UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

 

HAGGAR CORP.

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

 

 

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

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

 

As of August 13, 2003, there were 6,448,426 shares of the registrant’s common stock outstanding.

 

 

Haggar Corp. and Subsidiaries

 

Index

 

Part I. Financial Information
	Item 1.		Financial Statements
		Consolidated Balance Sheets (As of June 30, 2003 (unaudited) and September 30, 2002)
		Consolidated Statements of Operations and Comprehensive Income (unaudited) (Three and nine months ended June 30, 2003 and 2002)
		Consolidated Statements of Cash Flows (unaudited) (Nine months ended June 30, 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 1.		Legal Proceedings
	Item 2.		Changes in Securities and Use of Proceeds
	Item 3.		Defaults Upon Senior Securities
	Item 4.		Submission of Matters to a Vote of Security Holders
	Item 5.		Other Information
	Item 6.		Exhibits and Reports on Form 8-K
Signature

 

2

 

Haggar Corp. and Subsidiaries

 

Consolidated Balance Sheets

(in thousands, except share amounts)

 

		June 30, 2003			September 30, 2002
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	13,047		$	4,124
Accounts receivable, net		38,133			64,284
Inventories, net		98,990			100,996
Property held for sale		—			2,157
Deferred tax benefit		11,410			12,087
Other current assets		3,465			2,766
Total current assets		165,045			186,414
Property, plant, and equipment, net		41,618			46,195
Goodwill, net		9,472			9,472
Other assets		8,644			7,896
Total assets		$	224,779		$	249,977
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	24,014		$	30,542
Accrued liabilities		30,888			35,669
Accrued wages and other employee compensation		5,657			6,713
Current portion of long-term debt		3,671			3,742
Total current liabilities		64,230			76,666
Other non-current liabilities		9,410			8,247
Long-term debt		5,671			21,343
Total liabilities		79,311			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 June 30, 2003 and September 30, 2002		866			866
Additional paid-in capital		42,911			42,911
Cumulative translation adjustment		(354		)	(534		)
Retained earnings		127,006			125,439
		170,429			168,682
Less – Treasury stock, 2,242,183 shares at cost at June 30, 2003 and September 30, 2002		(24,961		)	(24,961		)
Total stockholders’ equity		145,468			143,721
Total liabilities and stockholders’ equity		$	224,779		$	249,977

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Haggar Corp. and Subsidiaries

 

Consolidated Statements of Operations and Comprehensive Income

(unaudited, in thousands, except per share amounts)

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2003			2002			2003			2002
Net sales		$	107,435		$	111,215		$	356,828		$	348,605
Cost of goods sold		76,166			83,411			262,106			257,166
Reorganization costs		—			—			—			(1,157		)
Gross profit		31,269			27,804			94,722			92,596
Selling, general and administrative expenses		(26,556		)	(26,980		)	(90,079		)	(83,900		)
Royalty income		378			178			1,052			905
Other income, net		102			506			603			564
Interest expense		(570		)	(702		)	(1,973		)	(2,808		)
Income before provision for income taxes and cumulative effect of accounting  change		4,623			806			4,325			7,357
Provision for income taxes		1,919			346			1,795			2,888
Income before cumulative effect of accounting change		$	2,704		$	460		$	2,530		$	4,469
Cumulative effect of accounting change		—			—			—			(15,578		)
Net income (loss)		$	2,704		$	460		$	2,530		$	(11,109	)
Other comprehensive income (loss):
Cumulative translation adjustment		$	195		$	112		$	180		$	(28	)
Comprehensive income (loss)		$	2,899		$	572		$	2,710		$	(11,137	)
NET INCOME (LOSS) PER COMMON SHARE:
BASIC
Income before cumulative effect of accounting change		$	0.42		$	0.07		$	0.39		$	0.70
Cumulative effect of accounting change		—			—			—			(2.44		)
Net income (loss)		$	0.42		$	0.07		$	0.39		$	(1.74	)
DILUTED
Income before cumulative effect of accounting change		$	0.42		$	0.07		$	0.39		$	0.70
Cumulative effect of accounting change		—			—			—			(2.43		)
Net income (loss)		$	0.42		$	0.07		$	0.39		$	(1.73	)
Weighted average number of common shares outstanding:
Basic		6,418			6,387			6,418			6,375
Diluted		6,418			6,543			6,427			6,426

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Haggar Corp. and Subsidiaries

 

Consolidated Statements of Cash Flows

(unaudited, in thousands)

 

		Nine Months Ended June 30,
		2003			2002
Cash Flows from Operating Activities
Net income (loss)		$	2,530		$	(11,109	)
Adjustments to reconcile net income (loss) to net cash provided by
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, net		(248		)	(479		)
Depreciation and amortization		6,192			6,732
Deferred tax benefit		392			1,036
Other		1			(28		)
Changes in assets and liabilities:
Accounts receivable, net		26,151			20,710
Inventories, net		2,006			2,400
Other current assets		(699		)	(82		)
Accounts payable		(528		)	(6,220		)
Accrued liabilities		(4,781		)	(1,697		)
Accrued wages and other employee compensation		(1,056		)	(2,756		)
Other non-current liabilities		1,163			795
Net cash provided by operating activities		31,123			22,723
Cash Flows from Investing Activities
Purchases of property, plant and equipment, net		(1,307		)	(1,859		)
Proceeds from the sale of property, plant and equipment		2,493			80
Increase in other assets		(680		)	(1,532		)
Net cash provided by (used in) investing activities		506			(3,311		)
Cash Flows from Financing Activities
Purchase of treasury stock at cost		—			(351		)
Proceeds from issuance of long-term debt		213,000			404,000
Payments on long-term debt		(228,743		)	(423,274		)
Decrease in book overdrafts		(6,000		)	—
Proceeds from issuance of common stock		—			823
Payments of cash dividends		(963		)	(957		)
Net cash used in financing activities		(22,706		)	(19,759		)
Increase (decrease) in cash and cash equivalents		8,923			(347		)
Cash and cash equivalents, beginning of period		4,124			7,800
Cash and cash equivalents, end of period		$	13,047		$	7,453
Non-cash Investing Activity:
Note receivable from sale of property, plant and equipment		$	—		$	420

 

The accompanying notes are an integral part of these consolidated financial statements.

