================================================================================
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 October 30, 1999 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 X No
-- --
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 December 10, 1999, there were 18,476,830 shares of Weiner's
Stores, Inc. common stock, par value $.01 per share, outstanding.
80289.0001
<PAGE>
WEINER'S STORES, INC.
FORM 10-Q
QUARTER ENDED OCTOBER 30, 1999
Table of Contents
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements 3
Consolidated Statements of Operations 3
Consolidated Balance Sheets 4
Consolidated Statements of Cash Flows 5
Notes to Consolidated Financial Statements 6-8
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 8-13
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 13
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 14
ITEM 2. Changes in Securities and Use of Proceeds 14
ITEM 3. Defaults Upon Senior Securities 14
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
EXHIBIT INDEX 16
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 30, 1999 October 31, 1998 October 30, 1999 October 31, 1998
-------------------------------------------- -------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 58,859,000 $ 60,585,000 $ 207,993,000 $ 190,712,000
Cost of goods sold 38,061,000 39,984,000 138,422,000 124,835,000
-------------------------------------------- -------------------------------------------
Gross margin 20,798,000 20,601,000 69,571,000 65,877,000
Selling, administrative
and other operating costs 22,986,000 23,001,000 68,703,000 67,827,000
-------------------------------------------- -------------------------------------------
Operating (loss) income (2,188,000) (2,400,000) 868,000 (1,950,000)
Interest expense (249,000) (309,000) (809,000) (751,000)
Interest income - - - -
-------------------------------------------- -------------------------------------------
(Loss) income before income taxes (2,437,000) (2,709,000) 59,000 (2,701,000)
Income taxes - - - -
-------------------------------------------- -------------------------------------------
Net (loss) income $ (2,437,000) $ (2,709,000) $ 59,000 $ (2,701,000)
============================================ ===========================================
Net (loss) income per share of
common stock $ (0.13) $ (0.14) $ 0.00 $ (0.14)
============================================ ===========================================
Weighted average number of shares of
common stock 18,497,000 19,000,000 18,486,000 19,000,000
============================================ ===========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
WEINER'S STORES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
October 30, January 30,
1999 1999
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 4,896,000 $ 7,176,000
Receivables, net 2,382,000 1,252,000
Merchandise inventories, net 57,574,000 54,243,000
Prepaid expenses and other assets 4,329,000 2,380,000
------------ ------------
Total current assets 69,181,000 65,051,000
------------ ------------
Property and Equipment:
Land 258,000 258,000
Building - distribution center and office facility 1,996,000 1,996,000
Furniture, fixtures and leasehold improvements 24,628,000 20,728,000
------------ ------------
Total 26,882,000 22,982,000
Less accumulated depreciation and amortization (7,005,000) (4,296,000)
------------ ------------
Total property and equipment, net 19,877,000 18,686,000
------------ ------------
Excess Reorganization Value, less accumulated amortization of
$728,000 and $504,000, respectively 3,684,000 3,907,000
------------ ------------
$ 92,742,000 $ 87,644,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 17,900,000 $ 20,999,000
Accrued expenses and other current liabilities 9,410,000 9,271,000
------------ ------------
Total current liabilities 27,310,000 30,270,000
------------ ------------
Other Liabilities 397,000 397,000
Long-Term Debt 12,000,000 4,000,000
Commitments and Contingencies -- --
Stockholders' Equity:
Common stock, $.01 par value, 50,000,000 shares authorized,
19,000,000 shares issued 190,000 190,000
Additional paid-in capital 63,664,000 63,664,000
Accumulated deficit (10,819,000) (10,877,000)
Treasury stock, at cost, 523,170 shares -- --
------------ ------------
Total stockholders' equity 53,035,000 52,977,000
------------ ------------
$ 92,742,000 $ 87,644,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Thirty-nine Thirty-nine
Weeks Ended Weeks Ended
October 30, 1999 October 31, 1998
---------------- ----------------
Net cash used in operating activities $(6,376,000) $(1,141,000)
----------- -----------
Cash Flows from Investing Activities:
Capital expenditures (3,904,000) (3,834,000)
Proceeds on disposition of assets -- 65,000
----------- -----------
Net cash used in investing activities (3,904,000) (3,769,000)
----------- -----------
Cash Flows from Financing Activities:
Net borrowings under bank line of credit 8,000,000 8,000,000
----------- -----------
Net cash provided by financing activities 8,000,000 8,000,000
----------- -----------
Net (Decrease) Increase in Cash (2,280,000) 3,090,000
Cash, beginning of period 7,176,000 3,574,000
----------- -----------
Cash, end of period $ 4,896,000 $ 6,664,000
=========== ===========
The accompanying notes are an integral part of these consolidated financial
statements.
