SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended September 30, 1995
Commission File Number 0-15238
VICTORIA CREATIONS, INC.
(Exact name of registrant as specified in its charter)
Rhode Island 05-0301429
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
30 Jefferson Park Rd.
Warwick, Rhode Island 02888
(Address of principal (Zip Code)
executive offices)
Registrant's telephone number, including area code 401-467-7150
Indicate by check mark whether the registrant (1) has filed all documents
and 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 [ ].
At November 10, 1995, there were 7,800,000 shares of the registrant's
Common Stock, Par Value $0.01 a share, outstanding.
1
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VICTORIA CREATIONS, INC.
INDEX
Page No.
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Part I - Financial Information
Statement of Operations.................................3
Management's Discussion and Analysis of
Financial Condition and Results of Operations.........4
Balance Sheet ..........................................6
Statement of Cash Flows.................................7
Notes to Financial Statements ..........................8
Part II - Other Information ................................10
2
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VICTORIA CREATIONS, INC.
Part I - Financial information
VICTORIA CREATIONS, INC.
Statement of Operations
(000 omitted)
-------------------
THREE MONTHS ENDED
SEPTEMBER 30
-------------------
1995 1994
--------- ---------
Net sales........................................... $11,910 $14,744
Cost of goods sold.................................. 6,233 7,630
--------- ---------
Gross Profit $5,677 $7,114
Selling, general and administrative expenses........ 4,208 4,957
Amortization of goodwill............................ 180 180
--------- ---------
Operating Income $1,289 $1,977
Other income (expense):
Interest expense-Note C............................ (492) (973)
Royalty income..................................... 8 14
--------- ---------
Earnings before Income taxes $805 $1,018
Provision for income taxes.......................... 6 6
--------- ---------
Net Earnings $799 $1,012
========= =========
Average common shares outstanding................... 7,800 7,800
Net Earnings per share.............................. $0.10 $0.13
See notes to financial statements.
3
VICTORIA CREATIONS, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company is a 79% owned subsidiary of United Merchants and
Manufacturers, Inc. ("UM&M" or "Parent Company").
RESULTS OF OPERATIONS
Net sales of the Company for the three months ended September 30, 1995 of
$11.9 million decreased 19% from the $14.7 million reported for the
comparable period ended September 30, 1994. Both the Company's branded
label merchandise, Givenchy, Richelieu and Lagerfeld, and the Company's
private label business showed decreases in sales. The decreases are
attributed to limitations on borrowing of cash from the Company's senior
secured lender. The limitations on borrowing constrained the Company's
ability to purchase raw materials needed to accept orders for finished
goods for shipment during the quarter. The limitations were lessened at
the end of July 1995 when the Company renegotiated its long term debt with
its lender (see Note C of Notes to Financial Statements for details of the
refinancing). Sales of out-of-season merchandise (which is sold at lower
than the Company's normal margin) also declined from that of the prior
year's same three months reflecting the Company's focus on forecasting and
inventory control which reduced the quantities of inventory available for
such sales. Unit sales, excluding out-of-season merchandise, for the
current year's quarter decreased 20% from those of the comparable quarter
last year while average unit prices remained constant.
Cost of goods sold for the current quarter decreased 18% from that of the
three months ended September 30, 1994 generally tracking the decrease in
net sales.
The resulting gross profit for the quarter ended September 30, 1995
decreased 20% from that of the prior year's same quarter. As a percentage
of net sales, gross profit for the current quarter was the same as that of
the three months ended September 30, 1994.
Selling, general and administrative expenses decreased 15% in the current
year's quarter from those of the three months ended September 30, 1994.
The decrease is attributable to reductions of sales volume related
expenses such as advertising and royalties expenses and to the Company's
continued emphasis on expense control.
Although average borrowings, other than from the Parent Company, were
higher during the current quarter, interest expense for the three months
ended September 30, 1995 decreased $481,000 from that of the prior year's
same quarter. The decrease was due the decreased interest rate on the
secured loans renegotiated as mentioned above. The Parent Company waived
the interest on the amount due to it for both of the three month periods
ended September 30, 1995 and 1994. See Note C of Notes to Financial
Statements.
