SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
Amendment No. 1 to
(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, 2002
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___
Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Exchange Act). 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 shares of the Registrant's common stock, $.001 par value
per share, outstanding as of June 11, 2002 was 14,756,544 and the number of
shares of the Registrant's Class B common stock, $1.00 par value per share,
outstanding as of April 30, 2002 was 142.
1
EXPLANATORY NOTE
RESTATEMENT OF PRIOR FINANCIAL INFORMATION
As described in a press release issued by Whitehall Jewellers, Inc.
(the "Company") on March 5, 2003 (which release was filed as an exhibit to the
Company's Current Report on Form 8-K filed with the Securities and Exchange
Commission on March 7, 2003), the Company is making certain intra-year
adjustments to its reported results for the first three quarters of fiscal 2002.
The adjustments relate to the timing of the recognition of certain
allowances and discounts pertaining to annual vendor agreements as well as
incentives associated with the advantageous purchase of consigned inventory.
During the first three quarters of 2002 such incentives had been recorded by the
Company as a direct reduction of cost of sales, rather than as a component of
inventory cost.
The filing of this amended Form 10-Q shall not be deemed an admission
that the original filing, when made, included any untrue statement of a material
fact or omitted to state a material fact necessary to make a statement not
misleading.
AMENDED ITEMS
The Company hereby amends the following items, financial statements,
exhibits or other portions of its Quarterly Report on Form 10-Q for the quarter
ended April 30, 2002, as set forth herein:
Part I - FINANCIAL INFORMATION
Item 1. Financial Statements
The financial information of the Company is amended to read in its
entirety as set forth herein and is incorporated herein by reference.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
The information set forth in "Item 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations" is amended to read in
its entirety as set forth herein and is incorporated herein by reference.
Item 4. Controls and Procedures
The information set forth in "Item 4. Controls and Procedures" shall
read in its entirety as set forth herein and is incorporated herein by
reference.
Part II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
The list of exhibits set forth in, and incorporated by reference from,
the Exhibit Index, is amended to include the following additional exhibits,
filed herewith:
99.1 Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.2 Certificate Pursuant to 18 U.S.C. Section 1350, As Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Whitehall Jewellers, Inc.
Statements of Operations
for the three months ended April 30, 2002 and 2001
(unaudited)
(in thousands, except for per share data)
Three months ended
------------------
April 30, 2002
(Restated) April 30, 2001
-------------- --------------
Net sales $ 74,588 $ 68,931
Cost of sales (including buying and occupancy expenses)
47,376 43,317
-------- --------
Gross profit 27,212 25,614
Selling, general and administrative expenses 25,627 26,482
-------- --------
Income(loss)from operations 1,585 (868)
Interest expense 1,012 1,739
-------- --------
Income (loss) before income taxes 573 (2,607)
Income tax expense (benefit) 204 (985)
-------- --------
Net income (loss) $ 369 $ (1,622)
======== ========
Basic earnings per share:
Net income (loss) $ 0.03 $ (0.11)
======== ========
Weighted average common shares and common share equivalents
14,667 14,574
======== ========
Diluted earnings per share:
Net income (loss) $ 0.02 $ (0.11)
======== ========
Weighted average common shares and common share equivalents
15,382 14,574
======== ========
The accompanying notes are an integral part of the financial statements.
3
Whitehall Jewellers, Inc.
