<PAGE> 1
DOCUMENTS INCORPORATED BY REFERENCE
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED JUNE 3, 2000
COMMISSION FILE NUMBER 0-15017
---------------
SAMUELS JEWELERS, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 95-3746316
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
2914 MONTOPOLIS DRIVE, SUITE 200 78741
AUSTIN, TEXAS (Zip Code)
(Address of Principal Executive Offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (512) 369-1400
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Title of each class
COMMON STOCK
WARRANTS
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [ ]
As of August 17, 2000, the aggregate market value of the voting stock,
held by nonaffiliates of the issuer, was $8,028,469 based upon an average price
of $4.75 multiplied by 1,690,204 shares of common stock outstanding on such date
held by nonaffiliates.
As of August 17, 2000, the issuer had a total of 7,949,840 shares of
common stock outstanding.
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS.
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Section 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution under a plan confirmed by a
court. Yes [X] No [ ]
DOCUMENTS INCORPORATED BY REFERENCE
Part III.
Samuels Jewelers, Inc. Proxy Statement relating to its 2000 Annual
Meeting of Shareholders, to be filed with the SEC within 120 days of June 3,
2000.
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PART I
ITEM 1. BUSINESS
THE COMPANY
Samuels Jewelers, Inc. (the "Company" or "Samuels") operates a national
chain of specialty retail jewelry stores located in regional shopping malls,
power centers, strip centers and stand-alone stores. The Company sells fine
jewelry items in a wide range of styles and prices, with a principal emphasis on
diamond and gemstone jewelry. As of August 17, 2000, the Company operated 199
retail jewelry stores in 26 states. The Company also sells jewelry online at
www.Samuels.cc, www.SamuelsJewelers.com and www.JewelryLine.com. The Company
currently operates stores under the following four tradenames: "Samuels", "C&H
Rauch", "Schubach" and "Samuels Diamonds". Measured by the number of retail
locations, Samuels is the seventh largest specialty retailer of fine jewelry in
the country.
The Company takes its name, "Samuels Jewelers", from a chain of stores
operated by its corporate predecessor, Barry's Jewelers, Inc. (the
"Predecessor"), in the San Francisco Bay area. The Samuels chain, founded in
1891, blends a rich tradition of providing an excellent selection of fine
jewelry with outstanding customer service. Since 1998 the Company has
consolidated the number of tradenames under which it operates from fourteen to
four and it plans to operate all its stores under either the "Samuels" or
"Samuels Diamonds" name within the next two to three years.
Although it evoked tradition in selecting its operating tradename, the
Company progressively seeks new and efficient ways to operate its business. The
Company targets a more affluent and less credit-dependent consumer through a
sophisticated marketing program that focuses on offering quality merchandise at
a fair price. The Company uses a store prototype that is customer friendly,
inviting and attracts the Company's target customer, as well as the various mall
developers. The Company manages the business, including merchandising and
distribution functions, through operating systems that use current technology.
In Fiscal 2000, the Company began to offer online jewelry shopping to complement
the operations of its physical store locations.
The Company is incorporated under the laws of Delaware. Its corporate
office is located at 2914 Montopolis Drive, Suite 200, Austin, Texas 78741, and
its telephone number is (512) 369-1400.
HISTORY
The Company was created in August 1998 for the purpose of acquiring the
assets of the Predecessor as part of its Plan of Reorganization (the "Plan"),
which was confirmed by the bankruptcy court on September 16, 1998 and was
consummated on October 2, 1998 (the "Reorganization").
As part of the restructuring, the newly reconstituted board of
directors of the Predecessor recruited a new management team with an established
background in the retail jewelry industry. This background included experience
with national retail jewelers in merchandising, marketing, operation and
training, systems installations and management, financial management and
reporting, as well as restructuring expertise.
After its appointment, the new management team identified several
problems with the Predecessor's financial and operational situation, primarily
that the Predecessor was significantly over-leveraged and was continuing to
operate a number of unprofitable store locations that targeted a less affluent,
more credit-dependent customer. The new management team embarked on the
development and implementation of a business plan designed to address these
issues and to restore the Predecessor to profitability. Originally, the
Predecessor hoped to implement its new business plan without having to commence
bankruptcy proceedings, but after discussions with various constituencies it was
determined that the Predecessor would have to commence Chapter 11 reorganization
proceedings in order to provide it with the time, flexibility and stability
needed to formulate and fully implement the new business plan and otherwise to
reorganize its financial and operations affairs.
With the cooperation of these constituencies, the new management team
began to institute a new merchandising and marketing strategy in time for the
1997 Christmas selling season. Concurrently, the new management team began
developing the infrastructure necessary to allow the Company to grow and go
forward profitably. In the spring of 1998, management presented a plan that
readily received approval from the various constituencies. The Plan included
approvals for using resources to obtain all new information technology that
would be necessary to efficiently operate the business and for the aggressive
and successful effort of relocating the home office from southern California to
central Texas. These efforts were commenced throughout and substantially
concluded in 1998.
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Under the Reorganization, the Company was funded by $15 million of new
equity provided by bondholders of the Predecessor, who also consented to the
conversion of $50 million of bonds they held in the Predecessor into equity of
the Company. Specifically, the Plan provided for the following in connection
with the Reorganization:
o payment in full of certain administrative claims, tax claims, bank secured
claims and other allowed secured claims;
o distribution of 2,500,000 shares of the Company's common stock to the
Predecessor's bondholders in exchange for their allowed claims;
o distribution of 2,250,000 shares of the Company's common stock in exchange
for $15 million in a new equity cash infusion;
o distribution of 250,000 restricted shares of the Company's common stock to
certain members of the new management team;
o payment of allowed claims of general unsecured creditors at a rate of $0.15
for each dollar of their allowed claims;
o issuance of up to 263,158 warrants to purchase the Company's common stock
to stockholders in exchange for their shares of Barry's common stock; and
o merger of Barry's into Samuels Jewelers, Inc.
In addition, Foothill Capital Corporation agreed to provide the Company
with a new fully secured line of credit of up to $50 million. Upon consummation
of the Reorganization on October 2, 1998, the Company drew down approximately
$32 million from this line of credit. These borrowings, along with the $15
million new cash equity infusion, were used to pay the balance of the
Predecessor's previous line of credit with BankBoston.
The Company's balance sheet and financial statements have been impacted
by the Reorganization and the adoptions made by the Company in connection with
the Reorganization as described in "Notes to Financial Statements--1.
Reorganization and Basis of Presentation."
As part of the Reorganization, the Company changed the fiscal year end
used by its Predecessor from May 31 to the Saturday closest to May 31. The
Company's fiscal years ended June 3, 2000 ("Fiscal 2000"), May 29, 1999 ("Fiscal
1999") and May 30, 1998 ("Fiscal 1998") may be referred to herein as such.
The primary remnants of the Predecessor's operations are 106 locations
of the more than 200 leasehold interest that the Predecessor occupied. Most of
the leases for these locations have been renegotiated and many of the stores
have been renamed and remodeled. The Company plans to rename and remodel the
remaining stores in the coming few years.
FISCAL YEAR 2000 DEVELOPMENTS
During Fiscal 2000, the Company continued to implement the business
plan developed by its management team in connection with the Reorganization. The
Company consolidated the number of tradenames under which it operates from
fourteen to four, only two of which belonged to the Predecessor. Through its
acquisitions during Fiscal 2000, the Company has expanded from being strictly a
mall-based concept, adding both a "big box" stand-alone concept with its
"Samuels Diamonds" name and also expanding into power center strip malls with
its acquisition of the "C&H Rauch" stores.
In August 1999, the Company outsourced its credit operations to an
independent credit expert, Alliance Data Services, through its wholly owned
subsidiary World Financial Network National Bank ("WFN"). The Company sold its
existing credit card accounts to WFN and agreed to have WFN provide a
third-party credit card program for the benefit of the Company's customers. Upon
closing the sale of the existing credit card accounts, the Company sold its
approximately $46.8 million outstanding accounts receivable to WFN at face
value, less a holdback reserve of approximately $9.4 million. The Company used
the net proceeds of approximately $37.4 million to reduce the balances
outstanding under its secured line of credit with Foothill Capital Corporation
and the Company then reduced the total commitment under the secured line of
credit from $50 million to $40 million.
In addition, during Fiscal 2000, the Company opened several new stores,
either by negotiating new leases or acquiring leases through the acquisition of
other retail jewelry operations. The Company opened 17 new stores during Fiscal
Year 2000 by negotiating new leases. The Company's acquisition of other retail
jewelry operations included the following:
o Henry Silverman Jewelers, Inc.--On July 27, 1999, the Company entered into
a purchase agreement with Henry Silverman Jewelers, Inc. ("Silverman's") to
acquire its tradenames, customer lists, fixtures and the lease rights for
14 Silverman's stores. The Company's purchase price for these assets was
54,600 shares of its common stock, then valued at approximately $0.3
million. The Company did not assume any of Silverman's liabilities or
acquire any of Silverman's remaining assets. The shares of common stock
were issued and registered under the Company's shelf registration statement
on Form S-1, declared effective by
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the SEC on June 9, 1999. The Company also issued 2,500 shares of its common
stock to an individual as a finder's fee as part of the transaction. The
Company currently operates these 14 stores in seven states, 13 stores under
the name "Samuels Diamonds" and one as "Samuels". See "Notes to Financial
Statements--2. Accounting for Acquisitions."
o C & H Rauch, Inc.--In November 1999, the Company acquired substantially all
of the assets of C & H Rauch, Inc. ("Rauch") through the purchase of all of
the outstanding stock of Rauch. The Company's net purchase price for this
acquisition was approximately $20.0 million, consisting of $2.0 million in
cash, notes payable in the amount of $6.0 million and approximately $12.0
million in liabilities assumed. The Company's acquisition of Rauch added 40
new stores, including operations in the states of Kentucky, Ohio, Indiana,
West Virginia and Virginia. Upon completion of the acquisition, Rauch was
merged with and into the Company. Currently, the Company continues to
operate 33 of these stores under the "C&H Rauch" nameplate and has
converted the other 7 stores to "Samuels". See "Notes to Financial
Statements--2. Accounting for Acquisitions."
o Musselman Jewelers--Pursuant to an asset purchase agreement that was
entered into in December 1999, the Company acquired from Wilkerson &
Associates substantially all of its interests in and rights to 14 Musselman
Jewelers stores ("Musselman"), including tradenames, customer lists,
fixtures and the lease rights related to such stores. The Company's
purchase price for these assets was 60,000 shares of its common stock, then
valued at approximately $0.5 million. The Company did not assume any of
Musselman's liabilities and did not acquire any of Musselman's other assets
as part of the acquisition. The 60,000 shares of the Company's common stock
were registered under the Company's shelf registration statement on Form
S-1, as amended by Post-Effective Amendment No. 1 on Form S-4 to Form S-1
Registration Statement. By early February 2000, the Company had begun
operating fourteen stores in three states--Pennsylvania, Virginia and West
Virginia--under Musselman's prior lease agreements. All fourteen stores
have been renamed "Samuels". See "Notes to Financial Statements--2.
Accounting for Acquisitions."
o JewelryLine.com, Inc.--The Company began online jewelry shopping operations
during Fiscal 2000. As of March 8, 2000, the Company acquired the online
operations and assets of JewelryLine.com, Inc. ("JewelryLine"), including
the registered domain names, related to JewelryLine's operation of an
online Internet site for the sale of jewelry and related items. The
Company's purchase price for the JewelryLine assets was 35,000 shares of
the Company's common stock, then valued at approximately $0.3 million, that
were registered pursuant to the Company's shelf registration statement on
Form S-1, as amended by Post-Effective Amendment No. 1 on Form S-4 to Form
S-1 Registration Statement. The Company did not assume any of JewelryLine's
liabilities as part of the transaction. See "Notes to Financial
Statements--2. Accounting for Acquisitions." The Company also registered
"www.Samuels.cc" and www.SamuelsJewelers.com" Web Site locations and began
offering merchandise at such locations, along with JewelryLine.com, on
April 17, 2000.
RECENT EVENTS
In July 2000, the Company completed the sale of 2,795,940 shares of its
common stock, par value $.001 per share, to several purchasers pursuant to a
private offering by the Company. The purchasers of common stock in this private
offering included directors and officers of the Company and funds controlled by
DDJ Capital Management, LLC. The Company sold the shares at a price of $5.25 per
share for an aggregate purchase price of approximately $14.7 million. See "Notes
to Financial Statements--10. Subsequent Events". This private placement raised
approximately $13.0 million in current operating funds which are being used to
fund the increased working capital needs created by the Company's recent growth.
As part of the purchase agreements for such sales of common stock, the Company
agreed to register such stock under the Securities Act of 1933, as amended, for
resale pursuant to a shelf registration statement.
The Company conducted the private offering and sold the 2,795,940
shares under an exemption from registration of such shares under the Securities
Act of 1933, as amended (the "Securities Act"), provided in Section 4(2) of the
Securities Act and pursuant to Rule 506 under Regulation D under the Securities
Act.
STRATEGY
The Company's operating strategy is to provide exceptional value on
fine jewelry to the retail jewelry consumer. This is accomplished by partnering
with vendors to develop new products and expand assortments based on customer
demand and perceived value and then by communicating this value message through
targeted marketing programs. To enhance sales, the Company makes credit
financing available to qualified customers through a private label credit card
program and through various secondary credit sources. The Company's sales
capabilities are also supported by a trained and knowledgeable sales staff and a
centralized distribution system to replenish merchandise.
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MERCHANDISE STRATEGY
Utilizing an experienced team of merchants with both buying and
manufacturing expertise, the Company has been able to develop dominant
merchandise assortments that provide exceptional quality at competitive prices.
This focus on providing products with clear, competitive features allows
differentiation by offering a better value to the consumer and thereby capturing
a larger market share. The Company has also positioned its merchandise
assortments to appeal to a mainstream jewelry consumer with competitive price
points, modern styling and expanded selection in high volume product categories.
INVENTORY MANAGEMENT
Inventory is purchased and distributed centrally through the home
office in Austin, Texas. Store inventory is replenished weekly, or more often
during peak selling seasons, and stock is balanced regularly to improve
turnover. Management believes that centralized merchandise purchasing and
distribution allows the Company to better ensure the quality of offerings and
take advantage of volume pricing discounts.
The three largest volume vendors collectively have accounted for an
aggregate of 45%, 31% and 27% of merchandise purchases by the Company during
Fiscal 2000, 1999 and 1998, respectively. Management believes that the Company's
relationship with its vendors is good.
SUPPLY AND PRICE FLUCTUATIONS
The world supply and price of diamonds are influenced considerably by
the Central Selling Organization ("CSO"), which is the marketing arm of DeBeers
Consolidated Mines, Ltd. ("DeBeers"), a South African company. Through the CSO,
over the past several years, DeBeers has supplied approximately 80% of the world
demand for rough diamonds, selling to gem cutters and polishers at controlled
prices. Recent changes in the DeBeers corporate culture and their control on
market pricing may impact the Company's costs in the future. To date there have
been no material effects resulting from these changes.
