<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: October 31, 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 X No
--- ---
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
The number of the Registrant's common stock $.001 par value per share,
outstanding as of December 1, 1997 was 10,149,019 and the number of the
Registrant's Class B common stock $1.00 par value as of such date was 101.298.
<PAGE> 2
MARKS BROS. JEWELERS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1997
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months and nine months ended
October 31, 1997 and 1996 (unaudited)
Balance Sheets - October 31, 1997, January 31, 1997 and October 31,
1996 (unaudited)
Statements of Cash Flows for the nine months ended October 31, 1997
and 1996 (unaudited)
Notes to Financial Statements
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
PART II - OTHER INFORMATION
Item 5. Other Information
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(b) Reports on Form 8-K
2
<PAGE> 3
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Marks Bros. Jewelers, Inc.
Statements of Operations
for the three months and nine months ended October 31, 1997 and 1996
(unaudited)(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended Nine months ended
October 31, 1997 October 31, 1996 October 31, 1997 October 31, 1996
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Net sales $39,477 $32,573 $114,706 $97,039
Cost of sales (including buying and occupancy
expenses) 23,963 19,509 69,244 58,135
------- ------- -------- -------
Gross profit 15,514 13,064 45,462 38,904
Selling, general and administrative expenses 13,010 10,754 37,281 31,139
------- ------- -------- -------
Income from operations 2,504 2,310 8,181 7,765
Interest expense 1,014 1,561 2,920 6,118
------- ------- -------- -------
Income before income taxes 1,490 749 5,261 1,647
Income tax expense 581 292 2,052 642
------- ------- -------- -------
Income before extraordinary gain 909 457 3,209 1,005
Extraordinary gain on extinguishment of debt, net
of taxes --- --- --- 11,164
------- ------- -------- -------
Net income $ 909 $ 457 $ 3,209 $12,169
======= ======= ======== =======
Primary earnings per share:
Income before extraordinary gain $0.09 $0.05 $0.31 $0.13
Extraordinary gain on
extinguishment of debt, net of
taxes --- --- --- 1.41
------- ------- -------- -------
Net income $ 0.09 $ 0.05 $ 0.31 $ 1.54
======= ======= ======== =======
Weighted average common share
and common share equivalents 10,229 9,208 10,207 7,922
Fully diluted earnings per share:
Income before extraordinary gain $0.09 $0.05 $0.31 $ 0.13
Extraordinary gain on
extinguishment of debt, net of
taxes --- --- --- 1.40
------- ------- -------- -------
Net income $ 0.09 $ 0.05 $ 0.31 $ 1.53
======= ======= ======== =======
Weighted average common share
and common share equivalents 10,359 9,208 10,350 7,968
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
Marks Bros. Jewelers, Inc.
Balance Sheets
as of October 31, 1997, January 31, 1997 and October 31, 1996
(unaudited, in thousands)
<TABLE>
<CAPTION>
October 31, January 31, October 31,
1997 1997 1996
---------- ---------- ----------
ASSETS
<S> <C> <C> <C>
Current Assets:
Accounts receivable, net $ 1,276 $ 1,354 $ 1,071
Layaway receivables, net 2,607 2,041 1,890
Merchandise inventories 99,954 64,482 68,920
Other current assets 482 638 296
Deferred income taxes, net 1,326 1,326 817
Deferred financing costs 292 292 427
-------- -------- -------
Total current assets 105,937 70,133 73,421
Property and equipment, net 22,304 16,305 15,843
Deferred income tax, net 5,947 5,947 7,141
Deferred financing costs 929 1,148 1,871
-------- -------- -------
Total assets $135,117 $93,533 $98,276
======== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Outstanding checks, net $ 2,508 $ 7,242 $ 1,247
Revolver loans 29,339 10,747 15,908
Current portion of long-term debt --- --- 1,500
Accounts payable 37,837 14,706 28,567
Accrued payroll 2,113 2,607 2,370
Other accrued expenses 10,794 9,007 9,696
-------- -------- -------
Total current liabilities 82,591 44,309 59,288
Total long-term debt, net of current
portion 10,520 10,520 33,000
Other long-term liabilities 1,220 1,197 1,136
-------- -------- -------
Total liabilities 94,331 56,026 93,424
Commitments and contingencies
Stockholders' equity:
Common stock 10 10 8
Class B common stock --- --- ---
Class C common stock --- --- ---
Class D common stock --- --- ---
Additional paid-in capital 59,874 59,804 33,708
Accumulated deficit (19,098) (22,307) (28,864)
