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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
CHECK ONE
x Quarterly report pursuant to Section 13 or 15(d) of the Securities
- - ------ Exchange Act of 1934 for the thirteen weeks ended April 30, 1994 or
Transition report pursuant to Section 13 or 15(d) of the Securities
- - ------ Exchange Act of 1934
COMMISSION FILE NUMBER 0-7214
HECHINGER COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1001530
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
3500 PENNSY DRIVE, LANDOVER, MARYLAND 20785
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (301) 341-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of June 7, 1994.
29,869,948 shares of Class A Common Stock, $.10 par value
12,382,498 shares of Class B Common Stock, $.10 par value
1 of 13
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HECHINGER COMPANY AND SUBSIDIARIES
INDEX TO FORM 10-Q
THIRTEEN WEEKS ENDED APRIL 30, 1994
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- - ----------- ----
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3 - 4
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 5
Index to Exhibits 7
</TABLE>
2
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PART I
ITEM 1. FINANCIAL STATEMENTS
The information called for by this item is hereby incorporated by reference
from Exhibits 99(a) - 99(e) of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the sales reported by the Company (in millions):
<TABLE>
<CAPTION>
TOTAL TOTAL TOTAL COMPARABLE
SALES SALES SALES STORE SALES
PERIOD: APR. 30, 1994 MAY 1, 1993 INCREASE INCREASE
- - ------- ------------- ----------- -------- ------------
<S> <C> <C> <C> <C>
Thirteen weeks $574.3 $479.1 20% 6%
</TABLE>
The sales increases for the thirteen weeks ended April 30, 1994 were primarily
due to new stores opened since May 1, 1993.
The following table sets forth the number of stores operated by the Company:
<TABLE>
<CAPTION>
HECHINGER HOME
STORES QUARTERS TRIANGLE TOTAL
----------- -------- -------- -----
<S> <C> <C> <C> <C>
As of May 1, 1993 71 45 6 122
Second quarter 1993 openings - 1 - 1
Second quarter 1993 closings - (1) (2) (3)
As of July 31, 1993 71 45 4 120
Third quarter 1993 openings 2 7 - 9
Third quarter 1993 closings (1) - (4) (5)
As of October 30, 1993 72 52 - 124
Fourth quarter 1993 openings - 1 - 1
Fourth quarter 1993 closings - - - -
As of January 30, 1994 72 53 - 125
First quarter 1994 openings 1 3 - 4
First quarter 1994 closings (1) - - (1)
---- ---- ---- ----
As of April 30, 1994 72 56 - 128
==== ==== ==== ====
</TABLE>
For the thirteen weeks ended April 30, 1994, other income, which consists
primarily of interest income, was $.4 million, .1% of sales, compared to $.9
million, .2% of sales, for the corresponding period last year. The decrease
was primarily the result of a loss of $.6 million on the sale of an excess
parcel of land.
For the thirteen weeks ended April 30, 1994, cost of sales was 78.0% of sales
compared to 77.5% of sales for the corresponding period last year. As a
percent of sales, the increase was primarily due to a lower gross margin at
Hechinger Stores Company this year compared to last year.
For the thirteen weeks ended April 30, 1994, selling, general and
administrative expenses were 19.6% of sales
3
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compared to 20.6% of sales for the corresponding period last year. The
decrease was due to cost reduction efforts at the Hechinger Stores Company and
the growing effect of Home Quarters which operates with a lower cost structure.
Pre-opening expenses of $3.0 million and $1.3 million are included in selling,
general and administrative expenses for the thirteen weeks ended April 30, 1994
and May 1, 1993, respectively.
For the thirteen weeks ended April 30, 1994, interest expense was $7.2 million,
1.3% of sales, compared to $5.3 million, 1.1% of sales, for the corresponding
period last year. The increase was the result of the issuance of $100 million
of Senior Notes in October 1993.
