<PAGE>
PART I. FINANCIAL INFORMATION
ITEM I. Financial Statements
JUST FOR FEET, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------
(In thousands, except share and per share amounts)
<TABLE>
<CAPTION>
July 31, January 31,
1997 1997
(Unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 7,348 $138,785
Marketable securities available for sale 8,105 33,961
Accounts receivable, net 10,598 6,553
Merchandise inventories 178,214 133,323
Other current assets 3,089 2,121
-------- --------
Total current assets 207,354 314,743
PROPERTY AND EQUIPMENT, NET 81,301 54,922
MARKETABLE SECURITIES AVAILABLE FOR SALE 3,483 2,966
FRANCHISE RIGHTS, NET 3,023 3,113
GOODWILL, NET 34,185
OTHER ASSETS 1,682 90
-------- --------
$331,028 $375,834
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Short-term borrowings $ -- $100,000
Accounts payable - trade 40,447 38,897
Accrued expenses 12,649 5,486
Income taxes 1,536 425
Deferred income taxes 362
Obligations under capital leases and long-term
debt due within one year 2,019 2,105
-------- --------
Total current liabilities 57,013 146,913
LONG-TERM DEBT 9,698 4,449
CAPITAL LEASE OBLIGATIONS 2,023 2,039
DEFERRED LEASE RENTALS 4,806 3,036
DEFERRED INCOME TAXES 1,112 840
-------- --------
Total liabilities 74,652 157,277
-------- --------
SHAREHOLDERS' EQUITY:
Common stock - par value $.0001 per share; authorized 70,000,000 shares;
29,973,860, and 28,494,646 shares issued and outstanding at
July 31, 1997 and January 31, 1997, respectively 3 3
Paid-in capital 218,305 190,492
Retained earnings 38,068 28,062
-------- --------
Total shareholders' equity 256,376 218,557
-------- --------
$331,028 $375,834
======== ========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
-1-
<PAGE>
JUST FOR FEET INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
- --------------------------------------------------------------------------------
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
-------------------------- --------------------------
1997 1996 1997 1996
<S> <C> <C> <C> <C>
NET SALES $ 112,369 $ 58,379 $ 205,172 $ 107,529
COST OF SALES 65,115 33,567 118,916 61,964
---------- ---------- ---------- ----------
GROSS PROFIT 47,254 24,812 86,256 45,565
---------- ---------- ---------- ----------
FRANCHISE FEES, ROYALTIES EARNED AND OTHER INCOME 269 113 477 233
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Store operating 32,444 15,434 59,641 29,339
Store opening costs 2,012 4,095 3,072 5,603
General and administrative 4,910 1,822 7,945 3,297
Amortization of goodwill and franchise rights 245 45 355 90
---------- ---------- ---------- ----------
Total operating expenses 39,611 21,396 71,013 38,329
---------- ---------- ---------- ----------
OPERATING INCOME 7,912 3,529 15,720 7,469
INTEREST INCOME 311 1,263 1,072 2,384
INTEREST EXPENSE (346) (257) (662) (420)
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF
CHANGE IN ACCOUNTING PRINCIPLE 7,877 4,535 16,130 9,433
PROVISION FOR INCOME TAXES 3,072 1,605 6,124 3,329
---------- ---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE 4,805 2,930 10,006 6,104
CUMULATIVE EFFECT ON PRIOR YEARS (TO JANUARY 31, 1996)
OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES - 2,041
---------- ---------- ---------- ----------
NET INCOME $ 4,805 $ 2,930 $ 10,006 $ 4,063
========== ========== ========== ==========
NET INCOME PER SHARE:
BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE $ 0.16 $ 0.10 $ 0.33 $ 0.21
CUMULATIVE EFFECT ON PRIOR YEARS (TO JANUARY 31, 1996)
OF CHANGE IN ACCOUNTING PRINCIPLE, NET OF TAXES 0.07
---------- ---------- ---------- ----------
NET INCOME PER SHARE $ 0.16 $ 0.10 $ 0.33 $ 0.14
========== ========== ========== ==========
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 30,881 28,888 30,231 28,422
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
- 2 -
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
Six Months Ended
July 31,
--------------------------------
1997 1996
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 10,006 $ 4,063
Adjustments to reconcile net income to
net cash used in operating activities:
Cumulative effect of change in accounting principle 2,041
Depreciation and amortization 3,156 1,605
Amortization of franchise rights 90 90
Amortization of goodwill 265
Deferred income taxes 149 (275)
Deferred lease rentals 1,104 791
Changes in assets and liabilities providing (using) cash, net of effects of
