<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
---------------------------------
For the quarter ended April 30, 1999
Barbeques Galore Limited
ACN 008 577 759
327 Chisholm Road, Auburn, New South Wales, 2144, Australia
Registrant's telephone number, including area code 61-2-9704-4177
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[Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.]
Form 20-F X Form 40-F
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------------------------------------------------------
[Indicate by check mark whether the registrant by furnishing the information
contained in this Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.]
Yes No X
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FORM 6-K
For the Quarter Ended April 30, 1999
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page No.
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<S> <C> <C>
ITEM 1. Condensed Consolidated Balance Sheets as of April 30, 1999 and
January 31, 1999 3
Condensed Consolidated Statements of Operations for the Three Months
Ended April 30, 1999 and 1998 4
Condensed Consolidated Statements of Cash Flows for the Three Months
Ended April 30, 1999 and 1998 5
Notes to Condensed Consolidated Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 8
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk 21
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 22
ITEM 2. Changes in Securities and Use of Proceeds 22
ITEM 3. Default Upon Senior Securities 22
ITEM 4. Submission of Matters to a Vote of Security Holders 22
ITEM 5. Other Information 22
ITEM 6. Exhibits and Current Reports on Form 6-K 23
Signatures 24
</TABLE>
2
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BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
ITEM 1. Financial Statements.
January 31, April 30,
1999 1999
----------- -----------
(Unaudited)
<S> <C> <C>
In A$ thousands, except share and per share data
Assets
Current assets:
Cash and cash equivalents $ 811 $ 30
Accounts receivable, net of allowance of $451 at
April 30, 1999 and $424 at January 31, 1999 11,916 10,395
Inventories (note 2) 47,095 50,961
Deferred income taxes 2,238 2,537
Prepaid expenses and other current assets 1,346 2,068
---------- ----------
Total current assets 63,406 65,991
Non-current assets:
Receivables from affiliates 848 748
Property, plant and equipment, net of accumulated depreciation of
$21,173 at April 30, 1999 and $20,492 at January 31, 1999 32,620 33,938
Goodwill, net of accumulated amortization of $405 at April 30, 1999
and $382 at January 31, 1999 1,418 1,395
Deferred income taxes 1,030 1,367
Other non-current assets 1,880 1,532
---------- ----------
Total assets $101,202 $104,971
========== ==========
Liabilities and shareholders' equity
Current liabilities:
Bank overdraft $ - $ 1,016
Accounts payable and accrued liabilities 16,753 18,084
Payables to related parties 1,060 875
Payables to affiliates 168 -
Current maturities of long-term debt 172 494
Current portion of obligations under capital leases 2,029 1,604
Income taxes payable 2,062 1,800
---------- ----------
Total current liabilities 22,244 23,873
Non-current liabilities:
Long-term debt 24,171 27,482
Obligations under capital leases, excluding current portion 4,859 5,678
Other long-term liabilities 815 1,412
---------- ----------
Total liabilities 52,089 58,445
---------- ----------
Shareholders' equity:
Ordinary shares, no par value - authorized 27,437,853 shares;
4,541,652 issued shares 40,733 40,733
Accumulated other comprehensive income 1,509 253
Retained earnings 6,871 5,540
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Total shareholders' equity 49,113 46,526
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Total liabilities and shareholders' equity $101,202 $104,971
========== ==========
</TABLE>
See accompanying notes to the condensed Consolidated Financial Statements
3
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BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
April 30, April 30,
1998 1999
---- ----
(Unaudited)
<S> <C> <C>
In A$ thousands, except share and per share data
Net sales $36,744 $46,515
Cost of goods sold, warehouse, distribution and
occupancy costs 25,117 32,804
-------- --------
Gross profit 11,627 13,711
Selling, general and administrative expenses 12,477 14,899
Store pre-opening costs 147 496
-------- --------
Operating (loss) (997) (1,684)
Equity in income of affiliates, net of tax 96 38
Interest expense 388 519
-------- --------
(Loss) before income taxes (1,289) (2,165)
Income tax (benefit) (502) (834)
-------- --------
Net (loss) (787) (1,331)
Other comprehensive income (loss) 435 (1,256)
-------- --------
Net (loss) after other comprehensive income (loss) $(352) $(2,587)
======== ========
Basic earnings (loss) per share $(0.17) $(0.29)
======== ========
Diluted earnings (loss) per share $(0.17) $(0.29)
======== ========
Weighted average shares outstanding (in thousands) 4,542 4,542
======== ========
</TABLE>
See accompanying notes to the condensed Consolidated Financial Statements
4
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BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
April 30, April 30,
1998 1999
---- ----
(Unaudited)
<S> <C> <C>
In A$ thousands
Cash flows from operating activities:
Net (loss) $ (787) $(1,331)
Non-cash charges, net 925 1,518
Changes in operating assets and liabilities:
Receivables and prepaid expenses 1,580 286
Inventories (4,247) (3,883)
Other assets (590) 26
Accounts payable and accrued liabilities 1,754 769
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Net cash (used in) operating activities (1,365) (2,615)
------- -------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 11 20
Capital expenditures (4,969) (2,179)
Loan repayments (paid) received (38) 90
------- -------
Net cash (used in) investing activities (4,996) (2,069)
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Cash flows from financing activities:
Repayment of long-term debt (7,792) (185)
Proceeds from long-term debt 12,000 3,633
Initial public offering ("IPO") costs (156) -
Bank overdraft proceeds 2,610 1,016
Principal payments under capital leases (436) (561)
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Net cash provided by financing activities 6,226 3,903
------- -------
Net (decrease) in cash and cash equivalents (135) (781)
Cash and cash equivalents at beginning of period 166 811
------- -------
Cash and cash equivalents at end of period $ 31 $ 30
======= =======
</TABLE>
See accompanying notes to the condensed Consolidated Financial Statements
5
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BARBEQUES GALORE LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1 Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been
prepared in conformity with generally accepted accounting principles in the
United States for interim financial information and Rule 10-01 of Regulation
S-X.
As a result, the information contained in these unaudited consolidated financial
statements and footnotes is condensed from that which would appear in annual
consolidated financial statements and does not contain all of the information
and footnotes required by United States generally accepted accounting principles
for complete financial statements. Accordingly, these condensed consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements and related notes contained in the Annual Report on Form
20-F for the fiscal year ended January 31, 1999, filed by Barbeques Galore
Limited (the "Company") with the Securities and Exchange Commission (the
"Commission") on May 3, 1999. The unaudited condensed consolidated financial
statements as of April 30, 1999 and for the three months ended April 30, 1999
and 1998 include all adjustments (consisting of normal recurring adjustments)
considered necessary for a fair presentation. The results of operations for
interim periods are not necessarily indicative of the results that may be
expected for the entire year. The preparation of financial statements in
conformity with United States generally accepted accounting principles requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
materially from those estimates.
2 Inventories
The major classes of inventories are as follows:
<TABLE>
<CAPTION>
January 31, April 30,
1999 1999
------------ -----------
(Unaudited)
<S> <C> <C>
In A$ thousands
Finished goods $42,524 $45,608
Work in progress 1,542 1,971
Raw materials 3,283 3,653
------- -------
47,349 51,232
Less: Reserve for obsolescence (254) (271)
------- -------
$47,095 $50,961
======= =======
</TABLE>
3 Earnings (loss) per share
Basic earnings (loss) per share are computed by dividing net income (loss)
available to ordinary shareholders by the weighted average number of ordinary
shares. Diluted earnings (loss) per share are computed by dividing net income
(loss) available to ordinary shareholders by the weighted average of ordinary
shares and dilutive ordinary share equivalents for the period. In calculating
the dilutive effect of share options, the Company uses the treasury stock
method. For the three months ended April 30, 1999 and 1998, ordinary share
equivalents have not been considered since they are anti-dilutive.
4 Registration Statement on Form F-1
In 1998, pursuant to an agreement with certain holders of convertible notes (all
of which were converted into ordinary
6
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shares in connection with the Company's IPO, the Company registered 1,044,845
ordinary shares, on Form F-1 (the "Resale F-1"), each having a par value of
A$3.64 and each represented by one American Depositary Share (each, a "Resale
ADS") for resale by shareholders of the Company under the Securities Act of
1933, as amended. 997,926 of these ordinary shares were received upon the
conversion of the convertible notes. The remainder of these ordinary shares were
registered voluntarily by the Company and are presently held by long-term
shareholders of the Company who may wish to divest all or portion of their
holdings in the Company. On or about April 22, 1999, the Company removed from
registration 979,731 Resale ADSs that remained unsold as of December 15, 1998,
the date at which all shareholders listed on the Resale F-1 became entitled to
sell their Resale ADSs pursuant to Rule 144 promulgated under the Securities Act
of 1933, as amended.
5 Recent Accounting Developments
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("Statement 133") was issued by the
Financial Accounting Standards Board in June 1998 and is effective for the
Company's fiscal year commencing February 1, 2000. Statement 133 standardizes
the accounting for derivative instruments, including certain derivative
instruments embedded in other contracts. Under the standard, entities are
required to carry all derivative instruments in the statement of financial
position at fair value. The accounting for changes in the fair value (i.e.
gains or losses) of a derivative instrument depends on whether it has been
designated and qualifies as part of a hedging relationship and, if so, on the
reason for holding it. If certain conditions are met, entities may elect to
designate a derivative instrument as a hedge of exposures to changes in fair
values, cash flows, or foreign currencies. If the hedged exposure is a fair
value exposure, the gain or loss on the derivative instrument is recognized in
earnings in the period of change together with the offsetting loss or gain on
the hedged item attributable to the risk being hedged. If the hedged exposure
is a cash flow exposure, the effective portion of the gain or loss on the
derivative instrument is reported initially as a component of other
comprehensive income (outside earnings) and subsequently reclassified into
earnings when the forecasted transaction affects earnings. Any amounts excluded
from the assessment of hedge effectiveness as well as the ineffective portion of
the gain or loss is reported in earnings immediately. Accounting for foreign
currency hedges is similar to the accounting for fair value and cash flow
hedges. If the derivative instrument is not designated as a hedge, the gain or
loss is recognized in earnings in the period of change to fair value. The
Company has not determined the impact that Statement 133 will have on its
financial statements and believes that such determination will not be meaningful
until closer to the date of initial adoption.
