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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2003
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OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
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Commission File Number 1-5863
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JACLYN, INC.
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(Exact name of registrant as specified in its charter)
Delaware 22-1432053
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(State or other jurisdiction of (I.R.S. Employer
Incorporation or organization) Identification No.)
635 59th Street, West New York, New Jersey 07093
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(Address of principal executive offices)
(Zip Code)
(201) 868-9400
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(Registrant's telephone number, including area code)
NONE
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all the 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 [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
Indicate the number of shares outstanding of each of the registrant's classes of
common stock, as of the latest practicable date.
Class Outstanding at February 1, 2004
- ------------------------------------ -------------------------------
Common Stock, par value $1 per share 2,553,191
JACLYN, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1
Condensed Consolidated Balance Sheets -
December 31, 2003 (unaudited) and June 30, 2003 (derived from
audited financial statements) 3
Condensed Consolidated Statements of Earnings -
Three and Six Months Ended December 31, 2003 and 2002 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Six Months
Ended December 31, 2003 and 2002 (unaudited) 5
Notes to Condensed Consolidated Unaudited Financial Statements 6
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 10
Item 3
Quantitative and Qualitative Disclosures about Market Risk 18
Item 4
Controls and Procedures 18
Part II. Other Information:
Item 2
Changes in Securities and Use of Proceeds 19
Item 4
Submission of Matters to a Vote of Security Holders 19
Item 6
Exhibits and Reports on Form 8-K 20
Signatures 20
-2-
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, June 30,
2003 2003
(Unaudited) (See below)
------------ ------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 83 $ 66
Accounts receivable, net 17,067 14,778
Inventory 12,598 9,665
Prepaid expenses and other current assets 2,766 2,967
------------ ------------
TOTAL CURRENT ASSETS 32,514 27,476
------------ ------------
PROPERTY PLANT AND EQUIPMENT, NET 1,065 1,147
GOODWILL 3,338 3,338
OTHER ASSETS 1,059 1,044
------------ ------------
TOTAL ASSETS $ 37,976 $ 33,005
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ 10,485 $ 3,975
Accounts payable 3,215 7,405
Other current liabilities 3,605 2,149
------------ ------------
TOTAL CURRENT LIABILITIES 17,305 13,529
------------ ------------
MORTGAGE PAYABLE 2,954 3,023
OTHER LONG TERM LIABILITIES 233 233
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 3,369 3,369
Additional paid-in capital 10,390 12,117
Retained earnings 9,515 8,258
------------ ------------
23,274 23,744
Less: Common shares in treasury at cost 5,790 7,524
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 17,484 16,220
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 37,976 $ 33,005
============ ============
The June 30, 2003 Balance Sheet is derived from audited financial statements.
See notes to condensed consolidated financial statements.
-3-
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Share Amounts)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Net sales $ 38,745 $ 35,689 $ 68,641 $ 65,634
Cost of goods sold 29,417 27,376 51,723 50,839
---------- ---------- ---------- ----------
Gross profit 9,328 8,313 16,918 14,795
---------- ---------- ---------- ----------
Shipping, selling and administrative expenses 7,523 6,866 14,295 12,712
Interest expense 223 198 378 357
---------- ---------- ---------- ----------
7,746 7,064 14,673 13,069
---------- ---------- ---------- ----------
Earnings before income taxes 1,582 1,249 2,245 1,726
Provision for income taxes 683 450 988 621
---------- ---------- ---------- ----------
Net earnings $ 899 $ 799 $ 1,257 $ 1,105
========== ========== ========== ==========
Net earnings per common share - basic $ .35 $ .31 $ .49 $ .43
========== ========== ========== ==========
Weighted average number of shares outstanding - basic 2,558,000 2,561,000 2,545,000 2,561,000
========== ========== ========== ==========
Net earnings per common share - diluted $ .33 $ .30 $ .46 $ .42
========== ========== ========== ==========
Weighted average number of shares outstanding - diluted 2,733,000 2,662,000 2,721,000 2,625,000
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
-4-
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
December 31,
---------------------
2003 2002
---------- ----------
Cash Flows From Operating Activities:
Net Earnings $ 1,257 $ 1,105
Adjustments to reconcile net earnings to net cash (used in)
provided by operating activities:
Depreciation and amortization 187 191
Changes in assets and liabilities:
Increase in accounts receivable, net (2,289) (4,106)
(Increase) decrease in inventory (2,933) 4,788
Derease in prepaid expenses and other assets 186 183
Decrease in accounts payable and other current liabilities (2,734) (1,193)
---------- ----------
Net cash (used in) provided by operating activities (6,326) 968
---------- ----------
Cash Flows From Investing Activities:
Purchase of property and equipment (105) (168)
---------- ----------
Net cash used in investing activities (105) (168)
---------- ----------
Cash Flows From Financing Activities:
Increase (decrease) in loans payable - bank 6,510 (1,845)
(Payment of) proceeds from mortgage loan (69) 3,211
Repurchase of common stock (735) 3
Exercise of stock options 742 --
Payment of acquisition notes -- (800)
---------- ----------
Net cash provided by financing activities 6,448 569
---------- ----------
Net Increase in Cash and Cash Equivalents 17 1,369
Cash and Cash Equivalents, beginning of period 66 95
---------- ----------
Cash and Cash Equivalents, end of period $ 83 $ 1,464
---------- ----------
Supplemental Information:
Interest paid $ 359 $ 362
---------- ----------
Taxes paid $ 578 $ 70
---------- ----------
See notes to condensed consolidated financial statements.
