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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 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, 1995
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 0-15934
JAY JACOBS, INC.
(Exact name of registrant as specified in its charter)
Washington 91-0698077
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification Number)
1530 Fifth Avenue, Seattle, Washington 98101
(Address of Principal Executive Offices) (Zip code)
Registrant's telephone number,
including area code: (206) 622-5400
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of July 29, 1995
(Common Stock, 6,007,283 shares.)
Page 1 of 12 pages
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
JAY JACOBS, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
Consolidated Balance Sheet
(Dollar amounts in thousands)
(Unaudited)
<TABLE>
<CAPTION>
July 29, January 28,
Assets 1995 1995
------ -------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 5,017 $ 8,745
Accounts receivable 670 414
Refundable income taxes 0 0
Inventories 9,374 8,385
Prepaid expenses 810 354
------- -------
Total current assets 15,871 17,898
------- -------
Property and equipment, net 5,435 6,244
------- -------
$21,306 $24,142
------- -------
------- -------
Liabilities and Shareholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 4,256 $ 2,407
Accrued payroll 544 697
Accrued restructuring expenses 0 267
Other accrued expenses 715 741
------- -------
Total current liabilities 5,515 4,112
------- -------
Non current liabilities 0 0
Deferred rental credits 1,139 1,318
------- -------
Liabilities subject to compromise
and accrued restructuring expenses 11,236 12,718
------- -------
Shareholders' equity:
Preferred stock:
Authorized - 5,000,000 shares; Issued and
outstanding - none - -
Common stock:
Authorized - 20,000,000 shares; Issued and
outstanding - 6,007,283 and 5,907,283
shares 12,768 12,769
Retained earnings (9,352) (6,775)
------- -------
3,416 5,994
------- -------
$21,306 $24,142
------- -------
------- -------
</TABLE>
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PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
Consolidated Statement of Operations
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three months ended Six months ended
July July
------------------ ------------------
1995 1994 1995 1994
-------- ------- ------- -------
<S> <C> <C> <C> <C>
Net sales $18,799 $26,753 $35,904 $52,721
-------- ------- ------- -------
Operating costs and expenses:
Cost of sales, buying and
occupancy costs 14,300 22,054 28,246 42,494
Selling, general and
administrative expenses 5,178 7,547 10,393 15,611
Interest and other income, net (90) (12) (158) (24)
-------- ------- ------- -------
Net operating expenses 19,388 29,589 38,481 58,081
-------- ------- ------- -------
Income (loss) before reorganization
items and income taxes (589) (2,836) (2,577) (5,360)
Reorganization items - 3,957 - 3,942
Income tax provision (benefit) - - - (239)
-------- ------- ------- -------
Net income (loss) $ (589) $(6,793) $(2,577) $(9,063)
-------- ------- ------- -------
-------- ------- ------- -------
Earnings (loss) per share $ (0.10) $(1.15) $ (0.43) $ (1.53)
-------- ------- ------- -------
-------- ------- ------- -------
Weighted average number of
shares outstanding 6,007 5,907 6,007 5,907
-------- ------- ------- -------
-------- ------- ------- -------
</TABLE>
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PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Six months ended
July 29 July 30
--------------------
1995 1994
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(2,577) $(9,063)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 760 1,138
Non-cash restructuring items 189 2,016
Change in deferred rents (179) (134)
Change in assets and liabilities:
Accounts receivable (256) 358
Refundable income taxes - 1,590
Inventories (989) 869
Prepaid expenses and other (456) (402)
Accounts payable 1,848 (3,583)
Accrued payroll (153) (94)
Other accrued expenses (293) (357)
Obligations subject to compromise (1,482) 9,458
------- -------
(3,588) 1,796
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in property and equipment (140) (52)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES: 0 24
------- -------
Net change in cash and cash equivalents (3,728) 1,768
Cash and cash equivalents - beginning of period 8,745 3,904
------- -------
Cash and cash equivalents - end of period $ 5,017 $ 5,672
------- -------
------- -------
</TABLE>
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JAY JACOBS, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
Note 1. Financial Presentation:
On May 13, 1994 (the "Petition Date"), the Company filed a voluntary
petition for relief under Chapter 11 ("Chapter 11") of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Western District
of Washington (the "Bankruptcy Court"). Under the protection of Chapter 11,
the Company is managing its affairs and operating its business as a debtor-in-
possession while it develops a Plan of Reorganization.
The consolidated financial statements have been prepared using
accounting principles applicable to a going concern, which assumes
realization of assets and settlement of liabilities in the normal course of
business. The appropriateness of using the going concern basis is dependent
upon, among other things, confirmation of a Plan of Reorganization, future
profitable operations, the ability to comply with debtor-in-possession
financing agreements and the ability to generate sufficient cash from
operations to meet obligations.
