UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): June 18, 1996
______________
BEST PRODUCTS CO., INC.
(Exact name of registrant as specified in its charter)
Virginia 0-24178 54-0853592
(State or other jurisdiction (Commission File Number) (I. R. S. Employer
of incorporation) Identification No.)
1400 Best Plaza, Richmond, Virginia 23227-1125
(Address of principal executive offices) (Zip Code)
(804) 261-2000
(Registrant's telephone number, including area code)
<PAGE>
Item 5. Other Events
Earnings and Strategic Direction Announcement. In conjunction with the
announcement of first quarter results, the Company stated that it anticipates
operating performance will produce financial results in the second quarter
similar to those in the first quarter. The Company also announced a redirection
of strategic initiatives by its new Chairman and Chief Executive Officer. A copy
of the Company's related press release is attached as Exhibit 99.1.
The Company sent a letter to many of its merchandise vendors describing the
press release referred to in the preceding paragraph and other related
information. A copy of the form of the letter is attached as Exhibit 99.2.
Information Regarding Forward Looking Statements. The provisions of the Private
Securities Litigation Reform Act of 1995 (the "Act"), which became law in late
December 1995, provide companies with a "safe harbor" when making
forward-looking statements. This "safe harbor" encourages companies to provide
prospective information about their companies without fear of litigation. The
Company wishes to take advantage of the new "safe harbor" provisions of the Act
and is including this section in this Form 8-K in order to do so. Company
statements made herein or in other filings with the Securities and Exchange
Commission, in press releases, letters to vendors or oral public discussions
that are not historical facts, including statements about anticipations and
expectations for portions of fiscal year 1996 and beyond, are forward-looking
statements and involve various risks and uncertainties. Factors that could cause
the Company's actual results to differ materially from projections, forecasts,
estimates, anticipations and expectations of the Company and its management
include, but are not limited to, the following:
(a) Changes in the amount and degree of promotional intensity
exerted by current competitors and potential new competition
from both retail stores and alternative methods or channels of
distribution such as electronic and telephone shopping
services and mail order;
(b) Adverse changes in the credit terms and limits from the
Company's numerous providers of goods and services;
(c) Changes in the availability of working capital and capital
expenditure financing, including the availability of the
Company's existing working capital credit facility and the
Company's ability to comply with the financial covenants of
such facility;
(d) Lack of availability/access to sources of supply for
appropriate inventory.
(e) Changes in general U.S. economic conditions including, but not
limited to, consumer credit availability, interest rates,
inflations, and consumer sentiment about the economy in
general;
(f) The ability of the Company to timely implement its
restructuring plan and whether the plan is successful in
achieving its objectives of repositioning the Company and
improving its financial performance;
(g) Customer reaction to the changes being implemented in the
Company's shopping process, including replacement of the
existing merchandise-order process;
(h) The effect, if any, of the Company's redirection of its
marketing program, including the discontinuation of the annual
fall catalog;
(i) The Company's ability to successfully achieve its cost-cutting
objectives;
(j) The presence or absence of new products or product features in
the merchandise categories the Company sells and changes in
the Company's actual merchandise sales mix;
(k) The ability to maintain an effective leadership team in a
dynamic environment or changes in the cost or availability of
a suitable work force at acceptable compensation levels to
manage and support the Company's operating strategy, including
the Company's increased emphasis on customer service.
(l) Changes in production or distribution cost or cost of
materials for the Company's advertising;
(m) The imposition of new restrictions or regulations regarding
the sale of products or services the Company sells or changes
in tax rules and regulations applicable to the Company;
(n) Changes in the direct or indirect ownership of the Company of
a sufficient magnitude under applicable tax regulations to
limit the Company's use of its federal income tax net
operating loss carry forwards; and
(o) Adverse results in significant litigation matters.
The United States retail industry and the specialty retail industry in
particular are dynamic by nature and have undergone significant changes in
recent years. The Company's ability to anticipate and successfully respond to
continuing challenges is the key to achieving its expectations.
Item 7. Financial Statements and Exhibits.
(a) Financial Statements of Business Acquired.
Not Applicable.
(b) Pro Forma Financial Information.
Not Applicable.
(c) Exhibits.
99.1 Press Release of the Company dated June 18, 1996.
99.2 Form Letter dated June 18, 1996 sent to Company's
Merchandise Vendors.
