Attached files
file | filename |
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EX-31.1 - EX-31.1 - Maidenform Brands, Inc. | a12-8794_1ex31d1.htm |
EX-32.1 - EX-32.1 - Maidenform Brands, Inc. | a12-8794_1ex32d1.htm |
EXCEL - IDEA: XBRL DOCUMENT - Maidenform Brands, Inc. | Financial_Report.xls |
EX-32.2 - EX-32.2 - Maidenform Brands, Inc. | a12-8794_1ex32d2.htm |
EX-31.2 - EX-31.2 - Maidenform Brands, Inc. | a12-8794_1ex31d2.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 |
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For the quarterly period ended March 31, 2012 | |
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OR | |
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o |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
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For the transition period from to |
Commission file number: 001-32568
MAIDENFORM BRANDS, INC.
(Exact name of registrant as specified in its charter)
Delaware |
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06-1724014 |
(State or other jurisdiction of incorporation or organization) |
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(I.R.S. Employer Identification No.) |
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485F US Hwy 1 South, Iselin, NJ |
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08830 |
(Address of principal executive offices) |
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(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 |
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Accelerated filer x |
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Non-accelerated filer o |
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Smaller reporting company o |
(Do not check if smaller |
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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 |
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Outstanding at May 4, 2012 |
Common Stock, $0.01 par value per share |
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23,536,110 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)
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March 31, |
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December 31, |
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2012 |
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2011 |
| ||
Assets |
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|
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|
| ||
Current assets |
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|
|
|
| ||
Cash and cash equivalents |
|
$ |
29,846 |
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$ |
68,041 |
|
Accounts receivable, net |
|
107,723 |
|
54,517 |
| ||
Inventories |
|
116,129 |
|
113,200 |
| ||
Deferred income taxes |
|
15,357 |
|
15,357 |
| ||
Prepaid expenses and other current assets |
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14,415 |
|
14,310 |
| ||
Total current assets |
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283,470 |
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265,425 |
| ||
Property, plant and equipment, net |
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29,036 |
|
29,497 |
| ||
Goodwill |
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7,162 |
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7,162 |
| ||
Intangible assets, net |
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92,493 |
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92,765 |
| ||
Other non-current assets |
|
496 |
|
386 |
| ||
Total assets |
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$ |
412,657 |
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$ |
395,235 |
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Liabilities and stockholders equity |
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Current liabilities |
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Current portion of long-term debt |
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$ |
1,100 |
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$ |
1,100 |
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Accounts payable |
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43,842 |
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38,425 |
| ||
Accrued expenses and other current liabilities |
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29,312 |
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24,967 |
| ||
Total current liabilities |
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74,254 |
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64,492 |
| ||
Long-term debt |
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67,675 |
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67,950 |
| ||
Deferred income taxes |
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26,269 |
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25,108 |
| ||
Other non-current liabilities |
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14,405 |
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14,497 |
| ||
Total liabilities |
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182,603 |
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172,047 |
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Commitments and contingencies (Note 8) |
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Stockholders equity |
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Preferred stock - $0.01 par value; 10,000,000 shares authorized and none issued and outstanding |
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Common stock - $0.01 par value; 100,000,000 shares authorized; 24,399,732 shares issued and 23,037,421 outstanding at March 31, 2012 and 24,399,732 shares issued and 22,922,969 outstanding at December 31, 2011 |
|
244 |
|
244 |
| ||
Additional paid-in capital |
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78,164 |
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78,362 |
| ||
Retained earnings |
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185,741 |
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181,227 |
| ||
Accumulated other comprehensive loss |
|
(7,714 |
) |
(8,301 |
) | ||
Treasury stock, at cost (1,362,311 shares at March 31, 2012 and 1,476,763 shares at December 31, 2011) |
|
(26,381 |
) |
(28,344 |
) | ||
Total stockholders equity |
|
230,054 |
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223,188 |
| ||
Total liabilities and stockholders equity |
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$ |
412,657 |
|
$ |
395,235 |
|
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)
|
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Three Months Ended |
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March 31, |
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April 2, |
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|
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2012 |
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2011 |
| ||
|
|
|
|
|
| ||
Net sales |
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$ |
157,546 |
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$ |
163,561 |
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Cost of sales |
|
114,639 |
|
107,867 |
| ||
Gross profit |
|
42,907 |
|
55,694 |
| ||
Selling, general and administrative expenses |
|
33,068 |
|
32,179 |
| ||
Operating income |
|
9,839 |
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23,515 |
| ||
Interest expense, net |
|
253 |
|
224 |
| ||
Income before provision for income taxes |
|
9,586 |
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23,291 |
| ||
Income tax expense |
|
3,741 |
|
8,778 |
| ||
Net income |
|
$ |
5,845 |
|
$ |
14,513 |
|
Basic earnings per common share |
|
$ |
0.25 |
|
$ |
0.64 |
|
Diluted earnings per common share |
|
$ |
0.25 |
|
$ |
0.62 |
|
Basic weighted average number of shares outstanding |
|
22,938,649 |
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22,787,851 |
| ||
Diluted weighted average number of shares outstanding |
|
23,380,022 |
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23,303,129 |
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The accompanying notes are an integral part of these condensed consolidated financial statements.
