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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, 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 December 1, 1997 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.
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MARKS BROS. JEWELERS, INC.
INDEX TO FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 31, 1998
PART 1 - FINANCIAL INFORMATION
Item 1. Financial Statements
Statements of Operations for the three months and nine months ended
October 31, 1998 and 1997 (unaudited)
Balance Sheets - October 31, 1998, January 31, 1998 and October 31,
1997 (unaudited)
Statements of Cash Flows for the nine months ended October 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
(a) Exhibits
(b) Reports on Form 8-K
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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, 1998 and 1997
(unaudited)(in thousands, except for per share data)
Three months ended Nine months ended
October October October October
31, 1998 31, 1997 31, 1998 31, 1997
---------- ---------- ---------- -----------
Net sales $ 48,483 $ 39,477 $ 136,916 $ 114,706
Cost of sales (including buying and occupancy
expenses) 29,453 23,963 82,985 69,244
-------- --------- --------- ---------
Gross profit 19,030 15,514 53,931 45,462
Selling, general and administrative
expenses 16,837 13,010 46,218 37,281
-------- --------- --------- ---------
Income from operations 2,193 2,504 7,713 8,181
Interest expense 1,202 1,014 2,856 2,920
-------- --------- --------- ---------
Income before income taxes 991 1,490 4,857 5,261
Income tax expense 382 581 1,865 2,052
-------- --------- --------- ---------
Net income $ 609 $ 909 $ 2,992 $ 3,209
======== ========= ========= =========
Basic earnings per share:
Net income $ 0.06 $ 0.09 $ 0.29 $ 0.32
======== ========= ========= =========
Weighted average common share
and common share equivalents 10,189 10,083 10,180 10,074
======== ========= ========= =========
Diluted earnings per share:
Net income $ 0.06 $ 0.09 $ 0.29 $ .31
======== ========= ========= =========
Weighted average common share
and common share equivalents 10,259 10,209 10,356 10,205
======== ========= ========= =========
The accompanying notes are an integral part of the financial statements.
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Marks Bros. Jewelers, Inc.
Balance Sheets
as of October 31, 1998, January 31, 1998 and October 31, 1997
(unaudited, in thousands)
October January October
31, 1998 31, 1998 31, 1997
-------------- -------------- --------------
ASSETS
Current Assets:
Accounts receivable, net $ 1,817 $ 2,532 $ 1,276
Layaway receivables, net 3,201 2,636 2,607
Merchandise inventories 131,171 85,053 99,954
Other current assets 833 996 482
Prepaid taxes 508 --- 1,126
Deferred income taxes, net 1,257 1,257 1,326
Deferred financing costs 252 240 292
-------------- -------------- --------------
Total current assets 139,039 92,714 107,063
Property and equipment, net 32,760 22,701 22,304
Goodwill 8,148 --- ---
Deferred income tax, net 1,953 1,953 5,947
Deferred financing costs 425 635 929
-------------- -------------- --------------
Total assets $ 182,325 $ 118,003 $ 136,243
============== ============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Outstanding checks, net $ 2,079 $ 9,608 $ 2,508
Revolver loans 43,862 16,841 29,339
Current portion of long-term debt 2,000 1,000 ---
Accounts payable 47,724 16,525 37,837
Accrued payroll 1,873 2,906 2,113
Income taxes --- 1,419 ---
Other accrued expenses 13,736 9,448 11,920
-------------- -------------- --------------
Total current liabilities 111,274 57,747 83,717
Term loan 18,000 10,426 ---
Subordinated debt 640 640 10,520
Other long-term liabilities 1,513 1,387 1,220
-------------- -------------- --------------
Total liabilities 131,427 70,200 95,457
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 60,008 59,905 59,874
Accumulated deficit (9,120) (12,112) (19,098)
-------------- -------------- --------------
Total stockholders' equity 50,898 47,803 40,786
-------------- -------------- --------------
Total liabilities and
stockholders' equity $ 182,325 $ 118,003 $ 136,243
============== ============== ==============
The accompanying notes are an integral part of the financial statements.
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Marks Bros. Jewelers, Inc.
