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, 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
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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 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, 2005
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Common Stock, par value $1 per share 2,625,157
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
December 31, June 30,
2004 2004
(Unaudited) (See below)
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ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,633 $ 626
Accounts receivable, net 20,648 17,894
Inventory 7,568 7,877
Prepaid expenses and other current assets 1,729 1,536
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TOTAL CURRENT ASSETS 31,578 27,933
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PROPERTY PLANT AND EQUIPMENT, NET 1,222 1,069
GOODWILL 3,338 3,338
OTHER ASSETS 2,150 2,149
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TOTAL ASSETS $ 38,288 $ 34,489
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LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Notes payable - bank $ 7,990 $ 4,220
Accounts payable 4,022 6,373
Other current liabilities 4,766 3,725
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TOTAL CURRENT LIABILITIES 16,778 14,318
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MORTGAGE PAYABLE 2,806 2,880
OTHER LONG TERM LIABILITIES -- 15
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock 3,369 3,369
Additional paid-in capital 9,854 10,390
Retained earnings 10,737 9,716
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23,960 23,475
Less: Common shares in treasury at cost 5,256 6,199
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TOTAL STOCKHOLDERS' EQUITY 18,704 17,276
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TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 38,288 $ 34,489
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The June 30, 2004 Balance Sheet is derived from audited financial statements.
See notes to condensed consolidated financial statements.
-2-
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(Unaudited)
(In Thousands, Except Share and Per Share Amounts)
Three Months Ended Six Months Ended
December 31, December 31,
----------------------- -----------------------
2004 2003 2004 2003
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Net sales $ 38,441 $ 38,745 $ 74,246 $ 68,641
Cost of goods sold 30,559 29,417 57,770 51,723
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Gross profit 7,882 9,328 16,476 16,918
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Shipping, selling and administrative expenses 7,248 7,523 14,163 14,295
Interest expense 277 223 460 378
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7,525 7,746 14,623 14,673
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Earnings before income taxes 357 1,582 1,853 2,245
Provision for income taxes 201 683 832 988
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Net earnings $ 156 $ 899 $ 1,021 $ 1,257
========== ========== ========== ==========
Net earnings per common share - basic $ .06 $ .35 $ .40 $ .49
========== ========== ========== ==========
Weighted average number of shares outstanding - basic 2,601,000 2,558,000 2,572,000 2,545,000
========== ========== ========== ==========
Net earnings per common share - diluted $ .06 $ .33 $ .38 $ .46
========== ========== ========== ==========
Weighted average number of shares outstanding - diluted 2,726,000 2,733,000 2,700,000 2,721,000
========== ========== ========== ==========
See notes to condensed consolidated financial statements.
-3-
JACLYN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In Thousands)
Six Months Ended
December 31,
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2004 2003
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Cash Flows From Operating Activities:
Net Earnings $ 1,021 $ 1,257
Adjustments to reconcile net earnings to net cash used in operating activities:
Depreciation and amortization 208 187
Changes in assets and liabilities:
Increase in accounts receivable, net (2,754) (2,289)
Decrease (increase) in inventory 309 (2,933)
(Increase) decrease in prepaid expenses and other assets (214) 186
Decrease in accounts payable and other current liabilities (1,174) (2,734)
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Net cash used in operating activities (2,604) (6,326)
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Cash Flows From Investing Activities:
Purchase of property and equipment (356) (105)
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Net cash used in investing activities (356) (105)
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Cash Flows From Financing Activities:
Net increase in loans payable - bank 3,770 6,510
Payment of mortgage loan (70) (69)
Repurchase of common stock (17) (166)
Exercise of stock options 284 173
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Net cash provided by financing activities 3,967 6,448
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Net Increase in Cash and Cash Equivalents 1,007 17
Cash and Cash Equivalents, beginning of period 626 66
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Cash and Cash Equivalents, end of period $ 1,633 $ 83
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Supplemental Information:
Interest paid $ 436 $ 359
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Taxes paid $ 802 $ 578
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See notes to condensed consolidated financial statements.
