<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
CHECK ONE
x Quarterly report pursuant to Section 13 or 15(d) of the Securities
- - --- Exchange Act of 1934 for the thirteen weeks ended July 30, 1994 or
- - --- Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
COMMISSION FILE NUMBER 0-7214
HECHINGER COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1001530
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
3500 PENNSY DRIVE, LANDOVER, MARYLAND 20785
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (301) 341-1000
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 X NO
------------------- -------------------
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of September 6, 1994.
30,716,472 shares of Class A Common Stock, $.10 par value
11,590,519 shares of Class B Common Stock, $.10 par value
1 of 15
<PAGE> 2
HECHINGER COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
THIRTEEN WEEKS ENDED JULY 30, 1994
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- - ----------- ----
<S> <C> <C>
Part I. Financial Information:
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3 - 4
Part II. Other Information:
Item 4. Submission of Matters to a Vote of Security Holders 5
Item 6. Exhibits and Reports on Form 8-K 5
Index to Exhibits 7
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
The information called for by this item is hereby incorporated by reference
from Exhibits 99(a) - 99(e) of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the sales reported by the Company (in millions):
<TABLE>
<CAPTION>
TOTAL TOTAL TOTAL COMPARABLE
SALES SALES SALES STORE SALES
PERIOD: JULY 30, 1994 JULY 31, 1993 INCREASE INCREASE
- - ------- ------------- ------------- -------- ------------
<S> <C> <C> <C> <C>
Thirteen weeks $708.9 $609.2 16% 1%
Twenty-six weeks $1,283.2 $1,088.4 18% 3%
</TABLE>
The sales increases for the thirteen weeks and twenty-six weeks ended July 30,
1994 were primarily due to new stores opened since July 31, 1993.
The following table sets forth the number of stores operated by the Company:
<TABLE>
<CAPTION>
HECHINGER HOME
STORES QUARTERS TRIANGLE TOTAL
----------- -------- -------- -----
<S> <C> <C> <C> <C>
As of July 31, 1993 71 45 4 120
Third quarter 1993 openings 2 7 - 9
Third quarter 1993 closings (1) - (4) (5)
As of October 30, 1993 72 52 - 124
Fourth quarter 1993 openings - 1 - 1
Fourth quarter 1993 closings - - - -
As of January 29, 1994 72 53 - 125
First quarter 1994 openings 1 3 - 4
First quarter 1994 closings (1) - - (1)
As of April 30, 1994 72 56 - 128
Second quarter 1994 openings 1 2 - 3
Second quarter 1994 closings (1) - - (1)
---- ---- ---- ----
As of July 30, 1994 72 58 - 130
==== ==== ==== ====
</TABLE>
For the thirteen weeks ended July 30, 1994, other income, which consists
primarily of interest income, was $1.2 million, .2% of sales, compared to $1.3
million, .2% of sales, for the corresponding period last year. For the
twenty-six weeks ended July 30, 1994, other income was $1.7 million, .1% of
sales, compared to $2.2 million, .2% of sales. The decrease for the twenty-six
week period was primarily the result of a loss of $.6 million on the sale of an
excess parcel of land during the first quarter.
3
<PAGE> 4
For the thirteen weeks ended July 30, 1994, cost of sales was 77.3% of sales
compared to 77.5% of sales for the corresponding period last year. This
decrease was primarily due to a higher gross margin at Home Quarters. For the
twenty-six weeks ended July 30, 1994, cost of sales was 77.6% compared to 77.5%
for the corresponding period last year.
For the thirteen weeks ended July 30, 1994, selling, general and administrative
expenses were 17.2% of sales compared to 17.7% of sales for the corresponding
period last year. For the twenty-six weeks ended July 30, 1994, selling,
general and administrative expenses were 18.3% compared to 19.0% for the
corresponding period last year. The decrease was due to the recent cost
reduction efforts at the Hechinger Stores Company and the growing effect of
Home Quarters which operates with a lower cost structure. Preopening expenses
of $2.0 million and $1.3 million are included in selling, general and
administrative expenses for the thirteen weeks ended July 30, 1994 and July 31,
1993, respectively. Pre-opening expenses of $5.0 million and $2.6 million are
included in selling, general and administrative expenses for the twenty-six
weeks ended July 30, 1994 and July 31, 1993, respectively.
For the thirteen weeks ended July 30, 1994, interest expense was $7.6 million,
1.1% of sales, compared to $5.0 million, .8% of sales, for the corresponding
period last year. For the twenty-six weeks ended July 30, 1994, interest
expense was $14.8 million, 1.2% of sales, compared to $10.3 million, .9% of
sales for the corresponding period last year. The increase was primarily due
to the issuance of $100 million of Senior Notes in October 1993.
