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BARRY R G CORP 10-K 2009 Documents found in this filing:Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended June 27, 2009
OR
For the transition period from to
Commission File Number 001-08769
R.G. BARRY CORPORATION
(Exact name of Registrant as specified in its charter)
Securities registered pursuant to Section 12(b) of the Act:
Securities registered pursuant to Section 12(g) of the Act:
None Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the Registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes o No þ
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 þ 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 (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files). Yes o No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to
the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. 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.
Indicate by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Act). Yes o No þ
State the aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was last sold, or the
average bid and asked price of such common equity, as of the last business day of the Registrant’s
most recently completed second fiscal quarter: $47,842,438 as of December 26, 2008.
Indicate the number of shares outstanding of each of the Registrant’s classes of common stock,
as of the latest practicable date: 10,722,494 common shares, $1.00 par value, as of September 2,
2009.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant’s definitive Proxy Statement to be furnished to shareholders of
the Registrant in connection with the Annual Meeting of Shareholders to be held on October 29,
2009, which will be filed pursuant to SEC Regulation 14A not later than 120 days after June 27,
2009, are incorporated by reference into Part III of this Annual Report on Form 10-K to the extent
provided herein.
R.G. BARRY CORPORATION
FISCAL 2009
Form 10-K ANNUAL REPORT TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995:
Some of the disclosures in this Annual Report on Form 10-K for the fiscal year ended June 27,
2009 (the “2009 Form 10-K”) contain forward-looking statements that involve substantial risks and
uncertainties. You can identify these statements by forward-looking words such as “may,” “will,”
“expect,” “could,” “should,” “anticipate,” “believe,” “estimate,” or words with similar meanings.
Any statements that refer to projections of our future performance, anticipated trends in our
business and other characterizations of future events or circumstances are forward-looking
statements. These statements, which are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995, are based upon our current plans and strategies
and reflect our current assessment of the risks and uncertainties related to our business. These
risks include, but are not limited to: our continuing ability to source products from third parties
located outside North America; competitive cost pressures; the loss of retailer customers to
competitors, consolidations, bankruptcies or liquidations; shifts in consumer preferences; the
impact of the highly seasonal nature of our business upon our operations; inaccurate forecasting of
consumer demand; difficulties liquidating excess inventory; disruption of our supply chain or
distribution networks; and our investment of excess cash in certificates of deposit and other
non-auction rate marketable securities. You should read this 2009 Form 10-K carefully, because the
forward-looking statements contained in it (1) discuss our future expectations; (2) contain
projections of our future results of operations or of our future financial condition; or (3) state
other “forward-looking” information. The risk factors described in this 2009 Form 10-K and in our
other filings with the Securities and Exchange Commission, in particular “Item 1A. Risk Factors”of
Part I of this 2009 Form 10-K, give examples of the types of uncertainties that may cause actual
performance to differ materially from the expectations we describe in our forward-looking
statements. If the events described in “Item 1A. Risk Factors” of Part I of this 2009 Form 10-K
occur, they could have a material adverse effect on our business, operating results and financial
condition. You should also know that it is impossible to predict or identify all risks and
uncertainties related to our business. Consequently, no one should consider any such list to be a
complete set of all potential risks and uncertainties. Forward-looking statements speak only as of
the date on which they are made, and we undertake no obligation to update any forward-looking
statement to reflect circumstances or events that occur after the date on which the statement is
made to reflect unanticipated events. Any further disclosures in our filings with the Securities
and Exchange Commission should also be considered.
DEFINITIONS
All references in this 2009 Form 10-K to “we”, “us”, “our”, and the “Company” refer to R.G.
Barry Corporation, an Ohio corporation (the registrant) or, where appropriate, to R.G. Barry
Corporation and its subsidiaries. The Company’s annual reporting period is either a fifty-two or
fifty-three-week period (“fiscal year”) ending annually on the Saturday nearest June 30. For
definitional purposes, as used herein, the terms listed below include the respective periods noted:
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PART I
Item 1. Business.
BUSINESS AND PRODUCTS
Overview
We are a leading developer and marketer of accessory footwear, a retail category led by
slippers, but one that also encompasses sandals, hybrid and active fashion footwear, slipper socks
and hosiery. We serve a broad spectrum of North American retailers of all size and retail category
with our family of proprietary and licensed brands. We also develop and source private label
accessory footwear products for some of North America’s leading retailers.
From our founding in 1947 until early 2004, we operated as a manufacturing-based developer and
marketer of accessory footwear products. Beginning in 2004, we implemented a new, flexible business
and sourcing model. Under the new model, we exited our international slipper manufacturing
operations; reduced operating costs and financially restructured our business; strengthened senior
management; and developed and implemented a long-term growth strategy. As a result of these
changes, we have recorded consistent profitability and increased net sales annually since 2005, a
period that included some of the most difficult retail seasons in decades.
Approximately 85% of our fiscal 2009 net sales were from slipper-type products sold under our
own brands with the remainder of fiscal 2009 net sales divided among private label and licensed
accessory footwear products.
We traditionally record approximately 70% of our net sales in the second six months of the
calendar year. We have identified the popularity of slippers as a holiday gift item as being
principally responsible for this heavy seasonal weighting. One of our on-going corporate objectives
is to locate and acquire or develop businesses that will add more seasonal balance to our business
model.
As a recognized leader in many of the core competencies necessary for success in the accessory
footwear business, we incorporate our strengths in design and product development; sourcing quality
and value; consumer brand marketing; retail category management; supply chain and logistics; and
relationship building into our long-term growth strategy. This strategy also includes investing in
and nurturing our core brands; continuing diversification through category appropriate
acquisitions; entering meaningful branding and licensing opportunities; targeting new or
underserved retailers; introducing innovative, new products and brands; and expanding
internationally through distributorships.
Within the framework of our growth strategy, management also focuses on controlling risk,
improving liquidity, increasing cash reserves, protecting the balance sheet, generating an
appropriate return on investments and keeping the business sustainable while taking the kinds of
intelligent risks that are necessary to encourage long-term, profitable growth.
Prior to the June 2007 sale of our wholly-owned French subsidiary Escapade, S.A. and its
Fargeot et Compagnie, S.A. subsidiary (collectively, “Fargeot”), we operated in two segments: the
Barry North America Group and the Barry Europe Group, which included Fargeot. The sale of Fargeot
was reported as discontinued operations as of the end of fiscal 2007 and is discussed further in
Note (18) of the Notes to Consolidated Financial Statements included in “Item 8. Financial
Statements and Supplementary Data.” of this 2009 Form 10-K. We now report our operations as a
single operating segment, North America.
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Selected financial information about the operating segments by geographic region for fiscal
2009, fiscal 2008 and fiscal 2007 is presented in Note (16) of the Notes to Consolidated Financial
Statements included in “Item 8. Financial Statements and Supplementary Data.” in this 2009
Form 10-K.
Our executive offices are located at 13405 Yarmouth Road N.W., Pickerington, Ohio 43147. Our
telephone number is (614) 864-6400, and our corporate Internet website can be accessed at
www.rgbarry.com (this uniform resource locator, or URL, is an inactive textual reference only and
is not intended to incorporate our website into this 2009 Form 10-K). We have been a public company
since 1962. Our common shares are principally traded on The NASDAQ Global Market (“NASDAQ-GM”)
under the trading symbol DFZ.
Principal Products
Since introducing Angel Treads*, the world’s first foam-soled, soft, washable slipper in 1947,
we have developed a number of our own accessory footwear brands as well as licensing well-known
brands from third parties. Most of our brand lines, both proprietary and licensed, feature slippers
for women and men. Most focus on comfort. Products sold under our own trademarks represented
approximately 87% of our consolidated net sales in fiscal 2009 while our licensed brand business
represented approximately 3% of consolidated net sales. We also develop and source accessory
footwear products for retailers who sell the footwear under their own private labels. These sales
represented approximately 10% of our consolidated net sales during fiscal 2009.
We think our trademarks have significant commercial value. In general, trademarks remain
valid and enforceable as long as they are used in connection with our products and services and the
required registration renewals are filed. The Company intends to continue the use of each of its
trademarks and renew each of its registered trademarks accordingly. In addition to Angel Treads*,
our current principal brand names include Dearfoams*, DF Women The Dearfoams Company*, DF Men The
Dearfoams Company*, Dearfoams DF™, The Dearfoams Company DFSport*, EZfeet*, Dearfoams NV*, Snug
Treds*, Solé™, Terrasoles*, Utopia™, and Soluna*.*
Currently, the principal products sold under trademarks licensed from third parties include
Levi’s** brand slippers and sandals for men, women and children; Nautica** slippers for women and
men; and Superga** canvas sneakers and active/fashion footwear for women, men and children.
Dearfoams* is our principal proprietary brand. Since its introduction in 1958, Dearfoams* has,
according to our consumer research, become one of the most-recognized brand names in accessory
footwear. Several basic slipper profiles are standard in the Dearfoams* brand line, its sub-brands
and our other proprietary and licensed slipper brands. These classic footwear silhouettes are in
demand throughout the year. The most significant changes to these traditional products are made in
response to broadly accepted fashion trends and can include slight variations in design,
ornamentation, fabric and color. These products typically have uppers made of man-made fibers such
as microfiber suede, knit terry and velour. In addition, corduroy, nylon and an updated assortment
of other man-made and natural materials may be used. We also regularly introduce new styles that
may offer enhanced comfort elements, fashion-forward design elements or other innovative or new
product attributes.
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Retail prices for most of our slipper-type products normally range from approximately $5 to
$30 per pair, depending on the style of footwear, retail channel and retailer mark-up. Most
consumers of our slippers fit within a range of four to six universal sizes. This is a smaller
range of sizes than those found in traditional footwear and allows us to carry lower inventory
levels than many traditional footwear suppliers.
We debut our new slipper product collections each spring and fall in conjunction with national
retail accessory buying markets and other national trade events. We plan to continue the
introduction of updated and new products in response to fashion changes, consumer taste preferences
and changes in the demographic makeup of our business.
As part of our ongoing effort to diversify our business from product, seasonal, demographic
and retail channel perspectives, we have expanded our product portfolio since 2006 to include
sandals, indoor/outdoor casual footwear and canvas/active fashion footwear. Many of these products
are sold into retail channels and to consumers not previously served by our core business. We sell
these products under our own brand names, such as Terrasoles*, and trademarks licensed from third
parties, such as Superga**, Levi’s** and Nautica**.
We launched Terrasoles*, a new kind of accessory footwear, in August 2007. Terrasoles* can be
worn beyond the home and was developed to specifically address the after-activity comfort footwear
needs of those engaged in or aspiring to a variety of sports and life styles. The brand also offers
users products with eco-friendly elements in its construction and packaging materials. Our
Terrasoles* brand products are sold through specialty stores, independent shoe stores, department
stores, outdoor retailers, Internet sites and catalogs. Retail prices of these products range
from $49 to $59. Terrasoles* products are displayed on a self-selection basis and are intended to
appeal primarily to the self-purchase buyer.
Licenses
In March 2009, we entered into a four-year licensing agreement with Levi Strauss & Company to
develop and market a collection of slippers and sandals for the United States market. Levi’s** is
one of the most widely-recognized brands in the world. Under the license, we agreed to certain
minimum royalty payments, payable quarterly. We have an option to renew the agreement for one
additional three year-term commencing on January 1, 2013 and ending December 31, 2015, if certain
sales driven terms established under the agreement are met. Our Levi’s** line, including footwear
styles for men, women, and children, will debut primarily in national chain department stores and
specialty stores in the fall of calendar year 2009 and the Levi’s ** sandals will follow in the
spring of 2010. Retail prices for these products will range from $30 to $45. Similar to the
Company’s slipper brand lines, products sold under the Levis** brand will be displayed on a
self-selection basis and are intended to appeal to “impulse” and “gift-giving” buyers. The Company
expects net sales under this brand to be modest in fiscal 2010.
In January 2008, we entered into a three-year licensing agreement with Nautica Apparel, Inc.
(“Nautica Apparel”), a subsidiary of VF Sportswear, Inc., a division of VF Corporation, to become
the exclusive Nautica** accessory footwear licensee in the United States, Canada, Mexico and Puerto
Rico. As a leading global lifestyle brand, Nautica offers a natural extension for our core slipper
business. We agreed to certain minimum royalty payments, payable quarterly, under the licensing
agreement that extends through December 31, 2010. We have the option to extend the agreement
through December 31, 2013 if certain sales based volumes are met for the 2009 calendar year.
Products under the Nautica** brand are sold primarily through upper tier department stores and
specialty stores and other secondary customer channels. Retail prices range from $35 to $45.
Products sold under this license are similar to our other slippers and are displayed on a
self-selection basis. The products are intended to appeal to the “impulse” and “gift-giving”
buyer. The Company expects net sales under this brand to be modest in fiscal 2010.
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In June 2007, we entered into a licensing agreement with BasicNet S.p.A. of Turin, Italy,
through BasicNet’s U.S. affiliate, Basic Properties America, Inc. (collectively, “BasicNet”), to
become the exclusive licensee in the United States, and since July 2008 in Canada, for the
Superga** brand. Superga** is a leading European luxury brand in the canvas/active fashion
footwear category. Its products include vulcanized, sneaker-type footwear with canvas, linen and
leather upper materials. Our licensing agreement was modified in April 2009 and provides us the
right to sell Superga** licensed products through December 31, 2013. We agreed to certain minimum
royalty payments, payable semi-annually, and to certain net sales targets that extend through
December 31, 2012. Under our agreement, BasicNet is responsible for all product development and
design activities, including product fit and wear testing, related to Superga**. We began shipping
Superga** products in December of 2007. Superga** is sold in the shoe departments of mid-range and
premier department stores, in better footwear stores and on Internet websites, at prices ranging
from $40 to $80. The products under this brand are marketed primarily for the consumer’s
self-purchase. We expect net sales for this brand to be modest in fiscal 2010.
We have said many times that when a growth initiative does not work with our business model,
we will exit it and move on. Primarily due to a lack of license exclusivity and the obvious
difficulties this brings, we decided to exit our NCAA-licensed My College Footwear™ business. Our
decision to not renew the various licenses that underpin MCF had no material financial impact for
us in fiscal 2009 or beyond.
We believe that the Levi’s**, Superga** and Nautica** licenses have the potential to become
important components of our long-term growth strategy and to add some degree of counter-balance to
the seasonal nature of our core business.
Sales and Marketing
We market and sell our products through numerous retail channels, with core collections of
slipper-type products primarily sold through traditional, promotional and national chain department
stores; mass merchants; discount stores; warehouse clubs; off-price retailers; specialty stores;
independent retailers; catalogs; and Internet sites.
Traditionally, our core products have been sold through account managers employed by the
Company. In April 2009, we realigned our internal sales resources so that key customers will now
be served by specialized cross-functional account teams. We believe that this change will enhance
our overall ability to serve our key retailing partners and will contribute to the continuing
long-term growth and profitability of our business.
With the Terrasoles* and Superga** brands, we use independent sales representatives. We expect
to continue the use of independent representatives for these brands and for some of our future
initiatives.
We do not finance our customers’ purchases, although return privileges are granted selectively
to some of the Company’s retailing partners. In some cases, we do grant allowances for customers
to fund advertising and in-season promotional activities.
The Company maintains a sales office and showroom in New York City. During the spring and
fall of each year, we present collections of our products to buyers representing the Company’s key
retail customers at scheduled showings. Buyers for our large retailer customers also periodically
visit this sales office or our corporate facility in Pickerington, Ohio throughout the year. We
also maintain a sales administration office in Bentonville, Arkansas that supports our business
with Wal-Mart Stores, Inc. and its affiliates (collectively, “Wal-Mart”), our largest individual
customer.
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Due to the heavy seasonal component of our business, centered in the second half of the
calendar year, our inventory investment is largest in early fall in order to support our customers’
needs for the fall and holiday selling seasons. During the Christmas selling season, we hire
temporary merchandisers to assist in the display and merchandising of the Company’s products in a
number of department stores and chain stores nationally. We pioneered this point-of-sale retail
selling floor management technique in the accessories area many years ago and continue to believe
that, when it is combined with computerized automatic demand-pull replenishment systems, it
optimizes our holiday seasonal sales.
