**UNITED STATESSECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C.20549**

 

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**FORM 10-Q**

 

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**(MarkOne)**

 

**ý****                                ****Quarterly report pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934**

 

**Forthe quarterly period ended December 31, 2003.**

**OR**

 

**o****                                ****Transition report pursuant to Section13 or 15(d) of the Securities Exchange Act of 1934**

 

**Forthe transition period from                to                .**

 

**CommissionFile Number:  0-20850**

 

**HAGGAR CORP.**

(Exact name of the registrant as specified in its charter)

 

| **Nevada**                                                                         |   | **75-2187001**                           |
|------------------------------------------------------------------------------------|--------|------------------------------------------|
| (State or other jurisdiction of  incorporation or organization)                    |   | (I.R.S. Employer  Identification Number) |
|                                                                               |   |                                     |
| **11511 Luna Road  Dallas, Texas****75234**                                        |
| (Address of principal executive offices)  (zip code)                               |
|                                                                               |
| **Telephone Number: (214) 352-8481**                                               |
| (Registrant’s telephone number, including area code)                          |
|                                                                               |
| **6113 Lemmon Avenue  Dallas, Texas  75209**                                  |
| (Former name, former address and former fiscal year  if changed since last report) |

 

Indicate by check mark whetherthe registrant (1) has filed all reports required to be filed by Section 13 or15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (orfor 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 ý |   | No o |
|-----------------|--------|-----------|

 

Indicate by check mark whetherthe registrant is an accelerated filer (as defined in Rule 12b-2 of theExchange Act).

 

| Yes o |   | No ý |
|------------|--------|----------------|

 

As of February 11, 2004, therewere 6,771,344 shares of the Registrant’s common stock outstanding.

 

 

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**Haggar Corp. and Subsidiaries**

 

**Index**

 

 
| Part I. Financial Information |                               |
|-------------------------------|------------------------------------|
|                          |                               |   |
|                          | Item 1.  Financial Statements |   |
|                          |                               |   |
|                          |                               | Consolidated Balance Sheets |   |
|                          |                               | (As of December 31, 2003 and September 30, 2003) |   |
|                          |                               |   |   |
|                          |                               | Consolidated Statements of Operations and  Comprehensive Income (Loss) |   |
|                          |                               | (Three months ended December 31, 2003 and  2002) |   |
|                          |                               |   |   |
|                          |                               | Consolidated Statements of Cash Flows |   |
|                          |                               | (Three months ended December 31, 2003 and  2002) |   |
|                          |                               |   |   |
|                          |                               | Notes to Consolidated Financial Statements |   |
|                          |                               |   |   |
|                          | Item 2.                            | Management’s  Discussion and Analysis of Financial Condition and Results of Operations |   |
|                          |                               |   |   |
|                          | Item 3.                            | Quantitative  and Qualitative Disclosures about Market Risk |   |
|                          |                               |   |   |
|                          | Item 4.                            | Controls  and Procedures |   |
|                          |                               |   |   |
| Part II. Other Information.   |                               |
|                          |                               |   |   |
|                          | Item 1.                            | Legal Proceedings |   |
|                          |                               |   |   |
|                          | Item 2.                            | Changes in Securities, Use of Proceeds and  Issuer Purchases of Equity Securities |   |
|                          |                               |   |   |
|                          | Item 3.                            | Defaults Upon Senior Securities |   |
|                          |                               |   |   |
|                          | Item 4.                            | Submission of Matters to a Vote of Security  Holders |   |
|                          |                               |   |   |
|                          | Item 5.                            | Other Information |   |
|                          |                               |   |   |
|                          | Item 6.                            | Exhibits and Reports on Form 8-K |   |
|                          |                               |   |   |
| Signature                     |                               |   |
|                               |                                    |  |  |  |

 

2

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**Haggar Corp. and Subsidiaries**

 

**ConsolidatedBalance Sheets**

*(in thousands,except share and per share amounts)*

 
|                                                                                                                                                                                                  |   | **December  31,  2003** |       | **September  30,  2003** |       |
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------------------|------------|--------------------------|------------|
|                                                                                                                                                                                                  |   | **(unaudited)**         |       |                     |       |
| **Assets**                                                                                                                                                                                            |   |                    |       |                     |       |
| Current assets:                                                                                                                                                                                       |   |                    |       |                     |       |
| Cash and cash equivalents                                                                                                                                                                             |   | $                       | 24,866     |                     | $          | 7,674 |   |
| Accounts receivable, net                                                                                                                                                                              |   | 36,253                  |       | 56,528                   |       |
| Inventories, net                                                                                                                                                                                      |   | 99,061                  |       | 96,959                   |       |
| Deferred tax asset                                                                                                                                                                                    |   | 10,505                  |       | 10,505                   |       |
| Other current assets                                                                                                                                                                                  |   | 6,115                   |       | 3,557                    |       |
| Total current  assets                                                                                                                                                                                 |   | 176,800                 |       | 175,223                  |       |
|                                                                                                                                                                                                  |   |                    |       |                     |       |
| Property, plant and equipment, net                                                                                                                                                                    |   | 45,932                  |       | 45,932                   |       |
| Goodwill, net                                                                                                                                                                                         |   | 9,472                   |       | 9,472                    |       |
| Other assets                                                                                                                                                                                          |   | 6,287                   |       | 7,580                    |       |
| Total assets                                                                                                                                                                                          |   | $                       | 238,491    |                     | $          | 238,207 |   |
|                                                                                                                                                                                                  |   |                    |       |                     |       |
| **Liabilities and Stockholders’ Equity**                                                                                                                                                         |   |                    |       |                     |       |
| Current liabilities:                                                                                                                                                                                  |   |                    |       |                     |       |
| Accounts payable                                                                                                                                                                                      |   | $                       | 29,318     |                     | $          | 26,245 |   |
| Accrued liabilities                                                                                                                                                                                   |   | 32,709                  |       | 31,898                   |       |
| Accrued wages and other employee  compensation                                                                                                                                                        |   | 3,460                   |       | 7,228                    |       |
| Current portion of long-term debt                                                                                                                                                                     |   | 3,671                   |       | 3,671                    |       |
| Total current  liabilities                                                                                                                                                                            |   | 69,158                  |       | 69,042                   |       |
| Other  non-current liabilities                                                                                                                                                                        |   | 10,171                  |       | 9,554                    |       |
| Deferred tax  liability                                                                                                                                                                               |   | 523                     |       | 523                      |       |
| Long-term debt                                                                                                                                                                                        |   | 2,000                   |       | 5,671                    |       |
| Total liabilities                                                                                                                                                                                     |   | 81,852                  |       | 84,790                   |       |
|                                                                                                                                                                                                  |   |                    |       |                     |       |
| Commitments and contingencies                                                                                                                                                                         |   |                    |       |                     |       |
|                                                                                                                                                                                                  |   |                    | ** ** |                     | ** ** |
| **Stockholders’ equity:**                                                                                                                                                                        |   |                    | ** ** |                     | ** ** |
| Preferred stock – par value $0.10 per  share; 250,000 shares authorized and no shares issued and outstanding at  December 31, 2003 and September 30, 2003                                        |   | —                  |       | —                   |       |
| Common stock – par value $0.10 per share;  25,000,000 shares authorized;   8,921,284 and 8,718,609 shares issued and outstanding at December 31,  2003 and September 30, 2003, respectively |   | 891                     |       | 872                      |       |
| Additional paid-in capital                                                                                                                                                                            |   | 45,893                  |       | 43,653                   |       |
| Foreign currency translation adjustment                                                                                                                                                               |   | (51                     | )          | (163                     | )          |
| Retained earnings                                                                                                                                                                                     |   | 134,867                 |       | 134,016                  |       |
|                                                                                                                                                                                                  |   | 181,600                 |       | 178,378                  |       |
| Less – Treasury stock, 2,242,183 shares at  cost at December 31, 2003 and September 30, 2003.                                                                                                    |   | (24,961                 | )          | (24,961                  | )          |
| Total stockholders’ equity                                                                                                                                                                       |   | 156,639                 |       | 153,417                  |       |
| Total liabilities and stockholders’ equity                                                                                                                                                       |   | $                       | 238,491    |                     | $          | 238,207 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

