Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - BARRY R G CORP /OH/ | Financial_Report.xls |
EX-31.2 - EXHIBIT 31.2 - BARRY R G CORP /OH/ | c24062exv31w2.htm |
EX-32.1 - EXHIBIT 32.1 - BARRY R G CORP /OH/ | c24062exv32w1.htm |
EX-10.3 - EXHIBIT 10.3 - BARRY R G CORP /OH/ | c24062exv10w3.htm |
EX-31.1 - EXHIBIT 31.1 - BARRY R G CORP /OH/ | c24062exv31w1.htm |
EX-10.2 - EXHIBIT 10.2 - BARRY R G CORP /OH/ | c24062exv10w2.htm |
EX-10.1 - EXHIBIT 10.1 - BARRY R G CORP /OH/ | c24062exv10w1.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 October 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
þ 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 November 9, 2011 11,055,405
Index to Exhibits at page 28 and 29
R.G. BARRY CORPORATION
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the First Quarter of Fiscal 2012
(Period Ended October 1, 2011)
INDEX TO QUARTERLY REPORT ON FORM 10-Q
For the First Quarter of Fiscal 2012
(Period Ended October 1, 2011)
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 include, but are not limited to: our continuing
ability to source products from third parties located within and outside North America; competitive
cost pressures; the loss of retailer customers to competitors, consolidations, bankruptcies or
liquidations; shifts in consumer preferences; the impact of the global financial crisis and general
economic conditions on consumer spending; the impact of the highly seasonal nature of our footwear
business upon our operations; inaccurate forecasting of consumer demand; difficulties liquidating
excess inventory; disruption of our supply chain or distribution networks; our ability to implement
new enterprise resource information systems; the unexpected loss of any of the skills and
experience of any of our senior officers; our ability to successfully integrate any business
acquisitions; 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 2, 2011 (the 2011 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
2011 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:
First quarter of fiscal 2012
|
13 weeks ended October 1, 2011 | |
First quarter of fiscal 2011
|
13 weeks ended October 2, 2010 | |
Fiscal 2012
|
52 weeks ending June 30, 2012 | |
Fiscal 2011
|
52 weeks ended July 2, 2011 |
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)
R.G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
October 1, 2011 | July 2, 2011 | |||||||
(unaudited) | ||||||||
ASSETS |
||||||||
Cash and cash equivalents |
$ | 622 | $ | 9,107 | ||||
Short-term investments |
2,860 | 15,565 | ||||||
Accounts receivable (less allowances of $7,006 and $3,522, respectively) |
36,121 | 11,819 | ||||||
Inventory |
34,376 | 25,500 | ||||||
Deferred tax assets current |
2,115 | 1,996 | ||||||
Prepaid expenses |
1,001 | 799 | ||||||
Total current assets |
77,095 | 64,786 | ||||||
Property, plant and equipment, at cost |
13,275 | 12,805 | ||||||
Less accumulated depreciation and amortization |
9,169 | 8,822 | ||||||
Net property, plant and equipment |
4,106 | 3,983 | ||||||
Deferred tax assets noncurrent |
4,281 | 4,303 | ||||||
Goodwill |
15,510 | 15,510 | ||||||
Trade names |
9,200 | 9,200 | ||||||
Other intangible assets (net of accumulated amortization of $1,498 and
$1,059, respectively) |
14,816 | 15,253 | ||||||
Other assets |
2,749 | 2,944 | ||||||
Total assets |
$ | 127,757 | $ | 115,979 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Short-term notes payable |
$ | 4,750 | $ | 1,750 | ||||
Current installments of long-term debt |
4,286 | 4,285 | ||||||
Accounts payable |
8,186 | 10,118 | ||||||
Accrued expenses |
7,142 | 1,947 | ||||||
Total current liabilities |
24,364 | 18,100 | ||||||
Long-term debt |
23,571 | 24,286 | ||||||
Accrued retirement costs and other |
11,111 | 11,070 | ||||||
Total liabilities |
59,046 | 53,456 | ||||||
Commitments and contingent liabilities (note 15) |
| | ||||||
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 11,055 and 11,053 shares, respectively
(excluding treasury shares of 1,048 and 1,047, respectively) |
11,055 | 11,053 | ||||||
Additional capital in excess of par value |
20,492 | 20,271 | ||||||
Accumulated other comprehensive loss |
(10,387 | ) | (10,242 | ) | ||||
Retained earnings |
47,551 | 41,441 | ||||||
Total shareholders equity |
68,711 | 62,523 | ||||||
Total liabilities and shareholders equity |
$ | 127,757 | $ | 115,979 | ||||
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)
First Quarter | ||||||||
Fiscal 2012 | Fiscal 2011 | |||||||
(unaudited) | (unaudited) | |||||||
Net sales |
$ | 50,230 | $ | 36,269 | ||||
Cost of sales |
27,977 | 22,073 | ||||||
Gross profit |
22,253 | 14,196 | ||||||
Selling, general and administrative expenses |
10,880 | 7,772 | ||||||
Operating profit |
11,373 | 6,424 | ||||||
Other income |
87 | 109 | ||||||
Interest income |
9 | 54 | ||||||
Interest expense |
(264 | ) | (24 | ) | ||||
Earnings, before income taxes |
11,205 | 6,563 | ||||||
Income tax expense |
4,315 | 2,460 | ||||||
Net earnings |
$ | 6,890 | $ | 4,103 | ||||
Net earnings per common share |
||||||||
Basic |
$ | 0.62 | $ | 0.37 | ||||
Diluted |
$ | 0.61 | $ | 0.37 | ||||
Weighted average number of common shares outstanding |
||||||||
Basic |
11,137 | 11,044 | ||||||
Diluted |
11,305 | 11,151 | ||||||
Common shares outstanding at end of period |
11,055 | 10,985 | ||||||
Cash dividends declared per common share |
$ | 0.07 | $ | 0.07 | ||||
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 Quarter | ||||||||
Fiscal 2012 | Fiscal 2011 | |||||||
(unaudited) | (unaudited) | |||||||
Operating activities: |
||||||||
Net earnings |
$ | 6,890 | $ | 4,103 | ||||
Adjustments to reconcile net earnings to net cash used by operating activities: |
||||||||
Depreciation and amortization |
792 | 220 | ||||||
Deferred income tax (benefit) expense |
(12 | ) | | |||||
Gross excess tax benefit from exercise of stock options and vesting of
restricted stock units |
(19 | ) | (98 | ) | ||||
Stock-based compensation expense |
219 | 299 | ||||||
Changes in: |
||||||||
Accounts receivable, net |
(24,303 | ) | (18,930 | ) | ||||
Inventory |
(8,876 | ) | (14,653 | ) | ||||
Prepaid expenses and other assets |
8 | (529 | ) | |||||
Accounts payable |
(1,584 | ) | 9,844 | |||||
Accrued expenses |
4,421 | (1,408 | ) | |||||
Accrued retirement costs and other |
(217 | ) | (270 | ) | ||||
Net cash used by operating activities |
(22,681 | ) | (21,422 | ) | ||||
Investing activities: |
||||||||
Proceeds from the sale of short-term investments |
12,705 | 11,771 | ||||||
Purchases of property, plant and equipment |
(814 | ) | (478 | ) | ||||
Net cash provided by investing activities |
11,891 | 11,293 | ||||||
Financing activities: |
||||||||
Borrowings from revolving bank facility |
3,000 | | ||||||
Principal repayment of long-term debt |
(714 | ) | (24 | ) | ||||
Proceeds from stock options exercised |
| 36 | ||||||
Gross excess tax benefit from exercise of stock options and vesting of
restricted stock units |
19 | 98 | ||||||
Net cash provided by financing activities |
2,305 | 110 | ||||||
Net decrease in cash and cash equivalents |
(8,485 | ) | (10,019 | ) | ||||
Cash and cash equivalents at the beginning of the period |
9,107 | 16,988 | ||||||
Cash and cash equivalents at the end of the period |
$ | 622 | $ | 6,969 | ||||
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 First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
1. Basis of Presentation
R.G. Barry Corporation, an Ohio corporation, is engaged, with its subsidiaries, including Foot
Petals Inc. and Baggallini, Inc. (collectively, the Company), in designing, sourcing, marketing
and distributing footwear, foot and shoe care products and hand bags, tote bags and other travel
accessories. The Company operates in two reportable segments: (1) Footwear that encompasses
primarily slippers, sandals, hybrid and fashion footwear, slipper socks and hosiery; and (2)
Accessories products including foot and shoe care products, handbags, tote bags and other travel
accessories. The Companys products are sold predominantly in North America in the accessory
sections of department stores, chain stores, warehouse clubs, specialty stores, television shopping
networks, e-tailing/internet based retailers, discount stores and mass merchandising channels of
distribution.
