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 28, 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
-------
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 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 OCTOBER 28, 2000
<TABLE>
<CAPTION>
Table of Contents
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
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 6-10
ITEM 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-15
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 17
ITEM 2. Changes in Securities and Use of Proceeds 17
ITEM 3. Defaults Upon Senior Securities 17
ITEM 4. Submission of Matters to a Vote of Security Holders 17
ITEM 5. Other Information 17
ITEM 6. Exhibits and Reports on Form 8-K 17-18
SIGNATURES 19
EXHIBIT INDEX 20
</TABLE>
2
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
Thirteen Thirteen Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended Weeks Ended Weeks Ended
October 28, 2000 October 30, 1999 October 28, 2000 October 30, 1999
----------------------------------- ------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 64,791,000 $ 58,859,000 $ 193,476,000 $ 207,993,000
Leased department revenues 145,000 - 587,000 -
----------------------------------- ------------------------------------
Net revenues 64,936,000 58,859,000 194,063,000 207,993,000
Cost of goods sold 43,983,000 38,061,000 128,345,000 138,422,000
----------------------------------- ------------------------------------
Gross margin 20,953,000 20,798,000 65,718,000 69,571,000
Selling, administrative
and other operating costs 23,300,000 22,986,000 72,284,000 68,703,000
Reorganization expense 10,955,000 - 10,955,000 -
Store closing costs 8,851,000 - 8,851,000 -
----------------------------------- ------------------------------------
Operating (loss) income (22,153,000) (2,188,000) (26,372,000) 868,000
Interest expense (702,000) (249,000) (1,647,000) (809,000)
Interest income - - - -
----------------------------------- ------------------------------------
(Loss) income before income taxes (22,855,000) (2,437,000) (28,019,000) 59,000
Income taxes - - - -
----------------------------------- ------------------------------------
(Loss) income before
cumulative effect adjustment $ (22,855,000) $ (2,437,000) $ (28,019,000) $ 59,000
Cumulative effect adjustment,
net of tax - - (294,000) -
Net (loss) income $ (22,855,000) $ (2,437,000) $ (28,313,000) $ 59,000
=================================== ====================================
(Loss) Income before cumulative effect
adjustment per share of common stock $ (1.23) $ - $ (1.52) $ -
Cumulative effect of accounting change
per share of common stock - - $ (0.01) -
Net (loss) income per share of
common stock $ (1.23) $ (0.13) $ (1.53) $ 0.00
=================================== ====================================
Weighted average number of shares of
Common stock 18,510,000 18,497,000 18,510,000 18,486,000
=================================== ====================================
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
<TABLE>
<CAPTION>
WEINER'S STORES, INC.
CONSOLIDATED BALANCE SHEETS
October 28, January 29,
2000 2000
------------ ------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets:
Cash $ 5,355,000 $ 3,336,000
Receivables, net 1,780,000 1,100,000
Other receivables 11,985,000 -
Merchandise inventories, net 43,923,000 57,293,000
Prepaid expenses and other assets 5,575,000 3,287,000
------------ ------------
Total current assets 68,618,000 65,016,000
------------ ------------
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 27,227,000 26,759,000
------------ ------------
Total 29,481,000 29,013,000
Less accumulated depreciation and amortization (9,646,000) (7,967,000)
------------ ------------
Total property and equipment, net 19,835,000 21,046,000
------------ ------------
Excess Reorganization Value, less accumulated amortization of
$ 799,000 - 3,612,000
------------ ------------
$ 88,453,000 $ 89,674,000
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Trade accounts payable $ 3,582,000 $ 21,592,000
Accrued expenses and other current liabilities 14,286,000 7,841,000
Pre-petition working capital facility 12,773,000 -
------------ ------------
Total current liabilities 30,641,000 29,433,000
------------ ------------
Other Liabilities 397,000 397,000
Long-term debt under pre-petition credit facility - 10,000,000
Long-term portion of debtor-in-possession credit facility 6,610,000 -
Liabilities subject to settlement under reorganization proceedings 29,274,000 -
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 (42,323,000) (14,010,000)
Treasury stock, at cost, 523,170 shares - -
------------ ------------
Total stockholders' equity 21,531,000 49,844,000
------------ ------------
$ 88,453,000 $ 89,674,000
============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
4
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WEINER'S STORES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Thirty-Nine Thirty-Nine
Weeks Ended Weeks Ended
October 28, 2000 October 30, 1999
------------------- -------------------
<S> <C> <C>
Net cash used in operating activities $ (2,042,000) $ (6,376,000)
------------------- -------------------
Cash Flows from Investing Activities:
Capital expenditures (5,322,000) (3,904,000)
------------------- -------------------
Net cash used in investing activities (5,322,000) (3,904,000)
------------------- -------------------
Cash Flows from Financing Activities:
Proceeds from debtor-in-possession credit facility 6,610,000
Proceeds from pre-petition working capital facility 2,773,000 8,000,000
------------------- -------------------
Net cash provided by financing activities 9,383,000 8,000,000
------------------- -------------------
Net Increase in cash 2,019,000 (2,280,000)
Cash, beginning of period 3,336,000 7,176,000
------------------- -------------------
Cash, end of period $ 5,355,000 $ 4,896,000
=================== ===================
</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 October 28,
2000, and the results of its operations and its cash flows for each of the
thirteen and thirty-nine week periods ended October 28, 2000 and October 30,
1999. 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 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
because 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 materially
from those estimates.
