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 September 30, 2004
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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 ________
Commission File Number 1-5863
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 Identification No.)
Incorporation)
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 November 1, 2004
- ------------------------------------ -------------------------------
Common Stock, par value $1 per share 2,597,879
JACLYN, INC. AND SUBSIDIARIES
INDEX
Part I. Financial Information
Item 1
Condensed Consolidated Balance Sheets -
September 30, 2004 (unaudited) and June 30, 2004 (derived
from audited financial statements) 3
Condensed Consolidated Statements of Earnings -
Three Months Ended September 30, 2004 and 2003 (unaudited) 4
Condensed Consolidated Statements of Cash Flows - Three Months
Ended September 30, 2004 and 2003 (unaudited) 5
Notes to Condensed Consolidated Unaudited Financial Statements 6
Item 2
Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 3
Quantitative and Qualitative Disclosures about Market Risk 19
Item 4 Controls and Procedures 19
Part II. Other Information:
Item 2
Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 6
Exhibits 21
Signatures 23
Certifications 25
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
September 30, June 30,
2004 2004
(Unaudited) (See below)
------------- -------------
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 103 $ 626
Accounts receivable, net 27,870 17,894
Inventory 13,318 7,877
Prepaid expenses and other current assets 1,650 1,536
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TOTAL CURRENT ASSETS 42,941 27,933
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PROPERTY PLANT AND EQUIPMENT, NET 1,045 1,069
GOODWILL 3,338 3,338
OTHER ASSETS 2,302 2,149
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TOTAL ASSETS $ 49,626 $ 34,489
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ 20,310 $ 4,220
Accounts payable 3,653 6,373
Other current liabilities 4,292 3,725
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TOTAL CURRENT LIABILITIES 28,255 14,318
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MORTGAGE PAYABLE 2,844 2,880
OTHER LONG TERM LIABILITIES - 15
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 3,369 3,369
Additional paid-in capital 9,949 10,390
Retained earnings 10,581 9,716
------------- -------------
23,899 23,475
Less: Common shares in treasury at cost 5,372 6,199
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TOTAL STOCKHOLDERS' EQUITY 18,527 17,276
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 49,626 $ 34,489
============= =============
The June 30, 2004 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
September 30,
2004 2003
---------- ----------
Net sales $ 35,805 $ 29,896
Cost of goods sold 27,211 22,306
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Gross profit 8,594 7,590
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Shipping, selling and administrative expenses 6,915 6,772
Interest expense 183 155
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7,098 6,927
---------- ----------
Earnings before income taxes 1,496 663
Provision for income taxes 631 305
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Net earnings $ 865 $ 358
========== ==========
Net earnings per common share - basic $ .34 $ .14
========== ==========
Weighted average number of shares outstanding - basic 2,544,000 2,531,000
========== ==========
Net earnings per common share - diluted $ .32 $ .13
========== ==========
Weighted average number of shares outstanding - diluted 2,674,000 2,708,000
========== ==========
See notes to condensed consolidated financial statements.
-4-
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Three Months Ended
September 30,
2004 2003
---------- ----------
Cash Flows From Operating Activities:
Net Earnings $ 865 $ 358
Adjustments to reconcile net earnings to net cash used in
operating activities:
Depreciation and amortization 98 93
Changes in assets and liabilities:
Increase in accounts receivable, net (9,976) (5,139)
Increase in inventory (5,441) (9,978)
(Increase) decrease in prepaid expenses and other assets (270) 27
Decrease in accounts payable and other current liabilities (2,030) (150)
---------- ----------
Net cash used in operating activities (16,754) (14,789)
---------- ----------
Cash Flows From Investing Activities:
Purchase of property and equipment (71) (36)
---------- ----------
Net cash used in investing activities (71) (36)
---------- ----------
Cash Flows From Financing Activities:
Increase in loans payable - bank 16,090 15,050
Payment of proceeds from mortgage loan (34) (34)
Repurchase of common stock (6) (548)
Exercise of stock options 252 610
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Net cash provided by financing activities 16,302 15,078
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Net (Decrease) Increase in Cash and Cash Equivalents (523) 253
Cash and Cash Equivalents, beginning of period 626 66
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Cash and Cash Equivalents, end of period $ 103 $ 319
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Supplemental Information:
Interest paid $ 157 $ 131
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Taxes paid $ 458 $ 570
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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 September
30, 2004, the condensed consolidated statements of earnings and cash flows for
the three month periods ended September 30, 2004 and 2003, 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 be read in conjunction with the
audited financial statements and notes thereto included in the Company's 2004
Annual Report to Stockholders for the year ended June 30, 2004. The results of
operations for the period ended September 30, 2004 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):
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Three Months Ended
- --------------------------------------------------------------------------------------------
September 30,
- --------------------------------------------------------------------------------------------
2004 2003
Net earnings
As reported $ 865 $ 358
Deduct: Total stock based employee compensation expense
determined under fair value based method, net of taxes - -
- --------------------------------------------------------------------------------------------
Pro forma Net Earnings $ 865 $ 358
- --------------------------------------------------------------------------------------------
Basic net earnings per share:
As reported $ .34 $ .14
Pro forma $ .34 $ .14
- --------------------------------------------------------------------------------------------
Diluted net earnings per share:
As reported $ .32 $ .13
Pro forma $ .32 $ .13
- --------------------------------------------------------------------------------------------
There were no options granted during the first quarter of fiscal 2005 and 2004.
