods presented, have been made.
Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements should be
read in conjunction with the financial statements and accompanying footnotes
in the Company's Annual Report on Form 10-K for the year ended September 30,
1997.
CONCENTRATIONS OF CREDIT RISK.
Financial instruments which potentially expose the Company to concentrations
of credit risk, as defined by Statement of Financial Accounting Standards
("SFAS") No. 105, "Disclosure of Information about Financial Instruments with
Off-Balance Sheet Risk and Financial Instruments with Concentrations of
Credit Risk," consist primarily of trade accounts receivable. The Company's
customers are not concentrated in any specific geographic region but are
concentrated in the apparel industry. One customer accounted for 31.3% and
28.9% of the Company's net sales for the three months ended December 31, 1997
and 1996, respectively. The Company performs ongoing credit evaluations of
its customers' financial condition and establishes an allowance for doubtful
accounts based upon factors surrounding the credit risk of specific
customers, historical trends, and other information.
INVENTORIES.
Inventories are stated at the lower of cost (first-in, first-out) or market
and consisted of the following at December 31, 1997, and September 30, 1997
(in thousands):
<TABLE>
December 31, September 30,
1997 1997
------------ -------------
<S> <C> <C>
Piece goods $ 15,210 $ 17,455
Trimmings & supplies 3,695 3,841
Work-in-process 12,808 16,162
Finished garments 70,834 67,784
-------- ---------
$102,547 $ 105,242
-------- ---------
-------- ---------
</TABLE>
Work-in-process and finished garments inventories consisted of materials, labor
and manufacturing overhead.
6
<PAGE>
LONG-TERM DEBT
Long-term debt consisted of the following at December 31, 1997, and September
30, 1997 (in thousands):
<TABLE>
December 31, September 30,
1997 1997
------------ -------------
<S> <C> <C>
Borrowings under revolving
credit line $ - $ 3,000
Industrial Development Revenue
Bonds with interest at a rate equal
to that of high-quality, short-term,
tax-exempt obligations, as defined
(4.2% at December 31, 1997),
payable in annual installments of
$100 and a final payment of
$2,000 in 2005, secured by
certain buildings and equipment 2,700 2,800
Allstate notes 25,000 25,000
Other 1,376 1,330
------- -------
29,076 32,130
Less - Current portion 3,856 330
------- -------
$25,220 $31,800
------- -------
------- -------
</TABLE>
Net assets mortgaged or subject to lien under the Industrial Development
Revenue Bonds totaled approximately $1,200,000 at December 31, 1997.
As of December 31, 1997, the Company had a $100,000,000 revolving credit line
agreement (the "Agreement") with certain banks subject to certain borrowing
base limitations. The Company had no debt outstanding and additional
available borrowing capacity of approximately $88,000,000 under this
Agreement at December 31, 1997. The Company incurred approximately $44,000
in commitment fees related to the available borrowing capacity during the
quarter ended December 31, 1997. The interest rates for the quarter ended
December 31, 1997, ranged from 6.13% to 8.5%, and the weighted average
interest rate for the quarter was 8.11%. The facility will mature December
31, 1999, with a one year renewal at the option of the bank and is unsecured,
except that the Company is prohibited from pledging its accounts receivables
and inventories during the term of the Agreement. The Agreement contains
limitations on incurring additional indebtedness and requires the maintenance
of certain financial ratios. In addition, the Agreement requires the Company
and Haggar Clothing Co., the Company's main operating subsidiary, to maintain
tangible net worth in excess of $151,000,000 and $55,000,000, respectively,
as of December 31, 1997. The Agreement requires the Company to maintain a
tangible net worth in excess of the tangible net worth of the preceding
fiscal year plus 50% of the Company's consolidated net income. The Agreement
prohibits the payment of any dividend if a default exists after giving
effect to such dividend.
In fiscal 1995, the Company completed the sale and issuance of $25,000,000 in
senior notes (the "Allstate notes"). Proceeds from the notes were used to
partially fund the construction of the Company's Customer Service Center (the
"CSC"). Significant terms of the senior notes include a maturity date of ten
years from the date of issuance, interest payable semi-annually and annual
principal payments beginning in the fourth year. The interest rate on the
senior notes is fixed at 8.49%. The terms and conditions of the note
purchase agreement governing the senior notes include restrictions on the
sale of assets, limitations on additional indebtedness and the maintenance of
certain net worth requirements.
7
<PAGE>
NET INCOME PER COMMON SHARE - BASIC AND NET INCOME PER COMMON SHARE - DILUTED
SFAS No. 128, "Earnings per Share," issued in February 1997, mandated a
change in the methodology for calculating earnings per share. The Company
implemented the provisions of SFAS No. 128 during this first quarter of
fiscal 1998. All periods prior to October 1, 1997 have been restated to
conform with the standards of SFAS No. 128. The implementation of this
change did not have a significant impact on the calculation of earnings per
share of the Company for the first quarter of fiscal 1998 or 1997.