(2) Recent Developments
As a result of the Company's poor financial performance, lack of
adequate trade support to fund its inventory working capital requirements and
lack of sufficient financial flexibility and liquidity, on October 16, 2000 (the
"Petition Date") the Company filed a voluntary petition for relief under Chapter
11 ("Chapter 11") of Title 11 of the United States Code (the "Bankruptcy Code")
in United States Bankruptcy Court for the District of Delaware (the "Court").
The Company has entered into a $35,000,000 debtor-in-possession credit agreement
(the "DIP Credit Agreement") with a lender to finance the Company's working
capital requirements during Chapter 11 reorganization proceedings. On October
16, 2000, the Court approved the proposed DIP Credit Agreement, among other
things, subject to certain conditions. On December 6, 2000, the Court issued the
final order approving the DIP Credit Agreement. The final order allows the
Company, among other things, to use the proceeds for the retirement of the
pre-petition working capital facility.
The DIP Credit Agreement contains covenants which, among other things,
restrict the (i) incurrence of additional debt, (ii) maximum inventory levels
allowed, (iii) aggregate amount of capital expenditures and (iv) payments of
dividends. In addition, the DIP Credit Agreement requires the Company to
maintain compliance with a specified level of earnings before interest, taxes,
depreciation, amortization and special charges. Proceeds from the DIP Credit
Agreement may be used solely in the ordinary course of business and for other
general corporate purposes during the Company's Chapter 11 reorganization
proceedings.
Under Chapter 11, the Company is operating its business as a
debtor-in-possession, subject to approval of the Court for certain actions.
Additionally, a creditor committee was formed and has the right to review and
object to any non-ordinary course of business transactions and participate in
the formulation of any plan or plans of reorganization. There can be no
assurance that the Company will succeed in reorganizing under Chapter 11 or that
the reorganization will not result in a liquidation.
As of the Petition Date, actions to collect pre-petition indebtedness
are stayed and other contractual obligations may not be enforced against the
Company. In addition, the Company may reject executory contracts and lease
obligations, and parties affected by these rejections may file claims with the
Court in accordance with the reorganization process. Substantially all
liabilities as of the Petition Date are subject to settlement under a plan of
6
<PAGE>
reorganization to be voted upon by all impaired classes of creditors and equity
security holders and approved by the Court.
On October 31, 2000, the Court approved the assumption of the
Company's agreement to close 44 underperforming stores as part of its
restructuring process. The Company engaged a third party to acquire and manage
the inventory liquidation process in these stores. As a result of this announced
store closure plan, the Company has recorded an $8,851,000 charge in the third
quarter of fiscal 2000 including $2,571,000 for the loss on the sale of
inventory to a third party liquidator, $1,729,000 for the continuing expenses of
operating these locations through final liquidation, $3,309,000 for the
write-off of assets in the 44 closing stores, $742,000 for the write down of
inventory capitalization related to these stores and $350,000 for miscellaneous
going out of business expenses. The charge is reflected in store closing costs
in the accompanying income statement. The Company currently anticipates that
this store closure plan will be completed within the current fiscal year. The
Company also accrued approximately $250,000 in store closing expenses for the
payment of severance and other benefits due to those store associates who are
expected to be terminated as store closings are finalized. These store closings
ultimately are expected to eliminate approximately 1,000 positions.
In the third quarter of 2000, the Company incurred $10,955,000 in
reorganization expense attributable to the filing under Chapter 11. This expense
includes $5,377,000 for potential lease rejection claims for the 44 closing
stores, $3,397,000 for the write-off of excess reorganization value, $550,000
for professional fees, $400,000 for severance payments, $700,000 for fees
related to the DIP Credit Agreement, $331,000 for an employee retention plan
adopted in relation to the reorganization and $200,000 for miscellaneous items.
