Attached files
file | filename |
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EX-10.2 - EXHIBIT 10.2 - BARRY R G CORP /OH/ | c16561exv10w2.htm |
EX-10.1 - EXHIBIT 10.1 - BARRY R G CORP /OH/ | c16561exv10w1.htm |
EX-31.1 - EXHIBIT 31.1 - BARRY R G CORP /OH/ | c16561exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - BARRY R G CORP /OH/ | c16561exv32w1.htm |
EX-31.2 - EXHIBIT 31.2 - BARRY R G CORP /OH/ | c16561exv31w2.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Washington, D. C. 20549
FORM 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Quarterly period ended April 2, 2011
OR
o | 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: 001-08769
R.G. BARRY CORPORATION
(Exact name of registrant as specified in its charter)
OHIO | 31-4362899 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) | |
13405 Yarmouth Road NW, Pickerington, Ohio | 43147 | |
(Address of principal executive offices) | (Zip Code) |
614-864-6400
(Registrants telephone number, including area code)
Not Applicable
(Former name, former address and former Fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ 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 (§232.405 of this chapter) 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 þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a 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 þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
Common Shares, $1 Par Value, Outstanding as of May 9, 2011 11,046,071
Index to Exhibits at page 32
R.G. BARRY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Third Quarter of Fiscal 2011
(Period Ended April 2, 2011)
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Third Quarter of Fiscal 2011
(Period Ended April 2, 2011)
Page | ||||||||
4 | ||||||||
20 | ||||||||
29 | ||||||||
29 | ||||||||
30 | ||||||||
30 | ||||||||
30 | ||||||||
30 | ||||||||
30 | ||||||||
30 | ||||||||
30 | ||||||||
31 | ||||||||
32 | ||||||||
Exhibit 10.1 | ||||||||
Exhibit 10.2 | ||||||||
Exhibit 31.1 | ||||||||
Exhibit 31.2 | ||||||||
Exhibit 32.1 |
2
Table of Contents
Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:
Some of the disclosures in this Quarterly Report on Form 10-Q contain forward-looking statements
that involve substantial risks and uncertainties. You can identify these statements by
forward-looking words such as may, expect, could, should, anticipate, believe,
estimate, or words with similar meanings. Any statements that refer to projections of our future
performance, anticipated trends in our business and other characterizations of future events or
circumstances are forward-looking statements. 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. These risks could include, but are not limited to the
following: our continuing ability to source products from Third parties located outside North
America; unplanned delivery and shipping costs resulting from delays in the manufacturing time for
our products; competitive cost pressures; our ability to successfully integrate acquisitions, such
as the businesses of baggallini, Inc. and Foot Petals, LLC; the loss of retailer customers to
competitors, consolidations, bankruptcies or liquidations; shifts in consumer preferences; the
impact of the global financial crisis and general economic conditions on consumer spending; the
impact of the highly seasonal nature of our footwear business upon our operations; inaccurate
forecasting of consumer demand; difficulties liquidating excess inventory; disruption of our supply
chain or distribution networks; and our investment of excess cash in certificates of deposit,
commercial paper and other variable rate demand note securities. You should read this Quarterly
Report on Form 10-Q carefully because the forward-looking statements contained in it (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. The risk factors
described in this Quarterly Report on Form 10-Q and in our other filings with the Securities and
Exchange Commission (the SEC), in particular Item 1A. Risk Factors of Part I of our Annual
Report on Form 10-K for the Fiscal year ended July 3, 2010 (the 2010 Form 10-K), give examples of
the types of uncertainties that may cause actual performance to differ materially from the
expectations we describe in our forward-looking statements. If the events described in Item 1A.
Risk Factors of Part I of our 2010 Form 10-K occur, they could have a material adverse effect on
our business, operating results and financial condition. You should also know that it is
impossible to predict or identify all risks and uncertainties related to our business.
Consequently, no one should consider any such list to be a complete set of all potential risks and
uncertainties. Forward-looking statements speak only as of the date on which they are made, and we
undertake no obligation to update any forward-looking statement to reflect circumstances or events
that occur after the date on which the statement is made to reflect unanticipated events, except as
required by applicable law. Any further disclosures in our filings with the SEC should also be
considered.
Definitions
As used in this Quarterly Report on Form 10-Q, unless the context otherwise requires, references to
our, us, we and the Company refer to R.G. Barry Corporation and its consolidated
subsidiaries. In addition, the terms listed below reflect the respective periods noted:
Fiscal 2011
|
52 weeks ending July 2, 2011 | |
Fiscal 2010
|
53 weeks ended July 3, 2010 | |
Nine-month period of Fiscal 2011
|
39 weeks ended April 2, 2011 | |
Nine-month period of Fiscal 2010
|
40 weeks ended April 3, 2010 | |
Third Quarter of Fiscal 2011
|
13 weeks ended April 2, 2011 | |
Third Quarter of Fiscal 2010
|
13 weeks ended April 3, 2010 |
3
Table of Contents
PART I FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
R.G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
April 2, 2011 | July 3, 2010 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 7,358 | $ | 16,988 | ||||
Short-term investments |
21,018 | 27,954 | ||||||
Accounts receivable (less allowances of $4,988 and $3,446, respectively) |
13,286 | 8,302 | ||||||
Inventory |
19,752 | 13,486 | ||||||
Deferred tax assets current |
1,676 | 1,676 | ||||||
Prepaid expenses |
584 | 999 | ||||||
Total current assets |
63,674 | 69,405 | ||||||
Property, plant and equipment, at cost |
12,511 | 11,669 | ||||||
Less accumulated depreciation and amortization |
8,251 | 7,544 | ||||||
Net property, plant and equipment |
4,260 | 4,125 | ||||||
Deferred tax assets noncurrent |
6,949 | 6,936 | ||||||
Goodwill |
33,571 | | ||||||
Other intangible assets (net of accumulated amortization of $552 and $434, respectively) |
6,948 | 171 | ||||||
Other assets |
2,930 | 2,732 | ||||||
Total assets |
$ | 118,332 | $ | 83,369 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Short-term notes payable |
$ | 1,750 | $ | 1,750 | ||||
Current installments of long-term debt |
4,311 | 97 | ||||||
Accounts payable |
3,899 | 3,598 | ||||||
Accrued expenses |
3,362 | 4,867 | ||||||
Total current liabilities |
13,322 | 10,312 | ||||||
Long-term debt |
25,357 | | ||||||
Accrued retirement costs and other |
18,141 | 18,461 | ||||||
Total liabilities |
56,820 | 28,773 | ||||||
Commitments and contingent liabilities (note 17) |
| | ||||||
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 11,046 and 10,930 shares, respectively (excluding treasury shares of
1,046 and 1,025, respectively) |
11,046 | 10,930 | ||||||
Additional capital in excess of par value |
20,035 | 19,195 | ||||||
Accumulated other comprehensive loss |
(12,652 | ) | (12,594 | ) | ||||
Retained earnings |
43,083 | 37,065 | ||||||
Total shareholders equity |
61,512 | 54,596 | ||||||
Total liabilities and shareholders equity |
$ | 118,332 | $ | 83,369 | ||||
See accompanying notes to condensed consolidated financial statements.
4
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
Third Quarter | Nine-month period | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Net sales |
$ | 20,113 | $ | 22,212 | $ | 106,042 | $ | 107,235 | ||||||||
Cost of sales |
12,183 | 13,249 | 66,686 | 62,020 | ||||||||||||
Gross profit |
7,930 | 8,963 | 39,356 | 45,215 | ||||||||||||
Selling, general and administrative expenses |
8,080 | 8,245 | 26,391 | 27,829 | ||||||||||||
Operating (loss) profit |
(150 | ) | 718 | 12,965 | 17,386 | |||||||||||
Other income |
84 | | 278 | | ||||||||||||
Interest income |
42 | 56 | 133 | 279 | ||||||||||||
Interest expense |
(82 | ) | (20 | ) | (130 | ) | (68 | ) | ||||||||
(Loss) earnings, before income taxes |
(106 | ) | 754 | 13,246 | 17,597 | |||||||||||
Income tax (benefit) expense |
(64 | ) | 215 | 4,873 | 6,568 | |||||||||||
Net (loss) earnings |
$ | (42 | ) | $ | 539 | $ | 8,373 | $ | 11,029 | |||||||
Net earnings per common share |
||||||||||||||||
Basic |
$ | 0.00 | $ | 0.05 | $ | 0.76 | $ | 1.02 | ||||||||
Diluted |
$ | 0.00 | $ | 0.05 | $ | 0.75 | $ | 1.00 | ||||||||
Weighted average number of common shares outstanding |
||||||||||||||||
Basic |
11,123 | 10,914 | 11,086 | 10,862 | ||||||||||||
Diluted |
11,123 | 11,112 | 11,212 | 11,028 | ||||||||||||
Common shares outstanding at end of period |
11,046 | 10,881 | 11,046 | 10,881 | ||||||||||||
Cash dividends declared per common share |
$ | 0.07 | $ | 0.05 | $ | 0.21 | $ | 0.10 | ||||||||
See accompanying notes to condensed consolidated financial statements.
5
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Nine-month period | Nine-month period | |||||||
Fiscal 2011 | Fiscal 2010 | |||||||
(unaudited) | (unaudited) | |||||||
Operating activities: |
||||||||
Net earnings |
$ | 8,373 | $ | 11,029 | ||||
Adjustments to reconcile net earnings to net cash provided by operating activities: |
||||||||
Depreciation and amortization |
811 | 607 | ||||||
Deferred income tax expense |
148 | 2,380 | ||||||
Loss on disposal of property, plant and equipment |
| 43 | ||||||
Gross excess tax benefit from exercise of stock options and vesting of
restricted stock units |
(127 | ) | (1,227 | ) | ||||
Stock-based compensation expense |
974 | 604 | ||||||
Changes in: |
||||||||
Accounts receivable, net |
(786 | ) | (1,006 | ) | ||||
Inventory |
(1,404 | ) | (5,626 | ) | ||||
Prepaid expenses and other assets |
204 | 86 | ||||||
Accounts payable |
(1,675 | ) | (907 | ) | ||||
Accrued expenses |
(1,759 | ) | 1,864 | |||||
Accrued retirement costs and other |
(436 | ) | 3 | |||||
Net cash provided by operating activities |
4,323 | 7,850 | ||||||
Investing activities: |
||||||||
Purchases of property, plant and equipment |
(643 | ) | (831 | ) | ||||
Acquisitions of principal assets of Foot Petals, LLC and baggallini, Inc. business
operations, net of assumed liabilities |
(47,702 | ) | | |||||
Proceeds from sale (purchase) of short-term investments, net |
6,936 | (8,041 | ) | |||||
Net cash used by investing activities |
(41,409 | ) | (8,872 | ) | ||||
Financing activities: |
||||||||
Proceeds from long-term debt |
30,000 | | ||||||
Principal repayment of long-term debt |
(429 | ) | (67 | ) | ||||
Proceeds from stock options exercised |
77 | 372 | ||||||
Gross excess tax benefit from exercise of stock options and vesting of restricted
stock units |
127 | 1,227 | ||||||
Dividends paid |
(2,319 | ) | (1,085 | ) | ||||
Net cash provided by financing activities |
27,456 | 447 | ||||||
Net decrease in cash and cash equivalents |
(9,630 | ) | (575 | ) | ||||
Cash and cash equivalents at the beginning of the period |
16,988 | 14,259 | ||||||
Cash and cash equivalents at the end of the period |
$ | 7,358 | $ | 13,684 | ||||
See accompanying notes to condensed consolidated financial statements.
