1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended APRIL 1, 2000
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OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 1-8769
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R. G. BARRY CORPORATION
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(Exact name of registrant as specified in its charter)
OHIO 31-4362899
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(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
13405 Yarmouth Road NW, Pickerington, Ohio 43147
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(Address of principal executive offices) (Zip Code)
614-864-6400
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(Registrant's telephone number, including area code)
NOT APPLICABLE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
Common Shares, $1 Par Value, Outstanding as of APRIL 1, 2000 - 9,376,657
-------------------------
Index to Exhibits at page 12
Page 1 of 23 pages
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
April 1, 2000 January 1, 2000
------------- ---------------
ASSETS: (in thousands)
Cash and cash equivalents $ 3,429 10,006
Accounts receivable, less allowances 16,569 9,654
Inventory 44,599 40,652
Deferred income taxes 7,711 7,711
Prepaid expenses 1,943 2,538
-------- ------
Total current assets 74,251 70,561
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Property, plant and equipment, at cost 43,417 43,333
Less accumulated depreciation & amortization 29,358 28,925
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Net property, plant and equipment 14,059 14,408
-------- ------
Goodwill, net of amortization 2,501 2,602
Other assets 4,540 4,476
-------- ------
$ 95,351 92,047
======== ======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Short-term notes payable 3,000 682
Current installments of long-term debt 2,432 2,143
Accounts payable 8,286 8,424
Accrued expenses 4,189 5,554
-------- ------
Total current liabilities 17,907 16,803
-------- ------
Accrued retirement costs and other, net 6,416 6,262
Long-term debt, excluding current installments 10,004 8,571
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Total liabilities 34,327 31,636
-------- ------
Minority interest 276 242
Shareholders' equity:
Preferred shares, $1 par value
Authorized 3,775,000 Class A shares,
225,000 Series I Junior Participating
Class A Shares, and 1,000,000
Class B Shares, none issued
Common shares, $1 par value
Authorized 22,500,000 shares
(excluding treasury shares) 9,377 9,349
Additional capital in excess of par value 12,131 12,050
Deferred compensation ( 579) ( 539)
Accumulated other comprehensive loss ( 84) ( 92)
Retained earnings 39,903 39,401
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Net shareholders' equity 60,748 60,169
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$ 95,351 92,047
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Page 2 of 23 pages
3
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen Weeks Ended
April 1, 2000 April 3, 1999
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(in thousands)
Net sales $24,238 20,734
Cost of sales 15,830 12,090
------- --------
Gross profit 8,408 8,644
Selling, general and
administrative expense 12,026 13,438
------- --------
Operating loss ( 3,618) ( 4,794)
Other income 207 145
Proceeds from litigation, net of
expenses incurred 4,476
Interest expense ( 280) ( 306)
Interest income 74 248
------- --------
Net interest expense ( 206) ( 58)
Income (loss) before
income tax (benefit) 859 ( 4,707)
Income tax (benefit) 323 ( 1,770)
Minority interest, net of tax 34 -
------- --------
Net income (loss) $ 502 ($ 2,937)
======= =========
Net income (loss)
per common share
Basic $ 0.05 ($ 0.30)
======= ========
Diluted $ 0.05 ($ 0.30)
======= ========
Average number of common
shares outstanding
Basic 9,367 9,705
======= ========
Diluted 9,444 9,705
======= ========
Page 3 of 23 pages
4
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Thirteen Weeks Ended
April 1, 2000 April 3, 1999
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(in thousands)
Cash flows from operating activities:
Net income (loss) $ 502 ( 2,937)
Adjustments to reconcile net income (loss) to net cash
used in operating activities:
Depreciation and amortization of
property, plant and equipment 551 452
Amortization of goodwill 33 28
Minority Interest 34 -
Amortization of Deferred Compensation 38
Net (increase) decrease in:
Accounts receivable, net ( 6,915) ( 1,647)
Inventory ( 4,022) ( 3,835)
Prepaid expenses 594 ( 42)
Recoverable income taxes - ( 1,214)
