<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: July 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
---------------------- ---------------------
Commission File number: 0-028176
Whitehall Jewellers, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-1433610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 No. Wacker, Chicago, IL. 60606
(Address of principal executive offices)
312/782-6800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of the Registrant's common stock, $.001 par value per share,
outstanding as of July 31, 2000 was 15,379,054 and the number of the
Registrant's Class B common stock, $1.00 par value, as of such date was 148.
<PAGE> 2
WHITEHALL JEWELLERS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED JULY 31, 2000
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months and six months
ended July 31, 2000 and 1999 (unaudited)
Balance Sheets - July 31, 2000, January 31, 2000 and July 31,
1999 (unaudited)
Statements of Cash Flows for the six months ended July 31, 2000
and 1999 (unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Whitehall Jewellers, Inc.
Statements of Operations
for the three months and six months ended July 31, 2000 and 1999
(unaudited)(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
July 31, July 31, July 31, July 31,
2000 1999 2000 1999
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Net sales $ 76,139 $ 65,886 $ 149,774 $ 124,821
Cost of sales (including buying and occupancy
expenses) 46,651 39,263 91,055 75,211
--------- --------- --------- ---------
Gross profit 29,488 26,623 58,719 49,610
Selling, general and administrative
expenses 27,576 21,543 52,758 41,373
--------- --------- --------- ---------
Income from operations 1,912 5,080 5,961 8,237
Interest expense 1,157 1,392 2,321 2,649
--------- --------- --------- ---------
Income before income taxes 755 3,688 3,640 5,588
Income tax expense 291 1,420 1,402 2,152
--------- --------- --------- ---------
Net income before cumulative
effect of accounting change 464 2,268 2,238 3,436
Cumulative effect of accounting - - -
Change, net of tax (3,068)
--------- --------- --------- ---------
Net income (loss) $ 464 $ 2,268 $ (830) $ 3,436
========= ========= ========= =========
Basic earnings per share:
Net income before cumulative
effect of accounting change $ 0.03 $ 0.16 $ 0.14 $ 0.23
========= ========= ========= =========
Cumulative effect of accounting
Change, net of tax $ - $ - $ (0.19) $ -
========= ========= ========= =========
Net income (loss) $ 0.03 $ 0.16 $ (0.05) $ 0.23
========= ========= ========= =========
Weighted average common share
and common share equivalents 16,654 14,454 16,267 14,646
========= ========= ========= =========
Diluted earnings per share:
Net income before cumulative
effect of accounting change $ 0.03 $ 0.15 $ 0.13 $ 0.23
========= ========= ========= =========
Cumulative effect of accounting
Change, net of tax $ - $ - $ (0.18) $ -
========= ========= ========= =========
Net income (loss) $ 0.03 $ 0.15 $ (0.05) $ 0.23
========= ========= ========= =========
Weighted average common share
and common share equivalents 17,106 14,942 16,925 14,991
========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
Whitehall Jewellers, Inc.
