SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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
August 1, 1998
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 0-14681
J. BAKER, INC.
(Exact name of registrant as specified in its charter)
Massachusetts 04-2866591
(State of Incorporation) (IRS Employer Identification Number)
555 Turnpike Street, Canton, Massachusetts 02021
(Address of principal executive offices)
(781) 828-9300
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such period that the Registrant was required to
file such reports), and (2) has been subject to filing such reports for the past
90 days.
YES [ X ] NO [ ]
14,059,013 shares of common stock were outstanding on August 1, 1998.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
August 1, 1998 (unaudited) and January 31, 1998
<TABLE>
<S> <C> <C>
August 1, January 31,
Assets 1998 1998
------ ------- -----
Current assets:
Cash and cash equivalents $ 1,335,057 $ 3,995,995
Accounts receivable:
Trade, net 14,662,428 9,576,156
Other 2,673,884 9,485,578
----------- -----------
17,336,312 19,061,734
---------- -----------
Merchandise inventories 178,068,353 159,407,002
Prepaid expenses 7,600,289 4,418,171
Deferred income taxes, net 3,241,000 5,230,000
---------- -----------
Total current assets 207,581,011 192,112,902
----------- -----------
Property, plant and equipment, at cost:
Land and buildings 19,532,487 19,532,487
Furniture, fixtures and equipment 76,501,236 72,359,381
Leasehold improvements 26,162,508 24,832,306
----------- -----------
122,196,231 116,724,174
Less accumulated depreciation and amortization 50,355,113 44,595,098
----------- -----------
Net property, plant and equipment 71,841,118 72,129,076
----------- -----------
Deferred income taxes, net 55,254,380 55,950,000
Other assets, at cost, less accumulated amortization 11,532,276 14,875,434
----------- -----------
$346,208,785 $335,067,412
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 2,080,149 $ 2,060,387
Accounts payable 44,452,808 52,108,352
Accrued expenses 13,149,751 14,176,048
Income taxes payable 895,272 979,560
------------ -----------
Total current liabilities 60,577,980 69,324,347
----------- -----------
Other liabilities 3,855,274 4,229,800
Long-term debt, net of current portion 132,043,528 114,407,640
Senior subordinated debt - 1,490,111
Convertible subordinated debt 70,353,000 70,353,000
Stockholders' equity 79,379,003 75,262,514
----------- -----------
$346,208,785 $335,067,412
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the quarters ended August 1, 1998 and August 2, 1997
(Unaudited)
<TABLE>
<S> <C> <C>
Quarter Quarter
Ended Ended
August 1, 1998 August 2, 1997
-------------- --------------
Net sales $146,496,325 $143,929,357
Cost of sales 79,698,372 80,139,384
----------- -----------
Gross profit 66,797,953 63,789,973
Selling, administrative and general expenses 55,300,865 53,926,913
Depreciation and amortization 3,606,440 3,500,451
---------- ----------
Operating income 7,890,648 6,362,609
Net interest expense 3,637,483 3,242,501
----------- -----------
Earnings before income taxes 4,253,165 3,120,108
Income tax expense 1,659,000 1,216,000
----------- -----------
Net earnings $ 2,594,165 $ 1,904,108
=========== ===========
Net earnings per common share:
Basic $ 0.19 $ 0.14
=========== ===========
Diluted $ 0.18 $ 0.14
=========== ===========
Number of shares used to compute net earnings per common share:
Basic 13,979,160 13,912,934
=========== ===========
Diluted 14,371,746 13,943,866
=========== ===========
Dividends declared per share $ 0.015 $ 0.015
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the six months ended August 1, 1998 and August 2, 1997
(Unaudited)
<TABLE>
<S> <C> <C>
August 1, 1998 August 2, 1997
-------------- --------------
Net sales $273,132,889 $281,279,618
Cost of sales 148,010,931 155,491,836
----------- ------------
Gross profit 125,121,958 125,787,782
Selling, administrative and general expenses 106,083,321 109,621,742
Depreciation and amortization 6,704,486 6,153,844
---------- ----------
Operating income 12,334,151 10,012,196
Net interest expense 7,234,643 6,450,077
----------- -----------
Earnings before income taxes 5,099,508 3,562,119
Income tax expense 1,989,000 1,389,000
----------- -----------
Net earnings $ 3,110,508 $ 2,173,119
=========== ===========
Net earnings per common share:
Basic $ 0.22 $ 0.16
=========== ===========
Diluted $ 0.22 $ 0.16
=========== ===========
Number of shares used to compute net
earnings per common share:
Basic 13,949,728 13,902,952
=========== ===========
Diluted 14,205,567 13,936,979
=========== ===========
Dividends declared per share $ 0.030 $ 0.030
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the six months ended August 1, 1998 and August 2, 1997
(Unaudited)
<TABLE>
<S> <C> <C>
August 1, 1998 August 2, 1997
-------------- --------------
Cash flows from operating activities:
Net earnings $ 3,110,508 $ 2,173,119
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization:
Fixed assets 5,760,015 5,701,470
Deferred charges, intangible assets and
deferred financing costs 948,427 471,724
Deferred income taxes, net 2,684,620 1,389,000
Grants of performance share awards 255,563 -
Change in:
Accounts receivable 2,744,172 (931,947)
Merchandise inventories (18,661,351) (25,112,428)
Prepaid expenses (3,182,118) (3,618,588)
Accounts payable (7,655,544) (8,285,432)
Accrued expenses (1,026,297) (16,671,451)
Income taxes payable/receivable (84,288) (181,783)
Other liabilities (308,761) 36,908
------------ -----------
Net cash used in operating activities (15,415,054) (45,029,408)
------------ -----------
Cash flows from investing activities:
Capital expenditures for:
Property, plant and equipment (5,472,057) (4,180,626)
Other assets (542,198) (1,313,109)
Payments received on notes receivable - 1,450,000
Proceeds from sales of footwear businesses 2,902,335 60,134,835
----------- -----------
Net cash provided by (used in) investing activities (3,111,920) 56,091,100
----------- -----------
Cash flows from financing activities:
Repayment of senior debt (1,500,000) (1,500,000)
Proceeds from (repayment of) other long-term debt 17,935,497 (11,287,947)
Repayment of mortgage payable (279,847) (250,422)
Payment of mortgage escrow, net (21,281) (47,076)
Proceeds from issuance of common stock, net of retirements 151,342 183,646
Payment of dividends (419,675) (417,113)
----------- -----------
Net cash provided by (used in) financing activities 15,866,036 (13,318,912)
----------- -----------
Net decrease in cash (2,660,938) (2,257,220)
Cash and cash equivalents at beginning of year 3,995,995 3,969,116
----------- ----------
Cash and cash equivalents at end of period $ 1,335,057 $ 1,711,896
=========== ==========
Supplemental disclosure of cash flow information Cash paid for:
Interest $ 7,250,060 $ 6,550,521
Income taxes 84,288 181,783
Income taxes refunded (914,478) -
========== =============
Schedule of non-cash financing activity:
Common stock issued for performance share awards 255,563 -
Stock issued for executive stock plans in exchange for
notes receivable 1,018,750 -
========== =============
</TABLE>
See accompanying notes to consolidated financial statements
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
NOTES
1] The accompanying unaudited consolidated financial statements, in the opinion
of management, include all adjustments necessary for a fair presentation of the
Company's financial position and results of operations. The results for the
interim periods are not necessarily indicative of results that may be expected
for the entire fiscal year.
