<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: April 30, 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 N. Wacker Drive, Suite 500, 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___
APPLICABLE ONLY TO ISSUERS 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 Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS:
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 shares of the Registrant's common stock, $.001 par value per
share, outstanding as of April 30, 2000 was 16,842,459 and the number of shares
of the Registrant's Class B common stock, $1.00 par value per share, outstanding
as of April 30, 2000 was 151.973
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WHITEHALL JEWELLERS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 2000
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations (unaudited) for the three months ended April
30, 2000 and 1999
Balance Sheets - April 30, 2000 (unaudited), January 31, 2000 and
April 30, 1999(unaudited)
Statements of Cash Flows (unaudited) for the three months ended April
30, 2000 and 1999
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Item 3. Quantitative and Qualitative Disclosure About Market Risk
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
2
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Whitehall Jewellers, Inc.
Statements of Operations
for the three months ended April 30, 2000 and 1999
(unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended
------------------
April 30, 2000 April 30, 1999
--------------- ---------------
<S> <C> <C>
Net sales $ 73,635 $ 58,935
Cost of sales (including buying and occupancy expenses) 44,404 35,948
--------------- ---------------
Gross profit 29,231 22,987
Selling, general and administrative expenses 25,182 19,830
--------------- ---------------
Income from operations 4,049 3,157
Interest expense 1,164 1,257
--------------- ---------------
Income before income taxes 2,885 1,900
Income tax expense 1,111 732
--------------- ---------------
Income before cumulative effect of accounting change 1,774 1,168
Cumulative effect of accounting change, net of tax (3,068) $ ---
--------------- ---------------
Net(loss)income $ (1,294) $ 1,168
=============== ===============
Basic earnings per share:
Income before cumulative effect of accounting change $ 0.11 $ 0.08
=============== ===============
Cumulative effect of accounting change, net $ (0.19) ---
=============== ===============
Net(loss)income $ (0.08) $ 0.08
=============== ===============
Weighted average common shares and common share equivalents 15,871 14,840
=============== ===============
Diluted earnings per share:
Income before cumulative effect of accounting change $ 0.11 $ 0.08
=============== ===============
Cumulative effect of accounting change, net $ (0.18) ---
=============== ===============
Net(loss)income $ (0.08) $ 0.08
=============== ===============
Weighted average common shares and common share equivalents 16,680 15,044
=============== ===============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
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Whitehall Jewellers, Inc.
Balance Sheets
As of April 30, 2000, January 31, 2000 and April 30, 1999
(unaudited, in thousands, except share data)
<TABLE>
<CAPTION>
(Audited)
April 30, January 31, April 30,
2000 2000 1999
-------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Accounts receivable, net $ 3,647 $ 3,159 $ 1,701
Layaway receivables, net --- 5,638 3,357
Merchandise inventories 174,696 147,691 134,483
Other current assets 828 1,109 1,129
Deferred financing costs 362 362 362
Deferred income taxes, net 2,566 2,086 1,518
-------------------------------------------------------
Total current assets 182,099 160,045 142,550
Property and equipment, net 55,584 49,144 37,264
Goodwill 6,121 6,186 6,369
Deferred financing costs 857 948 1,219
Deferred income tax, net 2,053 613 926
-------------------------------------------------------
Total assets $ 246,714 $ 216,936 $ 188,328
=======================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Outstanding checks, net $ 6,276 $ 17,207 $ 4,436
Revolver loan 20,869 41,117 44,000
Current portion of long-term debt 4,250 3,250 2,500
Accounts payable 61,579 37,005 45,118
Customer Deposits 4,494 --- ---
Accrued payroll 2,965 5,945 2,612
Income taxes 1,075 7,315 629
Other accrued expenses 16,255 16,868 16,224
-------------------------------------------------------
Total current liabilities 117,763 128,707 115,519
Long term debt 13,000 14,000 16,500
Subordinated debt 640 640 640
Other long-term liabilities 1,764 1,661 1,627
-------------------------------------------------------
Total liabilities 133,167 145,008 134,286
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 103,337 60,426 60,019
Accumulated earnings 20,190 21,484 3,318
-------------------------------------------------------
123,544 81,925 63,352
Less:
Treasury stock, at cost (883,376,883,376 and 565,500
shares respectively) (9,997) (9,997) (9,310)
-------------------------------------------------------
Total stockholders' equity, net 113,547 71,928 54,042
-------------------------------------------------------
Total liabilities and stockholders' equity $ 246,714 $ 216,936 $ 188,328
=======================================================
</TABLE>
The accompanying notes are an integral part of the financial statements.
