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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 29, 2000 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
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WEINER'S STORES, INC.
---------------------
(exact name of registrant as specified in its charter)
Delaware 76-0355003
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(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 8, 2000, there were 18,509,710 shares of Weiner's
Stores, Inc. common stock, par value $.01 per share, outstanding.
<PAGE>
WEINER'S STORES, INC.
FORM 10-Q
QUARTER ENDED JULY 29, 2000
Table of Contents
<TABLE>
<CAPTION>
Page No.
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<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 8-11
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 11
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 12
ITEM 2. Changes in Securities and Use of Proceeds 12
ITEM 3. Defaults Upon Senior Securities 12
ITEM 4. Submission of Matters to a Vote of Security Holders 12
ITEM 5. Other Information 12
ITEM 6. Exhibits and Reports on Form 8-K 12-13
SIGNATURES 14
EXHIBIT INDEX 15
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Thirteen Thirteen Twenty-Six Twenty-Six
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
----------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 62,478,000 $ 79,532,000 $ 128,685,000 $ 149,135,000
Leased department revenues 227,000 - 442,000 -
----------------------------------------- ----------------------------------------
Net revenues 62,705,000 79,532,000 129,127,000 149,135,000
Cost of goods sold 42,007,000 55,180,000 84,362,000 100,362,000
----------------------------------------- ----------------------------------------
Gross margin 20,698,000 24,352,000 44,765,000 48,773,000
Selling, administrative
and other operating costs 25,148,000 23,540,000 48,984,000 45,717,000
----------------------------------------- ----------------------------------------
Operating (loss) income (4,450,000) 812,000 (4,219,000) 3,056,000
Interest expense (548,000) (349,000) (945,000) (560,000)
Interest income - - - -
----------------------------------------- ----------------------------------------
Income (loss) before income taxes (4,998,000) 463,000 (5,164,000) 2,496,000
Income taxes - - - -
----------------------------------------- ----------------------------------------
Income (loss) before
cumulative effect adjustment $ (4,998,000) $ 463,000 $ (5,164,000) $ 2,496,000
Cumulative effect adjustment,
Net of Tax - - (294,000) -
Net (loss) income $ (4,998,000) $ 463,000 $ (5,458,000) $ 2,496,000
========================================= ========================================
Net (loss) income per share of
common stock $ (0.27) $ 0.03 $ (0.29) $ 0.14
========================================= ========================================
Weighted average number of shares of
common stock 18,510,000 18,487,000 18,510,000 18,482,000
========================================= ========================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
WEINER'S STORES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
July 29, January 29,
2000 2000
------------- -------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 5,483,000 $ 3,336,000
Receivables, net 1,731,000 1,100,000
Merchandise inventories, net 57,293,000 64,716,000
Prepaid expenses and other assets 2,986,000 3,287,000
------------- -------------
Total current assets 74,916,000 65,016,000
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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 26,759,000 31,316,000
------------- -------------
Total 33,570,000 29,013,000
Less accumulated depreciation and amortization (10,052,000) (7,967,000)
------------- -------------
Total property and equipment, net 23,518,000 21,046,000
------------- -------------
Excess Reorganization Value, less accumulated amortization of
$943,000 and $799,000, respectively 3,468,000 3,612,000
------------- -------------
$ 101,902,000 $ 89,674,000
============= =============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 21,881,000 $ 21,592,000
Accrued expenses and other current liabilities 11,239,000 7,841,000
------------- -------------
Total current liabilities 33,120,000 29,433,000
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Other Liabilities 397,000 397,000
Long-Term Debt 24,000,000 10,000,000
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 (19,469,000) (14,010,000)
Treasury stock, at cost, 523,170 shares -- --
------------- -------------
Total stockholders' equity 44,385,000 49,844,000
------------- -------------
$ 101,902,000 $ 89,674,000
============= =============
</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)
<TABLE>
<CAPTION>
Twenty-Six Twenty-Six
Weeks Ended Weeks Ended
July 29, 2000 July 31, 1999
------------ ------------
<S> <C> <C>
Net cash used in operating activities $ (7,288,000) $ (9,507,000)
------------ ------------
Cash Flows from Investing Activities:
Capital expenditures (4,565,000) (3,191,000)
------------ ------------
Net cash used in investing activities (4,565,000) (3,191,000)
------------ ------------
Cash Flows from Financing Activities:
Net borrowings under bank line of credit 14,000,000 14,000,000
------------ ------------
Net cash provided by financing activities 14,000,000 14,000,000
------------ ------------
Net Increase in cash 2,147,000 1,302,000
Cash, beginning of period 3,336,000 7,176,000
------------ ------------
Cash, end of period $ 5,483,000 $ 8,478,000
============ ============
</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 29, 2000,
and the results of its operations and its cash flows for each of the thirteen
and twenty-six week periods ended July 29, 2000 and July 31, 1999. 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 29, 2000 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.