6
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
1. Basis of Presentation
R.G. Barry Corporation, an Ohio corporation (the Company), is engaged, with its subsidiaries,
including Foot Petals Inc. and Baggallini, Inc., in designing, sourcing, marketing and distributing
footwear, foot and shoe care products and hand bags, tote bags and other travel accessories. The
Company operates in two reportable segments: (1) footwear that encompasses primarily slippers,
sandals, hybrid and fashion footwear, slipper socks and hosiery; and (2) accessories with products
including foot and shoe care products, handbags, tote bags and other travel accessories. The
Companys products are sold predominantly in North America through the accessory sections of
department stores, chain stores, warehouse clubs, specialty stores, television shopping networks,
e-tailing/internet based retailers, discount stores and mass merchandising channels of
distribution.
The accompanying unaudited condensed consolidated financial statements include the accounts of the
Company and have been prepared in accordance with the United States of America (U.S.) generally
accepted accounting principles (GAAP) for interim financial information and with the instructions
to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial statements. In the opinion
of management, all adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation of the financial condition and results of operations at the dates and for the
interim periods presented, have been included. The financial information shown in the accompanying
condensed consolidated balance sheet as of the end of Fiscal 2010 is derived from the Companys
audited consolidated financial statements.
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in financial statements and accompanying
notes. Actual results could differ from those estimates.
The Companys reporting period is a fifty-two week or fifty-three-week period (Fiscal Year),
ending annually on the Saturday nearest June 30. Operating results for the Third Quarter-and the
Nine-month period of Fiscal 2011 are not necessarily indicative of the annual results that may be
expected for Fiscal 2011. For further information, refer to the consolidated financial statements
and notes thereto included in Item 8 Financial Statements and Supplementary Data. of
Part II of the 2010 Form 10-K.
2. Fair Value
At April 2, 2011, as part of its cash management and investment program, the Company maintained a
portfolio of $21,018 in short-term marketable investment securities, comprised of $13,543 of
variable rate demand notes and $7,475 of commercial paper. The marketable investment securities
are classified as available-for-sale. These marketable investment securities are carried at cost,
which approximates fair value. The commercial paper investments mature on various dates between
June, 2011 and August, 2011.
In addition, at April 2, 2011, the Company held a derivative instrument in the form of an interest
rate contract that served as a cash flow hedge on interest rate change exposure on a portion of its
borrowings under a floating-rate term loan facility entered into by the Company on March 1, 2011.
See Note 8Revolving Credit Facility and Long-term Debt and Note 9Derivative Instruments and
Hedging Activities below.
Financial Accounting Standards Board Accounting Standard Codification (FASB ASC) 820-10 (the
overall Subtopic of topic 820 on fair value measurements and disclosures) provides guidance on fair
value measurements of financial assets and financial liabilities and for fair value measurements of
nonfinancial items that are recognized or disclosed at fair value in the financial statements on a
recurring basis. This accounting standard provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to measurements involving significant unobservable inputs
(Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. | ||
| Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. | ||
| Level 3 inputs are unobservable inputs for the asset or liability. |
7
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
The level in the fair value hierarchy within which a fair value measurement falls is based on the
lowest level input that is significant to the fair value measurement in its entirety.
Cash, cash equivalents, short-term investments, accounts receivable, short-term notes payable,
accounts payable and accrued expenses, as reported in the condensed consolidated financial
statements, approximate their fair value because of the short-term maturity of those instruments.
The fair value of the Companys long-term debt is based on 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 carrying amount of the Companys long-term debt
approximates its fair value.
The following table presents assets and liabilities that are measured at fair value on a recurring
basis (including items that are required to be measured at fair value at April 2, 2011):
Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
Quoted Prices in | ||||||||||||||||
Active Markets for | Significant Other | Significant | ||||||||||||||
Identical Assets | Observable Inputs | Unobservable Inputs | ||||||||||||||
April 2, 2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Available-for-sale
securities |
$ | 21,018 | | $ | 21,018 | | ||||||||||
Total |
$ | 21,018 | | $ | 21,018 | | ||||||||||
Liabilities: |
||||||||||||||||
Interest rate contract |
$ | 105 | | $ | 105 | | ||||||||||
Total |
$ | 105 | | $ | 105 | | ||||||||||
Fair value for the interest rate contract was determined based on models utilizing market
observable inputs and credit risk.
Assets acquired in business combinations during the Third Quarter of Fiscal 2011 were acquired at
fair value as disclosed in Note 14Acquisitions. The Company had no other nonfinancial assets
or liabilities during the Nine-month period of Fiscal 2011 or the Nine-month period of Fiscal 2010
measured at fair value on a non-recurring basis under the provisions of FASB ASC 820-10.
3. Stock-Based Compensation
The Amended and Restated 2005 Long-Term Incentive Plan (the 2005 Plan) is the only equity-based
compensation plan under which future awards may be made to employees of the Company and
non-employee directors of R.G. Barry Corporation other than the employee stock purchase plan,
currently inactive, in which employees of the Company may participate when that plan is active.
The Companys previous equity-based compensation plans remained in effect with respect to the then
outstanding awards following the original approval of the 2005 Plan. By shareholder action at the
2009 Annual Meeting of Shareholders, the 2005 Plan was amended to provide for an additional 500,000
common shares to be made available for future awards under the 2005 Plan (the Amended 2005 Plan).
The Amended 2005 Plan provides for the granting of nonqualified stock options (NQs), incentive
stock options (ISOs) that qualify under Section 422 of the Internal Revenue Code, stock
appreciation rights, restricted stock, restricted stock units (RSUs), stock grants, stock units
and cash awards, each as defined in the Amended 2005 Plan. Grants of restricted or unrestricted
stock, RSUs, stock units and cash awards may also be performance-based awards, as defined in the
Amended 2005 Plan.
8
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Under the provisions of FASB ASC 718, the Company recorded, as part of selling, general and
administrative expenses, $207 and $120 of stock-based compensation expense for the Third Quarter
of Fiscal 2011 and Third Quarter of Fiscal 2010, respectively. The Company recognized stock-based
compensation expense of $974 and $604 for the Nine-month period of Fiscal 2011 and the Nine-
month period of Fiscal 2010, respectively. Where stock-based compensation is granted in the form
of RSUs, the fair value for such grants is based on the market price of the Companys common
shares at the date of grant and is adjusted for projected forfeitures anticipated with respect to
such awards. Consistent with its employee compensation policy, the Company granted an aggregate
of 124,500 RSUs and 121,200 RSUs to certain members of management during the Nine-month period of
Fiscal 2011 and the Nine-month period of Fiscal 2010, respectively. Consistent with its
non-employee directors compensation policy, the Company also awarded an aggregate of 25,100 common
shares (i.e., unrestricted stock) with immediate vesting to the non-employee directors of R.G.
Barry Corporation during the second Quarter of Fiscal 2011. The aggregate fair value of this
award of common shares was $257 based on the market price of the Companys common shares at the
date of grant, and was included as part of the total stock-based compensation expense cited above.
The Company granted 7,500 non-qualified stock options to certain members of management during the
Third Quarter of Fiscal 2011 but did not grant any stock options during the first Nine-month period
of Fiscal 2010. The fair value of these stock options, based on the Black-Scholes option-pricing
model, calculated at the grant date, was $3.07 per share, or $23 in total. Total compensation cost
of stock options granted, but not yet vested, as of April 2, 2011 was $22. This amount is expected
to be recognized over the remaining pro-rata vesting period of three years associated with these
stock option grants. The following assumptions were used to value these stock options:
Dividend yield |
2.6 | % | ||
Expected volatility |
48.4 | % | ||
Risk-free interest rate |
1.4 | % | ||
Expected term |
3 years |
The risk-free interest rate was based on the United States Treasury daily yield curve rates for the
expected term of the stock options. The expected volatility was based on the historical volatility
of the Companys common shares.
During the Third Quarter and Nine-month period of Fiscal 2011, the Company recognized gross excess
tax benefits of $5 and $127, respectively, as additional capital in excess of par value under the
provisions of FASB ASC 718 related to the vesting of RSUs and exercises of stock options. During
the Third Quarter and Nine-month period of Fiscal 2010, the Company recognized gross excess tax
benefits of $120 and $1,227 respectively as additional capital in excess of par value.
During the Second Quarter and the First Half of Fiscal 2010, the Company recognized gross excess
tax benefits of $1,107 as additional capital in excess of par value under the provisions of FASB
ASC 718. These excess tax benefits were created in the periods from Fiscal 2006 through the first
half of Fiscal 2010 based primarily on the exercise of NQs and the vesting of RSUs during this
period. Under FASB ASC 718, the excess tax benefits could not be recognized as an additional
capital in excess of par value until the benefits directly impacted taxes paid. Since the Company
had existing net operating tax loss carryforward positions which were used to offset its tax
liability, this recognition criteria was not met in the periods prior to the Second Quarter of
Fiscal 2010. All then remaining net operating tax loss carryforward positions were fully used
during the Second Quarter of Fiscal 2010, and accordingly, the accumulated excess tax benefits were
recognized as an additional capital in excess of par value.
Activity with respect to stock options for the Nine-month period of Fiscal 2011 was as follows:
Number of | Number of | Weighted- | ||||||||||
common shares | common shares | Average | ||||||||||
subject to ISOs | subject to NQs | exercise price | ||||||||||
Outstanding at July 3, 2010 |
36,000 | 105,500 | $ | 6.11 | ||||||||
Granted |
| 7,500 | 10.60 | |||||||||
Exercised |
(6,900 | ) | (5,000 | ) | 6.54 | |||||||
Expired/Cancelled |
| | | |||||||||
Outstanding at April 2, 2011 |
29,100 | 108,000 | $ | 6.32 | ||||||||
Options exercisable at April 2, 2011 |
29,100 | 100,500 | ||||||||||
9
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Activity with respect to RSUs for the Nine-month period of Fiscal 2011 was as follows:
Number of | ||||||||
common shares | Grant Date | |||||||
underlying RSUs | Fair Value | |||||||
Nonvested at July 3, 2010 |
314,000 | $ | 7.49 | |||||
Granted |
124,500 | 9.92 | ||||||
Vested |
(94,600 | ) | 8.05 | |||||
Forfeited/Cancelled |
(24,000 | ) | 7.80 | |||||
Nonvested at April 2, 2011 |
319,900 | $ | 8.24 | |||||
Total compensation cost of RSUs granted, but not yet vested, as of April 2, 2011 was approximately
$2,094. This amount is expected to be recognized over a weighted-average period of approximately
two to three years.
The aggregate intrinsic value, as defined in FASB ASC 718, of stock options exercised, unrestricted
stock granted and RSUs vested during the Nine-month period of Fiscal 2011 and the Nine-month period
of Fiscal 2010 was $1,416 and $1,160, respectively.
4. Inventories
Inventory by category consisted of the following:
April 2, 2011 | July 3, 2010 | |||||||
Raw materials |
$ | 119 | $ | 73 | ||||
Finished goods |
19,633 | 13,413 | ||||||
Total inventory |
$ | 19,752 | $ | 13,486 | ||||
Inventory write-downs, recognized as a part of cost of sales, were $193 and $466 for the Third
Quarter of Fiscal 2011 and Third Quarter of Fiscal 2010, respectively, and $887 and $1,120 for the
Nine-month period of Fiscal 2011 and Nine-month period of Fiscal 2010, respectively.
5. Goodwill and Other Intangible Assets
We use the acquisition method of accounting for any business acquisitions and recognize intangible
assets separately from goodwill. The acquired assets and assumed liabilities in an acquisition are
measured and recognized based on their estimated fair value at the date of acquisition, with
goodwill representing the excess of the consideration transferred over the fair value of the
identifiable net assets.