 

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Haggar Corp. and Subsidiaries

 

Notes to Consolidated Financial Statements

(unaudited)

 

1.  Basis of Presentation

 

Financial Statement Presentation

 

The consolidated balance sheet as of June 30, 2003, the consolidated statements of operations and comprehensive income for the three and nine months ended June 30, 2003 and 2002, and the consolidated statements of cash flows for the nine months ended June 30, 2003 and 2002, have been prepared by Haggar Corp. (together with its subsidiaries, the “Company”) without audit.  The consolidated balance sheet as of September 30, 2002 has been derived from the Company’s audited financial statements as of that date but does not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements.  In the opinion of management, all necessary adjustments (which include only normal recurring adjustments) to present fairly the consolidated financial position, results of operations, and cash flows of the Company at June 30, 2003, and for all other periods presented, have been made.  As permitted under Securities and Exchange Commission rules for interim financial reporting, certain information and footnote disclosures normally included in the financial statements prepared in accordance with generally accepted accounting principles have been omitted.  These financial statements should be read in conjunction with the financial statements and accompanying footnotes thereto in the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, 2002.

 

Accounting for Stock Based Compensation

 

The Company has had, since 1992, a long-term incentive plan, which authorizes the grant of stock options to key employees. The options vest over a period of three to five years and expire ten years from the date of grant. The options are issued at an exercise price not less than the fair market value of the Company’s common stock on the date of the grant. The long-term incentive plan allowed 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 options may be granted under the plan.

 

On May 1, 2003, the Company adopted a new stockholder approved long-term incentive plan which authorizes the Company to issue up to 575,000 additional shares in connection with options granted to directors, officers or employees of the Company.  The terms and vesting periods will be determined as each option is granted, but the option price cannot be less than the market value of the common stock at the grant date.  No options had been granted under the 2003 long-term incentive plan through June 30, 2003.

 

The following table summarizes the changes in stock options outstanding during the nine months ended June 30, 2003:

 

		Shares		Weighted Average Exercise Price
Options outstanding as of September 30, 2002		1,420,775		$	12.61
Options granted		—		—
Options exercised		—		—
Options canceled		(185,329	)	$	13.49
Options outstanding as of June 30, 2003		1,235,446		$	12.49
Options exercisable as of June 30, 2003		1,215,046		$	12.48

 

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

 

		Three Months Ended June  30,						Nine Months Ended June 30,
		2003			2002			2003			2002
Net income (loss):
As reported		$	2,704		$	460		$	2,530		$	(11,109	)
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		)	(75		)	(378		)
Pro-forma net income (loss)		$	2,679		$	334		$	2,455		$	(11,487	)
Net income (loss) per common share:
BASIC
As reported		$	0.42		$	0.07		$	0.39		$	(1.74	)
Pro forma		$	0.42		$	0.05		$	0.38		$	(1.80	)
DILUTED
As reported		$	0.42		$	0.07		$	0.39		$	(1.73	)
Pro forma		$	0.42		$	0.05		$	0.38		$	(1.79	)

 

Reclassifications

 

Certain items in the prior period presentation have been reclassified to 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 June 30, 2003, and September 30, 2002 (in thousands):

 

		June 30, 2003			September 30, 2002
Piece goods		$	9,271		$	8,270
Trimmings & supplies		2,458			2,908
Work-in-process		7,046			8,143
Finished garments		82,348			83,742
		$	101,123		$	103,063
Inventory reserves		(2,133		)	(2,067		)
Total inventories, net		$	98,990		$	100,996

 

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

 

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3.  Asset Impairment – Goodwill

 

On October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142 (“SFAS No. 142”), “Goodwill and Other Intangible Assets”, and recorded a $15.6 million impairment of goodwill related to the 1999 acquisition of Jerell, Ltd. (“Jerell”), the Company’s women’s wear subsidiary.  Subsequent to the acquisition, pricing pressures and a weak retail environment for women’s apparel resulted in a revised earnings forecast for Jerell and the women’s wear business.  In order to determine the fair value of goodwill, the Company obtained an independent appraisal, which considered both prices of comparable businesses and the discounted value of projected cash flows.  There was no tax benefit associated with the impairment charge.

 

4.  Long-Term Debt

 

Long-term debt consisted of the following at June 30, 2003, and September 30, 2002 (in thousands):

 

 

As of June 30, 2003, the Company had no amounts outstanding under the $110.0 million unsecured revolving credit agreement (the “Agreement”) and available borrowing capacity that is restricted to $52.2 million under the Agreement’s funded debt to operating cash flow covenant.  The Company incurred approximately $0.2 million in commitment fees related to the available borrowing capacity during the nine months ended June 30, 2003.  The interest rates ranged from 2.52% to 4.75% during the nine months ended June 30, 2003 and were based on variable market rates (LIBOR or prime rate).  The Agreement prohibits the Company from pledging its accounts receivables and inventories, contains limitations on incurring additional indebtedness, requires maintaining minimum net worth levels of the Company and the Company’s main operating subsidiary, and requires the maintenance of certain financial ratios.  The Agreement also prohibits the payment of any dividend if a default exists after giving effect to such a dividend.

 

Certain of the Company’s long-term debt facilities contain restrictions on the ability of the Company’s subsidiaries to transfer funds to Haggar Corp.

 

5.  2002 Business Reorganization

 

The Company’s strategy has been to source production internationally in order to remain competitive in the apparel marketplace and to provide high-quality, low-cost products as a value to its customers.  The 2002 reorganization activities were a result of this strategy.

 

On January 8, 2002, the Company announced plans to close its cutting facility in Weslaco, Texas.  Accordingly, the Company recorded a $1.0 million charge to operations in reorganization costs for the quarter ending March 31, 2002.  All 142 employees at the Weslaco facility were terminated in conjunction with the closure, which was completed in June 2002.  The plan has been executed and actual amounts paid pursuant to the plan approximated the initial $1.0 million charge.

