<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
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 October 31, 2000
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
--------------
[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 _____
-----
_____________________
[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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________________________________________________________________________________
________________________________________________________________________________
<PAGE>
FORM 6-K
For the Quarter Ended October 31, 2000
INDEX
<TABLE>
<CAPTION>
PART 1. FINANCIAL INFORMATION Page No.
--------
<S> <C> <C>
ITEM 1. Condensed Consolidated Balance Sheets as of October 31, 2000 (unaudited)
and January 31, 2000 3
Condensed Consolidated Statements of Operations for the Three and Nine
Months Ended October 31, 2000 and 1999 (unaudited) 4
Condensed Consolidated Statements of Cash Flows for the Nine Months Ended
October 31, 2000 and 1999 (unaudited) 5
Notes to Condensed Consolidated Financial Statements (unaudited) 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 19
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 20
ITEM 2. Changes in Securities and Use of Proceeds 20
ITEM 3. Default Upon Senior Securities 20
ITEM 4. Submission of Matters to a Vote of Security Holders 20
ITEM 5. Other Information 20
ITEM 6. Exhibits and Current Reports on Form 6-K 20
Signatures 21
</TABLE>
2
<PAGE>
PART I FINANCIAL INFORMATION
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
ITEM 1. Financial Statements.
<TABLE>
<CAPTION>
January 31, October 31,
In A$ thousands, except share data 2000 2000
---- ----
(Unaudited)
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 33 $ 34
Accounts receivable, net of allowance of $437 at
October 31, 2000 and $463 at January 31, 2000 14,792 17,443
Receivables from affiliates - 5
Inventories (note 2) 54,022 78,607
Deferred income taxes 2,368 3,073
Prepaid expenses and other current assets 1,039 2,775
-------- --------
Total current assets 72,254 101,937
Non-current assets:
Receivables from affiliates 748 1,798
Property, plant and equipment, net of accumulated depreciation of
$27,975 at October 31, 2000 and $24,701 at January 31, 2000 34,970 41,159
Goodwill, net of accumulated amortization of $538 at October 31, 2000
and $473 at January 31, 2000 1,327 1,262
Deferred income taxes 1,646 1,779
Other non-current assets 1,934 1,669
-------- --------
Total assets $112,879 $149,604
======== ========
Liabilities and shareholders' equity
Current liabilities:
Bank overdraft $ - $ 5,078
Accounts payable and accrued liabilities 26,014 24,605
Payables to related parties 700 489
Payables to affiliates 47 -
Current maturities of long-term debt 22 28
Current portion of obligations under capital leases 2,405 2,108
Income taxes payable 1,856 -
-------- --------
Total current liabilities 31,044 32,308
Non-current liabilities:
Long-term debt 20,692 45,009
Obligations under capital leases, excluding current portion 5,237 7,125
Other long-term liabilities 983 1,436
-------- --------
Total liabilities 57,956 85,878
-------- --------
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 1,105 7,961
Retained earnings 13,085 15,032
-------- --------
Total shareholders' equity 54,923 63,726
-------- --------
Total liabilities and shareholders' equity $112,879 $149,604
======== ========
</TABLE>
See accompanying notes to the condensed Consolidated Financial Statements
3
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
October 31, October 31, October 31, October 31,
1999 2000 1999 2000
---- ---- ---- ----
(Unaudited)
<S> <C> <C> <C> <C>
In A$ thousands, except share and per share data
Net sales $ 63,684 $ 73,391 $ 171,266 $ 206,707
Cost of goods sold, warehouse, distribution and
occupancy costs 42,845 49,002 115,902 138,356
-------- -------- --------- ---------
Gross margin 20,839 24,389 55,364 68,351
Selling, general and administrative expenses 18,599 22,523 51,402 62,671
Store pre-opening costs 42 142 638 603
-------- -------- --------- ---------
Operating income 2,198 1,724 3,324 5,077
Equity in income of affiliates, net of tax 70 72 235 54
Interest expense 626 885 1,713 2,122
-------- -------- --------- ---------
Income before income tax 1,642 911 1,846 3,009
Income tax expense 537 324 736 1,062
-------- -------- --------- ---------
Net income 1,105 587 1,110 1,947
Other comprehensive income (loss) 318 4,002 (554) 6,856
-------- -------- --------- ---------
Net income after other comprehensive income (loss) $ 1,423 $ 4,589 $ 556 $ 8,803
======== ======== ========= =========
Basic earnings per share $ 0.24 $ 0.13 $ 0.24 $ 0.43
======== ======== ========= =========
Diluted earnings per share $ 0.24 $ 0.13 $ 0.24 $ 0.41
======== ======== ========= =========
Weighted average shares outstanding (in thousands)
- Basic 4,542 4,542 4,542 4,542
======== ======== ========= =========
- Diluted 4,629 4,686 4,641 4,718
======== ======== ========= =========
</TABLE>
Goods and Services Tax
A goods and services tax was introduced in Australia from July 1, 2000. To make
proper comparisons for reporting purposes, the wholesale sales tax on Australian
sales has been removed from all reported sales prior to this date. This has
resulted in "Net Sales" and "Cost of goods sold, warehouse, distribution and
occupancy costs" being reduced by A$1,474,000 for the three months ended October
31, 1999 and by A$3,254,000 for the nine months ended October 31, 1999. Goods
and services tax is not included in reported sales figures since July 1, 2000.
