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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 29, 2003
---------------------
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
-----------------------
(Exact name of registrant as specified in its charter)
OHIO 31-4362899
-------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
13405 Yarmouth Road NW, Pickerington, Ohio 43147
-----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
614-864-6400
------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address and former fiscal year, if changed since
last report)
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 whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
Yes _________ No ___X_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Common Shares, $1 Par Value, Outstanding as of March 29, 2003 - 9,808,175
--------------------------
Index to Exhibits at page 18
Page 1 of 21 pages
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 29, 2003 December 28, 2002
-------------- -----------------
(unaudited)
-----------
(in thousands)
ASSETS:
Cash and cash equivalents $3,731 6,881
Accounts receivable, less allowances 13,880 11,125
Inventory 33,933 32,894
Deferred and recoverable income taxes 10,500 8,569
Prepaid expenses 1,958 1,599
----- -----
Total current assets 64,002 61,068
------ ------
Property, plant and equipment, at cost 36,915 39,176
Less accumulated depreciation and amortization 26,862 28,266
------ ------
Net property, plant and equipment 10,053 10,910
------ ------
Goodwill, net of amortization 2,506 2,374
Other assets 14,246 13,286
------- ------
$ 90,807 87,638
======== ======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term notes payable 12,000 -
Current installments of long-term debt 3,730 3,650
Accounts payable 6,548 10,474
Accrued expenses 4,866 6,017
----- -----
Total current liabilities 27,144 20,141
------ ------
Accrued retirement costs and other, net 14,024 14,188
Long-term debt, excluding current installments 5,737 5,760
----- -----
Total liabilities 46,905 40,089
------ ------
Minority interest 389 361
Shareholders' equity:
Preferred shares, $1 par value per share
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 per share
Authorized 22,500 shares
(excluding treasury shares) 9,808 9,806
Additional capital in excess of par value 12,793 12,791
Deferred compensation ( 170) ( 200)
Accumulated other comprehensive loss ( 2,909) ( 3,071)
Retained earnings 23,991 27,862
------ ------
Net shareholders' equity 43,513 47,188
------ ------
$ 90,807 87,638
======== ======
Page 2 of 21 pages
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen Weeks Ended
March 29, 2003 March 30, 2002
-------------- --------------
(unaudited)
-----------
(in thousands,
except per share amounts)
Net sales $21,259 $20,896
Cost of sales 14,214 14,477
------ ------
Gross profit 7,045 6,419
Selling, general and
administrative expense 12,851 11,381
Restructuring and asset
impairment charges 200 727
----- ------
Operating loss ( 6,006) ( 5,689)
Other income 53 200
Interest expense ( 221) ( 234)
Interest income - 39
------ -------
Net interest expense ( 221) ( 195)
--------- ---------
Loss before
income tax benefit ( 6,174) ( 5,684)
Income tax benefit 2,330 2,370
Minority interest, net of tax ( 27) ( 17)
----------- -----------
Net loss ($ 3,871) ($ 3,331)
========== ==========
Net loss per common share
Basic ($ 0.39) ($ 0.35)
======== ========
Diluted ($ 0.39) ($ 0.35)
======== ========
Average number of common
shares outstanding
Basic 9,811 9,426
===== =====
Diluted 9,811 9,426
===== =====
Page 3 of 21 pages
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Thirteen Weeks Ended
March 29, 2003 March 30, 2002
-------------- --------------
(unaudited)
-----------
(in thousands)
Cash flows from operating activities:
Net loss ($ 3,871) ( 3,331)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of
property, plant and equipment 438 449
Minority interest, net of tax 27 17
Amortization of deferred compensation 30 33
Changes in:
Accounts receivable, net ( 2,729) 2,130
Inventory ( 986) ( 811)
Prepaid expenses, recoverable income taxes, and other ( 1,940) ( 6,287)
Accounts payable ( 3,955) ( 1,823)
Accrued expenses ( 1,156) ( 2,278)
Accrued retirement costs and other, net ( 164) 1,347
--------- -------
Net cash provided by (used in) operating activities ( 14,306) ( 10,554)
--------- ---------
Cash flows from investing activities:
Additions to property, plant and equipment, net ( 872) ( 897)
------- -------
Cash flows from financing activities:
Proceeds from short-term notes 12,000 -
Proceeds from shares issued 5 547
Long-term debt, net of repayments 21 3,619
-------- ------
Net cash provided by (used in) financing activities 12,026 4,166
------- ------
Effect of exchange rates on cash 2 12
------- -------
Net increase (decrease) in cash ( 3,150) ( 7,273)
Cash at the beginning of the period 6,881 12,258
------- -------
Cash at the end of the period $ 3,731 4,985
======= ======
Supplemental cash flow disclosures:
Interest paid $ 208 414
====== =====
Income taxes paid $ 18 126
====== =====
Page 4 of 21 pages
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under Item 1 of Part I of Form 10-Q
for the periods ended March 29, 2003 and March 30, 2002
1. The interim consolidated financial statements are unaudited. All
adjustments (consisting solely of normal recurring adjustments) have been
made which, in the opinion of management, are necessary to fairly present
the results of operations.
