<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: July 31, 1998
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 September 11, 1998 was 10,185,842 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 JULY 31, 1998
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months and six months ended
July 31, 1998 and 1997 (unaudited)
Balance Sheets - July 31, 1998, January 31, 1998 and July 31, 1997
(unaudited)
Statements of Cash Flows for the six months ended July 31, 1998 and
1997 (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
(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 six months ended July 31, 1998 and 1997
(unaudited)(in thousands, except for per share data)
<TABLE>
<CAPTION>
Three months ended Six months ended
July 31, 1998 July 31, 1997 July 31, 1998 July 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 46,849 $ 40,515 $ 88,433 $ 75,229
Cost of sales (including buying and
occupancy expenses) 28,087 24,218 53,532 45,281
------------- ------------- ------------- -------------
Gross profit 18,762 16,297 34,901 29,948
Selling, general and administrative
expenses 15,188 12,429 29,381 24,271
------------- ------------- ------------- -------------
Income from operations 3,574 3,868 5,520 5,677
Interest expense 840 983 1,654 1,906
------------- -------------- ------------- -------------
Income before income taxes 2,734 2,885 3,866 3,771
Income tax expense 1,053 1,125 1,483 1,471
------------- -------------- ------------- --------------
Net income $ 1,681 $ 1,760 $ 2,383 $ 2,300
============= ============== ============= ==============
Basic earnings per share:
Net income $ 0.17 $ 0.17 $ 0.23 $ 0.23
Weighted average common ============= ============== ============= ==============
share and common share
equivalents 10,181 10,072 10,176 10,196
============= ============== ============= ==============
Diluted earnings per share:
Net income $ 0.16 $ 0.17 $ 0.23 $ 0.23
Weighted average common ============= ============== ============= ==============
share and common share
equivalents 10,385 10,203 10,395 10,196
============= ============== ============= ==============
</TABLE>
The accompanying notes are an integral part of the financial statements.
3
<PAGE> 4
<TABLE>
<CAPTION>
Marks Bros. Jewelers, Inc.
Balance Sheets
(unaudited, in thousands)
July 31, 1998 January 31, 1998 July 31, 1997
--------------- ------------------ ---------------
<S> <C> <C> <C>
ASSETS
Current Assets:
Accounts receivable, net $ 1,604 $ 2,532 $ 1,677
Layaway receivables, net 3,088 2,636 2,314
Merchandise inventories 97,773 85,053 82,164
Other current assets 911 996 499
Deferred financing costs 252 240 292
Deferred income taxes, net 1,257 1,257 1,326
--------------- ----------------- ----------------
Total current assets 104,885 92,714 88,272
Property and equipment, net 27,148 22,701 21,181
Deferred financing costs 491 635 1,002
Deferred income tax, net 1,953 1,953 5,947
--------------- ----------------- ----------------
Total assets $ 134,477 $ 118,003 $ 116,402
=============== ================= ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Outstanding checks, net $ 1,878 $ 9,608 $ 1,646
Revolver loan 25,820 16,841 24,607
Term loan, current 1,500 1,000 ---
Accounts payable 29,137 16,525 26,521
Accrued payroll 2,255 2,906 2,151
Income taxes 639 1,419 1,220
Other accrued expenses 11,388 9,448 8,650
--------------- ----------------- -----------------
Total current liabilities 72,617 57,747 64,795
Term loan 9,426 10,426 ---
Subordinated debt 640 640 10,520
Other long-term liabilities 1,507 1,387 1,269
--------------- ----------------- -----------------
Total liabilities 84,190 70,200 76,584
Commitments and contingencies
Stockholders' equity:
Common stock 10 10 10
Class B common stock --- --- ---
Class C common stock --- --- ---
Class D common stock --- --- ---
Additional paid-in capital 60,006 59,905 59,815
Accumulated deficit (9,729) (12,112) (20,007)
---------------- ----------------- -----------------
Total stockholders' equity 50,287 47,803 39,818
---------------- ----------------- -----------------
Total liabilities and stockholders' equity $134,477 $118,003 $116,402
================ ================= =================
