Attached files
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EXCEL - IDEA: XBRL DOCUMENT - Maidenform Brands, Inc. | Financial_Report.xls |
EX-32.2 - EX-32.2 - Maidenform Brands, Inc. | a11-25902_1ex32d2.htm |
EX-31.2 - EX-31.2 - Maidenform Brands, Inc. | a11-25902_1ex31d2.htm |
EX-32.1 - EX-32.1 - Maidenform Brands, Inc. | a11-25902_1ex32d1.htm |
EX-31.1 - EX-31.1 - Maidenform Brands, Inc. | a11-25902_1ex31d1.htm |
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 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: 001-32568
MAIDENFORM BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
|
06-1724014 |
(State or other jurisdiction of incorporation or organization) |
|
(I.R.S. Employer Identification No.) |
|
|
|
485F US Hwy 1 South, Iselin, NJ |
|
08830 |
(Address of principal executive offices) |
|
(Zip Code) |
(732) 621-2500
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
Large accelerated filer o |
|
Accelerated filer x |
|
|
|
Non-accelerated filer o |
|
Smaller reporting company o |
(Do not check if smaller |
|
|
reporting company) |
|
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date.
Class |
|
Outstanding at November 4, 2011 |
Common Stock, $0.01 par value per share |
|
23,499,442 shares |
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
(unaudited)
|
|
October 1, |
|
January 1, |
| ||
|
|
2011 |
|
2011 |
| ||
Assets |
|
|
|
|
| ||
Current assets |
|
|
|
|
| ||
Cash and cash equivalents |
|
$ |
51,768 |
|
$ |
73,221 |
|
Accounts receivable, net |
|
85,323 |
|
41,431 |
| ||
Inventories |
|
123,728 |
|
89,340 |
| ||
Deferred income taxes |
|
14,477 |
|
14,477 |
| ||
Prepaid expenses and other current assets |
|
14,029 |
|
7,659 |
| ||
Total current assets |
|
289,325 |
|
226,128 |
| ||
Property, plant and equipment, net |
|
27,581 |
|
25,898 |
| ||
Goodwill |
|
7,162 |
|
7,162 |
| ||
Intangible assets, net |
|
93,038 |
|
93,855 |
| ||
Other non-current assets |
|
374 |
|
540 |
| ||
Total assets |
|
$ |
417,480 |
|
$ |
353,583 |
|
|
|
|
|
|
| ||
Liabilities and stockholders equity |
|
|
|
|
| ||
Current liabilities |
|
|
|
|
| ||
Current portion of long-term debt |
|
$ |
1,100 |
|
$ |
1,100 |
|
Accounts payable |
|
57,693 |
|
30,714 |
| ||
Accrued expenses and other current liabilities |
|
23,739 |
|
26,616 |
| ||
Total current liabilities |
|
82,532 |
|
58,430 |
| ||
Long-term debt |
|
68,225 |
|
69,050 |
| ||
Deferred income taxes |
|
27,683 |
|
24,657 |
| ||
Other non-current liabilities |
|
9,888 |
|
10,784 |
| ||
Total liabilities |
|
188,328 |
|
162,921 |
| ||
|
|
|
|
|
| ||
Commitments and contingencies (Note 10) |
|
|
|
|
| ||
|
|
|
|
|
| ||
Stockholders equity |
|
|
|
|
| ||
Preferred stock - $0.01 par value; 10,000,000 shares authorized and none issued and outstanding |
|
|
|
|
| ||
Common stock - $0.01 par value; 100,000,000 shares authorized; 24,399,746 shares issued and 22,913,818 outstanding at October 1, 2011 and 24,399,746 shares issued and 22,781,740 outstanding at January 1, 2011 |
|
244 |
|
244 |
| ||
Additional paid-in capital |
|
77,407 |
|
76,091 |
| ||
Retained earnings |
|
184,338 |
|
148,641 |
| ||
Accumulated other comprehensive loss |
|
(4,317 |
) |
(4,218 |
) | ||
Treasury stock, at cost (1,485,928 shares at October 1, 2011 and 1,618,006 shares at January 1, 2011) |
|
(28,520 |
) |
(30,096 |
) | ||
Total stockholders equity |
|
229,152 |
|
190,662 |
| ||
Total liabilities and stockholders equity |
|
$ |
417,480 |
|
$ |
353,583 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except share and per share amounts)
(unaudited)
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
October 1, |
|
October 2, |
|
October 1, |
|
October 2, |
| ||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
$ |
148,224 |
|
$ |
145,769 |
|
$ |
481,811 |
|
$ |
438,092 |
|
Cost of sales |
|
100,798 |
|
92,975 |
|
319,587 |
|
279,309 |
| ||||
Gross profit |
|
47,426 |
|
52,794 |
|
162,224 |
|
158,783 |
| ||||
Selling, general and administrative expenses |
|
31,517 |
|
31,620 |
|
98,111 |
|
94,036 |
| ||||
Litigation settlement |
|
|
|
|
|
6,750 |
|
|
| ||||
Operating income |
|
15,909 |
|
21,174 |
|
57,363 |
|
64,747 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Interest expense, net |
|
227 |
|
243 |
|
689 |
|
798 |
| ||||
Income before provision for income taxes |
|
15,682 |
|
20,931 |
|
56,674 |
|
63,949 |
| ||||
Income tax expense |
|
5,492 |
|
8,143 |
|
20,407 |
|
25,394 |
| ||||
Net income |
|
$ |
10,190 |
|
$ |
12,788 |
|
$ |
36,267 |
|
$ |
38,555 |
|
Basic earnings per common share |
|
$ |
0.44 |
|
$ |
0.57 |
|
$ |
1.59 |
|
$ |
1.70 |
|
Diluted earnings per common share |
|
$ |
0.44 |
|
$ |
0.55 |
|
$ |
1.55 |
|
$ |
1.65 |
|
Basic weighted average number of shares outstanding |
|
22,904,002 |
|
22,606,900 |
|
22,834,252 |
|
22,723,196 |
| ||||
Diluted weighted average number of shares outstanding |
|
23,371,945 |
|
23,214,735 |
|
23,332,432 |
|
23,406,037 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
|
|
Nine Months Ended |
| ||||
|
|
October 1, |
|
October 2, |
| ||
|
|
2011 |
|
2010 |
| ||
Cash flows from operating activities |
|
|
|
|
| ||
Net income |
|
$ |
36,267 |
|
$ |
38,555 |
|
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
| ||
Depreciation and amortization |
|
3,414 |
|
2,624 |
| ||
Amortization of intangible assets |
|
817 |
|
835 |
| ||
Amortization of deferred financing costs |
|
133 |
|
138 |
| ||
Stock-based compensation |
|
2,972 |
|
2,238 |
| ||
Deferred income taxes |
|
3,014 |
|
2,361 |
| ||
Excess tax benefits related to stock-based compensation |
|
(1,078 |
) |
(7,789 |
) | ||
Bad debt expense |
|
55 |
|
(140 |
) | ||
Other non-cash items |
|
221 |
|
1,509 |
| ||
Net changes in operating assets and liabilities |
|
|
|
|
| ||
Accounts receivable |
|
(44,051 |
) |
(31,274 |
) | ||
Inventories |
|
(34,935 |
) |
(23,272 |
) | ||
Prepaid expenses and other current and non-current assets |
|
(3,425 |
) |
(859 |
) | ||
Accounts payable |
|
27,003 |
|
12,893 |
| ||
Accrued expenses and other current and non-current liabilities |
|
(3,989 |
) |
5,785 |
| ||
Income taxes payable |
|
(1,961 |
) |
3,784 |
| ||
Net cash (used in) provided by operating activities |
|
(15,543 |
) |
7,388 |
| ||
Cash flows from investing activities |
|
|
|
|
| ||
Capital expenditures |
|
(4,848 |
) |
(4,560 |
) | ||
Net cash used in investing activities |
|
(4,848 |
) |
(4,560 |
) | ||
Cash flows from financing activities |
|
|
|
|
| ||
Term loan repayments |
|
(825 |
) |
(16,825 |
) | ||
Proceeds from stock options exercised |
|
1,521 |
|
2,454 |
| ||
Excess tax benefits related to stock-based compensation |
|
1,078 |
|
7,789 |
| ||
Payments of employee withholding taxes related to equity awards |
|
(1,286 |
) |
(896 |
) | ||
Purchase of common stock for treasury |
|
(1,961 |
) |
(32,352 |
) | ||
Payments of capital lease obligations |
|
(208 |
) |
(69 |
) | ||
Net cash used in financing activities |
|
(1,681 |
) |
(39,899 |
) | ||
Effects of exchange rate changes on cash |
|
619 |
|
(173 |
) | ||
Net decrease in cash |
|
(21,453 |
) |
(37,244 |
) | ||
Cash and cash equivalents |
|
|
|
|
| ||
Beginning of period |
|
73,221 |
|
89,159 |
| ||
End of period |
|
$ |
51,768 |
|
$ |
51,915 |
|
|
|
|
|
|
| ||
Supplementary disclosure of cash flow information |
|
|
|
|
| ||
Cash paid during the period |
|
|
|
|
| ||
Interest |
|
$ |
730 |
|
$ |
743 |
|
Income taxes |
|
$ |
19,245 |
|
$ |
19,123 |
|
|
|
|
|
|
| ||
Supplemental schedule of non-cash investing and financing activities |
|
|
|
|
| ||
Treasury stock issued related to equity award activity |
|
$ |
4,824 |
|
$ |
12,058 |
|
The accompanying notes are an integral part of these condensed consolidated financial statements.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(in thousands, except share and per share amounts)
(unaudited)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
Maidenform Brands, Inc. and its subsidiaries (the Company, we, us or our) design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell our products through multiple distribution channels, including department stores and national chain stores (including third party distributors and independent stores), mass merchants (including warehouse clubs), and other (including specialty retailers, off-price retailers and licensees). In addition, we operated 75 retail outlet stores and four kiosks and carts as of October 1, 2011 and 73 retail outlet stores and four kiosks and carts as of October 2, 2010, and sold products on our websites.
