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 April 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 (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:
Number of shares outstanding of the issuer's common stock, outstanding as of May
28, 1999, 20,420,001 shares.
<PAGE>
JumboSports Inc.
Index to Form 10-Q
April 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 7-11
Item 2 - Management's Discussion and Analysis 12-19
Part II - Other Information 20
Signatures 21
</TABLE>
2
<PAGE>
JUMBOSPORTS INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
January 29, April 30,
1999 1999
---------- ----------
Unaudited
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 23,809 $ 2,226
Accounts receivable 3,066 3,259
Inventories 121,586 94,313
Property under contract for sale 10,248 23,341
Prepaid expenses and other assets 1,527 1,515
Income tax receivable 447 311
Prepaid inventory 3,900 2,478
---------- ----------
Total current assets 164,583 127,443
---------- ----------
Property held for sale 32,456 16,324
Property and equipment, net 94,357 94,083
Other assets:
Cost in excess of fair value
of net assets acquired, net 10,462 10,376
Other 6,109 5,819
---------- ----------
Total other assets 16,571 16,195
---------- ----------
Total assets $ 307,967 $ 254,045
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt $ 893 $ 4,262
Accounts payable 3,468 11,188
Accrued expenses 7,108 6,986
Accrued reorganization items 13,310 2,909
Other 2,724 2,579
---------- ----------
Total current liabilities 27,503 27,924
Other long-term liabilities 1,267 1,267
Revolving credit agreement 98,934 53,715
Credit facility term loan 18,471 19,537
Long-term debt less current maturities 67,224 66,646
Liabilities subject to compromise 139,633 135,342
---------- ----------
Total liabilities 353,032 304,431
---------- ----------
Stockholders' equity:
Common stock, $.01 par value,
100,000,000 shares authorized,
20,420,001 shares issued
and outstanding 204 204
Additional paid-in capital 149,760 149,760
Accumulated deficit (195,029) (200,350)
---------- ----------
Total stockholders' deficit (45,065) (50,386)
---------- ----------
Total liabilities and
stockholders' deficit $ 307,967 $ 254,045
========== ==========
</TABLE>
See Notes to the Consolidated Financial Statements.
3
<PAGE>
JUMBOSPORTS INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS EXCEPT FOR PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 1, April 30,
1998 1999
-------- --------
<S> <C> <C>
Sales $ 86,544 $ 57,809
Cost of sales including
buying & occupancy costs 66,284 45,070
-------- --------
Gross Profit 20,260 12,739
Selling, general and administrative expenses 19,978 13,257
-------- --------
Income (loss) from operations 282 (518)
Interest expense 6,319 3,900
-------- --------
Loss before benefit for income taxes and
reorganization items (6,037) (4,418)
Reorganization items 903
-------- --------
Loss before benefit for income taxes (6,037) (5,321)
Benefit for income taxes
-------- --------
Net loss $ (6,037) $ (5,321)
======== ========
Basic and dilutive loss per common share $ (0.30) $ (0.26)
Weighted average shares outstanding 20,388 20,420
Stores closed during period 18 17
Stores open at end of period 59 42
</TABLE>
See Notes to the Consolidated Financial Statements.
4
<PAGE>
JUMBOSPORTS INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
FOR THE THIRTEEN WEEKS ENDED MAY 1, 1998 AND APRIL 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 5 10 10
Net loss (6,037) (6,037)
------ --------- -------- --------- --------
Balance May 1, 1998 20,391 $204 $149,819 $(107,552) $ 42,471
====== ========= ======== ========= ========
Balance, January 29, 1999 20,420 $204 $149,760 $(195,029) $(45,065)
Issuance of common stock
Net loss (5,321) (5,321)
------ --------- -------- --------- ---------
Balance April 30, 1999 20,420 $204 $149,760 $(200,350) $(50,386)
====== ========= ======== ========= =========
</TABLE>
See Notes to the Consolidated Financial Statements.
5
<PAGE>
JUMBOSPORTS INC.
