<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 JUNE 30, 2000.
OR
Transition report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
FOR THE TRANSITION PERIOD FROM ________ TO ________.
COMMISSION FILE NUMBER: 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 August 9, 2000, there were 6,535,460 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 nine months ended June 30, 2000 and 1999) 3
Consolidated Balance Sheets
(As of June 30, 2000 and September 30, 1999) 4
Consolidated Statements of Cash Flows
(Nine months ended June 30, 2000 and 1999) 5
Notes to Consolidated Financial Statements 6-10
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations 11-14
Item 3. Quantitative and Qualitative Disclosures about Market Risk 14
Part II. Other Information.
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
</TABLE>
2
<PAGE>
HAGGAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 102,053 $ 107,215 $ 317,803 $ 312,272
Cost of goods sold 69,243 71,946 212,866 209,627
----------- ----------- ----------- -----------
Gross profit 32,810 35,269 104,937 102,645
Selling, general and administrative expenses (30,551) (32,339) (97,434) (95,916)
Royalty income, net 592 569 1,501 1,798
----------- ----------- ----------- -----------
Operating income 2,851 3,499 9,004 8,527
Other income, net 451 338 808 1,224
Interest expense (1,037) (966) (2,968) (2,865)
----------- ----------- ----------- -----------
Income from operations before provision
for income taxes 2,265 2,871 6,844 6,886
Provision for income taxes 842 1,046 2,682 2,673
----------- ----------- ----------- -----------
Net income $ 1,423 $ 1,825 $ 4,162 $ 4,213
=========== =========== =========== ===========
Net income per share on a basic basis $ 0.22 $ 0.25 $ 0.61 $ 0.56
=========== =========== =========== ===========
Net income per share on a diluted basis $ 0.21 $ 0.25 $ 0.59 $ 0.56
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - basic 6,594 7,235 6,795 7,523
=========== =========== =========== ===========
Weighted average number of common shares and
common share-equivalents outstanding - diluted 6,847 7,274 7,001 7,561
=========== =========== =========== ===========
</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>
June 30,
2000 September 30,
(unaudited) 1999
----------- ------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,631 $ 6,380
Accounts receivable, net 46,301 59,488
Due from factor 2,094 4,034
Inventories 83,764 85,985
Deferred tax benefit 11,804 12,100
Other current assets 4,445 1,639
----------- -----------
Total current assets 159,039 169,626
Property, plant, and equipment, net 59,533 61,897
Goodwill, net 26,586 28,751
Other assets 2,942 3,257
----------- -----------
Total assets $ 248,100 $ 263,531
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,445 $ 33,030
Accrued liabilities 17,222 27,954
Accrued wages and other employee compensation 3,649 7,014
Accrued workers' compensation 4,314 4,775
Current portion of long-term debt 4,069 4,069
----------- -----------
Total current liabilities 52,699 76,842
Deferred income taxes 974 867
Long-term debt 34,549 21,374
----------- -----------
Total liabilities 88,222 99,083
Commitments and contingencies
Stockholders' equity:
Common stock - par value $0.10 per share; 25,000,000
shares authorized and 8,578,665 and 8,576,998
shares issued at June 30, 2000 and September 30,
1999, respectively 857 857
Additional paid-in capital 41,878 41,860
Retained earnings 139,426 136,267
----------- -----------
182,161 178,984
Less - Treasury stock, 1,984,205 and 1,391,605 shares at cost at
June 30, 2000 and September 30, 1999, respectively (22,283) (14,536)
----------- -----------
Total stockholders' equity 159,878 164,448
----------- -----------
Total liabilities and stockholders' equity $ 248,100 $ 263,531
=========== ===========
</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>
Nine Months Ended
June 30,
----------------------------
2000 1999
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 4,162 $ 4,213
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 10,043 10,042
Gain on disposal of property, plant, and equipment (393) (578)
Changes in assets and liabilities, net of the
effects from the purchase of Jerell, Inc.:
Accounts receivable, net 13,187 24,160
Due from factor 1,940 (1,069)
Inventories, net 2,221 5,262
Deferred taxes 403 (4,635)
Other current assets (2,806) (3,584)
Accounts payable (9,585) 3,978
Accrued liabilities (10,732) 8,832
Accrued wages, workers' compensation, and other employee benefits (3,826) (493)
----------- -----------
Net cash provided by operating activities 4,614 46,128
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (7,417) (5,158)
Purchase of Jerell, Inc. - (39,257)
Proceeds from the sale of property, plant and equipment, net 1,280 1,336
Decrease (increase) in other assets 1,331 (555)
----------- -----------
Net cash used in investing activities (4,806) (43,634)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments from short-term borrowings - (3,453)
Purchase of treasury stock at cost (7,747) (8,966)
Proceeds from issuance of long-term debt 118,000 33,000
Payments on long-term debt (104,825) (36,664)
Proceeds from issuance of common stock 18 -
Payments of cash dividends (1,003) (755)
----------- -----------
Net cash provided by (used in) financing activities 4,443 (16,838)
Increase (decrease) in cash and cash equivalents 4,251 (14,344)
Cash and cash equivalents, beginning of period 6,380 20,280
----------- -----------
Cash and cash equivalents, end of period $ 10,631 $ 5,936
=========== ===========
Supplemental disclosure of cash flow information Cash paid for:
Interest $ 2,944 $ 4,079
Income taxes $ 6,915 $ 7,140
</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 June 30, 2000, and the consolidated
statements of operations and cash flows for the three and nine months ended
June 30, 2000, 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
June 30, 2000, 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, 1999.
