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
For the quarterly period ended May 2, 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 No. 0-23671
-------
WEINER'S STORES, INC.
---------------------
(exact name of registrant as specified in its charter)
Delaware 76-0355003
-------- ----------
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
6005 Westview Drive, Houston, TX 77055
--------------------------------- -----
(Address of principal executive offices) (zip code)
Registrant's telephone number, including area code (713) 688-1331
--------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes __ No X
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 __
Indicate the number of shares outstanding of each of the issuer's classes of
common stock as of the latest practicable date.
As of June 15, 1998 there were 19,000,000 shares of Weiner's Stores,
Inc. common stock, par value $.01 per share, outstanding.
<PAGE>
WEINER'S STORES, INC.
FORM 10-Q
QUARTER ENDED MAY 2, 1998
Table of Contents
Page No.
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Financial Statements 6-7
ITEM 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-10
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 10
PART 2. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 2. Changes in Securities and Use of Proceeds 11
ITEM 3. Defaults Upon Senior Securities 11
ITEM 4. Submission of Matters to a Vote of Security Holders 11
ITEM 5. Other Information 11
ITEM 6. Exhibits and Reports on Form 8-K 11
SIGNATURES 12
INDEX OF EXHIBITS 13
2
<PAGE>
PART 1. FINANCIAL INFORMATION
ITEM 1. Financial Statements
WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
------------------- -------------------
Thirteen Weeks Thirteen Weeks
Ended Ended
May 2, 1998 April 26, 1997
------------------- -------------------
<S> <C> <C>
Net sales $ 61,579,000 $ 62,686,000
Cost of goods sold 38,788,000 40,897,000
------------------- -------------------
Gross margin 22,791,000 21,789,000
Selling, administrative and other operating costs 22,010,000 21,241,000
Reorganization expense - 750,000
------------------- -------------------
Operating income (loss) 781,000 (202,000)
Interest expense (177,000) (11,000)
Interest income - 126,000
------------------- -------------------
Net income (loss) $ 604,000 $ (87,000)
=================== ===================
Net income (loss) per common share $ 0.03 $ (0.87)
=================== ===================
Weighted average number of common shares
outstanding 19,000,000 100,000
=================== ===================
The accompanying notes are an integral part of these financial statements.
3
</TABLE>
<PAGE>
WEINER'S STORES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
May 2, January 31,
1998 1998
WEINER'S STORES, INC. ---------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ 4,657,000 $ 3,574,000
Receivables 2,521,000 1,592,000
Merchandise inventories, net 54,885,000 49,881,000
Prepaid expenses and other assets 3,845,000 3,138,000
---------------- ------------------
Total current assets 65,908,000 58,185,000
---------------- ------------------
Property And Equipment:
Land 258,000 258,000
Building - distribution center and office facility 1,996,000 1,967,000
Furniture, fixtures and leasehold improvements 17,785,000 16,262,000
---------------- ------------------
Total 20,039,000 18,487,000
Less accumulated depreciation and amortization (2,653,000) (1,674,000)
---------------- ------------------
Total property and equipment, net 17,386,000 16,813,000
---------------- ------------------
Excess Reorganization Value, less accumulated amortization of
$262,000 and $164,000, respectively 5,643,000 5,741,000
---------------- ------------------
$88,937,000 $ 80,739,000
================ ==================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $13,527,000 $ 9,303,000
Accrued expenses and other current liabilities 8,003,000 7,633,000
---------------- ------------------
Total current liabilities 21,530,000 16,936,000
---------------- ------------------
Other Liabilities 834,000 834,000
Long-Term Debt 8,000,000 5,000,000
---------------- ------------------
Commitments and Contingencies - -
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
19,000,000 shares issued and outstanding 190,000 190,000
Additional paid-in capital 63,664,000 63,664,000
Accumulated deficit (5,281,000) (5,885,000)
---------------- ------------------
Total stockholders' equity 58,573,000 57,969,000
---------------- ------------------
$88,937,000 $ 80,739,000
================ ==================
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Successor Predecessor
Company Company
-------------------- ---------------------
Thirteen Weeks Thirteen Weeks
Ended Ended
May 2, 1998 April 26, 1997
-------------------- ---------------------
<S> <C> <C>
Net cash used in operating activities (299,000) (3,770,000)
-------------------- ---------------------
Cash Flows From Investing Activities:
Capital expenditures (1,639,000) (1,993,000)
Proceeds on disposition of assets 21,000 -
-------------------- ---------------------
Net cash used in investing activities (1,618,000) (1,993,000)
-------------------- ---------------------
Cash Flows From Financing Activities:
Net borrowings under bank line of credit 3,000,000 -
-------------------- ---------------------
Net cash provided by financing activities 3,000,000 -
-------------------- ---------------------
Net Increase (Decrease) In Cash 1,083,000 (5,763,000)
Cash and Cash Equivalents, beginning of period 3,574,000 18,719,000
-------------------- ---------------------
Cash and Cash Equivalents, end of period $ 4,657,000 $ 12,956,000
==================== =====================
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
WEINER'S STORES, INC.
