<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED FEBRUARY 3, 1996 OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM TO
----------------- --------------------
COMMISSION FILE NUMBER 1-9647
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-2290953
-------- ----------
(STATE OR OTHER JURISDICTION OF (IRS EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
13801 N.W. 14th Street
Sunrise, Florida 33323
--------------------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (954) 846-2705
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.0001 par value
Warrants to Purchase Common Shares
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES / X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to
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the best of registrant's knowledge in definitive proxy or information
statements, incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
/ /
As of April 1, 1996, the aggregate market value of the voting stock
beneficially held by non-affiliates of the registrant was $79,734,375. The
aggregate market value was computed with reference to the closing price on the
American Stock Exchange on such date. Affiliates are considered to be executive
officers and directors of the registrant and their affiliates for which
beneficial ownership is not disclaimed.
As of April 1, 1996, 25,838,424 shares of Common Stock ($.0001 par value) were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PART III: Portions of the definitive Proxy Statement for the 1996 Annual
Shareholders' meeting (to be filed).
LOCATION OF EXHIBIT INDEX: The index of exhibits is contained in Part IV
herein on page number 57.
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JAN BELL MARKETING, INC.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I Page No.
<S> <C> <C>
Item 1 Business ............................................... 4
Item 2 Properties ............................................. 13
Item 3 Legal Proceedings ...................................... 13
Item 4 Submission of Matters to a Vote
of Security Holders ............................... 13
PART II
Item 5 Market for the Registrant's Common
Stock and Related Stockholder
Matters ............................................ 14
Item 6 Selected Financial Data ................................ 14
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations ......................... 16
Item 8 Financial Statements and
Supplementary Data ................................ 27
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure .............................. 51
PART III
Item 10 Directors and Executive Officers
of the Registrant ................................. 52
Item 11 Executive Compensation ................................. 52
Item 12 Security Ownership of Certain
Beneficial Owners and
Management ........................................ 52
Item 13 Certain Relationships and Related
Transactions ...................................... 52
PART IV
Item 14 Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K .......................................... 52
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Jan Bell provides fine jewelry, watches and certain other select
non-jewelry consumer products to the value-conscious fashion consumer. The
Company markets its products principally through Sam's Club, a division of
Wal-Mart, Inc. ("Sam's"), pursuant to an arrangement whereby the Company
operates an exclusive leased department at all of Sam's existing and future
domestic and Puerto Rican locations through February 1, 2001. In the Company's
fiscal year ended February 3, 1996 ("Fiscal 1995"), sales through Sam's
accounted for approximately 91% of the Company's net sales. 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. The Company offers products ranging from fine
jewelry, watches, fragrances, fine writing instruments, sunglasses and certain
collectibles and accessories. See "Warehouse Membership Clubs."
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. 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 strengths and
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 which were implemented in Fiscal 1995.
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.
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During Fiscal 1995, the Company focused primarily on the retail operations
at the Sam's locations and also opened on a test basis three of its own jewelry
stores. On November 9, 1995, the Company opened its first "Jewelry Depot", a
6,071 square foot value-oriented jewelry and luxury gift store in Framingham,
Massachusetts. Subsequently, the Company also opened two "Jewelry Depot
Outlets", a 2,207 square foot facility in Vero Beach, Florida and an 891 square
foot store in Worcester, Massachusetts. The "Jewelry Depot" and "Jewelry Depot
Outlets" each were opened as prototypes for potential stand-alone jewelry
operations that the Company will evaluate as possible long term sources of
additional revenue growth. The Company is currently unable to predict the
impact of these potential stand-alone jewelry operations on its future
operating results or capital requirements.
The terms "Jan Bell" and the "Company" when used herein refer to Jan Bell
Marketing, Inc. and its consolidated subsidiaries, as required by the context.
The Company's principal offices are located at 13801 Northwest 14th Street,
Sunrise, Florida 33323 (telephone: (954) 846-2705).
PRODUCTS
The following table sets forth the approximate percentage of net sales for
the Company's principal products for the periods specified:
<TABLE>
<CAPTION>
Fifty-three Fifty-two
Weeks Weeks
Ended Ended Years Ended
February 3, January 28, December 31,
----------- ----------- ------------
1996 1995 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gold jewelry with diamonds
and/or other precious and
semi-precious stones 41% 35% 39% 29% 25%
Gold jewelry 21 19 25 28 26
Watches 14 22 26 38 34
Other consumer products 24 24 10 5 15
</TABLE>
The Company's principal products are gold jewelry set with diamonds
and/or other precious and semi-precious gemstones, gold chain, other forms of
gold and silver jewelry and watches. The Company's jewelry product line
includes chains, pendants, bracelets, watches, rings and earrings. Other
consumer products sold by the Company include perfumes and fragrances,
sunglasses, writing instruments, and collectible and giftware products.
The Company's products are classically designed to offer broad consumer
appeal. Following the warehouse club philosophy of limiting the assortment in
each product category, a typical location will be merchandised at any one time
with approximately 300 jewelry items, 100 watches and 200 other consumer
products.
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This assortment is more focused than the average number of items
typically stocked by jewelry counters in department stores and other jewelry
retailers.
WAREHOUSE MEMBERSHIP CLUBS
The Company's principal customers during Fiscal 1995 were members of
Sam's Club. In Fiscal 1995, 1994, 1993, 1992 and 1991 approximately 91%, 85%,
85%, 81% and 71%, respectively, of the Company's net sales originated from the
warehouse membership clubs. The Company's sole warehouse membership club
relationship in Fiscal 1995 was with Sam's. Prior to May 1993, the Company had
an agreement to be the primary supplier of fine jewelry, watches and
fragrances to all present and future Sam's club locations until February 1997.
In May 1993, the arrangement was changed to provide that the Company would
operate an exclusive leased department at all Sam's existing and future
domestic locations through February 1, 1999. In March 1994, the arrangement
was extended through February 1, 2001.
Warehouse membership clubs offer a variety of product categories to
targeted consumers. By limiting the assortment in each product category and
operating on a no-frills basis, warehouse membership clubs generally provide
name brand products at prices significantly below conventional retailers and
department, discount and catalog stores. Warehouse club members, the majority
of whom pay a nominal annual membership fee, include businesses, credit
unions, employee groups, schools, churches and other organizations, as well as
eligible individuals. In addition to jewelry, merchandise offered by warehouse
membership clubs typically includes groceries, health and beauty aids,
computers, cellular telephones, clothing, sporting goods, automotive
accessories, hardware, electronics and office equipment. Successful execution
of the warehouse membership club concept requires high sales volumes, rapid
inventory turnover, low merchandise returns and strict control of operating
costs.
Each Sam's location is staffed by Jan Bell employees with the inventory
owned by Jan Bell until sold to Sam's members. In exchange for the right to
operate the department and the use of the retail space, Jan Bell pays a
tenancy fee of 9% of net sales. While Sam's is responsible for paying utility
costs, maintenance and certain other expenses associated with operation of the
departments, the Company provides and maintains all fixtures and other
equipment necessary to operate the departments.
In 1992, the Company signed an agreement to be the primary supplier of
fine jewelry, watches and fragrances with Club Aurrera, a warehouse club joint
venture in Mexico between Wal-Mart Stores and Cifra S.A. Due to the peso
devaluation, the Company's sales by its Mexican subsidiary were significantly
lower in 1995 than in 1994 reflecting the overall reduction in the Mexican
consumer's disposable income.
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SPECIAL CONSIDERATIONS
The Company's retail operation requires expertise in the areas of
merchandising, sourcing, selling, personnel, training, systems and accounting.
At the present time, the Company is dependent on Sam's to conduct its
business. Accordingly, the loss of the Company's leased department arrangement
with Sam's or a material reduction of sales at Sam's would have a material
adverse effect on the business of the Company. Moreover, the Company must look
to increases in the number of retail locations to occur, thereby increasing
the Company's customer base, for expansion. Further consolidation of the
warehouse club industry due to geographic constraints and market consolidation
might also adversely affect the Company's existing relationship and the
Company's business. The opening and success of the leased locations and
locations to be opened in later years, if any, will depend on various factors,
including general economic and business conditions affecting consumer
spending, the performance of the Company's retail operations, the acceptance
by consumers of the Company's retail programs and concepts, and the ability of
the Company to manage the leased operations and future expansion and hire and
train personnel.
OTHER CUSTOMERS
The Company also sells to a limited number of department stores,
supermarkets, discount stores, drug stores, wholesalers and jewelry chains. In
Fiscal 1995, sales to these customers aggregated approximately 8% of net
sales. Due to the closing of the wholesale watch division in late 1994 and the
focus on the retail operations at Sam's, it is not anticipated that sales to
other customers will continue in any significant manner other than the
continued balancing of inventory and selected sales of goods.
PURCHASING
DIAMONDS AND OTHER GEMSTONES
The Company purchases diamonds and other gemstones directly in
international markets located in Tel Aviv, New York, Antwerp, and elsewhere.
The Company buys cut and polished gemstones in various sizes. During 1990, the
Company acquired a purchasing and trading unit based in Israel. The Company
seeks to meet its diamond requirements with purchases on a systematic basis
throughout the year.
Hedging is not available with respect to possible fluctuations in the
price of gemstones. If such fluctuations should be unusually large or rapid
and result in prolonged higher or lower prices, there is no assurance that the
necessary price adjustments could be made quickly enough to prevent the
Company from being adversely affected.
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The world supply and price of diamonds is influenced considerably by the
Central Selling Organization ("CSO"), which is the marketing arm of DeBeers
Consolidated Mines, Ltd. ("DeBeers"), a South African company. Through CSO,
DeBeers, over the past several years, has supplied approximately 80% of the
world demand for rough diamonds, selling to gem cutters and polishers at
controlled prices periodically throughout the year.
The continued availability of diamonds to the Company is dependent, to
some degree, upon the political and economic situation in South Africa and
Russia, which have been unstable. Several other countries are also major
suppliers of diamonds, including Botswana and Zaire. In the event of an
interruption of diamond supplies, or a material or prolonged reduction in the
world supply of finished diamonds, the Company could be adversely affected.
GOLD PRODUCTS
Finished gold products and gold castings are purchased from a relatively
small number of manufacturers in Israel, Italy, New York and California. The
Company believes that there are numerous alternative sources for gold chain
and castings, and the failure of any of its current manufacturers would not
have a material adverse effect on the Company.
WATCHES
From May 1990 through Fiscal 1994, the Company actively marketed
watches. Featuring Seiko and Citizen watches as well as other select name
brands, private label and designer watches, the Company sold its watch
inventory through Sam's and at wholesale to a variety of retail outlets. In
late 1994, the Company decided to close the wholesale watch operations. As a
result, other than selected sales and continued balancing of inventory, the
watch program in Fiscal 1995 and going forward is anticipated to be a part of
the Company's retail operations. The Company in Fiscal 1995 also discontinued
the exclusive marketing and licensing of certain designer watches, including
Pierre Cardin and Givenchy.
The Company purchased approximately 51% and 29% of watches directly from
certain manufacturers during Fiscal 1995 and Fiscal 1994, respectively, as
well as approximately 49% and 71% of watches through parallel marketed means
during Fiscal 1995 and Fiscal 1994, respectively. Parallel marketed goods are
products to which trademarks are legitimately applied but which were not
necessarily intended by their foreign manufacturers to be imported and sold in
the United States. See "Regulation."
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OTHER PRODUCTS
The Company purchases sunglasses, fine writing instruments, fragrances
and collectibles directly from manufacturers as well as from parallel marketed
means. See "Regulation."
