-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LvPGcKgQG9Jt1Ig0UtTbNrIb978d7Ajh0odYhBn3T1SCQkxVXP1nRoZM1YW40Ao/ tVg4TBfMnISp48kKbp355Q== 0000890093-99-000023.txt : 19990616 0000890093-99-000023.hdr.sgml : 19990616 ACCESSION NUMBER: 0000890093-99-000023 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990430 FILED AS OF DATE: 19990615 FILER: COMPANY DATA: COMPANY CONFORMED NAME: JUMBOSPORTS INC CENTRAL INDEX KEY: 0000890093 STANDARD INDUSTRIAL CLASSIFICATION: RETAIL-MISCELLANEOUS SHOPPING GOODS STORES [5940] IRS NUMBER: 521643157 STATE OF INCORPORATION: DE FISCAL YEAR END: 0128 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-13322 FILM NUMBER: 99646283 BUSINESS ADDRESS: STREET 1: 4701 W HILLSBOROUGH AVE CITY: TAMPA STATE: FL ZIP: 33614 BUSINESS PHONE: 8138869688 MAIL ADDRESS: STREET 1: 4701 W HILLSBOROUGH AVENUE CITY: TAMPA STATE: FL ZIP: 33614 FORMER COMPANY: FORMER CONFORMED NAME: SPORTS & RECREATION INC DATE OF NAME CHANGE: 19940912 10-Q 1 FIRST QUARTER FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 30, 1999 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission file number 1-13322 JumboSports Inc. (Exact name of registrant as specified in its charter) Florida 52-1643157 (State or other jurisdiction of (I.R.S. employer incorporation or organization) identification number) 4701 W. Hillsborough Avenue Tampa, FL 33614 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code 813/886-9688 Former name, former address and former fiscal year, if changed since last report Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS: Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes No APPLICABLE ONLY TO CORPORATE ISSUERS: Number of shares outstanding of the issuer's common stock, outstanding as of May 28, 1999, 20,420,001 shares. JumboSports Inc. Index to Form 10-Q April 30, 1999
Page Number Part I - Financial Information Item 1 - Financial Statements Consolidated Balance Sheets 3 Consolidated Statements of Operations 4 Consolidated Statements of Stockholders' Equity (Deficiency) 5 Consolidated Statements of Cash Flows 6 Notes to the Consolidated Financial Statements 7-11 Item 2 - Management's Discussion and Analysis 12-19 Part II - Other Information 20 Signatures 21
2 JUMBOSPORTS INC. DEBTOR-IN-POSSESSION CONSOLIDATED BALANCE SHEETS (IN THOUSANDS EXCEPT FOR SHARE AND PER SHARE DATA)
January 29, April 30, 1999 1999 ---------- ---------- Unaudited ASSETS Current assets: Cash and cash equivalents $ 23,809 $ 2,226 Accounts receivable 3,066 3,259 Inventories 121,586 94,313 Property under contract for sale 10,248 23,341 Prepaid expenses and other assets 1,527 1,515 Income tax receivable 447 311 Prepaid inventory 3,900 2,478 ---------- ---------- Total current assets 164,583 127,443 ---------- ---------- Property held for sale 32,456 16,324 Property and equipment, net 94,357 94,083 Other assets: Cost in excess of fair value of net assets acquired, net 10,462 10,376 Other 6,109 5,819 ---------- ---------- Total other assets 16,571 16,195 ---------- ---------- Total assets $ 307,967 $ 254,045 ========== ========== LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current portion of long-term debt $ 893 $ 4,262 Accounts payable 3,468 11,188 Accrued expenses 7,108 6,986 Accrued reorganization items 13,310 2,909 Other 2,724 2,579 ---------- ---------- Total current liabilities 27,503 27,924 Other long-term liabilities 1,267 1,267 Revolving credit agreement 98,934 53,715 Credit facility term loan 18,471 19,537 Long-term debt less current maturities 67,224 66,646 Liabilities subject to compromise 139,633 135,342 ---------- ---------- Total liabilities 353,032 304,431 ---------- ---------- Stockholders' equity: Common stock, $.01 par value, 100,000,000 shares authorized, 20,420,001 shares issued and outstanding 204 204 Additional paid-in capital 149,760 149,760 Accumulated deficit (195,029) (200,350) ---------- ---------- Total stockholders' deficit (45,065) (50,386) ---------- ---------- Total liabilities and stockholders' deficit $ 307,967 $ 254,045 ========== ==========
See Notes to the Consolidated Financial Statements. 3 JUMBOSPORTS INC. DEBTOR-IN-POSSESSION CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS EXCEPT FOR PER SHARE DATA) (UNAUDITED)
Thirteen Weeks Ended May 1, April 30, 1998 1999 -------- -------- Sales $ 86,544 $ 57,809 Cost of sales including buying & occupancy costs 66,284 45,070 -------- -------- Gross Profit 20,260 12,739 Selling, general and administrative expenses 19,978 13,257 -------- -------- Income (loss) from operations 282 (518) Interest expense 6,319 3,900 -------- -------- Loss before benefit for income taxes and reorganization items (6,037) (4,418) Reorganization items 903 -------- -------- Loss before benefit for income taxes (6,037) (5,321) Benefit for income taxes -------- -------- Net loss $ (6,037) $ (5,321) ======== ======== Basic and dilutive loss per common share $ (0.30) $ (0.26) Weighted average shares outstanding 20,388 20,420 Stores closed during period 18 17 Stores open at end of period 59 42
See Notes to the Consolidated Financial Statements. 4 JUMBOSPORTS INC. DEBTOR-IN-POSSESSION CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY) FOR THE THIRTEEN WEEKS ENDED MAY 1, 1998 AND APRIL 30, 1999 (IN THOUSANDS) (UNAUDITED)
Additional Accumulated Paid in Earnings Shares Par Value Capital (Deficit) Total ------ --------- ------- --------- -------- Balance, January 30,1998 20,386 $204 $149,809 $(101,515) $ 48,498 Issuance of common stock 5 10 10 Net loss (6,037) (6,037) ------ --------- -------- --------- -------- Balance May 1, 1998 20,391 $204 $149,819 $(107,552) $ 42,471 ====== ========= ======== ========= ======== Balance, January 29, 1999 20,420 $204 $149,760 $(195,029) $(45,065) Issuance of common stock Net loss (5,321) (5,321) ------ --------- -------- --------- --------- Balance April 30, 1999 20,420 $204 $149,760 $(200,350) $(50,386) ====== ========= ======== ========= =========