With the purchase of the principal business assets of Foot Petals, LLC during the Third Quarter of
Fiscal 2011, the Company recognized goodwill of $5,420, a definite life intangible asset of $3,200
and indefinite life intangible assets of $3,600. The definite life intangible asset consisted of
customer relationships and is being amortized over a seven-year expected life. The indefinite life
intangible assets acquired for $3,600 consisted of trade names. All goodwill and intangible assets
recognized were reported within the Companys accessories segment.
Also, during the Third Quarter of Fiscal 2011, goodwill of $28,151 was recorded as a result of the
purchase of the principal business assets of baggallini, Inc. The valuation analysis for
allocation of the purchase price is in progress for the goodwill and other intangible assets,
including trade names, customer relationships and non-compete agreements, included with the
purchase of the assets of baggallini, Inc. The Company expects to reclassify a portion of the
initial goodwill recognized at April 2, 2011 to other intangible assets when the valuation analysis
is completed. All goodwill recognized and any intangible assets were and will be reported within
the Companys accessories segment.
Purchased goodwill and intangible assets with indefinite lives are not amortized, but instead are
tested for impairment annually, during the second Quarter, or more frequently if events or changes
in circumstances indicate that impairment may be present. The Companys impairment testing for
both goodwill and other long-lived assets, including intangible assets with finite useful lives, is
primarily based on cash flow models that require significant judgment and assumptions about future
trends, revenue and expense growth rates, and in addition, external factors such as changes in
economic trends and cost of capital. Significant changes in any of these assumptions could impact
the outcome of the tests performed.
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
We test
goodwill at the reporting unit level. The goodwill
impairment test consists of comparing the fair value of each reporting unit, determined using
discounted cash flows, to each reporting units respective carrying value. If the estimated fair
value of a reporting unit exceeds its carrying value, there is no impairment. If the carrying
amount of the reporting unit exceeds its estimated fair value, goodwill impairment is indicated.
The amount of the impairment is determined by comparing the fair value of the net assets of the
reporting unit, excluding goodwill, to its estimated fair value, with the difference representing
the implied fair value of the goodwill. If the implied fair value of the goodwill is lower than
its carrying value, the difference is recorded as an impairment charge in the consolidated
statements of operations.
No impairment indicators were present with regard to our goodwill or intangible assets with
indefinite useful lives during the Nine-month period ended April 2, 2011.
6. Accrued expenses
Accrued expenses consisted of the following:
April 2, 2011 | July 3, 2010 | |||||||
Salaries and wages |
$ | 306 | $ | 3,320 | ||||
Income taxes |
1,639 | 14 | ||||||
Current pension liabilities |
675 | 675 | ||||||
Other |
742 | 858 | ||||||
Total accrued expenses |
$ | 3,362 | $ | 4,867 | ||||
7. Income Taxes
Income tax expense for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter
and Nine-month period of Fiscal 2010 differed from the amounts computed by applying the U.S.
Federal income tax rate of 34% to earnings before income taxes as a result of the following:
Third Quarter | Nine-month period | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
Computed expected tax (benefit) expense |
$ | (36 | ) | $ | 256 | $ | 4,504 | $ | 5,983 | |||||||
State income tax (benefit) expense, net
of federal income tax benefit |
(6 | ) | 18 | 418 | 560 | |||||||||||
Other, net |
(22 | ) | (59 | ) | (49 | ) | 25 | |||||||||
Total expense |
$ | (64 | ) | $ | 215 | $ | 4,873 | $ | 6,568 | |||||||
Management is required to estimate the annual effective tax rate based upon its forecast of annual
pre-tax earnings. To the extent the actual pre-tax results or anticipated permanent tax
differences for the year differ from forecast estimates applied at the end of the most recent
interim period, the actual tax rate recognized in Fiscal 2011 could be materially different from
the forecasted rate as of the end of the Third Quarter and Nine-month period of Fiscal 2011.
Income tax expense for the Third Quarter and Nine-month period of Fiscal 2011 and Third Quarter and
Nine-month period of Fiscal 2010 were calculated using the estimated annual effective income tax
rates for Fiscal 2011 and Fiscal 2010, respectively.
FASB ASC 740-10 (the overall Subtopic of topic 740 on income taxes) prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of a
tax position taken or expected to be taken in a tax return and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods, disclosure
and transition. During the Third Quarter of Fiscal 2011, there were no changes in evaluations made
under FASB ASC 740-10. There were no reserves for uncertain tax positions existing at the end of
the Third Quarter of Fiscal 2011 or at the end of Fiscal 2010.
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
8. Revolving Credit Facility and Long-term Debt
On March 1, 2011, the Company and The Huntington National Bank (Huntington) entered into an
unsecured Credit Agreement (the New Facility). The New Facility replaced the previously existing
unsecured revolving credit agreement between the Company and Huntington dated March 29, 2007 (as
amended, the Prior Credit Agreement), which was due to expire on December 31, 2011. The Prior
Credit Agreement with Huntington was terminated in connection with the New Facility.
Under the terms of the New Facility, Huntington is obligated to advance funds to the Company for a
period of three years under a revolving credit facility (the Revolving Credit Facility). The
Company may have outstanding indebtedness of up to $5,000 under the Revolving Credit Facility from
January through June of each calendar year and up to $10,000 from July through December of each
calendar year. The Revolving Credit Facility includes a $1,500 sub-facility for letters of credit.
Under the terms of the New Facility, the Company may request that Huntington increase the
Revolving Credit Facility by an amount of up to $5,000. The termination and maturity date of the
Revolving Credit Facility is March 1, 2014. The interest rate on the Revolving Credit Facility is
a rate equal to LIBOR plus 1.75%. Additionally, the Company will pay a Quarterly fee equal to
0.25% of the daily average unused amount of the Revolving Credit Facility, as well as a one-time
$25 facility fee effective as of March 1,2011 in connection with the Revolving Credit Facility.
This facility fee is being amortized over the term of the Revolving Credit Facility. Further, the
Revolving Credit Facility must be without any outstanding borrowings for at least 30 consecutive
days during each period commencing on July 1 and continuing through June 30 of the following year.
At April 2, 2011, there were no outstanding borrowings on the Revolving Credit Facility.
Under the terms of the New Facility, the Company borrowed $30,000 under a term loan facility (the
Term Loan Facility). Under the Term Loan Facility, Huntington disbursed $15,000 on March 1, 2011
and the remaining $15,000 on March 31, 2011. The Company will make equal monthly principal
payments in the amount of $357, together with accrued interest, beginning on April 1, 2011, with
the remaining outstanding balance and accrued interest due and payable on March 1, 2016. The
interest rate under the Term Loan Facility is a rate equal to LIBOR plus 1.85%. Under the terms of
the New Facility, the Company entered into an interest rate contract that provided for a fixed
interest rate of 3.94% on a notional amount equal to fifty percent of the outstanding principal
balance of the term loan. See Note 9Derivative Instruments and Hedging Activities.
The Company also paid Huntington a one-time facility commitment fee of $75 in connection with the
Term Loan Facility and this fee is being amortized over the term of the loan. The applicable
interest rate on the Term Loan Facility at April 2, 2011 was
2.11% assuming a 30-day LIBOR rate of .26% on that date.
Under the terms of the New Facility, the Company is required to satisfy certain financial
covenants, including (a) satisfying a
minimum fixed charge coverage ratio test of not less than 1.1 to 1.0, which is calculated Quarterly
on a trailing 12-month basis
beginning with the Fiscal Quarter ending on or nearest to March 31, 2012, (b) satisfying a funded
debt leverage ratio test of not greater
than 2.25 to 1.00, which is calculated Quarterly beginning with the Fiscal Quarter ending on or
nearest to March 31, 2012 and
(c) maintaining a consolidated net worth of at least $52,000, increased annually by an amount equal
to 50% of the Companys consolidated net income subsequent to July 2, 2011. At April 2, 2011, the
Company was in compliance with all financial covenants.
The Company and its co-founder, the mother of the Companys non-executive chairman (chairman),
entered into an agreement in August 2005 whereby she transferred all of her product designs and
patent rights to the Company and released all unpaid claims that would have accrued under a
previous agreement. Under the August 2005 agreement, the Company is obligated to make 24 Quarterly
payments of $25 each on the last business day of every October, January, April and July until the
last business day in April 2011. On March 24, 2008, the remaining payment rights under the
agreement were assigned to a fund established with a philanthropic organization. Beginning July 3,
2010 and included within Long-term debt and current installments in the table below, the Company
reported the entire remaining $97 obligation under this agreement as current installments of
long-term debt.
Long-term debt at April 2, 2011 and July 3, 2010 consisted of the following:
April 2, 2011 | July 3, 2010 | |||||||
Long-term debt |
$ | 29,668 | $ | 97 | ||||
Less current installments |
4,311 | 97 | ||||||
Long-term debt excluding current installments |
$ | 25,357 | $ | | ||||
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
The aggregate minimum principal maturities of the long-term debt for each of the next five years
following April 2, 2011 are as follows:
April 2011-March 2012 |
$ | 4,311 | ||
April 2012-March 2013 |
4,286 | |||
April 2013-March 2014 |
4,286 | |||
April 2014-March 2015 |
4,286 | |||
April 2015-March 2016 |
4,286 | |||
March 2016 due at end of term loan |
8,213 | |||
$ | 29,668 | |||
9. Derivative Instruments and Hedging Activities
The Company may utilize derivative financial instruments to manage exposure to certain risks
related to its ongoing operations. The primary risk managed through the use of derivative
instruments is interest rate risk. On January 28, 2011, the Company entered into an interest rate
contract with an initial notional amount of $15,000 to hedge the changes in cash flows attributable
to changes in the LIBOR rate associated with the Term Loan Facility. Under this interest rate
contract, the Company pays a fixed interest rate of 3.94% and receives a variable rate based on
LIBOR plus 1.85%. The notional amount of this interest rate contract is required to be 50% of the
amount of the term loan through the expiration of the term loan under the Term Loan Facility
described in Note 8Revolving Credit Facility and Long-Term Debt.
The Companys objective is to manage the impact of interest rate changes on cash flows and the
market value of its borrowings under the floating rate term loan. In addition, the Company may
enter into interest rate contracts to further manage exposure to interest rate variations related
to borrowings and to lower overall borrowing costs. The Company does not use derivative
instruments for trading or speculative purposes. The Companys derivative instrument is designated
as a hedging instrument, which is adjusted to fair value at the end of each reporting period by
adjustment made through other comprehensive income.
The Company is exposed to counter-party credit risk on any derivative instrument. Accordingly, the
Company has established and maintains strict counterparty credit guidelines and enters into any
derivative instrument only with a major financial institution. The Company does not have
significant exposure to any counterparty and management believes the risk of loss is remote and, in
any event, would not be material.
Refer to Note 2Fair Value for additional information regarding the fair value of the derivative
instrument.
The following table summarizes the fair value of the Companys derivative instrument and the line
item in which it was recorded in the condensed consolidated balance sheet at April 2, 2011:
Liability Derivative | ||||||||
Balance Sheet | Fair Value | |||||||
Location | (in thousands) | |||||||
Derivative designated as hedging instrument: |
||||||||
Interest rate contract
|
Accrued retirement costs and other | $ | 105 | |||||
$ | 105 | |||||||
Cash Flow Hedges
The Company may enter into derivative instruments to hedge exposure to changes in cash flows
attributable to interest rate fluctuations associated with certain forecasted transactions. These
derivative instruments are designated and qualify as cash flow hedges. Accordingly, the effective
portion of the gain or loss on any such derivative instrument is reported as a component of other
comprehensive income (OCI) and reclassified into earnings in the same line item associated with
the forecasted transaction and in the same period during which the hedged transaction affects
earnings. The ineffective portion of the gain or loss on the derivative instrument, if any, is
recognized in earnings immediately.
