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
July 29, 2000
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 Registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such period that Registrant was required to file
such reports), and (2) has been subject to filing such reports for the past 90
days.
YES X NO
---- ----
14,068,698 shares of common stock were outstanding on July 29, 2000.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
July 29, 2000 (unaudited) and January 29, 2000
<TABLE>
July 29, January 29,
Assets 2000 2000
------ ---- ----
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,653,498 $ 5,486,290
Accounts receivable:
Trade, net 12,456,575 11,544,036
Other 3,100,310 3,870,115
----------- -----------
15,556,885 15,414,151
----------- -----------
Merchandise inventories 250,009,796 206,790,453
Prepaid expenses 9,133,571 4,730,806
Deferred income taxes, net 2,924,000 2,924,000
----------- -----------
Total current assets 279,277,750 235,345,700
----------- -----------
Property, plant and equipment, at cost:
Land and buildings 19,839,687 19,726,648
Furniture, fixtures and equipment 93,221,168 83,098,450
Leasehold improvements 35,065,680 32,806,415
----------- -----------
148,126,535 135,631,513
Less accumulated depreciation and amortization 71,675,352 65,098,471
----------- -----------
Net property, plant and equipment 76,451,183 70,533,042
----------- -----------
Deferred income taxes, net 51,328,443 53,423,000
Other assets, at cost, less accumulated amortization 15,716,076 17,325,421
----------- -----------
$ 422,773,452 $ 376,627,163
=========== ===========
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt $ 3,855,272 $ 13,867,302
Accounts payable 72,430,237 84,089,991
Accrued expenses 12,207,649 12,052,606
Income taxes payable - 352,302
----------- -----------
Total current liabilities 88,493,158 110,362,201
----------- -----------
Other liabilities 2,439,987 2,474,540
Long-term debt, net of current portion 159,093,131 96,211,132
Senior subordinated debt 8,082,000 7,500,000
Convertible subordinated debt 70,353,000 70,353,000
Stockholders' equity 94,312,176 89,726,290
----------- -----------
$ 422,773,452 $ 376,627,163
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of
Earnings For the quarters ended
July 29, 2000 and July 31, 1999
(Unaudited)
<TABLE>
Quarter Quarter
Ended Ended
July 29, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
Net sales $190,029,161 $169,247,687
Cost of sales 101,393,688 91,947,529
----------- -----------
Gross profit 88,635,473 77,300,158
Selling, administrative and general expenses 73,802,659 63,473,743
Depreciation and amortization 4,202,808 4,228,082
----------- -----------
Operating income 10,630,006 9,598,333
Net interest expense 5,225,134 4,326,305
----------- -----------
Earnings before income taxes 5,404,872 5,272,028
Income tax expense 1,945,000 1,898,000
----------- -----------
Net earnings $ 3,459,872 $ 3,374,028
=========== ===========
Net earnings per common share:
Basic $ 0.25 $ 0.24
=========== ===========
Diluted $ 0.23 $ 0.23
=========== ===========
Number of shares used to compute net earnings per common share:
Basic 14,067,526 14,064,619
=========== ===========
Diluted 18,724,765 14,617,942
=========== ===========
Dividends declared per share $ 0.015 $ 0.015
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of
Earnings For the six months ended
July 29, 2000 and July 31, 1999
(Unaudited)
<TABLE>
Six Months Six Months
Ended Ended
July 29, 2000 July 31, 1999
------------- -------------
<S> <C> <C>
Net sales $360,086,373 $298,440,297
Cost of sales 191,305,266 160,920,637
----------- -----------
Gross profit 168,781,107 137,519,660
Selling, administrative and general expenses 142,573,784 115,194,128
Depreciation and amortization 8,240,334 7,716,697
----------- -----------
Operating income 17,966,989 14,608,835
Net interest expense 10,149,236 7,804,817
----------- -----------
Earnings before income taxes 7,817,753 6,804,018
Income tax expense 2,813,000 2,450,000
----------- -----------
Net earnings $ 5,004,753 $ 4,354,018
=========== ==========
Net earnings per common share:
Basic $ 0.36 $ 0.31
=========== ===========
Diluted $ 0.35 $ 0.30
=========== ===========
Number of shares used to compute net earnings per common share:
Basic 14,067,526 14,064,573
=========== ===========
Diluted 14,433,197 14,303,692
=========== ===========
Dividends declared per share $ 0.030 $ 0.030
=========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash
Flows For the six months ended July 29,
2000 and July 31, 1999
(Unaudited)
<TABLE>
July 29, 2000 July 31, 1999
------------- -------------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $ 5,004,753 $ 4,354,018