In writing off $3,397,000 in excess reorganization value, the Company
reviewed whether the events or circumstances surrounding the closing of the 44
stores and the Company's ultimate filing under Chapter 11 impacted the
recoverability of this asset. The Company determined that excess reorganization
value was impaired and that the Company would not be able to recover its cost.
As part of the reorganization expense, the Company incurred
approximately $400,000 in severance payments related to elimination of
approximately 55 positions in the corporate headquarters and distribution
center. The majority of these positions were eliminated in September 2000.
Approximately $79,000 of these expenses remain accrued.
Also included in reorganization expense is $331,000 for the Weiner's
Stores, Inc. 2000 Executive Retention Plan dated September 19, 2000 (the
"Retention Plan"). The Retention Plan, which provides potential benefits for
certain officers and key employees of the Company, pays a bonus for remaining in
the employment of the Company over a specified period of time. A participating
employee under the Retention Plan may receive total compensation of 10% to 50%
of their annual salary, payable in three installments on January 15, 2001 (20%),
August 20, 2001 (30%) and the remainder on the effective date of a plan of
reorganization under Chapter 11 which provides for the Company to continue as a
going concern, or 90 days after certain other bankruptcy related events or a
change of control, as defined in the Retention Plan, at which time the full
unpaid balance would become payable. The payments under the Retention Plan are
accelerated for a participating employee if that employee is otherwise eligible
for benefits under the Retention Plan but is terminated by the Company for any
reason other than cause, or if such employee resigns for good reason, in each
case as those terms are defined in the Retention Plan. If all potential payments
to these officers and key employees are realized, the aggregate payment
obligation would be approximately $1,550,000. On November 22, 2000, the Court
issued an order approving the Company's assumption of the Retention Plan.
The accompanying Unaudited Consolidated Condensed Financial Statements
have been prepared on a going concern basis, which contemplates continuity of
operations, realization of assets and liquidation of liabilities in the ordinary
course of business. However, as a result of the Chapter 11 filing, such
realization of assets and liquidation of liabilities is subject to uncertainty.
Further, a plan of reorganization could materially change the amounts reported
in the consolidated financial statements, which do not give effect to any
adjustments to the carrying value of assets or amounts of liabilities that might
be necessary as a consequence of a plan of reorganization. The ability of the
Company to continue as a going concern is dependent upon, among other things,
confirmation of a plan of reorganization, future profitable operations, its
ability to comply with debtor-in-possession agreements and its ability to
generate sufficient cash from operations and financing sources to satisfy its
7
<PAGE>
obligations. Additionally, the accompanying Unaudited Consolidated Condensed
Financial Statements do not include any adjustments that would be required if
the Company were in liquidation. Substantially all of the Company's pre-petition
liabilities are subject to compromise under the reorganization proceedings.
(3) Long-Term Debt
On October 16, 2000, in conjunction with the Company's filing under
Chapter 11, the Company entered into, and the Court gave interim approval to,
the two-year, $35,000,000 DIP Credit Agreement, which includes a $15,000,000
sub-facility for the issuance of letters of credit. The DIP Credit Agreement is
secured by substantially all of the Company's assets. The DIP Credit Agreement
provides that proceeds may be used solely in the ordinary course of business and
for other general corporate purposes during the Company's Chapter 11
reorganization proceedings. Borrowings under the DIP Credit Agreement bear
interest at the reference rate thereunder plus 0.75% or, at the option of the
Company, the Eurodollar Rate thereunder plus 2.75%.On December 6, 2000, the
Court issued the final order approving the DIP Credit Agreement. The final order
allows the Company, among other things, to use the proceeds for the retirement
of the pre-petition working capital facility.
At October 28, 2000, the Company had approximately $10,412,000 of
availability under the DIP Credit Agreement, after considering outstanding
letters of credit of approximately $5,205,000 and borrowings of $19,383,000. The
Company may prepay amounts outstanding under the working capital facility
without penalty.
The DIP Credit Agreement requires that the Company maintain certain
financial covenants and stipulates certain borrowing limitations based on the
Company's inventory levels. The DIP Credit Agreement also restricts future liens
and indebtedness, sales of assets and dividend payments. Capital expenditures
are restricted to $7,200,000 for the period ending February 3, 2001, $3,000,000
for the period ending February 2, 2002 and $2,000,000 for the period commencing
February 3, 2002 and ending on November 2, 2002. At October 28, 2000, the
Company was in compliance with all of its covenants under the DIP Credit
Agreement.