Balance Sheets
(unaudited, in thousands)
<TABLE>
<CAPTION>
July 31, January 31, July 31,
2000 2000 1999
---------- -------------- ----------
<S> <C> <C> <C>
ASSETS
Current Assets:
Accounts receivable, net $ 3,709 $ 3,159 $ 2,285
Layaway receivables, net -- 5,638 4,087
Merchandise inventories 179,322 147,691 133,667
Other current assets 821 1,109 1,223
Prepaid income tax 492 -- 527
Deferred financing costs 383 362 362
Deferred income taxes, net 4,006 2,086 1,518
--------- --------- ---------
Total current assets 188,733 160,045 143,669
Property and equipment, net 60,288 49,144 41,733
Goodwill 6,055 6,186 6,317
Deferred financing costs 1,119 948 1,129
Deferred income tax, net 613 613 926
--------- --------- ---------
Total assets $ 256,808 $ 216,936 $ 193,774
========= ========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Outstanding checks, net $ 8,315 $ 17,207 $ 3,300
Revolver loan 44,765 41,117 57,554
Term loan, current 3,750 3,250 2,750
Accounts payable 52,666 37,005 37,993
Customer deposits 4,169 -- --
Accrued payroll 3,059 5,945 3,475
Income taxes -- 7,315 --
Other accrued expenses 24,057 16,868 14,129
--------- --------- ---------
Total current liabilities 140,781 128,707 119,201
Term loan 12,000 14,000 15,750
Subordinated debt 640 640 640
Other long-term liabilities 1,876 1,661 1,627
--------- --------- ---------
Total liabilities 155,297 145,008 137,218
Commitments and contingencies
Stockholders' equity:
Common stock 17 15 15
Class B common stock - - -
Class C common stock - - -
Class D common stock - - -
Additional paid-in capital 103,341 60,426 60,265
Accumulated earnings 20,654 21,484 5,586
--------- --------- ---------
124,012 81,925 65,866
--------- --------- ---------
Less:
Treasury stock, at cost (2,349,076,
883,376 and 565,500 shares,
respectively) (22,501) (9,997) (9,310)
--------- --------- ---------
Total stockholders' equity, net 101,511 71,928 56,556
--------- --------- ---------
Total liabilities and
stockholders' equity $ 256,808 $ 216,936 $ 193,774
========= ========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
Whitehall Jewellers, Inc.
Statements of Cash Flows
for the six months ended July 31, 2000 and 1999
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six months ended
----------------
July 31, July 31,
2000 1999
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ (830) $ 3,436
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 4,331 3,265
Loss on disposition of assets 74 15
Cumulative effect of accounting change, net 3,068 -
Changes in assets and liabilities:
(Increase)decrease in accounts receivable, net (550) 862
(Increase) in layaway receivables, net - (573)
(Increase) in merchandise inventories, net of
gold consignment (29,043) (16,919)
(Increase) decrease in other current assets (204) 106
Increase in customer deposits 215 -
Increase in accounts payable 15,661 12,392
(Decrease) in accrued liabilities (2,797) (5,754)
--------- ---------
Net cash used in operating activities (10,075) (3,170)
Cash flows from investing activities:
Capital expenditures (15,235) (10,397)
--------- ---------
Net cash used in investing activities (15,235) (10,397)
Cash flows from financing activities:
Borrowing on revolver loan 231,416 163,993
Repayment of revolver loan (227,768) (138,340)
Repayment of term loan (1,500) (1,500)
Proceeds from gold consignment 2,016 3,015
Proceeds from exercise of stock options 380 262
Proceeds from equity offering, net 42,537 -
Purchases of Treasury Stock (12,504) (9,310)
Financing costs (375) -
Decrease in outstanding checks, net (8,892) (4,553)
--------- ---------
Net cash provided by financing activities 25,310 13,567
--------- ---------
Net change in cash and cash equivalents - -
Cash and cash equivalents at beginning of period - -
--------- ---------
Cash and cash equivalents at end of period $ - $ -
========= =========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
Whitehall Jewellers, Inc.
Notes to Financial Statements
1. Description of Operations
The financial statements of Whitehall Jewellers, Inc. (the "Company")
include the results of the Company's chain of specialty retail fine jewelry
stores. The Company operates exclusively in one business segment, specialty
retail jewelry. The Company has a national presence with 331 stores as of July
31, 2000, located in 36 states, operating in regional or superregional shopping
malls.
2. Equity Offering
In March, 2000, the Company completed an offering of Common Stock (the
"Offering"). The Company issued 2,325,500 shares of Common Stock, and received
proceeds of $42.5 million net of underwriting discounts and offering costs. The
Company used the proceeds to reduce the Company's indebtedness and for working
capital and other general corporate purposes.
3. Common Stock Repurchase Program
On July 14, 2000, the Board of Directors authorized the Company to
repurchase up to $15.0 million of its Common Stock. Shares repurchased by the
Company will reduce the weighted average number of common shares outstanding for
basic and diluted earnings per share calculations. As of July 31, 2000, the
Company had repurchased 1.5 million shares under this Stock Repurchase Program
at a total cost of approximately $12.5 million.