Other ( 9) 23
Net increase (decrease) in:
Accounts payable ( 138) ( 967)
Accrued expenses ( 1,334) ( 6,599)
Accrued retirement costs and other 232 282
--------- ---------
Net cash used in operating activities ( 10,434) ( 16,456)
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Cash flows from investing activities:
Additions to property, plant and equipment, net ( 222) ( 487)
-------- --------
Cash flows from financing activities:
Proceeds from notes issued, net of repayments 1,040 -
Proceeds from short-term notes 3,000 -
Stock options exercised - 9
Treasury share acquisitions - ( 1,348)
-------- ---------
Net cash provided by (used in) financing activities 4,040 ( 1,339)
-------- ---------
Effect of exchange rates on cash 39 -
-------- ---------
Net decrease in cash ( 6,577) (18,282)
Cash at the beginning of the period 10,006 29,596
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Cash at the end of the period $ 3,429 $ 11,314
======== =========
Supplemental cash flow disclosures:
Interest paid $ 550 $ 624
======= ========
Income taxes paid $ 337 $ 5,410
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Page 4 of 23 pages
5
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under Item 1 of Part I of Form 10-Q
for the periods ended April 1, 2000 and April 3, 1999
1. The interim consolidated financial statements are unaudited. All
adjustments (consisting solely of normal recurring adjustments) have been
made which, in the opinion of management, are necessary to fairly present
the results of operations.
2. The Company operates on a fifty-two or fifty-three week annual fiscal year,
ending annually on the Saturday nearest December 31st. Fiscal 2000 and 1999
are both fifty-two week years.
3. A substantial portion of inventory is valued using the dollar value LIFO
method and, therefore, it is impractical to separate inventory values
between raw materials, work-in-process and finished goods.
4. Income tax (benefit) for the periods ended April 1, 2000 and April 3, 1999
consisted of:
2000 1999
---- ----
Current:
U. S. Federal tax (benefit) $ 300 ($ 1,652)
State & Local tax (benefit) 23 ( 118)
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Total $ 323 ($ 1,770)
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The income tax (benefit) reflects a combined federal, foreign, state and
local effective rate of approximately 37.5 percent for the first quarter of
2000 and 1999, as compared to the statutory U. S. federal rate of 35.0
percent in both years.
Income tax (benefit) for the periods ended April 1, 2000 and April 3, 1999
differed from the amounts computed by applying the U. S. federal income tax
rate of 35.0 percent to pretax income (loss) as a result of the following:
2000 1999
---- ----
Computed "expected"
tax (benefit):
U. S. Federal tax (benefit) $ 301 ($ 1,647)
Other 7 ( 46)
State & Local tax (benefit),
net of federal income
tax (benefit) 15 ( 77)
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Total $ 323 ($ 1,770)
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5. The computation of basic net income (loss) per common share has been
computed based on the weighted average number of common shares outstanding
during each period. Diluted net income (loss) per common share is based on
the weighted average number of outstanding common shares during the period,
plus, when their effect is dilutive, potential common shares consisting of
certain common shares subject to stock options and the stock purchase plan.
Page 5 of 23 pages
6
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Under Item 1 of Part I of Form 10-Q for
the periods ended April 1, 2000 and April 3, 1999 - continued
6. Segment Information - The Company manufactures and markets comfort footwear
for at-and-around-the-home and supplies thermal retention technology
products. The Company considers its "Barry Comfort" at-and-around-the-home
comfort footwear groups in North America and in Europe, and the thermal
retention technology group, "Thermal", as its three operating segments. The
accounting policies of the operating segments are substantially similar,
except that the disaggregated information has been prepared using certain
management reports, which by their very nature require estimates. In
addition, certain items from these management reports have not been
allocated among the operating segments, including such items as a) costs of
certain administrative functions, b) current and deferred income tax
expense (benefit) and deferred tax assets (liabilities), and c) in some
periods, certain other operating provisions.
