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 July 29, 2000
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission File No. 0-17870
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 September 6, 2000: 15,354,986:
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
FORM 10-Q
FOR QUARTER ENDED JULY 29, 2000
INDEX
Page No.
PART I. Financial Information
Item 1. Financial Statements
Consolidated Balance Sheets at 1
July 29, 2000 and January 29, 2000
Consolidated Statements of Operations 2
for the Thirteen and Twenty-Six Weeks Ended
July 29, 2000 and July 31,1999
Consolidated Statements of Cash Flows 3
for the Thirteen and Twenty-Six Weeks Ended
July 29, 2000 and July 31,1999
Consolidated Statement of Shareholders' 4
Equity for the Twenty-Six Weeks Ended
July 29, 2000
Notes to Consolidated Financial Statements 5-7
Item 2. Management's Discussion and Analysis of 8-10
Financial Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About 10
Market Risk
PART II. Other Information
Item 4. Submission of Matters to a Vote of Security 10-11
Holders.
Item 6. Exhibits and Reports on Form 8-K 11-12
<PAGE>
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.
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;
- 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>
Part I. Financial Information
---------------------
Item 1. Financial Statements
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except share and per share amounts)
<TABLE>
July 29, 2000 January 29, 2000
------------- ----------------
(unaudited)
ASSETS
<S> <C> <C>
Current Assets:
Cash and cash equivalents $11,791 $9,917
Marketable securities 4,797 65,301
Accounts receivable 12,872 2,881
Merchandise inventories 113,166 103,100
Prepaid expenses 6,172 2,043
------------- ----------------
Total Current Assets 148,798 183,242
Property and equipment:
Fixtures and equipment 57,817 56,194
Leasehold improvements 93,462 92,368
------------- ----------------
151,279 148,562
Less accumulated depreciation and
amortization 98,678 93,780
------------- ----------------
Net property and equipment 52,601 54,782
Other Assets 11,785 11,497
------------- ----------------
Total Assets $ 213,184 $ 249,521
============= ================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Accounts payable $ 13,265 $ 16,305
Dividends payable-preferred stock - - 1,010
Salaries, wages and other accrued
expenses 16,087 15,662
Taxes, other than income taxes 1,576 2,041
------------- ----------------
Total Current Liabilities 30,928 35,018
Long-Term Debt 5% Convertible subordinated
debentures due September 27, 2001
(net of unamortized discount of
$1,160 and $2,251, respectively) 42,145 57,804
------------- ----------------
Total long-term debt 42,145 57,804
Deferred income taxes and other deferred
credits 12,979 12,538
Shareholders' Equity:
Convertible preferred stock,$100 par
value authorized 1,000,000 shares,
Issued and outstanding Series A-149,999
shares and Series B-50,001 shares 20,000 20,000
Common stock, no par value,
authorized-50,000,000
shares, issued 17,176,286
and 17,176,286, respectively 58 58
Accumulated other comprehensive loss (5) (65)
Additional paid-in-capital 62,380 62,380
Retained earnings 47,710 63,129
------------- ----------------
130,143 145,502
Less: Treasury Stock at cost
Common Stock: 1,766,300 shares
and 684,000 shares, respectively (3,011) (1,341)
------------- ----------------
Total Shareholders' Equity 127,132 144,161
------------- ----------------
Total Liabilities And Shareholders' Equity $ 213,184 $ 249,521
============= ================
</TABLE>
See accompanying notes to consolidated financial statements.