For the thirteen weeks ended April 30, 1994, the effective tax rate was 34.0%
compared to 31.0% for the corresponding period last year. The effective tax
rate increase was primarily due to the increase in the Federal income tax rate
and increases in state income tax rates. The effective tax rates differ from
the statutory tax rate primarily due to the effect of tax credits and tax-free
earnings on funds available for investment.
For the thirteen weeks ended, net earnings was $4.6 million, $.11 per share,
compared to $3.2 million, $.08 per share, for the same period last year.
In May 1993, Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments in Debt and Equity Securities, was issued.
The Company adopted this statement as of the first quarter of 1994 and is
classifying its investments in debt and equity securities as
available-for-sale. Under this classification, securities are carried at fair
value, with unrealized gains and losses excluded from earnings and instead
reported in stockholders' equity until realized. In accordance with SFAS 115,
prior period financial statements have not been restated to reflect the change
in accounting principle. The cumulative effect of adopting SFAS 115 in the
first quarter of 1994 on stockholders' equity was insignificant.
Cash and cash equivalents and marketable securities were $167.9 million as of
April 30, 1994 compared to $170.7 million as of January 29, 1994. The increase
in cash provided from operations was primarily due to the increase in earnings
and higher accounts payables as a percent of inventory. The increase in
merchandise inventory is due to new store openings as well as an expected
increase in seasonal inventory levels at existing stores. The increase in
accounts payable and accrued expenses was primarily due to increases in
inventory. The increase in property, furniture and equipment is primarily
related to new stores and the remodelling of certain stores.
4
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PART II
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DOCUMENT
------ --------
<S> <C>
11 Statement Regarding Computation of Earnings Per Share
99(a) Consolidated Statements of Operations
99(b) Consolidated Balance Sheets
99(c) Consolidated Statements of Cash Flows
99(d) Consolidated Statement of Stockholders' Equity
99(e) Notes to Consolidated Financial Statements
</TABLE>
(B) REPORTS ON FORM 8-K
None.
5
<PAGE> 6
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 10, 1994 HECHINGER COMPANY
-----------------
Registrant
/S/W. CLARK McCLELLAND
----------------------------
W. Clark McClelland
Executive Vice President and
Chief Financial Officer
(Principal Financial Officer)
6
<PAGE> 7
HECHINGER COMPANY AND SUBSIDIARIES
INDEX TO EXHIBITS
FORM 10-Q FOR THIRTEEN WEEKS ENDED APRIL 30, 1994
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- - ----------- ----
<S> <C> <C>
11 Statement Regarding Computation of Earnings Per Share 8
99(a) Consolidated Statements of Operations 9
99(b) Consolidated Balance Sheets 10
99(c) Consolidated Statements of Cash Flows 11
99(d) Consolidated Statements of Stockholders' Equity 12
99(e) Notes to Consolidated Financial Statements 13
</TABLE>
7
<PAGE> 1
Exhibit 11
HECHINGER COMPANY AND SUBSIDIARIES
STATEMENT REGARDING COMPUTATION OF EARNINGS (LOSS) PER SHARE
(unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended
--------------------------------------
Apr. 30, 1994 May 1, 1993
-------------- -------------
<S> <C> <C>
Net earnings $4,645,000 $3,228,000
Interest on 5-1/2% convertible
debentures, net of tax benefit (1) - -
------------- -------------
Net earnings for primary and
fully diluted earnings per share $4,645,000 $3,228,000
============= =============
Weighted average shares outstanding 41,865,193 41,724,600
Dilutive effect of stock options and
restricted stock and performance
share awards after application
of the treasury stock method (1) 378,092 133,527
Additional shares issuable assuming
full conversion of the 5-1/2%
debentures into Class A common
stock (1) - -
------------- -------------
Common and common equivalent
shares outstanding for primary
earnings per share 42,243,285 41,858,127
Additional dilution from stock
options and restricted stock
and performance share awards
after application of the
treasury stock method (1) 185,916 14,224
------------- -------------
Common and common equivalent
shares outstanding for fully
diluted earnings per share 42,429,201 41,872,351
============= =============
Primary earnings per common share $0.11 $0.08
===== =====
Fully diluted earnings per common share $0.11 $0.08
===== =====
</TABLE>
(1) The 5-1/2% Convertible Subordinated Debentures were antidilutive for the
13 weeks ended April 30, 1994 and May 1, 1993.
