UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM 10-Q
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(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, 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 May 15, 2000, there were 6,594,460 shares of the Registrant's Common Stock
outstanding.
HAGGAR CORP. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1. Financial Statements
Consolidated Statements of Operations
(Three and six months ended March 31, 2000 and 1999) 3
Consolidated Balance Sheets
(As of March 31, 2000 and September 30, 1999) 4
Consolidated Statements of Cash Flows
(Six months ended March 31, 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 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 15
Signature 15
2
HAGGAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED, IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net sales $ 117,068 $ 120,263 $ 215,750 $ 205,057
Cost of goods sold 79,242 82,531 143,623 137,669
----------- ----------- ----------- -----------
Gross profit 37,826 37,732 72,127 67,388
Selling, general and administrative expenses (33,929) (34,815) (66,883) (63,588)
Royalty income, net 865 888 909 1,229
----------- ----------- ----------- -----------
Operating income 4,762 3,805 6,153 5,029
Other income, net 13 530 357 886
Interest expense (1,132) (1,127) (1,931) (1,900)
------------ ------------ ------------ -----------
Income from operations before provision
for income taxes 3,643 3,208 4,579 4,015
Provision for income taxes 1,461 1,313 1,840 1,626
----------- ----------- ----------- -----------
Net income $ 2,182 $ 1,895 $ 2,739 $ 2,389
=========== =========== =========== ===========
Net income per share on a basic basis $ 0.33 $ 0.25 $ 0.40 $ 0.31
=========== =========== =========== ===========
Net income per share on a diluted basis $ 0.31 $ 0.25 $ 0.39 $ 0.31
=========== =========== =========== ===========
Weighted average number of common shares
outstanding - Basic 6,707 7,615 6,895 7,666
=========== =========== =========== ===========
Weighted average number of common shares and
common share-equivalents outstanding - Diluted 6,953 7,615 7,076 7,673
=========== =========== =========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
3
HAGGAR CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS)
March 31,
2000 September 30,
(unaudited) 1999
----------- -------------
ASSETS
Current assets:
Cash and cash equivalents $ 7,214 $ 6,380
Accounts receivable, net 62,893 59,488
Due from factor 3,481 4,034
Inventories 81,187 85,985
Deferred tax benefit 11,804 12,100
Other current assets 2,920 1,639
----------- -----------
Total current assets 169,499 169,626
Property, plant, and equipment, net 60,579 61,897
Goodwill, net 28,135 28,751
Other assets 2,941 3,257
----------- -----------
Total assets $ 261,154 $ 263,531
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 23,303 $ 33,030
Accrued liabilities 23,307 27,954
Accrued wages and other employee compensation 2,614 7,014
Accrued workers' compensation 4,660 4,775
Current portion of long-term debt 4,069 4,069
----------- -----------
Total current liabilities 57,953 76,842
Deferred income taxes 867 867
Long-term debt 43,561 21,374
----------- -----------
Total liabilities 102,381 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 March 31, 2000 and September 30,
1999, respectively 857 857
Additional paid-in capital 41,865 41,860
Retained earnings 138,334 136,267
----------- -----------
181,056 178,984
Less - Treasury stock, 1,984,205 and 1,391,605 shares at cost at
March 31, 2000 and September 30, 1999, respectively (22,283) (14,536)
----------- -----------
Total stockholders' equity 158,773 164,448
----------- -----------
Total liabilities and stockholders' equity $ 261,154 $ 263,531
=========== ===========
The accompanying notes are an integral part of these consolidated
financial statements.
