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 June 28, 1997.
[ ] 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 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 _____
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 August 6, 1997.
Common Stock Par Value $.01 Per Share. Shares Outstanding 10,003,288
<PAGE>
INTEGRATED BRANDS, INC.
Form 10-Q
June 28, 1997
TABLE OF CONTENTS
Page
----
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 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 13
SIGNATURES 14
-2-
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
June 28, December 28,
1997 1996
- ------------------------------------------------------------------------------
(Unaudited)
(In thousands)
Assets
Current assets:
Cash and cash equivalents $1,589 $1,054
Receivables 11,031 5,612
Receivables - affiliates 794 1,452
Income tax refunds receivable 361 512
Inventories 1,573 1,748
Prepaid product introductory expenses 2,445 981
Other prepaid expenses 239 166
- ------------------------------------------------------------------------------
Total current assets 18,032 11,525
Improvements and equipment, at cost, 2,029 1,668
net of accumulated depreciation and
amortization
Other assets
License agreements, at cost, net of
accumulated amortization of
$1,510,000 and $1,278,000 6,838 6,070
Intangible assets, at cost, net of
accumulated amortization of
$3,274,000 and $3,105,000 5,571 5,740
Investment in Heidi's 1,431 1,464
Other 280 331
- ------------------------------------------------------------------------------
Total assets $34,181 $26,798
==============================================================================
See accompanying notes to Condensed Consolidated Financial Statements
-3-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Continued)
June 28, December 28,
1997 1996
- --------------------------------------------------------------------------------
(Unaudited)
(In thousands)
Liabilities and stockholders' equity
Current liabilities:
Current maturities of long-term debt $652 $666
Trade accounts payable 8,804 5,240
Income taxes payable 39 30
Payable - affiliates 707 783
Accrued marketing expenses 1,613 280
Other accrued liabilities 1,671 1,477
Liability for lease terminations 50 110
- -----------------------------------------------------------------------------
Total current liabilities 13,536 8,586
Long-term debt, less current maturities 8,681 7,512
Liability for lease terminations, net of current portion 145 88
- -----------------------------------------------------------------------------
Total liabilities 22,362 16,186
- -----------------------------------------------------------------------------
Minority interest 303 213
- -----------------------------------------------------------------------------
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 4,838 3,615
Treasury stock, at cost, 2,354,615 and 2,254,615 (1,878) (1,772)
shares, respectively
- -----------------------------------------------------------------------------
Total stockholders' equity 11,516 10,399
- -----------------------------------------------------------------------------
Total liabilities and stockholders' equity $34,181 $26,798
==============================================================================
See accompanying notes to Condensed Consolidated Financial Statements
-4-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Thirteen Weeks Ended
- --------------------------------------------------------------------------------
June 28, June 29,
1997 1996
- --------------------------------------------------------------------------------
(Unaudited)
(In thousands, except
per share amount)
Revenues:
Sales $14,450 $14,882
Store operations 1,046 1,142
Franchise revenue 484 535
Other 51 48
- --------------------------------------------------------------------------------
16,031 16,607
- --------------------------------------------------------------------------------
Operating costs and expenses:
Cost of goods sold 7,272 8,133
Store operations 953 1,143
Selling, general and administrative expenses 5,568 6,807
Interest 185 141
- --------------------------------------------------------------------------------
13,978 16,224
- --------------------------------------------------------------------------------
Income before taxes on income 2,053 383
Taxes on income 248 180
- --------------------------------------------------------------------------------
Net income $1,805 $203
================================================================================
Earnings per common share $.18 $.02
================================================================================
Weighted average number of common
and common equivalent shares
outstanding 10,010 10,339
================================================================================
See accompanying notes to Condensed Consolidated Financial Statements
-5-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
Twenty-Six Weeks Ended
- --------------------------------------------------------------------------------
June 28, June 29,
1997 1996
- --------------------------------------------------------------------------------
(Unaudited)
(In thousands, except
per share amount)
Revenues:
Sales $21,441 $22,055
Store operations 2,418 1,957
Franchise revenue 844 983
Other 99 92
- --------------------------------------------------------------------------------
24,802 25,087
- --------------------------------------------------------------------------------
