FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended August 1, 1998
Commission file number 0-6319
JACOBSON STORES INC.
(Exact name of registrant as specified in its charter)
Michigan 38-0686330
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
3333 Sargent Road, Jackson, Michigan 49201
(Address of principal executive offices, including zip code)
(517) 764-6400
(Registrant's telephone number, including area code)
Not Applicable
(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 [ ]
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common Stock ($1 Par Value):
5,785,646-2/3 Shares outstanding as of August 1, 1998
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
FORM 10-Q
For Quarter Ended August 1, 1998
INDEX
Page
PART I: FINANCIAL INFORMATION
Item 1. Financial Statements
. Consolidated Balance Sheets - August 1, 1998 and
January 31, 1998 1
. Consolidated Statements of Earnings - Thirteen and Twenty-Six
Week Periods Ended August 1, 1998 and July 26, 1997 2
. Consolidated Statements of Cash Flows - Twenty-
Six Week Periods Ended August 1, 1998 and July 26, 1997 3
. Notes to Consolidated Financial Statements 4
Review by Independent Public Accountants 7
Exhibit:
. Report of Independent Public Accountants 8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 9
Item 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II: OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
All items except those set forth above are inapplicable and have been
omitted.
SIGNATURES 16
INDEX OF EXHIBITS
<PAGE>
<TABLE>
<CAPTION>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
(unaudited)
August 1, January 31,
1998 1998
--------- -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 3,005 $ 3,883
Receivables from customers, net 27,544 34,124
Merchandise inventories 78,614 86,075
Prepaid expenses and other assets 1,340 1,333
Deferred taxes 3,696 3,696
--------- ---------
Total current assets 114,199 129,111
--------- ---------
PROPERTY AND EQUIPMENT, NET 84,781 83,707
--------- ---------
OTHER ASSETS 20,663 20,461
--------- ---------
$ 219,643 $ 233,279
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Current portion of long-term debt $ 3,655 $ 3,972
Accounts payable 29,545 32,108
Accrued expenses 14,076 13,856
Accrued income taxes -- 360
--------- ---------
Total current liabilities 47,276 50,296
--------- ---------
LONG-TERM DEBT 98,214 104,138
--------- ---------
DEFERRED TAXES 3,538 5,262
--------- ---------
OTHER LIABILITIES 4,183 4,382
--------- ---------
SHAREHOLDERS' EQUITY:
Common stock 5,973 5,966
Paid-in surplus 7,183 7,109
Retained earnings 53,675 56,525
Treasury stock (399) (399)
--------- ---------
66,432 69,201
--------- ---------
$ 219,643 $ 233,279
========= =========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
- 1 -
<PAGE>
<TABLE>
<CAPTION>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(in thousands except per share data)
(unaudited)
Thirteen Weeks Ended Twenty-Six Weeks Ended
---------------------- ------------------------
August 1, July 26, August 1, July 26,
1998 1997 1998 1997
--------- -------- --------- --------
<S> <C> <C> <C> <C>
NET SALES $ 95,256 $ 95,938 $ 210,081 $ 207,846
--------- --------- --------- ---------
COSTS AND EXPENSES:
Cost of merchandise sold, buying and
occupancy expenses 70,184 72,381 142,946 144,695
Selling, general and administrative
expenses 31,390 30,561 67,594 64,361
Interest expense, net 1,978 2,289 3,926 4,737
Store closing costs (credit) -- (340) -- (340)
--------- --------- --------- ---------
Total costs and expenses 103,552 104,891 214,466 213,453
--------- --------- --------- ---------
EARNINGS (LOSS) BEFORE INCOME
TAXES (8,296) (8,953) (4,385) (5,607)
PROVISION (CREDIT) FOR INCOME
TAXES (2,904) (3,134) (1,535) (1,963)
--------- --------- --------- ---------
NET EARNINGS (LOSS) $ (5,392) $ (5,819) $ (2,850) $ (3,644)
========= ========= ========= =========
EARNINGS (LOSS) PER COMMON SHARE:
Basic and diluted $ (0.93) $ (1.00) $ (0.49) $ (0.63)
========= ========= ========= =========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
- 2 -
<PAGE>
<TABLE>
<CAPTION>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Twenty-Six Weeks Ended
----------------------
August 1, July 26,
1998 1997
----------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,850) $ (3,644)
Adjustments to reconcile net loss to cash provided
by operating activities:
Depreciation and amortization 4,228 4,685
Deferred taxes (1,724) (1,939)
Other liabilities (199) 228
Change in:
Receivables from customers, net 6,580 11,207
Merchandise inventories 7,461 20,643
Prepaid expenses and other assets (7) 648
Accounts payable and accrued expenses (2,343) (14,596)
Current income taxes (360) --
-------- --------
Net cash provided by operating activities 10,786 17,232
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to property and equipment (5,302) (861)
Other non-current assets (202) (67)
-------- --------
Net cash used in investing activities (5,504) (928)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Additions to long-term debt -- 49,500
Reduction of long-term debt (6,241) (67,561)
Proceeds of exercise of stock options 81 --
-------- --------
Net cash used in financing activities (6,160) (18,061)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (878) (1,757)
Cash and cash equivalents, beginning of period 3,883 4,871
-------- --------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 3,005 $ 3,114
======== ========
<FN>
The accompanying notes are an integral part of these statements.
