SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
--- OF THE SECURITIES EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended January 30, 1999
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
--- SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from __________ to __________
Commission File No. 1-258
JG INDUSTRIES, INC.
(Exact Name of Registrant as Specified in its Charter)
Illinois 36-1141010
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
5630 West Belmont Avenue, 60634
Chicago, Illinois (Zip Code)
(Address of Principal Executive Offices)
Registrant's telephone number, including area code: (773) 481-5410
Securities registered pursuant to Section 12(b) of the Act:
NONE
Securities registered pursuant to Section 12(g) of the Act:
Title of Each Class
-------------------
Common Stock, No Par Value
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K (ss.229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [ ]
The aggregate market value of Common Stock held by nonaffiliates of the
Registrant on April 23, 1999 was approximately $375,650. On that date there were
1,060,670 shares of Common Stock issued and outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Parts I and III incorporate by reference certain information to be included in
Registrant's definitive Proxy Statement for the Annual Meeting of Stockholders
currently scheduled for June 22, 1999.
Index to Exhibits on Pages 23 through 24.
<PAGE>
PART I
Item 1. Business
- -----------------
General Information
JG Industries, Inc. ("JG") is an Illinois corporation organized on February
27, 1928. Effective July 23, 1985 the name of the Company was changed from
Goldblatt Bros., Inc. to JG Industries, Inc. JG and its subsidiaries are
hereinafter collectively referred to as the "Company."
Prior to December 13, 1996, Jupiter Industries, Inc. ("Jupiter")(a shareholder
of the Company) had a 55.2% ownership interest in JG, and held 1,293,258 shares
of the Company's Common Stock and all of the Company's issued and outstanding
Series A Preferred Stock. Pursuant to a Stock Purchase Agreement dated December
13, 1996, the Company purchased from Jupiter all shares of the Series A
Preferred Stock and the Company's Common Stock held by Jupiter for an aggregate
price of $5,510,864, of which $2,500,108 was paid in cash, $1,264,858 was paid
by offset against liabilities of Jupiter to the Company and $1,745,898 was paid
by delivery of a promissory note. Effective May 15, 1998, the original
$1,745,898 promissory note was amended and restated ("Restated Note"). The
Restated Note did not bear interest and was payable in three annual installments
of $581,966 each commencing May 15, 1999, with the last installment due and
payable on May 15, 2001. In addition, the accrued and unpaid interest of
approximately $149,000 as of May 15, 1999 was forgiven. On January 29, 1999, the
Company and Jupiter entered into a Cancellation Agreement whereby the
aforementioned $1,745,898 Restated Noted was canceled in return for a lump-sum
payment of $500,000 as full settlement of the outstanding debt obligation.
Subsequent to year-end, the Company made the $500,000 lump-sum payment to
Jupiter.
The Company operates in one industry segment of the retail market that is
defined as Discount Department Stores. Goldblatt's Department Stores, Inc. and
Subsidiaries ("Goldblatt's"), a wholly-owned subsidiary of the Company, offers
customers a diverse assortment of both nationally branded and private label
merchandise, emphasizing a full range of both soft and hard line goods. The
stores frequently feature special promotions of merchandise purchased on
advantageous terms. Soft line merchandise includes men's, women's, children's
and infant's wearing apparel and accessories. Hard line merchandise includes
textiles and domestics, televisions and electronics, small appliances and
housewares, cosmetics and notions, hardware, toys and sporting goods. Over the
past five years, soft line departments have provided between 51% and 54% of
owned sales. Goldblatt's also licenses jewelry, shoe, millinery and optical
departments for operation at certain of its stores.
Goldblatt's continuing operations are comprised of eight discount department
stores located in the Chicago, Illinois vicinity and one in Indiana. The
department stores maintain a centralized purchasing function, buying goods
direct from domestic and international manufacturers and through wholesalers. No
single vendor accounted for more than 4% of total department store purchases
during fiscal 1999. Supplier relationships are considered strong and Goldblatt's
continues to obtain favorable pricing and payment terms on many purchases.
The department store business is seasonal with approximately 30% of total sales
occurring in the fourth quarter.
<TABLE>
<CAPTION>
Balance at Opened/Purchased Closed/Sold Balance at
Description Beginning of Year Stores Stores End of Year
- ----------- ----------------- ---------------- ----------- -----------
<S> <C> <C> <C> <C>
Discount department stores
Fiscal year 1997 14 4 10
Fiscal year 1998 10 10
Fiscal year 1999 10 1 9
</TABLE>
Competition
The Company's discount department stores are highly competitive. The Company
competes with national and local retail establishments, both large and small,
for the patronage of its customers. Some of the largest retail merchandise
companies with substantially greater resources than the Company have outlets
located in the same areas in which the Company's subsidiaries operate. The
Company's overall promotional strategy is to emphasize quality merchandise at
competitive prices.
Employees
The Company employs 670 people, comprised of 4 employees of JG and 666 employees
of Goldblatt's. The Company believes that its relationship with its employees is
good.
-2-
<PAGE>
Item 2. Properties
- ------------------------
The Company owns and leases the retail merchandise stores, office and warehouse
locations described below. In the opinion of management, the properties are
suitable and adequate for the conduct of its business.
At April 30, 1999, Goldblatt's owns in fee one retail location in Chicago,
Illinois. This one property has gross square footage of 135,000. This property
is subject to a mortgage in favor of a regional financial institution.
Goldblatt's leases its other eight retail locations, aggregating 580,200 gross
square feet, with expirations, excluding renewal options, ranging from 2000 to
2008. Five stores have renewal options of up to 25 years. Aggregate minimum
rentals with respect to the foregoing leasehold properties are approximately
$1,840,000 annually.
Item 3. Legal Proceedings
- -------------------------------
No material legal proceedings are currently pending against the Company.
Item 4. Submission of Matters to a Vote of Security Holders
- -----------------------------------------------------------------
No matters were submitted to vote of the company's shareholders during the last
quarter of the fiscal year ended January 30, 1999.
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters
- -------------------------------------------------------
Although the Company's Common Stock was listed on the NASD Automated Quotation
System (trading symbol: JGIN) through the close of business on October 7, 1998,
the volume of shares traded was limited during the years ended January 30, 1999
(fiscal 1999) and January 31, 1998 (fiscal 1998). The following table lists the
reported high and low bid quotations as quoted on the NASD Automated Quotation
System for each quarterly period during fiscal 1999 and 1998 (through October 7,
1998). Such over-the-counter market quotations reflect interdealer prices,
without retail markup, markdown or commission and may not necessarily represent
actual transactions. Effective with the close of business on October 7, 1998,
the Company's Common Stock was delisted from the NASDAQ Stock Market, since the
Company's Common Stock fell below the NASDAQ requirement of maintaining a
$1,000,000 market value of the public float, and the Company was unable to raise
the market value above this required level. The Company's Common Stock has been
trading over-the-counter since this date. Bid quotations and trading activity
are maintained and reported to the Company by National Quotation Bureau, LLC.
The Company has not paid dividends in any of the last five years. There were
approximately 957 holders of record of Common Stock on April 23, 1999.
<TABLE>
<CAPTION>
Price Range
-----------
High Low
---- ---
<S> <C> <C>
Fiscal 1999
First Quarter $1.06 $ .75
Second Quarter 1.06 .50
Third Quarter .75 .25
Fourth Quarter .50 .13
Fiscal 1998
First Quarter $2.00 $1.38
Second Quarter 2.00 1.50
Third Quarter 1.38 1.13
Fourth Quarter 1.44 .50
</TABLE>
-3-
<PAGE>
Item 6. Selected Financial Data
- --------------------------------
Following is selected financial data for the Company for each of the last five
fiscal years.
