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 28, 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 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
--- ----
14,068,798 shares of common stock were outstanding on October 28, 2000.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Balance Sheets
October 28, 2000 (unaudited) and January 29, 2000
<TABLE>
October 28, January 29,
2000 2000
---- ----
Assets
------
<S> <C> <C>
Current assets:
Cash and cash equivalents ......................... $ 1,653,614 $ 5,486,290
Accounts receivable:
Trade, net .................................... 13,481,994 11,544,036
Other ......................................... 3,405,969 3,870,115
------------ ------------
16,887,963 15,414,151
------------ ------------
Merchandise inventories ........................... 171,684,853 206,790,453
Prepaid expenses .................................. 10,160,003 4,730,806
Deferred income taxes, net ........................ 2,924,000 2,924,000
Net assets of discontinued operations held for sale 88,504,254 --
------------ ------------
Total current assets ..................... 291,814,687 235,345,700
------------ ------------
Property, plant and equipment, at cost:
Land and buildings ................................ 19,839,687 19,726,648
Furniture, fixtures and equipment ................. 62,510,423 83,098,450
Leasehold improvements ............................ 36,269,558 32,806,415
------------ ------------
118,619,668 135,631,513
Less accumulated depreciation and amortization .... 51,335,356 65,098,471
------------ ------------
Net property, plant and equipment ........ 67,284,312 70,533,042
------------ ------------
Deferred income taxes, net ............................ 61,653,741 53,423,000
Other assets, at cost, less accumulated amortization .. 15,178,342 17,325,421
------------ ------------
$435,931,082 $376,627,163
============ ============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Current portion of long-term debt ................. $ 4,170,830 $ 13,867,302
Accounts payable .................................. 71,437,380 84,089,991
Accrued expenses .................................. 23,566,392 12,052,606
Income taxes payable .............................. -- 352,302
------------ ------------
Total current liabilities ................ 99,174,602 110,362,201
------------ ------------
Other liabilities ..................................... 2,385,776 2,474,540
Long-term debt, net of current portion ................ 186,652,284 96,211,132
Senior subordinated debt .............................. 8,373,000 7,500,000
Convertible subordinated debt ......................... 70,353,000 70,353,000
Stockholders' equity .................................. 68,992,420 89,726,290
------------ ------------
$435,931,082 $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 October 28, 2000 and October 30, 1999
(Unaudited)
<TABLE>
Quarter Quarter
Ended Ended
October 28, 2000 October 30, 1999
---------------- ----------------
<S> <C> <C>
Net sales ............................................................... $ 104,439,081 $ 99,459,505
Cost of sales ........................................................... 52,620,794 49,633,329
------------- -------------
Gross profit ...................................................... 51,818,287 49,826,176
Selling, administrative and general expenses ............................ 43,611,456 42,317,407
Depreciation and amortization ........................................... 3,054,467 3,108,426
------------- -------------
Operating income .................................................. 5,152,364 4,400,343
Net interest expense .................................................... 3,413,457 2,810,230
------------- -------------
Earnings from continuing operations before taxes .................. 1,738,907 1,590,113
Income tax expense ...................................................... 627,000 571,000
------------- -------------
Earnings from continuing operations ............................... 1,111,907 1,019,113
Discontinued operations:
Earnings from discontinued operations, net
of income tax expense of $0 and $230,000 ......................... -- 410,242
Loss on disposal of discontinued operations, net of
income tax benefit of $10,375,000 and $0 ......................... (26,221,000) --
------------- -------------
Earnings (loss) from discontinued operations ............................ (26,221,000) 410,242
------------- -------------
Net earnings (loss) ............................................... $ (25,109,093) $ 1,429,355
============= =============
Earnings (loss) per common share:
Basic
Continuing operations ............................................ $ 0.08 $ 0.07
============= =============
Discontinued operations .......................................... (1.86) 0.03
============= =============
Earnings (loss) per common share, basic .......................... $ (1.78) $ 0.10
============= =============
Earnings (loss) per common share:
Diluted
Continuing operations ............................................ $ 0.08 $ 0.07
============= =============
Discontinued operations .......................................... (1.85) 0.03
============= =============
Earnings (loss) per common share, diluted ........................ $ (1.77) $ 0.10