For the thirteen weeks and twenty-six weeks ended July 30, 1994, the effective
tax rate was 34.0% compared to 31.0% for the corresponding periods last year.
The effective tax rate increase was primarily due to the increase in the
Federal income tax rate and increases in state income tax rates. The effective
tax rates differ from the statutory tax rate primarily due to the effect of tax
credits and tax-free earnings on funds available for investment.
For the thirteen weeks ended July 30, 1994, net earnings were $21.4 million,
$.48 per share, compared to $17.9 million, $.41 per share, for the
corresponding period last year. For the twenty-six weeks ended July 30, 1994,
net earnings were $26.0 million, $.60 per share, compared to $21.1 million,
$.50, per share for the corresponding period last year.
In May 1993, Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments in Debt and Equity Securities, was issued.
The Company adopted this statement as of the first quarter of 1994 and is
classifying its investments in marketable securities as available-for-sale.
Under this classification, marketable securities are carried at fair value,
with unrealized gains and losses excluded from earnings and instead reported in
stockholders' equity until realized. In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. The cumulative effect of adopting SFAS 115 in the first quarter of
1994, as well as the effect as of July 30, 1994 on stockholders' equity were
insignificant.
Cash and cash equivalents and marketable securities were $96.7 million as of
July 30, 1994 compared to $170.7 million as of January 29, 1994. The decrease
in cash and cash equivalents and marketable securities was primarily due to
cash required for increases in merchandise inventory and property, furniture
and equipment for new stores and remodelling of certain stores. The increase
in merchandise inventory is due to increased inventory levels at existing
stores in addition to new store openings. The increase in accounts payable and
accrued expenses was primarily due to the increase in inventory.
In August 1994, the Company sold 13 stores for approximately $100 million and
concurrently leased the properties back for an initial term of 25 years. The
leases are renewable at the Company's option for nine additional terms of five
years each. The Company has recorded these leases as operating leases.
In August 1994, the Company announced its plans to expand Hechinger Stores
subsidiary into Mexico. The Company expects to initially open four stores in
Mexico City beginning in late 1995.
4
<PAGE> 5
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a). The Annual Meeting of stockholders was held on June 14, 1994.
(b). Not applicable.
(c). At such meeting all eight of the nominees for election as directors were
elected to hold office until the next Annual Meeting. The votes cast with
respect to each nominee for election as a director were as follows:
<TABLE>
<CAPTION>
Nominee For Abstain
<S> <C> <C>
John W. Hechinger 144,966,083 358,229
Herbert J. Broner 144,971,896 352,416
John W. Hechinger, Jr. 144,972,044 352,268
S. Ross Hechinger 144,972,390 351,922
Ann D. Jordan 144,968,659 355,653
David O. Maxwell 144,963,959 360,353
W. Clark McClelland 144,973,459 350,853
Alan J. Zakon 144,976,422 347,890
</TABLE>
At such meeting the stockholders ratified the appointment of Ernst & Young LLP
as the Company's independent accountants for the fiscal year ending January 28,
1995. The votes cast with respect to such matter were as follows:
For 145,091,381
Against 132,346
Abstain 100,585
(d). Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
EXHIBIT
NUMBER DOCUMENT
------- --------
11 Statement Regarding Computation of Earnings Per Share
27 Financial Data Schedule
99(a) Consolidated Statements of Operations
99(b) Consolidated Balance Sheets
99(c) Consolidated Statements of Cash Flows
99(d) Consolidated Statement of Stockholders' Equity
99(e) Notes to Consolidated Financial Statements
(B) REPORTS ON FORM 8-K
None.
5
<PAGE> 6
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.