4
HAGGAR CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED, IN THOUSANDS)
Six Months Ended
March 31,
--------------------------------
2000 1999
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 2,739 $ 2,389
Adjustments to reconcile net income to net cash (used in)
provided by operating activities:
Depreciation and amortization 6,677 6,769
Gain on disposal of property, plant, and equipment (524) (471)
Changes in assets and liabilities:
Accounts receivable, net (3,405) 14,963
Due from factor 553 (5,226)
Inventories, net 4,798 6,141
Current deferred tax benefit 296 (2,898)
Other current assets (1,281) 249
Accounts payable (9,727) (3,410)
Accrued liabilities (4,647) 2,304
Accrued wages, workers' compensation, and other employee benefits (4,515) (2,525)
------------ ------------
Net cash (used in) provided by operating activities (9,036) 18,285
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of property, plant and equipment, net (5,258) (3,336)
Purchase of Jerell, Inc. -- (39,237)
Proceeds from the sale of property, plant and equipment, net 1,199 857
Decrease (increase) in other assets 156 (481)
------------ ------------
Net cash used in investing activities (3,903) (42,197)
CASH FLOWS FROM FINANCING ACTIVITIES
Net payments from short-term borrowings -- (3,453)
Purchase of treasury stock at cost (7,747) (6,214)
Proceeds from issuance of long-term debt 99,000 32,000
Payments on long-term debt (76,813) (6,662)
Proceeds from issuance of common stock 5 --
Payments of cash dividends (672) (755)
------------ ------------
Net cash provided by financing activities 13,773 14,916
Increase (decrease) in cash and cash equivalents 834 (8,996)
Cash and cash equivalents, beginning of period 6,380 20,280
------------ ------------
Cash and cash equivalents, end of period $ 7,214 $ 11,284
============ ============
Supplemental disclosure of cash flow information
Cash paid for:
Interest $ 1,767 $ 3,707
Income taxes $ 5,134 $ 2,882
The accompanying notes are an integral part of these consolidated
financial statements.
5
HAGGAR CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED FINANCIAL STATEMENTS
The consolidated balance sheet as of March 31, 2000, and the consolidated
statements of operations and cash flows for the three and six months ended March
31, 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 March 31, 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 current estimates, which may be revised at a later date, 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. 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 1998.
These results are not intended to be a projection of future results.
Six Months Ended
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) March 31,
---------------------
2000 1999
--------- ---------
Net sales $ 215,750 $ 219,241
Net income 2,739 1,762
Net Income per share - Basic $ 0.40 $ 0.23
Net Income per share - Diluted
$ 0.39 $ 0.23
In conjunction with the acquisition, liabilities were assumed as follows (in
thousands):
Fair value of assets acquired $ 46,665
Net cash paid for Jerell, Inc. 39,317
--------
Liabilities assumed $ 7,348
========
6
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 24.5% and 26.3% of the Company's net sales for the six
months ended March 31, 2000 and 1999, respectively. The Company's second largest
current customer, Kohl's Department Stores, Inc., accounted for 12.0% and 11.4%
of the Company's net sales for the six months ended March 31, 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 March 31, 2000, and September 30, 1999 (in
thousands):
March 31, September 30,
2000 1999
---------------- ---------------
Piece goods $ 8,958 $ 10,001
Trimmings & supplies 2,761 2,651
Work-in-process 17,057 17,443
Finished garments 52,411 55,890
---------------- ---------------
$ 81,187 $ 85,985
================ ===============
Work-in-process and finished garments inventories consisted of materials, labor
and manufacturing overhead.
7
LONG-TERM DEBT
Long-term debt consisted of the following at March 31, 2000, and September 30,
1999 (in thousands):
March 31, September 30,
2000 1999
------------- --------------
Borrowings under revolving
credit line $ 26,000 $ -
Industrial Development Revenue Bonds with interest at a rate equal
to that of high-quality, short-term, tax-exempt obligations,
as defined (3.85% at March 31, 2000 and 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 1,273 1,414
------------- -------------
47,630 25,443
Less - Current portion 4,069 4,069
------------- -------------
$ 43,561 $ 21,374
============= =============
Net assets mortgaged or subject to lien under the Industrial Development Revenue
Bonds totaled approximately $868,322 at March 31, 2000.
As of March 31, 2000, the Company had a revolving credit line agreement (the
"Agreement") with certain banks. During the second quarter of 2000, the
Agreement was amended to permit the Company to repurchase up to $40 million
worth of its common shares outstanding under the Company's stock repurchase
program. As of March 31, 2000, the Company had additional available borrowing
capacity of approximately $66 million. The Company incurred approximately
$76,120 in commitment fees related to the available borrowing capacity for the
six month period ended March 31, 2000. The interest rates for the six month
period ended March 31, 2000, ranged from 6.25% to 9.00%. The facility will
mature June 30, 2002, unless renewed and is unsecured. The Agreement prohibits
the Company from pledging its accounts receivable and inventories, 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 net
worth, as defined, in excess of $148,311,000 and $55,000,000, respectively, as
of March 31, 2000. The Agreement prohibits the payment of any dividend if a
default exists after giving effect to such dividend.
