1
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 October 30, 1994.
Commission File Number 1-9647
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
-------- ----------
(State of Incorporation) (IRS Employer
Identification No.)
13801 N.W. 14TH STREET SUNRISE, FLORIDA 33323
---------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 846-8000
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.
25,922,119 COMMON SHARES ($.0001 PAR VALUE)
AS OF NOVEMBER 30, 1994
2
FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED OCTOBER 30, 1994
TABLE OF CONTENTS
_________________
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets 3
B. Consolidated Statements of Operations 4
C. Consolidated Statements of Cash Flows 6
D. Notes to Consolidated Financial
Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II: OTHER INFORMATION
Items 1, 2, 4 and 5
have been omitted because they are not
applicable with respect to the current
reporting period.
Item 3. Defaults upon Senior Securities 15
Item 6. Exhibits and reports on Form 8-K 15
2
3
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)
A S S E T S
October 30, December 31,
1994 1993
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 2,246 $ 30,178
Accounts receivable, net 35,264 22,064
Inventories 182,109 177,538
Refundable income taxes 1,484 15,075
Prepaid expenses 1,837 1,103
Other current assets 525 1,914
------- -------
Total current assets 223,465 247,872
Property, net 30,316 28,846
Other assets 7,638 7,686
Excess of cost over fair
value of net assets acquired 26,982 27,850
------- -------
$ 288,401 $ 312,254
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 37,977 $ 29,339
Accrued expenses 4,394 8,734
Accrued lease payment 1,940 1,877
Liability for inventory sold
and repurchased (Note B) --- 33,426
Senior notes payable
classified as current (Note F) 33,734 ---
Notes payable to banks 23,000 ---
------- ------
Total current liabilities 101,045 73,376
Long-term debt --- 33,496
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value,
50,000,000 shares authorized,
25,922,119 and 25,851,738 shares
issued, respectively 3 3
Additional paid-in capital 181,392 180,367
Retained earnings 8,957 28,871
------- -------
190,352 209,241
Deferred compensation (2,996) (3,859)
------- -------
187,356 205,382
------- -------
$ 288,401 $ 312,254
======= =======
See notes to consolidated financial statements.
3
4
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
Thirteen-Weeks Ended Quarter Ended
October 30, 1994 September 30, 1993
---------------- ------------------
(Unaudited)
Net sales $ 68,588 $ 42,601
Cost of sales 58,354 36,547
---------- ----------
Gross profit 10,234 6,054
Interest and other
income 102 50
---------- ----------
10,336 6,104
Selling, general and
administrative
expenses 13,693 8,982
Other costs (Note B) --- 805
Interest expense 908 771
---------- ----------
(Loss) before income taxes (4,265) (4,454)
Income taxes 267 (1,567)
---------- ----------
Net (loss) $ (4,532) $ (2,887)
========== ==========
Net income (loss) per
common share $ (.18) $ (.11)
========== ==========
Weighted average shares
outstanding 25,725,533 25,512,534
========== ==========
See notes to consolidated financial statements.
4
5
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
Thirty Nine Weeks Ended Nine Months Ended
October 30, 1994 September 30, 1993
---------------- ------------------
(Unaudited)
Net sales $ 191,675 $ 138,017
Less:
Effect of new agreement
--- 77,052
---------- ----------
191,675 60,965
Cost of sales 164,274 114,800
Less:
Effect of new agreement
--- 58,945
---------- ----------
164,274 55,855
Gross profit 27,401 5,110
Interest and other
income 207 507
---------- ----------
27,608 5,617
Selling, general and
administrative
expenses 40,057 23,759
Other costs (Note B) --- 805
Interest expense 2,522 2,349
---------- ----------
(Loss) before income taxes (14,971) (21,296)
Income taxes 472 (8,437)
---------- ----------
Net (loss) $ (15,443) $ (12,859)
========== ==========
Net (loss) per common
share $ ( .60) $ ( .50)
========== ==========
Weighted average shares
outstanding 25,667,242 25,466,044
========== ==========
See notes to consolidated financial statements.