See accompanying notes to the condensed Consolidated Financial Statements
4
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Nine Months
Ended Ended
October 31, October 31,
1999 2000
---- ----
(Unaudited)
<S> <C> <C>
In A$ thousands
Cash flows from operating activities:
Net income $ 1,110 $ 1,947
Non-cash charges, net 2,630 3,183
Changes in operating assets and liabilities:
Receivables and prepaid expenses (7,071) (4,132)
Inventories (13,640) (24,701)
Other assets 3 (134)
Accounts payable and accrued liabilities 10,445 2,684
-------- --------
Net cash (used in) operating activities (6,523) (21,153)
-------- --------
Cash flows from investing activities:
Proceeds from sale of property, plant and equipment 41 512
Capital expenditures (4,865) (5,999)
Loan repayments received (paid) 286 (1,055)
-------- --------
Net cash (used in) investing activities (4,538) (6,542)
-------- --------
Cash flows from financing activities:
Repayment of long-term debt (4,388) -
Proceeds from long-term debt 11,940 24,323
Bank overdraft proceeds 4,473 5,078
Principal payments under capital leases (1,743) (1,705)
-------- --------
Net cash provided by financing activities 10,282 27,696
-------- --------
Net (decrease) increase in cash and cash equivalents (779) 1
Cash and cash equivalents at beginning of period 811 33
-------- --------
Cash and cash equivalents at end of period $ 32 $ 34
======== ========
Supplemental disclosure of cash flow information:
Income taxes paid $ 3,527 $ 1,633
======== ========
Interest paid $ 2,033 $ 3,088
======== ========
</TABLE>
See accompanying notes to the condensed Consolidated Financial Statements
5
<PAGE>
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, 2000, filed by Barbeques Galore
Limited (the "Company") with the Securities and Exchange Commission (the
"Commission") on May 1, 2000. The unaudited condensed consolidated financial
statements as of October 31, 2000 and for the three and nine months ended
October 31, 2000 and 1999 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, October 31,
2000 2000
------- -------
(Unaudited)
<S> <C> <C>
In A$ thousands
Finished goods $50,018 $74,790
Work in progress 1,425 1,129
Raw materials 2,997 3,222
------- -------
54,440 79,141
Less: Reserve for obsolescence (418) (534)
------- -------
$54,022 $78,607
======= =======
</TABLE>
3 Earnings per share
Basic earnings per share are computed by dividing net income available to
ordinary shareholders by the weighted average number of ordinary shares. Diluted
earnings per share are computed by dividing net income 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.
4 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, as amended, is effective
for the Company's fiscal year commencing February 1, 2001. 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
6
<PAGE>
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.
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.
5 Segments and Related Information
The Company is engaged in the retail industry and operated 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 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
--------- ------------- -----
(in A$ thousands)
<S> <C> <C> <C>
3 months to October 31, 2000
Revenues from external customers $37,441 $35,950 $ 73,391
------- ------- --------
Gross margin $13,922 $10,467 $ 24,389
------- ------- --------
Operating income (loss) $ 3,775 $(2,051) $ 1,724
------- ------- --------
Total assets $86,046 $63,558 $149,604
------- ------- --------
3 months to October 31, 1999
Revenues from external customers $37,555 $26,129 $ 63,684
------- ------- --------
Gross margin $13,121 $ 7,718 $ 20,839
------- ------- --------
Operating income (loss) $ 3,394 $(1,196) $ 2,198
------- ------- --------
Total assets $79,965 $43,943 $123,908
------- ------- --------
<CAPTION>
Australia United States Total
--------- ------------- -----
(in A$ thousands)
<S> <C> <C> <C>
9 months to October 31, 2000
Revenues from external customers $83,777 $122,930 $206,707
------- -------- --------
Gross margin $28,896 $ 39,455 $ 68,351
------- -------- --------
Operating income $ 2,566 $ 2,511 $ 5,077
------- -------- --------
Total assets $86,046 $ 63,558 $149,604
------- -------- --------
9 months to October 31, 1999
Revenues from external customers $78,159 $ 93,107 $171,266
------- -------- --------
Gross margin $25,644 $ 29,720 $ 55,364
------- -------- --------
Operating income $ 1,277 $ 2,047 $ 3,324
------- -------- --------
Total assets $79,965 $ 43,943 $123,908
------- -------- --------
</TABLE>
6 Goods and Services Tax
A goods and services tax was introduced in Australia from July 1, 2000. To make
proper comparisons for reporting purposes, the wholesale sales tax on Australian
sales has been removed from all reported sales prior to this date. This has
resulted in "Net Sales" and "Cost of goods sold, warehouse, distribution and
occupancy costs" being reduced by A$1,474,000 for the three months ended October
31, 1999 and by A$3,254,000 for the nine months ended October 31, 1999. Goods
and services tax is not included in reported sales figures since July 1, 2000.
7
<PAGE>
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, 2000, filed with the Commission on May 1,
2000. 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. Unless the context requires
otherwise, references to "Barbeques Galore," "we," "our," "us" and similar terms
refer to Barbeques Galore Limited and its consolidated subsidiaries.
Overview
We believe that we are 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. We base this belief on our years of experience in the
barbecue retail industry as well as our contacts with other industry retailers,
suppliers and trade associations. We opened our first store in Sydney, Australia
in 1977 and opened our 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 October 31, 2000, we
owned and operated 35 stores in all six states in Australia and 62 stores
(including three U.S. Navy concession stores) in ten states in the United
States. In addition, as of such date, there were 49 licensed stores in Australia
and 11 franchised stores in the United States, all of which operate under the
"Barbeques Galore" name.
