FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
|X| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended March 31, 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 number: 0-22675
800-JR Cigar, Inc.
Delaware 52-2022117
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
301 Route 10 East, Whippany, New Jersey 07981, USA
(973)884-9555
Not applicable
(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 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 ____
(APPLICABLE ONLY TO CORPORATE REGISTRANTS)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
Common Stock, $.01 par value - 11,867,085 share
as of April 14, 2000.
<PAGE>
800-J.R. Cigar, Inc. and Subsidiaries
Index to Form 10-Q
Part I - Financial Information
Item 1. Financial Statements Page
Consolidated Statements of Income for the Three-Month Periods
ended March 31, 2000 and 1999 (Unaudited).................................3
Consolidated Balance Sheets as of March 31, 2000 (Unaudited) and
December 31, 1999 (Audited)...............................................4
Consolidated Statements of Cash Flows for the Three-Month Periods ended
March 31, 2000 and 1999 (Unaudited).......................................5
Notes to Consolidated Financial Statements..................................6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations..................................................10
Part II - Other Information
Item 1. Legal Proceedings....................................................12
Item 6. Exhibits and Reports on Form 8-K.....................................12
Signatures....................................................................13
<PAGE>
800-J.R. Cigar, Inc. and Subsidiaries
Consolidated Statements of Income
(Unaudited)
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Three-month period
ended March 31
---------------------------
2000 1999
---------------------------
<S> <C> <C>
Net sales $70,435 $ 72,821
Cost of goods sold 58,293 59,994
---------------------------
Gross profit 12,142 12,827
Operating expenses:
Selling 1,670 1,956
General and administrative expenses 6,132 6,216
Depreciation and amortization 656 489
---------------------------
Income from operations 3,684 4,166
Other income (expense):
Interest expense (181) (255)
Interest income 254 244
Rental income 40 40
Other, net 53 (71)
---------------------------
Income before income taxes 3,850 4,124
Provision for income taxes 1,530 1,678
---------------------------
Net income $ 2,320 $ 2,446
===========================
Per share data:
Earnings per share - basic $ .19 $ .19
===========================
Earnings per share - diluted $ .19 $ .19
===========================
Weighted-average shares outstanding - basic 11,935 12,600
===========================
Weighted-average shares outstanding - diluted 11,952 12,600
===========================
See accompanying notes.
</TABLE>
<PAGE>
800-J.R. Cigar, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
March December
31, 2000 31, 1999
---------------------------------
Assets (Unaudited) (Audited)
Current assets:
<S> <C> <C>
Cash and cash equivalents $ 8,900 $ 9,107
Marketable securities - current 6,334 6,568
Accounts receivable, net 1,410 4,436
Merchandise inventory 45,252 40,043
Prepaid expenses and other current assets 4,257 3,757
Loans receivable - affiliates and other associated entities 882 806
Deferred tax asset 51 51
---------------------------------
Total current assets 67,086 64,768
Property, equipment and improvements, at cost, net of accumulated
depreciation and amortization 35,106 34,241
Other assets 434 379
Marketable securities - non-current 531 2,113
---------------------------------
$103,157 $101,501
=================================
Liabilities and stockholders' equity Liabilities:
Current portion of distribution notes payable to stockholders $ 2,983 $ 4,967
Accounts payable 11,882 13,919
Accrued expenses 4,482 3,309
Notes payable 3,000 -
----------------------------------
Total liabilities 22,347 22,195
Stockholders' equity:
Common stock 128 128
Additional paid-in capital 52,795 52,795
Retained earnings 36,267 33,947
---------------------------------
89,190 86,870
Less treasury stock, at cost (8,380) (7,564)
---------------------------------
Total stockholders' equity 80,810 79,306
---------------------------------
$103,157 $101,501
=================================
See accompanying notes.
</TABLE>
<PAGE>
800-J.R. Cigar, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Three-month period
ended March 31
2000 1999
------------------------------
Cash flows from operating activities
<S> <C> <C>
Net income $ 2,320 $ 2,446
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation and amortization 656 489
Provision for uncollectible accounts 23 30
Gain on sale of marketable securities - (25)
Changes in operating assets and liabilities:
Accounts receivable 3,003 (500)
Merchandise inventory (5,209) 504
Prepaid expenses and other current assets (500) 156
Other assets (55) -
Accounts payable and accrued expenses (864) (6,116)
------------------------------
Net cash used in operating activities (626) (3,016)
Cash flows from investing activities
Purchases of marketable securities - (931)
Proceeds from sales of marketable securities 1,816 4,826
Purchase of property and equipment (1,521) (529)
Loans extended to affiliates and other
associated entities (76) (350)
------------------------------
Net cash provided by investing activities 219 3,016
Cash flows from financing activities
Purchase of treasury stock (816) (1,844)
Proceeds from issuance of common stock - 1
Proceeds from short-term borrowings 3,000 2,000
Payments on distribution notes (1,984) (1,984)
------------------------------
Net cash provided by (used in) financing activities 200 (1,827)
------------------------------
Net decrease in cash and cash equivalents (207) (1,827)
Cash and cash equivalents at beginning of period 9,107 12,759
------------------------------
------------------------------
Cash and cash equivalents at end of period $ 8,900 $ 10,932
==============================
Supplemental disclosures of cash flow information
Interest paid $ 110 $ 211
==============================
Income taxes paid $ 705 $ 566
==============================
See accompanying notes.