Statements of Cash Flows
for the nine months ended October 31, 1998 and 1997
(unaudited, in thousands)
Nine months ended
-----------------
October October
31, 1998 31, 1998
------------ ------------
Cash flows from operating activities:
Net income $ 2,992 $ 3,209
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Depreciation and amortization 3,653 2,870
Loss on disposition of assets 124 276
Changes in assets and liabilities:
Decrease in accounts receivable, net 541 78
Increase in layaway receivables, net (565) (566)
Increase in merchandise inventories, net of gold consignment (43,499) (35,472)
Decrease in other current assets 280 156
Increase in accounts payable 31,199 23,485
Increase in accrued liabilities 1,234 962
------------ ------------
Net cash used in operating activities (4,041) (5,002)
Cash flows from investing activities:
Capital expenditures (11,763) (8,926)
Purchase of assets (22,891) ---
Proceeds from assets sold 4,542 ---
------------ ------------
Net cash used in investing activities (30,112) (8,926)
Cash flows from financing activities:
Borrowing on revolver loan 181,701 336,477
Repayment of revolver loan (154,680) (317,885)
Proceeds from term loan 20,000 ---
Repayment of term loan (11,426) ---
Proceeds from gold consignment 5,984 ---
Proceeds from exercise of stock options 103 70
Decrease in outstanding checks, net (7,529) (4,734)
------------ ------------
Net cash provided by financing activities 34,153 13,928
------------ ------------
Net change in cash and cash equivalents --- ---
Cash and cash equivalents at beginning of period --- ---
------------ ------------
Cash and cash equivalents at end of period $ --- $ ---
============ ============
The accompanying notes are an integral part of the financial statements.
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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 244 stores as of
October 31, 1998, located in 29 states, operating in regional or super-regional
shopping malls.
2. Acquisition
On September 10, 1998, the Company acquired 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. The
stores are located in eight states in the Southeastern United States. The
Company purchased all associated inventory, accounts receivable and fixed assets
for approximately $23 million (including fees and other costs) in cash. The
Company financed the acquisition through a term loan and revolving credit
facility under its new Credit Agreement. In a related transaction, the Company
sold all of the acquired Jewel Box customer accounts receivable for cash to
BancOne, N.A.
The acquisition has been accounted for using the purchase method of
accounting, and, accordingly, the purchase price has been allocated to the
assets purchased and the liabilities assumed based upon the fair values at the
date of acquisition. The excess of the purchase price over the fair values of
the net assets acquired was $8.2 million and has been recorded as goodwill,
which is being amortized on a straight-line basis over 25 years. The amount of
goodwill amortization in the third quarter of 1998 was $56,000.
The net purchase price was allocated as follows:
(in thousands)
Inventory $ 9,039
Accounts receivable 3,902
Other current assets 121
Fixed assets 1,861
Other accrued expenses (237)
Goodwill 8,205
- -------------------------------------------------------
Purchase price $ 22,891
=======================================================
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3. 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 October 31, 1998 and 1997 and the
Statements of Operations for the three months and nine months ended October 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. Annual Report
for the fiscal year ended January 31, 1998. References in the following notes to
years and quarters are references to fiscal years and fiscal quarters.
4. Accounts Receivables, Net
Accounts receivable are shown net of the allowance for doubtful accounts of
$928,000, $693,000 and $783,000 as of October 31, 1998, January 31, 1998 and
October 31, 1997, respectively.
5. Inventory
As of October 31, 1998, January 31, 1998 and October 31, 1997,
merchandising inventories consist of:
October 31, 1998 January 31, 1998 October 31, 1997
(in thousands)
Raw Materials $ 6,278 $ 3,504 $ 6,476
Finished Goods 124,893 81,549 93,478
------------- ------------- ------------
Inventory $ 131,171 $ 85,053 $ 99,954
============= ============= ============
Raw materials primarily consist of diamonds, precious gems, semi-precious
gems and gold. There was no work-in-progress as of October 31, 1998, January 31,
1998, or October 31, 1997. Included within finished goods inventory are
allowances for inventory shrink, scrap, and miscellaneous costs of $4,199,000,
$1,700,000 and $1,199,000 as of October 31, 1998, January 31, 1998 and October
31, 1997, respectively. As of October 31, 1998, January 31, 1998 and October
31, 1997, consignment inventories held by the Company that are not included in
the balance sheets total $37,665,000, $32,530,000, and $23,503,000,
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 October 31, 1998, January
31, 1998 and October 31, 1997, respectively.
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6. Financing Arrangements
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. Beginning with the quarter ending January
31, 1999, 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 revolving loan facility under the Credit Agreement 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. Interest rates and commitment fees
on the unused facility float in a grid based on the Company's quarterly
financial performance.
