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Press release from Business Wire

The Wet Seal, Inc. Announces Second Quarter Fiscal 2012 Results and Provides Financial Outlook for Third Quarter 2012

<p class='bwalignc'> <i><b>Announces a Return to its Proven Fast Fashion Merchandising Approach to Improve Performance</b></i> </p> <p class='bwalignc'> <i><b>Addresses Strategic Initiatives to Enhance Shareholder Value</b></i> </p>

Tuesday, August 21, 2012

The Wet Seal, Inc. Announces Second Quarter Fiscal 2012 Results and Provides Financial Outlook for Third Quarter 201216:05 EDT Tuesday, August 21, 2012 FOOTHILL RANCH, Calif. (Business Wire) -- The Wet Seal, Inc. (Nasdaq: WTSLA), a leading specialty retailer to young women, announced results for its fiscal second quarter ended July 28, 2012 and provided its financial outlook for the third quarter of fiscal 2012. The Company also announced that it is refocusing on its proven fast fashion merchandising approach to improve overall performance and is implementing several strategic initiatives to enhance shareholder value. Hal Kahn, Chairman of the Board of The Wet Seal, Inc., said: “The end of the second quarter was the beginning of an important transition period for Wet Seal as we made the decision to return to our core expertise of fast fashion merchandising. We began taking aggressive actions to refocus our strategy in a way that we believe will address the issues that resulted in this disappointing quarter. We are returning to merchandising to a broader demographic, including the young teen customer, sourcing a wider variety of product more directly from fast fashion vendors, committing to merchandise purchases closer to time of need, and focusing our price points on our core customer, which long supported success at the Company.” Mr. Kahn added: “As we execute on this return to our core expertise, we expect it will take several months to begin to realize the impact of the transition in our merchandise and in-store marketing. So, while we expect continued weak performance through the third quarter, we believe that this trend will bottom out in the coming months and that we will begin to see clear signs of improvement in the fourth quarter – ultimately returning to a level of sales and earnings that this strategy has driven for many years. As a result, we believe the Company will be positioned to stabilize the business during the holiday season and 2013.” For the second quarter: Net sales totaled $135.3 million versus net sales of $148.8 million in the prior year second quarter. Consolidated comparable store sales decreased 11.1%; comparable store sales for Wet Seal decreased 11.0% and for Arden B decreased 11.6%. Operating loss was $19.5 million, or 14.4% of net sales, compared to operating income of $3.3 million, or 2.2% of net sales, in the year-ago quarter. Excluding the effect of non-cash asset impairment charges and estimated CEO severance costs, operating loss totaled $8.6 million in the current year quarter. Excluding the effect of non-cash asset impairment charges, operating income was $4.4 million in the same period last year. Net loss totaled $12.4 million, or $0.14 per diluted share, as compared to net income of $2.2 million, or $0.02 per diluted share, in the prior year quarter. Excluding the after-tax effect of the non-cash asset impairment charges and estimated CEO severance costs, net loss was $5.8 million, or $0.07 per diluted share, in the current year quarter. Excluding the after-tax effect of non-cash asset impairment charges, net income totaled $2.8 million, or $0.03 per diluted share, in the year-ago quarter. At quarter's end, the Company's inventory per square foot was reduced by 6% versus the end of the prior year quarter, with Wet Seal down 4% and Arden B down 21%. The Company generated cash flows from operations of $6.2 million during the quarter, and ended it with $146.5 million of cash and cash equivalents, and no debt. Due to the timing of the quarter's close, the Company had not yet paid its August rents and other landlord costs at that time. Typically, including at the end of the prior year quarter, the Company had made such payments during the quarter being reported. If the Company had made these payments by the end of the current year quarter, its cash used in operations would have been $3.4 million and its cash balance at the end of the quarter would have been $136.9 million. Mr. Kahn said: “These results are well below where we believe the Company is capable of performing when we have the right fast fashion merchandise mix in our stores. We have a seasoned team of merchandisers and senior professionals that have many years of experience successfully executing fast fashion strategies at Wet Seal, and we believe that this return to