<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
For the Quarterly Period Ended November 29, 1997
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934.
Commission File Number
333-33751
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ARCHIBALD CANDY CORPORATION
Incorporated in the IRS Employer Identification No.
State of Illinois 36-0743280
1137 West Jackson Boulevard
Chicago, Illinois 60607
(312) 243-2700
Indicate by check 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
--- ---
As of November 29, 1997, the number of shares outstanding of the
registrant's Common Stock was 19,200 shares, all of which is held by
Archibald Candy Corporation.
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<PAGE>
ARCHIBALD CANDY CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED NOVEMBER 29, 1997
INDEX
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PAGE NO.
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PART I - FINANCIAL INFORMATION:
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ITEM 1 - FINANCIAL STATEMENTS
BALANCE SHEETS - NOVEMBER 29, 1997 (UNAUDITED) AND
AUGUST 30, 1997 1
STATEMENTS OF OPERATIONS - THREE MONTH PERIODS
ENDED NOVEMBER 29, 1997 (UNAUDITED) AND
NOVEMBER 30, 1996 (UNAUDITED) 3
STATEMENTS OF CASH FLOWS - THREE MONTH PERIODS
ENDED NOVEMBER 29, 1997 (UNAUDITED) AND
NOVEMBER 30, 1996 (UNAUDITED) 4
NOTES TO FINANCIAL STATEMENTS 5
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 6
PART II - OTHER INFORMATION:
- ----------------------------
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K 8
SIGNATURES 9
THIS REPORT UPDATES ARCHIBALD CANDY CORPORATION'S ANNUAL REPORT ON FORM
10-K FOR THE FISCAL YEAR ENDED AUGUST 30, 1997, IN ACCORDANCE WITH THE
INSTRUCTIONS TO FORM 10-Q. IT IS PRESUMED THAT THE READER HAS READ THE
ANNUAL REPORT ON FORM 10-K.
SOME INFORMATION INCLUDED IN THIS REPORT MAY CONSTITUTE
FORWARD-LOOKING STATEMENTS THAT INVOLVE A NUMBER OF RISKS AND UNCERTAINTIES.
FROM TIME TO TIME, INFORMATION PROVIDED BY ARCHIBALD CANDY CORPORATION OR
STATEMENTS MADE BY ITS EMPLOYEES MAY CONTAIN OTHER FORWARD-LOOKING
STATEMENTS. FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
THE FORWARD-LOOKING STATEMENTS INCLUDE, BUT ARE NOT LIMITED TO: GENERAL
ECONOMIC CONDITIONS INCLUDING INFLATION, INTEREST RATE FLUCTUATIONS, TRADE
RESTRICTIONS, AND GENERAL DEBT LEVELS; COMPETITIVE FACTORS INCLUDING PRICE
PRESSURES, TECHNOLOGICAL DEVELOPMENTS, AND PRODUCTS OFFERED BY COMPETITORS;
INVENTORY RISKS DUE TO CHANGES IN MARKET DEMAND OR BUSINESS STRATEGIES; AND
CHANGES IN EFFECTIVE TAX RATES. READERS ARE CAUTIONED NOT TO PLACE UNDUE
RELIANCE ON THESE FORWARD-LOOKING STATEMENTS, WHICH SPEAK ONLY AS OF THE DATE
MADE. ARCHIBALD CANDY CORPORATION UNDERTAKES NO OBLIGATION TO PUBLICLY
UPDATE OR REVISE ANY FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW
INFORMATION, FUTURE EVENTS, OR OTHERWISE.