Current interest rates for borrowings under this agreement are, at the
Company's option, Eurodollar rates plus 175 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, 1998 and 1997 was
$1,493,000 and $1,275,000, reflecting a weighted average interest rate of 7.3%
and 7.4%, respectively.
Term Loans
- ----------
The term loan facility under the Credit Agreement is available up to a
maximum of $20.0 million. Current interest rates for these borrowings are, at
the Company's option, Eurodollar rates plus 225 basis points or the banks' prime
rate plus 50 basis points. Interest is 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 nine months ended October
31, 1998 for these borrowings was $748,000 reflecting a weighted average
interest rate of 7.8%.
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 $15.3 million 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 115,000 troy ounces or
$40.0 million. Under the agreement, the Company pays consignment fees of 175
basis points over the rate set by the bank based on the London Interbank Bullion
Rates payable monthly. A commitment fee of 50 basis points per annum on the
unused portion of the gold consignment facility is payable monthly. The
consignment fees totaled $366,000 at a weighted average rate of 3.1% and
$325,000 at a weighted average rate of 3.2% for the nine months ended October
31, 1998 and 1997, respectively. On September 10, 2003, 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.
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Subordinated Notes
- ------------------
Series C Senior Subordinated Notes due 2004 (the "Series C Notes") totaling
$640,000 aggregate principal amount outstanding as of October 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 $58,000 and $959,000 for the nine
months ended October 31, 1998 and 1997, respectively.
7. 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 October 31, 1998 and 1997.
Three months ended Nine months ended
(in thousands, except per share amounts)
October October October October
31, 1998 31, 1997 31, 1998 31, 1997
---------- ---------- ---------- ----------
Net earnings for basic and diluted EPS $ 609 $ 909 $ 2,992 $ 3,209
Weighted average shares for basic EPS 10,189 10,083 10,180 10,074
Incremental shares upon conversions:
Stock options 70 126 176 131
Weighted average shares for diluted EPS 10,259 10,209 10,356 10,205
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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, 1998
- -----------------------------------------------------------------
Net sales for the third quarter of fiscal 1998 increased $9.0 million, or
22.8%, to $48.5 million. New stores opened contributed $5.2 million (excluding
approximately $2.7 million from 36 stores acquired in mid-September) to the
overall sales increase. Increases in layaway balances contributed to a higher
sales increase of $0.7 million compared to the prior period. These sales
increases were partially offset by lost sales of $1.0 million related to store
closings, together with stores closed for remodeling for limited periods. The
total number of merchandise units sold increased by approximately 18.9% in the
third quarter of fiscal 1998, while the average price per merchandise sale
increased to $315 in the third quarter of fiscal 1998 from $309 in the third
quarter of fiscal 1997. Comparable store sales increased 3.6% (including sales
for the month of October from the newly acquired Jewel Box locations which
contributed approximately one percent of the increase) compared to an increase
of 2.1% in the third quarter of fiscal 1997. Certain factors which have had a
negative impact on sales in the third quarter of 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 the third quarter of
fiscal 1998 include the contribution from the acquired jewelry stores, strong
store inventory assortments, and on-going improvements in the Company's
store-based personnel. The Company opened 42 new stores (including the 36
acquired stores) and closed five stores in the third quarter of fiscal 1998
increasing the number of stores opened to 244 as of October 31, 1998 compared to
191 as of October 31, 1997.
Gross profit increased $3.5 million to $19.0 million in the third quarter
of fiscal 1998 compared to the third quarter of fiscal 1997. Gross profit as a
percentage of sales remained constant at 39.3% in both periods. Slightly higher
merchandise margins and a shift in sales mix to higher margin categories were
offset by increased occupancy costs.
Selling, general and administrative expenses increased $3.8 million, or
29.4%, to $16.8 million in the period from $13.0 million in the prior period.
New store openings accounted for $2.9 million of this increase, while expenses
associated with the acquisition and integration of jewelry stores accounted for
approximately $0.3 million. As a percentage of net sales, selling, general and
administrative expenses increased to 34.6% from 33.0% in the prior year quarter.
The dollar increase primarily relates to higher payroll expenses ($2.4 million),
higher other expenses ($0.7 million), and higher advertising expenses ($0.3
million).
Interest expense increased $0.2 million to $1.2 million in the third
quarter of fiscal 1998 from $1.0 million in the third quarter of fiscal 1997.
The impact of lower weighted average interest rates was more than offset by
increased borrowings to fund the acquisition of jewelry stores.
