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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(MARK ONE)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED JANUARY 28, 1995 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
FOR THE TRANSITION PERIOD FROM _____________ TO ____________
COMMISSION FILE NUMBER 1-9647
JAN BELL MARKETING, INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 59-2290953
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
13801 N.W. 14th Street Sunrise, Florida 33323
--------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (305) 846-2705
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $.0001 par value
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES / X / NO / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained to the
best of registrant's knowledge in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K.
/ /
As of April 28, 1995, the aggregate market value of the voting stock
beneficially held by non-affiliates of the registrant was $70,339,272.50. The
aggregate market value was computed with reference to the closing price on the
American Stock Exchange on such date. Affiliates are considered to be
executive officers and directors of the registrant and their affiliates for
which beneficial ownership is not disclaimed.
As of April 28 1995, 25,748,358 shares of Common Stock ($.0001 par value) were
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
PART III: Portions of the definitive Proxy Statement for the 1995 Annual
Shareholders' meeting (to be filed).
LOCATION OF EXHIBIT INDEX: The index of exhibits is contained in Part IV
herein on page number 52.
JAN BELL MARKETING, INC.
TABLE OF CONTENTS
PART I Page No.
Item 1 Business............................. 4
Item 2 Properties........................... 11
Item 3 Legal Proceedings.................... 11
Item 4 Submission of Matters to a Vote
of Security Holders................ 11
PART II
Item 5 Market for the Registrant's Common
Stock and Related Stockholder
Matters........................... 12
Item 6 Selected Financial Data.............. 12
Item 7 Management's Discussion and
Analysis of Financial Condition
and Results of Operations......... 14
Item 8 Financial Statements and
Supplementary Data................ 24
Item 9 Changes in and Disagreements with
Accountants on Accounting and
Financial Disclosure.............. 47
PART III
Item 10 Directors and Executive Officers
of the Registrant................. 47
Item 11 Executive Compensation............... 47
Item 12 Security Ownership of Certain
Beneficial Owners and
Management........................ 47
Item 13 Certain Relationships and Related
Transactions...................... 47
PART IV
Item 14 Exhibits, Financial Statement
Schedules, and Reports on
Form 8-K.......................... 48
PART I
ITEM 1. BUSINESS
GENERAL
Jan Bell provides fine jewelry, watches and certain other select
non-jewelry consumer products to the value-conscious fashion consumer.
The Company markets its products principally through Sam's Club, a division of
Wal-Mart, Inc. ("Sam's"), pursuant to an arrangement whereby the Company
operates an exclusive leased department at all of Sam's existing and future
domestic locations through February 1, 2001. In Fiscal 1994, sales through
Sam's accounted for approximately 85% of the Company's net sales. The Company
offers products ranging from fine jewelry, watches, fragrances, fine writing
instruments, sunglasses and certain collectibles and accessories. See
"WAREHOUSE MEMBERSHIP CLUBS."
Prior to Fiscal 1993, the Company operated principally as a jewelry,
watch and fragrance wholesaler to the warehouse membership club industry.
Following the Company's transition to retailing as a leased department
operator at Sam's in the fourth quarter of 1993, the Company recognized
the need for additional retail management expertise. New Board members were
recruited from senior department and specialty store executives, who in turn
hired a new C.E.O. New management then began addressing the Company's
strategic strengths and direction.
In late 1994, as part of the Fiscal 1995 planning process, management and
the new Board reviewed the Fiscal 1994 results of all lines of business and
their attendant cost structures. This process resulted in the following
decisions.
First the Company's domestic manufacturing operations engaged in the
manufacturing of fixtures for the Company's retail locations and the other
manufactured various gem and gold products were closed.
Second, staffing levels were reduced at the Company's headquarters,
other operational expenses were reduced and merchandising programs were
designed to better manage retail sales, gross profit and the replenishment
function.
Third, management also addressed the Company's wholesale watch division,
which had evolved into a low end, watch business with sourcing in the parallel
markets and which contributed disproportionately to expense. With no perceived
opportunity to improve the performance of this division, management has
closed the wholesale watch operations, other than selected sales and continued
balancing of inventory.
For a description of the Company's recent financing events, see "RECENT
EVENTS" in "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS."
The terms "Jan Bell" and the "Company" when used herein refer to Jan Bell
Marketing, Inc. and its consolidated subsidiaries, as required by the context.
The Company's principal offices are located at 13801 Northwest 14th Street,
Sunrise, Florida 33323 (telephone: (305) 846-2705). The Company's fiscal year
ended on January 28, 1995 and is referred to herein as "Fiscal 1994."
4
PRODUCTS
The following table sets forth the approximate percentage of net sales for
the Company's principal products for the periods specified:
Fifty-two weeks
ended
January 28, Years Ended December 31,
----------- -------------------------------------
1995 1993 1992 1991 1990
---- ---- ---- ---- ----
Gold jewelry with diamonds
and/or other precious and
semi-precious stones 35% 39% 29% 25% 37%
Gold jewelry 19 25 28 26 32
Watches 22 26 38 34 29
Other consumer products 24 10 5 15 2
The Company's principal products are gold jewelry set with diamonds and/or
other precious and semi-precious gemstones, gold chain, other forms of gold and
silver jewelry and watches. The Company's jewelry product line includes
chains, pendants, bracelets, watches, rings and earrings. Other consumer
products sold by the Company include perfumes and fragrances, sunglasses,
writing instruments, and collectible and giftware products.
The Company's products are classically designed to offer broad consumer
appeal. Following the warehouse club philosophy of limiting the assortment in
each product category, a typical location will be merchandised at any one time
with approximately 300 jewelry items, 100 watches and 200 other consumer
products. This assortment is more focused than the average number of items
typically stocked by jewelry counters in department stores and other jewelry
retailers.
WAREHOUSE MEMBERSHIP CLUBS
The Company's principal customers during Fiscal 1994 were members of Sam's
Club. In Fiscal 1994, 1993, 1992, 1991 and 1990 approximately 85%, 85%, 81%,
71%, and 64%, respectively, of the Company's net sales originated from the
warehouse membership clubs. The Company's sole warehouse membership club
relationship in Fiscal 1994 was with Sam's. Prior to May 1993, the Company
had an agreement to be the primary supplier of fine jewelry, watches and
fragrances to all present and future Sam's club locations until February 1997.
In May 1993, the arrangement was changed to provide that the Company would
operate an exclusive leased department at all Sam's existing and future
domestic locations through February 1, 1999. In March 1994, the arrangement
was extended through February 1, 2001.
Warehouse membership clubs offer a variety of product categories to
targeted consumers. By limiting the assortment in each product category and
operating on a no-frills basis, warehouse membership clubs generally provide
name brand products at prices significantly below conventional retailers and
department, discount and catalog stores. Warehouse club members, the majority
of whom pay a nominal annual membership fee, include businesses, credit unions,
employee groups, schools, churches and other organizations, as well as eligible
individuals. In addition to jewelry, merchandise offered by warehouse
membership clubs typically includes groceries, health and beauty aids,
computers, cellular telephones, clothing, sporting goods, automotive
accessories, hardware, electronics and office equipment. Successful execution
of the warehouse membership club concept requires high sales volumes, rapid
inventory turnover, low merchandise returns and strict control of operating
costs.
Each Sam's location is staffed by Jan Bell employees with the inventory
owned by Jan Bell until sold to Sam's members. In exchange for the right to
operate the department and the use of the retail space, Jan Bell pays a
5
tenancy fee of 9% of net sales. While Sam's is responsible for paying utility
costs, maintenance and certain other expenses associated with operation of the
departments, the Company provides and maintains all fixtures and other
equipment necessary to operate the departments.
In 1992, the Company signed an agreement to be the primary supplier of
fine jewelry, watches and fragrances with Club Aurrera, a warehouse club joint
venture in Mexico between Wal-Mart Stores and Cifra S.A. Due to the peso
devaluation, the Company anticipates that sales by its Mexican subsidiary will
be significantly lower in 1995 than in 1994 reflecting the overall reduction in
the Mexican consumer's disposable income.
SPECIAL CONSIDERATIONS
The Company's retail operation requires expertise in the areas of
merchandising, sourcing, selling, personnel, training, systems and accounting.
At the present time, the Company is dependent on Sam's to conduct its business.
Accordingly, the loss of the Company's leased department arrangement with Sam's
or a material reduction of sales at Sam's would have a material adverse effect
on the business of the Company. Moreover, the Company must look to increases
in the number of retail locations to occur, thereby increasing the Company's
customer base, for expansion. Further consolidation of the warehouse club
industry due to geographic constraints and market consolidation might also
adversely affect the Company's existing relationship and the Company's business.
The opening and success of the leased locations and locations to be opened in
later years, if any, will depend on various factors, including general economic
and business conditions affecting consumer spending, the performance of the
Company's retail operations, the acceptance by consumers of the Company's
retail programs and concepts, and the ability of the Company to manage the
leased operations and future expansion and hire and train personnel.
OTHER CUSTOMERS
The Company also sells to a limited number of department stores,
supermarkets, discount stores, drug stores, wholesalers and jewelry chains. In
Fiscal 1994, sales to these customers aggregated approximately 10% of net
sales. Due to the closing of the wholesale watch division in late 1994 and the
focus on the retail operations at Sam's, it is not anticipated that sales to
other customers will continue in any significant manner other than the
continued balancing of inventory and selected sales of goods.
PURCHASING
DIAMONDS AND GEMSTONES
The Company purchases diamonds and other gemstones directly in
international markets located in Tel Aviv, New York, Antwerp, and elsewhere.
The Company buys cut and polished gemstones in various sizes. During 1990, the
Company acquired a purchasing and trading unit based in Israel. The Company
seeks to meet its diamond requirements with purchases on a systematic basis
throughout the year.
Hedging is not available with respect to possible fluctuations in the
price of gemstones. If such fluctuations should be unusually large or rapid
and result in prolonged higher or lower prices, there is no assurance that the
necessary price adjustments could be made quickly enough to prevent the Company
from being adversely affected.
The world supply and price of diamonds is influenced considerably by the
Central Selling Organization ("CSO"), which is the marketing arm of DeBeers
Consolidated Mines, Ltd. ("DeBeers"), a South African company. Through CSO,
6
DeBeers, over the past several years, has supplied approximately 80% of the
world demand for rough diamonds, selling to gem cutters and polishers at
controlled prices periodically throughout the year.
The continued availability of diamonds to the Company is dependent, to
some degree, upon the political and economic situation in South Africa and
Russia, which have been unstable. Several other countries are also major
suppliers of diamonds, including Botswana and Zaire. In the event of an
interruption of diamond supplies, or a material or prolonged reduction in the
world supply of finished diamonds, the Company could be adversely affected.
GOLD PRODUCTS
Finished gold products and gold castings are purchased from a relatively
small number of manufacturers in Israel, Italy, New York and California. The
Company believes that there are numerous alternative sources for gold chain and
castings, and the failure of any of its current manufacturers would not have a
material adverse effect on the Company.
WATCHES
From May 1990 through Fiscal 1994, the Company actively marketed watches.
Featuring Seiko and Citizen watches as well as other select name brands,
private label and designer watches (such as Givenchy, Mathey Tissot and Ted
Lapidus watches), the Company sold its watch inventory through Sam's and at
wholesale to a variety of retail outlets. During late 1994, the Company
decided to close the wholesale watch operations, so the watch program going
forward is anticipated to be a part of the Company's retail operations other
than selected sales and continued balancing of inventory.
During 1994, the Company purchased approximately 29.0% of watches directly
from certain manufacturers as well as approximately 71.0% of watches through
parallel marketed means. Parallel marketed goods are products to which
trademarks are legitimately applied but which were not necessarily intended by
their foreign manufacturers to be imported and sold in the United States. See
"REGULATION."
OTHER PRODUCTS
The Company purchases sunglasses, fine writing instruments, fragrances and
collectibles directly from manufacturers as well as from parallel marketed
means. See "REGULATION."
AVAILABILITY
Although purchases of several critical raw materials, notably gold and
gemstones, are made from a limited number of sources, the Company believes that
there are numerous alternative sources for all raw materials used in the
manufacture of its finished jewelry, and that the failure of any principal
supplier would not have a material adverse effect on operations. Any changes
in foreign or domestic laws and policies affecting international trade may
have a material adverse effect on the availability or price of the diamonds,
other gemstones, precious metals and non-jewelry products purchased by the
Company.