-------- -------- -------
Total stockholders' equity 40,786 37,507 4,852
-------- -------- -------
Total liabilities and
stockholders' equity $135,117 $ 93,533 $98,276
======== ======== =======
</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 nine months ended October 31, 1997 and 1996
(unaudited, in thousands)
<TABLE>
<CAPTION> Nine months ended
----------------------------------
October October
31, 1997 31, 1996
------------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 3,209 $ 12,169
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Gain on extinguishment of debt, net of taxes --- (11,164)
Depreciation and amortization 2,870 2,361
Interest on zero coupon notes --- 121
Interest on senior accreting notes --- 1,339
Interest on subordinated debt --- 790
Loss on disposition of assets 276 2
Changes in assets and liabilities:
Decrease in accounts receivable, net 78 98
Increase in layaway receivables, net (566) (314)
Increase in merchandise inventories, net of gold consignment (35,472) (28,814)
Decrease in other current assets 156 418
Increase in deferred financing costs --- (2,298)
Decrease in deferred taxes, net --- 595
Increase in accounts payable 23,131 19,530
Increase in accrued liabilities 1,316 2,860
----------- ----------
Net cash used in operating activities (5,002) (2,307)
Cash flows from investing activities:
Capital expenditures (8,926) (5,354)
----------- ----------
Net cash used in investing activities (8,926) (5,354)
Cash flows from financing activities:
Borrowing on old revolver loan --- 38,078
Repayment of old revolver loan --- (40,197)
Borrowing on new revolver loan 336,477 85,346
Repayment of new revolver loan (317,885) (69,438)
Repayment of term loan --- (500)
Repayment of old term loan --- (26,600)
Repayment of senior accreting notes --- (50,502)
Repayment of zero coupon note --- (2,000)
Repayment of subordinated debt --- (10,618)
Proceeds from term loan --- 15,000
Proceeds from subordinated debt --- 20,000
Proceeds from gold consignment --- 15,295
Proceeds from stock issuance, net --- 40,416
Proceeds from exercise of stock options 70 123
Proceeds from exercise of warrants --- 2
Decrease in outstanding checks, net (4,734) (6,744)
----------- ----------
Net cash provided by financing activities 13,928 7,661
----------- ----------
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 191 stores as of
October 31, 1997, located in 24 states, operating in regional or super-regional
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 October 31, 1997 and 1996 and the
Statements of Operations for the three months and nine months ended October 31,
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. References in the following notes
to years and quarters are references to fiscal years and fiscal quarters.
Impact of New Accounting Standard
During 1996, the Financial Accounting Standards Board ("FASB") issued a
new pronouncement, SFAS No. 128 "Earnings per Share" which is relevant to the
Company's operations. The statement is effective for financial statement
periods ending after December 15, 1997. Earlier application is not permitted.
The Company intends to adopt SFAS No. 128 for the year ended January 31, 1998,
and expects that the effect will not be material to earnings per share.
3. Accounts Receivables, Net
Accounts receivable are shown net of the allowance for doubtful accounts
of $783,000, $708,000 and $623,000 as of October 31, 1997, January 31, 1997 and
October 31, 1996, respectively.
6
<PAGE> 7
4. Inventory
As of October 31, 1997, January 31, 1997 and October 31, 1996,
merchandising inventories consist of:
<TABLE>
<CAPTION>
October 31, 1997 January 31, 1997 October 31, 1996
(in thousands)
<S> <C> <C> <C>
Raw Materials $ 6,476 $ 5,908 $ 6,753
Finished Goods 93,478 58,574 62,167
---------------- ---------------- ----------------
Inventory $ 99,954 $ 64,482 $ 68,920
================ ================ ================
</TABLE>
Raw materials primarily consist of diamonds, precious gems, semi-precious
gems and gold. There was no work-in-progress as of October 31, 1997, January
31, 1997, or October 31, 1996. Included within finished goods inventory are
allowances for inventory shrink, scrap, and miscellaneous costs of $1,199,000,
$1,711,000 and $890,000 as of October 31, 1997, January 31, 1997 and October
31, 1996, respectively. As of October 31, 1997, January 31, 1997 and October
31, 1996, consignment inventories held by the Company that are not included in
the balance sheets total $23,503,000, $17,395,000, and $15,098,000,
respectively.
