<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended November 28, 1999.
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________ to __________________
Commission File Number: 333-67975
ALBECCA INC.
(Exact name of registrant as specified in its charter)
GEORGIA 39-1389732
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3900 Steve Reynolds Boulevard, Norcross, Georgia 30093
(Address of principal executive offices) (Zip Code)
(770) 279-5210
(Registrant's telephone number, including area code)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. YES [X] NO [ ]
1
<PAGE> 2
ALBECCA INC.
INDEX TO FORM 10-Q
<TABLE>
<CAPTION>
Page No.
Part I - Financial Information
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of August 29, 1999 (audited)
and November 28, 1999 (unaudited) ............................................................... 3
Consolidated Statements of Operations for the three months ended
November 29, 1998 (unaudited) and November 28, 1999 (unaudited) .................................. 4
Consolidated Statements of Cash Flows for the three months ended
November 29, 1998 (unaudited) and November 28, 1999 (unaudited) .................................. 5
Notes to the Consolidated Financial Statements ...................................................... 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ........................................................................ 15
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K .................................................................... 18
Signatures ............................................................................................................ 19
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ALBECCA INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
August 29, November 28,
1999 1999
--------------- -----------------
ASSETS (unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 35,058 $ 31,565
Accounts receivable, less allowances for doubtful accounts of
$5,190 and $6,011 at August 29, 1999 and November 28, 1999 47,298 57,281
Inventories 67,620 62,802
Other current assets 5,057 5,662
----------- ---------
Total current assets 155,033 157,310
PROPERTY, PLANT AND EQUIPMENT, net 53,485 54,116
OTHER LONG-TERM ASSETS 58,040 56,974
----------- ---------
$ 266,558 $ 268,400
=========== =========
LIABILITIES AND SHAREHOLDERS' DEFICIT
CURRENT LIABILITIES:
Current maturities of long-term debt $ 26,589 $ 24,235
Accounts payable 26,423 29,431
Accrued liabilities 26,331 35,042
----------- ---------
Total current liabilities 79,343 88,708
----------- ---------
LONG-TERM DEBT, less current maturities 213,211 198,877
----------- ---------
OTHER LONG-TERM LIABILITIES 7,937 7,908
----------- ---------
SHAREHOLDERS' DEFICIT:
Preferred stock -- --
Class A common stock 4 4
Class B common stock 166 166
Additional paid-in capital 7,326 7,326
Accumulated deficit (33,098) (25,963)
Cumulative foreign currency translation adjustment (8,331) (8,626)
----------- ---------
Total shareholders' deficit (33,933) (27,093)
----------- ---------
$ 266,558 $ 268,400
=========== =========
</TABLE>
The accompanying notes are an integral part of
these consolidated balance sheets.
3
<PAGE> 4
ALBECCA INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
-------------------------------------
November 29, November 28,
1998 1999
----------------- -----------------
<S> <C> <C>
Net sales $ 103,575 $ 100,120
Cost of sales 58,935 57,299
--------- ---------
Gross profit 44,640 42,821
Operating expenses 36,224 32,097
Restructuring charges 117 --
--------- ---------
Operating income 8,299 10,724
Interest income (555) (820)
Interest expense 7,125 6,413
--------- ---------
Income before provision for income
taxes, minority interest and extraordinary item 1,729 5,131
Provision for income taxes 1,059 862
Minority interest 197 114
--------- ---------
Income before extraordinary item 473 4,155
Extraordinary gain on retirement of debt, net of tax -- 2,980
--------- ---------
Net income $ 473 $ 7,135
========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE> 5
ALBECCA INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three months ended
----------------------------------
November 29, November 28,
1998 1999
---------------- ---------------
<S> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES:
Net income $ 473 $ 7,135
Adjustments to reconcile net income to net cash
provided by operating activities:
Minority interest 197 114
Depreciation and amortization 2,174 2,067
Loss on disposal of property, plant and equipment 142 83
Extraordinary gain on retirement of debt -- (2,980)
Changes in operating assets and liabilities:
Accounts receivable (11,280) (10,344)
Inventories 1,002 4,519
Other current assets 164 (548)
Accounts payable 1,496 3,523
Accrued liabilities 8,093 8,692
Other (516) (49)
-------- --------
Net cash provided by operating activities 1,945 12,212
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (616) (3,574)
Acquisitions of businesses, net (3,594) --
Proceeds from sales of property and equipment 61 508
Changes in other long-term assets (380) 63
-------- --------
Net cash used in investing activities (4,529) (3,003)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from revolving credit facilities 12,295 7,855
Repayments of revolving credit facilities (10,997) (7,914)
Proceeds from long-term debt 3,085 2,153
Repayments of long-term debt (4,476) (14,848)
Distributions to shareholders (2,700) --
-------- --------
Net cash used in financing activities (2,793) (12,754)
-------- --------
EFFECT OF EXCHANGE RATE ON CASH (1,019) 52
-------- --------
NET DECREASE IN CASH (6,396) (3,493)
CASH and cash equivalents at beginning of period 54,884 35,058
-------- --------
CASH and cash equivalents at end of period $ 48,488 $ 31,565
======== ========
SUPPLEMENTAL INFORMATION:
Interest paid $ 1,203 $ 1,020
======== ========
Income taxes paid $ 587 $ 1,113
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE> 6
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Note 1. INTERIM FINANCIAL STATEMENT PRESENTATION
The unaudited consolidated financial statements have been prepared in
accordance with generally accepted accounting principles for interim financial
information. Accordingly, the unaudited interim consolidated financial
statements do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (consisting of only normal recurring
adjustments) considered necessary for a fair presentation have been included. On
a quarterly basis, the Company's results may vary. The results of operations for
any interim period are not necessarily indicative of the results of operations
to be expected for a full year. For further information, refer to the
consolidated financial statements and accompanying footnotes included in the
Company's Form 10-K for the fiscal year ended August 29, 1999, as filed with the
Securities and Exchange Commission.
