UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

(Mark One)

 

 

Commission File Number:  0-20850

 

HAGGAR CORP.

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

 

 

Nevada		75-2187001
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification Number)
11511 Luna Road Dallas, Texas  75234
(Address of principal executive offices) (Zip Code)
Telephone Number: (214) 352-8481
(Registrant’s telephone number, including area code)

 

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 10, 2004, there were 7,203,322 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, 2004 and September 30, 2003)
		Consolidated Statements of Operations and Comprehensive Income (Three and nine months ended June 30, 2004 and 2003)
		Consolidated Statements of Cash Flows (Nine months ended June 30, 2004 and 2003)
		Notes to Consolidated Financial Statements
	Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations
	Item 3.		Quantitative and Qualitative Disclosures about Market Risk
	Item 4.		Controls and Procedures
Part II. Other Information.
	Item 1.		Legal Proceedings
	Item 2.		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
Signatures

 

2

 

Haggar Corp. and Subsidiaries

 

Consolidated Balance Sheets

(in thousands, except share and per share amounts)

 

		June 30, 2004			September 30, 2003
		(unaudited)
Assets
Current assets:
Cash and cash equivalents		$	20,687		$	7,674
Accounts receivable, net		51,790			56,528
Inventories, net		96,164			96,959
Deferred tax asset		10,505			10,505
Other current assets		5,116			3,557
Total current assets		184,262			175,223
Property, plant and equipment, net		44,559			45,932
Goodwill, net		9,472			9,472
Other assets		7,142			7,580
Total assets		$	245,435		$	238,207
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable		$	20,837		$	26,245
Accrued liabilities		35,373			31,898
Accrued wages and other employee compensation		6,167			7,228
Current portion of long-term debt		3,673			3,671
Total current liabilities		66,050			69,042
Other non-current liabilities		10,782			9,554
Deferred tax liability		523			523
Long-term debt		2,000			5,671
Total liabilities		79,355			84,790
Commitments and contingencies
Stockholders’ equity:
Preferred stock – par value $0.10 per share; 250,000 shares authorized and no shares issued and outstanding at June 30, 2004 or September 30, 2003		—			—
Common stock – par value $0.10 per share; 25,000,000 shares authorized;  9,445,192 and 8,718,609 shares issued at June 30, 2004 and September 30, 2003, respectively		944			872
Additional paid-in capital		53,345			43,653
Deferred compensation		(1,978		)	—
Foreign currency translation adjustment		230			(163		)
Retained earnings		138,500			134,016
		191,041			178,378
Less – Treasury stock, 2,242,183 shares at cost at June 30, 2004 and September 30, 2003		(24,961		)	(24,961		)
Total stockholders’ equity		166,080			153,417
Total liabilities and stockholders’ equity		$	245,435		$	238,207

 

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

 

3

 

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,
		2004			2003			2004			2003
Net sales		$	116,347		$	107,435		$	356,146		$	356,828
Cost of goods sold		84,109			76,166			255,690			262,106
Gross profit		32,238			31,269			100,456			94,722
Selling, general and administrative expenses		(29,368		)	(26,556		)	(91,429		)	(90,079		)
Royalty income		255			378			854			1,052
Other income (expense), net		(30		)	102			369			603
Interest expense		(393		)	(570		)	(1,309		)	(1,973		)
Income before provision for income taxes		2,702			4,623			8,941			4,325
Provision for income taxes		1,032			1,919			3,415			1,795
Net income		$	1,670		$	2,704		$	5,526		$	2,530
Other comprehensive income:
Foreign currency translation adjustment		$	135		$	195		$	393		$	180
Comprehensive income		$	1,805		$	2,899		$	5,919		$	2,710
NET INCOME PER COMMON SHARE:
• Basic		$	0.24		$	0.42		$	0.81		$	0.39
• Diluted		$	0.23		$	0.42		$	0.79		$	0.39
Weighted average number of common shares outstanding:
• Basic		7,049			6,418			6,810			6,418
• Diluted		7,164			6,418			6,962			6,427

 

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

 

4

 

Haggar Corp. and Subsidiaries

 

Consolidated Statements of Cash Flows

(unaudited, in thousands)

 

