**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

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**FORM 10-Q**

 

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**(Mark One)**

 
| **ý**                                                                                                                                                                                                                                               | ** ** | **QUARTERLY  REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934**  |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|-----------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                     |       |                                                                                          |
| **For the  quarterly period ended December 31, 2004.**                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                     |       |                                                                                          |
| **OR**                                                                                                                                                                                                                                                   |
|                                                                                                                                                                                                                                                     |       |                                                                                          |
| **o**                                                                                                                                                                                                                                                    | ** ** | **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 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)                                |
|                                                                                |   |                                     |
| **(214) 352-8481**                                                                  |
| (Registrant’s telephone number, including area code)                           |
|                                                                                |   |                                     |
| **N/A**                                                                             |
| (Former name, former address and former fiscal year,  if changed since last report) |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed by Section13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12months (or for such shorter period that the registrant was required to filesuch reports), and (2) has been subject to such filing requirements for thepast 90 days.

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

 

Indicate by check mark whether the registrant is anaccelerated filer (as defined in Rule 12b-2 of the Exchange Act).

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

 

**As ofFebruary 7, 2005, there were 7,071,870 shares of the Registrant’s common stockoutstanding.**

 

 

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**Haggar Corp. andSubsidiaries**

 

**Index**

 
| **Part  I. Financial Information** | ** **                                                                 |
|------------------------------------|----------------------------------------------------------------------------|
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **Item 1.**                                                                | **Financial Statements  (Unaudited)** | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **Consolidated Balance Sheets**                                            | ** ** |
| ** **                         | **(As of December 31, 2004  and September 30, 2004)**                      | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **Consolidated  Statements of Operations and Comprehensive Income (Loss)** | ** ** |
| ** **                         | **(Three  months ended December 31, 2004 and 2003)**                       | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **Consolidated  Statements of Cash Flows**                                 | ** ** |
| ** **                         | **(Three months  ended December 31, 2004 and 2003)**                       | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **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.**                                                               | **Unregistered  Sales of Equity Securities and Use of Proceeds** | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **Item 3.**                                                                | **Defaults Upon  Senior Securities** | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **Item  4.**                                                               | **Submission  of Matters to a Vote of Security Holders** | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **Item 5.**                                                                | **Other Information** | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| ** **                         | **Item 6.**                                                                | **Exhibits** | ** ** |
| ** **                         | ** **                                                                 | ** ** | ** ** |
| **Signatures**                     | ** **                                                                 | ** ** |

 

2

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**ITEM1**. FINANCIALSTATEMENTS

 

**Haggar Corp. andSubsidiaries**

###### **ConsolidatedBalance Sheets**

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

 
| ** **                                                                                                                                                                      | ** ** | **December 31,  2004** | ** ** | **September 30,  2004** | ** ** |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|------------------------|------------|-------------------------|------------|
| ** **                                                                                                                                                                      | ** ** | **(unaudited)**        | ** ** | ** **              | ** ** |
| **Assets**                                                                                                                                                                      |       |                   |       |                    |       |
| Current assets:                                                                                                                                                                 |       |                   |       |                    |       |
| Cash and cash  equivalents                                                                                                                                                      |       | $                      | 24,667     |                    | $          | 30,667 |   |
| Accounts  receivable, net                                                                                                                                                       |       | 35,148                 |       | 56,132                  |       |
| Inventories, net                                                                                                                                                                |       | 101,138                |       | 95,229                  |       |
| Deferred tax  asset                                                                                                                                                             |       | 11,021                 |       | 11,021                  |       |
| Other current  assets                                                                                                                                                           |       | 7,968                  |       | 7,392                   |       |
| Total current assets                                                                                                                                                            |       | 179,942                |       | 200,441                 |       |
| Property, plant  and equipment, net                                                                                                                                             |       | 44,597                 |       | 44,394                  |       |
| Goodwill, net                                                                                                                                                                   |       | 9,472                  |       | 9,472                   |       |
| Other assets                                                                                                                                                                    |       | 9,842                  |       | 7,165                   |       |
| Total assets                                                                                                                                                                    |       | $                      | 243,853    |                    | $          | 261,472 |   |
|                                                                                                                                                                            |       |                   |       |                    |       |
| **Liabilities  and Stockholders’ Equity**                                                                                                                                  |       |                   |       |                    |       |
| Current  liabilities:                                                                                                                                                           |       |                   |       |                    |       |
| Accounts payable                                                                                                                                                                |       | $                      | 25,418     |                    | $          | 30,621 |   |
| Accrued  liabilities                                                                                                                                                            |       | 36,256                 |       | 36,678                  |       |
| Accrued wages  and other employee compensation                                                                                                                                  |       | 2,949                  |       | 8,538                   |       |
| Current portion  of long-term debt                                                                                                                                              |       | 100                    |       | 100                     |       |
| Total current liabilities                                                                                                                                                       |       | 64,723                 |       | 75,937                  |       |
| Other non-current liabilities                                                                                                                                                   |       | 13,120                 |       | 12,760                  |       |
| Deferred tax liability                                                                                                                                                          |       | 374                    |       | 374                     |       |
| Long-term debt                                                                                                                                                                  |       | 2,000                  |       | 2,000                   |       |
| Total  liabilities                                                                                                                                                              |       | 80,217                 |       | 91,071                  |       |
| Commitments and  contingencies                                                                                                                                                  |       |                   |       |                    |       |
| ** **                                                                                                                                                                      | ** ** | ** **             | ** ** | ** **              | ** ** |
| Stockholders’  equity:                                                                                                                                                     | ** ** | ** **             | ** ** | ** **              | ** ** |
| Preferred stock  – par value $0.10 per share; 250,000 shares authorized and no shares issued  at December 31, 2004 and September 30, 2004                                  |       | —                 |       | —                  |       |
| Common stock –  par value $0.10 per share; 25,000,000 shares authorized; 9,520,043 and  9,455,679 shares issued at December 31, 2004 and September 30, 2004,  respectively |       | 952                    |       | 945                     |       |
| Additional  paid-in capital                                                                                                                                                     |       | 55,927                 |       | 54,966                  |       |
| Deferred  compensation                                                                                                                                                          |       | (1,615                 | )          | (1,796                  | )          |
| Cumulative  translation adjustment                                                                                                                                              |       | 186                    |       | (9                      | )          |
| Retained  earnings                                                                                                                                                              |       | 137,621                |       | 141,256                 |       |
|                                                                                                                                                                            |       | 193,071                |       | 195,362                 |       |
| Less – Treasury  stock, 2,446,976 and 2,242,183 shares at cost at December 31, 2004 and  September 30, 2004, respectively.                                                 |       | (29,435                | )          | (24,961                 | )          |
| Total  stockholders’ equity                                                                                                                                                |       | 163,636                |       | 170,401                 |       |
| Total  liabilities and stockholders’ equity                                                                                                                                |       | $                      | 243,853    |                    | $          | 261,472 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

3

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**Haggar Corp. andSubsidiaries**

 

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

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

 
| ** **                                                 | ** ** | **Three Months Ended  December 31,** | ** ** |
|------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                 | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                                       |       |                                 |       |   |   |
| Net sales                                                  |       | $                                    | 100,543    |   | $ | 107,735 |   |
| Cost of goods  sold                                        |       | 72,757                               |       | 76,412 |   |
| Reorganization  costs                                      |       | (321                                 | )          | — |   |
| Gross profit                                               |       | 28,107                               |       | 31,323 |   |
| Selling, general  and administrative expenses              |       | (33,843                              | )          | (29,574 | ) |
| Royalty income                                             |       | 355                                  |       | 254 |   |
| Other income,  net                                         |       | 264                                  |       | 371 |   |
| Interest expense                                           |       | (209                                 | )          | (457 | ) |
| Income (loss)  before provision (benefit) for income taxes |       | (5,326                               | )          | 1,917 |   |
|                                                       |       |                                 |       |   |   |
| Provision  (benefit) for income taxes                      |       | (2,061                               | )          | 732 |   |
|                                                       |       |                                 |       |   |   |
| Net income  (loss)                                         |       | $                                    | (3,265     | ) | $ | 1,185 |   |
|                                                       |       |                                 |       |   |   |
| Other  comprehensive income (loss):                        |       |                                 |       |   |   |
|                                                       |       |                                 |       |   |   |
| Foreign currency  translation adjustment                   |       | 195                                  |       | 112 |   |
|                                                       |       |                                 |       |   |   |
| Comprehensive  income (loss)                               |       | $                                    | (3,070     | ) | $ | 1,297 |   |
|                                                       |       |                                 |       |   |   |
| NET INCOME  (LOSS) PER COMMON SHARE:                       |       |                                 |       |   |   |
| – Basic and  Diluted                                  |       | $                                    | (0.46      | ) | $ | 0.18 |   |
|                                                       |       |                                 |       |   |   |
| Weighted average  number of common shares outstanding:     |       |                                 |       |   |   |
| – Basic                                               |       | 7,072                                |       | 6,561 |   |
|                                                       |       |                                 |       |   |   |
| – Diluted                                             |       | 7,072                                |       | 6,726 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

