Attached files
file | filename |
---|---|
EX-31.2 - EXHIBIT 31.2 - BARRY R G CORP /OH/ | c11940exv31w2.htm |
EX-31.1 - EXHIBIT 31.1 - BARRY R G CORP /OH/ | c11940exv31w1.htm |
EX-32.1 - EXHIBIT 32.1 - BARRY R G CORP /OH/ | c11940exv32w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
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 January 1, 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 of incorporation or organization) |
(I.R.S. Employer 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 February 9, 2011 11,039,234
Index to Exhibits at page 23
R.G. BARRY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Second Quarter of Fiscal 2011
(Period Ended January 1, 2011)
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the Second Quarter of Fiscal 2011
(Period Ended January 1, 2011)
Page | ||||||||
4 | ||||||||
14 | ||||||||
19 | ||||||||
19 | ||||||||
21 | ||||||||
21 | ||||||||
21 | ||||||||
21 | ||||||||
21 | ||||||||
21 | ||||||||
21 | ||||||||
22 | ||||||||
23 | ||||||||
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; 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 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 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 | |
First Half of Fiscal 2011
|
26 weeks ended January 1, 2011 | |
First Half of Fiscal 2010
|
27 weeks ended January 2, 2010 | |
Second Quarter of Fiscal 2011
|
13 weeks ended January 1, 2011 | |
Second Quarter of Fiscal 2010
|
14 weeks ended January 2, 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)
January 1, 2011 | July 3, 2010 | |||||||
(unaudited) | ||||||||
ASSETS | ||||||||
Cash and cash equivalents |
$ | 30,643 | $ | 16,988 | ||||
Short-term investments |
14,998 | 27,954 | ||||||
Accounts receivable (less allowances of $12,097 and $3,446, respectively) |
14,038 | 8,302 | ||||||
Inventory |
16,094 | 13,486 | ||||||
Deferred tax assets current |
1,676 | 1,676 | ||||||
Prepaid expenses |
673 | 999 | ||||||
Total current assets |
78,122 | 69,405 | ||||||
Property, plant and equipment, at cost |
12,221 | 11,669 | ||||||
Less accumulated depreciation and amortization |
8,006 | 7,544 | ||||||
Net property, plant and equipment |
4,215 | 4,125 | ||||||
Deferred tax assets noncurrent |
6,936 | 6,936 | ||||||
Other assets |
2,994 | 2,903 | ||||||
Total assets |
$ | 92,267 | $ | 83,369 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY | ||||||||
Short-term notes payable |
$ | 1,750 | $ | 1,750 | ||||
Current installments of long-term debt |
49 | 97 | ||||||
Accounts payable |
6,952 | 3,598 | ||||||
Accrued expenses |
3,172 | 4,867 | ||||||
Total current liabilities |
11,923 | 10,312 | ||||||
Accrued retirement costs and other |
18,201 | 18,461 | ||||||
Total liabilities |
30,124 | 28,773 | ||||||
Commitments and contingent liabilities (note 12) |
| | ||||||
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 11,039 and 10,930 shares, respectively
(excluding treasury shares of 1,046 and 1,025, respectively) |
11,039 | 10,930 | ||||||
Additional capital in excess of par value |
19,788 | 19,195 | ||||||
Accumulated other comprehensive loss |
(12,594 | ) | (12,594 | ) | ||||
Retained earnings |
43,910 | 37,065 | ||||||
Total shareholders equity |
62,143 | 54,596 | ||||||
Total liabilities and shareholders equity |
$ | 92,267 | $ | 83,369 | ||||
See accompanying notes to condensed consolidated financial statements.
