<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For quarterly period ended October 31, 1998
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. 0-17870
LECHTERS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
NEW JERSEY No. 13-2821526
(STATE OR OTHER JURISDICTION OF INCORPORATION) (I.R.S. EMPLOYER
IDENTIFICATION NO.)
1 Cape May Street, Harrison, NEW JERSEY 07029-2404
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: (973) 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 10, 1998: 17,176,286:
<PAGE> 2
LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED OCTOBER 31, 1998
INDEX
PAGE NO.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets
October 31, 1998 and January 31, 1998 1
Consolidated Statements of Income
for the Thirteen and Thirty-Nine Weeks Ended
October 31, 1998 and November 1, 1997 2
Consolidated Statements of Cash Flows
for the Thirty-Nine Weeks Ended
October 31, 1998 and November 1, 1997 3
Consolidated Statement of Shareholders'
Equity for the Thirty-Nine Weeks Ended
October 31, 1998 4
Notes to Consolidated Financial Statements 5-6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 6-9
PART II. Other Information
Item 6. Exhibits and Reports on Form 8-K 10
- --------------------------------------------------------------------------------
SAFE HARBOR STATEMENT
UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
In connection with the safe harbor provisions of the Private Securities
Litigation Reform Act of 1995 (Reform Act), the Company is hereby filing
cautionary statements identifying important factors that could cause the
Company's actual results to differ materially from those projected in
forward-looking statements (as such term is defined in the Reform Act) made by
or on behalf of the Company in this quarterly report on Form 10-Q, in
presentations, in response to questions or otherwise. Any statements that
express, or involve discussions as to expectations, beliefs, plans, objectives,
assumptions or future events or performance (often, but not always, through the
use of words or phrases such as "anticipates", "believes", "estimates",
"expects", "intends", "plans", "predicts", "projects", "will likely result",
"will continue", or similar expressions) are not statements of historical facts
and may be forward-looking.
<PAGE> 3
Forward-looking statements involve estimates, assumptions, and uncertainties and
are qualified in their entirety by reference to, and are accompanied by, the
following important factors, which are difficult to predict, contain
uncertainties, are beyond the control of the Company and may cause actual
results to differ materially from those contained in forward-looking statements:
- - economic and geographic factors including political and economic risks;
- - changes in and compliance with environmental and safety laws and policies;
- - weather conditions;
- - population growth rates and demographic patterns;
- - competition for retail customers;
- - Year 2000 issues;
- - market demand, including structural market changes;
- - changes in tax rates or policies or in rates of inflation; changes in project
costs;
- - unanticipated changes in operating expenses and capital expenditures;
- - capital market conditions;
- - legal and administrative proceedings (whether civil or criminal) and
settlements that influence the business and profitability of the Company.
Any forward-looking statement speaks only as of the date on which such statement
is made, and the Company undertakes no obligation to update any forward-looking
statement to reflect events or circumstances after the date on which such
statement is made or to reflect the occurrence of unanticipated events. New
factors emerge from time to time and it is not possible for management to
predict all of such factors, nor can it assess the impact of any such factor on
the business or the extent to which any factor, or combination of factors, may
cause results to differ materially from those contained in any forward-looking
statement.