ACQUISITION
On January 13, 1999, the Company, through its main operating subsidiary,
Haggar Clothing Co., acquired Jerell, Inc. ("Jerell"), a company engaged in
the design and marketing of women's apparel, for an aggregate acquisition
cost of $43.6 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 $1.6 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 of $2.8 million and
payments of $0.7 million from former stockholders of Jerell for tax
withholdings, resulting in a net acquisition cost of $40.1 million. The
acquisition was accounted for under the purchase method. Based on estimates
in the second quarter of fiscal 1999, the excess consideration paid over the
estimated fair value of net assets acquired of approximately $29.9 million
was recorded as goodwill and is being amortized on a straight-line basis over
its estimated useful life of 20 years. In the third quarter of fiscal 2000,
the Company determined that it was entitled to $1.2 million in federal tax
refunds related to the overpayment of taxes by Jerell prior to being acquired
by Haggar. The refund was accordingly recorded as a reduction of goodwill.
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 as if the acquisition had taken place at the
beginning of fiscal 1999. These results are not intended to be a projection
of future results.
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) --------------------------
2000 1999
---- ----
<S> <C> <C>
Net sales $317,803 $326,456
Net income 4,162 3,842
Net Income per share - basic $0.61 $ 0.51
Net Income per share - diluted $0.59 $ 0.51
</TABLE>
In conjunction with the acquisition, liabilities were assumed as follows (in
thousands):
<TABLE>
<S> <C>
Fair value of assets acquired $46,665
Net cash paid for Jerell, Inc. 39,317
-------
Liabilities assumed $ 7,348
=======
</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 24.6% and 26.6% of the Company's net sales for
the nine months ended June 30, 2000 and 1999, respectively. The Company's
second largest current customer, Kohl's Department Stores, Inc., accounted for
11.8% and 13.0% of the Company's net sales for the nine months ended June 30,
2000 and 1999, 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
The Company has a factoring agreement with Bank of America for the purposes of
providing credit administration for the Company. Under the terms of the
factoring agreement, Bank of America purchases substantially all of Jerell's
specialty store 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 June 30, 2000, and September 30, 1999 (in
thousands):
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
---------------- ---------------
<S> <C> <C>
Piece goods $ 10,131 $ 10,001
Trimmings & supplies 3,708 2,651
Work-in-process 16,559 17,443
Finished garments 53,366 55,890
---------------- ---------------
$ 83,764 $ 85,985
================ ===============
</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 June 30, 2000, and September 30,
1999 (in thousands):
<TABLE>
<CAPTION>
June 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
Borrowings under revolving
credit line $ 17,000 $ -
Industrial Development Revenue
Bonds with interest at a rate equal
to that of high-quality, short-term,
tax-exempt obligations, as defined
(4.5% at June 30, 2000 and 3.85%
at September 30, 1999), payable in
annual installments of $100 to
$200, and a final payment of
$2,000 in 2005, secured by
certain buildings and equipment 2,500 2,600
Allstate Notes 17,857 21,429
Other 1,261 1,414
------------- -------------
38,618 25,443
Less - Current portion 4,069 4,069
------------- -------------
$ 34,549 $ 21,374
============= =============
</TABLE>
Net assets mortgaged or subject to lien under the Industrial Development
Revenue Bonds totaled approximately $834,829 at June 30, 2000.