MAIDENFORM BRANDS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands, except share and per share amounts)
(unaudited)
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Three Months Ended |
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March 31, |
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April 2, |
| ||
|
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2012 |
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2011 |
| ||
|
|
|
|
|
| ||
Net income |
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$ |
5,845 |
|
$ |
14,513 |
|
Other comprehensive income, before tax: |
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|
|
|
| ||
Foreign currency translation adjustments |
|
505 |
|
596 |
| ||
Net gain on defined benefit pension plan |
|
137 |
|
57 |
| ||
Other comprehensive income, before tax |
|
642 |
|
653 |
| ||
Income tax expense related to items of other comprehensive income |
|
55 |
|
23 |
| ||
Other comprehensive income, net of tax |
|
587 |
|
630 |
| ||
Comprehensive income |
|
$ |
6,432 |
|
$ |
15,143 |
|
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)
|
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Three Months Ended |
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March 31, |
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April 2, |
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|
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2012 |
|
2011 |
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Cash flows from operating activities |
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|
|
|
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Net income |
|
$ |
5,845 |
|
$ |
14,513 |
|
Adjustments to reconcile net income to net cash from operating activities |
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|
|
|
| ||
Depreciation and amortization |
|
1,295 |
|
1,237 |
| ||
Amortization of intangible assets |
|
272 |
|
273 |
| ||
Amortization of deferred financing costs |
|
27 |
|
44 |
| ||
Stock-based compensation |
|
1,126 |
|
865 |
| ||
Deferred income taxes |
|
1,140 |
|
735 |
| ||
Excess tax benefits related to stock-based compensation |
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(811 |
) |
(607 |
) | ||
Bad debt expense |
|
343 |
|
145 |
| ||
Other non-cash items |
|
206 |
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|
| ||
Net changes in operating assets and liabilities |
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|
|
|
| ||
Accounts receivable |
|
(53,103 |
) |
(66,527 |
) | ||
Inventories |
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(2,324 |
) |
(17,387 |
) | ||
Prepaid expenses and other current and non-current assets |
|
(1,031 |
) |
(864 |
) | ||
Accounts payable |
|
5,360 |
|
22,107 |
| ||
Accrued expenses and other current and non-current liabilities |
|
4,145 |
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(863 |
) | ||
Income taxes payable |
|
1,928 |
|
7,133 |
| ||
Net cash used in operating activities |
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(35,582 |
) |
(39,196 |
) | ||
Cash flows from investing activities |
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|
|
|
| ||
Capital expenditures |
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(817 |
) |
(1,544 |
) | ||
Net cash used in investing activities |
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(817 |
) |
(1,544 |
) | ||
Cash flows from financing activities |
|
|
|
|
| ||
Term loan repayments |
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(275 |
) |
(275 |
) | ||
Proceeds from stock options exercised |
|
41 |
|
110 |
| ||
Excess tax benefits related to stock-based compensation |
|
811 |
|
607 |
| ||
Payments of employee withholding taxes related to equity awards |
|
(1,516 |
) |
(881 |
) | ||
Purchase of common stock for treasury |
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|
|
(1,961 |
) | ||
Payments of capital lease obligations |
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(75 |
) |
(57 |
) | ||
Financing fees paid |
|
(149 |
) |
|
| ||
Net cash used in financing activities |
|
(1,163 |
) |
(2,457 |
) | ||
Effects of exchange rate changes on cash |
|
(633 |
) |
(78 |
) | ||
Net decrease in cash |
|
(38,195 |
) |
(43,275 |
) | ||
Cash and cash equivalents |
|
|
|
|
| ||
Beginning of period |
|
68,041 |
|
73,221 |
| ||
End of period |
|
$ |
29,846 |
|
$ |
29,946 |
|
|
|
|
|
|
| ||
Supplementary disclosure of cash flow information |
|
|
|
|
| ||
Cash paid during the period |
|
|
|
|
| ||
Interest |
|
$ |
256 |
|
$ |
251 |
|
Income taxes |
|
$ |
608 |
|
$ |
1,017 |
|
|
|
|
|
|
| ||
Supplemental schedule of non-cash investing and financing activities |
|
|
|
|
| ||
Treasury stock issued related to equity award activity |
|
$ |
3,479 |
|
$ |
1,984 |
|
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 as of March 31, 2012 and 74 retail outlet stores as of April 2, 2011, 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 March 31, 2012, the results of our operations for the three-month periods ended March 31, 2012 and April 2, 2011, and cash flows for the three months ended March 31, 2012 and April 2, 2011. These adjustments consist of normal recurring adjustments. Operating results for the three months ended March 31, 2012 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 December 31, 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 December 31, 2011.
