<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 MARCH 31, 1999.
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 May 5, 1999, there were 7,187,393 shares of the Registrant's Common Stock
outstanding.
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
INDEX
<TABLE>
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations
(Three and six months ended March 31, 1999 and 1998) 3
Consolidated Balance Sheets
(As of March 31, 1999 and September 30, 1998) 4
Consolidated Statements of Cash Flows
(Six months ended March 31, 1999 and 1998) 5
Notes to Consolidated Financial Statements 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-14
Item 3. Quantitative and Qualitative Disclosures about Market
Risk 15
Part II.Other Information.
Item 4. Submission of Matters to a Vote of Security Holders 15
Item 6. Exhibits and Reports on Form 8-K 16
Signature 16
</TABLE>
2
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 120,263 $ 94,683 $ 205,057 $ 197,154
Cost of goods sold 82,531 65,269 137,669 136,826
----------- ----------- ----------- -----------
Gross profit 37,732 29,414 67,388 60,328
Selling, general and administrative expenses (34,815) (27,258) (63,588) (56,191)
Royalty income, net 888 562 1,229 1,088
----------- ----------- ----------- -----------
Operating income 3,805 2,718 5,029 5,225
Other income 530 67 886 270
Interest expense (1,127) (868) (1,900) (1,741)
------------ ------------ ------------ -----------
Income from operations before provision
for income taxes 3,208 1,917 4,015 3,754
Provision for income taxes 1,313 742 1,626 1,449
----------- ----------- ----------- -----------
Net income $ 1,895 $ 1,175 $ 2,389 $ 2,305
=========== =========== =========== ===========
Net income per share - Basic and Diluted $ 0.25 $ 0.14 $ 0.31 $ 0.27
=========== =========== =========== ===========
Weighted average shares outstanding - Basic 7,615 8,551 7,666 8,551
=========== =========== =========== ===========
Weighted average shares outstanding - Diluted 7,615 8,596 7,673 8,596
=========== =========== =========== ===========
</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>
<CAPTION>
March 31,
1999 September 30,
(unaudited) 1998
----------- -------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 11,284 $ 20,280
Accounts receivable, net 48,545 63,613
Due from factor 11,056 -
Inventories 95,307 92,244
Deferred tax benefit 10,824 7,623
Other current assets 1,678 1,557
----------- -----------
Total current assets 178,694 185,317
Property, plant, and equipment, net 62,129 64,424
Goodwill, net 28,361 -
Other assets 3,772 2,234
----------- -----------
Total Assets $ 272,956 $ 251,975
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,773 $ 22,995
Accrued liabilities 25,260 20,299
Accrued wages and other employee compensation 3,771 6,398
Accrued workers' compensation expense 4,666 4,564
Short-term borrowings - 3,453
Current portion of long-term debt 3,854 3,854
----------- -----------
Total current liabilities 61,324 61,563
Long-term debt 50,737 24,937
----------- -----------
Total liabilities 112,061 86,500
STOCKHOLDERS' EQUITY
Commonstock - par value $0.10 per share; 25,000,000
shares authorized and 8,576,998 shares issued at
March 31, 1999 and September 30, 1998 857 857
Additional paid-in capital 41,860 41,860
Retained earnings 129,963 128,329
----------- -----------
172,680 171,046
Less - Treasury stock, 1,120,305 and 525,254 shares at cost at
March 31, 1999 and September 30, 1998. (11,785) (5,571)
------------ -----------
Total stockholders' equity 160,895 165,475
----------- -----------
Total Liabilities and Stockholders' Equity $ 272,956 $ 251,975
=========== ===========
</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>
<CAPTION>
Six Months Ended
March 31,
----------------------------
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,389 $ 2,305
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 6,769 6,409
Gain on disposal of property, plant, and equipment (471) (3)
Changes in assets and liabilities net of effects from the purchase
of Jerell, Inc.:
Accounts receivable, net 14,963 17,993
Due from factor (5,226) -
Inventories 6,141 7,057
Deferred tax benefit (2,898) (981)
Other current assets 249 1,538
Accounts payable (3,410) (17,460)
Accrued liabilities 2,304 5,756
Accrued wages, workers' compensation, and other employee benefits (2,525) (1,267)
----------- -----------
Net cash provided by operating activities 18,285 21,347
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (3,336) (3,888)
Purchase of Jerell, Inc. (39,237) -
Proceeds from the sale of property, plant and equipment, net 857 9
Increase in other assets (481) (1,443)
