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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 3, 2004
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
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, Inc.
Series I Junior Participating New York Stock Exchange, Inc.
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. [X]
Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held
by non-affiliates computed by reference to the price at which the common equity
was last sold, or the average bid and asked price of such common equity, as of
the last business day of the Registrant's most recently completed second fiscal
quarter: $40,923,652 as of June 27, 2003.
Indicate the number of shares outstanding of each of the Registrant's classes of
common stock, as of the latest practicable date: 9,836,602 common shares, $1.00
par value, as of April 1, 2004.
DOCUMENT INCORPORATED BY REFERENCE:
Portions of the Registrant's definitive Proxy Statement for its Annual Meeting
of Shareholders to be held on May 27, 2004, are incorporated by reference into
Part III of this Annual Report on Form 10-K.
Index to Exhibits begins on Page E-1.
PART I
ITEM 1. BUSINESS.
GENERAL
R. G. Barry Corporation ("R. G. Barry" or the "Company") was
incorporated under Ohio law in 1984. R. G. Barry's principal executive offices
are located at 13405 Yarmouth Road N.W., Pickerington, Ohio 43147, and its
telephone number is (614) 864-6400. R. G. Barry's common shares are listed on
the New York Stock Exchange under the symbol "RGB."
R. G. Barry maintains an Internet website at www.rgbarry.com (this
uniform resource locator, or URL, is an inactive textual reference only and is
not intended to incorporate R. G. Barry's website into this Annual Report on
Form 10-K). R. G. Barry makes available free of charge on or through its
website, its annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and amendments to those reports filed or furnished pursuant
to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), as soon as reasonably practicable after R. G. Barry
electronically files such material with, or furnishes it to, the Securities and
Exchange Commission (the "SEC").
R. G. Barry and its subsidiaries, The Dearfoams Company, R. G. B.,
Inc., Barry de Mexico, S. A. de C.V., Barry de Acuna, S. A. de C.V., Barry de
Zacatecas, S. A. de C.V., Procesadora de Nuevo Laredo, S. A. de C.V., Barry
Comfort de Mexico, S. A. de C.V., Barry Distribution Center de Mexico, S. A. de
C.V., ThermaStor Technologies, Ltd., R. G. Barry (Texas), LP, R. G. Barry
International, Inc., R. G. Barry Holdings, Inc., R. G. Barry (France) Holdings,
Inc., Escapade, S.A., Fargeot et Compagnie, S.A., and RGB Technology, Inc.
(previously known as Vesture Corporation), manufacture and market comfort
footwear.
During the fiscal year ended January 3, 2004, the Company had two
operating segments: the Barry Comfort North America group, which includes at-
and around-the-home comfort footwear products manufactured and sold in North
America; and the Barry Comfort Europe group, which includes at-and
around-the-home comfort footwear products sold in Europe and footwear products
sold by Fargeot. In addition, as discussed in greater detail immediately below,
the Company discontinued operations of a third operating segment - the Thermal
group, which included thermal retention technology products - in June 2003.
Financial information about the Company's two operating segments for the three
years ended January 3, 2004, is presented in Note (14) of the Notes to
Consolidated Financial Statements included in Item 8 of this Annual Report on
Form 10-K, which financial information is incorporated herein by this reference.
On May 15, 2003, R. G. Barry announced an agreement to sell
substantially all of the assets of RGB Technology, Inc., its subsidiary formerly
known as Vesture Corporation ("RGB Technology"), and on June 18, 2003, RGB
Technology closed the sale of those assets to a corporation, now known as
Vesture Corporation, headed by the co-founder and former chief executive officer
of RGB Technology. The sale was deemed effective as of March 29, 2003. The
assets sold in the transaction included furnishings, trade fixtures, equipment,
raw material and finished products inventories, books and records (including
supplier and customer lists), RGB Technology's rights under certain contracts
and agreements, patents and trademarks used by RGB Technology, and trade
accounts receivable of RGB Technology arising after March 29, 2003. RGB
Technology retained its account receivables as of March 29, 2003. As
consideration, the purchaser Vesture Corporation assumed specified liabilities
and obligations of RGB Technology and paid RGB Technology a nominal sum of cash.
As additional consideration for the assets sold, Vesture Corporation agreed to
pay to RGB Technology a royalty on Vesture Corporation's net sales
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through 2007 at varying royalty rates ranging from 10% to 4% on annual sales
certain products in excess of $4.5 million in the aggregate. With the disposal
of RGB Technology's business assets, the Company discontinued the thermal
products operating segment of its business.
In connection with the December 22, 2003 settlement of the pending
litigation involving RGB Technology's MICROCORE(R) pizza delivery system,
further described in Item 3 of this Annual Report on Form 10-K, RGB Technology
will now receive a royalty equal to 5% of Vesture Corporation's net sales
through 2007 in excess of $500,000 in each year, but excluding Vesture
Corporation's sales of products that utilize the patents involved in the settled
litigation.
Most of the products sold by Vesture Corporation are expected to be
those utilizing the patents involved in the settled litigation, thus the amount
of future royalties expected from Vesture Corporation are not anticipated to be
material to the operations of the Company.
CHANGES IN THE BARRY COMFORT NORTH AMERICA GROUP BUSINESS
Two major drivers of change continue to directly impact the Company's
at- and around-the-home comfort footwear business: globalization and retail
consolidation. The confluence of these forces has created a very competitive
marketplace in which more and more suppliers are chasing fewer and fewer
customers. The Company's focus for more than three years has been on moving the
Company's core comfort footwear business from a slow-to-market, capacity-driven
orientation, to a fast-to-market, product-design, market-driven focus.
To achieve these goals, the Company has taken a number of actions to
move all remaining U.S. manufacturing operations to Company-operated plants in
Mexico, reduce the total volume of slippers manufactured by the Company and
purchase more of its slippers from independent suppliers in China and elsewhere.
In 2003, the Company manufactured approximately 17.4 million pairs of slippers
in its plants in Mexico and sourced approximately 12.2 million pairs from
contract manufacturers in China. In 2001 and 2002, the Company manufactured
approximately 20.5 million pairs and 17.5 million pairs, respectively, and
sourced approximately 5.6 million pairs and 8.9 million pairs, respectively,
from contract manufacturers in China. The Company has been pursuing a strategy
to produce in its own plants in Mexico goods for which there is clearly-defined
demand visibility from its customers, and to source goods from China or
elsewhere for which demand is not so well defined. The Company has recently
reconsidered this strategy and has decided to rely entirely on independent
contract manufacturers beginning in 2005, as discussed below.
The efforts of the Company to realign its manufacturing and sourcing
operations is reflected in various actions taken over the past three years. In
the fourth quarter of 2001, the Company announced a decision to close its
molding operations in Texas and to relocate those activities to Nuevo Laredo,
Mexico. In the fourth quarter of 2002, the Company announced a decision to close
its Goldsboro, North Carolina distribution center in early 2003. The Goldsboro
facility was closed in the second quarter of 2003, and was sold in July 2003.
In January 2004, the Company discontinued slipper sewing operations at
its Nuevo Laredo, Mexico manufacturing facility. The Company also reduced sewing
operations at its manufacturing plants in Ciudad Acuna and Zacatecas, Mexico.
The Company has decided to close all of its manufacturing operations in
Mexico by the end of 2004. Beginning in 2005, the Company expects to source all
of its slipper requirements from independent contract manufacturers in China and
elsewhere. The Company believes that cost savings can be achieved by sourcing
all of its requirements from China and elsewhere, and that these cost savings
should outweigh
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the benefits to the Company of operating its own manufacturing facilities in
Mexico. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATION -- LIQUIDITY AND CAPITAL RESOURCES - 2004 LIQUIDITY."
Further information concerning the restructuring changes which occurred
in the Barry Comfort North America group in 2003 as well as in 2002 and 2001 is
presented in Note (15) of the Notes to Consolidated Financial Statements
included in Item 8 of this Annual Report on Form 10-K, which information is
incorporated herein by this reference.
CHANGES IN THE BARRY COMFORT EUROPE GROUP BUSINESS
In January 2003, the Company announced that it had entered into a
five-year licensing agreement for the sales, marketing and sourcing of its soft
washable slipper brands in Europe with a subsidiary of the privately-held
British comfort footwear and apparel firm GBR Limited.
The GBR Limited subsidiary has been granted a license to sell, source
and distribute the Company's various brands of at- and around-the-home comfort
footwear in all channels of distribution in the United Kingdom, The Republic of
Ireland, France and through selected customers in specific other European
countries in exchange for royalty payments on net sales. The Company closed its
Wales distribution center and Paris sales office during 2003 and transferred
responsibility for its French sales force and all selling, marketing and
financial administration functions in Europe to the GBR Limited subsidiary. The
Company retained title to all of its patents and trademarks for products sold
under the licensing agreement.
The Company's French subsidiary, Fargeot et Compagnie, S.A., is not
part of the licensing agreement with GBR Limited. The Company will continue to
maintain and operate its Fargeot footwear operations in southern France. Fargeot
et Compagnie, S.A. generally serves smaller independent retailers and export
markets with a style of footwear that is different from the Company's
traditional comfort footwear products. Fargeot's products generally are not
washable.
Further information concerning the restructuring changes which occurred
in the Barry Comfort Europe group in 2003 as well as in 2002 is presented in
Note (15) of the Notes to Consolidated Financial Statements included in Item 8
of this Annual Report on Form 10-K, which information is incorporated herein by
this reference.
PRINCIPAL PRODUCTS
The Company designs, manufactures, imports and markets 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 believes it is the world's largest manufacturer of comfort footwear
for at- and around-the-home.
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 including
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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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Angel Treads*, Barry Comfort(TM), Dearfoams*, Dearfoams* for Kids, Dearfoams*
for Men, EZfeet*, Fargeot, Madye's*, Snug Treds*, Soft Notes*, Sole(TM),
Terrasoles(TM) and ZiZi(TM). The Company also markets slipper-type footwear
under trademarks it licenses from third parties. See "TRADEMARKS AND LICENSES."
The Company's foam-soled footwear lines have fabric uppers made of
washable materials, including terry cloths, velours, fleeces, satins, and
nylons, 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
includes expanding counter and floor 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 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 during the Christmas season,
with approximately 70% of sales occurring in the second half of the year
compared to approximately 30% in the first half of the year.
Certain styles of slipper-type footwear have become standard in the
Company's brand lines and are in demand year after year. For some 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.
Most consumers of the Company's footwear fit 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 more traditional footwear manufacturers.
Terrasoles,(TM) which the Company introduced in 2002, is a new footwear
concept targeted to adult women who currently wear old shoes at home. These
women define comfort as firm, secure footing, rather than the more traditional
soft, yielding comfort of our slippers. Their lifestyles are such that they are
in and out of the house frequently, but they do not want to frequently change
footwear. Terrasoles(TM) are offered as a fashion-appropriate, affordable
alternative.
MARKETING
The Company's slipper-type brand lines are sold (i) to traditional
department stores, including promotional department stores, national chain
department stores and specialty stores; (ii) through mass merchandising channels
of distribution such as discount stores, warehouse clubs, drug and variety chain
stores, and supermarkets; (iii) 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, although return rights are granted to some
customers.
During the spring and autumn of each year, new designs and styles are
presented to buyers representing the Company's retail customers at regularly
scheduled showings. Company designers also
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produce new styles and designs throughout the year which are evaluated by the
Company's sales and marketing personnel. In an effort to encourage market
exposure to the Company's products, buyers for department stores and other large
retail customers are invited to spring and autumn showings, and 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.
The Company maintains a sales office in New York City to which buyers
for department stores and other large retail customers make periodic visits. The
Company rents showroom space during the spring and autumn showings.
During the 2003 and 2002 Christmas selling seasons, the Company
provided approximately 500 temporary merchandisers to service the retail selling
floors 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 demand pull replenishment (EDI) systems the Company
maintained 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. Consequently, the Company's inventory
is largest in early autumn in order to support the retailers' demand for the
fall and Christmas selling seasons. The Company advertises principally in the
print media and its 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 also markets its comfort footwear products in Canada,
Mexico and several other countries around the world. In 2003, the Company's
European net sales comprised approximately 8% of its consolidated net sales,
while the Company's European, Mexican and Canadian net sales combined to
represent 9% of its consolidated net sales. In 2002, the Company's European net
sales comprised approximately 8% of its consolidated net sales, while the
Company's European, Mexican and Canadian net sales combined to represent 11% of
its consolidated net sales. Financial information for the three years ended
January 3, 2004 for the geographic areas in which the Company operates is
presented in Note (14) of the Notes to Consolidated Financial Statements
included in Item 8 of this Annual Report on Form 10-K, which financial
information is incorporated herein by this reference.
As discussed above in the section captioned "CHANGES IN THE BARRY
COMFORT EUROPE GROUP BUSINESS," in January 2003, the Company entered into a
five-year licensing agreement with a subsidiary of GBR Limited for the sale,
marketing and sourcing of the Company's soft washable slipper brands in all
channels of distribution in the United Kingdom, Ireland, France and through
selected customers in specific other European countries. Under this licensing
agreement, the Company is entitled to receive royalty payments on net sales. The
Company had previously worked with GBR Limited through a strategic alliance
formed in 2000 to sell comfort footwear products in the United Kingdom and
Ireland. Under that distributorship-like arrangement, the Company had shifted
responsibility for marketing, selling, planning and financial administration for
its products in the United Kingdom and Ireland to the new company formed in the
alliance.
RESEARCH AND DEVELOPMENT
Most of the Company's research efforts relate to the design and
consumer testing of new styles of slipper-type footwear. During 2003, 2002 and
2001, 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
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approximately $3.0 million, $3.2 million and $3.1 million, respectively.
Substantially all of the foregoing activities were Company-sponsored.
Approximately 50 Company employees are engaged full time in research and product
design.
RAW MATERIALS
The principal raw materials used by the Company in the manufacture of
its products are textile fabrics, threads, foams and other synthetic products.
All are available 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 94% of the Company's sales are represented by products
sold under trademarks owned by the Company. The Company is the holder of many
trademarks which identify its products, including: Angel Treads*, Barry
Comfort(TM), Dearfoams*, Dearfoams* for Kids, Dearfoams* for Men, EZfeet*,
Fargeot, Madye's*, Snug Treds*, Soft Notes*, Sole(TM), Terrasoles(TM) and
ZiZi(TM). 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 has also sold comfort footwear under various names as
licensee under license agreements with the owners of those names. In 2003, net
sales under the Liz Claiborne**, Claiborne**, Villager** and NASCAR** labels
pursuant to the license agreements described below represented approximately 6%
of the Company's consolidated net sales. In 2002, net sales in total under the
Liz Claiborne**, Claiborne** and Villager** labels represented less than 3% of
the Company's consolidated net sales. In 2001, net sales under the Liz
Claiborne**, Claiborne**, and Villager** labels represented less than 2% of the
Company's consolidated net sales.
In November 2000, R. G. Barry entered into a license agreement with a
subsidiary of Liz Claiborne, Inc. which allows R. G. Barry to manufacture and
market slippers under the Liz Claiborne**, Claiborne** and Villager** labels. R.
G. Barry's Liz Claiborne** Slippers for Women and Claiborne** Slippers for Men
are sold in upper-tier department stores and specialty retailers nationwide.
Claiborne** slippers for men were introduced in Fall 2003. The Liz Claiborne**
Slippers for Women initially have been sold in the United States and Canada,
although the licensor may, in its discretion, grant R. G. Barry the right to
distribute these slippers in other foreign countries. The initial term of the
license agreement continues through December 31, 2005, and is renewable for an
additional five-year term if the net sales of slippers bearing the Liz
Claiborne**, Claiborne** and Villager** labels for the year immediately
preceding the last year of the initial term equal or exceed a specified level.
The licensor has the right to terminate the license agreement if minimum
specified net sales levels are not achieved for two consecutive years.
In May 2003, R. G. Barry announced that it had entered into licensing
agreements regarding the marketing, production and distribution of NASCAR**
leisure footwear, robes and towel wraps. These new Company products feature
colorful images of eight drivers (Dale Earnhardt, Dale Earnhardt Jr., Jeff
Gordon, Jimmie Johnson, Bobby Labonte, Ryan Newman, Tony Stewart and Rusty
Wallace), their cars
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** Denotes a trademark of the licensor registered in the United States
Department of Commerce Patent and Trademark Office.
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and the NASCAR** logo. Products became available in stores nationwide in the
fall of 2003. The licensing agreements expire at the end of 2004, unless the
Company negotiates renewals of the licenses.
The Company has also manufactured comfort footwear for customers which
sell the footwear under their own private labels. These sales represented less
than 1% of the Company's consolidated net sales during 2003.
SIGNIFICANT CUSTOMERS
The customers of the Company which accounted for more than 10% of the
Company's consolidated net sales in 2003, 2002 and 2001 were Wal-Mart Stores,
Inc. and J.C. Penney Company, Inc., both Barry Comfort North America customers.
Wal-Mart Stores, Inc. accounted for approximately 25%, 26% and 22% of
consolidated net sales in 2003, 2002 and 2001, respectively. J. C. Penney
Company, Inc. accounted for approximately 11% of consolidated net sales in each
of 2003 and 2002, and 10% in 2001. In addition, during 2003, Kohl's Corporation
accounted for approximately 10% of the Company's consolidated net sales.
SEASONALITY AND BACKLOG OF ORDERS
The Company's backlogs of orders at the close of 2003 and 2002 were
approximately $4.2 million and $3.0 million, respectively. Consistent with prior
years, the Company anticipates that a large percentage of the unfilled sales
orders as of the end of 2003 will be filled during the current year.
The Company's backlog of unfilled sales orders is often 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 2003: $45.7 million; February
2003: $7.7 million; August 2002: $61 million; and February 2002: $9 million. The
Company's approximate backlog of unfilled sales orders at the end of February
2004 was $4.2 million. As discussed earlier, the Company's backlog of unfilled
sales orders reflects the seasonal nature of the Company's sales - approximately
68% of such sales occurred during the second half of 2003 as compared to
approximately 32% during the first half of 2003. The reduction in the Company's
backlog from August 2002 to August 2003 and from February 2002 to February 2003
is the result of changing customer patterns in placing orders with the Company.
Customers in recent years have trended toward placing orders for products much
closer to the time of expected delivery, whereas in prior years those orders may
have been placed earlier in the season.
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 continue to change from season to season,
particularly in response to fashion changes. Historically, the Company has had a
limited and manageable exposure to obsolete inventory. During the late summer
months of 2003, the Company purchased approximately $6 million of inventory from
its Chinese suppliers which arrived in warehouses earlier than needed. While the
Company expected to sell that inventory during the fourth quarter, orders from
customers of approximately $5 million did not materialize in late 2003 as had
been planned. As a result, the Company ended 2003 with finished goods inventory
in excess of planned amounts. The Company has evaluated its inventory position
and taken appropriate write-downs during 2003, to value inventory at its
expected net realizable value.
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As the Company shifts from a manufacturing-based business to a business
that imports its goods from third party contract suppliers from outside the
United States, it expects to reduce inventory risks and write-downs by acquiring
inventory closer to its time of needed shipment to its customers, and more in
line with the visibility of customer demand.
SOURCING
The Company has a representative office in Hong Kong, which is
responsible for procuring outsourced products from the Far East. The Company
current purchases goods from approximately 10 different contract manufacturers
located in China. As the Company increases the volume of goods it purchases from
third party foreign contract manufacturers, it may be required to find
additional manufacturers to produce its goods. Although the Company's experience
with its contract manufacturers in China has been acceptable in terms of
reliability, delivery times and product quality, the Company's increasing
reliance on third party contract manufacturers does create additional risk to
the Company's business because it no longer controls the manufacturing of a
substantial amount of its products or the timing of cash requirements. This lack
of control could impact the quality of its products and the Company's ability to
deliver its products to customers on a timely basis. In addition, the
substantial increase in the volume of goods to be sourced from independent
contract manufacturers in China beginning in 2004 and 2005 is expected to result
in additional responsibilities for the Company's sourcing operations, including
its office in Hong Kong, which creates at least a short-term risk to the
Company. See "ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION - RISK FACTORS."
COMPETITION
The Company operates in a relatively small segment of the footwear
industry providing comfort footwear for at- and around-the-home use. Although
the Company also believes it is the world's largest marketer of comfort footwear
for at- and around-the-home, it is a very small factor in the highly competitive
footwear industry. The Company competes primarily on the basis of the price,
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. In recent years, the Company has faced growing competition from
firms that purchase all of their footwear products from third party
manufacturers in China and other countries outside North America where the cost
of production is often lower than in North America, including Mexico.
MANUFACTURING, SALES AND DISTRIBUTION FACILITIES
The Company has four manufacturing facilities. The Company operates
sewing plants in Ciudad Acuna, and Zacatecas, Mexico and a slipper component
cutting and sole molding plant in Nuevo Laredo, Mexico. In January 2004, the
Company discontinued slipper sewing operations in Nuevo Laredo.
The Company maintains a sales office in New York City and a sourcing
representative office in Hong Kong. As discussed above, the Company closed its
sales office in Paris, France during 2003. The Company also operates
distribution centers in San Angelo and Laredo, Texas, and in Thiviers, France.
The Company opened a new distribution center in Nuevo Laredo, Mexico during the
first half of 2002, replacing the distribution center in Laredo, Texas with one
closer to its manufacturing facilities. During 2003, the Company began using an
independent third party warehouse and distribution service center located on the
West Coast. Distribution centers in Goldsboro, North Carolina and Rhymney,
Gwent, Wales were closed during the first half of 2003.
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As the Company continues to transform its operating model away from
manufacturing, it is eliminating its manufacturing facilities.
The Company's principal manufacturing, sales and distribution
facilities are described more fully below under "ITEM 2. PROPERTIES."
FARGEOT ET COMPAGNIE, S.A.
The Company owns a 80% interest in a French company, Escapade, S.A.,
and its Fargeot et Compagnie, S.A. subsidiary. Fargeot manufactures and
distributes comfort slippers and casual shoes. The principal market for its
products is France and Western Europe.
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 year or for the foreseeable
future.
EMPLOYEES
At the close of 2003, the Company employed approximately 1,900 persons
worldwide.
ITEM 2. PROPERTIES.
The Company owns its corporate headquarters and executive offices
located at 13405 Yarmouth Road N.W. in Pickerington, Ohio, containing
approximately 55,000 square feet. The Company has granted a mortgage on this
facility to secure indebtedness to a lender. See "ITEM 7. MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION -
LIQUIDITY AND CAPITAL RESOURCES - 2004 LIQUIDITY."
