<PAGE> 1
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 April 29, 1995
Commission File Number 1-9647
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
-------- ----------
(State of Incorporation) (IRS Employer
Identification No.)
13801 N.W. 14TH STREET SUNRISE, FLORIDA 33323
---------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 846-2705
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.
25,734,481 COMMON SHARES ($.0001 PAR VALUE)
AS OF JUNE 9, 1995
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED APRIL 29, 1995
TABLE OF CONTENTS
_________________
<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE NO.
<S> <C>
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, 4 and 5
have been omitted because they are not
applicable with respect to the current
reporting period.
Item 3. Defaults upon Senior Securities 14
Item 6. Exhibits and reports on Form 8-K 14
</TABLE>
2
<PAGE> 3
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
<TABLE>
<CAPTION>
April 29, January 28,
1995 1995
------------ -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 19,154 $ 28,212
Accounts receivable, net 8,898 12,156
Inventories (Note C) 112,391 106,053
Refundable income taxes 307 697
Prepaid expenses 913 834
Other current assets 95 207
-------- --------
Total current assets 141,758 148,159
Property, net 28,448 29,639
Other assets 5,888 6,085
Excess of cost over fair
value of net assets acquired 2,823 2,869
-------- --------
$178,917 $186,752
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 15,455 $ 14,249
Accrued expenses 6,885 10,067
Accrued lease payment 195 101
Current portion of long-term
debt (Note E) 17,500 35,000
-------- --------
Total current liabilities 40,035 59,417
-------- --------
Long-term debt (Note E) 17,500 ---
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value,
50,000,000 shares authorized,
25,748,358 and 25,741,991 shares
issued, respectively 3 3
Additional paid-in capital 178,915 178,896
Retained earnings (deficit) (56,432) (50,657)
Foreign currency translation
adjustment (1,104) (907)
-------- --------
121,382 127,335
-------- --------
$178,917 $186,752
======== ========
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
April 29, 1995 May 1, 1994
-------------- -----------
(Unaudited)
<S> <C> <C>
Net sales $ 50,018 $ 63,010
Cost of sales 43,211 54,702
----------- -----------
Gross profit 6,807 8,308
Selling, general and
administrative
expenses 11,965 13,477
Currency exchange loss 566 ---
----------- -----------
Operating loss (5,724) (5,169)
Interest and other
income 610 50
Interest expense 537 798
----------- -----------
Loss before income taxes (5,651) (5,917)
Provision for income
taxes (Note D) 123 62
----------- -----------
Net loss $ (5,774) $ (5,979)
=========== ===========
Net loss per common
share $ (.22) $ (.23)
=========== ===========
Weighted average shares
outstanding 25,743,390 25,607,698
=========== ===========
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
April 29, 1995 May 1, 1994
-------------- -----------
(Unaudited)
<S> <C> <C>
Cash flows from operating
activities:
Cash received from customers $ 53,278 $ 61,155
Cash paid to suppliers and
employees (62,663) (69,224)
Interest and other income
received 610 50
Interest paid (537) (798)
Income taxes refunded 389 2,436
-------- --------
Net cash used in
operating activities (8,923) (6,381)
-------- --------
Cash flows from investing
activities:
Capital expenditures (154) (3,163)
-------- --------
Net cash used in
investing activities (154) (3,163)
-------- --------
Cash flows from financing
activities:
Net borrowings under lines of
credit --- 8,075
Stock purchase plan payments
withheld 19 ---
-------- --------
Net cash provided by
financing activities 19 8,075
-------- --------
Net decrease in cash
and cash equivalents (9,058) (1,469)
Cash and cash equivalents at
beginning of period 28,212 2,303
-------- --------
Cash and cash equivalents at
end of period $ 19,154 $ 834
======== ========
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(continued)
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
April 29, 1995 May 1, 1994
-------------- -----------
(Unaudited)
<S> <C> <C>
Reconciliation of net Loss
to net cash used in
operating activities:
Net loss $(5,774) $(5,979)
Adjustments to reconcile
net loss to net cash
used in operating activities:
Depreciation and
amortization 1,628 1,924
Stock compensation expense --- 258
Foreign currency translation
adjustment (197) ---
(Increase) Decrease
in assets:
Accounts receivable (net) 3,258 (3,384)
Inventories (6,338) 14,177
Prepaid expenses 310 2,818
Other current assets 71 ---
Increase (Decrease) in
liabilities:
Accounts payable (378) (6,355)
Accrued expenses (1,503) (1,132)
Liability for inventory
sold and repurchased --- (8,708)
------- -------
Net cash used in
operating activities $(8,923) $(6,381)
======= =======
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Unaudited Financial Statements
The Company's financial statements for the thirteen week periods ended
April 29, 1995 and May 1, 1994 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) necessary to present
fairly the financial position, results of operations and cash flows for those
periods. Results of the thirteen week periods ended April 29, 1995 and May 1,
1994 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 Company's annual financial statements for the year ending January 28, 1995.
