<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended April 29, 1995 COMMISSION FILE NO. 0-17870
LECHTERS, INC.
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(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY No. 13-2821526
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(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1 Cape May Street, Harrison, NEW JERSEY 07029
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(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (201) 481-1100
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, and (2) has been
subject to such filing requirements for the past 90 days.
YES x NO
The number of shares of the Registrant's common stock, without par
value, outstanding at June 6, 1995: 17,146,286:
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LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED APRIL 29, 1995
INDEX
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets -
April 29, 1995 and January 28, 1995 1
Consolidated Statements of Income
for the Thirteen Weeks Ended
April 29, 1995 and April 30, 1994 2
Consolidated Statements of Cash Flows
for the Thirteen Weeks Ended
April 29, 1995 and April 30, 1994 3
Consolidated Statement of Shareholders'
Equity for the Thirteen Weeks Ended
April 29, 1995 4
Notes to Consolidated Financial
Statements 5-6
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations 7-8
PART II. Other Information
Item 6. Exhibits and Reports 9
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<TABLE>
<CAPTION>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<S> <C> <C>
April 29, January 28,
1995 1995
A S S E T S (unaudited)
Current Assets:
Cash and Cash Equivalents $ 6,489 $ 14,774
Available for Sale Securities 38,837 43,339
Accounts Receivable 7,366 6,668
Merchandise Inventories 110,536 97,323
Prepaid Expenses 7,703 4,601
Total Current Assets 170,931 166,705
Property and Equipment - at Cost:
Fixtures and Equipment 56,464 53,786
Leasehold Improvements 94,429 92,954
150,893 146,740
Less Accumulated Deprec & Amort 50,779 47,265
100,114 99,475
Other Assets 4,717 4,530
Total Assets $275,762 $270,710
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Current Portion Long-Term Debt $ 3,000 $ 3,000
Accounts Payable 23,356 15,453
Salaries, Wages and Other Accd Exp 9,822 9,906
Taxes, Other Than Income Taxes 2,496 2,806
Federal and State Income Taxes 532 755
Total Current Liabilities 39,206 31,920
Long-term Debt
Notes Payable 21,000 21,000
5% Convertible Subordinated Debentures
due September 27, 2001 (Net of
Unamortized Discount of $7,983 and
$8,222, respectively) 57,017 56,777
Total Long-term Debt 78,017 77,777
Def Income Taxes and Other Def Credits 16,997 17,472
Shareholders' Equity:
Preferred Stock, $100 Par Value
Authorized 1,000,000 Shares,
Issued and Outstanding - None -- --
Common Stock, Without Par Value,
Authorized 50,000,000 Shares,
Issued and Outstanding 17,140,386
and 17,118,646 Shares, Respectively 58 58
Unrealized Holding Loss on Available
for Sales Securities (76) (210)
Additional Paid-in Capital 62,634 62,423
Retained Earnings 78,926 81,270
Total Shareholders' Equity 141,542 143,541
Total Liabilities and Shareholders'
Equity $275,762 $270,710
======== ========
See accompanying notes to consolidated financial statements.
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</TABLE>
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<TABLE>
<CAPTION>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
<S> <C> <C>
Thirteen Weeks Ended
April 29, April 30,
1995 1994
(unaudited)
Net Sales $ 80,316 $ 73,692
Cost of Goods Sold (including occupancy
and indirect costs) 60,076 53,907
Gross Profit 20,240 19,785
Selling, General and Administrative
Expenses 23,288 20,398
Operating Loss (3,048) (613)
Other Expenses (Income):
Interest Expense 1,638 1,900
Interest Income (713) (381)
Loss on Sale of Government
Securities -- 21
Total Other Expenses 925 1,540
Loss Before Income Taxes (3,973) (2,153)
Income Tax Benefit (1,629) (883)
Net Loss ($ 2,344) ($ 1,270)
======== ========
Net Loss Per Share ($0.13) ($0.07)
======== ========
Weighted Average Shares Outstanding 17,416,000 17,072,000
========== ==========
See accompanying notes to consolidated financial statements.