Adjustments to reconcile net earnings to net cash
used in operating activities:
Depreciation and amortization:
Fixed assets 6,576,881 6,607,275
Deferred charges, intangible assets and
deferred financing costs 2,245,453 1,329,400
Deferred income taxes, net 2,094,557 2,174,387
Change in:
Accounts receivable (142,734) (3,155,727)
Merchandise inventories (32,389,981) (7,627,839)
Prepaid expenses (4,402,765) (3,234,164)
Accounts payable (11,659,754) (3,823,835)
Accrued expenses 1,530,043 7,329,774
Income taxes payable/receivable (352,302) (1,811,701)
Other liabilities 25,279 (31,619)
------------ ------------
Net cash provided by (used in) operating activities (31,470,570) 2,109,969
------------ ------------
Cash flows from investing activities: Capital expenditures for:
Property, plant and equipment (10,181,077) (5,304,957)
Other assets (673,500) (989,648)
Proceeds from sales of footwear businesses 614,161 887,903
Net cash paid in acquisition of assets of SCOA (14,518,307) --
Assets acquired of Repp Ltd. Big & Tall businesses -- (26,202,347)
------------ ------------
Net cash used in investing activities (24,758,723) (31,609,049)
------------ ------------
Cash flows from financing activities:
Repayment of senior debt -- (1,500,000)
Proceeds from long-term debt 51,640,433 20,191,350
Proceeds from senior subordinated debt -- 10,000,000
Repayment of chattel loan 1,557,250 --
Repayment of mortgage payable (327,714) (299,608)
Payment of mortgage escrow, net (54,601) 11,560
Proceeds from issuance of common stock, net of retirements 3,172 2,438
Payment of dividends (422,039) (421,933)
------------ ------------
Net cash provided by financing activities 52,396,501 27,983,807
------------ ------------
Net decrease in cash (3,832,792) (1,515,273)
Cash and cash equivalents at beginning of year 5,486,290 3,679,115
------------ ------------
Cash and cash equivalents at end of period $ 1,653,498 $ 2,163,842
============ ============
Supplemental disclosure of cash flow information: Cash paid for:
Interest $ 9,674,497 $ 7,667,243
Income taxes 868,496 2,087,315
============ ============
Schedule of non-cash financing activity:
Warrants issued with senior subordinated debt -- 3,300,000
============ ============
</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 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] Basic Earnings Per Share ("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 six months ended July 29, 2000 and July 31, 1999, the
calculation of diluted earnings per common share includes the dilutive
effect of outstanding stock options and warrants. Included in this
calculation for the quarter ended July 29, 2000 is the dilutive effect of
common stock issuable under the 7% convertible subordinated notes due 2002.
For the six months ended July 29, 2000 and the quarter and six months ended
July 31, 1999, the stock issuable under the 7% convertible subordinated
notes due 2002 and the convertible debentures was not included in the
calculation because its effect would be antidilutive.
Net earnings and shares used to compute net earnings per common share,
basic and diluted, are reconciled below:
<TABLE>
Quarters Ended Six Months Ended
--------------------------- ----------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
---- ---- ---- ----
Numerator for earnings per common share calculation:
<S> <C> <C> <C> <C>
Net earnings available to common
shareholders, basic $ 3,459,872 $ 3,374,028 $ 5,004,753 $ 4,354,018
Dilutive effect of convertible
subordinated notes $ 784,000 $ -- $ -- $ --
----------- ----------- ----------- -----------
Net earnings available to common
shareholders, diluted $ 4,243,872 $ 3,374,028 $ 5,004,753 $ 4,354,018
----------- ----------- ----------- -----------
Denominator for earnings per common share calculation:
Weighted average common shares, basic 14,067,526 14,064,619 14,067,526 14,064,573
Effect of dilutive securities:
Convertible subordinated notes 4,341,085 -- -- --
Stock options 316,154 553,323 365,671 239,119
----------- ----------- ----------- -----------
Weighted average common shares, diluted 18,724,765 14,617,942 14,433,197 14,303,692
----------- ----------- ----------- -----------
Basic earnings per common share $ 0.25 $ 0.24 $ 0.36 $ 0.31
=========== =========== =========== ===========
Diluted earnings per common share $ 0.23 $ 0.23 $ 0.35 $ 0.30
=========== =========== =========== ===========
</TABLE>
3] The Company is a specialty retailer conducting business through retail
stores in two business segments: apparel and footwear. The Company also
operates catalog, e-commerce and other direct selling and marketing
businesses. 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.