2. DEBT
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March 31, |
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December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Long-term debt |
|
|
|
|
| ||
Term loan facility |
|
$ |
68,775 |
|
$ |
69,050 |
|
Current maturities of long-term debt |
|
1,100 |
|
1,100 |
| ||
Non-current portion of long-term debt |
|
$ |
67,675 |
|
$ |
67,950 |
|
On March 28, 2012, we entered into the Sixth Amendment and Modification Agreement to our credit agreement pursuant to which, among other things, we extended the maturity date of our revolving loan by two years to June 15, 2014.
At March 31, 2012, we had $68,775 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 March 31, 2012, are as follows:
Balance of fiscal 2012 |
|
$ |
825 |
|
In fiscal 2013 |
|
1,100 |
| |
In fiscal 2014 |
|
66,850 |
| |
In fiscal 2015 |
|
|
| |
In fiscal 2016 |
|
|
| |
Thereafter |
|
|
|
3. STOCKHOLDERS EQUITY
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Accumulated |
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|
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Common |
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Treasury |
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Additional |
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|
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Other |
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Total |
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|
Stock |
|
Stock |
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Paid-in |
|
Retained |
|
Comprehensive |
|
Stockholders |
| ||||||||||
|
|
Shares |
|
$ |
|
Shares |
|
$ |
|
Capital |
|
Earnings |
|
Loss |
|
Equity |
| ||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Balance at December 31, 2011 |
|
24,399,732 |
|
$ |
244 |
|
(1,476,763 |
) |
$ |
(28,344 |
) |
$ |
78,362 |
|
$ |
181,227 |
|
$ |
(8,301 |
) |
$ |
223,188 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| ||||||
Stock-based compensation |
|
|
|
|
|
|
|
|
|
1,126 |
|
|
|
|
|
1,126 |
| ||||||
Equity award activity |
|
|
|
|
|
114,452 |
|
1,963 |
|
(1,324 |
) |
(1,331 |
) |
|
|
(692 |
) | ||||||
Comprehensive income |
|
|
|
|
|
|
|
|
|
|
|
5,845 |
|
587 |
|
6,432 |
| ||||||
Balance at March 31, 2012 |
|
24,399,732 |
|
$ |
244 |
|
(1,362,311 |
) |
$ |
(26,381 |
) |
$ |
78,164 |
|
$ |
185,741 |
|
$ |
(7,714 |
) |
$ |
230,054 |
|
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. We did not repurchase any shares of our common stock during the three-month period ended March 31, 2012 and repurchased $1,961 of our common stock at an average price per share of $26.72 during the three-month period ended April 2, 2011. At March 31, 2012, we had $15,687 remaining available under our stock repurchase program.
5. 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 months ended March 31, 2012 was 39.0% as compared to an effective income tax rate for the three months ended April 2, 2011 of 37.7%.
