UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended May 2, 1997
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
Commission file number 1-13322
JumboSports Inc.
(Exact name of registrant as specified in its charter)
Florida 52-1643157
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification number)
4701 W. Hillsborough Avenue Tampa, FL 33614
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 813/886-9688
Former name, former address and former fiscal year, if changed since last
report
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
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date 20,355,354 as of May 2, 1997.
<PAGE>
JumboSports Inc.
Index to Form 10-Q
May 2, 1997
Page Number
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity 5
Consolidated Statements of Cash Flows 6
Notes to the Consolidated Financial Statements 7
Item 2 - Management's Discussion and Analysis 8-10
Part II - Other Information 11
Signatures 12
<PAGE>
JUMBOSPORTS INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
January 31, May 2,
1997 1997
---------- ---------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $4,944 $2,616
Accounts receivable, net 2,338 2,945
Inventories 201,090 220,847
Prepaid expenses and other assets 4,495 4,278
Income tax receivable 11,386 11,386
Deferred tax asset 1,586 2,310
---------- ----------
Total current assets 225,839 244,382
Property and Equipment - net 282,651 284,231
Other Assets:
Cost in excess of fair value of
net assets acquired, net 11,145 11,060
Other 5,951 7,177
---------- ----------
Total other assets 17,096 18,237
---------- ----------
Total assets $525,586 $546,850
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $185 $108
Accounts payable 37,050 57,513
Accrued expenses 16,462 13,599
Other 13,464 12,646
---------- ----------
Total current liabilities 67,161 83,866
Deferred rent and other long-term
liabilities 4,476 4,028
Long-term debt less current maturities 294,325 300,764
---------- ----------
Total liabilities 365,962 388,658
---------- ----------
Stockholders' Equity
Common Stock,$.01 par value,
100,000,000 shares authorized,
20,339,409 and 20,355,354 issued
and outstanding, respectively 203 204
Additional paid-in capital 149,639 149,711
Retained earnings 9,782 8,277
---------- ----------
Total stockholders' equity 159,624 158,192
---------- ----------
Total Liabilities & Stockholders' Equity $525,586 $546,850
========== ==========
See Notes to the Consolidated Financial Statements.
3
<PAGE>
JUMBOSPORTS INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
(UNAUDITED)
Thirteen Weeks Ended
April 28, May 2,
1996 1997
--------- ---------
Sales $143,658 $130,134
Cost of sales including
buying & occupancy costs 110,835 99,480
--------- ---------
Gross Profit 32,823 30,654
Selling, general and administrative expenses 29,695 27,178
--------- ---------
Income from operations 3,128 3,476
Interest expense 3,685 5,815
--------- ---------
Loss before benefit for income taxes (557) (2,339)
Benefit for income taxes (212) (834)
--------- ---------
Net loss $(345) ($1,505)
========= =========
Net loss per common share $(0.02) $(0.07)
Weighted average shares outstanding 20,090 20,347
Stores opened during period 4 0
Store open at end of period 84 85
See Notes to the Consolidated Financial Statements.
4
<PAGE>
JUMBOSPORTS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THIRTEEN WEEKS ENDED APRIL 28, 1996 AND MAY 2, 1997
(IN THOUSANDS)
(UNAUDITED)
Additional
Common Stock Paid in Retained
Shares Par Value Capital Earnings Total
----------------- ------- -------- -----
Balance, January 28, 1996 19,769 $198 $147,006 $40,326 $187,530
Issuance of common stock 59 5 5
Net loss (345) (345)
Balance April 28, 1996 19,828 $198 $147,011 $39,981 $187,190
Balance, January 31, 1997 20,339 $203 $149,639 $9,782 $159,624
Issuance of common stock 16 1 72 73
Net loss (1,505) (1,505)
Balance May 2, 1997 20,355 $204 $149,711 $8,277 $158,192
See Notes to the Consolidated Financial Statements.
