1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Thirteen Weeks Ended October 28, 2000
Commission File Number 1-9647
MAYOR'S JEWELERS, INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 59-2290953
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(State of Incorporation) (IRS Employer Identification No.)
14051 N.W. 14TH STREET, SUNRISE, FLORIDA 33323
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(Address of principal executive offices) (Zip Code)
(954) 846-2709
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(Registrant's telephone number, including area code)
JAN BELL MARKETING, INC.
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(Former name of registrant)
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.
19,071,394 SHARES ($.0001 PAR VALUE)
AS OF DECEMBER 8, 2000
2
FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED OCTOBER 28, 2000
TABLE OF CONTENTS
PAGE NO.
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PART I: FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
A. Consolidated Balance Sheets..................................................3
B. Consolidated Statements of Operations......................................4-5
C. Consolidated Statements of Cash Flows......................................6-7
D. Notes to Consolidated Financial Statements.................................8-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.........................................10-12
Item 3. Quantitative and Qualitative Disclosures About Market Risks....................13
PART II: OTHER INFORMATION
Items 1, 2, 3, 4 and 5 have been omitted because they are not applicable with
respect to the current reporting period.
Item 6. Exhibits and Reports
on Form 8-K ...................................................................14
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PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
MAYOR'S JEWELERS, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts shown in thousands except share and per share data)
OCTOBER 28, JANUARY 29,
2000 2000
--------------- ---------------
(UNAUDITED)
ASSETS
Current Assets:
Cash and cash equivalents $ 380 $ 1,049
Accounts receivable, net of allowance for doubtful
accounts of $966 and $1,274, respectively 25,622 25,884
Inventories 106,592 78,640
Other current assets 1,811 2,088
--------- ---------
Total current assets 134,405 107,661
Property, net 38,619 28,238
Goodwill, net 24,726 26,614
Other assets 2,364 2,653
--------- ---------
Total non-current assets 65,709 57,505
Net assets of discontinued operations 46,145 55,297
--------- ---------
Total assets $ 246,259 $ 220,463
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 27,838 $ 24,387
Accrued expenses 12,684 13,061
Due to former Mayor's stockholders -- 5,095
Short term portion of long term debt 14,382 --
--------- ---------
Total current liabilities 54,904 42,543
Long term debt 50,000 24,424
Other long term liabilities 3,567 1,817
--------- ---------
Total long term liabilities 53,567 26,241
--------- ---------
Deferred gain from discontinued operations 14,189 15,124
--------- ---------
Stockholders' Equity:
Common stock, $.0001 par value, 50,000,000 shares authorized,
29,037,748 and 28,457,634 shares issued and outstanding 3 3
Additional paid-in capital 193,353 191,810
Accumulated deficit (40,422) (31,162)
Less: 9,966,354 and 8,078,798 shares of treasury stock, at cost (29,335) (24,096)
--------- ---------
Total stockholders' equity 123,599 136,555
--------- ---------
Total liabilities and stockholders' equity $ 246,259 $ 220,463
========= =========
See notes to consolidated financial statements.
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MAYOR'S JEWELERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
OCTOBER 28, 2000 OCTOBER 30, 1999
-------------------- -------------------
(UNAUDITED)
Net sales $ 35,874 $ 32,192
Cost of sales 21,359 20,624
------------ ------------
Gross profit 14,515 11,568
Store operating and selling expenses 11,927 10,243
General and administrative expenses 5,290 4,780
Depreciation and amortization 2,063 1,673
------------ ------------
19,280 16,696
------------ ------------
Operating loss (4,765) (5,128)
Interest and other income 753 510
Interest expense 975 763
------------ ------------
Net loss from continuing operations $ (4,987) $ (5,381)
============ ============
Weighted average shares outstanding
(basic and diluted) 19,295,060 24,609,086
Basic and diluted loss per share:
Continuing operations $ (0.26) $ (0.22)
See notes to consolidated financial statements
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MAYOR'S JEWELERS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts shown in thousands except share and per share data)
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
OCTOBER 28, 2000 OCTOBER 30, 1999
---------------- ----------------
(UNAUDITED)
Net sales $ 109,742 $ 91,797
Cost of sales 64,894 58,272
------------ ------------
Gross profit 44,848 33,525
Store operating and selling expenses 33,421 27,696
General and administrative expenses 14,979 15,082
Depreciation and amortization 5,716 6,060
------------ ------------
54,116 48,838
Operating loss (9,268) (15,313)
Interest and other income 2,173 1,504
Interest expense 2,165 1,812
------------ ------------
Net loss from continuing operations (9,260) (15,621)
Income from discontinued operations, net of income tax
provision of $315 in 1999 -- 8,019
------------ ------------
Net loss $ (9,260) $ (7,602)
============ ============
Weighted average shares outstanding
(basic and diluted) 19,722,037 26,687,321
Basic and diluted earnings (loss) per share:
Continuing operations $ (0.47) $ (0.58)
Discontinued operations $ 0.00 $ 0.30
------------ ------------
Net loss $ (0.47) $ (0.28)
============ ============
See notes to consolidated financial statements.