We derive our 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 nine months ended October 31, 2000, these categories
represented 26.2%, 59.5%, 5.9% and 8.4% respectively, of our net sales for such
period, representing a 6.2%, 32.0%, 2.9% and 14.1% increase over their
respective net sales levels for the nine months ended October 31, 1999.
We believe the majority of our future growth will result from the continuing
expansion of our U.S. retail business, primarily through the opening of new
stores, and the refurbishment of our Australian store base. Through our
vertically integrated operations, we manufacture a proprietary line of barbecues
and home heaters for our retail stores and licensees as well as other barbecue
and home heater products for our wholesale customers.
Results of Operations
The following table sets forth our unaudited consolidated operating results as a
percentage of net sales for the three and nine months ended October 31, 2000 and
1999. Given the degree of seasonality to which our business is subject, our
quarterly results and comparisons of such quarterly results to prior years'
quarters are not necessarily indicative of future results.
8
<PAGE>
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Three Three Nine Nine
Months Months Months Months
Ended Ended Ended Ended
October 31, October 31, October 31, October 31,
1999 2000 1999 2000
----- ----- ----- -----
(Unaudited)
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of goods sold, warehouse, distribution and
occupancy costs 67.3 66.8 67.7 66.9
----- ----- ----- -----
Gross margin 32.7 33.2 32.3 33.1
Selling, general and administrative expenses 29.2 30.7 30.0 30.3
Store pre-opening costs 0.1 0.2 0.4 0.3
----- ----- ----- -----
Operating income 3.4 2.3 1.9 2.5
Equity in income of affiliates, net of tax 0.1 0.1 0.1 0.0
Interest expense 1.0 1.2 1.0 1.0
----- ----- ----- -----
Income before income tax 2.5 1.2 1.0 1.5
Income tax expense 0.8 0.4 0.4 0.5
----- ----- ----- -----
Net income 1.7% 0.8% 0.6% 1.0%
===== ===== ===== =====
</TABLE>
There has been no material impact of inflation and changing prices on our net
sales and operating income for the three and nine months ended October 31, 1998
through 2000, respectively.
Three Months Ended October 31, 2000 (Unaudited) Compared to Three Months Ended
October 31, 1999 (Unaudited)
Net sales increased by approximately A$9.7 million, or 15.2%, to A$73.4 million
for the three months ended October 31, 2000 from A$63.7 million for the three
months ended October 31, 1999. Three new stores were opened in the United States
during the three months ended October 31, 2000. In Australia no stores were
either refurbished or relocated during this period. Comparable group store sales
increased 9.8% for the three months ended October 31, 2000 as compared to the
three months ended October 31, 1999 and contributed A$4.4 million to the
increase in net sales. Comparable store sales increased 6.7% in the United
States and decreased 5.3% in Australia. Increased sales of A$4.8 million 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 a A$0.4 million
increase in Australian wholesale and a A$0.1 million increase in sales to
Australian licensees.
Gross margin increased approximately A$3.6 million, or 17.3% to A$24.4 million
for the three months ended October 31, 2000 from A$20.8 million for the three
months ended October 31, 1999. Gross margin percentage increased to 33.2% during
the three months ended October 31, 2000 from 32.7% during the comparable period
in 1999. The increase in gross margin percentage was mainly attributable to a
decrease in the cost of imported product into the U.S.A. resulting from a
favourable exchange rate for the U.S.A. operation, partially offset by changes
in product mix and, the timing of supplier rebates.
Selling, general and administrative expenses (which exclude store pre-opening
expenses) increased approximately A$3.9 million, or 21.0%, to A$22.5 million for
the three months ended October 31, 2000 from A$18.6 million for the three months
ended October 31, 1999. As a percentage of net sales, selling, general and
administrative expenses increased to 30.7% during the three months ended October
31, 2000 from 29.2% during the comparable period in 1999. This percentage
increase was primarily due to lower leverage off the overall sales base.
Store pre-opening expenses increased by A$100,000 to A$142,000 for the three
months ended October 31, 2000 from A$42,000 for the three months ended October
31, 1999, due to the number and timing of United States' store openings.
Operating income decreased by A$0.5 million to A$1.7 million for the three
months ended October 31, 2000 from A$2.2 million for the three months ended
October 31, 1999.
9
<PAGE>
Income from affiliates increased by A$2,000 to A$72,000 for the three months
ended October 31, 2000 from A$70,000 for the three months ended October 31,
1999.
Interest expense increased by A$0.3 million to A$0.9 million for the three
months ended October 31, 2000 from A$0.6 million for the three months ended
October 31, 1999, due to a higher usage of seasonal borrowings.
Our effective tax rate was 35.6% in the three months ended October 31, 2000 and
32.7% during the comparable period as a result of using a linear rate for the
fiscal year ending January 2001 and the decrease in the Australian tax rate for
this year from 36% to 34%.
Nine Months Ended October 31, 2000 (Unaudited) Compared to Nine Months Ended
October 31, 1999 (Unaudited)
Net sales increased by approximately A$35.5 million, or 20.7%, to A$206.7
million for the nine months ended October 31, 2000 from A$171.2 million for the
nine months ended October 31, 1999. Eight new stores were opened in the United
States during the nine months ended October 31, 2000. In Australia two stores
were refurbished and one store relocated during this period. Comparable group
store sales increased 13.1% for the nine months ended October 31, 2000 as
compared to the nine months ended October 31, 1999 and contributed A$17.2
million to the increase in net sales. Comparable store sales increased 7.0% in
the United States and 2.7% in Australia. Increased sales of A$15.8 million 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 a A$2.2 million
increase in Australian wholesale and a A$0.3 million increase in sales to
Australian licensees.