The Company's current liquidity needs are provided by existing cash
balances, operating cash flow, the DIP Credit Agreement, and trade credit terms
from the vendor and factor community. The Company continually monitors its
liquidity position.
(4) Accrued Expenses
Accrued expenses consisted of the following:
<TABLE>
<CAPTION>
October 28, 2000 January 29, 2000
------------------- -------------------
<S> <C> <C>
Payroll and related benefits $ 1,171,000 $ 1,664,000
Taxes other than income taxes 1,882,000 1,371,000
Rent and other related costs 177,000 1,943,000
Layaway deposits and payments 1,880,000 -
Reorganization expense 2,374,000 -
Closed stores 5,252,000 -
Other 1,550,000 2,863,000
------------------- -------------------
Total $ 14,286,000 $ 7,841,000
=================== ===================
</TABLE>
As of October 28, 2000, the Court had not signed an order to approve
the Company's assumption of the contract between the Company and the third party
inventory liquidator. The accrual for closed stores are those amounts collected
by the Company from the inception of the store closing sales to October 28, 2000
payable to the liquidator upon assumption of the contract by the Court. The
Court issued the order approving such assumption on October 31, 2000.
8
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(5) Leases
During the thirty-nine weeks ended October 28, 2000, the Company
entered into new leases for ten stores, including relocations, and executed
renewal options on several locations. During the thirty-nine weeks ended October
28, 2000, the Company opened ten new stores and closed one store. Future minimum
rental payments have increased approximately $13,019,000 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 $59,645,000.
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 28, 2000 October 30, 1999 October 28, 2000 October 30, 1999
---------------- ------------------ ----------------- ------------------
<S> <C> <C> <C> <C>
Minimum rentals $ 2,989,000 $ 2,796,000 $ 9,061,000 $ 8,174,000
Contingent rentals 9,000 116,000 259,000 369,000
---------------- ------------------ ----------------- ------------------
Total $ 2,998,000 $ 2,912,000 $ 9,320,000 $ 8,543,000
================ ================== ================= ==================
</TABLE>
(6) Stock Based Awards
On March 24, 2000, under the Company's 1999 Stock Incentive
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 amount
determined under such plan to be the fair market value on that date. At October
28, 2000, there were vested options outstanding to purchase 401,667 shares of
common stock at a weighted average per share exercise price of $1.12.
(7) 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 2000 or 1999, or during the first
nine 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 third quarter of 2000 or
1999, or during the first thirty-nine weeks of 2000 or 1999.
(8) 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 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.
9
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(9) 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 28, October 30, October 28, October 30,
2000 1999 2000 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 equivalents - shares issuable
under the stock incentive plans - 19,829 - 9,224
------------- --------------- ------------- --------------
Weighted average number of shares of common
stock outstanding, assuming full dilution 18,509,710 18,496,659 18,509,710 18,486,054
============= =============== ============= ==============
</TABLE>
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 October 28, 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
business strategies, 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 differ
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 expected results expressed or implied
therein will not be realized.
RECENT DEVELOPMENTS
As a result of the Company's poor financial performance, lack of
adequate trade support to fund its inventory working capital requirements and
lack of sufficient financial flexibility and liquidity, on October 16, 2000 (the
"Petition Date") the Company filed a voluntary petition for relief under Chapter
11 ("Chapter 11") of Title 11 of the United States Code (the "Bankruptcy Code")
in United States Bankruptcy Court for the District of Delaware (the "Court").
The Company has entered into a $35,000,000 debtor-in-possession credit agreement
(the "DIP Credit Agreement") with a lender to finance the Company's working
capital requirements during Chapter 11 reorganization proceedings. On October
16, 2000, the Court approved the proposed DIP Credit Agreement, among other
things, subject to certain conditions. On December 6, 2000, the Court issued the
final order approving the DIP Credit Agreement. The final order allows the
Company to, among other things, use the proceeds for the retirement of the
pre-petition working capital facility.
10
<PAGE>
The DIP Credit Agreement contains covenants which, among other things,
restrict the (i) incurrence of additional debt, (ii) maximum inventory levels
allowed, (iii) aggregate amount of capital expenditures and (iv) payments of
dividends. In addition, the DIP Credit Agreement requires the Company to
maintain compliance with a specified level of earnings before interest, taxes,
depreciation, amortization and special charges. Proceeds from the DIP Credit
Agreement may be used solely in the ordinary course of business and for other
general corporate purposes during the Company's Chapter 11 reorganization
proceedings.
Under Chapter 11, the Company is operating its business as a
debtor-in-possession, subject to approval of the Court for certain actions.