<PAGE>
PART 1 - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Balance Sheets
As of November 29, 1997 and August 30, 1997
<TABLE>
<CAPTION>
NOVEMBER 29, AUGUST 30,
1997 1997
------------- ------------
(DOLLARS IN THOUSANDS)
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 10,054 $ 15,801
Accounts receivable, net 3,389 576
Inventories 23,259 18,965
Prepaid expenses and other
current assets 1,516 791
------------- ------------
Total current assets 38,218 36,133
Due from affiliate 825 825
Property, plant, and equipment 20,543 20,330
Goodwill 31,726 31,960
Noncompete agreements and other
intangibles 122 127
Deferred financing fees 4,017 4,166
Other assets 2,082 2,119
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Total assets $ 97,533 $ 95,660
------------- ------------
------------- ------------
</TABLE>
-1-
<PAGE>
<TABLE>
<CAPTION>
NOVEMBER 29, AUGUST 30,
1997 1997
------------- ------------
(DOLLARS IN THOUSANDS)
(Unaudited)
<S> <C> <C>
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 6,625 $ 4,769
Accrued liabilities 8,590 4,964
Payroll and related liabilities 1,601 2,025
Current portion of capital lease
obligations 340 376
------------- ------------
Total current liabilities 17,156 12,134
Long-term debt 100,000 100,000
Capital lease obligations, less
current portion 99 145
Shareholder's equity (deficit):
Common stock, $0.01 par value:
Authorized -- 25,000 shares
Issued and outstanding --
19,200 shares -- --
Additional paid-in-capital 18,700 18,700
Accumulated deficit (38,422) (35,319)
------------- ------------
Total shareholder's equity
(deficit) (19,722) (16,619)
------------- ------------
Total liabilities and shareholder's
equity (deficit) $ 97,533 $ 95,660
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------------- ------------
</TABLE>
See accompanying notes.
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<PAGE>
Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
NOVEMBER 29, NOVEMBER 30,
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales $ 27,173 $ 24,892
Cost of sales, excluding depreciation 10,595 8,710
Selling, general, and administrative
expenses, excluding depreciation and
amortization 15,450 15,044
Depreciation and amortization expense 1,191 1,155
Amortization of goodwill and other
intangibles 420 403
Management fees and other fees 129 117
------------- -------------
Operating income (loss) (612) (537)
Other (income) and expense:
Interest expense 2,629 2,402
Interest and other income and
expense (225) (42)
------------- -------------
Loss before income taxes (3,016) (2,897)
Provision for income taxes 87 197
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Net loss $ (3,103) $ (3,094)
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</TABLE>
See accompanying notes.
-3-
<PAGE>
Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------
NOVEMBER 29, NOVEMBER 30,
1997 1996
------------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss $ (3,103) $ (3,094)
Adjustments to reconcile net loss to
net cash used in operating
activities:
Depreciation and amortization 1,611 1,558
Changes in operating assets and
liabilities:
Accounts receivable, net (2,813) (2,831)
Inventories (4,294) (4,287)
Prepaid expenses and other
current assets (842) (422)
Other assets 37 52
Accounts payable and accrued
liabilities 5,058 4,464
------------- -------------
Net cash used in operating activities (4,346) (4,560)
INVESTING ACTIVITIES
Purchase of property, plant, and
equipment (1,287) (709)
------------- -------------
Net cash used in investing activities (1,287) (709)
FINANCING ACTIVITIES
Net increase in revolving line of
credit -- 6,200
Repayments of long-term debt -- (1,233)
Principal payments of capital lease
obligations (82) (78)
Costs related to loan agreement (32) --
------------- -------------
Net cash provided by (used in)
financing activities (114) 4,889
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Net decrease in cash and cash
equivalents (5,747) (380)
Cash and cash equivalents beginning of
period 15,801 380
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Cash and cash equivalents end of
period $ 10,054 $ --
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SUPPLEMENTAL SCHEDULE OF CASH
TRANSACTIONS
Interest paid $ 54 $ 806
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</TABLE>
See accompanying notes.
-4-
<PAGE>
Archibald Candy Corporation
(A Wholly Owned Subsidiary of Fannie May Holdings, Inc.)
Notes to Financial Statements
November 29, 1997
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Archibald Candy Corporation (the "Company") is a manufacturer and
retailer of boxed chocolates and other confectionery items. The Company sells
its Fannie May and Fanny Farmer brand candies in over 300 Company-operated
stores and approximately 6,000 third-party grocery stores, drug stores and
independent retail accounts as well as through a variety of non-retail
programs, including quantity order, mail order and fundraising programs. The
Company is a wholly owned subsidiary of Fannie May Holdings, Inc.