Page 8
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Exhibit 99(a)
Hechinger Company and Subsidiaries
Consolidated Statements of Operations
(unaudited)
(in thousands except share data)
<TABLE>
<CAPTION>
13 Weeks Ended
-------------------------------------
Apr. 30, 1994 May. 1, 1993
------------- -------------
<S> <C> <C>
REVENUES
Net sales $574,301 $479,144
Other (principally interest) 420 911
------------- -------------
Total Revenues 574,721 480,055
COSTS AND EXPENSES
Cost of sales 448,151 371,289
Selling, general and administrative expenses 112,336 98,813
Interest expense 7,197 5,275
------------- -------------
Total Costs and Expenses 567,684 475,377
------------- -------------
EARNINGS BEFORE INCOME TAXES 7,037 4,678
INCOME TAX EXPENSE 2,392 1,450
------------- -------------
NET EARNINGS $4,645 $3,228
============= =============
PRIMARY AND FULLY DILUTED EARNINGS
PER COMMON SHARE: $0.11 $0.08
===== =====
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 42,243 41,858
Fully diluted 42,429 41,872
DIVIDENDS PER SHARE:
Class A common $0.04 $0.04
Class B common $0.02 $0.02
</TABLE>
See notes to consolidated financial statements.
Page 9
<PAGE> 1
Exhibit 99(b) Hechinger Company and Subsidiaries
Consolidated Balance Sheets
(in thousands except share data)
<TABLE>
<CAPTION>
(unaudited)
Apr. 30, 1994 Jan. 29, 1994
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $48,794 $19,675
Marketable securities at fair value 119,188 150,989
Merchandise inventories 489,590 400,366
Other current assets 57,074 50,200
------------- -------------
TOTAL CURRENT ASSETS 714,646 621,230
PROPERTY, FURNITURE and EQUIPMENT, net 507,419 482,503
COST IN EXCESS OF NET ASSETS ACQUIRED, net 56,679 57,098
LEASEHOLD ACQUISITION COSTS, net 54,243 54,812
OTHER ASSETS 11,717 13,599
------------- -------------
TOTAL ASSETS $1,344,704 $1,229,242
============= =============
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
Apr. 30, 1994 Jan. 29, 1994
---------------- --------------
<S> <C> <C>
LIABILITIES and STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $400,714 $291,182
Income taxes payable 983 -
Current portion of long-term debt
and capital lease obligations 3,129 3,068
------------- -------------
TOTAL CURRENT LIABILITIES 404,826 294,250
LONG-TERM DEBT 386,023 386,116
CAPITAL LEASE OBLIGATIONS 21,157 21,757
DEFERRED RENT 28,021 28,493
DEFERRED INCOME TAXES 5,804 4,759
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value;
authorized 50,000,000 shares; issued
29,801,398 and 28,812,090 2,980 2,881
Class B common stock, $.10 par value;
authorized 30,000,000 shares; issued
12,427,587 and 13,312,356 1,243 1,331
Additional paid-in capital 237,274 236,543
Retained earnings 259,777 256,836
Unearned compensation (2,051) (2,201)
Less treasury stock at cost, 6,706
and 92,769
Class A common shares and
14,497 and 14,497
Class B common shares (350) (1,523)
------------- -------------
TOTAL STOCKHOLDERS' EQUITY 498,873 493,867
------------- -------------
TOTAL LIABILITIES and STOCKHOLDERS'
EQUITY $1,344,704 $1,229,242
============= =============
</TABLE>
See notes to consolidated financial statements.
