SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
AMENDMENT NO. 1 FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended November 2, 1996 COMMISSION FILE NO. 0-
17870
LECHTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY No. 13-2821526
STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION IDENTIFICATION NO.)
1 Cape May Street, Harrison, NEW JERSEY 07029
(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 December 16, 1996: 17,155,086:
LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED NOVEMBER 2, 1996
INDEX
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
November 2, 1996 and February 3, 1996 1
Consolidated Statements of Income
for the Thirteen and Thirty-Nine Weeks Ended
November 2, 1996 and October 28, 1995 2
Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended
November 2, 1996 and October 28, 1995 3
Consolidated Statement of Shareholders'
Equity for the Thirty-Nine Weeks Ended
November 2, 1996 4
Notes to Consolidated Financial Statements 5-7
<PAGE> 3
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share
amounts)
<TABLE>
<CAPTION>
November February
2, 3,
1996 1996
<S> <C> <C>
A S S E T S (unaudite
d)
Current Assets:
Cash and Cash Equivalents $ 7,514 $
4,234
Available for Sales Securities 11,626 37,606
Accounts Receivable 11,205 5,573
Merchandise Inventories 145,845 109,898
Prepaid Expenses 12,068
5,519
Total Current Assets 188,258 162,830
Property and Equipment:
Fixtures and Equipment 66,533 64,688
Leasehold Improvements 102,201 100,840
168,734 165,528
Less Accumulated Depreciation 70,852 60,446
& Amortization
97,882 105,082
Other Assets
4,416 4,400
Total Assets $290,556 $272,312
LIABILITIES AND SHAREHOLDERS'
EQUITY
Current Liabilities
Accounts Payable $ 32,785 $ 7,827
Salaries, Wages and Other 14,197 13,546
Accrued Expenses
Taxes, Other Than Income Taxes 2,091 1,591
Federal and State Income Taxes 367 753
Current Portion Long-Term Debt
- 3,000
Total Current Liabilities 49,440 26,717
Long-term Debt
Senior Notes Payable - 17,250
5% Convertible Subordinated
Debentures
due September 27, 2001 (Net
of Unamortized 58,579 57,788
Discount of $6,421 and
$7,212, respectively)
Total Long-Term Debt 58,579 75,038
Deferred Income Taxes and 22,399 21,915
Other Deferred Credits
Shareholders' Equity:
Convertible Preferred Stock,
$100 Par Value
Authorized 1,000,000
Shares,
Issued and Outstanding -
Series A - 149,999
Shares; Series B - 50,001 20,000 --
Shares
Common Stock, Without Par
Value,
Authorized 50,000,000
Shares,
Issued and Outstanding
17,155,086
and 17,155,086 Shares, 58 58
Respectively
Unrealized Holding (Loss) Gain
on Available
for Sales Securities (47) 38
Additional Paid-in Capital 62,273 62,773
Retained Earnings
77,854 85,773
Total Shareholders' Equity 160,138 148,642
Total Liabilities and $290,556 $272,312
Shareholders' Equity
</TABLE>
See accompanying notes to consolidated financial
statements.
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<PAGE> 4
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share data)
<TABLE>
<CAPTION>
Thirteen Weeks Thirty-Nine Weeks
Ended Ended
Novembe October November October
r 2, 28, 2, 28,
1996 1995 1996 1995
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales $ $ $ $
98,495 95,148 276,214 264,135
Cost of Goods Sold
(including 73,178 70,298 208,405 196,300
occupancy and
indirect costs)
Gross Profit 25,317 24,850 67,809 67,835
Selling, General and
Administrative 27,085 25,142 78,446 73,056
Expenses
Operating Loss (1,768) (292) (10,637) (5,221)
Other Expenses
(Income):
Interest Expense 1,177 1,603 3,919 5,059
Interest Income (307) (313) (1,152) (1,532)
Loss (Gain) on Sale of
Government Securities
15 (23) 19 (53)
Total Other Expenses 2,786 3,474
(Income) 885 1,267
Loss Before Income (2,653) (1,559) (13,423) (8,695)
Taxes
Income Tax Benefit (5,504) (3,564)
(1,088) (638)
Net Loss (1,565) (921) (7,919) (5,131)
Preferred Stock
Dividend Requirement 253 - 589 -
Net Loss Applicable to
Common ($1,818 ($921) ($8,508) ($5,131)
Shareholders )
Net Loss Per Common ($0.50) ($0.30)
Share ($0.11) ($0.05)
Weighted Average Common
Shares 17,155, 17,238, 17,155,0 17,322,00
Outstanding 000 000 00 0
</TABLE>
See accompanying notes to consolidated financial statements.
