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 July 4, 1998
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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 office) (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 July 4, 1998 - 9,691,706
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Index to Exhibits at page 10
Page 1 of 14 pages
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
July 4, 1998 January 3, 1998
------------ ---------------
(in thousands)
ASSETS:
Cash and cash equivalents $ 2,387 22,495
Accounts receivable, less allowances 10,713 16,961
Inventory (note 3) 59,613 35,602
Deferred income taxes (note 4) 4,827 4,827
Recoverable income taxes 1,113 --
Prepaid expenses 2,668 2,669
-------- -------
Total current assets 81,321 82,554
-------- -------
Property, plant and equipment, at cost 41,599 40,840
Less accumulated depreciation & amortization 27,600 26,609
-------- -------
Net property, plant and equipment 13,999 14,231
-------- -------
Goodwill, less accumulated amortization 4,172 4,230
Other assets 3,852 3,659
-------- -------
$103,344 104,674
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current installments of long-term debt
and capital lease obligations 2,273 2,273
Short-term notes payable 10,500 --
Accounts payable 8,042 6,389
Accrued expenses 1,607 11,355
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Total current liabilities 22,422 20,017
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Accrued retirement costs and other, net 4,472 4,057
Long-term debt and capital lease obligations,
excluding current installments:
Note payable 10,714 12,857
Capital lease obligations 135 135
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Long-term debt and capital lease obligations 10,849 12,992
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Total liabilities 37,743 37,066
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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) 9,692 9,564
Additional capital in excess of par value 15,061 14,629
Deferred compensation (note 6) (218) --
Retained earnings 41,066 43,415
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Net shareholders' equity 65,601 67,608
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$103,344 104,674
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Page 2 of 14 pages
3
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
July 4, June 28, July 4, June 28,
1998 1997 1998 1997
---- ---- ---- ----
(in thousands)
Net sales $16,910 14,511 32,503 29,474
Cost of sales 8,180 7,623 13,626 14,227
------- ------ ------ ------
Gross profit 8,730 6,888 18,877 15,247
Selling, general and
administrative expense 11,103 9,577 22,440 19,664
------- ------ ------ ------
Operating loss (2,373) (2,689) (3,563) (4,417)
Other income 87 98 191 243
Interest expense (401) (450) (784) (827)
Interest income 24 32 241 203
------- ------ ------ ------
Net interest expense (377) (418) (543) (624)
Loss before
tax benefit (2,663) (3,009) (3,915) (4,798)
Income tax benefit (note 4) (1,065) (1,203) (1,566) (1,919)
------- ------ ------ ------
Net loss $(1,598) (1,806) (2,349) (2,879)
======= ====== ====== ======
Net loss per common share (note 5)
Basic $ (0.16) (0.19) (0.24) (0.30)
======= ====== ====== ======
Diluted $ (0.16) (0.19) (0.24) (0.30)
======= ====== ====== ======
Average number of common
shares outstanding
Basic 9,695 9,489 9,647 9,451
======= ====== ====== ======
Diluted 9,695 9,489 9,647 9,451
======= ====== ====== ======
Page 3 of 14 pages
4
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Twenty-six Twenty-six
weeks ended weeks ended
July 4, 1998 June 28, 1997
------------ -------------
(in thousands)
Cash flows from operating activities:
Net loss $ (2,349) (2,879)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of
property, plant and equipment 871 831
Amortization of goodwill 58 58
Net (increase) decrease in:
Accounts receivable, net 6,248 9,951
Inventory (24,011) (21,843)
Prepaid expenses 1 (493)
Recoverable income taxes (1,113) (1,558)
Other (193) 35
Net increase (decrease) in:
Accounts payable 1,653 3,170
Accrued expenses (9,748) (7,032)
Accrued retirement costs and other 415 406
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Net cash used in operating activities (28,168) (19,354)
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Cash flows from investing activities:
Additions to property, plant and equipment, net (639) (1,031)
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Cash flows from financing activities:
Proceeds from short-term notes 10,500 9,000
Stock options exercised, net of treasury acquisitions 342 500
Repayment of long-term debt and
capital lease obligations (2,143) 0
-------- -------
Net cash provided by financing activities 8,699 9,500
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Net decrease in cash (20,108) (10,885)
Cash at the beginning of the period 22,495 13,187
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Cash at the end of the period $ 2,387 2,302
======== =======
Supplemental cash flow disclosures:
Interest paid $ 1,532 789
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Income taxes paid $ 6,933 3,904
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Page 4 of 14 pages
5
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
Under Item 1 of Part I of Form 10-Q
for the Periods ended
July 4, 1998 and June 28, 1997
1. These interim 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.
Fiscal 1998 is a fifty-two week year, fiscal 1997 was a fifty-three week
year.