4

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**Haggar Corp. andSubsidiaries**

 

**ConsolidatedStatements of Cash Flows**

*(unaudited,in thousands)*

 
| ** **                                                                                           | ** ** | **Three Months Ended  December 31,** | ** ** |
|------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                           | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                                                                                 |       |                                 |       |   |   |
| **Cash  Flows from Operating Activities**                                                            |       |                                 |       |   |   |
| Net income  (loss)                                                                                   |       | $                                    | (3,265     | ) | $ | 1,185 |   |
| Adjustments to  reconcile net income (loss) to net cash provided by (used in) operating  activities: |       |                                 |       |   |   |
| Depreciation and  amortization                                                                       |       | 1,489                                |       | 1,621 |   |
| Gain on the  disposal of property, plant and equipment                                               |       | —                               |       | (201 | ) |
| Stock  compensation expense                                                                          |       | 181                                  |       | 85 |   |
| Increase in cash  surrender value of officers’ life insurance                                   |       | (365                                 | )          | — |   |
| Tax benefits  from employee stock plans                                                              |       | 193                                  |       | — |   |
| Changes in  assets and liabilities:                                                                  |       |                                 |       |   |   |
| Accounts receivable,  net                                                                            |       | 21,331                               |       | 20,251 |   |
| Inventories                                                                                          |       | (5,757                               | )          | (1,975 | ) |
| Other current  assets                                                                                |       | (624                                 | )          | (2,549 | ) |
| Other  non-current assets                                                                            |       | 54                                   |       | — |   |
| Accounts payable                                                                                     |       | (9,543                               | )          | 3,908 |   |
| Accrued  liabilities                                                                                 |       | (570                                 | )          | 733 |   |
| Accrued wages  and other employee compensation                                                       |       | (5,589                               | )          | (3,768 | ) |
| Other  non-current liabilities                                                                       |       | 360                                  |       | 617 |   |
| Net cash  provided by (used in) operating activities                                                 |       | (2,105                               | )          | 19,907 |   |
|                                                                                                 |       |                                 |       |   |   |
| **Cash  Flows from Investing Activities**                                                            |       |                                 |       |   |   |
| Purchases of  property, plant and equipment                                                          |       | (1,741                               | )          | (1,519 | ) |
| Proceeds from  sale of property, plant and equipment                                                 |       | 146                                  |       | 201 |   |
| Decrease in  restricted cash                                                                         |       | —                               |       | 1,287 |   |
| Net payments of  loans on officers’ life insurance policies                                     |       | (2,422                               | )          | — |   |
| Other  non-current assets                                                                            |       | —                               |       | (114 | ) |
| Net cash used in  investing activities                                                               |       | (4,017                               | )          | (145 | ) |
|                                                                                                 |       |                                 |       |   |   |
| **Cash  Flows from Financing Activities**                                                            |       |                                 |       |   |   |
| Proceeds from  issuance of long-term debt                                                            |       | —                               |       | 15,000 |   |
| Payments on  long-term debt                                                                          |       | —                               |       | (18,671 | ) |
| Proceeds from  exercise of employee stock options                                                    |       | 775                                  |       | 2,252 |   |
| Purchases of  treasury stock                                                                         |       | (4,474                               | )          | — |   |
| Increase  (decrease) in book overdrafts                                                              |       | 4,136                                |       | (929 | ) |
| Payments of cash  dividends                                                                          |       | (370                                 | )          | (334 | ) |
| Net cash  provided by (used in) financing activities                                                 |       | 67                                   |       | (2,682 | ) |
|                                                                                                 |       |                                 |       |   |   |
| Effect of  exchange rates on cash and cash equivalents                                               |       | 55                                   |       | 112 |   |
|                                                                                                 |       |                                 |       |   |   |
| Increase  (decrease) in cash and cash equivalents                                                    |       | (6,000                               | )          | 17,192 |   |
| Cash and cash  equivalents, beginning of period                                                      |       | 30,667                               |       | 7,674 |   |
| Cash and cash  equivalents, end of period                                                            |       | $                                    | 24,667     |   | $ | 24,866 |   |

 

The accompanyingnotes are an integral part of these consolidated financial statements.

 

5

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**Haggar Corp. andSubsidiaries**

** **

**Notes toConsolidated Financial Statements**

*(unaudited)*

 

**1.  Basis ofPresentation**

 

*Financial Statement Preparation*

 

The consolidated balance sheet as of December 31, 2004, and theconsolidated statements of operations and comprehensive income (loss) and cashflows for the three months ended December 31, 2004 and 2003, have been preparedby Haggar Corp. (together with its subsidiaries, the “Company”) withoutaudit.  The consolidated balance sheet asof September 30, 2004 has been derived from the Company’s audited financialstatements as of that date but does not include all of the information andfootnotes required by accounting principles generally accepted in the UnitedStates of America for complete financial statements.  In the opinion of management, all adjustmentsnecessary to present fairly the consolidated financial position, results ofoperations, and cash flows of the Company at December 31, 2004, and for allother periods presented, have been made. Certain information and disclosures normally included in financialstatements prepared in accordance with generally accepted accounting principleshave been omitted in accordance with the Securities and Exchange Commission’srules for interim reporting. Accordingly, these financial statements should be read in conjunctionwith the financial statements and accompanying notes thereto in the Company’sAnnual Report on Form 10-K for the fiscal year ended September 30, 2004.

 

*Accounting for Stock Based Compensation*

 

The Company accounts for long-term incentive plans under AccountingPrinciples Board Opinion No. 25.  Asrequired under Statement of Financial Accounting Standards No. 123 (“SFAS No.123”), “Accounting for Stock-Based Compensation,” the pro forma effects ofstock-based compensation on net income (loss) and net income (loss) per commonshare are as follows *(in thousands, exceptper share amounts)*:

 
| ** **                                                                                                          | ** ** | **Three Months Ended  December 31,** | ** ** |
|---------------------------------------------------------------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                                                                          | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                                                                                                |       |                                 |       |   |   |
| Net income  (loss):                                                                                                 |       |                                 |       |   |   |
| As reported                                                                                                         |       | $                                    | (3,265     | ) | $ | 1,185 |   |
| Add back:  Stock-based employee compensation included in net income (loss) as reported,  net of related tax effects |       | 112                                  |       | 53 |   |
| Less: Pro-forma  stock-based employee compensation expense, net of related tax effects                              |       | (119                                 | )          | (59 | ) |
| Pro forma net  income (loss)                                                                                        |       | $                                    | (3,272     | ) | $ | 1,179 |   |
|                                                                                                                |       |                                 |       |   |   |
| Net income  (loss) per common share:                                                                                |       |                                 |       |   |   |
|                                                                                                                |       |                                 |       |   |   |
| Basic and  Diluted                                                                                                  |       |                                 |       |   |   |
| As reported                                                                                                         |       | $                                    | (0.46      | ) | $ | 0.18 |   |
| Pro forma                                                                                                           |       | $                                    | (0.46      | ) | $ | 0.18 |   |

 

There were no options orrestricted stock awards granted during the three months ended December 31, 2004and 2003.

 

6

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**2. Inventories, net**

 

Inventories, net are stated at the lower of cost (first-in, first-out)or market and consisted of the following at December 31, 2004, and September30, 2004 *(in thousands)*:

 
| ** **                | ** ** | **December 31,  2004** | ** ** | **September 30,  2004** | ** ** |
|---------------------------|------------|------------------------|------------|-------------------------|------------|
| Piece goods               |       | $                      | 4,680      |                    | $          | 4,473 |   |
| Trimmings &  supplies |       | 1,331                  |       | 1,550                   |       |
| Work-in-process           |       | 3,116                  |       | 4,464                   |       |
| Finished  garments        |       | 92,672                 |       | 85,442                  |       |
|                      |       | 101,799                |       | 95,929                  |       |
| Inventory  reserves       |       | (661                   | )          | (700                    | )          |
| Total  inventories, net   |       | $                      | 101,138    |                    | $          | 95,229 |   |

 

Work-in-process and finished garments inventories consisted ofmaterials, labor and manufacturing overhead.

 

**3.  SegmentReporting**

 

The Company’s three operating segments arebusiness units that offer similar products through different distributionchannels.  The Company’s wholesalesegment designs, manufactures, imports and markets casual and dress men’s andwomen’s apparel to retailers.  TheCompany also operates two other segments, including the retail segment, whichmarkets Haggar® branded products through 75 Company operated stores located inoutlet and strip malls throughout the United States, and the licensing segment,which generates royalty income by licensing the Company’s trademarks for use byother manufacturers of specified products in specified geographic areas.  The Company evaluates performance andallocates resources based on segment profits.

 

Intercompany sales from the wholesale segmentto the retail segment are not reflected in wholesale segment, net sales.  Additionally, there is no profit included onsales from the wholesale segment to the retail segment.  Segment profit (loss) is comprised of segmentnet income (loss) before net interest expense and provision (benefit) forincome taxes.