============= =============
Number of shares used to compute earnings (loss) per common share
Basic ............................................................. 14,068,341 14,066,729
============= =============
Diluted ........................................................... 14,166,236 14,592,665
============= =============
Dividends declared per share ............................................ $ 0.015 $ 0.015
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of Earnings
For the nine months ended October 28, 2000 and October 30, 1999
(Unaudited)
<TABLE>
Nine Months Nine Months
Ended Ended
October 28, 2000 October 30, 1999
---------------- ----------------
<S> <C> <C>
Net sales ................................................................. $ 318,345,882 $ 271,418,306
Cost of sales ............................................................. 160,902,766 137,631,656
------------- -------------
Gross profit ........................................................ 157,443,116 133,786,650
Selling, administrative and general expenses .............................. 131,104,349 112,261,569
Depreciation and amortization ............................................. 8,661,369 8,055,575
------------- -------------
Operating income .................................................... 17,677,398 13,469,506
Net interest expense ...................................................... 9,715,677 7,079,330
------------- -------------
Earnings from continuing operations before taxes .................... 7,961,721 6,390,176
Income tax expense ........................................................ 2,866,000 2,299,000
------------- -------------
Earnings from continuing operations ................................. 5,095,721 4,091,176
Discontinued operations:
Earnings from discontinued operations, net
of income tax expense of $574,000 and $952,000 ..................... 1,020,940 1,692,197
Loss on disposal of discontinued operations, net of
income tax benefit of $10,375,000 and $0 ........................... (26,221,000) --
------------- -------------
Earnings (loss) from discontinued operations .............................. (25,200,060) 1,692,197
------------- -------------
Net earnings (loss) ................................................. $ (20,104,339) $ 5,783,373
============= =============
Earnings (loss) per common share:
Basic
Continuing operations .............................................. $ 0.36 $ 0.29
============= =============
Discontinued operations ............................................ (1.79) 0.12
============= =============
Earnings (loss) per common share, basic ............................ $ (1.43) $ 0.41
============= =============
Earnings (loss) per common share:
Diluted
Continuing operations .............................................. $ 0.36 $ 0.28
============= =============
Discontinued operations ............................................ (1.76) 0.12
============= =============
Earnings (loss) per common share, diluted .......................... $ (1.40) $ 0.40
============= =============
Number of shares used to compute earnings (loss) per common share:
Basic ............................................................... 14,067,850 14,065,628
============= =============
Diluted ............................................................. 14,325,652 14,359,223
============= =============
Dividends declared per share .............................................. $ 0.045 $ 0.045
============= =============
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
J. BAKER, INC. AND SUBSIDIARIES
Consolidated Statements of Cash Flows
For the nine months ended October 28, 2000 and October 30, 1999
(Unaudited)
<TABLE>
October 28, 2000 October 30, 1999
---------------- ----------------
<S> <C> <C>
Cash flows from operating activities:
Earnings from continuing operations ........................... $ 5,095,721 $ 4,091,176
Adjustments to reconcile earnings from continuing
operations to net cash provided by (used in) continuing operations:
Depreciation and amortization:
Fixed assets ........................................... 5,628,583 5,739,605
Deferred charges, intangible assets and
deferred financing costs ............................. 1,932,660 1,362,637
Change in:
Accounts receivable .................................... 1,221,394 (2,272,424)
Merchandise inventories ................................ (52,362,655) (33,893,029)
Prepaid expenses ....................................... (3,837,084) (1,470,404)
Accounts payable ....................................... (5,435,639) 20,675,293
Accrued expenses ....................................... (224,205) 6,791,300
Other liabilities ...................................... (51,034) --
------------ ------------
Net cash provided by (used in) continuing operations (48,032,259) 1,024,154
Net cash used in discontinued operations ...................... (4,935,750) (12,681,825)
------------ ------------
Net cash used in operating activities .............. (52,968,009) (11,657,671)
------------ ------------
Cash flows from investing activities:
Capital expenditures for:
Property, plant and equipment .............................. (16,016,993) (9,578,468)
Other assets ............................................... (976,946) (3,564,529)
