<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED AUGUST 26, 2000
COMMISSION FILE NUMBER 0-30817
HOMEPLACE OF AMERICA, INC.
(Exact name of Registrant as specified in its charter)
DELAWARE 34-1894948
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3200 POTTERY DRIVE
MYRTLE BEACH, SOUTH CAROLINA 29579
(Address of principal executive offices) (Zip Code)
(843) 236-4606
(Registrant's telephone number, including area code)
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 (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [ ] No [X]*
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]
Number of shares outstanding of the issuer's Common Stock:
CLASS OUTSTANDING AT OCTOBER 9, 2000
----- ------------------------------
Common Stock, $0.001 par value 25,000,000
* Registrant became subject to such filing requirements upon the August 15, 2000
effective date of its Registration Statement on Form 10.
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HOMEPLACE OF AMERICA, INC.
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page No.
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<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheets as of August 26, 2000 and
February 26, 2000 3
Consolidated Statements of Operations for the Thirteen Weeks
and the Twenty-Six Weeks Ended August 26, 2000 and
August 28, 1999 4
Consolidated Statements of Cash Flows for the Twenty-Six
Weeks Ended August 26, 2000 and August 28, 1999 5
Notes to Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 7
Item 3. Quantitative and Qualitative Disclosures about Market Risk 10
Part II. Other Information
Item 1. Legal Proceedings 11
Item 2. Changes in Securities and Use of Proceeds 11
Item 3. Defaults Upon Senior Securities 11
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 5. Other Information 11
Item 6. Exhibits and Reports on Form 8K 11
</TABLE>
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements which
reflect management's best judgment based on factors currently known and involve
risks and uncertainties. Words such as "expects", "anticipates", "believes",
"intends", "plans" and "hopes," variations on such words and similar expressions
are intended to identify such forward-looking statements. Actual results could
differ materially from those anticipated in these forward-looking statements as
a result of a number of factors including, but not limited to the factors
discussed in this document and in the "Risk Factors" section of our Registration
Statement on Form 10 as filed with the Securities and Exchange Commission on
September 26, 2000. You are urged to consider such factors. We assume no
obligation for updating any such forward-looking statements.
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HOMEPLACE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF AUGUST 26, 2000 AND FEBRUARY 26, 2000
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
ASSETS AUGUST 26, 2000 FEBRUARY 26,
(UNAUDITED) 2000
--------- ---------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 2,878 $ 2,787
Accounts receivable 8,789 2,122
Merchandise inventories 213,005 200,151
Other current assets 4,870 12,152
--------- ---------
Total current assets 229,542 217,212
PROPERTY AND EQUIPMENT, net 82,617 80,217
GOODWILL, net 109,265 110,673
DEFERRED INCOME TAXES 3,419 3,419
OTHER ASSETS, net 2,957 2,615
--------- ---------
Total assets $ 427,800 $ 414,136
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 69,738 $ 56,260
Accrued expenses 14,536 18,097
Accrued interest 1,278 1,028
Current portion of capital lease obligation 1,057 2,883
--------- ---------
Total current liabilities 86,609 78,268
LONG-TERM DEBT AND CAPITAL LEASE OBLIGATION 144,567 130,696
OTHER NONCURRENT LIABILITIES AND DEFERRED CREDITS 9,194 7,264
--------- ---------
Total liabilities 240,370 216,228
--------- ---------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, $0.10 par value; 5,000,000 shares authorized;
none issued and outstanding -- --
Common stock, $0.001 par value; 40,000,000 shares authorized;
25,000,000 shares issued and outstanding 25 25
Additional paid-in capital 370,359 370,359
Retained deficit (182,954) (172,476)
--------- ---------
Total stockholders' equity 187,430 197,908
--------- ---------
Total liabilities and stockholders' equity $ 427,800 $ 414,136
========= =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these balance sheets.