5
<PAGE>
WEINER'S STORES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) Basis of Presentation
In the opinion of management, the accompanying unaudited consolidated
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 October 30,
1999, and the results of its operations and its cash flows for each of the
thirteen and thirty-nine week periods ended October 30, 1999 and October 31,
1998. The results of operations for the thirteen and thirty-nine week periods
may not be indicative of the results for the entire year.
These consolidated financial statements should be read in conjunction
with the audited consolidated financial statements for the fiscal year ended
January 30, 1999 and related notes which are included in the Company's Annual
Report on Form 10-K. Accordingly, significant accounting policies and other
disclosures necessary for complete consolidated financial statements in
conformity with generally accepted accounting principles have been omitted since
such items are reflected in the Company's audited consolidated financial
statements and related notes thereto.
The preparation of consolidated 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 consolidated financial statements, and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Certain prior year balances have been reclassified to conform to
current year presentation.
(2) Long-Term Debt
On October 4, 1999 the Company amended its revolving credit
agreement. The amended revolving credit agreement provides for a $40,000,000
working capital facility, including a $15,000,000 sub-facility for the issuance
of letters of credit. The agreement is secured by substantially all of the
Company's assets. The amendment extends the term of the agreement an additional
three years to August 30, 2003. The amendment also changes the Company's monthly
financial covenant tests to quarterly tests. The amendment permits capital
expenditures of $7,000,000 in the year ended January 29, 2000, $8,500,000 in
each of the years ended February 3, 2001, February 2, 2002 and February 1, 2003,
and $5,000,000 for the period from February 2, 2003 through August 30, 2003. The
amended agreement provides that proceeds of the loans may be used solely to fund
working capital in the ordinary course of business and for other general
corporate purposes.
At October 30, 1999, the Company had approximately $19,355,000 of
availability under its $40,000,000 working capital facility, after considering
outstanding letters of credit of approximately $4,549,000 and borrowings of
$12,000,000. The Company may prepay amounts outstanding under the working
capital facility without penalty.
(3) Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
October 30, 1999 January 30, 1999
------------------------ ----------------------
<S> <C> <C>
Payroll and related benefits $ 1,488,000 $ 2,211,000
Taxes other than income taxes 2,852,000 1,563,000
Rent and other related costs 2,405,000 2,264,000
Other 2,665,000 3,233,000
------------------------ ----------------------
Total $ 9,410,000 $ 9,271,000
======================== ======================
</TABLE>
6
<PAGE>
(4) Leases
During the thirty-nine weeks ended October 30, 1999, the Company
entered into new leases for seven stores, including relocations, and executed
renewal options on several locations. During the thirty-nine weeks ended October
30, 1999, the Company opened six new stores and closed two stores. Future
minimum rental payments have increased approximately $11,437,000 since January
30, 1999, 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 $47,747,000.
Total rent expense for all operating leases was as follows:
<TABLE>
<CAPTION>
Thirteen Thirteen Thirty-nine Thirty-nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 30, 1999 October 31, 1998 October 30, 1999 October 31, 1998
------------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Minimum rentals $ 2,796,000 $ 2,580,000 $ 8,174,000 $ 7,559,000
Contingent rentals 116,000 116,000 369,000 337,000
------------------- --------------------- ------------------- ---------------------
Total $ 2,912,000 $ 2,696,000 $ 8,543,000 $ 7,896,000
=================== ===================== =================== =====================
</TABLE>
(5) 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
was recorded in either the third quarter of 1999 or 1998, or during the first
nine months of 1999 or 1998. The recognition of income tax benefits is affected
by limitations on the Company's ability to utilize net operating loss
carryforwards. No income taxes were paid during the third quarter of 1999 or
1998, or during the first thirty-nine weeks of 1999 or 1998.