The Company leases space aggregating approximately 925,000 square feet
at an approximate aggregate annual rental of $3.0 million. The following table
describes the Company's principal leased properties:
-10-
Approximate Approximate Lease
Location Use Square Feet Annual Rental Expires Renewals
-------- --- ----------- ------------- ------- --------
Empire State Building Sales Office 1,700 $ 44,000 2006 None
New York City, N.Y.
2800 Loop 306 Shipping, Distribution 145,800 $ 160,000 (1) 2005 10 years
San Angelo, Texas Center
Distribution Center Shipping, Distribution 172,800 $ 495,000 (1) 2007 15 years
San Angelo, Texas Center
Cesar Lopez de Lara Manufacturing, Office 90,200 $ 300,000 (1)(2) 2004 None
Ave.
Nuevo Laredo, Mexico
Ciudad Acuna Manufacturing, Office 64,700 $ 302,000 (1)(2) 2004 5 years
Industrial Park
Ciudad Acuna, Mexico
Manhattan Avenue Shipping, Distribution 144,000 $ 770,000 (1) 2012 None
Nuevo Laredo, Mexico Center
Bob Bullock Loop Warehouse, Office 165,000 $ 386,000 (1)(2) 2004 5 years
Laredo, Texas
Bob Bullock Loop Warehouse, Storage 76,000 $ 191,000 (1) 2006 5 years
Laredo, Texas
Industrial Zone Manufacturing 26,200 $ 48,000 (2) 2008 None
Zacatecas, Mexico
Industrial Zone Manufacturing 25,800 $ 58,000 (2) 2005 15 years
Zacatecas, Mexico
8000 Interstate Administrative Office 11,000 $ 252,000 (2) 2007 None
Highway 10 West
San Antonio, Texas
West Gate Tower Sourcing Representative 1,300 $ 28,800 2004 None
7 Wing Hong Street Office
Lai Chi Kok, Kowloon
Hong Kong
- ----------
(1) Net lease.
(2) These facilities are being closed by the end of 2004.
-11-
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.
On December 22, 2003, RGB Technology, a subsidiary of R. G. Barry,
settled the pending patent litigation involving RGB Technology, Thermal
Solutions, Inc. and CookTek, LLC. R. G. Barry previously reported that RGB
Technology was involved in a patent infringement lawsuit in the United States
District Court for the Middle District of North Carolina (Civil Action No.
1:01CV01006) related to RGB Technology's MICROCORE(R) pizza delivery system. The
terms of the settlement are confidential, but the settlement resolves all areas
of dispute between the parties and concludes the pending litigation. As a part
of this settlement, RGB Technology made a payment of $143,613 on February 2,
2004 and will make a second payment in that amount on or before June 30, 2004.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
There were no matters submitted to a vote of the shareholders of R. G.
Barry during the fourth quarter of 2003.
SUPPLEMENTAL ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT.
The following table lists the names and ages of the executive officers
of R. G. Barry as of April 1, 2004, 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 individual
has had his principal occupation for more than five years. Executive officers
serve at the discretion of the Board of Directors subject, in the case of
Messrs. Von Lehman, Galvis, Viren and Miller, to the contractual rights of these
individuals under employment agreements with the Company.
Position(s) Held with R. G. Barry and
Name Age Principal Occupation(s) for Past Five Years
---- --- -------------------------------------------
Thomas M. Von Lehman 54 Interim President and Chief Executive Officer of R. G. Barry since
March 10, 2004; a principal of The Meridian Group, an investment
banking and corporate renewal consulting firm, from 2001 to March
10, 2004; Vice President, Specialty Chemicals of PPG Industries,
Inc., a coatings, glass and chemicals producer, 1996 to 2001
Christian Galvis 62 Executive Vice President - Operations since 1992, President -
Operations of Barry Comfort Group since 1998, Vice President -
Operations from 1991 to 1992, and a Director since 1992, of R. G.
Barry
Daniel D. Viren 57 Senior Vice President - Finance and Chief Financial Officer since
June 2000, Secretary and Treasurer since October 2000, Senior Vice
President - Administration from 1992 to July 1999, Assistant
Secretary from 1994 to July 1999, and a Director since 2001, of R.
G. Barry; Senior Vice President and Chief Financial Officer of
Metatec International, Inc. (now known as Metatec, Inc.), an
international information distribution company, from July 1999 to
June 2000
-12-
Position(s) Held with R. G. Barry and
Name Age Principal Occupation(s) for Past Five Years
---- --- -------------------------------------------
Donald G. Van Steyn 59 Vice President - Chief Information Officer since May 2000, Vice
President - Information Systems/Services from 1996 to May 2000, and
Director of Information Services from 1988 to 1996, of R. G. Barry
Harry F. Miller 61 Vice President - Human Resources of R. G. Barry since 1993
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
The common shares of R. G. Barry Corporation trade on the New York
Stock Exchange under the symbol "RGB." The table below provides the high, low
and closing sales prices of the common shares as reported on the New York Stock
Exchange for the periods indicated.
Quarter High Low Close
------- ---- --- -----
Fiscal 2003 First $4.49 $2.10 $2.30
Second 4.76 2.25 4.60
Third 5.38 4.35 5.24
Fourth 6.39 4.18 4.40
Fiscal 2002 First $6.45 $5.52 $6.03
Second 6.20 4.85 5.28
Third 5.50 4.03 4.16
Fourth 4.84 3.06 4.10
No cash dividends were paid during 2003 or 2002. R. G. Barry has no
current intention to pay cash dividends.
As of April 1, 2004, there were approximately 1,000 registered
shareholders.
No disclosure is required under Item 701 of SEC Regulation S-K.
R. G. Barry did not purchase any of its common shares during 2003. R.
G. Barry does not currently have in effect a publicly announced repurchase plan
or program.
-13-
ITEM 6. SELECTED FINANCIAL DATA.
SIX YEAR REVIEW OF SELECTED FINANCIAL DATA
2003** 2002 2001 2000 1999 1998
------ ---- ---- ---- ---- ----
SUMMARY OF OPERATIONS (THOUSANDS)
Net sales $123,137 $ 119,024 $129,361 $131,002 $ 123,533 $132,588
Cost of sales 80,427 77,597 80,182 88,021 77,932 70,680
Gross profit 42,710 41,427 49,179 42,981 45,601 61,908
Gross profit as percent of net sales 34.7% 34.8% 38.0% 32.8% 36.9% 46.7%
Selling, general and administrative expenses 48,163 50,360 45,973 45,568 51,651 45,733
Restructuring and asset impairment charges (adjustments) 2,563 2,837 (118) 1,886 5,624 -
Other income (expense) 151 800 800 810 502 380
Interest expense, net (1,418) (1,346) (1,103) (1,711) (1,347) (1,355)
Earnings (loss) before income taxes, continuing operations (9,283) (12,316) 3,021 (5,374) (12,519) 15,200
Income tax (expense) benefit (10,096) 4,191 (1,153) 616 2,411 (5,612)
Minority interest, net of tax (17) (25) (42) (52) (20) -
Net earnings (loss) from continuing operations (19,396) (8,150) 1,826 (4,810) (10,128) 9,588
Net earnings (loss) from discontinued operations (2,310) (3,730) (894) 4,004 (4,497) (280)
Net earnings (loss) (21,706) (11,880) 932 (806) (14,625) 9,308
ADDITIONAL DATA
Basic earnings (loss) per share ($ 2.21) ($ 1.23) $ 0.10 ($ 0.09) ($ 1.55) $ 0.96
Diluted earnings (loss) per share ($ 2.21) ($ 1.23) $ 0.10 ($ 0.09) ($ 1.55) $ 0.93
Book value per share $ 2.58 $ 4.81 $ 6.44 $ 6.34 $ 6.46 $ 8.12
Annual % change in net sales 3.5% (8.0%) (1.3%) 6.0% (6.8%) 2.1%
Annual % change in net earnings (loss) (82.7%) (1,374.7%) 215.6% 94.5% (257.1%) (3.8%)
Pretax return on net sales (7.5%) (10.3%) 2.3% (4.1% (10.1%) 11.5%
Net earnings (loss) as a percentage of beginning
shareholders' equity (46.0%) (19.7%) 1.6% (1.3%) (18.5%) 13.5%
Basic average number of shares outstanding (in thousands) 9,823 9,641 9,379 9,399 9,455 9,698
Diluted average number of shares outstanding (in thousands) 9,823 9,641 9,577 9,399 9,455 9,992
FINANCIAL SUMMARY (THOUSANDS)
Current assets $ 44,379 $ 61,068 $ 69,676 $ 70,268 $ 71,678 $ 91,914
Current liabilities 18,533 20,141 14,471 14,715 17,705 17,885
Working capital 25,846 40,927 55,205 55,553 53,973 74,029
Long-term debt, excluding current installments 2,141 5,760 5,162 7,637 8,571 10,714
Net shareholders' equity 25,387 47,188 60,385 59,452 60,384 79,139
Net property, plant and equipment 9,369 10,910 10,917 11,741 14,408 12,875
Total assets 61,280 87,638 88,612 89,549 93,164 113,026
Capital expenditures 1,662 2,373 1,186 653 3,381 1,136
Depreciation and amortization of property, plant and equipment 1,762 1,779 1,674 2,109 2,243 2,413
See also ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
**Fiscal year includes fifty-three weeks
Effective in 2000, the Company changed its inventory costing method from LIFO to
FIFO. All amounts have been retroactively restated to give effect to the change
in costing method.
Certain amounts from prior years have been reclassified to conform with current
year's presentation.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
INTRODUCTION
The following discussion and analysis provides investors and others
with information that management believes to be necessary for an understanding
of the Company's financial condition, changes in financial condition, results of
operations and cash flows, and should be read in conjunction with the
consolidated financial statements, the notes to the consolidated financial
statements and other information contained in this report.
CRITICAL ACCOUNTING POLICIES AND USE OF SIGNIFICANT ESTIMATES
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 about the impact of future events
has been a generally accepted practice for nearly all companies in nearly all
industries for 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 our financial
statements. 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.
A summary of these accounting policies requiring management estimates
follows:
(a) We recognize revenue when goods are shipped from our warehouse
distribution points 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 estimated cost of future returns and retailer
promotions and incentives, and recognize a corresponding reduction in the amount
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 be different than anticipated.
Accordingly, we have identified this estimate as one requiring significant
management judgment. We also estimate an amount for potential doubtful accounts
as a result of bad debts.
(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 seasons, and
provide appropriate write-downs under the circumstances. At the end of 2003, we
estimated that the standard cost valuation of our inventory exceeded the
estimated net realizable value of that inventory by $5.9 million, compared with
a similar estimate made at the end of 2002 of $3.5 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. In evaluating the future usability
of our deferred tax assets, we are relying on our capacity for refund of federal
income taxes due to our tax loss carry-forward position, and on projections of
future
-15-
profits. As a result of our cumulative losses, we have determined that it is
uncertain when and whether the deferred tax assets we have recognized on our
consolidated balance sheet will have realizable value in future years.
Accordingly, we have fully reserved the value of those deferred tax assets in
the amount of $13.8 million as of the end of 2003. Should our profits improve in
future years, such that those deferred items become realizable as deductions in
future years, we will recognize that benefit, by reducing our reported tax
expense in the future years, once their realization becomes assured. As of the
end of 2003, we had approximately $13.4 million of net operating loss
carry-forwards, for US Federal income tax purposes, and approximately $1.8
million net operating loss carry-forwards for Mexican income tax purposes. The
future use of tax carry-forwards is subject to applicable tax laws.
(d) We make an assessment of the ongoing future value of goodwill
and other intangible assets. During the second quarter of each year, we make an
assessment, based upon fair value, to determine whether there was any impairment
in the value of those assets. As a consequence of the changes occurring
throughout the Company, management determined that it was appropriate to
reassess the value of these assets as of the end of 2003. We determined, through
that reassessment, that the goodwill value related to our acquisition of Fargeot
was impaired. Accordingly, an impairment loss of $2.3 million was recorded as of
the end of 2003.
(e) We make estimates of the future costs associated with
restructuring plans related to operational changes that we have announced. At
the end of 2003, we had an accrued balance of $174 thousand relating to the
estimated future costs of closing or reorganizing certain operations. At the end
of 2002, we had an accrued balance of $1.7 million for similar restructuring and
reorganization activities underway at that time. 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 (15) of the Notes to Consolidated Financial Statements for
additional restructuring information.)
(f) In addition, there are various other accounting policies that
also require some judgmental input by management. We believe we have followed
these policies consistently from year to year, period to period. For an
additional discussion of all of our significant accounting policies, the reader
may refer to Note (1) (a) through (u) of the Notes to Consolidated Financial
Statements. Actual results may vary from these estimates as a result of
activities after the period end estimates have been made, and these subsequent
activities will have either a positive or negative impact upon the results of
operations in a period subsequent to the period when we originally made the
estimate.
SUMMARY OF OUR RESULTS FOR 2003
2003 was a very difficult year. We did not meet many of our operating
objectives, adding strain to our financial resources.
In summary:
- Early in January 2003, we entered into a five-year licensing
agreement for the sale and marketing of our slipper products
with a British footwear and apparel firm, and in mid-2003, we
ceased operating our Wales, U. K. distribution center and our
Paris sales office. This licensing agreement is intended to
allow us to sell our soft washable footwear in Europe without
maintaining the costly sales organization and warehousing and
distribution operations we have had since the mid-1990's.
- In June 2003, we completed the sale of the assets of our
thermal products business, enabling us to concentrate on our
core at- and around-the-home comfort footwear business. The
-16-
thermal products business was a segment of our business that
for the past several years had not operated profitably,
incurring losses of $2.3 million in 2003 and $3.7 million in
2002.
- We reached the conclusion of our three-year strategic plan in
2003 but fell short of our desired level of operating
performance. While the pre-tax operating loss from continuing
operations declined, we failed to resume profitable operations
in 2003. Net sales from continuing operations increased
slightly from $119.0 million in 2002 to $123.1 million in
2003. Pre-tax losses from continuing operations decreased from
$12.3 million in 2002 to $9.3 million in 2003.
- As a result of our cumulative losses, we determined that it is
uncertain whether the deferred tax assets we had recognized on
our consolidated balance sheet will have realizable value in
future years. Accordingly, we have fully reserved the value of
our deferred tax assets in the amount of $13.8 million as of
the end of 2003. Should our profits improve in future years,
such that those deferred items become realizable as
deductions, we will recognize that tax benefit, by reducing
our reported tax expense in the future years. As of the end of
2003, we had approximately $13.4 million of net operating loss
carry-forwards, for US Federal income tax purposes, and
approximately $1.8 million net operating loss carry-forwards
for Mexican income tax purposes. Carry-forwards in the United
States are available for up to twenty years into the future,
while carry-forwards in Mexico are available for up to ten
years.
- Largely as a result of the valuation allowance established for
deferred tax assets, our after tax loss increased to $21.7
million in 2003 from $11.9 million in 2002.
- In mid-2003, finished goods from our Chinese suppliers arrived
at our warehouses in advance of our then current requirements.
This added inventory exceeded our warehousing capacity. We
estimate that this early purchase resulted in our spending
approximately $6 million earlier in the year than planned. In
addition, we experienced extra handling requirements in our
warehouses in the third and fourth quarters in order to manage
and handle the extra inventory, causing warehousing expenses
to be higher than planned. The early purchase of inventory
increased our borrowing requirements. In September 2003 we
amended our revolving credit agreement to increase the
Company's borrowing capacity from September 1, 2003 to
November 1, 2003 by an additional $4.0 million. We also agreed
in September to include a new covenant in the revolving credit
agreement to require that we earn at least $1 (one dollar) in
consolidated net income (as defined in the agreement) for 2003
and subsequent years (excluding in 2003 the losses resulting
from our discontinued thermal products business and asset
sales).
- Our inventory problems were compounded when product re-orders
fell short of plan in late 2003 and we experienced higher than
expected order cancellations. Consequently, we were unable to
reduce our inventory levels as we had planned. Partially as a
result of the inventory acquired in mid-2003 and partially due
to re-orders that failed to materialize late in 2003 and order
cancellations, we ended 2003 with excessive inventory levels.
The investment in this inventory significantly reduced our
liquidity.
- In order to address our liquidity requirements, The Huntington
National Bank ("Huntington"), our lending bank, agreed in
January to increase credit availability for the month of
January from $3.0 million to $9.0 million. We were advised by
Huntington that we should seek a second lender to share the
credit facility with the bank. We agreed to grant to
Huntington and Metropolitan Life Insurance Company
("Metropolitan"), the holder of a note from the Company, a
mortgage on our corporate headquarters to secure our
borrowings under
-17-
the revolving line of credit with Huntington and under the
note from Metropolitan. We had previously granted Huntington
and Metropolitan a security interest in substantially all of
our other assets in 2002.
- In early February, we were advised by Huntington that it
believed that there had occurred a non-curable default under
the terms of the revolving credit agreement and that it
would not consider further amending our revolving credit
agreement to increase the availability of funding.
- In early March 2004, Huntington agreed to advance additional
funds to us for March operations. Huntington also permitted us
to borrow funds against the cash surrender value of life
insurance policies insuring one of our key executives.
- As of the end of 2003, we failed to meet a number of covenants
under our revolving credit agreement. We did not meet the
minimum tangible net worth test; the required one dollar of
net earnings; the minimum cash flow leverage test; and the
interest coverage test. As a result of our failure to meet the
covenant tests under our revolving credit agreement, we were
also in violation of covenants in our note to Metropolitan
Life Insurance Company. In addition, with the losses incurred
for the year, we did not meet the minimum tangible net worth
test of the Metropolitan note.
- In late March 2004, we entered into a financing agreement with
The CIT Group/Commercial Services ("CIT"). Following the
closing of that credit facility, we retired all outstanding
indebtedness with Huntington and Metropolitan. Management
expects that this credit facility with CIT will meet our
planned cash requirements for the balance of 2004. See
"LIQUIDITY AND CAPITAL RESOURCES - 2004 LIQUIDITY" below.
The results of our operations are discussed later in this narrative. A
discussion of liquidity and capital resources follows immediately.
LIQUIDITY AND CAPITAL RESOURCES
Historically, we have utilized numerous types of assets in the
development, production, sourcing, marketing, warehousing, distribution, and
sale of our products. Most of our assets are current assets, such as cash, trade
receivables, inventory, and prepaid expenses, but we also have non-current
assets, including property, plant and equipment and goodwill.
At the end of 2003, current assets amounted to 72 percent of total
assets, compared with 70 percent at the end of 2002. As of the end of 2003, we
had $25.8 million in net working capital, made up of $44.4 million in current
assets, less $18.5 million in current liabilities. As of the end of 2002, we had
net working capital of $40.9 million, made up of $61.1 million in current
assets, less $20.1 million in current liabilities. The $15.1 million decline in
net working capital from 2002 to 2003 is directly related to the $21.7 million
net loss we incurred in 2003.
We ended 2003 with $2.0 million in cash, $5.4 million in trade
receivables net of allowances, and $32.8 million in inventory. By comparison, at
the end of 2002, we had $6.9 million in cash, $9.5 million in net trade
receivables, and $32.9 million in inventory. The decline in cash from 2002 to
2003 is mainly due to the operating loss we incurred during 2003. The decrease
in ending trade receivables primarily reflects the lower level of net sales from
continuing operations during the fourth quarter of 2003, $43.7 million, than
during the fourth quarter of 2002, $45.2 million.
-18-
Inventory management during the latter half of 2003 was a problem for
us; finished goods from our Chinese suppliers arrived at our warehouses in
advance of our then current needs. As noted above, this early acquisition of
approximately $6 million of inventory increased our borrowing needs in September
and October of 2003. We ended 2003 with $32.8 million in inventory, net of
write-downs of $5.9 million; this compares with $32.9 million in inventory at
the end of 2002, net of $3.5 million of write-downs. Before write-downs, total
inventory during 2003 increased by $2.2 million compared with 2002.
We had identified reduction of inventory as a major element of our
three-year strategic plan for 2001 through 2003 - we attempted to accomplish
this in part by repositioning ourselves from a company with nearly 100 percent
of our goods manufactured in our own factories in 1999 and prior years, to a
company where in 2002 and beyond, we expected a significant portion of our
inventory to be produced by contract manufacturers mainly located outside North
America. This strategic change was designed to allow us to respond faster to
customers' orders, to lower our investment in inventory, and to lower our risks
of inventory write-downs and obsolescence. Through 2002, we made substantial
progress in reducing our inventory levels. In 2003, we took a step backwards.
During the late summer months of 2003, we purchased approximately $6 million in
inventory from our Chinese suppliers which arrived in our warehouses earlier
than it was needed. While we expected to be able to sell that inventory in the
fourth quarter, orders from customers in the range of $5 million did not
materialize in late 2003 as had been planned. This left us with extra amounts of
inventory as of the end of the year. We have evaluated that inventory position
and have taken appropriate write-downs during 2003, to value inventory at our
expected net realizable value. (See also the discussion above regarding critical
accounting policies as well as the accompanying Consolidated Statements of Cash
Flows for more information regarding our cash flows, and Note (2) of the Notes
to Consolidated Financial Statements for more information regarding our
inventory.)
The logistics burden of physically managing the additional amount of
imported inventory referred to above caused us to incur added unplanned costs
within our distribution system. We estimate that the added costs of distribution
related to managing extra amounts of inventory during the third and fourth
quarters of 2003 amounted to approximately $2 million. Not only did the added
inventory negatively impact our liquidity, but it also added unplanned expense
to our distribution expenses.
REVOLVING CREDIT AGREEMENT WITH HUNTINGTON NATIONAL BANK
For many years, we have relied on revolving credit agreements to
satisfy our seasonal working capital liquidity needs. Until the end of 2003, our
lending bank accommodated our borrowing requirements and provided us with needed
liquidity, occasionally modifying provisions of the loan agreements as
necessary. Before December 2002, our revolving credit facilities were unsecured.
On December 27, 2002, we entered into a $32 million Revolving Credit
Agreement ("Revolver") with Huntington to refinance the previous revolving
credit agreement. As a part of the Revolver, we granted to Huntington and
Metropolitan a security interest in substantially all of our assets other than
real estate to secure our obligations to Huntington under the Revolver and our
obligations under our Note Agreement dated July 5, 1994, as amended, with
Metropolitan ("Metropolitan Loan Agreement").
