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: June 30, 2003
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 No. 0-21597
ODD JOB STORES, INC.
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(Exact name of Registrant as specified in its charter)
Ohio 34-1830097
- ------------------------------- ----------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
200 Helen Street
South Plainfield, NJ 07080
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(Address of principal executive offices)
(Zip Code)
908-222-1000
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(Registrant's telephone number, including area code)
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(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 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
--- ---
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes No X
--- ---
Indicate the number of shares outstanding of each of the issuer's common stock,
as of the latest practical date.
Common Shares, no par value, outstanding as of July 24, 2003: 9,060,695
ODD JOB STORES, INC.
INDEX
Page No.
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PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements (unaudited)
Consolidated Balance Sheets 3
Consolidated Statements of Operations 4
Consolidated Statements of Cash Flows 5
Condensed Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial 11
Condition and Results of Operations
Item 3. Quantitative and Qualititative Disclosures about Market
Risk 16
Item 4. Controls and Procedures 16
PART II - OTHER INFORMATION
Items 1- 6. 17
Signatures 19
Exhibit Index 20
2
PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
ODD JOB STORES, INC.
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS)
June 30, December 31,
2003 2002
----------------- ------------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 3,668 $ 13,322
Other receivables 199 218
Income tax receivable - 4,239
Inventories 34,543 31,942
Prepaid expenses and other current assets 1,557 956
----------------- ------------------
Total current assets 39,967 50,677
Property and equipment, net 17,144 18,485
Other assets 2,393 2,517
----------------- ------------------
Total assets $ 59,504 $ 71,679
================= ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,359 $ 13,032
Accrued expenses and other current liabilities 6,722 9,255
----------------- ------------------
Total current liabilities 20,081 22,287
Revolving credit facility 4,051 -
Other liabilities 5,306 5,209
----------------- ------------------
Total liabilities 29,438 27,496
----------------- ------------------
Stockholders' equity:
Preferred stock, no par value, 2,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, no par value, 14,000,000 shares authorized;
9,050,400 and 9,052,500 shares issued and outstanding, respectively 64,097 64,097
Accumulated deficit (34,031 ) (19,914)
----------------- ------------------
Total stockholders' equity 30,066 44,183
Commitments and contingencies - -
----------------- ------------------
Total liabilities and stockholders' equity $ 59,504 $ 71,679
================= ==================
See accompanying condensed notes to consolidated financial statements
3
ODD JOB STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
Three Months Three Months Six Months Five Months (1)
Ended Ended Ended Ended
June 30, June 30, June 30, June 30,
2003 2002 2003 2002
------------------- -------------------- ------------------ ---------------------
Net sales $ 54,532 $ 60,472 $ 98,280 $ 92,267
Cost of sales 34,784 36,739 62,776 56,062
------------------- -------------------- ------------------ ---------------------
Gross profit 19,748 23,733
35,504 36,205
Selling, general and administrative
expenses 25,626 24,944 49,193 40,685
------------------- -------------------- ------------------ ---------------------
Operating loss (5,878) (1,211) (13,689) (4,480)
Other expense, net - - - 746
Interest expense, net 207 9 349 453
------------------- -------------------- ------------------ ---------------------
Loss before income taxes and
change in accounting principle (6,085) (1,220) (14,038) (5,679)
Income tax expense (benefit) 79 (479) 79 (2,215)
------------------- -------------------- ------------------ ---------------------
Net loss before change in
accounting principle (6,164) (741) (14,117) (3,464)
Change in accounting principle - - - (9,447)
------------------- -------------------- ------------------ ---------------------
Net loss $ (6,164) $ (741) $ (14,117) $ (12,911)
=================== ==================== ================== =====================
Basic and diluted net income (loss) per common share:
Net loss per common share,
before change in accounting
principle $ (0.68) $ (0.08) $ (1.56) $ (0.38)
Loss per share from change in
accounting principle - - - (1.05)
------------------- -------------------- ------------------ ---------------------
Net loss per common share $ (0.68) $ (0.08) $ (1.56) $ (1.43)
=================== ==================== ================== =====================
Weighted average common shares
outstanding-basic and diluted 9,050,400 9,053,900 9,050,400 9,034,800
=================== ==================== ================== =====================
(1) Five month period ended June 30, 2002 reflects the period February 3, 2002
to June 30, 2002 due to the change in the Company's fiscal year.