Basic earnings per share excludes dilution and is computed by dividing net
income by the weighted-average number of common shares outstanding for the
period. Diluted earnings per share is computed by dividing net income by
the sum of the weighted-average number of common shares outstanding for the
period and the number of equivalent shares assumed outstanding under the
Company's stock based compensation plans.
Options to purchase 414,999 common shares at prices ranging from $14.50 to
$37.88 were not dilutive and were outstanding for the three months ended
December 31, 1997. Options to purchase 510,695 common shares at prices
ranging from $18.25 to $37.88 were not dilutive and were outstanding for the
three months ended December 31, 1996. These shares for the aforementioned
periods were not included in the diluted earnings per share calculation
because the options' exercise prices were greater than the average market
price of the common shares. Diluted earnings per share was calculated as
follows (unaudited, in thousands, except per share data):
<TABLE>
Three Months Ended
December 31, December 31
1997 1996
------------ -----------
<S> <C> <C>
Net income $1,130 $1,363
Weighted average common shares outstanding 8,551 8,551
Shares equivalents, due to stock options 46 5
--------- --------
8,597 8,556
--------- --------
--------- --------
Net income per share - Diluted $0.13 $0.16
--------- --------
--------- --------
</TABLE>
SUBSEQUENT EVENTS
On January 21, 1998, the Company declared a cash dividend of $0.05 per share
payable to the stockholders of record on February 2, 1998. The dividend of
approximately $428,000 will be paid on February 16, 1998.
8
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached
consolidated financial statements and the notes thereto, and with the
Company's Annual Report on Form 10-K for the fiscal year ended September 30,
1997.
RESULTS OF OPERATIONS
The Company's first quarter fiscal 1998 net income of $1.1 million compares
to a net income of $1.4 million in the first quarter fiscal 1997. The
decrease in net income is primarily due to a decrease in net sales and an
increase in selling, general and administrative expenses, as partially offset
by an increase in gross margin as well as an increase in other income.
Net sales for the first quarter of fiscal 1998, decreased 1.5% to $102.5
million from $104.1 million for the first quarter of fiscal 1997. The
decrease in net sales for the first quarter of fiscal 1998 is the net result
of a 8.0% decrease in unit sales and a 6.4% increase in the average sales
price. Net sales for the first quarter of fiscal 1998 were adversely
affected by soft sales at retail and competitive pressures resulting from a
changing retail environment.
Gross profit as a percentage of net sales increased to 30.2% in the first
quarter of fiscal 1998 compared to 29.5% in the first quarter of the prior
fiscal year. This increase in gross profit is primarily the result of an
improved manufacturing mix, which slightly reduced cost per unit.
Selling, general and administrative expenses as a percentage of net sales
increased to 27.7% in the first quarter of fiscal 1998 compared to 26.7% in
the first quarter of fiscal 1997. The increase in selling, general and
administrative expenses as a percent of net sales is primarily the result of
an approximate $1.0 million increase in expenses related to the opening and
operations of new retail stores during fiscal 1997 and 1998. At the end of
the first quarter of fiscal 1998, 47 retail stores were open and operational,
as compared to 34 retail stores at the end of the same period one year ago.
Income tax expense for the first quarter of fiscal 1998 decreased primarily
as a result of the lower level of net income. As a percent of taxable
income, income tax expense was 38.5%, compared to 39.7% for the first quarter
of fiscal 1997. The effective tax rate for the first quarter of fiscal 1998
differs from the statutory rate because of certain permanent tax differences
and state income taxes.
LIQUIDITY AND CAPITAL RESOURCES
The Company's trade accounts receivable potentially expose the Company to
concentrations of credit risks as most of its customers are in the retail
apparel industry. The Company performs ongoing credit evaluations of its
customers' financial condition and establishes an allowance for doubtful
accounts based upon the factors related to the credit risk of specific
customers, historical trends and other information. The Company's trade
accounts receivable decreased approximately $20.2 million to $50.8 million at
December 31, 1997 from $71.0 million at September 30, 1997. This decrease in
trade accounts receivable is primarily the result of seasonal reductions.
Inventories as of December 31, 1997, decreased to $102.5 million from $105.2
million at September 30, 1997. The continued decrease in inventory levels
during fiscal 1997 and the first quarter of fiscal 1998 reflects the
Company's ongoing efforts to decrease inventory to a level commensurate with
projected sales.
9
<PAGE>
The Company's ongoing external financing needs are met through an unsecured
revolving credit facility with certain banks. The Agreement provides the
Company with a $100.0 million line of credit. The amount available under the
Agreement is limited to the lesser of $100.0 million minus any letter of
credit exposure or the borrowing base as defined in the Agreement. The
facility will mature December 31, 1999, with a one year renewal at the option
of the bank. As of December 31, 1997, the Company had no borrowings
outstanding under the Agreement and had available borrowing capacity of
approximately $88.0 million.