In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments necessary to state fairly our financial position at October 1, 2011, the results of our operations for the three and nine-month periods ended October 1, 2011 and October 2, 2010, and cash flows for the nine months ended October 1, 2011 and October 2, 2010. These adjustments consist of normal recurring adjustments. Operating results for the three and nine-month periods ended October 1, 2011 are not necessarily indicative of the results that may be expected for any other future interim period or for a full fiscal year. The condensed consolidated balance sheet at January 1, 2011 has been derived from our audited consolidated financial statements at that date, but does not include all disclosures required by accounting principles generally accepted in the United States of America (GAAP).
These condensed consolidated financial statements have been prepared in accordance with Article 10 of Regulation S-X promulgated by the Securities and Exchange Commission (SEC). Accordingly, certain information and disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC. The financial statements included herein should be read in conjunction with our Annual Report on Form 10-K for the year ended January 1, 2011.
We consider all highly liquid investments that have original maturities of three months or less to be cash equivalents. Cash and cash equivalents, accounts receivable, accounts payable and accrued expenses are reflected at fair value because of the short-term maturity of these instruments. The carrying amount of long-term debt at October 1, 2011 and January 1, 2011 approximates fair value as a result of the variable interest rates being accrued and paid on our debt.
2. DEBT
|
|
October 1, |
|
January 1, |
| ||
|
|
2011 |
|
2011 |
| ||
Long-term debt |
|
|
|
|
| ||
Term loan facility |
|
$ |
69,325 |
|
$ |
70,150 |
|
Current maturities of long-term debt |
|
1,100 |
|
1,100 |
| ||
Non-current portion of long-term debt |
|
$ |
68,225 |
|
$ |
69,050 |
|
At October 1, 2011, we had $69,325 outstanding under our term loan, and $0 outstanding under our revolving loan with approximately $49,325 available for borrowings, after giving effect to $675 of outstanding letters of credit. We use the letters of credit as collateral for our workers compensation insurance programs and bonds issued on our behalf to secure our obligation to pay customs duties. Principal payments on the term loan are payable in quarterly installments of $275 with all remaining amounts due in 2014. We are permitted to voluntarily prepay all or part of the principal balance of the term loan with such prepayments applied to scheduled principal payments in inverse order of their maturity. In addition, subject to specified exceptions and limitations and reinvesting options, partial prepayments of outstanding loans may be required with the proceeds of asset sales, sales of equity and debt securities, and with certain insurance and condemnation proceeds.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share amounts)
(unaudited)
Payments due on long-term debt during each of the five years subsequent to October 1, 2011, are as follows:
Balance of fiscal 2011 |
|
$ |
275 |
|
In fiscal 2012 |
|
1,100 |
| |
In fiscal 2013 |
|
1,100 |
| |
In fiscal 2014 |
|
66,850 |
| |
In fiscal 2015 |
|
|
| |
Thereafter |
|
|
|
3. STOCKHOLDERS EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
| ||||||
|
|
Common |
|
Treasury |
|
Additional |
|
|
|
Other |
|
Total |
| ||||||||||
|
|
Stock |
|
Stock |
|
Paid-in |
|
Retained |
|
Comprehensive |
|
Stockholders |
| ||||||||||
|
|
Shares |
|
$ |
|
Shares |
|
$ |
|
Capital |
|
Earnings |
|
Loss |
|
Equity |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at January 1, 2011 |
|
24,399,746 |
|
$ |
244 |
|
(1,618,006 |
) |
$ |
(30,096 |
) |
$ |
76,091 |
|
$ |
148,641 |
|
$ |
(4,218 |
) |
$ |
190,662 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
2,972 |
|
|
|
|
|
2,972 |
| ||||||
Purchase of common stock for treasury |
|
|
|
|
|
(73,397 |
) |
(1,961 |
) |
|
|
|
|
|
|
(1,961 |
) | ||||||
Equity award activity |
|
|
|
|
|
205,475 |
|
3,537 |
|
(1,656 |
) |
(570 |
) |
|
|
1,311 |
| ||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Net income |
|
|
|
|
|
|
|
|
|
|
|
36,267 |
|
|
|
36,267 |
| ||||||
Changes during the period |
|
|
|
|
|
|
|
|
|
|
|
|
|
(99 |
) |
(99 |
) | ||||||
Total comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,168 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Balance at October 1, 2011 |
|
24,399,746 |
|
$ |
244 |
|
(1,485,928 |
) |
$ |
(28,520 |
) |
$ |
77,407 |
|
$ |
184,338 |
|
$ |
(4,317 |
) |
$ |
229,152 |
|
4. STOCK REPURCHASE PROGRAM
Our stock repurchase program allows us to repurchase our shares from time to time pursuant to existing rules and regulations and other parameters approved by the Board of Directors. At January 1, 2011, we had $17,648 remaining available under our $50,000 stock repurchase program authorized in February 2010. During March 2011, we repurchased $1,961 of common stock at an average price per share of $26.72.
5. STOCK-BASED COMPENSATION
On May 26, 2011, at our annual meeting of stockholders, our stockholders approved the amendment of our 2009 Omnibus Incentive Plan (the Plan). In connection with the amendment, the shares set aside and reserved for issuance under the Plan were increased by 4,300,000 shares to 6,450,000 shares. The Plan provides for a variety of vesting dates with the majority of the awards vesting in annual increments of 25% of the number of awards granted over the first four years of the grant and expiring between seven to ten years after the date of grant. At October 1, 2011, a total of 4,551,873 shares were available for future grants under the Plan.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share amounts)
(unaudited)
6. COMPREHENSIVE INCOME
The changes in comprehensive income are as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
October 1, |
|
October 2, |
|
October 1, |
|
October 2, |
| ||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
10,190 |
|
$ |
12,788 |
|
$ |
36,267 |
|
$ |
38,555 |
|
Foreign currency translation adjustments (a) |
|
(1,090 |
) |
845 |
|
(200 |
) |
(206 |
) | ||||
Benefit plan deferrals, net of tax (b) |
|
34 |
|
26 |
|
101 |
|
77 |
| ||||
Comprehensive income |
|
$ |
9,134 |
|
$ |
13,659 |
|
$ |
36,168 |
|
$ |
38,426 |
|
(a) No tax benefit has been provided on the foreign currency translation adjustment due to managements decision to reinvest the earnings of our foreign subsidiaries indefinitely.
(b) Deferred income tax liabilities of $23 and $17 provided for the three-month periods ended October 1, 2011 and October 2, 2010, respectively. Deferred income tax liabilities of $68 and $51 provided for the nine-month periods ended October 1, 2011 and October 2, 2010, respectively.
7. INCOME TAXES
We review our annual effective tax rate on a quarterly basis and we make necessary changes if information or events warrant such changes. The annual effective tax rate is forecasted quarterly using actual historical information and forward-looking estimates. The estimated annual effective tax rate may fluctuate due to changes in forecasted annual operating income and changes to actual or forecasted permanent book to tax differences. The annual effective tax rate could also be impacted by discrete events that may occur on a quarterly basis. Examples of such discrete events are changes in valuation allowances, future tax settlements with state, federal or foreign tax authorities or impacts from state, federal or foreign tax law changes.
Our effective income tax rate for the three and nine-month periods ended October 1, 2011 was 35.0% and 36.0%, respectively, as compared to an effective income tax rate for the three and nine-month periods ended October 2, 2010 of 38.9% and 39.7%, respectively. The lower effective income tax rate in the three and nine-month periods ended October 1, 2011 was primarily the result of discrete income tax benefits. During the third quarter of 2011, we recorded a benefit from the utilization of research and development credits and during the second quarter of 2011 recorded a benefit related to a New Jersey tax law change.