The Revolver was a three-year $32.0 million commitment from Huntington
terminating on April 30, 2006. The Revolver originally contained periodic
monthly commitment limitations ranging from $3 million in January, $12 million
from February through April, $32 million from May through October, and $27
million from November through December. The Revolver further limited total
borrowings to the lesser of: (a) the commitment limitations noted or (b) 80% of
the Company's eligible accounts receivable, plus 40% of the Company eligible
inventory, all as defined in the agreement. The Revolver also
-19-
contained additional covenants, including financial covenants that required the
Company to maintain minimum consolidated tangible net worth, minimum coverage of
interest expense beginning at the end of the first quarter in fiscal 2004, and
specified cash flow leverage ratios beginning at the end of fiscal 2003. The
Revolver required that that borrowings be reduced to zero for a period of 15
consecutive days during 2003 and for a period of 30 consecutive days during 2004
and 2005.
The Revolver was amended on a number of occasions in 2003 and during
the first quarter of 2004:
- On March 31, 2003, the Revolver was amended to modify the
commitment limitations noted above from: (a) $12 million for
February through April and $32 million for May through
October, to (b) $12 million from February through March and
$32 million from April through October, with the rest of the
Revolver remaining unchanged.
- On September 1, 2003, the Revolver was again amended to modify
the commitment limitations, reverting back to the original $12
million from February through April, and $32 million from May
through October, and to provide a one-time additional
commitment amount of $4 million for the period from September
1, 2003 through November 1, 2003 only. In addition, the
September 2003 amendment modified the cash flow leverage test
to make that requirement less restrictive.
- On September 15, 2003, the Company agreed to add a covenant to
the Revolver requiring that consolidated net income for fiscal
2003 and thereafter be at least one dollar, excluding in 2003
the loss incurred by our discontinued thermal products
business and asset sales. In exchange, the covenant requiring
a minimum EBIDTA (earnings before interest, taxes,
depreciation and amortization) for 2003 was removed.
- On January 22, 2004, the Revolver was again amended to
increase the commitment limitation in January 2004 from $3
million to $9 million. This fourth amendment provided
Huntington with total dominion over our cash resources,
provided Huntington and Metropolitan with a first mortgage
lien on our office building in Ohio, increased the magnitude
and timing of reporting information required by Huntington,
and required that we hire business consultants to assist us in
finding a second lender and to develop a new strategic
operating model for our business.
- On March 10, 2004, the Revolver was again amended for the
fifth time, increasing the availability for the month of March
2004 to $13.8 million. In addition, Huntington permitted the
Company to borrow $2.2 million against the cash surrender
value of life insurance policies owned by the Company on the
life of a key executive.
The outstanding balances due under the Revolver ($2.0 million) and the
Metropolitan Loan ($2.1 million) as of the end of 2003 were both classified on
our consolidated balance sheet as current liabilities as a result of their
coming due during 2004.
As a result of the early acquisition of inventory in the third quarter
of 2003, as discussed above, we reached a peak of $36 million in borrowings
outstanding under the Revolver for nearly a seven-week period from mid-September
through very late October 2003. This compares with $32 million in peak
outstanding borrowings for a four-week period during the same months of 2002.
Moreover, during the same seven-week period in 2003, we sought and received
extended payment terms from our suppliers in China as an additional means to
contain borrowings to the Revolver to $36 million. By the early part of November
2003, our cash flow had improved such that we had resumed payments to suppliers
within
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their established terms of sale. Once we realized that shipments to customers
in November and December 2003 would not achieve anticipated levels, we sought
and received the fourth amendment to the Revolver discussed above which allowed
us to borrow up to a cumulative amount of $9 million during the month of January
2004.
We failed to meet a number of the financial covenants in the Revolver
as of the end of 2003. We did not meet the minimum tangible net worth test; the
required one dollar of consolidated net income; the cash flow leverage test; and
the interest coverage test. As a result of the failure to meet the covenant
tests under the Revolver, we were outside the compliance parameters of the
Metropolitan Loan. In addition, with the losses incurred for the year, the
Company did not meet the minimum tangible net worth test of the Metropolitan
Loan.
On March 30, 2004, we retired all outstanding indebtedness under the
Revolver and the Metropolitan Loan Agreement from funds borrowed under the CIT
Facility discussed below.
2004 LIQUIDITY
CIT CREDIT FACILITY
On March 29, 2004, we entered into a new financing agreement (the "CIT
Facility") with CIT. On March 30, 2004, we borrowed under the CIT Facility
approximately $10.3 million to repay all outstanding indebtedness under the
Revolver and related charges, and the Revolver was terminated. In addition, on
that date, we borrowed approximately $2.3 million under the CIT Facility to
repay all outstanding indebtedness under the Metropolitan Loan Agreement and
that agreement was terminated.
The CIT Facility provides us with advances in a maximum amount equal to
the lesser of (i) $35 million or (ii) a Borrowing Base (as defined in the CIT
Facility). The CIT Facility is a discretionary facility which means that CIT is
not contractually obligated to advance us funds. The Borrowing Base, which is
determined by CIT in its sole discretion, is determined on the basis of a number
of factors, including the amount of our eligible accounts receivable and the
amount of our qualifying inventory, subject to the right of CIT to establish
reserves against availability as it deems necessary. The CIT Facility also
includes a $3 million subfacility for the issuance of letters of credit that is
counted against the maximum borrowing amount discussed above.
Our obligations under the CIT Facility are secured by a first priority
lien and mortgage on substantially all of our assets, including accounts
receivable, inventory, intangibles, equipment, intellectual property and real
estate. In addition, we have granted to CIT a pledge of the stock in our U.S.
wholly-owned subsidiaries. The subsidiaries have guaranteed our indebtedness
under the CIT Facility.
As part of the CIT Facility, we entered into a factoring agreement with
CIT, under which CIT will purchase accounts receivable that meet CIT's
eligibility requirements. The purchase price for the accounts is the gross face
amount of the accounts, less factoring fees (discussed below), discounts
available to our customers and other allowances.
The factoring agreement provides for a factoring fee equal to 0.50% of
the gross face amount of all accounts receivable factored by CIT, plus certain
customary charges. For accounts outside the United States, we will pay an
additional factoring fee of 1% of the gross face amount. For each 30 day period
that an account exceeds 60 days unpaid, we must pay an additional fee of 0.25%
of the gross face amount. The minimum factoring commission fee per year is
$400,000 and if the fees paid throughout the year do not meet this minimum, CIT
will charge us for the difference. We also agreed to pay CIT's expenses incurred
in connection with negotiation of the CIT Facility, as well as fees for
preparing reports, wire
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transfers, setting up accounts and other administrative services. We are also
responsible for any taxes on sales of our products or on transactions between
CIT and the Company. Upon entering into the CIT Facility, we paid to CIT an
initial facility set-up fee of $262,500.
Amounts outstanding under the CIT Facility bear interest at the prime
rate as announced by JPMorgan Chase Bank ("Prime Rate") plus 1%. Interest is
charged as of the last day of each month, and any change in the Prime Rate will
take effect the first month following the change in the Prime Rate.
The term of the CIT Facility is for a period of three years.
NEW BUSINESS PLAN
With the assistance of experienced turnaround consultants, management
developed a new business model for the Company that we believe should
significantly reduce operating costs by simplifying our product offering and
focusing our business on a core customer base that represented approximately 70%
of our 2003 revenues.
The key components of our new business plan and the actions we have
already taken or expect to take in 2004 are as follows:
- We have employed an experienced turnaround professional as the
President and CEO on an interim basis.
- We are streamlining our management structure and seeking to
reduce our selling, general and administrative costs to a
lower level that is consistent with our simplified business
model. This process began in March 2004 with staff reductions
in our headquarters in Ohio and at the operations support
office in San Antonio.
- We intend to reduce costs by closing our manufacturing
facilities in Mexico by the end of 2004 and relying upon third
party contract manufacturers in China and possibly other
locations outside North America to manufacture our products.
- We will further reduce costs through the closure of our
operations support office in San Antonio, Texas by the end of
2004. The staff at this facility primarily support our
operations in Mexico. Some functions performed in the San
Antonio office that will be maintained will be relocated to
our Columbus headquarters.
- We expect to reduce our inventory levels by four to five
million pair from the year-end 2003 levels.
Management concluded that the actions contemplated by the 2004 business
plan were necessary to materially reduce and eventually eliminate the operating
losses incurred in 2002 and 2003. Because the business plan will result in
substantial changes in the way in which we have done business for many years, we
recognize that the implementation of the business plan carries business risks
which are discussed below in "RISK FACTORS."
Implementation of the 2004 business plan is expected to result in
significant costs in the form of severance payments and asset write-downs. (See
Note (19) of the Notes to Consolidated Financial Statements.) In part due to
these costs and write-downs, we do not expect to report an operating profit in
2004.
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2004 LIQUIDITY
Based on the actions being taken in 2004 to create a lower-cost, more
efficient business model, as described above, and the new CIT Facility,
management believes that there should be sufficient liquidity and capital
resources to fund our operations through the balance of fiscal 2004, including
our anticipated restructuring costs. Although our restructuring will involve
cash outlays, the majority of the restructuring costs to be incurred in 2004 are
expected to be non-cash in nature and we expect that our plans to reduce
inventory should generate additional cash flow.
Our independent auditors have modified their report on our consolidated
financial statements with a going concern uncertainty paragraph based on our
failure to meet a number of financial covenants in the Revolver, our recurring
losses from operations and our entering the CIT Facility which does not
contractually obligate CIT to advance funds to the Company. The independent
auditors' report notes that, in their view, these matters raise substantial
doubt about the Company's ability to continue as a going concern. While we
recognize that the implementation of our new business plan presents business
risks, as discussed in "RISK FACTORS" below, and we can give no assurance of the
plan's success, we believe that these risks should be manageable and that, once
implemented, the new business model gives the Company a reasonable opportunity
to return to profitability, although that will not occur in 2004.
OTHER MATTERS IMPACTING LIQUIDITY AND CAPITAL RESOURCES
Traditionally, we have leased most of our operating facilities. On
occasion, we have leased some operating equipment as well. We periodically
review our facilities to determine whether they will satisfy projected operating
needs for the foreseeable future.
All real and personal property leased by the Company is leased for
varying term lengths, ranging generally from three years to fifteen years, often
with options for renewal. All leases are "operating leases" and the obligations
thereunder are recorded as rent expense during the periods of use and occupancy.
The future obligations under these lease commitments are discussed below under
the caption "OFF-BALANCE SHEET ARRANGEMENTS" and in Note (6) of the Notes to
Consolidated Financial Statements.
We last paid cash dividends in 1981. We have no current plans to resume
payment of cash dividends or to acquire common shares for treasury. We
anticipate continuing to use our cash resources to finance operations and to
fund the operating needs of the business.
OFF-BALANCE SHEET ARRANGEMENTS
As noted above, the Company has traditionally leased its facilities
under operating lease transactions. On occasion, we have also leased certain
equipment utilizing operating leases. These leasing arrangements allow us to pay
for the facilities and equipment over the time that they are utilized, rather
than committing our resources initially to acquire the facilities or equipment.
All leases have been accounted for as operating leases, consistent with the
provisions of Statement of Financial Accounting Standards ("SFAS") No. 13,
Accounting for Leases, as amended. Our future off-balance sheet non-cancelable
operating lease obligations are discussed in Note (6) of the Notes to
Consolidated Financial Statements.
The following table summarizes the Company's contractual obligations
for both long-term obligations that appear on our consolidated balance sheet, as
recognized in our consolidated financial statements, and so-called "Off-Balance
Sheet Arrangements", as discussed in the notes to our consolidated financial
statements:
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Payments due by period (in thousands of dollars)
------------------------------------------------------------
More
1 year 1 - 3 3 - 5 than 5
Total or Less years years years
----- ------- ----- ----- -----
CONTRACTUAL OBLIGATIONS - recognized on the books and records of the Company
Long-Term Debt, Current and Non-
Current Portions $ 6,010 $ 3,869 $ 1,981 $ 160 none
Capital Lease Obligations none
Other Long-Term Liabilities reflected on
the Consolidated Balance Sheet of the
Company * $ 14,841 * * * *
CONTRACTUAL OBLIGATIONS - considered "off-balance sheet arrangements"
Operating Leases - see also Note (6) of $ 13,162 $ 3,495 $ 4,270 $ 3,401 $ 1,996
the Notes to Consolidated Financial
Statements
Purchase Obligations in the ordinary
course of business ** $ 4,928 $ 4,928 none none none
- -----------
* Other Long-Term Liabilities of the Company represent accrued cumulative
future obligations under our Associate Retirement Plan of $6,473, accrued
cumulative future obligations under our Supplemental Retirement Plan of
$7,146 and accrued cumulative future obligations from employee salary
withholdings under our salary deferred compensation plan of $1,222. The
timing of future cash outflows related to these obligations is not readily
determinable, as it is totally dependent upon the timing of Associate
future retirements. Following the requirements under SFAS No. 87,
Accounting for Pensions, as amended, during 2003 and 2002 we have made a
charge to Other Comprehensive Income, to recognize the effect of actuarial
assumptions and market value changes as of the September 30, 2003 and 2002
evaluation dates. The resultant effect has increased the aggregate
liability under the Associate Retirement Plan and the Supplemental
Retirement Plan by $529 and $5,013, in 2003 and 2002, respectively, with a
corresponding charge to Other Comprehensive Income. In early 2004, we took
action to effectively freeze pension benefits under the Associate
Retirement Plan and the Supplemental Retirement Plan effective as of April
1, 2004 and requested permission from the Internal Revenue Service, which
has not yet been granted, to defer our 2003 contribution to the Associate
Retirement Plan from 2004 to 2005. As a result of the pension plan freeze,
we expect to report a related curtailment loss of approximately $1,108 in
the first quarter of 2004.
** We acquire inventory and merchandise in the ordinary course of business,
issuing both purchase orders and letters of credit to acquire merchandise
from suppliers. Commitments in the ordinary course of business are included
above as "off-balance sheet arrangements". There are no material unusual
outstanding commitments other than in the ordinary course of business.
-24-
At times we have entered into foreign currency contracts, as noted in
the discussion below under the heading "OTHER MATTERS RELEVANT TO FINANCIAL
CONDITION AND RESULTS OF OPERATION - FOREIGN CURRENCY RISK," to hedge currency
risk exposures that we have identified. Currency contracts utilized as hedges
are to be included as "off-balance sheet arrangements" as well; however, as of
the end of 2003 and 2002, we had no foreign currency contracts outstanding.
RESULTS OF OPERATIONS
DISCONTINUED OPERATIONS
The thermal products business was a segment of our business which, for
the past several years, we had not operated profitably.
In June 2003, we sold substantially all of our thermal products assets
to a corporation formed by investors headed by a co-founder and former chief
executive officer of RGB Technology, Inc., our subsidiary formerly known as
Vesture Corporation ("RGB Technology"). The sale was deemed effective as of
March 29, 2003.
The assets sold to the buyer included furnishings, trade fixtures,
equipment, inventories, raw materials and finished products inventories, books
and records (including supplier and customer lists), RGB Technology's rights
under certain contracts and agreements, patents and trademarks used in the
business, and trade accounts receivable arising after March 29, 2003. We
retained and collected the trade accounts receivable of RGB Technology
outstanding as of March 29, 2003. As part of the transaction, we sold to the
buyer certain patents owned by us and used in the thermal products business.
As additional consideration for the assets sold, the buyer assumed
specified liabilities and obligations. These included liabilities under
specified contracts and agreements, obligations under outstanding purchase
orders for materials and supplies, customer orders, current liabilities, state
and federal income tax obligations, payroll and employee-related expenses and
liabilities, accrued and unpaid sales commissions, liabilities and obligations
for warranty claims for product replacement or repair, and certain other
obligations and liabilities.
The consideration for the transaction was based upon a formula
negotiated and agreed upon by the parties. At the closing, the buyer assumed the
liabilities and obligations discussed above and paid us $76 thousand, less
certain prorated tax liabilities. After the closing, the purchase price was
adjusted to take into account the results of operations of the business from
March 29, 2003, through June 18, 2003. As partial payment for amounts owing from
the buyer to us, the buyer delivered to us a promissory note in the principal
amount of $334 thousand. The promissory note is due and payable in full on
December 1, 2004. As of the end of 2003, we had fully reserved for the doubtful
collection of this promissory note.
As additional consideration for the assets transferred, through the
year 2007, the buyer has agreed to pay us annual royalties based on a percentage
of the buyer's annual sales of certain products in excess of specific
thresholds.
See also discussion below under "OTHER MATTERS RELEVANT TO FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - LEGAL PROCEEDINGS" and in "ITEM 3. LEGAL
PROCEEDINGS" of this Annual Report on Form 10-K.
With the disposal of the thermal products related assets, we have
discontinued the thermal products business segment. The disposition of these
assets represents a disposal of a business segment under SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. Accordingly, the
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results of this operation have been classified as discontinued and financial
data for all periods have been reclassified to show discontinued operations.
Selected financial data relating to the discontinued operations,
follow:
2003 2002 2001
---- ---- ----
Net sales $ 1,759 3,546 5,188
========== ======= =======
Gross profit (loss) 57 (1,654) 1,470
Selling, general and administrative
expense 2,040 3,268 2,825
Restructuring charges -- 523 --
Interest expense (income) 104 143 (24)
Loss on sale of certain assets
relating to discontinued
operations (223) -- --
---------- ------- -------
Loss from discontinued operations
before income tax (2,310) (5,588) (1,331)
Income tax benefit -- 1,858 437
Loss from discontinued operations
net of income tax $ (2,310) (3,730) (894)
========== ======= =======
See also Note (17) of the Notes to Consolidated Financial Statements which
discusses our discontinued thermal products business.
RESTRUCTURING ACTIVITIES
During the past few years, we have undertaken a number of strategic
initiatives designed to improve our operating performance and reduce expenses.
The activities involved include: (a) closing a factory in Shenzhen, China in
1999; (b) closing a factory in the Dominican Republic in 2000; (c) moving our
samples activities from Columbus, Ohio to Nuevo Laredo, Mexico in 1999; (d)
instituting improved design and product development processes to increase speed
to market in 1999; (e) closing a warehouse in San Antonio, Texas, in 2000 and a
warehouse in Goldsboro, North Carolina in 2003, while opening a warehouse in
Nuevo Laredo, Mexico in 2002; (f) shifting cutting activities from Laredo, Texas
to Nuevo Laredo, Mexico in 2002; (g) shifting our molding operations from San
Angelo, Texas, to Nuevo Laredo, Mexico in 2002; (h) beginning in 1999, changing
ourselves from a company that manufactures nearly its entire production
requirements to one that manufactures about two-thirds of its requirements and
contracts with outside third party manufacturers for one-third of its needs; (i)
opening in 2001 a resource office in Hong Kong for procuring products in the Far
East; (j) changing our European branch sales and warehouse operations to a
distributorship-type arrangement in 2003; and (k) closing down operations in
Wales and Paris. All of these restructuring activities were designed and
intended to improve our operating profitability with varying degrees of success.
As discussed above, we have announced a 2004 business plan that calls for
significant changes to and restructuring of our business. See also Note (15) of
the Notes to Consolidated Financial Statements which discusses our restructuring
activities.
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RESULTS OF CONTINUING OPERATIONS
2003 SALES AND CONTINUING OPERATIONS COMPARED WITH 2002
With the discontinuance of the thermal products business segment, we
now operate in two different business segments: (a) "Barry Comfort North
America", which manufactures and markets at- and around-the-home comfort
footwear for sale in North America; and (b) "Barry Comfort Europe", which
markets footwear principally in western Europe. See also Note (14) of the Notes
to Consolidated Financial Statements for a breakdown of net sales by geographic
region and by segment of our operations.
During 2003, net sales from continuing operations totaled $123.1
million, an increase of approximately 3.5 percent over 2002. Net sales for Barry
Comfort North America increased by 4.3 percent in 2003, to $113.9 million from
$109.2 million in 2002. The increase in net sales for Barry Comfort North
America occurred principally among our mass merchandising customers, with about
one-third of that increase attributable to sales to our largest customer -
Wal-Mart Stores, Inc. We continue efforts to provide new styling of our soft
washable footwear, with continued focus on fresh product, delivered complete and
on-time to our customers. Our products performed reasonably well at retail, even
though many retailers struggled through another highly discount-oriented holiday
season.
Net sales for Barry Comfort Europe decreased to $9.3 million in 2003,
from $9.8 million in 2002. The primary contributor to this decrease in sales in
Europe was the change in our method of operations in Europe early in 2003. As
previously noted, early in 2003, we entered into an agreement that effectively
converted the European soft washable slipper portion of Barry Comfort Europe
into a distributorship/license arrangement. We continue to operate our Fargeot
business, but the slipper business operating with a warehouse in Wales and a
sales office in Paris closed in 2003, and those customers are now served by our
British distributor. We anticipate receiving a royalty from the British
distributor but will no longer incur the expense of supporting our own warehouse
in Wales and sales organization in Paris.
Gross profit in 2003 increased to $42.7 million from $41.4 million in
2002. Gross profit as a percent of net sales remained rather constant at 34.7
percent in 2003, compared with 34.8 percent in 2002. The benefits realized in
2003 as a result of the restructuring activities over the last several years, as
discussed previously, were offset in 2003 by increased manufacturing variances
incurred during 2003, and the need to increase inventory write-downs recorded at
the end of 2003. As noted in Note (2) of the Notes to the Consolidated Financial
Statements, total inventory write-downs increased by $2.3 million during 2003.
Selling, general and administrative expenses declined in 2003 to $48.2
million compared with $50.4 million in 2002. Most of the decline in these
expenses from 2002 to 2003 occurred in the marketing and administrative areas.
The expenses incurred in selling were approximately the same as in 2002. We
estimate that the expenses incurred in shipping and distribution increased
during the third and fourth quarters of 2003 by approximately $2 million, in
response to the added amounts of inventory that we had on hand.
Restructuring expenses and asset impairments recognized in 2003
amounted to $2.6 million compared with $2.8 million recognized in 2002. See also
Note (15) of the Notes to Consolidated Financial Statements.
Net interest expense increased in 2003 to $1.4 million from $1.3
million in 2002. During 2003, we relied more heavily on the Revolver to fund the
daily operations of the business. The daily average seasonal borrowings
outstanding under the Revolver increased to $19.5 million from $11.9 million in
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2002. The weighted average interest rate on short-term bank borrowings in 2003
decreased slightly to 3.9 percent from 4.1 percent in 2002, reflecting the
general decline in short-term market related interest rates.
While our operating results for the year were very disappointing, they
were an improvement over 2002. The pre-tax loss from continuing operations
decreased to $9.3 million in 2003 from a pretax loss of $12.3 million in 2002.
