<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
For the quarter period ended April 30, 1997
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
Commission File Number 0-22289
Wherehouse Entertainment, Inc.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of
incorporation or organization)
95-4608339
(I.R.S. Employer Identification Number)
19701 Hamilton Avenue
Torrance, California 90502-1334
(Address of principal executive
offices including ZIP code)
(310) 538-2314
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12 (b) of the Act: None
Securities registered pursuant to Section 12 (g) of the Act: None
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
registrants were required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes / / No / x /
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes / x / No / /
As of April 30, 1997, 10,257,808 shares of the registrant's common stock
were issued and outstanding and 902,744 additional shares are expected to be
issued pursuant to the bankruptcy plan of reorganization discussed in Item 1
below.
<PAGE>
INDEX
WHEREHOUSE ENTERTAINMENT, INC.
PAGE
FORWARD LOOKING STATEMENTS 3
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheets - April 30, 1997
(Unaudited) and January 31, 1997 4
Condensed Statements of Operations -
Three Months Ended April 30, 1997 (New Wherehouse)
and 1996 (Old Wherehouse) (Unaudited) 5
Condensed Statements of Cash Flows -
Three Months Ended April 30, 1997 (New Wherehouse)
and 1996 (Old Wherehouse) (Unaudited) 6
Notes to Condensed Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operation 9
Part II. OTHER INFORMATION
Item 1. Legal Proceedings 13
Item 2. Changes in Securities 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
SIGNATURES 15
2
<PAGE>
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes certain statements that may be
deemed to be "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995. The Sections of this Report
containing such forward-looking statements include "Management's Discussion and
Analysis of Financial Condition and Results of Operation," under Item 2 of Part
I below. Statements in this Report which address activities, events or
developments that the registrant expects or anticipates will or may occur in the
future, including such things as the future issuance of shares, future capital
expenditures (including the amount and nature thereof), expansion and other
developments and technological trends of industry segments in which the
registrant is active, business strategies, growth of the registrant's and its
competitors' business and operations and other such matters are forward-looking
statements. Although the registrant believes the expectations expressed in such
forward-looking statements are based on reasonable assumptions within the bounds
of its knowledge of its business, a number of factors could cause actual results
to differ materially from those expressed in any forward-looking statements,
whether oral or written, made by or on behalf of the registrant.
The registrant's operations are subject to factors outside its control.
Any one, or a combination, of these factors could materially affect the results
of the registrant's operations. These factors include: (a) changes in levels of
competition from current competitors and potential new competition from both
retail stores and alternative methods or channels of distribution such as
electronic and telephone shopping services and mail order; (b) loss of a
significant vendor or prolonged disruption of product supply; (c) the presence
or absence of popular new releases and products in the product categories the
registrant represents; (d) changes in levels of consumer spending, especially
during seasonally significant periods; (e) changes in the Federal and state
income tax rules and regulations or interpretations of existing legislation; (f)
changes in the general economic conditions in the United States, and in
particular the eight major markets served by the registrant, including, but not
limited to consumer sentiment about the economy in general; (g) changes in
availability or terms of working capital financing from vendors and lending
institutions; (h) adverse results in significant litigation matters; and (i) the
ability to attract and retain key personnel. The foregoing should not be
construed as an exhaustive list of all factors which could cause actual results
to differ materially from those expressed in forward-looking statements made by
the registrant. Forward-looking statements made by or on behalf of the
registrant are based on a knowledge of its business and the environment in which
it operates, but because of the factors listed above, actual results may differ
from those anticipated results described in those forward-looking statements.
Consequently, all of the forward-looking statements made are qualified by these
cautionary statements and there can be no assurance that the actual results or
developments anticipated by the registrant will be realized or, even if
substantially realized, that they will have the expected consequences to or
effects on the registrant or its business or operations.
3
<PAGE>
PART I
FINANCIAL INFORMATION
WHEREHOUSE ENTERTAINMENT, INC.
