Attached files
file | filename |
---|---|
EX-32.2 - Maidenform Brands, Inc. | v201704_ex32-2.htm |
EX-31.1 - Maidenform Brands, Inc. | v201704_ex31-1.htm |
EX-32.1 - Maidenform Brands, Inc. | v201704_ex32-1.htm |
EX-31.2 - Maidenform Brands, Inc. | v201704_ex31-2.htm |
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
x
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
|
For the
quarterly period ended October 2, 2010
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: 001-32568
MAIDENFORM
BRANDS, INC.
(Exact
name of registrant as specified in its charter)
Delaware
|
06-1724014
|
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
Employer Identification No.)
|
|
485F
US Hwy 1 South, Iselin, NJ
|
08830
|
|
(Address
of principal executive offices)
|
(Zip
Code)
|
(732)
621-2500
(Registrant’s
telephone number, including area code)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.
Yes x No
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).
Yes o No o
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company.
See the definitions of “large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large
accelerated filer o
|
Accelerated filer x
|
Non-accelerated
filer o
|
Smaller reporting company
¨
|
(Do
not check if smaller
|
|||
reporting
company)
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act).
Yes o No x
Indicate
the number of shares outstanding of each of the issuer's classes of common
stock, as of the latest practicable date.
Class
|
Outstanding at November 5, 2010
|
|
Common
Stock, $0.01 par value per share
|
23,360,588
shares
|
INDEX
PAGE
|
||
PART
I - FINANCIAL INFORMATION
|
||
Item
1. Financial Statements (Unaudited)
|
||
Condensed
Consolidated Balance Sheets at October 2, 2010 and January 2,
2010
|
2
|
|
Condensed
Consolidated Statements of Income for the Three and Nine Months Ended
October 2, 2010 and October 3, 2009
|
3
|
|
Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended October 2,
2010 and October 3, 2009
|
4
|
|
Notes
to the Condensed Consolidated Financial Statements
|
5
|
|
Item
2. Management’s Discussion and Analysis of Financial Condition and Results
of Operations
|
11
|
|
Item
3. Quantitative and Qualitative Disclosures About Market
Risk
|
21
|
|
Item
4. Controls and Procedures
|
21
|
|
PART
II - OTHER INFORMATION
|
||
Item1.
Legal Proceedings
|
22
|
|
Item1A.
Risk Factors
|
22
|
|
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
|
22
|
|
Item
3. Defaults Upon Senior Securities
|
22
|
|
Item
4. (Removed and Reserved)
|
22
|
|
Item
5. Other Information
|
22
|
|
Item
6. Exhibits
|
22
|
1
PART I - FINANCIAL
INFORMATION
Item
1. Financial Statements (Unaudited)
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED BALANCE SHEETS
(in
thousands, except share and per share amounts)
(unaudited)
October 2,
|
January 2,
|
|||||||
2010
|
2010
|
|||||||
Assets
|
||||||||
Current
assets
|
||||||||
Cash
and cash equivalents
|
$ | 51,915 | $ | 89,159 | ||||
Accounts
receivable, net
|
74,319 | 42,951 | ||||||
Inventories
|
100,909 | 77,605 | ||||||
Deferred
income taxes
|
14,790 | 14,790 | ||||||
Prepaid
expenses and other current assets
|
10,347 | 7,878 | ||||||
Total
current assets
|
252,280 | 232,383 | ||||||
Property,
plant and equipment, net
|
23,964 | 22,228 | ||||||
Goodwill
|
7,162 | 7,162 | ||||||
Intangible
assets, net
|
94,131 | 96,198 | ||||||
Other
non-current assets
|
592 | 771 | ||||||
Total
assets
|
$ | 378,129 | $ | 358,742 | ||||
Liabilities
and stockholders’ equity
|
||||||||
Current
liabilities
|
||||||||
Current
portion of long-term debt
|
$ | 1,100 | $ | 1,100 | ||||
Accounts
payable
|
56,368 | 43,473 | ||||||
Accrued
expenses and other current liabilities
|
32,464 | 28,366 | ||||||
Total
current liabilities
|
89,932 | 72,939 | ||||||
Long-term
debt
|
69,325 | 86,150 | ||||||
Deferred
income taxes
|
25,180 | 22,934 | ||||||
Other
non-current liabilities
|
9,788 | 9,888 | ||||||
Total
liabilities
|
194,225 | 191,911 | ||||||
Commitments
and contingencies (Note 10)
|
||||||||
Stockholders’
equity
|
||||||||
Preferred
stock - $0.01 par value; 10,000,000 shares
authorized
|
||||||||
and
none issued and outstanding
|
- | - | ||||||
Common
stock - $0.01 par value; 100,000,000 shares authorized;
|
||||||||
24,399,746
shares issued and 22,778,130 outstanding at October 2,
2010
|
||||||||
and
23,981,108 shares issued and 23,341,444 outstanding at January 2,
2010
|
244 | 240 | ||||||
Additional
paid-in capital
|
75,367 | 66,574 | ||||||
Retained
earnings
|
141,969 | 112,419 | ||||||
Accumulated
other comprehensive loss
|
(3,514 | ) | (3,385 | ) | ||||
Treasury
stock, at cost (1,621,616 shares at October 2, 2010 and
|
||||||||
639,664
shares at January 2, 2010)
|
(30,162 | ) | (9,017 | ) | ||||
Total
stockholders’ equity
|
183,904 | 166,831 | ||||||
Total
liabilities and stockholders’ equity
|
$ | 378,129 | $ | 358,742 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
2
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF INCOME
(in
thousands, except share and per share amounts)
(unaudited)
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 2,
|
October 3,
|
October 2,
|
October 3,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
sales
|
$ | 145,769 | $ | 128,685 | $ | 438,092 | $ | 357,123 | ||||||||
Cost
of sales
|
92,975 | 84,050 | 279,309 | 234,845 | ||||||||||||
Gross
profit
|
52,794 | 44,635 | 158,783 | 122,278 | ||||||||||||
Selling,
general and
|
||||||||||||||||
administrative
expenses
|
31,620 | 28,011 | 94,036 | 81,944 | ||||||||||||
Operating
income
|
21,174 | 16,624 | 64,747 | 40,334 | ||||||||||||
Interest
expense, net
|
243 | 494 | 798 | 1,794 | ||||||||||||
Income
before provision for income taxes
|
20,931 | 16,130 | 63,949 | 38,540 | ||||||||||||
Income
tax expense
|
8,143 | 94 | 25,394 | 9,233 | ||||||||||||
Net
income
|
$ | 12,788 | $ | 16,036 | $ | 38,555 | $ | 29,307 | ||||||||
Basic
earnings per common share
|
$ | 0.57 | $ | 0.70 | $ | 1.70 | $ | 1.29 | ||||||||
Diluted
earnings per common share
|
$ | 0.55 | $ | 0.67 | $ | 1.65 | $ | 1.24 | ||||||||
Basic
weighted average number of shares outstanding
|
22,606,900 | 22,861,486 | 22,723,196 | 22,640,594 | ||||||||||||
Diluted
weighted average number of shares outstanding
|
23,214,735 | 23,826,097 | 23,406,037 | 23,593,985 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
3
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in
thousands)
(unaudited)
Nine Months Ended
|
||||||||
October 2,
|
October 3,
|
|||||||
2010
|
2009
|
|||||||
Cash
flows from operating activities
|
||||||||
Net
income
|
$ | 38,555 | $ | 29,307 | ||||
Adjustments
to reconcile net income to net cash
|
||||||||
from
operating activities
|
||||||||
Depreciation
and amortization
|
2,624 | 2,651 | ||||||
Amortization
of intangible assets
|
835 | 871 | ||||||
Amortization
of deferred financing costs
|
138 | 138 | ||||||
Stock-based
compensation
|
2,238 | 1,774 | ||||||
Deferred
income taxes
|
2,361 | (3,191 | ) | |||||
Excess
tax benefits related to stock-based compensation
|
(7,789 | ) | (2,349 | ) | ||||
Bad
debt expense
|
(140 | ) | 214 | |||||
Other
non-cash items
|
1,509 | (2,478 | ) | |||||
Net
changes in operating assets and liabilities
|
||||||||
Accounts
receivable
|
(31,274 | ) | (24,599 | ) | ||||
Inventories
|
(23,272 | ) | 5,807 | |||||
Prepaid
expenses and other current and
|
||||||||
non-current
assets
|
(859 | ) | 929 | |||||
Accounts
payable
|
12,893 | 2,034 | ||||||
Accrued
expenses and other current and
|
||||||||
non-current
liabilities
|
5,785 | 3,962 | ||||||
Income
taxes payable
|
3,784 | 3,201 | ||||||
Net
cash provided by operating activities
|
7,388 | 18,271 | ||||||
Cash
flows from investing activities
|
||||||||
Capital
expenditures
|
(4,560 | ) | (2,692 | ) | ||||
Net
cash used in investing activities
|
(4,560 | ) | (2,692 | ) | ||||
Cash
flows from financing activities
|
||||||||
Term
loan repayments
|
(16,825 | ) | (825 | ) | ||||
Proceeds
from stock options exercised
|
2,454 | 1,877 | ||||||
Excess
tax benefits related to stock-based compensation
|
7,789 | 2,349 | ||||||
Payments
of employee withholding taxes related to equity awards
|
(896 | ) | (162 | ) | ||||
Purchase
of common stock for treasury
|
(32,352 | ) | - | |||||
Payments
of capital lease obligations
|
(69 | ) | (151 | ) | ||||
Net
cash (used in) provided by financing activities
|
(39,899 | ) | 3,088 | |||||
Effects
of exchange rate changes on cash
|
(173 | ) | (17 | ) | ||||
Net
(decrease) increase in cash
|
(37,244 | ) | 18,650 | |||||
Cash
and cash equivalents
|
||||||||
Beginning
of period
|
89,159 | 43,463 | ||||||
End
of period
|
$ | 51,915 | $ | 62,113 | ||||
Supplementary
disclosure of cash flow information
|
||||||||
Cash
paid during the period
|
||||||||
Interest
|
$ | 743 | $ | 2,043 | ||||
Income
taxes
|
$ | 19,123 | $ | 11,288 | ||||
Supplemental
schedule of non-cash investing and financing activities
|
||||||||
Treasury
stock issued related to equity award activity
|
$ | 12,058 | $ | 5,083 |
The
accompanying notes are an integral part of these condensed consolidated
financial statements.
