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 October 31, 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 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 [ ]
14,062,139 shares of common stock were outstanding on October 31, 1998.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 31 1998 (unaudited) and January 31, 1998
<TABLE>
<S> <C> <C>
October 31, January 31,
Assets 1998 1998
------ ------- ------
Current assets:
Cash and cash equivalents $ 916,379 $ 3,995,995
Accounts receivable:
Trade, net 15,173,597 9,576,156
Other 4,384,201 9,485,578
---------- ----------
19,557,798 19,061,734
---------- -----------
Merchandise inventories 187,500,067 159,407,002
Prepaid expenses 8,416,866 4,418,171
Deferred income taxes, net 1,972,981 5,230,000
----------- -----------
Total current assets 218,364,091 192,112,902
----------- -----------
Property, plant and equipment, at cost:
Land and buildings 19,532,487 19,532,487
Furniture, fixtures and equipment 78,426,565 72,359,381
Leasehold improvements 26,890,405 24,832,306
----------- -----------
124,849,457 116,724,174
Less accumulated depreciation and amortization 53,991,249 44,595,098
----------- -----------
Net property, plant and equipment 70,858,208 72,129,076
----------- -----------
Deferred income taxes, net 55,254,380 55,950,000
Other assets, at cost, less accumulated amortization 10,850,947 14,875,434
----------- -----------
$355,327,626 $335,067,412
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 2,095,413 $ 2,060,387
Accounts payable 45,662,662 52,108,352
Accrued expenses 12,624,490 14,176,048
Income taxes payable 618,416 979,560
----------- -----------
Total current liabilities 61,000,981 69,324,347
----------- -----------
Other liabilities 2,883,016 4,229,800
Long-term debt, net of current portion 141,166,939 114,407,640
Senior subordinated debt - 1,490,111
Convertible subordinated debt 70,353,000 70,353,000
Stockholders' equity 79,923,690 75,262,514
---------- -----------
$355,327,626 $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 October 31, 1998 and November 1, 1997
(Unaudited)
<TABLE>
<S> <C> <C>
Quarter Quarter
Ended Ended
October 31, 1998 November 1, 1997
---------------- ----------------
Net sales $138,256,958 $139,148,124
Cost of sales 76,036,967 76,562,167
----------- ------------
Gross profit 62,219,991 62,585,957
Selling, administrative and general expenses 52,977,574 54,010,203
Depreciation and amortization 4,213,978 3,900,151
Litigation settlement charges - 3,432,000
----------- -----------
Operating income 5,028,439 1,243,603
Net interest expense 3,820,757 3,510,296
----------- -----------
Earnings (loss) before income taxes 1,207,682 (2,266,693)
Income tax expense (benefit) 471,000 (884,000)
----------- ----------
Net earnings (loss) $ 736,682 $(1,382,693)
=========== ==========
Net earnings (loss) per common share:
Basic $ 0.05 $ (0.10)
=========== ===========
Diluted $ 0.05 $ (0.10)
=========== ===========
Number of shares used to compute net earnings (loss) per common share:
Basic 14,061,928 13,918,898
=========== ===========
Diluted 14,174,445 13,918,898
=========== ===========
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 nine months ended October 31, 1998 and November 1, 1997
(Unaudited)
<TABLE>
<S> <C> <C>
October 31, 1998 November 1, 1997
---------------- ----------------
Net sales $411,389,847 $420,427,742
Cost of sales 224,047,898 232,054,003
----------- ------------
Gross profit 187,341,949 188,373,739
Selling, administrative and general expenses 159,060,895 163,631,945
Depreciation and amortization 10,918,464 10,053,995
Litigation settlement charges - 3,432,000
------------ -----------
Operating income 17,362,590 11,255,799
Net interest expense 11,055,400 9,960,373
------------ -----------
Earnings before income taxes 6,307,190 1,295,426
Income tax expense 2,460,000 505,000
----------- -----------
Net earnings $ 3,847,190 $ 790,426
=========== ==========
Net earnings per common share:
Basic $ 0.28 $ 0.06
=========== ===========
Diluted $ 0.27 $ 0.06
=========== ===========
Number of shares used to compute net earnings per common share:
Basic 13,987,131 13,908,267
=========== ===========
Diluted 14,154,177 13,948,367
=========== ===========
Dividends declared per share $ 0.045 $ 0.045
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended October 31, 1998 and November 1, 1997
(Unaudited)
<TABLE>
<S> <C> <C>
October 31, 1998 November 1, 1997
---------------- ----------------
Cash flows from operating activities:
Net earnings $ 3,847,190 $ 790,426
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization:
Fixed assets 9,396,151 9,030,645
Deferred charges, intangible assets and
deferred financing costs 1,528,237 1,053,375
Deferred income taxes, net 3,952,639 505,000
Change in:
Accounts receivable 522,686 (4,111,454)
Merchandise inventories (28,093,065) (39,276,775)
Prepaid expenses (3,998,695) (2,601,824)
Accounts payable (6,445,690) (3,429,076)
Accrued expenses (1,551,558) (12,678,059)
Income taxes payable/receivable (361,144) (283,807)
Other liabilities (1,253,080) (99,292)
------------ -----------
Net cash used in operating activities (22,456,329) (51,100,841)
------------ -----------
Cash flows from investing activities:
Capital expenditures for:
Property, plant and equipment (8,125,283) (6,447,534)
Other assets (530,278) (1,867,729)
Payments received on notes receivable - 2,175,000
Proceeds from sales of footwear businesses 2,902,335 60,134,835
----------- -----------
Net cash provided by (used in) investing activities (5,753,226) 53,994,572
----------- -----------
Cash flows from financing activities:
Repayment of senior debt (1,500,000) (1,500,000)
Proceeds from (repayment of) other long-term debt 27,213,825 (2,867,694)
Repayment of mortgage payable (419,500) (379,907)
Payment of mortgage escrow, net 40,378 (325,501)
Issuance of common stock, net of retirements 425,843 195,440
Payment of dividends (630,607) (625,898)
----------- ------------
Net cash provided by (used in) financing activities 25,129,939 (5,503,560)
----------- -----------
Net decrease in cash (3,079,616) (2,609,829)
Cash and cash equivalents at beginning of year 3,995,995 3,969,116
----------- -----------
Cash and cash equivalents at end of period $ 916,379 $ 1,359,287
=========== ===========
Supplemental disclosure of cash flow information
Cash paid (received) for:
Interest $ 9,838,597 $ 8,796,379
Income taxes 361,144 283,807
Income taxes refunded (1,673,367) -
=========== ============
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, during the period.
For the quarter and nine months ended October 31, 1998 and the nine months
ended November 1, 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 nine months ended October
31, 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 nine months ended October 31, 1998 and November 1, 1997 because
its effect would be antidilutive. All net earnings (loss) per common share
amounts for all periods presented have been restated to conform to SFAS No.