On August 23, 2000, the Company announced that its Board of Directors had
increased the authorization to purchase shares under the Stock Repurchase
Program from $15.0 million to $20.0 million of the Company's Common Stock.
4. Summary of Significant Accounting Policies
Basis for Presentation
The accompanying Balance Sheet as of January 31, 2000 was derived from
the audited financial statements for the year ended January 31, 2000. The
accompanying unaudited Balance Sheets as of July 31, 2000 and 1999, the
Statements of Income for the three and six months ended July 31, 2000 and 1999
and the Statements of Cash Flows for the six months ended July 31, 2000 and 1999
have been prepared in accordance with generally accepted accounting principles
for interim financial information. The interim financial statements reflect all
adjustments (consisting only of normal recurring accruals) which are, in the
opinion of management, necessary for a fair statement of the results for the
interim periods presented. The interim financial statements should be read in
the context of the Financial Statements and footnotes thereto included in the
Whitehall Jewellers, Inc. Annual Report for the fiscal year ended January 31,
2000. References in the Notes to Financial Statements to years and quarters are
references to fiscal years and fiscal quarters.
5. Accounts Receivable, Net
Accounts receivable are shown net of the allowance for doubtful
accounts of $ 1,100,000, $ 720,000, and $1,456,000 as of July 31, 2000, January
31, 2000 and July 31, 1999, respectively.
6
<PAGE> 7
6. Inventory
As of July 31, 2000, January 31, 2000 and July 31, 1999, merchandising
inventories consist of:
<TABLE>
<CAPTION>
July 31, 2000 January 31, 2000 July 31, 1999
(in thousands)
<S> <C> <C> <C>
Raw Materials $ 11,668 $ 7,557 $ 5,661
Finished Goods 167,654 140,134 128,006
-------- -------- --------
Inventory $179,322 $147,691 $133,667
======== ======== ========
</TABLE>
Raw materials primarily consist of diamonds, precious gems,
semi-precious gems and gold. Included within finished goods inventory are
allowances for inventory shrink, scrap, and miscellaneous costs of $4,817,000,
$3,517,000, and $3,964,000 as of July 31, 2000, January 31, 2000 and July 31,
1999, respectively. As of July 31, 2000, January 31, 2000 and July 31, 1999,
consignment inventories held by the Company that are not included in the balance
sheets total $ 48,116,000, $52,620,000, and $43,370,000, respectively.
In addition, gold consignments of $26,310,000, $24,294,000 and
$24,294,000 are not included in the Company's balance sheets as of July 31,
2000, January 31, 2000 and July 31, 1999, respectively.
7. Financing Arrangements
Effective June 26, 2000, the Company amended its Amended and Restated
Revolving Credit, Term Loan and Gold Consignment Agreement (the "Credit
Agreement") with its bank group to provide for a total facility of $166.5
million through June 30, 2004. Interest rates and the commitment fee charged on
the unused portion of the facility float based upon the Company's quarterly
financial performance.
Under this Credit Agreement, the banks have a collateral security
interest in substantially all of the assets of the Company. The Credit Agreement
contains certain restrictions on capital expenditures, investments, payment of
dividends, assumption of additional debt, acquisitions and divestitures, among
others, and requires the Company to maintain certain financial ratios based on
levels of funded debt, capital expenditures and earnings before interest, taxes,
depreciation and amortization.
Revolver Loan
The revolving loan facility under the Credit Agreement is available up
to a maximum of $150.0 million, including amounts consigned under the gold
consignment facility, and is limited by a borrowing base computed based on a
percentage of the value of the Company's inventory and accounts receivable.
Interest rates and commitment fees on the unused facility float based on the
Company's quarterly financial performance.
The interest rates for borrowings under this agreement are, at the
Company's option, based on Eurodollar rates or the banks' prime rate. Interest
is payable monthly for prime borrowings and upon maturity for Eurodollar
borrowings.