----------- -----------
Net cash used in investing activities (42,197) (5,322)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds (payments) from short-term borrowings (3,453) 1,096
Purchase of treasury stock at cost (6,214) -
Proceeds from issuance of long-term debt 32,000 18,000
Payments on long-term debt (6,662) (21,181)
Proceeds from issuance of common stock - 44
Payments of cash dividends (755) (855)
----------- -----------
Net cash provided by (used in) financing activities 14,916 (2,896)
Increase (decrease) in cash and cash equivalents (8,996) 13,129
Cash and cash equivalents, beginning of period 20,280 2,176
----------- -----------
Cash and cash equivalents, end of period $ 11,284 $ 15,305
=========== ===========
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 3,707 $ 2,092
Income taxes $ 2,882 $ 440
</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 March 31, 1999, and the consolidated
statements of operations and cash flows for the three and six months ended
March 31, 1999, 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
March 31, 1999, 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, 1998.
ACQUISITION
On January 13, 1999, the Company acquired Jerell Inc., a company engaged in
the design and marketing of women's apparel, for an aggregate acquisition
cost of $42.7 million. The acquisition cost consists of $36.9 million paid to
the shareholders of Jerell, $0.4 million as consideration for a covenant not
to compete to an executive officer, $4.7 million paid to a third party
factor, and $0.7 million in expenses attributable to the acquisition. In
conjunction with the acquisition, the Company received payments of notes
receivable due from former stockholders of Jerell Inc. of $2.8 million and
payments of $0.7 million from former stockholders of Jerell Inc. for tax
withholdings, resulting in a net acquisition cost of $39.2 million. The
acquisition was accounted for under the purchase method. Based on
preliminary estimates, which may be revised at a later date, the excess
consideration paid over the estimated fair value of net assets acquired of
approximately $28.7 million was recorded as goodwill and is being amortized
on a straight-line basis over its estimated useful life of 20 years. The
Company's consolidated financial statements have incorporated Jerell's
operating results from the effective date of the acquisition. The following
unaudited pro forma financial information combines the results of operations
of the Company and Jerell Inc. as if the acquisition had taken place at the
beginning of fiscal 1998. These results are not intended to be a projection
of future results.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) March 31, March 31,
---------------------- -----------------------
1999 1998 1999 1998
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales $120,263 $111,920 $219,241 $224,422
Net income 1,895 1,507 1,381 2,265
Net Income per share - Basic and Diluted $ 0.25 $ 0.18 $ 0.18 $ 0.26
</TABLE>
In conjunction with the acquisition, liabilities were assumed as follows (in
thousands):
<TABLE>
<S> <C>
Fair value of assets acquired $46,665
Cash paid for the capital stock 39,237
-------
Liabilities assumed $ 7,428
=======
</TABLE>
6
<PAGE>
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. The Company's largest current customer, J.C. Penney Company,
Inc., accounted for 26.3% and 28.9% of the Company's net sales for the six
months ended March 31, 1999 and 1998, respectively. The Company's second
largest current customer, Kohl's Department Stores, Inc., accounted for 11.4%
and 10.4% of the Company's net sales for the six months ended March 31, 1999 and
1998, respectively. No other customer accounted for more than 10% of the
Company's net sales. 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.
DUE FROM FACTOR
Jerell Inc., a subsidiary of the Company, has a factoring agreement with a
factor for the purpose of providing credit administration. Under the terms of
the factoring agreement, the factor purchases substantially all of Jerell's
trade accounts receivable without recourse.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out) or market and
consisted of the following at March 31, 1999, and September 30, 1998 (in
thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
--------- -------------
<S> <C> <C>
Piece goods $10,205 $ 9,438
Trimmings & supplies 2,621 2,669
Work-in-process 15,474 11,390
Finished garments 67,007 68,747
------- -------
$95,307 $92,244
------- -------
------- -------
</TABLE>
Work-in-process and finished garments inventories consisted of materials, labor
and manufacturing overhead.