2] In February, 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 128 ("SFAS No. 128"), "Earnings
Per Share" ("EPS"), which the Company adopted in fiscal 1998. Basic EPS is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding during the period. Diluted EPS is
computed by dividing income available to common shareholders by the weighted
average number of common shares outstanding, after giving effect to all dilutive
potential common shares, that were outstanding during the period.
For the quarters and six months ended August 1, 1998 and August 2, 1997,
the calculation of diluted earnings per common share includes the dilutive
effect of outstanding stock options and warrants. Also included in the
calculation of diluted earnings per common share is the dilutive effect of
performance share awards for the quarter and six months ended August 1, 1998.
The common stock issuable under the 7% convertible subordinated notes due 2002
and the convertible debentures was not included in the calculation for the
quarters and six months ended August 1, 1998 and August 2, 1997 because its
effect would be antidilutive. All net earnings per common share amounts for all
periods presented have been restated to conform to SFAS No. 128 requirements.
Net earnings and shares used to compute net earnings per common share,
basic and diluted, are reconciled below:
<TABLE>
<S> <C> <C> <C> <C>
Quarters Ended Six Months Ended
------------------------------- --------------------------
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
---- ---- ---- ----
Net earnings, basic and diluted $ 2,594,165 $ 1,904,108 $ 3,110,508 $ 2,173,119
========== ========== ========== ==========
Weighted average common shares:
Basic 13,979,160 13,912,934 13,949,728 13,902,952
Effect of dilutive securities:
Stock options and performance
share awards 392,586 30,932 255,839 34,027
---------- ---------- ---------- ----------
Diluted 14,371,746 13,943,866 14,205,567 13,936,979
========== ========== ========== ==========
</TABLE>
3] The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("SFAS No. 130"), effective February 1, 1998.
SFAS No. 130 requires that items defined as other comprehensive income be
separately classified in the financial statements. As the Company has no other
comprehensive income in the current period, nor does it have accumulated other
comprehensive income from prior periods, adoption of SFAS No. 130 has no effect
on the Company's financial statements.
4] In June, 1997, the FASB issued Statement of Financial Accounting Standards
No. 131, "Disclosures About Segments of an Enterprise and Related Information"
("SFAS No. 131"), which is effective for the Company's fiscal year ending
January 30, 1999 (fiscal 1999). SFAS No. 131 establishes new standards for
reporting information about operating segments. Adoption of SFAS No. 131 relates
to disclosure within the financial statements and is not expected to have a
material effect on the Company's financial statements. The Company will adopt
the provisions of this standard in the fourth quarter of fiscal 1999.
5] In April, 1998, the Accounting Standards Executive Committee of the American
Institute of Certified Public Accountants issued a Statement of Position ("SOP")
98-5 entitled "Reporting on the Costs of Start-Up Activities". The SOP, which is
effective for fiscal years beginning after December 15, 1998, requires entities
to expense as incurred all start-up and pre-opening costs that are not otherwise
capitalizable as long-lived assets. Restatement of previously issued annual
financial statements is not permitted by the SOP, and entities are not permitted
to report the pro forma effects of the retroactive application of the new
accounting standard. The Company believes the adoption of this SOP will not have
a material impact on its financial statements.
<PAGE>
6] During the fourth quarter of fiscal 1997, the Company restructured its
footwear operations. In connection with the restructuring, the Company downsized
its JBI Footwear division (formerly known as the Licensed Discount footwear
division), and in March, 1997, completed the sales of its Shoe Corporation of
America ("SCOA") and Parade of Shoes divisions.
On March 5, 1997, the Company announced it had sold its SCOA division to
an entity formed by CHB Capital Partners of Denver, Colorado along with Dennis
B. Tishkoff, President of SCOA, and certain members of SCOA management. Net cash
proceeds from the transaction of approximately $40.0 million were used to pay
down the Company's bank debt. Sales in the Company's SCOA division totaled $9.5
million for the six months ended August 2, 1997.
On March 10, 1997, the Company completed the sale of its Parade of Shoes
division to Payless ShoeSource, Inc. of Topeka, Kansas. Net cash proceeds from
the transaction of approximately $20.0 million were used to pay down the
Company's bank debt. Sales in the Company's Parade of Shoes division totaled
$8.2 million for the six months ended August 2, 1997.
7] On May 30, 1997, the Company replaced its $145 million credit facility by
obtaining two separate revolving credit facilities, both of which are guaranteed
by J. Baker, Inc. One facility, which finances the Company's apparel businesses,
is a $100 million revolving credit facility with Fleet National Bank,
BankBoston, N.A., The Chase Manhattan Bank, Imperial Bank, USTrust, Wainwright
Bank & Trust Company and Bank Polska Kasa Opieki S.A. (the "Apparel Credit
Facility"). The Apparel Credit Facility is secured by all of the capital stock
of The Casual Male, Inc. and three other subsidiaries of the Company. The
aggregate commitment amount under The Apparel Credit Facility was reduced from
$100 million to $90 million on December 31, 1997, by amendment was increased to
$95 million on April 3, 1998 and will automatically be reduced by $10 million on
each of December 31, 1998 and December 31, 1999. Borrowings under the Apparel
Credit Facility bear interest at variable rates and can be in the form of loans,
bankers' acceptances and letters of credit. This facility expires on May 31,
2000.
To finance its JBI Footwear business, the Company obtained a $55 million
revolving credit facility, secured by substantially all of the assets of JBI,
Inc. and Morse Shoe, Inc., with BankBoston Retail Finance Inc. (formerly known
as GBFC, Inc.) and Fleet National Bank (the "Footwear Credit Facility"). The
aggregate commitment amount under the Footwear Credit Facility was reduced by $5
million on June 30, 1997. Aggregate borrowings under the Footwear Credit
Facility are limited to an amount determined by a formula based on various
percentages of eligible inventory and accounts receivable. Borrowings under the
Footwear Credit Facility bear interest at variable rates and can be in the form
of loans or letters of credit. This facility expires on May 31, 2000.
8] On June 23, 1995, Bradlees Stores, Inc. ("Bradlees"), a licensor of the
Company, filed for protection under Chapter 11 of the United States Bankruptcy
Code. At the time of the bankruptcy filing, the Company had outstanding accounts
receivable of approximately $1.8 million due from Bradlees. Under bankruptcy
law, Bradlees has the option of continuing (assuming) the existing license
agreement with the Company or terminating (rejecting) that agreement. On April
13, 1998, Bradlees filed its Joint Plan of Reorganization and Disclosure
Statement with the United States Bankruptcy Court for the Southern District of
New York. A hearing on the Disclosure Statement is scheduled for September 17,
1998. If the license agreement is assumed, Bradlees must cure all defaults under
the agreement and the Company will collect in full the outstanding past due
receivable. Although the Company believes that the rejection of the license
agreement or the cessation of Bradlees' business is not probable, in the event
that the agreement is rejected or Bradlees does not continue in business, the
Company believes it will have a substantial claim for damages. If such a claim
is necessary, the amount realized by the Company relative to the carrying values
of the Company's Bradlees-related assets will be based on the relevant facts and
circumstances. The Company does not expect this filing under the Bankruptcy Code
to have a material adverse effect on future earnings. The Company's sales in the
Bradlees chain for the quarter and six months ended August 1, 1998 were $12.4
million and $21.8 million, respectively.