3

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**Haggar Corp. and Subsidiaries**

 

**ConsolidatedStatements of Operations and Comprehensive Income (Loss)**

*(unaudited, inthousands, except per share amounts)*

 
|                                                       |   | **Three  Months Ended  December 31,** |    |
|------------------------------------------------------------|--------|---------------------------------------|---------|
|                                                       |   | **2003**                              |    | **2002** |   |
|                                                       |   |                                  |    |   |   |
| Net sales                                                  |   | $                                     | 107,735 |   | $ | 113,907 |   |
| Cost of goods sold                                         |   | 76,412                                |    | 85,303 |   |
| Gross profit                                               |   | 31,323                                |    | 28,604 |   |
| Selling, general and administrative  expenses              |   | (29,574                               | )       | (31,510 | ) |
| Royalty income                                             |   | 254                                   |    | 373 |   |
| Other income (expense), net                                |   | 371                                   |    | (52 | ) |
| Interest expense                                           |   | (457                                  | )       | (735 | ) |
| Income (loss) before provision (benefit)  for income taxes |   | 1,917                                 |    | (3,320 | ) |
|                                                       |   |                                  |    |   |   |
| Provision (benefit) for income taxes                       |   | 732                                   |    | (1,315 | ) |
|                                                       |   |                                  |    |   |   |
| Net income (loss)                                          |   | $                                     | 1,185   |   | $ | (2,005 | ) |
|                                                       |   |                                  |    |   |   |
| Other comprehensive income (loss):                         |   |                                  |    |   |   |
|                                                       |   |                                  |    |   |   |
| Foreign currency translation adjustment                    |   | 112                                   |    | 96 |   |
|                                                       |   |                                  |    |   |   |
| Comprehensive income (loss)                                |   | $                                     | 1,297   |   | $ | (1,909 | ) |
|                                                       |   |                                  |    |   |   |
| NET INCOME (LOSS) PER COMMON SHARE:                        |   |                                  |    |   |   |
|                                                       |   |                                  |    |   |   |
| Net income (loss) – Basic and Diluted                 |   | $                                     | 0.18    |   | $ | (0.31 | ) |
|                                                       |   |                                  |    |   |   |
| Weighted average number of common shares  outstanding      |   |                                  |    |   |   |
| – Basic                                               |   | 6,561                                 |    | 6,429 |   |
|                                                       |   |                                  |    |   |   |
| – Diluted                                             |   | 6,726                                 |    | 6,429 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

4

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**Haggar Corp. and Subsidiaries**

 

**ConsolidatedStatements of Cash Flows**

*(unaudited, inthousands)*

 
|                                                                                      |   | **Three  Months Ended  December 31,** |   |
|-------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                      |   | **2003**                              |   | **2002** |   |
|                                                                                      |   |                                  |   |   |   |
| **Cash Flows from Operating Activities**                                                  |   |                                  |   |   |   |
| Net income (loss)                                                                         |   | $                                     | 1,185  |   | $ | (2,005 | ) |
| Adjustments to reconcile net income (loss)  to net cash provided by operating activities: |   |                                  |   |   |   |
| Depreciation and amortization                                                             |   | 1,639                                 |   | 2,257 |   |
| Deferred tax benefit                                                                      |   | —                                |   | (46 | ) |
| Gain on the disposal of property, plant and  equipment                                    |   | (201                                  | )      | — |   |
| Other                                                                                     |   | 197                                   |   | 97 |   |
| Changes in assets and liabilities:                                                        |   |                                  |   |   |   |
| Accounts receivable, net                                                                  |   | 20,275                                |   | 16,405 |   |
| Inventories, net                                                                          |   | (2,102                                | )      | 6,761 |   |
| Other current assets                                                                      |   | (2,558                                | )      | (2,923 | ) |
| Accounts payable                                                                          |   | 4,002                                 |   | 5,364 |   |
| Accrued liabilities                                                                       |   | 733                                   |   | (6,233 | ) |
| Accrued wages and other employee  compensation                                            |   | (3,768                                | )      | (3,653 | ) |
| Other non-current liabilities                                                             |   | 617                                   |   | 303 |   |
| Net cash provided by operating activities                                                 |   | 20,019                                |   | 16,327 |   |
|                                                                                      |   |                                  |   |   |   |
| **Cash Flows from Investing Activities**                                                  |   |                                  |   |   |   |
| Purchases of property, plant and equipment,  net                                          |   | (1,519                                | )      | (232 | ) |
| Proceeds from sale of property, plant and  equipment                                      |   | 201                                   |   | — |   |
| Decrease in restricted cash                                                               |   | 1,287                                 |   | — |   |
| Increase in other assets                                                                  |   | (114                                  | )      | (64 | ) |
| Net cash used in investing activities                                                     |   | (145                                  | )      | (296 | ) |
|                                                                                      |   |                                  |   |   |   |
| **Cash Flows from Financing Activities**                                                  |   |                                  |   |   |   |
| Proceeds from issuance of long-term debt                                                  |   | 15,000                                |   | 55,000 |   |
| Payments on long-term debt                                                                |   | (18,671                               | )      | (60,743 | ) |
| Proceeds from exercise of employee stock  options                                         |   | 2,252                                 |   | — |   |
| Decrease in book overdrafts                                                               |   | (929                                  | )      | (6,000 | ) |
| Payments of cash dividends                                                                |   | (334                                  | )      | (321 | ) |
| Net cash used in financing activities                                                     |   | (2,682                                | )      | (12,064 | ) |
|                                                                                      |   |                                  |   |   |   |
| Increase in cash and cash equivalents                                                     |   | 17,192                                |   | 3,967 |   |
| Cash and cash equivalents, beginning of  period                                           |   | 7,674                                 |   | 4,124 |   |
| Cash and cash equivalents, end of period                                                  |   | $                                     | 24,866 |   | $ | 8,091 |   |

 

The accompanying notes are an integral part of these consolidatedfinancial statements.