DEBTOR-IN-POSSESSION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 1, 1998 April 30, 1999
----------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (6,037) $ (5,321)
Adjustments to reconcile net income
to cash used in operating activities:
Depreciation 1,622 1,446
Amortization of cost in excess of the
the fair value of net assets acquired 85 85
Deferred loan cost amortization
& other amortization 77 320
Reorganization charges 903
Decrease (increase) in accounts receivable 466 (2,472)
Decrease in income tax receivable 135 136
Decrease in inventories 45,038 27,273
Decrease (increase) in prepaid expenses (1,250) 11
Decrease in other assets 74 1,523
Increase in accounts payable 9,708 11,922
Decrease in accrued expenses (2,059) (3,576)
Decrease in other current liabilities (20,144) (12,186)
Decrease in deferred rent (647) (521)
Increase in income taxes payable 127
----------- -------------
Net cash provided by
operating activities 27,068 19,670
----------- -------------
Cash flow from investing activities:
Capital expenditures (1,023) (276)
Cash proceeds from sale of property 62,209 2,206
----------- -------------
Net cash provided by
investing activities 61,186 1,930
----------- -------------
Cash flows from financing activities:
Proceeds from sale of common stock-net 10
Net borrowings under
revolving credit agreements 378 930
Net repayments under
revolving credit agreements (72,215) (46,148)
Borrowings under term loan 6,244
Repayments under term loan (1,845)
Repayments of long term debt (16,277) (863)
Loan costs (188) (1,501)
----------- -------------
Net cash used in
financing activities (88,292) (43,183)
----------- -------------
Net decrease in cash and cash equivalents (38) (21,583)
----------- -------------
Cash, beginning of period 345 23,809
----------- -------------
Cash, end of period $ 307 $ 2,226
=========== =============
</TABLE>
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, 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 that no such currently
pending routine litigation to which it is a party will have a material adverse
effect on its financial condition or results of 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., Retail
Process Management, Inc., Sports & Recreation, Inc., Sports & Recreation
Holdings of PA, Inc. and Construction Resolution, Inc.
In connection with the Bankruptcy filing, all pre-petition actions against
the Company have been stayed.
A complaint was filed on March 23, 1999, in the Bankruptcy Court, 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 Servicep[r 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 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 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. The
Company filed its written responses and claims for affirmative relief, and a
pre-trial hearing has been scheduled for June 21, 1999.
7
<PAGE>
(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 February 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 the 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 filing subsidiaries. The Bankruptcy Court had granted the Company's
request to extend its exclusive right to file a plan of reorganization through
June 1, 1999. On June 1, 1999, 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 new extension gives the Company through September 3, 1999 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.
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.
8
<PAGE>
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) Reorganizational Items
As a result of the Chapter 11 filings, the Company has recorded $0.9
million reorganization charges in the first quarter of 1999. These charges
represent incurred legal and professional fees which will result in future cash
payments.
The following represents reserve amounts created by the $58.4 million and
$0.9 million of reorganization items incurred in fiscal 1998 and the first
quarter of 1999, respectively (in thousands):
<TABLE>
<CAPTION>
1/29/99 4/30/99
Ending Ending
Balance Additions Reductions Balance
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Loss on disposition of real estate $ 622.8 $ 576.1 $ 46.7
Closed store expenses 8,838.3 8,084.5 753.8
Restructuring charges 2,521.6 $903.0 1,960.5 1,464.1
Retention and severance pay 1,327.0 682.6 644.4
-------- ------- --------- --------
Total $13,309.7 $903.0 $11,303.7 $2,909.0
========= ======= ========= ========
</TABLE>
9
<PAGE>
(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 4/30/99
Ending Ending
Balance Balance
------- -------
<S> <C> <C>
Convertible subordinated notes plus accrued interest $ 75,253 $ 75,253
Accounts payable 37,268 37,768
Rejected leases and other miscellaneous claims 12,044 11,429
Obligations under capital leases 6,602 6,357
Accrued expenses 6,262 2,852
Deferred liabilities 2,204 1,683
-------- --------
Total $139,633 $135,342
======== ========
</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 or Bankruptcy Court order while
the Company continues to operate as debtors 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
On February 11, 1999, the Bankruptcy Court granted a motion for
authority to obtain debtor-in-possession financing. Proceeds from the 18 month
DIP facility are being used to finance the on-going working capital needs of the
Company, to pay fees and expenses incurred in connection with the DIP facility
agreement, to pay all amounts due under the pre-petition credit agreement, to
replace the letters of credit issued and outstanding thereunder, and to pay
certain other costs and bankruptcy related claims and charges as allowed by the
Bankruptcy Court.