-5-
JACLYN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS
1. Basis of Presentation:
The accompanying unaudited condensed consolidated balance sheet as of
December 31, 2003, the condensed consolidated statements of earnings for the
three and six month periods ended December 31, 2003 and 2002 and the
condensed consolidated statements of cash flows for the six months ended
December 31, 2003 and 2002, have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information. Accordingly, they do not include all of the
information and footnotes required by accounting principles generally
accepted in the United States of America for complete financial statements.
In the opinion of management, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation have been
included. These condensed consolidated financial statements should be read
in conjunction with the audited financial statements and notes thereto
included in the Company's 2003 Annual Report to Stockholders for the year
ended June 30, 2003. The results of operations for the period ended December
31, 2003 are not necessarily indicative of operating results for the full
fiscal year.
2. Stock-Based Compensation
The Company periodically grants stock options to employees. Pursuant to
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees", the Company accounts for stock-based employee compensation
arrangements using the intrinsic value method. Accordingly, no compensation
expense has been recorded in the Consolidated Financial Statements with
respect to option grants. The Company has adopted the disclosure-only
provisions of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock Based Compensation," as amended by Financial
Accounting Standards Board Statement No. 148, "Accounting for Stock Based
Compensation - Transition and Disclosure, an Amendment of FASB Statement
No.123." If compensation cost for the Company's stock option plans had been
determined in accordance with the fair value method prescribed by SFAS No.
123, the Company's net earnings would have been (in thousands, except per
share):
-6-
Three Months Ended Six Months Ended
December 31, December 31,
--------------------------- ---------------------------
2003 2002 2003 2002
------------ ------------ ------------ ------------
Net earnings
As reported $ 899 $ 799 $ 1,257 $ 1,105
Deduct: Total stock based employee compensation expense
determined under fair value based method, net of taxes 27 -- 27 153
------------ ------------ ------------ ------------
Pro forma Net Earnings $ 872 $ 799 $ 1,230 $ 952
------------ ------------ ------------ ------------
Basic net earnings per common share:
As reported $ .35 $ .31 $ 49 $ .43
Pro forma $ .34 $ .31 $ 48 $ .37
------------ ------------ ------------ ------------
Diluted net earnings per common share:
As reported $ .33 $ .30 $ .46 $ .42
Pro forma $ .32 $ .30 $ .45 $ .36
------------ ------------ ------------ ------------
The weighted average fair value of options granted during the second quarter
of fiscal 2004 was $4.81.