acquisitions in 1997:
Accounts receivable (3,675) (769)
Merchandise inventories (28,245) (37,953)
Other assets (994) 548
Accounts payable - trade (3,364) 21,247
Accrued expenses 6,000 2,415
Income taxes 846 (3,533)
----------- -----------
Net cash used in operating activities (14,662) (9,730)
----------- -----------
INVESTING ACTIVITIES:
Purchases of marketable securities (14,537) (21,743)
Maturities and sales of marketable securities 39,876 39,722
Purchases of property and equipment (22,046) (13,288)
Acquisitions, net of cash acquired (25,302)
----------- -----------
Net cash (used in) provided by investing activities (22,009) 4,691
----------- -----------
FINANCING ACTIVITIES:
Net repayments of short-term borrowings (100,000) (55,000)
Proceeds from long-term debt 5,429 350
Principal payments on long-term debt (337) (290)
Principal payments on capital lease obligations (548) (169)
Net proceeds from issuance of common stock 52,917
Exercise of stock options 690 999
----------- -----------
Net cash used in financing activities (94,766) (1,193)
----------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (131,437) (6,232)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 138,785 96,854
----------- -----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 7,348 $ 90,622
=========== ===========
</TABLE>
The accompanying notes are an integral part of these unaudited condensed
financial statements.
- 3 -
<PAGE>
JUST FOR FEET, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
- ----------------------------------------------------
Note 1 - General
The accompanying unaudited condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q. Accordingly, they
do not include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements. These
unaudited financial statements include all adjustments, consisting of normal,
recurring accruals, which Just For Feet, Inc. (the "Company") considers
necessary for a fair presentation of the financial position and the results of
operations for these periods.
The results of operations for the three and six months ended July 31, 1997 are
not necessarily indicative of the results to be expected for the full year
ending January 31, 1998. For further information, refer to the financial
statements and notes thereto for the fiscal year ended January 31, 1997 included
in the Company's Form 10-K as filed with the Securities and Exchange Commission.
The Company effected a 3 for 2 stock split in October 1996. All share and per
share information in the accompanying unaudited condensed financial statements
have been restated to reflect the stock split as if such had occurred as of the
earliest period presented.
On June 24, 1997, the Company's shareholders adopted the Company's 1997 Employee
Incentive Plan, which reserved 1,400,000 shares of the Company's common stock
for distribution under the plan pursuant to various types of incentive awards.
At a special shareholders meeting on August 4, 1997, the Company's shareholders
approved an increase in the amount of bonded indebtedness that the Company is
authorized to incur to a level not to exceed $300 million.
Earnings Per Share
Statement of Financial Accounting Standards No. 128, Earnings Per Share, is
effective for financial statements issued for periods ending after December 15,
1997, including interim periods. The statement requires the presentation of net
income per common share and net income per common share - assuming dilution. Net
income per common share excludes common stock equivalents such as options, while
net income per common share - assuming dilution considers the possible effect of
all common shares which can be potentially issued.
Note 2 - Change in Accounting Principle
Effective February 1, 1996, the Company changed its method for accounting for
store opening costs, which are costs principally for pre-opening salaries and
travel that are incremental and directly attributable to the opening of a new
store. Under the new method of accounting, the Company charges store opening
costs to operations in the month that the store opens. Previously, store opening
costs were capitalized and amortized over the twelve months following the store
opening. The cumulative effect of this change in accounting principle resulted
in a $2.0 million ($0.07 per share) charge to operations for the effect on prior
years (to January 31,1996) net of income taxes of $1.1 million.