</TABLE>
<PAGE>
800-JR Cigar, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(In thousands, except per share amounts)
March 31, 2000
1. Unaudited Financial Statements
The accompanying unaudited financial statements have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X.
Accordingly, they do not include all of the information and footnote disclosures
normally included in complete financial statements prepared in accordance with
generally accepted accounting principles. For further information, such as
significant accounting policies followed by the Company, refer to the notes to
the Company's audited consolidated financial statements for the year ended
December 31, 1999.
In the opinion of management, the unaudited financial statements include all
necessary adjustments (consisting of normal, recurring accruals) for a fair
presentation of the financial position, results of operations and cash flows for
the interim periods presented. The results of operations for the three-month
periods ended March 31, 2000 and 1999, are not necessarily indicative of the
operating results to be expected for a full year.
2. Basis of Presentation
800-JR Cigar, Inc. ("800-JR Cigar") was incorporated in Delaware in March 1997.
In connection with 800-JR Cigar's initial public offering of stock (the
"Offering") on June 26, 1997, the former principals of a predecessor group of
companies contributed to 800-JR Cigar all of the outstanding stock in the
entities that comprise the predecessor group of companies, in exchange for
9,300,000 shares of common stock of 800-JR Cigar.
All significant intercompany balances and transactions have been eliminated.
<PAGE>
800-JR Cigar, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited) (continued)
(In thousands, except per share amounts)
3. Computation of Basic and Diluted Earnings Per Share
The following table sets forth the computation of basic and diluted earnings per
share:
<TABLE>
<CAPTION>
Three-month period
ended March 31
2000 1999
-----------------------------
Numerator:
<S> <C> <C>
Net income $ 2,320 $ 2,446
=============================
Denominator:
Denominator for basic earnings per share - weighted-average
shares 11,935 12,600
Effect of dilutive securities - stock options 17 -
-----------------------------
Denominator for diluted earnings per share - adjusted
weighted-average shares and assumed conversion
11,952 12,600
=============================
Basic earnings per share $ .19 $ .19
=============================
Diluted earnings per share $ .19 $ .19
=============================
</TABLE>
Common stock equivalents are excluded from the calculation of diluted earnings
per share for the three month period ended March 31, 1999 as their effect would
be anti-dilutive.
4. Revolving Credit Facility
The Company has a $20 million revolving Credit Facility which expires on May 31,
2000. Borrowings under this facility are unsecured and bear interest at the
bank's prime rate minus 1/2% or, at the option of the Company, 1.5% over the
London Interbank Offered Rate (LIBOR). At March 31, 2000, $3 million was
outstanding under this facility.
<PAGE>
800-JR Cigar, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited) (continued)
(In thousands, except per share amounts)
5. Stock Repurchase Plan
On August 25, 1998, the Board of Directors approved the repurchase of up to $10
million of the Company's common stock from time to time subject to market
conditions. Purchases can be made in the open market or in privately negotiated
transactions. At March 31, 2000 and December 31, 1999, the Company had purchased
872,300 shares and 783,000 shares, respectively, at a cost of $8,380 and $7,564,
respectively.
6. Stock Option Plans
On January 4, 2000, the Board approved a change in the exercise price from the
original price to the quoted market price at the close of business on January 4,
2000 ($8.75 per share) for options outstanding at that date under the Incentive
Plan and the Directors' Plan.
On February 1, 2000, the Company issued options to purchase 79,500 shares of its
common stock under the Incentive Plan at an exercise price of $9.63 per share.
7. Segment Reporting
The Company has two segments determined by type of customer and made up of
retail and wholesale operations. The Company's retail division sells cigars,
tobacco products, cigarettes, fragrances and other merchandise to the general
public through direct mail order, cigar stores, and discount outlet stores. The
Company's wholesale division sells cigars and cigarettes to wholesale
distributors through the wholesale mail order and wholesale cigarette operations
located within the Company's discount outlet stores. The Company operates only
throughout the United States.