9] On September 17, 1997, the Company settled a patent infringement lawsuit
brought against the Company and Morse Shoe, Inc., a subsidiary of the Company,
by Susan Maxwell. Pursuant to the settlement agreement, both cases were
dismissed with prejudice with no admissions of liability and the parties
executed a mutual release of all claims. Under the terms of the settlement, the
Company agreed to make payments to Ms. Maxwell of $4,137,000, in the aggregate,
over a three-year period and in connection with the settlement, recorded a
one-time charge to earnings of $3.4 million ($2.1 million on an after-tax basis)
during the third quarter of fiscal 1998 reflecting costs of the settlement not
previously accrued for.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
STATEMENTS MADE OR INCORPORATED INTO THIS QUARTERLY REPORT INCLUDE A NUMBER OF
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934.
FORWARD-LOOKING STATEMENTS INCLUDE, WITHOUT LIMITATION, STATEMENTS CONTAINING
THE WORDS "ANTICIPATES", "BELIEVES", "EXPECTS", "INTENDS", "FUTURE" AND WORDS OF
SIMILAR IMPORT, WHICH EXPRESS MANAGEMENT'S BELIEF, EXPECTATIONS OR INTENT
REGARDING THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS.
FACTORS THAT MAY CAUSE SUCH DIFFERENCES ARE DESCRIBED IN THE SECTION ENTITLED
"CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS" FOUND ON PAGE 12 OF THIS
QUARTERLY REPORT.
All references herein to fiscal 1999 and 1998 relate to the years ending January
30, 1999 and January 31, 1998, respectively.
Results of Operations
First Six Months of Fiscal 1999 versus First Six Months of Fiscal 1998
The Company's net sales decreased by $8.2 million to $273.1 million in
the first six months of fiscal 1999 from $281.3 million in the first six months
of fiscal 1998. Sales in the Company's apparel operations increased by $12.2
million primarily due to a 6.0% increase in comparable apparel store sales
(comparable apparel store sales increases/decreases are based upon comparisons
of weekly sales volume in Casual Male Big & Tall stores and Work 'n Gear stores
which were open in corresponding weeks of the two comparison periods), an
increase in the average number of Casual Male Big & Tall stores in operation
during the first six months of fiscal 1999 over the first six months of fiscal
1998 and an increase in sales generated by Work 'n Gear to its corporate
customers. Excluding net sales in the Company's SCOA and Parade of Shoes
businesses of $17.7 million for the six months ended August 2, 1997, sales in
the Company's footwear operations decreased by $2.6 million, primarily due to a
1.0% decrease in comparable retail footwear store sales (comparable retail
footwear store sales increases/decreases are based upon comparisons of weekly
sales volume in licensed footwear departments which were open in corresponding
weeks of the two comparison periods) and a decrease in the average number of
licensed footwear departments in operation during the first six months of fiscal
1999 versus the first six months of fiscal 1998.
The Company's cost of sales constituted 54.2% of sales in the first six
months of fiscal 1999, as compared to 55.3% of sales in the first six months of
fiscal 1998. Cost of sales in the Company's apparel operations was 51.1% of
sales in the first six months of fiscal 1999, as compared to 52.4% of sales in
the first six months of fiscal 1998. The decrease in such percentage was
primarily attributable to lower markdowns as a percentage of sales and a higher
initial markup on merchandise purchases. Cost of sales in the Company's footwear
operations was 57.9% of sales in the first six months of fiscal 1999, which was
comparable to 57.9% of sales in the first six months of fiscal 1998. Cost of
sales in the Company's JBI Footwear division (formerly known as the Licensed
Discount footwear division) was 57.9% of sales in the first six months of fiscal
1999, as compared to 58.6% of sales in the first six months of fiscal 1998. The
decrease in such percentage was primarily attributable to a higher initial
markup on merchandise purchases, partially offset by higher markdowns as a
percentage of sales.
Selling, administrative and general expenses decreased $3.5 million, or
3.2%, to $106.1 million in the first six months of fiscal 1999 from $109.6
million in the first six months of fiscal 1998, primarily due to the disposition
of the Company's SCOA and Parade of Shoes businesses in March, 1997. The
decrease was partially offset by a $5.1 million increase in selling,
administrative and general expenses in the Company's apparel operations. As a
percentage of sales, selling, administrative and general expenses were 38.8% of
sales in the first six months of fiscal 1999, as compared to 39.0% of sales in
the first six months of fiscal 1998. Selling, administrative and general
expenses in the Company's apparel operations were 41.4% of sales in the first
six months of fiscal 1999 as compared to 41.3% of sales in the first six months
of fiscal 1998. Selling, administrative and general expenses in the Company's
footwear operations were 35.9% of sales in the first six months of fiscal 1999,
as compared to 36.8% of sales in the first six months of fiscal 1998. This
decrease was primarily due to the increased proportion of JBI Footwear
department sales to total footwear sales in the first six months of fiscal 1999
versus the first six months of
<PAGE>
fiscal 1998. The Company's JBI Footwear division has lower selling,
administrative and general expenses as a percentage of sales than the aggregate
selling, administrative and general expenses as a percentage of sales in the
divested SCOA and Parade of Shoes divisions.
Depreciation and amortization expense increased by $551,000 to $6.7
million in the first six months of fiscal 1999 from $6.2 million in the first
six months of fiscal 1998, primarily due to an increase in depreciable and
amortizable assets.
As a result of the above, the Company's operating income increased to
$12.3 million in the first six months of fiscal 1999 from $10.0 million in the
first six months of fiscal 1998. As a percentage of sales, operating income was
4.5% in the first six months of fiscal 1999 as compared to 3.6% in the first six
months of fiscal 1998.
Net interest expense increased by $785,000 to $7.2 million in the first
six months of fiscal 1999 from $6.5 million in the first six months of fiscal
1998, primarily due to a change in the Company's method of financing foreign
merchandise purchases with bank borrowings in the first six months of fiscal
1999 versus the use of bankers' acceptances in the first six months of fiscal
1998, coupled with higher levels of bank borrowings in the first six months of
fiscal 1999 versus the first six months of fiscal 1998.
Taxes on earnings for the first six months of fiscal 1999 were $2.0
million, as compared to taxes on earnings of $1.4 million for the first six
months of fiscal 1998, yielding an effective tax rate of 39.0% in both periods.
Net earnings for the first six months of fiscal 1999 were $3.1 million,
as compared to net earnings of $2.2 million in the first six months of fiscal
1998, an increase of 43.1%.
Second Quarter of Fiscal 1999 versus Second Quarter of Fiscal 1998
The Company's net sales increased by $2.6 million to $146.5 million in
the second quarter of fiscal 1999 from $143.9 million in the second quarter of
fiscal 1998. Sales in the Company's apparel operations increased by $6.3
million, primarily due to a 6.8% increase in comparable apparel store sales,
coupled with an increase in the number of Casual Male Big & Tall stores in
operation during the second quarter of fiscal 1999 versus the second quarter of
fiscal 1998 and an increase in sales generated by Work 'n Gear to its corporate
customers. Sales in the Company's footwear operations decreased by $3.7 million,
primarily due to a 4.9% decrease in comparable retail footwear store sales.