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
April 30 January 31
1997 1997
-------------- --------------
(Unaudited)
<S> <C> <C>
Current Assets
Cash $ 18,492,000 $ 6,178,000
Receivables 1,222,000 1,932,000
Prepaid inventory deposits 294,000 4,486,000
Merchandise inventory 72,527,000 75,800,000
Other current assets 1,659,000 2,259,000
Rental Inventory, net (Note 5) 8,015,000 9,686,000
-------------- --------------
Total current assets 102,209,000 100,341,000
Equipment and improvements, net 19,377,000 21,337,000
Reorganization value in excess of amounts allocable to
identifiable assets, net 9,481,000 9,724,000
Other assets 330,000 340,000
-------------- --------------
Total assets $ 131,397,000 $ 131,742,000
-------------- --------------
-------------- --------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts payable and accrued expenses 39,855,000 40,168,000
Current maturities of capital lease obligations
and long-term debt 530,000 729,000
-------------- --------------
Total current liabilities $ 40,385,000 $ 40,897,000
-------------- --------------
Capital leases obligations and long-term debt 707,000 722,000
Notes payable 3,980,000 3,980,000
Other long-term liabilities 3,105,000 2,000,000
Shareholders' equity
Common stocks, $.01 par value, 24,000,000
authorized, 10,257,808 issued and outstanding 103,000 103,000
Additional paid-in capital 89,380,000 89,380,000
Accumulated deficit (830,000) 0
Notes Receivable (5,433,000) (5,340,000)
-------------- --------------
Total shareholders' equity 83,220,000 84,143,000
-------------- --------------
Total liabilities and shareholders' equity $ 131,397,000 $ 131,742,000
-------------- --------------
-------------- --------------
</TABLE>
See accompanying notes to Condensed Financial Statements
4
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
New Old
Wherehouse Wherehouse
-------------- --------------
Three Three
Months Ended Months Ended
April 30, 1997 April 30, 1996
-------------- --------------
<S> <C> <C>
Sales $ 59,929,000 $ 69,372,000
Rental Revenue 13,254,000 18,118,000
-------------- --------------
73,183,000 87,490,000
Cost of sales 38,281,000 44,971,000
Costs of rentals, including amortization (Note 5) 7,737,000 7,047,000
-------------- --------------
46,018,000 52,018,000
Selling, general and administrative expenses 25,979,000 33,248,000
Depreciation & Amortization 2,616,000 3,469,000
-------------- --------------
Loss from operations (1,430,000) (1,245,000)
Interest expense 111,000 189,000
Other income (189,000) (52,000)
-------------- --------------
Loss before reorganization items & income taxes (1,352,000) (1,382,000)
Reorganization items:
Professional fees ---- 853,000
Provision for store closing costs ---- 31,000
-------------- --------------
---- 884,000
-------------- --------------
Loss before income taxes (1,352,000) (2,266,000)
-------------- --------------
Benefit for income taxes (522,000) 0
-------------- --------------
Net loss $ (830,000) $ (2,266,000)
-------------- --------------
-------------- --------------
Net Lost per share $ (0.08)
--------------
--------------
Weighted average shares outstanding 10,297,808
--------------
--------------
</TABLE>
See accompanying notes to Condensed Financial Statements
5
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
New Old
Wherehouse Wherehouse
-------------- --------------
Three Three
Months Ended Months Ended
April 30, 1997 April 30, 1996
-------------- --------------
<S> <C> <C>
Operating activities:
Net Loss $ (830,000) $ (2,266,000)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 9,161,000 9,388,000
Book value of rental inventory dispositions 1,397,000 1,127,000
Changes in operating assets and liabilities:
Receivables 618,000 (191,000)
Prepaid inventory deposits 4,192,000 6,413,000
Merchandise inventory 3,273,000 (1,564,000)
Other current assets 599,000 241,000
Accounts payable, accrued expenses and
other liabilities 932,000 (1,555,000)
Liabilities subject to compromise 0 (2,228,000)
Rental inventory purchases (6,271,000) (9,028,000)
-------------- --------------
Net cash provided by operating activities 13,071,000 337,000
Investing activities:
Aquisition of property, equipment and improvements (533,000) (392,000)
Decrease (increase) in other assets and intangibles 10,000 (397,000)
-------------- --------------
Net cash used in investing activities (543,000) (789,000)
Financing activities:
Principal payments on capital lease obligations
and long-term debt (214,000) (209,000)
-------------- --------------
Net cash used in financing activities (214,000) (209,000)
Net increase (decrease) in cash 12,314,000 (661,000)
Cash at beginning of the period 6,178,000 7,353,000
-------------- --------------
Cash at end of the period $ 18,492,000 $ 6,692,000
-------------- --------------
-------------- --------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 26,000 $ 152,000
Income taxes 0 2,000
Reorganization items 7,260,000 66,000
</TABLE>
See accompanying notes to Condensed Financial Statements
6
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been
prepared in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments (consisting
of normal recurring accruals) considered necessary for a fair presentation have
been included. Operating results for the three month period ended April 30,
1997 are not necessarily indicative of the results that may be expected for the
year ended January 31, 1998. For further information, refer to the financial
statements and footnotes thereto included in the Company's annual report on Form
10-K for the year ended January 31, 1997.