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</TABLE>
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<TABLE>
<CAPTION>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<S> <C> <C>
Thirteen Weeks Ended
April 29, April 30,
1995 1994
(unaudited)
Cash Flows From Operating Activities:
Net Loss ($2,344) ($1,270)
Adjustments to Reconcile Net Loss to Net
Cash (Used In) Provided By Operating
Activities:
Depreciation and Amortization 3,819 3,357
Other (89) 247
Changes in Assets and Liabilities:
Increase in Accounts Receivable (698) (167)
Increase in Merchandise Inventories (13,528) (3,264)
Increase in Prepaid Expenses (3,102) (2,038)
Increase in Accounts Payable,
Accrued Expenses and Taxes Other
Than Income Taxes 8,227 4,163
Decrease in Income Taxes Payable (223) (93)
Increase in Other Assets (232) (624)
Net Cash (Used In) Provided By
Operating Activities (8,170) 311
Cash Flows From Investing Activities:
Capital Expenditures (4,700) (4,491)
Decrease (Increase) in Available
for Sale Securities 4,374 (790)
Net Cash Used In Investing
Activities (326) (5,281)
Cash Flows From Financing Activities:
Exercise of Stock Options 211 31
Net Cash Provided by Financing
Activities 211 31
Net Decrease in Cash and Cash Equivalents (8,285) (4,939)
Cash and Cash Equivalents, Beginning of
Period 14,774 8,963
Cash and Cash Equivalents, End of Period $ 6,489 $ 4,024
======= =======
Supplemental Disclosure of Cash Flows
Information:
Non Cash Investing Activities:
Unrealized Holding Loss Adjustment
on Available for Sale Securities $ 227 $ (476)
======= ========
Cash Paid During the Period for:
Interest $ 481 $ 893
======= =======
Taxes $ 43 $ 94
======= =======
See accompanying notes to consolidated financial statements.
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</TABLE>
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<TABLE>
<CAPTION>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<S> <C> <C> <C> <C> <C>
Common Additional Unrealized
Stock Paid-In Retained Holding
Issued Capital Earnings Gain(Loss) Total
Balance, January 28, 1995 $58 $62,423 $81,270 (210) $143,541
Net Loss Thirteen Weeks
Ended April 29, 1995 -- -- (2,344) -- (2,344)
Unrealized Holding Loss
Adjustment -- -- -- 134 134
Exercise of Stock Options 211 -- -- 211
Balance, April 29, 1995
(unaudited) $58 $62,634 $78,926 ($76) $141,542
===== ======= ======= ===== ========
See accompanying notes to consolidated financial statements.
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</TABLE>
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LECHTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. General
The accompanying unaudited Consolidated Financial Statements have
been prepared in accordance with the instructions for Form 10-Q
and do not include all the information and footnotes required by
generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation for interim periods have been included.
The Company's results of operations for the thirteen weeks ended
April 29, 1995 are not necessarily indicative of the operating
results for the full year.
Certain reclassifications have been made to the financial
statements of the prior year to conform with the classification
used for fiscal 1995.
2. Net Loss Per Share
Net loss per share data was computed by dividing net loss by the
weighted average number of common shares and common share
equivalents outstanding during the thirteen weeks ended April 29,
1995 and April 30, 1994. Common stock equivalents include
outstanding stock options. The Company's 5% Convertible
Subordinated Debentures issued in September 1991 did not qualify
as a common stock equivalent at the time of issue and were not
included in the calculation of primary net loss per share for the
periods ended April 29, 1995 and April 30, 1994. For the purpose
of computing fully diluted net loss per share, the assumed
conversion of such debentures would have an anti-dilutive effect
on the thirteen weeks ended April 29, 1995 and April 30, 1994.
3. Restructuring Charge
During June 1994, the Company recorded a pretax restructuring
charge of approximately $11,000,000 (approximately $6,500,000
after tax or $0.38 per share) related to its initial plan to
close 15 unprofitable stores and discontinue various unprofitable
merchandise lines. The plan called for the termination of the
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employment of approximately 19 associates from store operations,
the service office and distribution centers. During the fourth
quarter of Fiscal 1994, the Company revised its estimate of the
number of store closings to 10 stores and reduced the related
store closing provision by $3,000,000. However, the Company also
increased its estimate of the provision to markdown discontinued
merchandise by a similar amount. The revised estimated
restructuring charge includes the following:
Inventory writedown $ 7,400,000
Store closing:
Property and equipment writeoffs 1,800,000
Store closing and lease
termination costs 1,200,000
Severance costs 600,000
$11,000,000
===========
During Fiscal 1994, the Company used approximately $6,800,000 to
markdown discontinued merchandise lines, approximately $1,500,000
to close five of the 10 stores, and approximately $300,000 to pay
related severance costs.
During the thirteen weeks ended April 29, 1995 the Company used
approximately $600,000 to markdown discontinued merchandise
lines, approximately $80,000 to pay costs related to the five
stores planned to close and approximately $20,000 to pay related
severance costs. The remaining restructuring reserve as of April
29, 1995 was approximately $1,700,000, and it is estimated by
management to be sufficient to complete the revised restructuring
plan by June 1995.
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<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
Thirteen Weeks Ended April 29, 1995 in Comparison with Thirteen Weeks
Ended April 30, 1994
Net sales of $80,316,000 for the thirteen weeks ended April 29,
1995 increased by $6,624,000 (9.0%) over net sales of $73,692,000 for
the thirteen weeks ended April 30, 1994. This increase was primarily
attributable to an increase in the number of stores open during the
period and partially attributable to the Company's remodeling program.
