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 July 30, 1999
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 incorporation (I.R.S. employer
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: 20,420,001 as of August 27,
1999.
<PAGE>
2
JumboSports Inc.
Index to Form 10-Q
July 30, 1999
<TABLE>
<CAPTION>
Page Number
<S> <C>
Part I - Financial Information
Item 1 - Financial Statements
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Stockholders' Equity (Deficiency) 5
Consolidated Statements of Cash Flows 6
Notes to the Consolidated Financial Statements 7-10
Item 2 - Management's Discussion and Analysis 11-18
Part II - Other Information 19-22
Signatures 23
</TABLE>
<PAGE>
3
JUMBOSPORTS INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
January 29, July 30,
1999 1999
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,809 $ 2,360
Accounts receivable, net 3,066 2,866
Inventories 121,586 93,660
Property under contract for sale 10,248 23,629
Prepaid expenses and other assets 1,527 2,178
Income tax receivable 447 382
Prepaid inventory 3,900 78
--------- ----------
Total current assets 164,583 125,153
--------- ----------
Property held for sale 32,456 15,666
Property and equipment, net 94,357 91,322
Other assets:
Cost in excess of fair value of net
assets acquired, net 10,462 10,291
Other 6,109 5,440
--------- ----------
Total other assets 16,571 15,731
--------- ----------
Total assets $ 307,967 $ 247,872
========= ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 893 $ 5,533
Accounts payable 3,468 14,342
Accrued expenses 7,108 8,716
Accrued reorganization items 13,310 1,219
Other 2,724 2,264
---------- ----------
Total current liabilities 27,503 32,074
---------- ----------
Deferred rent and other long-term liabilities 1,267 1,267
Revolving credit agreement 98,934 50,155
Credit facility term loan 18,471 18,572
Long-term debt less current maturities 67,224 66,398
Liabilities subject to compromise 139,633 135,195
---------- ----------
Total liabilities 353,032 303,661
---------- ----------
Stockholder's equity:
Common stock, $.01 par value,
100,000,000 shares authorized,
20,420,001 shares issued and
outstanding 204 204
Additional paid-in captial 149,760 149,760
Accumulated deficit (195,029) (205,753)
---------- ----------
Total stockholder's deficit (45,065) (55,789)
---------- ----------
Total liabilities and
stockholder's deficit $ 307,967 $ 247,872
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements.
<PAGE>
4
JUMBOSPORTS INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-SixWeeks Ended
July 31, July 30, July 31, July 30,
1998 1999 1998 1999
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
Sales $ 86,837 $ 59,386 $ 173,381 $ 117,195
Cost of sales including
buying & occupancy costs 66,913 46,335 133,197 91,405
----------- ---------- ---------- ----------
Gross Profit 19,924 13,051 40,184 25,790
Selling, general and
administrative expenses 18,931 13,262 38,909 26,519
Loss on disposition of property
and closed store expenses 15,200 15,200
--------- ---------- ---------- ----------
Loss from operations (14,207) (211) (13,925) (729)
Interest expense 5,041 3,756 11,360 7,656
--------- ---------- ---------- ----------
Loss before reorganization items (19,248) (3,967) (25,285) (8,385)
Reorganization items 1,436 2,339
--------- ---------- ---------- ----------
Net loss $ (19,248) $ (5,403) $ (25,285) $ (10,724)
========= ========== ========== ==========
Basic and dilutive earnings per
common share $ (0.94) $ (0.26) $ (1.24) $ (0.53)
Weighted average shares outstanding 20,399 20,420 20,395 20,420
Stores closed during period 2 0 20 0
Stores open at end of period 57 42 57 42
</TABLE>
See Notes to the Consolidated Financial Statements.
<PAGE>
5
JUMBOSPORTS INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE TWENTY-SIX WEEKS ENDED JULY 31, 1998 AND JULY 30, 1999
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Additional Accumulated
Paid in Earnings
Shares Par Value Capital (Deficit) Total
---------- ----------- ----------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Balance January 30, 1998 20,386 $ 204 $ 149,809 $(101,515) $ 48,498
Issuance of common stock 19 21 21
Net loss (25,285) (25,285)
---------- ---------- ----------- ---------- ----------
Balance July 31,1998 20,405 $ 204 $ 149,830 $ (126,800) $ 23,234
========== ========== =========== ========== ==========
Balance, January 29, 1999 20,420 $ 204 $ 149,760 $ (195,029) $ (45,065)
Issuance of common stock
Net loss (10,724) (10,724)
---------- ----------- ---------- ---------- ----------
Balance July 30, 1999 20,420 $ 204 $ 149,760 $(205,753) $ (55,789)
========== =========== ========== ========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements.
<PAGE>
6
JUMBOSPORTS INC.