In 1995, the Company completed the sale and issuance of $25,000,000 in senior
notes (the "Allstate notes"). Proceeds from the Allstate notes were used to
partially fund the construction of the Company's Customer Service Center
("CSC"). Significant terms of the Allstate 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
Allstate notes is fixed at 8.49%. The terms and conditions of the note purchase
agreement governing the Allstate notes include restriction on the sale of
assets, limitations on additional indebtedness, and the maintenance of certain
net worth requirements.
8
CONTINGENCIES
LAWSUITS
During the last thirteen 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. However, the Company has possible additional
exposure to similar cases, which have not yet been tried. Management believes
its accruals are adequate, but the unpredictability of these cases could result
in additional accruals of up to $2 million being required in the third quarter.
This is an estimate and additional information is necessary before management
can provide a final projection. However, management does not believe that the
outcome of these pending cases 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 983,231 and 765,500 common shares at prices ranging from
$12.88 to $23.00 were not dilutive and were outstanding for the three and six
months ended March 31, 2000. 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. 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):
Three Months Ended Six Months Ended
March 31, March 31,
-------------------------- --------------------------
2000 1999 2000 1999
----------- ----------- ----------- -----------
Net income to common stockholders $ 2,182 $ 1,895 $ 2,739 $ 2,389
Weighted average common shares outstanding 6,707 7,615 6,895 7,666
Shares equivalents, due to stock options 246 - 181 7
----------- ----------- ----------- -----------
6,953 7,615 7,076 7,673
=========== =========== =========== ===========
Net income per share - Diluted $ 0.31 $ 0.25 $ 0.39 $ 0.31
=========== =========== =========== ===========
9
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 April 27, 2000, the Company declared a cash dividend of $0.05 per share
payable to the stockholders of record on May 10, 2000. The dividend of
approximately $329,700 will be paid on or before May 24, 2000.
10
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 second quarter of fiscal 2000 net income of $2.2 million compares
to net income of $1.9 million in the second quarter of fiscal 1999. The increase
in net income for the second quarter relates primarily to lower selling, general
and administrative expenses. Net income to common stockholders for the six
months ended March 31, 2000, was $2.7 million compared to $2.4 million for the
six months ended March 31, 1999. The increase in net income for the six months
ended March 31, 2000, relates principally to the increase in operating income
related to the acquisition of Jerell.
Net sales for the quarter ended March 31, 2000, decreased 2.7% to $117.1 million
from $120.3 million for the second quarter of fiscal 1999. The decrease in net
sales for the second quarter of fiscal 2000 is the combined result of a 1.3%
increase in unit sales and an 3.9% decrease in the average sales price. Net
sales for the six months ended March 31, 2000, increased 5.2% to $215.7 million
compared to $205.1 million in the prior fiscal year. The 5.2% increase in the
first six 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 increased to 32.3% in the second
quarter of fiscal 2000 compared to 31.4% in the second quarter of the prior
fiscal year. Gross profit for the first six months of fiscal 2000 increased to
33.4% compared to 32.9% in the first six months of fiscal 1999. The increases in
gross profit are primarily the result of fewer inventory markdowns and improved
operational efficiencies which are reducing the Company's cost per unit.
Selling, general and administrative expenses as a percentage of net sales
remained consistent for the three and six month periods ended March 31, 2000,
compared to the same periods ended March 31, 1999. Actual selling, general and
administrative expenses decreased to $33.9 million in the second quarter of
fiscal 2000 compared to $34.8 million in the same quarter in fiscal 1999. The
$0.9 million decrease in selling, general and administrative expenses for the
second quarter of fiscal 2000 compared to the second quarter of fiscal 1999
relates to a $1.1 million decrease in selling expenses, a $1.3 million decrease
in women's division expenses, and a $0.8 million decrease in shipping and
information system expenses. The decreases are offset by a $1.9 million increase
in licensing expenses and a $0.4 million increase in the opening and operating
of new retail stores. Actual selling, general and administrative expenses
increased to $66.9 million for the six months ended March 31, 2000, compared to
$63.6 million in the first six months of the prior fiscal year. The increase of
$3.3 million in selling, general and administrative expenses for the first six
months of fiscal 2000 compared to fiscal 1999 primarily related to the
following: a $2.1 million increase in women's division expenses, $0.9 million
increase for the opening and operation of new retail stores, $0.6 million
increase for the Haggar Japan operations, $2.0 million increase in licensing
expenses, and a $0.5 million increase attributable to executive compensation
arrangements (which will continue in subsequent periods). These increases are
partially offset by a $1.0 million decrease in shipping and information system
expenses, and a $1.8 million decrease in selling expenses. At the end of the
second quarter of fiscal 2000, 66 retail stores were open and operational as
compared to 60 stores at the end of the second quarter of fiscal 1999.
