================================================================================
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 July 31, 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 September 10, 1999, there were 18,476,830 shares of Weiner's
Stores, Inc. common stock, par value $.01 per share, outstanding.
80289.0001
<PAGE>
<TABLE>
WEINER'S STORES, INC.
FORM 10-Q
QUARTER ENDED JULY 31, 1999
Table of Contents
<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
<TABLE>
WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<CAPTION>
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 79,532,000 $ 68,548,000 $ 149,135,000 $ 130,127,000
Cost of goods sold 55,180,000 46,063,000 100,362,000 84,852,000
----------------------------------------- ----------------------------------------
Gross margin 24,352,000 22,485,000 48,773,000 45,275,000
Selling, administrative
and other operating costs 23,540,000 22,817,000 45,717,000 44,825,000
----------------------------------------- ----------------------------------------
Operating income (loss) 812,000 (332,000) 3,056,000 450,000
Interest expense (349,000) (264,000) (560,000) (442,000)
Interest income - - - -
----------------------------------------- ----------------------------------------
Income (loss) before income taxes $ 463,000 $ (596,000) $ 2,496,000 $ 8,000
Income taxes - - - -
----------------------------------------- ----------------------------------------
Net income (loss) $ 463,000 $ (596,000) $ 2,496,000 $ 8,000
========================================= ========================================
Net income (loss) per share of
common stock $ 0.03 $ (0.03) $ 0.14 $ 0.00
========================================= ========================================
Weighted average number of shares of
common stock 18,487,000 19,000,000 18,482,000 19,000,000
========================================= ========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
WEINER'S STORES, INC.
CONSOLIDATED BALANCE SHEETS
<CAPTION>
July 31, January 30,
1999 1999
---------------------- ---------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 8,478,000 $ 7,176,000
Receivables, net 12,318,000 1,252,000
Merchandise inventories, net 58,301,000 54,243,000
Prepaid expenses and other assets 3,938,000 2,380,000
------------- -------------
Total current assets 83,035,000 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 23,915,000 20,728,000
------------- -------------
Total 26,169,000 22,982,000
Less accumulated depreciation and amortization (6,066,000) (4,296,000)
------------- -------------
Total property and equipment, net 20,103,000 18,686,000
------------- -------------
Excess Reorganization Value, less accumulated amortization of
$655,000 and $504,000, respectively 3,756,000 3,907,000
------------- -------------
$ 106,894,000 $ 87,644,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 22,069,000 $ 20,999,000
Accrued expenses and other current liabilities 10,955,000 9,271,000
------------- -------------
Total current liabilities 33,024,000 30,270,000
------------- -------------
Other Liabilities 397,000 397,000
Long-Term Debt 18,000,000 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 (8,381,000) (10,877,000)
Treasury stock, at cost, 523,170 shares -- --
------------- -------------
Total stockholders' equity 55,473,000 52,977,000
------------- -------------
$ 106,894,000 $ 87,644,000
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
<TABLE>
WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
July 31, 1999 August 1, 1998
----------------------- ----------------------
<S> <C> <C>
Net cash (used in) provided by operating activities $ (9,507,000) $ 2,253,000
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (3,191,000) (3,049,000)
Proceeds on disposition of assets -- 65,000
------------ ------------
Net cash used in investing activities (3,191,000) (2,984,000)
------------ ------------
Cash Flows from Financing Activities:
Net borrowings under bank line of credit 14,000,000 8,000,000
------------ ------------
Net cash provided by financing activities 14,000,000 8,000,000
------------ ------------
Net Increase in Cash 1,302,000 7,269,000
Cash, beginning of period 7,176,000 3,574,000
------------ ------------
Cash, end of period $ 8,478,000 $ 10,843,000
============ ============
</TABLE>
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 July 31, 1999,
and the results of its operations and its cash flows for each of the thirteen
and twenty-six week periods ended July 31, 1999 and August 1, 1998. The results
of operations for the thirteen and twenty-six 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
At July 31, 1999, the Company had approximately $9,644,000 of
availability under its $40,000,000 working capital facility, after considering
outstanding letters of credit of approximately $8,295,000 and borrowings of
$18,000,000. The Company may prepay amounts outstanding under the working
capital facility without penalty.
(3) Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
July 31, 1999 January 30, 1999
------------------------ ----------------------
<S> <C> <C>
Payroll and related benefits $ 1,513,000 $ 2,211,000
Taxes other than income taxes 4,187,000 1,563,000
Rent and other related costs 2,071,000 2,264,000
Other 3,184,000 3,233,000
------------------------ ----------------------
Total $ 10,955,000 $ 9,271,000
======================== ======================
</TABLE>
(4) Leases
During the twenty-six weeks ended July 31, 1999, the Company entered
into new leases for seven stores, including relocations, and executed renewal
options on several locations. During the twenty-six weeks ended July 31, 1999,
the Company opened six new stores and closed two stores. Future minimum rental
payments have increased approximately $9,827,000 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 $48,933,000.