Term Loans
The term loan under the Credit Agreement is available up to a maximum
of $15.8 million ($16.5 million, less principal repayments). The interest rates
for these borrowings are, at the Company's option, based on Eurodollar rates or
the banks' prime rate. Interest is payable monthly for prime borrowings and upon
maturity for Eurodollar borrowings. Interest rates and the commitment fee
charged on the unused facility float based on the Company's quarterly financial
performance.
7
<PAGE> 8
Gold Consignment Facility
During the second quarter of fiscal 2000, the Company sold and
simultaneously consigned an additional 7,000 troy ounces of gold for $2.0
million under a gold consignment facility resulting in a total of 76,500 troy
ounces for $26.3 million outstanding under the gold consignment facility. The
facility provides for the sale of a maximum 115,000 troy ounces or $40.0
million. Under the agreement, the Company pays consignment fees based on the
London Interbank Bullion Rates payable monthly. Consignment rates and commitment
fees on the unused portion of the gold consignment facility float based upon the
Company's quarterly financial performance. On June 30, 2004, the Company is
required to repurchase 76,500 troy ounces of gold under this agreement at the
prevailing gold rate in effect on that date, or the facility will be renewed.
Subordinated Notes
Series C Senior Subordinated Notes due 2004 (the "Series C Notes")
totaling $640,000 aggregate principal amount outstanding as of July 31, 2000,
bear interest at 12.15% per annum payable in cash, with interest payments due
quarterly.
8. Earnings per Common Share
The following table summarizes the reconciliation of the numerators and
denominators, as required by SFAS No. 128, for the basic and diluted EPS
computations at July 31, 2000 and 1999.
<TABLE>
<CAPTION>
Three months ended Six Months Ended
July 31, July 31, July 31, July 31,
2000 1999 2000 1999
------------ ------------ ------------ -----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Net earnings for basic and $ 464 $ 2,268 $ 2,238 $ 3,436
diluted EPS
Cumulative effect of
accounting change, net $ - $ - $ (3,068) $ -
Net (loss) income for basic
and diluted EPS $ 464 $ 2,268 $ (830) $ 3,436
Weighted average shares for 16,654 14,454 16,267 14,646
basic EPS
Incremental shares upon
conversions:
Stock options 452 488 658 345
Weighted average shares for 17,106 14,942 16,925 14,991
diluted EPS
</TABLE>
9. Accounting Change
On December 3, 1999 the SEC issued certain accounting guidance in Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements" ("SAB
101"). SAB 101, among other things, indicates that revenue from layaway sales
should only be recognized upon delivery of merchandise to the customer. In
consideration of this guidance, the Company implemented a change in accounting
in the first quarter of fiscal year 2000.
The Company has recorded a charge of approximately $5.0 million, $3.1
million net of tax, which has been reported as a cumulative effect of this
accounting change in the first quarter of 2000.
8
<PAGE> 9
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations for the Three Months Ended July 31, 2000
Net sales for the second quarter of fiscal 2000 increased $10.2
million, or 15.6%, to $76.1 million from $65.9 million in the second quarter of
fiscal 1999. Comparable store sales increased $0.5 million, or 0.8%, in the
second quarter of fiscal 2000 from the second quarter of fiscal 1999. Sales from
new stores contributed $11.5 million to the overall net sales increase. These
increases were offset by a sales decrease of $0.9 million related to closed
stores and by a decrease of $0.9 million due to the change in accounting for
revenue recognition on layaways. The total number of merchandise units sold
increased by approximately 5.5% in the second quarter of fiscal 2000 from the
second quarter of fiscal 1999, while the average price per merchandise sale
increased to $332 in fiscal 2000 from $302 in fiscal 1999. Comparable store
sales increased in part due to the increased use of non-recourse credit and
expanded direct mail marketing programs. The Company opened 16 new stores and
closed 2 stores in the second quarter of fiscal 2000 increasing the number of
stores open to 331 as of July 31, 2000 compared to 272 as of July 31, 1999.