-1-
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
<TABLE>
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 29, July 31, July 29, July 31,
2000 1999 2000 1999
-------- -------- -------- --------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales $ 84,193 $ 90,913 $167,936 $174,320
Cost of goods sold
(including occupancy and indirect
costs) 64,796 70,629 128,618 132,466
----------- ----------- ----------- -----------
Gross profit 19,397 20,284 39,318 41,854
Selling, general and administrative
expenses 33,118 29,858 63,403 58,592
----------- ----------- ----------- -----------
Operating loss (13,721) (9,574) (24,085) (16,738)
Other expenses(income):
Interest expense 957 1,139 1,934 2,272
Interest income (162) (645) (855) (1,452)
Net investment gain/income (26) (94) (89) (334)
----------- ----------- ----------- -----------
Total other expenses(income) 769 400 990 486
----------- ----------- ----------- -----------
Loss before tax benefit and
extraordinary item (14,490) (9,974) (25,075) (17,224)
Income tax benefit (5,072) (4,089) (8,777) (7,062)
----------- ----------- ----------- -----------
Net loss before extraordinary item (9,418) (5,885) (16,298) (10,162)
Extraordinary item - gain on early
extinguishment of debentures (net of
income tax of $474) - - - - 879 - -
----------- ----------- ----------- -----------
Net loss (9,418) (5,885) (15,419) (10,162)
Preferred stock dividend requirement 253 253 505 505
----------- ----------- ----------- -----------
Net loss available to common
shareholders ($ 9,671) ($ 6,138) ($15,924) ($10,667)
=========== =========== =========== ===========
Net loss per common share
Basic and Diluted
Loss before extraordinary item ($0.62) ($0.36) ($1.04) ($0.62)
Extraordinary item - - - - 0.05 - -
----------- ----------- ----------- -----------
Net loss ($0.62) ($0.36) ($0.99) ($0.62)
=========== =========== =========== ===========
Weighted average common shares
Outstanding
Basic and diluted 15,618,000 17,098,000 16,010,000 17,137,000
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
-2-
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
Twenty-Six Weeks Ended
----------------------
July 29, 2000 July 31,1999
------------- ------------
(unaudited)
Cash flows from operating activities:
<S> <C> <C>
Net loss ($15,419) ($ 10,162)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 7,786 7,904
Gain on repurchase of debentures (1,353) - -
Other 440 911
Changes in operating assets and liabilities:
Increase in accounts receivable (9,991) (6,575)
Increase in merchandise inventories (10,066) (24,278)
Increase in prepaid expenses (4,129) (4,396)
(Decrease)/increase in accounts payable,
accrued salaries, wages and other accrued
expenses and taxes, other than income taxes (3,080) 3,995
Increase in other assets (1,551) (2,769)
------------- ------------
Net cash used in operating activities (37,363) (35,370)
Cash flows from investing activities:
Capital expenditures (3,930) (3,946)
Decrease in available for sales securities 60,608 15,782
------------- ------------
Net cash provided by investing activities 56,678 11,836
Cash flows from financing activities:
Payment of preferred stock dividend (1,010) (1,010)
Purchase of treasury stock (1,670) (218)
Repurchase of debentures (14,761) - -
------------- ------------
Net cash used in financing activities (17,441) (1,228)
------------- ------------
Net increase/(decrease) in cash and cash equivalents 1,874 (24,762)
Cash and cash equivalents, beginning of period 9,917 35,503
------------- ------------
Cash and cash equivalents, end of period $11,791 $10,741
============= ============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 525 $ - -
============= ============
Income taxes $ 62 $ 77
============= ============
</TABLE>
See accompanying notes to consolidated financial statements.
-3-
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Convertible Additional Other
Common Preferred Paid-In Retained Comprehensive Treasury Comprehensive
Stock Stock Capital Earnings Loss Stock Total Loss
------ ----------- ---------- -------- ------------- --------- -------- -------------
Balance,
<S> <C> <C> <C> <C> <C> <C> <C> <C>
January 29, 2000 $58 $20,000 $62,380 $63,129 ($65) ($1,341) $144,161
Net loss - twenty-six
weeks
ended July 29, 2000 - - - - - - (15,419) - - - - (15,419) (15,419)
Other comprehensive income
net of tax:
Unrealized gain on
available for sale
securities - - - - - - - - 60 - - 60 60
Purchase of treasury stock - - - - - - - - - - (1,670) (1,670) - -
------ ----------- ---------- -------- ------------- --------- --------- -------------
Balance,
July 29, 2000 (unaudited) $58 $20,000 $62,380 $47,710 ($5) ($3,011) $127,132 ($15,359)
====== =========== ========== ======== ============= ========= ========= =============
</TABLE>
See accompanying notes to consolidated financial statements.
-4-
<PAGE>
LECHTERS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except share and per share amounts)
(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 29, 2000.
The Company's results of operations for the thirteen and twenty-six weeks
ended July 29, 2000 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 2000.
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 twenty-
six weeks ended July 29, 2000 and July 31, 1999. 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 twenty-
six weeks ended July 29, 2000 and July 31, 1999.
-5-
<PAGE>
3. SEGMENT INFORMATION
The Company defines its principal business into two segments, the Specialty
Housewares segment, which operates as Lechters Housewares(R) and Lechters
Kitchen Place(R), and the Off-Price Home Business segment, which operates
as Famous Brands Housewares Outlet(R) and Cost Less Home Store(SM). The
contribution of these segments, as well as "corporate and other" for the
thirteen and twenty-six weeks ended July 29, 2000 and July 31, 1999 are
summarized below. "Corporate and other" includes general corporate
expenses, principally service office expense and distribution centers, as
well as interest income and expense.