DEBT0R-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
July 31,1998 July 30, 1999
------------ -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (25,285) $ (10,724)
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation 3,269 2,862
Loss on asset sales and
closed store expenses 15,200
Amortization of cost in excess of the
fair value of net assets acquired 171 171
Deferred loan cost amortization
and other amortization 249 777
Reorganiation charges 2,339
Increase in deferred tax asset
Decrease (increase) in accounts receivable 627 (2,081)
Decrease in income tax receivable 135 65
Decrease in inventories 48,718 27,926
Increase in prepaid expenses (1,146) (652)
Decrease (increase) in other assets (1,592) 2,140
Increase in accounts payable 13,363 19,132
Increase (decrease) in accrued expenses 81 (2,295)
Decrease in other current liabilities (29,608) (13,358)
Decrease in deferred rent (589) (512)
Increase in income tax payable 208
---------- ----------
Net cash provided by operating activities 23,593 25,998
---------- ----------
Cash flow from investing activities:
Capital expenditures (3,414) (891)
Net collections under note receivable
Cash proceeds from sale of property
and equipment 64,589 2,731
----------- ----------
Net cash provided by
investing activities 61,175 1,840
----------- ----------
Cash flows from financing activities:
Proceeds from sale of common stock-net 21
Net borrowings under term loan
revolving credit agreements 378 930
Net repayments under
revolving credit agreements (64,847) (49,709)
Amount borrowed under term loan 6,529
Repayments under term loan (1,845)
Repayments under long term debt (16,482) (2,996)
Loan costs (2,011) (2,196)
---------- ----------
Net cash used in
financing activities (82,941) (49,287)
---------- ----------
Net increase (decrease) in cash and
cash equivalents 1,827 (21,449)
---------- ----------
Cash, beginning of period 345 23,809
---------- ----------
Cash, end of period $ 2,172 $ 2,360
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements
<PAGE>
7
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 29,
1999 contained in the Company's Form 10-K dated April 29, 1999.
(2) Legal Proceedings
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes no currently pending
litigation to which it is a party will have a material or adverse effect on its
financial condition or results of its operations.
On Sunday, December 27, 1998, JumboSports Inc. and certain of its
subsidiaries filed for reorganization under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the Middle District of Florida. These
related proceedings are being jointly administered under the caption "In re.:
JumboSports Inc., d/b/a Vacations Travel, f/k/a Sports & Recreation, Inc., and
f/d/b/a Sports Unlimited, Guide Series, Inc. and Property Holdings Company I",
Case Nos. 98-22545-8C1, 98-22546-8C1, and 98-22547-8C1. The following
subsidiaries were not included in the bankruptcy filings: Nationwide Team Sales,
Inc., Sports & Recreation Holdings of PA, Inc., and Construction Resolution,
Inc.
In connection with the Bankruptcy filing, stays have been filed in all
pre-petition actions against the Company.
A complaint was filed on March 23, 1999, in the United States Bankruptcy
Court, captioned "LaSalle National Bank, Trustee for JP Morgan Commercial
Mortgage Finance Corporation Pass-through Certificate Series 1997-C5, acting by
and through AMRESCO Management, Inc., its Special Servicer v. JumboSports,
Inc.", which alleges that JumboSports did not have the right to terminate
certain Trusts of which JumboSports was the sole beneficiary and sole settlor.
The Trusts held bare legal title to real estate (the "Property") and pledged the
Property as security for loans. The plaintiff is seeking a judicial
determination that the Property in question is not property of the Debtor
JumboSports' estate, and that the Plaintiff may proceed against the Property as
if it were not property of the Debtor's estate. The Plaintiff further seeks a
judicial determination that the Trusts are separate legal entities, that the
Trusts have not been terminated, that if they have been terminated the
termination is not valid, that there is no right to terminate the Trusts except
in accordance with applicable Delaware law, the Trust Agreements, and the
relevant loan documents, and that there has been no transfer of the property to
the Debtor. JumboSports filed its written responses and claims for affirmative
relief. The Bankruptcy Court entered its Order Scheduling Pretrial Conference
and Evidentiary Hearing (the "Pretrial Order") on June 24, 1999. The Pretrial
Order sets a final pretrial conference for November 22, 1999, and also sets a
trial for December 6, 1999. Management is currently unable to predict the
outcome of this case or the impact of an adverse ruling on its reorganization
efforts.
<PAGE>
8
A complaint was filed on August 30, 1999, in the United States Bankruptcy
Court, captioned "Prudential Securities Credit Corporation and The Chase
Manhattan Bank, as Trustee v. JumboSports Inc.", which alleges that the Company
did not have the right to terminate certain Trusts of which the Company was the
sole beneficiary and sole settlor. The Trusts held bare legal title to real
estate (the "Property") and pledged the Property as security for loans. The
plaintiff is seeking a judicial declaration that the Property in question is not
property of the Debtor JumboSports' estate, and that the plaintiff may proceed
against the Property as if it were not property of the Debtor's estate. The
plaintiff further seeks a judicial declaration that the Trusts are separate
legal entities, that the Trusts have not been terminated, that if the trusts
were terminated that the termination is not valid, that there is no right to
terminate the Trusts except in accordance with applicable Delaware law, the
Trust Agreements, and the relevant loan documents, and that there has been no
transfer of the Property to the Debtor. Management is currently unable to
predict the outcome of this case or the impact of an adverse ruling on its
reorganization efforts.
(3) Reorganization
On December 27, 1998 (the "Petition Date"), after experiencing a poor
holiday season and with increased pressure being applied by the Company's
lenders and suppliers, JumboSports Inc. and certain of its subsidiaries filed
voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code
in the United States Bankruptcy Court for the Middle District of Florida (the
"Bankruptcy Court"). These related proceedings are being jointly administered
under the caption "In re.: JumboSports Inc., d/b/a Vacations Travel, f/k/a
Sports & Recreation, Inc., and f/d/b/a Sports Unlimited, Guide Series, Inc. and
Property Holdings Company I", Case Nos. 98-22545-8C1, 98-22546-8C1 and
98-22547-8C1, pursuant to an order of the Bankruptcy Court. The following
subsidiaries were not included in the bankruptcy filings: Nationwide Team Sales,
Inc., Retail Process Management, Inc., Sports & Recreation, Inc., Sports &
Recreation Holdings of PA, Inc. and Construction Resolution, Inc.
