EXHIBIT 15.1
BARBEQUES GALORE LIMITED AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
[KPMG LOGO APPEARS HERE]
CHARTERED ACCOUNTANTS
The KPMG Centre
111 Phillip Street PO Box 207 Telephone: (02) 9895 8444
Parramatta NSW 2150 Parramatta NSW 2124 Facsimile: (02) 9633 2589
Australia Australia DX 8297 PARRAMATTA
INDEPENDENT REVIEW REPORT
The Board of Directors
Barbeques Galore Limited:
We have reviewed the accompanying consolidated financial statements of Barbeques
Galore Limited and subsidiaries as of January 31, 1997, 1996 and 1995 and for
the years then ended. These consolidated financial statements are the
responsibility of the company's management.
We conducted our review in accordance with auditing standards generally accepted
in Australia applicable to review engagements, that are substantially equivalent
to standards established by the American Institute of Certified Public
Accountants. A review consists principally of applying analytical procedures to
financial data and inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the accompanying consolidated financial statements for them to be in
conformity with generally accepted accounting principles in the United States.
/s/ KPMG
August 8, 1997
Sydney, Australia
[LOGO OF KPMG APPEARS HERE]
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
CONSOLIDATED BALANCE SHEETS
January 31, January 31, January 31,
1995 1996 1997
ASSETS (unaudited) (unaudited)
(in A$ thousands, except share and per
share data)
Current assets:
Cash and cash
equivalents $ 35 2,441 30
Accounts receivable,
net 7,782 8,201 7,350
Receivables from
affiliates 1,556 304 362
Inventories 33,571 36,708 33,928
Deferred income taxes 689 1,063 2,472
Prepaid expenses and
other current assets 1,083 1,136 1,131
------- ------- -------
Total current assets 44,716 49,853 45,273
Non-current assets:
Receivables from
affiliates 400 412 696
Property, plant and
equipment, net 13,810 14,519 18,348
Goodwill, net 404 474 1,476
Deferred income taxes 425 486 871
Other non-current
assets 2,190 1,800 1,306
------- ------- -------
Total assets $61,945 67,544 67,970
======= ======= =======
LIABILITIES AND
SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 836 - 1,826
Accounts payable and
accrued liabilities 11,099 10,625 13,693
Payables to related
parties 494 1,347 1,231
Payables to affiliates - 99 -
Current maturities of
long-term debt 8,844 9,949 2,964
Current portion of
obligations under
capital leases 495 829 1,395
Income taxes payable 1,861 1,865 1,612
------- ------- -------
Total current
liabilities 23,629 24,714 22,721
Non-current liabilities:
Long-term debt 8,574 8,547 20,718
Convertible notes - - 10,042
Obligations under
capital leases,
excluding current
portion 1,989 3,084 3,516
Other long-term
liabilities 1,067 850 808
------- ------- -------
Total liabilities 35,259 37,195 57,805
------- ------- -------
Shareholders' equity:
Ordinary shares, $3.64
par value; authorized
27,437,853 shares 16,220 16,220 6,720
Additional paid-in
capital 14,113 14,113 4,613
Foreign currency
translation adjustment 280 313 200
Retained deficit (3,927) (297) (1,368)
------- ------- -------
Total shareholders'
equity 26,686 30,349 10,165
------- ------- -------
Total liabilities and
shareholders' equity $61,945 67,544 67,970
======= ======= =======
See accompanying notes to consolidated financial statements.
1
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
CONSOLIDATED STATEMENTS OF OPERATIONS
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands, except share and per
share data)
Net sales $ 134,794 138,877 148,369
Cost of goods sold,
warehouse, distribution
and occupancy costs 90,477 94,899 103,324
--------- -------- --------
Gross profit 44,317 43,978 45,045
Selling, general and
administrative
expenses 37,081 38,921 40,751
Store pre-opening costs 109 178 239
Relocation and closure
costs - - 1,336
--------- -------- --------
Operating income 7,127 4,879 2,719
--------- -------- --------
Equity in income of
affiliates, net of tax 696 1,205 379
Interest expense 2,005 2,428 2,236
Other expenses (income) - (2,303) 1,132
--------- -------- --------
Income (loss) before
income taxes 5,818 5,959 (270)
Income tax expense
(benefit) 1,478 496 (822)
--------- -------- --------
Net income $ 4,340 5,463 552
========= ======== ========
Earnings per share:
Net income per
ordinary share and
ordinary share
equivalent ($A per
share) $ 0.96 $ 1.20 $ 0.13
Weighted average shares
outstanding (in
thousands) 4,544 4,544 4,322
========= ======== ========
See accompanying notes to consolidated financial statements.