Because supplies of parallel marketed products are not always readily
available, it can be a difficult process to match the customer demand to market
availability. Management plans to reduce its parallel market purchases in
Fiscal 1995. See "REGULATION."
7
SEASONALITY
The Company's jewelry business is highly seasonal, with the fourth
calendar quarter (which includes the Christmas shopping season) historically
contributing significantly higher sales than any other quarter during the
year. Approximately 37% of the Company's Fiscal 1994 net sales were made during
the fourth quarter.
MANUFACTURING
The Company currently performs all quality control functions at its
headquarters in Sunrise, Florida and performs certain jewelry manufacturing in
Israel.
All gold and watch products are manufactured by third parties. During
Fiscal 1994, approximately 35.1% and 10.6% of gemstone products received were
manufactured by the Company in Israel and Florida, respectively. The
manufacturing operations in Florida were closed in late Fiscal 1994. The
remaining portion of gemstone products were manufactured or purchased complete
from third parties.
RETAIL OPERATIONS, MERCHANDISING AND MARKETING
GENERAL
Each retail department is supervised by a manager whose primary duties
include member sales and service, scheduling and training of associates, and
maintaining loss prevention and visual presentation standards. The departments
are generally staffed by the manager and a minimum of two staff associates
depending on sales volume. The departments employ temporary associates during
peak selling seasons such as Christmas. Each department is open for business
during the same hours as the warehouse club in which it operates. Except for
extended hours during certain holiday seasons, Sam's is generally open Monday
through Friday from 10:00 a.m. to 8:30 p.m., 9:30 a.m. to 7:00 p.m. on
Saturdays and 11:00 a.m. to 6:00 p.m. on Sundays.
The department manager reports to a district manager. A district manager
supervises on average 13 clubs and reports to a regional director. The Company
presently has three regional directors who report to the Vice President of
Field Operations.
The fixtures and equipment located in the Company's departments generally
consist of six to ten showcases, four corner towers, a safe, a POS terminal,
storage cabinets for merchandise and supplies, display elements, signage and
miscellaneous equipment such as telephones, scales, calculators and diamond
testers. In certain larger volume clubs, the department will have additional
showcases and towers.
The Sam's Clubs are membership only, cash and carry operations. The
Company's departments are required to accept only the forms of payment accepted
by Sam's which presently includes cash, checks and Discover Card.
8
DEPARTMENT COUNT
The following table sets forth data regarding the number of departments
which the Company operated:
Fiscal
1994 1993(b) 1992 1991(a)
---- ------ ---- -------
Departments:
- ------------
Operated, beginning of period 418 114 87 -0-
Opened during period 22 339 28 91
Closed during period 12 35 1 4
Operated, end of period 428 418 114 87
--- --- --- ---
Net increase 10 304 27 87
=== === === ===
(a) In April, 1991, the lease arrangement with Pace commenced. Includes the
initial conversion of 62 Pace locations and the subsequent acquisition of
19 Price Savers Clubs by Pace.
(b) Includes the initial conversion of 315 Sam's retail departments and the
closing of 30 locations as a result of Pace ceasing operations.
Generally, the Company's departments are between 260 and 275 square feet
of selling space usually located in higher traffic areas of the clubs near or
adjacent to the cart rails, front entrances or check out areas of the clubs.
PERSONNEL AND TRAINING
The Company considers its associates to be one of the most important
aspects of its ability to successfully carry out its business objectives. The
Company intends to devote a substantial amount of resources to support its
associates with training programs, technology and facilities. The Company has
implemented a comprehensive training program covering its relationship selling
techniques, member service skills, product knowledge and operational
procedures. The Company compensates its associates at rates it believes are
competitive in the discount retail industry and seeks to motivate its
associates through a flexible incentive program. The flexible incentive
program is not based on the typical commission system (i.e., % of sales
revenue), but rewards the associate for exceeding target sales levels or
meeting other criteria which the Company establishes from time to time.
ADVERTISING AND PROMOTION
In accordance with Sam's philosophy, the Company does not promote its
products sold in the departments by newspaper or other periodical advertising
or the broadcast media. To support seasonal activities, the Company promotes
its products through direct mail catalogues to Sam's members. The Company does
utilize promotional materials such as signage, banners and takeaway brochures
within the clubs to promote its products. The Company also advertises in
connection with its licensed products.
DISTRIBUTION
The Company's retail departments receive the majority of their merchandise
directly from distribution warehouses located in Sunrise, Florida. Merchandise
is shipped from the distribution warehouses utilizing various air and ground
carriers. Presently, a small portion of merchandise is delivered directly to
the retail locations from suppliers. The Company transfers merchandise
between retail departments to balance inventory levels and to fulfill customer
requests. The Company's wholesale shipments are processed through its
distribution warehouse in Sunrise, Florida.
The Company operates a distribution facility in Mexico City, Mexico; this
facility warehouses and distributes merchandise sold to Club Aurrera.
9
The Company does not believe that the dollar amount of unfilled orders is
significant to an understanding of the Company's business due to the relatively
short time between receipt of a customer order and shipment of the product.
COMPETITION
The Company's competitors include foreign and domestic jewelry retailers,
national and regional jewelry chains, department stores, catalog showrooms,
discounters, direct mail suppliers, televised home shopping networks,
manufacturers, distributors and large wholesalers and importers, some of whom
have greater resources than the Company. The Company believes that competition
in its markets is based primarily on price, design, product quality and
service. With the consolidation of the retail industry that is occurring, the
Company believes that competition both within the warehouse club industry and
with other competing general and specialty retailers and discounters will
continue to increase.
REGULATION
The Company utilizes the services of independent customs agents to comply
with U.S. customs laws in connection with its purchases of gold, diamonds and
other raw materials from foreign sources.
Jan Bell bears certain risks in purchasing parallel marketed goods which
include a substantial portion of watches and other accessories. Parallel
marketed goods are products to which trademarks are legitimately applied but
which were not necessarily intended by their foreign manufacturers to be
imported and sold in the United States. The laws and regulations governing
transactions involving such goods lack clarity in significant respects. From
time to time, trademark holders and their licensees initiate private suits or
administrative agency proceedings seeking damages or injunctive relief based on
alleged trademark infringement by purchasers and sellers of parallel marketed
goods. While Jan Bell believes that its practices and procedures with respect
to the purchase of parallel marketed goods lessen the risk of significant
litigation or liability, Jan Bell is from time to time involved in such
proceedings and there can be no assurance that additional claims or suits will
not be initiated against Jan Bell or any of its affiliates, or, if any such
claims or suits are initiated, as to the results thereof. Further, legislation
has been introduced in Congress in recent years and is currently pending
regarding parallel marketed goods. Certain legislative or regulatory
proposals, if enacted, could materially limit Jan Bell's ability to sell
parallel marketed goods in the United States. For instance, a court recently
issued an order enjoining the customs service from enforcing a regulatory
exception regarding foreign made goods that bear a trademark identical to a
valid United States trademark but which are materially physically different.
There can be no assurances as to whether or when any such proposals might be
acted upon by Congress or that future judicial, legislative or administrative
agency action will restrict or eliminate these sources of supply. Jan Bell has
identified alternate sources of supply, although the cost of certain products
may increase or their availability may be lessened.
EMPLOYEES
As of April 28, 1995, the Company employed approximately 1031 persons on a
full-time basis, including approximately 688 in regional and local sales
(primarily the Sam's retail locations), 194 in inventory and distribution and
149 in administrative and support functions. In addition, the Company also
employed approximately 785 persons on a part-time basis which varies with the
seasonal nature of its business. None of its employees are governed by a
collective bargaining agreement, and the Company believes that its relations
with employees are good.
10
ITEM 2. PROPERTIES
PROPERTIES AND LEASES
The Company's corporate headquarters are owned by the Company and located
on 3.7 acres in a 60,000 square foot building in Sunrise, Florida. The Company
owns an additional 11.1 acres adjacent to the headquarters facility, on which a
123,000 square foot building for use primarily in distribution and shipping
was completed during 1994.
The Company leases one distribution and one office facility with an
aggregate of approximately 7,000 square feet in Mexico City pursuant to a lease
which expires in May 1996. The Company leases facilities in Israel of 3,800
square feet for manufacturing and 1,140 square feet for production and offices.
As of May 9, 1995, the Company had leased department operations at 419
Sam's club locations in 48 states throughout the United States and Puerto Rico.
The typical leased department consists of approximately 260 to 275 square feet.
ITEM 3. LEGAL PROCEEDINGS
The Company is from time to time involved in litigation incident to the
conduct of its business. There are no pending legal proceedings reportable
pursuant to this Item 3.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders in
the fourth quarter of the fiscal year ending January 28, 1995.
11
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The Company's Common Stock has been listed on the American Stock Exchange
since the Company's initial public offering in August 1987. The following
table sets forth for the periods indicated the range of sales prices per share
on the American Stock Exchange Composite Tape as furnished by the National
Quotation Bureau, Inc.
High Low
---- ---
Year Ending December 31, 1993
First Quarter .............................. $20.63 $14.88
Second Quarter ............................. 18.38 13.25
Third Quarter .............................. 14.00 8.50
Fourth Quarter ............................. 13.13 8.63
Year Ending January 28, 1995
First Quarter .............................. $ 7.38 $ 5.38
Second Quarter ............................. 6.50 4.75
Third Quarter .............................. 7.50 4.88
Fourth Quarter ............................. 5.75 2.31
The last reported sales price of the Common Stock on the American Exchange
Composite Tape on April 28, 1995 was $2.75. On April 28, 1995, the Company had
942 stockholders of record.
The Company has never paid a cash dividend on its Common Stock. The
Company currently anticipates that all of its earnings will be retained for use
in the operation and expansion of its business and does not intend to pay any
cash dividends on its Common Stock in the foreseeable future. Any future
determination as to cash dividends will depend upon the earnings, capital
requirements and financial condition of the Company at that time, applicable
legal restrictions and such other factors as the Board of Directors may deem
appropriate. Currently, the Company's credit facility and senior debt prohibit
dividend payments.
ITEM 6. SELECTED FINANCIAL DATA
The following selected data should be read in conjunction with the
Consolidated Financial Statements and Related Notes thereto appearing elsewhere
in this Form 10-K and "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS."
12
Fifty-two
weeks ended
January 28, Years Ended December 31,
----------- -------------------------------------------
1995 1993 1992 1991 1990
---- ---- ---- ---- ----
(in thousands, except per share data)
INCOME STATEMENT DATA:
Net Sales $305,685 $275,177 $333,521 $224,261 $177,246
Less: Effect of Sam's agreement (1) --- 99,718 --- --- ---
-------- -------- -------- -------- --------
305,685 175,459 333,521 224,261 177,246
-------- -------- -------- -------- --------
Cost of Sales 263,979 245,310 276,872 184,447 151,466
Less: Effect of Sam's agreement (1) --- 79,687 --- --- ---
-------- -------- -------- -------- --------
263,979 165,623 276,872 184,447 151,466
-------- -------- -------- -------- --------
Gross profit 41,706 9,836 56,649 39,814 25,780
Selling, general and administrative expenses 60,048 44,492 34,826 23,685 15,093
Other charges (2) 47,773 10,217 --- 6,440 ---
Currency devaluation 5,474 --- --- --- ---
-------- -------- -------- -------- --------
Operating income (loss) (71,589) (44,873) 21,823 9,689 10,687
Interest expense 3,534 3,195 916 2,419 757
Interest and other income 419 635 550 3,033 3,444
-------- -------- -------- -------- --------
Income (loss) before income taxes and
minority interest (74,704) (47,433) 21,457 10,303 13,374
Income tax provision (benefit) 353 (11,709) 6,682 2,674 4,052
Minority interest in consolidated
joint venture --- --- --- 684 2,569
-------- -------- -------- -------- --------
Net income (loss) $(75,057) $(35,724) $ 14,775 $ 6,945 $ 6,753
======== ======== ======== ======== ========
Net income (loss) per common share $ (2.92) $ (1.40) $ .59 $ .31 $ .30
======== ======== ======== ======== ========
BALANCE SHEET DATA (AT PERIOD END):
Working capital $ 88,742 $174,496 $198,043 $140,855 $154,148
Total assets 186,752 312,254 301,958 228,833 208,898
Notes payable, less amounts classified as current --- 33,496 33,047 --- 18,001
Stockholders' equity 127,335 205,382 234,974 208,248 172,940
- ---------------------------
(1) As a result of the new agreement with Sam's, the Company recorded a sales
reversal of $99.7 million for the amount of inventory previously sold by
Jan Bell to Sam's which was subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time
charge to pre-tax earnings. (See Note B to the Consolidated Financial
Statements.)