6 Segments and Related Information
The Company is engaged in the retail industry and operates through stores
located in two geographic segments, Australia and the United States.
The Company measures the performance of its operating segments based on gross
margin and operating income, which is defined as income before equity income of
affiliates, net of tax, interest expense, other expenses (income) and income
taxes. In addition, the operating income of the United States does not include
all the income attributable to it for product manufactured and purchased for the
United States by the Australian subsidiaries.
Summarized financial information concerning the Company's reportable segments is
as follows:
<TABLE>
<CAPTION>
Australia United States Total
---------- ------------- -----
<S> <C> <C> <C>
3 months to April 30, 1999 (in A$ thousands)
Revenues from external customers $ 21,936 $ 24,579 $ 46,515
---------- ---------- ----------
Gross margin $ 6,539 $ 7,172 $ 13,711
---------- ---------- ----------
Operating (loss) $ (685) $ (999) $ (1,684)
---------- ---------- ----------
Total assets $ 65,918 $ 39,053 $ 104,971
---------- ---------- ----------
3 months to April 30, 1998
Revenues from external customers $ 19,757 $ 16,987 $ 36,744
---------- ---------- ----------
Gross margin $ 6,612 $ 5,015 $ 11,627
---------- ---------- ----------
Operating (loss) $ (315) $ (682) $ (997)
---------- ---------- ----------
Total assets $ 59,784 $ 29,531 $ 89,315
---------- ---------- ----------
</TABLE>
7
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ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations contains forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended, which involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" at the end of this section and
elsewhere in the Company's Annual Report on Form 20-F (File No. 333-37259) for
the fiscal year ended January 31, 1999, filed with the Commission on May 3,
1999. Factors that could cause or contribute to such differences include those
discussed herein as well as those included in the documents that the Company
files from time to time with the Commission.
Overview
Barbeques Galore believes that it is the leading specialty retail chain of
barbecue and barbecue accessory stores in Australia and the United States, based
on number of stores and sales volume. The Company's belief is based on its
years of experience in the barbecue retail industry as well as its contacts with
other industry retailers, suppliers and trade associations. The Company opened
its first store in Sydney, Australia in 1977 and opened its first U.S. store in
Los Angeles in 1980. Barbeques Galore stores carry a wide assortment of
barbecues and related accessories, a comprehensive line of fireplace products
and, in Australia, home heating products, camping equipment and outdoor
furniture. As of April 30, 1999, the Company owned and operated 33 stores in
all six states in Australia and 51 stores (including three U.S. Navy concession
stores) in ten states in the United States. In addition, as of such date, there
were 48 licensed stores in Australia and eight franchised stores in the United
States, all of which operate under the "Barbeques Galore" name.
The Company derives its revenue primarily from four categories: Australian
retail, United States retail (including royalties and sales to franchisees),
Australian licensing (including license fees and sales to licensees) and
Australian wholesale. For the three months ended April 30, 1999, these
categories represented 32.9%, 52.8%, 6.3% and 6.7% respectively, of the
Company's net sales for such period, representing a 8.8%, 44.7%, 16.1% and 6.6%
increase over their respective net sales levels for the three months ended April
30, 1998.
The Company believes the majority of its future growth will result from the
continuing expansion of its U.S. retail business, primarily through the opening
of new stores, and the refurbishment of its Australian store base. Through its
vertically integrated operations, the Company manufactures a proprietary line of
barbecues and home heaters for its retail stores and licensees as well as other
barbecue and home heater products for its wholesale customers.
Results of Operations
The following table sets forth unaudited consolidated operating results of the
Company as a percentage of net sales for the three months ended April 30, 1999
and 1998. Given the degree of seasonality to which the Company's business is
subject, the Company's quarterly results and comparisons of such quarterly
results to prior years' quarters are not necessarily indicative of future
results.
8
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BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
April 30, April 30,
1998 1999
---- ----
(Unaudited)
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of goods sold, warehouse, distribution and
occupancy costs 68.4 70.5
------- ------
Gross profit 31.6 29.5
Selling, general and administrative expenses 33.9 32.0
Store pre-opening costs 0.4 1.1
------- ------
Operating (loss) (2.7) (3.6)
Equity in income of affiliates, net of tax 0.3 0.1
Interest expense 1.1 1.1
------- ------
(Loss) before income tax (3.5) (4.6)
Income tax (benefit) (1.4) (1.8)
------- ------
Net (loss) (2.1)% (2.8)%
======= ======
</TABLE>
There has been no material impact of inflation and changing prices on the
Company's net sales and operating (loss) for the three months ended April 30,
1997 through 1999, respectively.
Three Months Ended April 30, 1999 (Unaudited) Compared to Three Months Ended
April 30, 1998 (Unaudited)
Net sales increased by approximately A$9.8 million, or 26.6%, to A$46.5 million
for the three months ended April 30, 1999 from A$36.7 million for the three
months ended April 30, 1998. Five new stores were opened in the United States
during the three months ended April 30, 1999 as well as one franchise store. In
Australia one store was relocated during this period. Comparable store sales
increased 14.7% for the three months ended April 30, 1999 as compared to the
three months ended April 30, 1998 and contributed A$4.0 million to the increase
in net sales. Comparable store sales increased 17.2% in the United States and
7.0% in Australia. Increased sales also resulted from stores not forming part of
the comparative store sales, including nine new stores which opened in the
United States in the previous twelve months. The balance of the increased sales
was primarily attributable to an increase in Australian licensing and Australian
wholesale.
Gross profit increased approximately A$2.1 million, or 17.9% to A$13.7 million
for the three months ended April 30, 1999 from A$11.6 million for the three
months ended April 30, 1998. Gross margin (gross profit as a percentage of
sales ) decreased to 29.5% during the three months ended April 30, 1999 from
31.6% during the comparable period in 1998. The decrease in gross margin was
mainly attributable to the significant number of new East coast U.S. stores
opened in this past year as well as the time required to ramp up sales of higher
margin products, including the Company's proprietary grills.
Selling, general and administrative expenses (which exclude store pre-opening
expenses) increased approximately A$2.4 million, or 19.4 %, to A$14.9 million
for the three months ended April 30, 1999 from A$12.5 million for the three
months ended April 30, 1998. As a percentage of net sales, selling, general and
administrative expenses decreased to 32.0% during the three months ended April
30, 1999 from 33.9% during the comparable period in 1998. This percentage
decrease was primarily due to a higher leverage off a larger overall sales base
as a result of the new store openings.
Store pre-opening expenses increased by A$349,000 to A$496,000 for the three
months ended April 30, 1999 from A$147,000 for the three months ended April 30,
1998, due to the number and timing of United States' store opening expenditure.
9
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Operating loss increased by A$0.7 million to A$1.7 million for the three months
ended April 30, 1999 from A$1.0 million for the three months ended April 30,
1998. This increase resulted mainly from the increased store pre-opening costs
and lower gross margin.
Income from affiliates decreased by A$58,000 to A$38,000 for the three months
ended April 30, 1999 from A$96,000 for the three months ended April 30, 1998.
Interest expense increased by A$0.1 million to A$0.5 million in the three months
ended April 30, 1999 from A$0.4 million for the three months ended April 30,
1998. The increase resulted mainly from the increase in the number of new
stores and the financing of property acquisitions made last year in Australia.
The Company's effective tax rate was 38.5% in the three months ended April 30,
1999 and 38.9% in the three months ended April 30, 1998.
Liquidity and Capital Resources
The Company has historically financed its operations through cash flow from
operations and bank borrowings. In November 1997, the Company completed its
IPO, raising net proceeds of approximately US$13.8 million (approximately A$19.7
million). A portion of these funds has been used to fund (i) the repayment of
approximately A$12 million (approximately US$8.4 million) of indebtedness
incurred under the credit facility between the Company and the Australian and
New Zealand Banking Group Limited ("ANZ"), and (ii) the repayment of
approximately US$1.8 million, being all indebtedness outstanding as of the
completion of the IPO in November 1997 under a term loan and revolving line of
credit facility with Merrill Lynch Business Financial Services, Inc. ("Merrill
Lynch"). The remaining approximately US$3.6 million (approximately A$5.1
million) has been used to fund a portion of the Company's operations and
investing activities and to continue the expansion of the Company's operations
in the United States.
The Company has used cash flows from operations in the three months ended April
30, 1999 and 1998 of A$2.6 million and A$1.4 million, respectively. The cash
used by operations primarily reflects the increase in inventory levels related
to the Company's build-up of inventories and the increased number of stores in
the United States.
Net cash flows used in investing activities in the three months ended April 30,
1999 and 1998 were A$2.1 million and A$5.0 million respectively. The cash flows
used in investing activities for the current quarter have resulted primarily
from capital expenditures related to new store openings in the United States and
a relocation and new store in Australia. In the corresponding quarter for the
previous year, cash flows used in investing activities resulted primarily from
capital expenditures related to new store openings in the United States, store
refurbishments in Australia and the acquisition of a 45,000 square foot property
for approximately A$3.5 million to relocate the Company's enameling operations
to the same facilities as its barbecue and home heater manufacturing operations
adjacent to the Company's Australian headquarters. The Company anticipates that
it will continue to incur significant capital commitments in connection with
further expansion. The actual costs that the Company will incur in connection
with the opening and refurbishment of future stores cannot be predicted with
precision because such costs will vary based upon, among other things,
geographic location, the size of the stores and the extent of remodeling
required at the selected sites. The cash flows used in operations and investing
activities have been largely sourced from long term borrowings under the ANZ and
Merrill Lynch Facilities (defined below) and from the Company's IPO.