</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 six months ended July 31, 1998 and 1997
(unaudited, in thousands)
<TABLE>
<CAPTION>
Six months ended
----------------------------
July 31, 1998 July 31, 1997
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 2,383 $ 2,300
Adjustments to reconcile net income to net cash used
in operating activities:
Depreciation and amortization 2,214 1,833
Loss on disposition of assets 159 238
Changes in assets and liabilities:
Decrease(increase) in accounts receivable, net 928 (323)
Increase in layaway receivables, net (452) (273)
Increase in merchandise inventories, net of gold consignment (18,704) (17,682)
Decrease in other current assets 85 139
Increase in accounts payable 12,612 11,815
Increase in accrued liabilities 499 277
------------- -------------
Net cash used in operating activities (276) (1,676)
Cash flows from investing activities:
Capital expenditures (6,558) (6,599)
------------- -------------
Net cash used in investing activities (6,558) (6,599)
Cash flows from financing activities:
Borrowing on revolver loan 269,516 246,543
Repayment of revolver loan (260,537) (232,683)
Repayment of term loan (500) ---
Proceeds from gold consignment 5,984 ---
Proceeds from exercise of stock options 101 11
Decrease in outstanding checks, net (7,730) (5,596)
------------- ------------
Net cash provided by financing activities 6,834 8,275
------------- ------------
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 207 stores as of July
31, 1998, 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, 1998 was derived from the
audited financial statements for the year ended January 31, 1998. The
accompanying unaudited Balance Sheets as of July 31, 1998 and 1997 and the
Statements of Operations for the three months and six months ended July 31, 1998
and 1997 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. 1997 Annual Report. 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 are shown net of the allowance for doubtful accounts of
$844,000, $693,000 and $669,000 as of July 31, 1998, January 31, 1998 and July
31, 1997, respectively.
6
<PAGE> 7
4. Inventory
As of July 31, 1998, January 31, 1998 and July 31, 1997, merchandising
inventories consist of:
July 31, 1998 January 31, 1998 July 31, 1997
(in thousands)
------------- ---------------- -------------
Raw Materials $ 5,638 $ 3,504 $ 5,427
Finished Goods 92,135 81,549 76,737
------------ ----------- -----------
Inventory $ 97,773 $ 85,053 $ 82,164
============ =========== ===========
Raw materials primarily consist of diamonds, precious gems, semi-precious
gems and gold. There was no work-in-progress at July 31, 1998, January 31, 1998,
or July 31, 1997. Included within finished goods inventory are allowances for
inventory shrink, scrap, and miscellaneous costs of $1,449,000, $1,700,000 and
$1,414,000 as of July 31, 1998, January 31, 1998 and July 31, 1997,
respectively. As of July 31, 1998, January 31, 1998 and July 31, 1997,
consignment inventories held by the Company that are not included in the balance
sheets total $28,713,000, $32,530,000, and $20,074,000, respectively.
In addition, gold consignments of $21,279,000, $15,295,000 and $15,295,000
are not included in the Company's balance sheets as of July 31, 1998, January
31, 1998 and July 31, 1997, respectively.
5. Financing Arrangements
Effective November 7, 1997, the Company and its bank group amended the
Credit Agreement to provide for a total facility of $72.0 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 Dollar Facility Revolving Credit is available up to a maximum of $40.0
million 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 were, 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 borrowings. The interest expense for the six months ended July 31,
1998 and 1997 was $834,000 and $786,000, respectively, reflecting a weighted
average interest rate of 7.2% and 7.6%, respectively.
7
<PAGE> 8
Term Loans
The term loan facility is available up to a maximum of $11,426,000.
Interest rates for these borrowings were, at the Company's option, Eurodollar
rates plus 200.0 basis points or the banks' prime rate plus 75 basis points.