The Company's cost of sales constituted 54.4% of sales in the second
quarter of fiscal 1999, as compared to 55.7% of sales in the second quarter of
fiscal 1998. Cost of sales in the Company's apparel operations was 50.7% of
sales in the second quarter of fiscal 1999 as compared to 52.1% of sales in the
second quarter of fiscal 1998. The decrease in such percentage was primarily
attributable to lower markdowns as a percentage of sales and a higher initial
markup on merchandise purchases. Cost of sales in the Company's footwear
operations was 58.3% of sales in the second quarter of fiscal 1999, as compared
to 59.0% of sales in the second quarter of fiscal 1998. The decrease in such
percentage was primarily attributable to a higher initial markup on merchandise
purchases, partially offset by higher markdowns as a percentage of sales.
Selling, administrative and general expenses increased $1.4 million, or
2.5%, to $55.3 million in the second quarter of fiscal 1999 from $53.9 million
in the second quarter of fiscal 1998. As a percentage of sales, selling,
administrative and general expenses were 37.7% of sales in the second quarter of
fiscal 1999, as compared to 37.5% of sales in the second quarter of fiscal 1998.
Selling, administrative and general expenses in the Company's apparel operations
were 41.1% of sales in the second quarter of fiscal 1999, as compared to 41.4%
of sales in the second quarter of fiscal 1998. This decrease was primarily due
to the increase in comparable apparel store sales. Selling, administrative and
general expenses in the Company's footwear operations were 34.2% of sales in the
second quarter of fiscal 1999 as compared to 33.8% of sales in the second
quarter of fiscal 1998. This increase was primarily due to the decrease in
comparable retail footwear store sales.
Depreciation and amortization expense increased by $106,000 to $3.6
million in the second quarter of fiscal 1999 from $3.5 million in the second
quarter of fiscal 1998, primarily due to an increase in depreciable and
amortizable assets.
<PAGE>
As a result of the above, the Company's operating income increased to
$7.9 million in the second quarter of fiscal 1999 from $6.4 million in the
second quarter of fiscal 1998. As a percentage of sales, operating income was
5.4% in the second quarter of fiscal 1999 as compared to 4.4% in the second
quarter of fiscal 1998.
Net interest expense increased by $395,000 to $3.6 million in the
second quarter of fiscal 1999 from $3.2 million in the second quarter of fiscal
1998, primarily due to higher interest rates on bank borrowings and higher
levels of bank borrowings in the second quarter of fiscal 1999 versus the second
quarter of fiscal 1998.
Taxes on earnings for the second quarter of fiscal 1999 were $1.7
million, as compared to taxes on earnings of $1.2 million for the second quarter
of fiscal 1998, yielding an effective tax rate of 39.0% in both periods.
Net earnings for the second quarter of fiscal 1999 were $2.6 million,
as compared to net earnings of $1.9 million in the second quarter of fiscal
1998, an increase of 36.2%.
Financial Condition
August 1, 1998 versus January 31, 1998
The decrease in accounts receivable at August 1, 1998 from January 31,
1998 was primarily due to the receipt of litigation settlement proceeds,
partially offset by an increase in trade receivables due to seasonal factors,
licensed footwear department sales in July being higher than licensed footwear
department sales in January.
The increase in merchandise inventories at August 1, 1998 from January 31,
1998 was primarily due to a seasonal increase in the average inventory level per
location.
The decrease in other assets at August 1, 1998 was primarily due to the
receipt of funds held in escrow related to the sales of the footwear businesses.
The decrease in accounts payable at August 1, 1998 from January 31,
1998 was primarily due to an increase in direct import merchandise purchases,
which are paid for sooner than domestic merchandise purchases. The ratio of
accounts payable to merchandise inventory was 25.0% at August 1, 1998, as
compared to 32.7% at January 31, 1998 and 29.7% at August 2, 1997.
The increase in long-term debt, net of current portion, at August 1,
1998 from January 31, 1998 was primarily due to additional bank borrowings to
meet seasonal working capital needs and to fund capital expenditures.
Liquidity and Capital Resources
On May 30, 1997, the Company replaced its $145 million credit facility
by obtaining two separate revolving credit facilities, both of which are
guaranteed by J. Baker, Inc. One facility, which finances the Company's apparel
businesses, is a $100 million revolving credit facility with Fleet National
Bank, BankBoston, N.A., The Chase Manhattan Bank, Imperial Bank, USTrust,
Wainwright Bank & Trust Company and Bank Polska Kasa Opieki S.A. (the "Apparel
Credit Facility"). The Apparel Credit Facility is secured by all of the capital
stock of The Casual Male, Inc. and three other subsidiaries of the Company. The
aggregate commitment under the Apparel Credit Facility was reduced from $100
million to $90 million on December 31, 1997, by amendment was increased to $95
million on April 3, 1998, and will automatically be reduced by $10 million on
each of December 31, 1998 and December 31, 1999. Borrowings under the Apparel
Credit Facility bear interest at variable rates and can be in the form of loans,
bankers' acceptances and letters of credit. This facility expires on May 31,
2000.
To finance its JBI Footwear business, the Company obtained a $55
million revolving credit facility, secured by substantially all of the assets of
JBI, Inc. and Morse Shoe, Inc., with BankBoston Retail Finance Inc. (formerly
known as GBFC, Inc.) and Fleet National Bank (the "Footwear Credit Facility").
The aggregate commitment under the Footwear Credit Facility was reduced by $5
million on June 30, 1997. Aggregate borrowings under the Footwear Credit
Facility are limited to an amount determined by a formula based on various
percentages of eligible inventory and accounts receivable. Borrowings under the
Footwear Credit Facility bear interest at variable rates and can be in the form
of loans or letters of credit. This facility expires on May 31, 2000.
<PAGE>
As of August 1, 1998, the Company had aggregate borrowings outstanding
under its Apparel Credit Facility and its Footwear Credit Facility totaling
$83.3 million and $44.3 million, respectively, consisting of loans and
obligations under letters of credit.
Net cash used in operating activities for the first six months of
fiscal 1999 was $16.4 million, as compared to net cash used in operating
activities of $45.0 million for the first six months of fiscal 1998. The $28.6
million change was primarily due to higher expenditures for inventory and
payments related to the restructuring of the Company's footwear operations in
the first six months of fiscal 1998 versus the first six months of fiscal 1999.
Net cash used in investing activities for the first six months of
fiscal 1999 was $3.1 million, as compared to net cash provided by investing
activities of $56.1 million in the first six months of fiscal 1998. The $59.2
million change was primarily due to the receipt of $60.1 million in proceeds
from the sales of the SCOA and Parade of Shoes businesses in the first six
months of fiscal 1998 versus the receipt of $2.9 million in sale proceeds in the
first six months of fiscal 1999.
Net cash provided by financing activities for the first six months of
fiscal 1999 was $16.9 million, as compared to net cash used in financing
activities of $13.3 million in the first six months of fiscal 1998. The $30.2
million change was primarily due to the borrowing of $17.9 million under the
Company's revolving lines of credit during the first six months of fiscal 1999
versus the repayment of $11.3 million in bank borrowings during the first six
months of fiscal 1998.
The Company invested $5.5 million and $4.2 million in capital
expenditures during the first six months of fiscal 1999 and fiscal 1998,
respectively. The Company's capital expenditures generally relate to new store
and licensed footwear department openings and remodeling of existing stores and
departments, coupled with expenditures for general corporate purposes.