2
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Foreign
Additional Currency Total
Shares Ordinary Paid-In Translation Retained Shareholders'
Outstanding Shares Capital Adjustment Deficit Equity
----------- -------- ---------- ----------- -------- -------------
('000) (in A$ thousands, except share and per share data)
Balances at January 31,
1994 (unaudited) 4,450 $16,220 14,113 638 (7,050) 23,921
Net income - - - - 4,340 4,340
Dividends of $0.0911
and $0.1822 per share - - - - (1,217) (1,217)
Foreign currency
translation adjustment - - - (358) - (358)
------ ------- -------- ----- ------- --------
Balances at January 31,
1995 (unaudited) 4,450 16,220 14,113 280 (3,927) 26,686
Net income - - - - 5,463 5,463
Dividends of $0.2733
and $0.1385 per share - - - - (1,833) (1,833)
Foreign currency
translation adjustment - - - 33 - 33
------ ------- -------- ----- ------- --------
Balances at January 31,
1996 (unaudited) 4,450 16,220 14,113 313 (297) 30,349
Net income - - - - 552 552
Dividends of $0.2733
and $0.0911 per share - - - - (1,623) (1,623)
Foreign currency
translation adjustment - - - (113) - (113)
Repurchase of ordinary
shares (2,744) (10,000) (10,000) - - (20,000)
Issuance of ordinary
shares 137 500 500 - - 1,000
------ ------- -------- ----- ------- --------
Balances at January 31,
1997 1,843 6,720 4,613 200 (1,368) 10,165
====== ======= ======== ===== ======= ========
See accompanying notes to consolidated financial statements.
3
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
CASH FLOWS FROM
OPERATING ACTIVITIES:
Net income $ 4,340 5,463 552
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization 2,392 2,596 4,031
Deferred income taxes (659) (435) (1,794)
Amounts set aside to
provisions 156 (160) (703)
Gain on sale of
affiliate - (2,303) -
Undistributed income of
affiliates (271) 476 (6)
Loss (gain) on sale of
property, plant and
equipment 46 279 707
Debt issue costs - - 1,132
Changes in operating
assets and liabilities:
Receivables and prepaid
expenses (2,206) (1,623) 1,292
Inventories (1,537) (3,062) 3,039
Other assets 780 121 (45)
Accounts payable and
accrued liabilities 1,722 1,062 2,425
--------- -------- --------
Net cash provided by
operating activities 4,763 2,414 10,630
--------- -------- --------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Proceeds from sale of
affiliate - 2,222 173
Proceeds from sale of
property, plant and
equipment 602 480 84
Capital expenditures (2,094) (2,120) (6,602)
Loan repayments
received 524 2,170 320
--------- -------- --------
Net cash provided by
(used in) investing
activities (968) 2,752 (6,025)
--------- -------- --------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Repayment of long-term
debt (18,926) (9,884) (4,711)
Proceeds from long-term
debt 15,417 10,962 19,522
Debt issue costs - - (1,132)
Bank overdraft proceeds
(repayments) 273 (836) 1,826
Principal payments under
capital leases (389) (662) (874)
Dividends paid (1,217) (1,833) (1,623)
Repurchase of ordinary
shares - - (20,000)
--------- -------- --------
Net cash (used in)
financing activities (4,842) (2,253) (6,992)
--------- -------- --------
Effects of exchange rate
fluctuations (14) 4 (24)
--------- -------- --------
Net increase (decrease)
in cash and cash
equivalents (1,061) 2,917 (2,411)
Cash and cash
equivalents at
beginning of the year 1,096 35 2,441
Adjustment to opening
cash balance arising
from deconsolidation of
former subsidiary - (511) -
--------- -------- --------
Cash and cash
equivalents at end of
the year $ 35 2,441 30
========= ======== ========
See accompanying notes to consolidated financial statements.
4
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) DESCRIPTION OF BUSINESS
Barbeques Galore Limited ("Barbeques Galore" or "the Company") is an
Australian resident company which is involved in the manufacture of
barbecues and heaters, and wholesale and retail sales of barbecues, heaters,
camping equipment, outdoor furniture, leisure products and related
accessories through company-owned and licensed stores in Australia. The
Company is also involved in the retailing, through Company-owned and
franchised stores, of barbecues, fireplace equipment and accessories in the
United States of America. The Company's manufacturing operations are located
in Australia.
(b) PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the financial statements of
the Company and its wholly-owned subsidiaries. All significant intercompany
balances and transactions have been eliminated on consolidation.
(c) INVENTORIES
Inventories are comprised of raw materials and stores, work in progress and
finished goods. Inventories are valued at the lower of cost or market using
the first-in, first-out ("FIFO") method.
(d) DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses foreign currency forward contracts to offset earnings
fluctuations from anticipated foreign currency cash flows. These
instruments are marked to market and the results recognized immediately as
income or expense.
(e) INVESTMENTS IN AFFILIATED COMPANIES
Investments in the ordinary shares of 20% to 50% owned companies are
accounted for by the equity method.
(f) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost. Plant and equipment under
capital leases are initially recorded at the present value of minimum lease
payments. The method of depreciation and estimable useful lives over which
property, plant and equipment are depreciated are as follows:
Method Years
Buildings Straight line 40
Machinery and equipment Straight line 8-12
Leasehold improvements Straight line 5-20
Leased plant and equipment Straight line 3-5
Plant and equipment held under capital leases and leasehold improvements
are amortized on a straight line basis over the shorter of the lease term
or estimated useful life of the asset.