Note 2. USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
Note 3. PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Albecca
Inc. ("Albecca", the "Company") and its subsidiaries. All significant
intercompany transactions have been eliminated. Minority interest represents
minority shareholder's interest in majority-owned subsidiaries.
Note 4. INCOME TAXES
Albecca is an S corporation and several of its subsidiaries are
classified as either partnerships or single member entities. Each is treated as
a pass-through entity under the Internal Revenue Code. They are not subject to
federal and certain state income taxes. As a result, the related taxable income
is included in the tax returns of the shareholders and members of the respective
companies. The Company makes distributions to shareholders to pay their income
tax obligations as a result of the Company's status as an S corporation. The
provision for income taxes included in the accompanying consolidated financial
statements primarily relates to certain state and foreign income taxes.
Note 5. RESTRUCTURING CHARGES
PREVIOUSLY REPORTED RESTRUCTURING PLANS
SWEDEN
As of November 28, 1999, with respect to the Company's closure of
duplicate facilities in Sweden, the restructuring plan was substantially
complete. None of the 25 team members originally identified for termination
remained at the facility. The facility was sold in August 1999, however,
physical possession will not be transferred until the second quarter of
fiscal 2000, shortly thereafter management anticipates the restructuring plan
will be complete.
NEW ZEALAND
As of November 28, 1999, with respect to the closure of the Company's
distribution operations in New Zealand, one of the 9 original team members
remained to sell existing assets and collect existing accounts receivable. The
Company estimates that the team member will continue to provide services through
February 2000.
GREECE
As of November 28, 1999, with respect to the closure of the Company's
distribution operations in Greece, one of the original 14 team members remained
to sell existing assets and collect existing accounts receivable. The Company
estimates that the team member will continue to provide services through August
2000.
6
<PAGE> 7
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
UNITED STATES
As of November 28, 1999, with respect to the closure of the Company's
facilities acquired in connection with its 1998 acquisitions, the Company's
management continues to assess and monitor its plan of the closure of these
facilities and expects to complete the restructuring plans by March 2000.
UNITED KINGDOM
As of November 28, 1999, with respect to the closure of the Company's
plastic moulding manufacturing operations in the United Kingdom, none of the
original 59 team members remained, and all material events associated with the
restructuring plan had been completed.
For more descriptive information of the above mentioned restructuring
plans, please see the Company's Form 10-K, as filed with the Securities and
Exchange Commission, for the fiscal year ended August 29, 1999.
SUMMARY OF PREVIOUSLY REPORTED RESTRUCTURING PLANS.
At November 28, 1999, as it relates to the Company's fiscal 1998 and
1999 restructuring plans, approximately $206,000 of restructuring charges
remained in accrued liabilities representing severance and other termination
costs of approximately $44,000 and approximately $162,000 of lease termination
and other exit costs.
A summary of the previously reported restructuring plans and activity
consist of the following estimated accrued future cash/non-cash requirements:
<TABLE>
<CAPTION>
Write-down Severance
of property and other
and termination Other exit
CLOSURE OF SWEDEN DUPLICATE FACILITY: equipment benefits costs Total
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
1999 Provision $700,000 $ 275,000 $ 45,000 $ 1,020,000
Non-cash 700,000 -- -- 700,000
-------- --------- -------- -----------
Cash -- 275,000 45,000 320,000
Fiscal 1999 cash activity -- (125,000) (30,000) (155,000)
-------- --------- -------- -----------
Balance as of August 29, 1999 -- 150,000 15,000 165,000
First quarter 2000 cash activity (unaudited) -- (150,000) (15,000) (165,000)
-------- --------- -------- -----------
Balance as of November 28, 1999 (unaudited) $ -- $ -- $ -- $ --
======== ========= ======== ===========
<CAPTION>
Write-down Severance
of property and other
and termination Other exit
CLOSURE OF OPERATIONS IN NEW ZEALAND: equipment benefits costs Total
---------- ------------ ---------- ----------
<C> <C> <C> <C> <C>
1999 Provision $75,000 $ 48,000 $ 102,000 $ 225,000
Non-cash 75,000 -- -- 75,000
------- --------- --------- ---------
Cash -- 48,000 102,000 150,000
Fiscal 1999 cash activity -- (30,000) (75,000) (105,000)
------- --------- --------- ---------
