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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 30, 1999
----------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
---------- ----------
COMMISSION FILE NUMBER 0-14681
J. BAKER, INC.
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(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
----- -----
14,067,241 shares of common stock were outstanding on October 30, 1999.
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<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
OCTOBER 30, 1999 (UNAUDITED) AND JANUARY 30, 1999
<TABLE><CAPTION>
OCTOBER 30, JANUARY 30,
ASSETS 1999 1999
------ ------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 2,119,899 $ 3,679,115
Accounts receivable:
Trade, net 13,698,490 9,979,178
Other 4,255,039 2,768,651
------------ ------------
17,953,529 12,747,829
------------ ------------
Merchandise inventories 228,824,860 164,057,913
Prepaid expenses 9,374,845 3,595,858
Deferred income taxes, net 4,535,000 4,535,000
------------ ------------
Total current assets 262,808,133 188,615,715
------------ ------------
Property, plant and equipment, at cost:
Land and buildings 19,726,648 19,726,648
Furniture, fixtures and equipment 86,935,391 76,008,130
Leasehold improvements 28,521,165 26,869,958
------------ ------------
135,183,204 122,604,736
Less accumulated depreciation and amortization 64,237,581 54,109,006
------------ ------------
Net property, plant and equipment 70,945,623 68,495,730
------------ ------------
Deferred income taxes, net 52,537,324 55,404,641
Other assets, at cost, less accumulated amortization 15,798,543 11,518,573
------------ ------------
$402,089,623 $324,034,659
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current liabilities:
Current portion of long-term debt $ 11,271,128 $ 2,112,955
Accounts payable 74,075,976 55,830,124
Accrued expenses 15,693,274 8,772,148
Income taxes payable -- 1,811,701
------------ ------------
Total current liabilities 101,040,378 68,526,928
------------ ------------
Other liabilities 2,586,576 2,741,591
Long-term debt, net of current portion 134,255,472 104,229,825
Senior subordinated debt 7,209,000 --
Convertible subordinated debt 70,353,000 70,353,000
Stockholders' equity 86,645,197 78,183,315
------------ ------------
$402,089,623 $324,034,659
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE QUARTERS ENDED OCTOBER 30, 1999 AND OCTOBER 31, 1998
(UNAUDITED)
<TABLE><CAPTION>
QUARTER QUARTER
ENDED ENDED
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Net sales $158,804,187 $138,256,958
Cost of sales 83,286,757 76,036,967
------------ ------------
Gross profit 75,517,430 62,219,991
Selling, administrative and general expenses 64,203,488 52,977,574
Depreciation and amortization 4,497,791 4,213,978
------------ ------------
Operating income 6,816,151 5,028,439
Net interest expense 4,585,796 3,820,757
------------ ------------
Earnings before income taxes 2,230,355 1,207,682
Income tax expense 801,000 471,000
------------ ------------
Net earnings $ 1,429,355 $ 736,682
============ ============
Net earnings per common share:
Basic $ 0.10 $ 0.05
============ ============
Diluted $ 0.10 $ 0.05
============ ============
Number of shares used to compute net earnings per common share:
Basic 14,066,729 14,061,928
============ ============
Diluted 14,592,665 14,174,445
============ ============
Dividends declared per share $ 0.015 $ 0.015
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
FOR THE NINE MONTHS ENDED OCTOBER 30, 1999 AND
OCTOBER 31, 1998
(UNAUDITED)
<TABLE><CAPTION>
NINE MONTHS NINE MONTHS
ENDED ENDED
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Net sales $457,244,484 $411,389,847
Cost of sales 244,207,394 224,047,898
------------ ------------
Gross profit 213,037,090 187,341,949
Selling, administrative and general expenses 179,397,616 159,060,895
Depreciation and amortization 12,214,488 10,918,464
------------ ------------
Operating income 21,424,986 17,362,590
Net interest expense 12,390,613 11,055,400
------------ ------------
Earnings before income taxes 9,034,373 6,307,190
Income tax expense 3,251,000 2,460,000
------------ ------------
Net earnings $ 5,783,373 $ 3,847,190
============ ============
Net earnings per common share:
Basic $ 0.41 $ 0.28
============ ============
Diluted $ 0.40 $ 0.27
============ ============
Number of shares used to compute net earnings per common share:
Basic 14,065,628 13,987,131
============ ============
Diluted 14,359,223 14,154,177
============ ============
Dividends declared per share $ 0.045 $ 0.045
============ ============
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS FOR
THE NINE MONTHS ENDED OCTOBER 30, 1999 AND OCTOBER 31,
1998
(UNAUDITED)
<TABLE><CAPTION>
OCTOBER 30, 1999 OCTOBER 31, 1998
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Net earnings $ 5,783,373 $ 3,847,190
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization:
Fixed assets 10,128,575 9,396,151
Deferred charges, intangible assets and
deferred financing costs 2,594,913 1,528,237
Deferred income taxes, net 2,867,317 3,952,639
Change in:
Accounts receivable (5,205,700) 522,686
Merchandise inventories (46,229,947) (28,093,065)