See accompanying condensed notes to consolidated financial statements
4
ODD JOB STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(DOLLARS IN THOUSANDS)
Six Months Five Months (1)
Ended Ended
June 30, June 30,
2003 2002
------------------- --------------------
Net loss $ (14,117) $ (12,911)
------------------- --------------------
Adjustments to reconcile net loss to net cash used in operating activities:
Change in accounting principle - 9,447
Depreciation and amortization 2,788 2,611
Deferred income taxes - (2,342)
Changes in operating assets and liabilities
Other receivables 19 798
Income tax receivable 4,239 241
Inventories (2,601) (10,162)
Prepaid expenses and other current assets (601) (312)
Other assets 13 272
Accounts payable 327 934
Accrued expenses and other liabilities (2,436) (1,808)
------------------- --------------------
Total adjustments 1,748 (321)
------------------- --------------------
Net cash used in operating activities (12,369) (13,232)
------------------- --------------------
Cash flows from investing activities
Capital expenditures, net (1,167) (368)
Lease acquisitions (99) (32)
Proceeds from the sale of net assets of discontinued operations - 26,218
------------------- --------------------
Net cash (used in) provided by investing activities (1,266) 25,818
------------------- --------------------
Cash flows from financing activities
Debt repayments (60,568) (22,022)
Debt borrowing 64,619 12,936
Costs related to new revolving credit agreement (70) -
Common stock repurchases - (324)
Proceeds from exercise of stock options - 493
------------------- --------------------
Net cash provided by (used in) financing activities 3,981 (8,917)
------------------- --------------------
Net increase (decrease) in cash and cash equivalents (9,654) 3,669
Cash and cash equivalents at beginning of period 13,322 4,046
------------------- --------------------
Cash and cash equivalents at end of period $ 3,668 $ 7,715
=================== ====================
Supplemental disclosures
Cash paid for interest, net 183 422
=================== ====================
Cash received for income taxes, net (4,062) (7)
=================== ====================
(1) Five month period ended June 30, 2002 reflects the period February 3, 2002
to June 30, 2002 due to the change in the Company's fiscal year.
See accompanying condensed notes to consolidated financial statements
5
ODD JOB STORES, INC.
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(1) BASIS OF PRESENTATION
The consolidated financial statements for the periods presented represent the
operations of Odd Job Stores, Inc. (the "Company"). Comparative consolidated
financial statements for the prior year periods ended June 30, 2002 have been
restated to reflect the Company's change in fiscal year ends effective December
31, 2002. As such, the 2003 year-to-date period reflects six months from January
1, 2003 to June 30, 2003, while the 2002 period reflects an approximate
five-month period from February 3, 2002 to June 30, 2002. The Company's fiscal
second quarters are presented on a calendar basis for the periods April 1, 2003
to June 30, 2003 and April 1, 2002 to June 30, 2002, respectively.
In the opinion of management, this information includes all adjustments that are
normal and recurring in nature and necessary to present fairly the results of
the interim periods shown in accordance with accounting principles generally
accepted in the United States of America. Operating results for the interim
period are not necessarily indicative of the results that may be expected for
the full fiscal year.
The unaudited interim consolidated financial statements have been prepared using
the same accounting principles that were used in the preparation of the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2002
and should be read in conjunction with the consolidated financial statements and
the notes thereto.
(2) SUBSEQUENT EVENTS
TENDER OFFER FROM AMAZING SAVINGS HOLDING LLC
On July 17, 2003, Amazing Savings Holding LLC ("Amazing Savings") and the
Company announced the results of the tender offer (the "Offer") by Amazing
Savings to purchase up to 96% of the outstanding common shares of the Company at
a cash price of $3.00 per share. As of the expiration of the Offer, Amazing
Savings accepted for purchase and payment all of the Company common shares that
were validly tendered and not properly withdrawn in accordance with the terms of
the Offer. As of the expiration of the offering period of the Offer at 8:00 am,
New York City time, on July 16, 2003, an aggregate of 8,184,804 Company common
shares were tendered to Amazing Savings pursuant to the Offer, representing
approximately 90.3% of the Company common shares outstanding. Costs incurred for
the Offer and management changes, including severance, professional fees, and
insurance charges total approximately $2.7 million, with $0.8 million being
incurred and expensed in June, and the remainder incurred and expensed in the
third quarter of 2003.
