<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
(Mark One)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended July 3, 1999
------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________________ to ______________________
Commission file number 1-8769
------
R. G. BARRY CORPORATION
-----------------------
(Exact name of registrant as specified in its charter)
OHIO 31-4362899
- --------------------------------------------------------------------------------
(State or other jurisdiction (IRS Employer
of incorporation or organization) Identification Number)
13405 Yarmouth Road NW, Pickerington, Ohio 43147
------------------------------------------------
(Address of principal executive offices) (Zip Code)
614-864-6400
------------
(Registrant's telephone number, including area code)
NOT APPLICABLE
--------------
(Former name, former address, and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
------- -------
Common Shares, $1 Par Value, Outstanding as of July 3, 1999 - 9,328,477
------------------------
Index to Exhibits at page 14
Page 1 of 23 pages
<PAGE> 2
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 3, 1999 January 2, 1999
------------ ---------------
(in thousands)
<S> <C> <C>
ASSETS:
Cash and cash equivalents $ 8,393 29,596
Accounts receivable, less allowances 10,768 15,985
Inventory (note 3) 54,431 38,648
Deferred income taxes (note 4) 3,729 3,729
Recoverable income taxes 3,464 --
Prepaid expenses 2,322 2,275
-------- -------
Total current assets 83,107 90,233
-------- -------
Property, plant and equipment, at cost 43,751 41,697
Less accumulated depreciation & amortization 29,772 28,822
-------- -------
Net property, plant and equipment 13,979 12,875
-------- -------
Goodwill, less accumulated amortization 4,057 4,114
Other assets 4,124 4,123
-------- -------
$105,267 111,345
======== =======
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current installments of long-term debt
and capital lease obligations 2,278 2,278
Short-term notes payable 13,500 --
Accounts payable 8,508 6,581
Accrued expenses 661 8,404
-------- -------
Total current liabilities 24,947 17,263
-------- -------
Accrued retirement costs and other, net 5,882 5,288
Long-term debt excluding current installments:
Note payable 8,571 10,714
-------- -------
Total liabilities 39,400 33,265
-------- -------
Shareholders' equity:
Preferred shares, $1 par value
Authorized 3,775,000 Class A shares,
225,000 Series I Junior Participating
Class A shares, and 1,000,000 Class B
shares, none issued -- --
Common shares, $1 par value
Authorized 22,500,000 shares
(excluding treasury shares) 9,328 9,745
Additional capital in excess of par value 11,976 15,357
Deferred compensation (note 6) (506) (204)
Retained earnings 45,069 53,182
-------- -------
Net shareholders' equity 65,867 78,080
-------- -------
$105,267 111,345
======== =======
</TABLE>
Page 2 of 23 pages
<PAGE> 3
<TABLE>
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<CAPTION>
Thirteen weeks ended Twenty-six weeks ended
-------------------- ----------------------
July 3, July 4, July 3, July 4,
1999 1998 1999 1998
---- ---- ---- ----
(in thousands)
<S> <C> <C> <C> <C>
Net sales $15,183 $16,910 29,981 32,503
Cost of sales 10,315 8,180 16,469 13,626
------- ------- ------- -------
Gross profit 4,868 8,730 13,512 18,877
Selling, general and
administrative expense 13,003 11,103 26,441 22,440
------- ------- ------- -------
Operating loss (8,135) (2,373) (12,929) (3,563)
Other income 139 87 284 191
Interest expense (331) (401) (637) (784)
Interest income 53 24 301 241
------- ------- ------- -------
Net interest expense (278) (377) (336) (543)
Loss before income
tax benefit (8,274) (2,663) (12,981) (3,915)
Income tax benefit (note 4) (3,098) (1,065) (4,868) (1,566)
------- ------- ------- -------
Net loss $(5,176) $(1,598) (8,113) (2,349)
======= ======= ======= =======
Net loss per common share (note 5)
Basic $ (0.55) $ (0.16) (0.85) (0.24)
======= ======= ======= =======
Diluted $ (0.55) $ (0.16) (0.85) (0.24)
======= ======= ======= =======
Average number of common
shares outstanding
Basic 9,428 9,695 9,566 9,647
======= ======= ======= =======
Diluted 9,428 9,695 9,566 9,647
======= ======= ======= =======
</TABLE>
Page 3 of 23 pages
<PAGE> 4
<TABLE>
R. G. BARRY CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOW
<CAPTION>
Twenty-six Twenty-six
weeks ended weeks ended
July 3, 1999 July 4, 1998
------------ ------------
(in thousands)
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (8,113) (2,349)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of
property, plant and equipment 950 871
Amortization of goodwill 57 58
Net (increase) decrease in:
Accounts receivable, net 5,217 6,248
Inventory (15,783) (24,011)
Prepaid expenses (47) 1
Recoverable income taxes (3,464) (1,113)
Other 14 (193)
Net increase (decrease) in:
Accounts payable 1,927 1,653
Accrued expenses (7,743) (9,748)
Accrued retirement costs and other 594 415
-------- -------
Net cash used in operating activities (26,391) (28,168)
-------- -------
Cash flows from investing activities:
Additions to property, plant and equipment, net (2,054) (639)
-------- -------
Cash flows from financing activities:
Proceeds from short-term notes 13,500 10,500
Stock options exercised 34 342
Treasury share acquisitions (4,149) --
Repayment of long-term debt and
capital lease obligations (2,143) (2,143)
-------- -------
Net cash provided by financing activities 7,242 8,699
-------- -------
Net decrease in cash (21,203) (20,108)
Cash at the beginning of the period 29,596 22,495
-------- -------
Cash at the end of the period $ 8,393 2,387
======== =======
Supplemental cash flow disclosures:
Interest paid $ 1,295 1,532
======== =======
Income taxes paid $ 5,477 6,933
======== =======
</TABLE>
Page 4 of 23 pages
<PAGE> 5
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
Under Item 1 of Part I of Form 10-Q
for the Periods ended
July 3, 1999 and July 4, 1998
1. These interim financial statements are unaudited. All adjustments
(consisting solely of normal recurring adjustments) have been made which,
in the opinion of management, are necessary to fairly present the results
of operations.