Prepaid expenses (4,886,212) (3,998,695)
Accounts payable 18,245,852 (6,445,690)
Accrued expenses 6,921,126 (1,551,558)
Income taxes payable/receivable (1,811,701) (361,144)
Other liabilities (65,267) (1,253,080)
------------ ------------
Net cash used in operating activities (11,657,671) (22,456,329)
------------ ------------
Cash flows from investing activities:
Capital expenditures for:
Property, plant and equipment (9,578,468) (8,125,283)
Other assets (3,598,713) (530,278)
Proceeds from sales of footwear businesses 887,903 2,902,335
Assets acquired of Repp Ltd. Big & Tall businesses (26,202,347) --
------------ ------------
Net cash used in investing activities (38,491,625) (5,753,226)
------------ ------------
Cash flows from financing activities:
Repayment of senior debt (1,500,000) (1,500,000)
Proceeds from long-term debt 41,138,345 27,213,825
Proceeds from senior subordinated debt 10,000,000 --
Repayment of mortgage payable (454,525) (419,500)
Payment of mortgage escrow, net 27,751 40,378
Proceeds from issuance of common stock, net of retirements 11,438 425,843
Payment of dividends (632,929) (630,607)
------------ ------------
Net cash provided by financing activities 48,590,080 25,129,939
------------ ------------
Net decrease in cash (1,559,216) (3,079,616)
Cash and cash equivalents at beginning of year 3,679,115 3,995,995
------------ ------------
Cash and cash equivalents at end of period $ 2,119,899 $ 916,379
============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest $ 10,354,377 $ 9,838,597
Income taxes 2,195,385 361,144
Income taxes refunded -- (1,673,367)
============ ============
Schedule of non-cash financing activity:
Warrants issued with senior subordinated debt 3,300,000 --
============ ============
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.
5
<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 financial position and results of operations of J. Baker, Inc. (the
"Company"). 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
potentially dilutive common shares outstanding during the period.
For the quarters and nine months ended October 30, 1999 and October 31,
1998, the calculation of diluted earnings per common share includes the dilutive
effect of outstanding stock options and warrants. 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 30, 1999 and October 31, 1998 because its effect would be
antidilutive.
Net earnings and shares used to compute net earnings per share, basic and
diluted, are reconciled below:
<TABLE><CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings, basic and diluted $ 1,429,355 $ 736,682 $ 5,783,373 $ 3,847,190
=========== =========== =========== ===========
Weighted average common shares:
Basic 14,066,729 14,061,928 14,065,628 13,987,131
Effect of dilutive securities:
Stock options, warrants and
performance share awards 525,936 112,517 293,595 167,046
----------- ----------- ----------- -----------
Diluted 14,592,665 14,174,445 14,359,223 14,154,177
=========== =========== =========== ===========
</TABLE>
3] On May 23, 1999, the Company acquired substantially all of the assets of
the Repp Ltd. Big & Tall and Repp Ltd. By Mail divisions of Edison Brothers
Stores, Inc. ("Edison"). Edison is currently operating as a debtor-in-possession
under Chapter 11 of the United States Bankruptcy Code, as amended. The all cash
purchase price was for the acquisition of 175 United States and Canadian Repp
Ltd. Big & Tall retail locations and the Repp Ltd. By Mail catalog business. The
Company immediately sold Repp's Canadian operation, 16 stores, to
Grafton-Fraser, Inc., a Canadian men's retailer, and commenced the closing of 31
stores in the United States. The Company operates the remaining retail stores in
the United States and the Repp Ltd. By Mail catalog through a new subsidiary,
JBI Apparel, Inc. The transaction was financed primarily through (a) a new $20
million credit facility and a $5 million term loan provided to JBI Apparel, Inc.
by BankBoston Retail Finance Inc. and Back Bay Capital Funding LLC,
respectively, (both of which have been subsequently amended on August 30, 1999
through a refinancing - see Note 7), (b) the issuance by JBI Apparel, Inc. of
$10 million of senior subordinated notes to a group of investors, which included
investment funds affiliated with Donaldson, Lufkin & Jenrette, Inc. (the
"Investor Group"), and (c) the sale of the Canadian operations and the
liquidation of the inventories in the 31 closing stores. The net purchase price
for the acquired assets, which primarily consisted of inventory and fixed assets
for the 128 retail stores in the United States and the Repp Ltd. By Mail
catalog, is $26.2 million, subject to adjustment. In connection with the $10
million financing provided by the Investor Group, J. Baker issued 5-year
warrants enabling holders to purchase 1,200,000 shares of the Company's common
stock at $5.00 per share. The remaining 128 Repp Ltd. retail stores
6
<PAGE>
and the Repp Ltd. By Mail catalog, which will continue to operate under the Repp
Ltd. Big & Tall trade name, generated sales of $21.9 million in the quarter
ended October 30, 1999 and $40.3 million in the nine months ended October 30,
1999.