<TABLE>
<S> <C> <C>
Date: September 12, 1994 HECHINGER COMPANY
-----------------
Registrant
/S/W. CLARK McCLELLAND
----------------------
W. Clark McClelland
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
</TABLE>
6
<PAGE> 7
HECHINGER COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
FORM 10-Q FOR THIRTEEN WEEKS ENDED JULY 30, 1994
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- - ----------- ----
<S> <C> <C>
11 Statement Regarding Computation of Earnings Per Share 8
27 Financial Data Schedule 9
99(a) Consolidated Statements of Operations 10
99(b) Consolidated Balance Sheets 11
99(c) Consolidated Statements of Cash Flows 12
99(d) Consolidated Statements of Stockholders' Equity 13
99(e) Notes to Consolidated Financial Statements 14 - 15
</TABLE>
7
<PAGE> 1
EXHIBIT 11
HECHINGER COMPANY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
JULY 30, 1994 JULY 31, 1993 JULY 30, 1994 JULY 31, 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings $ 21,368,000 $ 17,894,000 $ 26,013,000 $ 21,122,000
Interest on 5-1/2% convertible debentures, net
of tax benefit 1,106,000 1,123,000 2,212,000 2,246,000
------------ ------------ ------------ ------------
Net earnings for primary and fully diluted
earnings per share $ 22,474,000 $ 19,017,000 $ 28,225,000 $ 23,368,000
============ ============ ============ ============
Weighted average shares outstanding 42,031,775 41,728,402 41,948,484 41,728,402
Dilutive effect of stock options and restricted
stock and performance share awards after
application of the treasury stock method 554,866 189,986 466,479 189,986
Additional shares issuable assuming full
conversion of the 5-1/2% debentures into
Class A common stock 4,419,899 4,420,797 4,420,348 4,420,797
------------ ------------ ------------ ------------
Common and common equivalent shares
outstanding for primary earnings per share 47,006,540 46,339,185 46,835,311 46,339,185
Additional dilution from stock options and
restricted stock and performance share
awards after application of the treasury stock
method 101 828 93,009 828
------------ ------------ ------------ ------------
Common and common equivalent shares
outstanding for fully diluted earnings per share 47,006,641 46,340,013 46,928,320 46,340,013
============ ============ ============ ============
Primary earnings per common share $ 0.48 $ 0.41 $ 0.60 $ 0.50
============ ============ ============ ============
Fully diluted earnings per common share $ 0.48 $ $0.41 $ 0.60 $ 0.50
============ ============ ============ ============
</TABLE>
Page 8
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
HECHINGER COMPANY
FINANCIAL DATA SCHEDULE - EXHBIT 27
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> JUL-30-1994
<CASH> 26,193
<SECURITIES> 70,507
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 476,801
<CURRENT-ASSETS> 642,816
<PP&E> 542,198<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,307,316
<CURRENT-LIABILITIES> 348,401
<BONDS> 385,596
<COMMON> 4,231
0
0
<OTHER-SE> 515,528
<TOTAL-LIABILITY-AND-EQUITY> 1,307,316
<SALES> 1,283,175
<TOTAL-REVENUES> 1,284,843
<CGS> 996,074
<TOTAL-COSTS> 1,230,671
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 14,758
<INCOME-PRETAX> 39,414
<INCOME-TAX> 13,401
<INCOME-CONTINUING> 26,013
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 26,013
<EPS-PRIMARY> 0.60
<EPS-DILUTED> 0.60
<FN>
<F1>Property, Furniture and Equipment,
net of accumulated depreciation.
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99(a)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
JULY 30, 1994 JULY 31, 1993 JULY 3O, 1994 JULY 31, 1993
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 708,874 $ 609,233 $ 1,283,175 $ 1,088,377
Other (principally interest) 1,247 1,293 1,668 2,204
------------- ------------- ------------- -------------
Total Revenues 710,121 610,526 1,284,843 1,090,581
COSTS AND EXPENSES
Cost of sales 547,923 471,854 996,074 843,143
Selling, general and administrative expenses 122,261 107,760 234,597 206,573
Interest expense 7,561 4,981 14,758 10,256
------------- ------------- ------------- -------------
Total Costs and Expenses 677,745 584,595 1,245,429 1,059,972
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 32,376 25,931 39,414 30,609
INCOME TAX EXPENSE 11,008 8,037 13,401 9,487
------------- ------------- ------------- -------------
NET EARNINGS $ 21,368 $ 17,894 $ 26,013 $ 21,122
============= ============= ============= =============
PRIMARY AND FULLY DILUTED EARNINGS PER
COMMON SHARE: $ 0.48 $ 0.41 $ 0.60 $ 0.50
============= ============= ============= =============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
Primary 47,007 46,339 46,835 46,339
Fully diluted 47,007 46,340 46,928 46,340
DIVIDENDS PER SHARE:
Class A common $ 0.04 $ 0.04 $ 0.08 $ 0.08
Class B common $ 0.02 $ 0.02 $ 0.03 $ 0.03
</TABLE>
See notes to consolidated financial statements.
