**UNITED STATES**

**SECURITIES AND EXCHANGE COMMISSION**

**Washington, D.C. 20549**

 

----

 

**FORM 10-Q**

 

----

 

| **(Mark One)**                                                                                                                                                                                                                                                                                                                   |
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|                                                                                                                                                                                                                                                                                                                             |   |   |
| **ý**                                                                                                                                                                                                                                                                                                                       |   | **Quarterly  report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934** |
|                                                                                                                                                                                                                                                                                                                             |
| **For  the quarterly period ended March 31, 2003.**                                                                                                                                                                                                                                                                              |
|                                                                                                                                                                                                                                                                                                                             |
| **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.**

(Exactname of the registrant as specified in its charter)

 

| **Nevada**                                                       |   | **75-2187001**                           |
|------------------------------------------------------------------|--------|------------------------------------------|
| (State or other  jurisdiction of  incorporation or organization) |   | (I.R.S. Employer  Identification Number) |

 

**6113 Lemmon Avenue**

**Dallas, Texas 75209**

(Address of principalexecutive offices)

(zip code)

 

**Telephone Number (214) 352-8481**

(Registrant’s telephonenumber, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reportsrequired to be filed by Section 13 or 15(d) of the Securities Exchange Act of1934 during the preceding 12 months (or for such shorter period that theregistrant was required to file such reports), and (2) has been subject to suchfiling requirements for the past 90 days.

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

 

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

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

 

As of May 12, 2003, there were 6,418,426 shares of the registrant’scommon stock outstanding.

 

 

----

 

**HaggarCorp. and Subsidiaries**

 

**Index**

 
| Part I. Financial  Information |                                                                                                       |
|--------------------------------|------------------------------------------------------------------------------------------------------------|
|                           |                                                                                                       |   |
|                           | Item 1. Financial Statements                                                                               |   |
|                           |                                                                                                       |   |   |
|                           |                                                                                                       | Consolidated Balance Sheets  (As of March 31, 2003 (unaudited) and September 30, 2002) |   |
|                           |                                                                                                       |   |   |
|                           |                                                                                                       | Consolidated Statements of  Operations and Comprehensive Income (unaudited)  (Three and six months ended March 31, 2003 and 2002) |
|                           |                                                                                                       |   |   |
|                           |                                                                                                       | Consolidated  Statements Of Cash Flows (unaudited)  (Six months ended March 31, 2003 and 2002) |
|                           |                                                                                                       |   |
|                           |                                                                                                       | Notes to Consolidated Financial  Statements (unaudited) |
|                           |                                                                                                       |   |   |
|                           | 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 6.  Exhibits and Reports on Form 8-K                                                             |   |
|                           |                                                                                                       |   |
| Signature                      |
|                           |                                                                                                       |   |
| Certifications                 |

 

2

----

 

**Haggar Corp.****and Subsidiaries**

 

**ConsolidatedBalance Sheets**

*(in thousands, except share amounts)*

 
|                                                                                                                                            |   | **March 31,  2003** |    | **September  30,  2002** |    |
|-------------------------------------------------------------------------------------------------------------------------------------------------|--------|---------------------|---------|--------------------------|---------|
| **Assets**                                                                                                                                      |   | **(unaudited)**     |    |                     |    |
| Current assets:                                                                                                                                 |   |                |    |                     |    |
| Cash and cash  equivalents                                                                                                                      |   | $                   | 6,150   |                     | $       | 4,124 |   |
| Accounts  receivable, net                                                                                                                       |   | 68,161              |    | 64,284                   |    |
| Inventories, net                                                                                                                                |   | 98,173              |    | 100,996                  |    |
| Property held  for sale                                                                                                                         |   | —              |    | 2,157                    |    |
| Deferred tax  benefit                                                                                                                           |   | 11,410              |    | 12,087                   |    |
| Other current  assets                                                                                                                           |   | 4,439               |    | 2,766                    |    |
| Total current assets                                                                                                                            |   | 188,333             |    | 186,414                  |    |
|                                                                                                                                            |   |                |    |                     |    |
| Property, plant,  and equipment, net                                                                                                            |   | 42,521              |    | 46,195                   |    |
| Goodwill, net                                                                                                                                   |   | 9,472               |    | 9,472                    |    |
| Other assets                                                                                                                                    |   | 7,949               |    | 7,896                    |    |
| Total assets                                                                                                                                    |   | $                   | 248,275 |                     | $       | 249,977 |   |
|                                                                                                                                            |   |                |    |                     |    |
| **Liabilities and Stockholders’  Equity**                                                                                                  |   |                |    |                     |    |
| Current  liabilities:                                                                                                                           |   |                |    |                     |    |
| Accounts payable                                                                                                                                |   | $                   | 27,654  |                     | $       | 30,542 |   |
| Accrued  liabilities                                                                                                                            |   | 27,249              |    | 35,669                   |    |
| Accrued wages  and other employee compensation                                                                                                  |   | 4,916               |    | 6,713                    |    |
| Current portion  of long-term debt                                                                                                              |   | 3,671               |    | 3,742                    |    |
| Total current  liabilities                                                                                                                      |   | 63,490              |    | 76,666                   |    |
|                                                                                                                                            |   |                |    |                     |    |
| Other accrued  liabilities                                                                                                                      |   | 9,224               |    | 8,247                    |    |
| Long-term debt                                                                                                                                  |   | 32,671              |    | 21,343                   |    |
| Total  liabilities                                                                                                                              |   | 105,385             |    | 106,256                  |    |
|                                                                                                                                            |   |                |    |                     |    |
| Commitments and  contingencies                                                                                                                  |   |                |    |                     |    |
|                                                                                                                                            |   |                |    |                     |    |
| Stockholders’  equity:                                                                                                                     |   |                |    |                     |    |
|                                                                                                                                            |   |                |    |                     |    |
| Common stock –  par value $0.10 per share; 25,000,000 shares authorized; 8,660,609 shares  issued at March 31, 2003 and September 30, 2002 |   | 866                 |    | 866                      |    |
| Additional  paid-in capital                                                                                                                     |   | 42,911              |    | 42,911                   |    |
| Cumulative  translation adjustment                                                                                                              |   | (549                | )       | (534                     | )  |
| Retained  earnings                                                                                                                              |   | 124,623             |    | 125,439                  |    |
|                                                                                                                                            |   | 167,851             |    | 168,682                  |    |
| Less – Treasury  stock, 2,242,183 shares at cost at March 31, 2003 and September 30, 2002                                                  |   | (24,961             | )       | (24,961                  | )  |
| Total  stockholders’ equity                                                                                                                |   | 142,890             |    | 143,721                  |    |
| Total liabilities  and stockholders’ equity                                                                                                |   | $                   | 248,275 |                     | $       | 249,977 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

3

----

 

**HaggarCorp. and Subsidiaries**

 

**Consolidated Statements of Operations and ComprehensiveIncome**

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

 
|                                                                                                   |   | **Three  Months Ended  March 31,** |    | **Six Months  Ended  March 31,** |   |
|--------------------------------------------------------------------------------------------------------|--------|------------------------------------|---------|----------------------------------|--------|
|                                                                                                   |   | **2003**                           |    | **2002**                         |   | **2003** |   | **2002** |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Net sales                                                                                              |   | $                                  | 135,487 |                             | $      | 138,059 |   | $ | 249,394 |   | $ | 237,390 |   |
| Cost of goods  sold                                                                                    |   | 100,638                            |    | 102,841                          |   | 185,921 |   | 173,784 |   |
| Reorganization  costs                                                                                  |   | —                             |    | (1,157                           | )      | — |   | (1,157 | ) |
| Gross profit                                                                                           |   | 34,849                             |    | 36,375                           |   | 63,473 |   | 64,763 |   |
| Selling, general  and administrative expenses                                                          |   | (32,012                            | )       | (29,183                          | )      | (63,543 | ) | (56,892 | ) |
| Royalty income                                                                                         |   | 300                                |    | 332                              |   | 675 |   | 728 |   |
| Other income,  net                                                                                     |   | 533                                |    | 11                               |   | 480 |   | 59 |   |
| Interest expense                                                                                       |   | (648                               | )       | (1,095                           | )      | (1,383 | ) | (2,106 | ) |
| Income (loss)  before provision (benefit) for income taxes and cumulative effect of  accounting change |   | 3,022                              |    | 6,440                            |   | (298 | ) | 6,552 |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Provision  (benefit) for income taxes                                                                  |   | 1,191                              |    | 2,502                            |   | (124 | ) | 2,543 |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Income (loss)  before cumulative effect of accounting change                                           |   | $                                  | 1,831   |                             | $      | 3,938 |   | $ | (174 | ) | $ | 4,009 |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Cumulative  effect of accounting change                                                                |   | —                             |    | —                           |   | — |   | (15,578 | ) |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Net income  (loss)                                                                                     |   | $                                  | 1,831   |                             | $      | 3,938 |   | $ | (174 | ) | $ | (11,569 | ) |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Other  comprehensive income (loss):                                                                    |   |                               |    |                             |   |   |   |   |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Cumulative  translation adjustment                                                                     |   | $                                  | (111    | )                                | $      | (99 | ) | $ | (15 | ) | $ | (140 | ) |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Comprehensive  income (loss)                                                                           |   | $                                  | 1,720   |                             | $      | 3,839 |   | $ | (189 | ) | $ | (11,709 | ) |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| NET INCOME  (LOSS) PER COMMON SHARE:                                                                   |   |                               |    |                             |   |   |   |   |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| BASIC AND  DILUTED                                                                                     |   |                               |    |                             |   |   |   |   |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Income (loss)  before cumulative effect of accounting change                                           |   | $                                  | 0.29    |                             | $      | 0.62 |   | $ | (0.03 | ) | $ | 0.63 |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Cumulative  effect of accounting change                                                                |   | —                             |    | —                           |   | — |   | (2.44 | ) |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Net income  (loss)                                                                                     |   | $                                  | 0.29    |                             | $      | 0.62 |   | $ | (0.03 | ) | $ | (1.81 | ) |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Weighted average  number of common shares outstanding:                                                 |   |                               |    |                             |   |   |   |   |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Basic                                                                                                  |   | 6,418                              |    | 6,356                            |   | 6,418 |   | 6,368 |   |
|                                                                                                   |   |                               |    |                             |   |   |   |   |   |
| Diluted                                                                                                |   | 6,430                              |    | 6,391                            |   | 6,418 |   | 6,368 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