In addition, gold consignments of $15,295,000 are not included in the
Company's balance sheets as of October 31, 1997, January 31, 1997 and October
31, 1996.
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 measures, including fixed charge ratio and certain balance
sheet measures.
Revolver Loan
The current Dollar Facility Revolving Credit agreement is available up to
a maximum of $40,000,000 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 borrowings under this agreement are, at the Company's
option, Eurodollar rates plus 137.5 basis points or the banks' prime rate.
Interest is payable monthly for prime borrowings and upon maturity for
Eurodollar borrowings. The interest expense under the current and former
revolver facilities for the nine months ended October 31, 1997 and 1996 was
$1,275,000 and $574,000, reflecting a weighted average interest rate of 7.4%
and 9.9%, respectively.
7
<PAGE> 8
Gold Consignment
During the third quarter of 1996, the Company sold and simultaneously
consigned a total of 39,000 ounces of gold for approximately $15,295,000 under
the Gold Facility. The Gold Facility currently provides for the sale of a
maximum of 50,000 troy ounces or $20,000,000. 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 Facility is payable
monthly. The consignment fees totaled $325,000 and $278,000 for the nine
months ended October 31, 1997 and 1996 at a weighted average rate of 3.2% and
3.8%, respectively.
Subordinated Notes
Subordinated debt totaling $10,520,000 and $20,000,000 as of October 31,
1997 and October 31, 1996, respectively, bear interest at 12.15% per annum
payable in cash, with interest payments due quarterly. Interest expense was
$959,000 and $1,277,000 for the nine months ended October 31, 1997 and 1996,
respectively.
As of October 31, 1997, January 31, 1997, and October 31, 1996,
respectively, the current portion and noncurrent portion of long-term debt
consisted of the following:
<TABLE>
<Capton>
October 31, January 31, October 31,
1997 1997 1996
--------------- ------------- -------------
(in thousands)
<S> <C> <C> <C>
Current portion of long-term
debt
Term loan $ --- $ --- $ 1,500
-------------- ------------ ------------
Total $ --- $ --- $ 1,500
============== ============ ============
Long-term debt, net of
current portion
Term loan $ --- $ --- $ 13,000
Subordinated debt 10,520 10,520 20,000
-------------- ------------ ------------
Total $ 10,520 $ 10,520 $ 33,000
============== ============ ============
</TABLE>
8
<PAGE> 9
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
measures 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.
For the nine months ended October 31, 1997 and 1996, the Company has
granted, net of forfeitures, 172,750 options and 741,716 options, respectively,
under its stock incentive plans. 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. As of October 31,
1997, the outstanding stock options and exercise prices under all plans are as
follows:
Options Exercise Price Range
------- --------------------
55,771 $0.90 - $0.99
239,926 9.38 - 13.13
684,540 14.00 - 14.00
------- --------------------
980,237 $0.90 - $14.00
======= ====================
The weighted average exercise price of outstanding options under all plans is
$12.54.
7. Employee Benefit Plan
Effective October 1, 1997, the Company established a 401(k) Plan (the
"Plan") for the benefit of substantially all employees. Employees become
eligible to participate in the Plan after one year of service. The Company may
make discretionary contributions to the Plan. No such contributions have been
made.
9
<PAGE> 10
8. Subsequent Events
In November 1997, the Company and its bank group amended the Revolving
Credit, Term Loan and Gold Consignment Agreement to provide for a total
facility of up to $72.0 million through April 30, 2001. The amendment provides
for a term loan facility up to $12,000,000. The term loan facility may be used
to purchase the 12.15% Series C Senior Subordinated Notes due 2004, ("Notes")
and to pay premiums, accrued interest and fees in connection with the purchase
of such notes.
On November 14, 1997, the Company commenced a tender offer to purchase
for cash any or all of its outstanding Notes of which $10,520,000 in principal
is outstanding. Under the terms of the offer as amended, the Company
will purchase all outstanding Notes that are tendered at a price equal to
$1,110 per $1,000 principal amount (111.00% of the principal amount), plus
accrued and unpaid interest to, but not including, the date of payment of such
purchase price. An extraordinary charge will be recorded in the fourth quarter
of fiscal 1997 for the premium paid for any notes tendered together with the
write-down of any associated deferred financing costs and certain costs
associated with the closing of the tender offer subject to the closing of the
tender offer.