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MAYOR'S JEWELERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts shown in thousands)
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
OCTOBER 28, 2000 OCTOBER 30, 1999
---------------- ----------------
(UNAUDITED)
Cash flows from operating activities:
Cash received from customers $ 110,003 $ 97,422
Cash paid to suppliers and employees (138,025) (118,556)
Interest and other income received (paid) 227 (677)
--------- ---------
Net cash used in continuing operations (27,795) (21,811)
Net cash provided by discontinued operations 8,217 13,341
--------- ---------
Net cash used in operating activities (19,578) (8,470)
Cash flows from investing activities:
Capital expenditures (14,451) (8,699)
Proceeds from sale of fixed assets 19 3,360
Investment in Mayor's, net of cash acquired in 1998 423 (2,654)
Addition to deferred lease credits 1,940 --
--------- ---------
Net cash used in investing activities (12,069) (7,993)
Cash flows from financing activities:
Proceeds from sale of employee stock plans 1,543 168
Purchase of treasury stock (5,239) (15,173)
Cash paid to former Mayor's shareholders (5,095) (1,784)
Repayment of capital lease (189) (485)
Underwriting fees -- (75)
Borrowings under line of credit 295,165 330,090
Line of credit repayments (255,207) (299,569)
--------- ---------
Net cash provided by financing activities 30,978 13,172
Net decrease in cash and cash equivalents (669) (3,291)
Cash and cash equivalents at beginning of period 1,049 3,530
--------- ---------
Cash and cash equivalents at end of period $ 380 $ (239)
========= =========
(continued)
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MAYOR'S JEWELERS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
(Amounts shown in thousands)
THIRTY-NINE THIRTY-NINE
WEEKS ENDED WEEKS ENDED
OCTOBER 28, 2000 OCTOBER 30, 1999
---------------- ----------------
(UNAUDITED)
Cash flows used in operating activities:
Net loss $ (9,260) $ (7,602)
Deduct income from discontinued operations -- (8,019)
-------- --------
Loss from continuing operations (9,260) (15,621)
Adjustments to reconcile net loss from continuing operations to net
cash used in continuing operating activities:
Depreciation and amortization 5,716 6,060
Provision for doubtful accounts 790 1,036
(Increase) decrease in assets:
Accounts receivable (net) (528) 4,589
Inventories (27,952) (17,937)
Other 365 (3,193)
Decrease (increase) in liabilities:
Accounts payable 3,451 4,332
Accrued expenses (377) (1,077)
-------- --------
Net cash used in continuing operations (27,795) (21,811)
Net cash provided by discontinued operations 8,217 13,341
-------- --------
Net cash used in operating activities $(19,578) $ (8,470)
======== ========
(concluded)
See notes to consolidated financial statements.
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MAYOR'S JEWELERS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The Company's financial statements as of October 28, 2000 and for
the thirteen and thirty-nine week periods ended October 28, 2000 and October 30,
1999 have not been audited by certified public accountants, but in the opinion
of management of Mayor's Jewelers, Inc. (the "Company" or "Mayor's"), formerly
known as Jan Bell Marketing, Inc., reflect all adjustments (which include only
normal recurring accruals) necessary to present fairly the financial position,
results of operations and cash flows for those periods. Results of the thirteen
and thirty-nine week periods ended October 28, 2000 and October 30, 1999 are not
necessarily indicative of annual results because of the seasonality of the
Company's business.