 

In conjunction with the closure of the Edinburg, Texas manufacturing facility in fiscal 2001, the net book value of the facility of $2.2 million was written off since the net realizable value of the facility was expected to be insignificant.  Subsequent to marketing this facility nationally, having appraisals completed on the property, and receiving an initial offer for this facility during the second quarter of fiscal 2002 (in excess of the pre-closure net book value), the Company reversed the original facility write-down and classified the facility as an asset held for sale.  The $2.2 million reversal was recorded as a credit to reorganization costs in the income statement in the

 

8

 

second quarter of fiscal 2002.  In the second quarter of fiscal 2003, the Company sold the building for net cash proceeds of $2.5 million.  The sale resulted in a pre-tax gain of approximately $0.3 million which was recorded in other income, net.

 

The following summarizes the reorganization costs for the nine month period ended June 30, 2002 (in thousands):

 

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 are business units that offer similar products through different distribution channels.  The Company’s wholesale segment designs, manufactures, imports and markets casual and dress men’s and women’s apparel to retailers throughout North America and the United Kingdom.  The Company also operates a retail segment, which markets Haggar® branded products through 67 Company-operated stores located in its Dallas headquarters and in outlet malls throughout the United States, and a licensing segment, which generates royalty income by licensing the Company’s trademarks for use by other manufacturers of specified products in specified geographic areas.  The retail and licensing segments are not material for separate disclosure, and have been combined in the results below.  The Company evaluates performance and allocates resources based on segment profits.

 

Intercompany sales from the wholesale segment to the retail segment are not reflected in wholesale segment net sales.  Additionally, there is no profit included on sales from the wholesale segment to the retail segment.  Segment profit (loss) is comprised of segment net income before interest expense, provision for income taxes and cumulative effect of accounting change.

 

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

 

 

 

 

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

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2003			2002			2003			2002
Segment profit		$	5,193		$	1,508		$	6,298		$	10,165
Interest expense		(570		)	(702		)	(1,973		)	(2,808		)
Consolidated income before provision for income taxes and cumulative effect of accounting change		$	4,623		$	806		$	4,325		$	7,357

 

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

 

7.  Commitments and Contingencies

 

In November 2002, co-trustees of a trust which owns shares of the Company’s common stock filed preliminary proxy materials with the Securities and Exchange Commission indicating that they intended to solicit stockholders in support of their own slate of directors.  The Company entered into an agreement to settle this proxy contest in February 2003.    The Company incurred expenses of $1.2 million in legal and professional fees during the nine months ended June 30, 2003 related to this matter, and all amounts had been paid as of June 30, 2003.

 

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

 

In November 2002, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” which elaborates on required disclosures by a guarantor in its financial statements about obligations under certain guarantees that it has issued and clarifies the need for a guarantor to recognize, at the inception of certain guarantees, a liability for the fair value of the obligation undertaken in issuing the guarantee.  The initial recognition and measurement provisions were required to be applied on a prospective basis for qualifying guarantees entered into or modified after December 31, 2002.  However, any qualifying guarantees entered into before December 31, 2002, must be disclosed in the footnotes for interim or annual financial statement periods that end after December 15, 2002.

 

The only qualifying guarantee that requires disclosure is a December 1999 operating lease of the Company’s corporate aircraft which contains a residual guarantee.  Under the lease which ends in December 2004, the Company has the option of (a) returning the aircraft to the lessor and paying the guaranteed residual value of $3.0 million; (b) purchasing the aircraft for $4.0 million; or (c) arranging for the sale of the aircraft to a third party.  If the sales proceeds are less than $4.0 million, the Company is required to reimburse the lessor for the deficiency.  If the sales proceeds exceed $4.0 million, the Company is entitled to all of such excess amounts.

 

Based on an estimated $3.1 million market value for the aircraft when the lease ends in 2004, the Company began accruing the $0.9 million expected deficiency in the three months ended March 31, 2003.  As of June 30, 2003, the Company included $0.2 million in other accrued liabilities related to the deficiency.  The remainder will be accrued up to the $0.9 million expected deficiency using the straight-line method through the end of the lease term.

 

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8.  Shipping and Handling Fees

 

The Company records shipping and handling fees as selling, general and administrative expense.  For the three and nine months ended June 30, 2003, such costs were $3.1 million and $9.5 million, respectively.  For the three and nine months ended June 30, 2002, such costs were $3.6 million and $9.2 million, respectively.

 

9.  Net Income (Loss) Per Common Share - Basic and Diluted

 

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

 

		Three Months Ended June 30,				Nine Months Ended June 30,
		2003		2002		2003		2002
Weighted average common shares outstanding		6,418		6,387		6,418		6,375
Shares equivalents, due to stock options		—		156		9		51
Weighted average diluted shares outstanding		6,418		6,543		6,427		6,426

 

Options to purchase 1,235,446, 664,681, 158,000 and 750,610 shares were excluded from the diluted earnings per share calculations for the three and nine months ended June 30, 2003, and the three and nine months ended June 30, 2002, respectively, because the options’ exercise prices were greater than the average market price of the common shares during the period.

 

10.   Dividends

 

During the third quarter of fiscal 2003, the Company declared a cash dividend of $0.05 per share payable to the stockholders of record on ­­­­­­August 11, 2003, which will be paid on August 25, 2003.  The second quarter of fiscal 2003 dividend of approximately $0.3 million was paid in May 2003.

 

11.  Related Party Transactions

 

A director of the Company is a partner of a law firm that rendered various legal services for the Company during the three and nine months ended June 30, 2003 and 2002.  The Company paid the law firm approximately $0.1 million and $0.4 million for legal services during the three and nine months ended June 30, 2003, respectively.  The Company paid the law firm approximately $0.1 million and $0.6 million for legal services during the three and nine months ended June 30, 2002, respectively.  There were no material amounts due to such firm from the Company as of June 30, 2003 and September 30, 2002.

