UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarter ended April 27, 1997 Commission File No. 1-10952
DUTY FREE INTERNATIONAL, INC.
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(Exact name of Registrant as specified in its charter)
Maryland 52-1292246
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
63 Copps Hill Road, Ridgefield, Connecticut
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(Address of principal executive offices)
06877
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(Zip Code)
Registrant's telephone number, including area code: 203-431-6057
Indicate by checkmark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO ___
At April 25, 1997, 27,321,846 shares of $.01 par value common stock of the
registrant were outstanding.
DUTY FREE INTERNATIONAL, INC. and SUBSIDIARIES
April 27, 1997
INDEX
Part I. Financial Information Page
Item 1. Financial Statements
Consolidated Balance Sheets 3
April 27, 1997 and January 26, 1997
Consolidated Statements of Earnings 4
Quarter Ended April 27, 1997 and April 28, 1996
Consolidated Statement of Stockholders' Equity 5
Quarter Ended April 27, 1997
Consolidated Statements of Cash Flows 6
Quarter Ended April 27, 1997 and April 28, 1996
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis 8 - 10
of Financial Condition and Results of Operations
Part II. Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signature 11
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, unaudited)
April 27, January 26,
Assets 1997 1997
- - ------ ---- ----
Current assets:
Cash and cash equivalents $ 42,125 $ 36,483
Short-term investments 15,591 12,331
Receivables:
Trade receivables, less allowance for doubtful
accounts of $485 and $636, respectively 22,225 21,872
Other 14,295 16,407
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36,520 38,279
Merchandise inventories 110,673 108,724
Prepaid expenses and other current assets 9,692 10,329
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Total current assets 214,601 206,146
Long-term investments 7,895 8,930
Property and equipment, net 96,175 96,718
Goodwill, net 63,551 64,134
Other intangible assets, net 21,160 21,412
Other assets, net 17,429 18,008
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$ 420,811 $ 415,348
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Liabilities and Stockholders' Equity
Current liabilities:
Current maturities of long-term debt $ 1,093 $ 1,093
Accounts payable 33,475 28,024
Other current liabilities 33,793 34,912
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Total current liabilities 68,361 64,029
Long-term debt, excluding current maturities 117,730 117,742
Other liabilities 5,898 5,862
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Total liabilities 191,989 187,633
Stockholders' equity:
Common stock, par value $.01 per share. Authorized
75,000,000 shares; issued and outstanding
27,321,846 shares and 27,303,044 shares, respectively 273 273
Additional paid-in capital 80,671 80,515
Foreign currency translation adjustments 77 86
Retained earnings 147,801 146,841
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Total stockholders' equity 228,822 227,715
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$ 420,811 $ 415,348
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See accompanying notes to consolidated financial statements.
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
(in thousands, except net earnings per share)
(unaudited)
Quarter Ended
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April 27, April 28,
1997 1996
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Net sales $ 133,047 $ 117,979
Cost of sales 76,056 67,178
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Gross profit 56,991 50,801
Advertising, storage and other operating income 1,067 969
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58,058 51,770
Selling, general and administrative expenses 52,399 46,881
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Operating income 5,659 4,889
Other income (expense):
Interest income 646 658
Interest expense (2,098) (2,127)
Other, net (81) 44
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(1,533) (1,425)
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Earnings before income taxes 4,126 3,464
Income taxes 1,527 1,282
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Net earnings $ 2,599 $ 2,182
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Net earnings per share $ 0.10 $ 0.08
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Weighted average number of shares outstanding 27,311 27,269
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DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statement of Stockholders' Equity
Quarter Ended April 27, 1997
(in thousands, unaudited)
Foreign
Common stock Additional currency Total
------------------ paid-in translation Retained stockholders'
Shares Amount capital adjustments earnings equity
------ ------ ------- ----------- -------- ------
Balance at
January 26, 1997 27,303 $ 273 $ 80,515 $ 86 $146,841 $227,715
Dividends
($0.06 per share) -- -- -- -- (1,639) (1,639)
Change in foreign
currency translation