The Company is subject to other supply risks, including fluctuations in
the price of precious gems and metals. The Company presently does not engage in
any hedging activity with respect to possible fluctuations in the price of these
items. If such fluctuations should be unusually large or rapid and result in
prolonged higher or lower prices, there is no assurance that the necessary
retail price adjustments will be made quickly enough to prevent the Company from
being adversely affected.
TRADE NAMES
As of June 3, 2000, the Company operated 198 stores in 26 states under
the following trade names: "Samuels", "C&H Rauch", "Schubach" and "Samuels
Diamonds". The Company intends to have all of its stores operating under
"Samuels Jewelers" or "Samuels Diamonds" within the next two to three years. The
Company also owns and operates the following sites on the World Wide Web:
www.Samuels.cc, www.SamuelsJewelers.com and www.JewelryLine.com.
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STORE PERFORMANCE
The following table sets forth selected data with respect to the
Company's operations for the last five fiscal years:
<TABLE>
<CAPTION>
2000 1999 1998 1997 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Number of stores at beginning of year .............. 116 117 130 161 162
Acquired during the year ......................... 68 5 -- -- --
Opened during the year ........................... 17 2 -- 17 7
Closed during the year(1) ........................ (3) (8) (13) (48) (8)
------- ------- ------- ------- -------
Total at year end ........................ 198 116 117 130 161
======= ======= ======= ======= =======
Percentage increase (decrease) in sales of
comparable stores(2) ............................. 4.8% 2.0% 9.2% (10.0)% 2.2%
Average sales per comparable store (in
thousands)(2) .................................... $ 1,036 $ 968 $ 951 $ 709 $ 905
Private label credit sales mix (3) ................. 32.7% 49.5% 54.3% 65.2% N/A
Equivalent store weeks ............................. 8,586 5,934 6,571 8,657 8,369
Equivalent weekly average store sales (in thousands) $ 18.3 $ 18.3 $ 17.3 $ 15.1 $ 16.7
</TABLE>
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(1) The 48 stores closed during Fiscal 1997 are composed of 33 stores
closed on or about May 11, 1997, as part of the Company's Chapter 11
Petition filing; 11 stores closed in connection with the
restructuring, announced in January 1997, and 4 other stores closed
during the year.
(2) Comparable stores are stores that were open for all of the current and
preceding year. Fiscal 2000's 53-week percentage sales increase is
calculated by adding an extra week to Fiscal 1999's comparable store
sales
(3) Private label credit sales mix represents the percentage of total
sales made on the Company's private label credit card including sales
on the accounts provided by WFN after the Company outsourced its
credit operations in Fiscal 2000.
CREDIT PROGRAM
On August 30, 1999 the Company sold its then existing credit card
accounts to WFN pursuant to an agreement that called for the Company to transfer
its approximately $46.8 million outstanding accounts receivable to WFN at face
value, less a holdback reserve of approximately $9.4 million to be held by WFN,
thus finalizing the efforts commenced in 1997 by the new management team to
shift its focus from being a credit jeweler to a mainstream jeweler targeting a
more affluent, less credit-dependent customer base. The third-party credit
program generally requires WFN to calculate monthly the total amount of
receivables outstanding and then retain or pay out, as applicable, an amount
such that the holdback reserve is maintained at a constant percentage of
receivables outstanding. The holdback reserve is intended to protect WFN against
charged-off accounts and will be returned to the Company at the end of the
program. The Company has recorded the holdback reserve net of a valuation
allowance that reflects management's estimate of losses based on past
performance. Under the agreement WFN otherwise pays the Company the proceeds for
sales on the credit accounts promptly after the sale. The third-party credit
card program has an initial term of five years, but provides the parties the
option to extend the agreement beyond such initial term unless the parties
otherwise agree.
Charges, net of down payments, under the Company's credit program
accounted for approximately 32.7% of Fiscal 2000 sales and 49.5% of Fiscal 1999
sales. The decline in credit sales mix is primarily attributable to the
outsourcing of credit decisions and changes to the credit underwriting criteria
to shift the Company's focus on marketing targeted to a more affluent and less
credit-dependent consumer. Payment periods for credit sales on the Company's
private label credit card generally range from 24 to 36 months. Customers may
also purchase jewelry for cash, personal check or by using major national credit
cards.
SEASONALITY
Sales during the Christmas season, which includes the period from the
day following Thanksgiving Day to December 31, generally account for
approximately 25% of the Company's annual net sales and all or nearly all of its
annual earnings. The success of the Company is heavily dependent each year on
its Christmas selling season, which in turn depends on many factors beyond the
Company's control, including the general business environment and competition in
the industry. The Company had net sales of $51.0 million during the Christmas
1999 selling season.
The Company also relies heavily on sales during other annual holidays
and special events, although the Company's success on an annual basis does not
depend as heavily on the sales during these times as it does during the
Christmas season.
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COMPETITION
The retail jewelry industry is highly competitive. It is estimated that
there are approximately 35,000 retail jewelry stores in the United States, most
of which are independently operated and not part of a major chain. Numerous
companies, including publicly and privately held independent stores and small
chains, department stores, catalog showrooms, direct mail suppliers, and TV
shopping networks, provide competition on a national and regional basis. The
malls and shopping centers where many of the Company's stores are located
typically contain several other national chain's or independent jewelry stores,
as well as one or more jewelry departments located in the "anchor" department
stores. Certain of the Company's competitors are substantially larger than the
Company and have greater financial resources.
Management believes that the primary elements of competition in the
retail jewelry business are quality of personnel, level of customer service,
value of merchandise offered, store location and design and credit terms. In
addition, the Company believes that, as the jewelry retailing industry
consolidates, the ability to compete effectively may become increasingly
dependent on volume purchasing capability, regional market focus, superior
management information systems, and the ability to provide customer service
through trained and knowledgeable sales staffs. Additionally, the competitive
environment is often affected by factors beyond a particular retailer's control,
such as shifts in consumer preferences, economic conditions, population and
traffic patterns.
INFORMATION SYSTEMS
The Company relies on its computer systems, applications and devices in
operating and monitoring all major aspects of its business, including financial
systems (such as general ledger, accounts payable and payroll modules), customer
services, infrastructure, networks, telecommunications equipment and end
products.
EMPLOYEES
At June 3, 2000, the Company had approximately 1,535 full-time and
part-time employees. Unions represented approximately 31 employees, or 2.0% of
the Company's employees, at such date. On February 1, 2000, the Company extended
until January 31, 2003, its existing union contract covering these employees on
substantially the same terms. The Company believes it provides working
conditions and wages that compare favorably with those offered by other
retailers in the industry and that its employee relations are good. The Company
has not experienced material labor unrest, disruption of operations or strikes.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
The statements included in this annual report regarding future
financial performance and results of operations and other statements that are
not historical facts are forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Statements to the effect that the Company or its
management "anticipates," "believes," "estimates," "expects," "intends,"
"plans," "predicts," or "projects" a particular result or course of events, or
that such result or course of events "may" or "should" occur, and similar
expressions, are also intended to identify forward-looking statements. Such
statements are subject to numerous risks, uncertainties and assumptions,
including but not limited to, the risk of losses and cash flow constraints
despite the Company's efforts to improve operations. Should these risks or
uncertainties materialize, or should the underlying assumptions prove incorrect,
actual results may vary materially from those indicated.
ITEM 2. PROPERTIES
The Company leases all of its retail store locations. The stores range
in size from approximately 577 square feet to 3,690 square feet. The Company's
leases for its retail store locations generally have an initial term of five to
ten years and are generally scheduled to expire at various dates through 2011.
Some of the leases contain renewal options for periods ranging from five to ten
years on substantially the same terms and conditions as the initial lease. Under
most of the leases, the Company is required to pay taxes, insurance, and its pro
rata share of common area and maintenance expenses. The leases also often
require the Company to pay the greater of a specified minimum rent or a
contingent rent based on a percentage of sales as set forth in the respective
lease. Currently, leases for ten stores have expired and the Company is
occupying these stores on a month-to-month basis. The Company expects to close
some of these stores in the next few months and is negotiating renewal
agreements on the remaining leases. See "Notes to Financial Statements--7.
Commitments and Contingencies" for information on the Company's minimum rental
commitments on remaining noncancelable leases.
The Company leases its headquarters in Austin, Texas. The lease for its
headquarters is for approximately 24,000 square feet at a rent of $0.47 per
square foot per month on a triple net basis for a term of five years, with an
option to renew for one additional five-year term at the average monthly net
rental rate charged for comparable premises. The Company previously leased space
in Irwindale,
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California, for its credit center. Consistent with the Company's outsourcing of
its credit operations to WFN, the Company terminated the lease on the Irwindale
facility in October 1999 in accordance with an early termination provision of
that lease.
As of August 17, 2000, the Company was operating 199 retail stores in
26 states:
<TABLE>
<CAPTION>
NUMBER OF
STATE STORES
----- ---------
<S> <C>
Texas .................................................................... 38
California ............................................................... 32
Kentucky ................................................................. 22
Colorado ................................................................. 13
Ohio ..................................................................... 11
Pennsylvania ............................................................. 11
Arizona .................................................................. 8
Indiana .................................................................. 8
Utah ..................................................................... 8
Idaho .................................................................... 5
Montana .................................................................. 5
New Mexico ............................................................... 5
West Virginia ............................................................ 5
Others ................................................................... 28
---
TOTAL .................................................................... 199
===
</TABLE>
The Company owns substantially all of the equipment used in its retail
stores and corporate headquarters.
ITEM 3. LEGAL PROCEEDINGS
The Company is involved from time to time in legal proceedings of a
character normally incident to its business. The Company believes that its
potential liability in any such pending or threatened proceedings, either
individually or in the aggregate, will not have a material effect on the
financial condition or results of operations of the Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders of the Company
during the quarter ended June 3, 2000.
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EXECUTIVE OFFICERS
The following individuals currently serve as the Company's executive
officers. Officers are elected by the Company's Board of Directors each to serve
until their successor is elected and qualified, or until their earlier
resignation or removal from office or death.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Randy N. McCullough 48 President, Chief Executive Officer and Director
E. Peter Healey 47 Executive Vice President, Chief Financial Officer, Secretary, and Director
Bill R. Edgel 35 Senior Vice President - Merchandising and Marketing
Chad C. Haggar 36 Senior Vice President - Operations
Paul W. Hart 42 Senior Vice President - Management Information Systems
J. Douglas Bullock 53 Vice President - Finance
Dwayne A. Cooper 41 Vice President - Treasurer and Assistant Secretary
</TABLE>
Set forth below is biographical information for each executive officer.
Randy N. McCullough, 48, has been a Director of the Company since
September 22, 1998. Mr. McCullough has been the Company's President and Chief
Executive Officer since its inception on August 20, 1998 and previously served
in that capacity for the Predecessor from March 31, 1998. Mr. McCullough served
as the Predecessor's Executive Vice President and Chief Operating Officer from
January to March 1998. Mr. McCullough joined the Predecessor in April 1997 and
was its Senior Vice President-Merchandise from April 1997 to March 1998. Prior
to joining the Predecessor, Mr. McCullough served as President of Silverman's
Factory Jewelers from 1991 to March 1997. Prior to that time, Mr. McCullough was
a senior manager with a leading national retail jewelry chain for over 18 years.
E. Peter Healey, 47, has been a Director of the Company since September
22, 1998. Mr. Healey has served as the Company's Executive Vice President, Chief
Financial Officer and Secretary since its inception on August 20, 1998 and
previously served in that capacity for the Predecessor from February 1997. From
1994 to 1996, Mr. Healey was Vice President, Chief Financial Officer, Secretary
and Treasurer of MS Financial, Inc. From 1985 to 1993, Mr. Healey was with Zale
Corporation, serving as Vice President-Treasurer from 1987 to 1993.
Bill R. Edgel, 35, has been the Company's Senior Vice
President-Merchandising and Marketing since October 2, 1998 and previously
served the Predecessor as Vice President of Marketing from February 1997. Prior
to joining the Predecessor, Mr. Edgel served as Director of Credit Marketing of
Macy's West, a division of Federated Department Stores, from 1996 to 1997. Mr.
Edgel served as Director of Marketing for Merksamer Jewelers, Inc. from 1995 to
1996.
Chad C. Haggar, 36, has been the Company's Senior Vice
President-Operations since October 2, 1998 and previously served as Vice
President - Operations for the Predecessor since February 1997. Prior to joining
the Predecessor, Mr. Haggar served as Director of Stores of Fred Meyer, Inc.
from 1996 to 1997. From 1987 to 1996, Mr. Haggar served as Regional Manager of
Merksamer Jewelers, Inc. For over six years prior to 1987, Mr. Haggar served in
various management positions with leading jewelry chains.
Paul W. Hart, 42, has been the Company's Senior Vice
President-Management Information Systems since October 2, 1998 and previously
served in that capacity for the Predecessor from August 1997. Prior to joining
the Predecessor, Mr. Hart served as Vice President - Management Information
Systems of MS Financial, Inc. from 1996 to 1997. From 1974 to 1995, Mr. Hart was
employed by Zale Corporation, serving as Director of Credit Systems from 1994 to
1995, and as its Manager of Business Systems Planning and Support from 1988 to
1994.
J. Douglas Bullock, 53, has served as the Company's Vice
President-Finance since December 1, 1999 and previously served as Vice
President-Credit for the Company and the Predecessor from February 2, 1998. From
August 1997 to January 1998, Mr. Bullock was Vice President and Branch Manager
of Search Financial Services, Inc. From 1994 to 1997, Mr. Bullock was Director
of Credit and Operations for MS Financial, Inc. From 1993 to 1994 Mr. Bullock
was a Manager for SunTech, Inc. From 1983 to 1992, Mr. Bullock was with
Trustmark National Bank, Jackson, Mississippi, serving as Executive Vice
President from 1987 to 1992.
Dwayne A. Cooper, 41, has served as the Company's Vice
President-Treasurer and Assistant Secretary since February 14, 2000. From
October 1997 to February 2000, Mr. Cooper was the Director of Internal Audit and
Taxes for MS Diversified Corporation. From 1996 to 1997, Mr. Cooper served as
Vice President and Treasurer of MS Financial, Inc. From 1985 to 1996, Mr. Cooper
was with Zale Corporation, serving as Assistant Treasurer from 1992 to 1996.
9
<PAGE> 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
MARKET INFORMATION
The Company's common stock, par value $.001 per share ("Common Stock"),
began trading on the Nasdaq OTC Bulletin Board after the effective date of the
Reorganization under the symbol "SMJW".
The Company's warrants are traded under the symbol "SMJWW".
The following table sets forth the range of the high and low per share
bid prices of the Company's Common Stock, as quoted on the Nasdaq OTC Bulletin
Board, since October 2, 1998. These bid prices reflect inter-dealer prices,
without retail mark-up, mark-down or commission and may not necessarily
represent actual transactions.
<TABLE>
<CAPTION>
FISCAL YEARS ENDED
------------------
JUNE 3, 2000 MAY 29, 1999
------------------- -------------------
High Low High Low
------- ------- ------- -------
<S> <C> <C> <C> <C>
First quarter........................ $ 4.875 $ 4.125 N/A N/A
Second quarter....................... $ 6.000 $ 4.250 $ 5.000 $ 3.875
Third quarter........................ $ 8.125 $ 5.000 $ 6.500 $ 4.375
Fourth quarter....................... $ 7.875 $ 5.000 $ 4.750 $ 3.500
</TABLE>
HOLDERS
Management believes that there were approximately 650 beneficial owners
of its Common Stock as of June 3, 2000.
