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 October 2, 1999
--------------------------------------
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
-----------------------
(Exact name of registrant as specified in its charter)
OHIO 31-4362899
------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
13405 Yarmouth Road NW, Pickerington, Ohio 43147
---------------------------------------------------
(Address of principal executive offices) (Zip Code)
614-864-6400
------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--------- ---------
Common Shares, $1 Par Value, Outstanding as of October 2, 1999 - 9,328,477
Index to Exhibits at page 14
Page 1 of 55 pages
2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
October 2, 1999 January 2, 1999
--------------- ---------------
(in thousands)
ASSETS:
Cash and cash equivalents $ 4,951 29,596
Accounts receivable, less allowances 37,064 15,985
Inventory (note 3) 50,995 38,648
Deferred income taxes (note 4) 3,729 3,729
Recoverable income taxes 2,149 --
Prepaid expenses 2,385 2,275
--------- --------
Total current assets 101,273 90,233
--------- --------
Property, plant and equipment, at cost 44,890 41,697
Less accumulated depreciation & amortization 30,215 28,822
--------- --------
Net property, plant and equipment 14,675 12,875
--------- --------
Goodwill, net 6,104 4,114
Other assets 4,433 4,123
--------- --------
$ 126,485 111,345
========= ========
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current installments of long-term debt
and capital lease obligations 2,278 2,278
Short-term notes payable 30,000 --
Accounts payable 10,171 6,581
Accrued expenses 1,426 8,404
--------- --------
Total current liabilities 43,875 17,263
--------- --------
Accrued retirement costs and other 6,151 5,288
Long-term debt excluding current installments:
Note payable 8,571 10,714
--------- --------
Total liabilities 58,597 33,265
--------- --------
Minority interest 524 --
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) 9,328 9,745
Additional capital in excess of par value 11,976 15,357
Deferred compensation (482) (204)
Retained earnings 46,542 53,182
--------- --------
Net shareholders' equity 67,364 78,080
--------- --------
$ 126,485 111,345
========= ========
Page 2 of 55 pages
3
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen weeks ended Thirty-nine weeks ended
-------------------- -----------------------
October 2, October 3, October 2, October 3,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
Net sales 48,118 $ 52,387 88,020 93,156
Cost of sales 26,433 25,418 52,823 47,310
------- -------- ------- -------
Gross profit 21,685 26,969 35,197 45,846
Selling, general and
administrative expense 18,820 16,460 45,261 38,900
------- -------- ------- -------
Operating income (loss) 2,865 10,509 (10,064) 6,946
Other income 130 102 414 293
Interest expense (674) (675) (1,311) (1,459)
Interest income 12 11 313 252
------- -------- ------- -------
Net interest expense (662) (664) (998) (1,207)
Earnings (loss) before income
tax (benefit) 2,333 9,947 (10,648) 6,032
Income tax (benefit) (note 4) 860 3,882 (4,008) 2,316
------- -------- ------- -------
Net earnings (loss) 1,473 6,065 (6,640) 3,716
======= ======== ======= =======
Earnings (loss) per common share (note 5)
Basic 0.15 0.62 (0.70) 0.38
======= ======== ======= =======
Diluted 0.15 0.61 (0.70) 0.37
======= ======== ======= =======
Average number of common
shares outstanding
Basic 9,337 9,733 9,490 9,676
======= ======== ======= =======
Diluted 9,337 10,050 9,490 10,004
======= ======== ======= =======
Page 3 of 55 pages
4
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
Thirty-nine Thirty-nine
weeks ended weeks ended
October 2, 1999 October 3, 1998
--------------- ---------------
(in thousands)
Cash flows from operating activities:
Net earnings (loss) $ (6,640) 3,716
Adjustments to reconcile net earnings (loss) to
net cash used in operating activities, net of
the effects of acquired company:
Depreciation and amortization of
property, plant and equipment 1,393 1,510
Amortization of goodwill 86 86