The bankruptcy petitions were filed in order to preserve cash and permit
the Company an opportunity to reorganize while working to restructure its
indebtedness. Pursuant to the Senior-Secured Super Priority Debtor-in-Possession
Loan and Security Agreement (the "DIP facility") dated Feburary 12, 1999, among
JumboSports Inc., as Borrower, various financial institutions, as Lenders,
Foothill Capital Corporation, as Agent and Congress Financial
Corporation(Southern), as Co-agent, the lenders have agreed to provide up to
$110 million in post-petition financing to the Company.
As a result of the Chapter 11 filings, absent approval of the Bankruptcy
Court, the Company is prohibited from paying, and creditors are prohibited from
attempting to collect, claims or debts arising pre-petition. The consummation of
a plan of reorganization is the principal objective of the Company's Chapter 11
cases. The plan of reorganization will set forth the means for satisfying
claims, including liabilities subject to compromise, and interests in the
Company and its debtor subsidiaries. The consummation of a plan of
reorganization for the Company and its debtor subsidiaries will require approval
of the Bankruptcy Court.
The Company expects to propose a plan of reorganization for itself and the
other Debtor subsidiaries. The Bankruptcy Court granted the Company's request to
extend its exclusive right to file a plan of reorganization through June 1,
1999. On June 1, 1999 and again on August 24, 1999, with support of both the
Bondholder and the Unsecured Creditor Committees, the Bankruptcy Court granted
the Company's request to further extend the exclusivity period while management
works on implementing new operating strategies that are intended to improve
operating performance. The latest extension gives the Company through January
21, 2000 to file a plan of reorganization. There can be no assurance that
management's new strategies will produce the desired results. After the
expiration of the exclusivity period, creditors of the Company have the right to
propose their own plans of reorganization. A plan of reorganization, among other
things, may result in material dilution or elimination of the equity of existing
stockholders as a result of the issuance of equity to creditors or new
investors.
<PAGE>
9
At this time, it is not possible to predict the outcome of the Chapter 11
filing, in general, or its effects on the business of the Company or on the
interests of creditors or stockholders.
The Company does not plan to hold annual stockholder meetings during the
pendency of its Chapter 11 case.
The accompanying financial statements have been prepared on a going concern
basis, which contemplates continuity of operations, realization of assets and
liquidation of liabilities in the ordinary course of business. However, as a
result of the Chapter 11 filing and circumstances relating to this event,
including the Company's leveraged financial structure and losses from
operations, such realization of assets and liquidation of liabilities is subject
to substantial doubt. While under the protection of Chapter 11, the Company may
sell or otherwise dispose of assets, and liquidate or settle liabilities, for
amounts other than those reflected in the financial statements. Further, a plan
of reorganization could materially change the amounts reported in the financial
statements, which do not give effect to all adjustments of the carrying value of
assets or liabilities that might be necessary as a consequence of a plan of
reorganization.
The appropriateness of using the going concern basis is dependent upon,
among other things, confirmation of a plan of reorganization, future profitable
operations, the ability to comply with the terms of the DIP facility and the
ability to generate sufficient cash from operations to meet obligations.
(4) Reorganization Items
As a result of the Chapter 11 filings, the Company has recorded $2.3
million in reorganization charges in the first twenty-six weeks of 1999. These
charges represent incurred legal and professional fees of $1.2 million,
severance of $0.4 million, write-off of closed store fixed assets in the amount
of $0.1 million, and expenses for closed stores in the amount of $0.6 million.
Of these expenses, $1.0 million were cash payments.
The following represents reserve amounts created by the $58.4 million and
$2.3 million of reorganization items incurred in fiscal 1998 and the first
twenty-six weeks of 1999, respectively (in thousands):
<TABLE>
<CAPTION>
1/29/99 7/30/99
Ending Ending
Balance Additions Reductions Balance
---------- ---------- ---------- ----------
<CAPTION>
<S> <C> <C> <C> <C>
Loss on disposition of real estate $ 622.8 $ 81.7 $ 657.8 $ 46.7
Closed store expenses 8,838.3 673.1 9,187.9 323.5
Restructuring charges 2,521.6 1,213.3 3,268.5 466.4
Retention and severance pay 1,327.0 3,712.0 1,316.2 382.0
---------- ---------- ----------- ----------
Total $ 13,309.7 $ 2,339.3 $14,430.4 $ 1,218.6
========== ========== =========== ==========
</TABLE>
<PAGE>
10
(5) Liabilities Subject to Compromise
Liabilities subject to compromise are subject to future adjustments on
Bankruptcy Court actions and further developments with respect to disputed
claims. Liabilities subject to compromise are as follows:
<TABLE>
<CAPTION>
1/29/99 7/30/99
Ending Ending
Balance Balance
------------ ----------
<S> <C> <C>
Convertible subordinated notes plus accrued interest $ 75,253 $ 75,253
Accounts payable 37,268 39,425
Rejected leases and other miscellaneous claims 12,044 11,819
Obligations under capital leases 6,602 4,604
Accrued expenses 6,262 2,402
Deferred liabilities 2,204 1,692
---------- ----------
Total $ 139,633 $ 135,195
========== ==========
</TABLE>
Liabilities subject to compromise under reorganization proceedings include
substantially all unsecured debt as of the Petition Date. Pursuant to the
provision of the Bankruptcy Code, payment of these liabilities may not be made
except pursuant to a plan of reorganization in Bankruptcy Court order while the
Company continues to operate as debtor in possession. The Company has recorded
an estimated liability for certain leases and contracts that have either been
rejected or the Company anticipates rejecting.
