UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934.
For the quarterly period ended MARCH 1, 1997
or
THE SECURITIES EXCHANGE ACT OF 1934
/ / 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 1-9681
-------
JENNIFER CONVERTIBLES, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 11-2824646
- --------------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
419 CROSSWAYS PARK DRIVE, WOODBURY, NEW YORK 11797
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (516) 496-1900
--------------
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 ISSUERS)
Indicate the number of shares outstanding of the issuer's common
stock as of March 1, 1997: 5,700,725
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Index to Consolidated Financial Statements
Part I - Financial Information
Item I - Financial Statements
Consolidated Balance Sheets - March 1, 1997
(Unaudited) and August 31, 1996.............................. 2
Comparative Consolidated Statements of Operations
(Unaudited) for the twenty-six weeks and thirteen weeks ended
March 1, 1997 and February 24, 1996)........................... 3
Comparative Consolidated Statements of Cash Flows
(Unaudited) for the for the twenty-six weeks and thirteen weeks
ended March 1, 1997 and February 24, 1996...................... 4
Notes to Unaudited Consolidated Financial Statements........... 5
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations...................12
Part II - Other Information....................................16
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
(in thousands, except for share data)
<TABLE>
<CAPTION>
ASSETS
------
March 1, 1997 August 31, 1996
------------- ---------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,587 $ 3,600
Merchandise inventories 8,338 8,221
Refundable income taxes -- 23
Prepaid expenses 932 446
Accounts receivable 751 1,588
Other current assets -- 8
-------- --------
Total current assets 12,608 13,886
Store fixtures, equipment and leasehold improvements
at cost, net 8,273 8,739
Due from Private Company and Unconsolidated Licensees, net
of reserves of $7,195 and $7,324 at March 1, 1997 -- --
and August 31, 1996
Deferred lease costs and other intangibles, net 1,181 1,317
Goodwill, at cost, net 559 568
Other assets (primarily security deposits) 804 925
-------- --------
$ 23,425 $ 25,435
======== ========
LIABILITIES AND (CAPITAL DEFICIENCY)
------------------------------------
Current liabilities:
Accounts payable, trade $ 15,471 $ 15,746
Customer deposits 8,057 8,875
Accrued expenses and other current liabilities 4,807 5,022
-------- --------
Total current liabilities 28,335 29,643
Deferred rent and allowances 5,876 5,868
Long-term obligations under capital leases 413 230
-------- --------
Total liabilities 34,624 35,741
-------- --------
Commitments and contingencies
(Capital Deficiency):
Preferred stock, par value $.01 per
share. Authorized 1,000,000 shares;
no shares issued -- --
Common stock, par value $.01 per share
Authorized 10,000,000 shares; issued and
outstanding 5,700,725 shares at March 1, 1997,
and August 31, 1996 57 57
Additional paid in capital 22,911 22,911
Notes receivable from warrant holders (300) (300)
Accumulated (deficit) (33,867) (32,974)
-------- --------
(11,199) (10,306)
-------- --------
$ 23,425 $ 25,435
======== ========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
2
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Consolidated Statements of Operations
(In thousands, except share data)
(unaudited)
<TABLE>
<CAPTION>
Thirteen weeks Thirteen weeks Twenty-six weeks Twenty-six weeks
ended ended ended ended
March 1, 1997 February 24, 1996 March 1, 1997 February 24, 1996
----------------- ------------------ ---------------- ------------------
<S> <C> <C> <C> <C>
Net sales $ 22,078 $ 22,652 $ 49,845 $ 53,558
----------- ----------- ----------- -----------
Cost of sales, including store occupancy,
warehousing, delivery and fabric protection 15,961 16,091 34,665 36,559
Selling, general and administrative expenses 6,487 9,832 15,707 20,666
Reduction in reserve for amounts due from
Private Company and Unconsolidated Licensees -- (288) -- (57)
Loss from store closings 24 181 32 206
Depreciation and amortization 472 525 932 956
----------- ----------- ----------- -----------