Interest was payable monthly for prime borrowings and upon maturity for
Eurodollar borrowings. Interest rates and the commitment fee charged on the
unused facility float in a grid based on the Company's quarterly financial
performance. The interest expense for the six months ended July 31, 1998 for
these borrowings was $426,000 reflecting a weighted average interest rate of
7.7%.
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. During the second quarter of 1998, the Company sold and
simultaneously consigned an additional 20,000 troy ounces of gold for $6.0
million. The facility provides for the sale of a maximum 60,000 troy ounces or
$20.0 million. 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 $234,000 at a weighted average rate of 3.2% and
$208,000 at a weighted average rate of 3.1% for the six months ended July 31,
1998 and 1997, respectively. On April 30, 2001, the Company is required to
repurchase 59,000 troy ounces of gold under this agreement at the prevailing
gold rate in effect on that date, or the facility will be renewed.
Subordinated Notes
Series C Senior Subordinated Notes due 2004 (the "Series C Notes") totaling
$640,000 aggregate principal amount outstanding as of July 31, 1998, bear
interest at 12.15% per annum payable in cash, with interest payments due
quarterly. In January 1998, $9,880,000 of the Series C Notes were redeemed at a
premium of $1,087,000. Interest expense was $39,000 and $639,000 for the six
months ended July 31, 1998 and 1997, respectively.
8
<PAGE> 9
6. Dilutive Shares That Were Outstanding During the Period
The following table summarizes the reconciliation of the numerators and
denominators, as required by SFAS No. 128, for the basic and diluted EPS
computations at July 31, 1998 and 1997.
<TABLE>
<CAPTION>
Three months ended Six months ended
(in thousands, except per share amounts)
July 31, 1998 July 31, 1997 July 31, 1998 July 31, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings for
basic and diluted
EPS $1,681 $1,760 $2,383 $2,300
============= ============= ============= =============
Weighted average
shares for basic
EPS 10,181 10,072 10,176 10,196
Incremental shares
upon conversions:
Stock options 204 131 219 ---
------------- ------------- ------------- -------------
Weighted average
shares for diluted
EPS 10,385 10,203 10,395 10,196
============= ============= ============= =============
</TABLE>
7. Subsequent Event
On September 10, 1998, the Company completed the acquisition of
substantially all the assets of 36 jewelry stores from Carlyle & Co. Jewelers
and its affiliates for a purchase price of approximately $21 million in cash
(the "Acquisition"). Effective September 10, 1998, the Company entered into an
Amended and Restated Revolving Credit Term Loan and Gold Consignment Agreement
(the "Credit Agreement") with its bank group to provide for a total facility of
$110.0 million through September 10, 2003. The total facility provides for a
$20.0 million term loan and $90.0 million revolver facility. Part of the
proceeds from the term loan under the "Credit Agreement" were used to refinance
the Company's outstanding term loan. The remainder of the term loan, along with
funds drawn down under the Company's revolver facility, were used to fund the
purchase price in the Acquisition. Interest rates and commitment fees charged on
the unused facility float in a grid based on the Company's quarterly financial
performance.
Under this Credit Agreement, the banks have a security interest in
substantially all of the assets of the Company including those purchased in the
Acquisition. The Credit Agreement contains certain restrictions on capital
expenditures, investments payment of dividends, assumption of additional
debt, and mergers, acquisitions and divestitures, among others, and requires the
Company to maintain certain financial ratios based on levels of funded debt,
capital expenditures and earnings before interest, taxes, depreciation and
amortization.
The term loan facility is payable in 20 consecutive increasing quarterly
installments beginning January 30, 1998. The revolver facility, which expires
September 10, 2003, is available up to a maximum of $90.0 million, including
amounts borrowed under the gold consignment facility, and is limited by a
borrowing base computed based on the value of the Company's inventory and
accounts receivable. The gold consignment facility provides for the consignment
of a maximum of 115,000 troy ounces, or $40.0 million.
