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: September 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.
--------------------
(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
--------------------------
(Address of principal executive offices)
(Zip Code)
908-222-1000
------------
(Registrant's telephone number, including area code)
(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 November 13, 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 12
Condition and Results of Operations
Item 3. Quantitative and Qualititative Disclosures about Market Risk 17
Item 4. Controls and Procedures 17
PART II - OTHER INFORMATION
Items 1- 6. 18
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)
September 30, December 31,
2003 2002
-------------------- -------------------
ASSETS (Unaudited)
Current Assets:
Cash and cash equivalents $ 1,857 $ 13,322
Other receivables 167 218
Income tax receivable - 4,239
Inventories 52,078 31,942
Prepaid expenses and other current assets 1,018 956
-------------------- -------------------
Total current assets 55,120 50,677
Property and equipment, net 16,065 18,485
Other assets 2,538 2,517
-------------------- -------------------
Total assets $ 73,723 $ 71,679
==================== ===================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 15,463 $ 13,032
Accrued expenses and other current liabilities 8,040 9,255
-------------------- -------------------
Total current liabilities 23,503 22,287
Revolving credit facility 27,215 -
Other liabilities 4,920 5,209
-------------------- -------------------
Total liabilities 55,638 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 shares issued and outstanding in each respective period 64,097 64,097
Accumulated deficit (46,012) (19,914)
-------------------- -------------------
Total stockholders' equity 18,085 44,183
Commitments and contingencies - -
-------------------- -------------------
Total liabilities and stockholders' equity $ 73,723 $ 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 Nine Months Eight Months (1)
Ended Ended Ended Ended
September 30, September 30, September 30, September 30,
2003 2002 2003 2002
------------------- -------------------- ------------------ ---------------------
Net sales $ 43,129 $ 55,039 $ 141,409 $ 147,306
Cost of sales 29,279 34,154 92,055 90,216
------------------- -------------------- ------------------ ---------------------
Gross profit 13,850 20,885 49,354 57,090
Selling, general and administrative
expenses 24,618 24,997 73,811 65,682
------------------- -------------------- ------------------ ---------------------
Operating loss (10,768) (4,112) (24,457) (8,592)
Other expense, net - - - 746
Interest expense, net 1,156 225 1,505 678
------------------- -------------------- ------------------ ---------------------
Loss before income taxes and
change in accounting principle (11,924) (4,337) (25,962) (10,016)
Income tax expense (benefit) 57 (1,692) 136 (3,906)
------------------- -------------------- ------------------ ---------------------
Net loss before change in
accounting principle (11,981) (2,645) (26,098) (6,110)
Change in accounting principle - - - (9,447)
------------------- -------------------- ------------------ ---------------------
Net loss $ (11,981) $ (2,645) $ (26,098) $ (15,557)
=================== ==================== ================== =====================
Basic and diluted net income (loss) per common share:
Net loss per common share,
before change in accounting
principle $ (1.32) $ (0.29) $ (2.88) $ (0.68)
Loss per share from change in
accounting principle - - - (1.04)
------------------- -------------------- ------------------ ---------------------
Net loss per common share $ (1.32) $ (0.29) $ (2.88) $ (1.72)
=================== ==================== ================== =====================
Weighted average common shares
outstanding-basic and diluted 9,050,400 9,052,500 9,050,400 9,040,800
=================== ==================== ================== =====================
(1) Eight month period ended September 30, 2002 reflects the period February
3, 2002 to September 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)
Nine Months Eight Months (1)
Ended Ended
September 30, September 30,
2003 2002
----------------- -----------------
Net loss $ (26,098) $ (15,557)
----------------- -----------------
Adjustments to reconcile net loss to net cash used in operating activities:
Change in accounting principle - 9,447
Depreciation and amortization 4,656 4,635
Deferred income taxes - (3,426)
Changes in operating assets and liabilities
Other receivables 51 1,054
Income tax receivable 4,239 2,396
Inventories (20,136) (27,611)
Prepaid expenses and other current assets (62) (583)
Other assets 1 365
Accounts payable 2,431 7,013
Accrued expenses and other liabilities (1,504) (1,718)
----------------- -----------------
Total adjustments (10,324) (8,428)
----------------- -----------------
Net cash used in operating activities (36,422) (23,985)
