<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 1996.
[ ] TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from to
---------- -----------------------
Commission file number 0-15942
INTEGRATED BRANDS INC.
-----------------------------------------------------
(Exact name of registrant as specified in its charter)
New Jersey
--------------------------------------------------------------
(State or other jurisdiction of incorporation or organization)
11-2778439
------------------------------------
(I.R.S. Employer Identification No.)
4175 Veterans Highway, Ronkonkoma, NY 11779
---------------------------------------------------
(Address of principal executive offices - Zip code)
Registrant's telephone number, including area code: 516-737-9700
- --------------------------------------------------------------------------------
Former name, former address and former fiscal year, if changes since last
report.
Indicate by check whether the registrant (1) has filed all reports required to
be filed be 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
----- -----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12,13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court
Yes No
----- -----
APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding
of each of the issuer's classes of common stock, as of the latest practicable
date November 14, 1996.
Common Stock Par Value $.01 Per Share. Shares Outstanding 10,103,288
----------
<PAGE>
INTEGRATED BRANDS INC.
Form 10-Q
September 28, 1996
TABLE OF CONTENTS
Part I. - Financial Information
Item 1. Financial statements
Condensed Consolidated Balance Sheets 3
Condensed Consolidated Statements of
Operations 5
Condensed Consolidated Statement of
Stockholders' Equity 7
Condensed Consolidated Statements of
Cash Flows 8
Notes to Condensed Consolidated
Financial Statements 9
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 11
Part II. - Other Information
Item 6. Exhibits and Reports on Form 8-K 13
Signature 14
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
September 28, December 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
Assets
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 1,130 $ 2,086
Receivables 9,809 4,416
Receivables - affiliates 1,485 1,043
Inventories 2,138 2,089
Prepaid product introductory expenses 1,942 701
Other prepaid expenses 699 281
- -------------------------------------------------------------------------------------------------------------------
Total Current Assets 17,203 10,616
Improvements and equipment,
at cost - net of accumulated
depreciation and amortization 1,828 1,103
Other assets:
License agreements, at cost - net of accumulated
amortization of $1,178,000 and $878,000 6,170 6,470
Intangible assets, at cost - net of
accumulated amortization of $3,204,000
and $2,967,000 5,840 6,077
Investment in Heidi's 1,340 1,590
Other 354 521
- -------------------------------------------------------------------------------------------------------------------
Total assets $32,735 $26,377
===================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-3-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
September 28, December 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
Liabilities and Stockholders' Equity
<S> <C> <C>
Liabilities:
Current maturities of long-term debt $ 716 $ 576
Trade accounts payable 5,688 4,244
Income taxes payable 38 465
Payable - affiliates 905 902
Accrued marketing expenses 990 162
Other accrued liabilities 1,484 1,021
Liability for lease terminations 110 110
- -------------------------------------------------------------------------------------------------------------------
Current Liabilities 9,931 7,480
Long-term debt, less current maturities 9,599 4,996
Liability for lease terminations,
net of current portion 131 242
- -------------------------------------------------------------------------------------------------------------------
Total liabilities 19,661 12,718
- -------------------------------------------------------------------------------------------------------------------
Minority interest 218 225
- -------------------------------------------------------------------------------------------------------------------
Commitments and contingent liabilities
Stockholders' equity:
Class A common stock, $.01 par
value, 20,000,000 shares authorized;
12,357,903 shares issued 124 124
Paid-in capital 8,432 8,432
Retained earnings 6,072 6,543
Treasury stock, at cost 2,254,615 and 2,154,615 shares (1,772) (1,665)
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 12,856 13,434
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $32,735 $26,377
===================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-4-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Thirteen Weeks Ended
- -------------------------------------------------------------------------------------------------------------------
September 28, September 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands, except
per share amount)
Revenues:
<S> <C> <C>
Net sales $10,753 $10,429
Store operations 1,018 900
Franchise revenue 493 521
Other 105 58
- -------------------------------------------------------------------------------------------------------------------
12,369 11,908
- -------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of goods sold 7,077 7,012
Store operations 1,061 872
Selling, general and administrative expenses 5,449 3,724
Interest 208 83
- -------------------------------------------------------------------------------------------------------------------
13,795 11,691
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes on income (recovery) (1,426) 217
Taxes on income (recovery) (484) 86
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $(942) $131
===================================================================================================================
Earnings (loss) per common share $(.09) $.01
===================================================================================================================
Weighted average number of common
and common equivalent shares
outstanding 10,103 10,250
===================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-5-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
- -------------------------------------------------------------------------------------------------------------------