Amazing Savings is a Delaware limited liability company, which directly or
indirectly owns and operates an upscale close-out retail business. Amazing
Savings commenced operations in 1988 and currently operates fourteen stores in
New York, New Jersey and Maryland.
6
Following the purchase, the following seven individuals were elected as
directors: Moshael Straus, Jeffrey Parker, Sam Friedland, Phil Rosenblatt,
Leslie Mendelsohn, Gary Torgow and Warren Struhl. The new board appointed the
following new officers of the Company: Moshael Straus as Chairman and Co-Chief
Executive Officer, Sam Friedland as President and Co-Chief Executive Officer,
Jeffrey Parker as Vice Chairman and Co-Chief Executive Officer, Jerry Hoffnung
as Senior Vice President - Merchandising and Philip Rosenblatt as Senior Vice
President - General Merchandising Manager and Operations. The officers of the
Company listed above are also serving as officers of Amazing Savings. At the
present time they are being compensated for their services for the Company by
Amazing Savings.
NEW REVOLVING CREDIT AGREEMENT
On July 17, 2003, the Company announced it had entered into a new three year
secured revolving credit facility with Fleet Retail Finance Inc., which provides
up to $40.0 million of credit availability based upon a borrowing base,
including inventory and credit card receivables. The Company expects that the
Fleet Facility will provide funding for its current and reasonably foreseeable
capital requirements. Costs incurred to terminate the existing facility and
amortize the remaining deferred financing costs total $0.6 million, which will
be reflected in the third quarter of 2003. Costs incurred to establish the new
facility total approximately $0.7 million, which will be deferred and amortized
over the life of the agreement.
DELISTING FROM THE NASDAQ STOCK MARKET
The Company was delisted from the Nasdaq Stock Market on August 13, 2003 because
it is not in compliance with the Nasdaq rule which requires a company listed on
The Nasdaq National Market to have a minimum of 400 round lot shareholders and
the Nasdaq rule which requires that a Nasdaq SmallCap Market company maintain at
least 300 round lot holders for continued listing. The Company's securities are
now quoted on the OTC Bulletin Board. The OTC Bulletin Board symbol assigned to
the Company is ODDJ. There can be no assurance that there will be a market maker
for the Company's securities or that an active market will develop.
(3) STOCK OPTION COMPENSATION
The Company has adopted the disclosure-only provisions of FASB Statement No.
123, Accounting for Stock-Based Compensation (SFAS 123), as amended by FASB
Statement No. 148, Accounting for Stock-Based Compensation - Transition and
Disclosure (SFAS 148) and will continue to use the intrinsic value based method
of accounting prescribed by APB No. 25. Under APB No. 25, no compensation cost
has been recognized for options granted with an option price equal to the grant
date market value of the Company's common stock. Had compensation cost for the
Company's options granted been determined based on the fair value of the option
at the grant date for the 1996 Stock Option Plan consistent with the provisions
of SFAS 123, the Company's net loss and net loss per share would have been
increased to the pro forma amounts indicated below for the periods indicated
below:
7
Three Months Three Months Six months Five Months
Ended Ended Ended Ended
(In thousands, except June 30, June 30, June 30, June 30,
per share amounts) 2003 2002 2003 2002
----------------- ------------------ --------------- ---------------
Net loss, as reported $(6,164) $ (741) $(14,117) $(12,911)
Employee compensation expense (5) (23) (10) (43)
----------------- ------------------ --------------- ---------------
Net loss, pro forma $(6,169) $ (764) $(14,127) $(12,954)
================= ================== =============== ===============
Net loss per share, as reported
Basic $ (0.68) $ (0.08) $ (1.56) $ (1.43)
Diluted $ (0.68) $ (0.08) $ (1.56) $ (1.43)
Net loss per share, pro forma
Basic $ (0.68) $ (0.08) $ (1.56) $ (1.43)
Diluted $ (0.68) $ (0.08) $ (1.56) $ (1.43)
The fair value of each option grant issued is estimated at the date of grant
using the Black-Scholes option-pricing model with the following weighted average
assumptions for the periods shown above: (a) no dividend yield on the Company's
stock, (b) expected volatility of the Company's stock of 77% and 67%,
respectively (c) a risk-free interest rate of 3.40% and 4.80%, respectively, and
(d) expected option life of ten years.
