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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 1-8769
R. G. BARRY CORPORATION
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(Exact name of Registrant as specified in its charter)
Ohio 31-4362899
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13405 Yarmouth Road N.W., Pickerington, Ohio 43147
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 864-6400
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Shares, Par Value $1.00 New York Stock Exchange
(9,350,657 outstanding as of March 15, 2000)
Series I Junior Participating New York Stock Exchange
Class A Preferred Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
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. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing price reported on the New York Stock Exchange on March
15, 2000 ($3.4375), the aggregate market value of the Common Shares of the
Registrant held by non-affiliates on that date was $28,807,147.
Documents Incorporated by Reference:
(1) Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended January 1, 2000, are incorporated by reference into
Parts I and II of this Annual Report on Form 10-K.
(2) Portions of the Registrant's definitive Proxy Statement for its
Annual Meeting of Shareholders to be held on May 11, 2000, are
incorporated by reference into Part III of this Annual Report on Form
10-K.
Index to Exhibits begins on Page E-1.
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PART I
ITEM 1. BUSINESS.
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R. G. Barry Corporation ("R. G. Barry") is organized under Ohio law. R.
G. Barry and its subsidiaries, Barry de Mexico, S.A. de C.V., Barry de Acuna,
S.A. de C.V., Barry de Zacatecas, S.A. de C.V., ThermaStor Technologies, Ltd.,
LLC, R. G. Barry (Texas) LP, Barry de la Republica Dominicana, S.A. de C.V., R.
G. Barry International, Inc., R. G. Barry Holdings, Inc., R. G. Barry (France)
Holdings, Inc., Escapade, S.A.R.L., Fargeot et Compagnie, S.A., Michel Fargeot,
S.A., R.G.B., Inc. and Vesture Corporation ("Vesture")(R. G. Barry and its
subsidiaries are referred to collectively as the "Company"), manufacture and
market products which serve the comfort needs of people. The Company believes it
is the world's largest manufacturer of comfort footwear for at and around the
home, and, through its Vesture subsidiary, manufactures and markets thermal
retention technology products incorporating the Company's MICROCORE*
technologies. Comfort is the dominant influence in the Company's brand lines.
Effective July 22, 1999, R. G. Barry acquired 80% of the outstanding
stock of Escapade, S.A.R.L., which owns Fargeot et Compagnie, S.A. and Michel
Fargeot, S.A. (collectively, "Fargeot"), all of Thiviers, France. The purchase
price of $4,173,000 was paid in cash, and the acquisition has been accounted for
by the purchase method of accounting. The Escapade purchase agreement includes
put and call options for the purchase of the remaining 20% of the shares not
owned by R. G. Barry. The 20% shareholder may put the shares to R. G. Barry at
any time after July 22, 2004 for a period of five years at the price determined
under the purchase agreement. R. G. Barry may call the remaining shares and
purchase them at any time after July 22, 2000 for a period of nine years on the
same basis.
During the fiscal year ended January 1, 2000, the Company had three
operating segments: the Barry Comfort North America group, which includes at and
around the home comfort footwear products manufactured and sold in North
America; the Barry Comfort Europe group, which includes at and around the home
comfort footwear products sold in Europe and the Thermal group, which includes
thermal retention technology products. Financial information on the Company's
segments for the three years ended January 1, 2000, is presented in Note (13) to
the Consolidated Financial Statements on pages 30, 31 and 32 of R. G. Barry's
Annual Report to Shareholders for the fiscal year ended January 1, 2000.
PRINCIPAL PRODUCTS
The Company designs, manufactures and markets specialized comfort
footwear for men, women and children. The Company is in the business of
responding to consumer demand for comfortable footwear combined with attractive
appearance. The Company designs, manufactures and markets thermal retention
products in the food preservation; portable, personal comfort; and comfort
therapy categories as well as products which use thermal retention technology to
preserve and/or transport temperature-sensitive or perishable commodities.
Barry Comfort North America/Barry Comfort Europe
Historically, the Company's primary products have been foam-soled,
soft, washable slippers for men, women and children. The Company developed and
introduced women's Angel Treads*, the world's first foam-soled, soft, washable
slipper, in 1947. Since that time, the Company has introduced additional
slipper-type brand lines for men, women and children designed to provide
comfort, softness and washability. These footwear products are sold, for the
most part, under various brand names
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including Angel Treads*, Barry*Comfort, Dearfoams*, Dearfoams* for Kids,
Dearfoams* for Men, Madye's*, Snug Treds*, Soft Notes*, EZfeet*, Mushrooms*
Slippers and Fargeot. The Company has also at times marketed slipper-type
footwear under licensed trademarks.
The Company's foam-soled footwear lines have fabric uppers made of
terry cloths, velours, fleeces, satins, nylons and other washable materials, as
well as uppers made of suede and other man-made materials. Different brand lines
are marketed for men, women and children with a variety of styles, colors and
ornamentation.
The marketing strategy for the Company's slipper-type brand lines has
been to expand counter space for these products by creating and marketing brand
lines to different portions of the consumer market. Retail prices for the
Company's footwear normally range from approximately $5 to $30 per pair,
depending on the style of footwear, type of retail outlet and retailer mark-up.
The Company also manufactures and markets the Soft Notes* foam
cushioned casual slipper line. The Company believes that this brand line is a
bridge between slippers and casual footwear. The marketing strategy with respect
to this product emphasizes the fashion, comfort and versatility provided by the
Soft Notes* foam cushioned casual slippers.
The Company believes that many consumers of its slippers are loyal to
the Company's brand lines, usually own more than one pair of slippers and have a
history of repeat purchases. Substantially all of the slipper brand lines are
displayed on a self-selection basis in see-through packaging at the point of
purchase and have appeal to the "impulse" buyer. The Company believes that many
of the slippers are purchased as gifts for others.
Many styles of slipper-type footwear have become standard in the
Company's brand lines and are in demand year after year. For many of these
styles, the most significant changes made in response to fashion changes are in
ornamentation, fabric and/or color. The Company often introduces new, updated
styles of slippers with a view toward enhancing the fashion appeal and freshness
of its products. The Company anticipates that it will continue to introduce new
styles in future years in response to fashion changes.
It is possible to fit most consumers of the Company's slipper-type
footwear within a range of four to six sizes. This allows the Company to carry
lower levels of inventories in these slipper lines compared to other footwear
manufacturers.
Thermal
In 1994, the Company introduced on a national basis its thermal
retention technology products for consumers featuring MICROCORE*
microwave-activated technology developed by the Company. During that year, R. G.
Barry also acquired all of the outstanding stock of Vesture, the originators of
microwave-heated comfort care products.
The Company's MICROCORE* thermal retention technology consists of a
family of patented or proprietary technologies which, when energized with heat
or cold, act as reservoirs that release heat or cold at a constant temperature
for extended periods of time. The MICROCORE* thermal retention products have
application as: (1) commercial products which use the Company's MICROCORE*
patented thermal retention technology, either hot or cold, to preserve and
transport temperature-sensitive or perish-
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* Hereinafter denotes a trademark of the Company registered in the United States
Department of Commerce Patent and Trademark Office.
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able commodities such as food, medicine, pharmaceuticals and flowers; and (2)
thermal retention consumer products the Company creates, designs, sells and
distributes under its brand names.
Since 1997, the focus of the thermal business has been on commercial
applications of the thermal retention technologies and on comfort therapy, and
personal care items.
In the commercial product area, the Company has made a strategic
decision to focus on the commercial application of MICROCORE* patented thermal
retention technology, either hot or cold, to preserve and/or transport
temperature-sensitive or perishable commodities. The Company's POWERTECH* with
MICROCORE* is a patented portable heat storage technology which permits
portable, electrically-energized heat storage from either A.C. or D.C. power
sources and at specific temperatures through the use of a thermostat.
Underwriters Laboratories Inc. has granted a UL listing mark to the Company's
POWERTECH* with MICROCORE* Pizza Delivery System which is designed to keep pizza
hot at oven temperatures for two hours so that a pizza is delivered to a home
oven-hot, dry and crisp. The Company launched its POWERTECH* with MICROCORE* hot
food delivery system with Donatos Pizza of Columbus, Ohio, a 130-store regional
Midwest pizza chain, in the Fall of 1998. The Company continues in various
stages of testing the POWERTECH* with MICROCORE* Pizza Delivery System with
other national and large regional pizza chains throughout the United States.
During the third quarter of 1998, the Company filed a lawsuit for
patent infringement of United States Patent No. 5,790,962 against Domino's
Pizza, Inc. and Phase Change Laboratories, Inc. The '962 patent covers an
invention which maintains the desired temperature of food and other items using
a phase change material. Domino's Pizza, Inc. purchases a product, which it
calls the "Heat Wave" system. The product is manufactured by Phase Change
Laboratories, Inc. The Company believes that the product infringes upon the '962
Patent. The case has been amended to add a claim for deceptive advertising. The
Company seeks damages, attorney's fees and injunction against further
infringement by both defendants. Discovery in the matter is complete. A mediator
was used to aid in settlement discussions, and the Company believes a settlement
will be completed shortly.
The Company's thermal retention products for consumers generally fall
within three categories: (1) food preservation products such as breadwarmer
baskets and portable food carriers; (2) comfort therapy products such as heating
pads and backwarmers; and (3) portable, personal comfort products such as heated
booties, neck packs and shoulder packs. Retail prices for substantially all of
the Company's thermal retention consumer products normally range from
approximately $12 to $40, depending on the product, type of retail outlet and
retailer mark-up. The Company believes that the food preservation and comfort
therapy thermal retention products are not weather sensitive and have a
year-round sales appeal while the cold weather portion of the personal, portable
comfort product line is more seasonal and affected by weather changes. The
thermal retention consumer products are sold under the major brand lines of
Dearfoams*, Soluna(TM), Vesture*, Lava*, LavaPac*, LavaBuns* and LavaBooties*.
All carry MICROCORE* energy packs.
MARKETING
The Company's slipper-type brand lines and thermal retention consumer
products are sold to traditional department stores, promotional department
stores, national chain department stores and specialty stores; through mass
merchandising channels of distribution such as discount stores, warehouse clubs,
drug and variety chain stores, and supermarkets; and to independent retail
establishments. The Company markets these products primarily through Company
salespersons and, to a lesser extent, through independent sales representatives.
The Company does not finance its customers' purchases.
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Each spring and autumn and at numerous other times during the year, new
designs and styles are presented to buyers representing the Company's retail
customers at regularly scheduled showings. Company designers also produce new
styles and experimental designs throughout the year which are evaluated by the
Company's sales and marketing personnel. Buyers for department stores and other
large retail customers attend the spring and autumn showings and make periodic
visits to the Company's showroom in New York. Company salespersons regularly
visit retail customers. The Company also regularly makes catalogs available to
its current and potential customers and periodically follows up with current and
potential customers by telephone. In addition, the Company participates in trade
shows, both regionally and nationally.
During the 1999 Christmas selling season, the Company again provided
approximately 400 temporary merchandisers to service the retail selling floor of
department stores and chain stores nationally. The Company believes that this
point-of-sale management of the retail selling floor, combined with computerized
automatic replenishment systems the Company installed with the stores, put the
Company in a position to optimize its comfort footwear business during the
fourth quarter.
Sales during the last six months of each year have historically been
greater than during the first six months. The Company's inventory is largest in
early autumn in order to accommodate the retailers' fall selling seasons.
The Company advertises principally in the print media. The Company's
promotional efforts are often conducted in cooperation with customers. The
Company's products are displayed at the retail-store level on a self-selection
and gift-purchase basis.
The Company believes it has an opportunity for expansion in Europe for
its at and around the home comfort footwear. The Company has begun to build its
business in Europe with France as the first target market outside of the United
Kingdom. The Company's international sales are focused on the department store
channels and hypermarkets primarily in the United Kingdom and France. The
Company also markets its comfort footwear products in Canada, Mexico and several
other countries around the world. In 1999, the Company's European sales
comprised approximately 8% of its total sales. Financial information for the
three years ended January 1, 2000 for the geographic areas in which the Company
operates is presented in Note (13) to the Consolidated Financial Statements on
pages 30, 31 and 32 of R. G. Barry's Annual Report to Shareholders for the
fiscal year ended January 1, 2000.
The Company markets its thermal retention commercial products directly
to prospective customers through Company personnel. The Company does not finance
its customers' purchases.
RESEARCH AND DEVELOPMENT
Most of the Company's research efforts are undertaken in connection
with the design and consumer appeal of new styles of slipper-type footwear and
thermal retention products. During the 1999, 1998 and 1997 fiscal years, the
amounts spent by the Company in connection with the research and design of new
products and the improvement or redesign of existing products were approximately
$3.7 million, $3.9 million and $3.5 million, respectively. Substantially all of
the foregoing activities were Company-sponsored. Approximately 50 employees are
engaged full time in research and design.
MATERIALS
The principal raw materials used by the Company in the manufacture of
its slipper and thermal retention product brand lines are textile fabrics,
threads, foams and other synthetic products. All are
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available domestically from a wide range of suppliers. The Company has
experienced no difficulty in obtaining raw materials from suppliers and
anticipates no future difficulty.
TRADEMARKS AND LICENSES
Approximately 95% of the Company's sales are represented by brand items
sold under trademarks owned by the Company. The Company is the holder of many
trademarks which identify its products. The trademarks which are most widely
used by the Company include: (a) Angel Treads*, Barry*Comfort, Dearfoams*,
Dearfoams* for Kids, Dearfoams* for Men, Madye's*, Snug Treds*, Soft Notes*,
EZfeet*, and Fargeot, in the Company's Barry Comfort businesses; and (b)
Dearfoams*, Soluna(TM), Vesture*, Lava*, LavaPac*, LavaBuns*, LavaBooties*,
MICROCORE* and POWERTECH,* in the Company's Thermal business. The Company
believes that its products are identified by its trademarks and, thus, its
trademarks are of significant value. Each registered trademark has a duration of
20 years and is subject to an indefinite number of renewals for a like period
upon appropriate application. The Company intends to continue the use of each of
its trademarks and to renew each of its registered trademarks.
The Company also has sold comfort footwear under various names as
licensee under license agreements with the owners of those names. In each of the
last three fiscal years, less than 1% of the Company's total sales were
represented by footwear sold under licensed names.