Barry Comfort
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2000 North Intersegment
(In thousands) America Europe Thermal Eliminations Total
------- ------ ------- ------------ -----
Net sales $ 19,647 $ 3,786 $ 805 $ 24,238
Depreciation and
amortization 430 64 57 551
Interest income 187 - - ( 113) 74
Interest expense 276 4 113 ( 113) 280
Pre tax earnings (loss) ( 1,591) ( 197) 2,647 859
Additions to property, plant
and equipment 173 49 - 222
Total assets devoted $ 85,546 $ 8,741 $ 3,497 ($ 2,433) $ 95,351
======== ======= ======= ========= ========
Barry Comfort
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1999 North Intersegment
(in thousands) America Europe Thermal Eliminations Total
------- ------ ------- ------------ -----
Net sales $ 17,368 $ 1,883 $ 1,483 $ 20,734
Depreciation and
amortization 372 17 63 452
Interest income 297 - - ( 49) 248
Interest expense 306 - 49 ( 49) 306
Pre tax earnings (loss) ( 3,142) ( 677) ( 888) ( 4,707)
Additions to property, plant
and equipment 407 - 80 487
Total assets devoted $ 85,064 $ 7,407 $ 10,796 ($ 3,475) $ 99,792
======== ======= ======== ========= ========
7. Restructuring Charges - In December 1999, the Company announced a plan to
reduce costs and improve operating efficiencies, and recorded a
restructuring charge of $1,794 as a component of 1999 operating expense.
The following schedule highlights actual charges related to those
activities through April 1, 2000.
As of Adjustments As of
January 1, 2000 in 2000 Paid in 2000 April 1, 2000
--------------- ----------- ------------ -------------
Employee separations $ 1,487 ( 135) 404 948
Other exit costs 94 4 90
Noncancelable lease costs 213 128 41 300
-------- -------- ------- -------
Restructuring costs $ 1,794 ($ 7) $ 449 $ 1,338
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Page 6 of 23 pages
7
R. G. BARRY CORPORATION AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
LIQUIDITY AND CAPITAL RESOURCES
As of the end of the first quarter of 2000, we had $56.3 million in net working
capital. This compares with $69.0 million at the end of the first quarter of
1999, and $53.8 million at fiscal year-end 1999. The decline in net working
capital from the end of the first quarter of 1999 to the end of the first
quarter of 2000 is primarily the result of the loss we incurred in fiscal 1999,
offset by the modest net income realized during the first quarter of 2000. The
increase in net working capital from fiscal year-end 1999 to the end of the
first quarter of 2000, is mainly due to the modest net income realized in the
first quarter of 2000. In addition, during the first quarter, our French
subsidiary borrowed the equivalent of approximately $2.1 million in French
Francs to repay other indebtedness and to fund its operations.
The primary components of net working capital have changed as follows:
- - Accounts receivable increased from $13.2 million at the end of the first
quarter of 1999, to $16.6 million at the end of the first quarter of 2000,
and increased by about by $6.9 million since the end of fiscal 1999.
Included in receivables at the end of the first quarter of 2000, is $5
million due from the settlement of patent litigation with Domino's Pizza,
Inc. (see also Part II, Item 1 - Legal Proceedings). Were it not for the $5
million due from Domino's Pizza, accounts receivables would have actually
declined from 1999 to 2000, and been nearly flat with balances at the end
of fiscal 1999.
- - Inventories ended the first quarter of 2000, at $44.6 million compared with
$46.9 million one year ago, and $40.7 million as of the end of fiscal 1999.
During 1999, we set an objective for ourselves of reducing inventory
levels, from those levels maintained in prior periods. The decline in the
first quarter when compared with the same quarter one year ago reflects the
implementation of that objective. The increase in inventories from the end
of fiscal 1999 to the end of the first quarter 2000 reflects a normal
seasonal pattern of inventory values.
- - We ended the first quarter of 2000 with $3.4 million in cash and cash
equivalents, compared with $11.3 million at the end of the first quarter of
1999. At the end of fiscal 1999, we had $10.0 million in cash and cash
equivalents. There were $3 million in short-term seasonal bank loans
outstanding at the end of the first quarter of 2000. There were no
short-term seasonal bank loans outstanding at the end of the first quarter
of 1999, or as of the end of fiscal 1999.