22,944 26,341 51,336 58,330
----------- ----------- ----------- -----------
Operating (loss) (866) (3,689) (1,491) (4,772)
----------- ----------- ----------- -----------
Other income (expense):
Royalty income 94 93 188 158
Interest income 18 40 40 132
Interest expense (8) (11) (17) (27)
Other income, net 383 (329) 499 (378)
----------- ----------- ----------- -----------
487 (207) 710 (115)
----------- ----------- ----------- -----------
(Loss) before income taxes (379) (3,896) (781) (4,887)
Income taxes 63 21 112 84
----------- ----------- ----------- -----------
Net (loss) ($442) ($3,917) ($893) ($4,971)
=========== =========== =========== ===========
Net (loss) per common and common
equivalent share ($0.08) ($0.69) ($0.16) ($0.87)
=========== =========== =========== ===========
Weighted average number of common
and common equivalent shares 5,700,725 5,700,725 5,700,725 5,700,725
=========== =========== =========== ===========
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
3
<PAGE>
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(in thousands) (unaudited)
<TABLE>
<CAPTION>
Thirteen weeks Thirteen weeks Twenty-six weeks Twenty-six weeks
ended ended ended ended
March 1, 1997 February 24, 1996 March 1, 1997 February 24, 1996
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Cash flows from operating activities:
Net (loss) ($442) ($3,917) ($893) ($4,971)
Adjustments to reconcile net (loss)
to net cash (used in) operating activities:
Depreciation and amortization 472 525 932 956
Loss from store closings 24 181 32 206
Deferred rent -- (231) -- (146)
Provision for losses on amounts due from
Private Company and Unconsolidated Licensees -- (288) -- (57)
Other 30 (5) -- (9)
Changes in operating assets and liabilities:
(Increase) decrease in merchandise inventories (7) (569) (117) 821
Decrease in refundable income taxes 23 105 23 105
(Increase)in prepaid expenses (695) (526) (486) (275)
Decrease in accounts receivable 256 1,125 837 1,535
Decrease in other current assets 5 76 8 72
Decrease in due from Private Company
and Unconsolidated Licensees -- 288 -- 57
Decrease in deferred lease costs
and other intangibles 180 224 136 343
(Increase) decrease in other assets, net (33) 4 121 63
(Decrease) in accounts payable trade (1,085) (1,285) (275) (3,941)
(Decrease) increase in customer deposits (534) (443) (818) 164
Increase (decrease) in accrued expenses
and other payables 1,375 (422) (344) (1,123)
------- ------- ------- -------
Net cash (used in) operating activities (431) (5,158) (844) (6,200)
------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures (118) -- (352) (546)
------- ------- ------- -------
Net cash (used in) investing activities (118) -- (352) (546)
------- ------- ------- -------
Cash flows from financing activities:
Payments of obligations under capital leases 48 (11) 183 (56)
------- ------- ------- -------
Net cash provided by (used in) financing activities 48 (11) 183 (56)
------- ------- ------- -------
Net (decrease)in cash and cash equivalents (501) (5,169) (1,013) (6,802)
Cash and cash equivalents at beginning of period 3,088 6,096 3,600 7,729
------- ------- ------- -------
Cash and cash equivalents at end of period $2,587 $927 $2,587 $927
======= ======= ======= =======
Supplemental disclosure of cash flow information:
Income taxes paid during the period $63 $21 $112 $84
======= ======= ======= =======
Interest paid $8 $11 $17 $27
======= ======= ======= =======
</TABLE>
See accompanying notes to unaudited consolidated financial statements.
4
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
(1) BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
Jennifer Convertibles, Inc. and subsidiaries (the "Company") and certain
licensees 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 footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Due to many factors inherent in the retail
industry, the operating results for the interim period ended March 1, 1997 are
not necessarily indicative of the results that may be expected for the year
ending August 30, 1997. For further information, refer to the consolidated
financial statements and footnotes thereto included in the Company's Annual
Report on Form 10-K for the year ended August 31, 1996.