The accompanying consolidated financial statements should be read
in conjunction with the Company's annual consolidated financial statements and
the notes thereto appearing in the Company's annual report on Form 10-K for the
year ended January 29, 2000 filed with the Securities and Exchange Commission.
B. DISCONTINUED OPERATIONS
The Sam's division is accounted for as a discontinued operation
due to the expiration of the Sam's Club ("Sam's") agreement scheduled for
February 1, 2001. As part of the transition plan, Sam's has taken over the
operation of all new clubs that were opened subsequent to August 1, 2000 and
fifteen previously leased clubs. Operations at the remaining clubs are
intended to be transferred to Sam's during January 2001. The Company has been
dependent on Sam's to conduct its business and without replacement business, the
loss of the arrangement with Sam's will have a material adverse effect on the
Company's business after February 1, 2001. The growth of new as well as existing
Mayor's stores has reduced this dependence on Sam's. In addition, the Company's
operating and capital resources that are and will become available during the
transition are expected to be used to further develop the Mayor's luxury jeweler
platform through the opening of new stores during the remainder of Fiscal 2000
and beyond.
The balance sheet caption "Deferred gain on discontinued operations"
includes the operating results of Sam's from July 31, 1999, the date which the
Company adopted its plan for disposal of the business, through October 28, 2000,
less losses incurred to date on disposal of the foreign subsidiaries that
supplied and manufactured goods for Sam's. Management believes a net gain will
be realized at the expiration of the Sam's agreement. Consistent with the
accounting for discontinued operations, the $2.5 million and $935,000 loss
during the thirteen and thirty-nine weeks ended October 28, 2000, respectively,
is reflected as a change in the balance sheet account "Deferred gain from
discontinued operations". The deferred gain to date as of October 28, 2000 is
$14.2 million. A significant portion of the calculation of the deferred gain and
income from discontinued operations is a result of a reduction in expenses
caused by the reallocation of continuing corporate overhead and certain back
office expenses from the Sam's division to the Mayor's division.
Net assets of discontinued operations have been recorded at their
estimated net realizable value and are as follows:
OCTOBER 28, JANUARY 29,
2000 2000
------------ ------------
(amounts shown in thousands)
Cash $ 798 $ 392
Accounts receivable, net 3,150 6,025
Inventories 53,294 47,118
Other current assets 5,500 8,097
Property, plant and equipment, net 247 858
Other non-current assets 234 936
Accounts payables (14,317) (4,341)
Other current liabilities (2,761) (3,788)
------------ ------------
Net assets of discontinued operations $ 46,145 $ 55,297
============ ============
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C. INVENTORIES
Inventories are summarized as follows:
OCTOBER 28, 2000 JANUARY 29, 2000
---------------- ----------------
(amounts shown in thousands)
COMPANY HELD ON COMPANY HELD ON
OWNED CONSIGNMENT OWNED CONSIGNMENT
----- ----------- ----- -----------
Precious and semi-precious gem jewelry-
related merchandise (and associated
gold):
Raw materials $ 3,028 $ -- $ 2,806 $ --
Finished goods 61,864 18,778 52,152 15,422
Watches 38,087 599 21,027 190
Other consumer products 3,613 1,174 2,655 128
-------- -------- -------- --------
$106,592 $ 20,551 $ 78,640 $ 15,740
======== ======== ======== ========
D. INCOME TAXES
The Company has a federal net operating loss carryforward of
approximately $8.8 million and a state net operating loss carryforward of
approximately $40.0 million. The federal net operating loss carryforward expires
beginning in 2008 through 2011 and the state net operating loss carryforward
expires beginning in 2010 through 2014. The Company also has an alternative
minimum tax credit carryforward of approximately $1.8 million to offset future
federal income taxes. A valuation allowance has been recorded to offset the net
deferred tax asset to the amount that the Company believes, after evaluating the
currently available evidence, will more likely than not be realized.