During the term of the DIP facility agreement, the Company is restricted
from making any distribution or declaring or paying any dividends (in cash or
other property, other than capital stock) on, or purchasing, acquiring,
redeeming or retiring any of the Company's capital stock, of any class, whether
now or hereafter outstanding. Other restrictions include limitations on
additional indebtedness, disposal of assets, change of control, capital
expenditures and investments; provided, however, that the Company may make loans
to its subsidiary, Nationwide Team Sales, Inc., in an aggregate amount not to
exceed $1.25 million. Additionally, the Company agreed to achieve certain levels
of earnings before interest, taxes, depreciation, amortization and restructuring
charges ("EBITDAR") on a cumulative quarterly basis beginning with the first
quarter of fiscal 1999 and each succeeding quarter thereafter through the end of
fiscal 1999 and on a rolling 12 months basis thereafter through the duration of
the agreement.
10
<PAGE>
The DIP facility provides for a term loan of $25 million and a revolving
loan credit facility of $85 million including a $10 million letter of credit
subfacility. The term loan consists of a Tranche A and a Tranche B. The Tranche
A term loan was initially funded at $9.7 million with a total commitment of $10
million. The Tranche B term loan was initially funded at $15 million. Interest
on the Tranche A term loan accrues at the Reference Rate plus 1.75% per annum.
Interest on the Tranche B term loan accrues at 12.75% per annum. Total principal
installments of $417 thousand are to be paid monthly commencing on August 1,
1999 and continuing on the first day of each succeeding month. The Company is
required to prepay the term loans with the net proceeds from the sale of Real
Property Collateral pursuant to a prescribed allocation in the loan agreement.
All prepayments of principal will be ratably applied to principal installments
in the inverse order of maturity. Availability under the revolving loan credit
facility is limited to the lesser of $85 million or amounts based on a
predetermined formula which includes a provision for up to 80% of Eligible
Accounts and approximately 74.5% of Eligible Inventory. Commitments under the
letter of credit subfacility are limited to the lesser of $10 million or
availability under the revolving line of credit.
The Company incurred approximately $1.3 million in fees in connection
with the new DIP facility agreement. Interest on the term loans and revolving
advances and fees on the letters of credit are payable monthly in arrears.
The Agreement also contains a provision for early termination, at the
option of the Company, with a payment of an early termination premium to the
lenders if exit financing is provided by a third party.
11
<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.
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 first quarter of fiscal 1999 should be read in conjunction
with the discussion and analysis set forth in 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 presently 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 forth in Item 1 above.
Results of Operations
The following table set forth certain operating data as a percentage of
sales for the periods indicated:
<TABLE>
<CAPTION>
Thirteen Weeks Ended
May 1, 1998 April 30, 1999
------------ ------------
<S> <C> <C>
Sales 100.0% 100.0%
Cost of sales including buying
and occupancy costs 76.6 78.0
-------- -------
Gross profit 23.4 22.0
Selling, general and
administrative expenses 23.1 22.9
-------- -------
Income (loss) from operations 0.3 (0.9)
Interest expense-net 7.3 6.7
-------- -------
Loss before benefit
for income taxes and
reorganization items (7.0) (7.6)
Reorganization items 1.6
-------- -------
Loss before benefit for income taxes (7.0) (9.2)
Benefit for income taxes
-------- -------
Net loss (7.0)% (9.2)%
======== =======
</TABLE>
12
<PAGE>
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 April 30, 1999 (in
thousands):
<TABLE>
<CAPTION>
1/30/98 1/29/99 4/30/99
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 $ 59.9 $ 106.9
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 3,327.2 941.6 227.7 713.9
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 $614.0 $2,353.3
========== ========= ========= ======== ======= ======= ========
</TABLE>
As a result of the Chapter 11 filings, the Company has recorded $0.9
million reorganization charges in the first quarter of 1999. These charges
represent incurred legal and professional fees which will result in future cash
charges.
