<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
CHECK ONE
x Quarterly report pursuant to Section 13 or 15(d) of the Securities
- - ---- Exchange Act of 1934 for the thirteen weeks ended October 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
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 December 7, 1994.
30,793,411 shares of Class A Common Stock, $.10 par value
11,520,330 shares of Class B Common Stock, $.10 par value
1 of 15
<PAGE> 2
HECHINGER COMPANY
INDEX TO FORM 10-Q
THIRTEEN WEEKS ENDED OCTOBER 29, 1994
<TABLE>
<CAPTION>
DESCRIPTION PAGE
- - ----------- ----
<S> <C> <C>
Part I. Financial Information:
Item 1. Financial Statements 3
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 3 - 4
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K 5
Index to Exhibits 7
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
The information called for by this item is hereby incorporated by reference
from Exhibits 99(a) - 99(e) of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the sales reported by the Company (in millions):
<TABLE>
<CAPTION>
TOTAL TOTAL TOTAL COMPARABLE
SALES SALES SALES STORE SALES
PERIOD: OCT. 29, 1994 OCT. 30, 1993 INCREASE INCREASE
- - ------- ------------- ------------- -------- ------------
<S> <C> <C> <C> <C>
Thirteen weeks $633.9 $524.3 21% 1%
Thirty-nine weeks $1,917.0 $1,612.6 19% 2%
</TABLE>
The sales increases for the thirteen weeks and thirty-nine weeks ended October
29, 1994 were due primarily to new stores opened since October 30, 1993.
The following table sets forth the number of stores operated by the Company:
<TABLE>
<CAPTION>
HECHINGER HOME
STORES QUARTERS TOTAL
----------- -------- -----
<S> <C> <C> <C>
As of October 30, 1993 72 52 124
Fourth quarter 1993 openings - 1 1
Fourth quarter 1993 closings - - -
As of January 29, 1994 72 53 125
First quarter 1994 openings 1 3 4
First quarter 1994 closings (1) - (1)
As of April 30, 1994 72 56 128
Second quarter 1994 openings 1 2 3
Second quarter 1994 closings (1) - (1)
As of July 30, 1994 72 58 130
Third quarter 1994 openings - 5 5
Third quarter 1994 closings - (2) (2)
---- ---- ----
As of October 29, 1994 72 61 133
==== ==== ====
</TABLE>
For the thirteen weeks ended October 29, 1994, cost of sales was 78.9% of sales
compared to 78.7% of sales for the corresponding period last year. For the
thirty-nine weeks ended October 29, 1994, cost of sales was 78.1% compared to
77.9% for the corresponding period last year. The increase was due primarily
to a lower gross margin at Hechinger Stores Company this year compared to last
year.
For the thirteen weeks ended October 29, 1994, selling, general and
administrative expenses were 19.3% of sales compared to 20.3% of sales for the
corresponding period last year. These figures include preopening expenses and
store relocation expenses of $3.4 million and $1.6 million, respectively, for
the thirteen weeks ended October 29, 1994, as compared to preopening expenses
of $8.8 million for the corresponding period last year. Excluding these
expenses, selling, general and administrative expenses for the thirteen weeks
ended October 29, 1994 were 18.5% of sales, as compared to 18.6% of sales for
the corresponding period last year.
For the thirty-nine weeks ended October 29, 1994, selling, general and
administrative expenses were 18.6% compared to 19.4% for the corresponding
period last year. These figures include preopening expenses and store
relocation expenses of $8.4 million and $1.6 million, respectively, for the
thirty-nine weeks ended October 29, 1994, as compared to preopening expenses of
$11.4 million for the corresponding period last year. Excluding these
expenses, selling, general and administrative expenses for the thirty-nine
weeks ended October 29, 1994 were 18.1% of sales, as compared to 18.7% of sales
for the corresponding period last year. This decrease is due primarily to
recent cost reduction efforts at Hechinger Stores Company.
3
<PAGE> 4
For the thirteen weeks ended October 29, 1994, interest expense was $7.4
million, 1.2% of sales, compared to $4.9 million, .9% of sales, for the
corresponding period last year. For the thirty-nine weeks ended October 29,
1994, interest expense was $22.2 million, 1.2% of sales, compared to $15.1
million, .9% of sales for the corresponding period last year. The increase was
due primarily to the issuance of $100 million of Senior Notes in October 1993.
For the thirteen weeks and thirty-nine weeks ended October 29, 1994, the
effective tax rate was 34.0% compared to 31.0% for the corresponding periods
last year. The effective tax rate increase was due primarily 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 and thirty-nine weeks ended October 29, 1994, the high
level of competition in certain markets where Home Quarters Warehouse operates
(primarily in North and South Carolina markets) has caused operating results in
these markets to be lower than the corresponding periods last year and has had
a negative impact on the Company's consolidated results.