Net (increase) decrease in:
Accounts receivable, net (18,406) (26,393)
Inventory (11,488) (16,112)
Prepaid expenses (44) (2)
Recoverable income taxes (2,149) --
Other (257) 454
Net increase (decrease) in:
Accounts payable 1,058 764
Accrued expenses (7,104) (6,174)
Accrued retirement costs and other 863 598
-------- -------
Net cash used in operating activities (42,688) (41,553)
-------- -------
Cash flows from investing activities:
Acquisition of business, net of cash acquired (2,788) --
Additions to property, plant and equipment, net (2,912) (596)
-------- -------
Net cash used in investing activities (5,700) (596)
-------- -------
Cash flows from financing activities:
Proceeds from short-term notes 30,000 24,000
Stock options exercised 35 475
Treasury share acquisitions (4,149) --
Repayment of long-term debt and
capital lease obligations (2,143) (2,143)
-------- -------
Net cash provided by financing activities 23,743 22,332
-------- -------
Net decrease in cash (24,645) (19,817)
Cash at the beginning of the period $ 29,596 22,495
-------- -------
Cash at the end of the period $ 4,951 2,678
======== =======
Supplemental cash flow disclosures:
Interest paid $ 1,537 1,733
======== =======
Income taxes paid $ 5,583 6,751
======== =======
Page 4 of 55 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
October 2, 1999 and October 3, 1998
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,
ending annually on the Saturday nearest December 31. Fiscal 1999 and fiscal
1998 are both fifty-two week years.
3. A substantial portion of inventory is valued using the dollar value LIFO
method; 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 October 2, 1999 and October 3,
1998, consists of:
1999 1998
---- ----
Current:
U. S. Federal $(3,721) $2,166
State & Local (287) 150
------- ------
Total $(4,008) $2,316
======= ======
The income tax (benefit) reflects a combined federal, foreign, state and
local effective rate of 37.6 percent and 38.4 percent for the first nine
months of 1999 and 1998, respectively, as compared to the statutory U. S.
federal rate of 35.0 percent in both years.
Income tax (benefit) for the periods ended October 2, 1999 and October 3,
1998 differed from the amounts computed by applying the U. S. federal
income tax rate of 35.0 percent to pretax profit (loss) as a result of the
following:
1999 1998
---- ----
Computed "expected"
tax (benefit):
U. S. Federal tax (benefit) $(3,727) $2,111
Other (94) 107
State & Local tax
(benefit), net of federal
income tax (187) 98
------- ------
Total $(4,008) $2,316
======= ======
5. The computation of basic earnings (loss) per common share has been computed
based on the weighted average number of common shares outstanding during
each period. Diluted earnings (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. Effective July 22, 1999, the Company acquired 80% of the outstanding stock
of Escapade SARL, which owns Fargeot et Compagnie SA and Michel Fargeot SA
(collectively "Fargeot"), all of Thiviers, France. Fargeot manufactures and
markets slipper type footwear. The purchase price of $4,173,000 was paid in
cash, and the acquisition has been accounted for by the purchase method of
accounting. The acquisition did not result in a significant business
combination within the definition provided by the Securities and Exchange
Commission and therefore, pro forma financial information has not been
presented.
Page 5 of 55 pages
6
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
Under Item 1 of Part I of Form 10-Q
for the periods ended October 2, 1999 and October 3, 1998
(continued)
7. Segment Information - The Company maintains two operating segments: Barry
Comfort manufactures and markets comfort footwear for
at-and-around-the-home; and Thermal supplies thermal retention technology
products. 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 between the operating segments, such as a) costs of
certain administrative functions, b) current and deferred income tax
expense (benefit) and deferred tax assets (liabilities), and c) certain
operating provisions.