The Company's segment disclosures are as follows:
<TABLE>
<CAPTION>
Thirteen Weeks Ended Twenty-Six Weeks Ended
July 29, 2000 July 31, 1999 July 29, 2000 July 31, 1999
------------- ------------- ------------- -------------
SALES
<S> <C> <C> <C> <C>
Specialty Housewares $63,532 $68,954 $127,287 $133,600
Off-Price Home Business 20,661 21,959 40,649 40,720
------------- ------------- ------------- -------------
Total sales $84,193 $90,913 $167,936 $174,320
============= ============= ============= =============
LOSS BEFORE INCOME TAX BENEFIT
Specialty Housewares ($1,439) ($2,400) ($3,128) ($2,785)
Off-Price Home Business (1,350) 401 (710) 779
Corporate and other (10,932) (7,575) (20,247) (14,732)
------------- ------------- ------------- -------------
Operating loss (13,721) (9,574) (24,085) (16,738)
Other expenses 769 400 990 486
------------- ------------- ------------- -------------
Total loss before income tax
benefit ($14,490) ($9,974) ($25,075) ($17,224)
============= ============= ============= =============
DEPRECIATION AND AMORTIZATION
EXPENSE
Specialty Housewares $2,001 $2,203 $4,010 $4,453
Off-Price Home Business 391 372 806 741
Corporate and other 1,506 1,369 2,970 2,710
------------- ------------- ------------- -------------
Total depreciation and
amortization expense $3,898 $3,944 $7,786 $7,904
============= ============= ============= =============
CAPITAL ADDITIONS
Specialty Housewares $ 695 $1,486 $ 884 $2,510
Off-Price Home Business 1,130 100 1,252 467
Corporate and other 1,538 688 1,794 969
------------- ------------- ------------- -------------
Total capital additions $3,363 $2,274 $3,930 $3,946
============= ============= ============= =============
TOTAL ASSETS July 29, 2000 July 31, 1999
------------- -------------
Specialty Housewares $ 90,415 $104,464
Off-Price Home Business 23,062 24,345
Corporate and other 99,707 132,260
------------- -------------
Total assets $213,184 $261,069
============= =============
</TABLE>
-6-
<PAGE>
4. COMPREHENSIVE LOSS
The following is a summary of the Company's comprehensive loss:
<TABLE>
<CAPTION>
Twenty-Six Weeks Ended
----------------------
July 29, 2000 July 31,1999
------------- ------------
<S> <C> <C>
Net Loss ($15,419) ($10,162)
Components of comprehensive loss:
Unrealized gain/(loss)on available-for-sale
securities, net of applicable income tax
provision/benefit 60 (175)
------------- ------------
Comprehensive loss ($15,359) ($10,337)
============= ============
</TABLE>
5. STOCK REPURCHASE PLAN
In May 1999, the Board of Directors authorized the Company to repurchase up
to one million shares of the Company's common stock from time to time
when warranted by market conditions. In March 2000, the Board of Directors
authorized an additional repurchase of up to 3 million shares of the
Company's common stock. During Fiscal 1999, the Company purchased 684,000
shares at an average cost of $1.96. As of July 29, 2000 an additional
1,082,300 shares were purchased at an average cost of $1.54 per share.
Subsequent to July 29, 2000, the Company has purchased an additional 55,000
shares at an average cost of $1.24 per share, bringing the total amount
of treasury stock, as of September 6, 2000 to 1,821,300 shares at an
average cost of $1.69 per share.
6. SUBSEQUENT EVENT-DEBENTURE REPURCHASE
During the period subsequent to July 29, 2000, through September 6, 2000,
the Company has repurchased $2,315 of its Convertible Subordinated
Debentures prior to their due date of September 27, 2001. The Company
will realize an extraordinary gain of approximately $220, net of taxes,
from these transactions that will be reflected in the third quarter of
Fiscal 2000.
-7-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
(Amounts in thousands, except share and per share amounts)
THIRTEEN WEEKS ENDED JULY 29, 2000 IN COMPARISON WITH THIRTEEN WEEKS ENDED
JULY 31, 1999.