Note 3 - Acquisitions
On March 17, 1997, the Company acquired Athletic Attic for approximately $10.3
million in cash, the repayment of approximately $1.3 million of Athletic Attic's
debt and approximately $5.6 million of common stock (297,267 shares). On May 14,
1997, the Company acquired Imperial Sports for approximately $5.6 million in
cash, the repayment of approximately $9.0 million of Imperial Sports' debt and
approximately $21.5 million of common stock (1,076,956 shares). These
acquisitions have been accounted for as purchases and, accordingly, the purchase
price of Athletic Attic and Imperial Sports (collectively "specialty stores")
has been allocated to assets acquired and liabilities assumed based upon their
estimated fair values as of the acquisition dates of each of these companies.
The accompanying consolidated statements of income for the three months and six
months ended July 31, 1997 include the results of operations of Athletic Attic
and Imperial Sports from their respective acquisition dates. Goodwill which
resulted from these acquisitions, representing cost in excess of the fair market
value of net assets of the acquired businesses, is being amortized on a
straight-line basis over 30 years. The common stock issued in connection with
these acquisitions represents non-cash investing and financing
-4-
<PAGE>
activities for the purpose of the statement of cash flows for the six months
ended July 31, 1997. Pro forma results of operations have not been presented
because the effects of the acquisitions of the specialty stores were not
significant.
Note 4 - Subsequent Event
In July 1997, the Company announced that one of its shareholders filed a lawsuit
against the Company, certain of its officers and directors and certain
shareholders who sold shares in the Company's June 1996 public offering of
common stock and two of the four managing underwriters in such offering. The
shareholder purports to represent a class consisting of all persons who
purchased common stock of the Company in or traceable to the June 1996 offering.
The suit alleged that the Company's Registration Statement and Prospectus used
in such offering contained materially misleading financial statements. The
Company, its named officers and its named directors believe the claims are
without merit, deny any liability on those claims and intend to vigorously
defend this suit. See "Legal Proceedings."
-5-
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
Just For Feet, Inc. is a rapidly growing operator of superstores
specializing in brand-name athletic and outdoor footwear. The Company's goal is
to become the leading athletic and outdoor footwear retailer in each of its
markets by offering in its superstores the largest selection of brand-name
shoes, superior customer service and technical sales assistance in a high-
energy, entertaining store environment. The Company which began with a single
mall-based store in 1977, opened its first superstore in 1988 and since that
time has focused on developing and refining its superstore concept. At July 31,
1997, there were 69 Just For Feet superstores operating in 17 states, including
eight superstores operated by the Company's only franchisee. Of the 61 Company
operated superstores, 23 superstores were opened in fiscal 1996 and 11
superstores were opened during the first six months of fiscal 1997. The Company
expects to open a total of 20 to 25 new superstores during fiscal 1997 and
approximately 25 superstores in fiscal 1998. The Company may accelerate the
opening of new stores in any one fiscal quarter.
In March 1997, the Company entered the smaller specialty store segment of
the athletic and outdoor footwear and apparel market with the acquisition of
Athletic Attic, a privately owned athletic and outdoor footwear and apparel
retailer based in Gainesville, Florida. In May 1997, the Company also acquired
Imperial Sports, a privately owned, Flint, Michigan-based athletic and outdoor
footwear and apparel retailer. As a result of the acquisition of the specialty
stores, at July 31, 1997 the Company operated 85 company and 52 franchised
specialty stores in 18 states and Puerto Rico. The acquired stores have a higher
general and administrative expense structure and slightly higher store expense
margin than the Company's superstores. The Company expects to open approximately
eight specialty stores in fiscal 1997 and approximately 25 specialty stores in
fiscal 1998.
To accommodate the Company's superstore expansion strategy and the
development of the smaller specialty store concept, the Company has invested in
expanding and upgrading its corporate staff. As a result, the Company's general
and administrative costs increased to 4.4% of net sales during the second
quarter of 1997 from 3.1% in the comparable prior year period. The Company
expects general and administrative expenses will continue to increase as a
percentage of sales over the prior year period as a result of this investment
and the higher general and administrative margin structure in the acquired
specialty stores.
