<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: April 30, 1997
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
Marks Bros. Jewelers, Inc.
(Exact name of registrant as specified in its charter)
Delaware 36-1433610
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
155 No. Wacker, Chicago, IL. 60606
(Address of principal executive offices)
312/782-6800
(Registrant's telephone number, including area code)
(Former name, former address and former fiscal
year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days. Yes No x
---- ----
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13, or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes___ No___
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of the Registrant's common stock $.001 par value per share,
outstanding as of June 9, 1997 was 10,070,122 and the number of the
Registrant's Class B common stock $1.00 par value as of May 21, 1997 was
101.298.
<PAGE> 2
MARKS BROS. JEWELERS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED APRIL 30, 1997
<TABLE>
<CAPTION>
<S> <C>
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months ended April 30, 1997
and 1996 (unaudited)
Balance Sheets - April 30, 1997, January 31, 1997 and April 30, 1996
(unaudited)
Statements of Cash Flows for the three months ended April 30, 1997
and 1996 (unaudited)
Notes to Consolidated Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security-Holders
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
</TABLE>
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Marks Bros. Jewelers, Inc.
Statements of Operations
for the three months ended April 30, 1997 and 1996
(unaudited)
(in thousands, except for per share data)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $34,714 $29,560
Cost of sales (including buying and occupancy 21,063 17,934
expenses)
------- -------
Gross profit 13,651 11,626
Selling, general and administrative expenses 11,842 10,018
------- -------
Income from operations 1,809 1,608
Interest expense 923 3,014
------- -------
Income (loss) before income taxes 886 (1,406)
Income tax expense (benefit) 346 (548)
------- -------
Net income (loss) $ 540 $ (858)
======= ========
Net income (loss) per share $ 0.05 $ (0.17)
======= ========
Total weighted average common shares and common 10,192 5,081
share equivalents
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
Marks Bros. Jewelers, Inc.
Balance Sheets
(unaudited, in thousands)
<TABLE>
<CAPTION>
April 30, January 31, April 30,
1997 1997 1996
--------- ----------- ---------
<S> <C> <C> <C>
ASSETS
Current Assets:
Accounts receivable, net $ 1,331 $ 1,354 $ 1,607
Layaway receivables, net 2,090 2,041 1,500
Merchandise inventories 79,549 64,482 59,942
Other current assets 573 638 456
Deferred financing costs 292 292 2,324
Deferred income taxes, net 1,326 1,326 817
-------- ------- -------
Total current assets 85,161 70,133 66,646
Property and equipment, net 19,024 16,305 14,067
Deferred financing costs 1,075 1,148 2,033
Deferred income tax, net 5,947 5,947 15,422
-------- ------- -------
Total assets $111,207 $93,533 $98,168
======== ======= =======
LIABILITIES AND STOCKHOLDERS'
EQUITY (DEFICIT)
Current Liabilities:
Outstanding checks, net $ 737 $ 7,242 $ 4,686
Revolver loan 23,455 10,747 7,481
Current portion of long-term debt --- --- 9,894
Accounts payable 26,015 14,706 13,841
Accrued payroll 2,605 2,607 2,031
Accrued financing costs --- --- 3,545
Other accrued expenses 8,605 9,007 6,144
-------- ------- -------
Total current liabilities 61,417 44,309 47,622
Total long-term debt, net of current 10,520 10,520 97,977
portion
Other long-term liabilities 1,220 1,197 1,161
-------- ------- -------
Total liabilities 73,157 56,026 146,760
Commitments and contingencies
Stockholders' equity (deficit):
Common stock 10 10 ---
Class B common stock --- --- 30
Class C common stock --- --- ---
Class D common stock --- --- ---
Additional paid-in capital 59,807 59,804 8,890
Accumulated deficit (21,767) (22,307) (15,531)
Treasury stock --- --- (20,333)
Deferred ESOP compensation --- --- (21,648)
-------- ------- -------
Total stockholders' equity
(deficit), net 38,050 37,507 (48,592)
-------- ------- -------
Total liabilities and
stockholders' equity (deficit) $111,207 $93,533 $98,168
======== ======= =======
</TABLE>
The accompanying notes are an integral part of the financial statements.