See Notes to the Consolidated Financial Statements. 5 JUMBOSPORTS INC. DEBTOR-IN-POSSESSION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)
Thirteen Weeks Ended May 1, 1998 April 30, 1999 ----------- ------------- Cash flows from operating activities: Net loss $ (6,037) $ (5,321) Adjustments to reconcile net income to cash used in operating activities: Depreciation 1,622 1,446 Amortization of cost in excess of the the fair value of net assets acquired 85 85 Deferred loan cost amortization & other amortization 77 320 Reorganization charges 903 Decrease (increase) in accounts receivable 466 (2,472) Decrease in income tax receivable 135 136 Decrease in inventories 45,038 27,273 Decrease (increase) in prepaid expenses (1,250) 11 Decrease in other assets 74 1,523 Increase in accounts payable 9,708 11,922 Decrease in accrued expenses (2,059) (3,576) Decrease in other current liabilities (20,144) (12,186) Decrease in deferred rent (647) (521) Increase in income taxes payable 127 ----------- ------------- Net cash provided by operating activities 27,068 19,670 ----------- ------------- Cash flow from investing activities: Capital expenditures (1,023) (276) Cash proceeds from sale of property 62,209 2,206 ----------- ------------- Net cash provided by investing activities 61,186 1,930 ----------- ------------- Cash flows from financing activities: Proceeds from sale of common stock-net 10 Net borrowings under revolving credit agreements 378 930 Net repayments under revolving credit agreements (72,215) (46,148) Borrowings under term loan 6,244 Repayments under term loan (1,845) Repayments of long term debt (16,277) (863) Loan costs (188) (1,501) ----------- ------------- Net cash used in financing activities (88,292) (43,183) ----------- ------------- Net decrease in cash and cash equivalents (38) (21,583) ----------- ------------- Cash, beginning of period 345 23,809 ----------- ------------- Cash, end of period $ 307 $ 2,226 =========== =============
See Notes to the Consolidated Financial Statements. 6 JUMBOSPORTS INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (1) Basis of Presentation The accompanying unaudited financial statements have been prepared in accordance with the instructions for Form 10-Q and, therefore, do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all material adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Interim results are not necessarily indicative of results for a full year. The financial statements should be read in conjunction with the audited financial statements and notes thereto for the fiscal year ended January 29, 1999 contained in the Company's Form 10-K dated April 29, 1999. (2) Legal Proceedings The Company is from time to time involved in routine litigation incidental to the conduct of its business. The Company believes that no such currently pending routine litigation to which it is a party will have a material adverse effect on its financial condition or results of operations. On Sunday, December 27, 1998, JumboSports Inc. and certain of its subsidiaries filed for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Florida. These related proceedings are being jointly administered under the caption "In re.: JumboSports Inc., d/b/a/ Vacations Travel, f/k/a Sports & Recreation, Inc., and f/d/b/a Sports Unlimited, Guide Series, Inc. and Property Holdings Company I", Case Nos 98-22545-8C1, 98-22546-8C1 and 98-22547-8C1. The following subsidiaries were not included in the bankruptcy filings: Nationwide Team Sales, Inc., Retail Process Management, Inc., Sports & Recreation, Inc., Sports & Recreation Holdings of PA, Inc. and Construction Resolution, Inc. In connection with the Bankruptcy filing, all pre-petition actions against the Company have been stayed. A complaint was filed on March 23, 1999, in the Bankruptcy Court, LaSalle National Bank, Trustee for JP Morgan Commercial Mortgage Finance Corporation Pass-through Certificate Series 1997-C5, acting by and through AMRESCO Management, Inc., its Special Servicep[r v. JumboSports Inc., which alleges that JumboSports did not have the right to terminate certain Trusts of which JumboSports was the sole beneficiary and sole settlor. The Trusts held bare legal title to real estate (the "Property") and pledged the Property as security for loans. The plaintiff is seeking a judicial declaration that the Property in question is not property of the Debtor JumboSports' estate, and that the Plaintiff may proceed against the Property as if it were not property of the Debtor's estate. The Plaintiff further seeks a judicial declaration that the Trusts are separate legal entities, that the Trusts have not been terminated, that the termination is not valid, that there is no right to terminate the Trusts except in accordance with applicable Delaware law, the Trust Agreements, and the relevant loan documents and that there has been no transfer of the Property to the Debtor. Management is currently unable to predict the outcome of this case or the impact of an adverse ruling on its reorganization efforts. The Company filed its written responses and claims for affirmative relief, and a pre-trial hearing has been scheduled for June 21, 1999. 