<PAGE>
SECURITY 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 June 29, 1996.
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[ ] 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.
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(Exact name of registrant as specified in its charter)
New Jersey
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(State or other jurisdiction of incorporation or organization)
11-2778439
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(I.R.S. Employer Identification No.)
4175 Veterans Highway, Ronkonkoma, NY 11779
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(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
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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
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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 August 12, 1996.
Common Stock Par Value $.01 Per Share. Shares Outstanding 10,103,288
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INTEGRATED BRANDS INC.
Form 10-Q
June 29, 1996
TABLE OF CONTENTS
Part I. - Financial Information
<TABLE>
<S> <C>
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
</TABLE>
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 29, December 30,
1996 1995
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(Unaudited)
(In thousands)
<S> <C> <C>
Assets
Current Assets:
Cash and cash equivalents $ 951 $ 2,086
Receivables 12,103 4,416
Receivables - affiliates 1,614 1,043
Inventories 2,838 2,089
Prepaid product introductory expenses 4,031 701
Other prepaid expenses 425 281
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Total Current Assets 21,962 10,616
Improvements and equipment,
at cost, - net of accumulated
depreciation and amortization 1,834 1,103
Other assets:
License agreements - net of accumulated
amortization of $1,078,000 and $878,000 6,270 6,470
Intangible assets, at cost - net of
accumulated amortization of $3,125,000
and $2,967,000 5,920 6,077
Investment in Heidi's 1,394 1,590
Other 378 521
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Total assets $37,758 $26,377
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</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
<TABLE>
<CAPTION>
June 29, December 30,
1996 1995
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(Unaudited)
(In thousands)
Liabilities and Stockholders' Equity
<S> <C> <C>
Liabilities:
Current maturities of long-term debt $ 716 $ 576
Trade accounts payable 9,589 4,244
Income taxes payable 304 465
Payable - affiliates 1,240 902
Accrued marketing expenses 2,048 162
Other accrued liabilities 1,362 1,021
Liability for lease terminations 110 110
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Current Liabilities 15,369 7,480
Long-term debt, less current maturities 8,129 4,996
Liability for lease terminations,
net of current portion 241 242
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Total liabilities 23,739 12,718
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Minority interest 221 225
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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 7,014 6,543
Treasury stock, at cost 2,254,615 and 2,154,615 shares (1,772) (1,665)
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Total stockholders' equity 13,798 13,434
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Total liabilities and stockholders' equity $37,758 $26,377
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</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Thirteen Weeks Ended
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June 29, July 1,
1996 1995
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(Unaudited)
(In thousands, except
per share amount)
<S> <C> <C>
Revenues:
Net sales $14,177 $11,210
Store operations 1,142 982
Franchise revenue 535 529
Other 48 60
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15,902 12,781
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Operating costs and expenses:
Cost of goods sold 8,133 6,752
Store operations 1,143 893
Selling, general and administrative expenses 6,102 3,557
Interest 141 6
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15,519 11,208
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Income before taxes on income 383 1,573
Taxes on income 180 704
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Net income $203 $869
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Earnings per common share $.02 $.09
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Weighted average number of common
and common equivalent shares
outstanding 10,339 10,213
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</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
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June 29, July 1,
1996 1995
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(Unaudited)
(In thousands, except
per share amount)
<S> <C> <C>
Revenues:
Net sales $21,032 $15,841
Store operations 1,957 1,932
Franchise revenue 983 914
Other 92 115
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24,064 18,802
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Operating costs and expenses:
Cost of goods sold 11,985 9,591
Store operations 1,971 1,798
Selling, general and administrative expenses 8,931 5,762
Interest 258 45
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23,145 17,196
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Income before taxes on income 919 1,606
Taxes on income 448 721
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Net income $471 $885
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Earnings per common share $.05 $.09
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Weighted average number of common
and common equivalent shares
outstanding 10,372 10,225
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</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED JUNE 29, 1996
<TABLE>
<CAPTION>
Common Stock
------------------
Par Paid-in Retained Treasury
Shares Value Capital Earnings Stock Total
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(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 income for the
twenty-six weeks ended
June 29, 1996 471 471
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Balance, June 29, 1996 12,358 $124 $8,432 $7,014 $(1,772) $13,798
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</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
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INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
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June 29, July 1,
1996 1995
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(Unaudited)
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $471 $885
Adjustments to reconcile net income
to net cash used in
operating activities:
Depreciation and amortization 703 440
Provision for doubtful accounts 224 187
Minority interest in net income of subsidiary (4) 9
Increase (decrease) in cash flows from changes in operating assets and
liabilities:
Receivables (7,911) (5,140)
Receivables - affiliates (571) (1,232)
Inventories (749) (17)
Prepaid expenses and other (3,474) (1,756)
Other assets 143 32
Trade accounts payable and accrued liabilities 7,409 5,075
Payables - affiliates 338 254
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Net cash used in operating activities (3,421) (1,263)
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Cash Flows from Investing Activities:
Capital expenditures (880) (39)
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Net cash used in investing activities (880) (39)
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Cash Flows from Financing Activities:
Proceeds from long-term debt 3,561
Principal payments on long-term debt (288) (136)
Purchase of treasury stock (107)
Exercise of stock options 1
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Net cash provided by (used in) financing activities 3,166 (135)
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Net change in cash and cash equivalents (1,135) (1,437)
Cash and cash equivalents, beginning of period 2,086 3,860
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Cash and cash equivalents, end of period $951 $2,423
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</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-8-
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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 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 twenty-six weeks ended June 29, 1996 are not
necessarily indicative of the results to be expected for the full year.
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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 June 29, 1996, the
Company had available credit of $3,675,000 under the revolving credit facility.