NOTES TO FINANCIAL STATEMENTS
(1) Basis of Presentation
On April 12, 1995, the Company filed a petition for reorganization
under Chapter 11 of the Federal Bankruptcy Code. The Company's Plan of
Reorganization was confirmed on August 13, 1997 and became effective on August
26, 1997. On that date, the Company adopted "fresh start" reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," which resulted in adjustments to the Company's stockholders'
equity and the carrying value of assets and liabilities. Accordingly, the
Company's post-reorganization financial statements are not comparable to the
pre-reorganization financial statements. A vertical black line is shown in the
accompanying financial statements to separate the post-reorganization periods
from the pre-reorganization periods.
In the opinion of management, the accompanying unaudited financial
statements contain all adjustments (consisting of normal recurring adjustments)
which management considers necessary to present fairly the financial position of
Weiner's Stores, Inc. (the "Company") as of May 2, 1998, and the results of its
operations and its cash flows for each of the thirteen weeks ended May 2, 1998
and April 26, 1997. The results of operations for the thirteen-week period may
not be indicative of the results for the entire year.
These financial statements should be read in conjunction with the
audited financial statements for the year ended January 31, 1998 and related
notes which are included in the Company's Annual Report to stockholders and Form
10, as amended. Accordingly, significant accounting policies and other
disclosures necessary for complete financial statements in conformity with
generally accepted accounting principles have been omitted since such items are
reflected in the Company's audited financial statements and related notes
thereto.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements, and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(2) Accrued Expenses
Accrued expenses consisted of the following:
May 2, 1998 January 31, 1998
------------------- -------------------
Payroll and related benefits $ 1,675,000 $ 1,661,000
Taxes other than income taxes 2,237,000 1,613,000
Rent and other related costs 1,836,000 2,123,000
Other 2,255,000 2,236,000
------------------- -------------------
Total $ 8,003,000 $ 7,633,000
=================== ===================
(3) Long-Term Debt
At May 2, 1998, the Company had approximately $19,048,000 of
availability under its $40,000,000 working capital facility, after considering
outstanding letters of credit of approximately $4,260,000. The Company may
prepay amounts outstanding under the working capital facility without penalty.
(4) Leases
During the thirteen weeks ended May 2, 1998, the Company entered into
new leases for two stores, including relocations. Future minimum rental payments
6
<PAGE>
have increased approximately $2,359,000 since January 31, 1998, bringing the
total future minimum rental payments under all noncancelable operating leases
with initial or remaining lease terms of one year or more to approximately
$39,437,000.
Total rent expense for all operating leases was as follows:
Successor Predecessor
Company Company
----------------- -----------------
Thirteen Thirteen
weeks ended weeks ended
May 2, 1998 April 26, 1997
----------------- -----------------
Minimum rentals $ 2,482,000 $ 2,279,000
Contingent rentals 97,000 144,000
----------------- -----------------
Total $ 2,579,000 $ 2,423,000
================= =================
(5) Stock Based Awards
On March 26, 1998, under the 1997 Stock Incentive Plan, options to
purchase 51,500 shares of common stock were granted to certain key employees at
an exercise price of $1.00 per share, the fair market value on that date. At May
2, 1998, there were vested options outstanding to purchase 83,333 shares of
common stock at a per share exercise price of $1.15.