The accompanying unaudited condensed consolidated financial statements include the accounts of the
Company and have been prepared in accordance with the United States of America (U.S.) generally
accepted accounting principles (GAAP) for interim financial information and with the instructions
to Form 10-Q and Article 10 of SEC Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by U.S. GAAP for complete financial statements. In the opinion
of management, all adjustments, consisting of normal recurring accruals, considered necessary for a
fair presentation of the financial condition and results of operations at the dates and for the
interim periods presented, have been included. The financial information shown in the accompanying
condensed consolidated balance sheet as of the end of fiscal 2011 is derived from the Companys
audited consolidated financial statements.
The preparation of financial statements in conformity with U.S. GAAP requires management to make
estimates and assumptions that affect the amounts reported in financial statements and accompanying
notes. Actual results could differ from those estimates.
The Companys reporting period is a fifty-two week or fifty-three-week period (fiscal year),
ending annually on the Saturday nearest June 30. Operating results for the first quarter of fiscal
2012 are not necessarily indicative of the annual results that may be expected for fiscal 2012.
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 2011 Form
10-K.
2. Fair Value of Financial Instruments
At October 1, 2011, as part of its cash management and investment program, the Company maintained a
short-term marketable investment securities portfolio of $2,860 consisting of variable rate demand
notes. The marketable investment securities are classified as available-for-sale and are carried
at cost, which approximates fair value.
In addition, at October 1, 2011, the Company held a derivative instrument in the form of an
interest rate contract that served as a cash flow hedge on interest rate change exposure on a
portion of its borrowings under a floating-rate term-loan facility entered into by the Company on
March 1, 2011. See Note 8Derivative Instruments and Hedging Activities below.
Financial Accounting Standards Board Accounting Standard Codification (FASB ASC) 820-10 (the
overall Subtopic of topic 820 on fair value measurements and disclosures) provides guidance on fair
value measurements of financial assets and financial liabilities and for fair value measurements of
nonfinancial items that are recognized or disclosed at fair value in the financial statements on a
recurring basis. This accounting standard provides a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value. The hierarchy gives the highest
priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1
measurements) and the lowest priority to measurements involving significant unobservable inputs
(Level 3 measurements). The three levels of the fair value hierarchy are as follows:
| Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. | ||
| Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly. | ||
| Level 3 inputs are unobservable inputs for the asset or liability. |
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 First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Cash, cash equivalents, short-term investments, accounts receivable, short-term notes payable,
accounts payable and accrued expenses, as reported in the condensed consolidated financial
statements, approximate their respective fair values because of the short-term maturity of those
instruments. The fair value of the Companys long-term debt is based on the present value of
expected cash flows, considering expected maturity and using current interest rates available to
the Company for borrowings with similar terms. The carrying amount of the Companys long-term debt
approximates its fair value.
The following table presents assets and liabilities that are measured at fair value on a recurring
basis (including items that are required to be measured at fair value) at October 1, 2011:
Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
Quoted Prices | Significant | |||||||||||||||
in Active | Other | Significant | ||||||||||||||
Markets for | Observable | Unobservable | ||||||||||||||
Carrying | Identical Assets | Inputs | Inputs | |||||||||||||
Amount | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Available-for-sale securities |
$ | 2,860 | | $ | 2,860 | | ||||||||||
Total |
$ | 2,860 | | $ | 2,860 | | ||||||||||
Liabilities: |
||||||||||||||||
Interest rate contract |
$ | 499 | | $ | 499 | | ||||||||||
Total |
$ | 499 | | $ | 499 | |
The following table presents assets and liabilities that are measured at fair value on a recurring
basis (including items that are required to be measured at fair value) at July 2, 2011:
Fair Value Measurements at Reporting Date Using: | ||||||||||||||||
Quoted Prices | ||||||||||||||||
in Active | Significant | |||||||||||||||
Markets for | Other | Significant | ||||||||||||||
Identical | Observable | Unobservable | ||||||||||||||
Carrying | Assets | Inputs | Inputs | |||||||||||||
Amount | (Level 1) | (Level 2) | (Level 3) | |||||||||||||
Assets: |
||||||||||||||||
Available-for-sale securities |
$ | 12,073 | | $ | 12,073 | | ||||||||||
Total |
$ | 12,073 | | $ | 12,073 | | ||||||||||
Liabilities: |
||||||||||||||||
Interest rate contract |
$ | 268 | | $ | 268 | | ||||||||||
Total |
$ | 268 | | $ | 268 | | ||||||||||
Fair value for available for sale securities was based on market observable inputs and the
fair value of the interest rate contract was determined based on models utilizing market observable
inputs and credit risk.
The Company had no assets or liabilities measured at fair value on a non-recurring basis during the
first quarter of fiscal 2012 or the first quarter of fiscal 2011.
8
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
3. Stock-Based Compensation
The Amended and Restated 2005 Long-Term Incentive Plan (the 2005 Plan) is the only equity-based
compensation plan under which future awards may be made to employees of the Company and
non-employee directors of R.G. Barry Corporation other than the employee stock purchase plan,
currently inactive, in which only employees of the Company are eligible to 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 2005 Plan (the Amended 2005 Plan).
The Amended 2005 Plan provides for the granting of nonqualified stock options (NQs), incentive
stock options (ISOs) that qualify under Section 422 of the Internal Revenue Code, stock
appreciation rights, restricted stock, restricted stock units (RSUs), stock grants, stock units
and cash awards, each as defined in the Amended 2005 Plan. Grants of restricted or unrestricted
stock, RSUs and cash awards may also be performance-based awards, as defined in the Amended 2005
Plan.
During the first quarter of fiscal 2012, the Company granted performance-based RSUs to certain
members of management; no similar performance-based stock awards were granted in the first quarter
of fiscal 2011. Each performance-based RSUs is equivalent to one common share. The number of
RSUs eligible for settlement to participants is ultimately based on the level of diluted earnings
per share achieved by the Company at certain established minimum, target and maximum levels, for
the fiscal year in which such performance based RSUs are granted. If the minimum level of diluted
earnings per share is not achieved for the fiscal year of grant, all of the performance-based RSUs
underlying the award will be forfeited. If diluted earnings per share exceed the minimum level,
the number of units eligible for settlement will be determined when the annual financial results
are finalized by the Company and one-third of those units will be settled. The remaining
performance-based RSUs eligible for settlement will vest to the participants based on continued
service rendered over the following two-fiscal year periods, with annual pro rata vesting and
settlement occurring at the end of each fiscal year. Except in instances of death or retirement
where pro rata vesting would be applied, participants must be employed by the Company at the time
of settlement in order to be vested in any portion of the award otherwise to be settled.
Performance-based RSUs will be settled through an issuance of common shares for 50% of the
performance-based RSUs and through cash payment for the other 50% of the performance-based RSUs
valued at the fair value of a common share at the time of settlement. Based on the diluted
earnings per share goal set at target level by the Company for fiscal 2012, the number of total
eligible performance-based RSUs was computed at 70,650, of which 50% was accounted for as an
equity award and 50% was accounted for as a liability award. The fair value of the equity award
was determined based on the closing market price of a common share at the date of grant of $10.51.
Similarly, the fair value of the liability award was initially based on the market price of a
common share at the date of grant but is subject to periodic revaluation as changes occur in the
market price of a common share over the time period of the award.
In addition, consistent with its employee compensation policy, the Company granted an aggregate of
23,550 time-based RSUs, which vest in equal annual installments over three years, to certain
members of management during the first quarter of fiscal 2012. During the first quarter of fiscal
2011, the Company granted 24,550 time-based RSUs which vest at the end of five-years but will be
eligible for accelerated vesting of 20% of the award if pre-set levels of pre-incentive, pre-tax
income for a particular year are achieved by the Company. 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.
Under the provisions of FASB ASC 718, the Company recorded, as part of selling, general and
administrative expenses, $260 and $299 of stock-based compensation expense for the first quarter
of fiscal 2012 and first quarter of fiscal 2011, respectively.
The Company did not grant any stock options during the first quarter of fiscal 2012 or the first
quarter of fiscal 2011, but has granted stock options historically at times to certain members of
management and non-employee directors. Total compensation cost of stock options granted but not
yet vested as of October 1, 2011, was approximately $33, which will be recognized over a
weighted-average period of approximately two years.
During the first quarter of fiscal 2012 and the first quarter of fiscal 2011, the Company
recognized gross excess tax benefits of $19 and $98, respectively, as additional capital in excess
of par value under the provisions of FASB ASC 718 related to the vesting of RSUs and exercises of
stock options.