7
<PAGE>
LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 1999, and September 30,
1998 (in thousands):
<TABLE>
<CAPTION>
March 31, September 30,
1999 1998
--------- -------------
<S> <C> <C>
Borrowings under revolving
credit line $29,000 $ -
Industrial Development Revenue Bonds
with interest at a rate equal
to that of high-quality, short-term,
tax-exempt obligations, defined
(3.85% at March 31, 1999 and
September 30, 1998), payable in
annual installments of $100 to $200,
and a final payment of $2,000 in
2005, secured by certain buildings
and equipment 2,600 2,700
Senior Notes Payable 21,429 25,000
Other 1,562 1,091
------- -------
54,591 28,791
Less - Current portion 3,854 3,854
------- -------
$50,737 $24,937
======= =======
</TABLE>
Net assets mortgaged or subject to lien under the Industrial Development Revenue
Bonds totaled approximately $1,009,620 at March 31, 1999.
As of March 31, 1999, the Company had a revolving credit line agreement (the
"Agreement") with certain banks. During the first quarter, the Company amended
the Agreement to accommodate the acquisition of Jerell in the second quarter.
As of March 31, 1999, the Company had additional available borrowing capacity of
approximately $62,000,000. The Company incurred approximately $78,000 in
commitment fees related to the available borrowing capacity for the six month
period ended March 31, 1999. The interest rates for the six months period ended
March 31, 1999, ranged from 5.58% to 7.75%. The facility will mature June 30,
2001, with a one year renewal at the option of the banks and is unsecured,
except that the Company is prohibited from pledging its accounts receivable 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, as defined, in excess of $145,000,000 and $55,000,000,
respectively, as of March 31, 1999. 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.
CONTINGENCIES
On September 22, 1998, Hurricane Georges damaged two of the Company's leased
manufacturing facilities. Both facilities are insured for damage to the
building, equipment, and inventory, for business interruption. Although the
total assessment of damage has not been completed, the range of loss is
estimated to be $6.0 to $8.0 million, substantially all of which is expected to
be covered by insurance. Insurance proceeds are expected to be used to repair
the roofs, fix equipment, and cover the inventory losses. The deductibles for
the insurance claims are not considered significant.
8
<PAGE>
NET INCOME PER COMMON SHARE - BASIC AND DILUTED
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 1,240,183 and 899,683 common shares at prices ranging from
$11.00 to $23.00 were not dilutive and were outstanding for the three and six
months ended March 31, 1999. Options to purchase 254,106 and 335,019 common
shares at prices ranging from $15.88 to $23.00 were not dilutive and were
outstanding for the three and six months ended March 31, 1998. 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 (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
March 31, March 31,
--------------------- ---------------------
1999 1998 1999 1998
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net income to common stockholders $1,895 $1,175 $2,389 $2,305
Weighted average common shares outstanding 7,615 8,551 7,666 8,551
Shares equivalents, due to stock options - 45 7 45
------ ------ ------ ------
7,615 8,596 7,673 8,596
====== ====== ====== ======
Net income per share - Diluted $ 0.25 $ 0.14 $ 0.31 $ 0.27
====== ====== ====== ======
</TABLE>
SUBSEQUENT EVENTS
LAWSUIT. On April 28, 1999, a jury returned an approximate $3.6 million
verdict against Haggar Clothing Co. and in favor of a former employee
relating to claims for wrongful discharge and common law tort. Although the
jury returned a verdict, the court has not yet rendered judgment on such
verdict. Therefore, the case is presently neither final nor appealable.
The Company believes the verdict in this lawsuit was both legally and factually
incorrect. The Company intends to file a motion requesting the court to render
judgement in favor of the Company notwithstanding the jury verdict. If the jury
verdict is not set aside or modified by the trial court, the Company presently
intends to appeal the judgment after it is rendered by the court. The Company,
however, is presently unable to determine the likelihood of an unfavorable
outcome to such motion or appeals.