In connection with the tender offer, the Company is also seeking
consents to certain proposed amendments to the Indenture under which the Notes
were issued. The purpose of the proposed amendments is to eliminate certain
restrictive covenants contained in the Indenture, thereby affording the Company
additional financial and operating flexibility. The tender offer and payment
for the Notes are conditioned upon, among other things, receipt by the Company
of a sufficient amount of consents to effect the proposed amendments with
respect to the Notes. The termination date of the tender offer is December 19,
1997.
10
<PAGE> 11
PART I - FINANCIAL INFORMATION
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations for the Three Months Ended October 31, 1997
- -----------------------------------------------------------------
Net sales for the third quarter of fiscal 1997 increased $6.9 million, or
21.2%, to $39.5 million. Comparable store sales contributed $0.6 million and
new store sales contributed $6.4 million to the overall sales increase. These
sales increases were partially offset by lost sales of $0.2 million related to
store closings, together with stores closed for remodeling for limited periods.
The average number of units sold on a comparable store basis decreased by
approximately 4.8% in the third quarter of fiscal 1997, while the average price
per merchandise sale increased to $309 in fiscal 1997 from $281 in fiscal 1996.
Comparable store sales increased 2.1% compared to an increase of 8.5% in the
third quarter of fiscal 1996. Certain factors which have had a negative impact
on sales in fiscal 1997 include increased customer returns resulting from the
adoption of a more flexible refund policy during the second quarter of fiscal
1997, the discontinuation of the First-Time Buyers Program during the fourth
quarter of fiscal 1996, lower sales of gold jewelry as a percentage of total
sales, and a more competitive and promotional environment. Certain factors that
had a positive impact on comparable store sales in fiscal 1997 include
increased inventory levels, new marketing initiatives, the introduction of a
one-year interest-free promotion, and on-going improvements in the Company's
store-based personnel. The Company opened 7 new stores in the third quarter of
fiscal 1997 increasing the number of stores opened to 191 as of October 31,
1997 compared to 164 as of October 31, 1996.
Gross profit increased $2.5 million to $15.5 million in the third quarter
of fiscal 1997 compared to the third quarter of fiscal 1996. Gross profit as a
percentage of sales declined to 39.3% in the period from 40.1% in the prior
period. This decline resulted from a number of factors including shifts in
sales mix away from higher margin categories, and higher inventory shrinkage.
This decline was partially offset by improved margin on gold sales due to a
decline in gold prices.
Selling, general and administrative expenses increased $2.3 million, or
21.0%, to $13.0 million in the period from $10.8 million in the prior period.
As a percentage of net sales, selling, general and administrative expenses
remained flat at 33.0% in both the current and prior year quarters. The dollar
increase primarily relates to higher payroll expenses ($1.7 million), and
higher other expenses ($0.6 million); of these expenses, $1.7 million relates
to new store openings.
Interest expense decreased $0.6 million to $1.0 million in the third
quarter of fiscal 1997 from $1.6 million in the third quarter of fiscal 1996.
The impact of lower average interest rates on revolver borrowings and reduced
borrowings, due to the follow-on offering completed in fiscal 1996, contributed
to this decrease.
Income tax expense of $0.6 million and $0.3 million in the third quarters
of fiscal 1997 and 1996, respectively, reflected an effective annual tax rate
of 39% in both periods.
Net income increased to $0.9 million in the third quarter of fiscal 1997
from $0.5 million in the third quarter of fiscal 1996 as a result of the
factors discussed above.
11
<PAGE> 12
Results of Operations for the Nine months Ended October 31, 1997
- ----------------------------------------------------------------
Net sales for the nine months ended October 31, 1997 increased $17.7
million, or 18.2%, to $114.7 million. Comparable store sales increased $1.3
million and new store sales contributed $17.2 million to the overall sales
increase. These sales increases were partially offset by lost sales of $0.8
million related to store closings, together with stores closed for remodeling
for limited periods. The average number of units sold on a comparable store
basis decreased by approximately 2.7% for the nine months ended October 31,
1997, while the average price per merchandise sale increased to $283 in fiscal
1997 from $268 in fiscal 1996. Comparable store sales increased 1.4% compared
to an increase of 11.7% in the nine months ended October 31, 1996. Certain
factors which had a negative impact on sales in fiscal 1997 include increased
customer returns resulting from the adoption of a more flexible refund policy
during the second quarter of fiscal 1997, the discontinuation of the First-Time
Buyers Program during the fourth quarter of fiscal 1996, lower sales of gold
jewelry as a percentage of total sales, and a more competitive and promotional
environment. Certain factors that had a positive impact on comparable store
sales in fiscal 1997 include increased inventory levels, new marketing
initiatives, the introduction of a one-year interest-free promotion, and
on-going improvements in the Company's store-based personnel. The Company
opened 28 new stores and closed one store during the nine months ended October
31, 1997 increasing the number of stores opened to 191 as of October 31, 1997
compared to 164 as of October 31, 1996.