During the thirteen weeks ended April 29, 1995, the Company's
comparable store sales decreased 0.3%, as compared to prior year's
comparable period. There were 609 stores open on April 29, 1995
compared with 571 stores open at the end of the comparable period of
the prior year, an increase of 38 stores (6.7%). During the thirteen
weeks ended April 29, 1995, the Company opened seven new stores,
closed three stores, and remodeled an additional five stores.
Gross profit for the thirteen weeks ended April 29, 1995 was
$20,240,000, or 25.2% of net sales, compared with $19,785,000, or
26.8% of net sales, during the prior year's comparable period. The
decrease in gross profit as a percentage of sales is primarily due to
lower markups on 1995 purchases, the amount of markdowns taken in the
current period in excess of the amount of markdowns taken in the
comparable period of the prior year, higher freight rates and an
increase in other occupancy costs as a percentage of sales.
Selling, general and administrative expenses increased as a
percentage of net sales to 29.0% during the thirteen weeks ended April
29, 1995 from 27.7% during the thirteen weeks ended April 30, 1994.
This increase was primarily attributable to an increase in general
administrative expenses associated with the additional 38 stores in
operation during the thirteen week period ended April 29, 1995,
together with additional advertising expenses.
Other expenses decreased by $615,000 to $925,000 for the thirteen
weeks ended April 29, 1995. This decrease was primarily attributable
to a decrease in interest expense of $262,000 resulting from the
Company reducing its debt by repaying $6,000,000 of 10.5% Notes during
the third quarter of 1994.
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Liquidity and Capital Resources
Cash and cash equivalents and available for sale securities
decreased by $12,787,000 and $4,625,000 respectively for the thirteen
weeks ended April 29, 1995 and April 30, 1994.
Net cash used in operating activities was $8,170,000 for the
thirteen weeks ended April 29, 1995 versus net cash provided by
operating activities of $311,000 for the thirteen weeks ended April
30, 1994. The decrease in net cash used in operating activities of
$8,481,000 was mainly attributable to an increase in the growth of
merchandise inventory of $10,264,000, an increase in the growth of
accounts payable and accrued expenses of $4,064,000, an increase in
the growth of prepaid expenses of $1,064,000 and an increase in net
loss of $1,074,000.
Capital expenditures of $4,700,000 primarily consisted of the
costs of construction and fixtures for seven new stores, and the
remodeling of five existing stores. Capital expenditures were funded
by available cash. Capital expenditures for the comparable 1994
period were $4,491,000.
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LECHTERS, INC. AND SUBSIDIARIES
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.
10.8 Amendment to Employment Agreement dated as of January
11, 1994 between the Company and Steen Kanter
(Incorporated herein by reference to the Company's
Annual Report on Form 10-K for the year ended January
28, 1995)
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
LECHTERS, INC.
By:________________________________
John W. Smolak
Vice President and
Chief Financial Officer
Date: June 12, 1995
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<PAGE>
April 20, 1995
Mr. Steen Kanter
5 Beth Drive
Lower Gwynedd, PA 19002
Dear Steen:
Reference is made to Employment Agreement dated January 11, 1994
between you, as Employee, and us, as the Company (the "Agreement").
It is hereby agreed that the Agreement shall be, and hereby is,
amended as follows:
1. Your salary set forth in paragraph 3(a) shall be increased,
effective February 1, 1995, from an annual rate of $350,000 to an
annual rate of $400,000.
2. On or before May 1, 1995, we shall pay to you a bonus in the
amount of $50,000 for services rendered by you to us during
fiscal year 1994, as contemplated by paragraph 3(a).
3. On or before May 1, 1996, we shall pay to you a bonus for
services rendered and to be rendered during fiscal year 1995
based upon the earnings per share attained by the Company during
said fiscal year, as determined by the Company's auditors. The
earnings per share attained during said fiscal year, and the
corresponding bonus payable to you upon attainment of such
earnings per share shall be as follows:
Earnings per Share Amount of Bonus
$.87 $ 50,000
$.88 $ 75,000
$.89 $100,000
$.90 $125,000
$.91 $150,000
$.92 $175,000
$.93 or more $200,000
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April 20, 1995
Page 2
4. As set forth in paragraph 3(b) of the Agreement, you were granted
an option to purchase 100,000 shares of the Company's Common
Stock pursuant to a Stock Option Agreement, the form of which is
attached to the Agreement as Exhibit A. In accordance with Stock
Option Agreement dated April 13, 1995, you have been granted the
option to purchase an additional 75,000 shares of the Company's
Common Stock.
