<PAGE>
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 October 28, 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 October 28, 1995
(Common Stock, $.01 par value, 6,007,283 shares.)
-1-
<PAGE>
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>
October 28, January 28,
ASSETS 1995 1995
----------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,098 $ 8,745
Accounts receivable 555 414
Refundable income taxes 0 0
Inventories 12,042 8,385
Prepaid expenses 620 354
-------- ------
Total current assets 14,315 17,898
-------- ------
Property and equipment, net 5,441 6,244
-------- ------
$19,756 $24,142
-------- ------
-------- ------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 5,440 $ 2,407
Accrued payroll 305 697
Accrued restructuring expenses 0 267
Other accrued expenses 797 741
-------- ------
Total current liabilities 6,542 4,112
-------- ------
Deferred rental credits 1,063 1,318
-------- ------
Liabilities subject to compromise
and accrued restructuring expenses 9,229 12,718
-------- ------
Shareholders' equity:
Preferred stock: 0 0
Authorized - 5,000,000 shares; Issued and
outstanding - none
Common stock: 12,768 12,769
Authorized - 20,000,000 shares; Issued and
outstanding - 6,007,283 and 5,907,283
shares
Retained earnings (9,846) (6,775)
-------- ------
2,922 5,994
-------- ------
$19,756 $24,142
-------- ------
-------- ------
</TABLE>
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<PAGE>
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 Nine months ended
October October
------------------- -----------------
1995 1994 1995 1994
------ ------ ------ ------
<S> <C> <C> <C> <C>
Net sales $18,357 $21,861 $ 54,261 $ 74,582
------ ------ ------ ------
Operating costs and expenses:
Cost of sales, buying and
occupancy costs 13,599 16,032 41,845 58,526
Selling, general and
administrative expenses 5,327 7,291 15,720 22,902
Interest and other income, net (74) (100) (232) (124)
------ ------ ------ ------
Net operating expenses 18,852 23,223 57,333 81,304
------ ------ ------ ------
Income (loss) before reorganization
items and income taxes (495) (1,362) (3,072) (6,722)
Reorganization items 0 3,640 0 7,582
Income tax provision (benefit) 0 0 0 (239)
------ ------ ------ ------
Net income (loss) (495) (5,002) (3,072) (14,065)
------ ------ ------ ------
------ ------ ------ ------
Earnings (loss) per share $(0.08) $(0.85) $(0.51) $(2.38)
------ ------ ------ ------
------ ------ ------ ------
Weighted average number of
shares outstanding 6,007 5,907 6,007 5,907
------ ------ ------ ------
------ ------ ------ ------
</TABLE>
-3-
<PAGE>
PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
Consolidated Statement of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine months ended
October
--------------------
1995 1994
------- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(3,072) $(14,065)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,050 1,594
Non-cash restructuring items 313 5,430
Change in deferred rents (255) (250)
Change in assets and liabilities:
Accounts receivable (141) (937)
Inventories (3,657) 479
Prepaid expenses and other (266) (334)
Accounts payable 3,033 (800)
Accrued payroll (392) (344)
Other accrued expenses (211) (382)
Obligations subject to compromise (3,489) 9,447
Refundable income taxes 0 1,549
------- ------
(7,087) 1,387
------- ------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net increase in property and equipment (560) (71)
------- ------
CASH FLOWS FROM FINANCING ACTIVITIES: 0 24
------- ------
Net change in cash and cash equivalents (7,647) (1,340)
Cash and cash equivalents - beginning of period 8,745 3,904
------- ------
Cash and cash equivalents - end of period $ 1,098 $ 5,244
------- ------
------- ------
</TABLE>
-4-
<PAGE>
PART I. FINANCIAL INFORMATION
JAY JACOBS, INC. AND SUBSIDIARIES
(Debtor-in-Possession)
Notes to Unaudited Consolidated Financial Statements
Note 1. Financial Presentation:
On May 13th, 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 managed its affairs and operated its
business as a debtor-in-possession while a Plan of Reorganization was
developed.
On October 16, 1995, the Bankruptcy Court entered an order
establishing procedures for the solicitation to approve the Company's First
Amended Plan of Reorganization ("First Amended Plan"), scheduling a
hearing for November 16, 1995, and approving the Company's Disclosure
Statement regarding the First Amended Plan. On November 16, 1995, the
Bankruptcy Court confirmed the Company's Second Amended Plan of
Reorganization (the "Second Amended Plan") subject to approval by the
Bankruptcy Court of post-confirmation financing acceptable to the Company
and the Unsecured Creditors Committee. On November 20, 1995, the
Bankruptcy Court approved a financing agreement between the Company and
LaSalle National Bank, and on November 28, 1995, the Company's Second
Amended Plan became effective. The details of the First Amended Plan and the
Second Amended Plan are set forth, respectively, in the Company's Current
Reports on Form 8-K dated October 16 and November 16, 1995.