</TABLE>
- 3 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For Quarter Ended August 1, 1998
The condensed financial statements included herein have been prepared
by the Company without audit and reflect all adjustments which are,
in the opinion of management, necessary to achieve a fair statement
of results for the interim periods. All adjustments are of a normal
and recurring nature.
Because of the nature of the specialty department store business, the
results for the twenty-six week periods ended August 1, 1998 and July
26, 1997 (which do not include the Christmas holiday season) are not
indicative of the results for the year as a whole.
Certain information in footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles has been condensed or amended, although the
Company believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with the
financial statements and notes to consolidated financial statements
included in the Company's latest annual report on Form 10-K.
(1) STORE CLOSING COSTS
In March 1997, the Company closed under-performing stores in Jackson,
Kalamazoo and Dearborn, Michigan. The Company incurred a $4,200,000
pre-tax charge in fiscal 1996 to effect the closings and to state
property and equipment at estimated fair value. For the twenty-six
weeks ended August 1, 1998, store closing reserve activity was as
follows:
<TABLE>
<CAPTION>
(in thousands)
--------------
<S> <C>
Reserve at January 31, 1998 $ 2,623
Payments against reserve 207
--------
Reserve at August 1, 1998 $ 2,416
========
</TABLE>
- 4 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For Quarter Ended August 1, 1998
At August 1, 1998, $2,210,000 of the store closing reserve is
attributable to property and equipment and is reflected as a
reduction of property and equipment on the consolidated balance
sheets. The balance of the store closing reserve is included in
accrued expenses and represents estimated expense to hold closed
facilities pending disposition.
(2) EARNINGS PER SHARE
Basic earnings per share are computed by dividing reported earnings
available to common shareholders by weighted average common shares
outstanding. Diluted earnings per share give effect to potential
common shares represented by stock options and the Company's 6-3/4%
Convertible Subordinated Debentures due 2011, except if
anti-dilutive. Earnings per common share are calculated as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Twenty-Six Weeks
(dollars and shares in thousands) 1998 1997 1998 1997
--------------------------------------- --------------------------------------
<S> <C> <C> <C> <C>
Net loss $(5,392) $(5,819) $(2,850) $(3,644)
======= ======= ======= =======
Weighted average common shares
outstanding 5,782 5,779 5,781 5,779
Dilutive stock options 225 18 213 5
------- ------- ------- -------
Shares used to calculate diluted
loss per common share 6,007 5,797 5,994 5,784
======= ======= ======= =======
Loss per common share:
Basic and diluted $ (.93) $ (1.00) $ (.49) $ (.63)
======= ======= ======= =======
</TABLE>
(3) CUSTOMER CREDIT AND RECEIVABLES
<TABLE>
<CAPTION>
Receivables from customers were as follows:
August 1, January 31,
(in thousands) 1998 1998
------------------------------------ ---------------------
<S> <C> <C>
Receivables from customers $ 28,012 $ 34,761
Less reserve for doubtful accounts 468 637
--------- ---------
$ 27,544 $ 34,124
========= =========
</TABLE>
- 5 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
For Quarter Ended August 1, 1998
(4) MERCHANDISE INVENTORIES
Merchandise inventories were as follows:
<TABLE>
<CAPTION>
August 1, January 31,
(in thousands) 1998 1998
---------------------------------------------- -----------------------
<S> <C> <C>
Inventories at first-in, first out (FIFO) cost $ 97,855 $ 104,708
Less LIFO reserves 19,241 18,633
-------- ---------
$ 78,614 $ 86,075
======== =========
</TABLE>
(5) PROPERTY AND EQUIPMENT
Property and equipment are set forth below:
<TABLE>
<CAPTION>
August 1, January 31,
(in thousands) 1998 1998
---------------------------------------------- ------------------------
<S> <C> <C>
Property and equipment $ 177,110 $ 171,808
Less accumulated depreciation and amortization 92,329 88,101
--------- ---------
$ 84,781 $ 83,707
========= =========
</TABLE>
(6) STOCK OPTIONS
At their Annual Meeting on May 28, 1998, the Company's shareholders
approved an amendment to the Jacobson Stock Option Plan of 1994 which
increased the available shares under the plan to 1,400,000 shares.
