<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended November 2, 1996
COMMISSION FILE NUMBER 1-9647
JAN BELL MARKETING, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
(State of Incorporation) (IRS Employer Identification No.)
13801 N.W. 14TH STREET, SUNRISE, FLORIDA 33323
(Address of principal executive offices) (Zip Code)
(954) 846-2776
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES X NO
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
25,875,725 COMMON SHARES ($.0001 PAR VALUE)
AS OF DECEMBER 13, 1996
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FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED NOVEMBER 2, 1996
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
PART I: FINANCIAL INFORMATION PAGE NO.
<S> <C>
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets...................................................... 3
B. Consolidated Statements of Operations............................................ 4
C. Consolidated Statements of Cash Flows............................................ 6
D. Notes to Consolidated Financial Statements....................................... 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations................................................ 9
PART II: OTHER INFORMATION
Items 1, 3, 4 and 5 have been omitted because they are not
applicable with respect to the current reporting period.
Item 2. Changes in Securities................................................................ 13
Item 6. Exhibits and Reports on Form 8-K................................................... 13
</TABLE>
2
<PAGE> 3
PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS SHOWN IN THOUSANDS EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
------------- ------------
(Unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 7,081 $ 14,955
Accounts receivable, net 4,617 5,855
Inventories 103,193 95,486
Other current assets 1,572 914
-------- --------
Total current assets 116,463 117,210
Property, net 24,038 25,943
Goodwill 2,959 2,685
Other assets 4,677 7,335
-------- --------
$148,137 $153,173
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 27,916 $ 6,043
Accrued expenses 4,944 4,405
Long-term debt, current portion -- 10,000
-------- --------
Total current liabilities 32,860 20,448
Long-term debt -- 7,500
STOCKHOLDERS' EQUITY:
Common stock, $.0001 par value,
50,000,000 shares authorized,
25,875,725 and 25,833,541 shares
issued and outstanding, respectively 3 3
Additional paid-in capital 180,415 180,716
Accumulated deficit (63,257) (54,099)
Foreign currency translation adjustment (1,884) (1,395)
-------- --------
115,277 125,225
-------- --------
$148,137 $153,173
======== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 4
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Thirteen Weeks
Ended Ended
November 2, 1996 October 28, 1995
---------------- -----------------
(Unaudited)
<S> <C> <C>
Net sales $ 44,706 $ 46,209
Cost of sales and
occupancy costs 34,846 35,860
---------- ----------
Gross profit 9,860 10,349
Store and warehouse
operating and selling expenses 7,628 7,887
General and administrative expenses 3,256 2,530
Depreciation and amortization 2,006 2,211
Currency exchange gain (11) (37)
---------- ----------
Operating loss (3,019) (2,242)
Interest and other income 203 246
Interest expense 14 913
---------- ----------
Loss before income taxes (2,830) (2,909)
Income taxes 80 24
---------- ----------
Net loss $ (2,910) $ (2,933)
========== ==========
Net loss per common share $ (0.11) $ (0.11)
Weighted average shares outstanding 25,875,725 25,756,464
</TABLE>
See notes to consolidated financial statements.