Balance Sheets
As of April 30, 2002, January 31, 2002 and April 30, 2001
(unaudited, in thousands, except share data)
April 30, 2002
(Restated) January 31, 2002 April 30, 2001
-----------------------------------------------------
ASSETS
Current Assets:
Cash $ 2,131 $ 2,741 $ 4,025
Accounts receivable, net 1,811 1,189 2,294
Merchandise inventories 175,882 173,931 186,698
Prepaid income taxes 438 --- 1,674
Other current assets 799 973 1,302
Deferred financing costs 511 511 498
Deferred income taxes 2,370 2,704 2,817
-----------------------------------------------------
Total current assets 183,942 182,049 199,308
Property and equipment, net 64,097 63,914 64,716
Goodwill 5,662 5,662 5,859
Deferred financing costs 595 723 1,080
Deferred income tax --- --- 527
-----------------------------------------------------
Total assets $ 254,296 $ 252,348 $ 271,490
=====================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Revolver loan $ 52,627 $ 35,277 $ 75,250
Current portion of long-term debt 5,500 5,250 4,500
Accounts payable 50,251 56,695 51,390
Customer deposits 4,077 3,963 4,531
Accrued payroll 4,313 6,270 3,677
Income taxes --- 3,226 ---
Other accrued expenses 14,254 18,171 19,004
-----------------------------------------------------
Total current liabilities 131,022 128,852 158,352
Term loan 3,000 4,500 8,500
Subordinated debt 640 640 640
Deferred income taxes, net 1,901 2,012 ---
Other long-term liabilities 2,784 2,660 2,250
-----------------------------------------------------
Total liabilities 139,347 138,664 169,742
Commitments and contingencies
Stockholders' equity:
Common stock 17 17 17
Class B common stock --- --- ---
Additional paid-in capital 104,653 103,767 103,541
Accumulated earnings 39,239 38,870 27,167
-----------------------------------------------------
143,909 142,654 130,725
Less:
Treasury stock, at cost
(3,199,628, 3,200,209 and
3,200,376 shares respectively)
(28,960) (28,970) (28,977)
-----------------------------------------------------
Total stockholders' equity, net 114,949 113,684 101,748
-----------------------------------------------------
Total liabilities and
stockholders' equity
$ 254,296 $ 252,348 $ 271,490
=====================================================
The accompanying notes are an integral part of the financial statements.
4
Whitehall Jewellers, Inc.
Statements of Cash Flows
for the three months ended April 30, 2002 and 2001
(unaudited, in thousands)
Three months ended
------------------
April 30, 2002
(Restated) April 30, 2001
----------------------------------
Cash flows from operating activities:
Net income(loss) $ 369 $ (1,622)
Adjustments to reconcile net income (loss) to net cash (used in)
provided by operating activities:
Depreciation and amortization 2,744 2,629
Loss on disposition of assets 15 36
Changes in assets and liabilities:
Increase in accounts receivable, net (622) (888)
Increase in merchandise inventories, net of gold consignment
(1,951) (11,752)
(Increase) decrease in other current assets 174 (614)
Increase in prepaid taxes (215) (1,674)
(Decrease)increase in accounts payable (7,216) 10,486
Decrease in income taxes payable (3,226) (2,940)
Increase in customer deposits 114 317
Decrease in accrued liabilities (5,750) (695)
-----------------------------
Net cash used in operating activities (15,564) (6,717)
Cash flows from investing activities:
Capital expenditures (2,814) (5,127)
-----------------------------
Net cash used in investing activities (2,814) (5,127)
Cash flows from financing activities:
Borrowing on revolver loan 168,318 243,693
Repayment of revolver loan (150,968) (215,663)
Outstanding checks 772 (17,078)
Repayment of term loan (1,250) (1,000)
Proceeds from gold consignment --- 3,107
Financing costs --- (316)
Proceeds from employee stock purchase plan 10 ---
Proceeds from exercise of stock options 886 200
-----------------------------
Net cash provided by financing activities 17,768 12,943
-----------------------------
Net change in cash and cash equivalents (610) 1,099
Cash and cash equivalents at beginning of period 2,741 2,926
-----------------------------
Cash and cash equivalents at end of period $ 2,131 $ 4,025
=============================
The accompanying notes are an integral part of the financial statements.
5
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 373 stores as of April
30, 2002, located in 38 states, operating in regional or superregional shopping
malls.
2. Summary of Significant Accounting Policies
Basis for Presentation
The accompanying Balance Sheet as of January 31, 2002 was derived from
the audited financial statements for the year ended January 31, 2002. The
accompanying unaudited Balance Sheets as of April 30, 2002 and 2001 and the
Statements of Income and Cash Flows for the three months ended April 30, 2002
and 2001 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 presentation of
financial position, results of operations and cash flows 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, 2002. References in the
following notes to years and quarters are references to fiscal years and fiscal
quarters.
Merchandise Inventories
Merchandise inventories are stated principally at the lower of weighted
average cost or market. Cost is reduced to reflect certain allowances and
discounts received from vendors. The Company also obtains merchandise from
vendors under various consignment agreements. The consigned inventory and
related commitments are not reflected in the Company's financial statements. At
the time of sale of consigned merchandise to customers, the Company records the
purchase liability and the related cost of such merchandise in cost of sales.
