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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 Thirteen Weeks Ended April 29, 2000
Commission File Number 1-9647
JAN BELL MARKETING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
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(State of Incorporation) (IRS Employer Identification No.)
14051 N.W. 14TH STREET, SUNRISE, FLORIDA 33323
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(Address of principal executive offices) (Zip Code)
(954) 846-2709
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(Registrant's telephone number, including area code)
Indicate by check mark 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 [ ]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
19,719,101 SHARES ($.0001 PAR VALUE)
AS OF JUNE 2, 2000
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FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED APRIL 29, 2000
TABLE OF CONTENTS
PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets.........................................................3
B. Consolidated Statements of Operations...............................................4
C. Consolidated Statements of Cash Flows...............................................5-6
D. Notes to Consolidated Financial Statements..........................................7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................9-11
Item 3. Quantitative and Qualitative Disclosures About Market Risks............................12
PART II: OTHER INFORMATION
Items 1, 2, 3, 4, and 5 have been omitted because
they are not applicable with respect to the
current reporting period.
Item 6. Exhibits and Reports
on Form 8-K .........................................................................13
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PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
APRIL 29, JANUARY 29,
2000 2000
--------------- ---------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 245 $ 1,049
Accounts receivable, net of allowance for doubtful
accounts of $1,040 and $1,274, respectively 23,141 25,884
Inventories 83,330 78,640
Other current assets 1,340 2,088
--------- ---------
Total current assets 108,056 107,661
Property, net 29,965 28,238
Goodwill 26,004 26,614
Other assets 2,508 2,653
--------- ---------
Total non-current assets 58,477 57,505
Net assets of discontinued operations 54,421 55,297
--------- ---------
Total assets $ 220,954 $ 220,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 23,373 $ 24,387
Accrued expenses 11,214 13,061
Due to former Mayor's stockholders -- 5,095
--------- ---------
Total current liabilities 34,587 42,543
Long term debt 36,039 24,424
Other long term liabilities 1,895 1,817
--------- ---------
Total long term liabilities 37,934 26,241
--------- ---------
Deferred gain from discontinued operations 15,901 15,124
--------- ---------
Stockholders' Equity:
Common stock, $.0001 par value, 50,000,000 shares authorized,
28,473,299 and 28,457,634 shares issued and outstanding 3 3
Additional paid-in capital 191,850 191,810
Accumulated deficit (34,442) (31,162)
Less: 8,348,598 and 8,078,798 shares of treasury stock, at cost (24,879) (24,096)
--------- ---------
Total stockholders' equity 132,532 136,555
--------- ---------
Total liabilities and stockholders' equity $ 220,954 $ 220,463
========= =========
See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 29, 2000 MAY 1, 1999
------------------ --------------
(UNAUDITED)
Net sales $ 34,648 $ 27,616
Cost of sales 20,814 17,263
------------ ------------
Gross profit 13,834 10,353
Store operating and selling expenses 10,560 8,866
General and administrative expenses 4,988 5,103
Depreciation and amortization 1,734 2,240
------------ ------------
17,282 16,209
------------ ------------
Operating loss (3,448) (5,856)
Interest and other income 679 491
Interest expense 512 561
------------ ------------
Net loss from continuing operations (3,281) (5,926)
Income from discontinued operations, net
of income tax expense of $138 in 1999 -- 3,081
------------ ------------
Net loss $ (3,281) $ (2,845)
============ ============
Weighted average shares outstanding
(basic and diluted) 20,316,173 28,354,986
Basic and Diluted earnings (loss) per share:
Continuing operations $ (0.16) $ (0.21)
Discontinued operations $ 0.00 $ 0.11
------------ ------------
$ (0.16) $ (0.10)
============ ============
See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 29, 2000 MAY 1, 1999
---------------- -----------------
(UNAUDITED)
Cash flows from operating activities:
Cash received from customers $ 37,391 $ 31,787
Cash paid to suppliers and employees (43,216) (16,465)
Interest and other income received (paid) 290 (108)
--------- ---------
Net cash (used in) provided by continuing operations (5,535) 15,214
Net cash provided by (used in) discontinued operations 1,653 (16,218)
--------- ---------
Net cash used in operating activities (3,882) (1,004)
Cash flows from investing activities:
Capital expenditures (3,119) (2,614)
Proceeds from sale of fixed assets 223 3,267
Investment in Mayor's, net of cash acquired in 1998 118 (2,341)
--------- ---------
Net cash used in investing activities (2,778) (1,688)
Cash flows from financing activities:
Proceeds from sale of employee stock plans 39 28
Purchase of treasury stock (783) (694)
Cash paid to former Mayor's shareholder (5,095) (1,785)
Repayment of capital lease 79 (338)
Borrowings under line of credit 100,359 116,093
Line of credit repayments (88,743) (107,441)
--------- ---------
Net cash provided by financing activities 5,856 5,863
Net (decrease) increase in cash and cash equivalents (804) 3,171
Cash and cash equivalents at beginning of period 1,049 3,530
--------- ---------
Cash and cash equivalents at end of period $ 245 $ 6,701
========= =========
(continued)
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Amounts shown in thousands)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
APRIL 29, 2000 MAY 1, 1999
--------------- ---------------
(UNAUDITED)
Cash flows used in operating activities:
Net loss $ (3,281) $ (2,845)
Deduct income from discontinued operations -- (3,081)
-------- --------
Loss from continuing operations (3,281) (5,926)
Adjustments to reconcile net loss from continuing operations to net
cash (used in) provided by continuing operating activities:
Depreciation and amortization 1,734 2,240
Provision for doubtful accounts 392 3,080
(Increase) decrease in assets:
Accounts receivable (net) 2,351 1,090
Inventories (4,690) (3,518)
Other 820 2,784
Increase (decrease) in liabilities:
Accounts payable (1,014) 17,140
Accrued expenses (1,847) (1,676)
-------- --------
Net cash (used in) provided by continuing operations (5,535) 15,214
Net cash provided by (used in) discontinuing operations 1,653 (16,218)
-------- --------
Net cash used in operating activities $ (3,882) $ (1,004)
======== ========
(concluded)
See notes to consolidated financial statements.
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The Company's financial statements as of April 29, 2000 and for
the thirteen week periods ended April 29, 2000 and May 1, 1999 have not been
audited by certified public accountants, but in the opinion of management of Jan
Bell Marketing, Inc. (the "Company" or "Jan Bell") reflect all adjustments
(which include only normal recurring accruals) necessary to present fairly the
financial position, results of operations and cash flows for those periods.
Results of the thirteen week periods ended April 29, 2000 and May 1, 1999 are
not necessarily indicative of annual results because of the seasonality of the
Company's business. Prior year results of operations and cash flows have been
reclassified to reflect the results of the Sam's division as discontinued
operations (See "Discontinued Operations" below for further discussion).
The accompanying consolidated financial statements should be read
in conjunction with the Company's annual consolidated financial statements and
the notes thereto appearing in the Company's annual report on Form 10-K for the
year ended January 29, 2000 filed with the Securities and Exchange Commission.
B. DISCONTINUED OPERATIONS
Sam's division is accounted for as a discontinued operation due
to the expiration of the Sam's Club ("Sam's") agreement scheduled for February
1, 2001, unless an earlier termination arrangement is structured and mutually
agreed to. The Company has been dependent on Sam's to conduct its business and
without replacement business, the loss of the arrangement with Sam's will have a
material adverse effect on the future business of the Company subsequent to
February 1, 2001. The Mayor's Jewelers, Inc. ("Mayor's") acquisition has reduced
this dependence on Sam's. In addition, the Company's operating and capital
resources that are and will become available during the transition are expected
to be used to develop the luxury jeweler platform through the opening of new
stores during the remainder of Fiscal 2000 and beyond.
The balance sheet caption "Deferred gain on discontinued operations"
includes the operating results of Sam's from July 31, 1999, the date which the
Company adopted its plan for disposal of the business, through April 29, 2000,
less losses incurred to date on disposal of the foreign subsidiaries that
supplied and manufactured goods for Sam's. Management believes a net gain will
be realized at the expiration of the Sam's agreement. Consistent with the
accounting for discontinued operations, the $777,000 income during the thirteen
weeks ended April 29, 2000 is reflected as a change in the balance sheet account
"Deferred gain from discontinued operations". The deferred gain to date as of
April 29, 2000 is $15.9 million. A significant portion of the calculation of the
deferred gain and income from discontinued operations is a result of a reduction
in expenses caused by the reallocation of continuing corporate overhead and
certain back office expenses from the Sam's division to the Mayor's division.