Income tax expense of $0.4 million and $0.6 million in the third quarters
of fiscal 1998 and 1997, respectively, reflected an effective annual tax rate of
38.5% and 39.0% in the third quarters of fiscal 1998 and 1997, respectively.
Net income decreased to $0.6 million in the third quarter of fiscal 1998
from $0.9 million in the third quarter of fiscal 1997 in large part due to
integration costs associated with the acquisition of the 36 stores and as a
result of the other factors discussed above.
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Results of Operations for the Nine months Ended October 31, 1998
- ----------------------------------------------------------------
Net sales for the nine months ended October 31, 1998 increased $22.2
million, or 19.4%, to $136.9 million. New stores opened contributed $15.6
million (excluding approximately $2.7 million from 36 stores acquired in
mid-September) to the overall sales increase. Increases in layaway balances
contributed to a higher sales increase of $1.5 million compared to the prior
period. These sales increases were partially offset by lost sales of $1.8
million related to store closings, together with stores closed for remodeling
for limited periods. The total number of merchandise units sold increased by
approximately 13.1% for the nine months ended October 31, 1998, while the
average price per merchandise sale increased to $296 in the first nine months of
fiscal 1998 from $283 in the first nine months of fiscal 1997. Comparable store
sales increased 4.0% (including sales for the month of October from the newly
acquired Jewel Box locations which contributed approximately 0.3% of the
increase) compared to an increase of 1.4% in the nine months ended October 31,
1998. Certain factors which had a negative impact on sales in the first nine
months of 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 use of certain credit promotions, and a more competitive and
promotional environment. Certain factors that had a positive impact on
comparable store sales in the first nine months of fiscal 1998 include the
contribution from the acquired jewelry stores, strong store inventory
assortments, and on-going improvements in the Company's store-based personnel.
The Company opened 61 new stores (including the 36 acquired stores) and closed
eight stores during the nine months ended October 31, 1998 increasing the number
of stores opened to 244 as of October 31, 1998 compared to 191 as of October 31,
1997.
Gross profit increased $8.5 million to $53.9 million for the nine months
ended October 31, 1998 compared to the nine months of fiscal 1997. Gross profit
as a percentage of sales declined to 39.4% for the nine months ended October 31,
1998 from 39.6% for the nine months ended October 31, 1997. Higher margins on
gold and colored stone jewelry categories were offset by lower margins on
diamonds and higher occupancy expenses.
Selling, general and administrative expenses increased $8.9 million, or
24.0%, to $46.2 million in the period from $37.3 million in the prior period.
New store openings accounted for $6.0 million of this increase, while expenses
associated with the acquisition and integration of jewelry stores accounted for
approximately $0.8 million. As a percentage of net sales, selling, general and
administrative expenses increased to 33.8% for the nine months ended October 31,
1998 from 32.5% in the nine months ended October 31, 1997. The dollar increase
primarily relates to higher payroll expenses ($5.5 million), higher other
expenses ($1.3 million), higher advertising expenses ($0.9 million), and higher
credit expenses ($0.8 million).
Interest expense was $2.9 million for the nine months ended October 31,
1998 and October 31, 1997. The impact of lower weighted average interest rates
in 1998 was offset by increased borrowings.
Income tax expense of $1.9 million and $2.1 million for the nine months
ended October 31, 1998 and 1997, respectively, reflected an effective annual tax
rate of 38.4% and 39%, respectively.
Net income declined to $3.0 million for the nine months ended October 31,
1998 from $3.2 million for the nine months ended October 31, 1997 in large part
due to integration costs associated with the acquisition of the 36 stores and as
a result of the other factors discussed above.
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Liquidity and Capital Resources
- -------------------------------
The Company's cash requirements consist principally of funding increases in
inventory at existing stores, capital expenditures, working capital (primarily
inventory) associated with the Company's new stores and acquisitions of 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 decreased from $5.0 million in
the nine months ended October 31, 1997 to $4.0 million in the nine months ended
October 31, 1998. Increases in accounts payable ($31.2 million) were more than
offset by lower income from operations and increases in merchandise inventories
($43.5 million). The increase in merchandise inventories primarily resulted
from merchandising new stores and increased inventory levels, in particular,
solitaire diamonds and diamond engagement sets. In the nine months ended
October 31, 1998, the primary sources of the Company's liquidity included a
$27.0 million net increase in the amount outstanding under the Company's
revolver, an $8.6 million increase in the term loan, a $6.0 million increase in
the gold consignment facility less a decrease of $7.5 million in outstanding
checks. The Company utilized cash in the nine months ended October 31, 1998
primarily to acquire 36 jewelry stores and to fund capital expenditures of $11.8
million, primarily related to the opening of 25 new stores during this period.