For the thirteen weeks ended July 29, 2000 ("Second Quarter 2000") the Company's
total comparable store sales decreased 3.0%. Comparable store sales for the
Specialty Housewares segment, which is comprised of Lechters Housewares(R) and
Lechters Kitchen Place(R), decreased 2.6% while comparable store sales for the
Off-Price Home Business segment, comprised of Famous Brands Housewares Outlet(R)
and Cost Less Home StoreSM, decreased 4.4%. On an overall basis, net sales for
Second Quarter 2000 decreased $6,720 to $84,193, a 7.4% decrease from $90,913
reported for the comparable thirteen week period of the prior fiscal year
("Second Quarter 1999"). The decrease was attributable to the previously
mentioned decrease in comparable store sales, and was also due to the reduction
in stores in operation which averaged 60 less locations for Second Quarter 2000
compared to Second Quarter 1999. For Second Quarter 2000, sales for the
Specialty Housewares segment, which had 47 or 10.8% fewer locations, decreased
7.9% to $63,532, while sales for the Off-Price Home Business segment, which had
13 fewer locations, decreased 5.9% to $20,661. During Second Quarter 2000, the
Company opened one store and closed seven stores, reducing the stores in
operation at July 29, 2000 to 511 from the 523 open as of January 29, 2000. At
the end of Second Quarter 1999 there were 571 stores in operation.
Gross Profit for the quarter was $19,397, a decrease of $887 from $20,284 for
Second Quarter 1999. The Gross Profit rate was 23.0% of net sales compared with
22.3% in the prior year. By operating segment, gross profit for Specialty
Housewares decreased $343 to $13,842 or 21.8% of net sales, while the Off-Price
Home Business gross profit decreased $544 to $5,555 or 26.9% of net sales. The
reduction in gross profit dollars was due to lower sales over the prior year.
The increased gross profit rate was due to accelerated price reductions in the
first quarter reducing the amount compared to the same period last year.
Selling, General and Administrative Expenses increased $3,260 to $33,118, which
constituted 39.3% of sales, an increase in the expense rate of 6.5% from Second
Quarter 1999. The increase in expenses was due to the amortization of new
systems, the Company's new distribution center, both of which should provide
operating efficiencies in the future, and the Company's developing e-commerce
strategy, Lechters.com, which incurred $1,349 of the expense increase.
Other Expense for the second quarter increased $369 to an expense of $769, 0.9%
of sales compared to $400, 0.4% of sales, for Second Quarter 1999. The increase
was due to the reduction in the interest income and investment income reflecting
the lower balances of cash and marketable securities, partially offset by a
reduction in interest expense due to the repurchases of $21,695 face value of
the Convertible Subordinated Debentures prior to their due date of September 27,
2001.
By operating segment for Second Quarter 2000, Specialty Housewares incurred a
loss before tax benefit of $1,439 compared to a loss before tax benefit of
$2,400 for Second Quarter 1999. For the same period, the Off-Price Home Business
incurred a loss before income tax benefit of $1,350 compared to income of $401
for Second Quarter 1999. "Corporate and other" expenses including Lechters.com
costs increased the loss before tax benefit by $10,932 for Second Quarter 2000
as compared to $7,575 for Second Quarter Fiscal 1999.
The net loss for Second Quarter Fiscal 2000 was $9,418 compared to a net loss
for the comparable period of Fiscal 1999 of $5,885. The increased loss was the
result of decreased sales which reduced gross profit and the net effect of other
contributing expense factors noted above.
TWENTY-SIX WEEKS ENDED JULY 29, 2000 IN COMPARISON WITH TWENTY-SIX WEEKS ENDED
JULY 31, 1999.
For the twenty-six weeks ended July 29, 2000 the Company's total comparable
store sales increased 0.3%. Comparable store sales for the Specialty Housewares
segment, which is comprised of Lechters Housewares(R) and Lechters Kitchen
Place(R), increased 0.4% while comparable store sales for the Off-Price Home
Business segment,
-8-
<PAGE>
comprised of Famous Brands Housewares Outlet(R) and Cost Less Home Store(SM),
decreased 0.1%. The sales decrease was due to the reduced number of stores in
operation during Fiscal 2000, which averaged 59 fewer store locations than 1999.
Year-to-date the total Company's net sales decreased $6,384 to $167,936, a 3.7%
decrease from $174,320 reported for the comparable period of the prior fiscal
year. Total sales for the Specialty Housewares segment decreased 4.7% to
$127,287 while sales for the Off-Price Home Business decreased 0.2% to $40,649.
As of July 29, 2000 the Company has opened two stores and closed fourteen
stores, operating a total of 511 stores (comprised of 389 Specialty Housewares
stores and 122 Off-Price Home Business stores) in 41 states and the District of
Columbia compared with 571 stores on July 31, 1999, a decrease of 10.5%.