The minimum wage increase has resulted in an increase in the Company's
payroll expense. As a result, store operating expenses as a percentage of net
sales have increased over prior year periods. The Company has implemented new
scheduling policies and practices to help mitigate the overall impact of the
increase. However, there can be no assurance that additional increases in the
minimum wage will not affect store operating expenses in future periods.
In recent years, the Company has achieved positive comparable store sales
growth on an annual basis. During the three and six month periods ended July 31,
1997, comparable store sales increased 4.0% and 4.5%, respectively. The Company
does not expect comparable store sales to continue to increase at historical
rates, nor can any assurance be given that increases in comparable store sales
will continue. The specialty stores will not be included in the comparable store
base until such stores have been owned and operated by the Company for twelve
full months.
-6-
<PAGE>
Results of Operations
The following table sets forth, for the periods indicated, income statement
data expressed as a percentage of net sales:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
July 31, July 31,
------------------ ----------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0% 100.0%
Cost of sales.................................................... 57.9 57.5 58.0 57.6
------ ------ ------- ------
Gross profit................................................. 42.1 42.5 42.0 42.4
Franchise fees, royalties earned and other income................ 0.2 0.2 0.2 0.2
Operating expenses:
Store operating.............................................. 28.9 26.5 29.0 27.3
Store opening costs.......................................... 1.8 7.0 1.4 5.2
General and administrative................................... 4.4 3.1 3.9 3.0
Amortization of goodwill and franchise rights................ 0.2 0.1 0.2 0.1
------ ------ ------ ------
Operating income........................................ 7.0 6.0 7.7 7.0
Interest income, net............................................. 0.0 1.7 0.2 1.8
------ ------ ------ ------
Income before income taxes and cumulative effect of
change in accounting principle............................... 7.0 7.7 7.9 8.8
Provision for income taxes....................................... 2.7 2.7 3.0 3.1
------ ------ ------ ------
Income before cumulative effect of change in
accounting principle......................................... 4.3 5.0 4.9 5.7
Cumulative effect on prior years (to January 31, 1996) of
change in accounting principle............................... 0.0 0.0 0.0 1.9
------ ------ ------ ------
Net income.............................................. 4.3% 5.0% 4.9% 3.8%
====== ====== ====== ======
</TABLE>
Three Months Ended July 31, 1997 Compared to Three Months Ended July 31, 1996
Net Sales. Net sales increased $54.0 million, or approximately 92.5% to
$112.4 million in the second quarter of fiscal 1997 compared to net sales of
$58.4 million for the second quarter of fiscal 1996. This increase was primarily
attributable to 22 new superstores opened since July 31, 1996, an increase in
comparable store sales of 4.0%, and additional sales of $16.4 million from the
specialty stores acquired in 1997. The calculation of comparable store sales
included 33 superstores at July 31, 1997. The acquisitions of the specialty
stores (Athletic Attic was acquired on March 17, 1997 and Imperial Sports was
acquired on May 14, 1997) have been accounted for as purchases and accordingly,
the results of operations of those businesses are included in the Company's
consolidated statement of income from the respective acquisition dates.
Store Operating Expenses. Store operating expenses increased $17.0 million
or approximately 110.2% to $32.4 million in the second quarter of fiscal 1997
from $15.4 million in the second quarter of fiscal 1996. The increase was
primarily attributable to the operating expenses of the 22 superstores opened
since July 31, 1996 and the operating expenses of the specialty stores acquired.
As a percentage of net sales, store operating expenses increased to 28.9% in the
second quarter of fiscal 1997 from 26.5% in the second quarter of fiscal 1996
primarily as a result of increased regional management payroll and related
expenses and the increase in store level payroll as a result of the impact of
the minimum wage increase in September 1996.