9
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Activity with respect to stock options for the first quarter of fiscal 2012 was as follows:
Number of | Number of | Weighted- | ||||||||||
common shares | common shares | Average | ||||||||||
subject to ISOs | subject to NQs | exercise price | ||||||||||
Outstanding at July 2, 2011 |
22,700 | 112,800 | $ | 6.63 | ||||||||
Granted |
| | | |||||||||
Exercised |
| | | |||||||||
Expired/Cancelled |
| | | |||||||||
Outstanding at October 1, 2011 |
22,700 | 112,800 | $ | 6.63 | ||||||||
Options exercisable at October 1, 2011 |
22,700 | 100,500 | ||||||||||
Activity with respect to time-based RSUs for the first quarter of fiscal 2012 was as follows:
Number of | ||||||||
common shares | Grant Date | |||||||
underlying RSUs | Fair Value | |||||||
Nonvested at July 2, 2011 |
319,900 | $ | 8.24 | |||||
Granted |
23,550 | 10.51 | ||||||
Vested |
(4,200 | ) | 6.48 | |||||
Forfeited/Cancelled |
| | ||||||
Nonvested at October 1, 2011 |
339,250 | $ | 8.42 | |||||
Activity for the first quarter of fiscal 2012 with respect to performance-based RSUs, with future
settlement at vesting in common shares, was as follows:
Number of | ||||||||
common shares | Grant Date | |||||||
underlying RSUs | Fair Value | |||||||
Nonvested at July 2, 2011 |
| | ||||||
Granted, estimated at target level |
35,325 | $ | 10.51 | |||||
Vested |
| | ||||||
Forfeited/Cancelled |
| | ||||||
Nonvested at October 1, 2011 |
35,325 | $ | 10.51 | |||||
During the first quarter of fiscal 2012, an aggregate of 35,325 performance-based RSUs with future
settlement at vesting to be made in cash were granted and accounted for as cash settlement awards,
for which the fair value of the awards is subject to initial and subsequent periodic revaluation at
the end of each reporting period based on the corresponding market price of a common share of the
Company.
Total compensation cost of time-based and performance-based compensation awards not yet vested, as
of October 1, 2011 was as follows:
Unrecognized | Weighted-average | |||||||
Compensation Cost | period in years | |||||||
Time-based RSU awards |
$ | 1,904 | 2-3 | |||||
Performance-based RSU awards (accounted for as equity award) |
275 | 1-2 | ||||||
Performance-based RSU awards (accounted for as cash settlement award) |
299 | 2-3 |
The aggregate intrinsic value, as defined in FASB ASC 718, of stock options exercised and RSUs
vested during the first quarter of fiscal 2012 and the first quarter of fiscal 2011 was $47 and
$806, respectively.
4. Inventories
Inventory by category consisted of the following:
October 1, 2011 | July 2, 2011 | |||||||
Raw materials |
$ | 437 | $ | 1,097 | ||||
Finished goods |
33,939 | 24,403 | ||||||
Total inventory |
$ | 34,376 | $ | 25,500 | ||||
10
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Inventory write-downs, recognized as a part of cost of sales, were $39 and $134 for the first
quarter of fiscal 2012 and the first quarter of fiscal 2011, respectively.
5. Goodwill and Other Intangible Assets
The Company uses the acquisition method of accounting for any business acquisitions and recognizes
intangible assets separately from goodwill. The acquired assets and assumed liabilities in an
acquisition are measured and recognized based on their estimated fair value at the date of
acquisition, with goodwill representing the excess of the consideration transferred over the fair
value of the identifiable net assets acquired.
Purchased goodwill and intangible assets with indefinite lives are not amortized, but instead will
be tested for impairment annually, during the second fiscal quarter, or more frequently if events
or changes in circumstances indicate that impairment may be present. The Companys impairment
testing for both goodwill and other long-lived assets, including intangible assets with finite
useful lives, is primarily based on cash flow models that require significant judgment and
assumptions about future trends, revenue and expense growth rates, and in addition, external
factors such as changes in economic trends and cost of capital. Significant changes in any of
these assumptions could impact the outcome of the tests performed.
No impairment indicators were present with regard to goodwill or intangible assets with indefinite
useful lives during the first quarter of fiscal 2012.
Other intangible assets included the following:
October 1, 2011 | ||||||||||||||||
Weighted- | ||||||||||||||||
average | Gross | |||||||||||||||
amortization | Carrying | Accumulated | Net carrying | |||||||||||||
period | amount | amortization | amount | |||||||||||||
Amortizing intangible assets: |
||||||||||||||||
Customer relationships |
9.4 years | $ | 15,600 | $ | (925 | ) | $ | 14,675 | ||||||||
Trademarks, patents
and fees |
5 years | 714 | (573 | ) | 141 | |||||||||||
Total intangible
assets, subject to
amortization |
$ | 16,314 | $ | (1,498 | ) | $ | 14,816 | |||||||||
July 2, 2011 | ||||||||||||||||
Weighted- | ||||||||||||||||
average | Gross | |||||||||||||||
amortization | Carrying | Accumulated | Net carrying | |||||||||||||
period | amount | amortization | amount | |||||||||||||
Amortizing intangible assets: |
||||||||||||||||
Customer relationships |
9.4 years | $ | 15,600 | $ | (500 | ) | $ | 15,100 | ||||||||
Trademarks, patents
and fees |
5 years | 712 | (559 | ) | 153 | |||||||||||
Total intangible
assets, subject to
amortization |
$ | 16,312 | $ | (1,059 | ) | $ | 15,253 | |||||||||
The Company recognized aggregate customer relationships and trademarks, patents and fees
amortization expense of $439 and $13 in the first quarter of fiscal 2012 and the first quarter of
fiscal 2011, respectively, and reported that expense as part of selling, general and administrative
expenses in the accompanying condensed consolidated statements of income.
11
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
6. Accrued expenses
Accrued expenses consisted of the following:
October 1, 2011 | July 2, 2011 | |||||||
Salaries and wages |
$ | 1,399 | $ | 418 | ||||
Income and other taxes |
3,416 | 110 | ||||||
Current pension liabilities |
685 | 685 | ||||||
Dividends declared, but not yet paid |
774 | | ||||||
Other |
868 | 734 | ||||||
Total accrued expenses |
$ | 7,142 | $ | 1,947 | ||||
7. Income Taxes
Income tax expense for the first quarter of fiscal 2012 and the first quarter of fiscal 2011
differed from the amounts computed by applying the U.S. Federal income tax rate of 35% (34% in
fiscal 2011), respectively, to earnings before income taxes as a result of the following:
First Quarter | ||||||||
Fiscal 2012 | Fiscal 2011 | |||||||
Computed expected tax expense |
$ | 3,922 | $ | 2,232 | ||||
State income tax expense, net of federal income tax benefit |
423 | 210 | ||||||
Other, net |
(30 | ) | 18 | |||||
Total expense |
$ | 4,315 | $ | 2,460 | ||||
Management is required to estimate the annual effective tax rate based upon its forecast of annual
pre-tax earnings. To the extent the actual pre-tax results or anticipated permanent tax
differences for the year differ from forecast estimates applied at the end of the most recent
interim period, the actual tax rate recognized in fiscal 2012 could be materially different from
the forecasted rate as of the end of the first quarter of fiscal 2012.
Income tax expense for the first quarter of fiscal 2012 and the first quarter of fiscal 2011 were
calculated using the estimated annual effective income tax rates for fiscal 2012 and fiscal 2011,
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 first quarter of fiscal 2012, 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 first quarter of fiscal 2012 or at the end of fiscal 2011.
8. Derivative Instruments and Hedging Activities
The Company may utilize derivative financial instruments to manage exposure to certain risks
related to its ongoing operations. The primary risk managed through the use of derivative
instruments is interest rate risk. In January 2011, the Company entered into an interest rate
contract with an initial notional amount of $15,000 to hedge the changes in cash flows attributable
to changes in the LIBOR rate associated with the five-year term loan entered into by the Company in
March 2011. Under this interest rate contract, the Company pays a fixed interest rate of 3.94% and
receives a variable rate based on LIBOR plus 1.85%. The notional amount of this interest rate
contract is required to be 50% of the amount of the term loan through the expiration of its
five-year term.
The Company is exposed to counter-party credit risk on any derivative instrument. Accordingly, as
part of its risk management policy, the Company maintains strict counter-party credit guidelines
and enters into any derivative instrument only with major financial institutions. The Company does
not have significant exposure to any counterparty and management believes the risk of loss is
remote and, in any event, would not be material.
Refer to Note 2Fair Value of Financial Instruments for additional information regarding the
fair value of the derivative instrument.
12
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
The following table summarizes the fair value of the Companys derivative instrument and the line
item in which it was recorded in the condensed consolidated balance sheet at October 1, 2011:
Liability Derivative | ||||||
Balance Sheet | Fair Value | |||||
Location | (in thousands) | |||||
Derivative designated as hedging instrument: |
||||||
Interest rate contract |
Accrued retirement costs and other | $ | 499 | |||
$ | 499 | |||||
Cash Flow Hedges
The following table summarizes the loss recognized in OCI and the loss reclassified from
accumulated OCI into earnings for the derivative instrument designated as a cash flow hedge during
the first quarter ended October 1, 2011. There were no derivative instruments held by the Company
during the first quarter ended October 2, 2010.