3. Accounts Receivable, Net
Accounts receivable are shown net of the allowance for doubtful
accounts of $620,000, $ 673,000, and $1,570,000 as of April 30, 2002, January
31, 2002 and April 30, 2001, respectively.
4. Inventory
As of April 30, 2002, January 31, 2002 and April 30, 2001,
merchandising inventories consisted of (in thousands):
April 30, 2002
(Restated) January 31, 2002 April 30, 2001
Raw Materials $ 7,746 $ 6,958 $ 7,959
Finished Goods 168,136 166,973 178,739
-------- -------- --------
Inventory $175,882 $173,931 $186,698
======== ======== ========
6
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 $2,839,000,
$3,003,000 and $3,851,000 as of April 30, 2002, January 31, 2002 and April 30,
2001, respectively. As of April 30, 2002, January 31, 2002 and April 30, 2001,
consignment inventories held by the Company that are not included in the balance
sheets total $80,967,000, $80,425,000, and $75,203,000, respectively.
In addition, gold consignments of $23,298,000, $23,298,000 and
$29,416,000, are not included in the Company's balance sheets as of April 30,
2002, January 31, 2002 and April 30, 2001, respectively.
Certain merchandise procurement, distribution and warehousing costs are
allocated to inventory. As of April 30, 2002, January 31, 2002 and April 30,
2001, the amounts included in inventory are $3,328,000, $3,306,000 and
$3,179,000, respectively.
5. Accounts Payable
Accounts payable includes outstanding checks, which were $7,912,000,
$7,140,000 and $3,625,000 as of April 30, 2002, January 31, 2002 and April 30,
2001, respectively.
6. Financing Arrangements
Effective October 31, 2001, the Company amended certain terms and
conditions within its Amended and Restated Revolving Credit, Term Loan and Gold
Consignment Agreement (the "Credit Agreement") with its bank group which
provides 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 the
value of the Company's inventory and accounts receivable. Availability under the
revolver is based on amounts outstanding thereunder, including the value of
consigned gold which fluctuates based on gold prices. 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.
7
Term Loans
The term loan under the Credit Agreement is available up to a maximum
of $8.5 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.
Gold Consignment Facility
The Company has the opportunity to enter into Gold Consignments with
certain third party financial institutions. The Company provides the third party
financial institution with title to a certain number of troy ounces of gold held
in the Company's existing merchandise inventory in exchange for cash at the
current market price of gold. The Company then consigns the gold from the third
party financial institution, pursuant to the Gold Consignment Agreement. This
agreement entitles the Company to use the gold in the ordinary course of its
business. The Gold Consignment Facility is a transfer of title in specified
quantities of the gold content of the Company's inventory (a non-financial
asset) to a financial institution in exchange for cash. The Company continues to
bear responsibility for damage to the inventory, as is the case in all of its
consigned inventory arrangements with its other vendors.
The Company has accounted for the transaction as a reduction in its
inventories, as it has transferred title to the gold to the financial
institution. Similar to other consigned inventories in the possession of the
Company (for which the Company bears risk of loss but does not possess title),
the value of the inventory is not included in the assets of the Company. The
terms of the Gold Consignment Agreement require the Company to deliver the
specified quantities of consigned gold back to the third party financial
institution at the end of the facility (which currently expires in 2004).
Physical delivery can be made from the Company's inventory or from gold acquired
by the Company in the open market. As an alternative to physical delivery of
these specific troy ounces of gold, the Company can elect to purchase the
consigned quantities at the end of the Consignment Facility at the current
market price for gold on that date.
The Agreement provides for the consignment of a maximum 115,000 troy
ounces or $40.0 million. As of April 30, 2002 the Company sold and
simultaneously consigned 66,500 troy ounces of gold for $23.3 million 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 return or repurchase
66,500 troy ounces of gold under this agreement at the prevailing gold rate in
effect on that date, or the facility may be renewed. Based on the gold rate as
of April 30,2002, the market value of gold consigned was $ 20.5 million.
8
7. Dilutive Shares That Were Outstanding During the Period
The following table summarizes the reconciliation of the numerators and
denominators for the basic and diluted EPS computations at April 30, 2002 and
2001.