(7) SUPPLEMENTARY CASH FLOW INFORMATION
The Company considers all short-term investments with a maturity at
date of purchase of three months or less to be cash equivalents.
Interest paid (net of interest capitalized) totaled $3,959,000 and
$4,945,000 in the twenty-six week periods ended August 1, 1998 and
July 26, 1997, respectively. The Company paid income taxes totaling
$548,000 in the twenty-six week period ended August 1, 1998, and
received income tax refunds of $30,000 in the twenty-six week period
ended July 26, 1997.
- 6 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
PART I: FINANCIAL INFORMATION
For Quarter Ended August 1, 1998
(8) FINANCING
In June 1998, the Company and the lender under its Revolving Credit
Agreement amended the Agreement to extend the maturity date by one
year to March 24, 2001. As amended, each year, beginning in 1999, the
Company may request a one-year extension of the maturity date,
subject to lender approval.
REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS
Arthur Andersen LLP, independent public accountants, have performed a
limited review of the condensed consolidated financial statements for
the twenty-six week period ended August 1, 1998. Since they did not
perform an audit, they express no opinion on the financial statements
referred to above.
- 7 -
<PAGE>
EXHIBIT
ARTHUR ANDERSEN LLP
Report of Independent Public Accountants
To Jacobson Stores Inc.:
We have reviewed the accompanying condensed consolidated balance
sheet of JACOBSON STORES INC. (a Michigan corporation) and
subsidiaries as of August 1, 1998, and the related condensed
consolidated statements of earnings and cash flows for the
twenty-six week period then ended. These financial statements are
the responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole. Accordingly,
we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the condensed consolidated
financial statements referred to above for them to be in
conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted
auditing standards, the consolidated balance sheet of Jacobson
Stores Inc. and subsidiaries as of January 31, 1998, and the
related consolidated statements of earnings, shareholders' equity
and cash flows for the year then ended (not presented herein),
and, in our report dated March 6, 1998, we expressed an
unqualified opinion on those consolidated financial statements.
In our opinion, the information set forth in the accompanying
consolidated balance sheet as of January 31, 1998, is fairly
stated, in all material respects, in relation to the consolidated
balance sheet from which it has been derived.
/s/ ARTHUR ANDERSEN LLP
Detroit, Michigan
August 14, 1998
- 8 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
PART I: FINANCIAL INFORMATION
For Quarter Ended August 1, 1998
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.
The registrant, Jacobson Stores Inc., a Michigan corporation and
successor to a business founded in 1868, offers distinctive
apparel and accessories for women, men and children, as well as
decorative accents for the home. The Company operates 24
specialty stores in Michigan, Indiana, Kansas, Kentucky, Ohio and
Florida, catering to discerning customers with preferences for
quality merchandise and personalized service provided by
knowledgeable sales associates.
The Company owns a substantial portion of the real property used
in its business, primarily through its consolidated, wholly-owned
real estate subsidiary, Jacobson Stores Realty Company ("Jacobson
Realty"). The Company also has a consolidated wholly-owned
finance subsidiary, Jacobson Credit Corp. ("Jacobson Credit"). As
used in this report, the terms "registrant", "Company" and
"Jacobson's" refer to Jacobson Stores Inc. and its subsidiaries
unless the context indicates otherwise.
Jacobson's operates in two regions and maintains separate staffs
of buyers for each region in order to better respond to
customers' lifestyles and merchandise preferences. The principal
merchandising and distribution functions are performed through
regional facilities. Functions common to all stores, such as
management coordination, sales promotion, data processing and
accounting, are centralized at the corporate headquarters in
Jackson, Michigan.
a. OPERATING RESULTS: THIRTEEN WEEKS ENDED AUGUST 1, 1998
COMPARED TO THIRTEEN WEEKS ENDED JULY 26, 1997
Sales for the quarter ended August 1, 1998, totaled $95,256,000,
a decrease of 0.7% from 1997. Sales from comparable stores
(excluding a store closed in May 1997) increased 0.3%. By region,
Midwest sales decreased 2.2% (0.8% decrease in comparable stores)
and Florida sales increased 2.7%.
The Company's gross profit percentage increased to 26.3% for the
thirteen weeks this year from 24.6% in 1997, reflecting
principally lower markdowns and higher markup.