(2) MERCHANDISE INVENTORIES
Merchandise inventories are stated at the lower of cost (determined
on the first-in, first-out method) or market and are physically located, as
follows:
3/1/97 8/31/96
------ ------
Showrooms $4,279 $3,963
Warehouses 4,059 4,258
------ ------
$8,338 $8,221
====== ======
Vendor discounts and allowances in respect to merchandise purchased
by the Company are included as a reduction of inventory and cost of sales.
(3) COMMITMENTS, CONTINGENCIES AND OTHER MATTERS
CLASS ACTION AND DERIVATIVE ACTION LAWSUITS
Between December 6, 1994 and January 5, 1995, the Company was served
with 11 class action complaints and six derivative action lawsuits which deal
with losses suffered as a result of the decline in market value of the Company's
stock as well as the Company having "issued false and misleading statements
regarding future growth prospects, sales, revenues and net income". The ultimate
outcome of these matters is not presently determinable (see below).
5
<PAGE>
JENNIFER CONVERTIBLES, INC.
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
PROPOSED SETTLEMENT OF DERIVATIVE LITIGATION
--------------------------------------------
In March 1996, the Company signed a Memorandum of Understanding
("Derivative Memorandum") for the purpose of settling all of the claims
involving those parties in the derivative litigation. The Derivative Memorandum
is subject to a settlement of all claims against the Company, its present and/or
former officers, directors, certain accountants, consultants and
representatives, the Private Company, its present and/or former officers,
directors, employees, accountants, consultants and/or representatives and the
discontinuance of the class action litigation presently pending. It also is
conditioned upon mutual releases between the Company and the Private Company.
Attorney's fees will be funded by an insurance carrier for one of the defendants
other than the Company for $500. The Private Company will pay $165 in cash and
the Company will pay the remaining portion of fees and expenses in ("Preferred
Stock"). The Preferred Stock will have an aggregate value of $130, paying an
annual dividend of 7% and convertible into Common Stock (at such time as the
Company's Common Stock trades at $7.00 per share or higher) at $7.00 per share.
This settlement is subject to execution of definitive documents and final court
approval. In accordance with FASB Statement No. 5, the $130 value of the
Preferred Stock has been accrued in the fiscal year ended August 26, 1995 as
part of estimated settlement costs.
PROPOSED SETTLEMENT OF CLASS ACTION LITIGATION
----------------------------------------------
In March 1996, the Company and the parties in the class action
litigation signed a Memorandum of Understanding ("Class Memorandum") which is
subject to a Stipulation of Settlement to be submitted to the court for final
approval.
The Class Memorandum provides for the payment to certain members of
the class and their attorneys of an aggregate maximum amount of $7,000 in cash
and Preferred Stock having a value of $370. (Terms and conditions of such
Preferred Stock are described above.) The cash portion of the settlement will be
funded entirely by insurance company proceeds. In accordance with FASB Statement
No. 5, the $370 value of the Preferred Stock has been accrued in the fiscal year
ended August 26, 1995.
The proposed settlement of the class action litigation is a claims
made settlement. All claimants who purchased the Company's Common Stock during
the period from December 9, 1992 through December 2, 1994 and who held their
stock through December 2, 1994, will be entitled to participate in the
settlement.
6
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
PROPOSED SETTLEMENT WITH THE PRIVATE COMPANY
--------------------------------------------
The Company signed an agreement ("Settlement Agreement") with the
Private Company subject to execution of definitive agreements and court approval
and settlement of the derivative and class action litigation. The Settlement
Agreement restructures the relationship between the Private Company and the
Company in order to reduce and eliminate any alleged actual or potential
conflicts of interest.
A) (Warehouse Services):
The Settlement Agreement contemplates that until December 31, 1997,
the Company will pay the Private Company for all services under the warehousing
agreement 8.3% of the retail sales prices, less the costs of certain services
that will be assumed by the Company previously provided by the Private Company,
but no lower than 7.2% of sales. For 1998, the fee will be 7.2% (see L below).