3. Earnings Per Share:
The Company's calculation of Basic and Diluted Net Earnings Per Common Share
follows (in thousands, except share amounts):
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Basic Net Earnings Per Common Share:
Net Earnings $ 899 $ 799 1,257 $ 1,105
---------- ---------- ---------- ----------
Basic Weighted Average Shares Outstanding 2,558,000 2,561,000 2,545,000 2,561,000
---------- ---------- ---------- ----------
Basic Net Earnings Per Common Share $ .35 $ .31 $ .49 $ .43
---------- ---------- ---------- ----------
-7-
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
2003 2002 2003 2002
---------- ---------- ---------- ----------
Diluted Net Earnings Per Common Share:
Net Earnings $ 899 $ 799 1,257 $ 1,105
---------- ---------- ---------- ----------
Basic Weighted Average Shares Outstanding 2,558,000 2,561,000 2,545,000 2,561,000
---------- ---------- ---------- ----------
Add: Dilutive Options 175,000 101,000 176,000 64,000
---------- ---------- ---------- ----------
Diluted Weighted Average Shares Outstanding 2,733,000 2,662,000 2,721,000 2,625,000
---------- ---------- ---------- ----------
Diluted Net Earnings Per Common Share $ .33 $ .30 $ .46 $ .42
---------- ---------- ---------- ----------
Options to purchase an additional 4,000 common shares at a price of $5.125
were outstanding at December 31, 2003. Options to purchase an additional
178,000 common shares at a prices ranging from $2.813 to $12.375 were
outstanding at December 31, 2002. These shares were not included in the
computation of diluted earnings per share because the exercise price of the
options exceeded the average market price and would have been anti-dilutive.
4. Inventories: Inventories consist of the following components (in thousands):
December 31, June 30,
2003 2003
-------------- --------------
Raw materials $ 1,225 $ 3,874
Work in process 769 1,506
Finished Goods 10,604 4,285
-------------- --------------
$ 12,598 $ 9,665
-------------- --------------
5. Repurchase of Common Stock
The Company previously announced that the Board of Directors authorized the
repurchase by the Company of up to 350,000 shares of the Company's Common
Stock. Purchases may be made from time to time in the open market and
through privately negotiated transactions, subject to general market and
other conditions. The Company intends to finance these repurchases from its
own funds from operations and/or from its bank credit facility. For the
six-month period ended December 31, 2003, the Company purchased 39,123
shares of its Common Stock at a cost of approximately $147,000. As of
December 31, 2003, the Company had purchased a total of 138,823 shares of
its Common Stock at a cost of approximately $435,000 in connection with the
repurchase program.
During the six months ended December 31, 2003, certain officers of the
Company exercised options to purchase 290,500 shares of the Company's Common
Stock. As permitted by the applicable stock option plan and contracts
governing the options, the officers tendered to the Company and the Company
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purchased in partial payment of the exercise price for 210,500 of these
options, 164,141 mature shares of Common Stock, with a market value of
$569,000.
During the same period, the Company repurchased 4,725 shares from employees
who received distributions from the Company's ESOP at a price of $19,000.
6. Financing Agreements
On October 23, 2003, the Company amended its bank line of credit agreement.
This amended credit facility, which now expires on December 1, 2005,
provides for short-term loans and the issuance of letters of credit in an
aggregate amount not to exceed $40,000,000. Based on a borrowing formula,
the Company may borrow up to $25,000,000 in short-term loans and up to
$40,000,000 including letters of credit. The borrowing formula was also
modified to allow for an additional amount of borrowing during the Company's
peak borrowing season. Substantially all of the Company's assets are pledged
to the bank as collateral (except for the West New York, New Jersey
facility, which has been separately mortgaged, as noted below). The line of
credit requires that the Company maintain a minimum tangible net worth of
$12,000,000 through June 30, 2004. As of December 31, 2003, borrowing on the
short-term line of credit was $10,485,000 (with peak borrowing of
$21,550,000 during the first six months of fiscal 2004), and the Company had
$11,600,000 of additional availability (based on the borrowing formula)
under the credit facility. At December 31, 2003, the Company was
contingently obligated on open letters of credit for approximately
$4,413,000. Interest on borrowings under the line of credit is at the bank's
prime rate or at LIBOR plus 250 basis points, at the option of the Company.
The bank's prime rate at December 31, 2003 was 4.00%.
In August 2002, the Company consummated a mortgage loan with a bank lender
in the amount of $3,250,000. The financing is secured by a mortgage of the
Company's West New York, New Jersey headquarters and warehouse facility. The
loan bears interest at a fixed rate of 7% per annum. The financing has a
fifteen-year term, but is callable by the bank lender at any time after
September 1, 2007 and may be prepaid by the Company, along with a prepayment
fee, from time to time during the term of the financing.
