<PAGE> 1
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: October 28, 2000
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
MAZEL 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.)
31000 Aurora Road
SOLON, OHIO 44139
----------------------------------------
(Address of principal executive offices)
(Zip Code)
440-248-5200
-----------------
(Registrant's telephone number, including area code)
----------------------------------------------------
(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 November 24, 2000: 9,141,798.
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MAZEL STORES, INC.
INDEX
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Consolidated Balance Sheets -
October 28, 2000 (unaudited) and January 29, 2000 4
Consolidated Statements of Operations (unaudited) -
for the thirteen and thirty-nine weeks ended
October 28, 2000 and October 30, 1999 5
Consolidated Statements of Cash Flows (unaudited) -
for the thirty-nine weeks ended
October 28, 2000 and October 30, 1999 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial 9
Condition and Results of Operations
PART II - OTHER INFORMATION
Item 1-6. 16
Signatures 17
</TABLE>
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PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The Registrant's Consolidated Financial Statements follow this page.
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<PAGE> 4
MAZEL STORES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
OCTOBER 28, JANUARY 29,
2000 2000
----------- -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 3,319 2,367
Receivables, less allowance for doubtful accounts
of $388 and $370, respectively 18,381 14,343
Inventories 94,543 70,178
Prepaid expenses 2,402 1,584
Deferred income taxes 4,266 4,112
-------- -------
Total current assets 122,911 92,584
Equipment, furniture, and leasehold improvements, net 30,587 25,082
Other assets 4,048 3,959
Investment in VCM, Ltd. 8,949 9,687
Notes and accounts receivable-related parties 5,099 6,208
Goodwill, net 9,839 10,074
Deferred income taxes 1,452 1,507
-------- -------
$182,885 149,101
======== =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 2,017 2,017
Accounts payable 38,155 20,769
Accrued expenses and other current liabilities 4,467 7,646
-------- -------
Total current liabilities 44,639 30,432
Revolving line of credit 49,406 25,542
Long-term debt, net of current portion 3,014 4,524
Other liabilities 4,258 3,816
-------- -------
Total liabilities 101,317 64,314
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;
9,141,800 shares issued and outstanding in both periods 64,320 64,320
Retained earnings 17,248 20,467
-------- -------
Total stockholders' equity 81,568 84,787
Commitments and contingencies -- --
-------- -------
$182,885 149,101
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
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MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
-------------------------------- -------------------------------
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net sales $ 74,222 67,727 220,153 187,988
Cost of sales 47,694 42,098 140,783 118,478
----------- --------- --------- ---------
Gross profit 26,528 25,629 79,370 69,510
Selling, general and administrative expense 29,030 22,772 80,838 64,856
----------- --------- --------- ---------
Operating (loss) profit (2,502) 2,857 (1,468) 4,654
Interest expense, net (1,232) (851) (3,182) (2,048)
Other income (expense) (550) (169) (711) (525)
----------- --------- --------- ---------
(Loss) income before income taxes (4,284) 1,837 (5,361) 2,081
Income tax (benefit) expense (1,713) 734 (2,142) 831
----------- --------- --------- ---------
Net (loss) income $ (2,571) 1,103 (3,219) 1,250
=========== ========= ========= =========
Net (loss) income per common share:
Basic $ (0.28) 0.12 (0.35) 0.14
Diluted $ (0.28) 0.12 (0.35) 0.14
Weighted average common shares outstanding:
Basic 9,141,800 9,141,800 9,141,800 9,141,800
Diluted 9,141,800 9,150,700 9,141,800 9,150,200
</TABLE>
See accompanying notes to consolidated financial statements
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MAZEL STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THIRTY-NINE WEEKS ENDED
----------------------------
OCTOBER 28, OCTOBER 30,
2000 1999
----------- -----------
<S> <C> <C>
Cash flows from operating activities
Net (loss) income $ (3,219) 1,250
Adjustments to reconcile net (loss) income