<TABLE>
<CAPTION>
(in thousands, except share data)
---------------------------------
1999 1998 1997 1996 1995
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Net sales from continuing operations $ 52,236 $ 53,483 $ 60,198 $ 72,964 $ 77,106
Operating loss (1,883) (2,423) (2,195) (2,871) (68)
Loss from continuing operations (2,323) (2,569) (2,101) (4,103) (1,121)
Income (loss) from discontinued
operations (49) 6,856 1,608
Income (loss) before extraordinary items (2,323) (2,569) (2,150) 2,753 487
Income from extraordinary items 1,365
Net income (loss) (958) (2,569) (2,150) 2,753 487
Net income (loss) available to common
shareholders (1,093) (2,707) (2,577) 2,472 267
Per share data:
Loss from continuing
operations - basic and diluted (2.32) (2.55) (1.15) (1.86) (.57)
Net income (loss) - basic (1.03) (2.55) (1.17) 1.05 .11
Net income (loss) - diluted (1.03) (2.55) (1.17) 1.04 .11
Total assets 12,134 14,213 15,675 25,315 76,007
Long-term obligations 1,350 3,343 2,031 2,776 11,269
Redeemable preferred stock 3,937 3,657
Convertible preferred stock 1,500 1,500 1,500
Weighted average number of common shares
outstanding 1,060,670 1,060,674 2,194,085 2,353,445 2,351,702
</TABLE>
-4-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
-----------------------------------------------------------------------
Liquidity and Capital Resources
Approximately $97,000 of net cash was provided by operating activities during
the year ended January 30, 1999 as compared to approximately $1,235,000 of net
cash used in operating activities during the preceding year. The decreased
spending stems in large part to a $603,000 reduction in selling, general and
administrative ("SG&A") expenses in fiscal 1999 as compared to fiscal 1998, due
to an expense reduction program implemented early in fiscal 1999. The increase
in cash from operating activities is also attributed to the liquidation of
inventory from a store closed during the year, and the decrease in other current
assets stemming from the Company's decision to pay rent when due, instead of
prepaying rent, as was done in the preceding year.
Goldblatt's Department Stores, Inc. spent $293,000 on capital expenditures
during fiscal 1999 related to normal capital maintenance. In addition,
approximately $25,000 of furniture, fixtures and computer equipment previously
put into storage from the four store closings in fiscal 1997 were transferred
out to existing Goldblatt's stores for replacement needs. Goldblatt's expects to
utilize a large portion of the remaining furniture and fixtures in storage in
fiscal 2000 for both major and minor remodeling projects to be undertaken at its
existing store locations.
During fiscal 1998, Goldblatt's executed a $2,000,000 line of credit agreement
with a maturity date of April 15, 1999. The agreement provided a line of credit
of up to $2,000,000 based on availability of a borrowing base equal to 45% of
merchandise inventory. The line was collateralized by Goldblatt's inventory and
cash and cash equivalents. The line of credit agreement required that
Goldblatt's maintain an inventory level of at least $5,500,000, a tangible net
worth of $5,500,000 and imposed net loss restrictions for fiscal year 1998 and
1999.
Effective January 28, 1999, Goldblatt's entered into a new Loan and Security
Agreement with another financial institution, replacing the aforementioned line
of credit agreement. The new agreement provides a revolving line of credit of up
to $3,000,000 through January, 2001 based on availability of a borrowing base
equal to 50% of merchandise inventory, computed on a first-in, first-out
("FIFO") basis. The line is collateralized by Goldblatt's inventory and cash and
cash equivalents. The line of credit agreement requires that Goldblatt's
maintain a FIFO inventory cost of at least $5,500,000. Additionally, the Company
is required to pay down the outstanding line of credit with any available cash
on a daily basis. The line is guaranteed by JG. As of January 30, 1999,
$2,995,000 is available on the line of credit.
Pursuant to a Stock Purchase Agreement dated December 13, 1996, the Company
purchased from Jupiter 445 shares of Series A Preferred Stock and 1,293,258
shares of the Company's Common Stock for an aggregate price of $5,510,864, of
which $2,500,108 was paid in cash, $1,264,858 was paid by offset against
liabilities of Jupiter to the Company and $1,745,898 was paid by delivery of a
promissory note. Effective May 15, 1998, the original $1,745,898 promissory note
was amended and restated ("Restated Note"). The Restated Note did not bear
interest and was payable in three annual installments of $581,966 each
commencing May 15, 1999, with the last installment due and payable on May 15,
2001. In addition, the accrued and unpaid interest of approximately $149,000 as
of May 15, 1999 was forgiven. As a result of this transaction, the Company has
recognized an extraordinary gain on debt restructuring of approximately
$124,000, net of related expenses, during fiscal 1999. On January 29, 1999, the
Company and Jupiter entered into a Cancellation Agreement whereby the
aforementioned $1,745,898 Restated Noted was canceled in return for a lump-sum
payment of $500,000 as full settlement of the outstanding debt obligation.
Subsequent to year-end, the Company made the $500,000 lump-sum payment to
Jupiter. As a result of this transaction, the Company has recognized an
additional extraordinary gain on debt restructuring of approximately $1,241,000,
net of related expenses, during fiscal 1999.
The Company believes that Goldblatt's working capital and line of credit will be
adequate to fund current operations and service the Company's debt through
fiscal 2000.
-5-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -----------------------------------------------------------------------------
Year 2000 Issue
The Year 2000 issue concerns the inability of information systems to properly
recognize and process date-sensitive information beyond January 1, 2000. Many of
our systems and related software are Year 2000 compliant. However, systems
critical to our business which have been identified as non-Year 2000 compliant
are either being replaced or corrected through programming modifications. The
Company is utilizing both internal personnel and outside vendors to identify the
Year 2000 noncompliance problems, modify code as necessary and test the
modifications.
The Company has focused its efforts on maintaining the data integrity of the
existing financial reporting programs and the current store-level operating
systems. The Company utilizes an IBM AS400 mainframe system operating with JDA
software. The Company has already finished initial testing on the financial
reporting applications of the AS400 system. Based upon a thorough review of the
programming code by an outside vendor, the AS400 program will require minor
levels of modification to become Year 2000 compliant. An upgrade to the AS400
system has been completed and financed through working capital with minimal
cost.
Testing of the store-level operating systems have focused on cash register sales
transactions and other backroom reporting processes. On-site testing was
recently completed. Some programming modifications and new equipment upgrades
are anticipated, but the amounts are not expected to be material and will be
financed through working capital.
The Company is monitoring the progress of its primary suppliers and vendors
regarding their Year 2000 compliance. In general, they have developed or are in
the process of developing plans to address the Year 2000 issues. The Company is
also reviewing its own non-information technology systems to determine the
extent of any changes that may be necessary, and believes that there will be
minimal changes necessary for compliance.
The Company anticipates total spending of approximately $150,000 through fiscal
year 2000 on the Year 2000 issue. Maintenance or modification costs will be
expensed as incurred, while the replacement of certain systems will be recorded
as assets and amortized. The Company does not expect the costs relating to Year
2000 remediation to have a material effect on its results of operations or
financial condition.
The Company's financial condition or liquidity could be adversely effected by
business disruption and operational problems if needed modifications to the
financial reporting programs and store-level operating systems are not made on a
timely basis. Although not anticipated, the worst-case scenario of failure by
the Company or its business partners to resolve the Year 2000 issue would be a
short-term slowdown in processing credit card transactions. Also, we anticipate
limited disruption in our purchasing function as our internal purchasing
procedures are manually intensive.