CUSTOMERS
The only customer of the Company which accounted for more than 10% of
the Company's consolidated revenues in the 1999 and 1998 fiscal years was
Wal-Mart Stores, Inc., a Barry Comfort North America customer, which accounted
for 23% in 1999 and 22% in 1998. The customers of the Company which accounted
for more than 10% of the Company's consolidated revenues in the 1997 fiscal year
were Wal-Mart, J. C. Penney Company, Inc. and Sears, Roebuck & Company, all
Barry Comfort North America customers, which accounted for 20%, 11% and 10%,
respectively.
BACKLOG OF ORDERS
The Company's backlog of orders at the close of each of the 1999 and
1998 fiscal years was approximately $10 million. The Company anticipates that a
large percentage of the orders as of the end of the 1999 fiscal year will be
filled during the current fiscal year.
Generally, the Company's backlog of unfilled sales orders is largest
after the spring and autumn showings of the Company. For example, the Company's
approximate backlog of unfilled sales orders following the conclusion of such
showings during the last two years was: August 1999 - $54 million; August 1998 -
$67 million; February 1999 - $13 million; and February 1998 - $22 million. The
Company's backlog of unfilled sales orders reflects the seasonal nature of the
Company's sales - approximately 70 to 75% of such sales occur during the second
half of the year as compared to approximately 25% to 30% during the first half
of the year.
INVENTORY
While some styles of the Company's slipper-type brand lines change
little from year to year, the Company has also introduced, and intends to
continue to introduce, new, updated styles in an effort to enhance the comfort
and fashion appeal of its products. As a result, the Company anticipates that
some of its slipper styles will change from season to season, particularly in
response to fashion changes. The Company has introduced a variety of new thermal
retention products to compliment its existing products
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in response to consumer and commercial demand. The Company believes that it will
be able to control the level of its obsolete inventory. Traditionally, the
Company has had a limited and manageable exposure to obsolete inventory.
COMPETITION
The Company operates in the portion of the footwear industry providing
comfort footwear for at and around the home. The Company believes that it is a
small factor in the highly competitive footwear industry. The Company also
believes that it is the world's largest manufacturer of comfort footwear for at
and around the home. The Company also operates in an area where it provides
portable warmth and cold through its line of thermal retention technology
commercial and consumer products. The Company competes primarily on the basis of
the value, quality and comfort of its products, service to its customers, and
its marketing expertise. The Company knows of no reliable published statistics
which indicate its current relative position in the footwear or any other
industry or in the portion of the footwear industry providing comfort footwear
for at and around the home or its current relative position in the thermal
retention product industry.
MANUFACTURING, SALES AND DISTRIBUTION FACILITIES
The Company has seven manufacturing facilities. The Company operates
sewing plants in Nuevo Laredo, Ciudad Acuna, and Zacatecas, Mexico and in Santo
Domingo, Dominican Republic. The Company also operates a cutting plant in
Laredo, Texas and a sole molding operation in San Angelo, Texas. The Company
produces thermal retention products at its manufacturing facilities in Asheboro,
North Carolina, and Nuevo Laredo, Mexico. The Company closed the factory in
Shenzhen, People's Republic of China, in February 2000.
The Company maintains sales offices in New York, New York; London,
England; and Paris, France. The Company also operates distribution centers in
Asheboro and Goldsboro, North Carolina; San Angelo and San Antonio, Texas;
Rhymney, Gwent, Wales; and Thiviers, France.
The Company's principal manufacturing, sales and distribution facilities
are described more fully in ITEM 2. PROPERTIES.
EFFECT OF ENVIRONMENTAL REGULATION
Compliance with federal, state and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had a material effect on the Company's
capital expenditures, earnings or competitive position. The Company believes
that the nature of its operations has little, if any, environmental impact. The
Company, therefore, anticipates no material capital expenditures for
environmental control facilities for its current fiscal year or for the
foreseeable future.
EMPLOYEES
At the close of the 1999 fiscal year, the Company employed
approximately 3,000 persons.
ITEM 2. PROPERTIES.
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The Company owns a warehouse facility in Goldsboro, North Carolina,
containing approximately 170,000 square feet.
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The Company formerly leased a 55,000 square foot administrative and
office facility under a lease agreement with the local government which issued
industrial revenue bonds to construct and equip the facility. In 1999, the
Company purchased the facility at a nominal sum upon retirement of the bonds.
The Company leases space aggregating approximately 1 million square
feet at an approximate aggregate annual rental of $3.0 million. The following
table describes the Company's principal leased properties:
Approximate Approximate Lease
Location Use Square Feet Annual Rental Expires Renewals
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Empire State Building Sales Office 4,300 $117,000 2003 None
New York City, N.Y.
2800 Loop 306 Manufacturing, Office, 145,800 $166,000 (1) 2005 10 years
San Angelo, Texas Warehouse
Distribution Center Shipping, Warehouse 172,800 $432,000 (1) 2007 15 years
San Angelo, Texas
Cesar Lopez de Lara Manufacturing, Office 90,200 $300,000 2005 5 years
Ave.
Nuevo Laredo, Mexico
Ciudad Acuna Manufacturing, Office 64,700 $302,000 2004 5 years
Industrial Park
Ciudad Acuna, Mexico
Bob Bullock Loop Manufacturing, Warehouse, 165,000 $386,000 (1) 2001 2 terms of
Laredo, Texas Office 5 years each
Bob Bullock Loop Manufacturing, Warehouse, 76,000 $190,000 (1) 2006 5 years
Laredo, Texas Storage
Industrial Zone Manufacturing 26,200 $ 58,000 2003 1 term of 5
Zacatecas, Mexico years
Industrial Zone Manufacturing 25,800 $ 58,000 2005 3 terms of
Zacatecas, Mexico 5 years each
120 E. Pritchard St. Manufacturing, Office, 57,500 $ 96,000 (1) 2001 None
Asheboro, North Carolina Warehouse
8000 Interstate Administrative Office 17,000 $322,000 2003 None
Highway 10 West
San Antonio, Texas
9803 Broadway Shipping, Warehouse 150,000 $580,000 2010 None
San Antonio, Texas
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Approximate Approximate Lease
Location Use Square Feet Annual Rental Expires Renewals
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Chelsea Harbour Sales & Administrative 2,500 $ 87,000 2002 None
London, England Office
Rhymney, Gwent, Wales Warehouse 8,000 $ 21,000 Month- N/A
to-
Month
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(1) Net lease.
The Company believes that all of the buildings owned or leased by it
are well maintained, in good operating condition, and suitable for their present
uses.
ITEM 3. LEGAL PROCEEDINGS.
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On September 10, 1998, the Company filed a lawsuit for patent
infringement of United States Patent No. 5,790,962 against Domino's Pizza, Inc.
and Phase Change Laboratories, Inc. The case was filed on behalf of both the
Company and its subsidiary Vesture Corporation in the United States District
Court for the Middle District of North Carolina. The '962 patent covers an
invention which maintains the desired temperature of food and other items using
a phase change material. Domino's Pizza, Inc. purchases a product, which it
calls the "Heat Wave" system. The product is manufactured by Phase Change
Laboratories, Inc. The Company believes that the product infringes upon the '962
Patent. The case has been amended to add a claim for deceptive advertising. The
case has been assigned Civil Action No. 1:98CV00802. The Company seeks damages,
attorney's fees and injunction against further infringement by both defendants.
Discovery in the matter is complete. A mediator was used to aid in settlement
discussions, and the Company believes a settlement will be completed shortly.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Not applicable.
Executive Officers of the Registrant.
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The following table lists the names and ages of the executive officers
of R. G. Barry as of the date of this Annual Report on Form 10-K, the positions
with R. G. Barry presently held by each executive officer and the business
experience of each executive officer during the past five years. Unless
otherwise indicated, each person has had his principal occupation for more than
five years. All executive officers serve at the pleasure of the Board of
Directors.
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Position(s) Held with R. G. Barry and
Name Age Principal Occupation(s) for Past Five Years
- ---- --- -------------------------------------------
Gordon Zacks 67 Chairman of the Board and Chief Executive Officer since 1979,
President since 1992, and Director since 1959, of R. G. Barry
Christian Galvis 58 Executive Vice President-Operations and Director since 1992,
President-Operations of Barry Comfort Group since January 1998,
and Vice President-Operations from 1991 to 1992, of R. G. Barry
Edward Bucciarelli 47 Executive Vice President-Sales & Marketing and President-Merchandising,
Marketing and Sales of Barry Comfort Group since October 1999, of R. G. Barry;
President, Jewelry and Accessories, of Liz Claiborne, Inc., designer and
manufacturer of fashion apparel and accessories, from 1996 to September 1999;
Vice President, Design and Marketing, of Swank, Inc., manufacturer and
distributor of fashion accessories, from 1994 to 1996
Richard L. Burrell 67 Senior Vice President-Finance since 1992, Treasurer and Secretary
since 1976, Vice President-Finance from 1976 to 1992, and Director
since 1984, of R. G. Barry
Harry Miller 57 Vice President-Human Resources of R. G. Barry since 1993
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The information called for in this Item 5 is incorporated by reference
to page 10 of R. G. Barry's Annual Report to Shareholders for the fiscal year
ended January 1, 2000.
ITEM 6. SELECTED FINANCIAL DATA.
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The information called for in this Item 6 is incorporated by reference
to pages 8 and 9 of R. G. Barry's Annual Report to Shareholders for the fiscal
year ended January 1, 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATION.
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The information called for in this Item 7 is incorporated by reference
to pages 11 through 16 of R. G. Barry's Annual Report to Shareholders for the
fiscal year ended January 1, 2000.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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No response required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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The Consolidated Balance Sheets of R. G. Barry and its subsidiaries as
of January 1, 2000 and January 2, 1999, the related Consolidated Statements of
Operations, of Shareholders' Equity and Comprehensive Income and of Cash Flows
for each of the fiscal years in the three-year period ended January 1, 2000, the
related Notes to Consolidated Financial Statements and the Independent Auditors'
Report, appearing on pages 17 through 34 of R. G. Barry's Annual Report to
Shareholders for the fiscal year ended January 1, 2000, are incorporated by
reference. Quarterly Financial Data set forth on page 10 of R. G. Barry's Annual
Report to Shareholders for the fiscal year ended January 1, 2000, are also
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- ---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------
The information called for in this Item 10 is incorporated by reference
to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, under the captions "ELECTION OF
DIRECTORS," "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS--Employment
Contracts, Restricted Stock Agreements and Termination of Employment and
Change-in-Control Arrangements" and "SHARE OWNERSHIP--Section 16(a) Beneficial
Ownership Reporting Compliance." In addition, information concerning R. G.
Barry's executive officers is included in the portion of Part I of this Annual
Report on Form 10-K entitled "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
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The information called for in this Item 11 is incorporated by reference
to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, under the caption "COMPENSATION OF
EXECUTIVE OFFICERS AND DIRECTORS." Neither the report on executive compensation
nor the performance graph included in R. G. Barry's definitive Proxy Statement
shall be deemed to be incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
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The information called for in this Item 12 is incorporated by reference
to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, under the captions "SHARE OWNERSHIP"
and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS -- Employment Contracts,
Restricted Stock Agreements and Termination of Employment and Change-in-Control
Arrangements."
- 11 -
12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The information called for in this Item 13 is incorporated by reference
to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, under the captions "SHARE OWNERSHIP,"
"ELECTION OF DIRECTORS" and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a)(1) Financial Statements.
--------------------
For a list of all financial statements incorporated by reference in
this Annual Report on Form 10-K, see "Index to Financial Statements
and Financial Statement Schedules" at page 14.
(a)(2) Financial Statement Schedules.
-----------------------------
For a list of all financial statement schedules included in this
Annual Report on Form 10-K, see "Index to Financial Statements and
Financial Statement Schedules" at page 14.
(a)(3) Exhibits.
--------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For list of these exhibits, see "Index to Exhibits" beginning
at page E-1.
(b) Reports on Form 8-K
-------------------
On October 15, 1999, R. G. Barry filed a Current Report on Form 8-K,
dated that same date, in order to report under "Item 5. Other
Events," the issuance of a press release updating R. G. Barry's
earnings outlook for the third fiscal quarter and the 1999 fiscal
year as a whole.
(c) Exhibits
--------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Index to Exhibits"
beginning at page E-1.
(d) Financial Statement Schedules
-----------------------------
Financial Statement Schedules included with this Annual Report on
Form 10-K are attached hereto. See "Index to Financial Statements and
Financial Statement Schedules" at page 14.