4
<PAGE> 5
Marks Bros. Jewelers, Inc.
Statements of Cash Flows
for the three months ended April 30, 1997 and 1996
(unaudited, in thousands)
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 540 $ (858)
Adjustments to reconcile net loss to
net cash provided by (used in) operating
activities:
Depreciation and amortization 874 750
Interest on zero coupon notes --- 115
Interest on senior accreting notes --- 1,243
Interest on subordinated debt --- 741
Loss on disposition of assets 24 8
Changes in assets and liabilities:
Decrease (Increase) in accounts
receivable, net 23 (438)
(Increase) Decrease in layaway
receivables, net (49) 76
(Increase) in merchandise inventories (15,067) (4,541)
Decrease in other current assets 65 258
(Increase) in deferred financing costs --- (4,357)
(Increase) in deferred taxes, net --- (548)
Increase in accounts payable 11,309 4,804
(Decrease) Increase in accrued
liabilities (381) 2,539
--------- --------
Net cash (used in) operating
activities (2,662) (208)
Cash flows from investing activities:
Capital expenditures (3,544) (1,973)
--------- --------
Net cash used in investing activities (3,544) (1,973)
Cash flows from financing activities:
Borrowing on revolver loan 126,327 35,458
Repayment of revolver loan (113,619) (30,096)
Proceeds from exercise of stock options 3 124
(Decrease) in outstanding checks, net (6,505) (3,305)
--------- --------
Net cash provided by financing activities 6,206 2,181
--------- --------
Net change in cash and cash equivalents --- ---
Cash and cash equivalents at beginning of period --- ---
--------- --------
Cash and cash equivalents at end of period $ --- $ ---
========= ========
</TABLE>
The accompanying notes are an integral part of the financial statements.
5
<PAGE> 6
Marks Bros. Jewelers, Inc..
Notes to Financial Statements
1. Description of Operations
The financial statements of Marks Bros. Jewelers, 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 177 stores as of
April 30, 1997, located in 24 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, 1997 was derived from the
audited financial statements for the year ended January 31, 1997. The
accompanying unaudited Balance Sheets as of April 30, 1997 and 1996 and the
Statements of Income and Cash Flows for the three months ended April 30, 1997
and 1996 have been prepared in accordance with generally accepted accounting
principles for interim financial information. The interim financial statements
reflect all adjustments (consisting only of normal recurring accruals) which
are, in the opinion of management, necessary for a fair statement of the
results for the interim periods presented. The interim financial statements
should be read in the context of the Financial Statements and footnotes thereto
included in the Marks Bros. Jewelers, Inc. Annual Report for the fiscal year
ended January 31, 1997. The Company operates on a fiscal year which ends on
January 31. References in the following notes to years and quarters are
references to fiscal years and fiscal quarters.
3. Accounts Receivables, Net
Accounts receivable is shown net of the allowance for doubtful accounts of
$656,000, $708,000 and $638,000 as of April 30, 1997, January 31, 1997 and
April 30, 1996, respectively.
4. Inventory
As of April 30, 1997, January 31, 1997 and April 30, 1996, merchandising
inventories consist of:
<TABLE>
<CAPTION>
April 30, 1997 January 31, 1997 April 30, 1996
(in thousands)
<S> <C> <C> <C>
Raw Materials $ 5,591 $ 5,908 $ 3,505
Finished Goods 73,958 58,574 56,437
-------------- ---------------- --------------
Inventory $79,549 $64,482 $59,942
============== ================ ==============
</TABLE>
6
<PAGE> 7
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 $1,708,000, $1,711,000 and
$1,214,000 as of April 30, 1997, January 31, 1997 and April 30, 1996,
respectively. As of April 30, 1997, January 31, 1997 and April 30, 1996,
consignment inventories held by the Company that are not included in the
balance sheets total $16,493,000, $17,395,000, and $15,298,000, respectively.