(g) GOODWILL
Goodwill, which represents the excess of the purchase price over the fair
value of net assets acquired, is amortized on a straight line basis over
the expected periods to be benefited, generally 20 years. The Company
assesses the recoverability of this intangible asset by determining whether
the amortization of the goodwill balance over its remaining life can be
recovered through undiscounted future operating cash flows of the acquired
operation. The amount of goodwill impairment, if any, is measured based on
projected discounted future operating cash flows, using a discount rate
reflecting the Company's average cost of funds. The assessment of the
recoverability of goodwill will be impacted if estimated future operating
cash flows are not achieved.
5
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(h) RESEARCH AND DEVELOPMENT, AND ADVERTISING
Research and development, and advertising costs are expensed as incurred.
Amounts expensed were as follows:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
Research and development $ 1,229 1,093 1,070
Advertising $ 6,745 7,218 7,547
======= ====== ======
(i) INCOME TAXES
Income taxes are accounted for under the asset and liability method.
Deferred tax assets and liabilities are recognized for future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective
tax bases as well as operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary differences
are expected to be recovered or settled. The effect on deferred tax assets
and liabilities of a change in tax rates is recognized in income (loss) in
the period that includes the enactment date.
(j) SHARE OPTION PLAN
The Company adopted Statement of Financial Accounting Standards ("SFAS")
No. 123, Accounting for Stock-Based Compensation, in 1996, under which the
Company elected to continue following the provisions of Accounting
Principles Board ("APB") Opinion No. 25, Accounting for Stock Issued to
Employees, and related interpretations for its share option plan. As such,
compensation expense would be recorded on the date of grant only if the
current market price of the underlying share exceeded the exercise price.
(k) COMMITMENTS AND CONTINGENCIES
Liabilities for loss contingencies arising from claims, assessments,
litigation, fines and penalties, and other sources are recorded when it is
probable that a liability has been incurred and the amount of the
assessment can be reasonably estimated.
(l) USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these financial statements in
conformity with generally accepted accounting principles. Actual results
could differ from those estimates.
(m) IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
The Company adopted the provisions of SFAS No. 121, Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of,
on January 1, 1996. This Statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net
cash flows expected to be generated by the asset. If such assets are
considered to be impaired, impairment to be recognized is measured by the
amount by which the carrying amount of the assets exceeds the fair value of
the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. Adoption of this Statement
did not have a material impact on the Company's financial position, results
of operations, or liquidity.
(n) RENT EXPENSE, SURPLUS LEASED SPACE AND LEASE INCENTIVES
The Company leases certain store locations under operating leases which
provide for annual payments that increase over the lives of the leases.
Total payments under the leases are expensed as incurred over the lease
terms.
Where premises under a non-cancellable operating lease become vacant during
the lease term, a charge is recognized on that date equal to the present
value of the expected future lease payments less any expected future sub-
lease income.
If the Company receives incentives provided by a lessor to enter into an
operating lease agreement, these incentives are brought to account as
reductions in rent expense over the term of the lease on a straight-line
basis.
6
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
1 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
(o) REVENUE RECOGNITION
Revenue (net of estimated returns and allowances) is recognized at the point
of shipment for wholesale sales to external customers and the point of sale
for retail goods.
(p) CASH AND CASH EQUIVALENTS
Cash includes cash on hand and at bank. For purposes of the consolidated
statements of cash flows, the Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
(q) STORE PRE-OPENING COSTS
Store pre-opening costs are expensed when incurred.
(r) EARNINGS PER SHARE
Earnings per share are computed by dividing net earnings available to
ordinary shareholders by the weighted average number of ordinary shares and
as appropriate, dilutive ordinary share equivalents outstanding for the
period. The calculation of fully diluted earnings per share did not differ
significantly from primary earnings per share and has therefore not been
presented.
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, Earnings Per Share, which specifies the computation, presentation and
disclosure requirements for earnings per share. This statement is effective
for both interim and annual reporting periods ending after December 15,
1997. Had SFAS No. 128 been in effect, "basic" and "diluted" earnings per
share would not have been significantly different to those reported in the
Consolidated Statements of Operations and hence have not been presented.
Pro forma supplementary earnings per share are computed by assuming proceeds
from the public offering which will be utilized to repay debt subsequent to
the public offering were utilized to repay the debt at the beginning of the
applicable period to which earnings per share relates. The weighted average
number of ordinary shares outstanding is increased for the number of
ordinary shares issued to enable repayment of such debt. Pro forma
supplementary earnings per share and weighted average shares outstanding
were:
Year ended
January 31, 1997
(unaudited)
----------------
Pro-forma supplementary
net income per ordinary share
and ordinary share equivalent
(A$ per share)....................................... $0.23
Pro-forma weighted average
shares outstanding (in thousands).................... 5,210
=====
(s) FOREIGN CURRENCY TRANSLATION
Foreign currency transactions are converted to Australian currency at the
rates of exchange applicable at the dates of the transactions. Amounts
receivable and payable in foreign currencies at balance date are converted
at the year end rates.