5
<PAGE>
JUMBOSPORTS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
Thirteen Weeks Ended
April 28, 1996 May 2, 1997
-------------- -----------
Cash flows from operating activities:
Net loss $(345) $(1,505)
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation 2,009 2,375
Loss (gain) on asset sales (221) 7
Goodwill amortization 85 85
Deferred loan cost amortization & other amortization 135 439
Increase in deferred tax asset - (725)
Decrease in deferred income tax expense 1,923 -
Decrease (increase) in accounts receivable 1,518 (607)
Increase in income tax receivable (2,430) -
Increase in inventories (19,253) (19,757)
Increase in prepaid expenses 615 218
Increase in other assets (254) (837)
Increase in accounts payable 9,121 20,463
Increase (decrease) in accrued expenses 1,638 (2,899)
Increase (decrease) in other current liabilities 603 (820)
Increase (decrease) in deferred rent 94 (447)
Increase in income taxes payable 436 -
------- -------
Net cash used in operating activities (4,326) (4,010)
------- -------
Cash flows from investing activities:
Capital expenditures (3,818) (4,440)
Net collections under note receivable 25 -
Cash proceeds from sale of property - 515
------- -------
Net cash used in investing activities (3,793) (3,925)
------- -------
Cash flows from financing activities:
Proceeds from sale of common stock-net 5 73
Net borrowings under
revolving credit agreements 8,500 6,377
Repayments of long term debt (151) (15)
Loan costs (275) (828)
------- -------
Net cash provided by financing activities 8,079 5,607
------- -------
Net decrease in cash
and cash equivalents (40) (2,328)
------- -------
Cash, beginning of period 3,590 4,944
------- -------
Cash, end of period $3,550 $2,616
======= ========
See Notes to the Consolidated Financial Statements.
6
<PAGE>
JUMBOSPORTS INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
The accompanying unaudited financial statements have been prepared in
accordance with the instructions for Form 10-Q and, therefore, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all material adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Interim results are not necessarily indicative of results for a full year.
The financial statements should be read in conjunction with the audited
financial statements and notes thereto for the fiscal year ended January 31,
1997 contained in the Company's Form 10-K dated May 1, 1997.
(2) Changes in Accounting Principle
The Company elected to change its method of accounting for merchandise
inventories effective February 1, 1997. The Company changed from the lower of
average first-in, first-out (FIFO) cost or market method of accounting to the
lower of cost (computed using the FIFO retail method) or market. The Company
believes that the FIFO retail method provides improved information for the
operation of its business in a manner consistent with the method used widely in
the retail industry. The cumulative effect of the change to the FIFO retail
method was immaterial. Proforma effects of the change for prior periods is not
determinable.
(3) Subsequent Events
The Company completed an agreement extending the existing bank credit
facility from May 1998 to May 1999. The agreement also incorporated additional
capital expenditure flexibility allowing the ability to continue with new store
development, renovation of selected locations and completion of upgrading the
Company's infra structure.
Also, the Company completed an additional $37 million of real estate
financings, which effectively lowered the revolving credit facility to a limit
of $235 million from $271 million.
In March 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings Per Share." SFAS
128 requires companies with complex capital structure that have publicly held
common stock or common stock equivalents to present both basic and diluted
earnings per share ("EPS") on face of the income statement. The presentation of
basic EPS replaces the presentation of primary EPS currently required by
Accounting Principles Board Opinion No. 15 ("APB No.15"), "Earnings Per Share."
Basic EPS is calculated as income available to common stockholders divided by
the weighted average number of common shares outstanding during the period.
Dilluted EPS (previously referred to as fully diluted EPS) is calculated using
the "if converted" method for convertible securities and the treasury stock
method for options and warrants as prescribed by APB No. 15. This statement is
effective for financial statements issued for interim and annual periods ending
after December 15, 1997. The Company will adopt FAS 128 for its annual period
ending January 30, 1998.