----------------- -----------------
Cash flows from investing activities
Capital expenditures, net (1,317) (1,524)
Lease acquisitions (141) (53)
Proceeds from the sale of net assets of discontinued operations - 26,218
----------------- -----------------
Net cash (used in) provided by investing activities (1,458) 24,641
----------------- -----------------
Cash flows from financing activities
Debt repayments (114,481) (69,324)
Debt borrowing 141,696 68,622
Costs related to new revolving credit agreement (800) -
Common stock repurchases - (324)
Proceeds from exercise of stock options - 493
----------------- -----------------
Net cash provided by (used in) financing activities 26,415 (533)
----------------- -----------------
Net increase (decrease) in cash and cash equivalents (11,465) 123
Cash and cash equivalents at beginning of period 13,322 4,046
----------------- -----------------
Cash and cash equivalents at end of period $ 1,857 $ 4,169
================= =================
Supplemental disclosures
Cash paid for interest, net 412 519
================= =================
Cash received for income taxes, net (4,082) (2,286)
================= =================
(1) Eight month period ended September 30, 2002 reflects the period February
3, 2002 to September 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 September 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 nine months
from January 1, 2003 to September 30, 2003, while the 2002 period reflects an
approximate eight-month period from February 3, 2002 to September 30, 2002. The
Company's fiscal third quarters are presented on a calendar basis for the
periods July 1, 2003 to September 30, 2003 and July 1, 2002 to September 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.
CHANGE IN CONTROL OF THE COMPANY
On July 17, 2003, OJSAC, Inc., a Delaware corporation ("OJSAC") and a
wholly-owned subsidiary of Amazing Savings Holding LLC, a Delaware limited
liability company ("Amazing Savings"), purchased 8,184,804 common shares, or
approximately 90.3% of the common stock (the "Common Shares") of the Company,
pursuant to a tender offer made pursuant to a Tender Agreement, dated as of June
3, 2003, by and between Amazing Savings and the Company (the "Tender
Agreement"). Pursuant to the Tender Agreement, the Common Shares were purchased
6
at the agreed upon price of $3.00 per Common Share for an aggregate cost of
$24.6 million to OJSAC.
Shares acquired in the Tender Agreement did not include substantially all of the
common stock of the Company. Therefore, the financial statements contained
herein have been prepared on a historical basis.
Total costs incurred by the Company for the Tender Agreement and management
changes totaled $2.8 million for the nine months ended September 30, 2003. Costs
incurred consisted of $1.3 million for severance and employment related costs,
$1.0 million for professional fees and $0.5 million of insurance charges, which
costs are reflected in Selling, General and Administrative expenses.
7
(2) SUBSEQUENT EVENTS
AMAZING SAVINGS ASSET ACQUISITION
On November 14, 2003, the Company completed its acquisition of substantially all
of the business and operations of Amazing Savings (the "Amazing Savings Asset
Acquisition"), consisting of an upscale closeout retail business with fourteen
(14) locations. Prior to the Amazing Savings Asset Acquisition, Amazing Savings
beneficially owned 8,184,804 Common Shares (or approximately 90.3% of the
outstanding Common Shares) that were acquired pursuant to a tender offer made
pursuant to the Tender Agreement in July 2003. As a result of the Amazing
Savings Asset Acquisition, Amazing Savings' beneficial ownership increased by
1,866,667 Common Shares, so that it now owns 10,051,471 Common Shares (or
approximately 92.0% of the outstanding Common Shares). Additional information
regarding the Amazing Savings Asset Acquisition will be contained in a Current
Report on Form 8-K, which the Company is required to file with the Securities
and Exchange Commission on or before December 1, 2003.
AMENDED CREDIT FACILITY
On November 14, 2003, the Company entered into the First Amendment to its credit
facility with Fleet Retail Finance, Inc. (the "Amended Fleet Facility"), which
provides an increase from $40 million to $50 million of credit availability
based upon an increased borrowing base for the Company following the Amazing
Savings Asset Acquisition. The Amended Fleet Facility expires July 17, 2006 and
carries an interest rate on current borrowings at the prime rate plus a base
margin of 0% to .75% based on average excess availability. In addition, an
affiliate of Amazing Savings obtained from Citibank, N.A. a standby letter of
credit in favor of Fleet Retail Finance, Inc. in the amount of $5 million which,
in effect, increases the borrowing base by such amount and provides the Company
with greater credit availability under the Amended Fleet Facility.