<PAGE>
SIGNATURE
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 hereunto duly authorized.
BEST PRODUCTS CO., INC.
Date: June 18, 1996 /s/ Frederick G. Kraegel
------------------------
Frederick G. Kraegel
Senior Vice President and Chief
Financial Officer
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
99.1 Press Release of the Company dated June 18, 1996.
99.2 Form Letter dated June 18, 1996 sent to Company's Merchandise Vendors.
EXHIBIT 99.1
BEST PRODUCTS REPORTS FIRST QUARTER RESULTS;
COMPANY REDEFINING STRATEGIC INITIATIVES
RICHMOND, Va., June 18, 1996 -- Best Products Co., Inc. (Nasdaq: BEST) today
reported its 1996 first quarter net sales and operating results. The company
also said that following the arrival of a new chief executive officer in late
April, it has begun to redefine its strategic initiatives for repositioning the
company.
First quarter net sales for the 13 weeks ended May 4, 1996 decreased 1.1% to $
269.8 million compared to $272.8 million for the same period the prior year.
Comparable store net sales decreased 6.4% for the first quarter of 1996. The
company reported a net loss of $1.11 a share for the first quarter of 1996
compared to a net loss of $.25 a share for the same period in 1995.
Gross margin during the first quarter of 1996 was $58.2 million compared to
$66.6 million for the same period in the prior year. First quarter selling,
general and administrative ("SG&A") expenses were $79.8 million this year
compared to $72.2 million in 1995 due to higher payroll and occupancy expenses
resulting from the opening of 15 stores in 1995, primarily during the last
several months of the year.
The company stated that it is taking steps to reduce expenses by approximately
$40 million on an annual basis, but these actions will not begin to be reflected
in operating performance until the second half of fiscal 1996. The company also
indicated that the exiting of certain merchandise categories and an increase in
the mix of promotionally priced sales are expected to result in lower margin
dollars, compared to fiscal 1995, through at least the second quarter of fiscal
1996. As a result, the company anticipates its operating performance will
produce financial results in the second quarter of fiscal 1996 similar to those
of the first quarter.
New Chairman and Chief Executive Officer Daniel H. Levy said, "The factors that
contributed to the company's poor performance in the fourth quarter of 1995 -
poor planning and weak marketing, resulting in sales, margin rate and margin
dollar shortfalls continued to impact Best Products' performance during the
first quarter of 1996. While we are addressing these issues, we anticipate they
will continue to affect results in the near term. Best Products' business
objectives this year are to continue to reduce expenses, to increase margin
dollars and to stabilize our sales performance. We also believe it is paramount
that the company transition to a non-catalog showroom form of retailing, and as
announced earlier this year, we will be making significant changes to our
outdated shopping process this fall. Best Products also has decided not to
launch a broadcast advertising campaign in 1996. Instead, we believe the most
effective way to communicate with our customers at this time is through the
substantially stronger and more aggressive print marketing program we will
implement this fall."
The company said it is progressing with the implementation of many of the
strategic initiatives it announced earlier this year. Best Products has
eliminated its annual fall catalog in favor of a significantly strengthened and
more contemporary-looking print marketing program for the fall. The shopping
experience at Best stores will become more customer friendly with the
installation of a simplified shopping and payment process - including more
self-service merchandise - that replaces the current, out-dated
merchandise-order process. Through the fall Best Products will be exiting
categories such as bicycles, home office electronics, video games, film
processing, automotive electronics, some sporting goods and selected toys,
calculators and music items. The company anticipates replacing the margin
dollars contributed by those exit categories by adding basic domestics such as
pillows and pads, as well as enhancing and emphasizing certain ongoing
merchandise categories.
Levy said, "Best Products has already taken significant steps to reduce
expenses, increase its margin rate and refine its merchandise assortments. We
believe these measures, along with the enhancements to the shopping process,
better execution at the store level and a stronger marketing program, will allow
us to improve operating earnings in 1996 and set the stage for continued
improvement during 1997."
This release contains forward-looking statements that are subject to risks and
uncertainties, including but not limited to risks associated with the
repositioning of the company, its strategic initiatives, and customer and vendor
support for such changes. Additional discussions of factors that could cause
actual results to differ materially from management's projections, forecasts,
estimates, anticipations and expectations is contained in the company's
Securities and Exchange Commission filings.
