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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 1, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____________ to _____________
Commission File Number 1-8769
R. G. BARRY CORPORATION
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(Exact name of Registrant as specified in its charter)
Ohio 31-4362899
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
13405 Yarmouth Road N.W., Pickerington, Ohio 43147
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (614) 864-6400
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
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Common Shares, Par Value $1.00 New York Stock Exchange
(9,350,657 outstanding as of March 15, 2000)
Series I Junior Participating New York Stock Exchange
Class A Preferred Share Purchase Rights
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Based upon the closing price reported on the New York Stock Exchange on March
15, 2000 ($3.4375), the aggregate market value of the Common Shares of the
Registrant held by non-affiliates on that date was $28,807,147.
Documents Incorporated by Reference:
(1) Portions of the Registrant's Annual Report to Shareholders for the
fiscal year ended January 1, 2000, are incorporated by reference into
Parts I and II of this Annual Report on Form 10-K.
(2) Portions of the Registrant's definitive Proxy Statement for its
Annual Meeting of Shareholders to be held on May 11, 2000, are
incorporated by reference into Part III of this Annual Report on Form
10-K.
Index to Exhibits begins on Page E-1.
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PART I
ITEM 1. BUSINESS.
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R. G. Barry Corporation ("R. G. Barry") is organized under Ohio law. R.
G. Barry and its subsidiaries, Barry de Mexico, S.A. de C.V., Barry de Acuna,
S.A. de C.V., Barry de Zacatecas, S.A. de C.V., ThermaStor Technologies, Ltd.,
LLC, R. G. Barry (Texas) LP, Barry de la Republica Dominicana, S.A. de C.V., R.
G. Barry International, Inc., R. G. Barry Holdings, Inc., R. G. Barry (France)
Holdings, Inc., Escapade, S.A.R.L., Fargeot et Compagnie, S.A., Michel Fargeot,
S.A., R.G.B., Inc. and Vesture Corporation ("Vesture")(R. G. Barry and its
subsidiaries are referred to collectively as the "Company"), manufacture and
market products which serve the comfort needs of people. The Company believes it
is the world's largest manufacturer of comfort footwear for at and around the
home, and, through its Vesture subsidiary, manufactures and markets thermal
retention technology products incorporating the Company's MICROCORE*
technologies. Comfort is the dominant influence in the Company's brand lines.
Effective July 22, 1999, R. G. Barry acquired 80% of the outstanding
stock of Escapade, S.A.R.L., which owns Fargeot et Compagnie, S.A. and Michel
Fargeot, S.A. (collectively, "Fargeot"), all of Thiviers, France. The purchase
price of $4,173,000 was paid in cash, and the acquisition has been accounted for
by the purchase method of accounting. The Escapade purchase agreement includes
put and call options for the purchase of the remaining 20% of the shares not
owned by R. G. Barry. The 20% shareholder may put the shares to R. G. Barry at
any time after July 22, 2004 for a period of five years at the price determined
under the purchase agreement. R. G. Barry may call the remaining shares and
purchase them at any time after July 22, 2000 for a period of nine years on the
same basis.
During the fiscal year ended January 1, 2000, the Company had three
operating segments: the Barry Comfort North America group, which includes at and
around the home comfort footwear products manufactured and sold in North
America; the Barry Comfort Europe group, which includes at and around the home
comfort footwear products sold in Europe and the Thermal group, which includes
thermal retention technology products. Financial information on the Company's
segments for the three years ended January 1, 2000, is presented in Note (13) to
the Consolidated Financial Statements on pages 30, 31 and 32 of R. G. Barry's
Annual Report to Shareholders for the fiscal year ended January 1, 2000.
PRINCIPAL PRODUCTS
The Company designs, manufactures and markets specialized comfort
footwear for men, women and children. The Company is in the business of
responding to consumer demand for comfortable footwear combined with attractive
appearance. The Company designs, manufactures and markets thermal retention
products in the food preservation; portable, personal comfort; and comfort
therapy categories as well as products which use thermal retention technology to
preserve and/or transport temperature-sensitive or perishable commodities.
Barry Comfort North America/Barry Comfort Europe
Historically, the Company's primary products have been foam-soled,
soft, washable slippers for men, women and children. The Company developed and
introduced women's Angel Treads*, the world's first foam-soled, soft, washable
slipper, in 1947. Since that time, the Company has introduced additional
slipper-type brand lines for men, women and children designed to provide
comfort, softness and washability. These footwear products are sold, for the
most part, under various brand names
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including Angel Treads*, Barry*Comfort, Dearfoams*, Dearfoams* for Kids,
Dearfoams* for Men, Madye's*, Snug Treds*, Soft Notes*, EZfeet*, Mushrooms*
Slippers and Fargeot. The Company has also at times marketed slipper-type
footwear under licensed trademarks.
The Company's foam-soled footwear lines have fabric uppers made of
terry cloths, velours, fleeces, satins, nylons and other washable materials, as
well as uppers made of suede and other man-made materials. Different brand lines
are marketed for men, women and children with a variety of styles, colors and
ornamentation.
The marketing strategy for the Company's slipper-type brand lines has
been to expand counter space for these products by creating and marketing brand
lines to different portions of the consumer market. Retail prices for the
Company's footwear normally range from approximately $5 to $30 per pair,
depending on the style of footwear, type of retail outlet and retailer mark-up.
The Company also manufactures and markets the Soft Notes* foam
cushioned casual slipper line. The Company believes that this brand line is a
bridge between slippers and casual footwear. The marketing strategy with respect
to this product emphasizes the fashion, comfort and versatility provided by the
Soft Notes* foam cushioned casual slippers.
The Company believes that many consumers of its slippers are loyal to
the Company's brand lines, usually own more than one pair of slippers and have a
history of repeat purchases. Substantially all of the slipper brand lines are
displayed on a self-selection basis in see-through packaging at the point of
purchase and have appeal to the "impulse" buyer. The Company believes that many
of the slippers are purchased as gifts for others.
Many styles of slipper-type footwear have become standard in the
Company's brand lines and are in demand year after year. For many of these
styles, the most significant changes made in response to fashion changes are in
ornamentation, fabric and/or color. The Company often introduces new, updated
styles of slippers with a view toward enhancing the fashion appeal and freshness
of its products. The Company anticipates that it will continue to introduce new
styles in future years in response to fashion changes.
It is possible to fit most consumers of the Company's slipper-type
footwear within a range of four to six sizes. This allows the Company to carry
lower levels of inventories in these slipper lines compared to other footwear
manufacturers.
Thermal
In 1994, the Company introduced on a national basis its thermal
retention technology products for consumers featuring MICROCORE*
microwave-activated technology developed by the Company. During that year, R. G.
Barry also acquired all of the outstanding stock of Vesture, the originators of
microwave-heated comfort care products.
The Company's MICROCORE* thermal retention technology consists of a
family of patented or proprietary technologies which, when energized with heat
or cold, act as reservoirs that release heat or cold at a constant temperature
for extended periods of time. The MICROCORE* thermal retention products have
application as: (1) commercial products which use the Company's MICROCORE*
patented thermal retention technology, either hot or cold, to preserve and
transport temperature-sensitive or perish-
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* Hereinafter denotes a trademark of the Company registered in the United States
Department of Commerce Patent and Trademark Office.
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able commodities such as food, medicine, pharmaceuticals and flowers; and (2)
thermal retention consumer products the Company creates, designs, sells and
distributes under its brand names.
Since 1997, the focus of the thermal business has been on commercial
applications of the thermal retention technologies and on comfort therapy, and
personal care items.
In the commercial product area, the Company has made a strategic
decision to focus on the commercial application of MICROCORE* patented thermal
retention technology, either hot or cold, to preserve and/or transport
temperature-sensitive or perishable commodities. The Company's POWERTECH* with
MICROCORE* is a patented portable heat storage technology which permits
portable, electrically-energized heat storage from either A.C. or D.C. power
sources and at specific temperatures through the use of a thermostat.
Underwriters Laboratories Inc. has granted a UL listing mark to the Company's
POWERTECH* with MICROCORE* Pizza Delivery System which is designed to keep pizza
hot at oven temperatures for two hours so that a pizza is delivered to a home
oven-hot, dry and crisp. The Company launched its POWERTECH* with MICROCORE* hot
food delivery system with Donatos Pizza of Columbus, Ohio, a 130-store regional
Midwest pizza chain, in the Fall of 1998. The Company continues in various
stages of testing the POWERTECH* with MICROCORE* Pizza Delivery System with
other national and large regional pizza chains throughout the United States.
During the third quarter of 1998, the Company filed a lawsuit for
patent infringement of United States Patent No. 5,790,962 against Domino's
Pizza, Inc. and Phase Change Laboratories, Inc. The '962 patent covers an
invention which maintains the desired temperature of food and other items using
a phase change material. Domino's Pizza, Inc. purchases a product, which it
calls the "Heat Wave" system. The product is manufactured by Phase Change
Laboratories, Inc. The Company believes that the product infringes upon the '962
Patent. The case has been amended to add a claim for deceptive advertising. The
Company seeks damages, attorney's fees and injunction against further
infringement by both defendants. Discovery in the matter is complete. A mediator
was used to aid in settlement discussions, and the Company believes a settlement
will be completed shortly.
The Company's thermal retention products for consumers generally fall
within three categories: (1) food preservation products such as breadwarmer
baskets and portable food carriers; (2) comfort therapy products such as heating
pads and backwarmers; and (3) portable, personal comfort products such as heated
booties, neck packs and shoulder packs. Retail prices for substantially all of
the Company's thermal retention consumer products normally range from
approximately $12 to $40, depending on the product, type of retail outlet and
retailer mark-up. The Company believes that the food preservation and comfort
therapy thermal retention products are not weather sensitive and have a
year-round sales appeal while the cold weather portion of the personal, portable
comfort product line is more seasonal and affected by weather changes. The
thermal retention consumer products are sold under the major brand lines of
Dearfoams*, Soluna(TM), Vesture*, Lava*, LavaPac*, LavaBuns* and LavaBooties*.