DIVIDENDS
Under the Company's current working capital facility, with certain
lenders party thereto and Foothill Capital Corporation as agent and a lender,
the Company is prohibited from paying dividends. See "Notes to Financial
Statements - Note 6. Notes Payable." The Company did not pay any dividends
during Fiscal 2000 and intends to retain its funds for reinvestment in the
Company's business, and therefore, does not anticipate declaring or paying cash
dividends in the foreseeable future. Payment of dividends is subject to the then
existing business conditions and the business results, cash requirements and
financial condition of the Company and, to the extent permitted under the
working capital facility, will be at the discretion of the Company's Board of
Directors.
10
<PAGE> 11
ITEM 6. SELECTED FINANCIAL DATA
The following tables set forth selected financial data of the Company
and the Predecessor, as of and for each of the three fiscal years ended May 1998
and for the four months ended October 2, 1998 and the eight months ended May 29,
1999, and the 53-week fiscal year ended June 3, 2000. The data should be read in
conjunction with the financial statements, related notes and other financial
information included herein.
SELECTED FINANCIAL DATA
(in thousands, except per share data)
<TABLE>
<CAPTION>
Successor Successor Predecessor
Year ended Eight Months Four Months
June 3, May 29, October 2, Predecessor for the Fiscal Years Ended May
2000 1999 1998 1998 1997 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net Sales ............................ $ 157,527 $ 81,043 $ 27,494 $ 113,873 $ 130,446 $ 140,145
Finance and credit insurance fees .... 2,639 6,517 3,397 11,316 13,900 16,008
----------- ----------- ----------- ----------- ----------- -----------
160,166 87,560 30,831 125,189 144,346 156,153
----------- ----------- ----------- ----------- ----------- -----------
Operating (loss) income(1) ........... (4,402) 128 (2,672) (4,009) (29,741) 8,651
----------- ----------- ----------- ----------- ----------- -----------
Interest expense, net ................ 2,834 2,202 2,367 7,025 12,745 11,146
Reorganization items(2) .............. -- 400 (61,605) 11,134 2,322 --
Provision for income taxes ........... 11 -- -- -- 284 288
----------- ----------- ----------- ----------- ----------- -----------
(Loss) income before extraordinary
item .............................. (7,247) (2,474) 56,566 (22,168) (45,092) (2,783)
Extraordinary item(3) ................ -- -- 11,545 -- (876) --
----------- ----------- ----------- ----------- ----------- -----------
Net earnings (loss) .................. $ (7,247) $ (2,474) $ 68,111 $ (22,168) $ (45,968) $ (2,783)
=========== =========== =========== =========== =========== ===========
Basic and Diluted Per Share
Data:(4)
Earnings (loss) before extraordinary
Item .............................. $ (1.43) $ (0.49) $ 11.31 $ (5.50) $ (11.25) $ (0.70)
=========== =========== =========== =========== =========== ===========
Extraordinary item(3) ................ $ -- $ -- $ 2.31 $ -- $ (0.22) $ --
=========== =========== =========== =========== =========== ===========
Net earnings (loss) .................. $ (1.43) $ (0.49) $ 13.62 $ (5.50) $ (11.47) $ (0.70)
=========== =========== =========== =========== =========== ===========
Weighted average number of
common shares outstanding ......... 5,081 5,002 5,002 4,029 4,007 3,978
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
2000 1999 1998 1997 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Current assets .... $ 75,804 $ 80,445 $ 95,939 $ 105,390 $ 127,075
Working capital ... (8,424) 9,091 77,155 99,482 117,819
Total assets ...... 124,584 115,209 110,732 123,483 145,875
Total debt (5) .... 29,439 45,893 126,812 130,271 103,579
</TABLE>
---------------
(1) Operating (loss) income for the fiscal year ended May 31, 1997, includes
$1,336 of restructuring expenses primarily related to severance and costs
associated with 11 stores closed during the fiscal year. Operating (loss)
income for the fiscal year ended May 31, 1997, includes $3,947 for
impairment loss, and $3,033 for inventory valuation.
(2) Reorganization costs for the eight months ended May 29, 1999, include a
Fresh-Start reporting income adjustment of $66,042. Other amounts consist
primarily of professional fees and other costs directly related to the
Reorganization. See "Notes to Financial Statements--9. Reorganization
Costs."
(3) The year ended May 31, 1997 includes an extraordinary loss of $876 or $0.22
per share, incurred in connection with the early extinguishment of the
Predecessor's securitization facility. The four months ended October 2,
1998 included an extraordinary gain of $11,545 or $2.31 per share incurred
in connection with the forgiveness of debt as a part of the Reorganization.
(4) Net earnings (loss) per share and weighted average number of common shares
outstanding for the Predecessor are not comparable to the Successor due to
the Reorganization and implementation of Fresh-Start Reporting.
(5) As of May 30, 1998 and May 31, 1997, total debt includes liabilities
subject to compromise under Reorganization proceedings.
11
<PAGE> 12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
With respect to Management's Discussion and Analysis of Financial
Conditional and Results of Operations, see "Item 1 Cautionary Notice Regarding
Forward Looking Statements" and see "Notes to Financial Statements--1.
Reorganization and Basis of Presentation."
53-Week Fiscal Year Ended June 3, 2000 ("Fiscal 2000") Compared With the 52-Week
Period Ended May 29, 1999 ("Fiscal 1999") (combining both the Predecessor and
Successor companies).
STORE ACTIVITY
The following table sets forth selected data with respect to the
Company's operations for the last two fiscal years:
<TABLE>
<CAPTION>
2000 1999
---------- ----------
<S> <C> <C>
Number of stores at beginning of year ...................... 116 117
Acquired during the year ................................. 68 5
Opened during the year ................................... 17 2
Closed during the year(1) ................................ (3) (8)
---------- ----------
Total at year end ................................ 198 116
========== ==========
Percentage increase (decrease) in sales of
comparable stores(2) ..................................... 4.8% 2.1%
Average sales per comparable store (in
thousands)(2) ............................................ $ 1,036 $ 968
Private label credit sales mix (3) ......................... 32.7% 49.5%
Equivalent store weeks ..................................... 8,586 5,934
Equivalent weekly average store sales (in thousands) ....... $ 18.3 $ 18.3
</TABLE>
Of the 68 stores acquired during Fiscal 2000, 6 were acquired in the
first quarter, 48 in the second quarter and 14 in the third quarter. Of the 3
stores closed during Fiscal 2000, 1 was closed during the first quarter and 2
were closed in the fourth quarter. The Company also opened 2 new stores during
Fiscal 2000's first quarter, 10 during the second quarter, 3 during the third
quarter and 2 during the fourth quarter. Of the 8 stores closed during Fiscal
1999, 5 were closed during the second quarter prior to the Christmas selling
season and 2 immediately thereafter, and the final store was closed during the
third quarter. Also during Fiscal 1999, the Company opened 2 new stores during
the second quarter. The 5 stores acquired by the Company in Fiscal 1999 all
began operation during the last two months of the fiscal year.
RESULTS OF OPERATIONS
Net sales for Fiscal 2000 were $157.5 million as compared to $108.5
million for Fiscal 1999. This increase of $49.0 million, or 45.1%, resulted
primarily from the acquisition of 68 stores, the opening of 17 new stores and
the extra week in the Fiscal 2000 calendar. In addition, sales at comparable
stores, those open for all of the current and preceding year, increased by 4.8%
from $104.8 million to $109.9 million. Equivalent weekly store sales remained
relatively flat at $18.3 in both Fiscal 1999 and Fiscal 2000 primarily because
the stores acquired in Fiscal 2000 have a lower sales volume, on average, than
the existing Samuels stores. The increase in sales overcame a significant
reduction in the percentage of sales made on the Company's private label credit
card, down to 32.7% of sales in the current year as compared to 49.5% in the
prior year, resulting primarily from the outsourcing of the credit operations
and marketing efforts targeting a less credit-dependent consumer. The
outsourcing of the Company's credit card operations at the end of the first
quarter of Fiscal 2000 culminated the efforts commenced in Fiscal 1997 to reduce
the Company's reliance on less creditworthy customers. Throughout Fiscal 2000
the Company has continued to upgrade the quality of its merchandise as well as
to offer an expanded assortment of higher ticket-price merchandise. The Company
has continued to refine its marketing efforts, targeting a more mature and
affluent consumer with more discretionary spending ability.
Finance and credit insurance fees decreased from $9.9 million in Fiscal
1999 to $2.6 million in Fiscal 2000. This decrease of $7.3 million, or 73.7%,
was primarily due to the sale of the existing credit card accounts to WFN as of
August 30, 1999. The provision for doubtful accounts is no longer being
recorded, but the Company now records a valuation allowance against the holdback
reserve held by WFN. See "Notes to Financial Statements--2. Accounts
Receivable."
Cost of goods sold, buying and occupancy expenses were $95.1 million,
or 60.4% of sales, in Fiscal 2000 compared to $66.7 million in Fiscal 1999, or
61.4% of sales. The reduction in cost of goods sold, buying and occupancy
expenses as a percentage of
12
<PAGE> 13
sales resulted primarily from fixed expenses spread over a larger sales base
offset by a slightly lower merchandise margin which is primarily due to a lower
markup on the increased mix of higher priced items as the Company attracts a
more affluent consumer.
Selling, general and administrative expenses in Fiscal 2000 were $61.9
million, an increase of $17.7 million, or 40.1% from Fiscal 1999's $44.2
million. The increase in selling, general and administrative expenses is
primarily attributable to the increase in the number of stores. Selling, general
and administrative expenses decreased as a percentage of net sales to 39.3% in
Fiscal 2000 from 40.7% in Fiscal 1999. This improvement resulted from sales
efficiencies and due to expenses being spread over a larger sales base, offset
by $0.6 million of expenses related to the operation of Rauch's home office from
November 1999 until its closure in January 2000 and by $0.4 million amortization
of management stock granted upon the consummation of the Reorganization. The
stock grant is amortized over the 4-year vesting period and the portion that
vested in Fiscal 1999 was charged to Restructure expense.
The provision for doubtful accounts was $0.8 million for Fiscal 2000.
This was a decrease of $4.7 million, or 84.8% from $5.5 million for Fiscal 1999.
The provision was approximately 10.2% of net credit sales for Fiscal 1999. The
decrease in the provision was primarily due to the fact that the provision for
doubtful accounts is no longer being recorded because Samuels' credit card
accounts were sold on August 30, 1999. The Company now records a valuation
allowance against the holdback reserve held by WFN. See "Notes to Financial
Statements--2. Accounts Receivable".
Depreciation and amortization was $6.7 million in Fiscal 2000 compared
to $4.6 million in the prior year. This increase of $2.1 million, or 44.7%, is
primarily due to the increase in the Company's store base and a full year of
amortization of reorganization value in excess of amounts allocated to
identifiable assets of $1.8 million compared to $1.2 million in Fiscal 1999. The
current period also contains amortization of goodwill related to the Rauch
acquisition of $0.3 million.
Net interest expense was $2.8 million for Fiscal 2000, a decrease of
$1.8 million, or 38.0%, from $4.6 million for Fiscal 1999. The decrease is
primarily due to using the proceeds from the sale of the Company's credit card
accounts on August 30, 1999 to reduce the amount outstanding under the line of
credit, which is partially offset by increases in borrowings to fund
acquisitions and increases in the base rate during the current period.
TAX LOSS CARRYFORWARDS
During Fiscal 2000, the Company's net operating losses (NOLs) increased
by approximately $10 million. During Fiscal 1999, the Company's NOLs were
reduced by approximately $60 million as a result of debt discharge income. As of
June 3, 2000, the Company had NOL carryforwards for federal income tax purposes
of approximately $43 million. Approximately $18 million of this NOL carryforward
is related to losses incurred subsequent to October 2, 1998, which may be used
in their entirety to offset future taxable income. The remaining carryforward,
from prior to October 2, 1998, is subject to an annual limitation on its use of
approximately $1.7 million. These losses begin to expire in 2012. In addition,
the Company has alternative minimum tax credit carryforwards of $109,000. These
credits do not expire. The Company maintains a valuation allowance against the
net deferred tax assets, which in Management's opinion reflects the net deferred
tax asset that is more likely than not to be realized.
52-Week Period Ended May 29, 1999 ("Fiscal 1999")(combining both the Predecessor
and Successor companies) Compared With 52-Week Fiscal Year Ended May 31, 1998
("Fiscal 1998")
Net sales for Fiscal 1999 were $108.5 million as compared to $113.9
million for Fiscal 1998. This decrease of $5.4 million, or 4.7%, resulted
primarily from a 9.8% decrease in equivalent store weeks from Fiscal 1998 to
Fiscal 1999, partially offset by a 5.7% increase in equivalent weekly store
sales. Sales at comparable stores, those open for all of the current and
preceding year, increased by 2.0% from $103.5 million to $105.5 million. This
increase of 2.0% in average comparable store volumes resulted from continued
upgrading of merchandise offered and marketing efforts to appeal to a better
customer and drive sales during traditionally slow periods, which was partially
offset by the temporary negative impact of the Company's remodeling and name
change program during the second and third quarters of Fiscal 1999. Throughout
Fiscal 1999 the Company continued to upgrade the quality of its merchandise as
well as offer an expanded assortment of higher ticket-price merchandise. The
Company also continued to refine its marketing efforts, targeting a more mature,
financially sound customer, with more discretionary spending ability. The
Company held special promotional events to drive additional sales during the
traditionally slower periods of the year. During Fiscal 1999, comparable store
sales were negatively impacted in the second quarter as the Company began a
major remodeling and name change campaign that resulted in the temporary closure
or relocation of 18 stores. These remodels and name changes were completed early
in the third quarter and these 18 stores showed average sales increases during
the third quarter which more than offset the impact in the second quarter. The
increase was partially offset by reduced credit sales (representing 49.5% of
sales in Fiscal 1999 as compared to 54.3% in Fiscal 1998) which resulted from
continued changes in credit underwriting criteria and marketing efforts designed
to lessen the Company's reliance on credit sales, reduce charge-offs and build a
portfolio consisting of more creditworthy customers.
13
<PAGE> 14
Finance and credit insurance fees decreased from $11.3 million in
Fiscal 1998 to $9.9 million in Fiscal 1999. This decrease of $1.4 million, or
12.4%, was primarily due to the decrease in average outstanding customer
receivables resulting from the closing of almost 70 stores over the previous
three years, changes in credit underwriting criteria, and lower reliance on
credit to generate sales, somewhat offset by an increase in average account
balance as a result of marketing efforts to appeal to a more affluent customer
who buys higher priced merchandise.
Cost of goods sold, buying and occupancy expenses were 61.4% of sales
in Fiscal 1999 compared to 62.7% of sales in Fiscal 1998. The reduction in cost
of goods sold, buying and occupancy expenses resulted primarily from improved
merchandise margins and savings in occupancy expense due to the closing of
relatively high rent stores and the relocation and downsizing of the Company's
headquarters in Fiscal 1999.