AVAILABILITY
Although purchases of several critical raw materials, notably gold and
gemstones, are made from a limited number of sources, the Company believes
that there are numerous alternative sources for all raw materials used in the
manufacture of its finished jewelry, and that the failure of any principal
supplier would not have a material adverse effect on operations. Any changes
in foreign or domestic laws and policies affecting international trade may
have a material adverse effect on the availability or price of the diamonds,
other gemstones, precious metals and non-jewelry products purchased by the
Company. Because supplies of parallel marketed products are not always
readily available, it can be a difficult process to match the customer demand
to market availability. See "Regulation."
SEASONALITY
The Company's jewelry business is highly seasonal, with the fourth
calendar quarter (which includes the Christmas shopping season) historically
contributing significantly higher sales than any other quarter during the
year. Approximately 40.3% of the Company's Fiscal 1995 net sales were made
during the fourth quarter.
MANUFACTURING
The Company currently performs all quality control functions at its
headquarters in Sunrise, Florida and performs certain jewelry manufacturing in
Israel.
All gold and watch products are manufactured by third parties. During
Fiscal 1995, approximately 25% of gemstone products received were manufactured
by the Company in Israel. The remaining portion of gemstone products were
manufactured or purchased complete from third parties.
RETAIL OPERATIONS, MERCHANDISING AND MARKETING
GENERAL
Each retail department is supervised by a manager whose primary duties
include member sales and service, scheduling and training of associates, and
maintaining loss prevention and visual presentation standards. The departments
are generally staffed by the manager and a minimum of two staff associates
depending on sales volume. At least one Jan Bell employee staffs the
department during operating hours. The departments employ temporary associates
primarily during peak selling seasons such
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as Christmas. Each department is generally open for business during the same
hours as the warehouse club in which it operates. Except for extended hours
during certain holiday seasons, Sam's is generally open Monday through Friday
from 10:00 a.m. to 8:30 p.m., 9:30 a.m. to 7:00 p.m. on Saturdays and 11:00
a.m. to 6:00 p.m. on Sundays.
The department manager reports to a district manager. On average, a
district manager supervises 13 clubs and reports to a regional director. The
Company presently has three regional directors who report to the Senior Vice
President of Field Operations.
The fixtures and equipment located in the Company's departments generally
consist of six to ten showcases, four corner towers, a safe, a POS terminal,
storage cabinets for merchandise and supplies, display elements, signage and
miscellaneous equipment such as telephones, scales, calculators and diamond
testers. In certain larger volume clubs, the department will have additional
showcases and towers and point of sale (POS) terminals.
The Sam's Clubs are membership only, cash and carry operations. The
Company's departments are required to accept only the forms of payment
accepted by Sam's which presently includes cash, checks, Discover Card and a
Sam's credit card.
DEPARTMENT COUNT
The following table sets forth data regarding the number of departments
which the Company operated:
<TABLE>
<CAPTION>
Fiscal Fiscal
1995 1994 1993(a) 1992 1991
------ ------ ------- ---- ----
<S> <C> <C> <C> <C> <C>
Departments:
- -----------
Operated, beginning of period 428 418 114 87 0
Opened during period 11 22 339 28 91
Closed during period 2 12 35 1 4
Operated, end of period 437 428 418 114 87
------ ------ ------- ---- ----
Net increase 9 10 304 27 87
====== ====== ======= ==== ====
</TABLE>
(a) Includes the initial conversion of 315 Sam's retail departments and the
closing of 30 locations as a result of Pace ceasing operations.
Generally, the Company's departments are between 260 and 275 square feet
of selling space usually located in higher traffic areas of the clubs near or
adjacent to the cart rails, front entrances or check out areas of the clubs.
PERSONNEL AND TRAINING
The Company considers its associates to be one of the most important
aspects of its ability to successfully carry out its business
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objectives. The Company intends to devote a substantial amount of resources to
support its associates with training programs, technology and facilities. The
Company has implemented a comprehensive training program covering its
relationship selling techniques, member service skills, product knowledge and
operational procedures. The Company compensates its associates at rates it
believes are competitive in the discount retail industry and seeks to motivate
its associates through a flexible incentive program. The flexible incentive
program is not based on the typical commission system (i.e., % of sales
revenue), but rewards the associate for exceeding target sales levels or meeting
other criteria which the Company establishes from time to time.
ADVERTISING AND PROMOTION
In accordance with Sam's philosophy, the Company does not promote its products
sold in the departments by newspaper or other periodical advertising or the
broadcast media. To support seasonal activities, the Company promotes its
products through direct mail catalogues to Sam's members. The Company does
utilize, from time to time, promotional materials such as signage, banners and
takeaway brochures within the clubs to promote its products.
DISTRIBUTION
The Company's retail departments receive the majority of their
merchandise directly from distribution warehouses located in Sunrise, Florida.
Merchandise is shipped from the distribution warehouses utilizing various air
and ground carriers. Presently, a small portion of merchandise is delivered
directly to the retail locations from suppliers. The Company transfers
merchandise between retail departments to balance inventory levels and to
fulfill customer requests. The Company's wholesale shipments are processed
through its distribution warehouse in Sunrise, Florida.
The Company operates a distribution facility in Mexico City, Mexico which
warehouses and distributes merchandise sold to Club Aurrera.
The Company does not believe that the dollar amount of unfilled orders is
significant to an understanding of the Company's business due to the
relatively short time between receipt of a customer order and shipment of the
product.
COMPETITION
The Company's competitors include foreign and domestic jewelry retailers,
national and regional jewelry chains, department stores, catalog showrooms,
discounters, direct mail suppliers, televised home shopping networks,
manufacturers, distributors and large wholesalers and importers, some of whom
have greater resources than the Company. The Company believes that competition
in its markets is based primarily on price, design, product quality and service.
With the consolidation of the
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retail industry that is occurring, the Company believes that competition both
within the warehouse club industry and with other competing general and
specialty retailers and discounters will continue to increase.
REGULATION
The Company utilizes the services of independent customs agents to comply
with U.S. customs laws in connection with its purchases of gold, diamonds and
other raw materials from foreign sources.
Jan Bell bears certain risks in purchasing parallel marketed goods which
includes certain watches and other products such as fragrances and
collectibles. Parallel marketed goods are products to which trademarks are
legitimately applied but which were not necessarily intended by their foreign
manufacturers to be imported and sold in the United States. The laws and
regulations governing transactions involving such goods lack clarity in
significant respects. From time to time, trademark or copyright holders and
their licensees initiate private suits or administrative agency proceedings
seeking damages or injunctive relief based on alleged trademark or copyright
infringement by purchasers and sellers of parallel marketed goods. While Jan
Bell believes that its practices and procedures with respect to the purchase
of parallel marketed goods lessen the risk of significant litigation or
liability, Jan Bell is from time to time involved in such proceedings and
there can be no assurance that additional claims or suits will not be
initiated against Jan Bell or any of its affiliates, and there can be no
assurances regarding the results of any pending or future claims or suits.
Further, legislation has been introduced in Congress in recent years and is
currently pending regarding parallel marketed goods. Certain legislative or
regulatory proposals, if enacted, could materially limit Jan Bell's ability to
sell parallel marketed goods in the United States. There can be no assurances
as to whether or when any such proposals might be acted upon by Congress or
that future judicial, legislative or administrative agency action will
restrict or eliminate these sources of supply. Jan Bell has identified
alternate sources of supply, although the cost of certain products may
increase or their availability may be lessened.
EMPLOYEES
As of April 30, 1996, the Company employed approximately 997 persons on a
full-time basis, including approximately 714 in regional and local sales
(primarily the Sam's retail locations), 148 in inventory and distribution and
135 in administrative and support functions. In addition, the Company also
employed approximately 1,270 persons on a part-time or temporary basis which
varies with the seasonal nature of its business. None of its employees are
governed by a collective bargaining agreement, and the Company believes that its
relations with employees are good.
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ITEM 2. PROPERTIES
PROPERTIES AND LEASES
The Company's corporate headquarters are owned by the Company and located
on 3.7 acres in a 60,000 square foot building in Sunrise, Florida. The Company
owns an additional 11.1 acres adjacent to the headquarters facility, on which
a 123,000 square foot building for use primarily in distribution and shipping
was completed during 1994.
The Company leases one distribution and one office facility with an
aggregate of approximately 7,000 square feet in Mexico City pursuant to a
lease which expires in May 1996. The Company leases facilities in Israel of
11,000 square feet for manufacturing and offices and 2,000 square feet for
production and offices pursuant to leases which expire in May 2001.
As of April 1, 1996, the Company had leased department operations at 437
Sam's club locations in 49 states throughout the United States and Puerto
Rico. The typical leased department consists of approximately 260 to 275
square feet.
On November 9, 1995, the Company opened its first "Jewelry Depot", a
value-oriented jewelry and luxury gift store in Framingham, Massachusetts.
The 6,071 square foot facility is leased pursuant to a lease which expires
November 2002. Subsequently, the Company also opened two "Jewelry Depot
Outlets", a 2,207 square foot facility in Vero Beach, Florida with a five year
lease that expires December 2000, and an 891 square foot facility in
Worcester, Massachusetts with a six year lease that expires December 2001.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incident to the
conduct of its business. There are no pending legal proceedings reportable
pursuant to this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in
the fourth quarter of the fiscal year ending February 3, 1996.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
The Company's Common Stock has been listed on the American Stock
Exchange since the Company's initial public offering in August 1987. The
following table sets forth the range of sales prices per share on the American
Stock Exchange Composite Tape as furnished by the National Quotation Bureau,
Inc. for the periods indicated.
<TABLE>
<CAPTION>
High Low
---- ---
<S> <C> <C>
Year Ended February 3, 1996
Thirteen Weeks Ended April 29, 1995 $4.25 $2.44
Thirteen Weeks Ended July 29, 1995 2.94 2.19
Thirteen Weeks Ended October 28, 1995 4.00 2.38
Fourteen Weeks Ended February 3, 1996 3.50 1.75
Year Ended January 28, 1995
Thirteen Weeks Ended May 1, 1994 $7.38 $5.38
Thirteen Weeks Ended July 31, 1994 6.50 4.75
Thirteen Weeks Ended October 30, 1994 7.50 4.88
Thirteen Weeks Ended January 28, 1995 5.75 2.31
</TABLE>
The last reported sales price of the Common Stock on the American Stock
Exchange Composite Tape on April 1, 1996 was $3.125. On April 1, 1996, the
Company had 888 stockholders of record.
The Company has never paid a cash dividend on its Common Stock. The
Company currently anticipates that all of its earnings will be retained for
use in the operation and expansion of its business and does not intend to pay
any cash dividends on its Common Stock in the foreseeable future. Any future
determination as to cash dividends will depend upon the earnings, capital
requirements and financial condition of the Company at that time, applicable
legal restrictions and such other factors as the Board of Directors may deem
appropriate. Currently, the Company's working capital facility and senior debt
prohibit dividend payments.