The reportable segments are each managed separately because the Company markets
these segments of the business separately. Although revenues of the retail and
wholesale divisions are further monitored based upon marketing and distribution
channel, overall profitability is measured only at the retail/wholesale level.
The Company evaluates performance based on profit or loss. The accounting
policies of the reportable segments are the same as those described in the
summary of significant accounting policies. The accounting for the assets of
each segment is the same as in consolidation.
<PAGE>
800-JR Cigar, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited) (continued)
(In thousands, except per share amounts)
8. Segment Reporting (continued)
The Company's operations by business segment for the three months ended March
31, 2000 and 1999 are as follows:
<TABLE>
<CAPTION>
Three-month period ended March 31
2000 1999
----------------------------------------------------------
Retail Wholesale Retail Wholesale
----------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $34,492 $35,943 $36,338 $36,483
Segment profit 2,695 1,327 2,841 1,730
</TABLE>
<TABLE>
<CAPTION>
Three month period
ended March 31
2000 1999
------------------------------------
Profit and loss
<S> <C> <C>
Total profit for reportable segments $4,022 $4,571
Corporate segment loss (172) (447)
------------------------------------
Consolidated income before income taxes $3,850 $4,124
====================================
</TABLE>
There has been no material change in total assets by segment from the amount
disclosed in the annual report on Form 10-K at December 31, 1999.
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operation
This report contains certain "forward-looking statements." Those statements
appear in a number of places in this report and include statements regarding the
intent, belief or current expectations of the company, its directors and its
officers with respect to, among other things: (i) trends affecting the Company's
financial condition or results of operations; (ii) the Company's financing
plans; (iii) the Company's business and growth strategies; (iv) the use of the
proceeds of the Offering by the Company; (v) the Company's ability to identify
and address Year 2000 issues; and (vi) the declaration and payment of dividends.
Prospective investors are cautioned that any such forward-looking statements are
not guarantees of future performance and involve risks and uncertainties and
that actual results may differ materially from those projected in the
forward-looking statements as a result of various factors.
General.
The Company is one of the largest distributors and retailers of tobacco and
tobacco related products in North America. The Company operates in a large and
highly fragmented industry characterized by multiple and relatively undeveloped
channels of distribution. With its 30-year history in the cigar industry, the
Company has established itself as an important participant in the movement of
tobacco products from manufacturers to the customers. Manufacturers value the
Company's ability to perform distribution, credit, customer support and
marketing functions, which would otherwise be the responsibility of the
manufacturer. Customers value the Company's extensive variety of tobacco
products and rapid order fulfillment and benefit from advantageous pricing
derived through the Company's volume buying as a direct importer and
distributor.
Three-month Period Ended March 31, 2000 Compared to Three-Month Period Ended
March 31, 1999
Net sales were $70.4 million and $72.8 million for the first quarters of 2000
and 1999, respectively, a decrease of $2.4 million or 3.3%. Retail sales
decreased 5.1% to $34.5 million for the first quarter of 2000 from $36.3 million
for the first quarter of 1999. The decrease in retail sales was due primarily to
a $2.0 million, or 12.1% decrease in discount outlet store operations resulting
from inclement weather in North Carolina and the New Jersey/New York
metropolitan area in the first quarter of 2000. Wholesale sales decreased 1.5%
to $35.9 million for the first quarter of 2000 from $36.5 million over the same
period in the prior year. The decrease in wholesale sales was due to a $1.7
million, or 13.1% decrease in direct mail cigar sales, partially offset bt an
increase of $1.1 million in cigarette sales.
Gross profit was $12.1 million and $12.8 million for the first quarters of 2000
and 1999, respectively, a decrease of $0.7 million or 5.3%. As a percentage of
net sales, gross profit decreased to 17.2% for the first quarter of 2000 from
17.6% for the first quarter of 1999, primarily due to increasing competitive
prices on premium cigars.
<PAGE>
Selling, general and administrative ("S, G & A") expenses were $7.8 million and
$8.2 million for the first quarters of 2000 and 1999, respectively, a decrease
of $0.4 million or 4.5%. As a percentage of net sales, S, G & A expenses
decreased to 11.1% for the first quarter of 2000 from 11.2% for the first
quarter of 1999 primarily due to a decrease in professional fees and freight
costs.
Income from operations was $3.7 million and $4.2 million for the first quarters
of 2000 and 1999, respectively, a decrease of $0.5 million or 11.6%. As a
percentage of net sales, income from operations decreased to 5.2% for the first
quarter of 2000 from 5.7% for the first quarter of 1999.
