<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended May 2, 1998
Commission File Number 1-9647
JAN BELL MARKETING, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
------------------------ --------------------------------
(State of Incorporation) (IRS Employer Identification No.)
14051 N.W. 14TH STREET, SUNRISE, FLORIDA 33323
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(Address of principal executive offices) (Zip Code)
(954) 846-2719
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(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.
26,686,304 COMMON SHARES ($.0001 PAR VALUE)
AS OF JUNE 12, 1998
<PAGE> 2
FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED MAY 2, 1998
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets.................................3
B. Consolidated Statements of Operations.......................4
C. Consolidated Statements of Cash Flows.......................5
D. Notes to Consolidated Financial Statements..................6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations......................8
PART II: OTHER INFORMATION
Items 1, 2, 3, 4, and 5 have been omitted because they are not
applicable with respect to the current reporting period.
Item 6. Exhibits and Reports
on Form 8-K .................................................13
</TABLE>
2
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
-------- --------
(unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 54,485 $ 48,432
Accounts receivable, net 4,472 6,271
Inventories 82,851 69,193
Deferred income taxes 2,625 2,625
Other current assets 1,119 1,376
-------- --------
Total current assets 145,552 127,897
Property, net 17,473 18,143
Goodwill 2,394 2,475
Other assets 2,732 3,197
-------- --------
$168,151 $151,712
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 25,314 $ 9,784
Accrued expenses 5,856 6,349
-------- --------
Total current liabilities 31,170 16,133
Stockholders' equity:
Common stock, $.0001 par value,
50,000,000 shares authorized,
26,526,404 and 25,981,970 shares
issued and outstanding, respectively 3 3
Additional paid-in capital 182,623 180,649
Accumulated deficit (43,867) (43,295)
Foreign currency translation adjustment (1,778) (1,778)
-------- --------
Total stockholders' equity 136,981 135,579
-------- --------
$168,151 $151,712
======== ========
</TABLE>
See notes to consolidated financial statements.
3
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
May 2, 1998 May 3, 1997
----------- -----------
(unaudited)
<S> <C> <C>
Net sales $52,493 $46,977
Cost of sales and occupancy costs 40,333 36,634
------- -------
Gross profit 12,160 10,343
Store and warehouse
operating and selling expenses 8,584 7,592
General and administrative expenses 3,128 3,387
Depreciation and amortization 1,372 2,017
Currency exchange loss 367 0
------- -------
13,451 12,996
------- -------
Operating loss (1,291) (2,653)
Interest and other income 776 390
------- -------
Loss before income taxes (515) (2,263)
Income tax provision 57 44
------- -------
Net loss $(572) $(2,307)
======= =======
Net loss per common share $(0.02) $(0.09)
(basic and diluted)
Weighted average shares
Outstanding 26,219,488 25,894,541
</TABLE>
See notes to consolidated financial statements.
4
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JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
<TABLE>
<CAPTION>
Thirteen Thirteen
Weeks Ended Weeks Ended
May 2, 1998 May 3, 1997
----------- -----------
(unaudited)
<S> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 54,200 $ 48,341
Cash paid to suppliers and employees (50,286) (45,424)
Interest and other income received 776 390
Income taxes paid (248) (117)
-------- --------
Net cash provided by operating activities 4,442 3,190
Cash flows from investing activities:
Capital expenditures (314) (563)
-------- --------
Cash flows from financing activities:
Proceeds from sale of employee
stock plans 1,974 --
-------- --------
Effect of exchange rate changes (49) (9)
-------- --------
Net increase in cash and cash equivalents 6,053 2,618
Cash and cash equivalents at beginning of period 48,432 23,525
-------- --------
Cash and cash equivalents at end of period $ 54,485 $ 26,143
======== ========
Reconciliation of net loss to net cash provided by
operating activities:
Net loss $ (572) $ (2,307)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization 1,372 2,017
Currency exchange loss 290 --
(Increase) Decrease in assets:
Accounts receivable (net) 1,707 1,364
Inventories (13,776) (11,542)
Other 386 231
Increase (Decrease) in liabilities:
Accounts payable 15,530 14,081
Accrued expenses (495) (654)
-------- --------
Net cash provided by operating activities $ 4,442 $ 3,190
======== ========
</TABLE>
See notes to consolidated financial statements.