Year 2000
- ---------
The "Year 2000" problem concerns the inability of information systems to
properly recognize and process date-sensitive information beyond January 1,
2000. 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. Because of the range
of possible issues and the large number of variables involved, it is impossible
to quantify the potential cost of problems should the Company's remediation
efforts or the efforts of third parties with whom the Company does business not
be successful. The Company recognizes the need to address this problem in order
to minimize the effects of the "Year 2000" issue on its operations and its
relationships with vendors and other third parties. The Company is using both
internal and external resources to complete its "Year 2000" project.
The Company operates exclusively in one business segment, specialty retail
jewelry. All stores are located within the United States. The Company's two
principle mission-critical systems applications are the point-of-sale ("POS")
terminals and software which control store transaction processing and the
centrally maintained information systems infrastructure which controls financial
and administrative systems.
All stores use the same POS software which is leased from a third-party
vendor. In November 1998, a "Year 2000" compliant version of the POS software
was installed at all stores. Testing of the new software is complete. The
Company has replaced approximately two-thirds of its POS desktop terminals with
"Year 2000" compliant terminals. The remaining portion are expected to be
replaced by March 1999.
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The Company's financial management, information technology and other
administrative functions operate centrally from the Company's corporate office.
The Company uses a mid-range computing platform which is complemented by various
networks. The operating systems and hardware platforms were upgraded, tested
and are currently "Year 2000" ready. The replacement or upgrading of financial
management and various customized software packages are between 50% and 70%
complete. These systems upgrades, replacements and renovations, and testing
thereof, are scheduled to be completed by the summer of 1999 and such completion
is currently on schedule. With respect to systems that the Company is not
upgrading, the Company is currently renovating those systems to be "Year 2000"
compliant.
The Company's total costs for making its mission-critical systems "Year
2000" compliant are not expected to be material to the Company's financial
condition. The estimated total cost of the "Year 2000" project is expected to
approximate $750,000. To date, the total amount expended on the project is
approximately $250,000.
The Company believes that the systems upgrades, replacements 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, or a failure by the Company to maintain adequate
information systems capacity and infrastructure as it upgrades, replaces and
renovates its information systems, 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 key
suppliers and key 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 third parties
with whom the Company does business 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.
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PART II - OTHER INFORMATION
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; (14) the Company's ability to maintain
adequate information systems capacity and infrastructure; and (15) the risk
factors listed from time to time in the Company's filings with the Securities
and Exchange Commission.
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Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit 10.1 Asset Purchase Agreement dated as of June 19, 1998 by and
among Marks Bros. Jewelers, Inc., Carlyle & Co. Jewelers,
Carlyle & Co. of Montgomery and J.E. Caldwell Co.
(incorporated by reference to Exhibit 2.2. of the Company's
Current Report on Form 8-K dated September 10, 1998 and filed
with the Securities and Exchange Commission (the
"Commission") on September 22, 1998).
Exhibit 10.2 Amended and Restated Revolving Credit, Term Loan and Gold
Consignment Agreement dated as of September 10, 1998 by and
among Marks Bros. Jewelers, Inc., the Banks (as defined
therein), BankBoston, N.A. as Agents for the Banks, and
LaSalle National Bank and ABN AMRO Bank N.V., as Agents for
the Banks.
Exhibit 27 Financial Data Schedule (SEC/EDGAR only)
(b) Reports on Form 8-K
(1) The Company filed with the Commission on September 22, 1998 a Current
Report on Form 8-K dated September 10, 1998 reporting the completion of
the Company's acquisition from Carlyle & Co. Jewelers, headquartered in
Greensboro, North Carolina, of substantially all of the assets relating
to the operation of 36 jewelry stores for a purchase price of
$22,777,608.49 (the "Acquisition").
(2) The Company filed with the Commission on September 22, 1998 a Current
Report on Form 8-K/A dated September 10, 1998 amending and restating its
Current Report on Form 8-K identified in (1) above under this Item 6 and
reporting that the Company was not required to file financial statements
or pro forma financial information in connection with the Acquisition.
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 15, 1998 By: /s/ John R. Desjardins
________________________________
John R. Desjardins
Executive Vice President -
Finance and Administration
(principal financial officer)
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