 

5

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**Haggar Corp. and Subsidiaries**

 

**Notes to ConsolidatedFinancial Statements**

*(unaudited)*

 

**1.  Basis of Presentation**

 

*Financial Statement Preparation*

 

The consolidated balance sheetas of December 31, 2003, and the consolidated statements of operations andcomprehensive income (loss) and cash flows for the three months ended December31, 2003 and 2002, have been prepared by Haggar Corp. (together with itssubsidiaries, the “Company”) without audit. The consolidated balance sheet as of September 30, 2003 has been derivedfrom the Company’s audited financial statements as of that date but does notinclude all of the information and footnotes required by generally acceptedaccounting principles for complete financial statements.  In the opinion of management, alladjustments necessary (which include only normal recurring adjustments) topresent fairly the consolidated financial position, results of operations, and cashflows of the Company at December 31, 2003, and for all other periods presented,have been made.  Certain information anddisclosures normally included in financial statements prepared in accordancewith generally accepted accounting principles have been omitted in accordancewith the Securities and Exchange Commission’s rules for interim reporting.  Accordingly, these financial statementsshould be read in conjunction with the financial statements and accompanyingnotes thereto in the Company’s Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2003.

 

*Accounting for Stock Based Compensation*

 

The Company accounts for thelong-term incentive plans under Accounting Principles Board Opinion No.25.  As required under Statement ofFinancial Accounting Standards No. 123 (“SFAS No. 123”), “Accounting forStock-Based Compensation,” and Statement of Financial Accounting Standards No.148 (“SFAS No. 148”), “Accounting for Stock-Based Compensation Transition andDisclosure,” the pro forma effects of stock-based compensation on net income (loss)and net income (loss) per common share are as follows *(in thousands, except per share amounts)*:

 
|                                                                                                                      |   | **Three  Months Ended  December 31,** |   |
|---------------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|--------|
|                                                                                                                      |   | **2003**                              |   | **2002** |   |
|                                                                                                                      |   |                                  |   |   |   |
| Net income (loss):                                                                                                        |   |                                  |   |   |   |
| As reported                                                                                                               |   | $                                     | 1,185  |   | $ | (2,005 | ) |
| Add back:   Stock-based employee compensation included in net income (loss) as  reported, net of related tax effects |   | 53                                    |   | — |   |
| Less:   Pro-forma stock-based employee compensation expense, net of related  tax effects                             |   | (6                                    | )      | (118 | ) |
| Pro forma net income (loss)                                                                                               |   | 1,232                                 |   | (2,123 | ) |
|                                                                                                                      |   |                                  |   |   |   |
| Net income (loss) per common share:                                                                                       |   |                                  |   |   |   |
|                                                                                                                      |   |                                  |   |   |   |
| Basic–                                                                                                               |   |                                  |   |   |   |
| As reported                                                                                                               |   | $                                     | 0.18   |   | $ | (0.31 | ) |
| Pro forma                                                                                                                 |   | $                                     | 0.19   |   | $ | (0.33 | ) |
|                                                                                                                      |   |                                  |   |   |   |
| Diluted–                                                                                                             |   |                                  |   |   |   |
| As reported                                                                                                               |   | $                                     | 0.18   |   | $ | (0.31 | ) |
| Pro forma                                                                                                                 |   | $                                     | 0.18   |   | $ | (0.33 | ) |

 

There were no options grantedduring the three months ended December 31, 2003 and 2002.

 

6

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**2. Inventories, net**

 

Inventories, net are stated atthe lower of cost (first-in, first-out) or market and consisted of thefollowing at December 31, 2003, and September 30, 2003 *(in thousands)*:

 
|                     |   | **December  31,  2003** |   | **September  30,  2003** |   |
|--------------------------|--------|-------------------------|--------|--------------------------|--------|
| Piece goods              |   | $                       | 6,908  |                     | $      | 7,664 |   |
| Trimmings & supplies |   | 3,357                   |   | 3,660                    |   |
| Work-in-process          |   | 5,105                   |   | 4,838                    |   |
| Finished garments        |   | 85,358                  |   | 82,157                   |   |
|                     |   | 100,728                 |   | 98,319                   |   |
| Inventory reserves       |   | (1,667                  | )      | (1,360                   | )      |
| Total inventories, net   |   | $                       | 99,061 |                     | $      | 96,959 |   |

 

Work-in-process and finishedgarments inventories consisted of materials, labor and manufacturing overhead.

 

**3.  Long-Term Debt**

 

Long-term debt consisted of thefollowing at December 31, 2003, and September 30, 2003 *(in thousands)*:

 
|                                 |   | **December  31,  2003** |   | **September  30,  2003** |   |
|--------------------------------------|--------|-------------------------|--------|--------------------------|--------|
| Industrial Development Revenue Bonds |   | 2,100                   |   | 2,200                    |   |
| Senior notes                         |   | 3,571                   |   | 7,142                    |   |
| Total debt                           |   | 5,671                   |   | 9,342                    |   |
| Less – current portion          |   | (3,671                  | )      | (3,671                   | )      |
| Long-term debt                       |   | $                       | 2,000  |                     | $      | 5,671 |   |
|                                      |        |                         |        |                          |        |  |  |

 

As of December 31, 2003, theCompany had no amounts outstanding under the $110.0 million unsecured revolvingcredit agreement (the “Agreement”).  Theavailable borrowing capacity was restricted to $71.5 million at December 31,2003, under the Agreement’s funded debt to operating cash flow covenant.  The Company incurred approximately $0.1million in commitment fees related to the available borrowing capacity duringthe three months ended December 31, 2003. The interest rate was 4.00% duringthe three months ended December 31, 2003 and was based upon margins over a bankbase rate.  The Agreement also basesinterest rates on margins over LIBOR, depending on the borrowing option selectedby the Company.  No LIBOR-based loanswere made during the three months ended December 31, 2003.  The Agreement, which expires in June 2005,prohibits the Company from pledging its accounts receivables and inventories,contains limitations on incurring additional indebtedness, requires maintainingminimum net worth levels of the Company and the Company’s main operatingsubsidiary, and requires the maintenance of certain financial ratios.  The Agreement also prohibits the payment ofany dividend if a default exists after giving effect to such a dividend.  As of December 31, 2003, the Company was infull compliance with its financial and other covenants.

 

Long-term debt also includes$3.6 million in senior notes. Significant terms of the senior notes include interest payablesemi-annually at 8.49% per annum and annual principal payments through fiscal2005.  The terms and conditions of thenote purchase agreement governing the senior notes include restrictions on thesale of assets, limitations on additional indebtedness and the maintenance ofcertain net worth requirements.