Loss | ||||||||||||||||
Loss | Location of | (Ineffective | ||||||||||||||
Loss | Location of Loss | Reclassified | Loss | Portion) and | ||||||||||||
Recognized | Reclassified from | from | (Ineffective | Excluded | ||||||||||||
in OCI | Accumulated | Accumulated | Portion) and | from | ||||||||||||
(Effective | OCI (Effective | OCI | Excluded from | Effectiveness | ||||||||||||
Portion) | Portion) | (Effective) | Effectiveness | Testing | ||||||||||||
For the first quarter of
fiscal 2012: |
||||||||||||||||
Interest rate contract |
$ | 231 | Interest expense | $ | 69 | Interest expense | $ | |
The estimated net amount of the loss in accumulated other comprehensive income at October 1, 2011
expected to be reclassified into net earnings within the next twelve months is $204.
9. Employee Retirement Plans
The Company expects to make payments in the aggregate of $1,971 during fiscal 2012 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
quarter of fiscal 2012, payments of approximately $418 were made into the ARP and payments of
approximately $173 were made to participants in 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:
First Quarter | ||||||||
Fiscal 2012 | Fiscal 2011 | |||||||
Service cost |
$ | | $ | | ||||
Interest cost |
506 | 494 | ||||||
Expected return on plan assets |
(481 | ) | (511 | ) | ||||
Net amortization |
347 | 315 | ||||||
Total pension expense |
$ | 372 | $ | 298 | ||||
10. 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
time-based and performance-based RSUs.
13
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
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:
First Quarter | ||||||||
Fiscal 2012 | Fiscal 2011 | |||||||
Numerator: |
||||||||
Net earnings |
$ | 6,890 | $ | 4,103 | ||||
Denominator: |
||||||||
Weighted-average common shares outstanding |
11,137 | 11,044 | ||||||
Effect of potentially dilutive securities: stock options and RSUs |
168 | 107 | ||||||
Weighted-average common shares outstanding, assuming dilution |
11,305 | 11,151 | ||||||
Basic net earnings per common share |
$ | 0.62 | $ | 0.37 | ||||
Diluted net earnings per common share |
$ | 0.61 | $ | 0.37 | ||||
The Company excluded stock options to purchase approximately 12 thousand common shares from the
calculation of diluted net earnings per share for the first quarter of fiscal 2012, due to the
anti-dilutive nature of these stock options measured using the average market prices of the
underlying common shares. All stock options outstanding as of October 2, 2010 were dilutive and
were included in the calculation of the potentially dilutive securities for the first quarter of
fiscal 2011.
11. Comprehensive Income (Loss)
Comprehensive income (loss), which is reflected as a component of shareholders equity, includes
net earnings and fair value adjustments on the interest rate contract as follows:
First Quarter | ||||||||
Fiscal 2012 | Fiscal 2011 | |||||||
Net earnings |
$ | 6,890 | $ | 4,103 | ||||
Interest rate contract fair value adjustments, net of tax |
(145 | ) | | |||||
Total comprehensive income |
$ | 6,745 | $ | 4,103 | ||||
Accumulated other comprehensive loss as of October 1, 2011 and July 2, 2011 was $10,387 and
$10,242, respectively.
12. Changes in Equity
The following table provides a summary of the changes in total equity for the first quarter of
fiscal 2012:
Accumulated | ||||||||||||||||||||
Additional | other | Net | ||||||||||||||||||
Common | capital in excess | comprehensive | Retained | shareholders | ||||||||||||||||
shares | of par value | loss | earnings | equity | ||||||||||||||||
Balance at July 2, 2011 |
$ | 11,053 | $ | 20,271 | $ | (10,242 | ) | $ | 41,441 | $ | 62,523 | |||||||||
Net earnings |
| | | 6,890 | 6,890 | |||||||||||||||
Stock-based compensation expense |
| 219 | | | 219 | |||||||||||||||
Stock-based compensation tax benefit realized |
| 19 | | | 19 | |||||||||||||||
Other comprehensive loss on interest rate
contract, net of tax of $86 |
| | (145 | ) | | (145 | ) | |||||||||||||
Restricted stock units vested and stock
options exercised |
2 | (17 | ) | | | (15 | ) | |||||||||||||
Dividends declared at $0.07 per common share |
| | | (780 | ) | (780 | ) | |||||||||||||
Balance at October 1, 2011 |
$ | 11,055 | $ | 20,492 | $ | (10,387 | ) | $ | 47,551 | $ | 68,711 | |||||||||
14
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
13. Segment operations
The Company primarily markets footwear and accessories products sold predominantly in North America
and operates with two reportable segments which include: (1) Footwear that encompasses primarily
slippers, sandals, hybrid and fashion footwear, slipper socks and hosiery; and (2) Accessories
products including shoe and foot care products, handbags, tote bags and other travel accessories.
The accounting policies of the reportable segments are the same, except that the disaggregated
information has been prepared using certain management reports, which by their very nature require
estimates.
Effective with the first quarter of fiscal 2012, the Company implemented organizational changes in
its reporting structure which included the creation of a separate Business Unit President for each
operating unit, with each President reporting to the Chief Executive Officer (CEO). This
Business Unit President has financial performance responsibility for the operating unit. The
measure of such segment operating profit was redefined and our internal financial reporting
structure changed accordingly.
While many selling, general and administrative (SGA) expenses are direct to each operating unit,
certain corporate support expenses are incurred and assigned to the respective operating units
based on estimated usage of Company services. Operating profit as measured for each segment
includes sales, cost of sales, direct and allocated SGA expenses. This segment measure of
operating profit or loss, as defined, is the primary indicator of financial performance used by
management.
Other corporate expenses incurred are deemed to be applicable to the Company as a whole and are not
allocated to any specific business segment. These unallocated expenses primarily include areas
such as the Companys corporate and governance functions, including the CEO, Chief Financial
Officer and Board of Directors, as well as expense areas including incentive bonus, severance,
stock compensation, pension, professional fees and similar corporate expenses. These unallocated
expenses for the first quarter of fiscal 2012 and the first quarter of fiscal 2011 were $2,811 and
$1,876, respectively. Segment operating profit, as reported for the first quarter of fiscal 2012
and the first quarter of fiscal 2011, is based on the same definition of operating profit as
described above.
First quarter | ||||||||||||||||
Fiscal 2012 | Footwear | Accessories | Unallocated Corporate | Total | ||||||||||||
Net sales |
$ | 42,175 | $ | 8,055 | $ | | $ | 50,230 | ||||||||
Gross profit |
17,644 | 4,609 | | 22,253 | ||||||||||||
Operating profit |
12,395 | 1,789 | (2,811 | ) | 11,373 | |||||||||||
Total assets |
66,107 | 50,807 | 10,843 | 127,757 |
First quarter | ||||||||||||||||
Fiscal 2010 | Footwear | Accessories | Unallocated Corporate | Total | ||||||||||||
Net sales |
$ | 36,269 | $ | | $ | | $ | 36,269 | ||||||||
Gross profit |
14,196 | | | 14,196 | ||||||||||||
Operating profit |
8,300 | | (1,876 | ) | 6,424 |
As of July 2, 2011 | Footwear | Accessories | Unallocated Corporate | Total | ||||||||||||
Total assets |
$ | 52,619 | $ | 52,506 | 10,854 | $ | 115,979 |
Unallocated corporate assets comprised corporate assets including building, software, furniture and
equipment, as well as long-term deferred tax assets, cash surrender assets associated with
insurance policies and other nominal intangible or deposit type assets held by the Company.
15
Table of Contents
R.G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
Notes to Condensed Consolidated Financial Statements
for the First Quarter of Fiscal 2012 and the First Quarter of Fiscal 2011
(dollar amounts in thousands, except per share data)
14. Related Party Transactions
Under an existing agreement, the Company is obligated for up to two years after the death of the
Companys non-executive chairman (chairman) to purchase, if the estate elects to sell,
up to $4,000 of the Companys common shares, at their then fair market value. For a period of two
years following the chairmans death, the Company has a right of first refusal to purchase any
common shares owned by the chairman at the time of his death if his estate elects to sell such
common shares and has the right to purchase such common shares on the same terms and conditions as
the estate proposes to sell such common shares to a third party. To fund its potential obligation
to purchase such common shares, the Company maintains two insurance policies on the life of the
chairman. The cumulative cash surrender value of the policies approximates $2,629, which is
included in other assets in the condensed consolidated balance sheets. Effective in March 2004 and
continuing through the end of the first quarter of fiscal 2012, the Company has borrowed $1,750
against the cash surrender value of one of these policies, which is included in short-term notes
payable on the accompanying condensed consolidated balance sheet.
