<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
CHECK ONE
X Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
- - ----- Act of 1934 for the fiscal year ended January 29, 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
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
CLASS A COMMON STOCK, $.10 PAR VALUE
CLASS B COMMON STOCK, $.10 PAR VALUE
5-1/2% CONVERTIBLE SUBORDINATED DEBENTURES DUE 2011
6.95% SENIOR NOTES DUE 2003
9.45% SENIOR DEBENTURES DUE 2012
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 by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
[ ]
---------
State the aggregate market value of the voting stock held by non-affiliates of
the registrant. (The aggregate market value is computed by reference to the
last sale price of such stock as of April 7, 1994.)
$396,406,508
Indicate the number of shares outstanding of each of the registrant's classes
of Common Stock, as of April 7, 1994.
28,922,803 shares of Class A Common Stock, $.10 par value
13,269,390 shares of Class B Common Stock, $.10 par value
DOCUMENTS INCORPORATED BY REFERENCE
The following documents are hereby incorporated by reference into Parts II, III
and IV of this Form 10-K: (1) Portions of Registrant's Annual Report to
Stockholders for the year ended January 29, 1994, as indicated herein. (2)
Portions of Registrant's 1994 Proxy Statement to be filed pursuant to
Regulation 14A, as indicated herein.
1 of 49
<PAGE> 2
PART I
ITEM 1. BUSINESS
Hechinger Company (the "Company") is the successor to a business started in
1911 by Sidney L. Hechinger. The Company is a leading specialty retailer
providing products and services for the care, repair, remodelling and
maintenance of the home and garden. The Company currently serves the home
improvement industry through two operating subsidiaries: Hechinger Stores
Company, operating 72 home center stores located primarily in the mid-Atlantic
region and Home Quarters Warehouse, Inc., operating 56 stores located primarily
in the eastern and central parts of the United States.
Hechinger stores are customer-service driven, offering expert advice and a full
range of building material and home improvement merchandise in facilities
containing on average approximately 70,000 square feet of space under roof.
Home Quarters Warehouse stores, with their large-scale merchandise
presentation, produce high sales volume by emphasizing low pricing and quality
service. Home Quarters Warehouse stores bring a wide assortment of building
materials and home improvement merchandise to do-it-yourselfers, and
professional contractors in brightly-lit, uncluttered facilities containing on
average approximately 90,000 square feet under roof.
PRODUCTS
All of the Company's stores offer for sale a large selection of lumber,
building materials, hardware and tools, paint, garden supplies, electrical and
plumbing supplies and other items related to the home improvement market.
The following table sets forth the percentage of sales accounted for by the
merchandise categories:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JAN. 29, 1994 JAN. 30, 1993 FEB. 1, 1992
- - ----------------- ------------- ------------- ------------
<S> <C> <C> <C>
Lumber and building materials 29% 28% 27%
Garden supplies and furniture 18 15 16
Hardware and tools 13 12 12
Electrical supplies and small
appliances 12 14 14
Plumbing supplies 12 14 13
Paint 9 10 10
Housewares 7 7 8
--- --- ---
Total 100% 100% 100%
=== === ===
</TABLE>
Many of the items sold in the Company's stores are nationally advertised, brand
name products. The Company also offers some private label items such as garden
equipment and supplies, and paint. The Company may add private label items to
its merchandise in those areas where there are no major national brands or
where management deems it an effective way to meet price competition in a
particular product line.
The Company's merchandise is purchased from approximately 1000 suppliers. The
Company believes it has good relationships with its suppliers and does not
consider itself dependent upon any single source for its merchandise.
MARKETING
The Company is continuing its expansion of Home Quarters Warehouse subsidiary.
In July 1993, the Company opened a new 115,000 square foot store in Chesapeake,
Virginia. This store incorporates many new features, including: a 5,000
square foot greenhouse and garden center, three design centers, installation
services for major items and a tool rental program. In addition, the new Home
Quarters store has a dedicated Contractor's desk to handle the special needs of
professional contractors and commercial property owners, including its own
entrance and loading area. The new store also offers
2
<PAGE> 3
"Kids Quarters", a supervised on-site child care facility for children ages
three to eight and a dedicated classroom called "HQ University" for
how-to clinics. Of the nine new Home Quarters stores opened since July 1993,
eight have these new features. The Company is planning to implement these new
features in all of its new stores to be opened in 1994 and in its existing Home
Quarters stores where possible.
The majority of the Company's sales are to individuals. Employees are trained
to help the do-it-yourself customer make his or her purchases and solve
technical problems related to home repair, maintenance and improvement work.
The Company employs an advertising program through the regular use of newspaper
and direct mail pieces. A "catabook", which is compact enough to carry along
as a shopping reference and serves as an "idea" book with an index and large
type prices, is heavily utilized. Advertisements feature the stores' wide
selection and values. The Company also employs television and radio
advertising where deemed effective. The Company emphasizes competitive pricing
with its policy being to meet or beat the regular or sale prices of all major
competitors. In addition, the Company offers its customers a liberal return
policy.
The Company hosts how-to clinics throughout the year at various stores. At
these clinics, trained employees, manufacturers' representatives and, at times,
nationally recognized experts, demonstrate products and conduct classes on
major home improvement projects.
The Company offers a private label credit card program pursuant to which credit
is extended to its customers by third party financial institutions. The
Company also accepts Visa, MasterCard and Discover in all stores and American
Express in its Home Quarters stores. For the fiscal year ended January 29,
1994 credit card sales account for 50% of the Company's total sales.
EXPANSION PROGRAM
The following tables set forth the number of stores operated by the Company and
the aggregate amount of square feet of store space in such stores for the
specified periods:
<TABLE>
<CAPTION>
HOME
NUMBER OF STORES: HECHINGER QUARTERS TRIANGLE TOTAL
---------------- --------- -------- -------- -----
<S> <C> <C> <C> <C>
As of February 3, 1990 86 15 6 107
1990 openings 1 8 - 9
1990 closings (3) - - (3)
As of February 2, 1991 84 23 6 113
1991 openings 2 7 - 9
1991 closings (10) - - (10)
As of February 1, 1992 76 30 6 112
1992 openings 3 14 - 17
1992 closings (4) (1) - (5)
As of January 30, 1993 75 43 6 124
1993 openings 3 11 - 14
1993 closings (6) (1) (6) (13)
As of January 29, 1994 72 53 - 125
</TABLE>
3
<PAGE> 4
<TABLE>
<CAPTION>
STORE SQUARE FOOTAGE HOME
(IN THOUSANDS): HECHINGER QUARTERS TRIANGLE TOTAL
--------------------- --------- -------- -------- -----
<S> <C> <C> <C> <C>
As of February 3, 1990 5,413 1,254 306 6,973
1990 openings 60 696 - 756
1990 closings (246) - - (246)
As of February 2, 1991 5,227 1,950 306 7,483
1991 openings 143 613 - 756
1991 closings (556) - - (556)
As of February 1, 1992 4,814 2,563 306 7,683
1992 openings 351 1,226 - 1,577
1992 closings (234) (32) - (266)
As of January 30, 1993 4,931 3,757 306 8,994
1993 openings 270 1,122 - 1,392
1993 closings (355) (85) (306) (746)
As of January 29, 1994 4,846 4,794 - 9,640
</TABLE>
In 1994, the Company intends to open approximately 11 new Home Quarters
Warehouse stores, including two relocations, and approximately two new
Hechinger stores, although the precise number will depend upon, among other
things, the availability of suitable locations and prevailing economic
conditions. In addition, approximately 19 Home Quarters stores and
approximately six Hechinger stores are intended to be remodelled.
COMPETITION
The business of the Company is highly competitive. The Company competes in
each of its market areas with other home center chains, national chains of
general merchandise stores and local hardware stores, some of which have
greater financing resources than the Company.
The extent of the Company's competition varies by geographic area. New
competitors have entered several of the Company's existing markets and those
targeted for future development, and established competitors are expanding in
certain of those markets, reflecting the high level of growth anticipated for
the industry. The Company's pricing strategy against the introductory pricing
of new competition in certain markets may lower gross margins.
The Company believes that it is in a strong competitive position. The Company
believes that it occupies a leading position in most of its established market
areas, reflecting the quality of its trained personnel, breadth and depth of
merchandising, pricing, advertising policies and store size, location and
condition. The Company believes that its ability to devote substantial capital
resources to the operation and expansion of its business will enable it to
remain competitive in the industry.
EMPLOYEES
The Company has approximately 18,000 employees, approximately half of whom are
employed on a part-time basis. The Company conducts comprehensive employee
training programs. These training programs have enabled the Company to promote
from within many current area supervisors, store managers and merchandisers.
The Company believes its employee relations are satisfactory.
ITEM 2. PROPERTIES
Hechinger stores currently average approximately 70,000 square feet under roof
and an additional 22,000 square
4
<PAGE> 5
feet of outdoor selling and storage space. The Home Quarters Warehouse stores
currently average approximately 90,000 square feet under roof and an additional
28,000 square feet of outdoor selling and storage space.
As of January 29, 1994, the Company owned 23 stores and leased the remaining
stores. The Company believes that all its facilities, both owned and leased,
are in good condition and well maintained. Expiration dates of the leases
range from 1994 to 2023. Almost all leases contain renewal clauses or continue
on a year-to-year basis after their respective expiration dates. Twelve of the
store sites are leased from an affiliate.
Hechinger stores are serviced, in part, from the Company's modern warehouse and
distribution facility in Landover, Maryland, which has approximately 640,000
square feet under roof. The Landover distribution facility and the Hechinger
headquarters office facility in Landover, Maryland together have approximately
177,000 square feet of executive and administrative office space. Home
Quarters is serviced directly by their suppliers and as such, requires only
limited distribution facilities. Home Quarters has approximately 71,000 square
feet of office space in Virginia Beach, Virginia.
ITEM 3. LEGAL PROCEEDINGS.
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
5
<PAGE> 6
EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3) of Form 10-K, the following list is
included as an unnumbered Item in Part I of this Report in lieu of being
included in its entirety in the Proxy Statement.
The following table sets forth certain information regarding the Company's
executive officers:
<TABLE>
<CAPTION>
YEAR FIRST JOINED
NAME AND AGE POSITION WITH THE COMPANY THE COMPANY
- - ------------ ------------------------- -----------------
<S> <C> <C> <C>
John W. Hechinger (74) Chairman of the Board since 1990; Prior thereto, 1946
Co-Chairman and Co-Chief Executive Officer since 1986;
prior thereto, President since 1959
John W. Hechinger, Jr. (44) President and Chief Executive Officer since 1990; prior 1972
thereto, President and Chief Operating Officer since 1986;
prior thereto, Vice President-Corporate Development since 1982
W. Clark McClelland (55) Executive Vice President and Chief Financial Officer 1975
since 1993; Senior Vice President-Finance and Chief Financial
Officer since 1986; prior thereto, Vice President-Finance and
Treasurer since 1984
Kenneth J. Cort (52) President and Chief Executive Officer of Hechinger Stores 1993
Company since 1993; prior thereto, Chief Operating Officer for
Ames Department Stores, Inc. since 1991; prior thereto,
Merchandising General Manager for Sears Roebuck & Company since
1989; prior thereto, Chairman for Alberts Hosiery since 1988
Frank C. Doczi (56) President and Chief Executive Officer of Home Quarters 1988
Warehouse, Inc. since acquired by the Company in 1988; prior
thereto, President of Home Quarters Warehouse, Inc. since 1986
S. Ross Hechinger (42) Senior Vice President-Corporate Administration in 1994; prior 1974
thereto, Senior Vice President-Information Systems and Logistics
of Hechinger Stores Company since 1990; prior thereto, Senior
Vice President-Distribution since 1986; prior thereto, Vice
President-Distribution since 1982
Roger K. Wright (46) Senior Vice President-Real Estate and Development since 1979
1988; prior thereto, Vice President-Real Estate and
Development since 1986
</TABLE>
John W. Hechinger Jr. and S. Ross Hechinger are sons of John W. Hechinger.
Executive officers are elected by the board of directors of the Company at its
first meeting held after each Annual Meeting of Stockholders to serve until
their successors are chosen and qualified, or as otherwise provided in the
Company's By-laws.
6
<PAGE> 7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
Pursuant to General Instruction G(2) of Form 10-K, the information called for
by this item is hereby incorporated by reference from page 23 of the Company's
Annual Report to Stockholders for the fiscal year ended January 29, 1994.
ITEM 6. SELECTED FINANCIAL DATA.
Pursuant to General Instruction G(2) of Form 10-K, the information called for
by this item is hereby incorporated by reference from page 1 of the Company's
Annual Report to Stockholders for the fiscal year ended January 29, 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Pursuant to General Instruction G(2) of Form 10-K, the information called for
by this item is hereby incorporated by reference from pages 9 through 11 of the
Company's Annual Report to Stockholders for the fiscal year ended January 29,
1994.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
Pursuant to General Instruction G(2) of Form 10-K, the information called for
by this item is hereby incorporated by reference from pages 12 through 23 of
the Company's Annual Report to Stockholders for the fiscal year ended January
29, 1994.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Pursuant to General Instruction G(3) of Form 10-K, the information called for
by this item regarding directors is hereby incorporated by reference from the
Company's definitive proxy statement to be filed pursuant to Regulation 14A not
later than 120 days after the end of the fiscal year covered by this report.
Information regarding the Company's executive officers is set forth above in
the unnumbered Item following Item 4 of Part I of this Report.
ITEM 11. EXECUTIVE COMPENSATION.
