SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For quarterly period ended March 31, 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 May 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.
--------
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 NINE MONTHS ENDED
MARCH 31 MARCH 31
------------------- -------------------
1995 1994 1995 1994
--------- --------- --------- ---------
Net sales..................... $11,204 $10,593 $38,661 $31,317
Cost of goods sold............ 6,388 5,668 21,574 17,697
--------- --------- --------- ---------
GROSS PROFIT $4,816 $4,925 $17,087 $13,620
Selling, general and
administrative expenses..... 4,705 4,499 14,805 14,099
--------- --------- --------- ---------
OPERATING INCOME (LOSS) $111 $426 $2,282 ($479)
Other income (expense):
Interest expense............ (759) (365) (2,626) (1,138)
Amortization of goodwill.... (180) (180) (540) (540)
Royalty and other income.... 69 27 173 176
--------- --------- --------- ---------
LOSS BEFORE INCOME TAXES ($759) ($92) ($711) ($1,981)
Provision for income taxes.... 7 8 20 20
--------- --------- --------- ---------
NET LOSS ($766) ($100) ($731) ($2,001)
========= ========= ========= =========
Average common shares
outstanding................. 7,800 7,800 7,800 7,800
NET LOSS PER SHARE ($0.10) ($0.01) ($0.09) ($0.26)
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 increased 6% in the three months and 23% in the
nine months ended March 31, 1995 from the net sales for the comparable
periods ended March 31, 1994. Sales of both the Company's branded label
business and private label business increased for both the current three
and nine month periods compared with the same periods last year. Sales
increases were also posted in both the domestic and the international
markets. The Company attributes the increases to strong product
performance at retail, improvement in service levels, technological
advances and development of new customers. Unit sales for the current
year's three and nine month periods increased; offset somewhat by slightly
lower average unit selling prices as total volume of private label
merchandise increased relative to total volume of branded merchandise
which is sold at higher average unit prices.
Cost of goods sold, as a percentage of net sales, increased 4 percentage
points for the current quarter and remained approximately the same for the
current nine months from those of the three and nine month periods ended
March 31, 1994. The increased cost in the current quarter reflects the
increased sales of private label merchandise mentioned above. The
resulting gross profit decreased by 2% for the quarter but increased by
25% for the nine months ended March 31, 1995 compared with those of the
prior year's same quarter and nine months. The Company's sales of
out-of-season merchandise (which is sold at lower than the Company's
normal margins) for the current quarter and nine months were slightly less
than in the prior year's comparable three and nine month periods.
Selling, general and administrative expenses increased 5% during both the
current year's quarter and nine months compared to those of the three and
nine months ended March 31, 1994 as a result of efforts to control such
costs through strict budgetary and spending restraints. As a percentage
of net sales, selling, general and administrative expenses for the three
months ended March 31, 1995 were approximately the same at last year's
same quarter. For the 1995 nine months, such expenses decreased by
7 percentage points.
Although average borrowings, other than from the Parent Company, were
lower during the current quarter and nine months, interest expense
increased $394,000 for the three months and $1,488,000 for the nine months
ended March 31, 1995 from that of the prior year's comparable quarter and
nine months. The increases were due to the significantly higher interest
rate during the current periods on the secured loans. The Parent Company
waived the interest on the amount due to it for all the periods shown in
the financial statements.
4
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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.
Short term needs for working capital are currently being borrowed under a
revolving loan from the new lender. The Company does not anticipate
substantial increased needs for long-term borrowings other than to repay
the current lender. The Company cannot continue to operate indefinitely
under the terms, particularly the high interest rate, of its agreement
with the current lender. Subsequent to March 31, 1995, the Company
reached an understanding with the current lender whereby the current
lender will increase the Company's credit line and reduce the interest
rate on the debt. There can be no assurance that this understanding will
evolve into a definitive agreement. Therefore, the Company continues to
aggressively explore alternative financing methods in order to repay the
current lender. Such alternative financing arrangements may include
borrowing from another financial institution at reasonable market terms,
raising additional equity or a combination of debt and equity financing.
There can be no assurance that such refinancing is attainable.