7 (3) Reorganization On December 27, 1998 (the "Petition Date"), after experiencing a poor holiday season and with increased pressure being applied by the Company's lenders and suppliers, JumboSports Inc. and certain of its subsidiaries filed voluntary petitions for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Florida (the "Bankruptcy Court"). These related proceedings are being jointly administered under the caption "In re.: JumboSports Inc., d/b/a Vacations Travel, f/k/a Sports & Recreation, Inc., and f/d/b/a/ Sports Unlimited, Guide Series, Inc. and Property Holdings Company I" Case Nos. 98-22545-8C1, 98-22546-8C1 and 98-22547-8C1, pursuant to an order of the Bankruptcy Court. The following subsidiaries were not included in the bankruptcy filings: Nationwide Team Sales, Inc., Retail Process Management, Inc., Sports & Recreation, Inc., Sports & Recreation Holdings of PA, Inc. and Construction Resolution, Inc. The bankruptcy petitions were filed in order to preserve cash and permit the Company an opportunity to reorganize while working to restructure its indebtedness. Pursuant to the Senior-Secured Super Priority Debtor-In-Possession Loan and Security Agreement (the "DIP facility") dated February 12, 1999, among JumboSports Inc., as Borrower, various financial institutions, as Lenders, Foothill Capital Corporation, as Agent and Congress Financial Corporation (Southern), as Co-Agent, the lenders have agreed to provide up to $110 million in post-petition financing to the Company. As a result of the Chapter 11 filings, absent approval of the Bankruptcy Court, the Company is prohibited from paying, and creditors are prohibited from attempting to collect claims or debts arising pre-petition. The consummation of a plan of reorganization is the principal objective of the Company's Chapter 11 cases. The plan of reorganization will set forth the means for satisfying claims, including the liabilities subject to compromise, and interests in the Company and its debtor subsidiaries. The consummation of a plan of reorganization for the Company and its debtor subsidiaries will require approval of the Bankruptcy Court. The Company expects to propose a plan of reorganization for itself and the other filing subsidiaries. The Bankruptcy Court had granted the Company's request to extend its exclusive right to file a plan of reorganization through June 1, 1999. On June 1, 1999, the Bankruptcy Court granted the Company's request to further extend the exclusivity period while management works on implementing new operating strategies that are intended to improve operating performance. The new extension gives the Company through September 3, 1999 to file a plan of reorganization. There can be no assurance that management's new strategies will produce the desired results. After the expiration of the exclusivity period, creditors of the Company have the right to propose their own plans of reorganization. A plan of reorganization, among other things, may result in material dilution or elimination of the equity of existing stockholders as a result of the issuance of equity to creditors or new investors. At this time, it is not possible to predict the outcome of the Chapter 11 filing, in general, or its effects on the business of the Company or on the interests of creditors or stockholders. 8 The Company does not plan to hold annual stockholder meetings during the pendency of its Chapter 11 case. The accompanying financial statements have been prepared on a going concern basis which contemplates continuity of operations, realization of assets and liquidation of liabilities in the ordinary course of business. However, as a result of the Chapter 11 filing and circumstances relating to this event, including the Company's leveraged financial structure and losses from operations, such realization of assets and liquidation of liabilities is subject to substantial doubt. While under the protection of Chapter 11, the Company may sell or otherwise dispose of assets, and liquidate or settle liabilities, for amounts other than those reflected in the financial statements. Further, a plan of reorganization could materially change the amounts reported in the financial statements, which do not give effect to all adjustments of the carrying value of assets or liabilities that might be necessary as a consequence of a plan of reorganization. The appropriateness of using the going concern basis is dependent upon, among other things, confirmation of a plan of reorganization, future profitable operations, the ability to comply with the terms of the DIP facility and the ability to generate sufficient cash from operations to meet obligations. (4) Reorganizational Items As a result of the Chapter 11 filings, the Company has recorded $0.9 million reorganization charges in the first quarter of 1999. These charges represent incurred legal and professional fees which will result in future cash payments. The following represents reserve amounts created by the $58.4 million and $0.9 million of reorganization items incurred in fiscal 1998 and the first quarter of 1999, respectively (in thousands):
1/29/99 4/30/99 Ending Ending Balance Additions Reductions Balance --------- --------- ---------- ------- Loss on disposition of real estate $ 622.8 $ 576.1 $ 46.7 Closed store expenses 8,838.3 8,084.5 753.8 Restructuring charges 2,521.6 $903.0 1,960.5 1,464.1 Retention and severance pay 1,327.0 682.6 644.4 -------- ------- --------- -------- Total $13,309.7 $903.0 $11,303.7 $2,909.0 ========= ======= ========= ========
9 (5) Liabilities Subject to Compromise Liabilities subject to compromise are subject to future adjustments on Bankruptcy Court actions and further developments with respect to disputed claims. Liabilities subject to compromise are as follows:
1/29/99 4/30/99 Ending Ending Balance Balance ------- ------- Convertible subordinated notes plus accrued interest $ 75,253 $ 75,253 Accounts payable 37,268 37,768 Rejected leases and other miscellaneous claims 12,044 11,429 Obligations under capital leases 6,602 6,357 Accrued expenses 6,262 2,852 Deferred liabilities 2,204 1,683 -------- -------- Total $139,633 $135,342 ======== ========