6
<PAGE>
Total rent expense for all operating leases was as follows:
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 1998
------------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Minimum rentals $ 2,704,000 $ 2,496,000 $ 5,378,000 $ 4,979,000
Contingent rentals 87,000 124,000 254,000 221,000
------------------- --------------------- ------------------- ---------------------
Total $ 2,791,000 $ 2,620,000 $ 5,632,000 $ 5,200,000
=================== ===================== =================== =====================
</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 second quarter of 1999 or 1998, or during the first
six 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 second quarter of 1999 or
1998, or during the first twenty-six 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 second quarter of 1998 would have resulted in a net loss of $558,000 and the
first twenty-six weeks of 1998 would have resulted in a net loss of $136,000.
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 six months of
1999 the Company's layaway program accounted for approximately 15.6% 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 July 31, 1999
are $11,468,000 as compared to $7,141,000 at August 1, 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. It is the
Company's understanding that the Staff is currently developing a Staff
Accounting Bulletin that will address revenue recognition matters which would
require that layaway sales be treated in a manner consistent with such request,
although the Staff has not given any indication as to when such Bulletin will be
issued. As a result of the Staff's request, the Company is currently reviewing
the feasibility of implementing software changes that would be necessary in
order to comply with such request.
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
7
<PAGE>
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 quarter and
first six months 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.
(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 Twenty-Six Weeks Ended
------------------------------------- ------------------------------------
July 31, 1999 August 1, 1998 July 31, 1999 August 1, 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 10,346 - 5,173 -
--------------- ----------------- ---------------- ---------------
Weighted average number of shares of common
stock outstanding assuming full dilution 18,487,176 19,000,000 18,482,003 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 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 JULY 31, 1999 COMPARED TO THIRTEEN WEEKS ENDED AUGUST 1,
1998
Net sales in the second quarter of 1999 increased 16.0% to
$79,532,000 from $68,548,000 in the second quarter of 1998. The increase is
primarily attributable to a 10.9% increase in comparable store sales for the
second quarter of 1999 compared to the same period last year and new stores
opened in 1999 and the latter part of 1998.
8
<PAGE>
Gross margin in the second quarter of 1999 decreased as a percentage
of sales to 30.6% from 32.8% in the second quarter 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
$23,540,000 in the second quarter of 1999 compared to $22,817,000 in the second
quarter of 1998. The increase is primarily attributable to an increase in rent
expense relating to new stores, utility expense, and new store pre-opening
expenses. As a percentage of sales, selling, administrative and other operating
costs in the second quarter of 1999 decreased to 29.6% from 33.3% in the second
quarter of 1998. This decrease is primarily attributable to the increase in
sales during the second quarter of 1999 as discussed above and expense control.
Operating income increased to $812,000 in the second quarter of 1999
from an operating loss of $332,000 in the second 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 second quarter of 1999 or the second 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 second quarter of 1999 or the second quarter of 1998.
The Company recorded interest expense of $349,000 in the second
quarter of 1999 compared to $264,000 in the second quarter of 1998. The increase
is due primarily to the increase in borrowings during the second quarter of 1999
as compared to the second quarter of 1998.
The Company's net income was $463,000, or $0.03 per share of common
stock, for the second quarter of 1999, compared to a net loss of $596,000, or
$0.03 per share of common stock, for the second quarter of 1998.
TWENTY-SIX WEEKS ENDED JULY 31, 1999 COMPARED TO TWENTY-SIX WEEKS ENDED AUGUST
1, 1998
Net sales in the first six months of 1999 increased 14.6% to
$149,135,000 from $130,127,000 in the first six months of 1998. The increase is
primarily attributable to a 11.6% increase in comparable store sales for the
first six 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 six months of 1999 decreased as a
percentage of sales to 32.7% from 34.8% in the first six 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
$45,717,000 in the first six months of 1999 compared to $44,825,000 in the first
six months of 1998. The increase is primarily attributable to an increase in
utility expense, rent expense relating to new stores, freight services and bank
card 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 six months of 1999 decreased to 30.7% from
34.4% in the first six months of 1998. This decrease is primarily attributable
to the increase in sales during the first six months of 1999 as discussed above
and expense control.
Operating income increased to $3,056,000 in the first six months of
1999 from $450,000 in the first six 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 six months of 1999 or the first six months of
1998. The recognition of income tax benefits is affected by limitations on the
Company's ability
9
<PAGE>
to utilize net operating loss carryforwards. No income taxes were paid during
the first six months of 1999 or the first six months of 1998.
The Company recorded interest expense of $560,000 in the first six
months of 1999 compared to $442,000 in the first six months of 1998. The
increase is due primarily to the increase in borrowings during the first six
months of 1999 as compared to the first six months of 1998.
The Company's net income was $2,496,000, or $0.14 per share of common
stock, for the first six months of 1999, compared to net income of $8,000, or
less than $0.01 per share of common stock, for the first six months of 1998.