With the decision to provide a full valuation allowance for deferred tax assets
totaling $13.8 million, we recognized a tax expense in 2003 amounting to $10.1
million, compared with an estimated benefit recognized in 2002 of $4.2 million.
As a result, we incurred a net loss from continuing operations of $19.4 million
in 2003 compared with $8.2 million in 2002. Including losses for the
discontinued thermal operations, we incurred a total net loss of $21.7 million
compared with a total net loss in 2002 of $11.9 million.
2002 SALES AND CONTINUING OPERATIONS COMPARED WITH 2001
During 2002, net sales totaled $119.0 million, a decrease of 8.0
percent from net sales of $129.4 million in 2001. There were net sales decreases
in both segments of the business. Net sales in Barry Comfort North America
decreased in 2002 to $109.2 million from $118.9 million in 2001, while net sales
in Barry Comfort Europe decreased in 2002 to $9.8 million from $10.4 million in
2001. Economic malaise domestically and internationally contributed to a decline
in sales generally across all channels of distribution and all classes of trade.
Retailing in the holiday season of 2002 was very promotional, with retailers
aggressively discounting products early in the holiday selling season.
Gross profit decreased in 2002 by approximately $7.8 million. In 2002,
gross profit amounted to $41.4 million or approximately 34.8 percent of net
sales, while in 2001, gross profit amounted to $49.2 million or about 38.0
percent of net sales. The primary cause of the decline in gross profit was the
$10.3 million decrease in net sales from 2001 to 2002.
During much of 2002, we incurred restructuring and other costs relating
to implementing our three-year strategic plan. During 2002, we completed that
portion of our three-year strategic plan relating to repositioning activities in
lower cost locations. We completed the move of our molding operations from San
Angelo, Texas to Nuevo Laredo, Mexico, and we completed the move of our cutting
subassembly operation from Laredo, Texas to Nuevo Laredo. We opened a new
distribution facility in Nuevo Laredo. While all of these activities were
planned for the year, the task level was greater than anticipated. We wanted to
assure that our customers did not suffer delays in their supply of our footwear,
so we maintained certain duplicative operations in both San Angelo and Laredo
until we were sure that there would be not disruption in our supplying the
market place from Nuevo Laredo. The costs of this assurance resulted in an
estimated $3.5 million of added expense, incurred mainly during the first half
of the year. This added expense adversely affected gross profit for the year,
and the additional warehousing costs adversely affected selling, general and
administrative expenses, as noted in the following paragraphs.
Selling, general and administrative expenses increased significantly
during 2002, by approximately $4.4 million, compared with those expenses in
2001. Selling and marketing expenses increased during 2002, primarily in the
area of retail program support, such as advertising, displays, and other
promotional programs at retail. Warehousing expenses also increased during 2002,
with a sizable portion of that related to the duplicative activities conducted
in conjunction with the opening of the new warehousing facility in Nuevo Laredo
early in 2002.
Net interest expense increased to $1.3 million in 2002 from $1.1
million in 2001. Two factors influenced this increase. As noted below in "OTHER
MATTERS RELEVANT TO FINANCIAL CONDITION AND RESULTS OF OPERATIONS - ACCELERATION
OF NAFTA TARIFF REDUCTIONS", we recognized a long-term
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obligation to the consultants who assisted us in the accelerated elimination of
NAFTA duties as of the beginning of 2002. As of the end of 2002, the discounted
present value of that long-term obligation amounted to $4.0 million. In 2002,
the amount of imputed interest related to this obligation amounted to $374
thousand. In addition, during 2002, the daily average seasonal borrowings
outstanding under our revolving credit agreement increased to $11.9 million.
During 2001, the average borrowings under the revolver credit agreement were
$7.9 million. The weighted average interest rate on short-term bank borrowings
in 2002 was 4.1 percent, compared to 5.8 percent during 2001. Short-term market
interest rates generally declined in 2002 as a result of actions taken by the
Federal Reserve during the year, although this decline was in part offset by the
increase in spreads over market charged by our bank. The net result was a 1.7
percent reduction in the average rate of interest that we incurred in 2002 for
short-term borrowings.
During 2002, we engaged in several actions related to reorganization
efforts. One action in the first quarter resulted in the coordinated transfer of
cutting operations from the U.S. to Mexico and a reduction in sewing operations
in Nuevo Laredo, Mexico, resulting in the reduction of 354 positions in North
America, at a cost of $727 thousand. Other actions in the third and fourth
quarters were taken to restructure staff support of sales and operations,
impacting 9 employees at a cost of $938 thousand. In the fourth quarter, we
announced the decision to close the Goldsboro distribution center in 2003,
impacting 53 positions at a cost of $601 thousand, and to similarly close the
Wales distribution center in 2003, impacting 22 positions at a cost of $178
thousand. The closure of the Wales facility also resulted in recognition of $208
thousand in future lease obligation losses as well as $150 thousand in asset
impairment charges. The aggregate reorganization and asset impairment charges
recognized in 2002 amounted to $2.8 million.
As a result, for fiscal 2002, we incurred a loss from continuing
operations before income taxes and minority interest of $12.3 million, a net
loss from continuing operations after income taxes of $8.2 million, and a net
loss of $11.9 million or $1.23 per diluted share. During 2001, we had earnings
from continuing operations before income taxes and minority interest of $3.0
million, net earnings from continuing operations of $1.8 million, and net
earnings of $932 thousand, or $0.10 per diluted share.
OTHER MATTERS RELEVANT TO FINANCIAL CONDITION AND RESULTS OF OPERATIONS
ACCELERATION OF NAFTA TARIFF REDUCTIONS
Effective January 2002, the 15 percent duty on United States slippers
made in Mexico was eliminated. The tariff removal, which was a part of round
three of the NAFTA tariff acceleration, eliminated duties on a range of
products, including slippers. Prior to the accelerated elimination of the
duty, the slipper tariff had been scheduled to be reduced annually at the rate
of 2.5 percent per year until its elimination on January 1, 2008.
We utilized third parties to assist us in obtaining this tariff relief.
Upon the successful conclusion, we agreed to pay an aggregate of approximately
$6.25 million, mostly in equal quarterly installments over a four-year period
through the end of 2005. For accounting purposes, a portion of the payment to
the consultants has been treated as debt and a portion of the payment has been
treated as an imputed interest charge associated with that debt. The net present
value of this four-year obligation, which is subordinated to our other
obligations, is included within current installments and long-term debt at its
discounted present value totaling $2.7 million, as of the end of 2003, compared
with $4.0 million at the end of 2002. The net benefit we expected to receive
from the tariff relief, after taking into account the consultants' fees, had
been estimated at $12 million over the period from 2002 through 2006. Under the
three-year strategy in place at the time, this duty elimination was expected to
have a positive impact on our business.
-29-
The tariff removal allowed us to take advantage of the benefits of
manufacturing in our North American plants and was a key element in our
operating strategies. It permitted us to relocate cutting and molding activities
from the U. S. to Mexico and keep our cost structure in line with competitive
products produced offshore. In 2002, we transferred jobs from the U. S. to
Mexico to realize the benefits of reduced labor and benefit costs. Without the
tariff elimination, most of the labor savings would have been offset by the
increase in the cost from duties. The shift of manufacturing jobs was completed
in 2002, and impacted about 350 positions in the Company. The severance costs
associated with this reduction in workforce were recognized in the first quarter
of 2002 and amounted to about $727 thousand.
This strategy proved inadequate to provide a competitive advantage
relative to companies purchasing all of their goods from third party suppliers
in the Far East, mainly from China. As previously discussed, we have decided to
close all of our manufacturing operations in Mexico by the end of 2004, and
eventually to outsource our entire product needs to resources in China and the
Far East.
LEGAL PROCEEDINGS
On December 22, 2003, RGB Technology settled the pending patent
litigation involving RGB Technology, Thermal Solutions, Inc. and CookTek, LLC.
We had previously reported that RGB Technology was involved in a patent
infringement lawsuit relating to its MICROCORE(R) pizza delivery systems. The
terms of the settlement are confidential, but the settlement resolves all areas
of dispute between the parties and concludes the pending litigation. As a part
of this settlement, RGB Technology, Inc. agreed to make certain nominal payments
during 2004.
On June 18, 2003, we sold substantially all of the assets of RGB
Technology to a corporation, now known as "Vesture Corporation", headed by the
co-founder and former chief executive officer of RGB Technology. As part of the
transaction, Vesture Corporation agreed to pay to RGB Technology a royalty on
certain of Vesture Corporation's net sales in excess of certain threshold
amounts, through 2007 at varying royalty rates. In connection with the
settlement of the pending litigation involving the MICROCORE(R) pizza delivery
systems, RGB Technology will now receive a royalty based upon Vesture
Corporation's net sales of certain products through 2007 in excess certain
thresholds in each year, but excluding Vesture Corporation's sales of products
that utilize the patents involved in the settled litigation. We anticipate that
the royalties resulting from this settlement will not have a material impact on
the results of operations in the future.
FOREIGN CURRENCY RISK
Substantially all of our sales are currently conducted in U. S. Dollars
and with a much lesser portion conducted in Canadian Dollars and Mexican Pesos.
In accordance with our established policy guidelines, we have at times hedged
this currency exposure on a short-term basis, using foreign exchange contracts
as a means to protect ourselves from fluctuations. The amount we normally
maintain under foreign exchange contracts has not been material to our overall
operations. At the end of fiscal 2003 and 2002, there were no such foreign
exchange contracts outstanding.
A sizable portion of our manufacturing labor and other costs is
incurred in Mexican Pesos. It has not been our practice to hedge the Peso as it
has generally declined in value over longer time horizons, when compared to the
U. S. Dollar. In addition, forward contracts denominated in Pesos historically
have not been readily or economically available. Should the Peso suffer a
devaluation compared to the U. S. Dollar, we believe that the impact would
likely be of benefit to us by reducing, at least initially, the effective cost
of manufacturing and to some extent the cost of distribution, although any such
reduction would not be expected to have a significant impact upon our results of
operations.
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LICENSE AGREEMENT FOR EUROPEAN DISTRIBUTION
Early in January 2003, we entered into a five-year licensing agreement
for the sale and marketing of our slipper products with a British footwear and
apparel firm. During the first half of 2003, we ceased operating our Wales
distribution center and our Paris sales office. This distributor-type license
agreement allows continuing service to the soft washable footwear market in
Europe, without our maintaining the costly sales organization, and warehousing
and distribution operations we had since the mid-1990's. We continue to maintain
our Fargeot footwear subsidiary which operates in southern France and is not
subject to the license agreement.
RISK FACTORS
Some of the information in this Annual Report on Form 10-K contains
forward-looking statements that involve substantial risks and uncertainties. You
can identify these statements by forward-looking words such as "may," "will,"
"expect," "anticipate," "believe," "estimate," or similar words. These
statements, which are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995, are based upon our current
plans and strategies and reflect our current assessment of the risks and
uncertainties related to our business. You should read statements that contain
forward-looking statements carefully because they (1) discuss our future
expectations; (2) contain projections of our future results of operations or of
our future financial condition; or (3) state other "forward-looking"
information. Unexpected events may arise in the future that we are not able to
predict or control. The risk factors that we describe below, as well as any
other cautionary language in this Annual Report on Form 10-K, give examples of
the types of uncertainties that may cause our actual performance to differ
materially from the expectations we describe in our forward-looking statements.
You should know that if the events described in this section and elsewhere in
this Annual Report on Form 10-K occur, they could have a material adverse effect
on our business, operating results and financial condition.
EXECUTION OF NEW BUSINESS PLAN. We have developed and are implementing
a business plan the goal of which is to materially reduce or eliminate our
operating losses, and to allow us to generate greater cash flow from our
business operations. See "LIQUIDITY AND CAPITAL RESOURCES - 2004 LIQUIDITY." A
key component of this plan is the closing by the end of 2004 of all our
manufacturing operations, which are located in Mexico, as well as our
manufacturing support operations in San Antonio, Texas. We intend to purchase
additional goods from third party contract manufacturers in Asia and elsewhere
to replace the goods previously manufactured in our plants in Mexico. The
closing of our manufacturing plants and our increasing reliance on third party
contract manufacturers present a number of business risks. The cost of closing
the plants may be significantly higher than our forecast because of unforeseen
labor difficulties or higher than expected shut-down costs and governmental
charges. Furthermore, we may incur higher than anticipated costs as well as
staffing challenges as we dramatically increase over a relatively short time
period the volume of goods we purchase from third party contract manufacturers
in Asia. Although we believe our systems and staffing are adequate to support
such an increase in the volume of goods sourced from third party contract
manufacturers, we cannot assure that this is the case. Closing our manufacturing
plants will also mean that by 2005 we will be totally dependent on third party
contract manufacturers to supply our goods. Although we do not anticipate that
expanding our dependence on third party contract manufacturers will impact
product quality or our ability to deliver our goods to customers on a timely
basis, these remain risks of eliminating our own manufacturing capacity. In
addition, the loss or disruption of our suppliers could have an adverse impact
on our financial condition and results of operations.
A second major component of our business plan included a review and
assessment of our staffing requirements and methods of operation. Based upon
this review, we have implemented initiatives to
-31-
significantly reduce operating expenses for corporate overhead. Although not
anticipated, these staffing reductions could have an adverse impact on our
business operations.
Our business plan also includes initiatives to change the way in which
we do business with many of our customers to modify return rights and other
customer concessions and accommodations. The implementation of new policies that
impact the right of customers to return goods or receive other concessions may
result in reduced customer demand for our products. We are currently forecasting
a modest reduction in sales for 2004, although these changes to our
long-standing business practices, together with the impact on customers of our
recent financial problems, could result in a more substantial sales reduction
than what is now forecasted.
Our business plan also calls for a reduction in inventory levels and
better inventory management. Our financing plans for 2004 assume that we will
achieve a reduction in inventory levels through closeout sales and better
inventory purchasing and management practices. Our failure to achieve these
goals could mean that we have liquidity requirements in excess of the financing
provided by the CIT Facility.
Our business plan is integral to our goal of eliminating our operating
losses. However, there can be no assurance that our plan will succeed, or in the
event that it does succeed, that it will be sufficient to stem our losses, or
improve our cash flows.
STATUS OF INTERIM CEO. Thomas M. Von Lehman, our current President and
Chief Executive Officer, is serving on an interim basis. He has entered into a
six-month employment agreement with the Company dated March 10, 2004, as
amended. The employment agreement may be extended by mutual agreement for
additional periods of three months, although there is no assurance that the
current interim President and Chief Executive Officer will agree to serve past
the first six-month term. If the agreement terminates before April 30, 2005,
other than as a result of the death or disability of Mr. Von Lehman or his
termination for cause, the Company and Mr. Von Lehman have agreed to negotiate
in good faith a consulting agreement extending through April 30, 2005. Our
long-term success will depend, in part, on our ability to identify and hire a
permanent Chief Executive Officer with the expertise and experience to
successfully run a comfort footwear business.
HISTORY OF OPERATING LOSSES. We reported a net loss in both 2002 and
2003. Because of the anticipated costs of implementing our business plan, we
expect to operate at a loss in 2004. Our independent auditors have modified
their report on our consolidated financial statements with a going concern
uncertainty paragraph based on our failure to meet a number of financial
covenants in the Revolver, our recurring losses from operations and our entering
the CIT Facility which does not contractually obligate CIT to advance funds to
us. The independent auditors' report notes that, in their view, these matters
raise substantial doubt about our ability to continue as a going concern.
NEW FINANCING FACILITY. We have entered into a new factoring and
financing agreement with CIT. See "LIQUIDITY AND CAPITAL RESOURCES - 2004
LIQUIDITY - CIT CREDIT FACILITY" for a discussion of the CIT Facility. The
availability of funding under the CIT Facility is subject to the discretion of
CIT and depends, in part, upon our eligible borrowing base, which includes the
amount of our eligible accounts receivable and inventory. Although management
believes that the CIT Facility should be sufficient to provide us with adequate
liquidity for our operations in 2004, a reduction in sales below our planned
amount or other events could make the CIT Facility inadequate to meet our
operating requirements, thereby resulting in a liquidity short-fall. Further, if
we are unable to reverse our operating losses, CIT could decide to cease funding
under the CIT facility.
COMPETITION. Our comfort footwear business is highly competitive. Most
of our competitors source all of their products from contract manufacturers in
China and other countries in Asia which may
-32-
give them a lower cost of goods. In addition, the introduction of comfort
footwear products that appeal to the consumer's sense of fashion and comfort is
important to our success. In order to remain competitive, we must continue to
introduce new products that customers find appealing in either fashion or
comfort or both.
SEASONALITY OF THE BUSINESS. Our business is very seasonal. Our
strongest sales period has historically been the months of September, October
and November, because our goods are frequently purchased as gifts for the
Christmas holiday season. Consumer demand for our products during the Christmas
selling season is critical to our success. If consumer demand for our products
during this critical period is lackluster because of bad weather, recessionary
concerns or other factors, we will likely suffer operating losses.
STATUS OF THE MARKET FOR THE COMPANY'S COMMON SHARES. Our common shares
are traded on the New York Stock Exchange (the "Exchange"). We were notified in
2003 that we did not meet the Exchange's continuing listing requirements because
our market capitalization and shareholders' equity fell below the required
minimum levels. We were given an opportunity to submit an 18-month plan for
satisfying the minimum continuing listing requirements. Because of our loss in
2003, it is likely that we will not satisfy the Exchange's continuing listing
requirements in the foreseeable future. Therefore, the Exchange may decide to
delist our common shares, at which time we could become listed on another
exchange or market or not be listed.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As of January 3, 2004, neither R. G. Barry nor any of its subsidiaries
was a party to any market risk sensitive instruments which would require
disclosure under Item 305 of SEC Regulation S-K.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The following consolidated financial statements of R. G. Barry and its
subsidiaries are included in this Item 8 at the page(s) indicated:
Independent Auditors' Report ............................................ 35
Consolidated Balance Sheets at January 3, 2004 and
December 28, 2002................................................... 36
Consolidated Statements of Operations for the
fiscal years ended January 3, 2004, December 28, 2002
and December 29, 2001............................................... 37
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the fiscal years ended
January 3, 2004, December 28, 2002 and December 29, 2001............ 38
Consolidated Statements of Cash Flows for the
fiscal years ended January 3, 2004, December 28, 2002
and December 29, 2001............................................... 39
Notes to Consolidated Financial Statements.............................. 40-65
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INDEPENDENT AUDITORS' REPORT
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 3, 2004 and December 28, 2002, 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 3, 2004. 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 auditing standards generally accepted
in the United States of America. 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 3, 2004 and December 28, 2002, and
the results of their operations and their cash flows for each of the fiscal
years in the three-year period ended January 3, 2004, in conformity with
accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 5 and
19 to the consolidated financial statements, the Company has failed to meet a
number of covenants under its Revolving Credit Agreement, has suffered recurring
losses from operations, and has entered into a new financing agreement that does
not contractually obligate the lender to advance funds to the Company. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 19. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG LLP
Columbus, Ohio
April 1, 2004
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R. G. BARRY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
January 3, 2004 and December 28, 2002
(in thousands)
JANUARY 3, DECEMBER 28,
2004 2002
---------- ------------
ASSETS
Current assets:
Cash and cash equivalents $ 2,012 6,881
Accounts receivable:
Trade (less allowance for doubtful receivables, returns
and promotions of $18,494 and $20,264, respectively) 5,403 9,506
Other 1,715 1,619
Inventory 32,797 32,894
Recoverable income taxes -- 4,934
Deferred income taxes -- 3,635
Prepaid expenses 2,452 1,599
---------- ----------
Total current assets 44,379 61,068
---------- ----------
Property, plant and equipment, at cost 35,274 39,176
Less accumulated depreciation and amortization 25,905 28,266
---------- ----------
Net property, plant and equipment 9,369 10,910
---------- ----------
5,824
Deferred income taxes --
Goodwill -- 2,374
Other assets 7,532 7,462
---------- ----------
$ 61,280 87,638
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term bank note payable $ 2,000 --
Current installments of long-term debt 3,869 3,650
Accounts payable 7,485 10,474
Accrued expenses 5,180 6,017
---------- ----------
Total current liabilities 18,533 20,141
---------- ----------
Accrued retirement cost, excluding current liability 13,619 12,446
Long-term debt, excluding current installments 2,141 5,760
Other 1,222 1,742
---------- ----------
Total liabilities 35,515 40,089
---------- ----------
Minority interest 378 361
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; issued and outstanding 9,834 and 9,806 shares
(excluding treasury shares of 912 and 933) 9,834 9,806
Additional capital in excess of par value 12,851 12,791
Deferred compensation (84) (200)
Accumulated other comprehensive loss (3,370) (3,071)
Retained earnings 6,156 27,862
---------- ----------
Net shareholders' equity 25,387 47,188
---------- ----------
Commitments and contingencies
$ 61,280 87,638
========== ==========
See accompanying notes to consolidated financial statements.
-36-
R. G. BARRY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Operations
Fiscal years ended January 3, 2004,
December 28, 2002 and December 29, 2001
(in thousands, except per share data)
2003 2002 2001
---- ---- ----
Net sales $ 123,137 119,024 129,361
Cost of sales 80,427 77,597 80,182
---------- ---------- ----------
Gross profit 42,710 41,427 49,179
Selling, general and administrative expenses 48,163 50,360 45,973
Restructuring and asset impairment charges (adjustments) 2,563 2,837 (118)
---------- ---------- ----------
Operating income (loss) (8,016) (11,770) 3,324
Other income 151 800 800
Interest expense, net of interest income of $0, $40,
and $242, respectively (1,418) (1,346) (1,103)
---------- ---------- ----------
Earnings (loss) from continuing operations,
before income tax and minority interest (9,283) (12,316) 3,021
Income tax (expense) benefit (10,096) 4,191 (1,153)
Minority interest, net of tax (17) (25) (42)
---------- ---------- ----------
Net earnings (loss) from continuing operations (19,396) (8,150) 1,826
Loss from discontinued operations,
net of income taxes (including a $223 loss on
disposal in 2003) (2,310) (3,730) (894)
---------- ---------- ----------
Net earnings (loss) $ (21,706) (11,880) 932
========== ========== ==========
Earnings (loss) per common share: continuing operations
Basic ($ 1.97) (0.84) 0.20
========== ========== ==========
Diluted ($ 1.97) (0.84) 0.19
========== ========== ==========
Earnings (loss) per common share: discontinued operations
Basic ($ 0.24) (0.39) (0.10)
========== ========== ==========
Diluted ($ 0.24) (0.39) (0.09)
========== ========== ==========
Earnings (loss) per common share: total
Basic ($ 2.21) (1.23) 0.10
========== ========== ==========
Diluted ($ 2.21) (1.23) 0.10
========== ========== ==========
See accompanying notes to consolidated financial statements.
