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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 [NO FEE REQUIRED, EFFECTIVE OCTOBER 7, 1996]
FOR THE FISCAL YEAR ENDED JANUARY 29, 2000 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.)
14051 N.W. 14TH STREET
SUNRISE, FLORIDA 33323
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (954) 846-2718
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
COMMON STOCK, $.0001 PAR VALUE
RIGHTS 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 [ ]
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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 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. [ X ]
As of April 3, 2000, the aggregate market value of the voting stock beneficially
held by non-affiliates of the registrant was $53,017,393. The aggregate market
value was computed with reference to the closing price on the American Stock
Exchange on such date. Affiliates are considered to be executive officers and
directors of the registrant and their affiliates for which beneficial ownership
is not disclaimed.
As of April 14, 2000, 20,183,368 shares of Common Stock ($.0001 par value) were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PART III: Portions of the definitive Proxy Statement for the 2000 Annual
Shareholders' meeting (to be filed).
LOCATION OF EXHIBIT INDEX: The index of exhibits is contained in Part IV herein
on page number 45.
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JAN BELL MARKETING, INC.
TABLE OF CONTENTS
<TABLE>
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PAGE NO.
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PART I
Item 1 Business 4
Item 2 Properties 14
Item 3 Legal Proceedings 15
Item 4 Submission of Matters to a Vote of Security Holders 15
PART II
Item 5 Market for the Registrant's Common Equity and Related
Stockholder Matters 16
Item 6 Selected Financial Data 17
Item 7 Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 8 Financial Statements and Supplementary Data 25
Item 9 Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure 44
PART III
Item 10 Directors and Executive Officers of the Registrant 45
Item 11 Executive Compensation 45
Item 12 Security Ownership of Certain Beneficial Owners and
Management 45
Item 13 Certain Relationships and Related Transactions 45
PART IV
Item 14 Exhibits, Financial Statement Schedules, and Reports on
Form 8-K 45
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PART I
ITEM 1. BUSINESS
GENERAL
The information in this section pertains to the business of Jan Bell
Marketing, Inc. and subsidiaries ("Jan Bell" or the "Company") including its
wholly-owned subsidiary Mayor's Jewelers, Inc. ("Mayor's") which was acquired on
July 28, 1998. Fiscal 1999 throughout this document refers to the Company's
fiscal year ended January 29, 2000. Please refer to Item 7 regarding
"Forward-Looking Statements and Cautionary Factors That May Affect Future
Results."
MAYOR'S JEWELERS
Mayor's is a leading upscale retailer of fine quality guild jewelry,
watches and giftware. Mayor's was founded in 1910 and currently operates 21
stores in Florida under the "Mayor's" name and 5 stores in the Atlanta, Georgia
metropolitan area under the "Mayor's" and "Maier & Berkele" name (both referred
to as "Mayor's"). Mayor's has a long-established reputation in its principal
market areas as a premier guild jeweler offering fine quality merchandise in an
elegant environment conducive to the purchase of luxury items. As a guild
jeweler, the Company does not sell "costume" or gold filled jewelry; rather, all
of its jewelry products are constructed of 14 or 18 karat gold, platinum, or
sterling silver, with or without precious gemstones, with significant emphasis
on quality and craftsmanship. The average price per item of all merchandise sold
in Fiscal 1999 was approximately $1,180, an amount the Company believes is
substantially higher than that of any other publicly-traded domestic jewelry
retailer.
Mayor's distinguishes itself from most of its competitors by offering a
larger selection of distinctive and higher quality merchandise at many different
price points, and by placing substantial emphasis on professionalism and
training in its sales force. Mayor's experienced buyers procure distinctive
merchandise directly from manufacturers, diamond cutters and other suppliers
throughout the world, enabling Mayor's to sell fine quality merchandise often
not available from other jewelers in its markets. Management believes it has one
of the best trained staff of sales professionals in the industry as a result of
Mayor's emphasis on classroom training, in-store training and participation in
industry-recognized educational programs.
SAM'S CLUB
Jan Bell retails fine jewelry, watches and certain other select
non-jewelry consumer products primarily to warehouse club members through Sam's
Club, ("Sam's"), a division of Wal-Mart, Inc., pursuant to an arrangement
whereby the Company operates a concession at all of Sam's domestic and Puerto
Rico locations through February 1, 2001, unless an earlier termination
arrangement is structured and mutually agreed to. The Company offers products at
Sam's including fine jewelry, watches, fragrances, fine writing instruments,
sunglasses and certain collectibles and accessories. See "Warehouse Membership
Clubs." During April 1999, the Company was informed by Sam's that the concession
agreement would not be renewed beyond its expiration date. Sales to Sam's
customers during Fiscal 1999 accounted for approximately 62% of the Company's
net sales. The Company's acquisition of Mayor's will mitigate the loss of the
Sam's business, although the concession non-renewal will have a material adverse
effect on the business of the Company. To compensate for the loss of the Sam's
business, the Company will focus its attention and resources on expanding
Mayor's into a national retailer. In addition, the Company will consider other
acquisitions. In the interim, the Company is developing and implementing a
transition plan to efficiently exit from the Sam's business. During this time,
the impact on the Company's revenue and profitability is uncertain primarily
attributable to operational matters, inventory management and associate turnover
and retention. Management recognizes the need for and is focused on efficiently
executing its exit strategy as well as plans for future growth. Please refer to
Item 7 regarding "Forward-Looking Statements and Cautionary Factors That May
Affect Future Results."
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GROWTH OPPORTUNITIES
The Company will seek to expand its business beyond the arrangement
with Sam's. The acquisition of Mayor's was a significant initial step towards
that goal. Through the reduction of working capital requirements, continual
profitability and the infusion of capital expected from the Sam's termination
through inventory reductions, the Company believes that it has the financial
strength to embark on other retail growth strategies.
Management intends to capitalize on the Mayor's business strategy to
pursue growth opportunities in selected new geographic markets where the local
demographics and the nature of competition would support new high-volume luxury
guild jewelry stores. In Fiscal 2000 and subsequent years, the Company intends
to add new stores (eight to ten per year are targeted) either through new store
openings or, as the opportunity arises, through acquisitions. The Company
estimates that the investment required to open a new Mayor's store is
approximately $1.2 million for fixtures and leasehold improvements (after
landlord concessions) and approximately $3 million for inventory. The Company
has identified potential new markets which appear attractive, but there can be
no assurance that the Company will be able to find appropriate sites or in fact
develop or acquire new stores in these or other markets.
The Company also established a Mayor's website (WWW.MAYORS.COM), which
provides information about Mayor's and offers for sale a limited selection of
jewelry, watches and gift items. The Company introduced its Mayor's estate
Internet site (WWW.MAYORSAUCTION.COM) during the second quarter of Fiscal 1999.
The Company will review other Internet opportunities on an on-going basis.
Growth opportunities will be subject to all of the risks inherent in
the establishment of a new product or service, 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. Please refer to Item 7 regarding
"Forward-Looking Statements and Cautionary Factors That May Affect Future
Results."
The Company's principal offices are located at 14051 Northwest 14th
Street, Sunrise, Florida 33323 (telephone: (954) 846-2718).
SPECIAL RETAIL RISK CONSIDERATIONS
The Company's retail operations require 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 luxury goods marketplace, the warehouse club industry and with
other competing general and specialty retailers and discounters will continue to
increase. The opening and success of current 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
locations and future expansion and hire and train personnel. Please refer to
Item 7 regarding "Forward-Looking Statements and Cautionary Factors That May
Affect Future Results."
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PRODUCTS
MAYOR'S
Mayor's offers a large selection of distinctive and high quality
merchandise at many different price points. This merchandise includes designer
jewelry, diamond jewelry, rings, wedding bands, earrings, bracelets, necklaces,
pearls, charms, and high fashion watches often not available from other jewelers
in its markets. All of Mayor's jewelry products are constructed of 14 or 18
karat gold, platinum, or sterling silver with significant emphasis on quality
and craftsmanship. Mayor's carries a large selection of brand name watches,
including Rolex, Baume & Mercier, Patek Philippe, Cartier, Omega, Gucci,
Bvlgari, Bedat, Charriol, Tag Heuer and Raymond Weil, designer jewelry including
Quadrillion, David Yurman, Pasquale Bruni and Carrera Y Carrera, and a variety
of high quality giftware, including Lalique, Baccarat, Mont Blanc, Moser and
Herend.
Management believes that Mayor's is one of the largest authorized
jewelers for selected products in North America. Management also believes that
the wide selection of merchandise positions the Mayor's stores as a "destination
of choice" for purchasers of fine quality jewelry and watches.
During Fiscal 1999 net sales by product were as follows: watches - 44%;
diamonds basic - 22%; jewelry - 25%; other - 9%. The Rolex brand, which is
included in watch sales, accounted for 30% of total Mayor's sales.
SAM'S AND WAREHOUSE MEMBERSHIP CLUBS
The Sam's division principal products are gold jewelry set with
diamonds and/or other precious and semi-precious gemstones, gold chains, other
forms of gold and silver jewelry and watches. This product line includes chains,
pendants, bracelets, watches, rings and earrings. Other consumer products
include perfumes and fragrances, sunglasses, writing instruments, and
collectible and giftware products. During Fiscal 1999, approximately 84% of net
sales were in jewelry and watches and approximately 16% of net sales were in
other consumer products.
The Sam's division products are classically designed to offer broad
consumer appeal. Following the warehouse club philosophy of limiting the
assortment in each product category, the merchandise offered at a typical
location includes approximately 300 jewelry items, 100 watches and 200 other
consumer products. This assortment is more focused than the average number of
items typically stocked by jewelry counters in department stores and other
jewelry retailers.
The Company's principal customers for these products during Fiscal
1999, 1998, and 1997 were members of Sam's. In Fiscal 1999, 1998, and 1997,
approximately 62%, 73%, and 93% respectively, of the Company's net sales
originated from 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 locations until February 1997. In May 1993, the arrangement was
changed to provide that the Company would operate an exclusive licensed
concession at all Sam's existing and future domestic locations through February
1, 1999. In March 1994, the arrangement was extended through February 1, 2001.
During April 1999, the Company was informed by Sam's that the concession
arrangement would not be renewed beyond its expiration date. It is anticipated
that Jan Bell will continue to operate pursuant to the terms of the existing
agreement until the expiration scheduled for February 1, 2001, unless an earlier
termination arrangement is structured and mutually agreed to.
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
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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.
Jan Bell employees staff the jewelry department at each Sam's location
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.
PURCHASING
MAYOR'S
The Mayor's staff of experienced buyers procures distinctive
merchandise directly from manufacturers, diamond cutters, and other suppliers
worldwide enabling Mayor's to sell fine quality merchandise often not available
from others jewelers in its markets. Buyers generally specialize in purchasing
merchandise in categories such as diamonds, watches, gold jewelry, and giftware.
Buyers frequently visit both Mayor's and competitors' stores to compare value,
selection, and service, as well as to observe client reaction to merchandise
selection and determine future needs.
The Company's worldwide buying power allows Mayor's to pass its savings
on to its clients through competitively priced merchandise at Mayor's stores.
While Mayor's does not emphasize discounting, it does actively compete with
other jewelry retailers on the basis of price, particularly with regard to brand
name items such as watches, with respect to which comparison shopping is common.
DIAMOND AND GEMSTONES
During Fiscal 1999, revenues from sales of diamond jewelry and diamond
jewelry with gemstones represented approximately 39% of Mayor's net sales.
Whenever possible, Mayor's purchases unset diamonds and other precious gemstones
directly from cutters in international markets, such as Antwerp, Bangkok and Tel
Aviv, gold jewelry from Italy, and pearls from Japan. These diamonds and other
gemstones are frequently furnished to independent goldsmiths for setting,
polishing and finishing pursuant to Company instructions, as well as to Mayor's
facilities in order to deliver a finished product at the best possible value.
WATCHES
Mayor's purchases watches from a number of leading manufactures and
suppliers. During Fiscal 1999, merchandise supplied by Rolex, the Company's
largest supplier, accounted for approximately 30% of Mayor's net sales. Certain
name brand watch manufacturers, including Rolex, have distribution agreements
with the Company that provide for specific sales locations as well as yearly
renewal terms with earlier termination provisions at the manufacturer's
discretion. Although management believes the Company enjoys excellent
relationships with all of its major suppliers of watches, there is no assurance
that its operations would not be adversely affected if it were no longer able to
purchase watches from such suppliers. Please refer to Item 7 regarding
"Forward-Looking Statements and Cautionary Factors That May Affect Future
Results."