4
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Second Quarter | First Half | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
(unaudited) | (unaudited) | (unaudited) | (unaudited) | |||||||||||||
Net sales |
$ | 49,660 | $ | 55,574 | $ | 85,929 | $ | 85,023 | ||||||||
Cost of sales |
32,431 | 31,612 | 54,503 | 48,770 | ||||||||||||
Gross profit |
17,229 | 23,962 | 31,426 | 36,253 | ||||||||||||
Selling, general and administrative expenses |
10,537 | 10,776 | 18,309 | 19,586 | ||||||||||||
Operating profit |
6,692 | 13,186 | 13,117 | 16,667 | ||||||||||||
Other income |
84 | | 193 | | ||||||||||||
Interest income, net |
14 | 27 | 43 | 176 | ||||||||||||
Earnings, before income taxes |
6,790 | 13,213 | 13,353 | 16,843 | ||||||||||||
Income tax expense |
2,478 | 4,987 | 4,937 | 6,353 | ||||||||||||
Net earnings |
$ | 4,312 | $ | 8,226 | $ | 8,416 | $ | 10,490 | ||||||||
Net earnings per common share |
||||||||||||||||
Basic |
$ | 0.39 | $ | 0.76 | $ | 0.76 | $ | 0.97 | ||||||||
Diluted |
$ | 0.38 | $ | 0.74 | $ | 0.75 | $ | 0.96 | ||||||||
Weighted average number of common shares outstanding |
||||||||||||||||
Basic |
11,090 | 10,857 | 11,067 | 10,836 | ||||||||||||
Diluted |
11,220 | 11,042 | 11,194 | 10,981 | ||||||||||||
Common shares outstanding at end of period |
11,039 | 10,820 | 11,039 | 10,820 | ||||||||||||
Cash dividends declared per common share |
$ | 0.07 | $ | 0.05 | $ | 0.14 | $ | 0.05 | ||||||||
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)
First Half | First Half | |||||||
Fiscal 2011 | Fiscal 2010 | |||||||
(unaudited) | (unaudited) | |||||||
Operating activities: |
||||||||
Net earnings |
$ | 8,416 | $ | 10,490 | ||||
Adjustments to reconcile net earnings to net cash provided
(used) by operating activities: |
||||||||
Depreciation and amortization |
463 | 403 | ||||||
Deferred income tax expense |
122 | 2,234 | ||||||
Gross excess tax benefit from exercise of stock
options and vesting of restricted
stock units |
(122 | ) | (1,107 | ) | ||||
Stock-based compensation expense |
766 | 507 | ||||||
Changes in: |
||||||||
Accounts receivable, net |
(5,736 | ) | (11,891 | ) | ||||
Inventory |
(2,608 | ) | (8,340 | ) | ||||
Prepaid expenses and other assets |
236 | 7 | ||||||
Accounts payable |
3,354 | 3,495 | ||||||
Accrued expenses |
(1,961 | ) | 2,155 | |||||
Accrued retirement costs and other |
(260 | ) | 36 | |||||
Net cash provided (used) by operating activities |
2,670 | (2,011 | ) | |||||
Investing activities: |
||||||||
Purchases of property, plant and equipment |
(535 | ) | (555 | ) | ||||
Proceeds from sale of short-term investments, net |
12,956 | 3,001 | ||||||
Net cash provided by investing activities |
12,421 | 2,446 | ||||||
Financing activities: |
||||||||
Repayment of debt |
(48 | ) | (44 | ) | ||||
Proceeds from options exercised |
36 | 159 | ||||||
Gross excess tax benefit from exercise of stock options
and vesting of restricted stock units |
122 | 1,107 | ||||||
Dividends paid |
(1,546 | ) | (541 | ) | ||||
Net cash (used) provided by financing activities |
(1,436 | ) | 681 | |||||
Net increase in cash and cash equivalents |
13,655 | 1,116 | ||||||
Cash and cash equivalents at the beginning of the period |
16,988 | 14,259 | ||||||
Cash and cash equivalents at the end of the period |
$ | 30,643 | $ | 15,375 | ||||
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 Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half 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, in
designing, sourcing, marketing and distributing accessory footwear products. The Company defines
accessory footwear as a single segment business with a product category that encompasses primarily
slippers, sandals, hybrid and active fashion footwear, slipper socks and hosiery. The Companys
products are sold predominantly in North America through department stores, chain stores, warehouse
clubs, 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 or fifty-three-week period (fiscal year), ending
annually on the Saturday nearest June 30. Operating results for the second quarter 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. | Short-Term Investments and Fair Value |
At January 1, 2011, as part of its cash management and investment program, the Company maintained a
portfolio of $14,998 in short-term investments, comprised of $13,972 of marketable investment
securities in the form of variable rate demand notes and $1,026 in other short-term investments.