The marketing strategy for our slipper-type brand lines has traditionally focused on
maximizing our presence at point of sale, including expanding shelf and floor space by creating and
marketing brand lines to different sectors of the consumer market. Substantially all of our
products are displayed on a self-selection basis, intended to appeal to “impulse” and “gift-giving”
buyers.
Historically, we have advertised our products primarily in print media. Most promotional
efforts are conducted in cooperation with our customers. More recent initiatives have been focused
on direct-to-consumer sales via our Internet sites.
In fiscal 2010 and beyond, we intend to increase investment in our proprietary brands through
the development and implementation of coordinated consumer-oriented marketing strategies and
initiatives. The goals of these efforts will include increasing our dominance in the marketplace,
increasing our relevance to consumers and increasing innovation within our own family of accessory
footwear brands.
Sourcing
We operate an office in Hong Kong to facilitate the procurement of most of our products. We
purchase slipper-type products from fourteen different third-party manufacturers, all of which are
located in China. Purchases of products sold under the Terrasoles* brand are made from third-party
manufacturers different from those we use for slipper-type products. All third-party manufacturers
of Terrasoles* products are located in Vietnam. We purchase all Superga** products through
suppliers located primarily in Vietnam who provide those products to BasicNet.
Our overall experience with third-party manufacturers has been very good in terms of
reliability, delivery times and product quality. We recognize, however, that reliance on
third-party manufacturers does create an element of risk related to supply, quality and delivery.
During fiscal 2009, we did not experience any substantial adverse quality or timeliness issues. We
will continue to ensure that the sourcing activities supported by our Hong Kong office are
effectively aligned to ensure that the quality and delivery of products complies with our and our
customers’ standards.
RESEARCH AND DEVELOPMENT
Most of our research and development activities relate to fabric selection, design and product
testing. During fiscal 2009, fiscal 2008 and fiscal 2007, we spent $2.4 million, $2.6 million, and
$2.4 million, respectively, to support the development of new products and improvement of existing
products. These activities were substantially supported by 17 full-time employees.
RAW MATERIALS
The principal raw materials used in the production of the Company’s products are textile
fabrics, threads, foams, other synthetic products, recycled micro fleece and mesh. These materials
also include organic materials such as cotton and bamboo as well as packaging materials and are
available from a wide range of suppliers. Thus far, the Company’s third-party contract
manufacturers have not experienced any significant difficulty in obtaining raw materials from their
respective suppliers.
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SIGNIFICANT CUSTOMERS
Wal-Mart accounted for 38%, 37% and 33% of our consolidated net sales during fiscal 2009,
fiscal 2008 and fiscal 2007, respectively. Our sales to Wal-Mart are not as highly seasonal in
nature as those to many other customers. J.C. Penney Company, Inc. accounted for 10%, 11% and 11%
of our consolidated net sales during fiscal 2009, fiscal 2008 and fiscal 2007, respectively. In
the event that either of these customers reduces or discontinues its product purchases, it would
adversely affect our results of operations.
BACKLOG OF ORDERS
Due to the highly seasonal nature of our business, the backlog of unfilled sales orders is
often largest in the July-August time frame as our customer orders are received in preparation for
the holiday selling season. The backlogs of unfilled orders as of August month-end periods that
ended on August 29, 2009, September 2, 2008 and September 1, 2007 were $31.5 million, $30.8 million
and $28.0 million, respectively. The backlogs of unfilled sales orders at the end of fiscal 2009,
2008 and 2007 were approximately $19.3 million, $29.2 million and $9.7 million, respectively.
We anticipate that a large percentage of the unfilled sales orders as of the end of fiscal
2009 will be filled during the first six months of fiscal 2010. Due to the unpredictability of the
timing of receipt of customer orders and given the heavy seasonality of our sales, we believe that
the status of the backlog of orders may not necessarily be indicative of future business. In
recent years, customers have placed their orders much closer to the time of expected delivery, a
trend that we expect will continue in the future. Our internal product sourcing and logistics
activities will continue to adapt to these and other marketplace changes in an effort to ensure
complete and timely deliveries to our customers.
INVENTORY
Inventory risk, resulting primarily from season-to-season fashion- and customer-driven styling
changes, makes managing exposure to obsolete inventory one of our supply chain group’s key
strategic objectives. Under our current business model, we have been very successful in managing
inventory levels, reducing inventory risks and lowering inventory write-downs. We have accomplished
this by purchasing inventory closer to the time that it is needed and placing orders that are
closely aligned with the visibility of customer demand. The decrease in inventory from the end of
fiscal 2008 to the end of fiscal 2009 was primarily due to these efforts and to increased turns on
slow-moving and closeout inventories. The decrease also reflected our continued collaboration with
key retailing partners to liquidate inventory in season and aggressively sell close-out
inventories. We expect to continue these practices in the future.
COMPETITION
We operate in a relatively small segment of the overall accessory footwear retail category.
We compete primarily on the basis of price, value, quality and comfort of our products, service to
our customers and our marketing and merchandising expertise. We believe that we are among the
world’s largest marketers of accessory footwear products; however, this category is a very small
component of the highly competitive footwear industry. In recent years, companies that are engaged
in other areas of the footwear or in apparel industries have begun to market accessory footwear.
Many of these competitors have significantly greater financial, distribution and marketing
resources than we do. In addition, some retailers have sought to source products directly for sale
in their stores. We are not aware of any reliable published statistics that indicates our current
market-share position in the footwear industry or in the sector providing accessory footwear
products.
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FACILITIES
We own our corporate headquarters building in Pickerington, Ohio. We lease sales and sales
administration offices in New York City and Bentonville, Arkansas; and a sourcing representative
office in Hong Kong. We do not operate or own any manufacturing facilities.
During fiscal 2009, we relied on our leased distribution center in San Angelo, Texas and an
independent third-party logistics provider located in southern California to store products,
fulfill customer orders and distribute our products. The distribution center in Texas primarily
supports shipments of Terrasoles* and Superga** and other replenishment, closeout product and
e-commerce orders. The third-party logistics provider primarily supports case pack shipments to
customers. Our principal administrative, sales and distribution facilities are described more
fully below under “Item 2. Properties.” of this 2009 Form 10-K.
EFFECT OF ENVIRONMENTAL REGULATION
Compliance with federal, state and local provisions regulating the discharge of materials into
the environment, or otherwise relating to the protection of the environment, has not had a material
effect on our capital expenditures, earnings or competitive position. We believe that the nature
of our operations has little, if any, environmental impact. We anticipate no material capital
expenditures for environmental control facilities for the foreseeable future.
EMPLOYEES
At the close of fiscal 2009, we employed approximately 160 full-time team members, of whom
approximately 90% were employed in the United States.
AVAILABLE INFORMATION
We make available free of charge through our Internet website all annual reports on Form 10-K,
all quarterly reports on Form 10-Q, all current reports on Form 8-K, and all amendments to those
reports, filed or furnished by the Company pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”). These reports are available as soon as
reasonably practicable after they are submitted electronically to the Securities and Exchange
Commission (the “SEC”).
Item 1A. Risk Factors.
There are certain risks and uncertainties in our business that could cause our actual results
to differ materially from those anticipated. The following risk factors should be read carefully
in connection with evaluating our business and in connection with the forward-looking statements
contained in this 2009 Form 10-K. Any of these risks could materially adversely affect our
business, our operating results, or our financial condition and the actual outcome of matters as to
which forward-looking statements are made.
Our North America business, which is our primary business, is dependent on our ability to continue
sourcing products from outside North America.
We do not own or operate any manufacturing facilities and depend upon independent third
parties to manufacture all of our products. During fiscal 2009, substantially all of our products
were manufactured in China, except for our Terrasoles* and Superga** branded products, which were
sourced from third-party manufacturers primarily located in Vietnam. The inability of our
third-party manufacturers to ship orders of our products in a timely manner or to meet our quality
standards could cause us to miss customer delivery date requirements and could result in
cancellation of orders, refusals to
accept deliveries, or harm to our ongoing business relationships. Furthermore, because
quality is a leading factor when customers and retailers accept or reject goods, any decline in the
quality of the products produced by our third-party manufacturers could be detrimental not only to
a particular order but to future relationships with our customers.
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We compete with other companies for the production capacity of our third-party manufacturers.
Some of these competitors have greater financial and other resources than we have and may have an
advantage in securing production from these manufacturers. If we experience a significant increase
in demand for our products or if one of our existing third-party manufacturers must be replaced, we
may have to find additional third-party manufacturing capacity. There can be no assurance that
this additional capacity will be available when required or will be available on terms that are
similar to the terms that we have with our existing third-party manufacturers or that are otherwise
acceptable to us. If it is necessary for us to replace one or more of our third-party
manufacturers, particularly one that we rely on for a substantial portion of our products, we may
experience an adverse financial or operational impact, such as increased costs for replacement
manufacturing capacity or delays in distribution and delivery of our products to our customers,
which could cause us to lose customers or revenues because of late shipments or customers being
unwilling to absorb increased costs.
Our international manufacturing operations are subject to the risks of doing business abroad.
We currently purchase 100% of our products for all brands from China, except for the
Terrasoles* and Superga** brand products, which are purchased primarily from Vietnam. We expect to
continue to purchase our products from China and Vietnam at approximately the same levels in the
future. This international sourcing subjects us to the risks of doing business abroad. These
risks include:
Because we rely on Chinese and Vietnamese third-party manufacturers for a substantial portion
of our product needs, any disruption in our relationships with these manufacturers could adversely
affect our operations. While we believe these relationships are strong, if trade relations between
the United States and these countries deteriorate or are threatened by instability, our business
could be adversely affected. Although we believe that we could find alternative manufacturing
sources, there can be no assurance that these sources would be available on terms that are
favorable to us or comparable to those with our current manufacturers. Furthermore, a material
change in the valuation of the Chinese or Vietnamese currency could adversely impact our product
costs, resulting in a significant negative impact on our results of operations.
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Our concentration of customers could have a material adverse effect on us, and our success is
dependent on the success of our customers.
As a result of the continuing consolidation in the retail industry, our customer base has
decreased, thus increasing the concentration of our customers. Our largest customer, Wal-Mart,
accounted for approximately 38%, 37% and 33% of our consolidated net sales in fiscal 2009, fiscal
2008 and fiscal 2007, respectively. The Company’s sales to Wal-Mart are not as highly seasonal in
nature, as compared to the sales to the rest of the Company’s customers. Wal-Mart and J.C. Penney
Company, Inc. combined accounted for over 48% of our consolidated net sales in fiscal 2009. If
either of these customers reduced or discontinued its product purchases from us, it would adversely
affect our results of operations. Additionally, in recent years, several major department stores
have experienced consolidation and ownership changes. In the future, retailers may undergo
additional changes that could decrease the number of stores that carry our products, which could
adversely affect our results.
Our success is also impacted by the financial results and success of our customers. If any of
our major customers, or a substantial portion of our customers, generally, experiences a
significant downturn in business, fails to remain committed to our products or brands or realigns
affiliations with suppliers or decides to purchase products directly from the manufacturer, then
these customers may reduce or discontinue purchases from us which could have a material adverse
effect on our business, results of operations and financial condition. We are also subject to the
buying plans of our customers, and if our customers do not inform us of changes in their buying
plans until it is too late for us to make necessary adjustments to our product lines, we may be
adversely affected. We do not have long-term contracts with our customers and sales normally occur
on an order-by-order basis. As a result, customers can generally terminate their relationship with
us at any time.
Our business faces cost pressures, which could affect our business results.
While we rely on third-party manufacturers as the source of our products, the cost of these
products depends, in part, on these manufacturers’ cost of raw materials, labor and energy costs.
Thus, our own costs are subject to fluctuations, particularly due to changes in the cost of raw
materials and cost of labor in the locations where our products are manufactured, foreign exchange
and interest rates.
The footwear industry is highly competitive.
The accessory footwear product category in which we do most of our business is a highly
competitive business. If we fail to compete effectively, we may lose market position. We operate
in a relatively small segment of the overall footwear industry, supplying accessory footwear
products. We believe that we are one of the world’s largest marketers of accessory footwear
products. However, this is a very small component of the overall footwear industry. In recent
years, companies that are engaged in other areas of the footwear industry and apparel companies
have begun to provide accessory footwear and many of these competitors have substantially greater
financial, distribution and marketing resources than we do. In addition, many of the retail
customers for our products have sought to import competitive products directly from manufacturers
in China and elsewhere for sale in their stores on a private label basis. The primary methods we
use to compete in our industry include product design, product performance, quality, brand image,
price, marketing and promotion and our ability to meet delivery commitments to retailers. A major
marketing or promotional success or a technical innovation by one of our competitors could
adversely impact our competitive position.
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Our business is subject to consumer preferences, and unanticipated shifts in tastes or styles could
adversely affect our sales and results of operations.
The accessory footwear product category is subject to rapid changes in consumer preferences.
Our performance may be hurt by our competitors’ product development, sourcing, pricing and
innovation
as well as general changes in consumer tastes and preferences. The accessory footwear product
category is also subject to sudden shifts in consumer spending, and a reduction in such spending
could adversely affect our results of operations. Consumer spending may be influenced by the
amount of the consumer’s disposable income, which may fluctuate based on a number of factors,
including general economic conditions, consumer confidence and business conditions. Further,
consumer acceptance of new products may fall below expectations and may result in excess
inventories or the delay of the launch of new product lines.
If we inaccurately forecast consumer demand, we may experience difficulties in handling consumer
orders or liquidating excess inventories and results of operations may be adversely affected.
Our industry has relatively long lead times for the design and manufacture of products.
Consequently, we must commit to production in advance of orders based on our forecast of consumer
demands. If we fail to forecast consumer demand accurately, we may under- or over-source a product
and encounter difficulty in handling customer orders or liquidating excess inventory, and we may
have to sell excess inventory at a reduced cost. Further, due to the fashion-oriented nature of
our products, rapid changes in consumer preferences lead to an increased risk of inventory
obsolescence. While we believe we have successfully managed this risk in recent years and believe
we can successfully manage it in the future, our operating results will suffer if we are unable to
do so.
We rely on distribution centers to store and distribute our products and if there is a natural
disaster or other serious disruption in any of these facilities or methods of transport, we may be
unable to effectively deliver products to our customers.
We rely on our leased distribution center in San Angelo, Texas as well as a third-party
logistics provider located in California to store our products prior to distribution to our
customers. Significant disruptions affecting the flow of products to and from these facilities due
to natural disasters, labor disputes such as dock strikes, or any other cause could delay receipt
and shipment of a portion of our inventory. This could impair our ability to timely deliver our
products to our customers and negatively impact our operating results. Although we have insured our
finished goods inventory for the amount equal to its carrying cost plus normal profit expected in
the sale of that inventory against losses due to fire, earthquake, tornado, flood and terrorist
attacks, our insurance program does not protect us against losses due to delays in our receipt and
distribution of products due to transport difficulties, cancelled orders or damaged customer
relationships that could result from a major disruption affecting the flow of products to and from
our distribution facilities.
Further, we are dependent on methods of transport to move our products to and from these
facilities. Circumstances may arise where we are unable to find available or reasonably priced
shipping to the United States from our manufacturers in China, Vietnam and elsewhere or road and
rail transport to our customers in the United States and Canada. If methods of transport are
disrupted or if costs increase sharply or suddenly, due to price increases of oil in the world
markets or other inflationary pressures, we may not be able to affordably or timely deliver our
products to our customers.
The seasonal nature of our business makes management more difficult, and severely reduces cash flow
and liquidity during certain parts of the year.
Our business is highly seasonal and much of the results of our operations are dependent on
strong performance during the last six months of the calendar year, particularly the holiday
selling season. The majority of our marketing and sales activities takes place at industry market
week and trade shows in the spring and fall. Our inventory is largest in the early fall to support
our customers’ requirements for the fall and holiday selling seasons. Historically, our cash
position is strongest in the first six months of the calendar year. Unfavorable economic
conditions affecting retailers during the fall and through the holidays in any year could have a
material adverse effect on the results of our operations for the year.