(2) Other charges in the fifty-two weeks ended January 28, 1995, include (a)
$23.8 million write-off of Goodwill associated with the 1991
acquisition of the minority interest in the Big Ben '90 joint venture; (b)
$17.7 million to provide for liquidation of inventory predominantly sold
in the wholesale watch division, which the Company has decided to close,
and certain other inventory in order to raise cash for liquidity purposes
as a result of the uncertain status of credit availability due to the
Company's failure to comply with certain covenants in its debt agreements,
and $2.7 million for obligations under licensing agreements for the use of
trade names on watches previously sold in the wholesale
division; (c) $3.0 million in payments to and provisions for severance for
terminated employees and the settlement of certain employment contracts in
connection with the closing of the wholesale watch division and the
buy-out of the unvested portions of bonus stock awards; and (d) other
costs of $.6 million, consisting of financing costs incurred primarily in
connection with the senior notes and bank credit facility agreements which
contain certain covenants with which the Company failed to comply, less a
recovery of previously accrued expenses resulting from the settlement of
the terminated lease department agreement with Pace Membership Club,
Inc. (See Note K to the Consolidated Financial Statements.)
Other charges in 1993 are approximately $6.0 million in one-time charges
related to the Sam's agreement and other retail transition costs, and
charges of $4.2 million related to compensation costs in connection with
the departure of the former Chairman of the Board of Directors. Other
charges in 1991 include expenses
13
of $2.0 million incurred as a result of the terminated acquisition of
Michael Anthony Jewelers, Inc. in August of that year, and $4.4 million
for the settlement of certain class action litigation. (See Note K to the
Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
1993 AND 1994 - AN OVERVIEW
The year 1993 was one of transition for the Company. Prior to 1993, the
Company was contractually the primary supplier of fine jewelry, watches and
fragrances to all present and future Sam's Wholesale Clubs ("Sam's"). In May
1993, the Company entered into an agreement with Sam's to operate an exclusive
leased jewelry department at all existing and future Sam's locations through
February 1, 1999, later extended to February 1, 2001. The operational rollout
began on September 21, 1993 and was completed on October 28, 1993, during which
time the Company took over the operations of the then existing 331 jewelry
departments at Sam's.
Under the terms of the agreement, the Company purchased Sam's existing
inventory including goods that Sam's had previously purchased from the Company
as well as from other vendors. In addition, as consideration for this
agreement, the Company paid to Sam's a one-time fee of $7.0 million which is
being amortized by the Company over the term of the contract. The Company pays
a tenancy fee to Sam's of 9% of net sales (9.25% prior to April 1994).
As a result of this new agreement with Sam's, the Company recorded a sales
reversal of $99.7 million in 1993 for the amount of inventory previously sold
by Jan Bell to Sam's which became subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time charge
to 1993 pre-tax earnings. In connection with the transition to become a
fully-integrated retailer, Jan Bell also incurred approximately $6.0 million
(included in "Other Charges") additional one-time charges. (See Note B to the
Financial Statements.)
When the Company began operating the departments, its operating expenses
increased significantly for items such as payroll, tenancy and other costs
typically associated with retail operations, as well as interest costs
associated with the inventory repurchase.
In November 1993, Wal-Mart Stores, Inc. announced that it would purchase
most of the Pace locations and would operate them as Sam's. The Pace locations
not being acquired would be closed. As of the date of the announcement, Jan
Bell was operating the jewelry department at all 117 Pace locations, of which
30 were closed after the Christmas selling season and 87 were converted to
Sam's during January 1994. Jan Bell continues to operate its jewelry
departments in the converted locations in accordance with the terms of the
leased department arrangement with Sam's.
Following the operational transition at the field level, the Company
recognized the need for additional retail management expertise. In the second
quarter of Fiscal 1994, senior department and specialty store executives were
recruited as new Board members, and the Board hired a new C.E.O. New
management then began assessing the Company's strategic strengths and direction.
In the Company's retail operations, merchandising flexibility was limited
in Fiscal 1994 by the effects of the Sam's repurchase agreement. The Company
began the fifty-two week period ended January 28, 1995 with an
14
excessive inventory level of $177.5 million, and a remaining financial
obligation to Sam's of $42.5 million, the final payment for which was due in
May 1994. To generate cash for this payment, the Company reduced inventory by
not replenishing stock as it was sold. New merchandise was brought in during
the third and fourth quarters.
In late Fiscal 1994, as part of the fiscal 1995 planning process,
management and the new Board reviewed the 1994 results of all lines of business
and their attendant cost structures. This process resulted in the following
decisions.
First, the Company's domestic manufacturing operations engaged in the
manufacturing of fixtures for the Company's retail locations and various gem
and gold products were closed.
Second, staffing levels were reduced at the Company's headquarters, other
operational expenses were reduced, and merchandising programs were designed to
better manage retail sales, gross profit and the replenishment function.
Third, management also addressed the Company's wholesale watch division
which had evolved primarily into a low end watch business with product sourcing
in the parallel markets and which contributed disproportionately to expense.
With no perceived opportunity to improve the performance of this division,
management closed the wholesale watch operations, made the decision to
liquidate the existing wholesale watch inventory on an expedited basis,
established reserves against inventory based upon its estimated net
realizable value, accrued the obligations of terminating contractual
obligations and wrote off the remaining Goodwill associated with the
1991 acquisition of the minority interest in Big Ben 90. (See Note K
to Financial Statements.)
CHANGE IN FISCAL YEAR
In February 1994, the Company determined to change its fiscal year from
December 31 to a retail 52/53 week fiscal year ending on the last Sunday of
each January. This was subsequently changed to the last Saturday of each
January. The fifty-two weeks ended January 28, 1995 is referred to as Fiscal
1994 and the years ended December 31, 1993 and 1992 as Fiscal 1993 and Fiscal
1992, respectively.
RECENT EVENTS
In the fall of 1994, the Company notified its three senior noteholders,
(collectively, the "Noteholders") that the Company would not be in compliance
with certain financial covenants contained in its senior note agreement
relating to the Company's 6.99% Senior Notes due October 8, 1999 (the "Notes").
The Company entered into a forbearance agreement with the Noteholders which
contemplated restructuring these covenants by late February, 1995. In light of
the foregoing and a parallel default under the Company's working capital
facility, the Company's working capital lender also sought to restructure
the Company's $50 million unsecured revolving bank credit facility. Discussions
with its working capital lender and with alternative potential working capital
lenders led the Company to conclude that a secured facility would be required.
A secured working capital facility raised priority issues with the Noteholders,
who subsequently indicated that they would also need to be secured. After
reviewing proposals from its existing and alternative lending institutions, the
Company decided to enter into a new working capital facility (the "Working
Capital Facility") with GBFC, Inc. ("GBFC"), an affiliate of Gordon Brothers,
Inc., and Foothill Capital Corporation ("Foothill" and, together with GBFC, the
"Working Capital Lenders"). Based upon the Company's anticipated consummation
of the Working
15
Capital Facility, the Noteholders then proposed terms for restating and amending
the Notes.
Although the transactions with each of the Noteholders and the Working
Capital Lenders (collectively, the "Transactions") are still being negotiated,
the Company is in the process of completing documentation which would provide,
among other things, for the Company to prepay $8.5 million in principal amount
of the Notes and to restructure the remaining $26.5 million in principal amount
of the Notes. The Notes (as amended, the "Amended Notes") would mature on
February 1, 1998, would be secured and would bear interest for the period (a)
from closing to January 31, 1997, at a fixed amount equal to the greater of (i)
an annual rate of 12% and (ii) the rate applicable to the Working Capital
Facility plus 200 basis points and (b) from February 1, 1997 to maturity, at an
annual rate of 16%. Two principal prepayments in the amounts of $9 million
and $10 million, respectively, would be payable on February 1, 1996 and
February 1, 1997.
The Company is also completing documentation for the Working Capital
Facility, and has already entered into a commitment letter with the Working
Capital Lenders dated as of April 14, 1995, which provides for a $30 million
secured revolving bank credit facility. Availability under the Working Capital
Facility would be determined based upon a percentage formula applied to
inventory and accounts receivable. The Working Capital Facility would terminate
on May 31, 1997 and would bear interest at an annual rate of The First
National Bank of Boston's base rate plus 1.5%.
The Company's liability under the Amended Notes will be unconditionally
guarantied by all of its material direct and indirect 51% (or greater)
subsidiaries (the "Subsidiaries"). The liability under the Working
Capital Facility will be unconditionally guarantied by the Company and by the
Subsidiaries. Each of the Noteholders and the Working Capital Lenders would
receive a blanket lien on all tangible and intangible assets of the Company and
the Subsidiaries. An Intercreditor Agreement among the Noteholders
and the Working Capital Lenders would provide that their respective security
interests in such collateral will be subject to certain relative priorities.
Further, the Company has agreed to grant to the Noteholders warrants (the
"Noteholder Warrants") to purchase shares equal to 5% of its fully diluted
voting common stock at an initial purchase price per share equal to the closing
market price on the date preceding the consummation of the Transactions (the
"Closing Date"). The Noteholder Warrants would vest as follows: 20% on the
Closing Date, 20% on February 2, 1996, 30% on February 2, 1997 and 30% on July
31, 1997 if any obligations under the Amended Notes remain outstanding on
such respective dates. Any vested Noteholder Warrants
would expire on May 1, 2005. The Company has agreed to grant to the Working
Capital Lenders warrants to purchase up to 175,000 shares of the Company's
voting common stock on terms substantially similar to the Noteholder Warrants.
The documentation reflecting each of the Transactions is in the
process of being finalized, but certain business, intercreditor and legal
issues remain outstanding and are being actively negotiated among the parties.
While the Company believes that such issues will soon be resolved, in the event
that the Transactions are not consummated, the Company would be required to seek
alternative financing arrangements. In the event that the Transactions are not
consummated, the Company, in light of the seasonal nature of its business,
would nevertheless be able to meet its financial requirements (assuming
forebearance by the Noteholders) through the second quarter of 1995. However,
the Company would be required to consummate alternative financing arrangements
within said time period in order to meet its capital requirements for the 1995
Christmas season.
16
RESULTS OF OPERATIONS
The following table sets forth for the periods indicated the percentage of
net sales for certain items in the Company's Statements of Operations:
17
Income and Expense Items as a
Percentage of Net Sales (1)
------------------------------------------
52 Weeks Ended Years Ended December 31,
January 28,1995 1993 1992
--------------- ---- ----
Net sales (1) 100.0% 100.0% 100.0%
Cost of sales (1) 86.4 89.1 83.0
----- ----- -----
Gross profit (1) 13.6 10.9 17.0
Net effect of Sam's agreement --- (7.3) ---
----- ----- -----
Gross profit 13.6 3.6 17.0
Selling, general and administrative expenses 19.6 16.2 10.5
Other charges 15.6 3.7 ---
Currency devaluation 1.8 --- ---
----- ----- -----
Income (loss) before interest and taxes (23.4) (16.3) 6.5
Interest expense 1.2 1.2 .3
Interest and other income .1 .2 .2
----- ----- -----
Income (loss) before income taxes (24.5) (17.3) 6.4
Provision (benefit) for income taxes .1 ( 4.3) 2.0
----- ----- -----
Net income (loss) (24.6)% (13.0)% 4.4%
===== ===== =====
(1) Excluding effect of Sam's agreement.
SALES
In Fiscal 1994, net sales were $305.7 million, an increase of $30.5 million
or 11.1% over Fiscal 1993. A significant portion of the sales increase is due
to Fiscal 1994 sales being recorded at retail prices to the club member as
opposed to Fiscal 1993, when for the first nine months of the year, sales were
recorded at wholesale prices to Sam's. The Company began Fiscal 1994 with
inventories significantly in excess of desired levels and curtailed its
merchandise purchases during Fiscal 1994 in order to reduce and rebalance
inventory levels. As a result, the Company experienced both sales and margin
pressures during Fiscal 1994. Management recognizes that a significant
improvement in both retail sales and margins must be achieved for the Company
to return to profitability in fiscal 1995.