Gains and losses from conversion of monetary assets and liabilities, whether
realized or unrealized, are included in income or loss before income taxes
as they arise.
Assets and liabilities of overseas subsidiaries are translated at year end
rates and operating results at the average rates ruling during the year.
7
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2 DERIVATIVE FINANCIAL INSTRUMENTS
The notional amount of foreign currency forward contracts used as a means
of offsetting fluctuations in the dollar value of foreign currency accounts
payable totalled:
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Foreign exchange contracts $ 3,789 1,013 4,232
======= ====== ======
The fair value of these contracts at each period end is not significant.
All of the currency derivatives expire within one year and are for United
States dollars. The counterparties to the contracts are major financial
institutions. The risk of loss to the Company in the event of non-
performance by a counterparty is not significant.
3 ACCOUNTS RECEIVABLE
Accounts receivable consists of the following:
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Trade accounts receivable $ 7,487 7,258 6,903
Less: Reserve for doubtful
accounts (216) (241) (377)
------- ------ ------
7,271 7,017 6,526
Receivables from related
parties 58 53 125
Other receivables 453 1,131 699
------- ------ ------
$ 7,782 8,201 7,350
======= ====== ======
4 INVENTORIES
The major classes of inventories are as follows:
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Finished goods $ 29,692 32,427 29,470
Work in progress 1,326 2,055 1,778
Raw materials 2,733 2,693 3,116
-------- ------- -------
33,751 37,175 34,364
Less: Reserve for
obsolescence (180) (467) (436)
-------- ------- -------
$ 33,571 36,708 33,928
======== ======= =======
8
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 INVESTMENTS IN AFFILIATED COMPANIES
Investments in affiliated companies consist of 33 1/3 percent of the
ordinary shares of Bromic Pty Limited and subsidiaries ("Bromic"), an
Australian Group which imports and distributes componentry to the gas and
appliance industries, and 50 percent of the ordinary shares of GLG Trading
Pte Limited ("GLG"), a Singapore company which acts as a buying office for
Barbeques Galore and other third parties. The shareholding in this company
was originally 100 percent but was reduced to 50 percent on July 1, 1995 by
issuing shares in that company to a Director of GLG who is also the General
Manager of that company.
The Company also previously held a 50 percent interest in GLG (NZ) Limited
("GLG NZ"). This investment was sold in December 1995 for total
consideration of A$2,395,000. A gain on sale of A$2,303,000 has been
recognized in the income statement and is included in other expenses
(income).
Bromic provides liquid petroleum gas cylinders and related products such as
manifolds, bundy tubes, glass and barbecue ignitions to the Company. GLG
supplies cast iron used in the manufacture of burners, hot plates and
grills, small assembled barbecues and certain accessories such as tongs and
warming racks. Purchasing from GLG NZ consisted mainly of cowls, flue kits,
spare parts and other heating equipment.
Sales to affiliated companies are not significant. Interest is also charged
on amounts owing from affiliates at commercial rates but is not
significant. Amounts owing from affiliates are in relation to cash
advances.
Prices charged between the Company and its affiliates are set at the level
of prices that are charged to unrelated parties. Trading with affiliates
for each period and amounts outstanding at each period end are as follows:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
Purchases from affiliates:
- Bromic $ 3,579 3,616 3,476
- GLG NZ 14 77 188
- GLG Pte Ltd - 4,627 4,922
------- ------ ------
$ 3,593 8,320 8,586
======= ====== ======
Dividends received or due and
receivable from affiliates
- Bromic $ 130 250 175
- GLG NZ 260 1,212 -
- GLG Pte Ltd - - 198
------- ------ ------
$ 390 1,462 373
======= ====== ======
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Owing to affiliates:
- GLG NZ $ - 99 -
======= ====== ======
Receivable from affiliates:
- Bromic $ 522 716 863
- GLG NZ 1,434 - 195
------- ------ ------
$ 1,956 716 1,058
======= ====== ======
9
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5 INVESTMENTS IN AFFILIATED COMPANIES (CONTINUED)
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Investment in affiliates $ 1,052 638 491
======= ====== ======
Investments in affiliates are included in the balance sheet as other
non-current assets. As the shares of these entities are not traded, the
investment in these companies is carried at the equity accounted value
representing cost plus the Company's share of undistributed profits. The
balance date of all affiliates is June 30. Combined summarized financial
data at their most recent balance dates are as follows:
June 30, June 30, June 30,
1995 1996 1997
(in A$ thousands)
Current assets $ 13,974 7,229 6,925
Current liabilities 13,734 4,778 3,666
-------- ------- -------
Working capital 240 2,451 3,259
Property, plant and equipment, net 6,131 1,307 1,215
Other assets 389 549 408
Long-term debt (4,261) (2,498) (2,412)
-------- ------- -------
Shareholders' equity $ 2,499 1,809 2,470
======== ======= =======
Sales $ 37,049 22,926 18,034
======== ======= =======
Gross profit $ 11,983 9,025 4,637
======== ======= =======
Net income $ 2,131 1,484 963