DIVIDENDS. On April 27, 1999, the Company declared a cash dividend of $0.05 per
share payable to the stockholders of record on May 10, 1999. The dividend of
approximately $359,000 will be paid on or before May 24, 1999.
9
<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, 1998.
RESULTS OF OPERATIONS
On January 13, 1999, the Company completed its acquisition of Jerell Inc., a
company engaged in the design and marketing of women's apparel. The Company's
consolidated financial statements incorporate Jerell's activity from the
effective date of the acquisition.
The Company's second quarter of fiscal 1999 net income of $1.9 million compares
to net income of $1.2 million in the second quarter of fiscal 1998. Net income
to common stockholders for the six months ended March 31, 1999, was $2.4 million
compared to $2.3 million for the six months ended March 31, 1998. The increase
in net income for the three and six months ended March 31, 1999, from 1998
relates to the increase in net sales from Haggar and the inclusion of Jerell's
net sales.
Net sales for the quarter ended March 31, 1999, increased 27.0% to $120.3
million from $94.7 million for the second quarter of fiscal 1998. The increase
in net sales for the second quarter of fiscal 1999 is the combined result of an
18.7% increase in unit sales, a 2.3% decrease in the average sales price, and
the inclusion of Jerell's net sales activities since the acquisition. Net sales
for the six months ended March 31, 1999, increased 4.0% to $205.1 million
compared to $197.2 million in the prior fiscal year. The 4.0% increase in the
first six months of fiscal 1999 is the result of an increase in unit sales and
the inclusion of Jerell's net sales activities since the acquisition.
Gross profit as a percentage of net sales increased to 31.4% in the second
quarter of fiscal 1999 compared to 31.1% in the second quarter of the prior
fiscal year. Gross profit for the first six months of fiscal 1999 increased to
32.9% compared to 30.6% in the first six months of fiscal 1998. The increase in
gross profit is primarily the result of fewer inventory markdowns and an
improved manufacturing mix, which reduced the Company's cost per unit.
Selling, general and administrative expenses as a percentage of net sales
increased slightly to 28.9% in the second quarter of fiscal 1999 compared to
28.8% in the second quarter of fiscal 1998. Actual selling, general and
administrative expenses increased to $34.8 million in the second quarter of
fiscal 1999 compared to $27.3 million in the same quarter in fiscal 1998. The
$7.5 million increase relates to the inclusion of Jerell expenses since the
acquisition, the opening and operating of new retail stores, and an increase in
benefit costs. For the six months ended March 31, 1999, selling, general and
administrative expenses as a percentage of net sales increased to 31.0% compared
to 28.5% in the first six months of the prior fiscal year. Actual selling,
general and administrative expenses increased to $63.6 million for the six
months ended March 31, 1999 compared to $56.2 million in the first six months of
the prior fiscal year. The increase of $7.4 million in selling, general and
administrative expenses for the first six months of fiscal 1999 compared to
fiscal 1998 includes a $2.8 million increase in advertising expenses, a $1.0
million increase related to the opening and operating of new retail stores, and
the inclusion of Jerell expenses since the acquisition. These increases are
offset by $1.3 million in lower shipping expenses. At the end of the second
quarter of fiscal 1999, 60 retail stores were open and operational as compared
to 49 stores at the end of the same period one year ago.
Other income increased to $0.5 million in the second quarter of fiscal 1999
compared to $0.1 million in the same quarter last year. For the first six
months of fiscal 1999, other income increased to $0.9 million
10
<PAGE>
compared to $0.3 million for the same period last year. The increase was
primarily the result of gains from the sales of miscellaneous equipment.
In the second quarter of fiscal 1999, the provision for income taxes increased
as a percentage of income before taxes to 40.9% from 38.7% for the same quarter
last year. For the six months ended March 31, 1999, the provision for income
taxes increased as a percentage of income before taxes to 40.5% from 38.6% for
the same period last year. The increases are a result of the nondeductibility
of goodwill amortization related to the Jerell acquisition, thereby increasing
the Company's effective tax rate.