As of June 30, 2000, the Company had a revolving credit line agreement (the
"Agreement") with certain banks. As of June 30, 2000, the Company had
additional available borrowing capacity of approximately $62 million. The
Company incurred approximately $36,000 in commitment fees during the quarter
ended June 30, 2000. The interest rates for the nine month period ended June
30, 2000, ranged from 6.56% to 9.50%. The facility will mature June 30, 2002,
with 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 Clothing Co., the Company's main operating subsidiary, to maintain
tangible net worth, as defined, in excess of $148,311,000 and $55,000,000,
respectively, as of June 30, 2000. The Agreement prohibits the payment of any
dividend if a default exists.
CONTINGENCIES
LAWSUITS
During the last sixteen months, two jury verdicts totaling $5.2 million have
been returned against subsidiaries of the Company related to claims by former
employees for wrongful discharge and common law tort. Management and legal
counsel believe the verdicts in these lawsuits are both legally and factually
incorrect, and the Company intends to appeal the original jury verdicts.
Management does not believe that the outcome of these appeals will have a
material adverse impact on its financial statements.
The Company has a program to actively manage the process to reduce the
Company's overall exposure to these types of claims, which are similar in
nature and geographically concentrated. As a result of unfavorable progress in
the settlement of such claims, the Company accrued $1.6 million in the third
8
<PAGE>
quarter of fiscal 2000. Management does not believe that the final
disposition of the pending claims will have a material adverse impact on its
financial statements.
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 826,865 common shares at prices ranging from $12.88 to
$23.00 were not dilutive and were outstanding for the three and nine months
ended June 30, 2000. Options to purchase 859,956 and 884,956 common shares at
prices ranging from $12.13 to $23.00 were not dilutive and were outstanding
for the three and nine months ended June 30, 1999. 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 Nine Months Ended
June 30, June 30,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net income to common stockholders $ 1,423 $ 1,825 $ 4,162 $ 4,213
Weighted average common shares outstanding 6,594 7,235 6,795 7,523
Shares equivalents, due to stock options 253 39 206 38
----------- ----------- ----------- -----------
6,847 7,274 7,001 7,561
=========== =========== =========== ===========
Net income per share - diluted $ 0.21 $ 0.25 $ 0.59 $ 0.56
=========== =========== =========== ===========
</TABLE>
9
<PAGE>
EMPLOYEE BENEFIT PLANS
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN AND TRUST ("SERP")
In order to provide supplemental retirement benefits and pre-retirement death
benefits to select members of the Company's senior management, the Company
formed the Haggar Corp. Supplemental Executive Retirement Plan ("SERP") during
the first quarter of fiscal 2000. At retirement age, as defined in the SERP,
each participant will be entitled to a life annuity benefit (if married, a
joint and 50% survivor annuity) equal to 65% of the participant's average
total compensation during the three prior fiscal years, reduced by any
Company-provided benefit under the existing deferred annuity program. If a
participant dies before retirement, the surviving spouse or other beneficiary
will receive a death benefit equal to $400,000 per year payable annually for
10 years.
The Company has established a trust to which the Company will contribute cash
to purchase variable life insurance policies insuring each participant. Annual
premiums for the current participants are approximately $878,000.
The SERP is operating as an unfunded compensation arrangement that is not
subject to the annual reporting and disclosure requirements of the Employee
Retirement Income Security Act of 1974 ("ERISA").
SUBSEQUENT EVENTS
DIVIDEND DECLARED.
On July 25, 2000, the Company declared a cash dividend of $0.05 per share
payable to the stockholders of record on August 7, 2000. The dividend of
approximately $326,800 will be paid on or before August 21, 2000.
10
<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, 1999.
RESULTS OF OPERATIONS
The Company's third quarter of fiscal 2000 net income of $1.4 million
compares to net income of $1.8 million in the third quarter of fiscal 1999.
The decrease in net income for the third quarter relates primarily to
unusually high legal expenses incurred as a result of various claims by
former employees for wrongful discharge and common law tort against the
Company. Without the legal charge to income, net income would have been $2.4
million, a 33% increase over the same quarter last year. Net income to common
stockholders for the nine months ended June 30, 2000, was $4.2 million
compared to $4.2 million for the nine months ended June 30, 1999. Excluding
the legal charges, net income would have been $5.1 million for the nine
months ended June 30, 2000, a 21% increase over the same period last year.
The increase in net income, excluding the legal charge for the three and nine
months ended June 30, 2000, relates principally to the improved gross margins
resulting from operational and sourcing efficiencies and reduced selling,
general and administrative expenses.