(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 Common Shares. 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.
Upon completion of the tender offer made pursuant to the Tender Agreement, the
Company's stock options became fully vested under a change in control provision
of the stock option plan. In the third quarter of 2003 all stock options were
terminated. Holders of stock options with an exercise price of less than $3.00
per share received the difference between $3.00 per share and the exercise price
per share of the Common Shares subject to their options, resulting in an
aggregate expense to the Company of $0.2 million. As a result of the pay out and
8
termination of all outstanding options, the Company had no stock options
outstanding at September 30, 2003.
Three Months Nine months Eight Months
Ended Ended Ended
(In thousands, except September 30, September 30, September 30,
per share amounts) 2003 2002 2002 2003
---------- --------- ---------- -----------
Net loss, as reported $ (11,981) $ (2,645) $ (26,098) $ (15,557)
Stock compensation recorded 211 - 211 -
Employee compensation expense (172) (22) (182) (65)
---------- --------- ---------- -----------
Net loss, pro forma $ (11,942) $ (2,667) $ (26,069) $ (15,622)
========== ========= ========== ===========
Net loss per share, as reported
Basic $ (1.32) $ (0.29) $ (2.88) $ (1.72)
Diluted $ (1.32) $ (0.29) $ (2.88) $ (1.72)
Net loss per share, pro forma
Basic $ (1.32) $ (0.29) $ (2.88) $ (1.73)
Diluted $ (1.32) $ (0.29) $ (2.88) $ (1.73)
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 2003 and 2002 periods shown above: (a) no dividend yield on
the Common Shares, (b) expected volatility of the Common Shares of 77% and 70%,
respectively (c) a risk-free interest rate of 3.40% and 5.74%, respectively, and
(d) expected option life of ten years.
(4) 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 eight-month period ended September 30,
2002.
(5) 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
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
9
resold many of the same lines of merchandise sold through the Company's current
retail operations. During the eight-month period ended September 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.
(6) 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 nine months and third quarter ended September 30,
2003, the Company recorded tax benefits of $10,125 and $4,650, respectively,
offset by additional deferred tax valuation allowances in equal amounts. No
valuation allowances had been established in the comparable 2002 periods.
(7) EARNINGS PER SHARE
Net loss per share is computed in accordance with Financial Accounting Standards
Board (FASB) Statement No. 128, Earnings Per Share. Basic net loss per share is
computed based on the weighted average of common shares outstanding during the
period. Diluted net loss 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 Company had no stock options outstanding at September 30, 2003 and the
effect of incremental shares from stock options for the 2002 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.
(8) RECENTLY ADOPTED ACCOUNTING STATEMENTS
In January 2003, the Financial Accounting Standards Board (the "FASB") issued
Interpretation No. 46, "Consolidation of Variable Interest Entities, an
interpretation of ARB No. 51" ("FIN No. 46"). FIN No. 46 expands existing
accounting guidance regarding when a variable interest entity is consolidated by
a company if that company is subject to a majority of the risk of loss from the
variable interest entity's activities or is entitled to receive a majority of
the variable interest entity's residual returns or both. This pronouncement
applies immediately to variable interest entities created after January 31, 2003
and to variable interest entities in which a company obtains an interest after
that date. For variable interest entities created before February 1, 2003, the
provisions of this pronouncement are effective for periods ending after December
15, 2003. The adoption of FIN No. 46 does not currently have any effect on the
Company's results of operations or financial condition.
In April 2003, the FASB issued Statement of Financial Accounting Standards
("SFAS") No. 149, "Amendment of Statement 133 on Derivative Instruments and
Hedging Activities" ("SFAS No. 149"). SFAS No. 149 amends and clarifies the
accounting guidance on derivative instruments (including certain derivative
instruments embedded in other contracts) and hedging activities that fall within
the scope of SFAS No. 133, "Accounting for Derivative Instruments and Hedging
10
Activities". SFAS No. 149 also amends certain other existing pronouncements,
which will result in more consistent reporting of contracts that are derivatives
in their entirety or that contain embedded derivatives that warrant separate
accounting. SFAS No. 149 is effective for contracts entered into or modified
after June 30, 2003, with certain exceptions, and for hedging relationships
initiated after June 30, 2003. The guidance outlined in this pronouncement is to
be applied prospectively, and was effective for the Company's fiscal third
quarter of 2003. The adoption of this pronouncement did not have any effect on
the Company's results of operations or financial condition.