6. SEGMENT INFORMATION
We identified our two reportable segments as wholesale and retail. Our wholesale sales are to department stores, national chain stores, mass merchants (including warehouse clubs), specialty retailers, off-price retailers, and third-party distributors serving similar customers in foreign countries while our retail segment reflects our operations from our retail outlet stores 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 |
| ||||
|
|
March 31, |
|
April 2, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Net sales |
|
|
|
|
| ||
Wholesale |
|
$ |
144,876 |
|
$ |
151,985 |
|
Retail |
|
12,670 |
|
11,576 |
| ||
Total |
|
$ |
157,546 |
|
$ |
163,561 |
|
|
|
|
|
|
| ||
Operating income (loss) |
|
|
|
|
| ||
Wholesale |
|
$ |
10,881 |
|
$ |
24,693 |
|
Retail |
|
(1,042 |
) |
(1,178 |
) | ||
Operating income |
|
9,839 |
|
23,515 |
| ||
Interest expense, net |
|
253 |
|
224 |
| ||
Income before provision for income taxes |
|
$ |
9,586 |
|
$ |
23,291 |
|
|
|
|
|
|
| ||
Depreciation and amortization |
|
|
|
|
| ||
Wholesale |
|
$ |
1,259 |
|
$ |
1,125 |
|
Retail |
|
308 |
|
385 |
| ||
Total |
|
$ |
1,567 |
|
$ |
1,510 |
|
|
|
|
|
|
| ||
Net sales by geographic area |
|
|
|
|
| ||
United States |
|
$ |
141,062 |
|
$ |
150,245 |
|
International (a) |
|
16,484 |
|
13,316 |
| ||
Total |
|
$ |
157,546 |
|
$ |
163,561 |
|
|
|
|
|
|
| ||
Intercompany sales from wholesale to retail |
|
$ |
2,668 |
|
$ |
2,893 |
|
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
Total assets |
|
|
|
|
| ||
Wholesale |
|
$ |
388,079 |
|
$ |
366,037 |
|
Retail |
|
24,578 |
|
29,198 |
| ||
Total |
|
$ |
412,657 |
|
$ |
395,235 |
|
(a) International net sales are identified as international based on the location of the customer.
At March 31, 2012 and December 31, 2011, our five largest uncollateralized receivables represented approximately 67% and 57% of total accounts receivable.
For the three-month periods ended March 31, 2012 and April 2, 2011, 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)
7. 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 |
| ||||
|
|
March 31, |
|
April 2, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Net income |
|
$ |
5,845 |
|
$ |
14,513 |
|
Weighted average number of common and common equivalent shares outstanding: |
|
|
|
|
| ||
Basic number of common shares outstanding |
|
22,938,649 |
|
22,787,851 |
| ||
|
|
|
|
|
| ||
Impact of dilutive securities |
|
441,373 |
|
515,278 |
| ||
|
|
|
|
|
| ||
Dilutive number of common and common equivalent shares outstanding |
|
23,380,022 |
|
23,303,129 |
| ||
|
|
|
|
|
| ||
Basic earnings per common share |
|
$ |
0.25 |
|
$ |
0.64 |
|
Diluted earnings per common share |
|
$ |
0.25 |
|
$ |
0.62 |
|
For the three-month periods ended March 31, 2012 and April 2, 2011, approximately 161,000 and 4,000 equity awards, respectively, were not included in the computation of diluted earnings per share because of their anti-dilutive effect.
8. COMMITMENTS AND CONTINGENCIES
Purchase commitments
In the normal course of business, we enter into purchase commitments for both finished goods inventory and raw materials. At March 31, 2012, we had purchase commitments of $204,175 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 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)
9. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
|
|
March 31, |
|
December 31, |
| ||
|
|
2012 |
|
2011 |
| ||
|
|
|
|
|
| ||
Payroll and related benefits (including incentive compensation, vacation, and medical insurance) |
|
$ |
8,947 |
|
$ |
9,183 |
|
Accrued other |
|
20,365 |
|
15,784 |
| ||
|
|
$ |
29,312 |
|
$ |
24,967 |
|
Other accrued expenses and current liabilities include, among other items, sourcing commitments, freight, customs duty, professional fees, accrued severance and trade promotions.
10. 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. We adopted the guidance effective January 1, 2012. We do not expect the adoption of this guidance to have an impact 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. In December 2011, the FASB issued guidance to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive to net income alongside their respective components of net income and other comprehensive income. All other provisions of this update, which are to be applied retrospectively, are effective for fiscal years and interim periods within those years, beginning after December 15, 2011. We have included such disclosures within this quarterly report.
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 and our websites.
We sell our products under some of the most recognized brands in the intimate apparel industry. Our Maidenform, Control It!, Flexees, Lilyette and Maidenforms Charmed 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, including the Jennifer Lopez brand to be launched at Kohls during the second half of 2012. 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 and our websites.