4
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in
thousands, except share and per share amounts)
(unaudited)
1.
SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Basis
of Presentation
Maidenform
Brands, Inc. and its subsidiaries (the “Company,” “we,” “us” or
“our”) design, source and market an extensive range of intimate apparel
products, including bras, panties and shapewear. We sell through multiple
distribution channels, including department stores and national chain stores,
mass merchants (including warehouse clubs), and other (including specialty
retailers, off-price retailers, foreign distributors and licensees). In
addition, we operated 73 retail outlet stores and four shapewear kiosk and carts
as of October 2, 2010 and 76 retail outlet stores as of October 3, 2009, and
sell products on our websites.
In our
opinion, the accompanying unaudited condensed consolidated financial statements
contain all adjustments necessary to state fairly our financial position at
October 2, 2010, the results of our operations for the three and nine-month
periods ended October 2, 2010 and October 3, 2009, and cash flows for the nine
months ended October 2, 2010 and October 3, 2009. These adjustments consist of
normal recurring adjustments. Operating results for the three and nine-month
periods ended October 2, 2010 are not necessarily indicative of the results that
may be expected for any other future interim period or for a full fiscal year.
The condensed consolidated balance sheet at January 2, 2010 has been derived
from our audited consolidated financial statements at that date, but does not
include all disclosures required by accounting principles generally accepted in
the United States of America (“GAAP”).
These
condensed consolidated financial statements have been prepared in accordance
with Article 10 of Regulation S-X promulgated by the Securities and Exchange
Commission (“SEC”). Accordingly, certain information and disclosures normally
included in financial statements prepared in accordance with GAAP have been
condensed or omitted pursuant to the rules and regulations of the SEC. The
financial statements included herein should be read in conjunction with our
Annual Report on Form 10-K for the year ended January 2, 2010.
We
consider all highly liquid investments that have original maturities of three
months or less to be cash equivalents. Cash and cash equivalents, accounts
receivable, accounts payable and accrued expenses are reflected at fair value
because of the short-term maturity of these instruments. The carrying amount of
long-term debt at October 2, 2010 and January 2, 2010 approximates fair value as
a result of the variable interest rates being accrued and paid on the majority
of our debt.
2.
DEBT
October 2,
|
January 2,
|
|||||||
2010
|
2010
|
|||||||
Long-term
debt
|
||||||||
Term
loan facility
|
$ | 70,425 | $ | 87,250 | ||||
Current
maturities of long-term debt
|
1,100 | 1,100 | ||||||
Non-current
portion of long-term debt
|
$ | 69,325 | $ | 86,150 |
At
October 2, 2010, we had $70,425 outstanding under our term loan, and $0
outstanding under our revolving loan with approximately $49,175 available for
borrowings, after giving effect to $825 of outstanding letters of credit. We use
the letters of credit as collateral for our workers’ compensation insurance
programs and bonds issued on our behalf to secure our obligation to pay customs
duties. Principal payments on the term loan are payable in quarterly
installments of $275 with all remaining amounts due on the maturity date. We are
permitted to voluntarily prepay all or part of the principal balance of the term
loan with such prepayments applied to scheduled principal payments in inverse
order of their maturity. In addition, subject to specified exceptions and
limitations and reinvesting options, partial prepayments of outstanding loans
may be required with the proceeds of asset sales, sales of equity and debt
securities, and with certain insurance and condemnation
proceeds.
5
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in
thousands, except share and per share amounts)
(unaudited)
Payments
due on long-term debt during each of the five years subsequent to October 2,
2010, are as follows:
Balance
of fiscal 2010
|
$ | 275 | ||
In
fiscal 2011
|
1,100 | |||
In
fiscal 2012
|
1,100 | |||
In
fiscal 2013
|
1,100 | |||
In
fiscal 2014
|
66,850 | |||
Thereafter
|
- |
3.
BENEFIT PLANS AND
POSTRETIREMENT PLANS
We
sponsor a defined benefit pension plan covering substantially all eligible
employees not covered by union plans. We also maintain post-retirement medical
benefit plans for certain eligible retirees for which post-retirement benefit
expense on a quarterly basis has been insignificant. The defined benefit pension
plan was frozen for current participants and closed to new entrants since
January 1, 2007.
The
components of net periodic benefit cost charged to operations are as
follows:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 2,
|
October 3,
|
October 2,
|
October 3,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Interest
cost
|
$ | 291 | $ | 280 | $ | 873 | $ | 840 | ||||||||
Expected
return on plan assets
|
(345 | ) | (286 | ) | (1,035 | ) | (858 | ) | ||||||||
Amortization
of net loss
|
43 | 44 | 129 | 180 | ||||||||||||
Total
|
$ | (11 | ) | $ | 38 | $ | (33 | ) | $ | 162 |
4.
STOCKHOLDERS’
EQUITY
Accumulated
|
||||||||||||||||||||||||||||||||
Common
|
Treasury
|
Additional
|
Other
|
Total
|
||||||||||||||||||||||||||||
Stock
|
Stock
|
Paid-in
|
Retained
|
Comprehensive
|
Stockholders'
|
|||||||||||||||||||||||||||
Shares
|
$
|
Shares
|
$
|
Capital
|
Earnings
|
Loss
|
Equity
|
|||||||||||||||||||||||||
Balance
at January 2, 2010
|
23,981,108 | $ | 240 | (639,664 | ) | $ | (9,017 | ) | $ | 66,574 | $ | 112,419 | $ | (3,385 | ) | $ | 166,831 | |||||||||||||||
Stock-based
compensation
|
2,238 | 2,238 | ||||||||||||||||||||||||||||||
Purchase
of common stock for treasury
|
(1,593,675 | ) | (32,352 | ) | (32,352 | ) | ||||||||||||||||||||||||||
Equity
award activity
|
418,638 | 4 | 611,723 | 11,207 | 6,555 | (9,005 | ) | 8,761 | ||||||||||||||||||||||||
Comprehensive
income
|
||||||||||||||||||||||||||||||||
Net
income
|
38,555 | 38,555 | ||||||||||||||||||||||||||||||
Changes
during the period
|
(129 | ) | (129 | ) | ||||||||||||||||||||||||||||
Total
comprehensive income
|
38,426 | |||||||||||||||||||||||||||||||
Balance
at October 2, 2010
|
24,399,746 | $ | 244 | (1,621,616 | ) | $ | (30,162 | ) | $ | 75,367 | $ | 141,969 | $ | (3,514 | ) | $ | 183,904 |
6
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in
thousands, except share and per share amounts)
(unaudited)
5.
STOCK REPURCHASE
PROGRAM
In
February 2010, the Board of Directors increased our stock repurchase program by
an additional $37,526, increasing the amount then available under the plan to
$50,000. We are authorized to make repurchases from time to time pursuant
to existing rules and regulations and other parameters approved by the
Board of Directors. On March 16, 2010, we repurchased $32,352 of common
stock at an average price per share of $20.30. Our credit facility was amended
to permit the increased stock repurchase, subject to certain restrictions and
limitations set forth in the amendment to our credit facility.
6.
COMPREHENSIVE
INCOME
The
changes in comprehensive income are as follows:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 2,
|
October 3,
|
October 2,
|
October 3,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
income
|
$ | 12,788 | $ | 16,036 | $ | 38,555 | $ | 29,307 | ||||||||
Foreign
currency translation adjustments (a)
|
845 | 235 | (206 | ) | 390 | |||||||||||
Interest
rate swap, net of tax (b)
|
- | 65 | - | 275 | ||||||||||||
Pension
related assets or liabilities, net of tax (c)
|
26 | 108 | 77 | 108 | ||||||||||||
Comprehensive
income
|
$ | 13,659 | $ | 16,444 | $ | 38,426 | $ | 30,080 |
(a)
|
No
tax benefit has been provided on the foreign currency translation
adjustment due to management’s decision to reinvest the earnings of our
foreign subsidiaries indefinitely.
|
(b)
|
Deferred
income tax assets (liabilities) of $0 and ($44) provided for the
three-month periods ended October 2, 2010 and October 3, 2009,
respectively. Deferred income tax assets (liabilities) of $0 and ($184)
provided for the nine-month periods ended October 2, 2010 and October 3,
2009, respectively.
|
(c)
|
Deferred
income tax assets (liabilities) of $17 and $0 provided for the three-month
periods ended October 2, 2010 and October 3, 2009, respectively. Deferred
income tax assets (liabilities) of $51 and $0 provided for the nine-month
periods ended October 2, 2010 and October 3, 2009,
respectively.
|
7.