what we know best will revitalize our results in the near term.” Mr. Kahn continued: “While the Board will continue to have a dialogue with all of our investors and remains open to considering all strategic opportunities available to the business, we are confident that we have the team, resources and strong balance sheet required to successfully implement our strategy. During this period of transition, we have taken additional steps to ensure that we maintain the appropriate level of support and stability to ensure seamless execution of our fast fashion strategy and optimal value for all shareholders.” CEO Transition and Interim Leadership On July 23, 2012, the Board announced the departure of the Company's Chief Executive Officer, Susan McGalla, after determining that the current business and economic environment called for a change in the Company's transition toward a focused fashion merchandising strategy and a prompt return to its fast fashion merchandising strategy. “We greatly appreciate Susan McGalla's leadership during her tenure at The Wet Seal, and we are grateful for the contributions she made to the Company, particularly the efforts to improve brand appeal for a focused fashion merchandising strategy, and to build company infrastructure and a strong leadership team which should help Wet Seal as it moves forward,” Mr. Kahn said. “The lagging economic recovery and other pressures on retail sales made it necessary for us to change our strategy in a timely fashion. We wish Susan all the best in her future endeavors.” The Company is currently being led by the Board-appointed Office of the Chairman, which includes Mr. Kahn, the Company's non-executive Chairman, President and Chief Operating Officer Ken Seipel, and Chief Financial Officer Steve Benrubi. Mr. Kahn has assumed direct leadership responsibility for all merchandising and marketing functions at the Company. Mr. Kahn is a long-time member of the Board and has over 35 years of industry experience. He was previously the CEO of Macy's East. The Board has hired a leading executive recruiter, Korn/Ferry International, to assist in its search for a Chief Executive Officer. It is too early in the search process to establish a useful timetable for selection of a new Chief Executive Officer. Review of Capital Plan and Strategic Initiatives In addition to creating the new Office of the Chairman under Mr. Kahn's leadership, the Company's Board of Directors has appointed a Strategic Oversight Committee, comprised of Board members Sidney Horn, Kenneth Reiss and Henry Winterstern, which will be responsible for reviewing and making recommendations to the Board concerning the Company's capital allocation as well as evaluating potential strategic initiatives to enhance shareholder value. The Board has engaged the firms Guggenheim Securities, LLC and Peter J. Solomon Company, L.P. to act as financial advisors to the Company on a variety of issues, including an assessment of the Company's capital needs, cash balance and potential strategic options to enhance shareholder value. The Committee will consider the Company's cash position in light of its recent negative financial performance, revised operational strategy and other potential strategic opportunities available to the Company. The Committee plans to provide timely updates to stakeholders on its significant decisions and actions, as warranted. Employee Retention Plan To retain the talent critical to executing the Company's strategy and maximizing shareholder value, the Company has implemented an Employee Retention Plan for 35 employees. Mr. Kahn said, “Wet Seal's senior leadership and merchandising teams are very in tune with the Company's target customer base and have extensive experience executing the fast fashion merchandising strategy we have relied on for many years. We believe it is critical to retain this talent base, and this retention plan will help provide stability and continuity for the Company during this important transition period.” In addition, in recognition of the significant additional duties being assumed by Chairman Hal Kahn and members of the Board's Strategic Oversight Committee, their compensation has been increased for a six month period. Please see the Company's Form 8-K filed today with the Securities and Exchange Commission for more details on the Employee Retention Plan and on changes in Director compensation. Shareholder Rights Plan The Board has adopted a short-term Shareholder Rights Plan (“Rights Plan”), which is scheduled to expire on June 30, 2013 and which is intended to protect all of the Company's shareholders while the Company implements its return to its fast fashion strategy so that all shareholders will be able to realize the underlying value of their investment in the Company. The