to net cash used by operating activities
Depreciation and amortization 4,477 2,919
Equity in net loss from VCM, Ltd. 738 525
Changes in operating assets and liabilities
Accounts receivable - trade (3,719) (4,702)
Notes and other receivables (319) (165)
Inventories (24,365) (22,802)
Prepaid expenses (818) (733)
Other assets 511 2,193
Accounts payable 17,386 5,085
Accrued expenses and other liabilities (2,737) 1,039
-------- -------
Net cash used by operating activities (12,065) (15,391)
-------- -------
Cash flows from investing activities
Capital expenditures (9,309) (7,477)
Cash paid for lease acquisitions (28) (225)
-------- -------
Net cash used by investing activities (9,337) (7,702)
-------- -------
Cash flows from financing activities
Debt repayments (40,068) (33,738)
Debt borrowings 62,422 57,840
-------- -------
Net cash provided by financing activities 22,354 24,102
-------- -------
Net increase in cash and cash equivalents 952 1,009
Cash and cash equivalents at beginning of period 2,367 1,668
-------- -------
Cash and cash equivalents at end of period $ 3,319 2,677
======== =======
Supplemental disclosures:
Cash paid for interest $ 2,776 1,966
Cash paid for taxes $ 2,023 1,601
======== =======
</TABLE>
See accompanying notes to consolidated financial statements
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<PAGE> 7
MAZEL STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR THE THIRTEEN AND THIRTY-NINE WEEK PERIODS ENDED
OCTOBER 28, 2000 AND OCTOBER 30, 1999
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(1) Basis of Presentation
The consolidated financial statements for the thirteen week (fiscal third
quarter) and thirty-nine week (fiscal nine-month) periods ended October 28, 2000
and October 30, 1999, respectively, represent the consolidated retail and
wholesale operations of Mazel Stores, Inc. All significant intercompany accounts
and transactions are eliminated in the consolidated financial statements.
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 generally accepted accounting
principles. 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 January 29, 2000
and should be read in conjunction with the consolidated financial statements and
the notes thereto.
(2) Investment in VCM, Ltd.
On August 3, 1997, the Company commenced the operation of VCM, Ltd. ("VCM"), a
50 percent owned joint venture with Value City Department Stores, whereby VCM
operates the toy, sporting goods, general merchandise, and other departments for
the Value City Department Stores chain. The Company coordinates merchandise
purchasing on behalf of VCM, some of which is sourced from the Company's
wholesale segment. The Company's original investment in VCM, which is accounted
for under the equity method, was $9,637. In addition to its 50 percent equity
share of VCM's net profit or loss, the Company receives a management fee equal
to three percent of net sales.
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<PAGE> 8
(3) 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.
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
------------------------------- -------------------------------
OCTOBER 28, OCTOBER 30, OCTOBER 28, OCTOBER 30,
2000 1999 2000 1999
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
NUMERATOR:
Net (loss) income available to common
shareholders used in basic and diluted
net (loss) income per share $ (2,571) 1,103 (3,219) 1,250
DENOMINATOR:
Weighted-average number of Common Shares
used in basic earnings per share 9,141,800 9,141,800 9,141,800 9,141,800
Net dilutive effect of stock options -- 8,900 -- 8,400
---------- --------- ---------- ---------
Weighted-average number of Common Shares
and dilutive potential Common Shares used
in diluted net (loss) income per share 9,141,800 9,150,700 9,141,800 9,150,200
========== ========= ========= =========
Basic net (loss) income per share $ (0.28) 0.12 (0.35) 0.14
Diluted net (loss) income per share $ (0.28) 0.12 (0.35) 0.14
</TABLE>
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<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company consists of two complementary operations: (i) a major regional
closeout retail business; and (ii) the nation's largest closeout wholesale
business. The Company sells quality, value-oriented consumer products at a broad
range of price points offered at a substantial discount to the original retail
or wholesale price. 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.
