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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 May 1, 1994.
Commission File Number 1-9647
JAN BELL MARKETING, INC.
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(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.
25,852,238 COMMON SHARES ($.0001 PAR VALUE)
AS OF JUNE 14, 1994
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FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED May 1, 1994
TABLE OF CONTENTS
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<TABLE>
<S> <C>
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 5
D. Notes to Consolidated Financial
Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 10
PART II: OTHER INFORMATION
Items 1, 2, 3,
4 and 5 have been omitted because they are not
applicable with respect to the current
reporting period.
Item 6. Exhibits and reports on Form 8-K 12
</TABLE>
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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
<TABLE>
<CAPTION>
May 1, December 31,
1994 1993
--------- ------------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 834 $ 30,178
Accounts receivable, net 23,018 22,064
Inventories 171,182 177,538
Refundable income taxes 12,609 15,075
Prepaid expenses 576 1,103
Other current assets 650 1,914
-------- ----------
Total current assets 208,869 247,872
Property, net 30,768 28,846
Other assets 7,289 7,686
Excess of cost over fair
value of net assets acquired 27,504 27,850
-------- ---------
$274,430 $ 312,254
======== =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $20,068 $29,339
Accrued expenses 5,470 8,734
Accrued lease payment 2,201 1,877
Liability for inventory sold
and repurchased
(See Note B) 9,458 33,426
Notes Payable to banks 8,075 ---
-------- ---------
Total current liabilities 45,272 73,376
Long-term debt 33,548 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 180,700 180,367
Retained earnings 18,421 28,871
-------- ---------
199,124 209,241
Deferred compensation (3,514) (3,859)
-------- ---------
195,610 205,382
-------- ---------
$274,430 $312,254
======== =========
</TABLE>
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)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Quarter Ended
May 1, 1994 March 31, 1993
-------------------- -------------------
(Unaudited)
<S> <C> <C>
Net sales $ 63,010 $ 45,571
Less:
Effect of new agreement
(See Note B) --- 77,052
----------- ------------
63,010 (31,481)
Cost of sales 54,327 36,934
Less:
Effect of new agreement
(See Note B) --- 58,945
----------- ------------
54,327 (22,011)
Gross profit (loss) 8,683 (9,470)
Interest and other
income 50 330
----------- ------------
8,733 (9,140)
Selling, general and
administrative
expenses 13,852 6,713
Interest expense 798 830
----------- ------------
(Loss) before income taxes (5,917) (16,683)
Income taxes 62 (6,529)
----------- ------------
Provision (benefit) for
net (loss) $ (5,979) $ (10,154)
=========== ============
Net (loss) per common
share $ (.23) $ (.40)
=========== ============
Weighted average shares
outstanding 25,607,698 25,435,936
=========== ============
</TABLE>
See notes to consolidated financial statements.
4
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Quarter Ended
May 1, 1994 March 31, 1993
-------------------- ----------------
(Unaudited)
<S> <C> <C>
Cash flows from operating
activities:
Cash received from customers $ 61,155 $ 71,479
Cash paid to suppliers and
employees (69,224) (89,203)
Interest and other income
received 50 330
Interest paid (798) (219)
Income taxes (paid) refunded 2,436 (3,505)
-------- --------
Net cash (used in)
operating activities (6,381) (21,118)
-------- --------
Cash flows from investing
activities:
Capital expenditures (3,163) (1,959)
-------- --------
Net cash (used in)
investing activities (3,163) (1,959)
-------- --------
Cash flows from financing
activities:
Net borrowings under lines of
credit 8,075 ---
Proceeds from exercise of
options --- 39
Stock purchase plan payments
withheld --- 24
-------- --------
Net cash provided by
financing activities 8,075 63
-------- --------
Net (decrease) in cash
and cash equivalents (1,469) (23,014)
Cash and cash equivalents at
beginning of period 2,303 49,634
-------- --------
Cash and cash equivalents at
end of period $ 834 $ 26,620
======== ========
</TABLE>
See notes to consolidated financial statements.