(2) Long-Term Debt
At July 29, 2000, the Company had approximately $7,995,000 of
availability under its $40,000,000 working capital facility, after considering
outstanding letters of credit of approximately $5,850,000 and borrowings of
$24,000,000. The Company may prepay amounts outstanding under the working
capital facility without penalty. As of July 29, 2000, the Company was in
compliance with all covenants under its Revolving Credit Agreement.
On July 18, 2000, the Company entered into the fifth amendment (the
"Fifth Amendment") to the Revolving Credit Agreement. The Fifth Amendment, among
other things, decreased the amount of capital expenditures for fiscal year 2001.
In addition, the Fifth Amendment provided for an adjustment to the financial
covenant relating to earnings before interest, taxes, depreciation and
amortization ("EBITDA"), as defined in the Revolving Credit Agreement. The Fifth
Amendment also provided for a change in the method of determining the Applicable
Eurodollar Margin and the Applicable Prime Rate, as defined in the Revolving
Credit Agreement.
The Company's current liquidity needs are provided by existing cash
balances, operating cash flows, the Revolving Credit Agreement and normal trade
credit terms from the vendor and factor community. The Company continually
monitors its liquidity position. As a result of the current trend in operating
results, as manifested in the second quarter of 2000 operating results, the
Company has commenced discussions with its lenders to seek amendments to certain
of the covenants in its Revolving Credit Agreement and an increase in the line
available under the Revolving Credit Agreement. If the Company is unable to
secure such concessions from its lenders, the Company will have to seek
alternative sources of financing. There is no assurance such financing will be
available or adequate and, in any event, the Company anticipates that the terms
of such financing would be significantly less favorable to the Company than the
terms of its existing credit facility. In addition, the Company is currently
evaluating other strategic measures, including store closings and corporate
overhead reduction or legal restructuring.
(3) Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
July 29, 2000 January 29, 2000
------------------------ ----------------------
<S> <C> <C>
Payroll and related benefits $ 1,849,000 $ 1,664,000
Taxes other than income taxes 2,624,000 1,308,000
Rent and other related costs 1,881,000 1,943,000
Layaway deposits and payments 2,479,000 -
Other 2,406,000 2,926,000
------------------------ ----------------------
Total $ 11,239,000 $ 7,841,000
======================== ======================
</TABLE>
6
<PAGE>
(4) Leases
During the twenty-six weeks ended July 29, 2000, the Company entered
into new leases for ten stores, including relocations, and executed renewal
options on several locations. During the twenty-six weeks ended July 29, 2000,
the Company opened ten new stores and closed one store. Future minimum rental
payments have increased approximately $11,059,000 since January 29, 2000,
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 $57,685,000.