128 requirements.
Net earnings (loss) and shares used to compute net earnings (loss) per
common share, basic and diluted, are reconciled below:
<TABLE>
<S> <C> <C> <C> <C>
Quarters Ended Nine Months Ended
------------------------------ ----------------------------
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
---------- ----------- ---------- ----------
Net earnings (loss), basic and diluted $ 736,682 $(1,382,693) $ 3,847,190 $ 790,426
=========== ========== ========== ==========
Weighted average common shares:
Basic 14,061,928 13,918,898 13,987,131 13,908,267
Effect of dilutive securities:
Stock options and performance
share awards 112,517 - 167,046 40,100
---------- ---------- --------- ---------
Diluted 14,174,445 13,918,898 14,154,177 13,948,367
========== ========== ========== ==========
</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 1999 year ending
January 30, 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 Statement of Position 98-5
("SOP 98-5"), "Reporting on the Costs of Start-Up Activities". SOP 98-5, which
is effective for fiscal years beginning after December 15, 1998, requires
entities to expense as incurred all start-up and pre-opening costs not otherwise
capitalizable as long-lived assets. Restatement of previously issued annual
financial statements is not permitted by SOP 98-5, and entities are not
permitted to report the pro forma effects of the retroactive application of the
new accounting standard. The Company believes adoption of SOP 98-5 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 nine months ended November 1, 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 nine months ended November 1, 1997.
7] On May 30, 1997, the Company replaced its $145 million credit facility with
two separate revolving credit facilities, both of which are guaranteed by J.
Baker, Inc. One facility, which finances the Company's apparel businesses, was 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 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 reduce 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) the agreement. On April
13, 1998, Bradlees filed its Joint Plan of Reorganization and Disclosure
Statement (the "Plan") with the United States Bankruptcy Court for the Southern
District of New York, which, as amended, was confirmed on November 18, 1998. It
is anticipated that Bradlees will emerge from bankruptcy on or about February 1,
1999. Throughout the Bradlees bankruptcy proceedings, the Company has engaged in
negotiations with Bradlees with respect to certain amendments to its license
agreement, the conditions on which the agreement would be assumed and the terms
on which the Company's outstanding accounts receivable of approximately $1.8
million would be paid as a cure of Bradlees' default under the agreement.
Although an amendment to the agreement has not yet been signed, the Company and
Bradlees have agreed that, upon the effective date of the Plan, the license
agreement shall be modified and amended and the agreement assumed by Bradlees.
Pursuant to the amended agreement, Bradlees shall make a cash distribution to
the Company in the amount of $360,000 on the effective date and shall pay the
balance of the Company's pre-petition claim in thirty-six equal monthly
installments commencing thirty (30) days after the first payment, with interest
on such outstanding balance commencing seven months after the first payment.
9] On September 17, 1997, the Company settled a patent infringement lawsuit
brought against the Company and its Morse Shoe, Inc. subsidiary 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 13 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 Nine Months of Fiscal 1999 versus First Nine Months of Fiscal 1998
The Company's net sales decreased by $9.0 million to $411.4 million in
the first nine months of fiscal 1999 from $420.4 million in the first nine
months of fiscal 1998. Sales in the Company's apparel operations increased by
$13.8 million to $222.7 million in the first nine months of fiscal 1999 from
$208.9 million in the first nine months of fiscal 1998, primarily due to a 4.5%
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) 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 nine months ended
November 1, 1997, sales in the Company's footwear operations decreased by $5.1
million to $188.7 million in the first nine months of fiscal 1999 from $193.8
million in the first nine months of fiscal 1998, primarily due to a 2.0%
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).
The Company's cost of sales constituted 54.5% of sales in the first
nine months of fiscal 1999, as compared to 55.2% of sales in the first nine
months of fiscal 1998. Cost of sales in the Company's apparel operations was
51.5% of sales in the first nine months of fiscal 1999, as compared to 52.3% of
sales in the first nine 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 58.0% of sales in the first nine months of fiscal 1999,
as compared to 58.1% of sales in the first nine months of fiscal 1998. Cost of
sales in the Company's JBI Footwear division was 58.0% of sales in the first
nine months of fiscal 1999, as compared to 58.5% of sales in the first nine
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 $4.6 million, or
2.8%, to $159.1 million in the first nine months of fiscal 1999 from $163.6
million in the first nine 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 $5.2 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 38.7% of
sales in the first nine months of fiscal 1999, as compared to 38.9% of sales in
the first nine months of fiscal 1998. Selling, administrative and general
expenses in the Company's apparel operations were 41.1% of sales in the first
nine months of fiscal 1999 as compared to 41.4% of sales in the first nine
months of fiscal 1998. This decrease was primarily attributable to the increase
in comparable apparel store sales. Selling, administrative and general expenses
in the Company's footwear operations were 35.8% of sales in the first nine
months of fiscal 1999, as compared to 36.5% of sales in the first nine 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 nine months of
fiscal 1999 versus the first nine months of fiscal 1998. The
<PAGE>
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 $864,000 to $10.9
million in the first nine months of fiscal 1999 from $10.1 million in the first
nine months of fiscal 1998, primarily due to an increase in depreciable and
amortizable assets.
During the nine months ended November 1, 1997, the Company recorded
litigation settlement charges of $3.4 million ($2.1 million on an after-tax
basis) related to the settlement of a patent infringement suit brought against
the Company, reflecting costs of the settlement not previously accrued for.
As a result of the above, the Company's operating income increased to
$17.4 million in the first nine months of fiscal 1999 from $11.3 million in the
first nine months of fiscal 1998. As a percentage of sales, operating income was
4.2% in the first nine months of fiscal 1999 as compared to 2.7% in the first
nine months of fiscal 1998.
Net interest expense increased by $1.1 million to $11.1 million in the
first nine months of fiscal 1999 from $10.0 million in the first nine months of
fiscal 1998, primarily due higher interest rates on bank borrowings and higher
levels of bank borrowings in the first nine months of fiscal 1999 versus the
first nine months of fiscal 1998.
Taxes on earnings for the first nine months of fiscal 1999 were $2.5
million, as compared to taxes on earnings of $505,000 for the first nine months
of fiscal 1998, yielding an effective tax rate of 39.0% in both periods.
Net earnings for the first nine months of fiscal 1999 were $3.8 million, as
compared to net earnings of $790,000 in the first nine months of fiscal 1998.
Third Quarter of Fiscal 1999 versus Third Quarter of Fiscal 1998
The Company's net sales decreased by $891,000 to $138.3 million in the
third quarter of fiscal 1999 from $139.1 million in the third quarter of fiscal
1998. Sales in the Company's apparel operations increased by $1.6 million to
$75.1 million in the third quarter of fiscal 1999 from $73.5 million in the
third quarter of fiscal 1998, primarily due to a 1.5% increase in comparable
apparel store sales and an increase in sales generated by Work 'n Gear to its
corporate customers. Sales in the Company's footwear operations decreased by
$2.5 million to $63.1 million in the third quarter of fiscal 1999 from $65.6
million in the third quarter of fiscal 1998, primarily due to a 4.1% decrease in
comparable retail footwear store sales.