Upon the effective date, the Company will no longer pay the Private Company
separately for "fabric protection" services. The Company also agreed to pay an
additional warehouse fee during the calendar year 1996 if the total retail sales
of the Company were less than $135 million. Such sales were less than $135
million, accordingly, the Company paid the Private Company $65 for each million
dollar shortfall in annual sales up to $650 ($520 was accrued at August 31, 1996
and $130 has been accrued in the thirteen weeks ended November 30, 1996). The
full $650 has been credited to the Private Company under the Offset Agreement.
The Company has also agreed to pay a re-delivery fee to the Private Company of
3% of selling price for customer deliveries that have to be re-delivered to
customers under certain circumstances. In 1997 and 1998, if an annual sales
level of $140 million is achieved, the Private Company will pay back 50% of
previous shortfall payments in each of such years. To the extent the shortfall
is not so repaid in full, starting on January 1, 1999, the Private Company will
repay the balance of the shortfall over seven years without interest.
B) (Assignment of Real Property Interests of Warehouses):
The Settlement Agreement contemplates that, effective January 1,
1999, the Company will receive all real property interests in the various
warehouses serving the business along with the leasehold interests subject to
mortgages and other security agreements. The mortgage obligation on the Inwood,
New York warehouse will not exceed $2,850 at December 31, 1998. To the extent
that such mortgage is less than this amount as of that date, the Company will
pay the Private Company the difference between $2,850 and the actual amount of
such mortgage by way of set-off against the Private Company's obligation to the
Company for warehousing services (see L below).
7
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
C) (Warehouse Services to the Private Company):
Commencing January 1, 1999, the Company will provide the Private
Company all warehousing services for 2% of the Private Company's delivered
retail selling prices, plus a fee for "fabric protection" services.
D) (Freight Charges):
The Company will continue to pay all freight charges (for inventory
delivered to warehouses) through December 31, 1998, based upon an agreed
schedule with the Private Company.
E) (Assignment of Interest in Certain Limited Partnerships and Other
Corporate Licensee):
The Private Company has purchased the interests of the limited
partnerships known as LP III, LP IV and LP V and the equity interest of the
shareholders of S.F.H.C. and will assign these interests to the Company. The
Company, in turn, will release the limited partners and the shareholders,
officers and directors of S.F.H.C. from all claims and/or obligations owed to
the Company.
Although it is not reflected in the Settlement Agreement, it is
currently contemplated that the shareholders of S.F.H.C. will receive new ten
year warrants to purchase an aggregate of 180,000 shares of Common Stock at
$7.00 per share. It is also contemplated that the limited partners of the
Partnerships will retain the Original Warrants.
F) (Inter-Company Accounts):
The Private Company will pay the Company under the offset agreement
(described in J, below) $1,400 in resolution of certain inter-company account
balances as of August 26, 1995 at $17 per month to be applied toward principal
and interest at 6%, until repaid.
G) (License of Computer Programs):
Commencing January 1, 1999, the Private Company will license the
Company to use and change the Private Company's computer programs without fee.
The Company will also assume the obligations and personnel of the Computer
Department, presently maintained by the Private Company.
8
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
H) (Warranty and Fabric Protection):
Upon execution of the Settlement Agreement, the Company will be
responsible for any claims for breach of warranty relating to "fabric
protection" in connection with sales by both the Company and the Private
Company.
I) (Amounts Due From Officers of S.F.H.C. of $1,200):
The Private Company will assume and pay $1,200 of the debt of the
officers of S.F.H.C. owed to S.F.H.C. This amount will be paid to the Company in
84 equal monthly installments, without interest, beginning January 1, 1999.
J) (Offset Agreements):
On November 1, 1995 and March 1, 1996, the Company and the Private
Company entered into offset agreements. Such offset agreements permit the two
companies to offset their current obligations to each other for merchandise
purchases, warehouses fees, fabric protection fees and freight. The Settlement
Agreement contemplates that amounts owing in excess of $1,000 at any time will
be paid in cash. As part of the offset agreement, the Private Company agreed to
assume certain liabilities owed to the Company by the Unconsolidated Licensees.
