<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT to SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 2, 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 (IRS Employer
incorporation or organization) Identification No.)
2914 Montopolis Dr., Suite 200, Austin, Texas 78741
(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 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. [X] Yes. [ ] No.
As of October 9, 2000, the Registrant had 7,967,365 shares of common stock, par
value $.001 per share, outstanding.
<PAGE> 2
SAMUELS JEWELERS, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
PAGES
<S> <C>
PART I FINANCIAL INFORMATION
ITEM 1. Financial Statements
Balance Sheets 3
Statements of Operations 4
Statements of Cash Flows 5
Notes to Financial Statements 6
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 9
ITEM 3. Quantitative and Qualitative Disclosure about Market Risk 12
PART II OTHER INFORMATION
ITEM 1. Legal Proceedings 13
ITEM 2. Changes in Securities 13
ITEM 3. Defaults Upon Senior Securities 13
ITEM 4. Submission of Matters to a Vote of Security Holders 13
ITEM 5. Other Information 13
ITEM 6. Exhibits and Reports on Form 8-K 14
</TABLE>
<PAGE> 3
ITEM 1.
PART I
SAMUELS JEWELERS, INC.
BALANCE SHEETS
(amounts in thousands, except share data)
<TABLE>
<CAPTION>
September 2, June 3,
2000 2000
------------ ---------
Assets (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 1,880 $ 1,960
Accounts receivable, net 6,199 6,446
Merchandise inventories 55,838 61,269
Prepaid expenses and other current assets 4,776 6,129
--------- ---------
Total current assets 68,693 75,804
Property and equipment:
Leasehold improvements, furniture and fixtures 29,785 28,717
Computers and equipment 6,385 6,380
--------- ---------
36,170 35,098
Less: accumulated depreciation and amortization 7,360 6,225
--------- ---------
Net property and equipment 28,810 28,873
Other assets 522 561
Goodwill, net 4,472 4,598
Reorganization value in excess of amounts allocated to
identifiable assets, net 14,307 14,748
--------- ---------
Total assets $ 116,804 $ 124,584
========= =========
Liabilities and Stockholders' Equity
Current liabilities:
Notes payable $ 28,363 $ 27,350
Accounts payable - trade 28,549 38,742
Other accrued liabilities 12,638 18,136
--------- ---------
Total current liabilities 69,550 84,228
Notes payable 2,075 2,089
Stockholders' equity:
Common stock; $.001 par value; authorized 20,000,000 shares;
Issued and outstanding, 7,949,840 shares at September 2, 2000,
5,153,900 at June 2, 2000 8 5
Additional paid-in capital 64,005 49,329
Deferred compensation (834) (834)
Notes receivable (2,068) (512)
Accumulated deficit (15,932) (9,721)
--------- ---------
Total stockholders' equity 45,179 38,267
Total liabilities and stockholders' equity $ 116,804 $ 124,584
========= =========
</TABLE>
See Notes to Financial Statements.
3
<PAGE> 4
SAMUELS JEWELERS, INC.
STATEMENTS OF OPERATIONS
(amounts in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 2, August 28,
2000 1999
------------ ------------
<S> <C> <C>
Net sales $ 29,531 $ 21,131
Finance and credit insurance fees -- 2,257
-------- --------
29,531 23,388
Costs and expenses:
Cost of goods sold, buying and occupancy 20,337 14,086
Selling, general and administrative expenses 13,054 9,455
Provision for doubtful accounts -- 839
Depreciation and amortization 1,702 1,343
-------- --------
35,093 25,723
Operating loss (5,562) (2,335)
Interest expense, net 649 969
-------- --------
Loss before income taxes (6,211) (3,304)
Income taxes -- --
-------- --------
Net loss $ (6,211) $ (3,304)
======== ========
Basic and diluted loss per share $ (0.86) $ (0.66)
======== ========
Weighted average shares outstanding 7,191 5,028
======== ========
</TABLE>
See Notes to Financial Statements.
4
<PAGE> 5
SAMUELS JEWELERS, INC.
STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)
<TABLE>
<CAPTION>
Three Months Three Months
Ended Ended
September 2, August 28,
2000 1999
------------ ------------
<S> <C> <C>
Operating activities:
Net loss $ (6,211) $ (3,304)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation and amortization 1,702 1,239
Provision for doubtful accounts -- 839
Change in operating assets and liabilities:
Accounts receivable 248 1,708
Merchandise inventories 5,431 (6,958)
Prepaid expenses and other current assets 1,352 637
Other assets 39 32
Accounts payable - trade (10,193) 8,504
Other accrued liabilities (5,498) (706)
-------- --------
Net cash provided by (used in) operating activities (13,130) 1,991
Investing activities:
Purchase of property and equipment (1,072) (1,938)
-------- --------
Net cash used in investing activities (1,072) (1,938)
Financing activities:
Net borrowings under revolving credit facility 999 231
Notes receivable for purchase of stock (1,556) 84
Issuance of common stock 14,679 84
-------- --------
Net cash provided by financing activities 14,122 315
Decrease in cash (80) (368)
Cash and cash equivalents at beginning of period 1,960 1,456
-------- --------
Cash and cash equivalents at end of period $ 1,880 $ 1,824
======== ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 654 $ 1,016
Income taxes $ -- $ --
</TABLE>
See Notes to Financial Statements.