2. The Company operates on a fifty-two or fifty-three week annual fiscal year,
ending annually on the Saturday nearest December 31. Fiscal 1999 and fiscal
1998 are both fifty-two week years.
3. A substantial portion of inventory is valued using the dollar value LIFO
method and, therefore, it is impractical to separate inventory values
between raw materials, work-in-process and finished goods.
4. Income tax benefit for the periods ended July 3, 1999 and July 4, 1998,
consists of:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Current:
U. S. Federal $(4,518) $(1,335)
State & Local (350) (231)
------- -------
Total $(4,868) $(1,566)
======= =======
</TABLE>
The income tax benefit reflects a combined federal, foreign, state and
local effective rate of 37.5 percent and 40.0 percent for the first half of
1999 and 1998, respectively, as compared to the statutory U. S. federal
rate of 35.0 percent in both years.
Income tax for the periods ended July 3, 1999 and July 4, 1998 differed
from the amounts computed by applying the U. S. federal income tax rate of
35.0 percent to pretax loss as a result of the following:
<TABLE>
<CAPTION>
1999 1998
---- ----
<S> <C> <C>
Computed "expected"
tax benefit:
U. S. Federal benefit $(4,543) $(1,370)
Other (97) (46)
State & Local benefit, net of
federal income tax benefit (228) (150)
------- -------
Total $(4,868) $(1,566)
======= =======
</TABLE>
5. The computation of basic loss per common share has been computed based on
the weighted average number of common shares outstanding during each
period. Diluted loss per common share is based on the weighted average
number of outstanding common shares during the period, plus, when their
effect is dilutive, potential common shares consisting of certain common
shares subject to stock options and the stock purchase plan.
6. In May 1999, the Company issued 50,000 restricted common shares pursuant to
a Restricted Stock Agreement with its Chairman and Chief Executive Officer.
The shares may not be disposed of or transferred by the holder until the
restrictions lapse, however, the shares are entitled to full voting and all
other rights. The restrictions lapse at the rate of 20% per year through
May 2004, provided, however that the restricted shares may be forfeited if
the holder terminates his employment under certain circumstances.
Page 5 of 23 pages
<PAGE> 6
R. G. BARRY CORPORATION AND SUBSIDIARIES
Notes to Financial Statements
Under Item 1 of Part I of Form 10-Q
for the periods ended July 3, 1999 and July 4, 1998
(continued)
7. Segment Information - The Company maintains two operating segments: Barry
Comfort manufactures and markets comfort footwear for
at-and-around-the-home; and Thermal supplies thermal retention technology
products. The accounting policies of the operating segments are
substantially similar, except that the disaggregated information has been
prepared using certain management reports, which by their very nature
require estimates. In addition, certain items from these management reports
have not been allocated between the operating segments, such as a) costs of
certain administrative functions, b) current and deferred income tax
expense (benefit) and deferred tax assets (liabilities), and c) certain
operating provisions.
<TABLE>
<CAPTION>
1999 Barry Intersegment
(in thousands) Comfort Thermal Eliminations Total
------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net sales $ 28,093 $ 1,888 $ 29,981
Depreciation and
Amortization 824 126 950
Interest income 415 -- (114) 301
Interest expense 637 114 (114) 637
Pre tax earnings (loss) (10,187) (2,794) (12,981)
Additions to property, plant
and equipment 1,953 101 2,054
Total assets devoted $102,558 $ 7,403 $(4,694) $105,267
======== ======= ======= ========
<CAPTION>
1998 Barry Intersegment
(in thousands) Comfort Thermal Eliminations Total
------- ------- ------------ -----
<S> <C> <C> <C> <C>
Net sales $ 31,095 $1,408 $ 32,503
Depreciation and
amortization 763 108 871
Interest income 351 -- (110) 241
Interest expense 784 110 (110) 784
Pre tax earnings (loss) (2,956) (959) (3,915)
Additions to property, plant
and equipment 563 76 639
Total assets devoted $ 99,192 $7,562 $(3,410) $103,344
======== ====== ======= ========
</TABLE>
Page 6 of 23 pages
<PAGE> 7
R. G. BARRY CORPORATION AND SUBSIDIARIES
ITEM 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations
Liquidity and Capital Resources
- -------------------------------
The Company ended the second quarter of 1999 with $58.2 million in net working
capital. This compares with $58.9 million at the end of the same quarter in
1998, and $73.0 million at the end of fiscal 1998.
During the first half of 1999, the Company purchased, in the open market,
approximately 478 thousand of its common shares, totaling about $4.2 million, to
be held in Treasury.
The Company's capital expenditures during the first half of 1999, amounted to
$2.1 million, compared with $637 thousand during the same period of 1998.
Capital expenditures in 1999, are higher than in a normal year, primarily due to
projects relating to equipping a new warehouse in San Antonio, Texas; the
start-up of a plant in the Dominican Republic; and the purchase of a warehouse
in Goldsboro, North Carolina, formerly leased by the Company. Capital
expenditures in both years have been funded out of working capital.