The interim financial statements included herein have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission. Certain information and footnote disclosures normally included in
annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such rules
and regulations, although the Company believes these disclosures are adequate
to make the information presented not misleading. In the opinion of
management, all adjustments necessary for fair presentation for the periods
presented have been reflected and are of a normal recurring nature. These
financial statements should be read in conjunction with the financial
statements and notes thereto for the year ended August 30, 1997.
Results of operations for the period from August 30, 1997 to November
29, 1997 are not necessarily indicative of the results that may be achieved
for the entire year.
2. INVENTORIES
Inventories at November 29, 1997 and August 30, 1997 are comprised of
the following:
NOVEMBER 29, AUGUST 30,
1997 1997
------------ ----------
Raw materials .................. $ 9,732 $ 7,688
Work in process ................ 224 218
Finished goods ................. 13,303 11,059
------------ ----------
$23,259 $18,965
------------ ----------
------------ ----------
3. DEBT
Debt at November 29, 1997 and August 30, 1997 is comprised of $100
million of 10.25% senior secured notes due July 1, 2004.
-5-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THREE MONTHS ENDED NOVEMBER 29, 1997 COMPARED TO THE THREE MONTHS ENDED
NOVEMBER 30, 1996
NET SALES. Net sales for the three months ended November 29, 1997 were
$27.2 million, an increase of $2.3 million, or 9.2%, from $24.9 million for
the three months ended November 30, 1996. Pounds sold were 3.0 million for
the three months ended November 29, 1997, an increase of .2 million, or 7.1%
from 2.8 million pounds sold for the three months ended November 30, 1996.
The growth in pounds came in Third-Party Retail(1) and Non-Retail(2)
channels. Company-Operated Retail(3) sales were $16.2 million for the
three months ended November 29, 1997, an increase of $.2 million, or 1.3%,
from $16.0 million for the three months ended November 30, 1996. This
increase was primarily a result of same store sales growth of 3.9%,
partially offset by 14 fewer Company-operated stores open at November 29,
1997 compared to November 30, 1996. For the three months ended November 29,
1997, Third-Party Retail sales were $6.1 million, an increase of $1.2
million, or 24.5%, from $4.9 million for the three months ended November 30,
1996. This increase reflects the continued results of management's strategy
to expand Third-Party Retail sales into new markets, including providing
Fanny Farmer branded products to mass merchandisers and developing Fannie May
product line extensions. Non-Retail sales were $4.9 million, an increase of
$.9 million, or 22.5%, from $ 4.0 million for the three months ended November
30, 1996. The increase was primarily a result of the growth in the
fundraising boxed chocolate business.
GROSS PROFIT. Gross profit for the three months ended November 29,
1997 was $16.6 million, an increase of $.4 million, or 2.4%, from $16.2
million for the three months ended November 30, 1996. Gross profit as a
percentage of net sales decreased to 61.0% for the three months ended
November 29, 1997 from 65.0% for the three months ended November 30, 1996.
This decrease in gross margin was due primarily to an increase in product
costs and a continuing shift from Company-Operated Retail sales to lower
margin Third-Party Retail and Non-Retail sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses were $15.4 million
for the three months ended November 29, 1997, an increase of $.4 million, or
2.7%, from $15.0 million for the three months ended November 30, 1996. This
increase in SG&A expenses was due primarily to (i) an increase in Third-Party
Retail operating expenses resulting from growth of the Fanny Farmer mass
merchandising programs and (ii) the development of new retail licensing and
specialty markets programs. The new retail licensing program will market
nationally to licensed kiosk holders a variety of boxed and novelty items to
be sold to consumers on a seasonal holiday basis. The specialty markets
program will market nationally to department stores, card and gift stores and
direct mail catalog companies a variety of boxed and novelty items intended
to meet consumer demand in the mid-priced segment of the specialty markets.