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 29, 2000 July 31, 1999 July 29, 2000 July 31,1999
------------------- --------------------- ------------------- ---------------------
<S> <C> <C> <C> <C>
Minimum rentals $ 3,111,000 $ 2,704,000 $ 6,071,000 $ 5,378,000
Contingent rentals 128,000 87,000 250,000 254,000
------------------- --------------------- ------------------- ---------------------
Total $ 3,239,000 $ 2,791,000 $ 6,321,000 $ 5,632,000
=================== ===================== =================== =====================
</TABLE>
(5) Stock Based Awards
On March 24, 2000, under the 1999 Stock Plan, options to purchase
214,000 shares of common stock were granted to certain officers and key
employees at an exercise price of $0.31 per share, the fair market value on that
date. At July 29, 2000, there were vested options outstanding to purchase
328,333 shares of common stock at a weighted average per share exercise price of
$1.14.
(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
was recorded in either the second quarter of 2000 or 1999, or during the first
six months of 2000 or 1999. 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 2000 or
1999, or during the first twenty-six weeks of 2000 or 1999.
(7) New Accounting Pronouncements
The Staff of the Securities and Exchange Commission has issued Staff
Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB
101"), effective for fiscal years beginning after December 15, 1999. The Company
has implemented all provisions of SAB 101, including the treatment of leased
department and layaway sales, effective for fiscal year 2000, beginning January
30, 2000. In relation to the adoption of SAB 101, the Company has recorded
during the first quarter of 2000 a cumulative effect adjustment for a change in
accounting in the amount of $294,000 and recognized additional gross revenues of
$851,000. These one-time adjustments were necessary to correctly account for
those layaways held as accounts receivable at the end of fiscal year 1999.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," effective for fiscal years
beginning after June 15, 2000. The Company does not participate in the use of
derivatives and does not believe this pronouncement will impact its financial
presentation.
(8) 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:
7
<PAGE>
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
------------------------------------- ------------------------------------
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
--------------- ----------------- ---------------- ---------------
<S> <C> <C> <C> <C>
Weighted average number of shares of
common stock outstanding 18,509,710 18,476,830 18,509,710 18,476,830
Common stock equivalent - shares issuable
under the stock incentive plans - 10,346 - 5,173
--------------- ----------------- ---------------- ---------------
Weighted average number of shares of common
stock outstanding assuming full dilution 18,509,710 18,487,176 18,509,710 18,482,003
=============== ================= ================ ===============
</TABLE>
As of July 29, 2000, 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 as of July 29, 2000 (resulting in 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 of Weiner's Stores, Inc. (the
"Company") 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 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 29, 2000 COMPARED TO THIRTEEN WEEKS ENDED JULY 31,
1999
Total net sales for the second quarter of 2000 decreased 21.4% to
$62,478,000 from $79,532,000 in the second quarter of 1999. The decrease is
primarily attributable to a 26.1% decrease in comparable store sales. Comparable
store sales were impacted by the Company's adoption of Staff Accounting Bulletin
No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). Prior to the
adoption of SAB 101, the Company recognized layaway sales at the time when the
items were placed in layaway by the customer. SAB 101 states that layaway sales
are to be recognized upon the delivery of the merchandise to the customer. Under
SAB 101, the Company has deferred from the second quarter of 2000 $7,472,000 in
layaway transactions until future periods. Had the Company continued reporting
layaway sales at the inception of the layaway, total net sales for the second
quarter of 2000 would have been $69,949,000, or a 12.0% decrease from the second
quarter of 1999.
The leased department revenue in the second quarter of 2000 reflects
the revenues the Company received for the sales of designer fragrances. The
leased department was not in existence in the second quarter of fiscal 1999.
8
<PAGE>
Cost of goods sold for the second quarter of 2000 decreased to
$42,007,000 from $55,180,000 in the second quarter of 1999. As a percentage of
revenues, cost of goods sold for the second quarter of 2000 decreased to 67.0%
from 69.4% in the second quarter of 1999. The decreases are primarily
attributable to the sales declines discussed above. Gross margin in the second
quarter of 2000 increased as a percentage of revenues to 33.0% from 30.1% in the
second quarter of 1999. This increase is primarily attributable to higher
initial markup and lower promotional markdowns.