Three months ended
April 30, 2002
(Restated) April 30, 2001
-------------- ----------------
(in thousands, except share amounts)
Net income (loss) $ 369 $ (1,622)
Weighted average shares for basic EPS 14,667 14,574
Incremental shares upon conversions:
Stock options 715 ---
Weighted average shares for diluted EPS 15,382 14,574
Stock options excluded from the calculation of diluted earnings per share
for the three months ended April 30, 2002 and 2001, were 362,845, and 2,892,086
respectively, due to their antidilutive effect on the calculations.
8. Accounting of Business Combinations and Goodwill and Other Intangibles
In July, 2001, the Financial Accounting Standards Board issued
Statement No. 141 ("SFAS 141"), "Business Combinations" and Statement No. 142
("SFAS 142"), "Goodwill and Other Intangible Assets", which requires that
goodwill and intangible assets with indefinite useful lives no longer be
amortized, but rather be tested for impairment at least annually. The Company
adopted the provisions of SFAS 142 effective February 1, 2002 and has
discontinued the amortization of goodwill. The Company has no other separately
identifiable intangible assets. Pursuant to this standard, the Company has
completed an assessment of the categorization of its existing goodwill. In
addition, the Company completed an analysis of the fair value of it's single
reporting unit using both a discounted cash flow analysis and market multiple
approach and has determined that the fair value of it's reporting unit exceeded
the carrying value and therefore, no impairment of goodwill needed to be
recorded as of February 1, 2002. The carrying amount of goodwill as of April 30,
2002, January 31, 2002 and April 30, 2001 was $5,662,000, $5,662,000 and
$5,859,000, respectively. The table below shows income before income taxes, net
income and earnings per share amounts for the quarters ended April 30, 2002 and
April 30, 2001 adjusted to add back goodwill amortization and related tax
effects for the first quarter 2001.
9
Three Months Ended
April 30, 2002 Three Months Ended
(Restated) April 30, 2001
-----------------------------------------
(in thousands, except per
share amounts)
Reported net income (loss) $ 369 $ (1,622)
Add back: After tax impact of goodwill amortization -- 41
------- ---------
Adjusted net income (loss) $ 369 $ (1,581)
======= =========
BASIC EARNINGS PER SHARE:
Reported net income (loss) $ 0.03 $ (0.11)
Goodwill amortization -- .00
------- ---------
Adjusted net income (loss) $ 0.03 $ (0.11)
======= =========
DILUTED EARNINGS PER SHARE:
Reported net income (loss) $ 0.02 $ (0.11)
Goodwill amortization -- .00
------- ---------
Adjusted net income (loss) $ 0.02 $ (0.11)
======= =========
9. Reclassification
Certain Balance Sheet amounts from prior periods were reclassified to
conform to the current year presentation. These reclassifications had no impact
on earnings.
10. Restatement
The accompanying interim financial statements for the quarter ended
April 30, 2002 have been restated. The adjustments relate to the timing of the
recognition of certain allowances and discounts pertaining to annual vendor
agreements as well as incentives associated with the advantageous purchase of
consigned inventory. During the first three quarters of 2002 such incentives had
been recorded by the Company as a direct reduction of cost of sales rather than
as a component of inventory cost. In addition, in order to correct a
mathematical calculation relating to the statements of cash flows for the
quarter ended April 30, 2002, a revision has been made to increase net cash
provided by financing activities, with a corresponding increase in net cash used
in operating activities. A summary of the impacts of these restatements is as
follows (amounts in thousands, except earnings (loss) per share):
10
Three months ended
April 30, 2002
--------------------------
As Previously As
Reported Restated
------------- --------
Net sales $ 74,588 $ 74,588
-------- --------
Cost of sales 47,573 47,376
Gross profit 27,015 27,212
Selling, general and administrative expense 25,627 25,627
Income from operations 1,388 1,585
Income tax expense 134 204
Net income 242 369
Basic EPS 0.02 0.03
Diluted EPS 0.02 0.02
Prepaid income tax 508 438
Merchandise inventories 176,203 175,882
Total current assets 184,333 183,942
Total assets 254,687 254,296
Accounts payable 50,769 50,251
Total current liabilities 131,540 131,022
Total liabilities 139,865 139,347
Accumulated earnings 39,112 39,239
Total stockholders' equity 114,822 114,949
Total liabilities and shareholders' equity 254,687 254,296
(Decrease) increase in accounts payable (3,209) (7,216)
Net cash used in operating activities (12,075) (15,564)
Outstanding checks (2,717) 772
Net cash provided by financing activities 14,279 17,768
11
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and Results
of Operations
As described in Note 10 to the interim financial statements, the Company has
restated certain amounts related to the 2002 period.