The marketable investment securities are classified as available-for-sale. These marketable
investment securities are carried at cost, which approximates fair value. The other short-term
investments are classified as held-to-maturity securities and consist of a corporate bond, which
matured on January 18, 2011. Held-to-maturity debt securities are those debt securities as to
which the Company has the ability and intent is to hold until maturity. Held-to-maturity debt
securities are recorded at amortized cost, adjusted for the amortization or accretion of premiums
or discounts.
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. |
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.
7
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
Cash, cash equivalents, short-term investments, accounts receivable, 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 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 and items for which the fair
value option has been elected) at January 1, 2011:
Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Identical Assets | Inputs | Inputs | ||||||||||||||
January 1, 2011 | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Available-for-sale
securities |
$ | 13,972 | | $ | 13,972 | | ||||||||||
Total |
$ | 13,972 | | $ | 13,972 | | ||||||||||
The Company had no other nonfinancial assets or liabilities during the first half of fiscal 2011 or
the first half 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 in
which employees of the Company may participate. 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 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.
Under the provisions of FASB ASC 718, the Company recorded, as part of selling, general and
administrative expenses, $467 and $254 of stock-based compensation expense for the second quarter
of fiscal 2011 and second quarter of fiscal 2010, respectively. The Company recognized
stock-based compensation expense of $766 and $507 for the first half of fiscal 2011 and the first
half 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 and
121,200 RSUs to certain members of management during the first half of fiscal 2011 and the first
half 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 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 did not grant any stock options during the first half of fiscal 2011 or the first half
of fiscal 2010. The Company has granted stock options in previous years to certain members of
management. All outstanding stock options were vested as of January 1, 2011, and accordingly,
there was no unrecognized compensation expense related to stock options.
8
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
During the second quarter and first half of fiscal 2011, the Company recognized gross excess tax
benefits of $24 and $122, respectively, as additional paid-in capital under the provisions of FASB
ASC 718 related to the vesting of RSUs and exercises of stock options.
During the second quarter and the first half of fiscal 2010, the Company recognized gross excess
tax benefits of $1,107 as additional paid-in-capital 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 addition to paid-in capital 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 addition to paid-in
capital.
Activity with respect to stock options for the first half 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 |
| | | |||||||||
Exercised |
(5,000 | ) | | 7.25 | ||||||||
Expired/Cancelled |
| | | |||||||||
Outstanding at January 1, 2011 |
31,000 | 105,500 | $ | 6.07 | ||||||||
Options exercisable at January 1, 2011 |
31,000 | 105,500 | ||||||||||
The following is a summary of the status of the Companys RSUs as of January 1, 2011 and activity
during the first half of fiscal 2011:
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 January 1, 2011 |
319,900 | $ | 7.72 | |||||
Total compensation cost of RSUs granted, but not yet vested, as of January 1, 2011 was
approximately $2,284. 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 first half of fiscal 2011 and the first half of fiscal
2010 was $1,320 and $505, respectively.
4. | Inventories |
Inventory by category consisted of the following:
January 1, 2011 | July 3, 2010 | |||||||
Raw materials |
$ | 115 | $ | 73 | ||||
Finished goods |
15,979 | 13,413 | ||||||
Total inventory |
$ | 16,094 | $ | 13,486 | ||||
Inventory write-downs, recognized as a part of cost of sales, were $560 and $519 for the second
quarter of fiscal 2011 and second quarter of fiscal 2010, respectively, and $694 and $654 for the
first half of fiscal 2011 and first half of fiscal 2010, respectively.