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
September 30,
2004 2003
---------- ----------
Basic Net Earnings Per Common Share:
Net Earnings $ 865 $ 358
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Basic Weighted Average Shares Outstanding 2,544,000 2,531,000
---------- ----------
Basic Net Earnings Per Common Share $ .34 $ .14
---------- ----------
Three Months Ended
September 30,
2004 2003
---------- ----------
Diluted Net Earnings Per Common Share:
Net Earnings $ 865 $ 358
---------- ----------
Basic Weighted Average Shares Outstanding 2,544,000 2,531,000
Add: Dilutive Options 130,000 177,000
---------- ----------
Diluted Weighted Average Shares Outstanding 2,674,000 2,708,000
---------- ----------
Diluted Net Earnings Per Common Share $ .32 $ .13
---------- ----------
Options to purchase an additional 113,000 common shares at prices ranging from
$4.06 to $12.38 per share, were outstanding at September 30, 2003, but 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.
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4. Inventories:
Inventories consist of the following components (in thousands):
September 30, 2004 June 30, 2004
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Raw materials $ 642 $ 2,932
Work in process 1,927 450
Finished Goods 10,749 4,495
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$ 13,318 $ 7,877
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5. Repurchase of Common Stock and Exercise of Stock Options:
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 three-month period ended September
30, 2004, the Company purchased 1,000 shares of its Common Stock. As of
September 30, 2004, the Company purchased a total of 234,982 shares of its
Common Stock at a cost of approximately $865,000 in connection with the
repurchase program.
In August 2004, a sales representative of the Company exercised 120,000
non-qualified stock options at $2.10 per share, or $252,000. The shares related
to these options were issued from the Company's treasury shares at an average
cost of $6.94 per share, or approximately $832,800. The Company recorded a tax
benefit by reducing Federal Income Taxes Payable (included in Other Current
Liabilities), and increasing Additional Paid-In Capital by $140,000, associated
with the exercise of these non-qualified stock options.
6. Financing Agreements:
On October 23, 2003, the Company amended its bank credit facility. The amended
facility, which expires 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 from July to November.
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 has a financial covenant requiring
that the Company maintain a minimum tangible net worth of $12,000,000. The
Company was in compliance with this financial covenant at September 30, 2004. As
of September 30, 2004, borrowing on the short-term line of credit was
$20,310,000, and the
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Company had $9,211,000 of additional availability (based on the borrowing
formula) under its credit facility. At September 30, 2004, the Company was
contingently obligated on open letters of credit with an aggregate face amount
of approximately $10,479,000. Borrowing during the year was at the bank's prime
rate or below, at the option of the Company. The bank's prime rate at September
30, 2004 was 4.50%.
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. Contractual Obligations and Commercial Commitments :
The Company leases office facilities under non-cancelable leases that expire in
various years through the year ended June 30, 2009. Future minimum payments
under non-cancelable operating leases with initial or remaining terms of one
year or more are as follows:
Year Ended Office and Showroom
June 30, Facilities
2005 $ 587,000
2006 794,000
2007 729,000
2008 532,000
2009 613,000
The Company has entered into licensing arrangements with several companies. The
Company is obligated, in certain instances, to pay minimum royalties over the
term of the licensing agreements which expire in various years through 2007.
Aggregate minimum commitments by fiscal year are as follows:
-9-
Year Ended Minimum
June 30, Commitments
2006 $ 175,000
2007 200,000
From time to time, the Company and its subsidiaries may be subject to claims and
may become a party to legal proceeding which arise in the normal course of
business. At September 30, 2004, there were no material, pending legal
proceedings or material claims to which the Company was a party. In the opinion
of management, disposition of all claims and legal proceedings is not expected
to materially affect the Company's financial position, cash flows or results of
operations.