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General
This management's discussion and analysis contains forward-looking
statements. These forward-looking statements are subject to the inherent
uncertainties in predicting future results and conditions. Certain factors could
cause actual results to differ materially from these forward-looking statements.
Management's discussion and analysis of financial condition and results of
operations for the first quarter of fiscal 1997 should be read in conjunction
with the discussion and analysis set forth in Form 10-K filed May 1, 1997 for
the fiscal year ended January 31, 1997.
Results of Operations
The following table sets forth certain operating data as a percentage of
sales for the periods indicated:
Thirteen Weeks Ended
April 28, 1996 May 2, 1997
-------------- -----------
Sales 100.0% 100.0%
Cost of sales including buying
and occupancy costs 77.1 76.4
------- -------
Gross profit 22.9 23.6
Operating expenses 20.7 20.9
------- -------
Income from operations 2.2 2.7
Interest expense-net 2.6 4.5
------- -------
Loss before benefit
for income taxes (0.4) (1.8)
Benefit for income taxes (0.2) (0.6)
------- -------
Net loss (0.2)% (1.2)%
======= =======
8
<PAGE>
Thirteen Weeks Ended (First Quarter) May 2, 1997 Compared To Thirteen Weeks
Ended April 28, 1996
The Company did not open any new stores in its first quarter compared to
four new stores in the same quarter last year, ending the quarter with 85 stores
this year compared to 84 stores last year.
Sales for the first quarter decreased 9.4% to $130.1 million compared with
sales of $143.7 million in the first quarter of the prior year. Same store sales
for the first fiscal quarter decreased by 11.6%. Sales have been adversely
affected by the following:
1) The Company's new information management systems were installed at the
beginning of the quarter. There have been significant disruptions in
merchandise flow due to problems encountered in receiving and making
product ready to sell at the store level;
2) The Company's new centralized cross-dock operation began in late
November of last year. As the amount of merchandise ordered by the new
system increased, the facility became overloaded causing misshipments
and delays that adversely affected stock levels;
3) Certain merchandise categories were further affected. Outerwear sales
in the prior year were substantially higher due to clearance sales
necessitated by a poor sell-through during the winter-wear season.
There was little clearance product available for sale this year.
Fitness was lower due to fewer new product introductions and delivery
problems encountered by certain manufacturers of high demand products;
4) Sales were generally soft throughout the sporting goods retail
segment;
5) Competition continues to increase. Seventeen additional stores this
year were adversely affected by a new big box competitor.
Gross profit for the first quarter was $30.7 million, or 23.6% of sales, as
compared to $32.8 million or 22.9% of sales for the first quarter of the prior
year. The primary difference in gross margin relates to increased margin
contributions by the soft goods departments slightly offset by higher buying and
occupancy costs as a percentage of sales.
Operating expenses for the first quarter were $27.2 million, or 20.9%, as
compared to $29.7 million, or 20.7% of sales, for the first quarter of the prior
year. The increase as a percentage of sales was attributable to increases in
advertising and promotion, primarily due to the name change, offset by a
reduction in payroll and payroll related expenses.
Income from operations in the first quarter was $3.5 million, or 2.7% of
sales, as compared to $3.1 million, or 2.2% of sales in the same quarter of the
prior year.
Interest expense for the first quarter was $5.8 million, or 4.5% of sales
as compared to $3.7 million, or 2.6% of sales for the first quarter in the prior
year. The increase in interest expense was the result of the following:
1) Average debt increased due to refinancing $58 million of tax retention
operating leases into the revolving credit facility;
2) The renegotiated credit facility calls for borrowings at LIBOR plus 2%
versus LIBOR plus 1% contributing to an overall 139 basis point
increase in average interest rates;
3) Capitalized interest was lower due to less construction activity.
The Company's income tax benefit for the quarter was $834,000 with an
effective tax rate of approximately 35.7%. The tax benefit was $212,000 in the
same quarter of the prior year with an effective tax rate of 38.0%.