4
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
Thirty-Nine Thirty-Nine
Weeks Weeks
Ended Ended
November 2, 1996 October 28, 1995
--------------------- -------------------
(Unaudited)
<S> <C> <C>
Net sales $ 147,308 $ 151,681
Cost of sales and
occupancy costs 115,646 122,899
---------- ----------
Gross profit 31,662 28,782
Store and warehouse
operating and selling expenses 23,215 23,300
General and administrative expenses 8,365 8,413
Other charges 2,643 --
Depreciation and amortization 6,482 5,962
Currency exchange (gain)/loss (16) 599
---------- ----------
Operating loss (9,027) (9,492)
Interest and other income 952 1,198
Interest expense 998 2,190
---------- ----------
Loss before income taxes (9,073) (10,484)
Income taxes 85 110
---------- ----------
Net loss $ (9,158) $ (10,594)
========== ==========
Net loss per common share $ (0.35) $ (0.41)
Weighted average shares outstanding 25,852,733 25,746,399
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Thirty-Nine Weeks
Ended Ended
November 2, 1996 October 28, 1995
---------------------- -------------------
(Unaudited)
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 148,546 $ 159,360
Cash paid to suppliers and employees (136,168) (173,048)
Interest and other income received 952 1,198
Interest paid (998) (2,190)
Income taxes (paid) refunded (85) 417
---------- ----------
(85)
Net cash provided by (used in) operating activities 12,247 (14,263)
---------- ----------
Cash flows from investing activities:
Capital expenditures (2,221) (639)
Acquisition of Manhattan Diamond stores (500) -
---------- ----------
Net cash used in investing activities (2,721) (639)
---------- ----------
Cash flows from financing activities:
Net borrowings under line of credit - 4,523
Debt repayment (17,500) (8,500)
Other 100 12
---------- ----------
Net cash (used in) financing activities (17,400) (3,965)
---------- ----------
Net decrease in cash and cash equivalents (7,874) (18,867)
Cash and cash equivalents at beginning of period 14,955 28,212
---------- ----------
Cash and cash equivalents at end of period $ 7,081 $ 9,345
========== ==========
Reconciliation of net loss to net cash provided by (used
in) operating activities:
Net loss $ (9,158) $ (10,594)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 6,482 5,962
Foreign currency translation adjustment (490) (429)
(Increase) Decrease in assets:
Accounts receivable (net) 1,238 7,680
Inventories (7,707) (23,686)
Other (530) (1,838)
Increase (Decrease) in liabilities:
Accounts payable 21,873 17,813
Accrued expenses 539 (9,171)
---------- ----------
Net cash provided by (used in) operating activities $ 12,247 $ (14,263)
========== ==========
</TABLE>
See notes to consolidated financial statements.
6
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. Unaudited Financial Statements
The Company's financial statements for the thirteen and thirty-nine
week periods ended November 2, 1996 and October 28, 1995 have not been audited
by certified public accountants, but in the opinion of management of the Company
reflect all adjustments (which include only normal recurring accruals) necessary
to present fairly the financial position, results of operations and cash flows
for those periods. Results of the thirteen and thirty-nine week periods ended
November 2, 1996 and October 28, 1995 are not necessarily indicative of annual
results because of the seasonality of the Company's business.
Certain reclassifications have been made to the prior consolidated
financial statements to conform to the current presentation.
The accompanying financial statements should be read in conjunction
with the Company's annual consolidated financial statements and the notes
thereto for the year ended February 3, 1996.
B. Relationship with Sam's Wholesale Club
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. The Company pays Sam's a tenancy
fee of 9% of net sales. During the thirteen and thirty-nine weeks ended November
2, 1996, approximately 94% and 93% of the Company's net sales were from Sam's
customers and for the foreseeable future it is expected that the substantial
portion of net sales will be generated through this agreement. Accordingly, the
Company is dependent on Sam's to conduct its business and the loss of the leased
department arrangement with Sam's would have a material adverse effect on the
business of the Company.
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
originally 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 final 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. Accounting Change
The Company has determined that the cost method, determined on a
first-in, first-out (FIFO) basis is a more appropriate method for accounting for
its inventory of gold jewelry merchandise. The Company currently buys
predominantly gold jewelry finished goods which are sold on a retail basis,
whereas previously the Company primarily purchased raw materials, including gold
bullion, to be used in the manufacturing of gold jewelry which was sold
predominantly on a wholesale basis. Because of the change in its business and
the manner in which gold jewelry merchandise is procured and sold, the Company
believes that accounting for such inventory on the FIFO cost method results in a
better matching of costs with revenues. The Company now uses the FIFO cost
method for all of its inventories and believes that FIFO cost is the method
primarily used by similar companies in the retail industry to account for
inventories. Therefore, the Company has changed the method of accounting
for its gold jewelry inventory to the FIFO cost method from market value. The
cumulative effect of the change on retained earnings as of February 4, 1996 was
not significant due to the effects of gold commodities futures contracts used by
the Company to hedge gold inventories, including gold jewelry-related
merchandise. Also, the effect of the change on consolidated net income for the
thirteen and thirty-nine week periods ended November 2, 1996 was not
significant.