Thirty-nine weeks ended
October 2, 1999 Barry Intersegment
(in thousands) Comfort Thermal Eliminations Total
------- ------- ------------ -----
Net sales $ 82,462 $ 5,786 $ (228) $ 88,020
Depreciation and amortization 1,206 187 1,393
Interest income 518 (205) 313
Interest expense 1,311 205 (205) 1,311
Pre tax earnings (loss) (7,337) (3,282) (29) (10,648)
Additions to property, plant
and equipment 2,801 111 2,912
Total assets devoted $ 124,000 $ 6,960 $(4,475) $ 126,485
========= ======= ======= =========
Thirty-nine weeks ended
October 3, 1998 Barry Intersegment
(in thousands) Comfort Thermal Eliminations Total
------- ------- ------------ -----
Net sales $ 87,288 $ 6,264 $ (396) $ 93,156
Depreciation and amortization 1,336 174 1,510
Interest income 434 (182) 252
Interest expense 1,459 182 (182) 1,459
Pre tax earnings (loss) 6,875 (724) (119) 6,032
Additions to property, plant
and equipment 520 76 596
Total assets devoted $120,176 $ 9,671 $(3,937) $125,910
======== ======= ======= ========
8. The Company currently accounts for sales returns using a net sales
approach. Previously, it had followed a cost of sales approach. As a result
of this reclassification, there has been no impact on gross profit, net
earnings or loss, or earnings or loss per share for any period noted.
All previously presented financial statements have been reclassified to
conform to this presentation.
Page 6 of 55 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
The Company ended the third quarter of 1999 with $57.4 million in net working
capital. This compares with $66.6 million at the end of the same quarter in
1998, and $73.0 million at the end of fiscal 1998.
Much of the decline in net working capital from period to period is the result
of the following:
o During the first half of 1999, the Company purchased in the open market
approximately 478 thousand of its common shares, totaling, about $4.2
million to be held in Treasury,
o Early in the third quarter, the Company completed the acquisition of an 80%
interest in Fargeot, a French slipper manufacturer, at a cost of about $4.2
million in cash,
o Capital expenditures for the first nine months of 1999 amounted to $2.9
million,
o During the first nine months, the Company incurred a net loss of $6.6
million, and
o Late in the second quarter of 1999, the Company made a $2.1 million
scheduled repayment of long-term debt.
As noted, capital expenditures during the first nine months of 1999 amounted to
$2.9 million, compared with $596 thousand during the same period of 1998.
Capital expenditures in 1999, are higher than in most previous years, primarily
due to projects unique to 1999, the more significant of which were: I) equipping
a new warehouse in San Antonio, Texas; II) starting up of a plant in the
Dominican Republic; and III) purchasing a warehouse in Goldsboro, North
Carolina, formerly leased by the Company. Capital expenditures have been funded
out of working capital.
Highlights of the significant changes in the components of the Company's net
working capital are:
o At the end of the third quarter of 1999, accounts receivable at $37.1
million, were about $6.3 million less than the $43.4 million at the end of
the third quarter of 1998. A substantial portion of the decline is the
consequence of the decrease in net sales during the third quarter of 1999
when compared with the same quarter of 1998. The increase in accounts
receivable from the fiscal year end 1998 balance of $16.0 million,
represents a normal seasonal pattern of change in receivables.
o Inventories at the end of the third quarter of 1999, at $51.0 million, are
about $0.7 million lower than the inventory levels of $51.7 million
one-year ago, although increased from $38.6 million at the end of fiscal
1998. The decline in inventories from the end of the third quarter of 1998
to the end of the third quarter of 1999 is the outcome of a previously
announced plan to systematically reduce inventory. As noted in the
discussion of the results of operations that follows regarding net sales
for the quarter, the Company believes that it postponed about $8 million of
shipments from late in the third quarter into the fourth quarter. Rising
waters at the Company's distribution center in Goldsboro, North Carolina
following Hurricane Floyd, caused the shipment of about $3.5 million in
customer orders to be delayed from late September into October. In
addition, the Company estimates about $5 million of September orders were
pushed into October, as a result of manufacturing inefficiencies.