Following is a table showing actual and planned store openings by
division for fiscal 1999:
<TABLE>
<S> <C> <C> <C>
Actual Openings Planned Openings Total
First through Second Third through Fourth Actual/Planned
Division Quarters Fiscal 1999 Quarters Fiscal 1999 Openings
-------- -------------------- -------------------- --------
Casual Male 3 7 10
Work 'n Gear 1 0 1
JBI Footwear 24 8 32
</TABLE>
Offsetting the above actual and planned store openings, the Company
closed 6 Casual Male stores and 9 JBI Footwear departments during the first six
months of fiscal 1999. The Company has plans to close approximately an
additional 11 Casual Male stores and 1 JBI Footwear department during the third
through fourth quarters of fiscal 1999.
The Company believes that amounts available under its revolving credit
facilities, along with other potential sources of funds and cash flows from
operations, will be sufficient to meet its operating and capital requirements
for the foreseeable future. From time to time, the Company evaluates potential
acquisition candidates in pursuit of strategic initiatives and growth goals in
niche apparel markets. Financing of potential acquisitions will be determined
based on the financial condition of the Company at the time of such
acquisitions, and may include borrowings under current or new commercial credit
facilities or the issuance of publicly issued or privately placed debt or equity
securities.
Year 2000 Compliance
The Company is faced with "Year 2000" remediation issues. Many computer
programs were written with a two-digit date field and if these programs are not
made Year 2000 compliant, they will be unable to correctly process date
information on or after Year 2000. While these issues impact all of the
Company's data processing systems to some extent, they are most significant in
connection with various mainframe "legacy" computer programs.
<PAGE>
In fiscal 1997, the Company developed a plan to address the Year 2000
issues as they relate to the mainframe legacy computer programs and began
converting such computer systems to be Year 2000 compliant. The plan for such
mainframe programs provides for the conversion efforts to be completed by the
end of fiscal 1999. The Company is in the process of determining the extent to
which it may be vulnerable to any failures by its key business partners, major
suppliers and service providers to remedy their own Year 2000 issues, and has
initiated formal communications with these parties. At this time, the Company is
unable to estimate the nature or extent of any potential adverse impact
resulting from the failure of key business partners, major suppliers and service
providers to achieve Year 2000 compliance, although the Company does not
currently anticipate that it will experience any material shipment delays from
its major suppliers due to Year 2000 issues. However, there can be no assurance
that these third parties will not experience Year 2000 problems or that any such
problems would have a material effect on the Company. Because the cost and
timing of Year 2000 compliance by third parties such as key business partners,
major suppliers and service providers is not within the Company's control, no
assurance can be given with respect to the cost or timing of such efforts or any
potential adverse effects on the Company of any failure by these third parties
to achieve Year 2000 compliance. The total cost of the Company's Year 2000
project is estimated to be approximately $4.0 million, of which approximately
$2.0 million is for incremental costs and is being funded through operating cash
flows. The Company is expensing all costs associated with these computer systems
changes as the costs are incurred. As of August 1, 1998, the Company has
expended $1.9 million on Year 2000 compliance projects.
Certain Factors That May Affect Future Results
The Company cautions that any forward-looking statements (as such term
is defined in the Private Securities Litigation Reform Act of 1995) contained in
this Form 10-Q or made by management of the Company involve risks and
uncertainties and are subject to change based on various important factors. The
following factors, among others, in some cases have affected and in the future
could affect the Company's financial performance and actual results, and could
cause actual results for fiscal 1999 and beyond to differ materially from those
expressed or implied in any such forward-looking statements: changes in consumer
spending patterns, consumer preferences and overall economic conditions,
availability of credit, interest rates, the impact of competition and pricing,
the weather, the financial condition of the retailers in whose stores the
Company operates licensed footwear departments, changes in existing or potential
duties, tariffs or quotas, availability of suitable store locations at
appropriate terms, ability to hire and train associates and Year 2000
conversion.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The registrant's annual meeting of stockholders was held on June 2, 1998
(the "Meeting").
(b) Messrs. J. Christopher Clifford, David Pulver and Alan I. Weinstein were
elected Class III directors at the Meeting for a three-year term. The term
of office for the following directors continued after the Meeting: Ms.
Nancy Ryan, Messrs. Sherman N. Baker, Douglas J. Kahn, Harold Leppo and
Melvin M. Rosenblatt.
(c) The stockholders voted on a proposal to amend the Company's 1994 Equity
Incentive Plan.
(d) The stockholders voted on a proposal to amend the Company's 1992 Directors'
Stock Option Plan.
(e) The stockholders voted on the ratification of the selection of KPMG Peat
Marwick LLP as independent auditors for the fiscal year ending January 30,
1999.
The following votes were cast at the Meeting with respect to each
nominee for Class III director:
<TABLE>
<S> <C> <C>
Total vote for Total vote withheld
each director from each director
-------------- -------------------
J. Christopher Clifford 12,261,632 901,050
David Pulver 12,261,632 901,050
Alan I. Weinstein 12,261,732 900,950
</TABLE>
The following votes were cast at the Meeting with respect to the
amendment to the Company's 1994 Equity Incentive Plan:
For: 7,001,189
Against: 2,434,818
Abstain: 6,673
Broker Non-Votes 3,720,002
The following votes were cast at the Meeting with respect to the
amendment to the Company's 1992 Directors' Stock Option Plan:
For: 8,024,386
Against: 1,390,919
Abstain: 9,614
Broker Non-Votes 3,737,763
The following votes were cast at the Meeting with respect to the
ratification of auditors:
For: 13,155,871
Against: 4,233
Abstain: 2,578
Item 6. Exhibits and Reports on Form 8-K
(a) The Exhibits in the Exhibit Index are filed as part of this report.
(b) No reports on Form 8-K were filed by the Registrant during the quarter for
which this report is filed.
<PAGE>
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 by the undersigned, thereunto duly authorized.
J. BAKER, INC.
By:/s/Alan I. Weinstein
Alan I. Weinstein
President and Chief Executive Officer
Date: Canton, Massachusetts
September 14, 1998
By:/s/Philip Rosenberg
Philip Rosenberg
Executive Vice President, Chief Financial
Officer and Treasurer
Date: Canton, Massachusetts
September 14, 1998
<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
-------------------
EXHIBITS
Filed with
Quarterly Report on Form 10-Q
of
J. BAKER, INC.
555 Turnpike Street
Canton, MA 02021
For the Quarter ended August 1, 1998
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit Page No.
10. Material Contracts
(.01) Restricted Stock Award Agreement between Alan I. Weinstein *
and J. Baker, Inc., dated as of July 8, 1998, attached.
(.02) Forgivable Promissory Note made by Alan I. Weinstein in favor *
of J. Baker, Inc., dated July 8, 1998, issued in connection with
Restricted Stock Award, attached.
(.03) Restricted Stock Award Agreement between Stuart M. Glasser *
and J. Baker, Inc., dated as of July 8, 1998, attached.
(.04) Forgivable Promissory Note made by Stuart M. Glasser in favor *
of J. Baker, Inc., dated July 8, 1998, issued in connection with
Restricted Stock Award, attached.
11. Computation of Net Earnings Per Common Share, attached. *
27. Financial Data Schedule **
</TABLE>
* Included herein
** This exhibit has been filed with the Securities and Exchange Commission
as part of J. Baker, Inc.'s electronic submission of this Form 10-Q
under EDGAR filing requirements. It has not been included herein.
EXHIBIT 10.01
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE J. BAKER, INC.