Gross margin increased approximately A$13.0 million, or 23.5% to A$68.4 million
for the nine months ended October 31, 2000 from A$55.4 million for the nine
months ended October 31, 1999. Gross margin percentage increased to 33.1% during
the nine months ended October 31, 2000 from 32.3% during the comparable period
in 1999. The increase in gross margin percentage was mainly attributable to a
decrease in the cost of imported product into the U.S.A. resulting from a
favourable exchange rate for the U.S.A. operation, partially offset by changes
in product mix and, the timing of supplier rebates.
Selling, general and administrative expenses (which exclude store pre-opening
expenses) increased approximately A$11.3 million, or 22.0%, to A$62.7 million
for the nine months ended October 31, 2000 from A$51.4 million for the nine
months ended October 31, 1999. As a percentage of net sales, selling, general
and administrative expenses increased to 30.3% during the nine months ended
October 31, 2000 from 30.0% during the comparable period in 1999. This
percentage increase was primarily due to lower leverage off the overall sales
base, increased advertising expenditure in the U.S.A. and Australian retail and
increased U.S.A. staffing in the executive, Research and Development, purchasing
and accounting departments.
Store pre-opening expenses decreased by A$35,000 to A$603,000 for the nine
months ended October 31, 2000 from A$638,000 for the nine months ended October
31, 1999, due to the number and timing of United States' store openings.
Operating income increased by A$1.8 million to A$5.1 million for the nine months
ended October 31, 2000 from A$3.3 million for the nine months ended October 31,
1999.
Income from affiliates decreased by A$181,000 to A$54,000 for the nine months
ended October 31, 2000 from A$235,000 for the nine months ended October 31, 1999
due to timing differences.
Interest expense increased by A$0.4 million to A$2.1 million for the nine months
ended October 31, 2000 from A$1.7 million for the nine months ended October 31,
1999 due to a higher usage of seasonal borrowings in the third quarter.
Our effective tax rate was 35.3% in the nine months ended October 31, 2000 and
39.9% during the comparable period as a result of using a linear rate for the
fiscal year ending January 2001 and the decrease in the Australian tax rate for
this year from 36% to 34%.
10
<PAGE>
Liquidity and Capital Resources
We have historically financed our operations through cash flow from operations
and bank borrowings. In November 1997, we completed our initial public offering
("IPO"), raising net proceeds of approximately US$13.8 million (approximately
A$19.7 million). We used a portion of these funds 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"). We used the remaining approximately US$3.6 million (approximately
A$5.1 million) 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.
We have used cash flows from operations in the nine months ended October 31,
2000 and 1999 of A$21.2 million and A$6.5 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 nine months ended October 31,
2000 and 1999 were A$6.5 million and A$4.5 million respectively. The cash flows
used in investing activities for the current nine months have resulted primarily
from capital expenditures related to new store openings in the United States; in
Australia, the capital expenditures relate to the refurbishment and relocation
of three stores, replacement of existing hardware and software and the
acquisition of manufacturing equipment. In the corresponding nine months for the
previous year, cash flows used in investing activities resulted primarily from
capital expenditures related to new store openings in the United States and the
relocation of three stores and the opening of two new stores in Australia. We
anticipate that we will continue to incur significant capital commitments in
connection with further expansion. We cannot predict with precision the actual
costs that we will incur in connection with the opening and refurbishment of
future stores 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).
At October 31, 2000 we had working capital of A$69.6 million and maintained
minimal amounts in cash and cash equivalents, relying instead on undrawn
facilities under our borrowing arrangements with ANZ and Merrill Lynch.
In June 1998, we entered into a credit facility with ANZ (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, we have access to facilities
up to A$49.6 million comprising a multi-option facility in principal amount of
A$35.1 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 our present and future Australian
assets and a second security interest (subordinate to a lien under the Merrill
Lynch Facility as defined in the paragraph below) in all our assets in the
United States. The ANZ Facility is further guaranteed by each of our
subsidiaries, 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 7.5% per annum and are secured by registered first
mortgages over our respective freehold properties.
In February 1995, Barbeques Galore Inc., our U.S. operating subsidiary, entered
into a five year credit facility with Merrill Lynch which has been amended from
time to time (the "Merrill Lynch Facility"). As of October 31, 2000, the
Merrill Lynch Facility comprises a revolving line of credit in aggregate
principal amount of US$1.0 million. Indebtedness under the revolving line of
credit accrues interest at the 30-day commercial paper rate plus 2.70% and is
payable monthly. The Merrill Lynch Facility is secured by a first security
interest in all Galore U.S.A. present and future assets and is guaranteed by
Barbeques Galore and The Galore Group (USA), Inc., the parent of Barbeques
Galore, Inc.
We believe the ANZ and Merrill Lynch Facilities are sufficient to meet our
presently anticipated working capital and capital expenditure requirements for
at least the next twelve months.
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Risk Factors
The following are certain factors that should be considered in evaluating our
business, financial conditions and results of operations. However, these
factors should not be considered to be exclusive, and you are urged to consider
the statements made elsewhere herein and in our other publicly filed documents.