At the time the Company purchased Exclusive Diamonds
International, Limited ("EDI") in August of 1990, EDI applied to and received
from the Israeli government under the Capital Investments Law of 1959 "approved
enterprise" status, which results in reduced tax rates given to foreign owned
corporations to stimulate the export of Israeli manufactured products. The
effect in Fiscal 1999, Fiscal 1998 and Fiscal 1997 was not material. The
"approved enterprise" tax benefit is available to EDI until the year 2000. Upon
its sale or liquidation, EDI will be subject to a 10% tax on any income that was
previously exempted from tax as a result of its "approved enterprise" status.
Furthermore, depending on the specific form of the transaction, the Company may
be subject to additional Israeli taxes, at rates ranging from 15% to 36%, upon
the sale of either EDI's assets or the Company's stock of EDI. Any additional
Israeli taxes will be part of the results from the discontinuance of the Sam's
operations.
Mayor's continuing operations 1994, 1995 and 1996 federal income
tax returns are currently under examination by the IRS. The impact of the IRS
examination on the Company's financial condition, results of operation, and cash
flow cannot be ascertained at this time.
E. LEGAL PROCEEDINGS
The Company is involved in litigation arising from the normal
course of business. All previously reported litigation with a former vendor was
settled and concluded with no material adverse effect. In all other pending
matters, the Company believes the facts and the law support its positions and
these matters should not materially affect the Company's financial position;
however, there can be no assurance as to the final result of legal matters.
F. SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITIES
The Statement of Cash Flows for the thirty-nine weeks ended
October 28, 2000 does not include the following noncash transactions:
Capital lease obligations incurred $ 200,000
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ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The discussion and analysis below contains trend analysis and
other forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934.
The Company's actual results could differ materially from those anticipated in
any forward-looking statements as a result of certain factors set forth below
and elsewhere in this Report and in the Company's annual report on Form 10-K for
the year ended January 29, 2000 and other reports filed with the Securities and
Exchange Commission.
The Company currently operates 36 Mayor's and Maier & Berkele luxury
jewelry stores in Florida, Georgia, Illinois, Virginia, Texas, California,
Nevada and Michigan. It also has an exclusive licensed concession department at
existing domestic and Puerto Rico Sam's locations under an agreement which
expires February 1, 2001. During April 1999, the Company was informed that this
agreement would not be renewed beyond its expiration date. During the thirteen
and thirty-nine weeks ended October 28, 2000, the operating activity of the
Sam's division are included in the caption "Deferred gain from discontinued
operations" in the Consolidated Balance Sheets. The growth of the Mayor's
division will mitigate the loss of the Sam's business, although the concession
non-renewal will have a material adverse effect on the Company. To compensate
for the loss of the Sam's business, the Company has focused its attention and
resources on expanding Mayor's into a national retailer. In the interim, the
Company is implementing a transition plan to efficiently exit from the Sam's
business. As part of the transition plan, Sam's has taken over the operation of
all new clubs opened subsequent to August 1, 2000 and fifteen previously leased
clubs. Operations at the remaining clubs are intended to be transferred to Sam's
during January 2001.
As a result of the non-renewal, in the second quarter of Fiscal 1999
the Company began to account for its Sam's operating results, future field and
back office expenses associated with the transition out of the clubs, its loss
from the sale of its Mexico subsidiary and its estimated loss on the sale or
liquidation of its Israel subsidiary as discontinued operations in its financial
statements. The assets and liabilities of Sam's is recorded as "Net assets of
discontinued operations," and the operations of Sam's and the costs of the
discontinuance since the date of adoption of the plan, which are expected to
result in a net gain at the culmination of the process, are accumulated in the
"Deferred gain from discontinued operations" accounts of the Company's
Consolidated Balance Sheets. The net results of operations of Sam's prior to the
adoption of the plan are included in "Net income from discontinued operations"
included in the accompanying Consolidated Statements of Operations. Accordingly,
the results of continuing operations for the thirteen and thirty-nine weeks
ended October 28, 2000 and October 30, 1999 include only the results of the
Mayor's division.
The Company has begun to review ongoing strategies to increase revenues
and achieve expense savings in existing Mayor's stores and currently a
significant portion of the Company's resources are being spent on the continued
development of the luxury jeweler platform through the opening of new stores.