2. R. G. Barry Corporation and its subsidiaries (the "Company") operate on a
fifty-two or fifty-three week annual fiscal year, ending annually on the
Saturday nearest December 31st. Fiscal 2003 is a fifty-three week year,
while 2002 was a fifty-two week year.
3. Income tax benefit for the periods ended March 29, 2003 and March 30, 2002
consisted of:
2003 2002
---- ----
(in thousands)
U. S. Federal and
Foreign tax benefit $ ( 2,083) $ ( 2,086)
State & Local tax benefit ( 247) ( 284)
--------- ----------
Total $ ( 2,330) $ ( 2,370)
========== ==========
The income tax benefit reflects a combined federal, foreign, state and
local effective rate of approximately 37.7 percent for the first quarter of
2003 and approximately 41.7 percent for the first quarter of 2002, as
compared to the statutory U. S. federal rate of 34.0 percent in both years.
Income tax benefit for the periods ended March 29, 2003 and March 30, 2002
differed from the amounts computed by applying the U. S. federal income tax
rate of 34.0 percent to pretax loss as a result of the following:
2003 2002
---- ----
(in thousands)
Computed "expected"
tax benefit:
U. S. Federal tax benefit $ ( 2,099) $ ( 1,933)
Foreign and other, net ( 68) ( 250)
State & Local tax benefit,
net of federal tax benefit ( 163) ( 187)
--------- ----------
Total $ ( 2,330) $ ( 2,370)
========== ==========
4. Basic net loss per common share has been computed based on the weighted
average number of common shares outstanding during each period. Diluted net
loss per common share 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 common shares
subject to stock options and the stock purchase plan. Diluted loss per
common share as of March 29, 2003 and March 30, 2002 does not include the
effect of potential common shares due to the antidilutive effect of these
instruments, as a result of the losses incurred during the periods noted.
5. Inventory by category for the Company consists of the following:
March 29, December 28,
--------- ------------
2003 2002
---- ----
( in thousands)
Raw materials $ 5,466 $ 6,981
Work in process 1,534 1,462
Finished goods 26,933 24,451
------ ------
Total inventory 33,933 32,894
====== ======
Page 5 of 21 pages
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under Item 1 of Part I of Form 10-Q for
the periods ended March 29, 2003 and March 30, 2002 - continued
6. Segment Information - 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 groups in North America and in Europe, and the thermal
retention technology group, "Thermal", as its three operating segments. The
accounting policies of the operating segments are substantially similar,
except that the disaggregated 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 the operating segments, including such items as a) costs of
certain administrative functions, b) current and deferred income tax
expense (benefit) and deferred tax assets (liabilities), and c) in some
periods, certain other operating provisions.