Additionally, a creditor committee was formed and has the right to review and
object to any non-ordinary course of business transactions and participate in
the formulation of any plan or plans of reorganization. There can be no
assurance that the Company will succeed in reorganizing under Chapter 11 or that
reorganization will not result in a liquidation.
As of the Petition Date, actions to collect pre-petition indebtedness
are stayed and other contractual obligations may not be enforced against the
Company. In addition, the Company may reject executory contracts and lease
obligations, and parties affected by these rejections may file claims with the
Court in accordance with the reorganization process. Substantially all
liabilities as of the Petition Date are subject to settlement under a plan of
reorganization to be voted upon by all impaired classes of creditors and equity
security holders and approved by the Court.
On October 31, 2000, the Court approved the assumption of the Company's
agreement to close 44 underperforming stores as part of its restructuring
process. The Company engaged a third party to acquire and manage the inventory
liquidation process in these stores. As a result of this announced store closure
plan, the Company has recorded an $8,851,000 charge in the third quarter of
fiscal 2000 including $2,571,000 for the loss on the sale of inventory to a
third party liquidator, $1,729,000 for the continuing expenses of operating
these locations through final liquidation, $3,309,000 for the write-off of
assets in the 44 closing stores, $742,000 for the write down of inventory
capitalization related to these stores and $350,000 for miscellaneous going out
of business expenses. The charge is reflected in store closing costs in the
accompanying income statement. The Company currently anticipates that this store
closure plan will be completed within the current fiscal year. The Company also
accrued approximately $250,000 in store closing expenses for the payment of
severance and other benefits due to those store associates who are expected to
be terminated as store closings are finalized. These store closings ultimately
are expected to eliminate approximately 1,000 positions.
In the third quarter of 2000, the Company incurred $10,955,000 in
reorganization expense attributable to the filing under Chapter 11. This expense
includes $5,377,000 for potential lease rejection claims for the 44 closing
stores, $3,397,000 for the write-off of excess reorganization value, $550,000
for professional fees, $400,000 for severance payments, $700,000 for fees
related to the DIP Credit Agreement, $331,000 for an employee retention plan
adopted in relation to the reorganization and $200,000 for miscellaneous items.
In writing off $3,397,000 in excess reorganization value, the Company
reviewed whether the events or circumstances surrounding the closing of the 44
stores and the Company's ultimate filing under Chapter 11 impacted the
recoverability of this asset. The Company determined that excess reorganization
value was impaired and that the Company would not be able to recover its cost.
As part of the reorganization expense, the Company incurred
approximately $400,000 in severance payments related to elimination of
approximately 55 positions in the corporate headquarters and distribution
center. The majority of these positions were eliminated in September 2000.
Approximately $79,000 of these expenses remain accrued.
Also included in reorganization expense is $331,000 for the Weiner's
Stores, Inc. 2000 Executive Retention Plan dated September 19, 2000 (the
"Retention Plan"). The Retention Plan, which provides potential benefits for
certain officers and key employees of the Company, pays a bonus for remaining in
the employment of the Company over a specified period of time. A participating
employee under the Retention Plan may receive total compensation of 10% to 50%
of their annual salary, payable in three installments on January 15, 2001 (20%),
August 20, 2001 (30%) and the remainder on the effective date of a plan of
reorganization under Chapter 11 which provides for the Company to continue as a
going concern, or 90 days after certain other bankruptcy related events or a
11
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change of control, as defined in the Retention Plan, at which time the full
unpaid balance would become payable. The payments under the Retention Plan are
accelerated for a participating employee if that employee is otherwise eligible
for benefits under the Retention Plan but is terminated by the Company for any
reason other than cause, or if such employee resigns for good reason, in each
case as those terms are defined in the Retention Plan. If all potential payments
to these officers and key employees are realized, the aggregate payment
obligation would be approximately $1,550,000. On November 22, 2000, the Court
issued an order approving the Company's assumption of the Retention Plan.
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED OCTOBER 28, 2000 COMPARED TO THIRTEEN WEEKS ENDED OCTOBER
30, 1999
Total net sales for the third quarter of 2000 increased 10.1% to
$64,791,000 from $58,859,000 in the third quarter of 1999. The increase was
primarily attributable to a 10.3% comparable stores sales increase for the third
quarter of 2000. Comparable store sales were impacted by the Company's adoption
of Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial
Statements" ("SAB 101"), issued by the Staff of the Securities and Exchange
Commission. Prior to its adoption of SAB 101, the Company recognized layaway
sales at the time when the merchandise was 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 recognized in the
third quarter of 2000 $5,754,000 in layaway transactions from prior periods. Had
the Company continued to report layaway sales at the inception of the layaway,
total net sales for the third quarter of 2000 would have been $59,037,000, or a
0.3% increase from the third quarter of 1999. This recognition of deferred sales
was offset by sales reductions in September 2000 and October 2000 due to lower
than anticipated merchandise receipts as the Company experienced cash flow
difficulties and ultimately filed a petition for relief under Chapter 11 on
October 16, 2000. October 2000 sales were further affected negatively by the
closing of 44 stores on October 12, 2000.