 

Long-termdebt also includes $2.1 million in Industrial Development Revenue (“IDR”)bonds.  Significant terms of the IDRbonds include interest at a rate equal to that of high quality, short-term, taxexempt obligations, as defined in the agreement.  The interest rate at December 31, 2003, was 1.32%.  The IDR bonds mature in fiscal 2026, but theCompany has the option to prepay the balance without penalty in fiscal2006.  The Company plans to exercise theprepayment option, and to make principal payments of $0.1 million and $2.0million in fiscal 2005 and 2006,

 

7

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respectively.  The IDR bonds are collateralized by certainbuildings and equipment of $0.4 million as of December 31, 2003.

 

Certain of the Company’slong-term debt facilities contain restrictions on the ability of the Company’ssubsidiaries to transfer funds to the Company.

 

**4. Segment Reporting**

 

TheCompany’s three operating segments are business units that offer similarproducts through different distribution channels.  The Company’s wholesale segment designs, manufactures, importsand markets casual and dress men’s and women’s apparel to retailers throughoutNorth America and the United Kingdom. The Company also operates a retail segment, which markets Haggar®branded products through 69 Company operated stores located in outlet mallsthroughout the United States, and a licensing segment, which generates royaltyincome by licensing the Company’s trademarks for use by other manufacturers ofspecified products in specified geographic areas.  The retail and licensing segments are not material for separatedisclosure, and have been combined in the results below.  The Company evaluates performance andallocates resources based on segment profits.

 

Intercompanysales from the wholesale segment to the retail segment are not reflected inwholesale segment net sales. Additionally, there is no profit included on sales from the wholesalesegment to the retail segment.  Segmentprofit (loss) is comprised of segment net income before interest expense andprovision (benefit) for income taxes.

 

Thetable below reflects the Company’s segment results for the three months endedDecember 31, 2003 and 2002 *(in thousands)*:

 
|                  |   | **Wholesale** |    | **Other** |   | **Consolidated** |   |
|-----------------------|--------|---------------|---------|-----------|--------|------------------|--------|
|                  |   |          |    |
| **2003**              |   |          |    |      |   |             |   |
| Net sales             |   | $             | 92,410  |      | $      | 15,325           |   | $ | 107,735 |   |
| Segment profit        |   | $             | 989     |      | $      | 1,385            |   | $ | 2,374 |   |
|                  |   |          |    |      |   |             |   |
| **2002**              |   |          |    |      |   |             |   |
| Net sales             |   | $             | 100,343 |      | $      | 13,564           |   | $ | 113,907 |   |
| Segment profit (loss) |   | $             | (3,350  | )         | $      | 765              |   | $ | (2,585 | ) |

 

A reconciliation of totalsegment profit (loss) to consolidated income (loss) before provision (benefit)for income taxes is as follows *(inthousands)*:

 
|                                                                    |   | **Three  Months Ended December 31,** |   |
|-------------------------------------------------------------------------|--------|--------------------------------------|--------|
|                                                                    |   | **2003**                             |   | **2002** |   |
| Segment profit (loss)                                                   |   | $                                    | 2,374  |   | $ | (2,585 | ) |
| Interest expense                                                        |   | (457                                 | )      | (735 | ) |
| Consolidated income (loss) before provision  (benefit) for income taxes |   | $                                    | 1,917  |   | $ | (3,320 | ) |

 

The Company does not segregateassets on a segment basis for internal management reporting and, therefore,such information is not presented.

 

**5.  Commitments and Contingencies**

 

The Company maintains anoperating lease for its corporate aircraft, which contains a residual guaranteefor the market value of the plane at the end of the lease term in December2004.  Under the lease, the Company hasthe option of (a) returning the aircraft to the lessor and paying theguaranteed residual value of $3.0 million; (b) purchasing the aircraft for $4.0million; or (c) arranging for the sale of the aircraft to a third party.  If the sale

 

8

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proceeds are less than $4.0million, the Company is required to reimburse the lessor for thedeficiency.  If the sale proceeds exceed$4.0 million, the Company is entitled to all of such excess amounts.

 

Based on an estimated $3.1million market value for the aircraft when the lease ends in 2004, the Companybegan accruing the $0.9 million expected deficiency in fiscal 2003.  As of December 31, 2003, the Company included$0.5 million in other accrued liabilities related to the deficiency.  The remainder of the $0.9 million expecteddeficiency will be accrued using the straight line method through the end ofthe lease term.

 

The Company has been named as adefendant in several legal actions arising from its operations in the normalcourse of business, including actions brought by certain terminatedemployees.  Although exact settlementamounts, if any, related to these actions cannot accurately be predicted, theclaims and damages alleged, the progress of the litigation to date, and pastexperience with similar litigation leads the Company to believe that anyliability resulting from these actions and those described below will notindividually, or collectively, have a material adverse effect on the Company.

 

The Company is a defendant in awrongful termination lawsuit in which a jury rendered a verdict in favor of theplaintiff against the Company in the amount of $843,000, subject to potentialdoubling in the event judgment is entered on a jury verdict of willfuldiscrimination, plus pre- and post-judgment interest and attorneys’ fees.  The trial court judge reversed the jury’sverdict and rendered a judgment in favor of the Company granting zero damagesto the plaintiff.  The plaintiffappealed the judgment to the United States Court of Appeals for the FifthCircuit, which reversed the judgment of the trial court and remanded the matterback to the trial court for further proceedings. The Company believes that theCourt of Appeals missed several key points of law, which were recognized by theoriginal judgment in the trial court. In addition to defending the case on remand to the trial court, theCompany is seeking review of this case by the United States Supreme Court.

 

The Company also is a defendantin an action for trademark infringement, among other causes of action.  Although the plaintiff in the case sought apreliminary injunction, the trial court ruled in favor of the Company anddenied the injunction.  On appeal, theUnited States Court of Appeals for the Ninth Circuit affirmed the trial court’sdecision in favor of the Company.  Thetrial for this matter is currently scheduled to commence in February 2004.  The parties met to mediate the case, butmediation was unsuccessful.

 

During fiscal 2003, one attorneyfiled four separate suits against certain subsidiaries of the Company allegingthat a total of approximately 2,200 former employees had been injured byairborne fibers and chemicals in certain of the Company’s now closed facilitieslocated in south Texas.  All proceedingsin one suit naming over 2,100 plaintiffs have been stayed due to the unrelatedbankruptcy of one of the other defendants. One suit, which named 71 plaintiffs, has been dismissed, but plaintiffs’counsel is seeking reconsideration of the dismissal.  After taking discovery in one of the remaining cases, the Companybelieves that all of these cases and claims are frivolous and that theplaintiffs have no factual or legal basis for their allegations.  In addition, the Company believes that ithas meritorious defenses to the asserted claims.  The Company intends to vigorously defend all of these suits.

 

Jury verdicts in two casestotaling approximately $1.7 million in the aggregate were returned in fiscal2000 against subsidiaries of the Company related to claims by former employeesof now closed manufacturing facilities for wrongful discharge and common lawtort.  Both cases are currently onappeal, as management and legal counsel believe the verdict in the lawsuit isboth legally and factually incorrect.

