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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended July 31, 1994.
Commission File Number 1-9647
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
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(State of Incorporation) (IRS Employer
Identification No.)
13801 N.W. 14TH STREET SUNRISE, FLORIDA 33323
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 846-8000
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,922,119 COMMON SHARES ($.0001 PAR VALUE)
AS OF SEPTEMBER 12, 1994
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FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED JULY 31, 1994
TABLE OF CONTENTS
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PART I: FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets 3
B. Consolidated Statements of Operations 4
C. Consolidated Statements of Cash Flows 6
D. Notes to Consolidated Financial Statements 8
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 12
PART II: OTHER INFORMATION
Items 1, 2, 3, 5 and 6
have been omitted because they are not
applicable with respect to the current
reporting period.
Item 4.
Submission of Matters to a Vote of Security
Holders 14
2
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
A S S E T S
July 31 December 31,
1994 1993
------------ ------------
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents $ 4,542 $ 30,178
Accounts receivable, net 17,229 22,064
Inventories 161,446 177,538
Refundable income taxes 12,590 15,075
Prepaid expenses 1,990 1,103
Other current assets 654 1,914
--------- ---------
Total current assets 198,451 247,872
Property, net 30,711 28,846
Other assets 7,443 7,686
Excess of cost over fair
value of net assets acquired 27,243 27,850
--------- ---------
$ 263,848 $ 312,254
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 21,422 $ 29,339
Accrued expenses 6,874 8,734
Accrued lease payment 1,742 1,877
Liability for inventory sold
and repurchased (See Note B) ----- 33,426
Notes payable to banks 9,200 -----
--------- ---------
Total current liabilities 39,238 73,376
Long-term debt 33,641 33,496
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value,
50,000,000 shares authorized,
25,852,238 and 25,851,738 shares
issued, respectively 3 3
Additional paid-in capital 180,734 180,367
Retained earnings 13,489 28,871
--------- ---------
194,226 209,241
Deferred compensation (3,257) (3,859)
--------- ---------
190,969 205,382
--------- ---------
$ 263,848 $ 312,254
========= =========
See notes to consolidated financial statements.
3
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
Thirteen Weeks Ended Quarter Ended
July 31, 1994 June 30, 1993
-------------------- -------------
(Unaudited)
Net sales $ 60,077 $ 49,845
Cost of sales 51,593 41,319
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Gross profit 8,484 8,526
Interest and other
income 55 128
----------- -----------
8,539 8,654
Selling, general and
administrative
expenses 12,512 8,064
Interest expense 816 749
----------- -----------
(Loss) before income taxes (4,789) (159)
Income taxes 143 (340)
----------- ------------
Net (loss) income $ (4,932) $ 181
=========== ===========
Net income (loss) per
common share $ (.19) $ .01
=========== ============
Weighted average shares
outstanding 25,668,495 25,596,393
=========== ===========
See notes to consolidated financial statements.
4
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JAN BELL MARKETING, INC.
COMPARATIVE CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
Twenty Six Weeks Six Months
Ended Ended
July 31, 1994 June 30, 1993
---------------- -------------
(Unaudited)
Net sales $ 123,087 $ 95,416
Less:
Effect of new agreement ----- 77,052
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123,087 18,364
Cost of Sales 105,920 78,253
Less:
Effect of new agreement ----- 58,945
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105,920 19,308
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Gross profit (loss) 17,167 (944)
Interest/other income 105 457
----------- -----------
17,272 (487)
Selling, general and
administrative expenses 26,364 14,777
Interest expense 1,614 1,578
----------- -----------
Loss before
Income taxes (10,706) (16,842)
Income taxes 205 (6,870)
----------- ------------
Net loss $ (10,911) $ (9,972)
============ ============
Net loss per
common share $ (.43) $ (.39)
============ ============
Weighted average shares
outstanding 25,638,097 25,442,613
=========== ===========
5
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
Twenty Six Weeks Ended Six Months Ended
July 31, 1994 June 30, 1993
--------------------- ----------------
(Unaudited)
Cash flows from operating
activities:
Cash received from customers $ 125,492 $ 79,779
Cash paid to suppliers and
employees (129,025) (114,905)
Interest and other income
received 105 457
Interest paid (1,614) (1,578)
Income taxes (paid) refunded 2,455 (3,798)
----------- ------------
Net cash (used in)
operating activities (2,587) (40,045)
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Cash flows from investing
activities:
Capital expenditures (4,407) (4,833)
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Net cash (used in)
investing activities (4,407) (4,833)
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Cash flows from financing
activities:
Net borrowings under line of
credit 9,200 ---
Proceeds from exercise of
options --- 248
Stock purchase plan payments
withheld 33 47
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Net cash provided by
financing activities 9,233 295
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Net increase (decrease) in cash
and cash equivalents 2,239 (44,583)
Cash and cash equivalents at
beginning of period 2,303 49,634
----------- -----------
Cash and cash equivalents at
end of period $ 4,542 $ 5,051
=========== ===========
See notes to consolidated financial statements.