The Company's cost of sales constituted 55.0% of sales in the third
quarter of fiscal 1999, which was comparable to 55.0% of sales in the third
quarter of fiscal 1998. Cost of sales in the Company's apparel operations was
52.3% of sales in the third quarter of fiscal 1999 as compared to 52.0% of sales
in the third quarter of fiscal 1998. Cost of sales in the Company's footwear
operations was 58.2% of sales in the third quarter of fiscal 1999, as compared
to 58.4% of sales in the third quarter of fiscal 1998.
Selling, administrative and general expenses decreased $1.0 million, or
1.9%, to $53.0 million in the third quarter of fiscal 1999 from $54.0 million in
the third quarter of fiscal 1998. As a percentage of sales, selling,
administrative and general expenses were 38.3% of sales in the third quarter of
fiscal 1999, as compared to 38.8% of sales in the third quarter of fiscal 1998.
Selling, administrative and general expenses in the Company's apparel operations
were 40.7% of sales in the third quarter of fiscal 1999, as compared to 41.4% of
sales in the third 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 35.5% of sales in the
third quarter of fiscal 1999 as compared to 35.9% of sales in the third quarter
of fiscal 1998. This decrease was primarily due to a decrease in store level
expenses.
Depreciation and amortization expense increased by $314,000 to $4.2
million in the third quarter of fiscal 1999 from $3.9 million in the third
quarter of fiscal 1998, primarily due to an increase in depreciable and
amortizable assets.
<PAGE>
During the third quarter of fiscal 1998, the Company recorded
litigation settlement charges of $3.4 million ($2.1 million on an after-tax
basis) related to the settlement of a patent infringement suit brought against
the Company, reflecting costs of the settlement not previously accrued for.
As a result of the above, the Company's operating income increased to
$5.0 million in the third quarter of fiscal 1999 from $1.2 million in the third
quarter of fiscal 1998. As a percentage of sales, operating income was 3.6% in
the third quarter of fiscal 1999 as compared to 0.9% in the third quarter of
fiscal 1998.
Net interest expense increased by $310,000 to $3.8 million in the third
quarter of fiscal 1999 from $3.5 million in the third quarter of fiscal 1998,
primarily due to higher interest rates on bank borrowings and higher levels of
bank borrowings in the third quarter of fiscal 1999 versus the third quarter of
fiscal 1998.
Taxes on earnings for the third quarter of fiscal 1999 were $471,000,
as compared to an income tax benefit of $884,000 for the third quarter of fiscal
1998, yielding an effective tax rate of 39.0% in both periods.
Net earnings for the third quarter of fiscal 1999 were $737,000, as
compared to a net loss of $1.4 million in the third quarter of fiscal 1998.
Financial Condition
October 31, 1998 versus January 31, 1998
The increase in merchandise inventories at October 31, 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 October 31, 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 October 31, 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 24.4% at October 31, 1998, as
compared to 32.7% at January 31, 1998 and 30.0% at November 1, 1997.
The increase in long-term debt, net of current portion, at October 31,
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
with two separate revolving credit facilities, both of which are guaranteed by
J. Baker, Inc. One facility, which finances the Company's apparel businesses,
was 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 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 reduce 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 October 31, 1998, the Company had aggregate borrowings
outstanding under its Apparel Credit Facility and its Footwear Credit Facility
totaling $86.3 million and $45.8 million, respectively, consisting of loans and
obligations under letters of credit.
Net cash used in operating activities for the first nine months of
fiscal 1999 was $22.5 million, as compared to net cash used in operating
activities of $51.1 million for the first nine months of fiscal 1998. The $28.6
million change was primarily due to lower inventory expenditures and lower
payments related to the restructuring of the Company's footwear operations in
the first nine months of fiscal 1999 versus the first nine months of fiscal
1998, and a decrease in net accounts receivable in the first nine months of
fiscal 1999 versus an increase in net accounts receivable in the first nine
months of fiscal 1998.
Net cash used in investing activities for the first nine months of
fiscal 1999 was $5.7 million, as compared to net cash provided by investing
activities of $54.0 million in the first nine months of fiscal 1998. The $59.7
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 nine
months of fiscal 1998 versus the receipt of $2.9 million in sale proceeds in the
first nine months of fiscal 1999.
Net cash provided by financing activities for the first nine months of
fiscal 1999 was $25.1 million, as compared to net cash used in financing
activities of $5.5 million in the first nine months of fiscal 1998. The $30.6
million change was primarily due to the borrowing of $27.2 million under the
Company's revolving lines of credit during the first nine months of fiscal 1999
versus the repayment of $2.9 million in bank borrowings during the first nine
months of fiscal 1998.
The Company invested $8.1 million and $6.4 million in capital
expenditures during the first nine 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 Third Fourth Actual/Planned
Division Quarters Fiscal 1999 Quarter Fiscal 1999 Openings
-------- -------------------- ------------------- --------
Casual Male 9 1 10
Work 'n Gear 1 0 1
JBI Footwear 29 0 29
</TABLE>
Offsetting the above actual and planned store openings, the Company
closed 11 Casual Male stores and 11 JBI Footwear departments during the first
nine months of fiscal 1999 and has plans to close approximately an additional 4
Casual Male stores and 1 JBI Footwear department during the fourth quarter of
fiscal 1999.
The Company believes 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, which, if not made Year 2000
compliant, will be unable to correctly process date information on or after
January 1, 2000.
<PAGE>
The Company's State of Readiness
The Company has established a Year 2000 committee comprised of senior
management of the Company and has engaged an independent consulting firm to
assist in remediation of the Company's Year 2000 issues. The Company has
evaluated its internal computer systems and while the Company's data processing
systems are impacted to some extent, Year 2000 issues are most significant in
connection with various mainframe computer programs. In fiscal 1997, the Company
developed a plan to address Year 2000 issues as they relate to the mainframe
computer programs and began the process to convert such computer programs to be
Year 2000 compliant. The Company has already converted two of its three primary
mainframe computer programs to be Year 2000 compliant and expects its remaining
conversion efforts with respect to such mainframe computer programs to be
completed by the end of fiscal 1999.
The Company is currently taking an inventory of its non-information
technology systems and once the inventory is complete will begin testing whether
such systems are date sensitive. Where appropriate, the Company will make
contingency plans in order to minimize any adverse effect Year 2000 issues may
have on such non-information technology systems. The Company expects the
inventory of its non-information technology systems to be completed by the end
of fiscal 1999.