9
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
5. | Accrued expenses |
Accrued expenses consisted of the following:
January 1, 2011 | July 3, 2010 | |||||||
Salaries and wages |
$ | 126 | $ | 3,320 | ||||
Income taxes |
1,860 | 14 | ||||||
Current pension liabilities |
675 | 675 | ||||||
Other |
511 | 858 | ||||||
Total accrued expenses |
$ | 3,172 | $ | 4,867 | ||||
6. | Income Taxes |
Income tax expense for the second quarter and first half of fiscal 2011 and the second quarter and
first half 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:
Second Quarter | First Half | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
Computed expected tax expense |
$ | 2,309 | $ | 4,492 | $ | 4,540 | $ | 5,727 | ||||||||
State income tax expense, net of federal income tax benefit |
214 | 426 | 424 | 542 | ||||||||||||
Other, net |
(45 | ) | 69 | (27 | ) | 84 | ||||||||||
Total expense |
$ | 2,478 | $ | 4,987 | $ | 4,937 | $ | 6,353 | ||||||||
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 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 second
quarter and first half of fiscal 2011.
Income tax expense for the second quarter and first half of fiscal 2011 and second quarter and
first half 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 second 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 second quarter of fiscal 2011 or at the end of fiscal 2010.
10
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
7. | 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.
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:
Second Quarter | First Half | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
Numerator: |
||||||||||||||||
Net earnings |
$ | 4,312 | $ | 8,226 | $ | 8,416 | $ | 10,490 | ||||||||
Denominator: |
||||||||||||||||
Weighted-average common shares outstanding |
11,090 | 10,857 | 11,067 | 10,836 | ||||||||||||
Effect of potentially dilutive securities: stock options and RSUs |
130 | 185 | 127 | 145 | ||||||||||||
Weighted-average common shares outstanding, assuming dilution |
11,220 | 11,042 | 11,194 | 10,981 | ||||||||||||
Basic net earnings per common share |
$ | 0.39 | $ | 0.76 | $ | 0.76 | $ | 0.97 | ||||||||
Diluted net earnings per common share |
$ | 0.38 | $ | 0.74 | $ | 0.75 | $ | 0.96 | ||||||||
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 as of
January 1, 2011 and January 2, 2010 were dilutive and were included in the calculation of the
potentially dilutive securities shown above.
8. | Employee Retirement Plans |
The Company expects to make payments in the aggregate of $1,838 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 first half
of fiscal 2011, payments of approximately $514 were made into the ARP and payments of approximately
$342 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:
Second Quarter | First Half | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
Service cost |
$ | | $ | | $ | | $ | 9 | ||||||||
Interest cost |
494 | 571 | 986 | 1,143 | ||||||||||||
Expected return on plan assets |
(511 | ) | (493 | ) | (1,021 | ) | (986 | ) | ||||||||
Net amortization |
315 | 173 | 631 | 346 | ||||||||||||
Settlement loss |
| | | 185 | ||||||||||||
Total pension expense |
$ | 298 | $ | 251 | $ | 596 | $ | 697 | ||||||||
11
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
9. | Comprehensive Income |
Comprehensive income, which is reflected as a component of shareholders equity, includes net
earnings and pension related adjustments as follows:
Second Quarter | First Half | |||||||||||||||
Fiscal 2011 | Fiscal 2010 | Fiscal 2011 | Fiscal 2010 | |||||||||||||
Net earnings |
$ | 4,312 | $ | 8,226 | $ | 8,416 | $ | 10,490 | ||||||||
Pension related adjustments, net of tax |
| | | (99 | ) | |||||||||||
Total comprehensive income |
$ | 4,312 | $ | 8,226 | $ | 8,416 | $ | 10,391 | ||||||||
Accumulated other comprehensive loss as of January 1, 2011 and July 3, 2010 was $12,594 and
$12,594, respectively, and relates to the Companys ARP and SRP.