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Whitehall Jewellers, Inc.
Statements of Cash Flows
for the three months ended April 30, 2000 and 1999
(unaudited, in thousands)
<TABLE>
<CAPTION>
Three months ended
------------------
April 30, 2000 April 30, 1999
-----------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (1,294) $ 1,168
Adjustments to reconcile net loss to net cash (used in) provided by
operating activities:
Depreciation and amortization 2,019 1,587
Loss on disposition of assets 39 23
Cumulative effect of accounting change, net 3,068 ---
Changes in assets and liabilities:
(Increase)Decrease in accounts receivable, net (488) 1,596
Decrease in layaway receivables, net --- 157
Increase in merchandise inventories, net of gold consignment (22,401) (17,735)
Decrease in other current assets 281 200
Increase in accounts payable 24,574 19,517
Increase in customer deposits 540 ---
Decrease in accrued liabilities (9,730) (3,366)
-----------------------------------------
Net cash (used in) provided by operating activities
(3,392) 3,147
Cash flows from investing activities:
Capital expenditures (8,342) (4,400)
-----------------------------------------
Net cash used in investing activities (8,342) (4,400)
Cash flows from financing activities:
Borrowing on revolver loan 101,658 81,000
Repayment of revolver loan (121,906) (68,901)
Repayment of term loan --- (1,000)
Proceeds from gold consignment --- 3,015
Purchase of treasury stock --- (9,310)
Proceeds from equity offering, net 42,537 ---
Proceeds from exercise of stock options 376 16
Decrease in outstanding checks, net (10,931) (3,567)
-----------------------------------------
Net cash provided by financing activities 11,734 1,253
-----------------------------------------
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
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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 317 stores as of April
30, 2000, located in 35 states, operating in regional or superregional shopping
malls.
2. Follow-On Equity Offering
In March, 2000, the Company completed a follow-on equity offering (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 such proceeds to reduce the Company's indebtedness and for working
capital and other general corporate purposes.
3. 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 April 30, 2000 and 1999 and the
Statements of Income and Cash Flows for the three months ended April 30, 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 following notes to years and quarters are references
to fiscal years and fiscal quarters.
4. Accounts Receivable, Net
Accounts receivable are shown net of the allowance for doubtful
accounts of $881,000, $720,000, and $1,185,000 as of April 30, 2000, January 31,
2000 and April 30, 1999, respectively.
5. Inventory
As of April 30, 2000, January 31, 2000 and April 30, 1999,
merchandising inventories consisted of:
April 30, 2000 January 31, 2000 April 30, 1999
(in thousands)
Raw Materials $ 8,664 $ 7,557 $ 6,591
Finished Goods 166,032 140,134 127,892
----------------- ------------------ -----------------
Inventory $ 174,696 $ 147,691 $ 134,483
================= ================== =================
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 $4,750,000,
$3,517,000, and $3,926,000 as of April 30, 2000, January 31, 2000 and April 30,
1999, respectively. As of April 30, 2000, January 31, 2000 and April 30, 1999,
consignment inventories held by the Company that are not included in the
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balance sheets total $51,288,000, $52,620,000, and $39,470,000, respectively.
In addition, gold consignments of $24,294,000, are not included in the
Company's balance sheets as of April 30, 2000, January 31, 2000 and April 30,
1999, respectively.
6. Dilutive Shares That Were Outstanding During the Period
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 April 30, 2000 and 1999.