5
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. UNAUDITED FINANCIAL STATEMENTS
The Company's financial statements as of May 2, 1998 and for
the thirteen week periods ended May 2, 1998 and May 3, 1997 have not been
audited by certified public accountants, but in the opinion of management of the
Company reflect all adjustments (which include only normal recurring accruals)
necessary to present fairly the financial position, results of operations and
cash flows for those periods. Results of the thirteen week periods ended May 2,
1998 and May 3, 1997 are not necessarily indicative of annual results because of
the seasonality of the Company's business.
The accompanying consolidated financial statements should be
read in conjunction with the Company's annual consolidated financial statements
and the notes thereto appearing in the Company's annual report on Form 10-K for
the year ended January 31, 1998 filed with the Securities Exchange Commission.
B. PENDING MAYOR'S ACQUISITION
In February 1998, the Company announced that it had executed a
letter of intent to acquire Mayor's Jewelers, Inc. ("Mayor's"). In June 1998,
the Company announced that it had executed a definitive Stock Purchase Agreement
with shareholders owning more than a majority of the outstanding shares of
Mayor's. The transaction has been approved by the Mayor's Board, which has
recommended it to the remaining shareholders. Jan Bell has offered to purchase
all of Mayor's remaining shares on the same terms and conditions as those set
forth in the Stock Purchase Agreement, although Jan Bell is prepared to
consummate the purchase of at least 63% of the outstanding shares. The value of
the transaction before expenses (assuming all shares are purchased) consists of
approximately $18.7 million in cash, 2 million shares of Jan Bell's authorized
but unissued common stock and the assumption or repayment of approximately $66.2
million in outstanding debt. Notwithstanding the Company's belief that the
acquisition will receive the necessary regulatory approvals, the Company can
provide no assurance that the acquisition will ultimately be consummated. In
addition, the Company has not finalized its assessment regarding the impact that
the acquisition of Mayor's would have on future operating results or capital
requirements.
C. RELATIONSHIP WITH SAM'S WHOLESALE CLUB
The Company operates an exclusive leased department at all
existing and future domestic Sam's Wholesale Club ("Sam's") locations and at
four Puerto Rico Sam's Club locations under an agreement which expires February
1, 2001. The Company pays Sam's a tenancy fee of 9% of net sales. During the
thirteen weeks ended May 2, 1998, approximately 94% of the Company's net sales
were from Sam's customers. The loss of the leased department arrangement with
Sam's would have a material adverse effect on the business of the Company.
D. NEW ACCOUNTING PRONOUNCEMENT
In June 1997, Statement of Financial Accounting Standards
("SFAS") No. 131, "Disclosures about Segments of an Enterprise and Related
Information," was issued. SFAS No. 131 establishes standards for the way that
public companies report selected information about operating segments in annual
financial statements and requires that such companies report selected
information about segments in interim financial reports issued to shareholders.
SFAS No. 131, which supersedes SFAS No. 14, "Financial Reporting for Segments of
a Business Enterprise," retains the requirements to report information about
major customers and requires that a public company report financial and
descriptive information about its reportable operating segments. Operating
segments are components of an enterprise about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance. SFAS No. 131 requires that a public company report a measure of
segment profit or loss, certain specific revenue and expense items, and segment
assets. SFAS No. 131 also requires that a public company report descriptive
information about the way that the operating segments were determined, the
products and services provided by the operating segments, differences between
the measurements used in reporting segment information and those used in the
enterprise's general-purpose financial statements, and changes in the
measurement of segment amounts from period to period. SFAS No. 131 is effective
for financial statements issued for periods beginning after December 15, 1997.
This statement is not required to be applied to interim financial statements in
the initial year of its application. The Company has not yet determined the
effects, if any, that SFAS No. 131 will have on the disclosures in its
consolidated financial statements.