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
The following table summarizes the Companys cash flow hedge outstanding at April 2, 2011:
Notional Amount | Maturity Date | |||||||
Interest rate contract |
$ | 15,000 | March 1, 2016 |
The following table summarizes the loss recognized in OCI and the loss reclassified from
accumulated OCI into earnings for the derivative instrument designated as a cash flow hedge during
the Third Quarter and Nine-month periods ended April 2, 2011. There were no derivative instruments
held by the Company during the Third Quarter and Nine-month periods ended April 3, 2010.
Loss | ||||||||||||||||||||
Loss | Location of | (Ineffective | ||||||||||||||||||
Loss | Location of Loss | Reclassified | Loss | Portion) and | ||||||||||||||||
Recognized | Reclassified from | from | (Ineffective | Excluded | ||||||||||||||||
in OCI | Accumulated | Accumulated | Portion) and | from | ||||||||||||||||
(Effective | OCI (Effective | OCI | Excluded from | Effectiveness | ||||||||||||||||
Portion) | Portion) | (Effective) | Effectiveness | Testing | ||||||||||||||||
For the Third Quarter
ended April 2, 2011: |
||||||||||||||||||||
Interest rate contract |
$ | 92 | Interest expense | $ | | Interest expense | $ | 13 | ||||||||||||
For the Nine-month period
ended April 2, 2011: |
||||||||||||||||||||
Interest rate contract |
$ | 92 | Interest expense | $ | | Interest expense | $ | 13 |
The estimated net amount of the loss in accumulated other comprehensive income at April 2, 2011
expected to be reclassified into net earnings within the next twelve months is $222.
10. Employee Retirement Plans
The Company expects to make payments in the aggregate of $1,863 during Fiscal 2011 to the funded,
qualified associates retirement plan (ARP) and to meet its current year payment obligation for
the unfunded, nonqualified supplemental retirement plans (collectively, SRP). In the Nine-month
period of Fiscal 2011, payments of approximately $840 were made into the ARP and payments of
approximately $513 were made to participants in the SRP.
In the first Quarter of Fiscal 2010, the Company made a lump-sum payment of $748 to a former
executive upon his retirement as full settlement of his SRP benefit. Based on interest rates
existing at the date of settlement, the Company recognized a settlement loss of $185 in pension
expense and an additional other comprehensive loss adjustment, net of tax, of $99 based on a
re-measurement of remaining liabilities under the SRP.
The components of net periodic benefit cost for the retirement plans in the aggregate during each
period noted below consisted of the following:
Third Quarter | Nine-month period | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
Service cost |
$ | | $ | | $ | | $ | 9 | ||||||||
Interest cost |
494 | 571 | 1,480 | 1,714 | ||||||||||||
Expected return on plan assets |
(511 | ) | (493 | ) | (1,532 | ) | (1,480 | ) | ||||||||
Net amortization |
315 | 176 | 946 | 523 | ||||||||||||
Settlement loss |
| | | 185 | ||||||||||||
Total pension expense |
$ | 298 | $ | 254 | $ | 894 | $ | 951 | ||||||||
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
11. Net Earnings per Common Share
Basic net earnings per common share is based on the weighted-average number of common shares
outstanding during each reporting
period. Diluted net earnings per common share is based on the weighted-average number of common shares outstanding during each reporting period, plus, when their effect is dilutive, potential common shares consisting of common shares underlying certain unexercised stock options and unvested RSUs.
period. Diluted net earnings per common share is based on the weighted-average number of common shares outstanding during each reporting period, plus, when their effect is dilutive, potential common shares consisting of common shares underlying certain unexercised stock options and unvested RSUs.
The following table presents a reconciliation of the denominator used for each period in computing
basic and diluted earnings per common share, with common shares in the table represented in
thousands:
Third Quarter | Nine-month period | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
Numerator: |
||||||||||||||||
Net (loss) earnings |
$ | (42 | ) | $ | 539 | $ | 8,373 | $ | 11,029 | |||||||
Denominator: |
||||||||||||||||
Weighted-average common shares outstanding |
11,123 | 10,914 | 11,086 | 10,862 | ||||||||||||
Effect of potentially dilutive securities: stock options and RSUs |
| 198 | 126 | 166 | ||||||||||||
Weighted-average common shares outstanding, assuming dilution |
11,123 | 11,112 | 11,212 | 11,028 | ||||||||||||
Basic net earnings per common share |
$ | 0.00 | $ | 0.05 | $ | 0.76 | $ | 1.02 | ||||||||
Diluted net earnings per common share |
$ | 0.00 | $ | 0.05 | $ | 0.75 | $ | 1.00 | ||||||||
The Company excludes stock options to purchase common shares from the calculation of diluted
earnings per common share when they are anti-dilutive, measured using the average market price of
the underlying common shares during the reporting periods. All stock options outstanding at April
3, 2010 for the Third Quarter and at April 2, 2011 and April 3, 2010 for the Nine-month periods
were dilutive and were included in the calculation of the potentially dilutive securities shown
above. Since the Company had a reported loss for the Third Quarter of Fiscal 2011, all stock
options at April 2, 2011 were considered anti-dilutive and excluded in the calculation of
potentially dilutive securities for purposes of computing diluted net earnings per share for the
Third Quarter of Fiscal 2011.
12. Comprehensive (Loss) Income
Comprehensive (loss) income, which is reflected as a component of shareholders equity, includes
net earnings, pension related adjustments and fair value adjustments on the interest rate contract
as follows:
Third Quarter | Nine-month period | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
Net (loss) earnings |
$ | (42 | ) | $ | 539 | $ | 8,373 | $ | 11,029 | |||||||
Interest rate contract fair value adjustments, net of tax |
(58 | ) | | (58 | ) | | ||||||||||
Pension related adjustments, net of tax |
| | | (99 | ) | |||||||||||
Total comprehensive (loss) income |
$ | (100 | ) | $ | 539 | $ | 8,315 | $ | 10,930 | |||||||
Accumulated other comprehensive loss as of April 2, 2011 and July 3, 2010 was $12,652 and $12,594,
respectively.
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
13. Changes in Equity
The following table provides a summary of the changes in total equity for the Nine-month period of Fiscal 2011: |
Accumulated | ||||||||||||||||||||
Additional | other | Net | ||||||||||||||||||
Common | capital in excess | comprehensive | Retained | shareholders | ||||||||||||||||
shares | of par value | loss | earnings | equity | ||||||||||||||||
Balance at July 3, 2010 |
$ | 10,930 | $ | 19,195 | $ | (12,594 | ) | $ | 37,065 | $ | 54,596 | |||||||||
Net earnings |
| | | 8,373 | 8,373 | |||||||||||||||
Stock-based compensation expense |
| 974 | | | 974 | |||||||||||||||
Stock-based compensation tax benefit realized |
| 127 | | | 127 | |||||||||||||||
Other
comprehensive loss on interest rate contract, net of tax of $34 |
| | (58 | ) | | (58 | ) | |||||||||||||
Restricted stock units vested and stock
options exercised |
116 | (261 | ) | | | (145 | ) | |||||||||||||
Dividends declared at $0.21 per common share |
| | | (2,355 | ) | (2,355 | ) | |||||||||||||
Balance at April 2, 2011 |
$ | 11,046 | $ | 20,035 | $ | (12,652 | ) | $ | 43,083 | $ | 61,512 | |||||||||
14. Acquisitions
Acquisition of assets of Foot Petals LLC
On January 27, 2011, the Company purchased, through a wholly-owned subsidiary, Foot Petals, Inc.
(Foot Petals), selected assets including accounts receivable, finished goods inventory, trade
names and various other assets, assumed certain liabilities and paid $14,000 in cash in its
acquisition of the business of Foot Petals, LLC, a privately-owned Long Beach, California-based
developer and marketer of foot and shoe care products. The product lines, customer bases and core
values of the Company and this acquired business have numerous synergies. As a result, this
acquisition is expected to be an integral part of the Companys long-range vision and strategic
growth plans.
The goodwill of $5,420 arising from this acquisition consists of the value of synergies and
economies of scale expected from combining the operations of the Company and Foot Petals, LLC. All
of the goodwill was assigned to the Companys accessories segment and will be deductible for income
tax purposes.
The following table summarizes the consideration paid for certain assets of Foot Petals, LLC and
the amounts of the assets acquired and liabilities recognized at the acquisition date.
At January 27, 2011 | ||||
Fair value of total consideration transferred-cash |
$ | 14,000 | ||
Acquisition-related cost (included in selling, general and administrative
expenses in the Companys condensed consolidated statement of operations
for the Nine-month period ended April 2, 2011) |
$ | 823 | ||
Recognized amounts of identifiable assets acquired and liabilities assumed |
||||
Accounts receivable |
$ | 1,472 | ||
Inventory |
648 | |||
Property, plant and equipment |
63 | |||
Other assets |
27 | |||
Identifiable intangible assets |
6,800 | |||
Accounts payable and accrued expenses |
(430 | ) | ||
Goodwill |
5,420 | |||
$ | 14,000 | |||
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Foot Petals net sales and net earnings were not significant in respect of the Companys condensed
consolidated statement of operations for the Nine-month reporting period ended April 2, 2011. Any
proforma net sales and net earnings of the combined entity, had the acquisition date been July 4,
2010, or June 28, 2009, were likewise not significant to any combined view of proforma Company
condensed consolidated statements of operations for the Nine-month periods ended April 2, 2011 and
April 3, 2010, respectively.
Acquisition of assets of baggallini, Inc.
On March 31, 2011, the Company purchased, through a wholly-owned subsidiary, Baggallini, Inc.
(Baggallini), selected assets including accounts receivable, finished goods inventory, trade
names and various other assets, assumed certain liabilities and paid $33,702 in cash in its
acquisition of the business of baggallini, inc., with a remaining balance of $48 owed on the base
purchase price of $33,750. Based on certain minimum thresholds for inventory, customer accounts
receivable and trade accounts payables as compared to the value of those assets and liabilities
existing at the time of closing under the terms of the purchase agreement, the Company is obligated
to make an additional payment to baggallini, Inc. This obligation was estimated at $1,029 and was
reported within accounts payable at April 2, 2011. The Company expects to pay the total amount
owed of $1,077 within 90 days after the closing date.
baggallini, Inc. was a privately-owned Portland, Oregon-based developer and marketer of handbags,
tote bags and other travel accessories to meet the needs of travelers. The product lines, customer
bases and core values acquired with this business offer the opportunity to both broaden and
diversify the Companys business base and reach, and provide numerous synergies. This acquisition
is expected to be an integral part of the Companys long-range vision and strategic growth plans.
The Company recorded goodwill of approximately $28,151 pending the completion of valuation analyses
under way related to allocating the purchase price between goodwill and other identified intangible
assets. The goodwill arising from the acquisition consists of the value of synergies and economies
of scale expected from the operations of the Company and Baggallini. All of the goodwill was
assigned to the Companys accessories segment and is expected to be deductible for tax purposes.
The following table summarizes the consideration paid for certain assets of baggallini, Inc. and
the tentative fair value of the assets acquired and liabilities recognized at the acquisition date,
pending the completion of valuation activities.
At March 31, 2011 | ||||
Consideration |
||||
Cash |
$ | 33,702 | ||
Additional consideration owed to seller |
1,077 | |||
Fair value of total consideration |
$ | 34,779 | ||
Acquisition-related cost (included in selling, general and administrative
expenses in the Companys condensed consolidated statement of operations
for the Nine-month period ended April 2, 2011) |
$ | 37 | ||
Recognized amounts of identifiable assets acquired and liabilities assumed |
||||
Accounts receivable |
$ | 2,725 | ||
Inventory |
4,216 | |||
Property, plant and equipment |
151 | |||
Other assets |
11 | |||
Accounts payable and accrued expenses |
(475 | ) | ||
Goodwill |
28,151 | |||
$ | 34,779 | |||
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
There were no net sales or net earnings for Baggallini included in the Companys condensed
consolidated statement of operations for the Nine-month reporting period ended April 2, 2011.