- --------------------------------------------------------------------------------
<PAGE> 4
PART I. Financial Information
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
October 31, January 31,
1998 1998
<S> <C> <C>
A S S E T S (unaudited)
Current Assets:
Cash and Cash Equivalents $1,612 $ 16,395
Marketable Securities 52,586 74,747
Accounts Receivable 12,276 5,084
Merchandise Inventories 129,909 99,034
Prepaid Expenses 7,668 2,145
----- -----
Total Current Assets 204,051 197,405
Property and Equipment:
Fixtures and Equipment 59,276 58,841
Leasehold Improvements 97,675 94,556
------ -------
156,951 153,397
Less Accumulated Depreciation & 88,227 79,891
Amortization ------ ---------
Net Property and Equipment 68,724 73,506
Other Assets 8,976 6,523
----- ---------
Total Assets $281,751 $277,434
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Accounts Payable $23,800 $ 10,127
Dividends Payable - Preferred Stock 0 1,010
Salaries, Wages and Other Accrued Expenses 20,012 18,102
Taxes, Other Than Income Taxes 2,194 1,227
Income Taxes Payable 1,076 2,941
----- ------
Total Current Liabilities 47,082 33,407
Long-term Debt
5% Convertible Subordinated Debentures
due September 27, 2001 (Net of Unamortized
Discount of $4,085 and $4,999, respectively) 60,915 60,001
------ ----------
Total Long-Term Debt 60,915 60,001
Deferred Income Taxes and Other Deferred Credits 18,994 18,176
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 Shares 20,000 20,000
Common Stock, No Par Value,
Authorized 50,000,000 Shares,
Issued and Outstanding
17,176,286 and 17,174,286, respectively 58 58
Unrealized Holding Gain on Available
for Sale Securities 232 84
Additional Paid-in Capital 62,380 62,370
Retained Earnings 72,090 83,338
------ ---------
Total Shareholders' Equity 154,760 165,850
------- ---------
Total Liabilities and Shareholders' Equity $281,751 $277,434
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
- 1 -
<PAGE> 5
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Thirteen Weeks Ended Thirty-Nine Weeks Ended
-------------------- -----------------------
October 31, November 1, October 31, November 1,
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net Sales $ 95,682 $ 99,711 $ 273,298 $279,954
Cost of Goods Sold (including
occupancy and indirect costs) 72,894 74,902 207,292 212,320
--------- --------- --------- -------
Gross Profit 22,788 24,809 66,006 67,634
Selling, General and
Administrative Expenses 28,948 27,989 85,176 83,372
--------- --------- --------- -------
Operating Loss (6,160) (3,180) (19,170) (15,738)
Other Expenses (Income):
Interest Expense 1,121 1,153 3,343 3,433
Interest Income (770) (412) (3,109) (1,718)
Net Investment
(Gain/Income) Loss (118) (131) (339) (175)
--------- --------- --------- -------
Total Other Expenses (Income) 233 610 (105) 1,540
--------- --------- --------- -------
Loss Before Income Taxes (6,393) (3,790) (19,065) (17,278)
Income Tax Benefit (2,621) (1,554) (7,817) (7,084)
--------- --------- --------- -------
Net Loss (3,772) (2,236) (11,248) (10,194)
Preferred Stock Dividend Requirement 253 253 758 758
--------- --------- --------- -------
Net Loss Applicable to Common
Shareholders ($ 4,025) ($ 2,489) ($ 12,006) ($10,952)
========= ========= ========= =======
Net Loss Per Common Share - Basic ($ 0.23) ($ 0.15) ($ 0.70) ($ 0.64)
========= ========= ========= =======
Net Loss Per Common Share - Diluted ($ 0.23) ($ 0.15) ($ 0.70) ($ 0.64)
========= ========= ========= =======
Weighted Average Common Shares
Outstanding - Basic 17,176,000 17,155,000 17,176,000 17,155,000
========== ========== ========== ==========
Weighted Average Common Shares
Outstanding - Diluted 17,176,000 17,155,000 17,176,000 17,155,000
========== ========== ========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
- 2 -
<PAGE> 6
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Thirty-Nine Weeks Ended
October 31, November 1,
1998 1997
----- ----
(unaudited)
<S> <C> <C>
Cash Flows From Operating Activities:
Net Loss ($11,248) ($10,194)
Adjustments to Reconcile Net Loss to Net
Cash Used In Operating Activities:
Depreciation and Amortization 12,455 13,445
Deferred Rent 694 694
Other 641 611
Changes in Assets and Liabilities:
Increase in Accounts Receivable (7,192) (8,919)
Increase in Merchandise Inventories (30,875) (40,505)
Increase in Prepaid Expenses (5,523) (2,955)
Increase in Accounts Payable,
Accrued Expenses and Taxes Other