 

The table below reflects the Company’ssegment results for the three months ended December 31, 2004 and 2003 *(in thousands)*:

 
| ** **             | ** ** | **Wholesale** | ** ** | **Retail** | ** ** | **Licensing** | ** ** | **Consolidated** | ** ** |
|------------------------|------------|---------------|------------|------------|------------|---------------|------------|------------------|------------|
| **2004**               |       |          |       |       |       |          |       |             |       |
| Net sales              |       | $             | 83,958     |       | $          | 16,585        |       | $                | —     |   | $ | 100,543 |   |
| Segment profit  (loss) |       | $             | (6,771     | )          | $          | 1,299         |       | $                | 355        |   | $ | (5,117 | ) |
|                   |       |          |       |       |       |          |       |             |       |
| **2003**               |       |          |       |       |       |          |       |             |       |
| Net sales              |       | $             | 92,410     |       | $          | 15,325        |       | $                | —     |   | $ | 107,735 |   |
| Segment profit         |       | $             | 989        |       | $          | 1,131         |       | $                | 254        |   | $ | 2,374 |   |

 

7

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A reconciliation of total segment profit (loss) to consolidated income(loss) before provision (benefit) for income taxes is as follows *(in thousands)*:

 
| ** **                                                                | ** ** | **Three Months Ended December 31,** | ** ** |
|---------------------------------------------------------------------------|------------|-------------------------------------|------------|
| ** **                                                                | ** ** | **2004**                            | ** ** | **2003** | ** ** |
| Segment profit  (loss)                                                    |       | $                                   | (5,117     | ) | $ | 2,374 |   |
| Interest expense                                                          |       | (209                                | )          | (457 | ) |
| Consolidated  income (loss)  before provision (benefit)  for income taxes |       | $                                   | (5,326     | ) | $ | 1,917 |   |

 

The Company does not segregate assets on a segment basis for internalmanagement reporting and, therefore, such information is not presented.

 

**4.  Commitmentsand Contingencies**

 

The Company was party to an operating lease for a corporate aircraftwhich contained a residual value guarantee. Under the lease, which ended in December 2004, the Company had theoption of (a) returning the aircraft to the lessor and paying the guaranteedresidual value of $3.0 million; (b) purchasing the aircraft for $4.0 million;or (c) arranging for the sale of the aircraft to a third party.  If the sales proceeds were less than $4.0million, the Company was required to reimburse the lessor for thedeficiency.  If the sales proceedsexceeded $4.0 million, the Company was entitled to all of such excess amounts.

 

On December 16, 2004, the Company completed the sale of the aircraft toa third party for proceeds of $3.2 million, net of commission and expenses of$0.2 million.  The Company reimbursed thelessor for a $0.9 million deficiency, which included nominal fees related tothe termination of the lease prior to December 31, 2004.  The Company had accrued $0.7 million of thisamount as of September 30, 2004, and recorded the additional $0.2 million inselling, general and administrative expenses during the three months endingDecember 31, 2004.

 

The Company has been named as a defendant in several legal actionsarising from its operations in the normal course of business, including actionsbrought by certain terminated employees. Although exact settlement amounts, if any, related to these actionscannot accurately be predicted, the claims and damages alleged, the progress ofthe litigation to date and past experience with similar litigation leads theCompany to believe that any liability resulting from these actions and thosedescribed below will not, individually or collectively, have a material adverseeffect on the Company.

 

The Company is a defendant in a wrongful termination lawsuit brought infederal district court in 2000 by a former salesman.  A jury rendered a verdict in January 2002 infavor of the plaintiff against the Company in the amount of $0.8 million,subject to potential doubling in the event judgment is entered on the jury’sfinding of willful discrimination, plus pre- and post-judgment interest andattorneys’ fees.  After various appealsand remand to the trial court, on January 31, 2005, the Company received aMemorandum Order ordering the Company to pay, after entry of judgment, backpayin the amount of $0.8 million, liquidated damages of $0.8 million and front payof $0.5 million.  The court also orderedthe Company to make monthly payments of $14,583 until the Company reinstatesthe plaintiff to the first available sales associate vacancy in the Dallas area.  The trial court denied, however, plaintiff’srequest for enhanced backpay and prejudgment interest.  The trial court has advised the plaintiffthat the law entitles him to an award of attorney’s fees, for which he mustsubmit a motion.  The plaintiff’s counselhas sought a stipulation to attorney’s fees of $0.9 million, which the Company,through its counsel, has refused.  Duringthe first quarter of fiscal 2005, the Company recorded an additional $1.7million charge to selling, general and administrative expenses related to thismatter.  The Company has reserved $2.7million in accrued liabilities for this matter as of December 31, 2004.  The Company is currently reviewing itsopportunities for appeal, once a final judgment is entered by the trial court.

 

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During fiscal 2003 and 2004, one attorney has filed five separate suitsin Texas state court against the Company and certain of its subsidiaries, aswell as unrelated third parties, alleging injuries to approximately 2,200former employees from airborne fibers and chemicals in certain of the Company’snow closed facilities located in south Texas. All proceedings in one case, which names over 2,100 plaintiffs, havebeen stayed due to the unrelated bankruptcy of one of the other defendants.  The Company is awaiting a decision by thetrial court on its motion to dismiss another case, which names 71plaintiffs.  After taking discovery inone of the remaining cases, the Company believes that all of these cases andclaims are frivolous and that the plaintiffs have no factual or legal basis forany of their allegations.  In addition,the Company believes that it has meritorious defenses to all of the assertedclaims.  The Company intends tovigorously defend all of these suits.

 

Jury verdicts in two cases totaling approximately $1.7 million in theaggregate were returned in fiscal 2000 against certain subsidiaries of theCompany related to claims by former employees of now closed manufacturingfacilities for wrongful discharge and common law tort.  Both cases have been on appeal to the TexasSupreme Court, because management and legal counsel believe the verdicts in thelawsuits are both legally and factually incorrect.  On December 31, 2004 the Texas Supreme Courtreversed the judgment of the Court of Appeals and rendered judgment in theCompany’s favor in one of such cases.  Asa result, during the first quarter of fiscal 2005, the Company reversed theprior accrual for such case, resulting in a $0.3 million increase in grossprofit for such quarter.  The other caseremains on appeal.  The Company has $2.6million reserved in accrued liabilities for the remaining case as of December31, 2004.

 

**5.  Shipping andHandling Fees**

 

The Company records shipping and handling fees as selling, general andadministrative expense.  For the threemonths ended December 31, 2004 and 2003, such costs were $2.7 million.

 

**6.   Basicand Diluted Common Shares**

 

The following table sets forth the computation of basic and dilutedweighted average common shares *(in thousands)*:

 
| ** **                                                     | ** ** | **Three Months Ended  December 31,** | ** ** |
|----------------------------------------------------------------|------------|--------------------------------------|------------|
| ** **                                                     | ** ** | **2004**                             | ** ** | **2003** | ** ** |
|                                                           |       |                                 |       |   |   |
| Weighted average  common shares outstanding                    |       | 7,072                                |       | 6,561 |   |
| Shares  equivalents, due to stock options and restricted stock |       | —                               |       | 165 |   |
| Weighted average  diluted shares outstanding                   |       | 7,072                                |       | 6,726 |   |

 

Options to purchase 142,223 shares were excluded from the dilutedearnings per share calculations for the three months ended December 31, 2004,due to the net loss recorded during the period.

 

Options to purchase 8,000 shares were excluded from the dilutedearnings per share calculations for the three months ended December 31, 2003,because the options’ exercise prices were greater than the average market priceof the common shares during the period.

 

**7.  Dividends**

 

During the first quarter of fiscal 2005, the Company declared a cashdividend of $0.05 per share payable to the stockholders of record on February9, 2005, which will be paid on March 7, 2005. The fourth quarter of fiscal 2004 dividend of approximately $0.4 millionwas paid in November 2004.

 

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**8.  RelatedParty Transactions**

 

A director of the Company, who became a director in fiscal 2002, is apartner of a law firm that rendered various legal services to the Companyduring the three months ended December 31, 2004 and 2003. The Company paid thelaw firm approximately $42,000 and $0.4 million for legal services during thethree months ended December 31, 2004 and 2003, respectively.  There were $14,000 and $0.1 million in unpaidfees due to the law firm at December 31, 2004 and 2003, respectively, whichwere included in accrued liabilities.

 

**9.  Sales ForceReduction**

 

As of September 30, 2004,the Company’s senior management committed to a plan to reduce the Company’s salesforce.  Severance benefits for thisreduction in force were to be determined in accordance with an establishedseverance plan communicated to all affected employees.  The Company recorded a $0.4 million pre-taxcharge to selling, general and administrative expenses during fiscal 2004 whichapproximated average severance benefits for three employees pursuant to theseverance plan.