Liabilities subject to compromise under reorganization proceedings include substantially all unsecured debt as of the Petition Date. Pursuant to the provision of the Bankruptcy Code, payment of these liabilities may not be made except pursuant to a plan of reorganization or Bankruptcy Court order while the Company continues to operate as debtors in possession. The Company has recorded an estimated liability for certain leases and contracts that have either been rejected or the Company anticipates rejecting. (6) Other Events On February 11, 1999, the Bankruptcy Court granted a motion for authority to obtain debtor-in-possession financing. Proceeds from the 18 month DIP facility are being used to finance the on-going working capital needs of the Company, to pay fees and expenses incurred in connection with the DIP facility agreement, to pay all amounts due under the pre-petition credit agreement, to replace the letters of credit issued and outstanding thereunder, and to pay certain other costs and bankruptcy related claims and charges as allowed by the Bankruptcy Court. During the term of the DIP facility agreement, the Company is restricted from making any distribution or declaring or paying any dividends (in cash or other property, other than capital stock) on, or purchasing, acquiring, redeeming or retiring any of the Company's capital stock, of any class, whether now or hereafter outstanding. Other restrictions include limitations on additional indebtedness, disposal of assets, change of control, capital expenditures and investments; provided, however, that the Company may make loans to its subsidiary, Nationwide Team Sales, Inc., in an aggregate amount not to exceed $1.25 million. Additionally, the Company agreed to achieve certain levels of earnings before interest, taxes, depreciation, amortization and restructuring charges ("EBITDAR") on a cumulative quarterly basis beginning with the first quarter of fiscal 1999 and each succeeding quarter thereafter through the end of fiscal 1999 and on a rolling 12 months basis thereafter through the duration of the agreement. 10 The DIP facility provides for a term loan of $25 million and a revolving loan credit facility of $85 million including a $10 million letter of credit subfacility. The term loan consists of a Tranche A and a Tranche B. The Tranche A term loan was initially funded at $9.7 million with a total commitment of $10 million. The Tranche B term loan was initially funded at $15 million. Interest on the Tranche A term loan accrues at the Reference Rate plus 1.75% per annum. Interest on the Tranche B term loan accrues at 12.75% per annum. Total principal installments of $417 thousand are to be paid monthly commencing on August 1, 1999 and continuing on the first day of each succeeding month. The Company is required to prepay the term loans with the net proceeds from the sale of Real Property Collateral pursuant to a prescribed allocation in the loan agreement. All prepayments of principal will be ratably applied to principal installments in the inverse order of maturity. Availability under the revolving loan credit facility is limited to the lesser of $85 million or amounts based on a predetermined formula which includes a provision for up to 80% of Eligible Accounts and approximately 74.5% of Eligible Inventory. Commitments under the letter of credit subfacility are limited to the lesser of $10 million or availability under the revolving line of credit. The Company incurred approximately $1.3 million in fees in connection with the new DIP facility agreement. Interest on the term loans and revolving advances and fees on the letters of credit are payable monthly in arrears. The Agreement also contains a provision for early termination, at the option of the Company, with a payment of an early termination premium to the lenders if exit financing is provided by a third party. 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General This management's discussion and analysis contains forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain factors could cause actual results to differ materially from these forward-looking statements. These factors include, but are not limited to, product demand and market acceptance risks, the effect of economic conditions generally, the impact of competition, commercialization and technological difficulties and the condition of the retail and sporting goods industries. Management's discussion and analysis of financial condition and results of operations for the first quarter of fiscal 1999 should be read in conjunction with the discussion and analysis set forth in Form 10-K filed April 29, 1999 for the fiscal year ended January 29, 1999. On December 27, 1998, JumboSports Inc. and certain of its subsidiaries filed petitions for reorganization under Chapter 11 of the United States Bankruptcy Code and are presently operating as debtors-in-possession subject to the jurisdiction of the United States Bankruptcy Court for the Middle District of Florida. For further discussion of Chapter 11 proceedings, see the Company's Form 10-K dated April 29, 1999 and Note 3 to the Consolidated Financial Statements set forth in Item 1 above. Results of Operations The following table set forth certain operating data as a percentage of sales for the periods indicated:
Thirteen Weeks Ended May 1, 1998 April 30, 1999 ------------ ------------ Sales 100.0% 100.0% Cost of sales including buying and occupancy costs 76.6 78.0 -------- ------- Gross profit 23.4 22.0 Selling, general and administrative expenses 23.1 22.9 -------- ------- Income (loss) from operations 0.3 (0.9) Interest expense-net 7.3 6.7 -------- ------- Loss before benefit for income taxes and reorganization items (7.0) (7.6) Reorganization items 1.6 -------- ------- Loss before benefit for income taxes (7.0) (9.2) Benefit for income taxes -------- ------- Net loss (7.0)% (9.2)% ======== =======