The Company was founded in 1975 as a wholesaler of closeout merchandise. The
Company's business strategy has expanded from a primary focus on wholesale
operations to an emphasis on the growth of its retail operation, which began
with the 1995 acquisition of the 12 store "Odd Job" chain. At the end of the
fiscal 2000 third quarter, the Company operated 76 closeout retail stores under
the names "Odd Job," "Odd Job Trading," and "Mazel's," including 31 in New York
(nine of which are in Manhattan), 24 in New Jersey, seven each in Pennsylvania
and Ohio, three in Connecticut, two in Michigan, and one each in Delaware and
Kentucky. The Company has opened three additional stores in the fiscal 2000
fourth quarter. With these recent additions, the Company has completed its
fiscal 2000 store expansion program by opening 15 new stores, and operates 79
stores in total.
The growth of the Company's retail operations, coupled with the fiscal 1997
investment in VCM, Ltd., has transformed the Company into a "retailer", with
quarterly sales and earnings patterns similar to other retail operations.
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<PAGE> 10
MANAGEMENT'S ANALYSIS OF RESULTS OF OPERATIONS
The results of operations set forth below describe the Company's retail and
wholesale segments and the Company's combined corporate structure.
MAZEL STORES, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED THIRTY-NINE WEEKS ENDED
---------------------------------------------- ----------------------------------------------
October 28, October 30, October 28, October 30,
2000 % 1999 % 2000 % 1999 %
---------------------------------------------- ----------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales
Retail $52,305 70.47% 45,696 67.47% 152,556 69.30% 129,988 69.15%
Wholesale 21,917 29.53% 22,031 32.53% 67,597 30.70% 58,000 30.85%
------- ------ ------ ------ ------- ------ ------- ------
74,222 100.00% 67,727 100.00% 220,153 100.00% 187,988 100.00%
Gross profit
Retail 20,463 39.12% 19,134 41.87% 60,600 39.72% 53,012 40.78%
Wholesale 6,065 27.67% 6,495 29.48% 18,770 27.77% 16,498 28.44%
------- ------ ------ ------ ------- ------ ------- ------
26,528 35.74% 25,629 37.84% 79,370 36.05% 69,510 36.98%
Segment operating (loss) profit
Retail (4,110) (7.86%) (57) (0.12%) (8,216) (5.39%) (86) (0.07%)
Wholesale 2,081 9.49% 3,131 14.21% 7,181 10.62% 5,712 9.85%
Corporate (473) (0.63%) (217) (0.32%) (433) (0.19%) (972) (0.52%)
------- ------ ------ ------ ------- ------ ------- ------
(2,502) (3.37%) 2,857 4.22% (1,468) (0.67%) 4,654 2.48%
Interest expense, net 1,232 1.66% 851 1.26% 3,182 1.45% 2,048 1.09%
Other (income) expense, net 550 0.74% 169 0.25% 711 0.32% 525 0.28%
Income tax (benefit) expense (1,713) (2.31%) 734 1.08% (2,142) (0.97%) 831 0.44%
------- ------ ------ ------ ------- ------ ------- ------
Net (loss) income $(2,571) (3.46%) 1,103 1.63% (3,219) (1.46%) 1,250 0.66%
======= ====== ====== ====== ======= ====== ======= ======
Net (loss) income per common share:
Basic $ (0.28) 0.12 (0.35) 0.14
Diluted $ (0.28) 0.12 (0.35) 0.14
</TABLE>
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<PAGE> 11
RETAIL SEGMENT
Thirteen Weeks 2000 versus Thirteen Weeks 1999 (Fiscal Third Quarter)
Net sales for the fiscal 2000 third quarter were $52.3 million, compared to
$45.7 million for the third quarter 1999, an increase of $6.6 million, or 14.5%.
The sales increase resulted from sales in the five stores opened during the
fiscal 1999 fourth quarter and from the 12 stores opened during the fiscal 2000
nine months. Comparable store net sales decreased 4.7%, or $1.9 million, on a
base of 47 stores.
Gross profit for the fiscal 2000 third quarter was $20.5 million, compared to
$19.1 million in third quarter 1999, an increase of $1.4 million, or 6.9%. Gross
margin decreased to 39.1% in the third quarter 2000, from 41.9% in the third
quarter 1999. The decrease in gross margin was due primarily to higher
markdowns and lower vendor allowances.