1994 EQUITY INCENTIVE PLAN
Name of Grantee: Alan I. Weinstein
No. of Shares: 50,000
Purchase Price Per Share: $10.18
Grant Date: July 8, 1998
Final
Acceptance Date: July 8, 1998
Pursuant to the J. Baker, Inc. 1994 Equity Incentive Plan (the "Plan") as
amended through the date hereof, J. Baker, Inc. (the "Company") hereby grants a
performance based Restricted Stock Award (an "Award") to Alan I. Weinstein (the
"Grantee"). Upon acceptance of this Award, Grantee shall receive the number of
shares of Common Stock, par value $.50 per share (the "Stock") of the Company
specified above, subject to the restrictions and conditions set forth herein and
in the Plan, and the Performance Share Award Agreement dated as of March 26,
1996, as amended, shall be terminated and be of no further force or effect.
1. Acceptance of Award. The Grantee shall have no rights with respect
to this Award unless he or she shall have accepted this Award prior to the close
of business on the Final Acceptance Date specified above by (i) making payment
to the Company by certified or bank check or other instrument acceptable to the
Compensation Committee of the Board of Directors of the Company of the Purchase
Price per Share times the number of shares to be accepted, and (ii) signing and
delivering to the Company a copy of this Award Agreement. Upon acceptance of
this Award by the Grantee, certificates evidencing the shares of Restricted
Stock so accepted shall be issued and delivered to the Grantee, and the
Grantee's name shall be entered as the stockholder of record on the books of the
Company. Thereupon, the Grantee shall have all the rights of a shareholder with
respect to such shares, including voting and dividend rights, subject, however,
to the restrictions and conditions specified in Paragraph 2 below.
2. Restrictions and Conditions.
(a) Certificates evidencing the shares of Restricted Stock
granted shall bear an appropriate legend, as determined by the Compensation
Committee in its sole discretion, to the effect that such shares are subject to
restrictions as set forth herein and in the Plan.
(b) Shares of Restricted Stock granted herein may not be sold,
assigned, transferred, pledged or otherwise encumbered or disposed of by the
Grantee prior to vesting.
(c) The restrictions of this Award are performance based and
linked to certain stock price appreciation criteria, as follows: If the twenty
(20) day average trading price of the Company's Common Stock culminating on the
Vesting Date is not $14.00 per share or higher, the Company shall have the
right, at the discretion of the Compensation Committee, to repurchase such
number of shares set forth on Schedule A from the Grantee or the Grantee's legal
representative at the lower of their purchase price or the fair market value of
such shares on the Vesting Date. The Company must exercise such right of
repurchase or forfeiture by written notice to the Grantee or the Grantee's legal
representative not later than sixty (60) days following the Vesting Date.
3. Vesting of Restricted Stock. The restrictions and conditions in
Paragraph 2 of this Agreement shall lapse on April 30, 1999 or September 15,
1999 (the "Vesting Date") as the Grantee, in his sole discretion, may select by
giving written notice to the Company no later than sixty (60) days prior to
April 30, 1999.
Subsequent to such Vesting Date, the shares of Stock on which all
restrictions and conditions have lapsed shall no longer be deemed Restricted
Stock. In the event of a Change of Control of the Company as defined in Section
13 of the Plan, any restrictions and conditions on shares of Stock subject to
this Award shall be deemed waived by the Compensation Committee, and such shares
shall automatically become fully vested.
4. Dividends. Dividends on Shares of Restricted Stock shall be paid
currently to the Grantee.
5. Incorporation of Plan. Notwithstanding anything herein to the
contrary, this Agreement shall be subject to and governed by all the terms and
conditions of the Plan. Capitalized terms in this Agreement shall have the
meaning specified in the Plan, unless a different meaning is specified herein.
6. Transferability. This Agreement is personal to the Grantee,
is non-assignable and is not transferable in any manner, by operation of
law or otherwise, other than by will or the laws of descent and distribution.
7. Tax Withholding. The Grantee shall, not later than the date as of
which the receipt of this Award becomes a taxable event for Federal income tax
purposes, pay to the Company or make arrangements satisfactory to the
Compensation Committee for payment of any Federal, state and local taxes
required by law to be withheld or account of such taxable event. The Grantee may
elect to have such tax withholding obligation satisfied, in whole or in part, by
(i) authorizing the Company to withhold from shares of Stock to be issued, or
(ii) transferring to the Company, a number of shares of Stock with an aggregate
fair market value that would satisfy the withholding amount due.
8. Election Under Section 83(b). The Grantee and the Company hereby
agree that the Grantee shall, within thirty (30) days following the acceptance
of this Award as provided in Paragraph 1 hereof, file with the Internal Revenue
Service and the Company an election under Section 83(b) of the Internal Revenue
Code.
9. Miscellaneous.
(a) Notice hereunder shall be given to the Company at its
principal place of business, and shall be given to the
Grantee at the address set forth below, or in either case
at such other address as one party may subsequently
furnish to the other party in writing.
(b) This Agreement does not confer upon the Grantee any rights
with respect to continuation of employment by the Company
or any Subsidiary.
(c) Pursuant to Section 11 of the Plan the Compensation
Committee may at any time amend or cancel any portion of
this Award, but no such action may be taken which
adversely affects the Grantee's rights under this
Agreement without Grantee's consent.
J. BAKER, INC.
By: /s/ Sherman N. Baker
Chairman
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned.
Dated: July 8, 1998 /s/Alan I. Weinstein
------------- --------------------
Grantee's Signature
Grantee's Name and Address:
Alan I. Weinstein
13 Kings Road
Sharon, MA 02067
EXHIBIT 10.02
FORGIVABLE PROMISSORY NOTE
Canton, Massachusetts
$509,000 July 8, 1998
- -------- ------------
FOR VALUE RECEIVED, the undersigned, Alan I. Weinstein ("Payor")
promises to pay to the order of J. Baker, Inc., a Massachusetts corporation, at
555 Turnpike Street, Canton, Massachusetts 02021 ("Lender"), the principal sum
of Five Hundred Nine Thousand Dollars ($509,000), or so much thereof as may be
outstanding all upon the terms and provisions herein ("Principal Amount").
If Payor remains employed by Lender, or by any company directly or
indirectly controlled by Lender through the following dates, the outstanding
Principal Amount of this Note (the "Note") shall automatically be reduced to the
amount indicated:
Outstanding
Date Principal Amount
- ---- ----------------
Prior to 1st year anniversary from July 8, 1998 $509,000
1st year anniversary from July 8, 1998 $407,200
2nd year anniversary from July 8, 1998 $305,400
3rd year anniversary from July 8, 1998 $203,600
4th year anniversary from July 8, 1998 $101,800
5th year anniversary from July 8, 1998 $ -0-
If Payor remains employed by Lender through July 8, 2003, this Note
shall automatically be canceled and no amount shall be due hereunder.
Pursuant to a Restricted Stock Award (the "Award") of even date
herewith, Lender has the right and option to repurchase, under certain
circumstances set forth in the Award Agreement, a specified number of shares of
Lender's common stock, par value $.50 per share, (the "Shares") on a date
certain as set forth in the Award Agreement. In the event Lender exercises its
right to repurchase any Shares, the proceeds payable to Payor as a result of any
such repurchase shall be applied as a reduction in the then outstanding
Principal Amount of this Note and the term of the forgiveness of this Note shall
be commensurately reduced.
If at any time prior to July 8, 2003, Payor is no longer employed by
Lender as a result of his voluntary resignation (which term shall not include
Payor's retirement or resignation as a result of a Change of Control of the
Company as defined in the Company's 1994 Equity Incentive Plan) or termination
for cause (as defined in the Employment Agreement dated as of April 1, 1997
between Payor and Lender, as amended), the outstanding Principal Amount of this
Note shall be immediately due and payable on the last day of Payor's employment.