September 28, September 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands, except
per share amount)
<S> <C> <C>
Revenues:
Net sales $31,785 $26,270
Store operations 2,975 2,832
Franchise revenue 1,476 1,435
Other 197 173
- -------------------------------------------------------------------------------------------------------------------
36,433 30,710
- -------------------------------------------------------------------------------------------------------------------
Operating costs and expenses:
Cost of goods sold 19,062 16,603
Store operations 3,032 2,670
Selling, general and administrative expenses 14,380 9,486
Interest 466 128
- -------------------------------------------------------------------------------------------------------------------
36,940 28,887
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before taxes on income (recovery) (507) 1,823
Taxes on income (recovery) (36) 807
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $(471) $1,016
===================================================================================================================
Earnings (loss) per common share ($.05) $.10
===================================================================================================================
Weighted average number of common
and common equivalent shares
outstanding 10,126 10,233
===================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-6-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE THIRTY-NINE WEEKS ENDED SEPTEMBER 28, 1996
<TABLE>
<CAPTION>
Common Stock
------------
Par Paid-in Retained Treasury
Shares Value Capital Earnings Stock Total
- -------------------------------------------------------------------------------------------------------------------
(Unaudited
(In thousands)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1995 12,358 $124 $8,432 $6,543 $(1,665) $13,434
Purchase of treasury stock (107) (107)
Net loss for the
thirty-nine weeks ended
September 28, 1996 (471) (471)
- -------------------------------------------------------------------------------------------------------------------
Balance, September 28, 1996 12,358 $124 $8,432 $6,072 $(1,772) $12,856
===================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-7-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Thirty-nine Weeks Ended
- -------------------------------------------------------------------------------------------------------------------
September 28, September 30,
1996 1995
- -------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income (loss) $(471) $1,016
Adjustments to reconcile net income (loss)
to net cash used in operating activities:
Depreciation and amortization 1,027 871
Provision for doubtful accounts 338 239
Minority interest in net income (loss) of subsidiary (7) 18
Increase (decrease) in cash flows from changes in operating
assets and liabilities:
Receivables (5,731) (5,203)
Receivables - affiliates (442) (955)
Inventories (49) (299)
Prepaid expenses and other (1,659) (966)
Other assets 167 42
Trade accounts payable and accrued liabilities 2,197 3,197
Payables - affiliates 3 612
- -------------------------------------------------------------------------------------------------------------------
Net cash used in operating activities (4,627) (1,428)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Investing Activities:
Acquisition of long term license agreements (4,500)
Capital expenditures (965) (119)
- -------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (965) (4,619)
- -------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 5,116 4,500
Principal payments on long-term debt (373) (209)
Purchase of treasury stock (107)
Exercise of stock options 1
- -------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 4,636 4,292
- -------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents (956) (1,755)
Cash and cash equivalents, beginning of period 2,086 3,860
- -------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $1,130 $2,105
===================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-8-
<PAGE>
INTEGRATED BRANDS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
The Company was incorporated in September 1985 and commenced operations
on December 23, 1985 as Steve's Homemade Ice Cream, Inc. In August
1988, the Company completed the acquisition of Swensen's Inc.
(Swensen's) and it's wholly-owned subsidiaries. In August 1990, the
Company acquired a sixty percent interest in American Glace, Inc. In
July 1995, the Company changed its name to INTEGRATED BRANDS INC. to
more appropriately reflect the breadth of the Company's business.
INTEGRATED BRANDS INC. and its subsidiaries are collectively referred
to herein as the "Company".
The Company markets, distributes and sells a variety of branded frozen
dessert products to supermarkets, grocery stores, club stores, gourmet
shops, delicatessens and convenience stores. The Company currently
franchises ice cream parlors, dip shoppes and family style restaurants
throughout the United States and certain foreign countries. Total
revenues from foreign sources are not material.
The accompanying condensed consolidated financial statements include
the accounts of the Company and its subsidiaries except Heidi's Frogen
Yozurt Shoppes, Inc. ("Heidi's"). All material intercompany balances
and transactions have been eliminated in consolidation. The Company's
investment in Heidi's is stated at cost. On April 9, 1993, Heidi's and
its subsidiary filed voluntary petitions under Chapter 11 of the
Bankruptcy Code with the United States Bankruptcy Court to reorganize
Heidi's.
The Condensed Consolidated Financial Statements included herein are
unaudited and include all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results of
operations of the interim periods pursuant to the rules and regulations
of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in accordance with generally
accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the
disclosures in such financial statements are adequate to make the
information presented not misleading. Certain 1995 balances were
reclassified to conform to 1996 presentation. These condensed
consolidated financial statements should be read in conjunction with
the Company's Consolidated Financial Statements filed with the
Securities and Exchange Commission on Form 10-K for the fiscal year
ended December 30, 1995.