======== ======= =======
6 PROPERTY, PLANT AND EQUIPMENT
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Land and buildings $ 3,198 3,198 3,198
Machinery and equipment 13,363 14,023 15,453
Leasehold improvements 2,581 2,902 6,110
Assets under capital
leases 2,981 5,036 6,912
-------- -------- --------
22,123 25,159 31,673
Less: Accumulated
depreciation/amortization (8,313) (10,640) (13,325)
-------- -------- --------
$ 13,810 14,519 18,348
======== ======== ========
10
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7 GOODWILL
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Goodwill $ 543 654 1,704
Less: Accumulated amortization (139) (180) (228)
----- ---- -----
$ 404 474 1,476
===== ==== =====
8 LEASES
The Company is obligated under various capital leases for store improvements
and certain machinery and equipment that expire at various dates during the
next five years. The capital leases for store improvements relate to the
purchase of furniture and fixtures installed in retail stores. These retail
stores are all managed under operating leases. Machinery and equipment under
capital leases includes leased machinery, office furniture and fixtures and
certain motor vehicles. All capital lease liabilities are secured by the asset
to which the lease relates. The gross amount of store improvements and
machinery and equipment and related accumulated amortization recorded under
capital leases are as follows:
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Store improvements $ 817 2,106 3,119
Machinery and equipment 2,164 2,930 3,793
------ ------ ------
2,981 5,036 6,912
Less: Accumulated amortization (584) (1,268) (2,216)
------ ------ ------
$2,397 3,768 4,696
====== ====== ======
The Company also has entered into non-cancellable operating leases, primarily
for retail stores. These leases generally contain renewal options for periods
ranging from three to five years and require the Company to pay all executory
costs such as maintenance and insurance. Rental expense for operating leases
(except those with lease terms of a month or less that were not renewed)
consisted of the following:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
Rental expense $9,446 10,078 10,153
====== ====== ======
11
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
8 LEASES (CONTINUED)
Future minimum lease payments under non-cancellable operating leases (with
initial or remaining lease terms in excess of one year) and future minimum
capital lease payments as of January 31, 1997 are:
Capital Operating
leases leases
(in A$ thousands)
Year ending January 31,
1998 $1,908 $ 9,541
1999 1,720 8,308
2000 1,231 6,896
2001 1,042 5,098
2002 249 3,887
Years subsequent to 2002 - 10,822
------ -------
Total minimum lease payments 6,150 $44,552
=======
Less: Amount representing interest (at rates ranging from 9.5% to 12.0%) (1,239)
------
Present value of net minimum capital lease payments 4,911
------
Less: Current portion of obligations under capital leases (1,395)
------
Obligations under capital leases, excluding current portion $3,516
======
9 ACCOUNTS PAYABLE AND ACCRUED LIABILITIES
Accounts payable and accrued liabilities consist of the following:
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Trade accounts payable $ 4,156 3,736 $ 4,968
Accrued liabilities 4,401 4,419 5,887
Employee benefits 2,025 1,942 1,745
Other 517 528 1,093
------ ------- -------
$11,099 10,625 $13,693
======= ======= =======
Included in other liabilities at January 31, 1997 is an amount of $369,000
in respect of the planned relocation of the enamelling facilities. The
accrual relates to future lease costs of the vacated premises, the
writedown of plant that will be scrapped (allowing for future depreciation
charges until the planned exit date) and costs to make good the premises.
An exit plan was established and approved by the Board of Directors prior
to January 31, 1997. The implementation of the plan has commenced, work is
continuing and the exit strategy remains unchanged.
12
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10 LONG-TERM DEBT
Long-term debt consists of the following:
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Current:
Bank bills $ 8,844 9,949 2,964
Property loan - - -
-------- -------- --------
$ 8,844 9,949 2,964
======== ======== ========
Non-current:
Bank bills $ 6,474 6,447 18,568
Property loan 2,100 2,100 2,150
-------- -------- --------
$ 8,574 8,547 20,718
======== ======== ========
The Company and its subsidiaries have access to a facility with the
Australia and New Zealand Banking Group Limited ("ANZ") (the "ANZ
Facility") with credit facilities aggregating up to A$53,700,000. This
includes a multi-purpose facility of A$31,700,000, a trade finance
facility of A$10,000,000 and a stand-by credit facility of A$12,000,000.
The stand-by credit facility is classified as a current facility as it is
repayable on the earlier of the date of the Company's Initial Public
Offering or December 31, 1998. As at January 31, 1997 the Company had not
utilized A$30,422,000 of the total facility. The ANZ Facility is secured by
a first security interest over the Company's present and future
Australian assets. The Company has agreed to grant to ANZ, and ANZ is in
the process of creating, a second security interest (subordinate to a lien
under the Merrill Lynch Facility detailed below) in all the Company's
assets in the United States. The ANZ Facility is further guaranteed by each
subsidiary of the Company.