9
<PAGE> 10
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 July 31, 1998
Net sales for the second quarter of fiscal 1998 increased $6.3 million, or
15.6%, to $46.8 million. Sales from new stores contributed $5.1 million to the
overall sales increase. Increases in layaway balances contributed to a higher
sales increase of $0.5 million compared to the prior period. These sales
increases were partially offset by lower sales of $0.4 million related to the
closing of stores in fiscal 1998 and fiscal 1997, together with stores closed
for remodeling for limited periods. The average number of units sold on a
comparable store basis decreased by approximately 1.4% in the second quarter of
fiscal 1998, while the average price per merchandise sale increased to $281 in
fiscal 1998 from $268 in fiscal 1997. Comparable store sales increased 3.0%
compared to no change in the second quarter of fiscal 1997. Certain factors
which had a negative impact on sales in fiscal 1998 include increased customer
returns resulting from the adoption of a more flexible refund policy during the
second quarter of fiscal 1997, more limited usage of certain credit promotions,
and a more competitive and promotional environment. Certain factors that had a
positive impact on comparable store sales in fiscal 1998 include increased
inventory levels over the prior year period and on-going improvements in the
Company's store-based personnel. The Company opened 12 new stores and closed
three stores in the second quarter of fiscal 1998 increasing the number of
stores opened to 207 as of July 31, 1998 compared to 184 as of July 31, 1997.
Gross profit increased $2.5 million to $18.8 million in the second quarter
of fiscal 1998. Gross profit as a percentage of sales declined to 40.0% in the
second quarter of fiscal 1998 from 40.2% compared to the second quarter of
fiscal 1997. This decline resulted from several factors including changes in
sales mix and slightly higher occupancy costs resulting primarily from new store
openings later in the quarter. These factors were mitigated by the leveraging
of certain buying expenses.
Selling, general and administrative expenses increased $2.8 million, or
22.2%, to $15.2 million in the second quarter of fiscal 1998 from $12.4 million
in the prior period. New store openings accounted for $1.6 million of this
increase, while expenses associated with the acquisition of 36 jewelry stores
accounted for approximately $0.5 million. As a percentage of net sales,
selling, general and administrative expenses increased to 32.4% in the second
quarter of fiscal 1998 from 30.7% in the second fiscal quarter of fiscal 1997.
The dollar increase primarily relates to higher payroll expenses ($1.7 million),
higher other expenses ($0.4 million), and higher advertising expenses ($0.4
million).
Interest expense decreased $0.1 million to $0.9 million in the second
quarter of fiscal 1998 from $1.0 million in the second quarter of fiscal 1997.
The impact of lower weighted average interest rates contributed to the interest
savings.
Income tax expense of $1.1 million in the second quarters of fiscal 1998
and 1997 reflected an effective annual tax rate of 39% in both periods.
Net income before extraordinary gain decreased to $1.7 million in the
second quarter of fiscal 1998 from $1.8 million in the second quarter of fiscal
1997 as a result of the factors discussed above.
10
<PAGE> 11
Results of Operations for the Six Months Ended July 31, 1998
Net sales for the six months ended July 31, 1998 increased $13.2 million,
or 17.6%, to $88.4 million. Comparable store sales increased $3.0 million, or
4.3%, for the six months ended July 31, 1998. Sales from new stores contributed
$10.4 million to the overall sales increase. Increases in layaway balances
contributed to higher sales increases of $0.7 million compared to the prior
period. These sales increases were partially offset by lower sales of $0.9
million due to the closing of stores in fiscal 1998 and fiscal 1997, together
with stores closed for remodeling for limited periods. The average number of
units sold on a comparable store basis decreased by approximately 1.0% for the
six months ended July 31, 1998, while the average price per merchandise sale
increased to $286 in fiscal 1998 from $271 in fiscal 1997. Comparable store
sales increased 4.3% compared to an increase of 1.0% in the six months ended
July 31, 1997. Certain factors which had a negative impact on sales in fiscal
1998 include increased customer returns resulting from the adoption of a more
flexible refund policy during the second quarter of fiscal 1997, and a more
competitive and promotional environment. Certain factors that had a positive
impact on comparable store sales in fiscal 1998 include increased inventory
levels over the prior year period and on-going improvements in the Company's
store-based personnel. The Company opened 19 new stores and closed three stores
during the six months ended July 31, 1998 increasing the number of stores opened
to 207 as of July 31, 1998 compared to 184 as of July 31, 1997.