Balance as of August 29, 1999 -- 18,000 27,000 45,000
First quarter 2000 cash activity (unaudited) -- (3,000) (3,000) (6,000)
------- --------- --------- ---------
Balance as of November 28, 1999 (unaudited) $ -- $ 15,000 $ 24,000 $ 39,000
======= ========= ========= =========
</TABLE>
7
<PAGE> 8
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
<TABLE>
<CAPTION>
Severance
and other
Write-off of termination Other exit
CLOSURE OF OPERATIONS IN GREECE: goodwill benefits costs Total
------------ ----------- ---------- ---------
<S> <C> <C> <C> <C>
1998 Provision $333,000 $ 79,000 $ 104,000 $ 516,000
Non-cash 333,000 -- -- 333,000
-------- --------- --------- ---------
Cash -- 79,000 104,000 183,000
Fiscal 1998 cash activity -- -- -- --
-------- --------- --------- ---------
Balance as of August 30, 1998 -- 79,000 104,000 183,000
1999 provision -- -- 129,000 129,000
Fiscal 1999 cash activity -- (70,000) (129,000) (199,000)
-------- --------- --------- ---------
Balance as of August 29, 1999 -- 9,000 104,000 113,000
First quarter 2000 cash activity (unaudited) -- -- -- --
-------- --------- --------- ---------
Balance as of November 28, 1999 (unaudited) $ -- $ 9,000 $ 104,000 $ 113,000
======== ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Severance
and other
termination Other exit
CLOSURE OF U.S. FACILITIES: benefits costs Total
----------- ---------- ---------
<S> <C> <C> <C>
1998 Provision $ 234,000 $ 42,000 $ 276,000
Non-cash -- -- --
--------- --------- ---------
Cash 234,000 42,000 276,000
Fiscal 1998 cash activity -- (42,000) (42,000)
--------- --------- ---------
Balance as of August 30, 1998 234,000 -- 234,000
1999 provision -- 117,000 117,000
Fiscal 1999 cash activity (145,000) (108,000) (253,000)
--------- --------- ---------
Balance as of August 29, 1999 89,000 9,000 98,000
First quarter 2000 provision (unaudited) (54,000) 54,000 --
First quarter 2000 cash activity (unaudited) (15,000) (54,000) (69,000)
--------- --------- ---------
Balance as of November 28, 1999 (unaudited) $ 20,000 $ 9,000 $ 29,000
========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
Severance Lease
Write-down of and other termination
CLOSURE OF THE UNITED KINGDOM PLASTIC property and termination and exit
MOULDING MANUFACTURING OPERATIONS: equipment benefits costs Total
------------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
1998 Provision $775,000 $ 230,000 $ 465,000 $ 1,470,000
Non-cash 775,000 -- -- 775,000
-------- --------- --------- -----------
Cash -- 230,000 465,000 695,000
Fiscal 1998 cash activity -- (216,000) -- (216,000)
-------- --------- --------- -----------
Balance as of August 30, 1998 -- 14,000 465,000 479,000
Fiscal 1999 cash activity -- (14,000) (440,000) (454,000)
-------- --------- --------- -----------
Balance as of August 29, 1999 -- -- 25,000 25,000
First Quarter 2000 cash activity (unaudited) -- -- -- --
-------- --------- --------- -----------
Balance as of November 28, 1999 (unaudited) $ -- $ -- $ 25,000 $ 25,000
======== ========= ========= ===========
</TABLE>
8
<PAGE> 9
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
Note 5. EXTRAORDINARY ITEM
In September and November 1999, the Company retired a portion of its senior
subordinated notes with a face value of $13,820,000. The debt retirements
resulted in extraordinary gains totaling $2,980,000, net of state income taxes
of $124,000.
Note 6. INVENTORIES
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
August 29, November 28,
1999 1999
---------- ------------
<S> <C> <C>
Raw materials $12,435 $11,144
Work in process 2,276 2,066
Finished goods 52,909 49,592
------- -------
$67,620 $62,802
======= =======
</TABLE>
Note 7. RECLASSIFICATIONS
Certain prior period amounts have been reclassified to conform to the
current period presentation.
Note 8. COMPREHENSIVE INCOME
Comprehensive income for the Company is as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
November 29, November 28,
1998 1999
------------ ------------
<S> <C> <C>
Net income, as reported $ 473 $ 7,135
Foreign currency translation adjustments 2,129 (295)
------- -------
Total comprehensive income $ 2,602 $ 6,840
======= =======
</TABLE>
Note 9. COMMITMENTS AND CONTINGENCIES
CONSTRUCTION OF MANUFACTURING FACILITY
Albecca has entered into a commitment to build a new manufacturing facility
for a net capitalizable cost of approximately $4,300,000. The current amount
expended for this project as of November 28, 1999 is approximately $2,400,000.
Completion of construction is expected to occur in the fourth quarter of fiscal
2000.
LITIGATION
The Company is involved in certain litigation arising in the ordinary course
of business. In the opinion of management, the ultimate resolution of these
matters will not have a material adverse effect on the Company's financial
position or results of operations.