Net proceeds from sales of footwear businesses ................ 614,161 887,903
Net cash paid in acquisition of Repp Ltd. Big & Tall businesses -- (26,202,347)
Net cash paid in acquisition of SCOA .......................... (14,518,307) --
------------ ------------
Net cash used in investing activities ............... (30,898,085) (38,457,441)
------------ ------------
Cash flows from financing activities:
Repayment of senior debt ...................................... -- (1,500,000)
Proceeds from (repayment of) revolving credit facilities ...... 83,608,332 42,132,815
Proceeds from senior subordinated debt ........................ -- 10,000,000
Repayment of chattel loan ..................................... (2,366,488) (994,470)
Repayment of mortgage payable ................................. (497,164) (454,525)
Payment of mortgage escrow, net ............................... (81,731) (6,433)
Proceeds from issuance of common stock, net of retirements .... 3,541 11,438
Payment of dividends .......................................... (633,072) (632,929)
------------ ------------
Net cash provided by financing activities ........... 80,033,418 48,555,896
------------ ------------
Net decrease in cash equivalents .................... (3,832,676) (1,559,216)
Cash and cash equivalents at beginning of year .................... 5,486,290 3,679,115
------------ ------------
Cash and cash equivalents at end of period ........................ $ 1,653,614 $ 2,119,899
============ ============
Supplemental disclosure of cash flow information:
Cash paid for:
Interest ...................................................... $ 13,709,651 $ 10,354,377
Income taxes .................................................. 1,400,174 2,195,385
============ ============
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] The Company is a specialty retailer conducting business through retail
apparel stores. The Company also operates catalog, e-commerce and other
direct selling and marketing businesses. In November 2000, the Company
announced it had entered into an agreement with an affiliate of Footstar,
Inc. to sell substantially all of the assets of its JBI, Inc. and Morse
Shoe, Inc. subsidiaries, which are the entities that comprise its footwear
segment, in a transaction expected to yield approximately $60 million. See
note 4.
3] 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 nine months ended October 28, 2000 and October 30,
1999, 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 28, 2000 and October 30, 1999 because its
effect would be antidilutive.
Net earnings (loss) and shares used to compute net earnings (loss) per
common share, basic and diluted, are reconciled below:
<TABLE>
Quarters Ended Nine Months Ended
-------------- -----------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Numerator for earnings (loss) per common share
calculation:
Earnings from continuing operations,
basic and diluted ............................... $ 1,111,907 $ 1,019,113 $ 5,095,721 $ 4,091,176
================ =============== =============== ==============
Earnings (loss) from discontinued
operations, basic and diluted ................... $ (26,221,000) $ 410,242 $ (25,200,060) $ 1,692,197
================ =============== =============== ==============
Denominator for earnings (loss) per common share
calculation:
Weighted average common shares:
Basic ................................................ 14,068,341 14,066,729 14,067,850 14,065,628
Effect of dilutive securities:
Stock options, warrants and
performance share awards ................ 97,895 525,936 257,802 293,595
---------------- --------------- -------------- --------------
Diluted .............................................. 14,166,236 14,592,665 14,325,652 14,359,223
================ =============== =============== ==============
Earnings (loss) per common share, basic
Continuing operations ........................... $ 0.08 $ 0.07 $ 0.36 $ 0.29
Discontinued operations ......................... (1.86) 0.03 (1.79) 0.12
---------------- --------------- --------------- --------------
Earnings (loss) per common share, basic .......... $ (1.78) $ 0.10 $ (1.43) $ 0.41
================ =============== =============== ==============
Earnings (loss) per common share, diluted
Continuing operations ........................... $ 0.08 $ 0.07 $ 0.36 $ 0.28
Discontinued operations ......................... (1.85) 0.03 (1.76) 0.12
---------------- --------------- --------------- --------------
Earnings (loss) per common
share, diluted .................................. $ (1.77) $ 0.10 $ (1.40) $ 0.40
================ =============== =============== ==============
</TABLE>
4] In November 2000, the Company announced it had entered into an agreement
with an affiliate of Footstar, Inc. to sell substantially all of the assets
of its JBI, Inc. and Morse Shoe, Inc. subsidiaries, which are the entities
that comprise its footwear segment, in a transaction expected to yield
approximately $60 million. The transaction, which is expected to be
consummated on or about February 3, 2001, resulted in an after-tax loss of
$26.2 million for the period ending October 28, 2000. The Company expects
to use the proceeds from the sale to reduce borrowings under its bank
facilities.