While we continue to focus on solutions for the Year 2000 issues, and expect to
be Year 2000 compliant in a timely manner, we are in the process of developing a
contingency plan. We expect to finalize the contingency plan by September, 1999.
-6-
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
- -----------------------------------------------------------------------------
Results of Operations
Year Ended January 30, 1999 (fiscal 1999, 52 weeks)
vs. Year Ended January 31, 1998 (fiscal 1998, 53 weeks)
The net loss decreased by $1,611,000 from $2,569,000 in fiscal 1998 to $958,000
in fiscal 1999. That improvement came despite a $400,000 store closing provision
for the store closed in November, 1998. During fiscal 1999, the Company also
recognized a $1,365,000 extraordinary gain from debt restructuring. In addition,
the loss from continuing operations decreased from $2,569,000 in fiscal 1998 to
$2,323,000 in fiscal 1999.
Net sales from continuing operations decreased from $53,483,000 to $52,236,000.
This decrease is attributable to both the store closing and having one less
operating week in fiscal 1999 vs. fiscal 1998. The closed store represented a
decrease in sales of approximately $1,155,000, while the effect of the
additional week accounted for a sales decrease of $729,000. As a result, the
Company experienced a $637,000 sales increase on a comparable store, comparable
week basis for fiscal 1999 as compared to fiscal 1998.
The Company's gross profit percentage increased to 32.6% of sales from 32.0% of
sales in the previous year. This improvement is attributable to more
opportunistic purchasing complemented by tightened controls on markdowns.
Due in large part to the expense reduction program implemented early in fiscal
1999, the Company experienced significant cost savings this year. SG&A expenses
decreased by $603,000 from fiscal 1998. Overall expense control and, in
particular, reductions in maintenance and other outside service-related
expenses, supplies, utilities, general insurance, real estate taxes and
corporate overhead expenditures were at the core of the SG&A expense savings. As
a result, SG&A expenses have improved to 36.2% of sales in fiscal 1999 from
36.5% of sales in fiscal 1998.
Year Ended January 31, 1998 (fiscal 1998, 53 weeks)
vs. Year Ended January 25, 1997 (fiscal 1997, 52 weeks)
The comparison of fiscal years 1998 and 1997 is materially distorted due to the
sale of three stores in July, 1996 and the closing of a fourth store in
November, 1996. In addition, fiscal 1998 includes the results of operations for
53 weeks as compared to 52 weeks in fiscal 1997.
Net sales from continuing operations decreased from $60,198,000 to $53,483,000.
The closed stores represented a decrease in sales of approximately $8,850,000,
which was partially offset by a comparable store sales increase of approximately
$2,135,000.
While our aggressive promotional and merchandising programs resulted in
comparable store sales increases during fiscal 1998, losses from continuing
operations increased to $2,569,000 as compared to $2,101,000 in the previous
year. The Company's gross profit percentage decreased to 32.0% of sales from
32.7% in the previous year. SG&A increased from 36.3% in fiscal 1997 to 36.5% in
fiscal 1998.
There were three significant factors which negatively impacted our profit
performance during fiscal 1998.
a. The two federal minimum wage increases effective October 1,
1996 and September 1, 1997 resulted in additional payroll
expense of approximately $400,000.
b. Insurance costs rose by approximately $360,000 driven
primarily by catastrophic illnesses of several of our
employees.
c. Inventory shrinkage increased over the preceding year in
excess of $400,000.
Forward - Looking Statements
Except for historical information, the matters discussed or incorporated by
reference in this report are forward-looking statements that involve risks and
uncertainties that may affect the Company's actual results and cause results to
differ materially from such forward-looking statements. Such risks and
uncertainties include, but are not limited to, economic conditions, seasonality
of the Company's business, relationships with suppliers and financial
institutions, computer system enhancements to enable Year 2000 compliance,
ability to attract and retain key personnel, competition, regulation and other
factors indicated from time to time in the Company's filings with the Securities
and Exchange Commission.
-7-
<PAGE>
Item 8. Financial Statements and Supplementary Data
- -----------------------------------------------------
The Company's consolidated financial statements are listed in Part IV, Item 14,
of this Report and begin on page 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
- -------------------------------------------------------------------------
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
The information required by this Item will be set forth in the Proxy Statement
and such information is incorporated herein by reference.
Item 11. Executive Compensation
- --------------------------------
The information required by this Item will be set forth in the Proxy Statement
and such information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
The information required by this Item will be set forth in the Proxy Statement
and such information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
The information required by this Item will be set forth in the Proxy Statement
and such information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statements, and Reports on Form 8-K
- -----------------------------------------------------------------
(a) The following documents are filed as part of this report:
Page
Number
------
(1) Consolidated Financial Statements:
Report of Independent Accountants 9
Consolidated Balance Sheets, January 30, 1999 and
January 31, 1998 10
Consolidated Statements of Operations for the fiscal
years ended January 30, 1999, January 31, 1998 and
January 25, 1997 11
Consolidated Statements of Common Stock and Other
Shareholders' Equity for the fiscal years ended
January 30, 1999, January 31, 1998 and January 25, 1997 12
Consolidated Statements of Cash Flows for the fiscal
years ended January 30, 1999, January 31, 1998 and
January 25, 1997 13
Notes to Consolidated Financial Statements 14-21
(2) The Index to Exhibits is on pages 23 through 24.
------------------------------------------------
(b)Reports on Form 8-K.
Form 8-K dated October 7, 1998 was filed with the Securities and
Exchange Commission to report that the Company's Common Stock was
delisted from the NASDAQ Stock Market effective with the close of
business on October 7, 1998.
-8-
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholders and Board of Directors
of JG Industries, Inc.
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, common stock and other shareholders'
equity, and cash flows present fairly, in all material respects, the financial
position of JG Industries, Inc. and Subsidiaries (the "Company") at January 30,
1999 and January 31, 1998, and the results of their operations and their cash
flows for each of the three years in the period ended January 30, 1999, in
conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements,
assessing the accounting principles used and significant estimates made by
management, and evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for the opinion expressed
above.