In addition, gold consignments of $15,295,000 are not included in the
Company's balance sheets as of April 30, 1997 and January 31, 1997.
5. Financing Arrangements
Effective March 17, 1997, the Company and its bank group amended the
Credit Agreement to provide for a total facility of $60.0 million through April
30, 2001. Interest rates and the commitment fee charged on the unused facility
float in a grid based upon the Company's quarterly financial performance.
Under this agreement, the banks have a security interest in substantially
all of the assets of the Company. The Credit Agreement contains certain
restrictions on capital expenditures, payment of dividends and assumption of
additional debt and requires the Company to maintain specified minimum levels
of certain financial measure, including fixed charge ratio and certain balance
sheet measures.
Revolver Loan
- -------------
The Revolving Credit Facility is available up to a maximum of $44,000,000
and is limited by a borrowing base computed based on the value of the Company's
inventory and accounts receivable. A commitment fee of 25 basis points per
annum on the unused portion of the commitment is payable monthly.
Interest rates for these borrowings under this agreement are, at the
Company's option, Eurodollar rates plus 125 basis points or the banks' prime
rate. Interest is payable monthly for prime borrowings and upon maturity for
Eurodollar borrowing. The interest expense for the quarter ended April 30,
1997 was $336,000, reflecting a weighted average interest rate of 8.2%.
Gold Consignment Facility
- -------------------------
During the second quarter of 1996, the Company sold and simultaneously
consigned a total of 39,000 troy ounces of gold for $15,295,000 under a gold
consignment facility, which provides for the sale of a maximum 39,000 troy
ounces or $16,000,000. Under the agreement, the Company pays consignment fees
of 125 basis points over the rate set by the bank based on the London Interbank
Bullion Rates payable monthly. A commitment fee of 25 basis points per annum
on the unused portion of the gold consignment facility is payable monthly. The
consignment fees totaled $119,000 for the three months ended April 30, 1997 at
a weighted average rate of 3.5%. On April 30, 2001, the Company is required to
repurchase 39,000 troy ounces of gold under this agreement at the prevailing
gold rate in effect on that date, or the facility will be renewed.
7
<PAGE> 8
Subordinated Notes
- ------------------
Series C Subordinated Notes due 2004 (the "Series C Notes") totaling
$10,520,000 bear interest at 12.15% per annum payable in cash, with interest
payments due quarterly. Interest expense was $320,000 for the quarter ended
April 30, 1997.
As of April 30, 1997, January 31, 1997, and April 30, 1996, respectively,
the current portion and noncurrent portion of long-term debt consisted of the
following:
<TABLE>
<CAPTION>
April 30, January 31, April 30,
1997 1997 1996
--------- -------------- ---------
(in thousands)
<S> <C> <C> <C>
Current portion of long-term debt
Term loan, old $ --- $ --- $ 7,938
Senior accreting notes --- --- 1,956
-------- -------- --------
Total $ --- $ --- $ 9,894
======== ======== ========
Long-term debt, net of current
portion
Term loan, old $ --- $ --- $ 18,662
Senior accreting notes --- --- 49,014
Zero coupon notes --- --- 5,962
Subordinated debt, old --- --- 24,339
Subordinated debt 10,520 10,520 ---
-------- -------- --------
Total $ 10,520 $ 10,520 $ 97,977
======== ======== ========
</TABLE>
6. Stock Incentive Plans
On February 24, 1997, the Company approved the 1997 Long-Term Incentive
Plan (the "1997 Plan"). Under the 1997 Plan, the Company may grant incentive
stock options ("ISOs") or nonqualified stock options. The 1997 Plan also
provides for the grant of stock appreciation rights ("SARs"), bonus stock
awards which are vested upon grant, stock awards which may be subject to a
restriction period and specified performance measures, and performance shares.