Selling, general and administrative expenses in Fiscal 1999 were $44.2
million, a decrease of $2.8 million, or 6.0%, from the prior year. Selling,
general and administrative expenses decreased as a percentage of net sales to
40.7% in Fiscal 1999 from 41.3% in Fiscal 1998. This improvement resulted from
sales efficiencies as well as some improvements in the efficiency of the
structure of the Company but was offset somewhat by some fixed expenses being
spread over a smaller sales base.
The provision for doubtful accounts was $5.5 million for Fiscal 1999.
This was a decrease of $1.1 million, or 16.7%, from $6.6 million for Fiscal
1998. The provision was approximately 10.2% and 10.6%, of net credit sales for
Fiscal 1999 and Fiscal 1998, respectively. The decrease in the provision was
primarily due to closed stores, which had generated less creditworthy customer
receivables, as well as the reduction in the percentage of credit sales to total
sales from the continuing effects of changes in credit underwriting and
marketing efforts to reduce reliance on credit to effect sales by targeting a
more creditworthy customer.
Depreciation and amortization was $4.6 million in Fiscal 1999 compared
to $4.2 million in the prior year. This 9.5% increase of $0.4 million is
primarily due to $1.2 million amortization of the Company's reorganization value
in excess of amounts allocated to identifiable assets, partially offset by the
reduced depreciation resulting from the Company's relocation to less expensive
home office facilities.
Net interest expense was $4.6 million in Fiscal 1999, a decrease of
$2.4 million, or 34.3%, from $7.0 million in Fiscal 1998. The decrease was due
partially to interest associated with the Company's Senior Secured Notes, which
was accrued during Fiscal 1998 but was not accrued during Fiscal 1999 (in
accordance with SOP 90-7, "Financial Reporting by Entities in Reorganization
under the Bankruptcy Code") because such interest was not allowed under the
Company's Plan of Reorganization. Upon completion of the Reorganization the
amounts outstanding under the respective revolving lines of credit were reduced
by an average of over $10 million. The Company also entered into a new financing
agreement on October 2, 1998, which resulted in reduced amounts outstanding as
well as a lower rate of interest on amounts outstanding after October 2, 1998.
Reorganization costs consist primarily of professional fees directly
related to the Chapter 11 filing and the grant of stock to management as part of
the Reorganization, offset by interest earned on accumulated cash during the
pendency of the Chapter 11 filing.
LIQUIDITY AND CAPITAL RESOURCES
GENERAL
The Company's operations require working capital for funding the
purchase of inventory, making lease payments and funding of normal operating
expenses. The seasonality of the Company's business requires a significant
build-up of inventory for the Christmas holiday selling period. These seasonal
inventory needs generally must be funded during the late summer and fall months
for the necessary lead-time to obtain the additional inventory.
At June 3, 2000, owned inventory was $61.3 million, an increase of
$28.6 million from May 29, 1999. This increase is primarily due to the 70%
growth in the number of stores and new products introduced chain-wide for the
Mother's Day selling season. The Company enters into consignment inventory
agreements with its key vendors in the ordinary course of business. During
Fiscal 2000, consignment inventory on hand ranged from $26.9 to $49.5 million.
Consignment inventory is excluded from the merchandise inventory balance in the
financial statements.
The Company reported cash flows provided by operating activities of
approximately $42.8 million for Fiscal 2000, as compared to cash flows used in
operating activities of $10.9 million for Fiscal 1999 and cash flows provided of
$15.2 million for Fiscal 1998. Cash provided by operating activities for Fiscal
2000 resulted primarily from a $35.6 million decrease in customer receivables
due to the sale of the credit card accounts and an increase of $21.4 million in
trade accounts payable, which was partially offset by an $18.4 million increase
in inventory.
14
<PAGE> 15
In addition, the Company requires working capital to fund capital
expenditures. Capital expenditures for Fiscal 2000, 1999 and 1998 were $14.8
million, $9.1 million and $3.0 million, respectively. Expenditures in Fiscal
2000 were made primarily in connection with leasehold improvements associated
with the opening of 17 new stores, the acquisition of 68 stores, and the
remodeling and refurbishing of 59 stores, including some of the acquired stores.
The expenditures related to the acquisition of stores in Fiscal 2000,
including acquiring inventory and the costs associated with the remodeling and
refurbishing the acquired leaseholds, were the primary reason for the Company's
working capital deficit of $8.4 million at June 3, 2000. The Company concluded a
private placement of its common stock in July 2000 for the purpose of addressing
such working capital deficit. During Fiscal 2001, it intends to fund its general
working capital needs through its financing agreement and with cash generated
through its operating activities.
In Fiscal 2000, the Company made net repayments of $27.9 million under
its revolving credit facility.
FINANCING TRANSACTIONS
On October 2, 1998, the Company entered into a three-year, $50.0
million financing agreement with Foothill Capital Corporation as a lender and as
agent for a lender group (the "Lenders"). The Lenders are committed to make
revolving advances to the Company in amounts determined based on percentages of
eligible accounts receivable and inventory. The annual rate of interest will be,
at the Company's option, (i) 2.25% per annum over the Eurodollar rate or (ii)
0.5% per annum over the bank's prime rate, provided, however, that in no event
will the applicable interest rate on any advance be less than 7% per annum.
Interest charges are payable monthly. Upon the occurrence and during the
continuation of any event of default under the financing agreement, all
obligations will bear interest at a per annum rate equal to three percentage
points above the otherwise applicable interest rate. As collateral for any and
all obligations to the Lenders under the financing agreement, the Company
granted a first priority perfected security interest in and to substantially all
of its owned or thereafter acquired assets, both tangible and intangible. The
financing agreement contains quarterly covenants which include its meeting a
minimum level of tangible net worth and prohibits the payment of dividends. The
Company entered into Amendment Number One to the Loan and Security Agreement
with the Lenders on April 15, 1999, Amendment Number Two on August 30, 1999,
Amendment Number Three on November 24, 1999, Amendment Number Four on January
25, 2000, and Amendment Number Five on June 2, 2000. These amendments allowed
for the sale of the credit card portfolio, the acquisition of stores and
adjusted some of the covenants required of the Company under this financing
agreement.
As of June 3, 2000, the Company had direct borrowings of $24.6 million
outstanding with additional credit available of approximately $6.3 million under
the terms of the agreement. As of June 3, 2000, the Company was in compliance
with all terms of the financing agreement.
In conjunction with the Company's acquisition of Rauch, the Company
issued three promissory notes due and payable for $2.0 million each in January
2000, 2001 and 2002, respectively. The first promissory note, due January 2000,
has been paid. The two remaining notes have a stated interest rate of 7% per
annum with interest due and payable beginning January 15, 2000 and on each
successive six-month anniversary thereafter until the notes are paid in full.
Samuels may offset its payment obligations under these notes to the extent and
in the event any liabilities arise that were not accounted for and not disclosed
in the unaudited balance sheet of Rauch as of October 31, 1999. Upon the
occurrence and during the continuation of an event of default under the notes,
Samuels' payment obligations may bear interest at a per annum rate of 15%.
The Company completed a private placement of its common stock in July
2000 for the purpose of generating funds to address its working capital needs.
This private placement raised approximately $13.0 million in operating funds.
CREDIT PROGRAM
On August 30, 1999 the Company sold its then existing credit card
accounts to WFN pursuant to an agreement that called for the Company to transfer
its approximately $46.8 million outstanding accounts receivable to WFN at face
value, less a holdback reserve of approximately $9.4 million to be held by WFN,
thus finalizing the efforts commenced in 1997 by the new management team to
shift its focus from being a credit jeweler to a mainstream jeweler targeting a
more affluent customer base. The third-party credit program generally requires
WFN to calculate monthly the total amount of receivables outstanding and then
retain or pay out, as applicable, an amount such that the holdback reserve is
maintained at a constant percentage of receivables outstanding. The holdback
reserve is intended to protect WFN against charged-off accounts and will be
returned to the Company at the end of the program. The Company has recorded the
holdback reserve net of a valuation allowance that reflects management's
estimate of losses based on past performance. Under the agreement WFN otherwise
pays the Company the proceeds for sales on the credit accounts promptly after
the sale. The third-party credit card program has an initial term of five years,
but provides the parties the option to extend the agreement beyond such initial
term unless the parties otherwise agree. The Company used the net proceeds of
approximately $37.4 million from
15
<PAGE> 16
the sale of its then existing credit card accounts at August 30, 1999 to reduce
the balance then outstanding under Samuels' financing agreement with the
Lenders.
Since the sale, WFN has offered credit to Samuels' customers. Sales on
the Company's private label credit cards accounted for approximately 32.7% of
Fiscal 2000 sales compared to 49.5% for Fiscal 1999. As of June 3, 2000 the
Company no longer has customer receivables. As of May 29, 1999 and May 30, 1998,
the aggregate customer receivables balances were $50.2 million and $55.2
million, respectively. See "Notes to Financial Statements--2. Accounts
Receivable".
INFLATION
The impact of inflation on the cost of merchandise (including gems and
metals), labor, occupancy and other operating costs can affect the Company's
results. For example, most of the Company's leases require the Company to pay
rent, taxes, maintenance, insurance, repairs and utility costs, all of which are
subject to inflationary pressures. To the extent permitted by competition, in
general the Company passes increased costs to the customer by increasing sales
prices over time.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which is effective for all fiscal quarters
of all fiscal year beginning after June 15, 2000. Therefore, the Company will be
required to adopt SFAS No. 133 for its fiscal year beginning June 3, 2001. The
Company does not believe the impact from the adoption of SFAS No. 133 will be
material.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
The Company is exposed to market risk in the form of interest rate
changes that may adversely affect its financial position, results of operations
and cash flows. At June 3, 2000, the Company had $24.6 million outstanding under
its revolving line of credit. This revolving line is priced with a variable rate
based on LIBOR or a base rate, plus, in each case an applicable margin. See
"Note 6 Notes Payable". An increase or decrease in interest rates would affect
the interest costs relating to this revolving line of credit. The Company has no
interest rate swaps or other hedging facilities relating to its revolving line
of credit.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Financial Statements and Financial Statement Schedule of the
Company and the report of independent auditors are listed in Item 14.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
16
<PAGE> 17
PART III
ITEMS 10-13. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT, ETC.
The Company incorporates herein by reference the information concerning
Directors of the Registrant (Item 10), Executive Compensation (Item 11),
Security Ownership of Certain Beneficial Owners and Management (Item 12), and
Certain Relationships and Related Transactions (Item 13), that is contained in
the Company's definitive Proxy Statement relating to its 2000 Annual Meeting of
Stockholders. The information required by Item 10 with respect to executive
officers is included in Item 4 under the caption "Executive Officers."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Financial Statements, Financial Statement Schedules and Exhibits
1. FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
The following are included herein pursuant to Item 8: Page
----
<S> <C>
Independent Auditors' Report -- Deloitte & Touche LLP 20
Balance Sheets for the Successor Company as of June 3, 2000 and May 29, 1999 21
Statements of Operations for the Successor Company for the fiscal year ended June 3,
2000, the eight months ended May 29, 1999, and the Predecessor Company for the four
months ended October 2, 1998 and the year ended May 30, 1998 22
Statements of Stockholders' Equity (Deficiency) for the three years ended June 3, 2000 23
Statements of Cash Flows for the Successor Company for the fiscal year ended June 3,
2000, the eight months ended May 29, 1999 and the Predecessor Company for the four
months ended October 2, 1998 and the year ended May 30, 1998 24
Notes to Financial Statements 25
</TABLE>
2. FINANCIAL STATEMENT SCHEDULES:
II. Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is included in the Financial Statements or Notes thereto.
17
<PAGE> 18
3. EXHIBITS
Exhibit No. Exhibit
2.1 Order Confirming Original Disclosure Statement and Plan of
Reorganization, Dated April 30, 1998, Proposed by Barry's
Jewelers, Inc., as modified, dated September 16, 1998 (with
Plan attached).(1)
3.1 Certificate of Incorporation of Samuels Jewelers, Inc.(1)
3.2 Bylaws of Samuels Jewelers, Inc.(1)
10.1(a) Loan and Security Agreement dated October 2, 1998, between the
Company and Foothill Capital Corporation, as agent for certain
lenders party thereto.(2)
10.1(b) Amendment Number One to Loan and Security Agreement entered
into as of April 15, 1999, among the Company, Foothill Capital
Corporation and the financial institutions listed on the
signature pages thereto.(3)
10.1(c) Amendment Number Two to Loan and Security Agreement entered
into as of August 30, 1999, among the Company, Foothill
Capital Corporation and the financial institutions listed on
the signature pages thereto.(3)
10.1(d) Amendment Number Three to Loan and Security Agreement entered
into as of November 24, 1999, among the Company, Foothill
Capital Corporation and the financial institutions listed on
the signature pages thereto.(4)
10.1(e) Amendment Number Four to Loan and Security Agreement entered
into as of January 25, 2000, among the Company, Foothill
Capital Corporation and the financial institutions listed on
the signature pages thereto.(5)
10.1(f) Amendment Number Five to Loan and Security Agreement entered
into as of June 2, 2000, among the Company, Foothill Capital
Corporation and the financial institutions listed on the
signature pages thereto.(6)
10.2 Employment Agreement, dated as of October 2, 1998 between the
Company and Randy N. McCullough.(1)
10.3 Employment Agreement, dated as of October 2, 1998 between the
Company and E. Peter Healey.(1)
10.4 Employment Agreement, dated as of October 2, 1998 between the
Company and Chad C. Haggar.(1)
10.5 Employment Agreement, dated as of October 2, 1998 between the
Company and Bill R. Edgel.(1)
10.6 Employment Agreement, dated as of October 2, 1998 between the
Company and Paul Hart.(1)
10.7 Private Label Credit Card Agreement between World Financial
Network National Bank and the Company dated as of July 27,
1999.(3)
10.8 Purchase and Sale Agreement between World Financial Network
National Bank and the Company dated as of July 27, 1999.(3)
10.9 Registration Rights Agreement dated as of June 21, 2000, by
and among the Company, Weil, Gotshal & Manges LLP, B III
Capital Partners, L.P. and B III-A Capital Partners, L.P.(6)
10.10 Form of Investment Agreement for private placement in June
2000 of common stock with investors (excluding officers of
Samuels Jewelers, Inc.)(6)
10.11 Form of Samuels Jewelers, Inc. Stock Purchase Agreement for
private placement in July 2000 of common stock with officers
of Samuels Jewelers, Inc.(6)
10.12 Samuels Jewelers, Inc. Deferred Compensation Plan.(6)
10.13 Samuels Jewelers, Inc. 1998 Stock Option Plan.(7)
10.14 Samuels Jewelers, Inc. 1998 Stock Option Plan for Non-Employee
Directors.(8)
23.1 Consent of Independent Auditors.(6)
27.1 Financial Data Schedule.(6)
----------
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
October 6, 1998.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 29, 1998.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended May 29, 1999.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended November 27, 1999.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 26, 2000.
(6) Filed herewith.
(7) Incorporated by reference to Annex A of the Company's Proxy Statement on
Schedule 14A dated October 21, 1998.
(8) Incorporated by reference to Annex B of the Company's Proxy Statement on
Schedule 14A dated October 21, 1998.
----------
(b) Reports on Form 8-K
None.
18
<PAGE> 19
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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.
Samuels Jewelers, Inc.