Selling, administrative and other operating costs increased to
$25,148,000 in the second quarter of 2000 compared to $23,540,000 in the second
quarter of 1999. The increase is primarily attributable to increased advertising
and rent expense relating to new stores. As a percentage of revenues, selling,
administrative and other operating costs in the second quarter of 2000 increased
to 40.1% from 29.6% in the second quarter of 1999. This increase is primarily
attributable to the decrease in sales and increase in expenses associated with
new stores as discussed above.
The operating loss for the second quarter of 2000 was $4,450,000
compared to operating income of $812,000 in the second quarter of 1999. The
Company is focusing on its inventory mix and evaluating overall expense control
initiatives to attempt to enhance operating results for fiscal 2000.
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 2000 or the second quarter of 1999.
The recognition of income tax benefits is affected by limitations on the
Company's ability to utilize net operating loss ("NOL") carryforwards.
The Company recorded interest expense of $548,000 in the second
quarter of 2000 compared to $349,000 in the second quarter of 1999. Interest
expense has increased due to the increase in borrowings under the Revolving
Credit Agreement, referred to below, and increases in interest rates.
The Company's net loss for the second quarter of 2000 was $4,998,000,
or $0.27 per share of common stock, compared to net income of $463,000, or $0.03
per share of common stock, for the second quarter of 1999.
TWENTY-SIX WEEKS ENDED JULY 29, 2000 COMPARED TO TWENTY-SIX WEEKS ENDED JULY 31,
1999
Total net sales in the first six months of 2000 decreased 13.7% to
$128,685,000 from $149,135,000 in the first six months of 1999. The decrease is
primarily attributable to a 17.9% decrease in comparable store sales for the
first six months of 2000 compared to the same period last year and new stores
opened in 2000 and the latter part of 1999. Comparable store sales were impacted
by the Company's adoption of SAB 101. Prior to the adoption of SAB 101, the
Company recognized layaway sales at the time when the items were placed in
layaway by the customer. SAB 101 states that layaway sales are to be recognized
upon the delivery of the merchandise to the customer. Under SAB 101, the Company
has deferred from the first six months of 2000 $8,287,000 in layaway
transactions until future periods. Had the Company continued reporting layaway
sales at the inception of the layaway, total net sales for the first six months
of 2000 would have been $136,971,000, or an 8.2% decrease from the first six
months of 1999.
Leased department revenue in the first six months of 2000 reflects
the revenues the Company received for the sales of designer fragrances and
unbranded shoes. The Company tested, during the first quarter of 2000, a leased
department for unbranded shoes in eight stores. The test was unsuccessful and
the lease was discontinued. These leased departments were not in existence in
the first six months of fiscal 1999.
Cost of goods sold for the first six months of 2000 decreased to
$84,362,000 from $100,362,000 in the first six months of 2000. The decreases are
primarily attributed to the sales decline discussed above. Gross margin in the
first six months of 2000 increased as a percentage of revenues to 34.8% from
32.7% in the first six months of 1999. This increase is primarily attributable
to higher initial markup and lower promotional markdowns.
9
<PAGE>
Selling, administrative and other operating costs increased to
$48,984,000 in the first six months of 2000 compared to $45,717,000 in the first
six months of 1999. The increase is primarily attributable to an increase in
utility expense and rent expense relating to new stores and an increase in
advertising expense. As a percentage of revenues, selling, administrative and
other operating costs in the first six months of 2000 increased to 37.9% from
30.7% in the first six months of 1999. This increase is primarily attributable
to the decrease in sales during the first six months of 2000 as discussed above
and expense control.
The operating loss in the first six months of 2000 was $4,219,000
compared to operating income of $3,056,000 in the first six months of 1999. The
Company continues to focus on its inventory mix and evaluating overall expense
control initiatives to attempt to enhance operating results for the remainder of
fiscal 2000.