Net sales for the quarter ended June 30, 2000, decreased 4.8% to $102.1
million from $107.2 million for the third quarter of fiscal 1999. The decrease
in net sales for the third quarter of fiscal 2000 is the combined result of a
0.7% decrease in unit sales and a 4.1% decrease in the sales price due to
higher returns and allowances. Net sales for the nine months ended June 30,
2000, increased 1.8% to $317.8 million compared to $312.3 million in the prior
fiscal year. The 1.8% increase in the first nine months of fiscal 2000 is
primarily the result of the inclusion of the new women's division net sales.
Gross profit as a percentage of net sales decreased to 32.2% in the third
quarter of fiscal 2000 compared to 32.9% for the same quarter last year. Gross
profit for the first nine months of fiscal 2000 increased to 33.0% compared to
32.8% in the first nine months of fiscal 1999. Excluding the legal charge to
cost of sales, gross profit as a percentage of net sales would have been 33.7%
and 33.5% for the third quarter and nine months ended June 30, 2000,
respectively. The increases in gross profit are primarily the result of
sourcing efficiencies that have been implemented across the Company and the
Company's ability to better forecast customer trends, allowing us to balance
inventories and reduce markdowns.
Selling, general and administrative expenses as a percentage of net sales
remained relatively consistent for the three and nine month periods ended June
30, 2000, compared to the same periods ended June 30, 1999. Actual selling,
general and administrative expenses decreased to $30.6 million in the third
quarter of fiscal 2000 compared to $32.3 million in the same quarter in fiscal
1999. The $1.8 million decrease in selling, general and administrative
expenses for the third quarter of fiscal 2000 compared to the same quarter of
fiscal 1999 relates to a $1.7 million decrease in advertising expenses, a $0.6
million decrease in women's division expenses offset by a $0.8 million
increase in licensing expenses related to the DKNY license. Actual selling,
general and administrative expenses increased to $97.4 million for the nine
months ended June 30, 2000, compared to $95.9 million in the first nine months
of the prior fiscal year. The increase of $1.5 million in selling, general and
administrative expenses for the first nine months of fiscal 2000 compared to
fiscal 1999 primarily related to a $1.3 million increase in women's division
expenses, $0.8 million increase for the opening and operation of new retail
stores, $1.1 million increase for the Haggar Japan operations, $2.8 million
increase in licensing expenses related to the DKNY license, and a $1.2 million
increase attributable to executive compensation arrangements (which will
continue in subsequent periods), offset by a $2.5 million decrease in
advertising expenses, a $1.4 million decrease in selling expenses, $0.9
million decrease in shipping expenses, and a $0.9 million decrease in
information system expenses. At the end of the third quarter of fiscal 2000,
65 retail stores were open and operational as compared to 62 stores at the end
of the third quarter of fiscal 1999.
11
<PAGE>
Other income was $451,000 in the third quarter of fiscal 2000 compared to
$338,000 in the same quarter last year. For the first nine months of fiscal
2000, other income decreased to $808,000 compared to $1,224,000 for the same
period last year. The decrease in the nine months of fiscal 2000 relates to
gains from the sales of miscellaneous equipment in fiscal 1999 which did not
repeat in fiscal 2000.
In the third quarter of fiscal 2000, the provision for income taxes increased
as a percentage of income before taxes to 37.2% from 36.4% for the same
quarter last year. For the nine months ended June 30, 2000, the provision for
income taxes increased as a percentage of income before taxes to 39.2% from
38.8% for the same period last year. The increases are a result of certain
permanent differences related to deductibility of goodwill and meals and
entertainment expenses.
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 the factor, decreased
approximately $15.1 million to $48.4 million at June 30, 2000, from $63.5
million at September 30, 1999. This decrease is primarily the result of
decreased sales.
Inventories as of June 30, 2000, decreased to $83.8 million from $86.0 million
at September 30, 1999. The decrease in inventory levels relates primarily to
the Company's ongoing efforts to reduce finished goods inventories.
The Company has a revolving credit line facility with certain banks. As of
June 30, 2000, the Company had additional available borrowing capacity of
approximately $62.0 million. The Company incurred approximately $112,000 in
commitment fees related to the available borrowing capacity for the nine
months ended June 30, 2000. The interest rates for the quarter ended June 30,
2000, ranged from 6.56% to 9.50%. The facility will mature June 30, 2002, with
a one year renewal at the option of the banks.