Pursuant to General Instruction G(3) of Form 10-K, the information called for
by this item is hereby incorporated by reference from the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
Pursuant to General Instruction G(3) of Form 10-K, the information called for
by this item is hereby incorporated by reference from the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
7
<PAGE> 8
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
Pursuant to General Instruction G(3) of Form 10-K, the information called for
by this item is hereby incorporated by reference from the Company's definitive
proxy statement to be filed pursuant to Regulation 14A not later than 120 days
after the end of the fiscal year covered by this report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) The following documents are filed as a part of this Report:
1. Financial Statements. The following Consolidated Financial
Statements of Hechinger Company and subsidiaries are incorporated by reference
to the pages indicated in Annual Report to Stockholders for the fiscal year
ended January 29, 1994:
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Statements of Operations - Years ended
January 29, 1994, January 30, 1993 and February 1, 1992 12
Consolidated Balance Sheets - As of January 29, 1994
and January 30, 1993 13
Consolidated Statements of Cash Flows - Years ended
January 29, 1994, January 30, 1993 and February 1, 1992 14
Consolidated Statements of Stockholders' Equity -
Years ended January 29, 1994, January 30, 1993 and
February 1, 1992 15
Notes to Consolidated Financial Statements 16-22
</TABLE>
2. Financial Statement Schedules. The following consolidated
financial statement schedules of Hechinger Company and subsidiaries for the
year ended January 29, 1994, January 30, 1993 and February 1, 1992 are filed as
part of this Report and should be read in conjunction with the Consolidated
Financial Statements of Hechinger Company:
<TABLE>
<S> <C>
Schedule I - Marketable Securities
Schedule V - Property, Plant & Equipment
Schedule VI - Accumulated Depreciation and Amortization of
Property, Plant & Equipment
Schedule VIII - Valuation and Qualifying Accounts
Schedule IX - Short-Term Borrowings
Schedule X - Supplementary Earnings Statement Information
</TABLE>
Schedules not listed above have been omitted because they are not applicable or
are not required or the information required to be set forth therein is
included in the Consolidated Financial Statements or Notes thereto.
8
<PAGE> 9
3. Exhibits.
EXHIBIT NUMBER DOCUMENT
- - -------------- --------
<TABLE>
<S> <C>
3(a) Certificate of Incorporation, as amended (incorporated by reference to Exhibit 4.1 to Registration Statement on
Form S-8, File No. 33-27134)
3(b) By-Laws, as amended (incorporated by reference to Exhibit 3(b) to Annual Report on Form 10-K for the fiscal year
ended February 3, 1990, File No. 0-7214)
4(a) Indenture, dated as of March 15, 1987, between the Company and First Union National Bank of North Carolina,
relating to 5-1/2% Convertible Subordinated Debentures Due 2011 (incorporated by reference to Exhibit 4(d) to
Registration Statement on Form S-3, File No. 33-12649)
4(b) Indenture, dated as of October 1, 1992, between the Company and First Union National Bank of North Carolina, and
the Prospectus Supplement dated November 12, 1992 relating to 9.45% Senior Debentures due 2012 (incorporated by
reference to Exhibit 4 to Registration Statement on Form S-3, File No. 33-52960)
4(c) Indenture, dated as of October 1, 1992, between the Company and First Union National Bank of North Carolina, and
the Prospectus Supplement dated October 21, 1993 relating to 6.95% Senior Notes due 2003 (incorporated by
reference to Exhibit 4 to Registration Statement on Form S-3, File No. 33-52960)
10(a) Form of Deferred Compensation Agreement between the Company and John W. Hechinger and Richard England, respectively
(incorporated by reference to Exhibit 10 to Registration Statement on Form S-3, File No. 2-98155)
10(b) Hechinger Company 1982 Stock Option Plan, as amended (incorporated by reference to Exhibit 4.3 to Registration
Statement on Form S-8, File No. 33-27134)
10(c) Hechinger Company Performance Share Plan (incorporated by reference to Exhibit 10(e) to Annual Report on Form
10-K for the fiscal year ended February 3, 1990, File No. 0-7214)
10(d) Stockholders' Agreement, dated as of August 23, 1989, by and between members of the England Family, members of
the Hechinger Family and the Company (incorporated by reference to Exhibit 28 (a) to Registration Statement on
Form S-4, as filed on October 26, 1989)
10(e) Hechinger Company 1991 Stock Incentive Plan (incorporated by reference to Exhibit 4(a) to Registration Statement
on Form S-8, File No. 33-27134)
11 Statement Regarding Computation of Earnings Per Share
13 Annual Report to Stockholders of the Company for the fiscal year ended January 29, 1994, certain portions of
which are incorporated by reference herein
22 Subsidiaries of the Registrant
23 Consent of Independent Auditors
</TABLE>
(b) Reports on Form 8-K.
The Current Report on Form 8-K dated October 15, 1993 was to file Ernst &
Young's consent to the reference to that firm under the caption "Experts"
in the Prospectus Supplement dated October 21, 1993 for the issuance of
Senior Notes.
9
<PAGE> 10
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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>
HECHINGER COMPANY
-----------------
(Registrant)
Date: April 28, 1994 By /S/ JOHN W. HECHINGER, JR.
--------------------------
John W. Hechinger, Jr.
President and Chief Executive Officer
</TABLE>
Pursuant to the requirements of the Securities and Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - --------- ----- ----
<S> <C> <C>
/S/ JOHN W. HECHINGER Chairman of the Board April 28, 1994
- - --------------------- of Directors
John W. Hechinger
/S/ HERBERT J. BRONER Director April 28, 1994
- - ---------------------
Herbert J. Broner
/S/ JOHN W. HECHINGER, JR. President and Chief Executive April 28, 1994
- - -------------------------- Officer (Principal Executive
John W. Hechinger, Jr. Officer) and Director
/S/ S. ROSS HECHINGER Senior Vice President- April 28, 1994
- - --------------------- Corporate Administration
S. Ross Hechinger and Director
/S/ ANN D. JORDAN Director April 28, 1994
- - -----------------
Ann D. Jordan
/S/ DAVID O. MAXWELL Director April 28, 1994
- - --------------------
David O. Maxwell
/S/ W. CLARK MCCLELLAND Executive Vice President and April 28, 1994
- - ----------------------- Chief Financial Officer
W. Clark McClelland (Principal Financial Officer)
and Director
/S/ ALAN J. ZAKON Director April 28, 1994
- - -----------------
Alan J. Zakon
/S/ RICHARD S. GROSS Corporate Controller April 28, 1994
- - -------------------- (Principal Accounting Officer)
Richard S. Gross
</TABLE>
10
<PAGE> 11
HECHINGER COMPANY AND SUBSIDIARIES
ANNUAL REPORT ON FORM 10-K
YEAR ENDED JANUARY 29, 1994
INDEX TO
SCHEDULES AND EXHIBITS
<TABLE>
<CAPTION>
DESCRIPTION SEQUENTIALLY
----------- NUMBERED PAGE
-------------
<S> <C>
Schedule I - Marketable Securities 12 - 13
Schedule V - Property, Plant & Equipment 14
Schedule VI - Accumulated Depreciation and Amortization of
Property, Plant & Equipment 15
Schedule VIII - Valuation and Qualifying Accounts 16
Schedule IX - Short-Term Borrowings 17
Schedule X - Supplementary Earnings Statement Information 18
Exhibit 11 - Statement Regarding Computation of Earnings Per Share 19
Exhibit 13 - Annual Report to Stockholders for fiscal year ended 20 - 47
January 29, 1994
Exhibit 21 - Subsidiaries of the Registrant 48
Exhibit 23 - Consent of Independent Auditors 49
</TABLE>
11
<PAGE> 12
HECHINGER COMPANY AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES
YEAR ENDED JANUARY 29, 1994
(in thousands)
<TABLE>
<CAPTION>
Amount at which
each portfolio of
equity security
Number of shares Market value of issues and each
or units-principal each issue at other security
amounts of bonds Cost of Balance Sheet issue carried in
Name of issuer and title of each issue and notes each issue date the Balance Sheet
-------------------------------------- ---------------- ------------- --------------- ------------------
<S> <C> <C> <C> <C>
ALABAMA PUB SCHOOL 1,850 $1,984 $1,994 $1,984
ANDERSON CTY TEXAS COFFIELD FARM PRISON PROJECT 1,000 1,005 1,006 1,005
CALIF ED FOR STAMFORD UNIV 2,020 2,245 2,258 2,245
CALIFORNIA ED FAC REV 1,000 1,113 1,120 1,113
CALIFORNIA STATE GO 1,780 1,794 1,792 1,794
CITY & CTY OF DENVER CO GO'S 1,500 1,528 1,534 1,528
CITY OF ARLINGTON TEXAS TARRANT CTY SERIES A GO 1,035 1,060 1,057 1,060
CITY OF PITTSBURG PA GO'S 1,000 1,000 1,003 1,000
CLAYTON CTY GEORGIA SCH DIST 1,000 1,062 1,064 1,062
CONNECTICUT CLEAN WATER 900 968 968 968
COOK COUNTRY ILL GO SER B 1,000 1,000 998 1,000
CORPUS CHRISTI, TEXAS REF GO 1,060 1,158 1,159 1,158
CT COLLINS COLORADO REFUNDING 1,220 1,250 1,255 1,250
D.C. GO'S 2,000 2,192 2,204 2,192
DADE CTY FLORIDA AVIATION SE 1,000 1,008 1,009 1,008
DALLAS-FT WORTH TX REG AIRPORT 2,150 2,148 2,146 2,148
DELAWARE ECON DEV AUTH REV FOR DEL STATE COLLECT PROJECT 520 520 522 520
DELAWARE HEALTH & FACILITY REV MEDICAL CTR OF DELAWARE 2,000 2,224 2,238 2,224
FAIRBANKS ALASKA MUNI 1,150 1,236 1,237 1,236
FLORIDA BOARD OF EDUCATION 1,000 1,083 1,043 1,083
FLORIDA STATE BO OF ED 1,000 1,040 1,088 1,040
FLORIDA STATE GO'S 1,195 1,196 1,203 1,196
FT. COLLINS COLORADO 1,545 1,686 1,698 1,686
FT. COLLINS COLORADO 2,250 2,459 2,477 2,459
FT. WORTH TEXAS GO'S 1,000 1,003 1,004 1,003
GEORGIA STATE GO'S 1,000 999 1,000 999
GEORGIA STATE GO'S 1,400 1,404 1,405 1,404
GEORGIA STATE GO'S 2,000 2,110 2,126 2,110
GEORGIA STATE GO'S SERIES B 1,190 1,193 1,194 1,193
GRAND PRAIRIE TEXAS 1,000 1,061 1,063 1,061
HAMPTON ROADS SANIT DIST, VA 1,000 1,000 1,005 1,000
HARDFORD CTY MARYLAND 1,355 1,376 1,390 1,376
HARRIS CTY TEXAS FLOOD CONTR 1,000 1,013 1,016 1,013
HOOVER ALABAMA BOARD OF ED 1,000 1,000 1,004 1,000
ILLINOIS STATE GO'S 1,000 1,008 1,010 1,008
ILLINOIS STATE SALES TAX REV 1,000 1,005 1,009 1,005
INTERMOUNTAIN POWER AGENCY UTAH POWER SUPPLY SERIES B 1,000 1,000 1,006 1,000
IPA UTAH 1,365 1,502 1,506 1,502
JACKSONVILLE ELEC FLORIDA 2,250 2,516 2,529 2,516
JACKSONVILLE FLORIDA ELECTRIC AUTH ST JOHNS RIVER 2,450 2,610 2,610 2,610
KANSAS CTY KANSAS UTIL SYS REV 655 683 684 683
KANSAS DEV FIN AGENCY 425 425 425 425
KANSAS STATE TURNPIKE 500 529 533 529
KENTUCKY DEV AUTH 2,000 2,245 2,249 2,245
KENTUCKY TURNPIKE TOLL RD REV 500 531 532 531
KENTUCKY TURNPIKE TOLL RD REV 2,000 2,125 2,130 2,125
LA DEPT OF WATER & POWER HYDRO ELEC & COAL 1,940 2,121 2,136 2,121
LA DEPT OF WATER & POWER HYDRO ELEC & COAL 1,940 2,121 2,137 2,121
LA DEWAPS, CALIF 300 299 301 299
LOUSIANNA STATE SERIES 84-A 1,000 1,029 1,031 1,029
MARYLAND STATE DEPT OF TRANS 1,000 1,018 1,019 1,018
MASSACHUSETTS HEALTH & EDL FAC FOR HARVARD UNIV 1,480 1,645 1,655 1,645
MASSACHUSETTS WATER BANS SER A GO OF AUTHORITY 1,250 1,267 1,270 1,267
MD HEALTH & HIGHER ED JOHNS HOPKINS 1,250 1,377 1,382 1,377
MESA CTY COLORADO SALE TAX 1,000 1,115 1,125 1,115
MESA CTY COLORADO SALE TAX 2,000 2,233 2,250 2,233
MET GOVTS NASHVILLE DAVIDSON, TENN 2,780 2,913 2,921 2,913
MET TRANS AUTH NEW YORK 1,000 1,051 1,057 1,051
MICHIGAN STATE HOUSING 500 500 502 500
MILWAUKEE WISC GO'S 1,100 1,167 1,171 1,167
MILWAUKEE WISCONSIN GO'S 750 779 779 779
MISSOURI HEALTH & HIGHER ED 1,000 1,000 1,000 1,000
MISSOURI STATE GO'S 3,770 4,030 4,025 4,030
MISSOURI STATE HEALTH & ED FACILITIES REV BONDS 500 505 506 505
MULTNOMAH CTY OREGON 1,000 1,104 1,112 1,104
MULTNOMAH CTY OREGON SCHOOL DIST GO'S 2,000 2,174 2,178 2,174
</TABLE>
<PAGE> 13
HECHINGER COMPANY AND SUBSIDIARIES
SCHEDULE I - MARKETABLE SECURITIES
YEAR ENDED JANUARY 29, 1994
(in thousands)
<TABLE>
<CAPTION>
Amount at which
each portfolio of
equity security
Number of shares Market value of issues and each
or units-principal each issue at other security
amounts of bonds Cost of Balance Sheet issue carried in
Name of issuer and title of each issue and notes each issue date the Balance Sheet
-------------------------------------- ---------------- ------------- --------------- ------------------
<S> <C> <C> <C> <C>
N.C. EASTERN MUNI POWER 2,000 $2,217 $2,218 $2,217
NEBRASKA INV FIN AUTH SFM 205 205 206 205
NEVADA STATE GO'S 1,545 1,553 1,556 1,553
NEW MEXICO STATE SEV TAX 1,000 1,006 1,021 1,006
NY STATE DORM AUTH FOR NYU 2,000 2,000 2,008 2,000
OCEAN CITY, MD GO 605 621 627 621
OHIO BUILDING FACILITIES 1,500 1,645 1,651 1,645
OHIO STATE GO'S 410 417 418 417
OREGON GO'S 500 500 503 500
ORLANDO FLORIDA UTIL WTR/ELEC 1,575 1,732 1,743 1,732
ORLANDO FLORIDA UTILITIES 1,500 1,650 1,662 1,650
PALM BEACH FLORIDA SOLID WASTE 2,000 2,268 2,285 2,268