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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, 2004, the condensed consolidated statements of earnings for the three and
six month periods ended December 31, 2004 and 2003 and the condensed
consolidated statements of cash flows for the six months ended December 31, 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 should 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, which are included in the Company's Annual
Report on Form 10-K filed with the SEC on September 28, 2004. The results of
operations for the period ended December 31, 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):
-5-
Three Months Six Months
Ended Ended
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December 31, December 31,
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2004 2003 2004 2003
Net earnings
As reported $ 156 $ 899 $ 1,021 $ 1,257
Deduct: Total stock based employee compensation expense
determined under fair value based method, net of taxes 36 27 36 27
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Pro forma Net Earnings $ 120 $ 872 $ 985 $ 1,230
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Basic net earnings per common share:
As reported $ .06 $ .35 $ .40 $ 49
Pro forma $ .05 $ .34 $ .38 $ 48
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Diluted net earnings per common share:
As reported $ .06 $ .33 $ .38 $ .46
Pro forma $ .04 $ .32 $ .36 $ .45
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The weighted average fair value of options granted during the second
quarter of fiscal 2005 and 2004 was $6.70 and $4.81, respectively.
3. Earnings Per Share:
The following table sets forth the computation 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,
2004 2003 2004 2003
---- ---- ---- ----
Basic Net Earnings Per Common Share:
Net Earnings $ 156 $ 899 $ 1,021 $ 1,257
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Basic Weighted Average Shares Outstanding 2,601,000 2,558,000 2,572,000 2,545,000
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Basic Net Earnings Per Common Share $ .06 $ .35 $ .40 $ .49
-------------------------------------------------
-6-
Three Months Ended Six Months Ended
December 31, December 31,
2004 2003 2004 2003
---- ---- ---- ----
Diluted Net Earnings Per Common Share:
Net Earnings $ 156 $ 899 $ 1,021 $ 1,257
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Basic Weighted Average Shares Outstanding 2,601,000 2,558,000 2,572,000 2,545,000
Add: Dilutive Options 125,000 175,000 128,000 176,000
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Diluted Weighted Average Shares Outstanding 2,726,000 2,733,000 2,700,000 2,721,000
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Diluted Net Earnings Per Common Share $ .06 $ .33 $ .38 $ .46
-------------------------------------------------
There were no options outstanding to purchase shares of the Company's
common stock at December 31, 2004 that were anti-dilutive. Options to
purchase an additional 4,000 common shares at a prices of $5.125 were
outstanding at December 31, 2003. 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, 2004 June 30, 2004
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Raw materials $ 688 $ 2,932
Work in process 1,432 450
Finished Goods 5,448 4,495
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$ 7,568 $ 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
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credit facility. For the three and six-month periods ended December 31, 2004,
the Company purchased 2,000 shares and 3,000 shares of its Common Stock at a
cost of approximately $11,000 and $17,000, respectively. As of December 31,
2004, the Company purchased a total of 236,982 shares of its Common Stock at a
cost of approximately $876,000, 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.
The Company issued an aggregate of 19,000 shares of its common stock during the
period from October 1, 2004 through December 31, 2004 upon the exercise by five
employees of the Company (the "optionees") of stock options previously granted.
The Company received an aggregate of $31,800 in cash from the optionees in
partial payment of the exercise price for the issued shares. The Company also
received an aggregate of 577 mature shares of Common Stock from the optionees in
partial payment of the exercise price for the issued shares under terms of the
stock option plan under which the stock options were granted. The stock option
plan permits the use of previously acquired shares of Common Stock in full or
partial payment of the applicable exercise price.
6. Financing Agreements
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 December 31, 2004. As
of December 31, 2004, borrowing on the short-term line of credit was $7,990,000,
and the Company had $13,660,000 of additional availability (based on the
borrowing formula) under its credit facility. At December 31, 2004, the Company
was contingently obligated on open letters of credit with an aggregate face
amount of approximately $5,130,000. 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
December 31, 2004 was 5.25 %.