10
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At April 30, 1999 the Company had working capital of A$42.1 million. At April
30, 1999 the Company maintained minimal amounts in cash and cash equivalents,
relying instead on undrawn facilities under its borrowing arrangements with ANZ
and Merrill Lynch.
In June 1998, the Company and ANZ entered into a credit facility (the "ANZ
Facility"), revised from a previous facility entered into in July 1994. The ANZ
Facility is subject to annual review and modification, in accordance with
standard Australian practice. Under this revised facility, the Company and its
subsidiaries have access to facilities up to A$47.6 million comprising a multi-
purpose facility in principal amount of A$16.6 million, a trade finance facility
in principal amount of A$16.5 million, real property loans in principal amount
of A$8.5 million and a further seasonal trade finance facility of A$6.0 million.
The ANZ Facility is secured by a first security interest over the Company's
present and future Australian assets and a second security interest (subordinate
to a lien under the Merrill Lynch Facility) in all the Company's assets in the
United States. The ANZ Facility is further guaranteed by each subsidiary of the
Company including The Galore Group (USA), Inc. and Barbeques Galore, Inc.
(referred to collectively as "Galore USA"). The property loans accrue interest
at rates varying from 6.9% to 9.6% per annum and are secured by registered first
mortgages over the respective freehold properties of the Company.
In February 1995, Barbeques Galore Inc., the Company's U.S. operating
subsidiary, entered into a five year credit facility with Merrill Lynch which
has been amended from time to time. As of April 30, 1999, such facility
includes a term loan in aggregate principal amount of US$300,000 (the "Term
Loan") and a revolving line of credit in aggregate principal amount of US$1.0
million (the "Revolving Line," and collectively with the Term Loan, the "Merrill
Lynch Facility"). Indebtedness under the Revolving Line and Term Loan accrues
interest at the 30-day commercial paper rates plus 2.70% and is payable monthly.
The Merrill Lynch Facility is secured by a first security interest in all Galore
USA present and future assets and is guaranteed by the Company and The Galore
Group (USA), Inc., the parent of Barbeques Galore, Inc.
The Company believes the ANZ and Merrill Lynch Facilities are sufficient to meet
its presently anticipated working capital and capital expenditure requirements
for at least the next twelve months.
Year 2000 Readiness Disclosure
The Company established a Year 2000 compliance team in 1997, under the guidance
of the Chief Financial Officer, which reports periodically to the Board of
Directors and Audit Committee. To date, a full evaluation of potential Year 2000
risks has been completed and a comprehensive compliance program developed.
While the Company cannot be certain that the consequences of Year 2000
compliance issues will not have a material effect on its business, results of
operation or financial condition, it has established and is well advanced with,
a rigorous program aimed at minimizing or negating any such effects. As part of
the ongoing Year 2000 compliance process, the Company has examined the key risk
areas and considered the degree of application to its business activities and
future operations.
Information Technology ("IT") Systems: In Australia, the Company is currently
replacing its entire core IT system, along with the majority of peripheral
hardware and software components such as personal computers, printers and
desktop applications. The replacement core IT system has been represented Year
2000 compliant and should be operational by mid-1999.
In the USA, the Company's recently installed computer system has been designed
to avoid the occurrence of Year 2000 problems. Minor modifications and upgrades
are currently being undertaken and full compliance is anticipated by July 1999.
Non-IT Systems: As with any modern business operation, the Company expects that
some degree of non-compliance will be identified in certain technology assets
such as telephone systems, office equipment and security systems. All potential
systems at risk have been identified and an inventory of equipment and the
vendors involved, compiled. The Company is currently in the process of
contacting these vendors to ascertain whether each item of equipment is Year
2000 compliant or, if necessary, what remedial action (and cost) is required to
achieve compliance.
11
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Products: The Company's products do not utilize embedded technology and the
risk, therefore, associated with holding or repairing non-compliant products, is
negligible. The Company does not believe it will encounter any significant
product warranty or obsolete inventory write-offs arising from Year 2000 issues.
Third Party Relationships: The majority of the Company's customers and,
therefore, revenue base, is from retail sales from which little credit risk
arises. Those customers to whom credit facilities are provided are currently
being contacted by mail questionnaire, to allow the Company to assess their
state of readiness in relation to Year 2000 issues. This program is expected to
be completed by mid-1999. Further follow-up may be required in cases where the
Company is not satisfied with customer's level of compliance.
The Company is dependent on a large number of vendors from various countries for
a significant proportion of its merchandise, parts and raw materials. While
there are generally no long term purchase contracts, (and no vendor accounts
for more than 5% of the Company's merchandise), its results from operations
could be adversely affected by a disruption of supply from key vendors. It has
been widely reported that such disruptions could occur if a vendor was to
experience major Year 2000 compliance problems. A mail questionnaire program is
also being conducted to assess the level of compliance of all current vendors.
Again, Company policy will be to discontinue supply arrangements with any vendor
who is unable to demonstrate adequate compliance after mid-1999.
The Company has also included service providers and other key business partners
such as banks, telecommunication providers, transport and shipping companies in
the compliance program. While the Company expects that most of this group is
likely to achieve compliance, its status will be monitored for any adverse
indications of risk to the Company.
Costs to Address the Company's Year 2000 Issues
Based on the preceding evaluation of the Company's state of readiness and having
regard to the most likely outcomes in relation to each area of risk, the Company
has estimated that the total cost to address Year 2000 issues will be
approximately A$1.1 million. The vast majority of this estimate relates to the
replacement of the Australian IT systems and also includes allowances for minor
non-IT systems remediation.
To date, approximately A$0.5 million of the above estimate has been expended.
There has been no material impact on the Company's results from operations to
date.
Risks of the Company's Year 2000 Issues
The risks which the Company faces in relation to Year 2000 issues have been
referred to above. Although the Company has no reason to expect that any
significant third party impact will arise, given the compliance program now in
place, no assurance can be made that the impact of these risk areas will not be
greater than currently identified nor that no other risk issues may arise. The
Company is unable to estimate whether there will be any additional significant
costs arising from Year 2000 issues.
The Company's Contingency Plans for Year 2000 Issues
At the present time the Company has not developed a detailed contingency plan.
As the outcome of its compliance programs becomes known, the Company will re-
evaluate the need for, and extent of, any contingency plans.
Risk Factors
The following are certain factors that should be considered in evaluating the
business, financial conditions and results of operations of the Company.
However, these factors should not be considered to be exclusive, and readers are
urged to consider the statements made elsewhere herein and in the Company's
other publicly filed documents.
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Implementation of Growth Strategy
The growth of the Company is dependent, in large part, upon the Company's
ability to successfully execute its Company-owned store expansion program in the
United States and its store refurbishment plan in Australia. Pursuant to the
U.S. store expansion program, the Company opened 10 new stores in calendar 1997
and opened 10 new stores and closed one store in calendar 1998. The Company
currently intends to open approximately 16 new stores (including four franchise
stores) in the United States in calendar 1999. As of May 13, 1999, five
Company-owned stores and one franchise store had been opened pursuant to this
store expansion program. The Company also currently intends to open
approximately 15 new stores in calendar 2000 in the United States. The Company
incurred capital expenditures relating to this program in the United States of
approximately US$1.8 million and US$1.9 million in 1997 and 1998 respectively
and expects to incur approximately US$2.4 million in calendar 1999 (US$0.5
million of which had been incurred as of April 30, 1999) and US$3.5 million in
calendar 2000. Pursuant to the Company's Australian store refurbishment
program, in calendar 1997, the Company remodeled five existing stores, opened
one new store, relocated one store and closed one store. In calendar 1998 the
Company refurbished one store, relocated two stores and, in March 1998, opened
its one planned new store. The Company further intends to refurbish one store,
relocate three stores and open two new stores in calendar 1999. The Company
incurred capital expenditures relating to this program in Australia of
approximately A$2.5 million and A$1.4 million in calendar 1997 and 1998
respectively and expects to incur approximately A$2.2 million in calendar 1999.
The proposed expansion is substantially more rapid than the Company's historical
growth. The success of these store expansion and refurbishment efforts will be
dependent upon, among other things, the identification of suitable markets and
sites for new stores, negotiation of leases on acceptable terms, construction or
renovation of sites, receipt of all necessary permits and governmental approvals
therefor, and, if necessary, obtaining additional financing for those sites. In
addition, the Company must be able to hire, train and retain competent managers
and personnel and manage the systems and operational components of its growth.
There can be no assurance that the Company will be able to locate suitable store
sites or enter into suitable lease agreements. In addition, there can be no
assurance that, as the Company opens new stores in existing markets, these new
stores will not have an adverse effect on comparable store net sales at existing
stores in these markets. The failure of the Company to open new stores or
relocate or remodel existing stores on a timely basis, obtain acceptance in
markets in which it currently has limited or no presence, attract qualified
management and personnel or appropriately adjust operational systems and
procedures, would adversely affect the Company's future operating results.
The success of the Company's growth strategy may also depend upon factors beyond
its immediate control. The Company has retained outside real estate consultants
to assist in site selection and lease negotiations, and may depend, to an
increasing extent, on the services of such consultants and other real estate
experts as it accelerates the rate of new store expansion. The failure of any
such consultants or experts to render needed services on a timely basis could
adversely affect the Company's new store expansion. Similarly, changes in
national, regional or local real estate and market conditions could limit the
ability of the Company to expand into target markets or sites.