4

----

 

**Haggar Corp. and Subsidiaries**

 

**Consolidated Statements of Cash Flows**

*(unaudited, in thousands)*

 
|                                                                         |   | **Six Months  Ended  March 31,** |   |
|------------------------------------------------------------------------------|--------|----------------------------------|--------|
|                                                                         |   | **2003**                         |   | **2002** |   |
|                                                                         |   |                             |   |   |   |
| **Cash  Flows from Operating Activities**                                    |   |                             |   |   |   |
| Net loss                                                                     |   | $                                | (174   | ) | $ | (11,569 | ) |
| Adjustments to  reconcile net loss to net cash used in operating activities: |   |                             |   |   |   |
| Cumulative  effect of accounting change                                      |   | —                           |   | 15,578 |   |
| Revision of net  realizable value on property held for sale                  |   | —                           |   | (2,157 | ) |
| Gain on disposal  of property, plant and equipment                           |   | (279                             | )      | — |   |
| Depreciation and  amortization                                               |   | 4,225                            |   | 4,348 |   |
| Deferred tax  benefit                                                        |   | 392                              |   | 1,061 |   |
| Changes in  assets and liabilities:                                          |   |                             |   |   |   |
| Accounts  receivable, net                                                    |   | (3,877                           | )      | (4,822 | ) |
| Inventories, net                                                             |   | 2,823                            |   | 1,619 |   |
| Other current  assets                                                        |   | (1,673                           | )      | (72 | ) |
| Accounts payable                                                             |   | 1,451                            |   | (10,290 | ) |
| Accrued  liabilities                                                         |   | (8,420                           | )      | 2,232 |   |
| Accrued wages  and other employee compensation                               |   | (1,797                           | )      | (3,407 | ) |
| Other accrued  liabilities                                                   |   | 977                              |   | 433 |   |
| Net cash used in  operating activities                                       |   | (6,352                           | )      | (7,046 | ) |
|                                                                         |   |                             |   |   |   |
| **Cash  Flows from Investing Activities**                                    |   |                             |   |   |   |
| Purchases of  property, plant and equipment, net                             |   | (483                             | )      | (1,244 | ) |
| Proceeds from  the sale of property, plant and equipment                     |   | 2,493                            |   | — |   |
| Decrease  (increase) in other assets                                         |   | 107                              |   | (316 | ) |
| Net cash  provided by (used in) investing activities                         |   | 2,117                            |   | (1,560 | ) |
|                                                                         |   |                             |   |   |   |
| **Cash  Flows from Financing Activities**                                    |   |                             |   |   |   |
| Purchase of  treasury stock at cost                                          |   | —                           |   | (351 | ) |
| Proceeds from  issuance of long-term debt                                    |   | 157,000                          |   | 259,000 |   |
| Payments on  long-term debt                                                  |   | (145,743                         | )      | (251,269 | ) |
| Decrease in book  overdrafts                                                 |   | (4,339                           | )      | — |   |
| Payments of cash  dividends                                                  |   | (642                             | )      | (637 | ) |
| Net cash  provided by financing activities                                   |   | 6,276                            |   | 6,743 |   |
|                                                                         |   |                             |   |   |   |
| Effects of  exchange rates on cash and cash equivalents                      |   | (15                              | )      | (140 | ) |
|                                                                         |   |                             |   |   |   |
| Increase  (decrease) in cash and cash equivalents                            |   | 2,026                            |   | (2,003 | ) |
| Cash and cash  equivalents, beginning of period                              |   | 4,124                            |   | 7,800 |   |
| Cash and cash  equivalents, end of period                                    |   | $                                | 6,150  |   | $ | 5,797 |   |

 

The accompanying notesare an integral part of these consolidated financial statements.

 

5

----

 

**HaggarCorp. and Subsidiaries**

 

**Notes to Consolidated Financial Statements**

*(unaudited)*

 

**1.  Basis of Presentation**

 

*Financial Statement Presentation*

 

The consolidated balance sheet as of March 31, 2003, the consolidatedstatements of operations and comprehensive income for the three and six monthsended March 31, 2003 and 2002, and the consolidated statements of cash flowsfor the six months ended March 31, 2003 and 2002, have been prepared by HaggarCorp. (together with its subsidiaries, the “Company”) without audit.  The consolidated balance sheet as ofSeptember 30, 2002 has been derived from the Company's audited financialstatements as of that date but does not include all of the information andfootnotes required by generally accepted accounting principles for completefinancial statements.  In the opinion ofmanagement, all necessary adjustments (which include only normal recurringadjustments) to present fairly the consolidated financial position, results ofoperations, and cash flows of the Company at March 31, 2003, and for all otherperiods presented, have been made.  Aspermitted under Securities and Exchange Commission rules for interim financialreporting,  certain information andfootnote disclosures normally included in the financial statements prepared inaccordance with generally accepted accounting principles have beenomitted.  These financial statementsshould be read in conjunction with the financial statements and accompanyingfootnotes thereto in the Company’s Annual Report on Form 10-K, as amended, forthe fiscal year ended September 30, 2002.

 

*Accounting for Stock BasedCompensation*

 

The Company has had, since 1992, a long-term incentive plan, whichauthorizes the grant of stock options to key employees. The options vest over aperiod of three to five years and expire ten years from the date of grant. Theoptions are issued at an exercise price not less than the fair market value ofthe Company’s common stock on the date of the grant. The long-term incentiveplan allows for 1,750,000 shares to be granted.  On October 21, 2002, in accordance with the terms of the plan,this long-term incentive plan terminated and, accordingly, no further optionsmay be granted under the plan.  Thefollowing table summarizes the changes in common stock options during the sixmonths ended March 31, 2003:

|                                          |   | **Shares** |   | **Weighted  Average  Exercise Price** |   |
|-----------------------------------------------|--------|------------|--------|---------------------------------------|--------|
|                                          |   |       |   |                                  |   |
| Options  outstanding as of September 30, 2002 |   | 1,420,775  |   | $                                     | 12.61  |   |
|                                          |   |       |   |                                  |   |
| Options granted                               |   | —     |   | —                                |   |
| Options  exercised                            |   | —     |   | —                                |   |
| Options canceled                              |   | (157,330   | )      | $                                     | 13.62  |   |
| Options  outstanding as of March 31, 2003     |   | 1,263,445  |   | $                                     | 12.48  |   |
| Options  exercisable as of March 31, 2003     |   | 1,239,445  |   | $                                     | 12.46  |   |

 

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

 

6

----

 
|                                                                                         |   | **Three  Months Ended  March 31,** |   | **Six Months  Ended  March 31,** |   |
|----------------------------------------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                                                                         |   | **2003**                           |   | **2002**                         |   | **2003** |   | **2002** |   |
| Net income  (loss):                                                                          |   |                               |   |                             |   |   |   |   |   |
| As reported                                                                                  |   | $                                  | 1,831  |                             | $      | 3,938 |   | $ | (174 | ) | $ | (11,569 | ) |
| Add back:  Stock-based employee compensation included  in net income (loss) as reported |   | —                             |   | —                           |   | — |   | — |   |
| Less:  Pro-forma stock-based employee  compensation expense, net of related tax effects |   | (25                                | )      | (126                             | )      | (50 | ) | (252 | ) |
|                                                                                         |   |                               |   |                             |   |   |   |   |   |
| Pro-forma net  income (loss)                                                                 |   | $                                  | 1,806  |                             | $      | 3,812 |   | $ | (224 | ) | $ | (11,821 | ) |
| Net income  (loss) per common share on a basic and diluted basis:                            |   |                               |   |                             |   |   |   |   |   |
| As reported                                                                                  |   | $                                  | 0.29   |                             | $      | 0.62 |   | $ | (0.03 | ) | $ | (1.81 | ) |
| Pro forma                                                                                    |   | $                                  | 0.28   |                             | $      | 0.60 |   | $ | (0.03 | ) | $ | (1.86 | ) |

 

On May 1, 2003, the Company adopted a new stockholder approvedlong-term incentive plan which authorizes the Company to issue up to 575,000additional shares in connection with options granted to directors, officers oremployees of the Company.  The terms andvesting periods will be determined as each option is granted, but the optionprice cannot be less than the then current market value of the common stock atthe grant date.

 

*Reclassifications*

 

Certain items in the prior period presentation have been reclassifiedto conform to the current period presentation.