The Company's operating infrastructure is designed to service a larger base of
operations than the current Mayor's continuing operations business. However, the
Company expects to "grow into" the infrastructure which it believes is
appropriately sized, given the expansion intentions for Mayor's continuing
operations. In view of the investment being made into the Company
infrastructure, continuing operations reflect costs which are higher than what
normally would be incurred for an operation of Mayor's present size. In
addition, certain corporate overhead expenses previously charged to the Sam's
division have been reallocated to the continuing Mayor's division. Mayor's
continuing operations recognized net losses of $5.0 million and $9.3 million for
the thirteen and thirty-nine weeks ended October 28, 2000, respectively,
compared to $5.4 million and $15.6 million for the thirteen and thirty-nine
weeks ended October 30, 1999, respectively. The Company intends to further
reduce the losses through the expansion of the Mayor's chain as well as
identifying further efficiencies in the Company's infrastructure. The Company
has implemented a focused merchandising, marketing and real estate strategy that
will serve to solidify Mayor's position as a premier luxury jeweler.
The Company's net sales from the Mayor's continuing operations
for the thirteen and thirty-nine weeks ended October 28, 2000 were $35.9 million
and $109.7 million, respectively, compared to $32.2 million and $91.8 million
for the thirteen and thirty-nine weeks ended October 30, 1999. The increase in
revenues for the thirteen weeks ended October 28, 2000 is mainly attributable to
new store revenues. Comparative store net sales decreased 3.7% which is mainly
attributable to clearance sales during September and October last year. The
increase in revenues for the thirty-nine weeks ended October 28, 2000 is mainly
attributable to increases in all product categories, with the largest increases
in the watch category, as well as a 7.5% increase from the same period during
the prior year in comparative net sales for the thirty-nine weeks ended October
28, 2000.
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The Company is seeking to expand its Mayor's chain into a
national luxury jeweler by opening new stores outside of Mayor's current
geographical marketplace, which will increase the Company's net sales. However,
the retail jewelry market is particularly subject to the level of consumer
discretionary income and the subsequent impact on the type and value of goods
purchased. With the consolidation of the retail industry, the Company believes
that competition both within the luxury goods retail industry and with other
competing general and specialty retailers and discounters will continue to
increase. The superior watch brands business comprise a significant portion of
the Mayor's business, which is a result of the Company's ability to effectively
market high-end watches. The Company's future sales results in these new stores
could be adversely impacted because some current significant watch vendor
distribution agreements do not provide for the marketing of new products in
these new locations.
Gross profit was 40.5% and 40.9% for the thirteen and thirty-nine
weeks ended October 28, 2000, respectively, compared to 35.9% and 36.5% for the
thirteen and thirty-nine weeks ended October 30, 1999, respectively. The
increase in gross profit as a percentage of net sales for the thirteen and
thirty-nine weeks ended October 28, 2000 primarily is a result of decreased
sales discounts. The Company believes there is opportunity to additionally
increase gross profit over the next couple of years. Areas for gross margin
improvement include the purchasing of inventories at a lower cost, increasing
the assortment of goods towards higher margin jewelry items, higher initial
markups, reductions in shipping and handling costs, and further improving the
Company's discipline with respect to sale and purchase related discounts.
Store operating and selling expenses were $11.9 million or 33.2%
of net sales and $33.4 million or 30.5% of net sales for the thirteen and
thirty-nine weeks ended October 28, 2000 compared to $10.2 million or 31.8% of
net sales and $27.7 million or 30.2% of net sales for the thirteen and
thirty-nine weeks ended October 30, 1999. The increase in store operating and
selling expenses for the thirteen and thirty-nine weeks ended October 28, 2000
is attributable to travel expenses related to opening new stores as well as
marketing expenses to develop a new brand and to advertise Mayor's on a national
basis. Pre-opening costs associated with the new stores for the thirteen and
thirty-nine weeks ended October 28, 2000 were $.4 million and $.6 million,
respectively. The increase is also attributable to increased store commissions,
chargecard and check processing fees and percentage rent which are directly
related to the increased sales and increased number of stores. The Company does
not believe there is significant opportunity to reduce these expenses. The
Company believes it has a well executed front end in its Mayor's stores which
include highly professional, trained associates. Also, the Company believes that
the elegance of the Mayor's stores helps set the business apart from other
jewelers and adds to the experience of shopping in a Mayor's store. As such, the
Company does not believe a reduction in the store overhead structure would be
beneficial.