Bank bills are generally taken out over a 90 day period and rolled over at
the end of their respective terms. As at January 31, 1997, the weighted
average interest rate accruing on the bank bills utilized under the ANZ
Facility was 7.2% per annum. Under the terms of the agreement, the bank
bills may be repaid at the Company's option provided the facility limit is
not breached other than the stand-by facility. For this reason, the
majority of the outstanding balance relating to bank bills and term loans
is classified as a non-current liability.
The property loan is accruing interest at a rate of 9.35% per annum and is
secured by a registered first mortgage over the freehold property of the
Company.
As the borrowings under the ANZ facility are subject to renegotiation on
December 31, 1998, non-current long-term debt matures during the financial
year ended January 31, 1999. The Company has historically renegotiated its
credit facilities on similar terms and conditions and expects the current
facility to be extended subsequent to December 31, 1998.
All committed facilities are provided subject to the standard Australian
practice of regular annual review of required limits, the Company's
performance and the normal terms and conditions, including financial
covenants, applicable to bank lending. The Company was in compliance with
the financial covenants set out in the ANZ Facility agreement as at
January 31, 1997.
In addition, in February 1995, the Company's US subsidiary ("Galore USA")
entered into a five year credit facility with Merrill Lynch. This facility
includes a term loan of US$600,000 and a revolving line of credit of
US$1,550,000. Indebtedness under the term loan and the revolving line of
credit accrues interest at the 30 day commercial paper rates plus 2.7% or
2.65% respectively, and is payable monthly. The Merrill Lynch facility is
secured by a first security interest in all Galore USA present and future
assets. As of January 31, 1997 Galore USA had not utilized US$942,000 of
this facility.
13
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
10. LONG-TERM DEBT (CONTINUED)
The Company's total long-term debt matures as follows:
(in A$ thousands)
Year ending January 31,
1998 $ 2,964
1999 20,691
2000 22
2001 5
-------
$23,682
=======
In conjunction with the Capital Reduction in December 1996 (detailed in
Note 12 to the consolidated financial statements), the Company issued
unsecured convertible notes with a face value of A$8.38 amounting to
A$10,041,952. The notes carry an interest rate of 10.25% per annum, include
financial covenants and confer rights to the noteholders as creditors and
not as shareholders.
The notes are convertible into fully paid shares by the noteholder at any
time after the first anniversary of issue but prior to the eighth
anniversary. If a stock exchange listing occurs, the Company may redeem the
notes providing certain conditions are met, failing which the Company must
repay the principal outstanding on each note on the eighth anniversary.
Upon conversion, the notes will convert at a ratio of one ordinary share
for each convertible note held. If all notes are converted, this will
result in an additional 1,197,926 ordinary shares being issued.
11 INCOME TAXES
Income (loss) before income taxes was taxed under the following
jurisdictions:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
Australia $5,296 4,970 (755)
United States 522 989 485
------ ------ -----
$5,818 5,959 (270)
====== ====== =====
The expense (benefit) for income taxes is presented below:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
Current:
Australia $2,122 898 738
United States 15 33 234
------ ------ -----
2,137 931 972
------ ------ -----
Deferred:
Australia (659) (435) (904)
United States - - (890)
------ ------ -----
$1,478 496 (822)
====== ====== =====
14
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 INCOME TAXES (CONTINUED)
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the Australian federal
income tax rate to pretax income from continuing operations as a result of
the following:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
Computed "expected" tax expense $1,920 2,145 (97)
Increase (reduction) in income taxes resulting
from:
State taxes, net of federal tax benefit 31 60 208
Change in the valuation allowance (194) (406) (1,109)
Equity in earnings of affiliates not subject to
taxation (230) (434) (136)
Capital profit on sale of affiliate - (829) -
Other, net (49) (40) 314
------ ----- ------
$1,478 496 (822)
====== ===== ======
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Deferred tax assets:
Provisions not presently deductible $ 1,191 1,316 1,482
Plant and equipment, due to differences in
depreciation 215 287 424
Inventories, due to capitalized costs 208 211 195
Borrowing expenses capitalized for tax purposes 29 - 302
Leases, due to differences in lease payments,
interest and amortization 29 52 136
Unearned income 91 105 116
Net operating loss carryforward 1,156 745 562
Other - 89 432
------- ------ ------
Total gross deferred tax assets 2,890 2,805 3,649
------- ------ ------
Less: Valuation allowance (1,515) (1,109) -
------- ------ ------
1,375 1,696 3,649
Deferred tax liabilities:
Prepayments 261 147 178
Rebates receivable - - 128
------- ------ ------
Total gross deferred tax liabilities 261 147 306
------- ------ ------
Net deferred tax asset $ 1,114 1,549 3,343
======= ====== ======
15
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11 INCOME TAXES (CONTINUED)
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred
tax assets will not be realized. The ultimate realization of deferred tax
assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities, projected
future taxable income, and tax planning strategies in making this assessment.