7. Contingencies
The Company recently entered into an amendment to its collective bargaining
agreement with Local 62-32, UNITE, AFL-CIO, which covers 18 of Jaclyn's
employees. The term of the agreement has been extended until October 31,
2006. The agreement allows the Company, in its discretion, to withdraw from
the Union's multi-employer pension plan. A withdrawal would terminate the
Company's obligations to make future contributions to the pension plan,
although the Company would be required to contribute to the union's 401-K
plan. The Company has not yet decided whether to withdraw from the pension
-9-
plan and, as such, has not recorded any charge relating to this contingency
in its consolidated financial statements. If the Company withdraws from the
pension plan, the Company would have an obligation for its allocable portion
of the total unfunded pension obligation. The final determination of the
contingency will be impacted by the timing of any decision by the Company to
withdraw from the Plan and the continued participation of other companies
that contribute to the pension plan. The final determination of the
contingency will be impacted by the timing of any decision by the Company to
withdraw from the Plan and the continued participation of other companies
that contribute to the pension plan. Based on the latest information
provided to the Company by the union, the estimated present value of the
contingency is approximately $463,000.
Recently Issued Accounting Standards:
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires a variable
interest entity to be consolidated by a company if that company is subject
to a majority of the risk of loss from the variable interest entity's
activities or entitled to receive a majority of the entity's residual
returns or both. FIN 46 also requires disclosures about variable interest
entities that a company is not required to consolidate but in which it has a
significant variable interest. The consolidation requirements of FIN 46
apply immediately to variable interest entities created after January 31,
2003. The consolidation requirements of FIN 46 apply to existing entities in
the first fiscal year or interim period after January 31, 2003, regardless
of when the variable interest entity was established. We have evaluated the
accounting provisions of the interpretations and there was no material
impact on our financial condition, results of operations or cash flows,
since the Company is not the primary beneficiary of any variable interest
entity.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Critical Accounting Policies and Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires the appropriate application of certain
accounting policies, many of which require estimates and assumptions about
future events and their impact on amounts reported in the financial statements
and related notes. Since future events and their impact cannot be determined
with certainty, the actual results will inevitably differ from our estimates.
Such differences could be material to the consolidated financial statements.
Management believes its application of accounting policies, and the
estimates inherently required by the policies, are reasonable. These accounting
policies and estimates are constantly reevaluated, and adjustments are made when
facts and circumstances dictate a change. Historically, management has found the
application of accounting policies to be appropriate, and actual results
generally do not differ materially from those determined using necessary
estimates.
-10-
The Company's accounting policies are more fully described in Note A to
the June 30, 2003 consolidated financial statements, located in the Annual
Report on Form 10-K filed with the Securities and Exchange Commission on
September 24, 2003. Management has identified certain critical accounting
policies that are described below.
Merchandise inventory.
The Company's merchandise inventory is carried at the lower of cost on
a first-in, first-out basis, or market. The Company writes down its inventory
for estimated obsolescence or unmarketable inventory equal to the difference
between the cost of inventory and the estimated market value based upon
assumptions about future demand and market conditions. If actual market
conditions are less favorable than those projected by management, additional
inventory write-downs may be required.
Allowance for doubtful accounts.
The Company maintains allowances for doubtful accounts for estimated
losses resulting from the inability of its customers to make required payments.
If the financial condition of its customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.
Market development accruals.
The Company estimates reductions to revenue for customer programs and
incentive offerings including special pricing agreements, price protection,
promotions and other volume-based incentives. If market conditions were to
decline, the Company may take actions to increase customer incentive offerings
possibly resulting in an incremental reduction of revenue at the time the
incentive is offered.
Finite Long-lived assets.
In the evaluation of the fair value and future benefits of finite-lived
assets, we perform an analysis of the anticipated undiscounted future net cash
flows of the related finite long-lived assets. Various factors including future
sales growth and profit margins are included in this analysis. To the extent
these future projections change, the conclusion regarding impairment may differ
from the current estimates.
-11-
Goodwill.
We evaluate goodwill annually or whenever events and changes in
circumstances suggest that the carrying amount may not be recoverable from its
estimated future cash flows. In making this assessment, management relies on a
number of factors including operating results, business plans, economic
projections, anticipated future cash flows and marketplace data. A change in
these underlying assumptions may cause a change in the results of the tests and,
as such, could cause fair value to be less than the carrying value. In such
event, we would then be required to record a charge which would impact earnings.
Deferred taxes.
Should the Company determine that it becomes more likely than not that
it would not be able to realize all or part of its net deferred tax asset in the
future, an adjustment to the deferred tax asset would be charged to income in
the period such determination was made.
Liquidity and Capital Resources
The Company's cash and cash equivalents increased $17,000 during the
six-month period ended December 31, 2003 to $83,000 from $66,000 at June 30,
2003.