Gross profit increased $6.6 million to $45.5 million for the nine months
ended October 31, 1997. Gross profit as a percentage of sales declined to
39.6% for the nine months ended October 31, 1997 from 40.1% for the nine months
ended October 31, 1996. This decline resulted from a number of factors
including shifts in sales mix away from higher margin categories, and higher
inventory shrinkage. This decline was partially offset by improved margin on
gold sales due to a decline in gold prices.
Selling, general and administrative expenses increased $6.1 million, or
19.7%, to $37.3 million in the period from $31.1 million in the prior period.
As a percentage of net sales, selling, general and administrative expenses
increased to 32.5% for the nine months ended October 31, 1997 from 32.1% in the
nine months ended October 31, 1996. The dollar increase primarily relates to
higher payroll expenses ($4.4 million) and higher other expenses ($1.8
million); of these expenses, $4.8 million relates to new store openings.
Interest expense decreased $3.2 million to $2.9 million for the nine
months ended October 31, 1997 from $6.1 million in the nine months ended
October 31, 1996. The impact of lower average interest rates on revolver
borrowings and reduced borrowings, due to the initial public offering,
recapitalization and follow-on offering completed in fiscal 1996, contributed
to this decrease.
Income tax expense of $2.1 million and $0.6 million for the nine months
ended October 31, 1997 and 1996, respectively, reflected an effective annual
tax rate of 39% in both periods.
Net income before extraordinary gain increased to $3.2 million for the
nine months ended October 31, 1997 from $1.0 million for the nine months ended
October 31, 1996 as a result of the factors discussed above.
A gain on the extinguishment of debt was recorded as of October 31, 1996,
for $11.2 million, net of taxes, as an extraordinary item. This reflects debt
discounts on senior accreting loans of $0.6 million, zero coupon notes of $4.0
million, and subordinated debt of $13.7 million.
12
<PAGE> 13
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 $2.3 million in
the nine months ended October 31, 1996 to $5.0 million in the nine months ended
October 31, 1997. Higher income from operations together with increases in
accounts payable ($23.1 million) were more than offset by increases in
merchandise inventories ($35.5 million). The increase in merchandise
inventories primarily resulted from merchandising 28 new stores and increased
inventory levels, in particular, solitaire diamonds and diamond engagement
sets. In the nine months ended October 31, 1997, the primary sources of the
Company's liquidity included an $18.6 million net increase in the amount
outstanding under the Company's revolver less a decrease of $4.7 million in
outstanding checks. The Company utilized cash in the nine months ended October
31, 1996 primarily to fund capital expenditures of $8.9 million, primarily
related to the opening of 28 new stores during this period.
In November 1997, the Company and its Bank group amended the Revolving
Credit, Term Loan and Gold Consignment Agreement to provide a total facility
of up to $72.0 million through April 30, 2001. The amendment provides for a
term loan facility up to $12,000,000.
The term loan facility may be used to purchase the 12.15% Series C
Senior Subordinated Notes due 2004 ("Notes"), and to pay premiums, accrued
interest and fees in connection with such Notes. On November 14, 1997, the
Company commenced (i) a tender offer to purchase for cash its outstanding Notes
at a price equal to $1,110 per $1,000 principal amount (111.00% of the principal
amount) and (ii) a consent solicitation to eliminate certain restrictive
covenants in the Indenture thereby affording the Company additional financial
and operating flexibility. The tender offer and payment for the Notes are
conditioned upon, among other things, receipt by the Company of a sufficient
amount of consents to effect the proposed amendments with respect to the Notes.
The termination date of the tender offer is December 19, 1997.
Inflation
- ---------
Management believes that inflation generally has not had a material effect
on results of its operations.