In fiscal 1995, the Company completed the sale and issuance of $25.0 million
in senior notes. Significant terms of the senior notes include a maturity
date of ten years from the date of issuance, interest payable semi-annually
and annual principal payments beginning in the fourth year. The interest
rate on the senior notes is fixed at 8.49%. The terms and conditions of the
note purchase agreement governing the senior notes include restrictions on
the sale of assets, limitations on additional indebtedness, and the
maintenance of certain net worth requirements.
The Company's Haggar UK subsidiary maintains a $3.2 million line of credit
with a bank in the United Kingdom to fund its operating activities. As of
December 31, 1997, the subsidiary had approximately $3.0 million outstanding
under this line of credit. The line of credit has been collateralized by an
approximately $3.2 million letter of credit from the Company and is payable
upon demand. Interest under the line of credit is payable at 1% above the
bank's base rate. In January 1998, this line of credit was extended and
increased to approximately $4.0 million.
The Company provided cash from operating activities for the three months
ended December 31, 1997, of $18.4 million, primarily as a result of the
reduction in inventory of $2.7 million, as well as the reduction in accounts
receivable of $20.2 million. Additionally, the Company used cash in
investing activities of $3.6 million during the first three months of fiscal
1998, the result of purchases of property, plant, and equipment of $2.1
million primarily in conjunction with the opening of retail stores and
purchase of visual fixtures during the first quarter of fiscal 1998. The
Company had 47 retail stores open at the end of the first quarter of fiscal
1998, compared to 34 at the end of first quarter of fiscal 1997. Furthermore,
cash flows used in financing activities of $2.8 million for the three months
ended December 31, 1997, were primarily the result of a net reduction in
long-term debt of $3.0 million. Comparatively, the Company provided cash from
operating activities of $26.2 million for the three months ended December 31,
1996, primarily as a result of the reduction in inventory of $4.7 million, as
well as the reduction in accounts receivable of $28.1 million. During the
first quarter of fiscal 1997, the Company used cash in investing activities
of $2.2 million, the result of purchases of $2.4 million in property, plant,
and equipment primarily in conjunction with the opening of retail and
purchase of visual fixtures. Additionally, cash flows used in financing
activities of $12.6 million were due to a net decrease in long-term debt of
$13.2 million during the first quarter of fiscal 1997.
The Company believes that the cash flow generated from operations and the
funds available under the foregoing credit facilities will be adequate to
meet its working capital and related financing needs for the foreseeable
future.
YEAR 2000 CONSIDERATIONS
The Company is taking actions to determine that its computer systems are
capable of processing periods for the year 2000 and beyond. The Company has
assessed and continues to assess the impact of the year 2000 on its
operations, including the development of cost estimates for and the extent of
programming changes required to address the issue, and to date has determined
the costs related thereto would not have a material impact on its ongoing
results of operations. Also, the Company is assessing the impact of their
customers' and vendors' compliance to year 2000 and what the impact will be
on the Company's ongoing results of operation.
10
<PAGE>
FORWARD LOOKING STATEMENTS.
This report contains certain forward-looking statements. In addition, from
time to time the Company may issue press releases and other written
communications, and representatives of the Company may make oral statements,
which contain forward-looking information. Except for historical
information, matters discussed in such oral and written communications are
forward-looking statements that involve risks and uncertainties which could
cause actual results to differ materially from those in such forward-looking
statements.
Risks and uncertainties inherent to the Company's line of business include
such factors as natural disasters, general economic conditions, the
performance of the retail sector in general and the apparel industry in
particular, the competitive environment, consumer acceptance of new products,
and the success of advertising, marketing and promotional campaigns.
Additional risks and uncertainties which could cause the Company's actual
results to differ from those contained in any forward-looking statements are
discussed elsewhere herein.
11
<PAGE>
PART II. OTHER INFORMATION.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27 Financial Data Schedule
(b) No reports on Form 8-K have been filed during the quarter for which
this report is filed.
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.
Haggar Corp.,
Date: February 13, 1998 By: /s/ David M. Tehle
--------------------------
David M. Tehle
Sr. Vice President
Chief Financial Officer
Signed on behalf of the
registrant and as principal
financial officer.
12
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FILED AS PART OF
THE ANNUAL REPORT ON 10-K AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 14,205
<SECURITIES> 0
<RECEIVABLES> 50,791
<ALLOWANCES> 0
<INVENTORY> 102,547
<CURRENT-ASSETS> 181,291
<PP&E> 128,862
<DEPRECIATION> 61,256
<TOTAL-ASSETS> 251,404
<CURRENT-LIABILITIES> 60,968
<BONDS> 0
0
0
<COMMON> 856
<OTHER-SE> 164,361
<TOTAL-LIABILITY-AND-EQUITY> 251,404
<SALES> 102,471
<TOTAL-REVENUES> 102,471
<CGS> 71,558
<TOTAL-COSTS> 28,406
<OTHER-EXPENSES> (203)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 872
<INCOME-PRETAX> 1,838
<INCOME-TAX> 708
<INCOME-CONTINUING> 1,130
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,130
<EPS-PRIMARY> .13
<EPS-DILUTED> .13
</TABLE>