-37-
R. G. BARRY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Shareholders' Equity and Comprehensive Income
Fiscal years ended January 3, 2004,
December 28, 2002 and December 29, 2001
(in thousands)
ADDITIONAL ACCUMULATED
CAPITAL IN DEFERRED OTHER NET
COMMON EXCESS OF COMPEN- COMPREHENSIVE RETAINED SHAREHOLDERS'
SHARES PAR VALUE SATION INCOME (LOSS) EARNINGS EQUITY
--------- ----------- --------- -------------- ---------- -------------
Balance at December 30, 2000 $ 9,371 12,069 (461) (337) 38,810 59,452
Comprehensive income (loss):
Net earnings 932 932
Other comprehensive income (loss):
Foreign currency translation (161) (161)
adjustment
Pension liability charge (credit) 3 3
-------------
Total comprehensive income 774
Amortization of deferred compensation 130 130
Stock options exercised and warrants
issued 5 24 29
--------- --------- --------- -------------- ---------- -------------
Balance at December 29, 2001 9,376 12,093 (331) (495) 39,742 60,385
Comprehensive income (loss):
Net loss (11,880) (11,880)
Other comprehensive income (loss):
Foreign currency translation 559 559
adjustment
Pension liability charge (credit),
net of ($1,878) deferred income
taxes (3,135) (3,135)
-------------
Total comprehensive loss (14,456)
Amortization of deferred compensation 131 131
Stock options and warrants exercised 430 698 1,128
--------- --------- --------- -------------- ---------- -------------
Balance at December 28, 2002 $ 9,806 12,791 (200) (3,071) 27,862 47,188
Comprehensive income (loss):
Net loss (21,706) (21,706)
Other comprehensive income (loss):
Foreign currency translation
adjustment 231 231
Pension liability charge (credit) (530) (530)
-------------
Total comprehensive loss (22,005)
Amortization of deferred compensation 116 116
Stock options exercised 28 60 88
--------- --------- --------- -------------- ---------- -------------
Balance at January 3, 2004 $ 9,834 12,851 (84) (3,370) 6,156 25,387
========= ========= ========= ============== ========== =============
See accompanying notes to consolidated financial statements.
-38-
R. G. BARRY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
Fiscal years ended January 3, 2004,
December 28, 2002 and December 29, 2001
(in thousands, except per share data)
2003 2002 2001
---- ---- ----
Cash flows from operating activities
Net earnings (loss) $ (21,706) (11,880) 932
Net loss from discontinued operations, net of tax benefit 2,310 3,730 894
--------- --------- ---------
Net earnings (loss) from continuing operations (19,396) (8,150) 1,826
Adjustments to reconcile net earnings (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization of property, plant and
equipment 1,762 1,779 1,674
Amortization of goodwill -- -- 136
Deferred income tax and valuation adjustment expense
(benefit) 9,841 (1,714) 42
Loss on disposal of property, plant and equipment 390 271 135
Impairment loss on trademarks and patents -- 226 --
Impairment loss on goodwill 2,363 -- --
Amortization of deferred compensation 116 131 130
Minority interest, net of tax 17 25 42
Changes in:
Accounts receivable 3,463 4,003 5,348
Inventory (212) 2,003 (2,418)
Recoverable income taxes 4,934 (4,934) --
Prepaid expenses and other assets (2,147) (3,785) 2,804
Accounts payable (3,192) 2,923 1,300
Accrued expenses (2,166) 2,406 286
Accrued retirement cost, net 1,172 768 690
Other liabilities (1,049) 149 402
--------- --------- ---------
Net cash provided by (used in) continuing operations (4,104) (3,899) 12,397
--------- --------- ---------
Net cash provided by (used in) discontinued operations 1,144 (1,931) (3,179)
--------- --------- ---------
Net cash provided by (used in) operating activities (2,960) (5,830) 9,218
--------- --------- ---------
Cash flows from investing activities:
Purchase of property, plant, and equipment (1,662) (2,373) (1,186)
Proceeds from disposal of property, plant, and equipment 1,168 8 12
--------- --------- ---------
Net cash used in investing activities (494) (2,365) (1,174)
--------- --------- ---------
Cash flows from financing activities:
Proceeds from long-term debt and short-term bank note payable 2,000 5,092 --
Repayments of long-term debt (3,546) (3,416) (2,671)
Proceeds from shares issued 88 1,128 29
--------- --------- ---------
Net cash provided by (used in) financing activities (1,458) 2,804 (2,642)
--------- --------- ---------
Effect of exchange rates on cash 43 14 (74)
--------- --------- ---------
Net increase (decrease) in cash (4,869) (5,377) 5,328
Cash and cash equivalents at beginning of year 6,881 12,258 6,930
--------- --------- ---------
Cash and cash equivalents at end of year $ 2,012 6,881 12,258
========= ========= =========
Supplemental cash flow disclosures:
Interest paid $ 1,526 1,223 1,425
Income taxes paid (recovered), net (4,644) 723 (3,113)
========= ========= =========
See accompanying notes to consolidated financial statements.
-39-
(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 the design, production, and distribution of
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 stores, chain stores, and
mass merchandisers.
The Company owns an 80% ownership interest in a French
company, Escapade, S.A. and its Fargeot et Compagnie, S.A.
subsidiary (collectively, "Fargeot"). The Fargeot subsidiary
was purchased in 1999 and the underlying purchase agreement
includes put and call options for the purchase of the
remaining 20% of the Fargeot shares. The minority interest
owner may put his shares to the Company for a period of five
years after July 22, 2004 at a fair value as determined by the
purchase agreement. Similarly, the Company may call the
remaining shares through July 22, 2009 on the same basis.
(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. Minority interest of 20% in Fargeot is
presented on an after-tax basis in the Company's financial
statements.
The Company maintains its accounts on a 52-53 week fiscal year
ending on the Saturday nearest December 31.
(c) CASH EQUIVALENTS
Investments with maturities of three months or less at the
date of acquisition are considered cash equivalents. There
were no balances maintained in such investments as of the end
of 2002 or 2003.
(d) INVENTORY
Inventory is valued at the lower of cost or market as
determined on the first-in, first-out (FIFO) basis (see Note
2).
(e) DEPRECIATION AND AMORTIZATION
Depreciation and amortization expense has been provided
substantially using the straight-line method over the
estimated useful lives of the assets.
(f) GOODWILL
Goodwill, which represents the excess of purchase price over
fair value of net assets acquired, is governed by Statement of
Financial Accounting Standard ("SFAS") No. 142, Goodwill and
Other Intangible Assets. SFAS No. 142 mandated the
discontinuance of goodwill amortization effective with the
2002 year and requires an annual evaluation of goodwill to
determine and recognize what, if any, impairment of goodwill
should be
-40-
recorded. The annual evaluation for impairment was done in the
second quarter of each year and is updated in the event of any
major events or changes should they occur later in the year.
The evaluation of goodwill was made with no impairment
adjustment required for the 2002 year.
As a consequence of the changes occurring throughout the
Company, management determined that it was appropriate to
reassess the value of these assets as of the end of 2003.
Based on its assessment at the end of 2003 of the present and
projected long-term business environment for its 80% owned
Fargeot subsidiary, the Company determined that the goodwill
value related to its purchase of the 80% ownership was
impaired. Accordingly, an impairment loss of $2,363 was
recorded in 2003.
Amortization of goodwill in 2001 amounted to $136; there were
no similar amortization charges in 2002 or 2003.
(g) TRADEMARKS AND PATENTS
The Company incurs costs in obtaining and perfecting
trademarks and patents related to the Company's products and
production related processes. These costs are generally
amortized over a period subsequent to acquisition not to
exceed 5 years and are evaluated for impairment on an annual
basis as required by SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.
(h) REVENUE RECOGNITION
The Company recognizes revenue when the goods are shipped to
customers with adequate allowance made for anticipated sales
returns. The Company bases its allowance for sales returns on
current and historical trends and experience.
(i) PRODUCT WARRANTIES
The Company's thermal product subsidiary (reported as
discontinued operations) provided extended product warranties
on certain thermal products sold in commercial business
channels. These product warranties provided coverage over a
range from 12 to 18 months. The Company's accounting policy
was to accrue for the estimated future warranty costs on these
selected products at the time of sale. With the sale of the
subsidiary's assets, net of liabilities, the buyer assumed
existing warranty obligations.
(j) ADVERTISING AND PROMOTION
The Company has certain programs in place to advertise and
promote the sale of its products. The Company expenses the
costs of advertising and promotion as incurred. For the years
ended January 3, 2004, December 28, 2002, and December 29,
2001, advertising and promotion expenses in continuing
operations of $2,677, $3,540, and $2,544, respectively, are
included in selling, general and administrative expenses in
the consolidated statements of operations as required by
accounting principles generally accepted ("GAAP") in the
United States. These types of expenses included within
discontinued operations were $47, $227, and $555, respectively
for those same years.
-41-
(k) 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 carry-forwards. 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.
In assessing the realizability of deferred tax assets,
management considers whether it is more likely than not that
some portion or all of the deferred tax assets will be
realized. The ultimate realization of deferred tax assets is
dependent on the generation of future taxable income or with
any applicable net operating loss carry-forward period
thereafter, during periods in which temporary differences
become deductible. Management considers the scheduled reversal
of deferred items, projected future taxable income, and tax
planning strategies in making this assessment.
(l) PER-SHARE INFORMATION
The computation of basic earnings (loss) per common share for
2003, 2002, and 2001 is based on the weighted average number
of outstanding common shares during the period. Diluted
earnings per common share for 2001 includes those weighted
average common shares as well as, 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 for 2003 and 2002 does not
include the impact of potential common shares due to their
antidilutive effect.
(m) COMPREHENSIVE INCOME
Comprehensive income (loss) consists of net earnings (loss),
foreign currency translation adjustments and pension liability
adjustments and is presented in the consolidated statements of
shareholders' equity and comprehensive income.
(n) 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 each period. Revenues,
expenses, and cash flows have been translated at the
applicable weighted average rates of exchange in effect during
each period.
(o) SHAREHOLDERS' EQUITY
The Company has various stock option plans, under which the
Company 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. In December 2002, the Financial Accounting
Standards Board issued SFAS No. 148, Accounting for
Stock-Based Compensation - Transition and Disclosure -- an
amendment of SFAS No. 123. SFAS No. 148 provides alternative
methods of transition for a voluntary change to the fair value
based method of accounting for stock-based employee
-42-
compensation. In addition, SFAS No. 148 amends the disclosure
requirements of SFAS No. 123, Accounting for Stock-Based
Compensation, to require prominent disclosures in annual and
interim financial statements about the method of accounting
for stock-based compensation and the effect in measuring
compensation expense. The disclosure requirements of SFAS No.
148 are effective for periods beginning after December 15,
2002.
The Company has elected, in accordance with the provisions of
SFAS No. 123, as amended by SFAS No. 148, to apply the current
accounting rules under APB Opinion No. 25 and related
interpretations, including FASB Interpretation No. 44
(Accounting for Certain Transactions Involving Stock
Compensation, an interpretation of APB No. 25) in accounting
for employee stock options and accordingly, we have presented
the disclosure only information as required by SFAS No. 123
(see Note 10).
Had the Company elected to determine compensation cost based
on the fair value at the grant date, as prescribed by SFAS No.
123, the Company's net earnings (loss) would have been the
proforma results shown below:
2003 2002 2001
---------- ---------- ----------
Net earnings (loss):
As reported $ (21,706) (11,880) 932
Pro forma (22,378) (12,961) 279
Earnings (loss) per share (diluted):
As reported (2.21) (1.23) .10
Pro forma (2.21) (1.29) .03
Using the Black-Scholes option pricing model, the per-share,
weighted-average fair value of stock options granted during
2003, 2002, and 2001, was $1.72, $3.07, and $2.14,
respectively, on the date of grant. The assumptions used in
estimating the fair value of the options as of January 3, 2004
and December 28, 2002 were:
JANUARY 3, DECEMBER 28,
2004 2002
---------- ------------
Expected dividend yield 0% 0%
Expected volatility 50% 50%
Risk-free interest rate 3% 5%
Expected life-ISO grants 6 years 6 years
Expected life-nonqualified grants 8 years 8 years
(p) USE OF ESTIMATES
The preparation of financial statements in conformity with
GAAP 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
-43-
statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.
(q) 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 5.
(r) 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 SFAS No. 144. SFAS No. 144 requires that
long-lived assets held for disposal be measured at the lower
of book value or fair market value less costs of disposal. In
addition, SFAS No. 144 expands the scope of discontinued
operations to include all operations of an entity with
operations that can be separated from the rest of the business
and that will be eliminated in a disposal transaction.
(s) ALLOWANCES GRANTED TO RESELLERS
In April 2001, the Emerging Issues Task Force ("EITF") reached
a consensus on issues 2 and 3 within EITF 00-25, Vendor Income
Statement Characterization of Consideration Paid to a Reseller
of the Vendor's Products. EITF 00-25 addresses whether
consideration from a vendor to a reseller of the vendor's
products is an adjustment of the selling prices of the
vendor's products and, therefore, a reduction of sales or a
cost incurred by the vendor for assets or services received
from the reseller and, therefore, a cost or an expense. EITF
00-25 was effective in 2002 and, upon adoption, prior periods
presented for comparative purposes were reclassified. Upon
adoption in 2002, this resulted in a reduction of Company's
net sales and corresponding decrease in advertising and
promotional expenses formerly included in selling, general and
administrative expenses of approximately $11,055, $13,195, and
$9,500 for 2003, 2002, and 2001, respectively.
(t) DUTY ACCELERATION COSTS RECOGNITION
Effective January 1, 2002, the 15% duties imposed by the
United States on slippers coming from 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, the Company was
successful in accelerating the elimination of these duties and
agreed to pay an aggregate of about $6,200, most of which is
payable in quarterly installments through 2005.
The discounted cost associated with these future payments was
$5,291 and is being recognized through cost of sales
proportionately over the years 2002 to 2007 based on the
estimated benefit of duty elimination on Company product as
produced and projected to be produced in Mexico over this
six-year period. In 2003 and 2002, $1,473 and $873,
respectively, of these costs have been recognized within cost
of sales. The unamortized balance of $2,945 and $4,418 is
included in the consolidated balance sheet in other assets for
2003 and 2002, respectively. This asset classification is
consistent with projected realization of the duty elimination
benefits and expected recognition of those costs over the
remaining years through 2007.
-44-
(u) RECENTLY ADOPTED ACCOUNTING STANDARDS
In May, 2003, FASB issued SFAS No. 150, Accounting for
Certain Financial Instruments with Characteristics of both
Liabilities and Equity. SFAS No. 150 establishes standards
for how an issuer classifies and measures certain financial
instruments with characteristics of both liabilities and
equity. It requires that an issuer classify a financial
instrument that is within the scope of SFAS No. 150 as a
liability (or an asset in some circumstances). Many of those
instruments were previously classified as equity. The
application of SFAS No. 150 did not have a material effect on
the Company's consolidated financial statements. This
Statement is effective for financial instruments entered into
or modified after May 31, 2003, and otherwise is effective at
the beginning of the first interim period beginning after June
15, 2003.
(2) INVENTORY
Inventory by category for the Company consists of the following:
JANUARY 3, DECEMBER 28,
2004 2002
---------- ------------
Raw materials, net $ 3,771 6,981
Work in process, net 615 1,462
Finished goods, net 28,471 24,451
---------- ------------
Net inventory $ 32,797 32,894
========== ============
Inventory is presented net of raw material write-downs of $2,839 and
$1,773, in 2003 and 2002, respectively, and finished goods write-downs
of $3,022 and $1,773, in 2003 and 2002, respectively.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at cost consists of the following:
JANUARY 3, DECEMBER 28, ESTIMATED
2004 2002 LIFE IN YEARS
---------- ------------ -------------
Land and improvements $ 434 508 8 - 15
Buildings and improvements 3,244 6,008 40 - 50
Machinery and equipment 23,978 24,670 3 - 10
Leasehold improvements 7,212 7,700 5 - 20
Construction in progress 406 290
------- ------
Total property, plant and equipment $35,274 39,176
======= ======
-45-
(4) INTANGIBLE TRADEMARK AND PATENT ASSETS
These assets include the following:
JANUARY 3, DECEMBER 28,
2004 2002
---------- ------------
Trademarks and patents, at cost $702 527
Less accumulated amortization 298 187
---- ---
Trademarks and patents, net $404 340
==== ===
The Company has recognized trademark and patent amortization expense of
$111 in 2003, $118 in 2002, and $174 in 2001, which is included within
selling, general, and administrative expenses. In addition, the Company
recognized an impairment loss of $226 on thermal product trademarks and
patents in 2002. Based on the Company's methods, remaining net
trademark and patent cost will be recognized as amortization expense of
$80 for each of the next 5 years. This expense recognition would
accelerate should circumstances change and an impairment be determined
for trademarks or patents with remaining value.
(5) SHORT-TERM BANK NOTE PAYABLE AND LONG-TERM DEBT
Short-term bank note payable consists of the amount outstanding under
the Company's Revolving Credit Agreement.
On December 27, 2002, the Company terminated its previous unsecured
revolving credit agreement, and entered into a new $32 million
Revolving Credit Agreement ("Revolver") with its principal bank to
refinance the revolving credit agreement between the Company and the
bank dated March 12, 2001, as amended. As part of the Revolver, the
Company also executed and delivered a Security Agreement ("Security
Agreement") in favor of the bank, as collateral agent for itself and
the 9.7% noteholder, pursuant to which the Company granted a security
interest in all of its personal property assets to secure its
obligations (a) to the bank, including those obligations under the
Revolver and (b) under the 9.7% note, as amended. In conjunction with
the execution of the Revolver and the Security Agreement, the Company
also entered into a Conditional Consent Agreement dated as of December
27, 2002 with the 9.7% noteholder, which permitted granting the
security interests under the Security Agreement.
The Revolver was originally a three-year $32.0 million commitment from
the bank that extends through April 30, 2006. The Revolver contains
certain periodic monthly commitment limitations ranging from $3 million
in January, $12 million from February through April, $32 million for
May through October, and $27 million for November and December. On
March 31, 2003, the Revolver was amended to modify the commitment
limitations above from $12 million from February through April, and $32
million per month for May through October, to $12 million in February
and March, and $32 million for April through October, with the
remainder of the Revolver remaining unchanged. The Revolver places
further limitations on the amount of the available commitment to the
lesser of: I) the commitment limitations noted or II) 80% of the
Company's eligible accounts receivable, as defined, plus 40% of the
Company's eligible inventory, as defined. On September 1, 2003, the
Revolver was amended again, modifying the commitment limitations back
to the original $12 million from February through April, and $32
million for May through October, with an additional amount of $4
million of commitment added for the period from September 1, 2003
through November 1, 2003 only. In addition, the
-46-
September 2003 amendment amended the cash flow leverage test within the
agreement, lessening the restrictive nature of that test. On September
15, 2003, at the request of the bank the Company agreed to an added
covenant to the Revolver that required that net income be at least $1
(one dollar), excluding the loss incurred by the discontinued
operations of Vesture Corporation ("Vesture"). In exchange, the
covenant requiring a minimum EBIDTA (earnings before interest, taxes,
depreciation and amortization) for the year ending January 3, 2004 was
removed. Again on January 22, 2004, the Revolver was amended. This
fourth amendment increased the commitment limitation in January 2004
from $3 million to $9 million. The fourth amendment provided the bank
with total dominion over the Company's cash, provided the bank with a
first mortgage lien on the Company's headquarters building in Ohio
(shared ratably with the 9.7% noteholder), increased the magnitude and
timing of reporting information to the bank, and required the Company
to hire business consultants, reporting to the board of directors, to
assist it in revising its business strategy.
On March 10, 2004, the Company and the bank entered into the fifth
amendment to the Revolver, further amending the Revolver. These changes
include, but are not limited to: (1) an increase in the credit
availability for the month of March 2004 from $12 million to $13.8
million, (2) modification of the Borrowing Base, as defined, to exclude
from eligible inventory the inventory located outside of the United
States and to reduce the Borrowing Base by $2.1 million, which is the
approximate amount of the Company's obligations to the 9.7% noteholder,
and (3) the grant to the bank and the 9.7% noteholder, ratably, an
assignment of and lien on life insurance policies owned by the Company
and insuring the life of one of its key executives, as additional
collateral under the Security Agreement.
The Revolver contains various other covenants, including financial
covenants that require the Company to maintain minimum consolidated
tangible net worth, 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. The Revolver
requires that the Company be completely out of the Revolver for any
15-consecutive day period during 2003 and any 30-consecutive day period
during 2004 and 2005.
The Company failed to meet a number of covenants under the Revolver as
of the end of 2003. The Company did not meet the minimum tangible net
worth test; the required $1 (one dollar) of net earnings, exclusive of
the losses of the discontinued business; the cash flow leverage test;
and the interest coverage test. As a result of the failure to meet the
covenant tests under the Revolver, the Company was also outside the
compliance parameters of the loan from the 9.7% noteholder. In
addition, with the losses incurred for the year, the Company did not
meet the minimum tangible net worth test of the loan from the 9.7%
noteholder.
The weighted average interest rate on $2 million of short-term bank
note outstanding at January 3, 2004 was 3.9%.
-47-
Long-term debt consists of the following:
JANUARY 3, DECEMBER 28,
2004 2002
------------ ------------
9.7% note, due July 2004 $ 2,142 4,285
Subordinated obligation 2,747 3,966
Other notes 1,121 1,159
------------ ------------
6,010 9,410
Less current installments 3,869 3,650
------------ ------------
Long-term debt, excluding current installments $ 2,141 5,760
============ ============
The aggregate minimum principal maturities of the long-term debt for
each of the next five years following January 3, 2004 are as follows:
2004 $ 3,869
2005 1,698
2006 283
2007 88
2008 44
2009 28
-------
$ 6,010
=======
The 9.7% note, issued in July 1994, requires semiannual interest
payments and annual principal repayments, which commenced in 1998 and
end in 2004.
Effective January 1, 2002, the 15% duties imposed by the United States
on slippers coming from 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. The Company was successful in
accelerating the elimination of these duties and agreed to pay an
aggregate of about $6,200, most of which is payable in quarterly
installments through December 2005. Reflected in current installments
and long-term debt is $2,747, which represents the present value,
discounted at 8%, of the remaining quarterly installments. The
quarterly obligations due are subordinated to the obligations under the
9.7% note and obligations under the Revolver, as described below.
