United States
Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: August 3, 2002
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from __________________ to ________________.
Commission File No. 0-21597
ODD JOB STORES, INC.
--------------------
(Exact name of Registrant as specified in its charter)
Ohio 34-1830097
- ------------------------------- -------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Helen Street
South Plainfield, NJ 07080
--------------------------
(Address of principal executive offices)
(Zip Code)
908-222-1000
------------
(Registrant's telephone number, including area code)
MAZEL STORES, INC.
------------------
(Former name, former address and former fiscal year,
if changed since last report)
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 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 * No
---------- ---------
Indicate the number of shares outstanding of each of the issuer's common stock,
as of the latest practical date.
Common Shares, no par value, outstanding as of September 13, 2002: 9,060,695
1
ODD JOB STORES, INC. AND SUBSIDIARIES
INDEX
Page No.
--------
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets - as of
August 3, 2002 (unaudited) and February 2, 2002 4
Consolidated Statements of Operations (unaudited) -
for the thirteen and twenty-six week periods ended
August 3, 2002 and August 4, 2001 5
Consolidated Statements of Cash Flows (unaudited) -
for the twenty-six week periods ended
August 3, 2002 and August 4, 2001 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 10
Condition and Results of Operations
PART II - OTHER INFORMATION
Items 1- 6. 14
Signatures 15
Certifications pursuant to Section 302 and 906 of the Sarbanes-Oxley
Act of 2002 16
2
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
The Registrant's Consolidated Financial Statements follow this page.
3
ODD JOB STORES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
August 3, February 2,
2002 2002
-------- --------
(Unaudited)
ASSETS
Current Assets:
Cash and cash equivalents $ 2,678 $ 4,046
Notes and accounts receivable - related parties -- 90
Other receivables 281 1,176
Income tax receivable 2,155 2,396
Inventories 40,801 27,580
Prepaid expenses and other current assets 1,417 585
Deferred income taxes 8,520 5,986
Net assets of discontinued operations -- 26,218
-------- --------
Total current assets 55,852 68,077
Property and equipment, net 19,830 22,286
Other assets 2,396 3,480
Goodwill, net -- 9,447
Deferred income taxes 3,818 3,818
-------- --------
Total assets $ 81,896 $107,108
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 15 $ 3,017
Accounts payable 15,033 16,568
Accrued expenses and other current liabilities 6,316 8,915
-------- --------
21,364 28,500
Total current liabilities
Revolving line of credit 959 --
Long-term debt, net of current portion -- 6,083
Other liabilities 5,118 5,000
-------- --------
Total liabilities 27,441 39,583
-------- --------
Stockholders' equity:
Preferred stock, no par value, 2,000,000 shares authorized;
no shares issued or outstanding -- --
Common stock, no par value, 14,000,000 shares authorized;
9,052,500 and 8,981,700 shares issued and outstanding,
respectively 64,104 63,935
Retained earnings (deficit) (9,649) 3,590
-------- --------
Total stockholders' equity 54,455 67,525
Commitments and contingencies -- --
-------- --------
Total liabilities and stockholders' equity $ 81,896 $107,108
======== ========
See accompanying condensed notes to consolidated financial statements
4
ODD JOB STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------------- --------------------------
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
----------- ----------- ----------- -----------
Net sales $ 57,198 $ 60,135 $ 111,900 $ 115,050
Cost of sales 34,795 37,545 67,865 71,595
----------- ----------- ----------- -----------
Gross profit 22,403 22,590 44,035 43,455
Selling, general and administrative expenses 24,371 24,667 49,001 48,912
----------- ----------- ----------- -----------
Operating loss (1,968) (2,077) (4,966) (5,457)
Other expense, net -- 901 -- 1,376
Interest expense, net 154 595 502 1,116
----------- ----------- ----------- -----------
Loss from continuing operations before income taxes and
extraordinary item (2,122) (3,573) (5,468) (7,949)
Income tax benefit (828) (1,393) (2,131) (3,099)
----------- ----------- ----------- -----------
Loss from continuing operations before extraordinary item
(1,294) (2,180) (3,337) (4,850)
Extraordinary loss on extinguishment of debt (net of tax
benefit of $291) -- -- (455) --
Income from operations of the discontinued Wholesale
Division (net of tax benefits of $321 and $1,003,
respectively) -- 502 -- 1,570