Proforma net sales and net earnings of the combined entity, had the acquisition date been July 4,
2010 or June 28, 2009, for the Nine-month periods ended April 2, 2011 and April 3, 2010,
respectively, were:
Diluted Net | ||||||||||||
Net Sales | Net Earnings | Earnings per share | ||||||||||
Actual from July 4, 2010 to April 2, 2011 |
$ | | $ | | $ | | ||||||
Supplemental pro forma from July 4, 2010 to April 2, 2011 |
$ | 119,757 | $ | 11,069 | $ | 0.99 | ||||||
Supplemental pro forma from June 28, 2009 to April 3, 2010 |
$ | 118,162 | $ | 13,151 | $ | 1.19 |
15. Segment operations
The Company primarily markets footwear and accessories products sold predominantly in North America
and operates with two reportable segments which include: (1) footwear that encompasses primarily
slippers, sandals, hybrid and fashion footwear, slipper socks and hosiery; and (2) accessories with
products including shoe and foot care products, handbags, tote bags and other travel accessories.
The accounting policies of the reportable segments are the same, except that the disaggregated
information has been prepared using certain management reports, which by their very nature require
estimates. While corporate expenses directly associated with incremental operational support
provided to the accessories segment have been charged to that segment, certain items, including
acquisition-related costs of $751 and $860 for the Third Quarter and Nine-month period of Fiscal
2011, respectively, were reported within administrative functions contained in the footwear segment
and were not allocated. Operating profit or loss is the primary indicator of financial performance
used by management, since it encompasses sales, gross profit and supporting selling, general and
administrative expenses.
Third Quarter ended April 2, 2011 | Footwear | Accessories | Total | |||||||||
Net sales |
$ | 17,752 | $ | 2,361 | $ | 20,113 | ||||||
Gross profit |
6,444 | 1,486 | 7,930 | |||||||||
Depreciation and amortization |
251 | 84 | 335 | |||||||||
Operating (loss) profit |
(965 | ) | 815 | (150 | ) |
Third Quarter ended April 3, 2010 | Footwear | Accessories | Total | |||||||||
Net sales |
$ | 22,212 | $ | | $ | 22,212 | ||||||
Gross profit |
8,963 | | 8,963 | |||||||||
Depreciation and amortization |
204 | | 204 | |||||||||
Operating profit |
718 | | 718 |
Nine-month period ended April 2, 2011 | Footwear | Accessories | Total | |||||||||
Net sales |
$ | 103,681 | $ | 2,361 | $ | 106,042 | ||||||
Gross profit |
37,870 | 1,486 | 39,356 | |||||||||
Depreciation and amortization |
714 | 84 | 798 | |||||||||
Operating profit |
12,150 | 815 | 12,965 | |||||||||
Total assets |
67,089 | 51,243 | 118,332 |
Nine-month period ended April 3, 2010 | Footwear | Accessories | Total | |||||||||
Net sales |
$ | 107,235 | $ | | $ | 107,235 | ||||||
Gross profit |
45,215 | | 45,215 | |||||||||
Depreciation and amortization |
607 | | 607 | |||||||||
Operating profit |
17,386 | | 17,386 |
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Third Quarter and Nine-month period of Fiscal 2011 and the Third Quarter and Nine-month period of Fiscal 2010
(dollar amounts in thousands, except per share data)
16. Related Party Transactions
Under an existing agreement, the Company is obligated for up to two years after the death of the
Companys non-executive chairman (chairman) to purchase, if the estate elects to sell, up to
$4,000 of the Companys common shares, at their then fair market value. For a period of two years
following the chairmans death, the Company has a right of first refusal to purchase any common
shares owned by the chairman at the time of his death if his estate elects to sell such common
shares and has the right to purchase such common shares on the same terms and conditions as the
estate proposes to sell such common shares to a third party. To fund its potential obligation to
purchase such common shares, the Company maintains two insurance policies on the life of the
chairman. The cumulative cash surrender value of the policies approximates $2,821, which is
included in other assets in the condensed consolidated balance sheets. Effective in March 2004 and
continuing through the end of the Nine-month period of Fiscal 2011, the Company has borrowed $1,750
against the cash surrender value of one of these policies which is included in short-term notes
payable on the accompanying condensed consolidated balance sheet.
17. Commitments and Contingent Liabilities
The Company is from time to time involved in claims and litigation considered normal in the
ordinary course of its business. While it is not feasible to predict the ultimate outcome, in the
opinion of management, the resolution of such matters is not expected to have a material adverse
effect on the Companys annual financial position, statement of income and cash flows.
18. Recently Issued Accounting Standards
In January 2010, the FASB issued Accounting Standard Update (ASU) 2010-06, which amends ASC
Subtopic 820, Fair Value Measurement and Disclosures. This guidance requires new disclosures and
provides amendments to clarify existing disclosures. The new requirements include disclosures
further disaggregating activity in Level 3 fair value measurements and providing disclosures about
the valuation techniques and inputs used to measure fair value for both recurring and nonrecurring
fair value measurements. This guidance is effective for new disclosures regarding the activity in
Level 3 measurements for Fiscal years beginning after December 15, 2010, and for interim periods
within those Fiscal years. The adoption of this standard in the first Quarter of Fiscal 2012 could
require future disclosure in the notes to the Companys consolidated financial statements.
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R.G. BARRY CORPORATION AND SUBSIDIARIES
ITEM 2 Managements Discussion and Analysis of Financial Condition and Results of Operations
Introduction
Our Managements Discussion and Analysis of Financial Condition and Results of Operations (MD&A)
is intended to provide investors and others with information we believe is necessary to understand
the Companys financial condition, changes in financial condition, results of operations and cash
flows. Our MD&A should be read in conjunction with the Companys Condensed Consolidated Financial
Statements and related Notes to Condensed Consolidated Financial Statements and other information
included in this Quarterly Report on Form 10-Q. This Quarterly Report on Form 10-Q should also be
read in conjunction with our 2010 Form 10-K.
Unless the context otherwise requires, references in this MD&A to our, us, we or the
Company refer to R.G. Barry Corporation and its consolidated subsidiaries.
Our Company and its subsidiaries, Foot Petals Inc. and Baggallini, Inc., are engaged in designing,
sourcing, marketing and distributing footwear, foot and shoe care products and hand bag, tote bag
and other travel accessories. We operate with three operating segments, two of which are
aggregated into a single reportable segment. The two reportable segments include: (1) footwear
that encompasses primarily slippers, sandals, hybrid and fashion footwear, slipper socks and
hosiery; and (2) accessories with products including foot and shoe care products, handbags, tote
bags and other travel accessories. Our products are sold predominantly in North America through
the accessory sections of department stores, chain stores, warehouse clubs, specialty stores,
television shopping networks, e-tailing/internet based retailers, discount stores and mass
merchandising channels of distribution.
The Nine-month period ended April 2, 2011 included 39 weeks while the Nine-month period ended April
3, 2010 included 40 weeks, due to the Fiscal calendar used by our Company. The difference in the
number of weeks included had no significant effect on the results as presented below.
All comments made herein relative to period over period comparisons refer to results reported for
the Third Quarter and the Nine-month period ended April 2, 2011, as compared to the same periods
during Fiscal 2010.
Consolidated Results of Operations
Listed below are excerpts from our condensed consolidated statement of operations for the Third
Quarter:
Third Quarter | Third Quarter | |||||||||||||||||||
Ended | % of | Ended | % of | Increase/ | ||||||||||||||||
(all amounts are in 000s) | April 2, 2011 | Net Sales | April 3, 2010 | Net Sales | (Decrease) | |||||||||||||||
Net sales |
$ | 20,113 | 100 | $ | 22,212 | 100 | $ | (2,099 | ) | |||||||||||
Gross profit |
7,930 | 39.4 | 8,963 | 40.4 | (1,033 | ) | ||||||||||||||
Selling, general and administrative
(SGA) expenses |
8,080 | 40.2 | 8,245 | 37.1 | (165 | ) | ||||||||||||||
Operating (loss) profit |
(150 | ) | (0.7 | ) | 718 | 3.2 | (868 | ) | ||||||||||||
Other income and interest income, net |
44 | 0.2 | 36 | 0.2 | 8 | |||||||||||||||
(Loss) earnings, before income taxes |
(106 | ) | (0.5 | ) | 754 | 3.4 | (860 | ) | ||||||||||||
Income tax (benefit) expense |
(64 | ) | 0.3 | 215 | 1.0 | 279 | ||||||||||||||
Net (loss) earnings |
(42 | ) | (0.2 | ) | 539 | 2.4 | (581 | ) |
Net sales decreased by 9.4% due primarily to the lower volume of footwear shipments to customers in
the mass merchandising and warehouse club channels, offset in part by shipments during the period
to customers from businesses acquired during the Third Quarter of Fiscal 2011.
Gross profit in dollars and as a percent of net sales decreased due to the decreased volume of
footwear shipments during the period and the impact from higher product costs paid to our
third-party footwear manufacturers, offset in part by the gross profit on accessory segment
shipments at higher margin as a percent of net sales as compared to footwear shipments.
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SGA expenses decreased by 2%, due to lower payroll expense, incentive bonus accruals and
advertising related expense, offset in part by acquisition-related expenses and SGA expenses
related to the operations of the newly-acquired businesses.
Other income increased due to royalty income from the agreement signed near the end of Fiscal 2010
in which we granted a license for the right to use our Dearfoams® brand name to a Third party for
sleepwear and related products. This increase in income was offset primarily by higher interest
expense from borrowings incurred in the period to fund business acquisitions.
The effective tax rates for the Third Quarter of Fiscal 2011 and the Third Quarter of Fiscal 2010
were 60.4% and 28.5%, respectively. Changes to rates for the Nine-month period of Fiscal 2011
compared to the Nine-month period of Fiscal 2010 were made based on permanent tax items, primarily
reflecting differences in investment income on cash surrender assets held in the form of two
insurance policies owned by us. Since the Third Quarter results are significantly lower than the
Nine-month periods as a whole, the relative impact from tax rate adjustments are notably high when
seen as a percent of income or loss for the period. For the Nine-month period of Fiscal 2011 and
Nine-month period of Fiscal 2010, the tax rates were 36.8% and 37.3%, respectively.
Listed below are excerpts from our condensed consolidated statements of operations for comparative
Nine-month results:
Nine-month | Nine-month | |||||||||||||||||||
Period Ended | % of | Period Ended | % of | Increase/ | ||||||||||||||||
(all amounts are in 000s) | April 2, 2011 | Net Sales | April 3, 2010 | Net Sales | (Decrease) | |||||||||||||||
Net sales |
$ | 106,042 | 100 | $ | 107,235 | 100 | $ | (1,193 | ) | |||||||||||
Gross profit |
39,356 | 37.1 | 45,215 | 42.2 | (5,859 | ) | ||||||||||||||
SGA expenses |
26,391 | 24.9 | 27,829 | 26.0 | (1,438 | ) | ||||||||||||||
Operating profit |
12,965 | 12.2 | 17,386 | 16.2 | (4,421 | ) | ||||||||||||||
Other income and interest income, net |
281 | 0.3 | 211 | 0.2 | 70 | |||||||||||||||
Earnings, before income taxes |
13,246 | 12.5 | 17,597 | 16.4 | (4,351 | ) | ||||||||||||||
Income tax expense |
4,873 | 4.6 | 6,568 | 6.1 | (1,695 | ) | ||||||||||||||
Net earnings |
8,373 | 7.9 | 11,029 | 10.3 | (2,656 | ) |
Net sales decreased by 1.1% due primarily to the lower volume of shipments to customers in the mass
merchandising and department store channels, offset by higher shipments of footwear products to
customers in the discount channel and by incremental sales from businesses newly acquired during
the period.