6
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JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
E. INVENTORIES
Inventories are summarized as follows:
<TABLE>
<CAPTION>
May 2, 1998 January 31, 1998
--------------------------- -----------------------------
(Amounts Shown In Thousands)
Company Held On Company Held On
Owned Consignment Owned Consignment
--------- ----------- --------- -----------
<S> <C> <C> <C> <C>
Precious and semi-precious gem jewelry-
related merchandise (and
associated gold):
Raw materials $ 7,901 $ -- $ 5,439 $ --
Finished goods 36,428 463 33,513 1,756
Gold jewelry-related merchandise:
Finished goods 14,055 220 13,148 243
Watches 10,572 --- 7,372 ---
Other consumer products 13,895 83 9,721 19
--------- ------ ---------- ------
$ 82,851 $ 766 $ 69,193 $2,018
======== ====== ========== ======
</TABLE>
F. INCOME TAXES
The Company has a deferred tax asset of approximately $17.4
million which currently is not reflected in the balance sheet as a result of a
$17.4 million valuation allowance. The valuation allowance has been provided to
offset the net deferred tax asset to the amount that the Company believes, after
evaluating currently available evidence, will more likely than not be realized.
The Company has a Federal net operating loss carryforward of approximately $38.8
million, and a state net operating loss carryforward of approximately $118.5
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 2012. The Company also has an alternative minimum tax credit
carryforward of approximately $1.2 million to offset future Federal income
taxes.
G. COMPREHENSIVE INCOME (LOSS)
Effective February 1, 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income." Comprehensive income includes all changes in
equity during a period except those resulting from investment by owners and
distributions to owners. Total comprehensive income (loss) for the thirteen week
periods ended May 2, 1998 and May 3, 1997, respectively, was ($572,000)
consisting of net loss and ($2,342,000) consisting of net loss of ($2,307,000)
and foreign currency translation adjustment of ($35,000).
7
<PAGE> 8
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 and in the Company's annual report on Form 10-K for
the year ended January 31, 1998 filed with the Securities Exchange Commission.
The Company operates an exclusive leased department at all
existing and future domestic Sam's Wholesale Club ("Sam's") locations and four
Puerto Rico Sam's locations under an agreement which expires February 1, 2001.
During the thirteen weeks ended May 2, 1998, approximately 94% of the Company's
net sales were from Sam's customers.
The results of operations for the thirteen weeks ended May 2,
1998 reflect the Company's ongoing strategy to achieve consistent earnings
improvement in the retail marketplace. The Company has implemented merchandise
strategies that emphasize higher margin diamond, semi-precious gem, gold and
watch products in place of other lower margin non-jewelry products and
categories. Further, the Company has achieved revenue growth in its Sam's Club
departments as a result of improved merchandise assortment, quality and
distribution which has allowed the Company to generate higher gross margin. In
addition, continued emphasis on cash management has 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 ongoing efforts
to reduce and better balance its inventory levels and reduce the amount of
discontinued inventory in stock and replace it with current merchandise has
resulted in improved inventory turns and reduced average inventory requirements.
Management believes there is additional opportunity for continued improvements
in sales, gross margins and operating cash flows in its traditional business
with Sam's. Further, management believes it has strategically positioned the
Company for growth.
Net sales were $52.5 million for the thirteen weeks ended May
2, 1998 compared to $47.0 million for the thirteen weeks ended May 3, 1997. Net
sales in the retail locations for the thirteen weeks ended May 2, 1998 were
$50.1 million compared to $44.5 million for the thirteen weeks ended May 3,
1997. Comparable retail sales for the thirteen weeks ended May 2, 1998 were
$49.5 million compared to $44.3 million for the thirteen weeks ended May 3,
1997. These increases in sales are primarily attributable to better
merchandising strategies, improved placement of goods within the Sam's
locations, and additional advertising and marketing in Sam's advertising and
marketing vehicles. The sales increases primarily were in the Company's diamond
jewelry, color jewelry and watch products categories.
However, 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.