All carry MICROCORE* energy packs.
MARKETING
The Company's slipper-type brand lines and thermal retention consumer
products are sold to traditional department stores, promotional department
stores, national chain department stores and specialty stores; through mass
merchandising channels of distribution such as discount stores, warehouse clubs,
drug and variety chain stores, and supermarkets; and to independent retail
establishments. The Company markets these products primarily through Company
salespersons and, to a lesser extent, through independent sales representatives.
The Company does not finance its customers' purchases.
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Each spring and autumn and at numerous other times during the year, new
designs and styles are presented to buyers representing the Company's retail
customers at regularly scheduled showings. Company designers also produce new
styles and experimental designs throughout the year which are evaluated by the
Company's sales and marketing personnel. Buyers for department stores and other
large retail customers attend the spring and autumn showings and make periodic
visits to the Company's showroom in New York. Company salespersons regularly
visit retail customers. The Company also regularly makes catalogs available to
its current and potential customers and periodically follows up with current and
potential customers by telephone. In addition, the Company participates in trade
shows, both regionally and nationally.
During the 1999 Christmas selling season, the Company again provided
approximately 400 temporary merchandisers to service the retail selling floor of
department stores and chain stores nationally. The Company believes that this
point-of-sale management of the retail selling floor, combined with computerized
automatic replenishment systems the Company installed with the stores, put the
Company in a position to optimize its comfort footwear business during the
fourth quarter.
Sales during the last six months of each year have historically been
greater than during the first six months. The Company's inventory is largest in
early autumn in order to accommodate the retailers' fall selling seasons.
The Company advertises principally in the print media. The Company's
promotional efforts are often conducted in cooperation with customers. The
Company's products are displayed at the retail-store level on a self-selection
and gift-purchase basis.
The Company believes it has an opportunity for expansion in Europe for
its at and around the home comfort footwear. The Company has begun to build its
business in Europe with France as the first target market outside of the United
Kingdom. The Company's international sales are focused on the department store
channels and hypermarkets primarily in the United Kingdom and France. The
Company also markets its comfort footwear products in Canada, Mexico and several
other countries around the world. In 1999, the Company's European sales
comprised approximately 8% of its total sales. Financial information for the
three years ended January 1, 2000 for the geographic areas in which the Company
operates is presented in Note (13) to the Consolidated Financial Statements on
pages 30, 31 and 32 of R. G. Barry's Annual Report to Shareholders for the
fiscal year ended January 1, 2000.
The Company markets its thermal retention commercial products directly
to prospective customers through Company personnel. The Company does not finance
its customers' purchases.
RESEARCH AND DEVELOPMENT
Most of the Company's research efforts are undertaken in connection
with the design and consumer appeal of new styles of slipper-type footwear and
thermal retention products. During the 1999, 1998 and 1997 fiscal years, the
amounts spent by the Company in connection with the research and design of new
products and the improvement or redesign of existing products were approximately
$3.7 million, $3.9 million and $3.5 million, respectively. Substantially all of
the foregoing activities were Company-sponsored. Approximately 50 employees are
engaged full time in research and design.
MATERIALS
The principal raw materials used by the Company in the manufacture of
its slipper and thermal retention product brand lines are textile fabrics,
threads, foams and other synthetic products. All are
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available domestically from a wide range of suppliers. The Company has
experienced no difficulty in obtaining raw materials from suppliers and
anticipates no future difficulty.
TRADEMARKS AND LICENSES
Approximately 95% of the Company's sales are represented by brand items
sold under trademarks owned by the Company. The Company is the holder of many
trademarks which identify its products. The trademarks which are most widely
used by the Company include: (a) Angel Treads*, Barry*Comfort, Dearfoams*,
Dearfoams* for Kids, Dearfoams* for Men, Madye's*, Snug Treds*, Soft Notes*,
EZfeet*, and Fargeot, in the Company's Barry Comfort businesses; and (b)
Dearfoams*, Soluna(TM), Vesture*, Lava*, LavaPac*, LavaBuns*, LavaBooties*,
MICROCORE* and POWERTECH,* in the Company's Thermal business. The Company
believes that its products are identified by its trademarks and, thus, its
trademarks are of significant value. Each registered trademark has a duration of
20 years and is subject to an indefinite number of renewals for a like period
upon appropriate application. The Company intends to continue the use of each of
its trademarks and to renew each of its registered trademarks.
The Company also has sold comfort footwear under various names as
licensee under license agreements with the owners of those names. In each of the
last three fiscal years, less than 1% of the Company's total sales were
represented by footwear sold under licensed names.
CUSTOMERS
The only customer of the Company which accounted for more than 10% of
the Company's consolidated revenues in the 1999 and 1998 fiscal years was
Wal-Mart Stores, Inc., a Barry Comfort North America customer, which accounted
for 23% in 1999 and 22% in 1998. The customers of the Company which accounted
for more than 10% of the Company's consolidated revenues in the 1997 fiscal year
were Wal-Mart, J. C. Penney Company, Inc. and Sears, Roebuck & Company, all
Barry Comfort North America customers, which accounted for 20%, 11% and 10%,
respectively.
BACKLOG OF ORDERS
The Company's backlog of orders at the close of each of the 1999 and
1998 fiscal years was approximately $10 million. The Company anticipates that a
large percentage of the orders as of the end of the 1999 fiscal year will be
filled during the current fiscal year.
Generally, the Company's backlog of unfilled sales orders is largest
after the spring and autumn showings of the Company. For example, the Company's
approximate backlog of unfilled sales orders following the conclusion of such
showings during the last two years was: August 1999 - $54 million; August 1998 -
$67 million; February 1999 - $13 million; and February 1998 - $22 million. The
Company's backlog of unfilled sales orders reflects the seasonal nature of the
Company's sales - approximately 70 to 75% of such sales occur during the second
half of the year as compared to approximately 25% to 30% during the first half
of the year.
INVENTORY
While some styles of the Company's slipper-type brand lines change
little from year to year, the Company has also introduced, and intends to
continue to introduce, new, updated styles in an effort to enhance the comfort
and fashion appeal of its products. As a result, the Company anticipates that
some of its slipper styles will change from season to season, particularly in
response to fashion changes. The Company has introduced a variety of new thermal
retention products to compliment its existing products
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in response to consumer and commercial demand. The Company believes that it will
be able to control the level of its obsolete inventory. Traditionally, the
Company has had a limited and manageable exposure to obsolete inventory.
COMPETITION
The Company operates in the portion of the footwear industry providing
comfort footwear for at and around the home. The Company believes that it is a
small factor in the highly competitive footwear industry. The Company also
believes that it is the world's largest manufacturer of comfort footwear for at
and around the home. The Company also operates in an area where it provides
portable warmth and cold through its line of thermal retention technology
commercial and consumer products. The Company competes primarily on the basis of
the value, quality and comfort of its products, service to its customers, and
its marketing expertise. The Company knows of no reliable published statistics
which indicate its current relative position in the footwear or any other
industry or in the portion of the footwear industry providing comfort footwear
for at and around the home or its current relative position in the thermal
retention product industry.
MANUFACTURING, SALES AND DISTRIBUTION FACILITIES
The Company has seven manufacturing facilities. The Company operates
sewing plants in Nuevo Laredo, Ciudad Acuna, and Zacatecas, Mexico and in Santo
Domingo, Dominican Republic. The Company also operates a cutting plant in
Laredo, Texas and a sole molding operation in San Angelo, Texas. The Company
produces thermal retention products at its manufacturing facilities in Asheboro,
North Carolina, and Nuevo Laredo, Mexico. The Company closed the factory in
Shenzhen, People's Republic of China, in February 2000.
The Company maintains sales offices in New York, New York; London,
England; and Paris, France. The Company also operates distribution centers in
Asheboro and Goldsboro, North Carolina; San Angelo and San Antonio, Texas;
Rhymney, Gwent, Wales; and Thiviers, France.
The Company's principal manufacturing, sales and distribution facilities
are described more fully in ITEM 2. PROPERTIES.
EFFECT OF ENVIRONMENTAL REGULATION
Compliance with federal, state and local provisions regulating the
discharge of materials into the environment, or otherwise relating to the
protection of the environment, has not had a material effect on the Company's
capital expenditures, earnings or competitive position. The Company believes
that the nature of its operations has little, if any, environmental impact. The
Company, therefore, anticipates no material capital expenditures for
environmental control facilities for its current fiscal year or for the
foreseeable future.
EMPLOYEES
At the close of the 1999 fiscal year, the Company employed
approximately 3,000 persons.
ITEM 2. PROPERTIES.
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The Company owns a warehouse facility in Goldsboro, North Carolina,
containing approximately 170,000 square feet.
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The Company formerly leased a 55,000 square foot administrative and
office facility under a lease agreement with the local government which issued
industrial revenue bonds to construct and equip the facility. In 1999, the
Company purchased the facility at a nominal sum upon retirement of the bonds.
The Company leases space aggregating approximately 1 million square
feet at an approximate aggregate annual rental of $3.0 million. The following
table describes the Company's principal leased properties:
Approximate Approximate Lease
Location Use Square Feet Annual Rental Expires Renewals
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Empire State Building Sales Office 4,300 $117,000 2003 None
New York City, N.Y.
2800 Loop 306 Manufacturing, Office, 145,800 $166,000 (1) 2005 10 years
San Angelo, Texas Warehouse
Distribution Center Shipping, Warehouse 172,800 $432,000 (1) 2007 15 years
San Angelo, Texas
Cesar Lopez de Lara Manufacturing, Office 90,200 $300,000 2005 5 years
Ave.