PricewaterhouseCoopers LLP
Chicago, Illinois
April 2, 1999
-9-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
January 30, 1999 and January 31, 1998
(in thousands, except share data)
----------
<TABLE>
<CAPTION>
ASSETS January 30, January 31,
1999 1998
---------------- ----------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 212 $ 630
Receivables, net 198 281
Merchandise inventories 5,724 6,242
Other assets - restricted $223 and $0,
respectively 256 304
---------------- ----------------
Total current assets 6,390 7,457
---------------- ----------------
Land, buildings and equipment, at cost:
Land 478 478
Buildings 998 998
Leasehold improvements 5,670 6,085
Furniture and fixtures 6,604 7,346
---------------- ----------------
13,750 14,907
Less accumulated depreciation
and amortization 9,535 9,916
---------------- ----------------
4,215 4,991
---------------- ----------------
Leasehold rights, net 25 28
Other assets - restricted $1,299
and $1,538, respectively 1,504 1,737
---------------- ----------------
$ 12,134 $ 14,213
================ ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $ 5
Current portion of long-term debt 530 $ 28
Accounts payable 3,084 2,574
Accrued liabilities 2,210 2,319
Accrued dividends 7 7
---------------- ----------------
Total current liabilities 5,836 4,928
---------------- ----------------
Long-term debt, less current portion 745 2,518
Other long-term liabilities 605 825
Minority interest 1,457 1,358
Commitments and contingencies
Common stock and other shareholders' equity:
Common shares: no par value;
authorized 10,000,000 shares;
issued 2,405,770 shares 11,246 11,246
Paid-in capital 5,939 5,939
Convertible preferred stock: no par
value; authorized and issued 1,500 shares 1,500 1,500
Accumulated deficit (11,581) (10,488)
Treasury shares - 1,345,100 shares at cost (3,613) (3,613)
---------------- ----------------
Total common stock and other
shareholders' equity 3,491 4,584
---------------- ----------------
$ 12,134 $ 14,213
================ ================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-10-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997
(in thousands, except per share data)
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Net sales from continuing operations $ 52,236 $ 53,483 $ 60,198
Cost of sales 35,187 36,371 40,526
-------- -------- --------
Gross profit 17,049 17,112 19,672
Selling, general and administrative
expenses 18,932 19,535 21,867
-------- -------- --------
Operating loss from
continuing operations (1,883) (2,423) (2,195)
Other income (expenses):
Interest income 105 114 313
Interest expense (161) (151) (161)
Gain/(loss) on sale of assets and
store closings, net (400) 44
Minority interest in net income of
subsidiaries (99) (96) (89)
-------- -------- --------
(555) (133) 107
-------- -------- --------
Loss from continuing operations
before income tax provision (2,438) (2,556) (2,088)
Income tax (benefit) provision (115) 13 13
-------- -------- --------
Loss from continuing operations (2,323) (2,569) (2,101)
Discontinued operations:
Loss on sale of discontinued
operations, including income during
phase-out period, less applicable income
taxes (49)
-------- -------- --------
Loss before extraordinary gain (2,323) (2,569) (2,150)
-------- -------- --------
Extraordinary item:
Gain on debt restructuring, net of
related expenses 1,365
-------- -------- --------
Net loss $ (958) $ (2,569) $ (2,150)
======== ======== ========
Net loss available to common
shareholders $ (1,093) $ (2,707) $ (2,577)
======== ======== ========
Per share data - basic and diluted:
Loss from continuing operations $ (2.32) $ (2.55) $ (1.15)
Loss from discontinued operations (0.02)
Extraordinary gain 1.29
-------- -------- --------
Net loss $ (1.03) $ (2.55) $ (1.17)
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-11-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMMON STOCK AND OTHER SHAREHOLDERS' EQUITY
for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997
(in thousands, except share data)
-------------
<TABLE>
<CAPTION>
Total Common
Stock and Other
Common Paid-in Preferred Accumulated Treasury Shareholders'
Shares Capital Stock Deficit Shares Equity
------ ------- --------- ----------- -------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Balances, January 27, 1996 $ 11,246 $ 4,775 $ (5,204) $ (1,285) $ 9,532
Net loss, fiscal 1997 (2,150) (2,150)
Forgiveness of preferred
stock dividends by Jupiter 1,164 1,164
Issuance of 1,500 shares of
Series B preferred stock $ 1,500 1,500
Purchase of 1,293,258 common
shares (2,328) (2,328)
Dividends accrued on redeemable
and convertible preferred stock (427) (427)
Balances, January 25, 1997 11,246 5,939 1,500 (7,781) (3,613) 7,291
-------- -------- -------- -------- -------- --------
Net loss, fiscal 1998 (2,569) (2,569)
Dividends accrued on convertible
preferred stock (138) (138)
-------- -------- -------- -------- -------- --------
Balances, January 31, 1998 11,246 5,939 1,500 (10,488) (3,613) 4,584
Net loss, fiscal 1999 (958) (958)
Dividends accrued on convertible
preferred stock (135) (135)
-------- -------- -------- -------- -------- --------
Balances, January 30, 1999 $ 11,246 $ 5,939 $ 1,500 $(11,581) $ (3,613) $ 3,491
======== ======== ======== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-12-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
for the fiscal years ended January 30, 1999,
January 31, 1998 and January 25, 1997
(in thousands)
------------
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (958) $ (2,569) $ (2,150)
Adjustments to reconcile net loss
to net cash provided by (used in) operating activities:
Depreciation and amortization 929 1,007 1,229
Minority interest in net income of subsidiaries 99 96 89
Net loss (gain) on sale of assets and store closings 400 (44)
Extraordinary gain on debt restructuring (1,365)
Changes in assets and liabilities:
Accounts receivable 83 9 17
Merchandise inventories 442 63 (458)
Other assets (current) 48 (80) 111
Other assets (noncurrent) 233 (107) (130)
Accounts payable and accrued liabilities 406 388 (2,566)
Other liabilities (noncurrent) (220) (42) (61)
-------- ------- -------
Net cash provided by (used in) operating activities 97 (1,235) (3,963)
Cash flows from investing activities:
Net proceeds from sale of assets and
discontinued operations 6 21 6,633
Capital expenditures (366) (502) (1,061)
Purchase of annuity contracts (32)
-------- ------- -------
Net cash (used in) provided by investing activities (360) (513) 5,572
-------- ------- -------
Cash flows from financing activities:
Borrowings under line of credit 4,155 2,275 8,950
Repayments under line of credit (4,150) (2,275) (9,150)
Proceeds from mortgage borrowing 800
Principal payments of long-term debt (25) (2,475)
Redemption of preferred stock from Jupiter (3,183)
Proceeds from Due from Jupiter 1,265
Proceeds from issuance of convertible
preferred stock 1,500
Dividends paid on convertible preferred stock (135) (136) (12)
Purchase of treasury shares (582)
-------- ------- -------
Net cash (used in) provided by financing activities (155) 664 (3,687)
-------- ------- -------
Net decrease in cash and cash equivalents (418) (1,084) (2,078)
Cash and cash equivalents at beginning of year 630 1,714 3,792
-------- ------- -------
Cash and cash equivalents at end of year $ 212 $ 630 $ 1,714
======== ======= =======
Cash paid during the fiscal year for:
Interest $ 126 $ 45 $ 147
Income taxes 13 17 407
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
-13-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------
1. Summary of Significant Accounting Policies
A) Principles of Consolidation - The consolidated financial
statements include the accounts of JG Industries, Inc. (the
"Company" or "JG") and subsidiary companies that are majority
owned or effectively controlled. The Company's majority owned
subsidiaries include Goldblatt's Department Stores, Inc.
("Goldblatt's") (the Company's discount department store
division) and Sussex Group Holding Company. The Company is
engaged in retail merchandising operations in one continuing
business segment consisting of nine discount department stores
primarily located in the Chicago, Illinois vicinity. Significant
intercompany accounts and transactions have been eliminated.
Prior to December 13, 1996, Jupiter Industries, Inc. ("Jupiter")
was the Company's largest shareholder. Jupiter held 1,293,258
shares of the Company's Common Stock (approximately 55.2% of
issued and outstanding Common Stock) and all of the Company's
issued and outstanding Series A Preferred Stock. Accordingly,
the consolidated financial statements of Jupiter included
operations of the Company. Subsequent to December 13, 1996,
Jupiter does not hold any shares of the Company's Common Stock.
B) Cash and Cash Equivalents - The Company considers all highly
liquid investments purchased with an original maturity of three
months or less to be cash equivalents. As of January 30, 1999
and January 31, 1998, cash and cash equivalents are concentrated
with banks located in the Midwest region of the United States.