- 12 -
13
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
R. G. Barry Corporation
Date: March 29, 2000
By: /s/ Richard L. Burrell
------------------------
Richard L. Burrell,
Senior Vice President-Finance,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Date Capacity
- ---- ---- --------
*Gordon Zacks * Chairman of the Board, President, Chief
Executive Officer and Director
/s/ Richard L. Burrell
- -----------------------
Richard L. Burrell March 29, 2000 Senior Vice President-Finance, Secretary,
Treasurer, Principal Financial and Accounting
Officer and Director
*Christian Galvis * Executive Vice President-Operations,
President-Operations of Barry Comfort Group and
Director
*Leopold Abraham II * Director
*Philip G. Barach * Director
*William Giovanello * Director
*Roger E. Lautzenhiser * Director
*Harvey M. Krueger * Director
*Edward M. Stan * Director
*By: /s/ Richard L. Burrell
-------------------------
Richard L. Burrell,
Attorney-in-Fact
Date: March 29, 2000
- 13 -
14
R. G. BARRY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 1, 2000
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
---------------------------------
PAGE(S) IN ANNUAL
DESCRIPTION OF FINANCIAL STATEMENTS (ALL OF WHICH ARE REPORT TO SHAREHOLDERS
INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FOR THE FISCAL YEAR ENDED
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 1, 2000) JANUARY 1, 2000
- ----------------------------------------------------- -------------------------
Consolidated Balance Sheets at January 1, 2000 and
January 2, 1999 ................................................................... 17
Consolidated Statements of Operations for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998................................ 18
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the
years ended January 1, 2000, January 2, 1999 and January 3, 1998.................... 18
Consolidated Statements of Cash Flows for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998 ............................... 19
Notes to Consolidated Financial Statements................................................... 20 - 33
Independent Auditors' Report................................................................. 34
ADDITIONAL FINANCIAL DATA
- -------------------------
The following additional financial data should be read in conjunction
with the Consolidated Financial Statements of R. G. Barry Corporation and its
subsidiaries included in the Annual Report to Shareholders for the fiscal year
ended January 1, 2000. Schedules not included with this additional financial
data have been omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
Independent Auditor's Report on Financial Statement Schedules:
Included at page 15 of this Annual Report on Form 10-K
Schedules for the fiscal years ended January 1, 2000, January 2, 1999,
January 3, 1998: Schedule 2 -- Valuation and Qualifying
Accounts: Included at pages 16 through 18 of this Annual
Report on Form 10-K
- 14 -
15
[Letterhead of KPMG LLP]
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
R. G. Barry Corporation:
Under date of February 17, 2000, we reported on the consolidated balance sheets
of R. G. Barry Corporation and subsidiaries as of January 1, 2000 and January 2,
1999, and the related consolidated statements of operations, shareholders'
equity and comprehensive income, and cash flows for each of the fiscal years in
the three-year period ended January 1, 2000, as contained in the fiscal 1999
annual report to shareholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
for the fiscal year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules as listed in the accompanying index. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Columbus, Ohio
February 17, 2000
15
16
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
January 1, 2000
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- -------------- -------------- -------------- --------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- -------------- -------------- -------------- ---------------
Reserves deducted from accounts receivable:
Allowance for doubtful
receivables $ 232,000 413,000 356,000(1) 289,000
Allowance for returns 9,749,000 11,200,000 9,749,000(2) 11,200,000
Allowance for promotions 6,040,000 9,293,000 6,040,000(3) 9,293,000
------------- ---------- ---------- ----------
$ 16,021,000 20,906,000 16,145,000 20,782,000
============= ========== ========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 1999 sales returns reserved for in fiscal 1998.
3. Represents 1999 promotions expenditures committed to and reserved for
in fiscal 1998.
16
17
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
January 2, 1999
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- -------------- -------------- -------------- --------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- -------------- -------------- -------------- ---------------
Reserves deducted from accounts receivable:
Allowance for doubtful
receivables $ 204,000 77,000 49,000(1) 232,000
Allowance for returns 8,410,000 9,749,000 8,410,000(2) 9,749,000
Allowance for promotions 3,989,000 6,040,000 3,989,000(3) 6,040,000
------------- ---------- ---------- ----------
$ 12,603,000 15,866,000 12,448,000 16,021,000
============= ========== ========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 1998 sales returns reserved for in fiscal 1997.
3. Represents 1998 promotions expenditures committed to and reserved for
in fiscal 1997.
17
18
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
January 3, 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- -------------- -------------- -------------- --------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- -------------- -------------- -------------- ---------------
Reserves deducted from accounts receivable:
Allowance for doubtful
receivables $ 235,000 80,000 111,000(1) 204,000
Allowance for returns 7,684,000 8,410,000 7,684,000(2) 8,410,000
Allowance for promotions 4,685,000 3,989,000 4,685,000(3) 3,989,000
------------- ---------- ---------- ----------
$ 12,604,000 12,479,000 12,480,000 12,603,000
============= ========== ========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 1997 sales returns reserved for in fiscal 1996.
3. Represents 1997 promotions expenditures committed to and reserved for
in fiscal 1996.
18
19
R. G. BARRY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 1, 2000
INDEX TO EXHIBITS
Exhibit No. Description Location
----------- ----------- --------
2.1 Stock Purchase Agreement, dated July 22, 1999, Incorporated herein by reference to
between Mr. Thierry Civetta, Mr. Michel Registrant's Quarterly Report on Form 10-Q
Fargeot, FCPR County Natwest Venture France, for the fiscal quarter ended October 2,
SCA Capital Prive-Investissements, Hoche 1999 (File No. 1-8769) [Exhibit 2.1]
Investissements, and SA Capital Prive, parties
of the first part, and R. G. Barry Corporation
("Registrant") and Escapade SA, parties of the
second part
3.1 Articles of Incorporation of Registrant (as Incorporated herein by reference to
filed with Ohio Secretary of State on March 26, Registrant's Annual Report on Form 10-K for
1984) the fiscal year ended December 31, 1988
(File No. 0-12667) ("Registrant's 1988
Form 10-K") [Exhibit 3(a)(i)]
3.2 Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Registrant Authorizing the Registrant's 1988 Form 10-K
Series I Junior Participating Class B Preferred [Exhibit 3(a)(i)]
Shares (as filed with the Ohio Secretary of
State on March 1, 1988)
3.3 Certificate of Amendment to the Articles of Incorporated herein by reference to
Registrant (as filed with the Ohio Secretary of Registrant's 1988 Form 10-K
State on May 9, 1988) [Exhibit 3(a)(i)]
3.4 Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Registrant (as filed with the Registrant's Annual Report on Form 10-K for
Ohio Secretary of State on May 22, 1995) the fiscal year ended December 30, 1995
(File No. 1-8769) ("Registrant's 1995 Form
10-K") [Exhibit 3(b)]
3.5 Certificate of Amendment to Articles of Incorporated herein by reference to
Incorporation of Registrant (as filed with the Registrant's 1995 Form 10-K [Exhibit 3(c)]
Ohio Secretary of State on September 1, 1995)
E-1
20
Exhibit No. Description Location
----------- ----------- --------
3.6 Certificate of Amendment to Articles of Incorporated herein by reference to
Incorporation of Registrant (as filed with the Registrant's Registration Statement on Form
Ohio Secretary of State on May 30, 1997) S-8, filed June 6, 1997 (Registration No.
333-28671) [Exhibit 4(h)(6)]
3.7 Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Registrant Authorizing Registrant's Annual Report on Form 10-K for
Series I Junior Participating Class A Preferred the fiscal year ended January 3, 1998 (File
Shares (as filed with the Ohio Secretary of No. 1-8769) ("Registrant's 1997 Form 10-K")
State on March 10, 1998) [Exhibit 3(a)(7)]
3.8 Articles of Incorporation of Registrant Incorporated herein by reference to
(reflecting amendments through March 10, 1998) Registrant's 1997 Form 10-K [Exhibit
[for purposes of SEC reporting compliance only 3(a)(8)]
-- not filed with the Ohio Secretary of State]
3.9 Regulations of Registrant, as amended Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1988 (File
No. 0-12667) [Exhibit 3(b)]
4.1 Revolving Credit Agreement, made to be Incorporated herein by reference to
effective on February 28, 1996, among Registrant's 1995 Form 10-K [Exhibit 4(f)]
Registrant, The Bank of New York, The
Huntington National Bank and NBD Bank
4.2 Agreement to Extend Revolving Credit Agreement, Incorporated herein by reference to
dated May 1, 1997, among Registrant, The Bank Registrant's Quarterly Report on Form 10-Q
of New York, The Huntington National Bank and for the fiscal quarter ended June 28, 1997
NBD Bank (File No. 1-8769) [Exhibit 4]
4.3 Agreement to Extend Revolving Credit Agreement, Incorporated herein by reference to
dated as of June 4, 1999, among Registrant, The Registrant's Quarterly Report on Form 10-Q
Bank of New York, The Huntington National Bank for the fiscal quarter ended July 3, 1999
and Bank One, NA (File No. 1-8769)[Exhibit 4(t)]
E-2
21
Exhibit No. Description Location
----------- ----------- --------
4.4 Letter of Consent regarding Revolving Credit *
Agreement, dated December 30, 1999, from The
Bank of New York, The Huntington National Bank
and Bank One, Michigan to Registrant
4.5 Amendment to Revolving Credit Agreement, dated *
as of March 17, 2000, among The Huntington
National Bank, The Bank of New York and Bank
One, N.A., as lenders; The Huntington National
Bank, as agent; and Registrant
4.6 Note Agreement, dated July 5, 1994, between Incorporated herein by reference to
Registrant and Metropolitan Life Insurance Registrant's Registration Statement on Form
Company S-3, filed July 21, 1994 (Registration
No. 33-81820) [Exhibit 4(t)]
4.7 Letter, dated July 16, 1999, from Metropolitan Incorporated herein by reference to
Life Insurance Company to Registrant in respect Registrant's Quarterly Report on Form 10-Q
of loan agreement dated July 5, 1994 for the fiscal quarter ended July 3, 1999
(File No. 1-8769) [Exhibit 4.2]
4.8 Rights Agreement, dated as of February 19, Incorporated herein by reference to
1998, between Registrant and The Bank of New Registrant's Current Report on Form 8-K,
York, as Rights Agent dated March 13, 1998 and filed March 16,
1998 (File No. 1-8769) [Exhibit 4]
9.1 Zacks-Streim Voting Trust and amendments thereto Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993 (File
No. 1-8769) [Exhibit 9]
9.2 Documentation related to extension of term of Incorporated herein by reference to
the Voting Trust Agreement for the Zacks-Streim Registrant's 1995 Form 10-K [Exhibit 10(a)]
Voting Trust
**10.1 R. G. Barry Corporation Associates' Retirement Incorporated herein by reference to
Plan (As Amended and Restated Effective January Registrant's 1997 Form 10-K [Exhibit 10(a)]
1, 1996)
E-3
22
Exhibit No. Description Location
----------- ----------- --------
**10.2 R. G. Barry Corporation Supplemental Retirement *
Plan Effective January 1, 1997 (now known as the
R. G. Barry Corporation Restoration Plan)
**10.3 Amendment No. 1 to the R. G. Barry Corporation *
Supplemental Retirement Plan Effective January 1,
1997 (Executed effective as of May 12, 1998)
**10.4 Amendment No. 2 to the R. G. Barry Corporation *
Supplemental Retirement Plan Effective January 1,
1997 (Executed effective as of January 1, 2000)
**10.5 R. G. Barry Corporation Incentive Plan for Key Incorporated herein by reference to
Employees Registrant's Annual Report on Form 10-K for
the fiscal year ended December 29, 1984
(File No. 0-12667) [Exhibit 10(e)]
**10.6 Employment Agreement, dated July 1, 1998, Incorporated herein by reference to
between Registrant and Gordon Zacks Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999 (File
No. 1-8769) [Exhibit 10(d)]
**10.7 Agreement, dated September 27, 1989, between Incorporated herein by reference to
Registrant and Gordon Zacks Registrant's Current Report on Form 8-K
dated October 11, 1989, filed October 12,
1989 (File No. 0-12667) [Exhibit 28.1]
**10.8 Amendment No. 1, dated as of October 12, 1994, Incorporated herein by reference to
between Registrant and Gordon Zacks Amendment No. 14 to Schedule 13D, dated
January 27, 1995, filed by Gordon Zacks on
February 13, 1995 [Exhibit 5]
E-4
23
Exhibit No. Description Location
----------- ----------- --------
**10.9 Amended Split-Dollar Insurance Agreement, dated Incorporated herein by reference to
March 23, 1995, between Registrant and Registrant's 1995 Form 10-K [Exhibit 10(h)]
Gordon B. Zacks
**10.10 R. G. Barry Corporation 1988 Stock Option Plan Incorporated herein by reference to
(Reflects amendments through May 11, 1993) Registrant's Registration Statement on Form
S-8, filed August 18, 1993 (Registration
No. 33-67594) [Exhibit 4(r)]
**10.11 Form of Stock Option Agreement used in Incorporated herein by reference to
connection with the grant of incentive stock Registrant's 1995 Form 10-K [Exhibit 10(k)]
options pursuant to the R. G. Barry Corporation
1988 Stock Option Plan
**10.12 Form of Stock Option Agreement used in Incorporated herein by reference to
connection with the grant of non-qualified Registrant's 1995 Form 10-K [Exhibit 10(l)]
stock options pursuant to the R. G. Barry
Corporation 1988 Stock Option Plan
**10.13 Description of Incentive Bonus Program Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991
(File No. 1-8769) [Exhibit 10(k)]
**10.14 R. G. Barry Corporation Employee Stock Purchase Incorporated herein by reference to
Plan (Reflects amendments and revisions for Registrant's Registration Statement on Form
stock dividends and stock splits through S-8, filed August 18, 1993 (Registration
May 11, 1993) No. 33-67596) [Exhibit 4(r)]
**10.15 R. G. Barry Corporation 1994 Stock Option Plan Incorporated herein by reference to
(Reflects stock splits through June 22, 1994) Registrant's Registration Statement on Form
S-8, filed August 24, 1994 (Registration
No. 33-83252) [Exhibit 4(q)]
**10.16 Form of Stock Option Agreement used in Incorporated herein by reference to
connection with the grant of incentive stock Registrant's 1995 Form 10-K [Exhibit 10(p)]
options pursuant to the R. G. Barry Corporation
1994 Stock Option Plan
**10.17 Form of Stock Option Agreement used in Incorporated herein by reference to
connection with the grant of non-qualified Registrant's 1995 Form 10-K [Exhibit 10(q)]
stock options pursuant to the R. G. Barry
Corporation 1994 Stock Option Plan
E-5
24
Exhibit No. Description Location
----------- ----------- --------
**10.18 Executive Employment Agreement, effective as of Incorporated herein by reference to
January 4, 1998, between Registrant and Registrant's 1997 Form 10-K [Exhibit 10(q)]
Christian Galvis
**10.19 Restricted Stock Agreement, effective as of Incorporated herein by reference to
January 4, 1998, between Registrant and Registrant's 1997 Form 10-K [Exhibit 10(s)]
Christian Galvis
**10.20 Agreement, effective as of January 4, 1998, Incorporated herein by reference to
between Registrant and Richard L. Burrell Registrant's 1997 Form 10-K [Exhibit 10(t)]
**10.21 Agreement, effective as of January 4, 1998, Incorporated herein by reference to
between Registrant and Harry Miller Registrant's 1997 Form 10-K [Exhibit 10(v)]
**10.22 R. G. Barry Corporation Deferred Compensation Incorporated herein by reference to
Plan As Amended and Restated (Effective as of Registrant's 1995 Form 10-K [Exhibit 10(v)]
September 1, 1995)
**10.23 Amendment No. 1 to the R. G. Barry Corporation *
Deferred Compensation Plan (Effective as of
March 1, 1997)
**10.24 R. G. Barry Corporation Stock Option Plan for Incorporated herein by reference to
Non-Employee Directors (Reflects share splits Registrant's 1997 Form 10-K [Exhibit 10(x)]
and amendments through February 19, 1998)
**10.25 R. G. Barry Corporation 1997 Incentive Stock Incorporated herein by reference to
Plan (Reflects amendments through May 13, 1999) Registrant's Registration Statement on Form
S-8, filed June 18, 1999 (Registration No.