4] The Company is a specialty retailer conducting business through retail
stores in two business segments: apparel and footwear. The Company's chief
operating decision-maker, the Chief Executive Officer, evaluates the performance
of the Company's segments based on operating profit and cash flow. Operating
profit includes all revenues and direct expenses attributable to the segment and
excludes certain expenses that are managed outside the segment, primarily
general corporate expenses. General corporate expenses are comprised primarily
of administrative functions, such as management, finance, information systems
and human resources.
Net sales and operating profits for each of the Company's business
segments are set forth below. There are no material inter-segment revenues.
<TABLE><CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
------------------------------ ------------------------------
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
(IN THOUSANDS) (IN THOUSANDS)
<S> <C> <C> <C> <C>
APPAREL
Net sales $ 99,459 $ 75,145 $ 271,418 $ 222,701
Operating profit 7,786 4,688 23,764 17,115
FOOTWEAR
Net sales $ 59,345 $ 63,112 $ 185,826 $ 188,689
Operating profit 4,150 4,495 14,040 14,028
CONSOLIDATED
Net sales $ 158,804 $ 138,257 $ 457,244 $ 411,390
Operating profit before general
corporate expense 11,936 9,183 37,804 31,143
General corporate expense (5,120) (4,154) (16,379) (13,781)
Interest expense, net (4,586) (3,821) (12,391) (11,055)
Earnings before income taxes $ 2,230 $ 1,208 $ 9,034 $ 6,307
</TABLE>
5] On November 12, 1998 Ames Department Stores, Inc. ("Ames") entered into
an agreement for the acquisition of Hills Stores Company ("Hills"). The Company
has operated licensed footwear departments in each of Ames' and Hills' stores
pursuant to license agreements with each such entity. On December 31, 1998, Ames
acquired control of Hills through its acquisition of substantially more than a
majority of Hills' outstanding common stock and convertible preferred stock and
notes. In March, 1999 Ames consummated the merger of Hills into a subsidiary of
Ames.
At the time of the acquisition, Hills operated 155 discount department
stores in twelve states. In February, 1999, Ames began a program to remodel and
convert 151 of the acquired Hills stores to Ames stores in three sequential
phases of approximately 50 stores each. Upon the completion of the remodeling
and conversion process, all such stores were incorporated into the Company's
license agreement with Ames. During each of the three stages of the store
conversion process, the Company participated in liquidation sales of its
footwear inventory in each store. The three stages of liquidation sales ended on
February 22, 1999, May 21, 1999 and July 26, 1999, respectively. All stages of
remodeling have been completed, and the remodeled stores in each of the first,
second and third stages reopened on April 22, 1999, July 19, 1999 and September
20, 1999, respectively. The Company's sales in the combined Ames and Hills
chains for the quarter and nine months ended October 30, 1999 were $32.3 million
and $101.0 million, respectively.
7
<PAGE>
6] 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. 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. The Plan became
effective on February 2, 1999 (the "Effective Date"), the Company's license
agreement with Bradlees was amended and assumed and the reorganized Bradlees
emerged from bankruptcy. Pursuant to the amended agreement, ten days after the
Effective Date Bradlees made a cash distribution to the Company in the amount of
$360,000 and will pay the unpaid balance of the Company's pre-petition claim in
thirty-six equal monthly installments, which commenced on March 1, 1999, with
interest payable on the unpaid balance outstanding commencing with the seventh
monthly payment. As provided in the amended license agreement, upon the
occurrence of certain events, the entire unpaid balance of the Company's claim
shall be paid within 30 days after such occurrence, without penalty or interest.
The Company's sales in the Bradlees chain for the quarter and nine months ended
October 30, 1999 were $11.6 million and $35.4 million, respectively.
7] On August 30, 1999, the Company established a total of $184 million in
bank financing arrangements, comprised of a $150 million revolving credit
facility, a $25 million term loan and a $9 million chattel loan. These three
facilities, all of which mature in May 2002, amended or replaced $160 million in
previously existing bank credit facilities which would have otherwise expired in
May 2000 and May 2001.