The Company has estimated 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
approximately $2,250 and $4,500 at January 3, 2004 and December 28,
2002, respectively.
The debt due to both the bank and the 9.7% noteholder are classified as
current debt.
The other notes, issued in January 2000, require quarterly interest and
principal payments which commenced in 2000 and end in 2007. The
interest rate on these notes is set to Euribor plus 1% on a quarterly
basis; at year-end 2003, the interest rate on these notes was 5.5%. The
carrying value of other notes approximates fair value based on current
rates with comparable maturities.
-48-
(6) 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 3, 2004 is as
follows.
2004 $ 3,495
2005 2,307
2006 1,963
2007 1,603
2008 906
2009-2011 2,888
----------
$ 13,162
==========
Substantially all of these operating lease agreements are renewable for
periods of 3 to 5 years and require the Company to pay insurance,
taxes, and maintenance expenses. Rent expense under cancelable and
noncancelable operating lease arrangements in 2003, 2002, and 2001, for
continuing operations amounted to $6,281, 6,403, and $5,512,
respectively. Within discontinued operations, rent expense for these
types of lease arrangements were $53, $117, and $104, respectively, for
these same periods.
(7) INCOME TAXES
Income tax expense (benefit) consists of:
2003 2002 2001
-------- ------ ------
Current expense (benefit):
Federal $ -- (4,933) 105
Foreign 127 482 397
State 128 116 172
-------- ------ ------
255 (4,335) 674
Deferred expense (benefit) 9,841 (1,714) 42
-------- ------ ------
Total expense (benefit) 10,096 (6,049) 716
======== ====== ======
Total expense (benefit) allocated to
discontinued operations -- (1,858) (437)
======== ====== ======
Total expense (benefit) on continued
operations $ 10,096 (4,191) 1,153
======== ====== ======
In addition to the 2002 year deferred income tax expense of $1,714,
certain deferred income tax benefits of $1,878 were allocated directly
to shareholders' equity.
-49-
The differences between income taxes computed by applying the statutory
federal income tax rate (34% in 2003, 2002, and 2001) and income tax
expense (benefit) in the consolidated financial statements are:
2003 2002 2001
-------- ------ ------
Computed "expected" tax expense (benefit) $ (3,942) (6,087) 575
State income taxes, net of federal income tax benefit 83 27 93
Foreign income tax rate differences (7) 18 138
Valuation allowance 13,344 450 --
Impairment loss on goodwill 826 -- --
Other, net (208) (457) (90)
-------- ------ ------
Total expense (benefit) $ 10,096 (6,049) 716
======== ------ ======
Total expense (benefit) allocated to
discontinued operations -- (1,858) (437)
======== ====== ======
Total expense (benefit) on continued
operations $ 10,096 (4,191) 1,153
======== ====== ======
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 3, DECEMBER 28,
2004 2002
---------- -----------
Deferred tax assets:
Accounts receivable $ 857 1,050
Inventories 772 1,914
Package design costs 201 260
Certain accounting accruals, including such items as
self-insurance costs, vacation costs, and others 980 1,762
Accrued pension costs 3,352 2,694
Pension liability charge 1,878 1,878
State net operating loss carry-forward 771 619
U.S. Federal net operating loss carry-forward 4,442 --
Mexico federal net operating loss carry-forward 614 --
Other foreign deferred items, net 51 --
Property, plant and equipment -- 94
---------- -----------
Total deferred tax assets 13,918 10,271
Less valuation allowance (13,794) (450)
---------- -----------
Deferred tax assets, net 124 9,821
Deferred tax liabilities:
Property, plant and equipment 124 --
Other foreign deferred items, net -- 362
Total deferred tax liabilities 124 362
---------- -----------
Net deferred tax assets $ -- 9,459
========== ===========
The net deductible temporary differences incurred to date will reverse
in future periods when the Company anticipates generating taxable
earnings. As a result of the Company's cumulative losses, the Company
determined that it is questionable whether the deferred tax assets
recognized on the consolidated balance sheet will have realizable value
in future years. The deferred tax assets result from provisions in the
U.S. income tax code which require that certain accounting
-50-
accruals must wait until future years before those accruals are
deductible for current income tax purposes. With the Company's recent
operating results, there is no historical assurance that future taxable
income will be generated to offset these deferred deductible items.
Accordingly, the Company has established a valuation allowance against
the net deferred tax assets in the amount of $13,794 at the end of
2003. The allowance was $450 at the end of 2002 and was set up against
state net operating losses existing at year-end. Should the Company
produce profits in future years, such that those deferred tax assets
become realized as tax deductions, the Company will recognize that
benefit. At the end of 2003, there are approximately $13,400 of net
operating loss carry-forwards available for U.S. Federal income tax
purposes, and approximately $1,800 in net operating loss carry-forwards
available for Mexican income tax purposes for the Company's sales
subsidiary in Mexico. Carry-forwards in the United States are generally
available for twenty years in the future; in Mexico, carry-forwards are
available for ten years into the future. The loss carry-forwards for U.
S. Federal income tax purposes expire 20 years forward from 2003.
Deferred taxes are not provided on unremitted earnings of subsidiaries
outside the United States because it is expected that the earnings be
permanently reinvested. Such earnings may become taxable upon the sale
or liquidation of these subsidiaries or upon the remittance of
dividends.
(8) ACCRUED EXPENSES
Accrued expenses consist of the following: JANUARY 3, DECEMBER 28,
2004 2002
---------- ------------
Salaries and wages $ 668 593
Income taxes 482 463
Non-income taxes 1,532 1,524
Restructuring costs 174 1,738
Current pension liabilities 1,663 194
All other areas 661 1,505
---------- ------------
$ 5,180 6,017
========== ============
(9) 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 (ERISA).
-51-
The funded status of the ARP and the accrued retirement costs (measured
on September 30, 2003 and 2002) as recognized at January 3, 2004 and
December 28, 2002 were:
2003 2002
-------- -------
Change in projected benefit obligation:
Benefit obligation at the beginning of the year $ 28,993 26,037
Service cost 854 781
Interest cost 1,857 1,841
Actuarial loss 721 2,060
Benefits paid (1,454) (1,726)
-------- -------
Benefit obligation at year-end $ 30,971 28,993
======== =======
Change in plan assets:
Fair value of plan assets at the beginning of the year $ 19,073 23,625
Actual return (loss) on plan assets 3,818 (2,536)
Expenses (295) (290)
Benefits paid (1,454) (1,726)
-------- -------
Fair value of plan assets at year-end $ 21,142 19,073
======== =======
Funded status $ (9,829) (9,920)
Unrecognized actuarial loss 6,390 7,173
Unrecognized prior service cost 202 226
-------- -------
Net amount recognized in the consolidated balance sheets $ (3,237) (2,521)
======== =======
Amounts recognized in the consolidated balance sheets consist of:
Accrued retirement costs, (including $1,211 in 2003
classified as current accrued liability for retirement costs) $ (7,915) (7,822)
Intangible asset 202 226
Accumulated other comprehensive expense 4,476 5,075
-------- -------
Net amount recognized in the consolidated balance sheets $ (3,237) (2,521)
======== =======
The accumulated benefit obligation for the ARP was $29,058 and $26,895
as of January 3, 2004 and December 28, 2002, respectively.
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. For certain
participants, the SRP provides an alternative benefit formula for years
worked past the normal retirement age assumed by the plan.
-52-
The funded status of the SRP and the accrued retirement cost (measured
on September 30, 2003 and 2002) recognized at January 3, 2004 and
December 28, 2002 are:
2003 2002
------- ------
Change in projected benefit obligation:
Benefit obligation at the beginning of the year $ 4,833 4,582
Service cost 69 63
Interest cost 407 326
Actuarial loss 2,434 30
Benefits paid (211) (168)
------- ------
Benefit obligation at year-end $ 7,532 4,833
======= ======
Change in plan assets:
Fair value of plan assets at the beginning of the year $ -- --
Employer contributions 211 168
Benefits paid (211) (168)
------- ------
Fair value of plan assets at year-end $ -- --
======= ======
Funded status $(7,532) (4,822)
Contribution during the fourth quarter 55 48
Unrecognized actuarial loss (gain) 1,171 (404)
Unrecognized prior service cost 1,014 418
------- ------
Net amount recognized in the consolidated balance sheets $(5,292) (4,760)
======= ======
Amounts recognized in the consolidated balance sheets consist of:
Accrued retirement cost, including current liability of
$220 and $194, respectively $(7,366) (4,818)
Intangible asset 945 58
Accumulated other comprehensive expense 1,129 --
------- ------
Net amount recognized in the consolidated balance sheets $(5,292) (4,760)
======= ======
The accumulated benefit obligation for the SRP was $29,058 and $26,895
as of January 3, 2004 and December 28, 2002, respectively.
Weighted average assumptions to determine net costs for both the ARP
and the SRP for the years ended January 3, 2004 and December 28, 2002
were:
2003 2002
------- -------
Discount rate 6.60% 7.25%
Rate of compensation increase 4.50% 5.00%
Expected return on plan assets 9.00% 9.25%
======= =======
-53-
The components of net periodic benefit cost for the retirement plans
were:
2003 2002 2001
------- ------ ------
Service cost $ 923 844 816
Interest cost 2,263 2,166 2,230
Expected return on plan assets (2,018) (2,223) (2,173)
Net amortization 298 108 73
------- ------ ------
$ 1,466 895 946
======= ====== ======
Weighted average assumptions to determine benefit obligations and net
cost as of and for the years ended January 3, 2004 and December 28,
2002 were:
2003 2002
------- -------
Discount rate 6.25% 6.60%
Rate of compensation increase 4.00% 4.50%
Expected return on plan assets 9.00% 9.00%
======= =======
The qualified ARP is funded on a periodic basis as required under
ERISA/IRS guidelines. Those qualified plan assets are invested as of
the measurement date for each fiscal year:
2003 2002
---- ----
Cash 2% 2%
Domestic equities 63% 57%
Domestic fixed income securities 35% 41%
---- ----
Total pension plan assets invested 100% 100%
==== ====
The return on asset assumption used in the pension computations for the
qualified ARP plan is based on the Company's best judgment of future
anticipated performance of those invested assets based on our past
long-term experience and judgment on how future long-term performance
will occur.
The Company's nonqualified SRP is unfunded and payments, as required,
are made when due from the Company's general funds.
The Company uses a measurement date of September 30 in making the
required pension computations on an annual basis. In 2004, the Company
has potential pension related payments of $1,663 for unfunded,
nonqualified supplemental retirement plans as well as for payments
anticipated for the 2003 year and 2004 quarterly estimated
contributions into the funded, qualified associate retirement plan) as
disclosed in Note 8. The Company has applied for a deferral of the lump
2003 payment due in September 2004, approximating $747, and is awaiting
approval of this application by the Internal Revenue Service. Once
approved, this payment anticipated in the contribution projection above
for 2004 will be deferred to 2005. In addition, the Company has some
discretion on timing associated with the 2004 quarterly payments and
these may be timed for later payment potentially in 2005 as well.
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%
-54-
of the first 3% of each participant's compensation contributed to the
401(k) plan. Effective April 1, 2003, the Company changed its matching
contribution from an automatic fixed percentage to a match that is
contingent upon to meeting Company profit objectives on an annual
basis. The Company's contribution in cash to the 401(k) plan for the
years ended January 3, 2004, December 28, 2002, and December 29, 2001
were $87, $244, and $241, respectively.
(10) SHAREHOLDERS' EQUITY.
The Company has various stock option plans, under which have been
granted incentive stock options ("ISOs") and nonqualified stock options
("NQs") 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:
NUMBER OF NUMBER OF WEIGHTED-
SHARES SHARES AVERAGE
SUBJECT TO SUBJECT TO EXERCISE
ISOS NQS PRICE
---------- ---------- ----------
Outstanding at December 30, 2000 519,600 333,700 $ 7.90
Granted 428,600 258,800 4.26
Exercised (3,200) -- 2.21
Expired/Cancelled (125,300) (6,300) 8.88
---------- ---------- ----------
Outstanding at December 29, 2001 819,700 586,200 $ 6.04
Granted 265,300 30,700 5.74
Exercised (188,700) (21,300) 2.70
Expired/Cancelled (30,200) (150,000) 6.39
---------- ---------- ----------
Outstanding at December 28, 2002 866,100 445,600 $ 6.46
Granted 202,500 59,200 3.43
Exercised (7,700) (20,000) 3.19
Expired/Cancelled (156,600) (39,900) 6.64
---------- ---------- ----------
Outstanding at January 3, 2004 904,300 444,900 $ 5.91
========== ========== ==========
Options exercisable at January 3, 2004 252,700 296,800
========== ==========
-55-
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
--------------------------------------- -------------------------
WEIGHTED-
NUMBER AVERAGE WEIGHTED- NUMBER WEIGHTED
RANGE OF OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
EXERCISE JANUARY 3, CONTRACTUAL EXERCISE JANUARY 3, EXERCISE
PRICES 2004 LIFE (YEARS) PRICE 2004 PRICE
- ---------------- -------------- ------------ --------- -------------- ---------
$ 5.00 and under 723,300 7.8 $ 3.79 141,500 $ 3.36
5.01-10.00 489,500 5.0 6.90 271,600 7.79
10.01-15.00 136,400 3.7 13.58 136,400 13.58
--------- -------
1,349,200 549,500
========= =======
At January 3, 2004, the remaining number of common shares available for
grant of ISOs and NQs was 260,000.
At January 3, 2004, December 28, 2002, and December 29, 2001, the
options outstanding under these plans were held by 80, 85, and 89
employees respectively, and had expiration dates ranging from 2004 to
2013.
Stock appreciation rights may be issued subject to certain limitations.
No such rights have been issued or are outstanding at January 3, 2004,
December 28, 2002, and December 29, 2001.
The Company has an employee stock purchase plan in which approximately
600 employees are eligible to participate. Under the terms of the plan,
employees receive options to acquire common shares at 85% of the lower
of the fair market value on their enrollment date or at the end of each
two-year plan term.
SHARES
SUBSCRIBED
----------
Balance at December 29, 2001 196,100
Purchases 195,700
Expired (400)
----------
Balance at December 28, 2002 and January 3, 2004 0
==========
-56-
(11) EARNINGS PER SHARE
Earnings (loss) per share for the years ended January 3, 2004, December
28, 2002, and December 29, 2001 were as follows:
JANUARY 3, 2004
--------------------------------------
NET LOSS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic and Diluted Loss per Share:
Net loss allocable to common shareholders $(21,706) 9,823,000 $(2.21)
======== ========= ======
No options to purchase common shares were included in the computation
of diluted loss per share because of the Company's net loss for 2003.
DECEMBER 28, 2002
----------------------------------------
NET LOSS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
----------- ------------- ---------
Basic and Diluted Loss per Share:
Net loss allocable to common shareholders $(11,880) 9,641,000 $(1.23)
======== ========= ======
No options to purchase common shares were included in the computation
of diluted loss per share because of the Company's net loss for 2002.
DECEMBER 29, 2001
----------------------------------------
NET EARNINGS SHARES PER-SHARE
(NUMERATOR) (DENOMINATOR) AMOUNT
------------ ------------- ---------
Basic EPS:
Net earnings allocable to common shareholders $932 9,379,000 $.10
Effect of dilutive securities -
Stock options -- 198,000 --
---- --------- ----
Diluted EPS:
Net earnings allocable to common shareholders
including assumed conversions $932 9,577,000 $.10
==== ========= ====
Options to purchase 1,215,000 common shares at prices up to $16.78 were
outstanding in 2001 but were not included in the computation of diluted
earnings per share because based on the Company share price at December
29, 2001, the effect would be anti-dilutive.
(12) 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 conditions, each new
Right may be exercised to
-57-
purchase one one-hundredth of a share of Series I Junior 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.
In the event that any person becomes the beneficial owner of more than
20% of the 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, should they become authorized for
issuance by action of the Board of Directors, are entitled to ten
votes. The preferred shares are entitled to a preference in
liquidation. None of the preferred shares have been issued.
(13) 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 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 common shares, the
Company has purchased a $5 million life insurance policy on the
executive with a cash surrender value of $1.9 million and $1.7 million,
respectively, at January 3, 2004 and December 28, 2002, which is
included in other assets in the accompanying consolidated balance
sheets. Effective March 4, 2004, the Company has borrowed against this
cash surrender value of this policy.
In addition, for a period of 24 months following the executive's death,
the Company will have a right of first refusal to purchase any common
shares of the Company owned by the executive at the time of his death
if his estate elects to sell such common shares. The Company would have
the right to purchase such common shares on the same terms and
conditions as the estate proposes to sell such common shares.
(14) 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.
-58-
The Company manufactures and markets comfort footwear for
at-and-around-the-home. The Company considers its "Barry Comfort"
at-and-around-the-home comfort footwear group in North America and
Europe as its two operating segments.
The accounting policies of the operating segments are substantially
similar to those described in Note 1, except that the segment 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 costs of certain
administrative functions, current and deferred income tax expense
(benefit) and deferred tax assets (liabilities), and in some years,
certain operating provisions.
Net sales, and net property, plant and equipment, have been allocated
to geographic areas based upon the location of the Company's operating
unit.
2003 2002 2001
-------- ------- -------
NET SALES
United States/North America $113,881 109,196 118,946
France 9,074 9,786 10,345
United Kingdom 182 42 70
-------- ------- -------
$123,137 119,024 129,361
======== ======= =======
2003 2002
----- -----
NET PROPERTY, PLANT AND EQUIPMENT
United States 3,637 5,240
Mexico 5,114 5,052
Other 618 618
----- -----
9,369 10,910
===== ======
JANUARY 3, DECEMBER 28, DECEMBER 29,
2004 2002 2001
---- ---- ----
NET SALES BY PRODUCT LINE
At-and around-the-home comfort footwear $123,137 119,024 129,361
======== ======= =======
In 2003, one customer accounted approximately for 25%, a second
customer for 11%, and a third customer accounted for 10% of the
Company's net sales. In 2002, one customer accounted for approximately
26% and a second customer accounted for approximately 11% of the
Company's net sales. In 2001, one customer accounted for approximately
22% and a second customer accounted for approximately 10% of the
Company's net sales.
-59-
BARRY COMFORT
----------------------
NORTH
JANUARY 3, 2004 AMERICA EUROPE TOTAL
--------------- ------- ------ -----
Net sales $ 113,881 9,256 123,137
Depreciation and amortization 1,547 215 1,762
Interest income
Interest expense 1,343 75 1,418
Restructuring and asset impairment
charges 200 200
Goodwill impairment charge 2,363 2,363
Gross profit 41,627 1,083 42,710
Pre-tax loss (5,874) (3,409) (9,283)
Additions to property, plant and
equipment 1,555 107 1,662
Total assets $ 59,591 1,690 61,280
BARRY COMFORT
----------------------
NORTH
DECEMBER 28, 2002 AMERICA EUROPE TOTAL
----------------- ------- ------ -----
Net sales $ 109,196 9,828 119,024
Depreciation and amortization 1,570 209 1,779
Interest income 40 40
Interest expense 1,318 68 1,386
Restructuring charges, net 2,301 536 2,837
Gross profit 40,159 1,268 41,427
Pre-tax loss (10,003) (2,313) (12,316)
Additions to property, plant and
equipment 2,226 147 2,373
Total assets-continuing operations
$ 79,991 6,115 86,106
========= ====== =======
Total assets-discontinued operations 1,532
-------
Total assets 87,638
=======
-60-
BARRY COMFORT
----------------------
NORTH
DECEMBER 29, 2002 AMERICA EUROPE TOTAL
----------------- ------- ------ -----
Net sales $ 118,946 10,415 129,361
Depreciation and amortization 1,453 221 1,674
Interest income 242 -- 242
Interest expense 1,277 68 1,345
Restructuring charges (118) -- (118)
Gross profit 47,078 2,101 49,179
Pre-tax earnings (loss) (4,260) (1,239) 3,021
Additions to property, plant and
equipment 990 196 1,186
Total assets-continuing operations
$ 7,304 7,142 84,446
========= ======
Total assets-discontinued operations 4,166
-------
Total assets 88,612
=======
(15) RESTRUCTURING AND ASSET IMPAIRMENT CHARGES
During 2003, the Company closed the Goldsboro warehouse facility and
upon closure, evaluated the carrying value of this facility and
recognized a $200 impairment loss, which was realized upon sale of the
facility in the second quarter, 2003. The Company recorded goodwill
impairment loss on its 80% owned Fargeot subsidiary (see Note (1)(f)).
ACCRUALS ACCRUALS
DECEMBER 28, CHARGES IN NON-CASH PAID IN JANUARY 3,
2002 2003 ADJUSTMENTS WRITE-OFFS 2003 2004
---- ---- ----------- ---------- ---- ----
Employee separations $ 1,530 -- -- -- 1,356 174
Noncancelable leases 208 -- -- -- 208 --
------- ----- --- ----- ----- ---
Total restructuring 1,738 -- -- -- 1,564 174
Goodwill impairment -- 2,363 -- 2,363 -- --
Asset impairments -- 200 -- 200 -- --
------- ----- --- ----- ----- ---
Total $ 1,738 2,563 -- 2,563 1,564 174
======= ===== === ===== ===== ===
The full impact of the $2,563 impairment loss on 2003 from the actions
noted above decreased earnings by approximately $.26 per share.
During 2002, the Company engaged in several actions related to
reorganization efforts to improve profitability. One action in the
first quarter resulted in the coordinated transfer of cutting
operations from the U.S. to Mexico and a reduction in sewing operations
in Nuevo Laredo, Mexico. This action resulted in the reduction of 354
positions at a cost of $727. Other actions in the third and fourth
quarters were taken to restructure staff support of sales and
operations, which impacted 9 employees at a cost of $938. In the fourth
quarter, the Company announced the
-61-
decision to close the Goldsboro distribution center in early 2003,
impacting 53 positions at a cost of $601. In the same year, the Company
announced the decision to close the Wales distribution center in early
2003, impacting 22 positions at a cost of $178. The closure of the
Wales facility also resulted in recognition of $208 in future lease
obligation losses as well as $150 in asset impairment losses. The
closure of the Wales distribution center ended direct selling
activities in Europe. At year-end 2002, the Company also recognized an
asset impairment loss for $523 on net fixed assets, trademarks, and
patents associated with its discontinued operations.