333-81105) [Exhibit 10]
**10.26 Form of Stock Option Agreement used in *
connection with the grant of incentive stock
options pursuant to the R. G. Barry Corporation
1997 Incentive Stock Plan
E-6
25
Exhibit No. Description Location
----------- ----------- --------
**10.27 Form of Stock Option Agreement used in *
connection with the grant of non-qualified
stock options pursuant to the R. G. Barry
Corporation 1997 Incentive Stock Plan
**10.28 Restricted Stock Agreement, dated as of May 13, Incorporated herein by reference to
1999, between Registrant and Gordon Zacks Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 3, 1999
(File No. 1-8769) [Exhibit 10.1]
**10.29 Letter Agreement, dated September 27, 1999, *
between Registrant and Edward Bucciarelli
**10.30 Restricted Stock Agreement, dated as of October *
25, 1999, between Registrant and Edward P.
Bucciarelli
10.31 Shareholders' Agreement, dated July 20, 1999 Incorporated herein by reference to
and executed on July 22, 1999, between Mr. Registrant's Quarterly Report on Form 10-Q
Thierry Civetta and Registrant for the fiscal quarter ended October 2,
1999 (File No. 1-8769) [Exhibit 10.1]
10.32 Current Account Agreement, executed on July 22, Incorporated herein by reference to
1999, between Escapade SA and Mr. Thierry Registrant's Quarterly Report on Form 10-Q
Civetta for the fiscal quarter ended October 2,
1999 (File No. 1-8769) [Exhibit 10.2]
10.33 Joint Guarantee, granted by Credit Suisse Incorporated herein by reference to
Hottiguer, as guarantor, to Registrant, as Registrant's Quarterly Report on Form 10-Q
beneficiary, and executed on July 22, 1999 for the fiscal quarter ended October 2,
1999 (File No. 1-8769) [Exhibit 10.3]
10.34 Loan Agreement, executed on July 22, 1999, Incorporated herein by reference to
between Escapade SA and R. G. Barry France Registrant's Quarterly Report on Form 10-Q
Holdings, Inc. for the fiscal quarter ended October 2,
1999 (File No. 1-8769) [Exhibit 10.4]
E-7
26
Exhibit No. Description Location
----------- ----------- --------
13.1 Registrant's Annual Report to Shareholders for Incorporated herein by reference to the
the fiscal year ended January 1, 2000 (Not financial statements portion of this Annual
deemed filed except for the portions thereof Report on Form 10-K beginning at page 14
which are specifically incorporated by
reference into this Annual Report on Form 10-K)
21.1 Subsidiaries of Registrant *
23.1 Consent of Independent Certified Public *
Accountants
24.1 Powers of Attorney *
27.1 Financial Data Schedule *
- ---------------
* Filed herewith
** Management contract or compensatory plan or arrangement.
E-8
27
SIX YEAR REVIEW OF SELECTED FINANCIAL DATA
R.G. Barry Corporation and Subsidiaries
1999 1998 1997(**)
SUMMARY OF OPERATIONS (THOUSANDS)
Net sales $ 140,092 $ 149,404 $ 148,034
Cost of sales 84,657 75,979 76,697
Gross profit 55,435 73,425 71,337
Selling, general and administrative expenses 66,416 56,719 53,137
Restructuring and asset impairment charges 5,914 -- --
Interest expense, net (1,651) (1,607) (1,817)
Other income (expense) 502 380 415
Earnings (loss) before income taxes (18,044) 15,479 16,798
Income tax expense (benefit) (4,283) 5,712 6,680
Minority interest (20)
Net earnings (loss) $ (13,781) $ 9,767 $ 10,118
ADDITIONAL DATA
Basic earnings (loss) per share(*) $ (1.46) $ 1.01 $ 1.06
Diluted earnings (loss) per share(*) $ (1.46) $ 0.98 $ 1.03
Book value per share(*) $ 6.43 $ 8.01 $ 7.07
Annual % change in net sales (6.2%) 0.9% 0.5%
Annual % change in net earnings (241.1%) (3.5%) 22.5%
Net earnings (loss) as a percentage of beginning shareholders' equity (17.6%) 14.4% 17.8%
Basic average number of shares outstanding (in thousands)(*) 9,455 9,698 9,504
Diluted average number of shares outstanding (in thousands)(*) 9,455 9,992 9,820
FINANCIAL SUMMARY (THOUSANDS)
Current assets $ 70,561 $ 90,233 $ 82,554
Current liabilities 16,803 17,263 20,017
Working capital 53,758 72,970 62,537
Long-term debt 8,571 10,714 12,992
Net shareholders' equity 60,169 78,080 67,608
Net property, plant and equipment 14,408 12,875 14,231
Total assets 92,047 111,345 104,674
Capital expenditures 3,381 1,136 2,944
Depreciation and amortization of property, plant and equipment 2,243 2,413 2,531
1996 1995 1994
SUMMARY OF OPERATIONS (THOUSANDS)
Net sales $ 147,284 $ 134,034 $ 117,453
Cost of sales 81,860 73,538 70,708
Gross profit 65,424 60,496 46,745
Selling, general and administrative expenses 49,008 48,557 39,375
Restructuring and asset impairment charges -- -- --
Interest expense, net (2,483) (2,962) (1,701)
Other income (expense) (211) 1,060 333
Earnings (loss) before income taxes 13,722 10,037 6,002
Income tax expense (benefit) 5,465 3,738 2,191
Minority interest
Net earnings (loss) $ 8,257 $ 6,299 $ 3,811
ADDITIONAL DATA
Basic earnings (loss) per share(*) $ 0.89 $ 0.68 $ 0.43
Diluted earnings (loss) per share(*) $ 0.84 $ 0.65 $ 0.43
Book value per share(*) $ 6.05 $ 5.14 $ 4.44
Annual % change in net sales 9.9% 14.1% 16.1%
Annual % change in net earnings 31.1% 65.3% 0.3%
Net earnings (loss) as a percentage of beginning shareholders' equity 17.3% 15.3% 12.1%
Basic average number of shares outstanding (in thousands)(*) 9,308 9,234 8,823
Diluted average number of shares outstanding (in thousands)(*) 9,827 9,690 8,823
FINANCIAL SUMMARY (THOUSANDS)
Current assets $ 67,679 $ 62,721 $ 56,683
Current liabilities 13,956 18,793 17,332
Working capital 53,723 43,928 39,351
Long-term debt 15,265 15,390 16,445
Net shareholders' equity 56,743 47,611 41,054
Net property, plant and equipment 13,929 14,156 13,785
Total assets 89,067 84,340 76,961
Capital expenditures 2,404 3,363 2,234
Depreciation and amortization of property, plant and equipment 2,571 2,158 1,905
See also Management's Discussion & Analysis of Financial Condition &
Results of Operations
(*) Retroactively restated to reflect 5-for-4 share split distributed
June 17, 1996 and 4-for-3 share splits distributed September 15,
1995 and June 22, 1994
(**) Fiscal year includes fifty-three weeks
Certain amounts from prior years have been reclassified to conform with
current year's presentation
8 and 9
28
MARKET AND DIVIDEND INFORMATION
R.G. Barry Corporation and Subsidiaries
MARKET VALUE
QUARTER HIGH LOW CLOSE
1999 First $13.125 $ 8.313 $ 8.750
Second 9.875 7.625 8.250
Third 8.313 4.750 6.125
Fourth 6.250 3.500 3.938
1998 First $14.125 $10.000 $13.750
Second 16.500 13.500 16.500
Third 17.688 12.750 13.875
Fourth 13.750 10.625 11.000
Stock Exchange: New York Stock Exchange
Stock Ticker Symbol: RGB
Wall Street Journal Listing: BarryRG
Approximate Number of Registered Shareholders: 1,300
No cash dividends were paid during the periods noted. While the Company has no
current intention to pay cash dividends, it is currently able to pay cash
dividends, subject to the restrictions contained in the various loan agreements.
See also Note 4 to Consolidated Financial Statements, and Management's
Discussion & Analysis of Financial Condition & Results of Operations.
QUARTERLY FINANCIAL DATA
R.G. Barry Corporation and Subsidiaries
1999 FISCAL QUARTERS in thousands, except net earnings (loss) per share
FIRST SECOND THIRD FOURTH
- -----------------------------------------------------------------------------------------------
NET SALES $ 20,734 $ 19,168 $ 48,118 $ 52,072
GROSS PROFIT 8,644 4,868 21,685 20,238
NET EARNINGS (LOSS) (2,937) (5,176) 1,473 (7,141)
BASIC EARNINGS (LOSS) PER SHARE $ (0.30) $ (0.55) $ 0.15 $ (0.76)
DILUTED EARNINGS (LOSS) PER SHARE $ (0.30) $ (0.55) $ 0.15 $ (0.76)
1998 Fiscal Quarters
First Second Third Fourth
- -----------------------------------------------------------------------------------------------
Net sales $ 22,777 $ 17,992 $ 52,387 $ 56,248
Gross profit 10,147 8,730 26,969 27,579
Net earnings (loss) (751) (1,598) 6,065 6,051
Basic earnings (loss) per share $ (0.08) $ (0.16) $ 0.62 $ 0.63
Diluted earnings (loss) per share $ (0.08) $ (0.16) $ 0.61 $ 0.61
Certain amounts from prior periods have been reclassified to conform with
current presentation.
See also Management's Discussion & Analysis of Financial Condition & Results
of Operations.
10
29
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
The assets we use in the development, production, marketing, warehousing and
distribution, and sale of our products consist mainly of current assets, such as
cash, receivables, inventory, and prepaid expenses. Our assets also include, to
a lesser extent, net property, plant and equipment, and other non-current
assets. At the end of 1999, current assets amounted to approximately 77 percent
of total assets, compared with 81 percent at the end of 1998.
A substantial portion of non-current assets are net property, plant and
equipment, and to a lesser extent, deferred income taxes and goodwill.
As of the end of 1999, we had $53.8 million in net working capital, made up of
$70.6 million in current assets, less $16.8 million in current liabilities. At
the end of 1998, we had $73.0 million in net working capital. A substantial
portion of the decline in net working capital relates to the $13.8 million loss
incurred during fiscal 1999. In addition, during the first half of 1999, we
reacquired in open market purchases approximately 478 thousand of the our common
shares to hold as treasury shares, spending approximately $4.1 million, plus
early in the third quarter we acquired an 80% interest in Escapade, the parent
company of Fargeot et Compagnie ("Fargeot"), a French slipper manufacturer for
approximately $2.4 million in cash, net of the cash acquired.
We ended 1999 with $10.0 million in cash and cash equivalents, $8.6 million in
net trade receivables, and $40.7 million in inventory. By comparison, at the end
of 1998, we had $29.6 million in cash and cash equivalents, $10.5 million in net
trade receivables, and $43.1 million in inventory. The decrease in cash from
1998 to 1999, is largely the result of the open market stock purchase described
above, the Fargeot acquisition, capital spending for the 1999 fiscal year
amounting to $3.4 million, and our 1999 loss of $13.8 million. See also the
accompanying Consolidated Statements of Cash Flows. While net trade receivables
declined from 1998 to 1999, receivable turnover indicates a slight slowdown. We
believe that the decline in turnover reflects a slight shift in the timing of
monthly shipments to our customers, coupled with retailers' expectations about
merchandise returns after the end of the year. We believe that there is no
significant increase in exposure to uncollectible accounts. We have provided an
accrual for the impact of expected returns in 1999 operating results. In
addition, we do not expect to incur any significant markdown exposure as a
result of accepting returned merchandise from our customers. The decrease in
inventory from $43.1 million in 1998 to $40.7 million in 1999, represents a
planned decline in finished goods slipper inventory, both domestically and
internationally, plus a substantial decline in Thermal products inventory.
Traditionally, we have leased most of our operating facilities. We periodically
review facilities to determine whether our current facilities will satisfy
projected operating needs for the foreseeable future. There were no significant
changes in facilities in 1998. During the second half of 1999, we opened a new
manufacturing facility in the Dominican Republic. Products manufactured in the
leased Dominican facility can be shipped into the European market at duty rates
favorable when compared with shipments from the United States. The new facility
is expected to help support our production needs for the foreseeable future, and
replaces the capacity in the Shenzhen, China facility, which closed early in
2000. Also in 1999, we opened a leased warehouse in San Antonio, Texas. This
facility is expected to support warehousing needs, and to reduce dependence upon
short-term leased facilities that accommodate peak seasonal storage needs.
Substantially all of the capital expenditures in 1998 and 1999, in addition to
supplying the equipment for these two facilities, were for routine additions to
production machinery and equipment.
We have typically relied on our Revolving Credit Agreement ("Revolver"), first
executed in February 1996, to satisfy additional capital requirements, including
seasonal working capital needs. In June 1999, we agreed with
our three main banks to extend the existing multi-year Revolver through 2001;
the Revolver provides for periodic further extensions beyond 2001, under certain
conditions. For several years, the Revolver provided a seasonally adjusted
available line of credit ranging from $6 million to $51 million. During 1999,
peak borrowings amounted to $30.0 million compared with $25.5 million in 1998.
The daily average borrowing under the Revolver during 1999 increased to $9.9
million, at a weighted average interest rate of 6.4%, as compared with $7.6
million, at a weighted average interest rate of 6.7%, during 1998. In December
1999, the banks modified the Revolver to eliminate the interest coverage test
for year end fiscal 1999. In February 2000, the banks have agreed to amend the
Revolver. The principal amendments to the Revolver replace the interest coverage
ratio test for the first three quarters of 2000 with minimum operating results,
increase the borrowing spread over market rates, and increase the periodic
reporting of
11
30
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
certain financial information. At our request, the amendment reduces the minimum
availability to $3 million and the peak availability to $42 million.