-8-
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 by fiscal year 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 $ 506,000
2006 964,000
2007 748,000
2008 532,000
2009 355,000
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:
Year Ended Minimum
June 30, Commitments
2005 $ -0-
2006 175,000
2007 200,000
From time to time, the Company and its subsidiaries may become a party to legal
proceeding which arise in
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the normal course of business. At December 31, 2004, there were no material,
pending legal proceedings to which the Company was a party. In the opinion of
management, disposition of all 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 December 31, 2004.
8. Retirement Plans:
Pension expenses includes the following components:
Three Month Period Ended Six Month Period Ended
December 31, December 31,
2004 2003 2004 2003
COMPONENTS OF NET PERIODIC
BENEFIT COST:
Service cost $ 144,000 $ 77,750 $ 288,000 $ 155,500
Interest cost 120,500 65,000 241,000 130,000
Expected return on assets (99,500) (64,750) (199,000) (129,500)
Amortization of prior service cost 250 250 500 500
Amortization of transition assets (19,500) (9,750) (39,000) (19,500)
Amortization of actuarial loss 4,250 21,250 8,500 42,500
----------------------------------------------------
Net periodic cost $ 150,000 $ 89,750 $ 300,000 $ 179,500
====================================================
The Company previously disclosed in its financial statements that it
expected to contribute approximately $752,000 to its pension plan in fiscal
2005. As of December 31, 2004, no contribution has been made.
Recently Issued Accounting Standards:
In December 2004, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 123R, "Share-Based Payment", which is an amendment to FASB Statement
No. 123, "Accounting for Stock-Based Compensation." Statement 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values, and would
be effective for interim or annual reporting
-10-
periods beginning after June 15, 2005. We are continuing to evaluate the full
impact of SFAS No. 123R for its adoption in the first quarter of fiscal 2006.
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.
-11-
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. For the most part, our products are
made to order, and are marketed and sold primarily to national mass
merchandisers, as well as to a range of other retailers.
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 period 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.
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 the application of its 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.
-12-
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 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 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.
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.
Liquidity and Capital Resources
-13-
The Company's cash and cash equivalents increased $1,007,000 during the
six-month period ended December 31, 2004 to $1,633,000 from $626,000 at June 30,
2004.
Net cash used in operating activities totaled $2,604,000, primarily from an
increase in accounts receivable totaling $2,754,000 which reflects much higher
shipping in the December 2004 fiscal quarter compared to the June 2004 fiscal
quarter. Cash flows used in operating activities was lower by $3.7 million for
the six-month period ended December 31, 2004 compared to the same period in
2003, relating primarily to $3.2 million less cash needed for inventory in the
current period, since we anticipate much lower shipping for the second half of
fiscal 2005 than we experienced in the second half of fiscal 2004. Funds
provided by financing activities of $3,967,000 were mostly the result of
$3,770,000 in net borrowing under the Company's bank credit facility and from
the exercise of stock options totaling $284,000. These funds were used to
finance the higher level of seasonal business activity.
Net cash used in investing activities of $356,000 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 December 31, 2004. As
of December 31, 2004, borrowing on the short-term line of credit was $7,990,000,
and the Company had $13,660,000 of additional availability (based on the
borrowing formula) under its credit facility. At December 31, 2004, the Company
was contingently obligated on open letters of credit with an aggregate face
amount of approximately $5,130,000. 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
December 31, 2004 was 5.25%.
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.
There were no material commitments for capital expenditures at December 31,
2004.