Performance shares are rights, contingent upon the attainment of performance
measure within a specified performance period, to receive one share of Common
Stock, which may be restricted, or the fair market value of such performance
share in cash. A total of 400,000 shares of Common Stock have been reserved
for issuance under the 1997 Plan. Grants may be made under the 1997 Plan
during the ten years after its effective date.
8
<PAGE> 9
As of April 30, 1997, the Company has made grants under the 1997 Plan
totaling 141,952 options. Stock options generally become exercisable in
cumulative annual installments of 25% of the shares subject to option beginning
on the first anniversary of the date of the option grant. The stock options
granted and exercise prices under all Plans are as follows:
<TABLE>
<CAPTION>
Options Exercise Price Range
------- --------------------
<S> <C>
126,567 $ 0.90 - $ 0.99
244,676 $ 9.38 - $11.75
684,539 $14.00
--------- ---------------
1,055,782 $ 0.90 - $14.00
========= ===============
</TABLE>
The weighted average exercise price of outstanding options under all plans is
$11.65.
9
<PAGE> 10
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations
- ---------------------
Net sales for the first quarter of fiscal 1997 increased $5.1 million, or
17.4%, to $34.7 million. Comparable store sales increased $0.6 million, or
2.2%, in the first quarter of fiscal 1997. Sales from new stores contributed
$4.7 million to the overall sales increase. These sales increases were
partially offset by a decrease in sales of $0.2 million due to the closing of
two stores in fiscal 1996. The average number of units sold on a comparable
store basis decreased by approximately 2.6% in the first quarter of fiscal
1997, while the average price per merchandise sale increased to $274 in fiscal
1997 from $257 in fiscal 1996. Comparable store sales increased 2.2% compared
to 13.8% in the prior year quarter in part due to increased inventory levels
and ongoing improvements in the quality of the Company's store based personnel
which were somewhat offset by the discontinuation of the first-time buyers
program during the fourth quarter of fiscal 1996 and a more competitive and
promotional environment. The Company opened 13 new stores in the first quarter
of fiscal 1997 increasing the number of stores opened to 177 as of April 30,
1997 compared to 151 as of April 30, 1996.
Gross profit increased $2.0 million to $13.7 million in first quarter of
fiscal 1997. Gross profit remained constant at 39.3% in the first quarter of
fiscal 1997 compared to the first quarter of fiscal 1996.
Selling, general and administrative expenses increased $1.8 million, or
18.2%, to $11.8 million in the first quarter of fiscal 1997 from $10.0 million.
New stores accounted for $0.4 million of this increase. As a percentage of net
sales, selling, general and administrative expenses increased to 34.1% in the
first quarter of fiscal 1997 from 33.9% in the first fiscal quarter of fiscal
1996. The dollar increase primarily relates to higher payroll expenses of $1.2
million and $0.3 million in other expense. Comparable store payroll costs
increased 3.2% in the first quarter of fiscal 1997 as compared to the first
quarter of fiscal 1996. Private label non-recourse credit sales, as a
percentage of net sales declined to 37.5% in the first quarter of fiscal 1997
from 43.3% in the first quarter of fiscal 1996 primarily as a result of the
discontinuation of the first-time buyers program during the fourth quarter of
fiscal 1996.
Interest expense decreased $2.1 million to $0.9 million in the first
quarter of fiscal 1997 from $3.0 million in the first quarter of fiscal 1996.
The impact of lower average interest rates on revolver and reduced borrowings,
due to the initial public offering, recapitalization and secondary offering
completed in fiscal 1996, contributed to the interest savings.
An income tax expense of $0.3 million was recorded in the first quarter of
fiscal 1997 and an income tax benefit of $0.5 million was recorded in the first
quarter of fiscal 1996, both reflecting an effective annual tax rate of 39%.
10
<PAGE> 11
Net income increased to $0.5 million in the first quarter of fiscal 1997
from a net loss of $0.9 million in the first quarter of fiscal 1996 as a result
of the factors discussed above.
Liquidity and Capital Resources
- -------------------------------
The Company's cash requirements consist principally of funding increases
in 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.
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.