(6) New Accounting Developments
The Accounting Standards Executive Committee has issued Statement of
Position 98-5, "Reporting the Costs of Start-up Activities" ("SOP 98-5"). Among
other things, SOP 98-5 requires that the costs of start-up activities be
expensed as incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company has adopted SOP 98-5 beginning January 31, 1999
(fiscal year 1999). Prior to its adoption of SOP 98-5, the Company expensed the
costs associated with the opening of new stores in the fiscal year in which the
store was opened. Had start-up costs been expensed as incurred in fiscal 1998,
the third quarter of 1998 would have resulted in a net loss of $2,820,000 and
the first thirty-nine weeks of 1998 would have resulted in a net loss of
$2,812,000.
The Company offers a layaway program pursuant to which its customers
are permitted to purchase merchandise currently available for sale and pay for
the goods over a 30 to 60 day period. At the time of the sale, the goods are
segregated from the Company's inventory and held for the benefit of the customer
pending payment in full for the goods. The Company views layaway transactions as
similar to charge sales that carry a right of return. In the first nine months
of 1999 the Company's layaway program accounted for approximately 10.7% of the
Company's revenues. Layaways are recognized as revenue at the point of sale and
as a receivable on the balance sheet (net layaway receivables at October 30,
1999 are $1,517,000 as compared to $2,335,000 at October 31, 1998). The Company
provides an allowance for layaway sales receivables based on management's
estimate of the amount by which uncollected receivables will exceed the cost of
the items reverting back to inventory. This estimate is based on the Company's
historical calculation of layaway sales that will never be completed. The
Company generally requires a refundable deposit on layaway sales. As customers
pay off the balance on their layaway purchases, the payment reduces the
corresponding receivable.
The Staff (the "Staff") of the U.S. Securities and Exchange
Commission (the "SEC") has requested that the Company change its treatment
regarding revenue recognition of layaway sales, commencing with the
7
<PAGE>
Company's forthcoming fiscal year which begins January 30, 2000, to reflect
layaway sales as deposits until the merchandise is paid in full and delivered to
the customer. The SEC issued Staff Accounting Bulletin No. 101 - Revenue
Recognition in Financial Statements ("SAB 101") on December 3, 1999. SAB 101
requires that layaway sales be treated in a manner consistent with such request.
As a result of the Staff's request and the subsequent issuance of SAB 101, the
Company is planning to change its treatment regarding revenue recognition of
layaway sales to be consistent with the Staff's recommendation and SAB 101
commencing on the first day of the Company's next fiscal year which begins
January 30, 2000.
The Company currently is evaluating the impact of this change in
revenue recognition of layaway sales. This evaluation is very difficult due to
the system constraints regarding the historical information of payments relating
to specific transactions. The Company estimates that, in the year of adoption,
approximately $1.0 to $3.0 million of revenue would be deferred into the next
fiscal year. Once adopted, the Company believes there will be a minimal impact
on an annual basis, however the impact on the results of operations on a quarter
to quarter basis will be much more pronounced. The impact will be especially
pronounced in the second and third quarters and first six and nine month periods
because these periods include a portion of the Company's important
back-to-school sales period. Had the Company accounted for the layaway sales as
deposits during fiscal 1999, approximately $12.0 to $15.0 million of second
quarter revenues, and approximately $13.0 to $18.0 million of the first six
months revenues, would have been deferred to subsequent periods. The third
quarter revenue would have increased approximately $13.0 million and for the
first nine months revenue of approximately $1.5 to $3.5 million would have been
deferred to subsequent periods.