Gross Profit for the twenty-six week period ended July 29, 2000 decreased
$2,536 to $39,318. At 23.4% of sales, the gross margin rate decreased 0.6
percentage points from the rate for the comparable period of Fiscal 1999. By
operating segment, gross profit for Specialty Housewares decreased $2,131 to
$27,950 or 22.0% of net sales, while the Off-Price Home Business gross profit
decreased $405 to $11,368 or 28.0% of net sales. The reduction in gross profit
was due to lower sales over the prior year. The reduced gross profit rate was
primarily due to increased price reductions especially those reductions taken in
the first quarter of the fiscal year.
Selling, General and Administrative Expenses increased $4,811 to $63,403, and at
37.8% of sales, were 4.2 percentage points higher as a rate compared to the
comparable period of Fiscal 1999. As noted, the increase in expenses was due to
the amortization of new systems, the Company's new distribution center, and
initial development expenses of the Company's e-commerce strategy, Lechters.com,
which has incurred $1,708 in expense for the year-to-date period.
Other expense for the twenty-six weeks ended July 29, 2000, increased $504 to
$990, 0.6% of sales, compared to $486, 0.3% of sales, for the comparable period
of the prior fiscal year. The increase was due to the reduction in the interest
and investment income, which resulted from reduced invested balances.
By operating segment for Fiscal 2000 to date, Specialty Housewares incurred a
loss before tax benefit of $3,128 compared to a loss before tax benefit of
$2,785 for the comparable period last year. For the same period, the Off-Price
Home Business incurred a loss before tax benefit of $710 compared to income of
$779 for Fiscal 1999 year-to-date. "Corporate and other" expenses including
Lechters.com, increased the loss before tax benefit by $20,247 as compared to
$14,732 for the comparable period of the prior fiscal year.
The Company recognized an extraordinary gain of $879, net of tax, from the
repurchase of $16,750 of Convertible Subordinated Debentures prior to their due
date of September 27, 2001.
The year-to-date net loss for Fiscal 2000 was $15,419 or ($0.99) per share
compared to a loss of $10,162 or ($0.62) per share for the comparable period of
Fiscal 1999.
LIQUIDITY AND CAPITAL RESOURCES
Cash flow during the twenty-six weeks ended July 29, 2000 as reflected on the
Consolidated Statements of Cash Flows, was a net increase in cash and cash
equivalents of $1,874. Operating activities, comprised of the operating loss of
$15,419 adjusted for non-cash expenses such as depreciation and amortization and
by changes in operating assets, utilized $37,363 of cash during the twenty-six
weeks ended July 29, 2000. Significant components of operating activities
included depreciation and amortization which was a non-cash expense of $7,786,
merchandise inventories which increased cash use by $10,066. Accounts receivable
and prepaid expenses increased cash use by $9,991 and $4,129, respectively.
Accounts payable, accrued expenses and taxes other than income taxes decreased
cash by $3,080.
Investing activities provided net cash of $56,678 compared to $11,836 for
year-to-date Fiscal 1999, due to the decrease in Marketable Securities of
$60,608. Capital expenditures were primarily for construction of and fixtures
for new stores, renovations and remodels of existing stores, and a new
distribution center. Capital expenditures were $3,930 for Fiscal 2000 compared
to $3,946 for the comparable period last year.
Cash flows from financing activities utilized $17,441 of cash. The repurchase of
$16,750 face value of the Company's Convertible Subordinated Debentures utilized
$14,761 of cash. The Company paid $1,010 in dividends on the Convertible
Preferred Stock and purchased 1,082,300 shares of treasury stock at a cost of
$1,670. Subsequent to July 29, 2000, the Company purchased an additional 55,000
shares at an average cost of $1.24 per share.
-9-
<PAGE>
On November 30, 1999, the Company entered into a new $120 million senior secured
revolving credit facility with BankBoston Retail Finance Inc. and other
financial institutions, replacing the Company's credit agreement which was to
expire on March 26, 2001. The proceeds of the credit facility may be used for:
(i) on-going working capital requirements; (ii) the replacement, refinancing or
retirement of certain of the Company's securities, and/or (iii) other general
corporate purposes. The credit facility is scheduled to mature on December 1,
2003.
The credit facility permits the Company to repurchase its 5% convertible
subordinated debentures and/or up to $10 million of its capital stock, provided
that the Company can show excess availability under the credit facility of not
less than $25 million, after giving effect to the repurchases.