August 31, 2000 By: /s/ Randy N. McCullough
------------------------------
Randy N. McCullough
President and Chief
Executive Officer
August 31, 2000 By: /s/ E. Peter Healey
------------------------------
E. Peter Healey
Executive Vice President
and Chief Financial Officer
(Principal Financial Officer)
August 31, 2000 By: /s/ J. Douglas Bullock
------------------------------
J. Douglas Bullock
Vice President-Finance
(Principal Accounting Officer)
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ David B. Barr Director August 31, 2000
---------------------------------
David B. Barr
/s/ David J. Breazzano Director August 31, 2000
---------------------------------
David J. Breazzano
/s/ David H. Eisenberg Director August 31, 2000
---------------------------------
David H. Eisenberg
/s/ E. Peter Healey Director August 31, 2000
---------------------------------
E. Peter Healey
/s/ Wendy T. Landon Director August 31, 2000
---------------------------------
Wendy T. Landon
/s/ Randy N. McCullough Director August 31, 2000
---------------------------------
Randy N. McCullough
/s/ Jerry Winston Director August 31, 2000
---------------------------------
Jerry Winston
</TABLE>
19
<PAGE> 20
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Samuels Jewelers, Inc.
Austin, Texas
We have audited the accompanying balance sheets of Samuels Jewelers,
Inc. as of June 3, 2000 and May 29, 1999 (Successor Company balance sheets), and
the related statements of operations, stockholders' equity and cash flows for
the year ended June 3, 2000, the eight months ended May 29, 1999 (Successor
Company operations), and the four months ended October 2, 1998, and the year
ended May 30, 1998 (Predecessor Company operations). Our audits also included
the financial statement schedule listed in the Index at Item 14. These financial
statements and financial statement schedule are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
As discussed in Note 1 to the financial statements, on September 16,
1998, the Bankruptcy Court entered an order confirming the plan of
reorganization which became effective after the close of business on October 2,
1998. Accordingly, the accompanying financial statements have been prepared in
conformity with AICPA Statement of Position 90-7, "Financial Reporting for
Entities in Reorganization Under the Bankruptcy Code," for the Successor Company
as a new entity with assets, liabilities, and a capital structure having
carrying values not comparable with prior periods as described in Note 1.
In our opinion, the Successor Company financial statements present
fairly, in all material respects, the financial position of Samuels Jewelers,
Inc. as of June 3, 2000, and May 29, 1999, and the results of its operations and
its cash flows for the year ended June 3, 2000, and the eight months ended May
29, 1999, in conformity with accounting principles generally accepted in the
United States of America. Further, in our opinion, the Predecessor Company
financial statements present fairly, in all material respects, the results of
its operations and its cash flows for the four months ended October 2, 1998 and
the year ended May 30, 1998, in conformity with accounting principles generally
accepted in the United States of America. Also, in our opinion, such financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
DELOITTE & TOUCHE LLP
Dallas, Texas
August 28, 2000
20
<PAGE> 21
SAMUELS JEWELERS, INC.
BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS June 3, May 29,
2000 1999
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents ................................................... $ 1,960 $ 1,456
Accounts receivable, net (Note 2) ........................................... 6,446 45,098
Merchandise inventories (Notes 3 and 7) ..................................... 61,269 32,684
Prepaid expenses and other current assets ................................... 6,129 1,207
----------- -----------
Total current assets ........................................................... 75,804 80,445
----------- -----------
Property and equipment:
Leasehold improvements, furniture and fixtures .............................. 28,717 15,396
Computers and equipment ..................................................... 6,380 4,334
----------- -----------
35,098 19,730
Less: accumulated depreciation and amortization ............................. 6,225 2,109
----------- -----------
Net property and equipment .................................................. 28,873 17,621
Other assets ................................................................... 561 631
Goodwill, net of accumulated amortization of $252 and $0 ....................... 4,598 --
Reorganization value in excess of amounts allocated to identifiable assets,
net of accumulated amortization of $2,940 and $1,176 ........................ 14,748 16,512
----------- -----------
Total assets ................................................................... $ 124,584 $ 115,209
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable (Note 5) ...................................................... $ 27,350 $ 45,893
Accounts payable - trade .................................................... 38,742 12,157
Other accrued liabilities (Note 4) .......................................... 18,136 13,304
----------- -----------
Total current liabilities ...................................................... 84,228 71,354
Notes payable (Note 5) ......................................................... 2,089 --
Commitments and contingencies (Note 7)
Stockholders' equity (Note 8)
Common stock, $.001 par value; authorized 20,000,000 shares; issued
and outstanding, 5,153,900 and 5,001,800 shares .......................... 5 5
Additional paid-in capital .................................................. 49,329 48,346
Deferred compensation (Note 8) .............................................. (834) (1,251)
Notes receivable (Note 8) ................................................... (512) (771)
Accumulated deficit ......................................................... (9,721) (2,474)
----------- -----------
Total stockholders' equity ..................................................... 38,267 43,855
----------- -----------
Total liabilities and stockholders' equity ..................................... $ 124,584 $ 115,209
=========== ===========
</TABLE>
See Notes to Financial Statements.
21
<PAGE> 22
SAMUELS JEWELERS, INC.
STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Successor Successor Predecessor Predecessor
Year Eight Months Four Months Year
Ended Ended Ended Ended
June 3, May 29, October 2, May 30,
2000 1999 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Net sales .................................................. $ 157,527 $ 81,043 $ 27,494 $ 113,873
Finance and credit insurance fees .......................... 2,639 6,517 3,397 11,316
------------ ------------ ------------ ------------
160,166 87,560 30,891 125,189
------------ ------------ ------------ ------------
Costs and expenses:
Cost of goods sold, buying and occupancy ................ 95,099 48,906 17,750 71,401
Selling, general and administrative expenses ............ 61,928 31,217 12,980 47,045
Provision for doubtful accounts ......................... 839 4,017 1,492 6,586
Depreciation and amortization ........................... 6,702 3,292 1,341 4,166
------------ ------------ ------------ ------------
164,568 87,432 33,563 129,198
------------ ------------ ------------ ------------
Operating income (loss) .................................... (4,402) 128 (2,672) (4,009)
Interest expense, net (excludes $5,989 of interest expense
in Fiscal 1998 on Senior Secured Notes) ................. 2,834 2,202 2,367 7,025
------------ ------------ ------------ ------------
Loss before reorganization items, income taxes, and
Extraordinary item ...................................... (7,236) (2,074) (5,039) (11,034)
Reorganization items
Fresh-Start adjustments (Note 1) ........................ -- -- (66,042) --
Reorganization costs (Note 9) ........................... -- 400 4,437 11,134
------------ ------------ ------------ ------------
Earnings (loss) before income taxes and extraordinary
Item .................................................... (7,236) (2,474) 56,566 (22,168)
Income taxes (Note 6) ...................................... 11 -- -- --
------------ ------------ ------------ ------------
Earnings (loss) before extraordinary item .................. (7,247) (2,474) 56,566 (22,168)
Extraordinary item (Note 1) ................................ -- -- 11,545 --
------------ ------------ ------------ ------------
Net earnings (loss) ........................................ $ (7,247) $ (2,474) $ 68,111 $ (22,168)
============ ============ ============ ============
Basic and diluted per share data:
Earnings (loss) before extraordinary item ............... $ (1.43) $ (0.49) $ 11.31 $ (5.50)
Extraordinary item (Note 1) ............................. -- -- 2.31 --
------------ ------------ ------------ ------------
Net earnings (loss) ..................................... $ (1.43) $ (0.49) $ 13.62 $ (5.50)
============ ============ ============ ============
Weighted-average number of common shares
outstanding ........................................... 5,081 5,002 5,002 4,029
============ ============ ============ ============
</TABLE>
See Notes to Financial Statements.
22
<PAGE> 23
SAMUELS JEWELERS, INC.
STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIENCY)
(amounts in thousands)
<TABLE>
<CAPTION>
Predecessor Successor
Common Stock Common Stock Additional Deferred Retained
------------------- ------------------- Paid in Compen- Notes Earnings
Shares Amount Shares Amount Capital Sation Receivable (Deficit) Total
-------- -------- -------- -------- ---------- -------- ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at May 31, 1997 ........ 4,029 $ 33,247 $(45,943) $(12,696)
Net loss for the year .......... (22,168) (22,168)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at May 30, 1998 ........ 4,029 33,247 (68,111) (34,864)
Net income for the four
months ended October 2,
1998 ........................... 68,111 68,111
Fresh-Start reporting
adjustment ..................... (4,029) (33,247) (33,247)
Exchange of senior
secured notes for stock ........ 2,500 $ 2 $ 32,086 32,088
Shares issued pursuant to
plan of reorganization
(Notes 1 and 8) ................ 2,502 3 16,260 16,263
Deferred compensation
(Note 8) ....................... (1,251)
$ (1,251)
Notes receivable (Note 8) ...... $ (771) (771)
Net loss for the eight months
ended May 29,
1999 ........................... (2,474) (2,474)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at May 29, 1999 ........ -- -- 5,002 5 48,346 (1,251) (771) (2,474) 43,855
Deferred compensation
Amortization (Note 8) .......... 417 417
Notes receivable
payments (Note 8) .............. 259 259
Silverman acquisition
(Note 2) ....................... 57 -- 260 260
Musselman acquisition
(Note 2) ....................... 60 -- 465 465
JewelryLine acquisition
(Note 2) ....................... 35 -- 258 258
Net loss for the year .......... (7,247) (7,247)
-------- -------- -------- -------- -------- -------- -------- -------- --------
Balance at June 3, 2000 ........ -- $ -- 5,154 $ 5 $ 49,329 $ (834) $ (512) $ (9,721) $ 38,267
======== ======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
See Notes to Financial Statements.
23
<PAGE> 24
SAMUELS JEWELERS, INC.
STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Successor Successor Predecessor Predecessor
Year Eight Months Four Months Year
Ended Ended Ended Ended
June 3, May 29, October 2, May 30,
2000 1999 1998 1998
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net earnings (loss) ................................................ $ (7,247) $ (2,474) $ 68,111 $ (22,168)
Adjustments to reconcile net earnings (loss) to net cash provided
by (used in) operating activities:
Fresh-Start adjustments ......................................... -- -- (66,042) --
Extraordinary item - gain on forgiveness of debt ................ -- -- (11,545) --
Depreciation and amortization ................................... 6,285 3,292 1,341 4,166
Deferred compensation ........................................... 417 -- -- --
Provision for doubtful accounts ................................. 839 4,017 1,492 6,586
Provision for holdback reserve allowance ........................ 2,595 -- --
Inventory valuation allowance ................................... -- -- -- (815)
(Gain)/Loss on sale or abandonment of property and equipment .... (8) 315 -- 2,132
Management stock grant .......................................... -- -- 417 --
Changes in working capital:
Accounts receivable ............................................. 35,558 (5,183) 2,652 (110)
Merchandise inventories ......................................... (18,417) (6,155) (4,592) 9,700
Prepaid expenses and other current assets ....................... (1,953) (190) 552 573
Restructuring and reorganization costs .......................... -- -- -- 3,090
Accounts payable--trade ......................................... 21,355 (545) 3,616 8,865
Other accrued liabilities ....................................... 3,388 (1,936) 1,921 3,182
----------- ----------- ----------- -----------
Net cash provided by (used in) operating
Activities ............................................... 42,812 (8,859) (2,077) 15,201
----------- ----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment ................................. (13,506) (6,478) (2,641) (3,081)
Acquisition of stores .............................................. (1,274) -- -- --
Proceeds from sale of assets ....................................... 13 100 -- --
Increase/(decrease) in other assets ................................ 147 (148) (21) (141)
----------- ----------- ----------- -----------
Net cash used in investing activities ...................... (14,620) (6,526) (2,662) (3,222)
----------- ----------- ----------- -----------
Cash Flows from Financing Activities:
Net borrowing (repayments) under revolving credit
facility ........................................................ (27,947) (565) (11,397) --
Issuance of common stock ........................................... -- 15,012 -- --
Notes receivable ................................................... 259 (771) -- --
----------- ----------- ----------- -----------
Net cash provided by (used in)financing activities ......... (27,688) 13,676 (11,397) --
----------- ----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents ................. 504 (1,709) (16,136) 11,979
Cash and cash equivalents at beginning of year ....................... 1,456 3,165 19,301 7,322
----------- ----------- ----------- -----------
Cash and cash equivalents at end of year ............................. $ 1,960 $ 1,456 $ 3,165 $ 19,301
=========== =========== =========== ===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest ........................................................ $ 2,973 $ 1,958 $ 2,060 $ 5,760
Income taxes .................................................... $ 11 $ -- $ -- $ --
Noncash investing and financing activities:
Merchandise inventory returned in exchange for pre-petition
liabilities (Note 1) .............................................. $ -- $ -- $ -- $ 5,496
Exchange of Senior Notes for Common Stock (Note 1) ................. $ -- $ 32,088 $ -- $ --
Deferred compensation (Notes 1 and 8) .............................. $ -- $ (1,251) $ -- $ --
Stock and debt issued for acquisitions (Note 2) .................... $ 6,983 $ -- $ -- $ --
</TABLE>
See Notes to Financial Statements.
24
<PAGE> 25
SAMUELS JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS
FOR THE FISCAL YEAR ENDED JUNE 3, 2000, THE EIGHT MONTHS ENDED MAY 29,
1999, THE FOUR MONTHS ENDED OCTOBER 2, 1998, AND THE FISCAL YEAR ENDED MAY
30, 1998 (in thousands, except share data)
1. REORGANIZATION AND BASIS OF PRESENTATION
REORGANIZATION
Samuels Jewelers, Inc. ("Samuels" or the "Company"), was created in
August 1998 for the purpose of acquiring the assets of Barry's Jewelers, Inc.
("Barry's") as part of Barry's Plan of Reorganization (the "Plan") which was
confirmed by the U.S Bankruptcy Court on September 16, 1998, and consummated on
October 2, 1998 (the "Reorganization"). Samuels is incorporated in Delaware and
was initially funded by $15 million of new equity provided by the former
bondholders of Barry's who also consented to the conversion of their $50 million
of Barry's bonds into equity of Samuels.
On May 11, 1997, (the "Petition Date"), Barry's filed a voluntary
petition for reorganization under Chapter 11 in the United States Bankruptcy
Court for the Central District of California, Los Angeles Division (the
"Bankruptcy Court"). After the Petition Date, Barry's continued in possession of
its properties and, as Debtor-in-Possession, was authorized to operate and
manage its businesses and enter into all transactions (including obtaining
services, inventories and supplies) that it could have entered into in the
ordinary course of business without approval of the Bankruptcy Court.
On September 16, 1998, the Bankruptcy court entered an order (the
"Confirmation Order") confirming Barry's Original Disclosure Statement and Plan
of Reorganization dated April 30, 1998, as Modified (as so modified and
confirmed, the "Plan"). Please refer to such documents for more information.