The Company has not provided any financial guarantees as of September 30, 2004
8. Retirement Plans:
Pension expenses includes the following components:
Fiscal Quarter Ended September 30, 2004 2003
COMPONENTS OF NET PERIODIC BENEFIT COST:
Service cost $ 105,850 $ 77,750
Interest cost 86,250 65,000
Expected return on assets (79,465) (64,750)
Amortization of prior service cost 150 250
Amortization of transition assets (2,340) (9,750)
Amortization of actuarial loss 39,555 21,250
---------------------------
Net periodic cost $ 150,000 $ 89,750
===========================
The Company previously disclosed in its financial statements for the year ended
June 30, 2004, that it expected to contribute $752,000 to its pension plan in
fiscal 2005. As of September 30, 2004, no contribution has been made.
-10-
Recently Issued Accounting Standards:
In June 2004, the Financial Accounting Standards Board (SFAS) issued an
interpretation of SFAS No. 143, Accounting for Asset Retirement Obligations.
This interpretation clarifies the scope and timing of liability recognition for
conditional asset retirement obligations under FASB No. 143, and is effective no
later than the end of our 2005 fiscal year. We have determined that this
interpretation, and the adoption of SFAS No. 143, will not have a material
impact on our consolidated financial statements.
In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition" ("SAB No. 104"), which codifies, revises and rescinds
certain sections of SAB No. 101, "Revenue Recognition", in order to make this
interpretive guidance consistent with current authoritative accounting and SEC
rules and regulations. The changes noted in SAB No. 104 did not have a material
effect on our consolidated results of operations, consolidated financial
position or consolidated cash flows.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ------ FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
The Company and its subsidiaries are engaged in the design, manufacture,
distribution and sale of women's and children's apparel, and fabric handbags,
sport bags, backpacks, cosmetic bags, and related products. Our apparel lines
include women's loungewear, sleepwear, dresses and sportswear, and lingerie, as
well as infants' and children's clothing. Our products are, for the most part,
made to order, marketed and sold to a range of retailers; primarily national
mass merchandisers.
Our business is subject to substantial seasonal variations. Historically, we
have realized a significant portion of net sales and net income for the year
during the first and second fiscal quarters during which time our customers
generally increase inventory levels in anticipation of both back-to-school and
holiday sales. We expect that trend to continue during fiscal 2005. The Company
believes this seasonality is consistent with the general pattern associated with
sales to the retail industry and we expect this pattern to continue.
Consequently, the results for any one quarter in a fiscal year are not
necessarily indicative of results for the whole year. The Company's quarterly
results of operations may also fluctuate significantly as a result of a number
of other factors, including the timing of shipments to customers and economic
conditions. Accordingly, comparisons between quarters may not necessarily be
meaningful, and the results for any one quarter are not necessarily indicative
of future quarterly results or of full-year performance.
-11-
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 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.
The Company's accounting policies are more fully described in Note A to the June
30, 2004 consolidated financial statements, located in the Annual Report on Form
10-K filed with the Securities and Exchange Commission on September 28, 2004.
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 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 and also
maintains accounts receivable insurance on certain of its customers. 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.
-12-
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. If the carrying value of the related asset
exceeds the undiscounted cash flows, the carrying value is reduced to its fair
value. 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.
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.
-13-
Liquidity and Capital Resources
The Company's cash and cash equivalents decreased $523,000 during the
three-month period ended September 30, 2004 to $103,000 from $626,000 at June
30, 2004.
Net cash used in operating activities totaled $16,754,000, primarily from an
increase in inventory levels totaling $9,976,000 to meet anticipated second
quarter shipping, and an increase in accounts receivable of $5,441,000 which
reflects much higher shipping in the September 2004 fiscal quarter compared to
the June 2004 fiscal quarter. Funds provided by financing activities of
$16,302,000 were mostly the result of $16,090,000 in borrowing from the
Company's bank under its line of credit facility and from the exercise of stock
options totaling $252,000. These funds were used to finance the higher level of
seasonal business activity.
Net cash used in investing activities of $71,000 was for purchases of property
and equipment.
In October 2003, the Company amended its bank credit facility. The amended
facility, which expires 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 from July to November.