 

12.  Recently Issued Financial Accounting Standards

 

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51,” which addresses consolidation of variable interest entities (“VIEs”) to which the usual consolidation described in Accounting Research Bulletin No. 51, “Consolidated Financial Statements,” does not apply because the VIEs have no voting interests or otherwise are not subject to control through ownership of voting interests.  FIN 46 requires existing unconsolidated VIEs to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved.  The provisions of the interpretation 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 VIE created before February 1, 2003, must apply the provisions no later than the first reporting period beginning after June 15, 2003.  The interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements.   The Company has adopted the interpretation and has determined it is not party to any VIEs that would require consolidation.

 

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13.  Subsequent Event

 

On July 16, 2003, the Company sold its corporate headquarters facility to a third party for net proceeds of approximately $14.9 million, resulting in a gain of $5.8 million ($3.4 million net of tax).  On July 25, 2003, the Company used the proceeds from the sale to purchase an undivided interest in a new corporate headquarters facility for $14.1 million.  This exchange qualified as a Section 1031 like-kind exchange under the Internal Revenue Code.

 

12

 

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

 

The following discussion and analysis of the consolidated results of operations and financial condition of the Company should be read in conjunction with the accompanying consolidated financial statements and the notes thereto and the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, 2002.

 

Forward Looking Statements

 

This Quarterly Report on Form 10-Q includes forward-looking statements within 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 other than statements of historical facts contained in this report, including statements regarding the Company’s future financial position, business strategy and plans and objectives of management for future operations, are forward-looking statements.  The words “believe,” “may,” “will,” “estimate,” “continue,” “anticipate,” “intend,” “expect” and similar expressions, as they relate to the Company, are intended to identify forward-looking statements.  The Company has based these forward-looking statements largely on its current expectations and projections about future events and financial trends that the Company believes may affect its financial condition, results of operations, business strategy and financial needs.  These forward-looking statements are subject to a number of known and unknown risks, uncertainties and assumptions that could affect the results of the Company or the apparel industry generally and could cause the Company’s actual results to differ materially from those expressed in this Quarterly Report on Form 10-Q.  These risks, uncertainties and assumptions are described in “Item 1.  Business” of the Company’s Annual Report on Form 10-K, as amended, for the fiscal year ended September 30, 2002, and include, among other things:

 

•                  changes in general business conditions,

 

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

 

•                  seasonality of the Company’s business,

 

•                  changes in retailer and consumer acceptance of new products and the success of advertising, marketing, and promotional campaigns,

 

•                  impact of competition in the apparel industry,

 

•                  availability and cost of raw materials,

 

•                  changes in laws and other regulatory actions,

 

•                  changes in labor relations,

 

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

 

•                  unexpected judicial decisions,

 

•                  changes in interest rates and capital market conditions,

 

•                  acquisitions or dissolution of business enterprises, including the ability to integrate acquired businesses effectively,

 

•                  natural disasters, and

 

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

 

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In light of these risks, uncertainties and assumptions, the forward-looking events and circumstances discussed in this Quarterly Report on Form 10-Q may not occur and actual results could differ materially from those anticipated or implied in the forward-looking statements.  Accordingly, readers are cautioned not to place undue reliance on such forward-looking statements.  The Company undertakes no obligation to update any such statements or publicly announce any updates or revisions to any of the forward-looking statements contained herein, to reflect any change in its 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 dress men’s and women’s apparel products, including pants, shorts, suits, sportcoats, sweaters, shirts, dresses, skirts and vests in the United States and abroad.  The Company’s operations are organized into three business units, wholesale, retail and licensing, each of which offers similar products through different distribution channels.  The Company’s wholesale segment, which sells apparel products through approximately 10,000 retail stores operated by the Company’s retail customers, is the primary distribution channel through which the Company sells its products.  The Company’s retail segment markets Haggar® branded products through 67 Company-operated retail stores located in its Dallas headquarters and in outlet malls throughout the United States.  The Company’s licensing segment generates royalty income by licensing the Company’s trademarks for use by other manufacturers of specified products in specified geographic regions.

 

Critical Accounting Policies

 

There have been no material changes to the Company’s critical accounting policies during the nine months ended June 30, 2003.

 

Management’s Discussion and Analysis discusses the results of operations and financial condition as reflected in the Company’s consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. 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; and reorganization charges. Management bases its estimates and judgments on the Company’s substantial historical experience and other relevant factors, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.

 

While the Company believes that the historical experience and other factors considered provide a meaningful basis for the accounting policies applied in the preparation of the consolidated financial statements, the Company cannot guarantee that its estimates and assumptions will be accurate.  If such estimates and assumptions prove to be inaccurate, the Company may be required to make adjustments to these estimates in future periods.

 

Business Reorganizations

 

The Company’s strategy has been to source production internationally in order to remain competitive in the apparel marketplace and to provide high-quality, low-cost products as a value to its customers.  The 2002 and 2001 reorganizations were significant factors in implementing this strategy.

 

14

 

2002 Reorganization

 

On January 8, 2002, the Company announced plans to close its cutting facility in Weslaco, Texas.  Accordingly, the Company recorded a $1.0 million charge to operations in reorganization costs for the quarter ending March 31, 2002.  All 142 employees at the Weslaco facility were terminated in conjunction with the closure, which was completed in June 2002.  The plan has been executed and actual amounts paid pursuant to the plan approximated the initial $1.0 million charge.

 

In conjunction with the closure of the Edinburg, Texas manufacturing facility in fiscal 2001 (see 2001 Reorganization below), the net book value of the facility of $2.2 million was written off since the net realizable value of the facility was expected to be insignificant.  Subsequent to marketing this facility nationally, having appraisals completed on the property, and receiving an initial offer for this facility during the second quarter of fiscal 2002 (in excess of the pre-closure net book value), the Company reversed the original facility write-down and classified the facility as an asset held for sale.  The $2.2 million reversal was recorded as a credit to reorganization costs in the income statement in the second quarter of fiscal 2002.  In the second quarter of fiscal 2003, the Company sold the building for net cash proceeds of $2.5 million.  The sale resulted in a pre-tax gain of approximately $0.3 million which was recorded in other income, net.