Gross profit was $12.2 million or 23.2% of net sales for the
thirteen weeks ended May 2, 1998 compared to $10.3 million or 22.0% of net sales
for the thirteen weeks ended May 3, 1997. The increase in gross profit as a
percentage of net sales was primarily attributable to margin improvements in the
Company's gold product categories and improvements as a percentage of sales in
product handling costs and inventory shrinkage, partially offset by decreases in
the diamond and color product categories which resulted primarily from the sale
of discontinued and slow moving merchandise.
Store and warehouse operating and selling expenses were $8.6
million for the thirteen weeks ended May 2, 1998 compared to $7.6 million for
the thirteen weeks ended May 3, 1997. The increase in these expenses for the
thirteen weeks ended May 2, 1998 compared to the thirteen weeks ended May 3,
1997 is primarily attributable to increased store payroll and increased
advertising and marketing in Sam's advertising and marketing vehicles. The
Company believes that investment in these costs contributed to the increase in
sales previously discussed. Also contributing to the increase in expenses are
costs that vary proportionately with sales such as check authorization charges
and chargecard processing fees.
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General and administrative expenses were $3.1 million for the
thirteen weeks ended May 2, 1998 compared to $3.4 million for the thirteen weeks
ended May 3, 1997. The decrease in these expenses for the thirteen weeks ended
May 2, 1998 compared to the thirteen weeks ended May 3, 1997 is primarily
attributable to professional fees related to the Company's strategic business
development which were expensed in the thirteen weeks ended May 3, 1997.
The decrease in depreciation and amortization expense to $1.4
million for the thirteen weeks ended May 2, 1998 from $2.0 million for the
thirteen weeks ended May 3, 1997 is primarily attributable to the significant
fixed asset expenditures made to satisfy the requirements of the retail business
during 1992 becoming fully depreciated during May 1997.
The Company has operations in Mexico (the Company supplies
selected fine jewelry, watches and fragrances to Sam's locations in Mexico, a
warehouse club joint venture in Mexico between Wal-Mart Stores and Cifra S.A.)
and Israel. In Israel, the functional currency exchange rate between the Israeli
Shekel and U.S. dollar is government regulated and not currently subject to
significant currency exchange rate fluctuations. In Mexico, the U.S. dollar is
the functional currency since the economy is considered highly inflationary. The
economic and political instability of the business environment in Mexico
requires the Company to constantly review its operating strategy. If it is
determined that the risk in Mexico outweighs the long term growth benefits, the
Company will seek to maximize its return through a divestiture of this entity.
Changes in the exchange rates for the Mexican peso relative to the U.S. dollar
resulted in direct charges or credits to the consolidated statements of
operations during a portion of Fiscal 1997 and during the first quarter of 1998.
During the thirteen weeks ended May 2, 1998, there was a foreign currency
exchange loss of $.4 million. During the thirteen weeks ended May 3, 1997, there
was no currency exchange loss.
The increase in interest and other income to $.8 million for
the thirteen weeks ended May 2, 1998 from $.4 million for the thirteen weeks
ended May 3, 1997 is a result of higher average cash balances available for
investment during the first quarter of 1998.
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 weeks ended May 2, 1998 are not necessarily indicative of results
of operations for the entire fiscal year.
FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES
As of May 2, 1998, cash and cash equivalents totaled $54.5
million, an increase of $6.1 million from January 31, 1998 which resulted
primarily from $4.4 million of cash provided by operations. The Company had no
short-term borrowings during the first quarter of both 1998 and 1997 under its
$40 million working capital facility.
The Company's current $40 million working capital facility
with BankBoston Retail Finance, Inc. and Foothill Capital Corporation which was
scheduled to expire on May 31, 1998 has been extended through July 31, 1998. The
agreement related to the current working capital facility contains covenants
which require the Company to maintain financial ratios related to earnings,
working capital, inventory turnover, trade payables and tangible net worth. It
limits capital expenditures and the incurrence of additional debt and prohibits
payment of dividends.
The Company has received a commitment for a working capital
facility of $80 million with the right to request an increase up to $110 million
from Citicorp USA, Inc. Among other matters, the terms and conditions of the
facility are contingent upon a successful closing of the Mayor's acquisition
(discussed below). In the event the Mayor's transaction does not close, the
Company believes that bank financing will be available either through
modifications to its existing facility or through placement of a new facility.