We have identified near-term opportunities for growth and operational improvements, as well as challenges, including general macro-economic conditions that may affect our customers and our business. 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, pressure from retailers brought about by the consolidation in the retail industry, 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 and new brands;
· increasing our presence in department stores and national chain stores through the use of Maidenform, Control It!, Flexees, Lilyette and Maidenforms Charmed 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, including the introduction of a new brand architecture that will redefine Maidenform as a womens bodywear company;
· 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 are where we generally sell the Maidenform, Control It!, Flexees, Lilyette and Maidenforms Charmed 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. While we have grown our sales in the past several years with department stores and national chain stores, we expect the rate of our future net sales growth to be moderate. We have customers located outside the United States that purchase our Maidenform, Control It!, Flexees, Lilyette and Maidenforms Charmed 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 modest 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 channel 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 new 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. We expect net sales growth to decline in this channel in the near future. 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, at 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 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 for our internet sales, 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, a tax benefit has been recorded. 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 (NOLs) carryforwards 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 December 31, 2011, we had approximately $18.8 million of federal and state NOLs available for utilization in the years from 2012 through 2023.
Results of Operations
|
|
Three Months Ended |
| ||||
|
|
March 31, |
|
April 2, |
| ||
|
|
2012 |
|
2011 |
| ||
OPERATING DATA: (in millions) |
|
|
|
|
| ||
Wholesale sales |
|
$ |
144.8 |
|
$ |
152.0 |
|
Retail sales |
|
12.7 |
|
11.6 |
| ||
Net sales |
|
157.5 |
|
163.6 |
| ||
Cost of sales |
|
114.6 |
|
107.9 |
| ||
Gross profit |
|
42.9 |
|
55.7 |
| ||
Selling, general and administrative expenses |
|
33.1 |
|
32.2 |
| ||
Operating income |
|
$ |
9.8 |
|
$ |
23.5 |
|
|
|
As a Percentage of Net Sales |
| ||
|
|
Three Months Ended |
| ||
|
|
March 31, |
|
April 2, |
|
|
|
2012 |
|
2011 |
|
OPERATING DATA: |
|
|
|
|
|
Wholesale sales |
|
91.9 |
% |
92.9 |
% |
Retail sales |
|
8.1 |
|
7.1 |
|
Net sales |
|
100.0 |
|
100.0 |
|
Cost of sales |
|
72.8 |
|
65.9 |
|
Gross profit |
|
27.2 |
|
34.1 |
|
Selling, general and administrative expenses |
|
21.0 |
|
19.7 |
|
Operating income |
|
6.2 |
% |
14.4 |
% |
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 (including third party distributors and independent stores) primarily consists of sales of our Maidenform, Control It!, Flexees, Lilyette and Maidenforms Charmed brands on a worldwide basis to customers within this category. Within the mass merchant channel (including warehouse clubs), we sell brands such as Bodymates, Inspirations, Self Expressions and Sweet Nothings 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 |
| |||||||||
|
|
March 31, |
|
April 2, |
|
$ |
|
% |
| |||
|
|
2012 |
|
2011 |
|
change |
|
change |
| |||
|
|
(in millions) |
| |||||||||
Department stores and national chain stores |
|
$ |
58.6 |
|
$ |
63.7 |
|
$ |
(5.1 |
) |
(8.0 |
)% |
Mass merchants |
|
59.0 |
|
58.0 |
|
1.0 |
|
1.7 |
| |||
Other |
|
27.2 |
|
30.3 |
|
(3.1 |
) |
(10.2 |
) | |||
Total wholesale |
|
144.8 |
|
152.0 |
|
(7.2 |
) |
(4.7 |
) | |||
|
|
|
|
|
|
|
|
|
| |||
Retail |
|
12.7 |
|
11.6 |
|
1.1 |
|
9.5 |
| |||
|
|
|
|
|
|
|
|
|
| |||
Total consolidated net sales |
|
$ |
157.5 |
|
$ |
163.6 |
|
$ |
(6.1 |
) |
(3.7 |
)% |
In addition, our mix of products sold worldwide between bras, shapewear and panties for the three-month period ended March 31, 2012 and April 2, 2011, respectively, is summarized below:
|
|
Three Months Ended |
| ||
|
|
March 31, |
|
April 2, |
|
|
|
2012 |
|
2011 |
|
Bras |
|
55 |
% |
57 |
% |
Shapewear |
|
38 |
|
36 |
|
Panties |
|
7 |
|
7 |
|
|
|
100 |
% |
100 |
% |
Net sales
Consolidated net sales decreased by $6.1 million, or 3.7%, from $163.6 million for the three months ended April 2, 2011 to $157.5 million for the three months ended March 31, 2012.