4
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Net earnings for the quarter ended September 30, 1995 decreased 21% to
$799,000 from the prior year's same quarter net earnings of $1.0 million.
This shortfall was mitigated somewhat by the improved terms of the
Company's renegotiated lending agreement in July 1995 mentioned above.
LIQUIDITY AND CAPITAL RESOURCES
The Company has generally met its capital requirements from internally
generated funds and borrowings from its Parent Company and, until June 30,
1994, from its factor. On June 30, 1994, the Company repaid its
indebtedness to its factor by borrowing from another lender and its Parent
Company. Effective July 31, 1995, the Company renegotiated its borrowing
arrangements with its current senior secured lender. See Note C of Notes
to Financial Statements.
Short term needs for working capital will be borrowed under a revolving
loan from the lender. The Company does not anticipate increased needs for
long-term borrowings other than to repay the current lender.
Working capital amounts to $21.3 million at September 30, 1995 and was
$19.9 million at June 30, 1995, an increase of $1.4 million. The
Company's current ratio of 5.0 to 1 at September 30, 1995 is deemed
adequate for the Company's present financial position and needs.
5
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VICTORIA CREATIONS, INC.
Balance Sheet (000 omitted)
-------------------
SEP 30 JUNE 30
1995 1995
--------- ---------
ASSETS
Current Assets:
Cash............................................... $600 $638
Receivables, net of allowances of $3,345,000 at
September 30, 1995 and $2,415,000 at June 30, 1995 8,056 7,242
Inventories........................................ 16,663 16,430
Other current assets............................... 1,232 958
--------- ---------
Total Current Assets $26,551 $25,268
Plant and Equipment:
Machinery and equipment............................ $3,237 $3,233
Leasehold improvements............................. 1,914 1,913
--------- ---------
$5,151 $5,146
Less accumulated depreciation...................... 4,087 4,035
--------- ---------
Net Plant and Equipment $1,064 $1,111
Other Assets:
Goodwill........................................... $20,529 $20,709
Other.............................................. 779 863
--------- ---------
Total Other Assets $21,308 $21,572
--------- ---------
$48,923 $47,951
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $3,825 $4,284
Accrued expenses and other liabilities............. 1,457 1,084
--------- ---------
Total Current Liablilties $5,282 $5,368
Long-term debt...................................... 19,465 11,090
Due to Parent Company............................... 15,345 23,461
Stockholders' Equity:
Common stock, $0.01 par value,
authorized 10 million shares,
outstanding 7.8 million shares.................... $58 $58
Additional paid-in capital......................... 32,998 32,998
Retained earnings (deficit)........................ (24,225) (25,024)
--------- ---------
Total Stockholders' Equity $8,831 $8,032
--------- ---------
$48,923 $47,951
========= =========
See notes to financial statements.
6
VICTORIA CREATIONS, INC.
Statement of Cash Flows
(000 omitted)
-------------------
THREE MONTHS ENDED
SEPTEMBER 30
-------------------
1995 1994
--------- ---------
Cash Flows from Operating Activities:
Net earnings....................................... $799 $1,012
Add back items not requiring cash in the
current period:
Depreciation and amortization.................... 232 250
Decrease (Increase) in Current Assets:
Accounts receivable............................... (814) (3,422)
Inventories....................................... (233) (2,404)
Other current assets.............................. (274) (137)
Increase (Decrease) in Current Liabilities:
Accounts payable.................................. (459) 1,437
Accrued expenses and other liabilities............ 373 329
Other - net........................................ 84 (350)
--------- ---------
Net Cash Used by Operating Activities ($292) ($3,285)
Cash Flows from Investing Activities:
Additions to plant and equipment................... (5) (32)
Cash Flows from Financing Activities:
Long-term debt..................................... $8,375 $3,776
Due to Parent Company.............................. (8,116) (299)
--------- ---------
Net Cash Provided by Financing Activities $259 $3,477
--------- ---------
Net Increase (Decrease) in Cash ($38) $160
Cash at beginning of period......................... 638 72
--------- ---------
Cash at End of Period............................... $600 $232
========= =========
----------
Supplemental disclosures of cash flow Information:
Cash payments for:
Interest.......................................... $492 $973
Income taxes...................................... 6 6
See notes to financial statements.