 

The following summarizes the reorganization costs for the nine month period ended June 30, 2002 (in thousands):

 

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 its manufacturing facilities in the Dominican Republic.  Accordingly, the Company recorded a $0.6 million pre-tax charge to operations in reorganization costs in the fourth quarter of fiscal 2002.  All 341 employees at the facility were terminated in conjunction with the closure, which was completed in November 2002.  Severance payments of $0.5 million and other employee termination and administrative costs of $0.1 million were paid during the nine months ended June 30, 2003.

 

In addition to the reorganization activities noted above, the Company reduced its sales force during the fourth quarter of fiscal 2002, terminating 6 employees.  As a result, the Company recorded a $1.0 million pre-tax charge to operations in selling, general and administrative expenses.   The Company paid $0.6 million in severance payments during the nine months ended June 30, 2003, and periodic severance payments to these terminated employees will continue through January 2004.  The remaining $0.4 million in severance payments have been included in accrued liabilities as of June 30, 2003.

 

2001 Reorganization

 

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

 

15

 

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

 

		Balance September 30, 2002			Payments			Adjustments			Balance June 30, 2003
Employee termination and related costs		$	1.2		$	(0.3	)	$	—		$	0.9
Legal costs		1.5			—			—			1.5

 

Comparison of Three Months Ended June 30, 2003 to Three Months Ended June 30, 2002

 

Net Sales

 

Net sales decreased $3.8 million, or 3.4%, to $107.4 million for the third quarter of fiscal 2003, compared to net sales of $111.2 million for the third quarter of fiscal 2002.  The decrease in net sales is primarily attributable to decreased sales of women’s wear and DKNY® licensed products, offset in part by increased sales of Haggar® branded products including the new comfort fit waist pants.  Unit sales increased 0.6% while the average sales price decreased 4.0% during the third quarter of fiscal 2003 compared to the third quarter of fiscal 2002.  The sales prices decreased due to pressures in the marketplace by customers and competitors.

 

Gross Profit

 

Gross profit as a percentage of net sales increased to 29.1% in the third quarter of fiscal 2003, compared to 25.0% in the third quarter of fiscal 2002.  The increase in gross profit is primarily due to increased gross profit on the new comfort fit waist pants and decreased inventory markdowns during the period.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses as a percentage of net sales increased to 24.7% in the third quarter of fiscal 2003, compared to 24.3% in the third quarter of fiscal 2002, but decreased overall from period to period.  The $0.4 million, or 1.6%, decrease in selling, general and administrative expenses primarily relates to a $1.3 million decrease in advertising and marketing expenses, a $0.4 million reduction in royalty and marketing expenses due to the termination of the DKNY® license and a $0.5 million reduction in shipping expenses due to efficiencies within the distribution channel.  The expense decreases were offset in part by a $0.7 million increase in expenses related to employee benefits and workers’ compensation expenses and $0.9 million in other miscellaneous expense increases.

 

Other Income

 

Other income decreased $0.4 million to $0.1 million during the third quarter of fiscal 2003, compared to $0.5 million for the third quarter of fiscal 2002, as fiscal 2002 results include a $0.5 million gain from the sale of a manufacturing facility during the period.

 

Interest Expense

 

Interest expense decreased $0.1 million, or 18.8%, to $0.6 million for the third quarter of fiscal 2003, compared to $0.7 million for the third quarter of fiscal 2002, primarily due to reduced debt levels throughout the third quarter of fiscal 2003 combined with lower interest rates on variable rate debt.

 

Income Taxes

 

The Company’s income tax provision as a percentage of income before income tax and cumulative effect of accounting change was 41.5% for the third quarter of fiscal 2003.  Comparatively, the Company’s income tax provision as a percentage of income before income tax and cumulative effect of accounting change was 42.9% for the third quarter of fiscal 2002.

 

16

 

Comparison of Nine Months Ended June 30, 2003 to Nine Months Ended June 30, 2002

 

Net Sales

 

Net sales increased $8.2 million, or 2.4%, to $356.8 million for the nine months ended June 30, 2003, compared to net sales of $348.6 million for the nine months ended June 30, 2002.  The increase in net sales is primarily attributable to increased sales of Haggar® branded products including the new comfort fit waist pants, improved private label business and increased sales of Claiborne® licensed products, offset in part by decreased sales of women’s wear and DKNY® licensed products.  Unit sales increased 10.4% while the average sales price decreased 8.0% due to pressures in the marketplace by customers and competitors.

 

Gross Profit

 

Gross profit as a percentage of net sales decreased to 26.5% in the nine months ended June 30, 2003, compared to 26.6% in the nine months ended June 30, 2002.  The decrease in gross profit percentage is related to decreases in sales prices due to pressures in the marketplace by customers and competitors combined with the changing product mix, offset in part by decreased inventory markdowns during the period.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses as a percentage of net sales increased to 25.2% in the nine months ended June 30, 2003, compared to 24.1% in the nine months ended June 30, 2002.  The $6.2 million, or 7.4%, increase in selling, general and administrative expenses primarily relates to an increase in media advertising expense of $3.1 million to introduce the Haggar® comfort fit waist pants, $1.2 million in legal and professional fees incurred in a proxy matter involving a Company stockholder, $0.5 million related to the settlement of a lawsuit with the landlord of the Company’s Jerell, Ltd. headquarters, $0.3 million in additional shipping expenses due to increased sales volumes, $0.5 million in expenses related to increased sales for the Claiborne® division, $0.6 million in expenses related to the new Junior apparel division, $1.0 million in salaries and other employee compensation, $1.0 million in expenses related to employee benefits and workers’ compensation costs and $0.2 million in other administrative expense increases.  The expense increases were offset by a $2.2 million decrease in cooperative advertising expenses.

 

Other Income

 

Other income remained constant at $0.6 million for both the nine months ended June 30, 2003 and 2002.  The Company sold separate manufacturing facilities during each of the nine month periods for pre-tax gains of approximately $0.3 and $0.5 million during fiscal 2003 and 2002, respectively.