As part of its growth strategy, the Company intends to open stores in new
markets where it will not initially benefit from knowledge of local market
conditions, pre-existing retail brand name recognition or marketing,
advertising, distribution and regional management efficiencies made possible by
its store networks in existing markets. Expansion into new markets may present
operating and marketing challenges that are different from those encountered in
the past by the Company in its existing markets. As a result of its expansion
program and its entry into new markets, primarily in the United States, and its
refurbishment program in Australia, the Company has experienced, and expects to
continue to experience, an increase in store pre-opening costs and
refurbishment-related expenses. There can be no assurance that the Company will
anticipate all of the challenges and changing demands that its expansion will
impose on its management or operations and the failure to adapt thereto, would
adversely affect the Company's implementation of its growth strategy.
If the Company determined to, or was required to, close a Barbeques Galore
store, the Company would attempt to sublet the vacated store space in order to
cover ongoing lease costs. Even if the Company were able to sublet such store,
the Company may incur significant costs in writing off leasehold improvements.
In addition, the Company's proposed expansion plans will result in increased
demand on the Company's managerial, operational and administrative resources.
As a result of the foregoing, there can be no assurance that the Company will be
able to successfully implement its growth strategies, continue to open
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new stores or maintain or increase its current growth levels. The Company's
failure to achieve its expansion plan could have a material adverse effect on
its future business, operating results and financial condition. See "-Management
of Operational Changes" and " -Reliance on Systems".
Effect of Economic Conditions and Consumer Trends
The success of the Company's operations depends upon a number of factors related
to consumer spending, including future economic conditions affecting disposable
consumer income such as employment, business conditions, interest rates and
taxation. If existing economic conditions were to deteriorate, consumer
spending may decline, thereby adversely affecting the Company's business and
results of operations. Such effects may be exacerbated by the significant
current regional concentration of the Company's business in Australia and the
Pacific West, Southwestern and East coast U.S. markets.
The success of the Company depends on its ability to anticipate and respond to
changing merchandise trends and consumer demands in a timely manner. The
Company believes it has benefited from a lifestyle trend toward consumers
spending more quality time together in outdoor family gatherings and social
activities. Any change in such trend could adversely affect consumer interest
in the Company's major product lines. Moreover, the Company's products must
appeal to a broad cross-section of consumers whose preferences (as to product
features such as colors, styles, finishes and fuel types) cannot always be
predicted with certainty and may change between sales seasons. If the Company
misjudges either the market for its merchandise or its customers' purchasing
habits, it may experience a material decline in sales or be required to sell
inventory at reduced margins. The Company could also suffer a loss of customer
goodwill if its manufacturing operations or stores do not adhere to its quality
control or service procedures or otherwise fail to ensure satisfactory quality
of the Company's products. These outcomes may have a material adverse effect on
the Company's business, operating results and financial condition.
Management of Operational Changes
The Company has identified a number of areas for improvement in its operations
which will have a significant impact on the implementation of its growth
strategy. The Company has, in recent years, replaced or upgraded its management
information systems and integrated its central inventory management systems with
point-of-sale terminals in Barbeques Galore stores, and currently plans to
introduce automated replenishment of store inventory in Australia in the near
term. In the United States, the Company is currently upgrading to the latest
version of software by JDA Software Group Inc. ("JDA") and is using both outside
consultants and the vendor to assist with the process. The total expected
capital expenditure for such project is not expected to be significant. In
addition, the Company is currently in the process of transferring its general
ledger and accounts payable functions from its existing computer system to the
above-mentioned JDA software system. The Company has completed the relocation
of its enameling operations which are now operational, to the same facilities as
its barbecue and home heater manufacturing operations adjacent to its Australian
headquarters, with the in-line powder coating operation commencing mid-November
1998 after successful trials during the previous month. In addition, the Company
rearranged the assembly, warehouse and Australian distribution operations to
further improve its production flow, inventory control and distribution
management. The relocation of the Company's enameling operations and related
changes resulted in the incurring of approximately A$454,000 in costs, required
additional capital expenditures of approximately A$2.8 million and the obtaining
of a number of building, environmental and other governmental permits. In
addition, as the Company expands into new regions or accelerates the rate of its
U.S. store expansion, the Company may need additional warehouse capacity. In
order to meet such needs, the Company intends to secure another distribution
center or expand its current warehouse facilities in the United States or
utilize public warehousing space, in each case depending on availability and
cost at such time. There can be no assurance as to whether or when the Company
will be able to effect its systems upgrades, any expansion or replacement of
distribution facilities, or any other necessary operational changes that may
arise, or that the Company will not incur cost overruns or disruptions in its
operations in connection therewith. The failure of the Company to effect these
and any other necessary operational changes on a timely basis would adversely
affect the ability of the Company to implement its growth strategy and,
therefore, its business, financial condition and operating results.
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Competition
The retail and distribution markets for barbecues and the Company's other
product offerings are highly competitive in both the United States and
Australia. The Company's retail operations compete against a wide variety of
retailers, including mass merchandisers, discount or outlet stores, department
stores, hardware stores, home improvement centers, specialty patio, fireplace or
cooking stores, warehouse clubs and mail order companies. The Company's
manufacturing and wholesale operations compete with many other manufacturers and
distributors throughout the world, including high-volume manufacturers of
barbecues and home heaters. Barbeques Galore competes for retail customers
primarily based on its broad assortment of competitively priced, quality
products (including proprietary and exclusive products), convenience, customer
service and the attractive presentation of merchandise within its stores. Many
of the Company's competitors have greater financial, marketing, distribution and
other resources than the Company, and particularly in the United States, may
have greater name recognition than the Company. Furthermore, the lack of
significant barriers to entry into the Company's segment of the retail industry
may also result in new competition in the future.
Seasonality; Weather; Fluctuations in Results
The Company's business is subject to substantial seasonal variations which have
caused, and are expected to continue to cause, its quarterly results of
operations to fluctuate significantly. Historically, the Company has realized a
major portion of its net sales and a substantial portion of its net income for
the year during summer months and holiday seasons when consumers are more likely
to purchase barbecue products, camping equipment and outdoor furniture. In
anticipation of its peak selling seasons (late spring and early summer), the
Company substantially increases its inventory levels and hires a significant
number of part-time and temporary employees. In non-peak periods, particularly
in late winter in the United States and early fall in Australia, the Company
regularly experiences monthly losses. These seasonal trends result in the
Company experiencing a loss in its first fiscal quarter. The Company believes
this is the general pattern associated with its segment of the retail industry
and expects this pattern will continue in the future. Partially offsetting the
effects of seasonality, the Company operates in both the Southern and Northern
hemispheres, which have opposite seasons, and offers fireplace products and (in
Australia) home heaters in the fall and winter months. However, sales of any of
the Company's major product lines (in particular, home heaters) may vary widely
in peak seasons depending on, among other things, prevailing weather patterns,
local climate conditions, actions by competitors and shifts in timing of
holidays. The Company's quarterly and annual results of operations may also
fluctuate significantly as a result of a variety of other factors, including the
timing of new store openings, releases of new products and changes in
merchandise mix throughout the year. The Company has in the past experienced
quarterly losses, particularly in its fiscal first quarter, and expects that it
will experience such losses in the future. Because of these fluctuations in
operating results, the results of operations in any quarter are not necessarily
indicative of the results that may be achieved for a full fiscal year or any
future quarter. If for any reason the Company's sales or gross margins during
peak seasons or periods were substantially below expectations, the Company's
quarterly and annual results would be adversely affected.
Reliance on Systems
In the United States, the Company has installed a JDA system on an IBM AS400
platform, which allows it to manage distribution, inventory control, purchasing,
sales analysis, warehousing and financial applications. The Company currently
runs its general ledger and accounts payable applications on its pre-existing
computer system, but is currently in the process of transferring these functions
to the more powerful JDA system. At the store level, the Company has installed
Point of Sale ("POS") computer terminals as its cash registers in all stores.
Each POS terminal is equipped with a bar code scanner for ease of product input
and validation. Each store's transaction data is captured by its POS terminals
and transferred into the main JDA system daily. The JDA system provides
extensive reporting and inquiry capability at both the store and corporate
levels, including daily transaction data, margin information, exception analysis
and stock levels. Additionally, the system permits inventory and pricing
updates to be electronically transmitted to the stores on a daily basis.
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In Australia, the existing Wang VS system is being replaced by a SUN Systems
Ultra 60 running a UNIX environment. The Company has also installed a Microsoft
NT Server for all its desktop applications which in the future will be the
Microsoft suite of software.
The Company's Head Office Information Systems process all distribution,
warehouse management, inventory control, purchasing, merchandising, financial
and office automation applications. Each store has PC-based POS registers which
manage all sales transactions and store based purchasing transactions. At the
end of each day's processing, the data from each register is consolidated onto
one register which has an attached modem and which is polled daily to upload the
data to the head office system. The Company relies upon its existing management
information systems in operating and monitoring all major aspects of the
Company's business, including sales, gross margins, warehousing, distribution,
purchasing, inventory control, financial accounting and human resources. Any
disruption in the operation of the Company's management information systems, or
the Company's failure to continue to upgrade, integrate or expend capital on
such systems as its business expands, could have a material adverse effect upon
the Company's business, operating results and financial condition.
As the head office system was not able to handle dates beyond January 1, 2000
the Company has decided to replace its existing hardware and software rather
than reworking the existing software to be Year 2000 compatible. See "Part I
Item 2 Management's Discussion and Analysis of Financial Condition and Results
of Operations Year 2000 Readiness Disclosure". The Company has appointed
Berger Software, an Australian software house, specializing in distribution and
warehousing management software to supply the main business application
software. The new system will also handle financial accounting functions and
the Company will also be integrating an Executive Information system to provide
additional interrogation capabilities. The existing store POS software is Year
2000 compatible and runs in a DOS environment on stand alone store-based PCs.