ACCRUALS ACCRUALS
DECEMBER 29, CHARGES NON-CASH PAID IN DECEMBER 3,
2002 IN 2002 ADJUSTMENTS WRITE-OFFS 2002 2002
---- ------- ----------- ---------- ---- ----
Employee separations $ 346 2,444 34 -- 1,294 1,530
Noncancelable leases -- 208 -- -- -- 208
------- ----- --- --- ----- -----
Total restructuring 346 2,652 34 -- 1,294 1,738
Asset impairment -- 673 -- 673 -- --
------- ----- --- --- ----- -----
Total $ 346 3,325 34 673 1,294 1,738
======= ===== === === ===== =====
After an income tax benefit of $131, 2002 actions decreased earnings by
$2,228, or approximately 23 cents per share.
In 2001, the Company reported favorable adjustments of approximately
$420 related to settlement of lease cancellations of facilities and
cutting equipment accrued during year 2000. In October 2001, the
Company announced a decision to close its molding operations in Texas
and relocate those activities to Nuevo Laredo, Mexico. The plan
primarily included a reduction of 70 employees and related severance
costs of $172.
ACCRUALS ACCRUALS
DECEMBER 30, CHARGES NON-CASH PAID IN DECEMBER 29,
2000 IN 2001 ADJUSTMENTS WRITE-OFFS 2001 2001
---- ------- ----------- ---------- ---- ----
Employee separations $ 527 172 2 -- 355 346
Noncancelable leases 499 40 (422) -- 117 --
------- --- --- --- --- ---
Total restructuring 1,026 212 (420) -- 472 346
Asset impairments -- 90 -- 90 -- --
------- --- --- --- --- ---
Total $ 1,026 302 (420) 90 472 346
====== === ==== === === ===
After an income tax expense of $42, 2001 actions increased earnings by
$76 or $.01 per share.
-62-
(16) PRODUCT WARRANTIES FOR DISCONTINUED OPERATIONS
Accruals and expenditures associated with the Company's warranties
provided on key components in selected commercial market thermal
products are recapped as follows:
NET CHARGES
ACCRUALS AND ACCRUALS
DECEMBER 28, ADJUSTMENTS EXPENDITURES JANUARY 3,
2002 IN 2003 IN 2003 2004
---- ------- ------- ----
Warranty Accrual $ 328 (257) 71 0
======= ==== === ===
ACCRUALS ACCRUALS
DECEMBER 29, NET CHARGES IN EXPENDITURES DECEMBER 28,
2001 2002 IN 2002 2002
---- ---- -------- ----
Warranty Accrual $ 200 619 491 328
======= ==== === ===
In 2003, the thermal products subsidiary assets were sold and all
liabilities assumed by the buyer in the purchase of those net assets,
including existing product warranty obligations.
(17) SALE OF VESTURE NET ASSETS
In 2003, the Company sold certain assets of its Vesture thermal product
subsidiary. Vesture assets sold in the transaction included
furnishings, trade fixtures, equipment, raw material and finished
products inventories, books and records (including supplier and
customer lists), Vesture's rights under certain contracts and
agreements, patents and trademarks used by Vesture, and trade accounts
receivable of Vesture arising after March 29, 2003. The Company
retained Vesture's account receivables as of March 29, 2003. As
consideration, the purchaser assumed specific liabilities and
obligations of Vesture and paid the Company a nominal sum of cash, and
provided the Company with a promissory note in the amount of $344, due
in December 2004. The Company has provided a full reserve for the
balance due on the note. As additional consideration for the assets
sold, the purchaser committed to remit a specified sum in December,
2004 and make annual payments, through 2007, based upon a percentage of
purchaser's annual sales of certain products in excess of specific
sales thresholds.
-63-
Selected financial data relating to the discontinued operations through
the date of closing on June 18, 2003, follow:
YEAR-2003 YEAR-2002 YEAR-2001
--------- --------- ---------
Net sales $ 1,759 $ 3,546 $ 5,188
======= ======= =======
Gross profit (loss) 57 (1,654) 1,470
Selling, general and administrative
expense 2,040 3,268 2,825
Restructuring charges -- 523 --
Interest expense (income) 104 143 (24)
Loss on sale of certain assets
relating to discontinued operations (223) -- --
------- ------- -------
Loss from discontinued operations
before income tax (2,310) (5,588) (1,331)
Income tax benefit -- 1,858 437
------- ------- -------
Loss from discontinued operations,
net of income tax ($2,310) ($3,730) ($ 894)
======= ======= =======
(18) 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.
In October 2001, Vesture received a claim charging that its pizza
delivery system infringed on two United States Patents. In December
2003, the Company settled the pending patent litigation involving its
pizza delivery systems. The settlement resolves all areas of dispute
between the parties and concludes the pending litigation. As part of
this settlement, the Company is obligated to make certain nominal
payments, all of which have been accrued at the end of 2003.
(19) SUBSEQUENT EVENTS
The Company is addressing its cumulative losses by taking actions to
reduce its operating costs and simplify its business model.
Implementation of the 2004 business plan entails further restructuring
efforts and cost reductions, including curtailment of manufacturing
operations in Mexico and personnel reductions in selling, general and
administrative departments.
In early 2004, the Company closed remaining sewing operations in Nuevo
Laredo, reduced sewing operations in two other sewing plant locations
in Mexico, and reduced support staff in the corporate offices. These
actions resulted in termination of associates with severance costs
approximating $1.2 million incurred in the first quarter of 2004.
In early 2004, the Company took action to effectively freeze pension
benefits under its ARP and SRP plans effective as of April 1, 2004, and
requested permission from the Internal Revenue Service to defer 2004
estimated payments. As a result of the pension plan benefit freeze, the
Company will report a curtailment loss approximating $1.1 million in
the first quarter of 2004.
-64-
On March 29, 2004, the Company entered into a new financing agreement
(the "CIT Facility") with CIT. On March 30, 2004, the Company borrowed
under the CIT Facility approximately $10.3 million to repay all
outstanding indebtedness under the Revolver and related charges, and
the Revolver was terminated. In addition, on that date, the Company
borrowed approximately $2.3 million under the CIT Facility to repay all
outstanding indebtedness to the 9.7% noteholder and that agreement was
terminated.
The CIT Facility provides the Company with advances in a maximum amount
equal to the lesser of (i) $35 million or (ii) a Borrowing Base (as
defined in the CIT Facility). The CIT Facility is a discretionary
facility which means that CIT is not contractually obligated to advance
the Company funds. The Borrowing Base, which is determined by CIT in
its sole discretion, is determined on the basis of a number of factors,
including the amount of the Company's eligible accounts receivable and
the amount of the Company's qualifying inventory, subject to the right
of CIT to establish reserves against availability as it deems
necessary. The CIT Facility also includes a $3 million subfacility for
the issuance of letters of credit that is counted against the maximum
borrowing amount discussed above.
The Company's obligations under the CIT Facility are secured by a first
priority lien and mortgage on substantially all of the Company's
assets, including accounts receivable, inventory, intangibles,
equipment, intellectual property and real estate. In addition, the
Company granted to CIT a pledge of the stock in the Company's U.S.
decision. wholly-owned subsidiaries. The subsidiaries have guaranteed
the Company's indebtedness under the CIT Facility.
The Company is reassessing long-lived assets involved in its
manufacturing operations, and expects to incur and recognize an
impairment loss of approximately $6 million related to the assets
involved in those functions.
On April 1, 2004, the Company's Board of Directors approved a plan to
close all Mexican manufacturing operations in 2004. The net book value
of the long-lived assets impacted by this decision approximate $7.2
million. These assets include property, plant and equipment and
intangible assets including the 2002 Duty Acceleration action. As a
result, there will be an impairment loss of approximately $6.0 million
as well as accelerated depreciation expense over the shortened useful
lives of those assets involved in those operations in accordance with
SFAS No. 144.
-65-
The quarterly financial data required to be disclosed in this
Item 8 in accordance with Item 302 of SEC Regulation S-K is provided in
the following table:
QUARTERLY FINANCIAL DATA
2003 FISCAL QUARTER FIRST SECOND THIRD FOURTH TOTAL
- ------------------- --------- --------- ------- ---------- ----------
Net sales $20,378 $19,016 $40,001 $ 43,742 $123,137
Gross profit 7,085 6,453 16,234 12,938 42,710
Net earnings (loss)-continuing (2,954) (2,395) 1,456 (15,503) (19,396)
Net earnings (loss)-discontinued (918) (390) 3 (1,005) (2,310)
Net earnings (loss) (3,872) (2,785) 1,459 (16,508) (21,706)
Basic earnings (loss) per share ($ 0.39) ($ 0.29) $ 0.15 ($ 1.68) ($ 2.21)
Diluted earnings (loss) per share ($ 0.39) ($ 0.29) $ 0.15 ($ 1.68) ($ 2.21)
2002 FISCAL QUARTER FIRST SECOND THIRD FOURTH TOTAL
- ------------------- --------- --------- ------- ---------- -----------
Net sales $19,352 $15,895 $38,619 $45,158 $119,024
Gross Profit 6,044 4,736 15,522 15,125 41,427
Net earnings (loss)-continuing (3,076) (4,057) 983 (2,000) (8,150)
Net earnings (loss)-discontinued (255) (687) (781) (2,007) (3,730)
Net earnings (loss) (3,331) (4,744) 202 (4,007) (11,880)
Basic earnings (loss) per share ($ 0.35) ($ 0.50) $ 0.03 ($ 0.41) ($ 1.23)
Diluted earnings (loss) per share ($ 0.35) ($ 0.50) $ 0.03 ($ 0.41) ($ 1.23)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
ITEM 9A. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures.
With the participation of the Interim President and Chief Executive
Officer (the principal executive officer) and the Senior Vice President-Finance,
Secretary and Treasurer (the principal financial officer) of R. G. Barry
Corporation, R. G. Barry's management has evaluated the effectiveness of R. G.
Barry's disclosure controls and procedures (as defined in Rule 13a-15(e) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")), as of the
end of the period covered by this Annual Report on Form 10-K. Based on that
evaluation, R. G. Barry's Interim President and Chief Executive Officer and R.
G. Barry's Senior Vice President-Finance, Secretary and Treasurer have concluded
that:
(1) information required to be disclosed by R. G. Barry in this
Annual Report on Form 10-K would be accumulated and
communicated to R. G. Barry's management, including its
principal executive officer and principal financial officer,
as appropriate to allow timely decisions regarding required
disclosure;
(2) information required to be disclosed by R. G. Barry in this
Annual Report on Form 10-K would be recorded, processed,
summarized and reported within the time periods specified in
the SEC's rules and forms; and
-66-
(3) R. G. Barry's disclosure controls and procedures are effective
as of the end of the period covered by this Annual Report on
Form 10-K to ensure that material information relating to R.
G. Barry and its consolidated subsidiaries is made known to
them, particularly during the period for which the periodic
reports of R. G. Barry, including this Annual Report on Form
10-K, are being prepared.
(b) Changes in Internal Control Over Financial Reporting.
There were no changes in R. G. Barry's internal control over financial
reporting (as defined in Rule 13a-15(f) under the Exchange Act) that occurred
during R. G. Barry's fiscal quarter ended January 3, 2004, that have materially
affected, or are reasonably likely to materially affect, R. G. Barry's internal
control over financial reporting.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required under Item 401 of SEC Regulation S-K to be
disclosed in this Item 10 is, except as noted in the following sentence,
incorporated herein by reference to R. G. Barry Corporation's definitive Proxy
Statement relating to the Annual Meeting of Shareholders to be held on May 27,
2004 (the "2004 Proxy Statement"), under the captions "ELECTION OF DIRECTORS,"
and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS - Employment Contracts and
Termination of Employment and Change in Control Arrangements." 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 "SUPPLEMENTAL
ITEM. EXECUTIVE OFFICERS OF THE REGISTRANT."
No disclosure is required under Item 405 of SEC Regulation S-K.
The Board of Directors of R. G. Barry has adopted charters for each of
the Audit Committee, the Compensation Committee and the Nominating and
Governance Committee, as well as Corporate Governance Guidelines, in each case
as contemplated by the applicable sections of the New York Stock Exchange Listed
Company Manual.
In accordance with the requirements of Section 303A(10) of the New York
Stock Exchange Listed Company Manual, the Board of Directors of R. G. Barry has
also adopted a Code of Business Conduct and Ethics covering the directors,
officers and employees of R. G. Barry and its subsidiaries, including R. G.
Barry's Interim President and Chief Executive Officer (the principal executive
officer) and Senior Vice President-Finance, Secretary and Treasurer (the
principal financial officer and principal accounting officer). As required by
the applicable rules of the SEC and the requirements of Section 303A(10) of the
New York Stock Exchange Listed Company Manual, R. G. Barry intends to disclose
the following on the "Investors - Board of Directors" page of its website
located at www.rgbarry.com within the required time period following their
occurrence: (A) the nature of any amendment to a provision of its Code of
Business Conduct and Ethics that (i) applies to R. G. Barry's principal
executive officer, principal financial officer, principal accounting officer or
controller, or persons performing similar functions, (ii) relates to any element
of the "code of ethics" definition enumerated in Item 406(b) of SEC Regulation
S-K, and (iii) is not a technical, administrative or other non-substantive
amendment; and (B) a description of any waiver (including the nature of the
waiver, the name of the person to whom the waiver was granted and the date of
the waiver), including an implicit waiver, from a provision of the Code of
Business Conduct and Ethics granted to R. G. Barry's principal executive
officer, principal financial
-67-
officer, principal accounting officer or controller, or persons performing
similar functions that relates to one or more of the items set forth in Item
406(b) of SEC Regulation S-K.
The text of each of the Charter of the Audit Committee, the Charter of
the Compensation Committee, the Charter of the Nominating and Governance
Committee, the Corporate Governance Guidelines and the Code of Business Conduct
and Ethics, is posted on the "Investors - Board of Directors" page of R. G.
Barry's website located at www.rgbarry.com. Interested persons may also obtain
copies of the Charter of the Audit Committee, the Charter of the Compensation
Committee, the Charter of the Nominating and Governance Committee, the Corporate
Governance Guidelines and the Code of Business Conduct and Ethics, without
charge, by writing to the Senior Vice President-Finance, Secretary and Treasurer
of R. G. Barry at its principal executive offices located at 13405 Yarmouth Road
N.W., Pickerington, Ohio 43147, Attention: Daniel D. Viren. In addition, a copy
of R. G. Barry's Code of Business Conduct and Ethics is filed with this Annual
Report on Form 10-K as Exhibit 14.1.
ITEM 11. EXECUTIVE COMPENSATION.
The information called for in this Item 11 is incorporated herein by
reference to R. G. Barry Corporation's 2004 Proxy Statement, under the captions
"SHARE OWNERSHIP," "ELECTION OF DIRECTORS" and "COMPENSATION OF EXECUTIVE
OFFICERS AND DIRECTORS." Such incorporation by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of SEC Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS.
The information called for in this Item 12 regarding the security
ownership of certain beneficial owners and management is incorporated herein by
reference to R. G. Barry Corporation's 2004 Proxy Statement, under the captions
"SHARE OWNERSHIP" and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS."
The information called for in this Item 12 regarding securities
authorized for issuance under equity compensation plans is incorporated herein
by reference to R. G. Barry's 2004 Proxy Statement, under the caption
"COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS - Equity Compensation Plan
Information."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information called for in this Item 13 is incorporated herein by
reference to R. G. Barry Corporation's 2004 Proxy Statement, under the captions
"SHARE OWNERSHIP," "ELECTION OF DIRECTORS" and "COMPENSATION OF EXECUTIVE
OFFICERS AND DIRECTORS."
-68-
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICE.
The information called for in this Item 14 is incorporated herein by
reference to R. G. Barry Corporation's 2004 Proxy Statement, under the captions
"AUDIT COMMITTEE MATTERS - Pre-Approval Policies and Procedures" and "AUDIT
COMMITTEE MATTERS - Fees of Independent Auditors."
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) Financial Statements.
The following consolidated financial statements of R. G. Barry
Corporation and its subsidiaries are included in Item 8 of this Annual
Report on Form 10-K at the page(s) indicated:
Independent Auditors' Report......................................... 35
Consolidated Balance Sheets at January 3,
2004 and December 28, 2002........................................ 36
Consolidated Statements of Operations for the
fiscal years ended January 3, 2004, December 28, 2002
and December 29, 2001............................................. 37
Consolidated Statements of Shareholders' Equity and
Comprehensive Income for the fiscal years ended
January 3, 2004, December 28, 2002 and December 29, 2001.......... 38
Consolidated Statements of Cash Flows for the
fiscal years ended January 3, 2004, December 28, 2002
and December 29, 2001............................................. 39
Notes to Consolidated Financial Statements........................... 40-66
(a)(2) Financial Statement Schedules.
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 Item 8 of this Annual Report on Form
10-K. 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 the
notes thereto.
-69-
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
R. G. Barry Corporation:
Under date of April 1, 2004 we reported on the consolidated balance sheets of R.
G. Barry Corporation and subsidiaries as of January 3, 2004 and December 28,
2002, 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 3, 2004, as contained in the fiscal 2003
annual report to shareholders. These consolidated financial statements and our
report thereon is incorporated by reference in the annual report on Form 10-K
for the fiscal year 2003. 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.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Notes 5 and
19 to the consolidated financial statements, the Company has failed to meet a
number of covenants under its Revolving Credit Agreement, has suffered recurring
losses from operations, and has entered into a new financing agreement that does
not contractually obligate the lender to advance funds to the Company. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 19. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
KPMG LLP
Columbus, Ohio
April 1, 2004
-70-
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
January 3, 2004
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------- -------------- ---------- ----------- ----------
ADDITIONS
BALANCE AT CHARGED TO ADJUSTMENTS BALANCE AT
BEGINNING COSTS AND AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------- -------------- ---------- ----------- ----------
Reserves deducted from accounts receivable:
Allowance for doubtful receivables $ 434,000 226,000 434,000(1) 226,000
Allowance for returns 10,182,000 7,763,000 10,182,000(2) 7,763,000
Allowance for promotions 9,648,000 10,505,000 9,648,000(3) 10,505,000
-------------- ---------- ----------- ----------
$ 20,264,000 18,494,000 20,264,000 18,494,000
============== ========== =========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 2003 sales returns reserved for in fiscal 2002.
3. Represents 2003 promotions expenditures committed to and reserved for in
fiscal 2002.
-71-
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
December 28, 2002
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------- -------------- ---------- ----------- ----------
ADDITIONS
BALANCE AT CHARGED TO ADJUSTMENTS BALANCE AT
BEGINNING COSTS AND AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------- -------------- ---------- ----------- ----------
Reserves deducted from accounts receivable:
Allowance for doubtful receivables $ 302,000 132,000 --(1) 434,000
Allowance for returns 8,743,000 10,182,000 8,743,000(2) 10,182,000
Allowance for promotions 8,574,000 9,648,000 8,574,000(3) 9,648,000
-------------- ---------- ----------- ----------
$ 17,619,000 19,962,000 17,317,000 20,264,000
============== ========== =========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 2002 sales returns reserved for in fiscal 2001.
3. Represents 2002 promotions expenditures committed to and reserved for in
fiscal 2001.
-72-
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
December 29, 2001
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ------------------------------------------- -------------- ---------- ----------- ----------
ADDITIONS
BALANCE AT CHARGED TO ADJUSTMENTS BALANCE AT
BEGINNING COSTS AND AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
- ------------------------------------------- -------------- ---------- ----------- ----------
Reserves deducted from accounts receivable:
Allowance for doubtful accounts $ 384,000 54,000 136,000(1) 302,000
Allowance for returns 5,077,000 8,743,000 5,077,000(2) 8,743,000
Allowance for promotions 8,680,000 8,574,000 8,680,000(3) 8,574,000
-------------- ---------- ----------- ----------
$ 14,141,000 17,371,000 13,893,000 17,619,000
============== ========== =========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 2001 sales returns reserved for in fiscal 2000.
3. Represents 2001 promotions expenditures committed to and reserved for in
fiscal 2000.
-73-
(a)(3) Exhibits.
Exhibits filed with this Annual Report on Form 10-K are attached hereto
or incorporated herein by reference. For list of these exhibits, see
"Index to Exhibits" beginning at page E-1.
(b) Reports on Form 8-K.
On December 16, 2003, R. G. Barry Corporation furnished information,
under Item 9 of a Form 8-K, regarding the news release issued on
December 15, 2003, reporting that its result for the fourth quarter of
2003 may be lower than anticipated.
On November 26, 2003, R. G. Barry Corporation furnished information,
under Item 9 of a Form 8-K, regarding the news release issued on
November 25, 2003, reporting the resignation, effective December 1,
2003, of Tom Coughlin, Executive Vice President - Sales and Marketing
of R. G. Barry.
On October 31, 2003, R. G. Barry Corporation furnished information
regarding the news release issued on October 30, 2003, reporting
operating results for its third quarter ended September 27, 2003, under
Item 12 in a Form 8-K.
(c) Exhibits.
Exhibits filed with this Annual Report on Form 10-K are attached hereto
or incorporated herein by reference. For a list of such exhibits, see
"Index to Exhibits" beginning at page E-1.
(d) Financial Statement Schedules.
The required financial statement schedules are included in Item
15(a)(2) of this Annual Report on Form 10-K.
-74-
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
Dated: April 2, 2004 By: /s/ Daniel D. Viren
--------------------------------------------
Daniel D. Viren,
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 date indicated.
Name Capacity Date
---- -------- ----
/s/ Gordon Zacks* Senior Chairman of the Board and April 2, 2004
- ------------------------------- Director
Gordon Zacks
/s/ Thomas M. Von Lehman* Interim President and Chief Executive April 2, 2004
- ------------------------------- Officer (Principal Executive Officer)
Thomas M. Von Lehman
/s/ Christian Galvis* Executive Vice President - Operations, April 2, 2004
- ------------------------------- President - Operations of Barry Comfort
Christian Galvis Group and Director
/s/ Daniel D. Viren Senior Vice President - Finance, April 2, 2004
- ------------------------------- Secretary and Treasurer (Principal
Daniel D. Viren Financial Officer and Principal
Accounting Officer) and Director
/s/ Philip G. Barach* Director April 2, 2004
- -------------------------------
Philip G. Barach
/s/ David P. Lauer* Director April 2, 2004
- -------------------------------
David P. Lauer
/s/ Roger E. Lautzenhiser* Director April 2, 2004
- -------------------------------
Roger E. Lautzenhiser
/s/ Janice Page* Director April 2, 2004
- -------------------------------
Janice Page
/s/ Edward M. Stan* Director April 2, 2004
- -------------------------------
Edward M. Stan
/s/ Harvey A. Weinberg* Director April 2, 2004
- -------------------------------
Harvey A. Weinberg
-75-
- ---------------------------
* By Daniel D. Viren pursuant to Powers of Attorney executed by the directors
and executive officers listed above, which Powers of Attorney have been filed
with the Securities and Exchange Commission.