----------- ----------- ----------- -----------
Net loss before change in accounting principle (1,294) (1,678) (3,792) (3,280)
Change in accounting principle -- -- (9,447) --
----------- ----------- ----------- -----------
Net loss $ (1,294) $ (1,678) $ (13,239) $ (3,280)
=========== =========== =========== ===========
Basic and diluted net income (loss) per common share:
Loss from continuing operations before extraordinary item $ (0.14) $ (0.24) $ (0.37) $ (0.53)
Extraordinary loss -- -- (0.05) --
Income from discontinued operations -- 0.05 -- 0.17
----------- ----------- ----------- -----------
Net loss per common share, before change in accounting
principle (0.14) (0.19) (0.42) (0.36)
Loss per share from change in accounting principle -- -- (1.05) --
----------- ----------- ----------- -----------
Net loss per common share $ (0.14) $ (0.19) $ (1.47) $ (0.36)
=========== =========== =========== ===========
Weighted average common shares outstanding-basic and
diluted 9,054,600 9,135,000 9,037,300 9,138,400
=========== =========== =========== ===========
See accompanying condensed notes to consolidated financial statements
5
ODD JOB STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Twenty-six Weeks Ended
----------------------
August 3, August 4,
2002 2001
-------- --------
Net loss $(13,239) $ (3,280)
-------- --------
Adjustments to reconcile net loss to net cash provided by (used in)
operating activities
Income from operations of discontinued wholesale division, net of tax -- (1,570)
Change in accounting principle 9,447 --
Extraordinary loss on the extinguishment of debt, net of tax 455 --
Depreciation and amortization 3,156 3,474
Deferred income taxes (2,534) 1,160
Equity in net loss from VCM, Ltd. -- 1,376
Changes in operating assets and liabilities
Notes and other receivables 985 121
Income tax receivable 241 2,625
Inventories (13,221) (4,361)
Prepaid expenses (832) (407)
Other assets 842 --
Accounts payable (1,535) 2,590
Accrued expenses and other liabilities (2,481) 64
-------- --------
Total adjustments (5,477) 5,072
-------- --------
Net cash (used in) provided by continuing operations (18,716) 1,792
Net cash provided by discontinued operations -- 7,990
-------- --------
Net cash (used in) provided by operating activities (18,716) 9,782
-------- --------
Cash flows from investing activities
Capital expenditures, net (404) (339)
Lease acquisitions (54) (62)
Proceeds from sale of net assets of discontinued operations 26,218 --
-------- --------
Net cash provided by (used in) investing activities 25,760 (401)
-------- --------
Cash flows from financing activities
Debt repayments (30,041) (38,982)
Debt borrowings 21,915 30,517
Financing costs paid (455) --
Purchase of common shares (358) (74)
Proceeds from exercise of stock options 527 --
-------- --------
Net cash used in financing activities (8,412) (8,539)
-------- --------
Net (decrease) increase in cash and cash equivalents (1,368) 842
Cash and cash equivalents at beginning of period 4,046 2,318
-------- --------
Cash and cash equivalents at end of period $ 2,678 $ 3,160
======== ========
Supplemental disclosures
Cash paid for interest 85 1,682
Cash (received) paid for income taxes (131) (4,508)
======== ========
See accompanying condensed notes to consolidated financial statements
6
ODD JOB STORES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN AND TWENTY-SIX WEEK PERIODS ENDED AUGUST 3, 2002 AND
AUGUST 4, 2001
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) Basis of Presentation
The consolidated financial statements for the thirteen-week (fiscal second
quarter) and twenty-six week (fiscal first half) periods ended August 3, 2002
and August 4, 2001, respectively, represent the retail operations of Odd Job
Stores, Inc. (formerly Mazel Stores Inc.). Comparative consolidated financial
statements for both periods have been restated, where applicable, to reflect the
Company's former Wholesale Division as a discontinued operation.
In the opinion of management, this information includes all adjustments that are
normal and recurring in nature and necessary to present fairly the results of
the interim periods shown in accordance with accounting principles generally
accepted in the United States of America. Operating results for the interim
period are not necessarily indicative of the results that may be expected for
the full fiscal year.
The unaudited interim consolidated financial statements have been prepared using
the same accounting principles that were used in the preparation of the
Company's Annual Report on Form 10-K for the fiscal year ended February 2, 2002
and should be read in conjunction with the consolidated financial statements and
the notes thereto.