Wholesale sales to customers other than Sam's were $43.8 million in 1994
compared to $42.0 million in Fiscal 1993. Due to the devaluation of the Mexican
peso in late Fiscal 1994, the Company anticipates that sales by its Mexican
subsidiary will be significantly lower in fiscal 1995 than in Fiscal 1994
reflecting the reduction in the Mexican consumer's disposable income.
In Fiscal 1993, net sales (excluding the effect of the Sam's agreement)
decreased $58.3 million. Approximately 85% of Fiscal 1993 net sales were
derived from the combined retail operations of Sam's and Pace. The remaining
15% was from the Company's wholesale operations in Mexico, Israel and the
United States.
The operational rollout at Sam's commenced on September 21, 1993 and was
completed on October 28, 1993. Until such time as the Company began operating
the departments, the Company continued to ship and bill Sam's under the same
terms as it did prior to the new agreement. However, beginning with the second
quarter of Fiscal 1993, Jan Bell recognized sales and costs of sales as goods
were sold to the club member rather than when goods were shipped to Sam's. The
sales continued to be recorded at Jan Bell's selling price to Sam's until such
time as Jan Bell began operating the departments at which point sales began to
be recorded at retail prices to the club member.
The transition period had a significant adverse impact on the Company
financially. Sales prior to the rollout were lost due to various factors,
including reduced merchandise levels, lower staffing levels by Sam's personnel
and a decline in the number of promotional events. These factors, when
18
combined with the closing of 30 Pace locations and the resultant loss of sales
even prior to the closings and the overall decline in same store sales at the
warehouse clubs, were the primary factors contributing to the Fiscal 1993
sales decline.
Sales in the future may be adversely impacted by general economic
conditions, the level of spending in the wholesale club environment and changes
to the Company's existing relationship with Sam's. The retail jewelry market is
particularly subject to the level of consumer discretionary income and the
subsequent impact on the type and value of goods purchased. With the
consolidation of the retail industry, the Company believes that competition
both within the warehouse club industry and with other competing general and
specialty retailers and discounters will continue to increase.
COST OF SALES AND GROSS PROFIT
Gross margin in Fiscal 1994 was 13.6% compared to 10.9% and 17.0% in
Fiscal 1993 and Fiscal 1992, respectively. The primary reason for the
improvement in gross margin in Fiscal 1994 can be attributed to an increase
in margins at the Company's retail locations and a reduction in inventory
shrinkage which was 1.9% of net sales in Fiscal 1994 compared to 3.5%
in Fiscal 1993.
Gross margin in Fiscal 1993 was primarily impacted by a number of
significant factors including the following. First, as a result of purchasing
more inventory than anticipated under the Sam's agreement, the Company had to
liquidate third party merchandise at below normal margin levels. Second, during
the fourth quarter, the Company recorded a provision for shrinkage which
approximated 5% of sales. Third, as a result of the inventory repurchase from
Sam's, the Company's normal fourth quarter purchases and manufacturing of
inventory were significantly curtailed. Due to the lower than normal level of
inventory production, certain costs which would normally relate to inventory
production were charged directly to cost of sales. Finally, due to the high
inventory levels, the Company determined that reserves had to be established
during the fourth quarter to address slow moving, valuation and damaged
inventory issues.
To reduce its exposure to the effects of changes in the price of its gold
inventories, the Company hedges its gold positions and commitments with gold
futures contracts. Accordingly, changes in the market value of gold during the
holding period are generally offset by changes in the market value of the
futures contracts.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased by $15.6 million in
Fiscal 1994 from Fiscal 1993 and $9.7 million in Fiscal 1993 from Fiscal 1992.
The increase in Fiscal 1994 is primarily reflective of the payroll and other
costs related to operating the Sam's leased departments for the entire Fiscal
1994 as opposed to only the fourth quarter of Fiscal 1993. The Fiscal 1993
increase reflected the higher costs associated with servicing approximately 100
additional retail locations in Fiscal 1993 versus Fiscal 1992 and the payroll
and other costs related to the Sam's leased department operation during the
fourth quarter of Fiscal 1993.
Future expenses will continue to be impacted by costs associated with the
Sam's leased department operation, systems and controls, and costs associated
with new marketing concepts, other promotional events and product development.
However, as a result of the closing of the wholesale and U.S. manufacturing
operations combined with reductions in staffing at the corporate
headquarters, management
19
believes that significant reductions in its selling, general and administrative
expenses will be achieved in 1995.
OTHER CHARGES
In Fiscal 1994, the Company recorded the following other charges,
aggregating $47.8 million. (See Note K to the Consolidated Financial
Statements.)
As a result of the decision to close the wholesale watch division and
other related factors, the Company concluded that it has not retained any of
the valuable elements obtained in the 1991 acquisition of the minority interest
of the Big Ben '90 joint venture. Also, the Company projects, based on
management's best estimate of future operating results for its remaining watch
business, that none of the balance of goodwill arising from the Big Ben '90
acquisition will be recovered. Accordingly, the remaining balance of goodwill
of $23.8 million as of January 28, 1995, has been written off.
In the fourth quarter of 1994, the Company made the decision to sell
certain inventory at significantly less than normal prices, resulting in an
estimated net realizable value below the cost of such inventory. This decision
was made (a) to liquidate the merchandise that was predominantly sold in the
wholesale watch division which was being closed in order to focus management's
attention on the Company's retail operations, and (b) to liquidate certain other
inventory on an expedited basis in order to raise cash for liquidity purposes as
a result of the uncertain status of credit availability due to the Company's
failure to comply with certain covenants in its debt agreements. As a result,
the Company recorded losses of $17.7 million to reflect such inventory at its
estimated net realizable value. Additionally, the Company provided $2.7 million
for obligations under licensing agreements for the use of trade names on watches
previously sold in the wholesale division.
In connection with the closing of the wholesale watch division, changes in
executive management and the reduction in the number of personnel, the Company
made payments to and provided for severance for terminated employees and the
settlement of certain employment contracts, aggregating $3.0 million.
As further discussed below, in Fiscal 1994 the Company did not comply with
certain covenants in the agreements related to its senior notes payable and bank
credit facility. As a result, the senior notes are callable at the discretion
of the noteholders and are classified as a current liability, and the Company
cannot borrow under the bank credit facility. The Company expensed $2.3
million in financing costs, which were incurred primarily in connection with
these agreements. Also, the Company was in the process of settling the
termination of the lease department agreement with Pace Membership Warehouse,
Inc., which resulted in a $1.7 million recovery of previously accrued expenses.
Included in Other Charges for 1993 are the previously mentioned $6.0
million of charges related to the Sam's agreement and retail transition and $4.2
million related to the compensation costs in connection with the departure of
the former Chairman of the Board of Directors, consisting primarily of the
acceleration of vesting of previously granted stock bonus awards and amounts due
under his employment contract.
CURRENCY EXCHANGE LOSS
The significant devaluation of the peso during the fourth quarter of
Fiscal 1994 resulted in a $5.5 million currency exchange loss.
20
INTEREST AND OTHER INCOME AND INTEREST EXPENSE
Interest and other income was $419,000 in Fiscal 1994, $635,000 in Fiscal
1993 and $550,000 in Fiscal 1992. The changes are not deemed to be significant.
Interest expense was $3.5 million in Fiscal 1994, $3.2 million in Fiscal
1993 and $900,000 in Fiscal 1992. The increase in Fiscal 1993 primarily is
attributable to the $35 million of Senior Notes payable which was outstanding
for all of Fiscal 1993 and Fiscal 1994, and only for three months in Fiscal
1992. In addition, average short-term borrowings were $9.2 million in Fiscal
1994 and $5.6 million in Fiscal 1993, and $4.1 million in Fiscal 1992.
INCOME TAXES
The Company's income tax provision/benefit was (0.5%), 24.7% and
31.1% of income (loss) before income taxes for Fiscal 1994, Fiscal 1993 and
Fiscal 1992, respectively. The Company has a Federal net operating loss
carryforward of approximately $30.2 million, and a state net operating loss
carryforward of approximately $69.9 million. The Federal net operating loss
carryforward expires beginning in 2008 and the state net operating loss
carryforward expires beginning in 1998 through 2008. The Company also has
an alternative minimum tax credit carryforward of approximately $847,000 to
offset future Federal income taxes. The changes in the effective rates
primarily relate to the valuation allowance on the net operating loss
carryforwards in Fiscal 1994 and Fiscal 1993, and the earnings in
Fiscal 1992 of the Company's subsidiaries in Israel.
When the Company purchased Exclusive Diamonds International, Limited
("EDI") in August of 1990, EDI applied to and received from the Israeli
government under the Encouragement of Capital Investments Law of 1959 "approved
enterprise" status, which results in reduced tax rates given to foreign owned
corporations to stimulate the export of Israeli manufactured products. This
benefit allows a favorable tax rate ranging from zero to ten percent during the
first ten years in which the subsidiary recognizes a profit. The "approved
enterprise" benefit is available to the Company until the year 2000.
Additionally, the Company has not provided for Federal and state income taxes
on earnings of foreign subsidiaries which are considered indefinitely invested.
Such adoption did not have a material effect on the financial statements. (See
Note H to the Consolidated Financial Statements.)
TRANSITION PERIOD
During the 30 day transition period of January 1 to January 30, 1994, the
Company incurred a net loss of approximately $4.5 million, which reflects the
historically weakest sales period without a corresponding decrease in general
and administrative expenses. The $27.5 million decrease in cash and
equivalents primarily resulted from the operating loss, payment to Sam's for
amounts owed on the inventory repurchased and payment of other liabilities
after the peak season.
LIQUIDITY AND CAPITAL RESOURCES
As of January 28, 1995, cash and cash equivalents totalled $28.2 million
and the Company had no short-term borrowings outstanding under its revolving
credit facility.
The Company's working capital requirements are directly related to the
amount of inventory required to support its retail, and formerly, its wholesale
operations. The Company began Fiscal 1994 with retail inventory in excess of
its needs, primarily due to the inventory purchased under the Sam's Club
agreement as previously discussed. Over the course of the year, inventory was
reduced providing the liquidity to fund its repurchase obligations to Sam's and
the Company's operating losses.
During fiscal 1995, based on discussions with Sam's Club, the Company
expects a very limited increase in the number of leased departments it operates,
and consequently does not foresee a need for a significant increase
21
in retail inventory. Capital expenditures for Fiscal 1995 are projected not to
exceed $2 million.
The Company's business is highly seasonal, with seasonal working capital
needs peaking in October and November, before the holiday shopping season. The
Company anticipates lower seasonal needs in Fiscal 1995 than in Fiscal 1994
because it will not be purchasing wholesale inventory.
In September 1994, the Company finalized a two year $50 million unsecured
revolving bank credit facility with an interest rate at the bank's prime rate
plus two percent, or two and one-half percent over LIBOR (London Interbank
Offered Rate) or the applicable secondary CD rate. No borrowings were
outstanding at January 28, 1995. During the fourth quarter of Fiscal 1994, the
Company failed to comply with financial covenants specified in the agreement
related to earnings and tangible net worth. As a result, the Company cannot
borrow under the facility.
In October 1992, the Company finalized a $35 million unsecured private
placement of senior notes with an interest rate of 6.99%. Interest is payable
semi-annually, and principal payments of $6.5 million are due annually
commencing April 1996, with a final principal payment of $9.0 million due in
October 1999. The financing agreement requires the Company to maintain various
financial ratios and covenants. During Fiscal 1994, the Company failed to
comply with covenants specified in the agreement related to earnings and
tangible net worth. As a result, the senior notes are callable at the
discretion of the noteholders and are classified as a current liability in the
January 28, 1995 consolidated balance sheet.
Management is in the process of negotiating revised terms and conditions
for the senior notes and, in addition, is negotiating with another lender for a
working capital credit facility of up to $30 million. However, there is no
assurance that these negotiations will be successful.
The senior notes being callable at the discretion of the Noteholders and
the Company's inability to borrow under the bank credit facility raise
substantial doubt regarding the Company's ability to continue as a going
concern. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty. See "RECENT EVENTS."