6
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Amounts shown in thousands)
Twenty Six Weeks Ended Six Months Ended
July 31, 1994 June 30, 1993
----------------- -------------
(Unaudited)
Reconciliation of net Loss
to net cash (used in)
operating activities:
Net loss $ (10,911) $ (9,972)
Adjustments to reconcile
net loss to net cash
used in
operating activities:
Depreciation and
amortization 3,892 2,976
Stock compensation expense 518 704
(Increase) Decrease
in assets:
Accounts receivable (net) 2,405 36,769
Inventories 23,913 (55,356)
Prepaid expenses 1,246 (11,209)
Other current assets (294) 861
Increase (Decrease) in
liabilities:
Accounts payable (3,260) (16,998)
Accrued expenses (1,930) (2,436)
Liability for inventory
sold and repurchased (18,166) 14,616
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Net cash (used in)
operating activities $ (2,587) $ (40,045)
============ ============
See notes to consolidated financial statements.
7
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Unaudited Financial Statements
The Company's financial statements for the thirteen and twenty six
week periods ended July 31, 1994 and the three and six month periods ended June
30, 1993, have not been audited by certified public accountants but, in the
opinion of management of the Company, reflect all adjustments (which include
only normal recurring accruals, except as discussed in Note B) necessary to
present fairly such information of those periods. Results of the thirteen and
twenty six week periods ended July 31, 1994 and three and six month periods
ended June 30, 1993 are not necessarily indicative of annual results because of
the seasonality of the Company's business.
The accompanying financial statements should be read in conjunction
with the annual financial statements included in the Company's Annual Report on
Form 10-K for the year ended December 31, 1993.
B. Agreement with Sam's Wholesale Club
In May 1993, the Company entered into an agreement (the "Agreement")
to operate an exclusive leased department at all existing and future Sam's
Wholesale Club ("Sam's") locations through February 1, 1999. In March 1994,
the agreement was extended to February 1, 2001. Under the terms of the
Agreement, the Company repurchased Sam's existing inventory which included
goods Sam's had previously purchased from the Company as well as from other
vendors. As consideration for entering into the Agreement, the Company paid to
Sam's a one-time fee of $7.0 million, which is included in Other Assets and is
being amortized over the term of the Agreement. The unamortized amount as of
July 31, 1994 was approximately $6.2 million. The Company pays Sam's a tenancy
fee of 9% of net sales.
As a result of this new Agreement with Sam's, the Company recorded a
sales reversal of $99.7 million for the amount of inventory previously sold by
Jan Bell to Sam's which became subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time charge
to pre-tax earnings. Of these amounts, the Company had originally estimated
the amount of inventory subject to repurchase at $77.1 million and the
related cost of sales at $59.0 million which resulted in an $18.1 million
one-time charge to pre-tax earnings that was recorded in the first quarter of
1993.
8
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
As of December 31, 1993, the Company owed Sam's approximately $42.5
million of which approximately $33.4 million was for inventory repurchased from
Sam's and approximately $9.1 million, which was included in accounts payable,
for certain third party merchandise acquired by the Company from Sam's. As of
July 31, 1994 the Company still owed Sam's 4.1 million of the amount in
accounts payable for certain third party merchandise acquired by the Company
from Sam's. Final payment of this amount is due during third quarter 1994.
For the thirteen and twenty-six week periods ended July 31, 1994, the
Company recorded a reduction to selling, general and administrative expenses of
$1.4 million reflecting a change in estimate of certain transition related
liabilities.