The $150 million revolving line of credit (the "Revolver") was provided
by a group of lenders led by Bank Boston Retail Finance Inc. Aggregate
borrowings under the Revolver are limited to an amount determined by a formula
based on various percentages of eligible inventory and accounts receivable.
Borrowings under the Revolver bear interest at variable rates and can be in the
form of loans and letters of credit.
The $25 million term loan (the "Term Loan") was provided by Back Bay
Capital Funding LLC. If certain conditions are met, a principal payment of $5
million is due on April 30, 2000, and payments of $2.5 million are due on each
of July 31, 2000 and November 30, 2000. Borrowings under the Term Loan bear
interest at 16% per year.
The $9 million chattel loan (the "Chattel Loan") was provided by
BancBoston Leasing Inc. The Chattel Loan is payable in equal monthly
installments of principal and interest and bears interest at 10.35%.
Each of the Revolver, the Term Loan and the Chattel Loan is secured by
substantially all of the assets of the Company, and amended or replaced the
following previously existing credit facilities:
o An $85 million revolving credit facility which was used to finance the
Company's Casual Male Big & Tall and Work `n Gear apparel businesses;
o A $50 million revolving credit facility which was used to finance the
Company's footwear business;
o A $20 million revolving line of credit and $5 million term loan facility
which were used to finance the Company's Repp Ltd. Big & Tall businesses.
8
<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 15 OF THIS
QUARTERLY REPORT.
All references herein to fiscal 2000 and 1999 relate to the years ending January
29, 2000 and January 30, 1999, respectively.
RESULTS OF OPERATIONS
FIRST NINE MONTHS OF FISCAL 2000 VERSUS FIRST NINE MONTHS OF FISCAL 1999
The Company's net sales increased by $45.8 million to $457.2 million in
the first nine months of fiscal 2000 from $411.4 million in the first nine
months of fiscal 1999, primarily due to $40.3 million in sales generated by the
Repp Ltd. Big & Tall stores and the Repp Ltd. By Mail catalog, which were
acquired by the company on May 23, 1999. Sales in the Company's apparel
operations increased by $48.7 million to $271.4 million in the first nine months
of fiscal 2000 from $222.7 million in the first nine months of fiscal 1999,
primarily due to sales in the newly acquired Repp businesses and a 4.6% 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). Sales in the Company's footwear operations
decreased by $2.9 million to $185.8 million in the first nine months of fiscal
2000 from $188.7 million in the first nine months of fiscal 1999, primarily due
to a $7.4 million decrease in sales due to the temporary closing of the
approximately 150 former Hills stores for a portion of the first nine months of
fiscal 2000, prior to their reopening as Ames stores. This decrease was
partially offset by a 3.0% increase 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 53.4% of sales in the first nine
months of fiscal 2000, as compared to 54.5% of sales in the first nine months of
fiscal 1999. Cost of sales in the Company's apparel operations was 50.7% of
sales in the first nine months of fiscal 2000, as compared to 51.5% of sales in
the first nine months of fiscal 1999, primarily due to lower markdowns as a
percentage of sales, coupled with a higher initial markup on merchandise
purchases. Cost of sales in the Company's footwear operations was 57.4% of sales
in the first nine months of fiscal 2000, as compared to 58.0% of sales in the
first nine months of fiscal 1999. The decrease in such percentage was primarily
attributable to lower markdowns as a percentage of sales.
Selling, administrative and general expenses increased $20.3 million, or
12.8%, to $179.4 million in the first nine months of fiscal 2000 from $159.1
million in the first nine months of fiscal 1999, primarily due to the
acquisition of the Repp businesses. As a percentage of sales, selling,
administrative and general expenses were 39.2% of sales in the first nine months
of fiscal 2000, as compared to 38.7% of sales in the first nine months of fiscal
1999. Selling, administrative and general expenses in the Company's apparel
operations were 41.0% of sales in the first nine months of fiscal 2000 as
compared to 41.1% of sales in the nine months of fiscal 1999. 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
36.7% of sales in the first nine months of fiscal 2000, as compared to 35.8% of
sales in the first nine months of fiscal 1999. This increase was primarily due
to an increase in store level expenses.
Depreciation and amortization expense increased by $1.3 million to $12.2
million in the first nine months of fiscal 2000 from $10.9 million in the first
nine months of fiscal 1999, primarily due to an increase in depreciable and
amortizable assets.
9
<PAGE>
As a result of the above, the Company's operating income increased by
$4.0 million to $21.4 million in the first nine months of fiscal 2000 from $17.4
million in the first nine months of fiscal 1999. As a percentage of sales,
operating income was 4.7% in the first nine months of fiscal 2000 as compared to
4.2% in the first nine months of fiscal 1999.