The Company's cash flow used in operations increased from $0.2 million in
the first quarter of 1996 to $2.7 million in the first quarter of fiscal 1997.
Higher income from operations together with increases in accounts payable were
more than offset by increases in merchandise inventories. In the first quarter
of 1997, the primary sources of the Company's liquidity included a $12.7
million net increase in the amount outstanding under the Company's revolver
less a decrease of $6.5 million in outstanding checks. The Company utilized
cash in the first quarter of 1996 primarily to fund capital expenditures of
$3.5 million, primarily related to the opening of 13 new stores in the first
quarter of 1997.
Inflation
- ---------
Management believes that inflation generally has not had a material effect
on results of its operations.
11
<PAGE> 12
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security-Holders
Item 5 - Other Information
Forward-Looking Statements
- --------------------------
All statements, trend analysis and other information contained in this
report and elsewhere (such as in other filings by the Company with the
Securities and Exchange Commission, press releases, presentations by the
Company or its management or oral statements) relative to markets for the
Company's products and trends in the Company's operations or financial results,
as well as other statements including words such as "anticipate," "believe,"
"plan," "estimate," "expect," "intend," and other similar expressions,
constitute forward-looking statements under the Private Securities Litigation
Reforms Act of 1995. These forward-looking statements are subject to known and
unknown risks, uncertainties and other factors which may cause actual results
to be materially different from those contemplated by the forward-looking
statements. Such factors include, among other things: (1) the extent and
results of the Company's expansion strategy; (2) the seasonality of the
Company's business; (3) the Company's leverage; (4) economic conditions, the
retail sales environment and the Company's ability to execute its business
strategy and the related effects on comparable store sales and other results;
(5) the extent to which the Company is able to retain and attract key
personnel; (6) competition; (7) the availability and cost of consumer credit;
(8) relationships with suppliers; (9) fluctuations in gem and gold prices; (10)
regulation; and (11) the risk factors or uncertainties listed from time to time
in the Company's filings with the Securities and Exchange Commission.
Exhibit 11 Statement re Computation of Per Share Earnings (attached)
Exhibit 27 Financial Data Schedule (SEC/EDGAR only)
(b) Reports on Form 8-K
None
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MARKS BROS. JEWELERS, INC.
(Registrant)
Date: June 11, 1997 By: /s/ John R. Desjardins
-----------------------------
John R. Desjardins
Executive Vice President -
Finance and Administration
and Treasurer (principal
financial officer)
12
<PAGE> 1
Exhibit 11
Marks Bros. Jewelers, Inc.
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
April 30, 1997 April 30, 1996
---------------------- -------------------
(in thousands, except for per share amounts)
<S> <C> <C>
Primary and Fully diluted earnings per share:
Net income (loss) $ 540 $ (858)
Average shares outstanding 10,062 5,077
Common share equivalents under the 1995, 1996
and 1997 Option Plans assuming the treasury
stock method 126 ---
Additional shares assuming conversion of Class
B shares 4 4
------- -------
Average number of common shares and common
share equivalents outstanding 10,192 5,081
======= =======
Net income (loss) per share $ 0.05 $ (0.17)
======= =======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-01-1997
<PERIOD-END> APR-30-1997
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 3,421
<ALLOWANCES> 656
<INVENTORY> 79,549
<CURRENT-ASSETS> 85,161
<PP&E> 19,024
<DEPRECIATION> 801
<TOTAL-ASSETS> 111,207
<CURRENT-LIABILITIES> 61,417
<BONDS> 10,520
0
0
<COMMON> 10
<OTHER-SE> 38,040
<TOTAL-LIABILITY-AND-EQUITY> 38,050
<SALES> 34,714
<TOTAL-REVENUES> 34,714
<CGS> 21,063
<TOTAL-COSTS> 21,063
<OTHER-EXPENSES> 11,842
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 923
<INCOME-PRETAX> 886
<INCOME-TAX> 346
<INCOME-CONTINUING> 540
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 540
<EPS-PRIMARY> $0.05
<EPS-DILUTED> $0.05
</TABLE>