Note 10. GUARANTOR CONDENSED CONSOLIDATING FINANCIAL STATEMENTS
These condensed consolidating financial statements reflect Albecca Inc. and
Subsidiary Guarantors, which consist of all of the Company's wholly-owned
restricted subsidiaries other than the foreign subsidiaries, as defined under
the Indenture dated August 11, 1998. These nonguarantor foreign subsidiaries are
herein referred to as "Subsidiary Nonguarantors." The subsidiary guarantee of
each Subsidiary Guarantor will be subordinated to the prior payment in full of
all senior debt of such Subsidiary Guarantor. Separate financial statements of
the Subsidiary Guarantors are not presented because the Subsidiary Guarantees
are joint and several and full and unconditional and the Company believes
9
<PAGE> 10
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
the condensed consolidating financial statements presented are more meaningful
in understanding the financial position of the Subsidiary Guarantors and the
separate financial statements are deemed not material to investors.
10
<PAGE> 11
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
November 28, 1999 (Unaudited)
--------------------------------------------------------------------------
Consolidated
Subsidiary Subsidiary Elimination Consolidated
Albecca Inc. Guarantors Nonguarantors Entries Total
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 25,914 $ 640 $ 5,011 $ -- $ 31,565
Accounts receivable, net -- 22,255 35,026 -- 57,281
Intercompany accounts receivable -- 37,608 1,146 (38,754) --
Inventories -- 26,042 36,760 -- 62,802
Other current assets 800 819 4,043 -- 5,662
----------- --------- ----------- ----------- -----------
Total current assets 26,714 87,364 81,986 (38,754) 157,310
PROPERTY, PLANT AND EQUIPMENT, net -- 9,586 44,530 -- 54,116
OTHER LONG-TERM ASSETS 5,909 18,968 32,097 -- 56,974
INVESTMENT IN SUBSIDIARIES 43,453 -- 7,886 (51,339) --
INTERCOMPANY LOANS RECEIVABLE 92,776 -- 9 (92,785) --
----------- --------- ----------- ----------- -----------
$ 168,852 $ 115,918 $ 166,508 $ (182,878) $ 268,400
=========== ========= =========== =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ -- $ 956 $ 23,279 $ -- $ 24,235
Accounts payable -- 10,122 19,309 -- 29,431
Intercompany accounts payable 28,713 1,047 8,994 (38,754) --
Accrued liabilities 6,438 18,107 10,497 -- 35,042
----------- --------- ----------- ----------- -----------
Total current liabilities 35,151 30,232 62,079 (38,754) 88,708
----------- --------- ----------- ----------- -----------
LONG-TERM DEBT, less current maturities 174,930 2,039 21,908 -- 198,877
----------- --------- ----------- ----------- -----------
INTERCOMPANY LOANS PAYABLE -- 9 92,776 (92,785) --
----------- --------- ----------- ----------- -----------
OTHER LONG-TERM LIABILITIES -- 3,974 3,934 -- 7,908
----------- --------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock -- -- -- -- --
Class A common stock 4 -- -- -- 4
Class B common stock 166 -- -- -- 166
Additional paid-in capital 8,912 41,826 7,927 (51,339) 7,326
Accumulated earnings (deficit) (50,311) 37,516 (13,168) -- (25,963)
Cumulative foreign currency translation adjustment -- 322 (8,948) -- (8,626)
----------- --------- ----------- ----------- -----------
Total shareholders' equity (deficit) (41,229) 79,664 (14,189) (51,339) (27,093)
----------- --------- ----------- ----------- -----------
$ 168,852 $ 115,918 $ 166,508 $ (182,878) $ 268,400
=========== ========= =========== =========== ===========
</TABLE>
11
<PAGE> 12
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)
CONDENSED CONSOLIDATING BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
August 29, 1999
---------------------------------------------------------------------------
Consolidated
Subsidiary Subsidiary Elimination Consolidated
Albecca Inc. Guarantors Nonguarantors Entries Total
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 27,424 $ 1,747 $ 5,887 $ -- $ 35,058
Accounts receivable, net -- 17,526 29,772 -- 47,298
Intercompany accounts receivable -- 29,917 513 (30,430) --
Inventories -- 28,212 39,408 -- 67,620
Other current assets 49 432 4,576 -- 5,057
--------- -------- --------- --------- ---------
Total current assets 27,473 77,834 80,156 (30,430) 155,033
PROPERTY, PLANT AND EQUIPMENT, net -- 8,088 45,397 -- 53,485
OTHER LONG-TERM ASSETS 6,443 18,884 32,713 -- 58,040
INVESTMENT IN SUBSIDIARIES 43,453 -- 7,559 (51,012) --
INTERCOMPANY LOANS RECEIVABLE 94,598 -- 13 (94,611) --
--------- -------- --------- --------- ---------
$ 171,967 $104,806 $ 165,838 $(176,053) $ 266,558
========= ======== ========= ========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Current maturities of long-term debt $ -- $ 2,209 $ 24,380 $ -- $ 26,589
Accounts payable -- 8,611 17,812 -- 26,423
Intercompany accounts payable 21,742 155 8,533 (30,430) --
Accrued liabilities 895 16,336 9,100 -- 26,331
--------- -------- --------- --------- ---------
Total current liabilities 22,637 27,311 59,825 (30,430) 79,343
--------- -------- --------- --------- ---------
LONG-TERM DEBT, less current maturities 188,750 2,045 22,416 -- 213,211
--------- -------- --------- --------- ---------