10. | Changes in Equity |
The following table provides a summary of the changes in total equity for the first half of
fiscal 2011:
Additional | Accumulated | |||||||||||||||||||
capital in | other | Net | ||||||||||||||||||
Common | excess of par | comprehensive | Retained | shareholders | ||||||||||||||||
shares | value | loss | earnings | equity | ||||||||||||||||
Balance at July 3, 2010 |
$ | 10,930 | $ | 19,195 | $ | (12,594 | ) | $ | 37,065 | $ | 54,596 | |||||||||
Net earnings |
| | | 8,416 | 8,416 | |||||||||||||||
Stock-based compensation expense |
| 766 | | | 766 | |||||||||||||||
Stock-based compensation tax benefit realized |
| 122 | | | 122 | |||||||||||||||
Restricted stock units vested and stock
options exercised |
109 | (295 | ) | | | (186 | ) | |||||||||||||
Dividends declared at $0.14 per common share |
| | | (1,571 | ) | (1,571 | ) | |||||||||||||
Balance at January 1, 2011 |
$ | 11,039 | $ | 19,788 | $ | (12,594 | ) | $ | 43,910 | $ | 62,143 | |||||||||
11. | 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 24
months 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 $2,772, which is
included in other assets in the condensed consolidated balance sheets. Effective in March 2004 and
continuing through the end of the first half of fiscal 2011, the Company has borrowed $1,750
against the cash surrender value of one of these policies.
12. | 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.
12
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the Second Quarter and First Half of Fiscal 2011 and the Second Quarter and First Half of Fiscal 2010
(dollar amounts in thousands, except per share data)
13. | Subsequent events |
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 premium insoles and products that offer comfort solutions to many common
footwear-related problems. The product lines, customer bases and core values of the Company and
this business acquisition 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 purchase price allocation and related initial accounting for this transaction are not yet
complete. Pro forma results related to Foot Petals since the beginning of fiscal 2011 or the
beginning of fiscal 2010 would not be materially different than the actual results reported.
14. | Recently Issued Accounting Standards |
In
January 2010, the FASB issued Accounting Standard Update
(ASU 201006, 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.
13
Table of Contents
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.
Results of Operations
During the second quarter of fiscal 2011, net sales were $49.7 million, representing a $5.9
million, or 10.6%, decrease from the comparable quarter of fiscal 2010. Approximately 31% of the
quarterly decrease in net sales was due to a shift in the timing of shipments into the first
quarter of fiscal 2011 to meet customer requirements. Decreased shipments to customers in the
department store and the warehouse club channels primarily account for the remaining quarterly
decrease in net sales.
For the first half of fiscal 2011, net sales were $85.9 million, representing a $900 thousand, or
1.1%, increase over the first half of fiscal 2010. The net sales increase reflected increased
shipments to customers in the warehouse clubs, the mass merchandising and the discount customer
channels, offset in part by decreased shipments to our customers in the department store channel.
Gross profit for the second quarter of fiscal 2011 was $17.2 million, or 34.7% of net sales,
compared to $24.0 million, or 43.1% of net sales, for the second quarter of fiscal 2010. The
quarter-on-quarter decreases in gross profit dollars and gross profit as a percentage of net sales
were due primarily to decreased shipments and to the effect of higher product costs paid to our
third-party manufacturers, additional promotional support required for our department store
customers and costs incurred to support timely delivery to our customers.
Gross profit for the first half of fiscal 2011 was $31.4 million, or 36.6% of net sales, compared
to $36.3 million, or 42.6% of net sales, for the first half of fiscal 2010. The six-month
decreases in gross profit dollars and gross profit as a percentage of net sales were 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 to support timely delivery to our
customers.
Selling, general and administrative (SG&A) expenses were $10.5 million and $10.8 million, or
21.2% and 19.4% of net sales, for the second quarter of fiscal 2011 and second quarter of fiscal
2010, respectively. The quarter-on-quarter net decrease of $239 thousand reflected primarily
decreased payroll and benefit costs and incentive bonus expense offset, in part, by higher trade
advertising costs related to our ongoing strategic marketing program in support of our Dearfoams®
brand.
SG&A expenses were $18.3 million and $19.6 million, or 21.3% and 23.0%, as a percent of net sales,
for the first half of fiscal 2011 and first half of fiscal 2010, respectively. The
period-on-period net decrease of $1.3 million was due primarily to the same reasons cited above for
the quarter.