5. As set forth in paragraph 3(b) of the Agreement, you were granted
an option to purchase 100,000 shares of the Company's Common
Stock pursuant to a Stock Option Agreement, the form of which is
attached to the Agreement as Exhibit B, subject to the attainment
by the Company of minimum earnings per share as set forth in said
Exhibit B. Exhibit B attached to the Agreement shall be, and
hereby is, deleted, and amended Exhibit B attached hereto shall
be, and hereby is, substituted therefor.
6. Except as herein specifically amended, all the terms and
conditions of the Agreement shall remain in full force and
effect.
Kindly countersign and return to us the enclosed copy of this letter
evidencing your Agreement to the foregoing.
LECHTERS, INC.
By: /s/ Donald Jonas
Donald Jonas
Chairman of the Board
AGREED:
/s/ Steen Kanter
Steen Kanter
<PAGE>
AMENDED EXHIBIT B
LECHTERS, INC.
STOCK OPTION AGREEMENT PURSUANT TO THE
1989 INCENTIVE AND NON-QUALIFIED
STOCK OPTION PLAN
THIS CERTIFIES that, pursuant to the Lechters, Inc. 1989
Incentive and Non-Qualified Stock Option Plan annexed hereto as
Exhibit A (the "Plan"), Steen Kanter (the "Optionee") was granted a
non-qualified stock option (the "Option") to purchase 100,000 shares
of Common Stock, without par value ("Common Stock"), of Lechters, Inc.
(the "Company") at a price of $11.50 per share, and 75,000 shares of
Common Stock at a price of $17.25 per share, subject to and under the
terms and conditions set forth herein and in the Plan. Subject to the
earlier termination of this Option in accordance with the terms and
conditions of this Agreement and of the Plan, this Option will
terminate on January 11, 2004 and thereafter will be of no further
force or effect. Subject to the terms hereof and of the Plan, the
following table indicates the date upon which the Optionee shall be
entitled to exercise the indicated installments of this Option (the
"Vesting Date"), and the number of share of Common Stock thereupon
issuable upon such exercise:
Number of Shares of Common
Stock Issuable Upon Exercise
of the Vested Installment
Vesting Date of this Option
@$11.50 @$17.25
May 1, 1996 20,000 15,000
May 1, 1997 20,000 15,000
May 1, 1998 20,000 15,000
May 1, 1999 20,000 15,000
May 1, 2000 20,000 15,000
provided, however, that the vesting of each of the foregoing
installments will be subject to the achievement by the Company for the
immediately preceding fiscal year of minimum earnings per share of
Common Stock outstanding (adjusted for stock splits, stock dividends,
reverse stock splits, and other similar recapitalizations). The
amount of such minimum earnings per share for each fiscal year so to
be achieved will be specified by the Stock Option Committee prior to
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the end of the first quarter of such fiscal year. For fiscal year
ending January 27, 1996 the minimum earnings per share shall be $.90.
Earnings per share will be determined conclusively by the Company's
accountants and will be based on the weighted average number of shares
outstanding during the fiscal year in question. Any installments
which do not so vest will terminate and thereafter be null and void.
If the employment of the Optionee is terminated (a) subsequent to the
end of a fiscal year in respect of which the Optionee may be entitled
to have vested an installment (as provided in the preceding paragraph)
but (b) prior to the determination of whether or not such installment
has vested (as provided in the preceding paragraph), then such
installment of the option will not terminate until the earlier to
occur of (y) the date of determination that such installment has not
vested (as provided in the preceding paragraph) and (z) 60 days after
the date of determination that such installment has vested (as
provided in the preceding paragraph).
LECHTERS, INC.
By: \s\ Donald Jonas
Donald Jonas
Chairman of the Board
AGREED TO:
\s\ Steen Kanter
Steen Kanter - Optionee
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-27-1996
<PERIOD-END> APR-29-1995
<CASH> 6,489
<SECURITIES> 38,837
<RECEIVABLES> 7,366
<ALLOWANCES> 0
<INVENTORY> 110,536
<CURRENT-ASSETS> 170,931
<PP&E> 100,114
<DEPRECIATION> 3,819
<TOTAL-ASSETS> 275,762
<CURRENT-LIABILITIES> 39,206
<BONDS> 57,017
<COMMON> 58
0
0
<OTHER-SE> (76)
<TOTAL-LIABILITY-AND-EQUITY> 141,542
<SALES> 80,316
<TOTAL-REVENUES> 80,316
<CGS> 60,076
<TOTAL-COSTS> 23,288
<OTHER-EXPENSES> 925
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 925
<INCOME-PRETAX> (3,973)
<INCOME-TAX> (1,629)
<INCOME-CONTINUING> (2,344)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,344)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> 0
</TABLE>