LIQUIDITY AND CAPITAL RESOURCES
The Company's trade accounts receivable potentially expose the Company to
concentrations of credit risk because 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, including amounts due from factor, decreased approximately
$4.0 million to $59.6 million at March 31, 1999, from $63.6 million at September
30, 1998. This decrease in trade accounts receivable is primarily the result of
seasonal reductions in sales partially offset by the inclusion of Jerell's trade
receivables.
Inventories as of March 31, 1999, increased to $95.3 million from $92.2 million
at September 30, 1998. The increase in inventory levels during the first six
months of fiscal 1999 is due to the
inclusion of Jerell's inventory.
As of December 31, 1998, the Company had a revolving credit line facility with
certain banks. During the first quarter, the Company amended the credit
agreement to accommodate the acquisition of Jerell in the second quarter. As of
March 31, 1999, the Company had additional available borrowing capacity of
approximately $62.0 million. The Company incurred approximately $78,000 in
commitment fees related to the available borrowing capacity for the six months
ended March 31, 1999. The interest rates for the quarter ended March 31, 1999,
ranged from 5.58% to 7.75%. The facility will mature June 30, 2001, with a one
year renewal at the option of the banks.
At the end of September 30, 1998, the Company's UK subsidiary, Haggar Apparel,
Ltd., maintained a $4.2 million line of credit with a bank in the United Kingdom
to fund its operating activities. This line of credit was paid and closed in
the second quarter of fiscal 1999.
For the six months ended March 31, 1999, the Company provided cash from
operating activities of approximately $18.3 million (net of effects from the
purchase of Jerell Inc.). The cash provided is primarily the result of a
$15.0 million decrease in accounts receivable and a $6.1 million decrease in
inventories, offset by a $3.4 million decrease in accounts payable. For the
same period last year, the Company provided cash from operating activities of
$21.3 million primarily from a $18.0 million decrease in accounts receivable,
a $7.1 million decrease in inventories, and a $5.8 increase in accrued
liabilities, offset by a $17.5 million decrease in accounts payable.
The Company used approximately $42.2 million in investing activities for the six
months ended March 31, 1999. The Company purchased property, plant and
equipment of $3.3 million and acquired Jerell for $39.2 million during the six
months ended March 31, 1999. For the six months ended March 31, 1998,
approximately $5.3 million in cash flow was used by investing activities
primarily as the result of purchasing property, plant and equipment.
Cash flows provided from financing activities of $14.9 million for the six
months ended March 31, 1999, were primarily the result of a net increase in
long-term debt of $25.3 million, the $3.5 million payment of short-term
borrowings and the purchase of $6.2 million in treasury stock. Comparatively,
cash flows used
11
<PAGE>
in financing activities for the same period last year, were primarily the
result of a $3.2 million net decrease in long-term debt.
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
GENERAL. The Year 2000 issue concerns the inability of some computerized
systems to properly process date-sensitive information on and after January 1,
2000, because of the use of only the last two digits to identify a year. The
Company has a full-time project manager coordinating the assessment and
remediation of Year 2000 issues affecting the Company. The project manager and
team leaders from various areas within the Company continue to implement a plan
to accomplish the remediation necessary to prepare the Company for the Year
2000. The Year 2000 steering committee, composed of members from various
functional groups, provides oversight by reviewing and evaluating the progress
of the Year 2000 program. The Company presently expects that all of its core
operations and essential functions will be ready for the Year 2000 transition.
STATE OF READINESS. The Company's Year 2000 program classifies all of its
computerized systems into the following categories:
BUSINESS SYSTEMS: This category consists of computer programs that run
the Company's primary business functions (e.g., manufacturing, order
processing, inventory control and accounting).
HARDWARE/PC SOFTWARE: This category consists of all computer hardware
and operating systems (including networking, telecommunications and
other PC-based software applications).
ENGINEERING SYSTEMS: This category consists of manufacturing,
distribution and laboratory equipment (including sewing equipment,
cutters, conveyors and scanners) that control the manufacturing process.
FACILITIES SYSTEMS: This category consists of systems that support the
physical infrastructure of the Company's facilities (including
forklifts, ovens, boilers, HVAC and security systems).