Net cash used in operating activities totaled $6,326,000, primarily
from an increase in inventory levels totaling $2,933,000 in anticipation of
higher shipping by our sleepwear business in the third quarter, and an increase
in accounts receivable of $2,289,000 which reflects higher shipping in December
2003 compared to June 2003, due to the seasonality of our business. Funds
provided by financing activities of $6,448,000 were mostly the result of
$6,510,000 in borrowing under the Company's line of credit facility. These funds
were used to finance the higher level of additional and seasonal business
activity. In addition, the Company issued 303,500 shares of Common Stock from
its treasury, with an average cost of $2,470,000 relating to the exercise of
employee stock options for $742,000. Approximately $569,000 were also used to
purchase 164,141 mature shares of the Company's Common Stock, which were
delivered in payment to the Company of a portion of the exercise price of
certain employee stock options. The Company purchased 39,123 shares under the
Company's stock repurchase program, and 4,725 shares from employees who received
distributions under the Company's Employee Stock Ownership Program, totaling
$166,000. Net cash used in investing activities of $105,000 was for purchases of
property and equipment.
On October 23, 2002, the Company amended its bank line of credit
agreement. This bank credit facility, which now expires on December 1, 2005,
provides for short-term loans and the issuance of letters of credit in an
aggregate amount not to exceed $40,000,000. Based on a borrowing formula, the
Company may borrow up to $25,000,000 in short-term loans and up to $40,000,000
-12-
including letters of credit. The borrowing formula was also modified to allow
for an additional amount of borrowing during the Company's peak borrowing
season. Substantially all of the Company's assets are pledged to the bank as
collateral (except for the West New York, New Jersey facility, which has been
separately mortgaged, as noted below). The line of credit requires that the
Company maintain a minimum tangible net worth of $12,000,000 through June 30,
2004. As of December 31, 2003, borrowing on the short-term line of credit was
$10,485,000 ( with peak borrowing of $21,550,000 during the first six months of
fiscal 2004), and the Company had $11,460,000 of additional availability (based
on the borrowing formula) under the credit facility. At December 31, 2003, the
Company was contingently obligated on open letters of credit for approximately
$4,413,000. Interest on borrowings under the line of credit is at the bank's
prime rate, or at LIBOR plus 250 basis points, at the option of the Company. The
bank's prime rate at December 31, 2003 was 4.00%.
On August 14, 2002, the Company consummated a mortgage loan with a bank
lender in the amount of $3,250,000. The financing is secured by a mortgage of
the Company's West New York, New Jersey headquarters and warehouse facility. The
loan bears interest at a fixed rate of 7% per annum. The financing has a
fifteen-year term, but is callable by the bank lender at any time after
September 1, 2007 and may be prepaid by the Company, along with a prepayment
fee, from time to time during the term of the financing.
There were no material commitments for capital expenditures at December
31, 2003.
The Company previously announced that the Board of Directors authorized
the repurchase by the Company of up to 350,000 shares of the Company's Common
Stock. Purchases may be made from time to time in the open market and through
privately negotiated transactions, subject to general market and other
conditions. The Company intends to finance these repurchases from its own funds
from operations and/or from its bank credit facility. For the six-month period
ended December 31, 2003, the Company purchased 39,123 shares of its Common Stock
at a cost of approximately $147,000. As of December 31, 2003, the Company had
purchased a total of 138,823 shares of its Common Stock at a cost of
approximately $435,000 in connection with the repurchase program.
The Company recently entered into an amendment to its collective
bargaining agreement with Local 62-32, UNITE, AFL-CIO, which covers 18 of
Jaclyn's employees. The term of the agreement has been extended until October
31, 2006. The agreement allows the Company, in its discretion, to withdraw from
the Union's multi-employer pension plan. A withdrawal would terminate the
Company's obligations to make future contributions to the pension plan, although
the Company would be required to contribute to the union's 401-K
-13-
plan and, as such, has not recorded any charge relating to this contingency in
its consolidated financial statements. The Company has not yet decided whether
to withdraw from the pension plan. If the Company withdraws from the pension
plan, the Company would have an obligation for its allocable portion of the
total unfunded pension obligation. The final determination of the contingency
will be impacted by the timing of any decision by the Company to withdraw from
the Plan and the continued participation of other companies that contribute to
the pension plan. Based on the latest information provided to the Company by the
union, the estimated present value of the contingency is approximately $463,000.