In February 1998, the Company announced that it had executed a
letter of intent to acquire Mayor's Jewelers, Inc. The Company considers Mayor's
to be the premier luxury jeweler in the Southeast and believes this acquisition
will strategically position Jan Bell in the luxury jewelry market while
developing a growth platform to complement its presence in the wholesale club
jewelry arena.
9
<PAGE> 10
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
In June 1998, the Company announced that it had executed a
definitive Stock Purchase Agreement with shareholders owning more than a
majority of the outstanding shares of Mayor's. The transaction has been approved
by the Mayor's Board of Directors, which has recommended it to the remaining
shareholders. Jan Bell has offered to purchase all of Mayor's remaining shares
on the same terms and conditions as those set forth in the Stock Purchase
Agreement, although Jan Bell is prepared to consummate the purchase of at least
63% of the outstanding shares. The value of the transaction before expenses
(assuming all shares are purchased) consists of approximately $18.7 million in
cash, 2 million shares of Jan Bell's authorized but unissued common stock and
the assumption or repayment of approximately $66.2 million in outstanding debt.
Notwithstanding the Company's belief that the acquisition will receive the
necessary regulatory approvals, the Company can provide no assurance that the
acquisition will ultimately be consummated. In addition, the Company has not
finalized its assessment regarding the impact that the acquisition of Mayor's
would have on future operating results or capital requirements.
The Company's working capital requirements are directly
related to the amount of inventory required to support its retail operations.
During the thirteen weeks ended May 2, 1998, the inventory increase of $13.7
million reflected a build up in anticipation of Mother's Day sales. For the
remainder of Fiscal 1998, based on discussions with Sam's, the Company expects a
limited increase in the number of leased departments it operates, and
consequently does not foresee a need for a significant increase in retail
inventory purchased for the departments within the Sam's locations. Without
consideration of the proposed Mayor's acquisition, capital expenditures for
Fiscal 1998 are projected not to exceed $3 million.
The Company's business is highly seasonal, with 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 current working capital facility and
a working capital facility which is expected to be consummated during the second
quarter of Fiscal 1998, will be sufficient to meet its anticipated working
capital and capital expenditure needs for the remainder of Fiscal 1998. There
can be no assurance that the Company's future operating results will be
sufficient to sustain working capital and capital expenditure needs.
Additionally, consummation of the proposed acquisition of Mayor's or other
acquisitions would increase the Company's cash requirements.
NEW ACCOUNTING PRONOUNCEMENT
The Company will adopt Statement of Financial Accounting
Standards ("SFAS") No. 131 during the year ending January 30, 1999. SFAS No. 131
"Disclosures About Segments of an Enterprises and Related Information,"
establishes standards for reporting certain information about the Company's
operating segments. These disclosures are to include the reported segments'
sales, operating profit, identifiable assets and other certain information. This
statement is effective for fiscal years beginning after December 15, 1997 and
will require disclosure of prior period information, if practicable. This
statement is not required to be applied to interim financial statements in the
initial year of its application. The Company has not yet determined the impact
of adopting this pronouncement on its financial statements.
YEAR 2000 MATTERS
The year 2000 issue is the result of computer programs being
written using two digits rather than four to define the applicable year. Any of
the Company's computer programs or other equipment or systems that have or rely
on time-sensitive software may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system or equipment failure or
miscalculations causing disruptions of operations, including, among others
things, a temporary inability to process transactions and invoices, or engage in
similar normal business activities.
The Company has identified and assessed its systems that
could be affected by the year 2000 issue and is developing an implementation
plan to resolve the issue. The Company expects to formalize its plan for
corrective action and estimate the potential incremental costs required to
address this issue by December 1998. The Company presently believes that the
year 2000 issue will not pose significant operational problems for the Company's
computer systems software and related computer technologies. The Company also
believes that the year 2000 issue will not have a significant impact on its
financial position or results of operations, although there can be no assurance,
particularly regarding the operations of its vendors and suppliers.