(2) Goodwill and Other Intangible Assets
Effective February 3, 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. Under the provisions of SFAS No. 142, intangible assets with indefinite
lives and goodwill are no longer amortized but are subject to annual impairment
tests. In the first quarter of 2002, the Company determined, using the goodwill
impairment provisions of SFAS No. 142, that its unamortized goodwill was
impaired and recorded a non-cash charge of $9,447 to write-off the entire
goodwill balance. The charge was taken as a one-time cumulative effect of a
change in accounting principle in the first quarter of 2002. Amortization
expense related to goodwill was $78 and $157, for the second quarter and
twenty-six week periods of 2001, respectively.
(3) Discontinued Operations
On February 11, 2002, the Company signed an agreement that sold substantially
all assets of its Wholesale Division ("Division") to MZ Wholesale Acquisition
LLC (MZ), d/b/a Mazel Company, a group headed by two former executives and
current members of the Board of Directors. The Division was engaged in the
business of acquiring closeout merchandise at prices substantially below
traditional wholesale prices and selling such merchandise through a variety of
channels. The Division's wholesale operations purchased and resold many of the
same lines of merchandise sold through the Company's current retail operations.
7
On the date of the sale, MZ paid the Company $22,292 for the purchase of the
assets of the Wholesale Division, based on a preliminary estimate of the net
assets of the Division. On May 21, 2002, MZ paid the Company an additional
$5,245 based upon a finalized balance sheet of the Division and other advances
after the balance sheet date. At August 3, and February 2, 2002, $309 and
$3,266, respectively, were included in accrued expenses and other current
liabilities related to closing costs on the disposal of the Wholesale Division
Operating results of discontinued operations for the thirteen and twenty-six
week periods ended August 4, 2001, (after elimination of Intercompany losses)
were as follows:
Thirteen Weeks Ended Twenty-six Weeks Ended
-------------------- ----------------------
August 4, 2001 August 4, 2001
-------------- --------------
Net sales $18,439 $39,299
Cost of sales 13,574 28,641
------- -------
Gross margin 4,865 10,658
Selling, general and administrative expenses 3,807 7,615
------- -------
Operating income 1,058 3,043
Interest expense 235 470
------- -------
Income before income taxes 823 2,573
Income tax expense 321 1,003
------- -------
Income from discontinued operations $ 502 $ 1,570
======= =======
Net income per basic and diluted share
from discontinued operations $ 0.05 $ 0.17
======= =======
(4) Investment in VCM, Ltd.
On February 2, 2002, the Company reached an agreement to terminate the operation
of VCM, Ltd. ("VCM"), a 50 percent owned joint venture with Value City
Department Stores. The Company's original investment in VCM was accounted for
under the equity method. In addition to its 50 percent equity share of VCM's net
profit or loss, the Company received a management fee equal to three percent of
VCM's net sales. For the second quarter and first half periods of 2001, the
Company recorded management fee revenue of $769 and $1,457, respectively (within
selling, general and administrative expenses) and its share of VCM's net losses
of $901 and $1,376, respectively.
8
(5) Earnings Per Share
The following data shows the amounts used in computing earnings per share and
the effect on the weighted-average number of shares of dilutive potential common
stock.
The effect of incremental shares from stock options for the thirteen and
twenty-six week periods ending August 3, 2002, and August 4, 2001, respectively,
have been excluded from diluted weighted average shares, as the net losses for
the related periods would cause the incremental shares to be antidilutive.
Thirteen Weeks Ended Twenty-six Weeks Ended
--------------------- ----------------------
August 3, August 4, August 3, August 4,
2002 2001 2002 2001
----------- ----------- ----------- -----------
NUMERATOR:
Net loss available to common shareholders used
in basic and diluted net income per share $ (1,294) $ (1,678) $ (13,239) $ (3,280)
DENOMINATOR:
Basic weighted average shares 9,054,600 9,135,000 9,037,300 9,138,400
Effect of dilutive stock options -- -- -- --
----------- ----------- ----------- -----------
Diluted weighted average shares 9,054,600 9,135,000 9,037,300 9,138,400
=========== =========== =========== ===========
Basic loss per common share $ (0.14) $ (0.19) $ (1.47) $ (0.36)
Diluted loss per common share $ (0.14) $ (0.19) $ (1.47) $ (0.36)
(6) Long-term Debt
On February 3, and February 5, 2002, the Company paid off its entire outstanding
loan balances of $8,000 with Wingate Capital (Tranche B term loan) and $1,000
with The Provident Bank and National City Bank (Tranche C term loan),
respectively. In connection with the repayment of the Tranche C term loan, a
previously reported warrant for 2.5% of the Company's outstanding shares has
been extinguished. On February 11, 2002, the Company reduced the borrowing limit
of its revolving credit facility with IBJ Whitehall Retail Finance from $70,000
to $30,000, and modified certain covenants. During the first quarter of 2002,
the Company recorded an extraordinary charge of $455, net of taxes, for the
early extinguishment of debt and modifications made to the revolving credit
facility.