The decreases in net working capital from the end of the second quarter of 1998,
and from the end of fiscal 1998, to the end of the second quarter of 1999, are
due mainly to the $4.2 million purchase of Treasury shares during the first half
of 1999, the higher than normal capital expenditures during the first half of
1999, and the $2.1 million scheduled periodic payment on long-term debt made
during the second quarter of 1999.
Highlights of the significant changes in the components of the Company's net
working capital are:
o Accounts receivables at the end of the second quarter of 1999, at $10.8
million, were essentially flat when compared with the $10.7 million at the
end of the second quarter of 1998. The decline in accounts receivable from
the $16.0 million at the end of fiscal 1998, represents a normal seasonal
pattern of change in receivables.
o Inventories at the end of the second quarter of 1999, at $54.4 million, are
about 8.7 percent reduced from the inventory levels of $59.6 million
one-year ago, although increased from $38.6 million at the end of fiscal
1998. The decrease in inventories from the end of the second quarter of
1998 to the end of the second quarter of 1999 is the result of a planned
reduction in general inventory levels. The Company previously has stated
that it intends to reduce its inventory levels from those that had been
maintained at the end of fiscal 1998. This reduction is the first step in
the program to reduce inventories. The increase in inventories from the end
of fiscal 1998, reflects normal seasonal patterns of inventories in
anticipation of supporting sales later in the year.
o The Company ended the second quarter of 1999, with $8.4 million in cash and
$13.5 million in short-term bank loans. This compares with the second
quarter of 1998, when the Company had $2.4 million in cash and $10.5
million in short-term bank loans. The higher than normal cash balances and
the increase in short-term bank loans, at the end of the second quarter,
was largely due to the anticipated acquisition of an 80% interest in
Fargeot et Compagnie SA of France. In May 1999, the Company announced its
intent to acquire an 80% interest in Fargeot, a privately-held French
slipper maker, for approximately $4 million. The acquisition of the
interest in Fargeot was in the process of completion at the end of the
second quarter, and was completed late in July 1999. There were no
short-term bank loans outstanding at the end of fiscal 1998.
The Company currently has in place a Revolving Credit Agreement ("Revolver"),
with its three main lending banks. The Revolver provides the Company a
seasonally adjusted available line of credit ranging from $6 million during
January, to a peak of $51 million from July through November. The Company
believes that the Revolver contains financial covenants typical of agreements of
its type and duration. The Company is in compliance with all the covenants of
the Revolver, and all other debt agreements. The Revolver, which contains
provisions for periodic extensions upon request and with the approval of the
banks, was recently extended through 2001.
Page 7 of 23 pages
<PAGE> 8
Management's Discussion and Analysis of Financial Condition
and Results of Operations - continued
Impact of Recently Issued Accounting Standards
- ----------------------------------------------
In January 1999, the Company adopted Statement of Position 98-1 ("SOP 98-1")
"Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use". SOP 98-1 requires that certain costs related to the development
or purchase of internal-use software be capitalized and amortized over the
estimated useful life of the software. SOP 98-1 also requires that costs related
to the preliminary project stage and the post-implementation/operations stage
(as defined in SOP 98-1) in an internal-use computer software development
project be expensed as incurred. The adoption of SOP 98-1 did not affect results
of operations or financial position of the Company.
In addition, in January 1999, the Company adopted Statement of Position 98-5
("SOP 98-5"), "Reporting on the Costs of Start-Up Activities ". The SOP requires
that costs incurred during start-up activities, including organization costs, be
expensed as incurred. The adoption of SOP 98-5 did not affect results of
operations or financial position.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities", which is required to be adopted in years
beginning after June 15, 2000. The Statement permits early adoption as of the
beginning of any fiscal quarter after its issuance. The Company expects to adopt
the new Statement effective January 1, 2001. The Statement will require
companies to recognize all derivatives on the balance sheet at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If a derivative is a hedge, depending on the nature of the hedge, changes in the
fair value of the derivative will either be offset against the change in fair
value of the hedged asset, liability, or firm commitment through earnings, or
recognized in other comprehensive income until the hedged item is recognized in
earnings. The ineffective portion of a derivative's change in fair value will be
immediately recognized in earnings. The Company does not anticipate that the
adoption of this Statement will have a significant effect on its results of
operations or financial position.
Year 2000 Readiness Disclosures
- -------------------------------
The Company has conducted a review of its key financial, information and
operating systems to determine the extent to which it is exposed to so-called
year 2000 computer date problems. The Company believes that all of its critical
application systems have been converted to correct for potential problems.
During 1998, the Company conducted extensive tests, which have confirmed the
readiness of its systems. Key suppliers and electronic trading partners have
been contacted to obtain their commitments to conversion and readiness, so as to
minimize problems relating to the exchange of electronic data. The Company has
not separately identified the costs associated with its conversion, but
estimates that the costs incurred, which have been expensed as incurred, have
not been material, and does not anticipate the future impact on its financial
condition, results of operations or cash flows will be material. The possibility
exists that the Company's conversion could inadvertently fail, although the
Company believes that the impact of such an occurrence would be manageable and
minor in impact as a result of substantial equipment and software upgrades
implemented in recent years. The Company is not dependent upon any one customer
or any one supplier to conduct its business and the Company believes that should
one of its suppliers or customers prove not to become year 2000 compliant in a
timely manner, the Company can revert to alternative compliant suppliers or
resort to increased use of traditional methods of transacting business to
satisfy its customer needs. If in the future, the Company uncovers additional
risks associated with year 2000 compliance, the Company will develop contingency
plans at that time as deemed necessary.