OTHER PRODUCTS
In Fiscal 1999, Mayor's purchased jewelry and giftware for sale in
Mayor's stores from over 500 suppliers. Many of these suppliers have long
standing relationships with Mayor's. Another source of jewelry is Mayor's estate
division, which purchased approximately $7.1 million in jewelry from estates,
individuals and bank and trust departments during Fiscal 1999. Management
believes that the estate division often provides Mayor's with the ability to
obtain jewelry and raw material inventory at significant savings, thereby
increasing gross profit margins.
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SAM'S
DIAMONDS AND 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.
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 a substantial amount 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 has 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.
Please refer to Item 7 regarding "Forward-Looking Statements and Cautionary
Factors That May Affect Future Results."
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
The Company purchased approximately 47% and 49% of watches through
parallel marketed means during Fiscal 1999 and Fiscal 1998, respectively, as
well as approximately 53% and 51% of watches directly from other manufacturers
during Fiscal 1999 and Fiscal 1998, 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."
OTHER PRODUCTS
The Company purchases sunglasses, fine writing instruments, fragrances
and collectibles directly from manufacturers and vendors, as well as through
parallel marketed means. See "REGULATION."
AVAILABILITY OF PRODUCTS FOR MAYOR'S AND SAM'S
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" and Item 7 regarding "Forward-Looking Statements
and Cautionary Factors That May Affect Future Results."
CHANGING PRICES AND AVAILABILITY
Changes in foreign or domestic laws and policies affecting
international trade may also have an adverse effect on the availability or price
of the diamonds, gemstones and precious metals required by the Company. Other
risks to
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the Company's supplies of merchandise include fluctuation in the price of
precious gems and metals. Because substantially all of the Company's purchase
transactions are denominated in U.S. dollars, the Company does not engage in any
hedging activities in foreign currencies. See "Currency Exchange Gain/Loss" in
Management's Discussion and Analysis of Financial Conditions and Results of
Operations regarding the Company's forward sales contracts of the Mexican peso.
The Company does not speculate in gems or precious metals or engage in any
hedging activity with respect to possible fluctuations in the prices of these
items, since historically the Company has been able to make compensatory
adjustments in its retail prices as material fluctuations in the price of
supplies have occurred. If such fluctuations should be unusually large, rapid or
prolonged, there is no assurance that the necessary adjustments could be made
quickly enough to prevent the Company from being adversely affected. Please
refer to Item 7 regarding "Forward-Looking Statements and Cautionary Factors
That May Affect Future Results."
SEASONALITY
The Company's jewelry business is highly seasonal, with the fourth
quarter (which includes the Christmas shopping season) historically contributing
significantly higher sales than any other quarter during the year. Approximately
40% of the Company's Fiscal 1999 net sales were made during the fourth quarter.
MANUFACTURING
MAYOR'S
In addition to Mayor's purchases of finished jewelry and the
subcontracting of certain fabrication activities to others, Mayor's also has a
jewelry design studio and manufacturing and repair facility located in its
executive offices. In keeping with Mayor's identity as a full service guild
jeweler, this studio and workshop offers custom designed jewelry in response to
customers' special requests and manufactures jewelry for retail sale when it is
economical to do so. Mayor's also provides jewelry and watch refurbishment and
repair services, which are performed in stores or at the Mayor's centralized
repair facility. In addition to repair work, jewelers will perform other work,
including ring sizing on new purchases and repairs covered under warranty.
SAM'S
The Company used to perform certain jewelry manufacturing in Israel;
such manufacturing ceased in December 1999. During Fiscal 1999, approximately
16% of diamond and gemstone products purchased for Sam's were manufactured by
the Company in Israel. The remaining gemstone products were manufactured or
purchased from third parties. All gold and watch products are manufactured by
third parties.
RETAIL OPERATIONS, MERCHANDISING AND MARKETING
MAYOR'S
GENERAL
The Company distinguishes itself from most of its competitors by
offering a larger selection of distinctive and higher quality merchandise at
many different price points. Mayor's keeps substantially its entire inventory on
display in its stores rather than at its distribution facility. Although each
store stocks a representative array of jewelry, watches, giftware and other
accessories, certain inventory is tailored to meet local tastes and historical
merchandise sales patterns of the individual store. If a client desires an item
which is not available in a particular store, it can generally be transferred
from another store, usually in less than twenty-four hours. To assist in this
process, each sales professional is instructed to contact the Company's customer
service department, which in turn uses Mayor's imaging system which includes
substantially all of the inventory to determine if another store carries the
requested merchandise.
The Company believes that the elegant ambiance of its stores and
attractive merchandise displays play an important role in providing an
atmosphere for encouraging sales. The Company pays careful attention to detail
in the
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design and layout of each of its stores, particularly lighting, color, choice
of materials and placement of display cases. The Company also places substantial
emphasis on its window displays as a means of attracting walk-in traffic and
reinforcing its distinctive image. The Company's display department designs and
creates window and store merchandise case displays for all stores. Window
displays are frequently changed to provide variety and to reflect seasonal
events such as Christmas, Valentine's Day and Mother's Day.
A manager, two assistant managers, six additional sales professionals,
and three office associates staff a typical Mayor's store with an average of
approximately $6 million in annual sales. Each store manager reports to a
regional director of operations. The regional directors report to the Vice
President of Mayor's Store Operations. Many Mayor's stores also have a
watchmaker or jeweler on the premises to make repairs. Management believes that
the availability of these craftsmen reinforces the Company's image as a
full-service guild jeweler and encourages customers to patronize its stores.
PERSONNEL AND TRAINING
Mayor's places substantial emphasis on the professionalism of its sales
force to maintain its position as a leading upscale jeweler. Mayor's strives to
hire only highly motivated, friendly and customer-oriented individuals. All new
sales professionals attend a course where they are trained in technical areas of
the jewelry business, specific service techniques and Mayor's commitment to
client service. In general, Mayor's trains its sales personnel to establish a
personal rapport with each client, to identify client preferences with respect
to both product and price range, and to successfully conclude a sale. Management
believes that attentive personal service and knowledgeable sales professionals
are key components of Mayor's success.
As part of Mayor's commitment to training, the Company established
"Mayor's University", a formalized system of in-house training with a primary
focus on client service that involves extensive classroom training, the use of
detailed operational manuals, in-store mentorship programs and product knowledge
testing. All attendees must perform satisfactorily on written tests and quizzes
that are administered during the training program in order to retain their
employment with the Company. To help ensure successful skill transference from
the classroom training environment to the sales floor, store management works
with each new sales professional on a one-to-one basis in the store. Each new
sales professional is partnered with a mentor in the store, who trains the new
associate on basic operational procedures. In addition, the Company conducts
in-house training seminars on a periodic basis and administers training modules
with audits to (i) enhance the quality and professionalism of all sales
professionals, (ii) measure the level of knowledge of each sales professional
and (iii) identify needs for additional training. The Company also provides
store managers with more extensive management and client service training that
emphasizes "on-the-job" coaching and training instruction techniques.
Mayor's also stresses external training for its sales professionals.
The Company encourages all associates to complete a series of courses such as
that offered by the Gemological Institute of America (GIA), an independent
industry-recognized diamond grading laboratory and gemological school.
ADVERTISING AND PROMOTION
Mayor's marketing philosophy is to build on its well-established
reputation in each of its market areas as a premier guild jeweler offering fine
quality merchandise in an elegant, sophisticated environment conducive to the
purchase of luxury items. Mayor's stresses its role as a fashion leader that
does not promote discounting, but instead prices all of its merchandise with the
goal of delivering consistent value to its clients. Mayor's marketing efforts,
which consist of advertising, direct mailings, promotional events, attractive
store design and elegant display, are shaped in large part by demographic and
consumer trends affecting both the jewelry industry generally and Mayor's
specifically.
Mayor's advertisements stress its image as a full service guild
jeweler, its tradition of integrity, value and reliability, its longevity in the
jewelry business and its emphasis on superior client service. In addition,
advertisements frequently associate Mayor's with internationally recognized
brand names such as Rolex, Patek Philippe, Cartier and
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Mikimoto. Advertising and promotions for all stores are developed by Company
personnel at its headquarters in conjunction with outside advertising agencies.
CREDIT OPERATIONS
Sales under Mayor's proprietary credit cards accounted for
approximately 30% of the Company's net sales during Fiscal 1999. Mayor's credit
programs are intended to complement its overall merchandising and sales strategy
by encouraging larger and more frequent sales to a loyal customer base.
Mayor's extends credit solely to its Mayor's customers under its own
revolving charge plan with up to two-year payment terms. Finance charges, which
are subject to rate ceilings imposed by state law, are currently assessed on
customers' balances at a rate of 1.5% per month. Customers that exceed higher
credit standards may also be offered a 90-day, interest free payment plan. All
clients may also take advantage of Mayor's layaway plan, which allows them to
set items aside and pay for the items over a limited period of time with no
interest charges.
Mayor's credit department, located at the Company's corporate office,
makes all credit decisions. Neither sales personnel nor store managers are
authorized to grant credit. Mayor's has developed a detailed creditworthiness
analysis on which it bases its credit decisions. A customer will generally
receive a credit approval or denial in less than 15 minutes. Mayor's
custom-designed, computerized accounts receivable systems provide credit office
personnel with on-line decision making information, including new accounts
processing, credit authorizations and customer inquiries.
As of January 29, 2000 Mayor's had approximately 57,000 credit card
holders. Mayor's utilizes its credit card customer base in its targeting
marketing programs.
Mayor's has a collections department, which follows up on delinquent
accounts. Collectors are trained on collection programs, which have been
developed in house by the credit organization. Early stage delinquencies are
handled with an approach to customer goodwill. If accounts progress in
delinquency, more assertive action is taken. Ultimately, if a delinquent account
cannot be collected in house, outside legal action is undertaken. During Fiscal
1999, Mayor's bad debt expense as a percentage of credit sales was approximately
3.6%.
SAM'S
GENERAL
Each retail department is supervised by a counter 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 counter 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 during peak selling seasons such as Christmas. Each department is
generally open for business during the same hours as the Sam's location in which
it operates. Except for extended hours during certain holiday seasons, Sam's
locations are generally open Monday through Friday from 10:00 a.m. to 8:30 p.m.,
9:00 a.m. to 8:30 p.m. on Saturdays and 10:00 a.m. to 7:00 p.m. on Sundays.
The counter manager reports to either an operating manager or a
regional director. Each region generally has two operating managers that report
to a regional director of the respective area. The Company currently has 11
regional directors. The regional directors report directly to the Vice President
of Sam's Operations.
The fixtures and equipment located in the Company's departments
generally consist of six to ten showcases, four corner towers, a safe, a point
of sale (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 POS terminals.
11
<PAGE> 12
The Sam's locations are membership only, cash and carry operations. The
Company's departments accept cash, checks, Discover, Visa, Mastercard and a
Sam's credit card.
DEPARTMENT COUNT
The following table sets forth data regarding the number of departments
at Sam's locations which the Company operated:
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Departments:
Operated, beginning of period 455 447 440
Sam's Clubs opened during period 13 8 8
Sam's Clubs closed during period 1 0 1
----- ----- ----
Operated, end of period 467 455 447
--- --- ---
Net increase 12 8 7
==== ===== =====
</TABLE>
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 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 at Sam's by newspaper or other periodical
advertising or the broadcast media. To support seasonal activities, the Company
promotes its products through direct mail catalogs to Sam's members. The Company
utilizes promotional materials such as signage, banners and takeaway brochures
within Sam's locations to promote its products.
DISTRIBUTION
The Company's Mayor's and Sam's retail locations receive the majority
of their merchandise directly from the Company's distribution warehouse located
in Sunrise, Florida. Merchandise is shipped from the distribution warehouse
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 locations to balance inventory
levels and to fulfill customer requests.
COMPETITION
The retailing industry is highly competitive. 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
12
<PAGE> 13
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 retail industry that is occurring,
the Company believes that competition with other general and specialty retailers
and discounters will continue to increase.
REGULATION
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.
As a part of the discontinued Sam's operations, Jan Bell 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 Jan
Bell believes that its practices and procedures with respect to the purchase of
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 is introduced in Congress from
time to time 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 or categories of similar products, although the cost of certain
products may increase or their availability may be lessened. Please refer to
Item 7 regarding "Forward-Looking Statements and Cautionary Factors That May
Affect Future Results."