5
6
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
Thirty Nine Weeks Ended Nine Months Ended
October 30, 1994 September 30, 1993
---------------- ------------------
(Unaudited)
Cash flows from operating
activities:
Cash received from customers $ 176,045 $ 130,952
Cash paid to suppliers and
employees (204,894) (183,244)
Interest and other income
received 207 507
Interest paid (2,522) (2,349)
Income taxes (paid) received 13,561 (2,230)
-------- -------
Net cash used in
operating activities (17,603) (56,364)
-------- -------
Cash flows from investing
activities:
Capital expenditures (5,487) (9,282)
-------- -------
Cash flows from financing
activities:
Net borrowings under lines of
credit 23,000 16,350
Proceeds from exercise of
options -- 248
Stock purchase plan payments
withheld 33 82
-------- -------
Net cash provided by
financing activities 23,033 16,680
-------- -------
Net decrease in cash
and cash equivalents (57) (48,966)
Cash and cash equivalents at
beginning of year 2,303 49,634
-------- -------
Cash and cash equivalents at
end of period $ 2,246 $ 668
======== =======
See notes to consolidated financial statements.
6
7
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Amounts shown in thousands)
Thirty Nine Weeks Ended Nine Months Ended
October 30, 1994 September 30, 1993
---------------- ------------------
(Unaudited)
Reconciliation of net Loss
to net cash used in
operating activities:
Net loss $ (15,443) $ (12,859)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and
amortization 5,987 4,773
Stock compensation expense 775 1,548
Stock grants 660 ---
(Increase) Decrease
in assets:
Accounts receivable (net) (15,630) 40,569
Inventories 3,250 (74,950)
Prepaid expenses 12,476 (12,562)
Other current assets (597) 854
Increase (Decrease) in
liabilities:
Accounts payable 11,554 (17,049)
Accrued expenses (2,565) (1,074)
Deferred taxes 96 ---
Liability for inventory
sold and repurchased (18,166) 14,386
-------- -------
Net cash used in
operating activities $ (17,603) $ (56,364)
======== =======
See notes to consolidated financial statements.
7
8
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Unaudited Financial Statements
The Company's financial statements for the thirteen and thirty nine
week periods ended October 30, 1994 and three and nine month periods ended
September 30, 1993, have not been audited by certified public accountants but,
in the opinion of management of the Company, reflect all adjustments (which
include only normal recurring accruals, except as discussed in Note B)
necessary to present fairly such information of those periods. Results of the
thirteen and thirty nine week periods ended October 30, 1994 and three and nine
month periods ended September 30, 1993 are not necessarily indicative of annual
results because of the seasonality of the Company's business.
The accompanying financial statements should be read in conjunction
with the annual financial statements included in the Company's Annual Report on
Form 10-K for the year ending December 31, 1993.
B. Agreement with Sam's Wholesale Club
In May 1993, the Company entered into an agreement (the "Agreement")
to operate an exclusive leased department at all existing and future Sam's
Wholesale Club ("Sam's") locations through February 1, 1999. In March 1994,
the agreement was extended to February 1, 2001. Under the terms of the
Agreement, the Company repurchased Sam's existing inventory which included
goods Sam's had previously purchased from the Company as well as from other
vendors. As consideration for entering into the Agreement, the Company paid to
Sam's a one-time fee of $7.0 million, which is included in Other Assets and is
being amortized over the term of the Agreement. The unamortized amount as of
October 30, 1994 was approximately $6.0 million. The Company pays Sam's a
tenancy fee of 9% of net sales.
As a result of this new Agreement with Sam's in 1993, the Company
recorded a sales reversal of $99.7 million for the amount of inventory
previously sold by Jan Bell to Sam's which became subject to repurchase. In
addition, cost of sales was reduced by $79.7 million resulting in a $20.0
million one-time charge to pre-tax earnings. The Company had originally
estimated the amount of inventory subject to repurchase at $77.1 million and
the related cost of sales at $59.0 million which resulted in an $18.1 million
one-time charge to pre-tax earnings that was recorded in the first quarter of
1993.
8
9
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
As of December 31, 1993, the Company owed Sam's approximately $42.5
million of which approximately $33.4 million was for inventory repurchased from
Sam's and approximately $9.1 million which is included in accounts payable for
certain third party merchandise acquired by the Company from Sam's. At October
30, 1994, the Company owed $1.9 million which has been subsequently paid.
In the quarter ended September 30, 1993, the Company incurred $805,000
of costs related to commencing operations under the agreement.