As of July 29, 2000 there were no outstanding borrowings under the facility. The
credit facility is secured by a security interest in substantially all of the
Company's assets.
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative
Instruments and Hedging Activities." In July 1999, the FASB delayed the
effective date to fiscal years beginning after June 15, 2000. The Company has
not actively utilized derivative instruments to hedge its market risks.
Accordingly, the adoption of this statement is not expected to materially impact
the Company's financial statements.
SUBSEQUENT EVENT-DEBENTURE REPURCHASE
During the period subsequent to July 29, 2000, through September 6, 2000, the
Company has repurchased $2,315 of its Convertible Subordinated Debentures prior
to their due date of September 27, 2001. The Company will realize an
extraordinary gain of approximately $220, net of taxes, from these transactions
that will be reflected in the third quarter of Fiscal 2000.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company imports about 20% of its merchandise from the Far East, which
subjects it to the market risk of currency fluctuations. However, the Company
uniformly utilizes purchase contracts and letters of credit denominated in US
dollars to mitigate this risk. Additionally, there are multiple suppliers, both
foreign and domestic, for its products. With respect to marketable securities,
the Company is subject to the variations in the investment markets. It mitigates
this risk by employing the services of an investment management firm, which with
the Company's oversight, invests solely in the highest quality securities and
spreads the market risk among various types of securities with varying
maturities.
Although the Company has not had to borrow funds under the Credit Agreement
during the first twenty-six weeks of Fiscal 2000 or during the comparable period
of Fiscal 1999, should it need to utilize the line of credit for direct
borrowings, the interest rate is subject to market conditions at the time of the
borrowing.
PART II. Other Information
Item 4- Submission of Matters to a Vote of Security Holders
(a) Regular annual meeting of the Company's stockholders held June 20, 2000 in
New York, NY.
(b) Directors elected at the meeting for a three-year term:
Martin S. Begun
Robert Knox
Roberta S. Maneker
John Wolff
Continuing Directors:
David K. Cully
Charles A. Davis Donald Jonas
Bernard D. Fischman Stephen T. Westerfield
Anthony E. Malkin Norman Matthews
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<PAGE>
(c)(1) a. To elect four Director; and
b. To consider and act upon a proposal to ratify the appointment of
Deloitte & Touche LLP as the independent auditors of the Company for
the fiscal year ending February 3, 2001; and
c. To consider and act upon a proposal to ratify an amendment to the
1998 Long-Term Incentive Plan to increase the number of shares
available from 1,000,000 to 2,500,000.
(2) Director Nominees
Class of Stock For Withhold Total Voted
-------------- --- --------- -----------
Common 12,854,768 1,658,525 14,513,293
Series A Preferred 2,399,984 - 2,399,984
---------- --------- -----------
Total 15,254,752 1,658,525 16,913,277
Proposal to ratify Deloitte & Touche LLP as Independent Auditors
Class of Stock For Against Abstain Total Voted
-------------- --- --------- ------- -----------
Common 14,103,168 67,810 342,315 14,513,293
Series A Preferred 2,399,984 - - 2,399,984
---------- --------- ------- -----------
Total 16,503,152 67,810 342,315 16,913,277
Proposal to amend the 1998 Long-Term Incentive Plan
Broker
Class of Stock For Against Abstain Non-Votes Total Voted
--- --------- ------- --------- -----------
Common 5,555,226 3,581,225 114,550 5,262,292 14,513,293
Series A Preferred 2,399,984 - - - 2,399,984
--------- --------- ------- --------- ----------
Total 7,955,210 3,581,225 114,550 5,262,292 16,913,277
(3) Election of Directors
Name Votes For Votes Withheld
---- --------- --------------
Martin S. Begun 15,254,752 1,658,525
Robert Knox 15,254,752 1,658,525
Roberta Maneker 15,254,752 1,658,525
John Wolff 15,254,752 1,658,525
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).
10.10.3 Memorandum of Agreement dated August 8, 2000 between the Company and
Local 99 UNITE, covering office employees for a term from July 1, 2000
to June 30, 2003.*
27 Financial Data Schedule*
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b. Reports on Form 8-K.
1. No reports on Form 8-K were filed for the quarter for which this report
is filed.
*Filed herewith.
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/ Daniel L. Anderton /s/ John D. Sullivan
---------------------- --------------------
Principal Financial Officer, Principal Accounting Officer, and
and Vice President-Finance Vice President and Corporate Controller
Date: September 12, 2000
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