Gross profit decreased in dollars and as a percentage of net sales primarily due to higher product
costs paid to our third-party footwear manufacturers, the shifting of sales from higher to lower
margin customer channels in our footwear business and additional costs incurred to
support timely delivery to our customers during the fall 2010 season. These factors were offset in
part by incremental higher margins for products shipped by our accessories business.
SGA expenses decreased by 5.2% due primarily to lower payroll, incentive accrual and benefit
expenses, offset in part by acquisition- related charges, additional SGA expenses associated with
the operations of our accessories business and by higher trade advertising expense incurred during
the fall 2010 season related to our ongoing strategic marketing program in support of our
Dearfoams® slipper brand.
Other income for the Nine-month period of Fiscal 2011 included royalty income of $300 thousand from
the licensing agreement signed near the end of Fiscal 2010 in which we granted the license with the
right to use our Dearfoams® brand name to a Third party for sleepwear and related products. This
increased income was offset primarily by lower earned interest income due to lower market rates and
interest expense in connection with acquisition-related borrowings.
For the Nine-month period of Fiscal 2011 and the Nine-month period of Fiscal 2010, the effective
tax rates were 36.8% and 37.3%, respectively. Changes to rates for the Nine-month period of Fiscal
2011 compared to the Nine-month period of Fiscal 2010 were made based on permanent tax items,
primarily reflecting differences in investment income on cash surrender assets held in the form of
two insurance policies owned by us. We do not expect the two recent acquisitions to have a
significant effect on our overall effective tax rates going forward.
Based on the results of operations noted above, we reported a net loss of $42 thousand or $0.00 per
diluted common share for the Third Quarter of Fiscal 2011 and net income of $500 thousand or $0.05
per diluted common share for the Third Quarter of Fiscal 2010.
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We also reported net earnings of $8.4 million or $0.75 per diluted common share for the Nine-month
period of Fiscal 2011 and $11.0 million or $1.00 per diluted common share for the Nine-month period
of Fiscal 2010.
Results of Operations- Footwear Segment
Our footwear segment encompasses designing, sourcing, marketing and distributing footwear products.
We define footwear as a product category that includes primarily slippers, sandals, hybrid and
active fashion footwear, slipper socks and hosiery. Our footwear products are sold in North
America primarily through the accessory sections of department stores, chain stores, warehouse
clubs, discount stores and mass merchandising channels of distribution.
Selected financial results for the Third Quarter and Nine-month periods of Fiscal 2011 and Fiscal
2010 are:
Third Quarter | Third Quarter | |||||||||||||||||||
Ended | % of | Ended | % of | Increase/ | ||||||||||||||||
(all amounts are in 000s) | April 2, 2011 | Net Sales | April 3, 2010 | Net Sales | (Decrease) | |||||||||||||||
Net sales |
$ | 17,752 | 100 | $ | 22,212 | 100 | $ | (4,460 | ) | |||||||||||
Gross profit |
6,444 | 36.3 | 8,963 | 40.4 | (2,518 | ) | ||||||||||||||
Operating (loss) profit |
(965 | ) | (5.4 | ) | 718 | 3.2 | (1,683 | ) |
Nine-month | Nine-month | |||||||||||||||||||
Period Ended | % of | Period Ended | % of | Increase/ | ||||||||||||||||
April 2, 2011 | Net Sales | April 3, 2010 | Net Sales | (Decrease) | ||||||||||||||||
Net sales |
$ | 103,681 | 100 | $ | 107,235 | 100 | $ | (3554 | ) | |||||||||||
Gross profit |
37,870 | 36.5 | 45,215 | 42.2 | (7,345 | ) | ||||||||||||||
Operating profit |
12,150 | 11.7 | 17,386 | 16.2 | (5,235 | ) |
Net sales decreased by 20.1% for the Third Quarter due primarily to lower shipments to customers in
the mass merchandising and warehouse club channels. Net sales for the Nine-month period decreased
by 3.3% due primarily to lower shipments to customers in the mass merchandising and department
store channels, offset in part by higher shipments to customers in the discount channel.
Gross profit decreased for the Third Quarter in both dollars and as a percentage of net sales due
primarily to lower shipments, higher product costs paid to our third-party manufacturers and
additional promotional support provided to our department store and warehouse club customers.
Gross profit for the Nine-month period decreased in dollars and as a percentage of net sales due
primarily to higher product costs paid to our third-party manufacturers, the shifting of sales from
higher to lower margin customer channels and additional costs incurred during the
2010 fall season to support timely delivery to our customers.
Operating profit for the Third Quarter and Nine-month period decreased due primarily to the lower
shipment volumes and the effect of other cost factors impacting gross profit as noted above. The
decline in gross profit was offset in part by lower SGA expense, primarily reflecting lower
payroll, incentive bonus accruals and benefit expenses net of higher advertising expense from our
ongoing strategic marketing program in support of our Dearfoams® brand and acquisition-related
expenses incurred during the Third Quarter.
Results of Operations Accessories Segment
Our accessories segment is comprised
of businesses acquired (Foot Petals® on January 27, 2011 and Baggallini® on March 31, 2011) during the Third Quarter of Fiscal 2011. This segment encompasses
designing, sourcing, marketing and distributing a variety of accessory category products. These
consumer product offerings range from shoe and foot care products to handbags, tote bags and other
travel accessories. We define accessories as products outside footwear that are primarily sold
through the accessories areas of retailers. These products are sold predominately in North America
through customers primarily in the specialty and independent store, television shopping network,
e-tailing/internet based retail, upper tier department store, mass merchandising and discount store
channels. Our business with these customers is primarily replenishment in nature, with sales
spread evenly throughout the year.
Since these two business acquisitions occurred during the Third Quarter of Fiscal 2011, there were
no comparable financial results for any period in Fiscal 2010.
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Selected financial results for the Third Quarter and Nine-month period of Fiscal 2011 are shown
below:
Third Quarter | Nine-month | |||||||||||||||||||
Ended | % of | Period Ended | % of | Increase/ | ||||||||||||||||
(all amounts are in 000s) | April 2, 2011 | Net Sales | April 3, 2010 | Net Sales | (Decrease) | |||||||||||||||
Net sales |
$ | 2,361 | 100 | $ | | | $ | 2,361 | ||||||||||||
Gross profit |
1,486 | 62.9 | | | 1,486 | |||||||||||||||
Operating profit |
815 | 34.5 | | | 815 |
Net sales for the Third Quarter included shipments primarily to customers in the specialty and
independent store, television shopping network, mass merchandising, department store, internet/E-
tailing based retail and other channels. Gross profits on shipments to these customers during the
period were uniformly at higher rates than our historical footwear segment. Operating income
reflects SGA expenses incurred related to selling, marketing and distribution activities, costs
incurred in corporate support and amortization expense on intangible assets, which resulted from
our acquisition of this business.
Seasonality
Although our various product lines for both footwear and accessories segments are sold on a
year-round basis, the demand for specific products or styles within our footwear segment, is highly
seasonal. For example, the demand for gift-oriented slipper products is higher in the fall holiday
season than it is in the spring and summer seasons. As the timing of product shipments and other
events affecting the retail business may vary and shift, results for any particular quarter may not
be indicative of results for the full year or for future comparable quarters. While the accessory
segment is largely replenishment product sold throughout the year, its relative share of total
Company net sales is not large enough at present to offset the seasonality inherent in our footwear
segment.
Looking ahead to the remainder of Fiscal 2011 and beyond
Looking to the remainder of Fiscal 2011 and beyond, our strategies are centered on growing market
share in existing channels; pursuing new retail opportunities; expanding our business
internationally; and continue growing through appropriate acquisitions. We have demonstrated our
footwear model over time can perform at or above levels consistent with top quartile performance
among our industry peers. We believe that our new accessories segment businesses acquired during
the Third Quarter of Fiscal 2011 can perform at or above the profitability level demonstrated by
our footwear segment. We expect to continue to deliver performance that drives growth and
long-term shareholder value.
Liquidity and Capital Resources
Our only source of revenue and a primary source of cash flow come from our operating activities, in
addition to funds available through our Revolving Credit Facility. When cash inflows are less than
cash outflows, we have access to funds under our Revolving Credit Facility, as described further
below in the section captioned Credit Agreement, subject to its terms. In addition, we can and
have obtained bank borrowings specific to business acquisitions. We may seek to finance future
capital investment programs through various methods, including, but not limited to, cash flow from
operations and borrowings under our current or additional credit facilities.
Our liquidity requirements arise from the funding of our working capital needs, which include
primarily inventory, other operating expenses and accounts receivable, funding of capital
expenditures and business acquisitions, payment of cash dividends, payment of income tax and
repayment of our indebtedness. Generally, most of our product purchases from Third-party
manufacturers are acquired on an open account basis, and to a significantly lesser extent, through
trade letters of credit. Such trade letters of credit are drawn against our Revolving Credit
Facility at the time of shipment of the products and reduce the amount available under that
facility when issued.
Cash and cash equivalents on hand were approximately $7.4 million at April 2, 2011, compared to
$13.7 million at April 3, 2010 and $17.0 million at July 3, 2010. Short-term investments were
approximately $21.0 million at April 2, 2011, $33.0 million at April 3, 2010 and $28.0 million at
July 3, 2010. At the end of the Third Quarter of Fiscal 2011, we carried a portfolio of $21.0
million in short-term investments, including $13.5 million of marketable investment securities in
the form of variable rate demand notes and $7.5 million of commercial paper investments. The
marketable investment securities and commercial paper investments are classified as
available-for-sale securities. These marketable investment securities are carried at cost, which
approximates fair value based on FASB ASC 820-10 (the overall Subtopic of topic 820 on fair value
measurements and disclosures) level two input assumptions used in our valuation methodology.
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Operating Activities
During the Nine-month period of Fiscal 2011, our operations provided approximately $4.3 million of
cash; and during the comparable period of Fiscal 2010, our operations generated cash of
approximately $7.9 million. The operating cash flows during these periods primarily reflected the
impact of timing in our shipments and inventory purchased in each of those periods as well as the
timing of sales and collections in accounts receivable. During all of Fiscal 2010 and through the
Third Quarter of Fiscal 2011, we funded our operations entirely by using our cash and short-term
investments and used bank borrowings to fund the purchases of Foot Petals and Baggallini during the
Third Quarter of Fiscal 2011.
Our working capital ratio, which is calculated by dividing total current assets by total current
liabilities, was 4.8:1 at April 2, 2011, 6.8:1 at April 3, 2010 and 6.7:1 at July 3, 2010. The
difference in this ratio from July 3, 2010 to April 2, 2011 primarily reflected the impact of
changes in cash, related to the acquisitions of Foot Petals and Baggallini during the Third Quarter
of Fiscal 2011. All other changes in accounts receivable, inventory and trade payables were
consistent with the seasonality of our footwear segment business.
We anticipate that we will continue to fund our operations and meet our debt obligations in the
future by using cash generated from operations.