C. Inventories:
Inventories are summarized as follows:
October 30, December 31,
-------------------------------
1994 1993
-------------------------------
(Amounts shown in thousands)
Precious and semi-precious jewelry-
related merchandise (and associated
gold):
Raw materials $ 11,840 $ 10,885
Finished goods 56,763 57,158
Gold jewelry-related merchandise:
Raw materials 2 13
Finished goods 31,278 26,794
Watches 61,733 62,688
Other consumer products 20,493 20,000
------- -------
$ 182,109 $ 177,538
======= =======
9
10
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
D. Income Taxes
The Company's provision for income taxes for the thirteen weeks ended
October 30, 1994 is related to the earnings of foreign subsidiaries. Federal
and state tax benefits have not been recognized for the domestic loss for the
thirteen weeks ended October 30, 1994 due to the fact that all loss carrybacks
have been fully utilized and, under SFAS No. 109, "Accounting for Income
Taxes," the Company has determined that it is more likely than not that the
deferred tax asset will not be realized.
E. Change in Fiscal Year
In February 1994, the Company determined to change its fiscal year
from a calendar year ending on December 31 to a retail 52/53 week fiscal year
ending on the last Sunday of each January. The first such fiscal year began on
January 31, 1994 and will end on January 29, 1995. The following is condensed
information regarding the unaudited consolidated results of operations and cash
flows for the 30 day transition period of January 1, 1994 to January 30, 1994
(in thousands, except per share data):
CONSOLIDATED STATEMENT OF OPERATIONS
Net sales $ 7,384
Gross profit 689
Net loss (4,471)
Loss per common share (.17)
======
CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash (used in) operating activities $ (27,469)
Net cash (used in) investing activities (408)
Net cash provided by financing activities 2
-------
Net decrease in Cash and Cash Equivalents (27,875)
Cash and Cash Equivalents at Beginning
of Period 30,178
-------
Cash and Cash Equivalents at End of
Period $ 2,303
=======
Reconciliation of Net Loss to Net Cash
(Used In) Operating Activities:
Net Loss $ (4,471)
Depreciation and amortization 747
Stock compensation expense 417
(Increase) in current assets (4,180)
(Decrease) in current liabilities (19,982)
-------
Net cash (used in) operating activities $ (27,469)
=======
10
11
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(continued)
As a result of the significant change in the nature of the Company's
business from being primarily a wholesale operation during most of 1993 to
primarily a retail operation during 1994, comparison with historical operating
results is not considered to be meaningful nor practicable. Accordingly, the
1993 quarter and nine months ended September 30, 1993 were not restated to
fiscal thirteen and thirty nine week periods ended October 31, 1993.
F. Financing Arrangements
For the thirteen and thirty nine week periods ended October 30, 1994,
the Company was not in compliance with the earnings covenant contained in its
senior note agreement. The Company entered into a forbearance agreement with
its senior noteholders regarding such covenant. Since the Company anticipates
noncompliance with this covenant at year end, the forbearance agreement
contemplates restructuring discussions to be concluded prior to February 28,
1995. Under the circumstances, generally accepted accounting principles
require that the senior notes be classified as a current liability.
As of October 30, 1994, the Company's short term borrowings were made
under a two year $50 million unsecured revolving bank credit facility with
NationsBank which bore interest at the bank's prime rate plus two percent or
two and one half percent over LIBOR (London Interbank Offered Rate) or the
applicable secondary CD rate. This credit facility was finalized in September
1994.
11
12
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In May 1993, the Company commenced its transition to a
fully-integrated retailer in the wholesale club industry by entering into an
agreement with Sam's Wholesale Club ("Sam's") to operate an exclusive leased
jewelry department at all existing and future Sam's locations. The operational
rollout began on September 21, 1993 and was completed on October 28, 1993,
during which time the Company took over the operations of the then existing 331
jewelry departments at Sam's. Including the locations acquired by Sam's from
Pace, which the Company had previously operated under an agreement with Pace,
the Company operated at October 30, 1994, 437 jewelry departments.
In February 1994, the Company determined to change its year from a
calendar year ending December 31 to a retail 52/53 week fiscal year ending on
the last Sunday of each January (See Note E to the Financial Statements). As a
result of the significant change in the nature of the Company's business from
being primarily a wholesale operation during most of 1993 to primarily a retail
operation during 1994, comparison with historical operating results is not
considered to be meaningful nor practicable. Accordingly, financial
information for the quarter and nine months ended September 30, 1993 were not
restated to fiscal thirteen and thirty nine weeks ended October 31, 1993
period.