Wholesale segment net sales decreased by $7.2 million, or 4.7%, from $152.0 million for the three months ended April 2, 2011 to $144.8 million for the three months ended March 31, 2012. Total international net sales, which are included in the wholesale segment, increased by $3.2 million, or 24.1%, from $13.3 million for the three months ended April 2, 2011 to $16.5 million for the three months ended March 31, 2012. International sales benefited from increased sales in Canada and the United Kingdom. Our department stores and national chain stores channel net sales decreased by $5.1 million, or 8.0%, from $63.7 million for the three months ended April 2, 2011 to $58.6 million for the three months ended March 31, 2012. The decrease was primarily due to a reduction in replenishment sales, as well as sales declines at a mid-tier department store as it transitions to a new pricing and merchandising strategy, and an assortment expansion in 2011 at one of our chain store customers that did not repeat in 2012. Our mass merchant channel net sales increased by $1.0 million, or 1.7%, from $58.0 million for the three months ended April 2, 2011 to $59.0 million for the three months ended March 31, 2012. This increase was a result of increased sales, particularly in shapewear and bra categories, at a warehouse club, which were partially offset by lower sales with a mass customer. The first quarter of 2011 included a sales increase of 32%, reflecting expanded product distribution at several mass channel customers. Other channel net sales, which include sales to specialty retailers, off-price retailers and licensing income, decreased by $3.1 million, or 10.2%, from $30.3 million for the three months ended April 2, 2011 to $27.2 million for the three months ended March 31, 2012. This decrease was due primarily from lower sales to a specialty retailer and off-price retailers.
Net sales in our retail segment increased by $1.1 million, or 9.5%, from $11.6 million for the three months ended April 2, 2011 to $12.7 million for the three months ended March 31, 2012 resulting from increased customer traffic and e-commerce growth. Same store sales, defined as sales from stores open more than one year, for the three months ended March 31, 2012 increased 5.3%. Our internet sales increased by $0.8 million, or 53.3%, from $1.5 million for the three months ended April 2, 2011 to $2.3 million for the three months ended March 31, 2012.
Gross profit
Consolidated gross profit decreased by $12.8 million, or 23.0%, from $55.7 million for the three months ended April 2, 2011 to $42.9 million for the three months ended March 31, 2012. As a percentage of net sales, consolidated gross margins decreased from 34.1% for the three months ended April 2, 2011 to 27.2% for the three months ended March 31, 2012.
Gross profit as a percentage of net sales for the wholesale segment decreased from 32.2% for the three months ended April 2, 2011 to 24.4% for the three months ended March 31, 2012. This decrease was primarily driven by increased promotional and liquidation activity to drive inventory productivity. Partially offsetting this decrease was a favorable mix in product and channel sales during the quarter.
Gross profit as a percentage of net sales for the retail segment increased from 58.6% for the three months ended April 2, 2011 to 59.8% for the three months ended March 31, 2012. This increase was primarily related to the change in the overall product mix.
Selling, general and administrative expenses (SG&A)
Consolidated SG&A increased by $0.9 million, or 2.8%, from $32.2 million for the three months ended April 2, 2011 to $33.1 million for the three months ended March 31, 2012. As a percentage of net sales, SG&A increased from 19.7% for the three months ended April 2, 2011 to 21.0% for the three months ended March 31, 2012.
SG&A for our wholesale segment, which includes corporate-related expenses, increased by $0.3 million, or 1.2%, from $24.2 million for the three months ended April 2, 2011 to $24.5 million for the three months ended March 31, 2012. As a percentage of net sales, wholesale segment SG&A increased from 15.9% for the three months ended April 2, 2011 to 16.9% for the three months ended March 31, 2012. The increase of $0.3 million is primarily a result of increased payroll and related benefits of $2.2 million resulting primarily from strategic headcount additions to support our initiatives which were not included in the first quarter 2011 results, as well as merit increases. Partially offsetting this increase was a reduction in professional fees of $1.1 million and various other reductions of $0.8 million. In addition, savings from select headcount reductions at the end of 2011. Retail segment SG&A increased by $0.6 million, or 7.5%, from $8.0 million for the three months ended April 2, 2011 to $8.6 million for the three months ended March 31, 2012. The increase of $0.6 million is due to increased retail operating expenses, including costs associated with e-commerce strategies, as well as store lease renewals.