Net assets of discontinued operations have been recorded at their
estimated net realizable value and are as follows:
APRIL 29, JANUARY 29,
2000 2000
------------ ------------
(amounts shown in thousands)
Cash $ 392 $ 392
Accounts receivable, net 4,312 6,025
Inventories 57,712 47,118
Other current assets 5,500 8,097
Property, plant and equipment, net 664 858
Other non-current assets 702 936
Accounts payables (11,640) (4,341)
Other current liabilities (3,221) (3,788)
------------ ------------
Net assets of discontinued operations $ 54,421 $ 55,297
============ ============
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C. INVENTORIES
Inventories are summarized as follows:
APRIL 29, 2000 JANUARY 29, 2000
------------------------- -------------------------
(amounts shown in thousands)
COMPANY HELD ON COMPANY HELD ON
OWNED CONSIGNMENT OWNED CONSIGNMENT
------- ----------- ------- -----------
Precious and semi-precious gem jewelry- related merchandise
(and associated gold):
Raw materials $ 3,280 $ -- $ 2,806 $ --
Finished goods 50,693 14,706 52,152 15,422
Watches 25,952 1,147 21,027 190
Other consumer products 3,405 127 2,655 128
------- ------- ------- -------
$83,330 $15,980 $78,640 $15,740
======= ======= ======= =======
D. INCOME TAXES
The Company has a federal net operating loss carryforward of
approximately $8.8 million and a state net operating loss carryforward of
approximately $50.4 million. The amount of Mayor's NOL included in the $8.8
million is approximately $2.9 million, of which, due to Section 385 limitations,
the Company can utilize each year approximately $1.5 million. The federal net
operating loss carryforward expires beginning in 2008 through 2011 and the state
net operating loss carryforward expires beginning in 2000 through 2013. The
Company also has an alternative minimum tax credit carryforward of approximately
$1.8 million to offset future federal income taxes. A valuation allowance has
been recorded to offset the net deferred tax asset to the amount that the
Company believes, after evaluating the currently available evidence, will more
likely than not be realized.
At the time the Company purchased Exclusive Diamonds
International, Limited ("EDI") in August of 1990, EDI applied to and received
from the Israeli government under the Capital Investments Law of 1959 "approved
enterprise" status, which results in reduced tax rates given to foreign owned
corporations to stimulate the export of Israeli manufactured products. The
effect in Fiscal 1999, Fiscal 1998 and Fiscal 1997 was not material. The
"approved enterprise" tax benefit is available to EDI until the year 2000. Upon
its sale or liquidation, EDI will be subject to a 10% tax on any income that was
previously exempted from tax as a result of its "approved enterprise" status.
Furthermore, depending on the specific form of the transaction, the Company may
be subject to additional Israeli taxes, at rates ranging from 15% to 36%, upon
the sale of either EDI's assets or the Company's stock of EDI. Any additional
Israeli taxes will be part of the results from the discontinuance of the Sam's
operations.
Mayor's 1994, 1995 and 1996 federal income tax returns are
currently under examination by the IRS. The impact of the IRS examination on the
Company's financial condition, results of operation, and cash flow cannot be
ascertained at this time.
E. LEGAL PROCEEDINGS
The Company is involved in litigation arising from the normal
course of business. In addition to other commercial litigation, the Company has
two lawsuits with a former vendor and a third lawsuit with the same former
vendor which relates to an alleged employment relationship. A federal court
action was tried in January 1999, and the federal court issued a judgment in
favor of the Company, including an award of attorney's fees and costs. The
former vendor appealed the judgment, and the federal appellate court affirmed
the judgment in favor of the Company. A state court contract action was tried in
August 1999, and the state court issued a judgment in favor of the vendor,
including an award of attorney's fees and costs. The Company is appealing this
state court ruling. The Company believes the facts and the law support its
positions and these matters should not materially affect the Company's financial
position; however, there can be no assurance as to the final result of these
legal matters.
F. SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITIES
The Statement of Cash Flows for the thirteen weeks ended April
29, 2000 does not include the following noncash transactions:
Capital lease obligations incurred $ 317,000
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and
other forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
The Company's actual results could differ materially from those anticipated in
any forward-looking statements as a result of certain factors set forth below
and elsewhere in this Report and in the Company's annual report on Form 10-K for
the year ended January 29, 2000 and other reports filed with the Securities and
Exchange Commission.