Upon emergence from Chapter 11 proceedings and with regard to the
second quarter of Fiscal 1999 and fiscal periods thereafter, the Company adopted
the fresh start reporting requirements of AICPA Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization under the Bankruptcy Code"
during the second quarter of Fiscal 1999. In accordance with the fresh start
reporting requirements, the reorganization value of the Company has been
allocated to the Company's assets in conformity with the procedures specified by
Accounting Principles Board Opinion 16, Business Combinations. In addition the
accumulated deficit of the Company was eliminated and its capital structure was
revalued in accordance with the Plan. The Company has recorded the effects of
the Plan and Fresh-Start Reporting as of October 2, 1998. The adjustment to
eliminate the Company's accumulated deficit totaled $77.6 million of which $11.6
million was forgiveness of debt and the remaining $66.0 million was Fresh-Start
adjustments.
Under the plan, the Company issued 5,001,800 shares of the reorganized
Company stock. Of those shares 2,500,000 shares were issued to holders of
Allowed Class 2 and Class 5 claims (secured and unsecured Claims of
Bondholders), an additional 2,251,800 were sold to holders of Allowed Class 2
and Class 5 claims, and 250,000 shares were granted to executive officers of the
reorganized Company. Under the plan, the Company issued 259,925 Reorganized
Company Warrants to the holders of Allowed Class 9 claims (claims of former
holders of common stock of Barry's Jewelers, Inc.) which are exercisable at
rates outlined in the Plan of Reorganization.
The plan also provided for the payment of certain administrative
claims, including tax claims, bank secured claims, and other allowed claims.
Holders of Class 6 general unsecured claims are receiving payment at a rate of
$0.15 for each dollar of their allowed claims. Substantially all claims have
been paid by the Company.
On October 2, 1998, as part of its plan of reorganization, Barry's was
merged into Samuels.
The financial statements contained within this report are for Samuels
Jewelers, Inc. after October 2, 1998. Nevertheless, the Company is providing the
information with regard to Barry's as of and prior to that time under its
obligation, as set forth in Securities and Exchange Act regulations. Thus, as
used herein, the Company, refers to Samuels for periods after October 2, 1998
and to Barry's for periods through October 2, 1998.
BASIS OF PRESENTATION
The results of operations and cash flows for the four months ended
October 2, 1998 and for the year ended May 30, 1998, include operations prior to
the Company's emergence from Chapter 11 proceedings (referred to as
"Predecessor") and the effects of Fresh-Start Reporting. The results of
operations and cash flows for the year ended June 3, 2000, and for the eight
months ended May 29, 1999, include operations subsequent to the Company's
emergence from Chapter 11 proceedings (referred to as "Successor") and reflect
the effects of Fresh-Start Reporting. As a result, the net income for the year
ended June 3, 2000, and for the eight months
25
<PAGE> 26
ended May 29, 1999, is not comparable with prior periods and the net income for
the year-to-date period ended May 29, 1999 is divided into Successor and
Predecessor and is also not comparable with prior periods.
The reorganized value of the Company's common equity of $47.1 million
was determined by the Company, with the assistance of financial advisors, by
reliance on the Discounted Cash Flow method using the weighted average cost of
capital. The reorganized value of the Company has been allocated to specific
asset categories pursuant to Fresh-Start Reporting. Reorganization Value in
Excess of Amounts Allocated to Identifiable Assets reflects the difference in
the Company's stock valuation and the Company's net assets. The Company is
amortizing the Reorganization Value in Excess of Amounts Allocated to
Identifiable Assets over ten years.
The adoption of the Fresh-Start reporting requirements had the
following effect on the Company's unaudited Condensed Balance Sheet dated
October 2, 1998:
<TABLE>
<CAPTION>
Pre- Debt Exchange
Confirmation Discharge of Stock
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents .................................... $ 14,562 $ (11,397) $ --
Customer receivables, net .................................... 43,932 -- --
Merchandise inventories ...................................... 31,585 -- --
Prepaid expenses and other current assets .................... 1,017 -- --
------------- ------------- -------------
Total current assets ............................................ 91,096 (11,397) --
Net property and equipment ...................................... 14,905 -- --
Other assets .................................................... 1,209 (718) --
Reorganization value in excess of amounts allocated to
identifiable assets, net ........................................ -- -- --
------------- ------------- -------------
Total assets .................................................... $ 107,210 $ (12,115) $ --
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable - trade ..................................... $ 12,702 $ -- $ --
Other accrued liabilities .................................... 11,932 3,308 --
------------- ------------- -------------
Total current liabilities ....................................... 24,634 3,308 --
Liabilities subject to compromise under reorganization
proceedings .................................................... 126,499 (73,426) (53,073)
Long-term debt .................................................. -- 46,458 --
Stockholders' equity (deficiency):
Common stock, no par value; authorized 8,000,000 shares;
Issued and outstanding, 4,029,372 shares at May 30, 1998 .. 33,247 -- (33,247)
Common stock, $.001 par value; authorized 20,000,000
Shares; issued and outstanding, 5,001,800 shares at
October 2, 1998 ........................................... -- -- 2
Additional paid-in capital ................................... 417 -- 86,318
Accumulated deficit .......................................... (77,587) 11,545 --
------------- ------------- -------------
Total stockholders' equity (deficiency) ......................... (43,923) 11,545 53,073
------------- ------------- -------------
Total liabilities and stockholders' deficiency .................. $ 107,210 $ (12,115) $ --
============= ============= =============
<CAPTION>
Additional
Fresh-Start Capitalization Adjusted
------------- -------------- -------------
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ..................................... $ -- $ -- $ 3,165
Customer receivables, net ..................................... -- -- 43,932
Merchandise inventories ....................................... (5,056) -- 26,529
Prepaid expenses and other current assets ..................... -- -- 1,017
------------- ------------- -------------
Total current assets ............................................. (5,056) -- 74,643
Net property and equipment ....................................... (1,238) -- 13,667
Other assets ..................................................... -- -- 491
Reorganization value in excess of amounts allocated to
identifiable assets, net ......................................... 17,687 -- 17,687
------------- ------------- -------------
Total assets ..................................................... $ 11,393 $ -- $ 106,488
============= ============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Accounts payable - trade ...................................... $ -- $ -- $ 12,702
Other accrued liabilities ..................................... -- -- 15,240
------------- ------------- -------------
Total current liabilities ........................................ -- -- 27,942
Liabilities subject to compromise under reorganization
proceedings ..................................................... -- -- --
Long-term debt ................................................... -- (15,012) 31,446
Stockholders' equity (deficiency):
Common stock, no par value; authorized 8,000,000 shares;
Issued and outstanding, 4,029,372 shares at May 30, 1998 ... -- -- --
Common stock, $.001 par value; authorized 20,000,000
Shares; issued and outstanding, 5,001,800 shares at
October 2, 1998 ............................................ -- 3 5
Additional paid-in capital .................................... (54,649) 15,009 47,095
Accumulated deficit ........................................... 66,042 -- --
------------- ------------- -------------
Total stockholders' equity (deficiency) .......................... 11,393 15,012 47,100
------------- ------------- -------------
Total liabilities and stockholders' deficiency ................... $ 11,393 $ -- $ 106,488
============= ============= =============
</TABLE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal Year. The Company changed its fiscal year end during 1998 from
May 31 to the Saturday closest to May 31. The Company's fiscal years ended June
3, 2000 ("Fiscal 2000"), May 29, 1999 ("Fiscal 1999") and May 30, 1998 ("Fiscal
1998"), may be referred to herein as such. Fiscal 2000 is a 53-week period.
Fiscal 1999 and 1998 are each a 52-week period.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with an original maturity at date of purchase of three months or
less to be cash equivalents.
26
<PAGE> 27
Accounts Receivable. On August 30, 1999 the Company sold its then existing
credit card accounts, totaling approximately $46.8 million, to WFN at face value
less a holdback reserve. The holdback reserve is to protect WFN against
charged-off accounts through the term of the program. The credit card program
has an initial term of five years, but provides the parties the option to extend
the agreement beyond such initial term. The holdback reserve will be released to
the Company at the end of the program. The Company has recorded the holdback
reserve net of a valuation allowance to reflect management's estimate of losses
based on past performance. Prior to August 30, 1999, the Company offered its
merchandise on credit terms to qualified customers. In accordance with industry
practice, accounts receivables are included in current assets in the Company's
balance sheet. The Company routinely assesses the collectibility of its accounts
receivable. The Company no longer records a provision for doubtful accounts, but
now records a valuation allowance against the holdback reserve held by WFN. As
of June 3, 2000, the accounts receivable balance is $6.4 million, net of a
valuation allowance of $3.4 million. As of May 29, 1999, accounts receivable,
net was $45.1 million, primarily consisting of customer receivables of $50.2
million less a $5.1 million provision for doubtful accounts.
Merchandise Inventories. Merchandise inventories, substantially all of
which represent finished goods, are stated at the lower of cost or market. Cost
is determined using the average cost method.
Property and Equipment. Property and equipment in existence as of October
2, 1998 were stated at fair values as of that date pursuant to Fresh-Start
reporting adopted in connection with the Reorganization. See Note
1--"Reorganization." Additions since October 2, 1998 are stated at cost.
Depreciation and amortization of leasehold improvements, furniture and
fixtures and computers and equipment are computed by the straight-line method
over the lesser of related lease terms or the estimated useful lives of such
assets as set forth in the following table:
<TABLE>
<CAPTION>
USEFUL LIVES
IN YEARS
------------
<S> <C>
Leasehold improvements...................... 10-15
Furniture and fixtures...................... 5-10
Computers and equipment..................... 5
</TABLE>
Goodwill. Goodwill, which represents the excess of purchase price over fair
value of net assets acquired, is amortized on a straight-line basis over 10
years. The Company assesses the recoverability of this intangible asset by
determining whether the amortization of the goodwill balance over its remaining
useful life.
Impairment of Long-lived Assets. Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-lived Assets
and for Long-lived Assets to Be Disposed Of," requires an entity to review
long-lived tangible and intangible assets for impairment and recognize a loss if
expected future undiscounted cash flows are less than the carrying amount of the
assets; such losses are measured as the difference between the carrying value
and the estimated fair value of the assets. The estimated fair value is
determined based on expected future cash flows.
Deferred Debt Issuance. Deferred debt issuance costs are reported on the
Company's balance sheet as other assets and are being amortized on a
straight-line basis, which approximates the interest method, over the terms of
the related financing agreements.
Revenue Recognition. The Company recognizes revenue upon delivery of
merchandise to the customer and either the receipt of a cash payment or approval
of a credit agreement.
Reorganization Costs. Expenditures directly related to the Chapter 11
filing are classified as reorganization costs and were expensed as incurred. See
"Note 9 Reorganization Costs."
Income Taxes. Income taxes are computed using the liability method. The
provision for income taxes includes income taxes payable for the current period
and the deferred income tax consequences of transactions that have been
recognized in the Company's financial statements or income tax returns. The
carrying value of deferred income tax assets is determined based on an
evaluation of whether the realization of such assets is more likely than not.
Temporary differences result primarily from accrued liabilities, valuation
allowances, depreciation and amortization, and state franchise taxes. The
valuation allowance is reviewed periodically to determine the amount of deferred
tax asset considered realizable.
Earnings (Loss) per Share. The Company computes earnings per share in
accordance with SFAS No. 128, "Earnings Per Share." SFAS No. 128 requires the
Company to present basic and diluted earnings per share on the face of the
statement of operations. Basic earnings per share are computed by dividing net
income by the weighted average number of common shares outstanding. Diluted
earnings per share are computed by dividing net income by the sum of the
weighted average number of common shares outstanding for the period plus the
assumed exercise of all dilutive securities. However, in the case of a loss per
share, dilutive securities outstanding would be antidilutive and would,
therefore, be excluded from the computation of diluted earnings per share.
27
<PAGE> 28
Accounting for Acquisitions. The Company has accounted for the acquisition
of the assets of JewelryLine.com and the former Silverman's and Musselman's
stores using the purchase method of accounting and, accordingly, the purchase
price has been allocated to the assets acquired and the liabilities assumed
based upon their preliminary fair values at the date of acquisition. The Company
has included the results of operations for these stores in its Statement of
Operations at the time the Company began operating each store.
Henry Silverman Jewelers, Inc.--On July 27, 1999, the Company entered into
a purchase agreement with Henry Silverman Jewelers, Inc. ("Silverman's") to
acquire its tradenames, customer lists, fixtures and the lease rights for 14
Silverman's stores. The Company's purchase price for these assets was 54,600
shares of its common stock, then valued at approximately $0.3 million. The
Company did not assume any of Silverman's liabilities or acquire any of
Silverman's remaining assets as part of the purchase agreement. The shares of
common stock were issued and registered under the Company's shelf registration
statement on Form S-1, declared effective by the SEC on June 9, 1999. The
Company also issued 2,500 shares of its common stock to an individual as a
finder's fee as part of the transaction. The Company currently operates these 14
stores in seven states, 13 stores under the name "Samuels Diamonds" and one as
"Samuels".
Musselman Jewelers--Pursuant to an assets purchase agreement that was
entered into in December 1999, the Company acquired from Wilkerson & Associates
substantially all of its interests in and rights to 14 Musselman Jewelers stores
("Musselman"), including tradenames, customer lists, fixtures and the lease
rights related to such stores. The Company's purchase price for these assets was
60,000 shares of its common stock, then valued at approximately $0.5 million.
The Company did not assume any of Musselman's liabilities and did not acquire
any of Musselman's other assets as part of the acquisition. The 60,000 shares of
the Company's common stock were registered under the Company's shelf
registration statement on Form S-1, as amended by Post-Effective Amendment No. 1
on Form S-4 to Form S-1 Registration Statement. By early February 2000, the
Company had begun operating fourteen stores in three states--Pennsylvania,
Virginia and West Virginia--under Musselman's prior lease agreements. All
fourteen stores have been renamed "Samuels".
JewelryLine.com--The Company began online jewelry shopping operations
during Fiscal 2000. As of March 8, 2000, the Company acquired the online
operations and assets of JewelryLine.com, Inc. ("JewelryLine") , including the
registered domain names, related to JewelryLine's operation of an online
Internet site for the sale of jewelry and related items. The Company's purchase
price for the JewelryLine assets was 35,000 shares of the Company's common
stock, then valued at approximately $0.3 million, that were registered pursuant
to the Company's shelf registration statement on Form S-1, as amended by
Post-Effective Amendment No. 1 on Form S-4 to Form S-1 Registration Statement.
The Company did not assume any of JewelryLine's liabilities as part of the
transaction. The Company also registered "www.Samuels.cc" and
"www.SamuelsJewelers.com" Web Site locations and began offering merchandise at
such locations, along with JewelryLine.com, on April 17, 2000.
C & H Rauch, Inc.--In November 1999, the Company acquired substantially all
of the assets of C & H Rauch, Inc. ("Rauch") through the purchase of all of the
outstanding stock of Rauch. The Company's net purchase price for this
acquisition was approximately $20.0 million, consisting of $2.0 million in cash,
notes payable in the amount of $6.0 million and approximately $12.0 million in
liabilities assumed. The Company's acquisition of Rauch added 40 new stores,
including operations in the states of Kentucky, Ohio, Indiana, West Virginia and
Virginia. Upon completion of the acquisition, Rauch was merged with and into the
Company. Currently, the Company continues to operate 33 of these stores under
the "C&H Rauch" nameplate and has converted the other 7 stores to "Samuels".