The Company has communicated with and is in the process of compiling
detailed information regarding its key business partners and major suppliers to
determine to what extent the Company may be vulnerable to third party Year 2000
issues. At this time, the Company is unable to estimate the nature or extent of
any potential adverse impact resulting from the failure of its key business
partners and major suppliers to achieve Year 2000 compliance, although the
Company does not currently anticipate it will experience any material business
interruptions or shipment delays from its key business partners and major
suppliers due to Year 2000 issues. The Company expects to complete the
compilation of information regarding its key business partners and major
suppliers with respect to Year 2000 compliance by December, 1998.
The Company is not dependent on a single source for any products or
services. In the event a material third party is unable to provide products or
services to the Company due to a Year 2000 computer systems failure, the Company
believes it has adequate alternate sources for such products or services. If
alternate sources are used, there can be no guarantee that similar or identical
products or services would be available on the same terms and conditions or that
the Company would not experience some adverse effect as a result of switching to
such alternate sources.
Costs to Address the Year 2000
The Company's total Year 2000 expenditures are estimated to be
approximately $4.0 million, of which approximately $2.0 million are for
incremental costs, and are being funded through operating cash flows. Certain
other non-Year 2000 computer system projects had to be deferred in order to
ensure completion of the Company's Year 2000 compliance efforts. Although
management believes the deferral of such projects has not had a material adverse
effect on the Company's operations, it expects these projects, when implemented,
will positively impact future results. The Company is expensing all costs
associated with Year 2000 computer system changes as the costs are incurred. To
date, the Company has expended approximately $3.0 million on Year 2000 projects.
Risk Analysis
Similar to most large business enterprises, the Company is dependent
upon its own internal computer technology and relies upon timely performance by
its key business partners and major suppliers. Although the full consequences
are unknown, the failure of either the Company's systems or those of material
third parties to conform to the Year 2000, as noted above, could impair the
Company's ability to deliver product to its stores in a timely manner, which
could result in potential lost sales opportunities and additional expenses. The
Company's Year 2000 project seeks to identify and minimize this risk and
includes testing of internally generated systems and purchased hardware and
software to ensure, to the extent feasible, all such systems will function
before and after the year 2000.
Contingency Plans
The Company is in the process of developing contingency plans, which will
attempt to minimize disruption to the Company's operations in the event of Year
2000 computer systems failures. While no assurances can be given, because of the
Company's extensive efforts to formulate and carry out an effective Year 2000
program, the Company believes
<PAGE>
its program will be completed on a timely basis and should effectively minimize
disruption to the Company's operations due to the Year 2000.
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
issues.
<PAGE>
PART II - OTHER INFORMATION
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
December 14, 1998
By:/s/Philip Rosenberg
Philip Rosenberg
Executive Vice President, Chief Financial
Officer and Treasurer
Date: Canton, Massachusetts
December 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 October 31, 1998
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit Page No.
10. Material Contracts
(.01) Executive Employment Agreement between Michael J. Fine *
and J. Baker, Inc., dated as of September 9, 1998, attached.
(.02) Termination Agreement between J. Baker, Inc. and James D. *
Lee, dated as of September 8, 1998, 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
EXECUTIVE EMPLOYMENT AGREEMENT
This Agreement is dated as of September 9, 1998 by and between Michael
Fine (the "Employee") and J. BAKER, INC., a Massachusetts corporation together
with any subsidiaries of the Company (the "Company").
WHEREAS, the Employee and the Company desire to set forth in writing
the terms and conditions of the Employee's employment agreement with the Company
from the date hereof;
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto agree as follows:
1. Employment. Under and subject to the terms and conditions set forth
herein, the Company hereby agrees to employ the Employee during the Term (as
defined in Section 6 hereof) as its Executive Vice President and President of
its JBI Footwear division (the "Division") and/or in such other senior executive
management position(s) with the Company, or any parent or subsidiary of the
Company, as the Board of Directors of the Company (the "Board") may determine
from time to time, and the Employee hereby accepts such employment.
2. Duties. The Employee agrees, during the Term and any extension of
the Term, faithfully to perform for the Company, such duties as may be assigned
to him from time to time by the Company. The Employee further agrees to devote
his entire business time, attention and energies exclusively to such employment
and to conform to the rules, regulations, instructions, personnel practices and
policies of the Company and its subsidiaries, as existing and amended from time
to time. The Employee may be required to relocate his principal residence only
to an area in which the Company or a subsidiary of the Company has or determines
to have significant operations.
3. Compensation.
(a) Base Salary. The Company shall pay the Employee during the Term an
annual base salary of not less than $400,000, payable no less often than
monthly, in equal installments.
(b) Cash Incentive Compensation. In addition to his annual base salary
as determined pursuant to Section 3(a), during the Term, the Employee shall also
be paid such amounts, if any, to which the Employee is entitled, as an officer
of the Company, under the Company's Cash Incentive Plan (the "Incentive Plan"),
as from time to time such Incentive Plan may be amended, participating with a
"target" level of incentive compensation of forty percent (40%) of base salary.
4. Other Benefits.
(a) Fringe Benefits. The Employee shall be entitled to
participate in all benefit programs that the Company establishes and makes
available to management generally and in any event shall be entitled to receive
benefits at least substantially comparable to those provided pursuant to the
present practices of the Company and its subsidiaries.
(b) Paid Vacations. The Employee shall be entitled to an
annual paid vacation of four (4) weeks in each calendar year, to be taken at
such time or times as the Employee and the Company shall mutually agree,
provided, however, that no more than two weeks shall be taken during any three
month period unless otherwise agreed upon by the Company's Chief Executive
Officer.
5. Expenses. The Company shall reimburse the Employee for all
reasonable travel, entertainment and other business expenses incurred or paid by
the Employee in performing his duties under this Agreement upon presentation by
the Employee of expense statements or vouchers and such other supporting
information as the Company may from time to time request, provided, however,
that the amount available for such expenses may be fixed in advance by the Board
after consultation with the Employee. The Company shall also pay or reimburse
the reasonable relocation expenses of the Employee (consistent with the present
policies of the Company) in connection with a relocation of the Employee's
principal residence outside of the greater Boston area required by the Company
pursuant to Section 2 hereof.
6. Effective Date and Term. This Agreement shall become effective as of
the date hereof and the Employee's employment under this Agreement shall
commence on such date and, unless sooner terminated as provided herein or
extended, shall continue for a term (the "Term") ending on September 9, 2000.
The Employee and the Company have obligations hereunder extending past the Term.
7. Non-competition.
(a) During the Employee's employment under this Agreement or
otherwise and for a period of eighteen months after the date of termination of
such employment (the "Termination Date"), the Employee will not, without the
express written consent of the Company, anywhere in the United States or any
territory or possession thereof or in any foreign country in which the Company
was active as of the Termination Date: (i) compete with the Company or any other
entity directly or indirectly controlled by the Company (each an "Affiliate"),
in the Company's Business (as defined in Section 7(c) hereof); or (ii) otherwise
interfere with, disrupt or attempt to interfere with or disrupt the relationship
between the Company or an Affiliate and any person or business that was a
customer, supplier, lessor, licensor, manufacturer, contractor, designer or
employee of the Company or such Affiliate on the Termination Date or within
eighteen months prior to the Termination Date.