		Nine Months Ended June 30,
		2004			2003
Cash Flows from Operating Activities
Net income		$	5,526		$	2,530
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		4,548			6,213
Deferred tax expense		—			392
Gain on the disposal of property, plant and equipment		(232		)	(248		)
Stock-based compensation expense		389			—
Increase in cash surrender value of officers’ life insurance policies		(370		)	(179		)
Changes in assets and liabilities:
Accounts receivable, net		5,079			25,987
Inventories, net		956			2,125
Other current assets		(1,662		)	(567		)
Other assets		(21		)	—
Accounts payable		(1,233		)	(484		)
Accrued liabilities		3,475			(4,781		)
Accrued wages and other employee compensation		(1,139		)	(1,056		)
Other non-current liabilities		1,228			1,163
Net cash provided by operating activities		16,544			31,095
Cash Flows from Investing Activities
Purchases of property, plant and equipment, net		(2,846		)	(1,307		)
Proceeds from sale of property, plant and equipment		232			2,493
Decrease in restricted cash		1,287			—
Proceeds from officers’ life insurance policies		471			—
Premiums for officers’ life insurance policies		(693		)	(680		)
Net cash provided by (used in) investing activities		(1,549		)	506
Cash Flows from Financing Activities
Proceeds from issuance of long-term debt		66,000			213,000
Payments on long-term debt		(69,669		)	(228,743		)
Proceeds from exercise of employee stock options		7,474			—
Debt issuance costs		(420		)	—
Decrease in book overdrafts		(4,472		)	(6,000		)
Payments of cash dividends		(1,043		)	(963		)
Net cash used in financing activities		(2,130		)	(22,706		)
Effect of exchange rates on cash and cash equivalents		148			28
Increase in cash and cash equivalents		13,013			8,923
Cash and cash equivalents, beginning of period		7,674			4,124
Cash and cash equivalents, end of period		$	20,687		$	13,047

 

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

 

5

 

Haggar Corp. and Subsidiaries

 

Notes to Consolidated Financial Statements

(unaudited)

 

1.  Basis of Presentation

 

Financial Statement Preparation

 

The consolidated balance sheet as of June 30, 2004, the consolidated statements of operations and comprehensive income for the three months and nine months ended June 30, 2004 and 2003, and the consolidated statements of cash flows for the nine months ended June 30, 2004 and 2003, have been prepared by Haggar Corp. (together with its subsidiaries, the “Company”) without audit.  The consolidated balance sheet as of September 30, 2003 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 adjustments necessary (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, 2004, and for all other periods presented, have been made.  Certain information and disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted in accordance with the Securities and Exchange Commission’s rules for interim reporting.  Accordingly, these financial statements should be read in conjunction with the financial statements and accompanying notes thereto in the Company’s Annual Report on Form 10-K for the fiscal year ended September 30, 2003.

 

Accounting for Stock Based Compensation

 

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

 

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2004			2003			2004			2003
Net income:
As reported		$	1,670		$	2,704		5,526			$	2,530
Add back:  Stock-based compensation included in net income as reported, net of related tax effects		106			—			241			—
Less:  Pro-forma stock-based compensation expense, net of related tax effects		(114		)	(25		)	(266		)	(75		)
Pro-forma net income		$	1,662		$	2,679		$	5,501		$	2,455
Net income per common share:
•Basic
As reported		$	0.24		$	0.42		$	0.81		$	0.39
Pro forma		$	0.24		$	0.42		$	0.81		$	0.38
•Diluted
As reported		$	0.23		$	0.42		$	0.79		$	0.39
Pro forma		$	0.23		$	0.42		$	0.79		$	0.38

 

6

 

On March 11, 2004, the Company granted an aggregate of 15,000 options to certain directors.  The options vest over three years.  The fair value of the option grants of $7.50 was estimated on the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:  risk-free interest rate of 2.72%; expected lives of 5.53 years; expected volatility of 45.27% and an expected dividend rate of $0.20.

 

In the second quarter of fiscal 2004, 125,000 shares of restricted stock with fair values ranging from $19.69 – $19.85 per share were granted to certain officers and directors of the Company under the Company’s long-term incentive plan adopted in fiscal 2003.  The shares have dividend rights and voting rights, but are subject to restrictions on transfer and risk of forfeiture until vested.  The shares vest in three equal annual installments.  The Company recorded deferred compensation of $2.5 million related to the grants in stockholders’ equity, which will be amortized as expense on a straight-line basis over the vesting periods of the awards.  In May 2004, one of the Company’s officers resigned and forfeited 10,000 nonvested shares.  The Company reversed $0.2 million in deferred compensation related to these shares, as well as minimal expense the Company had recognized through the date of forfeiture.

 

Reclassifications

 

Certain items in the prior period presentation have been reclassified to 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, 2004, and September 30, 2003 (in thousands):

 

 

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

 

3.  Long-Term Debt

 

Long-term debt consisted of the following at June 30, 2004, and September 30, 2003 (in thousands):

 

		June 30, 2004			September 30, 2003
Borrowings under revolving credit line		$	—		$	—
Industrial Development Revenue Bonds		2,100			2,200
Senior notes		3,573			7,142
Total debt		5,673			9,342
Less – current portion		(3,673		)	(3,671		)
Long-term debt		$	2,000		$	5,671

 

In May 2004, the Company amended and restated its unsecured revolving credit agreement (the “Agreement”) with certain banks primarily to extend the maturity date to June 30, 2007 and increase the maximum borrowings to $111.0 million.  The available borrowing capacity was restricted to $66.0 million at June 30, 2004, under the Agreement’s funded debt to operating cash flow covenant.  The Company incurred approximately $0.2 million in commitment

 

7

 

fees related to the available borrowing capacity during the nine months ended June 30, 2004. The interest rates ranged from 2.34% to 4.00% during the nine months ended June 30, 2004, and were based upon both margins over a bank base rate and margins over LIBOR, depending on the borrowing option selected by the Company.  The Agreement prohibits the Company from pledging its accounts receivable 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.  As of June 30, 2004, the Company was in full compliance with its financial and other covenants under the Agreement.