2. REORGANIZATION UNDER CHAPTER 11
The Company's Plan of Reorganization, (the "Plan") was confirmed by an
order of the Bankruptcy Court entered on January 7, 1997. The effective date of
the Plan occurred on January 31, 1997.
Pursuant to the Plan, Wherehouse Entertainment, Inc. (New Wherehouse) was
incorporated on November 15, 1996, as WEI Acquisition Co. On January 31, 1997,
New Wherehouse acquired (the Acquisition) substantially all the assets of
Wherehouse Dissolution Co. (Old Wherehouse), and its parent company, WEI
Holdings, Inc.,. Prior to the Acquisition, Old Wherehouse was known as
"Wherehouse Entertainment, Inc.," and after the Acquisition, Old Wherehouse
changed its name to Wherehouse Dissolution Co. After the Acquisition, New
Wherehouse changed its name to Wherehouse Entertainment, Inc." New Wherehouse
and Old Wherehouse are collectively referred to as the Company or Wherehouse
where the discussion relates to the continuing business operations of Old
Wherehouse and New Wherehouse.
Since the Plan Effective Date, the Bankruptcy Court has retained
jurisdiction over certain claims and other matters relating to the Debtors'
Bankruptcy estates, but the Company has been and is free to carry out its
business without oversight by the Bankruptcy Court.
For a summary of the Plan of Reorganization, reference is made to the
Company's Annual Report on Form 10-K for the year ended January 31, 1997.
7
<PAGE>
3. FRESH START REPORTING
On January 31, 1997, the Company implemented the recommended accounting
principles for entities emerging from Chapter 11 set forth in the American
Institute of Certified Public Accountants Statement of Position 90-7 on
Financial Reporting by Entities in Reorganization under the Bankruptcy Code (SOP
90-7). This resulted in the use of fresh start reporting, since the
reorganization value, as defined, was less than the total of all post-petition
liabilities and pre-petition claims, and holders of voting shares immediately
before confirmation of the Plan received less than fifty percent of the voting
shares of the emerging entity. Under this concept, all assets and liabilities
were restated to reflect the reorganization value of the reorganized entity,
which approximated its fair value at the date of reorganization. In addition,
the accumulated deficit of the Company was eliminated and its capital structure
was recast in conformity with the Plan. As such, the accompanying Company
balance sheet as of January 31, 1997, represents that of a successor company
which, in effect, is a new entity with assets, liabilities and a capital
structure having carrying values not comparable with prior periods and with no
beginning retained earnings or deficit. In addition, the Company selected
certain accounting policies adopted at New Wherehouse's inception which are not
consistent with those used by Old Wherehouse. Accordingly, the results of
operations of New Wherehouse may not be comparable to those of Old Wherehouse.
4. REVOLVING CREDIT FACILITY
Pursuant to the Plan, the Company entered into a loan and security
agreement with Congress Financial Corporation (Western) (the Congress Facility),
which provides a borrowing capacity of up to $30,000,000 with a letter of credit
subfacility of $10,000,000, subject to borrowing base limitations based upon,
among other things, the value of certain eligible merchandise inventory. The
Congress facility prohibits the Company from declaring or paying dividends on
its classes of capital stock, including the common stock, in excess of an
aggregate of $6 million, unless certain financial performance targets set forth
in the Congress Facility are met. As of April 30, 1997, there were no
borrowings outstanding under the Congress Facility, although $700,000 of letters
of credit were outstanding.