Gross profit increased $5.0 million to $34.9 million for the six months
ended July 31, 1998. Gross profit as a percentage of sales declined to 39.5%
for the six months ended July 31, 1998 from 39.8% compared to the six months
ended July 31, 1997. This decline resulted from several factors including
higher occupancy costs resulting primarily from new store openings later
in the period and shifts in sales mix away from certain higher margin
categories. This decline was partially offset by the leveraging of certain
buying and occupancy expenses.
Selling, general and administrative expenses increased $5.1 million, or
21.1%, to $29.4 million for the six months ended July 31, 1998 from $24.3
million. New store openings accounted for $3.1 million of this increase, and
expenses associated with the acquisition of 36 jewelry stores accounted for
approximately $0.5 million. As a percentage of net sales, selling, general and
administrative expenses increased to 33.2% for the six months ended July 31,
1998 from 32.3% in the six months ended July 31, 1997. The dollar increase
primarily relates to higher payroll expenses ($3.1 million), higher advertising
expenses ($0.6 million), higher credit expenses ($0.6 million), and higher other
expenses ($0.8 million).
Interest expense decreased $0.2 million to $1.7 million for the six months
ended July 31, 1998 from $1.9 million in the six months ended July 31, 1997. The
impact of lower weighted average interest rates contributed to the interest
savings.
Income tax expense of $1.5 million was recorded for the six months ended
July 31, 1998 and 1997, respectively, reflecting an effective annual tax rate of
39% in both periods.
Net income increased to $2.4 million for the six months ended July 31, 1998
from $2.3 million in the six months ended July 31, 1997 as a result of the
factors discussed above.
11
<PAGE> 12
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 from operations increased from $1.7 million used in
operating activities in the six months ended July 31, 1997 to only $0.3 million
used in operating activities in the six months ended July 31, 1998. Increases in
accounts payable were more than offset by increases in merchandise inventories.
The increase in merchandise inventories primarily related to inventory for new
store openings, including anticipated new store openings and the planned
acquisition of 36 stores in the third quarter of fiscal 1998 and completed new
store openings in the first six months of fiscal 1998, in addition to increased
inventory levels of primarily diamond and colored stone jewelry categories. In
the first six months of fiscal 1998, the primary sources of the Company's
liquidity included a $9.0 million net increase in the amount outstanding under
the Company's revolver and $6.0 million of proceeds from a gold consignment,
less a decrease of $7.7 million in outstanding checks. The Company utilized cash
in the first six months of 1998 primarily to fund capital expenditures of $6.6
million, primarily related to the opening of 19 new stores and remodeling of
certain existing stores in the first six months of 1998.
Jewel Box Acquisition
On June 22, 1998, the Company announced that it entered into an agreement
to acquire substantially all of the assets of 36 jewelry stores operating under
the Jewel Box name from Carlyle & Co. Jewelers and its affiliates, headquartered
in Greensboro, North Carolina. On September 10, 1998, the Company purchased all
associated inventory, accounts receivable, fixed assets, and store leases for
approximately $21 million in cash. The stores are located in eight states in
the Southeastern United States. The Company financed the acquisition through a
term loan and revolver facility under its new Credit Agreement. See Note 7 to
Notes to Financial Statements. In a related transaction, the Company sold all of
the acquired Jewel Box customer accounts receivable for cash to Banc One, N.A.