Although our new business initiatives are focused on adding seasonal balance to our business,
we can offer no assurance that the seasonal nature of our business will change in the future.
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We must satisfy minimum covenants regarding our financial condition in order to be able to borrow
under our current unsecured credit facility with The Huntington National Bank.
Our current unsecured credit facility with The Huntington National Bank contains certain
minimum covenants regarding our financial condition and financial performance. We have remained in
compliance with all of these covenants since we entered into the facility on March 29, 2007, and we
believe that we will continue to comply with these covenants throughout the remainder of the term
of the credit facility agreement as amended June 26, 2009, which runs through December 31, 2012.
We periodically invest funds in certificates of deposit and marketable securities, in which
ultimate repayment of amounts invested depends on the financial capacity of the related financial
institutions involved.
At June 27, 2009, as part of its cash management and investment program, the Company
maintained a portfolio of $25.0 million in short-term investments, consisting of $18.5 million in
marketable investment securities consisting of variable rate demand notes and $6.5 million in other
short-term investments. The marketable investment securities are classified as available-for-sale.
These marketable investment securities are carried at cost, which approximates fair value. The
other short-term investments are classified as held-to-maturity securities include several
corporate bonds which have individual maturity dates ranging from July to December 2009.
Item 1B. Unresolved Staff Comments.
No response required.
Item 2. Properties.
The Company owns our corporate headquarters and executive offices located at 13405 Yarmouth
Road N.W. in Pickerington, Ohio, a facility that contains approximately 55,000 square feet. The
Company leases space aggregating approximately 180,400 square feet at an approximate aggregate
annual rental of $609,200. The following table describes the Company’s principal leased properties
during fiscal 2009 and the operating status of those properties at the end of that period:
The Company believes that all of our owned or leased buildings are well maintained, in
good operating condition and suitable for their present uses.
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Item 3. Legal Proceedings.
The Company is from time to time involved in claims and litigation considered normal in the
ordinary course of our business. There are no significant legal proceedings pending for the
Company. While it is not feasible to predict the ultimate outcome, in the opinion of management,
the resolution of pending legal proceedings is not expected to have a material adverse effect on
the Company’s financial position, results of operations, and cash flows.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of the shareholders of the Company during the fourth
quarter of fiscal 2009.
Supplemental Item. Executive Officers of the Registrant.
The following table lists the names and ages of the executive officers of the Company as of
September 2, 2009, the positions with the Company presently held by each executive officer and the
business experience of each executive officer during the past five years. Unless otherwise
indicated, each individual has had his or her principal occupation for more than five years. The
executive officers serve at the discretion of the Board of Directors subject, when applicable, to
their respective contractual rights with the Company and, in the case of Mr. Tunney, pursuant to an
employment agreement. There are no family relationships among any of the Company’s executive
officers or directors.
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PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market and Dividend Information
Since March 10, 2008, common shares of the Company have traded on NASDAQ-GM under the “DFZ”
symbol. From December 2, 2005 through March 9, 2008, the common shares of the Company traded on
the American Stock Exchange LLC (now known as NYSE Amex) under the “DFZ” symbol.
The high, low and close sales prices shown above reflect the prices as reported in those
markets where the Company’s common shares traded during the periods noted.
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Approximate Number of Registered Shareholders: 1,900 as of September 2, 2009.
On May 1, 2009, the Company’s Board of Directors declared a special cash dividend of $0.25 per
share payable on June 15, 2009 to shareholders of record at the close of business on June 1, 2009.
This dividend payment amounted to approximately $2.7 million. The Board of Directors also adopted
a cash dividend policy under which a quarterly dividend of $0.05 per share (totaling $0.20 per
year) will be paid on the Company’s common shares beginning in the fourth quarter of calendar year
2009. Future dividends will be dependent on the earnings, financial condition, shareholders’ equity
levels, cash flow and business requirements of the Company, as determined by the Board of
Directors.
The unsecured Revolving Credit Agreement (the “Bank Facility”) between the Company and The
Huntington National Bank (“Huntington”), as amended June 26, 2009, places no restrictions on the
Company’s ability to pay cash dividends. See the discussion of the Bank Facility in Note (6) of
the Notes to Consolidated Financial Statements included in “Item 8. Financial Statements and
Supplementary Data.” and in “Item 7. Management’s Discussion and Analysis of Financial
Condition and Results of Operations.” in this 2009 Form 10-K.
Information Regarding Recent Sales of Unregistered Securities
No disclosure is required under Item 701 of SEC Regulation S-K.
Purchases of Equity Securities by Registrant
Neither the Company nor any “affiliated purchaser,” as defined in Rule 10b-18(a) (3) under the
Securities Exchange Act of 1934, as amended, purchased any common shares of the Company during the
fiscal quarter ended June 27, 2009. The Company does not currently have in effect a publicly
announced repurchase plan or program. However, the Company is authorized under the terms of its
stock-based compensation plans to withhold common shares which would otherwise be issued in order
to satisfy related individual tax liabilities upon issuance of common shares in accordance with the
terms of restricted stock unit (RSU) agreements.
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Item 6. Selected Financial Data.
Selected Financial Data (1)
(Dollars in thousands, except per share amounts)
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Selected Financial Data — Continued (1)
(All amount in thousands)
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Introduction
Our Management’s Discussion and Analysis of Financial Condition and Results of Operations
(“MD&A”) is intended to provide investors and others with information we believe is necessary to
understand our financial condition, changes in financial condition, results of operations and cash
flows. This MD&A should be read in conjunction with our Consolidated Financial Statements and
related Notes to Consolidated Financial Statements and other information included in
“Item 8. Financial Statements and Supplementary Data.” in this 2009 Form 10-K.
Our Company is engaged in designing, sourcing, marketing and distributing accessory footwear
products. We define accessory footwear as a product category that encompasses primarily slippers,
sandals, hybrid and active fashion footwear and slipper socks. Our products are sold predominantly
in North America through department stores, chain stores and mass merchandising channels of
distribution. Unless the context otherwise requires, references in this MD&A to the “Company”
refer to R.G. Barry Corporation and its consolidated subsidiaries when applicable.
As a result of the sale of our 100 percent ownership of Fargeot, which was completed in July
2007 and further described under the caption “Discontinued Operations” below and consistent with
the provisions of SFAS 144, the results of operations of our former French subsidiary have been
reported as discontinued operations for all applicable reporting periods, as noted in our
Consolidated Statements of Income. Fargeot’s business was the only business reported as part of
our Barry Europe operating segment. Therefore, with the Fargeot business reported as discontinued
operations, we only have one operating segment, Barry North America.
All references to assets, liabilities, revenues and expenses in this MD&A reflect continuing
operations and exclude discontinued operations with respect to the sale of Fargeot’s business,
unless otherwise indicated.
Summary of Results for Fiscal 2009
During fiscal 2009, we remained focused on achieving our principal goals:
During fiscal 2009, we accomplished the following:
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Looking Ahead to Fiscal 2010 and Beyond
Looking ahead to fiscal 2010 and beyond, we will continue to pursue strategically driven
initiatives that are designed to provide measurable and sustainable net sales and profit growth.
We remain confident in our business and begin the year with a strong balance sheet, healthy brands
and a business plan that focuses on growth and profitability well beyond the next 12 months, but we
know that fiscal 2010 will continue to be a challenging environment from a general economic and
business perspective. We continue to see short-term economic volatility manifesting itself in the
following:
We are continuing to address these issues. For our fiscal 2010 buying cycle, oil prices have
returned to more traditional levels, manufacturing capacity has loosened, and we expect our fiscal
2010 gross profit percentage to return to a more traditional level. Because our business continues
to be highly seasonal and dependent on the holiday selling season, there is significant inherent
risk and cyclicality in our business. See the discussion under the caption “Item 1A. Risk Factors”
in this 2009 Form 10-K.
Fiscal 2009 Results from Continuing Operations Compared to Fiscal 2008
The discussion in this section compares our results of operations for fiscal 2009 to those in
fiscal 2008. Each dollar amount and percentage change noted below reflects the change between
these periods unless otherwise indicated.
During fiscal 2009, consolidated net sales increased by $4.3 million or 3.9%. The net sales
increase was primarily due to increased shipments to our customers in the warehouse club and
catalog and Internet channels, partially offset by decreased shipments reported to customers in the
mass merchandising, department store, specialty and independent store channels. The volume changes
reflect our continued success with product offerings and sales initiatives with customers in the
warehouse club channel as well as catalog and Internet-based customers. In addition, these volume
changes reflect the effect of the very challenging economic and retail climate experienced with
most of our customers during most of fiscal 2009.
Gross profit decreased by $1.5 million. Gross profit as a percent of net sales was 38.2
percent in fiscal 2009 and 41.1 percent in fiscal 2008. The decreases in both gross profit dollars
and as a percent of net sales were due primarily to increases in the average product cost
experienced year over year. The increase in average product cost was driven primarily by an
increase in oil prices and changes in the exchange rate of Chinese currency, which negatively
impacted the fall selling season as orders to purchase goods were placed beginning in April 2008.
The product price increases, combined with an intense promotional selling environment in a tough
retail economic climate, were major factors in our gross profit results for fiscal 2009.
Selling, general and administrative (“SG&A”) expenses increased by $845 thousand or 2.6
percent. As a percent of net sales, SG&A expenses were 29.0 percent for fiscal 2009 versus 29.3
percent for fiscal 2008. The net increase in SG&A expenses was due primarily to the following:
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The expense increases noted above were partially offset by the following:
For fiscal 2008, we reported a gain of approximately $1.4 million from an insurance recovery.
No similar event occurred during fiscal 2009.
The increase in interest income of $71 thousand resulted from the increase in our invested
funds during fiscal 2009, which were available due to our profitability and liquidity over the last
twelve months.
Interest expense decreased by $14 thousand. Due to our continuing profitability over time, we
had no borrowings under our Bank Facility, as described further under the caption “Liquidity and
Capital Resources” below.
Based on the results of operations noted above, we reported earnings of approximately $7.0
million in fiscal 2009, or $0.65 per diluted common share, compared to $9.8 million in fiscal 2008,
or $0.92 per diluted share.
Fiscal 2008 Results from Continuing Operations Compared to Fiscal 2007
The discussion in this section compares our results of operations for fiscal 2008 to those in
fiscal 2007. Each dollar amount and percentage change noted below reflects the change between
these periods unless otherwise indicated.
During fiscal 2008, consolidated net sales increased by $4.2 million or approximately 4.0
percent. The net sales increase was principally due to the following: increased volumes in our
mass, warehouse club, catalog, Internet-based customers, specialty, and independent retail
channels; increases in the average wholesale prices associated primarily with our new brand and
product introductions; partially offset by a decrease in volume to customers in the department
store channel. These volume changes reflected several factors: a very successful transitioning of
product initiative and sales growth reported with Wal-Mart; outstanding sell-through rate with a
major warehouse club customer; as well as the impact of the market introduction of new brand lines
and product extension; offset in part by the impact of a difficult retailing environment during the
fiscal year, particularly in the department stores sector.
Gross profit increased by $3.2 million. Gross profit as a percent of net sales was 41.1
percent in fiscal 2008 and 39.7 percent in fiscal 2007. The increases in both gross profit dollars
and as a percent of net sales were due primarily to the increase in sales volumes and to the effect
of higher average wholesale selling prices of product in comparison to the average product cost
increases experienced over those reporting periods. The increase in average wholesale selling
prices was reflective of our new brand initiatives and product introductions undertaken in fiscal
2008 as well as our successful experience with a key warehouse club customer.
The increase in average wholesale selling prices during fiscal 2008 was partially offset by
continuing increases in our product cost, which resulted from the increase in the price of oil and
the strengthening of the Chinese Yuan against the U.S. Dollar. Oil prices affect the raw materials
that go into our products, as well as freight costs incurred in transporting the goods to the U.S.
Although our
purchases of finished goods from third-party manufacturers were contracted in U.S. Dollars,
the strengthening of the Chinese Yuan against the U.S. Dollar influenced vendor pricing.
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SG&A expenses increased by $1.8 million or approximately 6 percent. As a percent of net
sales, SG&A expenses were 29.3 percent for fiscal 2008 versus 28.8 percent for fiscal 2007. The
net increase in SG&A expenses was due primarily to the following:
The expense increases noted above were offset by the following:
For fiscal 2008, we reported a gain of approximately $1.4 million from insurance recovery. On
April 10, 2008, our leased distribution facility in Texas was struck by a tornado, which resulted
in a loss of a portion of our inventory stored in that facility. We insured our entire finished
goods inventory in all locations at the expected wholesale value. The gain realized in fiscal 2008
represented the difference between the carrying costs of the damaged inventory versus the insurance
proceeds approximating such inventory’s wholesale value. In addition, this storm resulted in
damage to the leased facility and a portion of our warehouse equipment in the facility. The
facility and equipment damaged were fully insured at replacement cost. Activities to repair or
replace the facility and equipment were ongoing at the close of fiscal 2008. None of the gain
recognized in fiscal 2008 related to insurance recovery related to either the leased facility or
affected equipment in that facility.
A gain of $878 thousand on the disposal of 4.4 acres of land was reflected in our Consolidated
Statement of Income for fiscal 2007. This property is adjacent to our headquarters office and was
not being used as part of our business activities. No similar transaction occurred in fiscal 2008.
During fiscal 2007, we recorded $179 thousand in restructuring charges primarily due to
professional fees associated with the application process of liquidating our subsidiaries in
Mexico. No restructuring related activities occurred during fiscal 2008.
The increase in interest income of $235 thousand resulted from the increase in our invested
funds during fiscal 2008, which were available due to our continued profitability and liquidity
during fiscal 2008.
The interest expense decrease of $516 thousand or 81 percent was due primarily to our
continued profitability during fiscal 2008, which resulted in no borrowings under our Bank
Facility, as described further under the caption “Liquidity and Capital Resources” below.
Based on the results of operations noted above, we reported earnings from continuing
operations of $9.8 million in fiscal 2008, or $0.92 per diluted common share, compared to $25.7
million in fiscal 2007 or $2.46 per diluted share. The earnings from continuing operations of
$25.7 million for fiscal 2007 included the tax benefit of approximately $13.6 million with respect
to the reversal of the deferred tax asset valuation allowance. As reported previously, we recorded
a valuation allowance reflecting the full reservation of the value of our deferred tax assets at
the end of fiscal 2003 because we deemed then that it was more likely than not that our deferred
tax assets would not be realized. In the second quarter of fiscal
2007, we determined, based on the existence of sufficient positive evidence, represented
primarily by three years of cumulative income before restructuring charges, that a valuation
allowance against net deferred tax assets was no longer required because it was more likely than
not that the deferred tax assets would be realized in future periods.
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Discontinued Operations
At the end of fiscal 2007, our Board of Directors approved a plan to sell our 100 percent
ownership in Fargeot. This action strategically aligned all elements of our operations with the
current business model, which includes, among other key components, the 100 percent outsourcing of
our product needs from third-party manufacturers. As a result of this action, Fargeot’s business,
which had been the only business in our Barry Europe operating segment, was reclassified as
discontinued operations for fiscal 2007. Since the disposal of Fargeot, we have operated under one
segment, Barry North America.
Our results of operations for fiscal 2009 and fiscal 2008 did not reflect any transactions
with respect to Fargeot’s disposal. Selected financial data relating to the discontinued
operations of Fargeot for fiscal 2007 are as follows (dollar amounts in thousands, except per
common share data):
In July 2007, we completed the sale of Fargeot for approximately $480 thousand. The net value
of the business at the close of fiscal 2007 was estimated at $474 thousand. We reported a loss
from discontinued operations of $590 thousand in fiscal 2007, which included both the results of
the Fargeot operations and an impairment loss of $1.2 million, resulting from the sale of Fargeot.
Further details of the sale are included in Note (18) of the Notes to Consolidated Financial
Statements included in “Item 8. Financial Statements and Supplementary Data.” in this 2009
Form 10-K.
Based on the results from continuing and discontinued operations discussed above, we reported
net earnings of approximately $9.8 million or $0.92 per diluted common share and $25.1 million or
$2.40 per diluted common share for fiscal 2008 and fiscal 2007, respectively.