15. 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.
16. Recently Issued Accounting Standards
In August 2011, the Financial Accounting Standards Board (FASB) issued Accounting Standard Update
(ASU) 2011-08, IntangiblesGoodwill and Other (Topic 350): Testing Goodwill for Impairment. This
amended accounting guidance was issued intended to simplify how an entity is to test=s goodwill for
impairment. The amended guidance allows an entity to first assess qualitative factors to determine
whether it is necessary to perform the two-step quantitative goodwill impairment test. The two-step
quantitative impairment test is required if, based on its qualitative assessment, an entity
determines that it is more likely than not that the fair value of a reporting unit is less than its
carrying amount. The update is effective for interim and annual goodwill impairment tests performed
for fiscal years beginning after December 15, 2011. We expect to apply the provisions of this
update to our fiscal 2012 annual goodwill impairment test, as early adoption is permitted. We do
not expect the adoption of this amended accounting guidance to have a material impact on our
financial position or results of operations.
The FASB issued ASU No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive
Income, in June 2011. The ASU will supersede some of the guidance in Topic 220 of the accounting
Codification. The main provisions of this ASU provide that an entity that reports items of other
comprehensive income has the option to present comprehensive income in either one or two
consecutive financial statements. One option involves use of a single statement which must present
the components of net income and total net income, the components of other comprehensive income and
total other comprehensive income, and a total for comprehensive income. The second option involves
a two-statement approach, in which an entity must present the components of net income and total
net income in the first statement. That statement must be immediately followed by a financial
statement that presents the components of other comprehensive income, a total for other
comprehensive income and a total for comprehensive income. The prior option in current GAAP that
permits the presentation of other comprehensive income in the statement of changes in equity will
be eliminated upon adoption of this new ASU. The amendments in this ASU will be applied
retrospectively. For the Company, the amendments are effective for fiscal 2013, and interim
periods within that year. Early adoption is permitted, because compliance with the amendments is
already permitted. Adoption of this standard change will only affect the presentation format of
the Companys consolidated financial statements.
16
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 2011 Form 10-K.
Unless the context otherwise requires, references in this MD&A to our, us, we or the
Company refer to R.G. Barry Corporation and its consolidated subsidiaries.
Our Company and subsidiaries, Foot Petals Inc. and Baggallini, Inc., are engaged in designing,
sourcing, marketing and distributing footwear; foot and shoe care products; and hand bags, tote
bags and other travel accessories. We operate with three operating segments, two of which are
aggregated into a single reportable segment. The two reportable segments include: (1) Footwear
that encompasses primarily slippers, sandals, hybrid and fashion footwear, slipper socks and
hosiery; and (2) Accessories products including foot and shoe care products, handbags, tote bags
and other travel accessories. Our products are sold predominantly in North America in accessory
sections of department stores, chain stores, warehouse clubs, specialty stores, television shopping
networks, e-tailing/internet based retailers, discount stores and mass merchandising channels of
distribution.
Effective with the first quarter of fiscal 2012, the Company implemented organizational changes in
its reporting structure including the creation of a separate Business Unit President for each
operating unit, with each President reporting to the Chief Executive Officer (CEO). This Business
Unit President has financial performance responsibility for the operating unit. The measure of
such operating unit operating profit was redefined and our internal financial reporting structure
changed accordingly.
Under this reporting structure, the operating profit or loss measure for an operating unit includes
sales, cost of sales, direct and allocated SGA expenses from certain corporate support areas for
which expenses incurred are allocated to each operating units based on estimated usage of Company
services. Other corporate expenses were deemed applicable to the Company as a whole and are not
allocated to any specific operating unit. Such expenses include costs associated with the
Companys corporate and governance functions, including the CEO, Chief Financial Officer and Board
of Directors as well as such areas as incentive bonus, stock compensation, pension, professional
fees, severance and similar corporate expense areas.
Our Footwear and Accessories segment results reported below for both the first quarter of fiscal
2012 and the first quarter of fiscal 2011 have been presented based on this reporting approach.
All comments made herein relative to period over period comparisons refer to results reported for
the first quarter of fiscal 2012 as compared to the first quarter of fiscal 2011.
17
Table of Contents
Consolidated Results of Operations
Listed below are excerpts from our condensed consolidated statement of income for the first
quarter:
First Quarter | % of | First Quarter | % of | Increase/ | ||||||||||||||||
(all amounts are in 000s) | of Fiscal 2012 | Net Sales | of Fiscal 2011 | Net Sales | (Decrease) | |||||||||||||||
Net sales |
$ | 50,230 | 100.0 | $ | 36,269 | 100.0 | $ | 13,961 | ||||||||||||
Gross profit |
22,253 | 44.3 | 14,196 | 39.1 | 8,057 | |||||||||||||||
Selling, general and
administrative (SGA)
expenses |
10,880 | 21.7 | 7,772 | 21.4 | 3,108 | |||||||||||||||
Operating profit |
11,373 | 22.6 | 6,424 | 17.7 | 4,949 | |||||||||||||||
Other income |
87 | 0.2 | 109 | 0.3 | (22 | ) | ||||||||||||||
Interest income |
9 | 0.0 | 54 | 0.2 | (45 | ) | ||||||||||||||
Interest expense |
(264 | ) | (0.5 | ) | (24 | ) | (0.1 | ) | (240 | ) | ||||||||||
Earnings, before income taxes |
11,205 | 22.3 | 6,563 | 18.1 | 4,642 | |||||||||||||||
Income tax expense |
4,315 | 8.6 | 2,460 | 6.8 | 1,855 | |||||||||||||||
Net earnings |
6,890 | 13.7 | 4,103 | 11.3 | 2,787 |
Consolidated net sales increased by 38.5% due to: (1) $8.1 million in sales from our Accessories
segment, which was not reported for the first quarter of fiscal 2011 since we acquired these
businesses in the third quarter of fiscal 2011; and (2) increased Footwear segment shipments by
$5.9 million, primarily to customers in the domestic and international warehouse club channels and
customers in the mass merchandising channel. The overall quarter-over-quarter increase in footwear
shipments is primarily timing in nature. We believe that Footwear segment shipments for the
calendar 2011 fall season as a whole will be relatively comparable to those levels achieved for the
calendar 2010 fall season.
Consolidated gross profit dollars increased by 56.8% due to the gross profit contribution of $4.6
million from the Accessories segment during the period, increased shipments by the Footwear segment
and the non-recurrence of costs associated with expediting product, which our Footwear segment
experienced during the first quarter of fiscal 2011. The quarter-over-quarter increase in gross
profit as a percentage of net sales was due to the higher margin sales reported from the
Accessories segment and the benefit of non-recurring costs incurred during the first quarter of
fiscal 2011 associated with expediting product to Footwear segment customers.
Consolidated SGA expenses increased by 40.0%, due primarily to expenses associated with our
Accessories segment businesses acquired in the third quarter of fiscal 2011, and which were
reported with a total of $2.8 million of SGA expense.
Consolidated interest expense was higher due to the additional term-debt we incurred in support of
the acquisitions made in fiscal 2011. Other income and interest income were nominally lower for
the period.
The effective tax rates for the first quarter of fiscal 2012 and the first quarter of fiscal 2011
were 38.5% and 37.5%, respectively. Changes to rates quarter-over-quarter reflected primarily the
impact from:(i) a higher federal income tax rate based on our expected taxable income for fiscal
2012; (ii) net effect of higher state income tax rates associated with our Accessories segment
businesses; and (iii) certain permanent tax items, such as differences in investment income on cash
surrender asset values of two insurance policies owned by the Company.
Based on the results of operations noted above, we reported consolidated net earnings of $6.9
million or $0.61 per diluted common share for the first quarter of fiscal 2012 and consolidated net
earnings of $4.1 million or $0.37 per diluted common share for the first quarter of fiscal 2011.
Results of Operations Footwear segment
Our Footwear segment encompasses designing, sourcing, marketing and distributing footwear products.
We define footwear as a product category that includes primarily slippers, sandals and hybrid and
active fashion footwear. Our footwear products are sold in North America primarily in the
accessory sections of department stores, chain stores, warehouse clubs, discount stores and mass
merchandising channels of distribution.