General and administrative expenses were $5.3 million or 14.7% of
net sales and $15.0 million or 13.6% of net sales for the thirteen and
thirty-nine weeks ended October 28, 2000, respectively, compared to $4.8 million
or 14.8% of net sales and $15.1 million or 16.4% of net sales for the thirteen
and thirty-nine weeks ended October 30, 1999. The increase in general and
administrative expenses for the thirteen weeks ended October 28, 2000 is
primarily due to travel expenses related to new store openings and training of
new store personnel. The decrease in general and administrative expenses for the
thirty-nine weeks ended October 28, 2000 is primarily due to the consolidation
of back office functions. The current infrastructure is designed to service a
larger base of operations. The percentage of general and administrative expenses
to net sales should continue to decrease as the Company expands its business.
Depreciation and amortization expenses were $2.1 million and $5.7
million for the thirteen and thirty-nine weeks ended October 28, 2000 compared
to $1.7 million and $6.1 million for the thirteen and thirty-nine weeks ended
October 30, 1999. The increase in depreciation and amortization for the thirteen
weeks ended October 28, 2000 is primarily due to the new stores. The decrease in
depreciation and amortization for the thirty-nine weeks ended October 28, 2000
is primarily due to the existence of the previous Mayor's headquarters fixed
assets in the first quarter of 1999, which were written off during the second
quarter of 1999, net of an increase as a result of new and remodeled stores.
Included in these amounts are the depreciation of Mayor's store assets,
depreciation for substantially all corporate headquarter and distribution center
fixed assets, amortization of goodwill resulting from the Mayor's acquisition
and amortization of financing costs related to the Company's working capital
facility with Citicorp, USA.
Interest and other income was $.8 million and $2.2 million for
the thirteen and thirty-nine weeks ended October 28, 2000 compared to $.5
million and $1.5 million for the thirteen and thirty-nine weeks ended October
30, 1999. This income is primarily a result of finance charge income from the
Mayor's chargecard. Interest expense related to the Company's working capital
facility was $1.0 million and $2.2 million for the thirteen and thirty-nine
weeks ended October 28, 2000 compared to $.8 million and $1.8 million for the
thirteen and thirty-nine weeks ended October 30, 1999.
DISCONTINUED OPERATIONS
The results of operations for the thirteen and thirty-nine weeks
ended October 28, 2000 related to the Sam's division discontinued operations
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reflect the Company's continued strategy to liquidate its inventory investment
to a minimal level by the time of the agreement's expiration on February 1,
2001. During the first nine months, the Company continued to execute merchandise
strategies in Sam's that emphasized higher margin diamond, semi-precious gem,
gold and watch products in place of other lower margin non-jewelry products and
categories. Management does not expect any improvements in sales, gross margins,
operating cash flows and expense savings in its traditional business with Sam's
and will recognize declines as a result of the contract non-renewal. The Company
expects to have positive cash flows and positive income from Sam's during the
remaining term of the agreement. This estimated gain considers the Sam's
division operations through February 1, 2001, the loss on the sale of Mexican
operations which were sold in July 1999, the estimated loss on the Israel
operations which are expected to be sold or liquidated during this fiscal year,
and an estimate for field and back office expenses expected during the
transition out of Sam's. The Company can, however, make no assurances regarding
the results of the termination of its Sam's division business, including matters
related to the results of operations, personnel and inventories. Throughout the
remainder of the agreement, the operating results of the discontinued operations
will continue to accumulate in the balance sheet. Upon termination of the
agreement, the net results of these discontinued operations will then be closed
out through the income statement. Loss from discontinued operations was $2.5
million and $.9 million for the thirteen and thirty-nine weeks ended October 28,
2000, respectively, compared to a loss of $55,000 and income of $8.0 million for
the thirteen and thirty-nine weeks ended October 30, 1999. The decrease in
Income from discontinued operations for the thirteen and thirty-nine weeks ended
October 28, 2000 is mainly attributable to decreased sales and gross margin due
to the Company's efforts to liquidate the inventory of non-jewelry products in
the Sam's discontinued operations.
LIQUIDITY AND CAPITAL RESOURCES
As of October 28, 2000, cash and cash equivalents totaled $380,000 and
the Company had $64.4 million outstanding under its working capital facility.