K) (Royalties):
The Unconsolidated Licensees will pay to the Company any royalties
owed under the offset agreement. The Private Company will pay royalties owed of
$100 for stores that the Unconsolidated Licensees have closed commencing January
1, 1999 in 84 equal monthly installments without interest.
L) (Agreement of Sale of Inwood, New York Warehouse):
On June 30, 1996, the Private Company sold the Inwood, New York
warehouse which has been the principal warehouse in the distribution system. In
connection with this sale, the Settlement Agreement contemplates that the
Company will receive from the Private Company payments of $25 per month for 84
months commencing January 1, 1999. The Agreement also contemplates that,
effective December 1, 1996, the warehouse fee will be reduced to 7.2% of the
retail sales prices and fabric protection revenue collected from customers.
9
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
M) (Subordination):
Subject to court approval of the Settlement Agreement, Messrs.
Greenfield and Seidner have agreed to subordinate, until January 1, 1999, their
right to receive payments in respect of the $10,273 owed to them by the Private
Company, if the Private Company is in default in the payment of any cash
obligation to the Company arising after August 7, 1996 after giving effect to
any offsets as between Messrs. Greenfield and Seidner and the Private Company.
Such subordination does not apply to any distribution with respect to a
disposition of substantially all of the assets of the Private Company.
DEFINITIVE SETTLEMENT AGREEMENTS
The definitive settlement agreements entered into with the Private
Company and submitted to the Court for approval as described below differ from
those outlined above in certain respects, including an agreement by the Company
to give the Private Company a credit under the Further Offset Agreement equal to
the amount obtained by multiplying the warehouse fee then in effect by the
amount, if any, by which the Company's sales for each of the 12 months ending
December 31, 1997 and 1998 are less than $106.5 million. Such credit is to be
estimated and paid monthly based on target sales for each month and will be
reconciled and adjusted quarterly. Sales in excess of $106.5 million in 1997
will be carried over to 1998 and sales in 1998 in excess of this amount will be
carried back to 1997, if necessary.
SETTLEMENT HEARING
On April 15, 1997, a hearing will be held in the United States
District Court for the Eastern District of New York, Hauppauge, New York in
connection with the settlement of all of the above matters. The purpose of the
hearing will be to determine, among other things, whether the proposed
settlements are fair, reasonable and adequate and in the best interests of all
parties. If court approval is obtained, an Order and Final Judgment will be
entered dismissing all claims, approving payments to all Class members and
approving payment of all fees and expenses.
SECURITIES AND EXCHANGE COMMISSION INVESTIGATION
On December 9, 1994, the Company was advised that the Securities and
Exchange Commission (SEC) was conducting an inquiry of the Company's affairs "to
determine whether there have been violations of the federal securities laws".
The SEC requested that the Company voluntarily provide certain documents in
connection with its December 2, 1994 press release "concerning the adjustment in
the valuation of certain subsidiaries on the Company's balance sheet". Since
that date, the SEC has also requested the
10
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
Final Report of Counsel to the Independent Committee of the Board of Directors
and the November 22, 1994 letter from a director of the Company to the
President. Additionally, the SEC requested the "responses" to these documents
and the Company furnished them with the "Response of Harley Greenfield to the
January 26, 1995 Final Report of Counsel to the Independent Committee" dated
March 10, 1995 and the "Response of Jerome I. Silverman to the letter dated
November 22, 1994 from Michael Colnes to Harley Greenfield" dated April 3, 1995.
On May 3, 1995 the SEC commenced a formal investigation into the
affairs of the Company. Subpoenas were issued to the Company and certain of its
current and former management and its current accounting firm to furnish various
contracts and accounting records which have been complied with. The outcome of
the SEC investigation is not presently determinable.