The results of operations for the thirty-nine weeks ended September 28,
1996 are not necessarily indicative of the results to be expected for
the full year.
-9-
<PAGE>
INTEGRATED BRANDS INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 2 - LONG-TERM DEBT
Under a revolving credit facility entered into December 1994, the
Company can borrow up to $7,500,000 through December 31, 1997. Interest
is payable monthly on the unpaid principal balance of borrowings under
this facility at the bank's prime rate plus 1/2%. The Company has
agreed to pay a fee of 1/8% per annum on the unused portion of the
commitment.
On March 8, 1996, the loan agreement was amended and the Company
refinanced $4,500,000 of the existing revolving credit facility with a
new five year term loan. The term loan is payable in 19 quarterly
principal installments of $140,000 beginning April 1, 1996, and the
remaining principal balance is due on January 1, 2001. Interest is
payable monthly on the unpaid principal balance of this term loan at
the banks prime rate plus 1/2%. As of September 28, 1996, the Company
had available credit of $1,975,000 under the revolving credit facility.
NOTE 3 EARNINGS (LOSS) PER COMMON SHARE
Earnings per share of common stock for the thirteen weeks and the
thirty-nine weeks ended September 30, 1995 was computed by dividing net
income by the weighted average number of shares of Common Stock
outstanding during the period presented. 279,000 and 280,000 common
equivalent shares were included in the weighted average number of
shares for the thirteen and thirty-nine weeks ended September 30, 1995,
respectively. The common stock equivalent shares result from shares
issuable upon the exercise of options under the treasury stock method.
Common stock equivalent shares were anti-dilutive for the thirteen and
thirty-nine weeks ended September 28, 1996 and were excluded from the
loss per common share calculation.
NOTE 4 ADOPTION OF NEW ACCOUNTING PRONOUNCEMENT
Effective December 31, 1995 the Company has adopted Statement of
Financial Accounting Standards Number 121 "Accounting for the
Impairment of long-lived assets and for long-lived assets to be
disposed of ("SFAS Numbers 121"). The impact of adopting SFAS Number
121 was not material.
-10-
<PAGE>
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Thirteen weeks ended September 28, 1996 vs. thirteen weeks ended
September 30, 1995.
Total revenue for the thirteen weeks ended September 28, 1996 increased
to $12,369,000 from $11,908,000 for the thirteen weeks ended September
30, 1995. Prepackaged frozen dessert sales for the thirteen weeks ended
September 28, 1996 increased to $8,868,000 from $8,692,000 for the
thirteen weeks ended September 30, 1995. The industry experienced a
decline in sales during the quarter versus the prior year due to cooler
than normal summer temperatures. The increase in revenues and in
prepackaged frozen dessert sales was due primarily to the increase in
new product authorizations in retail outlets and the acquisition of the
Colombo hard pack rights in August 1995. Revenue from store operations
increased as a result of the re-opening of a Company owned store.
The following table sets forth the sales of prepackaged frozen
desserts, bulk frozen dessert sales to franchised and licensed stores,
and other sales for the thirteen weeks ended September 28, 1996 and
September 30, 1995, respectively.
Thirteen Weeks Ended
--------------------------------------------------------------------
September 28, September 30,
1996 1995
--------------------------------------------------------------------
Prepackaged Frozen Dessert Sales $ 8,868,000 $ 8,692,000
Bulk Frozen Dessert Sales 1,520,000 1,356,000
Other sales 365,000 381,000
--------------------------------------------------------------------
Total sales $10,753,000 $10,429,000
====================================================================
The Company's sales of bulk and prepackaged frozen desserts comprised
84% of the total revenues for the thirteen weeks ended September 28,
1996 and 84% for the thirteen weeks ended September 30, 1995.
The gross profit percentage increased to 34% for the thirteen weeks
ended September 28, 1996 as compared to 33% for the thirteen weeks
ended September 30, 1995. The increase is due primarily to the
increased sales of products with higher gross margins.
-11-
<PAGE>
Selling, general and administrative expenses increased to $5,449,000
for the thirteen weeks ended September 28, 1996 from $3,724,000 for the
thirteen weeks ended September 30, 1995. This increase is primarily
attributable to the increased product support and selling expenses,
including an increase of product introductory expenses incurred in
connection with new licensed products introduced during 1996 in excess
of such new product introductions during 1995. The Company believes the
incurrence of product introductory expenses is necessary to introduce
new products as a result of increasing competition in the frozen
dessert novelty category and the proliferation of new products in this
category.
The loss for the thirteen weeks ended September 28, 1996 was $(942,000)
as compared to net income of $131,000 for the thirteen weeks ended
September 30, 1995. The decrease was primarily attributable to the
increase in product support and selling expenses, offset in part by the
increased gross profit dollars and reduced taxes on income.