(7) Recently Issued Accounting Pronouncements
In May 2002, the Financial Accounting Standards Board issued Statement No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections" (SFAS No. 145). The statement eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect. However, an entity is not prohibited from classifying
9
such gains and losses as extraordinary items, so long as they meet the criteria
outlined in Accounting Principles Board Opinion No. 30, "Reporting the Results
of Operations - Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS
No. 145 also eliminates the inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This statement is
effective for financial statements issued for fiscal years beginning after May
15, 2002. Upon adoption of this standard, the Company will be required to
reclassify the extraordinary loss on extinguishment of debt to other expenses,
net on the Consolidated Statement of Operations.
In July 2002, the Financial Accounting Standards Board issued Statement No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", (SFAS No.
146). This statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)"
("EITF No. 94-3"). SFAS No. 146 requires that a liability be recognized for
those costs only when the liability is incurred. In contrast, under EITF No.
94-3, a company recognized a liability for an exit cost when it committed to an
exit plan. SFAS No. 146 also establishes fair value as the objective for initial
measurement of liabilities related to exit or disposal activities. SFAS No. 146
is effective for exit or disposal activities that are initiated after December
31, 2002. The Company is currently assessing the financial statement impact, if
any, of the adoption of this new standard.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Odd Job Stores, Inc. (the "Company") is a major regional closeout retail
business. The Company changed its corporate name from Mazel Stores, Inc.
effective on June 19, 2002 reflecting the strategic repositioning of the company
as discussed below. The Company sells quality, value-oriented consumer products
at a broad range of price points offered at a substantial discount to the
original retail. The Company's merchandise primarily consists of new, frequently
brand-name products that are available to the Company for a variety of reasons,
including overstock positions of a manufacturer, wholesaler or retailer; the
discontinuance of merchandise due to a change in style, color, shape or
repackaging; a decrease in demand for a product through traditional channels; or
the termination of business by a manufacturer, wholesaler or retailer. As of
August 3, 2002, the Company operated a chain of 77 closeout retail stores in New
York, New Jersey, Pennsylvania, Connecticut, Delaware, Ohio, Michigan, and
Kentucky.
The Company was founded in 1975 as a wholesaler of close-out merchandise. In
fiscal 1996, the Company purchased the established Odd Job retail business,
consisting of 12 retail stores and a warehouse and distribution facility.
Management's business strategy has primarily focused on the growth of its Odd
Job retail business. In February 2002, the Company sold its Wholesale Division
to focus exclusively on the growth and profitability of the retail stores. The
stores, which operate primarily under the name Odd Job, are located in the
Northeast and Midwest regions with a concentration in metropolitan New York. The
company has consolidated all management, buying and administrative functions to
its New Jersey offices.
Thirteen Weeks 2002 versus Thirteen Weeks 2001 (Fiscal Second Quarters)
Net sales for the second quarter 2002 were $57.2 million, compared to $60.1
million for the second quarter 2001, a decrease of $2.9 million, or 4.9%. The
decrease in net sales was the result of a 3.1% decline in comparable store sales
and the loss of sales from two stores closed in 2001. Comparable store sales
were negatively impacted by a decrease in customer transactions as a result of a
number of successful closeout promotions in the prior year.
Gross profit for the second quarter of fiscal 2002 was $22.4 million, a slight
decrease from gross profit of $22.6 million for the second quarter of 2001. As a
percentage of sales, gross profit increased to 39.2% from 37.6% in the second
quarter 2001, due primarily to higher realized product markup.