Thirteen weeks ended Barry Comfort
March 29, 2003 North Intersegment
(in thousands) America Europe Thermal Eliminations Total
------- ------ ------- ------------ -----
Net sales $ 17,132 $ 3,246 $ 881 $ 21,259
Depreciation and
amortization 372 54 12 438
Interest income 47 - - ( 47) -
Interest expense 214 7 47 ( 47) 221
Restructuring and asset
impairment charges 200 - - 200
Pre tax loss ( 4,777) ( 15) ( 1,382) (6,174)
Additions to property, plant
and equipment 792 40 40 872
Total assets devoted $ 92,484 $ 6,390 $ 1,249 ($ 9,316) $ 90,807
======== ======= ======= ========= ========
Thirteen weeks ended Barry Comfort
March 30, 2002 North Intersegment
(in thousands) America Europe Thermal Eliminations Total
------- ------ ------- ------------ -----
Net sales $ 16,260 $ 2,933 $ 1,703 $ 20,896
Depreciation and
amortization 361 49 39 449
Interest income 61 ( 22) 39
Interest expense 226 8 22 ( 22) 234
Restructuring and asset
impairment charges 727 - - 727
Pre tax loss ( 5,218) ( 89) ( 377) ( 5,684)
Additions to property, plant
and equipment 866 25 6 897
Total assets devoted $ 80,161 $ 7,321 $ 5,237 ($ 6,013) $ 86,706
======== ======= ======= ========= ========
Page 6 of 21 pages
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under Item 1 of Part I of Form 10-Q for
the periods ended March 29, 2003 and March 30, 2002 - continued
7. Restructuring and asset impairment charges - The Company has previously
announced plans to reduce costs and improve operating efficiencies, and has
recorded restructuring and asset impairment charges as a component of
operating expense. The following schedule highlights actual activities
through March 29, 2003, with comparative information as of March 30, 2002.
Non-Cash
As of Write-Offs As of
Dec. 28, Charges Estimate and March 29,
2002 in 2003 Adjustments Paid in 2003 2003
---- ------- ----------- ------------ ----
(in thousands)
Employee separations $ 1,530 - - 512 1,018
Asset impairments - 200 - 200 -
Noncancelable lease costs 208 - - 8 200
-------- ---- ------ ------ -------
Total restructuring costs $ 1,738 $ 200 - $ 720 $ 1,218
======= ===== ====== ===== =======
The Company expects that a substantial portion of the accrued obligations will
be paid before the end of the 2003 fiscal year.
As of As of
Dec. 29, Charges Estimate March 30,
2001 in 2002 Adjustments Paid in 2002 2002
---- ------- ----------- ------------ ----
(in thousands)
Employee separations $ 346 727 - 727 346
------ --- ------ --- ---
Total restructuring costs $ 346 $ 727 - $ 727 $ 346
====== ====== ====== ===== ======
Page 7 of 21 pages
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under Item 1 of Part I of Form 10-Q for
the periods ended March 29, 2003 and March 30, 2002 - continued
8. Shareholders' Equity
The Company has various stock option plans, under which we have granted
incentive stock options and nonqualified stock options exercisable for
periods of up to 10 years from the date of grant at prices not less than
fair market value at the date of grant. Had we 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:
March 29, 2003 March 30, 2002
-------------- --------------
(in thousands)
Net earnings (loss):
As reported $ ( 3,871) $ ( 3,331)
Pro forma ( 4,012) ( 3,601)
Earnings (loss) per share:
As reported $ ( 0.39) $ ( 0.35)
Pro forma ( 0.40) ( 0.36)
Using the Black-Scholes option pricing model, the per-share,
weighted-average fair value of stock options granted during 2003 and 2002,
was $1.79 and $3.07, respectively, on the date of grant. The assumptions
used in estimating the fair value of the options as of March 29, 2003, and
March 30, 2002 were:
March 29, March 30,
2003 2002
---- ----
Expected dividend yield 0% 0%
Expected volatility 50% 50%
Risk-free interest rate 3.00% 5.00%
Expected life-ISO grants 6 years 6 years
Expected life-nonqualified grants 8 years 8 years
Page 8 of 21 pages
R. G. BARRY CORPORATION AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------------------
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT
OF 1995:
The statements in this Quarterly Report on Form 10-Q, other than statements of
historical fact, are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are based upon our current plans and strategies, and reflect our
current assessment of the risks and uncertainties related to our business. In
addition to the risks and uncertainties noted in this Quarterly Report on Form
10-Q, there are factors that could cause results to differ materially from those
anticipated by some of the statements made. These factors include 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 effect of pricing pressures from retailers; the loss
of significant customers in connection with mergers, acquisitions, bankruptcies
or other circumstances; inherent risks of international development, including
foreign currency risks, economic, regulatory and cultural difficulties or delays
in our business development outside the United States; our ability to improve
processes and business practices to keep pace with the economic, competitive and
technological environment; the availability and costs of financing; capacity,
efficiency, and supply constraints; weather; the effects of terrorist acts, and
governments' responses to terrorist acts, on business activities and customer
orders; acts of war; 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.