7
<PAGE> 8
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
D. Inventories:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
November 2, February 3,
1996 1996
---- ----
(Amounts shown in thousands)
<S> <C> <C>
Precious and semi-precious gem jewelry-
related merchandise (and associated gold):
Raw materials $ 7,978 $ 6,488
Finished goods 47,325 42,083
Gold jewelry-related merchandise:
Finished goods 17,679 15,791
Watches 12,346 13,131
Other consumer products 17,865 17,993
-------- --------
$103,193 $ 95,486
======== ========
</TABLE>
The Company has used gold commodities futures contracts to hedge its
gold inventories, excluding the gold component of gem jewelry-related
merchandise. Because of the change in the Company's business and the manner in
which it procures and sells gold jewelry as further discussed in Note C, the
Company believes that it is no longer necessary to hedge its gold inventories.
Therefore, during the thirteen weeks ended November 2, 1996, the Company
discontinued its hedging activities relating to gold inventories.
E. Income Taxes
The Company's provision for income taxes for 1996 and 1995 is related
to the operations of foreign subsidiaries. Federal and state tax benefits have
not been recognized for the domestic loss for 1996 and 1995 due to the fact that
all loss carrybacks have been fully utilized and, under SFAS No. 109,
"Accounting for Income Taxes," the Company has determined that it is more likely
than not that the deferred tax asset will not be realized.
F. Financing Arrangements
On July 15, 1996 the Company amended its working capital
facility with GBFC, Inc./Foothill Capital Corporation increasing the amount
available to $40 million from $30 million and extending the term to May 31,
1998. The amended interest rate of any borrowings is generally prime plus one
quarter of one percent. Upon closing of this Amendment, the Company prepaid the
$17.5 million due its senior noteholders.
G. Other Charges
Other charges of $2.6 million for the thirty-nine weeks ended
November 2, 1996 represent severance payments to the Company's former President
and Chief Executive Officer of $1.97 million and a write-off of $630,000 of
financing costs in connection with the Company's pay-off of senior noteholders,
both of which occurred in the previous two quarters of the year.
H. Acquisition of Manhattan Diamond Stores
On September 30, 1996 the Company acquired from Andin
International, Inc. its three Manhattan Diamond outlet stores located in the
Gurnee Mills, Potomac Mills and Orlando Belz outlet malls. The purchase price
for the stores was $500,000, of which $70,000 was for all store fixturizations
and $430,000 was allocated to goodwill. Both of these amounts are being
amortized over the remaining terms of the respective store leases which range
from 14 months to 39 months.
8
<PAGE> 9
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The discussion and analysis below contain trend analysis and other
forward-looking statements within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. The
Company's actual results could differ materially from those anticipated in any
forward-looking statements as a result of certain factors set forth below and
elsewhere in this report.
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. During the thirteen and thirty-nine
week periods ended November 2, 1996, approximately 94% and 93% of the Company's
net sales were from Sam's customers and for the foreseeable future it is
expected that the substantial portion of net sales will be generated through
this agreement.
Net sales were $44.7 million and $147.3 million for the thirteen and
thirty-nine week periods ended November 2, 1996 compared to $46.2 million and
$151.7 million for the thirteen and thirty-nine week periods ended October 28,
1995. The decline in sales in Fiscal 1996 reflects primarily the closing of the
wholesale division. Net sales in the retail locations for the thirteen and
thirty-nine week periods ended November 2, 1996 were $42.3 million and $138.1
million compared to $42.7 million and $132.3 million for the thirteen and
thirty-nine week periods ended October 28, 1995. Comparable retail sales for
locations open for more than one year for the thirteen and thirty-nine week
periods ended November 2, 1996 were $41.3 million and $135.0 million compared to
$42.4 million and $131.0 million for the thirteen and thirty-nine week periods
ended October 28, 1995.