In July 2003, the Company adopted SFAS 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 does not
apply to features embedded in a financial instrument that is not a derivative in
its entirety. The adoption of this standard had no impact on the Company's
results of operations or financial condition.
11
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 first nine months of 2003, the Company opened one new store in Ewing, New
Jersey and closed stores in Yonkers, New York, and Turnersville, Woodbridge and
East Hanover, New Jersey. At September 30, 2003, the Company operated 74 stores,
as compared to 77 stores at September 30, 2002. The Company's retail stores are
located in New York, New Jersey, Pennsylvania, Connecticut, Delaware, Ohio,
Michigan, and Kentucky.
TENDER AGREEMENT WITH AMAZING SAVINGS
As discussed in Note 1 to Consolidated Financial Statements under "Change in
Control of the Company", in July 2003, OJSAC, Inc., a Delaware corporation
("OJSAC") and a wholly-owned subsidiary of Amazing Savings Holding LLC, a
Delaware limited liability company ("Amazing Savings"), purchased 8,184,804
common shares, or approximately 90.3% of the common stock (the "Common Shares")
of the Company, pursuant to a tender offer made pursuant to a Tender Agreement,
dated as of June 3, 2003, by and between Amazing Savings and the Company (the
"Tender Agreement"). Pursuant to the Tender Agreement, the Common Shares were
purchased at the agreed upon price of $3.00 per Common Share for an aggregate
cost of $24.6 million to OJSAC.
Shares acquired in the Tender Agreement did not include substantially all of the
common stock of the Company. Therefore, the financial statements contained
herein have been prepared on a historical basis.
Total costs incurred by the Company for the Tender Agreement and management
changes totaled $2.8 million for the nine months ended September 30, 2003. Costs
incurred consisted of $1.3 million for severance and employment related costs
due to the change in control, $1.0 million for professional fees and $0.5
million of insurance charges, which costs are reflected in Selling, General and
Administrative ("S, G & A") expenses.
OPERATING RESULTS
THIRD QUARTER 2003 AS COMPARED WITH THIRD QUARTER 2002
Net sales for the third quarter of 2003 were $43.1 million, a decrease of 21.6%
as compared to sales of $55.0 million for the third quarter of 2002. Third
quarter comparable store sales were 18.3% lower as compared to the same period
in fiscal 2002 due largely to generalized lower pricing and decreased customer
12
transactions. The remaining decrease of $2.5 million was from the net three less
stores, detailed above.
Gross profit for the third quarter of 2003 was $13.9 million or 32.1% of sales,
compared to $20.9 million or 37.9% of sales for the third quarter 2002. The
decrease in the 2003 gross profit rate was caused primarily by higher retail
markdowns and lower merchandise pricing.
S, G & A expenses for the third quarter of 2003 were $24.6 million, or 57.1% of
sales, compared to $25.0 million, or 45.4% of sales for the third quarter 2002.
S, G & A expenses for the 2003 period included $2.0 million in costs related to
the Tender Agreement, which were offset by $1.0 million less advertising and
$0.9 million in lower office support costs. Tender Agreement costs for the third
quarter of 2003 consisted of $1.3 million for severance and employment related
costs due to the change in control, $0.2 million for professional fees, and $0.5
million of insurance charges. The sales decrease resulted in fixed costs
increasing as a percentage of sales.
The operating loss was $10.8 million for the third quarter 2003, compared to an
operating loss of $4.1 million for the third quarter of 2002 for the reasons
detailed above. Interest expense was $1.2 million for the third quarter 2003,
compared to $0.2 million for the third quarter 2002, reflecting approximately
$0.6 million in costs related to the termination of the Company's previous
revolving credit facility and a significant increase in average borrowings for
the current quarter. Average daily borrowings were $15.5 million for the third
quarter of 2003, compared to $2.8 million for the third quarter of 2002.
The Company reported a net loss for the third quarter of 2003 of $12.0 million,
or $1.32 per share, compared to a net loss of $2.6 million or $0.29 per share
for the third quarter of 2002.