<PAGE>
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>
Quarters Ended Six Months Ended
---------------------------- -------------------------
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
---- ---- ---- ----
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Apparel
Net sales $ 110,422 $ 97,761 $ 213,907 $ 171,959
Operating profit 11,253 8,965 20,067 15,978
Footwear
Net sales $ 79,607 $ 71,486 $ 146,179 $ 126,481
Operating profit 5,047 6,272 9,473 9,890
Consolidated
Net sales $ 190,029 $ 169,247 $ 360,086 $ 298,440
Operating profit before general
corporate expense 16,300 15,237 29,540 25,868
General corporate expense (5,670) (5,639) (11,573) (11,259)
Interest expense, net (5,225) (4,326) (10,149) (7,805)
Earnings before income taxes $ 5,405 $ 5,272 $ 7,818 $ 6,804
</TABLE>
4] On February 11, 2000, the Company entered into an agreement to purchase the
ongoing assets of Shoe Corporation of America ("SCOA") and, on February 29,
2000, the transaction was consummated. The purchase price paid by the
Company to acquire the ongoing assets of SCOA, which consisted primarily of
inventory and fixed assets, was $14.5 million. As part of this acquisition,
the Company acquired the rights to operate 204 licensed footwear
departments in moderate department and specialty stores nationwide. In
addition, pursuant to the terms of the acquisition agreement, SCOA agreed
to provide the Company with certain transition services, all of which were
terminated by the Company on May 31, 2000. The Company financed the SCOA
acquisition with cash and borrowings available under its revolving credit
agreement. The acquisition was deemed not to be significant in accordance
with SEC guidelines, and accordingly proforma information is not presented.
The net purchase price was allocated as follows:
Merchandise inventories $ 12,204,362
Property, plant and equipment 2,313,945
-----------
Total purchase price $ 14,518,307
===========
Of the licensed footwear departments acquired from SCOA, 38 were in
department stores operated by Lamonts Apparel, Inc. ("Lamonts"). Lamonts, a
debtor in possession under Chapter 11 of the U.S. Bankruptcy Code, as
amended, entered into an Asset Purchase Agreement with Gottschalks Inc.
("Gottschalks") as of April 24, 2000, by which Gottschalks agreed to
acquire, among other things, Lamonts' real estate leases and certain store
assets (excluding inventory). The U.S. Bankruptcy Court for the Western
District of Washington at Seattle approved this transaction and the Asset
Purchase Agreement on May 16, 2000. The Company and Gottschalks have
entered into an agreement by which the Company will continue to operate
licensed footwear departments in the Gottschalks stores formerly operated
by Lamonts.
On February 24, 2000, the Company entered into an agreement with Variety
Wholesalers, Inc. ("Variety") to begin operating 349 shoe departments in
the Variety Wholesale chain, which includes Maxway and Bargain Town stores,
on March 26, 2000. The Company made payments to Variety of approximately
$2.7 million in respect of this agreement, primarily for inventory.
5] 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 Brothers"). 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 catalogs, was
$27.0 million.
6] The Company operated licensed footwear departments in stores operated by
Hills Stores Company ("Hills") from 1986 until Hills ceased operations in
1999. On November 12, 1998, Ames Department Stores, Inc. ("Ames"), a
significant licensor of the Company, entered into an agreement for the
acquisition of Hills. 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, the last phase of which was
completed in September 1999, all such stores were incorporated into the
Company's license agreement with Ames on the same terms and conditions as
presently exist. During the conversion process, the Company participated in
liquidation sales of its footwear inventory in each store. These
liquidation sales ended on July 26, 1999.
7] 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 shall 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 licensed
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 six months ended July 29, 2000 were $24.1 million.