5
<PAGE> 6
SAMUELS JEWELERS, INC.
NOTES TO FINANCIAL STATEMENTS
(AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
1. HISTORY AND BASIS OF PRESENTATION
HISTORY
Samuels Jewelers, Inc. ("Samuels" or the "Company") 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 in
a wide range of styles and prices, with a principal emphasis on diamond and
gemstone jewelry. As of September 2, 2000, the Company operated 198 retail
jewelry stores in 26 states, principally Texas, California, Kentucky, Colorado,
Ohio, Pennsylvania, Utah, Arizona and Indiana. The Company also sells jewelry
online at www.Samuels.cc, www.SamuelsJewelers.com and www.JewelryLine.com. The
Company currently operates under the following four tradenames: "Samuels", "C&H
Rauch", "Schubach" and "Samuels Diamonds". Measured by the number of retail
locations, the Company 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.
The Company was created in August, 1998 for the purpose of acquiring the assets
of Barry's Jewelers, Inc. ("Barry's" or "Predecessor") 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"). On October 2, 1998, as part of its plan of reorganization,
Barry's was merged into Samuels.
BASIS OF PRESENTATION
The accompanying unaudited financial statements of the Company have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X.
The financial statements included herein do not include all of the information
and footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation for
the interim periods have been included.
Operating results for the interim periods presented are not necessarily
indicative of the results that may be expected for the year ending June 2, 2001.
For further information, refer to the financial statements and footnotes thereto
included in the Company's Annual Report on Form 10-K for the year ended June 3,
2000.
Each fiscal year of the Company ends on the Saturday closest to May 31. The
first quarter of Fiscal 2001 consisted of the thirteen weeks ended September 2,
2000. The first quarter of Fiscal 2000 consisted of the thirteen weeks ended
August 28, 1999.
Certain previously reported amounts were reclassified to conform to current year
presentations.
6
<PAGE> 7
2. NOTES PAYABLE
On October 2, 1998, the Company entered into a three-year, $50 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 a percentage of eligible
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 the Company meeting a minimum level of tangible net
worth and prohibits the payment of dividends. The Company has entered into five
amendments to the Loan and Security Agreement with the Lenders, with the most
recent amendment being as of June 2, 2000. These amendments reduced the total
commitment under the financing agreement from $50 million to $40 million,
allowed for the sale of the Company's credit card accounts, allowed for the
acquisition of stores and adjusted some of the covenants required of the Company
under this financing agreement.
As of September 2, 2000, the Company had direct borrowings of $25.8 million
outstanding with additional credit available of approximately $1.2 million. As
of September 2, 2000, the Company was in compliance with all terms of the
financing agreement.
In November 1999, the Company acquired C&H Rauch, Inc. ("Rauch"), a 40-store
jewelry chain with stores principally located in Kentucky and Ohio. In
conjunction with this acquisition, 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%.
3. ACCOUNTS RECEIVABLE
On August 30, 1999, the Company sold its then existing credit card accounts to
World Financial Network National Bank ("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. The Company also entered into a
third-party credit program with WFN that generally requires WFN to calculate
each month 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. The
Company used the net proceeds of approximately $37.4 million from 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.
7
<PAGE> 8
Since the sale, WFN has offered credit to Samuels' customers. Sales on the
Company's private label credit cards accounted for approximately 35.8% of sales
in the first quarter of Fiscal 2001, compared to 48.3% for the first quarter of
Fiscal 2000, reflecting the Company's focus on a less credit-dependent consumer.
The Company no longer has customer receivables.
4. SALE OF EQUITY
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 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 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 of the Securities Act. Such
exemption was available to the Company because it was primarily made available
only to "accredited investors", as such term is defined under Section 502 of 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.
5. NOTES RECEIVABLE
As part of the purchase of the Company's common stock by certain officers of the
Company, the Company permitted each such 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. As of September 2, 2000, the aggregate
outstanding amount under these notes was approximately $1.7 million, which is
shown as an offset of stockholders' equity on the balance sheet.