13
<PAGE> 14
PART II - OTHER INFORMATION
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) 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; (4) the success of the Company's
marketing and promotional programs; (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) the
Company's leverage; (10) fluctuations in gem and gold prices; (11) regulation;
and (12) the risk factors or uncertainties listed from time to time in the
Company's filings with the Securities and Exchange Commission including the
Company's Annual Report on Form 10K for the year ended January 31, 1997.
Item 6 - Exhibits and Reports on Form 8-K
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: December 12, 1997 By: /s/ John R. Desjardins
--------------------------------
John R. Desjardins
Executive Vice President -
Finance and Administration
and Treasurer (principal
financial officer)
14
<PAGE> 15
Exhibit 11
Marks Bros. Jewelers, Inc.
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
------------------------ -------------------------
October October October October
31, 1997 31, 1996 31, 1997 31, 1996
---------- ---------- ---------- ----------
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Primary earnings per share:
Income before extraordinary gain $ 909 $ 457 $ 3,209 $ 1,005
Extraordinary gain on extinguishment
of debt, net of taxes --- --- --- 11,164
-------- -------- ------- --------
Net Income $ 909 $ 457 $ 3,209 $ 12,169
======== ======== ======= ========
Average shares outstanding 10,080 8,372 10,070 7,220
Common share equivalents under the
1995, 1996 and 1997 Option Plans
assuming the treasury stock method 145 832 133 698
Additional shares assuming
conversion of Class B shares 4 4 4 4
-------- -------- ------- --------
Average number of common shares and
common share equivalents outstanding 10,229 9,208 10,207 7,922
======== ======== ======= ========
Income before extraordinary gain per
share $ 0.09 $ 0.05 $ 0.31 $ 0.13
Extraordinary gain on extinguishment
of debt, net of taxes, per share --- --- --- 1.41
-------- -------- ------- --------
Net Income $ 0.09 $ 0.05 $ 0.31 $ 1.54
======== ======== ======= ========
</TABLE>
15
<PAGE> 16
Exhibit 11
Marks Bros. Jewelers, Inc.
Computation of Per Share Earnings
<TABLE>
<CAPTION>
Three Months Ended Nine months Ended
------------------------ -------------------------
October October October October
31, 1997 31, 1996 31, 1997 31, 1996
---------- ---------- ---------- ----------
(in thousands, except for per share amounts)
<S> <C> <C> <C> <C>
Fully diluted earnings per share:
Income before extraordinary gain $ 909 $ 457 $ 3,209 $ 1,005
Extraordinary gain on extinguishment
of debt, net of taxes --- --- --- 11,164
-------- -------- ------- --------
Net Income $ 909 $ 12,570 $ 3,209 $ 12,169
======== ======== ======= ========
Average shares outstanding 10,080 8,372 10,070 7,220
Common share equivalents under the
1995, 1996 and 1997 Option Plans
assuming the treasury stock method 275 832 276 744
Additional shares assuming
conversion of Class B shares 4 4 4 4
-------- -------- ------- --------
Average number of common shares and
common share equivalents outstanding 10,359 9,208 10,350 7,968
======== ======== ======= ========
Income before extraordinary gain per
share $ 0.09 $ 0.05 $ 0.31 $ 0.13
Extraordinary gain on extinguishment
of debt, net of taxes, per share --- --- --- 1.40
-------- -------- ------- --------
Net Income $ 0.09 $ 0.05 $ 0.31 $ 1.53
======== ======== ======= ========
</TABLE>
16
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> OCT-31-1997
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 4,666
<ALLOWANCES> (783)
<INVENTORY> 99,954
<CURRENT-ASSETS> 105,937
<PP&E> 44,832
<DEPRECIATION> (22,528)
<TOTAL-ASSETS> 135,117
<CURRENT-LIABILITIES> 82,591
<BONDS> 10,520
0
0
<COMMON> 10
<OTHER-SE> 40,776
<TOTAL-LIABILITY-AND-EQUITY> 135,117
<SALES> 114,706
<TOTAL-REVENUES> 114,706
<CGS> 69,244
<TOTAL-COSTS> 69,244
<OTHER-EXPENSES> 37,281
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,920
<INCOME-PRETAX> 5,261
<INCOME-TAX> 2,052
<INCOME-CONTINUING> 3,209
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,209
<EPS-PRIMARY> $0.31
<EPS-DILUTED> $0.31
</TABLE>