Gross profit was $9.9 million or 22.1% of net sales for the thirteen
weeks ended November 2, 1996 compared to $10.3 million or 22.4% of net sales for
the thirteen weeks ended October 28, 1995. Gross profit was $31.7 million or
21.5% of net sales for the thirty-nine weeks ended November 2, 1996 compared to
$28.8 million or 19.0% of net sales for the thirty-nine weeks ended October 28,
1995. For the thirteen weeks, the change is deemed insignificant. However, the
increase in gross profit as a percentage of net sales for the thirty-nine weeks
ended November 2, 1996 was primarily attributable to margin improvements that
are being recognized in the Company's retail locations because of a shift in
merchandising strategies that emphasize higher margin gem, gold and watch
products in place of other lower margin products and categories.
Management recognizes that continued improvement in net sales must be
achieved for the Company to return to profitability.
Store and warehouse operating and selling expenses were $7.6 million
and $23.2 million for the thirteen and thirty-nine weeks ended November 2, 1996
compared to $7.9 million and $23.3 million for the thirteen and thirty-nine
weeks ended October 28, 1995. The incremental decrease in these expenses for the
thirteen and thirty-nine weeks ended November 2, 1996 compared to the thirteen
and thirty-nine weeks ended October 28, 1995 is consistent with the decrease in
sales.
General and administrative expenses were $3.3 million and $8.4 million
for the thirteen and thirty-nine weeks ended November 2, 1996 compared to $2.5
million and $8.4 million for the thirteen and thirty-nine weeks ended October
28, 1995. The increase in the thirteen week period is attributable to expenses
associated with the Company's system conversion and with the Company's strategic
business development. The decrease for the thirty-nine week period, excluding
such expenses, is consistent with the decrease in sales.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
Depreciation and amortization expense was $2.0 million and $6.5 million
for the thirteen and thirty-nine weeks ended November 2, 1996 compared to $2.2
million and $6.0 million for the thirteen and thirty-nine weeks ended October
28, 1995. The decrease in the thirteen week period is primarily attributable to
the decrease of amortization expense related to costs associated with the
Company's financing arrangements in place from May, 1995 through July, 1996.
Additionally, the increase in the thirty-nine week period is primarily
attributable to the amortization of such costs in the previous two quarters of
the year.
Other charges of $2.6 million for the thirty-nine weeks ended November
2, 1996 represent severance payments to the Company's former President and Chief
Executive Officer of $1.97 million and a write-off of $630,000 of financing
costs in connection with the Company's pay-off of senior noteholders both of
which occurred in the previous two quarters of the year.
The instability of the Mexican peso during Fiscal 1995 resulted in a
currency exchange gain of $37,000 and a loss of $599,000 for the thirteen and
thirty-nine weeks ended October 28, 1995. Greater stability during 1996 resulted
in a gain of $11,000 and $16,000 for the thirteen and thirty-nine weeks ended
November 2, 1996.
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. As a result, operating results for the
thirteen and thirty-nine weeks ended November 2, 1996 are not necessarily
indicative of results of operations for the entire fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
On July 15, 1996 the Company amended its working capital facility with
GBFC, Inc./Foothill Capital Corporation increasing the amount available to $40
million from $30 million and extending the term to May 31, 1998. The amended
interest rate of any borrowings is generally prime plus one quarter of one
percent. Upon closing of this Amendment, the Company prepaid the $17.5 million
due its senior noteholders.
As of November 2, 1996, cash and cash equivalents totaled $7.1 million,
a decrease of $7.9 million from February 3, 1996 which resulted primarily from
the payoff of senior notes, partially offset by cash generated from operations
of $11.7 million. The Company had no short-term borrowings under its working
capital facility outstanding as of November 2, 1996.