These systems are 486MHz PCs, some of which are almost five years old. The
Company is proposing the replacement of these superseded PCs with Windows based
PCs and Windows NT Servers in each store. The application software will be
converted to run in a Windows environment. This new platform will enable the
Company to create a Company Intranet and allow for implementation of the latest
in software applications.
Envisaged benefits flowing therefrom include the introduction of E-Commerce,
sophisticated customer loyalty programs and the combination of Electronic Funds
Transfer at Point of Sale ("EFTPOS") into the new POS hardware which will
improve customer throughput and reduce bank charges. It is anticipated that
this upgrade to the stores' POS systems at an approximate cost of A$1.3 million
will be undertaken during 1999, thus ensuring that the POS hardware is Year 2000
compatible. The store systems will continue to be polled on a daily basis and
the data transmitted back to head office, for loading into the new Berger
software system, producing all the necessary management reporting.
The Company expects that the Information Systems replacement and upgrade which
will be customized to its requirements will necessitate capital expenditures of
approximately A$0.9 million. Work is currently underway and implementation is
scheduled for mid-1999, although no assurance can be given that these issues can
be resolved in a cost-effective or timely manner or that the Company will not
incur significant expense in resolving these issues. The Company's newly
installed computer system in the United States has been designed to avoid the
occurrence of such problems with the year 2000.
Dependence on Key Employees
The Company's success is largely dependent on the efforts and abilities of its
executive officers, particularly, Sam Linz, Chairman of the Board, Robert
Gavshon, Deputy Chairman of the Board, John Price, Head of Research and Product
Development and Director, and Sydney Selati, President of Barbeques Galore,
Inc., the Company's U.S. operating subsidiary, and Director. These individuals
have an average of 16 years of experience with the Company and have chief
responsibility for the development of the Company's current business and growth
strategies. L.D. "Chip" Brown's employment terminated on August 24, 1998 and
Galore USA is seeking a suitable replacement to take on the functions of Chief
Operating Officer for the Company's U.S. operations. The Company does not have
employment contracts with any of its executive officers. The loss of the
services of these individuals or other key employees could have a material
adverse effect on the Company's business, operating results and financial
condition. The Company's success is also dependent upon its ability to continue
to attract and retain qualified
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employees to meet the Company's needs for its new store expansion program in the
United States and its store refurbishment plans in Australia.
Risks Associated with International Operations; Dependence on Significant
Vendors and Suppliers
Barbeques Galore, with its headquarters, manufacturing, enameling, wholesale and
non-U.S. store operations in Australia, transacts a majority of its business in
Australia and obtains a significant portion of its merchandise, parts and raw
materials from China, Taiwan, Indonesia, Thailand, Italy and other markets
outside of the United States and Australia. There are risks inherent in doing
business in international markets, including tariffs, customs, duties and other
trade barriers, difficulties in staffing and managing foreign operations,
political instability, expropriation, nationalization and other political risks,
foreign exchange controls, technology, export and import restrictions or
prohibitions, delays from customs brokers or government agencies, seasonal
reductions in business activity, subjection to multiple taxation regimes and
potentially adverse tax consequences, any of which could materially adversely
affect the Company's business, operating results and financial condition.
The Company purchases certain of its finished inventory and manufacturing parts
and all of its raw materials from numerous vendors and suppliers and generally
has no long-term purchase contracts with any vendor or supplier. During the
three months ended April 30, 1999, the Company purchased inventory from over 500
vendors in the United States, Australia and Asia. In such period, approximately
25% of the Company's merchandise purchases were obtained from the Company's ten
largest vendors. Although no vendor accounted for more than 5% of the Company's
merchandise purchases in such period, the Company considers certain barbecue
brands to be significant to its business, especially in the United States.
During the twelve months ended January 31, 1999 and the three months ended April
30, 1999, the Company purchased barbecue and home heater parts from over 90
suppliers in Asia, Australia and North America. No single supplier accounted
for more than 5% of factory parts and raw material purchases during the twelve
months ended January 31, 1999, other than Horan's Steel Pty Ltd, an Australian
steel distributor, Bromic Pty Ltd ("Bromic"), an Australian gas components
importer, Sheet Metal Supplies Pty Ltd ("SMS"), Bright & Bartholomew Pty Ltd and
Amcor Fibre Packaging Australia, (a member of the Amcor Ltd Group), which
accounted for approximately 10%, 15%, 15%, 7% and 6% of these purchases,
respectively. Approximately 79% of the Company's factory parts and raw material
purchases were obtained in such twelve-month period from the Company's ten
largest suppliers. During the three months ended April 30, 1999, SMS and Bromic
supplied the Company with approximately 20% and 13% respectively of the
Company's factory parts and raw material purchases and approximately 66% of the
Company's factory parts and raw material purchases were obtained from the
Company's ten largest suppliers. The Company's results of operations could be
adversely affected by a disruption in purchases from any of these key vendors or
suppliers or from volatility in the prices of such parts or raw materials,
especially the price of steel, which has fluctuated in the past. In addition,
some of the Company's key suppliers currently provide the Company with certain
incentives, such as volume and trade discounts as well as other purchasing
incentives. A reduction or discontinuance of these incentives could have an
adverse effect on the Company. Although the Company believes that its
relationships with its vendors and suppliers are good, any vendor or supplier
could discontinue selling to the Company at any time.
Product Liability and Governmental and Other Regulation
Many of the Company's products use gas and flame and, consequently, are subject
to regulation by authorities in both the United States and Australia in order to
protect consumers, property and the environment. For example, the Company's
products and the personal use thereof are subject to regulations relating to,
among other things, the use of fire in certain locations (particularly
restrictions relating to the availability or frequency of use of wood heating in
homes and barbecues in apartments), restrictions on the sale or use of products
that enhance burning potential such as lighter fluid, restrictions on the use of
gas in specified locations (particularly restrictions relating to the use of gas
containers in confined spaces) and restrictions on the use of wood burning
heaters. Compliance with such regulations has not in the past had, and is not
anticipated to have, a material adverse effect on the Company's business,
operating results and financial condition. Nonetheless, such regulations have
had, and can be expected to have, an increasing influence on product claims,
manufacturing, contents, packaging and heater usage. In addition, failure of a
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product could give rise to product liability claims if customers, employees or
third parties are injured or any of their property is damaged while using a
Company product. Such injury could be caused, for example, by a gas valve
malfunction, gas leak or an unanticipated flame-up resulting in injury to
persons and/or property. Even if such circumstances were beyond the Company's
control, the Company's business, operating results and financial condition could
be materially adversely affected. In the event of such an occurrence, the
Company could incur substantial litigation expense, receive adverse publicity,
suffer a loss of sales or all or any of the foregoing. Although the Company
maintains liability insurance in both Australia and the United States, there can
be no assurance that such insurance will provide sufficient coverage in any
particular case. In Australia, the limit of the Company's product liability
coverage is A$100 million, any one claim and in the aggregate. In the United
States, the Company's U.S. operating subsidiary is covered by a policy having
general liability coverage limited at US$11 million. There is no assurance that
certain jurisdictions in which the Company operates will not impose additional
restrictions on the sale or use of the Company's products.
In addition, the Company's barbecue and home heater manufacturing and enameling
operations are subject to regulations governing product safety and quality, the
discharge of materials hazardous to the environment, water usage, workplace
safety and labor relations. The Company's distribution facilities are also
subject to workplace safety and labor relations regulations. The Company
believes that it is in substantial compliance with such regulations. The sale
of certain products by the Company may result in technical violations of certain
of the Company's leases which prohibit the sale of flammable materials in or on
the leased premises. As a barbecue and barbecue accessories store, the Company
sells lighter fluid, lighters, matches and similar products which may be
considered flammable when in contact with open flame or activated. The Company
does not store containers of gas for barbecue grills in its stores. The Company
stores matches, lighters and the like in closed containers or in displays where
the chance of activation is remote, and does not store such items near open
flames. Over the Company's operating history, the Company's landlords have been
made aware that the Company sells such products. To date, no landlord has
terminated or threatened termination of any lease due to such sales.
The foregoing regulations and restrictions could have a material adverse effect
on the Company's business, operating results or financial condition.
Uncertainties Regarding Manufacturing and Distribution of Merchandise
The Company manufactures a substantial portion of the barbecues and home heaters
sold in its stores and distributes merchandise to Barbeques Galore stores
primarily from its distribution centers located at its headquarters in Australia
and Irvine, California. Throughout the manufacturing process, the Company
utilizes heavy machinery and equipment to produce and assemble barbecues and
home heaters from parts and raw materials supplied from numerous third party
suppliers. In distributing merchandise, the Company relies upon third party sea
carriers to ship its manufactured products from Australia to the United States,
as well as third party surface freight carriers to transport all its merchandise
from its distribution centers and warehouses to stores. Accordingly, the
Company is subject to numerous risks associated with the manufacturing and
distribution of its merchandise, including supply interruptions, mechanical
risks, labor stoppages or strikes, inclement weather, import regulation, changes
in fuel prices, changes in the prices of parts and raw materials, economic
dislocations and geopolitical trends. In addition, the Company believes that,
while its distribution facilities are sufficient to meet Barbeques Galore's
current needs, the Company may need another distribution center or larger
facilities in the United States or Australia to support the further growth and
expansion of stores.