18
Table of Contents
Selected financial results for the first quarter of fiscal 2012 and fiscal 2011 are:
First Quarter | % of | First Quarter | % of | |||||||||||||||||
(all amounts are in 000s) | of Fiscal 2012 | Net Sales | of Fiscal 2011 | Net Sales | Increase | |||||||||||||||
Net sales |
$ | 42,175 | 100.0 | $ | 36,269 | 100.0 | $ | 5,906 | ||||||||||||
Gross profit |
17,644 | 41.8 | 14,196 | 39.1 | 3,448 | |||||||||||||||
Operating profit |
12,395 | 29.4 | 8,300 | 22.9 | 4,095 |
Net sales increased by 16.3% due primarily to higher shipments to customers in the domestic and
international warehouse club and to customers in the mass merchandising channel. These increases
in shipments are timing in nature, with earlier shipments made to meet customer needs to receive
product earlier and was supported through our earlier purchases of inventory. We expect calendar
2011 fall season shipments as a whole to be relatively comparable to shipments reported for the
calendar 2010 fall season.
Gross profit increased in both dollars and as a percentage of net sales due primarily to the
increase in shipments as described above and to the non-recurrence of costs to expedite product,
which we incurred in the first quarter of fiscal 2011.
Footwear segment operating profit for the first quarter increased due primarily to increased
shipment volumes and related gross profit as well as improved efficiencies in SGA expense. The net
decrease in SGA expense reflected the effect of leveraging existing resources during fiscal 2012 to
support the Footwear and Accessories segments, a net decrease in payroll as well as a wide range of
other expenses.
Results of Operations Accessories segment
The Accessories segment, comprised of Foot Petals and Baggallini, encompasses the designing,
sourcing, marketing and distribution of a variety of accessory category products. These consumer
product offerings range from shoe and foot care products to handbags, tote bags and other travel
accessories. These products are sold predominately in North America through customers primarily in
the specialty and independent store, television shopping network, e-tailing/internet based retail,
upper tier department store, mass merchandising and discount store channels. Our business activity
with these customers is primarily replenishment in nature, with sales spread evenly throughout the
year. Since these two business acquisitions occurred during the third quarter of fiscal 2011,
there were no comparable financial results for first quarter in fiscal 2011.
Selected financial results for the first quarter of fiscal 2012 are shown below:
First Quarter | % of | |||||||
(all amounts are in 000s) | of Fiscal 2012 | Net Sales | ||||||
Net sales |
$ | 8,055 | 100.0 | |||||
Gross profit |
4,609 | 57.2 | ||||||
Operating profit |
1,789 | 22.2 |
Net sales for the first quarter included shipments primarily to customers in the specialty and
independent store, television shopping network, mass merchandising, department store, internet/E-
tailing based retail and other channels. Gross profits on shipments to these customers during the
period were consistent with our expectations for this business segment. Accessories segment
operating profit reflects SGA expenses incurred related to selling, marketing and distribution
activities, and costs incurred in corporate support and amortization expense on intangible assets,
which resulted from the acquisition of these businesses.
Results of Operations Unallocated Corporate Expenses
Certain corporate expenses deemed applicable to the Company as a whole were not allocated to any
business segment. Such costs included those associated with the Companys corporate and governance
functions, including the CEO, Chief Financial Officer and Board of Directors as well as such
expense areas as incentive bonus expense, stock compensation expense, pension expense, professional
fees, severance expense and other similar corporate expense areas. These unallocated costs are
shown below:
First Quarter | First Quarter | |||||||||||
(all amounts are in 000s) | of Fiscal 2012 | of Fiscal 2011 | Increase | |||||||||
Unallocated corporate expenses |
$ | 2,811 | $ | 1,876 | $ | 935 |
19
Table of Contents
The $935 thousand quarter-over-quarter increase in unallocated expense was due primarily to higher
incentive bonus expense applicable to individuals working in all areas of the Company, the net
effect of changes in the value of cash surrender assets held by the Company on certain insurance
policies and severance expense related to the anticipated closure of our leased-distribution
facility used in the Footwear segment.
Seasonality
Although our various product lines in our Footwear and Accessories segments are sold on a
year-round basis, the demand for specific products or styles within our Footwear segment is highly
seasonal. For example, the demand for gift-oriented slipper products is higher in the fall holiday
season than it is in the spring and summer seasons. As the timing of product shipments and other
events affecting the retail business may vary, results for any particular quarter may not be
indicative of results for the full fiscal year or for future comparable quarters. A majority of
our annual shipments are expected to continue to be seasonal in nature both in fiscal 2012 and the
foreseeable future.
Looking ahead to the remainder of Fiscal 2012 and beyond
Looking to the remainder of fiscal 2012 and beyond, our strategies are centered on growing market
share in existing channels; pursuing new retail opportunities; expanding our business
internationally; and continue growing through appropriate acquisitions. We have demonstrated our
footwear model over time can perform at or above levels consistent with top quartile performance
among our industry peers. We expect to continue to deliver performance that drives growth and
long-term shareholder value.
Liquidity and Capital Resources
Our only source of revenue and a primary source of cash flow comes from our operating activities,
in addition to funds available through our Revolving Credit Facility, as described further below in
the section captioned Credit Agreement, subject to its terms. When cash inflows are less than
cash outflows, we have access to funds under our Revolving Credit Facility. In addition, we can
and have obtained bank borrowings specific to business acquisitions. We may seek to finance future
capital investment programs through various methods, including, but not limited to, cash flow from
operations and borrowings under our current or additional credit facilities.
Our liquidity requirements arise from the funding of our working capital needs, which include
primarily: inventory; operating expenses; accounts receivable; funding of capital expenditures and
business acquisitions; payment of cash dividends and income tax; and repayment of our indebtedness.
Generally, most of our product purchases from third-party manufacturers are acquired on an open
account basis, and to a significantly lesser extent, through trade letters of credit. Such trade
letters of credit are drawn against our Revolving Credit Facility at the time of shipment of the
products and reduce the amount available under that facility when issued.
Cash and cash equivalents on hand were approximately $622 thousand at October 1, 2011, compared to
$7.0 million at October 2, 2010 and $9.1 million at July 2, 2011. Short-term investments were
approximately $2.9 million at October 1, 2011, $16.2 million at October 2, 2010 and $15.6 million
at July 2, 2011. The decrease in cash and short-term investments from October 2, 2010 to October,
2011 reflects the effect of the use of internal cash resources to fund business acquisitions made
in the third quarter of fiscal 2011.
The $2.9 million in short-term investments held at October 1, 2011 consisted of marketable
investment securities in the form of variable rate demand notes and were 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.
Operating Activities
Our operations used approximately $22.7 million and $21.4 million of cash during the first quarter
of fiscal 2012 and the first quarter of fiscal 2011, respectively. The operating cash flows during
these periods primarily reflected the impact of timing in our Footwear segment shipments and
inventory purchased in each of those periods as well as the timing of collections in accounts
receivable and payments for inventory purchases.
20
Table of Contents
Our working capital ratio, which is calculated by dividing total current assets by total current
liabilities, was 3.2:1 at October 1, 2011, 4.2:1 at October 2, 2010 and 3.6:1 at July 2, 2011. The
difference in this ratio from July 2, 2011 to October 1, 2011 reflected primarily the effect of
seasonal borrowings incurred during that period. The difference in this ratio from October 2, 2010
to October 1, 2011 reflects the use of cash to fund our acquisitions made in the third quarter of
fiscal 2011.
We anticipate that we will continue to fund our operations and meet our debt obligations in the
future by primarily using cash generated from operations.
Changes in the primary components of our working capital accounts for the first quarter of fiscal
2012 and the first quarter of fiscal 2011, respectively, were as follows:
| The increases in net accounts receivable of $24.3 million and $18.9 million, respectively, primarily reflected the seasonal nature of our Footwear segment. The difference between the change for the first quarter of 2012 and the change for the first quarter of fiscal 2011 reflected primarily the impact of increased shipments from both our Accessories and Footwear segments as well as the timing of customer collections and deductions. | ||
| Net inventories increased by $8.9 million and $14.7 million, respectively. The change for the first quarter of fiscal 2012 was in line with the seasonal nature of our Footwear segment. The change for the same period in fiscal 2011 reflects the seasonal nature as well as later timing in Footwear segment shipments. | ||
| Accounts payable decreased by $1.6 million and increased by $9.8 million, respectively. These changes were due primarily to the timing of purchases and payment for finished goods inventory in our Footwear segment and in line with the seasonal nature of that business. | ||
| Accrued expenses increased by $4.4 million and decreased by $1.4 million, respectively. The increase in accrued expenses in the first quarter of fiscal 2012 was primarily due to higher incentive bonus, income tax and dividend payable accruals. The decrease in accrued expenses during the first quarter of fiscal 2011 was primarily due to the payment during these periods of annual incentive bonuses, which had been accrued as of the end of fiscal 2010. |
Investing Activities
Our investing activities during the first quarter of fiscal 2012 and the first quarter of fiscal
2011 provided $11.9 million and $11.3 million in cash, respectively, with the liquidation of
short-term investments in order to fund the seasonal growth of our working capital assets, namely
accounts receivable and inventory.