11
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS:
THIS QUARTERLY REPORT ON FORM 10-Q CONTAINS FORWARD-LOOKING STATEMENTS
THAT INVOLVE CERTAIN RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THE RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS.
NET SALES:
The Company's sales decreased by 6.9% to $49,845 for the twenty-six
weeks ended March 1, 1997 as compared to $53,558 for the same period in the
prior year. Sales for the thirteen weeks ended March 1, 1997 decreased by 2.5%
to $22,078 from $22,652 for the same period in the prior year. There were 149
stores in operation as of March 1, 1997 compared to 153 stores at the end of the
prior year fiscal quarter. Comparable store sales (those open for the entire
period in the current and prior year periods) declined by 4.2% and .5%,
respectively. These sales declines are mainly attributable to the closing of
four stores since the prior year period, a physical split of Jennifer
Convertible stores into both a Jennifer Convertibles store and a Jennifer
Leather store, (thereby reducing selling space), a shifting in certain
advertising expenditures, a shift to more lower priced promotional merchandise
and an industry-wide softness.
COST OF SALES:
TWENTY-SIX WEEKS ENDED MARCH 1,1997:
Cost of sales decreased by 5.2% to $34,665 (69.6% as a percentage of
sales) as compared to $36,559 (68.3% as a percentage of sales) for the same
period in the prior year. The dollar decline of $1,894 is primarily attributable
to the lower sales volume. Higher costs of merchandise as a percentage of sales
of 1.5% was due to a change in the mix of sales and higher freight costs of .2%
were offset by higher delivery income of .9%. Total occupancy costs declined
slightly, however, they increased as a percentage of sales by .8% due to the
sales decline of 6.9% Warehouse expenses of $2,497, fabric protection services
of $1,308 and freight of $1,523 provided by the Private Company declined from
$2,678, $1,543 and $1,563, respectively, from the previous year due to lower
sales volume in the current period.
12
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
THIRTEEN WEEKS ENDED MARCH 1,1997:
Cost of sales decreased by .8% to $15,961 (72.3% as a percentage of
sales) as compared to $16,091 (71.0% as a percentage of sales) for the same
period in the prior year. The dollar decline of $130 is primarily attributable
to the lower sales volume. Higher costs of merchandise as a percentage of sales
of 2.2% and higher freight costs of .1% were offset by higher delivery income of
1.0%. Total occupancy costs declined slightly by $131 and declined as a
percentage of sales by .1%. Warehouse expenses of $1,105, fabric protection
services of $562 and freight of $668 provided by the Private Company compared to
$1,132, $648 and $656, respectively, from the previous year.
SELLING, GENERAL AND ADMINISTRATIVE AND OTHER EXPENSES:
TWENTY-SIX WEEKS ENDED MARCH 1,1997:
Selling, general and administrative expenses were $15,707 (31.5% as a
percentage of sales) as compared to $20,666 (38.6% as a percentage of sales) for
the prior period, a decrease of $4,959 or 24.0%. Part of the decline in expenses
was caused by: A) a reduction in salaries of $957 principally because of the
reduction in salaries of certain management personnel, lower sales volume which
generated lower commissions and personnel reductions and B) a reduction of legal
expenses of $645. Advertising expenses declined by $1,618 because of a shift in
some programs to the Spring 1997 periods as well as a credit from Klaussner
Furniture Industries, Inc. that totaled $1,075. Additionally, included in
selling, general and administrative expenses are adjustments related to
cancelled customer orders of $1,144 which in prior periods were classified in
other income.
THIRTEEN WEEKS ENDED MARCH 1,1997:
Selling, general and administrative expenses were $6,487 (29.4% as a
percentage of sales) as compared to $9,832 (43.4% as a percentage of sales) for
the prior period, a decrease of $3,345 or 34.0%. Part of the decline in expenses
was caused by: A) a reduction in salaries of $389 principally because of the
lower sales volume which generated lower commissions and personnel reductions
and B) a reduction of legal expenses of $605. Advertising expenses declined by
$939 principally because of a credit from Klaussner Furniture Industries, Inc.
that totaled $1,075. Additionally, included in selling, general and
administrative expenses are adjustments related to cancelled customer orders of
$921 which in prior periods were classified in other income.