C) Merchandise Inventories - Merchandise inventories are stated
at the lower of cost or market. Cost is determined on the
last-in, first-out (LIFO) basis for approximately 85% and 86%
of the inventory using the retail method as of January 30, 1999
and January 31, 1998, respectively. The remaining inventory is
valued on the first-in, first-out (FIFO) basis using the
retail method. If the FIFO method had been used to value all
inventories, cost would have been $479,000 and $497,000 higher
at January 30, 1999 and January 31, 1998, respectively.
During fiscal 1999, 1998 and 1997, certain LIFO inventory
levels were reduced which increased net income by approximately
$75,000, $16,000 and $176,000, respectively, due to the
matching of older historical inventory cost with current sales
dollars.
D) Land, Buildings and Equipment - Depreciation is computed using
the straight-line method over the following estimated useful
lives of the assets: buildings - 25 to 30 years; leasehold
improvements - up to 25 years, depending on the applicable lease
term; and furniture, fixtures and equipment - 3 to 12-1/2 years.
Asset costs and related accumulated depreciation are eliminated
from the accounts when the asset is disposed of or at the end of
its estimated useful life. Expenditures for renewals and
betterments are capitalized, while costs of maintenance and
repairs are charged to operations when incurred.
E) Leasehold Rights - Leasehold rights represent the value or cost
of leases acquired and improvements. Amortization of the rights
is computed using the straight-line method over the terms of the
related leases. Leasehold rights are shown net of accumulated
amortization of $25,000 at January 30, 1999 and $22,000 at
January 31, 1998.
F) Store Pre-Opening Costs - Noncapital expenditures incurred prior
to the opening of a new store are charged to expense in the year
the store is opened.
G) Per Share Data - During fiscal 1998, the Company adopted
Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings Per Share". SFAS No. 128 requires the presentation of
basic earnings per share and, for companies with potential
dilutive securities, such as stock options and warrants, diluted
earnings per share. SFAS No. 128 is effective for annual and
interim periods ending after December 15, 1997 and requires
restatement of earnings per share for prior periods.
For fiscal 1999, 1998 and 1997, basic and diluted per share
calculations are computed based on the weighted average number
of common shares outstanding (after giving effect to the
one-for-three reverse stock split in fiscal 1997) of 1,060,670,
1,060,674 and 2,194,085, respectively. Incremental shares from
assumed conversions of preferred stock of 666,667 in fiscal 1999
and 1998 are not included as they would be anti-dilutive.
Options to purchase 162,167 and 171,167 shares of common stock
were outstanding at January 30, 1999 and January 31,1998,
respectively, but were not included in the computation of
diluted earnings per share since the options' exercise prices
were greater than the average market price of the common shares,
and they also would be anti-dilutive.
Loss per share applicable to common shares for fiscal 1999, 1998
and 1997 is computed after recognition of the dividend
requirements of $135,000, $138,000 and $427,000, respectively,
on the redeemable and convertible preferred stock.
-14-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
------------
1. Summary of Significant Accounting Policies, continued
H) Income Taxes - The Company files a consolidated federal income
tax return with subsidiaries in which its ownership interest is
80% or greater.
The Company provides for income taxes in accordance with SFAS
No. 109, "Accounting for Income Taxes". SFAS No. 109 requires
the use of the liability method of accounting for taxes, under
which deferred tax assets and liabilities are recorded based on
the differences between the financial statement and tax bases of
assets and liabilities and the tax rates in effect when these
differences are expected to reverse. The principal assets and
liabilities giving rise to such differences are the different
methods of accounting for inventory, depreciation and certain
accrued liabilities for tax and financial statement purposes and
net operating loss carryforwards. Deferred tax assets are
reduced where appropriate by a valuation allowance which
reflects expectations of the extent to which such assets will be
realized.
I) Financial Instruments - The fair value of cash and cash
equivalents is assumed to approximate the carrying value of
these assets due to the short maturity of these instruments. The
fair value of the Company's long-term debt is estimated to
approximate the carrying value based upon borrowing rates
currently available to the Company for borrowings with similar
terms.
J) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles
requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at January 30,
1999 and January 31, 1998 and the reported amounts of revenues
and expenses during the three years ended January 30, 1999.
Actual results could differ from those estimates.
2. Stock Transactions
On December 13, 1996, the Company, pursuant to the terms of a certain
Stock Purchase Agreement, by and among Jupiter and the Company,
purchased from Jupiter, (i) 1,293,258 shares of the Company's Common
Stock, and (ii) 445 shares of the Company's Series A Preferred Stock,
for an aggregate purchase price of $5,510,864 of which $2,500,108 was
paid in cash, $1,264,858 was paid by offset against liabilities of
Jupiter to the Company, and $1,745,898 was paid by delivery of a
promissory note.
On December 13, 1996, the Company also declared a one-for-three reverse
stock split. Accordingly, all references in this report to number of
shares, prices per share and per share amounts have been retroactively
restated to reflect the reduced number of common shares outstanding,
unless otherwise noted.
3. Receivables
Receivables in the consolidated balance sheets are shown net of the
allowances for doubtful accounts and consist of the following at
January 30, 1999 and January 31, 1998:
<TABLE>
<CAPTION>
1999 1998
(in thousands)
<S> <C> <C>
Accounts receivable - trade $ 16 $ 70
Accounts receivable - other 198 232
------ ------
214 302
Less allowance for doubtful accounts 16 21
------ ------
$ 198 $ 281
====== ======
</TABLE>
An analysis of the allowance for doubtful accounts and the net
provision charged to operations for fiscal 1999, 1998 and 1997 is as
follows:
1999 1998 1997
---- ---- ----
(in thousands)
Allowance for doubtful accounts,
beginning of year $ 21 $ 42 $ 42
Accounts receivable written off (5) (21)
---- ---- ----
Allowance for doubtful accounts,
end of year $ 16 $ 21 $ 42
==== ==== ====
-15-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
------------
4. Accrued Liabilities
Significant components of accrued liabilities consist of accrued real
estate taxes of $1,188,000 and $956,000, and accrued vacation of
$274,000 and $283,000 as of January 30, 1999 and January 31, 1998,
respectively.
5. Notes Payable and Long-Term Debt
Long-term debt at January 30, 1999 and January 31, 1998 is summarized
as follows (in thousands):
<TABLE>
<CAPTION>
Balance
-------------------- Interest
Description 1/30/99 1/31/98 Rate
----------- ------- ------- --------
<S> <C> <C> <C>
JG:
Jupiter promissory note $ 500 $ 1,746 6.0%*
Goldblatt's:
Mortgage loan 775 800 8.5%
------ -------
1,275 2,546
Less current maturities 530 28
------ -------
$ 745 $ 2,518
====== =======
</TABLE>
*On May 15, 1998, the original $1,746,000 Jupiter promissory note was
amended and restated to a non-interest bearing status, as of that
date.
Long-term debt maturing within each of the five fiscal years subsequent
to January 30, 1999 is as follows (in thousands):
2000 $ 530
2001 33
2002 36
2003 39
2004 42
The Jupiter promissory note was originally payable in three
installments commencing December 13, 1997. The Company did not make the
first installment payment of $581,966 due to pending debt restructuring
negotiations. Effective May 15, 1998, the original $1,745,898
promissory note obligation was amended and restated. The amended and
restated promissory note was non-interest bearing unless an event of
default occurred, as defined in the agreement, at which time interest
would be accrued at 9% per annum from the date of default. The note was
payable in three annual installments of $581,966 each commencing May
15, 1999, with the last installment due and payable on May 15, 2001. As
a result of the amendment and restatement, the obligation was reported
as a non-current liability as of January 31, 1998. In addition, the
accrued and unpaid interest of approximately $149,000 as of May 15,
1999 was forgiven. As a result of this transaction, the Company
recognized an extraordinary gain on debt restructuring of approximately
$124,000, net of related expenses, during fiscal 1999. On January 29,
1999, the Company and Jupiter entered into a Cancellation Agreement
whereby the amended and restated $1,745,898 promissory obligation was
canceled upon a lump-sum payment of $500,000 to Jupiter. Subsequent to
year-end, the Company made the $500,000 lump-sum payment to Jupiter. As
a result of this transaction, the Company recognized an additional
extraordinary gain on debt restructuring of approximately $1,241,000,
net of related expenses, during fiscal 1999.