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HOMEPLACE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THIRTEEN WEEKS AND THE TWENTY-SIX WEEKS
ENDED AUGUST 26, 2000 AND AUGUST 28, 1999
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
THIRTEEN WEEKS ENDED TWENTY-SIX WEEKS ENDED
------------------------------- -------------------------------
AUGUST 26, AUGUST 28, AUGUST 26, AUGUST 28,
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
NET SALES $ 160,333 $ 142,989 $ 315,809 $ 202,340
COST OF SALES, including buying and warehousing
costs 100,179 90,572 197,082 127,643
------------ ------------ ------------ ------------
Gross profit 60,154 52,417 118,727 74,697
STORE OPERATING, GENERAL AND ADMINISTRATIVE
EXPENSES 57,635 54,247 119,406 77,434
BUSINESS INTEGRATION EXPENSES 503 -- 1,953 --
------------ ------------ ------------ ------------
Income (loss) from operations 2,016 (1,830) (2,632) (2,737)
INTEREST EXPENSE (3,999) (2,635) (7,835) (3,139)
OTHER NON-OPERATING INCOME (EXPENSES), net 15 (257) 15 (257)
------------ ------------ ------------ ------------
Loss before income taxes (1,968) (4,722) (10,452) (6,133)
PROVISION FOR INCOME TAXES (27) (17) (26) (29)
------------ ------------ ------------ ------------
Net loss $ (1,995) $ (4,739) $ (10,478) $ (6,162)
============ ============ ============ ============
NET LOSS PER SHARE - Basic and Diluted $ (0.08) $ (0.21) $ (0.42) $ (0.38)
============ ============ ============ ============
WEIGHTED AVERAGE SHARES OUTSTANDING 25,000,000 22,197,802 25,000,000 16,098,901
============ ============ ============ ============
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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HOMEPLACE OF AMERICA, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE TWENTY-SIX WEEKS ENDED AUGUST 26, 2000 AND AUGUST 28, 1999
(UNAUDITED)
(dollar amounts in thousands, except share data)
<TABLE>
<CAPTION>
TWENTY SIX-WEEKS ENDED
-------------------------
AUGUST 26, AUGUST 28,
2000 1999
-------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(10,478) $ (6,162)
Adjustments to reconcile net loss to net cash used in operating
activities-
Depreciation and amortization 8,321 4,844
(Gain) loss on disposal of fixed assets (5) 257
Changes in operating assets and liabilities, net of effects
of acquisition:
Receivables (6,667) 30
Inventory (12,854) (9,762)
Other current assets 7,282 (3,130)
Other assets (342) (1,721)
Accounts payable and accrued expenses 9,917 (6,360)
Other liabilities 2,437 956
-------- ---------
Net cash used in operating activities (2,389) (21,048)
-------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment, net (9,313) (2,848)
Proceeds from sale of equipment, net 5 2
Acquisition, net of cash acquired of $3,038 -- (25,530)
-------- ---------
Net cash used by investing activities (9,308) (28,376)
-------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock -- 25,000
Net borrowings under revolving credit facilities 13,701 101,218
Proceeds from long-term subordinated note -- 15,000
Repayment of Waccamaw credit facility -- (26,507)
Repayment of HomePlace Holdings credit facility -- (47,434)
Repayment of HomePlace Holdings note payable -- (15,375)
Payments under capitalized leases (1,913) (834)
-------- ---------
Net cash provided by financing activities 11,788 51,068
-------- ---------
INCREASE IN CASH AND CASH EQUIVALENTS 91 1,644
CASH AND CASH EQUIVALENTS, beginning of year 2,787 3,193
-------- ---------
CASH AND CASH EQUIVALENTS, end of period $ 2,878 $ 4,837
======== =========
CASH PAID DURING THE PERIOD FOR:
Interest $ 8,047 $ 1,932
Income taxes 27 29
======== =========
</TABLE>
The accompanying notes to the consolidated financial statements are an integral
part of these statements.