Operating costs and expenses:
Cost of goods sold 11,238 11,985
Store operations 2,190 1,971
Selling, general and administrative expenses 9,563 9,954
Interest 362 258
- --------------------------------------------------------------------------------
23,353 24,168
- --------------------------------------------------------------------------------
Income before taxes on income 1,449 919
Taxes on income 226 448
- --------------------------------------------------------------------------------
Net income $1,223 $471
================================================================================
Earnings per common share $.12 $.05
================================================================================
Weighted average number of common
and common equivalent shares
outstanding 10,050 10,372
================================================================================
See accompanying notes to Condensed Consolidated Financial Statements
-6-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE TWENTY-SIX WEEKS ENDED JUNE 28, 1997
<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 28, 1996 12,358 $124 $8,432 $3,615 $(1,772) $10,399
Purchase of treasury stock (106) (106)
Net income for the twenty-six
weeks ended June 28, 1997 1,223 1,223
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, June 28, 1997 12,358 $124 $8,432 $4,838 $(1,878) $11,516
==================================================================================================================================
</TABLE>
See accompanying notes to Condensed Consolidated Financial Statements.
-7-
<PAGE>
INTEGRATED BRANDS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
- ------------------------------------------------------------------------------------------------------------------------
June 28, June 29,
1997 1996
- ------------------------------------------------------------------------------------------------------------------------
(Unaudited)
(In thousands)
<S> <C> <C>
Cash Flows from Operating Activities
Net income $1,223 $471
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Depreciation and amortization 593 703
Provision for doubtful accounts 240 224
Minority interest in net income (loss) of subsidiaries 90 (4)
Increase (decrease) in cash flows from changes in operating assets and
liabilities:
Receivables (5,659) (7,911)
Receivables - affiliates 658 (571)
Inventories 175 (749)
Prepaid expenses and other (1,386) (3,474)
Other assets 51 143
Trade accounts payable and accrued liabilities 5,097 7,409
Payables - affiliates (76) 338
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,006 (3,421)
========================================================================================================================
Cash Flows from Investing Activities:
Acquisition of License Rights (1,000)
Capital expenditures (520) (880)
- ------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (1,520) (880)
- ------------------------------------------------------------------------------------------------------------------------
Cash Flows from Financing Activities:
Proceeds from long-term debt 1,475 3,561
Principal payments on long-term debt (320) (288)
Purchase of treasury stock (106) (107)
- ------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 1,049 3,166
- ------------------------------------------------------------------------------------------------------------------------
Net change in cash and cash equivalents 535 (1,135)
Cash and cash equivalents, beginning of period 1,054 2,086
- ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period 1,589 $951
========================================================================================================================
</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 its 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.
The accompanying consolidated financial statements include the
accounts of the Company and its subsidiaries except Heidi's Frogen
Yogurt 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 amortized 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 period 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 1996 balances were
reclassified to conform to 1997 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 28, 1996.
The results of operations for the twenty-six weeks and thirteen weeks
ended June 28, 1997, 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 June 30, 1998. 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 bank's prime rate plus 1/2%. As of June 28, 1997, the Company had
available credit of $2,500,000 under the revolving credit facility.
NOTE 3: EARNINGS PER COMMON SHARE
Earnings per share of common stock for the thirteen and the twenty-six
weeks ended June 28, 1997 and June 29, 1996 were computed by dividing
net income by the weighted average number of shares of Common Stock
outstanding during the period presented. 7,000 and 235,000 common
equivalent shares were included in the weighted average number of
shares for the thirteen weeks ended June 28, 1997 and June 29, 1996,
respectively. 14,000 and 235,000 common equivalent shares were
included in the weighted average number of shares for the twenty-six
weeks ended June 28, 1997 and June 29, 1996, respectively. The common
stock equivalent shares result from shares issuable upon the exercise
of options under the treasury stock method.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Thirteen weeks ended June 28, 1997 vs. thirteen weeks ended June 29, 1996.