Results of Operations
- ---------------------
During the second quarter of 1999, net sales amounted to $15.2 million, a 10.2
percent decline when compared with sales of $16.9 million during the second
quarter of 1998. For the six months, net sales amounted to $30.0 million, a 7.8
percent decline in net sales when compared with the first six months of 1998. As
noted in the first quarter Form 10-Q, the primary cause of the decline in net
sales relates to a strategic change made by several national chain department
store customers.
Page 8 of 23 pages
<PAGE> 9
Management's Discussion and Analysis of Financial Condition
and Results of Operations - continued
These customers have decided to purchase a portion of their slippers directly
from other suppliers believed to be in the orient, utilizing their own private
label brands, reducing the amount of Dearfoams(R) brand slippers that they
purchase. This decision accounted for a sizable portion of the decline in net
sales during the periods. Unless these national chains reverse their current
strategy, the Company expects this erosion of net sales to national chains will
continue to offset sales gains in other areas of the Company - mass
merchandisers, traditional department stores and in international markets.
In addition, in the first quarter Form 10-Q, the Company discussed that a
slowdown in sales to a strategic alliance consumer housewares customer, Corning
Consumer Products, contributed to the decline in net sales. Corning has
considered an alternative technology supply, which the Company believes is
cheaper although less effective that the Company's thermal retention technology.
The Company believes that Corning has made their decision to pursue that
alternative source of supply. As such, the Company believes that any additional
sales to Corning will be insignificant.
Gross profit during the second quarter, amounted to $4.9 million, or 32.1
percent of net sales. This compares with gross profit of $8.7 million or 51.6
percent in the same quarter of 1998. For the six months, gross profit percent
also decreased to 45.1 percent in 1999 compared with 58.1 percent in 1998. The
Company's goal of bringing about an orderly reduction in inventory levels
throughout 1999 has had a negative impact on gross profit. Lowering inventory
has been accomplished mainly by operating manufacturing plants throughout most
of the first half of 1999, at less than full capacity and at lower efficiencies.
In addition, during the first half, the Company sold previously marked-down
excess and out of season inventory at a lower than normal gross profit margins.
Selling, general and administrative expenses during the quarter amounted to
$13.0 million, an increase of 17.1 percent from the same quarter one-year ago.
For the six months these expenses amounted to $26.4 million, an increase of 17.8
percent from the same six months last year. These expensed increased during the
period, even though net sales declined. As noted last quarter, the Company has
decided to continue with several long-term productivity related projects that
will have a negative impact short-term on expenses, although the Company
believes that the long-term benefits of these projects will outweigh the
short-term costs.
Net interest expense declined from 1998 to 1999. During the second quarter of
1999, net interest expense amounted to $278 thousand compared with $377 thousand
in the same period of 1998. For the six months, net interest expense also
declined to $336 thousand in 1999 from $543 thousand in 1998. The decrease in
net interest expense is principally due to the Company's lower average usage of
its Revolver throughout most of the first half of 1999, when compared with 1998.
For the second quarter of 1999, the Company incurred a net loss of $5.2 million,
or $0.55 per share, compared with a net loss during the same quarter of 1998 of
$1.6 million, or $0.16 per share. For the six months, the Company incurred a net
loss in 1999 of $8.1 million, or $0.85 per share, compared with a net loss in
1998 of $2.3 million, or $0.24 per share. Per share calculations for both years
are the same for both basic loss per share and for diluted loss per share.
Page 9 of 23 pages
<PAGE> 10
- --------------------------------------------------------------------------------
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF
1995:
The statements in this Quarterly Report on Form 10-Q, which are not historical
fact are forward looking statements based upon the Company's current plans and
strategies, and reflect the Company's current assessment of the risks and
uncertainties related to its business, including such things as product demand
and market acceptance; the economic and business environment and the impact of
governmental regulations, both in the United States and abroad; the effects of
direct sourcing by customers of competitive products from alternative suppliers;
the effect of pricing pressures from retailers; inherent risks of international
development, including foreign currency risks; implementation of the Euro;
economic, regulatory and cultural difficulties or delays in the Company's
development outside the United States; the Company's ability to improve its
processes and business practices to keep pace with the economic, competitive and
technological environment, including successfully addressing year 2000 issues;
capacity, efficiency, and supply constraints; weather conditions; and other
risks detailed in the Company's press releases, shareholder communications, and
Securities and Exchange Commission filings. Actual events affecting the Company
and the impact of such events may vary from those currently anticipated.
- --------------------------------------------------------------------------------
ITEM 3 - Quantitative and Qualitative Disclosures About Market Risk
Foreign Currency Risks
- ----------------------
The Company transacts business in various foreign countries. Its primary foreign
currency net cash outflows occur in Mexico and China. Beginning later in 1999,
the Company also expects to incur net cash outflows in the Dominican Republic.
The Company does not hedge its anticipated foreign currency cash outflows in the
Mexican Peso or the Chinese Renminbi, and does not anticipate hedging the
Dominican Peso, as these currencies generally have declined in value, over time,
when compared with the U. S. Dollar. In addition, forward contracts in these
currencies are neither readily nor economically available.
The Company's primary foreign currency net cash inflows are generated from
Canada and Western Europe. The Company does employ a foreign currency hedging
program utilizing currency forward exchange contracts for its anticipated net
cash inflows in the Canadian Dollar, British Pound, and French and Swiss Francs.