C. Inventories:
Inventories are summarized as follows:
July 31, December 31,
----------------------------------------
1994 1993
----------------------------------------
(Amounts shown in thousands)
Precious and semi-precious jewelry-
related merchandise (and associated
gold):
Raw materials 17,533 $ 10,885
Finished goods 50,015 57,158
Gold jewelry-related merchandise:
Raw materials 2 13
Finished goods 21,078 26,794
Watches 56,015 62,688
Other consumer products 16,803 20,000
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$ 161,446 $ 177,538
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D. Income Taxes
The Company's provision for income taxes for the thirteen and twenty
six weeks ended July 31, 1994 is related to the earnings of foreign affiliates.
Federal and state tax benefits have not been recognized for the domestic loss
for the thirteen and twenty six weeks ended July 31, 1994 due to the fact that
all potential loss carrybacks have been fully utilized and, under SFAS No.
109, "Accounting for Income Taxes," the company has determined that it is more
likely than not that the deferred tax asset will not be realized.
E. Change in Fiscal Year
In February 1994, the Company determined to change its fiscal year
from a calendar year ending on December 31 to a retail 52/53 week fiscal year
ending on the last Sunday of each January. The first such fiscal year began on
January 31, 1994 and will end on January 29, 1995. The following is condensed
information regarding the consolidated results of operations and cash flows for
the 30 day transition period of January 1, 1994 to January 30, 1994 (in
thousands, except per share data):
9
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
CONSOLIDATED STATEMENT OF OPERATIONS
Net sales $ 7,384
Gross profit 689
Net loss (4,471)
Loss per common share (.17)
===========
CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash (used in) operating activities $ (27,469)
Net cash (used in) investing activities (408)
Net cash provided by financing activities 2
-----------
Net decrease in Cash and Cash Equivalents (27,875)
Cash and Cash Equivalents at Beginning of Period 30,178
-----------
Cash and Cash Equivalents at End of Period $ 2,303
===========
Reconciliation of Net Loss to Net Cash
(Used In) Operating Activities:
Net Loss $ (4,471)
Depreciation and amortization 747
Stock compensation expense 417
(Increase) in current assets (4,180)
(Decrease) in current liabilities (19,982)
------------
Net cash (used in) operating activities $ (27,469)
============
As a result of the significant change in the nature of the Company's
business from being primarily a wholesale operation during most of 1993 to
primarily a retail operation during 1994, comparison with historical operating
results is not considered to be meaningful nor practicable. Accordingly, the
1993 quarter and six months ended June 30, 1993 was not restated to a fiscal
thirteen and twenty six weeks ended August 1, 1993.
10
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Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
In May 1993, the Company commenced its transition to a
fully-integrated retailer in the wholesale club industry by entering into an
agreement with Sam's Wholesale Club ("Sam's") to operate an exclusive leased
jewelry department at all existing and future Sam's locations. The operational
rollout began on September 21, 1993 and was completed on October 28, 1993,
during which time the Company took over the operations of the then existing 331
jewelry departments at Sam's. Including the locations acquired by Sam's from
Pace, which the Company had previously operated under an agreement with Pace,
the Company operated 434 jewelry departments at July 31, 1994
In February 1994, the Company determined to change its year from a
calendar year ending December 31 to a retail 52/53 week fiscal year ending on
the last Sunday of each January (See Note E to the Financial Statements). As a
result of the significant change in the nature of the Company's business from
being primarily a wholesale operation during most of 1993 to primarily a retail
operation during 1994, comparison with historical operating results is not
considered to be meaningful nor practicable. Accordingly, the 1993 quarter and
six months ended June 30, 1993 were not restated to a fiscal thirteen and
twenty six week periods ended August 1, 1993.
Net sales were $60 million for the thirteen weeks ended July 31, 1994
and gross profit was $8.5 million or 14.1% of net sales. Inventory at December
31, 1993 was and continues to be in excess of desired levels, and the Company
experienced both sales and margin pressure during the second quarter as it
continues to reduce and rebalance its inventory position. Management
anticipates these pressures will continue during the third quarter of 1994 and
recognizes that a significant improvement in both sales and margins must be
achieved for the Company to return to profitability.
Selling, general and administrative expenses were $12.5 million and
$26.4 million for the thirteen and twenty six week periods ended July 31, 1994,
respectively, compared to $8.1 million and $14.8 million for the three and six
month periods ended June 30, 1993, respectively. The increase is primarily
reflective of the payroll and other costs related to operating the Sam's leased
departments. Also, for the thirteen and twenty six weeks ended July 31, 1994,
the Company recorded a reduction to selling, general and administrative
expenses of $1.4 million reflecting a change in estimate of certain transition
related liabilities. Such income is recorded as a reduction to selling,
general and administrative expenses.