The following table represents reserve amounts created by the $58.4 million
and $0.9 million of reorganization items incurred in fiscal 1998 and the first
quarter of 1999, respectively (in thousands):
<TABLE>
<CAPTION>
1/29/99 4/30/99
Ending Ending
Balance Additions Reductions Balance
--------- --------- ---------- -------
<S> <C> <C> <C> <C>
Loss on disposition of real estate $ 622.8 $ 576.1 $ 46.7
Closed store expenses 8,838.3 8,084.5 753.8
Restructuring charges 2,521.6 $903.0 1,960.5 1,464.1
Retention and severance pay 1,327.0 682.6 644.4
-------- ------- --------- --------
Total $13,309.7 $903.0 $11,303.7 $2,909.0
========= ======= ========= ========
</TABLE>
13
<PAGE>
Thirteen Weeks Ended (First Quarter) April 30, 1999 Compared to Thirteen Weeks
Ended May 1, 1998
The Company closed 17 stores in its first quarter of the current year,
ending the quarter with 42 stores this year, compared to closing 18 stores in
the prior year, ending the first quarter with 59 stores.
Sales for the first quarter decreased 33.2% to $57.8 million compared with
sales of $86.5 million in the first quarter of the prior year. The majority of
the sales decline is due to fewer stores in operation. Same store sales for the
first fiscal quarter decreased by 13.2%. Although same store sales were down,
the Company experienced same store sales gains of approximately 16.5% and 3.5%
in its fitness and team sports departments, respectively. Same store sales were
adversely affected by the following:
1. Poor in-stock inventory levels in the early part of the first quarter
attributed to temporary product shipment disruptions as a result of
the Bankruptcy filing;
2. 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;
3. Apparel sales on a same store basis were off 33.0%, with the highest
declines occurring in men's apparel, licensed apparel and outerwear.
Licensed apparel is driven by a number of factors including team
uniform changes, the location of league champions, professional sports
labor disputes delaying seasons and changes in licensed apparel as a
fashion item. Outerwear sales are driven by weather conditions. A late
and mild winter season adversely impacted sales and led to heavy
discounting;
4. Footwear sales on a same store basis were down 27.0% due to a general
decline in the athletic footwear category industry wide. Heavy
discounting by the specialty retailers also contributed to the
Company's sales decline; and
5. Golf continued poor sales trends. The Company's golf offering is
limited to mostly entry-level brands and its own controlled label.
Brand names such as Ping, Taylor Made, Cobra and Callaway are not made
available to the Company by manufacturers.
14
<PAGE>
Gross profit for the first quarter was $12.7 million, or 22.0% of sales, as
compared to $20.3 million, or 23.4% of sales, for the first 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, 1.1%, and lower cash discounts,
0.3%. Merchandise margins for most departments were higher than the prior year
but the blended merchandise margin was flat due to a change in the sales mix.
The hardline departments experienced an increase in sales mix while the apparel
and footwear departments declined. The hardline departments typically have lower
merchandise margins than the apparel and footwear departments.
Operating expenses for the first quarter were $13.3 million, or 22.9% of
sales, as compared to $20.0 million, or 23.1% of sales, for the first quarter of
the prior year. The decrease as a percentage of sales was due to the following:
1. Advertising expense was down 0.8% as a result of a planned newspaper
advertising reduction;
2. Physical inventory service expense was down 0.2%;
3. Store supplies and expenses were down 0.1%;
4. Fixture leases were lower 0.2% due to buyouts;
5. Others, net were down 0.1%;
6. Store payroll expense was higher 0.2%;
7. Corporate general and administrative expenses were higher 0.9% due to
the implementation of a nationwide team sales organization; and
8. Depreciation was higher 0.1% due to lower sales volume leverage.
Loss from operations in the first quarter was $0.5 million, or 0.9% of
sales, as compared to income from operations of $0.3 million, or 0.3% of sales
in the same quarter of the prior year.
Interest expense for the first quarter was $3.9 million, or 6.7% of sales,
as compared to $6.3 million, or 7.3% of sales, for the first quarter in 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. No interest on the convertible
subordinated notes was accrued after the Petition Date.