(7) Earnings Per Share
Net income per share of common stock is computed based on the
weighted average number of shares of common stock and equivalent shares of
common stock outstanding during the period. The computation of weighted average
shares of common stock outstanding is as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-nine Weeks Ended
------------------------------------- ------------------------------------
October 30, October 31, October 30, October 31,
1999 1998 1999 1998
--------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Weighted average number of shares of
common stock outstanding 18,476,830 19,000,000 18,476,830 19,000,000
Common stock equivalent - shares issuable
under the 1997 Stock Incentive Plan 15,413 - 5,138 -
--------------- ----------------- ---------------- ---------------
Weighted average number of shares of common
stock outstanding assuming full dilution 18,496,659 19,000,000 18,486,054 19,000,000
=============== ================= ================ ===============
</TABLE>
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, Year 2000 issues, 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 Report 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
8
<PAGE>
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
THIRTEEN WEEKS ENDED OCTOBER 30, 1999 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER
31, 1998
Net sales in the third quarter of 1999 decreased 2.8% to $58,859,000
from $60,585,000 in the third quarter of 1998. The decrease is primarily
attributable to a 6.2% decrease in comparable store sales for the third quarter
of 1999 compared to the same period last year, offset by sales for new stores
opened in 1999 and the latter part of 1998.
Gross margin in the third quarter of 1999 increased as a percentage
of sales to 35.3% from 34.0% in the third quarter of 1998. This increase is
primarily attributable to a reduction of promotional and permanent markdowns.
These reductions in markdowns reflect the Company's progressive change to an
everyday low price marketing concept.
Selling, administrative and other operating costs decreased to
$22,986,000 in the third quarter of 1999 compared to $23,001,000 in the third
quarter of 1998. The decrease is primarily attributable to reductions in
advertising and payroll expense, offset by rent expense related to new stores
and maintenance expense related to existing facilities. As a percentage of
sales, selling, administrative and other operating costs in the third quarter of
1999 increased to 39.1% from 38.0% in the third quarter of 1998. This increase
is primarily attributable to the decrease in sales during the third quarter of
1999 as discussed above.
Operating loss decreased to $2,188,000 in the third quarter of 1999
from an operating loss of $2,400,000 in the third quarter of 1998. The Company
continues to focus on its inventory mix and evaluating overall expense control
initiatives to attempt to further enhance operating results for the remainder of
fiscal 1999.
The Company provides United States federal income taxes based on its
estimated annual effective tax rate for the fiscal year. No income tax provision
was recorded in either the third quarter of 1999 or the third quarter of 1998.
The recognition of income tax benefits is affected by limitations on the
Company's ability to utilize net operating loss carryforwards. No income taxes
were paid during the third quarter of 1999 or the third quarter of 1998.
The Company recorded interest expense of $249,000 in the third
quarter of 1999 compared to $309,000 in the third quarter of 1998. The decrease
is due primarily to the decrease in borrowings during the third quarter of 1999
as compared to the third quarter of 1998.
The Company's net loss was $2,437,000, or $0.13 per share of common
stock, for the third quarter of 1999, compared to a net loss of $2,709,000, or
$0.14 per share of common stock, for the third quarter of 1998.
THIRTY-NINE WEEKS ENDED OCTOBER 30, 1999 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 31, 1998
Net sales in the first nine months of 1999 increased 9.1% to
$207,993,000 from $190,712,000 in the first nine months of 1998. The increase is
primarily attributable to a 6.4% increase in comparable store sales for the
first nine months of 1999 compared to the same period last year and new stores
opened in 1999 and the latter part of 1998.
Gross margin in the first nine months of 1999 decreased as a
percentage of sales to 33.4% from 34.5% in the first nine months of 1998. This
decrease is primarily attributable to lower planned initial markup and increased
promotional markdowns to support the Company's new marketing concept.
Selling, administrative and other operating costs increased to
$68,703,000 in the first nine months of 1999 compared to $67,827,000 in the
first nine months of 1998. The increase is primarily attributable to an
9
<PAGE>
increase in utility expense, rent expense relating to new stores, outbound store
freight and bankcard service charges, offset by a decrease in promotional
advertising and depreciation expense. As a percentage of sales, selling,
administrative and other operating costs in the first nine months of 1999
decreased to 33.0% from 35.6% in the first nine months of 1998. This decrease is
primarily attributable to the increase in sales during the first nine months of
1999 as discussed above and expense control.