NINE MONTHS 2003 AS COMPARED WITH EIGHT MONTHS 2002
Net sales for the nine-month period ended September 30, 2003 were $141.4
million, compared to $147.3 million for the eight-month period ended September
30, 2002. The 2002 eight-month period reflects the period February 3, 2002 to
September 30, 2002 due to the change in the Company's fiscal year. On a
comparable nine-month basis, sales decreased $21.8 million, or 13.2%, compared
to sales for the same period of 2002, primarily from a comparable store sales
decrease of 11.0%. The sales decline largely reflects a decrease in customer
transactions, resulting from a lack of customer acceptance to the merchandise
assortment. Generalized lower pricing which occurred during the third quarter
period also contributed to the sales revenue decline when comparing the
nine-month 2003 period to the prior year. During the first nine months of 2003,
the Company opened one new store and closed a total of four stores.
Gross profit for the first nine months of 2003 was $49.4 million or 34.9% of
sales, compared to $57.1 million or 38.8% of sales for the eight-month 2002
period. The gross profit rate decrease was due to lower realized product markup
from lower pricing and significantly higher markdowns (including the January
post-holiday markdown period in the 2003 period) to combat decreased customer
transactions.
S, G & A expenses for the first nine months of 2003 were $73.8 million, or 52.2%
of sales, compared to $65.7 million or 44.6% of sales for the eight-month period
of 2002. On a comparable nine-month basis, S, G & A expenses were approximately
$74.8 million, or 45.5% of sales for the same prior year period. S, G & A
13
expenses for the nine-month 2003 period included costs associated with the
Tender Agreement totaling approximately $2.8 million, as previously detailed.
Office support costs were $3.3 million lower for the 2003 period, due to cost
savings associated with the consolidation of support functions and cost savings
initiatives. The nine-month 2003 sales decrease resulted in fixed costs
increasing as a percentage of sales.
The operating loss was $24.5 million for the nine-month 2003 period, compared to
an operating loss of $8.6 million for the eight-month 2002 period largely for
the reasons detailed above. Interest expense was $1.5 million for the nine-month
period of 2003, compared to $0.7 million for the eight-month period of 2002,
reflecting approximately $0.6 million in costs related to the termination of the
Company's previous revolving credit facility and higher average borrowings for
the Company's most recent quarter. 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 4 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 $1.04 per share to write-off
the entire goodwill balance. The charge is shown as a change in accounting
principle for the eight-month period ended September 30, 2002.
For the nine-month period ended September 30, 2003, the Company reported a net
loss of $26.1 million, or $2.88 per share, compared to a net loss of $15.6
million or $1.72 per share for the eight-month period ended September 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 September 30, 2003, the Company had a secured revolving credit facility with
Fleet Retail Finance Inc. (the "Fleet Facility), which provided 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. Prior to
obtaining the Fleet Facility on July 17, 2003, the Company had a bank facility
with IBJ Whitehall Business Credit Corp. (the "Whitehall Facility") that
provided $30 million of revolving credit. Upon obtaining the Fleet Facility,
outstanding borrowings of $4.1 million under the Whitehall Facility were paid,
inclusive of an early termination fee and related expenses. At September 30,
2003, the Company had an outstanding balance under the Fleet Facility of $27.2
million at a weighed average interest rate of 4.5% and total borrowing base
availability of $3.9 million. At September 30, 2002, the Company had an
outstanding balance under the Whitehall Facility of $8.4 million. At September
14
30, 2003, the Company believed that the Fleet Facility would provide adequate
funding for its current and foreseeable operating and capital requirements.
For the first nine months of 2003, cash used in operating activities was $36.4
million, compared to $24.0 million in the eight-month period of fiscal 2002. For
the nine 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 higher accounts payable and the receipt
of a federal income tax refund of $4.2 million. For the eight 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 higher accounts payable.
Cash used in investing activities was $1.5 million in the nine-month 2003
period, due primarily to capital expenditures related to new Ewing, NJ store and
other store refixturing. For the eight-month 2002 period, cash was provided by
the sale of the Company's Wholesale Division. Financing activity in the
nine-month 2003 period resulted in net borrowings of $26.4 million under the
Fleet Facility. In the eight-month 2002 period, financing activity consisted
primarily of net borrowings of $8.4 million offset by the repayment of $9.1
million of outstanding debt.