Gross profit increased $2.9 million, or 10.8%, to $29.5 million in the
second quarter of fiscal 2000 compared to the same period in fiscal 1999. Gross
profit as a percentage of net sales decreased to 38.7% in the second quarter of
fiscal 2000 from 40.4% in the second quarter of fiscal 1999. Occupancy,
depreciation and buying expenses grew more quickly than the rate of sales growth
in the second quarter of fiscal 2000 compared to the same period in fiscal 1999.
Selling, general and administrative expenses increased $6.0 million, or
28.1%, to $27.6 million in the second quarter of fiscal 2000 from $21.5 million
in the second quarter of fiscal 1999. This increase was primarily attributable
to new stores opened. As a percentage of net sales, selling, general and
administrative expenses increased to 36.2% in the second quarter of fiscal 2000
from 32.7% in the second quarter of fiscal 1999. The dollar increase primarily
relates to higher payroll expenses of $4.0 million, higher credit costs of $0.9
million, higher other expenses of $0.6 million and higher advertising costs of
$0.5 million. Credit sales as a percentage of net sales increased to 44.0% in
the second quarter of fiscal 2000 from 42.6% in the second quarter of fiscal
1999, primarily as a result of increased sales through increased credit
promotions.
Interest expense decreased $0.2 million to $1.2 million in the second
quarter of fiscal 2000 from $1.4 million in the second quarter of fiscal 1999.
The impact of lower average borrowings was partially offset by higher market
interest rates.
Income tax expense decreased $1.1 million to $0.3 million in the second
quarter of fiscal 2000 from $1.4 million in the second quarter of fiscal 1999,
reflecting an effective annual tax rate of 38.5% in both periods.
Results of Operations for the Six Months Ended July 31, 2000
Net sales for the six months ended July 31, 2000 increased $25.0
million, or 20.0%, to $149.8 million from $124.8 million in the six months ended
July 31, 1999. Comparable store sales increased $5.6 million, or 4.7%, in the
first six months of fiscal 2000 from the same period in fiscal 1999. Sales from
new stores contributed $21.3 million to the overall net sales increase while
$0.6 million of the increase resulted from a lower provision for returns. These
increases were offset by a sales decrease of $1.4 million related to closed
stores and by a decrease of $1.1 million due to the change in accounting for
revenue recognition on layaways. The total number of merchandise units sold
increased by approximately 9.4% in the first half of fiscal 1999, while the
average price per merchandise sale increased to $330 in fiscal 2000
9
<PAGE> 10
from $301 in fiscal 1999. Comparable store sales increased in part due to the
increased use of non-recourse credit, expanded direct mail marketing programs
and strong store inventory assortments. The Company opened 44 new stores and
closed three stores in the first six months of fiscal 2000 increasing the number
of stores open to 331 as of July 31, 2000 compared to 272 as of July 31, 1999.
Gross profit increased $9.1 million, or 18.4%, to $58.7 million in the
first six months of fiscal 2000 compared to the same period in fiscal 1999.
Gross profit as a percentage of sales decreased to 39.2% in the first six months
of fiscal 2000 from 39.7% in the same period of fiscal 1999. Occupancy,
depreciation and buying expenses grew more quickly than the rate of sales growth
in the first six months of fiscal 2000 compared to the same period in fiscal
1999.
Selling, general and administrative expenses increased $11.4 million,
or 27.6%, to $52.8 million for the first six months of fiscal 2000 from $41.4
million in the first six months of fiscal 1999. This increase was primarily
attributable to new stores opened. As a percentage of net sales, selling,
general and administrative expenses increased to 35.2% in the first half of
fiscal 2000 from 33.1% in the first half of fiscal 1999. The dollar increase
primarily relates to higher payroll expenses of $7.6 million, higher other
expenses of $1.3 million, increased credit expense of approximately $1.7 million
and higher advertising costs of $0.7 million. Credit sales as a percentage of
net sales increased to 42.5% in the first half of fiscal 2000 from 41.9% in the
first half of fiscal 1999, primarily as a result of increased sales through
increased credit promotions.