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.
-5-
<PAGE>
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 including such options in 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 October 28, 1995 and October 27, 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 third quarter 1996 and 1995 relate
to the three months ended October 28, 1995 and October 27, 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. Third quarter and year to date 1995 have been re-stated to include
comparable periods to the current year.
RECENT DEVELOPMENTS
On October 16, 1995, the Bankruptcy Court entered an
order establishing procedures for the solicitation to approve the First
Amended Plan, scheduling a hearing for November 16, 1995, and
approving the Company's Disclosure Statement regarding the First Amended
Plan. On November 16, 1995, the Bankruptcy Court confirmed the Second
Amended Plan, subject to approval by the Bankruptcy Court of
post-confirmation financing acceptable to the Company and the Unsecured
Creditors Committee. On November 29, 1995, the Bankruptcy Court approved
a financing agreement between the Company and LaSalle National Bank
establishing a financing facility (the "LaSalle Facility") described
further under the caption "Liquidity and Capital Resources". On
November 28, 1995, the Company's Second Amended Plan became effective.
The details of the First Amended Plan and the Second Amended Plan are set
forth, respectively, in the Company's Current Reports on Form 8-K dated
October 16, 1995 and November 16, 1995.
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
-6-
<PAGE>
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.
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 Nine months ended
October October
----------------------------------------
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 74.1 73.3 77.1 78.5
Selling, general and
administrative expenses 29.0 33.4 29.0 30.7
Interest and other income (0.4) (0.5) (0.4) (0.2)
Reorganization items 16.7 10.2
Income tax benefit 0 0 0 (0.3)
------ ------ ----- ------
Net loss (2.7) (22.9)% (5.7)% (18.9)%
------ ------ ----- ------
------ ------ ----- ------
</TABLE>
QUARTER ENDED OCTOBER 28, 1995 COMPARED TO QUARTER ENDED OCTOBER 27, 1994
Net sales decreased by $3.5 million, or 16.0%, in the quarter
ended October 28, 1995 as compared to the same period in 1994. This
decrease was primarily due to store closures. During the third quarter
the Company closed 16 stores. The Company operated 87 fewer stores at the
beginning of the third quarter of 1996 (156) than it did at the beginning of
the third quarter of 1995 (243). There were five store openings during the
quarter. In addition to store closures the Company attributes a portion
of the sales decline to a 2.4% decrease in comparable store sales.
Cost of sales, buying and occupancy costs increased as a percentage
of net sales by 0.8%, primarily due to increased markdowns associated
with the Company's off-price division, Fashion Direction. As a result of
continued poor results, the Company will end operations of the off-price
division at the end of the current fiscal year.
Selling, general and administrative expenses decreased as a
percentage of net sales by 4.4%, primarily because of general corporate
expense downsizing and cost constraint measures that have been implemented.
-7-
<PAGE>
Interest and other income decreased from 0.5% of sales in third
quarter 1995 to 0.4% of sales in third quarter 1996 as a result of a slight
decrease in cash available for investment.
The Company incurred a loss of $0.5 million in the third quarter
of fiscal year 1996, ($0.08 per share) down from $5.0 million in the third
quarter of fiscal year 1995, ($0.85 per share). The loss can be
attributed to a 2.4% 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 with the same period in 1994, which included a
charge of $3.6 million (16.7% of sales) associated with the reorganization of
the Company.
The Company has implemented a new 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
are in the process of being developed by the new merchandising team to
enhance the quality, value, and style exclusivity of the Company's
merchandise. The marketing strategy focuses 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.
NINE MONTHS ENDED OCTOBER 28, 1995 COMPARED TO NINE MONTHS ENDED OCTOBER
27, 1994
Net sales decreased by $20.3 million, or 27.2%, in the nine
months ended October 28, 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 4.6% decrease in comparable store sales.
Comparable store sales declined as a result of a generally soft demand for
apparel merchandise during the nine months.
Cost of sales, buying and occupancy costs decreased as a percentage
of net sales by 1.4%, primarily due to a decrease in cost of goods sold.
Selling, general and administrative expenses decreased as a
percentage of net sales by 1.7%, primarily due to general corporate
downsizing and cost control measures that have been implemented.
Interest and other income increased from 0.2% of sales to 0.4%
of sales during the nine months ended October 28, 1995, as a result of an
increase in cash available for investment. The Company incurred a loss of
$3.1 million during the nine months ended October 28, 1995. The loss is
5.7% of sales, or $0.52 per share, compared to a loss of 18.9% of sales,
or $2.38 per share one year earlier. The loss resulted from a 4.6% decrease
in comparable store sales offset by reductions in cost of goods sold and SG &
A expenses.