The Company's operations are affected by numerous federal and state
laws that impose disclosure and other requirements upon the origination,
servicing and enforcement of credit accounts and limitations on the maximum
amount of finance charges that may be charged by a credit provider. In addition
to the Company's private label credit cards, credit to the Company's customers
is provided primarily through bank cards such as Visa (R), Mastercard (R) and
Discover (R), without recourse to the Company based upon a customer's failure to
pay. Any change in the regulation of credit which would materially limit the
availability of credit to the Company's traditional customer base could
adversely affect the Company's results of operations or financial condition.
Please refer to Item 7 regarding "Forward-Looking Statements and Cautionary
Factors That May Affect Future Results."
EMPLOYEES
As of April 1, 2000, the Company employed approximately 2,672 persons
on a full-time basis, including approximately 468 in regional and local sales in
the Mayor's stores and 1,806 in Sam's, 165 in inventory and distribution and 203
in administrative and support functions. In addition, the Company also employed
approximately 623 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.
13
<PAGE> 14
ITEM 2. PROPERTIES
The Company's corporate headquarters is owned by the Company and
located on 11.1 acres in a 131,000 square foot building in Sunrise, Florida. In
March 1999, the Company sold the previous corporate headquarters, a 64,000
square foot building on 3.7 acres, located adjacent to the current headquarters.
As of April 1, 2000, Mayor's had a total of 35 leased stores, of
which 26 are operating and 9 are in the process of being constructed or are in
the design phase. Mayor's leases its stores, with rent generally the greater of
a percentage of the store's sales volume (subject to certain adjustments) or a
fixed minimum base rent. The Mayor's lease terms generally range from two to 15
years. Due to Mayor's high volume of sales, Mayor's has historically paid rent
for most stores based on sales. Lease rental payments are also subject to annual
increases for tax and maintenance. The following table summarizes all store
leases:
<TABLE>
<CAPTION>
Total
Operating Stores Square Feet Expiration Location
- ---------------- ----------- ---------- --------
<S> <C> <C>
Altamonte Mall 3138 Nov-2000 Altamonte Springs, FL
Aventura Mall 3447 Jan-2009 N. Miami Bch, FL
Boca Town Center 5878 Jan-2007 Boca Raton, FL
Boynton Beach Mall 3065 Jan-2001 Boynton Beach, Fl
Brandon Town Center 4110 Jun-2005 Brandon, FL
Broward Mall 2236 Dec-2004 Plantation, FL
Buckhead Store 10000 Apr-2009 Atlanta, GA
Citrus Park Town Center 3953 Jan-2010 Tampa, FL
Coral Gables 2500 Dec-2002 Coral Gables, FL
Dadeland Mall 5700 Jan-2007 Miami, FL
The Falls 1643 Jan-2004 Miami, FL
Florida Mall 5070 Jan-2010 Orlando, FL
The Galleria at Fort Lauderdale 3682 Jan-2005 Ft. Lauderdale, FL
The Gardens of the Palm Beaches 2907 Jan-2004 Palm Beach Gardens, FL
Lenox Square Mall 4587 Dec-2003 Atlanta, GA
Lincoln Road 4250 May-2009 Miami Beach, FL
Mall of Georgia 3486 Jan-2010 Mill Creek, GA
Miami International Mall 3226 Jan-2006 Miami, FL
North Point Mall 2135 Dec-2002 Alpharetta, GA
Orlando Fashion Square 4095 Jun-2005 Orlando, FL
Perimeter Mall 5157 Jan-2009 Atlanta, GA
Seminole Towne Center 3461 Jan-2006 Sanford, FL
The Shops at Sunset Place 2051 Jan-2010 S Miami, FL
Southgate Plaza 4605 Mar-2010 Sarasota, FL
Treasure Coast Square 2506 Jan-2001 Jensen Beach, FL
Westland Mall 4200 Jan-2001 Hialeah, FL
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
Future Stores Expected Opening
- ------------- ----------------
<S> <C> <C> <C> <C>
Northbrook Court Mall 4063 Jan-2011 Northbrook, IL Jun-2000
Tyson Galleria 4626 (1) McLean, VA Jul-2000
Stonebriar Centre 5155 (1) Frisco, TX Aug-2000
Desert Passage 5168 Jan-2011 Las Vegas, NV Aug-2000
The Galleria at Roseville 6010 (1) Roseville, CA Aug-2000
City Place at West Palm Beach 6000 Oct-2010 West Palm Beach, FL Oct-2000
North East Mall 5172 Jan-2011 Hurst, TX Oct-2000
Somerset Collection 6000 (1) Troy, MI Oct-2000
Fashion Island 5900 (1) Newport Beach, CA Nov-2000
Altamonte Mall 5782 (2) Altamonte Springs, FL Nov-2000
</TABLE>
(1) Final terms are currently being negotiated.
(2) Remodeling and expansion of an existing store.
As of April 1, 2000, the Company had licensed concession operations at
469 Sam's locations in 48 states throughout the United States and Puerto Rico.
The typical licensed concession consists of approximately 260 to 275 square
feet.
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. Although certain litigation with third parties and
present and former employees of the Company is routine and incidental, such
litigation can result in large monetary awards for compensatory or punitive
damages; however, the Company believes that no litigation which is currently
pending involving the Company will have a material adverse effect on the
Company's financial condition.
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 ended January 29, 2000.
15
<PAGE> 16
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 for the periods indicated, the range of sales prices
per share on the American Stock Exchange Composite Tape as furnished by the
National Quotation Bureau, Inc.
High Low
----- -----
Year Ended January 29, 2000
Thirteen Weeks Ended May 1, 1999 $7.19 $2.31
Thirteen Weeks Ended July 31, 1999 3.81 2.75
Thirteen Weeks Ended October 30, 1999 3.25 2.44
Thirteen Weeks Ended January 29, 2000 3.50 2.31
Year Ended January 30, 1999
Thirteen Weeks Ended May 2, 1998 $5.94 $2.69
Thirteen Weeks Ended August 1, 1998 7.94 4.63
Thirteen Weeks Ended October 31, 1998 7.25 4.00
Thirteen Weeks Ended January 30, 1999 7.50 4.50
The last reported sales price of the Common Stock on the American Stock
Exchange Composite Tape on April 3, 2000 was $2.75. On April 3, 2000, the
Company had 754 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 prohibits
dividend payments.
16
<PAGE> 17
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial 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."
<TABLE>
<CAPTION>
Fifty-Two Fifty-Two Fifty-Two Fifty-Two Fifty-Two
Weeks Weeks Weeks Weeks Weeks
Ended Ended Ended Ended Ended
Jan. 29, Jan. 30, Jan. 31, Feb. 1, Feb. 3,
2000 1999 1998 1997 1996
------------ ------------ ------------- ------------ ------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales $155,344 $ 82,221 $ -- $ -- $ --
Cost of Sales 94,596 50,113 -- -- --
------------ ------------ ------------- ------------ ------------
Gross Profit 60,748 32,108 -- -- --
Store operating and selling
expenses 43,316 22,811 -- -- --
General and administrative
expenses 20,304 11,003 -- -- --
Depreciation and amortization 7,648 3,390 -- -- --
------------ ------------ ------------- ------------ ------------
Operating loss (10,520) (5,096) -- -- --
Interest and other income 2,149 1,061 -- -- --
Interest expense (2,619) (1,744) -- -- --
------------ ------------ ------------- ------------ ------------
Net loss from continuing operations
before cumulative effect of a
change in accounting principle (10,990) (5,779) -- -- --
Cumulative effect of a change in
accounting principle (2,173) -- -- -- --
------------ ------------ ------------- ------------ ------------
Net loss from continuing operations (13,163) (5,779) -- -- --
Income (loss) from discontinued
operations (1) 8,078 22,997 10,043 761 (3,442)
------------ ------------ ------------- ------------ ------------
Net income (loss) $ (5,085) $ 17,218 $ 10,043 $ 761 $ ( 3,442)
============ ============ ============= ============ ============
Net income (loss) per common share:
Continuing operations before
cumulative effect of a
change in accounting
principle $(0.43) $(0.21) $ -- $ -- $ --
Cumulative effect of a change
in accounting principle (0.09) 0.00 -- -- --
Discontinued operations 0.32 0.84 0.39 0.03 (0.13)
------------ ------------ ------------- ------------ ------------
$(0.20) $ 0.63 $0.39 $0.03 $ (0.13)
============ ============ ============= ============ ============
</TABLE>
(CONTINUED)
17
<PAGE> 18
<TABLE>
<CAPTION>
BALANCE SHEET DATA (AT PERIOD END):
<S> <C> <C> <C> <C> <C>
Working capital $ 65,118 $ 53,366 $111,764 $ 96,828 $ 96,762
Total assets 220,463 236,595 151,712 139,385 153,173
Credit facility, less amounts
classified as current 24,424 26,409 -- -- 7,500
Stockholders' equity 136,555 163,686 135,579 125,373 125,225
</TABLE>
(1) Discontinued operations include other charges for the fifty-two weeks
ended January 29, 2000 which consists of a $2 million write-off of
goodwill for Exclusive Diamonds International, Limited related to the
termination of the Sam's agreement.
Discontinued operations include other charges for the fifty-two weeks
ended February 1, 1997 which consists of (a) $2 million in severance
payments to the Company's former President and Chief Executive Officer;
(b) $630,000 write-off of financing costs in connection with the
Company's repayment of senior notes; (c) $1.5 million write-down of the
corporate headquarters building which the Company placed on the market
for sale; and (d) $1.5 million provision for the closing of two Jewelry
Depot locations.
18
<PAGE> 19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The years ended January 29, 2000, January 30, 1999 and January 31, 1998
are referred to herein as Fiscal 1999, Fiscal 1998 and Fiscal 1997,
respectively. The operating results presented represent the activity of the
Company's continuing operation, Mayor's Jewelers, Inc., a twenty six store
luxury jewelry chain the Company acquired July 28, 1998. As the Mayor's business
is highly seasonal with the fourth quarter (which includes the Holiday shopping
season) historically contributing significantly higher sales and operating
results than any other quarter, it should be noted that the six months of
operating results in Fiscal 1998 included are not representative of the
operating results for an annual period. Therefore, operating results in Fiscal
1999 were impacted by the less profitable first six months of the year, which
are not included in the operating results for Fiscal 1998.
The Company also retails, as a discontinued operation, fine jewelry,
watches and certain other select non-jewelry consumer products primarily to
warehouse club members through Sam's Club, a division of Wal-Mart, Inc.,
pursuant to an arrangement whereby the Company operates a concession at all of
Sam's domestic and Puerto Rico locations through February 1, 2001 unless an
earlier termination arrangement is structured and mutually agreed to. During
April 1999, the Company was informed by Sam's that the concession agreement
would not be renewed beyond its expiration date.
As a result of the non-renewal, the Company has developed a plan for
the disposal of the Sam's business. This plan includes the July 1999 sale of the
Company's Mexico subsidiary, Jan Bell de Mexico S.A. de C.V., which supplied
selected fine jewelry, watches and fragrances to Sam's locations in Mexico, as
well as the future sale or liquidation of the Company's subsidiary, Exclusive
Diamonds International, Limited, which manufactures diamonds primarily for
retail sale in the Sam's jewelry counters. Therefore, starting in the second
quarter of Fiscal 1999, the Company began to account for its Sam's operating
results, future field and back office expenses associated with the transition
out of the clubs, its loss from the sale of the Mexico subsidiary and its
estimated loss on the sale or liquidation of its Israel subsidiary as
discontinued operations in its consolidated financial statements. The assets and
liabilities of Sam's is recorded as "Net assets of discontinued operations," and
the operations of Sam's and the costs of the discontinuance since the date of
adoption of the plan, which are expected to result in a net gain at the
culmination of the process, are accumulated in the "Deferred gain from
discontinued operations" accounts of the Company's Consolidated Balance Sheets.
The net results of operations of Sam's prior to the adoption of the plan are
included in net income from discontinued operations included in the accompanying
Consolidated Statements of Operations. Accordingly, the results of continuing
operations for Fiscal 1999 and Fiscal 1998 include only the results of Mayor's.