Nuevo Laredo, Mexico
Ciudad Acuna Manufacturing, Office 64,700 $302,000 2004 5 years
Industrial Park
Ciudad Acuna, Mexico
Bob Bullock Loop Manufacturing, Warehouse, 165,000 $386,000 (1) 2001 2 terms of
Laredo, Texas Office 5 years each
Bob Bullock Loop Manufacturing, Warehouse, 76,000 $190,000 (1) 2006 5 years
Laredo, Texas Storage
Industrial Zone Manufacturing 26,200 $ 58,000 2003 1 term of 5
Zacatecas, Mexico years
Industrial Zone Manufacturing 25,800 $ 58,000 2005 3 terms of
Zacatecas, Mexico 5 years each
120 E. Pritchard St. Manufacturing, Office, 57,500 $ 96,000 (1) 2001 None
Asheboro, North Carolina Warehouse
8000 Interstate Administrative Office 17,000 $322,000 2003 None
Highway 10 West
San Antonio, Texas
9803 Broadway Shipping, Warehouse 150,000 $580,000 2010 None
San Antonio, Texas
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Approximate Approximate Lease
Location Use Square Feet Annual Rental Expires Renewals
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Chelsea Harbour Sales & Administrative 2,500 $ 87,000 2002 None
London, England Office
Rhymney, Gwent, Wales Warehouse 8,000 $ 21,000 Month- N/A
to-
Month
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(1) Net lease.
The Company believes that all of the buildings owned or leased by it
are well maintained, in good operating condition, and suitable for their present
uses.
ITEM 3. LEGAL PROCEEDINGS.
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On September 10, 1998, the Company filed a lawsuit for patent
infringement of United States Patent No. 5,790,962 against Domino's Pizza, Inc.
and Phase Change Laboratories, Inc. The case was filed on behalf of both the
Company and its subsidiary Vesture Corporation in the United States District
Court for the Middle District of North Carolina. The '962 patent covers an
invention which maintains the desired temperature of food and other items using
a phase change material. Domino's Pizza, Inc. purchases a product, which it
calls the "Heat Wave" system. The product is manufactured by Phase Change
Laboratories, Inc. The Company believes that the product infringes upon the '962
Patent. The case has been amended to add a claim for deceptive advertising. The
case has been assigned Civil Action No. 1:98CV00802. The Company seeks damages,
attorney's fees and injunction against further infringement by both defendants.
Discovery in the matter is complete. A mediator was used to aid in settlement
discussions, and the Company believes a settlement will be completed shortly.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
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Not applicable.
Executive Officers of the Registrant.
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The following table lists the names and ages of the executive officers
of R. G. Barry as of the date of this Annual Report on Form 10-K, the positions
with R. G. Barry presently held by each executive officer and the business
experience of each executive officer during the past five years. Unless
otherwise indicated, each person has had his principal occupation for more than
five years. All executive officers serve at the pleasure of the Board of
Directors.
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Position(s) Held with R. G. Barry and
Name Age Principal Occupation(s) for Past Five Years
- ---- --- -------------------------------------------
Gordon Zacks 67 Chairman of the Board and Chief Executive Officer since 1979,
President since 1992, and Director since 1959, of R. G. Barry
Christian Galvis 58 Executive Vice President-Operations and Director since 1992,
President-Operations of Barry Comfort Group since January 1998,
and Vice President-Operations from 1991 to 1992, of R. G. Barry
Edward Bucciarelli 47 Executive Vice President-Sales & Marketing and President-Merchandising,
Marketing and Sales of Barry Comfort Group since October 1999, of R. G. Barry;
President, Jewelry and Accessories, of Liz Claiborne, Inc., designer and
manufacturer of fashion apparel and accessories, from 1996 to September 1999;
Vice President, Design and Marketing, of Swank, Inc., manufacturer and
distributor of fashion accessories, from 1994 to 1996
Richard L. Burrell 67 Senior Vice President-Finance since 1992, Treasurer and Secretary
since 1976, Vice President-Finance from 1976 to 1992, and Director
since 1984, of R. G. Barry
Harry Miller 57 Vice President-Human Resources of R. G. Barry since 1993
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
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The information called for in this Item 5 is incorporated by reference
to page 10 of R. G. Barry's Annual Report to Shareholders for the fiscal year
ended January 1, 2000.
ITEM 6. SELECTED FINANCIAL DATA.
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The information called for in this Item 6 is incorporated by reference
to pages 8 and 9 of R. G. Barry's Annual Report to Shareholders for the fiscal
year ended January 1, 2000.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- -------------------------------------------------------------------------------
OF OPERATION.
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The information called for in this Item 7 is incorporated by reference
to pages 11 through 16 of R. G. Barry's Annual Report to Shareholders for the
fiscal year ended January 1, 2000.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
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No response required.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
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The Consolidated Balance Sheets of R. G. Barry and its subsidiaries as
of January 1, 2000 and January 2, 1999, the related Consolidated Statements of
Operations, of Shareholders' Equity and Comprehensive Income and of Cash Flows
for each of the fiscal years in the three-year period ended January 1, 2000, the
related Notes to Consolidated Financial Statements and the Independent Auditors'
Report, appearing on pages 17 through 34 of R. G. Barry's Annual Report to
Shareholders for the fiscal year ended January 1, 2000, are incorporated by
reference. Quarterly Financial Data set forth on page 10 of R. G. Barry's Annual
Report to Shareholders for the fiscal year ended January 1, 2000, are also
incorporated by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
- -----------------------------------------------------------------------
FINANCIAL DISCLOSURE.
- ---------------------
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
- ------------------------------------------------------------
The information called for in this Item 10 is incorporated by reference
to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, under the captions "ELECTION OF
DIRECTORS," "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS--Employment
Contracts, Restricted Stock Agreements and Termination of Employment and
Change-in-Control Arrangements" and "SHARE OWNERSHIP--Section 16(a) Beneficial
Ownership Reporting Compliance." In addition, information concerning R. G.
Barry's executive officers is included in the portion of Part I of this Annual
Report on Form 10-K entitled "Executive Officers of the Registrant."
ITEM 11. EXECUTIVE COMPENSATION.
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The information called for in this Item 11 is incorporated by reference
to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, under the caption "COMPENSATION OF
EXECUTIVE OFFICERS AND DIRECTORS." Neither the report on executive compensation
nor the performance graph included in R. G. Barry's definitive Proxy Statement
shall be deemed to be incorporated by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
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The information called for in this Item 12 is incorporated by reference
to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, under the captions "SHARE OWNERSHIP"
and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS -- Employment Contracts,
Restricted Stock Agreements and Termination of Employment and Change-in-Control
Arrangements."
- 11 -
12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
- --------------------------------------------------------
The information called for in this Item 13 is incorporated by reference
to R. G. Barry's definitive Proxy Statement relating to the Annual Meeting of
Shareholders to be held on May 11, 2000, under the captions "SHARE OWNERSHIP,"
"ELECTION OF DIRECTORS" and "COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
- --------------------------------------------------------------------------
(a)(1) Financial Statements.
--------------------
For a list of all financial statements incorporated by reference in
this Annual Report on Form 10-K, see "Index to Financial Statements
and Financial Statement Schedules" at page 14.
(a)(2) Financial Statement Schedules.
-----------------------------
For a list of all financial statement schedules included in this
Annual Report on Form 10-K, see "Index to Financial Statements and
Financial Statement Schedules" at page 14.
(a)(3) Exhibits.
--------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For list of these exhibits, see "Index to Exhibits" beginning
at page E-1.
(b) Reports on Form 8-K
-------------------
On October 15, 1999, R. G. Barry filed a Current Report on Form 8-K,
dated that same date, in order to report under "Item 5. Other
Events," the issuance of a press release updating R. G. Barry's
earnings outlook for the third fiscal quarter and the 1999 fiscal
year as a whole.
(c) Exhibits
--------
Exhibits filed with this Annual Report on Form 10-K are attached
hereto. For a list of such exhibits, see "Index to Exhibits"
beginning at page E-1.
(d) Financial Statement Schedules
-----------------------------
Financial Statement Schedules included with this Annual Report on
Form 10-K are attached hereto. See "Index to Financial Statements and
Financial Statement Schedules" at page 14.
- 12 -
13
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this Report to be signed on
its behalf by the undersigned, thereunto duly authorized.
R. G. Barry Corporation
Date: March 29, 2000
By: /s/ Richard L. Burrell
------------------------
Richard L. Burrell,
Senior Vice President-Finance,
Secretary and Treasurer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Name Date Capacity
- ---- ---- --------
*Gordon Zacks * Chairman of the Board, President, Chief
Executive Officer and Director
/s/ Richard L. Burrell
- -----------------------
Richard L. Burrell March 29, 2000 Senior Vice President-Finance, Secretary,
Treasurer, Principal Financial and Accounting
Officer and Director
*Christian Galvis * Executive Vice President-Operations,
President-Operations of Barry Comfort Group and
Director
*Leopold Abraham II * Director
*Philip G. Barach * Director
*William Giovanello * Director
*Roger E. Lautzenhiser * Director
*Harvey M. Krueger * Director
*Edward M. Stan * Director
*By: /s/ Richard L. Burrell
-------------------------
Richard L. Burrell,
Attorney-in-Fact
Date: March 29, 2000
- 13 -
14
R. G. BARRY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 1, 2000
INDEX TO FINANCIAL STATEMENTS
AND FINANCIAL STATEMENT SCHEDULES
---------------------------------
PAGE(S) IN ANNUAL
DESCRIPTION OF FINANCIAL STATEMENTS (ALL OF WHICH ARE REPORT TO SHAREHOLDERS
INCORPORATED BY REFERENCE IN THIS ANNUAL REPORT ON FOR THE FISCAL YEAR ENDED
FORM 10-K FOR THE FISCAL YEAR ENDED JANUARY 1, 2000) JANUARY 1, 2000
- ----------------------------------------------------- -------------------------
Consolidated Balance Sheets at January 1, 2000 and
January 2, 1999 ................................................................... 17
Consolidated Statements of Operations for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998................................ 18
Consolidated Statements of Shareholders' Equity and Comprehensive Income for the
years ended January 1, 2000, January 2, 1999 and January 3, 1998.................... 18
Consolidated Statements of Cash Flows for the years ended
January 1, 2000, January 2, 1999 and January 3, 1998 ............................... 19
Notes to Consolidated Financial Statements................................................... 20 - 33
Independent Auditors' Report................................................................. 34
ADDITIONAL FINANCIAL DATA
- -------------------------
The following additional financial data should be read in conjunction
with the Consolidated Financial Statements of R. G. Barry Corporation and its
subsidiaries included in the Annual Report to Shareholders for the fiscal year
ended January 1, 2000. Schedules not included with this additional financial
data have been omitted because they are not applicable or the required
information is shown in the Consolidated Financial Statements or Notes thereto.