 

**2.  Inventories, net**

 

Inventories, net are stated at the lower of cost (first-in, first-out)or market and consisted of the following at March 31, 2003, and September 30,2002 *(in thousands)*:

 

|                      |   | **March 31,  2003** |   | **September  30,  2002** |   |
|---------------------------|--------|---------------------|--------|--------------------------|--------|
| Piece goods               |   | $                   | 7,856  |                     | $      | 8,270 |   |
| Trimmings &  supplies |   | 2,385               |   | 2,908                    |   |
| Work-in-process           |   | 7,865               |   | 8,143                    |   |
| Finished  garments        |   | 81,888              |   | 83,742                   |   |
|                      |   | $                   | 99,994 |                     | $      | 103,063 |   |
| Inventory  reserves       |   | (1,821              | )      | (2,067                   | )      |
| Total  inventories, net   |   | $                   | 98,173 |                     | $      | 100,996 |   |

 

Work-in-process and finished garments inventories consisted ofmaterials, labor and manufacturing overhead. Inventory reserves as of March 31, 2003, and September 30, 2002consisted primarily of allowances for slow moving and obsolete piece goods and trimmingsupplies that are not forecasted to be used in production as well as reservesto reflect estimated physical count differences based on the results of cyclecounts performed.

 

7

----

 

**3.  Asset Impairment – Goodwill**

 

On October 1, 2001, the Company adopted Statement of FinancialAccounting Standards No. 142 (“SFAS No. 142”), “Goodwill and Other IntangibleAssets”, and recorded a $15.6 million impairment of goodwill related to the1999 acquisition of Jerell, Ltd. (“Jerell”), the Company’s women’s wearsubsidiary.  Subsequent to theacquisition, pricing pressures and a weak retail environment for women’sapparel resulted in a revised earnings forecast for Jerell and the women’s wearbusiness.  In order to determine thefair value of goodwill, the Company obtained an independent appraisal, whichconsidered both prices of comparable businesses and the discounted value ofprojected cash flows.  There was no taxbenefit associated with the impairment charge.

 

**4.  Long-Term Debt**

 

Long-term debt consisted of the following at March 31, 2003, andSeptember 30, 2002 *(in thousands)*:

 

|                                    |   | **March 31,  2003** |   | **September  30,  2002** |   |
|-----------------------------------------|--------|---------------------|--------|--------------------------|--------|
| Borrowings under  revolving credit line |   | $                   | 27,000 |                     | 12,000 |   |
| Industrial  Development Revenue Bonds   |   | 2,200               |   | 2,300                    |   |
| Senior notes                            |   | 7,142               |   | 10,715                   |   |
| Other                                   |   | —              |   | 70                       |   |
| Total debt                              |   | 36,342              |   | 25,085                   |   |
| Less – current  portion            |   | (3,671              | )      | (3,742                   | )      |
| Long-term debt                          |   | $                   | 32,671 |                     | $      | 21,343 |   |
|                                         |        |                     |        |                          |        |  |  |

 

As of March 31, 2003, the Company had $27.0 million outstanding underthe $110.0 million unsecured revolving credit line agreement (the"Agreement") and additional available borrowing capacity isrestricted to $15.7 million under the Agreement’s funded debt to operating cashflow covenant.  The Company incurredapproximately $0.1 million in commitment fees related to the availableborrowing capacity during the six months ended March 31, 2003.  The interest rates ranged from 2.52% to4.75% during the six month period ended March 31, 2003 and were based onvariable market rates (LIBOR or prime rate). The weighted average interest rate at March 31, 2003, was 3.00%.  The Agreement prohibits the Company frompledging its accounts receivables and inventories, contains limitations onincurring additional indebtedness, requires maintaining minimum net worthlevels of the Company and the Company’s main operating subsidiary, and requiresthe maintenance of certain financial ratios. The Agreement also prohibits the payment of any dividend if a default existsafter giving effect to such a dividend.

 

Certain of the Company’s long-term debt facilities contain restrictionson the ability of the Company’s subsidiaries to transfer funds to the Company.

 

**5.  2002 Business Reorganization**

 

The Company’s strategy has been to source production internationally inorder to remain competitive in the apparel marketplace and to providehigh-quality, low-cost products as a value to its customers.  The 2002 reorganization activities are aresult of this strategy.

 

On January 8, 2002, the Company announced plans to close its cuttingfacility in Weslaco, Texas. Accordingly, the Company recorded a $1.0 million charge to operations inreorganization costs for the quarter ending March 31, 2002.  All 142 employees at the Weslaco facilitywere terminated in conjunction with the closure, which was completed in June2002.  The plan has been executed andactual amounts paid pursuant to the plan approximated the initial $1.0 millioncharge.

 

In conjunction with the closure of the Edinburg, Texas manufacturingfacility in fiscal 2001, the net book value of the facility of $2.2 million waswritten off since the net realizable value of the facility was expected to beinsignificant.  Subsequent to marketingthis facility nationally, having appraisals completed on the property, andreceiving an initial offer for this facility during the second quarter offiscal 2002 (in excess of the pre-closure net book value), the Company reversedthe original facility write-down and classified the facility as an asset heldfor

 

8

----

 

sale.  The $2.2 million reversalwas recorded as a credit to reorganization costs in the income statement in thesecond quarter of fiscal 2002.  On March24, 2003, the Company sold the building for net cash proceeds of $2.5million.  The sale resulted in a pre-taxgain of approximately $0.3 million which was recorded in other income, net.

 

The following summarizes the reorganization costs for the three and sixmonth periods ended March 31, 2002 *(inthousands)*:

 
| Weslaco, Texas  cutting facility closing      |   | $      | 1,000  |   |
|-----------------------------------------------|--------|--------|--------|--------|
|                                          |   |   |   |
| Edinburg, Texas  facility write-down reversal |   | (2,157 | )      |
|                                          |   |   |   |
| Total  reorganization costs                   |   | $      | (1,157 | )      |

 

**6.  Segment Reporting**

 

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 throughout North America and the United Kingdom.  The Company also operates a retail segment,which markets Haggar® branded products through 64 Company-operated storeslocated in its Dallas headquarters and in outlet malls throughout the UnitedStates, and a licensing segment, which generates royalty income by licensingthe Company’s trademarks for use by other manufacturers of specified productsin specified geographic areas.  Theretail and licensing segments are not material for separate disclosure, andhave been combined in the results below. The Company evaluates performance and allocates resources based onsegment 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 ofsegment net income before interest expense and provision (benefit) for incometaxes and cumulative effect of accounting change.

 

The table below reflects the Company’ssegment results for all periods presented.

 
| **Three Months Ended  March 31,** |   | **Wholesale**        |    | **Retail and****Other** |   | **Consolidated** |   |
|-----------------------------------|--------|----------------------|---------|-------------------------|--------|------------------|--------|
|                              |   | ***(In thousands)*** |    |
|                              |   |                 |    |
| **2003**                          |   |                 |    |                    |   |             |   |
| Net sales                         |   | $                    | 126,744 |                    | $      | 8,743            |   | $ | 135,487 |   |
| Segment profit  (loss)            |   | $                    | 4,960   |                    | $      | (1,290           | )      | $ | 3,670 |   |
|                              |   |                 |    |                    |   |             |   |
| **2002**                          |   |                 |    |                    |   |             |   |
| Net sales                         |   | $                    | 128,932 |                    | $      | 9,127            |   | $ | 138,059 |   |
| Segment profit  (loss)            |   | $                    | 8,757   |                    | $      | (1,222           | )      | $ | 7,535 |   |

 
| **Six Months  Ended  March 31,** |   | **Wholesale**        |       | **Retail and  Other** |   | **Consolidated** | ** ** |
|----------------------------------|--------|----------------------|------------|-----------------------|--------|------------------|------------|
|                             |   | ***(In thousands)*** | ** ** |
|                             |   |                 |       |                  |   |             |       |
| **2003**                         |   |                 |       |                  |   |             |       |
| Net sales                        |   | $                    | 227,087    |                  | $      | 22,307           |       | $ | 249,394 |   |
| Segment profit  (loss)           |   | $                    | 1,934      |                  | $      | (849             | )          | $ | 1,085 |   |
|                             |   |                 |       |                  |   |             |       |
| **2002**                         |   |                 |       |                  |   |             |       |
| Net sales                        |   | $                    | 214,292    |                  | $      | 23,098           |       | $ | 237,390 |   |
| Segment profit  (loss)           |   | $                    | 9,252      |                  | $      | (594             | )          | $ | 8,658 |   |

 

9

----

 

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

 
|                                                                                                                |   | **Three  Months  Ended March 31,** |   | **Six Months  Ended  March 31,** |   |
|---------------------------------------------------------------------------------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                                                                                                |   | **2003**                           |   | **2002**                         |   | **2003** |   | **2002** |   |
| Segment profit                                                                                                      |   | $                                  | 3,670  |                             | $      | 7,535 |   | $ | 1,085 |   | $ | 8,658 |   |
| Interest expense                                                                                                    |   | (648                               | )      | (1,095                           | )      | (1,383 | ) | (2,106 | ) |
| Consolidated  income (loss) before provision (benefit) for income taxes and cumulative  effect of accounting change |   | $                                  | 3,022  |                             | $      | 6,440 |   | $ | (298 | ) | $ | 6,552 |   |

 

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

 

**7.  Commitments and Contingencies**

 

On February 14, 2003, the Company entered into a contract with a third partyfor the sale of its corporate headquarters facility.  The Company has until June 2, 2003 to cancel the sale contractwithout penalty.  On May 9, 2003, theCompany entered into a contract for the purchase of a new corporateheadquarters facility.  The Company hasuntil July 8, 2003 to cancel the purchase contract without penalty.  In the event of a relocation, the Companywill incur costs to exit the current facility and move to a new corporateheadquarters.

 

In November 2002, co-trustees of a trust which owns shares of theCompany’s common stock filed preliminary proxy materials with the Securitiesand Exchange Commission indicating that they intended to solicit stockholdersin support of their own slate of directors. The Company entered into an agreement to settle this proxy contest inFebruary 2003.    The Company incurred$0.9 million and $1.2 million in legal and professional fees during the threeand six months ended March 31, 2003 related to this matter.  As of March 31, 2003, $0.2 million of thesefees remained to be paid and were included in accrued liabilities.