Selling, general and administrative expenses, expressed as a
percentage of sales, increased to 33.0% in the quarter from 31.9%
one year ago. The increase is due primarily to higher payroll and
sales promotion expense, partially offset by reduced benefit
expense (pension and health care).
- 9 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
PART I: FINANCIAL INFORMATION
For Quarter Ended August 1, 1998
Interest expense, expressed as a percentage of sales, decreased
to 2.1% for the quarter from 2.4% one year ago, primarily due to
lower borrowings under the revolving credit facility.
1998 net loss for the thirteen weeks totaled $5,392,000, or 93
cents per common share, compared to $5,819,000, or $1.00 per
common share, last year. As a percent of sales, net loss was 5.7%
in 1998 compared to 6.1% in 1997.
b. OPERATING RESULTS: TWENTY-SIX WEEKS ENDED AUGUST 1, 1998
COMPARED TO TWENTY-SIX WEEKS ENDED JULY 26, 1997
Sales for the twenty-six weeks ended August 1, 1998, totaled
$210,081,000, an increase of 1.1% from 1997. Sales from
comparable stores (excluding four stores closed in 1997)
increased 5.0%. By region, Midwest sales decreased 0.7% (5.5%
increase in comparable stores) and Florida comparable store sales
increased 4.1%.
The Company's gross profit percentage increased to 32.0% for the
twenty-six weeks this year from 30.4% in 1997, reflecting
principally lower markdowns and higher markup.
Selling, general and administrative expenses, expressed as a
percentage of sales, increased to 32.2% for the twenty-six weeks
from 31.0% one year ago. The increase is due primarily to higher
payroll and sales promotion expense, partially offset by reduced
benefit expense (pension and health care).
Interest expense, expressed as a percentage of sales, decreased
to 1.9% from 2.3% in 1997, primarily due to lower borrowings
under the revolving credit facility and other long-term debt.
The Company established a $4,200,000 reserve in 1996 due to the
closing of three under-performing stores in March 1997. In the
twenty-six weeks ended July 26, 1997, the Company recognized a
$340,000 pre-tax credit to write-off the remaining severance and
benefit reserves after all payments were made and to adjust the
property and equipment reserve after sale of a portion of the
related property at greater than the original estimated value.
1998 net loss for the twenty-six weeks totaled $2,850,000, or 49
cents per common share, compared to $3,644,000, or 63 cents per
common share, last year. As a percent of sales, net loss was 1.4%
in 1998 compared to 1.8% in 1997.
Store closing promotions conducted at the three stores closed in
March 1997 reduced the net loss for the twenty-six weeks last
year by $788,000, or 14 cents per share.
- 10 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
PART I: FINANCIAL INFORMATION
For Quarter Ended August 1, 1998
c. LIQUIDITY AND CAPITAL RESOURCES
At August 1, 1998, the Company's current ratio was 2.42 to 1 and
working capital totaled $66,923,000, including $3,005,000 of cash
and cash equivalents. At January 31, 1998, the current ratio was
2.57 to 1 and working capital totaled $78,815,000, including
$3,883,000 of cash and cash equivalents.
The Company utilizes cash flows from operations and revolving
credit line borrowings to fund its seasonal working capital
needs. To support its present and planned working capital
requirements, the Company has a $100,000,000 revolving credit
facility under a Revolving Credit Agreement with a commercial
lender. The revolving credit facility currently provides for
borrowings of up to $80,000,000, subject to a borrowing base
limitation and lender reserves. The Company may, at its option,
increase the maximum available borrowings under the revolving
credit facility to up to $100,000,000 in the aggregate, subject
to the borrowing base limitation and lender reserves. As of
August 1, 1998, the Company had borrowed $30,054,000 under this
facility and had $49,946,000 of borrowing availability. For the
twenty-six weeks ended August 1, 1998, the daily weighted average
interest rate on borrowings under the Revolving Credit Agreement
was 8.2%. In June 1998, the Agreement was amended to extend the
maturity date by one year to March 24, 2001. As amended, each
year, beginning in 1999, the Company may request a one-year
extension of the maturity date, subject to lender approval.
d. CASH FLOWS
Cash and cash equivalents decreased $878,000 in the twenty-six
weeks ended August 1, 1998, compared to a decrease of $1,757,000
in the twenty-six weeks ended July 26, 1997. Cash flows are
impacted by operating, investing and financing activities. In the
twenty-six weeks this year, cash provided by operating activities
totaled $10,786,000, compared to $17,232,000 in 1997, primarily
due to increased July merchandise receipts this year versus
reduced inventory and accounts receivables in stores closed last
year. These charges were partially offset by a smaller decrease
in payables this year and payments against store closing reserves
in 1997.
