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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 May 5, 2001
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)
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.
19,371,009 SHARES ($.0001 PAR VALUE)
AS OF JUNE 15, 2001
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FORM 10-Q
QUARTERLY REPORT
THIRTEEN WEEKS ENDED MAY 5, 2001
TABLE OF CONTENTS
PART I: FINANCIAL INFORMATION PAGE NO.
Item 1. Consolidated Financial Statements - Unaudited
A. Consolidated Condensed Balance Sheets.....................................3
B. Consolidated Condensed Statements of Operations...........................4
C. Consolidated Condensed Statements of Cash Flows.........................5-6
D. Notes to Consolidated Condensed Financial Statements....................7-8
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.......................................9-11
Item 3. Quantitative and Qualitative Disclosures About Market Risks.................12
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 ................................................................13
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PART I: FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED BALANCE SHEETS - UNAUDITED
(Amounts shown in thousands except share and per share data)
MAY 5, FEBRUARY 3,
2001 2001
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ASSETS
Current Assets:
Cash and cash equivalents $ 1,714 $ 1,363
Accounts receivable, net of allowance for doubtful
accounts of $1,109 and $1,403, respectively 32,024 34,974
Inventories 114,191 107,674
Other current assets 9,217 10,913
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Total current assets 157,146 154,924
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Property, net 43,415 42,651
Goodwill 23,719 24,204
Other assets 2,669 2,273
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Total non-current assets 69,803 69,128
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Total assets $ 226,949 $ 224,052
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LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 15,309 $ 14,039
Accrued expenses and other current liabilities 10,239 11,374
Short-term portion of long-term debt 7,703 --
Net liabilities of discontinued operations 329 4,839
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Total current liabilities 33,580 30,252
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Long-term debt 50,000 44,390
Other long-term liabilities 6,231 5,151
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Total long-term liabilities 56,231 49,541
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Stockholders' Equity:
Common stock, $.0001 par value, 50,000,000 shares authorized,
29,307,923 and 29,210,886 shares issued and outstanding 3 3
Additional paid-in capital 194,065 193,821
Accumulated deficit (27,530) (20,165)
Less: 9,983,954 shares of treasury stock, at cost (29,400) (29,400)
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Total stockholders' equity 137,138 144,259
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Total liabilities and stockholders' equity $ 226,949 $ 224,052
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See notes to consolidated condensed financial statements.
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MAYOR'S JEWELERS, INC.AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF OPERATIONS - UNAUDITED
(Amounts shown in thousands except share and per share data)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 5, 2001 APRIL 29, 2000
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Net sales $ 36,211 $ 35,292
Cost of sales 21,297 20,814
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Gross profit 14,914 14,478
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Store operating and selling expenses 11,359 9,572
General and administrative expenses 4,650 4,130
Advertising and marketing expenses 1,600 1,846
Other charges 1,505 --
Depreciation and amortization 2,438 1,734
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21,552 17,282
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Operating loss (6,638) (2,804)
Interest and other income 27 35
Interest expense (755) (512)
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Net loss $ (7,366) $ (3,281)
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Weighted average shares outstanding
(basic and diluted) 19,283,000 20,316,173
Basic and diluted loss per share $ (0.38) $ (0.16)
See notes to consolidated condensed financial statements.
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MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED
(Amounts shown in thousands)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 5, 2001 APRIL 29, 2000
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Cash flows from operating activities:
Cash received from customers $ 39,161 $ 37,391
Cash paid to suppliers and employees (45,290) (43,216)
Interest and other income received (paid) (736) 290
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Net cash used in continuing operations (6,865) (5,535)
Net cash (used in) provided by discontinued operations (4,509) 1,653
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Net cash used in operating activities (11,374) (3,882)
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Cash flows from investing activities:
Capital expenditures (2,614) (3,119)
Proceeds from sale of fixed assets 13 223
Investment in Mayor's, net of cash acquired in 1998 -- 118
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Net cash used in investing activities (2,601) (2,778)
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Cash flows from financing activities:
Proceeds from sale of employee stock plans 244 39
Purchase of treasury stock -- (783)
Cash paid to former Mayor's shareholders -- (5,095)
Repayment of capital lease -- 79
Borrowings under line of credit 57,889 100,359
Line of credit repayments (44,576) (88,743)
Payment of commitment fee related to line of credit (312) --
Other 1,081 --
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Net cash provided by financing activities 14,326 5,856
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Net increase (decrease) in cash and cash equivalents 351 (804)
Cash and cash equivalents at beginning of period 1,363 1,049
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Cash and cash equivalents at end of period $ 1,714 $ 245
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(continued)
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MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOWS - UNAUDITED (CONTINUED)
(Amounts shown in thousands)
THIRTEEN THIRTEEN
WEEKS ENDED WEEKS ENDED
MAY 5, 2001 APRIL 29, 2000
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Reconciliation of Net Loss to Net Cash used in operating activities:
Net loss $ (7,366) $ (3,281)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization 2,438 1,734
Provision for doubtful accounts 460 392
(Increase) decrease in assets:
Accounts receivable (net) 2,490 2,351
Inventories (6,517) (4,690)
Other 1,495 820
Increase (decrease) in liabilities:
Accounts payable 1,270 (1,014)
Accrued expenses (1,135) (1,847)
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Net cash used in continuing operations (6,865) (5,535)
Net cash (used in) provided by discontinuing operations (4,509) 1,653
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Net cash used in operating activities $(11,374) $ (3,882)
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(concluded)
See notes to consolidated condensed financial statements.