INCOME TAXES
We review
our annual effective tax rate on a quarterly basis and we make necessary changes
if information or events warrant such changes. The annual effective tax rate is
forecasted quarterly using actual historical information and forward-looking
estimates. The estimated annual effective tax rate may fluctuate due to changes
in forecasted annual operating income; changes to the valuation allowance for
deferred tax assets (such changes would be recorded discretely in the quarter in
which they occurred); changes to actual or forecasted permanent book to tax
differences (non-deductible expenses); impacts from future tax settlements with
state, federal or foreign tax authorities (such changes would be recorded
discretely in the quarter in which they occurred); or impacts from tax law
changes (to the extent such changes effect our deferred tax assets/liabilities,
these changes would generally be recorded discretely in the quarter in which
they occurred). Our effective income tax rate for the three and nine-month
periods ended October 2, 2010 was 38.9% and 39.7%, respectively, as compared to
an effective income tax rate for the three and nine-month periods ended October
3, 2009 of 0.6% and 24.0%, respectively. The lower effective income tax rate in
the three and nine-month periods ended October 3, 2009 was due primarily to a
benefit of $6,069 resulting from the resolution of an Internal Revenue Service
(“IRS”) audit for the 2005 tax year, which was concluded during 2009. As a
result, we adjusted our liabilities for uncertain tax positions under Accounting
Standards Codification (“ASC”) 740.10.25 and recognized additional net deferred
tax assets, principally in relation to net operating losses.
7
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in
thousands, except share and per share amounts)
(unaudited)
8.
SEGMENT
INFORMATION
We
identified our two reportable segments as ‘‘wholesale’’ and ‘‘retail.’’ Our
wholesale sales are to department stores, national chain stores, mass merchants
(including warehouse clubs), specialty retailers, off-price retailers, and third
party distributors servicing similar customers in foreign countries, while our
retail segment reflects our operations from our retail outlet stores, shapewear
kiosk and carts, and internet operations. Royalty income is also included in our
wholesale segment. Within our reportable segments, wholesale includes
corporate-related assets. Each segment’s results include the costs directly
related to the segment’s net sales and all other costs allocated based on the
relationship to consolidated net sales to support each segment’s net sales.
Intersegment sales and transfers are recorded at cost and treated as a transfer
of inventory.
Information
on segments and reconciliation to income before provision for income taxes, are
as follows:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 2,
|
October 3,
|
October 2,
|
October 3,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
sales
|
||||||||||||||||
Wholesale
|
$ | 128,610 | $ | 111,887 | $ | 395,127 | $ | 314,953 | ||||||||
Retail
|
17,159 | 16,798 | 42,965 | 42,170 | ||||||||||||
Total
|
$ | 145,769 | $ | 128,685 | $ | 438,092 | $ | 357,123 | ||||||||
Operating
income
|
||||||||||||||||
Wholesale
|
$ | 18,960 | $ | 13,905 | $ | 61,962 | $ | 37,025 | ||||||||
Retail
|
2,214 | 2,719 | 2,785 | 3,309 | ||||||||||||
Operating
income
|
21,174 | 16,624 | 64,747 | 40,334 | ||||||||||||
Interest
expense, net
|
243 | 494 | 798 | 1,794 | ||||||||||||
Income
before provision for income taxes
|
$ | 20,931 | $ | 16,130 | $ | 63,949 | $ | 38,540 | ||||||||
Depreciation
and amortization
|
||||||||||||||||
Wholesale
|
$ | 939 | $ | 876 | $ | 2,539 | $ | 2,749 | ||||||||
Retail
|
335 | 244 | 920 | 773 | ||||||||||||
Total
|
$ | 1,274 | $ | 1,120 | $ | 3,459 | $ | 3,522 | ||||||||
Net
sales by geographic area
|
||||||||||||||||
United
States
|
$ | 131,793 | $ | 118,760 | $ | 401,943 | $ | 331,699 | ||||||||
International
(a)
|
13,976 | 9,925 | 36,149 | 25,424 | ||||||||||||
Total
|
$ | 145,769 | $ | 128,685 | $ | 438,092 | $ | 357,123 | ||||||||
Intercompany
sales from wholesale to retail
|
$ | 4,310 | $ | 4,640 | $ | 11,714 | $ | 11,389 |
October 2,
|
January 2,
|
|||||||||||||||
2010
|
2010
|
|||||||||||||||
Total
assets
|
||||||||||||||||
Wholesale
|
$ | 350,035 | $ | 333,096 | ||||||||||||
Retail
|
28,094 | 25,646 | ||||||||||||||
Total
|
$ | 378,129 | $ | 358,742 |
(a)
International net sales are identified as international based on the location of
the customer.
8
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in
thousands, except share and per share amounts)
(unaudited)
At
October 2, 2010 and January 2, 2010, our five largest uncollateralized
receivables represented approximately 60% of total accounts
receivable.
For the
three and nine-month periods ended October 2, 2010 and October 3, 2009, we had
two customers, Wal-Mart and Kohl’s, that each accounted for more than 10% of our
consolidated net sales.
9.
EARNINGS PER
SHARE
The
following is a reconciliation of basic number of common shares outstanding to
diluted common and common equivalent shares outstanding:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 2,
|
October 3,
|
October 2,
|
October 3,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Net
income
|
$ | 12,788 | $ | 16,036 | $ | 38,555 | $ | 29,307 | ||||||||
Weighted
average number of common and
|
||||||||||||||||
common
equivalent shares outstanding:
|
||||||||||||||||
Basic
number of common shares
|
||||||||||||||||
outstanding
|
22,606,900 | 22,861,486 | 22,723,196 | 22,640,594 | ||||||||||||
Impact
of dilutive securities
|
607,835 | 964,611 | 682,841 | 953,391 | ||||||||||||
Dilutive
number of common and common
|
||||||||||||||||
equivalent
shares outstanding
|
23,214,735 | 23,826,097 | 23,406,037 | 23,593,985 | ||||||||||||
Basic
earnings per common share
|
$ | 0.57 | $ | 0.70 | $ | 1.70 | $ | 1.29 | ||||||||
Diluted
earnings per common share
|
$ | 0.55 | $ | 0.67 | $ | 1.65 | $ | 1.24 |
For the
three-month periods ended October 2, 2010 and October 3, 2009, approximately 250
and 506,000 equity awards, respectively, were not included in the computation of
diluted earnings per share because of their anti-dilutive effect. For the
nine-month periods ended October 2, 2010 and October 3, 2009, approximately
54,000 and 653,000 equity awards, respectively, were not included in the
computation of diluted earnings per share because of their anti-dilutive
effect.
10.
COMMITMENTS AND
CONTINGENCIES
Purchase
commitments
In the
normal course of business, we enter into purchase commitments for both finished
goods and raw materials. At October 2, 2010, we had purchase commitments of
$101,374 and believe that we have adequate reserves for any expected losses
arising from all purchase commitments.
Litigation
We have
filed suit against Times Three Clothier LLC d/b/a Yummie Tummie (“Times Three”)
in U.S. District Court for the Southern District of New York, seeking a
declaratory judgment that our Flexees® Fat Free
Dressing™ Tank Top
does not infringe U.S. Design Patent No. D606,285 (“the ’285 patent”) and/or
that the ’285 patent is invalid. Times Three has filed a counterclaim for
infringement of the ’285 patent and related U.S. Design Patents Nos. D616,627,
D622,477 and D623,377. In response, we have filed counterclaims seeking a
declaration of noninfringement and/or invalidity/unenforceability with respect
to each of these patents. We believe that the ultimate outcome of this
pending lawsuit and claim will not have a material adverse effect on our
consolidated financial position or results of operations taken as a whole.
Due to the inherent uncertainty of litigation, however, there can be no
assurance of the ultimate outcome of this or future litigations, proceedings,
investigations, or claims or their effect.
9
MAIDENFORM
BRANDS, INC. AND SUBSIDIARIES
NOTES
TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in
thousands, except share and per share amounts)
(unaudited)
We are a
party to various legal actions arising in the ordinary course of business.
Based on information presently available to us, we believe that we have adequate
legal defenses, reserves and/or insurance coverage for these actions and that
the ultimate outcome of these actions will not have a material adverse effect on
our condensed consolidated statements of financial position, results of
operations or cash flows.
11.
ACCRUED EXPENSES AND OTHER CURRENT
LIABILITIES
October 2,
|
January 2,
|
|||||||
2010
|
2010
|
|||||||
Accrued
wages, incentive compensation, payroll taxes and related
benefits
|
$ | 13,266 | $ | 11,926 | ||||
Accrued
customs duty
|
3,954 | 2,276 | ||||||
Accrued
other
|
15,244 | 14,164 | ||||||
$ | 32,464 | $ | 28,366 |
Other
accrued expenses and current liabilities include, among other items, freight,
accrued severance, trade promotion, inventory return accrual and professional
fees.