For the nine months ended June 30, 2000, the Company provided cash in
operating activities of approximately $4.6 million. The cash provided is
primarily the result of a $13.2 million decrease in accounts receivable and a
$2.2 million decrease in inventories, offset by a $10.7 million decrease in
accrued liabilities. For the same period last year, the Company provided cash
from operating activities of approximately $46.1 million (net of effects from
the purchase of Jerell, Inc.). The cash provided was primarily the result of a
$24.2 million decrease in accounts receivable, an $8.8 million increase in
accrued liabilities and a $5.3 million decrease in inventories, offset by a
$4.6 million increase in deferred tax benefits and $3.6 million increase in
other current assets.
The Company used approximately $4.8 million in investing activities for the
nine months ended June 30, 2000. The Company purchased property, plant and
equipment of $7.4 million, offset by proceeds from the sale of property, plant
and equipment of $1.3 million and a $1.3 million decrease in other assets
related to change in goodwill (as discussed in the "Acquisition" footnote to
the third quarter unaudited financial statement). For the nine months ended
June 30, 1999, approximately $43.6 million in cash flow was used by investing
activities primarily as the result of purchasing $5.2 million of property,
plant and equipment and acquiring Jerell for $39.3 million.
Cash flows provided from financing activities of $4.4 million for the nine
months ended June 30, 2000, were primarily the result of a net increase in
long-term debt of $13.2 million, offset by a $1.0 million payment of cash
dividends and the purchase of $7.7 million in treasury stock. Comparatively,
cash flows used in financing activities of $16.8 million for the same period
last year were primarily the result of a net payment of long-term debt of $3.7
million, the $3.5 million payment of short-term borrowings and the purchase of
$9.0 million in treasury stock.
12
<PAGE>
The Company believes that the cash flow generated from operations and the
funds available under the aforementioned 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 had 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 implemented the remediation
necessary to prepare the Company for the Year 2000. The Year 2000 steering
committee, composed of members from various functional groups, provided
oversight by reviewing and evaluating the progress of the Year 2000 program.
In addition to its internal Year 2000 compliance program, the Company
requested information from a majority of its customers and vendors concerning
their Year 2000 compliance.
STATE OF READINESS. The Company completed the assessment, remediation and
testing of all its computerized systems by November 30, 1999. Subsequent to
December 31, 1999, the Company has not experienced any significant systems
failures related to the Year 2000 issue. Similarly, no customers or suppliers
have reported any significant Year 2000 problems to the Company. Nonetheless,
the Company intends to continue monitoring its computerized systems and
communicate with its customers and suppliers to identify any Year 2000 issues
which may arise or be discovered during the 2000 calendar year.
COSTS TO ADDRESS YEAR 2000 ISSUES. The Company executed its Year 2000 program
primarily with existing internal resources. The principal costs associated
with these internal resources were payroll and employee benefits of the
information systems group. The Company did not separately track the internal
costs attributable to the Year 2000 program.
The Company 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 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 were accelerated or deferred due to Year 2000 issues. The
costs of these programmers and upgrades were not material to the results of
operations or the financial condition of the Company. All costs of Year 2000
compliance were recorded in the period incurred.
RISKS OF YEAR 2000 ISSUES. Although the Company believes that it has
adequately addressed 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 effect on the Company.
CONTINGENCY PLANS. In preparation for the 2000 calendar year, the Company
developed contingency plans for potential risks such as interruptions in
supply chain, transportation delays and communications breakdowns with foreign
vendors. The Company generated risk analysis reports from the testing of
systems and the responses received from customers and vendors. The reports
were divided between internal and external risks.
The internal risks related to the Company's systems and facilities. The
Company conducted extensive testing to assure the Company that date changes
would not affect its systems before, during or after January 1, 2000. In
addition, the Company increased MIS staff coverage from December 30, 1999, to
January 15, 2000. Also, facilities staff were on site during the January 1
weekend to confirm that building and mechanical systems operated as expected.
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The external risk categories covered in the reports were customers, importers,
piece goods and trim suppliers, manufacturing contractors, licensees,
transportation and utility vendors. The Company's senior managers used risk
analysis reports to develop contingency plans where necessary. In light of the
lack of any significant Year 2000 problems reported to date, the Company does
not believe such contingency plans will be utilized.
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,
the success of advertising, marketing and promotional campaigns and unexpected
judicial decisions. 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.
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 its 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 through
its borrowing activities. As of June 30, 2000, the Company had $17.0 million
outstanding under its revolving credit line agreement and $17.9 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.
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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: August 9, 2000 By: /s/ David M. Tehle
--------------------
David M. Tehle
Senior Vice President,
Secretary and
Chief Financial Officer
Signed on behalf of the
registrant and as principal
financial officer.
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