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 July 4, 1998 and June 28, 1997,
consists of:
1998 1997
---- ----
Current:
U. S. Federal $(1,335) $(1,612)
State & Local (231) (307)
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Total $(1,566) $(1,919)
======= =======
The income tax benefit reflects a combined federal, foreign, state and
local effective rate of 40.0 percent for both years, as compared to the
statutory U. S. federal rate of 35.0 percent in both years.
Income tax for the periods ended July 4, 1998 and June 28, 1997 differed
from the amounts computed by applying the U. S. federal income tax rate of
35.0 percent to pretax loss as a result of the following:
1998 1997
---- ----
Computed "expected"
tax benefit:
U. S. Federal benefit $(1,370) $(1,631)
Other (46) (85)
State & Local benefit, net of
federal income tax benefit (150) (203)
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Total $(1,566) $(1,919)
======= =======
5. The computation of basic loss per common share has been computed based on
the weighted average number of common shares outstanding during each
period. Diluted 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.
6. Pursuant to agreements with two key executives, entered into in January
1998, the Company is committed to issue a total of 10,000 common shares to
each executive ratably over the next eight years, subject to the terms of
the agreement. Upon achievement of certain profit goals in any fiscal year,
the issuance of common shares may be accelerated. The Company will expense
the costs associated with the agreements over the eight-year term of the
agreements.
Page 5 of 14 pages
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R. G. BARRY CORPORATION AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company ended the second quarter of 1998 with $58.9 million in net working
capital. This compares with $51.6 million at the end of the same quarter in
1997, and $62.5 million at the end of fiscal 1997. The increase in net working
capital from the end of the second quarter of 1997 to the end of the second
quarter of 1998, is mostly due to the profit that the Company earned during
fiscal 1997. The decline in working capital from fiscal year end 1997 to the end
of the second quarter of 1998, is mainly the result of the seasonal loss
incurred during the second quarter of 1998, plus the scheduled periodic payment
on long-term debt made during the quarter.
Highlights of the significant changes in the components of the Company's net
working capital are:
o Accounts receivable increased at the end of the second quarter of 1998, to
$10.7 million from $8.6 million at the end of the second quarter of 1997,
and decreased from $17.0 million at the end of fiscal 1997. The increase in
receivables from second quarter 1997 to the second quarter of 1998, is
mainly due to the increase in net sales of 16.5 percent during the second
quarter of 1998 when compared with the same quarter of 1997. The decrease
from the end of fiscal 1997, represents a normal seasonal pattern of change
in receivables.
o Inventories at the end of the second quarter of 1998, at $59.6 million, are
about 17.6 percent greater than the inventory levels of $50.7 million one
year ago, and increased from $35.6 million as of the end of fiscal 1997.
The increase in inventories from the end of the second quarter of 1997 to
the end of the second quarter of 1998 represents increases in varying
elements of the Company's inventories [raw materials, work in-process and
finished goods] as the Company builds its operations in Europe and plans
for its future domestic growth needs. The increase in inventories from the
end of fiscal 1997, reflects normal seasonal patterns of inventories in
anticipation of supporting sales later in the year.
o The Company ended the second quarter of 1998, with $2.4 million in cash and
$10.5 million in short-term bank loans. This compares with the second
quarter of 1997, when the Company had $2.3 million in cash and $9 million
in short-term bank loans. The increase in short-term bank loans is largely
a result of borrowing under the Company's short-term Revolving Credit
Agreement to meet a scheduled long-term debt payment, due for the first
time in the life of the loan at the end of June, 1998. There were no
short-term bank loans outstanding at the end of fiscal 1997.
The Company's capital expenditures during the first half of 1998, amounted to
$639 thousand, compared with $1.0 million during the same period of 1997.
Capital expenditures in both years have been funded out of working capital.
The Company currently has in place a Revolving Credit Agreement ("Revolver"),
with its three main lending banks. The Revolver provides the Company a
seasonally adjusted available line of credit ranging from $6 million during
January, to a peak of $51 million from July through November. The Revolver
contains financial covenants typical of agreements of its type and duration. The
Company is in compliance with all the covenants of the Revolver, and all other
debt agreements. The Revolver, previously extended through 1999, contains
provisions for periodic extensions upon request and with the approval of the
banks. Subsequent to the end of the second quarter, the Revolver was extended
through 2000.
Results of Operations
- ---------------------
During the second quarter of 1998, net sales amounted to $16.9 million, an
increase of 16.5 percent from the $14.5 million during the second quarter of
1997. For the six months, net sales amounted to $32.5 million, a 10.3 percent
increase in net sales when compared with the first six months of 1997. Net sales
of the Company's slipper products, domestically and internationally, were
largely responsible for the increases in consolidated net sales.