The Company currently operates 26 Mayor's and Maier & Berkele luxury
jewelry stores in Florida and Georgia. It also has an exclusive licensed
concession department at all existing and future domestic and Puerto Rico Sam's
locations under an agreement which expires February 1, 2001, unless an earlier
termination arrangement is structured and mutually agreed to. During April 1999,
the Company was informed that this agreement would not be renewed beyond its
expiration date. During the thirteen weeks ended April 29, 2000, the operating
activity of the Sam's division are included in the caption "Deferred gain from
discontinued operations" in the Consolidated Balance Sheets. The growth of the
Mayor's division will mitigate the loss of the Sam's business, although the
concession non-renewal will have a material adverse effect on the Company. To
compensate for the loss of the Sam's business, the Company will focus its
attention and resources on expanding Mayor's into a national retailer. In the
interim, the Company is implementing a transition plan to efficiently exit from
the Sam's business.
As a result of the non-renewal, in the second quarter of Fiscal 1999
the Company began to account for its Sam's operating results, future field and
back office expenses associated with the transition out of the clubs, its loss
from the sale of its Mexico subsidiary and its estimated loss on the sale or
liquidation of its Israel subsidiary as discontinued operations in its financial
statements. The assets and liabilities of Sam's is recorded as "Net assets of
discontinued operations," and the operations of Sam's and the costs of the
discontinuance since the date of adoption of the plan, which are expected to
result in a net gain at the culmination of the process, are accumulated in the
"Deferred gain from discontinued operations" accounts of the Company's
Consolidated Balance Sheets. The net results of operations of Sam's prior to the
adoption of the plan are included in "Net income from discontinued operations"
included in the accompanying Consolidated Statements of Operations. Accordingly,
the results of continuing operations for the thirteen weeks ended April 29, 2000
and May 1, 1999 include only the results of Mayor's.
The Company has begun to review ongoing strategies to increase revenues
and achieve expense savings in existing Mayor's stores and currently a
significant portion of the Company's resources are being spent on the continued
development of the luxury jeweler platform through the opening of new stores.
The Company's operating infrastructure is designed to service a much larger base
of operations than the current Mayor's business. However, the Company expects to
"grow into" the infrastructure which it believes is appropriately sized, given
the expansion intentions for Mayor's. In view of the investment being made into
the Company infrastructure, continuing operations reflect costs which are higher
than what normally would be incurred for an operation of Mayor's present size.
In addition, certain corporate overhead expenses previously charged to the Sam's
division have been reallocated to the continuing Mayor's division. Mayor's
continuing operations recognized net losses of $3.3 million and $5.9 million for
the thirteen weeks ended April 29, 2000 and May 1, 1999, respectively. The
Company intends to further reduce the losses through the expansion of the
Mayor's chain as well as identifying further efficiencies in the Company's
infrastructure. The Company has implemented a focused merchandising, marketing
and real estate strategy that will serve to solidify Mayor's position as a
premier luxury guild jeweler.
The Company's net sales from the Mayor's continuing operations
for the thirteen weeks ended April 29, 2000 were $34.6 million compared to $27.6
million for the thirteen weeks ended May 1, 1999. The increase in revenues for
the thirteen weeks ended April 29, 2000 is mainly attributable to increases in
all product categories, with the largest increases in the watch category, as
well as a 15.2% increase from the same period during the prior year in
comparative net sales for the thirteen weeks ended April 29, 2000.
The Company is seeking to expand its Mayor's chain into a
national luxury jeweler by opening new stores outside of Mayor's current
geographical marketplace, which will increase the Company's net sales. However,
the retail jewelry market is particularly subject to the level of consumer
discretionary income and the subsequent impact on the type and value of goods
purchased. With the consolidation of the retail industry, the Company believes
that competition both within the luxury goods retail industry and with other
competing general and specialty retailers and discounters will continue to
increase. The superior watch brands business comprise a significant portion of
the Mayor's business, which is a result of the Company's ability to market
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effectively high-end watches. The Company's future sales results in these new
stores could be adversely impacted because some current significant watch vendor
distribution agreements do not provide for the marketing of new products in
these new locations.