 

During November 2004, management communicated the reduction in force tothe sales force and asked for volunteers to accept the severance benefits.  On December 15, 2004, management engaged innegotiations with three volunteers from the sales force and, as a result ofthese negotiations, granted an additional amount over the severance benefitsprescribed by the severance plan.  TheCompany recorded an additional $0.3 million pre-tax charge to selling, generaland administrative expenses during the first quarter of fiscal 2005 for theseincremental severance benefits. Severance payments for these three employees began at their terminationdates in January 2005 and are expected to continue through March 2006.  The Company included $0.7 million in accruedliabilities related to these severance benefits.

 

**10.  Officer’sLife Insurance Policy Activity**

 

During fiscal 1991, the Company entered into split-dollar lifeinsurance agreements with trusts established by three former officers of theCompany.  Pursuant to these agreements,the Company is entitled to the cumulative premiums it has paid on the policiesless the Company’s interest in policy loans and related accrued interest.  No further premiums are due on thesepolicies.  The Company’s interest in thepolicies was $1.1 million at September 30, 2004, which was net of $9.1 millionin policy loans made to the Company.

 

The Company was notified of the death of one of the insured formerofficers in September 2004.  In November2004, the insurance company applied the proceeds of $4.5 million directly tothe $4.0 million in outstanding loans related to this policy, and the Companyreceived net proceeds of $0.4 million, net of interest of $0.1 million, relatedto this policy.  In October 2004, theCompany executed the surrender of $2.2 million in accumulated cash dividends onthe second of these policies, resulting in a reduction of the policy loans forthis amount.  In November 2004, theCompany repaid the remaining policy loans of $2.9 million for thesepolicies.  As a result of thetransactions described above, at December 31, 2004, all policy loans had beenrepaid and the cash surrender value of the policies was $3.6 million.

 

**11.  Equity**

 

On November 30, 1999, the Board of Directors authorized the Company torepurchase of up to 3,000,000 shares of the Company’s stock (the “1999 Program”).  The 1999 Program does not have an expirationdate.  As of September 30, 2002, theCompany had purchased 2,242,183 shares of stock.  The Company did not purchase any shares infiscal 2003 or fiscal 2004.  On November8, 2004, the Company publicly announced that it was resuming its stock buybackprogram and, during the first quarter of fiscal 2005, purchased 204,793 sharesof outstanding stock for $4.5 million commensurate with that announcement.  The amount and timing of additional purchaseswill depend upon market conditions.

 

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

 

In December 2004, the Financial Accounting Standards Board issuedStatement No. 123R (revised 2004), entitled “Share-Based Payment” (“SFAS No.123R”) to amend Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accountingfor Stock-Based Compensation” and SFAS No. 95, “Statement of Cash Flows”.  The standard’s effective date will apply toawards that are granted, modified, or settled in cash in interim or annualperiods beginning after June 15, 2005. This standard eliminates the ability toaccount for share-based compensation using the intrinsic value-based methodunder Accounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees”.  SFAS No. 123R requiresthe Company to calculate equity-based compensation expense for stock optionsand employee stock purchase plan rights granted to employees based on the fairvalue of the equity instrument at the time of grant. Currently, the Companydiscloses the pro forma net income (loss) and related pro forma income (loss)per share information in accordance with previously issued SFAS No. 123 andalso SFAS No. 148, “Accounting for Stock-Based Compensation Costs—Transitionand Disclosure”.  Management is currentlyevaluating the impact that the pronouncement will have on the Company’sfinancial position and results of operations.

 

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**Item 2.****Management’s Discussion and Analysis of Financial Condition and Resultsof Operations**

 

The following discussion and analysis of the consolidated results ofoperations and financial condition of the Company should be read in conjunctionwith the accompanying consolidated financial statements and the notes theretoand the Company’s Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2004.

 

**Forward Looking Statements**

 

This Quarterly Report on Form 10-Q includesforward-looking statements within the meaning of Section 27A of the SecuritiesAct of 1933 (the “Securities Act”) and Section 21E of the Securities ExchangeAct of 1934 (the “Exchange Act”).  Allstatements other than statements of historical facts contained in this report,including statements regarding the Company’s future financial position,business strategy and plans and objectives of management for future operations,are forward-looking statements.  Thewords “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,”“expect” and similar expressions, as they relate to the Company, are intendedto identify forward-looking statements. The Company has based these forward-looking statements largely on itscurrent expectations and projections about future events and financial trendsthat the Company believes may affect its financial condition, results ofoperations, business strategy and financial needs.  These forward-looking statements are subjectto a number of known and unknown risks, uncertainties and assumptions that couldaffect the results of the Company or the apparel industry generally and couldcause the Company’s expected results to differ materially from those expressedin this Quarterly Report on Form 10-Q. These risks, uncertainties and assumptions are described in “Item1.  Business” of the Company’s AnnualReport on Form 10-K filed with the Securities and Exchange Commission onDecember 10, 2004, and include, amongother things:

 

•                  changes in general businessconditions,

 

•                  changes in the performance of theretail sector in general and the apparel industry in particular,

 

•                  seasonality of the Company’sbusiness,

 

•                  changes in retailer and consumeracceptance of new products and the success of advertising, marketing, andpromotional campaigns,

 

•                  impact of competition in the apparelindustry,

 

•                  availability and cost of rawmaterials,

 

•                  changes in laws and other regulatoryactions,

 

•                  changes in labor relations,

 

•                  political and economic events andconditions domestically or in foreign jurisdictions in which the Companyoperates or has apparel products manufactured, including, but not limited to,acts of terrorism, war, or insurrection,

 

•                  unexpected judicial decisions,

 

•                  changes in interest rates and capitalmarket conditions,

 

•                  acquisitions or dissolution ofbusiness enterprises, including the ability to integrate acquired businesseseffectively,

 

•                  natural disasters,

 

•                  unusual or infrequent items thatcannot be foreseen or are not susceptible to estimation, and

 

•                  impact of the identification of materialweaknesses in disclosure controls and procedures.

 

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In light of these risks, uncertainties andassumptions, the forward-looking events and circumstances discussed in thisQuarterly Report on Form 10-Q may not occur and actual results could differmaterially from those anticipated or implied in the forward-lookingstatements.  Accordingly, readers arecautioned not to place undue reliance on such forward-looking statements.  The Company undertakes no obligation toupdate any such statements or publicly announce any updates or revisions to anyof the forward-looking statements contained herein, to reflect any change inits expectations with regard thereto or any change in events, conditions,circumstances or assumptions underlying such statements.

 

**Overview**

 

The Company designs, manufactures, imports and markets in the UnitedStates and abroad, casual and dress men’s and women’s apparel products,including pants, shorts, suits, sportcoats, sweaters, shirts, dresses, skirtsand vests.  The Company’s operations areorganized into three business segments, wholesale, retail and licensing, eachof which offers similar 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 75 Companyoperated retail stores located in outlet and strip 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 material changes to the Company’s critical accounting policies during the three months ended December 31, 2004.

 

Management’s Discussion and Analysis discusses theresults 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,impairment of long-lived assets, including goodwill, litigation, workers’compensation liabilities, revenue recognition, reorganization charges and taxassessments. Management bases its estimates and judgments on the Company’ssubstantial historical experience and other relevant factors, the results ofwhich form the basis for making judgments about the carrying values of assetsand liabilities that are not readily apparent from other sources.

 

While the Companybelieves that the historical experience and other factors considered provide ameaningful basis for the accounting policies applied in the preparation of theconsolidated financial statements, the Company cannot guarantee that itsestimates and assumptions will be accurate. If such estimates and assumptionsprove to be inaccurate, the Company may be required to make adjustments tothese estimates in future periods.

 

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**Comparison of Three Months Ended December 31, 2004 to Three Months Ended December 31, 2003**

 

*Net Sales*

 

Net sales decreased $7.2 million, or 6.7%, to $100.5 million for thefirst quarter of fiscal 2005, compared to net sales of $107.7 million for thefirst quarter of fiscal 2004.  Unit salesincreased 1.4% and the average sales price decreased 8.1%.  The decrease in net sales is primarilyattributable to a $11.7 million reduction in the Haggarâbranded business during the first quarter of fiscal 2005, primarily due toreduced orders and increased allowances for the Company’s recently introducedForever Newä product line. This product was initially offered at higher than normal pricepoints.  In addition, the Company’sUnited Kingdom operations were assumed by a third party on October 3, 2004,resulting in a $1.5 million decrease in net sales during the first quarter offiscal 2005 as compared to the first quarter of fiscal 2004.  Net sales for the Company’s woman’s weardivision decreased overall by $1.6 million due to a reduction in sales tospecialty stores.  However, net sales forthe Company’s new women’s pant programs improved by $0.8 million. Thesedecreases were offset in part by net sales increases of $5.3 million forKenneth Coleâ and Claiborneâlicensed products and $1.2 million for men’s private label programs.  In addition, net sales for the Company’sretail division increased $1.3 million for the first quarter of fiscal 2005compared to the first quarter of fiscal 2004.