5. RENTAL INVENTORY AMORTIZATION
On January 31, 1997, the Company adopted an accelerated method of
amortization which amortizes rental inventory using the straight-line method
over a three-month period with a salvage value of $3.00. The previous method
amortized rental inventory over three years for video cassettes and two years
for video games. The new method generated higher rental amortization (and,
therefore, lower gross profit) in the first quarter of fiscal year 1998 as
compared to the method used in the first quarter of fiscal year 1997.
8
<PAGE>
WHEREHOUSE ENTERTAINMENT, INC.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
FINANCIAL CONDITION AND RESULTS OF OPERATION
INTRODUCTION
This discussion should be read in conjunction with the financial
statements, related notes and Management's Discussion and Analysis of Financial
Condition and Results of Operation contained in the Company's Annual Report on
Form 10-K for the year ended January 31, 1997.
RESULTS OF OPERATION
FOR THE QUARTERS ENDED APRIL 30, 1997 AND APRIL 30, 1996
Net revenues were $73.2 million and $87.5 million for the quarters ended
April 30, 1997 and 1996, respectively. The Company believes that the decrease
of $14.3 million, or 16.4%, was principally due to the closing of 63 stores
during fiscal year 1997 and 7 stores during the first quarter of fiscal year
1998, as well as continued competitive and economic pressures in certain of the
Company's markets.
A summary of total net merchandise sales and rental revenues, by product
category, is provided below:
NET MERCHANDISE SALES AND RENTAL REVENUES
BY MERCHANDISE CATEGORY
(DOLLAR AMOUNTS IN MILLIONS)
Quarter Ended
April 30,
1997 1996
------ ------
Net Merchandise Sales:
Music $ 51.8 $ 58.8
Sales of new videocassettes 3.3 5.0
Video game software and hardware, general
merchandise, accessories, ticket commissions
and other 4.8 5.6
------ ------
Total merchandise sales $59.9 $69.4
Videocassette and other rental income 13.3 18.1
------ ------
Total revenues $ 73.2 $ 87.5
9
<PAGE>
The sale of pre-recorded music, new video cassettes, video game software
and hardware and general merchandise continue to represent the greatest portion
of the Company's revenues. For the quarter ended April 30, 1997, net
merchandise sales represented 81.9% of aggregate revenues. On a same-store
basis net merchandise sales increased by 0.7% during the quarter ended April
30, 1997 as compared to the quarter ended April 30, 1996. (It should be noted
that February, 1996 had 29 days as compared to 28 days for February, 1997.
After excluding the impact of the difference in days, net merchandise sales
increased by 1.8% on a same-store basis.) Net merchandise sales were $59.9
million versus $69.4 million for the quarters ended April 30, 1997 and 1996,
respectively, representing an overall decrease of 13.6%. The decrease of
$13.6% was largely the result of the closure of 63 stores during fiscal year
1997.
Rental income includes the rental of videocassettes, video games and game
players, audiocassette books, and laserdiscs; and sales of previously viewed
videocassettes and previously played video games. Approximately 189 of the
Company's stores currently offer rental products. Rental income was $13.3
million versus $18.1 million during the quarters ended April 30, 1997 and 1996,
respectively, representing a decrease of $4.9 million or 26.8%. On a same-store
basis rental income decreased approximately 17.0% as compared to the prior year.
(After excluding the impact of the difference in days as mentioned in the above
paragraph, rental income decreased by 16.1% on a same-store basis.) The Company
believes that the decrease in same-store rental income was attributable to
continued competition and general softening in rental consumer spending
nationwide. During the quarter ended April 30, 1997, the Company decreased its
purchases of video rental product by $2.8 million or 30.5% versus the same
quarter of the prior year.
Cost of sales decreased $6.7 million to $38.3 million for the quarter ended
April 30, 1997 versus $45.0 million for the quarter ended April 30, 1996,
representing a decrease of 14.9%. As a percentage of net merchandise sales,
costs of sales decreased 0.9% to 63.9% during the quarter ended April 30, 1997
versus 64.8% during the quarter ended April 30, 1996. The 0.9% decrease in cost
of sales as a percentage of net merchandise sales was principally due to
decreases in the cost of merchandise inventory and higher prompt payment
discounts.