Selling, general and administrative expenses reflect the four-wall cost of the
stores, the distribution facility and office support. Selling, general and
administrative expenses for the second quarter of 2002 were $24.4 million,
compared to $24.7 million for the second quarter of 2001, a decrease of $0.3
million or 1.2%. Reflected in the second quarter of 2002 are insurance proceeds
of $0.4 million related to 2001 property losses, while the second quarter of
2001 reflects joint venture management fee income of $0.8 million received from
VCM, Ltd. The
11
joint venture was terminated at the end of fiscal 2001 and, therefore, there is
no management fee income in the 2002 period. Excluding these items, selling,
general and administrative expenses declined $0.6 million or 2.5% when comparing
the second quarter of 2002 to the same prior year period, largely reflecting the
consolidation of corporate support functions to the New Jersey location.
The Company reported an operating loss of $2.0 million or 3.4% of sales for the
second quarter of 2002, compared to an operating loss of $2.1 million or 3.5% of
sales for the second quarter 2001.
Interest expense was $0.2 million for the second quarter of 2002, compared to
$0.6 million for the second quarter of 2001, reflecting lower average
borrowings. Other expense for the second quarter of 2001 was comprised of the
Company's 50% equity share in VCM, Ltd.'s net loss.
Twenty-six Weeks 2002 versus Twenty-six Weeks 2001 (Fiscal First Half)
Net sales for the fiscal 2002 first half were $111.9 million, compared to $115.1
million for the prior year, a decrease of $3.2 million, or 2.7%. Comparable
store sales for the first half of 2002 declined 0.4% compared to the same period
in fiscal 2001. Gross profit for the fiscal 2002 first half was $44.0 million,
compared to $43.5 million in the fiscal 2001 first half, an increase of $0.5
million, or 1.3%. The gross margin rate improved to 39.4% in the current year
first half, from 37.8% in the prior year. The increase in gross margin was due
primarily to higher realized product markup.
Selling, general and administrative expenses were $49.0 million for the fiscal
2002 first half, increasing slightly when compared to $48.9 million in the prior
year. Excluding the insurance proceeds of $0.4 million for fiscal 2002 and joint
venture management fee income of $1.5 million for fiscal 2001, selling, general
and administrative expenses declined $0.9 million or 1.9% on a period-to-period
basis. The decline primarily reflects cost savings associated with the
consolidation of corporate support functions.
In the fiscal 2002 first half, the operating loss totaled $5.0 million or 4.4%,
compared to $5.5 million or 4.7% for the same prior year period. This
improvement was primarily due to the factors described above.
Interest expense was $0.5 million for the first half of 2002, compared to $1.1
million for the first half of 2001, due to lower average borrowings and lower
interest rates. Other expense for the first half of 2001 was comprised of the
Company's 50% equity share in VCM, Ltd.'s net loss.
As discussed in Note 2 to Consolidated Financial Statements, effective February
3, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets.
Upon adoption the Company determined that its unamortized goodwill was impaired
and recorded a non-cash charge of $9.4 million to write-off the entire goodwill
balance. The charge is shown as a change in accounting principle for the fiscal
2002 first quarter. Amortization expenses related to goodwill were $157 and $78
for the first half and second quarter of fiscal 2001, respectively.
12
LIQUIDITY AND CAPITAL RESOURCES
The Company's growth has been financed through cash flow from operations,
borrowings under its revolving credit facility and the extension of trade
credit.
The Company's primary requirements for capital consist of inventory purchases,
expenditures related to new store openings, existing store remodeling, warehouse
enhancements, MIS initiatives, and other working capital needs. The Company
takes advantage of closeout and other special situation purchasing opportunities
that frequently result in large volume purchases, and as a consequence, its cash
requirements are not constant or predictable during the year and can be affected
by the timing and size of its purchases. The Company's high level of committed
credit allows it to take immediate advantage of special situation purchasing
opportunities. Having such credit availability provides the Company with a
competitive advantage measured against many of its competitors.
As a result of terminating the VCM, Ltd., joint venture with Value City
Department Stores, Inc., the Company received approximately $12 million in cash
prior to the Company's February 2, 2002 year-end. The cash proceeds were used to
completely paydown the debt under its prior Revolving Credit Facility. At
February 2, 2002, the Company had no debt under the credit facility and term
loans of approximately $9.1 million.