-16-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
------------
5. Notes Payable and Long-Term Debt, continued
Effective January 30, 1998, Goldblatt's entered into a mortgage loan
agreement for $800,000 with an 8.5% fixed rate of interest from a
regional financial institution. The mortgage is secured by a parcel of
owned real estate housing a Goldblatt's store, and is guaranteed by JG.
The loan agreement stipulates monthly principal and interest payments
of $7,878 and a final principal payment of approximately $547,000 due
on January 31, 2005. The loan agreement requires that no default exists
under the line of credit agreement.
During fiscal 1998, Goldblatt's executed a line of credit agreement,
which provided a line of credit of up to $2,000,000 through May 1, 1998
based on availability of a borrowing base equal to 45% of merchandise
inventory. The line was collateralized by Goldblatt's inventory and
cash and cash equivalents. The line of credit agreement required that
Goldblatt's maintain an inventory level of at least $5,500,000, a
tangible net worth of $5,500,000 and imposed net loss restrictions for
fiscal years 1998 and 1999. Interest was payable at the prime rate plus
1%. At January 31, 1998, Goldblatt's was in violation of the net loss
covenant. Subsequent to year-end, the financial institution granted
Goldblatt's a waiver of this covenant effective January 31, 1998 and,
in addition, amended the line of credit maturity date to April 15,
1999. There were no outstanding borrowings on the line on January 31,
1998.
Effective January 28, 1999, Goldblatt's entered into a new Loan and
Security Agreement ("Loan Agreement") with another financial
institution, replacing the aforementioned line of credit agreement. The
Loan Agreement provides a revolving line of credit of up to $3,000,000
through January, 2001 based on availability of a borrowing base equal
to 50% of merchandise inventory computed on a FIFO basis. The line is
collateralized by Goldblatt's inventory and cash and cash equivalents.
The line of credit agreement requires that Goldblatt's maintain a FIFO
inventory cost of at least $5,500,000. Additionally, the Company is
required to pay down the outstanding line of credit with any available
cash on a daily basis. Interest is payable at the prime rate plus 1%.
The line is guaranteed by JG. There was $5,000 in outstanding
borrowings on the line as of January 30, 1999. At January 30, 1999, the
Company had $2,995,000 available on the line of credit.
The weighted average interest rate on short-term borrowings for fiscal
1999, 1998 and 1997 was 9.28%, 9.50% and 6.44%, respectively.
6. Preferred Stock
The Redeemable Preferred Stock consisting of 445 shares of Series "A"
9% Cumulative Preferred Stock with a face and liquidation value of
$3,183,000 was acquired by the Company and canceled on December 13,
1996. In connection with this acquisition, Jupiter also waived accrued
dividends of $1,164,000. The gain related to the waiver was recorded as
an increase to paid-in capital.
On December 13, 1996, the Company, pursuant to the terms of a certain
Series B Convertible Preferred Purchase Agreement (the "Series B
Preferred Stock Purchase Agreement"), by and among certain officers and
a director of the Company (collectively, the "Purchasers") and the
Company, issued and sold to the Purchasers, through a private
placement, 1,500 shares of Series B Convertible Preferred Stock of the
Company, no par value per share (the "Series B Preferred Shares"), for
an aggregate purchase price of $1,500,000. Holders of Series B
Preferred Shares are entitled to vote with the holders of Common Stock
on all matters submitted to a vote of the Company's shareholders as a
single class. Currently, each share of Series B Preferred Stock is
entitled to 444.44 votes. After giving effect to the purchase of the
Jupiter shares previously described, the Purchasers control
approximately 47.9% of the Company's voting rights.
Dividends on Series B Preferred Stock accrue daily at a rate equal to
9% per annum. Dividends accumulate until paid, and are paid when and as
declared by the Board of Directors. At any time prior to the fifth
anniversary of issuance (automatic conversion), holders of Series B
Preferred Stock may convert such shares into a number of shares of the
Company's Common Stock. The current conversion price is $2.25 per
share.
-17-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
--------------
7. Income Taxes
The income tax provision before minority interest is comprised of
current state taxes of $13,000 for fiscal 1999, offset by a tax benefit
related to the reversal of previously recorded tax liability of
$128,000. For fiscal 1998 and 1997, the income tax provision before
minority interest is comprised of current state taxes of $13,000.
At January 30, 1999, the Company has net operating loss carryforwards
of approximately $23,348,000 available to offset future taxable income
for federal income tax purposes. These carryforwards expire principally
in fiscal 2000 through 2014. The amount of carryforwards which expired
in fiscal 1999 was $414,551.
The components of the net deferred tax assets and liabilities as of
January 30, 1999 and January 31, 1998 are as follows:
<TABLE>
<CAPTION>
1999 1998
---- ----
(in thousands)
<S> <C> <C>
Deferred tax assets:
Inventory $ 126 $ 163
Accruals and other liabilities 236 271
Alternative Minimum Tax credit 398 398
Net operating loss carryforwards 9,106 8,639
------ -------
9,866 9,471
Valuation allowance (9,085) (8,604)
------ -------
781 867
------ -------
Deferred tax liabilities:
Property, plant and equipment 781 867
------ -------
781 867
------ -------
Net deferred tax liabilities $ - $ -
====== =======
</TABLE>
-18-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
--------------
8. Lease Commitments
The following table presents the future minimum lease commitments for
all operating leases that have initial or remaining noncancelable terms
in excess of one year. The leases expire in fiscal 2000 to 2008 and
have various renewal options.
<TABLE>
<CAPTION>
Fiscal Operating
Year Leases
------ ----------
(in thousands)
<S> <C>
2000 $ 1,840
2001 1,806
2002 1,725
2003 1,741
2004 1,390
Thereafter 2,217
-------
Total minimum lease payments $10,719
=======
</TABLE>
Certain store leases contain contingent rental provisions based on
retail sales. Rent expense, net of insignificant sublease income, for
fiscal years 1999, 1998 and 1997 was $1,894,000, $1,873,000 and
$1,962,000, respectively, including contingent rentals of $223,000,
$228,000 and $209,000, respectively. Straight-line rent obligations of
$605,000 and $694,000 are included in other long-term liabilities at
January 30, 1999 and January 31, 1998, respectively.
9. Sale of Assets and Store Closings
During fiscal 1999, the Company closed one of its underperforming
Goldblatt's store locations in Chicago and recorded a store closing
provision of $400,000. During fiscal 1997, the Company sold three
stores and recorded a gain of $908,000. The gain was offset in part by
a loss of $864,000 resulting from a store closing that year. The
furniture, fixtures and computer equipment from the five closed stores
(with net book values of approximately $331,000 and $382,000 as of
January 30, 1999 and January 31, 1998, respectively) were retained and
placed into storage. During fiscal 1999 and 1998, furniture, fixtures
and computer equipment with a net book value of approximately $25,000
and $56,000, respectively, were transferred to existing Goldblatt's
stores for replacement needs. Goldblatt's expects to utilize a large
portion of the remaining furniture and fixtures in storage in fiscal
2000 for both major and minor remodeling projects to be undertaken at
its existing store locations.