8] In October 1999, the Company entered into an agreement to terminate the
relationship between the licensed footwear division and Shopko Stores, Inc.
("Shopko"). The agreement called for the orderly phasing out of operations
and liquidation of inventory, which liquidation was completed on June 3,
2000. The Company operated 146 licensed footwear departments in Shopko
stores during fiscal year 2000 and began liquidation sales from all such
stores during the first quarter of fiscal 2001 and completed them during
the second quarter of fiscal 2001.
9] In August 2000, the Company amended its credit agreement with a group of
lenders led by Fleet Retail Finance (formerly know as BankBoston Retail
Finance) to increase by $10 million its revolving credit facility to $160
million.
Also in August 2000, the Company amended the prepayment terms under its $25
million Term Loan provided by Back Bay Capital Funding LLC. As amended, if
the Company achieves certain levels of availability under the Revolver, the
Company may prepay $5 million of principal on or after December 31, 2000,
and an additional $5 million on or after May 1, 2001.
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
STATEMENTS MADE OR INCORPORATED INTO THIS QUARTERLY REPORT MAY 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",
"PLANS" AND WORDS OF SIMILAR IMPORT, WHICH EXPRESS MANAGEMENT'S BELIEF,
EXPECTATION OR INTENT REGARDING THE COMPANY'S FUTURE PERFORMANCE. THE COMPANY'S
ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS COULD DIFFER MATERIALLY FROM THOSE
SET FORTH IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MAY CAUSE SUCH
DIFFERENCES ARE DESCRIBED IN THE SECTION ENTITLED "OUTLOOK: IMPORTANT FACTORS
AND UNCERTAINTIES" FOUND ON PAGE 13 OF THIS QUARTERLY REPORT.
All references herein to fiscal 2001 and fiscal 2000 relate to the years ending
February 3, 2001 and January 29, 2000, respectively.
Results of Operations
---------------------
First Six Months of Fiscal 2001 versus First Six Months of Fiscal 2000
The Company's net sales increased by $61.7 million to $360.1 in the first
six months of fiscal 2001 from $298.4 million in the first six months of fiscal
2000, primarily due to a $32.7 million increase 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, and $27.6 million in sales generated by the
licensed footwear departments acquired from SCOA by the Company on February 29,
2000. Sales in the Company's apparel operations increased by $41.9 million to
$213.9 in the first six months of fiscal 2001 from $172.0 million in the first
six months of fiscal 2000, primarily due to the $32.7 million sales increase in
the Repp businesses and a 5.9% 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 increased by $19.7 million to $146.2 million
in the first six months of fiscal 2001 from $126.5 million in the first six
months of fiscal 2000, primarily due to sales of $27.6 million in the new
licensed footwear departments acquired from SCOA. This increase was partially
offset by a sales decrease of $10.5 million in the 146 Shopko stores closed in
the Company's JBI Footwear division in the first six months of fiscal 2001,
coupled with a comparable retail footwear store sales decrease of 2.4% in the
first six months of fiscal 2001 (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 53.1% of sales in the first six
months of fiscal 2001, as compared to 53.9% of sales in the first six months of
fiscal 2000. Cost of sales in the Company's apparel operations was 50.6% of
sales in the first six months of fiscal 2001, as compared to 51.2% of sales in
the first six months of fiscal 2000. The decrease in such percentage was
primarily attributable to a higher initial markup on merchandise purchases. Cost
of sales in the Company's footwear operations was 56.8% of sales in the first
six months of fiscal 2001, as compared to 57.7% of sales in the first six months
of fiscal 2000. The decrease in such percentage was primarily attributable to
lower markdowns as a percentage of sales, due to the lower markdown rate on
sales in the licensed departments acquired from SCOA versus the Company's other
licensed departments.