Results of Operations
Net sales for the first quarter of fiscal 2002 increased $5.7 million,
or 8.2%, to $74.6 million from $68.9 million in the first quarter of fiscal
2001. New store sales accounted for an increase in sales of $3.6 million.
Comparable store sales increased $3.3 million, or 4.9%, in the first quarter of
fiscal 2002 from the first quarter of fiscal 2001. These sales changes were
impacted by a sales decrease of $1.2 million related to closed stores.
Comparable store sales increases primarily resulted from an increase in
promotional activity and an increase usage of one year no interest credit
promotions. The total number of merchandise units sold increased by
approximately 13.4% in the first quarter of fiscal 2002 from the first quarter
of fiscal 2001 and the average price per merchandise sale decreased to $309 in
fiscal 2002 from $324 in fiscal 2001. Credit sales as a percentage of net sales
increased to 40.5% in the first quarter of fiscal 2002 from 40.2% in the first
quarter of fiscal 2001, primarily as a result of decreased sales through
secondary credit programs which were more than offset by increases in other
private label credit programs. The Company opened 13 new stores and closed four
stores in the first quarter of fiscal 2002, increasing the number of stores to
373 as of April 30, 2002 compared to 361 as of April 30, 2001.
Gross profit increased $1.6 million, or 6.2%, to $27.2 million from
$25.6 million in the first quarter of fiscal 2002 compared to the same period in
fiscal 2001. Gross profit as a percentage of sales decreased to 36.5% in the
first quarter of fiscal 2002 compared to 37.2% in the first quarter of fiscal
2001. The 70 basis point reduction in gross profit margin primarily resulted
from an increase in selective and targeted promotional activity. The resultant
decrease in merchandise gross margin was partially offset by improvements in
margin from increased warranty sales and improved repair margin.
Selling, general and administrative expenses decreased $0.9 million, or
3.2%, to $25.6 million from $26.5 million in the first quarter of fiscal 2002
compared to the same period in fiscal 2001. Selling, general and administrative
expense as a percent of sales was reduced to 34.4% versus 38.4% in first quarter
2001. The dollar decrease primarily related to lower other expense ($1.0
million), lower advertising expense ($ 0.2 million) which were partially offset
by higher personnel expense ($0.2 million) and higher credit expense ($0.2
million). The decrease in other expenses resulted from centralized control of
the consumption of supplies and services along with reductions in negotiated
rates for those items. Payroll costs increased primarily due to the increased
number of stores, but were offset by expense reductions to reduce payroll hours
and control labor rates. Store personnel expense contributed 120 basis points of
the 400 basis point improvement in SG&A.
Interest expense decreased approximately $0.7 million to $1.0 million
in the first quarter of fiscal 2002 from $1.7 million in the first quarter of
fiscal 2001. The decrease resulted from lower average borrowings and lower
interest rates.
Income tax expense of $0.2 million in the first quarter of 2002
compared to an income tax benefit of $1.0 million in the first quarter of 2001,
reflects an expected annual effective tax rate of 35.8% and 37.8%, respectively.
The Company's annual effective tax rate was 34.8% for fiscal 2001.
12
Net income of $0.4 million in the first quarter of fiscal 2002,
compared to a net loss of $1.6 million in the first quarter of fiscal 2001
resulted from the factors discussed immediately above. The Company adopted the
provisions of SFAS 142 effective February 1, 2002 and has discontinued the
amortization of goodwill. The first quarter of fiscal 2001 net loss adjusted for
FAS 142 goodwill amortization would have remained approximately $1.6 million.
Liquidity and Capital Resources
The Company's cash requirements consist principally of funding
inventory at existing stores, capital expenditures 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, which was amended on October 31, 2001
as discussed in Note 6 of the April 30, 2002 financial statements in this Form
10-Q.