8. SEGMENT INFORMATION
We identified our two reportable segments as wholesale and retail. Our wholesale sales are to department stores and national chain stores (including third party distributors servicing similar customers and independent stores), mass merchants (including warehouse clubs), specialty retailers, and off-price retailers, while our retail segment reflects our operations from our retail outlet stores, kiosk and carts, and internet operations. Royalty income is also included in our wholesale segment. Within our reportable segments, wholesale includes corporate-related assets. Each segments results include the costs directly related to the segments net sales and all other costs allocated based on the relationship to consolidated net sales to support each segments net sales. Intersegment sales and transfers are recorded at cost and treated as a transfer of inventory.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share amounts)
(unaudited)
Information on segments and reconciliation to income before provision for income taxes, are as follows:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
October 1, |
|
October 2, |
|
October 1, |
|
October 2, |
| ||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net sales |
|
|
|
|
|
|
|
|
| ||||
Wholesale |
|
$ |
130,271 |
|
$ |
128,610 |
|
$ |
436,015 |
|
$ |
395,127 |
|
Retail |
|
17,953 |
|
17,159 |
|
45,796 |
|
42,965 |
| ||||
Total |
|
$ |
148,224 |
|
$ |
145,769 |
|
$ |
481,811 |
|
$ |
438,092 |
|
|
|
|
|
|
|
|
|
|
| ||||
Operating income |
|
|
|
|
|
|
|
|
| ||||
Wholesale (a) |
|
$ |
13,208 |
|
$ |
18,960 |
|
$ |
54,439 |
|
$ |
61,962 |
|
Retail |
|
2,701 |
|
2,214 |
|
2,924 |
|
2,785 |
| ||||
Operating income |
|
15,909 |
|
21,174 |
|
57,363 |
|
64,747 |
| ||||
Interest expense, net |
|
227 |
|
243 |
|
689 |
|
798 |
| ||||
Income before provision for income taxes |
|
$ |
15,682 |
|
$ |
20,931 |
|
$ |
56,674 |
|
$ |
63,949 |
|
|
|
|
|
|
|
|
|
|
| ||||
Depreciation and amortization |
|
|
|
|
|
|
|
|
| ||||
Wholesale |
|
$ |
1,118 |
|
$ |
939 |
|
$ |
3,141 |
|
$ |
3,971 |
|
Retail |
|
337 |
|
335 |
|
1,090 |
|
920 |
| ||||
Total |
|
$ |
1,455 |
|
$ |
1,274 |
|
$ |
4,231 |
|
$ |
4,891 |
|
|
|
|
|
|
|
|
|
|
| ||||
Net sales by geographic area |
|
|
|
|
|
|
|
|
| ||||
United States |
|
$ |
134,104 |
|
$ |
132,086 |
|
$ |
437,662 |
|
$ |
402,036 |
|
International (b) |
|
14,120 |
|
13,683 |
|
44,149 |
|
36,056 |
| ||||
Total |
|
$ |
148,224 |
|
$ |
145,769 |
|
$ |
481,811 |
|
$ |
438,092 |
|
|
|
|
|
|
|
|
|
|
| ||||
Intercompany sales from wholesale to retail |
|
$ |
4,149 |
|
$ |
4,310 |
|
$ |
11,322 |
|
$ |
11,714 |
|
|
|
October 1, |
|
January 1, |
|
|
|
|
|
| ||
|
|
2011 |
|
2011 |
|
|
|
|
|
| ||
Total assets |
|
|
|
|
|
|
|
|
|
| ||
Wholesale |
|
$ |
389,000 |
|
$ |
325,827 |
|
|
|
|
|
|
Retail |
|
28,480 |
|
27,756 |
|
|
|
|
|
| ||
Total |
|
$ |
417,480 |
|
$ |
353,583 |
|
|
|
|
|
|
(a) Includes a litigation settlement of $6,750 expense recorded in the nine months ended October 1, 2011.
(b) International net sales are identified as international based on the location of the customer.
At October 1, 2011 and January 1, 2011, our five largest uncollateralized receivables represented approximately 61% and 53% of total accounts receivable.
For the three and nine-month periods ended October 1, 2011 and October 2, 2010, we had two customers, Wal-Mart and Kohls, that each accounted for more than 10% of our consolidated net sales.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share amounts)
(unaudited)
9. EARNINGS PER SHARE
The following is a reconciliation of the basic number of common shares outstanding to diluted common and common equivalent shares outstanding:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
October 1, |
|
October 2, |
|
October 1, |
|
October 2, |
| ||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Net income |
|
$ |
10,190 |
|
$ |
12,788 |
|
$ |
36,267 |
|
$ |
38,555 |
|
Weighted average number of common and common equivalent shares outstanding: |
|
|
|
|
|
|
|
|
| ||||
Basic number of common shares outstanding |
|
22,904,002 |
|
22,606,900 |
|
22,834,252 |
|
22,723,196 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Impact of dilutive securities |
|
467,943 |
|
607,835 |
|
498,180 |
|
682,841 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Dilutive number of common and common equivalent shares outstanding |
|
23,371,945 |
|
23,214,735 |
|
23,332,432 |
|
23,406,037 |
| ||||
|
|
|
|
|
|
|
|
|
| ||||
Basic earnings per common share |
|
$ |
0.44 |
|
$ |
0.57 |
|
$ |
1.59 |
|
$ |
1.70 |
|
Diluted earnings per common share |
|
$ |
0.44 |
|
$ |
0.55 |
|
$ |
1.55 |
|
$ |
1.65 |
|
For the three-month periods ended October 1, 2011 and October 2, 2010, approximately 5,000 and 250 equity awards, respectively, were not included in the computation of diluted earnings per share because of their anti-dilutive effect. For the nine-month periods ended October 1, 2011 and October 2, 2010, approximately 7,000 and 54,000 equity awards, respectively, were not included in the computation of diluted earnings per share because of their anti-dilutive effect.
10. COMMITMENTS AND CONTINGENCIES
Purchase commitments
In the normal course of business, we enter into purchase commitments for both finished goods and raw materials. At October 1, 2011, we had purchase commitments of $92,028 and believe that we have adequate reserves for any expected losses arising from all purchase commitments.
Litigation
We are a party to various legal actions arising in the ordinary course of business. Based on information presently available to us, we believe that we have adequate legal defenses, reserves and/or insurance coverage for these actions and that the ultimate outcome of these actions will not have a material adverse effect on our consolidated statements of financial position, results of operations or cash flows.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(in thousands, except share and per share amounts)
(unaudited)
11. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
|
October 1, |
|
January 1, |
| ||
|
|
2011 |
|
2011 |
| ||
|
|
|
|
|
| ||
Payroll and related benefits (including incentive compensation, vacation, and medical insurance) |
|
$ |
8,141 |
|
$ |
13,081 |
|
Accrued customs duty |
|
4,039 |
|
1,485 |
| ||
Accrued other |
|
11,559 |
|
12,050 |
| ||
|
|
$ |
23,739 |
|
$ |
26,616 |
|
Accrued other include, among other items, freight, accrued severance, trade promotion, inventory return accrual and professional fees.
12. RECENTLY ISSUED ACCOUNTING STANDARDS
In September 2011, the Financial Accounting Standards Board (FASB) issued guidance related to testing goodwill for impairment. The guidance permit an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test prescribed under current accounting rules. Otherwise, the two-step goodwill impairment test is not required. This guidance will be effective beginning after December 15, 2011. We do not expect the adoption of this guidance to have a material effect on our consolidated financial position or results of operations.
In June 2011, the FASB issued guidance on the presentation of comprehensive income. This guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: (1) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. This guidance requires retrospective application, and it is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance will have no impact on our consolidated financial position or results of operations.
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
You should read the following discussion and analysis in conjunction with our financial statements and related notes included elsewhere in this report. This report contains forward-looking statements relating to future events and our future performance within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words anticipates, believes, estimates, expects, intends, plans, potential, predicts, projects or similar words or phrases, although not all forward-looking statements contain such identifying words. All forward-looking statements included in this report are based on information available to us on the date hereof. It is routine for our internal projections and expectations to change as the year or each quarter in the year progress, and therefore it should be clearly understood that the internal projections and beliefs upon which we base our expectations may change prior to the end of each quarter or the year. Although these expectations may change, we assume no obligation to update or revise publicly any forward-looking statements whether as a result of new information, future events or otherwise. Actual events or results may differ materially from those contained in the projections or forward-looking statements. Factors that could cause or contribute to such differences include those discussed below and elsewhere in this report, particularly in the section captioned PART II OTHER INFORMATION, Item 1A Risk Factors.