 

The Company is involved in various other claims and lawsuits incidentalto its business. Management believes that the disposition of these claims andsuits in the aggregate will not have a material adverse effect on the Company.

 

In November 2002, the FASB issued FASB Interpretation No. 45,“Guarantor’s Accounting and Disclosure Requirements for Guarantees, IncludingIndirect Guarantees of Indebtedness of Others,” which elaborates on requireddisclosures by a guarantor in its financial statements about obligations undercertain guarantees that it has issued and clarifies the need for a guarantor torecognize, at the inception of certain guarantees, a liability for the fairvalue of the obligation undertaken in issuing the guarantee.  The initial recognition and measurementprovisions are to be applied on a prospective basis for qualifying guaranteesentered into or modified after December 31, 2002.  However, any qualifying guarantees entered into before December31, 2002, must be disclosed in the footnotes for interim or annual financialstatement periods that end after December 15, 2002.

 

The only qualifying guarantee that requires disclosure is a December1999 operating lease of the Company’s corporate aircraft which contains aresidual guarantee.  Under the leasewhich ends in December 2004, the Company has the option of (a) returning theaircraft to the lessor and paying the guaranteed residual value of $3.0million; (b) purchasing the aircraft for $4.0 million; or (c) arranging for thesale of the aircraft to a third party. If the sales proceeds are less than $4.0 million, the Company isrequired to reimburse the lessor for the deficiency.  If the sales proceeds exceed $4.0 million, the Company isentitled to all of such excess amounts.

 

Based on an estimated $3.1 million market value for the aircraft whenthe lease ends in 2004, the Company began accruing the $0.9 million expecteddeficiency in the three months ended March 31, 2003.  As of March 31, 2003, the Company included $0.1 million in otheraccrued liabilities related to the deficiency. The remainder will be

 

10

----

 

accreted up to the $0.9 million expected deficiency using the straight-linemethod through the end of the lease term.

 

**8. Shipping and Handling Fees**

 

The Company records shipping and handling fees as selling, general andadministrative expense.  For the threeand six months ended March 31, 2003, such costs were $3.2 million and $6.5million, respectively.  For the threeand six months ended March 31, 2002, such costs were $2.8 million and $5.6million, respectively.

 

**9.  Net Income (Loss) Per Common Share - Basicand Diluted**

 

The following table sets forth the computation of basic and dilutedweighted average common shares:

 
|                                         |   | **Three  Months Ended  March 31,** |   | **Six Months  Ended  March 31,** |   |
|----------------------------------------------|--------|------------------------------------|--------|----------------------------------|--------|
|                                         |   | **2003**                           |   | **2002**                         |   | **2003** |   | **2002** |   |
|                                         |   |                               |   |                             |   |   |   |   |   |
| Weighted average  common shares outstanding  |   | 6,418                              |   | 6,356                            |   | 6,418 |   | 6,368 |   |
| Shares  equivalents, due to stock options    |   | 12                                 |   | 35                               |   | — |   | — |   |
| Weighted average  diluted shares outstanding |   | 6,430                              |   | 6,391                            |   | 6,418 |   | 6,368 |   |

 

Options to purchase 640,280 shares were excluded from the dilutedearnings per share calculations for the three months ended March 31, 2003because the options’ exercise prices were greater than the average market priceof the common shares during the period. Options to purchase 1,263,445 shares were excluded from the dilutedearnings per share calculations for the six months ended March 31, 2003 due tothe net loss recorded during the period.

 

Options to purchase 775,040 and 806,050 shares were excluded from thediluted earnings per share calculations for the three and six months endedMarch 31, 2002, because the options’ exercise prices were greater than theaverage market price of the common shares during the period.

 

**10.  Dividends**

 

During the second quarter of fiscal 2003, the Company declared a cashdividend of $0.05 per share payable to the stockholders of record on May 12,2003, which will be paid on May 26, 2003. The first quarter of fiscal 2003 dividend of approximately $0.3 millionwas paid in February 2003.

 

**11.  Related Party Transactions**

 

A director of the Company is a partner of a law firm that renderedvarious legal services for the Company during the three and six months endedMarch 31, 2003 and 2002.  The Companypaid the law firm approximately $0.2 million and $0.3 million for legalservices during the three and six months ended March 31, 2003,respectively.  The Company paid the lawfirm approximately $0.3 million and $0.5 million for legal services during thethree and six months ended March 31, 2002, respectively.  There were no amounts due to such firm fromthe Company as of March 31, 2003 and September 30, 2002.

 

**12. Recently Issued Financial Accounting Standards**

 

In January 2003, the FASB issued FASB Interpretation No. 46,“Consolidation of Variable Interest Entities – an Interpretation of ARB No.51,” which addresses consolidation of variable interest entities (“VIEs”) towhich the usual consolidation described in Accounting Research Bulletin No. 51,“Consolidated Financial Statements,” does not apply because the VIEs have novoting interests or otherwise are not subject to control through ownership ofvoting interests.  FASB InterpretationNo. 46 requires existing unconsolidated VIEs to be consolidated by theirprimary beneficiaries if the entities do not effectively disperse risks amongparties involved.  The provisions of theinterpretation are effective immediately for VIEs created after January 31,2003, and to VIEs in which an entity obtains an interest after that date.  An entity with a variable interest in a VIEcreated

 

11

----

 

before February 1, 2003, must apply the provisions no later than thefirst reporting period beginning after June 15, 2003.  The interpretation may be applied prospectively with acumulative-effect adjustment as of the date on which it is first applied or byrestating previously issued financial statements.   The Company has adopted the interpretation and has determined itis not party to any VIEs that would require consolidation.

 

12

----

 

**Item2. Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

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 thereto andthe Company’s Annual Report on Form 10-K, as amended, for the fiscal year endedSeptember 30, 2002.

 

**Forward Looking Statements**

 

This Quarterly Report on Form 10-Q includes forward-looking statementswithin the meaning of Section 27A of the Securities Act of 1933 (the“Securities Act”) and Section 21E of the Securities Exchange Act of 1934 (the“Exchange Act”).  All statements otherthan statements of historical facts contained in this report, includingstatements regarding the Company’s future financial position, business strategyand plans and objectives of management for future operations, areforward-looking statements.  The words“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 subject to a number of knownand unknown risks, uncertainties and assumptions that could affect the resultsof the Company or the apparel industry generally and could cause the Company’sactual results to differ materially from those expressed in this QuarterlyReport on Form 10-Q.  These risks,uncertainties and assumptions are described in “Item 1.  Business” of the Company’s Annual Report onForm 10-K, as amended, for the fiscal year ended September 30, 2002, andinclude, among other things:

 

•        changes in general business conditions,

 

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

 

•        seasonality of the Company’s business,

 

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

 

•        impact of competition in the apparelindustry,

 

•        availability and cost of raw materials,

 

•        changes in laws and other regulatoryactions,

 

•        changes in labor relations,

 

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

 

•                       unexpectedjudicial decisions,

 

•                       changes ininterest rates and capital market conditions,

 

•                       acquisitionsor dissolution of business enterprises, including the ability to integrate acquiredbusinesses effectively,

 

•                       naturaldisasters, and

 

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

 

13

----

 

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 casual and dressmen’s and women’s apparel products, including pants, shorts, suits, sportcoats,sweaters, shirts, dresses, skirts and vests in the United States andabroad.  The Company’s operations areorganized into three business units, wholesale, retail and licensing, each ofwhich 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 64Company-operated retail stores located in its Dallas headquarters and in outletmalls throughout the United States.  TheCompany’s licensing segment generates royalty income by licensing the Company’strademarks for use by other manufacturers of specified products in specifiedgeographic regions.

 

**CriticalAccounting Policies**

 

There have been no material changes to the Company’s criticalaccounting policies during the six months ended March 31, 2003.

 

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

 

While the Company believes that the historical experience and otherfactors considered provide a meaningful basis for the accounting policiesapplied in the preparation of the consolidated financial statements, theCompany cannot guarantee that its estimates and assumptions will beaccurate.  If such estimates andassumptions prove to be inaccurate, the Company may be required to makeadjustments to these estimates in future periods.

 

**BusinessReorganization**

 

The Company’s strategy has been to sourceproduction internationally in order to remain competitive in the apparelmarketplace and to provide high-quality, low-cost products as a value to itscustomers.  The 2002 and 2001reorganizations are the results of this strategy.

 

14

----

 

*2002Reorganization*

 

On January 8, 2002, the Company announced plans to close its cuttingfacility in Weslaco, Texas. Accordingly, the Company recorded a $1.0 million charge to operations inreorganization costs for the quarter ending March 31, 2002.  All 142 employees at the Weslaco facilitywere terminated in conjunction with the closure, which was completed in June2002.  The plan has been executed andactual amounts paid pursuant to the plan approximated the initial $1.0 millioncharge.

 

In conjunction with the closure of the Edinburg, Texas manufacturingfacility in fiscal 2001 (see *2001Reorganization* below), the net book value of the facility of $2.2million was written off since the net realizable value of the facility wasexpected to be insignificant. Subsequent to marketing this facility nationally, having appraisalscompleted on the property, and receiving an initial offer for this facilityduring the second quarter of fiscal 2002 (in excess of the pre-closure net bookvalue), the Company reversed the original facility write-down and classifiedthe facility as an asset held for sale. The $2.2 million reversal was recorded as a credit to reorganizationcosts in the income statement in the second quarter of fiscal 2002.  On March 24, 2003, the Company sold thebuilding for net cash proceeds of $2.5 million.  The sale resulted in a pre-tax gain of approximately $0.3 millionwhich was recorded in other income, net.