INTERCOMPANY LOANS PAYABLE -- 13 94,598 (94,611) --
--------- -------- --------- --------- ---------
OTHER LONG-TERM LIABILITIES -- 3,975 3,962 -- 7,937
--------- -------- --------- --------- ---------
SHAREHOLDERS' EQUITY (DEFICIT):
Preferred stock -- -- -- -- --
Class A common stock 4 -- -- -- 4
Class B common stock 166 -- -- -- 166
Additional paid-in capital 8,912 41,500 7,926 (51,012) 7,326
Accumulated earnings (deficit) (48,502) 29,811 (14,407) -- (33,098)
Cumulative foreign currency translation adjustment -- 151 (8,482) -- (8,331)
--------- -------- --------- --------- ---------
Total stockholders' equity (deficit) (39,420) 71,462 (14,963) (51,012) (33,933)
--------- -------- --------- --------- ---------
$ 171,967 $104,806 $ 165,838 $(176,053) $ 266,558
========= ======== ========= ========= =========
</TABLE>
12
<PAGE> 13
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
November 28, 1999 (Unaudited)
---------------------------------------------------------------------------
Consolidated
Subsidiary Subsidiary Elimination Consolidated
Albecca Inc. Guarantors Nonguarantors Entries Total
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 55,589 $ 46,842 $ (2,311) $ 100,120
Cost of sales -- 30,840 28,770 (2,311) 57,299
--------- --------- --------- --------- ---------
Gross profit -- 24,749 18,072 -- 42,821
Operating expenses 84 16,823 15,190 -- 32,097
--------- --------- --------- --------- ---------
Operating income (84) 7,926 2,882 -- 10,724
Interest income (820) -- -- -- (820)
Interest expense 5,525 101 787 -- 6,413
--------- --------- --------- --------- ---------
Income (loss) before provision for income taxes,
minority interest and extraordinary gain (4,789) 7,825 2,095 -- 5,131
Provision for income taxes -- 120 742 -- 862
Minority interest -- -- 114 -- 114
--------- --------- --------- --------- ---------
Income (loss) before extraordinary item (4,789) 7,705 1,239 -- 4,155
Extraordinary gain on retirement of debt, net of tax 2,980 -- -- -- 2,980
--------- --------- --------- --------- ---------
Net income (loss) $ (1,809) $ 7,705 $ 1,239 $ -- $ 7,135
========= ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NET CASH PROVIDED BY OPERATING
ACTIVITIES $ 8,900 $ 1,495 $ 1,817 $ -- $ 12,212
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment -- (1,886) (1,688) -- (3,574)
Proceeds from sales of property, plant -- -- -- -- --
and equipment -- 11 497 -- 508
Changes in other long-term assets 430 (203) (164) -- 63
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities 430 (2,078) (1,355) -- (3,003)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany loan balances -- (4) 4 -- --
Proceeds from revolving credit facilities -- -- 7,855 -- 7,855
Repayments of revolving credit facilities -- -- (7,914) -- (7,914)
Proceeds from long-term debt -- -- 2,153 -- 2,153
Repayments of long-term debt (10,840) (1,301) (2,707) -- (14,848)
Distributions to shareholders -- 326 (326) -- --
--------- --------- --------- --------- ---------
Net cash used in financing activities (10,840) (979) (935) -- (12,754)
--------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE ON CASH -- 128 (76) -- 52
--------- --------- --------- --------- ---------
NET DECREASE IN CASH (1,510) (1,434) (549) -- (3,493)
Cash and cash equivalents, beginning of period 27,424 1,748 5,886 -- 35,058
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period $ 25,914 $ 314 $ 5,337 $ -- $ 31,565
========= ========= ========= ========= =========
</TABLE>
13
<PAGE> 14
ALBECCA INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(unaudited)
CONDENSED CONSOLIDATING STATEMENT OF OPERATIONS
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
November 29, 1998 (Unaudited)
-------------------------------------------------------------------------
Consolidated
Subsidiary Subsidiary Elimination Consolidated
Albecca Inc. Guarantors Nonguarantors Entries Total
------------ ---------- ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Net sales $ -- $ 52,091 $ 53,276 $ (1,792) $ 103,575
Cost of sales -- 28,881 31,846 (1,792) 58,935
--------- --------- --------- --------- ---------
Gross profit -- 23,210 21,430 -- 44,640
Operating expenses 37 18,373 17,814 -- 36,224
Restructuring charges -- 117 -- -- 117
--------- --------- --------- --------- ---------
Operating income (37) 4,720 3,616 -- 8,299
Interest income (555) -- -- -- (555)
Interest expense 6,026 178 921 -- 7,125
--------- --------- --------- --------- ---------
Income (loss) before provision for income
taxes and minority interest (5,508) 4,542 2,695 -- 1,729
Provision for income taxes -- 123 936 -- 1,059
Minority interest -- -- 197 -- 197
--------- --------- --------- --------- ---------
Net income (loss) $ (5,508) $ 4,419 $ 1,562 $ -- $ 473
========= ========= ========= ========= =========
CONDENSED CONSOLIDATING STATEMENT OF CASH FLOWS
NET CASH PROVIDED BY (USED IN)
OPERATING ACTIVITIES $ (2,195) $ 571 $ 3,569 $ -- $ 1,945
--------- --------- --------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment -- (554) (62) -- (616)
Acquisitions of businesses -- -- (3,594) -- (3,594)
Proceeds from sales of property, plant
and equipment -- 21 40 -- 61
Changes in other long-term assets (259) -- (121) -- (380)