PHOENIX AZ GO'S 1,000 1,039 1,044 1,039
PIEDMONT MUNI POWER ELEC S.C. 1,500 1,646 1,657 1,646
PIEDMONT MUNI POWER ELEC S.C. 1,500 1,646 1,657 1,646
PLANO TEXAS LTD TAX GO'S 500 501 502 501
PROVIDENCE R.I. GO'S 760 789 796 789
RHODE ISLAND ST GO'S 1,500 1,595 1,604 1,595
SALT RIVER ARIZONA ELEC SYS RE 1,000 1,078 1,080 1,078
SAN ANTONIO TEXAS 1,000 1,026 1,029 1,026
SEATTLE LIGHT & POWER 2,000 2,000 1,998 2,000
SHELBY CTY TENN SCH DIST GO'S 1,000 1,019 1,017 1,019
SOUTH CAROLINA GO'S 1,000 1,018 1,018 1,018
SOUTH CAROLINA GO'S 1,500 1,500 1,500 1,500
SOUTH CAROLINA PUB SVC AUTH 2,000 2,209 2,223 2,209
SOUTH COLUMBIA BASIN, WASH 1,000 1,096 1,097 1,096
STAFFORD CTY VIRGINIA WATER 1,635 1,635 1,643 1,635
STATE OF IOWA TRANS SERIES A 2,000 2,003 2,007 2,003
STATE OF MINNESOTA 1,000 1,019 1,022 1,019
STATE OF NEW MEXICO SEV TAX SERIES C 1,000 1,015 1,011 1,015
TARRANT CTY TEXAS GO'S 500 516 516 516
TEXAS STATE GO'S 1,000 1,034 1,032 1,034
TRIBOROUGH BRIDGE & TUNNEL NEW YORK 1,000 1,049 1,058 1,049
UTAH STATE GO'S 1,000 1,011 1,016 1,011
VINCENNES SCHOOL COMM BLDG 1,380 1,531 1,538 1,531
VIRGINIA STATE SCHOOL AUTH 500 517 518 517
WASHINGTON PUBLIC POWER PROJ 2 500 500 503 500
WASHINGTON STATE GO'S 1,300 1,401 1,410 1,401
WASHINGTON STATE GO'S 1,500 1,541 1,541 1,541
WASHINGTON STATE GO'S 1,865 1,861 1,860 1,861
WASHINGTON SUB SAN DIST 1,000 1,094 1,100 1,094
WASHINGTON SUB SAN DIST, MD 1,085 1,189 1,193 1,189
WEST KNOXVILLE UTIL DISTR 3,000 3,388 3,416 3,388
WEST VIRGINIA PUB ENERGY AUTH FOR MORGAN TOWN ASSOC PROJ 200 201 204 201
WISCONSIN HOUSING & ECON DEV 310 310 311 310
WISCONSIN HSG & ECON DEV SFM 220 220 220 220
WISONSIN STATE GO'S 1,000 1,006 1,010 1,006
WITCHITA KANSAS GO'S 1,000 1,020 1,024 1,020
---------- ---------- ---------- ----------
TOTAL STATE AND LOCAL GOVERNMENT BONDS 142,920 150,779 151,333 150,779
---------- ---------- ---------- ----------
CORPORATE INCOME FUND UNIT 1ST PFD STK PUT SER 210 210 302 210
---------- ---------- ---------- ----------
TOTAL ADJUSTABLE RATE PREFERRED STOCKS 210 210 302 210
---------- ---------- ---------- ----------
TOTAL MARKETABLE SECURITIES $150,989 $151,635 $150,989
========== ========== ==========
</TABLE>
<PAGE> 14
HECHINGER COMPANY AND SUBSIDIARIES
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Retirements Other changes - Balance at
beginning at cost add (deduct) - end of
Classification of period describe (e) period
-------------- ----------- ----------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended
February 1, 1992
Land $20,300 $0 $0 $8,845 $29,145
Buildings 57,714 0 0 23,898 81,612
Leasehold improvements 67,401 7,774 (75) 5,392 80,492
Furniture, fixtures and equipment 138,952 23,488 (6,228) (a) 0 156,212
Capital leases 24,894 0 0 0 24,894
Construction in progress 29,063 54,897 (65) (38,135) 45,760
----------- ----------- ----------- ----------- -----------
$338,324 $86,159 (b) ($6,368) $0 $418,115
=========== =========== =========== =========== ===========
Year ended
January 30, 1993
Land $29,145 $733 ($15,400) (c) $33,679 $48,157
Buildings 81,612 0 (24,817) (c) 47,389 104,184
Leasehold improvements 80,492 11,590 (9,590) (d) 5,294 87,786
Furniture, fixtures and equipment 156,212 34,869 (4,843) (d) 1,588 187,826
Capital leases 24,894 0 0 0 24,894
Construction in progress 45,760 88,311 (702) (87,950) 45,419
----------- ----------- ----------- ----------- -----------
$418,115 $135,503 (b) ($55,352) $0 $498,266
=========== =========== =========== =========== ===========
Year ended
January 29, 1994
Land $48,157 $1,920 ($1,977) (c) $41,969 $90,069
Buildings 104,184 3,863 (3,396) (c) 42,493 147,144
Leasehold improvements 87,786 12,851 (4,403) (d) 3,740 99,974
Furniture, fixtures and equipment 187,826 41,517 (27,343) (d) 0 202,000
Capital leases 24,894 10,093 (1,237) 0 33,750
Construction in progress 45,419 107,758 (552) (88,202) 64,423
----------- ----------- ----------- ----------- -----------
$498,266 $178,002 (b) ($38,908) $0 $637,360
=========== =========== =========== =========== ===========
</TABLE>
(a) During the year ended February 1, 1992, the Hechinger Stores Company
changed its method of transporting merchandise from its Landover, Maryland
distribution facility to its stores, from using its own fleet to utilizing
commerial carriers. Dispositions during the year were primarily the result
of the Company disposing of this fleet of delivery vehicles.
(b) Substantially all additions represent ordinary expenditures for new
stores and store remodeling.
(c) Sale and leaseback transactions.
(d) Substantially all other retirements were primarily the result of store
closings.
(e) Transfer of construction in progress for assets placed in service.
Depreciation and amortization are computed using the straight-line method
over the estimated useful lives of the various assets, which in general
are:
Classification Estimated Useful Life
Buildings Generally 30 to 45 years.
Leasehold improvements The term of the lease. In some longer
term leases, up to 21 years.
Furniture, fixtures and equipment 5 to 10 years.
Capital leases The term of the lease.
<PAGE> 15
HECHINGER COMPANY AND SUBSIDIARIES
SCHEDULE VI - ACCUMULATED DEPRECIATION AND
AMORTIZATION OF PROPERTY, PLANT AND EQUIPMENT
(in thousands)
<TABLE>
<CAPTION>
Balance at Additions Retirements Other changes - Balance at
beginning charged to add (deduct) - end of
Description of period costs and describe period
expenses
- - ----------- ----------- --------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Year ended
February 1, 1992
Buildings $4,838 $2,983 $0 $0 $7,821
Leasehold improvements 25,001 4,778 (35) 0 29,744
Furniture, fixtures and equipment 57,460 18,100 (5,059) 0 70,501
Capital leases 11,189 899 0 0 12,088
----------- ----------- ----------- ----------- -----------
$98,488 $26,760 ($5,094) $0 $120,154
=========== =========== =========== =========== ===========
Year ended
January 30, 1993
Buildings $7,821 $3,620 ($781) $0 $10,660
Leasehold improvements 29,744 7,882 (6,705) 0 30,921
Furniture, fixtures and equipment 70,501 19,645 (3,716) 0 86,430
Capital leases 12,088 953 0 0 13,041
----------- ----------- ----------- ----------- -----------
$120,154 $32,100 ($11,202) $0 $141,052
=========== =========== =========== =========== ===========
Year ended
January 29, 1994
Buildings $10,660 $4,313 ($38) $0 $14,935
Leasehold improvements 30,921 8,213 (2,897) 0 36,237
Furniture, fixtures and equipment 86,430 22,904 (19,924) 0 89,410
Capital leases 13,041 1,964 (730) 0 14,275
----------- ----------- ----------- ----------- -----------
$141,052 $37,394 ($23,589) $0 $154,857
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 16
HECHINGER COMPANY AND SUBSIDIARIES
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions -
Balance at Charged to Balance
beginning costs and Deductions - at end
Description of period expenses Write-offs of period
- - ----------- ------------ ------------- -------------- -------------
<S> <C> <C> <C> <C>
Year ended
February 1, 1992
Allowance for
doubtful accounts $2,268 $5,262 $4,777 $2,753
========== ========== ========== ==========
Year ended
January 30, 1993
Allowance for
doubtful accounts $2,753 $2,297 $4,669 $381
========== ========== ========== ==========
Year ended
January 29, 1994
Allowance for
doubtful accounts (a) $381 $1,008 $1,212 $177
========== ========== ========== ==========
</TABLE>
(a) In 1992, the Company sold the entire Hechinger Stores' accounts receivable.
<PAGE> 17
HECHINGER COMPANY AND SUBSIDIARIES
SCHEDULE IX - SHORT-TERM BORROWINGS
(in thousands)
<TABLE>
<CAPTION>
Category of aggregate Balance at Weighted Maximum amount Average amount Weighted
short-term borrowings at end average outstanding outstanding average
of period interest rate during the during the interest rate
period period during the
period
(a) (b)
- - --------------------- ------------ ------------- -------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Year ended
February 1, 1992
Note payable to bank (c) $0 NA $3,500 $56 6.89%
========== ========== ========== ========== ==========
Year ended
January 30, 1993
Note payable to bank (d) $0 NA $0 $0 NA
========== ========== ========== ========== ==========
Year ended
January 29, 1994
Note payable to bank (d) $0 NA $0 $0 NA
========== ========== ========== ========== ==========
</TABLE>
Notes:
(a) At February 1, 1992, January 30, 1993 and January 29, 1994 there were
no short-term borrowings.
(b) The weighted average interest rate during the period was computed by
dividing the actual interest expense by average short-term debt
outstanding.
(c) Note payable to bank represents borrowings under a line of credit
borrowing arrangement.
(d) There were no short-term borrowings during the year ended January 30,
1993 and January 29, 1994.
<PAGE> 18
HECHINGER COMPANY AND SUBSIDIARIES
SCHEDULE X - SUPPLEMENTARY EARNINGS STATEMENT INFORMATION
(in thousands)
<TABLE>
<CAPTION>
Year ended Year ended Year ended
Item Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - ---- ------------- ------------- -------------
<S> <C> <C> <C>
Advertising $42,659 $39,331 $39,710
============ ============ ============
Repairs & Maintenance $19,051 $20,521 $17,463
============ ============ ============
</TABLE>
Amounts for depreciation and amortization of intangible assets, taxes other
than payroll and income taxes, and royalties are not presented as such amounts
are less than 1% of total sales and revenues.
<PAGE> 1
Exhibit 11 HECHINGER COMPANY AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
---------------------------------------------------------------------------
January 29, January 30, February 1, February 2, February 3,
Fiscal Year Ended 1994 1993 1992 1991 1990
------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Earnings (loss) before cumulative effect
of change in accounting principle $24,760,000 ($26,272,000) $26,055,000 $23,259,000 $30,989,000
Interest on 5.5% convertible debentures - - - - 4,580,000
------------- ------------- ------------- ------------- -------------
Earnings (loss) before cumulative effect
of change in accounting principle for
primary and fully diluted earnings
loss per share 24,760,000 (26,272,000) 26,055,000 23,259,000 35,569,000
Cumulative effect on prior years of change
in accounting principle, net of income
taxes - - - - 3,200,000
------------- ------------- ------------- ------------- -------------
Net earnings (loss) for primary and
fully diluted earnings (loss)
per share $24,760,000 ($26,272,000) $26,055,000 $23,259,000 $38,769,000
============= ============= ============= ============= =============
Weighted average shares outstanding 41,743,852 41,694,182 39,496,710 35,944,153 36,146,182
Dilutive effect of stock options and
restricted stock awards after
application of the treasury
stock method 198,075 - 228,509 56,912 136,397
Additional shares issuable assuming full
conversion of the 5.5% debentures into
Class A common stock - - - - 4,510,596
------------- ------------- ------------- ------------- -------------
Common and common equivalent shares
outstanding for primary earnings (loss)
per share 41,941,927 41,694,182 39,725,219 36,001,065 40,793,175
Additional dilution from stock options
and restricted stock awards after
application of the treasury stock method 33,011 - 51,836 - 4,335
------------- ------------- ------------- ------------- -------------
Common and common equivalent shares
outstanding for fully diluted earnings
(loss) per share 41,974,938 41,694,182 39,777,055 36,001,065 40,797,510
============= ============= ============= ============= =============
Primary earnings (loss) per common share:
Before cumulative effect of change in
accounting principle $0.59 ($0.63) $0.66 $0.65 $0.88
Cumulative effect of change in
accounting principle - - - - $0.07
----- ----- ----- ----- -----
Net earnings (loss) per common share $0.59 ($0.63) $0.66 $0.65 $0.95
===== ===== ===== ===== =====
Fully diluted earnings (loss) per common
share:
Before cumulative effect of change in
accounting principle $0.59 ($0.63) $0.66 $0.65 $0.88
Cumulative effect of change in
accounting principle - - - - $0.07
----- ----- ----- ----- -----
Net earnings (loss) per common share $0.59 ($0.63) $0.66 $0.65 $0.95
===== ===== ===== ===== =====
</TABLE>
<PAGE> 1
HECHINGER COMPANY
[PHOTO -- SEE EDGAR APPENDIX]
[PHOTO -- SEE EDGAR APPENDIX]
ANNUAL REPORT YEAR ENDED JANUARY 29, 1994
<PAGE> 2
Hechinger Company is a leading specialty retailer, currently operating 128 home
center stores: 72 Hechinger stores and 56 Home Quarters Warehouse stores in 23
states and the District of Columbia. The Company serves the growing home
improvement industry through two operating subsidiaries: Hechinger Stores
Company and Home Quarters Warehouse, Inc.