 

The following summarizes the reorganization costs for the three and sixmonth periods ended March 31, 2002 *(inthousands)*:

 
| Weslaco, Texas  cutting facility closing      |   | $      | 1,000  |   |
|-----------------------------------------------|--------|--------|--------|--------|
|                                          |   |   |   |
| Edinburg, Texas  facility write-down reversal |   | (2,157 | )      |
|                                          |   |   |   |
| Total  reorganization costs                   |   | $      | (1,157 | )      |

 

On September 30, 2002, the Company announced plans to close one of itsmanufacturing facilities in the Dominican Republic.  Accordingly, the Company recorded a $0.6 million pre-tax chargeto operations in reorganization costs in the fourth quarter of fiscal2002.  All 341 employees at the facilitywere terminated in conjunction with the closure, which was completed inNovember 2002.  Severance payments of$0.5 million and other employee termination and administrative costs of $0.1million were paid during the six months ended March 31, 2003.

 

In addition to the reorganization activities noted above, the Companyreduced its sales force during the fourth quarter of fiscal 2002, terminating 6employees.  As a result, the Companyrecorded a $1.0 million pre-tax charge to operations in selling, general andadministrative expenses.   The Companypaid $0.4 million in severance payments during the six months ended March 31,2003, and periodic severance payments to these terminated employees will continuethrough January 2004.  The remaining$0.6 million in severance payments have been included in accrued liabilities asof March 31, 2003.

 

*2001Reorganization*

 

On March 26, 2001, the Company announced plans to close itsmanufacturing facility in Edinburg, Texas, and its operations in Japan.  The Company recorded a $20.8 million chargeto operations in the quarter ended March 31, 2001.  The charge consisted of $8.6 million in legal costs, $8.1 millionin employee termination and related costs, $3.1 million in plant and equipmentimpairments and $1.0 million in other asset write downs.

 

Severance and other employee related payments of $6.0 million have beenmade as of March 31, 2003, and all other employee termination costs of $0.9million are expected to be paid by the end of fiscal 2003.  A $0.7 million pre-tax reduction of thecharges for the 2001 reorganization was credited to operations in the fourthquarter of fiscal 2001 as a result of lower than expected costs related toterminated employees and better than

 

15

----

 

expected recoveries on equipment, offset by lower than anticipatedrecoveries on inventories and receivables in Japan.

 

The $8.6 million charge for legal costs included a $1.6 million cashsettlement for certain claims and $7.0 million for estimated losses onunsettled claims against the Company, including two jury verdicts totaling $5.2million, which were returned against subsidiaries of the Company. One of theverdicts was settled on September 30, 2002 for $1.3 million.  The other case is currently on appeal.  Many of the legal claims against the Companyrelate to claims for wrongful discharge and common law tort by former employeesof the Company’s sewing facilities in south Texas that were closed in previousyears.

 

Liabilities for the 2001 reorganization costs are summarized as follows(in millions):

 
|                                    |   | **Balance  September 30, 2002** |   | **Payments** |   | **Adjustments** |   | **Balance  March 31, 2003** |   |
|-----------------------------------------|--------|---------------------------------|--------|--------------|--------|-----------------|--------|-----------------------------|--------|
| Employee  termination and related costs |   | $                               | 1.2    |         | $      | (0.3            | )      | $                           | — |   | $ | 0.9 |   |
|                                    |   |                            |   |         |   |            |   |                        |   |
| Legal costs                             |   | 1.5                             |   | —       |   | —          |   | 1.5                         |   |
|                                         |        |                                 |        |              |        |                 |        |                             |        |  |  |  |  |

 

**Comparison of Three Months EndedMarch 31, 2003 to Three Months Ended March 31, 2002**

 

*Net Sales*

 

Net sales decreased $2.6 million, or 1.9%, to $135.5 million for thesecond quarter of fiscal 2003, compared to net sales of $138.1 million for thesecond quarter of fiscal 2002.  Thedecrease in net sales is primarily attributable to decreased sales of women’swear and DKNY® licensed products, offset by increased sales of Haggar® brandedproducts including the new comfort fit waist pants and improved private labelbusiness.  Unit sales increased 5.5%while the average sales price decreased 7.4% during the second quarter offiscal 2003 compared to the second quarter of fiscal 2002.  The sales prices decreased due to pressuresin the market place by customers and competitors.  

 

*Gross Profit*

 

Gross profit as a percentage of net sales decreased to 25.7% in thesecond quarter of fiscal 2003, compared to 26.3% in the second quarter offiscal 2002.  Absent the impact of thereorganization costs previously discussed, the gross profit percentage wouldhave been 25.5% in the second quarter of fiscal 2002.

 

*Selling, General and AdministrativeExpenses*

 

Selling, general and administrative expenses as a percentage of netsales increased to 23.6% in the second quarter of fiscal 2003, compared to21.1% in the second quarter of fiscal 2002. The $2.8 million, or 9.7%, increase in selling, general andadministrative expenses primarily relates to**$**0.9 million in legal and professional fees incurred in a proxymatter involving a Company stockholder, $0.5 million related to the settlementof a lawsuit with the landlord of the Company’s Jerell, Ltd. headquarters, a$1.2 million increase in salaries and other employee compensation, $0.6 millionin additional shipping expenses due to increased sales volumes and $0.7 millionin expenses related to employee benefits and workers’ compensationexpenses.  The expense increases wereoffset by a $1.1 million decrease in advertising and marketing expensesprimarily due to lower cooperative advertising expenses.

 

*Other Income*

 

Other income increased $0.5 million to $0.5 million during the secondquarter of fiscal 2003, compared to $11,000 for the second quarter of fiscal2002, primarily attributable to a gain on the sale of the Edinburg, Texasmanufacturing facility of $0.3 million.

 

16

----

 

*Interest Expense*

 

Interest expense decreased $0.4 million, or 40.8%, to $0.7 million forthe second quarter of fiscal 2003, compared to $1.1 million for the secondquarter of fiscal 2002, primarily due to significantly reduced debt levelsthroughout the second quarter of fiscal 2003 combined with lower interest rateson variable rate debt.

 

*Income Taxes*

 

The Company’s income tax provision as a percentage of income beforeincome tax and cumulative effect of accounting change was 39.4% for the secondquarter of fiscal 2003.  Comparatively,the Company’s income tax provision as a percentage of income before income taxand cumulative effect of accounting change was 38.9% for the second quarter offiscal 2002.

 

**Comparison of Six Months Ended March31, 2003 to Six Months Ended March 31, 2002**

 

*Net Sales*

 

Net sales increased $12.0 million, or 5.1%, to $249.4 million for thesix months ended March 31, 2003, compared to net sales of $237.4 million forthe six months ended March 31, 2002. The increase in net sales is primarily attributable to increased salesof Haggar® branded products including the new comfort fit waist pants, improvedprivate label business and increased sales of Claiborne® licensed products,offset by decreased sales of women’s wear and DKNY® licensed products.  Unit sales increased 15.6% while the averagesales price decreased 10.5% due to pressures in the marketplace by customersand competitors.

 

*Gross Profit*

 

Gross profit as a percentage of net sales decreased to 25.5% in the sixmonths ended March 31, 2003, compared to 27.3% in the six months ended March31, 2002.  Absent the impact of thereorganization costs previously discussed, the gross profit percentage wouldhave been 26.8% in the six months ended March 31, 2002.  The decrease in gross profit percentage isrelated to decreases in sales prices due to pressures in the marketplace bycustomers and competitors combined with the changing product mix.

 

*Selling, General and AdministrativeExpenses*

 

Selling, general and administrative expenses as a percentage of netsales increased to 25.5% in the six months ended March 31, 2003, compared to24.0% in the six months ended March 31, 2002. The $6.7 million, or 11.7%, increase in selling, general andadministrative expenses primarily relates to an increase in media advertisingexpense of $3.1 million to introduce the Haggar® comfort fit waist pants, $1.2million in legal and professional fees incurred in a proxy matter involving aCompany stockholder, $0.5 million related to the settlement of a lawsuit withthe landlord of the Company’s Jerell, Ltd. headquarters, $0.8 million inadditional shipping expenses due to increased sales volumes, $0.5 million inexpenses related to increased sales for the Claiborne® division, $0.4 millionin expenses related to a new Junior apparel division, $0.5 million in salariesand other employee compensation, $0.7 million in expenses related to employeebenefits and workers’ compensation costs and $0.4 million in otheradministrative expense increases.  Theexpense increases were offset by a $1.4 million decrease in cooperativeadvertising expenses.

 

*Other Income*

 

Other income increased $0.4 million to $0.5 million during the sixmonths ended March 31, 2003, compared to $0.1 million for the six months endedMarch 31, 2002, primarily attributable to a gain on the sale of the Edinburg,Texas manufacturing facility of $0.3 million.

 

17

----

 

*Interest Expense*

 

Interest expense decreased $0.7 million, or 34.3%, to $1.4 million forthe six months ended March 31, 2003, compared to $2.1 million for the sixmonths ended March 31, 2002, primarily due to significantly reduced debt levelsthroughout the six months ended March 31, 2003 combined with lower interestrates on variable rate debt.

 

*Income Taxes*

 

The Company’s income tax benefit as a percentage of loss before incometax and cumulative effect of accounting change was 41.6% for the six monthsended March 31, 2003.  Comparatively,the Company’s income tax provision as a percentage of income before income taxand cumulative effect of accounting change was 38.8% for the six months endedMarch 31, 2002.  The increase in theeffective tax rate was primarily due to a decrease in net income (loss) duringthe six months ended March 31, 2003 as compared to the six months ended March31, 2002, while permanent differences remained constant.