Reorganization items of $0.9 million, or 1.6% of sales, represent charges
incurred by the Company in the first quarter for legal and professional fees
attributable to its Chapter 11 reorganization. See Note 4 to the Consolidated
Financial Statements for details of these costs.
The Company did not recognize an income tax benefit in the first 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 first quarter, the Company posted a net loss of $5.3 million, or
9.2% of sales, compared to a net loss of $6.0 million, or 7.0% of sales, for the
same quarter of the prior year.
15
<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 have been funded through the combination of
external financing, internally generated funds and credit terms from vendors.
The Company's working capital needs peak in the fourth quarter.
During the first quarter 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
Company had 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 Bankruptcy Court approval. One contract has been approved and is
scheduled to fund in August 1999. The proceeds from the sale will be used to
reduce the DIP term loans. Sales of the remaining properties, if approved by the
Bankruptcy Court, will be used to reduce the DIP facility terms loans and
mortgage debt (assuming the non-enforceability of the yield maintenance
provision and pre-payment penalties in certain of the mortgages secured by such
properties).
Operating activities provided cash of $19.7 million for the first thirteen
weeks of fiscal 1999 as compared to cash provided of $27.1 million for the same
period of fiscal 1998. Proceeds from the inventory liquidation of 17 stores
closed in the first quarter of the current year provided less cash than proceeds
from the inventory liquidation of 18 stores closed in the same quarter of the
prior year. Additional cash in the prior year was provided by an orderly
reduction of inventory levels in the operating stores.
Net cash of $1.9 million was provided by investing activities for the first
thirteen weeks of fiscal 1999 compared to $61.1 million for the prior year. 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 transactions on 23 properties.
Cash flows from financing activities used $43.2 million for the first
thirteen weeks of fiscal 1999 compared to $88.3 million for the first thirteen
weeks of fiscal 1998. In both years, the Company repaid debt from the sale of
property and the liquidation of inventory.
As of April 30, 1999, the Company had $67.6 million of long-term mortgage
obligations, $53.7 million of borrowings under its DIP revolving line of credit
and $22.9 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 April 30,
1999, the Company was in compliance with all the DIP facility covenants.
On February 11, 1999, the Bankruptcy Court granted a motion for authority
to obtain debtor-in-possession financing. Proceeds from the 18 month DIP
facility are being used to finance the on-going working capital needs of the
Company, to pay fees and expenses incurred in connection with the DIP facility
agreement, to pay all amounts due under the pre-petition credit agreement, to
replace the letters of credit issued and outstanding thereunder, and to pay
certain other costs and bankruptcy related claims and charges as allowed by the
Bankruptcy Court.
16
<PAGE>
During the term of the DIP facility agreement, the Company is restricted
from making any distribution or declaring or paying any dividends (in cash or
other property, other than capital stock) on, or purchasing, acquiring,
redeeming or retiring any of the Company's capital stock, of any class, whether
now or hereafter outstanding. Other restrictions include limitations on
additional indebtedness, disposal of assets, change of control, capital
expenditures and investments; provided, however, that the Company may make loans
to its subsidiary, Nationwide Team Sales, Inc., in an aggregate amount not to
exceed $1.25 million. Additionally, the Company agreed to achieve certain levels
of earnings before interest, taxes, depreciation, amortization and restructuring
charges ("EBITDAR") on a cumulative quarterly basis beginning with the first
quarter of fiscal 1999 and each succeeding quarter thereafter through the end of
fiscal 1999 and on a rolling 12 months basis thereafter through the duration of
the agreement.
The DIP facility provides for a term loan of $25 million and a revolving
loan credit facility of $85 million including a $10 million letter of credit
subfacility. The term loan consists of a Tranche A and a Tranche B. The Tranche
A term loan was initially funded at $9.7 million with a total commitment of $10
million. The Tranche B term loan was initially funded at $15 million. Interest
on the Tranche A term loan accrues at the Reference Rate plus 1.75% per annum.
Interest on the Tranche B term loan accrues at 12.75% per annum. Total principal
installments of $417 thousand are to be paid monthly commencing on August 1,
1999 and continuing on the first day of each succeeding month. The Company is
required to prepay the term loans with the net proceeds from the sale of Real
Property Collateral pursuant to a prescribed allocation in the loan agreement.