ITEM 6. SELECTED FINANCIAL DATA
The following selected data should be read in conjunction with the
Consolidated Financial Statements and Related Notes thereto appearing
elsewhere in this Form 10-K and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
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<TABLE>
<CAPTION>
Fifty-three Fifty-two
weeks ended weeks ended
February 3, January 28, Years Ended December 31,
----------- ----------- --------------------------
1996 1995 (3) 1993 1992 1991
---- -------- ---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales $254,004 $305,685 $ 275,177 $333,521 $224,261
Less: Effect of
Sam's agreement (1) --- --- 99,718 --- ---
-------- -------- --------- -------- --------
254,004 305,685 175,459 333,521 224,261
-------- -------- --------- -------- --------
Cost of Sales 199,579 255,725 243,350 274,586 182,347
Less: Effect of
Sam's agreement (1) --- --- 79,687 --- ---
-------- -------- --------- -------- --------
199,579 255,725 163,663 274,586 182,347
-------- -------- --------- -------- --------
Gross profit 54,425 49,960 11,796 58,935 41,914
Store and warehouse operating
and selling expenses 36,598 44,131 16,400 11,163 8,196
General and
adminstrative expenses 17,694 21,744 27,871 24,520 15,909
Other charges (2) --- 47,773 10,217 --- 6,440
Amortization expense 1,129 2,427 2,181 1,429 1,680
Currency exchange loss 597 5,474 --- --- ---
-------- -------- --------- -------- --------
Operating income (loss) (1,593) (71,589) (44,873) 21,823 9,689
Interest expense (3,196) (3,534) (3,195) (916) (2,419)
Interest and other income 1,477 419 635 550 3,033
-------- -------- --------- -------- --------
Loss before income taxes
and minority interest (3,312) (74,704) (47,433) 21,457 10,303
Income tax provision
(benefit) 130 353 (11,709) 6,682 2,674
Minority interest in
consolidated
joint venture --- --- --- --- 684
-------- -------- --------- -------- --------
Net income (loss) $ (3,442) $(75,057) $ (35,724) $ 14,775 $ 6,945
======== ======== ========= ======== ========
Net income (loss)
per common share $ (.13) $ (2.92) $ (1.40) $ .59 $ .31
======== ======== ========= ======== ========
BALANCE SHEET DATA (AT PERIOD
END):
Working capital $ 96,762 $ 88,742 $ 174,496 $198,043 $140,855
Total assets 153,173 186,752 312,254 301,958 228,833
Notes payable, less amounts
classified as current 7,500 --- 33,496 33,047 ---
Stockholders' equity 125,225 127,335 205,382 234,974 208,248
</TABLE>
- ------------------------
(1) As a result of the 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 was 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. (See Note B to the Consolidated
Financial Statements.)
15
<PAGE> 16
(2) Other charges in the fifty-two weeks ended January 28, 1995, include (a)
$23.8 million write-off of Goodwill associated with the 1991 acquisition
of the minority interest in the Big Ben '90 joint venture; (b) $17.7
million to provide for liquidation of inventory predominantly sold in the
wholesale watch division, which the Company decided to close, and certain
other inventory in order to raise cash for liquidity purposes as a result
of the then uncertain status of credit availability due to the Company's
failure to comply with certain covenants in its debt agreements, and $2.7
million for obligations under licensing agreements for the use of trade
names on watches previously sold in the wholesale division; (c) $3.0
million in payments to and provisions for severance for terminated
employees and the settlement of certain employment contracts in
connection with the closing of the wholesale watch division and the
buy-out of the unvested portions of bonus stock awards; and (d) other
costs of $.6 million, consisting of financing costs incurred primarily in
connection with the original senior note agreement which was
substantially amended and bank credit facility which was terminated and
replaced, less a recovery of previously accrued expenses resulting from
the settlement of the terminated lease department agreement with Pace
Membership Warehouse, Inc. (See Note J to the Consolidated Financial
Statements.)
Other charges in 1993 are approximately $6.0 million in one-time charges
related to the Sam's agreement and other retail transition costs, and
charges of $4.2 million related to compensation costs in connection with
the departure of the former Chairman of the Board of Directors. Other
charges in 1991 include expenses of $2.0 million incurred as a result of
the terminated acquisition of Michael Anthony Jewelers, Inc. in August of
that year, and $4.4 million for the settlement of certain class action
litigation. (See Note K to the Consolidated Financial Statements.)
(3) In February 1994, the Company changed its fiscal year from
December 31 to a retail 52/53 week fiscal year ending on Saturday closest
to the end of each January. See "Transition Period" in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results
of Operations".
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company operates an exclusive leased department at all existing and
future domestic and Puerto Rican Sam's Wholesale Club ("Sam's") locations
under an agreement which expires February 1, 2001. As of February 3, 1996,
the Company operated a leased department in 437 Sam's locations. During
Fiscal 1995, approximately 91% of the Company's net sales were generated
through Sam's.
16
<PAGE> 17
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 department and specialty store senior executives, who in turn hired a new
C.E.O. New management then began addressing the Company's strategic
directions.
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 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 division, other than selected sales, and continued balancing
of inventory.
Results of operations for Fiscal 1995 reflect the implementation of these
decisions in expense savings at all levels. The Company also put in place
merchandise strategies and selection that allowed the Company to achieve
higher gross margins in its leased departments. In addition, emphasis on cash
management and inventory control systems allowed the Company to generate
positive cash flows from operations and reduce its reliance on working capital
support from third party lenders. Finally, the Company's efforts to reduce and
better balance its inventory levels resulted in improved inventory turns and
reduced average inventory requirements.
On November 9, 1995, the Company opened its first "Jewelry Depot", a
6,071 square foot value-oriented jewelry and luxury gift store in Framingham,
Massachusetts. Subsequently, the Company also opened two "Jewelry Depot
Outlets", a 2,207 square foot facility in Vero Beach, Florida and an 891
square foot store in Worcester, Massachusetts. The "Jewelry Depot" and
"Jewelry Depot Outlets" each were opened as prototypes for potential
stand-alone jewelry operations that the Company will evaluate as possible long
term sources of additional revenue. Until such time as this evaluation is
complete, the Company is currently unable to
17
<PAGE> 18
predict the impact of these potential stand alone jewelry operations on its
future operating results or capital requirements.
The retail jewelry business is seasonal in nature with a higher
proportion of sales and significant portion of earnings generated during the
fourth quarter holiday selling season.
The following table sets forth the percentage of net sales for certain
items in the Company's Statements of Operations for the periods indicated:
<TABLE>
<CAPTION>
Income and Expense Items as a
Percentage of Net Sales(1)
------------------------------
Fifty-three Fifty-two
Weeks Ended Weeks Ended Year Ended
February 3, January 28, December 31,
1996 1995(2) 1993
---- ---- ----
<S> <C> <C> <C>
Net sales (1) 100.0% 100.0% 100.0%
Cost of sales (1) 78.6 83.7 88.4
---- ----- -----
Gross profit (1) 21.4 16.3 11.6
Net effect of Sam's agreement --- --- (7.3)
---- ----- -----
Gross profit 21.4 16.3 4.3
Store and warehouse operating
and selling expenses 14.4 14.4 6.0
General and administrative expenses 7.0 7.1 10.1
Other charges --- 15.6 3.7
Amortization expense .4 .8 .8
Currency exchange loss .2 1.8 ---
---- ----- -----
Operating loss (.6) (23.4) (16.3)
Interest expense (1.3) (1.2) (1.2)
Interest and other income .6 .1 .2
---- ----- -----
Loss before income taxes (1.3) (24.5) (17.3)
Provision (benefit) for income taxes .1 .1 (4.3)
---- ----- -----
Net loss (1.4)% (24.6)% (13.0)%
==== ===== =====
</TABLE>
- -----------------
(1) Excluding effect of Sam's agreement for the year ended December 31, 1993.
(2) In February 1994, the Company changed its fiscal year from December 31 to
a retail 52/53 week fiscal year ending on the Saturday closest to the end of
each January. The fifty-three weeks ended February 3, 1996 is referred to
as Fiscal 1995, the fifty-two weeks ended January 28, 1995 is referred to as
Fiscal 1994 and the year ended December 31, 1993 as Fiscal 1993.
The significant change in the Company's business during Fiscal 1993 from
being primarily a wholesale operation to a retail operation with significant
wholesale operations in Fiscal 1994 makes comparisons of that year with
historical operating results of Fiscal 1993 less meaningful.
18
<PAGE> 19
SALES
In Fiscal 1995, net sales were $254.0 million, a decrease of $51.7
million or 16.9% from Fiscal 1994. The decline in sales in Fiscal 1995
reflects primarily the closing of the wholesale division as well as the
reduction in business through the Company's Mexican operations due to the
significant peso devaluation during the fourth quarter of Fiscal 1994. Net
sales in the retail locations for Fiscal 1995 were $227.9 million compared to
$228.0 million for Fiscal 1994.
Fiscal 1995 included fifty-three weeks compared to fifty-two weeks for
Fiscal 1994. The incremental impact on sales of the additional week was
approximately $2.3 million.
Wholesale sales to Sam's were $5.5 million in Fiscal 1995 compared to $33.9
million in Fiscal 1994 which reflected the Company's decision to close its
wholesale business, other than for sales of discontinued merchandise.
Wholesale sales to customers other than Sam's were $20.6 million in
1995 compared to $43.8 million in Fiscal 1994. Approximately 44% of these
revenues in Fiscal 1995 were a result of liquidation sales of
inventory previously purchased for the now closed wholesale division.
Accordingly, corresponding revenues are not anticipated for Fiscal 1996.
In Fiscal 1994, net sales increased $30.5 million. Approximately 85% of
both Fiscal 1994 and 1993 net sales were derived from wholesale sales to, and
the retail operations at Sam's. The remaining 15% was from the Company's
wholesale operations in Mexico, Israel and the United States.
Sales in the future may be adversely impacted by general economic
conditions, the level of spending in the wholesale club environment and
changes to the Company's existing relationship with Sam's. The retail jewelry
market is particularly subject to the level of consumer discretionary income
and the subsequent impact on the type and value of goods purchased. With the
consolidation of the retail industry, the Company believes that competition
both within the warehouse club industry and with other competing general and
specialty retailers and discounters will continue to increase.
COST OF SALES AND GROSS PROFIT
Gross margin in Fiscal 1995 was 21.4% compared to 16.3% and 11.6% in
Fiscal 1994 and Fiscal 1993, respectively. The improvement in gross margin in
both Fiscal 1995 and Fiscal 1994 can be primarily attributed to an increase in
margins at the Company's retail locations. The increase in Fiscal 1995
compared to Fiscal 1994 primarily was due to a shift in merchandising
strategies to emphasize higher margin gem, gold and watch products in place
of other lower margin products and categories. In addition, the Company
achieved improvements as a percentage of sales in Fiscal 1995 and Fiscal 1994
in its inventory shrinkage adjustments and freight and handling costs.
19
<PAGE> 20
Gross margin in Fiscal 1993 was primarily impacted by a number of
significant factors related to the transition from wholesaler to retailer
under the terms of the Sam's Agreement.
To reduce its exposure to the effects of changes in the price of its gold
inventories, the Company hedges its gold positions and commitments with gold
futures contracts. Accordingly, changes in the market value of gold during the
holding period are generally offset by changes in the market value of the
futures contracts.
STORE AND WAREHOUSE OPERATING AND SELLING EXPENSES
Store and warehouse operating and selling expenses decreased by $7.5
million in Fiscal 1995 from Fiscal 1994 and increased $27.7 million in Fiscal
1994 from Fiscal 1993. The decrease in Fiscal 1995 is primarily a reflection of
expense reductions implemented by management and as a result of field and
related operating and selling staff reductions. The increase in Fiscal 1994 is
reflective of the payroll and other costs related to operating the Sam's based
departments for the entire Fiscal 1994 as opposed to only the fourth quarter of
Fiscal 1993.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses decreased by $4.1 million in Fiscal
1995 from Fiscal 1994 and decreased $6.1 million in Fiscal 1994 from Fiscal
1993. The decrease in Fiscal 1995 is primarily a reflection of expense
reductions implemented by management and as a result of general and
administrative staff reductions and the elimination of expenses associated
with the Company's wholesale watch and domestic manufacturing division.
General and administrative expenses in Fiscal 1993 were impacted by start up
costs associated with the Sam's Agreement transition. These expenses did not
have an impact during Fiscal 1994.
OTHER CHARGES
In Fiscal 1994, the Company recorded the following other charges
aggregating $47.8 million. (See Note J to the Consolidated Financial
Statements.)