12 In fiscal 1996, 1997 and 1998 the Company recorded charges in the amounts of $55.0 million, $94.3 million and $15.2 million. These charges were for the loss on disposition of assets, closed store expenses and non-recurring charges. As a result of the charges, reserve accounts were created and the following table represents balances from January 30, 1998 through April 30, 1999 (in thousands):
1/30/98 1/29/99 4/30/99 Reserve Ending Ending Ending Description Balance Additions Reductions Balance Additions Reductions Balance - ------------------------------------------------------------------------------------------------------ Markdown of slow moving and excess inventory $ 1,828.5 $ 1,828.5 Write-down for inventory liquidation of closing stores 10,189.5 $1,465.0 11,654.5 Expenses attributable to closing stores 6,687.7 935.0 7,455.9 $166.8 $ 59.9 $ 106.9 Closing store equipment reserve 5,011.5 2,886.4 7,882.2 15.7 15.7 Closed store leases 4,032.6 850.1 3,041.6 1,841.1 326.4 1,514.7 Other charges - severance & outdated communications technology 3,781.5 487.3 3,327.2 941.6 227.7 713.9 Disposition and impairment of under-performing assets 1,452.7 8,576.2 10,026.8 2.1 2.1 -------- -------- -------- ------- ------- ------- -------- Reserve Totals $32,984.0 $15,200.0 $45,216.7 $2,967.3 $614.0 $2,353.3 ========== ========= ========= ======== ======= ======= ========
As a result of the Chapter 11 filings, the Company has recorded $0.9 million reorganization charges in the first quarter of 1999. These charges represent incurred legal and professional fees which will result in future cash charges. The following table represents reserve amounts created by the $58.4 million and $0.9 million of reorganization items incurred in fiscal 1998 and the first quarter of 1999, respectively (in thousands):
1/29/99 4/30/99 Ending Ending Balance Additions Reductions Balance --------- --------- ---------- ------- Loss on disposition of real estate $ 622.8 $ 576.1 $ 46.7 Closed store expenses 8,838.3 8,084.5 753.8 Restructuring charges 2,521.6 $903.0 1,960.5 1,464.1 Retention and severance pay 1,327.0 682.6 644.4 -------- ------- --------- -------- Total $13,309.7 $903.0 $11,303.7 $2,909.0 ========= ======= ========= ========
13 Thirteen Weeks Ended (First Quarter) April 30, 1999 Compared to Thirteen Weeks Ended May 1, 1998 The Company closed 17 stores in its first quarter of the current year, ending the quarter with 42 stores this year, compared to closing 18 stores in the prior year, ending the first quarter with 59 stores. Sales for the first quarter decreased 33.2% to $57.8 million compared with sales of $86.5 million in the first quarter of the prior year. The majority of the sales decline is due to fewer stores in operation. Same store sales for the first fiscal quarter decreased by 13.2%. Although same store sales were down, the Company experienced same store sales gains of approximately 16.5% and 3.5% in its fitness and team sports departments, respectively. Same store sales were adversely affected by the following: 1. Poor in-stock inventory levels in the early part of the first quarter attributed to temporary product shipment disruptions as a result of the Bankruptcy filing; 2. Poor sales trends were experienced throughout the retail sporting goods industry as a result of the lack of exciting new products and changing consumer preferences; 3. Apparel sales on a same store basis were off 33.0%, with the highest declines occurring in men's apparel, licensed apparel and outerwear. Licensed apparel is driven by a number of factors including team uniform changes, the location of league champions, professional sports labor disputes delaying seasons and changes in licensed apparel as a fashion item. Outerwear sales are driven by weather conditions. A late and mild winter season adversely impacted sales and led to heavy discounting; 4. Footwear sales on a same store basis were down 27.0% due to a general decline in the athletic footwear category industry wide. Heavy discounting by the specialty retailers also contributed to the Company's sales decline; and 5. Golf continued poor sales trends. The Company's golf offering is limited to mostly entry-level brands and its own controlled label. Brand names such as Ping, Taylor Made, Cobra and Callaway are not made available to the Company by manufacturers. 14 Gross profit for the first quarter was $12.7 million, or 22.0% of sales, as compared to $20.3 million, or 23.4% of sales, for the first quarter of the prior year. The decrease as a percentage of sales was attributable to higher buying and occupancy costs as a percentage of sales, 1.1%, and lower cash discounts, 0.3%. Merchandise margins for most departments were higher than the prior year but the blended merchandise margin was flat due to a change in the sales mix. The hardline departments experienced an increase in sales mix while the apparel and footwear departments declined. The hardline departments typically have lower merchandise margins than the apparel and footwear departments. Operating expenses for the first quarter were $13.3 million, or 22.9% of sales, as compared to $20.0 million, or 23.1% of sales, for the first quarter of the prior year. The decrease as a percentage of sales was due to the following: 1. Advertising expense was down 0.8% as a result of a planned newspaper advertising reduction; 2. Physical inventory service expense was down 0.2%; 3. Store supplies and expenses were down 0.1%; 4. Fixture leases were lower 0.2% due to buyouts; 5. Others, net were down 0.1%; 6. Store payroll expense was higher 0.2%; 7. Corporate general and administrative expenses were higher 0.9% due to the implementation of a nationwide team sales organization; and 8. Depreciation