Thirty-nine weeks ended September 28, 1996 vs. thirty-nine weeks ended
September 30, 1995.
Total revenue for the thirty-nine weeks ended September 28, 1996
increased to $36,443,000 from $30,710,000 for the thirty-nine weeks
ended September 30, 1995. Prepackaged frozen dessert sales increased to
$26,115,000 for the thirty-nine weeks ended September 28, 1996 from
$20,908,000 for the thirty-nine weeks ended September 30, 1995. The
increase in revenues and in prepackaged and frozen dessert sales was
primarily due to the increase in new product authorizations in retail
outlets and the acquisition of the Colombo hard pack rights in August
1995.
The following table sets forth the sales of prepackaged frozen
desserts, the sales of bulk frozen desserts to franchised and licensed
stores, and other sales for the thirty-nine weeks ended September 28,
1996 and September 30, 1995, respectively.
Thirty-nine Weeks Ended
-----------------------------------------------------------------------
September 28, September 30,
1996 1995
-----------------------------------------------------------------------
Prepackaged Frozen Dessert $26,115,000 $20,908,000
Bulk Frozen Dessert Sales 4,616,000 4,416,000
Other sales 1,054,000 946,000
-----------------------------------------------------------------------
Total sales $31,785,000 $26,270,000
=======================================================================
The Company's sales of bulk and prepackaged frozen desserts comprised
84% of the total revenues for the thirty-nine weeks ended September 28,
1996 and 82% for the thirty-nine weeks ended September 30, 1995.
The gross profit percentage increased to 40% for the thirty-nine weeks
ended September 28, 1996 as compared to 37% for the thirty-nine weeks
ended September 30, 1995. The increase is due primarily to a decrease
in sales promotions during the first and second quarters of 1996 over
the respective periods in 1995 and increased sales of products with
higher gross margins.
-12-
<PAGE>
Selling, general and administrative expenses increased to $14,380,000
for the thirty-nine weeks ended September 28, 1996 as compared to
$9,486,000 for the thirty-nine weeks ended September 30, 1995. This
increase is primarily attributable to the increased product support and
selling expenses, including an increase of product introductory
expenses incurred in connection with new licensed products introduced
during 1996 in excess of such new product introductions during 1995.
The Company believes the incurrence of product introductory expenses is
necessary to introduce new products as a result of increasing
competition in the frozen dessert novelty category and the
proliferation of new products in this category.
The loss for the thirty-nine weeks ended September 28, 1996 was
$(471,000) as compared to net income of $1,016,000 for the thirty-nine
weeks ended September 30, 1995. The decrease was primarily attributable
to the increase in product support and selling expenses offset in part
by the increased gross profit dollars and reduced taxes on income.
Liquidity and Capital Resources
Net cash used in operations was $4,627,000 for the thirty-nine weeks
ended September 28, 1996 as compared to net cash used in operations of
$1,428,000 for the thirty-nine weeks ended September 30, 1995. The
increase in cash used in operations resulted mainly from the changes in
operating assets and liabilities.
Working capital on September 28, 1996 was $7,272,000. The Company
believes this working capital and the funds available from its credit
line will be sufficient to meet its cash and working capital
requirements for its established operations for the current fiscal
year. At September 28, 1996 the Company had $1,975,000 available from
its credit line as discussed in Note 2 to the condensed consolidated
financial statements.
PART II. OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
No reports on Form 8-K were filed by the registrant during the
thirty-nine weeks ended September 28, 1996.
-13-
<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.
Date: November 15, 1996 INTEGRATED BRANDS INC.
- ----------------------- ----------------------
By: /s/
--------------------------------
Gary P. Stevens, President
and Chief Financial and
Accounting Officer
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> SEP-28-1996
<CASH> 1,130
<SECURITIES> 0
<RECEIVABLES> 12,145
<ALLOWANCES> 851
<INVENTORY> 2,138
<CURRENT-ASSETS> 17,203
<PP&E> 3,187
<DEPRECIATION> 1,359
<TOTAL-ASSETS> 32,735
<CURRENT-LIABILITIES> 9,931
<BONDS> 0
124
0
<COMMON> 0
<OTHER-SE> 12,732
<TOTAL-LIABILITY-AND-EQUITY> 32,735
<SALES> 34,760
<TOTAL-REVENUES> 36,433
<CGS> 19,062
<TOTAL-COSTS> 22,094
<OTHER-EXPENSES> 14,042
<LOSS-PROVISION> 338
<INTEREST-EXPENSE> 466
<INCOME-PRETAX> (507)
<INCOME-TAX> (36)
<INCOME-CONTINUING> (471)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (471)
<EPS-PRIMARY> (.05)
<EPS-DILUTED> (.05)
</TABLE>