rights are not being distributed in response to any specific effort to acquire control of the Company. The rights are designed to ensure that the Board of Directors has sufficient time to consider any proposal and make sure that all stockholders receive fair and equal treatment in the event of any proposed takeover of the Company. In addition, the Rights Plan will guard against partial tender offers, open market accumulations and other coercive tactics aimed at gaining control of the Company without paying all stockholders a full control premium for their shares. Under the Rights Plan, one preferred stock purchase right will be distributed for each share of Class A common stock held by stockholders of record on September 4, 2012. Subject to limited exceptions, the Rights Plan will be triggered if a person or group acquires 10% or more of the outstanding Class A common stock of the Company or announces a tender offer for 10% or more of the Class A common stock. Please see the Company's Form 8-K filed today with the Securities and Exchange Commission for more details on the Rights Plan. Store Openings and Closings During the quarter, the Company opened three stores and closed four stores at Wet Seal, with no store openings and two store closings at Arden B. At July 28, 2012, the Company operated 550 stores in 47 states and Puerto Rico, including 468 Wet Seal stores and 82 Arden B stores. As the Company focuses on restoring its fast fashion merchandising strategy, it has deferred making additional new store opening commitments in its Wet Seal division through the remainder of fiscal 2012. The Company's real estate plan is now expected to total from two to four net store closings at Wet Seal for fiscal 2012, which is a decrease from its prior plan of 20 to 22 net store openings. At Arden B, the Company's real estate plan remains unchanged from its prior plan, with 15 to 20 net store closings during fiscal 2012. As a result, the Company estimates it will end fiscal 2012 with 468 to 470 Wet Seal stores and 66 to 71 Arden B stores. Capital Expenditures and Depreciation The Company invested $7.8 million in capital expenditures during the quarter, including $6.6 million for construction of new stores and remodeling of existing stores. The Company recognized tenant improvement allowances of $0.8 million, associated primarily with new store construction, which resulted in net capital expenditures for the quarter of $7.0 million. Depreciation in the quarter totaled $4.6 million as compared to $4.8 million in the prior year period. The Company now forecasts fiscal 2012 net capital expenditures will range between $20 million to $22 million, with between $14 million and $15 million for construction of new stores or remodeling of existing stores upon lease renewals and/or store relocations. This updated capital expenditure guidance represents a decrease from previous guidance for 2012 of $27 million to $29 million. Income Taxes The Company had an effective income tax rate of 36.7% for the quarter, which included the effect of a $0.3 million write-off of certain deferred tax assets in the quarter. The Company expects its effective rate for the fiscal year to be approximately 37.6%. Third Quarter Fiscal 2012 Financial Outlook For the third quarter of fiscal 2012, the Company estimates net loss per diluted share in the range of $0.13 to $0.16 versus net income per diluted share of $0.04 in the prior year third quarter. The financial outlook is based on the following assumptions: Total net sales between $128 million and $133 million versus $152.1 million in the third quarter of fiscal 2011. Comparable store sales decrease between 14% and 18% versus a 0.9% decline in the prior year third quarter. This decrease assumes progressive improvements in comparable store sales from month to month as the Company proceeds through the quarter. Gross margin rate between 15.3% and 17.6% of net sales versus 30.5% in the prior year quarter, with the decline driven primarily by aggressive promotion to re-merchandise the stores during the current year quarter and the deleveraging effect of lower comparable store sales on occupancy and buying costs. SG&A expense between 31.7% and 32.9% of net sales versus 26.0% in the prior year quarter, with the increase due mainly to the deleveraging effect of lower comparable store sales. SG&A expenses for the current year quarter include incremental legal, professional and director fees of approximately $0.9 million associated with the initiatives being led by the Company's Strategic Oversight Committee. Operating loss between $18.7 million and $22.5 million compared to operating income of $6.1 million in the prior year quarter. The prior year quarter operating income included $0.7 million in non-cash asset impairment