Working capital was $22.3 million at March 31, 1995 and 23.9 million at
June 30, 1994. The Company's current ratio of 5.6 to 1 at March 31, 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)
-------------------
MAR 31 JUNE 30
1995 1994
--------- ---------
ASSETS
Current Assets:
Cash............................................... $1,042 $72
Receivables, net of allowances of $1,501,000 at
March 31, 1995 and $990,000 at June 30, 1994... 7,891 8,359
Inventories........................................ 17,329 17,994
Other current assets............................... 960 916
--------- ---------
Total Current Assets $27,222 $27,341
Plant and Equipment:
Machinery and equipment............................ $3,317 $3,239
Leasehold improvements............................. 1,910 1,889
--------- ---------
$5,227 $5,128
Less accumulated depreciation...................... 4,021 3,812
--------- ---------
Net Plant and Equipment $1,206 $1,316
Other Assets:
Goodwill........................................... $20,889 $21,430
Other.............................................. 916 586
--------- ---------
Total Other Assets $21,805 $22,016
--------- ---------
$50,233 $50,673
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $3,183 $2,315
Accrued expenses and other liabilities............. 1,715 1,129
--------- ---------
Total Current Liablilties $4,898 $3,444
Long-term debt...................................... 12,506 13,391
Due to Parent Company............................... 24,215 24,493
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)........................ (24,442) (23,711)
--------- ---------
Total Stockholders' Equity $8,614 $9,345
--------- ---------
$50,233 $50,673
========= =========
See notes to financial statements.
6
VICTORIA CREATIONS, INC.
Statement of Cash Flows (000 omitted)
NINE MONTHS ENDED
MARCH 31
--------------------
1995 1994
--------- ---------
Cash Provided by Operating Activities:
Net loss.......................................... ($731) ($2,001)
Add back item not requiring
cash in the current period:
Depreciation and amortization................. 750 765
Decrease (Increase) in Current Assets:
Accounts receivable............................. 468 678
Inventories..................................... 665 1,111
Other current assets............................ (44) (42)
Increase (Decrease) in Current Liabilities:
Accounts payable................................ 868 23
Accrued expenses and other liabilities.......... 586 257
Other - net....................................... (330) 61
--------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES $2,232 $852
Investing Activities:
Additions to plant and equipment.................. ($99) ($107)
--------- ---------
NET CASH USED FOR INVESTING ACTIVITIES ($99) ($107)
Financing Activities:
Increase (decrease) in:
Notes Payable................................... $0 ($1,185)
Long-term debt.................................. (885)
Due to Parent Company........................... (278) 366
--------- ---------
NET CASH USED FOR FINANCING ACTIVITIES ($1,163) ($819)
--------- ---------
NET INCREASE (DECREASE) IN CASH $970 ($74)
Cash at beginning of period......................... 72 148
--------- ---------
Cash at End of Period $1,042 $74
========= =========
----------
Supplemental disclosure:
Cash payments for:
Interest........................................ $2,626 $1,138
Income taxes.................................... 20 20
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, 1994.
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)
----------------
Mar 31 June 30
1995 1994
------- -------
Raw materials ........................................ $ 5,309 $ 5,551
Work in process ...................................... 422 705
Finished goods ....................................... 11,598 11,738
------- -------
$17,329 $17,994
======= =======
Note C - Interest Expense
Interest expense includes interest on amounts due on notes payable (1993)
and long-term debt (1994). The Parent Company waived interest on the
amount due to it for each of the three and nine month periods ended
March 31, 1995 and 1994. If the Parent Company had not waived the
interest due to it, interest expense would have been approximately
$647,000 and $364,000 greater for the three months ended March 31, 1995
and 1994, respectively, and approximately $1,806,000 and $1,096,000
greater for the nine months then ended, respectively, than that reflected
in the statement of operations.
8
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VICTORIA CREATIONS, INC.
Notes to Financial Statements (continued)
Note D - Income Taxes
The provision for income taxes for the three and nine month periods ended
March 31, 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.
Note E - Stock options
On November 15, 1994, the Board of Directors amended, subject to
ratification by the Company's Stockholders at the Annual Meeting of
Stockholders to be held in 1995, the Company's 1986 Stock Option Plan
("Plan") to increase the total number of shares of Common Stock of the
Company which may be purchased pursuant to options granted under the Plan
from 200,000 to 550,000.
At a subsequent meeting on the same day, the Compensation Committee of the
Company granted to certain key employees of the Company options to
purchase 437,000 shares of Common Stock of the Company. The exercise
price of these options is $1.00 a share. The options become exercisable
as to (a) 50% of the original number of shares on the second anniversary
of the date of grant, (b) an additional 25% on the third anniversary of
the date of grant and (c) the final 25% on the fourth anniversary of the
date of grant, cumulatively. The grants increased the total number of
shares under option under the Plan to 537,000, of which 50,000 are
currently exercisable.
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 - 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: May 18, 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 March 31,
1995 is filed herewith.
E-1
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