10
<PAGE> 11
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 markets its products through Sam's pursuant to an
arrangement whereby the Company operates an exclusive leased department at all
of Sam's existing and future domestic locations and four Puerto Rico locations
through February 1, 2001. The Company and Sam's each have determined that the
present relationship is in need of modification and believe that there is a
basis to have a mutually beneficial relationship beyond 2001. Both the Company
and Sam's are evaluating the mix of responsibilities to take better advantage of
each company's expertise in merchandising and retailing. While the agreement as
presently structured will not be extended beyond its primary term, the Company
and Sam's are currently reviewing strategies that could lead to a modified
relationship prior to the expiration date. The Company is currently 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 Mayor's acquisition, if consummated, is expected to reduce this dependence
on Sam's.
The Company is actively pursuing new growth opportunities
outside of its existing business within Sam's. Management is also considering
other growth opportunities and may consider acquisitions of businesses similar
or complementary to that of the Company, but there can be no assurance that such
opportunities will not require a significant investment of funds and management
attention by the Company. Any such growth opportunities will be subject to all
of the risks inherent in the establishment of a new product or service offering,
including competition, lack of sufficient customer demand, unavailability of
experienced management, unforeseen complications, delays and cost increases. The
Company may incur costs in connection with pursuing new growth opportunities
that it cannot recover, and the Company may be required to expense certain of
these costs, which may negatively impact the Company's reported operating
performance for the periods during which such costs are incurred.
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
Company must also review other available sources of revenue. 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. 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 or acquired 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
department operations and future expansion and hire and train personnel.
The Company also operates three Manhattan Diamond locations in
the Gurnee Mills, The Orlando Belz Outlet Mall and a Vero Beach Outlet Mall.
The Company is presently reviewing its strategy for the Manhattan Diamond
concept. Management believes that the three locations currently do not generate
an acceptable return on capital employed. The Company will look to either open
additional locations in order to achieve economies of scale with respect to
required cost structures or seek an acceptable sale of these locations.
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.
11
<PAGE> 12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 generally utilizes the services of independent
customs agents to comply with U.S. customs laws in connection with its purchases
of gold, diamond and other jewelry merchandise from foreign sources. The Company
bears certain risks in purchasing parallel marketed goods which includes certain
watches and other products. 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 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 is introduced in
Congress from time to time 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.
The agreements related to the Company's 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. It also limits capital expenditures and the incurrence
of additional debt and prohibits 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 or any covenants which might exist
related to new financing arrangements that are currently in the process of being
negotiated.
12
<PAGE> 13
PART II OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following list of schedules and exhibits are incorporated
by reference and indicated in this Form 10-Q:
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K: None.
13
<PAGE> 14
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JAN BELL MARKETING, INC.
(Registrant)
By: /S/ DAVID P. BOUDREAU
---------------------------------
Chief Financial Officer and Senior
Vice President of Finance & Treasurer
Date: June 16, 1998
14
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF INCOME AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-START> FEB-01-1998
<PERIOD-END> MAY-02-1998
<CASH> 54,485
<SECURITIES> 0
<RECEIVABLES> 4,510
<ALLOWANCES> 38
<INVENTORY> 82,851
<CURRENT-ASSETS> 145,552
<PP&E> 35,172
<DEPRECIATION> 17,699
<TOTAL-ASSETS> 168,151
<CURRENT-LIABILITIES> 31,170
<BONDS> 0
3
0
<COMMON> 0
<OTHER-SE> 136,978
<TOTAL-LIABILITY-AND-EQUITY> 168,151
<SALES> 52,493
<TOTAL-REVENUES> 52,493
<CGS> 40,333
<TOTAL-COSTS> 40,333
<OTHER-EXPENSES> 13,451<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (515)
<INCOME-TAX> 57
<INCOME-CONTINUING> (572)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (572)
<EPS-PRIMARY> (0.02)
<EPS-DILUTED> (0.02)
<FN>
<F1>OTHER EXPENSES CONSISTS OF ALL OPERATING COSTS AND EXCLUDES INTEREST,
NON-OPERATING INCOME AND INCOME TAXES.
</FN>
</TABLE>