Since the Mayor's acquisition, the Company has begun to review ongoing
strategies to increase revenues and achieve expense savings in existing Mayor's
stores and currently a significant portion of the Company's resources are being
spent on the continued development of the luxury jeweler platform through the
opening of new stores. The Company's operating infrastructure is designed to
service a larger base of operations than the current Mayor's business. However,
the Company expects to "grow into" the infrastructure which it believes is
appropriately sized, given the expansion intentions for Mayor's. In view of the
investment being made into the Company infrastructure, continuing operations
reflect costs which are higher than what normally would be incurred for an
operation of Mayor's present size. In addition, certain corporate overhead
expenses previously charged to the Sam's Division have been reallocated to the
continuing Mayor's division. Mayor's continuing operations recognized net losses
of $13.2 million and $5.8 million for Fiscal 1999 and Fiscal 1998, respectively.
The Company intends to reduce these losses through the expansion of the Mayor's
chain as well as identifying further efficiencies in the Company's
infrastructure. The Company has implemented a focused merchandising, marketing
and real estate strategy that will serve to solidify Mayor's position as a
premier luxury guild jeweler.
The results of operations for Fiscal 1998 include the results of
Mayor's for the period subsequent to the acquisition date of July 28, 1998.
During this period, the Company began to review ongoing strategies to increase
revenues and achieve expense savings in the Mayor's business. These include
efforts to reduce and better balance inventory levels, reduce the amount of
discontinued inventory in stock and replace with current merchandise, and
increase inventory turns. Also, the Company believes gross margins can be
increased through shifting the sales mix toward higher margin jewelry products,
reducing purchasing costs of inventory, and reducing discounts given at
the point of sale on nondiscontinued inventory.
The retail jewelry business is seasonal in nature with a higher
proportion of sales and a significant portion of earnings generated during the
fourth quarter holiday selling season.
The following discussion includes pro forma results for Mayor's as if
the acquisition had occurred February 1, 1998, for the year ended January 30,
1999 for comparative purposes. This does not include the results of operations
for Fiscal 1997 as it was prior to the Mayor's acquisition.
19
<PAGE> 20
The following table for continuing operations sets forth for the
periods indicated the percentage of net sales for certain items in the Company's
Consolidated Statements of Operations and related pro forma information as
defined above:
<TABLE>
<CAPTION>
Income and Expense Items as a
Percentage of Net Sales
----------------------------------------------------
Year Ended Jan. 29, 2000 Year Ended Jan. 30, 1999
(Actual) (Pro Forma Unaudited)
------------------------ -------------------------
<S> <C> <C> <C> <C>
Net sales $155,344 100.0% $143,855 100.0%
Cost of sales 94,596 60.9 86,730 60.3
-------- ----- -------- -----
Gross profit 60,748 39.1 57,125 39.7
Store operating and selling expenses 43,316 27.9 39,941 27.8
General and administrative expenses 20,304 13.1 23,703 16.5
Depreciation and amortization 7,648 4.9 7,346 5.1
-------- ------ -------- ------
Operating loss (10,520) (6.8) (13,865) (9.7)
Interest and other income 2,149 1.4 2,198 1.5
Interest expense 2,619 1.7 5,242 3.6
-------- ------ -------- ------
Net loss from continuing operations before
cumulative effect of a change in accounting principle $(10,990) (7.1%) $(16,909) (11.8%)
======== ====== ========= =====
Number of stores 26 24
====== =====
</TABLE>
SALES
The Company's net sales from the Mayor's continuing operations for
Fiscal 1999 were $155.3 million compared to $143.9 million for pro forma Fiscal
1998. Comparative store net sales from Mayor's for Fiscal 1999 increased 10.8%
compared to pro forma Fiscal 1998. The increase in revenues is mainly
attributable to increases in all product categories, with the largest increase
in the watch category. By opening new stores outside of Mayor's current
geographical marketplace, the Company is seeking to expand its Mayor's chain to
a national luxury jeweler, which will increase the Company's net sales. However,
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 luxury goods retail industry and with other
competing general and specialty retailers and discounters will continue to
increase. The superior watch brands business comprises a significant portion of
the Mayor's business, which is a result of the Company's ability to market
effectively high-end watches. The Company's future sales results in these new
stores could be adversely impacted because some current watch vendor
distribution agreements do not provide for the marketing of new products in
these new locations. The Company is continually seeking to improve its
merchandise assortment and quantity and is seeking to clear out aged goods which
it inherited as a result of the acquisition. This should result in stronger
stock positions which should then lead to increased sales in existing stores and
set a precedent for new stores.
COST OF SALES AND GROSS PROFIT
Gross profit in Fiscal 1999 was 39.1% compared to 39.7% in Fiscal 1998.
The decrease in gross profit as a percentage of net sales for Fiscal 1999 is a
result of the Company's liquidation of its slow moving inventory at
significantly reduced prices and a disproportionate increase in watch sales
which generally have a lower gross profit than other product categories. The
Company believes there is opportunity to increase gross profit over the next
couple of years. Areas for gross margin improvement include the reduction of the
purchasing cost of inventories, increasing the assortment of goods towards
higher margin jewelry items, and improving the Company's discipline with respect
to purchase related discounts. In addition, as the Company has substantially
completed its Mayor's integration, the Company expects to improve the allocation
and management of inventory and as a result, other direct costs such as slow
moving reserves are expected to decrease.
20
<PAGE> 21
STORE OPERATING AND SELLING EXPENSES
Store operating and selling expenses were $43.3 million for Fiscal 1999
compared to $39.9 million for pro forma Fiscal 1998. The increase in store
operating and selling expenses for Fiscal 1999 is mainly attributable to
increased store commissions, security costs, chargecard and check processing
fees and percentage rent which are directly related to the increased sales. The
Company does not believe there is significant opportunity to reduce these
expenses. The Company believes it has a very well executed front end in its
Mayor's stores which includes highly professional, trained associates. Also, the
Company believes that the elegance of the Mayor's stores helps set the business
apart from other jewelers and adds to the experience of shopping in a Mayor's
store. As such, the Company does not believe a material reduction in this
expense structure would be beneficial.
GENERAL AND ADMINISTRATIVE EXPENSES
General and administrative expenses were $20.3 million for Fiscal 1999
compared to $23.7 million for pro forma Fiscal 1998. The decrease in general and
administrative expenses for Fiscal 1999 is primarily due to the efficiencies
created by the consolidation of the Jan Bell and Mayor's back office functions
and locations. The Company believes there is opportunity for savings in this
area. The current infrastructure is designed to service a larger base of
operations. The percentage of general and administrative expenses to net sales
should continually decrease as the Company expands its business.
DEPRECIATION AND AMORTIZATION
Depreciation and amortization expenses were $7.6 million for Fiscal
1999, compared to $7.3 million for pro forma Fiscal 1998. The increase in
amortization expense is primarily attributable to the goodwill recorded in
connection with the Mayor's acquisition. The increase in depreciation is a
result of the capital expenditures associated with the construction of new and
remodeled stores which are net of the write-off of the fixed assets at the
previous Mayor's headquarters. Included in these amounts are the depreciation of
Mayor's store assets, depreciation for substantially all corporate headquarter
and distribution center fixed assets, amortization of goodwill resulting from
the Mayor's acquisition and amortization of financing costs related to the
Company's working capital facility with Citicorp, USA.
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Interest and other income was $2.1 million in Fiscal 1999 and $2.2
million in pro forma Fiscal 1998. This income is primarily a result of finance
charge income from the Mayor's chargecard. Interest expense was $2.6 million for
Fiscal 1999, compared to $5.2 million for pro forma Fiscal 1998. The decrease in
the refinancing of the interest expense in Fiscal 1999 is attributable to the
partial paydown of Mayor's pre acquisition debt and debt at a lower interest
rate.
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE
The Company reported a $2.2 million expense for a cumulative effect of
a change in accounting principle in Fiscal 1999. This amount included costs
incurred in acquiring, receiving, preparing and distributing inventory to the
point of being ready for sale in inventory. The Company has decided to change
this practice for continuing operations in order to conform to industry
standards.
DISCONTINUED OPERATIONS
The results of operations for Fiscal 1999, related to the Sam's
Division discontinued operations reflect the Company's continued strategy to
maximize earnings in Sam's until the contract ends, while
21
<PAGE> 22
also attempting to liquidate its inventory investment to a minimal level by
that time. During Fiscal 1999, the Company continued to execute merchandise
strategies in Sam's that emphasized higher margin diamond, semi-precious gem,
gold and watch products in place of other lower margin non-jewelry products and
categories. Management does not expect any significant additional improvements
in sales, gross margins, operating cash flows and expense savings in its
traditional business with Sam's and will recognize some declines as a result of
the contract nonrenewal. The Company expects to continue to have positive cash
flows and positive income from Sam's for the remaining term of the Agreement.
This estimate considers the Sam's division operations through February 1, 2001,
the loss on the sale of Mexican operations which were sold in July 1999, the
estimated loss on the Israel operations which are expected to be sold or
liquidated during the next fiscal year, and an estimate for field and back
office expenses expected during the transition out of Sam's. Throughout the
remainder of the agreement the operating results of the discontinued operations
will continue to accumulate in the balance sheet. Upon termination of the
agreement the net results of these discontinued operations will then be
processed through the income statement. Income from discontinued operations for
Fiscal 1999 remained consistent with prior years. The Company can, however, make
no assurances regarding the results of the wind down of its Sam's division
business, including matters related to the results of operations, personnel and
inventories.
LIQUIDITY AND CAPITAL RESOURCES
As of January 29, 2000, cash and cash equivalents totaled $1.0 million
and the Company had $24.4 million outstanding under its working capital
facility. Availability under this facility is determined based upon a percentage
formula applied to inventory and accounts receivable. Based upon this formula,
the maximum of $80 million was available to the Company at January 29, 2000. The
Company has the right to request an increase up to $110 million contingent upon
lender approval. The credit facility bears interest at floating rates. The
Company has the option of LIBOR plus 1.5% or the bank's adjusted base rate plus
.25%. These interest rates can be increased if the Company's average leverage
ratio does not meet certain levels. In addition, the Company pays a commitment
fee of .25% of the unused line balance as well as 2.5% of the aggregate
outstanding letter of credit liability. The agreement contains covenants which
require the Company to maintain financial ratios including leverage ratio, fixed
charge ratio, and tangible net worth, and also limits capital expenditures,
incurrence of additional debt, and prohibits payment of dividends. Further, the
Company is in the process of amending the agreement for all appropriate terms
and conditions related to the expiration of the Sam's agreement.
During Fiscal 1999, cash flows from continuing operating activities
used $16.5 million in cash. Cash flows net of discontinued operations provided
$35.1 million in cash. The Company's business is highly seasonal. Consequently,
seasonal working capital needs peak in October and November, before the holiday
shopping season. During Fiscal 1999 these seasonal needs and the Company's
additional Mayor's locations opened during Fiscal 1999 were supplied primarily
by the Company's cash from operating activities. During Fiscal 1999, the
Company's peak level of inventory for both continuing and discontinued
operations was $185.8 million requiring a maximum outstanding borrowing on the
line of credit of $62.9 million. The $62.9 million of borrowings included a
$15.9 million purchase of treasury stock. The Company anticipates overall less
borrowing during Fiscal 2000 as the Company will attempt to reduce the Sam's
Division inventories in contemplation of the expiration of the Sam's agreement
on February 1, 2001.
Net cash used in investing activities was $11.1 million in Fiscal 1999,
primarily related to investments in capital expenditures. Fiscal 1999 capital
expenditures include back office computer software and hardware as well as costs
associated with new and remodeled Mayor's locations. The Company currently plans
to open nine Mayor's stores during 2000. Under its Mayor's growth strategy, the
Company plans to open approximately eight to ten new stores per year. Management
estimates that the Company's cash requirements will be approximately $4.2
million for each new store, with approximately $1.2 million (after consideration
of lease concessions from landlords) related to leasehold improvements,
fixtures, point of sale terminals and other equipment in the stores, and
approximately $3 million related to incremental accounts receivable and
inventory investment, net of incremental accounts payable. The Company also
estimates it will make back office capital expenditures of approximately $2.0
million during Fiscal 2000, primarily for a new Mayor's credit and collections
computer system, as well as other management information system enhancements.
On April 16, 1999, the Company's Board of Directors authorized the
expenditure of up to $15 million to repurchase the Company's common stock over a
period of one year. On October 29, 1999, the authorized amount to repurchase was
increased by an additional $5 million, which has subsequently increased another
$10 million to $30 million. The Company has and will continue to repurchase the
shares in the open market or in privately negotiated transactions, from time to
22
<PAGE> 23
time, in compliance within the Securities Exchange Commission's Rule 10b-18,
subject to market conditions, applicable legal requirements and other factors.