Manufacturing production inefficiencies created production shortfalls,
which forced the Company to defer shipment of certain orders from September
to October, until each order could be shipped complete to customers. Were
it not for the deferral of these shipments from the third quarter into the
fourth quarter, inventories would have decreased by about $4 million when
compared with the same quarter last year. The increase in inventories from
the end of fiscal 1998, reflects a normal seasonal pattern of change in
inventory.
o The Company ended the third quarter of 1999, with $5.0 million in cash and
$30.0 million in short-term bank loans. This compares with the third
quarter of 1998, when the Company had $2.7 million in cash and $24.0
million in short-term bank loans. The increase in short-term bank loans, at
the end of the third quarter, was largely due the Company's expenditures
earlier in the year, as previously discussed: I) to acquire an 80% interest
in Fargeot, during the third quarter, and II) to purchase in the open
market, about 478 thousand of the Company's common shares, totaling about
$4.2 million, to be held in Treasury. There were no short-term bank loans
outstanding at the end of fiscal 1998.
Page 7 of 55 pages
8
Management's Discussion and Analysis of Financial Condition and
Results of Operations - continued
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 Company
believes that 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, which contains
provisions for periodic extensions upon request and with the approval of the
banks, currently extends through the end of the year 2001.
Impact of Recently Issued Accounting Standards
In January 1999, the Company adopted Statement of Position 98-1 ("SOP 98-1")
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 requires that certain costs related to the development
or purchase of internal-use software be capitalized and amortized over the
estimated useful life of the software. SOP 98-1 also requires that costs related
to the preliminary project stage and the post-implementation/operations stage
(as defined in SOP 98-1) in an internal-use computer software development
project be expensed as incurred. The adoption of SOP 98-1 did not affect results
of operations or financial position of the Company.
In addition, in January 1999, the Company adopted Statement of Position 98-5
("SOP 98-5"), "Reporting on the Costs of Start-Up Activities ". The SOP requires
that costs incurred during start-up activities, including organization costs, be
expensed as incurred. The adoption of SOP 98-5 did not affect results of
operations or financial position.
The FASB has issued Statements No. 133 and No. 137, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in 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.
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. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.
Year 2000 Readiness Disclosures
The Company has conducted a review of its key financial, information and
operating systems to determine the extent to which it is exposed to so-called
year 2000 computer date problems. The Company believes that all of its critical
application systems have been converted to correct for potential problems. The
Company has conducted extensive tests, which have confirmed the readiness of its
systems. Key suppliers and electronic trading partners have been contacted to
obtain their commitments to conversion and readiness, so as to minimize problems
relating to the exchange of electronic data. The Company has not separately
identified the costs associated with its conversion, but estimates that the
costs incurred, which have been expensed as incurred, have not been material,
and does not anticipate the future impact on its financial condition, results of
operations or cash flows will be material. The possibility exists that the
Company's conversion could inadvertently fail, although the Company believes
that the impact of such an occurrence would be manageable and minor in impact as
a result of substantial equipment and software upgrades implemented in recent
years. The Company is not dependent upon any one customer or any one supplier to
conduct its business and the Company believes that should one of its suppliers
or customers prove not to become year 2000 compliant in a timely manner, the
Company can revert to alternative compliant suppliers or resort to increased use
of traditional methods of transacting business to satisfy its customer needs. If
in the future, the Company uncovers additional risks associated with year 2000
compliance, the Company will develop contingency plans at that time as deemed
necessary.
Page 8 of 55 pages
9
Management's Discussion and Analysis of Financial Condition and
Results of Operations - continued
Results of Operations
During the third quarter of 1999, net sales amounted to $48.1 million, an 8.1
percent decline when compared with net sales of $52.4 million during the third
quarter of 1998. For the nine months, net sales amounted to $88.0 million, a 5.5
percent decline in net sales when compared with the first nine months of 1998.
Several factors contributed to the decline in net sales during the third quarter
and the nine months:
o Throughout most of 1999, the Company operated its plants at less than
capacity, in a largely successful endeavor to reduce the Company's
inventory levels. This effort, while successful at reducing inventory
levels, had a greater than expected negative impact on plant efficiencies
and manufacturing costs. It also created production shortfalls in the third
quarter that forced the Company to reschedule into the fourth quarter,
approximately $5 million of customer orders intended to be shipped in
September. Although the Company filled these orders in the fourth quarter,
late deliveries increased the possibility of order cancellations.
o Hurricane Floyd and the resulting widespread flooding in eastern North
Carolina, caused the Goldsboro, North Carolina Distribution Center to close
for five days in late September. This prevented the shipment of an
estimated $3.5 million of third quarter orders. These orders were
subsequently shipped early in October.