Operating income increased to $868,000 in the first nine months of
1999 from a net loss of $1,950,000 in the first nine months of 1998. The Company
continues to focus on its inventory mix and evaluating overall expense control
initiatives to attempt to further enhance operating results for the remainder of
fiscal 1999.
The Company provides United States federal income taxes based on its
estimated annual effective tax rate for the fiscal year. No income tax provision
was recorded in either the first nine months of 1999 or the first nine months of
1998. The recognition of income tax benefits is affected by limitations on the
Company's ability to utilize net operating loss carryforwards. No income taxes
were paid during the first nine months of 1999 or the first nine months of 1998.
The Company recorded interest expense of $809,000 in the first nine
months of 1999 compared to $751,000 in the first nine months of 1998. The
increase is due primarily to the increase in average borrowings during the first
nine months of 1999 as compared to the first nine months of 1998.
The Company's net income was $59,000, or less than $0.01 per share of
common stock, for the first nine months of 1999, compared to net loss of
$2,701,000, or $0.14 per share of common stock, for the first nine months of
1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash from Operations and Working Capital
The Company's cash used in operations was $6,376,000 during the
thirty-nine weeks ended October 30, 1999, compared to cash used in operations of
$1,141,000 during the thirty-nine weeks ended October 31, 1998. The increase in
net cash used in operations is primarily attributable to the increase in net
receivables, inventories and prepaid expenses, offset by a reduction in accounts
payable. The Company's working capital was $41,871,000 at October 30, 1999
compared to $34,781,000 at January 30, 1999 and $45,938,000 at October 31, 1998.
The Company's primary source of liquidity has been borrowings under the
revolving credit agreement (the "Revolving Credit Agreement"), dated August 26,
1997, as amended, between the Company and The CIT Group/Business Credit, Inc.,
as agent (the "Agent") and the lenders thereunder.
Revolving Credit Agreement
On October 4, 1999 the Company amended its Revolving Credit
Agreement. The amendment extends the term of the agreement an additional three
years to August 30, 2003. The Company's Revolving Credit Agreement, as amended,
provides a $40,000,000 working capital facility, including a $15,000,000
sub-facility 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 0.5% or, at the option of the Company, the
Eurodollar Rate thereunder plus 2.5%. Under the terms of the Revolving Credit
Agreement, capital expenditures are limited to $7,000,000 in fiscal 1999,
$8,500,000 in each of fiscal years 2000, 2001 and 2002, and $5,000,000 in the
period from February 2, 2003 through August 30, 2003. The amended 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. Under the amendment these covenants have been changed from
monthly tests to quarterly tests. As of October 30, 1999, the Company was in
compliance with all of its covenants under the Revolving Credit Agreement.
At October 30, 1999, the Company had approximately $19,355,000 of
availability under the working capital facility, after considering borrowings
and outstanding letters of credit. At October 30, 1999, the outstanding letters
of credit thereunder were approximately $4,549,000.
10
<PAGE>
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 or variances from anticipated performance could require the Company to seek
alternative sources of financing or to limit capital expenditures.
Capital Expenditures
The Company's capital expenditures are expected to be approximately
$6,500,000 in fiscal 1999, primarily for the opening of new stores, remodeling
of existing stores and management information system enhancements. The Company
expects to fund these capital expenditures from cash generated by operations and
borrowings under the Revolving Credit Agreement.
On August 8, 1999, the Company entered into a purchase agreement with
its current merchandising/general ledger software and hardware provider by which
the Company plans to install a state-of-the-art point of sale ("POS") system in
approximately 60 of its stores during fiscal 2000 and 2001. The estimated cost
of equipment and software over the two year period is approximately $2,500,000.
At this juncture, the Company has not determined whether it will lease or
purchase the POS system.