At times, we have incurred additional long-term debt to provide long-term
financing. The last time we incurred additional long-term debt was in 1994, when
we issued a $15 million, 9.7 percent note, due in 2004 ("Note"). The balance due
under the Note as of the end of 1999, was $10.7 million. The Note and Revolver
contain certain other covenants that we believe are normally found agreements of
similar type and duration. The Note and the Revolver place restrictions on the
amount of additional borrowings, and contain certain other financial covenants
- -- see also Note 4 to the Consolidated Financial Statements for additional
information. The Note requires semi-annual interest payments and annual
principal repayments, the first of which began in July 1998, of $2.1 million. We
are in compliance with all covenants of the Note, and following the modification
to the Revolver late in 1999, are in compliance with all covenants of the
Revolver.
Cash dividends were last paid in 1981. While the Note and Revolver, as of
year-end 1999, permitted the payment of cash dividends and the repurchase of
common shares for treasury, there are no current plans to resume payment of cash
dividends. We anticipate continuing to use our cash resources to finance
operations and to fund the future. Subject to the covenants of the Note and
Revolver, we may currently incur additional long-term debt, should that become
desirable. See also Note 4 to the Consolidated Financial Statements for
additional information.
We believe that we have a strong balance sheet, with strong financial ratios. At
the end of 1999, total capitalization amounted to $68.7 million, comprised of
12.5 percent long-term debt and 87.5 percent shareholders' equity. This compares
with $88.8 million in total capitalization at year end 1998, comprised of 12.1
percent long-term debt and 87.9 percent shareholders' equity. Our current ratio,
a measure of the relationship of current assets to current liabilities, was 4.20
to 1 at year-end 1999, compared with 5.23 to 1 at year-end 1998.
LEGAL PROCEEDINGS
During the third quarter of 1998, we filed a lawsuit against Domino's Pizza,
Inc., and Phase Change Laboratories, Inc., alleging patent infringement and
deceptive advertising. The case involves our patented invention, which maintains
desired temperature of food and other items using a phase change material.
Domino's Pizza purchased a product it calls the "Heat Wave" system, manufactured
by Phase Change Laboratories, Inc. We believe that the product infringes upon
our patent as granted by the United States Patent Office. We seek damages,
attorney's fees, and an injunction against further infringement by both
defendants. Discovery in this matter has been completed and the case is
scheduled for trial in late spring 2000.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 1999, we adopted Statement of Position 98-1 ("SOP 98-1") "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use". SOP
98-1 requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. SOP 98-1 also requires that costs related to the
preliminary project stage and the post-implementation/operations stage (as
defined in SOP 98-1) in an internal-use computer software development project be
expensed as incurred. The adoption of SOP 98-1 did not affect our results of
operations or financial position.
In addition, in January 1999, we adopted Statement of Position 98-5 ("SOP
98-5"), "Reporting on the Costs of Start-Up Activities ". SOP 98-5 requires that
costs incurred during start-up activities, including organization costs, be
expensed as incurred. The adoption of SOP 98-5 did not affect our results of
operations or financial position.
The FASB has issued Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" ("Statement"), which is required to be adopted in fiscal years beginning
after June 15, 2000. The Statement permits early adoption as of the beginning of
any fiscal quarter after their issuance. We expect to adopt the new Statement
effective January 1, 2001. The Statement will require companies to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in the fair value of the
hedged asset, liability, or firm
12
31
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
commitment through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings. We
do not anticipate that the adoption of this Statement will have a significant
effect on our results of operations or financial position.
FOREIGN CURRENCY RISK
In recent years, several foreign currencies, primarily those in the Far East,
Eastern Europe, and Latin America, have been subject to value fluctuations in
world currency markets, and in some cases currencies have suffered significant
devaluation. Our operations are currently conducted primarily in U. S. Dollars
and to a much lesser degree in British Pounds Sterling, French Francs, Swiss
Francs, European Euros, Canadian Dollars, and German Marks -- all currencies
that historically have not been subject to significant volatility. In
accordance with our established policy guidelines, we have at times hedged some
of these currencies on a short-term basis, using foreign exchange contracts as
a means to protect ourselves from fluctuations. At the end of fiscal 1999,
there were no foreign exchange contracts outstanding. The amount of foreign
exchange contracts that we have normally maintained has not been material to
overall operations.
In addition, portions of our labor and other costs are incurred in Mexican
Pesos, to a lesser degree in Dominican Republic Pesos, and formerly in Chinese
Renminbi. Normally, we have not hedged these currencies as they have generally
declined in value over time when compared to the U. S. Dollar. In addition,
forward contracts in these currencies generally are neither readily nor
economically available. Should any of these currencies suffer a devaluation
compared to the U. S. Dollar, we believe that the impact would likely reduce the
effective costs of manufacturing in those countries, although any such reduction
is not expected to have a significant impact upon our results of operations.
IMPLEMENTATION OF THE "EURO" AS A COMMON LEGAL CURRENCY IN EUROPE
We believe that we are prepared for the implementation of the "Euro" as the
common legal currency in certain European Community countries that began early
in 1999. The United Kingdom, which is one of our principal bases of operation in
Europe, will not immediately join the transition to the Euro, although France,
where we also conduct substantial business operations, has already joined. Our
systems have been designed with sufficient flexibility to handle the
introduction of the Euro as an added transactional currency. We incurred a
nominal cost in preparing systems for the introduction of the Euro.
YEAR 2000 READINESS DISCLOSURES
During 1998 and 1999, we conducted extensive tests of our computer application
systems, which confirmed the readiness of systems to address year 2000 computer
date concerns. In early January 2000, we opened for business without any
disruptions relating to the year 2000 issue, and thus far in 2000, have
experience no significant problems. While it cannot be certain that there will
not be future computer system problems, we believe that any future such
problems, if they occur, will be minor in nature and manageable. We believe that
principally as a result of substantial equipment and software upgrades
implemented in recent years, all critical application systems have been
converted to address potential problems.
RESULTS OF OPERATIONS
1999 SALES AND OPERATIONS COMPARED WITH 1998
Results for 1999 were disappointing. The disappointment started early in 1999,
when Sears, Penney's and Mervyns accelerated their move toward emphasizing
in-house private label brands for many categories of merchandise including the
amount of Dearfoams(R) branded products that they purchase from us. This reduced
our sales in 1999 by approximately $8 million from 1998. With reduced sales to
these customers, we recognized the need for further emphasis on lowering
production levels and reducing our inventories. Lowering production to reduce
inventory was very expensive. Operating our plants at less than optimum
capacity, resulted in inefficiencies and underutilized capacity. Complicating
matters was our having finalized the fall 1999 line later in the season than
normal. Finalizing the line late contributed to plant inefficiencies and in some
cases contributed to late deliveries to customers. Also during 1999, we
aggressively liquidated closeout and irregular inventory, at lower than normal
gross profit levels.
13
32
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
During 1999, we introduced a line of Soluna(TM)Spa-at-home thermal/magnetic
products, with disappointing sell-through at retail. Early in 1999, retailers
were initially very excited about this new line of products, although consumers
did not confirm the retailers' optimism during the critical holiday selling
season. We supported Soluna(TM) heavily with promotional activities and incurred
significant costs to support the movement of inventory through the retail
pipeline.
In Europe, we invested heavily in television advertising as a means to
strengthen our slippers' brand awareness in France. This added expense increased
our costs of operation.
In 1999, our lawsuit against Domino's Pizza and Phase Change Laboratories for
patent infringement added to our expense structure. This litigation continues in
2000.
For the fiscal year 1999, net sales amounted to $140.1 million, approximately
6.2 percent lower than net sales in 1998 of $149.4 million. For the 1999 fiscal
year, we incurred a loss of $13.8 million. See also, Note 13 of Notes to the
Consolidated Financial Statements for a breakdown of net sales by geographic
region of the world and by segment of our operations.
We operate in three differing segments: i) Barry Comfort North America, which
manufactures and markets at-and-around-the-home comfort footwear in North
America, ii) Barry Comfort Europe, which markets footwear principally in western
Europe and iii) Thermal, which markets thermal retention technology products,
principally in North America, that act as hot or cold temperature reservoirs
releasing that energy over time.
Net sales of Barry Comfort North America decreased in 1999 to $118.9 million
from $128.0 million in 1998, a 7.1 percent decline in at-and-around-the-home
comfort footwear. The primary contributor to this decline was the decision of
Sears, Penney's, and Mervyns to move toward in-house private label for a sizable
portion of their merchandise including our Dearfoam(R) slippers.
In 1991, we opened our first European office in London, and in 1997, opened an
office in Paris. In 1999, we acquired an 80 percent ownership in Fargeot, a
70-year old French slipper manufacturer. Fargeot supplies slippers principally
to smaller retail establishments in France and Western Europe. We believe that
Fargeot will enhance the market for our other slippers throughout Europe. Net
sales of Barry Comfort Europe, principally in the United Kingdom and France,
amounted to $11.6 million in 1999, compared with net sales of $9.5 million in
1998.
Our Thermal segment sells proprietary thermal retention technology products --
products that maintain constant temperatures over time after having been
energized by either heat or cold. Net sales of Thermal products declined in 1999
to $9.5 million from $11.9 million in 1998. The decrease was mainly the result
of the decision to concentrate efforts on the development of commercial
applications of the thermal technologies. We believe our decision in 1999 to
exit the Consumer products business with these technologies, contributed to the
decline in net sales and gross profit. We also believe that sales of Thermal
products have been adversely affected by the patent infringement of Domino's
Pizza, Inc. and Phase Change Laboratories, Inc. referred to above in the `Legal
Proceedings' portion of this discussion.
Gross profit in 1999 amounted to $55.4 million, as compared with gross profit in
1998 of $73.4 million. Gross profit as a percent of net sales, declined in 1999
to 39.6 percent, compared with 49.1 percent during 1998. Gross profit was
adversely impacted in 1999, by several items:
- - Net sales in 1999 declined, as noted previously, from those in 1998.
- - The strategy of lowering production levels and reducing inventory on hand
proved very costly. Our manufacturing facilities operated at less than optimum
levels of capacity, and thus generated inefficiencies in operations that hurt
the cost of our products and reduced the gross profit realized on net sales.
- - We opened a new factory in the Dominican Republic. While this factory
adversely affected gross profit, during 1999, it is expected that this factory
will contribute to operations once it is fully operational in 2000, as it will
reduce our costs of products designated for distribution in Europe.
14
33
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
- - The sale of closeout, excess and inventory irregulars adversely impacted gross
profit.
Selling, general and administrative expenses increased significantly in 1999 to
$66.4 million, compared with $56.7 million in 1998. The increase in these
expenses reflects added costs in a number of areas:
- - We incurred added expenses in support of the marketing and selling of our
products, with a sizable portion of the increase associated with the new
Soluna(TM) Spa-at-home products,
- - We opened a new warehouse in San Antonio in 1999 which increased the costs of
storage and shipping during the year,
- - We incurred expenses to defend our proprietary patents against infringement by
Domino's and Phase Change Laboratories, and
- - We supported the entry of our slippers into the French market with a
television advertising campaign.
Net interest expense at $1.7 million increased in 1999 slightly from 1998.
During 1999, the daily average seasonal borrowings under the Revolver amounted
to $9.3 million, compare with $7.6 million during 1998. The weighted average
interest rate in 1999 declined slightly to 6.4 percent from 6.7 percent in 1998.
For the 1999 fiscal year, after restructuring discussed in the next paragraph,
we incurred a loss amounting to $18.0 million before income taxes, compared with
earnings before taxes in 1998 of $15.5 million. The net loss in 1999 after the
benefit of current and deferred income taxes, amounts to $13.8 million. In 1998,
we had earnings after income taxes of $9.8 million. For 1999, the basic and
diluted loss per share amounted to $1.46 per share, compared with basic earnings
per share in 1998 of $1.01 per share. In 1998, diluted earnings per share [a
measure of earnings per average common share that includes a computation of
shares attributable to outstanding but unexercised options] amounted to $0.98
per share.
RESTRUCTURING
In December 1999, we announced a restructuring plan that is intended to address
the problems experienced during 1999. This restructuring plan, which has been
provided for in the operating results for 1999, is estimated to cost
approximately $1.8 million. Early in 2000, we closed our manufacturing facility
in Shenzhen, China. In addition, in 2000, we will be reducing the size of our
warehouse facility in San Antonio, Texas, reducing the office space in our San
Antonio administrative offices, closing one of the facilities utilized in our
Barry/Vesture thermal operations and shifting that production to existing
facilities in Mexico, shifting thermal warehousing to our warehouses in
Goldsboro and San Antonio, relocating sample making operations from Columbus to
factories in Mexico, streamlining our Design and Product development processes,
and relocating our marketing functions to our offices in New York City.
As a result of our narrowed focus and exiting the consumer products and
housewaves business for our Thermal retention technology products, we have
determined that the goodwill resulting from our acquisition of Vesture
Corporation in 1994 is impaired with little or no value. Accordingly, we have
written off the balance of the goodwill, $4 million, relating to the Vesture
acquisition. The write-off is not currently tax deductible.
1998 SALES AND OPERATIONS COMPARED WITH 1997
Net sales for 1998 amounted to $149.4 million, approximately 0.9 percent greater
than net sales in 1997 of $148.0 million. For the 1998 fiscal year, net earnings
amounted to $9.8 million, approximately 3.5 percent lower than net earnings of
$10.1 million for 1997.
Net sales of Barry Comfort North America increased in 1998 to $128.0 million
from $123.8 million in 1997, reflecting a 3.4 percent increase in
at-and-around-the-home comfort footwear. Net sales in Barry Comfort Europe
amounted to $9.5 million in 1998, a 35.9 percent increase when compared with the
$7.0 million net sales in 1997. Substantially all of the increase in 1998
occurred in France.
15
34
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
Net sales of Thermal products declined in 1998 to $11.9 million from $17.2
million in 1997. The decrease was mainly the result of the decision in late 1997
to de-emphasize the sale of thermal consumer products in the accessories
departments of department stores, and to concentrate efforts on the development
of commercial applications of the thermal technologies. Also contributing to the
decline in net sales was a decision by a major customer to source certain of its
non-MICROCORE(R) components, directly from alternate suppliers rather than
continue to purchase them from us. We believe sales of Thermal products were
adversely affected by the patent infringement by Domino's Pizza, Inc. and Phase
Change Laboratories, Inc. referred to elsewhere under `Legal Proceedings'.