 

**6.  Shipping and Handling Fees**

 

The Company records shippingand handling fees as selling, general and administrative expense.  For the three months ended December 31, 2003and 2002, such costs were $2.7 million and $3.2 million, respectively.

 

9

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**7. Basic and Diluted Common Shares**

 

The following table sets forththe computation of basic and diluted weighted average common shares *(in thousands)*:

 
|                                        |   | **Three  Months Ended  December 31,** |   |
|---------------------------------------------|--------|---------------------------------------|--------|
|                                        |   | **2003**                              |   | **2002** |   |
|                                        |   |                                  |   |   |   |
| Weighted average common shares outstanding  |   | 6,561                                 |   | 6,429 |   |
| Shares equivalents, due to stock options    |   | 165                                   |   | — |   |
| Weighted average diluted shares outstanding |   | 6,726                                 |   | 6,429 |   |

 

Options to purchase 8,000shares, were excluded from the diluted earnings per share calculations for thethree months ended December 31, 2003, because the options’ exercise prices weregreater than the average market price of the common shares during the period.

 

Options to purchase 1,273,445shares were excluded from the diluted earnings per share calculations for thethree months ended December 31, 2002, due to the net loss recorded during theperiod.

 

**8.  Dividends**

 

During the first quarter offiscal 2004, the Company declared a cash dividend of $0.05 per share payable tothe stockholders of record on February 9, 2004, which will be paid on February23, 2004.  The fourth quarter of fiscal2003 dividend of approximately $0.3 million was paid in November 2003.

 

**9. Related Party Transactions**

 

A director of the Company is apartner of a law firm that rendered various legal services to the Companyduring the three months ended December 31, 2003 and 2002. The Company paid thelaw firm approximately $0.4 million and $0.1 million for legal services duringthe three months ended December 31, 2003 and 2002, respectively.  There were $0.1 million in unpaid fees dueto the law firm at September 30, 2003, which were included in accruedliabilities.  There were no amounts owedto the law firm at December 31, 2003.

 

**10.  2001 Reorganization**

 

Liabilities for the 2001reorganization costs are summarized as follows *(inmillions)*:

 
|                                   |   | **Balance  March 31, 2001** |   | **Payments** |   | **Adjustments** |   | **Balance  December 31, 2003** |   |
|----------------------------------------|--------|-----------------------------|--------|--------------|--------|-----------------|--------|--------------------------------|--------|
| Employee termination and related costs |   | $                           | 8.1    |         | $      | (6.0            | )      | $                              | (1.2   | ) | $ | 0.9 |   |
|                                   |   |                        |   |         |   |            |   |                           |   |   |   |
| Legal costs                            |   | 8.6                         |   | (3.9         | )      | (3.2            | )      | 1.5                            |   |
|                                        |        |                             |        |              |        |                 |        |                                |        |  |  |  |  |

 

No payments or adjustments weremade during the first quarter of fiscal 2004.

 

10

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**11.  Recently Issued and Adopted FinancialAccounting Standards**

 

On December 23, 2003, theFinancial Accounting Standards Board issued SFAS No. 132 (Revised 2003)("SFAS No. 132"), “Employers’ Disclosures About Pensions and OtherPostretirement Benefits.”  SFAS No. 132increases the existing disclosure requirements by requiring companies todisclose more details about pension plan assets, benefit obligations, cashflows, benefit costs and related information. Companies will be required tosegregate plan assets by category, such as debt, equity and real estate, and toprovide certain expected rates of return and other informational disclosures.SFAS No. 132 also requires companies to disclose various elements of pensionand postretirement benefit costs in interim-period financial statements forquarters beginning after December 15, 2003. The Company is in the process ofreviewing the new disclosure requirements.

 

11

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**Item2****. Management’s Discussion and Analysis of FinancialCondition and Results of Operations**

 

The following discussion andanalysis of the consolidated results of operations and financial condition ofthe Company should be read in conjunction with the accompanying consolidatedfinancial statements and the notes thereto and the Company’s Annual Report onForm 10-K for the fiscal year ended September 30, 2003.

 

**ForwardLooking Statements**

 

ThisQuarterly Report on Form 10-Q includes forward-looking statements within themeaning of Section 27A of the Securities Act of 1933 (the “Securities Act”) andSection 21E of the Securities Exchange Act of 1934 (the “Exchange Act”).  All statements other than statements ofhistorical facts contained in this report, including statements regarding theCompany’s future financial position, business strategy and plans and objectivesof management for future operations, are forward-looking statements.  The words “believe,” “may,” “will,”“estimate,” “continue,” “anticipate,” “intend,” “expect” and similarexpressions, as they relate to the Company, are intended to identifyforward-looking statements.  The Companyhas based these forward-looking statements largely on its current expectationsand projections about future events and financial trends that the Companybelieves may affect its financial condition, results of operations, businessstrategy and financial needs.  Theseforward-looking statements are subject to a number of known and unknown risks,uncertainties and assumptions that could affect the results ofthe Company or the apparel industry generally and could cause the Company’sexpected results to differ materially from those expressed in this QuarterlyReport on Form 10-Q.  These risks,uncertainties and assumptions are described in “Item 1.  Business” of the Company’s Annual Report onForm 10-K filed with the Securities and Exchange Commission on December 12,2003, and include, among other things:

 

•                  changes ingeneral business conditions,

 

•                  changes in theperformance of the retail sector in general and the apparel industry inparticular,

 

•                  seasonality ofthe Company’s business,

 

•                  changes inretailer and consumer acceptance of new products and the success ofadvertising, marketing, and promotional campaigns,

 

•                  impact ofcompetition in the apparel industry,

 

•                  availability andcost of raw materials,

 

•                  changes in lawsand other regulatory actions,

 

•                  changes in laborrelations,

 

•                  political andeconomic events and conditions domestically or in foreign jurisdictions inwhich the Company operates or has apparel products manufactured, including, butnot limited to, acts of terrorism, war, or insurrection,

 

•                  unexpectedjudicial decisions,

 

•                  changes ininterest rates and capital market conditions,

 

•                  acquisitions ordissolution of business enterprises, including the ability to integrateacquired businesses effectively,

 

•                  naturaldisasters, and

 

•                  unusual orinfrequent items that cannot be foreseen or are not susceptible to estimation.

 

12

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Inlight of these risks, uncertainties and assumptions, the forward-looking eventsand circumstances discussed in this Quarterly Report on Form 10-Q may not occurand actual results could differ materially from those anticipated or implied inthe forward-looking statements. Accordingly, readers are cautioned not to place undue reliance on suchforward-looking statements.  The Companyundertakes no obligation to update any such statements or publicly announce anyupdates or revisions to any of the forward-looking statements contained herein,to reflect any change in its expectations with regard thereto or any change inevents, conditions, circumstances or assumptions underlying such statements.