adjustments -- -- -- (9) -- (9)
Exercise of common
stock options 19 -- 156 -- -- 156
Net earnings -- -- -- -- 2,599 2,599
------ ------ ------ ------ -------- --------
Balance at
April 27, 1997 27,322 $273 $80,671 $77 $147,801 $228,822
====== ==== ======= ======== ======== ========
DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands, unaudited)
Quarter Ended
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April 27, April 28,
1997 1996
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Cash flows from operating activities:
Net earnings $ 2,599 $ 2,182
Adjustments to reconcile net earnings
to net cash provided by operating activities:
Depreciation and amortization of
property and equipment 2,454 2,107
Other amortization 1,357 1,554
Minority partners' interest in
consolidated partnerships' income 405 414
Provision for deferred income taxes 225 275
Changes in operating assets and liabilities:
Accounts receivable 1,759 (582)
Merchandise inventories (1,949) (4,594)
Prepaid expenses and other assets 802 (347)
Accounts payable 5,451 7,930
Other liabilities (1,557) 2,967
Other operating -- (287)
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Net cash provided by operating activities 11,546 11,619
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Cash flows from investing activities:
Purchases of investments (3,260) (3,263)
Maturities of investments 1,035 4,730
Additions to property and equipment (2,318) (3,334)
Other 88 235
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Net cash used in investing activities (4,455) (1,632)
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Cash flows from financing activities:
Payments on long-term debt (24) (1,145)
Dividends paid (1,637) (1,363)
Other 212 79
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Net cash used in financing activities (1,449) (2,429)
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Net increase in cash and cash equivalents 5,642 7,558
Cash and cash equivalents at beginning of period 36,483 34,252
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Cash and cash equivalents at end of period $ 42,125 $41,810
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DUTY FREE INTERNATIONAL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(unaudited)
Note 1 Basis of Presentation
The consolidated financial statements of Duty Free International, Inc. and
subsidiaries (the "Company") as of April 27, 1997 and for the quarters ended
April 27, 1997 and April 26, 1996, are unaudited but include all adjustments
(consisting of normal recurring accruals) which the Company's management
believes to be necessary for the fair presentation of the financial position,
results of operations and cash flows of the Company at and for the interim
periods presented. Interim results are not necessarily indicative of results to
be expected for the full year.
The balance sheet at January 26, 1997 has been derived from the audited
consolidated financial statements of the Company at that date.
Certain amounts for the period ended April 28, 1996 have been reclassified to
conform to the presentation for the period ended April 27, 1997.
Note 2 Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries. Long-term investments in affiliates in which the
Company does not have a majority interest or control are accounted for by the
equity method of accounting. All significant inter-company balances and
transactions have been eliminated in consolidation.
Note 3 Net Earnings Per Share
Net earnings per share are based on the weighted average number of common shares
outstanding during each period.
Note 4 Foreign Exchange Forward Contracts
The only financial derivatives used by the Company are foreign exchange forward
contracts. The Company had approximately $17,176,000 of foreign exchange forward
contracts outstanding at April 27, 1997 to purchase British pounds, Swiss
Francs, German Marks, and French Francs. The contracts outstanding at April 27,
1997 mature at various dates in fiscal 1998. The contracts' fair values, based
on quoted market prices, were approximately $16,898,000 as of April 27, 1997.
Note 5 Contingencies
From time to time, the Company is involved in litigation and proceedings arising
out of the ordinary course of business. Although the outcome of such proceedings
can not be determined with certainty, the Company believes that the final
outcomes should not have a material adverse effect on its consolidated financial
position, results of operations or cash flows.
PART I. FINANCIAL INFORMATION
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
RESULTS OF OPERATIONS
Net earnings for the quarter ended April 27, 1997 were approximately $2,599,000
or $0.10 per share, an increase of $417,000 or 19% from $2,182,000, or $0.08 per
share, for the quarter ended April 28, 1996.
Net Sales
The following table sets forth, for the periods indicated, the net sales and the
percentage of total net sales for each of the Company's divisions and the period
to period change:
Quarter Ended
---------------------------------------------- Increase/(Decrease)
(in thousands, except for percentages) Quarter Ended
Divisional April 27, 1997 vs.