Financing Activities
Financing activities during the first quarter of fiscal 2012 and the first quarter of fiscal 2011
provided $2.3 million and $110 thousand, in cash, respectively. During the first quarter in fiscal
2012, we borrowed $3 million from our Revolving Credit Facility in order to fund the growth of
accounts receivable and inventory associated with the seasonality of our Footwear segment and made
$714 thousand of principal payments on our long-term debt.
2012 Liquidity
We believe our sources of cash and cash equivalents, short-term investments, cash from operations
and funds available under our Revolving Credit Facility, as described below, will be adequate to
fund our operations, capital expenditures and payment of dividends through the remainder of fiscal
2012.
Credit Agreement
Under the terms of a bank facility (Bank Facility) entered into on March 1, 2011, The Huntington
National Bank (Huntington) is obligated to advance funds to us for a period of three years under
a revolving credit facility (Revolving Credit Facility). We may have outstanding indebtedness of
up to $5 million under the Revolving Credit Facility from January through June of each calendar
year and up to $10 million from July through December of each calendar year. The availability
under the Revolving Credit Facility includes a $1.5 million sub-facility for letters of credit.
Under the terms of the Bank Facility, we may request that Huntington increase the Revolving Credit
Facility by an amount of up to $5 million. The termination and maturity date of the Revolving
Credit Facility is
March 1, 2014. The interest rate on the Revolving Credit Facility is a rate equal to LIBOR plus
1.75%. Additionally, the Company will pay a quarterly fee equal to 0.25% of the daily average
unused amount of the Revolving Credit Facility, and paid a one-time $25 thousand facility fee in
connection with the Revolving Credit Facility. This facility fee is being amortized over the term
of the Revolving Credit Facility. Further, the Revolving Credit Facility must not have any
outstanding borrowings for at least 30 consecutive days commencing on July 1 and continuing through
June 30 of the following year.
21
Table of Contents
Under the terms of the Bank Facility, Huntington provided us $30 million under a term loan facility
(the Term Loan Facility). Under the Term Loan Facility, Huntington disbursed $15 million on
March 1, 2011 and the remaining $15 million on March 31, 2011. We began paying monthly principal
payments in the amount of $357 thousand, together with accrued interest, beginning on April 1,
2011, with the remaining outstanding balance and accrued interest due and payable on March 1, 2016.
The interest rate on the Term Loan Facility is a rate equal to LIBOR plus 1.85%. In conjunction
with the Bank Facility, we entered into an interest rate contract that provided for a fixed
interest rate of 3.94% on a notional amount of at least 50% of the outstanding principal balance of
the term loan.
We paid Huntington a one-time facility commitment fee of $75 thousand in connection with the Term
Loan Facility; this fee is being amortized over the term of the term loan. The applicable interest
rate on the Term Loan Facility at October 1, 2011 was 2.09%, assuming a 30-day LIBOR rate of 0.24%
on that date.
Under the terms of the Bank Facility, we are required to satisfy certain financial covenants,
including (a) satisfying a minimum fixed charge coverage ratio test of not less than 1.1 to 1.0,
which is calculated quarterly on a trailing 12-month basis beginning with the fiscal quarter ending
on or nearest to March 31, 2012, (b) satisfying a funded debt leverage ratio test of not greater
than 2.25 to 1.00, which is calculated quarterly beginning with the fiscal quarter ending on or
nearest to March 31, 2012 and (c) maintaining a consolidated net worth of at least $52 million,
increased annually by an amount equal to 50% of the Companys consolidated net income subsequent to
July 2, 2011. At October 1, 2011, we were in compliance with all these financial covenants.
Other Long-Term Indebtedness and Current Installments of Long-Term Debt
At October 1, 2011, we reported $4.3 million as the current portion of long-term debt. The term
loan has a seven-year amortization schedule, and we are obligated to make interest and principal
payments over the five-year term of the loan, with a final payment for the balance remaining due at
the end of the five-year term.
During fiscal 2011 as noted above, we entered into an interest rate contract, with an initial
notional amount of $15 million, which extends through the five-year period of the term loan
obtained in fiscal 2011 and used to fund our business acquisitions. This interest rate contract
has a fixed interest rate of 3.94% and extends over the period of the term loan with a notional
amount that will adjust over time to an amount approximating fifty percent of the outstanding term
loan balance. This interest rate contract has been accounted for as an effective cash flow hedge
for a portion of the term loan.
Contractual Obligations
There have been no material changes to Contractual Obligations since the end of fiscal 2011,
other than routine payments and obligations under the Bank Facility. For more detail on our
contractual obligations, please refer to the discussion under the caption Liquidity and Capital
Resources Other Matters Impacting Liquidity and Capital Resources Contractual Obligations in
Item 7 Managements Discussion and Analysis of Financial Condition and Results of
Operations of Part II of our 2011 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 sometime 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.
22
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 first quarter of fiscal 2012, we recognized favorable reserve
adjustments that benefited our earnings before income tax by $207 thousand, related to our
Footwear segment customer incentive reserves of $2.4 million established at July 2, 2011.
During the first quarter of fiscal 2011, we recognized favorable reserve adjustments that
benefited our earnings before income tax by $386 thousand related to our Footwear segment
customer incentive reserves of $1.8 million established at July 3, 2010.
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 quarter of fiscal 2012 or during the first
quarter of fiscal 2011.
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 quarter of fiscal 2012 and the first quarter of fiscal 2011, 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 quarter of fiscal 2012 or at the end of fiscal 2011 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. |
23
Table of Contents
These assumptions are reviewed and reset as appropriate at the pension measurement date commensurate with the end of our fiscal year, and we monitor these assumptions over the course of the fiscal year. |
e) | We review the carrying value of our long-lived assets including property, plant and equipment and intangible assets with finite useful lives for impairment whenever events or change in circumstances warrant such review. Impairment testing involves a comparison of the sum of the undiscounted future cash flows of the asset or asset group to its respective carrying amount. If the sum of the undiscounted future cash flows exceeds the carrying amount, then no impairment exists. If the carrying amount exceeds the sum of the undiscounted future cash flows, then a second step is performed to determine the amount of impairment, which would be recorded as an impairment charge in our consolidated statements of income. There were no impairment indicators present during the first quarter of fiscal 2012. |
Goodwill and intangible assets with indefinite lives are not amortized, but instead will be tested for impairment annually, during the Companys second fiscal quarter, or more frequently if events or changes in circumstances indicate that impairment may be present. Application of goodwill impairment testing involves judgment, including but not limited to, the identification of reporting units and estimating the fair value of each reporting unit. A reporting unit is defined as an operating segment or one level below an operating segment. We test goodwill at the reporting level. The goodwill impairment test consists of comparing the fair value of each reporting unit, determined using discounted cash flows, to each reporting units respective carrying value. If the estimated fair value of a reporting unit exceeds its carrying value, there is no impairment. If the carrying amount of the reporting unit exceeds its estimated fair value, goodwill impairment is indicated. The amount of the impairment is determined by comparing the fair value of the net assets of the reporting unit, excluding goodwill, to its estimated fair value, with the difference representing the implied fair value of the goodwill. If the implied fair value of the goodwill is lower than its carrying value, the difference is recorded as an impairment charge in the consolidated statements of operations. No impairment indicators were present with regard to our goodwill or intangible assets with indefinite useful lives during the first quarter of fiscal 2012. |
f) | We manage interest rate volatility on our floating interest-rate term debt borrowing. As a result of interest rate fluctuations, cash flow requirements on floating rate borrowings increase or decrease and impact both expected cash outflows as well as interest expense over time. We use a derivative instrument, an interest rate contract, as part of our interest rate risk management strategy to manage cash flow exposure from changes in interest rates. An interest rate contract generally involves the exchange of fixed-rate and variable-rate interest payments between two parties, based on a common notional principal amount and maturity date. Under an interest rate contract, we agree with another party to exchange, at specified intervals, the difference between fixed-rate and floating-rate interest amounts, which is calculated based on an agreed-upon notional amount. A derivative instrument deemed highly effective qualifies for hedge accounting treatment under generally accepted accounting standards, and accordingly, the effective portion of unrea7lized gains and losses on interest rate swaps is deferred as a component of accumulated other comprehensive income (loss). Any deferred portion is a component of interest expense when we incur the interest expense. Any ineffective portion is directly recorded as a component of interest expense. |
At the end of each quarter, fair value of the interest rate contract is measured and re-tested under generally accepted accounting standard criteria to determine and/or reconfirm status with regards to being an effective cash flow hedge. If determined to be effective, any gain or loss outstanding on the interest rate contract is recorded as an asset or liability, with an offset to other comprehensive income (loss). If deemed ineffective as a cash flow hedge, any gain or loss on the interest rate contract is recognized immediately in earnings. |
g) | There are various other accounting policies that also require managements judgment. For an additional discussion of all of our significant accounting policies, please see Note (1) of the Notes to Consolidated Financial Statements in Item 8 Financial Statements and Supplementary Data. of Part II of our 2011 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 16-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.