Page 6 of 14 pages
7
Management's Discussion and Analysis of Financial Condition
and Results of Operations - continued
Gross profit during the second quarter of 1998, amounted to $8.7 million, or
51.6 percent of net sales. This compares with gross profit percent of 47.5
percent in the same quarter of 1997. For the six months, gross profit percent
also increased to 58.1 percent in 1998 compared with 51.7 percent in 1997. The
increase in gross profit percentages from year to year, is mainly due to the
Company's continuing efforts in the area of cost reduction such as the expanded
use of modular manufacturing, and a change in mix of individual styles and
products sold from year to year.
Selling, general and administrative expenses during the quarter amounted to
$11.1 million, an increase of 15.9 percent from the same quarter one year ago.
For the six months these expenses amounted to $22.4 million, an increase of 14.1
percent from the same six months last year. The percentage increases are in line
with the percentage increases in net sales for the periods. Included in these
expenses are the costs of the Company's expansion in the French slipper markets,
which began in the fourth quarter of 1997.
Net interest expense declined from 1997 to 1998. During the second quarter of
1998, net interest expense amounted to $377 thousand compared with $418 thousand
in the same period of 1997. For the six months, net interest expense also
declined to $543 thousand in 1998 from $624 thousand in 1997. The decrease in
net interest expense is principally due to the Company's lower average usage of
its Revolver during 1998, when compared with 1997.
For the second quarter of 1998, the Company incurred a net loss of $1.6 million,
or $0.16 per share, compared with a net loss during the same quarter of 1997 of
$1.8 million, or $0.19 per share. For the six months, the Company incurred a net
loss in 1998 of $2.3 million, or $0.24 per share, compared with a net loss in
1997 of $2.9 million, or $0.30 per share. Per share calculations for both years
are the same for both basic loss per share and for diluted loss per share.
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"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 its 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
competitive products and pricing pressures; currency risks; capacity,
efficiency, and supply constraints; weather conditions; 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 may vary from those currently anticipated.
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ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Not Applicable
Page 7 of 14 pages
8
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
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No response required
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
(a) through (d) Not Applicable
Item 3. Defaults Upon Senior Securities
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(a), (b) Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) The Annual Meeting of Shareholders of the Company (the "Annual
Meeting") was held on May 13, 1998. At the close of business on the
record date, March 16, 1998, 9,593,488 common shares were outstanding
and entitled to vote at the Annual Meeting. At the Annual Meeting,
8,711,801 or 90.8% of the outstanding common shares entitled to vote
were represented in person or by proxy.
(b) Directors elected at the Annual Meeting were:
Edward M. Stan
For: 8,672,570
Withheld: 39,231 Broker non-vote: none
Richard L. Burrell
For: 8,669,882
Withheld: 41,919 Broker non-vote: none
Philip G. Barach
For: 8,675,499
Withheld: 36,302 Broker non-vote: none
Other directors whose term of office continued after the Annual
Meeting:
Gordon Zacks Harvey M. Krueger
Christian Galvis William Giovanello
Charles E. Ostrander Leopold Abraham II
(c) See Item 4(b) for the voting results for directors
(d) Not Applicable
Item 5. Other Information
- --------------------------
As discussed in the Company's Proxy Statement for the Annual Meeting,
any qualified shareholder of the Company who intends to submit a
proposal to the Company at the 1999 Annual Meeting of Shareholders must
submit such proposal to the Company no later than November 27, 1998 to
be considered for inclusion in the Company's Proxy Statement and form
of Proxy ("Proxy") relating to that meeting. If a shareholder intends
to present a proposal at the 1999 Annual Meeting of Shareholders, but
has not sought the inclusion of such proposal in the Company's Proxy,
such proposal must be received by the Company prior to February 27,
1999 or the Company's management proxies for the 1999 Annual Meeting
will be entitled to use their discretionary voting authority should
such proposal then be raised, without any discussion of the matter in
the Company's Proxy.
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits: See Index to Exhibits at page 10.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended July 4, 1998.
Page 8 of 14 pages
9
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
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Registrant
August 04, 1998 /s/ Richard L. Burrell
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date Richard L. Burrell
Senior Vice President - Finance
(Principal Financial Officer)
(Duly Authorized Officer)
Page 9 of 14 pages
10
R. G. BARRY CORPORATION
INDEX TO EXHIBITS
Exhibit No. Description Page Number
----------- ----------- -----------
4 Agreement to Extend Revolving Credit Agreement, 11 - 12
dated as of May 20, 1998, among the Registrant, The
Bank of New York, The Huntington National Bank, and
NBD Bank
27.1 Financial Data Schedule 13
(Period ended July 4, 1998)
27.2 Financial Data Schedule 14
(Period ended June 28, 1997 Restated)
Page 10 of 14 pages