Store Opening Costs. Store opening costs are charged to operations in the
month the applicable store opens. These costs decreased approximately $2.1
million to approximately $2.0 million in the second quarter of fiscal 1997 from
approximately $4.1 million in the second quarter of fiscal 1996, reflecting
seven superstores opened in the current fiscal quarter compared to nine opened
in the comparable prior year period and a reduction in per store opening costs
as a result of management's increased focus on controlling costs in this area.
General and Administrative Expenses. General and administrative expenses
increased to $4.9 million, or approximately 169.5%, in the second quarter of
fiscal 1997 from $1.8 million in the second quarter of fiscal 1996. As a
percentage of net sales, general and administrative expenses increased to
approximately 4.4% in the second quarter of fiscal 1997 from approximately 3.1%
in the second quarter of fiscal 1996. This increase was primarily attributable
to an increased corporate staff to support the Company's planned growth and the
acquisitions of the specialty stores, which have higher general and
administrative expenses as a percentage of net sales than the Company had prior
to the acquisitions.
-7-
<PAGE>
Operating Income. Operating income increased 124.2% to $7.9 million in the
second quarter of fiscal 1997 from $3.5 million in the second quarter of fiscal
1996. As a percentage of net sales, operating income increased to 7.0% in the
second quarter of fiscal 1997 from 6.0% in the second quarter of fiscal 1996.
Net Interest Income (Expense). Net interest expense was approximately
$35,000 in the second quarter of fiscal 1997, compared to net interest income of
approximately $1.0 million in the second quarter of fiscal 1996. The decrease
was primarily due to the liquidation of investments in order to finance the
acquisitions of the specialty stores and cash outlays for opening 22 superstores
since July 31, 1996.
Income Taxes. The Company's effective combined federal and state income tax
rate increased to 39% in the quarter ending July 31, 1997 compared to 35.4% in
the second quarter of the prior year. The increase in the effective tax rate
resulted primarily from the impact in 1997 of lower tax free interest income and
higher goodwill amortization from the acquisitions which are not includable in
the computation of taxable income and the expansion of the Company's operations
into higher tax rate states.
Net Income. As a result of the above factors, net income increased 64.0% to
$4.8 million in the second quarter of fiscal 1997 from net income of $2.9
million in the second quarter of fiscal 1996.
Six Months Ended July 31, 1997 Compared to Six Months Ended July 31, 1996
Net Sales. Net sales increased $97.7 million or approximately 90.8% to
$205.2 million for the first six months of fiscal 1997 compared to net sales of
$107.5 million for the same period of fiscal 1996. This increase was primarily
attributable to 22 new stores opened since July 31, 1996, an increase in
comparable store sales of 4.5% and additional sales of $19.2 million from the
specialty stores acquired in 1997. The calculation of comparable store sales
included 33 superstores at July 31, 1997. The acquisitions of the specialty
stores (Athletic Attic was acquired on March 17, 1997 and Imperial Sports was
acquired on May 14, 1997) have been accounted for as purchases and accordingly,
the results of operations of those businesses are included in the Company's
consolidated statement of income from the respective acquisition dates.
Store Operating Expenses. Store operating expenses increased $30.3 million
or approximately 103.3% to $59.6 million in the first six months of fiscal 1997
from $29.3 million in the first six months of fiscal 1996. This increase was
primarily attributable to the operating expenses of the 22 stores opened since
July 31, 1996 and the operating expenses of the specialty stores acquired. As a
percentage of net sales, store operating expenses increased to 29.0% in the
first six months of fiscal 1997 from 27.3% for the same period of fiscal 1996
primarily as a result of increased regional management payroll and related
expenses and the increase in store level payroll as a result of the impact of
the minimum wage increase in September 1996.
Store Opening Costs. Store opening costs are charged to operations in the
month the applicable store opens. These costs decreased approximately $2.5
million to approximately $3.1 million in the first six months of fiscal 1997
from approximately $5.6 million in the first six months of fiscal 1996,
reflecting 11 superstores opened in the first six months of 1997 compared to 12
opened in the comparable prior year period, and a reduction in per store opening
costs as a result of increased focus on controlling costs in this area.