 

Long-term debt also includes $3.6 million in senior notes at June 30, 2004.  Significant terms of the senior notes include interest payable semi-annually at 8.49% per annum with the final principal payment of $3.6 million due on October 30, 2004.  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 also includes $2.1 million in Industrial Development Revenue (“IDR”) bonds at June 30, 2004.  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, 2004, was 1.1%.  The IDR bonds mature in fiscal 2026, but the Company has the option to prepay the balance without penalty in fiscal 2006.  The Company plans to exercise the prepayment option, and to make principal payments of $0.1 and $2.0 million in fiscal 2005 and 2006, respectively.  The IDR bonds are collateralized by certain buildings and equipment of $0.3 million as of June 30, 2004.

 

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

 

4.  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 69 Company operated stores located 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 is comprised of segment net income before interest expense and provision for income taxes.

 

8

 

The table below reflects the Company’s segment results for the three and nine months ended June 30, 2004 and 2003 (in thousands):

 

 

 

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

 

 

		Three Months Ended June 30,						Nine Months Ended June 30,
		2004			2003			2004			2003
Segment profit		$	3,095		$	5,193		$	10,250		$	6,298
Interest expense		(393		)	(570		)	(1,309		)	(1,973		)
Consolidated income before provision for income taxes		$	2,702		$	4,623		$	8,941		$	4,325

 

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

 

5.  Commitments and Contingencies

 

The Company maintains an operating lease for its corporate aircraft, which contains a residual guarantee for the market value of the plane 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.

 

9

 

Based on an estimated $3.1 million market value for the aircraft when the lease ends in 2004, the Company began accruing a $0.9 million expected deficiency in fiscal 2003.  The Company obtained an updated estimate as of June 30, 2004, which reflected a revised market value for the aircraft of $3.3 million.   As of June 30, 2004, the Company included $0.7 million in accrued liabilities, which had been accrued based on the previous estimate of the market value of the aircraft.  As the amount accrued as of June 30, 2004 represents the anticipated deficiency based on the most recent estimate of market value, the Company will not record additional accruals related to the residual value guarantee until the lease termination date.

 

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

 

During March 2004, the Company reached a settlement agreement related to an action for trademark infringement.  Under the terms of the settlement, the Company paid $0.6 million to the plaintiff, which the Company had accrued in fiscal 2003, net of anticipated insurance proceeds, based on the Company’s estimated range of probable loss.   In April 2004, the Company received reimbursement for a portion of the settlement from an insurer of $0.3 million.  The Company does not anticipate additional reimbursement for the remainder of the settlement.

 

The Company is a defendant in a wrongful termination lawsuit in which a jury rendered a verdict in favor of the plaintiff against the Company in the amount of $843,000, subject to potential doubling in the event judgment is entered on the jury’s finding of willful discrimination, plus pre- and post-judgment interest and attorneys’ fees.  The trial court reversed the jury’s verdict and rendered a judgment in favor of the Company denying all recovery on the basis that the plaintiff had failed to prove any liability of the Company.  The plaintiff appealed to the United States Court of Appeals for the Fifth Circuit, which reversed the judgment of the trial court and remanded the matter back to the trial court for further proceedings.  The United States Supreme Court subsequently denied the Company’s request for review of the case.  As a result of this ruling, during the second quarter of fiscal 2004 the Company recorded $0.5 million based on the estimated range of probable loss in the case, which is included in accrued liabilities as of June 30, 2004. 

 

Upon remand, the Company requested that the trial court set aside the jury’s finding of willful discrimination and reduce the jury’s calculation of damages.  On August 4, 2004, the trial court denied the Company’s motion, but deferred entering judgment on the jury verdict pending a hearing on interest, attorneys’ fees and front pay.  Based on management’s evaluation of all information received, including the August 4, 2004 ruling, the Company believes the $0.5 million accrued liability continues to be adequate for the estimated loss in this case.  However, upon the entry of a final judgment by the trial court, the Company intends to re-evaluate its estimate of probable loss in the case in light of the amount of the final judgment, its determination whether to appeal the judgment and its assessment of the potential outcomes of any such appeal.  Any increase in the estimate of probable loss from this lawsuit could have a material adverse impact on the Company’s results of operations for the fourth quarter and full year of fiscal 2004.