Than Income Taxes 16,550 27,423
Decrease in Income Taxes Payable (1,865) (1,180)
Increase in Other Assets (3,305) (2,454)
-------- --------
Net Cash Used In Operating Activities (29,668) (24,034)
Cash Flows From Investing Activities:
Capital Expenditures (6,526) (3,453)
Decrease in Available for Sale Securities 22,411 25,376
-------- --------
Net Cash Provided by Investing Activities 15,885 21,923
Cash Flows From Financing Activities:
Payment of Preferred Stock Dividend (1,010) (1,010)
Exercise of Stock Options 10 --
-------- --------
Net Cash Used In Financing Activities (1,000) (1,010)
-------- --------
Net Decrease in Cash and Cash Equivalents (14,783) (3,121)
Cash and Cash Equivalents, Beginning of Period 16,395 7,022
-------- --------
Cash and Cash Equivalents, End of Period $ 1,612 $ 3,901
======== ========
Supplemental Disclosure of Cash Flows Information:
Cash Paid During the Period for:
Interest $ 2,769 $ 3,378
======== ========
Income Taxes $ 2,289 $ 2,061
======== ========
</TABLE>
See accompanying notes to consolidated financial statements
- 3 -
<PAGE> 7
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Common Preferred Additional Unrealized
Stock Stock Paid-In Retained Holding
Issued Issued Capital Earnings (Loss)Gain Total
<S> <C> <C> <C> <C> <C> <C>
Balance,
January 31, 1998 $58 $20,000 $62,370 $83,338 $ 84 $165,850
Net Loss Thirty-Nine
Weeks Ended
October 31, 1998 -- -- -- (11,248) -- (11,248)
Unrealized
Holding Gain
Adjustment -- -- -- -- 148 148
Exercise of Stock - - 10 - - 10
Options ------- -------- ------- -------- -------- ----------
Balance, October 31,
1998 $58 $20,000 $62,380 $ 72,090 $232 $ 154,760
(unaudited) === ======= ======= ======== ======== =========
</TABLE>
See accompanying notes to consolidated financial statements.
- 4 -
<PAGE> 8
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. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted. It is suggested that
these condensed consolidated financial statements be read in conjunction
with the audited financial statements and the notes thereto included in
the Company's Annual Report on Form 10-K for the year ended January 31,
1998.
The Company's results of operations for the thirteen and thirty-nine weeks
ended October 31, 1998 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 1998.
2. NET LOSS PER SHARE
"Basic" net loss per share data were computed by dividing net loss,
reduced by the Convertible Preferred Stock Dividend requirement, by the
weighted average number of common shares outstanding during the thirteen
and thirty-nine weeks ended October 31, 1998 and November 1, 1997. With
respect to "diluted" net loss per share, stock options which are potential
common shares, were excluded from the weighted average of outstanding
shares because inclusion would reduce the loss per share. With respect to
the Company's 5% Convertible Subordinated Debentures and the Company's
Convertible Preferred Stock, for the purpose of computing diluted net loss
per share, the assumed conversion of such debentures and such preferred
stock would each have an anti-dilutive effect on diluted loss per share
for the thirteen and thirty-nine weeks ended October 31, 1998 and November
1, 1997.
- 5 -
<PAGE> 9
3. COMPREHENSIVE INCOME (LOSS)
In June, 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards (SFAS) No.130, "Reporting Comprehensive
Income." As required by SFAS No.130 the following is a summary of the
Company's comprehensive income (loss):
Thirty-Nine Weeks Ended
October 31, November 1,
1998 1997
---- ----
Net Loss ($11,248) ($10,194)
Components of Comprehensive (Loss) Income:
Unrealized Holding (Loss) Gain on Available
For Sale Securities - Net of Applicable
Income Tax Benefit/Expense 148 31
--- ---
Comprehensive Loss ($11,100) ($10,163)
======== ========
4. RECENT ACCOUNTING PRONOUNCEMENTS
The Financial Accounting Standards Board issued SFAS No. 131, "
Disclosures about Segments of an Enterprise and Related Information",
effective for fiscal years beginning after December 15, 1997. As provided
by SFAS No. 131, disclosures are not required for interim periods of the
initial year of application, but comparative information will be reported
in financial statements for interim periods during the second year of
application.
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
THIRTEEN WEEKS ENDED OCTOBER 31, 1998 IN COMPARISON WITH THIRTEEN WEEKS ENDED
NOVEMBER 1, 1997.