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. As of
April 30, 2002, the maximum availability under the credit facility was $45.9
million based on the borrowing base formula. The credit facility covenants also
require the Company to attain certain operating results.
The Company's cash flow used in operating activities was $15.6 million
in the first quarter of 2002 compared to $6.7 million used in operating
activities in the first quarter of fiscal 2001. Increases in merchandise
inventories ($2.0 million), decrease in accounts payable ($7.2 million),
decreased income taxes payable ($3.2 million) and decreases in accrued
liabilities ($5.8 million) were partially offset by income from operations ($0.4
million) and depreciation and amortization ($2.8 million). The increase in
merchandise inventories primarily related to inventory for new store openings,
including anticipated store openings in the second quarter of fiscal 2002 and
the 13 completed new store openings in the first quarter of fiscal 2002. In the
first quarter of 2002, the primary sources of the Company's liquidity included a
net increase of $17.350 million in the amount outstanding under the Company's
revolver and proceeds for the exercise of options ($0.9 million). The Company's
revolver loan balance was $52.6 million on April 30, 2002 versus $75.3 million
on April 30, 2001. The Company utilized cash in the first quarter of 2002
primarily to fund capital expenditures of $2.8 million, primarily related to the
opening of 13 new stores in the first quarter of 2002 and to repay a portion of
the term loan ($1.3 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 the Company's results of operations.
13
Internal Controls
Since the beginning of the first quarter of fiscal 2002, there have
been no significant changes in internal controls or in other factors that could
significantly affect internal controls.
Item 4. Controls and Procedures
(a) Based on their evaluation within 90 days prior to the date of the
filing of this amended quarterly report on Form 10-Q/A, the chief
executive officer and the chief financial officer of the Company have
concluded that disclosure controls and procedures, as defined in Rules
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934 (the
"Exchange Act"), are effective to ensure that information required to
be disclosed by the Company in reports that it files or submits under
the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the Securities and Exchange
Commission's rules and forms.
(b) There were no significant changes in internal controls or in other
factors that could significantly affect internal controls subsequent
to the date of the evaluation, including any corrective actions with
regard to significant deficiencies and material weaknesses.
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this amendment to be signed on its behalf by the
undersigned thereunto duly authorized.
WHITEHALL JEWELLERS, INC.
(Registrant)
Date: March 21, 2003 By: /s/ Jon H. Browne
--------------------------
Jon H. Browne
Executive Vice President;
Chief Financial and Administrative Officer
and Treasurer
(principal financial officer)
14
CERTIFICATE PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Hugh M. Patinkin, Chief Executive Officer of Whitehall Jewellers,
Inc., certify that:
1. I have reviewed this Quarterly Report on Form 10-Q/A of Whitehall
Jewellers, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a ) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 21, 2003
/s/ Hugh M. Patinkin
--------------------
Name: Hugh M. Patinkin
Title: Chief Executive Officer
15
CERTIFICATE PURSUANT TO RULE 13A-14 UNDER THE SECURITIES EXCHANGE ACT OF 1934
I, Jon H. Browne, Chief Financial Officer of Whitehall Jewellers, Inc.,
certify that:
1. I have reviewed this Quarterly Report on Form 10-Q/A of Whitehall
Jewellers, Inc.;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact necessary
in order to make the statements made, in light of the circumstances under which
such statements were made, not misleading with respect to the period covered by
this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:
(a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within
those entities, particularly during the period in which this
quarterly report is being prepared;
(b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to the
filing date of this quarterly report (the "Evaluation Date"); and
(c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on
our evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed,
based on our most recent evaluation, to the registrant's auditors and the audit
committee of the registrant's board of directors (or persons fulfilling the
equivalent function):
(a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the registrant's
ability to record, process, summarize and report financial data
and have identified for the registrant's auditors any material
weaknesses in internal controls; and
(b) Any fraud, whether or not material, that involves management or
other employees who have a significant role in the registrant's
internal controls; and
6. The registrant's other certifying officers and I have indicated in
this quarterly report whether there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: March 21, 2003
/s/ Jon H. Browne
-----------------
Name: Jon H. Browne
Title: Chief Financial Officer
16