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 December 31, 1994
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 February 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 SIX MONTHS ENDED
DECEMBER 31 DECEMBER 31
------------------- -------------------
1994 1993 1994 1993
--------- --------- --------- ---------
Net sales..................... $12,713 $9,616 $27,457 $20,724
Cost of goods sold............ 7,556 6,311 15,186 12,029
--------- --------- --------- ---------
GROSS PROFIT $5,157 $3,305 $12,271 $8,695
Selling, general and
administrative expenses..... 5,057 4,835 10,014 9,506
--------- --------- --------- ---------
OPERATING INCOME (LOSS) $100 ($1,530) $2,257 ($811)
Other income (expense):
Interest expense............ (894) (377) (1,867) (773)
Amortization of goodwill.... (180) (180) (360) (360)
Royalty income.............. 4 26 18 55
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE
INCOME TAXES ($970) ($2,061) $48 ($1,889)
Provision for income taxes.... 7 5 13 12
--------- --------- --------- ---------
NET EARNINGS (LOSS) ($977) ($2,066) $35 ($1,901)
========= ========= ========= =========
Average common shares
outstanding................. 7,800 7,800 7,800 7,800
NET EARNINGS (LOSS) PER SHARE ($0.13) ($0.26) $0.01 ($0.24)
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 32% in the three months and 33% in the
six months ended December 31, 1994 from the net sales for the comparable
periods ended December 31, 1993. These increases reflect additional sales
volume for all branded label merchandise, Givenchy, Richelieu and
Lagerfeld, and for all current private label lines plus expansion of the
Company's private label business into new markets. Sales of out-of-season
merchandise (which is sold at lower than the Company's normal margin)
declined from that of the prior year's comparable periods, 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, increased 34% during both the current quarter
and the six month period ended December 31, 1994 compared with the same
periods of last fiscal year while average unit prices remained constant.
Cost of goods sold for the current quarter increased 20% and for the
current six months increased 26% from cost of goods sold for the three and
six month periods ended December 31, 1993. The increased costs were held
to percentages less than the increase in sales as a result of increased
absorption of manufacturing and distribution overhead and improved
purchasing procedures and sourcing. Cost of goods sold, as a percentage
of net sales, for the current quarter decreased six percentage points from
that of the same quarter and three percentage points from that of the same
six months last year. The resulting gross profit increased 56% for the
quarter and 41% for the six months ended December 31, 1994 compared with
those of the prior year's same quarter and six months.
Selling, general and administrative expenses increased 5% in each of the
current year's quarter and six months from those of the three and six
months ended December 31, 1993. These increases were principally the
result of increases in marketing expenses necessary to support the
expanded sales volume. As a percentage of net sales, these expenses
decreased ten percentage points for the current quarter and nine
percentage points for the current six months from those of the same
quarter and six months last year.
As a result of the increased sales, combined with the percentagewise
lesser increases in both cost of goods sold and selling, general and
administrative expenses, operating income increased to income of $100,000
from a loss of $1.5 million in the prior year's quarter and to income of
$2.3 million from a loss of $0.8 million in the prior year's six months.
4
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Although average borrowings, other than from the Parent Company, were
lower during the current quarter and six months, interest expense
increased $517,000 for the three months and $1,094,000 for the six months
ended December 31, 1994 from that of the prior year's same quarter and six
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.
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 under the
terms of its agreement, particularly the high interest rate, with the
current lender other than on a very short-term basis. Therefore, the
Company is aggressively exploring 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 amounts to $22.2 million at December 31, 1994 and was
$23.9 million at June 30, 1994, an decrease of $1.7 million. The
Company's current ratio of 6.9 to 1 at December 31, 1994 is deemed
adequate for the Company's present financial position and needs.
5
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VICTORIA CREATIONS, INC.
Balance Sheet (000 omitted)
-------------------
DEC 31 JUNE 30
1994 1994
--------- ---------
ASSETS
Current Assets:
Cash............................................... $910 $72
Receivables, net of allowances of $1,109,000 at
December 31, 1994 and $990,000 at June 30, 1994... 6,179 8,359
Inventories........................................ 18,030 17,994
Other current assets............................... 922 916
--------- ---------
Total Current Assets $26,041 $27,341
Plant and Equipment:
Machinery and equipment............................ $2,930 $2,877
Leasehold improvements............................. 1,905 1,889
Capitalized equipment leases....................... 362 362
--------- ---------
$5,197 $5,128
Less accumulated depreciation...................... 3,951 3,812
--------- ---------
Net Plant and Equipment $1,246 $1,316
Other Assets:
Goodwill........................................... $21,069 $21,430
Other.............................................. 931 586
--------- ---------
Total Other Assets $22,000 $22,016
--------- ---------
$49,287 $50,673
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable................................... $2,365 $2,315
Accrued expenses and other liabilities............. 1,504 1,129
--------- ---------
Total Current Liablilties $3,869 $3,444
Long-term debt...................................... 11,971 13,391
Due to Parent Company............................... 24,067 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)........................ (23,676) (23,711)
--------- ---------
Total Stockholders' Equity $9,380 $9,345
--------- ---------
$49,287 $50,673
========= =========
See notes to financial statements.
6
VICTORIA CREATIONS, INC.
Statement of Cash Flows - (000 omitted)
SIX MONTHS ENDED
DECEMBER 31
--------------------
1994 1993
--------- ---------
Cash Flows from Operating Activities:
Net earnings (loss)............................... $35 ($1,901)
Add back items not requiring cash in the
current period:
Depreciation and amortization................. 500 510
Decrease (increase) in current assets:
Accounts receivable............................. 2,180 4,944
Inventories..................................... (36) 1,527
Other current assets............................ (6) (90)
Other assets.................................... (345) 53
Increase (decrease) in current liabilities:
Accounts payable................................ 50 (1,055)
Accrued expenses and other liabilities.......... 375 138
--------- ---------
Net Cash Provided by Operating Activities $2,753 $4,126
Cash Flows from Investing Activities:
Additions to plant and equipment.................. ($69) ($41)
Cash Flows from Financing Activities:
Notes payable..................................... $0 ($4,999)
Long-term debt.................................... (1,420) 0
Due to Parent Company............................. (426) 883
--------- ---------
Net Cash Used for Financing Activities ($1,846) ($4,116)
--------- ---------
Net Increase (Decrease) in Cash $838 ($31)
Cash at beginning of period......................... 72 148
--------- ---------
Cash at End of Period $910 $117
========= =========
----------
Supplemental disclosure:
Cash payments for:
Interest........................................ $1,867 $773
Income taxes.................................... 13 12
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)
----------------
Dec 31 June 30
1994 1994
------- -------
Raw materials ........................................ $ 5,448 $ 5,551
Work in process ...................................... 606 705
Finished goods ....................................... 11,976 11,738
------- -------
$18,030 $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 six month periods ended
December 31, 1994 and 1993. If the Parent Company had not waived the
interest due to it, interest expense would have been approximately
$600,000 and $368,000 greater for the three months ended December 31, 1994
and 1993, respectively, and approximately $1,159,000 and $1,096,000
greater for the six 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 six month periods ended
December 31, 1994 and 1993 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 - none
(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: February 10, 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 December
31, 1994 is filed herewith.
E-1
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