Net sales for the thirteen weeks ended October 31, 1998 decreased $4,029,000 to
$95,682,000, a decrease of 4.0% compared to the comparable period of Fiscal Year
1997. The decrease was primarily attributable to the reduction in the number of
stores in operation which averaged 26 fewer than the number of stores during the
comparable period of Fiscal Year 1997. The reduction in the number of stores
reflects the Company's strategy to improve the quality of its store locations by
upgrading to better performing sites. Lechters Housewares(R) store sales for the
third quarter decreased 3.8% to $72,451,000 while Famous Brands Housewares
Outlet(R) sales declined 4.6% to $23,231,000. On a comparable store basis, sales
for the Company declined 2.0%. Lechters Housewares(R) comparable store sales
decreased 1.3% for the quarter and Famous Brands Housewares Outlet(R) stores
decreased 4.3%. During the third quarter of Fiscal Year 1998, the Company opened
7 stores and closed 5 increasing the stores in operation at October 31, 1998 to
614 from the 612 in operation at the beginning of the second quarter. There were
642 stores in operation at November 1, 1997.
- 6 -
<PAGE> 10
Gross Profit for the third quarter was $22,788,000 or 23.8% of sales, and was
$2,021,000 and 1.1 percentage points, as a percent of sales, lower than gross
profit for the third quarter of Fiscal Year 1997. The sales decrease was the
primary reason for the decrease in gross profit. Additional price reductions
related to the "off-price" and "special buy" initiatives partially offset by the
reduction in occupancy costs related to fewer stores in operation, was the most
significant factor with respect to the gross profit rate decrease.
Selling, General and Administrative Expenses increased $959,000 to $28,948,000
or 30.3% of sales, and were 2.2% percentage points higher than the expense rate
for the third quarter of Fiscal Year 1997. While store operating expenses with
the exception of payroll were reduced from the prior year, expenses in the
Service Office were higher reflecting the continued increased payroll costs in
the merchandise department and in information technology in support of a new
infra-structure and other initiatives including Year 2000 compliance.
Other (Income)/Expense for the quarter was an expense of $233,000 or 0.2% of net
sales, and was $377,000 and 0.4 percentage points below the amount for the
comparable period last year. Interest expense was virtually equivalent to last
year's amount while interest and investment income and gains were $345,000
higher for the third quarter versus the comparable period last year. As of
October 31, 1998 Marketable Securities classified as available for sale were
$52,586,000 which was $23,824,000 higher than at November 1, 1997, and there
higher balances produced the increased interest and investment related income.
THIRTY-NINE WEEKS ENDED OCTOBER 31,1998 IN COMPARISON WITH THIRTY-NINE WEEKS
ENDED NOVEMBER 1, 1997
Net sales for the thirty-nine weeks ended October 31, 1998 decreased $6,656,000
to $273,298,000, a 2.4% decrease from the comparable thirty-nine week period of
Fiscal Year 1997. The sales decrease was primarily due to the reduced number of
stores in operation during Fiscal Year 1998 which on average had 29 fewer store
locations in operation during Fiscal Year 1998 versus the comparable period of
Fiscal Year 1997. Sales for the Company's Lechters Housewares(R) stores
decreased 1.4% to $209,780,000 and sales for the Company's Famous Brands
Housewares Outlet(R) stores decreased 5.5% to $63,518,000. On a comparable store
basis, sales for the Company decreased 0.1% with the Lechters Housewares(R)
stores increasing 1.4% and Famous Brands Housewares Outlet(R) stores decreasing
5.0%. Year-to-date, the Company has opened 14 stores and has closed 26 stores
reducing the stores in operation from 626 at January 31, 1998 to 614 as of
October 31, 1998. There 642 stores in operation at November 1, 1997.
Gross Profit for the thirty-nine week period ended October 31, 1998 decreased
$1,628,000 to $66,006,000. At 24.2% of sales, the gross margin rate equaled the
rate for the comparable period of Fiscal Year 1997. While increased price
reductions related to the Company's emphasis on "off-price" and "special buy"
programs decreased the gross profit rate, the decrease was offset by the reduced
occupancy costs related to the fewer stores in operation.
- 7 -
<PAGE> 11
Selling, General and Administrative Expenses increased $1,804,000 to $85,176,000
and at 31.2% of net sales, were 1.4 percentage points higher than the rate for
the comparable period of Fiscal Year 1997. As mentioned for the previous
quarters, the expense trends are similar with store operating expenses, with the
exception of payroll, reduced due to fewer stores in operation than last year.
Service Office expenses have increased due to additional resources needed to
support the "off price" and "special buy" strategies and to support the
information technology initiatives including Year 2000 compliance.