Net Sales April 27, 1997 April 28, 1996 April 28, 1996
- - --------- --------------- --------------- --------------
Border:
Southern $ 28,073 21.1% $ 23,334 19.8% $ 4,739 20.3%
Northern 15,597 11.7 16,142 13.7 (545) (3.4)
Inflight 43,369 32.6 39,855 33.8 3,514 8.8
Airport 31,785 23.9 26,218 22.2 5,567 21.2
Diplomatic
and Wholesale 14,223 10.7 12,430 10.5 1,793 14.4
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$ 133,047 100.0% $ 117,979 100.0% $ 15,068 12.8%
========== ===== ========== ===== ========= ====
The Company's net sales increased approximately $15 million or 13% for the
quarter ended April 27, 1997 when compared with the quarter ended April 28,
1996. Divisional results that contributed to the Company's growth were:
o The Southern Border's 20.3% sales increase was attributed to the
continued stabilization of the Mexican economy.
o Inflight's 8.8% sales increase was directly related to the duty free
concession programs with Air Canada and Canadian International
Airlines. These programs commenced operations on March 1, 1996 and July
1, 1996, respectively.
o The Airport division realized net sales growth of 21.2% primarily
because of new store openings at the Chicago O'Hare and John F. Kennedy
International Airports. The stores commenced operations in the first
quarter and second quarter of fiscal 1997, respectively.
Cost of Sales and Gross Profit
Gross profit, as a percentage of net sales, decreased to 42.8% in the quarter
ended April 27, 1997 from 43.1% in the quarter ended April 28, 1996. The
fluctuation was attributed to the change in sales mix as a percentage of total.
Advertising, Storage and Other Operating Income
Advertising, storage and other operating income increased for the quarter ended
April 27, 1997 when compared to the quarter ended April 28, 1996, by
approximately $98,000 or 10%. The fluctuation relates to an increase in certain
vendor advertising programs attributable to the Company's increase in operating
locations.
Selling, General, and Administrative Expenses
Selling, general and administrative expenses, as a percentage of net sales,
remained relatively consistent between the first quarter of fiscal 1997, 39.7%,
and the first quarter of fiscal 1998, 39.4%. The slight decline was attributable
to increased sales volume while maintaining stable fixed costs.
Operating Income
Operating income increased approximately $770,000 or 15.7% in the first quarter
of fiscal 1998 over the first quarter of fiscal 1997. The increase was
attributable to increased sales volume and the decrease in selling, general and
administrative expenses as a percent of net sales.
Income Taxes
The Company's effective tax rate was 37.0% for the quarters ended April 27, 1997
and April 28, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of April 27, 1997, net cash provided by operations was $11,546,000 working
capital was $146,240,000 and the Company had $65,611,000 of cash and
investments.
As of and for the quarter ended April 27, 1997, there were no outstanding
borrowings under the Company's $75,000,000 revolving line of credit facility.
The Company believes that the combination of the cash flow generated by its
operations and its available credit facility will be sufficient to finance its
growth and meet its projected capital expenditures and other liquidity
requirements.
REGULATION AND ECONOMIC FACTORS AFFECTING THE DUTY FREE INDUSTRY
The Company's sales and gross profit margins are affected by factors
specifically related to the duty free industry. Most countries have allowances
on the import of duty free goods. Decreases in the duty free allowances of
foreign countries or stricter eligibility requirements for duty free purchases,
as well as decreases in tax and duty rates imposed by foreign jurisdictions
could have a negative effect on the Company's sales and gross profit margins
(particularly Canada and Mexico). Conversely, increases could have a positive
effect on the Company's sales and gross profit.
The principal customers of the Company are residents of foreign countries whose
purchases of duty free merchandise may be affected by trends in the economies of
foreign countries and changes in the value of the US dollar relative to their
own currencies. Any significant increase in the value of the US dollar relative
to the currencies of foreign countries, particularly Canada, Mexico and Japan,
could have an adverse impact on the number of travelers visiting the United
States and the dollar amount of duty free purchases made by them from the
Company. A significant increase in gasoline prices or a shortage of fuel may
also reduce the number of international travelers and thereby adversely affect
the Company's sales. In addition, the Company imports a significant portion of
its products from Western Europe and Canada at prices negotiated either in US
dollars or foreign currencies. As a result, the Company's costs are affected by
fluctuations in the value of the US dollar in relation to certain, major Western
European currencies and the Canadian dollar. A decrease in the purchasing power
of the US dollar relative to other currencies causes a corresponding increase in
the purchase price of products. The Company enters into foreign exchange forward
contracts as a hedge against a portion of its exposure to currency fluctuations
on commitments to purchase merchandise.
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
27.1 Financial Data Schedule.
(b) The Company did not file a Current Report on Form 8-K during the
quarter ended April 27, 1997.
SIGNATURE
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.
DUTY FREE INTERNATIONAL, INC.
and subsidiaries
Date: June 5, 1997 /s/ Gerald F. Egan
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Gerald F. Egan
Vice President-Finance and
Chief Financial Officer