NEW ACCOUNTING DEVELOPMENTS
The Accounting Standards Executive Committee has issued Statement of
Position 98-5, "Reporting the Costs of Start-up Activities" ("SOP 98-5"). Among
other things, SOP 98-5 requires that the costs of start-up activities be
expensed as incurred. SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company has adopted SOP 98-5 beginning January 31, 1999
(fiscal year 1999). Prior to its adoption of SOP 98-5, the Company expensed the
costs associated with the opening of new stores in the fiscal year in which the
store was opened. Had start-up costs been expensed as incurred in fiscal 1998,
the third quarter of 1998 would have resulted in a net loss of $2,820,000 and
the first thirty-nine weeks of 1998 would have resulted in a net loss of
$2,812,000.
The Company offers a layaway program pursuant to which its customers
are permitted to purchase merchandise currently available for sale and pay for
the goods over a 30 to 60 day period. At the time of the sale, the goods are
segregated from the Company's inventory and held for the benefit of the customer
pending payment in full for the goods. The Company views layaway transactions as
similar to charge sales that carry a right of return. In the first nine months
of 1999 the Company's layaway program accounted for approximately 10.7% of the
Company's revenues. Layaways are recognized as revenue at the point of sale and
as a receivable on the balance sheet (net layaway receivables at October 30,
1999 are $1,517,000 as compared to $2,335,000 at October 31, 1998). The Company
provides an allowance for layaway sales receivables based on management's
estimate of the amount by which uncollected receivables will exceed the cost of
the items reverting back to inventory. This estimate is based on the Company's
historical calculation of layaway sales that will never be completed. The
Company generally requires a refundable deposit on layaway sales. As customers
pay off the balance on their layaway purchases, the payment reduces the
corresponding receivable.
The Staff of the U.S. Securities and Exchange Commission (the
"Staff") has requested that the Company change its treatment regarding revenue
recognition of layaway sales, commencing with the Company's forthcoming fiscal
year which begins January 30, 2000, to reflect layaway sales as deposits until
the merchandise is paid in full and delivered to the customer. The Securities
and Exchange Commission ("SEC") issued Staff Accounting Bulletin No. 101 -
Revenue Recognition in Financial Statements on December 3, 1999. This bulletin
addresses revenue recognition matters which would require that layaway sales be
treated in a manner consistent with such request. As a result of the Staff's
request and the issuance ot this bulletin, the Company is currently planning to
change its treatment regarding revenue recognition of layaway sales to be
consistent with their recommendation commencing in the Company's next fiscal
year which begins January 30, 2000.
The Company currently is evaluating the impact of this change in
revenue recognition of layaway sales. This evaluation is very difficult due to
the system constraints regarding the historical information of
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payments relating to specific transactions. The Company estimates that, in the
year of adoption, approximately $1.0 to $3.0 million of revenue would be
deferred into the next fiscal year. Once adopted, the Company believes there
will be a minimal impact on an annual basis, however the impact on the results
of operations on a quarter to quarter basis will be much more pronounced. The
impact will be especially pronounced in the second and third quarter and first
six and nine month periods because these periods include a portion of the
Company's important back-to-school sales period. Had the Company accounted for
the layaway sales as deposits during fiscal 1999, approximately $12.0 to $15.0
million of second quarter revenues, and approximately $13.0 to $18.0 million of
the first six months revenues, would have been deferred to subsequent periods.
The third quarter revenue would have increased approximately $13.0 million and
for the first nine months revenue of approximately $1.5 to $3.5 million would
have been deferred to subsequent periods.
YEAR 2000 READINESS DISCLOSURE
The Year 2000 issue is primarily the result of computer programs
being written using two digits rather than four to define the applicable year.
Certain information technology systems and their associated software and certain
equipment that utilizes embedded logic chips to control aspects of its operation
may recognize "00" as a year other than the year 2000. Some systems and embedded
chip equipment owned or used by the Company and third parties that do business
with the Company may contain two-digit programming to define a year. The Year
2000 issue could result, at the Company and elsewhere, in system failures or
miscalculations causing disruptions of operations, including, among other
things, a temporary inability to process transactions or to engage in other
normal business activities.