The Consolidated Financial Statements have been adjusted and restated for
the periods presented to reflect the results of operations of the licensed
footwear businesses as discontinued operations. The value of the footwear
assets being sold are classified as net assets of discontinued operations
held for sale in the October 28, 2000 balance sheet.
The net sales of the footwear segment for the quarter and nine months ended
October 28, 2000 were $69.6 million and $215.8 million, respectively, and
for the quarter and nine months ended October 30, 1999 were $59.3 million
and $185.8 million, respectively.
The significant components of the loss on disposal from discontinued
operations for the quarter ended October 28, 2000 were as follows:
Loss on sale of division, including provision
for losses through date of sale $ 32,596,000
Severance, employee benefit costs and
transaction related costs 4,000,000
Income tax benefit (10,375,000)
------------
Loss on disposal from discontinued operations $ 26,221,000
============
Assets of the discontinued footwear businesses, which have been classified
as net assets of discontinued operations held for sale in the consolidated
balance sheet at October 28, 2000, are detailed below. Trade receivables
from footwear department licensors totaling $10.0 million at October 28,
2000 are excluded from the footwear assets being sold. They are included in
the balance sheet as trade accounts receivable.
Merchandise inventories $ 101,581,066
Net property, plant and equipment 11,419,249
Prepaid expenses and other assets 648,939
Expected loss on disposal of assets (25,145,000)
------------
Net assets of discontinued operations held for sale $ 88,504,254
============
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 128
retail stores in the United States and the Repp Ltd. By Mail catalogs and
e-commerce business, was $27.0 million.
6] 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. The
Company financed the SCOA acquisition with cash and borrowings available
under its revolving credit agreement. 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
===========
The licensed footwear departments acquired from SCOA are to be sold as part
of the transaction described in note 4.
7] In August 2000, the Company amended its credit agreement with a group of
lenders led by Fleet Retail Finance (formerly known 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.
8] Certain reclassifications have been made to the consolidated financial
statements of the prior year to conform to the fiscal 2001 presentation.
<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"
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
"OUTLOOK: IMPORTANT FACTORS AND UNCERTAINTIES" FOUND ON PAGE 13 OF THIS
QUARTERLY REPORT.
All references herein to fiscal 2001 and 2000 relate to the years ending
February 3, 2001 and January 29, 2000, respectively.
Results of Operations
---------------------
First Nine Months of Fiscal 2001 versus First Nine Months of Fiscal 2000
The Company's net sales in its continuing apparel operations increased by
$46.9 million to $318.3 million in the first nine months of fiscal 2001 from
$271.4 million in the first nine months of fiscal 2000, primarily due to a $34.4
million increase in sales generated by the Repp Ltd. Big & Tall stores, the Repp
Ltd. By Mail catalog business and the Repp Ltd. e-commerce business, which were
acquired by the Company on May 23, 1999, coupled with a 4.4% 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, as well as comparisons of weekly sales
volume in Repp Ltd. Big & Tall stores which were open in corresponding weeks,
beginning in September, of the two comparison periods) and an increase in the
average number of stores in operation during the first nine months of fiscal
2001 as compared to the first nine months of fiscal 2000.
The Company's cost of sales constituted 50.5% of sales in the first nine
months of fiscal 2001, as compared to 50.7% of sales in the first nine months of
fiscal 2000. The decrease in such percentage was primarily due to a higher
initial markup on merchandise purchases, partially offset by higher markdowns as
a percentage of sales.
Selling, administrative and general expenses increased $18.8 million, or
16.8%, to $131.1 million in the first nine months of fiscal 2001 from $112.3
million in the first nine months of fiscal 2000, primarily due to the
acquisition of the Repp businesses. As a percentage of sales, selling,
administrative and general expenses were 41.2% of sales in the first nine months
of fiscal 2001, as compared to 41.4% of sales in the first nine months of fiscal
2000. This decrease was primarily due to the increase in comparable apparel
store sales.