 

*Cumulative Effect of AccountingChange*

 

On October 1, 2001, the Company adopted Statement of FinancialAccounting Standards No. 142, “Goodwill and Other Intangible Assets,” andrecorded a $15.6 million impairment of goodwill related to the 1999 acquisitionof Jerell, the Company’s women’s wear subsidiary.  Subsequent to the acquisition, pricing pressures and a weakretail environment for women’s apparel resulted in a revised earnings forecastfor Jerell and the women’s wear business. In order to determine the fair value of goodwill, the Company obtainedan independent appraisal, which considered both prices of comparable businessesand the discounted value of projected cash flows.  There was no tax benefit associated with the impairment charge.

 

**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 throughout North America and the UnitedKingdom.  The Company also operates aretail segment, which markets Haggar® branded products through 64Company-operated stores located in its Dallas headquarters and in outlet mallsthroughout the United States, and a licensing segment, which generates royaltyincome by licensing the Company’s trademarks for use by other manufacturers ofspecified products in specified geographic areas.  The retail and licensing segments are not material for separatedisclosure, and have been combined in the results below.  The Company evaluates performance andallocates resources based on segment profits.

 

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 ofsegment net income before interest expense and provision (benefit) for incometaxes and cumulative effect of accounting change.

 

18

----

 

The table below reflects the Company’ssegment results for all periods presented.

 
| **Three Months Ended  March 31,** |   | **Wholesale**        |    | **Retail and****Other** |   | **Consolidated** |   |
|-----------------------------------|--------|----------------------|---------|-------------------------|--------|------------------|--------|
|                              |   | ***(In thousands)*** |    |
|                              |   |                 |    |                    |   |             |   |
| **2003**                          |   |                 |    |                    |   |             |   |
| Net sales                         |   | $                    | 126,744 |                    | $      | 8,743            |   | $ | 135,487 |   |
| Segment profit  (loss)            |   | $                    | 4,960   |                    | $      | (1,290           | )      | $ | 3,670 |   |
|                              |   |                 |    |                    |   |             |   |
| **2002**                          |   |                 |    |                    |   |             |   |
| Net sales                         |   | $                    | 128,932 |                    | $      | 9,127            |   | $ | 138,059 |   |
| Segment profit  (loss)            |   | $                    | 8,757   |                    | $      | (1,222           | )      | $ | 7,535 |   |

 
| **Six Months  Ended  March 31,** |   | **Wholesale**        |       | **Retail and  Other** |   | **Consolidated** | ** ** |
|----------------------------------|--------|----------------------|------------|-----------------------|--------|------------------|------------|
|                             |   | ***(In thousands)*** | ** ** |
|                             |   |                 |       |
| **2003**                         |   |                 |       |                  |   |             |       |
| Net sales                        |   | $                    | 227,087    |                  | $      | 22,307           |       | $ | 249,394 |   |
| Segment profit  (loss)           |   | $                    | 1,934      |                  | $      | (849             | )          | $ | 1,085 |   |
|                             |   |                 |       |                  |   |             |       |
| **2002**                         |   |                 |       |                  |   |             |       |
| Net sales                        |   | $                    | 214,292    |                  | $      | 23,098           |       | $ | 237,390 |   |
| Segment profit  (loss)           |   | $                    | 9,252      |                  | $      | (594             | )          | $ | 8,658 |   |

 

*Wholesale Segment*

 

Wholesale segment net sales decreased $2.2 million, or 1.7%, to $126.7million for the second quarter of fiscal 2003, compared to $128.9 million forthe second quarter of fiscal 2002.  Thedecrease in wholesale segment net sales during the second quarter of fiscal2003 is primarily attributable to decreased sales of women’s wear andDKNY®  licensed products, offset byincreased sales of Haggar® branded products, including the new comfort fitwaist pants, and improved private label sales.

 

Wholesale segment net sales increased $12.8 million, or 6.0%, to $227.1million for the six months ended March 31, 2003, compared to $214.3 million forthe six months ended March 31, 2002. The increase in wholesale segment net sales is primarily attributable toincreased sales of Haggar® branded products, including the new comfort fitwaist pants, improved private label business and increased sales of Claiborne®licensed products, offset by decreased sales of women’s wear and DKNY® licensedproducts.

 

Wholesale segment profit decreased $3.8 million, or 43.4%, to $5.0million for the second quarter of fiscal 2003, compared to $8.8 million for thesecond quarter of fiscal 2002.  Thedecrease in segment profit is primarily attributable to decreased sales and a$3.0 million increase in selling, general and administrative expenses primarilyrelated to the settlement of a proxy matter, settlement of a lawsuit at Jerell,Ltd. and other administrative expense increases.

 

Wholesale segment profit decreased $7.4 million, or 79.1%, to $1.9million for the six months ended March 31, 2003, compared to $9.3 million forthe six months ended March 31, 2002. The decrease in segment profit is primarily attributable to a $7.4million increase in selling, general and administrative expenses primarilyrelated to media advertising expenses, the settlement of a proxy matter,settlement of a lawsuit at Jerell, Ltd. and other administrative expenseincreases.

 

19

----

 

**Liquidityand Capital Resources**

 

The Company’s principal sources of liquidity have been cash flows fromoperations and borrowings under its unsecured revolving credit facility.  As of March 31, 2003, the Company had cashand cash equivalents of $6.2 million.

 

As of March 31, 2003, the Company had $27.0 million outstanding underthe $110.0 million unsecured revolving credit line agreement (the “Agreement”)and additional available borrowing capacity that is restricted to $15.7 millionunder the Agreement’s funded debt to operating cash flow covenant.  The Company incurred approximately $0.1million in commitment fees related to the available borrowing capacity duringthe six months ended March 31, 2003. The interest rates ranged from 2.52% to 4.75% during the six monthsended March 31, 2003 and were based on variable market rates (LIBOR or primerate).  The weighted average interestrate at March 31, 2003, was 3.00%.  TheAgreement prohibits the Company from pledging its accounts receivables andinventories, contains limitations on incurring additional indebtedness,requires maintaining minimum net worth levels of the Company and the Company’smain operating subsidiary, and requires the maintenance of certain financialratios.  The Company’s failure tosatisfy these covenants could adversely affect the Company’s ability to meetits needs and pay dividends.

 

Long-term debt also includes $7.1 million in senior notes.  Significant terms of the senior notesinclude interest payable semi-annually at 8.49% per annum and annual principalpayments of approximately $3.6 million through fiscal 2005.  The terms and conditions of the notepurchase agreement governing the senior notes include restrictions on the saleof assets, limitations on additional indebtedness and the maintenance ofcertain net worth requirements.

 

Long-term debt also includes $2.2 million inIndustrial Development Revenue (“IDR”) bonds. Significant terms of the IDR bonds include interest at a rate equal tothat of high quality, short-term, tax exempt obligations, as defined in theagreement.  The interest rate at March31, 2003, was 1.25%.  The IDR bonds arepayable in annual installments of $0.1 million, with a final payment of $2.0million in fiscal 2006.  The IDR bondsare collateralized by certain buildings and equipment of $0.5 million as ofMarch 31, 2003.

 

Certain of the Company’s long-term debt facilities contain restrictionson the ability of the Company’s subsidiaries to transfer funds to theCompany.  As of March 31, 2003, theCompany was in full compliance with its financial and other covenants.

 

As of March 31, 2003, and September 30, 2002, the Company hadoutstanding $37.4 million and $22.9 million, respectively, of trade letters ofcredit for the purchase of inventory from foreign suppliers in the ordinarycourse of business.  The increase intrade letters of credit outstanding for inventory purchases is primarily due tothe seasonality of the business and increased production in the Easternhemisphere.  These trade letters ofcredit, generally for periods of less than six months, will only be paid uponsatisfactory receipt of the inventory by the Company.  As of March 31, 2003, and September 30, 2002, the Company hadentered into $7.5 million and $7.3 million, respectively, of standby letters ofcredit representing contingent guarantees of performance under self-insuranceand other programs.  The increase instandby letters of credit is primarily attributable to an increase inself-insured workers compensation claims experience.  These commitments would only be drawn upon if the Company were tofail to meet its claims obligations.

 

In December 1999, the Company entered into an operating lease of theCompany’s corporate aircraft which contains a residual guarantee for the marketvalue of the aircraft at the end of the lease term in December 2004.  Under the lease, the Company has the optionof (a) returning the aircraft to the lessor and paying the guaranteed residual valueof $3.0 million; (b) purchasing the aircraft for $4.0 million; or (c) arrangingfor the sale of the aircraft to a third party. If the sale proceeds are less than $4.0 million, the Company is requiredto reimburse the lessor for the deficiency. If the sale proceeds exceed $4.0 million, the Company is entitled to allof such excess amounts.

 

Based on an estimated $3.1 million market value for the aircraft whenthe lease ends in 2004, the Company began accruing the $0.9 million expecteddeficiency in the three months ended March 31, 2003.  As of March 31, 2003, the Company included $0.1 million in otheraccrued liabilities related to the deficiency. The remainder will be

 

20

----

 

accreted up to the $0.9 million expected deficiency using the straight-linemethod through the end of the lease term.

 

On February 14, 2003, the Company entered into a contract with a thirdparty for the sale of its corporate headquarters facility.  The Company has until June 2, 2003 to cancelthe sale contract without penalty.  OnMay 9, 2003, the Company entered into a contract for the purchase of a newcorporate headquarters facility.  TheCompany has until July 8, 2003 to cancel the purchase contract withoutpenalty.  In the event of a relocation,the Company will incur costs to exit the current facility and move to a newcorporate headquarters.