charges. Interest expense of less than $0.1 million versus interest income of less than $0.1 million in the prior year quarter. Income tax benefit of between $7.2 million and $8.6 million compared to income tax expense of $2.4 million in the prior year quarter. Net new store openings of four stores at Wet Seal and net store closings of one store at Arden B. Conference Call The Company will host a conference call and Q&A session at 1:30 p.m. Pacific Time today. To participate in the conference call, please dial 877-407-3982 or 201-493-6780. A broadcast of the call will also be available on the Company's website, www.wetsealinc.com. A replay of the call will be available through August 28, 2012. To access the replay, please call 877-870-5176 or 858-384-5517 and provide ID number 397522. About The Wet Seal, Inc. Headquartered in Foothill Ranch, California, The Wet Seal, Inc. is a leading specialty retailer of fashionable and contemporary apparel and accessory items. As of July 28, 2012, the Company operated a total of 550 stores in 47 states and Puerto Rico, including 468 Wet Seal stores and 82 Arden B stores. The Company's products can also be purchased online at www.wetseal.com or www.ardenb.com. For more company information, visit www.wetsealinc.com. Safe Harbor SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995: This news release contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements that relate to the Company's financial outlook for its third quarter of fiscal 2012, its store opening and capital spending plans for all of fiscal 2012, and its merchandising, capital planning and other strategic action plans, or any other statements that relate to the intent, belief, plans or expectations of the Company or its management. All forward-looking statements made by the Company involve material risks and uncertainties and are subject to change based on factors beyond the Company's control. Accordingly, the Company's future performance and financial results may differ materially from those expressed or implied in any such forward-looking statements. Such factors include, but are not limited to, those described in the Company's filings with the Securities and Exchange Commission. This news release contains results reflecting partial year data and non-fiscal data that may not be indicative of results for similar future periods or for the full year. The Company will not undertake to publicly update or revise its forward-looking statements even if experience or future changes make it clear that any projected results expressed or implied therein will not be realized. Exhibit A   The Wet Seal, Inc.Condensed Consolidated Balance Sheets (000's Omitted) (Unaudited)               July 28, 2012January 28, 2012July 30, 2011 ASSETS Cash and cash equivalents $ 146,470 $ 157,185 $ 109,566 Short-term investments - - 38,230 Merchandise inventories 41,479 31,834 43,176 Other current assets 8,767 6,215 17,620 Deferred taxes   20,133   20,133   19,649   Total current assets 216,849 215,367 228,241 Net equipment and leasehold improvements 79,874 88,324 93,164 Deferred taxes 31,081 23,780 27,516 Other assets   3,034   3,062   3,034   Total assets $ 330,838 $ 330,533 $ 351,955     LIABILITIES AND STOCKHOLDERS' EQUITY Accounts payable – merchandise $ 24,738 $ 18,520 $ 29,287 Accounts payable – other 11,828 8,269 14,221 Accrued liabilities 26,112 25,096 26,248 Current portion of deferred rent   3,018   2,561   3,435   Total current liabilities 65,696 54,446 73,191 Deferred rent 33,068 33,091 31,800 Other long-term liabilities   1,855   1,924   1,700   Total liabilities 100,619 89,461 106,691 Total stockholders' equity   230,219   241,072   245,264   Total liabilities and stockholders' equity $ 330,838 $ 330,533 $ 351,955   Exhibit A (Continued)   The Wet Seal, Inc.Condensed Consolidated Statements of Operations (000's Omitted, Except Share Data) (Unaudited)         13 Weeks Ended     26 Weeks EndedJuly 28, 2012     July 30, 2011     July 28, 2012     July 30, 2011 Net sales $ 135,261     $ 148,770 $ 283,206     $ 304,810 Gross margin 30,802 46,077 74,405 99,522 Selling, general & administrative expenses 41,372 41,695 81,810 81,555 Asset impairment   8,973         1,057       12,579         1,316 Operating (loss) income (19,543 ) 3,325 (19,984 ) 16,651 Interest (expense) income, net   (8 )       22       (18 )       51 (Loss) income before (benefit) provision for income taxes (19,551 ) 3,347 (20,002 ) 16,702 (Benefit) provision for income taxes   (7,182 )       1,149       (7,360 )       6,491 Net (loss) income $(12,369)     $2,198     $ (12,642 )     $ 10,211 Weighted average shares, basic 88,585,063 95,731,926 88,536,020 97,324,336 Net (loss) income per share, basic (1) $ (0.14 ) $ 0.02 $ (0.14 ) $ 0.10 Weighted average shares, diluted 