Depreciation and amortization expense increased by $606,000 to $8.7 million
in the first nine months of fiscal 2001 from $8.1 million in the first nine
months of fiscal 2000, due to an increase in depreciable and amortizable assets.
As a result of the above, the Company's operating income increased by $4.2
million to $17.7 million in the first nine months of fiscal 2001 from $13.5
million in the first nine months of fiscal 2000. As a percentage of sales,
operating income was 5.6% in the first nine months of fiscal 2001 as compared to
5.0% in the first nine months of fiscal 2000.
Net interest expense increased by $2.6 million to $9.7 million in the first
nine months of fiscal 2001 from $7.1 million in the first nine months of fiscal
2000, primarily due to higher interest rates on bank borrowings and higher
average levels of bank borrowings in the first nine months of fiscal 2001 versus
the first nine months of fiscal 2000, both of which resulted primarily from the
Company's increased borrowing needs associated with the acquisition of the Repp
businesses.
Taxes on earnings for the first nine months of fiscal 2001 were $2.9
million, yielding an effective tax rate of 36.0%, as compared to taxes on
earnings of $2.3 million for the first nine months of fiscal 2000, yielding an
effective tax rate of 36.0%.
Earnings from continuing operations for the first nine months of fiscal
2001 were $5.1 million, as compared to earnings from continuing operations of
$4.1 million in the first nine months of fiscal 2000, an increase of 24.6%.
In November 2000, the Company announced it had entered into an agreement
with an affiliate of Footstar, Inc. to sell substantially all of the assets of
its JBI, Inc. and Morse Shoe, Inc. subsidiaries, which are the entities that
comprise its footwear segment, in a transaction expected to yield approximately
$60 million. Accordingly, the operating results and the effect of the pending
sale of the footwear operations are reflected as discontinued operations. See
note 4.
Earnings from discontinued operations, net of income tax expense, for the
first nine months ended October 28, 2000 were $1.0 million, which reflected six
months of operations, as compared to $1.7 million for the first nine months
ended October 30, 1999.
For the nine months ended October 28, 2000 the Company recorded a loss from
discontinued operations, net of income tax benefit, of $26.2 million, which
includes the estimated loss on the sale of assets, severance, employee benefit
costs and transaction related costs. For additional information, see note 4.
Net loss for the first nine months of fiscal 2001 was $20.1 million, as
compared to net earnings for the first nine months of fiscal 2000 of $5.8
million.
Third Quarter of Fiscal 2001 versus Third Quarter of Fiscal 2000
The Company's net sales in its continuing apparel operations increased by
$4.9 million to $104.4 million in the third quarter of fiscal 2001 from $99.5
million in the third quarter of fiscal 2000, primarily due to a 1.9% increase in
comparable apparel store sales and an increase in the average number of stores
in operation during the third quarter of fiscal 2001 as compared to the third
quarter of fiscal 2000.
The Company's cost of sales constituted 50.4% of sales in the third quarter
of fiscal 2001, as compared to 49.9% of sales in the third quarter of fiscal
2000. The increase in such percentage was primarily due to higher markdowns as a
percentage of sales and higher buying and warehousing costs as a percentage of
sales, partially offset by a higher initial markup on merchandise purchases.
Selling, administrative and general expenses increased $1.3 million, or
3.1%, to $43.6 million in the third quarter of fiscal 2001 from $42.3 million in
the third quarter of fiscal 2000. As a percentage of sales, selling,
administrative and general expenses were 41.8% of sales in the third quarter of
fiscal 2001, as compared to 42.5% of sales in the third quarter of fiscal 2000.
This decrease was primarily due to the increase in comparable apparel store
sales and lower store level expenses as a percentage of sales, primarily due to
greater operating efficiencies in the Company's Repp chain.
Depreciation and amortization expense decreased by $54,000 to $3.0 million
in the third quarter of fiscal 2001 from $3.1 million in the third quarter of
fiscal 2000.
As a result of the above, the Company's operating income increased by
$752,000 to $5.2 million in the third quarter of fiscal 2001 from $4.4 million
in the third quarter of fiscal 2000. As a percentage of sales, operating income
was 4.9% in the third quarter of fiscal 2001, as compared to 4.4% in the third
quarter of fiscal 2000.