Total revenue for the thirteen weeks ended June 28, 1997 decreased to
$16,031,000 from $16,607,000 for the thirteen weeks ended June 29, 1996.
Prepackaged frozen dessert sales increased to $12,523,000 for the thirteen weeks
ended June 28, 1997 from $12,452,000 for the thirteen weeks ended June 29, 1996.
Prepackaged frozen dessert sales for the thirteen weeks ending June 28, 1997
were affected by cooler than normal weather partially offset by significant
increases in product authorizations and sales in retail outlets of new Tropicana
frozen dessert novelties. The reduction in bulk frozen dessert sales resulted
primarily from cooler than normal weather and discontinuance of the test program
with Denny's, in part due to the low profit attributable to this business. The
decrease in revenue from store operations was due to lost revenues attributable
to three stores previously operated by the company, two of which were sold to
franchisees and one of which was leased to a third party, offset by the opening
of a Schrafft's New York ice cream shop in January 1997 in Las Vegas, Nevada as
a joint venture.
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 28, 1997 and June 29, 1996, respectively.
Thirteen Weeks Ended
- ------------------------------------------------------------------------------
June 28, 1997 June 29, 1996
Prepackaged Frozen Dessert Sales $12,523,000 $12,452,000
Bulk Frozen Dessert Sales 1,483,000 2,003,000
Other Sales 444,000 427,000
- ------------------------------------------------------------------------------
Total Sales $14,450,000 $14,882,000
- ------------------------------------------------------------------------------
The Company's sales of bulk and prepackaged frozen desserts comprised 87% of the
total revenues for the thirteen weeks ended June 28, 1997 as compared to 87% of
the total revenues for the thirteen weeks ended June 29, 1996.
The gross profit percentage increased to 50% for the thirteen weeks ended June
28, 1997 as compared to 45% for the thirteen weeks ended June 29, 1996. The
gross profit improvement is primarily due to sales of newly introduced Tropicana
frozen dessert novelties which have higher gross margins than the Company's
other products.
Selling, general and administrative expenses decreased to $5,568,000 for the
thirteen weeks ended June 28, 1997 as compared to $6,807,000 for the thirteen
weeks ended June 29, 1996. The decline is primarily attributable to the decline
in product introductory expenses incurred in the thirteen weeks ended June 28,
1997 versus the thirteen weeks ended June 29, 1996.
The net income for the thirteen weeks ended June 28, 1997 was $1,805,000 as
compared to net income of $203,000 for the thirteen weeks ended June 29, 1996.
The improvement in results of operations for the thirteen weeks ended June 28,
1997 is attributable to the increase in gross profit dollars as a result of
product sales with higher gross profit percentage as compared to the same period
in 1996, and the decrease in product introductory expenses.
Twenty-six weeks ended June 28, 1997 vs. twenty-six weeks ended June 29, 1996.
Total revenue for the twenty-six weeks ended June 28, 1997 decreased to
$24,802,000 from $25,087,000 for the twenty-six weeks ended June 29, 1996.
Prepackaged frozen dessert sales increased to $18,408,000 for the twenty-six
weeks ended June 28, 1997 from $18,270,000 for the twenty-six weeks ended June
29, 1996.
-11-
<PAGE>
Prepackaged frozen dessert sales for the twenty-six weeks ending June 28, 1997
were affected by cooler than normal weather during the thirteen week period
ending June 28, 1997 partially offset by significant increases in product
authorizations and sales in retail outlets of new Tropicana frozen dessert
novelties. The reduction in bulk frozen dessert sales resulted primarily from
cooler than normal weather during the thirteen week period ending June 28, 1997
and discontinuance of the test program with Denny's, in part due to the low
profit attributable to this business. The increase in revenue from store
operations of $461,000 was due to revenues attributable to a company-owned Jerry
Tucci's Brick Oven Pizzeria, an Italian restaurant opened in March 1996 (and
subsequently leased to a third party in April 1997) and the opening of a
Schrafft's New York ice cream shop in January 1997 in Las Vegas, Nevada, as a
joint venture, partially offset by lost revenues attributable to two stores
previously operated by the Company which were sold to franchisees during the
quarter ended June 28, 1997.