The Company has accounted for the Rauch acquisition using the purchase
method of accounting and, accordingly, the purchase price has been allocated to
the assets acquired and the liabilities assumed based upon their preliminary
fair values at the date of acquisition. The final determination of the purchase
price is subject to changes in Rauch's unaudited balance sheet as of October 31,
1999, to properly reflect any agreed adjustments per the purchase agreement. The
excess of the purchase price over the fair value of the net assets acquired was
approximately $4.9 million, which the Company has recorded as goodwill and is
amortizing on a straight-line basis over ten years. The Company has included the
results of operations for the Rauch acquisition in its Statement of Operations
beginning November 1999. The Rauch home office was closed at the end of January
2000, the lease on its home office was cancelled and the functions performed in
Lexington, Kentucky have been absorbed by the Company's home office in Austin,
Texas. The net purchase price was allocated as follows (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents $ 726
Accounts receivable 339
Merchandise inventories 10,168
Prepaid expenses and other current assets 3,046
Leasehold improvements, furniture and fixtures 855
Goodwill 4,851
--------
Total purchase price $ 19,985
========
</TABLE>
28
<PAGE> 29
The following unaudited pro forma summary data for Fiscal 2000 and the
eight months ended May 29, 1999 (in thousands, except per share amounts)
combines the results of operations of the Company and its acquisitions as if the
acquisitions had occurred as of October 2, 1998, after giving effect to certain
adjustments, including increased depreciation and amortization expense on assets
acquired. The results of operations of Musselman's, Silverman's and
JewelryLine.com are not material and are, therefore, excluded from the pro forma
results. The unaudited pro forma results do not necessarily represent results
which would have occurred if the Company had made the acquisitions on October 2,
1998, nor are they indicative of the results of future consolidated operations.
<TABLE>
<CAPTION>
PRO FORMA PRO FORMA
FISCAL YEAR EIGHT MONTHS
ENDED JUNE 3, ENDED MAY 29,
2000 1999
------------- -------------
(unaudited) (unaudited)
<S> <C> <C>
Revenues $ 166,434 $ 104,733
Net income $ (8,387) $ (1,225)
Basic and diluted (loss) per share $ (1.63) $ (0.24)
</TABLE>
Accounting for Stock-based Compensation. Statement of Financial Accounting
Standards No. 123, "Accounting for Stock-based Compensation" ("SFAS No. 123")
requires compensation expense equal to the fair value of an option grant to be
estimated using accepted option-pricing formulas when an option is granted. The
compensation may either be charged to the statement of operations or set forth
as pro forma information in the footnotes to the financial statements, depending
on the method elected by the Company upon adoption of the standard. The Company
has elected to continue using the intrinsic value method prescribed in
Accounting Principles Board Opinion ("APB") No. 25, "Accounting for Stock Issued
to Employees," for stock option expense recognition and has disclosed the
proforma effects of SFAS No. 123. See "Note 8. Stockholders' Equity."
Disclosure about Segments of an Enterprise and Related Information. The
Company is not engaged in multiple businesses or geographic segments requiring
separate disclosure under SFAS No. 131.
Newly Issued Accounting Standards. In June 1998, the Financial Accounting
Standards Board issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities," which is effective for fiscal years beginning after June
15, 2000. Therefore, the Company will be required to adopt SFAS No. 133 for its
fiscal year beginning June 3, 2001. SFAS No. 133 establishes accounting and
reporting standards for derivative instruments that require every derivative to
be recorded on the balance sheet as an asset or liability measured at its fair
value. The statement also defines the accounting for the change in the fair
value of derivatives depending on their intended use. The Company believes that
the adoption of SFAS No. 133 will not have a material impact on the financial
condition or results of operations.
Use of Estimates. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expense during
the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments. The carrying amounts of accounts
receivable, notes payable and trade accounts payable approximate fair value
because of the short maturity of these financial instruments.
Reclassifications. Certain previously reported amounts were reclassified to
conform to current year presentations.
3. INVENTORY VALUATION
In connection with the implementation of Fresh-Start reporting, the Company
increased its inventory valuation reserve to $7,274 at October 2, 1998 in order
to adjust the carrying value of its inventory to its net realizable value. The
inventory valuation reserve was $460 at June 3, 2000, and $5,336 at May 29,
1999. The reduction in the inventory valuation reserve is the result of sales of
aged merchandise below normal margin levels.
29
<PAGE> 30
4. OTHER ACCRUED LIABILITIES
Other accrued liabilities consist of the following as of the fiscal years
ended:
<TABLE>
<CAPTION>
JUNE 3, MAY 29,
2000 1999
---------- ---------
<S> <C> <C>
Accrued wages and benefits............. $ 3,920 $ 2,472
Accrued bankruptcy claims.............. 904 2,071
Accrued professional fees.............. 403 1,922
Sales tax.............................. 1,113 694
Layaway and customer refunds........... 1,232 414
Accrued interest....................... 151 254
Accrued rent........................... 921 322
Payable to WFN......................... 816 --
Deferred revenue....................... 633 788
Property tax........................... 403 271
Other accrued expenses................. 7,640 4,096
---------- ---------
$ 18,136 $ 13,304
========== =========
</TABLE>
5. NOTES PAYABLE
On October 2, 1998, the Company entered into a three-year, $50.0 million
financing agreement with Foothill Capital Corporation as a lender and as agent
for a lender group (the "Lenders"). The Lenders are committed to make revolving
advances to the Company in amounts determined based on percentages of eligible
accounts receivable and inventory. The annual rate of interest will be, at the
Company's option, (i) 2.25% per annum over the Eurodollar rate or (ii) 0.5% per
annum over the bank's prime rate, provided, however, that in no event will the
applicable interest rate on any advance be less than 7% per annum. Interest
charges are payable monthly. Upon the occurrence and during the continuation of
any event of default under the financing agreement, all obligations will bear
interest at a per annum rate equal to three percentage points above the
otherwise applicable interest rate. As collateral for any and all obligations to
the lenders under the financing agreement, the Company granted a first priority
perfected security interest in and to substantially all of its owned or
thereafter acquired assets, both tangible and intangible. The financing
agreement contains quarterly covenants which include its meeting a minimum level
of tangible net worth, a minimum level of borrowing availability under the line
of credit and prohibits the payment of dividends. The Company entered into
Amendment Number One to the Loan and Security Agreement with the Lenders on
April 15, 1999, Amendment Number Two on August 30, 1999, Amendment Number Three
on November 24, 1999, Amendment Number Four on January 25, 2000, and Amendment
Number Five on June 2, 2000. These amendments allowed for the sale of the credit
card portfolio, the acquisition of stores and adjusted some of the covenants
required of the Company under this financing agreement.
As of June 3, 2000 the Company had direct borrowings of $24.6 million
outstanding under the revolving line of credit, with an interest rate of 10.0%
on $0.6 million, 8.86% on $17.0 million and 8.44% on $7.0 million. The weighted
average interest rate for the fiscal year ended June 3, 2000, was 8.5%. At June
3, 2000 the Company had additional credit available under the line of
approximately $6.3 million.
In conjunction with the Company's acquisition of Rauch, the Company issued
three promissory notes due and payable for $2.0 million each in January 2000,
2001 and 2002, respectively. The first promissory note, due January 2000, has
been paid. The two remaining notes have a stated interest rate of 7% per annum
with interest due and payable beginning January 15, 2000 and on each successive
six-month anniversary thereafter until the notes are paid in full. The Company
may offset its payment obligations under these notes to the extent and in the
event any liabilities arise that were not accounted for and not disclosed in the
unaudited balance sheet of Rauch as of October 31, 1999, which Samuels required
to be delivered as part of its completing the transaction. Upon the occurrence
and during the continuation of any event of default under the notes, the
Company's payment obligations may bear interest at a per annum rate of 15%.
6. INCOME TAXES
During Fiscal 2000, the Company's net operating losses (NOLs) increased by
approximately $10 million. During Fiscal 1999, the Company's NOLs were reduced
by approximately $60 million as a result of debt discharge income. As of June 3,
2000, the Company had
30
<PAGE> 31
NOL carryforwards for federal income tax purposes of approximately $43 million.
Approximately $18 million of this NOL is related to losses incurred subsequent
to October 2, 1998, which may be used in their entirety to offset future taxable
income. The remaining carryforward, from prior to October 2, 1998, is subject to
an annual limitation on its use of approximately $1.7 million. These losses
begin to expire in 2012. In addition, the Company has alternative minimum tax
credit carryforwards of $109. These credits do not expire. The Company maintains
a valuation allowance against the net deferred tax assets, which in Management's
opinion reflects the net deferred tax asset that is more likely than not to be
realized.
The provision for income taxes includes the following:
<TABLE>
<CAPTION>
SUCCESSOR FOR PREDECESSOR PREDECESSOR
SUCCESSOR THE EIGHT FOR THE FOUR FOR THE YEAR
FOR THE YEAR ENDED MONTHS ENDED MONTHS ENDED ENDED
JUNE 3, MAY 29, OCTOBER 2, MAY 30,
2000 1999 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Current:....
Federal... -- $ -- $ -- $ --
State .... 11 -- -- --
------------ ------------ ------------ ------------
Deferred:...
Federal... -- -- -- --
State .... -- -- -- --
------------ ------------ ------------ ------------
$ 11 $ -- $ -- $ --
============ ============ ============ ============
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate as follows:
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR FOR PREDECESSOR PREDECESSOR
FOR THE YEAR THE EIGHT FOR THE FOUR FOR THE YEAR
ENDED MONTHS ENDED MONTHS ENDED ENDED
JUNE 3, MAY 29, OCTOBER 2, MAY 30,
2000 1999 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Statutory rate .... (35.0)% (35.0)% (35.0)% (35.0)%
Surtax benefit .... 1.0 1.0 1.0 1.0
Valuation allowance 34.0 34.0 34.0 34.0
Other ............. -- -- -- --
------------ ------------ ------------ ------------
0.0% 0.0% 0.0% 0.0%
============ ============ ============ ============
</TABLE>
Significant components of the Company's deferred income taxes are as
follows:
<TABLE>
<CAPTION>
JUNE 3, MAY 29,
2000 1999
--------------- ---------------
<S> <C> <C>
Current tax assets (liabilities):
Reserve for bad debts ............ $ -- $ 2,233
Allowance for holdback reserve ... 1,167 --
Inventory ........................ 729 705
Vacation accrual ................. 328 358
State franchise taxes ............ 680 991
Restructuring reserve ............ 486 3,053
Other ............................ -- (10)
--------------- ---------------
3,390 7,330
--------------- ---------------
Noncurrent tax assets (liabilities):
State franchise taxes ............ (655) (818)
Property and equipment ........... 713 (1,138)
Net operating loss carryforwards . 16,737 25,908
Other ............................ 682 2,159
--------------- ---------------
17,477 26,111
--------------- ---------------
Total deferred tax assets .......... 20,867 33,441
Valuation allowance ................ (20,758) (33,332)
--------------- ---------------
Net deferred tax assets ............ $ 109 $ 109
=============== ===============
</TABLE>
31
<PAGE> 32
7. COMMITMENTS AND CONTINGENCIES
The Company leases store and office facilities and certain equipment used
in its regular operations under operating leases, which expire at various dates
through 2011. The store leases provide for additional rentals based upon sales
and for payment of taxes, insurance and certain other expenses. Rent expense,
amortized on a straight-line basis over the life of the lease, is charged to
operations as follows:
<TABLE>
<CAPTION>
SUCCESSOR SUCCESSOR FOR PREDECESSOR PREDECESSOR
FOR THE YEAR THE EIGHT FOR THE FOUR FOR THE
ENDED MONTHS ENDED MONTHS ENDED YEAR ENDED
JUNE 3, MAY 29, OCTOBER 2, MAY 30,
2000 1999 1998 1998
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Minimum rentals .. $ 1,822 $ 5,078 $ 2,620 $ 9,373
Contingent rentals 10,698 1,218 536 2,216
------------ ------------ ------------ ------------
$ 12,520 $ 6,296 $ 3,156 $ 11,589
============ ============ ============ ============
</TABLE>
Included in the above table is rent expense paid to officers/stockholders
related to certain stores and the office facility of $683 for the fiscal year
ended May 30, 1998.
Minimum rental commitments for all remaining noncancelable leases in effect
as of June 3, 2000 are as follows for the fiscal years ended May:
<TABLE>
<S> <C>
2001 ..... $ 11,798
2002 ..... 10,779
2003 ..... 10,068
2004 ..... 8,921
2005 ..... 7,349
Thereafter 22,214
---------------
$ 71,129
===============
</TABLE>
The Company enters into consignment inventory agreements with its key
vendors in the ordinary course of business. During Fiscal 2000 consignment
inventory on hand ranged from $26.9 to $49.5 million. These amounts are excluded
from the merchandise inventory balance on the accompanying balance sheet.
Consignment inventory was approximately $44.5 million and $30.1 as of June 3,
2000 and May 29, 1999, respectively.
The Company is from time to time involved in routine litigation incidental
to the conduct of its business. Based upon discussions with legal counsel,
management believes that its litigation currently pending will not have a
material adverse effect on the Company's financial position, results of
operations or cash flows.
8. STOCKHOLDERS' EQUITY
Stock Option Plans. In 1998 the Company adopted a stock option plan for
certain of its officers and key employees. The number of shares of common stock
that can be purchased pursuant to this plan cannot exceed 500,000 and must be
granted prior to October 2, 2008. The exercise price for options granted under
this plan may not be less than the fair market value of the Company's common
stock at the date of grant. These options become exercisable over a four-year
period and vest 25% per year. As of June 3, 2000, the Company had 334,875
options outstanding with an average exercise price of $6.00 per share (ranging
from $4.375 to $7.875 per share).
In 1998 the Company also adopted a stock option plan for its non-employee
directors. The number of shares of common stock that can be purchased pursuant
to this plan cannot exceed 250,000 and must be granted prior to September 30,
2008. The exercise price for options granted under this plan may not be less
than the fair market value of the Company's common stock at the date of grant.
These options become exercisable over a four-year period and vest 25% per year.
As of June 3, 2000, the Company had 70,000 options outstanding with an average
exercise price of $5.83 per share, (ranging from $5.50 to $6.67 per share).
32
<PAGE> 33
The following table summarizes the status of the Company's stock option
plans:
<TABLE>
<CAPTION>
NUMBER OF WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
--------- ----------------
<S> <C> <C>
Outstanding as of October 2, 1998 -- --
Granted 256,200 $ 6.67
Canceled/Exercised -- --
Outstanding as of May 29, 1999 256,200 6.67
Granted 170,575 4.99
Canceled (21,900) 6.50
Exercised -- --
Outstanding as of June 3, 2000 404,875 $ 5.97
</TABLE>
The following table summarizes information about options outstanding and
exercisable as of June 3, 2000:
<TABLE>
<CAPTION>
RANGE OF NUMBER WEIGHTED AVERAGE WEIGHTED AVERAGE NUMBER WEIGHTED AVERAGE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE EXERCISE PRICE EXERCISABLE EXERCISE PRICE
--------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$4.375 to $7.875 404,875 7.75 $5.97 58,575 $6.67
</TABLE>
The company has elected to follow APB 25 and related interpretations in
accounting for its stock options. Accordingly, no compensation expense has been
recognized since stock options granted under these plans were at exercise prices
which approximated market value at the grant date. Had compensation expense been
determined for stock option grants using fair value methods provided for in SFAS
No. 123, Accounting for Stock-Based Compensation, the Company's pro forma net
income and net earnings per common share would have been the amounts indicated
below:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED 39 WEEKS ENDED
JUNE 3, 2000 MAY 29, 1999
----------------- --------------
(in thousands except share data)
<S> <C> <C>
Compensation cost $ 300 $ 573
Net income:
As reported $ (7,247) $ (2,474)
Pro forma $ (7,547) $ (3,047)
Net income (loss) per share
As reported $ (1.43) $ (0.49)
Pro forma $ (1.49) $ (0.61)
Stock option share data:
Stock options granted during period 170,575 256,200
Weighted average option fair value (a) $ 2.58 $ 3.15
</TABLE>
(a) Calculated in accordance with the Black-Scholes option pricing model, using
the following assumptions:
(1) For Fiscal 2000 grants; expected life of 7.23 years; expected
volatility of 35%; expected dividend yield of 0% and risk- free
rates of return as of the date of grant of 5.8% based on the
yield of the U.S. Treasury securities nearest in life to the
average expected lives at the date of grant.