10. Pension, Profit-Sharing and Employee Benefit Plans
The Company has a defined contribution plan which substantially all
non-union employees may join after completing one year and 1,000 hours
of service. Annually, the Company contributes a discretionary amount
determined by the Board of Directors and participants may voluntarily
contribute varying percentages of their compensation.
Approximately $120,000, $117,000 and $134,000 of expenses relating to
these plans are included in the consolidated statements of operations
in fiscal 1999, 1998 and 1997, respectively. All plans are qualified
under provisions of the Internal Revenue Code.
-19-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
--------------
11. Stock Option Plan
Effective fiscal 1997, the Company adopted SFAS No. 123, "Accounting
for Stock-Based Compensation". As provided by SFAS No. 123, the
Company has elected to continue to account for its stock-based
compensation programs according to the provisions of Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued
to Employees".
The Company currently has stock options granted under two stock option
plans. Under the 1983 Stock Option and Stock Appreciation Rights Plan
("1983 Plan"), 100,000 shares are authorized and 7,833 shares are
outstanding as of January 30, 1999. Under the 1988 Stock Option Plan
("1988 Plan"), 306,667 shares are authorized and 154,334 shares are
outstanding as of January 30, 1999. All options vest immediately once
granted. All options are exercisable for a 10-year period beginning on
the date of the grant. The weighted-average remaining contractual life
of options outstanding at January 30, 1999 is approximately 7 years.
Information for the fiscal years ended January 25, 1997, January 31,
1998 and January 30, 1999 with respect to options under the Company's
1983 and 1988 Plans is as follows:
<TABLE>
<CAPTION>
Weighted-Average
Number of Exercise Exercise
Shares under Option: Shares Price per Share Price per Share
-------------- ------------------- --------------------------
<S> <C> <C> <C>
January 27, 1996 49,500 $1.50 to $4.88 $2.75
Granted 58,000 1.38 1.38
Expired/Canceled (18,333) 4.88 4.88
--------------
January 25, 1997 89,167 1.38 to 1.50 1.42
Granted 85,000 1.50 1.50
Expired/Canceled (3,000) 1.50 1.50
--------------
January 31, 1998 171,167 1.38 to 1.50 1.46
Expired/Canceled (9,000) 1.50 1.50
--------------
January 30, 1999 162,167 1.38 to 1.50 1.46
==============
</TABLE>
No compensation expense has been recognized by the Company as all
options were granted at the market price of the stock on the day of the
grants. Had compensation expense for the Company's stock based
compensation plans been determined based on the fair market value at
the grant dates consistent with the method of SFAS 123, the Company's
pro forma net loss and net loss per basic and diluted share would have
been approximately $2,644,000 and $2.62, and $2,200,000 and $1.20 for
fiscal 1998 and 1997, respectively. No options were granted during
fiscal 1999.
The fair value of each option grant is estimated on the date of grant
using the Black-Scholes option-pricing model with the following
weighted-average assumptions for fiscal 1998 and 1997. Adjustments for
forfeitures are made as they occur.
<TABLE>
<CAPTION>
1998 1997
--------------- ----------------
<S> <C> <C>
Risk free interest rate 6.26% 6.16%
Expected dividend yield 0.00% 0.00%
Expected volatility factor 86.32 94.24
Expected option term (years) 3 3
</TABLE>
The weighted-average fair value per option at the date of grant for
options granted in fiscal 1998 and 1997 was $.88 and $.86,
respectively.
-20-
<PAGE>
JG INDUSTRIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
-------------
12. Fourth Quarter Adjustments
Results of continuing operations in the fourth quarter of fiscal 1999,
1998 and 1997 were increased by year-end adjustments of approximately
$44,000, $66,000 and $170,000, respectively, which related primarily to
adjustments to inventory and certain miscellaneous accruals.
13. Supplementary Information
Charges to selling, general and administrative expenses for fiscal
1999, 1998 and 1997 include the following:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
<S> <C> <C> <C>
Advertising costs $ 1,102 $ 1,091 $ 1,252
Real estate and personal property taxes 751 811 1,106
Advertising costs are expensed when incurred.
</TABLE>
14. Related Party Transactions
The Company purchased a certain annuity contract from a former
affiliate to secure consulting payments to the chief executive officer
("Executive"), as required by the Employment Agreement and Consulting
Agreement. Pursuant to the Consulting Agreement, the Executive has
agreed to provide certain services to the Company for which he (or his
estate) will be paid $223,000 per year for ten years. The obligations
of the Company, pursuant to the Consulting Agreement, are secured by
the annuity contract, pursuant to a Pledge and Security Agreement dated
as of January 25, 1991. The total account value of the contract as of
January 30, 1999 and January 31, 1998 is $1,522,000 and $1,538,000,
respectively, and is included in other assets and designated as
"restricted". During fiscal 1999, the Executive commenced providing
consulting services and, as a result, the Company entered into a
settlement option for a fixed payout schedule on the annuity contract.
The current portion of the annuity contract is $223,000 as of January
30, 1999.
The Company earned interest of $95,000, $86,000 and $118,000 on this
annuity contract during fiscal 1999, 1998 and 1997, respectively.
-21-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
JG INDUSTRIES, INC.
Dated: April 29, 1999 By /s/ William Hellman
------------------------
William Hellman
Chairman and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
Chief Executive Officer:
/s/ William Hellman Chairman and Chief Date: April 29, 1999
- ------------------------- Executive Officer
William Hellman
Directors:
/s/ Sheldon Collen Director Date: April 29, 1999
- -------------------------
Sheldon Collen
/s/ Clarence Farrar Director, and Chief Date: April 29, 1999
- -------------------------
Clarence Farrar Operating Officer
/s/ Lionel Goldblatt Director Date: April 29, 1999
- -------------------------
Lionel Goldblatt
/s/ Sheldon Harris Director Date: April 29, 1999
- -------------------------
Sheldon Harris
/s/ William Hellman Director Date: April 29, 1999
- -------------------------
William Hellman
/s/ Philip Rootberg Director Date: April 29, 1999
- -------------------------
Philip Rootberg
/s/ Wallace W. Schroeder Director Date: April 29, 1999
- -------------------------
Wallace W. Schroeder
-22-
<PAGE>
INDEX TO EXHIBITS
-----------------
Exhibit No.
- -----------
Description
-----------
10.1 Amended and Restated Employment Agreement dated, June 1, 1983,
between the Company and William Hellman. (Previously filed as
Exhibit 10.1 to the 1984 10-K and is incorporated herein by
reference.)
10.2 First Amendment to Amended and Restated Employment Agreement,
dated August 8, 1985, between the Company and William Hellman.
(Previously filed as Exhibit 10.2 to the 1986 10-K and is
incorporated herein by reference.)
10.3 Guaranty of The Jupiter Corporation, dated as of June 1, 1983
relative to the Amended and Restated Employment Agreement,
dated as of June 1, 1983, by and between the Company and
William Hellman. (Previously filed as Exhibit 10.2 to the 1985
10-K and is incorporated herein by reference.)
10.4 Second Amendment to Amended and Restated Employment Agreement,
including a Stock Purchase and Sale Agreement, dated July 23,
1986, between the Company and William Hellman. (Previously
filed as Exhibit 10.4 to the Company's July 26, 1986 10-Q and
is incorporated herein by reference.)