(b) The term "compete" as used in this Section 7 means
directly or indirectly, or by association with any entity or business, either as
a proprietor, partner, employee, agent, consultant, director, officer,
shareholder (provided that the Employee may make passive investments in
competitive enterprises the shares of which are listed on a national securities
exchange if the Employee at no time owns directly or indirectly more than 2% of
the outstanding equity ownership of such enterprise) or in any other capacity or
manner (i) to solicit, hire, purchase from, sell to, rent from, or otherwise
conduct business related to the Company's Business with any party that is a
customer or supplier of the Company or an Affiliate or (ii) operate any retail
store or licensed footwear department ("Licensed Department") which sells
products related to the Company's Business (as defined in Section 7(c) hereof).
(c) The term "Company's Business" as used in this Section 7
means the operation of or employment in either of the following retail
businesses, as a principal business unit, either alone or in combination: (i)
the merchandising, sourcing, production, marketing, distribution or sale of
footwear for any or all of Footstar, Inc.,; Wal-Mart, or Payless ShoeSource,
Inc.; or (ii) retail stores offering casual clothing for "Big and Tall" men. The
term shall also include any additional specialty retail businesses which the
Company may acquire subsequent to the date hereof and which are operated as
principal business units of the Company on the Termination Date.
(d) The term "supplier" as used in this Section 7 shall mean
any party or affiliate of a party from which, on the Termination Date or within
eighteen months prior to the Termination Date, the Company or an Affiliate
purchased products sold by the Company or an Affiliate or was in contact or
actively planning to contact in connection with the purchase of products sold by
the Company or an Affiliate on or before the Termination Date or which the
Company or an Affiliate was contemplating the sale of at some time after the
Termination Date.
(e) The term "customer" as used in this Section 7 shall mean
any party or affiliate of a party, that on the Termination Date or within
eighteen months prior to the Termination Date, was a wholesale vendee or
prospective wholesale vendee of the Company or an Affiliate or in connection
with whose business the Company or an Affiliate operated a Licensed Department,
a retail store for the sale of casual clothing for "Big and Tall" men, work
related clothing and uniforms for medical and laboratory purposes or any other
specialty retail business which the Company operated as a principal business
unit on the Termination Date, had contacted in connection with the potential
operation of such businesses within two years prior to the Termination Date or
which the Company or an Affiliate was actively planning to contact in connection
with the potential operation of any such businesses on the Termination Date.
8. Confidential Information. The Employee will never use for his own
advantage or disclose any proprietary or confidential information relating to
the business operations or properties of the Company, any Affiliate or any of
their respective customers, suppliers, landlords, licensors or licensees. Upon
termination of the Employee's employment, the Employee will surrender and
deliver to the Company all documents and information of every kind relating to
or connected with the Company and Affiliates and their respective businesses,
customers, suppliers, landlords, licensors and licensees.
9. Termination.
(a) Death. In any event of the death of the Employee during
the Term, his employment shall terminate and the Company shall pay to the
Employee's surviving spouse, or to the Employee's estate if their is no
surviving spouse, (i) the Employee's base salary for one year from the date of
death, and (ii) amounts under the Incentive Plan, if any, payable with respect
to the fiscal year in which his death occurs which otherwise would have been
paid to the Employee on the basis of the results for such fiscal year, prorated
to the date of his death. Upon the death of the Employee, the rights of the
Employee's surviving spouse or estate hereunder, as the case may be, shall be
limited solely to the benefits set forth in this Section 9(a).
(b) Disability. In the event that the Employee shall become
disabled (as hereinafter defined) during the Term, the Company shall have the
right to terminate the Employee's employment upon written notice, provided,
however, that in such event the Company shall (i) continue to pay the Employee's
base salary for one year from the date such termination occurs, and (ii) pay to
the Employee amounts under the Incentive Plan, if any, which otherwise would
have been paid to the Employee on the basis of the results for the fiscal year
in which such termination occurs, prorated to the date of such termination. For
purposes of this Agreement, the Employee shall be considered disabled on the
date when any physical or mental illness or other incapacity shall, in the
judgment of a majority of the members of the Board, after consulting with or
being advised by one or more physicians (it being understood that one of such
physicians may be the Employee's physician but that the Board shall not be bound
by his views), have prevented the performance in a manner reasonably
satisfactory to the Company of the Employee's duties under this Agreement for a
period of six consecutive months.
(c) For Cause. "Cause" shall mean the occurrence of one or
more of the following: (i) Optionee is convicted of, pleads guilty to, or
confesses to any felony or any act of fraud, misappropriation or embezzlement
which has an immediate and materially adverse effect on the Company or any
Subsidiary, as determined by the Board in good faith in its sole discretion,
(ii) Optionee engages in a fraudulent act to the material damage or prejudice of
the Company or any subsidiary or in conduct or activities materially damaging to
the property, business or reputation of the Company or any Subsidiary, all as
determined by the Board in good faith in its sole discretion, (iii) any material
act or omission by Optionee involving malfeasance or negligence in the
performance of Optionee's duties to the Company or any Subsidiary to the
material detriment of the Company or any Subsidiary, as determined by the Board
in good faith in its sole discretion, which has not been corrected by Optionee
within 30 days after written notice from the Company of any such act or
omission, (iv) failure by Optionee to comply in any material respect with the
terms of his employment agreement, if any, or any written policies or directives
of the Board as determined by the Board in good faith in its sole discretion,
which has not been corrected by Optionee within 30 days after written notice
from the Company of such failure, or (v) material breach by Optionee of his
non-competition agreement with the Company, if any, as determined by the Board
in good faith in its sole discretion. In such event all obligations of the
Company hereunder shall thereupon terminate, including the obligation to pay any
amounts under the Incentive Plan with respect to the fiscal year in which such
termination occurs, but the Employee shall be entitled to receive any accrued
salary and other amounts under the Incentive Plan accrued with respect to any
prior fiscal years.
(d) Without Cause. During the Term hereof and prior to any
Change of Control of the Company, the Company may terminate this Agreement at
any time without cause. In such event, and subject to the provisions of
subparagraph (e) hereof with respect to the sale or liquidation of the Division,
the Company shall pay to the Employee, in accordance with the Company's regular
pay intervals for its senior executives, an amount equal to the greater of (i)
the amount of Base Salary the Employee would have received through the last day
of the Term or (ii) one (1) year of Base Salary.