(2) For Fiscal 1999 grants; expected life of 7.78 years; expected
volatility of 35%; expected dividend yield of 0% and risk- free
rates of return as of the date of grant of 4.8% based on the
yield of the U.S. Treasury securities nearest in life to the
average expected lives at the date of grant.
Warrants. At June 3, 2000 the Company had 259,925 warrants outstanding
which were issued to stockholders of Barry's Jewelers, Inc as a part of the
Company's Reorganization. The warrants are exercisable over a five-year period
with strike prices ranging from $19.69 to $24.00 per share. The Company has an
option that, upon the occurrence of certain transactions, allows the Company to
call the warrants at a price equal to the greater of $0.20 or the net exercise
value (i.e., the difference between the fully diluted market price of the common
stock and the strike price of the warrant.)
401(k) Retirement Plan. The Predecessor's Board of Directors adopted a
qualified 401(k) retirement plan effective June 1, 1995. Substantially all
full-time employees of the Company, age 21 and older, are eligible to
participate in the Company's 401(k) plan beginning the first day of the month
following the date of employment. Employees may elect to contribute 1% to 15% of
their compensation, subject to certain IRS limitations. Effective June 1, 1999,
the plan was amended, changing its name to Samuels 401(k) Plan, changing the
plan record keeper, changing the eligibility period to the first day of the
month following the date of employment, and changing the plan year to a calendar
year. Employer matching contributions are determined annually by a Board of
Directors
33
<PAGE> 34
resolution. The Board of Directors agreed to match contributions for calendar
years 2000 and 1999 at $0.50 per dollar of contribution up to a 6% deferral
rate. No employer matching contributions were granted prior to calendar year
1999. The match can be made in dollars or in the form of Company stock valued as
of the last day of the Plan Year. Participants are partially vested in employer
matching contributions after two years and fully vested after five years of
employment with the Company. Employer contributions were $186 and $83 for Fiscal
2000 and Fiscal 1999, respectively.
Employee Incentive Stock Grant. On October 2, 1998, the Company issued
250,000 restricted shares of common stock to certain key executives as part of
their employment agreements provided for in the Plan of Reorganization. These
grants vest 25% per year, commencing on the grant date and each of the first
three anniversaries thereof. At June 3, 2000, 125,000 shares were unvested. As a
result of these grants, the Company recognized deferred compensation expense in
the amount of $0.4 million for Fiscal 2000. The deferred compensation expense is
being recognized over the remaining vesting period.
Notes Receivable. As part of the employment agreements for certain key
executives, the Company made loans in the amount of $936 in Fiscal 1999 and $59
in Fiscal 2000 (and agreed to issue more loans as shares vest) to help defray
the tax expense of the above stock grants. These notes bear interest at the
applicable federal short-term rate when issued and are payable in quarterly
installments over the three-year vesting schedule. If, however, the executive is
employed on the quarterly due date, a bonus in the amount of the principal then
due is then payable. The Company recognized compensation expense in the full
amount of the notes issued. The deferred compensation expense is amortized over
the remaining vesting period.
As part of the purchase by certain officers of the Company in a private
placement of the Company's common stock, the Company permitted officers to
purchase common stock in return for a combination of a promissory note for up to
90% of such officer's purchase price of the common stock and cash. The notes
generally are 100% recourse as to accrued interest and range from 25% to 33%
recourse as to principal. The notes generally require payment in full by the
seventh anniversary of the date of the amount of the respective loan, and the
related accrued interest, for the purchase price of the common stock. The notes
accrue interest at a rate per annum equal to the federal mid-term rate of
interest published by the U.S. Treasury in accordance with IRC Section 1274(d).
The notes require a mandatory annual prepayment of the principal and accrued
interest on the respective note in an amount equal to the lesser of 25% of the
pre-tax amount of any cash bonus paid by the Company to the respective officer
and the sum of accrued and unpaid interest owing on the respective note plus the
unpaid principal amount outstanding on the note. Each officer may elect for one
year in the seven-year period to omit the inclusion of the unpaid principal
amount outstanding on the note under the foregoing calculation. The notes permit
the suspension of the payment of the applicable prepayment amounts as long as an
officer has made sufficient deferrals of amounts from the officer's base salary
and any bonuses under the Company's Deferred Compensation Plan to equal the
prepayment amounts that are being suspended. The Deferred Compensation Plan
provides for the withholding of a percentage of an eligible employee's base
salary and any bonus for a period not to exceed the seven-year anniversary of
the date of the first deferral under the plan. The Company shall credit the
amounts deferred under the Deferred Compensation Plan to a book entry account of
the Company for each participant in the plan and such amounts shall accrue
interest at a rate equal to the prime rate of interest in effect from time to
time. See "Notes to Financial Statements--10. Subsequent Events".
9. REORGANIZATION COSTS
Reorganization costs consisted of the following:
<TABLE>
<CAPTION>
SUCCESSOR PREDECESSOR
FOR THE EIGHT FOR THE FOUR PREDECESSOR
MONTHS MONTHS FOR THE
ENDED ENDED YEAR ENDED
MAY 29, OCTOBER 2, MAY 30,
1999 1998 1998
--------------- --------------- ---------------
<S> <C> <C> <C>
Professional fees .................................................. $ -- $ 3,196 $ 5,662
Loss on disposal of property and equipment
(related to store closures and the Company's former headquarters)... -- 379 2,448
Adjustments to pre-petition unsecured liabilities .................. -- -- 1,440
Provision for lease rejection claims ............................... -- 81 1,127
Employee costs related to the Chapter 11 filing .................... 400 239 696
Other .............................................................. -- 926 586
Interest earned on accumulated cash resulting from
Chapter 11 filing................................................... -- (384) (825)
--------------- --------------- ---------------
Total .............................................................. $ 400 $ 4,437 $ 11,134
=============== =============== ===============
</TABLE>
Cash paid (net of interest income) for reorganization costs during the year
ended June 3, 2000, the eight months ended May 29,1999, the four months ended
October 2, 1998, and the year ended May 1998 amounted to $1.4 million, $2.5
million, $2.3 million and $3.6 million, respectively.
34
<PAGE> 35
10. SUBSEQUENT EVENTS
Private Equity Placement. In June and July 2000, the Company completed the
sale of 2,795,940 shares of its common stock, par value $.001 per share, to
several purchasers pursuant to a private offering by the Company. The purchasers
of such common stock included funds controlled by DDJ Capital Management, LLC,
certain vendors of the Company and directors and officers of the Company. The
Company sold the shares at a price of $5.25 per share for an aggregate purchase
price of approximately $14.7 million. The Company is using the proceeds of the
sale of the shares, approximately $13.0 million, in meeting its ongoing working
capital needs. The Company conducted the private offering and sold the 2,795,940
shares under an exemption from registration of such shares under the Securities
Act of 1933, as amended (the "Securities Act"), provided in Section 4(2) of the
Securities Act and pursuant to Rule 506 under Regulation D under the Securities
Act. As part of the purchase agreements for such sales of common stock, the
Company agreed to register such stock under the Securities Act of 1933, as
amended, for resale pursuant to a shelf registration statement.
As part of the purchase of the Company's common stock by certain officers
of the Company, the Company permitted each officer to purchase common stock in
return for a combination of a promissory note for up to 90% of such officer's
purchase price of the common stock and cash. The notes generally require payment
in full by the seventh anniversary of the date of the respective loan of amounts
for the purchase price of the common stock, but require mandatory annual
prepayments of principal and accrued interest in varying amounts. In connection
with the officers' financing of the purchase price for the common stock, the
Company adopted a Deferred Compensation Plan whereby eligible employees of the
Company may elect, on an annual basis, to have up to 50% of base salary and up
to 100% of any bonuses withheld and entered into a book entry account of the
Company. The respective officer is permitted to suspend, in the aggregate, the
obligation for payment of the mandatory prepayment amounts under the promissory
note given in return for the purchase price of the common stock if the withheld
amounts under the Deferred Compensation Plan are equal or greater in the
aggregate than the aggregate amount of mandatory prepayments that would have
been required under such promissory note.
New Store Commitments. The Company is in various stages of negotiations for
leases on new locations.
35
<PAGE> 36
SCHEDULE II
SAMUELS JEWELERS, INC.
VALUATION & QUALIFYING ACCOUNTS
(IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE AT CHARGE TO BALANCE AT
BEGINNING COSTS AND DEDUCTIONS/ END OF
OF PERIOD EXPENSES OTHER PERIOD
--------------- --------------- ---------------- ---------------
<S> <C> <C> <C> <C>
YEAR END 2000:
Allowance for doubtful accounts (1) $ 5,120 $ 839 $ (5,959) $ --
Allowance for holdback reserve (1) $ -- $ 5,959 $ (2,525) $ 3,434
Inventory valuation allowance (2) . $ 5,336 $ 700 $ (5,576) $ 460
YEAR END 1999:
Allowance for doubtful accounts ... $ 7,099 $ 5,509 $ (7,488) $ 5,120
Inventory valuation allowance (2) . $ 2,218 $ 5,056 $ (1,938) $ 5,336
YEAR END 1998:
Allowance for doubtful accounts ... $ 10,300 $ 6,586 $ (9,787) $ 7,099
Inventory valuation allowance ..... $ 3,033 $ -- $ (815) $ 2,218
YEAR END 1997:
Allowance for doubtful accounts ... $ 10,930 $ 18,766 $ (19,396) $ 10,300
Inventory valuation allowance ..... $ -- $ 3,033 $ -- $ 3,033
YEAR END 1996:
Allowance for doubtful accounts ... $ 11,662 $ 11,839 $ (12,571) $ 10,930
</TABLE>
----------
(1) The allowance for doubtful accounts is no longer necessary as the Company
sold its existing credit card accounts to WFN and agreed to have WFN
provide a third-party credit card program for the benefit of the Company's
customers. The sale occurred at face value, less a holdback reserve, which
is to protect the purchaser for any charge-off of accounts. An allowance
for the holdback reserve is the Company's estimate of the charge-off
exposure.
(2) The inventory valuation allowance was adjusted by $5,056 as of October 2,
1998, as a part of the Company's adoption of the Fresh-Start reporting
requirements of Statement of Position 90-7. See "Notes to Financial
Statements--1. Reorganization and Basis of Presentation."
36
<PAGE> 37
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NO. EXHIBIT
----------- -------
<S> <C>
2.1 Order Confirming Original Disclosure Statement and Plan of
Reorganization, Dated April 30, 1998, Proposed by Barry's
Jewelers, Inc., as modified, dated September 16, 1998 (with Plan
attached).(1)
3.1 Certificate of Incorporation of Samuels Jewelers, Inc.(1)
3.2 Bylaws of Samuels Jewelers, Inc.(1)
10.1(a) Loan and Security Agreement dated October 2, 1998, between the
Company and Foothill Capital Corporation, as agent for certain
lenders party thereto.(2)
10.1(b) Amendment Number One to Loan and Security Agreement entered into
as of April 15, 1999, among the Company, Foothill Capital
Corporation and the financial institutions listed on the
signature pages thereto.(3)
10.1(C) Amendment Number Two to Loan and Security Agreement entered into
as of August 30, 1999, among the Company, Foothill Capital
Corporation and the financial institutions listed on the
signature pages thereto. (3)
10.1(d) Amendment Number Three to Loan and Security Agreement entered
into as of November 24, 1999, among the Company, Foothill Capital
Corporation and the financial institutions listed on the
signature pages thereto. (4)
10.1(e) Amendment Number Four to Loan and Security Agreement entered into
as of January 25, 2000, among the Company, Foothill Capital
Corporation and the financial institutions listed on the
signature pages thereto. (5)
10.1(f) Amendment Number Five to Loan and Security Agreement entered into
as of June 2, 2000, among the Company, Foothill Capital
Corporation and the financial institutions listed on the
signature pages thereto. (6)
10.2 Employment Agreement, dated as of October 2, 1998 between the
Company and Randy N. McCullough.(1)
10.3 Employment Agreement, dated as of October 2, 1998 between the
Company and E. Peter Healey.(1)
10.4 Employment Agreement, dated as of October 2, 1998 between the
Company and Chad C. Haggar.(1)
10.5 Employment Agreement, dated as of October 2, 1998 between the
Company and Bill R. Edgel.(1)
10.6 Employment Agreement, dated as of October 2, 1998 between the
Company and Paul Hart.(1)
10.7 Private Label Credit Card Agreement between World Financial
Network National Bank and the Company dated as of July 27,
1999.(3)
10.8 Purchase and Sale Agreement between World Financial Network
National Bank and the Company dated as of July 27, 1999.(3)
10.9 Registration Rights Agreement dated as of June 21, 2000, by and
among the Company, Weil, Gotshal & Manges LLP, B III Capital
Partners, L.P. and B III-A Capital Partners, L.P.(6)
10.10 Form of Investment Agreement for private placement in June 2000
of common stock with investors (excluding officers of Samuels
Jewelers, Inc.)(6)
10.11 Form of Samuels Jewelers, Inc. Stock Purchase Agreement for
private placement in July 2000 of common stock with officers of
Samuels Jewelers, Inc.(6)
10.12 Samuels Jewelers, Inc. Deferred Compensation Plan.(6)
10.13 Samuels Jewelers, Inc. 1998 Stock Option Plan.(7)
10.14 Samuels Jewelers, Inc. 1998 Stock Option Plan for Non-Employee
Directors.(8)
23.1 Consent of Independent Auditors.(6)
27.1 Financial Data Schedule.(6)
</TABLE>
----------
(1) Incorporated by reference to the Company's Current Report on Form 8-K filed
October 6, 1998.
(2) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended August 29, 1998.
(3) Incorporated by reference to the Company's Annual Report on Form 10-K for
the year ended May 29, 1999.
(4) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended November 27, 1999.
(5) Incorporated by reference to the Company's Quarterly Report on Form 10-Q
for the quarter ended February 26, 2000.
(6) Filed herewith.
(7) Incorporated by reference to Annex A of the Company's Proxy Statement on
Schedule 14A dated October 21, 1998.
(8) Incorporated by reference to Annex B of the Company's Proxy Statement on
Schedule 14A dated October 21, 1998.
37