The Company believes that funds provided by operations, existing
working capital, and the Company's bank line of credit and mortgage financing
will be sufficient to meet foreseeable working capital needs.
Contractual Obligations and Commercial Commitments
To facilitate an understanding of our contractual obligations and
commercial commitments, the following data is provided as of December 31, 2003:
* * * * Payments Due by Period * * * *
Contractual Obligations Total 1 Year 2-3 Years 4-5 Years After 5 Years
----------- ----------- ----------- ----------- -----------
Notes Payable $10,485,000 $10,485,000 $ -- $ -- $ --
Mortgage Payable 3,091,000 137,000 431,000 493,000 2,030,000
Royalties 529,000 154,000 375,000 -- --
Operating Leases 2,374,000 515,000 1,107,000 465,000 287,000
----------- ----------- ----------- ----------- -----------
Total Contractual
Obligations $16,479,000 $11,291,000 $ 1,913,000 $ 958,000 $ 2,317,000
----------- ----------- ----------- ----------- -----------
* * * * * * * * After * * * * * * * *
Other Commercial
Commitments Total 1 Year 2-3 Years 4-5 Years After 5 Years
----------- ----------- ----------- ----------- -----------
Letters of Credit $ 4,413,000 $ 4,413,000 -- -- --
----------- ----------- ----------- ----------- -----------
Total Commercial
Commitments $ 4,413,000 $ 4,413,000 -- -- --
----------- ----------- ----------- ----------- -----------
-14-
Off-Balance Sheet Arrangements
The Company has not created, and is not a party to, any special-purpose or
off-balance sheet entities for the purpose of raising capital, incurring debt or
operating the Company's business. The Company does not have any arrangements or
relationships with entities that are not consolidated into the financial
statements that are reasonably likely to materially affect the Company's
liquidity or the availability of capital resources.
Results Of Operations
Net sales were $38,745,000 and $68,641,000 during the three and six-month
periods ended December 31, 2003 compared to $35,689,000 and $65,634,000 in the
three and six-month periods ended December 31, 2002, respectively. This year's
increase in net sales for both the three and six month periods was mostly the
result of higher sales volume in the Company's Apparel category, with offsetting
lower sales volume in the Handbags category.
Net sales for the Apparel category were $32,943,000 for the quarter ended
December 31, 2003, an increase of $4,464,000, or 15.7%, from the same quarter in
fiscal 2002. The sales increase for this category was primarily due to
significantly higher net sales from the women's sleepwear business, which
resulted from increased orders from one customer based on prior season
sell-through. In addition, increased customer orders from existing customers of
the children's apparel business also contributed to the increase. For the
six-month period ended December 31, 2003, net sales for the Apparel category
were $55,963,000, or 10.6% better than the prior fiscal year's same period,
mostly attributable to higher sales volume in the women's sleepwear business.
However, within the Apparel category, the Company's catalog business had much
lower sales volume attributable to a lower level of reorders from our customers
reflecting lower demand for mail-order apparel.
Net sales for the Handbags category were $5,801,000 for the three-month period
ended December 31, 2003, a decrease of $1,409,000, or about 19.5% below the same
three-month period in the prior year, reflecting a continued weak demand in this
business category. Fiscal 2003's six-month period ended December 31, 2003 had
net sales of $12,678,000, or 15.7% less than the prior comparable six-month
fiscal period, which totaled $15,034,000, mostly due to sales decreases in the
children's bag business where licensing products continue to be in less demand.
Gross margins were 24.1% and 24.6% in the three-month and six-month periods
ended December 31, 2003 compared to 23.3% and 22.5 % in the comparable periods
ended December 31, 2002, respectively.
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Gross margin for the Apparel category in the three-month period ended December
31, 2003 improved by 1.0% to 25.0 % from 24.0% in the prior comparable
three-month period, primarily attributable to higher margins contributed by the
children's apparel business, offset in part by lower margins in the catalog
business. For the six-month period ended December 31, 2003, gross margins were
25.7% for this category versus 22.8% in the prior year comparable period for the
same reason, and were also helped by improved women's sleepwear gross margins.
Gross margin for the Handbags category was 18.8% in the quarter ended December
31, 2003 compared to 20.6% in the similar prior year quarter. This lower gross
margin reflects lower competitive margins in the Company's premium and
children's bag businesses. For the six-month period ended December 31, 2003 the
Handbags category gross profit decreased to 19.9% from 21.5%, for the same
reasons.