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<PAGE> 5
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
November 2, October 28,
1996 1995
(unaudited)
<S> <C> <C>
Cash Flows From Operating
Activities:
Net Loss ($7,919) ($5,131)
Adjustments to Reconcile Net
Loss to Net
Cash (Used In) Provided By
Operating Activities:
Depreciation and Amortization 12,609 11,876
Straight Line Rent 625 648
Other 1,256 367
Changes in Assets and
Liabilities:
Increase in Accounts Receivable (5,632) (1,487)
Increase in Merchandise (35,947) (50,535)
Inventories
Increase in Prepaid Expenses (6,074) (7,188)
Increase in Accounts Payable,
Accrued Expenses and Taxes
Other 26,109 19,219
Than Income Taxes
Decrease in Income Taxes (861) (266)
Payable
Decrease (Increase) in Other 152 (21)
Assets
Net Cash Used In Operating (15,682) (32,518)
Activities
Cash Flows From Investing
Activities:
Capital Expenditures (6,624) (16,530)
Decrease in Available for Sale
Securities 25,836 38,432
Net Cash Provided by
Investing Activities 19,212 21,902
Cash Flows From Financing
Activities:
Issuance of Preferred Stock 20,000 ---
Payment of Senior Notes Payable (20,250) (3,750)
Exercise of Stock Options - 350
-
Net Cash Used In Financing
Activities (250) (3,400)
Net Increase (Decrease) in Cash
and 3,280 (14,016)
Cash Equivalents
Cash and Cash Equivalents,
Beginning of 4,234 14,774
Period
Cash and Cash Equivalents, End $7,514 $ 758
of Period
Supplemental Disclosure of Cash
Flows
Information:
Non Cash Investing Activities:
Unrealized Holding (Loss) Gain
Adjustment ($ 144) $ 41
on Available for Sale
Securities
Cash Paid During the Period
for:
Interest $ 4,546 $ 4,931
Income Taxes Paid/(Refunded) $ 847 ($1,001)
</TABLE>
See accompanying notes to consolidated financial
statements.
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<PAGE> 6
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Common Preferre Addition Unrealiz
Stock d al Retained ed
Issued Stock Paid-In Earnings Holding Total
Issued Capital Gain
(Loss)
<S> <C> <C> <C> <C> <C> <C>
Balance, $58 $ $62,773 $85,773 $ 38 $148,642
February 3, 1996 --
Issuance of
Preferred Stock -- 20,000 (500) -- -- 19,500
Net of
Issuance
Expenses
Net Loss Thirty-
Nine Weeks -- -- -- (7,919) -- (7,919)
Ended
November 2, 1996
Unrealized
Holding Loss -- (85)
Adjustment -- -- -- (85)
Balance,
November 2, 1996 $58 $20,000 $62,273 $77,854 ($47) $160,138
(unaudited)
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE> 7
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 and thirty-
nine weeks ended November 2, 1996 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 classifications
used for Fiscal 1996.
2. NET LOSS PER SHARE
Net loss per share data were computed by dividing net loss by the
weighted average number of common shares and common share
equivalents outstanding during the thirteen and thirty-nine weeks
ended November 2, 1996 and October 28, 1995. 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 November 2, 1996 and October 28,
1995. The Company's Convertible Preferred Stock issued on April
5, 1996 also did not qualify as a Common Stock equivalent at the
time of issue. For the purpose of computing fully diluted net
loss per share, the assumed conversion of such debentures would
have an anti-dilutive effect on fully diluted loss per share for
the thirteen and thirty-nine weeks ended November 2, 1996 and
October 28, 1995. With respect to the Convertible Preferred
Stock, conversion of such preferred stock would have an anti-
dilutive effect on the calculation of fully diluted loss per
share for the thirteen and thirty-nine weeks ended November 2,
1996.
- 5 -
<PAGE> 8
3. CONVERTIBLE PREFERRED STOCK
On April 5, 1996, the Company issued 149,999 shares of Series A
Convertible Preferred Stock, $100 par value ("Series A Preferred
Stock") and 50,001 shares of Series B Convertible Preferred
Stock, $100 par value ("Series B Preferred Stock") at par value.