As a result of the decision to close the wholesale watch division and
other related factors, the Company concluded that it had not retained any of
the valuable elements obtained in the 1991 acquisition of the minority
interest of the Big Ben '90 joint venture. Also, the Company projected, based
on management's best estimate of future operating results for its remaining
watch business, that none of the balance of Goodwill arising from the Big Ben
'90 acquisition would be recovered. Accordingly, the remaining balance of
Goodwill of $23.8 million as of January 28, 1995, was written off in Fiscal
1994.
20
<PAGE> 21
In the fourth quarter of 1994, the Company made the decision to sell
certain inventory at significantly less than normal prices, resulting in an
estimated net realizable value below the cost of such inventory. This decision
was made (a) to liquidate the merchandise that was predominantly sold in the
wholesale watch division which was being closed in order to focus management's
attention on the Company's retail operations, and (b) to liquidate certain other
inventory on an expedited basis in order to raise cash for liquidity purposes as
a result of the then uncertain status of credit availability due to the
Company's failure to comply with certain covenants in its debt agreements. As a
result, the Company recorded losses of $17.7 million to reflect such inventory
at its estimated net realizable value. Additionally, the Company provided $2.7
million for obligations under licensing agreements for the use of trade names on
watches previously sold in the wholesale division.
In connection with the closing of the wholesale watch division, changes
in executive management and the reduction in the number of personnel, the
Company made payments to and provided for severance for terminated employees
and the settlement of certain employment contracts, aggregating $3.0 million.
As further discussed below, in Fiscal 1994 the Company did not comply
with certain covenants in the agreement related to its senior notes which was
substantially amended and the bank credit facility which was terminated and
replaced. The Company expensed $2.3 million in financing costs incurred
primarily in connection with these original agreements. Also, the Company
settled the termination of the lease department agreement with Pace Membership
Warehouse, Inc., which resulted in a $1.7 million recovery of previously
accrued expenses.
Included in Other Charges for 1993 was $6.0 million of charges related to
the Sam's agreement and retail transition and $4.2 million related to the
compensation costs in connection with the departure of the former Chairman of
the Board of Directors, consisting primarily of the acceleration of vesting of
previously granted stock bonus awards and amounts due under his employment
contract.
AMORTIZATION EXPENSE
Amortization expense was $1.1 million in Fiscal 1995, $2.4 million in
Fiscal 1994 and $2.2 million in Fiscal 1993. The decrease in Fiscal 1995 is
primarily attributable to the goodwill write-off at the end of Fiscal 1994.
CURRENCY EXCHANGE LOSS
The significant devaluation of the Mexican peso during the Fiscal 1994
and the continuing decline in Fiscal 1995 resulted in currency exchange losses
of $597,000 and $5.5 million in Fiscal 1995 and 1994, respectively.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Interest and other income was $1.5 million in Fiscal 1995, $419,000 in
Fiscal 1994 and $635,000 in Fiscal 1993. The increase in Fiscal 1995 is a
result of higher cash on hand averages in Fiscal 1995 compared to Fiscal 1994
and Fiscal 1993.
21
<PAGE> 22
Interest expense was $3.2 million in Fiscal 1995, $3.5 million in Fiscal
1994 and $3.2 million in Fiscal 1993. In addition, average short-term
borrowings were $1.2 million in Fiscal 1995, $9.2 million in Fiscal 1994 and
$5.6 million in Fiscal 1993.
INCOME TAXES
The Company's income tax provision/benefit was (3.9%), (0.5%) and 24.7%
of income (loss) before income taxes for Fiscal 1995, Fiscal 1994 and Fiscal
1993, respectively. The Company has a Federal net operating loss carryforward
of approximately $53.2 million, and a state net operating loss carryforward of
approximately $92.9 million. The Federal net operating loss carryforward
expires beginning in 2008 through 2011 and the state net operating loss
carryforward expires beginning in 1998 through 2011. The Company also has an
alternative minimum tax credit carryforward of approximately $847,000 to
offset future Federal income taxes. The effective rates reflect primarily
the valuation allowance on the net operating loss carryforwards.
When the Company purchased Exclusive Diamonds International, Limited
("EDI") in August of 1990, EDI applied to and received from the Israeli
government under the Encouragement of Capital Investments Law of 1959
"approved enterprise" status, which results in reduced tax rates given to
foreign owned corporations to stimulate the export of Israeli manufactured
products. This benefit allows a favorable tax rate ranging from zero to ten
percent during the first ten years in which the subsidiary recognizes a
profit. The "approved enterprise" benefit is available to the Company until
the year 2000. Additionally, the Company has not provided for Federal and
state income taxes on earnings of foreign subsidiaries which are considered
indefinitely invested. (See Note F to the Consolidated Financial Statements.)
TRANSITION PERIOD
During the 30 day transition period of January 1 to January 30, 1994, the
Company incurred a net loss of approximately $4.5 million, which reflects the
historically weakest sales period without a corresponding decrease in general
and administrative expenses. The $27.5 million decrease in cash and cash
equivalents primarily resulted from the operating loss, payment to Sam's for
amounts owed on the inventory repurchased and payment of other liabilities
after the peak season.
LIQUIDITY AND CAPITAL RESOURCES
As of February 3, 1996, cash and cash equivalents totalled $15.0 million
and the Company had no short-term borrowings outstanding under its revolving
credit facility.
22
<PAGE> 23
The Company's working capital requirements are directly related to the
amount of inventory required to support its retail operations. The Company
began Fiscal 1994 with retail inventory in excess of its needs, primarily due
to the inventory repurchased under the Sam's Club agreement. Over the course
of that year, inventory was reduced providing the liquidity to fund its
repurchase obligations to Sam's and the Company's operating losses.
During Fiscal 1995, the Company operated nine additional leased
departments (net of closures), and consequently did not significantly increase
the level of retail inventory. Operations provided $6.0 million in cash
primarily due to the reduction in inventory and accounts receivable, which
were partially offset by reductions in accounts payable and accrued expenses.
Capital expenditures for Fiscal 1995 were $1.8 million, primarily for the
"Jewelry Depot" and "Jewelry Depot Outlets". Cash of $17.5 million was
used to repay obligations of the original $35 million of senior notes
outstanding.
The Company's business is highly seasonal, with seasonal working capital
needs peaking in October and November, before the holiday shopping season.
During Fiscal 1995 borrowing needs under the Company's $30 million Working
Capital Facility peaked at $14.7 million, and the Company utilized this facility
for 57 days, with an average outstanding balance during that time of $7.4
million. The Company anticipates similar seasonal needs in Fiscal 1996.
On May 31, 1995, the Company entered into an amended and restated senior
note agreement. At closing, the Company repaid $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%. In compliance with the
agreement, an additional payment of $9 million was made February 1, 1996.
Another principal payment in the amount of $10 million is payable on 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.
Substantially all of the Company's assets are subject to a
23
<PAGE> 24
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 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 with exercise prices ranging from $3.25 to $4.00 per share.
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. There can be no
assurance that the Company's future operating results will be sufficient to
meet the requirements of the foregoing covenants.
The Company partially finances its peak seasonal inventory and accounts
receivable with short-term borrowings. During Fiscal 1995, Fiscal 1994 and
Fiscal 1993, the Company's peak levels of inventory and accounts receivable
were $138.9 million, $225.1 million and $275.5 million and peak outstanding
short-term borrowings pursuant to lines of credit were $14.7 million, $39.8
million and $20.0 million, respectively. Average amounts of outstanding
short-term borrowings for the respective years were $1.2 million, $9.2 million
and $5.6 million.
During Fiscal 1995, a dispute arose between Sam's and the Company
related to certain wholesale sales and returns, primarily relating to certain
claims by Sam's for credits for certain merchandise returns. The Company
considers this matter to be in nature and magnitude outside the normal course
of business. The total difference between the amount of credits that Sam's has
claimed and the amount the Company believes is appropriate is approximately
$6.7 million. The Company and Sam's have held discussions and negotiations
regarding this matter; however, no resolution has been reached. While the
Company believes that no further amounts are owed to Sam's, the outcome remains
uncertain. The financial statements do not include a provision for any loss
that may result from the resolution of this matter.
24
<PAGE> 25
The Company believes that its cash on hand, projected cash from
operations and availability under the Working Capital Facility will be
sufficient to meet its debt service requirements and anticipated working
capital and capital expenditure needs for Fiscal 1996. There can be no
assurance that the Company's future operating results will be sufficient to
sustain such debt service and working capital needs.
EFFECTS OF INFLATION
Gold prices are affected by political, industrial and economic factors
and by changing perceptions of the value of gold relative to currencies.
Investors commonly purchase gold and other precious metals perceived to be
rising in value as a hedge against a perceived increase in inflation, thereby
bidding up the price of such metals. The Company's sales volume and net income
are potentially affected by the fluctuations in prices of gold, diamonds and
other precious or semi-precious gemstones as well as watches and other
accessories. In general, the Company has historically sought to protect its
gold inventory against gold price fluctuations through its hedging
transactions. Hedging is not available with respect to possible fluctuations
in the price of precious and semi-precious gemstones, watches or other
accessories.
The Company's store and warehouse operating and selling expenses and
general and administrative expenses are directly affected by inflation
resulting in an increased cost of doing business. Although inflation has not
had and the Company does not expect it to have a material effect on operating
results, there is no assurance that the Company's business will not be affected
by inflation in the future.
25
<PAGE> 26
NEW ACCOUNTING PRONOUNCEMENTS
The Company will adopt the following Statements of Financial Accounting
Standards ("SFAS") in the year ending February 1, 1997.
SFAS No 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles to be disposed of. Long-lived
assets and certain identifiable intangibles to be held and used by a company
are required to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for such long-lived assets
and identifiable intangibles should be based on the fair value of the asset.
Long-lived assets and certain identifiable intangibles to be disposed of
are required to be reported generally at the lower of the carrying amount or
fair value less cost to sell. SFAS No. 121 is effective for fiscal years
that begin after December 15, 1995. Management has not yet determined the
effect of SFAS No. 121 on the Company's financial position or results of
operations.
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
financial accounting and reporting standards for stock-based employee
compensation plans, including stock options, stock purchase plans,
restricted stock, and stock appreciation rights. SFAS No. 123 defines and
encourages the use of the fair value method of accounting for employee
stock-based compensation. Continuing use of the intrinsic value based
method of accounting prescribed in Accounting Principles Board Opinion No.
25 ("APB 25") for measurement of employee stock-based compensation is
allowed with pro forma disclosures of net income and earnings per share as
if the fair value method of accounting had been applied. Transactions in
which equity instruments are issued in exchange for goods or services from
non-employees must be accounted for based on the fair value of the
consideration received or of the equity instrument issued, whichever is more
reliably measurable. SFAS No. 123 is effective for transactions entered
into in fiscal years beginning after December 15, 1995. The Company has
determined that it will continue to use the method of accounting prescribed
in APB 25 for measurement of employee stock-based compensation, and will
begin providing the required pro forma disclosures in its consolidated
financial statements for the year ending February 1, 1997 as allowed by SFAS
No. 123.
26
<PAGE> 27
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
<TABLE>
<S> <C>
Independent Auditors' Report ............................. 28
Consolidated Balance Sheets as of February 3, 1996
and January 28, 1995 ................................ 29
Consolidated Statements of Operations for
the Fifty-three Weeks Ended February 3, 1996,
the Fifty-two Weeks Ended January 28, 1995
and the Year Ended December 31, 1993 ................ 30
Consolidated Statements of Stockholders'
Equity for the Fifty-three Weeks
Ended February 3, 1996, the Fifty-two
Weeks Ended January 28, 1995 and
the Year Ended December 31, 1993 .................... 31
Consolidated Statements of Cash Flows for the
Fifty-three Weeks Ended February 3, 1996,
the Fifty-two Weeks Ended January 28, 1995
and the Year Ended December 31, 1993 ................ 32
Notes to Consolidated Financial Statements ............... 34
</TABLE>
27
<PAGE> 28
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Jan Bell Marketing, Inc.