Selling, general and administrative expense was $24.6 million for third quarter
2000, compared to $19.2 million in the prior year third quarter, an increase of
$5.4 million, or 28.0%. Selling, general and administrative expense, as a
percentage of net sales, increased to 47.0% in the third quarter 2000, from
42.0% in the third quarter 1999. The dollar increase primarily resulted from a
$4.2 million rise in store level expenses, of which $3.0 million resulted from
an increase in the number of stores in operation (the 17 stores opened in fiscal
1999 and the 13 stores opened in fiscal 2000). In comparable stores, store level
expense increased $1.2 million, comprised of higher store payroll, advertising,
and occupancy costs. Store level expenses include new store preopening costs of
$525,000 for third quarter 2000, compared to $1.1 million for the prior year
third quarter. Warehouse expenses increased $487,000 due to an increase in case
thruput and higher occupancy costs, specifically rent, and depreciation related
to the completed automation project. In addition, administrative expenses
increased $743,000 due primarily to an increase in store operations personnel
and expenses related to the Midwest market expansion, higher costs related to
the store personnel training programs, and increased MIS expenses.
In the fiscal 2000 third quarter, the retail segment reported an operating loss
of $4.1 million, compared to an operating loss of $57,000 for the third quarter
1999. As a percentage of net sales, operating margin decreased to -7.9%, from
-0.1%. This decrease was primarily due to the factors described above.
Thirty-nine Weeks 2000 versus Thirty-nine Weeks 1999 (Fiscal Nine Months)
Net sales for the fiscal 2000 nine months were $152.6 million, compared to
$130.0 million for the fiscal 1999 nine months, an increase of $22.6 million, or
17.4%. The sales increase reflects the greater number of stores in operation:
the five stores opened in fiscal 1999 fourth quarter and 12 stores opened in the
first nine-months of fiscal 2000. Comparable store net sales decreased 4.7%, or
approximately $5.6 million, on a base of 47 stores.
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<PAGE> 12
Gross profit for the fiscal 2000 nine months was $60.6 million, compared to
$53.0 million in the fiscal 1999 nine months, an increase of $7.6 million, or
14.3%. Gross margin decreased to 39.7% in the fiscal 2000 nine months, from
40.8% in the prior year nine months. The decrease in gross margin was due
primarily to higher markdowns and lower vendor allowances.
Selling, general and administrative expense was $68.8 million for the fiscal
2000 nine months, compared to $53.1 million in the same prior year period, an
increase of $15.7 million, or 29.6%. Selling, general and administrative
expense, as a percentage of net sales, increased to 45.1% in the fiscal 2000
nine months, from 40.8% in the fiscal 1999 nine months. The dollar increase
primarily resulted from a $12.8 million rise in store level expenses, of which
$10.7 million resulted from the higher number of stores in operation. In
comparable stores, store level expenses increased $2.1 million, comprised of
higher store payroll, advertising, and occupancy costs. Warehouse expenses
increased $1.1 million due to an increase in case thruput and higher occupancy
costs, specifically rent, and depreciation related to the completed automation
project. In addition, administrative expenses increased $1.8 million due
primarily to an increase in store operations personnel and expenses related to
the Midwest market expansion, higher costs related to the store personnel
training programs, and increased MIS expenses.
Retail reported an operating loss of $8.2 million for the fiscal 2000 nine
months, compared to an operating loss of $86,000 for the same period in fiscal
1999. As a percentage of net sales, operating margin decreased to -5.4%, from
-0.1%. This decrease was primarily due to the factors described above.
WHOLESALE SEGMENT
Thirteen Weeks 2000 versus Thirteen Weeks 1999 (Fiscal Third Quarter)
Net sales for the fiscal 2000 third quarter were $21.9 million, compared to
$22.0 million in the fiscal 1999 third quarter, a decrease of $114,000.