Under the provisions of the Bankruptcy Code, actions to enforce certain
claims against the Company are stayed if such claims arose, or are based on
events that occurred, before the Petition Date. The ultimate settlement of
these liabilities will be determined based upon a Plan of Reorganization to be
confirmed by the Bankruptcy Court. On June 23, 1995 the Bankruptcy Court
approved the Company's request for an extension to the exclusivity period
through September 30, 1995. The Company expects to file a Plan of
Reorganization by the end of the exclusivity period.
The attached unaudited condensed consolidated financial statements have
been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. As a result, certain information and footnote disclosures
normally included in financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted. The Company
believes that the disclosures made are adequate to make the information not
misleading and that the information furnished reflects all material adjustments
which are, in the opinion of management, necessary to present fairly its
results for the interim periods reported and that all such adjustments are of a
normal recurring nature. The consolidated financial statements should be read
in conjunction with the financial statements and related notes included in the
Company's Form 10-K as filed with the Securities and Exchange Commission on May
15, 1995, as amended May 22, 1995.
Note 2. Earnings (Loss) Per Share
Earnings (loss) per share is based on the weighted average number of
shares outstanding during the quarter as adjusted to take into account the
effect of outstanding options to purchase common stock unless the effect of
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including such options is anti-dilutive. The effect of the outstanding options
is computed using the treasury stock method. The weighted average number of
shares and equivalents outstanding were 6,007,000 and 5,907,000 for the periods
ended July 29, 1995 and July 30, 1994, respectively.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
GENERAL
All references herein to fiscal 1995 and 1994 relate to the eleven
months ended January 28, 1995 and twelve months ended February 26, 1994,
respectively. References to second quarter 1996 and 1995 relate to the three
months ended July 29, 1995 and July 30, 1994, respectively. The Company made
the decision, during fiscal 1995, to change its fiscal year to end on the last
Saturday in January, as opposed to the last Saturday in February, as with past
fiscal years. This change was made to align the Company's fiscal calendar to
the seasonal patterns that it experiences, as well as to enhance comparability
of its fiscal quarter and year end results with similar retail companies in its
industry segment. Second quarter 1995 has been re-stated to include the three
months ended July 30, 1994 for comparability to second quarter 1996.
SEASONALITY
The Company's business is seasonal. During fiscal year 1994 and earlier
fiscal years, fall and "back to school" shopping by the Company's customers,
generally have resulted in the largest sales in the second quarter ending in
late August. Sales also historically have been greater in the holiday season,
but earnings in the fourth quarter were adversely affected by markdowns of
unsold holiday merchandise and generally lower sales in January and February.
The Company changed its fiscal year ending date as of the end of fiscal
1995 and as a result expects the seasonal pattern mentioned in the prior
paragraph to change. The Company expects the fourth quarter ending late January
to generate the largest sales and earnings followed by its third quarter ending
in late October.
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RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain
consolidated financial data as a percentage of net sales:
<TABLE>
<CAPTION>
Percentage of net sales
-----------------------
Three months ended Six months ended
July July July July
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales, buying and
occupancy costs 76.1 82.4 78.7 80.6
Selling, general and
administrative expenses 27.5 28.2 28.9 29.6
Interest and other income (0.5) - (0.4) -
Reorganization items - 14.8 - 7.5
Income tax benefit - - - 0.5
------ ------ ------ ------
Net loss (3.1)% (25.4)% (7.2)% (17.2)%
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
QUARTER ENDED JULY 29, 1995 COMPARED TO QUARTER ENDED JULY 30, 1994
Net sales decreased by $8.0 million, or 30%, in the quarter ended July
29, 1995 as compared to the same period in 1994. This decrease was primarily
due to store closures. During the second quarter the Company closed twelve
stores. The Company operated 94 fewer stores at the beginning of the second
quarter of 1996 (162) than it did at the beginning of the first quarter of 1995
(256). In addition to store closures the Company attributes a portion of the
sales decline to a 1% decrease in comparable store sales. Comparable store
sales declined as a result of a generally soft demand for apparel merchandise
during the second quarter.
Cost of sales, buying and occupancy costs decreased as a percentage of
net sales by 6.3%, due primarily to a decrease in cost of goods sold and
reduced occupancy costs resulting from lease rejections and renegotiations.
Selling, general and administrative expenses decreased as a percentage
of net sales by 0.7%, primarily because of general corporate expense downsizing
and cost constraint measures that have been implemented.
Interest and other income increased from 0.0% of sales in first quarter
1995 to 0.5% of sales in first quarter 1996 as a result of an increase in cash
available for investment.