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 2000 or the first six months of
1999. The recognition of income tax benefits is affected by limitations on the
Company's ability to utilize NOL carryforwards. No income taxes were paid during
the first six months of 2000 or the first six months of 1999.
The Company recorded interest expense of $945,000 in the first six
months of 2000 compared to $560,000 in the first six months of 1999. The
increase is due primarily to the increase in borrowings under the Company's
Revolving Credit Agreement during the first six months of 2000 as compared to
the first six months of 1999 and the increase in interest rates thereunder.
The Company's net loss was $5,458,000, or $0.29 per share of common
stock, for the first six months of 2000, compared to net income of $2,496,000,
or $0.14 per share of common stock, for the first six months of 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash from Operations and Working Capital
The Company's cash used in operations was $7,288,000 during the
twenty-six weeks ended July 29, 2000, compared to cash used in operations of
$9,507,000 during the twenty-six weeks ended July 31, 1999. The decrease in cash
used in operations is primarily attributable to the Company's efforts to control
inventory levels. The Company's primary source of liquidity has been borrowings
under the Revolving Credit Agreement, dated August 26, 1997, as amended, between
the Company and The CIT Group/Business Credit, Inc., as agent, and the lenders
thereunder (the "Revolving Credit Agreement").
Revolving Credit Agreement
On July 18, 2000, the Company entered into the fifth amendment (the
"Fifth Amendment") to the Revolving Credit Agreement. The Fifth Amendment, among
other things, decreased the amount of capital expenditures permitted for fiscal
year 2001. In addition, the Fifth Amendment provided for an adjustment to the
financial covenant relating to earnings before interest, taxes, depreciation and
amortization ("EBITDA"), as defined in the Revolving Credit Agreement. The Fifth
Amendment also provided for a change in the method of determining the Applicable
Eurodollar Margin and the Applicable Prime Rate, as defined in the 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 a
percentage ranging from 0.50% - 1.25% or, at the option of the Company, the
Eurodollar Rate thereunder plus a percentage ranging from 2.50% - 3.25% based on
EBITDA for periods prior to February 3, 2001 and at the reference rate
thereunder plus a percentage ranging from 0.25% - 1.25% or, at the option of the
Company, the Eurodollar Rate thereunder plus a percentage ranging from 2.25% -
3.25% based on a ratio of indebtedness to EBITDA for periods subsequent to
February 3, 2001. Under the terms of the Revolving Credit Agreement, capital
10
<PAGE>
expenditures are limited to $6,500,000 in fiscal year ending February 3, 2001,
$8,500,000 in each of fiscal years 2002 and 2003 and $5,000,000 for the period
commencing February 2, 2003 and ending August 30, 2003. 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 also restricts future liens
and indebtedness, sales of assets and dividend payments. The expiration date of
the Revolving Credit Agreement is August 30, 2003. As of July 29, 2000, the
Company was in compliance with all covenants of the Revolving Credit Agreement.
At July 29, 2000, the Company had approximately $7,995,000 of
availability under the Revolving Credit Agreement, after considering borrowings
and outstanding letters of credit. At July 29, 2000, the aggregate amount of
outstanding letters of credit thereunder was approximately $5,850,000. The
Company may prepay amounts outstanding under the Revolving Credit Agreement
without penalty.
The Company's current liquidity needs are provided by existing cash
balances, operating cash flows, the Revolving Credit Agreement and normal trade
credit terms from the vendor and factor community. The Company continually
monitors its liquidity position. As a result of the current trend in operating
results, as manifested in the second quarter of 2000 operating results, the
Company has commenced discussions with its lenders to seek amendments to certain
of the covenants in its Revolving Credit Agreement and an increase in the line
available under the Revolving Credit Agreement. If the Company is unable to
secure such concessions from its lenders, the Company will have to seek
alternative sources of financing. There is no assurance such financing will be
available or adequate and, in any event, the Company anticipates that the terms
of such financing would be significantly less favorable to the Company than the
terms of its existing credit facility. In addition, the Company is currently
evaluating other strategic measures, including store closings and corporate
overhead reduction or legal restructuring.