Over time, it is anticipated that these stores will be converted into the
Whitehall concept, and that they will be operated consistent with Whitehall's
merchandise, credit, marketing and operating programs in order to achieve
operating efficiencies. Approximately $500,000 of pre-tax costs, mainly
personnel, travel, recruiting and training related, have been expensed in the
second quarter of 1998 in preparation for the integration of these stores into
the Company's operations.
Inflation
Management believes that inflation generally has not had a material effect
on results of its operations.
12
<PAGE> 13
Like many companies, "Year 2000" computer hardware and
software failures of internal systems and/or of third party systems could have a
significant, adverse impact on all aspects of the Company's operations. The
Company recognizes the need to ensure that its operations and its relationship
with vendors and other third parties will not be adversely affected by the "Year
2000" issue. Consequently, the Company has reviewed its computer and other
operating systems and identified those which it believes could be affected by
the "Year 2000" issue. The Company is currently upgrading certain information
systems to improve operations and support future growth as well as to address
the "Year 2000" issue. With respect to systems that the Company is not
upgrading, the Company is currently renovating those systems to be "Year 2000"
compliant. These systems upgrades and renovations, and testing thereof, are
scheduled to be completed by the summer of 1999 and such completion is currently
on schedule. Thus, the Company believes that such systems upgrades and
renovations will be made on a timely basis and that the "Year 2000" issue with
respect to the Company's internal systems will not pose significant operational
problems or result in costs that have a material adverse impact on the Company's
business, financial condition or results of operations. The Company has focused
its efforts and resources on resolving its internal "Year 2000" issues with the
goal of timely completion rather than preparing a contingency plan in the event
of failure to become "Year 2000" compliant. A failure by the Company to timely
address the "Year 2000" issue could have a material adverse impact on the
Company's business, financial condition or results of operations.
In addition to the Company's internal systems, certain systems
of third party suppliers and service providers which are not currently "Year
2000" compliant could adversely impact the Company's operations. The Company has
confirmed with its primary lender that its systems are, or will on a timely
basis be, "Year 2000" compliant. In addition, certain key vendors and service
providers have orally confirmed that they are implementing plans to address the
"Year 2000" issue. The Company will continue communicating with its suppliers
and service providers to monitor their plans to address, and progress in
addressing, the "Year 2000" issue and to evaluate any impact on the Company.
However, there can be no assurance that the systems of such third parties will
be timely converted. A failure by any such third party to timely address the
"Year 2000" issue could have a material adverse impact on the Company's
business, financial condition or results of operations.
The Company's total costs for renovating systems to be "Year
2000" compliant has not been, and is not expected to be, material.
13
<PAGE> 14
Item 5 - Other Information
Forward-Looking Statements
All statements, trend analysis and other information contained in this
report 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 Reform 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 store 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) the efficient and successful integration of the
Jewel Box locations and assets into the Company's existing operations (12)
regulation; (13) timely "Year 2000" compliance by the Company and third party
suppliers and service providers; and (14) the risk factors listed from time to
time in the Company's filings with the Securities and Exchange Commission.
Item 6 - Exhibits and Reports on Form 8-K
Exhibit 27 Financial Data Schedule (SEC/EDGAR only)
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K dated June 22, 1998
reporting a press release issued by the Company announcing the Company's
agreement to purchase substantially all of the assets of 36 jewelry stores
operating under the Jewel Box name from Carlyle & Co. Jewelers,
headquartered in Greensboro, North Carolina, for approximately $22 million
in cash, subject to completion of due diligence, landlord consents and
bank financing arrangements. Additional details were set forth on the
press release attached thereto as Exhibit 99 and incorporated therein by
reference.
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: September 14, 1998 By: /s/ John R. Desjardins
________________________________
John R. Desjardins
Executive Vice President -
Finance and Administration
and Treasurer (principal
financial officer)
14
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