Other income of $84 thousand and $193 thousand for the second quarter and first half of fiscal 2011
represented minimum royalty income from a licensing agreement signed late in fiscal 2010 in which
we granted the rights to use our Dearfoams® brand name to a third party for sleepwear and related
products.
Net interest income was lower by $13 thousand and $133 thousand during the second quarter and first
half of fiscal 2011, respectively, as compared to the same periods in fiscal 2010. The decrease in
net interest was due to lower market interest rates available during this first six-month period of
fiscal 2011.
14
Table of Contents
During the second quarter of fiscal 2011 and the second quarter of fiscal 2010, we reported income
tax expense of $2.5 million and $5.0 million, respectively. The effective tax rates for the second
quarter of fiscal 2011 and second quarter of fiscal 2010 were 36.5% and 37.7%, respectively. The
change in the tax rate for the first half of fiscal 2011 compared to the first half of fiscal 2010
was due to permanent tax items, primarily reflecting differences in investment income on cash
surrender assets held in the form of two insurance policies owned by the Company. During the first
half of fiscal 2011 and the first half of fiscal 2010, we reported income tax expense of $4.9
million and $6.4 million, respectively. The tax rates for the first half of fiscal 2011 and first
half of fiscal 2010 were 37.0% and 37.7%, respectively.
Based on the results of operations noted above, we reported net earnings of $4.3 million or $0.38
per diluted common share for the second quarter of fiscal 2011 and $8.2 million or $0.74 per
diluted common share for the second quarter of fiscal 2010.
We also reported net earnings of $8.4 million or $0.75 per diluted common share for the first half
of fiscal 2011 and $10.5 million or $0.96 per diluted common share for the first half of fiscal
2010.
Seasonality
Although our various product lines are sold on a year-round basis, the demand for specific products
or styles are 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.
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 growing through appropriate acquisitions. We have demonstrated our model over
time can perform at or above levels consistent with top quartile performance, and we expect to
deliver performance that drives growth and long-term shareholder value.
Liquidity and Capital Resources
Our only source of revenue and our primary source of cash flow come from our operating activities.
When cash inflows are less than cash outflows, we also have access to funds under our Bank
Facility, as described further below in this section, subject to its terms. 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, 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 lesser extent, through trade letters of credit. Such trade letters of
credit are drawn against our Bank Facility at the time of shipment of the products and reduce the
amount available under our Bank Facility when issued.
Cash and cash equivalents on hand were approximately $30.6 million at January 1, 2011 compared to
$15.4 million at January 2, 2010, and $17.0 million at July 3, 2010. Short-term investments were
approximately $15.0 million at January 1, 2011, $22.0 million at January 2, 2010 and $28.0 million
at July 3, 2010. At the end of the second quarter of fiscal 2011, we carried a portfolio of $15.0
million in short-term investments, including $14.0 million of marketable investment securities in
the form of variable rate demand notes and $1.0 million of other short-term investments. The
marketable investment securities 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. The other short-term investments are classified as
held-to-maturity securities and consist of a corporate bond, which matured on January 18, 2011.
Operating Activities
During the first half of fiscal 2011, our operations provided approximately $2.7 million of cash;
and during the comparable period of fiscal 2010, our operations used cash of approximately $2.0
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 second quarter of
fiscal 2011, we funded our operations entirely by using our cash and short-term investments.
15
Table of Contents
Our working capital ratio, which is calculated by dividing total current assets by total current
liabilities, was 6.6:1 at January 1, 2011, 5.0:1 at January 2, 2010 and 6.7:1 at July 3, 2010. The
difference in this ratio from July 3, 2010 to January 1, 2011 primarily reflected the impact of
changes in accounts receivable, inventory and current liabilities, consistent with the seasonality
of our business.
We anticipate that we will continue to fund our operations in the future by using our internal cash
reserves.