Independent Auditor's Report on Financial Statement Schedules:
Included at page 15 of this Annual Report on Form 10-K
Schedules for the fiscal years ended January 1, 2000, January 2, 1999,
January 3, 1998: Schedule 2 -- Valuation and Qualifying
Accounts: Included at pages 16 through 18 of this Annual
Report on Form 10-K
- 14 -
15
[Letterhead of KPMG LLP]
INDEPENDENT AUDITORS' REPORT ON
FINANCIAL STATEMENT SCHEDULES
The Board of Directors and Shareholders
R. G. Barry Corporation:
Under date of February 17, 2000, we reported on the consolidated balance sheets
of R. G. Barry Corporation and subsidiaries as of January 1, 2000 and January 2,
1999, and the related consolidated statements of operations, shareholders'
equity and comprehensive income, and cash flows for each of the fiscal years in
the three-year period ended January 1, 2000, as contained in the fiscal 1999
annual report to shareholders. These consolidated financial statements and our
report thereon are incorporated by reference in the annual report on Form 10-K
for the fiscal year 1999. In connection with our audits of the aforementioned
consolidated financial statements, we also audited the related consolidated
financial statement schedules as listed in the accompanying index. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statement schedules based on our audits.
In our opinion, such financial statement schedules, when considered in relation
to the basic consolidated financial statements taken as a whole, present fairly,
in all material respects, the information set forth therein.
/s/ KPMG LLP
Columbus, Ohio
February 17, 2000
15
16
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
January 1, 2000
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- -------------- -------------- -------------- --------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- -------------- -------------- -------------- ---------------
Reserves deducted from accounts receivable:
Allowance for doubtful
receivables $ 232,000 413,000 356,000(1) 289,000
Allowance for returns 9,749,000 11,200,000 9,749,000(2) 11,200,000
Allowance for promotions 6,040,000 9,293,000 6,040,000(3) 9,293,000
------------- ---------- ---------- ----------
$ 16,021,000 20,906,000 16,145,000 20,782,000
============= ========== ========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 1999 sales returns reserved for in fiscal 1998.
3. Represents 1999 promotions expenditures committed to and reserved for
in fiscal 1998.
16
17
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
January 2, 1999
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- -------------- -------------- -------------- --------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- -------------- -------------- -------------- ---------------
Reserves deducted from accounts receivable:
Allowance for doubtful
receivables $ 204,000 77,000 49,000(1) 232,000
Allowance for returns 8,410,000 9,749,000 8,410,000(2) 9,749,000
Allowance for promotions 3,989,000 6,040,000 3,989,000(3) 6,040,000
------------- ---------- ---------- ----------
$ 12,603,000 15,866,000 12,448,000 16,021,000
============= ========== ========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 1998 sales returns reserved for in fiscal 1997.
3. Represents 1998 promotions expenditures committed to and reserved for
in fiscal 1997.
17
18
SCHEDULE 2
R. G. BARRY CORPORATION AND SUBSIDIARIES
Valuation and Qualifying Accounts
January 3, 1998
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E
- ----------------------------------------- -------------- -------------- -------------- --------------
ADDITIONS
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND END OF
DESCRIPTION OF PERIOD EXPENSES DEDUCTIONS PERIOD
----------- -------------- -------------- -------------- ---------------
Reserves deducted from accounts receivable:
Allowance for doubtful
receivables $ 235,000 80,000 111,000(1) 204,000
Allowance for returns 7,684,000 8,410,000 7,684,000(2) 8,410,000
Allowance for promotions 4,685,000 3,989,000 4,685,000(3) 3,989,000
------------- ---------- ---------- ----------
$ 12,604,000 12,479,000 12,480,000 12,603,000
============= ========== ========== ==========
Notes:
1. Write-off uncollectible accounts.
2. Represents 1997 sales returns reserved for in fiscal 1996.
3. Represents 1997 promotions expenditures committed to and reserved for
in fiscal 1996.
18
19
R. G. BARRY CORPORATION
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED JANUARY 1, 2000
INDEX TO EXHIBITS
Exhibit No. Description Location
----------- ----------- --------
2.1 Stock Purchase Agreement, dated July 22, 1999, Incorporated herein by reference to
between Mr. Thierry Civetta, Mr. Michel Registrant's Quarterly Report on Form 10-Q
Fargeot, FCPR County Natwest Venture France, for the fiscal quarter ended October 2,
SCA Capital Prive-Investissements, Hoche 1999 (File No. 1-8769) [Exhibit 2.1]
Investissements, and SA Capital Prive, parties
of the first part, and R. G. Barry Corporation
("Registrant") and Escapade SA, parties of the
second part
3.1 Articles of Incorporation of Registrant (as Incorporated herein by reference to
filed with Ohio Secretary of State on March 26, Registrant's Annual Report on Form 10-K for
1984) the fiscal year ended December 31, 1988
(File No. 0-12667) ("Registrant's 1988
Form 10-K") [Exhibit 3(a)(i)]
3.2 Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Registrant Authorizing the Registrant's 1988 Form 10-K
Series I Junior Participating Class B Preferred [Exhibit 3(a)(i)]
Shares (as filed with the Ohio Secretary of
State on March 1, 1988)
3.3 Certificate of Amendment to the Articles of Incorporated herein by reference to
Registrant (as filed with the Ohio Secretary of Registrant's 1988 Form 10-K
State on May 9, 1988) [Exhibit 3(a)(i)]
3.4 Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Registrant (as filed with the Registrant's Annual Report on Form 10-K for
Ohio Secretary of State on May 22, 1995) the fiscal year ended December 30, 1995
(File No. 1-8769) ("Registrant's 1995 Form
10-K") [Exhibit 3(b)]
3.5 Certificate of Amendment to Articles of Incorporated herein by reference to
Incorporation of Registrant (as filed with the Registrant's 1995 Form 10-K [Exhibit 3(c)]
Ohio Secretary of State on September 1, 1995)
E-1
20
Exhibit No. Description Location
----------- ----------- --------
3.6 Certificate of Amendment to Articles of Incorporated herein by reference to
Incorporation of Registrant (as filed with the Registrant's Registration Statement on Form
Ohio Secretary of State on May 30, 1997) S-8, filed June 6, 1997 (Registration No.