Liquidity and Capital Resources
Our primary source of revenue and cash flow is our operating activities in North America.
When cash inflows are less than cash outflows, we also have access to amounts under our Bank
Facility, as described further below in this section, subject to its terms. We may seek to finance
future capital investment programs through various methods, including, but not limited to, cash
flow from operations and borrowings under our current or additional credit facilities.
Our liquidity requirements arise from the funding of our working capital needs, which include
primarily inventory, other operating expenses and accounts receivable, funding of capital
expenditures and repayment of our indebtedness. Generally, most of our product purchases from
third-party manufacturers are acquired on an open account basis, and to a lesser extent, through
trade letters of credit. Such trade letters of credit are drawn against our Bank Facility at the
time of shipment of the products and reduce the amount available under our Bank Facility when
issued.
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Total cash and cash equivalents were $14.3 million at June 27, 2009, compared to $14.2 million
at June 28, 2008. Short-term investments were $25.0 million at June 27, 2009, compared to $11.9
million at June 28, 2008.
At June 27, 2009, as part of our cash management and investment program, we maintained a
portfolio of $25.0 million in short-term investments, including $18.5 million in marketable
investment securities consisting of variable rate demand notes and $6.5 million in other short-term
investments. The marketable investment securities are classified as available-for-sale. These
marketable investment securities are carried at cost, which approximates fair value. The other
short-term investments are classified as held-to-maturity securities and include several corporate
bonds which have individual maturity dates ranging from July to December 2009.
All references made in the following section are on a consolidated basis. Amounts with
respect to Fargeot, which have been reclassified as discontinued operations in our Consolidated
Statements of Income, have been included, as applicable, in the operating, investing and financing
activities sections of this liquidity and capital resources analysis. The net effect of the sale
of Fargeot has been reflected as a non-cash impairment loss in our Consolidated Statement of Cash
Flows for fiscal 2007.
Operating Activities
During fiscal 2009, our operations generated $17.3 million in cash. This operating cash flow
was primarily the result of our net earnings for the period adjusted for non-cash activities such
as deferred income tax expense of $3.5 million, depreciation and stock-based compensation expense
of $775 thousand and $938 thousand, respectively, and changes in our working capital accounts as
well as payments on our pension and other obligations. In fiscal 2009, significant changes in
working capital accounts included lower amounts of accounts receivable and inventory, as discussed
in more detail below.
During fiscal 2008, our operations generated $8.7 million in cash. This operating cash flow
was primarily the result of our net earnings for the period adjusted for non-cash activities such
as deferred income tax expense of $4.6 million, depreciation and stock-based compensation expense
of $641 thousand and $698 thousand, respectively, and changes in our working capital accounts as
well as payments on our pension and other obligations. In fiscal 2008, significant changes in
working capital accounts included higher amounts of accounts receivable and lower accounts payable
and accrued expenses, offset by lower amounts of inventory, as discussed in more detail below.
During fiscal 2007, our operations generated $16.1 million of cash. This operating cash flow
was primarily the result of our net earnings for the period adjusted for non-cash activities such
as the deferred income tax and valuation adjustment of $14.6 million, impairment loss on the sale
of Fargeot of $1.2 million, gain on the sale of land of $878 thousand and changes in our working
capital accounts. In fiscal 2007, significant changes in working capital accounts included lower
amounts of inventories and lower amounts of accrued expenses, offset by higher amounts of accounts
receivable.
Our working capital ratio, which is calculated by dividing total current assets by total
current liabilities, was 6.2:1 at June 27, 2009, 5.7: 1 at June 28, 2008 and 3.2:1 at June 30,
2007. The increase in our working capital ratio from the end of fiscal 2007 to the end of fiscal
2009 was primarily driven by an increase in cash resulting from our profitability over those
reporting periods.
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Changes during fiscal 2009 in the primary components of working capital accounts were as
follows:
Investing Activities
During fiscal 2009, investing activities used $14.5 million in cash. Purchases of short-term
investments comprised $13.1 million of this amount. Capital expenditures were $1.4 million and
primarily consisted of leasehold improvements to our New York showroom, warehouse equipment for our
leased distribution facility in Texas and purchases of software and computer equipment.
During fiscal 2008, investing activities used $13.4 million in cash. Purchases of short-term
investments comprised $11.9 million of this amount. Capital expenditures, primarily involving
heating and air conditioning units for the corporate offices and purchased software of $1.6
million, were made during the year, offset by $100 thousand in proceeds from the disposal of
Fargeot and other equipment disposals.
During fiscal 2007, investing activities provided $257 thousand in cash. We received $890
thousand from the sale of land, which was offset by $633 thousand in capital expenditures,
primarily involving computer hardware, software and various other furnishings and renovations in
the corporate offices.
Financing activities
During fiscal 2009, financing activities consumed $2.7 million in cash. This financing cash
outflow was primarily due to the payment of a special cash dividend of $0.20 per common share,
which amounted to approximately $2.7 million as part of a Company dividend program implemented in
late fiscal 2009. In addition, approximately $500 thousand of debt was paid in fiscal 2009, with
an offsetting inflow of approximately $500 thousand provided from the exercise of employee stock
options and excess state and local tax benefits associated with vesting of restricted stock units
and stock option exercises during the period.
During fiscal 2008, financing activities provided $685 thousand in cash. This financing cash
inflow resulted primarily from $764 thousand in cash provided from the exercise of employee stock
options and realized excess state and local tax benefits associated with stock option exercises and
restricted stock unit vesting. This amount was partially offset by the payment of approximately
$79 thousand associated with our debt.
During fiscal 2007, financing activities provided $860 thousand in cash. This financing cash
inflow resulted primarily from $1.1 million of cash provided from the exercise of employee stock
options. This amount was partially offset by the payment of approximately $277 thousand with
respect to our lines of credit.
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2010 Liquidity
We believe our sources of cash and cash equivalents on-hand, short-term investments and funds
available under our Bank Facility will be adequate to fund our operations and capital expenditures
through fiscal 2010.
Bank Facility
Our Company is party to an unsecured credit facility with The Huntington National Bank
(“Huntington”). The original facility dated March 29, 2007 was modified on June 26, 2009. Under
this modified facility (“Bank Facility”), Huntington is obligated to advance us funds for a period
of two and a half years ending on December 31, 2012, subject to a one-year renewal option
thereafter, up to the following amounts:
The terms of the Bank Facility require the Company to satisfy certain financial covenants
including (a) satisfying a minimum fixed charge coverage ratio of not less than 1.25 to 1.0 which
is calculated on a trailing 12 months basis, and (b) maintaining a consolidated tangible net worth
of not less than $44 million, increased annually by 50% of the Company’ consolidated net income
after June 28, 2009. The Bank Facility must be rested for 30 consecutive days beginning in
February of each year. Also, the borrowing under the Bank Facility may not exceed 80% of the
Company’s eligible accounts receivable and 50% of its eligible inventory at any one time. As of
June 27, 2009, the Company was in compliance with these financial covenants.
The Bank Facility provides that Huntington will issue on behalf of the Company letters of
credit with a maximum aggregate value of up to $1.5 million. The aggregate dollar amount of
outstanding letters of credit is deducted from the available balance under the Bank Facility. At
June 27, 2009, we had $6.8 million available under the Bank Facility, which was reduced by the
aggregate amount of letters of credit outstanding.
The interest rate on the Bank Facility is a variable rate equal to LIBOR plus 2.75 percent.
The applicable interest rate on the Bank Facility assuming a 3-day LIBOR rate of .31 percent at
June 27, 2009 was 3.06 percent. Additionally, the modified agreement requires the Company to pay a
quarterly unused line fee at the rate of 3/8 percent of the average unused Bank Facility balance.
During fiscal 2009, the Company did not use its Bank Facility and incurred unused line fees of
approximately $22 thousand. We incurred a commitment fee of approximately $43 thousand when the
modification occurred on June 26, 2009. This fee will be amortized over the future term of the
Facility.
Other Short-term Debt
In March 2004, we borrowed $2.2 million against the cash surrender value of life insurance
policies insuring our non-executive chairman. During fiscal 2009, we paid $450 thousand of this
loan. Approximately $1.8 million and $2.2 million of indebtedness were classified within
short-term notes payable in our Consolidated Balance Sheets at June 27, 2009 and June 28, 2008,
respectively.
Other Long-term Indebtedness and Current Installments of Long-term Debt
As of June 27, 2009, we reported approximately $90 thousand as current installments of
long-term debt, which represented the current portion of our obligation associated with the
agreement entered
into with the mother of our chairman as disclosed in Note (6) of the Notes to the Consolidated
Financial Statements included in “Item 8. Financial Statements and Supplementary Data.” in
this 2009 Form 10-K. At the end of fiscal 2009, we reported approximately $97 thousand as
consolidated long-term debt, all of which was related to the obligation under the agreement entered
into with the mother of our chairman.
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Other Matters Impacting Liquidity and Capital Resources
Contractual Obligations
We have traditionally leased facilities under operating lease transactions for varying term
lengths, ranging generally from two years to seven years, often with options for renewal. On
occasion, we have also leased certain equipment utilizing operating leases. These leasing
arrangements have allowed us to pay for the facilities and equipment over the time periods they are
utilized, rather than committing our resources initially to acquire the facilities or equipment.
All leases have been accounted for as operating leases, consistent with the provisions of SFAS No.
13, “Accounting for Leases,” as amended. Our future off-balance sheet non-cancelable operating
lease obligations are discussed in Note (7) of the Notes to Consolidated Financial Statements
included in “Item 8. Financial Statements and Supplementary Data.” in this 2009 Form 10-K.
The following table summarizes our contractual obligations for both short-term and long-term
obligations as of June 27, 2009:
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The Board of Directors declared a special cash dividend of $0.25 per common share payable on June
15, 2009 to shareholders of record at the close of business on June 1, 2009. The Board also
adopted a cash dividend policy, under which a quarterly dividend of $0.05 per share (totaling $0.20
per year) will be paid on the Company’s common shares beginning in the fourth quarter of calendar
year 2009. Future dividends will be dependent on the earnings, financial condition, shareholders’
equity levels, cash flow and business requirements of the Company, as determined by the Board of
Directors.
Other Matters Relevant to Financial Condition and Results of Operations
Licensing Agreement for European Distribution
In fiscal 2008, we terminated the licensing agreement for the sale, marketing and sourcing of
our slipper product brands in Europe with a subsidiary of a British comfort footwear and apparel
firm. The annual royalty fees resulting from this agreement were not significant to the overall
operations of our business. We reported $50 thousand and $146 thousand for fiscal 2008 and fiscal
2007, respectively, as royalty payments received from the licensee under this licensing agreement.
Critical Accounting Policies and Use of Significant Estimates
The preparation of financial statements in accordance with U.S. generally accepted accounting
principles (“U.S. GAAP”) requires that we make certain estimates. These estimates can affect
reported revenues, expenses and results of operations, as well as the reported values of certain
assets and liabilities. We make these estimates after gathering as much information from as many
resources, both internal and external, as are available at the time. After reasonably assessing
the conditions that exist at the time, we make these estimates and prepare consolidated financial
statements accordingly. These estimates are made in a consistent manner from period to period,
based upon historical trends and conditions and after review and analysis of current events and
circumstances. We believe these estimates reasonably reflect the current assessment of the
financial impact of events whose actual outcomes will not become known to us with certainty until
sometime in the future.
The following discussion of critical accounting policies is intended to bring to the attention
of readers those accounting policies that management believes are critical to the Company’s
consolidated financial statements and other financial disclosures. It is not intended to be a
comprehensive list of all of our significant accounting policies that are more fully described in
Notes (1) (a) through (1) (v) of the Notes to Consolidated Financial Statements in this 2009 Form
10-K.
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A summary of the critical accounting policies requiring management estimates follows:
In certain circumstances, we sell products to customers under special arrangements, which
provide for return privileges, discounts, promotions and other sales incentives. At the time we
recognize revenue, we reduce our measurement of revenue by an estimate of the potential future
returns and allowable retailer promotions and incentives, and recognize a corresponding reduction
in reported trade accounts receivable. These estimates have traditionally been, and continue to
be, sensitive to and dependent on a variety of factors including, but not limited to, quantities
sold to our customers and the related selling and marketing support programs; channels of
distribution; sell-through rates at retail; the acceptance of the styling of our products by
consumers; the overall economic environment; consumer confidence leading towards and through the
holiday selling season; and other related factors.
Allowances for returns, promotions, cooperative advertising and other sales incentives were
not material to the overall financial position as reported at the end of fiscal 2009 and fiscal
2008. The estimates established for these allowances at the end of these reporting periods reflect
the downward trend that has resulted from our ongoing efforts of collaborating closely with key
retailing partners to offer the appropriate in-season consumer promotions and sales incentives to
achieve mutually satisfactory sell-through rates, thus reducing or eliminating returns. As of June
27, 2009, our allowance for returns was approximately $1.1 million. A hypothetical change of 10
percent in our returns allowance would have an impact on income from continuing operations before
income taxes of approximately $110 thousand. As of June 27, 2009, our allowance for promotions,
cooperative advertising and other sales incentives was $1.2 million. A hypothetical change of 10
percent in this allowance would have an impact on income from continuing operations before income
taxes of $120 thousand.
Due to the continuing seasonal nature of our business and the current economic climate, it is
possible that allowances for returns, promotions and other sales incentives, and the related
charges reported in our consolidated results of operations could be different than those estimates
noted above.
We monitor the creditworthiness of our customers and the related collection of monies owed to
us. In circumstances where we become aware of a specific customer’s inability to meet its financial
obligations, a specific reserve for doubtful accounts is taken as a reduction to accounts
receivable to reduce the net recognized receivable to the amount reasonably expected to be
collected. For all other customers, we recognize estimated reserves for bad debts based on our
historical collection experience, the financial condition of our customers, an evaluation of
current economic conditions and anticipated trends, each of which are subjective and requires
certain assumptions. Actual charges and allowances for uncollectible amounts in prior periods were
not material. As of June 27, 2009, our allowance for doubtful accounts was $427 thousand.
(b) We value inventories using the lower of cost or market, based upon the first-in, first-out
(“FIFO”) costing method. We evaluate our inventories for any reduction in realizable value in
light of the prior selling season, the overall economic environment and our expectations for the
upcoming selling seasons, and we record the appropriate write-downs based on this evaluation. At
the end of fiscal 2009 and the end of fiscal 2008, we estimated the FIFO cost of a portion of our
inventory exceeded the estimated net realizable value of that inventory by $220 thousand and $97
thousand, respectively. The increase from fiscal 2008 to fiscal 2009 reflected our on-going
initiatives to properly manage our inventory investment, particularly with the newer Terrasoles*
and Superga** brands.
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(c) We make an assessment of the amount of income taxes that will become currently payable or
recoverable for the just concluded period, and the deferred tax costs or benefits that will become
realizable for income tax purposes in the future, as a consequence of differences between results
of operations as reported in conformity with U.S. GAAP, and the requirements of the income tax
codes existing in the various jurisdictions where we operate. In evaluating the future benefits of
deferred tax
assets, we examine our capacity for refund of federal income taxes due to our net operating
loss carryforward position, and our projections of future profits. We recorded a valuation
allowance when it was more likely than not that some portion or all of our deferred tax assets
would not be realized. Accordingly, beginning with year-end fiscal 2003, we established a
valuation allowance against the value of those deferred tax assets. At that time, there was not
sufficient evidence that future taxable income would be generated to offset these deferred
deductible items. Accordingly, our valuation allowance against the net deferred tax assets was
$18.3 million at the end of the 2006 transition period.
This full valuation allowance reserve was maintained through the first quarter of fiscal 2007.
In the second quarter of fiscal 2007, we determined, based on the existence of sufficient positive
evidence, represented primarily by three years of cumulative income before restructuring charges, a
valuation allowance against net deferred tax assets was no longer required because it is more
likely than not that the Company’s deferred tax assets will be realized in future periods.
Accordingly, a complete reversal of the valuation allowance was recognized in closing out the
second quarter of fiscal 2007. This action resulted in and accounts for substantially all of the
net income tax benefit of $13.6 million reflected in our results for fiscal 2007.