Under this program, increases or decreases in the Company's net local operating
revenue and expenses as measured in U. S. Dollars are partially offset by
realized gains and losses on hedging instruments. The goal of the hedging
program is to economically fix the exchange rates on the Company's projected
foreign currency net cash inflows. The Company does not use foreign currency
forward contracts for trading purposes.
All foreign currency contracts are marked-to-market and unrealized gains and
losses are included in the current period's calculation of net income. Because
not all economic hedges qualify as accounting hedges, unrealized gains and
losses may be recognized in net income in advance of the actual projected
foreign currency net cash flows. This often results in a mismatch of accounting
gains and losses, and transactional foreign currency net cash flow gains and
losses.
The Company believes that the impact of these foreign currency forward contracts
is not material to the Company's financial condition or results of operations.
At the end of the second quarter of 1999, the Company had foreign currency
contracts outstanding to sell forward the following currencies. All contracts
mature later in 1999.
<TABLE>
<CAPTION>
Nominal Amount Approximate Estimated Fair Unrealized Gain
in thousands Average Value as of or (Loss), as of
US Dollars Exchange Rate July 3, 1999 July 3, 1999
<S> <C> <C> <C> <C>
Canadian Dollar $ 407 US$1 = C$ 1.47 $ 410 $ (3)
Pound Sterling $1,792 US$1 = (pound) 0.61 $1,734 $ 58
French Francs $1,518 US$1 = FF 5.93 $1,405 $113
Swiss Francs $ 422 US$1 = SF 1.42 $ 383 $ 39
</TABLE>
Page 10 of 23 pages
<PAGE> 11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
On September 10, 1998, the Company filed a lawsuit for patent
infringement of United States Patent No. 5,790,962 against Domino's
Pizza, Inc. and Phase Change Laboratories, Inc. The case was filed on
behalf of both the Company and its subsidiary Vesture Corporation in
the United States District Court for the Middle District of North
Carolina. The '962 patent covers an invention which maintains the
desired temperature of food and other items using a phase change
material. Domino's Pizza, Inc. purchases a product, which it calls the
"Heat Wave" system. The product is manufactured by Phase Change
Laboratories, Inc. The Company believes that the product infringes upon
the '962 Patent. The Company seeks damages, attorney's fees and
injunction against further infringement by both defendants. The matter
is currently in discovery. A mediator has been selected to aid in
settlement discussions. The case has been amended to add a claim for
deceptive advertising. The case has been assigned Civil Action No.
1:98CV00802.
Item 2. Changes in Securities and Use of Proceeds
- --------------------------------------------------
(a) and (b) Not Applicable
(c) As of May 13, 1999, the Company issued 50,000 restricted common
shares, formerly held in treasury, pursuant to the terms of a
Restricted Stock Agreement, between the Company and Mr. Gordon Zacks,
Chairman and Chief Executive Officer of the Company. The common shares
had a market value of $8.375 per share on the date of issuance. The
common shares were issued in reliance upon the exemptions from
registration provided by Sections 4(2) and 4(6) under the Securities
Act of 1933 based upon the fact that there was only one individual to
whom the common shares were "sold" and the status of that individual as
an executive officer and director of the Company.
(d) Not Applicable
Item 3. Defaults Upon Senior Securities
- ----------------------------------------
(a), (b) Not Applicable
Page 11 of 23 pages
<PAGE> 12
PART II - OTHER INFORMATION, continued
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
(a) The Annual Meeting of Shareholders of the Company (the "Annual
Meeting") was held on May 13, 1999. At the close of business on the
record date, March 15, 1999, 9,747,100 common shares were outstanding
and entitled to vote at the Annual Meeting. At the Annual Meeting,
8,071,951 or 82.8% of the outstanding common shares entitled to vote
were represented in person or by proxy.
(b) Directors elected at the Annual Meeting were:
Gordon Zacks
For: 7,893,317
Withheld: 178,634 Broker non-vote : none
Christian Galvis
For: 7,897,195
Withheld: 174,756 Broker non-vote : none
Roger E. Lautzenhiser
For: 7,838,006
Withheld: 233,945 Broker non-vote : none
Other directors whose term of office continued after the Annual
Meeting:
Edward M. Stan Harvey M. Krueger
Richard L. Burrell William Giovanello
Philip G. Barach Leopold Abraham II
(c) See Item 4(b) for the voting results for directors
Proposal to amend the R. G. Barry Corporation 1997 Incentive Stock
Plan to increase the number of common shares available thereunder
from 450,000 to 900,000 shares:
For: 6,458,535 Against: 1,443,947
Abstain: 169,469 Broker non-vote : none
(d) Not Applicable
Item 5. Other Information
- --------------------------
No response required
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
(a) Exhibits: See Index to Exhibits at page 14.
(b) Reports on Form 8-K: No reports on Form 8-K were filed during the
quarter ended July 3, 1999.
Page 12 of 23 pages
<PAGE> 13
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
R. G. BARRY CORPORATION
-----------------------
Registrant
August 16, 1999
- ---------------
date
/s/ Richard L. Burrell
-------------------------------
Richard L. Burrell
Senior Vice President - Finance
(Principal Financial Officer)
(Duly Authorized Officer)
Page 13 of 23 pages
<PAGE> 14
<TABLE>
R. G. BARRY CORPORATION
INDEX TO EXHIBITS
<CAPTION>
Exhibit No. Description Page Number
- ----------- ----------- -----------
<S> <C> <C>
4.1 Agreement to Extend Revolving Credit 15 - 16
Agreement, dated as of June 4, 1999, among
R. G. Barry Corporation (the "Registrant"), The
Bank of New York, The Huntington National
Bank, and Bank One NA
4.2 Letter, dated July 16, 1999, from Metropolitan 17
Life Insurance Company to the Registrant in
respect of loan agreement dated July 5, 1994
10.1 Restricted Stock Agreement, 18 - 22
dated as of May 13, 1999, between the
Registrant and Gordon Zacks
10.2 R. G. Barry Corporation 1997 Incentive Stock Incorporated herein by reference
Plan (reflects amendments through May 13, to the Registrant's Registration
1999) Statement on Form, S-8 filed
June 18, 1999 (Registration No.