Risks Related to Franchised and Licensed Stores
As of April 30, 1999, there were 48 licensed stores in Australia and eight
franchised stores in the United States, all of which are operated under the
"Barbeques Galore" name by independent licensees or franchisees who purchase
proprietary and other store products, and receive support services, from the
Company. The licensees and franchisees operate such stores pursuant to
agreements which typically permit licensees and franchisees to assign the
agreements to their immediate family and provide the licensees and franchisees
with exclusive geographical sales territories. The Company monitors its
licensed and
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franchised stores to assure their conformity to Barbeques Galore's standards and
image and requires the licensees and franchisees to comply with Barbeques
Galore's merchandising and advertising guidelines. Although the Company believes
that its licensees and franchisees are presently in substantial compliance with
Company guidelines and that its license and franchise arrangements have not been
problematic in any material respect in the past, serious or protracted failures
by licensees or franchisees to adhere to Company standards could adversely
affect customer loyalty and diminish the Company's brand name or reputation for
quality products and services, and could require the Company to devote
significant management attention and resources to enforcing its rights under
such agreements. Conversely, if the Company fails to provide adequate support
services or otherwise breaches its contractual obligations to any licensee or
franchisee, such failure or breach could result in termination of, or litigation
relating to, the relevant licensing or franchise agreement and the loss of fees
and sales revenue thereunder. The licensing agreements in Australia are
terminable at will (absent fraud) by the licensees only, generally upon sixty
days' notice.
Currency Fluctuations
The Company prepares its consolidated financial statements in Australian
dollars, but a substantial portion of the Company's revenues and expenses are
denominated in U.S. dollars and, to a lesser extent, other foreign currencies.
Accordingly, the Company is subject to risks of currency exchange to the extent
of currency fluctuations between the Australian dollar and the U.S. dollar or
other currencies in which the Company transacts its business. This currency
imbalance has resulted in, and may continue to result in, foreign currency
transaction gains and losses. Prior to the current fiscal year, the Company's
Australian operations have hedged a portion of its imports against exchange rate
fluctuations with respect to the Australian dollar. However, in its U.S.
operations, the Company has not, and it currently does not, actively hedge
against exchange rate fluctuations, although it may elect to do so in the
future. Accordingly, changes in exchange rates may have a material adverse
effect on the Company's net sales, cost of goods sold, gross margin and net
income, any of which alone or in the aggregate may in turn have a material
adverse effect on the Company's business, operating results and financial
condition. Such currency issues could, thus, affect the market price for the
American Depositary Shares ("ADSs"). Although the Company does not anticipate
paying any regular cash dividends on the Ordinary Shares or the ADSs in the
foreseeable future, the above exchange rate fluctuations would affect the
conversion into U.S. dollars (for payment to holders of ADSs) by Morgan Guaranty
Trust Company as Depositary, of any cash dividends paid in Australian dollars on
the Ordinary Shares represented by the ADSs.
Restrictions on Foreign Ownership; Antitakeover Restrictions
Under Australian law, foreign persons are prohibited from acquiring more than a
limited percentage of the shares in an Australian company without approval from
the Australian Treasurer or in certain other limited circumstances. These
limitations are set forth in the Australian Foreign Acquisitions and Takeovers
Act (the "Takeovers Act"). Under the Takeovers Act, as currently in effect, any
foreign person, together with associates, is prohibited from acquiring 15% or
more of the outstanding shares of the Company (or else the Treasurer may make an
order requiring the acquiror to dispose of those shares within a specified
period of time). In addition, if a foreign person acquires shares in the
Company and as a result the total holdings of all foreign persons and their
associates exceeds 40% in the aggregate without the approval of the Australian
Treasurer, then the Treasurer may make an order requiring the acquiror to
dispose of those shares within a specified time. The Company has been advised
by its Australian counsel, Freehill, Hollingdale & Page, that under current
foreign investment policy, however, it is unlikely that the Treasurer would make
such an order where the level of foreign ownership exceeds 40% in the ordinary
course of trading, unless the Treasurer finds that the acquisition is contrary
to the national interest. The same rule applies if the total holdings of all
foreign persons and their associates already exceeds 40% and a foreign person
(or its associate) acquires any further shares, including in the course of
trading in the secondary market of the ADSs. In addition, if the level of
foreign ownership exceeds 40% at any time, the Company would be considered a
foreign person under the Takeovers Act. In such event, the Company would be
required to obtain the approval of the Treasurer for the Company, together with
its associates, to acquire (i) more than 15% of an Australian company or
business with assets totaling over A$5 million or (ii) any direct or indirect
ownership interest in Australian residential real estate. In addition, the
percentage of foreign
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ownership of the Company would also be included in determining the foreign
ownership of any Australian company or business in which it may choose to
invest. Since the Company has no current plans for any such acquisitions and
only owns commercial property, any such approvals required to be obtained by the
Company as a foreign person under the Takeovers Act will not affect the
Company's current or future ownership or lease of property in Australia.
However, there would be no material tax consequence to shareholders of the
Company (including holders of ADSs) resulting from the Company being deemed a
foreign person under the Takeovers Act. If all of the ADSs are owned by foreign
persons or their associates, then the level of foreign ownership of the
Company's equity securities would be approximately 64.8%. The level of foreign
ownership could also increase in the future if existing Australian investors
decide to sell their shares into the U.S. market or if the Company were to sell
additional Ordinary Shares or ADSs in the future.
The Company has additionally provided that all stock options outstanding under
the Company's Executive Share Option Plan at such time as the Company becomes
subject to a takeover bid pursuant to which the offeror acquires at least thirty
percent (30%) of the outstanding Ordinary Shares of the Company shall become
immediately exercisable for a period of up to 120 days, measured from the date
the Board notifies the optionee of the takeover bid. Similarly, the Company has
provided that all stock options outstanding under the Company's 1997 Share
Option Plan at such time as the Company is acquired by merger or asset sale
pursuant to which such stock options are not assumed or replaced by the
successor corporation shall become immediately exercisable for a period of one
(1) year (or until the expiration of the stock option term, if earlier). There
are 203,038 Ordinary Shares underlying stock options outstanding pursuant to the
Executive Share Option Plan, which became exercisable on February 1, 1999 and
243,096 Ordinary Shares underlying stock options granted under the Company's
1997 Share Option Plan, which, barring acceleration, will become exercisable as
to 225,450 in three equal installments on November 9, 2001, November 9, 2002 and
October 9, 2003 and as to 17,646 in three equal installments on September 1,
2001, September 1, 2002 and August 1, 2003 according to the terms of the 1997
Share Option Plan. Such investment restrictions and dilutive acceleration
events discussed above could have a material adverse effect on the Company's
ability to raise capital as needed and could make more difficult or render
impossible attempts by certain entities (especially foreign entities, in the
case of the Takeovers Act) to acquire the Company, including attempts that might
result in a premium over market price to holders of ADSs.
The Constitution of the Company contains certain provisions that could impede
any merger, consolidation, takeover or other business combination involving the
Company or discourage a potential acquiror from making a tender offer or
otherwise attempting to obtain control of the Company. Provisions contained in
the Constitution, among other things, (i) in effect divide the Board of
Directors of the Company into three classes, which serve for staggered three-
year terms, (ii) provide that the shareholders may amend or repeal special
resolutions, including changes to the Constitution and extraordinary
transactions, only by a vote of at least 75% of the votes cast at a meeting at
which a quorum is present, (iii) require extended notice (of up to 28 days) for
special resolutions considered by the Board of Directors, and (iv) authorize the
Board of Directors, without any vote or action by shareholders of the Company,
to issue, out of the Company's authorized and unissued capital shares, shares in
different classes, or with special, preferred or deferred rights, which may
relate to voting, dividend, return of capital or any other matter. Although the
Company currently has no plans to issue any preferred shares, the rights of the
holders of Ordinary Shares or ADSs will be subject to, and may be adversely
affected by, the rights of the holders of any preferred or senior share that may
be issued in the future. The issuance of any preferred or senior shares, and
the other provisions of the Constitution referred to above, could have the
effect of making it more difficult for a third party to acquire control of the
Company.
In certain circumstances, non-residents of Australia may be subject to
Australian tax on capital gains made on the disposal of shares or ADSs. The
rate of Australian tax on taxable gains realized by non-residents of Australia
is 36% for companies. For individuals, the rate of tax increases from 29% to a
maximum of 47%.
20
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk.
Market risks relating to the Company's operations result primarily from changes
in interest rates and changes in foreign exchange rates.
Foreign Currency Market Risk
The Company's functional currency is the Australian dollar although it transacts
a portion of its business in foreign currencies and accordingly has foreign
currency exposure through its sales in the United States and purchases from
overseas suppliers in U.S. dollars.
Prior to the current fiscal year, the Company's Australian operations have
hedged a portion of its imports against exchange rate fluctuations with respect
to the Australian dollar. However, in its U.S. operations, the Company has not,
and it currently does not, actively hedge against exchange rate fluctuations,
although it may elect to do so in the future. Accordingly, changes in exchange
rates may have a material adverse effect on the Company's net sales, cost of
goods sold, gross margin and net income, any of which alone or in the aggregate
may in turn have a material adverse effect on the Company's business, operating
results and financial condition.
The notional amount of foreign currency forward contracts used as a means of
offsetting fluctuations in the dollar value of foreign currency accounts payable
amounted to A$609,000 as of January 31, 1999 and A$9,647,000 as of April 30,
1999 with exchange rates varying from US$0.63 to US$0.65. The counterparties to
the contracts (expressed in United States dollars and which expire within one
year), are major financial institutions and the risk of loss to the Company in
the event of non-performance by a counterparty, is not significant.
In addition, the Company had entered into a "Converting Forward" transaction as
of April 30, 1999 amounting in total to US$1.0 million with an expiration date
of August 31, 1999, and a contingent strike rate of US$0.648.
The notional value of foreign currency contracts approximates the fair value.
Interest Rate Risk
As the Company has long-term debt under the facilities with the Australia and
New Zealand Group Limited ("ANZ") and Merrill Lynch Business Financial Services,
Inc. ("Merrill Lynch"), it is exposed to changes in interest rates.