 

*Gross Profit*

 

Gross profit as a percentage of net sales decreased to 28.0% in thefirst quarter of fiscal 2005, compared to 29.1% in the first quarter of fiscal2004.  The decrease in gross profitpercentage is primarily related to an increase in allowances during the firstquarter of fiscal 2005 as compared to the first quarter of fiscal 2004.  The allowances primarily relate to markdownsassociated with the Forever Newäproducts during the first quarter of fiscal 2005.  Gross profit for the first quarter of fiscal2005 also included the reversal of a $0.3 million accrual to earnings relatedto a wrongful termination lawsuit in which the Company received a favorablejudgment on appeal in December 2004.

 

*Selling, General and Administrative Expenses*

 

Selling, general and administrative expenses as a percentage of netsales increased to 33.7% in the first quarter of fiscal 2005, compared to 27.5%in the first quarter of fiscal 2004.  The$4.3 million, or 14.4%, increase in selling, general and administrativeexpenses primarily relates to an increase of $2.5 million in media advertisingexpense, as $3.9 million in advertising expense was incurred during the firstquarter of fiscal 2005 to introduce the Forever Newäproduct line, a $1.7 million charge in connection with a wrongful terminationlawsuit, and a $1.0 million increase in volume-related expenses consistent withthe sales increase for Kenneth Coleâ and Claiborneâlicensed programs, retail stores and private label programs.  The increases were partially offset by $0.4million decrease in legal defense costs, a $0.4 million decrease in bonuses toemployees and $0.4 million in other miscellaneous expense decreases.

 

During the first quarter of fiscal 2005, the Company also recorded a$0.3 million charge for additional severance benefits to three sales forceemployees.  The Company recorded a $0.4million charge during fiscal 2004 when management committed to this reduction inforce.  Severance payments for thesethree employees began at their termination dates in January 2005 and areexpected to continue through March 2006. The Company included $0.7 million in accrued liabilities related tothese severance benefits as of December 31, 2004.

 

*Interest Expense*

 

Interest expense decreased $0.3 million, or 54.3%, to $0.2 million forthe first quarter of fiscal 2005, compared to $0.5 million for the firstquarter of fiscal 2004. Interest expense during the first quarter of fiscal2004 included interest on borrowings under the Company’s revolving creditfacility and outstanding senior notes. The Company did not borrow any amounts under the revolving creditfacility during the first quarter of fiscal 2005 and repaid the remainingsenior notes during September 2004.

 

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*Income Taxes*

 

The Company’s income tax benefit as a percentage of income beforeincome tax was 38.7% for the first quarter of fiscal 2005.  Comparatively, the Company’s income taxprovision as a percentage of income before income tax was 38.2% for the firstquarter of fiscal 2004.  The effectivetax rates for the first quarters of fiscal 2005 and 2004 exceeded the statutoryfederal tax rate of 35% primarily as a result of state income taxes and certainpermanent differences.

 

**Segment Profitability**

 

The Company’s three operating segments arebusiness units that offer similar products through different distributionchannels.  The Company’s wholesalesegment designs, manufactures, imports and markets casual and dress men’s andwomen’s apparel to retailers.  TheCompany also operates two other segments, including the retail segment, whichmarkets Haggar® branded products through 75 Company operated stores located inoutlet and strip malls throughout the United States, and the licensing segment,which generates royalty income by licensing the Company’s trademarks for use byother manufacturers of specified products in specified geographic areas.  The Company evaluates performance andallocates resources based on segment profits.

 

Intercompany sales from the wholesale segmentto the retail segment are not reflected in wholesale segment net sales.  Additionally, there is no profit included onsales from the wholesale segment to the retail segment.  Segment profit (loss) is comprised of segmentnet income (loss) before interest expense and provision (benefit) for incometaxes.

 

The table below reflects the Company’ssegment results for the three months ended December 31, 2004 and 2003:

 
| ** **             | ** ** | **Wholesale** | ** ** | **Retail** | ** ** | **Licensing** | ** ** | **Consolidated** | ** ** |
|------------------------|------------|---------------|------------|------------|------------|---------------|------------|------------------|------------|
| **2004**               |       |          |       |       |       |          |       |             |       |
| Net sales              |       | $             | 83,958     |       | $          | 16,585        |       | $                | —     |   | $ | 100,543 |   |
| Segment profit  (loss) |       | $             | (6,771     | )          | $          | 1,299         |       | $                | 355        |   | $ | (5,117 | ) |
|                   |       |          |       |       |       |          |       |             |       |
| **2003**               |       |          |       |       |       |          |       |             |       |
| Net sales              |       | $             | 92,410     |       | $          | 15,325        |       | $                | —     |   | $ | 107,735 |   |
| Segment profit         |       | $             | 989        |       | $          | 1,131         |       | $                | 254        |   | $ | 2,374 |   |

 

*Wholesale Segment*

 

Wholesale segment net sales decreased $8.4 million, or 9.1%, to $84.0million for the first quarter of fiscal 2005, compared to $92.4 million for thefirst quarter of fiscal 2004.  Thedecrease in wholesale segment net sales during the first quarter of fiscal 2005is primarily attributable to a $11.7 million reduction in the Haggarâbranded business, primarily due to reduced orders and increased allowances forthe Company’s Forever Newä product line.  This product was initially offered at higherthan normal price points.  In addition,the Company’s United Kingdom operations were assumed by a third party onOctober 3, 2004, resulting in a $1.5 million decrease in net sales during thefirst quarter of fiscal 2005, as compared to the first quarter of fiscal2004.  Net sales for the Company’s women’swear divisions decreased overall by $1.6 million due to a reduction in sales tospecialty stores.  However, net sales forthe Company’s new women’s pant programs improved by $0.8 million.  These decreases were offset in part by netsales increases of $5.3 million for Kenneth Coleâand Claiborneâ licensed products and $1.2 million for men’sprivate label programs.

 

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Wholesale segment profit decreased $7.8 million to a $6.8 million lossfor the first quarter of fiscal 2005, compared to a $1.0 million profit for thefirst quarter of fiscal 2004.  Thedecrease in segment profit is primarily attributable to a $8.5 million decreasein net sales as noted above, a 3.1% decrease in men’s wear gross profitpercentage primarily related to an increase in customer allowances, an increaseof $2.5 million in media advertising expense, as $3.9 million was incurredduring the first quarter of fiscal 2005 to introduce the Forever Newäproduct line, a $1.7 million charge in connection with a wrongful terminationlawsuit, $0.3 million in additional severance charges related to thetermination of three sales force employees, and a $0.9 million increase involume-related expenses consistent with the sales increase for Kenneth Coleâand Claiborneâ licensed programs and private labelprograms.  The increases were partiallyoffset by a $0.4 million decrease in legal expenses, a $0.4 million decrease inbonuses to employees and $0.4 million in other miscellaneous expense decreases.

 

*Retail Segment*

 

Retail segment net sales increased $1.3 million, or 8.2%, to $16.6million for the first quarter of fiscal 2005, compared to $15.3 million for thefirst quarter of fiscal 2004.  Theincrease in retail segment net sales during the first quarter of fiscal 2005 isprimarily attributable to the Company’s ongoing strategy to identify and closeunder-performing stores and open new stores, as well as increased sales at existingretail stores.

 

Retail segment profit increased $0.2 million, or 14.9%, to $1.3 millionfor the first quarter of fiscal 2005, compared to $1.1 million for the firstquarter of fiscal 2004.  The increase inretail segment profit is primarily attributable to a $1.3 million increase inretail net sales, combined with improved gross profit due to fewer markdowns onseasonal products and improved gross profit for shirts during the first quarterof fiscal 2005 as compared to the first quarter of fiscal 2004.

 

*Licensing Segment*

 

Licensing segment profit increased $0.1million, or 39.8%, to $0.4 million in fiscal 2005, compared to $0.3 million infiscal 2004 primarily due to increased sales by the Company’s licensees.

 

**Liquidity and Capital Resources**

 

The Company’s principal sources of liquidity have been cash flows from operations and borrowings under its unsecured revolving credit facility.  As of December 31, 2004, the Company had cash and cash equivalents of $24.7 million.

 

The Company was party to an operating lease for a corporate aircraft,which contained a residual value guarantee. Under the lease, which ended in December 2004, the Company had theoption of (a) returning the aircraft to the lessor and paying the guaranteedresidual value of $3.0 million; (b) purchasing the aircraft for $4.0 million;or (c) arranging for the sale of the aircraft to a third party.  If the sales proceeds were less than $4.0million, the Company was required to reimburse the lessor for thedeficiency.  If the sales proceeds exceeded$4.0 million, the Company was entitled to all of such excess amounts.

 

On December 16, 2004, the Company completed the sale of the aircraft toa third party for proceeds of $3.2 million net of commissions and expenses of$0.2 million.  The Company reimbursed thelessor for a $0.9 million deficiency, which included minimal fees related tothe termination of the lease prior to December 31, 2004.  The Company had accrued $0.7 million of thisamount as of September 30, 2004, and recorded the additional $0.2 million inselling, general and administrative expenses during the three months endingDecember 31, 2004.