Investing activities used cash of $5,504,000 in the twenty-six
weeks this year compared to $928,000 used in 1997. Capital
expenditures totalled $5,302,000 in the first twenty-six weeks of
1998 compared to $861,000 in the comparable 1997 period.
- 11 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
PART I: FINANCIAL INFORMATION
For Quarter Ended August 1, 1998
Financing activities used cash of $6,160,000 in the twenty-six
weeks this year compared to $18,061,000 used last year. In the
twenty-six weeks in 1998, reduction of long-term debt
($6,241,000) reflects repayment of $4,978,000 under the Revolving
Credit Agreement, purchase of $324,000 in principal amount of 6
3/4% Convertible Subordinated Debentures toward satisfaction of
the December 1998 sinking fund requirement of $1,725,000, and
scheduled debt maturities. In March 1997, the Company borrowed
$49,500,000 under its current Revolving Credit Agreement to repay
the then outstanding principal balance under its former Credit
Agreement. Also in the twenty-six weeks in 1997, reduction of
long-term debt reflects repayment of $9,823,000 under the current
Revolving Credit Agreement, a $5,642,000 principal pre-payment on
a mortgage obligation, purchase of $1,530,000 principal amount of
6 3/4% Convertible Subordinated Debentures toward satisfaction of
the $1,725,000 annual sinking fund payment due in December 1997,
and scheduled debt maturities.
The Company believes its cash flows from operations, along with
its borrowing capacity and access to financial markets are
adequate to fund its operations and debt maturities.
e. CORPORATE DEVELOPMENT
The Company has no commitments for any new store locations at the
present time. The Company reviews the performance of its less
profitable existing stores from time to time to determine whether
it would be in the Company's best interest to close any of these
stores. Store closings could have a significant impact on the
Company's sales, expenses and capital requirements and would
likely entail additional significant one-time charges to effect
the closing and to recognize any impairment of assets resulting
from the closing decision.
In 1997, the Company sold its Store for the Home in Grosse
Pointe, Michigan. In July 1998, the Company consolidated
operations in its existing Grosse Pointe apparel store.
The Year 2000 issue results from early computer programming that
used two digits rather than four to define the applicable year.
If not corrected, this defect could, as we move to the Year 2000,
result in systems failures or miscalculations leading to
disruptions in a company's operation. The Company has taken
actions to address this potential problem. In 1997, the Company
established a task force which identified areas of concern and
assigned a risk factor and priority to each area. Specific action
plans have been developed to fix or replace all non-compliant
software and hardware that could pose a significant risk to the
Company's operations. The total amount estimated to be spent to
remediate the Company's Year 2000 issues is not expected to be
material to its business, operations, or financial condition.
- 12 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
PART I: FINANCIAL INFORMATION
For Quarter Ended August 1, 1998
Each of the above statements regarding future revenues, expenses
or business plans (including statements regarding the sufficiency
of the Company's capital resources to fund future operations) may
be a "forward looking statement" within the meaning of the
Securities Exchange Act of 1934. Such statements are subject to
important factors and uncertainties that could cause actual
results to differ materially from those in the forward-looking
statement, including the continued support of the Company's trade
creditors and factors, the risks inherent in the level of the
Company's long-term debt compared to its equity, the Company's
ability to reduce its operating expenses, general trends in
retail clothing apparel purchasing, especially during the
Christmas season, and the factors set forth in this Management's
Discussion and Analysis of Financial Condition and Results of
Operations.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
- 13 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
PART II: OTHER INFORMATION
For Quarter Ended August 1, 1998
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of the Company was held on May
28, 1998. At the Annual Meeting, Kathleen M. Lewis, Michael T.
Monahan, Richard Z. Rosenfeld and James L. Wolohan were elected
as Directors to serve until the 2001 Annual Meeting of
Shareholders and until their successors are elected and
qualified. The following votes were cast for or were withheld
from voting with respect to the election of each of the following
persons:
<TABLE>
<CAPTION>
Votes
-----------------------
Authority
Name For Withheld
------------------ --------- ---------
<S> <C> <C>
Kathleen M. Lewis 4,924,232 407,872
Michael T. Monahan 4,923,819 408,285
Richard Z. Rosenfeld 4,920,124 411,980
James L. Wolohan 4,924,176 407,928
</TABLE>
There were no abstentions or broker non-votes in connection with
the election of the directors at the Annual Meeting.