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. The Company made
loans, and agreed to issue more loans as shares vest, to help defray the tax
expense of the 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 deferred compensation expense is amortized over the remaining
vesting period. As of September 2, 2000, the aggregate outstanding amount under
these notes was approximately $0.4 million, which is shown as an offset of
stockholders' equity on the balance sheet.
8
<PAGE> 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
PRIVATE SECURITIES LITIGATION REFORM ACT. This Quarterly Report on Form 10-Q
contains certain 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 and the Company intends that such forward-looking statements be subject to
the safe harbors created thereby.
OVERVIEW. The following discussion presents information about the financial
condition, liquidity and capital resources, and results of operations of the
Company as of and for the quarters ended September 2, 2000 and August 28, 1999.
This information should be read in conjunction with the audited financial
statements of the Company and the notes thereto as reported on the Company's
Annual Report on Form 10-K for the fiscal year ended June 3, 2000.
STORE ACTIVITY
The following table sets forth selected store data with respect to the quarters
ended September 2, 2000 and August 28, 1999:
<TABLE>
<CAPTION>
September 2 August 28
2000 1999
----------- ---------
<S> <C> <C>
Number of stores at beginning of quarter ................... 198 116
Acquired during the quarter .............................. -- 6
Opened during the quarter ................................ 2 2
Closed during the quarter ................................ (2) (1)
------- -------
Total at quarter end ............................. 198 123
======= =======
Percentage increase (decrease) in sales of
comparable stores ........................................ (3.7)% 5.8%
Average sales per comparable store (in thousands) .......... $ 177 $ 187
Private label credit sales mix ............................. 35.8% 48.3%
Equivalent store weeks ..................................... 2,577 1,523
Equivalent weekly average store sales (in thousands) ....... $ 11.5 $ 13.9
</TABLE>
RESULTS OF OPERATIONS
Net sales for the quarter ended September 2, 2000 were $29.5 million, an
increase of $8.4 million, or 39.7%, as compared to net sales of $21.1 million
for the quarter ended August 28, 1999. Equivalent store weeks were 2,577 for the
quarter this year as compared to 1,523 for the quarter last year. Equivalent
weekly sales were $11.5 thousand for the quarter ended September 2, 2000 as
compared to $13.9 thousand for the quarter ended August 28, 1999. This 17.3%
decrease in equivalent weekly sales is primarily due to acquiring stores with
lower average sales volume than those stores already in the Samuels portfolio.
Comparable store sales (the 112 stores open for the same period in both the
current and preceding year) were $19.8 million during the quarter this year as
compared to $20.5 million for the same period last year. This is a decrease of
$0.7 million, or a decrease of 3.7%, in comparable store sales. Some of the
factors contributing to this decrease in comparable sales were 1) the reduction
in credit sales as a percentage of total sales resulting from the outsourcing of
credit operations, and 2) the reduction of inventory levels for top-selling
merchandise in many of the stores.
Finance and credit insurance fees are no longer generated by Samuels due to the
sale of the credit card accounts to a third party as of August 30, 1999. Revenue
from these fees totaled $2.3 million during the quarter ended August 28, 1999.
Cost of goods sold, buying and occupancy expenses were $20.3 million for the
quarter ended September 2, 2000, as compared to $14.1 million for the same
quarter last year. The increase in cost of goods sold, buying and occupancy
expenses resulted primarily from the increase in the number of stores in
operation. Cost of goods sold, buying and occupancy expenses were 68.9% of net
sales for the quarter ended September 2, 2000 and 66.7% of net sales for the
prior year period. The cost of goods sold, buying and
9
<PAGE> 10
occupancy expenses increased as a percentage of sales due to lower margins
being obtained on the sale of jewelry merchandise.
Selling, general and administrative expenses were $13.1 million for the quarter
ended September 2, 2000, as compared to $9.5 million in the same quarter last
year. The increase was primarily due to the overall increase in the number of
stores in operation. Selling, general and administrative expenses as a
percentage of net sales were 44.2% for the quarter ended September 2, 2000 and
44.7% for the quarter ended August 28, 1999. The improvement as a percentage of
net sales resulted primarily from the general and administrative expenses being
spread over the larger sales volume.
The provision for doubtful accounts is no longer being recorded because Samuels'
credit card accounts were sold on August 30, 1999.
Net interest expense was $0.6 million for the quarter ended September 2, 2000, a
decrease of $0.4 million, or 33.0%, from $1.0 million for the quarter ended
August 28, 1999. This reduction is generally due to the fact that the proceeds
from the sale of Samuels' existing credit card accounts were used to reduce the
amounts outstanding under Samuels' bank agreement.
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.
As of September 2, 2000, owned inventory was $55.8 million as compared to $61.2
million as of June 3, 2000.