-14-
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 and six-month periods ended
December 31, 2004, the Company purchased 2,000 shares and 3,000 shares of its
Common Stock at a cost of approximately $11,000 and $17,000, respectively. As of
December 31, 2004, the Company purchased a total of 236,982 shares of its Common
Stock at a cost of approximately $876,000 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 December 31, 2004
to June 30, 2005 for the first period and, thereafter, each subsequent fiscal
year of the Company:
* * * * Payments Due by Period * * * *
Contractual Obligations Total Less than 1 2-3 Years 4-5 Years After 5 Years
Year
Notes Payable $ 7,990,000 $ 7,990,000 $ -- $ -- $ --
Mortgage Payable 2,954,000 148,000 330,000 395,000 2,081,000
Royalties 375,000 -- 175,000 200,000 --
Operating Leases 3,105,000 506,000 1,712,000 887,000 --
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Total Contractual
Obligations $ 14,424,000 $ 8,644,000 $ 2,217,000 $ 1,482,000 $ 2,081,000
--------------------------------------------------------------------------
* * * * * * * * After * * * * * * * *
Other Commercial Less than
Commitments Total 1 Year 2-3 Years 4-5 Years After 5 Years
- ---------------------------------------------------------------------------------------------------------
Letters of Credit $ 5,130,000 $ 5,130,000 $ -- $ -- $ --
--------------------------------------------------------------------------
Total Commercial
Commitments $ 5,130,000 $ 5,130,000 $ -- $ -- $ --
--------------------------------------------------------------------------
-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 $38,441,000 and $74,246,000 during the three and six-month
periods ended December 31, 2004 compared to $38,745,000 and $68,641,000 in the
three and six-month periods ended December 31, 2003, respectively. This year's
slight decrease in net sales for the three-month period was mostly the result of
much lower sales volume in the Company's Apparel category, with higher Handbags
category sales volume offseting most, but not all, of the net sales decline in
Apparel.
Net sales for the Apparel category were $29,101,000 for the three-month period
ended December 31, 2004, a decrease in net sales of $3,842,000, or 11.7%, from
the same quarter in fiscal 2003. Slightly more than half of the sales decrease
for this category was due to lower net sales from the women's sleepwear
business, which resulted primarily from reduced orders from its customers based
on a reluctance on the part of retailers to "overstock" this year's holiday
season. In addition, the catalog business dropped 51.2% in net sales, continuing
a trend of a lower level of reorders from customers of this division, based, in
turn, on lower demand for mail-order apparel. The children's apparel business
was only slightly below last year's same quarter sales results. For the
six-month period ended December 31, 2004, net sales for the Apparel category
were $54,973,000, or 1.8 % below the prior fiscal year's same period, for the
same reasons regarding the women's sleepwear business and the Company's catalog
business, offset for the most part by better six-month children's apparel sales
from increased customer orders, as well as the introduction of new items within
this business.
Net sales for the Handbags category were $9,340,000 for the three-month period
ended December 31, 2004, an increase of $3,539,000, or about 61.0% above the
same three-month period in the prior year, reflecting continued growth with the
premium business' most significant customer, as well as the handbag business
experiencing much better sales, primarily from denim related products. Fiscal
2004's six-month period ended December 31, 2004 had net sales of $19,273,000, or
52.0 % more than the prior comparable six-month fiscal period, which totaled
$12,678,000, for the same reasons.
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Gross margins were 20.5% and 22.2% in the three-month and six-month periods
ended December 31, 2004 compared to 24.1% and 24.6 % in the comparable periods
ended December 31, 2003, respectively.
Gross margin for the Apparel category in the three-month period ended December
31, 2004, declined to 22.8 % from 25.0% in the prior comparable three-month
period, primarily attributable to lower margins contributed by the children's
apparel business which experienced higher customer allowances, and in the
women's sleepwear business which had increased shipping costs, with only
slightly better margins in the catalog business. For the six-month period ended
December 31, 2004, gross margins were 24.6 % for this category versus 25.7 % in
the prior year comparable period primarily for the same reasons.
Gross margin for the Handbags category was 13.2 % in the quarter ended December
31, 2004 compared to 18.8% in the similar prior year quarter. This lower gross
margin for the most part reflects marketplace competition as a result of which
the Company reduced its gross profit margin in order to maintain sales, as well
as lower handbag business margins due to lower royalty sales in the current
quarter compared to the same quarter in fiscal 2004. For the six-month period
ended December 31, 2004 the Handbags category gross profit decreased to 15.3 %
from 19.9%, for the same reasons.