The Company's working capital requirements are directly related to the
amount of inventory required to support its retail operations. During the
thirty-nine weeks ended November 2, 1996, the inventory increase of $7.7 million
reflects a build up in anticipation of holiday sales.
For the remainder of Fiscal 1996, based on discussions with Sam's, the
Company expects a very limited increase in the number of leased departments it
operates, and consequently does not foresee a need for a significant increase in
inventory. Capital expenditures for Fiscal 1996 are projected not to exceed $6
million.
The Company's business is highly seasonal, with seasonal working
capital needs peaking in October and November before the holiday selling season.
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 anticipated working capital and capital expenditure needs
for the remainder of Fiscal 1996. There can be no assurance that the Company's
future operating results will be sufficient to sustain any debt service and
working capital needs.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The Company has used gold commodities futures contracts to hedge its
gold inventories, excluding the gold component of gem jewelry-related
merchandise. Because of the change in the Company's business and the manner in
which it procures and sells gold jewelry as further discussed in Note C to the
Consolidated Financial Statements, the Company believes that it is no longer
necessary to hedge its gold inventories. Therefore, during the thirteen weeks
ended November 2, 1996, the Company discontinued its hedging activities
relating to gold inventories.
FUTURE OPERATING RESULTS
The future operating results of the Company may be affected by a number
of factors, including without limitation the following:
The Company is focusing on strategic business development and
anticipates that the initial phase of the project is estimated to cost
approximately $800,000. A significant portion of those costs will be expensed
by the Company during the fourth quarter of 1996. The Company is currently
unable to determine the impact of these yet to be developed growth strategies
on its future operating results or capital requirements.
The Company markets its products principally through Sam's Club, a
division of Wal-Mart, Inc., 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. For the thirteen
and thirty-nine weeks ended November 2, 1996, sales through Sam's accounted for
approximately 94% and 93% 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.
During Fiscal 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 a 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. Additionally, during the third quarter of 1996, the
Company acquired from Andin International, Inc. its, three Manhattan Diamond
outlet locations in the Potomac Mills, Gurnee Mills and Orlando Belz outlet
malls. The Company currently is unable to determine the impact of these
stand-alone jewelry operations on its future operating results or capital
requirements.
In 1992, the Company signed an agreement to be the primary supplier of
fine jewelry, watches and fragrances with the Club Aurrera, a warehouse club
joint venture in Mexico between Wal-Mart Stores and Cifra S.A. Due to the peso
devaluation in 1994, the Company's sales by its Mexican subsidiary have been
significantly lower reflecting the overall reduction in the Mexican consumer's
disposable income. In this marketplace, the Company faces the risk of foreign
currency fluctuations, local economic and political conditions and competitors.
The Company's retail operation requires expertise in the areas of
merchandising, sourcing, selling, personnel, training, systems and accounting.
The Company must look to increases in the number of retail locations to occur,
thereby increasing the Company's customer base, for expansion. 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
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
increase. Further consolidation of the warehouse club industry due to geographic
constraints and market consolidation might also adversely affect the Company's
existing relationship with Sam's 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
programs and concepts, and the ability of the Company to manage the leased
operations and future expansion and hire and train personnel.
The Company purchases diamonds and other gemstones directly in
international markets located in Tel Aviv, New York, Antwerp and elsewhere. The
Company seeks to meet its diamond requirements with purchases on a systemic
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. Further, 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 also are 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.
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 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 on 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.
The Company utilizes the services of independent suppliers and customs
agents to comply with U.S. customs laws in connection with its purchases of
gold, diamonds and other raw materials from domestic and foreign sources. The
Company 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 the Company believes that its
practices and procedures with respect to the purchase of parallel marketed goods
lessen the risk of significant litigation or liability, the Company 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 the Company 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 the Company'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.
The Company has identified alternate sources of supply or categories of similar
products, although the cost of certain products may increase or their
availability may be lessened.