The increase in SG&A expenses was partially offset by lower store operating
costs resulting from store closings. As a percentage of net sales, SG&A
expenses decreased to 56.9% for the three months ended November 29, 1997
from 60.4% for the three months ended November 30, 1996.
EBITDA. As a result of the foregoing, EBITDA was $1.2 million for the
three months ended November 29, 1997 and the three months ended November 30,
1996. As a percentage of net sales, EBITDA was 4.4% for the three months
ended November 29, 1997 as compared to 4.8% for the three months ended
November 30, 1996.
- ------------------------------
(1) Third-Party Retail includes grocery stores, drug stores and other
independent retailers that purchase the Company's branded products at
wholesale pricing for resale to the consumer.
(2) Non-Retail includes sale of Company branded product through the
Company's quantity order, mail order and fundraising programs.
(3) Company-Operated Retail includes sale of Company branded products
through Company-operated Fannie May and Fanny Farmer stores.
-6-
<PAGE>
OPERATING LOSS. Operating loss was $.6 million for the three months
ended November 29, 1997, an increase of $.1 million, or 14.0%, from a loss of
$.5 million for the three months ended November 30, 1996.
NET LOSS. Net loss was $3.1 million for the three months ended
November 29, 1997 and November 30, 1996. Interest expense was $2.6 million
for the three months ended November 29, 1997, an increase of $.2 million or
9.5% from $2.4 million for the three months ended November 30, 1996. This
increase is a result of the increase in Long-term debt.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $4.3 million for the three
months ended November 29, 1997 compared to $4.6 million for the three months
ended November 30, 1996. Net loss was $3.1 million for the three months
ended on each of November 29, 1997 and November 30, 1996. Net loss included
noncash depreciation and amortization charges of $1.6 million for the three
months ended on each of November 29, 1997 and November 30, 1996.
Net cash used in investing activities increased to $1.3 million for the
three months ended November 29, 1997 from $.7 million for the three months
ended November 30, 1996. Capital expenditures primarily for the purchase of
computer systems during the three months ended November 29, 1997 resulted in
an increase in cash usage of $.5 million. Approximately $2.7 million of
additional capital expenditures are expected for the remainder of fiscal 1998.
As of November 29, 1997, the Company had $20 million available for
borrowings under a $20 million revolving credit facility (the "Credit
Facility"), which matures on July 1, 2000. As of November 29, 1997, the
Company had outstanding $100 million of 10.25% senior secured notes due July
1, 2004.
The Company believes that the Credit Facility and cash flows from
operations will provide sufficient funds to meet the Company's debt service
obligations, projected capital expenditures and working capital requirements
for the foreseeable future.
-7-
<PAGE>
PART II - OTHER INFORMATION
ITEM 6- EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBIT 27.1 -- FINANCIAL DATA SCHEDULE FOR QUARTER ENDED
NOVEMBER 29, 1997, FILED HEREWITH.
(b) NO REPORTS WERE FILED ON FORM 8-K FOR THE QUARTER ENDED
NOVEMBER 29, 1997.
-8-
<PAGE>
SIGNATURE
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.
ARCHIBALD CANDY CORPORATION
DATE: JANUARY 12, 1998. BY: /S/ DONNA M. SNOPEK
-------------------------
DONNA M. SNOPEK
VICE PRESIDENT OF FINANCE
& ACCOUNTING
-9-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-29-1998
<PERIOD-START> AUG-31-1997
<PERIOD-END> NOV-29-1997
<CASH> 10,054
<SECURITIES> 0
<RECEIVABLES> 3,662
<ALLOWANCES> (273)
<INVENTORY> 23,259
<CURRENT-ASSETS> 38,218
<PP&E> 50,316
<DEPRECIATION> (29,773)
<TOTAL-ASSETS> 97,533
<CURRENT-LIABILITIES> 17,156
<BONDS> 100,000
0
0
<COMMON> 0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 97,533
<SALES> 27,173
<TOTAL-REVENUES> 27,173
<CGS> 10,595
<TOTAL-COSTS> 17,190
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,629
<INCOME-PRETAX> 3,016
<INCOME-TAX> 87
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,013)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