 

One attorney has filed five separate suits against certain subsidiaries of the Company alleging injuries to approximately 2,200 former employees from airborne fibers and chemicals in certain of the Company’s now closed facilities located in south Texas.  All proceedings in one suit naming over 2,100 plaintiffs have been stayed due to the unrelated bankruptcy of one of the other defendants.  Another suit, which named 71 plaintiffs, has been dismissed, but plaintiffs’ counsel has sought reconsideration of the dismissal; the Company is awaiting a decision by the trial court.  After taking discovery in one of the remaining cases, the Company believes that all of these cases and claims are frivolous and that the plaintiffs have no factual or legal basis for their allegations.  In addition, the Company believes that it has meritorious defenses to all of the asserted claims.  The Company intends to vigorously defend all of these suits.

 

Jury verdicts in two cases totaling approximately $1.7 million in the aggregate were returned in fiscal 2000 against subsidiaries of the Company related to claims by former employees of now closed manufacturing facilities for wrongful discharge and common law tort.  Both cases are currently on appeal, as management and legal counsel believe the verdicts in the lawsuits are both legally and factually incorrect.

 

6.  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, 2004, such costs were $2.9 million and $8.9 million, respectively.  For the three and nine months ended June 30, 2003, such costs were $3.1 million and $9.5 million, respectively.

 

10

 

7.   Basic and Diluted Common Shares

 

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

 

		Three Months Ended June 30,				Nine Months Ended June 30,
		2004		2003		2004		2003
Weighted average common shares outstanding		7,049		6,418		6,810		6,418
Shares equivalents, due to stock options and restricted stock		115		—		152		9
Weighted average diluted shares outstanding		7,164		6,418		6,962		6,427

 

8.  Dividends

 

During the third quarter of fiscal 2004, the Company declared a cash dividend of $0.05 per share payable on August 23, 2004 to the stockholders of record as of August 9, 2004.  The second quarter of fiscal 2004 dividend of approximately $0.4 million was paid in May 2004.

 

9.  Related Party Transactions

 

A director of the Company is a partner of a law firm that rendered various legal services to the Company during the three and nine months ended June 30, 2004 and 2003.  The Company paid the law firm approximately $0.1 million and $0.8 million for legal services during the three and nine months ended June 30, 2004, respectively.  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.  There were $0.1 million in unpaid fees due to the law firm at both June 30, 2004 and September 30, 2003, which were included in accrued liabilities.

 

10.  2001 Reorganization

 

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

 

		Balance March 31, 2001			Payments			Adjustments			Balance June 30, 2004
Employee termination and related costs		$	8.1		$	(6.0	)	$	(1.2	)	$	0.9
Legal costs		8.6			(3.9		)	(3.2		)	1.5

 

No payments or adjustments were made during the nine months ended June 30, 2004.

 

11.  Recently Issued and Adopted Financial Accounting Standards

 

On December 23, 2003, the Financial Accounting Standards Board issued SFAS No. 132 (Revised 2003) (“SFAS No. 132”), “Employers’ Disclosures About Pensions and Other Postretirement Benefits.”  SFAS No. 132 increases the existing disclosure requirements by requiring companies to disclose more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. Companies will be required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. SFAS No. 132 also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements for quarters beginning after December 15, 2003. The Company has determined that no additional disclosures are required due to the immateriality of the Company’s pension plan assets and benefit obligations.

 

11

 

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 for the fiscal year ended September 30, 2003.

 

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 expected 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 filed with the Securities and Exchange Commission on December 12, 2003, 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.

 

12

 

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 69 Company operated retail stores located 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, 2004.

 

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.

 

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Comparison of Three Months Ended June 30, 2004 to Three Months Ended June 30, 2003

 

Net Sales

 

Net sales increased $8.9 million, or 8.3%, to $116.3 million for the third quarter of fiscal 2004, compared to net sales of $107.4 million for the third quarter of fiscal 2003.  The increase in net sales was primarily attributable to increased sales of Kenneth Cole® and Claiborne® licensed products, improved sales at the Company’s retail stores, and an increase in lower-margin closeout sales.  The overall sales increase related to a decrease in unit sales of approximately 2.2% and an increase in average sales price of approximately 10.5%, attributable mainly to Kenneth Cole®, men’s private label and retail sales.

 

Gross Profit

 

Gross profit as a percentage of net sales decreased to 27.7% in the third quarter of fiscal 2004, compared to 29.1% in the third quarter of fiscal 2003.  The decrease in gross profit percentage was primarily due to the timing of lower-margin closeout sales of men’s wear products, offset in part by improved gross profit in the women’s wear division and the Company’s retail stores.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses as a percentage of net sales increased to 25.2% in the third quarter of fiscal 2004, compared to 24.7% in the third quarter of fiscal 2003.  The $2.8 million, or 10.6%, increase in selling, general and administrative expenses was primarily due to a $0.8 million increase in media advertising expense, as a significant portion of the fiscal 2003 media advertising expenses were incurred to launch the comfort equipped waist band pants during the first quarter.  Fiscal 2004 media advertising programs have been scheduled more evenly throughout the year.  The Company also incurred $1.4 million in additional volume-related expenses, consistent with a sales increase for Kenneth Cole® and other programs.