Capital Expenditures
The Company's capital expenditures are expected to be approximately
$6,500,000 in fiscal 2000, 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.
NEW ACCOUNTING DEVELOPMENTS
The Staff of the Securities and Exchange Commission has issued SAB
101, effective for fiscal years beginning after December 15, 1999. The Company
has implemented all provisions of SAB 101, including the treatment of leased
department and layaway sales, effective for fiscal year 2000, beginning January
30, 2000. In relation to the adoption of SAB 101, the Company has recorded
during the first quarter of 2000 a cumulative effect adjustment for a change in
accounting in the amount of $294,000 and recognized additional gross revenues of
$851,000. These one-time adjustments were necessary to correctly account for
those layaways held as accounts receivable at the end of fiscal year 1999.
In June 1998, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities," effective for fiscal years
beginning after June 15, 2000. The Company does not participate in the use of
derivatives and does not believe this pronouncement will impact its financial
presentation.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
11
<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 May 25, 2000. Matters voted upon at the meeting were the
election of directors and the ratification of independent auditors
for the fiscal year ending February 3, 2001.
The number of shares voted for and withheld with respect
to the election of each director was as follows:
<TABLE>
<CAPTION>
Shares Voted For Shares Withheld Broker Non-Votes
---------------- --------------- ----------------
<S> <C> <C> <C>
Herbert R. Douglas 15,397,282 520,177 0
Raymond J. Miller 15,445,628 471,831 0
Randall L. Lambert 15,429,765 487,694 0
Gasper Mir 15,445,628 471,831 0
F. Hall Webb 15,445,628 471,831 0
</TABLE>
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 February 3, 2001 was as
follows:
Voted For Voted Against Abstained Broker Non-Votes
---------- ------------- --------- ----------------
15,435,527 456,932 25,000 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)
10.1 Fifth Amendment, dated as of July 18, 2000, to the
Revolving Credit Agreement, dated August 26, 1997, among
the Company, the lenders party thereto and The CIT
Group/Business Credit, Inc., as Agent, as amended (filed
herewith)
12
<PAGE>
10.2 Amendment No.1 to Employment Agreement, dated as of June
28, 2000, to the Employment Agreement, dated as of
February 1, 2000, between the Company and Raymond J.
Miller (filed herewith)
10.3 Amendment No. 1 to Employment Agreement, dated as of June
28, 2000, to the Employment Agreement, dated as of
February 1, 2000, between the Company and Joseph J. Kassa
(filed herewith)
27.1 Financial Data Schedule (filed herewith)
(b) During the second quarter of fiscal year 2000, the Company filed
a report on Form 8-K on June 29, 2000 to report the retirement of
Herbert R. Douglas, formerly the Chairman of the Board, President and
Chief Executive Officer of the Company, the appointment of Raymond J.
Miller as the Company's new Chairman of the Board, President and
Chief Executive Officer and several other corporate promotions.
13
<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 12, 2000 By: /s/ Michael S. Marcus
------------------ ---------------------
(Date) Michael S. Marcus
Vice President, Chief Financial
Officer and Secretary
14
<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)
10.1 Fifth Amendment, dated as of July 18, 2000, to the Revolving Credit
Agreement, dated August 26, 1997, among the Company, the lenders
party thereto and The CIT Group/Business Credit, Inc., as Agent, as
amended (filed herewith)
10.2 Amendment No.1 to Employment Agreement, dated as of June 28, 2000, to
the Employment Agreement, dated as of February 1, 2000, between the
Company and Raymond J. Miller (filed herewith)
10.3 Amendment No. 1 to Employment Agreement, dated as of June 28, 2000,
to the Employment Agreement, dated as of February 1, 2000, between
the Company and Joseph J. Kassa (filed herewith)
27.1 Financial Data Schedule (filed herewith)
15