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HOMEPLACE OF AMERICA, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AUGUST 26, 2000 AND AUGUST 28, 1999
(UNAUDITED)
1. BASIS OF PRESENTATION
On June 15, 1999, Waccamaw Corporation and its subsidiary ("Waccamaw") completed
a merger (the "Merger") pursuant to the Plan of Reorganization of HomePlace
Holdings, Inc. and its subsidiaries (the "Holdings Group"). HomePlace of
America, Inc. ("HomePlace" or the "Company") was formed to be, and is, the
surviving entity of the Merger. The Merger has been treated as an acquisition of
the Holdings Group by Waccamaw and has been accounted for under the purchase
method of accounting. Accordingly, the accompanying consolidated financial
statements represent the results of operations of Homeplace and its subsidiaries
for fiscal 2000 compared to the results of operations of Waccamaw for fiscal
1999 combined with the effects of the acquisition and the results of operations
for the former Holdings Group subsequent to the Merger. Consequently, the
results of operations for fiscal 2000 are not comparable to the results of
operations for fiscal 1999.
The Company is in the process of resolving certain comments regarding
accounting matters raised by the staff of the Securities and Exchange
Commission (SEC) as part of its review of the Company's registration statement
on Form 10 filed on June 16, 2000, and as amended on August 14, 2000 and
September 26, 2000. Management believes that the Company's accounting for these
matters is in accordance with generally accepted accounting principles.
However, if the staff of the SEC does not accept the Company's accounting for
these matters, the Company may be required to adjust its accounting for the
acquisition of the Holdings Group and the amortization of intangible assets
recognized in its consolidated financial statements for periods subsequent to
the acquisition.
The accompanying consolidated financial statements have been prepared by the
Company and, except for the consolidated balance sheet as of February 26, 2000,
have not been audited. In the opinion of management, the accompanying
consolidated financial statements contain all adjustments (consisting of only
normal recurring adjustments) necessary to present fairly the financial position
of the Company and the results of its operations and cash flows. Because of the
seasonality of the retailing business, operating results for the Company on a
quarterly basis may not be indicative of operating results for the full year.
These financials statements should be read in conjunction with the Company's
audited consolidated financial statements for the fiscal year ended February 26,
2000, included in the Company's Form 10 filed with the Securities and Exchange
Commission on September 26, 2000. Certain information and footnote disclosures
normally included in the financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted.
2. REVOLVING CREDIT FACILITY, TERM NOTE AND COMMERCIAL CREDIT AGREEMENT
In connection with the Merger, the Company entered into a revolving credit
facility (the "Revolving Credit Facility") with commercial banks that provides
secured borrowings of up to $200 million. Available borrowings under the
Revolving Credit Facility are based on a percentage of eligible merchandise
inventory at cost, as defined, and are limited to 75% of eligible inventory
during the period from December 16 to September 14 and 79% of eligible inventory
during the period from September 15 to December 15 of each year. The Revolving
Credit Facility generally bears interest at the Prime Rate plus 0.25%. Under the
Revolving Credit Facility, the Company has other options available which allow
the Company to fix the interest rate on portions of its outstanding indebtedness
at the then LIBOR rate plus 2.50%. At August 26, 2000, the Company had $50
million in a 61-day LIBOR advance at 9.18630%, $35 million in a 32-day LIBOR
advance at 9.12603% and $35 million in a 60-day LIBOR advance at 9.14125% with
the balance of $9.5 million under the Revolving Credit Facility being at 9.75%.
Outstanding letters of credit, which reduce available borrowings, were $7.8
million at August 26, 2000. The Company had additional available borrowings
under the Revolving Credit Facility of $9.6 million at August 26, 2000. The
Revolving Credit Facility expires in June 2002 and is generally collateralized
by all of the Company's assets.
Also in connection with the Merger, the Company entered into a term loan (the
"Term Loan"), subordinated to the Revolving Credit Facility. The Term Loan was
amended on September 12, 2000 (with certain corresponding amendments to the
Revolving Credit Facility) to increase the principal by $2 million and increase
the interest rate by 0.50%. The Term Loan, as amended, provides secured
borrowings of $17 million (exclusive of PIK Interest as defined hereinafter) at
a rate of 13.0% per annum, payable monthly in arrears. Additional paid-in-kind
interest ("PIK Interest") accrues at a rate of 3% per annum on the unpaid
principal balance and is added to the then unpaid principal balance of the Term
Loan. The aggregate balance of PIK Interest so added to the Term Loan accrues
interest at a rate of 13.0% per annum. Repayments of the Term Loan are
permitted, subject to certain conditions, which the Company has not met as of
August 26, 2000. All outstanding indebtedness under the Term Loan, including
accrued PIK Interest, is due in full in June 2002. Borrowings under the Term
Loan are collateralized on a subordinated basis by all of the Company's assets.