333-81105) [Exhibit 10]
27 Financial Data Schedule 23
(Period ended July 3, 1999)
</TABLE>
Page 14 of 23 pages
<PAGE> 1
EXHIBIT 4.1
AGREEMENT TO EXTEND REVOLVING CREDIT AGREEMENT
June 4, 1999
Mr. Michael Flannery
The Bank of New York
One Wall Street - 8th Floor
New York, New York 10286
Mr. Robert Friend
The Huntington National Bank
41 South High Street - HC 0810
Columbus, Ohio 43287
Mr. Tom Redmond
Bank One NA
P. O. Box 710170 - OH1-0170
Columbus, Ohio 43217-0170
Re: R. G. Barry Corporation, Revolving Credit Agreement Extension
Dear Mike, Bob, and Tom:
I am pleased that we all had an opportunity to meet and review the Company's
1999 Operating Plan on Wednesday, June 2, 1999. Should any of you have any
questions, please let me know.
As you know, the Revolving Credit Agreement between The Bank of New York, The
Huntington National Bank, and Bank One, as successor to NBD Bank, (the "Bank" or
"Banks") dated as of February 28, 1996 (the "Agreement"), currently extends
through December 31, 2000.
In Section 4.11, the Agreement provides for the Company to request an extension
of the Termination Date and the Commitments for a period of one year, by making
a request following delivery of annual financial statements and the Company's
plan for the current year. We are obviously interested in extending the term of
the Agreement.
Please consider this letter as the Company's formal request for an extension of
the Agreement through December 31, 2001, under the same terms and conditions as
outlined in the Agreement.
Page 15 of 23 pages
<PAGE> 2
The Bank of New York
The Huntington National Bank
Bank One, NA
June 4, 1999
Page 2
In addition, we discussed the need to permit a Subsidiary of the Company to
incur up to $5 million of Debt. Currently, Section 9 of the Agreement prohibits
a Subsidiary of the Borrower from incurring Current Debt or Funded Debt. Please
consider this letter as an amendment to the Agreement, that will permit a
cumulative amount of up to $5 million of Current Debt or Funded Debt to be
incurred by a Subsidiary or Subsidiaries of the Borrower, provided the Borrower
is in compliance with all other terms of the Agreement.
Kindly acknowledge your Bank's consent to the extension of the Agreement to
December 31, 2001, and your Bank's consent to permit up to $5 million of Current
Debt or Funded Debt, by a Subsidiary or Subsidiaries of the Borrower, by signing
your name at the appropriate location below and returning one copy of this
letter to my attention. Once I have received copies from each of the Banks, I
will circulate originals so that we each have a fully executed set.
Sincerely,
R. G. BARRY CORPORATION
/s/ Michael Krasnoff
Michael S. Krasnoff
Vice President and Assistant Treasurer
/msk
Enclosures
By signing below, each Bank agrees to the extension of the Agreement through
December 31, 2001, and agrees to permit up to $5 million of Debt by a Subsidiary
or Subsidiaries of the Borrower, as outlined above. All other terms of the
Agreement shall remain in force and unchanged.
Acknowledged and Agreed:
/s/ Michael Flannery 06/28/99
- --------------------------------------------- --------
The Bank of New York, by Mr. Michael Flannery date
/s/ R. H. Friend 06/24/99
- --------------------------------------------- --------
The Huntington National Bank, by Mr. Robert Friend date
/s/ Thomas Redmond 06/29/99
- --------------------------------------------- --------
Bank One, NA, by Mr. Thomas Redmond date
Page 16 of 23 pages
<PAGE> 1
EXHIBIT 4.2
July 16, 1999
R. G. Barry Corporation
13405 Yarmouth Road, N. W.
Pickerington, Ohio 43147
Attention: Richard L. Burrell
Senior Vice President - Finance
Gentlemen:
Reference is made to the loan agreement, dated July 5, 1994 (the "Agreement"),
between R. G. Barry Corporation (the "Company") and Metropolitan Life Insurance
Company ("MetLife"), pursuant to which MetLife acquired the Company's 9.7%
Senior Promissory Note due July 5, 2004 (the "Note") presently outstanding in
the principal amount of $10,714,000. Capitalized terms used herein without
definition have the meanings ascribed thereto in the Note.
The Company has indicated to MetLife that it or a Wholly-Owned Subsidiary will
acquire 80% of the outstanding capital stock of Escapade S. A., a French holding
Company ("Escapade"), which owns 100% of the outstanding capital stock of
Fargeot & Cie., a French slipper and footwear manufacturer, for a maximum price
of US$5,000,000 (the "Acquisition"). The Company has further indicated to
MetLife that a portion of the purchase price for the Acquisition may take the
form of a loan to Escapade by the Company or such Wholly-Owned Subsidiary but
that the amount of such loan together with the amount of such capital stock
investment in Escapade (collectively, the "Investment") will not exceed
US$5,000,000. Finally, the Company has indicated to MetLife that such loan will
be repaid from the proceeds of a commercial bank loan obtained by Escapade from
a French bank (the Bank Loan") and that the Bank Loan will be secured by a
pledge by the Company or such Wholly-Owned Subsidiary of 80% of Escapade's
capital stock acquired in the Acquisition (the "Pledge").