In addition to the factors noted in the prior paragraph, several factors
discussed in prior Form 10-Q's, press releases, and other shareholder
communications had an impact of net sales for the nine months:
o The strategic decisions of certain national chain department store
customers to purchase a portion of their slippers directly from other
suppliers, utilizing their own private label brands, reduced the amount of
the Company's Dearfoams(R) brand slippers that they purchased. This was a
significant factor during the first half of the year, although impacting
the third quarter to a lesser extent.
o In addition, the Company has discussed the slowdown in sales to a strategic
alliance consumer housewares customer, Corning Consumer Products. Corning
has considered an alternative technology supply, which the Company believes
is cheaper although less effective than the Company's thermal retention
technology. The Company believes that Corning has made its decision to
pursue that alternative source of supply. As such, the Company believes
that any additional future sales to Corning will be insignificant.
o Earlier in the year, the Company learned that Upton's stores were going out
of business, and the Company has adjusted its sales estimates to reflect
this lost business.
Gross profit during the third quarter, amounted to $21.7 million, or 45.1
percent of net sales. This compares with gross profit of $27.0 million, or 51.5
percent of net sales in the same quarter of 1998. For the nine months, gross
profit percent also decreased to 40.0 percent in 1999 compared with 49.2 percent
in 1998. Most of the decline in gross profit dollars relates to the deferral of
net sales from September to October as discussed in earlier paragraphs. The
Company's goal of bringing about a reduction in inventory levels throughout 1999
has had a negative impact on gross profit as a percent of net sales. Lowering
inventory has been accomplished mainly by operating manufacturing plants
throughout most of 1999, at less than full capacity and at lower efficiencies.
Selling, general and administrative expenses during the quarter amounted to
$18.8 million, an increase of 14.3 percent from the same quarter one-year ago.
For the nine months these expenses amounted to $45.3 million, an increase of
16.4 percent from the same nine month period last year. Expenses increased
during the periods, even though net sales declined. As noted in prior Form
10-Q's, the Company has decided to continue with several long-term productivity
improvement projects that will have a negative impact short-term on expenses,
although the Company believes that the long-term benefits from these projects
will outweigh the short-term costs.
Page 9 of 55 pages
10
Management's Discussion and Analysis of Financial Condition and
Results of Operations - continued
The legal defense of the Company's thermal product patents and intellectual
property rights and the continued development work on a hot food delivery system
also have had a negative impact on expenses during 1999.
Net interest expense declined from 1998 to 1999. During the third quarter of
1999, net interest expense amounted to $662 thousand compared with $664 thousand
in the same period of 1998. For the nine months, net interest expense also
declined to $998 thousand from $1.2 million in 1998. The decrease in net
interest expense is principally due to the Company's lower average usage of its
Revolver, mainly during the first half of 1999, when compared with 1998.
For the third quarter of 1999, the Company earned $1.5 million, or $0.15 per
share, compared with net earnings of $6.1 million, or $0.61 per share during the
same quarter of 1998. For the nine months, the Company incurred a net loss in
1999 of $6.6 million, or $0.70 per share, compared with net earnings in 1998 of
$3.7 million, or $0.37 per share. All per share references are on a diluted
share basis.
- --------------------------------------------------------------------------------
"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. These risks include 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;
implementation of the Euro; economic conditions, 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, including
successfully addressing year 2000 issues; 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.
- --------------------------------------------------------------------------------
Page 10 of 55 pages
11
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risks
The Company transacts business in several foreign countries. Its primary foreign
currency net cash outflows occur in Mexico and China, and beginning later in
1999, the Company also expects to incur net cash outflows in the Dominican
Republic. The Company does not hedge its anticipated foreign currency cash
outflows in the Mexican Peso, the Chinese Renminbi or the Dominican peso, as
these currencies generally have declined in value, over time, when compared with
the U. S. Dollar. In addition, forward contracts in these currencies are
generally neither readily nor economically available.