Net sales were $68.6 million for the quarter ended October 30, 1994
and gross profit was $10.2 million or 14.9% of net sales. Inventory at
December 31, 1993 was and continues to be in excess of desired levels, and the
Company experienced both sales and margin pressure during the third quarter as
it continues to reduce and rebalance its inventory position. Management
anticipates these pressures will continue during the fourth quarter of 1994 and
recognizes that a significant improvement in both sales and margins must be
achieved for the Company to return to profitability.
Selling, general and administrative expenses were $13.7 million and
$40.1 million for the thirteen and thirty nine weeks periods ended October 31,
1994 respectively compared to $9.0 million and $23.8 million for the three and
nine month periods ended September 30, 1993, respectively. The increase is
primarily reflective of the payroll and other costs related to operating the
Sam's leased departments.
Net loss for the thirteen weeks ended October 30, 1994 was $4.5
million or $0.18 per share compared to a net loss of $2.9 million or $0.11 per
share for the quarter ended September 30, 1993. Net loss for the thirty nine
weeks ended October 30, 1994 was $15.4 million or $.60 per share compared to a
net loss of $12.9 million or $.50 per share for the nine months ended September
30, 1993.
12
13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The retail jewelry business is seasonal in nature with a higher
proportion of sales and earnings generated during the fourth quarter Christmas
selling season. As a result, operating results for the interim periods are not
necessary indicative of results of operations for the entire fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of October 30, 1994, cash and cash equivalents totalled $2.2
million and the Company had short-term borrowings of $23.0 million outstanding
under its revolving credit facility. Also, the Company owed Sam's
approximately $1.9 million, which is included in accounts payable, for certain
third-party merchandise acquired by the Company from Sam's. Final payment of
this amount was made subsequent to October 30, 1994.
Inventory increased $4.6 million from year-end 1993 primarily
reflecting the build-up in inventory required for the Christmas selling season.
Management is committed to reducing and rebalancing its inventory until desired
levels are achieved.
The Company has historically financed its working capital requirements
through a combination of proceeds of public offerings, internally generated
cash, short-term borrowings under bank lines of credit and a senior note
placement. As of October 30, 1994, the Company's short-term borrowings were
made under a two year $50 million unsecured revolving bank credit facility with
NationsBank which bore interest at the bank's prime rate plus two percent or
two and one half percent over LIBOR (London Interbank Offered Rate) or the
applicable secondary CD rate. This credit facility was finalized in September,
1994. In October 1992, the Company finalized a $35 million unsecured private
placement of senior notes with an interest rate of 6.99%. Semi-annual interest
payments on the notes began in April 1993 and annual principal payments of $6.5
million commence in April 1996 with a final $9.0 million principal payment due
in October 1999.
Each of the foregoing agreements is subject to various financial
ratios, operating results and covenants and restricts dividend payments. For
the thirteen and thirty nine week periods ended October 30, 1994, the Company
was not in compliance with the earnings covenant contained in its senior note
agreement. The Company entered into a forbearance agreement with its senior
noteholders regarding such covenant. Since the Company anticipates
noncompliance with this covenant at year end, the forbearance agreement
contemplates restructuring discussions to be concluded prior to February 28,
1995. Under the circumstances generally accepted accounting principles
require that the senior notes be classified as a current liability.
13
14
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Due to current operating results, the Company is evaluating the
recoverability of the costs in excess of net assets acquired (goodwill)
resulting from the purchase of the joint venture interest Big Ben Ninety in
1991. If the Company determines that a portion or all is not recoverable, a
write down would be necessary.
Funds will continue to be required to facilitate the Company's growth
and funding is anticipated to come from operations, bank lines of credit or the
capital markets and the Company's asset management program, which is primarily
focused on reducing the working capital requirements of the Company by
eliminating excess inventory.
14
15
PART II: OTHER INFORMATION
Item 3. Defaults Upon Senior Securities.
Based upon results of operations through October 30, 1994, the Company
is not in compliance with an earnings covenant on the outstanding $35 million
of unsecured Senior notes issued in October 1992.
The Company entered into a forbearance agreement with its senior
noteholders regarding such covenant. Since the Company anticipates
noncompliance with this covenant at year end, the forbearance agreement
contemplates restructuring discussions to be concluded prior to February 28,
1995.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(27) Financial Data Schedule (for SEC use only).
(b) None
15
16
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.
----------------------------
(Registrant)
By: /s/ Frank S. Fuino, Jr.
-----------------------------------
Executive Vice President of Finance
and Chief Financial Officer
Date: December 12, 1994
16