The acquired shares will be held in treasury or canceled. During Fiscal 1999,
the Company had repurchased 8,078,798 shares at a cost of $24.1 million.
The Company believes that its cash on hand, projected cash from
continuing and discontinued operations and availability under the current
working capital facility will be sufficient to meet its anticipated working
capital and capital expenditure needs for Fiscal 2000; however, there can be no
assurance that the Company's future operating results will be sufficient to
sustain any 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. Because of the manner in which the Company procures and sells gold
products, the Company believes that it is not necessary to hedge its gold
inventories. 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 selling, 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.
INTEREST RATE RISK
The Company's credit facility accrues interest at floating rates,
currently based upon LIBOR plus 1.5% or the bank's adjusted base rate plus .25%,
at the Company's option. The Company manages its borrowings under this credit
facility each day in order to minimize interest expense. The impact on the
Company's earnings per share of a one-percentage point interest rate change on
the outstanding balance as of January 29, 2000 would increase or decrease
earnings per share by $.01 per share.
The Company extends credit to its Mayor's customers under its own
revolving charge plan with up to two-year payment terms. Finance charges are
generally currently assessed on customers' balances at a rate of 1.5% per month.
Since the interest rate is fixed at the time of sale, market interest rate
changes would not impact the Company's finance charge income.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written reports and releases and oral statements
made from time to time by the Company contain forward-looking statements which
can be identified by their use of words like "plans," "expects," "believes,"
"will," "anticipates," "intends," "projects," "estimates," "could," "would,"
"may," "planned," "goal," and other words of similar meaning. All statements
that address expectations, possibilities or projections about the future,
including without limitation statements about the Company's strategy for growth,
expansion plans, sources or adequacy of capital, the Sam's Club transition,
expenditures and financial results are forward-looking statements.
23
<PAGE> 24
One must carefully consider such statements and understand that many
factors could cause actual results to differ from the forward-looking
statements, such as inaccurate assumptions and other risks and uncertainties,
some known and some unknown. No forward-looking statement is guaranteed and
actual results may vary materially. Such statements are made as of the date
provided, and the Company assumes no obligation to update any forward-looking
statements to reflect future developments or circumstances.
One should carefully evaluate such statements by referring to the
factors described in the Company's filings with the SEC, especially on Form's
10-K, 10-Q and 8-K. Particular review is to be made of Items 1, 2, 3 and 7 of
the Form 10-K and Item 2 of the Form's 10-Q where the Company discusses in more
detail various important risks and uncertainties that could cause actual results
to differ from expected or historical results. The Company notes these factors
for investors as permitted by the Private Securities Litigation Act of 1995.
Since it is not possible to predict or identify all such factors, the identified
items are not a complete statement of all risks or uncertainties. In addition to
the factors discussed in this report, the following are some of the important
factors that could cause results to vary.
The Company markets its products through its primarily mall based
Mayor's and Maier and Berkele stores as well as through Sam's pursuant to an
arrangement whereby the Company operates an exclusive licensed concession at all
of Sam's existing and future domestic and Puerto Rico locations through February
1, 2001. On April 6, 1999, the Company was informed by Sam's that its concession
agreement would not be renewed beyond its expiration date. The Company has been
dependent on Sam's Club to conduct its business and, without replacement
business, the loss of the arrangement with Sam's Club will have a material
adverse effect on the business of the Company.
The Company is pursuing new growth opportunities outside of its
existing business with Sam's and Mayor's and future arrangements with other
retail ventures. Management continuously considers other growth opportunities
including acquisitions of businesses similar or complementary to that of the
Company, which could 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 and
integration difficulties. 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 plans to open nine Mayor's stores in 2000. The Company
considers its Mayor's expansion program to be an integral part of its future
plans to replace the Sam's business. However, there can be no assurance that the
Company will be able to find favorable store locations, negotiate favorable
leases, hire and train new store and account managers, and integrate the new
stores in a manner that will allow the Company to meet its expansion program.
Conditions outside the Company's control, such as adverse weather conditions
affecting construction schedules, unavailability of materials, labor disputes
and similar issues also could impact anticipated store openings. Also, certain
name brand products, such as new Rolex watches, currently will not be sold in
new locations outside of Florida and Georgia. The failure to expand by opening
new stores as planned and the results of operations of new stores outside
Florida and Georgia could have a material adverse effect on the Company's future
sales growth, profitability and operating results.
All but three of the Mayor's stores are located in major regional
malls. The success of the Company's operations depends to a certain extent on
the ability of mall anchor tenants and other attractions to generate customer
traffic in the vicinity of the Mayor's stores. The loss of mall anchor tenants
in the regional malls where the Mayor's stores are located, the opening of
competing regional malls or other economic downturns affecting customer mall
traffic could have an adverse effect on the Company's net sales and
profitability.
The working capital facility agreement contains covenants, which
require the Company to maintain financial ratios including a leverage ratio,
fixed charge ratio, tangible net worth, and also limits capital expenditures,
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.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page
----
Independent Auditors' Report 26
Consolidated Balance Sheets as of January 29, 2000
and January 30, 1999. 27
Consolidated Statements of Operations for
the Year Ended January 29, 2000,
the Year Ended January 30, 1999, and
the Year Ended January 31, 1998 28
Consolidated Statements of Stockholders'
Equity and Comprehensive Income (loss) for
the Year Ended January 29, 2000,
the Year Ended January 30, 1999, and
the Year Ended January 31, 1998 29
Consolidated Statements of Cash Flows for
the Year Ended January 29, 2000,
the Year Ended January 30, 1999, and
the Year Ended January 31, 1998 30-31
Notes to Consolidated Financial Statements 32
25
<PAGE> 26
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 January 29, 2000 and
January 30, 1999 and the related Consolidated Statements of Operations,
Stockholders' Equity and Comprehensive Income (Loss), and Cash Flows for each of
the three fiscal years in the period ended January 29, 2000. 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 auditing standards generally accepted
in the United States of America. 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 January 29, 2000
and January 30, 1999, and the results of its operations and its cash flows for
each of the three fiscal years in the period ended January 29, 2000, in
conformity with accounting principles generally accepted in the United States of
America. 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.
As discussed in Note D to the consolidated financial statements, the Company
changed its method of accounting for certain direct and indirect costs related
to inventory in prior years.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, Florida
March 17, 2000
26
<PAGE> 27
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 1,049 $ 3,530
Accounts receivable (net of allowance for
doubtful accounts of $1,274 and $3,344,
respectively) 25,884 25,385
Inventories 78,640 67,975
Other current assets 2,088 1,596
--------- ---------
Total current assets 107,661 98,486
--------- ---------
Property, net 28,238 25,281
Excess of cost over fair value of net
assets acquired 26,614 25,857
Other assets 2,653 4,084
--------- ---------
Total non-current assets 57,505 55,222
Net assets of discontinued operations 55,297 82,887
--------- ---------
Total assets $ 220,463 $ 236,595
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 24,387 $ 25,746
Accrued expenses 13,061 13,229
Due to former Mayor's shareholders 5,095 6,145
--------- ---------
Total current liabilities 42,543 45,120
--------- ---------
Long term debt 24,424 26,409
Other long term liabilities 1,817 1,380
--------- ---------
Total long term liabilities 26,241 27,789
--------- ---------
Deferred gain from discontinued operations 15,124 --
Commitments and contingencies -- --
--------- ---------
Stockholders' Equity:
Common stock, $.0001 par value,
50,000,000 shares authorized, 28,457,634 and
28,358,475 shares issued and outstanding, respectively 3 3
Additional paid-in capital 191,810 191,538
Accumulated deficit (31,162) (26,077)
Accumulated other comprehensive income -- (1,778)
Less: 8,078,798 shares of treasury stock, at cost (24,096) --
--------- ---------
Total stockholders' equity 136,555 163,686
--------- ---------
Total liabilities and
stockholders' equity $ 220,463 $ 236,595
========= =========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
27
<PAGE> 28
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 29, January 30, January 31,
2000 1999 1998
------------ ------------ ---------------
<S> <C> <C> <C>
Net sales $ 155,344 $ 82,221 $ --
Cost of sales 94,596 50,113 --
------------ ------------ --------------
Gross profit 60,748 32,108 --
------------ ------------ --------------
Store operating and selling expenses 43,316 22,811 --
General and administrative expenses 20,304 11,003 --
Depreciation and amortization 7,648 3,390 --
------------ ------------ --------------
71,268 37,204 --
------------ ------------ --------------
Operating loss (10,520) (5,096) --
Interest and other income 2,149 1,061 --
Interest expense 2,619 1,744 --
------------ ------------ --------------
Net loss from continuing operations
before cumulative effect of a change in accounting
principle (10,990) (5,779) --
Cumulative effect of a change in accounting principle (2,173) -- --
------------ ------------ --------------
Loss from continuing operations (13,163) (5,779) --
Net income from discontinued operations, net
of income tax liability (benefit) of $531,
($2,257) and ($2,265), respectively 8,078 22,997 10,043
------------ ------------ --------------
Net (loss) income $ (5,085) $ 17,218 $ 10,043
============ ============ ==============
Weighted average shares outstanding 25,535,852 27,401,952 25,919,427
(Loss) earnings per share:
Continuing operations before cumulative effect
of a change in accounting principle $ (0.43) $ (0.21) $ 0.00
Cumulative effect of a change in
accounting principle $ (0.09) $ 0.00 $ 0.00
Discontinued operations $ 0.32 $ 0.84 $ 0.39
------------ ------------ --------------
$ (0.20) $ 0.63 $ 0.39
============ ============ ==============
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
28
<PAGE> 29
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME (LOSS)
(IN THOUSANDS EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
Accumulated
Number of Additional Other
Common Common Paid-in Accumulated Comprehensive Comprehensive Treasury
Shares Stock Capital Deficit Income (Loss) Income (Loss) Stock Total
---------- ------ --------- ----------- ------------- ------------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at February 1,
1997 25,894,428 $3 $180,448 $(53,338) $(1,740) -- $125,373
---------- -- -------- -------- ------- -------- -------- --------
Comprehensive Income:
Net income 10,043 $10,043 10,043
Foreign currency
translation adjustment (38) (38) (38)
-------
Purchase plan exercise 30,209 60 $10,005 60
Issuance of common stock 57,333 141 ======= 141
---------- -- -------- -------- -------- -------- --------
Balance at January 31,
1998 25,981,970 3 180,649 (43,295) (1,778) -- 135,579
Comprehensive Income:
Net income 17,218 $17,218 17,218
=======
Purchase plan exercise 30,921 106 106
Issuance of common stock 816,034 3,078 3,078
Issuance of common
Stock- Mayor's
acquisition 1,529,550 7,705 7,705
---------- -- -------- -------- -------- -------- --------
Balance at January 30,
1999 28,358,475 3 191,538 (26,077) (1,778) -- 163,686
Comprehensive Income:
Net loss (5,085) $(5,085) (5,085)
Foreign currency
translation adjustment 1,778 1,778 1,778
-------
Purchase plan exercise 76,261 216 $(3,307) 216
Issuance of common stock 22,898 56 ======= 56
Purchase of treasury
stock at cost (8,078,798) (24,096) (24,096)
---------- -- -------- -------- -------- -------- --------
20,378,836 $3 $191,810 $(31,162) $ 0 $(24,096) $136,555
========== == ======== ======== ======== ======== ========
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
29
<PAGE> 30
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 29, January 30, January 31,
2000 1999 1998
----------- ----------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Cash received from customers $ 154,845 $ 82,221 $ --
Cash paid to suppliers and employees (170,638) (83,927) --
Interest and other income received 2,149 1,061 --
Interest paid (2,619) (1,744) --
Income taxes paid (262) -- --
--------- --------- -------
Net cash used in by continuing operating activities (16,525) (2,389) --
Net cash provided by discontinued operations 51,602 61,669 --
--------- --------- -------
Net cash provided by operating activities 35,077 59,280 --
--------- --------- -------
Cash flows from investing activities:
Investment in Mayor's, net of cash acquired (2,686) (59,111) --
Capital expenditures (8,373) (2,784) --
--------- --------- -------
Net cash used in investing activities (11,059) (61,895) --
--------- --------- -------
Cash flows from financing activities:
Borrowings under line of credit 501,703 -- --
Line of credit repayments (503,689) -- --
Purchase of treasury stock (24,096) -- --
Proceeds from sale of employees stock plans
and foreign currency translation adjustment 272 -- --
(Decrease) increase in due to Mayor's shareholders (1,050) 6,145 --
Payment of commitment fee (75) -- --
Other 436 -- --
--------- --------- -------
Net cash provided by (used in) financing activities (26,499) 6,145 --
--------- --------- -------
Net increase (decrease) in cash and cash equivalents (2,481) 3,530 --
Cash and cash equivalents at beginning of year 3,530 0 --
--------- --------- -------
Cash and cash equivalents at end of year $ 1,049 $ 3,530 $ --
--------- --------- -------
</TABLE>
(CONTINUED)
30
<PAGE> 31
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
January 29, January 30, January 31,
2000 1999 1998
---------- -------- --------
<S> <C> <C> <C>
Reconciliation of net (loss) income to net cash provided by
operating activities:
Net (loss) income $ (5,085) $ 17,217 $10,043
Deduct income from discontinued operations 8,078 22,996 10,043
-------- -------- -------
Loss from continuing operations (13,163) (5,779) --
-------- -------- -------
Adjustments to reconcile net (loss) income to net cash used in operating
activities:
Depreciation and amortization 3,390 -- --
Provision for doubtful accounts 1,274 -- --
Cumulative effect of change in accounting principle 2,173 --
(Increase) decrease in assets (net of effect acquisition in 1998):
Accounts receivable (1,773) -- --
Inventories (10,665) -- --
Other assets (492) -- --
Increase (decrease) in liabilities (net of effect acquisition in 1998):
Accounts payable (1,359) -- --
Accrued expenses (168) -- --
-------- -------- -------
Net cash used in continuing operating activities (16,525) (2,389) --
Net cash provided by discontinued operations 51,602 61,669 --
-------- -------- -------
Net cash provided by operating activities $ 35,077 $ 59,280 $ --
======== ======== =======
</TABLE>
(CONCLUDED)
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
31
<PAGE> 32
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS FISCAL YEARS ENDED
JANUARY 29, 2000, JANUARY 30, 1999 AND JANUARY 31, 1998
A. NATURE OF BUSINESS:
Jan Bell Marketing, Inc. and subsidiaries ("Jan Bell" or "the Company")
are primarily engaged in the sale of jewelry, watches and other consumer
products, operating Mayor's Jewelers and Maier and Berkele luxury jewelry
stores. This chain operates 26 locations in South and Central Florida and
metropolitan Atlanta, Georgia. As of January 29, 2000 the Company operated 469
full service jewelry departments at all domestic and Puerto Rico Sam's Club
locations ("Sam's"). It is anticipated that the Company will continue to operate
in Sam's pursuant to the terms of the existing arrangement until the expiration
scheduled for February 1, 2001, unless an earlier termination arrangement is
structured and mutually agreed to. The net assets and results of operations of
Sam's are classified as Discontinued Operations in the accompanying
consolidated financial statements.