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
twenty-six weeks ended June 28, 1997 and June 29, 1996, respectively.
<TABLE>
<CAPTION>
Twenty-six Weeks Ended
- ------------------------------------------------------------------------------------------
June 28, 1997 June 29, 1996
<S> <C> <C>
Prepackaged Frozen Dessert Sales $18,408,000 $18,270,000
Bulk Frozen Dessert Sales 2,306,000 3,096,000
Other Sales 727,000 689,000
- ------------------------------------------------------------------------------------------
Total Sales $21,441,000 $22,055,000
- ------------------------------------------------------------------------------------------
</TABLE>
The company's sales of bulk and prepackaged frozen desserts compromised 84% of
the total revenues for the twenty-six weeks ended June 28, 1997 as compared to
85% of the total revenues for the twenty-six weeks ended June 29, 1996.
The gross profit percentage increased to 48% for the twenty-six weeks ended June
28, 1997 as compared to 46% for the twenty-six weeks ended June 29, 1996. The
gross profit improvement is primarily due to newly introduced Tropicana frozen
dessert novelties during the second quarter of 1996 with higher gross margins.
Selling, general and administrative expenses decreased to $9,563,000 for the
twenty-six weeks ended June 28, 1997 as compared to $9,954,000 for the
twenty-six weeks ended June 29, 1996. The decrease is primarily attributable to
lower product introductory expenses incurred in the twenty-six weeks ended June
28, 1997 versus such expenses for the twenty-six weeks ended June 29, 1996.
The net income for the twenty-six weeks ended June 28, 1997 was $1,223,000 as
compared to net income of $471,000 for the twenty-six weeks ended June 29, 1996.
The improvement in results of operations for the twenty-six weeks ended June 28,
1997 is primarily attributable to the increase in gross profit dollars as a
result of product sales with higher gross profit margins as compared to the same
period in 1996, increased store operations, and a decrease in product
introductory expenses.
Liquidity and Capital Resources
Net cash provided by operations was $1,006,000 for the twenty-six weeks ended
June 28, 1997 as compared to net cash used in operations of $3,421,000 for the
twenty-six weeks ended June 29, 1996. The increase in cash provided by
operations resulted mainly from the results of operations and the changes in
operating assets and liabilities.
Working capital on June 28, 1997 was $4,496,000. 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 year. At June 29, 1997 the Company had $2,500,000 available from
its credit line as discussed in Note 2 to the condensed consolidated financial
statements.
-12-
<PAGE>
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
The statements which are not used historical facts contained in this Form 10-Q
are forward-looking statements that involve risks and uncertainties, including,
but not limited to, risks associated with the Company's future growth and
profitability and the effects of general economic conditions.
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 thirteen weeks
ended June 28, 1997.
-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: August 12, 1997 INTEGRATED BRANDS INC.
By: /s/ Gary P. Stevens
----------------------------
Gary P. Stevens, President
-14-
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-END> JUN-28-1997
<CASH> 1,589
<SECURITIES> 0
<RECEIVABLES> 11,619
<ALLOWANCES> 588
<INVENTORY> 1,573
<CURRENT-ASSETS> 18,032
<PP&E> 3,708
<DEPRECIATION> 1,679
<TOTAL-ASSETS> 34,181
<CURRENT-LIABILITIES> 13,536
<BONDS> 0
0
0
<COMMON> 124
<OTHER-SE> 11,392
<TOTAL-LIABILITY-AND-EQUITY> 34,181
<SALES> 21,441
<TOTAL-REVENUES> 24,802
<CGS> 11,238
<TOTAL-COSTS> 13,428
<OTHER-EXPENSES> 9,323
<LOSS-PROVISION> 240
<INTEREST-EXPENSE> 362
<INCOME-PRETAX> 1,449
<INCOME-TAX> 226
<INCOME-CONTINUING> 1,223
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,223
<EPS-PRIMARY> .12
<EPS-DILUTED> .12
</TABLE>