<TABLE>
<CAPTION>
Three months ended
April 30, 2000 April 30, 1999
------------------ -------------------
(in thousands, except share amounts)
<S> <C> <C>
Net income before cumulative effect of accounting change
$ 1,774 $ 1,168
Cumulative effect of account change, net $ (3,068) $ ---
Net (loss) income for basic and diluted EPS $ (1,294) $ 1,168
Weighted average shares for basic EPS 15,871 14,840
Incremental shares upon conversions:
Stock options 809 204
Weighted average shares for diluted EPS 16,680 15,044
</TABLE>
7. 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.
7
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PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
Results of Operations
Net sales for the first quarter of fiscal 2000 increased $14.7 million,
or 24.9%, to $73.6 million from $58.9 million in the first quarter of fiscal
1999. New store sales accounted for $9.1 million of the sales increase.
Comparable store sales increased $5.9 million, or 8.8%, in the first quarter of
fiscal 2000 from the first quarter of fiscal 1999. Sales increases were offset
by a decrease of $0.2 due to the change in accounting for revenue recognition on
layaways. The total number of merchandise units sold increased by approximately
13.6% in the first quarter of fiscal 2000 from the first quarter of fiscal 1999,
while the average price per merchandise sale increased to $327 in fiscal 2000
from $301 in fiscal 1999. Comparable store sales increased in part due to the
strong economic environment for jewelry purchases, expanded direct mail
marketing programs, and strong store inventory assortments. The Company opened
28 new stores and closed one store in the first quarter of fiscal 2000,
increasing the number of stores to 317 as of April 30, 2000 compared to 262 as
of April 30, 1999.
Gross profit increased $6.2 million, or 27.2%, to $29.2 million in the
first quarter of fiscal 2000 compared to the same period in fiscal 1999. Gross
profit as a percentage of sales increased to 39.7% in the first quarter of
fiscal 2000 compared to 39.0% in the first quarter of fiscal 1999. This increase
as a percentage of sales primarily resulted from the leveraging of store
occupancy and buying expenses.
Selling, general and administrative expenses increased $5.4 million, or
27.0%, to $25.2 million in the first quarter of fiscal 2000 from $19.8 million
in the first quarter of fiscal 1999. The dollar increase primarily relates to
higher payroll expenses of $3.6 million, higher credit expense of $0.7 million,
and higher other operating expenses of $0.6 million of which $4.0 million
resulted from new store openings. As a percentage of net sales, selling, general
and administrative expenses increased to 34.2% in the first quarter of fiscal
2000 compared to 33.6% in the first quarter of fiscal 1999. Credit sales as a
percentage of net sales decreased to 40.9% in the first quarter of fiscal 2000
from 41.2% in the first quarter of fiscal 1999, primarily as a result of
decreased sales through secondary credit programs offset by increases in private
label credit programs.
Interest expense decreased approximately $0.1 million to $1.2 million
in the first quarter of fiscal 2000 from $1.3 million in the first quarter of
fiscal 1999. The impact of lower average borrowings resulting from the proceeds
from the follow-on equity offering was partially offset by higher interest
rates.
Income tax expense increased $0.4 million to $1.1 million in the first
quarter of 2000 from $0.7 million in the prior comparable period, reflecting an
effective annual tax rate of 38.5% in both years.
Income before cumulative effect of accounting change, net of tax
increased $0.6 million to $1.8 million in the first quarter of fiscal 2000
compared to $1.2 million in the first fiscal quarter of 1999 as a result of the
factors discussed above.
The cumulative effect of the change in accounting related to the change
in the recognition of revenue for layaways was $5.0 million, $3.1 million net of
tax for the first quarter of fiscal 2000.
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Net loss of $1.3 million in the first quarter of fiscal 2000, compared
to $1.2 million gain in the first quarter of fiscal 1999 resulted from the
factors discussed immediately above.
Liquidity and Capital Resources
The Company's cash requirements consist principally of funding
increases in inventory at existing stores, capital expenditures, acquisitions of
new stores and working capital (primarily inventory) associated with the
Company's new stores. The Company's primary sources of liquidity have been cash
flow from operations and bank borrowings under the Company's revolver.