The Company believes that its cash on hand, projected cash from operations,
the expected proceeds from the liquidation of wholesale watch inventory and
working capital facility currently under negotiation, if successfully
consummated, will be sufficient to meet its debt service requirements and
anticipated working capital and capital expenditure needs for Fiscal 1995.
There can be no assurance that the Company's future operating results
will improve to the point where they will be sufficient to sustain such debt
service and working capital needs.
The Company has partially financed its peak seasonal inventory and
accounts receivable with short-term borrowings. During Fiscal 1994, Fiscal
1993 and Fiscal 1992, the Company's peak levels of inventory and accounts
receivable were $225.1 million, $275.5 million and $224.2 million and peak
outstanding short-term borrowings pursuant to lines of credit were $39.8
million, $20.0 million and $29.4 million respectively. Average amounts of
outstanding short-term borrowings for the respective years were $9.2 million,
$5.6 million and $4.1 million.
The Company's net capital expenditures were $6.3 million in Fiscal 1994,
$12.6 million in Fiscal 1993 and $6.7 million in Fiscal 1992. The Fiscal 1994
and 1993 expenditures reflect the costs associated with the new distribution
facility and fixturization costs associated with Sam's retail locations.
EFFECTS OF INFLATION
Gold prices are affected by political, industrial and economic factors and
by changing perceptions of the value of gold relative to currencies. Investors
commonly purchase gold and other precious metals perceived to be
22
rising in value as a hedge against a perceived increase in inflation, thereby
bidding up the price of such metals. The Company's sales volume and net income
are potentially affected by the fluctuations in prices of gold, diamonds and
other precious or semi-precious gemstones as well as watches and other
accessories. In general, the Company has historically sought to protect its
gold inventory against gold price fluctuations through its hedging transactions.
Hedging is not available with respect to possible fluctuations in the price of
precious and semi-precious gemstones, watches or other accessories.
The Company's selling, general and administrative expenses are directly
affected by inflation resulting in an increased cost of doing business.
Although inflation has not had and the Company does not expect it to have a
material effect on operating results, there is no assurance that the Company's
business will not be affected by inflation in the future.
23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX
Page No.
Independent Auditors' Report ......................... 25
Consolidated Balance Sheets as of January 28, 1995
and December 31, 1993 .......................... 26
Consolidated Statements of Operations for
the Fifty-Two Weeks Ended January 28, 1995
and for Each of the Two Years in the
Period Ended December 31, 1993 ................... 27
Consolidated Statements of Stockholders'
Equity for the Fifty-Two Weeks
Ended January 28, 1995 for Each of the Two
Years in the Period Ended
December 31, 1993 ................................ 28
Consolidated Statements of Cash Flows for the
Fifty-Two Weeks Ended January 28, 1995
for Each of the Two Years
in the Period Ended December 31, 1993 ............ 29
Notes to Consolidated Financial Statements............. 31
24
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Jan Bell Marketing, Inc.
Sunrise, Florida
We have audited the accompanying consolidated balance sheets of Jan Bell
Marketing, Inc. and its subsidiaries (the "Company") as of January 28, 1995 and
December 31, 1993, and the related consolidated statements of operations,
stockholders' equity, and cash flows for the fifty-two weeks ended January 28,
1995 and each of the two years in the period ended December 31, 1993. Our
audits also included the financial statement schedule listed at Item 14(a)(2).
These financial statements and financial statement schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of January 28, 1995
and December 31, 1993, and the results of their operations and their cash flows
for the fifty-two weeks ended January 28, 1995 and each of the two years in the
period ended December 31, 1993 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a
whole, present fairly, in all material respects, the information set forth
therein.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note G to
the consolidated financial statements, in the fifty-two weeks ended January 28,
1995, the Company failed to comply with earnings and tangible net worth
covenants in the agreements related to its senior notes payable and bank credit
facility. As a result, the senior notes are callable at the discretion of the
noteholders, and the Company cannot borrow under the bank credit facility.
Management is in the process of negotiating revised terms and conditions for
the senior notes and is negotiating with another lender for a working capital
credit facility; however, there is no assurance that these negotiations will
be successful. The senior notes being callable at the discretion of the
Noteholders and the Company's inability to borrow under the bank credit
facility raise substantial doubt regarding the Company's ability to continue
as a going concern. Management's plans in regard to these matters are also
described in Note G. The consolidated financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
DELOITTE & TOUCHE LLP
Certified Public Accountants
Fort Lauderdale, Florida
April 27, 1995
25
JAN BELL MARKETING, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
January 28, December 31,
1995 1993
----------- ------------
ASSETS
Current Assets:
Cash and cash equivalents $ 28,212 $ 30,178
Accounts receivable (net of
allowance for doubtful
accounts and sales returns:
1995-$5,630 and 1993-$3,428 12,156 22,064
Inventories (Notes C, E and K) 106,053 177,538
Refundable income taxes (Note H) 697 15,075
Prepaid expenses 834 1,103
Other current assets 207 1,914
-------- --------
Total current assets 148,159 247,872
Property, net (Notes C and F) 29,639 28,846
Excess of cost over fair
value of net assets acquired 2,869 27,850
(Notes C and K)
Other assets (Note B) 6,085 7,686
-------- --------
$186,752 $312,254
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 14,249 $ 29,339
Accrued expenses 10,067 8,734
Accrued lease payment 101 1,877
Liability for inventory
repurchased (Note B) --- 33,426
Senior notes payable
classified as current (Note G) 35,000 ---
-------- --------
Total current liabilities 59,417 73,376
-------- --------
Long-term debt (Note G) --- 33,496
-------- --------
Stockholders' Equity (Notes G, I and L):
Common stock, $.0001 par value,
50,000,000 shares authorized,
25,741,991 and 25,851,738 shares
issued and outstanding 3 3
Additional paid-in capital 178,896 180,367
Retained earnings/(deficit) (50,657) 28,871
Foreign currency translation
adjustment (907) ---
Deferred compensation (Note K) --- (3,859)
-------- --------
127,335 205,382
-------- --------
$186,752 $312,254
======== ========
See notes to consolidated financial statements.
26
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
Fifty Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
Net sales $305,685 $275,177 $333,521
Less:
Effect of Sam's
agreement (Note B) --- 99,718 ---
-------- -------- --------
305,685 175,459 333,521
-------- -------- --------
Cost of sales 263,979 245,310 276,872
Less:
Effect of Sam's
agreement (Note B) --- 79,687 ---
-------- -------- --------
263,979 165,623 276,872
-------- -------- --------
Gross profit 41,706 9,836 56,649
Selling, general and
administrative
expenses 60,048 44,492 34,826
Other charges (Note K) 47,773 10,217 ---
Currency Exchange
Loss (Note K) 5,474 --- ---
-------- -------- --------
Operating income (loss) (71,589) (44,873) 21,823
Interest expense (3,534) (3,195) (916)
Interest and other income 419 635 550
-------- -------- --------
Income (loss) before income
taxes (74,704) (47,433) 21,457
Income tax provision
(benefit) (Note H) 353 (11,709) 6,682
-------- -------- --------
Net income (loss) $(75,057) $ (35,724) $ 14,775
======== ======== ========
Net income (loss) per
common share $ (2.92) $ (1.40) $ .59
======== ========= ========
Weighted average number
of common shares 25,688,592 25,484,544 25,164,798
========== ========== ==========
See notes to consolidated financial statements.
27
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands except share data)
Common
Shares Common Paid-in Retained
Issued Stock Capital Earnings
---------- ------ -------- --------
Balance at December 31, 1991 25,448,780 $ 3 $170,488 $49,820
Purchase plan exercise 12,101 133
Exercise of options 844,178 8,132
Issuance of common stock 63,688 550
Exercise of warrants 141,717
Stock bonus plan issuance 43,200 584
Tax benefit on exercise of
stock options 2,271
Amortization of deferred
compensation
Net income 14,775
---------- ----- -------- --------
Balance at December 31, 1992 26,553,664 3 182,158 64,595
Purchase plan exercise 12,236 112
Exercise of options 37,580 323
Issuance of common stock 63,688 550
Stock bonus plan issuance 331,500 5,925
Repurchase of common stock
Retirement of treasury stock (1,149,500) (8,726)
401(k) Plan contribution 2,570 25
Amortization of deferred
compensation
Net loss (35,724)
---------- ----- -------- --------
Balance at December 31, 1993 25,851,738 3 180,367 28,871
Exercise of options 500 4
Amortization of deferred
compensation
Net loss (4,471)
---------- ----- -------- --------
Balance at January 30, 1994 25,852,238 3 180,371 24,400
Purchase plan exercise 19,065 78
Issuance of common stock 63,688 990
Issuance of stock warrants 826
Settlement of stock awards (193,000) (3,369)
Amortization of deferred
compensation
Foreign currency
translation adjustment
Net loss (75,057)
---------- ----- -------- --------
Balance at January 28, 1995 25,741,991 3 $178,896 $(50,657)
========== ===== ======== ========
Foreign
Currency Total
Treasury Deferred Translation Stockholders'
Stock Compensation Adjustment Equity
-------- ------------ ----------- -------------
Balance at December 31, 1991 $(8,468) $(3,595) $-0- $208,248
Purchase plan exercise 133
Exercise of options 8,132
Issuance of common stock 550
Exercise of warrants
Stock bonus plan issuance (584) ---
Tax benefit on exercise of
stock options 2,271
Amortization of deferred
compensation 865 865
Net income 14,775
------ ------- ---- ----------
Balance at December 31, 1992 (8,468) (3,314) -0- 234,974
Purchase plan exercise 112
Exercise of options 323
Issuance of common stock 550
Stock bonus plan issuance (5,925)
Repurchase of common stock (258) (258)
Retirement of treasury stock 8,726
401(k) Plan contribution 25
Amortization of deferred
compensation 5,380 5,380
Net loss (35,724)
------ ------- ---- ----------
Balance at December 31, 1993 -0- (3,859) -0- 205,382
Exercise of options 4
Amortization of deferred
compensation 86 86
Net loss --- (4,471)
------ ------- ---- ----------
Balance at January 30, 1994 -0- (3,773) -0- 201,001
Purchase plan exercise 78
Issuance of common stock 990
Issuance of stock warrants 826
Settlement of stock awards 3,369
Amortization of deferred
compensation 404 404
Foreign currency
translation adjustment (907) (907)
Net loss (75,057)
------ ------- ---- ----------
Balance at January 28, 1995 $ -0- $ -0- $(907) $127,335
====== ======= ==== ========
See notes to consolidated financial statements.
28
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
Fifty-Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
Cash flows from operating
activities:
Cash received from customers $ 313,163 $ 319,907 $ 303,951
Cash paid to suppliers and
employees (292,249) (324,893) (296,273)
Interest and other income
received 419 635 411
Interest paid (3,534) (3,195) (348)
Income taxes (paid) received 14,348 499 (9,109)
-------- -------- --------
Net cash provided by(used in)
operating activities 32,147 (7,047) (1,368)
-------- -------- --------
Cash flows from investing
activities:
Capital expenditures (6,316) (12,611) (6,693)
Increase in other assets --- --- (966)
-------- -------- --------
Net cash (used in) investing
activities (6,316) (12,611) (7,659)
-------- -------- --------
Cash flows from financing
activities:
Proceeds from long-term
debt financing --- --- 35,000
Debt financing costs --- --- (1,953)
Proceeds from exercise
of options --- 323 8,132
Proceeds from issuance of
common stock --- 25 ---
Stock purchase plan payments
withheld 78 112 104
Purchase of treasury stock --- (258) ---
-------- -------- --------
Net cash provided by
financing activities 78 202 41,283
-------- -------- --------
Net increase (decrease) in cash
and cash equivalents 25,909 (19,456) 32,256
Cash and cash equivalents at
beginning of year 2,303 49,634 17,378
-------- -------- --------
Cash and cash equivalents at
end of year $ 28,212 $ 30,178 $ 49,634
======== ======== ========
29
JAN BELL MARKETING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
(continued)
Fifty-Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
Reconciliation of net income (loss)
to net cash provided by (used in)
operating activities:
Net income (loss) $(75,057) $(35,724) $14,775
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization 9,147 6,761 5,076
Goodwill write-off 23,795 --- ---
Foreign currency translation
adjustment (907) --- ---
Stock compensation expense 404 5,929 1,415
Debt financing costs --- 449 ---
(Increase) decrease
in assets:
Accounts receivable
(net) 7,478 44,730 (29,571)
Inventories 79,306 (70,799) (4,348)
Refundable income taxes 14,348 (9,688) ---
Prepaid expenses 124 241 (536)
Other assets 998 (4,207) (1,559)
Customer deposit --- 15,822 ---
Increase (decrease) in
liabilities:
Accounts payable (10,430) 3,488 14,357
Accrued expenses 1,107 4,607 1,268
Liability for inventory
repurchased (18,166) 33,426 ---
Deferred income taxes --- (2,082) (2,245)
-------- -------- --------
Net cash provided by (used in)
operating activities $ 32,147 $ (7,047) $ (1,368)
======== ======== ========
See notes to consolidated financial statements.