7
VICTORIA CREATIONS, INC.
Notes to Financial Statements
Note A - Basis of Presentation
The accompanying financial statements of Victoria Creations, Inc.
(Company) have been prepared in accordance with generally accepted
accounting principles for interim financial information and with the
instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly,
they 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
normal recurring accruals) considered necessary for a fair presentation
have been included. The results of operations of any interim period are
subject to year-end audit and adjustments, and are not necessarily
indicative of the results of operations for the fiscal year. For further
information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended
June 30, 1995.
The Company is a 79% owned subsidiary of United Merchants and
Manufacturers, Inc. (UM&M or Parent Company). UM&M is a publicly held
company whose stock is traded on the New York Stock Exchange.
Note B - Inventories
Inventories consist of:
(000 omitted)
----------------
Sep 30 June 30
1995 1995
------- -------
Raw materials ........................................ $ 4,996 $ 5,120
Work in process ...................................... 692 484
Finished goods ....................................... 10,975 10,826
------- -------
$16,663 $16,430
======= =======
Note C - Long-Term debt and Interest Expense
Effective July 31, 1995, the Company renegotiated its borrowing
arrangements with its current lender. Under the terms of the amended
agreements, the lender loaned to the Company additional funds of
approximately $8.3 million, increasing the Company's total indebtedness to
the lender to approximately $17.9 million, and reduced the interest rate
paid on the Company's indebtedness to the lender from 24% to prime rate
plus 3 1/2%, or currently 12 1/4% a year. Of the additional borrowing,
$2.0 million was used to meet working capital needs and the remainder was
used to reduce the Company's indebtedness to its Parent Company to
approximately $16.7 million. The new arrangements consist of a
8
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VICTORIA CREATIONS, INC.
Notes to Financial Statements (continued)
$5.0 million term loan due June 15, 2000 and a revolving loan, based on
the Company's eligible accounts receivable and inventories, having a term
ending on June 15, 1998. The revolving loan will be renewed automatically
for successive one year periods thereafter unless terminated by either
party upon thirty days notice.
Interest expense includes interest on amounts due on long-term debt. The
Parent Company waived interest on the amount due to it for each of the
three month periods ended September 30, 1995 and 1994. If the Parent
Company had not waived the interest due to it, interest expense would have
been approximately $496,000 and $575,000 greater for the three months
ended September 30, 1995 and 1994, respectively, than that reflected in
the statement of operations.
Note D - Income Taxes
The provision for income taxes for the three month periods ended September
30, 1995 and 1994 varied from the expected relationship to earnings before
income taxes (and amortization of goodwill, which is not deductible for
income tax purposes) since the Company had net operating loss
carryforwards to offset the earnings and therefore, no provision for
Federal income taxes was required. The amounts shown as provision for
income taxes for the periods are for state and local taxes.
9
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VICTORIA CREATIONS, INC.
Part II - Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
(27) Financial Data Schedule - filed herewith.
(b) Reports on Form 8-K during quarter for which this report is
filed- None
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.
VICTORIA CREATIONS, INC.
Date: November 14, 1995 by /S/ Norman R. Forson
Norman R. Forson
Senior Vice President
and Treasurer
10
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VICTORIA CREATIONS, INC.
FORM 10-Q
INDEX TO EXHIBIT
The following exhibit is being filed herewith:
Exhibit No.
(27) Financial Data Schedule as of and for the quarter ended September
30, 1995 is filed herewith.
E-1
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<NAME> VICTORIA CREATIONS, INC.
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<PERIOD-END> SEP-30-1995
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