LIQUIDITY AND CAPITAL RESOURCES
Cash from Operations and Working Capital
The Company's cash used in operations was $9,507,000 during the
twenty-six weeks ended July 31, 1999, compared to cash provided by operations of
$2,253,000 during the twenty-six weeks ended August 1, 1998. The increase in net
cash used in operations is primarily attributable to the increase in net
receivables. The Company's working capital was $50,011,000 at July 31, 1999
compared to $34,781,000 at January 30, 1999 and $48,427,000 at August 1, 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
The Company's Revolving Credit Agreement 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. 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
Revolving Credit Agreement expires on August 31, 2000. As of July 31, 1999, the
Company was in compliance with all of its covenants under the Revolving Credit
Agreement.
At July 31, 1999, the Company had approximately $9,644,000 of
availability under the working capital facility, after considering borrowings
and outstanding letters of credit. At July 31, 1999, the outstanding letters of
credit thereunder were approximately $8,295,000.
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
$6,000,000 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, subsequent to the end of the Company's second
quarter, the Company entered into a purchase agreement with its current
merchandising/general ledger software and hardware provider by which
10
<PAGE>
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 second quarter of 1998 would have resulted in a net loss of $558,000 and the
first twenty-six weeks of 1998 would have resulted in a net loss of $136,000.
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 six months of
1999 the Company's layaway program accounted for approximately 15.6% 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 July 31, 1999
are $11,468,000 as compared to $7,141,000 at August 1, 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. It is the
Company's understanding that the Staff is currently developing a Staff
Accounting Bulletin that will address revenue recognition matters which would
require that layaway sales be treated in a manner consistent with such request,
although the Staff has not given any indication as to when such Bulletin will be
issued. As a result of the Staff's request, the Company is currently reviewing
the feasibility of implementing software changes that would be necessary in
order to comply with such request.
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 quarter and first six months 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.
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
11
<PAGE>
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. Because the
Company uses a variety of systems, internally developed and third party provided
software and embedded chip equipment, depending upon business function and
location, various aspects of the Company's Year 2000 efforts are in different
phases and are proceeding in parallel.
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.
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
July 31, 1999 have been approximately $35,000. The remaining compliance costs
are expected to be incurred within the next three months.
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
12
<PAGE>
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.
As of the date of this report, the Company estimates that it will
achieve Year 2000 compliance by the end of November 1999. The Company's
estimates of such date and the 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 expects to achieve Year 2000 compliance at the internal Company
level by the end of November 1999. If the November 1999 compliance date is not
met, the Company will at such time further review the need to develop
contingency plans for operational areas under the direct control of the Company.
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 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.
13
<PAGE>
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
The Annual Meeting of the Stockholders of the Company was
held on June 10, 1999. Matters voted upon at the meeting were the
election of directors and the ratification of independent auditors
for the fiscal year ending January 29, 2000.
The number of shares voted for and withheld with respect to
the election of each director is as follows:
Shares Voted For Shares Withheld Broker Non-Votes
---------------- --------------- ----------------
Herbert R. Douglas 15,750,828 55,897 0
Raymond J. Miller 15,750,828 55,897 0
Randall L. Lambert 15,750,828 55,897 0
Gasper Mir 15,750,828 55,897 0
F. Hall Webb 15,750,828 55,897 0
Melvyn Wolff 15,750,828 55,897 0
The number of shares voted with respect to the ratification
of the appointment of Ernst & Young LLP as independent auditors for
the Company for the fiscal year ending January 29, 2000 was as
follows:
Voted For Voted Against Abstained Broker Non-Votes
- --------- ------------- -------- ----------------
15,753,392 5,145 48,188 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 second
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.
September 13, 1999 By: /s/ Raymond J. Miller
------------------ ---------------------
(Date) Raymond J. Miller
Executive Vice President,
Chief Operating Officer,
Chief Financial Officer and Secretary
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
- ----------- -----------
3.1 Restated Certificate of Incorporation of the Company
(incorporated byreference 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)
<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 6-MOS
<FISCAL-YEAR-END> JAN-29-2000 JAN-29-2000
<PERIOD-END> AUG-01-1999 AUG-01-1999
<CASH> 0 8,478
<SECURITIES> 0 0
<RECEIVABLES> 0 12,318
<ALLOWANCES> 0 0
<INVENTORY> 0 58,301
<CURRENT-ASSETS> 0 83,035
<PP&E> 0 26,169
<DEPRECIATION> 0 6,066
<TOTAL-ASSETS> 0 106,894
<CURRENT-LIABILITIES> 0 33,024
<BONDS> 0 0
0 0
0 0
<COMMON> 0 190
<OTHER-SE> 0 55,473
<TOTAL-LIABILITY-AND-EQUITY> 0 106,894
<SALES> 79,532 149,135
<TOTAL-REVENUES> 79,532 149,135
<CGS> 55,180 100,362
<TOTAL-COSTS> 55,180 100,362
<OTHER-EXPENSES> 23,540 45,717
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 349 560
<INCOME-PRETAX> 463 2,496
<INCOME-TAX> 0 0
<INCOME-CONTINUING> 463 2,496
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 463 2,496
<EPS-BASIC> 0.03 0.14
<EPS-DILUTED> 0.03 0.14
</TABLE>