Hechinger Company common stock has been traded publicly since 1972 and is
listed on the National Market System of the Nasdaq Stock Market under the
symbols HECHA and HECHB. Corporate headquarters are located in Landover,
Maryland.
SUPPLEMENTAL FINANCIAL INFORMATION
(dollars in thousands except square foot data)
<TABLE>
<CAPTION>
Year ended Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
=========================================================================================================
<S> <C> <C> <C>
NET SALES
Hechinger Stores Company $1,056,876 $1,044,971 $1,017,543
Home Quarters Warehouse, Inc. 995,267 743,681 522,191
Triangle Building Centers 42,825 80,697 67,993
- - ----------------------------------------------------------------------------------------------------------
Total net sales $2,094,968 $1,869,349 $1,607,727
OPERATING INCOME
Hechinger Stores Company $ 24,897 $ 31,580 $ 41,391
Home Quarters Warehouse, Inc. 45,131 33,954 22,425
Triangle Building Centers 0 1,023 (13)
- - -----------------------------------------------------------------------------------------------------------
Total operating income 70,028 66,557 63,803
Pre-opening expense 12,972 9,631 4,006
Amortization of goodwill 1,679 1,679 1,679
Corporate expense 4,190 4,600 5,688
Non-operating properties 510 800 0
Interest expense, net of other income 15,306 8,548 8,209
Unusual charges 0 83,000 8,033
- - ----------------------------------------------------------------------------------------------------------
Income (loss) before income taxes $ 35,371 $ (41,701) $ 36,188
IDENTIFIABLE ASSETS
Hechinger Stores Company $ 471,016 $ 416,865 $ 481,440
Home Quarters Warehouse, Inc. 533,395 363,016 286,018
Triangle Building Centers 0 27,155 26,666
Hechinger Corporate 224,831 268,713 142,650
- - ----------------------------------------------------------------------------------------------------------
Total identifiable assets $1,229,242 $1,075,749 $ 936,774
DEPRECIATION AND AMORTIZATION
Hechinger Stores Company $ 26,994 $ 25,274 $ 25,065
Home Quarters Warehouse, Inc. 16,502 12,625 8,189
Triangle Building Centers 843 1,517 1,322
Hechinger Corporate 1,350 831 690
- - ----------------------------------------------------------------------------------------------------------
Total depreciation and amortization $ 45,689 $ 40,247 $ 35,266
EXPENDITURES FOR PP&E
AND OTHER ASSETS, NET OF DISPOSALS
Hechinger Stores Company $ 45,310 $ 47,538 $ 31,843
Home Quarters Warehouse, Inc. 118,898 87,289 58,705
Triangle Building Centers (2,541) 2,195 1,565
Hechinger Corporate 919 646 362
- - ----------------------------------------------------------------------------------------------------------
Total expenditures, net of disposals $ 162,586 $ 137,668 $ 92,475
SALES PER WEIGHTED AVERAGE SQUARE FOOT
Hechinger Stores Company $ 220 $ 210 $ 196
Home Quarters Warehouse, Inc. 239 233 217
- - ----------------------------------------------------------------------------------------------------------
Total sales per weighted average square foot $ 229 $ 220 $ 203
</TABLE>
<PAGE> 3
Our innovative team of associates continues to work to meet the needs of our
customers.
[PHOTOS -- SEE EDGAR APPENDIX]
FINANCIAL HIGHLIGHTS
(in thousands except per share data)
<TABLE>
<CAPTION>
Year ended Jan. 29, 1994 Jan. 30, 1993 Feb. 1, 1992 Feb. 2, 1991 Feb. 3, 1990
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA
Net sales $2,094,968 $1,869,349 $1,607,727 $1,392,198 $1,229,572
Cost of sales 1,632,702 1,432,340 1,201,536 1,037,834 914,157
Interest expense 23,063 14,121 11,906 10,475 10,350
Income tax expense (benefit) 10,611 (15,429) 10,133 9,593 10,600
Earnings (loss) before
cumulative effect of change
in accounting principle 24,760 (26,272) 26,055 23,259 30,989
Net earnings (loss) 24,760 (26,272) 26,055 23,259 34,189
Earnings (loss) per common
share before cumulative
effect of change in
accounting principle $.59 $(.63) $.66 $.65 $.88
Net earnings (loss)
per common share $.59 $(.63) $.66 $.65 $.95
- - -----------------------------------------------------------------------------------------------------------------------------------
DIVIDENDS PER SHARE
Class A common $.16 $ .16 $.16 $.16 $.16
Class B common $.06 $ .06 $.06 $.06 $.06
- - -----------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
Total assets $1,229,242 $1,075,749 $936,774 $792,752 $754,847
Long-term debt and capital
lease obligations 407,873 305,974 207,485 189,152 167,431
Total stockholders' equity 493,867 473,924 505,185 417,899 397,794
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Note: In the first quarter of 1992, the Company recorded an unusual charge of
$83 million to establish a Strategic Reserve to cover estimated costs
associated with the repositioning of the Hechinger Stores Company. In the
fourth quarter of 1991, the Company incurred unusual charges totalling $8
million which were primarily comprised of $5.3 million associated with the
closing of seven Hechinger stores in early January 1992. The remainder of the
charges related to one-time costs associated with the sale of the Hechinger
Stores' accounts receivable and costs related to Home Quarters' adoption of the
LIFO inventory method. During the year ended February 3, 1990, the Company
adopted SFAS No. 96, Accounting for Income Taxes. All years presented were 52
weeks except the year ended February 3, 1990 which was 53 weeks.
1
<PAGE> 4
[PHOTO -- SEE EDGAR APPENDIX]
"Everything we do centers around our customers -- the services we provide, the
people we hire, the products we offer, the design of our stores -- we always
think of our customers first."
John Hechinger, Jr.
President and Chief Executive Officer
[PHOTO -- SEE EDGAR APPENDIX]
[PHOTO -- SEE EDGAR APPENDIX]
<PAGE> 5
DEAR STOCKHOLDERS
We believe that when we look back on 1993, we will view it as a turning point
for our Company. At our Home Quarters Warehouse subsidiary, we made a quantum
leap in our approach to the warehouse home center concept. We designed a more
open, inviting store with a combination of customer service components greater
than that of any specialty or home center store. At our Hechinger Stores
subsidiary, 1993 was a year in which our strategy of lowering prices and
converting stores to the Home Project Center format helped us withstand
significant competitive incursions in our core markets.
Our sales for 1993 increased 12% to $2.1 billion from $1.9 billion last
year. Earnings for 1993 were $24.8 million, $.59 per share compared to a net
loss of $26.3 million, $.63 per share in 1992. Earnings for 1992 reflect an
after-tax Strategic Reserve of $57.3 million, $1.37 per share, which was
recorded in the first quarter of 1992 to cover estimated costs associated with
the repositioning of Hechinger Stores Company.
In May we announced the closing of our six-store Triangle Building
Centers subsidiary. While this was a difficult decision to make, closing
Triangle has allowed us to redeploy the people and assets from Triangle into
our Hechinger Stores and Home Quarters Warehouse operations.
HOME QUARTERS WAREHOUSE, INC.
We believe our Home Quarters Warehouse subsidiary is one of the most exciting
stories in retail today. Sales for 1993 increased 34% over last year and
operating income grew at a comparable rate. Since 1990, sales have grown at a
compounded annual rate of 46% while operating profits have grown significantly
faster at 76%.
In an effort to keep pace with the needs of our customers and stay ahead
in an increasingly competitive environment, we developed a service-intensive
warehouse concept with one goal in mind: to ensure legendary customer service
and satisfaction. From concept development to planning and material selection,
customers will find everything they need for their projects. This attention to
the customer sets HQ's concept apart from the rest.
[PHOTOS -- SEE EDGAR APPENDIX]
3
<PAGE> 6
SALES VOLUME IS UP DRAMATICALLY IN OUR "CHESAPEAKE CLASS" HOME QUARTERS
WAREHOUSE STORES.
[PHOTO -- SEE EDGAR APPENDIX]
[PHOTO -- SEE EDGAR APPENDIX]
OUR HECHINGER STORES ARE DOING MORE SALES PER STORE THAN AT ANY TIME IN OUR
HISTORY.
<PAGE> 7
Services and selection have been customized to cater to every type of customer
from the do-it-yourselfer to the professional contractor. Highlights of the new
store include comprehensive planning and professional design services,
installation services, a greenhouse and a Contractor's desk to handle the
special needs of professional contractors. Home Quarters has also proven to be
a pioneer in the industry by offering non-traditional services geared toward
providing a positive shopping experience for the entire family, including "Kids
Quarters", our on-site child-care facility which allows parents time and
attention to shop for a project without worrying about their kids. Other
features include "HQ University", a dedicated classroom for do-it-yourself
clinics and "HQ Express", our snack bar.
The response to this concept has been tremendous. The first store, which
opened in Chesapeake, Virginia in July, received industry acclaim for its
innovations. Our new "Chesapeake class" stores in Detroit, Albany, Kansas City
and other markets have received the same tremendous customer responses.
We will continue to enhance the Chesapeake concept by responding to what
our customers want. All eleven stores planned to open in 1994 will be based on
the "Chesapeake class" store. In addition, we intend to remodel approximately
19 of our existing stores to incorporate as many of the Chesapeake features as
possible.
HECHINGER STORES COMPANY
During 1993 our Hechinger Stores subsidiary met the competition head-on. As a
result of lowering our retail prices and converting many traditional Hechinger
stores to the Home Project Center format, we increased our competitiveness with
the warehouse stores that have entered our markets.
Our market research indicates that we have protected our market share and
are still the favored home center in our core markets. Today, we know we are
priced right and priced competitively. We have improved our average sales per
store and have significantly reduced our operating costs.
Looking ahead, we will continue to satisfy our customers by providing
superior customer service, being in-stock on the prod-
[PHOTOS -- SEE EDGAR APPENDIX]
5
<PAGE> 8
OUR HOME QUARTERS AND HECHINGER STORES ARE STAFFED WITH EXPERIENCED
PROFESSIONALS TO GUIDE CUSTOMERS THROUGH THEIR PROJECTS.
[PHOTO -- SEE EDGAR APPENDIX]
[PHOTO -- SEE EDGAR APPENDIX]
CUSTOMER RESPONSE TO OUR NEW HECHINGER AND HOME QUARTERS STORES HAS BEEN VERY
STRONG.
<PAGE> 9
ucts they want and creating dominant merchandise departments that can
successfully compete with any specialty retailer.
During 1993 we opened two new Hechinger Home Project Centers and
converted seven traditional stores to the Home Project Center format. We plan
to add two new stores during fiscal 1994 and convert six traditional Hechinger
stores to the Home Project Center format.
COMMITMENT TO EXCELLENCE
Today, Hechinger Company employs approximately 18,000 people. Our commitment to
service goes well beyond the traditional retail definition of the word. Our
people become fully involved with our customers' projects and provide ongoing
help every step of the way. Both Home Quarters Warehouse and Hechinger Stores
Company consistently earn high marks as good neighbors in their markets,
striving to add value to the neighborhoods they serve as a socially and
environmentally concerned business.
SUMMARY
Beginning with this year's annual report we are providing you with supplemental
financial information including total sales and operating income by subsidiary.
This information will clearly communicate to you, our stockholders, the success
of our strategy of rapidly expanding Home Quarters Warehouse and repositioning
Hechinger Stores Company.
With Home Quarters Warehouse "Chesapeake class" stores continuing to open
to strong customer acclaim and Hechinger Stores Company successfully improving
operations and building on this solid foundation, we believe we are very well
positioned for 1994 and beyond.
/S/ JOHN W. HECHINGER, JR. /S/ JOHN W. HECHINGER
John W. Hechinger, Jr. John W. Hechinger
President and Chief Chairman of the Board
Executive Officer
[PHOTOS -- SEE EDGAR APPENDIX]
7
<PAGE> 10
HECHINGER COMPANY MARKETS
[MAP -- SEE EDGAR APPENDIX]
[PHOTOS -- SEE EDGAR APPENDIX]
<PAGE> 11
Hechinger Company
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OPERATIONS. The following table sets forth the sales reported by the Company
(in billions):
<TABLE>
<CAPTION>
Year ended JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - ----------------------------------------------------------------------------
<S> <C> <C> <C>
Total Sales $2.09 $1.87 $1.61
% Increase 12% 16% 15%
Comparable Store
Sales % Increase 3% 7% 2%
</TABLE>
The sales increase for the current year was primarily due to sales from
stores in operation for less than one year.