Leased department revenue in the third quarter of 2000 reflects the
revenues the Company received for the sales of designer fragrances.
Cost of goods sold for the third quarter of 2000 increased to
$43,983,000 from $38,061,000 in the third quarter of 1999. As a percentage of
revenues, cost of goods sold for the third quarter of 2000 increased to 67.7%
from 64.7% in the third quarter of 1999. The increases are primarily
attributable to increased promotional markdowns. Gross margin in the third
quarter of 2000 decreased as a percentage of revenues to 32.3% from 35.3% in the
third quarter of 1999. This decrease is primarily attributable to increased
promotional markdowns offset by higher initial markup.
Selling, administrative and other operating costs increased to
$23,300,000 in the third quarter of 2000 compared to $22,986,000 in the third
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 third quarter of 2000 decreased
to 35.9% from 39.1% in the third quarter of 1999. This decrease is primarily
attributable to the increase in revenues discussed above.
The Company incurred $10,955,000 in reorganization expense in the third
quarter of 2000 attributable to the filing under Chapter 11. This expense is
primarily attributable to potential lease rejection claims for the 44 closing
stores, the write-off of excess reorganization value, professional fees and an
employee retention plan adopted in relation to the reorganization.
Store closing costs incurred for the third quarter of 2000 were
$8,851,000. This expense was primarily attributable to the loss on the sale of
inventory to a third party liquidator, continued expenses of operating these
locations through final liquidation and the write-off of assets in the 44
closing stores.
The operating loss for the third quarter of 2000 was $22,153,000
compared to operating loss of $2,188,000 in the third quarter of 1999. Had the
Company not incurred reorganization expense and store closing costs, the
operating loss for the third quarter of 2000 would have been $2,347,000.
12
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The Company provides for 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 2000 or the third 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 $702,000 in the third quarter
of 2000 compared to $249,000 in the third quarter of 1999. Interest expense has
increased due to the increase in borrowings under the Company's credit
facilities and increases in interest rates.
The Company's net loss for the third quarter of 2000 was $22,855,000,
or $1.23 per share of common stock, compared to a net loss of $2,437,000, or
$0.13 per share of common stock, for the third quarter of 1999. Had the Company
not incurred reorganization expense and store closing costs in relation to its
filing under Chapter 11, the net loss for the third quarter of 2000 would have
been $3,049,000, or $0.16 per share of common stock.
THIRTY-NINE WEEKS ENDED OCTOBER 28, 2000 COMPARED TO THIRTY-NINE WEEKS ENDED
OCTOBER 30, 1999
Total net sales in the first nine months of 2000 decreased 7.0% to
$193,476,000 from $207,993,000 in the first nine months of 1999. The decrease is
primarily attributable to a 10.3% decrease in comparable store sales for the
first nine months of 2000 compared to the same period last year, offset by sales
in new stores opened in 2000 and the latter part of 1999. The Company's adoption
of SAB 101 had a measurable impact on comparable stores sales. Prior to the its
adoption of SAB 101, the Company recognized layaway sales at the time when the
merchandise was 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 nine months of 2000
$2,533,000 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 nine months of 2000 would have been $196,009,000, or a 5.8%
decrease from the first nine months of 1999. The sales decline was further
impacted by sales reductions in September 2000 and October 2000 due to lower
than anticipated merchandise receipts as the Company experienced cash flow
difficulties and ultimately filed a petition for relief under Chapter 11 on
October 16, 2000. October 2000 sales were further affected negatively by the
closing of 44 stores on October 12, 2000.
Leased department revenue in the first nine 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 leased shoe department was unsuccessful
and the lease was discontinued.
Cost of goods sold for the first nine months of 2000 decreased to
$128,345,000 from $138,422,000 in the first nine months of 1999. As a percentage
of revenues, cost of goods sold for the first nine months of 2000 decreased to
66.1% from 66.6% in the first nine months of 1999. The decreases are primarily
attributable to the sales decline discussed above. Gross margin in the first
nine months of 2000 increased as a percentage of revenues to 33.9% from 33.4% in
the first nine months of 1999. This increase is primarily attributable to higher
initial markup and lower promotional markdowns.