Interest expense decreased $0.3 million to $2.3 million in the first
six months of fiscal 2000 from $2.6 million in the first six months of fiscal
1999. The impact of lower average borrowings was partially offset by higher
market interest rates.
Income tax expense decreased $0.7 million to $1.4 million in the first
half of fiscal 2000 from $2.1 million in the prior period, reflecting an
effective annual tax rate of 38.5% in both periods.
Liquidity and Capital Resources
The Company's cash requirements consist principally of funding
increases in inventory at existing stores, capital expenditures and acquisitions
of new stores and working capital (primarily inventory) associated with the
Company's new stores. The Company's primary sources of liquidity have
historically been bank borrowings under the Company's revolver and cash flow
from operations.
The Company's inventory levels and working capital requirements have
historically been highest in advance of the Christmas season. The Company has
funded these seasonal working capital needs through borrowings under the
Company's revolver and increases in trade payables and accrued expenses.
In March, 2000, the Company completed an offering of Common Stock (the
"Offering"). The Company issued 2,325,500 shares of Common Stock, and received
proceeds of $42.5 million net of underwriting discounts and offering costs. The
Company used the proceeds to reduce the Company's indebtedness and for working
capital and other general corporate purposes.
On July 14, 2000, the Board of Directors authorized the Company to
repurchase up to $15.0 million of its Common Stock. The repurchase program
authorizes the Company to purchase shares over an 18-month period in the open
market or through privately negotiated transactions. On August 23, 2000 the
Company announced that its Board of Directors increased the authorization to
repurchase shares under the repurchase program from $ 15.0 million to $20.0
million of the Company's Common Stock. As of the date of this report, the
Company has repurchased 1.6 million shares under this repurchase program at a
total cost of approximately $13.8 million. The repurchase program has been
financed using the Company's revolving credit facility.
Effective June 26, 2000, the Company amended and expanded its Amended
and Restated Revolving Credit, Term Loan and Gold Consignment Agreement (the
"Credit
10
<PAGE> 11
Agreement") with its bank group to provide for a total facility of $166.5
million through June 30, 2004. The Company has a $150.0 million revolving
facility(including amounts borrowed under a gold consignment facility), and a
$15.8 million term loan (originally $16.5 million, less principal repayments)
through June 30, 2004. A gold consignment facility of $40.0 million is available
under the revolving credit facility. Interest rates and the commitment fee
charged on the unused facility float based upon the Company's quarterly
financial performance. The amendment, among other things, permits the Company to
repurchase up to $15.0 million of it's common stock and modifies certain
financial covenant ratios. On August 18,2000, the Company amended the Credit
Agreement to increase the amount of repurchases of common stock permitted from
$15.0 to $20.0 million.
The Company's cash flow used in operating activities increased to $10.1
million in the six months ended July 31, 2000 from $3.2 million used in
operating activities in the six months ended July 31, 1999. Lower income from
operations together with increases in merchandise inventories ($29.0 million)
and decreases in accrued liabilities ($2.8 million) were offset by increases in
accounts payable ($15.7 million), higher depreciation and amortization ($4.3
million). The increase in merchandise inventories primarily related to inventory
for new store openings, including anticipated store openings in the third
quarter of fiscal 2000 and completed new store openings in the first half of
fiscal 2000. In the first half of 2000, the primary sources of the Company's
liquidity included proceeds from the Offering of $42.5 million net of offering
expenses, a $3.6 million net increase in the amount outstanding under the
Company's revolver, proceeds of $2.0 million from gold consignment, partially
offset by a decrease of $8.9 million in outstanding checks. The Company utilized
cash in the first six half of fiscal 2000 primarily to fund capital expenditures
of $15.2 million, primarily related to the opening of 44 new stores in the first
half of 2000, to fund the purchase of the Company's Common Stock ($12.5
million), and to repay a portion of the term loan ($1.5 million).
Management expects that cash flow from operating activities and funds
available under its revolving credit facility should be sufficient to support
the Company's current new store expansion program and seasonal working capital
needs for the foreseeable future.