 

During the second quarter of fiscal 2003, the Company declared a cashdividend of $0.05 per share payable to the stockholders of record on May 12,2003, which will be paid on May 26, 2003. The first quarter of fiscal 2003 dividend of approximately $0.3 millionwas paid in February 2003.

 

The Company has other contractual obligations and commercialcommitments as described in “Item 7. Management’s Discussion and Analysis of Financial Condition and Resultsof Operations — Disclosures About Contractual Obligations And CommercialCommitments” of the Company’s Annual Report on Form 10-K, as amended, for thefiscal year ended September 30, 2002.

 

In November 2002, co-trustees of a trust which owns shares of theCompany’s common stock filed preliminary proxy materials with the Securitiesand Exchange Commission indicating that they intended to solicit stockholdersin support of their own slate of directors. The Company entered into an agreement to settle this proxy contest inFebruary 2003.  The Company incurred$0.9 million and $1.2 million in legal and professional fees during the threeand six months ended March 31, 2003 related to this matter.  As of March 31, 2003, $0.2 million of thesefees remained to be paid and were included in accrued liabilities.

 

Two jury verdicts totaling $5.2 million have been returned againstsubsidiaries of the Company related to claims by former employees for wrongfuldischarge and common law tort.  One ofthe verdicts was settled on September 30, 2002, for $1.3 million.  The other case is currently on appeal, asmanagement, based on the advice of legal counsel, believes the verdict in thislawsuit is both legally and factually incorrect.  Management does not believe that the outcome of this appeal willhave a material adverse effect on the Company. The Company is involved in various claims and lawsuits incidental to itsbusiness. In the opinion of management, these claims and suits in the aggregatewill not have a material adverse effect on the Company.

 

*Cash Flow Results for the Six MonthsEnded March 31, 2003*

 

For the six months ended March 31, 2003, cash flows used by operatingactivities were approximately $6.4 million. Cash flows used in operations was primarily the result of a $7.4 milliondecrease in other current and non-current accrued liabilities, which included a$4.6 million decrease in accruals for inventory in-transit, $2.5 million inproperty and income tax payments offset by current period tax accruals and $1.0million in payments for legal and restructuring obligations.  In addition, accrued wages and otheremployee compensation decreased $1.8 million, primarily due to the payment ofbonuses during the period offset by accruals for current period charges, andaccounts receivable increased $3.9 million due to higher seasonal sales duringthe second quarter of fiscal 2003. These decreases in cash flows were partially offset by a $2.8 milliondecrease in inventory, primarily due to a reduction in DKNY® inventory inanticipation of the termination of the license agreement, and a $1.5  million increase in accounts payable.

 

Cash flows provided by investing activities were approximately $2.1million mainly due to proceeds from the sale of the Edinburg, Texasmanufacturing facility of $2.5 million, offset by equipment purchases.

 

Cash flows provided by financing activities were approximately $6.3million due to net borrowings of the long-term debt of $11.3 million, offset bydividend payments of $0.6 million and a decrease in cash book overdrafts of$4.3 million.

 

21

----

 

*Cash Flow Results for the Six MonthsEnded March 31, 2002*

 

For the six months ended March 31, 2002, the Company used cash inoperating activities of approximately $7.0 million.  Cash flows used in operations was primarily the result of a $4.8million increase in accounts receivable, a $10.3 million decrease in accountspayable, and a $3.4 million decrease in accrued wages, workers’ compensationand other employee benefits, offset by income adjusted for non-cash charges of$15.6 million for the cumulative effect of the accounting change for goodwilland the revision in the net realizable value of property held for sale of $2.2million.

 

The Company used approximately $1.6 million in investing activities forthe six months ended March 31, 2002, primarily due to purchases of property,plant and equipment of $1.2 million.

 

Cash flows provided from financing activities of $6.7 million for thesix months ended March 31, 2002, were primarily the result of a net increase inlong-term debt of $7.7 million offset by $0.6 million in payments of dividendsand $0.4 million for the purchase of treasury stock.

 

**Recently Issued Financial AccountingStandards**

 

In January 2003, the FASB issued FASB Interpretation No. 46,“Consolidation of Variable Interest Entities – an Interpretation of ARB No.51,” which addresses consolidation of variable interest entities (“VIEs”) towhich the usual consolidation described in Accounting Research Bulletin No. 51,“Consolidated Financial Statements,” does not apply because the VIEs have novoting interests or otherwise are not subject to control through ownership ofvoting interests.  FASB interpretationNo. 46 requires existing unconsolidated VIEs to be consolidated by theirprimary beneficiaries if the entities do not effectively disperse risks amongparties involved.  The provisions of theInterpretation are effective immediately for VIEs created after January 31,2003, and to VIEs in which an entity obtains an interest after that date.  An entity with a variable interest in a VIEcreated before February 1, 2003, must apply the provisions no later than thefirst reporting period beginning after June 15, 2003.  The interpretation may be applied prospectively with acumulative-effect adjustment as of the date on which it is first applied or byrestating previously issued financial statements.  The Company has adopted the interpretation and has determined itis not party to any VIEs that would require consolidation.

 

22

----

 

**Item3.  Quantitative and QualitativeDisclosures about Market Risk.**

 

The Company is exposed to market risk from changes in foreign currencyexchange risk and interest rate risk, which may adversely affect its financialposition, results of operations and cash flows. The Company does not usefinancial instruments for trading or other speculative purposes and is not aparty to any derivative financial instrument.

 

The Company is exposed to interest rate risk primarily through itsborrowing activities. As of March 31, 2003, the Company had $29.2 millionoutstanding under its revolving credit line agreement and other variable ratedebt. A one percentage point increase in the variable interest rate based ondebt amounts outstanding at March 31, 2003, would result in an approximately$0.3 million reduction in annual pre-tax earnings.  See “Notes to Consolidated Financial Statements – Long-Term Debt”and “Item 2.  Management’s Discussionand Analysis of Financial Condition and Results of Operations –Liquidity andCapital Resources” for additional discussion of the terms of the Company’scredit facilities.

 

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

 

The Chief Executive Officer and Chief Financial Officer of the Companyhave reviewed and evaluated the effectiveness of the Company’s disclosurecontrols and procedures (as defined in the Securities Exchange Act of 1934Rules 240.13a-14(c) and 15d-14(c)) as of a date within 90 days before thefiling date of this quarterly report on Form 10-Q and have concluded that suchdisclosure controls and procedures are effective in timely alerting them tomaterial information relating to the Company required to be disclosed in theperiodic reports the Company files or submits under the Securities Exchange Actof 1934.  There have not been anysignificant changes in the internal controls of the Company or in other factorsthat could significantly affect these internal controls subsequent to the dateof the evaluation.

 

23

----

**Part II.  OtherInformation.**

 

**Item1.  Legal Proceedings**

 

None.

 

**Item2.  Changes in Securities**

 

None.

 

**Item3.  Defaults Upon Senior Securities**

 

None.

 

**Item4.  Submission of Matters to a Vote ofSecurity Holders**

 

None.

 

**Item5.  Other Information**

 

None.

 

**Item6.  Exhibits and Reports on Form 8-K**

 
| (a)   Exhibits.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|--------|
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Settlement Agreement, dated February 17, 2003, by  and among the Company, Thomas G. Kahn, Donald Kahn, Irving Kahn, Kahn  Brothers & Co., Inc., a New York corporation, and the Kahn Brothers &  Co. Profit Sharing Plan & Trust, a trust organized under the laws of New  York (incorporated by reference to Exhibit 99.2 to Form 8-K filed February  18, 2003.) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Settlement Agreement, dated February 17, 2003, by  and among the Company, Mark E. Schwarz, Newcastle Capital Group, L.L.C., a  Texas limited liability company, Newcastle Capital Management, L.P., a Texas  limited partnership, and Newcastle Partners, L.P., a Texas limited  partnership (incorporated by reference to Exhibit 99.3 to Form 8-K filed  February 18, 2003.) |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(c)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and J. M. Haggar, III,  Chairman and Chief Executive Officer. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(d)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and Frank D. Bracken,  III, President and Chief Operating Officer. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(e)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and David Tehle,  Executive Vice President and Chief Financial Officer. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(f)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and Alan Burks,  Executive Vice President and Chief Marketing Officer. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(g)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and David Roy, Executive  Vice President of Operations. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(h)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Haggar Corp. Supplemental  Executive Retirement Plan dated February 14, 2003. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(i)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Trust Under the Haggar Corp.  Supplemental Executive Retirement Plan dated February 14, 2003, between  Haggar Clothing Co. and David Tehle, Trustee. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(j)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Participation Agreement Under the  Haggar Corp. Supplemental Executive Retirement Plan dated February 14, 2003,  between Haggar Clothing Co. and J. M. Haggar, III, Chairman and Chief  Executive Officer. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(k)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Participation Agreement Under the  Haggar Corp. Supplemental Executive Retirement Plan dated February 14, 2003,  between Haggar Clothing Co. and Frank D. Bracken, III, President and Chief  Operating Officer. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(l)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Haggar Corp. Split-Dollar  Insurance Plan dated February 14, 2003. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(m)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Commercial Contract - Improved Property effective as  of February 14, 2003, between Haggar Clothing Co. and PPM Specialists, Ltd. | ** ** |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 10(n)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | First Amendment to Commercial Contract - Improved  Property effective as of May 6, 2003, between Haggar Clothing Co. and PPM  Specialists, Ltd. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 99(a)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Certification of Chief Executive Officer Pursuant to  18  U.S.C. 1350. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| 99(b)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |   | Certification of Chief Financial Officer Pursuant to  18  U.S.C. 1350. |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |   |   |
| (b)  Reports  on Form 8-K.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |   |
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        |   |
| A Form 8-K was filed on  January 29, 2003, announcing, under Item 5, the date for the annual  stockholders’ meeting.  A Form 8-K was  filed on January 29, 2003, announcing,  under Item 5, the issuance of a press release and, under Item 9, the  Company’s first quarter and projected fiscal 2003 earnings.  A Form 8-K was filed on February 3, 2003,  discussing, under Item 9, proxy matters and the issuance of press  releases.  A Form 8-K was filed on  February 18, 2003, discussing, under Item 5, proxy matters and the issuance  of press releases. |   |

24

----

 

Pursuant tothe requirements of the Securities Exchange Act of 1934, the registrant hasduly caused this report to be signed on its behalf by the undersigned thereuntoduly authorized.