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MAYOR'S JEWELERS, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
A. BASIS OF PRESENTATION
The Company's consolidated condensed financial statements as of May 5,
2001 and for the thirteen week periods ended May 5, 2001 and April 29, 2000 have
not been audited by certified public accountants, but in the opinion of
management of Mayor's Jewelers, Inc. and subsidiaries (the "Company" or
"Mayor's") 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 week
periods ended May 5, 2001 and April 29, 2000 are not necessarily indicative of
annual results because of the seasonality of the Company's business.
The accompanying consolidated condensed 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 February 3, 2001 filed with the Securities and Exchange
Commission.
B. INVENTORIES
Inventories are summarized as follows:
MAY 5, 2001 FEBRUARY 3, 2001
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(amounts shown in thousands)
Company Held on Company Held on
Owned Consignment Owned Consignment
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Precious and semi-precious gem jewelry-
related merchandise (and
associated gold):
Raw materials $ 724 $ -- $ 636 $ --
Finished goods 71,672 11,413 67,551 15,827
Watches 37,554 971 35,810 551
Other consumer products 4,241 56 3,677 469
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$114,191 $ 12,440 $107,674 $ 16,847
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C. INCOME TAXES
The Company has a federal net operating loss carryforward of
approximately $9.9 million and a state net operating loss carryforward of
approximately $17.7 million. The amount of Mayor's division NOL included in the
$9.9 million is approximately $2.9 million, of which, due to Section 385
limitations, the Company can utilize each year approximately $1.5 million. The
federal net operating loss carryforward expires beginning in 2010 through 2020
and the state net operating loss carryforward expires beginning in 2009 through
2020. The Company also has an alternative minimum tax credit carryforward of
approximately $1.8 million to offset future federal income taxes. The valuation
allowance has been recorded to offset the net deferred tax asset, which is
included in the Other Current Assets in the accompanying Consolidated Balance
Sheets, to the amount that the Company believes, after evaluating the currently
available evidence, will more likely than not be realized.
The Mayor's division's 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.
D. LEGAL PROCEEDINGS
The Company is involved in litigation arising from the normal course of
business. In these 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 these legal matters.
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E. SUPPLEMENTAL INFORMATION OF NONCASH ACTIVITIES
The Statement of Cash Flows for the thirteen weeks ended May 5, 2001
does not include a capital lease obligation entered into by the Company of
$72,000.
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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 February 3, 2001 and other reports filed with the Securities and
Exchange Commission.
The Company currently operates 35 Mayor's luxury jewelry stores in
South and Central Florida, metropolitan Atlanta, Georgia, Chicago, Illinois,
metropolitan Washington D.C., Las Vegas, Nevada, Troy, Michigan, Dallas, Texas,
and Newport Beach and Sacramento, California. The Company intends to attain
profitability through the expansion of the Mayor's chain as well as reducing
costs 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 growing premier luxury jeweler. The Company has also begun
to reorganize its cost structure as well as its per store inventory investment
to maximize its long-term profitability.
The Company is continuing to review ongoing strategies to increase
revenues and achieve expense savings in the Mayor's business. These include
efforts to reduce and better balance inventory levels, to reduce the amount of
discontinued inventory in stock and replace it with current merchandise, and to
increase inventory turns. Also, the Company is continuing its ongoing initiative
to improve gross profit margins through sales and purchasing efficiencies and
through merchandise management strategies that improve initial markup and
inventory management.
The Company's net sales for the thirteen weeks ended May 5, 2001 were
$36.2 million compared to $35.3 million for the thirteen weeks ended April 29,
2000. The increase in revenues for the thirteen weeks ended May 5, 2001 is due
to revenue contribution of new locations. Comparable store sales decreased 7.7%
for the thirteen weeks ended May 5, 2001.
The Company is seeking to expand its Mayor's chain into a national
luxury jeweler by continuing to open 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 market
effectively high-end watches. The Company's future sales results in those stores
outside its traditional markets in Florida and Georgia could be adversely
impacted because some current watch vendor distribution agreements do not permit
the Company to market their products in these new locations. As the Company
supplies merchandise for the new stores, the Company's merchants are able to
freshen the assortment of inventory in all stores which should, in turn, lead to
improved sales and margins.