 

Interest Expense

 

Interest expense decreased $0.8 million, or 29.7%, to $2.0 million for the nine months ended June 30, 2003, compared to $2.8 million for the nine months ended June 30, 2002, primarily due to significantly reduced debt levels throughout the nine months ended June 30, 2003 combined with lower interest rates on variable rate debt.

 

Income Taxes

 

The Company’s income tax provision as a percentage of income before income tax and cumulative effect of accounting change was 41.5% for the nine months ended June 30, 2003.  Comparatively, the Company’s income tax provision as a percentage of income before income tax and cumulative effect of accounting change was 39.3% for the nine months ended June 30, 2002.  The increase in the effective tax rate was primarily due to a decrease in income before provision for income taxes and cumulative effect of accounting change during the nine months ended June 30, 2003 as compared to the nine months ended June 30, 2002, while permanent differences remained constant.

 

17

 

Cumulative Effect of Accounting Change

 

On October 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets,” and recorded a $15.6 million impairment of goodwill related to the 1999 acquisition of Jerell, the Company’s women’s wear subsidiary.  Subsequent to the acquisition, pricing pressures and a weak retail environment for women’s apparel resulted in a revised earnings forecast for Jerell and the women’s wear business.  In order to determine the fair value of goodwill, the Company obtained an independent appraisal, which considered both prices of comparable businesses and 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 are business units that offer similar products through different distribution channels.  The Company’s wholesale segment designs, manufactures, imports and markets casual and dress men’s and women’s apparel to retailers throughout North America and the United Kingdom.  The Company also operates a retail segment, which markets Haggar® branded products through 67 Company-operated stores located in its Dallas headquarters and in outlet malls throughout the United States, and a licensing segment, which generates royalty income by licensing the Company’s trademarks for use by other manufacturers of specified products in specified geographic areas.  The retail and licensing segments are not material for separate disclosure, and have been combined in the results below.  The Company evaluates performance and allocates resources based on segment profits.

 

Intercompany sales from the wholesale segment to the retail segment are not reflected in the wholesale segment’s net sales.  Additionally, there is no profit included on sales from the wholesale segment to the retail segment.  Segment profit (loss) is comprised of segment net income before interest expense, provision for income taxes and cumulative effect of accounting change.

 

18

 

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

 

 

 

 

Wholesale Segment

 

Wholesale segment net sales decreased $4.0 million, or 4.0%, to $95.7 million for the third quarter of fiscal 2003, compared to $99.8 million for the third quarter of fiscal 2002.  The decrease in wholesale segment net sales during the third quarter of fiscal 2003 is primarily attributable to decreased sales of women’s wear, private label and DKNY® licensed products, offset by increased sales of Haggar® branded products, including the new comfort fit waist pants.

 

Wholesale segment net sales increased $8.8 million, or 2.8%, to $322.8 million for the nine months ended June 30, 2003, compared to $314.1 million for the nine months ended June 30, 2002.  The increase in wholesale segment net sales is primarily attributable to increased sales of Haggar® branded products, including the new comfort fit waist pants, improved private label business and increased sales of Claiborne® licensed products, offset by decreased sales of women’s wear and DKNY® licensed products.

 

Wholesale segment profit increased $3.4 million, or 207.2%, to $5.0 million for the third quarter of fiscal 2003, compared to $1.6 million for the third quarter of fiscal 2002.  The increase in segment profit is primarily attributable to increased gross profit percentages due to new product introductions and fewer inventory markdowns, together with a $0.3 million decrease in selling, general and administrative expenses, primarily due to lower shipping and advertising expenses, offset in part by a decrease in sales during the period.

 

Wholesale segment profit decreased $4.0 million, or 39.2%, to $6.3 million for the nine months ended June 30, 2003, compared to $10.3 million for the nine months ended June 30, 2002.  The decrease in segment profit is primarily attributable to a $6.9 million increase in selling, general and administrative expenses primarily related to media advertising expenses, the settlement of a proxy matter, settlement of a lawsuit at Jerell, Ltd. and other administrative expense increases, offset in part by increased sales.

 

19

 

Liquidity and Capital Resources

 

The Company’s principal sources of liquidity have been cash flows from operations and borrowings under its unsecured revolving credit facility.  As of June 30, 2003, the Company had cash and cash equivalents of $13.0 million.

 

As of June 30, 2003, the Company had no amounts outstanding under the $110.0 million unsecured revolving credit agreement (the “Agreement”) and available borrowing capacity that is restricted to $52.2 million under the Agreement’s funded debt to operating cash flow covenant.  The Company incurred approximately $0.2 million in commitment fees related to the available borrowing capacity during the nine months ended June 30, 2003.  The interest rates ranged from 2.52% to 4.75% during the nine months ended June 30, 2003 and were based on variable market rates (LIBOR or prime rate).  The Agreement prohibits the Company from pledging its accounts receivables and inventories, contains limitations on incurring additional indebtedness, requires maintaining minimum net worth levels of the Company and the Company’s main operating subsidiary, and requires the maintenance of certain financial ratios.  The Company’s failure to satisfy these covenants could adversely affect the Company’s ability to meet its needs and pay dividends.

 

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

 

Long-term debt includes $2.2 million in Industrial Development Revenue (“IDR”) bonds.  Significant terms of the IDR bonds include interest at a rate equal to that of high quality, short-term, tax exempt obligations, as defined in the agreement.  The interest rate at June 30, 2003, was 1.1%.  The IDR bonds are payable in annual installments of $0.1 million, with a final payment of $2.0 million in fiscal 2006.  The IDR bonds are collateralized by certain buildings and equipment with a net book value of $0.4 million as of June 30, 2003.

 

Certain of the Company’s long-term debt facilities contain restrictions on the ability of the Company’s subsidiaries to transfer funds to Haggar Corp.  As of June 30, 2003, the Company was in full compliance with its financial and other covenants.