 

Interest Expense

 

Interest expense decreased $0.2 million, or 31.1%, to $0.4 million for the third quarter of fiscal 2004, compared to $0.6 million for the third quarter of fiscal 2003, primarily due to reduced borrowings under the Company’s revolving credit facility during the third quarter of fiscal 2004.

 

Income Taxes

 

The Company’s income tax provision as a percentage of income before income tax was 38.2% for the third quarter of fiscal 2004.  Comparatively, the Company’s income tax provision as a percentage of income before income tax was 41.5% for the third quarter of fiscal 2003.  The decrease in the effective tax rate was primarily due to an increase in estimated annual earnings before tax for fiscal 2004 as compared to fiscal 2003, as well as a reduction of estimated unfavorable permanent differences for fiscal 2004 as compared to the amount used in the effective tax rate calculation at June 30, 2003.

 

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Comparison of Nine Months Ended June 30, 2004 to Nine Months Ended June 30, 2003

 

Net Sales

 

Net sales decreased $0.7 million, or 0.2%, to $356.1 million for the nine months ended June 30, 2004, compared to net sales of $356.8 million for the nine months ended June 30, 2003.  The decrease primarily related to decreases in sales of women’s wear and Haggar® branded products, offset by an increase in retail store sales and sales of Kenneth Cole® products.  The overall sales decrease related to a decrease in unit sales of approximately 3.8% and an increase in average sales price of approximately 3.6%.

 

Gross Profit

 

Gross profit as a percentage of net sales increased to 28.2% in the nine months ended June 30, 2004, compared to 26.5% in the nine months ended June 30, 2003.  The increase in gross profit percentage was primarily related to improved margins on women’s wear sales due to the addition of higher volume replenishment pant programs and reduced fixed overhead costs for the women’s division, lower negotiated costs for men’s private label products and improved gross profit contribution from the Company’s retail stores.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses as a percentage of net sales increased to 25.7% in the nine months ended June 30, 2004, compared to 25.2% in the nine months ended June 30, 2003.  The $1.4 million, or 1.5%, increase in selling, general and administrative expenses primarily related to $0.8 million in one-time expenses incurred due to the global headquarters relocation, a $0.9 million increase in the cost of employee benefits and $1.2 million in additional volume-related expenses consistent with the sales increase for Kenneth Cole® and other programs.  The increases were offset by a net decrease in media advertising expense of $0.8 million, as a significant portion of the fiscal 2003 media advertising expenses were incurred to launch the comfort equipped waist band pants during the first quarter.  Fiscal 2004 media advertising programs have been scheduled more evenly throughout the year.  Legal expenses also decreased $0.9 million, primarily due to legal expenses of $1.7 million incurred in the prior period related to a proxy contest and a settlement with a former landlord which did not recur.

 

Other Income (Expense)

 

Other income decreased $0.2 million, or 38.8%, to $0.4 million during the nine months ended June 30, 2004, compared to $0.6 million for the nine months ended June 30, 2003.  The prior period includes a gain on the sale of the Edinburg, Texas manufacturing facility of $0.3 million, while the current period includes a gain on the sale of another property of $0.2 million.

 

Interest Expense

 

Interest expense decreased $0.7 million, or 33.7%, to $1.3 million for the nine months ended June 30, 2004, compared to $2.0 million for the nine months ended June 30, 2003, primarily due to significantly reduced debt levels throughout the nine months ended June 30, 2004 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 was 38.2% for the nine months ended June 30, 2004.  Comparatively, the Company’s income tax provision as a percentage of income before income tax was 41.5% for the nine months ended June 30, 2003.  The decrease in the effective tax rate was primarily due to an increase in estimated annual earnings before tax for fiscal 2004 as compared to fiscal 2003, as well as a reduction of estimated unfavorable permanent differences for fiscal 2004 as compared to the amount used in the effective tax rate calculation at June 30, 2003.

 

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2001 Reorganization

 

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

 

		Balance March 31, 2001			Payments			Adjustments			Balance June 30, 2004
Employee termination and related costs		$	8.1		$	(6.0	)	$	(1.2	)	$	0.9
Legal costs		8.6			(3.9		)	(3.2		)	1.5

 

No payments or adjustments were made during the nine months ended June 30, 2004.

 

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 69 Company operated stores located 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 is comprised of segment net income before interest expense and provision for income taxes.