Management Overview
We are a global intimate apparel company with a portfolio of established, well-known brands, top-selling products and an iconic heritage. We design, source and market an extensive range of intimate apparel products, including bras, panties and shapewear. We sell our products through multiple distribution channels, including department stores and national chain stores (including third party distributors and independent stores), mass merchants (including warehouse clubs), other (including specialty retailers, off-price retailers and licensees), our company-operated outlet stores, kiosks and carts, and our websites.
We sell our products under some of the most recognized brands in the intimate apparel industry. Our Maidenform, Control It!, Maidenforms Charmed, Flexees, Lilyette and Luleh brands are sold in department stores and national chain stores. Our Bodymates, Inspirations, Self Expressions and Sweet Nothings brands are distributed through mass merchants. These mass merchant brands leverage our product technology, but are separate brands with distinctly different logos. In addition to our owned brands, we also supply private brands to certain retailers. We also sell the Donna Karan and DKNY licensed brands in the department stores and chains channel, domestically and internationally, as a result of our license agreement. This agreement grants us the rights to design, source and market a full collection of Donna Karan and DKNY womens intimate apparel products.
Trends in our business
We operate in two segments, wholesale and retail. Our wholesale segment includes both our domestic and international wholesale markets. Our retail segment includes our company-operated outlet stores, kiosks and carts, and our websites.
We have recently experienced a decrease in our net sales growth rate resulting from a decline in consumer confidence and soft intimate apparel retail trends. In particular, management believes that there are many factors influencing the intimate apparel industry, including but not limited to: consistent demand for foundation garments, consumer demand for innovative and leading brands, sourcing and supply chain efficiencies, continued growth of the mass merchant channel, decline in consumer traffic in our channels increases in the cost of the raw materials used in intimate apparel products and uncertainty surrounding import restrictions.
We believe we are well-positioned to capitalize on or address these trends by, among other things:
· continuing to launch innovative products, including our Instant Slimmer shapewear group, which is scheduled to launch 2012;
· increasing our presence in department stores and national chain stores through the use of Maidenform, Control It!, Maidenforms Charmed, Flexees, Lilyette and Luleh brands;
· expanding distribution of our Donna Karan and DKNY licensed brands;
· expanding shapewear awareness;
· increasing our presence in the mass merchant channel through the use of Bodymates, Inspirations, Self Expressions and Sweet Nothings brands;
· expanding our international presence;
· increasing consumer identification with our brands through further marketing investments;
· marketing, rather than manufacturing our brands;
· making selective acquisitions, entering into license agreements, and developing and marketing new products that will complement our existing products or distribution channels; and
· merchandising, marketing and selling private brand products to selected retailers.
Wholesale segment
The following trends are among the key variables that will affect our wholesale segment:
Department stores and national chain stores. The department stores and national chain stores (including third party distributors and independent stores) are where we generally sell the Maidenform, Control It!, Maidenforms Charmed, Flexees, Lilyette and Luleh brands. We plan to continue to invest in increasing our net sales with department store and national chain store customers, which we believe is important to our long-term positioning in the channel. We expect the rate of our future net sales growth with department stores to be moderated. We have grown our market share meaningfully in the past several years with department stores and national chain stores, however the third quarter of 2011 included a market share decline. We have customers located outside the United States that purchase our Maidenform, Control It!, Maidenforms Charmed, Flexees, Lilyette and Luleh brands. The majority of these net sales are included in the department stores and national chain stores channel. We also sell the Donna Karan and DKNY brands in this channel, domestically and internationally, as a result of our license agreement. This agreement grants us the rights to design, source and market a full collection of Donna Karan and DKNY womens intimate apparel products.
Mass merchants. The mass merchant channel includes both mass merchants and warehouse clubs. We intend to improve our penetration with mass merchants through the use of our Bodymates, Inspirations, Self Expressions and Sweet Nothings brands. We have experienced meaningful growth in this channel over the past several years and expect to continue to achieve growth in the future as we are able to increase both the floor space and number of doors in which our products are sold, both domestically and internationally. We expect that both our net sales to this channel and our net sales to this channel as a percentage of our total net sales are likely to increase over time. The volume and mix of net sales of our brands in the mass merchant channel can vary from period to period based upon strategic changes that our customers may implement from time to time. Net sales to customers in the mass channel that are located outside the United States are included in this channel.
Other. Net sales from other channels, include sales to specialty retailers, off-price retailers and royalty income from licensees. We supply private brands to specialty retailers as opportunities present themselves and we continually evaluate this channel for opportunities. The volume and mix of net sales of private label in the other channel can vary significantly from period to period based upon new product introductions. Net sales to customers in the other channel that are located outside the United States are included in this channel.
We selectively target strategic acquisitions, licensing opportunities or brand start-ups to grow our consumer base and would utilize any acquired companies and licenses to complement our current products, channels and geographic scope. We believe that acquisitions and licenses can enhance our product offerings to retailers and provide growth opportunities. We believe we can leverage our core competencies such as product development, brand management, logistics and marketing to create significant value from the acquired businesses and licenses as we did with the intimate apparel license agreement for the Donna Karan and DKNY brands.
We also generate net sales from licensing our brand names to qualified partners for natural line extensions in the intimate apparel market such as girls bras, swimwear and bra accessories. Licensing royalties account for less than 1% of our total net sales. Our licensed products are sold at department stores, national chains and mass merchants, at our company-operated outlet stores and through our websites. We believe that we can potentially expand our licensing activities beyond our current offerings.
Retail segment
We believe our retail sales volume is driven by our ability to service our existing consumers and obtain new consumers, as well as overall general macro-economic conditions that can affect our consumers and ultimately their levels of overall spending and choice of retail channel for their purchases. Additionally, identifying optimal retail outlet locations, favorable leasing arrangements, and improving our store productivity are factors important to growing our retail segments net sales. We also sell our products through our websites, www.maidenform.com and www.maidenform.co.uk. Although we currently do not generate a significant amount of net sales as a percentage of total Company net sales through these sites, we do expect it to continue to grow.
Our objectives in our retail segment are to continue to increase the productivity of our portfolio of stores through effective merchandising and focused advertising, as well as selectively closing less productive locations and potentially opening new stores in more productive locations. Even in those situations where we selectively close less productive outlet stores and do not open a new store in that region, we believe those consumers still purchase many of our Maidenform brands from our other outlet stores, our websites or our wholesale
segment customers that carry these brands. Our company-operated outlet stores reduce our dependence on off-price retailers and increase brand awareness through direct-to-consumer sale of our products.
Definitions
In reviewing our operating performance, we evaluate both the wholesale and retail segments by focusing on each segments operating income, cash flows from operations and inventory turns.
Net sales. Our net sales are derived from two operating segments, wholesale and retail. Net sales from our wholesale segment are recognized when the customer takes possession and are recorded net of cooperative advertising allowances, sales returns, sales discounts, and markdown allowances provided to our customers. Net sales in our retail segment are recognized at the time the customer takes possession of the merchandise at the point-of-sale in our stores and kiosks and carts, and for our internet sales, net sales are recognized when the products are shipped and title passes to the customer.
Cost of sales. We outsource all manufacturing of the products we sell and, therefore, the principal elements of our cost of sales are for finished goods inventories purchased from our sourced vendors. Included in cost of sales and affecting our overall gross margins are freight expenses from the manufacturers to our distribution centers in situations where such expenses are charged separately. Also included in cost of sales is the cost of warehousing, labor and overhead related to receiving and warehousing at our distribution centers, and depreciation of assets related to our receiving and warehousing in our distribution centers. Direct labor, cost of fabrics, as well as raw materials for fabrics, are the primary components driving the overall cost of our sourced finished goods inventories from our sourcing vendors.
Selling, general and administrative expenses (SG&A). Our SG&A includes all of our marketing, product development, selling, distribution and general and administrative expenses for both the wholesale and retail segments (which include our retail outlet store payroll and related benefits). General and administrative expenses include management payroll, benefits, travel, information systems, accounting, distribution, rent, insurance and legal costs. Additionally, depreciation related to the shipping function in our distribution centers and our corporate office assets such as furniture, fixtures, equipment and technology, as well as amortization of intellectual property, are included in SG&A.
Income taxes. We account for income taxes using the liability method, which recognizes the amount of income tax payable or refundable for the current year and recognizes deferred tax liabilities and assets for the future tax consequences of the events that have been recognized in the financial statements or tax returns. For those uncertain tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the tax benefit. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized. Where applicable, associated interest and penalties are recorded. We routinely evaluate all deferred tax assets to determine the likelihood of their realization and record a valuation allowance if it is more likely than not that a deferred tax asset will not be realized. For more information, see notes to the condensed consolidated financial statements included elsewhere in this Quarterly Report on Form 10-Q.