Selling, administrative and general expenses increased $27.4 million, or
23.8%, to $142.6 million in the first six months of fiscal 2001 from $115.2
million in the first six months of fiscal 2000, primarily due to the acquisition
of the Repp businesses in May 1999 and the acquisition of the licensed footwear
departments from SCOA at the end of February 2000. As a percentage of sales,
selling, administrative and general expenses were 39.6% of sales in the first
six months of fiscal 2001, as compared to 38.6% of sales in the first six months
of fiscal 2000. Selling, administrative and general expenses in the Company's
apparel operations were 40.9% of sales in the first six months of fiscal 2001 as
compared to 40.4% of sales in the first six months of fiscal 2000. This increase
was primarily due to the acquisition of the Repp businesses, which have higher
selling, administrative and general expenses as a percentage of sales than the
Company's existing Casual Male Big & Tall and Work 'n Gear divisions. Selling,
administrative and general expenses in the Company's footwear operations were
37.7% of sales in the first six months of fiscal 2001, as compared to 36.2% of
sales in the first six months of fiscal 2000. This increase was primarily due to
the decrease in comparable retail footwear store sales and to an increase in
store level expenses.
Depreciation and amortization expense increased by $524,000 to $8.2 million
in the first six months of fiscal 2001 from $7.7 million in the first six months
of fiscal 2000, primarily due to an increase in depreciable and amortizable
assets.
As a result of the above, the Company's operating income increased by $3.4
million to $18.0 million in the first six months of fiscal 2001 from $14.6
million in the first six months of fiscal 2000. As a percentage of sales,
operating income was 5.0% in the first six months of fiscal 2001 as compared to
4.9% in the first six months of fiscal 2000.
Net interest expense increased by $2.3 million to $10.1 million in the
first six months of fiscal 2001 from $7.8 million in the first six months of
fiscal 2000, primarily due to higher interest rates on bank borrowings and
higher average levels of bank borrowings in the first six months of fiscal 2001
versus the first six months of fiscal 2000.
Taxes on earnings for the first six months of fiscal 2001 were $2.8
million, yielding an effective tax rate of 36.0%, as compared to taxes on
earnings of $2.5 million for the first six months of fiscal 2000, yielding an
effective tax rate of 36.0%.
Net earnings for the first six months of fiscal 2001 were $5.0 million, as
compared to net earnings of $4.4 million in the first six months of fiscal 2000,
an increase of 14.9%.
Second Quarter of Fiscal 2001 versus Second Quarter of Fiscal 2000
The Company's net sales increased by $20.8 million to $190.0 million in the
second quarter of fiscal 2001 from $169.2 million in the second quarter of
fiscal 2000, primarily due to $16.6 million in sales generated by the licensed
footwear departments acquired from SCOA by the Company on February 29, 2000 and
a $7.9 million increase in sales generated by the Repp businesses, which were
acquired by the Company on May 23, 1999. Sales in the Company's apparel
operations increased by $12.6 million to $110.4 million in the second quarter of
fiscal 2001 from $97.8 million in the second quarter of fiscal 2000, primarily
due to the aforementioned acquisition of the Repp businesses in the second
quarter of fiscal 2000, and a 5.1% increase in comparable apparel store sales.
Sales in the Company's footwear operations increased by $8.1 million to $79.6
million in the second quarter of fiscal 2001 from $71.5 million in the second
quarter of fiscal 2000, primarily due the $16.6 million in sales generated by
the aforementioned SCOA acquisition in the first quarter of fiscal 2001 and $2.6
million in sales generated by 349 stores acquired from Variety Wholesalers Inc.
The increase was partially offset by a sales decrease of $9.2 million in the
Shopko stores closed in the Company's JBI Footwear division during the second
quarter of fiscal 2001 and a 5.1% decrease in comparable retail footwear store
sales.
The Company's cost of sales constituted 53.4% of sales in the second
quarter of fiscal 2001, as compared to 54.3% of sales in the second quarter of
fiscal 2000. Cost of sales in the Company's apparel operations was 50.7% of
sales in the second quarter of fiscal 2001, as compared to 51.4% of sales in the
second quarter of fiscal 2000. 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. Cost of sales in the
Company's footwear operations was 57.0% of sales in the second quarter of fiscal
2001, as compared to 58.3% of sales in the second quarter of fiscal 2000. The
decrease in such percentage was primarily attributable to lower markdowns as a
percentage of sales, partially due to the lower markdown rate on sales in the
licensed departments acquired from SCOA versus the Company's other licensed
departments.