Page 10
<PAGE> 1
Exhibit 99(c) Hechinger Company and Subsidiaries
Consolidated Statements of Cash Flows
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
13 Weeks Ended
---------------------------------
Apr. 30, 1994 May 1, 1993
------------- -------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING
ACTIVITIES
Net earnings $4,645 $3,228
Adjustments to reconcile earnings to net cash
provided by operating activities:
Unusual charges (1,698) 0
Depreciation and amortization 12,277 10,763
Deferred income taxes 639 (195)
Deferred rent expense (472) 657
---------- ----------
15,391 14,453
---------- ----------
CHANGE IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories (89,224) (74,155)
Other current assets (6,932) (8,376)
Accounts payable and accrued expenses 111,424 79,432
Income taxes payable 1,447 (1,274)
---------- ----------
16,715 (4,373)
---------- ----------
NET CASH FLOWS PROVIDED FROM OPERATIONS 32,106 10,080
---------- ----------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for property, furniture, equipment
and other assets, net of disposals (34,713) (27,369)
Marketable securities:
Purchases (60,783) (20,296)
Proceeds from sales 92,584 64,237
---------- ----------
NET CASH FLOWS (USED IN) FROM INVESTING
ACTIVITIES (2,912) 16,572
---------- ----------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Dividends paid to stockholders (1,391) (1,358)
Stock options exercised 1,422 0
Other (106) (62)
---------- ----------
NET CASH USED IN FINANCING ACTIVITIES (75) (1,420)
---------- ----------
INCREASE IN CASH AND CASH EQUIVALENTS 29,119 25,232
---------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,675 12,341
---------- ----------
CASH AND CASH EQUIVALENTS AT END OF QUARTER $48,794 $37,573
========== ==========
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $290 $233
Cash payments for interest, net of amount
capitalized $6,984 $6,230
</TABLE>
See notes to consolidated financial statements.
Page 11
<PAGE> 1
Exhibit 99(d) Hechinger Company
Consolidated Statements of Stockholders' Equity
(in thousands except share data)
<TABLE>
<CAPTION>
Class A Class B Additional
Common Common Paid-in Retained
Stock Stock Capital Earnings
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balance, Jan. 30, 1993 $2,877 $1,348 $238,356 $237,517
Restricted stock awards, 20,000 Class A common shares 2 - 178 -
Restricted stock awards earned, net of forfeitures (15) - (1,811) -
Exercise of stock options including income tax benefit
(32,519 Class A common shares were issued from the
treasury) - - (180) -
Conversions from Class B to Class A common stock 17 (17) - -
Purchase of treasury stock (18,938 Class A common shares
and 1 Class B common share) - - - -
Cash dividends, Class A common stock ($.16 per share) - - - (4,587)
Cash dividends, Class B common stock ($.06 per share) - - - (854)
Net earnings - - - 24,760
----------- ----------- ----------- -----------
Balance, Jan. 29, 1994 2,881 1,331 236,543 256,836
Restricted stock awards earned, net of forfeitures - - - -
Performance stock awards earned and issued 5 - 576 -
Exercise of stock options including income tax benefit
(92,670 Class A common shares were issued from the
treasury) 6 - 155 -
Conversions from Class B to Class A common stock 88 (88) - -
Purchase of treasury stock (6,607 Class A common shares) - - - -
Adjustment to fair value of marketable securities - - - (313)
Cash dividends, Class A common stock ($.04 per share) - - - (1,192)
Cash dividends, Class B common stock ($.02 per share) - - - (199)
Net earnings - - - 4,645
----------- ----------- ----------- -----------
Balance, April 30, 1994 $2,980 $1,243 $237,274 $259,777
----------- ----------- ----------- -----------
</TABLE>
<TABLE>
<CAPTION>
Unearned Treasury
Compensation Stock Total
------------ ----------- -----------
<S> <C> <C> <C>
Balance, Jan. 30, 1993 ($4,367) ($1,807) $473,924
Restricted stock awards, 20,000 Class A common shares (172) - 8
Restricted stock awards earned, net of forfeitures 2,338 - 512