Net operating loss carryforwards (NOLs) enable a company to apply NOLs incurred during a current period against a future periods profits in order to reduce cash tax liabilities in those future periods. In periods when a company is generating operating losses, its NOLs will increase. The tax effect of the NOLs is recorded as a deferred tax asset. If the company does not believe that it is more likely than not that it will be able to utilize the NOLs, it records a valuation allowance against the deferred tax asset. Additionally, Section 382 of the Internal Revenue Code (Section 382) imposes limitations on a corporations ability to utilize its NOLs if it experiences an ownership change. In general terms, an ownership change results from transactions increasing the ownership of certain existing stockholders and, or, new stockholders in the stock of a corporation by more than 50 percentage points during a three year testing period. Any unused annual limitation may be carried over to later years, and the amount of the limitation may, under certain circumstances, be increased to reflect both recognized and deemed recognized built-in gains that occur during the sixty-month period after the ownership change. Our NOLs are subject to Section 382 limitations. At January 1, 2011, we had approximately $23.5 million of federal and state NOLs available for utilization in the years from 2011 through 2023.
Results of Operations
Included in this presentation are discussions and reconciliations of SG&A, operating income and net income in accordance with generally accepted accounting principles (GAAP) to SG&A, operating income and net income excluding a litigation settlement. Each of these adjustments was selected because our management uses these non-GAAP measures in discussing and analyzing our results of operations and because we believe the non-GAAP measures provide investors with greater transparency by helping to illustrate the underlying financial and business trends relating to our results of operations, financial condition and comparability between current and prior periods.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||
|
|
October 1, |
|
October 2, |
|
October 1, |
|
October 2, |
| ||||
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
| ||||
OPERATING DATA: (in millions) |
|
|
|
|
|
|
|
|
| ||||
Wholesale sales |
|
$ |
130.2 |
|
$ |
128.6 |
|
$ |
436.0 |
|
$ |
395.1 |
|
Retail sales |
|
18.0 |
|
17.2 |
|
45.8 |
|
43.0 |
| ||||
Net sales |
|
148.2 |
|
145.8 |
|
481.8 |
|
438.1 |
| ||||
Cost of sales |
|
100.8 |
|
93.0 |
|
319.6 |
|
279.3 |
| ||||
Gross profit |
|
47.4 |
|
52.8 |
|
162.2 |
|
158.8 |
| ||||
Selling, general and administrative expenses |
|
31.5 |
|
31.7 |
|
98.0 |
|
94.0 |
| ||||
Litigation settlement |
|
|
|
|
|
6.8 |
|
|
| ||||
Operating income |
|
$ |
15.9 |
|
$ |
21.1 |
|
$ |
57.4 |
|
$ |
64.8 |
|
|
|
As a Percentage of Net Sales |
| ||||||
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
October 1, |
|
October 2, |
|
October 1, |
|
October 2, |
|
|
|
2011 |
|
2010 |
|
2011 |
|
2010 |
|
OPERATING DATA: |
|
|
|
|
|
|
|
|
|
Wholesale sales |
|
87.9 |
% |
88.2 |
% |
90.5 |
% |
90.2 |
% |
Retail sales |
|
12.1 |
|
11.8 |
|
9.5 |
|
9.8 |
|
Net sales |
|
100.0 |
|
100.0 |
|
100.0 |
|
100.0 |
|
Cost of sales |
|
68.0 |
|
63.8 |
|
66.3 |
|
63.8 |
|
Gross profit |
|
32.0 |
|
36.2 |
|
33.7 |
|
36.2 |
|
Selling, general and administrative expenses |
|
21.3 |
|
21.7 |
|
20.4 |
|
21.4 |
|
Litigation settlement |
|
|
|
|
|
1.4 |
|
|
|
Operating income |
|
10.7 |
% |
14.5 |
% |
11.9 |
% |
14.8 |
% |
Our net sales are derived from two segments, wholesale and retail. Our net sales within the wholesale segment are grouped by channel, based upon the brands we sell and the customers to whom we sell, as follows: (1) department stores and national chain stores (including third party distributors and independent stores), (2) mass merchants (including warehouse clubs) and (3) other.
Our department stores and national chain stores channel primarily consists of sales of our Maidenform, Control It!, Maidenforms Charmed, Flexees, Lilyette and Luleh brands on a worldwide basis to customers within this category. Within the mass merchant channel, we sell Bodymates, Inspirations, Self Expressions and Sweet Nothings brands that are primarily dedicated to specific customers. These brands are all sold on a worldwide basis to mass merchants and, to a lesser degree, warehouse clubs. Our remaining sales are grouped within a channel designated as other and include private brand products sold to specialty retailers and all brand sales to off-price retail stores on a worldwide basis. In addition, we include licensing income in our other channel.
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||||||||||||||||
|
|
October 1, |
|
October 2, |
|
$ |
|
% |
|
October 1, |
|
October 2, |
|
$ |
|
% |
| ||||||
|
|
2011 |
|
2010 (a) |
|
change |
|
change |
|
2011 |
|
2010 (a) |
|
change |
|
change |
| ||||||
|
|
(in millions) |
|
(in millions) |
| ||||||||||||||||||
Department stores and national chain stores |
|
$ |
59.9 |
|
$ |
60.4 |
|
$ |
(0.5 |
) |
(0.8 |
)% |
$ |
193.3 |
|
$ |
182.6 |
|
$ |
10.7 |
|
5.9 |
% |
Mass merchants |
|
45.1 |
|
39.2 |
|
5.9 |
|
15.1 |
|
159.9 |
|
127.3 |
|
32.6 |
|
25.6 |
| ||||||
Other |
|
25.2 |
|
29.0 |
|
(3.8 |
) |
(13.1 |
) |
82.8 |
|
85.2 |
|
(2.4 |
) |
(2.8 |
) | ||||||
Total wholesale |
|
130.2 |
|
128.6 |
|
1.6 |
|
1.2 |
|
436.0 |
|
395.1 |
|
40.9 |
|
10.4 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Retail |
|
18.0 |
|
17.2 |
|
0.8 |
|
4.7 |
|
45.8 |
|
43.0 |
|
2.8 |
|
6.5 |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Total consolidated net sales |
|
$ |
148.2 |
|
$ |
145.8 |
|
$ |
2.4 |
|
1.6 |
% |
$ |
481.8 |
|
$ |
438.1 |
|
$ |
43.7 |
|
10.0 |
% |
(a) Prior period amounts in this table have been reclassified to conform to the current year presentation.
In addition, our mix of products sold worldwide between bras, shapewear, and panties for the three and nine-month periods ended October 1, 2011 and October 2, 2010, respectively, is summarized below:
|
|
Three Months Ended |
|
Nine Months Ended |
| ||||
|
|
October 1, |
|
October 2, |
|
October 1, |
|
October 2, |
|
|
|
2011 |
|
2010 (a) |
|
2011 |
|
2010 (a) |
|
Bras |
|
56 |
% |
61 |
% |
56 |
% |
62 |
% |
Shapewear |
|
37 |
|
32 |
|
37 |
|
32 |
|
Panties |
|
7 |
|
7 |
|
7 |
|
6 |
|
|
|
100 |
% |
100 |
% |
100 |
% |
100 |
% |
(a) Prior period amounts in this table have been reclassified to conform to the current year presentation.
Net sales
Consolidated net sales increased by $2.4 million, or 1.6%, from $145.8 million for the three months ended October 2, 2010 to $148.2 million for the three months ended October 1, 2011. Consolidated net sales increased by $43.7 million, or 10.0%, from $438.1 million for the nine months ended October 2, 2010 to $481.8 million for the nine months ended October 1, 2011.
Wholesale segment net sales increased by $1.6 million, or 1.2%, from $128.6 million for the three months ended October 2, 2010 to $130.2 million for the three months ended October 1, 2011. Total international net sales, which are included in the wholesale segment, increased by $0.2 million, or 1.4%, from $13.9 million for the three months ended October 2, 2010 to $14.1 million for the three months ended October 1, 2011. International sales benefited from favorable currency exchange rates and increased sales primarily in the United Kingdom which were partially offset by sales declines in Canada and Mexico. We had lower than anticipated sales in Mexico due to a dispute with Mexican customs that has been resolved. Our department stores and national chain stores channel net sales decreased by $0.5 million, or 0.8%, from $60.4 million for the three months ended October 2, 2010 to $59.9 million for the three months ended October 1, 2011. The decrease was a result of soft intimate apparel retail trends which impacted our bra and pant categories. These declines were partially offset by increases in the shapewear category and DKNY business. Our mass merchant channel net sales increased by $5.9 million, or 15.1%, from $39.2 million for the three months ended October 2, 2010 to $45.1 million for the three months ended October 1, 2011. This increase was led by expanded assortments and increased replenishment of our shapewear and bra categories. Other channel net sales, which include sales to specialty retailers, off-price retailers and licensing income, decreased by $3.8 million, or 13.1%, from 29.0 million for the three months ended October 2, 2010 to $25.2 million for the three months ended October 1, 2011. This decrease was a result of decreased sales to a specialty retailer.