333-28671) [Exhibit 4(h)(6)]
3.7 Certificate of Amendment to the Articles of Incorporated herein by reference to
Incorporation of Registrant Authorizing Registrant's Annual Report on Form 10-K for
Series I Junior Participating Class A Preferred the fiscal year ended January 3, 1998 (File
Shares (as filed with the Ohio Secretary of No. 1-8769) ("Registrant's 1997 Form 10-K")
State on March 10, 1998) [Exhibit 3(a)(7)]
3.8 Articles of Incorporation of Registrant Incorporated herein by reference to
(reflecting amendments through March 10, 1998) Registrant's 1997 Form 10-K [Exhibit
[for purposes of SEC reporting compliance only 3(a)(8)]
-- not filed with the Ohio Secretary of State]
3.9 Regulations of Registrant, as amended Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1988 (File
No. 0-12667) [Exhibit 3(b)]
4.1 Revolving Credit Agreement, made to be Incorporated herein by reference to
effective on February 28, 1996, among Registrant's 1995 Form 10-K [Exhibit 4(f)]
Registrant, The Bank of New York, The
Huntington National Bank and NBD Bank
4.2 Agreement to Extend Revolving Credit Agreement, Incorporated herein by reference to
dated May 1, 1997, among Registrant, The Bank Registrant's Quarterly Report on Form 10-Q
of New York, The Huntington National Bank and for the fiscal quarter ended June 28, 1997
NBD Bank (File No. 1-8769) [Exhibit 4]
4.3 Agreement to Extend Revolving Credit Agreement, Incorporated herein by reference to
dated as of June 4, 1999, among Registrant, The Registrant's Quarterly Report on Form 10-Q
Bank of New York, The Huntington National Bank for the fiscal quarter ended July 3, 1999
and Bank One, NA (File No. 1-8769)[Exhibit 4(t)]
E-2
21
Exhibit No. Description Location
----------- ----------- --------
4.4 Letter of Consent regarding Revolving Credit *
Agreement, dated December 30, 1999, from The
Bank of New York, The Huntington National Bank
and Bank One, Michigan to Registrant
4.5 Amendment to Revolving Credit Agreement, dated *
as of March 17, 2000, among The Huntington
National Bank, The Bank of New York and Bank
One, N.A., as lenders; The Huntington National
Bank, as agent; and Registrant
4.6 Note Agreement, dated July 5, 1994, between Incorporated herein by reference to
Registrant and Metropolitan Life Insurance Registrant's Registration Statement on Form
Company S-3, filed July 21, 1994 (Registration
No. 33-81820) [Exhibit 4(t)]
4.7 Letter, dated July 16, 1999, from Metropolitan Incorporated herein by reference to
Life Insurance Company to Registrant in respect Registrant's Quarterly Report on Form 10-Q
of loan agreement dated July 5, 1994 for the fiscal quarter ended July 3, 1999
(File No. 1-8769) [Exhibit 4.2]
4.8 Rights Agreement, dated as of February 19, Incorporated herein by reference to
1998, between Registrant and The Bank of New Registrant's Current Report on Form 8-K,
York, as Rights Agent dated March 13, 1998 and filed March 16,
1998 (File No. 1-8769) [Exhibit 4]
9.1 Zacks-Streim Voting Trust and amendments thereto Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1993 (File
No. 1-8769) [Exhibit 9]
9.2 Documentation related to extension of term of Incorporated herein by reference to
the Voting Trust Agreement for the Zacks-Streim Registrant's 1995 Form 10-K [Exhibit 10(a)]
Voting Trust
**10.1 R. G. Barry Corporation Associates' Retirement Incorporated herein by reference to
Plan (As Amended and Restated Effective January Registrant's 1997 Form 10-K [Exhibit 10(a)]
1, 1996)
E-3
22
Exhibit No. Description Location
----------- ----------- --------
**10.2 R. G. Barry Corporation Supplemental Retirement *
Plan Effective January 1, 1997 (now known as the
R. G. Barry Corporation Restoration Plan)
**10.3 Amendment No. 1 to the R. G. Barry Corporation *
Supplemental Retirement Plan Effective January 1,
1997 (Executed effective as of May 12, 1998)
**10.4 Amendment No. 2 to the R. G. Barry Corporation *
Supplemental Retirement Plan Effective January 1,
1997 (Executed effective as of January 1, 2000)
**10.5 R. G. Barry Corporation Incentive Plan for Key Incorporated herein by reference to
Employees Registrant's Annual Report on Form 10-K for
the fiscal year ended December 29, 1984
(File No. 0-12667) [Exhibit 10(e)]
**10.6 Employment Agreement, dated July 1, 1998, Incorporated herein by reference to
between Registrant and Gordon Zacks Registrant's Annual Report on Form 10-K for
the fiscal year ended January 2, 1999 (File
No. 1-8769) [Exhibit 10(d)]
**10.7 Agreement, dated September 27, 1989, between Incorporated herein by reference to
Registrant and Gordon Zacks Registrant's Current Report on Form 8-K
dated October 11, 1989, filed October 12,
1989 (File No. 0-12667) [Exhibit 28.1]
**10.8 Amendment No. 1, dated as of October 12, 1994, Incorporated herein by reference to
between Registrant and Gordon Zacks Amendment No. 14 to Schedule 13D, dated
January 27, 1995, filed by Gordon Zacks on
February 13, 1995 [Exhibit 5]
E-4
23
Exhibit No. Description Location
----------- ----------- --------
**10.9 Amended Split-Dollar Insurance Agreement, dated Incorporated herein by reference to
March 23, 1995, between Registrant and Registrant's 1995 Form 10-K [Exhibit 10(h)]
Gordon B. Zacks
**10.10 R. G. Barry Corporation 1988 Stock Option Plan Incorporated herein by reference to
(Reflects amendments through May 11, 1993) Registrant's Registration Statement on Form
S-8, filed August 18, 1993 (Registration
No. 33-67594) [Exhibit 4(r)]
**10.11 Form of Stock Option Agreement used in Incorporated herein by reference to
connection with the grant of incentive stock Registrant's 1995 Form 10-K [Exhibit 10(k)]
options pursuant to the R. G. Barry Corporation
1988 Stock Option Plan
**10.12 Form of Stock Option Agreement used in Incorporated herein by reference to
connection with the grant of non-qualified Registrant's 1995 Form 10-K [Exhibit 10(l)]
stock options pursuant to the R. G. Barry
Corporation 1988 Stock Option Plan
**10.13 Description of Incentive Bonus Program Incorporated herein by reference to
Registrant's Annual Report on Form 10-K for
the fiscal year ended December 28, 1991
(File No. 1-8769) [Exhibit 10(k)]
**10.14 R. G. Barry Corporation Employee Stock Purchase Incorporated herein by reference to
Plan (Reflects amendments and revisions for Registrant's Registration Statement on Form
stock dividends and stock splits through S-8, filed August 18, 1993 (Registration
May 11, 1993) No. 33-67596) [Exhibit 4(r)]
**10.15 R. G. Barry Corporation 1994 Stock Option Plan Incorporated herein by reference to
(Reflects stock splits through June 22, 1994) Registrant's Registration Statement on Form
S-8, filed August 24, 1994 (Registration
No. 33-83252) [Exhibit 4(q)]
**10.16 Form of Stock Option Agreement used in Incorporated herein by reference to
connection with the grant of incentive stock Registrant's 1995 Form 10-K [Exhibit 10(p)]
options pursuant to the R. G. Barry Corporation
1994 Stock Option Plan
**10.17 Form of Stock Option Agreement used in Incorporated herein by reference to
connection with the grant of non-qualified Registrant's 1995 Form 10-K [Exhibit 10(q)]
stock options pursuant to the R. G. Barry
Corporation 1994 Stock Option Plan
E-5
24
Exhibit No. Description Location
----------- ----------- --------
**10.18 Executive Employment Agreement, effective as of Incorporated herein by reference to
January 4, 1998, between Registrant and Registrant's 1997 Form 10-K [Exhibit 10(q)]
Christian Galvis
**10.19 Restricted Stock Agreement, effective as of Incorporated herein by reference to
January 4, 1998, between Registrant and Registrant's 1997 Form 10-K [Exhibit 10(s)]
Christian Galvis
**10.20 Agreement, effective as of January 4, 1998, Incorporated herein by reference to
between Registrant and Richard L. Burrell Registrant's 1997 Form 10-K [Exhibit 10(t)]
**10.21 Agreement, effective as of January 4, 1998, Incorporated herein by reference to
between Registrant and Harry Miller Registrant's 1997 Form 10-K [Exhibit 10(v)]
**10.22 R. G. Barry Corporation Deferred Compensation Incorporated herein by reference to
Plan As Amended and Restated (Effective as of Registrant's 1995 Form 10-K [Exhibit 10(v)]
September 1, 1995)
**10.23 Amendment No. 1 to the R. G. Barry Corporation *
Deferred Compensation Plan (Effective as of
March 1, 1997)
**10.24 R. G. Barry Corporation Stock Option Plan for Incorporated herein by reference to
Non-Employee Directors (Reflects share splits Registrant's 1997 Form 10-K [Exhibit 10(x)]
and amendments through February 19, 1998)
**10.25 R. G. Barry Corporation 1997 Incentive Stock Incorporated herein by reference to
Plan (Reflects amendments through May 13, 1999) Registrant's Registration Statement on Form
S-8, filed June 18, 1999 (Registration No.
333-81105) [Exhibit 10]
**10.26 Form of Stock Option Agreement used in *
connection with the grant of incentive stock
options pursuant to the R. G. Barry Corporation
1997 Incentive Stock Plan
E-6
25
Exhibit No. Description Location
----------- ----------- --------
**10.27 Form of Stock Option Agreement used in *
connection with the grant of non-qualified
stock options pursuant to the R. G. Barry
Corporation 1997 Incentive Stock Plan
**10.28 Restricted Stock Agreement, dated as of May 13, Incorporated herein by reference to
1999, between Registrant and Gordon Zacks Registrant's Quarterly Report on Form 10-Q
for the fiscal quarter ended July 3, 1999
(File No. 1-8769) [Exhibit 10.1]
**10.29 Letter Agreement, dated September 27, 1999, *
between Registrant and Edward Bucciarelli
**10.30 Restricted Stock Agreement, dated as of October *
25, 1999, between Registrant and Edward P.
Bucciarelli
10.31 Shareholders' Agreement, dated July 20, 1999 Incorporated herein by reference to
and executed on July 22, 1999, between Mr. Registrant's Quarterly Report on Form 10-Q
Thierry Civetta and Registrant for the fiscal quarter ended October 2,
1999 (File No. 1-8769) [Exhibit 10.1]
10.32 Current Account Agreement, executed on July 22, Incorporated herein by reference to
1999, between Escapade SA and Mr. Thierry Registrant's Quarterly Report on Form 10-Q
Civetta for the fiscal quarter ended October 2,
1999 (File No. 1-8769) [Exhibit 10.2]
10.33 Joint Guarantee, granted by Credit Suisse Incorporated herein by reference to
Hottiguer, as guarantor, to Registrant, as Registrant's Quarterly Report on Form 10-Q
beneficiary, and executed on July 22, 1999 for the fiscal quarter ended October 2,
1999 (File No. 1-8769) [Exhibit 10.3]
10.34 Loan Agreement, executed on July 22, 1999, Incorporated herein by reference to
between Escapade SA and R. G. Barry France Registrant's Quarterly Report on Form 10-Q
Holdings, Inc. for the fiscal quarter ended October 2,
1999 (File No. 1-8769) [Exhibit 10.4]
E-7
26
Exhibit No. Description Location
----------- ----------- --------
13.1 Registrant's Annual Report to Shareholders for Incorporated herein by reference to the
the fiscal year ended January 1, 2000 (Not financial statements portion of this Annual
deemed filed except for the portions thereof Report on Form 10-K beginning at page 14
which are specifically incorporated by
reference into this Annual Report on Form 10-K)