As a result of the Company’s disposal of its ownership of Fargeot in July 2007, the Company
incurred a capital loss, and it was able to utilize part of this loss to offset prior year capital
gains. The portion of the capital loss, which could not be utilized in fiscal 2009 or in fiscal
2008, is included as a capital loss carryforward. This capital loss deferred tax asset is subject
to expiration after five years as a carryforward item, with any realization permitted only by
offsetting against future capital gains generated by the Company. Approximately $482 thousand of
this capital loss remains without any immediate offsetting capital gain expected at June 27, 2009.
Accordingly, all of the $482 thousand has been reserved through a valuation allowance established
at the end of fiscal 2009.
In addition, we make ongoing assessments of income tax exposures that may arise at the
federal, state or local tax levels. As a result of these evaluations, any exposure deemed more
likely than not will be quantified and accrued as tax expense during the period and reported in a
tax contingency reserve. Any identified exposures will be subjected to continuing assessment and
estimates will be revised accordingly as information becomes available to us.
We had no tax contingency reserve at the end of fiscal 2009 and fiscal 2008, since there were
not any significant outstanding exposures, which existed, as determined by management, at either
the state or federal tax levels. During fiscal 2007, we settled with the IRS certain open issues
associated with the IRS’ examination of fiscal 2001 and fiscal 2002 and recorded $338 thousand as
expense in the results from continuing operations in fiscal 2007 related to this settlement.
(d) We make estimates of the future costs associated with restructuring plans related to
operational changes announced during the year. These estimates are based upon the anticipated
costs of employee separations; an analysis of the impairment in the value of any affected assets;
anticipated future costs to be incurred in settling remaining lease obligations, net of any
anticipated sublease revenues; and other costs associated with the restructuring plans. While we
believe restructuring activities and all related costs incurred in fully implementing the Company’s
current model have been completely achieved by the Company, changes in business conditions going
forward may necessitate future restructuring costs.
(e) We sponsor a noncontributory retirement plan for the benefit of salaried and nonsalaried
employees, the Associates’ Retirement Plan (“ARP”). Effective as of close of business day on March
31, 2004, the ARP was frozen and has remained frozen since that time. We also sponsor a
Supplemental Retirement Plan (“SRP”) for certain officers and other key employees as designated by
our Board of Directors. The SRP is unfunded, noncontributory, and provides for the payment of
monthly retirement benefits. Effective as of close of business day on March 31, 2004, the SRP was
frozen; however, effective as of January 1, 2005, the SRP was unfrozen with respect to two
“reactivated participants” who had been participants in the SRP prior to March 31, 2004 and were
designated by our Board of Directors. Effective as of January 1, 2005, pension benefit accruals
resumed for the reactivated participants. From and after March 31, 2004, (a) no new individual may
become a participant in the SRP; (b) except with
respect to the reactivated participants, no additional pension benefits will accrue; and
(c) benefits will begin to be distributed no earlier than the date a participant terminates
employment with the Company.
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The actuarial valuation of our ARP and SRP benefit costs, assets and obligations affects our
financial position, results of operations and cash flow. These valuations require the use of
assumptions and long-range estimates. These assumptions include, among others, assumptions
regarding interest and discount rates, assumed long-term rates of return on pension plan assets,
and projected rates of salary increases. We regularly evaluate these assumptions and estimates as
new information becomes available. Changes in assumptions, which may be caused by conditions in
the debt and equity markets, changes in asset mix, and plan experience, could have a material
effect on our pension obligations and expenses, and can affect our net income, assets and
shareholders’ equity. In addition, changes in assumptions such as rates of return, fixed income
rates used to value liabilities or declines in the fair value of plan assets, may result in
voluntary decisions or mandatory requirements to make additional contributions to our ARP.
The discount rate was determined based on an analysis of interest rates for high-quality,
long-term corporate debt at each measurement date. In order to appropriately match the bond
maturities with expected future cash payments, we utilize differing bond portfolios to estimate the
discount rates for the defined benefit plans. The weighted average discount rate used to determine
the defined benefit plans obligation as of the balance sheet date is the rate in effect at the
measurement date. The same rate is also used to determine the defined benefit plans’ expense for
the following fiscal year. The long-term rate of return for defined benefit plans’ assets is based
on our historical experience, the defined benefit plans’ investment guidelines and our expectations
for long-term rates of return. The defined benefit plans’ investment guidelines are established
based upon an evaluation of market conditions, tolerance for risk and cash requirements for benefit
payments. Holding all other assumptions constant, we estimate that a 100 basis point decrease in
the expected discount rate would decrease our fiscal 2009 pretax earnings by approximately $167
thousand, and it would increase our total pension liability by approximately $3.5 million.
We establish assumptions to measure our pension liabilities and project the long-term rate of
return expected on the invested pension assets in our qualified ARP. Changes in assumptions, which
may be caused by conditions in the debt and equity markets, changes in asset mix, and plan
experience, could have a material effect on our pension obligations and expenses, and can affect
our net income, assets, and shareholders’ equity. Changes in assumptions may also result in
voluntary or mandatory requirements to make additional contributions to our qualified ARP. These
assumptions are reviewed and reset as appropriate at the pension measurement date commensurate with
the end of our fiscal year end, and we monitor these assumptions over the course of the fiscal
year.
Expected rate of return on pension plan assets is also an important element of plan expense.
In fiscal 2009, we used 8.25 percent as the rate of return on pension plan assets. To determine
the rate of return on plan assets, we consider the historical experience and expected future
performance of the plan assets, as well as the current and expected allocation of the plan assets.
Our ARP’s assets allocation as of June 27, 2009, the measurement date for fiscal 2009, was
approximately 72 percent in domestic and foreign equity investments, 6 percent in domestic fixed
income securities, 20 percent in hedge fund investments, and 2 percent in cash investments. This
asset allocation was in line with our investment policy guidelines. We periodically evaluate the
allocation of plan assets among the different investment classes to ensure that they are within
policy guidelines. Holding all other assumptions constant, we estimate that a 100 basis point
decrease in the expected rate of return on pension plan assets would lower our fiscal 2009 pre-tax
earnings by approximately $177 thousand.
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(f) With the adoption of SFAS No. 123 (revised), “Shared-Based Payment,” on
January 1, 2006, we are required to record the fair value of stock-based compensation awards as an
expense. In order to determine the fair value of stock options on the date of the grant, we apply
the Black-Scholes option-pricing model in any stock option grants. Where restricted stock units
are granted, the fair value of the grant is determined based on the market value of the underlying
common shares at the date of grant and is adjusted for anticipated forfeitures based on our
historical experience and
management judgment. In fiscal 2009, fiscal 2008 and fiscal 2007, the vast majority of
equity-based grants made by the Company were in the form of restricted stock units. No stock
options were granted in fiscal 2009.
(g) There are various other accounting policies that also require management’s judgment. We
follow these policies consistently from year to year and period to period. For an additional
discussion of all of our significant accounting policies, please see Notes (1) (a) through (1)
(v) of the Notes to Consolidated Financial Statements.
Actual results may vary from these estimates as a consequence of activities after the
period-end estimates have been made. These subsequent activities will have either a positive or
negative impact upon the results of operations in a period subsequent to the period when we
originally made the estimate.
Recently Issued Accounting Standards
See Note 1 (v) of the Notes to Consolidated Financial Statements included in “Item 8.
Financial Statements and Supplementary Data.” in this 2009 Form 10-K for a description of
recent accounting pronouncements.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rates
Our principal market risk exposure relates to the impact of changes in short-term interest
rates that may result from the floating rate nature of the Company’s Bank Facility. At June 27,
2009, we had no borrowings outstanding under the Bank Facility. Based on projected future funding
needs for the next 12-month period, we do not expect any significant borrowings under our Bank
Facility. We typically do not hedge our exposure to floating interest rates.
Interest rate changes impact the level of earnings for short-term investments; changes in
long-term interest rates also affect the measurement of pension liabilities performed on an annual
basis.
Market Risk Sensitive Instruments — Foreign Currency
Substantially all of our sales were conducted in North America and denominated in U.S. Dollars
during fiscal 2009. For any significant sales transactions denominated in other than U.S. Dollars,
we have generally followed the practice of hedging against currency exposure on a short-term basis,
using foreign exchange contracts as a means to protect our operating results from adverse currency
fluctuations. At the end of fiscal 2009, fiscal 2008 and fiscal 2007, the Company did not have any
such foreign exchange contracts outstanding.
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Item 8. Financial Statements and Supplementary Data.
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
R.G. Barry Corporation: We have audited the accompanying consolidated balance sheets of R.G. Barry Corporation and
subsidiaries as of June 27, 2009 and June 28, 2008, and the related consolidated statements of
income, shareholders’ equity and comprehensive income, and cash flows for the years ended June 27,
2009, June 28, 2008 and June 30, 2007. These consolidated financial statements are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of R.G. Barry Corporation and subsidiaries as of June 27,
2009 and June 28, 2008, and the results of their operations and their cash flows for the years
ended June 27, 2009, June 28, 2008 and June 30, 2007, in conformity with U.S. generally accepted
accounting principles.
/s/ KPMG LLP
Columbus, Ohio September 8, 2009
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except per share data)
See accompanying notes to consolidated financial statements.
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R.G. BARRY CORPORATION AND SUBSIDIARIES
Consolidated Statements of Income
Fiscal Years Ended June 27, 2009, June 28, 2008 and June 30, 2007
(in thousands, except per share data)
See accompanying notes to consolidated financial statements.
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R.G. BARRY CORPORATION
Consolidated Statements of Shareholders’ Equity and Comprehensive Income
Fiscal Years Ended June 27, 2009, June 28, 2008 and June 30, 2007
(in thousands)
See accompanying notes to consolidated financial statements.
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R.G. BARRY CORPORATION
Consolidated Statements of Cash Flows
Fiscal Years Ended June 27, 2009, June 28, 2008 and June 30, 2007
(in thousands)
See accompanying notes to consolidated financial statements.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
R.G. Barry Corporation, an Ohio corporation, is engaged, with its subsidiaries for the
applicable periods, in designing, sourcing, marketing and distributing accessory
footwear products. The Company defines accessory footwear as a product category that
encompasses primarily slippers, sandals, hybrid and active fashion footwear and slipper
socks. Its products are sold in North America through department stores, chain stores,
warehouse clubs, independent footwear stores and mass merchandising channels of
distribution. Unless the context otherwise requires, references in these notes to
consolidated financial statements to the “Company” refer to R.G. Barry Corporation and
its consolidated subsidiaries when applicable.
At the end of fiscal 2007, R.G. Barry Corporation’s Board of Directors approved a plan
to sell its 100% ownership in Escapade, S.A. and its Fargeot et Compagnie, S.A
subsidiary (collectively, “Fargeot”). As a result of this action and consistent with
the provisions of Statement of Financial Accounting Standards (“SFAS”) No. 144,
“Accounting for the Impairment or Disposal of Long-Lived Assets” (“SFAS 144”), the
results of operations for Fargeot have been reported as discontinued operations for the
applicable periods reported in the Company’s Consolidated Statements of Income.
Fargeot’s business was the only business reported in the Company’s Barry Comfort Europe
operating segment. The sale of Fargeot was completed on July 20, 2007 as further
detailed in Note (18).
Unless otherwise indicated, all references to assets, liabilities, revenues and expenses
in these notes to consolidated financial statements (“financial statements”) reflect
continuing operations and exclude discontinued operations with respect to the sale of
Fargeot.
As noted earlier, the Company’s reporting period is either a fifty-two or
fifty-three-week period (“fiscal year”), ending annually on the Saturday nearest June
30. For definitional purposes, as used herein, the terms listed below include the
respective periods noted:
The financial statements include the accounts of the Company. All inter-company
balances and transactions, where appropriate, have been eliminated in consolidation.
The Company’s financial statements have been prepared in conformity with U.S. generally
accepted accounting principles (“GAAP”), and accordingly, require management to make
estimates and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements
and the reported amounts of revenues and expenses during the reporting periods. Actual
results could differ from those estimates.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
Cash includes deposits with banks and other financial institutions, which are accessible
at any time without prior notice or penalty. Cash equivalents include investments with
maturities of three months or less.
At June 27, 2009, as part of its cash management and investment program, the Company
maintained a portfolio of $24,977 in short-term investments, including $18,520 in
marketable investment securities consisting of variable rate demand notes and $6,458 in
other short-term investments. The marketable investment securities are classified as
available-for-sale. These marketable investment securities are carried at cost, which
approximates fair value. The other short-term investments are classified as
held-to-maturity securities and include several corporate bonds which have individual
maturity dates ranging from July to December 2009.
Inventory is valued at the lower of cost or market as determined on the first-in,
first-out (FIFO) basis, see Note (3).
Depreciation and amortization expense has been computed using the straight-line method
over the estimated useful lives of the assets. Depreciation and amortization expense is
reflected as part of selling, general and administrative expenses in the accompanying
consolidated statement of income.
The Company incurs costs in obtaining and perfecting trademarks and patents related to
its products and production-related processes. These costs are generally amortized over
a period subsequent to asset acquisition not to exceed five years. Licensing fees paid
to acquire rights to any trademark are amortized over the base term of the related
licensing agreement.
The Company recognizes revenue when the following criteria are met:
In certain circumstances, the Company sells to its customers under special arrangements,
which in certain instances provide for return privileges, as well as discounts,
promotions and other sales incentives. When selling under these special arrangements,
the Company reduces its measurement of revenue by the estimated cost of potential future
returns and allowable
retailer promotions and sales incentives. The Company bases its estimates for sales
returns and promotions and sales incentive allowances on current and historical trends
and experience.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) Allowances established for returns were approximately $1,075 and $151 at the end of
fiscal 2009 and fiscal 2008, respectively; these allowances at the end of each fiscal
year were for specific spring season programs initiated with certain customers in each
respective fiscal year. During fiscal 2009 and fiscal 2008, the Company recorded
approximately $1,418 and $3,000, respectively, as the sales value of merchandise
returned by customers.
Allowances for promotions, cooperative advertising and other sales incentives
established at the end of fiscal 2009 and fiscal 2008 were approximately $1,223 and
$1,500, respectively. Charges to earnings for consumer promotion, cooperative
advertising and other sales incentive activities, including support for display
fixtures, for fiscal 2009, fiscal 2008 and fiscal 2007 were approximately $10,592,
$11,300 and $12,100, respectively.
Distribution and warehousing costs for finished product, including occupancy costs, are
classified within selling, general and administrative expenses in the accompanying
consolidated statements of income. These costs amounted to $6,089, $6,170 and $6,324
for fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
The Company uses a variety of programs to advertise and promote the sale of its products
and expenses the costs of these programs as incurred. For fiscal 2009, fiscal 2008 and
fiscal 2007, advertising and promotion expenses of $2,559, $3,958 and $2,887,
respectively, have been reported in selling, general and administrative expenses in the
accompanying consolidated statements of income.
Income taxes are accounted for under the asset and liability method. Deferred tax
assets and liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets and
liabilities and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes
the enactment date.
In assessing the realizability of deferred tax assets, the Company’s management
considers whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax assets is
dependent on the generation of future taxable income. Management considers the
scheduled reversal of deferred items, projected future taxable income and tax planning
strategies in making this assessment.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
Basic earnings or loss per common share is based on the weighted average number of
common shares outstanding during each reporting period. Diluted earnings per common
share are based on the weighted average number of common shares outstanding as well as,
when their effect is dilutive, potential common shares consisting of certain common shares subject to stock options and restricted stock units. Diluted loss per common
share does not include the impact of potential common shares due to the antidilutive
effect of these instruments.
Comprehensive income, consisting of net earnings , foreign currency translation
adjustments and pension liability adjustments, is presented in the accompanying
consolidated statements of shareholders’ equity and comprehensive income.
Assets and liabilities of foreign operations, when applicable, have been translated into
U.S. dollars at the applicable rates of exchange in effect at the end of each fiscal
years. Revenues, expenses and cash flows have been translated at the applicable
weighted average rates of exchange in effect during each fiscal year.