12.
RECENTLY ISSUED ACCOUNTING
STANDARDS
In
February 2010, the Financial Accounting Standards Board (“FASB”) issued an
amendment to the guidance on subsequent events to eliminate the requirement for
public companies to disclose the date through which subsequent events have been
evaluated. We will continue to evaluate subsequent events through the date of
the issuance of our financial statements, however, consistent with the guidance,
this date will no longer be disclosed. The guidance became effective upon
issuance and the adoption had no impact on our condensed consolidated financial
statements.
In
January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires disclosure of transfers of assets and liabilities between Level 1 and
Level 2 of the fair value measurement hierarchy, including the reasons and the
timing of the transfers and information on purchases, sales, issuance, and
settlements on a gross basis in the reconciliation of the assets and liabilities
measured under Level 3 of the fair value measurement hierarchy. The adoption of
this guidance is effective for interim and annual reporting periods beginning
after December 15, 2009. We have adopted this guidance in the financial
statements presented herein, which did not impact our consolidated financial
position or results of operations.
10
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of
Operations
You
should read the following discussion and analysis in conjunction with our
financial statements and related notes included elsewhere in this
report. This report contains forward-looking statements relating to future
events and our future performance within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange
Act of 1934, as amended, including, without limitation, statements regarding our
expectations, beliefs, intentions or future strategies that are signified by the
words “anticipates,” “believes,” “estimates,”
“expects,” “intends,” “plans,” “potential,” “predicts,” “projects” or
similar words or phrases, although not all forward-looking statements contain
such identifying words. All forward-looking statements included in this report
are based on information available to us on the date hereof. It is routine for
our internal projections and expectations to change as the year or each quarter
in the year progress, and therefore it should be clearly understood that the
internal projections and beliefs upon which we base our expectations may change
prior to the end of each quarter or the year. Although these expectations may
change, we assume no obligation to update or revise publicly any forward-looking
statements whether as a result of new information, future events or otherwise.
Actual events or results may differ materially from those contained in the
projections or forward-looking statements. Factors that could cause or
contribute to such differences include those discussed below and elsewhere in
this report, particularly in the section captioned “PART II – OTHER INFORMATION,
Item 1A – Risk Factors.”
Management
Overview
We are a
global intimate apparel company with a portfolio of established, well-known
brands, top-selling products and an iconic heritage. We design, source and
market an extensive range of intimate apparel products, including bras, panties
and shapewear. We sell through multiple distribution channels, including
department stores and national chain stores, mass merchants (including warehouse
clubs), other (including specialty retailers, off-price retailers, foreign
distributors and licensees), our company-operated outlet stores, shapewear kiosk
and carts, and our websites.
We sell
our products under some of the most recognized brands in the intimate apparel
industry. Our Maidenform®, Control It!®,
Flexees®,
Lilyette® and
Luleh® products
and our licensed Donna Karan® and
DKNY® products
are sold in department stores and national chain stores. Our Bodymates®,
Inspirations®, Self
Expressions® and
Sweet Nothings® products
are distributed through mass merchants. These mass merchant brands leverage our
product technology, but are separate brands with distinctly different logos. In
addition to our owned brands, we also supply private brands to certain
department stores and national chain stores and retailers.
Trends
in our business
We
operate in two segments, wholesale and retail. Our wholesale segment includes
both our domestic and international wholesale markets. Our retail segment
includes our company-operated outlet stores, shapewear kiosk and carts, and our
websites.
We have
identified many near-term opportunities for growth and operational improvements,
as well as challenges, including general macro-economic conditions that may
affect our customers and our business. In particular, management believes that
there are many factors influencing the intimate apparel industry, including but
not limited to: consistent demand for foundation garments, consumer demand for
innovative and leading brands, sourcing and supply chain efficiencies, continued
growth of the mass merchant channel, pressure from retailers brought about by
the consolidation in the retail industry, increases in the cost of the raw
materials used in intimate apparel products and uncertainty surrounding import
restrictions.
We
believe we are well-positioned to capitalize on or address these trends by,
among other things:
·
|
continuing
to launch innovative products;
|
·
|
increasing
our presence in department stores and national chain stores through the
use of Maidenform, Control It!, Flexees, Lilyette and Luleh
brands;
|
·
|
expanding
distribution of our Donna Karan®
and DKNY®
licensed brands;
|
·
|
expanding
shapewear awareness;
|
·
|
increasing
our presence in the mass merchant channel through the use of our
Bodymates, Inspirations, Self Expressions and Sweet Nothings
brands;
|
·
|
expanding
our international presence;
|
·
|
increasing
consumer identification with our brands through further marketing
investments;
|
·
|
marketing,
rather than manufacturing our
brands;
|
11
·
|
making
selective acquisitions, entering into license agreements, and developing
and marketing new products that will complement our existing products or
distribution channels; and
|
·
|
merchandising,
marketing and selling private brand products to selected
retailers.
|
Wholesale
segment
The
following trends are among the key variables that will affect our wholesale
segment:
Department stores and national chain
stores. The department stores and national chain stores are where we
generally sell the Maidenform, Control It!, Flexees and Lilyette brands. We plan
to continue to invest in increasing our net sales with department store
customers, which we believe is important to our long-term positioning in the
channel. The rate of our future net sales growth with department stores
could be moderated by the reduction in both the number of department store
customers and the number of doors (distinct locations operated by a particular
retailer) operated by these customers. We have grown our market share
significantly in the past several years with national chain stores. We also have
customers located outside the United States that purchase our Maidenform,
Flexees and Lilyette brands. The majority of these net sales are included in the
department stores and national chain stores channel. In 2009, we added new
customers, such as Bloomingdale’s and Nordstrom, within this channel as a result
of our license agreement for the Donna Karan® and
DKNY® brands.
This agreement grants us the rights to design, source and market a full
collection of Donna Karan® and
DKNY® women’s
intimate apparel products. Customers for the Donna Karan® and
DKNY® brands
are located in and outside the United States.
Mass merchants. The mass
merchant channel includes both mass merchants and warehouse clubs. We intend to
improve our penetration with mass merchants through the use of our Bodymates,
Inspirations, Self Expressions and Sweet Nothings brands. We have experienced
significant growth in this channel over the past several years and expect to
achieve additional growth in the future as we are able to increase both the
floor space and number of doors in which our products are sold. We expect that
both our net sales to this channel, and our net sales to this channel as a
percentage of our total net sales, are likely to increase over time. The volume
and mix of net sales of our brands and of private label in the mass merchant
channel can vary from period to period based upon strategic changes that our
customers may implement from time to time. Net sales to customers in the mass
merchant channel that are located outside the United States are included in this
channel.
Other. Net sales from other
channels include sales to specialty retailers, off-price retailers, foreign
distributors and royalty income from licensees. We supply private brands to
specialty retailers as opportunities present themselves and we continually
evaluate this channel for opportunities. The volume and mix of net sales of
private label in the other channel can vary significantly from period to period
based upon new product introductions and the discontinuation of other
products.
We may
selectively target strategic acquisitions, licensing opportunities or brand
start-ups to grow our consumer base and would utilize the acquired companies and
licenses to complement our current products, channels and geographic scope. We
believe that acquisitions and licenses can enhance our product offerings to
retailers and provide growth opportunities. We believe we can leverage our core
competencies such as product development, brand management, logistics and
marketing to create significant value from the acquired businesses and
licenses.
Retail
segment
We
believe our retail sales volume is driven by our ability to service our existing
consumers and obtain new consumers, as well as overall general macro-economic
conditions that can affect our consumers and ultimately their levels of overall
spending and choice of retail channel for their purchases. Additionally,
identifying optimal retail outlet locations, favorable leasing arrangements, and
improving our store productivity are factors important to growing our retail
segment’s net sales. We also sell our products through our websites, www.maidenform.com and www.maidenform.co.uk. Although we currently do
not generate a significant amount of net sales as a percentage of total Company
net sales through these sites, we do expect it to continue to grow.
Our
objectives in our retail segment are to continue to increase the productivity of
our portfolio of stores through effective merchandising and focused advertising,
as well as selectively closing less productive locations and potentially opening
new stores in more productive locations. Even in those situations where we
selectively close less productive outlet stores and do not open a new store in
that region, we believe those consumers still purchase many of our Maidenform
brands from our other outlet stores, our websites or our wholesale segment
customers that carry these brands. Historically, we have primarily sold excess
and, to a lesser extent, obsolete inventories through our outlet stores at a
higher margin than that achieved through other liquidation
alternatives.
12
Definitions
In
reviewing our operating performance, we evaluate both the wholesale and retail
segments by focusing on each segment’s operating income, cash flows from
operations and inventory turns.
Net sales. Our net sales are
derived from two operating segments, wholesale and retail. Net sales from our
wholesale segment are recognized when the customer takes possession and are
recorded net of cooperative advertising allowances, sales returns, sales
discounts, and markdown allowances provided to our customers. Net sales in our
retail segment are recognized at the time the customer takes possession of the
merchandise at the point-of-sale in our stores and for our internet sales, net
sales are recognized when the products are shipped and title passes to the
customer.