Gross profit for the fiscal 2000 third quarter was $6.1 million, compared to
$6.5 million in the fiscal 1999 third quarter, a decrease of $430,000, or 6.6%.
Gross margin decreased to 27.7% in the third quarter 2000 from 29.5% in the
third quarter 1999, attributable to lower realized margins on drop-ship sales.
Selling, general and administrative expense for the fiscal 2000 third quarter
was $4.0 million, compared to $3.4 million in the fiscal 1999 third quarter, an
increase of $620,000, or 18.4%. The increase is primarily attributable to higher
sales commissions, higher warehouse expenses, and higher general administrative
expenses. As a percentage of net sales, selling, general and administrative
expense increased to 18.2% in the third quarter 2000, from 15.3% in last year's
third quarter.
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<PAGE> 13
Wholesale operating profit decreased to $2.1 million in the third quarter of
fiscal 2000, from $3.1 million in the third quarter 1999. As a percentage of net
sales, operating margin decreased to 9.5%, from 14.2%, due to the factors
described above.
Thirty-nine Weeks 2000 versus Thirty-nine Weeks 1999 (Fiscal Nine Months)
Net sales for the fiscal 2000 nine months were $67.6 million, compared to $58.0
million in the fiscal 1999 nine months, an increase of $9.6 million, or 16.5%.
The increase was due primarily to higher drop-shipped sales.
Gross profit for the fiscal 2000 nine months was $18.8 million, compared to
$16.5 million in the fiscal 1999 nine months, an increase of $2.3 million, or
13.8%. The increase in gross profit reflects the higher sales level, however;
gross margin decreased to 27.8% from 28.4% reflecting a higher mix of typically
lower margin drop-ship sales.
Selling, general and administrative expense for the fiscal 2000 nine months was
$11.6 million, compared to $10.8 million in the fiscal 1999 nine months, an
increase of $803,000, or 7.4%. The increase is primarily attributable to higher
sales commissions due to the higher sales level, higher warehouse expenses, and
higher general administration expenses. Warehouse expense should decrease in
fiscal 2001 due to the non-renewal of a lease on a secondary warehouse
facility. As a percentage of net sales, selling, general and administrative
expense decreased to 17.1% in the fiscal 2000 nine months, from 18.6% in the
last year's nine months.
Wholesale operating profit increased to $7.2 million in the nine months of
fiscal 2000, from $5.7 million in the fiscal 1999 nine months. As a percentage
of net sales, operating margin increased to 10.6%, from 9.8%, due to the factors
described above.
CORPORATE
Thirteen Weeks 2000 versus Thirteen Weeks 1999 (Fiscal Third Quarter)
Corporate consists of the cost of senior management and shared administrative
resources that are utilized by both segments of the business, offset by the
income generated by the management fee revenue from VCM, Ltd., and other buying
commissions. For the fiscal 2000 third quarter, corporate expense of $473,000
compared to expense of $217,000 in the fiscal 1999 third quarter. Corporate
expenses increased $370,000 due primarily to increased professional and other
fees and expenses. Management fee revenue increased $114,000 due to higher
sales levels of VCM, Ltd.
Thirty-nine Weeks 2000 versus Thirty-nine Weeks 1999 (Fiscal Nine Months)
Corporate expense for the fiscal 2000 nine months was $433,000, compared to
$972,000 in the
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<PAGE> 14
prior year nine months. The decrease in corporate expense was due to higher
management fee revenue and third-party buying commissions, partially offset by
increased professional and other fees and expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of inventory purchases,
expenditures related to new store openings, existing store remodeling, 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.
On an annual basis, the Company's growth is financed through cash flow from
operations, borrowings under its revolving credit facility and the extension of
trade credit. The Company maintains a $60.0 million credit facility, comprised
of a $50.0 million revolving line of credit and a $10.0 million term loan. The
facility expires on November 15, 2002. The term loan requires 20 consecutive
quarterly payments of $500,000 plus accrued interest that commenced in May 1998.