Page 10
<PAGE> 1
EXHIBIT 99(b)
HECHINGER COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
(unaudited)
JULY 30, 1994 Jan. 29, 1994
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 26,193 $ 19,675
Marketable securities at fair value 70,507 150,989
Merchandise inventories 476,801 400,366
Other current assets 69,315 50,200
------------- -------------
Total Current Assets 642,816 621,230
PROPERTY, FURNITURE AND EQUIPMENT, NET 542,198 482,503
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 56,259 57,098
LEASEHOLD ACQUISITION COSTS, NET 53,673 54,812
OTHER ASSETS 12,370 13,599
------------- -------------
TOTAL ASSETS $ 1,307,316 $ 1,229,242
============== =============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 336,207 $ 291,182
Income taxes payable 8,980 -
Current portion of long-term debt and capital lease
obligations 3,214 3,068
------------- -------------
Total Current Liabilities 348,401 294,250
LONG-TERM DEBT 385,596 386,116
CAPITAL LEASE OBLIGATIONS 19,546 21,757
DEFERRED RENT 27,977 28,493
DEFERRED INCOME TAXES 6,037 4,759
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value, authorized
50,000,000 shares; issued 30,715,471 and 28,812,090 3,072 2,881
Class B common stock, $.10 par value, authorized
30,000,000 shares; issued 11,590,519 and 13,312,356 1,159 1,331
Additional paid-in capital 238,072 236,543
Retained earnings 279,707 256,836
Unearned compensation (1,901) (2,201)
Less treasury stock at cost, 6,706 and 92,769
Class A common shares and 14,497 and 14,497
Class B common shares (350) (1,523)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 519,759 493,867
------------- -------------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY $ 1,307,316 $ 1,229,242
============== =============
</TABLE>
See notes to consolidated financial statements.
Page 11
<PAGE> 1
EXHIBIT 99(c)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
26 WEEKS ENDED
JULY 30, 1994 JULY 31, 1993
------------- -------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net Earnings $ 26,013 $ 21,122
Adjustments to reconcile earnings to net cash provided by operating
activities:
Unusual charges (3,465) (7,127)
Depreciation and amortization 25,071 21,800
Deferred income taxes 859 1,483
Deferred rent expense (516) 1,081
------------ -------------
47,962 38,359
------------- -------------
CHANGE IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories (76,435) (54,961)
Other current assets (19,160) (5,485)
Accounts payable and accrued expenses 49,059 34,582
Income taxes payable 9,444 2,009
------------- -------------
(37,092) (23,855)
NET CASH FLOWS PROVIDED FROM OPERATIONS 10,870 14,504
------------- -------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for property, furniture, equipment and other assets,
net of disposals (81,196) (59,164)
Marketable securities:
Purchases (103,560) (53,177)
Proceeds from sales 184,042 102,802
------------- -------------
NET CASH USED IN FROM INVESTING ACTIVITIES (714) (9,539)
------------- -------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Dividends paid to stockholders (2,804) (2,719)
Stock options exercised 2,203 59
Other (3,037) (821)
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES (3,638) (3,481)
------------- -------------
INCREASE IN CASH AND CASH EQUIVALENTS 6,518 1,484
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,675 12,341
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 26,193 $ 13,825
============= =============
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $ 3,010 $ 5,817
Cash payments for interest, net of amount capitalized $ 12,711 $ 13,901
</TABLE>
Page 12
<PAGE> 1
EXHIBIT 99(d)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
(in thousands except share data)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
BALANCE, JAN. 30, 1993 $ 2,877 $ 1,348 $ 238,356 $ 237,517
Restricted stock awards, 20,000 Class A common shares 2 - 178 -
Restricted stock awards earned, net of forfeitures (15) - (1,811) -
Exercise of stock options including income tax benefit (32,519 Class
A common shares were issued from the treasury) - - (180) -
Conversions from Class B to Class A common stock 17 (17) - -
Purchase of treasury stock (18,938 Class A common shares and 1
Class B common share) - - - -
Cash dividends, Class A common stock ($.16 per share) - - - (4,587)
Cash dividends, Class B common stock ($.06 per share) - - - (854)
Net earnings - - - 24,760
-------- -------- ---------- ----------
BALANCE, JAN. 29, 1994 2,881 1,331 236,543 256,836
Restricted stock awards earned, net of forfeitures - - - -
Performance stock awards earned and issued 5 - 576 -
Exercise of stock options including income tax benefit (92,670 Class
A common shares were issued from the treasury) 14 - 928 -
Conversions from Class B to Class A common stock 172 (172) - -
Conversion of 5-1/2% Convertible Subordinated Debentures into
shares of Class A common stock - - 25 -
Purchase of treasury stock (6,607 Class A common shares) - - - -
Adjustment to fair value of marketable securities - - - (338)