 

 
|               | Haggar Corp., |
|--------------------|---------------|
|               |          |   |
|               |          |   |
| Date: May 13, 2003 | By:           |  /s/ David M.  Tehle |   |
|               |          | David M. Tehle |
|               |          | *(Ex**ecutive  Vice President, Chief* |
|               |          | *Financial  Officer, Secretary,* |
|               |          | *Treasurer)* |
|               |          |   |
|               |          | Signed on behalf of the |
|               |          | registrant and as principal |
|               |          | financial officer. |

 

25

----

 

**CERTIFICATIONS**

 

I, J.M. Haggar, III, Chief Executive Officer of Haggar Corp., certifythat:

 
| 1.     | I have reviewed this quarterly report on Form 10-Q  of Haggar Corp.;                                                                                                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 2.     | Based on my knowledge, this quarterly report does  not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this quarterly report;                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 3.     | Based on my knowledge, the financial statements, and  other financial information included in this quarterly report, fairly present  in all material respects the financial condition, results of operations and  cash flows of the registrant as of, and for, the periods presented in this  quarterly report;                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 4.     | The registrant’s other certifying officer and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the  registrant and we have:                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                 | designed such disclosure controls and procedures to  ensure that material information relating to the registrant, including its  consolidated subsidiaries, is made known to us by others within those  entities, particularly during the period in which this quarterly report is  being prepared; |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                 | evaluated the effectiveness of the registrant’s disclosure  controls and procedures as of a date within 90 days prior to the filing date  of this quarterly report (the “Evaluation Date”); and |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                 | presented in this quarterly report our conclusions  about the effectiveness of the disclosure controls and procedures based on  our evaluation as of the Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 5.     | The registrant’s other certifying officer and I have  disclosed, based on our most recent evaluation, to the registrant’s auditors  and the audit committee of registrant’s board of directors (or persons  performing the equivalent function):                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                 | all significant deficiencies in the design or  operation of internal controls which could adversely affect the registrant’s  ability to record, process, summarize and report financial data and have identified  for the registrant’s auditors any material weaknesses in internal controls;  and |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                 | any fraud, whether or not material, that involves  management or other employees who have a significant role in the registrant’s  internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 6.     | The registrant’s other certifying officer and I have  indicated in this quarterly report whether or not there were significant  changes in internal controls or in other factors that could significantly  affect internal controls subsequent to the date of our most recent  evaluation, including any corrective actions with regard to significant  deficiencies and material weaknesses. |

 

 
| Date: May 13, 2003 |   |
|--------------------|--------|
|               |   |   |   |
|               |   | /s/ J.M. Haggar, III |   |
|               |   | J.M. Haggar, III |   |
|               |   | Chief Executive Officer |   |

 

26

----

 

**CERTIFICATIONS**

 

I, David M. Tehle, Chief Financial Officer of Haggar Corp., certifythat:

 
| 1.     | I have reviewed this quarterly report on Form 10-Q  of Haggar Corp.;                                                                                                                                                                                                                                                                                                                               |
|--------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 2.     | Based on my knowledge, this quarterly report does  not contain any untrue statement of a material fact or omit to state a  material fact necessary to make the statements made, in light of the  circumstances under which such statements were made, not misleading with  respect to the period covered by this quarterly report;                                                                 |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 3.     | Based on my knowledge, the financial statements, and  other financial information included in this quarterly report, fairly present  in all material respects the financial condition, results of operations and  cash flows of the registrant as of, and for, the periods presented in this  quarterly report;                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 4.     | The registrant’s other certifying officer and I are  responsible for establishing and maintaining disclosure controls and  procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant  and we have:                                                                                                                                                                   |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                 | designed such disclosure controls and procedures to  ensure that material information relating to the registrant, including its  consolidated subsidiaries, is made known to us by others within those  entities, particularly during the period in which this quarterly report is  being prepared; |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                 | evaluated the effectiveness of the registrant’s  disclosure controls and procedures as of a date within 90 days prior to the  filing date of this quarterly report (the “Evaluation Date”); and |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | c)                                                                                                                                                                                                                                                                                                                                                                                                 | presented in this quarterly report our conclusions  about the effectiveness of the disclosure controls and procedures based on  our evaluation as of the Evaluation Date; |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 5.     | The registrant’s other certifying officer and I have  disclosed, based on our most recent evaluation, to the registrant’s auditors  and the audit committee of registrant’s board of directors (or persons  performing the equivalent function):                                                                                                                                    |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | a)                                                                                                                                                                                                                                                                                                                                                                                                 | all significant deficiencies in the design or  operation of internal controls which could adversely affect the registrant’s  ability to record, process, summarize and report financial data and have  identified for the registrant’s auditors any material weaknesses in internal  controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
|   | b)                                                                                                                                                                                                                                                                                                                                                                                                 | any fraud, whether or not material, that involves  management or other employees who have a significant role in the registrant’s  internal controls; and |
|   |                                                                                                                                                                                                                                                                                                                                                                                               |   |
| 6.     | The registrant’s other certifying officer and I have  indicated in this quarterly report whether or not there were significant changes  in internal controls or in other factors that could significantly affect  internal controls subsequent to the date of our most recent evaluation,  including any corrective actions with regard to significant deficiencies and  material weaknesses. |

 

 
| Date:  May  13, 2003 |   |
|---------------------------|--------|
|                      |   |   |   |
|                      |   | /s/ David M. Tehle |   |
|                      |   | David M. Tehle |   |
|                      |   | Chief Financial Officer |

 

27

----

 

**INDEX TO EXHIBITS**

 
| **Exhibit  Number** |   | **Description**                                                                                                                                                                                                                                                                                                                                                                |       |
|---------------------|--------|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|------------|
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(a)               |   | Settlement Agreement, dated February 17, 2003, by and  among the Company, Thomas G. Kahn, Donald Kahn, Irving Kahn, Kahn Brothers  & Co., Inc., a New York corporation, and the Kahn Brothers & Co.  Profit Sharing Plan & Trust, a trust organized under the laws of New York  (incorporated by reference to Exhibit 99.2 to Form 8-K filed February 18,  2003.)  |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(b)               |   | Settlement Agreement, dated February 17, 2003, by  and among the Company, Mark E. Schwarz, Newcastle Capital Group, L.L.C., a  Texas limited liability company, Newcastle Capital Management, L.P., a Texas  limited partnership, and Newcastle Partners, L.P., a Texas limited  partnership (incorporated by reference to Exhibit 99.3 to Form 8-K filed  February 18, 2003.) |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(c)               |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and J. M. Haggar, III,  Chairman and Chief Executive Officer.                                                                                                                                                                                                          |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(d)               |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and Frank D. Bracken,  III, President and Chief Operating Officer.                                                                                                                                                                                                     |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(e)               |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and David Tehle,  Executive Vice President and Chief Financial Officer.                                                                                                                                                                                                |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(f)               |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and Alan Burks,  Executive Vice President and Chief Marketing Officer.                                                                                                                                                                                                 |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(g)               |   | First Amendment to Executive Employment Agreement  dated February 14, 2003, between Haggar Clothing Co. and David Roy, Executive  Vice President of Operations.                                                                                                                                                                                                                |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(h)               |   | First Amendment to Haggar Corp. Supplemental  Executive Retirement Plan dated February 14, 2003.                                                                                                                                                                                                                                                                               |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(i)               |   | First Amendment to Trust Under the Haggar Corp.  Supplemental Executive Retirement Plan dated February 14, 2003, between  Haggar Clothing Co. and David Tehle, Trustee.                                                                                                                                                                                                        |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(j)               |   | First Amendment to Participation Agreement Under the  Haggar Corp. Supplemental Executive Retirement Plan dated February 14, 2003,  between Haggar Clothing Co. and J. M. Haggar, III, Chairman and Chief  Executive Officer.                                                                                                                                                  |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(k)               |   | First Amendment to Participation Agreement Under the  Haggar Corp. Supplemental Executive Retirement Plan dated February 14, 2003,  between Haggar Clothing Co. and Frank D. Bracken, III, President and Chief  Operating Officer.                                                                                                                                             |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(l)               |   | First Amendment to Haggar Corp. Split-Dollar  Insurance Plan dated February 14, 2003.                                                                                                                                                                                                                                                                                          |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(m)               |   | Commercial Contract - Improved Property effective as  of February 14, 2003, between Haggar Clothing Co. and PPM Specialists, Ltd.                                                                                                                                                                                                                                              | ** ** |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 10(n)               |   | First Amendment to Commercial Contract - Improved  Property effective as of May 6, 2003, between Haggar Clothing Co. and PPM  Specialists, Ltd.                                                                                                                                                                                                                                |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 99(a)               |   | Certification of Chief Executive Officer Pursuant to  18  U.S.C. 1350.                                                                                                                                                                                                                                                                                                    |       |
|                |   |                                                                                                                                                                                                                                                                                                                                                                           |       |
| 99(b)               |   | Certification of Chief Financial Officer Pursuant to  18  U.S.C. 1350.                                                                                                                                                                                                                                                                                                    |       |

 

28

----