Upon completion of the Offer by Amazing Savings, the Company's stock options
became fully vested under a change in control provision of the stock option
plan. In the third quarter, stock options with an exercise price of less than
$3.00 per share were terminated and the holders thereof received the difference
between $3.00 per share and the exercise price per share of the shares subject
to their options, which involved an aggregate cost to the Company of $0.2
million.
(3) GOODWILL AND OTHER INTANGIBLE ASSETS
Effective February 3, 2002, the Company adopted the provisions of Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets. Under the provisions of SFAS No. 142, intangible assets with indefinite
lives and goodwill are no longer amortized but are subject to annual impairment
tests. In the first quarter of 2002, the Company determined, using the goodwill
impairment provisions of SFAS No. 142, that its unamortized goodwill was
impaired and recorded a non-cash charge of $9,447 to write-off the entire
goodwill balance. This charge is shown as a one-time cumulative effect of a
change in accounting principle in the five-month period ended June 30, 2002.
(4) DISCONTINUED OPERATIONS
On February 11, 2002, the Company signed an agreement pursuant to which it sold
substantially all assets of its Wholesale Division ("Division") to MZ Wholesale
Acquisition LLC (MZ), d/b/a Mazel Company, a group headed by two former
8
executives and then current members of the Board of Directors. The Division was
engaged in the business of acquiring closeout merchandise at prices
substantially below traditional wholesale prices and selling such merchandise
through a variety of channels. The Division's wholesale operations purchased and
resold many of the same lines of merchandise sold through the Company's current
retail operations. During the five-month period ended June 30, 2002, MZ paid the
Company $26,218 for the purchase of the assets of the Wholesale Division, based
on the agreed net value of the assets of the Division.
(5) INCOME TAXES
The Company assesses the recoverability of its deferred tax assets in accordance
with the provisions of Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes" ("FAS 109"). In accordance with that standard, the
Company recorded a full valuation allowance for its net deferred tax assets of
$11,777 as of December 31, 2002, based upon the Company's belief that it is more
likely than not that its deferred tax assets will not be realized in the future.
Based upon losses for the six months and second quarter ended June 30, 2003, the
Company recorded tax benefits of $5,506 and $2,404, respectively, offset by
additional deferred tax valuation allowances in equal amounts. No valuation
allowances had been established in the comparable 2002 periods.
(6) EARNINGS PER SHARE
Net income per share is computed in accordance with Financial Accounting
Standards Board (FASB) Statement No. 128, Earnings Per Share. Basic net income
per share is computed based on the weighted average of common shares outstanding
during the period. Diluted net income per share is computed based on the
weighted average number of common shares and common stock equivalents
outstanding during the period, which includes options outstanding under the
Company's stock option plan. The effect of incremental shares from stock options
for all periods presented has been excluded from diluted weighted average
shares, as the net loss for the related periods would cause the incremental
shares to be antidilutive.
(7) RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January of 2003, the Financial Accounting Standards Board (FASB) issued
Statement No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, (SFAS No. 149). This Statement will improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. This will result in more consistent reporting of
contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective
for contracts entered into or modified after June 30, 2003. The Company has
reviewed the provisions of this Statement and believes that it does not have a
material impact on its financial position, results of operations or cash flows.
In May of 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity, (SFAS
No.150). This Statement affects the accounting for three types of freestanding
financial instruments that could previously be accounted for as equity. These
three types are mandatorily redeemable shares, put options and forward purchase
contracts and obligations that can be settled with shares. SFAS No. 150 is
9
effective for all financial instruments entered into or modified after May 31,
2003 and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company has reviewed the provisions of this
Statement and believes that it does not have a material impact on it's financial
position, results of operations or cash flows.