In order to establish priorities for assessment and remediation of Year 2000
issues, each of the systems within these categories has been further classified
as follows:
CRITICAL: These are systems without which the Company's business would
be severely adversely affected (e.g., manufacturing, distribution and
retail point of sale).
PRIORITY: These are systems that the Company could do without for only
a few days without materially adversely affecting operations (e.g.,
telecommunications and energy management).
REQUIRED: These are systems needed to remain competitive or in
compliance with regulatory requirements (e.g., voice mail and executive
information systems).
DESIRABLE: These systems enable employees to work more efficiently
(e.g., pagers, fax machines and postage meters).
12
<PAGE>
The approximate percentage of completion of remediation within each system
category and priority level as of April 28, 1999, are set forth in the table
below for the Company, excluding Jerell.
<TABLE>
<CAPTION>
Critical (%) Priority (%) Required (%) Desirable (%)
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Business Systems 86 75 100 N/A
Hardware/PC
Software 75 36 64 83
Engineering Systems 78 69 - 81
Facilities Systems 100 66 83 100
</TABLE>
Overall, the Company's Year 2000 compliance program was approximately 74%
complete as of April 28, 1999, which was substantially on schedule with the
program plan, as compared to 48% complete as of January 20, 1999.
During the second quarter of fiscal 1999, the Company acquired Jerell Inc. The
Company's Year 2000 project manager has worked with a team from Jerell to
integrate their remediation plans and classify their systems using the
categories and priorities discussed above. The approximate percentage of
completion of remediation within each system category and priority level as of
April 28, 1999, are set forth in the table below for Jerell.
<TABLE>
<CAPTION>
Critical (%) Priority (%) Required (%) Desirable (%)
-------- -------- -------- ---------
<S> <C> <C> <C> <C>
Business Systems 87 83 81 80
Hardware/PC
Software 13 8 - -
Engineering Systems 16 N/A N/A N/A
Facilities Systems 13 1 8 -
</TABLE>
Overall, Jerell's Year 2000 compliance program was approximately 43% complete as
of April 28, 1999, which was substantially on schedule with the program plan.
In addition to its internal Year 2000 compliance program, the Company has
requested information from a majority of its customers and vendors concerning
their Year 2000 compliance. Responses have been received from most key
customers indicating that they do not presently anticipate any significant Year
2000 problems. The Company received responses from many of its key vendors and
is continuing to collect and review responses from vendors. The Company intends
to continue to communicate with its key customers and vendors as more
information becomes available in order to further evaluate potential risks to
the Company's business operations.
13
<PAGE>
COSTS TO ADDRESS YEAR 2000 ISSUES. The Company is executing its Year 2000
program primarily with existing internal resources. The principal costs
associated with these internal resources are payroll and employee benefits of
the information systems group. However, the Company does not separately track
the internal costs attributable to the Year 2000 program.
The Company has also incurred costs for contract programmers and systems
upgrades in connection with its Year 2000 program. As a result of Year 2000
issues, the Company has elected to upgrade its accounting, order processing,
manufacturing, and electronic data interchange software; retail store systems;
distribution conveyor systems; and most PC hardware and software systems. No
other significant projects have been accelerated or deferred due to Year 2000
issues. The costs of these programmers and upgrades have not been, and are not
expected to be in the future, material to the results of operations or the
financial condition of the Company. All costs of Year 2000 compliance are
recorded in the period incurred.
RISKS OF YEAR 2000 ISSUES. The Company does not presently anticipate any
considerable delays or exceptions to the scheduled substantial completion of its
Year 2000 program by the end of August 1999 for Haggar and September 1999 for
Jerell. Therefore, any adverse consequences from Year 2000 issues would result
from presently unforeseen circumstances. Although, the Company has not yet
developed any worst case Year 2000 scenarios, the Company has begun to analyze
potential risks and adverse scenarios.
Although the Company believes that it is adequately addressing the Year 2000
issue, there can be no assurance that Year 2000 problems will not have a
material adverse affect on its business, financial condition or results of
operations. In addition, disruptions in the economy generally resulting from
Year 2000 failures or the public's perceptions of failures could have a material
adverse affect on the Company.