--------- --------- --------- --------- ---------
Net cash used in investing activities (259) (533) (3,737) -- (4,529)
--------- --------- --------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Changes in intercompany loan balances -- 63 (63) -- --
Proceeds from revolving credit facilities -- -- 12,295 -- 12,295
Repayments of revolving credit facilities -- (57) (10,940) -- (10,997)
Proceeds from long-term debt -- 1,060 2,025 -- 3,085
Repayments of long-term debt -- (587) (3,889) -- (4,476)
Distributions to shareholders (2,700) -- -- -- (2,700)
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing
activities (2,700) 479 (572) -- (2,793)
--------- --------- --------- --------- ---------
EFFECT OF EXCHANGE RATE ON CASH -- 6 (1,025) -- (1,019)
--------- --------- --------- --------- ---------
NET INCREASE (DECREASE) IN CASH (5,154) 523 (1,765) -- (6,396)
Cash and cash equivalents, beginning of
period 49,188 18 5,678 -- 54,884
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period $ 44,034 $ 541 $ 3,913 $ -- $ 48,488
========= ========= ========= ========= =========
</TABLE>
14
<PAGE> 15
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following discussion and analysis should be read in conjunction with
Albecca's unaudited consolidated financial statements and the related notes
thereto. In this "Management's Discussion and Analysis of Financial Condition
and Results of Operations," all references to the Company's international
operations ("International") include all of Albecca's operations outside of the
U.S.
The following table sets forth certain consolidated statements of operations
data as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
Three months ended
-----------------------------------
November 29, November 28,
1998 1999
------------- ------------
<S> <C> <C>
Net sales 100.0 % 100.0 %
Cost of sales 56.9 57.2
----- -----
Gross profit 43.1 42.8
Operating expenses 35.0 32.0
Restructuring charges 0.1 --
----- -----
Operating income 8.0 10.8
Interest income (0.5) (0.8)
Interest expense 6.8 6.4
----- -----
Income before provision for income taxes,
minority interest and extraordinary item 1.7 5.2
Provision for income taxes 1.0 0.9
Minority interest 0.2 0.1
----- -----
Income before extraordinary item 0.5 4.2
Extraordinary gain on retirement
of debt, net of tax -- 3.0
----- -----
Net income 0.5 % 7.2 %
===== =====
</TABLE>
NET SALES
For the first quarter ended November 28, 1999, net sales were $100.1 million
compared to $103.6 million for the first quarter ended November 29, 1998. The
decrease in net sales for the three months ended November 28, 1999 was primarily
the result of the sale of an international operation completed during the fourth
quarter of fiscal year 1999, the impact of unfavorable changes in foreign
exchange rates, partially offset by an increase in sales to independent framing
retailers. Currency fluctuations in the first quarter decreased net sales by
$2.4 million, primarily due to a strengthening of the U.S. dollar against the
French Franc and German Mark. U.S. net sales increased 8.0% for the three months
ended November 28, 1999 compared to November 29, 1998 primarily the result of an
increase in sales to independent framing retailers. International net sales
decreased 13.9% primarily due to the sale of the South African operations
completed during the fourth quarter of fiscal year 1999 and the negative impact
of the strengthening of the U.S. dollar.
COST OF SALES
Cost of sales were $57.3 million for the three months ended November 28,
1999 compared to $58.9 million for the three months ended November 29, 1998. In
the U.S., gross profit decreased to 44.2% for the three months ended November
28, 1999 compared to 45.4% for the comparable period in fiscal 1999. The
decrease for the quarter was primarily due to additional costs incurred in the
sampling program and the Company's continued review of its acquisition related
inventory. For the first quarter ended November 28, 1999, international gross
profit margin increased to 41.1% compared to 40.9% for the first quarter ended
November 29, 1998. This increase was primarily the result of the decrease in net
sales of lower margin products associated with the recently sold South African
operations.
OPERATING EXPENSES
Operating expenses were $32.1 million for the three months ended November
28, 1999 compared to $36.2 million for the three months ended November 29, 1998.
In the U.S., operating expenses as a percentage of net sales decreased to 29.7%
for the three months ended November 28, 1999 compared to 35.0% for the
comparable period in fiscal 1999. The decrease for the quarter ended November
28, 1999 is primarily attributable to the reduction of duplicative
acquisition-related expenses. International operating expenses as a percentage
of net sales decreased to 34.8% for the three months ended November 28, 1999
compared to 34.9% for the comparable periods in fiscal 1999.
15
<PAGE> 16
RESTRUCTURING CHARGES
There were no restructuring charges recorded during the first quarter ended
November 28, 1999. Restructuring charges of $.1 million were recorded during
the first quarter of fiscal 1999.