The Company's State of Readiness
In the ordinary course of business, the Company initiated plans to
replace or enhance its core business systems beginning in fiscal 1996 through
1999 with systems which would be Year 2000 compliant. During fiscal 1997, the
Company established an oversight committee (the "Committee"), consisting of
individuals from each of its functional areas, to review all of the Company's
computer systems and programs, as well as to make inquiries with respect to the
computer systems of the third parties upon whose data or functionality the
Company relies in any material respect, and to assess their ability to process
transactions in the year 2000. The Committee meets regularly to review the
progress of the Company's Year 2000 compliance initiative. The goal of the
Committee is to achieve a transition for the Company into the year 2000 that is
free of any material interruptions. The Company has divided its Year 2000
efforts into five phases: (i) identification and inventorying of systems,
including embedded chip equipment with potential Year 2000 problems; (ii)
assessment of the scope of Year 2000 issues for, and assigning priorities to,
each item based on its importance to the Company's operations; (iii) remediation
of Year 2000 issues in accordance with assigned priorities, by correction,
upgrade, replacement, or retirement; (iv) testing for a validation of Year 2000
compliance; and (v) developing contingency plans to address the most reasonably
likely worst case scenario for the Company's Year 2000 issues. As of the date of
this report, the Company believes it has internally achieved Year 2000
compliance.
The Company's operations are also dependent upon the Year 2000
readiness of third parties who do business with the Company. In particular, the
Company's systems interact with commercial electronic transaction processing
systems to handle customer credit card purchases and other point of sale
transactions, and the Company is dependent on third-party suppliers of such
infrastructure elements as, but not limited to, telephone service, electric
power, gas, water, banking facilities, merchandise purchases, deliveries,
federal, state and other governmental agencies, and other services. The Company
has identified and has initiated formal communications with key third parties
and suppliers and with significant merchandise vendors to determine the extent
to which such parties have resolved their own Year 2000 issues. Although the
Company is continuing to make such inquiries of third party providers and to
seek responses thereto, and the Company has not been put on notice that any
known third party problem will not be resolved, the Company has limited
information and no assurance of additional information concerning the Year 2000
readiness of third parties. Consequently, the resulting risks to the Company's
business are very difficult to assess. Where commercially reasonable to do so,
the Company intends to assess its risks with respect to failure by third parties
to be Year 2000 compliant and to seek to mitigate those risks. The Company
believes that there are certain third party providers with respect to which
there is no reasonable method to mitigate such risks.
12
<PAGE>
Costs
The total cost associated with becoming Year 2000 compliant is not
expected to be material to the Company's financial position. The Company expects
such costs in the aggregate to be approximately $50,000 exclusive of system
additions, upgrades or replacements incurred in the ordinary course of business
and assuming no necessity to implement contingency plans. Such costs through
October 30, 1999 have been approximately $35,000. Any remaining compliance costs
are expected to be incurred within the next month.
Risks
The Company intends and expects to implement the changes that it
determines to be necessary to address the Year 2000 issue for systems and
embedded chip equipment used within the Company. The Company presently believes
that, with modifications to its existing software, conversions to new software,
and appropriate remediation of embedded chip equipment, the Year 2000 issue is
not reasonably likely to pose significant operational problems for the Company's
systems and embedded chip equipment as so modified and converted. However, if
unforeseen difficulties arise or such modifications, conversions and
replacements are not completed on a timely basis, or if the Company's vendors'
or suppliers' systems are not Year 2000 compliant, the Year 2000 issue may have
a material, adverse effect on the results of operations and financial condition
of the Company.
The Company is presently unable to accurately assess the likelihood
that the Company will experience significant operational problems due to
unresolved Year 2000 problems of third parties who do business with the Company.
There can be no assurance that such other entities will achieve Year 2000
compliance or do so on a timely basis; if they do not, Year 2000 problems could
have a material, adverse effect on the Company's operations. Similarly, there
can be no assurance that the Company can timely mitigate its risks related to
suppliers' failure to resolve their Year 2000 issues. If such mitigation is not
achievable, Year 2000 problems could have a material, adverse effect on the
Company's operations.