B. Agreement with Sam's Wholesale Club
The Company operates an exclusive leased department at all existing and
future Sam's Wholesale Club ("Sam's") locations under an agreement which
expires February 1, 2001. The Company pays Sam's a tenancy fee of 9% of net
sales. During the thirteen weeks ended April 29, 1995, approximately 85% of
the Company's net sales were from Sam's customers and for the foreseeable
future it is expected that a substantial portion of net sales will be generated
through this agreement. Accordingly, the Company is dependent on Sam's to
conduct its business and the loss of the leased department arrangement with
Sam's would have a material adverse effect on the business of the Company.
7
<PAGE> 8
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
C. Inventories:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
April 29, January 28,
-------------------------------
1995 1995
-------------------------------
(Amounts shown in thousands)
<S> <C> <C>
Precious and semi-precious jewelry-
related merchandise (and associated
gold):
Raw materials $ 9,523 $ 8,617
Finished goods 49,506 41,775
Gold jewelry-related merchandise:
Raw materials 2 2
Finished goods 16,604 18,305
Watches 19,270 27,461
Other consumer products 17,486 9,893
-------- --------
$112,391 $106,053
======== ========
</TABLE>
D. Income Taxes
The Company's provision for income taxes for the thirteen weeks ended
April 29, 1995 and 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 April 29, 1995 and May 1, 1994
because available net operating 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 net operating loss
carryforward will not be realized.
E. Financing Arrangements
On May 31, 1995, the Company entered into an amended and restated senior
note agreement that provides, among other things, for the Company to
immediately prepay $8.5 million in principal amount of the notes. The notes
(as amended, the "amended notes") mature on February 1, 1998, are secured and
bear interest for the period (a) from closing to January 31, 1997, at an annual
rate of 12.5% and (b) from February 1, 1997 to maturity, at an annual rate of
16%. Two principal payments in the amounts of $9 million and $10 million,
respectively, are payable on February 1, 1996 and February 1, 1997 with a final
payment of $7.5 million due February 1, 1998. The Company paid the noteholders
a fee of $500,000 in connection with this agreement.
8
<PAGE> 9
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(continued)
On May 31, 1995 the Company also finalized a Working Capital Facility
with GBFC, Inc. (an affiliate of Gordon Brothers, Inc.) and Foothill Capital
Corporation which provides for a $30 million secured revolving bank credit
facility. Availability under the Working Capital Facility is determined based
upon a percentage formula applied to inventory and accounts receivable. The
Working Capital Facility terminates on May 31, 1997 and bears interest at an
annual rate of The First National Bank of Boston's base rate plus 1.5%. The
Company is required to pay a fee of $450,000 annually to the lenders and an
administration fee of $11,000 monthly.
The Company's liability under the amended notes is unconditionally
guaranteed by all of its material direct and indirect 51% (or greater)
subsidiaries. The liability under the Working Capital Facility is
unconditionally guaranteed by the Company and its subsidiaries. Substantially
all of the Company's assets are subject to a blanket lien in accordance with
the agreements related to the amended notes and Working Capital Facility. An
intercreditor agreement among the lenders provides that their respective
security interests in such collateral are subject to certain relative
priorities.
Further, the Company granted to the noteholders warrants (the "noteholder
warrants") to purchase 1,732,520 shares of the Company's common stock at an
initial purchase price per share of $2.25. The noteholder warrants vest as
follows: 20% on May 31, 1995, 20% on February 2, 1996, 30% on February 2, 1997
and 30% on July 31, 1997 if any obligations under the amended notes remain
outstanding on such respective dates. Any vested noteholder warrants expire on
May 1, 2005. In connection with the Working Capital Facility, the Company
granted warrants to purchase up to 234,000 shares of the Company's common stock
on terms substantially similar to the noteholder warrants.
The agreements related to the amended notes and the Working Capital
Facility contain covenants which require the Company to maintain financial
ratios related to earnings, working capital, inventory turnover, trade payables
and tangible net worth, limit capital expenditures and the incurrence of
additional debt, and prohibit payment of dividends.
9
<PAGE> 10
Item 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The Company operates an exclusive leased department at all existing and
future Sam's Wholesale Club ("Sam's") locations under an agreement which
expires February 1, 2001. During the thirteen weeks ending April 29, 1995,
approximately 85% of the Company's net sales were from Sam's customers and for
the foreseeable future it is expected that a substantial portion of net sales
will be generated through this agreement.