Shipping, selling and administrative expenses totaling $7,523,000 were $657,000
more than the second quarter in the prior year's comparable period. As a
percentage of net sales, shipping, selling and administrative expenses increased
slightly to 19.4% from 19.2%, the result of both higher royalty expense relating
to the sale of licensed product, and higher selling commissions attributable to
sales mix. Shipping, selling and administrative expenses for the six-month
period ended December 31, 2003 were $14,295,000 (20.8% of net sales), or
$1,583,000 higher than the same six-month period in the prior fiscal year which
totaled $12,712,000 (19.4% of net sales), for the same reasons.
Interest expense of $233,000 in the second quarter of fiscal 2004 compares to
$198,000 in the prior comparable period. For the six month period ended December
31, 2003, interest expense totaled $378,000 versus $357,000. The increase in
both periods principally reflects a higher level of borrowing in the current
periods to support higher sales volume, compared to last year's comparable three
and six-month periods.
The increase in earnings before income taxes for the three-month and six-month
periods ended December 31, 2003, as compared to the equivalent prior fiscal
periods, was due primarily to higher sales and gross profit, not completely
offset by higher shipping, selling and administrative expenses and interest
expense, as discussed above. For the six-month period ended December 31, 2003,
the Company had an effective tax rate of 44% compared to 36% in the same period
of the prior year, primarily the result of expiring foreign tax credits. Net
earnings for the three month period ended December 31, 2003 of $899,000 were
higher compared to net earnings for the same period last year of $799,000. For
the six-month period ended December 31, 2003, net earnings were $1,257,000,
against net earnings of $1,105,000 in the prior comparable period.
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Recently Issued Accounting Standards
In January 2003, the FASB issued Interpretation No. 46 ("FIN 46"),
"Consolidation of Variable Interest Entities." FIN 46 requires a variable
interest entity to be consolidated by a company if that company is subject to a
majority of the risk of loss from the variable interest entity's activities or
entitled to receive a majority of the entity's residual returns or both. FIN 46
also requires disclosures about variable interest entities that a company is not
required to consolidate but in which it has a significant variable interest. The
consolidation requirements of FIN 46 apply immediately to variable interest
entities created after January 31, 2003. The consolidation requirements of FIN
46 apply to existing entities in the first fiscal year or interim period after
January 31, 2003, regardless of when the variable interest entity was
established. We have evaluated the accounting provisions of the interpretations
and there was no material impact on our financial condition, results of
operations or cash flows, since the Company is not the primary beneficiary of
any variable interest entity.
Seasonality
The Company's business is subject to substantial seasonal variations.
Historically, the Company has generally realized a significant portion of its
net sales and net income for the year during the first and second fiscal
quarters. The Company's quarterly results of operations may also fluctuate
significantly as a result of a variety of other factors, including the timing of
shipments to customers and economic conditions. The Company believes this is the
general pattern associated with its sales to the retail industry and expects
this pattern will continue in the future. Consequently, comparisons between
quarters are not necessarily meaningful and the results for any quarter are not
necessarily indicative of future results.
FORWARD-LOOKING STATEMENTS
This Form 10-Q may contain forward-looking statements that are being
made pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. The Company's actual performance and results may vary as a
result of a number of risks, uncertainties and other factors, both foreseen and
unforeseen, including general economic and business conditions, competition in
the accessories and apparel markets, continuing favorable sales patterns,
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pricing and consumer buying trends. Additional uncertainty exists for the
potential negative impact that Severe Acute Respiratory Syndrome (SARS) may have
on our business, as it relates to our production in the Far East and other
countries in which we operate.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no material changes in the information set forth under the
caption "Item 7A-Quantitative and Qualitative Disclosures About Market Risk" in
the Company's Annual Report on Form 10-K for the fiscal year ended June 30,
2003.
Item 4. Controls and Procedures.
At the end of the period covered by this report, the Company carried out an
evaluation, with the participation of management of the Company, including the
Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based on the Company's evaluation, the Company's Chief Executive
Officer and Chief Financial Officer concluded that the Company's disclosure
controls and procedures were effective. There was no change in the Company's
internal control over financial reporting during the quarter ended December 31,
2003 that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
During the six-month period ended December 31, 2003, the Company issued
an aggregate of 290,500 shares of its common stock, $1.00 par value per share
("Common Stock"), upon the exercise of stock options previously granted under a
stockholder approved stock option plan of the Company. The Company received an
aggregate of $145,580 in cash from the individuals exercising these options (the
"Optionees") in partial payment of the exercise price for the issued shares. The
Company also received an aggregate of 164,141 mature shares of Common Stock from
the optionees under terms of the stock option plan which permits the use of
previously acquired shares of Common Stock in full or partial payment of the
applicable exercise price.