All prepayments of principal will be ratably applied to principal installments
in the inverse order of maturity. Availability under the revolving loan credit
facility is limited to the lesser of $85 million or amounts based on a
predetermined formula which includes a provision for up to 80% of Eligible
Accounts and approximately 74.5% of Eligible Inventory. Commitments under the
letter of credit subfacility are limited to the lesser of $10 million or
availability under the revolving line of credit.
The Company incurred approximately $1.3 million in fees in connection with
the new DIP facility agreement. Interest on the term loans and revolving
advances and fees on the letters of credit are payable monthly in arrears.
The Agreement also contains a provision for early termination, at the
option of the Company, with a payment of an early termination premium to the
lenders if exit financing is provided by a third party.
The DIP facility bears interest on revolving loans at the Company's option,
at the Reference Rate plus 0.5% or at LIBOR plus 2.75% per annum.
The DIP facility limits the amount of capital expenditures to $3.0 million
for fiscal 1999. The Company has spent $0.3 million during the first thirteen
weeks.
The Company believes its business strategies and the availability of its
DIP facility, together with the Company's available cash, proceeds from property
held for 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 performance will be subject to financial,
economic and other factors affecting the industry and operations of the Company,
including factors beyond its control.
17
<PAGE>
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 results. The problems created by using abbreviated dates appear in
hardware, operating systems and other software programs. The Company's Year 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 be Y2K compliant could have a material adverse effect on the
Company's business, financial condition 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 IT and non-IT systems
for compliance, the readiness of the components and modification 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
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 programming 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. This testing is scheduled to be completed before October 1999,
with the applications implemented during October 1999.
Non-IT Systems - The Company has also reviewed its non-IT systems for Y2K
compliance. Areas for modification have been identified and are in process for
completion in late 1999.
Third-Party Business - The Company has obtained from service vendors
written 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.
18
<PAGE>
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 or cash flows.
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 system 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
responsible 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 occurring during the fourth fiscal quarter,
which includes the Christmas selling season.
The Company does not believe that inflation had a material effect on its
results from operations for the first thirteen 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.
19
<PAGE>
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 that
no such currently pending routine litigation to which it is a party
will have a material adverse effect on its financial condition or
results of 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., Retail Process Management, Inc., Sports &
Recreation, Inc., Sports & Recreation Holdings of PA, Inc. and
Construction Resolution, Inc.
In connection with the Bankruptcy filing, all pre-petition actions
against the Company have been stayed.
A complaint was filed on March 23, 1999, in the Bankruptcy Court,
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 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 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. The Company filed its written responses
and claims for affirmative relief, and a pre-trial hearing has been
scheduled for June 21, 1999.
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
20
<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)
06/14/99 /S/ ALFRED F. FASOLA, JR.
Date Chief Executive Officer
06/14/99 /S/ MICHAEL J. WORRALL
Date President
06/14/99 /S/ JEROME A. KOLLAR
Date Chief Financial Officer
21
WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
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<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JUMBOSPORTS INC. FOR THE THREE MONTHS ENDED APRIL 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> 3-MOS
<FISCAL-YEAR-END> Jan-28-2000
<PERIOD-START> Jan-30-1999
<PERIOD-END> Apr-30-1999
<CASH> 2,226
<SECURITIES> 0
<RECEIVABLES> 3,961
<ALLOWANCES> 391
<INVENTORY> 94,313
<CURRENT-ASSETS> 127,443
<PP&E> 142,041
<DEPRECIATION> 31,634
<TOTAL-ASSETS> 254,045
<CURRENT-LIABILITIES> 27,924
<BONDS> 74,750
0
0
<COMMON> 204
<OTHER-SE> (50,590)
<TOTAL-LIABILITY-AND-EQUITY> 254,045
<SALES> 57,809
<TOTAL-REVENUES> 57,809
<CGS> 40,669
<TOTAL-COSTS> 45,070
<OTHER-EXPENSES> 13,257
<LOSS-PROVISION> (903)
<INTEREST-EXPENSE> 3,900
<INCOME-PRETAX> (5,321)
<INCOME-TAX> 0
<INCOME-CONTINUING> (5,321)
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