Prior to 1993, the Company operated principally as a jewelry, watch and
fragrance wholesaler to the warehouse membership club industry. Following the
Company's transition to retailing as a leased department operator at Sam's in
the fourth quarter of 1993, the Company recognized the need for additional
retail management expertise. In Fiscal 1994 new Board members were recruited
from senior department and specialty store executives, who in turn hired a new
C.E.O. New management then began addressing the Company's strategic direction.
In late 1994, as part of the Fiscal 1995 planning process, management and
the new Board reviewed the Fiscal 1994 results of all lines of business and
their attendant cost structures. This process resulted in the following
decisions.
First, the Company's domestic manufacturing operations engaged in the
manufacturing of fixtures for the Company's retail locations and various gem
and gold products were closed.
Second, staffing levels were reduced at the Company's headquarters, other
operational expenses were reduced and merchandising programs were designed to
better manage retail sales, gross profit and the replenishment function.
Third, management also addressed the Company's wholesale watch division,
which had evolved into a low end, watch business with sourcing in the parallel
markets and which contributed disproportionately to expense. With no perceived
opportunity to improve the performance of this division, management closed the
wholesale watch operations, other than selected sales and continued balancing
of inventory.
Results of operations for the thirteen weeks ended April 29, 1995 reflect
the implementation of these decisions.
Net sales were $50.0 million for the thirteen weeks ended April 29, 1995
compared to $63.0 million for the thirteen weeks ended May 1, 1994. The
decline in sales in Fiscal 1995 reflects primarily the elimination of the
wholesale division as well as the reduction in business through the Mexican
operations due to the peso devaluation. Net sales in the retail locations for
the thirteen weeks ended April 29, 1995 were $39.1 million compared to $42.4
million for the thirteen weeks ended May 1, 1994.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
Gross profit was $6.8 million or 13.6% of net sales for the thirteen
weeks ended April 29, 1995 compared to $8.3 million or 13.2% of net sales for
the thirteen weeks ended May 1, 1994. The decrease in gross profit dollars
primarily is attributable to the corresponding decrease in net sales in the
comparable periods. The increase in gross profit as a percentage of net sales
is primarily attributable to margin improvements that are being recognized in
the Company's retail locations.
Management recognizes that significant continued improvement in both
sales and margins must be achieved for the Company to return to profitability.
Selling, general and administrative expenses were $12.0 million for the
thirteen weeks ended April 29, 1995 compared to $13.5 million for the thirteen
weeks ended May 1, 1994. The decrease is primarily reflective of expense
reductions implemented as a result of corporate staff reductions and the
decision to close the Company's wholesale watch and domestic manufacturing
operations.
The continued devaluation of the Mexican peso during the first quarter of
Fiscal 1995 resulted in a $566,000 currency exchange loss.
The provision for income taxes relates to earnings of foreign affiliates.
The retail jewelry business is seasonal in nature with a higher
proportion of sales and earnings generated during the fourth quarter holiday
selling season. As a result, operating results for the first quarter are not
necessarily indicative of results of operations for the entire fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of April 29, 1995, cash and cash equivalents totalled $19.2 million, a
decrease of $9.1 million from January 28, 1995 which resulted primarily from
cash used in operations. The Company had no short-term borrowings outstanding.
The Company's working capital requirements are directly related to the
amount of inventory required to support its retail operations. During the
thirteen weeks ended April 29, 1995, the inventory increase of $6.3 million
primarily reflects a build up in anticipation of Mother's Day sales.
For the remainder of Fiscal 1995, based on discussions with Sam's, the
Company expects a very limited increase in the number of leased
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
departments it operates, and consequently does not foresee a need for a
significant increase in retail inventory. Capital expenditures for Fiscal 1995
are projected not to exceed $2 million.
The Company's business is highly seasonal, with seasonal working capital
needs peaking in October and November, before the holiday selling season.
On May 31, 1995, the Company entered into an amended and restated senior
note agreement that provides, among other things, for the Company to
immediately prepay $8.5 million in principal amount of the notes. The notes
(as amended, the "amended notes") mature on February 1, 1998, are secured and
bear interest for the period (a) from closing to January 31, 1997, at an annual
rate of 12.5% and (b) from February 1, 1997 to maturity, at an annual rate of
16%. Two principal payments in the amounts of $9 million and $10 million,
respectively, are payable on February 1, 1996 and February 1, 1997 with a final
payment of $7.5 million due February 1, 1998. The Company paid the noteholders
a fee of $500,000 in connection with this agreement.