Changes in the primary components of our working capital accounts for the first half of fiscal 2011
and the first half of fiscal 2010, respectively, were as follows:
| The increase in net accounts receivable of $5.7 million and $11.9 million in the first half of fiscal 2011 and the first half of fiscal 2010, respectively, primarily reflected the seasonal nature of our business. The difference between the change for the first half of 2011 and the change for the first half of fiscal 2010 reflected primarily the impact of reduced shipments during the second quarter of fiscal 2011. | ||
| Net inventories increased by $2.6 million and $8.3 million during the first half of fiscal 2011 and fiscal 2010, respectively. The increase for the first half of fiscal 2011 was in line with the seasonal nature of our business. The increase for the first half of fiscal 2010 reflected primarily a return to more normal inventory levels and the seasonal nature of our business. | ||
| Accounts payable increased by $3.4 million and $3.5 million during the first half of fiscal 2011 and fiscal 2010, respectively. These changes were due primarily to the timing of purchases and payment for finished goods inventory in line with the seasonality of our business. | ||
| Accrued expenses decreased by $2.0 million during the first half of fiscal 2011 and increased by $2.2 million during the first half of fiscal 2010. The decrease in accrued expenses in the first half of fiscal 2011 was primarily due to lower incentive bonus accruals during fiscal 2011 as compared to the first half of fiscal 2010. The increase in accrued expenses during the first half of fiscal 2010 was primarily due to higher income tax accruals and higher incentive bonus accruals as compared to the first half of fiscal 2009. |
Investing Activities
During the first half of fiscal 2011 and the first half of fiscal 2010, our investing activities
provided $12.4 million and $2.4 million in cash, respectively. During the first half of fiscal
2011, our investing activities involved primarily the liquidation of $13.0 million in short-term
investments, offset by $534 thousand in capital expenditures. The six-month increase in cash
provided by investing activities reflected the net impact of holding more cash and cash equivalents
versus short-term investments at the end of the first half of fiscal 2010. This shift reflects the
availability and types of investments in which funds could be invested in fiscal 2011 versus the
same period in fiscal 2010 as well as anticipated timing on potential use of funds for acquisition
purposes.
Financing Activities
During the first half of fiscal 2011, financing activities used $1.4 million in cash primarily to
pay dividends of $1.5 million and pay $48 thousand on our outstanding debt obligations, offset by
$122 thousand in tax benefits associated with stock compensation and $36 thousand in proceeds from
stock options exercised by employees during the period.
2011 Liquidity
We believe our sources of cash and cash equivalents, short-term investments, cash from operations
and funds available under our Bank 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 on January 27, 2011 resulted in a cash
payment of $14 million from our existing on-hand cash position, and will not significantly impact
our ability to continue to fund our operations through our sources of cash going forward.
16
Table of Contents
Bank Facility
The Company is party to an unsecured credit facility with The Huntington National Bank
(Huntington). The original facility dated March 29, 2007 was modified on June 26, 2009. Under
this second modification of the Bank Facility, Huntington is obligated to advance us funds for a
period of two and a half years, ending on December 31, 2011, up to the following amounts:
July to December | January to June | |||||||
Fiscal 2011 |
$10 million | $5 million | ||||||
Fiscal 2012 |
$8 million |
The terms of the Bank Facility require the Company to satisfy certain financial covenants including
(a) satisfying a minimum fixed charge coverage ratio of not less than 1.25 to 1.0, which is
calculated on a trailing 12-month basis and (b) maintaining a consolidated net worth of not less
than $44 million, increased annually by 50% of the Company consolidated net income after June 28,
2009. The Bank Facility must be rested for 30 consecutive days beginning in February of each year.
Also, the borrowing under the Bank Facility may not exceed 80% of the Companys eligible accounts
receivable plus 50% of its eligible inventory at any one time. As of January 1, 2011, we were in
compliance with these financial covenants.
The Bank Facility provides that Huntington will issue on behalf of the Company letters of credit
with a maximum aggregate value of $1.5 million. The aggregate dollar amount of outstanding letters
of credit is deducted from the available balance under the Bank Facility. At January 1, 2011, we
had $4.2 million available under the Bank Facility, which was reduced by the aggregate amount of
$800 thousand in letters of credit outstanding.