was higher 0.1% due to lower sales volume leverage. Loss from operations in the first quarter was $0.5 million, or 0.9% of sales, as compared to income from operations of $0.3 million, or 0.3% of sales in the same quarter of the prior year. Interest expense for the first quarter was $3.9 million, or 6.7% of sales, as compared to $6.3 million, or 7.3% of sales, for the first quarter in the prior year. The decrease in interest expense relates primarily to a reduction in average debt outstanding due to the liquidation of closed store inventory and the sale of closed store and excess real estate. No interest on the convertible subordinated notes was accrued after the Petition Date. Reorganization items of $0.9 million, or 1.6% of sales, represent charges incurred by the Company in the first quarter for legal and professional fees attributable to its Chapter 11 reorganization. See Note 4 to the Consolidated Financial Statements for details of these costs. The Company did not recognize an income tax benefit in the first quarter of either year, but rather recorded an adjustment to the valuation allowance offsetting the deferred tax assets in excess of the deferred tax liabilities. For the first quarter, the Company posted a net loss of $5.3 million, or 9.2% of sales, compared to a net loss of $6.0 million, or 7.0% of sales, for the same quarter of the prior year. 15 Liquidity and Capital Resources The Company's primary capital requirements have been to support capital investment for the opening of new stores, to purchase inventory for new stores, to meet seasonal working capital needs, and to retire indebtedness. The Company's working capital needs have been funded through the combination of external financing, internally generated funds and credit terms from vendors. The Company's working capital needs peak in the fourth quarter. During the first quarter of fiscal 1999, the Company completed the sale of two properties totaling $2.2 million. Proceeds were used to reduce a mortgage loan and the DIP facility term loans consequently lowering future interest expense and debt service requirements. At the end of the first quarter, the Company had 17 properties worth an estimated $39.7 million under contract for sale or held for sale. With the filing of the bankruptcy, these sales are subject to Bankruptcy Court approval. One contract has been approved and is scheduled to fund in August 1999. The proceeds from the sale will be used to reduce the DIP term loans. Sales of the remaining properties, if approved by the Bankruptcy Court, will be used to reduce the DIP facility terms loans and mortgage debt (assuming the non-enforceability of the yield maintenance provision and pre-payment penalties in certain of the mortgages secured by such properties). Operating activities provided cash of $19.7 million for the first thirteen weeks of fiscal 1999 as compared to cash provided of $27.1 million for the same period of fiscal 1998. Proceeds from the inventory liquidation of 17 stores closed in the first quarter of the current year provided less cash than proceeds from the inventory liquidation of 18 stores closed in the same quarter of the prior year. Additional cash in the prior year was provided by an orderly reduction of inventory levels in the operating stores. Net cash of $1.9 million was provided by investing activities for the first thirteen weeks of fiscal 1999 compared to $61.1 million for the prior year. In the current year, cash was provided through the completion of real estate transactions on two properties, while in the prior year the Company completed real estate transactions on 23 properties. Cash flows from financing activities used $43.2 million for the first thirteen weeks of fiscal 1999 compared to $88.3 million for the first thirteen weeks of fiscal 1998. In both years, the Company repaid debt from the sale of property and the liquidation of inventory. As of April 30, 1999, the Company had $67.6 million of long-term mortgage obligations, $53.7 million of borrowings under its DIP revolving line of credit and $22.9 million of borrowings on its DIP term loan. Both the DIP revolving line of credit and the DIP term loan are components of the Company's $110.0 million Senior Secured Super Priority Debtor-In-Possession Loan and Security Agreement (the "DIP facility"). The DIP facility contains customary events of default and a number of covenants, including restrictions on liens and sales of assets, prohibition on dividends and certain changes in control. As of April 30, 1999, the Company was in compliance with all the DIP facility covenants. On February 11, 1999, the Bankruptcy Court granted a motion for authority to obtain debtor-in-possession financing. Proceeds from the 18 month DIP facility are being used to finance the on-going working capital needs of the Company, to pay fees and expenses incurred in connection with the DIP facility agreement, to pay all amounts due under the pre-petition credit agreement, to replace the letters of credit issued and outstanding thereunder, and to pay certain other costs and bankruptcy related claims and charges as allowed by the Bankruptcy Court. 