On August 3, 2000, the Company entered into a $5 million unsecured commercial
credit agreement with Carolina First Bank (the "Carolina First Agreement"). The
Carolina First Agreement is used exclusively for letters of credit, which the
Company generally issues in connection with its import purchases. The Carolina
First Agreement contains certain financial covenants, including adjusted net
worth and working capital (both as defined therein). Outstanding letters of
credit under the Carolina First Agreement were $4.4 million at August 26, 2000.
6
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The following discussion and analysis should be read in conjunction with the
consolidated financial statements of the Company and the notes thereto appearing
elsewhere in this document.
OVERVIEW
Due to the Merger, we viewed the fiscal year ended February 26, 2000 (fiscal
1999) as a transition year in which we integrated the operations, systems,
personnel, and merchandise strategies of the separate companies and began laying
the groundwork for growth. We view the fiscal year ended March 3, 2001 (fiscal
2000) as a year in which we will finalize the infrastructure needed to support
our expansion plans and begin realizing those plans. During the first twenty-six
weeks ended August 26, 2000, we have "gone live" with of our SAP software,
opened two new distribution centers and integrated them into our merchandise
logistics process, and made significant strides in our store growth program. We
opened new stores in Richmond, Virginia, Mobile, Alabama, and St. Petersburg,
Florida during the period and opened a store in Southaven, Mississippi in late
September. Our final three stores for this year are planned to open between
mid-October and mid-November. We plan to open ten stores in fiscal 2001.
RESULTS OF OPERATIONS
The following table reflects the unaudited results of operations for HomePlace
of America, Inc. and its subsidiaries for the thirteen weeks and the twenty-six
weeks ended August 26, 2000 and August 28, 1999. The Merger has been treated as
an acquisition of the Holdings Group by Waccamaw and has been accounted for
under the purchase method of accounting. The accompanying selected financial
data reflects the historical results of operations of Waccamaw, combined with
the effects of the acquisition and the results of operations of the former
Holdings Group subsequent to June 15, 1999. Financial results for the Holdings
Group prior to the Merger are excluded. Accordingly, the results of operations
for the thirteen weeks and the twenty-six weeks ended August 26, 2000 are not
comparable to the same period for the prior year.
<TABLE>
<CAPTION>
For the Thirteen Weeks Ended For the Twenty-Six Weeks Ended
------------------------------- -------------------------------
August 26, 2000 August 28 1999 August 26, 2000 August 28 1999
--------------- -------------- --------------- --------------
<S> <C> <C> <C> <C>
(Dollars in millions, with percent of net sales)
Net Sales $160.3 $143.0 $315.8 $202.3
Cost of sales before clearance markdowns 100.2 89.4 197.1 126.4
------ ------ ------ ------
Gross profit before clearance markdowns 60.1 53.6 118.7 75.9
Percent of net sales 37.5% 37.5% 37.6% 37.5%
Clearance markdowns -- 1.2 -- 1.2
------ ------ ------ ------
Gross profit 60.1 52.4 118.7 74.7
Percent of net sales 37.5% 36.6% 37.6% 36.9%
SG&A expenses 57.6 54.2 119.4 77.4
Business integration expenses 0.5 -- 1.9 --
------ ------ ------ ------
Income (loss) from operations 2.0 (1.8) (2.6) (2.7)
Interest expense (4.0) (2.6) (7.9) (3.2)
Other non-operating expense -- (0.3) -- (0.3)
------ ------ ------ ------
Net loss $ (2.0) $ (4.7) $(10.5) $ (6.2)
====== ====== ====== ======
</TABLE>
The Thirteen Weeks Ended August 26, 2000 Compared With The Thirteen Weeks Ended
August 28, 1999.