The interest rate on the Bank Facility is a variable rate equal to LIBOR plus 2.75%. The
applicable interest rate on the Bank Facility at January 1, 2011 was 3.01%, assuming a 30-day LIBOR
rate of .26% on that date. Additionally, the Bank Facility requires us to pay a quarterly unused
line fee at the rate of 3/8% of the average unused Bank Facility balance. During the first half of
fiscal 2011, we did not use the Bank Facility and incurred unused line fees of approximately $16
thousand. We incurred a commitment fee of approximately $43 thousand on the loan modification
effective as of June 26, 2009 and $9 thousand of this fee was amortized as expense during the first
half of fiscal 2011.
Other Long-Term Indebtedness and Current Installments of Long-Term Debt
As of January 1, 2011, we reported the remaining $48 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.
Contractual Obligations
There have been no material changes to Contractual Obligations since the end of fiscal 2010,
other than routine payments. 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.
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.
17
Table of Contents
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 second quarter and first half of fiscal 2011, we recognized favorable
reserve adjustments that benefited our earnings before income tax by $492 thousand and $878
thousand, respectively, related to our customer incentive reserves of $1.8 million
established at July 3, 2010. During the second quarter and first half of fiscal 2010, we
recognized favorable reserve adjustments that benefited our earnings before income tax by
$387 thousand related to our 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 first half of fiscal 2011 or during the first half 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 first half of fiscal 2011 and the first half 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 first half 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 end, and we monitor these assumptions over the course of the fiscal year. |
18
Table of Contents
e) | 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.
Recently Issued Accounting Standards
See
Note (14), 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 first half 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 second quarter or first half 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 Bank Facility. At January 1, 2011, we had no
borrowings outstanding under our Bank Facility. Based on our projected future funding needs for
the remainder of fiscal 2011, we do not expect any significant borrowings under our Bank Facility
to fund our current operations. We typically do not hedge our exposure to floating interest rates.
Interest rate changes impact the level of earnings from short-term investments; changes in
long-term interest rates also 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 |
19
Table of Contents
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
January 1, 2011, that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
20
Table of Contents
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 January 1,
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] |
None
Item 5. | Other Information |
None.
Item 6. | Exhibits |
See Index to Exhibits at page 23.
21
Table of Contents
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: February 9, 2011 | By: | /s/ José G. Ibarra | ||
José G. Ibarra | ||||
Senior Vice President Finance and Chief Financial
Officer (Principal Financial Officer) (Duly Authorized Officer) |
22
Table of Contents
R.G.
BARRY CORPORATION
INDEX TO EXHIBITS
Exhibit No. | Description | Location | ||||
3.1 | Certificate of Amendment by Shareholders to the Articles of
Incorporation of R.G. Barry Corporation (as filed with the Ohio
Secretary of State on November 5, 2010)
|
Incorporated herein by reference to Exhibit 3.1 to the Current Report on Form 8-K of R.G. Barry Corporation, dated and filed November 8, 2010 (SEC File No. 001-08769) | ||||
3.2 | Articles of Incorporation of R.G. Barry Corporation (reflecting all
amendments filed with the Ohio Secretary of State) [for purposes of
SEC reporting compliance only not filed in this form with Ohio
Secretary of State]
|
Incorporated herein by reference to Exhibit 3.2 to the Quarterly Report on Form 10-Q of R.G. Barry Corporation for the quarterly period ended October 2, 2010 (SEC File No. 001-08769) | ||||
10.1 | R.G. Barry Corporation Board of Directors Compensation Program
(adopted by Board of Directors approval at the September 2, 2010
meeting of the Board of Directors, to be in effect with the November
4, 2010 Annual Meeting of Shareholders)
|
Incorporated herein by reference to Exhibit 10.1 to the Quarterly Report on Form 10-Q of R.G. Barry Corporation for the quarterly period ended October 2, 2010 (SEC File No. 001-08769) | ||||
10.2 | 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) | ||||
10.3 | 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) | ||||
10.4 | 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) |
23
Table of Contents
Exhibit No. | Description | Location | ||||
10.5 | 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)
|
Filed herewith |
24