10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
Odd Job Stores, Inc. (the "Company") is a major regional closeout retail
business. The Company sells quality, value-oriented consumer products at a broad
range of price points offered at a substantial discount to the original retail.
The Company's merchandise primarily consists of new, frequently brand-name
products that are available to the Company for a variety of reasons, including
overstock positions of a manufacturer, wholesaler or retailer; the
discontinuance of merchandise due to a change in style, color, shape or
repackaging; a decrease in demand for a product through traditional channels; or
the termination of business by a manufacturer, wholesaler or retailer. During
the second quarter of 2003, the Company opened one new store in Ewing, New
Jersey and closed stores in Woodbridge and East Hanover, New Jersey. At June 30,
2003, the Company operated 74 stores, as compared to 77 stores at the end of
June 2002. The Company's retail stores are located in New York, New Jersey,
Pennsylvania, Connecticut, Delaware, Ohio, Michigan, and Kentucky.
TENDER OFFER FROM AMAZING SAVINGS
As discussed in Note 2 to Consolidated Financial Statements, on July 17, 2003,
Amazing Savings Holding LLC ("Amazing Savings") accepted for purchase and
payment at $3.00 per share, an aggregate of 8,184,804 shares of the Company,
Inc., which were tendered to Amazing Savings pursuant to a tender offer (the
"Offer"). The shares purchased represent approximately 90.3% of the Company
common shares outstanding. Costs incurred for the tender offer and management
changes, including severance, professional fees, and insurance charges total
approximately $2.7 million, with $0.8 million being incurred and recorded as
Selling, General and Administrative expenses in June, and the remainder incurred
and expensed in the third quarter of 2003.
Following the purchase, the following seven individuals were elected as
directors: Moshael Straus, Jeffrey Parker, Sam Friedland, Phil Rosenblatt,
Leslie Mendelsohn, Gary Torgow and Warren Struhl. The new board appointed the
following new officers of the Company: Moshael Straus as Chairman and Co-Chief
Executive Officer, Sam Friedland as President and Co-Chief Executive Officer,
Jeffrey Parker as Vice Chairman and Co-Chief Executive Officer, Jerry Hoffnung
as Senior Vice President - Merchandising and Philip Rosenblatt as Senior Vice
President - General Merchandising Manager and Operations. The officers of the
Company listed above are also serving as officers of Amazing Savings. At the
present time they are being compensated for their services for the Company by
Amazing Savings.
11
OPERATING RESULTS
SECOND QUARTER 2003 VERSUS SECOND QUARTER 2002
Net sales for the second quarter of 2003 were $54.5 million, a decrease of 9.8%
as compared to sales of $60.5 million for the second quarter of 2002. Second
quarter comparable store sales were 6.8% lower as compared to the same period in
fiscal 2002. As detailed above, the Company opened one new store but closed two
stores during the second quarter of 2003.
Gross profit for the second quarter of 2003 was $19.7 million or 36.2% of sales,
compared to $23.7 million or 39.2% of sales for the second quarter 2002. The
decrease in the 2003 gross profit rate was caused primarily by lower realized
product markup from product mix (a higher concentration of electronics and small
appliances at lower markups), generalized lower pricing to combat decreased
customer transactions and slightly higher retail markdowns.
Selling, general and administrative (S, G & A) expenses reflect the four-wall
cost of the stores, the distribution facility and office support. S, G & A
expenses for the second quarter of 2003 were $25.6 million, or 47.0% of sales,
compared to $24.9 million, or 41.2% of sales for the second quarter 2002. The
increase in S, G & A expenses for the 2003 period was due to higher advertising
costs, pre-opening costs related to the new Ewing, NJ store and approximately
$0.8 million in expenses incurred related to the Amazing Savings tender offer.
Additionally, the sales decrease resulted in fixed costs increasing as a
percentage of sales.
The operating loss was $5.9 million for the second quarter 2003, compared to an
operating loss of $1.2 million for the second quarter of 2002 for the reasons
detailed above. Interest expense was $0.2 million for the second quarter 2003,
compared to $9,000 for the second quarter 2002, reflecting higher average
borrowings.
The Company reported a net loss for the second quarter of 2003 of $6.2 million,
or $0.68 per share, compared to a net loss of $0.7 million or $0.08 per share
for the second quarter of 2002.