(e) Change of Control/Change of Management. (i) In the event
the Employee's employment with the Company is terminated (A) by the Company or
(B) by the Employee for "good reason" within three (3) years after a Change in
Control of the Company occurring during the Term hereof (regardless of whether
such Employee's termination occurs after the expiration of the Term), or (ii) in
the event the Employee's employment is terminated (C) by the Company (except if
such termination is for "Cause" as defined in subparagraph 9(c) hereof) or (D)
by the Employee for "good reason" within three (3) years after the employment of
Mr. Weinstein with the Company has terminated during the Term hereof for any
reason including, without limitation, dismissal, resignation, retirement, death
or termination for any other reason, then, in such event, the Company shall pay
to the Employee an amount, in cash, (the "Severance Payment") equal to the
greater of (i) the amount of Base Salary the Employee would have received
through the last day of the Term or (ii) one (1) year of Base Salary.
In the event the Company determines, during the Term hereof, to either
sell the Division in its entirety as a going concern, or to discontinue
operation of the Division and to liquidate the Division's licenses, inventory
and fixed assets, then, upon the occurrence of such sale or discontinuance, the
Company shall exercise all reasonable efforts to offer the Employee an executive
position of comparable responsibility within the Company. If the Company is
unable to offer the Employee such a position, the Company shall pay to the
Employee an amount equal to the greater of (i) the amount of Base Salary the
Employee would have received through the last day of the Term plus one (1) year
of additional salary or (ii) two (2) years Base Salary payable in accordance
with the regular pay intervals for senior executives of the Company; provided,
however, that any such salary in excess of the greater of the amount of Base
Salary payable through the last day of the Term or one (1) year shall be offset
by any salary or other compensation earned by the Employee from other
employment; it being understood that the Employee shall use reasonable efforts
to find new employment suitable to his training and performance.
A termination for "good reason" shall be deemed to have occurred, and
the Employee shall be entitled to the benefits set forth in this paragraph 9, if
the Employee voluntarily terminates his employment after the occurrence of any
of the following events, if either the circumstances set forth in paragraphs
(e)(i) or (e)(ii) has occurred: (i) the assignment to the Employee of any duties
inconsistent with the highest position (including status, offices, titles and
reporting requirements), authority, duties or responsibilities attained by the
Employee during the period of his employment by the Company; (ii) a relocation
of the Employee outside the metropolitan Boston area; or (iii) a decrease in the
Employee's compensation (including base salary, bonus or fringe benefits). For
purposes hereof, "Change of Control of the Company" shall have the meaning set
forth in the Company's 1994 Equity Incentive Plan, as approved by the
Stockholders of the Company on June 7, 1994 (and without regard to any
subsequent amendments thereto).
For purposes of this Agreement "Base Salary" shall mean the Employee's
Base Salary as set forth in subparagraph 3(a) of this Agreement, as such Base
Salary may be increased from time to time. If any of the termination events set
forth in this subparagraph (e) shall occur during the Term hereof or other
applicable time periods, the provisions of paragraph 7 hereof shall be null and
void and have no further force or effect.
(f) In the event the Employee's employment is terminated as
described in Paragraph 9(e)(i) above, the Severance Payment shall be made to the
Employee in a single lump sum cash payment. In the event the Employee's
employment is terminated as described in Paragraph 9(e)(ii) above, the Severance
Payment shall be made to the Employee in accordance with the Company's regular
pay intervals for its senior executives beginning immediately following the
Employee's termination of employment with the Company.
(g) Severance Payment Limitation Upon Change of Control. If
all or part of the Severance Payment payable to the Employee pursuant to
subparagraph 9(e) hereof, when added to other payments payable to the Employee
as a result of a Change of Control, constitute Parachute Payments, the following
limitation shall apply. If the Parachute Payments, net of the sum of the Excise
Tax, Federal income and employment taxes and state and local income taxes on the
amount of the Parachute Payments in excess of the Threshold Amount, are greater
than the Threshold Amount, the Employee shall be entitled to the full Severance
Payment payable under subparagraph 9(e) of this Agreement. If the Threshold
Amount is greater than the Parachute Payments, net of the sum of the Excise Tax,
Federal income and employment taxes and state and local income taxes on the
amount of the Parachute Payments in excess of the Threshold Amount, then the
Severance Payment payable under subparagraph 9(e) of this Agreement shall be
reduced to the extent necessary so that the maximum Parachute Payments shall not
exceed the Threshold Amount. The Company shall select a firm of independent
certified public accountants to determine which of the foregoing alternative
provisions shall apply. For purposes of determining the amount of the Federal
income and employment taxes, and state and local income taxes on the amount of
the Parachute Payments in excess of the Threshold Amount, the Employee shall be
deemed to pay Federal income taxes at the highest marginal rate of Federal
income taxation applicable to individuals for the calendar year in which the
Severance Payments under subparagraph 9(e) of this Agreement are payable and
state and local income taxes at the highest marginal rates of individual
taxation in the state and locality of the Employee's residence for the calendar
year in which the Severance Payments under Subparagraph 9(e) of this Agreement
are payable, net of the maximum reduction in Federal income taxes which could be
obtained from deduction of such state and local taxes.
For purposes of this Agreement:
"Parachute Payments" shall mean any payment or provision by the Company
of any amount or benefit to and for the benefit of the Employee, whether paid or
payable or provided or to be provided under the terms of this Agreement or
otherwise, that would be considered "parachute payments" within the meaning of
Section 280G(B)(2)(A) of the Internal Revenue Code and the regulations
promulgated thereunder.
"Threshold Amount" shall mean three times the Employee's "base amount"
within the meaning of Section 280(G)(b)(3) of the Internal Revenue Code and the
regulations promulgated thereunder, less one dollar.
"Excise Tax" shall mean the excise tax imposed by Section 4999 of the
Internal Revenue Code.
10. Approval of Board. The Company represents that this Agreement has
been duly approved by the Board and is in all respects valid and binding upon
the Company.
11. Key Person Insurance. The Employee agrees to take such actions as
may be reasonably required to permit the Company to maintain key person life
insurance on the Employee's life in such amounts and for such periods of time,
if any, as the Company deems appropriate, with all benefits being payable to the
Company. Upon payment by the Employee of the cash surrender value, if any, of
any such policy and any paid but unearned premiums for such policy, the Company
will assign such policy to the Employee upon termination (other than because of
the Employee's death) of the Employee's employment with the Company, provided,
however, that, in the event the Employee's employment is terminated by reason of
the disability of the Employee and the death of the Employee may reasonably be
expected within one year after such termination as a result of such disability,
the Company shall not be required to assign any such policy.