The Company's primary foreign currency net cash inflows are generated from
Canada and Western Europe. The Company does employ a foreign currency hedging
program utilizing currency forward exchange contracts for its anticipated net
cash inflows in the Canadian Dollar, British Pound, and French and Swiss Francs.
Under this program, increases or decreases in the Company's net local operating
revenue and expenses as measured in U. S. Dollars are partially offset by
realized gains and losses on hedging instruments. The goal of the hedging
program is to economically fix the exchange rates on the Company's projected
foreign currency net cash inflows. The Company does not use foreign currency
forward contracts for trading purposes.
All foreign currency contracts are marked-to-market and unrealized gains and
losses are included in the current period's calculation of net income. Because
not all economic hedges qualify as accounting hedges, unrealized gains and
losses may be recognized in net income in advance of the actual projected
foreign currency net cash flows. This often results in a mismatch of accounting
gains and losses, and transactional foreign currency net cash flow gains and
losses.
The Company believes that the impact of these foreign currency forward contracts
is not material to the Company's financial condition or results of operations.
At the end of the third quarter of 1999, the Company had foreign currency
contracts outstanding to sell forward the following currencies. All contracts
mature later in 1999.
Nominal Amount in Approximate Estimated Fair Unrealized Gain
thousands of Average Value as of (Loss), as of
US Dollars Exchange Rate October 2, 1999 October 2, 1999
---------- ------------- --------------- ---------------
Pound Sterling $1,792 US$1 = GBP 0.61 $1,820 $(28)
French Francs $1,518 US$1 = FRF 5.93 $1,471 $ 47
Swiss Francs $ 422 US$1 = CHF 1.42 $ 404 $ 17
Page 11 of 55 pages
12
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
On September 10, 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. The '962 patent covers an invention which maintains the
desired temperature of food and other items using a phase change
material. Domino's Pizza, Inc. purchases a product, which it calls the
"Heat Wave" system. The product is manufactured by Phase Change
Laboratories, Inc. The Company believes that the product infringes upon
the '962 Patent. The Company seeks damages, attorney's fees and
injunction against further infringement by both defendants. The matter
is currently in discovery. A mediator has been selected to aid in
settlement discussions. The case has been amended to add a claim for
deceptive advertising. The case has been assigned Civil Action No.
1:98CV00802.
Item 2. Changes in Securities and Use of Proceeds
(a) through (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) through (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 14.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended October 2, 1999.
Page 12 of 55 pages
13
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
November 16, 1999
- -----------------
date
/s/ Richard L. Burrell
Richard L. Burrell
Senior Vice President - Finance
(Principal Financial Officer)
(Duly Authorized Officer)
Page 13 of 55 pages
14
R. G. BARRY CORPORATION
INDEX TO EXHIBITS
Exhibit No. Description Page Number
----------- ----------- -----------
2.1 Stock Purchase Agreement, dated July 22, 1999, between 15 - 38
Mr. Thierry Civetta, Mr. Michel Fargeot, FCPR County
Natwest Venture France, SCA Capital Prive-Investissements,
Hoche Investissements, and SA Capital Prive, parties of
the first part, and R. G. Barry Corporation and Escapade SA,
parties of the second part.
10.1 Shareholders' Agreement, dated July 20, 1999 and 39 - 46
executed on July 22, 1999, between Mr. Thierry Civetta
and R. G. Barry Corporation
10.2 Current Account Agreement, executed on July 22, 1999, 47 - 48
between Escapade SA and Mr. Thierry Civetta
10.3 Joint Guarantee, granted by Credit Suisse Hottinguer, as 49 - 52
guarantor, to R. G. Barry Corporation, as beneficiary, and
executed on July 22, 1999
10.4 Loan Agreement, executed on July 22, 1999, between 53 - 54
Escapade SA and R. G. Barry France Holdings, Inc.
27 Financial Data Schedule 55
(Period October 2, 1999)
Page 14 of 55 pages