General and Administrative Expenses. General and administrative expenses
increased to $7.9 million or approximately 141.0% in the first six months of
fiscal 1997 from $3.3 million in the first six months of fiscal 1996. As a
percentage of net sales, general and administrative expenses increased to
approximately 3.9% in the first six months of 1997 from approximately 3.0% in
the first six months of fiscal 1996. This increase was primarily attributable to
an increased corporate staff to support the Company's planned growth and the
acquisitions of the specialty stores which have higher general and
administrative expenses as a percentage of net sales than the Company had prior
to the acquisitions.
Operating Income. Operating income increased to $15.7 million in the first
six months of fiscal 1997 from $7.5 million in the first six months of fiscal
1996. As a percentage of net sales, operating income increased to 7.7% in the
first six months of fiscal 1997 from 7.0% in the comparable prior year period.
Net Interest Income (Expense). Net interest income was approximately
$400,000 in the first six months of fiscal 1997 compared to net interest income
of approximately $2.0 million in the first six months of fiscal 1996. The
decrease was primarily due to the liquidation of investments in order to finance
the acquisitions of the specialty stores and cash outlays for opening 22
superstores since July 31, 1996.
-8-
<PAGE>
Income Taxes. The Company's effective combined federal and state income tax
rate increased to 38% for the six months ending July 31, 1997 compared to 35.3%
for the six months ending July 31, 1996. The increase in the effective tax rate
resulted primarily from the impact in 1997 of lower tax free interest income and
higher goodwill amortization from the acquisitions which are not includable in
the computation of taxable income and the expansion of the Company's operations
into higher tax rate states.
Net Income. As a result of the above factors, net income increased to $10.0
million in the first six months of fiscal 1997 from net income before cumulative
effect of change in accounting principle of $6.1 million in the first six months
of fiscal 1996.
Liquidity and Capital Resources
The Company's primary sources of working capital are cash flow from
operations and borrowings under its line of credit. In addition, the Company's
working capital was augmented by a portion of the proceeds of three public
offerings of common stock in January and September 1995 and June 1996. The
Company had working capital of $150.3 million and $167.8 million at July 31,
1997 and January 31, 1997, respectively. The principle use of working capital
has been to purchase inventory, equipment and fixtures. During the first six
months of fiscal 1997, the Company acquired approximately $22.0 million of
property and equipment, including approximately $10.8 million to construct and
open new superstores, approximately $900,000 for improvements to existing
locations, approximately $6.5 million on the construction of its new corporate
headquarters facility and approximately $1.3 million on corporate management
information systems and store level systems and equipment. The Company also paid
cash totaling $15.9 million and repaid approximately $10.3 million of debt in
the acquisitions of the specialty stores. The Company's short-term operational
cash requirements are not highly seasonal. The Company had $18.9 million in cash
and marketable securities as of July 31, 1997.
As of July 31, 1997, the Company had no borrowings under its revolving bank
line of credit. The line of credit, which expires July 1, 1998, permits the
Company to borrow up to $20.0 million for general working capital purposes.
Borrowings, if any, under the line of credit bear interest at either the bank's
prime rate or at the LIBOR rate plus 1.25% (6.88% at July 31, 1997) and are
unsecured. The line of credit contains certain financial covenants and other
restrictions. The Company also has several lease arrangements with leasing
companies that the Company uses to finance certain store fixtures, point-of-sale
("POS") equipment and management information systems.
Just For Feet's future capital requirements are primarily for the opening of
new Just For Feet superstores and for remodeling, purchase of new POS equipment
and restocking of the acquired specialty stores. The Company estimates that the
total cash required to remodel and restock one of the acquired specialty stores
should range from $25,000 to $250,000, depending on the amount of remodeling
which will be required and the mix and quantity of each of the acquired stores'
inventory. The Company estimates that the total cash required to open a new
15,000 to 20,000 square foot prototype superstore, including store fixtures and
equipment, leasehold improvements, net working capital and pre-opening costs,
typically ranges from $1.8 million to $2.4 million, depending on the amount of
vendor and landlord assistance. The Company expects to open approximately 20 to
25 superstores in fiscal 1997 and approximately 25 superstores in fiscal 1998.