Selling, administrative and general expenses increased $10.3 million, or
16.3%, to $73.8 million in the second quarter of fiscal 2001 from $63.5 million
in the second quarter of fiscal 2000, primarily due to the acquisition of the
Repp businesses in the middle of the second quarter of fiscal 2000 and the
acquisition of the licensed footwear departments from SCOA in the first quarter
of fiscal 2001. As a percentage of sales, selling, administrative and general
expenses were 38.8% of sales in the second quarter of fiscal 2001, as compared
to 37.5% of sales in the second quarter of fiscal 2000. Selling, administrative
and general expenses in the Company's apparel operations were 39.8% of sales in
the second quarter of fiscal 2001, which was comparable to 39.8% of sales in the
second quarter of fiscal 2000. Selling, administrative and general expenses in
the Company's footwear operations were 37.5% of sales in the second quarter of
fiscal 2001, as compared to 34.4% of sales in the second quarter of fiscal 2000.
This increase was primarily due to the decrease in comparable retail footwear
store sales and to an increase in store level expenses.
The Company's operating income increased by $1.0 million to $10.6 million
in the second quarter of fiscal 2001 from $9.6 million in the second quarter of
fiscal 2000. As a percentage of sales, operating income was 5.6% in the second
quarter of fiscal 2001, as compared to 5.7% in the second quarter of fiscal
2000.
Net interest expense increased by $899,000 to $5.2 million in the second
quarter of fiscal 2001 from $4.3 million in the second quarter of fiscal 2000,
primarily due to higher interest rates on bank borrowings and higher average
levels of bank borrowings in the second quarter of fiscal 2001 versus the second
quarter of fiscal 2000.
Taxes on earnings for the second quarter of fiscal 2001 were $1.9 million,
yielding an effective tax rate of 36.0%, as compared to taxes on earnings of
$1.9 million for the second quarter of fiscal 2000, yielding an effective tax
rate of 36.0%.
Net earnings for the second quarter of fiscal 2001 were $3.5 million, as
compared to net earnings of $3.4 million in the second quarter of fiscal 2000,
an increase of 2.5%.
Financial Condition
-------------------
July 29, 2000 versus January 29, 2000
The increase in merchandise inventories at July 29, 2000 from January 29,
2000 was primarily due to the acquisition of the licensed footwear departments
from SCOA and a seasonal increase in the average inventory level per location.
The ratio of accounts payable to merchandise inventories was 29.0% at July 29,
2000, as compared to 40.7% at January 29, 2000 and 27.3% at July 31, 1999.
The increase in prepaid expenses at July 29, 2000 from January 29, 2000 is
similar to the normal seasonal increase in prepaid expenses at July 31, 1999
versus January 30, 1999. At July 29, 2000 as compared to July 31, 1999, the
increase in prepaid expenses is primarily due to costs incurred to produce
direct mail catalogs,from which the Company is still selling or will sell in the
future.
The increase in net property, plant and equipment at July 29, 2000 from
January 29, 2000 was the result of capital additions of $12.5 million, including
$2.3 million in fixed assets acquired from SCOA.
The increase in long-term debt, net of current portion, at July 29, 2000
from January 29, 2000 was primarily due to additional bank borrowings to meet
seasonal working capital needs, fund capital expenditures and fund the purchase
of the assets acquired from SCOA.
Liquidity and Capital Resources
In August 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.
In August 2000, the Company amended its revolving line of credit (the
"Revolver") which is provided by a group of lenders led by Fleet Retail Finance
(formerly known as BankBoston Retail Finance Inc.) to increase by $10 million
its revolving credit facility to $160 million. 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 Company's revolving credit facility contains various covenants and
restrictive provisions, including restrictions on the incurrence of additional
indebtedness and liens, the payment of dividends, the maintenance of specified
financial ratios and other financial criteria. As of July 29, 2000, the Company
was in compliance with all such covenants.
The $25 million term loan (the "Term Loan") was provided by Back Bay
Capital Funding LLC. Borrowings under the Term Loan bear interest at 16% per
year. In August 2000, the Company amended the prepayment terms under its $25
million Term Loan provided by Back Bay Capital Funding LLC. As amended, if the
Company achieves certain levels of availability under the Revolver, the Company
may prepay $5 million of principal on or after December 31, 2000, and an
additional $5 million on or after May 1, 2001. As of the filing date of this
Form 10-Q, there is $25 million outstanding under the Term Loan.
The $9 million chattel loan (the "Chattel Loan"), which was provided by
BancBoston Leasing Inc., 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.