21.1 Subsidiaries of Registrant *
23.1 Consent of Independent Certified Public *
Accountants
24.1 Powers of Attorney *
27.1 Financial Data Schedule *
- ---------------
* Filed herewith
** Management contract or compensatory plan or arrangement.
E-8
27
SIX YEAR REVIEW OF SELECTED FINANCIAL DATA
R.G. Barry Corporation and Subsidiaries
1999 1998 1997(**)
SUMMARY OF OPERATIONS (THOUSANDS)
Net sales $ 140,092 $ 149,404 $ 148,034
Cost of sales 84,657 75,979 76,697
Gross profit 55,435 73,425 71,337
Selling, general and administrative expenses 66,416 56,719 53,137
Restructuring and asset impairment charges 5,914 -- --
Interest expense, net (1,651) (1,607) (1,817)
Other income (expense) 502 380 415
Earnings (loss) before income taxes (18,044) 15,479 16,798
Income tax expense (benefit) (4,283) 5,712 6,680
Minority interest (20)
Net earnings (loss) $ (13,781) $ 9,767 $ 10,118
ADDITIONAL DATA
Basic earnings (loss) per share(*) $ (1.46) $ 1.01 $ 1.06
Diluted earnings (loss) per share(*) $ (1.46) $ 0.98 $ 1.03
Book value per share(*) $ 6.43 $ 8.01 $ 7.07
Annual % change in net sales (6.2%) 0.9% 0.5%
Annual % change in net earnings (241.1%) (3.5%) 22.5%
Net earnings (loss) as a percentage of beginning shareholders' equity (17.6%) 14.4% 17.8%
Basic average number of shares outstanding (in thousands)(*) 9,455 9,698 9,504
Diluted average number of shares outstanding (in thousands)(*) 9,455 9,992 9,820
FINANCIAL SUMMARY (THOUSANDS)
Current assets $ 70,561 $ 90,233 $ 82,554
Current liabilities 16,803 17,263 20,017
Working capital 53,758 72,970 62,537
Long-term debt 8,571 10,714 12,992
Net shareholders' equity 60,169 78,080 67,608
Net property, plant and equipment 14,408 12,875 14,231
Total assets 92,047 111,345 104,674
Capital expenditures 3,381 1,136 2,944
Depreciation and amortization of property, plant and equipment 2,243 2,413 2,531
1996 1995 1994
SUMMARY OF OPERATIONS (THOUSANDS)
Net sales $ 147,284 $ 134,034 $ 117,453
Cost of sales 81,860 73,538 70,708
Gross profit 65,424 60,496 46,745
Selling, general and administrative expenses 49,008 48,557 39,375
Restructuring and asset impairment charges -- -- --
Interest expense, net (2,483) (2,962) (1,701)
Other income (expense) (211) 1,060 333
Earnings (loss) before income taxes 13,722 10,037 6,002
Income tax expense (benefit) 5,465 3,738 2,191
Minority interest
Net earnings (loss) $ 8,257 $ 6,299 $ 3,811
ADDITIONAL DATA
Basic earnings (loss) per share(*) $ 0.89 $ 0.68 $ 0.43
Diluted earnings (loss) per share(*) $ 0.84 $ 0.65 $ 0.43
Book value per share(*) $ 6.05 $ 5.14 $ 4.44
Annual % change in net sales 9.9% 14.1% 16.1%
Annual % change in net earnings 31.1% 65.3% 0.3%
Net earnings (loss) as a percentage of beginning shareholders' equity 17.3% 15.3% 12.1%
Basic average number of shares outstanding (in thousands)(*) 9,308 9,234 8,823
Diluted average number of shares outstanding (in thousands)(*) 9,827 9,690 8,823
FINANCIAL SUMMARY (THOUSANDS)
Current assets $ 67,679 $ 62,721 $ 56,683
Current liabilities 13,956 18,793 17,332
Working capital 53,723 43,928 39,351
Long-term debt 15,265 15,390 16,445
Net shareholders' equity 56,743 47,611 41,054
Net property, plant and equipment 13,929 14,156 13,785
Total assets 89,067 84,340 76,961
Capital expenditures 2,404 3,363 2,234
Depreciation and amortization of property, plant and equipment 2,571 2,158 1,905
See also Management's Discussion & Analysis of Financial Condition &
Results of Operations
(*) Retroactively restated to reflect 5-for-4 share split distributed
June 17, 1996 and 4-for-3 share splits distributed September 15,
1995 and June 22, 1994
(**) Fiscal year includes fifty-three weeks
Certain amounts from prior years have been reclassified to conform with
current year's presentation
8 and 9
28
MARKET AND DIVIDEND INFORMATION
R.G. Barry Corporation and Subsidiaries
MARKET VALUE
QUARTER HIGH LOW CLOSE
1999 First $13.125 $ 8.313 $ 8.750
Second 9.875 7.625 8.250
Third 8.313 4.750 6.125
Fourth 6.250 3.500 3.938
1998 First $14.125 $10.000 $13.750
Second 16.500 13.500 16.500
Third 17.688 12.750 13.875
Fourth 13.750 10.625 11.000
Stock Exchange: New York Stock Exchange
Stock Ticker Symbol: RGB
Wall Street Journal Listing: BarryRG
Approximate Number of Registered Shareholders: 1,300
No cash dividends were paid during the periods noted. While the Company has no
current intention to pay cash dividends, it is currently able to pay cash
dividends, subject to the restrictions contained in the various loan agreements.
See also Note 4 to Consolidated Financial Statements, and Management's
Discussion & Analysis of Financial Condition & Results of Operations.
QUARTERLY FINANCIAL DATA
R.G. Barry Corporation and Subsidiaries
1999 FISCAL QUARTERS in thousands, except net earnings (loss) per share
FIRST SECOND THIRD FOURTH
- -----------------------------------------------------------------------------------------------
NET SALES $ 20,734 $ 19,168 $ 48,118 $ 52,072
GROSS PROFIT 8,644 4,868 21,685 20,238
NET EARNINGS (LOSS) (2,937) (5,176) 1,473 (7,141)
BASIC EARNINGS (LOSS) PER SHARE $ (0.30) $ (0.55) $ 0.15 $ (0.76)
DILUTED EARNINGS (LOSS) PER SHARE $ (0.30) $ (0.55) $ 0.15 $ (0.76)
1998 Fiscal Quarters
First Second Third Fourth
- -----------------------------------------------------------------------------------------------
Net sales $ 22,777 $ 17,992 $ 52,387 $ 56,248
Gross profit 10,147 8,730 26,969 27,579
Net earnings (loss) (751) (1,598) 6,065 6,051
Basic earnings (loss) per share $ (0.08) $ (0.16) $ 0.62 $ 0.63
Diluted earnings (loss) per share $ (0.08) $ (0.16) $ 0.61 $ 0.61
Certain amounts from prior periods have been reclassified to conform with
current presentation.
See also Management's Discussion & Analysis of Financial Condition & Results
of Operations.
10
29
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
LIQUIDITY AND CAPITAL RESOURCES
The assets we use in the development, production, marketing, warehousing and
distribution, and sale of our products consist mainly of current assets, such as
cash, receivables, inventory, and prepaid expenses. Our assets also include, to
a lesser extent, net property, plant and equipment, and other non-current
assets. At the end of 1999, current assets amounted to approximately 77 percent
of total assets, compared with 81 percent at the end of 1998.
A substantial portion of non-current assets are net property, plant and
equipment, and to a lesser extent, deferred income taxes and goodwill.
As of the end of 1999, we had $53.8 million in net working capital, made up of
$70.6 million in current assets, less $16.8 million in current liabilities. At
the end of 1998, we had $73.0 million in net working capital. A substantial
portion of the decline in net working capital relates to the $13.8 million loss
incurred during fiscal 1999. In addition, during the first half of 1999, we
reacquired in open market purchases approximately 478 thousand of the our common
shares to hold as treasury shares, spending approximately $4.1 million, plus
early in the third quarter we acquired an 80% interest in Escapade, the parent
company of Fargeot et Compagnie ("Fargeot"), a French slipper manufacturer for
approximately $2.4 million in cash, net of the cash acquired.
We ended 1999 with $10.0 million in cash and cash equivalents, $8.6 million in
net trade receivables, and $40.7 million in inventory. By comparison, at the end
of 1998, we had $29.6 million in cash and cash equivalents, $10.5 million in net
trade receivables, and $43.1 million in inventory. The decrease in cash from
1998 to 1999, is largely the result of the open market stock purchase described
above, the Fargeot acquisition, capital spending for the 1999 fiscal year
amounting to $3.4 million, and our 1999 loss of $13.8 million. See also the
accompanying Consolidated Statements of Cash Flows. While net trade receivables
declined from 1998 to 1999, receivable turnover indicates a slight slowdown. We
believe that the decline in turnover reflects a slight shift in the timing of
monthly shipments to our customers, coupled with retailers' expectations about
merchandise returns after the end of the year. We believe that there is no
significant increase in exposure to uncollectible accounts. We have provided an
accrual for the impact of expected returns in 1999 operating results. In
addition, we do not expect to incur any significant markdown exposure as a
result of accepting returned merchandise from our customers. The decrease in
inventory from $43.1 million in 1998 to $40.7 million in 1999, represents a
planned decline in finished goods slipper inventory, both domestically and
internationally, plus a substantial decline in Thermal products inventory.
Traditionally, we have leased most of our operating facilities. We periodically
review facilities to determine whether our current facilities will satisfy
projected operating needs for the foreseeable future. There were no significant
changes in facilities in 1998. During the second half of 1999, we opened a new
manufacturing facility in the Dominican Republic. Products manufactured in the
leased Dominican facility can be shipped into the European market at duty rates
favorable when compared with shipments from the United States. The new facility
is expected to help support our production needs for the foreseeable future, and
replaces the capacity in the Shenzhen, China facility, which closed early in
2000. Also in 1999, we opened a leased warehouse in San Antonio, Texas. This
facility is expected to support warehousing needs, and to reduce dependence upon
short-term leased facilities that accommodate peak seasonal storage needs.
Substantially all of the capital expenditures in 1998 and 1999, in addition to
supplying the equipment for these two facilities, were for routine additions to
production machinery and equipment.