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 has a financial covenant requiring
that the Company maintain a minimum tangible net worth of $12,000,000. The
Company was in compliance with this financial covenant at September 30, 2004. As
of September 30, 2004, borrowing on the short-term line of credit was
$20,310,000, and the Company had $9,211,000 of additional availability (based on
the borrowing formula) under its credit facility. At September 30, 2004, the
Company was contingently obligated on open letters of credit with an aggregate
face amount of approximately $10,479,000. Borrowing during the year was at the
bank's prime rate or below, at the option of the Company. The bank's prime rate
at September 30, 2004 was 4.50%.
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.
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.
-14-
There were no material commitments for capital expenditures at September 30,
2004.
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 three-month period ended September
30, 2004, the Company purchased 1,000 shares of its Common Stock at a cost of
approximately $5,000. As of September 30, 2004, the Company purchased a total of
234,982 shares of its Common Stock at a cost of approximately $865,000 in
connection with the repurchase program.
Contractual Obligations and Commercial Commitments
To facilitate an understanding of our contractual obligations and commercial
commitments, the following data is provided as of September 30, 2004:
* * * * Payments Due by Period * * * *
Less than 1 More than
Contractual Obligations Total Year 1-3 Years 3-5 Years 5 Years
Notes Payable $ 20,310,000 $ 20,310,000 - - -
Mortgage Payable 2,989,000 145,000 323,000 366,000 2,155,000
Royalties 375,000 - 375,000 -
Operating Leases 3,008,000 783,000 1,314,000 872,000 39,000
----------------------------------------------------------------------------
Total Contractual Obligations $ 26,682,000 $ 21,238,000 $ 2,012,000 $ 1,238,000 $ 2,194,000
----------------------------------------------------------------------------
Total Less than 1 More than
Other Commercial Commitments Commitments Year 1-3 Years 3-5 Years 5 Years
- -----------------------------------------------------------------------------------------------------------------
Letters of Credit $ 10,479,000 $ 10,479,000 - - -
----------------------------------------------------------------------------
Total Commercial Commitments $ 10,479,000 $ 10,479,000 - - -
----------------------------------------------------------------------------
-15-
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 $35,805,000 during the three-month period ended September 30,
2004, compared to $29,896,000 in the prior fiscal three-month comparable period.
Sales by category were as follows:
Net sales for the Apparel category were $25,872,000, or $2,852,000 higher than
the prior fiscal year. This 12.4% increase in the current three-month period
versus last year's same period was primarily due to increased customer orders
from existing customers of the children's apparel business and the introduction
of new items within this business, offset by much lower catalog apparel sales
due to continued lower demand for mail order items. In addition, slightly higher
levels of shipping in the women's sleepwear business added to this year's first
quarter Apparel category increase.
Net sales totaling $9,933,000 for the Handbags category increased 44.4% in the
first quarter of fiscal 2005 compared to the prior fiscal year's same fiscal
quarter total of $6,877,000. The sales increase primarily reflected higher sales
in the premium incentive business due to expanded programs for one of its
significant customers.
Gross margins were 24.0% in the first quarter of fiscal 2005 compared to 25.4%
in the first quarter of 2004. Gross margins by category were as follows:
Gross margin for the Apparel category decreased slightly to 26.6% in the first
three months of fiscal 2005 from 26.7% in the first quarter of fiscal 2004. The
..1% decrease was primarily the result of lower margins in the women's sleepwear
business for licensed product shipped, not completely offset by better 2005
first quarter margins in the children's apparel business attributable to product
mix.
Gross margin for the Handbags category decreased to 17.1% in the first quarter
of fiscal 2005 from 20.9% in the first three months of fiscal 2004. This
decrease was mainly due to lower children's handbag margins reflecting lower
licensed product sales, as well as slightly lower premium incentive business
margins attributable to market place competition on several programs causing
this business to reduce its gross margins to an acceptable level without losing
the customer.
As a percentage of net sales, shipping, selling and administrative expenses
decreased to 19.3% from 22.7%. Shipping, selling and administrative expenses
increased, however, by $143,000 in the first quarter of fiscal 2005 compared to
the prior year comparable period, mainly due to higher shipping and warehousing
expense totaling $304,000 relating to
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additional sales volume as well as higher warehousing costs, and higher product
development costs totaling $98,000, offset, in part, by lower royalty expense
totaling $249,000 related to fewer licensed product sales in this fiscal quarter
compared to the same fiscal quarter last year.
Interest expense in the first quarter of fiscal 2005 increased to $183,000, or
$28,000 above the last year's first quarter of $155,000, primarily the result of
a higher level of average borrowing to support this year's first quarter higher
sales along with slightly higher interest rates on the Company's line of credit.