As of July 29, 2000, the Company had aggregate borrowings outstanding under
the Revolver totaling $122.9 million, consisting of loans and obligations under
letters of credit.
Net cash used in operating activities for the first six months of fiscal
2001 was $31.5 million, as compared to net cash provided by operating activities
of $2.1 million in the first six months of fiscal 2000. The $33.6 million change
was primarily due to a larger increase in expenditures for merchandise
inventories in the first six months of fiscal 2001 versus the first six months
of fiscal 2000 primarily due to the acquisitions of the licensed footwear
departments from SCOA in February 2000 and the licensed footwear departments in
the Variety chain in March 2000, coupled with a larger decrease in accounts
payable and a smaller increase in accrued expenses in the first six months of
fiscal 2001 versus the first six months of fiscal 2000.
Net cash used in investing activities for the first six months of fiscal
2001 was $24.8 million, as compared to net cash used in investing activities of
$31.6 million in the first six months of fiscal 2000. The $6.8 million change
was primarily due to the acquisition of the Repp businesses in May 1999,
partially offset by additional capital expenditures in the first six months of
fiscal 2001 versus the first six months of fiscal 2000 and the acquisition of
the licensed footwear departments from SCOA in February 2000.
Net cash provided by financing activities for the first six months of
fiscal 2001 was $52.4 million, as compared to net cash provided by financing
activities of $28.0 million in the first six months of fiscal 2000. The $24.4
million change was primarily due to the net borrowing of $51.6 million under the
Company's revolving lines of credit during the first six months of fiscal 2001
versus the net borrowing of $20.2 million during the first six months of fiscal
2000. This increase in borrowings under the Company's revolving lines of credit
is primarily due to net cash used in operating activities, coupled with the
acquisition of the licensed footwear departments from SCOA, each as described
above. The increase was partially offset by the incurrence of $10.0 million of
new senior subordinated debt for the Repp acquisition in the first six months of
fiscal 2000.
Excluding furniture, fixtures, equipment and leasehold improvements of $2.3
million acquired with the licensed footwear departments from SCOA, the Company
invested $10.2 million in capital expenditures during the first six months of
fiscal 2001. Excluding furniture, fixtures, equipment and leasehold improvements
of $3.0 million acquired with the Repp businesses, the Company invested $5.3
million in capital expenditures during the first six months of fiscal 2000. 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 2001:
<TABLE>
Actual Openings Planned Openings Total
First and Second Third and Fourth Actual/Planned
Division Quarters Fiscal 2001 Quarters Fiscal 2001 Openings
-------- -------------------- -------------------- --------
<S> <C> <C> <C>
Casual Male 14 10 24
Repp Ltd. Big &Tall 2 3 5
Work 'n Gear 3 2 5
JBI Footwear 599 87 686
</TABLE>
The actual store openings for the first six months for JBI Footwear include
the 204 licensed footwear departments acquired on February 29, 2000 from SCOA
and the 349 licensed shoe departments opened in stores owned by Variety on March
26, 2000. The planned openings for the last six months for JBI Footwear include
36 Gottschalks licensed shoe departments.
Offsetting the above actual and planned store openings, the Company closed
two Casual Male stores, one Repp Ltd. Big & Tall store, 219 JBI Footwear
departments (including 146 Shopko licensed shoe departments and 38 Lamonts
licensed shoe departments) during the first six months of fiscal 2001. The
Company has plans to close approximately an additional one Casual Male store,
nine Repp Ltd. Big & Tall stores and eight JBI Footwear departments during the
third and fourth quarters of fiscal 2001.
Effective June 21, 2000, the Company's Work 'n Gear subsidiary entered into
an agreement to operate licensed workwear departments in 19 Super Shoe Stores
operated by H.H. Brown Retail, Inc., a subsidiary of Berkshire Hathaway, Inc.
The departments that will be operated by the Company beginning in the third
quarter of fiscal 2001 pursuant to this arrangement are not included in the Work
`n Gear planned store openings provided above.
Statements in this Quarterly Report on Form 10-Q regarding planned store
and licensed department openings are forward looking statements. The Company's
ability to open new stores and to operate and expand its licensed department
program successfully depends upon, among other things, the Company's capital
resources, the availability of suitable sites and construction services and its
ability to negotiate favorable rents and other lease and license terms.