-8-
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
CHAPTER 11 FILING
Under Chapter 11, actions to enforce certain claims against the
Company were stayed if the claims arose, or were based on, events that
occurred on or before the Petition Date. The ultimate terms of settlement
of these claims and other liabilities subject to compromise was determined
in accordance with the Second Amended Plan of Reorganization confirmed
by the Bankruptcy Court on November 16, 1995.
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.
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 provided for cash
borrowing and/or the issuance of letters of credit which in the aggregate
could not exceed the lower of a "borrowing base" or $10,000,000. Letters
of credit were limited to a maximum of $5,000,000 under the agreement. The
DIP Facility also granted security interest in certain of the Company's
cash accounts. In addition, the obligations outstanding under this
agreement were deemed administrative obligations. Advances under the
facility bore interest at the Bank's prime rate plus 1 and 1/2%. The
DIP Facility called 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 October 28, 1995, the Company had not used the direct
borrowing capacity on the DIP Facility. There were $477,000 of
letters of credit outstanding at October 28, 1995.
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. Under the
financing agreement approved by the Bankruptcy Court on November 20, 1995,
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 Bankruptcy
Court approved the agreement on November 20, 1995. The agreement has a
three year term and was signed on December 4, 1995.
-9-
<PAGE>
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.
Net cash provided by (used for) operations for the first nine months
of 1996 and the same period in 1995 was ($7.1) million and $1.4
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 nine months
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 $560,000 and $71,000 in
the first three quarters of fiscal year 1996 and fiscal year 1995,
respectively. The expenditures in fiscal year 1996 primarily represent new
store openings.
The Company had working capital of $7,773,000 at October 28,
1995 compared to $10,890,784 at October 27, 1994. The decrease in working
capital is attributable to operating losses, store closures and Bankruptcy
Court approved payments to creditors.
At October 28, 1995 the Company had available $1,098,000 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, cash
flow from operations, and LaSalle Banking Facility to fund its
needs for liquidity. 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.
-10-
<PAGE>
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).
On October 16, 1995, the Bankruptcy Court approved the
Company's Disclosure Statement regarding the First Amended Plan pursuant to
Section 1125 of the Bankruptcy Code, and the Company solicited approval of
the First Amended Plan by its creditors and shareholders.
On November 16, 1995, the Bankruptcy Court confirmed the Second
Amended Plan, which became effective on November 28, 1995.
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
A vote of creditors and shareholders on the First Amended Plan
resulted in the following:
SUMMARY OF REPORT OF BALLOTS
<TABLE>
<CAPTION>
Dollar Percentage Claimant Percentage
Creditor/Class Accepting Accepting
-------------- --------- ---------
<S> <C> <C>
Class 1: Priority Wage (Unimpaired) No Votes No Votes
Class 2: Secured Tax Claims 100.0% 100.0%
Class 3: Allowed Unsecured Claims 94.97% 92.83%
Class 4. Equity Security Interest/
Common Stock Holders
(Unimpaired) 99.95% N/A
Item 5. OTHER INFORMATION
None
</TABLE>
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<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
None --
(b) Reports on Form 8-K
Form 8-K dated October 16, 1995, reporting the Bankruptcy
Court's approval of the Company's Disclosure Statement regarding the First
Amended Plan pursuant to Section 1125 of the Bankruptcy Code for
solicitation of the Company's creditors and shareholders to approve the First
Amended Plan.
Form 8-K dated November 16, 1995, reporting the Bankruptcy
Court's confirmation of the Second Amended Plan.
-12-
<PAGE>
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.
December 11, 1995 /s/ William L. Lawrence, Jr.
------------------------------------------------------------
William L. Lawrence, Jr. Senior Vice President and Chief
Financial Officer
-13-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM
JAY JACOBS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
THIRD QUARTER FYE JANUARY 1996
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1996
<PERIOD-END> OCT-28-1995
<CASH> 1,098
<SECURITIES> 0
<RECEIVABLES> 555
<ALLOWANCES> 0
<INVENTORY> 12,042
<CURRENT-ASSETS> 620
<PP&E> 26,185
<DEPRECIATION> (20,744)
<TOTAL-ASSETS> 19,756
<CURRENT-LIABILITIES> 6,542
<BONDS> 0
<COMMON> 12,768
0
0
<OTHER-SE> (9,846)
<TOTAL-LIABILITY-AND-EQUITY> 19,756
<SALES> 18,357
<TOTAL-REVENUES> 18,357
<CGS> 10,585
<TOTAL-COSTS> 6,054
<OTHER-EXPENSES> 2,213
<LOSS-PROVISION> 415
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (495)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (495)
<EPS-PRIMARY> (0.08)
<EPS-DILUTED> (0.08)
</TABLE>