Selling, administrative and other operating costs increased to
$72,284,000 in the first nine months of 2000 compared to $68,703,000 in the
first nine 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 nine months of 2000 increased to 37.2% from
33.0% in the first nine months of 1999. This increase is primarily attributable
to the decrease in sales during the first nine months of 2000 discussed above.
The Company incurred $10,955,000 in reorganization expense in the first
nine months of 2000 attributable to the filing under Chapter 11. This expense is
primarily attributable to potential lease rejection claims for the 44 closing
stores, the write-off of excess reorganization value, professional fees and an
employee retention plan adopted in relation to the reorganization.
13
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Store closing costs incurred for the first nine months of 2000 were
$8,851,000. This expense was primarily attributable to the loss on the sale of
inventory to a third party liquidator, continued expenses of operating these
locations through final liquidation and the write-off of assets in the 44
closing stores.
The operating loss in the first nine months of 2000 was $26,372,000
compared to operating income of $868,000 in the first nine months of 1999. Had
the Company not incurred reorganization expense and store closing costs, the
operating loss in the first nine months of 2000 would have been $6,566,000.
The Company provides for 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 2000 or the first nine
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 nine months of 2000 or the first nine months of
1999.
The Company recorded interest expense of $1,647,000 in the first nine
months of 2000 compared to $809,000 in the first nine months of 1999. The
increase is due primarily to the increase in borrowings under the Company's
credit facilities during the first nine months of 2000 as compared to the first
nine months of 1999 and the increase in interest rates thereunder.
The Company's net loss was $28,313,000, or $1.53 per share of common
stock, for the first nine months of 2000, compared to net income of $59,000, or
less than $0.01 per share of common stock, for the first nine months of 1999.
Had the Company not incurred reorganization expense and store closing costs in
relation to its filing under Chapter 11, the net loss for the first nine months
of 2000 would have been $8,507,000, or $0.46 per share of common stock.
LIQUIDITY AND CAPITAL RESOURCES
Cash from Operations and Working Capital
The Company's cash used in operations was $2,042,000 during the
thirty-nine weeks ended October 28, 2000, compared to cash used in operations of
$6,376,000 during the thirty-nine weeks ended October 30, 1999. The decrease in
cash used in operations is primarily attributable to the Company's efforts to
control inventory levels and the filing under Chapter 11 on October 16, 2000.
The Company's primary source of liquidity has been borrowings under its prior
credit agreement and the current DIP Credit Agreement.
Credit Agreements
On October 5, 2000, the Company entered into the sixth amendment (the
"Sixth Amendment") to its pre-petition credit agreement. The Sixth Amendment,
among other things, reduced the amount of the facility to $35,000,000, adjusted
the formula used to determine borrowing availability, modified the financial
covenants and further limited capital expenditures.
On October 16, 2000, in conjunction with the Company's filing under
Chapter 11, the Company entered into, and the Court gave interim approval to,
the two-year, $35,000,000 DIP Credit Agreement, which includes a $15,000,000
sub-facility for the issuance of letters of credit. The DIP Credit Agreement is
secured by substantially all of the Company's assets. The DIP Credit Agreement
provides that proceeds may be used solely in the ordinary course of business and
for other general corporate purposes during the Company's Chapter 11
reorganization proceedings. Borrowings under the DIP Credit Agreement bear
interest at the reference rate thereunder plus 0.75% or, at the option of the
Company, the Eurodollar Rate thereunder plus 2.75%. On December 6, 2000, the
Court issued the final order approving the DIP Credit Agreement. The final order
allows the Company to, among other things, use the proceeds for the retirement
of the pre-petition working capital facility.
At October 28, 2000, the Company had approximately $10,412,000 of
availability under the $35,000,000 DIP Credit Agreement, after considering
outstanding letters of credit of approximately $5,205,000 and borrowings of
14
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$19,383,000. The Company may prepay amounts outstanding under the working
capital facility without penalty.
The DIP Credit Agreement requires that the Company maintain certain
financial covenants and stipulates certain borrowing limitations based on the
Company's inventory levels. The DIP Credit Agreement also restricts future liens
and indebtedness, sales of assets and dividend payments. Capital expenditures
are restricted to $7,200,000 for the period ending February 3, 2001, $3,000,000
for the period ending February 2, 2002 and $2,000,000 for the period commencing
February 3, 2002 and ending on November 2, 2002. At October 28, 2000, the
Company was in compliance with all of its covenants under the DIP Credit
Agreement.