Implementation of Growth Strategy
Our growth is dependent, in large part, upon our ability to successfully execute
our Company-owned store expansion program in the United States and our store
refurbishment plan in Australia. Pursuant to our U.S. store expansion program,
we opened 12 new stores (including four franchise stores) in fiscal 2000. We
intend to open approximately 10 new stores in fiscal 2001. As of November 30,
2000, nine Company-owned stores had been opened pursuant to this store expansion
program. We also currently intend to open between eight and fifteen new stores
in fiscal 2002. We incurred capital expenditures relating to this program in
the United States of approximately US$1.6 million in fiscal 2000 and expect to
incur approximately US$2.5 million in fiscal 2001 (US$1.8 million of which had
been incurred as of November 30, 2000) and between US$2.2 million and US$4.1
million in fiscal 2002. Pursuant to our Australian store refurbishment program,
we refurbished one store, relocated three stores and opened two new stores in
fiscal 2000. As of October 31, 2000, we have also completed the refurbishment of
two stores and the relocation of one store as per the fiscal 2001 plan and
pursuant to this store refurbishment program. We incurred capital expenditures
relating to this program in Australia of approximately A$1.8 million in fiscal
2000 and approximately A$0.9 million in fiscal 2001. The proposed expansion is
substantially more rapid than our historical growth. The success of these store
expansion and refurbishment efforts will be dependent upon, among other things,
our 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, we must be able to
hire, train and retain competent managers and personnel and manage the systems
and operational components of its growth. We cannot assure you that we will be
able to locate suitable store sites or enter into suitable lease agreements. In
addition, we cannot assure you that, as we open 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. Our failure to open new stores or relocate
or remodel existing stores on a timely basis, obtain acceptance in markets in
which we currently have limited or no presence, attract qualified management and
personnel or appropriately adjust operational systems and procedures, would
adversely affect our future operating results.
The success of our growth strategy may also depend upon factors beyond its
immediate control. We have retained outside real estate consultants to assist
in site selection and lease negotiations, and we may depend, to an increasing
extent, on the services of such consultants and other real estate experts as we
accelerate 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
our new store expansion. Similarly, changes in national, regional or local real
estate and market conditions could limit our ability to expand into target
markets or sites.
As part of our growth strategy, we intend to open stores in new markets where we
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 our store networks in
existing markets. Expansion into new markets may present operating and
marketing challenges that are different from those we have encountered in the
past in our existing markets. As a result of our expansion program and our
entry into new markets, primarily in the United States, and our refurbishment
program in Australia, we have experienced, and we expect to continue to
experience, an increase in store pre-opening costs and refurbishment-related
expenses. We cannot assure you that we will anticipate all of the challenges
and changing demands that our expansion will impose on our management or
operations and our failure to adapt to these challenges and demands, would
adversely affect our implementation of our growth strategy.
If we determined to, or were required to, close a Barbeques Galore store, we
would attempt to sublet the vacated store space in order to cover ongoing lease
costs. Even if we were able to sublet a closed store, we may incur significant
costs in writing off leasehold improvements.
In addition, our proposed expansion plans will result in increased demand on our
managerial, operational and administrative resources. As a result of the
foregoing, we cannot assure you that we will be able to successfully implement
our growth strategies, continue to open new stores or maintain or increase its
current growth levels. Our failure to achieve our expansion plan could have a
material adverse effect on our future business, operating results and financial
condition. See " - Management of Operational Changes" and " - Reliance on
Systems."
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Effect of Economic Conditions and Consumer Trends
The success of our 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 our business and results of
operations. These adverse effects may be exacerbated by the significant current
regional concentration of our business in Australia and the Pacific West,
Southwestern and East coast U.S. markets.
Our success depends on our ability to anticipate and respond to changing
merchandise trends and consumer demands in a timely manner. We believe we have
benefited from a lifestyle trend toward consumers spending more quality time
together in outdoor family gatherings and social activities. Any change in this
trend could adversely affect consumer interest in our major product lines.
Moreover, our 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 we misjudge either the market for our merchandise or our customers'
purchasing habits, we may experience a material decline in sales or be required
to sell inventory at reduced margins. We could also suffer a loss of customer
goodwill if our manufacturing operations or stores do not adhere to our quality
control or service procedures or otherwise fail to ensure satisfactory quality
of our products. These outcomes may have a material adverse effect on our
business, operating results and financial condition.
Management of Operational Changes
We have identified a number of areas for improvement in our operations which
will have a significant impact on the implementation of our growth strategy. We
have, in recent years, replaced or upgraded our management information systems
and currently we plan to introduce automated replenishment of store inventory in
Australia in the near term. We completed the relocation of our enameling
operation in fiscal 1999, to the same facilities as our barbecue and home heater
manufacturing operations adjacent to our Australian headquarters, with the in-
line powder coating operation commencing mid-November 1998. In addition, we
rearranged our assembly, warehouse and Australian distribution operations to
further improve our production flow, inventory control and distribution
management. As a result of our relocating our enameling operations and related
changes, we incurred approximately A$454,000 in costs, required additional
capital expenditures of approximately A$2.8 million and we obtained a number of
building, environmental and other governmental permits. In addition, as we
expand into new regions or accelerate the rate of our U.S. store expansion, we
may need additional warehouse capacity. In order to meet these needs, we leased
a 27,000 square foot distribution center in Charlotte, North Carolina in
February 2000 for a period of five years, with a renewal option for a further
five years. We may in the future, need to secure further distribution centers,
expand our current warehouse facilities in the United States or utilize public
warehousing space, in each case depending on availability and cost at such time.