Availability under this facility is determined based upon a percentage formula
applied to inventory and accounts receivable. Based upon this formula, the
maximum of $80 million was available to the Company at October 28, 2000. The
Company has the right to request an increase up to $110 million contingent upon
lender approval. The credit facility bears interest at floating rates, currently
based upon LIBOR plus 1.5% or the bank's adjusted base rate plus .25%, at the
Company's option. These interest rates can be increased if the Company's average
leverage ratio does not meet certain levels. In addition, the Company pays a
commitment fee of .25% of the unused line balance as well as 2.5% of the
aggregate outstanding letter of credit liability. The agreement contains
covenants which require the Company to maintain financial ratios including
leverage ratio, fixed charge ratio, and tangible net worth, and also limits
capital expenditures, incurrence of additional debt, and prohibits payment of
dividends. At October 28, 2000, the Company did not comply with a certain
covenant requirement for which the Company received a waiver on December 7,
2000. Further, the Company has amended the agreement for all appropriate terms
and conditions related to the expiration of the Sam's agreement.
During the thirty-nine weeks ended October 28, 2000, net cash used in
operating activities was $19.6 million consisting of $27.8 million in cash used
in continuing operations and $8.2 million in cash provided by discontinued
operations. The Company's business is highly seasonal. Consequently, seasonal
working capital needs peak in October and November, before the holiday shopping
season.
Net cash used in investing activities was $12.1 million during
the thirty-nine weeks ended October 28, 2000, primarily related to capital
expenditures associated with new and remodeled Mayor's locations. The Company
has opened ten new stores in Florida, Virginia, Illinois, Texas, California,
Nevada and Michigan during 2000. Under its Mayor's growth strategy, the Company
plans to open approximately eight to ten new stores per year. Management
estimates that the Company's cash requirements will be approximately $4.2
million for each new store, with approximately $1.2 million (after consideration
of lease concessions from landlords) related to leasehold improvements,
fixtures, point of sale terminals and other equipment in the stores, and
approximately $3 million related to incremental accounts receivable and
inventory investment, net of incremental accounts payable. The Company also
estimates it will make back office capital expenditures of approximately $2.0
million during Fiscal 2000, primarily for management information system
enhancements.
On April 16, 1999 the Company's Board of Directors authorized the
expenditure of up to $15 million to repurchase the Company's common stock over a
period of one year. On October 29, 1999, the authorized amount to repurchase was
increased by an additional $5 million, which was subsequently increased on
February 25, 2000 another $10 million to $30 million. The Company has and will
continue to repurchase the shares in the open market or in privately negotiated
transactions, from time to time, in compliance with the Securities and Exchange
Commission's Rule 10b-18, subject to market conditions, applicable legal
requirements and other factors. The acquired shares will be held in treasury or
canceled. Through the thirty-nine weeks ended October 28, 2000, the Company had
repurchased 9,966,354 shares at a cost of $29.3 million.
The Company believes that its cash on hand, projected cash from
continuing and discontinued operations and availability under the current
working capital facility will be sufficient to meet its anticipated working
capital and capital expenditure needs for the remainder of Fiscal 2000; however,
there can be no assurance that the Company's future operating results will be
sufficient to sustain any debt service and working capital needs.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS
INTEREST RATE RISKS
The disclosure in the Annual Report on Form 10-K filed April 19,
2000 is incorporated by reference herein. The Company does not believe that the
risk related to interest rate changes is materially different than it was at the
date of the referenced report.
FORWARD-LOOKING STATEMENTS AND CAUTIONARY FACTORS THAT MAY AFFECT FUTURE RESULTS
This report and other written reports and releases and oral
statements made from time to time by the Company contain forward-looking
statements which can be identified by their use of words like "plans,"
"expects," "believes," "will," "anticipates," "intends," "projects,"
"estimates," "could," "would," "may," "planned," "goal," and other words of
similar meaning. All statements that address expectations, possibilities or
projections about the future, including without limitation statements about the
Company's strategy for growth, expansion plans, sources or adequacy of capital,
the Sam's transition, expenditures and financial results are forward-looking
statements.