Year to date net other expense (income) was an income of $105,000 compared to a
net expense of $1,540,000 for the comparable thirty-nine week period of the
prior fiscal year. Interest expense decreased $90,000 while interest income and
investment income and gains increased $1,555,000 over the comparable period of
the prior fiscal year. Higher invested balances in marketable securities have
produced the increased interest and investment income.
YEAR 2000
The Year 2000 ("Y2K") issue is primarily the result of computer programs using
two digits instead of four digits to indicate the year. The Company initiated
its Year 2000 compliance project during Fiscal Year 1997 with a review of all
existing information technology ("IT") software systems.
In Fiscal Year 1996, prior to the recognition of the Year 2000 as a significant
business risk, in the normal course of business, the Company identified key core
systems which needed to be replaced. A new financial suite including modules for
general ledger, accounts payable and fixed assets was installed at the beginning
of the current fiscal year. Additional modules are being installed for use with
the start of Fiscal Year 1999. A new merchandise inventory analysis and control
system is also scheduled for replacement prior to the Year 2000. The core
software package is currently being installed during Fiscal Year 1998. The new
core merchandise systems are scheduled to be operational during the first half
of Fiscal Year 1999. Finally, the Company has also contracted to install a new
warehouse management system which is in the early stages of development and will
be implemented prior to the commencement of the Year 2000. All three major
systems acquisitions have been certified Year 2000 compliant. All new software
to be acquired by the Company will be required to be certified as Year 2000
compliant.
The Company has recently established a Year 2000 Compliance Task Force whose
charter is to review all of the Company's efforts to ensure that the Company
will be Year 2000 compliant prior to December 31, 1999. Comprised of
representatives from Information Technology, Operations, Finance, Loss
Prevention, Merchandising and Human Resources, the task force is reviewing all
potential Year 2000 issues. The Y2K Task Force's initial focus has been to
review steps taken to date primarily in the IT area. Currently in process is a
survey of merchandise vendors specifically regarding Electronic Data Interchange
("EDI") issues.
The Y2K Task Force has also commenced its review of non-IT related issues
involving equipment with embedded technology which may not be Year 2000
compliant. This phase of the project will be complete early in the first quarter
of Fiscal Year 1999.
The second phase of the Year 2000 compliance project involves a questionnaire, a
draft of which is currently being reviewed and edited, to be sent to all the
Company's vendors, suppliers, landlords and outside service providers to
determine the degree of Year 2000 readiness with respect to these parties.
- 8 -
<PAGE> 12
With the evaluation of the questionnaire results, the third phase of the Year
2000 compliance project will focus on evaluating the results of the
questionnaire, reviewing the results of the non-IT equipment survey and
verifying IT software surveys previously conducted. Based on the above process,
the Y2K Task Force will develop before the end of the first quarter of Fiscal
Year 1999, a final Year 2000 remediation plan to be completed by the third
quarter of Calendar Year 1999. If deemed necessary, third party consultants will
be engaged to evaluate and/or assist in the completion of the plan.
The final two phases of the Year 2000 remediation plan involve the establishment
of contingency plans scheduled for development during the second quarter of
Fiscal Year 1999 and the development of a worst case scenario. The development
of a "worst case" scenario will be based on the assessment of the Company's
readiness and the readiness of its key vendors, major suppliers, landlords and
key service suppliers. Given the fact that the Company operates a large number
of stores which are geographically dispersed and has a large supplier base, the
Company's initial evaluations to date indicates that these two conditions will
tend to mitigate potential adverse impacts of the Year 2000 issues. This
evaluation, however, is based on certain expectations and assumptions which may
ultimately prove to be inaccurate.
The cost of the software purchased for the major systems as described above
approximates $3,700,000. Future costs of new software for major systems are
estimated to be $1,300,000 for the completion of the merchandise inventory
analysis and control system and $1,200,000 for a warehouse management system.
Costs of compliance such as hardware upgrades, equipment replacement and
miscellaneous software are currently under study by the Company. Costs of
re-training or modifications to existing programs will be expensed as incurred.
It is anticipated that funds for Year 2000 compliance costs will be generated by
internal sources.
LIQUIDITY AND CAPITAL RESOURCES.
Cash, cash equivalents and marketable securities increased $21,535,000 over
their combined balances at the close of the third quarter of Fiscal Year 1997.