Net interest expense increased by $1.3 million to $12.4 million in the
first nine months of fiscal 2000 from $11.1 million in the first nine months of
fiscal 1999, primarily due to higher interest rates on bank borrowings and
higher average levels of bank borrowings in the first nine months of fiscal 2000
versus the first nine months of fiscal 1999, both of which were primarily due to
the acquisition of the Repp Ltd. Big & Tall businesses.
Taxes on earnings for the first nine months of fiscal 2000 were $3.3
million, yielding an effective tax rate of 36.0%, as compared to taxes on
earnings of $2.5 million for the first nine months of fiscal 1999, yielding an
effective tax rate of 39.0%. The tax rate for the first nine months of fiscal
2000 is consistent with that utilized for the entire fiscal year 1999.
Net earnings for the first nine months of fiscal 2000 were $5.8 million,
as compared to net earnings of $3.8 million in the first nine months of fiscal
1999, an increase of 50.3%.
THIRD QUARTER OF FISCAL 2000 VERSUS THIRD QUARTER OF FISCAL 1999
The Company's net sales increased by $20.5 million to $158.8 million in
the third quarter of fiscal 2000 from $138.3 million in the third quarter of
fiscal 1999, primarily due to $21.9 million in sales generated by the Repp Ltd.
Big & Tall stores and the Repp Ltd. By Mail catalog acquired by the Company on
May 23, 1999. Sales in the Company's apparel operations increased by $24.3
million to $99.4 million in the third quarter of fiscal 2000 from $75.1 million
in the third quarter of fiscal 1999, primarily due to the aforementioned
acquisition of the Repp Ltd. Big & Tall stores and Repp Ltd. By Mail catalog
businesses in the second quarter of fiscal 2000, and a 4.3% increase in
comparable apparel store sales. Sales in the Company's footwear operations
decreased by $3.8 million to $59.3 million in the third quarter of fiscal 2000
from $63.1 million in the third quarter of fiscal 1999, primarily due to a 1.8%
decrease in comparable retail footwear store sales, coupled with a $2.3 million
decrease in sales due to the temporary closing of approximately 50 of the 150
former Hills stores for a portion of the third quarter of fiscal 2000, prior to
their reopening as Ames stores.
The Company's cost of sales constituted 52.4% of sales in the third
quarter of fiscal 2000, as compared to 55.0% of sales in the third quarter of
fiscal 1999. Cost of sales in the Company's apparel operations was 49.9% of
sales in the third quarter of fiscal 2000, as compared to 52.3% of sales in the
third quarter of fiscal 1999. The decrease in such percentage was primarily
attributable to lower markdowns as a percentage of sales, coupled with a higher
initial markup on merchandise purchases. Cost of sales in the Company's footwear
operations was 56.7% of sales in the third quarter of fiscal 2000, as compared
to 58.2% of sales in the third quarter of fiscal 1999. The decrease in such
percentage was primarily due to lower markdowns as a percentage of sales,
partially offset by a decrease in initial markup on merchandise purchases.
Selling, administrative and general expenses increased $11.2 million, or
21.2%, to $64.2 million in the third quarter of fiscal 2000 from $53.0 million
in the third quarter of fiscal 1999, primarily due to the acquisition of the
Repp businesses. As a percentage of sales, selling, administrative and general
expenses were 40.4% of sales in the third quarter of fiscal 2000, as compared to
38.3% of sales in the third quarter of fiscal 1999. Selling, administrative and
general expenses in the Company's apparel operations were 42.0% of sales in the
third quarter of fiscal 2000, as compared to 40.7% of sales in the third quarter
of fiscal 1999. This increase was primarily due to higher selling,
administrative and general expenses as a percentage of sales in the recently
acquired Repp Ltd. Big & Tall businesses as compared to those in the Company's
existing Casual Male Big & Tall and Work `n Gear stores. Selling, administrative
and general expenses in the Company's footwear operations were 37.7% of sales in
the third quarter of fiscal 2000, as compared to 35.5% of sales in the third
quarter of fiscal 1999. This increase was primarily due to an increase in store
level expenses.
10
<PAGE>
Depreciation and amortization expense increased by $284,000 to $4.5
million in the third quarter of fiscal 2000 from $4.2 million in the third
quarter of fiscal 1999, primarily due to an increase in depreciable and
amortizable assets.
As a result of the above, the Company's operating income increased by
$1.8 million to $6.8 million in the third quarter of fiscal 2000 from $5.0
million in the third quarter of fiscal 1999. As a percentage of sales, operating
income was 4.3% in the third quarter of fiscal 2000, as compared to 3.6% in the
third quarter of fiscal 1999.