- --------------------------------------------------------------------------------
Liquidity and Capital Resources
As of the end of the first quarter of 2003, we had $36.9 million in net working
capital. This compares with $51.4 million at the end of the first quarter of
2002, and $40.9 million at fiscal year-end 2002. The declines in net working
capital from the end of the first quarter of 2002 and from fiscal year-end 2002
to the end of the first quarter of 2003 are primarily the result of the
comparatively greater losses we incurred during the last three quarters of
fiscal 2002 and during the first quarter of 2003, respectively.
The primary components of net working capital have changed as follows:
- - Accounts receivable decreased from $14.3 million at the end of the first
quarter of 2002, to $13.9 million at the end of the first quarter of 2003.
Most of the decrease in 2003 reflects an improvement in the level of
collection of accounts between the two periods. Accounts receivable at the
end of the first quarter of 2003 increased by $2.7 million from $11.1
million at the end of fiscal 2002.
- - Inventories ended the first quarter of 2003 at $33.9 million compared with
$36.4 million one year ago, and $32.9 million as of the end of fiscal 2002.
Most of the decrease in inventory from one year ago to the end of the
current quarter represents a decrease in raw materials and in-process
inventories. Most of the increase in inventory from the end of fiscal year
end 2002 to the end of the current quarter, reflects a seasonal increase in
the amount of finished goods from period to period.
- - We ended the first quarter of 2003 with $3.7 million in cash and cash
equivalents, compared with $5.0 million at the end of the first quarter of
2002. We ended the first quarter of 2003 with $12 million in short-term
bank notes, while there were no similar short-term bank notes at the end of
the first quarter of 2002. At the end of fiscal 2002, we had $6.9 million
in cash and cash equivalents, and again no short-term bank notes. The
changes in short-term bank notes and cash reflect our increased short-term
capital needs following the losses incurred during the latter portions of
fiscal year 2002.
Capital expenditures during the first quarter of 2003 amounted to $872 thousand
compared with $897 thousand during the first quarter of 2002. All expenditures
in both years were funded out of working capital.
Page 9 of 21 pages
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
We currently have in place a $32 million Revolving Credit Agreement ("Revolver")
with The Huntington National Bank ("Huntington"). In connection with the
Revolver, we granted a security interest in all of our personal property assets
to (a) secure our obligations to Huntington, including those obligations under
the Revolver and (b) secure our obligations under a Note Agreement with
Metropolitan Life Insurance Company dated July 5, 1994, as amended. The Revolver
is a three-year $32 million commitment from Huntington that matures on April 30,
2006. The Revolver contains certain periodic monthly commitment limitations
ranging from $3 million in January, $12 million for February and March, $32
million from April through October, and $27 million for November and December,
all of which is further limited monthly to 80 percent of eligible receivables
and 40 percent of eligible inventory, as defined. The Revolver contains various
covenants, including financial covenants, that require us to maintain minimum
tangible net worth levels, quarterly EBITDA (earnings before interest, taxes,
depreciation and amortization) maintenance requirements through the end of
fiscal 2003, a minimum coverage of interest expense beginning at the end of the
first quarter in fiscal 2004, and certain cash flow leverage ratios beginning at
the end of fiscal 2003. We are in compliance with all covenants of the Revolver
and other debt agreements.
Effective January 1, 2002, the 15% duties imposed by the United States on
slippers made in Mexico were eliminated. The duties had been scheduled for
reduction at the rate of 2.5% per year until the scheduled elimination on
January 1, 2008. With the assistance of two firms, we were successful in
accelerating the elimination of these duties. Upon the successful conclusion of
this pursuit, we agreed to pay an aggregate of about $6.25 million, most of
which is payable in equal quarterly installments through the end of 2005.
Reflected in current installments and long-term debt is approximately $3.7
million, which represents the discounted present value of the remaining
quarterly installments. The unamortized cost of the services of these two firms
is included in other assets on the Company's balance sheet, and is being
amortized through the end of 2007, corresponding with the period of expected
benefit from the reduction in duties. Amortization during the first quarter of
2003 amounted to $331 thousand, compared with $144 thousand during the first
quarter of 2002.