(6) Income Taxes
The Company provides United States federal income taxes based on its
estimated annual effective tax rate for the fiscal year. No income tax provision
has been recorded in either the first quarter of 1998 or 1997. The recognition
of income tax benefits is affected by limitations on the Company's ability to
utilize NOL carryforwards.
(7) New Accounting Pronouncements
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5 ("SOP 98-5"), "Reporting the Costs of Start-up
Activities." SOP 98-5 is effective beginning on January 1, 1999, and requires
that start-up costs capitalized prior to January 1, 1999 are written off and any
future start-up costs to be expensed as incurred. If the Company expensed these
items as incurred for the first quarter of 1998, the earnings per common share
would have been $0.02.
(8) Earnings Per Share
Net income per common share is computed based on the weighted average
number of common shares and common equivalent shares outstanding during the
period. The computation of weighted average common shares outstanding is as
follows:
Successor Predecessor
Company Company
--------------- ----------------
May 2, 1998 April 26, 1997
--------------- ----------------
Weighted average number of common
shares outstanding 19,000,000 100,000
Common stock equivalent - shares issuable
under the 1997 Stock Incentive Plan
- -
--------------- ----------------
Weighted average common shares outstanding
assuming full dilution 19,000,000 100,000
=============== ================
7
<PAGE>
As of May 2, 1998 (the end of the first quarter), the Company's common
stock was not actively traded. The Company has determined that none of its
common stock had appreciated beyond the underlying exercise price of the option
based on the most recent trading activity (i.e., no dilution for the earnings
per share computations).
ITEM 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements.
The words "anticipate," "believe," "expect," "plan," "intend," "seek,"
"estimate," "project," "will," "could," "may," and similar expressions are
intended to identify forward-looking statements. These statements include, among
others, information regarding future operations, future capital expenditures and
future cash flow. Such statements reflect the Company's current views with
respect to future events and financial performance and involve risks and
uncertainties, including, without limitation, general economic and business
conditions, changes in foreign, political, social and economic conditions,
regulatory initiatives and compliance with governmental regulations, the ability
of the Company and its competitors to predict fashion trends and customer
preferences and achieve further market penetration and additional customers,
consumer apparel buying patterns, adverse weather conditions, inventory risks
due to shifts in market demand, and various other matters, many of which are
beyond the Company's control. Should one or more of these risks or uncertainties
occur, or should underlying assumptions prove to be incorrect, actual results
may vary materially and adversely from those anticipated, believed, estimated or
otherwise indicated. Consequently, all of the forward-looking statements made in
this document are qualified by these cautionary statements and there can be no
assurance that the actual results or developments anticipated by the Company
will be realized or, even if substantially realized, that they will have the
expected consequences to or effect on the Company or its business or operations.
The Company does not undertake and expressly disclaims any obligation to
publicly update or revise any such forward-looking statements even if experience
or future changes make it clear that the projected results expressed or implied
therein will not be realized.
Results of Operations
On April 12, 1995, the Company filed a petition for reorganization
under Chapter 11 of the Federal Bankruptcy Code. The Company's Plan of
Reorganization was confirmed on August 13, 1997 and became effective on August
26, 1997. On that date, the Company adopted "fresh start" reporting in
accordance with the American Institute of Certified Public Accountants Statement
of Position 90-7, "Financial Reporting by Entities in Reorganization Under the
Bankruptcy Code," which resulted in adjustments to the Company's stockholders'
equity and the carrying value of assets and liabilities. Accordingly, the
Company's post-reorganization financial statements are not comparable to the
pre-reorganization financial statements. A vertical black line is shown in the
accompanying financial statements to separate the post-reorganization periods
from the pre-reorganization periods.
Thirteen Weeks Ended May 2, 1998 Compared to Thirteen Weeks Ended April 26, 1997
Net sales in the first quarter of 1998 decreased 1.8% to $61,579,000
from $62,686,000 in the first quarter of 1997. The decline is primarily
attributable to a 4.7% decrease in comparable stores' sales and the closing of
seven stores in the fourth quarter of 1997 offset by the new store sales. The
decline in comparable stores' sales is primarily attributable to the Company's
effort to stabilize its price points with fewer markdown goods.