The ANZ facility comprises bank bills which are generally taken out over a 90-
day period and rolled over at the end of their respective terms. As of January
31, 1999 and April 30, 1999 the weighted average interest rates accruing on the
bank bills utilized under the ANZ Facility were as follows:
<TABLE>
<CAPTION>
January 31, 1999 April 30, 1999 January 31, 1999 April 30, 1999
----------------- -------------- ----------------- ---------------
(in A$ thousands) (interest rate per annum)
<S> <C> <C> <C> <C>
Bank bills 15,721 19,032 5.7% 5.8%
Property loans 8,450 8,450 6.9% to 9.6% 6.9% to 9.6%
</TABLE>
As of April 30, 1999 the Merrill Lynch facility includes a term loan of
US$300,000 and a revolving line of credit amounting to US$1.0 million.
Indebtedness under the term loan and revolving line of credit accrues interest
at the 30-day commercial paper rates plus 2.70% and is payable monthly.
The Company's total long-term debt matures as follows:
Year ending January 31, (in A$ thousands)
----------------------- ----------------
2000 $ 494
2001 27,482
-------
$27,976
=======
21
<PAGE>
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings.
Not applicable.
ITEM 2. Changes in Securities and Use of Proceeds.
In 1998, pursuant to an agreement with certain holders of convertible notes (all
of which were converted into ordinary shares in connection with the Company's
IPO, the Company registered 1,044,845 ordinary shares, on Form F-1 (the "Resale
F-1"), each having a par value of A$3.64 and each represented by one American
Depositary Share (each, a "Resale ADS") for resale by shareholders of the
Company under the Securities Act of 1933, as amended. 997,926 of these ordinary
shares were received upon the conversion of the convertible notes. The
remainder of these ordinary shares were registered voluntarily by the Company
and are presently held by long-term shareholders of the Company who may wish to
divest all or portion of their holdings in the Company. On or about April 22,
1999, the Company removed from registration 979,731 Resale ADSs that remained
unsold as of December 15, 1998, the date at which all shareholders listed on the
Resale F-1 became entitled to sell their Resale ADSs pursuant to Rule 144
promulgated under the Securities Act of 1933, as amended.
ITEM 3. Default Upon Senior Securities.
Not applicable.
ITEM 4. Submission of Matters to a Vote of Security Holders.
Not applicable.
ITEM 5. Other Information.
Prior to May 31, 1999, the Company distributed to its shareholders materials
relating to the Annual General Meeting of the Company, to be held on June 29,
1999 at 10:00am (Sydney, Australia time), consisting of (i) a Notice of Annual
General Meeting, (ii) a form of proxy for holders of ADRs, which represent ADSs,
which in turn, represent Ordinary Shares, (iii) a form of proxy for holders of
Ordinary Shares, (iv) a letter dated May 13, 1999 from Mr. Sam Linz, Chairman of
the Board, Mr. Robert Gavshon, Executive Deputy Chairman and Mr. Sydney Selati,
President of the Company's U.S. operating subsidiary and (v) a copy of the
Company's Annual Report on Form 20-F (File No. 333-37259) for the fiscal year
ended January 31, 1999, filed with the Commission on May 3, 1999. Except for
the Annual Report on Form 20-F which has previously been filed with the
Commission, these materials are attached hereto as Exhibit 22.1. At its Annual
General Meeting, the Company intends (i) to present the financial statement of
the company and of the consolidated entity for the year ended January 31, 1999
and the reports of the directors and auditors thereon and (ii) to elect two
directors. Mr. Edgar Berner who was appointed to the Board on September 1,
1998, is to retire in accordance with Article 65 of the Company's Constitution
and Mr. Robert Gavshon is to retire by rotation in accordance with the
provisions of Article 63 of the Company's Constitution and, as they are
eligible, will offer themselves for re-election. In addition, any business
which may be lawfully brought forward at the Annual General Meeting may also be
transacted. This summary is qualified in its entirety by reference to the
materials filed in Exhibit 22.1.
22
<PAGE>
ITEM 6. Exhibits and Current Reports on Form 6-K.
(a) Exhibits
Exhibit
Number
------
13.1* Annual Report on Form 20-F (File No. 333-37259) for the fiscal
year ended January 31, 1999.
22.1 Materials distributed to shareholders with respect to the
Company's Annual General Meeting to be held on June 29, 1999, at
10:00am (Sydney, Australia time), including (i) Notice of Annual
General Meeting, (ii) form of Proxy for holders of ADRs, which
represent ADSs, which in turn, represent Ordinary Shares, (iii)
form of proxy for holders of Ordinary Shares, (iv) letter dated
May 13, 1999 from Mr. Sam Linz, Chairman of the Board, Mr. Robert
Gavshon, Executive Deputy Chairman and Mr. Sydney Selati,
President of the Company's U.S. operating subsidiary.
____________________
* Previously filed with the Commission on May 3, 1999, and
incorporated by reference herein.
(b) There were no current reports on Form 6-K filed during the quarter ended
April 30,1999.
23
<PAGE>
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.
Report of Foreign Issuer Pursuant to Rule 13a-16 or 15d-16 of the Securities
Exchange Act of 1934
BARBEQUES GALORE LIMITED
(Registrant)
By: /s/ ROBERT B. GAVSHON
---------------------
Robert B. Gavshon
Executive Deputy Chairman
Date:
June 11, 1999
24
<PAGE>
EXHIBIT 22.1
BARBEQUES GALORE LIMITED
ACN 008 577 759
NOTICE OF ANNUAL GENERAL MEETING
NOTICE is hereby given that the eighteenth Annual General Meeting of Barbeques
Galore Limited (the "Company") will be held at 327 Chisholm Road, Auburn, New
South Wales, on Tuesday, 29 June 1999 at 10:00 a.m.
Ordinary Business
1. To receive the financial statements of the Company and of the consolidated
entity for the year ended 31 January 1999 and the reports of the directors
and auditors thereon.
2. To elect two directors:
Edgar Berner who was appointed to the Board on 1 September 1998, retires in
accordance with Article 65 of the Company's Constitution and being eligible,
offers himself for re-election.
Robert Gavshon retires by rotation in accordance with the provisions of Article
63 of the Company's Constitution and being eligible, offers himself for re-
election.
General
3. To transact any business which may be lawfully brought forward.
Proxies and other matters
4. (a) A member entitled to attend and vote is entitled to appoint not more
than two proxies.
(b) Where more than one proxy is appointed, each proxy must be appointed to
represent a specified proportion of the member's voting rights.
(c) A proxy need not be a member of the Company.
(d) Proxies given by companies must be executed under seal or under the
hand of an officer or attorney duly authorised in writing.
(e) To be effective, the form appointing a proxy and the Power of Attorney
(if any) under which it is signed (or an attested copy thereof), must
be delivered to the registered office of the Company at 327 Chisholm
Road, Auburn, New South Wales, Australia not later than 10:00 a.m. on
Friday, 25 June 1999 or by facsimile to 61-2-97044212.
By order of the Board,
/s/DAVID GLASER
David M. Glaser
B.Com, ACA.
Company Secretary
21 May 1999
<PAGE>
<TABLE>
<S> <C> <C>
1. To receive the financial statements of the For Against Abstain
- ------------------------------------ Company and of the consolidated entity [ ] [ ] [ ]
BARBEQUES GALORE LIMITED for the year ended January 31, 1999 and
- ------------------------------------ the reports of the directors and auditors
thereof.
2. Re-election as director: For Against Abstain
a) Mr.Edgar Berner [ ] [ ] [ ]
b) Mr. Robert Gavshon [ ] [ ] [ ]
CONTROL NUMBER:
Mark box at right if you wish to give a discretionary proxy to a [ ]
member or members of the Board of Directors. PLEASE NOTE:
Marking the box to the right voids any other instructions marked
above.
Mark box at right if an address change or comment has been noted [ ]
on the reverse side of this card.
-------- Mark box at right if you do not wish to receive duplicate annual [ ]
Please be sure to sign and date this Voting Date reports at this address.
Instruction Card.
- -----------------------------------------------------
- -----------------------------------------------------
ADR Holder sign here Co-owner sign here
</TABLE>
DETACH CARD DETACH CARD
TO THE REGISTERED HOLDERS OF AMERICAN DEPOSITARY RECEIPTS ("ADRs")
REPRESENTING ORDINARY SHARES OF
BARBEQUES GALORE LIMITED (THE "COMPANY")
(CUSIP Number: 067091108)
Morgan Guaranty Trust Company of New York (the "Depositary"), has received
advice that the 18th Annual General Stockholders' Meeting (the "Meeting) of
the Company will be held at 327 Chisholm Road, Auburn, New South Wales, on
Tuesday, June 29, 1999 at 10:00 a.m. (Sydney time).
If you are desirous of having the Depositary, through its Nominee or Nominees,
vote or execute a proxy to vote the Ordinary Shares represented by your
American Depositary Receipt(s) ("ADRs") for or against or abstain the
Resolutions to be proposed at the Meeting, kindly execute and forward to
Morgan Guaranty Trust Company of New York, the attached Voting Instruction
Card. The enclosed postage paid envelope is provided for this purpose. This
Voting Instruction Card should be executed in such manner as to show clearly
whether you desire the Nominee or the Nominees of the Depositary to vote for
or against or abstain the Resolutions, as the case may be. You may include
instructions to give a discretionary proxy to a member or members of the Board
of Directors. Only the registered holders of record at the close of business
May 25, 1999 will be entitled to execute the attached Voting Instruction Card.