Gross profit was 41.2% for the thirteen weeks ended May 5, 2001
compared to 41.0% for the thirteen weeks ended April 29, 2000. The Company
believes there is opportunity to increase gross profit in the future years
through sales and purchasing efficiencies and merchandise management initiatives
that improved initial markup and inventory management. Areas for gross margin
improvement include strategies to purchase merchandise at a lower cost and to
gear the mix of sales towards higher margin jewelry items. In addition, the
Company expects to continue to refine the allocation and management of inventory
in its stores, and as a result, other direct costs such as slow moving reserves
are expected to decrease.
Store operating and selling expenses were $11.4 million or 31.4% of net
sales for the thirteen weeks ended May 5, 2001 compared to $9.6 million or 27.1%
of net sales for the thirteen weeks ended April 29, 2000. The increase in store
operating and selling expenses for the thirteen weeks ended May 5, 2001 is
mainly attributable to expenses related to the new stores, such as store payroll
and rent. Store operating and selling expenses for existing stores decreased by
$1.1 million. The Company does not believe there is significant opportunity to
reduce these expenses. The Company believes it has a very well executed front
end in its Mayor's stores which includes 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.
General and administrative expenses were $4.7 million or 12.8% of net
sales for the thirteen weeks ended May 5, 2001 compared to $4.1 million or 11.7%
of net sales for the thirteen weeks ended April 29, 2000. The increase in
general and administrative
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expenses for the thirteen weeks ended May 5, 2001 is due to higher overhead
costs, primarily as a result of increased benefit costs. During the thirteen
weeks ended May 5, 2001, the Company began a cost restructuring and operating
processes assessment project in order to properly size the corporate
infrastructure to the current business requirements. The Company expects the
implementation of these restructuring initiatives to begin in the second quarter
of Fiscal 2001 and continue throughout the year. Accordingly, no material
benefit of these cost reductions are anticipated to be realized until the second
quarter of Fiscal 2001. Management believes that it can achieve long-term
general and administrative savings when this cost restructuring initiative is
fully implemented.
Advertising and marketing expenses were $1.6 million for the thirteen
weeks ended May 5, 2001 compared to $1.8 million for the thirteen weeks ended
April 29, 2000. The decreases in advertising and marketing expenses are
primarily attributable to payments to develop a new brand identity last year.
Other charges for the thirteen weeks ended May 5, 2001 were $1.5
million. These charges include professional fees and severance related to the
aforementioned cost restructuring and operating processes assessment project, as
well as costs incurred as part of the strategic alternative review process with
investment bankers and non-recurring legal fees associated with shareholder
related matters.
Depreciation and amortization expenses were $2.4 million for the
thirteen weeks ended May 5, 2001 compared to $1.7 million for the thirteen weeks
ended April 29, 2000. The increase in depreciation and amortization expenses for
the thirteen weeks ended May 5, 2001 is a result of the capital expenditures
associated with the construction of new and remodeled stores.
Interest and other income was $27,000 for the thirteen weeks ended May
5, 2001 compared to $35,000 for the thirteen weeks ended April 29, 2000.
Interest expense related to the Company's working capital facility was $.8
million for the thirteen weeks ended May 5, 2001 and $.5 million for the
thirteen weeks ended April 29, 2000.
LIQUIDITY AND CAPITAL RESOURCES
As of May 5, 2001, cash and cash equivalents totaled $1.7 million and
the Company had $57.7 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 May 5, 2001. 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, and the Company
has the option of LIBOR plus 2.25% or the bank's adjusted base rate plus 1.00%.
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 a fixed charge ratio, an interest coverage ratio, a
consolidated EBITDA minimum, and tangible net worth minimum, and also limits
capital expenditures, incurrence of additional debt, and prohibits payment of
dividends.
During the thirteen weeks ended May 5, 2001, net cash used in operating
activities was $11.4 million. 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 $2.6 million during the
thirteen weeks ended May 5, 2001, primarily related to capital expenditures
associated with new and remodeled Mayor's locations. The Company plans to open
seven Mayor's stores during 2001. Subject to the availability of desirable real
estate locations, the Company plans to open approximately four to seven new
stores per year thereafter. 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 $1.5 million during Fiscal 2001, primarily for
operating software upgrades, as well as other 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 a total of $30 million. The acquired
shares will be held in treasury or canceled. As of May 5, 2001, the Company had
repurchased 9,983,954 shares at a cost of $29.4 million, all held in treasury.
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The Company believes that its cash on hand, projected cash from
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 2001; however, there can be no assurance that the
Company's future operating results will be sufficient to sustain all future 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 27, 2001
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, 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 operates today primarily through mall based Mayor's stores.
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 integration of, or 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 plans to open seven new Mayor's stores in 2001. The Company
considers its Mayor's expansion program to be an integral part of its future
plans. 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 four 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
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 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 foregoing covenants.
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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:
None.
(b) Reports on Form 8-K:
A Form 8-K was filed on or about May 1, 2001 under Item 5 reporting a
Voting and Standstill Agreement.
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PART II: OTHER INFORMATION
NONE
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.
----------------------------------------------------
(Registrant)
By: /s/ DAVID P. BOUDREAU
-------------------------------------------------
Chief Financial Officer and Senior Vice President
of Finance & Treasurer
Date: June 19, 2001
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