Gross profit increased to $73.4 million during 1998, from $71.3 million in
1997. Gross profit margin, as a percent of net sales, also increased during
1998 to 49.1 percent, compared with 48.2 percent in 1997. Increases in net
sales of higher margin Barry Comfort at-and-around-the-home comfort footwear,
coupled with a decline in sales of lower margin non-MICROCORE(R) components,
contributed to the growth in gross profit percent. In addition, the expanded
use of modular manufacturing contributed to increased gross profit margins.
During the spring of 1998, we concluded a project to expand the use of modular
manufacturing to all of the Barry Comfort production facilities. With modular
manufacturing, we realize improved efficiencies and lowered the per product
cost without a sizable infrastructure investment.
Selling, general and administrative expenses increased during 1998 to $56.7
million, a 6.7 percent increase over the $53.1 million expense incurred
in 1997. Most of the increase related to advertising, and marketing and sales
promotion programs in Barry Comfort implemented in anticipation of net sales
growth.
Net interest expense in 1998 declined to $1.6 million from $1.8 million in 1997.
Improved profitability in 1998 and 1997 resulted in improved liquidity. During
1998, daily average seasonal borrowings under the Revolver amounted to $7.6
million, compared with $8.2 million during 1997. In both years, the weighted
average interest rate was approximately 6.7 percent.
For the year, earnings before income taxes amounted to $15.5 million compared
with $16.8 million in 1997, a decline of 7.9 percent. Net earnings after taxes
decreased by 3.5 percent in 1998 to $9.8 million from $10.1 million in 1997.
During 1998, we implemented several strategies to effectively reduce the overall
effective income tax rate to approximately 37 percent. During 1997, the
effective income tax rate had been nearly 40 percent. For 1998, basic earnings
per share amounted to $1.01 per share, while diluted earnings per share amounted
to $0.98 per share. The comparable per share calculations for 1997 were basic
earnings per share of $1.06, and diluted earnings per share of $1.03.
FORWARD LOOKING STATEMENTS
"SAFE HARBOR" Statement under the Private Securities Litigation Reform Act of
1995:
The statements in this Annual Report to Shareholders, which are not
historical fact are forward looking statements based upon our current plans
and strategies, and reflect our current assessment of the risks and
uncertainties related to our business, including such things as product
demand and market acceptance; the economic and business environment and the
impact of governmental regulations, both in the United States and abroad; the
effects of direct sourcing by customers of competitive products from
alternative suppliers; the effects of pricing pressures from retailers;
inherent risks of international development, including foreign currency
exchange risks, the implementation of the Euro, economic conditions,
regulatory and cultural difficulties or delays in development outside the
United States; our ability to improve processes and business practices to
keep pace with the economic, competitive and technological environment,
including continued success in addressing year 2000 issues; manufacturing
capacity; efficiency and supply constraints; weather conditions; and other
risks detailed in our press releases, shareholder communications, and
Securities and Exchange Commission filings. Actual events affecting us and
the impact of such events on our operations may vary from those currently
anticipated.
16
35
CONSOLIDATED BALANCE SHEETS
R.G. Barry Corporation and Subsidiaries
January 1, 2000 January 2, 1999
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,006 $ 29,596
Accounts receivable:
Trade (less allowance for doubtful receivables, returns and
promotions of $20,782 and $16,021, respectively) 8,644 10,469
Other 1,010 1,073
Inventory 40,652 43,091
Deferred income taxes 7,711 3,729
Prepaid expenses 2,538 2,275
--------- ---------
Total current assets 70,561 90,233
--------- ---------
Property, plant, and equipment, at cost 43,333 41,697
Less accumulated depreciation and amortization 28,925 28,822
--------- ---------
Net property, plant, and equipment 14,408 12,875
--------- ---------
Deferred income taxes 1,740 1,187
Goodwill (less accumulated amortization of
$68 and $512, respectively) 2,602 4,114
Other assets 2,736 2,936
--------- ---------
$ 92,047 $ 111,345
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current installments of long-term debt and capital lease
obligations $ 2,143 $ 2,278
Notes payable to minority holders and others 682 --
Accounts payable 8,424 6,581
Accrued expenses 5,554 8,404
--------- ---------
Total current liabilities 16,803 17,263
--------- ---------
Accrued retirement cost, excluding current liability 4,989 4,440
Long-term debt, excluding current installments 8,571 10,714
Other 1,273 848
--------- ---------
Total liabilities 31,636 33,265
--------- ---------
Minority interest 242 --
Shareholders' equity:
Preferred shares, $1 par value. Authorized 3,775 Class A shares, 225 Series I
Junior Participating Class A shares, and
1,000 Class B shares; none issued -- --
Common shares, $1 par value. Authorized 22,500 shares;
issued and outstanding 9,349 and 9,745 shares
(excluding treasury shares of 1,003 and 597) 9,349 9,745
Additional capital in excess of par value 12,050 15,357
Deferred compensation (539) (204)
Accumulated other comprehensive income (92) --
Retained earnings 39,401 53,182
--------- ---------
Net shareholders' equity 60,169 78,080
Commitments and contingencies -- --
--------- ---------
$ 92,047 $ 111,345
========= =========
See accompanying notes to consolidated financial statements.
17
36
CONSOLIDATED STATEMENTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
1999 1998 1997
(in thousands, except per share data)
- ----------------------------------------------------------------------------------------------------------------------------
Net sales $140,092 $149,404 $148,034
Cost of sales 84,657 75,979 76,697
-------- -------- --------
Gross profit 55,435 73,425 71,337
Selling, general, and administrative expenses 66,416 56,719 53,137
Restructuring and asset impairment charges 5,914 -- --
-------- -------- --------
Operating income (loss) (16,895) 16,706 18,200
Other income 502 380 415
Interest expense, net of interest income of $367,
$389 and $322, respectively (1,651) (1,607) (1,817)
-------- -------- --------
Earnings (loss) before income taxes (18,044) 15,479 16,798
Income tax expense (benefit) (4,283) 5,712 6,680
Minority interest, net of tax (20) -- --
-------- -------- --------
Net earnings (loss) $(13,781) $ 9,767 $ 10,118
======== ======== ========
Earnings (loss) per common share:
Basic $ (1.46) $ 1.01 $ 1.06
======== ======== ========
Diluted $ (1.46) $ 0.98 $ 1.03
======== ======== ========
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
AND COMPREHENSIVE INCOME
R.G. Barry Corporation and Subsidiaries
Additional Accumulated
capital in Deferred other
Common excess of compen- Retained comprehensive Shareholders'
shares par value sation earnings income equity
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance at December 28, 1996 $ 9,375 $ 14,071 $ -- $ 33,297 $ -- $ 56,743
Comprehensive income:
Net earnings -- -- -- 10,118 -- --
Other comprehensive income:
Foreign currency translation
adjustment -- -- -- -- -- --
Total comprehensive income 10,118
Stock options exercised 193 452 -- -- -- 645
Tender of shares (4) (37) -- -- -- (41)
Tax benefit associated with the
activity under various stock plans -- 143 -- -- -- 143
-------- -------- -------- -------- ---- --------
Balance at January 3, 1998 9,564 14,629 -- 43,415 -- 67,608
Comprehensive income:
Net earnings -- -- -- 9,767 -- --
Other comprehensive income:
Foreign currency translation
adjustment -- -- -- -- -- --
Total comprehensive income 9,767
Deferred compensation -- 230 (230) -- -- --
Amortization of deferred compensation -- -- 26 -- -- 26
Stock options exercised 217 793 -- -- -- 1,010
Tender of shares (36) (508) -- -- -- (544)
Tax benefit associated with the
activity under various stock plans -- 213 -- -- -- 213
-------- -------- -------- -------- ---- --------
Balance at January 2, 1999 9,745 15,357 (204) 53,182 -- 78,080
Comprehensive income:
Net loss -- -- -- (13,781) -- --
Other comprehensive income:
Foreign currency translation
adjustment -- -- -- -- (92) --
Total comprehensive loss (13,873)
Deferred compensation 71 335 (406) -- -- --
Amortization of deferred compensation -- -- 71 -- -- 71
Stock options exercised 11 29 -- -- -- 40
Purchase of shares (478) (3,671) -- -- -- (4,149)
-------- -------- -------- -------- ---- --------
Balance at January 1, 2000 $ 9,349 $ 12,050 $ (539) $ 39,401 $(92) $ 60,169
======== ======== ======== ======== ==== ========
See accompanying notes to consolidated financial statements.
18
37
CONSOLIDATED STATEMENTS OF CASH FLOWS
R.G. Barry Corporation and Subsidiaries
1999 1998 1997
(in thousands)
- ----------------------------------------------------------------------------------------------------
Cash flows from operating activities:
Net earnings (loss) $(13,781) $ 9,767 $ 10,118
Adjustments to reconcile net earnings (loss) to net cash
provided (used) by operating activities:
Tax benefit associated with activity under various
stock plans -- 213 143
Depreciation and amortization of property,
plant, and equipment 2,243 2,413 2,531
Amortization of goodwill 183 116 116
Goodwill write-off 4,000 -- --
Deferred income tax expense (benefit) (4,535) 663 (54)
Loss on disposal of property, plant, and equipment 186 35 97
Amortization of deferred compensation 71 26 --
Minority interest, net of tax 20 -- --
Net (increase) decrease in:
Accounts receivable 2,907 643 1,117
Inventory 3,906 (2,713) (6,270)
Prepaid expenses (264) 394 (642)
Other assets 200 (29) (264)
Net increase (decrease) in:
Accounts payable (777) 192 2,219
Accrued expenses (3,023) (3,050) 1,694
Accrued retirement cost, net 549 1,019 631
Other liabilities 292 311 323
-------- -------- --------
Net cash provided (used) by operating activities (7,823) 10,000 11,759
-------- -------- --------
Cash flows from investing activities:
Acquisition, net of cash acquired (2,448) -- --
Additions to property, plant, and equipment (3,381) (1,136) (2,944)
Proceeds from disposal of property, plant, and equipment 10 44 14
-------- -------- --------
Net cash used in investing activities (5,819) (1,092) (2,930)
-------- -------- --------
Cash flows from financing activities:
Repayment of long-term debt, capital lease obligations,
and short-term note payable (2,278) (2,273) (125)
Short-term borrowings 489 -- --
Proceeds from shares issued 39 1,010 645
Purchase of common shares for treasury (4,149) (544) (41)
-------- -------- --------
Net cash provided (used) by financing activities (5,899) (1,807) 479
-------- -------- --------
Effect of exchange rates on cash (49) -- --
-------- -------- --------
Net increase (decrease) in cash (19,590) 7,101 9,308
Cash and cash equivalents at beginning of year 29,596 22,495 13,187
-------- -------- --------
Cash and cash equivalents at end of year $ 10,006 $ 29,596 $ 22,495
======== ======== ========
Supplemental cash flow disclosures:
Interest paid $ 2,113 $ 1,978 $ 2,035
======== ======== ========
Income taxes paid $ 5,227 $ 8,752 $ 3,937
======== ======== ========
See accompanying notes to consolidated financial statements.
19
38
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Operations
R. G. Barry Corporation (the Company) is a United States based
multinational corporation. The Company's principal line of business is
comfort products for at and around the home. The predominant market
for the Company's products is North America. Products are sold
primarily to department and discount stores.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All significant intercompany balances
and transactions have been eliminated in consolidation.
(c) Cash Equivalents
Investments with maturities of three months or less at the date of
issuance are considered cash equivalents.
(d) Inventory
Inventory is valued at the lower of cost or market. Approximately 73%
and 77% of the 1999 and 1998, respectively, ending inventory costs are
determined on the last in, first out (LIFO) basis. The remainder is
determined on the first in, first out (FIFO) basis.
(e) Depreciation and Amortization
Depreciation and amortization have been provided substantially using
the double declining-balance method over the estimated useful lives of
the assets acquired prior to September 30, 1991. The Company adopted
the straight-line method of depreciation on its machinery and
equipment acquired after September 30, 1991.
(f) Revenue Recognition
The Company recognizes revenue when the goods are shipped to
customers. The Company has established programs which, in certain
circumstances, enable its customers to return product. The effect of
these programs is estimated and a returns allowance is provided. The
Company currently accounts for sales returns using a net sales
approach. Previously, it had followed a cost of sales approach. Prior
year financial statements have been reclassified to conform to the
current year presentation. As a result of this reclassification, there
has been no impact on gross profit, net earnings or loss, or earnings
per share or loss per share for any period noted.
(g) Income Taxes
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
(h) Per-Share Information
The computation of basic earnings (loss) per common share for 1999,
1998, and 1997 is based on the weighted average number of outstanding
common shares during the period. Diluted earnings per common share for
1998 and 1997 is based on the weighted average number of outstanding
common shares during the period, plus, when their effect is dilutive,
potential common shares consisting of certain shares subject to stock
options and the stock purchase plan. Diluted loss per common share for
1999 does not include effect of potential common shares due to
antidilutive effect of these instruments.
(i) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
Significant estimates made by management include the adequacy of
accounts receivable and inventory valuation allowances, and the
realizability of the deferred tax assets.
20
39
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
(j) Fair Value of Financial Instruments
Cash and cash equivalents, accounts receivable, accounts payable, and
accrued expenses as reported in the financial statements approximate
their fair value because of the short-term maturity of those
instruments. The fair value of the Company's long-term debt is
disclosed in note 4.
(k) Goodwill
Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on the straight-line method
over 20 years. The Company assesses the recoverability of this
intangible asset by determining whether the amortization of the
goodwill balance over its remaining life can be recovered through
undiscounted future operating cash flows of the acquired operation.
The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future
operating cash flows are not achieved.
(l) Stock-Based Compensation
The Company follows the intrinsic value method set forth in APB
Opinion No. 25, Accounting for Stock Issued to Employees, and provide
pro forma net income (loss) and pro forma earnings (loss) per share
disclosures for employee stock option grants as if the
fair-value-based method defined in SFAS No. 123 had been applied (see
note 9).
(m) Advertising
The Company expenses the costs of advertising as incurred. For the
years ended January 1, 2000, January 2, 1999, and January 3, 1998,
advertising expenses were $10,429, $7,615 and $6,471, respectively.