The Company incurred a loss of $0.6 million in the second quarter of
fiscal year 1996, ($0.10 per share) down from $6.8 million in the second
quarter of fiscal year 1995, ($1.15 per share). The loss can be attributed to
a 1% decrease in comparable store sales and an increase in cost of goods sold,
partially offset by a reduction in SG & A expenses. The above factors resulted
in a significant reduction in the operating loss compared the second quarter
ended July 30, 1994.
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The Company is in the process of changing its merchandise strategy as
part of its plan for emerging from Chapter 11. The new merchandising strategy
emphasizes depth of certain key items which can be coordinated via a seasonal
color assortment, complemented by novelty items and accessories that enable
customers to purchase complete outfits. These assortments will be developed by
the new merchandising team to enhance the quality, value, and style exclusivity
of the Company's merchandise. The marketing strategy will focus on increasing
the Company's market share through additional use of timely promotions,
improved visual merchandise presentations, establishment of target customer
research, and a store modernization program.
SIX MONTHS ENDED JULY 29, 1995 COMPARED TO SIX MONTHS ENDED JULY 30, 1994
Net sales decreased $16.8 million, or 31.9% in the six months ended
July 29, 1995 as compared to the same period in 1994. This decrease was
primarily due to store closures. The Company operated 84 fewer stores at the
beginning of the period than it did one year earlier. In addition to the store
closures, the Company attributes a portion of the sales decline to a 5%
decrease in comparable store sales. Comparable store sales declined as a result
of a generally soft demand for apparel merchandise during the six months.
Cost of sales, buying and occupancy costs decreased as a percentage of
net sales by 1.9%, due primarily to a decrease in cost of goods sold.
Selling, general and administrative expenses as a percentage of net
sales by 0.7%, primarily due to general corporate downsizing and cost control
measures that have been implemented.
Interest and other income increased from 0.0% of sales to 0.4% of
sales during the six months ended July 29, 1995, as a result of an increase in
cash available for investment. The Company incurred a loss of $2.6 million
during the six months ended July 29, 1995. The loss is 7.2% of sales, or $0.43
per share, compared to a loss of 17.2% of sales, or $1.53 per share one year
earlier. The loss resulted from a 5% decrease in comparable store sales offset
by reductions in cost of goods sold and SG & A expenses.
LIQUIDITY AND CAPITAL RESOURCES
CHAPTER 11 FILING
Under Chapter 11, actions to enforce certain claims against the Company
are stayed if the claims arose, or are based on, events that occurred on or
before the Petition Date. The ultimate terms of settlement of these claims
will be determined in accordance with a Plan of Reorganization which requires
approval of the impaired prepetition creditors and confirmation by the
Bankruptcy Court. Other liabilities may arise or be subject to compromise as a
result of rejection of executory contracts, including leases, or the Bankruptcy
Court's resolution of claims for contingencies and other disputed amounts. The
ultimate resolution of such liabilities, all of which are subject to
compromise, will be part of the Plan of Reorganization. There is no assurance
at this time that a Plan of Reorganization, when filed, will be approved or
confirmed by the Bankruptcy Court.
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Inherent in a successful Plan of Reorganization is a capital structure
that permits the Company to generate sufficient cash flow after reorganization
to meet its restructured obligations and fund the current obligations of the
reorganized Company. Under the Bankruptcy Code, the rights of and ultimate
payment to prepetition creditors may be substantially altered and, as to some
classes, eliminated. At this time, it is not possible to predict the outcome
of the Chapter 11 filing, in general, or its effects on the business of the
Company or on the interests of creditors or shareholders.
Subsequent to the Chapter 11 filing, the Company reached an agreement
with C.I.T. Group/Business Credit, Inc. to provide debtor-in-possession
financing in the form of a $10,000,000 credit facility (The "DIP Facility").
The DIP Facility was approved by the Bankruptcy Court in September, 1994. The
DIP Facility provides for cash borrowing and/or the issuance of letters of
credit which in the aggregate cannot exceed the lower of a "borrowing base" or
$10,000,000. Letters of credit are limited to a maximum of $5,000,000 under
the agreement. The DIP Facility also grants security interest in certain of the
Company's cash accounts. In addition, the obligations outstanding under this
agreement are deemed administrative obligations. Advances under the facility
bear interest at the Bank's prime rate plus 1 and 1/2%. The DIP Facility calls
for a facility fee of $150,000, and an annual agent fee of $50,000, an unused
line fee of 0.5% per annum and a letter of credit fee of 1.75% per annum.
As of July 29, 1995, the Company had not used the direct borrowing
capacity on the DIP Facility. There were $100,000 of letters of credit
outstanding at July 29,1995. The DIP Facility will terminate on the earlier of
September, 1996 or the date of consummation of a Plan of Reorganization,
whichever comes first.