We have typically relied on our Revolving Credit Agreement ("Revolver"), first
executed in February 1996, to satisfy additional capital requirements, including
seasonal working capital needs. In June 1999, we agreed with
our three main banks to extend the existing multi-year Revolver through 2001;
the Revolver provides for periodic further extensions beyond 2001, under certain
conditions. For several years, the Revolver provided a seasonally adjusted
available line of credit ranging from $6 million to $51 million. During 1999,
peak borrowings amounted to $30.0 million compared with $25.5 million in 1998.
The daily average borrowing under the Revolver during 1999 increased to $9.9
million, at a weighted average interest rate of 6.4%, as compared with $7.6
million, at a weighted average interest rate of 6.7%, during 1998. In December
1999, the banks modified the Revolver to eliminate the interest coverage test
for year end fiscal 1999. In February 2000, the banks have agreed to amend the
Revolver. The principal amendments to the Revolver replace the interest coverage
ratio test for the first three quarters of 2000 with minimum operating results,
increase the borrowing spread over market rates, and increase the periodic
reporting of
11
30
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
certain financial information. At our request, the amendment reduces the minimum
availability to $3 million and the peak availability to $42 million.
At times, we have incurred additional long-term debt to provide long-term
financing. The last time we incurred additional long-term debt was in 1994, when
we issued a $15 million, 9.7 percent note, due in 2004 ("Note"). The balance due
under the Note as of the end of 1999, was $10.7 million. The Note and Revolver
contain certain other covenants that we believe are normally found agreements of
similar type and duration. The Note and the Revolver place restrictions on the
amount of additional borrowings, and contain certain other financial covenants
- -- see also Note 4 to the Consolidated Financial Statements for additional
information. The Note requires semi-annual interest payments and annual
principal repayments, the first of which began in July 1998, of $2.1 million. We
are in compliance with all covenants of the Note, and following the modification
to the Revolver late in 1999, are in compliance with all covenants of the
Revolver.
Cash dividends were last paid in 1981. While the Note and Revolver, as of
year-end 1999, permitted the payment of cash dividends and the repurchase of
common shares for treasury, there are no current plans to resume payment of cash
dividends. We anticipate continuing to use our cash resources to finance
operations and to fund the future. Subject to the covenants of the Note and
Revolver, we may currently incur additional long-term debt, should that become
desirable. See also Note 4 to the Consolidated Financial Statements for
additional information.
We believe that we have a strong balance sheet, with strong financial ratios. At
the end of 1999, total capitalization amounted to $68.7 million, comprised of
12.5 percent long-term debt and 87.5 percent shareholders' equity. This compares
with $88.8 million in total capitalization at year end 1998, comprised of 12.1
percent long-term debt and 87.9 percent shareholders' equity. Our current ratio,
a measure of the relationship of current assets to current liabilities, was 4.20
to 1 at year-end 1999, compared with 5.23 to 1 at year-end 1998.
LEGAL PROCEEDINGS
During the third quarter of 1998, we filed a lawsuit against Domino's Pizza,
Inc., and Phase Change Laboratories, Inc., alleging patent infringement and
deceptive advertising. The case involves our patented invention, which maintains
desired temperature of food and other items using a phase change material.
Domino's Pizza purchased a product it calls the "Heat Wave" system, manufactured
by Phase Change Laboratories, Inc. We believe that the product infringes upon
our patent as granted by the United States Patent Office. We seek damages,
attorney's fees, and an injunction against further infringement by both
defendants. Discovery in this matter has been completed and the case is
scheduled for trial in late spring 2000.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In January 1999, we adopted Statement of Position 98-1 ("SOP 98-1") "Accounting
for the Costs of Computer Software Developed or Obtained for Internal Use". SOP
98-1 requires that certain costs related to the development or purchase of
internal-use software be capitalized and amortized over the estimated useful
life of the software. SOP 98-1 also requires that costs related to the
preliminary project stage and the post-implementation/operations stage (as
defined in SOP 98-1) in an internal-use computer software development project be
expensed as incurred. The adoption of SOP 98-1 did not affect our results of
operations or financial position.
In addition, in January 1999, we adopted Statement of Position 98-5 ("SOP
98-5"), "Reporting on the Costs of Start-Up Activities ". SOP 98-5 requires that
costs incurred during start-up activities, including organization costs, be
expensed as incurred. The adoption of SOP 98-5 did not affect our results of
operations or financial position.
The FASB has issued Statement No. 137, "Accounting for Derivative Instruments
and Hedging Activities - Deferral of the Effective Date of FASB Statement No.
133" ("Statement"), which is required to be adopted in fiscal years beginning
after June 15, 2000. The Statement permits early adoption as of the beginning of
any fiscal quarter after their issuance. We expect to adopt the new Statement
effective January 1, 2001. The Statement will require companies to recognize all
derivatives on the balance sheet at fair value. Derivatives that are not hedges
must be adjusted to fair value through income. If a derivative is a hedge,
depending on the nature of the hedge, changes in the fair value of the
derivative will either be offset against the change in the fair value of the
hedged asset, liability, or firm
12
31
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
commitment through earnings, or recognized in other comprehensive income until
the hedged item is recognized in earnings. The ineffective portion of a
derivative's change in fair value will be immediately recognized in earnings. We
do not anticipate that the adoption of this Statement will have a significant
effect on our results of operations or financial position.
FOREIGN CURRENCY RISK
In recent years, several foreign currencies, primarily those in the Far East,
Eastern Europe, and Latin America, have been subject to value fluctuations in
world currency markets, and in some cases currencies have suffered significant
devaluation. Our operations are currently conducted primarily in U. S. Dollars
and to a much lesser degree in British Pounds Sterling, French Francs, Swiss
Francs, European Euros, Canadian Dollars, and German Marks -- all currencies
that historically have not been subject to significant volatility. In
accordance with our established policy guidelines, we have at times hedged some
of these currencies on a short-term basis, using foreign exchange contracts as
a means to protect ourselves from fluctuations. At the end of fiscal 1999,
there were no foreign exchange contracts outstanding. The amount of foreign
exchange contracts that we have normally maintained has not been material to
overall operations.
In addition, portions of our labor and other costs are incurred in Mexican
Pesos, to a lesser degree in Dominican Republic Pesos, and formerly in Chinese
Renminbi. Normally, we have not hedged these currencies as they have generally
declined in value over time when compared to the U. S. Dollar. In addition,
forward contracts in these currencies generally are neither readily nor
economically available. Should any of these currencies suffer a devaluation
compared to the U. S. Dollar, we believe that the impact would likely reduce the
effective costs of manufacturing in those countries, although any such reduction
is not expected to have a significant impact upon our results of operations.
IMPLEMENTATION OF THE "EURO" AS A COMMON LEGAL CURRENCY IN EUROPE
We believe that we are prepared for the implementation of the "Euro" as the
common legal currency in certain European Community countries that began early
in 1999. The United Kingdom, which is one of our principal bases of operation in
Europe, will not immediately join the transition to the Euro, although France,
where we also conduct substantial business operations, has already joined. Our
systems have been designed with sufficient flexibility to handle the
introduction of the Euro as an added transactional currency. We incurred a
nominal cost in preparing systems for the introduction of the Euro.
YEAR 2000 READINESS DISCLOSURES
During 1998 and 1999, we conducted extensive tests of our computer application
systems, which confirmed the readiness of systems to address year 2000 computer
date concerns. In early January 2000, we opened for business without any
disruptions relating to the year 2000 issue, and thus far in 2000, have
experience no significant problems. While it cannot be certain that there will
not be future computer system problems, we believe that any future such
problems, if they occur, will be minor in nature and manageable. We believe that
principally as a result of substantial equipment and software upgrades
implemented in recent years, all critical application systems have been
converted to address potential problems.
RESULTS OF OPERATIONS
1999 SALES AND OPERATIONS COMPARED WITH 1998
Results for 1999 were disappointing. The disappointment started early in 1999,
when Sears, Penney's and Mervyns accelerated their move toward emphasizing
in-house private label brands for many categories of merchandise including the
amount of Dearfoams(R) branded products that they purchase from us. This reduced
our sales in 1999 by approximately $8 million from 1998. With reduced sales to
these customers, we recognized the need for further emphasis on lowering
production levels and reducing our inventories. Lowering production to reduce
inventory was very expensive. Operating our plants at less than optimum
capacity, resulted in inefficiencies and underutilized capacity. Complicating
matters was our having finalized the fall 1999 line later in the season than
normal. Finalizing the line late contributed to plant inefficiencies and in some
cases contributed to late deliveries to customers. Also during 1999, we
aggressively liquidated closeout and irregular inventory, at lower than normal
gross profit levels.
13
32
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
During 1999, we introduced a line of Soluna(TM)Spa-at-home thermal/magnetic
products, with disappointing sell-through at retail. Early in 1999, retailers
were initially very excited about this new line of products, although consumers
did not confirm the retailers' optimism during the critical holiday selling
season. We supported Soluna(TM) heavily with promotional activities and incurred
significant costs to support the movement of inventory through the retail
pipeline.
In Europe, we invested heavily in television advertising as a means to
strengthen our slippers' brand awareness in France. This added expense increased
our costs of operation.
In 1999, our lawsuit against Domino's Pizza and Phase Change Laboratories for
patent infringement added to our expense structure. This litigation continues in
2000.
For the fiscal year 1999, net sales amounted to $140.1 million, approximately
6.2 percent lower than net sales in 1998 of $149.4 million. For the 1999 fiscal
year, we incurred a loss of $13.8 million. See also, Note 13 of Notes to the
Consolidated Financial Statements for a breakdown of net sales by geographic
region of the world and by segment of our operations.
We operate in three differing segments: i) Barry Comfort North America, which
manufactures and markets at-and-around-the-home comfort footwear in North
America, ii) Barry Comfort Europe, which markets footwear principally in western
Europe and iii) Thermal, which markets thermal retention technology products,
principally in North America, that act as hot or cold temperature reservoirs
releasing that energy over time.