Gross profit was 39.9% for the thirteen weeks ended April 29,
2000 compared to 37.5% for the thirteen weeks ended May 1, 1999. The increase in
gross profit as a percentage of net sales for the thirteen weeks ended April 29,
2000 is a result of buying efficiencies, higher initial markups and lower
inventory reserves due to the Company's successful efforts to manage shrink. The
Company believes there is opportunity to additionally increase gross profit over
the next couple of years. Areas for gross margin improvement include the
purchasing of inventories at a lower cost, increasing the assortment of goods
towards higher margin jewelry items, higher initial markups, reductions in
shipping and handling costs, and improving the Company's discipline with respect
to sale and purchase related discounts.
Store operating and selling expenses were $10.6 million or 30.5%
of net sales for the thirteen weeks ended April 29, 2000 compared to $8.9
million or 32.1% of net sales for the thirteen weeks ended May 1, 1999. The
increase in store operating and selling expenses for the thirteen weeks ended
April 29, 2000 is mainly attributable to increased store commissions, chargecard
and check processing fees and percentage rent which are directly related to the
increased sales and increased number of stores. The Company does not believe
there is significant opportunity to reduce these expenses. The Company believes
it has a very well executed front end in its Mayor's stores which includes
highly professional, trained associates. Also, the Company believes that the
elegance of the Mayor's stores helps set the business apart from other jewelers
and adds to the experience of shopping in a Mayor's store. As such, the Company
does not believe a reduction in these expenses would be beneficial.
General and administrative expenses were $5.0 million or 14.4% of
net sales for the thirteen weeks ended April 29, 2000, compared to $5.1 million
or 18.5% of net sales for the thirteen weeks ended May 1, 1999. The decrease in
general and administrative expenses for the thirteen weeks ended April 29, 2000
is primarily due to the consolidation of back office functions. The current
infrastructure is designed to service a larger base of operations. The
percentage of general and administrative expenses to net sales should continue
to decrease as the Company expands its business.
Depreciation and amortization expenses were $1.7 million for the
thirteen weeks ended April 29, 2000 compared to $2.2 million for the thirteen
weeks ended May 1, 1999. The decrease of depreciation and amortization for the
thirteen weeks ended April 29, 2000 is primarily due to the existence of the
previous Mayor's headquarters fixed assets in the first quarter of 1999, which
were written off during the second quarter of 1999, net of an increase as a
result of new and remodeled stores. Included in these amounts are the
depreciation of Mayor's store assets, depreciation for substantially all
corporate headquarter and distribution center fixed assets, amortization of
goodwill resulting from the Mayor's acquisition and amortization of financing
costs related to the Company's working capital facility with Citicorp, USA.
Interest and other income was $.7 million for the thirteen weeks
ended April 29, 2000 compared to $.5 million for the thirteen weeks ended May 1,
1999. This income is primarily a result of finance charge income from the
Mayor's chargecard. Interest expense related to the Company's working capital
facility was $.5 million for the thirteen weeks ended April 29, 2000 and $.6
million for the thirteen weeks ended May 1, 1999.
DISCONTINUED OPERATIONS
The results of operations for the thirteen weeks ended April 29,
2000 related to the Sam's division discontinued operations reflect the Company's
continued strategy to generate earnings in Sam's as much as possible until the
contract ends, while also attempting to liquidate its inventory investment to a
minimal level by that time. During the first quarter, the Company continued to
execute merchandise strategies in Sam's that emphasized higher margin diamond,
semi-precious gem, gold and watch products in place of other lower margin
non-jewelry products and categories. Management does not expect any improvements
in sales, gross margins, operating cash flows and expense savings in its
traditional business with Sam's and will recognize some declines as a result of
the contract non-renewal. The Company expects to continue to have positive cash
flows and positive income from Sam's during the remaining term of the agreement.
This estimated gain considers the Sam's division operations through February 1,
2001, the loss on the sale of Mexican operations which were sold in July 1999,
the estimated loss on the Israel operations which are expected to be sold or
liquidated during this fiscal year, and an estimate for field and back office
expenses expected during the transition out of Sam's. The Company can, however,
make no assurances regarding the results of the termination of its Sam's
division business, including matters related to the results of operations,
personnel and inventories. Throughout the remainder of the agreement the
operating results of the discontinued operations will continue to accumulate in
the balance sheet. Upon termination of the agreement the net results of these
discontinued operations will then be closed out through the income statement.