Cost of sales. We outsource
all manufacturing of the products we sell and, therefore, the principal elements
of our cost of sales are for finished goods inventories purchased from our
sourced vendors. Included in cost of sales and affecting our overall gross
margins are freight expenses from the manufacturers to our distribution centers
in situations where such expenses are charged separately. Also included in cost
of sales is the cost of warehousing, labor and overhead related to receiving and
warehousing at our distribution centers, and depreciation of assets related to
our receiving and warehousing in our distribution centers. Direct labor, cost of
fabrics, as well as raw materials for fabrics, are the primary components
driving the overall cost of our sourced finished goods inventories from our
sourcing vendors.
Selling, general and administrative
expenses (“SG&A”). Our SG&A includes all of our marketing,
product development, selling, distribution and general and administrative
expenses for both the wholesale and retail segments (which include our retail
outlet store payroll and related benefits). General and administrative expenses
include management payroll, benefits, travel, information systems, accounting,
distribution, rent, insurance and legal costs. Additionally, depreciation
related to the shipping function in our distribution centers and our corporate
office assets such as furniture, fixtures, and equipment, as well as
amortization of intellectual property, are included in SG&A.
Income taxes. We account for
income taxes using the liability method, which recognizes the amount of income
tax payable or refundable for the current year and recognizes deferred tax
liabilities and assets for the future tax consequences of the events that have
been recognized in the financial statements or tax returns. For those uncertain
tax positions where it is “more likely than not” that a tax benefit will be
sustained, we have recorded the tax benefit. For those income tax positions
where it is not “more likely than not” that a tax benefit will be sustained, no
tax benefit has been recognized. Where applicable, associated interest and
penalties are recorded. We routinely evaluate all deferred tax assets to
determine the likelihood of their realization and record a valuation allowance
if it is “more likely than not” that a deferred tax asset will not be realized.
For more information, see notes to the condensed consolidated financial
statements included elsewhere in this Quarterly Report on Form
10-Q.
Net
operating loss carryforwards (“NOLs”) enable a company to apply NOLs incurred
during a current period against a future period's profits in order to reduce
cash tax liabilities in those future periods. In periods when a company is
generating operating losses, its NOLs will increase. The tax effect of the NOLs
is recorded as a deferred tax asset. If the company does not believe that it is
“more likely than not” that it will be able to utilize the NOLs, it records a
valuation allowance against the deferred tax asset. Additionally,
Section 382 of the Internal Revenue Code (“Section 382”) imposes
limitations on a corporation's ability to utilize its NOLs if it experiences an
“ownership change.” In general terms, an ownership change results from
transactions increasing the ownership of certain existing stockholders and, or,
new stockholders in the stock of a corporation by more than 50 percentage
points during a three year testing period. Any unused annual limitation may be
carried over to later years, and the amount of the limitation may, under certain
circumstances, be increased to reflect both recognized and deemed recognized
“built-in gains” that occur during the sixty-month period after the ownership
change. Our NOLs are subject to Section 382 limitations. At January 2, 2010, we
had approximately $29.0 million of federal and state NOLs available for
utilization in the years from 2010 through 2023.
13
Results of
Operations
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 2,
|
October 3,
|
October 2,
|
October 3,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
OPERATING
DATA: (in millions)
|
||||||||||||||||
Wholesale
sales
|
$ | 128.6 | $ | 111.9 | $ | 395.1 | $ | 314.9 | ||||||||
Retail
sales
|
17.2 | 16.8 | 43.0 | 42.2 | ||||||||||||
Net
sales
|
145.8 | 128.7 | 438.1 | 357.1 | ||||||||||||
Cost
of sales
|
93.0 | 84.0 | 279.3 | 234.8 | ||||||||||||
Gross
profit
|
52.8 | 44.7 | 158.8 | 122.3 | ||||||||||||
Selling,
general and administrative expenses
|
31.7 | 28.1 | 94.0 | 82.0 | ||||||||||||
Operating
income
|
$ | 21.1 | $ | 16.6 | $ | 64.8 | $ | 40.3 |
As a Percentage of Net Sales
|
||||||||||||||||
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October
2,
|
October
3,
|
October
2,
|
October
3,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
OPERATING
DATA:
|
||||||||||||||||
Wholesale
sales
|
88.2 | % | 86.9 | % | 90.2 | % | 88.2 | % | ||||||||
Retail
sales
|
11.8 | 13.1 | 9.8 | 11.8 | ||||||||||||
Net
sales
|
100.0 | 100.0 | 100.0 | 100.0 | ||||||||||||
Cost
of sales
|
63.8 | 65.3 | 63.8 | 65.8 | ||||||||||||
Gross
profit
|
36.2 | 34.7 | 36.2 | 34.2 | ||||||||||||
Selling,
general and administrative expenses
|
21.7 | 21.8 | 21.4 | 22.9 | ||||||||||||
Operating
income
|
14.5 | % | 12.9 | % | 14.8 | % | 11.3 | % |
Our net
sales are derived from two segments, wholesale and retail. Our net sales within
the wholesale segment are grouped by channel, based upon the brands we sell and
the customers to whom we sell, as follows: (1) department stores and national
chain stores, (2) mass merchants and (3) other.
Our
department stores and national chain stores channel primarily consists of sales
of our Maidenform, Control It!, Flexees, Lilyette and Luleh brands on a
worldwide basis to customers within this category. Within the mass merchant
channel, we sell Bodymates, Inspirations, Self Expressions and Sweet Nothings
brands that are primarily dedicated to specific customers. These brands are all
sold on a worldwide basis to mass merchants and, to a lesser degree, warehouse
clubs. Our remaining sales are grouped within a channel designated as other and
include private brand products sold to specialty retailers and all brand sales
to off-price retail stores. In addition, we include licensing income as well as
sales to foreign distributors in our other channel.
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||||||||||||||||||
October 2,
|
October 3,
|
$
|
%
|
October 2,
|
October 3,
|
$
|
%
|
|||||||||||||||||||||||||
2010
|
2009 (1)
|
change
|
change
|
2010
|
2009 (1)
|
change
|
change
|
|||||||||||||||||||||||||
(in millions)
|
(in millions)
|
|||||||||||||||||||||||||||||||
Department
stores and
|
||||||||||||||||||||||||||||||||
national
chain stores
|
$ | 60.2 | $ | 55.3 | $ | 4.9 | 8.9 | % | $ | 183.4 | $ | 154.7 | $ | 28.7 | 18.6 | % | ||||||||||||||||
Mass
merchants
|
38.8 | 33.9 | 4.9 | 14.5 | 127.1 | 100.0 | 27.1 | 27.1 | ||||||||||||||||||||||||
Other
|
29.6 | 22.7 | 6.9 | 30.4 | 84.6 | 60.2 | 24.4 | 40.5 | ||||||||||||||||||||||||
Total
wholesale
|
128.6 | 111.9 | 16.7 | 14.9 | 395.1 | 314.9 | 80.2 | 25.5 | ||||||||||||||||||||||||
Retail
|
17.2 | 16.8 | 0.4 | 2.4 | 43.0 | 42.2 | 0.8 | 1.9 | ||||||||||||||||||||||||
Total
consolidated net sales
|
$ | 145.8 | $ | 128.7 | $ | 17.1 | 13.3 | % | $ | 438.1 | $ | 357.1 | $ | 81.0 | 22.7 | % |
(1) Prior
period amounts in this table have been reclassified to conform to the current
year presentation.
14
In
addition, our mix of products sold worldwide between bras, shapewear, and
panties for the three and nine-month periods ended October 2, 2010 and October
3, 2009, respectively, is summarized below:
Three Months Ended
|
Nine Months Ended
|
|||||||||||||||
October 2,
|
October 3,
|
October 2,
|
October 3,
|
|||||||||||||
2010
|
2009
|
2010
|
2009
|
|||||||||||||
Bras
|
62%
|
62% | 63% | 64% | ||||||||||||
Shapewear
|
31
|
33 | 32 | 30 | ||||||||||||
Panties
|
|
7
|
5 | 5 | 6 | |||||||||||
100%
|
100% | 100% | 100% |
Net
sales
Consolidated
net sales increased by $17.1 million, or 13.3%, from $128.7 million for the
three months ended October 3, 2009 to $145.8 million for the three months ended
October 2, 2010. Consolidated net sales increased by $81.0 million, or 22.7%,
from $357.1 million for the nine months ended October 3, 2009 to $438.1 million
for the nine months ended October 2, 2010.
Wholesale
segment net sales increased by $16.7 million, or 14.9%, from $111.9 million for
the three months ended October 3, 2009 to $128.6 million for the three months
ended October 2, 2010. Total international net sales, which are included in the
wholesale segment, increased by $4.0 million, or 40.4%, from $9.9 million for
the three months ended October 3, 2009 to $13.9 million for the three months
ended October 2, 2010. International sales benefited from increased sales in
Mexico, Canada and Spain. Our department stores and national chain stores
channel net sales increased by $4.9 million, or 8.9%, from $55.3 million for the
three months ended October 3, 2009 to $60.2 million for the three months ended
October 2, 2010. The increase in this channel was due to the solid performance
of our bra, shapewear and pants businesses, including new product introductions,
and the continued momentum from our licensed brand DKNY®.