The Company also expects to open approximately eight specialty stores in fiscal
1997 and 25 of such stores in fiscal 1998.
The Company is not currently planning any material major expenditures other
than those mentioned above, and believes that the proceeds of its public
offerings, internally generated funds, cash on hand and its line of credit will
be adequate to fund its anticipated needs through at least the end of fiscal
1998.
Seasonality
The Company's business is subject to some seasonal fluctuations with slightly
heavier concentrations of sales during the spring, back-to-school and Christmas
selling seasons. The Company also generally experiences lower margins during
January and February due to retail markdowns taken to clear seasonal
merchandise. Quarterly results may fluctuate as new stores open.
Impact of Inflation
The Company does not believe that inflation has had a material adverse
effect on net sales or results of operations. The Company has generally been
able to pass on increased costs through increases in selling prices.
-9-
<PAGE>
Cautionary Statement Concerning Forward-Looking Statements
Certain statements contained in this filing are "forward-looking statements"
within the meaning of the Private Securities Litigation Reform Act of 1995, such
as statements relating to financial results and plans for future business
development activities, and are thus prospective. Such forward-looking
statements are subject to risks, uncertainties and other factors which could
cause actual results to differ materially from future results expressed or
implied by such forward-looking statements. Potential risks and uncertainties
include, but are not limited to, economic conditions, competition and other
uncertainties detailed from time to time in the Company's Securities and
Exchange Commission filings.
PART II
Item 1. Legal Proceedings.
- ------ -----------------
On June 27, 1997, a lawsuit was filed by Donald K. Drucker, individually and
on behalf of all others similarly situated, in the United States District Court
for the Northern District of Alabama against the Company, Harold Ruttenberg,
Don-Allen Ruttenberg, Scott C. Wynne, Adam Gilburne, Pamela B. Ruttenberg,
Robert C. Wabler, William Blair & Company and Montgomery Securities. The
defendants are the Company; its Chairman and Chief Executive Officer; three
Executive Vice Presidents of the Company, the Company's former Chief Financial
Officer and a former director; another former officer of the Company; and two of
the four managing underwriters in the Company's June 1996 public offering of
common stock. The individual defendants were selling shareholders in such
offering. The plaintiff purports to represent a class consisting of all persons
who purchased common stock of the Company in or traceable to the June 1996
public offering. The suit alleges that the Company's registration statement and
the prospectus used in such offering contained materially misleading financial
statements. Plaintiffs are seeking an unspecified amount of damages. The Company
and its named officers and directors deny liability on the claims and are
vigorously defending the suit, which is in the very preliminary stages.
Item 2. Changes in Securities.
- ------ ---------------------
(c). On May 14, 1997, the Company acquired Imperial Sports ("Imperial"), a
privately owned Flint, Michigan-based retailer of athletic and outdoor footwear
and apparel, for approximately $5.6 million cash, the repayment of approximately
$9.0 million of Imperial's debt and approximately $21.5 million in Just For Feet
common stock. At the closing of the transaction, Just For Feet issued an
aggregate of 1,076,956 shares of common stock to the six shareholders of
Imperial. The issuance of such shares was made in reliance upon the exemption
from registration provided by Section 4(2) of the Securities Act of 1933 as a
transaction by an issuer not involving a public offering. Offers and sales were
made without any public solicitation and the securities, when issued, bore a
restrictive legend. No underwriter was involved in the transaction and no
commissions were paid. Pursuant to the terms of the acquisition agreement, the
Company has registered such shares for resale to the public by such
shareholders.
Item 4. Submission of Matters to a Vote of Security Holders.
- ------ ---------------------------------------------------
On June 24, 1997, the Company held its 1997 Annual Meeting of Shareholders.