 

The table below reflects the Company’s segment results for the three and nine months ended June 30, 2004 and 2003 (in thousands):

 

Three Months Ended June 30,		Wholesale			Retail and Licensing			Consolidated
2004
Net sales		$	103,173		$	13,174		$	116,347
Segment profit		$	2,337		$	758		$	3,095
2003
Net sales		$	95,743		$	11,692		$	107,435
Segment profit		$	4,958		$	235		$	5,193

 

Nine Months Ended June 30,		Wholesale			Retail and Licensing			Consolidated
2004
Net sales		$	317,629		$	38,517		$	356,146
Segment profit		$	8,389		$	1,861		$	10,250
2003
Net sales		$	322,829		$	33,999		$	356,828
Segment profit		$	6,262		$	36		$	6,298

 

Wholesale Segment

 

Wholesale segment net sales increased $7.5 million, or 7.8%, to $103.2 million for the third quarter of fiscal 2004, compared to $95.7 million for the third quarter of fiscal 2003.  The increase in wholesale segment net sales during

 

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the third quarter of fiscal 2004 was primarily attributable to increased sales of Kenneth Cole® and Claiborne® programs, as well as an increase in lower-margin closeout sales.

 

Wholesale segment net sales decreased $5.2 million, or 1.6%, to $317.6 million for the nine months ended June 30, 2004, compared to $322.8 million for the nine months ended June 30, 2003.  The decrease primarily related to decrease in sales of women’s wear and Haggar® branded products, offset by an increase in sales of Kenneth Cole® products.

 

Wholesale segment profit decreased $2.7 million, or 52.9% to $2.3 million for the third quarter of fiscal 2004, compared to $5.0 million for the third quarter of fiscal 2003.  The decrease in segment profit was attributable to a decrease in gross profit percentage primarily due to the timing of lower-margin closeout sales.  Selling, general and administrative expenses also increased related to the timing of advertising programs during the period and additional volume-related expenses consistent with an increase in sales.

 

Wholesale segment profit increased $2.1 million to $8.4 million for the nine months ended June 30, 2004, compared to $6.3 million for the nine months ended June 30, 2003.  The increase in segment profit was primarily attributable to improved margins on women’s wear sales due to the addition of higher volume replenishment pant programs and reduced fixed overhead costs for the women’s division, as well as lower negotiated costs for men’s private label products.  The increase in segment profit was offset by an increase in selling, general and administrative expenses due to the global headquarters relocation, additional volume-related expenses and increased employee benefits costs.

 

Retail and Licensing Segments

 

Retail and licensing segments net sales increased $1.5 million, or 12.7%, to $13.2 million for the third quarter of fiscal 2004, compared to $11.7 million for the third quarter of fiscal 2003.  The increase in retail and licensing segments net sales during the third quarter of fiscal 2004 was primarily attributable to increased sales at existing retail stores.

 

Retail and licensing segments net sales increased $4.5 million, or 13.3%, to $38.5 million for the nine months ended June 30, 2004, compared to $34.0 million for the nine months ended June 30, 2003.  The increase in retail and licensing segments net sales during the nine months ended June 30, 2004 was primarily attributable to increased sales at existing retail stores.

 

Retail and licensing segments profit increased $0.6 million to $0.8 million for the third quarter of fiscal 2004, compared to $0.2 million for the third quarter of fiscal 2003.  The increase in retail and licensing segments profit was primarily attributable to increased net sales at existing retail stores, combined with improved gross profit due to an improved product mix in the retail stores and fewer closeout sales at retail.

 

Retail and licensing segments profit increased $1.9 million to $1.9 million for the nine months ended June 30, 2004 compared to $36,000 for the nine months ended June 30, 2003.  The increase in retail and licensing segments profit was primarily attributable to increased net sales at existing retail stores, combined with improved gross profit due to an improved product mix in the retail stores and fewer closeout sales at retail.

 

Goodwill Impairment

 

The ongoing evaluation for impairment of the goodwill related to the 1999 acquisition of the Company’s women’s wear subsidiary requires significant management estimation and judgment.  Changes in overall business strategy, negative industry or economic trends or actual results which do not meet the Company’s current plan for the women’s wear business may trigger a future impairment charge, which could negatively affect the Company’s results of operations in the period in which the charge is recorded.

 

Liquidity and Capital Resources

 

The Company’s principal sources of liquidity are cash flows from operations and borrowings under its unsecured revolving credit facility.  As of June 30, 2004, the Company had cash and cash equivalents of $20.7 million.

 

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In May 2004, the Company amended and restated its unsecured revolving credit agreement (the “Agreement”) with certain banks primarily to extend the maturity date to June 30, 2007 and increase the maximum borrowings to $111.0 million.  The available borrowing capacity was restricted to $66.0 million at June 30, 2004, 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, 2004. The interest rates ranged from 2.34% to 4.00% during the nine months ended June 30, 2004, and were based upon both margins over a bank base rate and margins over LIBOR, depending on the borrowing option selected by the Company.  The Agreement prohibits the Company from pledging its accounts receivable 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.  As of June 30, 2004, the Company was in full compliance with its financial and other covenants under the Agreement.