The Company's consolidated financial statements are prepared on a
52/53-week retail fiscal year basis. The fifty-two weeks ended January 29, 2000,
January 30, 1999 and January 31, 1998 are referred to herein as Fiscal 1999,
Fiscal 1998 and Fiscal 1997, respectively. The following notes do not include
results of Fiscal 1997 since the acquisition of Mayor's occurred in July 1998.
B. DISCONTINUED OPERATIONS:
Sam's Division is accounted for as a discontinued operation due to the
expiration scheduled for February 1, 2001, unless an earlier termination
arrangement is structured and mutually agreed to. The following table discloses
the net assets of discontinued operations:
January 29, January 30,
2000 1999
---------- -----------
(amounts shown in
thousands)
Cash $ 392 $ 1,905
Accounts receivable, net 6,025 6,243
Inventories 47,090 76,603
Other current assets 8,097 6,244
Property 858 1,732
Other 965 4,016
Accounts Payable 8,130 13,856
------- --------
Net assets of discontinued operations $55,297 $ 82,887
======= ========
32
<PAGE> 33
The Deferred Gain from Discontinued Operations includes the operating
results of Sam's from July 31, 1999, the date at which the Company adopted its
plan for disposal of the business, through January 29, 2000, less losses
incurred to date on the disposal of the foreign subsidiaries that supply and
manufacture goods for Sam's. Management believes a net gain will be realized at
the expiration of the Sam's agreement, unless an earlier termination amendment
is structured and mutually agreed to.
C. MAYOR'S ACQUISITION:
In July 1998, Jan Bell acquired Mayor's Jewelers, Inc. ("Mayor's").
Total consideration consisted of approximately $18 million cash, 2 million
shares of Jan Bell Marketing, Inc. common stock, and the assumption of Mayor's
outstanding debt which was refinanced through a new $80 million working capital
facility with a syndicate of banks led by Citicorp, U.S.A., Inc. Following the
closing, Jan Bell had approximately $40 million outstanding under its new
facility. The accompanying Consolidated Balance Sheet as of January 29, 2000
includes goodwill of approximately $26.6 million, net of $2.6 million in
accumulated amortization, resulting from the Mayor's acquisition. The operating
results of Mayor's are included in the Consolidated Statement of Operations and
the Consolidated Statement of Cash Flows for the year ended January 30, 1999,
effective as of August 1, 1998, which is the acquisition date for accounting
purposes.
In connection with the Mayor's acquisition, certain former minority
shareholders of Mayor's filed a lawsuit in state court in Miami, Florida against
Mayor's and Jan Bell and two directors of Mayor's claiming that the acquisition
and merger violated their shareholders' rights and that the acquisition of the
Mayor's stock was unlawful. The lawsuit was settled in February 2000. The
consideration for the stock of the former minority shareholders is reflected in
the Consolidated Balance Sheets as of January 29, 2000 and January 30, 1999 and
classified as Due to former Mayor's Shareholders. During Fiscal 1999, the
Company settled with one of the minority shareholders which reduced the balance
by $1,050,000.
D. 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
33
<PAGE> 34
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates. Significant estimates used by
management in the consolidated financial statements include the allowance for
uncollectible accounts receivable, allowance for inventory valuation, litigation
and sales tax liability reserves.
(3) SALES OF CONSIGNMENT MERCHANDISE -- Income is recognized on the
sale of inventory held on consignment at such time as the merchandise is sold.
(4) SALES RETURNS -- The Company generally gives its customers the
right to return merchandise purchased by them and records an accrual at the time
of sale for the amount of gross profit on estimated returns.
(5) ACCOUNTS RECEIVABLE - - Accounts receivable arise primarily from
customers' use of the Mayor's credit cards. Several installment sales plans are
offered which vary as to repayment terms and finance charges assessed. Finance
charges, when applicable, accrue at rates ranging from 10% to 18% per annum.
Finance charge income for Fiscal 1999 was $2.1 million and was $1.1 million for
Fiscal 1998 and is recorded as interest income in the accompanying Consolidated
Statements of Operations.
Certain sales plans of Mayor's provide for revolving lines of credit
under which the payment terms may exceed one year. In accordance with industry
practice, these receivables are included in current assets in the accompanying
Consolidated Balance Sheets. The portion of these receivables as of January 29,
2000 that is not scheduled to be collected during the year ending February 3,
2001 is approximately $4.5 million or 19% of Mayor's chargecard receivable.
(6) INVENTORIES -- The Sam's division inventories are valued at the
lower of cost (first-in, first-out method) or market. The Mayor's division
inventories are valued at last-in, first-out ("LIFO") cost which is not in
excess of market. Under the first-in, first-out ("FIFO") cost method of
accounting, the Mayor's LIFO inventories would not have been materially
different than what is reported at January 29, 2000. The Company records
reserves for lower of cost or market, damaged goods, and obsolete and
slow-moving inventory.
Costs incurred in acquiring, receiving, preparing and distributing
inventory to the point of being ready for sale were included in inventory for
Fiscal 1998. The amount of these costs included in inventory as of January 30,
1999 was approximately $2.2 million. During Fiscal 1999, the Company changed
its methodology from capitalizing such costs in the inventory balance to
expensing these costs as incurred. As a result of this change in accounting
principle, the Company recognized a $2.2 million charge. The impact of the
change for Fiscal 1998 pro forma results are insignificant.
(7) PROPERTY -- Property is stated at cost net of accumulated
depreciation and is depreciated using the straight-line method over the
following estimated useful lives of the respective assets:
Estimated
Asset Useful Life
----- -----------
Buildings and improvements 30 years
Furniture and fixtures 5 years
Automobiles and trucks 3 years
Computer hardware and software 3 years
Leasehold improvements are amortized over the shorter of the term of
the respective lease, including renewal options, or the useful life of the
asset.
(8) INCOME TAXES -- The Company accounts for income taxes in accordance
with Statement of Financial Accounting Standards ("SFAS") No. 109, "Accounting
for Income Taxes." 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) CASH AND CASH EQUIVALENTS -- The Company considers all
highly-liquid investments purchased with original maturities of three months or
less to be cash equivalents.
34
<PAGE> 35
(10) COST IN EXCESS OF FAIR VALUE OF ASSETS ACQUIRED ("GOODWILL") --
The Company on an ongoing basis evaluates the recoverability of the carrying
amount of Goodwill based on projected operating income. Goodwill resulting from
the Mayor's acquisition is being amortized using the straight line method over
15 years. Goodwill resulting from the Company's acquisition of Exclusive
Diamonds, Inc. in 1990 was written-off during Fiscal 1999 and is included as
other charges in the Deferred Gain from Discontinued Operations of the
Consolidated Balance Sheet. Accumulated amortization related to the Company's
Goodwill at January 29, 2000 and January 30, 1999 was approximately $2.6 million
and $.7 million, respectively.
(11) LONG-LIVED ASSETS -- Long-lived assets held and used by the
Company are reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of the asset may not be recoverable.
Measurement of an impairment loss for such long-lived assets would be based on
the fair value of the asset. Long-lived assets to be disposed of are reported
generally at the lower of the carrying amount or fair value less cost to sell.
(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 in the
accompanying Consolidated Balance Sheets.
(13) ADVERTISING COSTS -- Advertising costs are charged to expense as
incurred or, for direct response advertising, capitalized and amortized in
proportion to related revenues. The Company and its vendors participate in
cooperative advertising programs in which the vendors reimburse the Company for
a portion of certain advertising costs. Advertising expense, net of vendor
cooperative advertising allowances, amounted to $3.3 million and $7.7 million in
Fiscal 1999 and 1998, respectively.
(14) PRE-OPENING EXPENSES -- Pre-opening expenses related to the
opening of new and relocated stores are expensed as incurred.
(15) COMPREHENSIVE INCOME -- Comprehensive income includes all changes
in equity during a period except those resulting from investments by owners and
distributions to owners. Accumulated other comprehensive income as presented in
the accompanying consolidated statements for 1998 represents net income and for
1997 and 1996, net income and foreign currency translation adjustments.
(16) NEWLY ISSUED ACCOUNTING STANDARDS -- In June 1998, Financial
Accounting Standards Board issued SFAS No. 133, ACCOUNTING FOR DERIVATIVE
INSTRUMENTS AND HEDGING ACTIVITIES. Among other provisions, SFAS No. 133
establishes accounting and reporting standards for derivative instruments and
for hedging activities. It also requires that an entity recognize all
derivatives as either assets or liabilities in the statement of condition and
measure those instruments at fair value. In June 1999, the FASB issued SFAS No.
137 which deferred the effective date of adoption of SFAS No. 133 for all fiscal
quarters of all fiscal years beginning after June 15, 2000. Management has not
determined what effect, if any, adoption of SFAS 133 will have on the
consolidated financial statements.
(17) EARNINGS PER SHARE -- Earnings per share is calculated based upon
the weighted average number of shares outstanding during each period. Diluted
earnings per share is not presented as the assumed conversion of options and
warrants would not result in the requirement for such a presentation.