Application of Critical Accounting Policies
The preparation of financial statements in accordance with accounting principles
generally accepted in the United States of America requires that we make certain
estimates. These estimates can affect our reported revenues, expenses and
results of operations, as well as the reported values of certain of our assets
and liabilities. Making estimates in the preparation of financial statements is
not new. Making estimates about the impact of future events has been a generally
accepted practice for nearly all companies in nearly all industries for many,
many years. We make these estimates after gathering as much information from as
many resources, both internal and external to our organization, as are available
to us at the time. After reasonably assessing the conditions that exist at the
time, we make estimates and prepare the financial reports. We make these
estimates in a consistent manner from period to period, based upon historical
trends and conditions, and after review and analysis of current events and
conditions. Management believes that these estimates reasonably reflect the
current assessment of the financial impact of events that may not become known
with certainty until some time in the future.
Page 10 of 21 pages
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
Application of Critical Accounting Policies - continued
The more critical of these accounting policies requiring management estimates
are summarized here:
a) We recognize revenue when our goods are shipped to our customers
and title passes. In certain circumstances, we have made arrangements with
customers that provide for returns, discounts, promotions and other incentives.
At the time we recognize revenue, we reduce our measurement of revenue by an
estimate of future returns and retailer promotions and incentives, and recognize
a corresponding reduction in the measurement of accounts receivable. As a result
of the rapidly changing retail environment and the ever-changing economic
environment, it is possible that returns or retailer promotions and incentives
could change in the future. Accordingly, we have identified this estimate as one
requiring significant management judgement. We also estimate an amount for the
potential of doubtful accounts as a result of bad debts. In preparing the
financial statements for the period ending March 29, 2003, we estimated the cost
of future returns, promotions, incentives and bad debts to amount to $4.7
million. This compares with an estimate at the end of March 30, 2002 of $4.4
million.
b) We value inventories using the lower of cost or market method, based
upon a standard costing method. We evaluate our inventories for any impairment
in realizable value in light of the prior selling season, the economic
environment, and our expectations for the upcoming selling season. At the end of
March 29, 2003, we estimated that the standard cost valuation of our inventory
exceeded the estimated net realizable value of that inventory by $2.7 million,
compared with a similar estimate made at the end of March 30, 2002 of $1.2
million.
c) We make an assessment of the amount of income taxes that will become
currently payable or recoverable for the just concluded period and what deferred
tax costs or benefits will become realizable for income tax purposes in the
future as a result of differences between results of operations as reported in
conformity with accounting principles generally accepted in the United States
and the requirements of the increasingly complex income tax codes existing in
the various jurisdictions where we operate. We ended March 29, 2003 with net
deferred and recoverable tax assets of $10.5 million, compared with net deferred
and recoverable tax assets at the end of March 30, 2002 amounting to $4.5
million. In evaluating the future usability of our deferred and recoverable tax
assets, we are relying on our capacity for refund of federal income taxes due to
our tax loss carry-back position, and on projections of future profits. Should
those future profits not materialize in the time frames required, we may need to
establish a further valuation allowance against deferred tax assets.
d) We make an assessment of the ongoing future value of goodwill and
other intangible assets.
e) We make estimates of the future costs associated with restructuring
plans related to a number of operational changes and reconfigurations that we
have announced. At the end of March 29, 2003, we had an accrued balance of $1.2
million relating to the estimated future costs of closing or reorganizing
certain operations, as previously outlined. At the end of March 30, 2002, we had
an accrued balance of $346 thousand for similar restructuring and reorganization
activities. Should the actual costs of these activities exceed these estimates,
the excess costs will be recognized in the following period. Conversely, should
the costs of such restructuring be less than the amounts estimated, future
periods would benefit by that difference. (See also Note 7 of Notes to
Consolidated Financial Statements for additional restructuring information.)
f) In addition, there are other accounting policies, which also require
some judgmental input by management. Here, too, we have followed these policies
consistently from year to year. For an additional discussion of all of our
accounting policies, the reader may refer to Note 1 of the Notes to Consolidated
Financial Statements contained in our 2002 Annual Report to Shareholders. Actual
results may vary from these estimates as a result of activities learned after
the period end estimates have been made, and will have a positive or negative
impact upon the results of operations in a period subsequent to the period when
we originally made the estimate.