Net sales of Barry Comfort North America decreased in 1999 to $118.9 million
from $128.0 million in 1998, a 7.1 percent decline in at-and-around-the-home
comfort footwear. The primary contributor to this decline was the decision of
Sears, Penney's, and Mervyns to move toward in-house private label for a sizable
portion of their merchandise including our Dearfoam(R) slippers.
In 1991, we opened our first European office in London, and in 1997, opened an
office in Paris. In 1999, we acquired an 80 percent ownership in Fargeot, a
70-year old French slipper manufacturer. Fargeot supplies slippers principally
to smaller retail establishments in France and Western Europe. We believe that
Fargeot will enhance the market for our other slippers throughout Europe. Net
sales of Barry Comfort Europe, principally in the United Kingdom and France,
amounted to $11.6 million in 1999, compared with net sales of $9.5 million in
1998.
Our Thermal segment sells proprietary thermal retention technology products --
products that maintain constant temperatures over time after having been
energized by either heat or cold. Net sales of Thermal products declined in 1999
to $9.5 million from $11.9 million in 1998. The decrease was mainly the result
of the decision to concentrate efforts on the development of commercial
applications of the thermal technologies. We believe our decision in 1999 to
exit the Consumer products business with these technologies, contributed to the
decline in net sales and gross profit. We also believe that sales of Thermal
products have been adversely affected by the patent infringement of Domino's
Pizza, Inc. and Phase Change Laboratories, Inc. referred to above in the `Legal
Proceedings' portion of this discussion.
Gross profit in 1999 amounted to $55.4 million, as compared with gross profit in
1998 of $73.4 million. Gross profit as a percent of net sales, declined in 1999
to 39.6 percent, compared with 49.1 percent during 1998. Gross profit was
adversely impacted in 1999, by several items:
- - Net sales in 1999 declined, as noted previously, from those in 1998.
- - The strategy of lowering production levels and reducing inventory on hand
proved very costly. Our manufacturing facilities operated at less than optimum
levels of capacity, and thus generated inefficiencies in operations that hurt
the cost of our products and reduced the gross profit realized on net sales.
- - We opened a new factory in the Dominican Republic. While this factory
adversely affected gross profit, during 1999, it is expected that this factory
will contribute to operations once it is fully operational in 2000, as it will
reduce our costs of products designated for distribution in Europe.
14
33
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
- - The sale of closeout, excess and inventory irregulars adversely impacted gross
profit.
Selling, general and administrative expenses increased significantly in 1999 to
$66.4 million, compared with $56.7 million in 1998. The increase in these
expenses reflects added costs in a number of areas:
- - We incurred added expenses in support of the marketing and selling of our
products, with a sizable portion of the increase associated with the new
Soluna(TM) Spa-at-home products,
- - We opened a new warehouse in San Antonio in 1999 which increased the costs of
storage and shipping during the year,
- - We incurred expenses to defend our proprietary patents against infringement by
Domino's and Phase Change Laboratories, and
- - We supported the entry of our slippers into the French market with a
television advertising campaign.
Net interest expense at $1.7 million increased in 1999 slightly from 1998.
During 1999, the daily average seasonal borrowings under the Revolver amounted
to $9.3 million, compare with $7.6 million during 1998. The weighted average
interest rate in 1999 declined slightly to 6.4 percent from 6.7 percent in 1998.
For the 1999 fiscal year, after restructuring discussed in the next paragraph,
we incurred a loss amounting to $18.0 million before income taxes, compared with
earnings before taxes in 1998 of $15.5 million. The net loss in 1999 after the
benefit of current and deferred income taxes, amounts to $13.8 million. In 1998,
we had earnings after income taxes of $9.8 million. For 1999, the basic and
diluted loss per share amounted to $1.46 per share, compared with basic earnings
per share in 1998 of $1.01 per share. In 1998, diluted earnings per share [a
measure of earnings per average common share that includes a computation of
shares attributable to outstanding but unexercised options] amounted to $0.98
per share.
RESTRUCTURING
In December 1999, we announced a restructuring plan that is intended to address
the problems experienced during 1999. This restructuring plan, which has been
provided for in the operating results for 1999, is estimated to cost
approximately $1.8 million. Early in 2000, we closed our manufacturing facility
in Shenzhen, China. In addition, in 2000, we will be reducing the size of our
warehouse facility in San Antonio, Texas, reducing the office space in our San
Antonio administrative offices, closing one of the facilities utilized in our
Barry/Vesture thermal operations and shifting that production to existing
facilities in Mexico, shifting thermal warehousing to our warehouses in
Goldsboro and San Antonio, relocating sample making operations from Columbus to
factories in Mexico, streamlining our Design and Product development processes,
and relocating our marketing functions to our offices in New York City.
As a result of our narrowed focus and exiting the consumer products and
housewaves business for our Thermal retention technology products, we have
determined that the goodwill resulting from our acquisition of Vesture
Corporation in 1994 is impaired with little or no value. Accordingly, we have
written off the balance of the goodwill, $4 million, relating to the Vesture
acquisition. The write-off is not currently tax deductible.
1998 SALES AND OPERATIONS COMPARED WITH 1997
Net sales for 1998 amounted to $149.4 million, approximately 0.9 percent greater
than net sales in 1997 of $148.0 million. For the 1998 fiscal year, net earnings
amounted to $9.8 million, approximately 3.5 percent lower than net earnings of
$10.1 million for 1997.
Net sales of Barry Comfort North America increased in 1998 to $128.0 million
from $123.8 million in 1997, reflecting a 3.4 percent increase in
at-and-around-the-home comfort footwear. Net sales in Barry Comfort Europe
amounted to $9.5 million in 1998, a 35.9 percent increase when compared with the
$7.0 million net sales in 1997. Substantially all of the increase in 1998
occurred in France.
15
34
MANAGEMENT'S DISCUSSION & ANALYSIS OF
FINANCIAL CONDITION & RESULTS OF OPERATIONS
R.G. Barry Corporation and Subsidiaries
Net sales of Thermal products declined in 1998 to $11.9 million from $17.2
million in 1997. The decrease was mainly the result of the decision in late 1997
to de-emphasize the sale of thermal consumer products in the accessories
departments of department stores, and to concentrate efforts on the development
of commercial applications of the thermal technologies. Also contributing to the
decline in net sales was a decision by a major customer to source certain of its
non-MICROCORE(R) components, directly from alternate suppliers rather than
continue to purchase them from us. We believe sales of Thermal products were
adversely affected by the patent infringement by Domino's Pizza, Inc. and Phase
Change Laboratories, Inc. referred to elsewhere under `Legal Proceedings'.
Gross profit increased to $73.4 million during 1998, from $71.3 million in
1997. Gross profit margin, as a percent of net sales, also increased during
1998 to 49.1 percent, compared with 48.2 percent in 1997. Increases in net
sales of higher margin Barry Comfort at-and-around-the-home comfort footwear,
coupled with a decline in sales of lower margin non-MICROCORE(R) components,
contributed to the growth in gross profit percent. In addition, the expanded
use of modular manufacturing contributed to increased gross profit margins.
During the spring of 1998, we concluded a project to expand the use of modular
manufacturing to all of the Barry Comfort production facilities. With modular
manufacturing, we realize improved efficiencies and lowered the per product
cost without a sizable infrastructure investment.
Selling, general and administrative expenses increased during 1998 to $56.7
million, a 6.7 percent increase over the $53.1 million expense incurred
in 1997. Most of the increase related to advertising, and marketing and sales
promotion programs in Barry Comfort implemented in anticipation of net sales
growth.
Net interest expense in 1998 declined to $1.6 million from $1.8 million in 1997.
Improved profitability in 1998 and 1997 resulted in improved liquidity. During
1998, daily average seasonal borrowings under the Revolver amounted to $7.6
million, compared with $8.2 million during 1997. In both years, the weighted
average interest rate was approximately 6.7 percent.
For the year, earnings before income taxes amounted to $15.5 million compared
with $16.8 million in 1997, a decline of 7.9 percent. Net earnings after taxes
decreased by 3.5 percent in 1998 to $9.8 million from $10.1 million in 1997.
During 1998, we implemented several strategies to effectively reduce the overall
effective income tax rate to approximately 37 percent. During 1997, the
effective income tax rate had been nearly 40 percent. For 1998, basic earnings
per share amounted to $1.01 per share, while diluted earnings per share amounted
to $0.98 per share. The comparable per share calculations for 1997 were basic
earnings per share of $1.06, and diluted earnings per share of $1.03.
FORWARD LOOKING STATEMENTS
"SAFE HARBOR" Statement under the Private Securities Litigation Reform Act of
1995:
The statements in this Annual Report to Shareholders, which are not
historical fact are forward looking statements based upon our current plans
and strategies, and reflect our current assessment of the risks and
uncertainties related to our business, including such things as product
demand and market acceptance; the economic and business environment and the
impact of governmental regulations, both in the United States and abroad; the
effects of direct sourcing by customers of competitive products from
alternative suppliers; the effects of pricing pressures from retailers;
inherent risks of international development, including foreign currency
exchange risks, the implementation of the Euro, economic conditions,
regulatory and cultural difficulties or delays in development outside the
United States; our ability to improve processes and business practices to
keep pace with the economic, competitive and technological environment,
including continued success in addressing year 2000 issues; manufacturing
capacity; efficiency and supply constraints; weather conditions; and other
risks detailed in our press releases, shareholder communications, and
Securities and Exchange Commission filings. Actual events affecting us and
the impact of such events on our operations may vary from those currently
anticipated.
16
35
CONSOLIDATED BALANCE SHEETS
R.G. Barry Corporation and Subsidiaries
January 1, 2000 January 2, 1999
(in thousands)
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 10,006 $ 29,596
Accounts receivable:
Trade (less allowance for doubtful receivables, returns and
promotions of $20,782 and $16,021, respectively) 8,644 10,469
Other 1,010 1,073
Inventory 40,652 43,091
Deferred income taxes 7,711