Said shares of Convertible Preferred Stock were sold to
Prudential Private Equity Investors III, L.P. for $20,000,000.
The proceeds from the sale of the Series A and Series B Preferred
Stock were used to prepay $15,000,000 of the 9.53% Senior Notes
due 2001 and $2,625,000 of the 10.5% Senior Notes due 1998. The
balance of the proceeds are being used for general corporate
purposes. Expenses of the private placement were charged to
Additional Paid-in Capital. Series A Preferred Stock and Series
B Preferred Stock are convertible to Common Stock at a conversion
price of $6.25 per share. Series A Preferred Stock is convertible
to 2,399,984 shares of common stock and has voting rights
equivalent to the same number of common shares. Series B
Preferred Stock is convertible to 800,016 shares of common stock
but has no voting rights. Both Series A Preferred Stock and
Series B Preferred Stock receive a dividend of 5.05% payable
annually. Series A Preferred Stock and Series B Preferred Stock
did not qualify as common stock equivalents at the time of issue.
Robert Knox, a Director of the Company, is a limited partner in
Prudential Private Equity Investors III, L.P.
4. AMENDMENT AND EXTENSION OF THE CREDIT AGREEMENT
On May 23, 1996, the Company amended and extended its $40,000,000
unsecured credit agreement by entering into an Amended and
Restated Credit Agreement ("Credit Agreement") with a group of
banks. The Credit Agreement includes a sub-allocation of
$30,000,000 for letters of credit. Borrowings under the Credit
Agreement bear a base rate interest of either (1) higher of the
prime rate or Federal Funds Rate plus 1/2% or (2) an Adjusted
Eurodollar Rate based on LIBOR. The amended Credit Agreement
requires maintenance of certain earnings and fixed charge
coverage ratios. The interest rate is adjusted by from 1.4% to
2.5% depending on the ratio of consolidated indebtedness to pre-
tax cash earnings. The Credit Agreement terminates on May 22,
1998.
- 6 -
<PAGE> 9
5. RECENT ACCOUNTING PRONOUNCEMENTS
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards (SFAS) No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed Of." This statement establishes
accounting standards for the impairment of long-lived assets,
certain intangibles and goodwill related to those assets to be
held and used, and for long-lived assets and certain identifiable
intangibles to be disposed of. The Company adopted this new
Statement in the first quarter of Fiscal 1996.
In October 1995, the Financial Accounting Standards Board issued
SFAS No. 123, "Accounting for Stock-Based Compensation," that
establishes a fair value method of accounting and reporting for
stock-based employee compensation plans. Under the fair value
method, compensation cost is recognized over the service period,
which is usually the vesting period. The statement encourages
but does not require adoption of the fair value method. As
provided for in the Statement, the Company will continue to apply
the accounting provisions of Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees," and make the
appropriate disclosures in its fiscal 1996 annual report
footnotes.
- 7 -
<PAGE> 9
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: /s/ John W. Smolak
John W. Smolak
Senior Vice President and
Chief Financial Officer
Date: December 16, 1996
- 8 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 6-MOS 9-MOS
<FISCAL-YEAR-END> FEB-01-1997 FEB-01-1997
<PERIOD-START> FEB-04-1996 FEB-04-1996
<PERIOD-END> NOV-02-1996 NOV-02-1996
<CASH> 7,514 0
<SECURITIES> 11,626 0
<RECEIVABLES> 11,205 0
<ALLOWANCES> 0 0
<INVENTORY> 145,845 0
<CURRENT-ASSETS> 188,258 0
<PP&E> 168,734 0
<DEPRECIATION> 70,852 0
<TOTAL-ASSETS> 290,556 0
<CURRENT-LIABILITIES> 49,440 0
<BONDS> 58,579 0
0 0
20,000 0
<COMMON> 58 0
<OTHER-SE> 140,080 0
<TOTAL-LIABILITY-AND-EQUITY> 290,556 0
<SALES> 98,495 276,214
<TOTAL-REVENUES> 98,495 276,214
<CGS> 73,178 208,405
<TOTAL-COSTS> 27,085 78,446
<OTHER-EXPENSES> 885 2,786
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1,177 3,919
<INCOME-PRETAX> (2,653) (13,423)
<INCOME-TAX> (1,088) (5,504)
<INCOME-CONTINUING> (1,565) (7,919)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (1,565) (7,919)
<EPS-PRIMARY> ($0.11) ($0.50)
<EPS-DILUTED> ($0.11) ($0.50)
</TABLE>