Net interest expense increased by $765,000 to $4.6 million in the third
quarter of fiscal 2000 from $3.8 million in the third quarter of fiscal 1999,
primarily due to higher interest rates on bank borrowings and higher average
levels of bank borrowings in the third quarter of fiscal 2000 versus the third
quarter of fiscal 1999, both of which were primarily due to the acquisition of
the Repp Ltd. Big & Tall businesses.
Taxes on earnings for the third quarter of fiscal 2000 were $801,000,
yielding an effective tax rate of 36.0%, as compared to taxes on earnings of
$471,0000 for the third quarter of fiscal 1999, yielding an effective tax rate
of 39.0%. The tax rate for the third quarter of fiscal 2000 is consistent with
that utilized for the entire fiscal year 1999.
Net earnings for the third quarter of fiscal 2000 were $1.4 million, as
compared to net earnings of $737,000 in the third quarter of fiscal 1999, an
increase of 94.0%.
FINANCIAL CONDITION
OCTOBER 30, 1999 VERSUS JANUARY 30, 1999
The increase in accounts receivable at October 30, 1999 from January 30,
1999 was primarily due to an increase in trade receivables due to seasonal
factors, licensed footwear department sales in October being higher than
licensed footwear department sales in January.
The increase in merchandise inventories at October 30, 1999 from January
30, 1999 was primarily due to the acquisition of the Repp Ltd. Big & Tall stores
and the Repp Ltd. By Mail businesses, and a seasonal increase in the average
inventory level per location.
The increase in current portion of long-term debt at October 30, 1999
versus January 30, 1999 is primarily due to current maturities of portions of
the new bank financing arrangements.
The increase in accounts payable at October 30, 1999 from January 30,
1999 was primarily due to an increase in domestic merchandise purchases, which
are paid for later than direct import merchandise purchases. The increase in
domestic merchandise purchases is primarily attributable to the Repp businesses.
The ratio of accounts payable to merchandise inventory was 32.4% at October 30,
1999, as compared to 34.0% at January 30, 1999 and 24.4% at October 31, 1998.
The increase in accrued expenses at October 30, 1999 from January 30,
1999 is primarily due to the Repp acquisition.
The increase in long-term debt, net of current portion, at October 30,
1999 from January 30, 1999 was primarily due to additional borrowings for the
acquisition of the Repp businesses, coupled with additional bank borrowings to
meet seasonal working capital needs.
LIQUIDITY AND CAPITAL RESOURCES
On August 30, 1999, the Company established a total of $184 million in
bank financing arrangements, comprised of a $150 million revolving credit
facility, a $25 million term loan and a $9 million chattel loan. These three
facilities, all of which mature in May 2002, amended or replaced $160 million in
previously existing bank credit facilities which would have otherwise expired in
May 2000 and May 2001.
11
<PAGE>
The $150 million revolving line of credit (the "Revolver") was provided
by a group of lenders led by Bank Boston Retail Finance Inc. Aggregate
borrowings under the Revolver are limited to an amount determined by a formula
based on various percentages of eligible inventory and accounts receivable.
Borrowings under the Revolver bear interest at variable rates and can be in the
form of loans and letters of credit.
The $25 million term loan (the "Term Loan") was provided by Back Bay
Capital Funding LLC. If certain conditions are met, a principal payment of $5
million is due on April 30, 2000, and payments of $2.5 million are due on each
of July 31, 2000 and November 30, 2000. Borrowings under the Term Loan bear
interest at 16% per year.
The $9 million chattel loan (the "Chattel Loan") was provided by
BancBoston Leasing Inc. The Chattel Loan is payable in equal monthly
installments of principal and interest and bears interest at 10.35%.
Each of the Revolver, the Term Loan and the Chattel Loan is secured by
substantially all of the assets of the Company, and amended or replaced the
following previously existing credit facilities:
o An $85 million revolving credit facility which was used to finance the
Company's Casual Male Big & Tall and Work `n Gear apparel businesses;
o A $50 million revolving credit facility which was used to finance the
Company's footwear business;
o A $20 million revolving line of credit and $5 million term loan facility
which were used to finance the Company's Repp Ltd. Big & Tall businesses.
As of October 30, 1999, the Company had aggregate borrowings outstanding
under the Revolver totaling $100.8 million, consisting of loans and obligations
under letters of credit.
In May, 1999, a new subsidiary of the Company, JBI Apparel, Inc.,
acquired the Repp Ltd. Big & Tall retail store business operated in the United
States and the Repp Ltd. By Mail catalog. The purchase price and working capital
needs of the Repp business were financed primarily through (a) a new credit
facility provided to JBI Apparel, Inc. by BankBoston Retail Finance Inc.
("BBRF") and Back Bay Capital Funding LLC, respectively, and (b) senior
subordinated notes and warrants issued to a group of investors, which included
investment funds affiliated with Donaldson, Lufkin and Jenrette, Inc. (the
"Investor Group").