In addition, at the Annual Meeting, the shareholders voted to
amend the Jacobson Stock Option Plan of 1994 to increase the
number of shares of Common Stock eligible for issuance on
exercise of options to 1,400,000 shares. The following table
shows the number of votes for and against the proposal and the
number of votes abstaining with respect to the proposal:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
3,980,288 651,028 18,960
</TABLE>
There were broker non-votes representing 681,828 common shares in
connection with the amendment of the option plan at the Annual
Meeting.
- 14 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
PART II: OTHER INFORMATION
For Quarter Ended August 1, 1998
In addition, at the Annual Meeting, the shareholders voted to
appoint Arthur Andersen LLP, independent certified public
accountants, as auditors for the fiscal year ending January 30,
1999. The following table shows the number of votes for and
against the proposal and the number of votes abstaining with
respect to the proposal:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
5,318,459 10,852 2,793
</TABLE>
There were no broker non-votes in connection with the appointment
of the Company's auditors at the Annual Meeting.
ITEM 5. OTHER INFORMATION
The company must receive notice of any proposals of shareholders
that are intended to be presented at the Company's 1999 Annual
Meeting of Shareholders, but that are not intended to be
considered for inclusion in the Company's Proxy Statement and
Proxy related to that meeting, no later than February 24, 1999 to
be considered timely. Such proposals should be addressed to
Secretary, Jacobson Stores Inc., 3333 Sargent Road, Jackson,
Michigan 49201-8847 by certified mail, return receipt requested.
If the Company does not have notice of the matter by that date,
the Company's form of proxy in connection with that meeting may
confer discretionary authority to vote on that matter, and the
persons named in the Company's form of proxy will vote the shares
represented by such proxies in accordance with their best
judgment.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4 Amendment to Revolving Credit Agreement, dated June 8, 1998
10 Release and Waiver Agreement dated May 26, 1998 between
Jacobson Stores Inc. and Herman J. Heinle
15 Letter from Independent Public Accountants
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K during its
fiscal quarter ended August 1, 1998.
All exhibits except as set forth above have been omitted as not applicable or
not required.
-15-
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
For Quarter Ended August 1, 1998
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
JACOBSON STORES INC.
--------------------
(Registrant)
Date: September 11 , 1998 BY: /s/ P. Gerald Mills
--------------------------- -----------------------
P. GERALD MILLS
Chairman of the Board, President and
Chief Executive Officer
Date: September 11 , 1998 BY: /s/ Paul W. Gilbert
--------------------------- -----------------------
PAUL W. GILBERT
Vice Chairman of the Board
(Principal Financial Officer)
- 16 -
<PAGE>
JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES
INDEX OF EXHIBITS
4 Amendment to Revolving Credit Agreement, dated June 8, 1998
10 Release and Waiver Agreement dated May 26, 1998 between Jacobson
Stores Inc. and Herman J. Heinle
15 Letter from Independent Public Accountants
27 Financial Data Schedule
All exhibits except as set forth above have been omitted as not applicable
or not required.
EXHIBIT 4
AMENDMENT TO REVOLVING CREDIT AGREEMENT
June 8, 1998
Jacobson Stores Inc.
3333 Sargent Road
Jackson, Michigan 49201
Re: Revolving Credit Agreement dated as of March 24, 1997, as
amended (the "Loan Agreement"), among Jacobson Stores Inc.
(the "Borrower"), the Lenders described therein and The CIT
Group/Business Credit, Inc., as Agent (the "Agent") for the
Lenders_____________________________________________________
Ladies and Gentlemen:
Reference is made to the Loan Agreement. All capitalized terms used herein
and not defined shall have the meanings given to such terms in the Loan
Agreement.
This letter shall confirm the agreement of the Borrower and Agent, on behalf
of the Lenders, to amend the Loan Agreement in the following manner:
1. The definition of "Anniversary Date" set forth in Section 1.01 of
the Loan Agreement is amended and restated in its entirety to read as
follows:
" 'Anniversary Date' shall have the meaning assigned to such
term in Section 2.18 hereof."
1. Section 2.18 of the Loan Agreement is amended and restated in its
entirety to read as follows:
"2.18. Termination; Extension of Revolving Credit Commitments.
"(a) Except as otherwise provided herein, the Borrower or any
Lender acting through the Agent may terminate this Agreement and the
Revolving Credit Commitments only on an Anniversary Date, and then
only by giving the other ninety (90) days prior written notice of
termination. The "Anniversary Date" initially shall be March 24,
2001, however such Anniversary Date and this Agreement, unless
terminated as herein and in Section 9.02 provided, (i) automatically
shall be extended for a one-year period if written notice of
termination is not given by either the Agent or the Borrower in the
manner specified above, and (ii) otherwise may be extended as
provided in Subsection 2.18(b) below. In either case, the date to
which the Anniversary Date is extended shall constitute the
Anniversary Date for purposes of this Agreement.