At such time as Payor is no longer employed by Lender and the Principal Amount
of this Note remains outstanding and has not been forgiven, interest on the
outstanding Principal Amount shall accrue and be payable on the last day of each
month, in arrears, at an interest rate per annum of nine percent (9%). Interest
will be computed on the basis of a 360 day year, compounded monthly.
For as long as Payor remains employed by Lender, this Note shall not
bear any interest. However, IRS regulations require, with respect to
non-interest bearing loans (or below market loans) in excess of $10,000 between
an employer and an employee, that the amount of the foregone interest (that is,
interest which has not been charged by the lender) be treated as taxable
compensation income to the Payor.
Payor shall be responsible for any federal, state or local taxes which
may be payable as a result of the forgiveness of the Note if such forgiveness
shall be considered taxable income. Payor should seek the advice of his or her
own tax advisor as to the tax consequences of this Note and the obligations
hereunder.
Lender is hereby authorized at any time and from time to time to set
off and apply any and all indebtedness owing by Lender to Payor (including
unpaid wages and earned but unpaid vacation pay) and other assets or properties
of Payor at any time held in the possession, custody or control of Lender
against any and all of the outstanding Principal Amount and interest due under
this Note. Without limiting the foregoing, Payor hereby grants to Lender a
continuing security interest in and to all such indebtedness, assets and
properties in the possession of Lender.
Payor hereby waives presentment, demand for payment, protest and notice
of protest, and any or all other notices or demands in connection with the
delivery, acceptance and performance of this Note. No waiver of or modification
to this Note or any part hereof shall be effective unless contained in writing,
signed by the party to whom enforcement is sought. No delay or omission of
Lender in exercising any right or remedy hereunder shall constitute a waiver of
any such right or remedy. A waiver on one occasion shall not operate as a bar to
or waiver of any such right or remedy on any future occasion.
This Note shall inure to the benefit of Lender and its successors and
assigns. This Note shall be binding upon Payor and its successors.
This Note shall be deemed to be under seal and shall be governed and
construed accordingly to the laws of the Commonwealth of Massachusetts without
reference to the principles of conflict of law thereof.
/s/ Alan I. Weinstein
Alan I. Weinstein
13 Kings Road
Sharon, Massachusetts 02067
EXHIBIT 10.03
RESTRICTED STOCK AWARD AGREEMENT
UNDER THE J. BAKER, INC.
1994 EQUITY INCENTIVE PLAN
Name of Grantee: Stuart M. Glasser
No. of Shares: 50,000
Purchase Price Per Share: $10.18
Grant Date: July 8, 1998
Final
Acceptance Date: July 8, 1998
Pursuant to the J. Baker, Inc. 1994 Equity Incentive Plan (the "Plan") as
amended through the date hereof, J. Baker, Inc. (the "Company") hereby grants a
performance based Restricted Stock Award (an "Award") to Stuart M. Glasser (the
"Grantee"). Upon acceptance of this Award, Grantee shall receive the number of
shares of Common Stock, par value $.50 per share (the "Stock") of the Company
specified above, subject to the restrictions and conditions set forth herein and
in the Plan, and the Performance Share Award Agreement dated as of September 15,
1997 shall be terminated and be of no further force or effect.
1. Acceptance of Award. The Grantee shall have no rights with respect
to this Award unless he or she shall have accepted this Award prior to the close
of business on the Final Acceptance Date specified above by (i) making payment
to the Company by certified or bank check or other instrument acceptable to the
Compensation Committee of the Board of Directors of the Company of the Purchase
Price per Share times the number of shares to be accepted, and (ii) signing and
delivering to the Company a copy of this Award Agreement. Upon acceptance of
this Award by the Grantee, certificates evidencing the shares of Restricted
Stock so accepted shall be issued and delivered to the Grantee, and the
Grantee's name shall be entered as the stockholder of record on the books of the
Company. Thereupon, the Grantee shall have all the rights of a shareholder with
respect to such shares, including voting and dividend rights, subject, however,
to the restrictions and conditions specified in Paragraph 2 below.
2. Restrictions and Conditions.
(a) Certificates evidencing the shares of Restricted Stock
granted shall bear an appropriate legend, as determined by the Compensation
Committee in its sole discretion, to the effect that such shares are subject to
restrictions as set forth herein and in the Plan.
(b) Shares of Restricted Stock granted herein may not be sold,
assigned, transferred, pledged or otherwise encumbered or disposed of by the
Grantee prior to vesting.
(c) The restrictions of this Award are performance based and
linked to certain stock price appreciation criteria, as follows: If the twenty
(20) day average trading price of the Company's Common Stock culminating on the
Vesting Date is not $15.00 per share or higher, the Company shall have the
right, at the discretion of the Compensation Committee, to repurchase such
number of shares set forth on Schedule A from the Grantee or the Grantee's legal
representative at the lower of their purchase price or the fair market value of
such shares on the Vesting Date. The Company must exercise such right of
repurchase or forfeiture by written notice to the Grantee or the Grantee's legal
representative not later than sixty (60) days following the Vesting Date.
3. Vesting of Restricted Stock. The restrictions and conditions in
Paragraph 2 of this Agreement shall lapse on September 15, 1999 or on September
15, 2000 (the "Vesting Date") as the Grantee, in his sole discretion, may select
by giving written notice to the Company no later than sixty (60) days prior to
September 15, 1999.
Subsequent to such Vesting Date, the shares of Stock on which all
restrictions and conditions have lapsed shall no longer be deemed Restricted
Stock. In the event of a Change of Control of the Company as defined in Section
13 of the Plan, any restrictions and conditions on shares of Stock subject to
this Award shall be deemed waived by the Compensation Committee, and such shares
shall automatically become fully vested.
4. Dividends. Dividends on Shares of Restricted Stock shall be paid
currently to the Grantee.
5. Incorporation of Plan. Notwithstanding anything herein to the
contrary, this Agreement shall be subject to and governed by all the terms and
conditions of the Plan. Capitalized terms in this Agreement shall have the
meaning specified in the Plan, unless a different meaning is specified herein.
6. Transferability. This Agreement is personal to the Grantee,
is non-assignable and is not transferable in any manner, by operation of
law or otherwise, other than by will or the laws of descent and distribution.
7. Tax Withholding. The Grantee shall, not later than the date as of
which the receipt of this Award becomes a taxable event for Federal income tax
purposes, pay to the Company or make arrangements satisfactory to the
Compensation Committee for payment of any Federal, state and local taxes
required by law to be withheld or account of such taxable event. The Grantee may
elect to have such tax withholding obligation satisfied, in whole or in part, by
(i) authorizing the Company to withhold from shares of Stock to be issued, or
(ii) transferring to the Company, a number of shares of Stock with an aggregate
fair market value that would satisfy the withholding amount due.
8. Election Under Section 83(b). The Grantee and the Company hereby
agree that the Grantee shall, within thirty (30) days following the acceptance
of this Award as provided in Paragraph 1 hereof, file with the Internal Revenue
Service and the Company an election under Section 83(b) of the Internal Revenue
Code.
9. Miscellaneous.
(a) Notice hereunder shall be given to the Company at its
principal place of business, and shall be given to the
Grantee at the address set forth below, or in either case
at such other address as one party may subsequently
furnish to the other party in writing.