88,585,063 95,835,044 88,536,020 97,399,349 Net (loss) income per share, diluted (1) $ (0.14 ) $ 0.02 $ (0.14 ) $ 0.10   (1)     Calculation of the Company's earnings per share requires the allocation of net income among common shareholders and participating security holders. The net (loss) income available to common shareholders used to calculate basic and diluted earnings per share was $(12,369) and $(12,642) for the 13 and 26 weeks ended July 28, 2012, respectively, and $2,139 and $9,962 for the 13 and 26 weeks ended July 30, 2011, respectively. Exhibit A (continued)   The Wet Seal, Inc.Consolidated Statements of Cash Flows (000's Omitted) (Unaudited)     26 Weeks EndedJuly 28,     July 30,20122011CASH FLOW FROM OPERATING ACTIVITIES: Net (loss) income $ (12,642 ) $ 10,211 Adjustments to reconcile net (loss) income to net cash provided by Operating activities: Depreciation and amortization 9,261 9,481 Amortization of premium on investments - 460 Amortization of deferred financing costs 54 52 Amortization of stock payment in lieu of rent - 31 Asset impairment 12,579 1,316 Loss on disposal of equipment and leasehold improvements 483 46 Deferred income taxes (7,301 ) 5,739 Stock-based compensation 1,992 1,960 Changes in operating assets and liabilities: Income taxes receivable (460 ) - Other receivables (299 ) (599 ) Merchandise inventories (9,645 ) (9,840 ) Prepaid expenses and other assets (1,847 ) (2,481 ) Other non-current assets 28 (106 ) Accounts payable and accrued liabilities 8,511 9,841 Income taxes payable - (60 ) Deferred rent 434 997 Other long-term liabilities (69 ) (66 ) Net cash provided by operating activities 1,079   26,982     CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of equipment and leasehold improvements (11,591 ) (14,096 ) Proceeds from sale of marketable securities -   12,000   Net cash used in investing activities (11,591 ) (2,096 )   CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 19 495 Repurchase of common stock (222 ) (41,177 ) Net cash used in financing activities (203 ) (40,682 )   DECREASE IN CASH AND CASH EQUIVALENTS (10,715 ) (15,796 ) CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 157,185   125,362   CASH AND CASH EQUIVALENTS, END OF PERIOD $ 146,470   $ 109,566     Exhibit BSegment Reporting (Unaudited) The Company operates exclusively in the retail apparel industry in which it sells fashionable and contemporary apparel and accessories items, primarily through mall-based chains of retail stores, to female consumers with a young, active lifestyle. The Company has identified two operating segments (“Wet Seal” and “Arden B”) as defined under applicable accounting standards. E-commerce operations for Wet Seal and Arden B are included in their respective operating segments. Information for the 13 and 26 weeks ended July 28, 2012, and July 30, 2011, for the two reportable segments is set forth below (in thousands, except store counts and sales per square foot): Thirteen Weeks Ended July 28, 2012     Wet Seal     Arden B     Corporate     Total Net sales     $ 113,739     $ 21,522     n/a     $ 135,261 % of total sales 84 % 16 % n/a 100 % Comparable store sales % decrease (11.0 )% (11.6 )% n/a (11.1 )% Operating loss $ (8,579 ) $ (1,578 ) $ (9,386 ) $ (19,543 ) Interest expense, net $ - $ - $ (8 ) $ (8 ) Loss before benefit for income taxes $ (8,579 ) $ (1,578 ) $ (9,394 ) $ (19,551 ) Depreciation $ 3,723 $ 456 $ 391 $ 4,570 Number of stores as of period end 468 82 n/a 550 Sales per square foot $ 58 $ 75 n/a $ 60 Square footage as of period end 1,870 254 n/a 2,124   Thirteen Weeks Ended July 30, 2011     Wet Seal     Arden B     Corporate     Total Net sales $ 125,033 $ 23,737 n/a $ 148,770 % of total sales 84 % 16 % n/a 100 % Comparable store sales % increase 6.2 % 5.0 % n/a 6.0 % Operating income (loss) $ 10,280 $ 1,449 $ (8,404 ) $ 3,325 Interest income, net $ - $ - $ 22 $ 22 Income (loss) before provision for income taxes $ 10,280 $ 1,449 $ (8,382 ) $ 3,347 Depreciation $ 3,929 $ 504 $ 381 $ 4,814 Number of stores as of period end 460 82 n/a 542 Sales per square foot $ 65 $ 85 n/a $ 67 Square footage as of period end 1,832 253 n/a 2,085   Twenty-Six Weeks Ended July 28, 2012     Wet Seal     Arden B     Corporate     Total Net sales $ 239,914 $ 43,292 n/a $ 283,206 % of total sales 85 % 15 % n/a 100 % Comparable store sales % decrease (8.9 )% (11.5 )% n/a (9.3 )% Operating income (loss) $ 745 $ (2,882 ) $ (17,847 ) $ (19,984 ) Interest expense, net $ - $ - $ (18 ) $ (18 ) Income (loss) before benefit for income taxes $ 745 $ (2,882 ) $ (17,865 ) $ (20,002 ) Depreciation $ 7,577 $ 911 $ 773 $ 9,261 Sales per square foot $ 122 $ 150 n/a $ 125   Twenty-Six Weeks Ended July 30, 2011     Wet Seal     Arden B     Corporate     Total Net sales $ 256,086 $ 48,724 n/a $ 