As holder of the Note and a party to the Agreement, MetLife hereby waives any
Event of Default under Section 11 (c) of the Note resulting from (x) a violation
of Sections 8.1 (i), 8.1 (iii) and 8.2 (vi) of the Note caused by the incurrence
by Escapade of the Bank Loan and by the making of the Pledge, provided that the
amount of the Bank Loan shall be included as Debt in all calculations made
pursuant to said Sections 8.1 (i) and 8.2 (vi) after such incurrence and making,
and (y) a violation of Section 8.11 of the Note caused by the Investment,
provided that the amount of the Investment shall be included as an "Investment"
(as defined in the Note) in all calculations made pursuant to paragraph (h) of
the definition of "Permitted Investments" contained in Section 10 of the Note.
If the foregoing is acceptable to the Company, please execute the form of
acceptance at the foot hereof, whereupon this consent shall become a binding
agreement between the Company and MetLife. By such execution, the Company shall
be deemed to represent and warrant for the purpose of Section 11 (j) of the Note
that the Acquisition, the Investment, the Bank Loan and the Pledge shall be made
as described in the second paragraph hereof.
Very truly yours,
Metropolitan Life Insurance Company
By /s/ Jacqueline D. Jenkins
-------------------------
The foregoing is accepted and agreed to
R. G. Barry Corporation
By /s/ Richard L. Burrell
----------------------
Page 17 of 23 pages
<PAGE> 1
EXHIBIT 10.1
RESTRICTED STOCK AGREEMENT
--------------------------
THIS AGREEMENT (the "Agreement") is made and entered into to be effective
as of May 13, 1999 by and between R. G. Barry Corporation, a corporation
organized and existing under the laws of the State of Ohio ("Company"), and
Gordon Zacks ("Zacks").
R E C I T A L S:
----------------
1. Zacks possesses unique skills, knowledge and experience relating to the
business of the Company which he has developed in his many years of service to
the Company, including his extended service as Chief Executive Officer of the
Company.
2. The Company desires to reward Zacks for his significant contributions
to the Company in the past and to create an incentive for Zacks to continue his
employment with the Company in the future.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants expressed in this Agreement, the parties hereto make the following
agreements, intending to be legally bound thereby:
Section 1. Grant of Restricted Shares. In consideration of Zacks' many
years of service and his significant contributions to the Company and subject to
the terms and conditions hereinafter set forth, the Company hereby issues to
Zacks 50,000 common shares, par value $1.00 per share, of the Company (the
"Restricted Shares"). Zacks shall exercise all voting rights with respect to the
Restricted Shares held by him and shall be entitled to receive all dividends
payable thereon. The Restricted Shares are being issued from the Company's
treasury shares.
Section 2. Restrictions on Transfer. Each Restricted Share shall represent
one issue and outstanding common share, par value $1.00 per share, of the
Company but shall be subject to the restrictions hereinafter set forth. None of
the Restricted Shares may be sold, transferred, pledged or otherwise alienated
or encumbered until or unless the restrictions imposed thereon by this Agreement
have lapsed according to the provisions of this Agreement.
Page 18 of 23 pages
<PAGE> 2
Section 3. Lapse of Restrictions; General Provisions. Subject to the
provisions of Sections 4, 5 and 6 of this Agreement, restrictions on transfer
shall lapse with respect to 20% of the total number of Restricted Shares issued
to Zacks under this Agreement (with appropriate adjustment for stock splits,
stock dividends and similar events) on each of May 13, 2000, May 13, 2001, May
13, 2002, May 13, 2003, and May 13, 2004, on which date all remaining
restrictions on transfer shall lapse.
Section 4. Disability. In the event during the term of this Agreement
Zacks' employment is terminated by the Company because he is unable to perform
his job responsibilities due to ill health or physical or mental disability,
restrictions on transfer shall lapse immediately with respect to all Restricted
Shares then held by Zacks which remain subject to restrictions on transfer.
Section 5. Death of Zacks. In the event of the death of Zacks, transfer
restrictions shall lapse immediately with respect to all Restricted Shares held
by Zacks at the time of his death and still covered by transfer restrictions.
Section 6. Termination of the Employment of Zacks; Change of Control. If
the employment of Zacks is terminated by the Company for "Cause," as that term
is defined in Section 5(b) of the Employment Agreement dated July 1, 1998
between the Company and Zacks (the "Employment Agreement"), or if Zacks
terminates his employment for any reason other than a "Good Reason," as that
term is defined in Section 5(c) of the Employment Agreement, Zacks shall
immediately forfeit any Restricted Shares whose transfer restrictions have not
previously lapsed under this Agreement. Anything contained herein to the
contrary notwithstanding, in the event that the employment of Zacks is
terminated by the Company for any reason other than for Cause (as defined in
Section 5(b) of the Employment Agreement) or by Zacks for Good Reason (as
defined in Section 5(c) of the Employment Agreement), restrictions on transfer
shall lapse, effective on the date of such termination of employment, with
respect to all Restricted Shares held by Zacks which are then covered by
transfer restrictions. Anything contained herein to the contrary
Page 19 of 23 pages
<PAGE> 3
notwithstanding, all transfer restrictions on the Restricted Shares which have
not previously lapsed shall lapse effective on a Change of Control of the
Company, as that term is defined in Section 9 of the Employment Agreement. The
terms used in this Section 6 which are defined in the Employment Agreement shall
continue to have the definitions set forth in the Employment Agreement after any
expiration or termination of the Employment Agreement.