E. INVENTORIES:
Inventories are summarized as follows:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
------------------------ -----------------------
Company Held On Company Held On
Owned Consignment Owned Consignment
-------- ------------ -------- ------------
(in thousands)
<S> <C> <C> <C> <C>
Precious and semi-precious gem jewelry-
related merchandise (and
associated gold):
Raw materials $ 2,806 $ -- $ 2,745 $ --
Finished goods 52,152 15,422 41,704 15,697
Watches 21,027 190 19,920 1,308
Other consumer products 2,655 128 3,606 160
------- ------- ------- -------
$78,640 $15,740 $67,975 $17,165
======= ======= ======= =======
</TABLE>
35
<PAGE> 36
F. PROPERTY:
The components of property are as follows:
January 29, January 30,
2000 1999
----------- -----------
(in thousands)
Land $ 3,248 $ 4,171
Buildings and improvements 8,234 10,592
Furniture and fixtures 21,210 22,253
Leasehold improvements 19,922 14,120
Automobiles and trucks 356 520
-------- --------
52,970 51,656
Less accumulated depreciation (24,732) (26,375)
--------- --------
$ 28,238 $ 25,281
======== ========
Depreciation expense for Fiscal 1999 and Fiscal 1998 was approximately
$5.7 million and $2.6 million, respectively.
G. LONG-TERM DEBT:
On July 28,1998, the Company entered into a loan and security agreement
with a syndicate of banks led by Citicorp, U.S.A., Inc. for an $80 million
credit facility. Availability under this facility is determined based upon a
percentage formula applied to inventory and accounts receivable. Based upon this
formula, the maximum of $80 million was available to the Company at January 29,
2000 and January 30, 1999. The Company has the right to request an increase up
to $110 million contingent upon lender approval. Of this total, an aggregate
maximum of $10 million can be used for the issuance of one or more Letters of
Credit.
The credit facility is collateralized by substantially all of the
Company's assets. Under the terms of the agreement the Company is required to
maintain financial ratios including leverage ratio, fixed charge ratio, and
tangible net worth. The agreement also limits capital expenditures, incurrence
of additional debt, and prohibits the payment of dividends. Further, the
Company is in the process of amending the agreement for all appropriate terms
and conditions related to the expiration of the Sam's agreement.
The credit facility bears interest at floating rates, currently a
portion is based upon LIBOR plus 1.5% and the remaining portion at the bank's
adjusted base rate plus .25%, at the Company's option. The interest rate at
January 29, 2000 based upon LIBOR and the banks adjusted base rate was 7.36% and
8.75%, respectively. These interest rates can be increased if the Company's
average leverage ratio does not meet certain levels. In addition, the Company
pays a commitment fee of .25% of the unused line balance as well as 2.5% of the
aggregate outstanding letter of credit liability. At January 29, 2000, the
Company had approximately $24 million outstanding under this facility and had
$.7 million in letters of credit outstanding. The loan and security agreement
expires July 28, 2003.
36
<PAGE> 37
Information concerning the Company's short-term borrowings are as
follows:
<TABLE>
<CAPTION>
Year Ended Year Ended Year Ended
Jan. 29, Jan. 30, Jan. 31,
2000 1999 1998
----------- ----------- -----------
(dollars shown in thousands)
<S> <C> <C> <C>
Maximum short term borrowings outstanding
during the period $12,902 $13,746 --
Average outstanding balance
during the period 1,772 1,351 --
Weighted average interest rate
for the period 7.6% 7.7% --
</TABLE>
H. INCOME TAXES:
The significant items comprising the Company's net deferred taxes as of
January 29, 2000 and January 30, 1999 are as follows:
<TABLE>
<CAPTION>
January 29, January 30,
2000 1999
----------- -----------
(in thousands)
<S> <C> <C>
Deferred Tax Liabilities:
Difference between book and
tax basis of property $ 260 $ --
Purchase accounting differences in
basis of inventories acquired 8,987 8,987
Foreign income subject to tax net of available credits 2,034 --
-------- -------
11,270 8,987
Deferred Tax Assets:
Difference between book and
tax basis of property -- 156
Sales Returns and doubtful accounts
allowances not currently deductible 761 1,569
Inventory reserves not currently deductible 3,397 3,062
Federal net operating loss and tax
credit carryforward 4,752 10,657
State net operating loss carryforward 2,327 4,165
Other Reserves not currently deductible 2,613 2,147
Deferred gain from discontinued operations 5,943 --
Change in accounting principle 839 --
Other
-------- -------
20,632 21,756
-------- -------
Net deferred tax asset before valuation allowance 9,362 12,769
Valuation allowance 6,593 10,000
-------- -------
Net Deferred Tax Asset 2,769 2,769
======== =======
</TABLE>
The Company has a federal net operating loss carryforward of
approximately $8.8 million and state net operating loss carryforward of
approximately $50.4 million. The amount of Mayor's NOL included in the $8.8
million is approximately $2.9 million, of which, due to Section 385 limitations,
the Company can utilize each year approximately $1.5 million. The federal net
operating loss carryforward expires beginning in 2008 through 2011 and the state
net operating loss carryforward expires beginning in 2000 through 2013. The
Company also has an alternative minimum tax credit carryforward of approximately
$1.8 million to offset future federal income taxes. The valuation allowance has
been recorded to offset the net deferred tax asset to the amount that the
Company believes, after evaluating the currently available evidence, will more
likely than not be realized.
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 effect in Fiscal
1999, Fiscal 1998 and Fiscal 1997 was not material. The "approved
37
<PAGE> 38
enterprise" tax benefit is available to EDI until the year 2000. Upon its sale
or liquidation, EDI will be subject to a 10% tax on any income that was
previously exempted from tax as a result of its "approved enterprise" status.
Furthermore, depending on the specific form of the transaction, the Company may
be subject to additional Israeli taxes, at rates ranging from 15% to 36%, upon
the sale of either EDI's assets or the Company's stock of EDI. Any additional
Israeli taxes will be part of the results from the discontinuance of the Sam's
operations.
Mayor's 1994, 1995 and 1996 federal income tax returns are currently
under examination by the IRS. The impact of the IRS examination on the Company's
financial condition, results of operations and cash flow cannot be ascertained
at this time.
I. COMMITMENTS AND CONTINGENCIES:
In connection with prior financing arrangements, there are outstanding
warrants to purchase 519,756 shares of common stock at $2.25 per share which
expire May 31, 2005 and warrants to purchase 234,000 shares of common stock at
$3.25 to $4.00 per share which expire May 1, 2005.
Operating Leases- The Company had a land and building lease with a
trust which expired on January 30, 1999, and then had been extended on a month
to month basis through May 1999. Certain beneficiaries of the trust were
shareholders of Mayor's prior to the acquisition and are also current
shareholders of Jan Bell. Rent expense related to this lease was $118,000 from
January 31, 1999 through May 29, 1999 when the lease was terminated and $190,000
for the six-month period which ended January 30, 1999, subsequent to
acquisition. The Company leases all of its Mayor's division retail stores under
operating leases. The rentals are based primarily on a percentage of sales with
required minimum annual rentals. In addition, most leases are subject to annual
adjustment for increases in real estate taxes and maintenance costs. The Company
also has non-cancelable operating leases for copiers, postage machines, and
computer equipment. At January 29, 2000, the Company was obligated for the
following minimum annual rentals under operating leases:
Amounts
Fiscal Year in thousands
----------- ------------
2000 $ 7,761
2001 9,011
2002 9,012
2003 8,737
2004 8,222
Thereafter 40,806
-------
$83,549
=======
Rent expense for the Mayor's stores was approximately $7.7 million
including $2.4 million of contingent rent for Fiscal 1999 and $3.7 million
including $1.5 million of contingent rent during the six months ended January
30, 1999.
J. LEGAL PROCEEDINGS:
The Company is involved in litigation arising from the normal course of
business. In addition to other commercial litigation, the Company has two
lawsuits with a former vendor and a third lawsuit with the same former vendor
which relates to an alleged employment relationship. A federal court action was
tried in January 1999, and the federal court issued a judgment in favor of the
Company, including an award of attorney's fees and costs. The former
38
<PAGE> 39
vendor appealed the judgment, and the federal appellate court affirmed the
judgment in favor of the Company. A state court contract action was tried in
August 1999, and the state court issued a judgment in favor of the vendor,
including an award of attorney's fees and costs. The Company is appealing
this state court ruling. The Company believes the facts and the law support its
positions and these matters should not materially affect the Company's financial
position; however, there can be no assurance as to the final result of these
matters. The Company will incur ongoing legal fees.
K. EMPLOYEE BENEFIT PLANS:
STOCK OPTION PLANS
As of January 29, 2000 the Company had 1,249,088 shares of common stock
available for grant to its key employees and directors under its 1987 and 1991
Stock Option Plans. Under these plans, the option price must be equal to the
market price of the stock on the date of the grant, or in the case of an
individual who owns 10% or more of common stock, the minimum price must be 110%
of the market price.
Options granted to date generally become exercisable from six months to
three years after the date of grant, provided that the individual is
continuously employed by the Company, or in the case of directors, remains on
the Board of Directors. All options generally expire no more than ten years
after the date of grant.
EMPLOYEE STOCK PURCHASE PLAN
In June 1987, the Board of Directors approved an Employee Stock
Purchase Plan, which permits eligible employees to purchase common stock from
the Company at 85% of its fair market value through regular payroll deductions.
A total of 562,500 shares are reserved for issuance under the Employee
Stock Purchase Plan of which 76,261, 30,921 and 30,209 shares were issued during
the years ended January 29, 2000, January 30, 1999 and January 31, 1998,
respectively.
PROFIT SHARING PLANS
In December 1992, the Board of Directors approved the Jan Bell
Marketing, Inc. 401(k) Profit Sharing Plan & Trust, which permits eligible
employees to make contributions to the Plan on a pretax salary reduction basis
in accordance with the provisions of Section 401(k) of the Internal Revenue
Code. The Company makes a cash contribution of 25% of the employee's pretax
contribution, up to 4% of the employees compensation, in any calendar year.
Mayor's also has a profit sharing plan which covers all of its employees.
Contributions to the Mayor's plan were made at the discretion of the Company. On
November 1, 1998, employee contributions to the Mayor's plan ceased and
participants were given the option to join the Jan Bell plan.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company applies Accounting Principles Board Opinion No. 25,
"Accounting for Stock Issued to Employees", and related Interpretations in
accounting for its stock-based compensation plans. Accordingly, no compensation
cost has been recognized for such plans. Had compensation cost for the Company's
stock-based compensation plans been determined using the fair value method
described in Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation," at the grant dates for awards granted in Fiscal
1999, Fiscal 1998 and Fiscal 1997 under these plans, the Company's net earnings
and earnings per share would have been reduced to the proforma amounts presented
below:
39
<PAGE> 40
<TABLE>
<CAPTION>
Fiscal Fiscal Fiscal
1999 1998 1997
---------- ----------- ----------
<S> <C> <C> <C>
Net income/(loss) (in thousands)
As reported:
Continuing operations before cumulative
change in accounting principle $ (10,990) $ (5,779) $ --
Change in accounting principle (2,173) -- --
Discontinued operations $ 8,078 $ 22,997 $ 10,043
Proforma $ (7,767) $ 14,118 $ 7,762
Income/(loss) per share
As reported:
Continuing operations before cumulative
change in accounting principle $ (0.43) $ (0.21) $ --
Change in accounting principle (0.09) -- --
Discontinued operations 0.32 0.84 0.39
---------- ---------- ----------
$ (0.20) $ 0.63 $ 0.39
========== ========== ==========
Proforma:
Continuing operations before cumulative
change in accounting principle $ (0.53) $ (0.32) $ --
Change in accounting principle (0.09) -- --
Discontinued operations 0.32 0.84 0.30
---------- ---------- ----------
$ (0.30) $ 0.52 $ 0.30
========== ========== ==========
</TABLE>
The fair value of each option grant was estimated as of the date of
grant using the Black-Scholes option-pricing model with the following weighted
average assumptions used for grants in Fiscal 1999, Fiscal 1998 and Fiscal 1997:
expected volatility of 84%, 67% and 53%, respectively, risk-free interest rate
of 6.58%, 5.23% and 5.70%, respectively, expected lives of approximately five
years for all three years, and a dividend yield of zero for all three years. The
weighted average fair values of options granted during Fiscal 1999, Fiscal 1998
and Fiscal 1997 were $3.03, $3.90 and $1.34, respectively.