The change in the valuation allowance for deferred tax assets between
January 31, 1996 and January 31, 1997 is due to the recoupment of net
operating loss carryforwards and management's assessment that the realization
of the net operating loss carryforwards was more likely than not to be
realized. In order to fully realize the deferred tax asset, the company will
need to generate future taxable income of approximately A$1,413,000 prior to
the expiration of the net operating loss carryforwards in 2012. Based upon
projections for future taxable income over the periods which the deferred tax
assets are deductible, management believes it is more likely that not the
Company will realize the benefits of these deductible differences. The amount
of the deferred tax asset considered realizable, however, could be reduced in
the near term if estimates of future taxable income during the carryforward
period are reduced.
12 SHAREHOLDERS' EQUITY
On December 31, 1996, the Company consummated a series of transactions to
effect a reduction in the ordinary shares of the Company (the "Capital
Reduction"). Pursuant to the Capital Reduction, the Company repurchased and
cancelled 2,743,878 fully paid ordinary shares and 101,520 options to
purchase ordinary shares, for a total consideration of A$20,078,000. The
Company financed the Capital Reduction through:
(i) the issuance and sale of A$10,041,952 in Convertible Notes; and
(ii) the provision of an additional standby facility of A$12,000,000 from
the Company's bankers, ANZ. This standby facility will only be
available to the Company until the earlier of the Company's Initial
Public Offering or December 31, 1998.
The effect of the Capital Reduction was to reduce the ordinary shares of the
Company to A$6,219,661 (comprising 1,706,542 fully paid ordinary shares of
A$3.64 each) from A$16,220,000 (comprising 4,450,420 fully paid ordinary
shares of A$3.64 each). Subsequent to the consummation of the Capital
Reduction, all outstanding ordinary shares were owned by the executive
directors of the Company and their related interests and the Company's
pension plan. The Company was delisted from the Australian Stock Exchange
following the Capital Reduction.
The Company incurred costs in connection with the Capital Reduction of
approximately A$1,132,000. These amounts have been expensed and are included
in other expenses (income) in the consolidated statements of operations for
the year ended January 31, 1997.
Additionally, in connection with the Capital Reduction, the Company also
acquired the remaining 15% interest in The Galore Group (USA) Inc. ("Galore
USA") from Mr. Sydney Selati, President of Galore USA, for consideration of
A$1,000,000. The transaction was effected by the issuance of 137,189 ordinary
shares ($7.29 per share) of the Company. Mr. Sydney Selati was subsequently
appointed a director of Barbeques Galore on July 21, 1997.
16
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
13 SHARE OPTION PLAN
EXECUTIVE SHARE OPTION PLAN (CONTINUED)
Effective January 31, 1997, the Company adopted an executive share option
plan (the "Executive Plan") under which the Board of Directors granted
certain members of management options to purchase ordinary shares in the
Company. A total of 203,038 options were issued under the Executive Plan with
an exercise price of A$8.38 per share. The options do not vest until February
1, 1999 after which each Optionholder is entitled to subscribe for one fully
paid ordinary share. The options are not quoted and are due to expire on the
earlier of the 5th anniversary from the issue date or, subject to certain
conditions, on cessation of employment.
The Company applies APB Opinion No. 25 in accounting for its Plan and,
accordingly, no compensation cost has been recognized for its share options
in the financial statements. Had the Company determined compensation cost
based on the fair value at the grant date for its share options under SFAS
No. 123, the Company's earnings per share for the year ended January 31, 1997
would have been A$0.13 per ordinary share.
The fair value of each share option grant was estimated on the date of grant
using the Black-Scholes option-pricing model with the following assumptions:
weighted average risk-free interest rate of 6.49%; no dividend yield;
expected lives of 2.5 years and volatility of 17.97%. The fair value of the
options as at January 31, 1997 has been calculated to be A$182,000.
1997 SHARE OPTION PLAN
Under the terms of the Company's 1997 share option plan (the "1997 Plan"), a
total of 329,254 ordinary shares have been authorized for issuance. The 1997
Plan received approval from the Board of Directors of the Company on October
1, 1997.
The 1997 Plan consists of the Option Grant Program, under which eligible
individuals in the Company's employ or service (including officers and other
employees, non-employee Board members and independent consultants) may, at
the discretion of the Plan Administrator, be granted options to purchase
ordinary shares at an exercise price not less than eighty-five percent (85%)
of their fair market value on the grant date.
The Plan Administrator will have complete discretion, within the scope of its
administrative jurisdiction under the 1997 Plan, to determine which eligible
individuals are to receive option grants, the time or times when such option
grants are to be made, the number of shares subject to each such grant, the
vesting schedule to be in effect for the option grant, the maximum term for
which any granted option is to remain outstanding and the status of any
granted option as either an incentive share option or a non-statutory share
option under the Federal tax laws.
TERMINATED PLAN
On November 25, 1993, the Company adopted a share option plan ("the 1993
Plan") pursuant to which the Company's Board of Directors could grant share
options to officers and key employees. 128,958 options were granted with an
exercise price of A$5.83 on November 25, 1993. On November 28, 1995, the
Company granted a further 27,438 options with an exercise price of A$5.65.