Morgan Guaranty Trust Company of New York, Depositary
Dated: June 2, 1999
<PAGE>
BARBEQUES GALORE LIMITED
Morgan Guaranty Trust Company of New York, Depositary
P.O. Box 9383, Boston, MA 02205-9958
The undersigned, a registered holder of American Depositary Receipt(s)
representing Ordinary Shares of Barbeques Galore Limited (the "Company"), of
record May 25, 1999, hereby requests and authorizes Morgan Guaranty Trust
Company of New York, the Depositary, though its Nominee or Nominees, to vote or
execute a proxy to vote the underlying Ordinary Shares of the Company
represented by such Depositary Receipts, on the Resolutions at the Annual
General Stockholders' Meeting of the Company to be held in New South Wales, on
June 29, 1999 at 10:00 a.m., or any adjournment thereof.
These instructions, when properly signed and dated, will be voted in the manner
directed herein. If you mark the box to indicate that you wish to give a
discretionary proxy to a member or members of the Board of Directors, the
underlying shares represented by our American Depositary Receipt(s) will be
voted by such member or members in their discretion. If these instructions are
properly signed and dated, but no direction is made, the underlying shares
represented by such Receipt(s) will be voted by the Depositary FOR all
Resolutions at the Meeting.
NOTE: In order to have the aforesaid shares voted, this Voting Instruction Card
must be returned before 3:00 p.m., June 23, 1999.
- --------------------------------------------------------------------------------
PLEASE VOTE, DATE AND SIGN ON REVERSE SIDE AND RETURN PROMPTLY IN ENCLOSED
ENVELOPE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Please sign this Voting Instruction Card exactly as your name(s) appear(s) on
the books of the Depositary. Joint owners should each sign personally. Trustees
and other fiduciaries should indicate the capacity in which they sign, and where
more than one name appears, a majority must sign. If a corporation, this
signature should be that of an authorized officer who should state his or her
title.
- --------------------------------------------------------------------------------
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
- ------------------------------ ------------------------------
<PAGE>
BARBEQUES GALORE LIMITED
ACN 008 577 759
PROXY FORM
Registered office: 327 Chisholm road, Auburn, New South Wales, 2144.
In respect of the Annual General Meeting to be held on 29 June 1999 or any
adjournment thereof:
I/We (BLOCK LETTERS)
- --------------------------------------------------------------------------------
of
- --------------------------------------------------------------------------------
being a member/members of Barbeques Galore Limited
hereby appoint
- --------------
of
- --------------------------------------------------------------------------------
or failing him/her
- --------------------------------------------------------------------------------
of
- --------------------------------------------------------------------------------
or failing him/her the Chairman of the meeting, as my/our proxy to vote for
me/us and on my/our behalf at the said Annual General Meeting of the company in
respect of _______ shares.
Signed this day of 1999
- --------------------------------------------------------------------------------
Signature of shareholder/s
- --------------------------------------------------------------------------------
Optional: Should you desire to direct your proxy how to vote, please insert "x"
in the appropriate box against each item, failing which your proxy will vote as
he/she thinks fit, or abstain from voting.
<TABLE>
<CAPTION>
Agenda item no (2) For Against Abstain
<S> <C> <C> <C> <C>
Re-election as director: Mr. Edgar Berner [ ] [ ] [ ]
Mr. Robert Gavshon [ ] [ ] [ ]
</TABLE>
Notes
(1) If the number of shares is not inserted above it will be assumed that the
proxy is for all shares registered in the name of the member.
(2) A member entitled to attend and vote is entitled to appoint not more than
two proxies.
(3) Where more than one proxy is appointed, each proxy must be appointed to
represent a specified proportion of the member's voting rights.
(4) A proxy need not be a member.
(5) To be effective, proxy forms (duly completed) must reach the registered
office no later than 10:00 a.m. on Friday, 25 June 1999 or by facsimile to
61-2-97044212.
<PAGE>
[LOGO]
BARBEQUES GALORE LIMITED
To Our Shareholders:
For Barbeques Galore, fiscal 1999 was a year of strong operational and
financial performance. In our first full year as a Nasdaq-listed company, we
opened ten new stores in the U.S., continued our successful store refurbishment
program in Australia, upgraded our manufacturing operations and achieved record
sales and earnings for the year. Overall, fiscal 1999 was a year of significant
accomplishments.
Retail Concept Remains Unique and Attractive to Customers
- ---------------------------------------------------------
As the only full-line specialty retail chain of barbecue and barbecue
accessory stores in Australia and the U.S., Barbeques Galore offers customers
one-stop shopping for all their grilling needs. We offer a comprehensive
selection of gas, charcoal and electric grills, including our own proprietary
line of high-end barbecues, as well as a broad array of grilling accessories,
books, sauces and fireside products. We have created a store environment that
is exciting and friendly, and we have established store locations in easily
accessible sites. We also place a significant emphasis on providing superior
customer service, achieved through extensive employee training, competitive
pricing, and delivery and assembly services.
U.S. New Store Rollout Plan on Track
- ------------------------------------
As we stated in our letter to shareholders one year ago, our goal for new
U.S. store openings in fiscal 1999 was to enter selected new markets while also
strengthening our presence in existing geographic areas to increase market share
and operating leverage. We are pleased to report that we were successful on
both fronts. During fiscal 1999, we opened a total of ten new Company-owned
stores in the U.S. New store openings in existing markets included San Antonio
and Austin, Texas and Roseville, California, while in new markets, we opened
stores in Greensboro and Cary, North Carolina; Sterling, Fairfax, Fredericksburg
and Springfield, Virginia; and White Marsh, Maryland. We also closed one
California store during the fiscal year.
We believe the markets in which we now operate hold important growth
opportunities for Barbeques Galore, and in fiscal 2000, we intend to focus our
resources on further penetrating these areas. We currently plan to open up to
16 new stores in fiscal 2000, including 12 new Company-owned stores and four new
franchise stores. In the first quarter of the current fiscal year, we opened
five Company-owned stores - in Towson and Columbia, Maryland, Chandler, Arizona,
and two in Charlotte, North Carolina - as well as one franchise store in Tampa,
Florida. As we continue to expand our U.S. store base, we expect the resulting
revenue growth to increase operating leverage.
Positive Results from Australia Refurbishment Program
- -----------------------------------------------------
Our store refurbishment program in Australia continued on plan in fiscal
1999. During the year, we opened one new store, upgraded another and relocated
two more. Since we began the refurbishment program in 1994, we have upgraded a
total of eight stores, relocated ten, closed four and opened six new stores.
The results from this program have been impressive: All but one of the relocated
and upgraded stores achieved double digit sales growth in the year following
refurbishment. During fiscal 2000, we expect to complete the refurbishment
program with two new store openings, one upgrade and three relocations.
<PAGE>
Manufacturing and Distribution Upgrades will Support Continued Growth
- ---------------------------------------------------------------------
Another highlight of fiscal 1999 was the progress we made in improving our
manufacturing, distribution and computer systems. We completed the
consolidation of our manufacturing and enameling plant in Sydney, where we
produce our proprietary barbecues, including the addition of a new powder
coating line. Already, greater operating efficiencies resulting from this
consolidation are evident, and this improvement should continue in the coming
quarters. Also during the year we began to make important changes in our
warehouse and distribution operations in Australia that should improve
distribution management and efficiencies, and we anticipate the completion of
this project in the current fiscal year. Finally, we are upgrading our
Australian computer system to become Year 2000 compliant and to enhance the
capabilities of our management information system. These improvements to our
infrastructure and systems will enable us to handle the increased manufacturing,
warehousing and distribution requirements we will experience as we expand our
business in the coming years.
Operating in a Mixed Economic Climate
- -------------------------------------
During fiscal 1999, our U.S. operations benefited from the health of the
economy in the U.S., where consumer confidence was high and retail spending was
strong. In Australia, the currency was affected by the Asian economic crisis,
which increased the cost of imported raw materials and components used to
manufacture our proprietary grills. This economic environment also had an
impact on consumer confidence in Australia, particularly during the first half
of the year. The Australian economy, however, proved to be resilient, and in
the latter half of the year the economic situation improved significantly.
Record Sales and Earnings
- -------------------------
Our financial performance in fiscal 1999 was strong and provides a solid
foundation on which to build in the current year and beyond. For the fiscal
year ended January 31, 1999, net sales increased 25% to a record A$225.0 million
from A$179.3 million one year ago. Net sales in the U.S. were US$59.2 million
(A$95.0 million), a 31% increase over U.S. sales of US$45.2 million (A$61.7
million) in fiscal 1998. In Australia, net sales for the year grew 11% to
A$130.0 million from A$117.6 million in the prior fiscal year. Comparable store
sales growth in both the U.S. and Australia was strong, with comparable store
sales increasing 10.9% in the U.S. and 8.8% in Australia on a year to year
basis. Operating income increased 24% for the year to A$9.7 million compared to
pro forma operating income of A$7.8 million one year ago. Net income also grew
significantly to A$5.2 million, or A$1.15 per share, from pro forma net income
of A$4.6 million, or A$1.02 per share, in fiscal 1998.
Favorable Outlook for Fiscal 2000 and Beyond
- --------------------------------------------
We entered fiscal 2000 with positive momentum, strong opportunities for
growth, and a stable economic environment in both Australia and the U.S. This
week, we will be launching an eCommerce website that will allow us to sell an
array of products online in the U.S. We believe the opportunities for
incremental revenue, increased store traffic and greater name recognition for
Barbeques Galore from this initiative should be substantial. We also plan to
continue with the strategic execution of our U.S. new store rollout plan and
Australian store refurbishment plan.
As always, we appreciate the loyalty and dedication of our employees,
vendors, bankers and customers. Above all, we thank you, our shareholders, for
your continued support of Barbeques Galore.
Sincerely,
<TABLE>
<CAPTION>
<S> <C> <C>
/s/ SAM LINZ /s/ ROBERT GAVSHON /s/ SYDNEY SELATI
Sam Linz Robert Gavshon Sydney Selati
Chairman of the Board Executive Deputy Chairman President, Barbeques Galore USA
</TABLE>
May 13, 1999