Interest expense was $0.2 and $0.3 million for the first quarters of 2000 and
1999, respectively, a decrease of $0.1 million. Other income, primarily
interest, was $0.3 million and $0.2 million for the first quarters of 2000 and
1999, respectively. The increase in other income was primarily due to an
increase in display income.
Income before income taxes was $3.8 million and $4.1 million for the first
quarters of 2000 and 1999, respectively, a decrease of $0.3 million or 6.6%.
As a result of the foregoing, the Company had net income of $2.3 million in the
first quarter of 2000, compared to net income of $2.4 million for the first
quarter of 1999, a decrease of $0.1 million or 5.2%.
Liquidity and Capital Resources
As of March 31, 2000, the Company had working capital of $44.7 million compared
to $42.6 million at December 31, 1999. Working capital as of March 31, 2000 is
comprised primarily of cash and cash equivalents of $8.9 million, short-term
marketable securities of $6.3 million, accounts receivable of $1.4 million,
$45.3 million of inventory and $5.2 million of other current assets offset by
$16.4 million of accounts payable and accrued expenses, $3.0 million of
short-term borrowings and $3.0 million of the current portion of the
distribution notes.
The Company has available a short term, unsecured line of credit in the amount
of $20.0 million through May 31, 2000 with interest at either the bank's base
rate minus 50 basis points or an increment over LIBOR, at the Company's option.
The Company intends to renew such line of credit upon its expiration. As of
March 31, 2000, $3.0 million was outstanding under this facility.
At March 31, 2000, the Company had outstanding Distribution Notes in the amount
of $2.0 million which were issued to the former principal stockholders of the
Company" subsidiaries prior to their acquisition by the Company on June 6, 1997.
These notes represented estimated undistributed accumulative S Corporation
earnings through June 26, 1997, the date of the initial public offering. These
notes bear interest at the rate of 7.0% per annum and are payable on a quarterly
basis until June 1, 2000. In addition, the Company has outstanding Distribution
Notes totaling $1.0 million bearing interest at the rate of 7.0% per annum
payable on June 1, 2000.
<PAGE>
The repurchase of up to $10.0 million of the Company's common stock was approved
by the Board of Directors subject to market conditions. During the quarter ended
March 31, 2000, the Company repurchased 89,300 shares of its outstanding common
shares at an average price of $9.13 raising the total shares repurchased to
872,300 at an average cost of $9.61 as of March 31, 2000.
Year 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready. During 1999, the Company completed its remediation and
testing of systems. As a result of those planning and implementation efforts,
the Company experienced no significant disruptions in mission critical
information technology and non-information technology systems and believes those
systems successfully responded to the Year 2000 date change. The Company is not
aware of any material problems resulting from Year 2000 issues, either with its
products, its internal systems, or the products and services of third parties.
The Company will continue to monitor its mission critical computer applications
and those of its suppliers and vendors throughout the Year 2000 to ensure that
any latent Year 2000 matters that may arise are addressed promptly.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company does not trade in derivative fianncial instruments. The company's
revolving line of credit bears interest at a variable rate (prime minus 1/2%)
and, therefore, the Company is subject to market-risk in the form of interest
rate fluctuations.
Part II. Other Information
Item 1. Legal Proceedings
The Company is not presently involved in any legal proceedings which, if
determined adversely to the Company, would have a material effect on the
Company.
Item 6. Exhibits and Reports on Form 8-K
The Company did not file any reports on Form 8-K during the three months ended
March 30, 2000.
<PAGE>
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.
800-JR Cigar, Inc.
May 9, 2000 By:_/s/ Lewis I. Rothman______________________
Lewis I. Rothman, Chairman and President
May 9, 2000 By:_/s/ Michael E. Colleton___________________
Michael E. Colleton, Chief Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0001035507
<NAME> 800-JR CIGAR, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-1-2000
<PERIOD-END> MAR-31-2000
<EXCHANGE-RATE> 1
<CASH> 8,900
<SECURITIES> 6,334
<RECEIVABLES> 1,517
<ALLOWANCES> (107)
<INVENTORY> 45,252
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<PP&E> 9,699
<DEPRECIATION> 3,435
<TOTAL-ASSETS> 103,157
<CURRENT-LIABILITIES> 22,347
<BONDS> 0
0
0
<COMMON> 128
<OTHER-SE> 80,682
<TOTAL-LIABILITY-AND-EQUITY> 103,157
<SALES> 70,435
<TOTAL-REVENUES> 70,435
<CGS> 58,293
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<INTEREST-EXPENSE> (181)
<INCOME-PRETAX> 3,850
<INCOME-TAX> 1,530
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</TABLE>