12. Notices. Any notice or other communication required or permitted to
be given hereunder shall be in writing and shall be deemed to have been given
and received when actually delivered, one business day after dispatch by
telegraphic means, two business days after dispatch by recognized overnight
delivery service, or five days after mailing by certified or registered mail
with proper postage affixed, return receipt requested and addressed as follows
(or to such other address as a party entitled to receive notice hereunder may
have designated by notice pursuant to this Section 12):
a) If to the Company:
J. Baker, Inc.
555 Turnpike Street
Canton, Massachusetts 02021
Attention: President
b) If to the Employee:
Michael Fine
=====================
13. Severability. If any provision of this Agreement or its application
to any person or circumstances is invalid or unenforceable, then the remainder
of this Agreement or the application of such provision to other persons or
circumstances shall not be affected thereby. Further, if any provision or
application hereof is invalid or unenforceable, then a suitable and equitable
provision shall be substituted therefor in order to carry out so far as may be
valid or enforceable the intent and purposes of the invalid and unenforceable
provision.
14. Applicable Law. This Agreement shall be interpreted and construed
in accordance with, and shall be governed by, the laws of the Commonwealth of
Massachusetts without giving effect to the conflict of law provisions thereof.
15. Assignment. Neither of the parties hereto shall, without the
written consent of the other, assign or transfer this Agreement or any rights or
obligations hereunder, provided, however, that in the event that the Company
sells all or substantially all of its assets the Company may assign its rights
and transfer its obligations hereunder to the purchaser of such assets. A merger
of the Company with or into another corporation shall be deemed not to be an
assignment of this Agreement, and, in any such event, this Agreement shall inure
to the benefit of and be binding upon the surviving corporation and the
Employee. Subject to the foregoing, this Agreement shall be binding upon, and
shall inure to the benefit of, the parties and their respective successors,
heirs, administrators, executors, personal representatives and assigns.
16. Headings. This section and paragraph headings contained in this
Agreement are for convenience of reference only and shall not affect in any way
the meaning or interpretation of this Agreement.
17. Remedies. It is specifically understood and agreed that any breach
of the provisions of Section 7 or 8 of this Agreement is likely to result in
irreparable injury to the Company, that damages at law will be inadequate remedy
for such breach, and that in addition to any other remedy it may have, the
Company shall be entitled to enforce the specific performance of said Sections
and to seek both temporary and permanent injunctive relief therefor without the
necessity of proving actual damages.
18. Waiver of Breach. Any waiver by either the Company or the Employee
of a breach of any provision of this Agreement shall not operate or be construed
as a waiver of any subsequent breach.
19. Amendment of Agreement. This Agreement may be altered, amended or
modified, in whole or in part, only by a writing signed by both the Employee and
the Company.
20. Integration. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter thereof and supersedes
all prior agreements with respect to such subject matter between the parties
including, without limitation, that certain offer letter dated September 8, 1998
from the Company to Michael Fine, as executed by the parties.
Intending to be legally bound, the Company and the Employee have signed
this Agreement as if under seal as of the date set forth at the head of the
first page.
J. BAKER, INC.
/s/ Alan I. Weinstein
Alan I. Weinstein
President
/s/Michael Fine
Michael Fine
EXHIBIT 10.02
TERMINATION AGREEMENT
This Agreement, by and between J. Baker, Inc., a Massachusetts
corporation together with its subsidiaries and divisions (the "Company") with
its principal place of business at 555 Turnpike Street, Canton, Massachusetts
and James D. Lee of Westwood, Massachusetts ("Employee") shall be effective as
of the 8th day of September, 1998.
W I T N E S S E T H
WHEREAS, the Employee has been employed by the Company as the Executive
Vice President and President of the Company's JBI Footwear division pursuant to
an Executive Employment Agreement dated April 1, 1997, as amended by an
amendment dated April 10, 1998 (the "Employment Agreement");
WHEREAS, the parties hereto have agreed that the Employee will resign
from his present positions with the Company upon the terms and conditions
hereafter set forth.
NOW THEREFORE, in consideration of the agreements contained herein, the
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Effective as of the date hereof (the "Termination Date"), the
Company and the Employee agree to terminate the Employment Agreement and all
rights and obligations of the parties thereunder, which Employment Agreement
shall be superseded in all respects by the terms and conditions of this
Agreement.
2. Effective as of the date hereof the Employee shall resign in writing
from any positions he occupied as an officer of the Company.
3. (a) During the period beginning on the Termination Date and ending
with the pay period which ends on December 25, 1999, the Employee will receive,
as severance pay, his present base salary on a weekly basis.
(b) In addition, the Company agrees that the severance pay
which the Employee would otherwise have received for the period commencing with
the pay period for the week ending January 1, 2000 and ending with the pay
period for the week ending April 29, 2000, (Ninety Five Thousand One Hundred
Ninety Two dollars and 28/100 ($95,192.28)), constituting eighteen (18) weeks of
severance pay, shall be accelerated and paid to the Employee in a lump sum on
November 9, 1998; provided, however that twenty thousand dollars ($20,000) of
such lump sum payment shall be withheld and applied, on January 2, 1999, to the
payment and discharge of a Promissory Note dated July 1, 1997 from the Employee
to the Company (which amount, including imputed interest thereon shall be
treated as income to the Employee for the 1999 calendar year). As a result, on
November 9, 1998 the Employee shall receive from the Company a lump sum amount
of Seventy Five Thousand One Hundred Ninety Two and 28/100 ($75,192.28).
(c) The Employee further agrees that the Company has the right
to deduct from payments made hereunder any Federal, state or local taxes of any
kind required by law to be withheld with respect to such payments. The Employee
further agrees that payments provided for in Section 3(a) and (b) shall, upon
completion of such payments to the Employee, constitute payment in full of any
and all obligations of the Company to the Employee including earned unused
vacation pay.
4. The Company agrees that through the close of business on October 7,
1998, the Employee shall, at his option, have the right to use the vehicle
leased by the Company for the benefit of the Employee.
5. The Employee and the Company agree that with respect to stock
options granted to the Employee pursuant to the Company's 1985 Amended and
Restated Stock Option plan or the 1992 Equity Incentive Plan (the "Option
Plans"), any such options to purchase shares of the Company's common stock which
are currently exercisable on the date hereof shall remain exercisable through
December 7, 1998; and any such options to purchase shares which may become
exercisable subsequent to the date hereof shall be forfeited and terminated.
Effective as of the close of business on December 7, 1998 the exercisability of
any stock options granted to the Employee shall terminate and such options shall
be forfeited to the Company.
6. The Employee agrees that during the period commencing on the
Termination Date and ending on April 29, 2000 (the "Severance Period"), he will
immediately notify in writing the Company's First Senior Vice President and
Director of Human Resources or General Counsel upon accepting new employment or
upon providing consulting services to third parties for compensation. If at the
conclusion of the Severance Period, the Employee has not, at any time during the
Severance Period, accepted new employment or provided consulting services to
third parties for compensation, the Company agrees to make a one time lump sum
payment to the Employee in the amount of Sixty Five Thousand dollars ($65,000).