(6) Other Events
The Company announced that it would change the operating name of its stores
from JumboSports to Sports & Recreation beginning in August 1999.
<PAGE>
11
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.
These factors include, but are not limited to, product demand and market
acceptance risks, the effect of economic conditions generally, the impact of
competition, commercialization and technological difficulties and the condition
of the retail and sporting goods industries.
Management's discussion and analysis of financial condition and results of
operations for the second quarter of fiscal 1999 should be read in conjunction
with the discussion and analysis set forth in the Company's Form 10-K filed
April 29, 1999 for the fiscal year ended January 29, 1999.
On December 27, 1998, JumboSports Inc. and certain of its subsidiaries
filed petitions for reorganization under Chapter 11 of the United States
Bankruptcy Code and are operating as debtors-in-possession subject to the
jurisdiction of the United States Bankruptcy Court for the Middle District of
Florida. For further discussion of Chapter 11 proceedings, see the Company's
Form 10-K dated April 29, 1999 and Note 3 to the Consolidated Financial
Statements set for in Item 1 above.
Results of Operations
The following table sets forth certain operating data as a percentage of
sales for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-six Weeks Ended
July 31, 1998 July 30, 1999 July 31, 1998 July 30, 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales including buying
and occupancy costs 77.1 78.0 76.8 78.0
---------- ---------- ----------- ----------
Gross profit 22.9 22.0 23.2 22.0
Selling, general and
administrative expenses 21.8 22.4 22.4 22.6
Loss on disposition of assets
and closed store expenses 17.5 8.8
---------- ---------- ---------- ----------
Loss from operations (16.4) (0.4) (8.0) (0.6)
Interest expense-net 5.8 6.3 6.6 6.5
---------- ---------- ---------- ----------
Loss before reorganization items (22.2) (6.7) (14.6) (7.1)
Reorganization items 2.4 2.0
---------- ---------- ---------- ----------
Net loss (22.2) % (9.1) % (14.6) % (9.1) %
========== ========== ========== ==========
</TABLE>
<PAGE>
12
Loss on disposition of assets, closed store expenses, and other charges
In fiscal 1996, 1997 and 1998 the Company recorded charges in the amounts
of $55.0 million, $94.3 million and $15.2 million. These charges were for the
loss on disposition of assets, closed store expenses and non-recurring charges.
As a result of the charges, reserve accounts were created and the following
table represents balances from January 30, 1998 through July 30, 1999 (in
thousands):
<TABLE>
<CAPTION>
1/30/98 1/29/99 7/30/99
Reserve Ending Ending Ending
Description Balance Additions Reductions Balance Additions Reductions Balance
- ----------- ----------- ---------- ---------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Markdown of slow
moving and
excess inventory $ 1,828.5 $ 1,828.5
Write-down for
inventory
liquidation of
closing stores 10,189.5 $ 1,465.0 11,654.5
Expenses attributable
to closing stores 6,687.7 935.0 7,455.9 $ 166.8 $ 120.3 $ 46.5
Closing store equipment
reserve 5,011.5 2,886.4 7,882.2 15.7 15.7
Closed store leases 4,032.6 850.1 3,041.6 1,841.1 326.4 1,514.7
Other charges -
severance & outdated
communications
technology 3,781.5 487.3 3,327.2 941.6 355.4 586.2
Disposition and
impairment of
under-performing
assets 1,452.7 8,576.2 10,026.8 2.1 2.1
--------- --------- ---------- ---------- ---------- ---------- ----------
Reserve totals $32,984.0 $15,200.0 $45,216.7 $ 2,967.3 $ 802.1 $2,165.2
========= ========= ========== ========== ========== ========== ==========
</TABLE>
<PAGE>
13
Reorganization items
As a result of the Chapter 11 filings, the Company has recorded $2.3
million reorganization charges in the first twenty-six weeks of 1999. These
charges represent incurred legal and professional fees of $1.2 million,
severance in the amount of $0.4 million, write-off of closed stores and fixed
assets in the amount of $0.1 million, and expenses for closed stores $0.6
million. Of these expenses, $1.0 million were cash payments.
Reorganization items of $1.4 million, or 2.4% of sales, in the second
quarter of the current year represent charges for incurred legal and
professional fees of $0.3 million, severance in the amount of $0.4 million,
write-off of closed store fixed assets in the amount of $0.1 million, and
expenses for closed store in the amount of $0.6 million.