304,810 % of total sales 84 % 16 % n/a 100 % Comparable store sales % increase 7.3 % 2.4 % n/a 6.5 % Operating income (loss) $ 29,094 $ 4,014 $ (16,457 ) $ 16,651 Interest income, net $ - $ - $ 51 $ 51 Income (loss) before provision for income taxes $ 29,094 $ 4,014 $ (16,406 ) $ 16,702 Depreciation $ 7,713 $ 1,044 $ 724 $ 9,481 Sales per square foot $ 134 $ 171 n/a $ 139   Exhibit B (Continued) The “Corporate” column is presented solely to allow for reconciliation of store contribution amounts to consolidated operating income (loss), interest income or expense, net, and income (loss) before provision (benefit) for income taxes. Wet Seal and Arden B segment results include net sales, cost of sales, asset impairment and other direct store and field management expenses, with no allocation of corporate overhead or interest income and expense. Corporate expenses during the 13 and 26 weeks ended July 28, 2012, include $1.9 million of estimated CEO severance costs. Wet Seal operating segment results during the 13 and 26 weeks ended July 28, 2012, and July 30, 2011, include $7.9 million, $10.6 million, $0.6 million and $0.8 million, respectively, of asset impairment charges. Arden B operating segment results during the 13 and 26 weeks ended July 28, 2012, and July 30, 2011, include $1.1 million, $2.0 million, $0.5 million and $0.5 million, respectively, of asset impairment charges. Exhibit CReconciliation of Non-GAAP Financial Measures to Most Directly Comparable Financial Measures Included within this press release are references to net cash (used in) provided by operating activities, operating (loss) income, net (loss) income and net (loss) income per diluted share excluding the effect of certain adjustments and charges, which are measures not in compliance with accounting principles generally accepted in the United States of America, or “non-GAAP financial measures.” The following is a reconciliation of these non-GAAP financial measures to the applicable GAAP financial measures for the 13 week periods ended July 28, 2012, and July 30, 2011 (in millions, except for net (loss) income per diluted share):     13 Weeks Ended       13 Weeks Ended     July 28, 2012 July 30, 2011     Net Cash(Used in)ProvidedbyOperatingActivities     OperatingLoss     Net Loss     NetLossPerDilutedShare OperatingIncome     NetIncome     Net IncomePer DilutedShare                     Financial measure before certain adjustments and charges (non-GAAP) $ (3.4 ) $ (8.6 ) $ (5.8 ) $ (0.07 ) $ 4.4 $ 2.8 $ 0.03   Adjustments: August 2012 landlord payments timing difference 9.6 - - - - - - Charges: Estimated CEO severance costs, net of income taxes - (1.9 ) (1.2 ) (0.01 ) - - - Non-cash asset impairment charges, net of income taxes       -         (9.0 )       (5.4 )       (0.06 ) (1.1 )       (0.6 )       (0.01 )   GAAP financial measure     $ 6.2       $ (19.5 )     $ (12.4 )     $ (0.14 ) $ 3.3       $ 2.2       $ 0.02     Due to the relatively early timing of its second quarter of fiscal 2012 end date, the Company had not yet paid August 2012 rents and other landlord costs at that time, and instead paid those costs in the third quarter of fiscal 2012. As a result, the Company paid only two calendar months of these costs during the second quarter of fiscal 2012 versus typical payment of three calendar months of such costs within a fiscal quarter. Given this unique payment cycle, the Company believes the presentation of cash flows used in operating activities for the second fiscal quarter of 2012 assuming the typical three calendar months of rents and other landlord costs being paid is beneficial to investors' understanding of the Company's operating cash flows. During the second quarter of fiscal 2012, the Company recorded significant estimated severance costs related to the departure of its Chief Executive Officer. Given the unique nature and substantial amount of these charges, the Company believes presentation of historical financial information excluding these charges to be beneficial to its investors. From time to time, the Company determines the carrying values of certain of its long-lived assets are not supported by their anticipated future cash flows and, as a result, must record non-cash charges to impair these assets. The timing and magnitude of these charges can be sporadic, thus significantly affecting the reported financial results of the fiscal period in which they are recorded. Given the unique nature and sporadic timing of these charges, the Company consistently presents these charges as a separate line item within its statements of operations and, similarly, believes the presentation of its historical financial information excluding these non-cash charges to be beneficial to its investors. The Wet Seal, Inc.Steven H. Benrubi(949) 699-3947