Shipping, selling and administrative expenses totaling $7,248,000 were $275,000
lower than the second quarter in the prior year's comparable period. As a
percentage of net sales, shipping, selling and administrative expenses decreased
slightly to 18.9% from 19.4%, the result of both lower royalty expense relating
to the sale of licensed product, and lower selling commissions attributable to
sales mix. Shipping, selling and administrative expenses for the six-month
period ended December 31, 2004 were $14,163,000 (19.1% of net sales), or
$132,000 lower than the same six-month period in the prior fiscal year which
totaled $14,295,000 (20.8% of net sales), for the same reasons.
Interest expense of $277,000 in the second quarter of fiscal 2005 compares to
$223,000 in the prior comparable period. For the six month period ended December
31, 2004, interest expense totaled $460,000 versus $378,000. The increase in
both periods principally reflects a higher interest rate and a higher level of
borrowing to support higher sales volume compared to last year's comparable
periods.
The decrease in earnings before income taxes for both the three-month and
six-month periods ended December 31, 2004, as compared to the equivalent prior
fiscal periods, was due primarily to lower gross profit margins and higher
interest expense, which was not completely offset by lower shipping, selling and
administrative expenses, as discussed above. For the period ended December 31,
2004, the Company had an effective tax rate of 44.9% compared to 44.0 % in the
same period of the prior year. Net earnings for the three month period ended
December 31, 2004 of $156,000 were lower compared to net earnings for the same
period last year of $899,000. For the six-month period ended December 31, 2004,
net earnings were $1,021,000, against net earnings of $1,257,000 in the prior
six-month comparable period.
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Recently Issued Accounting Standards
In December 2004, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 123R, "Share-Based Payment", which is an amendment to FASB Statement No.
123, "Accounting for Stock-Based Compensation." Statement 123R requires all
share-based payments to employees, including grants of employee stock options,
to be recognized in the income statement based on their fair values, and would
be effective for interim or annual reporting periods beginning after June 15,
2005. We are continuing to evaluate the full impact of SFAS No. 123R for its
adoption in the first quarter of fiscal 2006.
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 earnings 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. In addition, results of
operations during any particular period in a fiscal year may not be necessarily
indicative of similar results for any other fiscal year. In that regard, the
Company expects net sales and net earnings for the second half of fiscal 2005 to
be significantly below last year's second half, and, as a result, full year
results are anticipated to be lower than in fiscal 2004.
The Company believes that seasonal and other variations are characteristic of
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 or other period are not necessarily
indicative of future results.
FORWARD-LOOKING STATEMENTS
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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.
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 December 31,
2004 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. Unregistered Sales of Equity Securities and Use of Proceeds
(a) Not Applicable
(b) Not Applicable
(c) 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 December 31,
2004:
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Maximum Number
of Shares that May
Total Average Total Number of Shares Yet Be Purchased
Number of Shares Price Paid Purchased as Part Of Under the Plans or
Purchased per Share Publicly Announced Programs
Period Plans Or Programs(1)
----------------------------------------------------------------------------------------------
October 1, 2004-
October 31, 2004 2,000 $5.65 2,000 113,018
November 30, 2004-
November 30, 2004 -- -- -- 113,018
December 1, 2004- -- -- --
December 31, 2004 113,018
Total 2,000 $ 5.65 2,000 113,018
(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 4. Submission of Matters to a Vote of Security Holders.
(a) Date of Annual Meeting of Stockholders - November 30, 2004
(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 2,217,335 45,505
Allan Ginsburg 2,217,335 45,505
Robert Chestnov 2,217,335 45,505
Howard Ginsburg 2,217,335 45,505
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Martin Brody 2,239,119 30,721
Richard Chestnov 2,239,235 23,605
Albert Safer 2,239,476 23,367
Norman Axelrod 2,246,470 16,370
Harold Schechter 2,246,470 16,370
(ii) Ratification of the appointment of Deloitte & Touche LLP as
independent accountants of the Company.
Votes For: 2,248,661 Votes Against: 14,179 Abstentions: None
Item 6. Exhibits and Reports on Form 8-K
Exhibits Description
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.
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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)
------------
February 14, 2005 /s/ ALLAN GINSBURG
------------------------------
Allan Ginsburg
Chairman of the Board
February 14, 2005 /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,
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.
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