16 During the term of the DIP facility agreement, the Company is restricted from making any distribution or declaring or paying any dividends (in cash or other property, other than capital stock) on, or purchasing, acquiring, redeeming or retiring any of the Company's capital stock, of any class, whether now or hereafter outstanding. Other restrictions include limitations on additional indebtedness, disposal of assets, change of control, capital expenditures and investments; provided, however, that the Company may make loans to its subsidiary, Nationwide Team Sales, Inc., in an aggregate amount not to exceed $1.25 million. Additionally, the Company agreed to achieve certain levels of earnings before interest, taxes, depreciation, amortization and restructuring charges ("EBITDAR") on a cumulative quarterly basis beginning with the first quarter of fiscal 1999 and each succeeding quarter thereafter through the end of fiscal 1999 and on a rolling 12 months basis thereafter through the duration of the agreement. The DIP facility provides for a term loan of $25 million and a revolving loan credit facility of $85 million including a $10 million letter of credit subfacility. The term loan consists of a Tranche A and a Tranche B. The Tranche A term loan was initially funded at $9.7 million with a total commitment of $10 million. The Tranche B term loan was initially funded at $15 million. Interest on the Tranche A term loan accrues at the Reference Rate plus 1.75% per annum. Interest on the Tranche B term loan accrues at 12.75% per annum. Total principal installments of $417 thousand are to be paid monthly commencing on August 1, 1999 and continuing on the first day of each succeeding month. The Company is required to prepay the term loans with the net proceeds from the sale of Real Property Collateral pursuant to a prescribed allocation in the loan agreement. All prepayments of principal will be ratably applied to principal installments in the inverse order of maturity. Availability under the revolving loan credit facility is limited to the lesser of $85 million or amounts based on a predetermined formula which includes a provision for up to 80% of Eligible Accounts and approximately 74.5% of Eligible Inventory. Commitments under the letter of credit subfacility are limited to the lesser of $10 million or availability under the revolving line of credit. The Company incurred approximately $1.3 million in fees in connection with the new DIP facility agreement. Interest on the term loans and revolving advances and fees on the letters of credit are payable monthly in arrears. The Agreement also contains a provision for early termination, at the option of the Company, with a payment of an early termination premium to the lenders if exit financing is provided by a third party. The DIP facility bears interest on revolving loans at the Company's option, at the Reference Rate plus 0.5% or at LIBOR plus 2.75% per annum. The DIP facility limits the amount of capital expenditures to $3.0 million for fiscal 1999. The Company has spent $0.3 million during the first thirteen weeks. The Company believes its business strategies and the availability of its DIP facility, together with the Company's available cash, proceeds from property held for sale and expected cash flows from 1999 operations and beyond will enable the Company to fund its expected needs for working capital, capital expenditures and debt service requirements. Achievement of expected cash flows from operations will be dependent upon the Company's attainment of sales, gross profit, expense and trade support levels that are reasonably consistent with its financial plans. Such operating performance will be subject to financial, economic and other factors affecting the industry and operations of the Company, including factors beyond its control. 17 Year 2000 Compliance Introduction The "Year 2000 Problem" arose because many existing computer programs use only the last two digits to refer to a year. Therefore, these computer programs do not properly recognize a year that begins with "20" instead of the familiar "19." If not corrected, many computer applications could fail or create erroneous results. The problems created by using abbreviated dates appear in hardware, operating systems and other software programs. The Company's Year 2000 ("Y2K") compliance project is intended to determine the readiness of the Company's business for the Year 2000. The Company defines Y2K "compliance" to mean that the computer code will process all defined future dates properly and give accurate results. Description of Areas of Impact and Risk The Company has identified three areas where the Y2K problem creates risk to the Company. These areas are: a) internal Information Technology ("IT") systems; b) non-IT systems with embedded chip technology; and c) system capabilities of third party businesses with relationships with the Company, including product suppliers, service providers (such as credit card processors, telephone, power, security systems, payroll processing) and other businesses whose failure to be Y2K compliant could have a material adverse effect on the Company's business, financial condition or results of operations. Plan to Address Year 2000 Compliance In the spring of 1997, the Company developed a plan to address Y2K readiness issues. The plan included the identification of IT and non-IT systems for compliance, the readiness of the components and modification or replacement of the components. Testing will be completed on each area before implementation. Finally, contingency plans to address potential risks that the Y2K compliance project will not address need to be developed. State of Readiness IT Systems - In the spring of 1997, the Company replaced all of its application software from IBM, Microsoft and JDA Software Group (JDA). With the implementation of one programming update from JDA, JumboSports will complete its Y2K compliance in key financial, information and operating systems. The application of the JDA update will require thorough testing of every application at JumboSports. This testing is scheduled to be completed before October 1999, with the applications implemented during October 1999. Non-IT Systems - The Company has also reviewed its non-IT systems for Y2K compliance. Areas for modification have been identified and are in process for completion in late 1999. Third-Party Business - The Company has obtained from service vendors written statements of Y2K compliance and readiness. For critical vendors, if the Company does not receive a written statement of compliance, the Company will pursue alternative means of obtaining Y2K readiness information, through the review of publicly available information published by such third parties. 