13
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
The Company's receivables from the Private Company, the
Unconsolidated Licensees and S.F.H.C. were $7,195 as of March 1, 1997 which
declined by $129 from August 31, 1996. At August 31, 1996, the Company had
provided a reserve for the full amount due from these entities of $7,324. These
entities have losses and capital deficiencies. There can be no assurance that
the total receivables will be collected. It is the Company's intention to
continue to fund these operations in the future.
On November 1, 1995, the Company signed an Offset Agreement with the
Private Company whereby it assumed $1,866 of indebtedness to the Company
previously owed by certain Unconsolidated Licensees. In connection with the
uncertainty of collectibility and the relationship between the Private Company,
the Unconsolidated Licensees and the Company, the Company accounts for
subsequent transactions with these entities on an offset basis. If the result of
the offset is a receivable due from them, then such net amount will be reserved
for and generally recognized as income only at the time when cash is received
from these entities. For the twenty-six weeks ended March 1, 1997 these
receivables decreased by $129 which has not been reflected in the Statement of
Operations because of disputed items.
LIQUIDITY AND CAPITAL RESOURCES
At March 1, 1997, the Company had an aggregate working capital
deficiency of $(15,727) compared to a deficiency of $(15,757) at August 31, 1996
and had available cash and cash equivalents of $2,587 compared to $3,600 at
August 31, 1996. The decrease in cash equivalents since August 31, 1996 is due
principally to the net (loss) of $(893).
Effective January 1, 1994, the Company assumed the responsibility of
purchasing inventory which responsibility was previously performed by the
Private Company. Accordingly, the Company acquires inventory for resale to its
affiliates and licensees. A portion of the inventory acquired for resale is
financed by normal trade credit terms. In March 1996, the Company executed a
Credit and Security Agreement ("Credit Agreement") with its principal supplier,
Klaussner Furniture Industries, Inc. ("Klaussner") which effectively extended
the payment terms for merchandise shipped from 60 days to 81 days. As part of
the Credit Agreement, the Company granted a security interest in all of its
assets as well as assigning leasehold interests, trademarks and a license
agreement to operate the Company's business in the event of a default. The
Company does not currently have any traditional bank financing and there can be
no assurance such financing will be available in the future. Although the
Company currently has credit card financing, there can be no assurance that such
financing will continue to be available. Klaussner also lent $1,440 to the
Private Company to be used to pay down the mortgage balance on the warehouse
property. This paydown also reduced the
14
<PAGE>
JENNIFER CONVERTIBLES, INC. AND SUBSIDIARIES
Notes to Unaudited Consolidated Financial Statements
For the Twenty-Six Weeks Ended March 1, 1997
(In thousands except for share amounts)
Company's potential exposure under a guarantee to the mortgagor. Such exposure
was subsequently extinguished by the sale in June 1996 of the warehouse property
and the payment in full of the related debt by the Private Company (See (3) L),
above).
The cash portion of the proposed settlement of the derivative and
class action litigations (as described in the Company's Annual Report on Form
10-K for the fiscal year ended August 31, 1996) will come from insurance company
payments and the issuance of new Preferred Stock by the Company. There will be
no cash outlays by the Company other than for legal costs (a substantial portion
of which has already been paid). Additionally, the proposed Settlement Agreement
with the Private Company contemplates significant changes to the operating
relationship between the companies.
The Company and the LP's have closed stores for non-performance, but a
number of closings were due to the Company's decision to combine separate
Jennifer Convertibles and Jennifer Leather stores located in the same
demographic areas into one store. The primary benefit of combining both
operations into one store was an elimination of the real estate expenses and
other expenses associated with the closed showroom. Additional benefits realized
included reductions of personnel and, in a number of cases, elimination of
duplicate office equipment and telephone lines. Although combining two stores
into one store generally reduces sales, management believes that sales at the
combined store will generate more profit due to the elimination or reduction of
expenses described above.