Capital expenditures during the first quarter of 2000, amounted to $222
thousand, compared with $487 thousand during the same period of 1999. Capital
expenditures in both years were funded out of working capital.
We currently have in place a Revolving Credit Agreement ("Revolver"), with our
three main lending banks. The multi-year Revolver provides a seasonally adjusted
available line of credit ranging from $6 million during January, to a peak of
$42 million from July through November. The Revolver contains financial
covenants that we believe are typical of agreements of similar type and
duration. We are in compliance with all the covenants of the Revolver, and all
other debt agreements. The Revolver currently extends through 2001 and provides
for periodic extensions upon request and with the approval of the banks.
During the first quarter of 2000, our subsidiary in France entered into a bank
loan for 14,800,000 French Francs, approximately $2.1 million, repayable in
quarterly installments, at varying interest rates over the next seven years. The
proceeds of the loan were used to repay other outstanding indebtedness and to
provide working capital in France.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
The FASB issued Statement No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of Effective Date of FASB Statement No. 133",
which is required to be adopted in fiscal years beginning after June 15, 2000.
The Statement permits early adoption as of the beginning of any fiscal quarter
after its issuance. The Company expects to adopt the new Statement effective
January 1, 2001. The Statement will require companies to recognize all
derivatives on the balance sheet at fair value.
Page 7 of 23 pages
8
Management's Discussion and Analysis of Financial Condition
and Results of Operations - continued
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. We do not anticipate that the adoption of
this Statement will have a significant effect on our results of operations or
financial position.
RESULTS OF OPERATIONS
During the first quarter of 2000, net sales amounted to $24.2 million, a 16.9
percent increase in net sales from the first quarter of 1999. Net sales growth
occurred in Barry Comfort North America, with a large portion of that increase
in sales to mass merchandising customers, and in Barry Comfort Europe, mainly as
a result of inclusion of the net sales of Fargeot, which we acquired in July
1999. (See also note 6 of notes to consolidated financial statements for
selected segment information.) We expect net sales growth for the remainder of
the year to be more modest.
Gross profit during the first quarter, amounted to $8.4 million, compared with
$8.6 million during the same quarter in 1999. In March 2000, after reevaluating
the Soluna(TM) Spa-at-Home program, we decided to discontinue that line, and
wrote off approximately $600 thousand of Soluna(TM) raw materials. We believe
that we have adequately reserved for the disposal of Soluna(TM) finished goods.
Without the $600 thousand additional write-off, gross profit would have
increased to approximately $9.0 million.
As a percent of net sales, gross profit during the first quarter of 2000 was
34.7 percent compared with 41.7 percent during the first quarter of 1999. The
$600 thousand Soluna(TM) write-off adversely impacted gross profit percent, by
about 2.5 percent in the first quarter of 2000. In addition, much of the sales
growth in the first quarter occurred as a result of including the net sales of
Fargeot products (included in Barry Comfort Europe), and net sales to mass
merchandising customers (included in Barry Comfort North America), where, in
both cases, gross profit margins are typically lower than margins on net sales
of branded Dearfoams(R) products.
Selling, general and administrative expenses during the quarter, at $12.0
million, declined from $13.4 million in the same quarter last year. The decline
reflects a portion of the planned reduction in expense that we announced in our
restructuring late in 1999.
Late in the first quarter of 2000, we reached a resolution of patent
infringement litigation. The settlement of the litigation, yielded a $5 million
cash payment, received in early April 2000.
Net interest expense increased from 1999 to 2000. During the first quarter of
2000, net interest expense amounted to $206 thousand compared with $58 thousand
in the first quarter of 1999. In 2000, we started the year with lower cash
balances than in 1999, and as a result had fewer dollars on which to earn
interest on short-term investments. Lower interest income was primarily
responsible for the increase in net interest expense for the quarter.
For the first quarter of 2000, we realized net income after taxes amounting $502
thousand, or $0.05 per share, including the affects of the patent infringement
litigation settlement. We estimate that without the affects of the settlement
(and net of the litigation expenses incurred), we would have incurred a net loss
after taxes of approximately $2.3 million, or $0.24 per share. By comparison,
during the first quarter of 1999, we incurred a net loss after taxes of $2.9
million, or $0.30 per share. Per share calculations for both periods are yielded
the same result for both basic net income (loss) per share and for diluted net
income (loss) per share.