Gross margin in the first quarter of 1998 increased as a percentage of
sales to 37.0% from 34.8% in the first quarter of 1997. This increase is
primarily attributable to improved initial markup and a reduction in promotional
markdowns. These results are not indicative of performance during more
competitive seasons.
8
<PAGE>
Selling, administrative and other operating costs increased to
$22,010,000 in the first quarter of 1998 compared to $21,241,000 in the first
quarter of 1997. The increase is primarily attributable to increased payroll
costs due to federally mandated minimum wage increases, promotional advertising
and rent expense offset by reductions in supply expense and insurance expense.
As a percentage of sales, selling, administrative and other operating costs in
the first quarter of 1998 increased to 35.7% from 33.9% in the first quarter of
1997. This increase is primarily attributable to the decrease in comparable
stores' sales.
The first quarter of 1997 included $750,000 of reorganization expense.
There has been no reorganization expense since August 26, 1997 when the Company
emerged from Chapter 11 reorganization.
Operating income increased to $781,000 in the first quarter of 1998
from an operating loss of $202,000 in the first quarter of 1997. Had the Company
not incurred the reorganization expense referred to above, first quarter 1997
operating income would have been $548,000. The Company is focusing on its
inventory mix and evaluating overall expense control initiatives to further
enhance operating income for fiscal 1998.
The Company provides United States federal income taxes based on its
estimated annual effective tax rate for the fiscal year. No income tax provision
has been recorded in either the first quarter of 1998 or 1997. The recognition
of income tax benefits is affected by limitations on the Company's ability to
utilize NOL carryforwards.
The Company recorded interest expense of $177,000 in the first quarter
of 1998 compared to $11,000 in the first quarter of 1997. During its bankruptcy
proceedings, the Company discontinued accruing interest on substantially all of
its prepetition debt. Interest expense has increased as a result of the
Company's emergence from Chapter 11 reorganization on August 26, 1997.
Interest income during the first quarter of 1998 was approximately zero
compared to $126,000 during the first quarter of 1997. This decline in interest
income is primarily due to the reduction in cash available for investment in the
first quarter of 1998 as compared to the first quarter of 1997.
The Company's net income for the first quarter of 1998 was $604,000
compared to a net loss of $87,000 for the first quarter of 1997. Net income per
common share for the first quarter of 1998 was $0.03 per common share. The
Company adopted "fresh start" accounting upon its emergence from Chapter 11
reorganization. Earnings per share for prior periods is based on the Predecessor
Company shares then outstanding; such information is not comparable due to the
Company's reorganization.
Liquidity and Capital Resources
The Company's cash used in operations was $299,000 during the thirteen
weeks ended May 2, 1998, compared to cash used in operations of $3,770,000
during the thirteen weeks ended April 26, 1997. The decrease in cash flow used
in operations is primarily attributable to the elimination of the incurrence of
reorganization expense since the Company's emergence from Chapter 11
reorganization on August 26, 1997. The Company's working capital was $44,378,000
at May 2, 1998 compared to $41,249,000 at January 31, 1998 and $53,530,000 at
April 26, 1997. The Company's primary source of liquidity has been borrowings
under the revolving credit agreement.
At May 2, 1998, the Company had approximately $19,048,000 of
availability under the revolving credit agreement, after considering borrowings
and outstanding letters of credit. At May 2, 1998, the aggregate amount of
outstanding letters of credit thereunder was approximately $4,260,000. The
Company may prepay amounts outstanding under the revolving credit agreement
without penalty.
The Company's capital expenditures are expected to be between
$5,000,000 and $7,000,000 in fiscal 1998 primarily for the opening of new
stores, remodeling of existing stores and enhancements of the management
information systems. The Company will fund these capital expenditures from cash
flows from operations and borrowings under the revolving credit agreement.