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 a follow-on equity offering (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 such proceeds to reduce the Company's indebtedness and for working
capital and other general corporate purposes.
The Company's cash flow used in operating activities was $3.4 million
in the first quarter of 2000 compared to $3.1 million provided by operations in
the first quarter of fiscal 1999. Higher cash income from operations together
with increases in accounts payable ($24.6 million) and customer deposits ($0.5
million) were offset by increases in merchandise inventories ($22.4 million)
accounts receivable ($0.5 million) and by a decrease in accrued liabilities
($9.7 million). The increase in merchandise inventories primarily related to
inventory for new store openings, including anticipated store openings in the
second quarter of fiscal 2000 and the 28 completed new store openings in the
first quarter of fiscal 2000. In the first quarter of 2000, the primary sources
of the Company's liquidity included $42.5 million of proceeds from the Offering
net of fees, offset by a net decrease in the amount outstanding under the
Company's revolver and by a decrease of $10.9 million in outstanding checks. The
Company utilized cash in the first quarter of 2000 to fund capital expenditures
of $8.3 million, primarily related to the opening of 28 new stores in the first
quarter of 2000.
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.
Year 2000
The "Year 2000" issue concerns the inability of information systems to properly
recognize and process date-sensitive information beyond January 1, 2000. We have
not experienced any significant "Year 2000" problems in connection with our
systems.
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 three months ended April 30, 2000.
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PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security-Holders
(a) The Company held its annual meeting of stockholders on June 1, 2000.
(b) No answer required.
(c) Proposal 1 involved the election of three directors to serve until
the 2003 Annual Meeting. Those directors and the votingresults were
as follows:
For Authority
Withheld
------------------------------
Hugh M. Patinkin 14,826,449 163,272
Norman J. Patinkin 14,373,345 616,376
Daniel H. Levy 14,842,825 146,896
Proposal 2 involved approval of an amendment to the Company's
Restated Certificate of Incorporation
For Against Abstained or
Broker Non-vote
-------------------------------------------------
13,660,306 1,307,016 22,400
Proposal 3 involved approval of an amendment to the Company's
1997 Long-Term Incentive Plan
For Against Abstained or
Broker Non-vote
-------------------------------------------------
12,757,154 2,203,645 28,922
Proposal 4 involved approval of the Company's 1996 Long-Term
Incentive Plan
For Against Abstained or
Broker Non-vote
-------------------------------------------------
14,521,109 438,838 29,774
(d) Not applicable.
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; (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
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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) successful integration of acquired
locations and assets into the Company's existing operation; 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.
(a) Exhibits.
Exhibit No. Description
---------- -----------
3.1 Amended and Restated Certificate of Incorporation, as amended.
27 Financial Data Schedule (SEC/EDGAR only)
(b) Reports on Form 8-K.
A report on Form 8-K dated February 22, 2000 was filed by the Registrant on such
date to announce the Registrant's financial results for the fourth fiscal
quarter and the fiscal year ended January 31, 2000. The following financial
statements of the Registrant were included in such report on Form 8-K: unaudited
Statements of Operations for the three months and twelve months ended January
31, 2000 and January 31, 1999; and unaudited Balance Sheets as of January 31,
2000 and January 31, 1999.
A report on Form 8-K dated February 29, 2000 was filed by the Registrant on such
date to file a Report of PricewaterhouseCoopers LLP relating to certain
financial statements of the Registrant and a Consent of PricewaterhouseCoopers
LLP regarding such financial statements. The following financial statements of
the Registrant were included in such report on Form 8-K: audited Balance Sheets
as of January 31, 2000 and January 31, 1999; and audited Statements of
Operations, Statements of Shareholders' Equity and Statements of Cash Flows for
the years ended January 31, 2000, January 31, 1999 and January 31, 1998.
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: June 15, 2000 By: /s/ John R. Desjardins
----------------------
John R. Desjardins
Executive Vice President -
Finance and Administration
(principal financial officer)
11