For the first quarter the Company posted a net loss of $1.5 million or
(1.2)% of sales, as compared to a net loss of $0.3 million or (0.2)% of sales
for the same quarter of the prior year.
9
<PAGE>
Liquidity and Capital Resources
The Company's primary capital requirements have been to support capital
investment for the opening of new stores, to purchase inventory for new stores,
to meet seasonal working capital needs and to retire indebtedness. The Company's
working capital needs peak in the fourth fiscal quarter.
Operating activities used cash of $4.0 million for the thirteen weeks of
fiscal 1997 as compared to cash used of $4.3 million for the same period of
fiscal 1996. The improvement was primarily due to an increase in accounts
payable supporting inventory.
Net cash of $3.9 million was used in investing activities during the first
thirteen weeks of fiscal 1997 compared to net cash used in investing activities
during the first thirteen weeks of fiscal 1996 of $3.8 million. This years
amount was related to the store signage for the name change to JumboSports and
maintenance capital spending. In the prior year, the amount related primarily to
the completion of new stores.
Cash flows from financing activities provided $5.6 million for the first
thirteen weeks of fiscal 1997 compared to $8.1 million for the first thirteen
weeks of fiscal 1996. The decrease in cash provided by financing activities in
fiscal 1997 was primarily due to less borrowing activity of the Company's
revolving line of credit from the prior year.
As of May 2, 1997, the Company had $15.7 million of capital lease and
mortgage obligations, $74.8 million of 4 1/4% convertible subordinated notes due
2000 outstanding and had drawn $210.4 million on its $271 million revolving
credit facility.
The current credit facility limits the amount of capital expenditures to
$10 million for fiscal 1997. Subsequent to the first thirteen weeks, the Company
extended its revolving credit facility an additional year to 1999 and increased
the capital expenditure limit to $22 million for fiscal 1997. The Company has
spent $4.4 million through thirteen weeks.
Management believes its current cash position, along with expected net cash
provided by operating activities and its revolving credit facility will be
sufficient to fund anticipated capital expenditures and working capital
requirements for the upcoming year.
Seasonality and Inflation
The Company's business is seasonal in nature, with its highest sales and
operating profitability historically occurring during the fiscal fourth quarter,
which includes the Christmas selling season. The Company recorded 28.0% of its
sales and 52.0% of its income from operations, prior to the inventory write-down
for shrink and obsolete and slow moving merchandise and non-recurring and other
charges taken in the second quarter in fiscal 1996. In the future, the number
and timing of the opening of new stores may impact this historical trend.
The Company does not believe that inflation had a material effect on its
results form operations for the first thirteen weeks of fiscal 1997 or 1996.
There can be no assurance, however, that Company's business will not be affected
by inflation in the future.
Change in Accounting Principle
The Company elected to change its method of accounting for merchandise
inventories effective February 1, 1997. The Company changed from the lower of
average first-in, first-out (FIFO) cost or market method of accounting to the
lower of cost (computed using the FIFO retail method) or market. The Company
believes that the FIFO retail method provides improved information for the
operation of its business in a manner consistent with the method used widely in
the retail industry. The cumulative effect of the change to the FIFO retail
method was immaterial.
10
<PAGE>
JUMBOSPORTS INC.
PART II - OTHER INFORMATION
- - -------------------------------------------------------------------------------
Item 1. Legal Proceedings.
None
Item 2. Changes in Securities.
None
Item 3. Defaults Upon Senior Securities.
None
Item 4. Submission of Matters to a Vote of the Security-Holders.
None
Item 5. Other Information.
None
Item 6. Exhibits and Reports on Form 8-K.
1) Exhibits.
Exhibit 11 - Weighted Average Shares Outstanding Calculation
Exhibit 18 - Letter Regarding Change In Accounting Principle
Exhibit 27 - Financial Data Schedule
2) Reports on Form 8-K.
None
11
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JumboSports Inc.