Sunrise, Florida
We have audited the accompanying consolidated balance sheets of Jan Bell
Marketing, Inc. and its subsidiaries (the "Company") as of February 3, 1996
and January 28, 1995, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the fifty-three weeks ended February
3, 1996, the fifty-two weeks ended January 28, 1995 and the year ended December
31, 1993. Our audits also included the financial statement schedule listed at
Item 14(a)(2). These consolidated financial statements and the financial
statement schedule are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements and financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the financial position of the Company as of February 3,
1996 and January 28, 1995, and the results of their operations and their cash
flows for the fifty-three weeks ended February 3, 1996, the fifty-two weeks
ended January 28, 1995 and the year ended December 31, 1993 in conformity with
generally accepted accounting principles. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic consolidated
financial statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
March 25, 1996
28
<PAGE> 29
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
---- ----
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $ 14,955 $ 28,212
Accounts receivable (net of allowance
for doubtful accounts and sales returns of
$702 and $5,630, respectively) 5,855 12,156
Inventories 95,486 106,053
Other current assets 914 1,738
-------- --------
Total current assets 117,210 148,159
Property, net 25,943 29,639
Excess of cost over fair value of
net assets acquired 2,685 2,869
Other assets 7,335 6,085
-------- --------
$153,173 $186,752
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 6,043 $ 14,249
Accrued expenses 4,405 10,168
Senior notes payable
classified as current 10,000 35,000
-------- --------
Total current liabilities 20,448 59,417
-------- --------
Long-term debt 7,500 ---
-------- --------
Commitments and Contingencies (Notes B and H)
Stockholders' Equity:
Common stock, $.0001 par value, 50,000,000
shares authorized, 25,833,541 and
25,741,991 shares issued and outstanding,
respectively 3 3
Additional paid-in capital 180,716 178,896
Accumulated deficit (54,099) (50,657)
Foreign currency translation adjustment (1,395) (907)
-------- --------
125,225 127,335
-------- --------
$153,173 $186,752
======== ========
</TABLE>
See notes to consolidated financial statements.
29
<PAGE> 30
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
Fifty-three Fifty-two
Weeks Ended Weeks Ended Year Ended
February 3, January 28, December 31,
1996 1995 1993
---- ---- ----
<S> <C> <C> <C>
Net sales $ 254,004 $ 305,685 $ 275,177
Less:
Effect of Sam's
agreement (Note B) --- --- 99,718
----------- ----------- -----------
254,004 305,685 175,459
----------- ----------- -----------
Cost of sales 199,579 255,725 243,350
Less:
Effect of Sam's
agreement (Note B) --- --- 79,687
----------- ----------- -----------
199,579 255,725 163,663
----------- ----------- -----------
Gross profit 54,425 49,960 11,796
Store and warehouse
operating and selling expenses 36,598 44,131 16,400
General and
administrative expenses 17,694 21,744 27,871
Other charges (Note J) --- 47,773 10,217
Amortization expense 1,129 2,427 2,181
Currency exchange loss 597 5,474 ---
----------- ----------- -----------
Operating loss (1,593) (71,589) (44,873)
Interest expense (3,196) (3,534) (3,195)
Interest and other income 1,477 419 635
----------- ----------- -----------
Loss before income taxes (3,312) (74,704) (47,433)
Income tax provision
(benefit) 130 353 (11,709)
----------- ----------- -----------
Net loss $ (3,442) $ (75,057) $ (35,724)
=========== =========== ===========
Net loss per
common share $ (.13) $ (2.92) $ (1.40)
=========== =========== ===========
Weighted average number
of common shares 25,774,018 25,688,592 25,484,544
=========== =========== ===========
</TABLE>
See notes to consolidated financial statements.
30
<PAGE> 31
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands except share data)
<TABLE>
<CAPTION>
Retained Foreign
Common Earnings/ Currency Total
Shares Common Paid-in Accumulated Treasury Deferred Translation Stockholders'
Issued Stock Capital Deficit Stock Compensation Adjustment Equity
------ ----- ------- ------- ----- ------------ ---------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1992 26,553,664 $ 3 $182,158 $ 64,595 $ (8,468) $(3,314) $ -0- $ 234,974
Purchase plan exercise 12,236 112 112
Exercise of options 37,580 323 323
Issuance of common stock 63,688 550 550
Stock bonus plan issuance 331,500 5,925 (5,925)
Repurchase of common stock (258) (258)
Retirement of treasury stock (1,149,500) (8,726) 8,726
401(K) Plan contribution 2,570 25 25
Amortization of deferred
compensation 5,380 5,380
Net loss (35,724) (35,724)
----------- ------ -------- ----------- -------- ------- --------- -------------
Balance at December 31, 1993 25,851,738 3 180,367 28,871 -0- (3,859) -0- 205,382
Exercise of options 500 4 4
Amortization of deferred
compensation 86 86
Net loss (4,471) (4,471)
----------- ------ -------- ----------- -------- ------- --------- -------------
Balance at January 30, 1994 25,852,238 3 180,371 24,400 -0- (3,773) -0- 201,001
Purchase plan exercise 19,065 78 78
Issuance of common stock 63,688 990 990
Issuance of stock warrants 826 826
Settlement of stock awards (193,000) (3,369) 3,369
Amortization of deferred
compensation 404 404
Foreign currency
translation adjustment (907) (907)
Net loss (75,057) (75,057)
----------- ------ -------- ----------- -------- ------- --------- -------------
Balance at January 28, 1995 25,741,991 3 178,896 (50,657) -0- -0- (907) $ 127,335
Purchase plan exercise 35,372 71 71
Issuance of common stock 63,688 350 350
Issuance of stock warrants 1,414 1,414
Foreign currency translation
adjustment (488) (488)
401(K) Plan contribution 6,367 20 20
Purchase and retirement of
common stock (13,877) (35) (35)
Net loss (3,442) -0- (3,442)
----------- ------ -------- ----------- -------- ------- --------- -------------
Balance at February 3, 1996 25,833,541 $ 3 $180,716 $ (54,099) $ -0- $ -0- $ (1,395) $ 125,225
=========== ====== ======== =========== ======== ======= ========= ============
</TABLE>
See notes to consolidated financial statements.
31
<PAGE> 32
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Fifty-three Fifty-two
Weeks Ended Weeks Ended Year Ended
February 3, January 28, December 31,
1996 1995 1993
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating
activities:
Cash received from customers $ 260,304 $ 313,163 $ 319,907
Cash paid to suppliers and
employees (253,058) (292,249) (324,893)
Interest and other income
received 1,477 419 635
Interest paid (3,196) (3,534) (3,195)
Income taxes received 506 14,348 499
----------- ----------- ------------
Net cash provided by (used in)
operating activities 6,033 32,147 (7,047)
----------- ----------- ------------
Cash flows used in investing
activities:
Capital expenditures (1,826) (6,316) (12,611)
----------- ----------- ------------
Cash flows from financing
activities:
Debt repayment (17,500) --- ---
Proceeds from exercise
of options --- --- 323
Proceeds from issuance of
common stock --- --- 25
Stock purchase plan 71 78 112
Purchase and retirement of
common stock (35) --- (258)
----------- ----------- ------------
Net cash (used in) provided by
financing activities (17,464) 78 202
----------- ----------- ------------
Net (decrease) increase in cash
and cash equivalents (13,257) 25,909 (19,456)
Cash and cash equivalents at
beginning of year 28,212 2,303 49,634
----------- ----------- ------------
Cash and cash equivalents at
end of year $ 14,955 $ 28,212 $ 30,178
=========== =========== ============
</TABLE>
32
<PAGE> 33
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
(continued)
<TABLE>
<CAPTION>
Fifty-three Fifty-two
Weeks Ended Weeks Ended Year Ended
February 3, January 28, December 31,
1996 1995 1993
---- ---- ----
<S> <C> <C> <C>
Reconciliation of net loss to
net cash provided by (used
in) operating activities:
Net loss $ (3,442) $(75,057) $(35,724)
Adjustments to reconcile
net loss to net cash
provided by (used in)
operating activities:
Depreciation and amortization 8,704 9,147 7,210
Goodwill write-off --- 23,795 ---
Foreign currency translation
adjustment (488) (907) ---
Stock compensation expense 350 404 5,929
(Increase) decrease in assets:
Accounts receivable (net) 6,301 7,478 44,730
Inventories 10,567 79,306 (70,799)
Other assets (1,990) 15,470 2,168
Increase (decrease) in liabilities:
Accounts payable (8,206) (10,430) 3,488
Accrued expenses (5,763) 1,107 4,607
Liability for inventory
repurchased --- (18,166) 33,426
Deferred income taxes --- --- (2,082)
-------- -------- ---------
Net cash provided by (used in)
operating activities $ 6,033 $ 32,147 $ (7,047)
======== ======== =========
</TABLE>
See notes to consolidated financial statements.
33
<PAGE> 34
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED
FEBRUARY 3, 1996, JANUARY 28, 1995 AND DECEMBER 31, 1993
A. Nature of Business:
The Company is principally engaged in the sale of jewelry, watches and
other consumer products through leased departments in wholesale clubs and
formerly through its own wholesale operations. During the fifty-three weeks
ended February 3, 1996 ("Fiscal 1995"), the Company generated approximately
91% of its net sales from Sam's customers. 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. The significant change in the Company's business from
being primarily a wholesale operation in years prior to the fifty-two weeks
ended January 28, 1995 ("Fiscal 1994") to primarily a retail operation in
Fiscal 1994 and Fiscal 1995 makes comparisons with historical operating
results prior to Fiscal 1994 less meaningful.
B. Relationship 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, later extended to
February 1, 2001. Under the terms of the Agreement, the Company purchased 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 February 3, 1996 and January 28, 1995 was
approximately $4.7 million and $5.6 million, respectively. The Company pays
Sam's a tenancy fee of 9% (9.25% prior to April 1994) of net sales.
As a result of this new Agreement with Sam's, in 1993 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. In connection with the transition
to become a fully-integrated retailer, Jan Bell also incurred approximately
$6.0 million (included in "Other Charges" in 1993), including additional
one-time charges for costs such as hiring and training personnel, systems
implementation, other activities related to commencing operations under the
new Agreement and the transition to primarily retail operations, and a
valuation adjustment for certain inventory acquired which Sam's had purchased
from other vendors.
As of February 3, 1996, the Company operated leased departments in 437
Sam's locations.
34
<PAGE> 35
During Fiscal 1995, a dispute arose between Sam's and the Company
related to certain wholesale sales and returns, primarily relating to certain
claims by Sam's for credits for certain merchandise returns. The Company
considers this matter to be in nature and magnitude outside the normal course
of business. The total difference between the amount of credits that Sam's has
claimed and the amount the Company believes is appropriate is approximately
$6.7 million. The Company and Sam's have held discussions and negotiations
regarding this matter; however, no resolution has been reached. While the
Company believes that no further amounts are owed to Sam's, the outcome remains
uncertain. The financial statements do not include a provision for any loss
that may result from the resolution of this matter.
C. Summary of Significant Accounting Policies:
(1) Principles of Consolidation -- The consolidated financial
Statements include the accounts of the Company and its wholly-owned
subsidiaries. All significant intercompany accounts and transactions have been
eliminated in the consolidation.
(2) Use of Estimates - The preparation of financial statements in
conformity with generally accepted accounting principles requires management
to make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
(3) Sales of Consignment Merchandise -- Income is recognized on the
sale of consignment merchandise at such time as the merchandise is sold by
the consignee.
(4) Allowance for Sales Returns -- The Company generally gives its
customers the right to return merchandise purchased by them and records an
allowance at the time of sale for the amount of gross profit on estimated
returns.