One must carefully consider such statements and understand that
many factors could cause actual results to differ from the forward-looking
statements, such as inaccurate assumptions and other risks and uncertainties,
some known and some unknown. No forward-looking statement is guaranteed and
actual results may vary materially. Such statements are made as of date
provided, and the Company assumes no obligation to update any forward-looking
statements to reflect future developments or circumstances.
One should carefully evaluate such statements by referring to the
factors described in the Company's filings with the SEC, especially on Form's
10-K, 10-Q and 8-K. Particular review is to be made of Items 1, 2, 3 and 7 of
the Form 10-K and Item 2 of the Form's 10-Q where the Company discusses in more
detail various important risks and uncertainties that could cause actual results
to differ from expected or historical results. The Company notes these factors
for investors as permitted by the Private Securities Litigation Act of 1995.
Since it is not possible to predict or identify all such factors, the identified
items are not a complete statement of all risks or uncertainties. In addition to
the factors previously discussed or referenced in this report, the following are
some of the other important factors that could cause results to vary.
The Company markets its products through its primarily mall based
Mayor's and Maier and Berkele stores as well as through Sam's pursuant to an
arrangement whereby the Company operates an exclusive licensed concession at all
of Sam's existing and future domestic and Puerto Rico locations through February
1, 2001. On April 6, 1999, the Company was informed by Sam's that its concession
agreement would not be renewed beyond its expiration date. The Company has been
dependent on Sam's to conduct its business and, without replacement business,
the loss of the arrangement with Sam's will have a material adverse effect on
the business of the Company.
The Company is pursuing new growth opportunities outside of its
existing business with Sam's and Mayor's and future arrangements with other
retail ventures. Management continuously considers other growth opportunities
including acquisitions of businesses similar or complementary to that of the
Company, which could require a significant investment of funds and management
attention by the Company. Any such growth opportunities will be subject to all
of the risks inherent in the establishment of a new product or service offering,
including competition, lack of sufficient customer demand, unavailability of
experienced management, unforeseen complications, delays and cost increases and
integration difficulties. The Company may incur costs in connection with
pursuing new growth opportunities that it cannot recover, and the Company may be
required to expense certain of these costs, which may negatively impact the
Company's reported operating performance for the periods during which such costs
are incurred.
The Company has opened ten new stores in Florida, Virginia,
Illinois, Texas, California, Nevada and Michigan to date this year. This
completes the Company's expansion plan for 2000. The Company considers its
Mayor's expansion program to be an integral part of its future plans to replace
the Sam's business. However, there can be no assurance that the Company will be
able to find favorable store locations, negotiate favorable leases, hire and
train new store and account managers, and integrate the new stores in a manner
that will allow the Company to meet its expansion program. Conditions outside
the Company's control, such as adverse weather conditions affecting construction
schedules, unavailability of materials, labor disputes and similar issues also
could impact anticipated store openings. Also, certain name brand products, such
as new Rolex watches, currently will not be sold in new locations outside of
Florida and Georgia. The failure to expand by opening new stores as planned
could have a material adverse effect on the Company's future sales growth,
profitability and operating results.
All but three of the Mayor's stores are located in major regional
malls. The success of the Company's operations depends to a certain extent on
the ability of mall anchor tenants and other attractions to generate customer
traffic in the vicinity of the Mayor's stores. The loss of mall anchor tenants
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in the regional malls where the Mayor's stores are located, the opening of
competing regional malls or other economic downturns affecting customer mall
traffic and purchasing levels could have an adverse effect on the Company's net
sales and profitability.
The working capital facility agreement contains covenants, which
require the Company to maintain financial ratios including a leverage ratio,
fixed charge ratio, tangible net worth, and also limits capital expenditures,
incurrence of additional debt, and prohibits the payment of dividends. There can
be no assurance that the Company's future operating results will be sufficient
to meet the requirements of the applicable covenants.
PART II: OTHER INFORMATION
NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following list of schedules and exhibits are incorporated by
reference as indicated in this Form 10-Q:
27 Financial Data Schedule (for SEC use only).
(b) Reports on Form 8-K. None.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MAYOR'S JEWELERS, INC.
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(Registrant)
By: /s/ DAVID P. BOUDREAU
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Chief Financial Officer and
Senior Vice President
of Finance & Treasurer
Date: December 12, 2000
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