The Company adopted SFAS No. 123 (revised), “Shared-Based Payment,” (“SFAS 123R”)
effective January 1, 2006. SFAS 123R requires the recognition of the fair value of
stock-based compensation in the results of operations. The Company recognizes the
stock-based compensation expense over the requisite service period of the individual
grantees, which generally equals the vesting period. All of the stock-based
compensation is accounted for as an equity instrument. The Amended and Restated 2005
Long-Term Incentive Plan (the “2005 Plan”), is the only equity-based compensation plan
under which future awards may be made to employees of the Company and non-employee
directors of R.G. Barry Corporation other than the employee stock purchase plan in which
employees of the Company may participate, as described in further detail in Note (11).
The Company’s previous equity-based compensation plans remained in effect with respect
to the then outstanding awards following the approval of the 2005 Plan.
Prior to fiscal 2007, the Company did not recognize a tax benefit related to the
stock-based compensation expense because the Company had established a valuation
allowance against its net deferred tax assets. In the second quarter of fiscal 2007,
the Company reversed this tax valuation allowance. During fiscal 2009 and fiscal 2008,
the Company recognized excess state and local tax benefits of $5 and $70, respectively,
associated with stock-based compensation and recognized this excess benefit as an
addition to the paid-in capital account.
Stock-based compensation expense for awards granted after adopting SFAS 123R is
recognized over the requisite service period for the entire award (for attribution
purposes, the award is treated as though it were subject to cliff vesting). This
recognition, under SFAS 123R, is subject to the requirement that the cumulative amount
of stock-based compensation expense recognized at any point in time must at least equal
to the portion of the grant-date fair value of the award that is vested at that date.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
On June 29, 2008, the Company adopted the provisions FASB Statement No. 157, Fair Value
Measurements, for fair value measurements of financial assets and financial liabilities
and for fair value measurements of nonfinancial items that are recognized or disclosed at fair
value in the financial statements on a recurring basis. Statement 157 defines fair value
as the price that would be received to sell an asset or paid to transfer a liability in
an orderly transaction between market participants at the measurement date. Statement
157 also establishes a framework for measuring fair value and expands disclosures about
fair value measurements (Note 2). FASB Staff Position (“FSP”) FAS 157-2, “Effective Date
of FASB Statement No. 157,” delays the effective date of Statement 157 until fiscal
years beginning after November 15, 2008 for all nonfinancial assets and nonfinancial
liabilities that are recognized or disclosed at fair value in the financial statements
on a nonrecurring basis.
On June 28, 2009, the Company will be required to apply the provisions of Statement 157
to fair value measurements of nonfinancial assets and nonfinancial liabilities that are
recognized or disclosed at fair value in the financial statements on a nonrecurring
basis. The Company does not expect any material impact in applying these provisions on
its financial position and results of operations.
In October 2008, the FASB issued FSP FAS 157-3, “Determining the Fair Value of a
Financial Asset When the Market for That Asset is Not Active,” which was effective
immediately. FSP FAS 157-3 clarifies the application of Statement 157 in cases where the
market for a financial instrument is not active and provides an example to illustrate
key considerations in determining fair value in those circumstances. The Company held no
investments where the guidance provided by FSP FAS 157-3 would have been applicable in
its determination of estimated fair values during 2009.
In April 2009, the FASB issued FSP FAS 157-4, Determining Fair Value When the Volume
and Level of Activity for the Asset or Liability Have Significantly Decreased and
Identifying Transactions That Are Not Orderly (“FSP FAS 157-4”). FSP FAS 157-4 provides
guidance on how to determine the fair value of assets and liabilities under SFAS No. 157
in the current economic environment and reemphasizes that the objective of a fair value
measurement remains an exit price. If we were to conclude that there has been a
significant decrease in the volume and level of activity of the asset or liability in
relation to normal market activities, quoted market values may not be representative of
fair value and we may conclude that a change in valuation technique or the use of
multiple valuation techniques may be appropriate. FSP FAS 157-4 is effective for interim
and annual periods ending after June 15, 2009. The adoption of FSP FAS 157-4 did not
have a material impact on our consolidated financial statements.
In accordance with SFAS 144, long-lived assets, such as property, plant and equipment,
and purchased intangible assets subject to amortization, are reviewed for impairment
whenever events or changes in circumstances indicate that the carrying amount of those
assets may not be recoverable. Recoverability of assets held and used is measured by a
comparison of the carrying amount of an asset group to the estimated undiscounted future
cash flows expected to be generated by the asset group. If the carrying amount of an
asset group exceeds its estimated future cash flows, an impairment charge is recognized
equal to the amount by which the carrying amount of the individual assets within the
group exceeds its fair value. Assets to be disposed of would be presented separately in
the consolidated balance sheets, reported at the lower of the carrying amount or fair
value less costs to sell, and are no longer depreciated.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
The Company provided consideration to customers in the form of discounts and other
allowances which were reflected as a reduction of net sales of approximately $9,340,
$9,918 and $11,027 for fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
The Company’s policy is to recognize and classify any interest and penalties associated
with a tax authority assertion of the Company’s income tax liabilities as part of its
income tax expense.
The Company monitored and evaluated any subsequent events for footnote disclosures
in or adjustments required in its consolidated financial statements for fiscal 2009
through September 8, 2009, the date on which the its consolidated financial statements
were filed as part of the 2009 Form 10-K.
In April 2008, the FASB issued FASB Staff Position (“FSP’) FAS 142-3, “Determination of
the Useful Life of Intangible Assets.” FSP FAS 142-3 amends the factors that should be
considered in developing renewal or extension assumptions used to determine the useful
life of a recognized intangible asset under SFAS 142. FSP FAS 142-3 is effective for
fiscal years beginning after December 15, 2008. The Company does not expect any material
impact of adopting FSP FAS 142-3 on its financial position and results of operations.
In December 2007, the FASB released SFAS No. 141 (revised 2007), “Business
Combinations,” (“SFAS 141(R)”) and SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements- an amendment of ARB No.151” (“SFAS 160”). These
standards become effective for fiscal years beginning on or after December 15, 2008, and
they provide guidance in accounting for business combinations and the reporting of
noncontrolling interests (or minority interests) in consolidated financial statements.
Both standards became effective for the Company’s fiscal year beginning on June 28,
2009. In April 2009, the FASB issued FSP FAS 141(R)-1, “Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise From Contingencies”. FSP
FAS 141(R)-1 amends and clarifies SFAS 141(R) to address application issues raised by
preparers, auditors and members of the legal profession on initial recognition and
measurement, subsequent measurement and accounting, and disclosure of assets and
liabilities arising from contingencies in a business combination. SFAS 141(R) will be
applied on a prospective basis while SFAS 160 will be applied retroactively; neither
standard will have an effect on the Company’s historical financial position or its
results of operations.
In December 2008, the FASB issued FSP FAS 132(R)-1, “Employers’ Disclosures about
Postretirement Benefit Plan Assets.” FSP FAS 132(R)-1 is an amendment to SFAS No. 132
(revised 2003), “Employers’ Disclosures about Pensions and Other Postretirement
Benefits,” to provide guidance on an employer’s disclosures about plan assets of a
defined benefit pension or other postretirement plan. This FSP becomes effective for
fiscal years ending after December 15, 2009 and is not required for earlier periods that
are presented for comparative purposes. Earlier application of the provisions of this
FSP is permitted. Since the FSP deals only with disclosure guidance, the application of
the provisions of FSP FAS
132(R)-1 will not have an effect on the Company’s financial position or its results of
operations.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) In April 2009, the Securities and Exchange Commission (“SEC”) issued Staff
Accounting Bulletin No. 111 which amends and replaces Topic 5.M., “Other Than Temporary
Impairment of Certain Investments in Debt and Equity Securities”. Topic 5.M. (as
amended) maintains the SEC staff’s previous views related to equity securities and also
amends Topic 5.M. to exclude debt securities from its scope.
In May 2009, the FASB issued SFAS No. 165, “Subsequent Events.” This SFAS sets forth:
(a) the period after the balance sheet date during which management of a reporting
entity should evaluate events or transactions that may occur for potential recognition
or disclosure in the financial statements; (b) the circumstances under which an entity
should recognize events or transactions occurring after the balance sheet date in its
financial statements; and (c) the disclosures that an entity should make about events or
transactions that occurred after the balance sheet date. SFAS No. 165 is effective for
interim or annual financial periods ending after June 15, 2009 and requires a date be
identified in the Company’s financial statement disclosures through which any subsequent
events have been monitored and evaluated by the Company for disclosure or adjustment
purposes to its financial statements for the period. This disclosure requirement has no
effect on the Company’s financial position or its results of operations (see Note 1(u)).
In June 2009, the FASB issued SFAS No. 168, “The FASB Accounting Standards Codification™
and the Hierarchy of Generally Accepted Accounting Standards.” This Statement
identifies the sources of accounting principles and the framework for selecting the
principles used in the preparation of financial statements of nongovernmental entities
that are presented in conformity with GAAP in the United States (the “GAAP hierarchy”).
This Statement establishes the FASB Accounting Standards Codification™ (“Codification”)
as the source of authoritative accounting principles recognized by the FASB to be
applied by nongovernmental entities in the preparation of financial statements in
conformity with GAAP. Rules and interpretive releases of the SEC under authority of
federal securities laws are also sources of authoritative GAAP for SEC registrants.
Effective for reporting periods beginning on July 1, 2009 and forward, technical
references to authoritative GAAP will be referenced to the FASB Accounting Standards
Codification, in lieu of reference to individual SFAS pronouncements. Since this change
impacts disclosure references only, it will have no effect on the Company’s financial
position or its results of operations.
Fair Value of Financial Instruments
Cash, cash equivalents, short-term investments, accounts receivable, accounts payable and
accrued expenses, as reported in the consolidated financial statements approximate their fair
value because of the short-term maturity of those instruments. The fair value of the
Company’s long-term debt is disclosed in Note 6.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) Fair Value Hierarchy
The Company adopted SFAS 157 on June 29, 2008 for fair value measurements of financial assets
and financial liabilities and for fair value measurements of nonfinancial items that are
recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS
157 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques
used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted
prices in active markets for identical assets
or liabilities (Level 1 measurements) and the lowest priority to measurements involving
significant unobservable inputs (Level 3 measurements). The three levels of the fair value
hierarchy are as follows:
The level in the fair value hierarchy within which a fair measurement in its entirety falls is
based on the lowest level input that is significant to the fair value measurement in its
entirety.
The following table presents assets and liabilities that are measured at fair value on a
recurring basis (including items that are required to be measured at fair value and items for
which the fair value option has been elected) at June 27, 2009:
The financial statements as of and for the year ended June 27, 2009 do not include any
nonrecurring fair value measurements relating to assets or liabilities for which the Company
has adopted the provisions of SFAS 157. All nonrecurring fair value measurements for 2009
involved nonfinancial assets and the Company will not adopt the provisions of SFAS 157 for
nonrecurring fair value measurements involving nonfinancial assets and nonfinancial
liabilities until June 28, 2009 as discussed in Note 1(q).
Inventory by category at June 27, 2009 and June 28, 2008 consisted of the following:
Inventory is presented net of raw material write-downs of $4 and $32 at the end of fiscal 2009
and fiscal 2008, respectively; and finished goods write-downs of $216 and $65 at the end of
the same reporting periods, respectively. Inventory write-downs recognized as a part of cost
of sales were $1,069, $430 and $1,246 in fiscal 2009, fiscal 2008 and fiscal 2007,
respectively.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
Property, plant and equipment at cost at June 27, 2009 and June 28, 2008 consisted of the
following:
Intangible trademark, patent assets and licensing fees included the following at June 27, 2009
and June 28, 2008:
The Company recognized trademark, patent and licensing fee amortization expense of $190 and
$201 in fiscal 2009 and fiscal 2008, respectively, and reported that expense as part of
selling, general and administrative expenses in the accompanying consolidated statement of
income.
Based on the Company’s amortization methods, remaining net trademark, patent and licensing fee
costs will be recognized as amortization expense of $185, $106, $31, $26 and $11 in each of
the next five years, respectively. The Company would accelerate the expensing of these costs
should circumstances change and an impairment condition be determined for trademarks or
patents that have a remaining value.
The Company is party to an unsecured credit facility with The Huntington National Bank
(“Huntington”). The original facility dated March 29, 2007 was modified on June 26, 2009.
Under this second modification of the Bank Facility, Huntington is obligated to advance the
Company funds for a period of two and a half years ending with December 31, 2011, subject to a
one-year renewal option thereafter, up to the following amounts:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The terms of the Bank Facility require the Company to satisfy certain financial covenants
including (a) satisfying a minimum fixed charge coverage ratio of not less than 1.25 to 1.0
which is calculated on a trailing 12 months basis, and (b) maintaining a consolidated net
worth of not less than $44,000, increased annually by 50% of the Company’ consolidated net
income after June 28, 2009. The Bank Facility must be rested for 30 consecutive days
beginning in February of each year. Also, the borrowing under the Bank Facility may not
exceed 80% of the Company’s eligible accounts receivable plus 50% of its eligible inventory at
any one time. As of June 27, 2009, the Company was in compliance with these financial
covenants.
The Bank Facility provides that Huntington will issue on behalf of the Company letters of
credit with a maximum aggregate value of up to $1,500. The aggregate dollar amount of
outstanding letters of credit is deducted from the available balance under the Bank Facility.
At June 27, 2009, the Company had $6,842 available under the Bank Facility, which was reduced
by the aggregate amount of letters of credit outstanding.
The interest rate on the Bank Facility is a variable rate equal to LIBOR plus 2.75%. The
applicable interest rate on the Bank Facility at June 27, 2009 was 3.06% assuming a 30-day
LIBOR rate of .31% on that date. Additionally, the modified agreement requires the Company to
pay a quarterly unused line fee at the rate of 3/8% of the average unused Bank Facility
balance. During fiscal 2009, the Company did not use its Bank Facility and incurred unused
line fees of approximately $22. The Company incurred a commitment fee of approximately $43 on
the loan modification effective as of June 26, 2009; this fee will be amortized over the
future term of the Bank Facility.
At June 27, 2009 and June 28, 2008, short-term notes payable of $1,750 and $2,200,
respectively, consisted exclusively of the borrowings against the cash surrender value of
certain life insurance policies with an interest rate of 3.25%, as discussed further in Note
(15).
The Company and its co-founder, the mother of the Company’s non-executive chairman
(“chairman”), entered into an agreement in August 2005 whereby she transferred all of her
product designs and patent rights to the Company and released all unpaid claims that would
have accrued under a previous agreement. Under the August 2005 agreement, the Company is
obligated to make 24 quarterly payments of $25 each on the last business day of every October,
January, April and July until the last business day in April 2011. Since the death
of the chairman’s mother in February 2007 and through March 24, 2008, the Company made the
quarterly payments with respect to the agreement to the successor trust of which the chairman
is the trustee and beneficiary. On March 24, 2008, the chairman assigned the remaining
payment rights under the agreement to a fund established with a philanthropic organization.
As of June 27, 2009 and listed as “Other note” in the table below, the Company reported $90 of
the then remaining liability under this agreement as current installments of long-term debt
and the remaining $97 as long-term debt.
The fair value of the Company’s long-term debt is based upon the present value of expected
cash flows, considering expected maturities and using current interest rates available to the
Company for borrowings with similar terms. The carrying amount of the Company’s long-term
debt approximates its fair value. Long-term debt at June 27, 2009 and June 28, 2008 consisted
of the following:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The aggregate minimum principal maturities of the long-term debt for each of the next five
fiscal years following June 27, 2009 are as follows:
The Company occupies certain distribution and office sales facilities and uses certain
equipment under cancelable and noncancelable operating lease arrangements. A summary of the
noncancelable operating lease commitments at June 27, 2009 is as follows:
Substantially all of these operating lease agreements have no further contractual renewals and
require the Company to pay insurance, taxes and maintenance expenses. Rent expense under
cancelable and noncancelable operating lease arrangements in fiscal 2009, fiscal 2008 and
fiscal 2007, reported as part of continuing operations was $1,212, $998 and $996,
respectively.