(Registrant)
06/16/97 /S/ Stephen Bebis
Date Stephen Bebis
Chairman of the Board, Chief
Executive Officer and President
06/16/97 /S/ Raymond P. Springer
Date Raymond P. Springer
Executive Vice President and
Chief Financial Officer
12
JUMBOSPORTS INC.
EXHIBIT 11
WEIGHTED AVERAGE SHARES OUTSTANDING CALCULATION
FOR THE PERIOD ENDED MAY 2, 1997
Thirteen Weeks Ended
May 2, 1997
PRIMARY
Weighted average common stock shares outstanding 20,347,382
Weighted average stock issued assuming exercise
of stock options using the treasury stock
method at average market price
0 (1)
Total weighted average shares outstanding 20,347,382
Net loss $(1,505,041)
Primary Loss Per Share $(0.07)
FULLY DILUTED
Weighted average common stock shares outstanding 20,347,382
Weighted average stock issued assuming exercise
of stock options using the treasury stock
method at the higher of average market
price or ending market price 0 (1)
Weighted average stock issued assuming the as
adjusted method for the 4 1/4% Convertible
Subordinated Notes Due 2000 0 (2)
Total weighted average shares outstanding 20,347,382
Net loss as reported $(1,505,041)
Interest adjustment net of tax for the 4 1/4%
Convertible Subordinated Notes 0 (2)
Net loss $(1,505,041)
Fully diluted loss per share $(0.07)
(1) Not reported under GAAP as conversion would be anti-dilutive
(2) Note reported under GAAP as conversion would be anti-dilutive, and dilution
less than 3%.
JUMBOSPORTS INC.
EXHIBIT 18
LETTER REGARDING CHANGE IN ACCOUNTING PRINCIPLE
June 13, 1997
JumboSports Inc.
4701 W. Hillsborough Ave.
Tampa, Florida 33614
Gentlemen:
We are providing this letter to you for inclusion as an exhibit to your Form
10-Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting from the
lower of first-in, first-out (FIFO) cost or market method to the lower of FIFO
retail or market method contained in the Company's Form 10-Q for the quarter
ended May 2, 1997. Based on our reading of the data and discussions with Company
officials of the business judgment and business planning factors relating to the
change, we believe management's justification to be reasonable. Accordingly, in
reliance on management's determination as regards elements of business judgment
and business planning, we concur that the newly adopted accounting principle
described above is preferable in the Company's circumstances to the method
previously applied.
We have not audited any financial statements of JumboSports Inc. as of any date
or for any period subsequent to January 31, 1997, nor have we audited the
application of the change in accounting principle disclosed in Form 10-Q of
JumboSports Inc. for the three months ended May 2, 1997; accordingly, our
comments are subject to revision on completion of an audit of the financial
statements that include the accounting change.
Very truly yours,
Coopers & Lybrand L.L.P.
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JUMBOSPORTS INC. FOR THE THREE MONTHS ENDED MAY 2, 1997,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> Jan-30-1998
<PERIOD-START> Feb-1-1997
<PERIOD-END> May-2-1997
<CASH> 2,616
<SECURITIES> 0
<RECEIVABLES> 14,581
<ALLOWANCES> 250
<INVENTORY> 220,847
<CURRENT-ASSETS> 244,382
<PP&E> 311,966
<DEPRECIATION> 27,735
<TOTAL-ASSETS> 546,850
<CURRENT-LIABILITIES> 83,866
<BONDS> 74,750
0
0
<COMMON> 204
<OTHER-SE> 157,988
<TOTAL-LIABILITY-AND-EQUITY> 546,850
<SALES> 130,134
<TOTAL-REVENUES> 130,134
<CGS> 91,214
<TOTAL-COSTS> 99,480
<OTHER-EXPENSES> 27,178
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,815
<INCOME-PRETAX> (2,339)
<INCOME-TAX> (834)
<INCOME-CONTINUING> (1,505)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,505)
<EPS-PRIMARY> (0.07)
<EPS-DILUTED> (0.07)
</TABLE>