 

As of June 30, 2003, and September 30, 2002, the Company had outstanding $39.6 million and $22.9 million, respectively, of trade letters of credit for the purchase of inventory from foreign suppliers in the ordinary course of business.  The increase in trade letters of credit outstanding for inventory purchases is primarily due to the seasonality of the business and increased production in the Eastern hemisphere.  These trade letters of credit, generally for periods of less than six months, will only be paid upon satisfactory receipt of the inventory by the Company.  As of June 30, 2003, and September 30, 2002, the Company had entered into $7.3 million of standby letters of credit representing contingent guarantees of performance under self-insurance and other programs.  These commitments would only be drawn upon if the Company failed to meet its claims obligations.

 

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

 

Based on an estimated $3.1 million market value for the aircraft when the lease ends in 2004, the Company began accruing the $0.9 million expected deficiency in the three months ended March 31, 2003.  As of June 30, 2003, the Company included $0.2 million in other accrued liabilities related to the deficiency.  The remainder will be accrued up to the $0.9 million expected deficiency using the straight-line method through the end of the lease term.

 

20

 

On July 16, 2003, the Company sold its corporate headquarters facility to a third party for net proceeds of approximately $14.9 million.  On July 25, 2003, the Company used the proceeds from the sale to purchase an undivided interest in a new corporate headquarters facility for $14.1 million.  This exchange qualified as a Section 1031 like-kind exchange under the Internal Revenue Code.  The Company expects to record a pre-tax gain on the sale, net of related one-time costs, of approximately $4.0 million to $4.7 million during the fourth quarter of fiscal 2003.

 

During the third quarter of fiscal 2003, the Company declared a cash dividend of $0.05 per share payable to the stockholders of record on August 11, 2003, which will be paid on August 25, 2003.  The second quarter of fiscal 2003 dividend of approximately $0.3 million was paid in May 2003.

 

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

 

In November 2002, co-trustees of a trust which owns shares of the Company’s common stock filed preliminary proxy materials with the Securities and Exchange Commission indicating that they intended to solicit stockholders in support of their own slate of directors.  The Company entered into an agreement to settle this proxy contest in February 2003.  The Company incurred expenses of $1.2 million in legal and professional fees during the nine months ended June 30, 2003 related to this matter, and all amounts had been paid as of June 30, 2003.

 

Two jury verdicts totaling $5.2 million have been returned against subsidiaries of the Company related to claims by former employees for wrongful discharge and common law tort.  One of the verdicts was settled on September 30, 2002, for $1.3 million.  The other case is currently on appeal, as management, based on the advice of legal counsel, believes the verdict in this lawsuit is both legally and factually incorrect.  Management does not believe that the outcome of this appeal will have a material adverse effect on the Company.  The Company is involved in various other claims and lawsuits incidental to its business. In the opinion of management, these claims and suits in the aggregate will not have a material adverse effect on the Company.

 

Cash Flow Results for the Nine Months Ended June 30, 2003

 

For the nine months ended June 30, 2003, cash flows provided by operating activities was approximately $31.1 million.  Cash flows provided by operations was primarily the result of net income as adjusted for non-cash items, a $26.2 million decrease in accounts receivable, net, primarily due to the seasonality of sales and improved cash collections, and a $2.0 million decrease in inventories, net, offset by a $4.8 million decrease in accrued liabilities primarily due to severance payments, tax payments and decreased royalty and advertising accruals.  In addition, accrued wages and other employee compensation decreased $1.0 million, primarily due to the payment of bonuses during the period offset by accruals for current period charges.

 

Cash flows provided by investing activities were approximately $0.5 million mainly due to proceeds from the sale of the Edinburg, Texas manufacturing facility of $2.5 million, offset by equipment purchases and $0.7 million in insurance premium payments which increased the cash surrender value of certain whole life policies.

 

Cash flows used in financing activities were approximately $22.7 million due to net repayment of borrowings of long-term debt of $15.7 million, dividend payments of $1.0 million and a decrease in cash book overdrafts of $6.0 million.

 

21

 

Cash Flow Results for the Nine Months Ended June 30, 2002

 

For the nine months ended June 30, 2002, cash flows provided by operating activities were approximately $22.7 million.  The cash provided from operations was primarily the result of net income as adjusted for non-cash items, a $20.7 million decrease in accounts receivable, net, and a $2.4 million decrease in inventories, net, offset by a $6.2 million decrease in accounts payable and a $3.7 million decrease in accrued wages, workers’ compensation, other employee benefits and other current and non-current liabilities.

 

The Company used cash flows of approximately $3.3 million for investing activities for the nine months ended June 30, 2002, primarily due to purchases of property, plant and equipment of $1.9 million principally related to fixtures and leasehold improvements for new retail stores as well as an increase in other assets of $1.5 million primarily due to additional premium payments for executive variable life insurance policies.

 

Cash flows used in financing activities of $19.8 million for the nine months ended June 30, 2002, were primarily the result of a net decrease in long-term debt of $19.3 million and dividend payments of $1.0 million.

 

Recently Issued Financial Accounting Standards

 

In January 2003, the FASB issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities – an Interpretation of ARB No. 51,” which addresses consolidation of variable interest entities (“VIEs”) to which the usual consolidation described in Accounting Research Bulletin No. 51,” “Consolidated Financial Statements,” does not apply because the VIEs have no voting interests or otherwise are not subject to control through ownership of voting interests.  FIN 46 requires existing unconsolidated VIEs to be consolidated by their primary beneficiaries if the entities do not effectively disperse risks among parties involved.  The provisions of the interpretation 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 VIE created before February 1, 2003, must apply the provisions no later than the first reporting period beginning after June 15, 2003.  The interpretation may be applied prospectively with a cumulative-effect adjustment as of the date on which it is first applied or by restating previously issued financial statements.  The Company has adopted the interpretation and has determined it is not party to any VIEs that would require consolidation.

 

22

 

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.

 

The Company is exposed to market risk from changes in foreign currency exchange risk and interest rate risk, which may adversely affect its financial position, results of operations and cash flows. The Company does not use financial instruments for trading or other speculative purposes and is not a party to any derivative financial instrument.  As of June 30, 2003, the Company’s exposure to interest rate risk was minimal due to the low level of variable rate debt.