The following is a summary of the activity in the option plans:
<TABLE>
<CAPTION>
Fiscal 1999 Fiscal 1998 Fiscal 1997
--------------------- --------------------- ---------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
--------- ----- --------- ----- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year 6,918,124 $4.43 6,951,624 $4.41 4,315,042 $ 6.07
Granted 367,500 2.95 1,101,009 5.61 3,334,500 2.58
Canceled (144,510) 4.82 (318,478) 9.65 (640,585) 6.26
Exercised (22,898) 2.46 (816,031) 3.77 (57,333) 2.46
--------- ----- --------- ----- --------- ------
Outstanding at end of year 7,118,216 $4.35 6,918,124 $4.43 6,951,624 $ 4.41
========= ===== ========= ===== ========= ======
</TABLE>
40
<PAGE> 41
A summary of the status of the option plans as of January 29, 2000 is
presented below:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------- --------------------------
Weighted Avg
Remaining Weighted Weighted
Range of Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (In Years) Price Exercisable Price
------------------ ------------ ------------ --------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ 2.06 - $2.08 95,000 6.7 $ 2.06 95,000 $ 2.06
$ 2.09 - $3.09 3,954,668 7.4 $ 2.58 2,626,654 $ 2.56
$ 3.10 - $4.64 919,009 6.3 $ 4.13 670,936 $ 4.02
$ 4.65 - $6.95 1,287,387 5.0 $ 5.65 943,065 $ 5.55
$ 6.96 - $10.43 422,636 2.5 $ 9.00 422,636 $ 9.00
$ 10.44 - $14.10 439,516 2.2 $ 12.95 439,516 $ 12.95
--------------- ---------- --- -------- ---------- --------
$ 2.06 - $14.10 7,118,216 6.2 $ 4.35 5,197,807 $ 4.68
================= ========= === ========= ========= =========
</TABLE>
41
<PAGE> 42
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 current market exchange.
The use of different market assumptions and/or estimation methodologies may have
a material effect on the estimated fair value amounts.
The following methods and assumptions were used to estimate fair value:
- The carrying amount of cash and cash equivalents, accounts
receivable, accounts payable, and accrued expenses approximate
fair value because of their short term nature.
- The fair value of the Company's long term debt approximates
carrying value based on the quoted market prices for the same
or similar issues.
M. SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITIES:
The Statement of Cash Flows for the year ended January 30, 1999 does
not include noncash financing and investing transactions associated with the
issuance of common stock and debt for the acquisition of Mayor's. The components
of the transaction are as follows (in thousands):
Fair value of assets acquired (including goodwill) $134,434
Liabilities assumed 28,628
--------
Net assets acquired 105,806
Cash acquired 990
Issuance of common stock 7,705
Borrowing under working capital facility 38,000
--------
Cash used to acquire Mayor's $ 59,111
========
N. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------------------------------
(In Thousands, Except Per Share Data)
May 1, Jul. 31, Oct. 30, Jan. 29,
1999 1999 1999 2000
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net Sales $27,389 $31,989 $32,192 $63,774
Gross Profit 10,686 11,604 11,568 26,890
Income from continuing
operations (5,986) (4,314) (5,381) 2,518
Income from discontinued
operations 3,141 4,937 -- --
------- ------- ------- -------
Net income (loss) (2,845) 623 (5,381) 2,518
Earnings (loss) per share:
Continuing operations
before cumulative effect
of a change in accounting
principle (.21) (.16) (.22) .20
Cumulative effect of a
change in accounting
principle -- -- -- (.10)
Discontinued operations .11 .18 -- --
------- ------- ------- -------
(.10) .02 (.22) .10
</TABLE>
42
<PAGE> 43
<TABLE>
<CAPTION>
Thirteen Weeks Ended
-----------------------------------------------------------
(In Thousands, Except Per Share Data)
May 2, August 1, Oct. 31, Jan. 30,
1998 1998 1998 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $ -- $ -- $26,695 $ 55,526
Gross profit -- -- 10,325 21,783
Income from continuing
operations -- -- (5,481) (299)
Income from discontinued
operations (572) 461 1,767 21,342
------- ------- ------- --------
Net income (loss) (572) 461 (3,714) 21,043
Earnings (loss) per share:
Continuing operations -- -- (.19) (.01)
Discontinued operations (.02) .02 .06 .75
------- ------- ------- --------
(.02) .02 (.13) .74
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
43
<PAGE> 44
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 consolidated
financial statements of Jan Bell Marketing, Inc. included in Item 8 of Part II.
INDEPENDENT AUDITORS' REPORT.
CONSOLIDATED BALANCE SHEETS - January 29, 2000 and January 30, 1999.
CONSOLIDATED STATEMENTS OF OPERATIONS - Years Ended January 29, 2000 and
January 30, 1999 and January 31, 1998.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE INCOME
(LOSS) - Years Ended January 29, 2000 and January 30, 1999 and January 31, 1998.
CONSOLIDATED STATEMENTS OF CASH FLOWS - Years Ended January 29, 2000 and January
30, 1999 and January 31, 1998.
(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 included or incorporated
by reference as indicated in this Form 10-K:
44
<PAGE> 45
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 Option Plan. Incorporated by
reference from Company's Definitive Proxy Statement filed in April
1993.
4.5 - Rights Agreement dated November 21, 1996 incorporated by reference
from Form 8-K filed November 21, 1996.
10.1 - Form of Indemnification Agreement. Incorporated by reference from
Company's Form S-1 (No. 33-26947) declared effective in
February 1989.
10.2 - Agreement with Sam's dated July 19, 1993. Incorporated by reference
from Company's 8-K filed in July 1993.
10.3 - Addendum to Sam's Agreement dated July 19, 1993. Incorporated by
reference from Company's 10-K filed in April 1994.
10.4 - 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.
10.5 - 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.
10.6 - Employment Agreement dated June 2, 1997 between Isaac Arguetty and
the Company Incorporated by reference from the Company's Form 10-Q
filed September 17, 1997.
10.7 - Employment Agreement dated October 20, 1997 between David Boudreau
and the Company. Incorporated by reference from Company's Form 10-K
filed March 1, 1998.
10.8 - Employment Agreement dated October 20, 1997 between William Grayson
and the Company. Incorporated by reference from Company's Form 10-K
filed March 1, 1998.
10.9 - Employment Agreement dated October 20, 1997 between Marc Weinstein
and the Company. Incorporated by reference from Company's Form 10-K
filed March 1, 1998.
10.10 - Employment Agreement dated as of July 28, 1998 between Samuel A. Getz
and the Company Incorporated by reference from Company's Form 10-Q
filed September 15, 1998.
45
<PAGE> 46
Exhibit
Number Description
- ------- -----------
10.11 - Stock Option Agreement dated as of July 28, 1998 between Samuel A.
Getz and the Company Incorporated by reference from Company's
Form 10-Q filed September 15, 1998.
10.12 - Loan and Security Agreement among Citicorp USA, Inc. and JBM Retail
Company, Inc., Mayor's Jewelers, Inc. and the Company Incorporated by
reference from Company's Form 10-Q filed September 15, 1998.
21.1 - Subsidiaries of Registrant: Wholly-owned subsidiaries of the Company
include Ultimate Fine Jewelry and Watches, Inc and JBM Retail
Company, Inc., Delaware corporations; Regal Diamonds International
Ltd. and Exclusive Diamonds International, Ltd., Israeli companies;
Jan Bell Marketing/Puerto Rico, Inc., a Puerto Rican corporation; and
Mayor's Jewelers, Inc., a Florida corporation.
23.1 - Consent of Deloitte & Touche LLP
27.1 - Financial Data Schedule (for SEC use only).
99.1 - Preferability Letter of Deloitte & Touche LLP
(b) Reports on Form 8-K. The Company did not file any reports on Form 8-K during
the fourth quarter ended January 29, 2000.
46
<PAGE> 47
SCHEDULE II
JAN BELL MARKETING, INC. VALUATION AND QUALIFYING ACCOUNTS
(AMOUNTS SHOWN IN THOUSANDS)
<TABLE>
<CAPTION>
Charged to
Beginning Mayor's Costs and Ending
Description Balance Acquisition Expenses Deductions Balance
- ----------- ------- ----------- ---------- ---------- -------
<S> <C> <C> <C> <C> <C>
Fiscal year ended January 30, 1999
Allowance for Doubtful
Accounts -- $3,237 $2,346 $2,239 $3,344
Inventory Allowances -- 4,814 2,997 3,361 4,450
Fiscal year ended January 29, 2000
Allowance for Doubtful
Accounts 3,344 -- 1,786 3,856 1,274
Inventory Allowances 4,450 -- 5,478 3,603 6,325
</TABLE>
47
<PAGE> 48
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: April 19, 2000
/s/ Isaac Arguetty
-----------------------------------
Isaac Arguetty,
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 and April 19, 2000
- ------------------------------------- Chief Executive Officer
Isaac Arguetty
/s/ DAVID BOUDREAU Chief Financial Officer April 19, 2000
- ------------------------------------- and Senior Vice President of
David Boudreau Finance & Treasurer
/s/ TOM EPSTEIN Director April 19, 2000
- -------------------------------------
Tom Epstein
/s/ SAMUEL GETZ Director April 19, 2000
- -------------------------------------
Samuel Getz
/s/ MARGARET GILLIAM Director April 19, 2000
- -------------------------------------
Margaret Gilliam
/s/ WILLIAM GRAYSON Director April 19, 2000
- -------------------------------------
William Grayson
/s/ PETER OFFERMANN Director April 19, 2000
- -------------------------------------
Peter Offermann
/s/ ROBERT ROBISON Director April 19, 2000
- -------------------------------------
Robert Robison
</TABLE>
48
<PAGE> 49
INDEX TO EXHIBITS
Exhibit
Number Description
- -------- -----------
SEE PAGE 46 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 Ultimate Fine Jewelry and Watches, Inc and JBM Retail
Company, Inc., Delaware corporations; Regal Diamonds International
Ltd. and Exclusive Diamonds International, Ltd., Israeli companies;
Jan Bell Marketing/Puerto Rico, Inc., a Puerto Rican corporation; and
Mayor's Jewelers, a Florida corporation.
23.1 Consent of Deloitte & Touche LLP
27.1 Financial Data Schedule (for SEC use only).
99.1 Preferability letter of Deloitte & Touche LLP
49
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in registration statement Nos.
33-20026, 33-20031, 33-42410, 33-42419 and 333-68157 of Jan Bell Marketing, Inc.
on Forms S-8 of our report dated March 17, 2000, appearing in this Annual Report
on Form 10-K of Jan Bell Marketing, Inc. for the year ended January 29, 2000.
/s/ Deloitte & Touche LLP
Certified Public Accountants
Miami, FL
April 18, 2000
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED STATEMENTS OF OPERATIONS AND THE CONSOLIDATED BALANCE SHEETS AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JAN-29-2000
<CASH> 1,049
<SECURITIES> 0
<RECEIVABLES> 27,158
<ALLOWANCES> 1,274
<INVENTORY> 78,640
<CURRENT-ASSETS> 107,661
<PP&E> 52,970
<DEPRECIATION> 24,732
<TOTAL-ASSETS> 220,463
<CURRENT-LIABILITIES> 42,543
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 136,552
<TOTAL-LIABILITY-AND-EQUITY> 220,463
<SALES> 155,344
<TOTAL-REVENUES> 155,344
<CGS> 94,596
<TOTAL-COSTS> 94,596
<OTHER-EXPENSES> 71,268<F1>
<LOSS-PROVISION> 1,786
<INTEREST-EXPENSE> 2,619
<INCOME-PRETAX> (10,990)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,990)
<DISCONTINUED> 8,078
<EXTRAORDINARY> 0
<CHANGES> 2,173
<NET-INCOME> (5,085)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
<FN>
<F1>OTHER EXPENSES CONSISTS OF ALL OPERATING COSTS AND EXCLUDES INTEREST,
NON-OPERATING INCOME AND INCOME TAXES.
</FN>
</TABLE>
<PAGE> 1
Exhibit 99.1
PREFERABILITY LETTER OF DELOITTE & TOUCHE LLP
March 17, 2000
Jan Bell Marketing, Inc.
14051 N.W. 14th Street
Sunrise, Florida 33327
Dear Sirs/Madams:
We have audited the consolidated financial statements of Jan Bell Marketing,
Inc. and subsidiaries (the "Company") as of January 29, 2000 and January 30,
1999, and for each of the three years in the period ended January 29, 2000,
included in your Annual Report on Form 10-K to the Securities and Exchange
Commission and have issued our report thereon dated March 17, 2000. Note D to
such financial statements contains a description of your adoption during the
year ended January 29, 2000 of recognizing certain overhead and other indirect
costs relating to inventories as period costs as incurred as opposed to
capitalizing such costs and recognizing such costs as inventory turns. In our
judgment, such change is to an alternative accounting principle that is
preferable under the circumstances.
Yours truly,
/s/ Deloitte & Touche LLP