SIX MONTHS 2003 VERSUS FIVE MONTHS 2002
Net sales for the six-month period ended June 30, 2003 were $98.3 million,
compared to $92.3 million for the five-month period ended June 30, 2002. The
2002 five-month period reflects the period February 3, 2002 to June 30, 2002 due
to the change in the Company's fiscal year. On a comparable calendar basis,
sales decreased $9.6 million, or 8.9%, compared to sales of $107.9 million for
the same six-month period of 2002, primarily from a comparable store sales
decrease of 7.5%. The decline largely reflects a decrease in customer
transactions, resulting from a lack of customer acceptance to the merchandise
assortment. During the first six months of 2003, the Company opened one new
store and closed a total of four stores.
Gross profit for the first six months of 2003 was $35.5 million or 36.1% of
sales, compared to $36.2 million or 39.2% of sales for the five-month 2002
period. The gross profit rate decrease was due to lower realized product markup
and higher markdowns (including the January post-holiday markdown period in the
2003 period), slightly offset by favorable import variances.
S, G & A expenses for the first six months of 2003 were $49.2 million, or 50.1%
of sales, compared to $40.7 million or 44.1% of sales for the five-month period
of 2002. On a comparable calendar basis, S, G & A expenses were approximately
$49.8 million, or 46.2% of sales for the same prior year period. On a comparable
12
period basis, store payroll costs were $0.6 million higher and advertising costs
were $0.5 million higher, while office support costs were $1.4 million lower due
to cost savings associated with the consolidation of support functions. The
sales decrease in the 2003 period resulted in fixed costs increasing as a
percentage of sales.
The operating loss was $13.7 million for the six-month 2003 period, compared to
an operating loss of $4.5 million for the five-month 2002 period largely for the
reasons detailed above. Interest expense was $0.3 million for the six-month
period of 2003, compared to $0.5 million for the five-month period of 2002,
reflecting lower average borrowings primarily in the first three months of 2003.
Other expense, net in the 2002 period reflects a $0.7 million charge related to
amending the availability under the Company's credit facility from $70 million
to $30 million.
As discussed in Note 2 to Consolidated Financial Statements, effective February
3, 2002, the Company adopted SFAS No. 142, Goodwill and Other Intangible Assets.
Upon adoption the Company determined that its unamortized goodwill was impaired
and recorded a non-cash charge of $9.4 million, or $1.05 per share to write-off
the entire goodwill balance. The charge is shown as a change in accounting
principle for the five-month period ended June 30, 2002.
For the six-month period ended June 30, 2003, the Company reported a net loss of
$14.1 million, or $1.56 per share, compared to a net loss of $12.9 million or
$1.43 per share for the five-month period ended June 30, 2002.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary requirements for capital consist of inventory purchases,
expenditures related to future new store openings, existing store remodeling,
warehouse enhancements, MIS initiatives, and other working capital needs. The
Company takes advantage of closeout and other special situation purchasing
opportunities that frequently result in large volume purchases, and as a
consequence, its cash requirements are not constant or predictable during the
year and can be affected by the timing and size of its purchases. The Company's
high level of committed credit allows it to take immediate advantage of special
situation purchasing opportunities. Having such credit availability provides the
Company with a competitive advantage measured against many of its competitors.
At June 30, 2003, the Company had a bank facility with IBJ Whitehall Business
Credit Corp. (the "Whitehall Facility") that provided $30 million of revolving
credit, that, by its terms would have expired in August of 2004. At June 30,
2003, the Company had availability under the Whitehall Facility of $11.4
million, and outstanding borrowings of $4.1 million. The Company had no
outstanding borrowings under the Whitehall Facility at June 30, 2002.
On July 17, 2003, the Company entered into a new secured revolving credit
facility with Fleet Retail Finance Inc. (the "Fleet Facility), which provides up
to $40.0 million of credit availability based upon a borrowing base, including
inventory and credit card receivables. The Fleet Facility expires in July 2006.
Upon obtaining the Fleet Facility, all outstanding borrowings under the
Whitehall Facility were paid, inclusive of an early termination fee and related
expenses. Costs related to the termination of the Whitehall Facility of
approximately $0.6 million will be reflected in the Company's third quarter of
13
2003. The Company expects that the Fleet Facility will provide funding for its
current and reasonably foreseeable capital requirements.