30
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
A. The Company:
The Company is principally engaged in the sale of jewelry, watches and
other consumer products through leased departments in wholesale clubs and
formerly through its own wholesale operations. During the fifty-two weeks
ended January 28, 1995 ("Fiscal 1994"), the Company generated approximately 85%
of its net sales from Sam's customers. Accordingly, the Company is dependent on
Sam's to conduct its business and the loss of the leased department arrangement
with Sam's would have a material adverse effect on the business of the Company.
Thesignificant change in the Company's business from being primarily a
wholesale operation in prior years to primarily a retail operation in Fiscal
1994 makes comparisons with historical operating results not meaningful or
practicable.
B. Agreement with Sam's Wholesale Club:
In May 1993, the Company entered into an agreement (the "Agreement") to
operate an exclusive leased department at all existing and future Sam's
Wholesale Club ("Sam's") locations through February 1, 1999. In March 1994, the
agreement was extended to February 1, 2001. Under the terms of the Agreement,
the Company purchased Sam's existing inventory which included goods Sam's had
previously purchased from the Company as well as from other vendors. As
consideration for entering into the Agreement, the Company paid to Sam's a
one-time fee of $7.0 million, which is included in Other Assets and is being
amortized over the term of the Agreement. The unamortized amount as of January
28, 1995 was approximately $5.6 million. The Company pays Sam's a tenancy fee
of 9% (9.25% prior to April 1994) of net sales.
As a result of this new Agreement with Sam's, in 1993 the Company recorded
a sales reversal of $99.7 million for the amount of inventory previously sold by
Jan Bell to Sam's which became subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time charge
to pre-tax earnings. In connection with the transition to become a
fully-integrated retailer, Jan Bell also incurred approximately $6.0 million
(included in "Other Charges"), including additional one-time charges for costs
such as hiring and training personnel, systems implementations, other activities
related to commencing operations under the new Agreement and the transition to
primarily retail operations, and a valuation adjustment for certain inventory
acquired which Sam's had purchased from other vendors in 1993.
During 1991, the Company entered into an agreement with Pace Membership
Warehouse ("Pace") to operate leased jewelry departments at all present and
future Pace locations and to merchandise fine jewelry, watches, fragrances, fine
writing instruments and sunglasses on an exclusive basis until January 1997. In
November 1993, Wal-Mart Stores, Inc. announced that it would purchase most of
the Pace locations and operate them as Sam's. The Pace
31
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
locations not being acquired would be closed. At that time, the Company was
operating leased jewelry departments at all 117 Pace locations, 30 of which
were closed and 87 of which were converted to Sam's locations during January
1994. The Company is operating leased jewelry departments in the converted Pace
locations in accordance with the Agreement.
C. Summary of Significant Accounting Policies:
(1) Principles of Consolidation -- The consolidated financial statements
include the accounts of the Company and its wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in the
consolidation.
(2) Sales of Consignment Merchandise -- Income is recognized on the sale
of consignment merchandise at such time as the merchandise is sold by the
consignee.
(3) Allowance for Sales Returns -- The Company generally gives its
customers the right to return merchandise purchased by them and records an
allowance at the time of sale for the amount of gross profit on estimated
returns.
(4) Hedging Activities -- The Company uses gold commodities futures
contracts to hedge gold inventories. Commodity futures contracts are contracts
for delayed delivery of commodities in which the seller agrees to make and the
purchaser agrees to take delivery at a specified future date of a specified
commodity, at a specified price. Risks arise from the possible inability of
counterparties to meet the terms of their contracts and from movements in
commodity values and interest rates. Gains and losses on futures used to hedge
gold inventories valued at cost are deferred and included in the determination
of income upon disposition of such inventories. Gains and losses on futures
contracts used to hedge gold inventories valued at market are included in the
determination of income currently. At January 28, 1995 the Company had futures
contracts maturing at various dates through August 1995, to sell 35,200 ounces
of gold at various specified prices for an aggregate of $13.7 million. U.S.
Treasury securities with a carrying value of $500,000 at January 28, 1995 and
December 31, 1993, respectively, have been pledged to cover margin requirements
under future contracts.
(5) Inventories -- Inventories of precious and semi-precious stones and
gem jewelry-related merchandise (and associated gold) watches, and other
consumer products are valued at the lower of cost (first-in, first-out method)
or market.
32
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
Inventories of gold jewelry-related merchandise, exclusive of the gold
component of precious and semi-precious gem jewelry related inventories, are
valued principally at market, which includes adjustments for unrealized gains or
losses.
Costs incurred in acquiring, receiving, preparing and distributing
inventory to the point of being ready for sale are included in inventory.
(6) Property -- Property is stated at cost and is depreciated using the
straight-line method over the following estimated useful lives of the respective
assets:
Estimated
Asset Useful Life
----- -----------
Building 30 years
Furniture and fixtures 5 years
Leasehold improvements 5 years
Automobiles and trucks 3 years
(7) Income Taxes -- The Company adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes," ("SFAS No. 109") effective
January 1, 1993. Under SFAS 109, deferred income taxes reflect the net tax
effects of (a) temporary differences between the carrying amounts of assets and
liabilities for financial reporting purposes and the amounts used for income tax
purposes, and (b) operating loss and tax credit carryforwards.
(8) Net Income (Loss) Per Common Share -- Net income (loss) per common
share is based upon the weighted average number of shares of common stock
outstanding in each period, adjusted for the dilutive effects, if any, of
options granted under the Company's option plans.
(9) Cash and Cash Equivalents -- For the purpose of the statements of cash
flows, the Company considers all highly-liquid investments purchased with
maturities of three months or less to be cash equivalents.
(10) Cost in Excess of Fair Value of Assets Acquired ("Goodwill") -- The
Company periodically evaluates the recoverability of the carrying amount of
Goodwill based on projected operating income. As discussed in Note K, in 1994
the Company wrote-off the unamortized balance of Goodwill associated with the
1991 acquisition of the minority interest in Big Ben '90 amounting to $23.8
million. The remaining Goodwill is being amortized on the straight line basis
over 20 years. Accumulated amortization of these assets at January 28, 1995
and December 31, 1993 was approximately $1.1 million and $2.7 million,
respectively. Amortization expense for Fiscal 1994, 1993 and 1992 was
approximately $1.1 million in each year.
33
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
(11) Reclassifications - Certain reclassifications have been made to the
prior consolidated financial statements to conform to the current presentation.
D. Change in Fiscal Year
In 1994, the Company changed its fiscal year from a calendar year ending
on December 31 to a retail 52/53 week fiscal year ending on the last Sunday
(which was subsequently changed to the last Saturday) of each January. The
first such fiscal year began on January 31, 1994 and ended on January 28,
1995. The following is condensed information regarding the consolidated
results of operations and cash flows for the 30 day transition period of
January 1, 1994 to January 30, 1994 (in thousands, except per share data):
CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
Net sales $ 7,384
--------
Gross profit 689
--------
Net loss (4,471)
--------
Net Loss per common share (.17)
--------
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
Net cash (used in) operating activities $(27,469)
Net cash (used in) investing activities (408)
Net cash provided by financing activities 2
--------
Net decrease in Cash and Cash Equivalents (27,875)
Cash and Cash Equivalents at Beginning of Period 30,178
--------
Cash and Cash Equivalents at End of Period $ 2,303
--------
Reconciliation of Net Loss to Net Cash
(Used In) Operating Activities:
Net Loss $ (4,471)
Depreciation and amortization 747
Stock compensation expense 417
(Increase) in current assets (4,180)
(Decrease) in current liabilities (19,982)
--------
Net cash (used in) operating activities $(27,469)
========
34
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
E. Inventories:
Inventories are summarized as follows:
January 28, December 31,
1995 1993
---------- -----------
(amounts shown in thousands)
Precious and semi-precious jewelry-
related merchandise (and associated
gold):
Raw materials $ 8,617 $ 10,885
Finished goods 41,775 57,158
Gold jewelry-related merchandise:
Raw materials 2 13
Finished goods 18,305 26,794
Watches 27,461 62,688
Other consumer products 9,893 20,000
-------- --------
$106,053 $177,538
======== ========
F. Property:
The components of property are as follows:
January 28, December 31,
1995 1993
---------- -----------
(amounts shown in thousands)
Land $ 4,171 $ 4,171
Buildings 10,758 4,384
Furniture and fixtures 31,352 26,649
Leasehold improvements 394 514
Automobiles and trucks 546 892
------- --------
47,221 36,610
Less accumulated depreciation (17,582) (12,055)
------- --------
29,639 24,555
Construction in progress-distribution center --- 4,291
------- --------
$29,639 28,846
======= ========
Depreciation expense for the years ended January 28, 1995, December 31,
1993 and 1992 was approximately $5.5 million, $4.6 million and $3.6 million
respectively.
35
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
G. Financing Arrangements and Going Concern Considerations
GOING CONCERN CONSIDERATIONS
The accompanying financial statements are prepared assuming that the
Company will continue as a going concern. In Fiscal 1994, the Company incurred
a net loss of $75.1 million which, as discussed below, caused the Company to
fail to comply with earnings and tangible net worth covenants in the agreements
related to the senior notes payable and bank credit facility. As a result, the
senior notes are presently callable at the discretion of the noteholders, and
the Company cannot borrow under the bank line of credit. Management is in the
process of negotiating revised terms and conditions for the senior notes and,
in addition, is negotiating with another lender for a working capital credit
facility of up to $30 milion. However, there is no assurance that these
negotiations will be successful. The senior notes being callable at the
discretion of the Noteholders and the Company's inability to borrow under the
bank credit facility raise substantial doubt regarding the Company's ability to
continue as a going concern. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
FINANCING ARRANGEMENTS
In September 1994, the Company finalized a two year $50 million unsecured
revolving bank credit facility with an interest rate at the bank's prime rate
plus two percent, or two and one-half percent over LIBOR (London Interbank
Offered Rate) or the applicable secondary CD rate. No borrowings were
outstanding at January 28, 1995. During the fourth quarter of Fiscal 1994, the
Company failed to comply with financial covenants specified in the agreement
related to earnings and tangible net worth. As a result, the facility has been
effectively terminated, and the costs incurred in connection with the agreement
have been charged to expense.
In October 1992, the Company finalized a $35 million unsecured private
placement of senior notes with an interest rate of 6.99%. Interest is payable
semi-annually, and principal payments of $6.5 million are due annually
commencing April 1996, with a final principal payment of $9.0 million due in
October 1999. The related agreement requires the Company to maintain various
financial ratios and covenants, and prohibits the payment of dividends. During
Fiscal 1994, the Company failed to comply with covenants specified in the
agreement related to earnings and tangible net worth. As a result, the senior
notes are callable at the discretion of the noteholders and are classified as a
current liability in the January 28, 1995 consolidated balance sheet, and the
costs incurred in connection with the agreement have been charged to expense.
Management is in the process of negotiating revised terms and conditions
for the senior notes and is negotiating with another lender for a working
capital credit facility of up to $30 million. However, there is no assurance
that these negotiations will be successful.