<PAGE>
"(b) Provided that no Potential Default or Event of Default
shall have occurred and be continuing, the Borrower may, by written
notice (an "Extension Request") delivered to the Agent (which notice
shall be irrevocable but shall not be deemed effective until actually
received by the Agent) prior to May 1, but not before February 1, of
any year, request that the Lenders extend the Anniversary Date then
in effect to a date that is one year later than such Anniversary
Date. The Agent shall promptly deliver a copy of such Extension
Request to each of the Lenders. Each Lender shall, not later than May
31 of the year in which the Extension Request is received by the
Agent, provide the Agent with a written notice which states whether
such Lender is willing to extend the Anniversary Date then in effect
for an additional year. If the Agent receives written approval of the
Extension Request from all Lenders prior to May 31 of the year in
which the Extension Request is received by the Agent, then effective
as of the date of the Agent's receipt of all written approvals of the
Extension Request from all Lenders, the Anniversary Date then in
effect shall be extended for one year and the Agent shall notify the
Borrower of such extension.
"(c) If any Lender either (i) gives the Agent written notice
that it is unwilling to extend the Anniversary Date then in effect as
requested in the Extension Request or (ii) fails to provide the Agent
with its written approval of the Extension Request on or before May
31 of the year in which the Extension Request is received by the
Agent, then the Lenders shall be deemed to have declined to extend
the Anniversary Date then in effect, and the Agent shall notify the
Borrower thereof.
"(d) Notwithstanding the foregoing, the Borrower may terminate
this Agreement and the Revolving Credit Commitments at any time prior
to any applicable Anniversary Date upon ninety (90) days prior
written notice to the Agent and the Lenders, provided that the
Borrower pays to the Agent for the pro rata benefit of the Lenders
immediately upon demand, an Early Termination Fee and amounts due to
the Lenders under Section 2.12 hereof, if any. All Obligations shall
become due and payable as of any termination hereunder or under
Section 9 hereof and, pending a final accounting, the Agent and the
Lenders may withhold any balances in the Borrower's accounts (unless
supplied with an indemnity satisfactory to the Agent to cover all of
the Borrower's Obligations whether absolute or contingent). All of
the Agent's and the Lenders' rights, liens and security interests
shall continue after any termination until all Obligations have been
paid and satisfied in full. There shall not be any partial
terminations of the Revolving Credit Commitments pursuant to this
Section 2.18."
2. Section 8.08 of the Loan Agreement is amended by adding the
parenthetical phrase "($12,500,000 in the case of Borrower's fiscal year
ending January 30, 1999)" immediately after the dollar amount of
"$10,000,000" set forth in the sixth line.
All references to the Loan Agreement, whether set forth in the Loan Agreement
itself or in any of the other Loan Documents, shall be deemed to be
references to the Loan Agreement as amended hereby.
<PAGE>
Except as expressly amended by the terms of this letter, the Loan Agreement
shall remain unmodified and in full force and effect. Please acknowledge your
agreement to the terms of this letter by executing this letter where
indicated below and returning it to the undersigned. In addition, we request
that all guarantors execute this letter where indicated below to confirm that
their respective guaranties shall continue in full force and effect
notwithstanding the agreements of the Borrower and Agent set forth in this
letter.
Very truly yours,
THE CIT GROUP/BUSINESS CREDIT,
INC., as Agent for the Lenders
By: /s/ Kevin Y. Caragay
Its: Assistant Secretary
Agreed to this 9th day of June, 1998:
---
JACOBSON STORES INC.
By: /s/ Kevin C. Binkley
- ------------------------
Its: Vice President - Treasurer
- -------------------------------
Confirmed by the Guarantors this 9th day of June, 1998:
---
JACOBSON CREDIT CORP.
By: /s/ Kevin C. Binkley
- ------------------------
Its: Vice President Treasurer
- -----------------------------
JACOBSON STORES REALTY COMPANY
By: /s/ Kevin C. Binkley
- ------------------------
Its: Vice President - Treasurer
- -------------------------------
EXHIBIT 10
RELEASE AND WAIVER AGREEMENT
This Release and Waiver Agreement ("Agreement") is between Herman
Heinle and Jacobson Stores Inc. and all past, present and future subsidiaries
and affiliates of Jacobson Stores Inc. individually and collectively referred
to as ("the Company").