Net sales for the thirteen weeks ended August 26, 2000 were $160.3 million
compared to $143.0 million for the thirteen weeks ended August 28, 1999. Sales
for the prior period reflect sales for the former Holdings Groups stores
subsequent to Merger (June 15, 1999) while the current year reflects sales for
these stores for the entire thirteen weeks. The remainder of the sales increase
is attributable to sales for three new stores and a comparable store sales
increase of 0.8% (inclusive of pre-Merger Holdings Group results). Sales for the
thirteen weeks ended August 26, 2000 were adversely affected by supply chain
disruptions resulting from our merchandising software implementation in May.
Factors such as a longer than expected transition period from the old systems,
delayed reporting in the new system, and a longer than expected learning curve,
coupled with training issues at the distribution facilities, resulted in delayed
ordering and processing of merchandise, adversely impacting sales for the August
and September periods. We are working on these issues and have made significant
progress in resolving them.
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Gross profit for the thirteen weeks ended August 26, 2000 was $60.1 million, or
37.5% of net sales, compared to $52.4 million, or 36.6% of net sales, for the
same period last year. During the thirteen weeks ended August 28, 1999, we
incurred clearance markdowns of $1.2 million to liquidate inventory and align
merchandise assortments of the combined companies after the Merger. Gross
profit, adjusted for these charges, was $53.6 million, or 37.5% of net sales.
Selling, general and administrative expenses ("SG&A") for the thirteen weeks
ended August 26, 2000 were $57.6 million, or 35.9% of net sales, compared to
$54.2 million, or 37.9% of net sales, for the same period last year. Included in
SG&A for the two periods are charges of $0.7 million and $0.6 million,
respectively, resulting from the amortization of goodwill. SG&A before these
amortization charges was $56.9 million, or 35.5% of net sales, and $53.6
million, or 37.5% of net sales, for the thirteen weeks ended August 26, 2000 and
August 28, 1999, respectively. The reduction in SG&A as a percentage of net
sales results from the elimination of certain redundant overhead expenses,
primarily the corporate office of the former Holdings Group.
During the thirteen weeks ended August 26, 2000, we also incurred certain
business integration charges of $0.5 million, or 0.3% of net sales, to complete
the integration of the operations of Waccamaw and the Holdings Group. These
charges are related to the reformatting and "grand re-opening" of the existing
Waccamaw and Holdings Group stores.
Operating income for the thirteen weeks ended August 26, 2000 was $2.0 million,
or 1.2% of net sales, compared to an operating loss of $1.8 million, or (1.3)%
of net sales, for the same period last year. Operating income, adjusted for
goodwill, business integration expenses, and clearance markdowns, was $3.2
million, or 2.0% of net sales, for the thirteen weeks ended August 26, 2000
compared to $0.0 million for the same period last year.
Interest expense for the thirteen weeks ended August 26, 2000 was $4.0 million,
or 2.5% of net sales, compared to $2.6 million, or 1.8% of net sales, for the
same period last year. This increase is due to an increase in the Revolving
Credit Facility and increases in interest rates versus the same period last
year.
During the thirteen weeks ended August 28, 1999, we incurred other non-operating
expenses of $0.3 million, or 0.2% of net sales. These charges were losses on
disposal of fixed assets.
Net loss for the thirteen weeks ended August 26, 2000 was $2.0 million, or
(1.2)% of net sales, compared to $4.7 million, or (3.3) % of net sales, for the
same period last.
The Twenty-Six Weeks Ended August 26, 2000 Compared With The Twenty-Six Weeks
Ended August 28, 1999.
Net sales for the twenty-six weeks ended August 26, 2000 were $315.8 million
compared to $202.3 million for the twenty-six weeks ended August 28, 1999. Sales
for the prior period reflect sales for the former Holdings Groups stores
subsequent to Merger (June 15, 1999) while the current year reflects sales for
these stores for the entire twenty-six weeks. The remainder of the sales
increase is attributable to sales for three new stores and a comparable store
sales increase of 3.1% (inclusive of pre-Merger Holdings Group results).
Gross profit for the twenty-six weeks ended August 26, 2000 was $118.7 million,
or 37.6% of net sales, compared to $74.7 million, or 36.9% of net sales, for the
same period last year. During the twenty-six weeks ended August 28, 1999, we
incurred clearance markdowns of $1.2 million to liquidate inventory and align
merchandise assortments of the combined companies. Gross profit, adjusted for
these charges, was $75.9 million, or 37.5% of net sales.