Wholesale segment net sales increased by $40.9 million, or 10.4%, from $395.1 million for the nine months ended October 2, 2010 to $436.0 million for the nine months ended October 1, 2011. This increase was driven by all channels of distribution, except for the other channel, resulting from strong replenishment orders, expanded assortments, new placements and strong sales in the international and DKNY businesses. Total international net sales increased by $8.0 million, or 22.2%, from $36.1 million for the nine months ended October 2, 2010 to $44.1 million for the nine months ended October 1, 2011, resulting from increased sales in most major markets in which we do business, including the United Kingdom, Canada and Mexico, as well as favorable currency exchange rates. Our department stores and national chain stores channel net sales increased by $10.7 million, or 5.9%, from $182.6 million for the nine months ended October 2, 2010 to $193.3 million for the nine months ended October 1, 2011. Our mass merchant channel net
sales increased by $32.6 million, or 25.6%, from $127.3 million for the nine months ended October 2, 2010 to $159.9 million for the nine months ended October 1, 2011. Other channel net sales decreased by $2.4 million, or 2.8%, from $85.2 million for the nine months ended October 2, 2010 to $82.8 million for the nine months ended October 1, 2011.
Net sales in our retail segment increased by $0.8 million, or 4.7%, from $17.2 million for the three months ended October 2, 2010 to $18.0 million for the three months ended October 1, 2011. Net sales in our retail segment increased by $2.8 million, or 6.5%, from $43.0 million for the nine months ended October 2, 2010 to $45.8 million for the nine months ended October 1, 2011. Same store sales, defined as sales from stores open more than one year, for the three and nine-month periods ended October 1, 2011, increased 2.4% and 3.0%, respectively, resulting from improved customer traffic. Our internet sales increased by $0.2 million, or 13.3%, from $1.5 million for the three months ended October 2, 2010 to $1.7 million for the three months ended October 1, 2011 and increased by $1.1 million, or 28.2%, from $3.9 million for the nine months ended October 2, 2010 to $5.0 million for the nine months ended October 1, 2011.
Gross profit
Consolidated gross profit decreased by $5.4 million, or 10.2%, from $52.8 million for the three months ended October 2, 2010 to $47.4 million for the three months ended October 1, 2011. As a percentage of net sales, consolidated gross margins decreased by 420 basis points from 36.2% for the three months ended October 2, 2010 to 32.0% for the three months ended October 1, 2011. Consolidated gross profit increased by $3.4 million, or 2.1%, from $158.8 million during the nine months ended October 2, 2010 to $162.2 million for the nine months ended October 1, 2011. However, as a percentage of net sales, gross profit decreased by 250 basis points from 36.2% for the nine months ended October 2, 2010 to 33.7% for the nine months ended October 1, 2011.
Gross profit as a percentage of net sales for the wholesale segment decreased by 520 basis points from 32.9% for the three months ended October 2, 2010 to 27.7% for the three months ended October 1, 2011. This decrease was primarily driven by increased promotional activity to drive inventory productivity, increased product costs associated with new introductions, and changes in channel and product mix, including a higher percentage of net sales to the mass channel and off-price retailers. Gross profit as a percentage of net sales for the wholesale segment was 33.6% for the nine months ended October 2, 2010 as compared to 30.8% for the nine months ended October 1, 2011. This decrease of 280 basis points is mainly a result of the reasons mentioned above, in addition to increased panty sales.
Gross profit as a percentage of net sales for the retail segment increased by 180 basis points from 61.0% for the three months ended October 2, 2010 to 62.8% for the three months ended October 1, 2011, and increased 20 basis points from 60.9% for the nine months ended October 2, 2010 to 61.1% for the nine months ended October 1, 2011. These increases are a result of product mix.
Selling, general and administrative expenses (SG&A)
Consolidated SG&A decreased by $0.2 million, or 0.6%, from $31.7 million for the three months ended October 2, 2010 to $31.5 million for the three months ended October 1, 2011. As a percentage of net sales, SG&A decreased from 21.7% for the three months ended October 2, 2010 to 21.3% for the three months ended October 1, 2011.
SG&A for our wholesale segment, which includes corporate-related expenses, decreased by $0.5 million, or 2.1%, from $23.4 million for the three months ended October 2, 2010 to $22.9 million for the three months ended October 1, 2011. The decrease of $0.5 million is primarily a result of decreased professional fees and decreased payroll and related benefits driven by a reduction in incentive pay, partially offset by unfavorable foreign currency expense resulting from fluctuations in currency exchange rates. As a percentage of net sales, wholesale segment SG&A decreased from 18.2% for the three months ended October 2, 2010 to 17.6% for the three months ended October 1, 2011.
Retail SG&A increased by $0.3 million, or 3.6%, from $8.3 million for the three months ended October 2, 2010 to $8.6 million for the three months ended October 1, 2011. The increase of $0.3 million is due to increased operating expenses as a result of increased sales, including expenditures for store lease renewals.
Consolidated SG&A increased by $4.0 million, or 4.3%, from $94.0 million for the nine months ended October 2, 2010 to $98.0 million for the nine months ended October 1, 2011. However, as a percentage of net sales, SG&A decreased from 21.4% for the nine months ended October 2, 2010 to 20.4% for the nine months ended October 1, 2011.
SG&A for our wholesale segment increased by $2.3 million, or 3.3%, from $70.6 million for the nine months ended October 2, 2010 to $72.9 million for the nine months ended October 1, 2011. The increase of $2.3 million is a result of increased occupancy costs for additional space at our various locations, increased advertising as we support our new product introductions, increased payroll and related benefits associated with new positions partially offset by a reduction in incentive compensation, and increased variable
distribution costs. However, as a percentage of net sales, wholesale segment SG&A decreased from 17.9% for the nine months ended October 2, 2010 to 16.7% for the nine months ended October 1, 2011.
Retail SG&A increased by $1.7 million, or 7.3%, from $23.4 million for the nine months ended October 2, 2010 to $25.1 million for the nine months ended October 1, 2011. This increase of $1.7 million is a result if increased variable expenses associated with increased sales as well as store lease renewals.
Litigation settlement
We entered into a settlement agreement with Times Three Clothier, LLC (Times Three) of litigation in the Southern District of New York in August of 2011. The settlement ended patent infringement and invalidity lawsuits that we had filed against each other. In connection with the settlement, we paid Times Three $6.8 million ($4.1 million after tax) and agreed not to assist any third party that may seek to invalidate or render unenforceable the patents.
Operating income
Our consolidated operating income, decreased by $5.2 million, or 24.6%, from $21.1 million for the three months ended October 2, 2010 to $15.9 million for the three months ended October 1, 2011. Our consolidated operating income, including the litigation settlement, decreased by $7.4 million, or 11.4%, from $64.8 million for the nine months ended October 2, 2010 to $57.4 million for the nine months ended October 1, 2011.
Continued consolidated operating income for the nine months ended October 1, 2011, excluding the litigation settlement of $6.8 million, decreased $0.6 million, or 0.9%, to $64.2 million.
For the foregoing reasons, operating income for the wholesale segment decreased by $5.7 million, or 30.2%, from $18.9 million for the three months ended October 2, 2010 to $13.2 million for the three months ended October 1, 2011. Operating income for the wholesale segment, including the litigation settlement, decreased by $7.5 million, or 12.1%, from $62.0 million during the nine months ended October 2, 2010 to $54.5 million during the nine months ended October 1, 2011.
Continued operating income for the wholesale segment for the nine months ended October 1, 2011, excluding the litigation settlement of $6.8 million, decreased by $0.7 million, or 1.1%, to $61.3 million.
Also, for the reasons discussed above, operating income for the retail segment increased by $0.5 million, or 22.7%, from $2.2 million for the three months ended October 2, 2010 to $2.7 million for the three months ended October 1, 2011. The retail segments operating income increased by $0.1 million, or 3.6%, from $2.8 million during the nine months ended October 2, 2010 to $2.9 million during the nine months ended October 1, 2011.
Interest expense, net
Interest expense, net, was unchanged at $0.2 million for the three months ended October 1, 2011 when compared to the three months ended October 2, 2010. The average balance of total debt outstanding decreased from $70.7 million for the three months ended October 2, 2010 to $69.6 million for the three months ended October 1, 2011, and the average interest rate during the three months ended October 2, 2010 was 1.3% as compared to an average interest rate of 1.2% during the three months ended October 1, 2011.