The Company's current liquidity needs are provided by existing cash
balances, operating cash flow, the DIP Credit Agreement, and trade credit terms
from the vendor and factor community. The Company continually monitors its
liquidity position. Due to the Company's poor financial performance and the
other factors that resulted in its filing for relief under Chapter 11, any
further material adverse development affecting the business of the Company could
significantly limit its ability to withstand competitive pressures or adverse
economic conditions, to take advantage of expansion opportunities or other
significant business opportunities that may arise, to meet its obligations as
they become due or to comply with the various covenant requirements under the
DIP Credit Agreement. Moreover, the Company is highly dependent upon its ability
to obtain merchandise on normal trade terms. Due to the Company's recent
financial performance, some of the Company's key vendors have become more
restrictive in granting trade credit either through reducing the Company's
credit lines or shortening payment terms. In addition, the majority of the
Company's factors have requested letters of credit to secure the credit lines
that these factors have provided the Company. The tightening of credit was one
of the factors which contributed to the Company's filing for relief under
Chapter 11.
As a result of the Chapter 11 filing, the Company's realization of
assets and liquidation of liabilities in the ordinary course of business is
subject to uncertainty. Further, a plan of reorganization could materially
change the amounts reported in the Company's consolidated financial statements,
which do not give effect to any adjustments to the carrying value of assets or
amounts of liabilities that might be necessary as a consequence of a plan of
reorganization. The ability of the Company to continue as a going concern is
dependent upon, among other things, confirmation of a plan of reorganization,
future profitable operations, its ability to comply with debtor-in-possession
agreements and its ability to generate sufficient cash from operations and
financing sources to satisfy its obligations.
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, expansion of the hard-line area within the stores, a new
signage program and management information system enhancements. As of October
28, 2000, the Company had completed $5,322,000 of these expenditures. The
Company expects to fund these future capital expenditures from cash generated by
operations and borrowings under the DIP 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 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.
15
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable.
16
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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. Due to the Company's filing under Chapter 11, certain of such cases
have been stayed pursuant to the automatic stay issued by the Court. Under
Chapter 11, these cases require Court approval or must be specifically exempt
for litigation proceedings to continue.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibit
No. Description
------- -----------
3.1 Restated Certificate of Incorporation of the Company
(incorporated by reference to Exhibit 3.1 to the Company's
registration statement on Form 10 filed April 14, 1998)
3.2 Restated Bylaws of the Company (incorporated by reference to
Exhibit 3.2 to the Company's registration statement on Form 10
filed April 14, 1998)
10.1 Sixth Amendment, dated as of October 5, 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. 2 to Employment Agreement, dated as of September
19, 2000, to the Employment Agreement, dated as of February 1,
2000, between the Company and Raymond J. Miller, as amended
(filed herewith)
10.3 Amendment No. 2 to Employment Agreement, dated as of September
19, 2000, to the Employment Agreement, dated as of February 1,
2000, between the Company and Joseph J. Kassa, as amended
(filed herewith)
10.4 Weiner's Stores, Inc. 2000 Executive Retention Plan dated as
of September 19, 2000 (filed herewith)
10.5 Debtor-in-Possession Revolving Credit Agreement, dated October
16, 2000, among the Company, the lenders party thereto and The
CIT Group/Business Credit, Inc., as Agent (filed herewith)
17
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27.1 Financial Data Schedule (filed herewith)
(b) During the third quarter of fiscal year 2000, the Company filed a
report on Form 8-K on October 17, 2000 to report that the Company had
filed a voluntary petition for relief under Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the District
of Delaware and to announce that the Company had entered into the DIP
Credit Agreement.
18
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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 12, 2000 By: /s/ Michael S. Marcus
----------------- ----------------------
(Date) Michael S. Marcus
Vice President, Chief Financial
Officer,Treasurer and Secretary
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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 Sixth Amendment, dated as of October 5, 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. 2 to Employment Agreement, dated as of September
19, 2000, to the Employment Agreement, dated as of February 1,
2000, between the Company and Raymond J. Miller, as amended
(filed herewith)
10.3 Amendment No. 2 to Employment Agreement, dated as of September
19, 2000, to the Employment Agreement, dated as of February 1,
2000, between the Company and Joseph J. Kassa, as amended
(filed herewith)
10.4 Weiner's Stores, Inc. 2000 Executive Retention Plan dated as
of September 19, 2000 (filed herewith)
10.5 Debtor-in-Possession Revolving Credit Agreement, dated October
16, 2000, among the Company, the lenders party thereto and The
CIT Group/Business Credit, Inc., as Agent (filed herewith)
27.1 Financial Data Schedule (filed herewith)