On February 11, 2002, the Company affected the sale of the Wholesale Division
resulting in cash proceeds of approximately $26.2 million for the first half of
2002 which were used by the Company to payoff all the term loans and all debt
under its Revolving Credit Facility. As a result of the VCM, Ltd. termination
and Wholesale divestiture, the Company amended its credit facility to provide
$30 million of revolving credit. The amended Revolving Credit Facility expires
in August of 2004. Because the debt was eliminated after February 2, 2002, the
Company recorded an after tax charge of $0.5 million in the first quarter of
fiscal 2002 as a result of the loss on the early extinguishment of debt.
Availability under the revolving credit facility is determined using a borrowing
base calculation based primarily upon the Company's inventories. The entire
facility contains restrictive covenants that require minimum EBITDA levels,
maximum annual capital expenditure levels, and minimum inventory leverage
ratios. The Company had an outstanding balance under the amended Revolving
Credit Facility of $1.0 million as of August 3, 2002 and total borrowing base
availability of $19.6 million. During the first half of 2002, the Company was
compliant with all restrictive covenants under the agreement. The Company
expects to increase its use of the credit facility during the third quarter of
2002 to cover seasonal and potentially larger opportunistic inventory purchases.
For the first half of fiscal 2002, cash used in operating activities was $18.7
million, compared to cash provided by operating activities of $9.8 million in
the first half of fiscal 2001. For the first half of fiscal 2002, cash used by
operating activities was primarily due to higher inventories of $13.2 million,
generated by seasonal and opportunistic purchases and lower sales and lower
accounts payable and accrued expenses of $4.0 million, largely due to the
reduction in amounts accrued for closing costs on the disposal of the Wholesale
Division. For the first half of 2001, cash provided by operating activities
benefited from net income of the discontinued Wholesale
13
Division and other cash provided by discontinued operations aggregating $6.4
million. During the first half of 2001 the Company also received an income tax
refund of $2.6 million.
Cash provided by investing activities was $25.8 million in the first half of
2002, primarily from the sale of the net assets of the discontinued operation.
Cash used in investing activities was $0.4 million in the first half of 2001,
primarily from capital expenditures. Cash used in financing activities totaled
$8.4 million in the first half of 2002 from the $9.1 million debt repayment
slightly offset by current borrowings of $1.0 million. Cash used in financing
activities totaled $8.5 million in the first half of 2001 from the net debt
payments.
Total assets were $81.9 million at August 3, 2002, compared to $107.1 million at
February 2, 2002. Working capital decreased to $34.5 million at the end of the
first half of 2002 from $39.6 million at fiscal 2001 year-end primarily from the
sale of the net assets of the discontinued operation, partially offset by higher
inventory, the debt repayment and lower accounts payable and accrued expenses.
The current ratio improved to 2.6 to 1 at August 3, 2002, compared to 2.4 to 1
at February 2, 2002.
The Company currently has no plans to open new stores in the second half of 2002
and is currently evaluating its expansion policy to determine when such program
will recommence. When the Company resumes its expansion program, it does not
anticipate opening more than 6-12 stores in the first year of the program.
SEASONALITY
The Company's retail operations result in a greater weighting of sales and
earnings toward the second half of the fiscal year.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2002, the Financial Accounting Standards Board issued Statement No. 145,
"Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB Statement No.
13, and Technical Corrections" (SFAS No. 145). The statement eliminates the
requirement that gains and losses from the extinguishment of debt be aggregated
and, if material, classified as an extraordinary item, net of the related income
tax effect. However, an entity is not prohibited from classifying such gains and
losses as extraordinary items, so long as they meet the criteria outlined in
Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations
- - Reporting the Effects of Disposal of a Segment of a Business and
Extraordinary, Unusual and Infrequently Occurring Events and Transactions". SFAS
No. 145 also eliminates the inconsistency between the accounting for
sale-leaseback transactions and certain lease modifications that have economic
effects that are similar to sale-leaseback transactions. This statement is
effective for financial statements issued for fiscal years beginning after May
15, 2002. Upon adoption of this standard, the Company will be required to
reclassify the extraordinary loss on extinguishment of debt to other expenses,
net on the Consolidated Statement of Operations.
14
In July 2002, the Financial Accounting Standards Board issued Statement No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities", (SFAS No.