Income from discontinued operations was $.8 million for the thirteen weeks ended
April 29, 2000 compared to $3.1 million for the thirteen weeks ended May 1,
1999. The decrease in Income from discontinued operations for the thirteen weeks
ended April 29, 2000 is mainly attributable to decreased sales and gross margin
due to the Company's efforts to liquidate the inventory of non-jewelry products
in the Sam's discontinued operations.
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LIQUIDITY AND CAPITAL RESOURCES
As of April 29, 2000, cash and cash equivalents totaled $.2 million and
the Company had $36.0 million outstanding under its working capital facility.
Availability under this facility is determined based upon a percentage formula
applied to inventory and accounts receivable. Based upon this formula, the
maximum of $80 million was available to the Company at April 29, 2000. The
Company has the right to request an increase up to $110 million contingent upon
lender approval. The credit facility bears interest at floating rates, currently
based upon LIBOR plus 1.5% or the bank's adjusted base rate plus .25%, at the
Company's option. These interest rates can be increased if the Company's average
leverage ratio does not meet certain levels. In addition, the Company pays a
commitment fee of .25% of the unused line balance as well as 2.5% of the
aggregate outstanding letter of credit liability. The agreement contains
covenants which require the Company to maintain financial ratios including
leverage ratio, fixed charge ratio, and tangible net worth, and also limits
capital expenditures, incurrence of additional debt, and prohibits payment of
dividends. Further, the Company has amended the agreement for all appropriate
terms and conditions related to the expiration of the Sam's agreement.
During the thirteen weeks ended April 29, 2000, net cash used in
operating activities was $3.9 million consisting of $5.5 million in cash used in
continuing operations and $1.6 million in cash provided by discontinued
operations. The Company's business is highly seasonal. Consequently, seasonal
working capital needs peak in October and November, before the holiday shopping
season.
Net cash used in investing activities was $2.8 million during the
thirteen weeks ended April 29, 2000, primarily related to capital expenditures
associated with new and remodeled Mayor's locations. The Company plans to open
ten Mayor's stores during 2000. Under its Mayor's growth strategy, the Company
plans to open approximately eight to ten new stores per year. Management
estimates that the Company's cash requirements will be approximately $4.2
million for each new store, with approximately $1.2 million (after consideration
of lease concessions from landlords) related to leasehold improvements,
fixtures, point of sale terminals and other equipment in the stores, and
approximately $3 million related to incremental accounts receivable and
inventory investment, net of incremental accounts payable. The Company also
estimates it will make back office capital expenditures of approximately $2.0
million during Fiscal 2000, primarily for management information system
enhancements.
On April 16, 1999 the Company's Board of Directors authorized the
expenditure of up to $15 million to repurchase the Company's common stock over a
period of one year. On October 29, 1999, the authorized amount to repurchase was
increased by an additional $5 million, which was subsequently increased on
February 25, 2000 another $10 million to $30 million. The Company has and will
continue to repurchase the shares in the open market or in privately negotiated
transactions, from time to time, in compliance with the Securities and Exchange
Commission's Rule 10b-18, subject to market conditions, applicable legal
requirements and other factors. The acquired shares will be held in treasury or
canceled. Through the thirteen weeks ended April 29, 2000, the Company had
repurchased 8,348,598 shares at a cost of $24.9 million.
The Company believes that its cash on hand, projected cash from
continuing and discontinued operations and availability under the current
working capital facility will be sufficient to meet its anticipated working
capital and capital expenditure needs for the remainder of Fiscal 2000; however,
there can be no assurance that the Company's future operating results will be
sufficient to sustain any debt service and working capital needs.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISKS
The disclosure in the Annual Report on Form 10-K filed April 19,
2000 is incorporated by reference herein. The Company does not believe that the
risk related to interest rate changes is materially different than it was at the
date of the referenced report.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written reports and releases and oral
statements made from time to time by the Company contain forward-looking
statements which can be identified by their use of words like "plans,"
"expects," "believes," "will," "anticipates," "intends," "projects,"
"estimates," "could," "would," "may," "planned," "goal," and other words of
similar meaning. All statements that address expectations, possibilities or
projections about the future, including without limitation statements about the
Company's strategy for growth, expansion plans, sources or adequacy of capital,
the Sam's transition, expenditures and financial results are forward-looking
statements.