Operating income
Our consolidated operating income decreased by $13.7 million, or 58.3%, from $23.5 million for the three months ended April 2, 2011 to $9.8 million for the three months ended March 31, 2012.
For the foregoing reasons, operating income for the wholesale segment decreased by $13.9 million, or 56.3%, from $24.7 million for the three months ended April 2, 2011 to $10.8 million for the three months ended March 31, 2012. Also, for the reasons discussed above, operating loss for the retail segment decreased by $0.2 million, or 16.7%, from a loss of $1.2 million for the three months ended April 2, 2011 to a loss of $1.0 million for the three months ended March 31, 2012.
Interest expense, net
Interest expense, net, increased by $0.1 million, or 50.0%, from $0.2 million for the three months ended April 2, 2011 to $0.3 million for the three months ended March 31, 2012.
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-month period ended March 31, 2012 was 39.0%, as compared to an effective income tax rate for the three-month period ended April 2, 2011 of 37.7%.
Net income
For the foregoing reasons, our net income decreased by $8.7 million, or 60.0%, from $14.5 million for the three months ended April 2, 2011 to $5.8 million for the three months ended March 31, 2012.
Liquidity and Capital Resources
Operating activities. Cash flows used in operating activities were $35.6 million for the three months ended March 31, 2012 compared to cash flows used in operating activities of $39.2 million for the three months ended April 2, 2011. This change was primarily driven by uses in cash resulting from a decrease in earnings offset by lower working capital needs. The decrease in accounts payable and inventory when compared to the prior year change was the result of management controlling the inventory flow and supply chain management. The decrease in accounts receivable when compared to the prior year change is primarily due to lower sales and higher cash collections during the period. The decrease in income tax payable is due to lower taxable income during the three months ended March 31, 2012 when compared to the same prior year period.
Investing activities. Cash flows used in investing activities were $0.8 million for the three months ended March 31, 2012 compared to $1.5 million for the three months ended April 2, 2011. Cash flows used in investing activities for the three months ended March 31, 2012 and April 2, 2011 primarily related to information technology upgrades, including the implementation of an enterprise resource planning system which started in 2009 and is being phased in and the implementation of retail systems which are expected to be placed into service during the second half of 2012.
Financing activities. Cash flows used in financing activities were $1.2 million for the three months ended March 31, 2012 compared to cash flows used in financing activities of $2.5 million for the three months ended April 2, 2011. The decrease in cash flows used in financing activities was primarily due to the $2.0 million repurchase of our common stock under our stock repurchase program during the first quarter of 2011 that did not repeat during the first quarter of 2012.
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 March 31, 2012, we had $15.6 million remaining available under our stock repurchase program. During March 2011, we repurchased $2.0 million of common stock at an average price per share of $26.72.
On March 28, 2012, we entered into the Sixth Amendment and Modification Agreement to our credit agreement pursuant to which, among other things, we extended the maturity date of our revolving loan by two years to June 15, 2014.
At March 31, 2012 we had $68.8 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 March 31, 2012.
Below is a summary of our actual performance under these financial covenants:
|
|
March 31, 2012 |
|
December 31, |
|
|
|
|
|
|
|
Actual fixed charge coverage ratio (a) |
|
1.97 : 1.00 |
|
2.32 : 1.00 |
|
Minimum fixed charge coverage ratio required |
|
1.25 : 1.00 |
|
1.25 : 1.00 |
|
|
|
|
|
|
|
Actual fixed charge coverage ratio (b) |
|
1.23 : 1.00 |
|
1.51 : 1.00 |
|
Minimum fixed charge coverage ratio required |
|
0.85 : 1.00 |
|
0.85 : 1.00 |
|
|
|
|
|
|
|
Actual leverage ratio (c) |
|
0.81 : 1.00 |
|
0.03 : 1.00 |
|
Maximum leverage ratio permitted |
|
3.25 : 1.00 |
|
4.00 : 1.00 |
|
|
|
|
|
|
|
Actual leverage ratio (d) |
|
1.42 : 1.00 |
|
N/A |
|
Maximum leverage ratio permitted |
|
3.25 : 1.00 |
|
N/A |
|
|
|
|
|
|
|
Actual consolidated capital expenditures |
|
$817 |
|
$8,585 |
|
Maximum consolidated capital expenditures permitted |
|
$11,415 |
|
$13,116 |
|
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.
d) Leverage ratio computed as the ratio of total debt to consolidated EBITDA and certain non-cash charges.