Section 7. Securities Law Matters. Zacks hereby represents, warrants,
covenants and agrees with the Company as follows:
(a) The Restricted Shares are being acquired by him for his own account
without the participation of any other person and with the intent of holding the
Restricted Shares for investment and not with a view to, or for resale in
connection with, any distribution of the Restricted Shares.
(b) Zacks understands and agrees that the Restricted Shares will be
issued to him without registration under any state law relating to the
registration of securities for sale, and will be issued and sold in reliance on
the exemptions from registrations under the Securities Act of 1933 (the "1933
Act").
(c) Because the Restricted Shares are being issued to Zacks in a
transaction which is not registered under the 1933 Act or under any state
securities laws, the Restricted Shares cannot be offered for sale, sold or
transferred after the restrictions on transfer imposed by this Agreement have
lapsed other than pursuant to: (A) an effective registration under the 1933 Act
or in a transaction otherwise in compliance with the 1933 Act; and (B) evidence
satisfactory to the Company of compliance with the applicable state securities
laws.
(d) Each certificate representing the Restricted Shares shall be
endorsed with a legend substantially in the following form and Zacks shall not
make any transfer of the Restricted Shares without first complying with the
restrictions on transfer described in such legend:
TRANSFER IS RESTRICTED
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED, OR
Page 20 of 23 pages
<PAGE> 4
HYPOTHECATED UNLESS (1) THERE IS AN EFFECTIVE REGISTRATION UNDER
SUCH ACT COVERING SUCH SECURITIES, (2) THE TRANSFER IS MADE IN
COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT, OR (3) THE
ISSUER RECEIVES AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO
THE COMPANY, STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FOR THE REGISTRATION REQUIREMENTS OF SUCH
ACT.
Section 8. Legends. In addition to the legend referred to in Section 7(d),
all certificates for the Restricted Shares shall bear a legend prohibiting the
sale, transfer, pledge or other alienation thereof until the Company notifies
the Company's transfer agent that, and the extent to which, the restrictions on
transfer on such shares imposed by this Agreement have lapsed.
Section 9. Arbitration. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be submitted to
arbitration by the American Arbitration Association in Columbus, Ohio, and the
determination of the American Arbitration Association shall be final and
absolute. The Arbitrator shall be governed by the duly promulgated Commercial
Arbitration Rules of the American Arbitration Association and the pertinent
provisions of the laws of the State of Ohio relating to arbitration. Any
judgment upon the award rendered by the Arbitrator may be entered in any Court
having jurisdiction thereof. Arbitration and legal fees regarding disputes or
controversies arising under this Agreement shall be borne by the Company.
Section 10. Miscellaneous.
(a) The vesting of the Restricted Shares under this Agreement shall be
subject to any applicable tax withholding or other requirements of applicable
law.
(b) This Agreement shall be governed by and construed in accordance
with the laws of the State of Ohio.
(c) This Agreement embodies the entire agreement of the parties in
respect of the subject matter of this Agreement, and this Agreement supersedes
all prior and contemporaneous agreements between the parties in connection with
the subject matter of this Agreement. If any provision of this Agreement or the
application of any provision to any person or any circumstance shall be
Page 21 of 23 pages
<PAGE> 5
determined to be invalid or unenforceable, then such determination shall not
affect any other provision of this Agreement or the application of said
provision to any other person or circumstance, all of which other provisions
shall remain in full force and effect, and it is the intention of the Company
and Zacks that if any provision of this Agreement is susceptible of two or more
constructions, one of which would render the provision enforceable and the other
or others of which would render the provision unenforceable, then the provision
shall have the meaning which renders it enforceable.
(d) This Agreement shall inure to the benefit of and be binding upon
the successors and assigns (including successive, as well as immediate,
successors and assigns) of the Company; provided, however, that the Company may
not assign this Agreement or any of its rights or obligations hereunder to any
party other than a corporation which succeeds to substantially all of the
business and assets of the Company by merger, consolidation, sale of assets or
otherwise. This Agreement shall inure to the benefit of and be binding upon the
successors and assigns (including successive, as well as immediate, successors
and assigns) of Zacks; provided, however, that the rights of Zacks under this
Agreement may be assigned only to his personal representative by will or trust
or pursuant to applicable laws of descent and distribution.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement to be
effective as of the date first above written.
R. G. BARRY CORPORATION
By /s/ Richard L. Burrell
-----------------------------
Richard L. Burrell,
Senior Vice President-Finance
/s/ Gordon Zacks
-----------------------------
Gordon Zacks
Page 22 of 23 pages
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-END> JUL-3-1999
<CASH> 8,393
<SECURITIES> 0
<RECEIVABLES> 13,237
<ALLOWANCES> 2,469
<INVENTORY> 54,431
<CURRENT-ASSETS> 83,107
<PP&E> 43,751
<DEPRECIATION> 29,772
<TOTAL-ASSETS> 105,267
<CURRENT-LIABILITIES> 24,947
<BONDS> 8,571
0
0
<COMMON> 9,328
<OTHER-SE> 56,539
<TOTAL-LIABILITY-AND-EQUITY> 105,267
<SALES> 29,981
<TOTAL-REVENUES> 29,981
<CGS> 16,469
<TOTAL-COSTS> 16,469
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 336
<INCOME-PRETAX> (12,981)
<INCOME-TAX> (4,868)
<INCOME-CONTINUING> (8,113)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (8,113)
<EPS-BASIC> (0.85)
<EPS-DILUTED> (0.85)
</TABLE>