 

**Overview**

 

The Company designs,manufactures, imports and markets casual and dress men’s and women’s apparelproducts, including pants, shorts, suits, sportcoats, sweaters, shirts,dresses, skirts and vests in the United States and abroad.  The Company’s operations are organized intothree business units, wholesale, retail and licensing, each of which offerssimilar products through different distribution channels.  The Company’s wholesale segment, which sellsapparel products through approximately 10,000 retail stores operated by theCompany’s retail customers, is the primary distribution channel through whichthe Company sells its products.  TheCompany’s retail segment markets Haggar® branded products through 69 Companyoperated retail stores located in outlet malls throughout the UnitedStates.  The Company’s licensing segmentgenerates royalty income by licensing the Company’s trademarks for use by othermanufacturers of specified products in specified geographic regions.

 

**Critical Accounting Policies**

 

There have been no materialchanges to the Company’s critical accounting policies during the three monthsended December 31, 2003.

 

Management’s Discussion and Analysis discussesthe results of operations and financial condition as reflected in the Company’sconsolidated financial statements, which have been prepared in accordance withaccounting principles generally accepted in the United States of America. Thepreparation of financial statements in conformity with accounting principlesgenerally accepted in the United States of America requires management to makeestimates and assumptions that affect the reported amounts of assets andliabilities, disclosure of contingent assets and liabilities at the date of thefinancial statements and reported amounts of revenues and expenses during thereporting period. On an ongoing basis, management evaluates its estimates andjudgments, including those related to accounts receivable; inventory valuation;amortization and recoverability of long-lived assets, including goodwill;litigation accruals; workers’ compensation liabilities; revenue recognition;and reorganization charges. Management bases its estimates and judgments on theCompany’s substantial historical experience and other relevant factors, theresults of which form the basis for making judgments about the carrying valuesof assets and liabilities that are not readily apparent from other sources.

 

While the Company believes that thehistorical experience and other factors considered provide a meaningful basisfor the accounting policies applied in the preparation of the consolidatedfinancial statements, the Company cannot guarantee that its estimates andassumptions will be accurate.  If suchestimates and assumptions prove to be inaccurate, the Company may be requiredto make adjustments to these estimates in future periods.

 

13

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**Comparisonof Three Months Ended December 31, 2003 to Three Months Ended December 31, 2002**

 

*Net Sales*

 

Net sales decreased $6.2million, or 5.4%, to $107.7 million for the first quarter of fiscal 2004,compared to net sales of $113.9 million for the first quarter of fiscal2003.  The decrease in net sales isprimarily attributable to a decrease in men’s wear closeout sales and reducedwomen’s wear sales during the first quarter of fiscal 2004.  The sales decrease related to a decrease inunit sales of approximately 11% and an increase in average sales price ofapproximately 6%, both due to the lower volume of off-price closeout sales.

 

*Gross Profit*

 

Gross profit as a percentage ofnet sales increased to 29.1% in the first quarter of fiscal 2004, compared to25.1% in the first quarter of fiscal 2003. The increase in gross profit percentage is primarily related todecreased lower-margin closeout sales.

 

*Selling, General and Administrative Expenses*

 

Selling, general andadministrative expenses as a percentage of net sales decreased to 27.5% in thefirst quarter of fiscal 2004, compared to 27.7% in the first quarter of fiscal2003.  The $1.9 million, or 6.1%,decrease in selling, general and administrative expenses primarily relates to areduction in media advertising expense. During the first quarter of fiscal 2003, the Company incurred theadditional media advertising expense to introduce the Haggar® comfort fit waistpants.

 

*Other Income (Expense), Net*

 

Other income (expense), net,improved $0.4 million to $0.4 million in other income in the first quarter offiscal 2004, compared to $52,000 in other expense in the first quarter offiscal 2003.  The improvement wasprimarily due to a $0.2 million pre-tax gain on the sale of a property, as wellas increased translation gains from foreign operations.

 

*Interest Expense*

 

Interest expense decreased $0.2million, or 37.8%, to $0.5 million for the first quarter of fiscal 2004,compared to $0.7 million for the first quarter of fiscal 2003, primarily due toreduced borrowings under the Company’s revolving credit facility during thefirst quarter of fiscal 2004.

 

*Income Taxes*

 

The Company’s income taxprovision as a percentage of income before income tax and cumulative effect ofaccounting change was 38.2% for the first quarter of fiscal 2004.  Comparatively, the Company’s income taxprovision as a percentage of income before income tax and cumulative effect ofaccounting change was 39.6% for the first quarter of fiscal 2003.  The effective tax rates for the firstquarters of fiscal 2004 and 2003 exceeded the statutory federal tax rate of 35%primarily as a result of state income taxes and certain permanent differences.

 

14

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**2001Reorganization**

 

Liabilities for the 2001reorganization costs are summarized as follows *(inmillions)*:

 
|                                   |   | **Balance  March 31, 2001** |   | **Payments** |   | **Adjustments** |   | **Balance  December 31, 2003** |   |
|----------------------------------------|--------|-----------------------------|--------|--------------|--------|-----------------|--------|--------------------------------|--------|
| Employee termination and related costs |   | $                           | 8.1    |         | $      | (6.0            | )      | $                              | (1.2   | ) | $ | 0.9 |   |
|                                   |   |                        |   |         |   |            |   |                           |   |
| Legal costs                            |   | 8.6                         |   | (3.9         | )      | (3.2            | )      | 1.5                            |   |
|                                        |        |                             |        |              |        |                 |        |                                |        |  |  |  |  |

 

No payments or adjustments weremade during the first quarter of fiscal 2004.

 

**SegmentProfitability**

 

TheCompany’s three operating segments are business units that offer similarproducts through different distribution channels.  The Company’s wholesale segment designs, manufactures, importsand markets casual and dress men’s and women’s apparel to retailers throughoutNorth America and the United Kingdom. The Company also operates a retail segment, which markets Haggar®branded products through 69 Company operated stores located in outlet malls throughoutthe United States, and a licensing segment, which generates royalty income bylicensing the Company’s trademarks for use by other manufacturers of specifiedproducts in specified geographic areas. The retail and licensing segments are not material for separatedisclosure, and have been combined in the results below.  The Company evaluates performance andallocates resources based on segment profits.

 

Intercompanysales from the wholesale segment to the retail segment are not reflected inwholesale segment net sales. Additionally, there is no profit included on sales from the wholesalesegment to the retail segment.  Segmentprofit (loss) is comprised of segment net income before interest expense andprovision (benefit) for income taxes.