The following represents reserve amounts created by the $58.4 million and
$2.3 million of reorganization items incurred in fiscal 1998 and the first
twenty-six weeks of 1999, respectively (in thousands):
<TABLE>
<CAPTION>
1/29/99 7/30/99
Ending Ending
Balance Additions Reductions Balance
---------- ---------- ---------- ----------
<CAPTION>
<S> <C> <C> <C> <C>
Loss on disposition of real estate $ 622.8 $ 81.7 $ 657.8 $ 46.7
Closed store expenses 8,838.3 673.1 9,187.9 323.5
Restructuring charges 2,521.6 1,213.3 3,268.5 466.4
Retention and severance pay 1,327.0 3,712.0 1,316.2 382.0
---------- ---------- ----------- ----------
Total $ 13,309.7 $ 2,339.3 $14,430.4 $ 1,218.6
========== ========== =========== ==========
</TABLE>
<PAGE>
14
Thirteen Weeks Ended (Second Quarter) July 30, 1999 Compared To Thirteen Weeks
Ended July 31,1998
The Company ended the quarter with 42 stores this year compared to 57
stores in the prior year. The Company had previously closed 17 stores in the
first quarter of the current year.
Sales for the second quarter decreased 31.6% to $59.4 million compared with
sales of $86.8 million in the second quarter of the prior year. The majority of
the sales decline is attributable to fewer stores in operation. Same store sales
for the second fiscal quarter decreased by 13.7%. Although same store sales were
down, the Company continued to experience same store gains of approximately 4.0%
and 2.0% in its fitness and team sports departments, respectively. Same store
sales have been adversely affected by the following:
1. Poor sales trends were experienced throughout the retail sporting
goods industry as a result of the lack of exciting new products and
changing consumer preferences;
2. Apparel sales on a same store basis were off 25.0%, with the highest
declines occurring in men's apparel, licensed apparel and outerwear.
Men's apparel is affected by a change in consumer preferences, and a
change in the business dress code from formal buisness attire to
business casual attire. Licensed apparel is driven by a number of
factors including team uniform changes, the location of league
champions, professional sports labor disputes delaying seasons or
athlete participation, and changes in licensed apparel as a fashion
item. Outerwear sales are driven by weather conditions; and
3. Footwear sales on a same store basis were down 23.0% due to a general
decline in the athletic footwear category and change in consumer
preferences from athletic footwear to the casual "brown shoe." Heavy
discounting by the specialty retailers also contributed to the
Company's sales decline in the footwear category.
Gross profit for the second quarter was $13.1 million, or 22.0% of sales,
as compared to $19.9 million, or 22.9% of sales, for the second quarter of the
prior year. The decrease as a percentage of sales was attributable to higher
buying and occupancy costs as a percentage of sales, 0.5%, and lower
merchandising margins, 0.4%. Buying and occupancy costs were higher due to lower
sales volume leverage. Merchandising margins were lower as a result of a higher
sales mix in the lower margin hardline departments, and promotional based
markdown activity in the footwear and apparel departments as a result of
industry discounting. Merchandise margins for most of the hardline departments
were higher than the prior year.
<PAGE>
15
Selling, general and administrative expenses for the second quarter were
$13.3 million, or 22.4% of sales, as compared to $18.9 million, or 21.8% of
sales, for the second quarter of the prior year. The increase as a percentage of
sales was due to the following:
1. Store payroll expense was 0.3% higher;
2. Corporate general and administrative expenses were 0.9% higher.
The Company has lowered its expenditures by $622,000 in the
second quarter from same period of the prior year;
3. Depreciation was 0.1% higher, due to lower sales volume leverage,
4. Lower fixture leases, 0.5%, as a result of negotiated reductions
through Bankruptcy Court;
5. Store supplies and expenses were down 0.1%; and
6. Other expenses were down by 0.1%.
In the second fiscal quarter of the prior year, the Company recorded a loss
on the disposition of property and closed store expenses of $15.2 million, or
17.5% of sales.
Loss from operations in the second quarter was $0.2 million, or 0.4% of
sales, as compared to loss from operations of $14.2 million, or 16.4% of sales
in the same quarter of the prior year.
Interest expense for the second quarter was $3.8 million, or 6.3% of sales,
as compared to $5.0 million, or 5.8% of sales for the second quarter in the
prior year. The decreased interest expense relates primarily to a reduction in
average debt outstanding resulting from the liquidation of closed store
inventory and the sale of closed store and excess real estate. This decrease was
slightly offset by an increase in interest rates, the result of the increases in
prime and LIBOR rates. No interest on the convertible subordinated notes was
accrued after the Petition Date.
The Company did not recognize an income tax benefit in the second quarter
of either year, but rather recorded an adjustment to the valuation allowance
offsetting the deferred tax assets in excess of the deferred tax liabilities.
For the second quarter, the Company posted a net loss of $5.4 million, or
9.1% of sales, as compared to a net loss of $19.2 million, or 22.2% of sales for
the same quarter of the prior year.
<PAGE>
16
Twenty-six Weeks (First-Half) Ended July 30, 1999 Compared to Twenty-six Weeks
Ended July 30, 1998
In the First-Half of fiscal 1999, the Company closed seventeen (17) stores,
ending the period with 42 stores. In the First-Half of fiscal 1998, the Company
closed twenty (20)stores, ending the period with 57 stores.
Sales for the first twenty-six weeks decreased 32.4% to $117.2 million
compared with sales of $173.4 million in the comparable period of the prior
year. Same store sales for this twenty-six week period declined 13.5%. Sales
have been adversely impacted by the following:
1. As a result of the Bankruptcy filing, poor in-stock inventory levels
in the early part of the first quarter attributed to temporary product
shipment disruptions;
2. Poor sales trends were experienced throughout the retail sporting
goods industry as a result of the lack of exciting new products and
changing customer preferences;
3. Apparel sales on a same store basis were of 28.3%, with the higest
declines occurring in men's apparel, licensed apparel and outerwear.