Our mass merchant channel net sales increased by $4.9 million, or 14.5%, from
$33.9 million for the three months ended October 3, 2009 to $38.8 million for
the three months ended October 2, 2010. This increase was primarily a result of
sales of shapewear products in the Self Expressions brand which were not in the
same period of 2009 and strong sales growth in our Sweet Nothings brand
shapewear category. Partially offsetting these increases was a decline in
sales with a warehouse customer resulting from the timing of program
deliveries. Other channel net sales, which include sales to specialty
retailers, off-price retailers, foreign distributors and licensing income,
increased by $6.9 million, or 30.4%, from $22.7 million for the three months
ended October 3, 2009 to $29.6 million for the three months ended October 2,
2010. This increase was due primarily to increased sales to a specialty
retailer.
Wholesale
segment net sales increased by $80.2 million, or 25.5%, from $314.9 million for
the nine months ended October 3, 2009 to $395.1 million for the nine months
ended October 2, 2010. Total international net sales increased by $10.7 million,
or 42.1%, from $25.4 million for the nine months ended October 3, 2009 to $36.1
million for the nine months ended October 2, 2010, primarily resulting from the
reasons mentioned above, in addition to increases in Northern Europe, the
Benelux countries and Russia. Our department stores and national chain stores
channel net sales increased by $28.7 million, or 18.6%, from $154.7 million for
the nine months ended October 3, 2009 to $183.4 million for the nine months
ended October 2, 2010. This increase was a result of the solid performance
across the shapewear, bra and pants categories, resulting from replenishment
orders to support consumer spending and new product introductions, and products
sold under our licensed brands DKNY® and
Donna Karan®.
Our mass merchant channel net sales increased by $27.1 million, or 27.1%, from
$100.0 million for the nine months ended October 3, 2009 to $127.1 million for
the nine months ended October 2, 2010. This increase was driven by the ongoing
expansion of our Sweet Nothings brand in the shapewear and bra categories,
continued sales of shapewear products under our Self Expressions brand which
were not in the same period of 2009, and ongoing replenishment of our
Inspirations brand. Other channel net sales increased by $24.4 million, or
40.5%, from $60.2 million for the nine months ended October 3, 2009 to $84.6
million for the nine months ended October 2, 2010. This increase was due
primarily from increased program business with off-price retailers and increased
sales to a specialty retailer.
Net sales
in our retail segment increased by $0.4 million, or 2.4%, from $16.8 million for
the three months ended October 3, 2009 to $17.2 million for the three months
ended October 2, 2010. Net sales in our retail segment increased by $0.8
million, or 1.9%, from $42.2 million for the nine months ended October 3, 2009
to $43.0 million for the nine months ended October 2, 2010. Same store sales,
defined as sales from stores open more than one year, for the three and
nine-month periods ended October 2, 2010, increased 2.2% and 2.7%, respectively.
Our internet sales increased $0.1 million, or 7.1%, from $1.4 million for the
three months ended October 3, 2009 to $1.5 million for the three months ended
October 2, 2010. Our internet sales were unchanged at $3.9 million for the nine
months ended October 2, 2010 when compared to the same period last
year.
15
Gross
profit
Consolidated
gross profit increased by $8.1 million, or 18.1%, from $44.7 million for the
three months ended October 3, 2009 to $52.8 million for the three months ended
October 2, 2010. As a percentage of net sales, consolidated gross margins
increased by 150 basis points from 34.7% for the three months ended October 3,
2009 to 36.2% for the three months ended October 2, 2010. Consolidated gross
profit increased by $36.5 million, or 29.8%, from $122.3 million during the nine
months ended October 3, 2009 to $158.8 million for the nine months ended October
2, 2010. As a percentage of net sales, gross profit increased by 200 basis
points from 34.2% for the nine months ended October 3, 2009 to 36.2% for the
nine months ended October 2, 2010.
Gross
profit as a percentage of net sales for the wholesale segment increased by 190
basis points from 31.0% for the three months ended October 3, 2009 to 32.9% for
the three months ended October 2, 2010. This increase was a result of product
mix and the benefit from product cost reduction efforts, which were partially
offset by customer mix, including a higher percentage of net sales from our
lower margin other channel. Gross profit as a percentage of net sales for
the wholesale segment was 31.0% for the nine months ended October 3, 2009 as
compared to 33.6% for the nine months ended October 2, 2010. This increase of
260 basis points is mainly a result of the reasons mentioned above.
Gross
profit as a percentage of net sales for the retail segment increased by 150
basis points from 59.5% for the three months ended October 3, 2009 to 61.0% for
the three months ended October 2, 2010, and increased 210 basis points from
58.8% for the nine months ended October 3, 2009 to 60.9% for the nine months
ended October 2, 2010.
Selling,
general and administrative expenses (“SG&A”)
Consolidated
SG&A increased by $3.6 million, or 12.8%, from $28.1 million for the three
months ended October 3, 2009 to $31.7 million for the three months ended October
2, 2010. However, as a percentage of net sales, SG&A decreased from 21.8%
for the three months ended October 3, 2009 to 21.7% for the three months ended
October 2, 2010.
SG&A
for our wholesale segment, which includes corporate-related expenses, increased
by $2.6 million, or 12.5%, from $20.8 million for the three months ended October
3, 2009 to $23.4 million for the three months ended October 2, 2010. However, as
a percentage of net sales, wholesale segment SG&A decreased from 18.6% for
the three months ended October 3, 2009 to 18.2% for the three months ended
October 2, 2010. The increase of $2.6 million is primarily a result of increased
payroll and related benefits associated with the filling of new positions to
support our strategic initiatives, increased marketing expenditures, variable
distribution costs, and increased professional fees. Retail SG&A
increased by $1.0 million, or 13.7%, from $7.3 million for the three months
ended October 3, 2009 to $8.3 million for the three months ended October 2,
2010. This increase of $1.0 million is primarily a result of operating
expenses for kiosk and cart expenditures and store lease renewals, and support
fees associated with our new website.
Consolidated
SG&A increased by $12.0 million, or 14.6%, from $82.0 million for the nine
months ended October 3, 2009 to $94.0 million for the nine months ended October
2, 2010. However, as a percentage of net sales, SG&A decreased from 22.9%
for the nine months ended October 3, 2009 to 21.4% for the nine months ended
October 2, 2010.
SG&A
for our wholesale segment increased by $10.1 million, or 16.7%, from $60.5
million for the nine months ended October 3, 2009 to $70.6 million for the nine
months ended October 2, 2010. However, as a percentage of net sales, wholesale
segment SG&A decreased from 19.3% for the nine months ended October 3, 2009
to 17.9% for the nine months ended October 2, 2010. The increase of $10.1
million is a result of the reasons mentioned above along with the impairment of
an intangible asset for which we determined had no future benefit, and incentive
compensation. Retail SG&A increased by $1.9 million, or 8.8%, from
$21.5 million for the nine months ended October 3, 2009 to $23.4 million for the
nine months ended October 2, 2010 resulting from the reasons mentioned
above.
Operating
income
Our
consolidated operating income increased by $4.5 million, or 27.1%, from $16.6
million for the three months ended October 3, 2009 to $21.1 million for the
three months ended October 2, 2010. Our consolidated operating income increased
by $24.5 million, or 60.8%, from $40.3 million for the nine months ended October
3, 2009 to $64.8 million for the nine months ended October 2, 2010.
For the
foregoing reasons, operating income for the wholesale segment increased by $5.0
million, or 36.0%, from $13.9 million for the three months ended October 3, 2009
to $18.9 million for the three months ended October 2, 2010. Operating income
for the wholesale segment increased by $25.0 million, or 67.6%, from $37.0
million during the nine months ended October 3, 2009 to $62.0 million during the
nine months ended October 2, 2010.
16
Also, for
the reasons discussed above, operating income for the retail segment decreased
by $0.5 million, or 18.5%, from $2.7 million for the three months ended October
3, 2009 to $2.2 million for the three months ended October 2, 2010. The retail
segment’s operating income decreased $0.5 million, or 15.2%, from $3.3 million
during the nine months ended October 3, 2009 to $2.8 million for the nine months
ended October 2, 2010.
Interest
expense, net
Interest
expense, net, decreased by $0.3 million, or 60.0%, from $0.5 million for the
three months ended October 3, 2009 to $0.2 million for the three months ended
October 2, 2010 reflecting the benefit of lower average debt outstanding and a
lower average interest rate for the current quarter when compared to the same
period last year. The average balance of total debt outstanding decreased from
$87.8 million for the three months ended October 3, 2009 to $70.7 million for
the three months ended October 2, 2010, and the average interest rate during the
three months ended October 3, 2009 was 2.8% as compared to an average interest
rate of 1.3% during the three months ended October 2, 2010.
Interest
expense, net, decreased $1.0 million, or 55.6%, from $1.8 million for the nine
months ended October 3, 2009 to $0.8 million for the nine months ended October
2, 2010. The decrease was a result of the reasons discussed above. The average
balance of total debt outstanding decreased from $88.1 million for the nine
months ended October 3, 2009 to $74.9 million for the nine months ended October
2, 2010. The average interest rate during the nine months ended October 3, 2009
was 3.3% as compared to an average interest rate of 1.3% during the nine months
ended October 2, 2010.