At the meeting, the following persons were elected to serve on the Company's
Board of Directors for a term of one year and until their successors are elected
and have qualified: Harold Ruttenberg, Bart Starr, Sr., Michael P. Lazarus,
Randall L. Haines, David F. Bellet and Edward S. Croft, III. The number of votes
cast for and against the election of each nominee for director was as follows:
<TABLE>
<CAPTION>
Against/
Withhold
Director For Authority Abstain
-------- --- --------- -------
<S> <C> <C> <C>
Harold Ruttenberg................ 26,701,068 17,679 0
Bart Starr, Sr................... 26,701,056 17,691 0
Michael P. Lazarus............... 26,701,068 17,679 0
Randall L. Haines................ 26,701,068 17,679 0
David F. Bellet.................. 26,701,768 17,679 0
Edward S. Croft, III............. 26,700,768 17,979 0
</TABLE>
-10-
<PAGE>
In addition, the Company's shareholders approved the adoption of the Just
For Feet, Inc. 1997 Employee Incentive Plan. The number of votes cast in favor
of the adoption of the Plan was 17,355,921 and the number of votes cast against
the adoption of the Plan was 8,401,846. There were 16,237 abstentions and
964,743 broker non-votes.
Item 6. Exhibits and Reports on Form 8-K.
- ------ --------------------------------
(a) Exhibits. No exhibits are required to be filed with this Report.
(b) Reports on Form 8-K. One Report on Form 8-K was filed during the three
months ended July 31, 1997. On July 7, 1997, the Company filed a Current Report
on Form 8-K including as exhibits (i) the Company's press release dated June 10,
1997 announcing that the Company proposed to conduct a private placement of a
new issue of $100 million of Convertible Subordinated Notes; and (ii) the
Company's press release dated June 23, 1997 announcing that the Company had
postponed the private placement of Notes in order to obtain shareholder approval
to issue the debt.
-11-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JUST FOR FEET, INC.
Dated: September 12, 1997 By: /s/ Harold Ruttenberg
--------------------------------------
Harold Ruttenberg
Chairman, President and Chief
Executive Officer
Dated: September 12, 1997 By: /s/ Eric L. Tyra
--------------------------------------
Eric L. Tyra
Executive Vice President and
Chief Financial Officer
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-1998 JAN-31-1997
<PERIOD-START> FEB-01-1997 FEB-01-1996
<PERIOD-END> JUL-31-1997 JUL-31-1996
<CASH> 7,348 138,785
<SECURITIES> 11,588 36,927
<RECEIVABLES> 10,598 6,553
<ALLOWANCES> 0 0
<INVENTORY> 178,214 133,323
<CURRENT-ASSETS> 207,354 314,743
<PP&E> 90,927 61,482
<DEPRECIATION> 9,626 6,560
<TOTAL-ASSETS> 331,028 375,834
<CURRENT-LIABILITIES> 57,013 146,913
<BONDS> 0 0
0 0
0 0
<COMMON> 3 3
<OTHER-SE> 256,373 218,554
<TOTAL-LIABILITY-AND-EQUITY> 331,028 375,834
<SALES> 205,172 107,529
<TOTAL-REVENUES> 206,721<F1> 110,146<F1>
<CGS> 118,916 61,964
<TOTAL-COSTS> 181,629<F2> 96,906<F2>
<OTHER-EXPENSES> 8,300<F3> 3,387<F3>
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 662 420
<INCOME-PRETAX> 16,130 9,433
<INCOME-TAX> 6,124 3,329
<INCOME-CONTINUING> 10,006 6,104
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 2,041
<NET-INCOME> 10,006 4,063
<EPS-PRIMARY> .33 .14
<EPS-DILUTED> .33 .14
<FN>
<F1>INCLUDES SALES, FRANCHISE FEES AND ROYALTIES EARNED AND INTEREST INCOME.
<F2>INCLUDES CGS, STORE OPERATING AND STORE OPENING COSTS.
<F3>INCLUDES GENERAL AND ADMINISTRATIVE AND AMORTIZATION OF GOODWILL AND FRANCHISE
RIGHTS.
</FN>
</TABLE>