Net interest expense increased by $603,000 to $3.4 million in the third
quarter of fiscal 2001 from $2.8 million in the third quarter of fiscal 2000,
primarily due to higher interest rates on bank borrowings and higher average
levels of bank borrowings in the third quarter of fiscal 2001 versus the third
quarter of fiscal 2000, both of which resulted from the Company's increased
borrowing needs associated with the acquisition of the Repp businesses.
Taxes on earnings for the third quarter of fiscal 2001 were $627,000,
yielding an effective tax rate of 36.1%, as compared to taxes on earnings of
$571,000 for the third quarter of fiscal 2000, yielding an effective tax rate of
35.9%.
Earnings from continuing operations for the third quarter of fiscal 2001
were $1.1 million, as compared to earnings from continuing operations of $1.0
million in the third quarter of fiscal 2000, an increase of 9.1%.
In November 2000, the Company announced it had entered into an agreement
with an affiliate of Footstar, Inc. to sell substantially all of the assets of
its JBI, Inc. and Morse Shoe, Inc. subsidiaries, which are the entities that
comprise its footwear segment, in a transaction expected to yield approximately
$60 million. Accordingly, the operating results and the effect of the pending
sale of the footwear operations are reflected as discontinued operations. See
note 4.
Earnings from discontinued operations, net of income tax expense, for the
third quarter of fiscal 2000 were $410,000. The results of operations of the
Company's discontinued footwear businesses for the third quarter of fiscal 2001
are included in the loss on disposal of continued operations.
For the quarter ended October 28, 2000 the Company recorded a loss from
discontinued operations, net of income tax benefit, of $26.2 million, which
includes the estimated loss on the sale of assets, severance, employee benefit
costs and transaction related costs. For additional information, see note 4.
Net loss for the third quarter of fiscal 2001 was $25.1 million, as
compared to net earnings for the third quarter of fiscal 2000 of $1.4 million.
Financial Condition
-------------------
October 28, 2000 versus January 29, 2000
The increase in accounts receivable at October 28, 2000 from January 29,
2000 was primarily due to an increase in trade receivables from footwear
department licensors (which have been excluded from net assets of discontinued
operations held for sale), reflecting higher sales in October than in January.
The increase in prepaid expenses at October 28, 2000 from January 29, 2000
is substantially comparable to the seasonal increase in prepaid expenses at
October 30, 1999 from January 30, 1999.
The decrease in merchandise inventories at October 28, 2000 from January
29, 2000 was primarily due to the reclassification of the merchandise
inventories in the Company's discontinued footwear operations to net assets of
discontinued operations held for sale. The decrease was partially offset by a
seasonal increase in the average inventory level per location in the Company's
continuing apparel operations. The ratio of accounts payable to merchandise
inventories was 41.6% at October 28, 2000 as compared to 40.7% at January 29,
2000.
Net assets of discontinued operations held for sale at October 28, 2000
represents the merchandise inventories, prepaid expenses, property and equipment
and intangible assets in the Company's discontinued footwear operations.
The increase in accrued expenses at October 28, 2000 from January 29, 2000
is primarily due to the recording of accruals for the estimated costs associated
with the disposal of the Company's discontinued footwear operations.
The increase in long-term debt, net of current portion, at October 28, 2000
from January 29, 2000 was primarily due to additional 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, as amended, 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 October 28,
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 October 28, 2000, the Company had aggregate borrowings outstanding
under the Revolver totaling $148.4 million, consisting of loans and obligations
under letters of credit.
Net cash used in continuing operations for the first nine months of fiscal
2001 was $48.0 million, as compared to net cash provided by continuing
operations of $1.0 million in the first nine months of fiscal 2000. The $49.0
million change was primarily due to a larger increase in expenditures for
merchandise inventories in the first nine months of fiscal 2001 versus the first
nine months of fiscal 2000, primarily in the Company's Casual Male business,
coupled with a decrease in accounts payable and accrued expenses in the first
nine months of fiscal 2001 versus an increase in accounts payable and accrued
expenses in the first nine months of fiscal 2000.