Selling, general and administrative expenses for the twenty-six weeks ended
August 26, 2000 were $119.4 million, or 37.8% of net sales, compared to $77.4
million, or 38.3% of net sales, for the same period last year. Included in SG&A
for the two periods are charges of $1.4 million and $0.6 million, respectively,
resulting from the amortization of goodwill. SG&A before these amortization
charges was $118.0 million, or 37.4% of net sales, and $76.8 million, or 38.0%
of net sales, for the twenty-six weeks ended August 26, 2000 and August 28,
1999, respectively. The reduction in SG&A as a percentage of net sales results
from the elimination of certain redundant overhead expenses, primarily the
corporate office of the former Holdings Group.
During the twenty-six weeks ended August 26, 2000, we also incurred certain
business integration charges of $1.9 million, or 0.6% of net sales, to complete
the integration of the operations of Waccamaw and the Holdings Group. These
charges are related to the reformatting and "grand re-opening" of the existing
Waccamaw and Holdings Group stores and incremental charges incurred to operate a
dual replenishment system.
Operating loss for the twenty-six weeks ended August 26, 2000 was $2.6 million,
or (0.8)% of net sales, compared to $2.7 million, or (1.3)% of net sales, for
the same period last year. Operating income, adjusted for goodwill, business
integration expenses, and clearance markdowns, was $0.7 million, or 0.2% of net
sales, for the twenty-six weeks ended August 26, 2000 compared to an operating
loss of $0.9 million, or (0.4)% of net sales, for the same period last year.
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Interest expense for the twenty-six weeks ended August 26, 2000 was $7.9
million, or 2.5% of net sales, compared to $3.2 million, or 1.6% of net sales,
for the same period last year. This increase is due to an increase in the
Revolving Credit Facility and increases in interest rates versus the same period
last year.
During the twenty-six weeks ended August 28, 1999, we incurred other
non-operating expenses of $0.3 million, or 0.1% of net sales. These charges were
losses on disposal of fixed assets.
Net loss for the twenty-six weeks ended August 26, 2000 was $10.5 million, or
(3.3)% of net sales, compared to $6.2 million, or (3.1) % of net sales, for the
same period last year.
LIQUIDITY AND FINANCIAL CONDITION
Total assets at August 26, 2000 were $427.8 million compared to $414.1 million
at February 26, 2000, an increase of $13.7 million. Current assets increased
$12.4 million while non-current assets increased $1.3 million. The increase in
current assets consisted of a $12.9 million increase in inventory resulting from
the opening of three new stores and seasonal inventory build-up, a $6.7 million
increase in receivables related to cooperative advertising programs with our
vendors, and a $0.1 million increase in cash which were partially offset by a
$7.3 million decrease in prepaid expenses and other current assets, primarily
related to the timing of rent payments. The increase of $1.3 million in
non-current assets consisted of a $2.4 million increase in fixed assets, net of
depreciation and retirements, and a $0.3 million increase in other non-current
assets which were partially offset by amortization of goodwill in the amount of
$1.4 million.
Total liabilities at August 26, 2000 were $240.4 million compared to $216.2 at
February 26, 2000, an increase of $24.2 million. Current liabilities increased
$8.4 million while non-current liabilities increased $15.8 million. The increase
in current liabilities consisted of an increase of $9.9 in accounts payable and
accrued expenses (seasonal increases primarily related to the increase in
inventory), and an increase of $0.3 million in accrued interest which were
partially offset by a $1.8 million decrease in capital lease obligations. The
increase in non-current liabilities consisted primarily of a $13.9 million in
long-term debt, primarily under the Revolving Credit Facility, as a result of
seasonal borrowing needs, and a $1.9 million increase in other non-current
liabilities.
Stockholders' Equity was $187.4 million at August 26, 2000 compared to $197.9
million at August 28, 1999, reflecting the impact of the net loss of $10.5
million.
Net cash used in operating activities for the twenty-six weeks ended August 26,
2000 was $2.4 million compared to $21.0 million for the same period last year.