(n) Comprehensive Income
Comprehensive income (loss) consists of net income and foreign
currency translation adjustments and is presented in the consolidated
statements of shareholders' equity.
(o) Translation of Foreign Currency Financial Statements
Assets and liabilities of foreign operations have been translated into
United States dollars at the applicable rates of exchange in effect at
the end of the period. Revenues, expenses and cash flows have been
translated at the applicable weighted average rates of exchange in
effect during the period.
(p) Impairment of Long-Lived Assets and Long-Lived Assets to Be Disposed
Of
The Company accounts for long-lived assets in accordance with the
provisions of Statement of Financial Accounting Standards No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of. This Statement requires that long-lived
assets and certain identifiable intangibles be reviewed for
impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable.
Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment to be recognized is
measured by the amount by which the carrying amount of the assets
exceeds the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or fair value less costs
to sell.
(q) Reclassification
Certain amounts in the 1998 and 1997 financial statements have been
reclassified to conform with the 1999 presentation.
(2) INVENTORY
If the FIFO method had been used to value inventory, inventory would have
been $342, $1,681, and $2,409 higher than that reported at the end of
1999, 1998, and 1997, respectively. Because LIFO inventory is valued using
the dollar value method, it is impracticable to separate inventory values
between raw materials, work-in-process, and finished goods. During 1999,
1998 and 1997, respectively, reduction in LIFO related inventory costs
resulted in partial liquidation of the LIFO bases, the effect of which
increased net earnings (decreased net loss) by approximately $1,339, $728,
and $704, respectively.
21
40
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
(3) PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment consists of the following:
JANUARY 1, January 2, Estimated
2000 1999 life in years
---------------------------------------------------------------------
(in thousands)
Land and improvements $ 507 $ 490 8-15
Buildings and improvements 5,854 4,870 40-50
Machinery and equipment 28,092 28,459 3-10
Leasehold improvements 8,608 7,591 5-20
Construction in progress 272 287
------- -------
$43,333 $41,697
======= =======
(4) LONG-TERM DEBT AND RESTRICTIONS
Long-term debt consists of the following:
JANUARY 1, January 2,
2000 1999
-------------------------------------------------------------------------
(in thousands)
9.7% note, due July 2004 $10,714 $12,857
Less current installments 2,143 2,143
------- -------
Long-term debt, excluding current installments $ 8,571 $10,714
======= =======
The 9.7% note, issued in July 1994, requires semiannual interest payments
and annual principal repayments of $2,143, which commenced in 1998 and end
in 2004.
The Company has determined the fair value of its long-term debt based
upon the present value of expected cash flows, considering expected
maturities and using current interest rates available to the Company for
borrowings with similar terms. The fair value of the 9.7% note was
$11,144 and $14,100 at January 1, 2000 and January 2, 1999,
respectively.
In February 1996, the Company negotiated an unsecured revolving credit
agreement with its banks. The agreement provides the Company with a
seasonally adjusted amount of credit that has a minimum availability of $6
million and a peak availability of $51 million, with interest at variable
rates. At January 1, 2000 and January 2, 1999, no amounts were
outstanding. This agreement which provides for annual extensions,
currently expires on December 31, 2001.
Under the most restrictive covenants of the various loan agreements, the
Company is (1) required to maintain a seasonally adjusted current ratio,
as defined; (2) required to maintain a minimum seasonally adjusted
tangible net worth, as defined; (3) restricted as to annual acquisition of
fixed assets; and (4) restricted with regard to the amount of additional
borrowings, purchase of treasury shares and payment of dividends. At
January 1, 2000, approximately $6,587 of retained earnings was available
for the payment of cash dividends and the purchase of treasury shares (see
also note 9). There were no covenant violations during 1999 and 1998.
In December 1999, the banks modified the revolver to eliminate the
interest coverage test for 1999 fiscal year end. In February 2000, the
banks have agreed to amend the revolver. The principal amendments to the
revolver replace the interest coverage ratio test for the first three
quarters of 2000 with minimum operating results, increase the borrowing
spread over market rates, and increase the periodic reporting of certain
financial information. At the Company's request, the amendment reduces the
minimum availability to $3 million and the peak availability to $42
million.
The Company maintains compensating cash balances, which are not legally
restricted, to defray the costs of other banking services provided.
22
41
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
(5) LEASE COMMITMENTS
The Company occupies certain manufacturing, warehousing, operating, and
sales facilities and uses certain equipment under cancelable and
noncancelable operating lease arrangements. A summary of the noncancelable
operating lease commitments at January 1, 2000 follows.
Fiscal year AMOUNT
-------------------------------------------------------------
(in thousands)
2000 $ 4,698
2001 4,217
2002 3,782
2003 3,323
2004 2,051
Later fiscal years, through 2019 5,325
-------
$23,396
=======
Substantially all of these operating lease agreements are renewable for
periods of 3 to 15 years and require the Company to pay insurance, taxes
and maintenance expenses. Rent expense under cancelable and noncancelable
operating lease arrangements in 1999, 1998, and 1997 amounted to $6,275,
$5,512 and $4,986, respectively.
(6) INCOME TAXES
Income tax expense (benefit) consists of:
1999 1998 1997
-------- -----------------------------
(in thousands)
Current expense (benefit):
Federal $ (776) $4,644 $5,607
Foreign 254 108 108
State 774 297 1,019
252 5,049 6,734
Deferred expense (benefit) (4,535) 663 (54)
------- ------ ------
$(4,283) $5,712 $6,680
======= ====== ======
The differences between income taxes computed by applying the statutory
federal income tax rate (35% in 1999, 1998 and 1997) and income tax
expense (benefit) in the consolidated financial statements are:
1999 1998 1997
------- ---------------------------
(in thousands)
Computed "expected" tax expense (benefit) $(6,307) $5,418 $5,879
State income taxes, net of federal income taxes 502 193 662
Foreign income tax expense 254 108 108
Impairment write down of goodwill 1,400 -- --
Other, net (132) (7) 31
------- ------ ------
$(4,283) $5,712 $6,680
======= ====== ======
23
42
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
JANUARY 1, 2000 January 2, 1999
-----------------------------------
(in thousands)
Deferred tax assets:
Accounts receivable $4,526 $1,752
Inventories 1,930 1,539
Package design costs 272 285
Certain accounting accruals, including such items as
self-insurance costs, vacation costs, and others 946 116
Pension costs 2,219 1,775
------ ------
Total deferred tax assets 9,893 5,467
Deferred tax liabilities:
Property, plant, and equipment 442 551
Total deferred tax liabilities 442 551
------ ------
Net deferred tax assets $9,451 $4,916
====== ======
In order to realize the deferred tax asset, the Company will need to
generate future taxable earnings or be able to carryback to 1998. The
Company's taxable earnings history is as follows (in thousands):
1998
-------
Taxable earnings $19,689
=======
The Company believes the existing net deductible temporary differences
will reverse during periods in which the Company generates net taxable
earnings, or in periods in which a carryback to 1998 or 1997 is available.
Further, the Company believes it has available certain tax planning
strategies that could be implemented, if necessary, to supplement taxable
earnings from operations. The Company has considered the above factors in
concluding that it is more likely than not that the Company will realize
the benefits of existing deferred tax assets. There can be no assurance,
however, that the Company will generate any specific level of continuing
earnings.
(7) ACCRUED EXPENSES
Accrued expenses consist of the following:
JANUARY 1, 2000 January 2, 1999
-----------------------------------
(in thousands)
Salaries and wages $ 812 $ 777
Income taxes 337 5,312
Restructuring costs 1,794 --
Other 2,611 2,315
------ ------
$5,554 $8,404
====== ======
(8) EMPLOYEE RETIREMENT PLANS
The Company and its domestic subsidiaries have a noncontributory
retirement plan for the benefit of salaried and nonsalaried employees, the
Associates' Retirement Plan (ARP). The employees covered under the ARP are
eligible to participate upon the completion of one year of service.
Salaried participant benefits are based upon a formula applied to a
participant's final average salary and years of service, which is reduced
by a certain percentage of the participant's social security benefits.
Nonsalaried participant benefits are based on a fixed amount for each year
of service. The ARP provides reduced benefits for early retirement. The
Company intends to fund the minimum amounts required under the Employee
Retirement Income Security Act of 1974.
24
43
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
The funded status of the ARP and the accrued retirement costs recognized
at January 1, 2000 and January 2, 1999 were:
1999 1998
-----------------------------
(in thousands)
Change in benefit obligation:
Benefit obligation at the beginning of the year $23,163 $19,792
Service cost 843 719
Interest cost 1,496 1,341
Actuarial (gain)/loss (826) 2,308
Benefits paid (997) (997)
------- -------
Benefit obligation at the end of the year 23,679 23,163
Change in plan assets:
Fair value of plan assets at the beginning of the year 22,212 24,323
Actual return on plan assets 2,641 (825)
Expenses (238) (289)
Benefits paid (997) (997)
------- -------
Fair value of plan assets at the end of the year 23,618 22,212
Funded status (60) (951)
Unrecognized actuarial (gain)/loss (1,297) 79
Unrecognized prior service cost 140 169
Unrecognized net transition obligation -- --
------- -------
Net amount recognized in the consolidated balance sheets $(1,217) $ (703)
======= =======
The Company also has a Supplemental Retirement Plan (SRP) for certain
officers and other key employees of the Company as designated by the Board
of Directors. The SRP is unfunded, noncontributory, and provides for the
payment of monthly retirement benefits. Benefits are based on a formula
applied to the recipients' final average monthly compensation, reduced by
a certain percentage of their social security benefits.
25
44
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
The funded status of the SRP and the accrued retirement cost recognized
at January 1, 2000 and January 2, 1999 are:
1999 1998
----------------------------
(in thousands)
Change in benefit obligation:
Benefit obligation at the beginning of the year $ 4,216 $ 3,491
Service cost 81 51
Interest cost 275 249
Amendments -- 551
Actuarial gain (259) (27)
Benefits paid (99) (99)
------- -------
Benefit obligation at the end of the year 4,214 4,216
======= =======
Change in plan assets:
Fair value of plan assets at the beginning of the year -- --
Employer contributions 99 99
Benefits paid (99) (99)
------- -------
Fair value of plan assets at the end of the year -- --
======= =======
Funded status (4,214) (4,216)
Contribution during the fourth quarter 25 25
Unrecognized actuarial loss (66) 193
Unrecognized prior service cost 547 635
Unrecognized net transition obligation 69 118
------- -------
Net amount recognized in the consolidated balance sheets (3,639) (3,245)
======= =======
Amounts recognized in the consolidated balance sheets consist of:
Accrued retirement cost, including current liability of $99 (3,871) (3,835)
Intangible asset 232 590
------- -------
Net amount recognized $(3,639) $(3,245)
======= =======
The components of net periodic benefit cost for the retirement plans were:
1999 1998 1997
-----------------------------------------------
(in thousands)
Service cost $ 923 $ 770 $ 721
Interest cost 1,771 1,591 1,700
Expected return on plan assets (1,853) (1,655) (1,702)
Net amortization 165 (109) (142)
------ ------ ------
$1,006 $ 597 $ 577
====== ====== ======
Weighted average assumptions as of January 1, 2000 and January 2, 1999
were:
1999 1998
---------------------------
Discount rate 7.50% 6.60%
Rate of compensation increase 5.00% 5.00%
Expected return on plan assets 9.25% 9.25%
The Company has a 401(k) plan to which salaried and nonsalaried employees
may contribute a percentage, as defined, of their compensation per pay
period and the Company contributes 50% of the first 3% of each
participant's compensation contributed to this plan. The Company's
contribution to the 401(k) plan for the year ended January 1, 2000 and
January 2, 1999 was $253 and $247, respectively.
26
45
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
(9) SHAREHOLDERS' EQUITY
The Company has various stock option plans, which have granted incentive
stock options (ISOs) and nonqualified stock options exercisable for
periods of up to 10 years from date of grant at prices not less than fair
market value at date of grant. Information with respect to options under
these plans follows:
ISO NON-QUALIFIED
NUMBER NUMBER WEIGHTED-AVERAGE
OF SHARES OF SHARES EXERCISE PRICE
-----------------------------------------------------------------------------------------------------------------------
Outstanding at December 28, 1996 1,019,100 137,100 $ 7.57
Granted 127,200 55,300 11.16
Exercised (191,100) (1,400) 3.34
Expired (26,000) -- 9.76
--------- ------- ------
Outstanding at January 3, 1998 929,200 191,000 8.83
Granted 128,500 156,500 14.08
Exercised (205,600) (11,400) 4.65
Expired (7,100) -- 10.02
--------- ------- ------
Outstanding at January 2, 1999 845,000 336,100 10.85
Granted 331,600 87,000 7.31
Exercised (9,800) -- 3.54
Expired (210,400) (62,700) 10.82
--------- ------- ------
Balance outstanding at January 1, 2000 956,400 360,400 $ 9.85
========= ======= ======
Options exercisable at January 1, 2000 409,800 197,200
========= =======
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------------- -------------------------------
NUMBER WEIGHTED-AVERAGE NUMBER
RANGE OF OUTSTANDING REMAINING WEIGHTED-AVERAGE EXERCISABLE WEIGHTED-AVERAGE
EXERCISE PRICES AT 1/1/00 CONTRACTUAL LIFE EXERCISE PRICE AT 1/1/00 EXERCISE PRICE
-----------------------------------------------------------------------------------------------------------------
$ 5.00 and under 174,000 7.94 $ 4.05 50,100 $ 3.15
5.01 - 10.00 565,400 6.56 $ 8.33 311,700 $ 8.33
10.01 - 15.00 563,700 7.03 $12.90 241,800 $12.67
15.01 and over 13,700 5.28 $15.85 3,400 $15.19
--------- -------
1,316,800 607,000
========= =======
At January 1, 2000, the remaining number of ISO and nonqualified shares
available for grant was 338,000.
At January 1, 2000, January 2, 1999, and January 3, 1998, the options
outstanding under these plans were held by 81, 98, and 109 employees,
respectively, and had expiration dates ranging from 2000 to 2009.
Stock appreciation rights may be issued subject to certain limitations.
There were no rights outstanding at January 1, 2000, January 2, 1999, or
January 3, 1998.