Men's apparel is affected by the changing consumer preference and a
change in business dress code from formal business attire to business
casual. Licensed apparel is driven by a number of factors including
team uniform changes, the location of league champions, professional
sports labor disputes delaying seasons, or athlete participation and
changes in licensed apparel as a fashion item. Outerwear sales are
driven by weather conditions; and
4. Footwear sales on a same store basis were down 26.0% due to a general
decline in the athletic footwear category and change in consumer
preferences from athletic footwear to the casual "brown shoe." Heavy
discounting by the specialty retailers also contributed to the
Company's sales decline in the footwear category.
Gross profit for the twenty-six week period of the current year was $25.8
million, or 22.0% of sales, compared to $40.2 million, or 23.2% of sales for the
prior year. The decrease as a percentage of sales was attributable to higher
buying and occupancy costs as a percentage of sales, 0.8%, lower cash discounts,
0.2%, and lower merchandising margin, 0.2%. Buying and occupancy costs were
higher due to lower sales volume leverage. Merchandising margins were lower due
to a higher sales mix in the lower margin hardline departments and promotional
based markdown activity in the footwear and apparel departments, the result of
industry discounting. Merchandise markdowns for most of the hardline departments
were higher than the prior year, slightly offsetting the sales mix impact.
<PAGE>
17
Selling, general and administrative expenses for the twenty-six weeks of
the current year were $26.5 million, or 22.6% of sales, as compared to $38.9
million, or 22.4% of sales, for the twenty-six weeks of the prior year. The
increase as a percentage of sales was due to the following:
1. Store payroll expense was higher, the result of lower sales volume
leverage, 0.3%;
2. General and administrative expenses were higher 0.9%, due to the
implementation of a Nationwide Team Sales organization;
3. Depreciation was higher 0.2% due to lower sales volume leverage;
4. Advertising was lower 0.4% as a result of a planned newspaper
advertising reduction in the first quarter;
5. Store supplies and expenses were lower 0.1%;
6. Fixture leases were lower 0.4% due to buyouts;
7. Physical inventory services expenses were down 0.1%; and
8. Other expenses were net lower by 0.2%
In the First-half of the prior year, the Company recorded a loss on the
disposition of property and closed store expenses of $15.2 million, or 8.8% of
sales.
Loss from operations in the twenty-six weeks of the current year was $0.7
million, or 0.6% of sales, as compared to loss from operations of $13.9 million,
or 8.0% of sales, in the twenty-six weeks of the prior year.
Interest expense for the first half of the current year was $7.7 million,
or 6.5% of sales, as compared to $11.4 million, or 6.6% of sales, for the
comparable period of the prior year. The decrease in interest expense relates
primarily to a reduction in average debt outstanding due to the liquidation of
closed store inventory and the sale of closed store and excess real estate. This
decrease was slightly offset by an increase in interest rates in the second
quater, the result of increases in the prime and LIBOR interest rates. No
interest on the convertible subordinated notes was accrued after the Petition
Date, while in the prior year $1.6 million of interest on convertible
subordinated notes was recorded.
Loss before income taxes and reorganization items for the first twenty-six
weeks was $8.4 million, or 7.1% of sales, compared to a loss of $25.3 million,
or 14.6% of sales, in the corresponding period of the prior year.
As a result of the Chapter 11 filings, the Company has recorded $2.3
million, or 2.0% of sales, of reorganization charges in the first twenty-six
weeks of 1999. These charges represent incurred legal and professional fees of
$1.2 million, severance in the amount of $0.4 million, write-off closed store
fixed assets in the amount of $0.1 million, and expenses for closed stores in
the amount of $0.6 million. Of these expenses, $1.0 million were cash payments.
The Company did not recognize an income tax benefit in the First-Half of
either year, but rather recorded an adjustment to the valuation allowance
offsetting the deferred tax assets in excess of the deferred tax liabilities.
In the twenty-six weeks of the current year, the Company posted a net loss
of $10.7 million, or 9.1% of sales, as compared to a net loss of $25.3 million,
or 14.6% of sales, for the same period of the prior year.
<PAGE>
18
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 have been funded through the combination of
external financing, internally generated funds, and credit terms from vendors.
The Company's working capital needs typically peak in the fourth quarter.
During the first twenty-six weeks of fiscal 1999, the Company completed the
sale of two properties totaling $2.2 million. Proceeds were used to reduce a
mortgage loan and the DIP facility term loans, consequently lowering future
interest expense and debt service requirements. At the end of the first quarter,
the Comany had seventeen (17) properties worth an estimated $39.7 million under
contract for sale or held for sale. With the filing of the bankruptcy, these
sales are subject to approval by the Bankruptcy Court. One contract, with
expected net proceeds of $2.1 million, has been approved and was originally
scheduled to fund in August of 1999, but with an extension exercised by the
purchaser, is now scheduled to fund in October of 1999. The proceeds from the
sale will be used to reduce the DIP term loans. Seven sales contracts, with
expected net proceeds of $23.6 million, have been signed and are scheduled to be
submitted for approval by the Bankruptcy Court. When approved by the Bankruptcy
Court, the proceeds will be used to reduce the DIP facility term loans and
mortgage debt (assuming the non-enforceability of the yield maintenance
provision and pre-payment penalities in certain of the mortgages secured by such
properties.)