Income
tax expense
We review
our annual effective tax rate on a quarterly basis and we make necessary changes
if information or events warrant such changes. The annual effective tax rate is
forecasted quarterly using actual historical information and forward-looking
estimates. The estimated annual effective tax rate may fluctuate due to changes
in forecasted annual operating income; changes to the valuation allowance for
deferred tax assets (such changes would be recorded discretely in the quarter in
which they occurred); changes to actual or forecasted permanent book to tax
differences; impacts from future tax settlements with state, federal or foreign
tax authorities (such changes would be recorded discretely in the quarter in
which they occurred); or impacts from tax law changes (to the extent such
changes affect our deferred tax assets/liabilities, these changes would
generally be recorded discretely in the quarter in which they occurred). Our
effective income tax rate for the three and nine-month periods ended October 2,
2010 was 38.9% and 39.7%, respectively, as compared to an effective income tax
rate for the three and nine-month periods ended October 3, 2009 of 0.6% and
24.0%, respectively. The lower effective income tax rate for 2009 was due
primarily to the resolution of an Internal Revenue Service (“IRS”) audit for the
year 2005, which was concluded during 2009. As a result, we adjusted our
liabilities for uncertain tax positions under Accounting Standards Codification
(“ASC”) 740.10.25 and recognized additional net deferred tax assets, principally
in relation to NOLs. Our effective income tax rate, excluding this non−cash
benefit of $6.1 million, for the three and nine-month periods ended October 3,
2009 was 38.2% and 39.7%, respectively.
Net
income
For the
foregoing reasons, our net income decreased by $3.2 million, or 20.0%, from
$16.0 million for the three months ended October 3, 2009 to $12.8 million for
the three months ended October 2, 2010. Our net income increased by $9.3
million, or 31.7%, from $29.3 million for the nine months ended October 3, 2009
to $38.6 million for the nine months ended October 2, 2010. Excluding the
non-cash benefit mentioned above, net income for the three and nine-month
periods ended October 2, 2010 increased $2.9 million, or 29.3% and $15.4
million, or 66.4%, respectively.
Liquidity and Capital
Resources
Operating activities. Cash
flows provided by operating activities were $7.4 million for the nine months
ended October 2, 2010 compared to cash flows provided by operating activities of
$18.3 million for the nine months ended October 3, 2009. This change was
primarily driven by changes in working capital partially offset by the increase
in net income. The increase in accounts receivable was due to higher sales
during the quarter, which were somewhat offset by higher cash collections.
The increase in inventory and accounts payable was the result of investments
made to service a higher sales volume and order fulfillment, new product
introductions and supply chain management.
17
Investing activities. Cash
flows used in investing activities were $4.6 million for the nine months ended
October 2, 2010 compared to $2.7 million for the nine months ended October 3,
2009. Cash flows used in investing activities for the nine months ended
October 2, 2010 and October 3, 2009 were mostly for capital expenditures.
This increase in capital expenditures was primarily due to information
technology upgrades, including the implementation of an enterprise resource
planning system and our e-commerce website.
Financing activities. Cash
flows used in financing activities were $39.9 million for the nine months ended
October 2, 2010 compared to cash flows provided by financing activities of $3.1
million for the nine months ended October 3, 2009. The increase in cash flows
used in financing activities was primarily due to the $32.4 million repurchase
of our common stock under our stock repurchase plan and the $16.0 million
prepayment on our long-term debt.
In
February 2010, the Board of Directors increased our stock repurchase program by
an additional $37.5 million, increasing the amount then available under the plan
to $50.0 million. We are authorized to make repurchases from time to time
as market conditions warrant and pursuant to other parameters set by our Board
of Directors. On March 16, 2010, we repurchased $32.4 million of common stock at
an average price per share of $20.30. Our credit facility was amended to
permit the increased stock repurchase, subject to certain restrictions and
limitations set forth in the amendment to our credit facility.
At
October 2, 2010, we had $70.4 million outstanding under our term loan, and $0
outstanding under our revolving loan with approximately $49.2 million available
for borrowings, after giving effect to $0.8 million of outstanding letters of
credit. Principal payments on the term loan are payable in quarterly
installments of $0.3 million with all remaining amounts due on the maturity
date. We are permitted to voluntarily prepay all or part of the principal
balance of the term loan with such prepayments applied to scheduled principal
payments in inverse order of their maturity. We were in compliance with all debt
covenants at October 2, 2010.
Below is
a summary of our actual performance under these financial
covenants:
October 2, 2010
Covenant
|
January 2, 2010
Covenant
|
|||||||
Actual
fixed charge coverage ratio 1
|
1.87
: 1.00
|
3.16
: 1.00
|
||||||
Minimum
ratio required 1
|
1.25
: 1.00
|
1.25
: 1.00
|
||||||
Actual
fixed charge coverage ratio 2
|
1.44
: 1.00
|
N/A
|
||||||
Minimum
ratio required 2
|
0.85
: 1.00
|
N/A
|
||||||
Actual
leverage ratio (a)
|
0.22
: 1.00
|
0.00
: 1.00
|
||||||
Maximum
ratio permitted
|
4.00
: 1.00
|
4.00
: 1.00
|
||||||
Actual
consolidated capital expenditures
|
$ | 4,560 | $ | 5,894 | ||||
Maximum
permitted
|
$ | 14,106 | $ | 15,000 |
(a)
Leverage ratio computed as the ratio of total net debt to consolidated earnings
before interest, taxes, depreciation, amortization and certain other non-cash
charges
The
global economic downturn and the continued volatility in the financial markets
could have a material adverse effect on our business. Further deterioration in
the financial markets could lead to business disruptions for certain of our
suppliers, contract manufacturers or trade customers and consequently, could
disrupt our business. However, we believe that our existing cash balances and
available borrowings under our revolving loan, along with our future cash flow
from operations, will enable us to meet our liquidity needs and capital
expenditure requirements for the foreseeable future.
18
Contractual Obligations,
Commitments and Off-Balance Sheet Arrangements
We have
various contractual obligations which are recorded as liabilities in our
condensed consolidated financial statements. Other items, such as certain
purchase commitments and other executory contracts, are not recognized as
liabilities in our condensed consolidated financial statements but are required
to be disclosed. For example, we are contractually committed to make certain
minimum lease payments for the use of property under operating lease
agreements.
The
following table summarizes our significant contractual obligations and
commercial commitments at October 2, 2010 and the future periods in which such
obligations are expected to be settled in cash. In addition, the table below
reflects the timing of principal and interest payments on outstanding
borrowings.
Balance of
|
||||||||||||||||||||||||||||
fiscal
|
In fiscal
|
In fiscal
|
In fiscal
|
In fiscal
|
||||||||||||||||||||||||
(in millions)
|
2010
|
2011
|
2012
|
2013
|
2014
|
Thereafter
|
Total
|
|||||||||||||||||||||
Long-term
debt
|
$ | 0.2 | $ | 1.1 | $ | 1.1 | $ | 1.1 | $ | 66.9 | $ | - | $ | 70.4 | ||||||||||||||
Interest
on long-term debt (1)
|
0.2 | 0.9 | 0.9 | 0.9 | 0.3 | - | 3.2 | |||||||||||||||||||||
Obligations
under capital lease (2)
|
0.1 | 0.1 | 0.1 | - | - | - | 0.3 | |||||||||||||||||||||
Operating
leases (3)
|
2.1 | 6.8 | 5.9 | 4.3 | 2.9 | 4.8 | 26.8 | |||||||||||||||||||||
Total
financial obligations
|
2.6 | 8.9 | 8.0 | 6.3 | 70.1 | 4.8 | 100.7 | |||||||||||||||||||||
Other
contractual obligations (4)
|
1.4 | 3.2 | 5.2 | 5.8 | 8.3 | 5.0 | 28.9 | |||||||||||||||||||||
Purchase
obligations (5)
|
45.4 | 56.0 | - | - | - | - | 101.4 | |||||||||||||||||||||
Total
financial obligations and commitments
|
$ | 49.4 | $ | 68.1 | $ | 13.2 | $ | 12.1 | $ | 78.4 | $ | 9.8 | $ | 231.0 |
(1)
The interest rate assumed for the variable portion of long-term debt was the
rate in effect at October 2, 2010.
(2)
Includes amounts classified as interest expense and SG&A under capital
leases.
(3)
The operating leases included in the above table consist of minimum rent
payments and do not include contingent rent based upon sales volume, or variable
costs such as maintenance, insurance or taxes.
(4)
Includes amounts classified as royalties, advertising and marketing
obligations.
(5)
Unconditional purchase obligations are defined as agreements to purchase goods
that are enforceable and legally binding on us and that specify all significant
terms, including fixed or minimum quantities to be purchased; fixed, minimum, or
variable price provisions; and the approximate timing of the transaction. The
purchase obligations category above relates to commitments for inventory and raw
material purchases. Amounts reflected in our condensed consolidated balance
sheets in accounts payable or other current liabilities are excluded from the
table above.