Changes in the primary components of our working capital accounts for the Nine-month period of
Fiscal 2011 and the Nine-month period of Fiscal 2010, respectively, were as follows:
| The decreases in net accounts receivable of $800 thousand and $1.0 million in the Nine-month period of Fiscal 2011 and the Nine-month period of Fiscal 2010, respectively, primarily reflected the seasonal nature of our footwear business. The difference between the change for the Nine-month period of 2011 and the change for the Nine-month period of Fiscal 2010 reflected primarily the impact of reduced shipments and the timing of customer collections and deductions. | ||
| Net inventories increased by $1.4 million and $5.6 million during the Nine-month period of Fiscal 2011 and Fiscal 2010, respectively. The relative change for the Nine-month period of Fiscal 2011 was in line with the seasonal nature of our footwear business. The increase for the Nine-month period of Fiscal 2010 reflected primarily a return to more normal inventory levels as well as changes typical to the seasonal nature of our footwear business. | ||
| Accounts payable decreased by $1.7 million and $907 thousand during the Nine-month period of Fiscal 2011 and Fiscal 2010, respectively. These changes were due primarily to the timing of purchases and payment for finished goods inventory in our footwear products and in line with the seasonality of our footwear business. | ||
| Accrued expenses decreased by $1.8 million during the Nine-month period of Fiscal 2011 and increased by $1.9 million during the Nine-month period of Fiscal 2010. The decrease in accrued expenses in the Nine-month period of Fiscal 2011 was primarily due to lower incentive bonus accruals during Fiscal 2011 as compared to the Nine-month period of Fiscal 2010. The increase in accrued expenses during the Nine-month period of Fiscal 2010 was primarily due to higher income tax accruals and higher incentive bonus accruals as compared to the Nine-month period of Fiscal 2009. |
Investing Activities
During the Nine-month period of Fiscal 2011 and the Nine-month period of Fiscal 2010, our investing
activities used $41.4 million and $8.9 million in cash, respectively. During the Nine-month period
of Fiscal 2011, our investing activities involved primarily the acquisitions of Foot Petals and
Baggallini at an aggregate cost of $47.7 million and $643 thousand in capital expenditures, offset
by proceeds received through the liquidation of $6.9 million in short-term investments. For the
Nine-month period of Fiscal 2010, we invested $8.0 million in short-term investments and spent $831
thousand on capital expenditures.
Financing Activities
During the Nine-month period of Fiscal 2011, financing activities provided $27.5 million in cash,
as compared to the net cash provided of $447 thousand for the Nine-month period of Fiscal 2010.
During the Nine-month period in Fiscal 2011, we borrowed $30 million in order to fund our business
acquisitions; we also paid $2.3 million in dividends and $429 thousand in debt payments, with an
offset in proceeds received of $204 thousand received from the exercise of stock options and
related excess tax benefits on the exercise of stock options and vesting of RSUs. For the
Nine-month period in Fiscal 2010, we paid $1.1 million in dividends and $67
thousand in debt payments, offset by $1.6 million in proceeds from the exercise of stock options
and excess tax benefits on the exercise of options and vesting of RSUs.
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2011 Liquidity
We believe our sources of cash and cash equivalents, short-term investments, cash from operations
and funds available under our New Facility, as described below, will be adequate to fund our
operations, capital expenditures and payment of dividends through the remainder of Fiscal 2011.
Our acquisition of the business assets of Foot Petals, LLC and baggallini, Inc. during the Third
Quarter of Fiscal 2011 resulted in a cash payment of $47.7 million from our existing on-hand cash
position and bank borrowings during the period, and will not significantly impact our ability to
continue to fund our operations and pay our debt obligations through our sources of cash going
forward.
Credit Agreement
On March 1, 2011, we entered into an unsecured Credit Agreement (the New Facility) with The
Huntington National Bank (Huntington). The New Facility replaced the previously existing
unsecured revolving credit agreement with Huntington dated March 29, 2007 (as amended, the Prior
Credit Agreement), which was due to expire on December 31, 2011. The Prior Credit Agreement with
Huntington was terminated in connection with the New Facility.
Under the terms of the New Facility, Huntington is obligated to advance funds to us for a period of
three years under a revolving credit facility (the Revolving Credit Facility). We may have
outstanding indebtedness of up to $5 million under the Revolving Credit Facility from January
through June of each calendar year and up to $10 million from July through December of each
calendar year. The Revolving Credit Facility includes a $1.5 million sub-facility for letters of
credit. Under the terms of the New Facility, we may request that Huntington increase the Revolving
Credit Facility by an amount of up to $5 million. The termination and maturity date of the
Revolving Credit Facility is March 1, 2014. The interest rate on the Revolving Credit Facility is
a rate equal to LIBOR plus 1.75%. Additionally, we will pay a Quarterly fee equal to 0.25% of the
daily average unused amount of the Revolving Credit Facility, and paid a one-time $25 thousand
facility fee in connection with the Revolving Credit Facility. This facility fee is being
amortized over the term of the Revolving Credit Facility. Further, the Revolving Credit Facility
must not have any outstanding borrowings for at least 30 consecutive days during each period
commencing on July 1 and continuing through June 30 of the following year.
Under the terms of the New Facility, Huntington provided us $30 million under a term loan facility
(the Term Loan Facility). Under the Term Loan Facility, Huntington disbursed $15 million on
March 1, 2011 and the remaining $15 million on March 31, 2011. We will make equal monthly
principal payments in the amount of $357 thousand, together with accrued interest, beginning on
April 1, 2011, with the remaining outstanding balance and accrued interest due and payable on March
1, 2016. The interest rate on the Term Loan Facility is a rate equal to LIBOR plus 1.85%. Under
the terms of the New Facility, we entered into an interest rate contract that provided for a fixed
interest rate of 3.94% on a notional amount of at least 50% of the outstanding principal balance of
the term loan.
We paid Huntington a one-time facility commitment fee of $75 thousand in connection with the Term
Loan Facility and this fee is being amortized over the term of the term loan. The applicable
interest rate on the Term Loan Facility at April 2, 2011 was
2.11% assuming a 30-day LIBOR rate of .26% on that date.
Under the terms of the New Facility, we are required to satisfy certain financial covenants,
including (a) satisfying a
minimum fixed charge coverage ratio test of not less than 1.1 to 1.0, which is calculated Quarterly
on a trailing 12-month basis
beginning with the Fiscal Quarter ending on or nearest to March 31, 2012, (b) satisfying a funded
debt leverage ratio test of not greater
than 2.25 to 1.00, which is calculated Quarterly beginning with the Fiscal Quarter ending on or
nearest to March 31, 2012 and
(c) maintaining a consolidated net worth of at least $52 million, increased annually by an amount
equal to 50% of the Companys consolidated net income subsequent to July 2, 2011. At April 2,
2011, we were in compliance with all these financial covenants.
Other Long-Term Indebtedness and Current Installments of Long-Term Debt
As of April 2, 2011, we reported the remaining $25 thousand of our obligation associated with the
agreement originally entered into with the mother of our chairman as disclosed in Note (15) of the
Notes to Consolidated Financial Statements included in Item 8 Financial Statements and
Supplementary Data. of Part II of our 2010 Form 10-K, as current installments of long-term
debt. This remaining portion of this obligation will be paid during the fourth Quarter of Fiscal
2011.
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At April 2, 2011, we also reported $4.3 million as the current portion of long-term debt related to
our Term Loan Facility. This term loan has a seven-year amortization schedule and we are obligated
to make interest and principal payments over the five-year term of the loan, with a final lump
payment due for the balance remaining at the end of the five-year term.
We also entered into an interest rate contract, with an initial notional amount of $15 million,
which extends through the five-year period of the Term Loan Facility. This interest rate contract
has a fixed interest rate of 3.94% and extends over the period of the term loan with a notional
amount that will adjust over time to an amount approximate to fifty percent of the outstanding term
loan balance. This interest rate contract has been accounted for as an effective cash flow hedge
for a portion of the term loan.
Contractual Obligations
There have been no material changes to Contractual Obligations since the end of Fiscal 2010,
other than routine payments and the New Facility and related Term Loan Facility. For more detail
on our contractual obligations, please refer to the discussion under the caption Liquidity and
Capital Resources Other Matters Impacting Liquidity and Capital Resources Contractual
Obligations in Item 7 Managements Discussion and Analysis of Financial Condition and
Results of Operations of Part II of our 2010 Form 10-K.
As of April 2, 2011, outstanding long-term debt, including borrowings from the New Facility during
the Third Quarter of Fiscal 2011 were:
Amount | ||||
Long-term debt |
$ | 29,668 | ||
Less current installments |
4,311 | |||
Long-term debt excluding current installments |
$ | 25,357 | ||
The aggregate minimum principal maturities of the long-term debt for each of the next five years
following April 2, 2011 are as follows:
April 2011-March 2012 |
$ | 4,311 | ||
April 2012-March 2013 |
4,286 | |||
April 2013-March 2014 |
4,286 | |||
April 2014-March 2015 |
4,286 | |||
April 2015-March 2016 |
4,286 | |||
March 2016 due at end of term loan |
8,213 | |||
$ | 29,668 | |||
Critical Accounting Policies and Use of Significant Estimates
The preparation of financial statements in accordance with U.S. GAAP requires that we make certain
estimates. These estimates can affect reported revenues, expenses and results of operations, as
well as the reported values of certain assets and liabilities. We make these estimates after
gathering as much information from as many resources, both internal and external, as are available
at the time. After reasonably assessing the conditions that exist at the time, we make these
estimates and prepare consolidated financial statements accordingly. These estimates are made in a
consistent manner from period to period, based upon historical trends and conditions and after
review and analysis of current events and circumstances. We believe these estimates reasonably
reflect the current assessment of the financial impact of events whose actual outcomes will not
become known to us with certainty until some time in the future.
The following discussion of critical accounting policies is intended to bring to the attention of
readers those accounting policies that management believes are critical to the Companys
consolidated financial statements and other financial disclosures. It is not intended to be a
comprehensive list of all of our significant accounting policies that are more fully described in
Note (1) of the Notes to Consolidated Financial Statements in Item 8 Financial Statements
and Supplementary Data. of Part II of our 2010 Form 10-K.