Operating activities provided cash of $26.0 million for the first
twenty-six weeks of fiscal 1999 as compared to cash provided of $23.6 million
for the same period of fiscal 1998. The improvement was attributable to average
same store inventory reductions and to increased vendor credit support.
Net cash of $1.8 million was provided by investing activities for the first
twenty-six weeks of fiscal 1999, compared to net cash provided by investing
activities of $61.2 million during the first twenty-six weeks of fiscal 1998. In
the current year, cash was provided through the completion of real estate
transactions on two properties, while in the prior year the Company completed
real estate sales on 25 properties.
Cash flows used in financing activities was $49.3 million for the first
twenty-six weeks of fiscal 1999 compared to cash used of $82.9 million for the
first twenty-six weeks of fiscal 1998. In both years, the Company repaid debt
using proceeds from the sale of property and the liquidation of inventory.
As of July 30, 1999, the Company had $67.4 million of long-term mortgage
obligations, $50.2 million of borrowings under its DIP revolving line of credit,
and $23.1 million of borrowings on its DIP term loan. Both the DIP revolving
line of credit and the DIP term loan are components of the Company's $110.0
million Senior Secured Super Priority Debtor-in-Possession Loan and Security
Agreement (the "DIP facility"). The DIP facility contains customary events of
default and a number of covenants, including restrictions on liens and sales of
assets, prohibition on dividends and certain changes in control. As of July 30,
1999, the Company was in compliance with all DIP facility convenants.
The DIP facility limits the amount of capital expenditures to $3.0 million
for fiscal 1999. The Company has spent $0.9 million during the first twenty-six
weeks.
<PAGE>
19
The Company believes its business strategies and the availability of its
DIP facility, together with the Company's available cash, proceeds from property
held from sale and expected cash flows from 1999 operations and beyond will
enable the Company to fund its expected needs for working capital, capital
expenditures, and debt service requirements. Achievement of expected cash flows
from operations will be dependent upon the Company's attainment of sales, gross
profit, expense and trade support levels that are reasonably consistent with its
financial plans. Such operating peformance will be suject to financial, economic
and other factors affecting the industry and operations of the Company, includng
factors beyond its control.
Year 2000 Compliance
Introduction
The "Year 2000 Problem" arose because many existing computer programs use
only the last two digits to refer to a year. Therefore, these computer programs
do not properly recognize a year that begins with "20" instead of the familiar
"19." If not corrected, many computer applications could fail or create
erroneous operating systems and other software programs. The Company's Year of
2000 ("Y2K") compliance project is intended to determine the readiness of the
Company's business for the Year 2000. The Company defines Y2K "compliance" to
mean that the computer code will process all defined future dates properly and
give accurate results.
Description of Areas of Impact and Risk
The Company has identified three areas where the Y2K problem creates risk
to the Company. These areas are: (a) internal Information Technology ("IT")
systems; (b) non-IT systems with embedded chip technology; and (c) system
capabilities of third party businesses with relationships with the Company ,
including product suppliers, service providers (such as credit card processors,
telephone, power, security systems, payroll processing) and other businesses
whose failure to Y2K compliant could have a material adverse effect on the
Company's business, financial conditionn or results of operations.
Plan to Address Year 2000 Compliance
In the spring of 1997, the Company developed a plan to address Y2K
readiness issues. The plan included the identification of the Information
Technology ("IT") and non-IT systems for compliance, the readiness of the
components and modifications or replacement of the components. Testing will be
completed on each area before implementation. Finally, contingency plans to
address potential risks that the Y2K compliance project will not address need to
be developed.
State of Readiness
1. IT Systems. In the spring of 1997, the Company replaced all of
its application software from IBM, Microsoft, and JDA Software
Group (JDA). With the implementation of one programminng update
from JDA, JumboSports will complete its Y2K compliance in key
financial, information and operating systems. The application of
the JDA update will require thorough testing of every application
at JumboSports. On September 4, 1999, the Company successfully
completed the Y2K testing ot its IT systems.
2. Non-IT Systems. The Company has reviewed its non-IT systems for
Y2K compliance. Areas for modificatioon have been identified and
are in process for completion in late 1999.
<PAGE>
20
3. Third Party Business. The Company has obtained from service
vendors vwritten statements of Y2K compliance and readiness. For
critical vendors, if the Company does not receive a written
statement of compliance, the Company will pursue alternative
means of obtaining Y2K readiness information, through the review
of publicly available information published by such third
parties.
Cost of Project
The overall cost of the Company's Y2K compliance effort has and is not
expected to be material to the Company's consolidated financial position,
results of operations, and cash flows. The Company has spent approximately
$150,000 on software and software updates to become totally Y2K compliant.
Contingency Plans and Risks
The Company believes that its approach to Y2K readiness is sound, but it is
possible that some business components are not identified, or that the testing
process does not result in analysis and remediation of all source code. The
Company's contingency plan will address alternative providers and processes to
deal with business interruptions that may be caused by internal systems or third
party providers failure to be Y2K compliant.
The failure to correct a material Y2K problem could result in an
interruption in, or failure of, certain business activities or operations. Such
failure could materially and adversely affect the Company's results of
operations, liquidity and financial condition. In addition, the Company's
operating results could be materially adversely affected if it were to be held
responsbile for the failure of products sold by the Company to be Y2K ready
despite the Company's disclaimer of product warranties.
Seasonality and Inflation
The Company's business is seasonal in nature, with its highest sales and
operating profitability historically occuring during the fourth fiscal quarter,
which includes the Christmas holiday selling season.