The $2.4 million use of cash consisted of a net loss of $10.5 million, an
increase in receivables of $6.7 million, an increase in inventory of $12.9
million, and an increase in other assets of $0.3 million which were partially
offset by depreciation and amortization of $8.3 million, a $7.3 million decrease
in prepaid expenses and other current assets, a $9.9 million increase in
accounts payable and accrued expenses and a $2.5 million increase in other
liabilities.
Net cash used in investing activities for the twenty-six weeks ended August 26,
2000 was $9.3 million compared to $28.4 million for the same period last year.
The $9.3 million use of cash consisted of purchases of property and equipment.
These consisted of $2.6 million related to the SAP software implementation, $2.0
million for store remodels and reformatting, $2.1 million for new stores, $1.4
million for the new distribution centers, $0.9 million for computer hardware and
point-of-sale equipment, and $0.3 million of miscellaneous items.
Net cash provided by financing activities for the twenty-six weeks ended August
26, 2000 was $11.8 million compared to $51.1 million for the same period last
year. The $11.8 million consisted of borrowings of $13.7 million under the
Revolving Credit Facility which was partially offset by payments under capital
leases of $1.9 million.
CAPITAL RESOURCES
Our capital requirements, primarily investments in new stores, central
distribution centers, new store inventory purchases and seasonal working
capital, are funded through a combination of internally generated cash from
operations, credit extended by our suppliers, leasing arrangements and
borrowings under our Revolving Credit Facility and Term Loan.
In connection with the Merger, we entered the Revolving Credit Facility with
commercial banks that provides secured borrowings of up to $200 million.
Available borrowings under the Revolving Credit Facility are based on a
percentage of eligible merchandise inventory at cost, as defined, and are
limited to 75% of eligible inventory during the period from December 16 to
September 14 and 79% of eligible inventory during the period from September 15
to December 15 of each year. The Revolving Credit Facility generally bears
interest at the Prime Rate plus 0.25%. Under the Revolving Credit Facility, we
have other options available which allow the us to fix the interest rate on
portions of our outstanding indebtedness at the then LIBOR rate plus 2.50%. At
August 26, 2000, we had $50 million in a 61-day LIBOR advance at 9.18630%, $35
million in a 32-day LIBOR advance at 9.12603% and $35 million in a 60-day LIBOR
advance at 9.14125% with the balance of $9.5 million under the Revolving Credit
Facility being at 9.75%. Outstanding letters of credit, which reduce available
borrowings, were $7.8 million and $6.6 million at August 26, 2000
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and October 4, 2000, respectively. We had additional available borrowings under
the Revolving Credit Facility of $9.6 million and $20.6 million at August 26,
2000 and October 4, 2000, respectively. The Revolving Credit Facility expires in
June 2002 and is generally collateralized by all of our assets.
Also in connection with the Merger, we entered into the Term Loan, subordinated
to the Revolving Credit Facility. The Term Loan was amended on September 12,
2000 (with certain corresponding amendments to the Revolving Credit Facility) to
increase the principal by $2 million and increase the interest rate by 0.50%.
The Term Loan, as amended, provides secured borrowings of $17 million (exclusive
of PIK Interest) at a rate of 13.0% per annum, payable monthly in arrears.
Additional paid-in-kind interest accrues at a rate of 3% per annum on the unpaid
principal balance and is added to the then unpaid principal balance of the Term
Loan. The aggregate balance of PIK Interest so added to the Term Loan accrues
interest at a rate of 13.0% per annum. Repayments of the Term Loan are permitted
subject to certain conditions which we have not met as of October 4, 2000. All
outstanding indebtedness under the Term Loan, including accrued PIK Interest, is
due in full in June 2002. Borrowings under the Term Loan are collateralized on a
subordinated basis by all of our assets.
On August 3, 2000, we entered into a $5 million unsecured commercial credit
agreement with Carolina First Bank. The Carolina First Agreement is used
exclusively for letters of credit, which we generally issue in connection with
our import purchases. The Carolina First Agreement contains certain financial
covenants, including adjusted net worth and working capital (both as defined
therein). Outstanding letters of credit under the Carolina First Agreement were
$4.4 million and $4.6 million at August 26, 2000 and October 4, 2000,
respectively.