Interest expense, net, decreased $0.1 million, or 12.5%, from $0.8 million for the nine months ended October 2, 2010 to $0.7 million for the nine months ended October 1, 2011. The average balance of total debt outstanding decreased from $74.9 million for the nine months ended October 2, 2010 to $69.9 million for the nine months ended October 1, 2011. The average interest rate during the nine months ended October 2, 2010 was 1.3% as compared to an average interest rate of 1.2% during the nine months ended October 1, 2011.
Income tax expense
We review our annual effective tax rate on a quarterly basis and we make necessary changes if information or events warrant such changes. The annual effective tax rate is forecasted quarterly using actual historical information and forward-looking estimates. The estimated annual effective tax rate may fluctuate due to changes in forecasted annual operating income and changes to actual or forecasted permanent book to tax differences. The annual effective tax rate could also be impacted by discrete events that may occur on a quarterly basis. Examples of such discrete events are changes in valuation allowances, future tax settlements with state, federal or foreign tax authorities or impacts from state, federal or foreign tax law changes.
Our effective income tax rate for the three and nine-month periods ended October 1, 2011 was 35.0% and 36.0%, respectively, as compared to an effective income tax rate for the three and nine-month periods ended October 2, 2010 of 38.9% and 39.7%, respectively. The lower effective income tax rate in the three and nine-month periods ended October 1, 2011 was primarily the result of discrete income tax benefits. During the third quarter of 2011, we recorded a benefit from the utilization of research and development credits and during the second quarter of 2011 recorded a benefit related to a New Jersey tax law change.
Net income
For the foregoing reasons, our net income decreased by $2.6 million, or 20.3%, from $12.8 million for the three months ended October 2, 2010 to $10.2 million for the three months ended October 1, 2011.
Our net income decreased by $2.3 million, or 6.0%, from $38.6 million for the nine months ended October 2, 2010 to $36.3 million for the nine months ended October 1, 2011. Excluding the $4.1 million after tax litigation settlement, net income increased by $1.8 million, or 4.7%, from $38.6 million for the nine months ended October 2, 2010 to $40.4 million for the nine months ended October 1, 2011.
Liquidity and Capital Resources
Operating activities. Cash flows used in operating activities were $15.5 million for the nine months ended October 1, 2011 compared to cash flows provided by operating activities of $7.4 million for the nine months ended October 2, 2010. This change was primarily driven by the use of cash from operations resulting from changes in working capital. The increase in accounts receivable during the nine months ended October 1, 2011 was due to higher sales, which were somewhat offset by higher cash collections. The increase in accounts payable and inventory was the result of new product introductions and increased inventory levels to service higher sales volume and order fulfillment. The decrease in accrued expenses and other current and non-current liabilities was primarily the result of lower accrued incentive compensation and the timing of payments.
Investing activities. Cash flows used in investing activities were $4.8 million for the nine months ended October 1, 2011 compared to $4.6 million for the nine months ended October 2, 2010. Cash flows used in investing activities for the nine months ended October 1, 2011 and October 2, 2010 were for capital expenditures for information technology upgrades, primarily the implementation of an enterprise resource planning system which is being phased in.
Financing activities. Cash flows used in financing activities were $1.7 million for the nine months ended October 1, 2011 compared to cash flows used in financing activities of $39.9 million for the nine months ended October 2, 2010. The decrease in cash flows used in financing activities was primarily due to the $32.4 million repurchase of our common stock under our stock repurchase plan and the $16.0 million prepayment on our long-term debt in 2010.
Our stock repurchase program allows us to repurchase our shares from time to time pursuant to existing rules and regulations and other parameters approved by the Board of Directors. At January 1, 2011, we had $17.6 million remaining available under our $50.0 million stock repurchase program authorized in February 2010. During March 2011, we repurchased $2.0 million of common stock at an average price per share of $26.72.
At October 1, 2011 we had $69.3 million outstanding under our term loan, and $0 outstanding under our revolving loan with approximately $49.3 million available for borrowings, after giving effect to $0.7 million of outstanding letters of credit. Principal payments on the term loan are payable in quarterly installments of $0.3 million with all remaining amounts due in 2014. We are permitted to voluntarily prepay all or part of the principal balance of the term loan with such prepayments applied to scheduled principal payments in inverse order of their maturity. We were in compliance with all debt covenants at October 1, 2011.
Below is a summary of our actual performance under these financial covenants:
|
|
October 1, |
|
January 1, |
|
|
|
|
|
|
|
Actual fixed charge coverage ratio (a) |
|
2.75 : 1.00 |
|
1.80 : 1.00 |
|
Minimum fixed charge coverage ratio required (a) |
|
1.25 : 1.00 |
|
1.25 : 1.00 |
|
|
|
|
|
|
|
Actual fixed charge coverage ratio (b) |
|
1.85 : 1.00 |
|
1.40 : 1.00 |
|
Minimum fixed charge coverage ratio required (b) |
|
0.85 : 1.00 |
|
0.85 : 1.00 |
|
|
|
|
|
|
|
Actual leverage ratio (c) |
|
0.23 : 1.00 |
|
0.00 : 1.00 |
|
Maximum leverage ratio permitted (c) |
|
4.00 : 1.00 |
|
4.00 : 1.00 |
|
|
|
|
|
|
|
Actual consolidated capital expenditures |
|
$4,848 |
|
$6,884 |
|
Maximum consolidated capital expenditures permitted |
|
$13,116 |
|
$14,106 |
|
a) Coverage ratio computed as the ratio of earnings available for fixed charges to fixed charges. Earnings available for fixed charges consist of consolidated earnings before interest, taxes, depreciation and amortization (EBITDA) and certain non-cash charges less capital expenditures. Fixed charges consist of consolidated interest expense, scheduled principal payments on our long-term debt, cash taxes paid and permitted restricted junior payments including certain adjustments allowed under our credit facility.
b) Coverage ratio computed as the ratio of earnings available for fixed charges to fixed charges. Fixed charges consist of consolidated interest expense, scheduled principal payments on our long-term debt, cash taxes paid and permitted restricted junior payments excluding certain adjustments allowed under our credit facility.
c) Leverage ratio computed as the ratio of total net debt to consolidated EBITDA and certain non-cash charges. Total net debt is defined as total long-term debt less total cash and cash equivalents.
Volatility in the financial markets could have a material adverse effect on our business. A deterioration in the financial markets could lead to business disruptions for certain of our suppliers, contract manufacturers or trade customers and consequently, could disrupt our business. However, we believe that our existing cash balances and available borrowings under our revolving loan, along with our future cash flow from operations, will enable us to meet our liquidity needs and capital expenditure requirements for the foreseeable future.
Contractual Obligations, Commitments and Off-Balance Sheet Arrangements
We have various contractual obligations which are recorded as liabilities in our condensed consolidated financial statements. Other items, such as certain purchase commitments and other executory contracts, are not recognized as liabilities in our condensed consolidated financial statements but are required to be disclosed. For example, we are contractually committed to make certain minimum lease payments for the use of property under operating lease agreements.
The following table summarizes our significant contractual obligations and commercial commitments at October 1, 2011 and the future periods in which such obligations are expected to be settled in cash. In addition, the table below reflects the timing of principal and interest payments on outstanding borrowings.
|
|
Balance of |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
|
|
fiscal |
|
In fiscal |
|
In fiscal |
|
In fiscal |
|
In fiscal |
|
|
|
|
| |||||||
(in millions) |
|
2011 |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
Thereafter |
|
Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Long-term debt |
|
$ |
0.2 |
|
$ |
1.1 |
|
$ |
1.1 |
|
$ |
66.9 |
|
$ |
|
|
$ |
|
|
$ |
69.3 |
|
Interest on long-term debt (1) |
|
0.2 |
|
0.8 |
|
0.8 |
|
0.4 |
|
|
|
|
|
2.2 |
| |||||||
Obligations under capital lease (2) |
|
0.1 |
|
0.3 |
|
0.2 |
|
|
|
|
|
|
|
0.6 |
| |||||||
Operating leases (3) |
|
2.2 |
|
7.6 |
|
5.4 |
|
3.9 |
|
2.8 |
|
9.2 |
|
31.1 |
| |||||||
Total financial obligations |
|
2.7 |
|
9.8 |
|
7.5 |
|
71.2 |
|
2.8 |
|
9.2 |
|
103.2 |
| |||||||
Other contractual obligations (4) |
|
0.2 |
|
5.2 |
|
5.8 |
|
8.3 |
|
5.1 |
|
|
|
24.6 |
| |||||||
Purchase obligations (5) |
|
39.9 |
|
52.1 |
|
|
|
|
|
|
|
|
|
92.0 |
| |||||||
Total financial obligations and commitments |
|
$ |
42.8 |
|
$ |
67.1 |
|
$ |
13.3 |
|
$ |
79.5 |
|
$ |
7.9 |
|
$ |
9.2 |
|
$ |
219.8 |
|
(1) The interest rate assumed was the rate in effect at October 1, 2011.