We cannot assure you as to whether or when we will be able to effect our systems
upgrades, any expansion or replacement of distribution facilities, or any other
necessary operational changes that may arise, or that we will not incur cost
overruns or disruptions in our operations in connection therewith. Our failure
to effect these and any other necessary operational changes on a timely basis
would adversely affect our ability to implement our growth strategy and,
therefore, our business, financial condition and operating results.
Competition
The retail and distribution markets for barbecues and our other product
offerings are highly competitive in both the United States and Australia. Our
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, web sites and mail order companies. Our manufacturing and
wholesale operations compete with many other manufacturers and distributors
throughout the world, including high-volume manufacturers of barbecues and home
heaters. We compete for retail customers primarily based on our broad
assortment of competitively priced, quality products (including proprietary and
exclusive products), convenience, customer service and the attractive
presentation of merchandise within our stores. Many of our competitors have
greater financial, marketing, distribution and other resources than we do, and
particularly in the United States, may have greater name recognition than us.
Furthermore, the lack of significant barriers to entry into our segment of the
retail industry may also result in new competition in the future.
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Seasonality; Weather; Fluctuations in Results
Our business is subject to substantial seasonal variations which have caused,
and are expected to continue to cause, our quarterly results of operations to
fluctuate significantly. Historically, we have realized a major portion of our
net sales and a substantial portion of our 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 our peak
selling seasons (late spring and early summer), we substantially increase our
inventory levels and hire 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, we regularly experience monthly losses.
These seasonal trends result in us experiencing a loss in our first fiscal
quarter. We believe this is the general pattern associated with our segment of
the retail industry and expects this pattern will continue in the future.
Partially offsetting the effects of seasonality, we operate in both the Southern
and Northern hemispheres, which have opposite seasons, and we offer fireplace
products and (in Australia) home heaters in the fall and winter months.
However, sales of any of our 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. Our 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. We have in the past experienced quarterly
losses, particularly in our fiscal first quarter, and we expect to 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 we may achieve for a full fiscal year or any future quarter. If
for any reason our sales or gross margins during peak seasons or periods were
substantially below expectations, our quarterly and annual results would be
adversely affected.
Reliance on Systems
In the United States, we have installed a JDA Software Group Inc. ("JDA") system
on an IBM AS400 platform, which allows us to manage distribution, inventory
control, purchasing, sales analysis, warehousing and financial applications. At
the store level, we have installed Point of Sale ("POS") computer terminals as
our 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.
In Australia, we have installed a SUN Systems Ultra 60 running a UNIX
environment and a Microsoft NT Server for all our desktop applications with the
Microsoft suite of software.
Our 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. We rely upon our existing management information systems in
operating and monitoring all major aspects of our business, including sales,
gross margins, warehousing, distribution, purchasing, inventory control,
financial accounting and human resources. Any disruption in the operation of
our management information systems, or our failure to continue to upgrade,
integrate or expend capital on such systems as our business expands, could have
a material adverse effect upon our business, operating results and financial
condition.
As the head office system was not able to handle dates beyond January 1, 2000 we
decided to replace our existing hardware and software rather than rework the
existing software to be Year 2000 compatible. We appointed Berger Software, an
Australian software house specializing in distribution and warehousing
management software, to supply the main business application software. The new
system handles financial accounting functions and we have integrated an
Executive Information system to provide additional interrogation capabilities.
The replacement core IT system was commissioned on August 1, 1999.
The new POS system which was successfully installed in all company-owned stores
during May and June, 2000 runs a Windows NT network with IBM Pentium PCs acting
as POS registers. The store checkout registers are networked to an In-Store
Processor ("ISP") which is located in the back office of each store. This makes
consolidated data of each store's activity readily available on the ISP which is
polled daily to transfer the captured store data back to head office for
integration into the head office system. SVI Systems, a U.S. based software
company specializing in retail solution software supplied the POS application
software.
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Dependence on Key Employees
Our success is largely dependent on the efforts and abilities of our 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., our U.S.
operating subsidiary, and Director of Barbeques Galore. These individuals have
an average of 17 years of experience with us and have chief responsibility for
the development of our current business and growth strategies. During the
twelve months ended January 31, 2000, we announced the promotion of two senior
executives, Benjamin A. Ramsey, Jr and Peter Spring. Benjamin A. Ramsey, Jr.
was promoted to the newly created position of Executive Vice President of
Barbeques Galore, Inc and assumed responsibility for store operations, human
resources, training and development, new store development and barbecue sales to
real estate developers and contractors. Peter Spring was promoted to the newly
created position of Chief Operating Officer - Australia and assumed
responsibility for the day-to-day operations. We do not have employment
contracts with any of our executive officers. The loss of the services of these
individuals or other key employees could have a material adverse effect on our
business, operating results and financial condition. Our success is also
dependent upon our ability to continue to attract and retain qualified employees
to meet our needs for our new store expansion program in the United States and
our 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 its business, operating results and financial condition.
We purchase certain of our finished inventory and manufacturing parts and all of
our raw materials from numerous vendors and suppliers and generally have no
long-term purchase contracts with any vendor or supplier. During the nine
months ended October 31, 2000, we purchased inventory from over 500 vendors in
the United States, Australia and Asia. In such period, we obtained
approximately 25% of our merchandise purchases from our ten largest vendors.