36
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
Information concerning the Company's short-term borrowings follows:
Fifty-Two
Weeks ended
January 28, Year ended December 31,
---------- ----------------------
1995 1993 1992
---- ---- ----
(amounts shown in thousands)
Maximum borrowings outstanding
during the period........... $39,750 $19,950 $29,400
Average outstanding balance
during the period........... 9,239 5,607 4,092
Weighted average interest rate
for the period.............. 8.61% 6.00% 6.00%
37
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
H. Income Taxes:
Effective January 1, 1993, the Company adopted SFAS No. 109. SFAS No. 109
superseded SFAS No. 96, "Accounting for Income Taxes," which the Company
previously used. There was no material effect of adopting SFAS No. 109 on the
Company's financial statements. The tax effects of significant items composing
the Company's net deferred taxes as of January 28, 1995 and December 31, 1993
are as follows:
January 28, December 31,
1995 1993
----------- -----------
(amounts shown in thousands)
Deferred Tax Liabilities:
Difference between book and tax
basis of property $ 870 $ 331
Unrealized gains on hedging, net --- 5,483
Other --- 34
------- -------
$ 870 5,848
------- -------
Deferred Tax Assets:
Sales returns and doubtful accounts
allowances not currently deductible 5,418 1,942
Inventory reserves not currently
deductible 5,164 579
Federal net operating loss and
tax credit carryforward 11,415 5,084
State net operating loss carryforward 4,893 3,376
Charitable contribution carryforward 60 43
Other 1,053 1,660
------- -------
28,003 12,684
------- -------
Valuation allowance 27,133 6,836
------- -------
Net Deferred Tax Asset/Liability $ --- $ ---
======= =======
38
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
The components of income (loss) before income taxes are as follows:
Fifty Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
(amounts shown in thousands)
Domestic $(70,650) $(51,665) $14,132
Foreign ( 4,054) 4,232 7,325
-------- -------- -------
$(74,704) $(47,433) $21,457
======== ======== =======
39
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
The current and deferred income tax components of the provision (benefit)
for income taxes consist of the following:
Fifty Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
(amounts shown in thousands)
Current:
Federal $ --- $(10,170) $ 6,887
State --- --- 1,165
Foreign 353 543 875
-------- -------- -------
353 (9,627) 8,927
Deferred:
Federal --- (1,778) (1,917)
State --- (304) (328)
-------- -------- -------
--- (2,082) (2,245)
-------- -------- -------
$ 353 $(11,709) $ 6,682
======== ======== =======
The provision (benefit) for income taxes varies from the amount computed by
applying the statutory rate for reasons summarized below:
Fifty Two Year Ended
Weeks Ended ----------------------------
January 28, December 31, December 31,
1995 1993 1992
----------- ----------- -----------
(amounts shown in thousands)
Statutory rate 35.0% 35.0% 34.0%
Benefit of graduated rates --- (1.0) ---
State taxes (net of federal
benefit) --- .4 2.6
Tax effect of income from
foreign subsidiaries (.5)% 1.9 (7.5)
Valuation allowance (35.0) (14.4) ---
Other --- 2.8 2.0
---- ----- -----
(.5)% 24.7% 31.1%
==== ===== =====
The Company has a Federal net operating loss carryforward, of approximately
$30.2 million and a state net operating loss carryforward of approximately $69.9
million. The Federal net operating loss carryforward expires beginning in 2008
and the state net operating loss carryforward expires beginning in 1998 through
2008. The Company also has an alternative minimum tax credit carryforward of
approximately $847,000 to offset future regular federal income taxes.
40
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
At the time the Company purchased Exclusive Diamonds International, Limited
("EDI") in August of 1990, EDI applied to and received from the Israeli
government under the Capital Investments Law of 1959 "approved enterprise"
status, which results in reduced tax rates given to foreign owned corporations
to stimulate the export of Israeli manufactured products. The benefit to the
Company amounted to approximately $0.7 million or $0.03 per share, $1.2 million
or $0.05 per share, and $2.0 million or $0.08 per share, in Fiscal 1994, 1993
and 1992, respectively. The "approved enterprise" tax benefit is available to
EDI until the year 2000.
The Company has not provided Federal and state income taxes on
approximately $8.3 million of undistributed earnings of foreign subsidiaries
which it considers invested in such subsidiaries indefinitely. The amount of
unrecognized deferred tax liability on the unremitted earnings of the foreign
subsidiaries at January 28, 1995 approximates $3.2 million exclusive of any
benefit from utilization of foreign tax credits. At January 28, 1995, the
Company has approximately $1.8 million of unrecognized foreign tax credits
which, depending on circumstances, may be available to reduce federal income
taxes on the unremitted earnings of the foreign subsidiaries in the event such
earnings are repatriated.
I. Commitments and Contingencies:
(1) At January 28, 1995, commitments under letters of credit amounted to
$2.0 million.
(2) At January 28, 1995, under various licensing and agency agreements,
the Company is obligated to pay minimum amounts approximating $1.8 million in
the aggregate in 1995 and 1996.
(3) The Company has warrants outstanding to purchase 700,000 shares of
common stock. The warrants expire December 16, 1998 and have an exercise price
of $24.70.
(4) In connection with the acquisition of EDI, the Company entered into
non-compete agreements with the prior owners which provide for the issuance of
an aggregate of 317,881 shares of the Company's common stock over five years
commencing August 1991. During Fiscal 1994, 1993 and 1992, 63,688 shares
valued at $660,000 were issued each year.
J. Legal Proceedings:
The Company is from time to time involved in litigation incident to the
conduct of its business. While it is not possible to predict with certainty the
outcome of such matters, management believes that all litigation currently
41
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
pending to which the Company is a party will not have a material adverse effect
on the Company's financial position and results of operations.
K. Other Charges
The following is the composition of Other Charges in Fiscal 1994:
Goodwill write-off (1) $23,795,000
Losses on inventory liquidations (2) 20,428,000
Severance and executive compensation
settlements (3) 2,985,000
Other (4) 565,000
------------
Total $47,773,000
============
(1) In May 1990, the Company entered into an agreement with Big Ben
Corporation to form a joint venture, Big Ben '90, in which the Company held a
50.1% interest. In September 1991, the Company acquired the minority interest
in the joint venture in a transaction accounted for as a purchase, resulting in
a cost in excess of net assets acquired (goodwill) of $26.9 million. The
Company viewed the joint venture formation and acquisition as a means of
assuring adequate supplies of watches for sale at discount prices to its
existing significant customers, Sam's and Pace, and for new marketing
opportunities. Management perceived that the valuable elements of Big Ben '90
were: (a) contacts for access to parallel markets in order to
purchase
substantial quantities of watches for sale at lower price points; (b) personnel
with expertise to manage a wholesale watch division; (c) an existing wholesale
watch business; and (d) opportunities for expansion of the wholesale watch
business to new customers and through development of private label and designer
brand names for watches at lower price points.
In 1991 and 1992, the Company experienced increases in its watch business,
with watches accounting for 34% and 38% respectively, of net sales. A
significant portion of these sales increases occurred in promotional events at
lower price points. In subsequent years, sales of watches decreased to 26% of
net sales in 1993 and 22% in 1994, with further decreases expected in the
foreseeable future. These decreases, as well as the related decline in
profitability from sales of watches were caused by a number of factors,
including: (a) increased competition as watches at lower price points became
increasingly available, resulting in higher levels of returns and lower gross
margin; (b) marketing promotions of lower price point watches became
ineffective; (c) private label and designer brand name watch programs with lower
price points were unsuccessful; (d) efforts to expand the wholesale watch
business were not successful; and (e) the inventory of watches became
overstocked and the amount of watches in need of repair increased, resulting in
increased costs. In
42
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
addition, as discussed in Note B, in 1993 the Company became primarily a
retailer, and now operates leased jewelry departments in all Sam's locations.
During 1994, Sam's notified the Company that it wanted the Company to eliminate
lower end watches from the departments, and to instead offer primarily
recognized brands at higher price points.
These circumstances caused an evaluation of the wholesale watch business in
the latter half of 1994, and in the fourth quarter the Company made the decision
to close its wholesale watch division and liquidate the related inventory as
soon as practicable, resulting in significant inventory reserves as discussed
below. All key personnel from Big Ben '90 left the Company by year end. The
Company will now sell primarily recognized brand watches at higher price points
in the leased departments at Sam's. Also, while the Company will continue to
purchase watches in parallel markets, the sources and styles of the merchandise
purchased are different from those in Big Ben '90, and management plans to
reduce the parallel markets as the primary source for watches.
As a result of the events described above, as well as the decisions,
actions and plans of management, the Company has not retained any of the
valuable elements of the Big Ben '90 acquisition. Also, the Company projects,
based on management's best estimate of future operating results for its watch
business, that none of the remaining balance of Goodwill arising from the Big
Ben '90 acquisition will be recovered. Accordingly, the remaining balance of
such Goodwill of $23.8 million has been written off as of January 28, 1995.
(2) In the fourth quarter of 1994, the Company made the decision to sell
certain inventory at significantly less than normal prices, resulting in an
estimated net realizable value below the cost of such inventory. This decision
was made (a) to liquidate the merchandise that was predominantly sold in the
wholesale watch division which was being closed in order to focus management's
attention on the Company's retail operations, and (b) to liquidate certain other
inventory on an expedited basis in order to raise cash for liquidity purposes as
a result of the uncertain status of credit availability due to the Company's
failure to comply with certain covenants in its debt agreements as discussed in
Note G.
As a result, the Company recorded losses of $17.7 million to reflect such
inventory at its net realizable value. The consolidated balance sheet as of
January 28, 1995 includes allowances of $17.3 million related to inventory with
a cost of $35 million. Subsequent to January 28, 1995, the Company has sold a
portion of such inventory with a cost of $11.3 million resulting in $3.5
million being charged to such allowances. Additionally, the Company provided
$2.7 million for obligations under licensing agreements for the use of trade
names on watches previously sold in the wholesale division.
43
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
(3) In connection with the closing of the wholesale watch division, changes in
executive management and the reduction in the number of personnel, the Company
made payments to and provided for severance for terminated employees and the
settlement of certain employment contracts, aggregating $2.7 million. Accrued
expenses at January 28, 1995, include $1.6 million for such payments to be made
after year end. In addition, cash payments of $0.8 million were made during the
fourth quarter to buy-out the unvested portions of bonus stock awards,
resulting in a $0.3 million charge to expense, and the related remaining amount
of deferred compensation was eliminated by charging additional paid-in-capital.
(4) As discussed in Note G, the Company did not comply with certain covenants
in the agreements related to the senior notes payable and the bank credit
facility, and financing costs of $2.3 million incurred primarily in connection
with these original agreements have been charged to expense. Additionally,
the Company settled the termination of the lease department agreement with
Pace Membership Warehouse, Inc., which resulted in a $1.7 million recovery of
previously accrued expenses.
Included in Other Costs in 1993 are the $6.0 million in charges discussed
in Note B related to the Sam's agreement and retail transition. Also included
are compensation costs of $4.2 million in connection with the departure of the
former Chairman of the Board of Directors on March 29, 1994, consisting
primarily of the acceleration of vesting of previously granted stock bonus
awards and amounts due under his employment contract.
L. Stock Benefit Plans:
The Company maintains various stock option, bonus and purchase plans for
the benefit of its employees, officers, directors and certain third parties. A
summary of the activity in the stock option plans is as follows:
44
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
STOCK
OPTION PLANS
SHARES PRICE
====================================
Outstanding, December 31, 1992 1,046,380 $7.88-14.50
Granted 954,675 $9.00-19.63
Exercised (37,580) $7.88-13.25
Expired/cancelled (92,286) $7.88-13.50
------------------------------------
Outstanding, December 31, 1993 1,871,189 $7.88-19.63
Granted 21,620 $9.00- 9.00
Exercised ( 500) $7.88- 7.88
Expired/cancelled ( 9,524) $9.00-13.50
------------------------------------
Outstanding, January 30, 1994 1,882,785 $7.88-13.50
Granted 2,302,210 $4.00- 6.25
Exercised --- ---
Expired/cancelled (99,849) $6.25-13.50
------------------------------------
Outstanding, January 28, 1995 4,085,146 $4.00-19.63
Shares reserved under
the Plans 6,172,384
=========
As of January 28, 1995, options to purchase 1,255,960 shares were
exercisable.
A total of 562,500 shares are reserved for issuance under the Employee Stock
Purchase Plan of which 19,065, 12,236, and 12,101 shares were issued during the
years ended January 28, 1995 and December 31, 1993 and 1992, respectively.