 

Long-term debt also includes $3.6 million in senior notes.  Significant terms of the senior notes include interest payable semi-annually at 8.49% per annum with the final principal payment of $3.6 million due on October 30, 2004.  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 also includes $2.1 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, 2004, was 1.1%.  The IDR bonds mature in fiscal 2026, but the Company has the option to prepay the balance without penalty in fiscal 2006.  The Company plans to exercise the prepayment option, and to make principal payments of $0.1 and $2.0 million in fiscal 2005 and 2006, respectively.  The IDR bonds are collateralized by certain buildings and equipment of $0.3 million as of June 30, 2004.

 

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

 

The Company maintains an operating lease for its corporate aircraft, which contains a residual guarantee for the market value of the plane 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 a $0.9 million expected deficiency in fiscal 2003.  The Company obtained an updated estimate as of June 30, 2004, which reflected a revised market value for the aircraft of $3.3 million.   As of June 30, 2004, the Company included $0.7 million in accrued liabilities, which had been accrued based on the previous estimate of the market value of the aircraft.  As the amount accrued as of June 30, 2004 represents the anticipated deficiency based on the most recent estimate of market value, the Company will not record additional accruals related to the residual value guarantee until the lease termination date.  As of June 30, 2004, the Company is actively marketing the aircraft and plans to sell the plane.

 

During the third quarter of fiscal 2004, the Company declared a cash dividend of $0.05 per share payable on August 23, 2004 to the stockholders of record as of August 9, 2004.  The second quarter of fiscal 2004 dividend of approximately $0.4 million was paid in May 2004.

 

The Company has other contractual obligations and commercial commitments as described in “Item 7.  Management’s Discussion and Analysis of Financial Condition and Results of Operations — Disclosures About Contractual Obligations And Commercial Commitments” of the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission on December 12, 2003.  There have been no material changes in the Company’s contractual obligations and commercial commitments since September 30, 2003.

 

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Cash Flow Results for the Nine Months Ended June 30, 2004

 

Net cash provided by operating activities decreased $14.6 million, or 46.8% to $16.5 million during the nine months ended June 30, 2004, compared to $31.1 million during the nine months ended June 30, 2003.  The decrease in cash provided by operating activities was primarily attributable to a smaller decrease in the accounts receivable balance during the nine months ended June 30, 2004 as compared to the prior period due to increased third quarter sales in fiscal 2004.  The decrease in operating cash flows was offset by the Company’s improved profitability when comparing the nine months ended June 30, 2004 to the nine months ended June 30, 2003.  The changes in the accrued liability balance related primarily to the timing of receipt of and payment for finished goods inventory in transit.

 

The Company used $1.5 million in investing activities during the nine months ended June 30, 2004, compared to cash provided by investing activities of $0.5 during the nine months ended June 30, 2003.  Investing activities for the nine months ended June 30, 2004 included an additional $2.8 million related to capital improvements of the new global headquarters facility, $1.3 million of which were financed with funds transferred from restricted cash.  A portion of the Company’s capital expenditures for the period also related to the development of retail stores.  Investing activities for the nine months ended June 30, 2003 included $2.5 million in proceeds from the sale of the Company’s Edinburg, Texas manufacturing facility and capital improvements of $1.3 million.

 

Net cash used in financing activities decreased $20.6 million, or 90.6%, to $2.1 million in the nine months ended June 30, 2004 from $22.7 million in the nine months ended June 30, 2003.  The decrease in net cash used was primarily due to a lower net reduction in borrowings during the nine-month period for fiscal 2004, as well as proceeds from the exercise of employee stock options.

 

Recently Issued and Adopted Financial Accounting Standards

 

On December 23, 2003, the Financial Accounting Standards Board issued SFAS No. 132 (Revised 2003) (“SFAS No. 132”), “Employers’ Disclosures About Pensions and Other Postretirement Benefits.”  SFAS No. 132 increases the existing disclosure requirements by requiring companies to disclose more details about pension plan assets, benefit obligations, cash flows, benefit costs and related information. Companies will be required to segregate plan assets by category, such as debt, equity and real estate, and to provide certain expected rates of return and other informational disclosures. SFAS No. 132 also requires companies to disclose various elements of pension and postretirement benefit costs in interim-period financial statements for quarters beginning after December 15, 2003. The Company has determined that no additional disclosures are required due to the immateriality of the Company’s pension plan assets and benefit obligations.

 

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, 2004, 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-15(e) and 15d-15(e)), 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 changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

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Part II.  Other Information.

 

Item 1.  Legal Proceedings

 

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

 

During March 2004, the Company reached a settlement agreement related to an action for trademark infringement.  Under the terms of the settlement, the Company paid $0.6 million to the plaintiff, which the Company had accrued in fiscal 2003, net of anticipated insurance proceeds, based on the Company’s estimated range of probable loss.   In April 2004, the Company received reimbursement for a portion of the settlement from an insurer of $0.3 million.  The Company does not anticipate additional reimbursement for the remainder of the settlement.