In
addition to the total contractual obligations and commitments included in the
table above, we have pension and post-retirement benefit obligations included in
other non-current liabilities of $3.1 million and $0.7 million, respectively, at
October 2, 2010.
As of
October 2, 2010, our total liabilities for unrecognized tax benefits and related
interest and penalties amounted to $4.3 million (before federal and, if
applicable, state effect). Liabilities for unrecognized tax benefits have not
been included in the schedule of cash contractual obligations because we cannot
make a reasonable, reliable estimate of the amount and period of related future
payments of these liabilities.
Off-Balance Sheet Arrangements.
Our most significant off-balance sheet financing arrangements as of
October 2, 2010 are non-cancelable operating lease agreements, primarily for our
company-operated outlet stores, our company headquarters and our leased
distribution centers located in Shannon, Ireland and Fayetteville, North
Carolina. We do not participate in any off-balance sheet arrangements involving
unconsolidated subsidiaries that provide financing or potentially expose us to
unrecorded financial obligations.
19
Critical Accounting Policies
and Estimates
Our
discussion and analysis of our financial condition and results of operations is
based upon our condensed consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these financial statements requires us to make
estimates and judgments that affect the reported amounts of assets, liabilities,
revenues, expenses, and related disclosure of contingent assets and liabilities.
We base our estimates on historical experience and on various other assumptions
that we believe are reasonable under the circumstances, the results of which
form the basis for making judgments about the carrying values of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions. A summary
of our significant accounting policies and a description of accounting policies
that we believe are most critical may be found in the Management’s Discussion
and Analysis of Financial Condition and Results of Operations included in our
Annual Report on Form 10-K for the year ended January 2, 2010.
In
February 2010, the Financial Accounting Standards Board (“FASB”) issued an
amendment to the guidance on subsequent events to eliminate the requirement for
public companies to disclose the date through which subsequent events have been
evaluated. We will continue to evaluate subsequent events through the date of
the issuance of our financial statements, however, consistent with the guidance,
this date will no longer be disclosed. The guidance became effective upon
issuance and the adoption had no impact on our consolidated financial
statements.
In
January 2010, the FASB issued guidance to amend the disclosure requirements
related to recurring and nonrecurring fair value measurements. The guidance
requires disclosure of transfers of assets and liabilities between Level 1 and
Level 2 of the fair value measurement hierarchy, including the reasons and the
timing of the transfers and information on purchases, sales, issuance, and
settlements on a gross basis in the reconciliation of the assets and liabilities
measured under Level 3 of the fair value measurement hierarchy. The adoption of
this guidance is effective for interim and annual reporting periods beginning
after December 15, 2009. We have adopted this guidance in the financial
statements presented herein, which did not impact our consolidated financial
position or results of operations.
20
Item
3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk. We do
not believe that we have significant foreign currency transactional exposures.
For the three and nine-month periods ended October 2, 2010, $9.8 million and
$25.7 million, respectively, of our total net sales were in currencies other
than the U.S. dollar. During the three-month period ended October 2, 2010, our
net sales were unfavorably impacted by $0.3 million due to fluctuations in
foreign currency exchange rates. During the nine-month period ended October 2,
2010, our net sales were favorably impacted by $0.5 million due to fluctuations
in foreign currency exchange rates. Most of our purchases are denominated in
U.S. dollars. The impact of a 10% unfavorable change in the exchange rate of the
U.S. dollar against the prevailing market rates of the foreign currencies in
which we have transactional exposures would be immaterial.
Interest Rate Risk. From
time to time, we manage our interest rate risk through the use of interest rate
swaps. Our existing swap contract matured on December 31, 2009. At October 2,
2010, our debt portfolio was composed of variable-rate debt, with no portion
hedged. With respect to our variable-rate debt, a 1% change in interest rates
would be immaterial.
Commodity Price Risk. We are
subject primarily to commodity price risk arising from fluctuations in the
market prices of raw materials used in the garments purchased from our sourcing
vendors, if they pass along these increased costs. During the past five years,
there has been no significant impact from commodity price fluctuations, and we
do not currently use derivative instruments in the management of these risks. On
a going-forward basis, fluctuations in crude oil prices or petroleum based
product prices may also influence the prices of the related items such as
chemicals, dyestuffs, man-made fibers and foam, and transportation costs. Raw
material price increases could increase our cost of sales and decrease our
profitability unless we are able to pass our higher costs on to our
customers.
Inflation Risk. We are
affected by inflation and changing prices from our suppliers primarily through
the cost of raw materials, increased operating costs and expenses, and
fluctuations in interest rates. The effects of inflation on our net sales and
operations have not been material in recent years. We do not believe that
inflation risk is material to our business or our consolidated financial
position, results of operations or cash flows. In the future, volatile crude oil
and gasoline prices may impact our product and freight costs, consumer
confidence and disposable income.
Seasonality. We have not
experienced any significant seasonal fluctuations in our net sales or our
profitability.
Item
4. Controls and Procedures
(a) Evaluation of Disclosure
Controls and Procedures.
Our
management, including the Chief Executive Officer and Chief Financial Officer,
evaluated the effectiveness of our “disclosure controls and procedures,” (as
defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”)), as of the end of the
period covered by this report. Based on that evaluation, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of such date, our
disclosure controls and procedures were effective as of October 2, 2010 to
ensure that the information required to be disclosed by us in the reports that
we file or submit under the Exchange Act is recorded, processed, summarized and
reported within the time periods specified in SEC rules and forms, and to ensure
that information is accumulated and communicated to our management, including
the Chief Executive Officer and Chief Financial Officer, as appropriate to allow
timely decisions regarding required disclosure.
(b) Changes
in Internal Controls over Financial Reporting.
There was
no change in our internal control over financial reporting (as defined in
Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during
our fiscal quarter ending October 2, 2010, that has materially affected, or is
reasonably likely to materially affect, our internal control over financial
reporting.
21
PART II - OTHER
INFORMATION
Item
1. Legal Proceedings
We have
filed suit against Times Three Clothier LLC d/b/a Yummie Tummie (“Times Three”)
in U.S. District Court for the Southern District of New York, seeking a
declaratory judgment that our Flexees® Fat Free
Dressing™ Tank Top
does not infringe U.S. Design Patent No. D606,285 (“the ’285 patent”) and/or
that the ’285 patent is invalid. Times Three has filed a counterclaim for
infringement of the ’285 patent and related U.S. Design Patents Nos. D616,627,
D622,477 and D623,377. In response, we have filed counterclaims seeking a
declaration of noninfringement and/or invalidity/unenforceability with respect
to each of these patents. We believe that the ultimate outcome of this
pending lawsuit and claim will not have a material adverse effect on our
consolidated financial position or results of operations taken as a whole.
Due to the inherent uncertainty of litigation, however, there can be no
assurance of the ultimate outcome of this or future litigations, proceedings,
investigations, or claims or their effect.
From time
to time, we are subject to various claims and legal actions arising in the
ordinary course of business.
Item
1A. Risk Factors
Risks
that could have a negative impact on our business, results of operations and
financial condition include: our growth cannot be assured and any growth may be
unprofitable; potential fluctuations in our results of operations or rate of
growth; our dependence on a limited number of customers; we have larger
competitors with greater resources; retail trends in the intimate apparel
industry, including consolidation and continued growth in the development of
private brands, resulting in downward pressure on prices, reduced floor space
and other harmful changes; failure to anticipate, identify or promptly react to
changing trends, styles, or consumer preferences; our leverage could adversely
affect our financial condition; external events may disrupt our supply chain,
result in increased cost of goods or an inability to deliver our products;
events which result in difficulty in procuring or producing products on a
cost-effective basis; disputes with third parties for infringement or
misappropriation of their proprietary rights; increases in the prices of raw
materials; changing international trade regulation, including as it relates to
the imposition or elimination of quotas on imports of textiles and apparel;
foreign currency exposure; the sufficiency of cash to fund operations and
capital expenditures; and the influence of adverse changes in general economic
conditions. This list is intended to identify only certain of the principal
factors that could have a material and adverse impact on our business, results
of operations and financial condition. A more detailed description of each
of these and other important risk factors can be found under the caption “Risk
Factors” in our most recent Form 10-K, filed with the Securities and Exchange
Commission on March 10, 2010.
There are
no material changes to the risk factors described in the Form 10-K filed on
March 10, 2010.
Item
2. Unregistered Sales of Equity Securities and Use of Proceeds
(a)
None.
(b)
None.
(c)
None.
Item
3. Defaults Upon Senior Securities
None.
Item
4. (Removed and Reserved)
Item
5. Other Information
None.
Item
6. Exhibits
The
following exhibits are filed as part of this Quarterly Report on Form
10-Q:
31.1
|
Certification
by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
Certification
by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
22
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
MAIDENFORM BRANDS,
INC.
(Registrant)
|
||
Date:
November 10, 2010
|
By:
|
/s/ Christopher W. Vieth
|
Name:
Christopher W. Vieth
|
||
Title:
Executive Vice President, Chief Operating Officer and
Chief
Financial Officer (principal financial
officer)
|
23
EXHIBIT
INDEX
31.1
|
Certification
by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
31.2
|
Certification
by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of
2002
|
|
32.1
|
Certification
by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
32.2
|
|
Certification
by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
24