(b) This Agreement does not confer upon the Grantee any rights
with respect to continuation of employment by the Company
or any Subsidiary.
(c) Pursuant to Section 11 of the Plan the Compensation
Committee may at any time amend or cancel any portion of
this Award, but no such action may be taken which
adversely affects the Grantee's rights under this
Agreement without Grantee's consent.
J. BAKER, INC.
By: /s/ Alan I. Weinstein
President and
Chief Executive Officer
The foregoing Agreement is hereby accepted and the terms and conditions
thereof hereby agreed to by the undersigned.
Dated: July 8, 1998 /s/ Stuart M. Glasser
------------- ---------------------
Grantee's Signature
Grantee's Name and Address:
Stuart M. Glasser
318 Beacon Street
Boston, MA 02116
EXHIBIT 10.04
FORGIVABLE PROMISSORY NOTE
Canton, Massachusetts
$509,000 July 8, 1998
- -------- ------------
FOR VALUE RECEIVED, the undersigned, Stuart M. Glasser ("Payor")
promises to pay to the order of J. Baker, Inc., a Massachusetts corporation, at
555 Turnpike Street, Canton, Massachusetts 02021 ("Lender"), the principal sum
of Five Hundred Nine Thousand Dollars ($509,000), or so much thereof as may be
outstanding all upon the terms and provisions herein ("Principal Amount").
If Payor remains employed by Lender, or by any company directly or
indirectly controlled by Lender through the following dates, the outstanding
Principal Amount of this Note (the "Note") shall automatically be reduced to the
amount indicated:
Outstanding
Date Principal Amount
- ---- ----------------
Prior to 1st year anniversary from July 8, 1998 $509,000
1st year anniversary from July 8, 1998 $407,200
2nd year anniversary from July 8, 1998 $305,400
3rd year anniversary from July 8, 1998 $203,600
4th year anniversary from July 8, 1998 $101,800
5th year anniversary from July 8, 1998 $ -0-
If Payor remains employed by Lender through July 8, 2003, this Note
shall automatically be canceled and no amount shall be due hereunder.
Pursuant to a Restricted Stock Award (the "Award") of even date
herewith, Lender has the right and option to repurchase, under certain
circumstances set forth in the Award Agreement, a specified number of shares of
Lender's common stock, par value $.50 per share, (the "Shares") on a date
certain as set forth in the Award Agreement. In the event Lender exercises its
right to repurchase any Shares, the proceeds payable to Payor as a result of any
such repurchase shall be applied as a reduction in the then outstanding
Principal Amount of this Note and the term of the forgiveness of this Note shall
be commensurately reduced.
If at any time prior to July 8, 2003, Payor is no longer employed by
Lender as a result of his voluntary resignation (which term shall not include
Payor's retirement or resignation as a result of a Change of Control of the
Company as defined in the Company's 1994 Equity Incentive Plan) or termination
for cause (as defined in the Employment Agreement dated as of September 15, 1997
between Payor and Lender), the outstanding Principal Amount of this Note shall
be immediately due and payable on the last day of Payor's employment. At such
time as Payor is no longer employed by Lender and the Principal Amount of this
Note remains outstanding and has not been forgiven, interest on the outstanding
Principal Amount shall accrue and be payable on the last day of each month, in
arrears, at an interest rate per annum of nine percent (9%). Interest will be
computed on the basis of a 360 day year, compounded monthly.
For as long as Payor remains employed by Lender, this Note shall not
bear any interest. However, IRS regulations require, with respect to
non-interest bearing loans (or below market loans) in excess of $10,000 between
an employer and an employee, that the amount of the foregone interest (that is,
interest which has not been charged by the lender) be treated as taxable
compensation income to the Payor.
Payor shall be responsible for any federal, state or local taxes which
may be payable as a result of the forgiveness of the Note if such forgiveness
shall be considered taxable income. Payor should seek the advice of his or her
own tax advisor as to the tax consequences of this Note and the obligations
hereunder.
Lender is hereby authorized at any time and from time to time to set
off and apply any and all indebtedness owing by Lender to Payor (including
unpaid wages and earned but unpaid vacation pay) and other assets or properties
of Payor at any time held in the possession, custody or control of Lender
against any and all of the outstanding Principal Amount and interest due under
this Note. Without limiting the foregoing, Payor hereby grants to Lender a
continuing security interest in and to all such indebtedness, assets and
properties in the possession of Lender.
Payor hereby waives presentment, demand for payment, protest and notice
of protest, and any or all other notices or demands in connection with the
delivery, acceptance and performance of this Note. No waiver of or modification
to this Note or any part hereof shall be effective unless contained in writing,
signed by the party to whom enforcement is sought. No delay or omission of
Lender in exercising any right or remedy hereunder shall constitute a waiver of
any such right or remedy. A waiver on one occasion shall not operate as a bar to
or waiver of any such right or remedy on any future occasion.
This Note shall inure to the benefit of Lender and its successors and
assigns. This Note shall be binding upon Payor and its successors.
This Note shall be deemed to be under seal and shall be governed and
construed accordingly to the laws of the Commonwealth of Massachusetts without
reference to the principles of conflict of law thereof.
/s/ Stuart M. Glasser
Stuart M. Glasser
318 Beacon Street
Boston, MA 02116
EXHIBIT 11
J. BAKER, INC. AND SUBSIDIARIES
Computation of Net Earnings Per Common Share*
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarter Ended Six Months Ended
August 1, August 2, August 1, August 2,
1998 1997 1998 1997
-------- -------- -------- ------
Net Earnings Per Common Share:
Net earnings, basic and diluted $ 2,594,165 $ 1,904,108 $ 3,110,508 $ 2,173,119
=========== =========== =========== ===========
Weighted average common
shares outstanding, basic 13,979,160 13,912,934 13,949,728 13,902,952
---------- ---------- ---------- ----------
Effect of dilutive securities:
Stock options and performance share awards 392,586 30,932 255,839 34,027
----------- ----------- ----------- -----------
Weighted average common
shares outstanding, diluted 14,371,746 13,943,866 14,205,567 13,936,979
========== ========== ========== ==========
Net earnings per common share, basic $0.186 $ 0.137 $0.223 $0.156
=========== =========== =========== ============
Net earnings per common share, diluted $0.181 $ 0.137 $0.219 $0.156
=========== =========== =========== ============
</TABLE>
* This calculation is submitted in accordance with Item 601(b)(11) of Regulation
S-K.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS OF J. BAKER, INC. FOR THE QUARTER ENDED AUGUST 1, 1998 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> AUG-1-1998
<CASH> 1,335,057
<SECURITIES> 0
<RECEIVABLES> 17,923,770
<ALLOWANCES> 587,458
<INVENTORY> 178,068,353
<CURRENT-ASSETS> 207,581,011
<PP&E> 122,196,231
<DEPRECIATION> 50,355,113
<TOTAL-ASSETS> 346,208,785
<CURRENT-LIABILITIES> 60,577,980
<BONDS> 202,396,528
0
0
<COMMON> 7,029,700
<OTHER-SE> 72,349,303
<TOTAL-LIABILITY-AND-EQUITY> 346,208,785
<SALES> 273,132,889
<TOTAL-REVENUES> 273,132,889
<CGS> 148,010,931
<TOTAL-COSTS> 148,010,931
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,234,643
<INCOME-PRETAX> 5,099,508
<INCOME-TAX> 1,989,000
<INCOME-CONTINUING> 3,110,508
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,110,508
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0.22
</TABLE>