Although no vendor accounted for more than 5% of our merchandise purchases in
such period, we consider certain barbecue brands to be significant to our
business, especially in the United States. During the twelve months ended
January 31, 2000 and the nine months ended October 31, 2000, we 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, 2000,
other than Sheet Metal Supplies Pty Ltd ("SMS"), a steel distributor and Bromic
Pty Ltd ("Bromic"), an Australian gas components importer, which accounted for
approximately 18% and 11% of these purchases, respectively. We obtained
approximately 64% of our factory parts and raw material purchases in such
twelve-month period from our ten largest suppliers. During the nine months
ended October 31, 2000, SMS, Bromic and Sandvik Australia Pty Ltd ("Sandvik"), a
stainless steel distributor, supplied us with approximately 15%, 10% and 8%
respectively of our factory parts and raw material purchases and we obtained
approximately 70% of our factory parts and raw material purchases from our ten
largest suppliers. Our 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 our key suppliers
currently provide us with certain purchasing incentives, such as volume and
trade discounts. A reduction or discontinuance of these incentives could have
an adverse effect on our business. Although we believe that our relationships
with our vendors and suppliers are good, any vendor or supplier could
discontinue selling to us at any time.
Product Liability and Governmental and Other Regulation
Many of our 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, our products and
the personal use of our products 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
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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 our 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 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 one of our products. 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 our control, our business, operating results and
financial condition could be materially adversely affected. In the event of such
an occurrence, we could incur substantial litigation expense, receive adverse
publicity, suffer a loss of sales or all or any of the foregoing. Although we
maintain liability insurance in both Australia and the United States, we cannot
assure you that such insurance will provide sufficient coverage in any
particular case. In Australia, the limit of our product liability coverage is
A$100 million for any one claim and in the aggregate. In the United States, our
U.S. operating subsidiary is covered by a policy having general liability
coverage limited at US$25 million. There is no assurance that certain
jurisdictions in which we operate will not impose additional restrictions on the
sale or use of our products.
In addition, our 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. Our distribution facilities are also subject to workplace
safety and labor relations regulations. We believe that we are in substantial
compliance with such regulations. Our sale of certain products may result in
technical violations of certain of our leases which prohibit the sale of
flammable materials in or on the leased premises. As a barbecue and barbecue
accessories store, we sell lighter fluid, lighters, matches and similar products
which may be considered flammable when in contact with open flame or activated.
We do not store containers of gas for barbecue grills in our stores. We store
matches, lighters and the like in closed containers or in displays where the
chance of activation is remote, and we do not store these items near open
flames. Over our operating history, we have made our landlords aware that we
sell these products. To date, no landlord has terminated or threatened
termination of any lease due to these sales.
The regulations and restrictions mentioned above could have a material adverse
effect on our business, operating results or financial condition.
Uncertainties Regarding Manufacturing and Distribution of Merchandise
We manufacture a substantial portion of the barbecues and home heaters sold in
our stores and we distribute merchandise to Barbeques Galore stores primarily
from our distribution centers located at our headquarters in Australia and
Irvine, California and in Charlotte, North Carolina. Throughout the
manufacturing process, we utilize 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, we rely upon
third-party sea carriers to ship our manufactured products from Australia to the
United States, as well as third-party surface freight carriers to transport all
our merchandise from our distribution centers and warehouses to stores.
Accordingly, we are subject to numerous risks associated with the manufacturing
and distribution of our 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, we believe that, while our
distribution facilities are sufficient to meet Barbeques Galore's current needs,
we 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 October 31, 2000, there were 49 licensed stores in Australia and 11
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 us.
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. We monitor our licensed and franchised stores
to assure their conformity to Barbeques Galore's standards and image and we
require the licensees and franchisees to comply with Barbeques Galore's
merchandising and advertising guidelines. Although we believe that our
licensees and franchisees are presently in substantial compliance with our
guidelines and that our license and franchise arrangements have not been
problematic in any material respect in the past, serious or protracted failures
by licensees or franchisees to
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adhere to our standards could adversely affect customer loyalty and diminish our
brand name or reputation for quality products and services, and could require us
to devote significant management attention and resources to enforcing our rights
under such agreements. Conversely, if we fail to provide adequate support
services or we otherwise breach our 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. The licensing agreements in Australia are terminable at will
(absent fraud) by the licensees only, generally upon sixty days' notice.
Currency Fluctuations
We prepare our consolidated financial statements in Australian dollars, but a
substantial portion of our revenues and expenses are denominated in U.S. dollars
and, to a lesser extent, other foreign currencies. Accordingly, we are 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 we transact
business. This currency imbalance has resulted in, and may continue to result
in, foreign currency transaction gains and losses. Our Australian operations
generally hedge a major portion of our imports against exchange rate
fluctuations with respect to the Australian dollar. However, in our U.S.
operations, we have not, and we currently do not, actively hedge against
exchange rate fluctuations, although we may elect to do so in the future.
Accordingly, changes in exchange rates may have a material adverse effect on our
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 our business,
operating results and financial condition. Such currency issues could affect
the market price for the American Depositary Shares ("ADSs"). Although we do
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 our outstanding shares (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 our shares 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 if 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, we would be considered a foreign person under
the Takeovers Act. In such event, we would be required to obtain the approval
of the Treasurer for us, together with our associates, to acquire (i) more than
15% of an Australian company or business with assets totaling over A$50 million
or (ii) any direct or indirect ownership interest in Australian urban real
estate. In addition, the percentage of foreign ownership of Barbeques Galore
would also be included in determining the foreign ownership of any Australian
company or business in which we may choose to invest. Since we have no current
plans for any such acquisitions and we only own commercial property, any such
approvals that we may be required to obtain as a foreign person under the
Takeovers Act will not affect our current or future ownership or lease of
property in Australia. However, there would be no material tax consequence to
our shareholders (including holders of ADSs) resulting from our 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 our equity
securities would be approximately 65.2%. 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 we were to sell additional Ordinary
Shares or ADSs in the future.