INTEREST EXPENSE
Interest expense was $6.4 million for the three months ended November 28,
1999 compared to $7.1 million for the three months ended November 29, 1998. The
decrease in interest expense is primarily due to a decrease in debt following
the retirement of $13.8 million of the Company's senior subordinated notes
during the first quarter of fiscal 2000 and $11.2 million of the notes during
the second half of fiscal 1999.
INTEREST INCOME
Interest income was $.8 million for the three months ended November 28, 1999
compared to $.6 million for the three months ended November 29, 1998. The
increase resulted from the interest income associated with the Company's
investment in its senior subordinated notes that it had acquired.
EXTRAORDINARY GAIN ON EXTINGUISHMENT OF DEBT
In September and November 1999, the Company retired a portion of its senior
subordinated notes with a face value of $13.8 million. The debt retirements
resulted in extraordinary gains totaling $3.0 million, net of state income
taxes of $.1 million.
NET INCOME
For the reasons set forth above, net income was $7.1 million for the three
months ended November 28, 1999 compared to $.5 million for the three months
ended November 29, 1998.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of funds have been, and are expected to
continue to be, cash flow from operations and its on-hand cash and cash
equivalents. The Company's principal need for funds historically have been to
finance its working capital (principally inventory and accounts receivable),
capital expenditures and acquisitions. As of November 28, 1999, the Company had
cash and cash equivalents of $31.6 million compared to $35.1 million as of
August 29, 1999.
Net cash provided by operating activities was $12.2 million for the three
months ended November 28, 1999 compared to $1.9 million for the three months
ended November 29, 1998. The increase is primarily attributable the increase in
net income for the three months ended November 28, 1999 compared to the three
months ended November 29, 1998. Net cash used in investing activities decreased
to $3.0 million for the three months ended November 28, 1999 compared to $4.5
million for the three months ended November 29, 1998 primarily due to a
reduction in the Company's acquisition activities. During the three months ended
November 28, 1999, the Company made no investments for acquisitions and invested
$3.6 million for capital expenditures. Net cash used in financing activities
increased to $12.8 million compared to net cash used in financing activities of
$2.8 million for the three months ended November 29, 1998 primarily due to the
Company retiring a portion of its senior subordinated debt with a face value of
$13.8 million. The Company has entered into a commitment to build a new
manufacturing facility for $4.3 million. Completion is expected during the
fourth quarter of fiscal year 2000. As of November 28, 1999, $2.4 million had
been expended on the project.
As of November 28, 1999, Albecca had outstanding indebtedness of
approximately $223.1 million, consisting of $174.9 million in principal amount
of the August 1998 senior subordinated debt and $48.2 million of other
indebtedness. At August 29, 1999, Albecca had outstanding indebtedness of
approximately $239.8 million, consisting of $188.8 million in principal amount
of the notes and $51.0 million of other indebtedness.
The Company enters into forward exchange contracts to hedge purchases and
payables denominated in foreign currencies for periods consistent with its
identified exposures. Gains and losses related to qualifying hedges of these
exposures are deferred and recognized in operating income when the underlying
hedged transaction occurs.
Albecca's ability to make scheduled payments of the principal of, or to pay the
interest or liquidated damages, if any, on, or to refinance its indebtedness,
including the August 1998 senior subordinated debt, or to fund planned capital
or other expenditures, will depend on its future financial or operating
performance, which will be affected by prevailing economic conditions and
financial, business and other factors, many of which are beyond its control.
Based upon the current levels of operations, management believes that cash flow
from operations and available cash and cash equivalents will provide adequate
funds for the Company's foreseeable working capital needs, capital
expenditures, scheduled
16
<PAGE> 17
payments of principal and interest on its indebtedness, including the senior
subordinated debt, and acquisitions. There is no certainty that Albecca's
business will generate sufficient cash flow from operations or that future
borrowings will be available in an amount sufficient to enable Albecca to
service its indebtedness, including the senior subordinated debt, or to make
anticipated capital and other expenditures.
YEAR 2000 UPDATE
The efficient operation of the Company's business is dependent in part on
its computer software programs and operating systems. These programs and systems
are used in several key areas of the Company's business, including order entry,
purchasing, inventory management, pricing, sales, shipping, and financial
reporting, as well as in various administrative functions.
Albecca has an ongoing program to assess the impact of Year 2000 compliance
on its information technology systems and its non-information technology systems
and has formulated plans to address business disruption associated with
potential date processing problems. Through its assessments, Albecca has
identified potential Year 2000 issues in its IT systems, both hardware and
software, and in its non-IT systems. Albecca continues to address these
deficiencies through upgrades, replacements, specific enhancements and other
corrective measures. In connection with its non-IT systems, which are building
security, heating, ventilation and air conditioning, and other equipment with
date sensitive operating controls, Albecca has completed its testing.
Albecca has incurred expenses of $1.1 million in conjunction with the Year
2000 compliance project. The majority of these expenditures have been expensed.
Albecca believes that the most reasonable likely worst case Year 2000
scenario would be a failure by a significant third party in supplying Albecca
products and services it needs to conduct its day-to-day operations. This risk
is not limited to its vendors but also includes, without limitation, utilities
or other general service providers or government entities. Albecca is focusing
its remedial efforts on those factors which it can reasonably be expected to
have influence upon. The extent of lost revenue as a result of such scenarios
cannot be estimated at this time.