(5) Hedging Activities -- The Company uses gold commodities futures
contracts to hedge gold inventories. Commodity futures contracts are
contracts for delayed delivery of commodities in which the seller agrees to
make and the purchaser agrees to take delivery at a specified future date of
a specified commodity, at a specified price. Risks arise from the possible
inability of counterparties to meet the terms of their
35
<PAGE> 36
contracts and from movements in commodity values and interest rates. Gains
and losses on futures used to hedge gold inventories valued at cost are
deferred and included in the determination of income upon disposition of
such inventories. Gains and losses on futures contracts used to hedge gold
inventories valued at market are included in the determination of income
currently. At February 3, 1996 the Company had futures contracts maturing
April 28, 1996 to sell 30,700 ounces of gold at various specified prices for
an aggregate of $12.3 million. U.S. Treasury securities with a carrying
value of $371,800 at February 3, 1996 are pledged to cover margin
requirements under future contracts.
(6) Inventories -- Inventories of precious and semi-precious stones and
gem jewelry-related merchandise (and associated gold), watches, and other
consumer products are valued at the lower of cost (first-in, first-out
method) or market. The Company records reserves for lower of cost or
market, damaged goods, and obsolete and slow-moving inventory.
Inventories of gold jewelry-related merchandise, exclusive of the gold
component of precious and semi-precious gem jewelry-related inventories, are
valued principally at market, which includes adjustments for unrealized
gains or losses.
Costs incurred in acquiring, receiving, preparing and distributing
inventory to the point of being ready for sale are included in inventory.
(7) Property -- Property is stated at cost and is depreciated using the
straight-line method over the following estimated useful lives of the
respective assets:
<TABLE>
Estimated
Asset Useful Life
---------------------- -----------
<S> <C>
Buildings 30 years
Furniture and fixtures 5 years
Leasehold improvements 5 years
Automobiles and trucks 3 years
</TABLE>
(8) Income Taxes -- The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," ("SFAS No. 109"). Under SFAS 109, deferred income taxes
reflect the net tax effects of (a) temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the bases for income tax purposes, and (b) operating loss and tax credit
carryforwards.
(9) Net Loss Per Common Share -- Net loss per common share is based
upon the weighted average number of shares of common stock outstanding in
each period, adjusted for the dilutive effects, if any, of options granted
under the Company's option plans and outstanding warrants to purchase the
Company's common stock.
36
<PAGE> 37
(10) Cash and Cash Equivalents -- The Company considers all
highly-liquid investments purchased with original maturities of three months
or less to be cash equivalents.
(11) Cost in Excess of Fair Value of Assets Acquired ("Goodwill") --
The Company periodically evaluates the recoverability of the carrying amount
of Goodwill based on projected operating income. Goodwill is being amortized
on the straight line basis over 20 years. Accumulated amortization of these
assets at February 3, 1996 and January 28, 1995 was approximately $.7
million and $.5 million, respectively.
(12) Deferred Financing Costs - The Company amortizes deferred
financing costs incurred in connection with its financing agreements over
the related period. Such deferred costs are included in other assets.
(13) Foreign Currency - Adjustments resulting from the translation of
the accounts of foreign subsidiaries from their functional currency to the
reporting currency are accumulated and reported in the foreign currency
translation adjustment component of stockholders' equity. Exchange rate
gains and losses on foreign currency transactions are reported as a currency
exchange gain or loss in the consolidated statement of operations, except
for intercompany transactions with subsidiaries that are of a long-term
investment nature, which are reported in the same manner as translation
adjustments.
(14) Advertising costs are charged to expense as incurred. Advertising
expense was $2.8 million, $2.4 million and $.7 million in Fiscal 1995, 1994 and
1993, respectively.
(15) The Company will adopt the following Statements of Financial
Accounting Standards ("SFAS") in the year ending February 1, 1997.
SFAS No 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of" establishes accounting standards
for the impairment of long-lived assets, certain identifiable intangibles,
and goodwill related to those assets to be held and used and for long-lived
assets and certain identifiable intangibles to be disposed of. Long-lived
assets and certain identifiable intangibles to be held and used by a company
are required to be reviewed for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. Measurement of an impairment loss for such long-lived assets
and identifiable intangibles should be based on the fair value of the asset.
Long-lived assets and certain identifiable intangibles to be disposed of
are required to be reported generally at the lower of the carrying amount or
fair value less cost to sell. SFAS No. 121 is effective for fiscal years
that begin after December 15, 1995. Management has not yet determined the
effect of SFAS No. 121 on the Company's financial position or results of
operations.
37
<PAGE> 38
SFAS No. 123, "Accounting for Stock-Based Compensation" establishes
financial accounting and reporting standards for stock-based employee
compensation plans, including stock options, stock purchase plans,
restricted stock, and stock appreciation rights. SFAS No. 123 defines and
encourages the use of the fair value method of accounting for employee
stock-based compensation. Continuing use of the intrinsic value based
method of accounting prescribed in Accounting Principles Board Opinion No.
25 ("APB 25") for measurement of employee stock-based compensation is
allowed with pro forma disclosures of net income and earnings per share as
if the fair value method of accounting had been applied. Transactions in
which equity instruments are issued in exchange for goods or services from
non-employees must be accounted for based on the fair value of the
consideration received or of the equity instrument issued, whichever is more
reliably measurable. SFAS No. 123 is effective for transactions entered
into in fiscal years beginning after December 15, 1995. The Company has
determined that it will continue to use the method of accounting prescribed
in APB 25 for measurement of employee stock-based compensation, and will
begin providing the required pro forma disclosures in its consolidated
financial statements for the year ending February 1, 1997 as allowed by SFAS
No. 123.
(16) Reclassifications - Certain reclassifications have been made to
the prior consolidated financial statements to conform to the current
presentation.
D. Inventories:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
---- ----
<S> <C> <C>
(amounts shown in thousands)
Precious and semi-precious jewelry-related
merchandise (and associated gold):
Raw materials $ 6,488 $ 8,617
Finished goods 42,083 41,775
Gold jewelry-related merchandise:
Raw materials 2 2
Finished goods 15,789 18,305
Watches 13,131 27,461
Other consumer products 17,993 9,893
--------- --------
$ 95,486 $106,053
========= ========
</TABLE>
38
<PAGE> 39
E. Property:
The components of property are as follows:
<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
---- ----
<S> <C> <C>
(amounts shown in thousands)
Land $ 4,171 $ 4,171
Buildings 10,792 10,758
Furniture and fixtures 32,443 31,352
Leasehold improvements 1,205 394
Automobiles and trucks 528 546
--------- ----------
49,139 47,221
Less accumulated depreciation (23,196) (17,582)
--------- ----------
$ 25,943 $ 29,639
========= ==========
</TABLE>
Depreciation expense for the years ended February 3, 1996, January 28,
1995 and December 31, 1993 was approximately $5.7 million, $5.5 million and
$4.6 million, respectively.
F. Financing Arrangements
In October 1992, the Company finalized a $35 million unsecured private
placement of senior notes with an interest rate of 6.99%. Interest was payable
semi-annually, and principal payments of $6.5 million were due annually
commencing April 1996, with a final principal payment of $9.0 million due in
October 1999. The related agreement required the Company to maintain various
financial ratios and covenants. During Fiscal 1994, the Company failed to comply
with covenants specified in the agreement related to earnings and tangible net
worth as of January 28, 1995. As discussed below, the agreement was
substantially amended and the Company charged to expense the financing costs
incurred in connection with the original agreement. As such, in Fiscal 1994,
the senior notes were classified as a current liability.
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%. In
compliance with the agreement, an additional payment of $9 million was made
February 1, 1996. Another principal payment in the amount of $10 million is
payable on 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.
39
<PAGE> 40
On May 31, 1995 the Company replaced its previous revolving bank credit facility
with 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.
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
voting common stock with exercise prices ranging from $3.25 to $4.00 per share.
These warrants have been recorded at their estimated fair value on the date of
grant and are included in deferred financing costs.
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. 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.
40
<PAGE> 41
Information concerning the Company's short-term borrowings follows:
<TABLE>
<CAPTION>
Fifty-three Fifty-two
Weeks Ended Weeks Ended Year Ended
February 3, January 28, December 31,
1996 1995 1993
---- ---- ----
<S> <C> <C> <C>
(dollars shown in thousands)
Maximum borrowings outstanding
during the period $14,717 $39,750 $19,950
Average outstanding balance
during the period 1,162 9,239 5,607
Weighted average interest rate
for the period 10.25% 8.61% 6.00%
</TABLE>
G. Income Taxes:
The significant items comprising the Company's net deferred taxes as of
February 3, 1996 and January 28, 1995 are as follows:
<TABLE>
<CAPTION>
February 3, January 28,
1996 1995
---- ----
(amounts shown in thousands)
<S> <C> <C>
Deferred Tax Liabilities:
Difference between book and
tax basis of property $ 1,454 $ 2,047
Other 575 ---
-------- -------
$ 2,029 $ 2,047
-------- -------
Deferred Tax Assets:
Sales returns and doubtful accounts
allowances not currently deductible 887 5,020
Inventory reserves not currently deductible 1,918 5,482
Federal net operating loss and tax
credit carryforward 19,026 11,448
State net operating loss carryforward 4,291 3,268
Other --- 620
-------- -------
26,122 25,838
-------- -------
Valuation allowance 24,093 23,791
-------- -------
Net Deferred Tax Asset/Liability $ --- $ ---
======== =======
</TABLE>
41
<PAGE> 42
The components of loss before income taxes are as follows:
<TABLE>
<CAPTION>
Fifty-three Fifty-two
Weeks ended Weeks Ended Year Ended
February 3, January 28, December 31,
1996 1995 1993
---- ---- ----
(amounts shown in thousands)
<S> <C> <C> <C>
Domestic $ (702) $(70,650) $(51,665)
Foreign (2,610) (4,054) 4,232
------- -------- --------
$(3,312) $(74,704) $(47,433)
======= ======== ========
</TABLE>
The current and deferred income tax components of the provision (benefit) for
income taxes consist of the following:
<TABLE>
<CAPTION>
Fifty-three Fifty-two
Weeks Ended Weeks Ended Year ended
February 3, January 28, December 31,
1996 1995 1993
---- ---- ----
<S> <C> <C> <C>
(amounts shown in thousands)
Current:
Federal $ --- $ --- $ (10,170)
State --- --- ---
Foreign 130 353 543
------ ------ ---------
130 353 (9,627)
------ ------ ---------
Deferred:
Federal --- --- (1,778)
State --- --- (304)
------ ------ ---------
--- --- (2,082)
------ ------ ---------
$ 130 $ 353 $ (11,709)
====== ====== =========
</TABLE>
42
<PAGE> 43
The provision (benefit) for income taxes varies from the amount computed by
applying the statutory rate for reasons summarized below:
<TABLE>
<CAPTION>
Fifty-three Fifty-two
Weeks Ended Weeks Ended Year Ended
February 3, January 28, December 31,
1996 1995 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate 35.0% 35.0% 35.0%
Benefit of graduated rates (1.0) --- (1.0)
State taxes (net of federal benefit) 1.1 --- .4
Tax effect of income from
foreign subsidiaries (31.1) (.5) 1.9
Valuation allowance (9.1) (35.0) (14.4)
Other 1.2 --- 2.8
------ ------ -----
(3.9%) (.5%) 24.7%
====== ====== =====
</TABLE>
The Company has a Federal net operating loss carryforward of
approximately $53.2 million and a state net operating loss carryforward of
approximately $92.9 million. The Federal net operating loss carry forward
expires beginning in 2008 through 2011 and the state net operating loss carry
forward expires beginning in 1998 through 2011. The Company also has an
alternative minimum tax credit carryforward of approximately $847,000 to offset
future regular federal income taxes.