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 February 1, 1992 76 30 6 112
1992 openings 3 14 -- 17
1992 closings (4) (1) -- (5)
As of January 30, 1993 75 43 6 124
1993 openings 3 11 -- 14
1993 closings (6) (1) (6) (13)
As of January 29, 1994 72 53 -- 125
</TABLE>
In 1993, the Company closed its Triangle Building Centers subsidiary. Of
the six stores, five were closed during the year and one larger Triangle store
was transferred to Hechinger Stores Company. The costs associated with these
closings, including operating losses, have been charged to the Strategic
Reserve which was recorded by the Company in 1992. The closings will not have a
material impact on the continuing operations of the Company.
In July 1993, the Company opened a new 115,000 square foot Home Quarters
store in Chesapeake, Virginia. This store incorporates many new features,
including: a 5,000 square foot greenhouse and garden center, three design
centers, installation services for major items and a tool rental program. In
addition, the new Home Quarters store has a dedicated Contractor's desk to
handle the special needs of professional contractors and commercial property
owners, including its own entrance and loading area. The new store also offers
"Kids Quarters", a supervised on-site child care facility for children ages
three to eight and a dedicated classroom called "HQ University" for how-to
clinics. Of the nine new Home Quarters stores opened since July 1993, eight
stores have these new features. The Company is planning to implement these new
features in all of its new Home Quarters stores to be opened in 1994 and in
its existing Home Quarters stores where possible.
Other income, which consists primarily of interest income, was $7.8
million, $5.6 million and $3.7 million in 1993, 1992 and 1991, respectively.
The increase in 1993 was primarily due to gains on the disposal of property and
equipment. The increase in 1992 was primarily due to the funds available for
investment as a result of the sale of accounts receivable, issuance of the
Senior Debentures and sale and leaseback transactions. (See discussion of
Liquidity and Capital Resources below.)
Cost of sales was 77.9%, 76.6% and 74.7% of sales for 1993, 1992 and 1991,
respectively. Distribution and buying and occupancy expenses are included in
cost of sales. As a percent of sales, the increases in 1993 and 1992 were
primarily due to: (1) the lowering of retail prices in the major markets of the
Hechinger Stores Company, and (2) the growing effect of Home Quarters which
operates with lower gross margins. Cost of sales included a LIFO charge of $5.0
million in 1993 and LIFO credits of $.8 million and $1.0 million in 1992 and
1991, respectively. LIFO, inventory acquisition costs and other inventory
adjustments increased fourth quarter cost of sales by approximately $.2 million
in 1993, compared to a reduction of fourth quarter cost of sales by
approximately $1.2 million and $5.6 million for 1992 and 1991, respectively.
Selling, general and administrative expenses were 19.6%, 20.7% and 22.0% of
sales for 1993, 1992 and 1991, respectively. The decreases in 1993 and 1992
were primarily due to the growing effect of Home Quarters which operates with a
lower cost structure and cost reduction efforts at the Hechinger Stores
Company. Pre-opening expenses of $13.0 million, $9.6 million and $4.0 million
are included in selling, general and administrative expenses for 1993, 1992 and
1991, respectively.
Interest expense, net of capitalized interest, was $23.1 million, $14.1
million and $11.9 million for 1993, 1992 and 1991, respectively. The increase
in 1993 compared to the prior years was primarily the result of the issuance of
the Senior Notes in 1993 and the
9
<PAGE> 12
Senior Debentures in 1992. The increase in 1992 compared to the prior year was
primarily the result of the issuance of the Senior Debentures as well as a
mortgage loan obtained on three of the Company's stores during 1991.
In 1992, the Company recorded an unusual charge of $83 million to establish
a Strategic Reserve to cover estimated costs associated with the repositioning
of Hechinger Stores Company. The reserve is comprised primarily of charges
related to the conversion of traditional Hechinger stores to the Home Project
Center format and to the relocation of selected stores as real estate
conditions permit. In 1991, the Company incurred unusual charges totalling $8
million which were primarily comprised of $5.3 million associated with the
closing of seven Hechinger stores in early January 1992. The remainder of the
charges related to one-time costs associated with the sale of the Hechinger
Stores' accounts receivable and costs related to Home Quarters' adoption of the
LIFO inventory method.
The effective income tax rate for 1993 was 30.0% of earnings before income
taxes, compared to an effective income tax benefit rate of 37.0% of the loss
before income taxes for 1992 and an effective income tax rate of 28.0% of
earnings before income taxes for 1991. The effective tax rate for 1993 differed
from the statutory rate primarily due to tax-free earnings on funds available
for investment and Targeted Jobs Tax Credits. The Company has invested in two
limited real estate partnerships and, as a result, generated rehabilitation and
low income housing tax credits and other tax benefits associated with these
projects. The credits associated with these projects have significantly
decreased since 1991. In 1993, year-end adjustments to the effective tax rate
were primarily the result of revised estimates for Targeted Jobs Tax Credits
(due to the extension of the credit by Congress) as well as lower than
anticipated earnings. In 1992 and 1991, year-end adjustments to the effective
tax rate were primarily the result of higher than anticipated tax-free earnings
on investments and Targeted Jobs Tax Credits. These adjustments resulted in an
effective fourth quarter tax rate of 3.6% for 1993 compared to effective fourth
quarter tax benefit rates of 139.7% and 59.9% for 1992 and 1991, respectively.
In February 1992, Statement of Financial Accounting Standards No. 109
("SFAS 109"), Accounting for Income Taxes, was issued and superseded Statement
of Financial Accounting Standards No. 96 ("SFAS 96"), Accounting for Income
Taxes. In the first quarter of 1992, the Company adopted SFAS 109 effective
February 4, 1990. There was no effect on net earnings in 1991 from adopting
SFAS 109.
Net earnings were 1.2% of sales for 1993 compared to a net loss of 1.4% of
sales for 1992 compared to net earnings of 1.6% of sales for 1991.
Certain accruals and estimates considered necessary for a fair statement of
the results of operations are made for interim periods. In some cases, the
determination of actual expenses can be made only at the end of each year.
Accordingly, adjustments to these accruals and estimates occur in and flow
through the fourth quarter. (See discussion of cost of sales and income taxes
above.)
OTHER POSTEMPLOYMENT BENEFITS. In November 1992, Statement of Financial
Accounting Standards No. 112 ("SFAS 112"), Employer's Accounting for
Postemployment Benefits, was issued. SFAS 112 requires that accrual accounting
be used to value the cost of benefits provided to former or inactive employees
who have not yet reached retirement age. The Company will comply with this
statement beginning in 1994. The effect of adopting this statement will not be
material to the Company's financial position or results of operations.
OTHER POSTRETIREMENT BENEFITS. In December 1990, Statement of Financial
Accounting Standards No. 106 ("SFAS 106"), Employers' Accounting for
Postretirement Benefits Other Than Pensions, was issued. SFAS 106 requires that
postretirement benefits be accounted for during the retirees' active
employment. The Company adopted the statement as of the first quarter of 1993
and is recognizing the transition obligation prospectively
10
<PAGE> 13
over future periods as a component of the annual benefit plans and retirement
expense. The impact on net earnings and the financial position of the Company
in 1993 from adopting SFAS 106 was not material.
INVESTMENTS IN DEBT AND EQUITY SECURITIES. In May 1993, Statement of Financial
Accounting Standards No. 115 ("SFAS"), Accounting for Certain Investments in
Debt and Equity Securities, was issued. SFAS 115 requires that changes in the
fair value of investments in debt and equity securities be charged to either
operations or as a separate component of stockholders' equity. The Company will
comply with this statement beginning in the first quarter of 1994. The Company
does not expect the effect of adopting the standard to have a material impact
on the Company's financial position or results of operations.
COMMITMENTS. In 1994, the Company intends to open approximately 11 new Home
Quarters Warehouse stores, including two relocations, and approximately two new
Hechinger stores. Additionally, approximately 19 Home Quarters stores and
approximately six Hechinger stores are intended to be remodelled. At January
29, 1994, the Company had commitments for stores under construction of
approximately $19.3 million.
LIQUIDITY AND CAPITAL RESOURCES. Net cash provided from operations was $27.4
million, $34.4 million and $67.1 million in 1993, 1992 and 1991, respectively.
The decreases in 1993 and 1992 were due primarily to increases in inventory
levels due to new store openings. Cash and cash equivalents and marketable
securities were $170.7 million, $214.6 million and $104.2 million at January
29, 1994, January 30, 1993 and February 1, 1992, respectively. Net expenditures
for property, furniture and equipment and other assets were $162.6 million,
$137.7 million and $92.5 million in 1993, 1992 and 1991, respectively. These
expenditures are primarily related to the Company's ongoing store expansion and
remodelling programs.
The Company has entered into several financing and other transactions in
the past three years in order to have the funds necessary for its store
expansion and remodelling programs. In October 1993, the Company issued $100
million of Senior Notes bearing an interest rate of 6.95%. The Senior Notes are
due in 2003. The net proceeds were $98.8 million. In November 1992, the Company
issued $100 million of Senior Debentures bearing an interest rate of 9.45%. The
Senior Debentures are due in 2012. The net proceeds were $98.5 million.
In 1992, the Company sold six stores for $40.5 million, net of expenses.
The Company concurrently leased the properties back for an initial term of
twenty-two years. The leases are renewable at the Company's option for nine
additional terms of five years each. In addition, the Company has a right of
first refusal to repurchase the properties.
In 1992, the Company sold to an affiliate of General Electric Capital
Corporation ("GECC") the entire Hechinger Stores' accounts receivable. The net
proceeds were $79.6 million. Concurrent with the sale, GECC entered into a
program agreement to provide for the ongoing operation of the Company's credit
program.
In June 1991, the Company completed a public offering of 5.75 million
shares of Class A common stock. The net proceeds were $66.1 million. In
December 1991, the Company obtained mortgage financing on three of its stores
for $16.6 million.
The Company currently has available a revolving credit facility for $25
million, a line of credit for $15 million and letter of credit facilities
totalling $76 million which are used in conjunction with the purchase of
imported merchandise. Management believes that cash and cash equivalents,
marketable securities, cash generated from operations and its available credit
facilities are adequate to meet the Company's working capital needs and planned
capital expenditures.
IMPACT OF INFLATION AND CHANGING PRICES. The Company does not precisely measure
the effect of inflation on its operations; however, it does not believe
inflation had a material effect on sales or results of operations.