CONTINGENCY PLANS. To date, the Company has focused on the conversion or
replacement of its systems and the evaluation of the Year 2000 compliance of its
significant customers and vendors. During the third quarter of fiscal 1999, the
Company expects to further develop contingency plans for potential risks such as
interruptions in the supply chain, transportation delays and communications
breakdowns with customers and vendors. These contingency plans may include the
use of substitute vendors or alternate product designs that do not use raw
materials from non-compliant vendors.
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.
<PAGE>
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Company is exposed to market risk from changes in interest rates, which may
adversely affect it financial position, results of operations and cash flows.
In seeking to minimize the risks from interest rate fluctuations, the Company
manages exposures through its regular operating and financing activities. The
Company does not use financial instruments for trading or other speculative
purposes and is not party to any derivative financial instruments. The Company
is exposed to interest rate risk primarily though its borrowing activities. As
of March 31, 1999, the Company had outstanding $29 million under its revolving
credit line agreement and $21 million in senior notes payable. See Item 1. -
Notes to Consolidated Financial Statements - Long-term Debt for additional
discussion of the terms of the Company's credit facility and the senior notes
payable. The fair values of the borrowings under the revolving credit line and
the senior notes approximate the carrying values of the respective obligations.
PART II. OTHER INFORMATION.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
The Company's Annual Meeting of Stockholders was held on February 10, 1999. At
such meeting, Norman E. Brinker and John C. Tolleson were elected to serve as
Class III directors of the Company for a three year term and until their
respective successors are elected and qualified. Of the 6,854,117 shares
represented at the meeting in person or by proxy, Mr. Brinker and Mr. Tolleson
received 5,921,486 and 6,469,001 votes, respectively, for their election as
Class III directors. The other directors whose term of office continued after
the meeting are J.M. Haggar III, Frank D. Bracken, Richard W. Heath, and Rae F.
Evans.
The appointment of Arthur Andersen LLP was ratified with 6,842,751 shares voted
for, 5,813 shares voted against, no broker non-votes and 5,553 shares abstained.
15
<PAGE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 27 Financial Data Schedule
(b) On January 28, 1999, a report on Form 8-K was filed concerning
the Company's acquisition of Jerell Inc. ("Jerell") on January
13, 1999. Jerell is engaged in the design and marketing of
women's apparel. Jerell's audited financial statements for the
year ended October 31, 1998, and the Company's unaudited
condensed pro forma consolidated balance sheet as of September
30, 1998 and unaudited condensed pro forma consolidated statement
of operations for the year ending September 30, 1998 were filed
as part of this report.
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: May 5, 1999 By: /s/ David M. Tehle
------------------------------
David M. Tehle
Senior Vice President,
Chief Financial Officer
Signed on behalf of the
registrant and as principal
financial officer.
16
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF INCOME FILE AS PART OF
SUCH FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000892533
<NAME> HAGGAR CORP.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<CASH> 11,284
<SECURITIES> 0
<RECEIVABLES> 61,588
<ALLOWANCES> 1,987
<INVENTORY> 95,307
<CURRENT-ASSETS> 178,694
<PP&E> 139,770
<DEPRECIATION> 77,641
<TOTAL-ASSETS> 272,956
<CURRENT-LIABILITIES> 61,324
<BONDS> 0
0
0
<COMMON> 857
<OTHER-SE> 171,823
<TOTAL-LIABILITY-AND-EQUITY> 272,956
<SALES> 205,057
<TOTAL-REVENUES> 205,057
<CGS> 137,669
<TOTAL-COSTS> 62,359
<OTHER-EXPENSES> (886)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,900
<INCOME-PRETAX> 4,015
<INCOME-TAX> 1,626
<INCOME-CONTINUING> 2,389
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,389
<EPS-PRIMARY> 0.31<F1>
<EPS-DILUTED> 0.31<F1>
<FN>
<F1>THE EARNINGS PER SHARE INFORMATION HAS BEEN PREPARED IN ACCORDANCE WITH SFAS
NO. 128, AND BASIC AND DILUTED EARNINGS PER SHARE HAVE BEEN ENTERED IN PLACE OF
PRIMARY AND FULLY DILUTED RESPECTIVELY.
</FN>
</TABLE>