 

Thetable below reflects the Company’s segment results for the three months endedDecember 31, 2003 and 2002 *(in thousands)*:

 
|                  |   | **Wholesale** |    | **Other** |   | **Consolidated** |   |
|-----------------------|--------|---------------|---------|-----------|--------|------------------|--------|
|                  |   |          |    |
| **2003**              |   |          |    |      |   |             |   |
| Net sales             |   | $             | 92,410  |      | $      | 15,325           |   | $ | 107,735 |   |
| Segment profit        |   | $             | 989     |      | $      | 1,385            |   | $ | 2,374 |   |
|                  |   |          |    |      |   |             |   |
| **2002**              |   |          |    |      |   |             |   |
| Net sales             |   | $             | 100,343 |      | $      | 13,564           |   | $ | 113,907 |   |
| Segment profit (loss) |   | $             | (3,350  | )         | $      | 765              |   | $ | (2,585 | ) |

 

*Wholesale Segment*

 

Wholesale segment net salesdecreased $7.9 million, or 7.9%, to $92.4 million for the first quarter offiscal 2004, compared to $100.3 million for the first quarter of fiscal2003.  The decrease in wholesale segmentnet sales during the first quarter of fiscal 2004 is primarily attributable toa decrease in men’s wear closeout sales to outlet store retailers, as well asdecreased women’s wear sales.

 

Wholesale segment profitincreased $4.3 million to a $1.0 million profit for the first quarter of fiscal2004, compared to a $3.3 million loss for the first quarter of fiscal2003.  The increase in segment profit isprimarily attributable to an increase in gross profit due to a decrease inlower margin closeout sales, as well as decreased media advertising expense.

 

15

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*Other Segment*

 

Other segment net sales increased$1.8 million, or 13.0%, to $15.3 million for the first quarter of fiscal 2004,compared to $13.6 million for the first quarter of fiscal 2003.  The increase in other segment net salesduring the first quarter of fiscal 2004 is primarily attributable to increasedsales at existing retail stores.

 

Other segment profit increased$0.6 million, or 81.0%, to $1.4 million for the first quarter of fiscal 2004,compared to $0.8 million for the first quarter of fiscal 2003.  The increase in other segment profit isprimarily attributable to increased net sales at existing retail stores,combined with improved gross profit due to an improved product mix in theretail stores.

 

**GoodwillImpairment**

 

The ongoing evaluation forimpairment of the goodwill related to the 1999 acquisition of the Company’swomen’s wear subsidiary requires significant management estimation andjudgment.  Changes in overall businessstrategy, negative industry or economic trends or actual results which do notmeet the Company’s current plan for the Women’s Wear business may trigger afuture impairment charge, which could negatively affect the Company’s resultsof operations in the period in which the charge is recorded.

 

**Liquidity and Capital Resources**

 

The Company’s principal sourcesof liquidity are cash flows from operations and borrowings under its unsecuredrevolving credit facility.  As ofDecember 31, 2003, the Company had cash and cash equivalents of $24.9 million.

 

As of December 31, 2003, theCompany had no amounts outstanding under the $110.0 million unsecured revolvingcredit agreement (the “Agreement”).  Theavailable borrowing capacity was restricted to $71.5 million at December 31,2003, under the Agreement’s funded debt to operating cash flow covenant.  The Company incurred approximately $0.1million in commitment fees related to the available borrowing capacity duringthe three months ended December 31, 2003. The interest rate was 4.00% duringthe three months ended December 31, 2003 and was based upon margins over a bankbase rate.  The Agreement also basesinterest rates on margins over LIBOR, depending on the borrowing optionselected by the Company.  No LIBOR-basedloans were made during the three months ended December 31, 2003.  The Agreement, which expires in June 2005, prohibitsthe Company from pledging its accounts receivables and inventories, containslimitations on incurring additional indebtedness, requires maintaining minimumnet worth levels of the Company and the Company’s main operating subsidiary,and requires the maintenance of certain financial ratios.  The Agreement also prohibits the payment ofany dividend if a default exists after giving effect to such a dividend.  As of December 31, 2003, the Company was infull compliance with its financial and other covenants.

 

Long-term debt also includes$3.6 million in senior notes. Significant terms of the senior notes include interest payablesemi-annually at 8.49% per annum and annual principal payments through fiscal2005.  The terms and conditions of thenote purchase agreement governing the senior notes include restrictions on thesale of assets, limitations on additional indebtedness and the maintenance ofcertain net worth requirements.

 

Long-termdebt also includes $2.1 million in Industrial Development Revenue (“IDR”)bonds.  Significant terms of the IDRbonds include interest at a rate equal to that of high quality, short-term, taxexempt obligations, as defined in the agreement.  The interest rate at December 31, 2003, was 1.32%.  The IDR bonds mature in fiscal 2026, but theCompany has the option to prepay the balance without penalty in fiscal2006.  The Company plans to exercise theprepayment option, and to make principal payments of $0.1 million and $2.0million in fiscal 2005 and 2006, respectively. The IDR bonds are collateralized by certain buildings and equipment of$0.4 million as of December 31, 2003.

 

Certainof the Company’s long-term debt facilities contain restrictions on the abilityof the Company’s subsidiaries to transfer funds to the Company.

 

16

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During the first quarter offiscal 2004, the Company declared a cash dividend of $0.05 per share payable tothe stockholders of record on February 9, 2004, which will be paid on February23, 2004.  The fourth quarter of fiscal2003 dividend of approximately $0.3 million was paid in November 2003.

 

The Company has othercontractual obligations and commercial commitments as described in “Item7.  Management’s Discussion and Analysisof Financial Condition and Results of Operations — Disclosures AboutContractual Obligations And Commercial Commitments” of the Company’s AnnualReport on Form 10-K filed with the Securities and Exchange Commission onDecember 12, 2003.  There have been nosignificant changes in the Company’s contractual obligations and commercialcommitments since September 30, 2003.

 

*Cash Flow Results for the Three Months Ended December 31, 2003*

 

Net cash provided by operatingactivities increased $3.7 million, or 22.6%, to $20.0 million in the firstquarter of fiscal 2004, compared to $16.3 million in the first quarter offiscal 2003.  The increase was primarilydue to the Company’s improved profitability when comparing the first quarter offiscal 2004 to the first quarter of fiscal 2003, as well as improvedcollections on accounts receivable. Changes in inventory and accrued liabilities are primarily related tothe buildup of inventory earlier for the spring selling season.

 

Net cash used in investingactivities decreased $0.2 million, or 51.0%, to $0.1 million in the firstquarter of fiscal 2004, compared to $0.3 million in the first quarter of fiscal2003.  The decrease was primarily due toproceeds of $0.2 million from the sale of a property during the first quarterof fiscal 2004.  Other cash used forinvesting activities during the first quarter of 2004 included an increase incapital expenditures of $1.3 million, primarily due to improvements of the newglobal headquarters facility, which were funded with $1.3 million in fundstransferred from restricted cash.

 

Net cash used in financingactivities decreased $9.4 million, or 77.8%, to $2.7 million in the firstquarter of fiscal 2004 from $12.1 million in the first quarter of fiscal2003.  The decrease was primarily due toproceeds from the exercise of employee stock options of $2.3 million, a $2.1million reduction in net debt repayments and reduced cash book overdraftbalances.