24
Table of Contents
ITEM 3 | Quantitative and Qualitative Disclosures About Market Risk |
Market Risk Sensitive Instruments Foreign Currency
During fiscal 2011 and through the first quarter of fiscal 2012, 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 first quarter of fiscal 2012.
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 October 1, 2011, we had $3
million in borrowings outstanding under our Revolving Credit Facility. We had $27.9 million
outstanding under the Term Loan Facility. We have an interest rate contract with Huntington that
effectively fixes the interest rate at 3.94% on fifty percent of the loan balance and an interest
rate equal to LIBOR plus 1.85% that applies to the remainder of the loan balance under the Term
Loan Facility.
Interest rate changes can impact interest expense on the unhedged portion of the term loan, the
level of earnings from short-term investments and the measurement of pension liabilities, which
measurement is performed on an annual basis.
ITEM 4 | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
With the participation of the President and Chief Executive Officer (the principal executive
officer) and the Senior Vice President-Finance and Chief Financial Officer (the principal financial
officer), the Companys management has evaluated the effectiveness of the Companys disclosure
controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as
amended (the Exchange Act), as of the end of the quarterly period covered by this Quarterly
Report on Form 10-Q. Based on that evaluation, the Companys President and Chief Executive Officer
and the Companys Senior Vice President-Finance and Chief Financial Officer have concluded that:
a. | information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and the other reports that the Company files or submits under the Exchange Act would be accumulated and communicated to the Companys management, including its principal executive officer and its principal financial officer, as appropriate to allow timely decisions regarding required disclosure; |
b. | information required to be disclosed by the Company in this Quarterly Report on Form 10-Q and the other reports that the Company files or submits under the Exchange Act would be recorded, processed, summarized and reported within the time periods specified in the SECs rules and forms; and |
c. | the Companys disclosure controls and procedures were effective as of the end of the quarterly period covered by this Quarterly Report on Form 10-Q. |
Changes in Internal Control Over Financial Reporting
There were no changes in the Companys internal control over financial reporting (as defined in
Rule 13a-15(f) under the Exchange Act) that occurred during the Companys quarterly period ended
October 1, 2011, that have materially affected, or are reasonably likely to materially affect, the
Companys internal control over financial reporting.
25
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
2011 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 2011 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 October 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. (Removed and Reserved) | ||
Item 5. Other Information-Submission of Matters to a Vote of Security Holders |
R.G. Barry Corporations 2011 Annual Meeting Shareholders was held on November 3, 2011. A
total of 11,052,515 common shares were outstanding and entitled to
vote at the Annual Meeting. At the Annual Meeting, 9,983,377 common
shares, or 90.3% of the outstanding common shares entitled to vote,
were represented in person or by proxy. The Final voting results for each
proposal are set forth below:
Proposal #001- The shareholders elected the following individuals
to serve as directors for two-year terms expiring at the 2013 Annual
Meeting of Shareholders:
David Lauer For: 7,085,834 Withheld: 147,683 Broker Non-Votes: 2,749,860
David Nichols For: 7,189,010 Withheld: 44,507 Broker Non-Votes: 2,749,860
Thomas Von Lehman For: 6,871,991 Withheld: 361,526 Broker Non-Votes: 2,749,860
Gordon Zacks For: 6,313,464 Withheld: 920,053 Broker Non-Votes: 2,749,860
Proposal #002: Recommend frequency of advisory resolution on
executive compensation
For 1 Year: 6,864,795 For 2 Years: 24,865 For
3 Years: 339,463 Abstained: 4,394 Broker Non-Votes: 2,749,860
Proposal #003: To approve advisory resolution on executive
compensation
For: 6,857,739 Against: 363,979 Abstain: 11,799 Broker
Non-Votes: 2,749,860
Proposal #004: Ratify KPMG LLP as independent registered public
accountant
For: 9,677,313 Against: 276,866 Abstain: 29,198 Broker
Non-votes: None
In
addition to the individuals elected at the 2011 Annual Meeting of
Shareholders, directors whose terms of office continued after the
Annual Meeting are (i) Nicholas DiPaolo, Janice Page, Greg Tunney and
Harvey Weinberg, all of whose terms expire at the 2012 Annual Meeting
of Shareholders.
In accordance with the Board of Directorss recommendation
and the voting results on Proposal 2, the Board of Directors had determined
that R.G. Barry Corporation will hold future votes on executive
compensation annually.
Item 6. | Exhibits | |
See Index to Exhibits at page 28 and 29. |
26
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: November 9, 2011 | By: | /s/ José G. Ibarra | ||
José G. Ibarra | ||||
Senior Vice President Finance and Chief Financial Officer (Principal Financial Officer) (Duly Authorized Officer) |
27
Table of Contents
R.G. BARRY CORPORATION
INDEX TO EXHIBITS
Exhibit No. | Description | Location | |||
4.1
|
First Amendment to the Rights Agreement, dated as of August 15, 2011, among R.G. Barry Corporation, The Bank of New York Mellon Corporation, as the former rights agent, and Broadridge Corporate Issuer Solutions, Inc., as the successor rights agent, relating to the Rights Agreement, dated as of May 1, 2009. | Incorporated herein by reference to Exhibit 4.1 to the Current Report on 8-K of R.G. Barry Corporation dated and filed on August 19, 2011 (SEC File No. 001-08769) | |||
10.1
|
Distribution Agreement, entered into as of February 13, 2009, between R.G. Barry Corporation and UTi, Integrated Logistics, Inc. (now known as UTi Integrated Logistics, LLC.) * | Filed herewith * | |||
10.2
|
Amendment One to Distribution Agreement, dated as of August 22, 2011 between R.G. Barry Corporation and as of August 24, 2011 by UTi, Integrated Logistics, LLC (formerly known as UTi Integrated Logistics, Inc.) * | Filed herewith * | |||
10.3
|
Form of Performance-Based Restricted Stock Unit and Performance-Based Cash Award Agreement under the R.G. Barry Corporation Amended and Restated 2005 Long-Term Incentive Plan, entered into to evidence grant of a performance-based award of resstricted stock units and performance-based cash awards effective as of September 26, 2011 | Filed herewith | |||
10.4
|
Fiscal 2012 R.G. Barry Management Bonus Plan | Incorporated herein by reference to Exhibit 10.36 to the Annual Report on Form 10-K of R.G. Barry Corporation for the fiscal year ended July 2, 2011 (SEC File No. 001-08769) | |||
31.1
|
Rule 13a-14(a)/15d-14(a) Certifications (Principal Executive Officer) | Filed herewith | |||
31.2
|
Rule 13a-14(a)/15d-14(a) Certifications (Principal Financial Officer) | Filed herewith | |||
32.1
|
Section 1350 Certifications (Principal Executive Officer and Principal Financial Officer) | Furnished herewith | |||
101.INS
|
XBRL Instance Document | Submitted electronically herewith # | |||
101.SCH
|
XBRL Taxonomy Extension Schema Document | Submitted electronically herewith # | |||
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document | Submitted electronically herewith # | |||
101.LAB
|
XBRL Taxonomy Extension Label Linkbase Document | Submitted electronically herewith # | |||
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document | Submitted electronically herewith # | |||
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document | Submitted electronically herewith # |
* | Certain portions of this Exhibit have been omitted based upon a request for confidential treatment filed with the Securities and Exchange Commission (the SEC). The non-public information has been filed separately with the SEC in connection with that request. |
28
Table of Contents
R.G. BARRY CORPORATION
INDEX TO EXHIBITS
(continued)
INDEX TO EXHIBITS
(continued)
# Attached as Exhibit 101 to this Quarterly Report on Form 10-Q of R.G. Barry Corporation are the
following documents formatted in XBRL (eXtensible Business Reporting Language):
(i) | Condensed Consolidated Balance Sheets at October 1, 2011 and July 2, 2011; | ||
(ii) | Condensed Consolidated Statements of Income for the first quarter of fiscal 2012 and the first quarter of fiscal 2011; | ||
(iii) | Condensed Consolidated Statements of Cash Flows for the first quarter of fiscal 2012 and the first quarter of fiscal 2011; and | ||
(iv) | Notes to Condensed Consolidated Financial Statements for the first quarter of fiscal 2012 and the first quarter of fiscal 2011 |
In accordance with Rule 406T of Regulation S-T, the XBRL related documents in Exhibit 101 to
this Quarterly Report on Form 10-Q are deemed not filed as part of a registration statement or
prospectus for purposes of Section 11 or Section 12 of the Securities Act of 1933, as amended; are
deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended; and
otherwise are not subject to liability under those Sections.
29