On May 31, 1995 the Company also finalized a Working Capital Facility
with GBFC, Inc. (an affiliate of Gordon Brothers, Inc.) and Foothill Capital
Corporation which provides for a $30 million secured revolving bank credit
facility. Availability under the Working Capital Facility is determined based
upon a percentage formula applied to inventory and accounts receivable. The
Working Capital Facility terminates on May 31, 1997 and bears interest at an
annual rate of The First National Bank of Boston's base rate plus 1.5%. The
Company is required to pay a fee of $450,000 annually to the lenders and an
administration fee of $11,000 monthly.
The Company's liability under the amended notes is unconditionally
guaranteed by all of its material direct and indirect 51% (or greater)
subsidiaries. The liability under the Working Capital Facility is
unconditionally guaranteed by the Company and its subsidiaries. Substantially
all of the Company's assets are subject to a blanket lien in accordance with
the agreements related to the amended notes and Working Capital Facility. An
intercreditor agreement among the lenders provides that their respective
security interests in such collateral are subject to certain relative
priorities.
Further, the Company granted to the noteholders warrants (the "noteholder
warrants") to purchase 1,732,520 shares of the Company's common stock at an
initial purchase price per share of $2.25. The noteholder warrants vest as
follows: 20% on May 31, 1995, 20% on February 2, 1996, 30% on February 2, 1997
and 30% on July 31, 1997 if any obligations under the amended notes remain
outstanding on such respective dates. Any vested noteholder warrants expire on
May 1, 2005. In connection with the Working Capital Facility, the Company
granted warrants to purchase up to 234,000 shares of the Company's
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(Cont'd)
common stock on terms substantially similar to the noteholder warrants.
The agreements related to the amended notes and the Working Capital
Facility contain covenants which require the Company to maintain financial
ratios related to earnings, working capital, inventory turnover, trade payables
and tangible net worth, limit capital expenditures and the incurrence of
additional debt, and prohibit payment of dividends.
The Company believes that its cash on hand, projected cash from
operations, the expected proceeds from the liquidation of wholesale watch
inventory and availability under the Working Capital facility will be
sufficient to meet its debt service requirements and anticipated working
capital and capital expenditures needs for the remainder of Fiscal 1995. There
can be no assurance that the Company's future operating results will improve to
the point where they will be sufficient to sustain such debt service and
working capital needs.
13
<PAGE> 14
PART II: OTHER INFORMATION
Item 3. Defaults Upon Senior Securities
Based upon results of operations through January 28, 1995, the Company
was not in compliance with earnings and tangible net worth covenants on both
the outstanding $35 million of unsecured senior notes issued in October 1992
and the Company's $50 million unsecured revolving bank credit facility with
NationsBank.
On May 31, 1995, the Company entered into an agreement which amended
and restated the terms and conditions of the senior notes and, in addition,
finalized with another lender a Working Capital Facility of up to $30
million. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations", and Note E to the Consolidated Financial Statement.
Item 6. Exhibits and Reports on Form 8-K
(a) 27 Financial Data Schedule (for SEC use only)
(b) Reports on Form 8-K. A Form 8-K was filed on March 14, 1995 under
Item 8 reporting a change in the fiscal year.
14
<PAGE> 15
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/ David P. Boudreau
-----------------------------------
David P. Boudreau
Senior Vice President of Finance,
Treasurer & Controller
Date: June 13, 1995
15
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME, THE CONSOLIDATED BALANCE SHEETS, THE
CONSOLIDATED STATEMENTS OF CASH FLOWS AND THE NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-29-1995
<CASH> 19,154
<SECURITIES> 0
<RECEIVABLES> 9,640
<ALLOWANCES> 742
<INVENTORY> 112,391
<CURRENT-ASSETS> 141,758
<PP&E> 47,366
<DEPRECIATION> 18,918
<TOTAL-ASSETS> 178,917
<CURRENT-LIABILITIES> 40,035
<BONDS> 17,500
<COMMON> 3
0
0
<OTHER-SE> 121,379
<TOTAL-LIABILITY-AND-EQUITY> 178,917
<SALES> 50,018
<TOTAL-REVENUES> 50,018
<CGS> 43,211
<TOTAL-COSTS> 43,211
<OTHER-EXPENSES> 12,458<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 537
<INCOME-PRETAX> (5,651)
<INCOME-TAX> 123
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,774)
<EPS-PRIMARY> (.22)
<EPS-DILUTED> (.22)
<FN>
<F1>OTHER EXPENSES CONSISTS OF ALL NON-OPERATING COSTS EXCLUDING INCOME TAXES.
AMOUNT INCLUDES INTEREST EXPENSE NET OF INTEREST INCOME AND OTHER NON-OPERATING
COSTS (NET).
</FN>
</TABLE>