Cash flow during the thirty-nine weeks ended October 31, 1998 as reflected on
the Statements of Cash Flows, was a net decrease of cash and cash equivalents of
$14,783,000. Operating activities, which are comprised of the net loss of
$11,248,000 adjusted for non-cash expenses such as depreciation and amortization
and changes in operating assets, utilized $29,668,000 of cash during Fiscal Year
1998 to date. Significant components of operating cash flow for the thirty-nine
weeks ended October 31, 1998 included depreciation and amortization which
provided cash of $12,455,000, merchandise inventories which increased, utilizing
cash of $30,875,000, accounts receivable and prepaid expenses which increased,
utilizing cash of $7,192,000 and $5,523,000, respectively, and accounts payable,
accrued expenses and taxes other than income taxes which increased and provided
cash of $16,550,000. Total merchandise inventories were $11,038,000 lower at
October 31, 1998 than at November 1, 1997. Investing activities provided
$15,885,000 as the Company's capital expenditures utilized $6,526,000 of cash
while the $22,411,000 reduction in marketable securities provided cash.
Capital expenditures to date of $6,526,000 were for the construction of and
fixtures for new and relocated stores, store renovations and remodels and for
computer hardware upgrades and additions. Financing activities utilized
$1,000,000 of cash as the Company paid the dividend on the convertible preferred
stock of $1,010,000 and the exercise of stock options provided $10,000.
- 9 -
<PAGE> 13
During the first quarter of Fiscal 1998, the Company entered into a new
$40,000,000 Credit Agreement with a syndicate of banks led by Chase Manhattan
Bank to replace the existing credit facility which was to expire in May 1998.
The new facility consists of a $20,000,000 line of credit for direct borrowings
and a $20,000,000 line for the issuance of letters of credit. The term of the
new agreement is for three years, with the letter of credit component renewable
annually during that period.
Item 6-Exhibits and Reports on Form 8-K
a. Exhibits.
3.1 Restated Certificate of Incorporation of the Company (Incorporated
herein by reference to Exhibit 3.2 to the Company's Registration
Statement on Form S-1 File No.33-29465(the "Registration Statement")).
3.2 By-laws of the Company (Incorporated herein by reference to Exhibit 3.2
to the Company's Registration Statement on Form S-1 File No.33-40372).
4.1 Preferred Stock Purchase Agreement dated April 5, 1996. (Incorporated
herein by reference to the Company's Annual Report on Form 10-K for
the year ended February 1, 1997).
4.2 Indenture, dated as of September 27, 1991, between the Company and
Chemical Bank, as Trustee. (Incorporated herein by reference to the
Company's Annual Report on Form 10-K for the year ended January 25,
1992).
27 Financial Data Schedule
b. No reports on Form 8-K were filed.
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/ James J. Sheppard
James J. Sheppard
Senior Vice President and
Chief Financial Officer
Date: December 10, 1998
- 10 -
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 9-MOS
<FISCAL-YEAR-END> JAN-30-1999 JAN-30-1999
<PERIOD-START> AUG-02-1998 FEB-01-1998
<PERIOD-END> OCT-31-1998 OCT-31-1998
<CASH> 1,612 0
<SECURITIES> 52,586 0
<RECEIVABLES> 12,276 0
<ALLOWANCES> 0 0
<INVENTORY> 129,909 0
<CURRENT-ASSETS> 204,051 0
<PP&E> 156,951 0
<DEPRECIATION> 88,227 0
<TOTAL-ASSETS> 281,751 0
<CURRENT-LIABILITIES> 47,082 0
<BONDS> 60,915 0
0 0
20,000 0
<COMMON> 58 0
<OTHER-SE> 134,702 0
<TOTAL-LIABILITY-AND-EQUITY> 281,751 0
<SALES> 95,682 273,298
<TOTAL-REVENUES> 95,682 273,298
<CGS> 72,894 207,292
<TOTAL-COSTS> 28,948 85,176
<OTHER-EXPENSES> 233 (105)
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 1121 3343
<INCOME-PRETAX> (6,393) (19,065)
<INCOME-TAX> (2,621) (7,817)
<INCOME-CONTINUING> (3,772) (11,248)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (3,772) (11,248)
<EPS-PRIMARY> (0.23) (0.70)
<EPS-DILUTED> (0.23) (0.70)
</TABLE>