10.7 Incentive Stock Option and Non-Statutory Stock Option
Agreement. (Previously filed as Exhibit 4.2 to the Company's
Registration Statement on Form S-8, dated September 29, 1984,
and is incorporated herein by reference.)
10.8 1983 Stock Option and Stock Appreciation Rights Plan.
(Previously filed as Exhibit 10.4 to the 1984 10-K and is
incorporated herein by reference.)
10.9 1988 Stock Option Plan (Previously filed as Exhibit 10.9 to
the 1989 10-K and is incorporated herein by reference.)
10.10 Third Amendment to Amended and Restated Employment Agreement,
dated October 3, 1988, between the Company and William
Hellman.(Previously filed as Exhibit 10.10 to the 1989 10-K and
is incorporated herein by reference.)
10.11 Fourth Amendment to Amended and Restated Employment Agreement,
dated March 28, 1989, between the Company and William Hellman.
(Previously filed as Exhibit 10.11 to the 1989 10-K and is
incorporated herein by reference.)
10.14 Fifth Amendment to Amended and Restated Employment Agreement,
dated January 25, 1991 between the Company and William Hellman.
(Previously filed as Exhibit 10.14 to the 1991 10-K and is
incorporated herein by reference.)
10.17 Sixth Amendment to Amended and Restated Employment Agreement,
dated April 27, 1992, between the Company and William Hellman.
(Previously filed as Exhibit 10.17 to the April 25, 1992 10-Q
and is incorporated herein by reference.)
10.19 Eighth Amendment to Amended and Restated Employment Agreement,
dated May 26, 1994, between the Company and William Hellman.
(Previously filed as Exhibit 10.19 to the April 30, 1994 10-Q
and is incorporated herein by reference.)
10.21 Ninth Amendment to Amended and Restated Employment Agreement,
dated June 12, 1995, between the Company, Goldblatt's
Department Stores, Inc. and William Hellman. (Previously filed
as Exhibit 10.21 to the July 28, 1995 Form 10-Q and is
incorporated herein by reference.)
-23-
<PAGE>
INDEX TO EXHIBITS, Continued
-----------------
Exhibit No.
- -----------
Description
-----------
10.22 Stock Purchase Agreement, dated December 13, 1996, by and among
Jupiter Industries, Inc. and the Registrant. (Incorporated by
reference from the Registrant's definitive proxy statement
filed with the Securities and Exchange Commission on November
22, 1996.)
10.24 Thirteenth Amendment to Amended and Restated Employment
Agreement, dated February 1, 1997, between the Company,
Goldblatt's Department Stores, Inc. and William Hellman.
(Previously filed as Exhibit 10.24 to the January 25, 1997 Form
10-K and is incorporated herein by reference.)
10.25 Employment Agreement, dated February 1, 1997, between the
Company and Clarence Farrar. (Previously filed as Exhibit 10.25
to the January 25, 1997 Form 10-K and is incorporated herein by
reference.)
10.26 Employment Agreement, dated February 1, 1997, between
Goldblatt's Department Stores, Inc. and Lionel Goldblatt.
(Previously filed as Exhibit 10.26 to the January 25, 1997 Form
10-K and is incorporated herein by reference.)
10.27 Fourteenth Amendment to Amended and Restated Employment
Agreement, dated August 31, 1997, between the Company,
Goldblatt's Department Stores, Inc. and William Hellman.
(Previously filed as Exhibit 10.27 to the January 31, 1998 Form
10-K and is incorporated herein by reference.)
10.28 Fifteenth Amendment to Amended and Restated Employment
Agreement, dated November 12, 1998, between the Company,
Goldblatt's Department Stores, Inc. and William Hellman.
21 List of Subsidiaries.
27 Financial Data Schedule.
-24-
EXHIBIT 10.28
FIFTEENTH AMENDMENT TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
-----------------------------------------
THIS AGREEMENT, entered into as of the 12th day of November, 1998
between JG INDUSTRIES, INC.("JG"), an Illinois Corporation, GOLDBLATT'S
DEPARTMENT STORES, INC. ("Goldblatt's"), an Illinois Corporation (collectively,
the "Employer"), and WILLIAM HELLMAN (the "Employee").
WHEREAS, Employee has been employed by Employer in an executive
capacity pursuant to an Amended and Restated Employment Agreement dated as of
the first day of June, 1983 as amended (the "Employment Agreement"); and
WHEREAS, Employer and Employee desire to further amend the Employment
Agreement in certain respects as hereinafter stated;
ACCORDINGLY, the Employment Agreement is hereby amended and restated in
the following respect;
1. New Termination Date. The Employment Period shall terminate on
January 31, 2000.
2. Base Compensation. Paragraph 3(a) is deleted in its entirety and
the following is substituted in its place and stead:
"(a) Base Compensation. Effective January 31, 1999 he shall
receive a salary for the Employment Period based upon an annual salary
of $125,000 ("Base Compensation") payable in monthly or more frequent
installments in accordance with Employer's remuneration policy
respecting executives."
<PAGE>
3. Effect of Amendment. All other paragraphs of the Employment
Agreement, as heretofore amended, shall remain unchanged and shall continue in
full force and effect.
IN WITNESS WHEREOF, the Employee and the Employer have executed this
Fifteenth Amendment to Amended and Restated Employment Agreement as of the date
first above written.
/s/ William Hellman
------------------------------
William Hellman
JG INDUSTRIES, INC.
By: /s/ Clarence Farrar
---------------------------
Its: President
--------------------------
GOLDBLATT'S DEPARTMENT STORES, INC.
By: /s/ Lionel Goldblatt
--------------------------
Its: Chairman
-------------------------
EXHIBIT 21
LIST OF SUBSIDIARIES
------------
Goldblatt's Department Stores, Inc.
Capital & Vermont Realty Corporation
Sussex Group Holding Company
Sussex Group, Ltd.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS OF JG INDUSTRIES, INC. AND SUBSIDIARIES
FOR THE FISCAL YEARS ENDED JANUARY 30, 1999 AND JANUARY 31, 1998 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR YEAR
<FISCAL-YEAR-END> JAN-30-1999 JAN-31-1998
<PERIOD-START> FEB-01-1999 JAN-26-1997
<PERIOD-END> JAN-30-1999 JAN-31-1998
<CASH> 212 630
<SECURITIES> 0 0
<RECEIVABLES> 214 302
<ALLOWANCES> 16 21
<INVENTORY> 5,724 6,242
<CURRENT-ASSETS> 6,390 7,457
<PP&E> 13,750 14,907
<DEPRECIATION> 9,535 9,916
<TOTAL-ASSETS> 12,134 14,213
<CURRENT-LIABILITIES> 5,836 4,928
<BONDS> 745 2,518
0 0
1,500 1,500
<COMMON> 11,246 11,246
<OTHER-SE> (7,755) (6,662)
<TOTAL-LIABILITY-AND-EQUITY> 12,134 14,213
<SALES> 52,236 53,483
<TOTAL-REVENUES> 52,236 53,483
<CGS> 35,187 36,371
<TOTAL-COSTS> 35,187 36,371
<OTHER-EXPENSES> 18,932 19,535
<LOSS-PROVISION> 400 0
<INTEREST-EXPENSE> 161 151
<INCOME-PRETAX> (2,438) (2,556)
<INCOME-TAX> (115) 13
<INCOME-CONTINUING> (2,323) (2,569)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 1,365 0
<CHANGES> 0 0
<NET-INCOME> (958) (2,569)
<EPS-PRIMARY> (1.03) (2.55)
<EPS-DILUTED> (1.03) (2.55)
</TABLE>