12
<PAGE> 13
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(continued)
The agreements related to the Company's amended 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 the 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.
ITEM 2.
CHANGES IN SECURITIES
On November 21, 1996, the Company adopted a Shareholder Rights
Agreement as previously filed on Form 8-K on November 25, 1996.
ITEM 6.
EXHIBITS AND REPORTS ON FORM 8-K
(a) The following list of schedules and exhibits included in this Form
10-Q:
18 Letter of Deloitte & Touche LLP regarding the Company's change
in accounting for its gold jewelry inventory.
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K. A Form 8-K regarding a press release and a letter from
Jan Bell Marketing, Inc. to Ocean Reef Management, Inc. was filed under Item 5.
Other Information on November 1, 1996 relating to a proposed transaction by
Ocean Reef Management, Inc. On November 5, 1996, a Form 8-K was filed under Item
5 Other Information regarding a subsequent press release and a letter from Jan
Bell Marketing, Inc. to Ocean Reef Management, Inc. On November 25, 1996, a Form
8-K was filed under Item 5. Other Information regarding a press release issued
by the Company on November 21, 1996 and a Rights Agreement that was adopted by
the Board of Directors.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JAN BELL MARKETING, INC.
--------------------------------------------
(Registrant)
By: DAVID P. BOUDREAU
-------------------------------------------
Senior Vice President of Finance and Treasurer
Date: December 17, 1996
13
<PAGE> 1
EXHIBIT 18
December 13, 1996
Jan Bell Marketing, Inc.
13801 N.W. 14th Street
Sunrise, Florida 33323
Dear Sirs/Madams:
At your request, we have read the description included in your Quarterly
Report on Form 10-Q to the Securities and Exchange Commission for the
quarter ended November 2, 1996, of the facts relating to the change in
the method of accounting for gold jewelry inventory from market value to
cost determined on the first-in, first-out basis. We believe, on the basis
of the facts so set forth and other information furnished to us by appropriate
officials of the Company, that the accounting change described in your
Form 10-Q is to an alternative accounting principle that is preferable under
the circumstances.
We have not audited any consolidated financial statements of Jan Bell
Marketing, Inc. and its consolidated subsidiaries as of any date or for any
period subsequent to February 3, 1996. Therefore, we are unable to express,
and we do not express, an opinion on the facts set forth in the above-mentioned
Form 10-Q, or the related information furnished to us by officials of the
Company, or on the financial position, results of operations, or cash flows of
Jan Bell Marketing, Inc. and its consolidated subsidiaries as of any date or
for any period subsequent to February 3, 1996.
Yours truly,
/s/ DELOITTE & TOUCHE LLP
- -------------------------
Deloitte & Touche LLP
14
<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> 9-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> NOV-02-1996
<CASH> 6,991
<SECURITIES> 90
<RECEIVABLES> 5,363
<ALLOWANCES> 746
<INVENTORY> 103,193
<CURRENT-ASSETS> 116,463
<PP&E> 51,349
<DEPRECIATION> 27,311
<TOTAL-ASSETS> 148,137
<CURRENT-LIABILITIES> 32,860
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 115,274
<TOTAL-LIABILITY-AND-EQUITY> 115,277
<SALES> 147,308
<TOTAL-REVENUES> 147,308
<CGS> 115,646
<TOTAL-COSTS> 115,646
<OTHER-EXPENSES> 40,689<F1>
<LOSS-PROVISION> 10
<INTEREST-EXPENSE> 998
<INCOME-PRETAX> (9,073)
<INCOME-TAX> 85
<INCOME-CONTINUING> (9,158)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,158)
<EPS-PRIMARY> (.35)
<EPS-DILUTED> (.35)
<FN>
<F1>OTHER EXPENSES CONSISTS OF ALL OPERATING COSTS AND EXCLUDES INTEREST,
NON-OPERATING INCOME AND INCOME TAXES.
</FN>
</TABLE>