The Company does not believe that inflation had a material effect on its
results from operations for the first twenty-six weeks of fiscal 1999 or fiscal
1998. There can be no assurance, however, that the Company's business will not
be affected by inflation in the future.
<PAGE>
21
JUMBOSPORTS INC.
PART II - OTHER INFORMATION
- --------------------------------------------------------------------------------
Item 1. Legal Proceedings.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. The Company believes no currently pending
litigation to which it is a party will have a material or adverse effect on its
financial condition or results of its operations.
On Sunday, December 27, 1998, JumboSports Inc. and certain of its
subsidiaries filed for reorganization under Chapter 11 of the Bankruptcy Code in
the United States Bankruptcy Court for the Middle District of Florida. These
related proceedings are being jointly administered under the caption "In re.:
JumboSports Inc., d/b/a Vacations Travel, f/k/a Sports & Recreation, Inc., and
f/d/b/a Sports Unlimited, Guide Series, Inc. and Property Holdings Company I",
Case Nos. 98-22545-8C1, 98-22546-8C1, and 98-22547-8C1. The following
subsidiaries were not included in the bankruptcy filings: Nationwide Team Sales,
Inc., Sports & Recreation Holdings of PA, Inc., and Construction Resolution,
Inc.
A complaint was filed on March 23, 1999, in the United States Bankruptcy
Court, captioned "LaSalle National Bank, Trustee for JP Morgan Commercial
Mortgage Finance Corporation Pass-through Certificate Series 1997-C5, acting by
and through AMRESCO Management, Inc., its Special Servicer v. JumboSports,
Inc.", which alleges that JumboSports did not have the right to terminate
certain Trusts of which JumboSports was the sole beneficiary and sole settlor.
The Trusts held bare legal title to real estate (the "Property") and pledged the
Property as security for loans. The plaintiff is seeking a judicial
determination that the Property in question is not property of the Debtor
JumboSports' estate, and that the Plaintiff may proceed against the Property as
if it were not property of the Debtor's estate. The Plaintiff further seeks a
judicial determination that the Trusts are separate legal entities, that the
Trusts have not been terminated, that if they have been terminated the
termination is not valid, there there is no right to terminate the Trusts except
in accordance with applicable Delaware law, the Trust Agreements, and the
relevant loan documents, and that there has been no transfer of the Debtor's
property. JumboSports filed its written responses and claims for affirmative
relief. The Bankruptcy Court entered its Order Scheduling Pretrial Conference
and Evidentiary Hearing (the "Pretrial Order") on June 24, 1999. The Pretrial
Order sets a final pretrial conference for November 22, 1999, and also sets a
trial for December 6, 1999. Management is currently unable to predict the
outcome of this case or the outcome of an adverse ruling on its reorganization
efforts.
<PAGE>
22
A complaint was filed on August 30, 1999, in the United States Bankruptcy
Court, captioned "Prudential Securities Credit Corporation and The Chase
Manhattan Bank, as Trustee v. JumboSports Inc.", which alleges that the Company
did not have the right to terminate certain Trusts of which the Company was the
sole beneficiary and sole settlor. The Trusts held bare legal title to real
estate (the "Property") and pledged the Property as security for loans. The
plaintiff is seeking a judicial declaration that the Property in question is not
property of the Debtor JumboSports' estate, and that the plaintiff may proceed
against the Property as if it were not property of the Debtor's estate. The
plaintiff further seeks a judicial declaration that the Trusts are separate
legal entities, that the Trusts have not been terminated, that if the trusts
were terminated that the termination is not valid, that there is no right to
terminate the Trusts except in accordance with applicable Delaware law, the
Trust Agreements, and the relevant loan documents and that there has been no
transfer of the Property to the Debtor. Management is currently unable to
predict the outcome of this case or the impact of an adverse ruling on it
reorganization efforts
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 27 - Financial Data Schedule
2) Reports on Form 8-K.
None
<PAGE>
23
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)
09/13/99 /S/ ALFRED F. FASOLA, JR.
Date Chief Executive Officer
09/13/99 /S/ MICHAEL J. WORRALL
Date President
09/13/99 /S/ JEROME A. KOLLAR
Date Chief Financial Officer
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 SIX MONTHS ENDED JULY 30, 1999,
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> Jan-28-2000
<PERIOD-START> Jan-30-1999
<PERIOD-END> Jul-30-1999
<CASH> 2,360
<SECURITIES> 0
<RECEIVABLES> 3,698
<ALLOWANCES> 450
<INVENTORY> 93,660
<CURRENT-ASSETS> 125,153
<PP&E> 134,523
<DEPRECIATION> 27,535
<TOTAL-ASSETS> 247,872
<CURRENT-LIABILITIES> 32,074
<BONDS> 74,750
0
0
<COMMON> 204
<OTHER-SE> (55,993)
<TOTAL-LIABILITY-AND-EQUITY> 247,872
<SALES> 117,195
<TOTAL-REVENUES> 117,195
<CGS> 82,496
<TOTAL-COSTS> 91,405
<OTHER-EXPENSES> 26,519
<LOSS-PROVISION> (2,339)
<INTEREST-EXPENSE> 7,656
<INCOME-PRETAX> (10,724)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,724)
<DISCONTINUED> 0
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<CHANGES> 0
<NET-INCOME> (10,724)
<EPS-BASIC> (0.53)
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