Page 11 of 21 pages
Management's Discussion and Analysis of Financial Condition and Results of
Operations - continued
Results of Operations
During the first quarter of 2003, net sales amounted to $21.3 million, a 1.7
percent increase in net sales from the first quarter of 2002. Net sales during
the first quarter of 2003 in Barry Comfort North America, at $17.1 million,
increased by 5.4 percent compared with the same quarter last year; net sales in
Barry Comfort Europe, at $3.2 million, increased by 10.7 percent compared with
the same quarter last year; while net sales in the Thermal products segment, at
$881 thousand, decreased by 48.3 percent compared with the same quarter of last
year. (See also Note 6 of Notes to Consolidated Financial Statements for
selected segment information.) Substantially all of the increase in net sales in
Barry Comfort North America, for the first quarter of 2003, related to increased
shipments to our largest customer. As previously reported, during the first
quarter of 2002, net sales to that customer had declined as the customer had
decided to reduce its on-hand and backup inventory across the board in footwear.
Gross profit during the first quarter of 2003, amounted to $7.0 million, or 33.1
percent of net sales, about $626 thousand greater than during the first quarter
of 2002, when gross profit amounted to $6.4 million, or 30.7 percent of net
sales. Thus, a portion of the increase in gross profit dollars is the result of
increased net sales for the period, and a portion is the result of improved
profit margins and improved manufacturing variances for the period resulting
from the strategic actions taken in 2002 to reduce costs.
Selling, general and administrative expenses during the quarter, at $12.9
million, increased by $1.5 million, from $11.4 million in the same quarter last
year. The increase in selling, general and administrative expenses principally
represents the impact of certain activities (such as newly hired associates in
sales and marketing, and the new warehouse in Nuevo Laredo) that were taken in
the second or third quarters of 2002. The costs incurred in 2003, of defending
our intellectual property as discussed in our 2002 Annual Report to
Shareholders, plus the annualized impact of the above mentioned activities were
felt during the first quarter of 2003; there were no comparable costs incurred
during the first quarter of 2002.
During the first quarter of 2003, we recognized a $200 thousand asset impairment
charge relating to the valuation of the facility in Goldsboro, North Carolina.
That facility was closed at the end of the first quarter of 2003. The Company
has entered into a contract to sell the facility, which is expected to close
during the second quarter of 2003.
Net interest expense increased in the first quarter from 2002 to 2003. During
the first quarter of 2003, net interest expense amounted to $221 thousand
compared with $195 thousand in the first quarter of 2002. During the first
quarter of 2003, we utilized $12 million under our Revolver, whereas in 2002, we
had not utilized any short-term line of credit. The primary cause of the
increased usage of the line of credit during the first quarter of 2003, was the
loss that the Company incurred during fiscal 2002.
For the first quarter of 2003, we incurred a net loss after taxes amounting to
$3.9 million or $0.39 per diluted share. During the comparable quarter in 2002,
we incurred a net loss after taxes of $3.3 million or $0.35 per diluted share.
Page 12 of 21 pages
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Market Risk Sensitive Instruments - Foreign Currency
We transact business in various foreign countries. Our primary foreign currency
net cash outflows occur in Mexico. We do not hedge anticipated foreign currency
net cash outflows in the Mexican Peso, as the Peso generally has declined in
value over time, when compared with the U. S. Dollar.
Our primary foreign currency net cash inflows are generated from Canada, and to
a lesser degree from Western Europe and from Mexico. We do, at times, employ a
foreign currency hedging program utilizing currency forward exchange contracts
for anticipated net cash inflows in Canada and Western Europe. Under this
program, increases or decreases in net local operating revenue and expenses as
measured in U. S. Dollars are partially offset by realized gains and losses on
hedging instruments. The goal of the hedging program is to fix economically the
exchange rates on projected foreign currency net cash flows. Foreign currency
forward contracts are not used for trading purposes.
All foreign currency contracts are marked-to-market and unrealized gains and
losses are included in the current period's calculation of net income. Because
not all economic hedges qualify as accounting hedges, unrealized gains and
losses may be recognized in net income in advance of the actual projected net
foreign currency cash flows. This often results in a mismatch between accounting
gains and losses and transactional foreign currency net cash flow gains and
losses.
We believe that the impact of foreign currency forward contracts is not material
to our financial condition or results of operations. At the end of the first
quarter of 2003, we had net foreign currency exchange contracts outstanding to
sell forward the following currency. All contracts mature later in fiscal 2003.