 

Item 4.  Controls and Procedures

 

The Chief Executive Officer and Chief Financial Officer of the Company have reviewed and evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 240.13a-14(c) and 15d-14(c)), and have concluded that, as of the end of the period covered by this quarterly report on Form 10-Q, such disclosure controls and procedures are effective in timely alerting them to material information relating to the Company required to be disclosed in the periodic reports the Company files or submits under the Securities Exchange Act of 1934.  During the most recent fiscal quarter, there have not been any significant changes in the internal controls over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

23

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Part II.  Other Information.

 

Item 1.  Legal Proceedings

 

None.

 

Item 2.  Changes in Securities and Use of Proceeds

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

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

 

The Company’s Annual Meeting of Stockholders was held on April 2, 2003. At such meeting, Rae F. Evans and Donald E. Godwin were elected to serve as Class I directors of the Company for a three year term and until their respective successors are elected and qualified. Of the 6,029,942 shares represented at the meeting in person or by proxy, Ms. Evans and Mr. Godwin received 5,502,150 and 5,506,180 votes, respectively, for their election as Class I directors.  Of the shares represented, 527,792 and 523,762 shares withheld vote for the election of Ms. Evans and Mr. Godwin, respectively.  The other directors whose terms of office continued after the meeting are as follows: J. M. Haggar, III, Richard W. Heath, John C. Tolleson, James Neal Thomas and Thomas G. Kahn.

 

The stockholders also approved the adoption of the Haggar Corp. 2003 Long Term Incentive Plan (the “Plan”) at such meeting.  The resolution to approve and adopt the Plan received 2,558,548 votes for the resolution, and 2,166,088 against, with 92,154 shares abstaining on the matter.

 

The stockholders also ratified the selection of PricewaterhouseCoopers LLP as the independent auditors for the Co mpany for the fiscal year ended September 30, 2003.  The votes with respect to this resolution were 6,021,870 for the resolution and 5,873 against, with 2,199 shares abstaining on the matter.

 

A description of the terms of the settlement of a proxy contest between the Company and the co-trustees of a trust owning shares of the Company’s common stock is contained in the Company’s definitive proxy statement dated March 4, 2003.

 

Item 5.  Other Information

 

None.

 

Item 6.  Exhibits and Reports on Form 8-K

 

(a)          Exhibits.

 

10(a) – Second Amendment to Second Amended and Restated Credit Agreement dated June 6, 2003, between the Company and JPMorgan Chase Bank, as agent for a bank syndicate

 

10(b) – Commercial Contract – Improved Property effective as of May 9, 2003, between Colinas Crossing, L.P. and the Company

 

10(c) – First Amendment to Commercial Contract – Improved Property effective as of June 3, 2003 between Colinas Crossing, L.P. and the Company

 

10(d) – Second Amendment to Commercial Contract – Improved Property effective as of July 8, 2003 between Colinas Crossing, L.P. and the Company

 

24

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10(e) – Third Amendment to Commercial Contract – Improved Property effective as of July 9, 2003 between Colinas Crossing, L.P. and the Company

 

10(f) – Fourth Amendment to Commercial Contract – Improved Property effective as of July 10, 2003 between Colinas Crossing, L.P. and the Company

 

10(g) – Fifth Amendment to Commercial Contract – Improved Property effective as of July 15, 2003 between Colinas Crossing, L.P. and the Company

 

10(h) – Sixth Amendment to Commercial Contract – Improved Property effective as of July 17, 2003 between Colinas Crossing, L.P. and the Company

 

10(i) – Seventh Amendment to Commercial Contract – Improved Property effective as of July 18, 2003 between Colinas Crossing, L.P. and the Company

 

10(j) – Eighth Amendment to Commercial Contract – Improved Property effective as of July 21, 2003 between Colinas Crossing, L.P. and the Company

 

10(k) – Ninth Amendment to Commercial Contract – Improved Property effective as of July 23, 2003 between Colinas Crossing, L.P. and the Company

 

31(a) – Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(b)

 

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

 

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

 

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

 

(b)         Reports on Form 8-K.

 

A Form 8-K was filed on April 29, 2003, announcing, under Item 7, the issuance of a press release and, under Item 9, the Company’s second quarter and projected fiscal 2003 earnings.

 

25

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

 

	Haggar Corp.,
Date: August 14, 2003	By:	/s/ David M. Tehle
		David M. Tehle
		(Executive Vice President, Chief Financial Officer, Secretary, Treasurer)
		Signed on behalf of the registrant and as principal financial officer.

 

26

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INDEX TO EXHIBITS

 

Exhibit Number		Description
10(a)		Second Amendment to Second Amended and Restated Credit Agreement dated June 6, 2003, between the Company and JPMorgan Chase Bank, as agent for a bank syndicate
10(b)		Commercial Contract – Improved Property effective as of May 9, 2003, between Colinas Crossing, L.P. and the Company
10(c)		First Amendment to Commercial Contract – Improved Property effective as of June 3, 2003 between Colinas Crossing, L.P. and the Company
10(d)		Second Amendment to Commercial Contract – Improved Property effective as of July 8, 2003 between Colinas Crossing, L.P. and the Company
10(e)		Third Amendment to Commercial Contract – Improved Property effective as of July 9, 2003 between Colinas Crossing, L.P. and the Company
10(f)		Fourth Amendment to Commercial Contract – Improved Property effective as of July 10, 2003 between Colinas Crossing, L.P. and the Company
10(g)		Fifth Amendment to Commercial Contract – Improved Property effective as of July 15, 2003 between Colinas Crossing, L.P. and the Company
10(h)		Sixth Amendment to Commercial Contract – Improved Property effective as of July 17, 2003 between Colinas Crossing, L.P. and the Company
10(i)		Seventh Amendment to Commercial Contract – Improved Property effective as of July 18, 2003 between Colinas Crossing, L.P. and the Company
10(j)		Eighth Amendment to Commercial Contract – Improved Property effective as of July 21, 2003 between Colinas Crossing, L.P. and the Company
10(k)		Ninth Amendment to Commercial Contract – Improved Property effective as of July 23, 2003 between Colinas Crossing, L.P. and the Company
31(a)		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(b)
31(b)		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(b)
32(a)		Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350
32(b)		Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350

 

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