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The Company is relying on an exemption from registration contained in
Section 4(2) of the Securities Act of 1933, as amended (the "Securities Act"),
in connection with the issuance of the shares of Common Stock. Each Optionee has
represented, warranted and agreed, among other things, that the shares of Common
Stock issued upon the exercise of the applicable options have been acquired for
his own account, for investment only and not with a view to the resale or
distribution thereof; and understands that the shares of Common Stock must be
held indefinitely unless the sale or other transfer thereof is subsequently
registered under the Securities Act or an exemption from such registration is
available at that time. Each Optionee has also represented that he has such
knowledge and experience in financial and business matters that he is capable of
evaluating the merits and risks of his investment in the shares of Common Stock;
has adequate means of providing for his current needs and possible future
contingencies; is able to bear the economic risks of his investment in the
shares of Common Stock; is able to hold the shares of Common Stock for an
indefinite period of time and has a sufficient net worth to sustain a loss of
his investment in the shares of Common Stock in the event any loss should occur,
and has had access to and received such documents and information concerning the
Company as he has requested. A Securities Act restrictive legend will be placed
on any certificate representing the shares of Common Stock and stop transfer
instructions will be placed on any such certificates as may be necessary or
appropriate to, among other things, prevent a violation of, or to perfect an
exemption from, the registration requirements of the Securities Act and any
applicable state securities laws.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) Date of Annual Meeting of Stockholders - November 14, 2003
(b) See item 4(c)(i) below.
(c) (i) The election of nine directors to serve until the next annual
meeting of stockholders.
Authority
Votes For to Vote
Name of Director Election Withheld
Abe Ginsburg 2,057,962 24,000
Allan Ginsburg 2,058,962 23,000
Robert Chestnov 2,058,962 23,000
Howard Ginsburg 2,058,962 23,000
Martin Brody 2,054,452 27,530
Richard Chestnov 2,054,925 27,037
Albert Safer 2,054,925 27,037
Norman Axelrod 2,054,925 27,037
Harold Schechter 2,058,962 23,000
(ii) Ratification of the appointment of Deloitte & Touche LLP as
independent accountants of the Company.
Votes For: 2,068,288 Votes Against: 12,840 Abstentions: 834
(iii) Approval of a proposal relating to an amendment to the 2000
Stock Option Plan to Increase the number of shares of Common Stock
which may be issued thereunder by 250,000.
Votes For: 1,345,675 Votes Against: 103,384 Abstentions: 19,828
Broker Non-Votes: 613,075
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Item 6. Exhibits and Reports on Form 8-K
a) Exhibits Description
31 Amendment, made the 15th day of December, 2003, by and
between Natoosh, LLC, Mark Nitzberg, and the Company.
31(a) Rule 13a-14(a) Certification of Robert Chestnov, President
and Chief Executive Officer of the Company.
31(b) Rule 13a-14(a) Certification of Anthony Christon, Principal
Financial Officer of the Company.
32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
b) Reports on Form 8-K.
The Company filed a Current Report on Form 8-K on September 25,
2003 with respect to an event reported under Item 12 - "Results of
Operations and Financial Condition".
SIGNATURES
Pursuant to the 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.
JACLYN, INC.
(Registrant)
February 13, 2004 /s/ ALLAN GINSBURG
---------------------------------
Allan Ginsburg
Chairman of the Board
February 13, 2004 /s/ ANTHONY CHRISTON
---------------------------------
Anthony Christon
Vice President
Chief Financial Officer
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EXHIBIT INDEX
-------------
Exhibit No. Description Page
- ----------- ----------- ----
31 Amendment, made the 15th day of December, 2003, by
and between Natoosh, LLC, Mark Nitzberg and the Company. 22
31(a) Rule 13a-14(a) Certification of Robert Chestnov,
President and Chief Executive Officer of the Company. 26
31(b) Rule 13a-14(a) Certification of Anthony Christon,
Principal Financial Officer of the Company. 27
32 Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002. 28
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