Approximate Estimated Fair Unrealized
Nominal Amount in Average Exchange Value as of Loss, as of
US Dollars Rate March 29, 2003 March 29, 2003
(in thousands) (in thousands)
Canadian Dollar $835 US$1 = CAN 1.56 $ 883 $ 48
ITEM 4 - Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Based on an evaluation of the Registrant's disclosure controls and
procedures conducted within 90 days of the filing date of this Quarterly
Report on Form 10-Q, carried out under the supervision and with the
participation of the Registrant's management, including the Registrant's
principal executive officer and principal financial officer, as
contemplated by Rule 13a-15 under the Securities Exchange Act of 1934, as
amended, the Registrant's principal executive officer and principal
financial officer have concluded that such disclosure controls and
procedures are effective to ensure that material information relating to
the Registrant and its consolidated subsidiaries, is made known to them,
particularly during the period for which this periodic report has been
prepared.
(b) Changes in internal controls
There were no significant changes made in the Registrant's internal
controls or in other factors that could significantly affect these controls
subsequent to the date of the evaluation performed pursuant to Rule 13a-15
under the Securities Exchange Act of 1934, as amended, referred to above.
Page 13 of 21 pages
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
No response required
Item 2. Changes in Securities and Use of Proceeds
(a) and (b) Not Applicable
(c) As of March 3, 2003, Christian Galvis was issued 1,250 common
shares of R. G. Barry Corporation ("R. G. Barry"). These common shares
were issued in respect of R. G. Barry's 2002 fiscal year in accordance
with the terms of a Restricted Stock Agreement, effective as of January
4, 1998, between R. G. Barry and Mr. Galvis. The common shares had a
market value of $2.86 per share on the date of issuance. The common
shares were issued in reliance upon the exemptions from registration
provided in Sections 4(2) and 4(6) under the Securities Act of 1933
(the "1933 Act"), based upon the fact that there was only one
individual to whom the common shares were "sold" and the status of Mr.
Galvis as an executive officer and director of R. G. Barry.
(d) Not Applicable
Item 3. Defaults Upon Senior Securities
(a), (b) Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
(a) - (d) Not Applicable
Item 5. Other Information
No response required
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits: See Index to Exhibits at page 18.
(b) Reports on Form 8-K: On January 9, 2003, R. G. Barry filed a
Current Report on Form 8-K, dated that same day, reporting that on
December 27, 2002, R. G. Barry had entered into a new $32.0 million
secured Revolving Credit Agreement with The Huntington National Bank to
refinance the unsecured Revolving Credit Agreement between R. G. Barry
and Huntington dated March 12, 2001, as amended on February 22, 2002
and September 23, 2002.
Page 14 of 21 pages
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R. G. BARRY CORPORATION
-----------------------
Registrant
May 13, 2003
- -------------
Date
/s/ Daniel D. Viren
---------------------------------
Daniel D. Viren
Senior Vice President - Finance
(Principal Financial Officer)
(Duly Authorized Officer)
Page 15 of 21 pages
CERTIFICATION
I, Gordon Zacks, certify that
1. I have reviewed this quarterly report on Form 10-Q of R. G. Barry
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003
--
/s/ Gordon Zacks
--------------------------------------
Printed Name: Gordon Zacks
Title: Chairman of the Board,
Chief Executive Officer and President
Page 16 of 21 pages
CERTIFICATION
I, Daniel D. Viren, certify that:
1. I have reviewed this quarterly report on Form 10-Q of R. G. Barry
Corporation;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this
quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) designed such disclosure controls and procedures to ensure that material
information relating to the registrant, including its consolidated
subsidiaries, is made known to us by others within those entities,
particularly during the period in which this quarterly report is being
prepared;
b) evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons performing the
equivalent function):
a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
Date: May 12, 2003
--
/s/ Daniel D. Viren
--------------------------------------------------
Printed Name: Daniel D. Viren
Title: Senior Vice President - Finance, Secretary
and Treasurer, Chief Financial Officer
Page 17 of 21 pages
R. G. BARRY CORPORATION
INDEX TO EXHIBITS
Exhibit No. Description Location
----------- ----------- ---------
4 First Amendment to Revolving Credit Agreement
entered into as of March 31, 2003, between
The Huntington National Bank, as lender, and 19 through 20
R. G. Barry Corporation in order to amend
Revolving Credit Agreement dated as of
December 27, 2002
99.1 Certification pursuant to 18 U. S. C. Section 1350,
as adopted pursuant to Section 906 of the Page 21
Sarbanes-Oxley Act of 2002 (Chief Executive Officer
and Chief Financial Officer)
Page 18 of 21 pages