Exercise of stock options including income tax benefit
(32,519 Class A common shares were issued from the
treasury) - 361 181
Conversions from Class B to Class A common stock - - -
Purchase of treasury stock (18,938 Class A common shares
and 1 Class B common share) - (77) (77)
Cash dividends, Class A common stock ($.16 per share) - - (4,587)
Cash dividends, Class B common stock ($.06 per share) - - (854)
Net earnings - - 24,760
----------- ----------- -----------
Balance, Jan. 29, 1994 (2,201) (1,523) 493,867
Restricted stock awards earned, net of forfeitures 150 - 150
Performance stock awards earned and issued - - 581
Exercise of stock options including income tax benefit
(92,670 Class A common shares were issued from the
treasury) - 1,261 1,422
Conversions from Class B to Class A common stock - - -
Purchase of treasury stock (6,607 Class A common shares) - (88) (88)
Adjustment to fair value of marketable securities - - (313)
Cash dividends, Class A common stock ($.04 per share) - - (1,192)
Cash dividends, Class B common stock ($.02 per share) - - (199)
Net earnings - - 4,645
----------- ----------- -----------
Balance, April 30, 1994 ($2,051) ($350) $498,873
----------- ----------- -----------
</TABLE>
See notes to consolidated financial statements.
Page 12
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Exhibit 99(e)
HECHINGER COMPANY AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED APRIL 30, 1994
(UNAUDITED)
A. BASIS OF PRESENTATION
In the opinion of management of Hechinger Company (the "Company"), the
accompanying unaudited consolidated financial statements include all
adjustments (which consist of normal recurring accruals) considered necessary
for a fair statement of the results for the interim periods presented. The
operating results for the thirteen weeks ended April 30, 1994 are not
necessarily indicative of the results to be expected for the fiscal year ending
January 28, 1995.
Certain amounts in the financial statements for the thirteen weeks ended May 1,
1993 have been reclassified to conform to the presentation for the thirteen
weeks ended April 30, 1994.
The financial statements presented herein should be read in conjunction with
the financial statements incorporated by reference in the Company's Annual
Report on Form 10-K for the year ended January 29, 1994.
B. CHANGE IN ACCOUNTING PRINCIPLE
In May 1993, Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments in Debt and Equity Securities, was issued.
The Company adopted this statement as of the first quarter of 1994 and is
classifying its investments in debt and equity securities as
available-for-sale. Under this classification, securities are carried at fair
value, with unrealized gains and losses excluded from earnings and instead
reported in stockholders' equity until realized. In accordance with SFAS 115,
prior period financial statements have not been restated to reflect the change
in accounting principle. The cumulative effect of adopting SFAS 115 in the
first quarter of 1994 on stockholders' equity was insignificant.
C. MERCHANDISE INVENTORY
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs. Interim results are subject to
the final year-end LIFO inventory valuation.
All inventories reported at April 30, 1994 and January 29, 1994 were valued
using the LIFO inventory valuation method. If all inventories had been valued
under the FIFO method, which approximates replacement cost, inventories would
have been $18.2 million and $17.0 million higher than reported at April 30,
1994 and January 29, 1994, respectively.
D. TAXES ON INCOME
For the thirteen weeks ended April 30, 1994, the effective tax rate was 34.0%
compared to 31.0% for the corresponding period last year. The effective tax
rate increase was primarily due to the increase in the Federal income tax rate
and increases in state income tax rates. The effective tax rates differ from
the statutory tax rate primarily due to the effect of tax credits and tax-free
earnings on funds available for investment.
13