Net loss for the thirteen weeks ended July 31, 1994 was $4.9 million
or $0.19 per share compared to net income of $181,000 or $0.01 per
share for the quarter ended June 30, 1993. Net loss for the twenty six weeks
ended July 31, 1994 was $10.9 million or $0.43 per share compared to a net loss
of $10.0 million or $0.39 per share for the six months ended June 30, 1993.
11
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The retail jewelry business is seasonal in nature with a higher
proportion of sales and earnings generated during the fourth quarter Christmas
selling season. As a result, operating results for the interim periods are not
necessarily indicative of results of operations for the entire fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of July 31, 1994, cash and cash equivalents totalled $4.5 million
and the Company had short-term borrowings of $9.2 million outstanding under its
revolving credit facility. Also, the Company owed Sam's approximately $4.1
million, which is included in accounts payable, for certain third-party
merchandise acquired by the Company from Sam's. Final payment of these amounts
is due during the third quarter of 1994.
Inventory decreased $16.1 million from year-end 1993 reflecting
management's commitment to reduce and rebalance its inventory until the desired
levels are achieved.
The Company has historically financed its working capital requirements
through a combination of proceeds of public offerings, internally generated
cash, short-term borrowings under bank lines of credit and a senior note
placement. As of July 31, 1994, the Company's short-term borrowings were made
under a $25 million unsecured revolving bank credit facility with SunBank which
bore interest at the bank's prime rate or two percent over LIBOR (London
Interbank Offered Rate) or the applicable secondary CD rate. In August 1994,
the Company signed a commitment letter with NationsBank for a two year $50
million unsecured line of credit. The Company anticipates that all
documentation regarding this facility will be finalized by the end of September
1994 which facility will replace the existing Sun Bank line. In October 1992,
the Company finalized a $35 million unsecured private placement of senior notes
with an interest rate of 6.99%. Semi-annual interest payments on the notes
began in April 1993 and annual principal payments of $6.5 million commence in
April 1996 with a final $9.0 million principal payment due in October 1999.
Each of the agreements are subject to various financial ratios, operating
results and covenants and restricts dividend payments.
12
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Funds will continue to be required to facilitate the Company's growth
and funding is anticipated to come from operations, bank lines of credit or the
capital markets and the Company's asset management program, which is primarily
focused on reducing the working capital requirements of the Company by
eliminating excess inventory.
13
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PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders was held on August 12, 1994. The
shareholders of the Company elected as directors Isaac Arguetty, Chaim
Edelstein, Dean Groussman, Peter J. Hayes, Joseph Pennacchio, John W. Burden
and Sidney J. Feltenstein to serve as follows: Messrs. Arguetty, Hayes,
Pennacchio, and Edelstein will continue until the third annual meeting of
shareholders after election or until their successors have been elected and
qualified; Messrs. Burden and Groussman will continue until the second annual
meeting of shareholders or until their successors have been elected and
qualified; and Mr. Feltenstein will continue until the first annual meeting of
shareholders after election or until his successor has been elected and
qualified. The election of directors by the shareholders was by the following
votes:
DIRECTOR FOR WITHHELD
- - - - -------- --- --------
Isaac Arguetty 23,314,507 552,451
Chaim Edelstein 23,317,390 549,568
Dean Groussman 23,319,110 547,848
Peter J. Hayes 23,318,310 548,648
Joseph Pennacchio 23,318,660 548,298
John W. Burden 23,319,310 547,648
Sidney J. Feltenstein 23,314,990 551,968
The following are directors whose term of office continued after the
Annual Meeting: Alan H. Lipton, Eliahu Ben-Shmuel, and Rosemary B. Trudeau.
The Shareholders also ratified Deloitte & Touche as independent
accountants of the Company for the fiscal year ending January 29, 1995 by a
vote of 23,670,285 shares in favor, 128,261 shares against and 68,412 shares
abstaining.
14
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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.
JAN BELL MARKETING, INC.
-------------------------------------
(Registrant)
By: /s/ Frank S. Fuino, Jr.
-----------------------
Executive Vice President of Finance
and Chief Financial Officer
Date: September 14, 1994
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