Borrowings under the facility bear interest, at the Company's option, at either
the banks' prime rate less 50 basis points or LIBOR plus a spread. Availability
on the facility is the lesser of the total credit commitment or a borrowing base
calculation based upon the Company's accounts receivable and inventories. The
facility contains restrictive covenants that require minimum net worth levels,
maintenance of certain financial ratios and limitations on capital expenditures
and investments. While the Company was in compliance with all restrictive
covenants at the end of the fiscal 2000 third quarter. The Company is planning
to record a non- recurring pre-tax charge of $12 to $15 million, and as a
consequence, expects to not be in compliance with certain restrictive covenants
at the end of fiscal 2000 (February 3, 2000). The Company has commenced
negotiations with its current bank syndicate with respect to obtaining a waiver
for such restrictive covenants. In May 2000, the Company added a $10.0 million
seasonal revolving credit line available from May through December annually.
For the fiscal 2000 nine-months, cash used by consolidated operating activities
was $12.1 million, compared to cash used in the fiscal 1999 nine-months of $15.4
million. Changes in operating assets and liabilities for both the fiscal 2000
and fiscal 1999 nine-month periods include an increase in retail inventory,
principally related to the increase in stores in operation, an increase in
accounts receivable related to the higher sales levels and the timing of sales
in the wholesale operation, partially offset by an increase in accounts payable.
Cash used in investing activities in the fiscal 2000 nine months increased to
$9.3 million, from $7.7 million in the same 1999 period, due to higher levels of
capital expenditures in support of additional new store
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<PAGE> 15
openings and the continuation of the retail warehouse racking and automation
project. Cash generated by financing activities was $22.4 million for the fiscal
2000 nine months, compared to $24.1 million for the 1999 nine months, and was
the result of additional borrowings from the Company's credit facility.
Working capital increased to $78.3 million at October 28, 2000, from $62.2
million at fiscal 1999 year-end, primarily the result of an increase in retail
inventories and offset by an increase in accounts payable. The current ratio was
2.8 to 1 at October 28, 2000, compared to 3.0 to 1 at fiscal 1999 year-end.
The Company has announced its plan to not open any new retail locations in
fiscal 2001. However, the Company will consider opportunistic acquisitions to
increase the number of retail stores or to add to its wholesale operation.
SEASONALITY
The Company, with the growth of its retail operations and the retail orientation
of the VCM, Ltd. joint venture, has shifted its business mix more toward retail.
This shift will effect the net sales and earnings pattern of the Company, with a
greater weighting toward the second half of the fiscal year.
NEW ACCOUNTING PRONOUNCEMENTS
In June 2000, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 138, "Accounting for Derivative
Instruments and Hedging Activities an Amendment of SFAS No. 133." At October 28,
2000, the Company was not involved in any derivative and hedging activities,
thus SFAS No. 138 would not have been applicable.
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: the successful implementation and
timing of the Company's retail expansion plans; the ability to purchase quality
closeout merchandise; the seasonal nature of the Company's retail operation; and
the operating and financial results of the Value City joint venture. Please
refer to the Company's subsequent SEC filings under the Securities Exchange Act
of 1934, as amended, for further information.
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<PAGE> 16
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
On November 22, 2000, the Company hosted a conference call with analysts,
shareholders, and other individuals. During the conference call, the Company
announced it expectation to record a non-recurring pre-tax charge of $12 to $15
million ($0.78 to $1.00 per share, after tax) in the fiscal 2000 fourth quarter
that will reflect inventory realignment and other costs. The Company also
announced that it has retained Mr. Ron Abreu to assist in developing its
strategic plan.
Item 6. Exhibits and Reports on Form 8K
Exhibit 27 Financial Data Schedule
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<PAGE> 17
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.
MAZEL STORES, INC.
(Registrant)
12/12/00 /S/ REUVEN DESSLER
---------------- -------------------------------------
Date Reuven Dessler
Chairman and Chief Executive Officer
12/12/00 /S/ SUE ATKINSON
---------------- -------------------------------------
Date Sue Atkinson
Senior Vice President -
Chief Financial Officer and Treasurer
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