Effective May 21, 1999, a combination $20 million revolving line of
credit and $5 million term loan facility (the "JBI Apparel Credit Facility") was
established with BBRF and Back Bay Capital LLC, respectively. The JBI Apparel
Credit Facility was amended by the Revolver and the Term Loan.
Also effective on May 21, 1999, the Investor Group provided $10 million
to JBI Apparel, Inc. through the issuance of 13% Senior Subordinated Notes.
Detachable warrants were issued in connection with the 13% Senior Subordinated
Notes, which enable the holders to purchase 1,200,000 shares of J. Baker, Inc.
common stock at $5.00 per share. The amount of the 13% Senior Subordinated Notes
at October 30, 1999 has been reduced by $2,791,000, the remaining balance of the
$3,300,000 value assigned to the detachable warrants. The value of the
detachable warrants is included in additional paid-in capital in stockholders'
equity, and is being amortized using the interest method. The 13% Senior
Subordinated Notes mature on December 31, 2001, and the warrants expire on May
21, 2004.
Net cash used in operating activities for the first nine months of fiscal
2000 was $11.7 million, as compared to net cash used in operating activities of
$22.5 million in the first nine months of fiscal 1999. The $10.8 million change
was primarily due to an increase in both accounts payable and accrued expenses
in fiscal 2000, which was primarily due to the Repp acquisition, versus a
decrease in accounts payable and accrued expenses in fiscal 1999. This was
partially offset by a higher increase in inventory in fiscal 2000 versus fiscal
1999, which was also primarily the result of the Repp acquisition, and an
increase in net accounts receivable in fiscal 2000 versus a decrease in net
accounts receivable in fiscal 1999, which was primarily due to the receipt of
litigation settlement proceeds in the first nine months of fiscal 1999.
12
<PAGE>
Net cash used in investing activities for the first nine months of fiscal
2000 was $38.5 million, as compared to net cash used in investing activities of
$5.7 million in the first nine months of fiscal 1999. The $32.8 million change
was primarily due to the acquisition of Repp assets, fees paid in connection
with the Company's new financing arrangements and the receipt of $888,000 in
escrowed proceeds from the earlier sales of the footwear businesses in the first
nine months of fiscal 2000 versus receipt of $2.9 million in escrowed proceeds
in the first nine months of fiscal 1999.
Net cash provided by financing activities for the first nine months of
fiscal 2000 was $48.6 million, as compared to net cash provided by financing
activities of $25.1 million in the first nine months of fiscal 1999. The $23.5
million change was primarily due to the incurrence of new senior subordinated
debt for the Repp acquisition, coupled with the borrowing of $41.1 million under
the Company's revolving lines of credit during the first nine months of fiscal
2000 versus the borrowing of $27.2 million during the first nine months of
fiscal 1999.
Excluding furniture, fixtures, equipment and leasehold improvements
acquired with the Repp Ltd. Big & Tall businesses, the Company invested $9.6
million and $8.1 million in capital expenditures during the first nine months of
fiscal 2000 and fiscal 1999, 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 2000:
<TABLE><CAPTION>
Actual Openings Planned Openings Total
First through Third Fourth Actual/Planned
Division Quarters Fiscal 2000 Quarter Fiscal 2000 Openings
-------- -------------------- -------------------- --------------------
<S> <C> <C> <C>
Casual Male 5 0 5
Work 'n Gear 0 0 0
Repp Ltd. Big &Tall 9 0 9
JBI Footwear 26 2 28
</TABLE>
Offsetting the above actual and planned store openings, the Company
closed 7 Casual Male stores, 2 Work 'n Gear stores, 1 Repp store and 31 JBI
Footwear departments during the first nine months of fiscal 2000. The Company
has plans to close approximately an additional 7 Casual Male stores, 2 Repp
stores and 19 JBI Footwear departments during the fourth quarter of fiscal 2000.
These numbers do not reflect the closing and reopening of 151 Hills/Ames stores
during fiscal 2000, nor do they reflect the 128 stores which were acquired as a
result of the Repp acquisition.
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
its 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 statements in this section include "Year 2000 Readiness Disclosure"
within the meaning of the Year 2000 Information and Readiness Disclosure Act.
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.
13
<PAGE>
THE COMPANY'S STATE OF READINESS
The Company established a Year 2000 committee comprised of senior
management of the Company and also engaged an independent consulting firm to
assist in remediation of the Company's Year 2000 issues. The Company evaluated
its internal computer systems and while the data processing systems were found
to be impacted to some extent, Year 2000 issues were found to be most
significant in connection with various mainframe computer programs. In fiscal
1997, the Company developed a plan to address Year 2000 issues as they related
to the mainframe computer programs and began the process of converting such
computer programs to be Year 2000 compliant. During fiscal 1999, the Company
completed the conversion of its three primary mainframe computer programs to be
Year 2000 compliant.