Net cash used in discontinued operations for the first nine months of
fiscal 2001 was $4.9 million, as compared to net cash used in discontinued
operations of $12.7 million for the first nine months of fiscal 2000. The $7.8
million change was primarily due to changes in the operating assets and
liabilities of the discontinued footwear operations in the first nine months of
fiscal 2001 versus the first nine months of fiscal 2000.
Net cash used in investing activities for the first nine months of fiscal
2001 was $30.9 million, as compared to net cash used in investing activities of
$38.5 million in the first nine months of fiscal 2000. The $7.6 million change
was primarily due to the acquisition of the Repp businesses in May 1999,
partially offset by additional capital expenditures during the first nine months
of fiscal 2001 versus the first nine 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 nine months of
fiscal 2001 was $80.0 million, as compared to net cash provided by financing
activities of $48.6 million in the first nine months of fiscal 2000. The $31.4
million change was primarily due to the net borrowing of $83.6 million under the
Company's revolving lines of credit during the first nine months of fiscal 2001
versus the net borrowing of $42.1 million during the first nine 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 nine 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 $16.0 million in capital expenditures during the first nine months of
fiscal 2001. Excluding furniture, fixtures, equipment and leasehold improvements
of $3.0 million acquired with the Repp businesses, the Company invested $9.6
million in capital expenditures during the first nine months of fiscal 2000. The
Company's capital expenditures have generally related 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
in the Company's continuing apparel operations for fiscal 2001:
<TABLE>
Actual Openings Planned Openings Total
First through Third Fourth Actual/Planned
Division Quarters Fiscal 2001 Quarter Fiscal 2001 Openings
-------- -------------------- ------------------- --------
<S> <C> <C> <C>
Casual Male 21 2 23
Repp Ltd. Big &Tall 4 0 4
Work 'n Gear 5 0 5
</TABLE>
Offsetting the above actual and planned store openings, the Company closed
three Casual Male stores and two Repp Ltd. Big & Tall stores during the first
nine months of fiscal 2001. The Company plans to close one additional Casual
Male store and four Repp Ltd. Big & Tall stores during the fourth quarter 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 19 departments operated by the Company beginning in the third quarter of
fiscal 2001 pursuant to this arrangement are not included in the Work 'n Gear
actual 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 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 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 foreign vendors,
dependence on fashion and trends, the availability of appropriate real estate
transactions, 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 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) The Exhibits in the Exhibit Index are filed as part of this report.
(b) No reports on Form 8-K were filed by the Registrant during the quarter for
which this report is filed.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
J. BAKER, INC.
By:/s/Alan I. Weinstein
-----------------------
Alan I. Weinstein
President and Chief Executive Officer
Date: Canton, Massachusetts
December 12, 2000
By:/s/Elizabeth C. White
------------------------
Elizabeth C. White
Executive Vice President, Chief Financial
Officer and Treasurer
Date: Canton, Massachusetts
December 12, 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 October 28, 2000
<PAGE>
EXHIBIT INDEX
<TABLE>
<S> <C>
Exhibit Page No.
------- --------
10. Material Contracts
------------------
[.01] Asset Purchase Agreement dated as of November 16, 2000 by and among *
Footstar Corporation, J. Baker, Inc., JBI, Inc. and Morse Shoe, Inc. (attached hereto).
[.02] Third 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, Inc.), et al,
and Back Bay Capital Funding LLC, dated November 15, 2000, (attached hereto).
[.03] First Amendment to 1999 Master Security Agreement by and among BankBoston *
Leasing, Inc. and General Electric Capital Corporation, CIT Group, Inc. and
Andover Capital Group, Inc. and Morse Shoe, Inc., JBI Inc., The Casual Male, Inc.,
WGS Corp. and TCMB&T, Inc. dated November 16, 2000, (attached hereto).
11. Computation of Net Earnings Per Common Share, attached. *
------------------------------------------------------
27. Financial Data Schedules
------------------------
[.1] Financial Data Schedule - October 28, 2000 **
[.2] Restated Financial Data Schedule - October 30, 1999 **
</TABLE>
* Included herein
** These exhibits have 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 and are not included herein.