One must carefully consider such statements and understand that
many factors could cause actual results to differ from the forward-looking
statements, such as inaccurate assumptions and other risks and uncertainties,
some known and some unknown. No forward-looking statement is guaranteed and
actual results may vary materially. Such statements are made as of date
provided, and the Company assumes no obligation to update any forward-looking
statements to reflect future developments or circumstances.
One should carefully evaluate such statements by referring to the
factors described in the Company's filings with the SEC, especially on Form's
10-K, 10-Q and 8-K. Particular review is to be made of Items 1, 2, 3 and 7 of
the Form 10-K and Item 2 of the Form's 10-Q where the Company discusses in more
detail various important risks and uncertainties that could cause actual results
to differ from expected or historical results. The Company notes these factors
for investors as permitted by the Private Securities Litigation Act of 1995.
Since it is not possible to predict or identify all such factors, the identified
items are not a complete statement of all risks or uncertainties. In addition to
the factors previously discussed or referenced in this report, the following are
some of the other important factors that could cause results to vary.
The Company markets its products through its primarily mall based
Mayor's and Maier and Berkele stores as well as through Sam's pursuant to an
arrangement whereby the Company operates an exclusive licensed concession at all
of Sam's existing and future domestic and Puerto Rico locations through February
1, 2001. On April 6, 1999, the Company was informed by Sam's that its concession
agreement would not be renewed beyond its expiration date. The Company has been
dependent on Sam's to conduct its business and, without replacement business,
the loss of the arrangement with Sam's will have a material adverse effect on
the business of the Company.
The Company is pursuing new growth opportunities outside of its
existing business with Sam's and Mayor's and future arrangements with other
retail ventures. Management continuously considers other growth opportunities
including acquisitions of businesses similar or complementary to that of the
Company, which could require a significant investment of funds and management
attention by the Company. Any such growth opportunities will be subject to all
of the risks inherent in the establishment of a new product or service offering,
including competition, lack of sufficient customer demand, unavailability of
experienced management, unforeseen complications, delays and cost increases and
integration difficulties. The Company may incur costs in connection with
pursuing new growth opportunities that it cannot recover, and the Company may be
required to expense certain of these costs, which may negatively impact the
Company's reported operating performance for the periods during which such costs
are incurred.
The Company plans to open ten Mayor's stores in 2000. The Company
considers its Mayor's expansion program to be an integral part of its future
plans to replace the Sam's business. However, there can be no assurance that the
Company will be able to find favorable store locations, negotiate favorable
leases, hire and train new store and account managers, and integrate the new
stores in a manner that will allow the Company to meet its expansion program.
Conditions outside the Company's control, such as adverse weather conditions
affecting construction schedules, unavailability of materials, labor disputes
and similar issues also could impact anticipated store openings. Also, certain
name brand products, such as new Rolex watches, currently will not be sold in
new locations outside of Florida and Georgia. The failure to expand by opening
new stores as planned could have a material adverse effect on the Company's
future sales growth, profitability and operating results.
All but three of the Mayor's stores are located in major regional
malls. The success of the Company's operations depends to a certain extent on
the ability of mall anchor tenants and other attractions to generate customer
traffic in the vicinity of the Mayor's stores. The loss of mall anchor tenants
in the regional malls where the Mayor's stores are located, the opening of
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competing regional malls or other economic downturns affecting customer mall
traffic could have an adverse effect on the Company's net sales and
profitability.
The working capital facility agreement contains covenants, which
require the Company to maintain financial ratios including a leverage ratio,
fixed charge ratio, tangible net worth, and also limits capital expenditures,
incurrence of additional debt, and prohibits the payment of dividends. There can
be no assurance that the Company's future operating results will be sufficient
to meet the requirements of the applicable covenants.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following list of schedules and exhibits are incorporated
by reference as indicated in this Form 10-Q:
10.1 Charter of the Audit Committee of the Board of Director's
10.2 Official Rolex Jeweler Agreement dated April 3, 2000
10.3 Second Amendment to Loan and Security Agreement dated
April 28, 2000
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K: None.
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PART II: OTHER INFORMATION
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.
JAN BELL MARKETING, INC.
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(Registrant)
By: /s/ DAVID P. BOUDREAU
----------------------------------------
Chief Financial Officer and Senior
Vice President of Finance & Treasurer
Date: June 8, 2000
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