 

**RecentlyIssued and Adopted Financial Accounting Standards**

 

On December 23, 2003, theFinancial Accounting Standards Board issued SFAS No. 132 (Revised 2003)("SFAS No. 132"), “Employers’ Disclosures About Pensions and OtherPostretirement Benefits.”  SFAS No. 132increases the existing disclosure requirements by requiring companies todisclose more details about pension plan assets, benefit obligations, cashflows, benefit costs and related information. Companies will be required tosegregate plan assets by category, such as debt, equity and real estate, and toprovide certain expected rates of return and other informational disclosures.SFAS No. 132 also requires companies to disclose various elements of pensionand postretirement benefit costs in interim-period financial statements forquarters beginning after December 15, 2003. The Company is in the process of reviewingthe new disclosure requirements.

 

 

**Item3****.  Quantitativeand Qualitative Disclosures about Market Risk.**

 

The Company is exposed tomarket risk from changes in foreign currency exchange risk and interest raterisk, which may adversely affect its financial position, results of operationsand cash flows. The Company does not use financial instruments for trading orother speculative purposes and is not a party to any derivative financialinstrument.  As of December 31, 2003,the Company’s exposure to interest rate risk was minimal due to the low levelof variable rate debt.

 

17

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**Item 4****. ****Controls andProcedures**

 

The Chief Executive Officer andChief Financial Officer of the Company have reviewed and evaluated theeffectiveness of the Company’s disclosure controls and procedures (as definedin the Securities Exchange Act of 1934 Rules 240.13a-15(e) and 15d-15(e)), andhave concluded that, as of the end of the period covered by this QuarterlyReport on Form 10-Q, such disclosure controls and procedures are effective intimely alerting them to material information relating to the Company requiredto be disclosed in the periodic reports the Company files or submits under theSecurities Exchange Act of 1934.  Duringthe most recent fiscal quarter, there have not been any changes in theCompany's internal control over financial reporting that have materiallyaffected, or are reasonably likely to materially affect, the Company’s internalcontrol over financial reporting.  

 

18

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**Part II. Other Information.**

 

**Item1.  Legal Proceedings**

 

The Company has been named as adefendant in several legal actions arising from its operations in the normalcourse of business, including actions brought by certain terminatedemployees.  Although exact settlementamounts, if any, related to these actions cannot accurately be predicted, theclaims and damages alleged, the progress of the litigation to date, and pastexperience with similar litigation leads the Company to believe that anyliability resulting from these actions and those described below will notindividually, or collectively, have a material adverse effect on the Company.

 

The Company is a defendant in awrongful termination lawsuit in which a jury rendered a verdict in favor of theplaintiff against the Company in the amount of $843,000, subject to potentialdoubling in the event judgment is entered on a jury verdict of willfuldiscrimination, plus pre- and post-judgment interest and attorneys’ fees.  The trial court judge reversed the jury’sverdict and rendered a judgment in favor of the Company granting zero damagesto the plaintiff.  The plaintiffappealed the judgment to the United States Court of Appeals for the FifthCircuit, which reversed the judgment of the trial court and remanded the matterback to the trial court for further proceedings. The Company believes that theCourt of Appeals missed several key points of law, which were recognized by theoriginal judgment in the trial court. In addition to defending the case on remand to the trial court, theCompany is seeking review of this case by the United States Supreme Court.

 

The Company also is a defendantin an action for trademark infringement, among other causes of action.  Although the plaintiff in the case sought apreliminary injunction, the trial court ruled in favor of the Company anddenied the injunction.  On appeal, theUnited States Court of Appeals for the Ninth Circuit affirmed the trial court’sdecision in favor of the Company.  Thetrial for this matter is currently scheduled to commence in February 2004.  The parties met to mediate the case, butmediation was unsuccessful.

 

During fiscal 2003, oneattorney filed four separate suits against certain subsidiaries of the Companyalleging that a total of approximately 2,200 former employees had been injuredby airborne fibers and chemicals in certain of the Company’s now closedfacilities located in south Texas.  Allproceedings in one suit naming over 2,100 plaintiffs have been stayed due tothe unrelated bankruptcy of one of the other defendants.  One suit, which named 71 plaintiffs, hasbeen dismissed, but plaintiffs’ counsel is seeking reconsideration of the dismissal.  After taking discovery in one of theremaining cases, the Company believes that all of these cases and claims arefrivolous and that the plaintiffs have no factual or legal basis for theirallegations.  In addition, the Companybelieves that it has meritorious defenses to the asserted claims.  The Company intends to vigorously defend allof these suits.

 

Jury verdicts in two casestotaling approximately $1.7 million in the aggregate were returned in fiscal2000 against subsidiaries of the Company related to claims by former employeesof now closed manufacturing facilities for wrongful discharge and common lawtort.  Both cases are currently onappeal, as management and legal counsel believe the verdict in the lawsuit isboth legally and factually incorrect.

 

**Item 2. Changes in Securities, Use of Proceeds****and IssuerPurchases of Equity Securities**

 

None.

 

**Item 3. Defaults Upon Senior Securities**

 

None.

 

19

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**Item 4. Submission of Matters to a Vote of Security Holders**

 

None.

 

**Item5.  Other Information**

 

None.

 

**Item 6. Exhibits and Reports on Form 8-K**

 

(a)          Exhibits.

 

31(a)                                              Certificationof Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)

 

31(b)                                             Certificationof Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)

 

32(a)                                              Certificationof Chief Executive Officer Pursuant to 18 U.S.C. §1350

 

32(b)                                             Certificationof Chief Financial Officer Pursuant to 18 U.S.C. §1350

 

(b)         Reportson Form 8-K.

 

A Form 8-K wasfiled on November 4, 2003, under Item9, the issuance of a press release announcing the Company’s fiscal 2003 fourthquarter and full year earnings and fiscal 2004 projected quarterly and annualoperating results.  A copy of the pressrelease announcing the operating results and including financial statements wasattached as an exhibit and reported under Item 7 of the Form 8-K.

 

**Signatures**

 

Pursuant to the requirements ofthe Securities Exchange Act of 1934, the registrant has duly caused this reportto be signed on its behalf by the undersigned thereunto duly authorized.

 

 
|                     |   | Haggar  Corp., |
|--------------------------|--------|----------------|
|                     |   |           |
|                     |   |           |
| Date:  February 12, 2004 |   | By:            | /s/ David M.  Tehle |   |
|                     |   |           | David M.  Tehle |
|                     |   |           | *(Ex**ecutive Vice President, Chief Financial Officer,  Secretary and Treasurer)* |
|                     |   |           |   |
|                     |   |           | Signed on  behalf of the registrant and as principal financial officer. |

 

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**INDEX TO EXHIBITS**

 
| **Exhibit  Number** |   | **Description**                                                                        |
|---------------------|--------|----------------------------------------------------------------------------------------|
|                |   |                                                                                   |
| 31(a)               |   | Certification  of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) |
|                |   |                                                                                   |
| 31(b)               |   | Certification  of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) |
|                |   |                                                                                   |
| 32(a)               |   | Certification  of Chief Executive Officer Pursuant to 18 U.S.C. §1350             |
|                |   |                                                                                   |
| 32(b)               |   | Certification  of Chief Financial Officer Pursuant to 18 U.S.C. §1350             |

 

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