For the first six months of 2003, cash used in operating activities was $12.4
million, compared to $13.2 million in the five-month period of fiscal 2002. For
the six months of fiscal 2003, cash used in operating activities was primarily
from the net loss, higher inventory purchases and lower accrued expenses and
other liabilities, partially offset by depreciation and amortization and the
receipt of a federal income tax refund of $4.2 million. For the five months of
2002, cash used in operating activities was primarily from the net loss less the
non-cash charge of $9.4 million related to goodwill and higher inventories,
partially offset by depreciation and amortization and higher accounts payable.
Cash used in investing activities was $1.3 million in the six-month 2003 period,
due primarily to capital expenditures related to new Ewing, NJ store and other
store refixturing and remodeling. For the five-month 2002 period, cash was
provided by the sale of the Company's Wholesale Division. Financing activity in
the six-month 2003 period resulted in net borrowings of $4.1 million under the
Whitehall Facility. Excess cash in the five-month 2002 period was used to repay
$9.1 million of outstanding debt.
Total assets were $59.5 million at June 30, 2003, compared to $71.7 at December
31, 2002. Working capital decreased to $19.9 million at the 2003 period end from
$28.4 million at fiscal 2002 year-end, due primarily to cash used in operating
activities. The current ratio was 2.0 to 1 at June 30, 2003, compared to 2.3 to
1 at December 31, 2002.
The Company anticipates that its cash flows from operations along with its
borrowing capacity under the Fleet Facility will be sufficient to finance
ongoing operating requirements and estimated future capital expenditures for the
remainder of the fiscal year.
SEASONALITY
The Company's retail operations result in a greater weighting of sales and
earnings toward the second half of the fiscal year.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In January of 2003, the Financial Accounting Standards Board (FASB) issued
Statement No. 149, Amendment of Statement 133 on Derivative Instruments and
Hedging Activities, (SFAS No. 149). This Statement will improve financial
reporting by requiring that contracts with comparable characteristics be
accounted for similarly. This will result in more consistent reporting of
contracts as either derivatives or hybrid instruments. SFAS No. 149 is effective
for contracts entered into or modified after June 30, 2003. The Company has
reviewed the provisions of this Statement and believes that it does not have a
material impact on its financial position, results of operations or cash flows.
In May of 2003, the FASB issued Statement No. 150, Accounting for Certain
Financial Instruments with Characteristics of both Liabilities and Equity, (SFAS
No. 150). This Statement affects the accounting for three types of freestanding
financial instruments that could previously be accounted for as equity. These
three types are mandatorily redeemable shares, put options and forward purchase
contracts and obligations that can be settled with shares. SFAS No. 150 is
14
effective for all financial instruments entered into or modified after May 31,
2003 and otherwise is effective at the beginning of the first interim period
beginning after June 15, 2003. The Company has reviewed the provisions of this
Statement and believes that it does not have a material impact on it's financial
position, results of operations or cash flows.
FORWARD LOOKING STATEMENTS
Forward-looking statements in this report are made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995. Such
forward-looking statements are subject to certain risks and uncertainties that
could cause actual results to differ materially from those projected. Such risks
and uncertainties include, but are not limited to: (i) the Company's continuing
execution of its plan to restore its retail stores to profitability, (ii) the
Company's ability to purchase sufficient quality closeout and other merchandise
at acceptable terms, (iii) the Company's ability to attract and retain qualified
management and store personnel and (iv) the sufficiency of the Company's cash
flows from operations and the borrowing capacity under the Fleet Facility to
finance ongoing operating requirements and future capital expenditures. Please
refer to the Company's subsequent SEC filings under the Securities Exchange Act
of 1934, as amended, for further information.
15
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company does not have significant exposure to changing interest rates, other
than the Company's variable-rate on the Fleet Facility. The Company does not
undertake any specific action to cover its exposure to interest rate risk and
the Company is not party to any interest rate risk management transactions. The
Company does not purchase or hold any derivative financial instruments.