The increase of $833,000 in earnings before income taxes for the three month
period ended September 30, 2004 to $1,496,000 from earnings before income taxes
of $663,000 in the prior fiscal comparable period was primarily due to higher
sales and gross profit dollars, offset by shipping, selling and administrative
expenses at a reduced percentage of net sales in this year's fiscal quarter
(19.3%) compared to last year's comparable fiscal quarter (22.7%),as further
discussed above. For the three-month period ended September 30, 2004, the
Company had an effective tax rate of 42.2% compared to a higher rate of 46.0%
in the first three month period of the prior year, primarily the result of
expired foreign tax credits during the first quarter of fiscal 2003. Net
earnings increased $507,000 to $865,000 for the three month period ended
September 30, 2004 from $358,000 in the prior comparable period.
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RECENTLY ISSUED ACCOUNTING STANDARDS
In June 2004, the Financial Accounting Standards Board (SFAS) issued an
interpretation of SFAS No. 143, Accounting for Asset Retirement Obligations.
This interpretation clarifies the scope and timing of liability recognition for
conditional asset retirement obligations under FASB No. 143, and is effective no
later than the end of our 2005 fiscal year. We have determined that this
interpretation, and the adoption of SFAS No. 143, will not have a material
impact on our consolidated financial statements or cash flows.
In December 2003, the SEC issued Staff Accounting Bulletin ("SAB") No. 104,
"Revenue Recognition" ("SAB No. 104"), which codifies, revises and rescinds
certain sections of SAB No. 101, "Revenue Recognition", in order to make this
interpretive guidance consistent with current authoritative accounting and SEC
rules and regulations. The changes noted in SAB No. 104 did not have a material
effect on our consolidated results of operations, consolidated financial
position or consolidated cash flows.
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, among other
things, 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,
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.
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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,
2004.
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 September 30,
2004 that has materially affected, or is reasonably likely to materially affect,
the Company's internal control over financial reporting.
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PART II. OTHER INFORMATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On August 10, 2004, the Company issued an aggregate of 120,000 shares of its
common stock, $1.00 par value per share ("Common Stock"), upon the exercise of
stock options previously granted. The Company received an aggregate of $252,000
in cash from the individual exercising these options (the "Optionee") in full
payment of the exercise price for the issued shares.
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. The 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. The 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.
Issuer Purchases of Equity Securities
The following sets forth certain information with respect to purchases by
the Company of shares of Common Stock during the three months ended September
30, 2004:
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- ---------------------------------------------------------------------------------------------------------------------
Total Number
Of Shares Purchased Maximum Number
as Part of Shares that May
Total Average Of Publicly Yet Be Purchased
Number of Shares Price Paid Announced Plans Under the Plans or
Period Purchased per Share Or Programs(1) Programs
- ---------------------------------------------------------------------------------------------------------------------
July 1, 2004-
July 31, 2004 - - 116,018
- ---------------------------------------------------------------------------------------------------------------------
August 1, 2004-
August 31, 2004 - - - 116,018
- ---------------------------------------------------------------------------------------------------------------------
September 1, 2004-
September 30, 2004 1,000 $5.40 1,000 115,018
- ---------------------------------------------------------------------------------------------------------------------
Total 1,000 $5.40 1,000 115,018
- ---------------------------------------------------------------------------------------------------------------------
(1) On December 3, 2002, the Company publicly announced that the Board of
Directors authorized the repurchase by us of up to 350,000 shares of Common
Stock, and that purchases would be made from time to time in the open market
and/or through privately negotiated transactions, subject to general market and
other conditions. Reference is made to "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and to Note 5 of the Notes to
Consolidated Financial Statements on page 8 of this Form 10-Q for additional
information about repurchases of shares of Common Stock.
Item 6. Exhibits
Exhibits Description
31(a) Rule 13a-14(a) Certification of Robert Chestnov, President
and Chief Executive Officer of the Company.
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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.
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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)
November 12, 2004 /s/ Allan Ginsburg
-------------------------
Allan Ginsburg
Chairman of the Board
November 12, 2004 /s/ Anthony Christon
-------------------------
Anthony Christon
Vice President
Chief Financial Officer
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EXHIBIT INDEX
-------------
Exhibit No. Description Page
----------- ----------- ----
31(a) Rule 13a-14(a) Certification of Robert Chestnov, 25
President and Chief Executive Officer of the Company.
31(b) Rule 13a-14(a) Certification of Anthony Christon, 26
Principal Financial Officer of the Company.
32 Certification Pursuant to 18 U.S.C. Section 1350, as 27
Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
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