 

The Company is a defendant in a wrongful termination lawsuit in which a jury rendered a verdict in favor of the plaintiff against the Company in the amount of $843,000, subject to potential doubling in the event judgment is entered on the jury’s finding of willful discrimination, plus pre- and post-judgment interest and attorneys’ fees.  The trial court reversed the jury’s verdict and rendered a judgment in favor of the Company denying all recovery on the basis that the plaintiff had failed to prove any liability of the Company.  The plaintiff appealed to the United States Court of Appeals for the Fifth Circuit, which reversed the judgment of the trial court and remanded the matter back to the trial court for further proceedings.  The United States Supreme Court subsequently denied the Company’s request for review of the case.  As a result of this ruling, during the second quarter of fiscal 2004 the Company recorded $0.5 million based on the estimated range of probable loss in the case, which is included in accrued liabilities as of June 30, 2004. 

 

Upon remand, the Company requested that the trial court set aside the jury’s finding of willful discrimination and reduce the jury’s calculation of damages.  On August 4, 2004, the trial court denied the Company’s motion, but deferred entering judgment on the jury verdict pending a hearing on interest, attorneys’ fees and front pay.  Based on management’s evaluation of all information received, including the August 4, 2004 ruling, the Company believes the $0.5 million accrued liability continues to be adequate for the estimated loss in this case.  However, upon the entry of a final judgment by the trial court, the Company intends to re-evaluate its estimate of probable loss in the case in light of the amount of the final judgment, its determination whether to appeal the judgment and its assessment of the potential outcomes of any such appeal.  Any increase in the estimate of probable loss from this lawsuit could have a material adverse impact on the Company’s results of operations for the fourth quarter and full year of fiscal 2004.

 

One attorney has filed five separate suits against certain subsidiaries of the Company alleging injuries to approximately 2,200 former employees from airborne fibers and chemicals in certain of the Company’s now closed facilities located in south Texas.  All proceedings in one suit naming over 2,100 plaintiffs have been stayed due to the unrelated bankruptcy of one of the other defendants.  Another suit, which named 71 plaintiffs, has been dismissed, but plaintiffs’ counsel has sought reconsideration of the dismissal; the Company is awaiting a decision by the trial court.  After taking discovery in one of the remaining cases, the Company believes that all of these cases and claims are frivolous and that the plaintiffs have no factual or legal basis for their allegations.  In addition, the Company believes that it has meritorious defenses to all of the asserted claims.  The Company intends to vigorously defend all of these suits.

 

Jury verdicts in two cases totaling approximately $1.7 million in the aggregate were returned in fiscal 2000 against subsidiaries of the Company related to claims by former employees of now closed manufacturing facilities for wrongful discharge and common law tort.  Both cases are currently on appeal, as management and legal counsel believe the verdicts in the lawsuits are both legally and factually incorrect.

 

Item 2.  Changes in Securities and Use of Proceeds

 

None.

 

Item 3.  Defaults Upon Senior Securities

 

None.

 

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

 

None.

 

Item 5.  Other Information

 

None.

 

Item 6. Exhibits and Reports on Form 8-K

 

(a)          Exhibits.

 

10(a)		Third Amendment to Second Amended and Restated Credit Agreement dated May 27, 2004, between the Company and JPMorgan Chase Bank, as Agent for a bank syndicate.
31(a)		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
31(b)		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
32(a)		Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350
32(b)		Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350

 

(b)         Reports on Form 8-K.

 

A Form 8-K was filed on April 27, 2004, reporting, under Item 7, the issuance of a press release announcing the Company’s fiscal 2004 second quarter earnings and fiscal 2004 projected quarterly and annual operating results.  A copy of the press release announcing the operating results and including financial statements was attached as an exhibit and reported under Item 9 of the Form 8-K.  A Form 8-K was filed on May 13, 2004, reporting, under Item 7, the resignation of the Company’s former Chief Financial Officer.  A copy of the press release announcing the resignation was attached as an exhibit and reported under Item 9 of the Form 8-K.

 

Signatures

 

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

 

 

	Haggar Corp.
Date: August 11, 2004
		/s/ John W. Feray
		John W. Feray
		(Chief Financial Officer)
		Signed on behalf of the
		registrant and as principal
		financial officer.

 

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INDEX TO EXHIBITS

 

Exhibit
Number		Description
10(a)		Third Amendment to Second Amended and Restated Credit Agreement dated May 27, 2004, between the Company and JPMorgan Chase Bank, as Agent for a bank syndicate.
31(a)		Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a)
31(b)		Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a)
32(a)		Certification of Chief Executive Officer Pursuant to 18 U.S.C. §1350
32(b)		Certification of Chief Financial Officer Pursuant to 18 U.S.C. §1350

 

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