1. Complete Release. In consideration for $49,038.54 in severance
pay, $8,653.92 in unused vacation and continued medical and dental coverage
through September 19, 1998 (at my normal contribution rate), which I agree is
sufficient consideration and is in excess of anything of value to which I am
otherwise entitled, including any earned wages or benefits due and owing me,
I release, waive, and fully discharge the Company and all present and former
employees, officers, directors, shareholders, and agents of the Company, from
any and all charges, causes of action, damages, claims or demands, whether
known or unknown at this time, arising out of, connected with, or based on my
employment and separation from employment with the Company, including, but
not limited to, those based on contract, personal injury, tort, common law,
employment discrimination, the Age Discrimination in Employment Act of 1967
(as amended) ("ADEA") and any and all other federal, state or local laws or
ordinances.
2. Non-Release of Future Claims. This Agreement does not waive or
release any rights or claims that I may have under the ADEA which arise after
the date I sign this Agreement.
3. 21 Day Period for Review and Consideration of Agreement. I
understand that I have been given a period of at least 21 days to review and
consider this Agreement before signing it.
4. Encouragement to Consult with Attorney. I acknowledge that I have
been advised in writing to consult with an attorney before signing this
Agreement.
5. Employee's Right to Revoke Agreement. I may revoke this Agreement
for a period of seven (7) calendar days after signing it. This Agreement is
not effective or enforceable until this revocation period has expired. I
understand that any revocation to be effective must be in writing and either:
(1) post-marked within seven (7) days of execution of this Agreement and
addressed to the Vice President, Personnel, Jacobson Stores Inc., 3333
Sargent road, Jackson, Michigan 49201. I understand that if revocation is
made by mail, mailing by certified mail, return receipt requested, is
recommended to show proof of mailing. If I revoke this Agreement it shall not
be effective or enforceable and I will not receive the consideration set
forth in Paragraph 1 above.
6. Entire Agreement. I agree no oral or written statement have been
made by the Company which vary the terms of this Agreement and that this
constitutes the entire Agreement between myself and the Company.
7. Voluntary Agreement. I acknowledge that I have read this
Agreement, understand its terms and its binding effect, and am acting
voluntarily and of my own free will in signing it.
Herman J. Heinle
----------------
Associate (Print)
WITNESS
Laurie Town
- -----------
/s/ Herman J. Heinle
---------------------
Associate (Signature)
THE COMPANY
May 26, 1998
------------
By: James K. Delaney Dated
---------------
Its: Vice President-Human Resources
5/20/98
EXHIBIT 15
ARTHUR ANDERSEN LLP
To Jacobson Stores Inc.:
We are aware that Jacobson Stores Inc. has incorporated by reference in its
Form S-8 Registration Statements File Nos. 2-88295, 033-53469, 333-31989 and
333-59031 and Form S-2 File No. 33-10532 its Form 10-Q for the quarter ended
August 1, 1998, which includes our report dated August 14, 1998, covering the
unaudited interim condensed consolidated financial information contained
therein. Pursuant to Regulation C of the Securities Act of 1933, that report
is not considered a part of the registration statement prepared or certified
by our firm or a report prepared or certified by our firm within the meaning
of Sections 7 and 11 of the Act.
Very truly yours,
/s/ Arthur Andersen LLP
------------------------
ARTHUR ANDERSEN LLP
Detroit, Michigan
September 11, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF JACOBSON STORES INC. AND CONSOLIDATED SUBSIDIARIES AS
OF, AND FOR THE TWENTY-SIX WEEK PERIOD ENDED, AUGUST 1, 1998 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS AND ACCOMPANYING NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> AUG-01-1998
<PERIOD-TYPE> 6-MOS
<CASH> 3,005
<SECURITIES> 0
<RECEIVABLES> 28,012
<ALLOWANCES> 468
<INVENTORY> 78,614
<CURRENT-ASSETS> 114,199
<PP&E> 177,110
<DEPRECIATION> 92,329
<TOTAL-ASSETS> 219,643
<CURRENT-LIABILITIES> 47,276
<BONDS> 98,214
<COMMON> 5,973
0
0
<OTHER-SE> 60,459
<TOTAL-LIABILITY-AND-EQUITY> 219,643
<SALES> 210,081
<TOTAL-REVENUES> 210,081
<CGS> 142,946
<TOTAL-COSTS> 142,946
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,926
<INCOME-PRETAX> (4,385)
<INCOME-TAX> (1,535)
<INCOME-CONTINUING> (2,850)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,850)
<EPS-PRIMARY> (0.49)
<EPS-DILUTED> (0.49)
</TABLE>