 

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During fiscal 1991, the Company entered into split-dollar lifeinsurance agreements with trusts established by three former officers of theCompany.  Pursuant to these agreements,the Company is entitled to the cumulative premiums it has paid on the policiesless the Company’s interest in policy loans and related accrued interest.  No further premiums are due on thesepolicies.  The Company’s interest in thepolicies was $1.1 million at September 30, 2004, which was net of $9.1 millionin policy loans made to the Company.

 

The Company was notified of the death of one of the insured formerofficers in September 2004.  In November2004, the insurance company applied the proceeds of $4.5 million directly tothe $4.0 million in outstanding loans related to this policy, and the Companyreceived net proceeds of $0.4 million, net of interest of $0.1 million, relatedto this policy..  In October 2004, theCompany executed the surrender of $2.2 million in accumulated cash dividends onthe second of these policies, resulting in a reduction of the policy loans forthis amount.  In November 2004, theCompany repaid the remaining policy loans of $2.9 million for thesepolicies.  As a result of thetransactions described above, at December 31, 2004, all policy loans had beenrepaid and the cash surrender value of the policies was $3.6 million.

 

During the first quarter of fiscal 2005, the Company declared a cashdividend of $0.05 per share payable to the stockholders of record on February9, 2005, which will be paid on March 7, 2005. The fourth quarter fiscal 2004 dividend of approximately $0.4 millionwas paid in November 2004.

 

On November 30, 1999, the Board of Directors authorized the Company torepurchase of up to 3,000,000 shares of the Company’s stock (the “1999 Program”).  The 1999 Program does not have an expirationdate.  As of September 30, 2002, the Companyhad purchased 2,242,183 shares of stock. The Company did not purchase any shares in fiscal 2003 or fiscal2004.  On November 8, 2004, the Companypublicly announced that it was resuming its stock buyback program and, duringthe first quarter of fiscal 2005, purchased 204,793 shares of outstanding stockfor $4.5 million commensurate with that announcement.  The amount and timing of additional purchaseswill depend upon market conditions.

 

From time to time, the Company will sell or dispose of assets, which itfeels are under-performing or are no longer needed in the businesses in whichthe Company operates. There can be no assurance that the Company will be ableto sell or dispose of the assets in a manner, which is profitable to theCompany, or at all.  In addition, theCompany will make investments in assets that management believes are needed toacquire and maintain the businesses in which the Company operates.  Again, there can be no assurance that theCompany can obtain a reasonable return on any such investments.

 

The ongoing evaluation for impairment of the goodwill related to the1999 acquisition of the Women’s Wear subsidiary requires significant managementestimation and judgment.  Changes inoverall business strategy, negative industry or economic trends or actualresults which do not meet the Company’s current plan for the women’s wearbusiness may trigger a future impairment charge, which could negatively affectthe Company’s results of operations in the period in which the charge isrecorded.

 

The Company has other contractual obligations and commercial commitments as described in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations — Disclosures About Contractual Obligations And Commercial Commitments” of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 10, 2004.  There have been no significant changes in the Company’s contractual obligations and commercial commitments since September 30, 2004.

 

***Cash Flow Resultsfor the Three Months Ended December 31, 2004***

 

Net cash provided by operating activities decreased $22.0 million, to$2.1 million net cash used in operating activities during the first quarter offiscal 2005, compared to $19.9 million net cash provided by operatingactivities during the first quarter of fiscal 2004.  The decrease was primarily due to the netloss for the first quarter of fiscal 2005 as compared to net income for thefirst quarter of fiscal 2004, increased inventory purchased during the period,payment of a $0.9 million residual value guarantee related to the lease on theCompany’s corporate aircraft and a decrease in the accounts payable balance dueto the timing of payments during the first quarter of fiscal 2005.

 

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Net cash used in investing activities increased $3.9 million, to $4.0million in the first quarter of fiscal 2005, compared to $0.1 million in thefirst quarter of fiscal 2004.  Theincrease was primarily due to $2.4 million in net payments on officer’s lifeinsurance policy loans.  Cash used ininvesting activities during the first quarter of fiscal 2004 related primarilyto capital expenditures for improvements to the global headquarters, which werefunded with $1.3 million in funds transferred from restricted cash.

 

Net cash provided by financing activities increased $2.8 million, to$0.1 million net cash provided by financing activities in the first quarter offiscal 2005 as compared to $2.7 million net cash used in financing activitiesin the first quarter of fiscal 2004.  Theincrease was primarily due to a reduction in net repayments on long-term debtduring the first quarter of fiscal 2005 and an increase in book overdrafts,partially offset by a decrease of $1.5 million in proceeds from the exercise ofemployee stock options and purchases of treasury stock of $4.5 million.

 

**Risks Related to the Company’s Business**

 

Aninvestment in the Company involves certain risks and uncertainties.  The risks and uncertainties described belowand elsewhere in this Quarterly Report on Form 10-Q should be carefullyconsidered.  If any of the eventsdescribed below or elsewhere occurs, the Company’s business could be adverselyaffected in a material way.

 

*Dependence on Key Customers*

 

The Company’s four largest customers accounted for approximately 51% and 52% of the Company’s net sales during the three months ended December 31, 2004 and 2003, respectively.  The same four customers accounted for approximately 73% and 62% of trade receivables as of December 31, 2004 and September 30, 2004, respectively.  The loss of the business of one or more of the Company’s larger customers could have a material adverse effect on the Company.

 

*Uncertainties in Apparel Retailing*

 

The apparel industry historically has been subject to substantial cyclical variations, and a recession in the general economy or uncertainties regarding future economic prospects that affect consumer spending habits could have a material adverse effect on the Company. While various retailers, including some of the Company’s customers, experienced financial difficulties in the past three years, which increased the risk of extending credit to such retailers, the Company’s bad debt experience has been limited. Under the Company’s current credit and collection arrangements, the bankruptcy of a customer which continues to operate and carry the Company’s products should not have a material adverse effect on the Company.

 

*Competition*

 

The apparel industry is highly competitive in the United States and abroad. The Company competes with numerous domestic and foreign designers, brands and manufacturers of apparel, some of which may be significantly larger and have greater marketing and financial resources than the Company. Management believes that the Company’s ability to compete effectively depends upon its continued flexibility in responding to market demand and its ability to offer fashion conscious consumers a wide variety of high quality apparel at competitive prices.

 

*Dependence on Third-Party Manufacturers*

 

The Company is dependent upon third parties for the manufacture of approximately 83% of its products. The inability of a manufacturer to ship orders of the Company’s products in a timely manner or to meet quality standards could cause the Company to miss the delivery date requirements of its customers for those items, which could result in cancellation of orders, refusal to accept deliveries or a reduction in purchase prices, any of which could have a material adverse effect on the Company. The Company has no long-term formal arrangements with any of its suppliers and historically has experienced only limited difficulty in satisfying its raw material and finished goods requirements. Although the Company believes it could replace such suppliers without a material adverse effect on the Company, there can be no assurance that such suppliers could be replaced in a timely manner and the loss of such suppliers could have a material adverse effect on the Company’s short-term operating results.

 

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Substantially all of the Company’s products are manufactured outside the United States.  The Company’s foreign production and sourcing operations are subject to various risks of doing business abroad, including quotas, work stoppages and other restrictions and regulations relating to imports and, in certain parts of the world, political or economic instability.  Although the Company’s operations have not been materially adversely affected by any of such factors to date, any substantial disruption of its foreign production or supply could adversely affect its operations.  Some of the Company’s imported merchandise is subject to United States Customs duties.  In addition, bilateral agreements between the major exporting countries and the United States impose quotas which limit the amounts of certain categories of merchandise that may be imported into the United States.  Any material increase in duty levels or material decrease in quota levels, or material decrease in available quota allocations could materially adversely affect the Company.

 

*Dependence on Customer Service Center in Fort Worth, Texas*

 

The Company operates the majority of its warehouse and distributionactivities in the United States out of its main distribution center in FortWorth, Texas.  Any major work disruptionat the Company’s Fort Worth facility could have a material adverse effect onthe Company.  Although the Companybelieves it could utilize other warehousing companies to satisfy its shippingand distribution functions, there can be no assurance that these warehousingcompanies could be utilized in a timely manner, and the inability to servicethe Company’s customers for any period of time could materially adverselyaffect the Company.

 

*Risks of Acquisition Strategy*

 

The Company continues to seek growth through strategic acquisitions ofother apparel businesses.  However, theCompany cannot give any assurances that its acquisition strategy will besuccessful.  The success of the Company’sacquisition strategy is dependent upon a number of factors, including:

 

•                  the Company’s ability to identifysuitable acquisition candidates;

•                  the Company’s ability to negotiatefavorable acquisition terms, including purchase price, which may be adverselyaffected due to increased competition with other buyers;

•                  the availability of financing to theCompany, or on terms favorable to the Company;

•                  the Company’s ability to integrateeffectively the systems and operations of acquired businesses; and

•                  the Company’s ability to retain keypersonnel of acquired businesses.