M. Fair Value of Financial Instruments:
The following disclosure of the estimated fair value of financial instruments
is made in accordance with the requirements of SFAS No. 107, "Disclosures About
Fair Value of Financial Instruments." The estimated fair value amounts have
been determined by the Company, using available market information and
appropriate valuation methodologies. However, considerable judgment is
required in interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily indicative of
the amounts that would be realized in a current market exchange. The use of
different market assumptions and/or estimation methodologies may have a material
effect on the estimated fair value amounts.
45
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
(1) Cash and Cash Equivalents, Accounts Receivable, Accounts Payable, Accrued
Expenses, and Liability for Inventory Repurchased -- The carrying amount of
these items are a reasonable estimate of their fair value.
(2) Long Term Debt -- The present value of the future principal and interest
payments on the senior notes issued in October, 1992 is used to estimate fair
value for this debt which is not quoted on an exchange. The notes have a net
book value of $35 million and are estimated to have a fair value at January 28,
1995 and December 31, 1993 of approximately $37.6 million and $36.2 million,
respectively.
(3) Gold Futures Contracts -- The fair value of gold futures contracts is the
amount at which they could be settled, based on market prices on commodity
exchanges. At January 28, 1995 and December 31, 1993, open gold futures
contracts are included in the financial statements at their fair value which
approximates $0.3 million and $13.2 million, respectively.
(4) Letters of Credit -- Letters of credit principally support corporate
obligations. At January 28, 1994, $0.6 million of commercial letters of credit
expire within a 120 day period, and $1.4 million of standby letters of credit
expire within a 370 day period. At December 31, 1993, $4.1 million of
commercial letters of credit expired within a 30 day period, and $4.9 million of
standby letters of credit expired within a 120 day period. The estimated fair
value, which is estimated using fees currently charged for similar arrangements,
is insignificant.
N. Selected Quarterly Financial Data (unaudited):
Thirteen Weeks Ended
--------------------------------------------------------------------------
May 1, 1994 July 31,1994 October 30,1994 January 28, 1995
----------- ------------ --------------- -----------------
(In thousands, except per share data)
Net Sales...................... $ 63,010 $60,077 $68,588 $114,010
Gross Profit .................. 8,683 8,484 10,234 14,305
Net loss (1)................... (5,979) (4,932) (4,532) (59,614)
Net loss per Common
Share......................... (.23) (.19) (.18) (2.32)
Quarter Ended
-----------------------------------------------------------------------
March 31, 1993 June 30, 1993 September 30, 1993 December 31, 1993
-------------- ------------- ------------------ -----------------
Net Sales (2)...................... $ (31,481) $ 49,845 $ 42,601 $ 114,494
Gross Profit (loss)(2)............. (9,470) 8,526 6,054 4,726
Net Income (loss)(3)............... (10,154) 181 (2,887) (22,864)
Net income (loss) per Common Share. (.40) .01 (.11) (.90)
46
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
(1) Net income for the thirteen weeks ended January 28, 1995, includes (a)
$23.8 million write-off of Goodwill associated with the 1991 acquisition of
the minority interest in the Big Ben '90 joint venture; (b) $17.7 million
to provide for liquidation of inventory predominantly sold in the wholesale
watch division, which the Company has decided to close, and certain other
inventory in order to raise cash for liquidity purposes as a result of the
uncertain status of credit availability due to the Company's failure to
comply with certain covenants in its debt agreements, and $2.7 million for
obligations under licensing agreements for the use of trade names on
watches previously sold in the wholesale division; (c) $3.0
million in payments to and provisions for severance for terminated
employees and the settlement of certain employment contracts in connection
with the closing of the wholesale watch division and the buy-out of the
unvested portions of bonus stock awards; and (d) $2.3 million in financing
costs incurred primarily in connection with the senior notes and bank
credit facility agreements which contain certain covenants with which the
Company failed to comply, and recovery of previously accrued expenses of
$1.7 million resulting from the settlement of the terminated lease
department agreement with Pace Membership Club, Inc.
(2) As a result of the new agreement with Sam's, the Company recorded a sales
reversal of $99.7 million for the amount of inventory previously sold by
Jan Bell to Sam's which became subject to repurchase. In addition, cost of
sales was reduced by $79.7 million resulting in a $20.0 million one-time
charge to pre-tax earnings. In the first quarter of 1993, the Company had
estimated the amount of the sales reversal to be $77.1 million and the
related cost of sales at $59.0 million which resulted in recording an $18.1
million one-time charge to pre-tax earnings. The change in estimate was
recorded in the Fourth Quarter.
(3) Pre-tax income in the fourth quarter of 1993 was decreased by (a) Other
Costs consisting of $5.2 million of charges related to the Sam's agreement
and other retail transition costs, and compensation expense of $4.2 million
related to the departure of the Company's Chairman of the Board and (b)
adjustments for slow-moving and damaged inventory and shrinkage of
approximately $8.5 million.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There has been no Form 8-K filed within 24 months prior to the date of the
most recent financial statements reporting a change of accountants or reporting
disagreements on any matter of accounting principle or financial statement
disclosure.
PART III
ITEMS 10 THROUGH 13.
Within 120 days after the close of the fiscal year, the Company intends to
file with the Securities and Exchange Commission a definitive proxy statement
pursuant to Regulation 14A which will involve the election of directors. The
answers to Items 10 through 13 are incorporated by reference pursuant to General
Instruction G(3); provided, however, the Compensation Committee Report, the
Performance Graphs, and all other items of such report that are not required to
be incorporated, are not incorporated by reference into this Form 10-K or any
other filing with the Securities and Exchange Commission by the Company.
47
JAN BELL MARKETING, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
(continued)
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)(1) Financial Statements. The following is a list of the financial
statements of Jan Bell Marketing, Inc. included in Item 8 of Part II.
Independent Auditors' Report.
Consolidated Balance Sheets - January 28, 1995 and December 31, 1993.
Consolidated Statements of Operations - Fifty-Two Weeks Ended January 28, 1995,
and the Years Ended December 31, 1993 and December 31, 1992.
Consolidated Statements of Stockholders' Equity - Fifty-Two Weeks Ended
January 28, 1995, and the Years Ended December 31, 1993 and
December 31, 1992.
Consolidated Statements of Cash Flows - Fifty-Two Weeks Years Ended
January 28, 1995, and the Years Ended December 31, 1993 and
December 31, 1992.
(a)(2) Financial Statement Schedules. The following is the financial
statement schedule filed as part of this annual report on Form 10-K: Schedule
II. All other schedules are omitted because they are not applicable, or not
required, or because the required information is included in the financial
statements or notes thereto.
(a)(3) The following list of schedules and exhibits are incorporated by
reference as indicated in this Form 10-K:
EXHIBIT
Number Description
- ------- -----------
3.1 - Certificate of Incorporation. Incorporated by reference from
Company's Form S-1 (No. 33-15347) declared effective in August
1987.
3.2 - Bylaws.
4.1 - Specimen Certificate. Incorporated by reference from Company's
Form 10-K filed in March 1991.
4.2 - Jan Bell Marketing, Inc. 1987 Stock Option Plan. Incorporated by
reference from Company's Form 10-K filed in March 1991.
4.3 - Jan Bell Marketing, Inc. Employee Stock Purchase Plan.
Incorporated by reference from Company's Form 10-K filed in March
1991.
48
JAN BELL MARKETING INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FISCAL YEARS ENDED JANUARY 28, 1995, DECEMBER 31, 1993 AND 1992
EXHIBIT
Number Description
- ------- -----------
4.4 - Jan Bell Marketing, Inc. 1991 Stock Bonus Plan. Incorporated by
reference from Company's Definitive Proxy Statement filed in
April 1991.
4.5 - Jan Bell Marketing, Inc. 1991 Stock Option Plan. Incorporated by
reference from Company's Definitive Proxy Statement filed in
April 1993.
10.1 - Employment Agreement dated May 15, 1994 between Joseph Pennacchio
and the Company.
10.2 - Employment Agreement dated August 1, 1994 between Richard Bowers
and the Company.
10.3 - Form of Indemnification Agreement. Incorporated by reference
from Company's Form S-1 (No. 33-26947) declared effective in
February 1989.
10.6 - Agreement with Sam's dated July 19, 1993. Incorporated by
reference from Company's 8-K filed in July 1993.
10.7 - Note Purchase Agreements, dated October 8, 1992. Incorporated by
reference from Company's Form 10-Q filed in November 1992.
10.8 - Forbearance Agreement dated as of February 28, 1995 between
the Company and the Noteholders named therein. Incorporated by
reference from Company's 8-K filed in March 1995.
21.1 - Subsidiaries of Registrant:
Wholly-owned subsidiaries of the Company include JBM Venture Co.,
Inc., JBM Retail Company, Inc., Delaware corporations, Regal
Diamonds Ltd., an Israeli company, Exclusive
Diamonds International, Ltd., an Israeli company, Jan Bell de
Mexico, S.A. de C.V., and Elico Mexicana, a Mexican corporation,
and Jan Bell Marketing/Puerto Rico, Inc., a Puerto Rican
corporation.
23.1 - Consent of Deloitte & Touche LLP
27 - Financial Data Schedule
(b) Reports on Form 8-K. The Company filed reports on Form 8-K during the
fourth quarter ending January 28, 1995 as follows:
None
49
SCHEDULE II
JAN BELL MARKETING, INC.
VALUATION AND QUALIFICATION ACCOUNTS
(Amounts shown in thousands)
Charged to
Beginning Costs and Ending
Description Balance Expenses Deductions Balance
- ----------- --------- ---------- ---------- -------
December 31, 1992
Allowance for Doubtful
Accounts $ 30 200 -- $ 230
Allowance for Sales
Returns $3,220 7,145 5,590 $ 4,775
December 31, 1993
Allowance for Doubtful
Accounts $ 230 594 74 $ 750
Allowance for Sales
Returns $4,775 24,531 26,628 $ 2,678
Inventory Allowances $ 300 1,700 --- $ 2,000
January 28, 1995
Allowance for Doubtful
Accounts $ 725 83 363 $ 445
Allowance for Sales
Returns $2,880 10,699 8,394 $ 5,185
Inventory Allowances $2,000 18,475 2,000 $18,475
50
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf of the undersigned, thereunto duly authorized.
JAN BELL MARKETING, INC.
Date: May 15, 1995 By: Joseph Pennacchio
---------------------
Joseph Pennacchio,
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated:
SIGNATURE CAPACITY DATE
- --------- -------- -----
Isaac Arguetty Chairman of the Board 5/12/95
- -------------------
Isaac Arguetty
Joseph Pennacchio Director and Chief 5/12/95
- ------------------- Executive Officer
Joseph Pennacchio (Principal Executive
Officer)
Rosemary B. Trudeau Director, Senior Vice 5/12/95
- ------------------- President-Investor
Rosemary B. Trudeau Relations
John Burden Director 5/12/95
- -------------------
John Burden
Chaim Edelstein Director 5/12/95
- -------------------
Chaim Edelstein
Sidney Feltenstein Director 5/12/95
- -------------------
Sidney Feltenstein
Dean Groussman Director 5/12/95
- -------------------
Dean Groussman
Frank S. Fuino, Jr. Executive Vice President 5/12/95
- ------------------- of Finance and Chief
Frank S. Fuino, Jr. Financial Officer
51
INDEX TO EXHIBITS
SEQUENTIALLY
NUMBERED
PAGE
------------
EXHIBIT
Number Description
- ------- -----------
SEE PAGE 49 FOR A COMPLETE LIST OF EXHIBITS FILED,
INCLUDING EXHIBITS INCORPORATED BY REFERENCE FROM
PREVIOUSLY FILED DOCUMENTS.
3.2 Bylaws.
10.1 Employment Agreement dated May 15, 1994 between Joseph Pennacchio
and the Company.
10.2 Employment Agreement dated August 1, 1994 between Richard Bowers
and the Company.
21.1 Subsidiaries of Registrant:
Wholly-owned subsidiaries of the Company include JBM Venture Co.,
Inc., JBM Retail Company, Inc., Delaware corporations, Exclusive
Diamonds International, Ltd., an Israeli company, Jan Bell de
Mexico, S.A. de C.V., and Elico Mexicana, a Mexican corporation,
and Jan Bell Marketing/Puerto Rico, Inc.,a Puerto Rican
corporation.
23.1 Consent of Deloitte & Touche LLP
27 Financial Data Schedule
52