As of the filing date of this Form 10-Q, the Company has not experienced any
Year 2000 issues arising from its systems or those of its material vendors and
suppliers. To the extent that there might be any ongoing Year 2000 issues that
might arise at a later date, the Company has contingency plans in place to
address such issues. The Company continues to maintain close contact with third
parties with whom it has material relationships, such as vendors, suppliers and
financial institutions, with respect to such third parties' Year 2000 compliance
and any ongoing Year 2000 issues that might arise at a later date. In light of
the Company's efforts, the Year 2000 issue has had no material adverse effect to
date on the operations or results of operations of the Company, and is not
expected to have a material impact on the Company's financial statements.
However, there can be no assurance that the Company or any third parties will
not have ongoing Year 2000 issues that may have a material adverse effect on the
Company's business, operating results and financial condition in the future.
FORWARD LOOKING STATEMENTS
When used in this Form 10-Q and in future filings by the Company with the
Securities and Exchange Commission and in its press releases, and in other
written or oral statements made by the Company's representatives, the words and
phrases "will likely result," "are expected to," "will continue," "is
anticipated," "estimates," "projects," "believes," "plans," "anticipates,"
"intends," "may," or similar expressions, are intended to identify "forward
looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995. Such forward looking statements include, without limitation,
the Company's expectations regarding sales, earnings, or other future financial
performance and liquidity, and general statements about future operations and
operating results. Although the Company believes that its expectations are based
on reasonable assumptions within the bounds of its knowledge of its business and
operations, there can be no assurance that actual results will not differ
materially from its expectations. Factors that could cause actual results to
differ from expectations include, without limitation, (i) the timing and expense
associated with, and effects of, cost-reduction and integration initiatives
being implemented by the Company; (ii) general competitive factors and the
overall financial condition of the custom framing industry, the retail industry
and the general economy; (iii) change in retailer or consumer acceptance of the
Company's products; (iv) consolidations and restructurings in the retail
industry causing a decrease in the number of stores that sell the Company's
products; (v) social, political, and economic risks to the Company's foreign
operations and customers; (vi) changes in the laws, regulations, and policies,
including changes in accounting standards, that affect, or will affect, the
Company in the United States and internationally; (vii) shipment delays,
depletion of inventory, service problems; (viii) changes in product mix to ones
which are less profitable; and (ix) the ability of the Company and third
parties, including customers or suppliers, to adequately address Year 2000
issues. The Company assumes no responsibility to update forward-looking
statements made herein or elsewhere.
17
<PAGE> 18
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits:
<TABLE>
<CAPTION>
NO. DESCRIPTION
- -- -----------
<S> <C>
3.1 -- Amended and Restated Articles of Incorporation of Albecca
(incorporated by reference to Exhibit 3.1 of Albecca's Registration
Statement on Form S-4 (No. 333-67975) as declared effective by the SEC
on February 12, 1999).
3.2 -- Amended and Restated Bylaws of Albecca(incorporated by reference
to Exhibit 3.2 of Albecca's Registration Statement on Form S-4 (No.
333-67975) as declared effective by the SEC on February 12, 1999).
27.1 -- Financial Data Schedule (For SEC use only)
</TABLE>
b. Reports on Form 8-K:
None
18
<PAGE> 19
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 hereunto duly authorized.
ALBECCA INC.
(registrant)
Date: January 12, 2000 /s/ Craig A. Ponzio
---------------- -----------------------------------------
Craig A. Ponzio, Chairman of the Board,
President, Chief Executive Officer
(Principal Executive Officer)
Date: January 12, 2000 /s/ Stephen M. Scheppmann
---------------- -----------------------------------------
Stephen M. Scheppmann,
Senior Vice President,
Chief Financial Officer
(Principal Financial Officer)
19
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENT OF OPERATIONS FOR ALBECCA INC. FOR THE THREE MONTHS ENDED
NOVEMBER 28, 1999 AND THE CONSOLIDATED BALANCE SHEET AS OF NOVEMBER 28, 1999 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-27-2000
<PERIOD-END> NOV-28-1999
<CASH> 31,565
<SECURITIES> 0
<RECEIVABLES> 63,292
<ALLOWANCES> 6,011
<INVENTORY> 62,802
<CURRENT-ASSETS> 157,310
<PP&E> 79,308
<DEPRECIATION> 25,192
<TOTAL-ASSETS> 268,400
<CURRENT-LIABILITIES> 88,708
<BONDS> 174,930
0
0
<COMMON> 170
<OTHER-SE> (27,263)
<TOTAL-LIABILITY-AND-EQUITY> 268,400
<SALES> 100,120
<TOTAL-REVENUES> 100,120
<CGS> 57,299
<TOTAL-COSTS> 89,396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,413
<INCOME-PRETAX> 5,245
<INCOME-TAX> 862
<INCOME-CONTINUING> 4,155
<DISCONTINUED> 0
<EXTRAORDINARY> 2,980
<CHANGES> 0
<NET-INCOME> 7,135
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