Page 8 of 23 pages
9
Management's Discussion and Analysis of Financial Condition
and Results of Operations - continued
- --------------------------------------------------------------------------------
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM
ACT OF 1995:
The statements in this Quarterly Report on Form 10-Q, which are not historical
fact are forward looking statements based upon the Company's current plans and
strategies, and reflect the Company's current assessment of the risks and
uncertainties related to business, including such things as product demand and
market acceptance; the economic and business environment and the impact of
governmental regulations, both in the United States and abroad; the effects of
direct sourcing by customers of competitive products from alternative suppliers;
the effect of pricing pressures from retailers; inherent risks of international
development, including foreign currency risks, the implementation of the Euro,
economic, regulatory and cultural difficulties or delays in the Company's
development outside the United States; the Company's ability to improve its
processes and business practices to keep pace with the economic, competitive and
technological environment; capacity, efficiency, and supply constraints;
weather; and other risks detailed in the Company's press releases, shareholder
communications, and Securities and Exchange Commission filings. Actual events
affecting the Company and the impact of such events on the Company's operations
may vary from those currently anticipated.
- --------------------------------------------------------------------------------
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
No response required
Page 9 of 23 pages
10
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In September 1998, the Company filed a lawsuit for patent infringement
of United States Patent No. 5,790,962 against Domino's Pizza, Inc. and
Phase Change Laboratories, Inc. The case was filed on behalf of both
the Company and its subsidiary Vesture Corporation in the United
States District Court for the Middle District of North Carolina. In
March 2000, this lawsuit was settled. As a part of the settlement
filed with the United States District Court for the Middle District of
North Carolina, Domino's Pizza, Inc. agreed to pay the Company $5
million. As a part of the settlement, the parties entered into a
licensing arrangement for use of the Company's patented thermal
retention technology going forward.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
(a) and (b) Not Applicable
(c) As of March 1, 2000, Christian Galvis was issued 1,250 common
shares of the Company. These common shares were issued in respect of
the Company's 1999 fiscal year in accordance with the terms of a
Restricted Stock Agreement, effective as of January 4, 1998, between
the Company and Mr. Galvis. The common shares had a market value of
$2.9375 per share on the date of issuance. As of March 23, 2000, the
Company issued 26,000 restricted common shares formerly held in
treasury, pursuant to the terms of a Restricted Stock Agreement
between the Company and Mr. Galvis. These common shares had a market
value of $3.00 per share as of the date of issuance. The common shares
were issued in reliance upon the exemptions from registration provided
by Sections 4(2) and 4(6) under the Securities Act of 1933 based upon
the fact that there was only one individual to whom the common shares
were "sold" and the status of Mr. Galvis as an executive officer and
director of the Company.
(d) Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
(a), (b) Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) - (d) Not Applicable
ITEM 5. OTHER INFORMATION
No response required
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: See Index to Exhibits at page 12.
(b) REPORTS ON FORM 8-K: No reports on Form 8-K were filed during the
quarter ended April 1, 2000.
Page 10 of 23 pages
11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R. G. BARRY CORPORATION
-----------------------
Registrant
MAY 12, 2000 /s/ RICHARD L. BURRELL
- ------------ -------------------------------
date Richard L. Burrell
Senior Vice President - Finance
(Principal Financial Officer)
(Duly Authorized Officer)
Page 11 of 23 pages
12
R. G. BARRY CORPORATION
INDEX TO EXHIBITS
Exhibit Number Description LOCATION
- -------------- ----------- --------
4 Loan Agreement, dated as of January 21, 2000, among Filed herewith
Banque Tarneaud, SA, Banque Nationale de Paris, and
Escapade SA
10 Restricted Stock Agreement, effective as of March 23, Filed herewith
2000, between R. G. Barry Corporation and Christian
Galvis
27 Financial Data Schedule 23
(Period ended April 1, 2000)
Page 12 of 23 pages