Based on current estimates of cash flow, we believe funds from operations and
under our various credit agreements, as discussed above, will be sufficient to
fund operations and new store growth during fiscal 2000.
We may also, from time to time, seek alternative sources of capital to reduce
indebtedness, provide additional working capital and augment new store growth.
No assurances can be given that such alternative sources will be available on
commercially acceptable terms.
SEASONALITY
Our business is subject to substantial seasonal variations. Historically, we
have realized a significant portion of our net sales and net income for the year
in the third and fourth quarters. Quarterly results may fluctuate significantly
as a result of a variety of factors, including the timing of new store openings.
We believe this is the general pattern associated with our segment of the retail
industry and we expect this pattern to continue in the future. Consequently,
comparisons between quarters are not necessarily meaningful and the results for
any quarter are not necessarily indicative of future results.
REGISTRATION STATEMENT ON FORM 10
We are in the process of resolving certain comments regarding accounting matters
raised by the staff of the Securities and Exchange Commission (SEC) as part of
its review of our registration statement on Form 10 filed on June 16, 2000, and
as amended on August 14, 2000 and September 26, 2000. We believe that our
accounting for these matters is in accordance with generally accepted accounting
principles. However, if the staff of the SEC does not accept our accounting for
these matters, we may be required to adjust our accounting for the acquisition
of the Holdings Group and the amortization of intangible assets recognized in
our consolidated financial statements for periods subsequent to the acquisition.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
We are exposed to market risk from changes in interest rates that may adversely
affect our financial position, results of operations and cash flows. In seeking
to minimize risks from interest rates fluctuations, we manage exposures through
our regular operating and financing activities. We do not use financial
instruments for trading or other speculative purposes and are not party to any
leveraged financial instruments.
We are exposed to interest rate risk primarily through borrowings under the
Revolving Credit Facility. The Revolving Credit Facility expires in June 2002
and generally bears interest at the Prime Rate (as defined) plus 0.25%. Under
the Revolving Credit Facility we have other borrowing options available that
allow us to fix portions of the outstanding indebtedness at the then LIBOR rate
plus 2.50%. At August 26, 2000, we had $50.0 million in a 61-day LIBOR advance
at 9.18630%, $35.0 million in a 32-day LIBOR advance at 9.12603% and $35.0
million in a 60-day LIBOR advance at 9.14125% with the balance of $9.5 million
under the Revolving Credit Facility being at 9.75%. A change of 1% in the
interest rate would have caused a change in interest payments of approximately
$0.7 million for the twenty-six weeks ended August 26, 2000.
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PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are a party to various legal proceedings that are considered ordinary,
routine litigation incidental to our business and not material to our
consolidated financial position, results of operations or cash flows.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
Not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On June 28, 2000, prior to the effective date of the Registrant's Registration
Statement on Form 10, a consent in lieu of an annual meeting of stockholders
approving the election of the following Class II Directors was signed by the
holder of a majority of the issued and outstanding shares of common stock of
HomePlace:
Sheikh Salem Abdullah Al-Ahmed Al-Sabah
Abdullah Al-Gabandi
Farouk A. Bastaki
Gregory K. Johnson
Arthur L. Kelly
G. William Miller
Kathryn D. Wriston
All of the individuals listed above previously served as Class II Directors and
will serve until the 2001 annual meeting of stockholders or until his or her
earlier resignation or removal.
The terms of the following Class I Directors were unaffected by this election.
Moira A. Cary
Joseph R. Ettore
William M. Goodyear
David L. Resnick
Kathryn M. Sawa
John J. Shea
The Class I Directors will each serve until the 2001 annual meeting of
stockholders or until his or her earlier resignation or removal.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibit Index
Exhibit
Number Description
------- -----------
10.1 Amended and Restated Term Note, dated September 12, 2000
10.2 Second Amendment to the Loan and Security Agreement, dated
September 12, 2000
27 Financial Data Schedule (filed electronically with SEC
only)
(b) Reports on Form 8-K:
None.
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SIGNATURE
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.
HomePlace of America, Inc.
By: /s/ David A. Frost
--------------------------
David A. Frost
Senior Vice President and
Chief Financial Officer
October 10, 2000
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