At the time the Company purchased Exclusive Diamonds International,
Limited ("EDI") in August of 1990, EDI applied to and received from the Israeli
government under the Capital Investments Law of 1959 "approved enterprise"
status, which results in reduced tax rates given to foreign owned corporations
to stimulate the export of Israeli manufactured products. The benefit to the
Company amounted to approximately $0.7 million or $0.03 per share, $1.2 million
or $0.05 per share, and $2.0 million or $0.08 per share, in Fiscal 1995, 1994
and 1993, respectively. The effect in the current year was not material. The
"approved enterprise" tax benefit is available to EDI until the year 2000.
The Company has not provided Federal and state income taxes on
approximately $5.5 million of undistributed earnings of foreign subsidiaries
which it considers invested in such subsidiaries indefinitely. The amount of
unrecognized deferred tax liability on the unremitted earnings of the foreign
subsidiaries at February 3, 1996 approximates $2.1 million exclusive of any
benefit from utilization of foreign tax credits. At February 3, 1996, the
Company has approximately
43
<PAGE> 44
$2.0 million of unrecognized foreign tax credits which, depending on
circumstances, may be available to reduce federal income taxes on the unremitted
earnings of the foreign subsidiaries in the event such earnings are repatriated.
H. Commitments and Contingencies:
(1) At February 3, 1996, under a licensing agreement, the Company is
obligated to pay a minimum amount approximating $87,500 in 1996 and 1997.
(2) In addition to the noteholder warrants discussed in Note F, the
Company has warrants outstanding to purchase 700,000 shares of common stock. The
warrants expire December 16, 1998 and have an exercise price of $24.70.
(3) In connection with the acquisition of EDI in 1991, the Company
entered into non-compete agreements with the prior owners which provide for
the issuance of an aggregate of 317,881 shares of the Company's common stock
over five years commencing August 1991. During Fiscal 1995, 1994 and 1993,
63,688 shares were issued each year.
(4) The Company has non-cancelable leases for retail space in three
locations through October, 2002. Minimum lease commitments subsequent to
February 3, 1996 are as follows:
<TABLE>
<S> <C>
1996...........$ 332,000
1997........... 324,000
1998........... 330,000
1999........... 343,000
2000........... 339,000
Thereafter..... 426,000
----------
$2,094,000
==========
</TABLE>
I. Legal Proceedings:
The Company is from time to time involved in litigation incident to the
conduct of its business. While it is not possible to predict with certainty the
outcome of such matters, management believes that any litigation currently
pending to which the Company is a party will not have a material adverse effect
on the Company's financial position and results of operations.
44
<PAGE> 45
J. Other Charges
The following is the composition of Other Charges in Fiscal 1994 (in
thousands):
<TABLE>
<S> <C>
Goodwill write-off (1) $23,795
Losses on inventory liquidations (2) 20,428
Severance and executive compensation
settlements (3) 2,985
Other (4) 565
-------
Total $47,773
=======
</TABLE>
(1) In May 1990, the Company entered into an agreement with Big Ben
Corporation to form a joint venture, Big Ben '90, in which the Company held a
50.1% interest. In September 1991, the Company acquired the minority interest
in the joint venture in a transaction accounted for as a purchase, resulting
in a cost in excess of net assets acquired (goodwill) of $26.9 million. The
Company viewed the joint venture formation and acquisition as a means of
assuring adequate supplies of watches for sale at discount prices to its
existing significant customers, Sam's and Pace, and for new marketing
opportunities. Management perceived that the valuable elements of Big Ben '90
were: (a) contacts for access to parallel markets in order to purchase
substantial quantities of watches for sale at lower price points; (b) personnel
with expertise to manage a wholesale watch division; (c) an existing wholesale
watch business; and (d) opportunities for expansion of the wholesale watch
business to new customers and through development of private label and
designer brand names for watches at lower price points.
In 1991 and 1992, the Company experienced increases in its watch
business, with watches accounting for 34% and 38% respectively, of net sales. A
significant portion of these sales increases occurred in promotional events at
lower price points. In subsequent years, sales of watches decreased to 26% of
net sales in 1993 and 22% in Fiscal 1994, with further decreases expected in the
foreseeable future. These decreases, as well as the related decline in
profitability from sales of watches were caused by a number of factors,
including: (a) increased competition as watches at lower price points became
increasingly available, resulting in higher levels of returns and lower gross
margin; (b) marketing promotions of lower price point watches became
ineffective; (c) private label and designer brand name watch programs with lower
price points were unsuccessful; (d) efforts to expand the wholesale watch
business were not successful; and (e) the inventory of watches became
overstocked and the amount of watches in need of repair increased, resulting in
increased costs. In addition, as discussed in Note B, in 1993 the Company became
primarily a retailer, and now operates leased jewelry departments in all Sam's
locations. During 1994, Sam's notified the Company that it wanted the Company to
eliminate lower
45
<PAGE> 46
end watches from the departments, and to instead offer primarily recognized
brands at higher price points.
These circumstances caused an evaluation of the wholesale watch
business in the latter half of 1994, and in the fourth quarter the Company made
the decision to close its wholesale watch division and liquidate the related
inventory as soon as practicable, resulting in significant inventory reserves as
discussed below. All key personnel from Big Ben '90 left the Company by year
end. The Company now sells primarily recognized brand watches at higher price
points in the leased departments at Sam's. Also, while the Company will continue
to purchase watches in parallel markets, the sources and styles of the
merchandise purchased are different from those in Big Ben '90, and management
has reduced the parallel markets as the primary source for watches.
As a result of the events described above, as well as the decisions,
actions and plans of management, the Company has not retained any of the
valuable elements of the Big Ben '90 acquisition. Also, the Company projected,
based on management's best estimate of future operating results for its watch
business, that none of the remaining balance of Goodwill arising from the Big
Ben '90 acquisition was recoverable. Accordingly, the remaining balance of such
Goodwill of $23.8 million was written off as of January 28, 1995.
(2) In the fourth quarter of 1994, the Company made the decision to sell
certain inventory at significantly less than normal prices, resulting in an
estimated net realizable value below the cost of such inventory. This decision
was made (a) to liquidate the merchandise that was predominantly sold in the
wholesale watch division which was being closed in order to focus management's
attention on the Company's retail operations, and (b) to liquidate certain other
inventory on an expedited basis in order to raise cash for liquidity purposes as
a result of the then uncertain status of credit availability due to the
Company's failure to comply with certain covenants in its debt agreements as
discussed in Note F.
As a result, the Company recorded losses of $17.7 million to reflect
such inventory at its net realizable value. Additionally, the Company provided
$2.7 million for obligations under licensing agreements for the use of trade
names on watches previously sold in the wholesale division.
(3) In connection with the closing of the wholesale watch division, changes
in executive management and the reduction in the number of personnel, the
Company made payments to and provided for severance for terminated employees and
the settlement of certain employment contracts, aggregating $2.7 million.
Accrued expenses at
46
<PAGE> 47
January 28, 1995, included $1.6 million for such payments to be made after year
end. In addition, cash payments of $0.8 million were made during the fourth
quarter to buy-out the unvested portions of bonus stock awards, resulting in a
$0.3 million charge to expense, and the related remaining amount of deferred
compensation was eliminated by charging additional paid-in-capital.
(4) As discussed in Note F, in Fiscal 1994 the Company did not comply
with certain covenants in the agreements related to the senior notes payable and
the bank credit facility, and financing costs of $2.3 million incurred primarily
in connection with these original agreements were charged to expense.
Additionally, the Company settled the termination of the lease department
agreement with Pace Membership Warehouse, Inc., which resulted in a $1.7 million
recovery of previously accrued expenses.
Included in Other Charges in 1993 are the $6.0 million in charges
discussed in Note B related to the Sam's agreement and retail transition. Also
included are compensation costs of $4.2 million in connection with the departure
of the former Chairman of the Board of Directors, consisting primarily of the
acceleration of vesting of previously granted stock bonus awards and amounts due
under his employment contract.
47
<PAGE> 48
K. Stock Benefit Plans:
The Company maintains various stock option, bonus and purchase plans
for the benefit of its employees, officers, directors and certain third
parties. A summary of the activity in the stock option plans is as follows:
<TABLE>
<CAPTION>
STOCK
OPTION PLANS
SHARES PRICE
========= ===========
<S> <C> <C>
Outstanding, December 31, 1993 1,871,189 $7.88-19.63
Granted 21,620 $9.00- 9.00
Exercised (500) $7.88- 7.88
Expired/cancelled (9,524) $9.00-13.50
--------- -----------
Outstanding, January 30, 1994 1,882,785 $7.88-19.63
Granted 2,302,210 $4.00- 6.25
Exercised --- ---
Expired/cancelled (99,849) $6.25-13.50
--------- -----------
Outstanding, January 28, 1995 4,085,146 $4.00-19.63
Granted 1,628,300 $2.44- 3.63
Exercised --- ---
Expired/cancelled (1,072,320) $2.44-13.50
--------- -----------
Outstanding, February 3, 1996 4,641,126 $2.44-19.63
========= ===========
Shares reserved under the Plans 6,172,384
=========
</TABLE>
As of February 3, 1996, options to purchase 1,770,708 shares were
exercisable.
A total of 562,500 shares are reserved for issuance under the Employee
Stock Purchase Plan of which 35,372, 19,065 and 12,236 shares were issued
during the years ended February 3, 1996, January 28, 1995 and December 31,
1993, respectively.
L. Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial
instruments is made in accordance with the requirements of SFAS No. 107,
"Disclosures About Fair Value of Financial Instruments." The estimated fair
value amounts have been determined by the Company, using available market
information and appropriate valuation methodologies. However, considerable
judgment is required in interpreting market data to develop the estimates of
fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts that would be realized in a
48
<PAGE> 49
current market exchange. The use of different market assumptions and/or
estimation methodologies may have a material effect on the estimated fair value
amounts.
(1) Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, and
Accrued Expenses -- The carrying amounts of these items are a reasonable
estimate of their fair values.
(2) Long Term Debt -- The present value of the future principal and
interest payments on the senior notes issued in October, 1992 is used to
estimate fair value for this debt which is not quoted on an exchange. The notes
have a net book value at February 3, 1996 and January 28, 1995 of $17.5 million
and $35 million, respectively and are estimated to have a fair value at February
3, 1996 and January 28, 1995 of approximately $18.4 million and $37.6 million,
respectively.
(3) Gold Futures Contracts -- The fair value of gold futures contracts
is the amount at which they could be settled, based on market prices on
commodity exchanges. At February 3, 1996 and January 28, 1995, open gold futures
contracts are included in the consolidated financial statements at their fair
value which approximates $0.2 million and $0.3 million, respectively,
both of which represent assets.