The Company's estimates of costs of achieving Year 2000 compliance
are based on management's best estimates, which were derived using numerous
assumptions about future events including the continued availability of certain
resources, third party modification plans and other factors. However, there can
be no assurance that these estimates will be achieved, and actual results could
differ materially from these estimates. Specific factors that might cause such
material differences include, but are not limited to, the availability and cost
of personnel trained in Year 2000 remediation work, the ability to locate and
correct all relevant computer codes and to do so on a timely basis, the success
achieved by the Company's suppliers in reaching Year 2000 readiness, the timely
availability of necessary replacement items and similar uncertainties, many of
which are beyond the Company's control.
Contingency Plans
Currently, the Company believes that detailed Year 2000 contingency
plans to address the Company's most critical operational areas are unnecessary,
to the extent such areas are under the direct control of the Company, because
the Company believes it has achieved Year 2000 compliance at the internal
Company level. Under any circumstance, the necessity, timing and cost of any
contingency plans must be evaluated on a case-by-case basis and may vary
considerably, and testing results and external business partner responses may
require changes in or additions to such plans. Furthermore, there may be no
practical alternative course of action available to the Company for some issues.
The Company currently believes that detailed contingency planning for Year 2000
issues not under the direct control of the Company would be speculative,
although the Company continues to monitor on an ongoing basis the need for and
feasibility of such planning.
The Company's statements of its expectations regarding the Year 2000
problem, including as to the current status, date of completion and costs of its
Year 2000 compliance programs, are forward-looking statements. These statements
are management's best estimates based on information currently available.
Therefore, they are inherently subject to risks and uncertainties, including
those described above, which could
13
<PAGE>
cause actual results to differ and which may have a material, adverse effect on
the Company's business, financial position, results of operations or capital or
liquidity needs.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
PART II. 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
A Special Meeting of the Stockholders of the Company was
held on August 5, 1999. The matter voted on at the meeting was the
approval of the Company's 1999 Stock Incentive Plan.
The number of shares that were voted for, against and
abstained with respect to the approval of the Company's 1999 Stock
Incentive Plan , and the number of broker non-votes with respect
thereto, are as follows:
Voted For Voted Against Abstained Broker Non-Votes
--------- ------------- --------- ----------------
10,029,142 409,251 126,587 0
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)
27.1 Financial Data Schedule (filed herewith)
(b) The Company did not file any reports on Form 8-K during the third
quarter of 1999
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
WEINER'S STORES, INC.
December 13, 1999 By: /s/ Raymond J. Miller
----------------- ---------------------
(Date) Raymond J. Miller
Executive Vice President,
Chief Operating Officer,
Chief Financial Officer and Secretary
15
<PAGE>
EXHIBIT INDEX
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)
27.1 Financial Data Schedule (filed herewith)
16
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Company's financial statements Contained in the accompanying Quarterly Report on
Form 10-Q and is qualified in its entirety by reference To such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JAN-29-2000 JAN-29-2000
<PERIOD-END> OCT-30-1999 OCT-30-1999
<CASH> 0 4,896
<SECURITIES> 0 0
<RECEIVABLES> 0 2,382
<ALLOWANCES> 0 0
<INVENTORY> 0 57,574
<CURRENT-ASSETS> 0 69,181
<PP&E> 0 26,882
<DEPRECIATION> 0 7,005
<TOTAL-ASSETS> 0 92,742
<CURRENT-LIABILITIES> 0 27,310
<BONDS> 0 0
0 0
0 0
<COMMON> 0 190
<OTHER-SE> 0 52,845
<TOTAL-LIABILITY-AND-EQUITY> 0 92,742
<SALES> 58,859 207,993
<TOTAL-REVENUES> 58,859 207,993
<CGS> 38,061 138,422
<TOTAL-COSTS> 38,061 138,422
<OTHER-EXPENSES> 22,986 68,703
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 249 809
<INCOME-PRETAX> (2,437) 59
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (2,437) 59
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (2,437) 59
<EPS-BASIC> (0.13) 0.00
<EPS-DILUTED> (0.13) 0.00
</TABLE>