146). This statement addresses financial accounting and reporting for costs
associated with exit or disposal activities and nullifies EITF Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (Including Certain Costs Incurred in a Restructuring)"
("EITF No. 94-3"). SFAS No. 146 requires that a liability be recognized for
those costs only when the liability is incurred. In contrast, under EITF No.
94-3, a company recognized a liability for an exit cost when it committed to an
exit plan. SFAS No. 146 also establishes fair value as the objective for initial
measurement of liabilities related to exit or disposal activities. SFAS No. 146
is effective for exit or disposal activities that are initiated after December
31, 2002. The Company is currently assessing the financial statement impact, if
any, of the adoption of this new standard.
FORWARD LOOKING STATEMENTS
Forward-looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Such risks
and uncertainties include, but are not limited to: (i) the Company's continuing
execution of its plan to restore its retail stores to profitability, (ii) the
ability to purchase sufficient quality closeout and other merchandise at
acceptable terms; and (iii) the ability of the Company to attract and retain
qualified management and store personnel. Please refer to the Company's
subsequent SEC filings under the Securities Exchange Act of 1934, as amended,
for further information.
15
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of matters to a vote of security holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8K
(a) Exhibits
None
(b) Reports on Form 8-K
The Company did not file any report on Form 8-K during the
quarter ended August 3, 2002.
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.
ODD JOB STORES, INC.
(Registrant)
09/17/02 /s/ Peter Hayes
- -------- ---------------
Date Peter Hayes
Chief Executive Officer
Chairman of the Board
09/17/02 /s/ Edward Cornell
- -------- ------------------
Date Edward Cornell
Executive Vice President and
Chief Financial Officer
17
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Peter J. Hayes, the Chairman and Chief Executive Officer, and
Edward Cornell, Executive Vice President and Chief Financial Officer, of Odd Job
Stores, Inc. (the "ISSUER"), an issuer of securities registered under Section
13(a) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), in compliance
with Rule 13a-14 under the Exchange Act, each do hereby certify with respect to
the report of the Issuer filed on Form 10-Q for the period ending August 3, 2002
(the "REPORT") that:
(1) He has reviewed the Report;
(2) Based on his knowledge, the Report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by the Report;
(3) Based on his knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Issuer as of,
and for, the periods presented in the Report.
Date: September 17, 2002 By: /s/ Peter J. Hayes
-------------------------------
Peter J. Hayes,
Chairman of the Board and
Chief Executive Officer
18
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
The undersigned, Peter J. Hayes, the Chairman and Chief Executive Officer, and
Edward Cornell, Executive Vice President and Chief Financial Officer, of Odd Job
Stores, Inc. (the "ISSUER"), an issuer of securities registered under Section
13(a) of the Securities Exchange Act of 1934 (the "EXCHANGE ACT"), in compliance
with Rule 13a-14 under the Exchange Act, each do hereby certify with respect to
the report of the Issuer filed on Form 10-Q for the period ending August 3, 2002
(the "REPORT") that:
(1) He has reviewed the Report;
(2) Based on his knowledge, the Report does not contain any untrue statement of
a material fact or omit to state a material fact necessary to make the
statements made, in light of the circumstances under which such statements were
made, not misleading with respect to the period covered by the Report;
(3) Based on his knowledge, the financial statements, and other financial
information included in the Report, fairly present in all material respects the
financial condition, results of operations and cash flows of the Issuer as of,
and for, the periods presented in the Report.
Date: September 17, 2002 By: /s/ Edward Cornell,
------------------------------------
Edward Cornell,
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
19
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Odd Job Stores, Inc. (the "Company")
on Form 10-Q for the period ended August 3, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned each
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to the best of each of our knowledge:
(1) The Report fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: September 17, 2002 By: /s/ Peter J. Hayes
-----------------------------------------
Peter J. Hayes,
Chairman of the Board and
Chief Executive Officer
20
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Odd Job Stores, Inc. (the "Company")
on Form 10-Q for the period ended August 3, 2002 as filed with the Securities
and Exchange Commission on the date hereof (the "Report"), the undersigned each
certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that to the best of each of our knowledge:
(1) The Report fully complies with the requirements of Section
13(a) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations of
the Company.
Date: September 17, 2002 By: /s/ Edward Cornell
-----------------------------------------
Edward Cornell,
Executive Vice President and
Chief Financial Officer
(Principal Accounting Officer)
21