Management feels that with the above noted Credit Agreement, available
funds, funds derived from store operations, significant cost cutting measures
previously undertaken including, but not limited to, the reduction in salaries
of certain management personnel, vendor allowances of $1,075 (received December
1996) and cash payments from the Private Company in connection with the offset
agreements the Company will have adequate cash flow to fund its operations and
meet its capital and liquidity requirements in the near future.
15
<PAGE>
JENNIFER CONVERTIBLES, INC.
PART II
OTHER INFORMATION
ITEMS 1. through 5. NOT APPLICABLE.
ITEM 6. (a) EXHIBIT 11.1 - STATEMENT RE: COMPUTATION OF
NET (LOSS) PER SHARE
(b) REPORTS ON FORM 8-K - NONE
(c) EXHIBIT 27 - FINANCIAL DATA SCHEDULE (SEC USE ONLY)
During the quarter ended March 1, 1997 the Company filed no Current Reports
on Form 8-K.
16
<PAGE>
JENNIFER CONVERTIBLES, INC.
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.
JENNIFER CONVERTIBLES, INC.
April 14, 1997 By: /S/ HARLEY J. GREENFIELD
------------------------
Harley J. Greenfield, Chairman
of the Board, President and
Chief Executive Officer
April 14, 1997 By: /S/ GEORGE J. NADEL
-------------------
George J. Nadel, Executive Vice President
Chief Financial Officer and Treasurer
(Principal Financial and Accounting
Officer)
17
JENNIFER CONVERTIBLES INC. AND SUBSIDIARIES EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF NET (LOSS) PER SHARE
THIRTEEN AND TWENTY-SIX WEEKS ENDED MARCH 1, 1997 AND FEBRUARY 24, 1996
(in thousands, except per share data)
<TABLE>
<CAPTION>
Primary Primary
--------------- ----------------
Thirteen weeks ended Twenty-six weeks ended
March 1, 1997 February 24, 1996 March 1, 1997 February 24, 1996
------------- ----------------- ------------- -----------------
<S> <C> <C> <C> <C>
Net (loss) ($442) ($3,917) ($893) ($4,971)
Interest adjustments -- -- -- --
------- ------- ------- -------
Adjusted net (loss) ($442) ($3,917) ($893) ($4,971)
======= ======= ======= =======
Weighted average common and
common equivalent shares outstanding:
Weighted average common shares outstanding 5,701 5,701 5,701 5,701
Weighted average common equivalents -- -- -- --
------- ------- ------- -------
Weighted average common and
common equivalent shares outstanding 5,701 5,701 5,701 5,701
======= ======= ======= =======
Net (loss) per common and
common equivalent shares ($0.08) ($0.69) ($0.16) ($0.87)
======= ======= ======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000806817
<NAME> Jennifer Convertibles, Inc.
<MULTIPLIER> 1
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> AUG-30-1997
<PERIOD-START> DEC-01-1996
<PERIOD-END> Mar-01-1997
<CASH> 2,587,000
<SECURITIES> 0
<RECEIVABLES> 751,000
<ALLOWANCES> 0
<INVENTORY> 8,338,000
<CURRENT-ASSETS> 12,608,000
<PP&E> 13,962,145
<DEPRECIATION> 5,689,145
<TOTAL-ASSETS> 23,425,000
<CURRENT-LIABILITIES> 28,335,000
<BONDS> 0
0
0
<COMMON> 57,000
<OTHER-SE> (11,256,000)
<TOTAL-LIABILITY-AND-EQUITY> 23,425,000
<SALES> 22,078,000
<TOTAL-REVENUES> 22,078,000
<CGS> 15,961,000
<TOTAL-COSTS> 22,944,000
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 8,000
<INCOME-PRETAX> (379,000)
<INCOME-TAX> 63,000
<INCOME-CONTINUING> (442,000)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (442,000)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