The Company reported cash flow used in operating activities of $13.1 million for
the quarter ended September 2, 2000, as compared to cash flow provided by
operating activities of approximately $2.0 million for the comparable period
last year. The change in the use of cash flow in operating activities is
primarily due to a decrease in accounts payable and for funding operating
losses. Additionally, the Company acquired $1.1 million in property and
equipment during the quarter, consisting mostly of leasehold improvements
associated with the opening of two new stores and minor remodeling of existing
stores.
The Company had cash and cash equivalents, none of which was restricted, of $1.9
million as of September 2, 2000, as compared to $2.0 million as of June 3, 2000.
FINANCING TRANSACTIONS. On October 2, 1998, the Company entered into a
three-year, $50 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 a percentage of eligible 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 the Company meeting a
minimum level of tangible net worth and prohibits the payment of dividends. The
Company has entered into five amendments to the Loan and Security Agreement with
the Lenders, with the most recent being as of June 2, 2000. These amendments
reduced the total commitment under the financing agreement from $50 million to
$40 million, allowed for the sale of the Company's credit card accounts, allowed
for the
10
<PAGE> 11
acquisition of stores and adjusted some of the covenants required of the Company
under this financing agreement.
As of September 2, 2000, the Company had direct borrowings of $25.8 million
outstanding with additional credit available of approximately $1.2 million. As
of September 2, 2000, the Company was in compliance with all terms of the
financing agreement.
In November 1999, the Company acquired C&H Rauch, Inc., a 40-store jewelry chain
with stores principally located in Kentucky and Ohio. In conjunction with this
acquisition, 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%.
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 Company sold the shares at a price of $5.25 per
share and raised approximately $13.0 million, which is being used to fund the
increased working capital needs created by the Company's recent growth.
The Company expects that amounts available under its financing agreement, in
addition to amounts generated through its business operations, will be
sufficient to meet the short-term working capital needs of the Company, which
includes increasing inventory levels for its upcoming selling seasons and
capital expenditures for store improvements.
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. The
Company simultaneously entered into a third-party credit program that 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 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. Receivables from
the Company's private label credit cards are held and owned by WFN, subject to
the above-described terms. As of September 2, 2000, the holdback reserve, net of
a valuation allowance, is $6.2 million.
11
<PAGE> 12
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
The Company is exposed to market risk in the form of interest rate risk. As of
September 2, 2000, the Company had $25.8 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 2.
Notes Payable". An increase or decrease in interest rates would affect the
interest costs relating this revolving line of credit. The Company has no
interest rate swaps or other hedging facilities relating to its revolving line
of credit.
12
<PAGE> 13
PART II. OTHER INFORMATION
Item 1. 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 2. Changes in Securities and Use of Proceeds
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 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 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 of the Securities Act. Such exemption was available to
the Company because it was primarily made available only to
"accredited investors", as such term is defined under Section 502 of
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 such 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.
Item 3. Defaults Upon Senior Securities
Not Applicable
Item 4. Submission of Matters to a Vote of Security Holders
Not Applicable
Item 5. Other Information
Not Applicable.
13
<PAGE> 14
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
Exhibit Description
3.1 Certificate of Incorporation of Samuels Jewelers, Inc.(1)
3.2 By-Laws of Samuels Jewelers, Inc.(1)
10.1 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.(2)
10.2 Form of Investment Agreement for private placement in June
2000 of common stock with investors (excluding officers
of the Company).(2)
10.3 Form of Samuels Jewelers, Inc. Stock Purchase Agreement for
private placement in July 2000 of common stock with
officers of the Company.(2)
10.4 Samuels Jewelers, Inc. Deferred Compensation Plan.(2)
27.1 Financial Data Schedule
(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 Annual Report on Form 10-K
for the year ended June 3, 2000.
(b) Reports on Form 8-K:
Not applicable.
14
<PAGE> 15
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.
October 17, 2000 By: /s/ RANDY N. MCCULLOUGH
-------------------------------------
Randy N. McCullough
President and Chief Executive Officer
October 17, 2000 By: /s/ J. DOUGLAS BULLOCK
-------------------------------------
J. Douglas Bullock
Vice President--Finance
(Principal Accounting Officer)
<PAGE> 16
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<S> <C>
3.1 Certificate of Incorporation of Samuels Jewelers, Inc.(1)
3.2 By-Laws of Samuels Jewelers, Inc.(1)
10.1 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.(2)
10.2 Form of Investment Agreement for private placement in June 2000 of
common stock with investors (excluding officers of the Company).(2)
10.3 Form of Samuels Jewelers, Inc. Stock Purchase Agreement for private
placement in July 2000 of common stock with officers of the Company.(2)
10.4 Samuels Jewelers, Inc. Deferred Compensation Plan.(2)
27.1 Financial Data Schedule
</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 Annual Report on Form 10-K for
the year ended June 3, 2000.