By: /s/ Daniel D. Viren
---------------------------
Daniel D. Viren
-76-
R. G. BARRY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 3, 2004
INDEX TO EXHIBITS
Exhibit No. Description Location
- ----------- ----------- --------
2.1 Stock Purchase Agreement, dated Incorporated herein by reference to
July 22, 1999, between Mr. Thierry Exhibit 2.1 to Registrant's Quarterly
Civetta, Mr. Michel Fargeot, FCPR Report on Form 10-Q for the quarterly
County Natwest Venture France, SCA period ended October 2, 1999 (File
Capital Prive-Investissements, Hoche No. 1-8769)
Investissements, and SA Capital Prive,
parties of the first part, and R. G. Barry
Corporation ("Registrant") and
Escapade, S.A., parties of the second
part
2.2 Asset Purchase Agreement, dated as of Incorporated herein by reference to
May 14, 2003, by and among RGB Exhibit 2 to Registrant's Current
Technology, Inc. (formerly known as Report on Form 8-K dated and filed
Vesture Corporation), Registrant and July 2, 2003 (File No. 1-8769)
Vesture Acquisition Corp.
2.3 First Amendment to Asset Purchase Filed herewith
Agreement, dated December 29, 2003,
by and among RGB Technology, Inc.
(formerly known as Vesture
Corporation), Registrant and Vesture
Corporation (formerly known as Vesture
Acquisition Corp.)
3.1 Articles of Incorporation of Registrant Incorporated herein by reference to
(as filed with Ohio Secretary of State on Exhibit 3(a)(i) to Registrant's Annual
March 26, 1984) Report on Form 10-K for the fiscal
year ended December 31, 1988 (File
No. 0-12667) ("Registrant's 1988
Form 10-K")
3.2 Certificate of Amendment to the Articles Incorporated herein by reference to
of Incorporation of Registrant Exhibit 3(a)(i) to Registrant's 1988
Authorizing the Series I Junior Form 10-K
Participating Class B Preferred Shares
(as filed with the Ohio Secretary of State
on March 1, 1988)
3.3 Certificate of Amendment to the Articles Incorporated herein by reference to
of Registrant (as filed with the Ohio Exhibit 3(a)(i) to Registrant's 1988
Secretary of State on May 9, 1988) Form 10-K
E-1
Exhibit No. Description Location
- ----------- ----------- --------
3.4 Certificate of Amendment to the Articles Incorporated herein by reference to
of Incorporation of Registrant (as filed Exhibit 3(b) to Registrant's Annual
with the Ohio Secretary of State on Report on Form 10-K for the fiscal
May 22, 1995) year ended December 30, 1995 (File
No. 1-8769) ("Registrant's
1995 Form 10-K")
3.5 Certificate of Amendment to Articles of Incorporated herein by reference to
Incorporation of Registrant (as filed with Exhibit 3(c) to Registrant's 1995
the Ohio Secretary of State on Form 10-K
September 1, 1995)
3.6 Certificate of Amendment to Articles of Incorporated herein by reference to
Incorporation of Registrant (as filed with Exhibit 4(h)(6) to Registrant's
the Ohio Secretary of State on Registration Statement on Form S-8,
May 30, 1997) filed June 6, 1997 (Registration No.
333-28671)
3.7 Certificate of Amendment to the Articles Incorporated herein by reference to
of Incorporation of Registrant Exhibit 3(a)(7) to Registrant's Annual
Authorizing Series I Junior Participating Report on Form 10-K for the fiscal
Class A Preferred Shares (as filed with year ended January 3, 1998 (File No.
the Ohio Secretary of State on 1-8769) ("Registrant's 1997 Form
March 10, 1998) 10-K")
3.8 Articles of Incorporation of Registrant Incorporated herein by reference to
(reflecting amendments through Exhibit 3(a)(8) to Registrant's 1997
March 10, 1998) [for purposes of SEC Form 10-K
reporting compliance only - not filed
with the Ohio Secretary of State]
3.9 Regulations of Registrant, as amended Incorporated herein by reference to
Exhibit 3(b) to Registrant's Annual
Report on Form 10-K for the fiscal
year ended January 2, 1988 (File No.
0-12667)
4.1 Revolving Credit Agreement, made and Incorporated herein by reference to
entered into to be effective on Exhibit 99.1 to Registrant's Current
December 27, 2002, by and between Report on Form 8-K, dated and filed
Registrant and The Huntington National January 9, 2003 (File No. 1-8769)
Bank ("Registrant's January 2003
Form 8-K")
4.2 First Amendment to Revolving Credit Incorporated herein by reference to
Agreement, dated as of March 31, 2003, Registrant's Quarterly Report on
by and between Registrant and The Form 10-Q for the quarterly period
Huntington National Bank ended March 29, 2003 (File
No. 1-8769)
E-2
Exhibit No. Description Location
- ----------- ----------- --------
4.3 Second Amendment to Revolving Credit Incorporated herein by reference to
Agreement, dated as of September 1, Exhibit 4 to Registrant's Current
2003, by and between Registrant and Report on Form 8-K, dated and filed
The Huntington National Bank September 3, 2003 (File No. 1-8769)
4.4 Third Amendment to Revolving Credit Incorporated herein by reference to
Agreement, dated as of September 15, Exhibit 4 to Registrant's Current
2003, by and between Registrant and Report on Form 8-K, dated September
The Huntington National Bank 19, 2003 and filed September 22,
2003 (File No. 1-8769)
4.5 Fourth Amendment to Revolving Credit Incorporated herein by reference to
Agreement, dated as of January 22, Exhibit 4 to Registrant's Current
2004, by and between Registrant and Report on Form 8-K, dated and filed
The Huntington National Bank January 26, 2004 (File No. 1-8769)
4.6 Fifth Amendment to Revolving Credit Incorporated herein by reference to
Agreement, dated as of March 10, 2004, Exhibit 4 to Registrant's Current
by and between Registrant and The Report on Form 8-K, dated and filed
Huntington National Bank March 11, 2004 (File No. 1-8769)
("Registrant's March 11, 2004 Form
8-K")
4.7 Revolving Credit Note, dated Incorporated herein by reference to
December 27, 2002, issued by Registrant Exhibit 99.2 to Registrant's January
to The Huntington National Bank 2003 Form 8-K
4.8 Security Agreement, dated Incorporated herein by reference to
December 27, 2002, executed by Exhibit 99.3 to Registrant's January
Registrant in favor of The Huntington 2003 Form 10-K
National Bank, as collateral agent for
The Huntington National Bank and
Metropolitan Life Insurance Company
4.9 Conditional Consent Agreement, made Incorporated herein by reference to
as of December 27, 2002, by and among Exhibit 99.4 to Registrant's January
Registrant and Metropolitan Life 2003 Form 10-K
Insurance Company
4.10 Note Agreement, dated July 5, 1994, Incorporated herein by reference to
between Registrant and Metropolitan Exhibit 4(t) to Registrant's
Life Insurance Company Registration Statement on Form S-3,
filed July 21, 1994 (Registration
No. 33-81820)
4.11 Letter, dated July 16, 1999, from Incorporated herein by reference to
Metropolitan Life Insurance Company to Exhibit 4.2 to Registrant's Quarterly
Registrant in respect of loan agreement Report on Form 10-Q for the quarterly
dated July 5, 1994 period ended July 3, 1999 (File No.
1-8769)
E-3
Exhibit No. Description Location
- ----------- ----------- --------
4.12 Rights Agreement, dated as of Incorporated herein by reference to
February 19, 1998, between Registrant Exhibit 4 to Registrant's Current
and The Bank of New York, as Rights Report on Form 8-K, dated March 13,
Agent 1998 and filed March 16, 1998 (File
No. 1-8769)
4.13 Loan Agreement, dated as of Incorporated herein by reference to
January 21, 2000, among Banque Exhibit 4 to Registrant's Quarterly
Tarneaud, S.A., Banque Nationale de Report on Form 10-Q for the quarterly
Paris, and Escapade, S.A. period ended April 1, 2000 (File No.
1-8769)
9.1 Zacks-Streim Voting Trust and Incorporated herein by reference to
amendments thereto Exhibit 9 to Registrant's Annual
Report on Form 10-K for the fiscal year
ended January 2, 1993 (File
No. 1-8769)
9.2 Documentation related to extension of Incorporated herein by reference to
term of the Voting Trust Agreement for Exhibit 9(b) to Registrant's 1995
the Zacks-Streim Voting Trust Form 10-K
*10.1 R. G. Barry Corporation Associates' Incorporated herein by reference to
Retirement Plan (As Amended and Exhibit 10.1 to Registrant's Annual
Restated Effective January 1, 1997) Report on Form 10-K for the fiscal
year ended December 29, 2001 (File
No. 1-8769) ("Registrant's 2001 Form
10-K")
*10.2 Amendment No. 1 to the R. G. Barry Incorporated herein by reference to
Corporation Associates' Retirement Plan Exhibit 10.2 to Registrant's Annual
(amended and restated effective Report on Form 10-K for the fiscal
January 1, 1997, and executed on year ended December 28, 2002 (File
December 31, 2001) No. 1-8769)("Registrant's 2002 Form
10-K")
*10.3 Amendment No. 2 to the R. G. Barry Incorporated herein by reference to
Corporation Associates' Retirement Plan Exhibit 10.3 to Registrant's 2002
(amended and restated effective Form 10-K
January 1, 1997, and executed on
December 31, 2001) for the Economic
Growth and Tax Relief Reconciliation
Act of 2001
*10.4 Amendment No. 3 to the R. G. Barry Filed herewith
Corporation Associates' Retirement Plan
(amended and restated effective January
1, 1997, and executed effective March 31,
2004)
E-4
Exhibit No. Description Location
- ----------- ----------- --------
*10.5 R. G. Barry Corporation Supplemental Retirement Incorporated herein by reference to Exhibit
Plan Effective January 1, 1997 10.2 to Registrant's Annual Report on Form
10-K for the fiscal year ended January 1,
2000 (File No. 1-8769) ("Registrant's
January 2000 Form 10-K")
*10.6 Amendment No. 1 to the R. G. Barry Corporation Incorporated here in by reference to
Supplemental Retirement Plan Effective January Exhibit 10.3 to Registrant's January 2000
1, 1997 (Executed effective as of May 12, 1998) Form 10-K
*10.7 Amendment No. 2 to the R. G. Barry Corporation Incorporated herein by reference to Exhibit
Supplemental Retirement Plan Effective January 10.4 to Registrant's January 2000 Form 10-K
1, 1997 (Executed effective as of
January 1, 2000)
*10.8 Amendment No. 3 to the R. G. Barry Corporation Filed herewith
Supplemental Retirement Plan Effective January
1, 1997 (Executed effective as of March
31, 2004)
*10.9 Employment Agreement, dated July 1, 2001, Incorporated herein by reference to Exhibit
between Registrant and Gordon Zacks 10.5 to Registrant's 2001 Form 10-K
*10.10 Confidential Separation Agreement, dated March Incorporated herein by reference to Exhibit
10, 2004, by and between Registrant and Gordon 10.1 to Registrant's March 11, 2004
Zacks Form 8-K
*10.11 Agreement, dated September 27, 1989, between Incorporated herein by reference to Exhibit
Registrant and Gordon Zacks 28.1 to Registrant's Current Report on Form
8-K dated October 11, 1989, filed
October 12, 1989 (File No.0-12667)
*10.12 Amendment No. 1, dated as of October 12, 1994, Incorporated herein by reference to
between Registrant and Gordon Zacks Exhibit 5 to Amendment No. 14 to Schedule
13D, dated January 27, 1995, filed by
Gordon Zacks on February 13, 1995
*10.13 Amended Split-Dollar Insurance Agreement, dated Incorporated herein by reference to Exhibit
March 23, 1995, between Registrant and 10(h) to Registrant's 1995 Form 10-K
Gordon B. Zacks
E-5
Exhibit No. Description Location
- ----------- ----------- --------
*10.14 R. G. Barry Corporation 1988 Stock Incorporated herein by reference to
Option Plan (Reflects amendments Exhibit 4(r) to Registrant's
through May 11, 1993) Registration Statement on Form S-8,
filed August 18, 1993 (Registration
No. 33-67594)
*10.15 Form of Stock Option Agreement used Incorporated herein by reference to
in connection with the grant of incentive Exhibit 10(k) to Registrant's 1995
stock options pursuant to the R. G. Barry Form 10-K
Corporation 1988 Stock Option Plan
*10.16 Form of Stock Option Agreement used Incorporated herein by reference to
in connection with the grant of non- Exhibit 10(1) to Registrant's 1995
qualified stock options pursuant to the Form 10-K
R. G. Barry Corporation 1988 Stock
Option Plan
*10.17 Annual Incentive Program (in effect Incorporated herein by reference to
beginning with fiscal year ended Exhibit 10.13 to Registrant's
December 29, 2001) December 2000 Form 10-K
*10.18 R. G. Barry Corporation Employee Incorporated herein by reference to
Stock Purchase Plan (Reflects Exhibit 10.1 to Registrant's Quarterly
amendments and revisions for stock Report on Form 10-Q for the quarterly
dividends and stock splits through ended June 28, 2003 (File No. 1-
May 8, 2003) 8769)
*10.19 R. G. Barry Corporation 1994 Stock Incorporated herein by reference to
Option Plan (Reflects stock splits Exhibit 4(q) to Registrant's
through June 22, 1994) Registration Statement on Form S-8,
filed August 24, 1994 (Registration
No. 33-83252)
*10.20 Form of Stock Option Agreement used Incorporated herein by reference to
in connection with the grant of incentive Exhibit 10.16 to Registrant's
stock options pursuant to the R. G. Barry December 2000 Form 10-K
Corporation 1994 Stock Option Plan
*10.21 Form of Stock Option Agreement used Incorporated herein by reference to
in connection with the grant of non- Exhibit 10.17 to Registrant's
qualified stock options pursuant to the December 2000 Form 10-K
R. G. Barry Corporation 1994 Stock
Option Plan
10.22 [INTENTIONALLY OMITTED] [INTENTIONALLY OMITTED]
*10.23 Executive Employment Agreement, Filed herewith
effective as of January 5, 2004, between
Registrant and Christian Galvis
E-6
Exhibit No. Description Location
- ----------- ----------- --------
*10.24 Restricted Stock Agreement, effective as Incorporated herein by reference to
of January 4, 1998, between Registrant Exhibit 10(s) to Registrant's 1997
and Christian Galvis Form 10-K
*10.25 R. G. Barry Corporation Deferred Incorporated herein by reference to
Compensation Plan As Amended and Exhibit 10(v) to Registrant's 1995
Restated (Effective as of Form 10-K
September 1, 1995)
*10.26 Amendment No. 1 to the R. G. Barry Incorporated herein by reference to
Corporation Deferred Compensation Exhibit 10.23 to Registrant's January
Plan (Effective as of March 1, 1997) 2000 Form 10-K
*10.27 Amendment No. 2 to the R. G. Barry Incorporated herein by reference to
Corporation Deferred Compensation Exhibit 10.21 to Registrant's 2001
Plan (Effective as of December 1, 1999) Form 10-K
*10.28 Amendment No. 3 to the R. G. Barry Incorporated herein by reference to
Corporation Deferred Compensation Exhibit 10.24 to Registrant's 2002
Plan (Effective as of December 1, 1999) Form 10-K
*10.29 Amendment No. 4 to the R. G. Barry Filed herewith
Corporation Deferred Compensation
Plan (Effective as of February 21, 2004)
*10.30 R. G. Barry Corporation Stock Option Incorporated herein by reference to
Plan for Non-Employee Directors Exhibit 10(x) to Registrant's 1997
(Reflects share splits and amendments Form 10-K
through February 19, 1998)
*10.31 R. G. Barry Corporation 1997 Incentive Incorporated herein by reference to
Stock Plan (Reflects amendments Exhibit 10 to Registrant's Registration
through May 13, 1999) Statement on Form S-8, filed June 18,
1999 (Registration No. 333-81105)
*10.32 Form of Stock Option Agreement used Incorporated herein by reference to
in connection with the grant of incentive Exhibit 10.24 to Registrant's
stock options pursuant to the R. G. Barry December 2000 Form 10-K
Corporation 1997 Incentive Stock Plan
*10.33 Form of Stock Option Agreement used Incorporated herein by reference to
in connection with the grant of non- Exhibit 10.25 to Registrant's
qualified stock options pursuant to the December 2000 Form 10-K
R. G. Barry Corporation 1997 Incentive
Stock Plan
*10.34 R. G. Barry Corporation 2002 Stock Incorporated herein by reference to
Incentive Plan Exhibit 10 to Registrant's
Registration Statement on Form S-8,
filed June 14, 2002 (Registration
No. 333-90544)
E-7
Exhibit No. Description Location
- ----------- ----------- --------
*10.35 Form of Stock Option Agreement used Incorporated herein by reference to
in connection with grant of incentive Exhibit 10.30 of Registrant's 2002
stock options pursuant to the R. G. Barry Form 10-K
Corporation 2002 Stock Incentive Plan
*10.36 Form of Stock Option Agreement used Incorporated herein by reference to
in connection with grant of non-qualified Exhibit 10.31 of Registrant's 2002
stock options pursuant to the R. G. Barry Form 10-K
Corporation 2002 Stock Incentive Plan
*10.37 Restricted Stock Agreement, dated as of Incorporated herein by reference to
May 13, 1999, between Registrant and Exhibit 10.1 to Registrant's Quarterly
Gordon Zacks Report on Form 10-Q for the quarterly
period ended July 3, 1999 (File No. 1-
8769)
*10.38 Restricted Stock Agreement, effective as Incorporated herein by reference to
of March 23, 2000, between Registrant Exhibit 10 to Registrant's Quarterly
and Christian Galvis Report on Form 10-Q for the quarterly
period ended April 1, 2000 (File No.
1-8769)
*10.39 Executive Employment Agreement, Incorporated herein by reference to
effective as of June 5, 2000, between Exhibit 10.29 to Registrant's
Registrant and Daniel D. Viren December 2000 Form 10-K
*10.40 First Amendment to Executive Filed herewith
Employment Agreement, effective as of
June 5, 2003, between Registrant and
Daniel D. Viren
*10.41 Executive Employment Agreement, Filed herewith
effective as of January 5, 2004, between
Registrant and Harry Miller
*10.42 Change in Control Agreement, effective Incorporated herein by reference to
as of January 4, 2001, between Donald Exhibit 10.31 to Registrant's
Van Steyn and Registrant December 2000 Form 10-K
*10.43 Consulting Services Agreement, Incorporated herein by reference to
effective as of January 1, 2000, between Exhibit 10.32 to Registrant's
Registrant and Florence Zacks Melton December 2000 Form 10-K
*10.44 Agreement, dated February 7, 1952, as Incorporated herein by reference to
amended by Agreement of Amendment Exhibit 10.33 to Registrant's
dated September 18, 1961, a Second December 2000 Form 10-K
Amendment dated April 15, 1968 and a
Third Amendment dated
October 31, 2000, between Registrant
and Florence Zacks Melton
E-8
Exhibit No. Description Location
- ----------- ----------- --------
10.45 Agreement, dated July 11, 2001, between Incorporated herein by reference to Exhibit
Registrant and S. Goldberg & Co., Inc. 10(b) to Registrant's Current Report on
Form 8-K, dated January 7, 2002 and
filed January 8, 2002 (File No. 1-8769)
10.46 License Agreement, effective as of January 7, Incorporated herein by reference to Exhibit
2003, among Registrant, R. G. Barry 10.46 to Registrant's 2002 Form 10-K
International, Inc., Barry (G.B.R. Limited) and
GBR Limited
*10.47 Executive Employment Contract, dated March 10, Incorporated herein by reference to Exhibit
2004, between Registrant and Thomas M. Von 10.2 to Registrant's March 11, 2004 Form 8-K
Lehman
*10.48 Amendment to Executive Employment Contract, Filed herewith
dated March 29, 2004, between Registrant and
Thomas M. Von Lehman
*10.49 Stock Option Agreement, dated March 10, 2004, Filed herewith
between Registrant and Thomas M. Von Lehman
10.50 Letter Agreement, dated February 20, 2004, Filed herewith
between R. G. Barry Corporation and The
Meridian Group
10.51 Factoring Agreement, dated March 29, 2004, Incorporated by reference to Exhibit 4.1 to
between Registrant and The CIT Group/Commercial Registrant's Current Report on Form 8-K,
Services, Inc. dated March 29, 2004 and filed April 1,
2004 (File No. 1-8769)
10.52 Letter of Credit Agreement, dated March 29, Incorporated by reference to Exhibit 4.2 to
2004, between Registrant and The CIT Registrant's Current Report on Form 8-K,
Group/Commercial Services, Inc. dated March 29, 2004 and filed April 1,
2004 (File No. 1-8769)
10.53 Grant of Security Interest in Patents, Incorporated by reference to Exhibit 4.3 to
Trademarks and Licenses, dated March 29, 2004, Registrant's Current Report on Form 8-K,
between Registrant and The CIT Group/Commercial dated March 29, 2004 and filed April 1,
Services, Inc. 2004 (File No. 1-8769)
10.54 Equipment Security Agreement, dated March 29, Incorporated by reference to Exhibit 4.4 to
2004, between Registrant and The CIT Registrant's Current Report on Form 8-K,
Group/Commercial Services, Inc. dated March 29, 2004 and filed April 1,
2004 (File No. 1-8769)
10.55 Inventory Security Agreement, dated March 29, Incorporated by reference to Exhibit 4.5 to
2004, between Registrant and The CIT Registrant's Current Report on Form 8-K,
Group/Commercial Services, Inc. dated March 29, 2004 and filed April 1,
2004 (File No. 1-8769)
E-9
Exhibit No. Description Location
- ----------- ----------- --------
14.1 R.G Barry Corporation Code of Business Filed herewith
Conduct and Ethics
21.1 Subsidiaries of Registrant Filed herewith
23.1 Consent of Independent Certified Public Filed herewith
Accountants
24.1 Powers of Attorney Executed by Filed herewith
Directors and Executive Officers of
Registrant
31.1 Rule 13a - 14(a)/15d-14(a) Certification Filed herewith
(Principal Executive Officer)
31.2 Rule 13a - 14(a)/15d-14(a) Certification Filed herewith
(Principal Financial Officer)
32.1 Section 1350 Certification (Principal Filed herewith
Executive Officer and Principal
Financial Officer)
- ---------------------------
* Management contract or compensatory plan or arrangement.
E-10