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 March 31, 2012 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) |
|
2012 |
|
2013 |
|
2014 |
|
2015 |
|
2016 |
|
Thereafter |
|
Total |
| |||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
Long-term debt |
|
$ |
0.8 |
|
$ |
1.1 |
|
$ |
66.9 |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
68.8 |
|
Interest on long-term debt (1) |
|
0.6 |
|
0.9 |
|
0.4 |
|
|
|
|
|
|
|
1.9 |
| |||||||
Obligations under capital lease (2) |
|
0.2 |
|
0.2 |
|
|
|
|
|
|
|
|
|
0.4 |
| |||||||
Operating leases (3) |
|
7.1 |
|
6.6 |
|
5.1 |
|
3.7 |
|
2.7 |
|
7.8 |
|
33.0 |
| |||||||
Total financial obligations |
|
8.7 |
|
8.8 |
|
72.4 |
|
3.7 |
|
2.7 |
|
7.8 |
|
104.1 |
| |||||||
Other contractual obligations (4) |
|
4.0 |
|
5.8 |
|
8.2 |
|
7.0 |
|
5.3 |
|
33.3 |
|
63.6 |
| |||||||
Purchase obligations (5) |
|
204.2 |
|
|
|
|
|
|
|
|
|
|
|
204.2 |
| |||||||
Total financial obligations and commitments |
|
$ |
216.9 |
|
$ |
14.6 |
|
$ |
80.6 |
|
$ |
10.7 |
|
$ |
8.0 |
|
$ |
41.1 |
|
$ |
371.9 |
|
(1) The interest rate assumed was the rate in effect at March 31, 2012.
(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.
As of March 31, 2012, our total liabilities for unrecognized tax benefits and related interest and penalties amounted to $3.3 million (before federal and, if applicable, state effect). We also have pension and post-retirement benefit obligations included in other non-current liabilities of $8.2 million and $0.7 million, respectively, at March 31, 2012. These liabilities for unrecognized tax benefits and pension and postretirement benefit obligations have not been included in the schedule of cash contractual obligations above because we cannot make a reasonably 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 March 31, 2012 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 December 31, 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. We adopted the guidance effective January 1, 2012. We do not expect the adoption of this guidance to have an impact 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. In December 2011, the FASB issued guidance to defer the effective date of the specific requirement to present items that are reclassified out of accumulated other comprehensive to net income alongside their respective components of net income and other comprehensive income. All other provisions of this update, which are to be applied retrospectively, are effective for fiscal years and interim periods within those years, beginning after December 15, 2011. We have included such disclosures within this quarterly report.
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-month period ended March 31, 2012, $8.0 million of our total net sales were in currencies other than the U.S. dollar. During the three-month period ended March 31, 2012, our net sales were unfavorably impacted by $0.3 million 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 March 31, 2012, 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, as of such date, our disclosure controls and procedures were effective as of March 31, 2012 to ensure that the information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms, and to ensure that information is accumulated and communicated to our management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
(b) Changes in Internal Controls over Financial Reporting.
There was no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act) during our fiscal quarter ending March 31, 2012, that has materially affected, or is reasonably likely to materially affect, our internal control over 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 9, 2012.
There are no material changes to the risk factors described in the Form 10-K filed on March 9, 2012.
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. Mine Safety Disclosures
N/A
None.
The following exhibits are filed as part of this Quarterly Report on Form 10-Q:
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 |
|
|
|
31.2 |
|
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 |
|
|
|
32.1 |
|
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 |
|
|
|
32.2 |
|
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 |
|
|
|
101* |
|
Interactive data files: (i) Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, (ii) Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and April 2, 2011, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and April 2, 2011, (iv) Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2012 and April 2, 2011 and (v) 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.
|
MAIDENFORM BRANDS, INC. | |
|
(Registrant) | |
|
| |
|
| |
Date: May 9, 2012 |
By: |
/s/ Christopher W. Vieth |
|
|
Name: Christopher W. Vieth |
|
|
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 |
|
|
|
31.2 |
|
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 |
|
|
|
32.1 |
|
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 |
|
|
|
32.2 |
|
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 |
|
|
|
101* |
|
Interactive data files: (i) Condensed Consolidated Balance Sheets at March 31, 2012 and December 31, 2011, (ii) Condensed Consolidated Statements of Income for the three months ended March 31, 2012 and April 2, 2011, (iii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2012 and April 2, 2011, (iv) Condensed Consolidated Statement of Cash Flows for the three months ended March 31, 2012 and April 2, 2011 and (v) 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.