Other income was $13,000 in the second quarter of fiscal 2000 compared to
$530,000 in the same quarter last year. For the first six months of fiscal 2000,
other income decreased to $357,000 compared to $886,000 for the same period last
year. The decreases in both periods relate to gains from the sales of
miscellaneous equipment in fiscal 1999 which did not repeat in fiscal 2000.
11
In the second quarter of fiscal 2000, the provision for income taxes decreased
as a percentage of income before taxes to 40.1% from 40.9% for the same quarter
last year. For the six months ended March 31, 2000, the provision for income
taxes decreased as a percentage of income before taxes to 40.2% from 40.5% for
the same period last year. The decreases are a result of certain permanent
differences related to depreciation, 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, increased approximately $2.9
million to $66.4 million at March 31, 2000, from $63.5 million at September 30,
1999. This increase is primarily the result of seasonal increases in sales.
Inventories as of March 31, 2000, decreased to $81.2 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.
As of December 31, 1999, the Company had a revolving credit line facility with
certain banks. As of March 31, 2000, the Company had additional available
borrowing capacity of approximately $66.0 million. The Company incurred
approximately $76,120 in commitment fees related to the available borrowing
capacity for the six months ended March 31, 2000. The interest rates for the
quarter ended March 31, 2000, ranged from 6.25% to 9.00%. The facility will
mature June 30, 2002, with a one year renewal at the option of the banks.
For the six months ended March 31, 2000, the Company used cash in operating
activities of approximately $9.0 million. The cash used is primarily the result
of a $3.4 million increase in accounts receivable and a $9.7 million decrease in
accounts payable, offset by a $4.8 million decrease in inventories. For the same
period last year, the Company provided cash from operating activities of $18.3
million (net of effects from the purchase of Jerell, Inc.) primarily from a
$15.0 million decrease in accounts receivable, and a $6.1 million decrease in
inventories, offset by a $5.2 million decrease in amounts due from factor.
The Company used approximately $3.9 million in investing activities for the six
months ended March 31, 2000. The Company purchased property, plant and equipment
of $5.3 million, offset by proceeds from the sale of property, plant and
equipment of $1.2 million. For the six months ended March 31, 1999,
approximately $42.2 million in cash flow was used by investing activities
primarily as the result of purchasing $3.3 million of property, plant and
equipment and acquiring Jerell for $39.2 million.
Cash flows provided from financing activities of $13.8 million for the six
months ended March 31, 2000, were primarily the result of a net increase in
long-term debt of $22.2 million, offset by a $0.7 million payment of cash
dividends and the purchase of $7.7 million in treasury stock. Comparatively,
cash flows provided from financing activities of $14.9 million for the same
period last year were primarily the result of a $25.3 million net increase in
long-term debt, offset by the purchase of $6.2 million in treasury stock and
$3.5 million payment of short-term borrowings.
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.
12
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. The Company has 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 relate 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 are 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, 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.
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 March 31, 2000, the Company had $26.0 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.
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 9, 2000. At
such meeting, Frank D. Bracken and Rae F. Evans were elected to serve as Class I
directors of the Company for a three year term and until their respective
successors are elected and qualified. Of the 6,095,347 shares represented at the
meeting in person or by proxy, Mr. Bracken and Mrs. Evans received 6,082,429 and
6,066,735 votes, respectively, for their election as Class I directors. The
other directors whose term of office continued after the meeting are J.M.
Haggar III, Norman E. Brinker, Richard W. Heath, and John C. Tolleson.
The appointment of Arthur Andersen LLP as auditors for the 2000 fiscal year was
ratified with 6,087,798 shares voted for, 5,053 shares voted against, no broker
non-votes and 2,495 shares abstained.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit 10(a) Seventh Amendment to First Amended and Restated
Credit Agreement dated February 18, 2000, between the Company
and Chase Bank of Texas, as agent for a bank syndicate.
(b) Exhibit 27.1 Financial Data Schedule
(c) 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: May 15, 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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