Income tax expense for fiscal 2009, fiscal 2008 and fiscal 2007, consisted of the following:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The differences between income taxes computed by applying the statutory federal income tax
rate (34 percent in fiscal 2009, fiscal 2008 and fiscal 2007), and income tax expense
(benefit) reported in the financial statements are:
The tax effects of temporary differences that give rise to significant portions of the
deferred tax assets and deferred tax liabilities are presented below for the end of fiscal
2009 and fiscal 2008.
The net temporary differences incurred to date will reverse in future periods when the Company
generates taxable earnings. The deferred tax assets result primarily from provisions in the
U.S. income tax code, which require that certain accounting accruals be deferred until future
years before those accruals are deductible for current income tax purposes. The Company
records a valuation allowance when it is more likely than not that some portion or all of the
deferred tax assets will not be realized.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) In fiscal 2008, the Company recorded an out-of-period deferred tax benefit adjustment of $522
related to prior period asset dispositions associated primarily with the closure of the
Company’s former distribution operations in Mexico. This adjustment resulted in lower income
tax expense recognized in the results of operations reported in fiscal 2008.
In accordance with the provisions of SFAS No. 109, “Accounting for Income Taxes,” the Company
originally recorded a valuation allowance reflecting the full reservation of the value of its
deferred tax assets at the close of fiscal 2003, which ended on January 3, 2004. The
Company’s valuation allowance against its net deferred tax assets and net operating loss
carryforwards at the end of the 2006 transition period was $18,273. The valuation allowance
against deferred tax assets was maintained through the end of the first quarter of fiscal
2007. In the second quarter of fiscal 2007, the Company determined, based on the existence of
sufficient positive evidence, represented primarily by three years of cumulative income before
restructuring charges, that a valuation allowance against net deferred tax assets was no
longer required because it was more likely than not that the Company’s deferred tax assets
will be realized in future periods. Accordingly, the full amount of the valuation allowance
was reversed and recognized in the benefit reflected for the year. The Company believes that
under its current operating model it will continue to generate taxable earnings from
operations in the future.
As a result of the Company’s disposal of its ownership of Fargeot in July 2007, the Company
incurred a capital loss, and it was able to utilize part of this loss to offset prior year
capital gains. The portion of the capital loss, which could not be utilized in fiscal 2008,
is included as a capital loss carryforward. This capital loss deferred tax asset is subject
to expiration after five years as a carryforward item, with any realization permitted only by
offsetting against future capital gains generated by the Company. Approximately $482 of this
capital loss remains without any immediate offsetting capital gain expected at June 27, 2009.
Accordingly, all of the $482 has been reserved through a valuation allowance established at
the end of fiscal 2008.
At the end of fiscal 2009, fiscal 2008 and fiscal 2007, there were approximately $1,757,
$11,163 and $23,209, respectively, of net operating loss carryforwards available for U.S.
federal income tax purposes. Due to the deferred recognition of additional paid in capital
(“APIC”) created from excess tax benefits realized on the exercises and/or vesting of various
equity-based compensation instruments, the net operating loss carryforwards, as measured in
the Company’s tax returns, are higher than those amounts considered for book purposes. SFAS
123R requires recognition of excess tax benefits as APIC only when cash payments on taxes are
directly impacted. This timing for federal income tax return purposes will not occur until
all net operating loss carryforwards are completely used to offset U.S. federal income tax
expense. Accordingly, net operating loss carryforwards, as measured for U.S. federal income
tax return purposes, as of the end of fiscal 2009, fiscal 2008 and fiscal 2007 were $4,600,
$14,030 and $25,424, respectively. Loss carryforwards in the U.S. are generally available for
up to twenty years in the future. The loss carryforwards for U.S. federal income tax purposes
are available and can be used to offset current year income, subject to alternative minimum
corporate income tax rules, starting in fiscal 2009 and expiring through the end of fiscal
2027. The alternative minimum tax credit is eligible for indefinite carryforward treatment
and will be recovered through future offset against tax liabilities, once the Company has
fully utilized its net operating loss carryforwards.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) In June 2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in Income
Taxes- an interpretation of FASB Statement 109”. This interpretation prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return and also provides guidance on
derecognition, classification, interest and penalties, accounting in interim periods,
disclosure and
transition. The Company adopted the provisions of FIN 48 on July 1, 2007. The implementation
of FIN 48 did not result in any adjustments to the Company’s reserve for uncertain tax
positions. The Company did not record an accrual for tax related uncertainties or
unrecognized tax positions at the end of fiscal 2009 or the end of fiscal 2008. The Company
does not expect a charge to the reserve for uncertain tax positions within the next twelve
months that would have a material impact on the consolidated financial statements.
The Company recorded no interest or penalties during fiscal 2009 in either its consolidated
statement of income or consolidated balance sheet.
The Company files a consolidated U.S. Federal income tax return and consolidated and separate
company income tax returns in various federal, state and local jurisdictions. Generally, the
Company is no longer subject to income tax examinations by federal, primary state or local tax
authorities through the tax year ended December 31, 2004.
Accrued expenses at June 27, 2009 and June 28, 2008 consisted of the following:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
In September 2006, the FASB issued SFAS No. 158, “Employers’ Accounting for Defined Benefit
Pension and Other Postretirement Plans.” As required, the Company adopted this statement
effective June 30, 2007. This accounting standard required a measurement date change for
pension plans to a date commensurate with the Company’s fiscal year-end. This measurement
date change from the previous measurement date of March 31 was adopted during the first
quarter of fiscal 2009; the following table provides a breakdown of the incremental effect of
applying this required measurement date change on individual line items in the accompanying
consolidated balance sheet at June 27, 2009:
The Company maintains a tax qualified pension plan, the Associates’ Retirement Plan (“ARP”),
as well as a tax nonqualified pension plan, the Supplemental Retirement Plan (“SRP”).
Effective as of close of business day on March 31, 2004, the ARP was frozen. The Company
intends to fund the minimum amounts required under the Employee Retirement Income Security Act
of 1974 (ERISA). The Company also sponsors the SRP for certain officers and other key
employees as designated by R.G. Barry Corporation’s Board of Directors. The SRP is unfunded,
noncontributory and provides for the payment of monthly retirement benefits. Benefits are
based on a formula applied to the recipients’ final average monthly compensation, reduced by a
certain percentage of their social security benefits. For certain participants, the SRP
provides an alternative benefit formula for years worked past the normal retirement age
assumed by the SRP. Effective as of close of business day on March 31, 2004, the SRP was
frozen. Effective as of January 1, 2005, the SRP was unfrozen with respect to two
“reactivated participants” who had been participants in the SRP prior to March 31, 2004 and
were designated by R.G. Barry Corporation’s Board of Directors. Effective as of January 1,
2005, pension benefit accruals resumed for the reactivated participants. From and after March
31, 2004, (a) no new individual may become a participant in the SRP; (b) except with respect
to the reactivated participants, no additional pension benefits will accrue; and (c) benefits
will begin to be distributed no earlier than the date a participant terminates employment with
the Company. In December 2008, the SRP was amended to provide the remaining active
participant with an election option for a lump sum payment at the time of retirement. This
election option was subsequently exercised and payment occurred in late August 2009. This
anticipated lump sum payment of approximately $748 has been included in the short-term
portion of pension liability at June 27, 2009 as part of accrued expenses described in
Note (9).
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The funded status of the ARP and the SRP and the accrued retirement costs, measured on June
27, 2009 and March 31, 2008, as recognized at June 27, 2009 and June 28, 2008, respectively,
were:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
The accumulated benefit obligation for the ARP was $29,770 and $29,433, as of June 27, 2009
and June 28, 2008, respectively. The accumulated benefit obligation for the SRP was $8,206
and $8,143, as of June 27, 2009 and June 28, 2008, respectively.
At June 27, 2009, expected benefit payments to plan participants from the ARP and to
participants in the SRP for each of the next five years and the five-year period thereafter in
the aggregate are:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
The estimated net actuarial loss, prior service cost and transition obligation (asset) for the
defined benefit plans that will be amortized from accumulated other comprehensive income into
net periodic benefit cost during fiscal 2010 are $639, $42 and $0, respectively.
The qualified ARP is funded on a periodic basis as required under ERISA/IRS guidelines. The
general principles guiding investment of pension plan assets are those embodied under ERISA.
These principles include discharging the Company’s investment responsibilities for the
exclusive benefit of plan participants and in accordance with the “prudent expert” standards
and other ERISA rules and regulations. Investment objectives for the Company’s pension plan
assets are to optimize the long-term return on plan assets while maintaining an acceptable
level of risk, diversify assets among asset classes and investment styles, and maintain a
long-term focus. The plan asset allocation shown below is consistent with the Company’s
investment policy objectives. With the assistance of a consulting firm, the plan fiduciaries
are responsible for selecting investment managers, setting asset allocation targets and
monitoring asset allocation and investment performance. The qualified plan assets invested as
of the measurement date for fiscal 2009, fiscal 2008 and fiscal 2007 were as follows:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The expected return on plan assets used in the pension computations for the qualified ARP is
based on management’s best judgment of future anticipated performance of those invested assets
based on past long-term experience and judgment on how future long-term performance will
occur.
The Company’s nonqualified SRP is unfunded and payments, as required, are made when due from
the Company’s general funds. In fiscal 2010, the Company anticipates total payments of $2,559
related to its unfunded, nonqualified SRP and payment contributions to its funded, qualified
ARP.
The discount rate was determined based on an analysis of interest rates for high-quality,
long-term corporate debt at each measurement date. In order to appropriately match the bond
maturities with expected future cash payments, the Company utilizes differing bond portfolios
to estimate the discount rates for the defined benefit plans. The weighted average discount
rate used to determine the defined benefit plans obligation as of the balance sheet date is
the rate in effect at the measurement date. The same rate is also used to determine the
defined benefit plans expense for the following fiscal year.
The Company sponsors a 401(k) plan for all its eligible salaried and nonsalaried employees
(other than employees of its non-domestic subsidiaries). Effective January 1, 2005, the
Company adopted a 3% non-contributory Safe Harbor 401 provision for all eligible plan
participants. In the fourth quarter of fiscal 2007, R.G. Barry Corporation’s Board of
Directors approved a discretionary, one-time contribution of 1% of eligible pay to all 401(k)
plan participants. This contribution was deemed a profit sharing contribution as established
in the 401(k) plan guidelines. The Company’s contributions in cash to the 401(k) plan,
including the one-time contribution payment, as applicable, were $278, $256 and $323, for
fiscal 2009, fiscal 2008 and fiscal 2007, respectively.
As of June 27, 2009, there were approximately 136 employees and nine non-employee directors
who were eligible to participate in the 2005 Plan.
The 2005 Plan authorizes the issuance of 500,000 common shares, plus:
In addition, no more than 500,000 common shares will be available for the grant of incentive
stock options under the 2005 Plan. At June 27, 2009, the number of common shares available
for grant was 0, 126,000 and 84,000 common shares pursuant to the 2005 Plan and through the
rollover terms of the 2005 Plan, the 2002 Plan and the 1997 Plan, respectively.
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R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The selection of participants and the nature and size of awards granted under the 2005 Plan is
within the discretion of the Compensation Committee of R.G. Barry Corporation’s Board of
Directors (the “Committee”) or the full Board of Directors, in the case of grants to
non-employee directors of R.G. Barry Corporation. The 2005 Plan provides for the following
types of grants, each as defined in the 2005 Plan:
Grants of restricted stock, RSUs, stock units and cash awards may, as determined by the
Committee or the full Board of Directors, as appropriate, also be performance-based awards, as
defined in the 2005 Plan.
If an award granted under the 2005 Plan is forfeited, cancelled, terminated, relinquished,
exchanged or otherwise settled without the issuance of common shares or the payment of cash
equal to the difference between the fair market value of the award and any exercise price, the
common shares associated with that award will be available for future grants. The maximum
number of common shares with respect to which awards may be issued under the 2005 Plan to any
individual during any calendar year is 200,000. The common shares issued pursuant to the 2005
Plan may consist of authorized and unissued common shares or treasury shares.
Prior to the 2005 Plan, the Company had various equity-based compensation plans, under which
ISOs and NQs have been granted, some of which remain outstanding. All outstanding ISOs and
NQs are currently exercisable for periods of up to ten years from the date of grant at
exercise prices not less than the fair market value at the grant date of the underlying common shares.
Plan activity for grants under the 2005 Plan and the other equity-based compensation plans
under which ISOs and NQs have been granted is as follows:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
The intrinsic values of the stock options exercisable and outstanding at the end of fiscal
2009 were $652 and $653, respectively. The intrinsic value of stock options exercised during
fiscal 2009 was $305.
At the end of fiscal 2009, fiscal 2008 and fiscal 2007, the stock options outstanding under
these equity-based compensation plans were held by 21, 38 and 43 employees, respectively, and
had expiration dates ranging from 2009 to 2016.
Under the provisions of SFAS 123R, the Company recorded, as part of selling, general and
administrative expenses, $938 of stock-based compensation expense for fiscal 2009.
Approximately $6 of the total stock-based compensation expense incurred during fiscal 2009 was
associated with stock-based awards granted prior to adopting SFAS 123R; $932 of the total
stock-based compensation expense was related to ISOs, NQs and RSUs granted since the Company
adopted SFAS 123R.
Total compensation cost of stock-based awards granted but not yet vested as of June 27, 2009
was approximately $1,782, all of which relates to the compensation cost for stock-based awards
issued after the adoption of SFAS 123R. The Company expects to recognize the total remaining
compensation cost over the weighted-average period of approximately two years.
During fiscal 2009, the Company granted RSUs to non-employee directors of R.G. Barry
Corporation and to members of its senior management. Upon vesting, the RSUs will be settled
in an equivalent number of common shares. The RSUs granted to the non-employee directors will
vest in full on the first anniversary of the date of the award. The RSUs awarded to the
members of senior management will vest in full on the fifth anniversary of the date of the
award, although twenty percent of the RSUs may vest on each of the first four anniversaries of
the date of the award if the Company meets certain performance goals. The intrinsic value of
RSUs that vested during fiscal 2009 was $537.
At the end of fiscal 2009, fiscal 2008 and fiscal 2007, RSUs outstanding under these
equity-based compensation plans were held by 31, 28 and 11 employees, respectively, and had
vesting dates ranging from 2012 to 2014. These RSU vesting dates were subject to partial
acceleration on an annual basis if certain Company financial performance objectives were met
for a fiscal year.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The following is a summary of the status of the Company’s RSUs as of June 27, 2009, June 28,
2008 and June 30, 2007 and activity during the fiscal year then ended:
The following table represents a reconciliation of the numerators and denominators of basic
and dilutive, when applicable, earnings per common share from continuing operations for fiscal
2009, fiscal 2008 and fiscal 2007:
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The Company excludes stock options to purchase common shares from the calculation of diluted
earnings per common share when they are anti-dilutive, measured using the average market price
of the underlying common shares during that fiscal year.
On May 1, 2009, the Board of Directors of R.G. Barry Corporation declared a distribution of
one Preferred Share Purchase Right (“Right”) for each outstanding common share to shareholders
of record on May 15, 2009. The Rights replaced similar rights issued in 1998, which expired
on March 16, 2008. Under certain conditions, each Right may be exercised to purchase one
one-hundredth of a share (a “Unit”) of Series II Junior Participating Class A Preferred
Shares, par value $1 per share, at an initial exercise price of $25 per unit, subject to
adjustment. The Rights initially will be attached to R.G. Barry Corporation’s common shares.
The Rights will separate from the common shares and a Distribution Date will occur upon the
earlier of 10 business days after a public announcement that a person or group of affiliated
or associated persons has acquired, or obtained the right to acquire, beneficial ownership of
15% or more of R.G. Barry Corporation’s outstanding common shares (“Share Acquisition Date”),
other than as a result of repurchases of common shares by R.G. Barry Corporation or certain
inadvertent actions by institutional or certain other shareholders, or 10 business days (or
such later date as the Board of Directors of R.G. Barry Corporation shall determine) after the
commencement of a tender or exchange offer that would result in a person or group beneficially
owning 15% or more of R.G. Barry Corporation’s outstanding common shares. The Rights are not
exercisable until the Distribution Date.