During fiscal 1999, the Company undertook an inventory of its
non-information technology systems. Such inventory is substantially complete
and, where appropriate, the Company has made contingency plans in order to
minimize any adverse effect Year 2000 issues may have on such non-information
technology systems.
During fiscal 1999, the Company communicated with and completed a
compilation of 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. 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, 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.
The Company is not dependent on a single source for any products or
services. In the event a third party is unable to provide material 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 were deferred in order to ensure
completion of the Company's Year 2000 compliance efforts. Although management
believes deferring 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 $3.9 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
not known, 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 fashion, 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 has developed 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 its program will be completed on a timely basis
and should effectively minimize disruption to the Company's operations due to
Year 2000 issues.
14
<PAGE>
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.
Company management may also make written or oral forward-looking statements in
other documents it files with the SEC, in its annual report to stockholders, in
press releases and other written materials, and in oral statements made by
officers, directors or employees of the Company. You should not rely on
forward-looking statements, because they involve known and unknown risks,
uncertainties and other factors, some of which are beyond the control of the
Company. 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, performance or achievements of the Company for
fiscal 2000 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 on appropriate terms,
ability to hire and train associates and costs, timing and effectiveness of Year
2000 conversion. You should carefully review and consider all of these factors
and should be aware there may be other factors that could cause these
differences. These forward-looking statements were based on information, plans
and estimates at the date of this report, and the Company does not promise to
update any forward-looking statements to reflect changes in underlying
assumptions or factors, new information, future events or other changes.
15
<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.
16
<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 13, 1999
By: /s/ Philip Rosenberg
-------------------------------------
Philip Rosenberg
Executive Vice President, Chief
Financial Officer and Treasurer
Date: Canton, Massachusetts
December 13, 1999
17
<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 30, 1999
18
<PAGE>
EXHIBIT INDEX
-------------
EXHIBIT PAGE NO.
- ------- --------
10. MATERIAL CONTRACTS
------------------
None
11. COMPUTATION OF NET EARNINGS PER COMMON SHARE, attached. *
-------------------------------------------------------
27. FINANCIAL DATA SCHEDULE **
-----------------------
* 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.
19
EXHIBIT 11
----------
J. BAKER, INC. AND SUBSIDIARIES
COMPUTATION OF NET EARNINGS PER COMMON SHARE*
(UNAUDITED)
<TABLE><CAPTION>
QUARTERS ENDED NINE MONTHS ENDED
OCTOBER 30, OCTOBER 31, OCTOBER 30, OCTOBER 31,
1999 1998 1999 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net Earnings Per Common Share:
- ------------------------------
Net earnings, basic and diluted $ 1,429,355 $ 736,682 $ 5,783,373 $ 3,847,190
=========== =========== =========== ===========
Weighted average common
shares outstanding, basic 14,066,729 14,061,928 14,065,628 13,987,131
----------- ----------- ----------- -----------
Effect of dilutive securities:
Stock options, warrants and performance
share awards 525,936 112,517 293,595 167,046
----------- ----------- ----------- -----------
Weighted average common
shares outstanding, diluted 14,592,665 14,174,445 14,359,223 14,154,177
=========== =========== =========== ===========
Net earnings per common share, basic $ 0.10 $ 0.05 $ 0.41 $ 0.28
=========== =========== =========== ===========
Net earnings per common share, diluted $ 0.10 $ 0.05 $ 0.40 $ 0.27
=========== =========== =========== ===========
</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 30, 1999
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-END> OCT-30-1999
<CASH> 2,119,899
<SECURITIES> 0
<RECEIVABLES> 18,203,529
<ALLOWANCES> 250,000
<INVENTORY> 228,824,860
<CURRENT-ASSETS> 262,808,133
<PP&E> 135,183,204
<DEPRECIATION> 64,237,581
<TOTAL-ASSETS> 402,089,623
<CURRENT-LIABILITIES> 101,040,378
<BONDS> 211,817,472
0
0
<COMMON> 7,033,621
<OTHER-SE> 79,611,576
<TOTAL-LIABILITY-AND-EQUITY> 402,089,623
<SALES> 457,244,484
<TOTAL-REVENUES> 457,244,484
<CGS> 244,207,394
<TOTAL-COSTS> 244,207,394
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,390,613
<INCOME-PRETAX> 9,034,373
<INCOME-TAX> 3,251,000
<INCOME-CONTINUING> 5,783,373
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 5,783,373
<EPS-BASIC> 0.41
<EPS-DILUTED> 0.40
</TABLE>