11
<PAGE> 14
Hechinger Company
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Year ended JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - -------------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
<S> <C> <C> <C>
REVENUES
Net sales $2,094,968 $1,869,349 $1,607,727
Other (principally interest) 7,757 5,573 3,697
---------- ---------- ----------
Total Revenues 2,102,725 1,874,922 1,611,424
COSTS AND EXPENSES
Cost of sales 1,632,702 1,432,340 1,201,536
Selling, general and administrative expenses 411,589 387,162 353,761
Interest expense 23,063 14,121 11,906
Unusual charges -- 83,000 8,033
---------- ---------- ----------
Total Costs and Expenses 2,067,354 1,916,623 1,575,236
---------- ---------- ----------
EARNINGS (LOSS) BEFORE INCOME TAXES 35,371 (41,701) 36,188
INCOME TAX EXPENSE (BENEFIT) 10,611 (15,429) 10,133
---------- ---------- ----------
NET EARNINGS (LOSS) $ 24,760 $ (26,272) $ 26,055
========== ========== ==========
NET EARNINGS (LOSS) PER COMMON SHARE $ .59 $ (.63) $ .66
========== ========== ==========
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 15
Hechinger Company
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
JAN. 29, 1994 Jan. 30, 1993
- - -------------------------------------------------------------------------------------------------------------------------
(in thousands except share data)
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 19,675 $ 12,341
Marketable securities--at cost, which approximates market 150,989 202,269
Merchandise inventories 400,366 328,041
Other current assets 50,200 43,961
---------- ----------
TOTAL CURRENT ASSETS 621,230 586,612
PROPERTY, FURNITURE AND EQUIPMENT, NET 482,503 357,214
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 57,098 58,777
LEASEHOLD ACQUISITION COSTS, NET 54,812 58,656
OTHER ASSETS 13,599 14,490
---------- ----------
TOTAL ASSETS $1,229,242 $1,075,749
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 291,182 $ 239,007
Current portion of long-term debt and capital lease obligations 3,068 1,544
---------- ----------
TOTAL CURRENT LIABILITIES 294,250 240,551
LONG-TERM DEBT 386,116 287,054
CAPITAL LEASE OBLIGATIONS 21,757 18,920
DEFERRED RENT 28,493 27,649
DEFERRED INCOME TAXES 4,759 3,278
OTHER LONG-TERM LIABILITIES -- 24,373
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value; authorized
50,000,000 shares; issued 28,812,090 and 28,773,916 2,881 2,877
Class B common stock, $.10 par value; authorized
30,000,000 shares; issued 13,312,356 and 13,480,790 1,331 1,348
Additional paid-in capital 236,543 238,356
Retained earnings 256,836 237,517
Unearned compensation (2,201) (4,367)
Less treasury stock at cost,
92,769 and 106,350 Class A common shares
and 14,497 and 14,496 Class B common shares (1,523) (1,807)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 493,867 473,924
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $1,229,242 $1,075,749
========== ==========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 16
Hechinger Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year ended JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - -------------------------------------------------------------------------------------------------------------------------
(in thousands)
<S> <C> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings (loss) $ 24,760 $ (26,272) $ 26,055
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Unusual charges (21,662) 62,519 --
Depreciation and amortization 45,689 40,247 35,266
Deferred income taxes 8,309 (15,313) (2,996)
Deferred rent expense 844 55 4,185
--------- --------- ---------
57,940 61,236 62,510
--------- --------- ---------
CHANGES IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories (85,722) (47,087) (21,765)
Other current assets (12,722) (8,588) (9,738)
Accounts payable and accrued expenses 68,108 33,606 31,634
Income taxes payable (221) (4,738) 4,496
--------- --------- ---------
(30,557) (26,807) 4,627
--------- --------- ---------
NET CASH FLOWS PROVIDED FROM OPERATIONS 27,383 34,429 67,137
--------- --------- ---------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for property, furniture and equipment
and other assets, net of disposals (162,586) (137,668) (92,475)
--------- --------- ---------
Sale of accounts receivable -- 79,558 --
Marketable securities:
Purchases (175,837) (413,089) (107,103)
Proceeds from sales 227,117 307,007 37,026
NET CASH FLOWS USED IN INVESTING ACTIVITIES (111,306) (164,192) (162,552)
--------- --------- ---------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Net proceeds from long-term borrowings 98,799 98,545 19,731
Net proceeds from public offering of common stock -- -- 66,103
Net proceeds from sale and leaseback transactions -- 40,516 --
Dividends paid to stockholders (5,441) (5,430) (5,110)
Other (2,101) 459 (712)
--------- --------- ---------
NET CASH FLOWS FROM FINANCING ACTIVITIES 91,257 134,090 80,012
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 7,334 4,327 (15,403)
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 12,341 8,014 23,417
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 19,675 $ 12,341 $ 8,014
========= ========= =========
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $ 6,094 $ 4,620 $ 6,356
Cash payments for interest, net of amount capitalized $ 26,591 $ 16,970 $ 14,478
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 17
Hechinger Company
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common Paid-in Retained Unearned Treasury
Stock Stock Capital Earnings Compensation Stock Total
- - -----------------------------------------------------------------------------------------------------------------------
(in thousands except share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, Feb. 2, 1991 $ 2,195 $ 1,409 $ 168,035 $ 248,274 $ -- $ (2,014) $ 417,899
Public offering of 5,750,000 Class A
common shares, net of expenses 575 -- 65,528 -- -- -- 66,103
Restricted stock awards, 267,826
Class A common shares 27 -- 3,254 -- (3,119) -- 162
Exercise of stock options including income
tax benefit (7,583 Class A common
shares and 7,960 Class B common
shares were issued from the treasury) -- -- (177) -- -- 263 86
Conversions from Class B to
Class A common stock 21 (21) -- -- -- -- --
Purchase of treasury stock, 1,084
Class A common shares -- -- -- -- -- (10) (10)
Cash dividends, Class A common
stock ($.16 per share) -- -- -- (4,218) -- -- (4,218)
Cash dividends, Class B common
stock ($.06 per share) -- -- -- (892) -- -- (892)
Net earnings -- -- -- 26,055 -- -- 26,055
------- -------- ---------- ---------- -------- --------- ----------
Balance, Feb. 1, 1992 2,818 1,388 236,640 269,219 (3,119) (1,761) 505,185
Restricted stock awards, 195,000
Class A common shares 19 -- 1,847 -- (1,779) -- 87
Restricted stock awards earned -- -- -- -- 531 -- 531
Exercise of stock options including
income tax benefit (3,337 Class A
common shares and 8,235
Class B common shares
were issued from the treasury) -- -- (131) -- -- 200 69
Conversions from Class B to Class A
common stock 40 (40) -- -- -- -- --
Purchase of treasury stock, 24,852
Class A common shares -- -- -- -- -- (246) (246)
Cash dividends, Class A common
stock ($.16 per share) -- -- -- (4,566) -- -- (4,566)
Cash dividends, Class B common
stock ($.06 per share) -- -- -- (864) -- -- (864)
Net loss -- -- -- (26,272) -- -- (26,272)
------- -------- ---------- ---------- -------- --------- ----------
Balance, Jan. 30, 1993 2,877 1,348 238,356 237,517 (4,367) (1,807) 473,924
RESTRICTED STOCK AWARDS, 20,000
CLASS A COMMON SHARES 2 -- 178 -- (172) -- 8
RESTRICTED STOCK AWARDS EARNED,
NET OF FORFEITURES (15) -- (1,811) -- 2,338 -- 512
EXERCISE OF STOCK OPTIONS INCLUDING
INCOME TAX BENEFIT (32,519
CLASS A COMMON SHARES
WERE ISSUED FROM THE TREASURY) -- -- (180) -- -- 361 181
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) -- -- -- -- -- (77) (77)
CASH DIVIDENDS, CLASS A COMMON
STOCK ($.16 PER SHARE) -- -- -- (4,587) -- -- (4,587)
CASH DIVIDENDS, CLASS B COMMON
STOCK ($.06 PER SHARE) -- -- -- (854) -- -- (854)
NET EARNINGS -- -- -- 24,760 -- -- 24,760
------ ------ -------- -------- ------- ------- --------
BALANCE, JAN. 29, 1994 $2,881 $1,331 $236,543 $256,836 $(2,201) $(1,523) $493,867
====== ====== ======== ======== ======= ======= ========
</TABLE>
See notes to consolidated financial statements.
15
<PAGE> 18
Hechinger Company
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years ended January 29, 1994, January 30, 1993 and February 1, 1992.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES.
The Company operates a chain of specialty retail home center stores, which is
the Company's only line of business, through two operating subsidiaries:
Hechinger Stores Company ("Hechinger Stores") and Home Quarters Warehouse, Inc.
("Home Quarters").
BASIS OF PRESENTATION. The consolidated financial statements include the
accounts of the Company and its wholly-owned subsidiaries. All material
intercompany transactions and balances have been eliminated.
FISCAL YEAR. The Company's fiscal year ends on the Saturday closest to January
31. The fiscal years ended January 29, 1994 ("1993"), January 30, 1993 ("1992")
and February 1, 1992 ("1991") were each 52 weeks. Certain amounts in the
financial statements for 1992 and 1991 have been reclassified to conform to the
presentation for 1993.
MERCHANDISE INVENTORIES. All of the inventories at January 29, 1994 and
substantially all of the inventories at January 30, 1993 are stated at the
lower of cost, last-in, first-out method ("LIFO"), or market. If all of the
inventories were valued under the FIFO method, which approximates replacement
cost, inventories would have been $17.0 million and $12.0 million higher than
reported at January 29, 1994 and January 30, 1993, respectively. Distribution
and buying and occupancy expenses are included in cost of sales.
PROPERTY, FURNITURE AND EQUIPMENT. Depreciation is computed using the
straight-line method over the estimated useful lives of various classes of
assets. Capital leases for stores are being amortized on a straight-line basis
over the terms of the respective leases. Property, furniture and equipment is
stated at cost plus capitalized interest. Capitalized interest amounted to $5.4
million, $3.8 million and $2.7 million for the years 1993, 1992 and 1991,
respectively.
INCOME TAXES. In February 1992, Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), Accounting for Income Taxes, was issued and superseded
Statement of Financial Accounting Standards No. 96 ("SFAS 96"), Accounting for
Income Taxes. In the first quarter of 1992, the Company adopted SFAS 109
effective February 4, 1990. There was no effect on net earnings in 1991 from
adopting SFAS 109. The Company treats tax credits as reductions of taxes in the
years realized.
CASH EQUIVALENTS. The Company considers all investments with a maturity of
three months or less when purchased to be cash equivalents.
MARKETABLE SECURITIES. The investment portfolio consists primarily of debt
issues of state and local governments and their agencies. There are no major
concentrations with any single issuer. All securities are carried at cost as
there is no indication of an other than temporary change in market value.
ACCOUNTS RECEIVABLE. In 1992, the Company sold to an affiliate of General
Electric Capital Corporation ("GECC"), the entire Hechinger Stores' accounts
receivable. The net proceeds were $79.6 million. Concurrent with the sale, GECC
entered into a program agreement to provide for the ongoing operation of the
Company's credit program.
DEFERRED RENT. Deferred rent represents the difference between rents paid and
amounts expensed for operating leases.
PRE-OPENING EXPENSES. Costs relative to new store openings are expensed as
incurred and are included in selling, general and administrative expenses.
Pre-opening expenses amounted to $13.0 million, $9.6 million and $4.0 million
for the years 1993, 1992 and 1991, respectively.
EARNINGS PER COMMON SHARE. Earnings per common share is calculated by dividing
net earnings, as adjusted where appropriate, by the weighted average shares
outstanding and equivalent shares from Convertible Subordinated Debentures,
performance shares, restricted stocks and stock options, except when
antidilutive. Fully diluted earnings per share is not presented, as additional
dilution is less than 3% of primary earnings per share in 1993 and 1991 and
antidilutive in 1992.
The number of shares used to compute earnings per common share was 41.9
million, 41.7 million and 39.8 million for the years 1993, 1992 and 1991,
respectively.
16
<PAGE> 19
AMORTIZATION. Cost in excess of net assets acquired relates principally to the
purchase of Home Quarters. This cost is being amortized using the straight-line
method over a period of 40 years. Accumulated amortization related to cost in
excess of net assets acquired was $10.1 million and $8.4 million as of January
29, 1994 and January 30, 1993, respectively.
Leasehold acquisition costs relate to the purchase of certain store lease
rights. The costs for these leases are being amortized using the straight-line
method over the lives of the various leases, ranging up to 30 years.
Accumulated amortization related to leasehold acquisition costs was $10.8
million and $8.9 million as of January 29, 1994 and January 30, 1993,
respectively.
INVESTMENT IN LIMITED PARTNERSHIPS. The Company has interests in two real
estate limited partnerships which have generated rehabilitation and low income
housing tax credits and other benefits. These investments are recorded using
the equity method.
UNUSUAL CHARGES. In the first quarter of 1992, the Company recorded an unusual
charge of $83 million to establish a Strategic Reserve to cover estimated costs
associated with the repositioning of Hechinger Stores Company. The reserve is
comprised primarily of charges related to the conversion of the traditional
Hechinger stores to the Home Project Center format and to the relocation of
selected stores as real estate conditions permit. In the fourth quarter of
1991, the Company incurred unusual charges totaling $8 million which were
primarily comprised of $5.3 million associated with the closing of seven
Hechinger stores in early January 1992. The remainder of the charges related
to one-time costs associated with the sale of the Hechinger Stores' accounts
receivable and costs related to Home Quarters' adoption of the LIFO inventory
method.
CLOSING OF TRIANGLE SUBSIDIARY. In 1993, the Company closed its Triangle
Building Centers subsidiary. Of the six stores, five were closed during the
year and one larger Triangle store was transferred to Hechinger Stores Company.
The costs associated with these closings have been charged to the Strategic
Reserve which was recorded by the Company in 1992. The closings will not have a
material impact on the continuing operations of the Company.
PROPERTY, FURNITURE AND EQUIPMENT. The Company's investments in property,
furniture and equipment consist of the following:
<TABLE>
<CAPTION>
(in thousands) JAN. 29, 1994 Jan. 30, 1993
- - --------------------------------------------------------------------------
<S> <C> <C>
Land $ 90,069 $ 48,157
Buildings 147,144 104,184
Leasehold improvements 99,974 87,786
Furniture, fixtures
and equipment 202,000 187,826
Capital leases 33,750 24,894
Construction-in-progress 64,423 45,419
--------- ---------
637,360 498,266
Less accumulated depreciation
and amortization (154,857) (141,052)
--------- ---------
$ 482,503 $ 357,214
========= =========
</TABLE>
Accumulated amortization on capital leases was $14.3 million and $13.0
million as of January 29, 1994 and January 30, 1993, respectively.
ACCOUNTS PAYABLE AND ACCRUED EXPENSES. Accounts payable and accrued expenses
consist of the following:
<TABLE>
<CAPTION>
(in thousands) JAN. 29, 1994 Jan. 30, 1993
- - --------------------------------------------------------------------------
<S> <C> <C>
Accounts payable $189,041 $134,545
Accrued expenses and other 66,620 68,646
Accrued compensation
and benefits 35,521 35,816
-------- --------
$291,182 $239,007
======== ========
</TABLE>
Accrued expenses and other at January 29, 1994 and January 30, 1993, include
$8.7 million and $23.2 million, respectively, for the current portion of the
Strategic Reserve which was recorded in the first quarter of 1992.
17
<PAGE> 20
LONG-TERM DEBT AND OTHER CREDIT ARRANGEMENTS. Long-term debt consists of the
following:
<TABLE>
<CAPTION>
(in thousands) JAN. 29, 1994 Jan. 30, 1993
- - --------------------------------------------------------------------------
<S> <C> <C>
6.95% Senior Notes $100,000 $ --
9.45% Senior Debentures 100,000 100,000
5 1/2% Convertible
Subordinated Debentures 123,075 123,075
Mortgage loans 44,403 44,717
Other long-term debt 19,579 20,065
-------- --------
387,057 287,857
Less current portion (941) (803)
-------- --------
$386,116 $287,054
======== ========
</TABLE>
In October 1993, the Company issued $100 million of Senior Notes bearing an
interest rate of 6.95%. The Senior Notes are due in 2003. The net proceeds were
$98.8 million. In November 1992, the Company issued $100 million of Senior
Debentures bearing an interest rate of 9.45%. The Senior Debentures are due in
2012. The net proceeds were $98.5 million. The agreements contain covenants
that restrict the pledging of the Company's assets and entering into sale and
leaseback transactions in certain circumstances.
The 5 1/2% Convertible Subordinated Debentures are convertible into Class A
common stock of the Company by the holders at any time at a conversion price of
$27.84 per share, subject to adjustments in certain events. The Convertible
Subordinated Debentures are redeemable by the Company at any time. Mandatory
sinking fund payments, each sufficient to retire 5% of the aggregate principal
amount of Convertible Subordinated Debentures issued, are to be made annually,
commencing April 1, 1998 to and including April 1, 2011.