NOTE 3
EARNINGS PER COMMON SHARE
Earnings per share of common stock for the thirteen weeks and the twenty-six
weeks ended June 29, 1996 and July 1, 1995 was computed by dividing net income
by the weighted average number of shares of Common Stock outstanding during the
period presented. 235,000 and 260,000 common equivalent shares were included in
the weighted average number of shares for the thirteen weeks ended June 29, 1996
and July 1, 1995, respectively. 235,000 and 272,000 common equivalent shares
were included in the weighted average number of shares for the twenty-six weeks
ended June 29, 1996 and July 1, 1995, respectively. The common stock equivalent
shares result from shares issuable upon the exercise of options under the
treasury stock method.
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.
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<PAGE>
ITEM 2 -
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Thirteen weeks ended June 29, 1996 vs. thirteen weeks ended July 1, 1995.
Total revenue for the thirteen weeks ended June 29, 1996 increased to
$15,902,000 from $12,781,000 for the thirteen weeks ended July 1, 1995.
Prepackaged frozen dessert sales for the thirteen weeks ended June 29, 1996
increased to $11,747,000 from $8,984,000 for the thirteen weeks ended July 1,
1995. 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 June 29, 1996 and July 1, 1995, respectively.
Thirteen Weeks Ended
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June 29, July 1,
1996 1995
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Prepackaged Frozen Dessert Sales $11,747,000 $ 8,984,000
Bulk Frozen Dessert Sales 2,003,000 1,857,000
Other sales 427,000 369,000
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Total sales $14,177,000 $11,210,000
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The Company's sales of bulk and prepackaged frozen desserts comprised 86% of the
total revenues for the thirteen weeks ended June 29, 1996 and 85% for the
thirteen weeks ended July 1, 1995.
The gross profit percentage increased to 43% for the thirteen weeks ended June
29, 1996 as compared to 40% for the thirteen weeks ended July 1, 1995. The
increase is due primarily to a decrease in sales promotions and increased sales
of products with higher gross margins.
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<PAGE>
Selling, general and administrative expenses increased to $6,102,000 for the
thirteen weeks ended June 29, 1996 from $3,557,000 for the thirteen weeks ended
July 1, 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 the
second quarter of 1996 in excess of such expenses for the second quarter of
1995.
Net income for the thirteen weeks ended June 29, 1996 was $203,000 as compared
to $869,000 for the thirteen weeks ended July 1, 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.
Twenty-six weeks ended June 29, 1996 vs. twenty-six weeks ended July 1,
1995.
Total revenue for the twenty-six weeks ended June 29, 1996 increased to
$24,064,000 from $18,802,000 for the twenty-six weeks ended July 1, 1995.
Prepackaged frozen dessert sales increased to $17,247,000 for the twenty-six
weeks ended June 29, 1996 from $12,216,000 for the twenty-six weeks ended July
1, 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 twenty-six weeks ended June 29, 1996 and July 1, 1995, respectively.
Twenty-six Weeks Ended
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June 29, July 1,
1996 1995
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Prepackaged Frozen Dessert $17,247,000 $12,216,000
Bulk Frozen Dessert Sales 3,096,000 3,060,000
Other sales 689,000 565,000
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Total sales $21,032,000 $15,841,000
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The Company's sales of bulk and prepackaged frozen desserts comprised 85% of the
total revenues for the twenty-six weeks ended June 29, 1996 and 81% for the
twenty-six weeks ended July 1, 1995.
The gross profit percentage increased to 43% for the twenty-six weeks ended June
29, 1996 as compared to 39% for the twenty-six weeks ended July 1, 1995. The
increase is due primarily to a decrease in sales promotions during the second
quarter of 1996 over the second quarter of 1995, and increased sales of products
with higher gross margins.
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<PAGE>
Selling, general and administrative expenses increased to $8,931,000 for the
twenty-six weeks ended June 29, 1996 as compared to $5,762,000 for the
twenty-six weeks ended July 1, 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 the second quarter of 1996 in excess of such expenses for the
second quarter of 1995.
Net income for the twenty-six weeks ended June 29, 1996 was $471,000 as compared
to $885,000 for the twenty-six weeks ended July 1, 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 $3,421,000 for the twenty-six weeks ended June
29, 1996 as compared to net cash used in operations of $1,263,000 for the
twenty-six weeks ended July 1, 1995. The increase in cash used in operations
resulted mainly from the changes in operating assets and liabilities.
Working capital on June 29, 1996 was $6,593,000. 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.
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 twenty-six weeks
ended June 29, 1996.
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<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: August 16, 1996 INTEGRATED BRANDS INC.
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By: /s/ Gary P. Stevens
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Gary P. Stevens, President
and Chief Financial and
Accounting Officer
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<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> JUN-29-1996
<CASH> 951
<SECURITIES> 0
<RECEIVABLES> 14,440
<ALLOWANCES> 723
<INVENTORY> 2,838
<CURRENT-ASSETS> 21,962
<PP&E> 3,102
<DEPRECIATION> 1,268
<TOTAL-ASSETS> 37,758
<CURRENT-LIABILITIES> 15,369
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 13,674
<TOTAL-LIABILITY-AND-EQUITY> 37,758
<SALES> 22,989
<TOTAL-REVENUES> 24,064
<CGS> 11,985
<TOTAL-COSTS> 13,956
<OTHER-EXPENSES> 8,707
<LOSS-PROVISION> 224
<INTEREST-EXPENSE> 258
<INCOME-PRETAX> 919
<INCOME-TAX> 448
<INCOME-CONTINUING> 471
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 471
<EPS-PRIMARY> .05
<EPS-DILUTED> .05
</TABLE>