 

Acquisitions involve a number of other risks, including diversion ofmanagement’s attention from other business concerns and the assumption of knownor unknown liabilities of acquired businesses. The integration of acquired businesses may place significant strains onthe Company’s current operating and financial systems and controls.  The Company may not successfully overcomethese risks or any other problems encountered in connection with itsacquisition strategy.

 

19

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*Weaknesses in Internal Controls*

 

Weaknesses in internal controls and procedures could have a materialadverse effect on the Company.  Duringthe preparation of the Company’s consolidated financial statements for fiscal2004, the Company’s management noted internal control deficiencies related tothe review of journal entries and account reconciliations, the training,staffing and supervision related to intercompany accounting and foreigncurrency translation processes, the documentation of the Company’s foreigncurrency translation methodology and the periodic review of the trial balancefor unusual items.  These internalcontrol deficiencies constituted a material weakness.  During the first quarter of fiscal 2005, theCompany’s management identified two control deficiencies which constitutematerial weaknesses.  The first materialweakness relates to the finished goods inventory valuation.  Management believes that there has beeninadequate analysis of the capitalized cost factors used in the finished goodsinventory valuation.  The second materialweakness relates to internal controls for customer allowance reserves.  Management has identified certain customerallowances for which a reserve was not recorded on a timely basis.  For further discussion of the Company’sinternal control over financial reporting, see “Item 4. Controls and Procedures”.  The Company has implemented new controls toremediate the control deficiencies noted above, however other instances ofweaknesses in the Company’s internal controls and procedures could occur or beidentified in the future. Any such weaknesses may have a material adverseeffect on the Company and the market price of the Company’s securities.

 

**Recently Issued and Adopted Financial AccountingStandards**

 

In December 2004, the FASB issued Statement No. 123R (revised 2004),entitled “Share-Based Payment” (“SFAS No. 123R”) to amend SFAS No. 123, “Accountingfor Stock-Based Compensation” and SFAS No. 95, Statement of Cash Flows”.  The standard’s effective date will apply toawards that are granted, modified, or settled in cash in interim or annualperiods beginning after June 15, 2005. This standard eliminates the ability toaccount for share-based compensation using the intrinsic value-based methodunder Accounting Principles Board Opinion No. 25, “Accounting for Stock Issuedto Employees”.  SFAS No. 123R requiresthe Company to calculate equity-based compensation expense for stock options andemployee stock purchase plan rights granted to employees based on the fairvalue of the equity instrument at the time of grant. Currently, the Companydiscloses the pro forma net income (loss) and related pro forma income (loss)per share information in accordance with previously issued SFAS No. 123 andalso SFAS No. 148, “Accounting for Stock-Based Compensation Costs—Transitionand Disclosure”.  Management is currentlyevaluating the impact that the pronouncement will have on the Company’sfinancial position and results of operations.

 

**Item 3.  Quantitative and Qualitative Disclosuresabout Market Risk.**

 

The Company is exposed to market risk from changes in foreign currency exchange risk and interest rate risk, which may adversely affect its financial position, results of operations and cash flows. The Company does not use financial instruments for trading or other speculative purposes and is not a party to any derivative financial instrument.  As of December 31, 2004, the Company’s exposure to interest rate risk was minimal due to the low level of variable rate debt.

 

20

 

**Item 4.**** ****Controls and Procedures**

 

(a)                                  The Chief Executive Officer and Chief Accounting Officer of the Company have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 240.13a-15(e) and 15d-15(e)), and have concluded, as more fully described in 4(c) below, that as of the end of the period covered by this Quarterly Report on Form 10-Q, such disclosure controls and procedures were ineffective in timely alerting them to material information relating to the Company required to be disclosed in the periodic reports the Company files or submits under the Securities Exchange Act of 1934.  With respect to the material weaknesses described in Item 4(c) below we significantly expanded our disclosure controls and procedures to include additional analysis and other post-closing procedures to ensure our disclosure controls and procedures were effective  over the preparation of the financial information included in this Quarterly Report on Form 10-Q.

 

(b)                                 In professional auditing literature, “significant deficiencies” are referred to as “reportable conditions,” which are control issues that could have a significant adverse effect on the ability to record, process, summarize and report financial data in financial statements. Auditing literature defines “material weakness” as a particularly serious reportable condition where the internal control does not reduce to a relatively low level the risk that misstatements caused by error or fraud may occur in amounts that would be material in relation to the financial statements and the risk that such misstatements would not be detected within a timely period by employees in the normal course of performing their assigned functions.

 

The Company reported deficiencies in internal control which constituted a material weakness in Item 9A of its Annual Report on Form 10-K filed December 10, 2004.  The deficiencies included (i) inadequate and untimely review of journal entries and account reconciliations; (ii) inadequate training, staffing and supervision related to intercompany accounting and foreign currency translation processes;  (iii) insufficient documentation regarding the Company’s foreign currency translation methodology; and (iv) inadequate periodic review of the trial balance for unusual items.

 

In response to the deficiencies noted above, the Company has made the necessary improvements to the internal control environment to remediate the material weakness.   Prior to the filing of the Annual Report on Form 10-K, the Company had completed training of accounting personnel currently responsible for intercompany accounting and foreign currency translation on the appropriate methodology to be used and implemented a monthly control to evaluate the reasonableness of the foreign currency translation adjustment.  Since December 2004, the Company has (i) reviewed journal entries and account reconciliations to ensure the process is effective; (ii) assessed the Company’s accounting personnel, restructured the organization and added two senior supervisory positions; (iii) documented the system flow of the Company’s foreign currency translation module (iv) enhanced the quarterly fluctuation analysis to include a scan of all trial balance accounts for unusual items; and (v) adjusted the timing of quarterly and year end earnings releases in order to allow appropriate time to perform all control procedures.

 

(c)                                  In connection with the financial statement close process for December 31, 2004, the Company’s management identified two additional control deficiencies which management believes constitute material weaknesses in its internal controls. The first of these relates to the finished goods inventory valuation process.  Management believes that there has been inadequate analysis of the capitalized cost factors used in the finished goods inventory valuation.

 

The Company remediated this weakness in its internal control over financial reporting by implementing a detailed review of the calculation of capitalized cost factors.  The review includes a process to verify completeness and accuracy of general ledger accounts included in the calculation of the cost capitalization factors, as well as a review of the appropriateness of the expenses included within those accounts.  The Company also implemented a more robust monthly analytical review of the trend of capitalized cost factors compared to prior periods.

 

21

 

The second material weakness relates to internal controls for customer allowance reserves.  The Company periodically grants allowances for certain customers.  The Company’s management identified customer allowances for which a reserve was not recorded on a timely basis.

 

The Company remediated this weakness in internal controls by conducting training on the Company’s accounting for customer allowance reserves for those senior sales associates with the responsibility for customer allowances.

 

(d)                                 During the most recent fiscal quarter, there have not been any other changes, other than as discussed above, in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

**PART II.****  OTHERINFORMATION.**

 

**Item1.  Legal Proceedings**

 

The Company has been named as a defendant in several legal actionsarising from its operations in the normal course of business, including actionsbrought by certain terminated employees. Although exact settlement amounts, if any, related to these actionscannot accurately be predicted, the claims and damages alleged, the progress ofthe litigation to date and past experience with similar litigation leads theCompany to believe that any liability resulting from these actions and thosedescribed below will not individually, or collectively, have a material adverseeffect on the Company.

 

The Company is a defendant in a wrongful termination lawsuit brought infederal district court in 2000 by a former salesman.  A jury rendered a verdict in January 2002 infavor of the plaintiff against the Company in the amount of $0.8 million,subject to potential doubling in the event judgment is entered on the jury’sfinding of willful discrimination, plus pre- and post-judgment interest andattorneys’ fees.  After various appealsand remand to the trial court, on January 31, 2005, the Company received aMemorandum Order ordering the Company to pay, after entry of judgment, backpayin the amount of $0.8 million, liquidated damages of $0.8 million and front payof $0.5 million.  The court also orderedthe Company to make monthly payments of $14,583 until the Company reinstatesthe plaintiff to the first available sales associate vacancy in the Dallasarea.  The trial court denied, however,plaintiff’s request for enhanced backpay and prejudgment interest.  The trial court has advised the plaintiffthat the law entitles him to an award of attorney’s fees, for which he mustsubmit a motion.  The plaintiff’s counselhas sought a stipulation to attorney’s fees of $0.9 million, which the Company,through its counsel, has refused.  Duringthe first quarter of fiscal 2005, the Company recorded an additional $1.7million charge to selling, general and administrative expenses related to thismatter.  The Company has reserved $2.7million in accrued liabilities for this matter as of December 31, 2004.  The Company is currently reviewing itsopportunities for appeal, once a final judgment is entered by the trial court.