(2) Includes amounts classified as interest expense under capital leases.
(3) The operating leases included in the above table consist of minimum rent payments and do not include contingent rent based upon sales volume, or variable costs such as maintenance, insurance or taxes.
(4) Includes amounts classified as royalties, advertising and marketing obligations.
(5) Unconditional purchase obligations are defined as agreements to purchase goods that are enforceable and legally binding on us and that specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum, or variable price provisions; and the approximate timing of the transaction. The purchase obligations category above relates to commitments for inventory and raw material purchases. Amounts reflected in our condensed consolidated balance sheets in accounts payable or other current liabilities are excluded from the table above.
In addition to the total contractual obligations and commitments included in the table above, we have pension and post-retirement benefit obligations included in other non-current liabilities of $3.1 million and $0.7 million, respectively, at October 1, 2011. As of October 1, 2011, our total liabilities for unrecognized tax benefits and related interest and penalties amounted to $3.9 million (before federal and, if applicable, state effect). Our pension and post-retirement benefit obligations and liabilities for unrecognized tax benefits have not been included in the schedule of cash contractual obligations because we cannot make a reasonable, reliable estimate of the amount and period of related future payments of these liabilities.
Off-Balance Sheet Arrangements. Our most significant off-balance sheet financing arrangements as of October 1, 2011 are non-cancelable operating lease agreements, primarily for our company-operated outlet stores, our company headquarters and our leased distribution centers located in Shannon, Ireland and Fayetteville, North Carolina. We do not participate in any off-balance sheet arrangements involving unconsolidated subsidiaries that provide financing or potentially expose us to unrecorded financial obligations.
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations is based upon our condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses, and related disclosure of contingent assets and liabilities. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. A summary of our significant accounting policies and a description of accounting policies that we believe are most critical may be found in the Managements Discussion and Analysis of Financial Condition and Results of Operations included in our Annual Report on Form 10-K for the year ended January 1, 2011.
Recently Issued Accounting Standards
In September 2011, the Financial Accounting Standards Board (FASB) issued guidance related to testing goodwill for impairment. The guidance permit an entity to first assess qualitative factors to determine if it is more likely than not that the fair value of a reporting unit is less than its carrying value. If it is concluded that this is the case, it is necessary to perform the two-step goodwill impairment test prescribed under current accounting rules. Otherwise, the two-step goodwill impairment test is not required. This guidance will be effective beginning after December 15, 2011. We do not expect the adoption of this guidance to have a material effect on our consolidated financial position or results of operations.
In June 2011, the FASB issued guidance on the presentation of comprehensive income. This guidance eliminates the current option to report other comprehensive income and its components in the statement of changes in equity. The guidance allows two presentation alternatives: (1) present items of net income and other comprehensive income in one continuous statement, referred to as the statement of comprehensive income; or (2) in two separate, but consecutive, statements of net income and other comprehensive income. This guidance requires retrospective application, and it is effective for fiscal years and interim periods within those years, beginning after December 15, 2011. Early adoption is permitted. The adoption of this guidance will have no impact on our consolidated financial position or results of operations.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
Foreign Currency Risk. We do not believe that we have significant foreign currency transactional exposures. For the three and nine-month periods ended October 1, 2011, $10.2 million and $29.6 million, respectively, of our total net sales were in currencies other than the U.S. dollar. During the three and nine-month periods ended October 1, 2011, our net sales were favorably impacted by $0.6 million and $2.0 million, respectively, due to fluctuations in foreign currency exchange rates. Most of our purchases are denominated in U.S. dollars. The impact of a 10% unfavorable change in the exchange rate of the U.S. dollar against the prevailing market rates of the foreign currencies in which we have transactional exposures would be immaterial.
Interest Rate Risk. From time to time, we manage our interest rate risk through the use of interest rate swaps. At October 1, 2011, our debt portfolio was composed of variable-rate debt, with no portion hedged. With respect to our variable-rate debt, a 1% change in interest rates would be immaterial.
Commodity Price Risk. We are subject primarily to commodity price risk arising from fluctuations in the market prices of raw materials used in the garments purchased from our sourcing vendors, if they pass along these increased costs. During the past five years, there has been no significant impact from commodity price fluctuations, and we do not currently use derivative instruments in the management of these risks. On a going-forward basis, fluctuations in crude oil prices or petroleum based product prices may also influence the prices of the related items such as chemicals, dyestuffs, man-made fibers and foam, and transportation costs. Raw material price increases could increase our cost of sales and decrease our profitability unless we are able to pass our higher costs on to our customers.
Inflation Risk. We are affected by inflation and changing prices from our suppliers primarily through the cost of raw materials, increased operating costs and expenses, and fluctuations in interest rates. The effects of inflation on our net sales and operations have not been material in recent years. Although, we do not believe that inflation risk is material to our business or our consolidated financial position, results of operations or cash flows, we cannot assure that changes in inflation will not have an impact. In the future, volatile crude oil and gasoline prices may impact our product and freight costs, consumer confidence and disposable income.
Seasonality. We have not experienced any significant seasonal fluctuations in our net sales or our profitability.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures.
Our management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures, (as defined in Rules 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act)), as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that the Companys disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) are effective. Except as described below, there were no changes in our internal control over financial reporting during our fiscal quarter ending October 1, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(b) Changes in Internal Controls over Financial Reporting.
During our fiscal quarter ending October 1, 2011, we transitioned certain of our financial and human resource systems to an enterprise resource planning (ERP) system. This implementation is part of our ongoing information technology upgrades, and we plan to continue implementing the ERP system throughout other parts of our organization over the course of the next few years. In connection with the implementation and resulting business process changes, we continue to enhance the design and the documentation of our internal control processes to ensure suitable controls over our financial reporting.
We are a party to various legal actions arising in the ordinary course of business. Based on information presently available to us, we believe that we have adequate legal defenses, reserves and/or insurance coverage for these actions and that the ultimate outcome of these actions will not have a material adverse effect on our consolidated statements of financial position, results of operations or cash flows.
Risks that could have a negative impact on our business, results of operations and financial condition include: our growth cannot be assured and any growth may be unprofitable; potential fluctuations in our results of operations or rate of growth; our dependence on a limited number of customers; we have larger competitors with greater resources; retail trends in the intimate apparel industry, including consolidation and continued growth in the development of private brands, resulting in downward pressure on prices, reduced floor space and other harmful changes; failure to anticipate, identify or promptly react to changing trends, styles, or consumer preferences; our leverage could adversely affect our financial condition; external events may disrupt our supply chain, result in increased cost of goods or an inability to deliver our products; events which result in difficulty in procuring or producing products on a cost-effective basis; disputes with third parties for infringement or misappropriation of their proprietary rights; increases in the prices of raw materials; changing international trade regulation, including as it relates to the imposition or elimination of quotas on imports of textiles and apparel; foreign currency exposure; the sufficiency of cash to fund operations and capital expenditures; and the influence of adverse changes in general economic conditions. This list is intended to identify only certain of the principal factors that could have a material and adverse impact on our business, results of operations and financial condition. A more detailed description of each of these and other important risk factors can be found under the caption Risk Factors in our most recent Form 10-K, filed with the Securities and Exchange Commission on March 7, 2011.
There are no material changes to the risk factors described in the Form 10-K filed on March 7, 2011.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
(a) None.
(b) None.
(c) None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved)
None.
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
31.1 |
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Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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31.2 |
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Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101* |
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Interactive data files: (i) Condensed Consolidated Balance Sheets at October 1, 2011 and January 1, 2011, (ii) Condensed Consolidated Statements of Income for the three and nine months ended October 1, 2011 and October 2, 2010, (iii) Condensed Consolidated Statement of Cash Flows for the nine months ended October 1, 2011 and October 2, 2010 and (iv) Notes to Consolidated Financial Statements. |
* - Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
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.
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MAIDENFORM BRANDS, INC. | |
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(Registrant) | |
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Date: November 9, 2011 |
By: |
/s/ Christopher W. Vieth |
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Name: Christopher W. Vieth |
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Title: Executive Vice President, Chief Operating Officer and Chief Financial Officer (principal financial officer) |
EXHIBIT INDEX
31.1 |
|
Certification by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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|
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31.2 |
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Certification by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
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32.1 |
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Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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32.2 |
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Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
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101* |
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Interactive data files: (i) Condensed Consolidated Balance Sheets at October 1, 2011 and January 1, 2011, (ii) Condensed Consolidated Statements of Income for the three and nine months ended October 1, 2011 and October 2, 2010, (iii) Condensed Consolidated Statement of Cash Flows for the nine months ended October 1, 2011 and October 2, 2010 and (iv) Notes to Consolidated Financial Statements. |
* - Pursuant to Rule 406T of Regulation S-T, the interactive data files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.