Cost of rentals, including amortization, increased to $7.7 million during
the quarter ended April 30, 1997, an increase of $0.7 million or 9.8%, versus
$7.0 million during the quarter ended April 30, 1996. As a percentage of rental
income, cost of rentals increased to 58.4% during the quarter ended April 30,
1997 versus 38.9% during the quarter ended April 30, 1996, representing an
increase of 19.5%. The 19.5% increase in cost of rentals is primarily due to
the adoption by New Wherehouse of a more accelerated amortization method versus
the method used by Old Wherehouse during the quarter ended April 30, 1996. If
Old Wherehouse had adopted this accelerated method of amortization as of January
31, 1996, cost of rentals during the quarter ended April 30, 1996 would have
been higher (and gross profit lower) by approximately $2.7 million.
Merchandise sales as a percentage of aggregate net revenues increased 2.6%
to 81.9%
10
<PAGE>
during the quarter ended April 30, 1997 versus 79.3% during the quarter ended
April 30, 1996.
Several major retail chains, including Best Buy, Blockbuster Entertainment
and Hollywood Video have increased their retail store presence in the Company's
markets. This trend may continue and it is anticipated the Company may, in
future periods, experience increased competition and that such competition may
result in continued pressure on revenues and gross profit margins.
Selling, general and administrative expenses, were $26.0 million versus
$33.2 million for the quarters ended April 30, 1997 and 1996, respectively, a
decrease of $7.2 million or 21.9%. As a percentage of net revenues, selling,
general and administrative expenses, were 35.5% during the quarter ended April
30, 1997 versus 38.0% during the quarter ended April 30, 1996, representing a
decrease of 2.5%. The 2.5% decrease was principally due to reductions in rent
and occupancy costs, and to a lesser extent, advertising expense. During the
quarter ended April 30, 1997, rent and occupancy costs decreased in absolute
dollars by $3.8 million versus the quarter ended April 30, 1996.
Loss from operations for April 30, 1997 was $1.4 million as compared to
$1.2 million for April 30, 1996, an increase of $0.2 million. As mentioned
previously, the Company adopted an accelerated method of amortization for rental
inventory at January 31, 1997. If the Company would have adopted the
accelerated method at January 31, 1996, loss from operations for the quarter
ended April 30, 1996 would have been $3.9 million. Excluding the impact of the
change in the method of amortization of rental inventory, loss from operations
for the period ended April 30, 1997 was $2.5 million lower than that experienced
for the period ended April 30, 1996. The improvement in loss from operations
was primarily the result of the closure of 63 underperforming stores during
fiscal year 1997, reductions in rent and occupancy costs through landlord
concessions, and decreases in other selling, general and administrative expenses
that occurred as a result of the closure of stores.
Reorganization items include costs related to the bankruptcy case including
professional fees for legal and financial advisors, costs related to the closing
of stores, and the estimated cost associated with the rejection of certain
executory contracts. For the quarter ended April 30, 1996, the Company reported
total reorganization items of $0.9 million which was primarily comprised of
professional fees. The Company does not expect to record any reorganization
items during fiscal year ended January 31, 1998.
The Company recorded a tax benefit of $0.5 million for quarter ended April
30, 1997 but did not record any tax benefit for quarter ended April 30, 1996.
Should Wherehouse realize pre-tax income in future quarters it will be subject
to Federal and State tax. The benefit represents an effective tax rate of 40%
which the Company estimates will be its effective tax rate for the year ended
January 31, 1998.
The Company is currently under audit by the California Franchise Tax Board
("FTB") for tax years January 31, 1992, 1993 and 1994. The Company believes
that it has made
11
<PAGE>
adequate provision in the financial statements for this audit.
LIQUIDITY AND CAPITAL RESOURCES
During the quarter ended April 30, 1997, the Company's net cash provided by
operating activities increased by $12.8 million to $13.1 million from $0.3
million for the corresponding quarter of the prior fiscal year, due to decreases
in merchandise inventory, lower purchases of rental inventory and other factors,
offset by the change in prepaid inventory deposits.
Cash used in investing activities decreased by $0.3 million to $0.5 million
during the quarter ended April 30, 1997 from $0.8 million during the quarter
ended April 30, 1996, principally due to lower increases in other assets and
intangibles offset by increased acquisitions of property, equipment and
improvements.
Cash used in financing activities remained approximately the same for the
quarter ended April 30, 1997 as compared to the quarter ended April 30, 1996.