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A summary of the critical accounting policies requiring management estimates follows:
a) | We recognize revenue when the following criteria are met: |
| goods are shipped from our warehouses and other Third-party distribution locations, at which point our customers take ownership and assume risk of loss; | ||
| collection of the relevant receivable is probable; | ||
| persuasive evidence of an arrangement exists; and | ||
| the sales price is fixed or determinable. |
In certain circumstances, we sell products to customers under arrangements which provide for return privileges, discounts, promotions and other sales incentives. At the time we recognize revenue, we reduce our measurement of revenue by an estimate of the potential future returns and allowable retailer promotions and incentives, and recognize a corresponding reduction in reported trade accounts receivable. These estimates have traditionally been, and continue to be, sensitive to and dependent on a variety of factors including, but not limited to, quantities sold to our customers and the related selling and marketing support programs; channels of distribution; sell-through rates at retail; the acceptance of the styling of our products by consumers; the overall economic environment; consumer confidence leading towards and through the holiday selling season; and other related factors. During the Third Quarter and Nine-month period of Fiscal 2011, we recognized favorable reserve adjustments that benefited our earnings before income tax by $0 and $878 thousand, respectively, related to our customer incentive reserves of $1.8 million established at July 3, 2010. During the Third Quarter and Nine-month period of Fiscal 2010, we recognized favorable reserve adjustments that benefited our earnings before income tax by $225 thousand and $612 thousand, respectively, related to our footwear segment customer incentive reserves of $1.3 million established at June 27, 2009. | |||
We monitor the creditworthiness of our customers and the related collection of monies owed to us. In circumstances where we become aware of a specific customers inability to meet its financial obligations, a specific reserve for bad debts is taken as a reduction to accounts receivable to reduce the net recognized receivable to the amount reasonably expected to be collected. For all other customers, we recognize estimated reserves for bad debts based on our historical collection experience, the financial condition of our customers, an evaluation of current economic conditions and anticipated trends, each of which is subjective and requires certain assumptions. Actual charges for uncollectible amounts were not materially different from our estimates during the Nine-month period of Fiscal 2011 or during the Nine-month period of Fiscal 2010. | |||
b) | We value inventories using the lower of cost or market, based upon the first-in, first-out (FIFO) costing method. We evaluate our inventories for any reduction in realizable value in light of the prior selling season, the overall economic environment and our expectations for the upcoming selling seasons, and we record the appropriate write-downs based on this evaluation. During the Nine-month period of Fiscal 2011 and the Nine-month period of Fiscal 2010, there were no significant write-downs to inventory recorded. | ||
c) | We make an assessment of the amount of income taxes that will become currently payable or recoverable for the just concluded period, and the deferred tax costs or benefits that will become realizable for income tax purposes in the future, as a consequence of differences between results of operations as reported in conformity with U.S. GAAP, and the requirements of the income tax codes existing in the various jurisdictions where we operate. In evaluating the future benefits of deferred tax assets, we examine our capacity for generating future taxable profit. In addition, we make ongoing assessments of income tax exposures that may arise at the Federal, state or local tax levels. U.S. GAAP principles require that a position taken or expected to be taken in a tax return be recognized in the financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that has a greater than fifty percent likelihood of being realized upon settlement. Any identified exposures will be subjected to continuing assessment and estimates will be revised accordingly as information becomes available to us. We had no tax reserve for uncertain tax positions at the end of the Nine-month period of Fiscal 2011 or at the end of Fiscal 2010 at the Federal, state or local tax levels. | ||
d) | We make assumptions to measure our pension liabilities and project the long-term rate of return expected on the invested pension assets in our qualified associates retirement plan. Changes in assumptions, which may be caused by conditions in the debt and equity markets, changes in asset mix, and plan experience, could have a material effect on our pension obligations and expenses, and can affect our net income, assets, and shareholders equity. Changes in assumptions may also result in voluntary or mandatory requirements to make additional contributions to our qualified associates retirement plan. These assumptions are reviewed and reset as appropriate at the pension measurement date commensurate with the end of our Fiscal year, and we monitor these assumptions over the course of the Fiscal year. |
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e) | We review the carrying value of our long-lived assets including property, plant and equipment, and intangible assets with finite useful lives, for impairment whenever events or change in circumstances warrant such review. Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, which would be recorded as an impairment charge in our consolidated statements of earnings. There was no impairment indicators present during the Nine-month period ended April 2, 2011. | ||
Goodwill and intangible assets with indefinite lives are not amortized, but instead will be tested for impairment annually, during the Companys second fiscal quarter, or more frequently if events or changes in circumstances indicate that impairment may be present. Application of goodwill impairment testing involves judgment, including but not limited to, the identification of reporting units and estimating the fair value of each reporting unit. A reporting unit is defined as an operating segment or one level below an operating segment. We test goodwill at the lower of the reporting unit or operating segment level. The goodwill impairment test consists of comparing the fair value of each reporting unit, determined using discounted cash flows, to each reporting units respective carrying value. If the estimated fair value of a reporting unit exceeds its carrying value, there is no impairment. If the carrying amount of the reporting unit exceeds its estimated fair value, goodwill impairment is indicated. The amount of the impairment is determined by comparing the fair value of the net assets of the reporting unit, excluding goodwill, to its estimated fair value, with the difference representing the implied fair value of the goodwill. If the implied fair value of the goodwill is lower than its carrying value, the difference is recorded as an impairment charge in the consolidated statements of operations. No impairment indicators were present with regard to our goodwill or intangible assets with indefinite useful lives at April 2, 2011. | |||
f) | We manage interest rate volatility on our floating interest-rate term debt borrowing. As a result of interest rate fluctuations, cash flow requirements on floating rate borrowings increase or decrease and impact both expected cash outflows as well as interest expense over time. We use a derivative instrument, an interest rate contract, as part of our interest rate risk management strategy to manage cash flow exposure from changes in interest rates. An interest rate contract generally involves the exchange of fixed-rate and variable-rate interest payments between two parties, based on a common notional principal amount and maturity date. Under an interest rate contract, we agree with another party to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts, which is calculated based on an agreed-upon notional amount. A derivative instrument deemed highly effective qualifies for hedge accounting treatment under generally accepted accounting standards, and accordingly, the effective portion of unrealized gains and losses on interest rate swaps is deferred as a component of accumulated other comprehensive income (loss). Any deferred portion is a component of interest expense when we incur the interest expense. Any ineffective portion is directly recorded as a component of interest expense. | ||
At the end of each Quarter, fair value of the interest rate contract is measured and re-tested under generally accepted accounting standard criteria to determine and/or reconfirm status with regards to being an effective cash flow hedge. If determined to be effective, any gain or loss outstanding on the interest rate contract is recorded as an asset or liability, with an offset to other comprehensive income (loss). If deemed ineffective as a cash flow hedge, any gain or loss on the interest rate contract is recognized immediately in earnings. | |||
g) | There are various other accounting policies that also require managements judgment. For an additional discussion of all of our significant accounting policies, please see Note (1) of the Notes to Consolidated Financial Statements in Item 8 Financial Statements and Supplementary Data. of Part II of our 2010 Form 10-K. |
Actual results may vary from these estimates as a consequence of activities after the period-end
estimates have been made. 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 estimates.
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Recently Issued Accounting Standards
See Note (18), Recently Issued Accounting Standards of the Notes to Condensed Consolidated
Financial Statements included in this Quarterly Report on Form 10-Q, for any recently issued but
not yet adopted accounting standards that could have a significant effect on the Company when they
are implemented.
ITEM 3 Quantitative and Qualitative Disclosures About Market Risk
Market Risk Sensitive Instruments Foreign Currency
During all of Fiscal 2010 and through the Nine-month period of Fiscal 2011, substantially all of
our sales and all of our purchases were denominated in U.S. Dollars, and accordingly, we did not
have any foreign currency risk during the Third Quarter or Nine-month period of Fiscal 2011.
Market Risk Sensitive Instruments Interest Rates
Our principal market risk exposure relates to the impact of changes in short-term interest rates
that may result from the floating rate nature of our New Facility, including both the Revolving
Credit Facility and the Term Loan Facility. At April 2, 2011, we had no borrowings outstanding
under our Revolving Credit Facility. We had $29.6 million outstanding under the Term Loan
Facility. We have an interest rate contract with Huntington that effectively fixes the interest
rate at 3.94% on fifty percent of the loan balance and an interest rate equal to Libor plus 1.85%
that applies to the remainder of the loan balance under the Term Loan Facility.
Interest rate changes can impact interest expense on the unhedged portion of the term loan and
impact the level of earnings from short-term investments. In addition, changes in long-term
interest rates affect the measurement of pension liabilities performed on an annual basis.
ITEM 4 Controls and Procedures
Evaluation of Disclosure Controls and Procedures
With the participation of the President and Chief Executive Officer (the principal executive
officer) and the Senior Vice President-Finance and Chief Financial Officer (the principal financial
officer), the Companys management has evaluated the effectiveness of the Companys 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 Quarterly period covered by this Quarterly
Report on Form 10-Q. Based on that evaluation, the Companys President and Chief Executive Officer
and the Companys Senior Vice President-Finance and Chief Financial Officer have concluded that:
a. | information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and the other reports that the Company files or submits under the Exchange Act would be accumulated and communicated to the Companys management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure; | ||
b. | information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and the other reports that the Company files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms; and | ||
c. | the Companys disclosure controls and procedures were effective as of the end of the Quarterly period covered by this Quarterly Report on Form 10-Q. |
Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that occurred during the Companys Quarterly period ended
April 2, 2011, that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
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PART II OTHER INFORMATION
Item 1. Legal Proceedings
No response required.
Item 1A. Risk Factors
Please see the Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995
at the front of this Quarterly Report on Form 10-Q and Item 1A. Risk Factors of Part I of our
2010 Form 10-K for information regarding risk factors. There have been no material changes from
the risk factors previously disclosed in Item 1A. Risk Factors of Part I of our 2010 Form 10-K.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) and (b) Not applicable
(c) Neither R.G. Barry Corporation nor any affiliated purchaser of R.G. Barry Corporation,
as defined in Rule 10b 18 (a) (3) under the Securities Exchange Act of 1934, as amended,
purchased any common shares of R.G. Barry Corporation during the Quarterly period ended April 2,
2011. R.G. Barry Corporation does not currently have in effect a publicly announced repurchase
plan or program.
Item 3. Defaults Upon Senior Securities
(a), (b) Not Applicable
Item 4. [Reserved]
Item 5. Other Information
None.
Item 6. Exhibits
See Index to Exhibits at page 32.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
R.G. BARRY CORPORATION Registrant |
||||
Date: May 11, 2011 | By: | /s/ José G. Ibarra | ||
José G. Ibarra | ||||
Senior Vice President Finance and Chief Financial
Officer (Principal Financial Officer) (Duly Authorized Officer) |
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R.G. BARRY CORPORATION
INDEX TO EXHIBITS
Exhibit No. | Description | Location | ||||
2.1 | Asset Purchase Agreement entered into as of January 27, 2011 , among
R. G. Barry International, Inc. (now known as Foot Petals, Inc.),
Foot Petals, LLC and Tina Aldatz
|
Incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of R.G. Barry Corporation dated and filed January 28, 2011 (SEC File No. 001-08769) | ||||
2.2 | Asset Purchase Agreement, entered into on March 15, 2011, among
Barry Holding Co. (now known as Baggallini, Inc.), baggallini, Inc.,
Dixie B. Powers, as trustee and individually, and Elizabeth Ann
Simmons
|
Incorporated herein by reference to Exhibit 2.1 to the Current Report on Form 8-K of R.G. Barry Corporation dated and filed March 18, 2011 (SEC File No. 001-08769) | ||||
10.1 | Credit Agreement, dated March 1, 2011, between R.G. Barry
Corporation and The Huntington National Bank. As filed herewith,
includes all exhibits to the Credit Agreement, in their entirety.
|
Filed herewith | ||||
10.2 | Revolving Credit Agreement, entered into effective March 29, 2007
between R.G. Barry Corporation and The Huntington National Bank. As
filed herewith, includes all exhibits to the Revolving Credit
Agreement, in their entirety.
|
Filed herewith | ||||
10.3 | Change in Control Agreement between R.G. Barry Corporation and Jose
Ibarra, made to be effective as of January 7, 2011
|
Incorporated herein by reference to Exhibit 10.1 to the Current Report on Form 8-K of R.G. Barry Corporation, dated and filed January 13, 2011 (SEC File No. 001-08769) | ||||
10.4 | Change in Control Agreement between R.G. Barry Corporation and Lee
Smith, made to be effective as of January 7, 2011
|
Incorporated herein by reference to Exhibit 10.2 to the Current Report on Form 8-K of R.G. Barry Corporation, dated and filed January 13, 2011 (SEC File No. 001-08769) | ||||
10.5 | Change in Control Agreement between R.G. Barry Corporation and Glenn
Evans, made to be effective as of January 7, 2011
|
Incorporated herein by reference to Exhibit 10.3 to the Current Report on Form 8-K of R.G. Barry Corporation, dated and filed January 13, 2011 (SEC File No. 001-08769) | ||||
10.6 | Change in Control Agreement between R.G. Barry Corporation and Greg
Ackard, made to be effective as of January 7, 2011
|
Incorporated herein by reference to Exhibit 10.4 to the Current Report on Form 8-K of R.G. Barry Corporation, dated and filed January 13, 2011 (SEC File No. 001-08769) | ||||
31.1 | Rule 13a-14(a)/15d-14(a) Certifications (Principal Executive Officer)
|
Filed herewith | ||||
31.2 | Rule 13a-14(a)/15d-14(a) Certifications (Principal Financial Officer)
|
Filed herewith | ||||
32.1 | Section 1350 Certifications (Principal Executive Officer and
Principal Financial Officer)
|
Furnished herewith |
32