M. Change in Fiscal Year
In 1994, the Company changed its fiscal year from December 31 to a
retail 52/53 week fiscal year ending on the Saturday closest to the end of
January. The first such fiscal year began on January 31, 1994 and ended on
January 28, 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):
49
<PAGE> 50
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
<TABLE>
<S> <C>
Net sales $ 7,384
---------
Gross profit 689
---------
Net loss (4,471)
---------
Net loss per common share (.17)
---------
CONDENSED 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
(Increase) in current assets (4,180)
(Decrease) in current liabilities (19,565)
---------
Net cash (used in) operating activities $ (27,469)
=========
</TABLE>
N. Selected Quarterly Financial Data (unaudited):
Fourteen Weeks
Thirteen Weeks Ended Ended
-------------------- --------------
<TABLE> (In thousands, except per share data)
<CAPTION>
April 29, July 29, October 28, February 3,
1995 1995 1995 1996
--------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $50,018 $55,452 $46,209 $102,325
Gross Profit 7,384 11,048 10,349 25,644
Net income (loss) (5,775) (1,886) (2,933) 7,152
Net income (loss) per
Common Share (.22) (.07) (.11) .28
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
Thirteen Weeks Ended
--------------------
(In thousands, except per share data)
May 1, July 31, October 30, January 28,
1994 1994 1994 1995
------- -------- ----------- -----------
<S> <C> <C> <C> <C>
Net Sales $63,010 $60,077 $68,588 $114,010
Gross Profit 10,089 9,714 10,628 19,529
Net (loss) (1) (5,979) (4,932) (4,532) (59,614)
Net (loss) per
Common Share (.23) (.19) (.18) (2.32)
</TABLE>
- ---------------------
(1) Net loss for the thirteen weeks ended January 28, 1995, includes (a)
$23.8 million write-off of Goodwill associated with the 1991
acquisition of the minority interest in the Big Ben '90 joint venture;
(b) $17.7 million to provide for liquidation of inventory predominantly
sold in the wholesale watch division, which the Company closed, and
certain other inventory in order to raise cash for liquidity purposes
as a result of the then uncertain status of credit availability due to
the Company's failure to comply with certain covenants in its debt
agreements, and $2.7 million for obligations under licensing agreements
for the use of trade names on watches previously sold in the wholesale
division; (c) $3.0 million in payments to and provisions for severance
for terminated employees and the settlement of certain employment
contracts in connection with the closing of the wholesale watch
division and the buy-out of the unvested portions of bonus stock
awards; and (d) $2.3 million in financing costs incurred primarily in
connection with the original senior note agreement which was
substantially amended and the bank credit facility which was
effectively terminated, and recovery of previously accrued expenses of
$1.7 million resulting from the settlement of the terminated lease
department agreement with Pace Membership Warehouse, Inc.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Form 8-K filed within 24 months prior to the date of
the most recent financial statements reporting a change of accountants or
reporting disagreements on any matter of accounting principle or financial
statement disclosure.
51
<PAGE> 52
PART III
ITEMS 10 THROUGH 13.
Within 120 days after the close of the fiscal year, the Company intends
to file with the Securities and Exchange Commission a definitive proxy
statement pursuant to Regulation 14A which will involve the election of
directors. The answers to Items 10 through 13 are incorporated by reference
pursuant to General Instruction G(3); provided, however, the Compensation
Committee Report, the Performance Graphs, and all other items of such report
that are not required to be incorporated, are not incorporated by reference
into this Form 10-K or any other filing with the Securities and Exchange
Commission by the Company.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following is a list of the financial
statements of Jan Bell Marketing, Inc. included in Item 8 of Part II.
Independent Auditors' Report.
Consolidated Balance Sheets - February 3, 1996 and January 28, 1995.
Consolidated Statements of Operations - Fifty-three Weeks Ended February
3,1996, Fifty-two Weeks Ended January 28, 1995, and the Year Ended December
31, 1993.
Consolidated Statements of Stockholders' Equity - Fifty-three Weeks Ended
February 3, 1996, Fifty-two Weeks Ended January 28, 1995, and the Year Ended
December 31, 1993.
Consolidated Statements of Cash Flows - Fifty-three Weeks Ended February 3,
1996, Fifty-two Weeks Ended January 28, 1995, and the Year Ended December 31,
1993.
(a)(2) Financial Statement Schedules. The following is the financial statement
schedule filed as part of this Form 10-K: Schedule II. All other schedules are
omitted because they are not applicable, or not required, or because the
required information is included in the financial statements or notes thereto.
(a)(3) The following list of schedules and exhibits are incorporated by
reference as indicated in this Form 10-K:
52
<PAGE> 53
EXHIBIT
Number Description
- ------- -----------
3.1 - Certificate of Incorporation. Incorporated by reference from
Company's Form S-1 (No. 33-15347) declared effective in August 1987.
3.2 - Bylaws. Incorporated by reference from Company's Form 10-K
filed May 15, 1995.
4.1 - Specimen Certificate. Incorporated by reference from Company's
Form 10-K filed in March 1991.
4.2 - Jan Bell Marketing, Inc. 1987 Stock Option Plan. Incorporated
by reference from Company's Form 10-K filed in March 1991.
4.3 - Jan Bell Marketing, Inc. Employee Stock Purchase Plan.
Incorporated by reference from Company's Form 10-K filed in March
1991.
4.4 - Jan Bell Marketing, Inc. 1991 Stock Bonus Plan. Incorporated by
reference from Company's Definitive Proxy Statement filed in April
1991.
4.5 - Jan Bell Marketing, Inc. 1991 Stock Option Plan. Incorporated
by reference from Company's Definitive Proxy Statement filed in April
1993.
10.1 - Employment Agreement dated May 15, 1994 between Joseph Pennacchio
and the Company. Incorporated by reference from Company's Form 10-K
filed May 15, 1995.
10.2 - Employment Agreement dated August 1, 1994 between Richard Bowers
and the Company. Incorporated by reference from Company's Form 10-K
filed May 15, 1995.
10.3 - Form of Indemnification Agreement. Incorporated by reference from
Company's Form S-1 (No. 33-26947) declared effective in February 1989.
10.6 - Agreement with Sam's dated July 19, 1993. Incorporated by
reference from Company's 8-K filed in July 1993.
10.7 - Amended and Restated Note Purchase Agreement dated May 31, 1995
between Jan Bell Marketing, Inc. and various Lenders. Incorporated by
reference from Company's form 10-K/A filed in May 1995
53
<PAGE> 54
10.8 - Forbearance Agreement dated as of February 28, 1995 between the
Company and the Noteholders named therein. Incorporated by reference
from Company's 8-K filed in March 1995.
10.9 - Addendum to Sam's Agreement dated July 19, 1993. Incorporated by
reference from Company's 10-K filed in April 1994.
10.10 - Loan and Security Agreement between GBFC, Inc. and JBM Retail
Company, Inc. dated May 31,1995. Incorporated by reference from
Company's Form 10-K/A filed in May 1995.
10.11 - Intercreditor Agreement dated May 31, 1995 among GBFC, Inc., Shawmut
Bank Connecticut N.A. and Various Lenders. Incorporated by reference
from Company's Form 10-K/A filed in May 1995.
10.12 - Warrant Agreement dated May 31, 1995 between the Company and
Various Lenders. Incorporated by reference from Company's Form 10-K/A
filed in May 1995.
10.13 - Warrant Agreement dated May 31, 1995 between the Company, GBFC,
Inc. and Foothill Capital Corporation. Incorporated by reference from
Company's Form 10-K/A filed in May 1995.
21.1 - Subsidiaries of Registrant:
Wholly-owned subsidiaries of the Company include JBM Venture Co.,
Inc., JBM Retail Company, Inc., Delaware corporations, Regal Diamonds
Ltd., an Israeli company, Exclusive Diamonds International, Ltd., an
Israeli company, Jan Bell de Mexico, S.A. de C.V., and Elico Mexicana,
a Mexican corporation, and Jan Bell Marketing/Puerto Rico, Inc., a
Puerto Rican corporation.
23.1 - Consent of Deloitte & Touche LLP
27 - Financial Data Schedule.
(b) Reports on Form 8-K. The Company filed reports on Form 8-K during the
fourth quarter ending February 3, 1996 as follows:
None
54
<PAGE> 55
SCHEDULE II
JAN BELL MARKETING, INC.
VALUATION AND QUALIFYING ACCOUNTS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Charged to
Beginning Costs and Ending
Description Balance Expenses Deductions Balance
- ----------- ---------- ---------- ---------- -------
<S> <C> <C> <C> <C>
December 31, 1993
Allowance for Doubtful
Accounts $ 230 594 74 750
Allowance for Sales
Returns $ 4,775 24,531 26,628 2,678
Inventory Allowances $ 300 1,700 --- 2,000
January 28, 1995
Allowance for Doubtful
Accounts $ 725 83 363 445
Allowance for Sales
Returns $ 2,880 10,699 8,394 5,185
Inventory Allowances $ 2,000 21,236 2,000 21,236
February 3, 1996
Allowance for Doubtful
Accounts $ 445 4,252 3,995 702
Allowance for Sales
Returns $ 5,185 643 5,828 0
Inventory Allowances $ 21,236 6,171 21,100 6,307
</TABLE>
55
<PAGE> 56
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf of the undersigned, thereunto duly authorized.
JAN BELL MARKETING, INC.
Date: May 3, 1996 By: /s/ Joseph Pennacchio
------------------------
Joseph Pennacchio,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE CAPACITY DATE
- --------- -------- ----
<S> <C> <C>
/s/ Isaac Arguetty
- -------------------- Chairman of the Board 5/3/96
Isaac Arguetty
/s/ Joseph Pennacchio
- -------------------- Director and Chief 5/3/96
Joseph Pennacchio Executive Officer
(Principal Executive
Officer)
/s/ John Burden
- -------------------- Director 5/3/96
John Burden
/s/ Chaim Edelstein
- -------------------- Director 5/3/96
Chaim Edelstein
/s/ Sidney Feltenstein
- -------------------- Director 5/3/96
Sidney Feltenstein
/s/ Dean Groussman
- -------------------- Director 5/3/96
Dean Groussman
/s/ Tom Epstein
- -------------------- Director 5/3/96
Tom Epstein
/s/ Haim Bashan
- -------------------- Director 5/3/96
Haim Bashan
/s/ David Boudreau
- -------------------- Senior Vice President of 5/3/96
David Boudreau Finance & Treasurer
</TABLE>
56
<PAGE> 57
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIALLY
Number Description NUMBERED PAGE
- ------- ------------- -------------
<S> <C> <C>
SEE PAGE _______ FOR A COMPLETE LIST OF EXHIBITS FILED,
INCLUDING EXHIBITS INCORPORATED BY REFERENCE
FROM PREVIOUSLY FILED DOCUMENTS.
21.1 Subsidiaries of Registrant:
Wholly-owned subsidiaries of the Company include JBM Venture Co.,
Inc., JBM Retail Company, Inc., Delaware corporations, Exclusive
Diamonds International, Ltd., an Israeli company, Jan Bell de
Mexico, S.A. de C.V., and Elico Mexicana, a Mexican corporation, and
Jan Bell Marketing/Puerto Rico, Inc., a Puerto Rican corporation.
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule (for SEC use only)
</TABLE>
57
<PAGE> 1
Exhibit 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statements No.
33-20026, 33-20031, 33-42410, 33-42419, 33-44025 and 33-45778 of Jan Bell
Marketing, Inc. on Forms S-8 of our report dated March 25, 1996, appearing in
this Annual Report on Form 10-K of Jan Bell Marketing, Inc. for the
fifty-three weeks ended February 3, 1996.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Fort Lauderdale, Florida
May 3, 1996
58
<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 THE CONSOLIDATED
FINANCIAL STATEMENTS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> FEB-03-1996
<CASH> 4,404
<SECURITIES> 10,551
<RECEIVABLES> 6,557
<ALLOWANCES> 702
<INVENTORY> 95,486
<CURRENT-ASSETS> 117,210
<PP&E> 49,138
<DEPRECIATION> 23,195
<TOTAL-ASSETS> 153,173
<CURRENT-LIABILITIES> 20,449
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 125,221
<TOTAL-LIABILITY-AND-EQUITY> 153,173
<SALES> 254,004
<TOTAL-REVENUES> 254,004
<CGS> 199,579
<TOTAL-COSTS> 199,579
<OTHER-EXPENSES> 56,011<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (3,312)
<INCOME-TAX> 130
<INCOME-CONTINUING> (3,442)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,442)
<EPS-PRIMARY> (.13)
<EPS-DILUTED> (.13)
<FN>
<F1>OTHER EXPENSES CONSIST OF ALL OPERATING COST, EXCLUDING INCOME TAXES, AMOUNT
INCLUDES INTEREST EXPENSE NET OF INTEREST INCOME AND OTHER NON-OPERATING COSTS
(NET).
</FN>
</TABLE>