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.
Outlook: Important Factors and Uncertainties.
---------------------------------------------
The Private Securities Litigation Reform Act of 1995 (the "Act") provides a
"safe harbor" for forward-looking statements to encourage companies to provide
prospective information about themselves without fear of litigation so long as
the forward-looking information is accompanied by meaningful cautionary
statements identifying important factors that could cause actual results to
differ materially from those set forth in the forward-looking statement.
Statements in this Quarterly Report on Form 10-Q which are not historical facts,
including statements about the Company's or management's confidence or
expectations, plans for opening new stores and other retail locations,
opportunities for sales growth or cost reductions and other statements about the
Company's operational outlook, are forward-looking statements subject to risks
and uncertainties that could cause actual results to vary materially. The
following are important factors, among others, that should be considered in
evaluating these forward-looking statements and the Company's future prospects:
general economic factors, weather conditions, dependence on footwear department
licensors, dependence on foreign vendors, dependence on fashion and trends, the
availability of appropriate real estate transactions and footwear department
licensing opportunities, leverage, competition, centralized distribution, the
availability of suitable employees, paper and postage costs, e-commerce
technology and trade imbalances.
You should carefully review and consider all of these factors when
analyzing a forward-looking statement and should be aware that there may be
other factors that could cause results to differ from the Company's
expectations. Any forward-looking statement made by the Company is based on
information, plans, estimates and beliefs at the time such statement was made,
and the Company assumes no obligation to update any forward-looking statements
to reflect changes in the underlying assumptions or factors, new information,
future events or other changes.
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
(a) The registrant's annual meeting of stockholders was held on June 6, 2000
(the "Meeting").
(b) Messrs. Douglas J. Kahn, Harold Leppo and Stuart M. Glasser and Ms. Nancy
Ryan were elected Class II directors at the Meeting, each for a three-year
term. The term of office for the following directors continued after the
Meeting: Messrs. Sherman N. Baker, Theodore M. Ronick, Melvin M.
Rosenblatt, J. Christopher Clifford, David Pulver and Alan I. Weinstein.
(c) The stockholders voted on the ratification of the selection of KPMG LLP as
independent auditors for the fiscal year ending February 3, 2001.
The following votes were cast at the Meeting with respect to each nominee
for Class II director:
Total vote for Total vote withheld
each director from each director
------------- ------------------
Douglas J. Kahn 11,769,585 1,572,079
Harold Leppo 13,191,750 149,914
Stuart M. Glasser 13,090,520 251,144
Nancy Ryan 13,090,275 251,389
The following votes were cast at the Meeting with respect to the
ratification of auditors:
For: 13,336,071
Against: 3,268
Abstain: 2,325
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The Exhibits in the Exhibit Index are filed as part of this report.
(b) No reports on Form 8-K were filed by the Registrant during the quarter
for which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
J. BAKER, INC.
By: /s/ Alan I. Weinstein
--------------------------
Alan I. Weinstein
President and Chief Executive Officer
Date: Canton, Massachusetts
September 11, 2000
By: /s/ Elizabeth C. White
---------------------------
Elizabeth C. White
First Senior Vice President,
Chief Financial Officer
and Treasurer
Date: Canton, Massachusetts
September 11, 2000
<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 July 29, 2000
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit Page No.
------- --------
10. Material Contracts
------------------
[.01] First Amendment to 1999 Loan and Security Agreement by and among J. Baker, Inc. *
(as Borrower's representative), Morse Shoe, Inc., JBI Inc., JBI
Apparel, Inc., The Casual Male, Inc., WGS Corp. and TCMB&T, Inc.
and BankBoston Retail Finance Inc. (now known as Fleet Retail Finance), et al,
and Back Bay Capital Funding LLC, dated August 10, 2000, attached.
[.02] Second Amendment to 1999 Loan and Security Agreement by and among J. Baker, Inc. *
(as Borrower's representative), Morse Shoe, Inc., JBI Inc., JBI
Apparel, Inc., The Casual Male, Inc., WGS Corp. and TCMB&T, Inc.
and BankBoston Retail Finance Inc. (now known as Fleet Retail Finance), et al,
and Back Bay Capital Funding LLC, dated August 22, 2000, 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.