While the Company believes that the current borrowing facility (see Note 4
under Notes to Condensed Financial Statements) is adequate to support operations
for the remainder of the current fiscal year, there can be no assurance as to
the effect which any future changes in the Company's operations may have on its
liquidity.
As of April 30, 1997 the Company has not signed any lease commitments to
open new stores during the next twelve months.
SEASONALITY
The Company's business is seasonal, and revenues and operating income are
highest during the fourth quarter. Bank borrowings have historically been
highest in October and November due to cumulative capital expenditures for new
stores and the building of inventory for the holiday season.
INFLATION
The Company believes that, except for changes in the minimum wage mandated
by the Federal government, inflation has not had a material effect on its
operations and its internal and external sources of liquidity and working
capital.
12
<PAGE>
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
(i) McMahan and Related Actions
In January 1988, holders of approximately $17.0 million in principal
amount of the Company's 6-1/4% Convertible Subordinated Debentures commenced an
action entitled McMahan & Company, et al. v. Wherehouse Entertainment, Inc., et
al., 88 Civ. 0321 (S.D.N.Y.). This lawsuit, and a related lawsuit filed in
January 1989 and consolidated with the McMahan lawsuit, alleged that the
Company, six of its former directors, the former controlling shareholder of the
Company and others, issued a prospectus in connection with the offering of the
Convertible Debentures that violated Section 10(b) of the Securities Exchange
Act of 1934. According to the plaintiffs, the prospectus failed to disclose that
the Company's independent directors retained the right to approve any merger
proposal, and thereby prevent any right of holders to redeem the Convertible
Debentures from arising, whether or not such proposal was in the best interests
of the Debentureholders. Although all claims of the McMahan plaintiffs were
discharged in the Wherehouse Plan of Reorganization for no consideration,
Wherehouse and the other parties are attempting to resolve the litigation
procedurally, which should have no adverse impact on the Company. On December
23, 1996, the parties entered into a Settlement Agreement pursuant to which the
lawsuits have been settled. This settlement, which was approved by the court on
June 5, 1997, provides for the release of all claims against the Company and the
other defendants in exchange for a payment of $7 million to plaintiffs. Under
the terms of the Settlement Agreement, none of the settlement consideration will
be paid by the Company.
(ii) Other.
The Company is a party to various other claims, legal actions and
companies arising in the ordinary course of its business. In the opinion of
management, all such matters are without merit or involve such moments that
unfavorable disposition will not have a material impact on the financial
position an results of operations of the Company.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
13
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 5. OTHER INFORMATION
In its Annual Report on Form 10-K, filed on May 16, 1997, the Company
erroneously stated that Mr. Jonathan Gallen, a Director of the Company, had
worked for Cerberus Partners, L.P., during the period of February 1993 through
February 1994. Mr. Gallen spent this period on the premises of Feinberg
Management, L.P. ("FMLP"), under the tutelage of Stephen Feinberg, the
principal of FMLP, observing, training, and learning investment techniques,
procedures and philosophies. Mr. Gallen received no compensation from FMLP.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27.0 Financial Data Schedule
(b) Current Reports on Form 8-K
None.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, each of the
Registrants have duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WHEREHOUSE ENTERTAINMENT, INC.
Date: June 20, 1996 /s/ Antonio C. Alvarez
--------------------------------
ANTONIO C. ALVAREZ
Chairman of the Board and Chief
Executive Officer, and Director
(Principal Executive Officer)
Date: June 20, 1996 /s/ Robert S. Kelleher
--------------------------------
ROBERT S. KELLEHER
Senior Vice President and Chief
Financial Officer
(Principal Financial and Accounting
Officer)
15
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-END> APR-30-1997
<CASH> 18,492
<SECURITIES> 3
<RECEIVABLES> 1,314
<ALLOWANCES> 0
<INVENTORY> 72,527
<CURRENT-ASSETS> 102,301
<PP&E> 21,569
<DEPRECIATION> (2,192)
<TOTAL-ASSETS> 131,489
<CURRENT-LIABILITIES> 40,384
<BONDS> 0
0
0
<COMMON> 103
<OTHER-SE> 83,117
<TOTAL-LIABILITY-AND-EQUITY> 131,397
<SALES> 59,929
<TOTAL-REVENUES> 73,183
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</TABLE>