We have additionally provided that all stock options outstanding under our
Executive Share Option Plan at such time as we become subject to a takeover bid
pursuant to which the offeror acquires at least thirty percent (30%) of our
outstanding Ordinary Shares shall become immediately exercisable for a period of
up to 120 days, measured from the date the board of directors notifies the
optionee of the takeover bid. Similarly, we have provided that all stock
options outstanding under our 1997 Share Option Plan at such time as we are
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 375,116 Ordinary Shares underlying stock
options granted under our 1997 Share Option Plan, which, barring acceleration,
will
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become exercisable as to 213,650 in three equal installments on November 9,
2001, November 9, 2002 and October 9, 2003 and as to 161,466 in three equal
installments on January 7, 2003, January 7, 2004 and December 7, 2004 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 our 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 us, including attempts that might
result in a premium over market price to holders of ADSs.
Our Constitution contains certain provisions that could impede any merger,
consolidation, takeover or other business combination involving us or discourage
a potential acquiror from making a tender offer or otherwise attempting to
obtain control of us. Provisions contained in the Constitution, among other
things:
. in effect divide the board of directors into three classes, which
serve for staggered three-year terms;
. 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;
. require extended notice (of up to 28 days) for special resolutions
considered by the board of directors; and
. authorize the board of directors, without any vote or action by our
shareholders, to issue, out of our 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 we currently do not have any 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
shares 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 us.
In certain circumstances, non-residents of Australia may be subject to
Australian tax on capital gains made on the disposal of Ordinary Shares or ADSs.
The rate of Australian tax on capital gains realised by non-residents of
Australia is 34% for companies for the 2001 income year (for most taxpayers, the
year ending June 30, 2001) and 30% thereafter. For individuals, the rate of tax
increases from 29% to a maximum of 47%. However, if the Ordinary Shares or ADSs
are held for 12 months or more, an individual should be entitled to an exemption
of 50% of the otherwise taxable capital gain.
18
<PAGE>
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Market risks relating to our operations result primarily from changes in
interest rates and changes in foreign exchange rates.
Foreign Currency Market Risk
Our functional currency is the Australian dollar although we transact a portion
of our business in foreign currencies and accordingly we have foreign currency
exposure through our sales in the United States and purchases from overseas
suppliers in U.S. dollars.
Our Australian operations generally hedge a major portion of our imports against
exchange rate fluctuations with respect to the Australian dollar. However, in
our U.S. operations, we have not, and we currently do not, actively hedge
against exchange rate fluctuations, although we may elect to do so in the
future. Accordingly, changes in exchange rates may have a material adverse
effect on our 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
our 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
is set out below. The counterparties to the contracts are major financial
institutions and the risk of loss to us in the event of non-performance by a
counterparty, is not significant.
<TABLE>
<CAPTION>
January 31, October 31, January 31, October 31,
2000 2000 2000 2000
----------------------------------------------------------------------------
(Weighted average rate) (in A$ thousands)
<S> <C> <C> <C> <C>
Buy U.S. dollars
Not later than one year Nil 0.6435 $Nil $ 747
--- =====
</TABLE>
The fair value of foreign currency contracts as of October 31, 2000 is
A$186,719.
Interest Rate Risk
The ANZ facility comprises bank bills which are generally taken out for periods
varying from approximately 30 to 90 days and rolled over at the end of their
respective terms. Overseas purchases are generally refinanced for periods
varying up to approximately 170 days. As of January 31, 2000 and October 31,
2000 the weighted average interest rates accruing on the bank bills utilized
under the ANZ Facility were as follows:
<TABLE>
<CAPTION>
January 31, October 31, January 31, October 31,
2000 2000 2000 2000
----------------------------------------------------------------------------
(in A$ thousands) (interest rate per annum)
<S> <C> <C> <C> <C>
Bank bills $12,242 $36,559 6.2% 7.4%
Property loans 8,450 8,450 6.8% to 7.4% 6.9% to 7.5%
</TABLE>
As of October 31, 2000 the Merrill Lynch facility comprises a revolving line of
credit amounting to US$1.0 million. Indebtedness under the revolving line of
credit accrues interest at the 30-day commercial paper rate plus 2.70% and is
payable monthly.
Our total long-term debt matures as follows:
12 months ending October 31, (in A$ thousands)
--------------------------- ---------------
2001 $ 28
2002 45,009
--------
$ 45,037
========
19
<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 our IPO, we
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 our shareholders under the Securities
Act of 1933, as amended. 997,926 of these Ordinary Shares were received upon
the conversion of the convertible notes. We registered the remainder of these
Ordinary Shares voluntarily and they are presently held by our long-term
shareholders who may wish to divest all or portion of their holdings in us. On
or about April 22, 1999, we 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
Not applicable.
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, 2000.
22.1** Materials distributed to shareholders with respect to the
Company's Annual General Meeting to be held on June 27, 2000 at
10:00 a.m. (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, and (iv) a
letter dated May 10, 2000 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 1, 2000, and
incorporated by reference herein.
** Previously filed with the Commission on June 14, 2000, and
incorporated by reference herein.
(b) There were no current reports on Form 6-K filed during the quarter
ended October 31, 2000.
20
<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:
December 15, 2000
21