9
<PAGE>
The Company's revolving credit agreement provides a $40,000,000 working
capital facility, including a $15,000,000 subfacility for the issuance of
letters of credit. The revolving credit agreement is secured by substantially
all of the Company's assets. The revolving credit agreement provides that
proceeds may be used solely to fund working capital in the ordinary course of
business and for other general corporate purposes. Borrowings under the
revolving credit agreement bear interest at the reference rate thereunder plus
.375% or, at the option of the Company, the Eurodollar Rate thereunder plus
2.25%. Under the terms of the revolving credit agreement, capital expenditures
are limited to $7,000,000 in fiscal 1998. The revolving credit agreement further
stipulates certain borrowing limitations based on the Company's inventory levels
and requires that the Company comply with certain financial covenants. The
expiration date of the revolving credit agreement is August 31, 2000.
The Company believes that its internally generated cash flow, together
with borrowings under the revolving credit agreement, will be adequate to
finance the Company's operating requirements, debt repayments and capital needs
during the foreseeable future. Any material shortfalls in operating cash flow
could require the Company to seek alternative sources of financing or to reduce
capital expenditures.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk
Not Applicable.
10
<PAGE>
PART 2. OTHER INFORMATION
ITEM 1. Legal Proceedings
The Company is party to ordinary routine litigation,
arbitration and proceedings incidental to its business, the disposition
of which is not expected to have a material adverse effect on the
Company's business or financial condition.
ITEM 2. Changes in Securities and Use of Proceeds
None.
ITEM 3. Defaults Upon Senior Securities
None.
ITEM 4. Submission of Matters to a Vote of Security Holders
None.
ITEM 5. Other Information
None.
ITEM 6. Exhibits and Reports on Form 8-K
(a) Exhibit
No. Description
------- -----------
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
registration statement on Form 10 filed April 14, 1998)
3.2 Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's registration statement on Form 10
filed April 14, 1998)
10.1 Transportation Agreement between the Company and Roadrunner
Moving & Storage, Inc., dated February 11, 1998 (incorporated
by reference to Exhibit 10.16 to the Company's registration
statement on Form 10 filed April 14, 1998)
27.1 Financial Data Schedule
(b) The Company did not file any reports on Form 8-K during the first
quarter of fiscal 1998. The Company filed a Current Report on Form 8-K
on May 27, 1998, and filed Amendment No. 2 to such Current Report on
Form 8-K on Form 8-K/A on June 2, 1998, to report, pursuant to Item 4
of Form 8-K, the dismissal of the Company's independent accountant and
the appointment of a new independent accountant.
11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WEINER'S STORES, INC.
June 16, 1998 /s/ Raymond J. Miller
-------------------- -----------------------------------
(Date) By: Raymond J. Miller
Vice President and Chief
Financial Officer
12
<PAGE>
INDEX OF EXHIBITS
Exhibit No. Description
- ---------- -----------
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
registration statement on Form 10 filed April 14, 1998)
3.2 Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's registration statement on Form 10
filed April 14, 1998)
10.1 Transportation Agreement between the Company and Roadrunner
Moving & Storage, Inc., dated February 11, 1998 (incorporated
by reference to Exhibit 10.16 to the Company's registration
statement on Form 10 filed April 14, 1998)
27.1 Financial Data Schedule
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-30-1999
<PERIOD-END> MAY-02-1998
<CASH> 4,657
<SECURITIES> 0
<RECEIVABLES> 2,521
<ALLOWANCES> 0
<INVENTORY> 54,885
<CURRENT-ASSETS> 65,908
<PP&E> 20,039
<DEPRECIATION> 2,653
<TOTAL-ASSETS> 88,937
<CURRENT-LIABILITIES> 21,530
<BONDS> 0
0
0
<COMMON> 190
<OTHER-SE> 58,383
<TOTAL-LIABILITY-AND-EQUITY> 88,937
<SALES> 61,579
<TOTAL-REVENUES> 61,579
<CGS> 38,788
<TOTAL-COSTS> 38,788
<OTHER-EXPENSES> 22,010
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 177
<INCOME-PRETAX> 604
<INCOME-TAX> 0
<INCOME-CONTINUING> 604
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 604
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
</TABLE>