Cash dividends, Class A common stock ($.08 per share) - - - (2,420)
Cash dividends, Class B common stock ($.03 per share) - - - (384)
Net earnings - - - 26,013
-------- -------- ---------- ----------
BALANCE, JULY 30, 1994 (UNAUDITED) $ 3,072 $ 1,159 $ 238,072 $ 279,707
======== ======== ========== ==========
</TABLE>
<TABLE>
<CAPTION>
UNEARNED TREASURY
COMPENSATION STOCK TOTAL
------------- --------- ----------
<S> <C> <C> <C>
BALANCE, JAN. 30, 1993 $ (4,367) $ (1,807) $ 473,924
Restricted stock awards, 20,000 Class A common shares (172) - 8
Restricted stock awards earned, net of forfeitures 2,338 - 512
Exercise of stock options including income tax benefit (32,519 Class
A common shares were issued from the treasury) - 361 181
Conversions from Class B to Class A common stock - - -
Purchase of treasury stock (18,938 Class A common shares and 1
Class B common share) - (77) (77)
Cash dividends, Class A common stock ($.16 per share) - - (4,587)
Cash dividends, Class B common stock ($.06 per share) - - (854)
Net earnings - - 24,760
------------- --------- ----------
BALANCE, JAN. 29, 1994 (2,201) (1,523) 493,867
Restricted stock awards earned, net of forfeitures 300 - 300
Performance stock awards earned and issued - - 581
Exercise of stock options including income tax benefit (92,670 Class
A common shares were issued from the treasury) - 1,261 2,203
Conversions from Class B to Class A common stock - - -
Conversion of 5-1/2% Convertible Subordinated Debentures into
shares of Class A common stock - - 25
Purchase of treasury stock (6,607 Class A common shares) - (88) (88)
Adjustment to fair value of marketable securities - - (338)
Cash dividends, Class A common stock ($.08 per share) - - (2,420)
Cash dividends, Class B common stock ($.03 per share) - - (384)
Net earnings - - 26,013
------------- --------- ----------
BALANCE, JULY 30, 1994 (UNAUDITED) $ (1,901) $ (350) $ 519,759
============= ========= ==========
</TABLE>
See notes to consolidated financial statements.
Page 13
<PAGE> 1
EXHIBIT 99(E)
HECHINGER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 30, 1994
(UNAUDITED)
A. BASIS OF PRESENTATION
In the opinion of management of Hechinger Company (the "Company"), the
accompanying unaudited consolidated financial statements include all
adjustments (which consist of normal recurring accruals) considered necessary
for a fair statement of the results for the interim periods presented. The
operating results for the twenty-six weeks ended July 30, 1994 are not
necessarily indicative of the results to be expected for the fiscal year ending
January 28, 1995.
Certain amounts in the financial statements for the periods ended July 31, 1993
have been reclassified to conform to the presentation for the periods ended
July 30, 1994.
The financial statements presented herein should be read in conjunction with
the financial statements incorporated by reference in the Company's Annual
Report on Form 10-K for the year ended January 29, 1994.
B. CHANGE IN ACCOUNTING PRINCIPLE
In May 1993, Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments in Debt and Equity Securities, was issued.
The Company adopted this statement as of the first quarter of 1994 and is
classifying its investments in marketable securities as available-for-sale.
Under this classification, marketable securities are carried at fair value,
with unrealized gains and losses excluded from earnings and instead reported in
stockholders' equity until realized. In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. The cumulative effect of adopting SFAS 115 in the first quarter of
1994, as well as the effect as of July 30, 1994 on stockholders' equity were
insignificant.
C. MERCHANDISE INVENTORY
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs. Interim results are subject to
the final year-end LIFO inventory valuation.
All inventories reported at July 30, 1994 and January 29, 1994 were valued
using the LIFO inventory valuation method. If all inventories had been valued
under the FIFO method, which approximates replacement cost, inventories would
have been $19.2 million and $17.0 million higher than reported at July 30, 1994
and January 29, 1994, respectively.
D. TAXES ON INCOME
For the thirteen and twenty-six weeks ended July 30, 1994, the effective tax
rate was 34.0% compared to 31.0% for the corresponding periods last year. The
effective tax rate increase was primarily due to the increase in the Federal
income tax rate and increases in state income tax rates. The effective tax
rates differ from the statutory tax rate primarily due to the effect of tax
credits and tax-free earnings on funds available for investment.
14
<PAGE> 2
E. SALE AND LEASEBACK
In August 1994, the Company sold 13 stores for approximately $100 million and
concurrently leased the properties back for an initial term of 25 years. The
leases are renewable at the Company's option for nine additional terms of five
years each. The Company has recorded these leases as operating leases.
15