18 Cost of Project The overall cost of the Company's Y2K compliance effort has and is not expected to be material to the Company's consolidated financial position, results of operations or cash flows. Contingency Plans and Risks The Company believes that its approach to Y2K readiness is sound, but it is possible that some business components are not identified, or that the testing process does not result in analysis and remediation of all source code. The Company's contingency plan will address alternative providers and processes to deal with business interruptions that may be caused by internal system or third party providers failure to be Y2K compliant. The failure to correct a material Y2K problem could result in an interruption in, or failure of, certain business activities or operations. Such failure could materially and adversely affect the Company's results of operations, liquidity and financial condition. In addition, the Company's operating results could be materially adversely affected if it were to be held responsible for the failure of products sold by the Company to be Y2K ready despite the Company's disclaimer of product warranties. Seasonality and Inflation The Company's business is seasonal in nature, with its highest sales and operating profitability historically occurring during the fourth fiscal quarter, which includes the Christmas selling season. The Company does not believe that inflation had a material effect on its results from operations for the first thirteen weeks of fiscal 1999 or fiscal 1998. There can be no assurance, however, that the Company's business will not be affected by inflation in the future. 19 JUMBOSPORTS INC. PART II - OTHER INFORMATION - ------------------------------------------------------------------------------ Item 1. Legal Proceedings. The Company is from time to time involved in routine litigation incidental to the conduct of its business. The Company believes that no such currently pending routine litigation to which it is a party will have a material adverse effect on its financial condition or results of operations. On Sunday, December 27, 1998, JumboSports Inc. and certain of its subsidiaries filed for reorganization under Chapter 11 of the Bankruptcy Code in the United States Bankruptcy Court for the Middle District of Florida. These related proceedings are being jointly administered under the caption "In re.: JumboSports Inc., d/b/a/ Vacations Travel, f/k/a Sports & Recreation, Inc., and f/d/b/a Sports Unlimited, Guide Series, Inc. and Property Holdings Company I", Case Nos 98-22545-8C1, 98-22546-8C1 and 98-22547-8C1. The following subsidiaries were not included in the bankruptcy filings: Nationwide Team Sales, Inc., Retail Process Management, Inc., Sports & Recreation, Inc., Sports & Recreation Holdings of PA, Inc. and Construction Resolution, Inc. In connection with the Bankruptcy filing, all pre-petition actions against the Company have been stayed. A complaint was filed on March 23, 1999, in the Bankruptcy Court, LaSalle National Bank, Trustee for JP Morgan Commercial Mortgage Finance Corporation Pass-through Certificate Series 1997-C5, acting by and through AMRESCO Management, Inc., its Special Servicer v. JumboSports Inc., which alleges that JumboSports did not have the right to terminate certain Trusts of which JumboSports was the sole beneficiary and sole settlor. The Trusts held bare legal title to real estate (the "Property") and pledged the Property as security for loans. The plaintiff is seeking a judicial declaration that the Property in question is not property of the Debtor JumboSports' estate, and that the Plaintiff may proceed against the Property as if it were not property of the Debtor's estate. The Plaintiff further seeks a judicial declaration that the Trusts are separate legal entities, that the Trusts have not been terminated, that the termination is not valid, that there is no right to terminate the Trusts except in accordance with applicable Delaware law, the Trust Agreements, and the relevant loan documents and that there has been no transfer of the Property to the Debtor. Management is currently unable to predict the outcome of this case or the impact of an adverse ruling on its reorganization efforts. The Company filed its written responses and claims for affirmative relief, and a pre-trial hearing has been scheduled for June 21, 1999. Item 2. Changes in Securities. None Item 3. Defaults Upon Senior Securities. None Item 4. Submission of Matters to a Vote of the Security-Holders. None Item 5. Other Information. None Item 6. Exhibits and Reports on Form 8-K. 1) Exhibits. Exhibit 27 - Financial Data Schedule 2) Reports on Form 8-K. None 20 Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. JumboSports Inc. (Registrant) 06/14/99 /S/ ALFRED F. FASOLA, JR. Date Chief Executive Officer 06/14/99 /S/ MICHAEL J. WORRALL Date President 06/14/99 /S/ JEROME A. KOLLAR Date Chief Financial Officer 21 EX-27 2 FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL STATEMENTS OF JUMBOSPORTS INC. FOR THE THREE MONTHS ENDED APRIL 30, 1999, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 U.S. DOLLARS 3-MOS Jan-28-2000 Jan-30-1999 Apr-30-1999 2,226 0 3,961 391 94,313 127,443 142,041 31,634 254,045 27,924 74,750 0 0 204 (50,590) 254,045 57,809 57,809 40,669 45,070 13,257 (903) 3,900 (5,321) 0 (5,321) 0 0 0 (5,321) (0.26) (0.26)
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