The mortgage loans bear interest rates of approximately 10% and are due in
varying monthly and semi-annual installments of principal and interest through
2016. These mortgages are collateralized by properties with a total net book
value of $43.6 million.
Aggregate principal maturities of all long-term debt are as follows:
<TABLE>
<CAPTION>
Fiscal Year (in thousands)
- - ----------------------------------------------------------
<S> <C>
1994 $ 941
1995 1,121
1996 1,226
1997 1,338
1998 8,050
Remainder 374,381
--------
$387,057
========
</TABLE>
In July 1991, the Company obtained a three-year commitment from a bank for
a credit facility that permits borrowings of up to $25 million. During 1993,
this facility was not utilized. If utilized, this facility would be on a
revolving basis for the first three years, after which any outstanding balance
converts to a term loan payable over a four-year period. Under the terms of the
credit facility, the Company agrees to maintain a tangible net worth of at
least $225 million as well as certain other capitalization, liquidity and fixed
charge ratios. The Company also maintains an open line of credit with a bank
that permits borrowings of up to $15 million. Borrowings under both credit
arrangements are generally at or below the prime interest rate. The line of
credit is renewable annually. As of January 29, 1994 and January 30, 1993,
there were no loans outstanding under any of these credit arrangements.
The Company also has letter of credit facilities totalling $76 million
which are used in conjunction with the purchase of imported merchandise.
Approximately $42.3 million of these facilities was unused as of January 29,
1994.
FAIR VALUES OF FINANCIAL INSTRUMENTS. The following methods and assumptions
were used by the Company in estimating its fair value disclosures for financial
instruments:
Cash and cash equivalents: The carrying amounts reported in the balance sheet
for cash and cash equivalents approximated its fair value.
Marketable securities: The fair values for state and local government bonds and
other securities are based on quoted and third party estimates of market
prices.
18
<PAGE> 21
Long-term debt: The fair values of the Company's long-term debt that is
publicly traded are based on quoted and third party estimates of market prices.
The fair values of the privately held debt are estimated using a discounted
cash flow analysis, based on the Company's current incremental borrowing rates
for similar types of borrowing arrangements.
The carrying amounts and fair values of the Company's financial instruments
at January 29, 1994 are as follows:
<TABLE>
<CAPTION>
(in thousands) Cost Market
- - --------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 19,675 $ 19,675
Marketable securities $150,989 $151,635
Long-term debt:
Publicly traded debt $323,075 $312,897
Privately held debt 63,982 68,072
-------- --------
Total long-term debt $387,057 $380,969
======== ========
</TABLE>
INCOME TAXES. The income tax provision (benefit) is summarized as follows:
<TABLE>
<CAPTION>
(in thousands)
Year ended JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current $ 2,302 $ (116) $13,129
Deferred 8,309 (15,313) (2,996)
------- -------- -------
$10,611 $(15,429) $10,133
======= ======== =======
</TABLE>
Significant components of the Company's deferred tax liabilities and assets
are as follows:
<TABLE>
<CAPTION>
(in thousands) JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Deferred tax liabilities:
Depreciation and
amortization $18,626 $21,476 $ 22,199
Inventory 10,887 7,454 3,235
Other 1,219 1,282 877
------- ------- --------
Total deferred
tax liabilities 30,732 30,212 26,311
------- ------- --------
Deferred tax assets:
Accrued expenses
for unusual charges 3,045 16,369 2,516
Alternative minimum
tax and other tax
credit carryforwards 7,688 4,200 --
Accrued compensation
and benefits 6,563 6,877 7,565
Other 8,677 6,334 4,485
------- ------- --------
Total deferred tax assets 25,973 33,780 14,566
Valuation allowance -- -- --
------- ------- --------
Net deferred tax assets 25,973 33,780 14,566
------- ------- --------
Net deferred
tax assets (liabilities) $(4,759) $ 3,568 $(11,745)
======= ======= ========
</TABLE>
Reconciliations of the Federal statutory rate to the Company's effective
tax rate are summarized as follows:
<TABLE>
<CAPTION>
Year ended JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory rate 35.0% (34.0)% 34.0%
Federal tax credits (3.0) (1.3) (2.6)
Federal tax-exempt
investment income (6.0) (5.3) (3.7)
Amortization of goodwill 1.6 1.4 1.6
Other 2.4 2.2 (1.3)
---- ----- ----
30.0% (37.0)% 28.0%
==== ====== ====
</TABLE>
The effect of the change in the Federal income tax rate to 35% from 34% in
1993 on the Company's deferred tax accounts was not material.
LEASES AND OTHER COMMITMENTS. The Company leases its stores and certain other
equipment from both an affiliated entity, controlled by the Hechinger and
England families, and nonaffiliated entities. Certain leases require excess
rentals based on a percentage of sales, certain increments in real estate taxes
and rent increases as determined by formulas set forth in the leases. In
addition, the Company pays all other ownership and operating costs related to
the leased properties. Most of the leases provide for renewals for various
periods up to 30 years.
In 1992, the Company sold six stores for $40.5 million, net of expenses.
The Company concurrently leased the properties back for an initial term of
twenty-two years. The leases are renewable at the Company's option for nine
additional terms of five years each. Under the terms of the 1992 sale and
leaseback transactions, the Company is restricted from taking certain actions
which would result in its net worth falling below $200 million. Under the terms
of a sale and leaseback transaction completed in 1990, the Company is
restricted from taking certain actions which would result in its senior credit
rating falling below investment grade, or its net worth, less goodwill, falling
below $175 million. Under both the 1992 and 1990 sale and leaseback
transactions, the Company has a right of first refusal to repurchase the
properties should the lessors wish to sell.
19
<PAGE> 22
At January 29, 1994, the minimum fixed rental commitments related to all
noncancelable leases together with the present value of the net minimum lease
payments for capital leases were as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
(in thousands)
Fiscal Year Total Affiliated Nonaffiliated
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 $ 57,754 $ 1,748 $ 56,006
1995 57,730 1,642 56,088
1996 58,436 1,432 57,004
1997 58,980 1,432 57,548
1998 59,411 1,432 57,979
Remainder 749,827 10,570 739,257
--------- ------- ---------
Total minimum
lease payments 1,042,138 18,256 1,023,882
Minimum sublease
rentals due to
Company (112,535) -- (112,535)
--------- ------- ---------
Total minimum lease
payments, net $ 929,603 $18,256 $ 911,347
========= ======= =========
</TABLE>
<TABLE>
<CAPTION>
CAPITAL LEASES
(in thousands)
Fiscal Year Total Affiliated Nonaffiliated
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
1994 $ 4,821 $ 1,243 $ 3,578
1995 4,821 1,243 3,578
1996 4,821 1,243 3,578
1997 4,182 1,243 2,939
1998 3,480 1,243 2,237
Remainder 21,600 7,043 14,557
-------- ------- --------
Total minimum
lease payments 43,725 13,258 30,467
Less imputed interest (19,841) (5,324) (14,517)
-------- ------- --------
Present value of net min-
imum lease payments
(including current
portion of $2,127) $ 23,884 $ 7,934 $ 15,950
======== ======= ========
</TABLE>
Capital lease obligations bear imputed interest at rates ranging from 7.0%
to 17.3%. Amortization of assets recorded under capital lease obligations is
included in depreciation and amortization expense.
Net rent expense charged to operations was as follows:
<TABLE>
<CAPTION>
(in thousands)
Year ended JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Minimum operating
lease rentals $51,822 $46,090 $48,443
Excess rentals:
Capital leases 1,480 1,746 1,537
Operating leases 1,566 1,554 940
------- ------- -------
54,868 49,390 50,920
Less sublease income (8,051) (2,500) (3,293)
------- ------- -------
Net rent expense $46,817 $46,890 $47,627
======= ======= =======
Net rent expense paid
to affiliates $ 4,554 $ 4,819 $ 5,063
======= ======= =======
</TABLE>
At January 29, 1994, the outstanding commitments on contracts relating to
the purchase of real estate, construction of various new stores and remodelling
of various existing stores amounted to approximately $19.3 million.
STOCKHOLDERS' EQUITY. The Company has two classes of common stock, designated
as Class A and Class B. The Company also has 20 million shares of $1.00 par
value preferred stock, none of which is issued or outstanding.
Class A and B shares are identical in all respects except that (1) Class A
stockholders receive preference as to cash dividends; and (2) Class A
stockholders have one vote per share, whereas Class B stockholders have ten
votes per share. Class B shares are convertible into Class A shares on a share
for share basis at any time at no cost to the stockholder.
EMPLOYEE BENEFIT PLANS AND RETIREMENT AGREEMENTS. The Company maintains a
profit sharing plan for all qualified employees. The Company also maintains a
thrift and savings plan and a defined benefit pension plan for qualifying
employees at the Hechinger Stores Company.
The profit sharing plan allows for discretionary annual contributions as
determined by the board of directors. The thrift and savings plan allows for
employee contributions of up to 6% of the employee's salary plus a 50% matching
contribution from the Company. The pension plan does not
20
<PAGE> 23
require employee contributions. The funding policy is to contribute each year
an amount not less than the minimum required contribution, nor greater than the
maximum tax deductible contribution. The assets of the pension plan are
primarily comprised of equity and fixed income securities.
The Company also has a nonqualified supplemental retirement plan which
covers certain key employees and pays benefits which supplement any benefits
paid under the above plans. The projected benefit obligation was $2.4 million
and $2.2 million at January 29, 1994 and January 30, 1993, respectively. The
accrued pension liability recognized in the financial statements was $2.2
million and $1.9 million at January 29, 1994 and January 30, 1993,
respectively. The Company has purchased life insurance policies which it
intends to use to satisfy estimated future obligations under the plan.
Net defined benefit pension costs, including the nonqualified supplemental
retirement plan, consisted of the following:
<TABLE>
<CAPTION>
(in thousands)
Year ended JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost for
the period $ 2,176 $2,071 $ 2,113
Interest cost on
projected benefit
obligation 1,086 1,029 1,273
Actual return on
plan assets (1,481) (945) (1,931)
Net amortization
and deferral (186) (528) 921
------- ------ -------
Total pension expense $ 1,595 $1,627 $ 2,376
======= ====== =======
</TABLE>
The following table sets forth the status of the pension plan:
<TABLE>
<CAPTION>
(in thousands) JAN. 29, 1994 Jan. 30, 1993
- - --------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 11,944 $ 9,647
======== ========
Accumulated benefit obligation $ 13,218 $ 10,527
======== ========
Projected benefit obligation $ 13,827 $ 10,924
Plan assets at fair value (18,393) (14,196)
-------- -------
Plan assets over benefit obligation (4,566) (3,272)
Unrecognized prior service credit 3,590 3,949
Unrecognized net gain 1,242 2,108
Unrecognized net asset existing
at the beginning of the year 1,112 1,267
-------- --------
Accrued pension liability recog-
nized in the financial statements $ 1,378 $ 4,052
======== ========
</TABLE>
Assumptions used in calculating the status of the pension plan were as
follows:
<TABLE>
<CAPTION>
JAN. 29, 1994 Jan. 30, 1993 Feb. 1, 1992
- - -----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Discount rate 8.0% 8.5% 8.5%
Rate of increase in
compensation levels 4.8% 5.5% 5.5%
Expected long-term rate
of return on assets 9.0% 9.0% 9.0%
</TABLE>
In December 1990, Statement of Financial Accounting Standards No. 106
("SFAS 106"), Employers' Accounting for Postretirement Benefits Other Than
Pensions, was issued. SFAS 106 requires that postretirement benefits, paid by
the employer, be accounted for during the years of the retirees' active
employment. The Company adopted the statement as of the first quarter of 1993
and is recognizing the transition obligation prospectively over future periods
as a component of the annual benefit plans and retirement expense. The impact
on net earnings and the financial position of the Company in 1993 from adopting
SFAS 106 was not material.
Total expenses related to all of the above plans amounted to $5.2 million,
$5.3 million and $8.2 million, for the years 1993, 1992 and 1991, respectively.
STOCK COMPENSATION PLANS. In 1991, stockholders approved the Hechinger Company
1991 Stock Incentive Plan (the "Incentive Plan"). The Incentive Plan
authorizes the issuance of Class A common stock as incentive and nonqualified
stock options and restricted stock to eligible employees of the Company. Such
grants can be made at any time through June 2001. At January 29, 1994, 1.9
million shares were available for future grants.
Incentive stock options granted must be at the fair market value on the
date of grant. Nonqualified stock options may be granted at a price not less
than 40% of the fair market value at the date of the grant. Options granted
under the plan are exercisable beginning two years after the date of grant and
over the succeeding eight years, after which time they expire. In each of the
last three fiscal years ended January 29, 1994, nonqualified stock options were
granted. At January 29, 1994, options to purchase 1.8 million shares were
exercisable.
21
<PAGE> 24
A summary of shares issuable under stock options outstanding is as follows:
<TABLE>
<CAPTION>
Shares Weighted Average
(in thousands) Price Per Share
- - -------------------------------------------------------------------------------
<S> <C> <C>
Balance, Feb. 2, 1991 1,623 $ 15.69
Granted 915 9.26
Canceled (144) 14.70
Exercised (18) 4.81
Balance, Feb. 1, 1992 2,376 13.34
Granted 597 12.93
Canceled (342) 13.77
Exercised (13) 5.32
Balance, Jan. 30, 1993 2,618 13.23
GRANTED 980 9.02
CANCELED (510) 13.08
EXERCISED (32) 8.62
BALANCE, JAN. 29, 1994 3,056 $11.96
</TABLE>
The Company awarded 20,000; 195,000 and 267,826 shares of Class A common
stock on a restricted basis, to certain key executives of the Company for the
years 1993, 1992 and 1991, respectively. Under the terms of the awards, the
stock will vest over a period not to exceed five years.