7. Effective as of the date hereof and thereafter, the Employee agrees
that he will not divulge, use, furnish, disclose or make accessible to anyone
other than the Company or its officers and directors any confidential, secret or
proprietary knowledge or information with respect to systems, plans, procedures,
programs, methods, or material relating to the business, products or activities
of the Company or any other confidential, secret or proprietary information
concerning the business, products, properties or activities of the Company
including, without limitation, financial information concerning the Company's
operations and information relating to the Company's customers, suppliers,
vendors, vendees, landlords, licensors or licensees, provided that the foregoing
shall not apply to the disclosure of any information required to be disclosed by
order of any court or government agency having jurisdiction. Confidential,
secret or proprietary information as used above means information that the
Employee had access to in the course of his employment that is not generally
known or available to the public, unless such information has become public
knowledge through no fault of the Employee.
8. The Employee hereby represents, warrants and agrees that as of the
Termination Date, he will turn over to the Company or leave in its offices all
documents or other materials or things owned by the Company and will not take
any such documents or materials with him, nor make copies of any such documents
or materials for his own use or the use of any person other than the Company or
persons connected therewith.
9. Effective as of the Termination Date and thereafter, the parties
agree that neither will take any action or make any statements with respect to
the Company or the Employee or any persons connected therewith which shall
injure the name or reputation of any such party or any employee thereof.
10. Effective as of the date hereof and for a period of one year
thereafter, the Employee agrees that neither he nor his new employer will,
without the express written consent of the Company, hire, recruit, solicit or
induce or attempt to induce, any employee or employees of the Company to
terminate their employment with the Company or to become an employee of the
Employee or his new employer.
11. (a) The Employee agrees that he, his representatives, agents,
estates, successors and assigns release and forever discharge the Company and/or
its agents, officers, directors, employees, successors and assigns, both
individually and in their official capacities with the Company, from any and all
actions, suits, claims, complaints, contracts, liabilities, agreements,
promises, debts and damages, whether existing or contingent, known or unknown,
which arise out of the Employee's employment with or his termination of
employment from the Company. This release is intended by the Employee and the
Company to be all encompassing and to act as a full and total release of any
claims that the Employee may have or has had against the Company, its agents,
officers, directors, employees, successors or assigns, both individually and in
their official capacity with the Company, including, but not limited to, any
federal or state law or regulation dealing with discrimination on the basis of
age, race, color, creed, sex, sexual preference, religion, national origin,
handicap status, marital status, or status as a disabled or Vietnam era veteran;
any contract whether oral or written, expressed or implied; or common law.
(b) The Employee has been informed that because he is 40 years
of age or older, he has or might have specific rights and/or claims under the
Age Discrimination in Employment Act of 1967 (the "ADEA"). In consideration for
the compensation described in Section 3 hereof, the Employee specifically waives
such rights and/or claims to the extent that such rights and/or claims arose
prior to the date this Agreement was executed.
(c) The Employee has been advised by the Company of his right
to consult with an attorney prior to executing this Agreement.
(d) The Employee has been further advised that he has at least
21 days from the date of receipt within which to consider and return a signed
Agreement to the Company's First Senior Vice President and Director of Human
Resources.
(e) As additional consideration for his agreement to waive any
and all claims Mr. Lee has or might have under the ADEA, the Company will
continue Mr. Lee's health and dental benefits through December 25, 1999 under
the same rate he contributed as an employee. All benefits will cease on December
25, 1999 or the date Mr. Lee begins employment elsewhere, whichever date is
earlier, except as required by applicable federal or state laws or otherwise
described herein.
12. The Company will respond to any inquiries from prospective
employers of the Employee, as well as any other third parties concerning the
Employee, by confirming dates of employment, positions held and compensation.
13. The Employee acknowledges and agrees that a breach by him of the
provisions of this Agreement will cause the Company irreparable injury and
damage and, therefore, the Employee expressly agrees that the Company shall be
entitled to injunctive and/or equitable relief in any court of competent
jurisdiction to prevent or otherwise restrain a breach of this Agreement for the
purpose of enforcing this Agreement or any part hereof.
14. This Agreement contains the entire contract between the parties,
supersedes all prior agreements, written or oral, including, without limitation,
the Employment Agreement dated as of April 1, 1997 as amended by an amendment
dated April 10, 1998 by and between the Company and the Employee and may not be
changed except in writing duly executed by the parties in the same manner as
this Agreement.
15. This Agreement is being executed and delivered in the Commonwealth
of Massachusetts and this Agreement shall be construed under and governed by the
laws of such Commonwealth.
IN WITNESS WHEREOF, the parties hereto have executed this agreement as
of the day and year first written above.
J. BAKER, INC.
By: /s/Virginia M. Pitts
Virginia M. Pitts
First Senior Vice President
Director of Human Resources
/s/James D. Lee
James D. Lee
EXHIBIT 11
J. BAKER, INC. AND SUBSIDIARIES
Computation of Net Earnings Per Common Share*
(Unaudited)
<TABLE>
<S> <C> <C> <C> <C>
Quarters Ended Nine Months Ended
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
-------- -------- -------- --------
Net Earnings Per Common Share:
Net earnings (loss), basic and diluted $ 736,682 $(1,382,693) $ 3,847,190 $ 790,426
=========== =========== =========== ===========
Weighted average common
shares outstanding, basic 14,061,928 13,918,898 13,987,131 13,908,267
---------- ---------- ---------- ----------
Effect of dilutive securities:
Stock options and performance share awards 112,517 - 167,046 40,100
----------- ----------- ---------- -----------
Weighted average common
shares outstanding, diluted 14,174,445 13,918,898 14,154,177 13,948,367
========== ========== ========== ==========
Net earnings per common share, basic $0.052 $(0.099) $0.275 $ 0.057
========== ========== =========== ============
Net earnings per common share, diluted $0.052 $(0.099) $0.272 $ 0.057
========== ========== =========== ============
</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 OCTOBER 31, 1998
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> OCT-31-1998
<CASH> 916,379
<SECURITIES> 0
<RECEIVABLES> 20,150,256
<ALLOWANCES> 592,458
<INVENTORY> 187,500,067
<CURRENT-ASSETS> 218,364,091
<PP&E> 124,849,457
<DEPRECIATION> 53,991,249
<TOTAL-ASSETS> 355,327,626
<CURRENT-LIABILITIES> 61,000,981
<BONDS> 211,519,939
0
0
<COMMON> 7,031,263
<OTHER-SE> 72,892,427
<TOTAL-LIABILITY-AND-EQUITY> 355,327,626
<SALES> 411,389,847
<TOTAL-REVENUES> 411,389,847
<CGS> 224,047,898
<TOTAL-COSTS> 224,047,898
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 11,055,400
<INCOME-PRETAX> 6,307,190
<INCOME-TAX> 2,460,000
<INCOME-CONTINUING> 3,847,190
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,847,190
<EPS-PRIMARY> 0.28
<EPS-DILUTED> 0.27
</TABLE>