On December 31, 1996, and in connection with the Capital Reduction, all
outstanding options were repurchased by the Company from the Optionholders.
Compensation for the cancellation of the 101,520 options amounted to
A$78,000.
The total compensation paid by the Company to cancel the options has been
expensed during the year ended January 31, 1997 and is included in selling,
general and administrative expenses.
14 COMMITMENTS AND CONTINGENCIES
Product liability claims have been made against certain companies in the
group which are not expected to result in any material loss to the Company.
The Company entered into a joint and several guarantee together with the
directors of Bromic Pty Limited in favour of ANZ in respect of a A$900,000
facility. On February 25, 1997, ANZ released the Company from this guarantee.
17
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
15 GEOGRAPHIC SEGMENT INFORMATION
Net income by geographic region is summarized below (in thousands):
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
Australia $ 3,833 4,507 (589)
United States 507 956 1,141
--------- --------- --------
$ 4,340 5,463 552
========= ========= ========
16 RELATED PARTY TRANSACTIONS
The directors of the Company believe that transactions with related parties
are on normal terms and conditions no more favourable than those available
to other third parties unless otherwise stated.
Amounts are advanced to the Company by the directors at a commercial rate
of interest.
The company shares premises and incurs rent and operating expenses on
behalf of Rebel Sport Limited. Mr. Linz and Mr. Gavshon were directors of
Rebel Sport Limited up until July 10, 1997. These amounts are payable to
the Company on 30 day terms.
The above related party transactions and amounts outstanding at each period
end are as follows:
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited)
(in A$ thousands)
Amounts owing to directors or director related
entities $ 494 1,347 1,231
Amounts owing from Rebel Sport Limited 58 53 125
======== ========= =========
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
Interest costs incurred in respect of amounts
advanced by directors or director related entities $ 6 62 96
Amounts advanced to Rebel Sport Limited 427 720 713
Amounts reimbursed by Rebel Sport Limited (471) (725) (641)
======== ========= =========
18
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
17 SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
Interest $ 2,035 2,470 2,432
Income taxes 276 927 812
======== ===== =====
During the period ended January 31, 1997 the Company acquired Mr. Sydney
Selati's 15% interest in Galore USA for consideration of A$1,000,000. The
transaction was effected by the issuance of 137,189 ordinary shares (A$7.29
per share) of the Company.
During the periods, the Company acquired plant and equipment by means of
capital leases which are not reflected in the consolidated statements of
cash flows with an aggregate fair value of:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
(in A$ thousands)
Equipment acquired under
capital leases $ 1,668 2,091 1,893
======== ===== =====
On July 1, 1995, the company's interest in GLG Trading Pte Limited was
reduced from 100% to 50% by the issue of additional shares in GLG Trading
Pte Limited. The deconsolidation of GLG Trading Pte Limited has resulted in
the reversal of the opening cash balance of GLG Trading Pte Limited in the
Statement of Cash Flows as the Company has accounted for its investment on
an equity basis from July 1, 1995.
18 PENSION PLANS
The Company and its Australian subsidiaries have established defined
contribution pension plans for the provision of benefits to their Australian
employees on retirement, death or disability. Benefits provided under the
plans are based on contributions for each employee. Company contributions
are 6% of gross salary for all employees except for certain executives for
whom the Company contributes 10%.
The Company and employees contribute various percentages of gross income.
The plans are of an accumulation type and as such, the Company has:
. no commitment to fund retirement benefits other than the percentage of
each employee's salary as prescribed by the relevant trust deed; and
. no legal obligation to cover any shortfall in the funds' obligations to
provide benefits to employees on retirement.
The pension plans comply with Australian regulatory provisions set by the
Insurance and Superannuation Commission. The Company has complied with the
provisions of the Superannuation Guarantee Charge Act.
The Company also sponsors a defined contribution plan in the United States
covering substantially all employees who meet specified age and service
requirements. Company contributions are discretionary. The Company has not
contributed and does not anticipate contributing to the plan for the year
ended January 31, 1997.
19
Barbeques Galore Limited and subsidiaries
Consolidated financial statements
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
18 PENSION PLANS (CONTINUED)
Contributions expensed under these plans were as follows:
Year ended Year ended Year ended
January 31, January 31, January 31,
1995 1996 1997
(unaudited) (unaudited) (unaudited)
Contribution expense $ 911 974 996
====== === ===
19 SUBSEQUENT EVENTS
The Board of Directors has authorized the filing of a registration statement
for an Initial Public Offering (the "Offering") of the Company's ordinary
shares. Upon successful consummation of the Offering, the Company intends to
use the proceeds to repay outstanding debt and procure the conversion or
redemption of the convertible notes (refer note 10). In addition the
proceeds will be used to fund capital expenditures related to the expansion
of the Company's operations and for working capital and other general
corporate purposes.
The Company's Board of Directors and Shareholders have approved an 18.223
for one reverse stock split of the Company's ordinary shares thereby
adjusting the authorized share capital to 27,437,853 shares immediately
prior to the Offering. All share, per share and share option data for all
periods presented have been restated to reflect the stock split.
20