 

During fiscal 2003 and 2004, one attorney filed five separate suits inTexas state court against the Company and certain of its subsidiaries, as wellas unrelated third parties, alleging injuries to approximately 2,200 formeremployees from airborne fibers and chemicals in certain of the Company’s nowclosed facilities located in south Texas. All proceedings in one case, which names over 2,100 plaintiffs, havebeen stayed due to the unrelated bankruptcy of one of the otherdefendants.  The Company is awaiting adecision by the trial court on its motion to dismiss another case, which names71 plaintiffs.  After taking discovery inone of the remaining cases, the Company believes that all of these cases andclaims are frivolous and that the plaintiffs have no factual or legal basis forany of their allegations.  In addition,the Company believes that it has meritorious defenses to all of the assertedclaims.  The Company intends tovigorously defend all of these suits.

 

22

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Jury verdicts in two cases totaling approximately $1.7 million in theaggregate were returned in fiscal 2000 against certain subsidiaries of theCompany related to claims by former employees of now closed manufacturingfacilities for wrongful discharge and common law tort.  Both cases have been on appeal to the TexasSupreme Court, because management and legal counsel believe the verdicts in thelawsuits are both legally and factually incorrect.  On December 31, 2004 the Texas Supreme Courtreversed the judgment of the Court of Appeals and rendered judgment in theCompany’s favor in one of such cases.  Asa result, during the first quarter of fiscal 2005, the Company reversed theprior accrual for such case, resulting in a $0.3 million increase in grossprofit for such quarter.  The other caseremains on appeal.  The Company has $2.6million reserved in accrued liabilities for the remaining case as of December31, 2004.

 

**Item 2.  Unregistered Sales of Equity Securities andUse of Proceeds**

 

On November 30, 1999, the Board of Directors authorized the Company torepurchase of up to 3,000,000 shares of the Company’s stock (the “1999 Program”).  The 1999 Program does not have an expirationdate.  As of September 30, 2002, theCompany had purchased 2,242,183 shares of stock.  The Company did not purchase any shares infiscal 2003 or fiscal 2004.  On November8, 2004, the Company publicly announced, that it was resuming its stock buybackprogram and has since purchased 204,793 shares of outstanding stockcommensurate with that announcement.  Theamount and timing of additional purchases will depend upon market conditions.

 
| **Period**                                   | ** ** | **Total  Number of****Shares Purchased** | ** ** | **Average  Price****Paid per Share** | ** ** | **Total Number of  Shares Purchased as  Part of Publicly  Announced Plans or  Program (1)** | ** ** | **Maximum Number of  Shares That May  Yet Be Purchased  Under the Plans or  Program (1)** | ** ** |
|----------------------------------------------|------------|------------------------------------------|------------|--------------------------------------|------------|---------------------------------------------------------------------------------------------|------------|-------------------------------------------------------------------------------------------|------------|
|                                         |       |                                     |       |                                 |       |                                                                                        |       |                                                                                      |       |
| October 1, 2004  through  October 31, 2004   |       | —                                   |       | —                               |       | —                                                                                      |       | 757,817                                                                                   |       |
| November 1, 2004  through  November 30, 2004 |       | 65,400                                   |       | $                                    | 19.91      |                                                                                        | 65,400     |                                                                                      | 692,417    |   |
| December 1, 2004  through  December 31, 2004 |       | 139,393                                  |       | $                                    | 22.71      |                                                                                        | 139,393    |                                                                                      | 553,024    |   |
| ** **                                   |       |                                     |       |                                 |       |                                                                                        |       |                                                                                      |       |
| **Total**                                    |       | 204,793                                  |       | $                                    | 21.82      |                                                                                        | 204,793    |                                                                                      | 553,024    |   |

 

**Item 3.  Defaults Upon Senior Securities**

 

None.

 

**Item 4.  Submission of Matters to a Vote of SecurityHolders**

 

None.

 

**Item5.  Other Information**

 

None.

 

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**Item 6.Exhibits**

 
| **Exhibit  Number** | ** ** | **Description** |
|---------------------|------------|-----------------|
|                |       |            |
| 3(a)                |       |            | Third Amended and Fully  Restated Articles of Incorporation. (Incorporated by reference from Exhibit  3(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended  September 30, 1993 [File No. 0-20850].) |
|                |       |            |   |
| 3(b)                |       |            | Amended and Restated  Bylaws of the Company, as amended, dated October 10, 2002. (Incorporated by  reference from Exhibit 99.2 to the Company’s Current Report on Form 8-K filed  October 15, 2002 [File No. 0-20850].) |
|                |       |            |   |
| 4(a)                |       |            | Specimen Certificate  evidencing Common Stock (and Preferred Stock Purchase Right). (Incorporated  by reference from Exhibit 4(a) to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 30, 1994 [File No. 0-20850].) |
|                |       |            |   |
| 4(b)                |       |            | Rights Agreement, dated  as of October 10, 2002, between the Company and Mellon Investor Services,  LLC, as Rights Agent, specifying the terms of the Rights, which includes the  description of Series B Junior Participating Preferred Stock as Exhibit A,  the form of Rights Certificate as Exhibit B and the form of the Summary of Rights  as Exhibit C. (Incorporated by reference from Exhibit 99.3 to the Company’s  Current Report on Form 8-K, filed October 15, 2002 [File No. 0-20850].) |
|                |       |            |   |
| 4(c)                |       |            | Form of Rights  Certificate. (Incorporated by reference from Exhibit 99.4 to the Company’s Current  Report on Form 8-K, filed October 15, 2002 [File No. 0-20850].) |
|                |       |            |   |
| 4(d)                |       |            | Form of Summary of  Rights. (Incorporated by reference from Exhibit 99.5 to the Company’s Current  Report on Form 8-K, filed October 15, 2002 [File No. 0-20850].) |
|                |       |            |   |
| 31(a)               | *          |            | Certification of Chief Executive Officer required by Rule 13a-14(a)  or Rule 15d-14(a). |
|                |       |            |   |
| 31(b)               | *          |            | Certification of Chief  Accounting 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  Accounting Officer Pursuant to 18 U.S.C. §1350. |

 

----

| *  |   |   | Filed herewith     |
|----|--------|--------|--------------------|
| ** |   |   | Furnished herewith |

 

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**SIGNATURES**

 

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 theundersigned thereunto duly authorized.

 

 
|                   | Haggar Corp., |
|------------------------|---------------|
|                   |          |
|                   |          |
| Date: February 9, 2005 | By:           | /s/ John W. Feray |
|                   |          | John W. Feray |
|                   |          | *(Chief Accounting Officer)* |
|                   |          |   |
|                   |          | Signed on behalf of the |
|                   |          | registrant and as principal |
|                   |          | accounting officer. |

 

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**INDEX TO EXHIBITS**

 
| **Exhibit  Number** | ** ** | **Description** |
|---------------------|------------|-----------------|
|                |       |            |
| 3(a)                |       |            | Third Amended and Fully  Restated Articles of Incorporation. (Incorporated by reference from Exhibit  3(a) to the Company’s Annual Report on Form 10-K for the fiscal year ended  September 30, 1993 [File No. 0-20850].) |
|                |       |            |   |
| 3(b)                |       |            | Amended and Restated  Bylaws of the Company, as amended, dated October 10, 2002. (Incorporated by  reference from Exhibit 99.2 to the Company’s Current Report on Form 8-K filed  October 15, 2002 [File No. 0-20850].) |
|                |       |            |   |
| 4(a)                |       |            | Specimen Certificate  evidencing Common Stock (and Preferred Stock Purchase Right). (Incorporated  by reference from Exhibit 4(a) to the Company’s Annual Report on Form 10-K  for the fiscal year ended September 30, 1994 [File No. 0-20850].) |
|                |       |            |   |
| 4(b)                |       |            | Rights Agreement, dated  as of October 10, 2002, between the Company and Mellon Investor Services,  LLC, as Rights Agent, specifying the terms of the Rights, which includes the  description of Series B Junior Participating Preferred Stock as Exhibit A,  the form of Rights Certificate as Exhibit B and the form of the Summary of  Rights as Exhibit C. (Incorporated by reference from Exhibit 99.3 to the  Company’s Current Report on Form 8-K, filed October 15, 2002 [File No.  0-20850].) |
|                |       |            |   |
| 4(c)                |       |            | Form of Rights  Certificate. (Incorporated by reference from Exhibit 99.4 to the Company’s  Current Report on Form 8-K, filed October 15, 2002 [File No. 0-20850].) |
|                |       |            |   |
| 4(d)                |       |            | Form of Summary of  Rights. (Incorporated by reference from Exhibit 99.5 to the Company’s Current  Report on Form 8-K, filed October 15, 2002 [File No. 0-20850].) |
|                |       |            |   |
| 31(a)               | *          |            | Certification of Chief  Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a). |
|                |       |            |   |
| 31(b)               | *          |            | Certification of Chief  Accounting 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  Accounting Officer Pursuant to 18 U.S.C. §1350. |

 

----

| *  |   |   | Filed herewith     |
|----|--------|--------|--------------------|
| ** |   |   | Furnished herewith |

 

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