ITEM 4. CONTROLS AND PROCEDURES
Based on their evaluation of the Company's disclosure controls and procedures
(as defined in Rules 13a-15(e) and 15d-15(e)) under the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), the Company's principal executive and
principal financial officers concluded that the Company's disclosure controls
and procedures were effective as of June 30, 2003.
There has been no change in the Company's internal control over financial
reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act)
that occurred during the Company's fiscal quarter ended June 30, 2003, that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
16
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
None
Item 2. Changes in Securities
None
Item 3. Default upon Senior Securities
None
Item 4. Submission of matters to a vote of security holders
On June 2, 2003, shareholders owning approximately 67.6% of the
outstanding Company common shares approved the amendment of the
Amended and Restated Code of Regulations of the Company to opt out of
the Control Share Acquisition Statute set forth in Section 1701.831
of the Ohio Revised Code in connection with the acquisition by
Amazing Savings of Company common shares pursuant to the Offer.
Opting out of the Control Share Acquisition Statute was a condition
to Amazing Savings' obligation to purchase Company common shares
pursuant to the Offer.
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
2.1 Tender Agreement, dated as of June 3, 2003, between the
Company and Amazing Savings Holding LLC (incorporated
herein by reference to exhibit 2.1 to the Company's Curent
Report on Form 8-K dated June 2, 2003 and filed with the
Commission on June 4, 2003).
3.1 Amended and Restated Code of Regulations
4.1 Fleet Revolving Credit Facility dated July 17, 2003
10.1 Employment Agreement dated May 31, 2003 between Amazing
Savings Holding LLC and Sam Friedland
10.2 Employment Agreement dated May 31, 2003 between Amazing
Savings Holding LLC and Phil Rosenblatt
10.3 Employment Agreement dated May 31, 2003 between Amazing
Savings Holding LLC and Jerry Hoffnung
31.1 Certification of the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 Certification of the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
17
32.1 Certification of the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3 Certification of the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.4 Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
(b) Reports on Form 8-K
On May 15, 2003, the Company filed a current
report on Form 8-K reporting that a press
release was issued regarding the Company's
financial results for the first quarter of
2003.
On June 4, 2003, the Company filed a current
report on Form 8-K reporting that it had
entered into a definitive Tender Agreement
dated as of June 3, 2003 with Amazing Savings
Holding LLC, whereby Amazing Savings agreed to
purchase up to 96% of the outstanding common
shares of the Company at a cash price of $3.00
per share.
18
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.
ODD JOB STORES, INC.
(Registrant)
August 14, 2003 /s/ Moshael Straus
- --------------- -----------------------------------------------
Date Moshael Straus
Chairman and Co-Chief Executive Officer
August 14, 2003 /s/ Jeffrey Parker
- --------------- -----------------------------------------------
Date Jeffrey Parker
Vice-Chairman and Co-Chief Executive Officer
August 14, 2003 /s/ Sam Friedland
- --------------- -----------------------------------------------
Date Sam Friedland
President and Co-Chief Executive Officer
August 14, 2003 /s/ Keith Favreau
- --------------- -----------------------------------------------
Date Keith Favreau
Vice President - Finance
(Chief Financial Officer)
19
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
-------------- -----------
2.1 Tender Agreement, dated as of June 3, 2003, between the
Company and Amazing Savings Holding LLC (incorporated
herein by reference to exhibit 2.1 to the Company's
Current Report on Form 8-K dated June 2, 2003 and filed
with the Commission on June 4, 2003).
3.1 Amended and Restated Code of Regulations
4.1 Fleet Revolving Credit Facility dated as of July 17, 2003
10.1 Employment Agreement dated May 31, 2003 between Amazing
Savings Holding LLC and Sam Friedland
10.2 Employment Agreement dated May 31, 2003 between Amazing
Savings Holding LLC and Phil Rosenblatt
10.3 Employment Agreement dated May 31, 2003 between Amazing
Savings Holding LLC and Jerry Hoffnung
31.1 Certification of the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2 Certification of the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.3 Certification of the Co-Chief Executive Officer pursuant
to Section 302 of the Sarbanes-Oxley Act of 2002.
31.4 Certification of the Chief Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.3 Certification of the Co-Chief Executive Officer pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002.
32.4 Certification of the Chief Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
20