5
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Quarter Ended
May 1, 1994 March 31, 1993
----------------------- ------------------
(Unaudited)
<S> <C> <C>
Reconciliation of net loss
to net cash (used in)
operating activities:
Net loss $ (5,979) $(10,154)
Adjustments to reconcile
net loss to net cash
used in
operating activities:
Depreciation and
amortization 1,924 1,426
Stock compensation expense 258 352
(Increase) Decrease
in assets:
Accounts receivable (net) (3,384) 25,908
Inventories 14,177 (37,009)
Prepaid expenses 2,818 (10,040)
Other current assets --- (839)
Increase (Decrease) in
liabilities:
Accounts payable (6,355) (7,151)
Accrued expenses (1,132) (1,718)
Liability for inventory
sold and repurchased (8,708) 18,107
--------- --------
Net cash (used in)
operating activities $ (6,381) $(21,118)
========= ========
</TABLE>
See notes to consolidated financial statements.
6
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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 week period ended
May 1, 1994 and three month period ended March 31, 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 week period ended May 1, 1994 and three
month period ended March 31, 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
May 1, 1994 was approximately $6.4 million. The Company pays Sam's a tenancy
fee of 9 1/4% 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. 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.
7
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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 is included in accounts payable for
certain third party merchandise acquired by the Company from Sam's. Final
payment of this amount is due during second quarter 1994.
C. Inventories:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
May 1, December 31,
----------------------------------
1994 1993
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(Amounts shown in thousands)
<S> <C> <C>
Precious and semi-precious jewelry-
related merchandise (and associated
gold):
Raw materials $ 14,392 $ 10,885
Finished goods 55,562 57,158
Gold jewelry-related merchandise:
Raw materials 200 13
Finished goods 24,956 26,794
Watches 60,675 62,688
Other consumer products 15,397 20,000
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$171,182 $177,538
======== ========
</TABLE>
8
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
D. Income Taxes
The Company's provision for income taxes for the thirteen weeks ended
May 1, 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 weeks ended May 1, 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 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):
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 ended March 31, 1993 was not restated to a fiscal 13 weeks ended
May 2, 1993 quarter.
9
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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 at May 1, 1994, 425 jewelry departments.
In February 1994, the Company determined to change its fiscal 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
ended March 31, 1993 was not restated to a fiscal 13 weeks ended May 2, 1993
quarter.
Net sales were $63.0 million for the quarter ended May 1, 1994 and
gross profit was $8.7 million or 13.8% 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 first quarter as it
continues to reduce and rebalance its inventory position. Management
anticipates these pressures will continue during the second and third quarters
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 $13.9 million in
1994 compared to $6.7 million in 1993. The increase is primarily reflective of
the payroll and other costs related to operating the Sam's leased departments.
Net loss for the quarter was $6.0 million or $0.23 per share compared
to a net loss of $10.2 million or $0.40 per share for the quarter ended March
31, 1993. Excluding the effect of the new agreement with Sam's, the Company
would have reported for the quarter ended March 31, 1993 net income of $1.2
million or $0.05 per share.
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 first quarter are not
necessary indicative of results of operations for the entire fiscal year.
10
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of May 1, 1994, cash and cash equivalents totalled $834,000 and the
Company had short-term borrowings of $8.1 million outstanding under its
revolving credit facility. Also, the Company owed Sam's approximately $18.6
million, of which $9.5 million is for inventory repurchased from Sam's and $9.1
million, which is included in accounts payable, is for certain third-party
merchandise acquired by the Company from Sam's. Final payment of these amounts
is due during the second quarter of 1994.
Inventory decreased $6.4 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. In March 1994, the Company's $50 million, two year unsecured
revolving bank credit facility, which was due to expire in August 1994 and
bears interest at the bank's prime rate or two percent over LIBOR (London
Interbank Offered credit) or the applicable secondary CD rate, was renewed for
$25 million and extended to February 1, 1995. In addition, the Company is
seeking other banking resources for additional credit facilities. 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. The Company
has obtained waivers and amendments for less restrictive levels related to
covenants with which the Company did not comply as a result of the 1993 loss
and the ongoing transition from being primarily a wholesale operation to a
retail operation.
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.
11
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PART II: OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) None
(b) Reports on Form 8-K. A Form 8-K was filed on February
17, 1994 under Item 8 reporting a change in the fiscal
year.
12
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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: June 14, 1994
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