In 1990, the Company established a performance share plan which awards
officers and key employees of the Company rights to earn shares of Class A
common stock at no cost if certain performance goals are met. In 1993, the
Company reserved 21,000 shares for distribution under the plan. At January 29,
1994, 484,000 shares were available for future awards.
Total charges to earnings for these plans amounted to $.8 million, $.9
million and $.6 million, for the years 1993, 1992 and 1991, respectively.
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
HECHINGER COMPANY
We have audited the accompanying consolidated balance sheets of Hechinger
Company and subsidiaries as of January 29, 1994 and January 30, 1993 and the
related consolidated statements of operations, stockholders' equity and cash
flows for each of the three years in the period ended January 29, 1994. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Hechinger
Company and subsidiaries at January 29, 1994 and January 30, 1993 and the
consolidated results of their operations and their cash flows for each of the
three years in the period ended January 29, 1994 in conformity with generally
accepted accounting principles.
/s/ ERNST & YOUNG
Washington, D.C.
February 25, 1994
22
<PAGE> 25
HECHINGER COMPANY
PRICE RANGE OF COMMON STOCK
Hechinger Company common stock is listed on the National Market System of the
Nasdaq Stock Market. The following table sets forth high and low prices from
the National Association of Securities Dealers Monthly Statistical Report on
the Company's stock for the periods designated. The Company currently has
approximately 3,778 Class A and 1,261 Class B stockholders of record.
The Company has declared cash dividends of $.04 per share on the Class A
common and $.016 per share on the Class B common in each of the quarters
presented.
<TABLE>
<CAPTION>
1993 1992
-------------- --------------
PERIOD HIGH LOW Period High Low
- - --------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C> <C>
1ST QUARTER 1st Quarter
CLASS A $10 1/2 $8 1/8 Class A $14 1/2 $10
CLASS B 10 1/2 8 Class B 14 3/4 10 1/2
2ND QUARTER 2nd Quarter
CLASS A 10 3/8 9 Class A 12 8 1/2
CLASS B 10 3/4 8 3/4 Class B 12 9 1/4
3RD QUARTER 3rd Quarter
CLASS A 12 1/8 8 1/8 Class A 12 8 3/4
CLASS B 12 1/4 8 1/4 Class B 12 1/4 9 1/4
4TH QUARTER 4th Quarter
CLASS A 11 3/8 9 1/8 Class A 11 9 3/8
CLASS B 11 1/2 9 Class B 11 9 1/2
</TABLE>
QUARTERLY RESULTS (UNAUDITED)
(in thousands except per share data)
The following table sets forth summarized unaudited quarterly results for the
years ended January 29, 1994 and January 30, 1993:
<TABLE>
<CAPTION>
QUARTER ENDED MAY 1, 1993 JULY 31, 1993 OCT. 30, 1993 JAN. 29, 1994
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $479,144 $609,233 $524,264 $482,327
COST OF SALES 371,289 471,854 412,732 376,827
INCOME TAX EXPENSE 1,450 8,037 1,077 47
NET EARNINGS 3,228 17,894 2,395 1,243
NET EARNINGS PER COMMON SHARE $.08 $.41 $.06 $.03
</TABLE>
<TABLE>
<CAPTION>
Quarter Ended May 2, 1992 Aug. 1, 1992 Oct. 31, 1992 Jan. 30, 1993
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $439,876 $549,673 $464,041 $415,759
Cost of sales 335,675 417,571 362,439 316,655
Income tax (benefit) expense (22,931) 6,945 2,177 (1,620)
Net (loss) earnings (51,041) 15,457 6,532 2,780
Net (loss) earnings per common share $(1.22) $.36 $.16 $.07
</TABLE>
Final LIFO valuation and inventory acquisition cost adjustments impacted the
fourth quarters of 1993 and 1992. Revised estimates for Targeted Jobs Tax
credits (due to the extension of the credit by Congress) as well as lower than
anticipated earnings impacted the effective income tax rate in the fourth
quarter of 1993. Higher than anticipated tax-free earnings on investments and
Targeted Jobs Tax Credits impacted the effective income tax rate in the fourth
quarter of 1992. A Strategic Reserve of $83 million, pre-tax, was recorded in
the first quarter of fiscal 1992 to cover estimated costs associated with the
repositioning of Hechinger Stores Company. See Notes to Consolidated Financial
Statements and Management's Discussion and Analysis of Financial Condition and
Results of Operations.
23
<PAGE> 26
DIRECTORS AND OFFICERS
DIRECTORS
JOHN W. HECHINGER
Chairman of the Board
HERBERT J. BRONER
Retired Chairman, President
and Chief Executive Officer,
Mohasco Corporation
JOHN W. HECHINGER, JR.
President and Chief
Executive Officer, Hechinger Company
S. ROSS HECHINGER
Senior Vice President --
Corporate Administration,
Hechinger Company
ANN D. JORDAN
Former Associate
Fieldwork Professor, SSA
University of Chicago,
Consultant
DAVID O. MAXWELL
Retired Chairman and
Chief Executive Officer,
Federal National Mortgage Association
W. CLARK MCCLELLAND
Executive Vice President
and Chief Financial Officer,
Hechinger Company
ALAN J. ZAKON
Managing Director,
Bankers Trust Company
CORPORATE OFFICERS
JOHN W. HECHINGER
Chairman of the Board
JOHN W. HECHINGER, JR.
President and
Chief Executive Officer
W. CLARK MCCLELLAND
Executive Vice President
and Chief Financial Officer
S. ROSS HECHINGER
Senior Vice President --
Corporate Administration
ROGER K. WRIGHT
Senior Vice President --
Real Estate and Development
CARY G. ADAMS
Vice President --
Real Estate
MARK R. ADAMS
Vice President, Treasurer
and Secretary
THOMAS C. BARBUTI
Vice President --
Real Estate Counsel
RICHARD S. GROSS
Corporate Controller
OFFICERS
HECHINGER STORES COMPANY
KENNETH J. CORT
President and
Chief Executive Officer
J. WAYNE COLLEY
Senior Vice President --
Merchandise Presentation
SALLY A. COURTNEY
Senior Vice President --
General Merchandise Manager
GARY E. MERCER
Senior Vice President --
Store Operations
CAROL A. STEVENS
Senior Vice President --
Human Resources
JOANNE M. BARRETT
Vice President --
Divisional Merchandise Manager
JAMES F. IAMPIERI
Vice President --
Merchandise Administration
G. MICHAEL KING
Vice President --
Regional Manager
ANN B. MCCLENAHAN
Vice President --
Marketing and Advertising
PETER J. OLLE
Vice President --
Information Systems
RICHARD A. POVLAK
Vice President --
Loss Prevention and Distribution
GARY G. RHEA
Vice President --
Regional Manager
MAX S. ROBUCK
Vice President --
Divisional Merchandise Manager
OFFICERS
HOME QUARTERS
WAREHOUSE, INC.
FRANK C. DOCZI
President and
Chief Executive Officer
HAROLD R. HALL
Senior Vice President --
Finance
J. MICHAEL PASTORE
Senior Vice President --
General Merchandise Manager
WILLIAM VAN NOTE
Senior Vice President --
Operations
MICHAEL P. GOOD
Vice President and Controller
FREDRIC W. HIRCHERT
Vice President --
Loss Prevention and Safety
JOHN T. LEWIS
Vice President --
Construction
ALAN B. NOEL
Vice President --
Human Resources
CELIA A. WING
Vice President --
Real Estate
RICHARD M. DOW
Regional Vice President --
Operations
J. MICHAEL OWEN
Regional Vice President --
Operations
24
<PAGE> 27
CORPORATE INFORMATION
GENERAL COUNSEL
Skadden, Arps, Slate, Meagher & Flom
919 Third Avenue
New York, New York 10022-9931
INDEPENDENT AUDITORS
Ernst & Young
1225 Connecticut Avenue, N.W.
Washington, D.C. 20036
STOCK TRANSFER AGENT
First Union National Bank
Shareholder Services Group
230 South Tryon Street
Charlotte, North Carolina 28288-1154
Information contact:
J. Dean Presson
1-800-829-8432
CORPORATE MAILING ADDRESS
Hechinger Company
3500 Pennsy Drive
Landover, Maryland 20785
(301) 341-1000
SUBSIDIARY MAILING ADDRESSES
Hechinger Stores Company
1801 McCormick Drive
Landover, Maryland 20785
(301) 341-1000
Home Quarters Warehouse, Inc.
575 Lynnhaven Parkway
Virginia Beach, Virginia 23450
(804) 498-7100
STOCK EXCHANGE LISTING
National Market System of the NASDAQ Stock Market
TRADING SYMBOLS
HECHA and HECHB
FORM 10-K
Copies of the Company's Annual Report on Form 10-K Report as filed with the
Securities and Exchange Commission will be sent to stockholders upon request in
writing to:
Hechinger Company
Investor Relations
3500 Pennsy Drive
Landover, Maryland 20785
<TABLE>
<CAPTION>
ASSOCIATE PHOTOGRAPHS
<S> <C>
Page 1 WENDY BRYANT
Merchandise Coordinator
Hechinger Stores Company
CURTIS DAVIS
Operations Manager
Home Quarters Warehouse
Page 3 MINA HAMMETT
Contractor Sales
Home Quarters Warehouse
Page 5 JACK MCNUTT
Hardware Sales
Hechinger Stores Company
MARQUITA LAWTON
Cashier
Home Quarters Warehouse
Page 7 MICHAEL PETELA
Department Manager
Hechinger Stores Company
Page 8 CHRIS WALKER
Kitchen Design Specialist
Home Quarters Warehouse
LORI ROBINSON
Front End Supervisor
Hechinger Stores Company
</TABLE>
DESIGN: FINANCIAL COMMUNICATIONS, INC., BETHESDA, MD
[RECYCLE LOGO]
PRINTED ENTIRELY ON RECYCLED PAPER.
AT HECHINGER, WE BELIEVE SAVING AND PROTECTING THE ENVIRONMENT IS EVERYONE'S
BUSINESS.
<PAGE> 28
Hechinger Company
3500 Pennsy Drive
Landover, Maryland 20785
(301) 341-1000
<PAGE> 29
APPENDIX
NARRATIVE DESCRIPTION OF ANNUAL REPORT PHOTOS AND MAP
ANNUAL REPORT COVER
Hechinger Company, Annual Report year ended January 29, 1994.
Exterior sign photos of a Home Quarters Warehouse store sign and a
Hechinger store sign.
PAGE 1
Two photos of store employees and an interior photo of Home Quarters
Warehouse store.
PAGE 2
Exterior photos of a Home Quarters Warehouse store and a Hechinger
store.
A photo of John Hechinger, Jr., President and Chief Executive Officer.
PAGE 3
One photo of a store employee and two photos of products (paint
brushes and pliers).
PAGE 4
Interior photos of a Home Quarters Warehouse store and a Hechinger
store.
PAGE 5
Two photos of store employees and one product photo (drills).
PAGE 6
Interior photos of a Home Quarters Warehouse store and a Hechinger
store.
PAGE 7
One photo of a store employee and two photos of products (tape
measures and lawn mowers).
PAGE 8
Map showing Hechinger Company markets (state locations of Home
Quarters Warehouse stores and Hechinger stores). Two photos of store
employees and one product photo (pipe).
<PAGE> 1
Exhibit 21
HECHINGER COMPANY
SUBSIDIARIES OF THE REGISTRANT
<TABLE>
<CAPTION>
STATE OF
NAME INCORPORATION
- - ---- -------------
<S> <C>
Hechinger Company of Connecticut Delaware
Hechinger Company of Delaware Delaware
Hechinger Company of Maryland Delaware
Hechinger Company of Massachusetts Delaware
Hechinger Company of New Jersey Delaware
Hechinger Company of New York Delaware
Hechinger Company of Ohio Delaware
Hechinger Company of Pennsylvania Delaware
Hechinger Investment Company of Delaware, Inc. Delaware
Hechinger Stores Company Delaware
Hechinger Towers Company Delaware
HCNC, Inc. Delaware
HCSC, Inc. Delaware
HS Square, Inc. Delaware
HQ Investment Company of Delaware, Inc. Delaware
HQ of Livonia Delaware
HQ of Massachusetts, Inc. Delaware
HQ of Michigan, Inc. Delaware
HQ of New Hampshire, Inc. Delaware
HQ of Roseville, Inc. Delaware
Home Quarters Realty, Inc. Virginia
Home Quarters Warehouse, Inc. Delaware
Pennsy, Inc. Delaware
Trisett Company Delaware
Bucksprop Holding Company Pennsylvania
EP Holdings, Inc. Delaware
HProp, Inc. Delaware
Lynnhaven Offices, Inc. Delaware
Manprop Holding Company Virginia
Philprop Holding Company Pennsylvania
RemProp, Inc. Delaware
SuperMass Holdings, Inc. Delaware
Ventory, Inc. Delaware
</TABLE>
48
<PAGE> 1
EXHIBIT 23
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Hechinger Company of our report dated February 25, 1994, included in the
Annual Report to Stockholders of Hechinger Company for the year ended January
29, 1994.
Our audits also included the financial statement schedules of Hechinger Company
listed in Item 14(a). These schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedules referred to above, when
considered in relation to the basic financial statements taken as a whole,
present fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-3182 and Form S-8 No. 33-27134) pertaining to the
stock option plans of Hechinger Company, and in the Registration Statement
(Form S-4 No. 33-31668) pertaining to the merger with HECO, Inc., and in the
Registration Statement (From S-8 No. 33-46847) pertaining to the 1991 Stock
Incentive Plan of Hechinger Company, with respect to the consolidated financial
statements incorporated herein by reference and our report included in the
preceding paragraph with respect to the financial statement schedules included
in this Annual Report (Form 10-K) of Hechinger Company.
ERNST & YOUNG
Washington, DC
April 27, 1994