Best Products, a specialty retailer offering category-dominant assortments of
jewelry and home furnishings, operates 169 Best stores in 23 states.
# # #
<PAGE>
BEST PRODUCTS CO., INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen weeks ended
----------------------------------------
May 4, April 29,
1996 1995
-------------- ---------------
(Dollar amounts in thousands, except per share amounts)
<S> <C>
Net sales $ 269,791 $ 272,759
Cost of goods sold 211,610 206,167
------------ ------------
Gross margin 58,181 66,592
Selling, general and administrative expenses 79,777 72,212
Depreciation and amortization 5,503 3,618
Interest expense, net 7,546 4,194
------------ ------------
Loss before income tax benefit (34,645) (13,432)
Income tax benefit -- 5,373
------------ ------------
Net loss $ (34,645) $ (8,059)
============ ============
Net loss per common share $ (1.11) $ (0.25)
============ ============
Weighted average common shares outstanding 31,342,108 31,660,711
============ ============
</TABLE>
See accompanying notes to financial statements.
BEST PRODUCTS CO., INC.
BALANCE SHEETS
May 4, February 3,
1996 1996
---------- ----------
(Dollar amounts in thousands)
(Unaudited)
Assets
Current assets:
Cash and cash equivalents $ 9,607 $ 29,003
Merchandise inventories 476,937 481,847
Other current assets 25,628 19,796
--------- ---------
Total current assets 512,172 530,646
Property and equipment, net 174,827 173,239
Other assets, net 10,141 12,755
--------- ---------
Total Assets $ 697,140 $ 716,640
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Short-term borrowings $ 47,926 $ --
Current maturities of long-term debt
and capital lease obligations 22,714 20,895
Accounts payable 107,375 128,834
Accrued expenses and other 44,349 44,426
Accrued insurance 12,105 10,870
Accrued restructuring charges 26,633 28,400
--------- ---------
Total current liabilities 261,102 233,425
Long-term debt 120,206 129,833
Capital lease obligations 80,518 83,312
Other liabilities 14,885 14,996
--------- ---------
Total Liabilities 476,711 461,566
--------- ---------
Stockholders' Equity
Common stock 31,342 31,345
Additional paid-in capital 297,646 297,643
Retained earnings (accumulated deficit) (105,219) (70,574)
--------- ---------
223,769 258,414
Loans under Stock Purchase Loan Plan (3,340) (3,340)
--------- ---------
Total Stockholders' Equity 220,429 255,074
--------- ---------
Total Liabilities and Stockholders' Equity $ 697,140 $ 716,640
========= =========
EXHIBIT 99.2
June 18, 1996
Dear Best Vendor,
Enclosed is a copy of the press release announcing Best Products' first quarter
results. As the press release indicates, the factors that contributed to the
company's poor performance in the fourth quarter of 1995 poor planning and weak
marketing, resulting in sales, margin rate and margin dollar shortfalls -
continue to impact Best Products' performance during the first and second
quarters of 1996.
The issues facing Best Products are challenging but surmountable. We are
redefining the company's strategic initiatives to stabilize the business in the
short term and position it for growth and profitability in the long term. We are
implementing plans to strengthen Best Products' merchandise assortment,
marketing programs and shopping process. These initiatives, we believe, will
result in improved future performance and enable Best Products to take even more
significant strides during 1997. We will be communicating more details about
these initiatives as we implement them.
The $300 million credit facility through The CIT Group/Business Credit provides
Best Products with substantial financing resources while we work to reposition
the company. We anticipate improvements in operating results during the second
half of fiscal 1996 resulting from the expense reductions discussed in the press
release and slight margin improvement due to mix changes.
Of course, our lawyers insist that I caveat my statements. As you know, as with
any business there are numerous factors that could cause the company's actual
results to differ from our expectations. They also say I'm obligated to note
that a discussion of factors that could cause actual results to differ
materially from management's projections and expectations is contained in the
company's Securities and Exchange Commission filings.
We look forward to working with you in the coming months to maximize the
benefits of our partnership and to grow our business together. If you have
questions about the information presented here, I encourage you to contact Fred
Kraegel, Chief Financial Officer, at (804) 261-2036; Nora Crouch, Vice President
and Treasurer, at (804) 261-2179; or me at (804) 261-2360.
Sincerely,
Daniel H. Levy
Chairman and Chief Executive Officer