Total assets were $73.7 million at September 30, 2003, compared to $71.7 at
December 31, 2002. Working capital increased to $31.6 million at the 2003 period
end from $28.4 million at fiscal 2002 year-end. The increase in working capital
is primarily from higher inventory levels due to the seasonal nature of the
business. The current ratio was 2.3 to 1 at September 30, 2003, compared to 2.3
to 1 at December 31, 2002.
SEASONALITY
The Company's retail operations result in a greater weighting of sales and
earnings toward the second half of the fiscal year.
SUBSEQUENT EVENTS
AMAZING SAVINGS ASSET ACQUISITION. On November 14, 2003, the Company completed
its acquisition of substantially all of the business and operations of Amazing
Savings (the "Amazing Savings Asset Acquisition"), consisting of an upscale
closeout retail business with fourteen (14) locations. Prior to the Amazing
Savings Asset Acquisition, Amazing Savings beneficially owned 8,184,804 Common
Shares (or approximately 90.3% of the outstanding Common Shares) that were
acquired pursuant to a tender offer made pursuant to the Tender Agreement in
July 2003. As a result of the Amazing Savings Asset Acquisition, Amazing
Savings' beneficial ownership increased by 1,866,667 Common Shares, so that it
now owns 10,051,471 Common Shares (or approximately 92.0% of the outstanding
Common Shares). Additional information regarding the Amazing Savings Asset
Acquisition will be contained in a Current Report on Form 8-K, which the Company
is required to file with the Securities and Exchange Commission on or before
December 1, 2003.
15
AMENDED CREDIT FACILITY. On November 14, 2003, the Company entered into the
First Amendment to its credit facility with Fleet Retail Finance, Inc. (the
"Amended Fleet Facility"), which provides an increase from $40 million to $50
million of credit availability based upon an increased borrowing base for the
Company following the Amazing Savings Asset Acquisition. The Amended Fleet
Facility expires July 17, 2006 and carries an interest rate on current
borrowings at the prime rate plus a base margin of 0% to .75% based on average
excess availability. In addition, an affiliate of Amazing Savings obtained from
Citibank, N.A. a standby letter of credit in favor of Fleet Retail Finance, Inc.
in the amount of $5 million which, in effect, increases the borrowing base by
such amount and provides the Company with greater credit availability under the
Amended Fleet Facility. The Company expects that the Amended Fleet Facility,
along with the standby letter of credit in favor of Fleet Retail Finance, Inc.
will provide adequate funding for its current and foreseeable operating and
capital requirements.
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.
16
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. A hypothetical change of
1% in the Company's interest rate would have resulted in an increase to interest
expense of $0.1 million in the first nine months of 2003. 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 September 30, 2003.
Despite the Change in Control of the Company and the resulting change in senior
management, the Company's controls and procedures have remained intact. 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 September 30, 2003, that has
materially affected, or is reasonably likely to materially affect, the Company's
internal control over financial reporting.
17
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
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
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.
(b) Reports on Form 8-K
On July 18, 2003, the Company filed a current
report on Form 8-K reporting that a press
release was issued announcing a new credit
facility with Fleet and the election of new
directors and officers.
On July 24, 2003, the Company filed a current
report on Form 8-K reporting a change in
control for the Company resulting from the
Tender Agreement with Amazing Savings Holding
LLC, whereby Amazing Savings purchased
approximately 90.3% of the outstanding common
shares of the Company at a cash price of $3.00
per share.
On August 11, 2003, the Company filed a current
report on Form 8-K reporting that a press
release was issued announcing the Company's
delisting from the Nasdaq Stock Market
effective August 13, 2003.
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)
November 14, 2003 /s/ Moshael Straus
- ------------------ ---------------------------------------------
Date Moshael Straus
Chairman and Co-Chief Executive Officer
November 14, 2003 /s/ Jeffrey Parker
- ------------------ ---------------------------------------------
Date Jeffrey Parker
Vice-Chairman and Co-Chief Executive Officer
November 14, 2003 /s/ Sam Friedland
- ------------------ ---------------------------------------------
Date Sam Friedland
President and Co-Chief Executive Officer
November 14, 2003 /s/ Keith Favreau
- ------------------ ---------------------------------------------
Date Keith Favreau
Chief Financial Officer
19
EXHIBIT INDEX
EXHIBIT NUMBER DESCRIPTION
- -------------- -----------
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