With Court approval, the Company entered into a preliminary financing
agreement with LaSalle National Bank on July 28, 1995. The Company has made a
$50,000 good faith deposit with LaSalle. The LaSalle facility will provide cash
borrowing and letters of credit, the aggregate of which cannot exceed the lower
of $10,000,000 or a computed "borrowing base". Letters of credit will be
limited to a maximum of $5,000,000. A first and only lien would be granted to
LaSalle on all company assets (excluding capitalized leases and permitted
liens). Interest will be charged at LaSalle's announced prime rate. The Company
will be charged an annual fee of 1% of the aggregate loan limit, normal audit
fees, and a letter of credit fee of 1 1/4% per annum. The agreement is for 3
years and will take effect no later than confirmation of the Reorganization
Plan pending LaSalle's due diligence and approval by the creditors.
GENERAL
The Company's principal needs for liquidity are to finance the
purchase of merchandise inventories, fund its operations and pay professional
and administrative fees in connection with its reorganization.
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Net cash provided by (used for) operations for first half 1996 and
first half 1995 was ($3.6) million and $1.8 million, respectively. The use of
cash resulted from operating losses during the period and payments to
certain creditors pursuant to orders by the Bankruptcy Court. Accounts payable
increased in the first half of fiscal year 1996 as a result of re-establishing
credit terms with vendors and factors previously restricted before the Chapter
11 filing.
Property and equipment expenditures were $140,000 and $52,000 in the
first two quarters of fiscal year 1996 and fiscal year 1995, respectively. The
expenditures in the first half of fiscal year 1996 were minor in nature and
primarily represent remodels of existing stores. The Company plans to spend
$600,000 in Capital Expenditures during fiscal year 1996 which include 10 new
store openings.
The Company had working capital of $10,356,000 at July 29, 1995
compared to $15,811,000 at July 30, 1994. The decrease in working capital is
attributable to operating losses, store closures and Bankruptcy Court approved
payments to creditors.
At July 29, 1995 the Company had available $5,017,000 in cash and cash
equivalents. The Company, in addition, had approximately $5,000,000 of
potential liquidity under terms of its DIP Facility.
The Company expects to use its available cash resources, temporary
relief from prepetition liabilities, cash flow from operations and DIP Facility
to fund its needs for liquidity during the pendency of the Chapter 11
proceedings. The amount of available capital resources combined with cash flow
from operations should enable the Company to meet its anticipated working
capital for the next twelve months.
Although the Company cannot currently predict the ultimate resolution
of the current bankruptcy proceedings, any Plan of Reorganization approved by
the Court likely will require significant amounts of the Company's cash to pay
liabilities subject to compromise and other liabilities.
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PART II. OTHER INFORMATION
Item 1. LEGAL PROCEEDINGS
On May 13, 1994, the Company filed a voluntary petition for relief
under Chapter 11 of the Federal Bankruptcy Code in the United States Bankruptcy
Court for the Western District of Washington (Chapter 11 Case No. 94-03993).
Item 2. CHANGES IN RIGHTS OF SECURITY HOLDERS
None
Item 3. DEFAULTS UPON SENIOR SECURITIES
None
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
Item 5. OTHER INFORMATION
None
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None.
(b) Reports on Form 8-K
Report regarding change in fiscal year end filed February 7, 1995.
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SIGNATURES
Pursuant to requirements 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.
JAY JACOBS, INC.
September 8, 1995
/s/ William L. Lawrence
--------------------------------------------------------------
William L. Lawrence, Jr., Senior Vice President-Chief Financial
Officer and Treasurer
(Principal Financial and Accounting Officer)
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<TABLE> <S> <C>
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<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM JAY JACOBS,
INC. CONSOLIDATED STATEMENT OF OPERATIONS SECOND QUARTER OF FISCAL YEAR ENDING
JANUARY 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> JUL-29-1995
<CASH> 5,017
<SECURITIES> 0
<RECEIVABLES> 670
<ALLOWANCES> 0
<INVENTORY> 9,374
<CURRENT-ASSETS> 15,871
<PP&E> 25,922
<DEPRECIATION> (20,487)
<TOTAL-ASSETS> 21,306
<CURRENT-LIABILITIES> 5,515
<BONDS> 0
<COMMON> 12,768
0
0
<OTHER-SE> (9,352)
<TOTAL-LIABILITY-AND-EQUITY> 21,306
<SALES> 18,799
<TOTAL-REVENUES> 18,799
<CGS> 11,057
<TOTAL-COSTS> 6,289
<OTHER-EXPENSES> 2,042
<LOSS-PROVISION> 347
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (589)
<INCOME-TAX> 0
<INCOME-CONTINUING> (589)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (589)
<EPS-PRIMARY> ($0.10)
<EPS-DILUTED> ($0.10)
</TABLE>