Had the Company elected to determine compensation cost based on the fair
value at the grant date, as alternatively permitted under SFAS No. 123,
the Company's net earnings would have been reduced to the pro forma
amounts indicated below:
1999 1998 1997
---------------------------------------------------
Net earnings (loss):
As reported $(13,781) $9,767 $10,118
Pro forma (14,963) 8,580 9,395
Earnings per share (diluted):
As reported (1.46) .98 1.03
Pro forma (1.58) .87 .96
======== ====== =======
27
46
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
Using the Black Scholes option-pricing model, the per-share,
weighted-average fair value of stock options granted during 1999, 1998,
and 1997 was $3.33, $7.17, and $4.93, respectively, on the date of grant.
The assumptions used in estimating the fair value of the options as of
January 1, 2000 and January 2, 1999 were:
1999 1998
---------------------------------
Expected dividend yield 0% 0%
Expected volatility 40% 40%
Risk-free interest rate 5% 5.5%
Expected life-- ISO grants 5.5 years 5.5 years
Nonqualified grants 7.5-8 years 7.5 years
The Company has an employee stock purchase plan in which approximately 800
employees are eligible to participate. Under the terms of the Plan,
employees receive options to acquire common shares at the lower of 85% of
the fair market value on their enrollment date or at the end of each
two-year plan term.
SHARES
SUBSCRIBED
----------
Balance at January 3, 1998 69,900
Subscriptions 600
Purchases --
Expired (9,500)
------
Balance at January 2, 1999 61,000
Subscriptions --
Purchases (900)
Expired (60,100)
------
Balance at January 1, 2000 --
======
28
47
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
(10) EARNINGS PER SHARE
For the years ended: (earnings amounts in thousands)
1999
-------------------------------------------------------
LOSS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
-------------------------------------------------------
BASIC AND DILUTED EPS--
Net loss allocable to common
shareholders $(13,781) 9,455 $(1.46)
Options to purchase 1,316,800 common shares at prices up to $16.43 were
outstanding in 1999 but were not included in the computation of diluted
earnings per share because of the net loss incurred by the Company and,
therefore, the effect would be anti-dilutive.
1998
-------------------------------------------------------
Earnings Shares Per-share
(Numerator) (Denominator) amount
-------------------------------------------------------
BASIC EPS--
Net earnings available to
common shareholders $ 9,767 9,698 $1.01
EFFECT OF DILUTIVE SECURITIES--
Stock options -- 294 (.03)
DILUTED EPS--
Net earnings available to common
shareholders plus assumed conversions 9,767 9,992 .98
1997
-------------------------------------------------------
Earnings Shares Per-share
(Numerator) (Denominator) amount
-------------------------------------------------------
BASIC EPS--
Net earnings available to
common shareholders $ 10,118 9,504 $1.06
EFFECT OF DILUTIVE SECURITIES--
Stock options -- 316 (.03)
DILUTED EPS--
Net earnings available to common
shareholders plus assumed conversions 10,118 9,820 1.03
(11) PREFERRED SHARE PURCHASE RIGHTS
In February, 1998, the Company's Board of Directors declared a
distribution of one Preferred Share Purchase Right (Right) for each
outstanding common share of the Company to shareholders of record on March
16, 1998. The new Rights replaced similar Rights issued in 1988 which
expired on March 16, 1998. Under certain condition, each new Right may be
exercised to purchase one one-hundredth of a share of Series Junior I
Participating Class A Preferred Shares, par value $1 per share, at an
initial exercise price of $40. The Rights initially will be attached to
the Common Shares. The Rights will separate from the Common Shares and a
Distribution Date will occur upon the earlier of 10 business days after a
public announcement that a person or group has acquired, or obtained the
right to acquire 20% or more of the Company's outstanding common shares
(Share Acquisition Date) or 10 business days (or such later date as the
Board shall determine) after the commencement of a tender or exchange
offer that would result in a person or group beneficially owning 20% or
more of the Company's outstanding common shares. The Rights are not
exercisable until the Distribution Date.
29
48
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
In the event that any Person becomes the beneficial owner of more than 20%
of the then outstanding common shares, each holder of a Right will be
entitled to purchase, upon exercise of the Right, common shares having a
market value two times the exercise price of the Right. In the event that,
at any time following the Share Acquisition Date, the Company is acquired
in a merger or other business combination transaction in which the Company
is not the surviving corporation or 50% or more of the Company's assets or
earning power is sold or transferred, the holder of a Right will be
entitled to buy the number of shares of common stock of the acquiring
company which at the time of such transaction will have a market value of
two times the exercise price of the Right.
The Rights, which do not have any voting rights, expire on March 16, 2008,
and may be redeemed by the Company at a price of $0.01 per Right at any
time until 10 business days following the Share Acquisition Date.
Each Class A Preferred Share is entitled to one-tenth of one vote, while
Class B Preferred Shares are entitled to ten votes. The preferred shares
are entitled to a preference in liquidation. None of these shares have
been issued.
(12) RELATED-PARTY OBLIGATION
The Company and a key executive have entered into an agreement pursuant to
which the Company is obligated for up to two years after the death of the
key executive to purchase, if the estate elects to sell, up to $4 million
of the Company's common shares, at their fair market value. To fund its
potential obligation to purchase such shares, the Company has purchased a
$5 million life insurance policy on the key executive, the cash surrender
value of which is included in other assets in the accompanying
consolidated balance sheets. In addition, for a period of 24 months
following the key executive's death, the Company will have a right of
first refusal to purchase any common shares of the Company owned by the
key executive at the time of his death if his estate elects to sell such
shares. The Company would have the right to purchase such shares on the
same terms and conditions as the estate proposes to sell such shares.
At January 1, 2000, Escapade SA, the Company's 80% owned French
subsidiary, had a $489 note payable to its 20% shareholder. This note was
subsequently repaid in January 2000.
(13) SEGMENT REPORTING
SFAS No. 131, Disclosures about Segments of an Enterprise and Related
Information, establishes standards for the manner in which public
enterprises report information about operating segments, their products
and the geographic areas where they operate.
The Company manufactures and markets comfort footwear for
at-and-around-the-home and supplies thermal retention technology products.
The Company considers its "Barry Comfort" at-and-around-the-home comfort
footwear group in North America and Europe, and the thermal retention
technology products group, "Thermal", as its three operating segments.
The accounting policies of the operating segments are substantially
similar to those described in note 1, except that the disaggregated
financial information has been prepared using certain management reports,
which by their very nature require estimates. In addition, certain items
from these management reports have not been allocated among operating
segments. Some of the more significant items include: a) costs of certain
administrative functions, b) current and deferred income tax expense
(benefit) and deferred tax assets (liabilities), and c) in some years,
certain operating provisions.
Revenues, and net property, plant and equipment, have been allocated to
geographic areas based upon the location of the Company's operating unit.
30
49
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
REVENUES
1999 1998 1997
--------------------------------------------------
(in thousands)
United States/North America $128,462 $139,861 $141,010
France 7,677 3,946 1,489
United Kingdom 3,953 5,597 5,535
-------- -------- --------
$140,092 $149,404 $148,034
======== ======== ========
NET PROPERTY, PLANT AND EQUIPMENT
1999 1998 1997
--------------------------------------------------
(in thousands)
United States $ 9,399 $ 9,068 $10,221
Mexico 3,478 3,487 3,791
Other 1,531 320 219
-------- -------- --------
$14,408 $12,875 $14,231
======= ======= =======
NET SALES BY PRODUCT LINE
1999 1998 1997
--------------------------------------------------
(in thousands)
At-and-around-the-home footwear $130,557 $137,518 $130,827
Thermal retention technology products 9,535 11,886 17,207
-------- -------- --------
$140,092 $149,404 $148,034
======== ======== ========
In 1999 and 1998, one Barry Comfort customer accounted for approximately
23% and 22% of the Company's net sales, respectively. In 1997, three Barry
Comfort customers accounted for approximately 20%, 11% and 10% of the
Company's net sales.
OTHER SEGMENT INFORMATION
BARRY COMFORT INTER-
1999 NORTH SEGMENT
(in thousands) AMERICA EUROPE THERMAL ELIMINATIONS TOTAL
---------------------------------------------------------------------------------------------------------------------
Net sales $118,927 $11,630 $9,535 $ -- $140,092
Depreciation and amortization 1,681 176 386 -- 2,243
Interest income 684 27 -- (344) 367
Interest expense 2,010 48 304 (344) 2,018
Pre tax loss (3,939) (2,268) (11,837) -- (18,044)
Additions to property, plant, and equipment 3,063 220 98 -- 3,381
Total assets devoted $83,955 $12,341 $3,497 $(7,746) $ 92,047
======= ======= ====== ======= ========
Barry Comfort Inter-
1998 North Segment
(in thousands) America Europe Thermal Eliminations Total
---------------------------------------------------------------------------------------------------------------------
Net sales $127,975 $9,543 $11,886 $ -- $149,404
Depreciation and amortization 2,100 53 260 -- 2,413
Interest income 621 20 -- (252) 389
Interest expense 1,996 -- 252 (252) 1,996
Pre tax earnings (loss) 16,254 (638) (137) -- 15,479
Additions to property, plant, and equipment 789 163 184 -- 1,136
Total assets devoted $ 93,768 $8,650 $11,686 $(2,759) $111,345
======== ====== ======= ======= ========
31
50
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
Barry Comfort Inter-
1997 North segment
(in thousands) America Europe Thermal Eliminations Total
---------------------------------------------------------------------------------------------------------------------
Net sales $123,803 $7,024 $17,207 $ -- $148,034
Depreciation and amortization 2,153 23 355 -- 2,531
Interest income 578 15 -- (271) 322
Interest expense 2,139 -- 271 (271) 2,139
Pre tax earnings 16,700 (1,400) 1,498 -- 16,798
Additions to property, plant, and equipment 2,767 92 88 -- 2,944
Total assets devoted $87,496 $6,894 $ 8,987 $(2,933) $104,674
======= ====== ======= ======= ========
(14) RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
In December 1999, in connection with management's plan to reduce costs and
improve operating efficiencies, the Company recorded a restructuring
charge of $1,794 as a component of operating income. The restructuring
charge primarily relates to the elimination of 67 positions. The positions
eliminated are primarily manufacturing and administrative positions. As a
result, severance and employee benefit costs of $1,487 have been accrued
at January 1, 2000.
The principle actions in the restructuring plan involve the closure of a
production facility in Shenzhen, China, a downsizing of a distribution
center and office in San Antonio, Texas, a warehouse in Laredo, Texas, the
transfer of redundant manufacturing operations to the Dominican Republic
manufacturing facility, and consolidating the related support
infrastructure. Additionally, the plan involves the shift of thermal
comfort and self-care consumers' production from Vesture Corporation to
the Company's Mexican production facilities and to the corporate
headquarters, respectively. The Company expects to complete its
restructuring plan by June 30, 2000.
In December 1999, the Company determined that based on the recoverability
of the goodwill balance related to its acquisition of Vesture Corporation
in 1994 that the remaining unamortized value could not be recovered
through future operating cash flows. The Company's analysis resulted in a
charge of $4.0 million to write down the carrying value of the Vesture
acquisition goodwill to zero.
After an income tax benefit of $670, these actions reduced fiscal year
1999 earnings by $5,244 or $0.55 per share.
Noncash
Initial write-off Paid in As of
(in thousands) charge in 1999 1999 January 1, 2000
---------------------------------------------------------------------------------------------------------------------
Restructuring charges:
Employee separations $1,487 $ -- $-- $1,487
Other exit costs 94 -- -- 94
Noncancelable lease costs 213 -- -- 213
------ ------ --- ------
Restructuring costs 1,794 -- -- 1,794
------ ------ --- ------
Asset impairment 120 120 -- --
Goodwill write-down 4,000 4,000 -- --
====== ====== === ======
Total restructuring and asset impairment costs $5,914 $4,120 $-- $1,794
====== ====== === ======
(15) ACQUISITION OF ESCAPADE SA
Effective July 22, 1999, the Company acquired an 80% of the outstanding
stock of Escapade SARL (Escapade), which owned 51% of Fargeot et Compagnie
SA and Michel Fargeot SA (collectively known as Fargeot), all of Thiviers,
France for $2,347 in cash. Fargeot manufactures and markets footwear.
Simultaneous with the purchase of 80% of the stock by the Company,
Escapade purchased the remaining 49% of Fargeot that it did not own for
$2,296 in cash. The proceeds for the purchase of the 49% were funded
through loans to Escapade from its two shareholders.
The Escapade purchase agreement includes put and call options for the
purchase of the remaining 20% of shares not owned by the Company. The 20%
shareholder may put the shares to the Company at any time after July 22,
2004 for a period of five years at the price as determined by the purchase
agreement. The Company may call the shares and purchase them at any time
after July 22, 2000 for a period of nine years at the same basis.
32
51
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
R.G. Barry Corporation and Subsidiaries
continued
The acquisition was accounted for as a purchase, and accordingly, the
financial statements include the results of operations for the Company's
80% equity ownership from the date of acquisition. The excess of the
aggregate purchase price over the fair market value of net assets acquired
of approximately $2,710 is being amortized over 20 years.
The acquisition of Fargeot did not result in a significant business
combination within the definition provided by the Securities and Exchange
Commission and therefore, pro forma financial information has not been
presented.
(16) CONTINGENT LIABILITIES
The Company has been named as defendant in various lawsuits arising from
the ordinary course of business. In the opinion of management, the
resolution of such matters is not expected to have a material adverse
effect on the Company's financial position or results of operations.
33
52
INDEPENDENT AUDITORS' REPORT
R.G. Barry Corporation and Subsidiaries
The Board of Directors and Shareholders
R. G. Barry Corporation:
We have audited the accompanying consolidated balance sheets of R.G. Barry
Corporation and subsidiaries as of January 1, 2000 and January 2, 1999, and the
related consolidated statements of operations, shareholders' equity and
comprehensive income, and cash flows for each of the fiscal years in the
three-year period ended January 1, 2000. These consolidated financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of R. G. Barry
Corporation and subsidiaries as of January 1, 2000 and January 2, 1999, and the
results of their operations and their cash flows for each of the fiscal years in
the three-year period ended January 1, 2000, in conformity with generally
accepted accounting principles.
KPMG LLP
Columbus, Ohio
February 17, 2000
34