In the event that any person becomes the beneficial owner of 15% or more of the then
outstanding common shares of R.G. Barry Corporation, each holder of a Right will thereafter be
entitled to receive, upon exercise, common shares of R.G. Barry Corporation (or in certain
circumstances, cash, property or other securities of R.G. Barry Corporation) having a market
value equal to two times the exercise price of the Right. In the event that, at any time
following the Share Acquisition Date, R.G. Barry Corporation is acquired in a merger or other
business combination transaction in which R.G. Barry Corporation is not the surviving
corporation or 50% or more of the Company’s consolidated assets, cash flow or earning power is
sold or transferred, the holder of a Right will be entitled to receive, upon exercise of the
Right, the number of shares of common stock of the acquiring company which at the time of such
transaction will have a market value equal to two times the exercise price of the Right.
The Rights, which do not have any voting rights, expire on May 1, 2014, and may be redeemed by
R.G. Barry Corporation at a price of $0.01 per Right at any time until 10 business days
following the Share Acquisition Date.
Each Class A Preferred Share entitles the holder thereof to one-tenth of one vote, while
Class B Preferred Shares, should they become authorized for issuance by action of R.G. Barry
Corporation’s Board of Directors, entitle the holder thereof to ten votes. The preferred shares are entitled to a preference in liquidation. None of the preferred shares have been
issued.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
In April 2008, the Company’s leased distribution facility in Texas was struck by a tornado
damaging the facility, equipment and inventory. Damages to the facility, equipment and
inventory, as well as losses incurred due to business interruption were fully covered by
insurance above a nominal deductible provision. This insurance coverage provided for
reimbursement of the replacement cost on the facility as well as equipment. The inventory
coverage provided for an amount equal to the cost plus normal profit expected in the sale for
any damaged finished goods inventory. The carrying cost of finished goods inventory damaged
in the storm was approximately $1,315. The Company realized a gain of $1,362 in fiscal 2008,
represented by the difference between the carrying amount of the damaged inventory versus the
insurance proceeds.
The Company sustained damage to the leased facility and a portion of its equipment located in
that facility; this damage was insured at full replacement cost and was repaired and placed
back into service in early fiscal 2009.
Under an existing agreement, the Company is obligated for up to two years after the death of
the chairman to purchase, if the estate elects to sell, up to $4,000 of the Company’s common shares, at their fair market value. To fund its potential obligation
to purchase such common shares, the Company maintains two insurance policies on the life of the chairman. The
cumulative cash surrender value of the policies approximates $2,552, which is included in
other assets in the accompanying consolidated balance sheets. Effective in March 2004 and
continuing through most of fiscal 2009, the Company borrowed against the cash surrender value
of both of these policies. One of these policy loans for $450 was repaid during the last month
of fiscal 2009. For a period of 24 months following the chairman’s death, the Company has a
right of first refusal to purchase any common shares owned by the chairman at the time of his
death if his estate elects to sell such common shares and has the right to purchase such
common shares on the same terms and conditions as the estate proposes to sell such common shares to a third party.
The Company and its co-founder, the mother of the chairman, entered into an agreement in
August 2005 whereby she transferred all of her product designs and patent rights to the
Company and released all unpaid claims that would have accrued under a previous agreement.
Under the August 2005 agreement, the Company is obligated to make 24 quarterly payments of $25
each on the last business day of every October, January, April and July until the last
business day in April 2011. Since the death of the chairman’s mother in February
2007 and through March 24, 2008, the Company made the quarterly payments with respect to the
agreement to the successor trust of which the chairman is the trustee and beneficiary. On
March 24, 2008, the chairman assigned the remaining payment rights under the agreement to a
fund established with a philanthropic organization. As of June 27, 2009, the Company reported
$90 of the then remaining liability under this agreement as current installments of long-term
debt and the remaining $97 as long-term debt.
SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,”
establishes standards for the manner in which public enterprises report information about
operating segments, their products and the geographic areas where they operate.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data) The Company primarily markets accessory footwear products, as described in Note (1). With the
sale of Fargeot, the business of which is reported as discontinued operations as further
described in
Note (18), the Company’s business is operated now as a single operating segment, North
America. Net sales as reported in the Consolidated Statements of Income relate primarily to
markets in North America.
At June 27, 2009 and June 28, 2008, substantially all of the Company’s net property, plant
equipment of $3,743 and $3,149, respectively, was located in North America.
For fiscal 2009, fiscal 2008 and fiscal 2007, one customer accounted for approximately 38%,
37% and 33%, respectively, of the Company’s annual consolidated net sales. A second customer
accounted for 10%, 11% and 11% of the Company’s annual consolidated net sales for fiscal 2009,
fiscal 2008 and fiscal 2007, respectively.
During fiscal 2009, fiscal 2008 and fiscal 2007, the Company did not undertake any new
initiatives that resulted in restructuring charges or asset impairment charges. The aggregate
of $179 in other exit costs and adjustments incurred in fiscal 2007, shown below, was related
to the final exit activities with respect to the Company’s former distribution center in
Mexico and costs associated with the final liquidation of the Company’s former Mexico-based
subsidiaries.
In July 2007, the Company completed the sale of Fargeot for 350,000 Euros or approximately
$480. The net value of the business at the close of fiscal 2007 was estimated at $474. The
Company reported a loss from discontinued operations of $590 in fiscal 2007, which included
both the results of the Fargeot operations and an impairment loss of $1,240 resulting from the
sale of Fargeot.
For fiscal 2007, the operating results of Fargeot’s discontinued operations included net sales
of $8,490 and a loss from discontinued operations before income tax of $751.
The Company is from time to time involved in claims and litigation considered normal in the
course of its business. While it is not feasible to predict the ultimate outcome, in the
opinion of management, the resolution of pending legal proceedings is not expected to have a
material effect on the Company’s financial position or results of operation.
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Notes to Consolidated Financial Statements
R.G. Barry Corporation and Subsidiaries
(dollar amounts in thousands, except share and per share data)
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Quarterly Financial Data
(Unaudited) (in thousands, except per share data)
The above information is a summary of unaudited quarterly results of operations of the Company
for fiscal 2009 and fiscal 2008. The sum of the quarterly earnings (loss) per common share data in
the table above may not equal the results for the applicable fiscal year due to rounding and, where
applicable, the impact of dilutive securities on the annual versus the quarterly earnings (loss)
per common share calculations.
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Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
None.
Item 9A(T). Controls and Procedures.
(a) Evaluation of Disclosure Controls and Procedures .
With the participation of the President and Chief Executive Officer (the principal executive
officer) and the Senior Vice President-Finance, Chief Financial Officer and Secretary (the
principal financial officer) of R.G. Barry Corporation (the “Company”), the Company’s management
has evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in
Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of
the end of the fiscal year covered by this 2009 Form 10-K. Based on that evaluation, the Company’s
President and Chief Executive Officer and the Company’s Senior Vice President-Finance, Chief
Financial Officer and Secretary have concluded that:
(b) Management’s Annual Report on Internal Control Over Financial Reporting.
The management of the Company is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act, for the
Company. The Company’s internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with United States generally accepting accounting
principles. The Company’s internal control over financial reporting includes policies and
procedures that:
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With the participation by the President and Chief Executive Officer (the principal executive
officer) and the Senior Vice President-Finance, Chief Financial Officer and Secretary (the
principal financial officer) of the Company, the Company’s management evaluated the effectiveness
of the Company’s internal control over financial reporting as of June 27, 2009, based on the
framework and criteria established in Internal Control—Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission.
Based on this evaluation, the Company’s management has concluded that the Company’s internal
control over financial reporting was effective as of June 27, 2009.
This 2009 Form 10-K does not include an attestation report of the Company’s registered public
accounting firm regarding internal control over financial reporting. Management’s report was not
subject to attestation by the Company’s registered public accounting firm pursuant to temporary
rules of the SEC that permit the Company to provide only management’s report in this 2009 Form
10-K.
(c) Changes in Internal Control Over Financial Reporting.
There were no changes in the Company’s internal control over financial reporting that occurred
during the Company’s fiscal quarter ended June 27, 2009, that materially affected, or are
reasonably likely to materially affect, the Company’s internal control over financial reporting.
Item 9B. Other Information.
None.
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors, Executive Officers and Persons Nominated or Chosen to Become Directors or Executive
Officers
The information required by Item 401 of SEC Regulation S-K concerning the directors of the
Company and the Board of Directors’ nominees for election as directors of the Company at the 2009
Annual Meeting of Shareholders of the Company to be held on October 29, 2009 (the “2009 Annual
Meeting”) is incorporated herein by reference from the disclosure to be included under the caption
“ELECTION OF DIRECTORS (Item 1 on Proxy)” in the Company’s definitive Proxy Statement relating to the 2009 Annual
Meeting (the “Definitive 2009 Proxy Statement”), which will be filed pursuant to SEC Regulation 14A
not later than 120 days after the end of the Company’s fiscal 2009.
The information required by Item 401 of SEC Regulation S-K concerning the Company’s executive
officers is included in the portion of Part I of this 2009 Form 10-K entitled “Supplemental
Item. Executive Officers of the Registrant” and incorporated herein by reference.
Compliance with Section 16(a) of the Exchange Act
The information required by Item 405 of SEC Regulation S-K is incorporated herein by reference
from the disclosure to be included under the caption “SHARE OWNERSHIP — Section 16(a) Beneficial
Ownership Reporting Compliance” in the Company’s Definitive 2009 Proxy Statement.
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Procedures by which Shareholders may Recommend Nominees to the Board of Directors of R.G. Barry
Corporation
Information concerning the procedures by which shareholders of the Company may recommend
nominees to the Company’s Board of Directors is incorporated herein by reference from the
disclosure to
be included under the captions “ELECTION OF DIRECTORS
(Item 1 on Proxy) — Committees of the Board — Nominating
and Governance Committee” and “ELECTION OF DIRECTORS (Item 1 on Proxy) — Nominating Procedures” in the Company’s 2009
Definitive Proxy Statement. These procedures have not materially changed from those described in
the Company’s definitive Proxy Statement for the 2008 Annual Meeting of Shareholders held on
October 29, 2008.
Audit Committee
The information required by Items 407(d)(4) and 407(d)(5) of SEC Regulation S-K is
incorporated herein by reference from the disclosure to be included under the caption “ELECTION OF
DIRECTORS (Item 1 on Proxy) — Committees of the Board — Audit Committee” in the Company’s Definitive 2009 Proxy
Statement.
Code of Business Conduct and Ethics; Committee Charters; Board Mission & Corporate Governance
Guidelines
The Board of Directors of the Company has adopted a Code of Business Conduct and Ethics
covering the directors, officers and employees of the Company and its subsidiaries, including the
Company’s President and Chief Executive Officer (the principal executive officer) and Senior Vice
President-Finance, Chief Financial Officer and Secretary (the principal financial officer and
principal accounting officer).
The Company will disclose the following events, if they occur, in a current report on Form 8-K
to be filed with the SEC within the required four business days following their occurrence: (A) the
date and nature of any amendment to a provision of the Company’s Code of Business Conduct and
Ethics that (i) applies to the Company’s principal executive officer, principal financial officer,
principal accounting officer or controller, or persons performing similar functions, (ii) relates
to any element of the “code of ethics” definition enumerated in Item 406(b) of SEC Regulation S-K,
and (iii) is not a technical, administrative or other non-substantive amendment; and (B) a
description of any waiver (including the nature of the waiver, the name of the person to whom the
waiver was granted and the date of the waiver), including an implicit waiver, from a provision of
the Code of Business Conduct and Ethics granted to the Company’s principal executive officer,
principal financial officer, principal accounting officer or controller, or persons performing
similar functions that relates to one or more of the items set forth in Item 406(b) of SEC
Regulation S-K. In addition, the Company will disclose any waivers of the Code of Business Conduct
and Ethics granted to a director or an executive officer of the Company, if they occur, in a
current report on Form 8-K within four business days following their occurrence.
The Company’s Board of Directors has adopted charters for each of the Audit Committee, the
Compensation Committee, and the Nominating and Governance Committee as well as the Board Mission &
Corporate Governance Guidelines.
The text of each of the Code of Business Conduct and Ethics, the Audit Committee charter, the
Compensation Committee charter, the Nominating and Governance Committee charter and the Board
Mission & Corporate Governance Guidelines is posted on the “Investor Information — Board of
Directors” page of the Company’s web site located at www.rgbarry.com. Interested persons may also
obtain a copy of the Code of Business Conduct and Ethics, the Audit Committee charter, the
Compensation Committee charter, the Nominating and Governance Committee charter and the Board
Mission & Corporate Governance Guidelines without charge, by writing to the Company at its
principal executive offices located at 13405 Yarmouth Road N.W., Pickerington, Ohio 43147,
Attention: José G. Ibarra. In addition, a copy of the Company’s Code of Business Conduct and
Ethics is filed as Exhibit 14.1 to this 2009 Form 10-K.
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Item 11. Executive Compensation.
The information required by Item 402 of SEC Regulation S-K is incorporated herein by reference
from the disclosure to be included under the captions “COMPENSATION OF DIRECTORS,” “COMPENSATION
DISCUSSION AND ANALYSIS” and “COMPENSATION OF EXECUTIVE OFFICERS” in the Company’s Definitive 2009
Proxy Statement.
The information required by Item 407(e)(4) of SEC Regulation S-K is incorporated herein by
reference from the disclosure to be included under the caption “ELECTION OF DIRECTORS (Item 1 on Proxy) —
Compensation Committee Interlocks and Insider Participation” in the Company’s Definitive 2009 Proxy
Statement.
The information required by Item 407(e)(5) of SEC Regulation S-K is incorporated herein by
reference from the disclosure to be included under the caption “COMPENSATION COMMITTEE REPORT” in
the Company’s Definitive 2009 Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Ownership of Common Shares of R.G. Barry Corporation
The information required by Item 403 of SEC Regulation S-K is incorporated herein by reference
from the disclosure to be included in the Company’s Definitive 2009 Proxy Statement, under the
caption “SHARE OWNERSHIP.”
Equity Compensation Plan Information
The information required by Item 201(d) of SEC Regulation S-K is incorporated herein by
reference from the disclosure to be included in the Company’s Definitive 2009 Proxy Statement,
under the caption “EQUITY COMPENSATION PLAN INFORMATION.”
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Certain Relationships and Related Person Transactions
The information required by Item 404 of SEC Regulation S-K is incorporated herein by reference
from the disclosure to be included under the caption “TRANSACTIONS WITH RELATED PERSONS” in the Company’s Definitive 2009 Proxy
Statement.
Director Independence
The information required by Item 407(a) of SEC Regulation S-K is incorporated herein by
reference from the disclosure to be included under the caption “ELECTION OF DIRECTORS” in the
Company’s Definitive 2009 Proxy Statement.
Item 14. Principal Accountant Fees and Services.
The information required by this Item 14 is incorporated herein by reference from the
disclosure to be included in the Company’s Definitive 2009 Proxy Statement, under the captions
“AUDIT COMMITTEE MATTERS — Pre-Approval Policies and Procedures” and “AUDIT COMMITTEE MATTERS —
Fees of Independent Registered Public Accounting Firm.”
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PART IV
Item 15. Exhibits and Financial Statement Schedules.
(a)(1) The consolidated financial statements (and report thereon) listed below are included in
“Item 8. Financial Statements and Supplementary Data.” of this 2009 Form 10-K at the
page(s) indicated:
(a)(2) The consolidated financial statement schedule:
All schedules for which provision is made in the applicable accounting regulations of the SEC
are omitted because of the absence of the conditions under which they are required or because the
required information is presented in the Consolidated Financial Statements or notes thereto.
(a)(3) and (b) Exhibits:
The exhibits listed on the “Index to Exhibits” beginning on page E-1 of this 2009 Form 10-K
are filed with this 2009 Form 10-K or incorporated herein by reference as noted in the “Index to
Exhibits”. The “Index to Exhibits” specifically identifies each management contract or
compensatory plan or arrangement required to be filed as an exhibit to this 2009 Form 10-K or
incorporated herein by reference.
(c) Financial Statement Schedule:
None.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the capacities and on the
date indicated.
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R.G. BARRY CORPORATION
ANNUAL REPORT ON FORM 10-K FOR FISCAL YEAR ENDED JUNE 27, 2009 INDEX TO EXHIBITS
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