Inflation
Management believes that inflation generally has not had a material
effect on results of its operations.
Item 3 - Quantitative and Qualitative Disclosure About Market Risk
This information is set forth in the Company's Annual Report on Form
10-K for the fiscal year ended January 31, 2000, and is incorporated herein by
reference. There have been no material changes to the Company's market risk
during the six months ended July 31, 2000.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 5 - Other Information
Forward-Looking Statements
All statements, trend analysis and other information contained in this
report relative to markets for the Company's products and trends in the
Company's operations or financial results, as well as other statements including
words such as "anticipate," "believe," "plan," "estimate," "expect," "intend"
and other similar expressions, constitute forward-looking statements under the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to known and unknown risks, uncertainties and other
factors which may cause actual results to be materially different from those
contemplated by the forward-looking statements. Such factors include, among
other things: (1) the extent and results of the Company's store expansion
strategy and associated occupancy costs and access to funds for new store
openings; (2) the seasonality of the Company's business; (3) economic
conditions, the retail sales environment and the Company's ability to execute
its business strategy and the related effects on comparable store sales and
other results; (4) the extent and success of the Company's marketing and
promotional programs; (5) the extent to which the Company is able to retain and
attract key personnel as well as personnel costs; (6) competition; (7) the
availability and cost of consumer credit; (8) relationships with suppliers; (9)
the Company's ability to maintain adequate information systems capacity and
infrastructure; (10) the Company's leverage and cost of funds; (11) the
Company's ability to maintain adequate loss prevention measures; (12)
fluctuations in raw material prices including diamond, gem and gold prices; (13)
the extent and results of the Company's E-commerce strategies and those of
others;(14) regulation affecting the industry generally, including regulation of
marketing practices; (15) the successful integration of acquired locations and
assets into the Company's existing operations; and (16) the risk factors listed
from time to time in the Company's filings with the Securities and Exchange
Commission.
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule (SEC/EDGAR only)
Exhibit 10.1 Employment and Severance Agreement, dated as of January 24,
2000, between the Company and Jon Browne
Exhibit 10.2 Incentive Stock Option Agreement, dated as of January 24,
2000, between the Company and Jon Browne
Exhibit 10.3 Second Amendment to Amended and Restated Revolving Credit,
Term Loan and Gold Consignment Agreement dated as of October
5, 1999, by and among Whitehall Jewellers, Inc., the Banks (as
defined therein), BankBoston, N.A. as Agents for the Banks,
and LaSalle Bank National Association and ABN AMRO Bank, N.V.
as Agents for the Banks
Exhibit 10.4 Third Amendment to Amended and Restated Revolving Credit, Term
Loan and Gold Consignment Agreement dated as of February 9,
2000, by and among Whitehall Jewellers, Inc., the Banks (as
defined therein), BankBoston, N.A. as Agents for the Banks,
and LaSalle Bank National Association and ABN AMRO Bank, N.V.
as Agents for the Banks
Exhibit 10.5 Fourth Amendment to Amended and Restated Revolving Credit,
Term Loan and
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Gold Consignment Agreement dated as of June 26, 2000, by and
among Whitehall Jewellers, Inc., the Banks (as defined
therein), BankBoston, N.A. as Agents for the Banks, and
LaSalle Bank National Association and ABN AMRO Bank, N.V. as
Agents for the Banks
Exhibit 10.6 Fifth Amendment to Amended and Restated Revolving Credit, Term
Loan and Gold Consignment Agreement dated as of August 18,
2000, by and among Whitehall Jewellers, Inc., the Banks (as
defined therein), BankBoston, N.A. as Agents for the Banks,
and LaSalle Bank National Association and ABN AMRO Bank, N.V.
as agents for the Banks
(b) Reports on Form 8-K
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITEHALL JEWELLERS, INC.
(Registrant)
Date: September 14, 2000 By: /s/ Jon H. Browne
--------------------------
Jon H. Browne
Executive Vice President -
Chief Financial Officer and Treasurer
(principal financial officer)
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