For the thirteen weeks ended October 29, 1994, net earnings were $3.3 million,
$.08 per share, compared to $2.4 million, $.06 per share, for the corresponding
period last year. For the thirty-nine weeks ended October 29, 1994, net
earnings were $29.3 million, $.69 per share compared to $23.5 million, $.56 per
share for the corresponding period last year.
In May 1993, Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments in Debt and Equity Securities, was issued.
The Company adopted this statement as of the first quarter of 1994 and is
classifying its investments in marketable securities as available-for-sale.
Under this classification, marketable securities are carried at fair value,
with unrealized gains and losses excluded from earnings and instead reported in
stockholders' equity until realized. In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. The cumulative effect of adopting SFAS 115 in the first quarter of
1994, as well as the effect as of October 29, 1994 on stockholders' equity was
insignificant.
Cash and cash equivalents and marketable securities were $165.9 million as of
October 29, 1994 compared to $170.7 million as of January 29, 1994. The
increase in merchandise inventory is due to increased inventory levels at
existing stores in addition to new store openings. The increase in accounts
payable and accrued expenses was due primarily to the increase in inventory.
Net expenditures for property, furniture and equipment and other assets were
$128.2 million and $105.8 million for the thirty-nine weeks ended
October 29, 1994 and October 30, 1993, respectively. These
expenditures are related primarily to the Company's ongoing store expansion and
remodelling programs.
In August 1994, the Company sold 13 stores for $99.3 million, net of expenses,
and concurrently leased the properties back for an initial term of 25 years.
The leases are renewable at the Company's option for nine additional terms of
five years each. The Company has recorded these leases as operating leases.
In August 1994, the Company announced plans to expand its Hechinger Stores
subsidiary into Mexico. The Company expects to initially open four stores in
Mexico City beginning in late 1995.
On September 21, 1994, the Company announced its plans to offer for sale 5
million shares of Class A Common Stock. A Registration Statement relating to
these securities was filed with the Securities and Exchange Commission. On
October 21, 1994, the Company filed with the Securities and Exchange Commission
a request to withdraw the Registration Statement relating to these
securities due to a decrease in the market price of the Company's Class A
Common Stock. The Securities and Exchange Commission granted such request.
The Company is a party to several pending legal proceedings and claims arising
in the ordinary course of business. Although the outcome of such proceedings
and claims cannot be determined with certainty, management believes that the
final outcome should not have a material adverse effect on the Company's
consolidated financial position.
4
<PAGE> 5
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
27 Financial Data Schedule
99(a) Consolidated Statements of Operations
99(b) Consolidated Balance Sheets
99(c) Consolidated Statements of Cash Flows
99(d) Consolidated Statement of Stockholders' Equity
99(e) Notes to Consolidated Financial Statements
</TABLE>
(B) REPORTS ON FORM 8-K
The Current Report on Form 8-K, dated October 6, 1994, was to file the
Company's sales results for the month of September 1994.
5
<PAGE> 6
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C>
Date: December 13, 1994 HECHINGER COMPANY
-----------------
Registrant
/S/W. CLARK McCLELLAND
----------------------
W. Clark McClelland
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
</TABLE>
6
<PAGE> 7
HECHINGER COMPANY
INDEX TO EXHIBITS
FORM 10-Q FOR THIRTEEN WEEKS ENDED OCTOBER 29, 1994
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- - ----------- ----
<S> <C> <C>
11 Statement Regarding Computation of Earnings Per Share 8
27 Financial Data Schedule 9
99(a) Consolidated Statements of Operations 10
99(b) Consolidated Balance Sheets 11
99(c) Consolidated Statements of Cash Flows 12
99(d) Consolidated Statements of Stockholders' Equity 13
99(e) Notes to Consolidated Financial Statements 14 - 15
</TABLE>
7
<PAGE> 1
EXHIBIT 11
HECHINGER COMPANY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
OCT. 29,1994 OCT. 30, 1993 OCT. 29,1994 OCT. 30,1993
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
Net earnings $ 3,268,000 $ 2,395,000 $ 29,283,000 $ 23,517,000
Interest on 5-1/2% convertible debentures, net
of tax benefit (1) - - - -
-------------- --------------- -------------- --------------
Net earnings for primary and fully diluted
earnings per share $ 3,268,000 $ 2,395,000 $ 29,283,000 $ 23,517,000
============== =============== ============== ==============
Weighted average shares outstanding 42,060,574 41,748,201 41,985,847 41,733,734
Dilutive effect of stock options and restricted
stock and performance share awards after
application of the treasury stock method 438,810 262,643 457,256 195,385
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 42,499,384 42,010,844 42,443,103 41,929,119
Additional dilution from stock options and
restricted stock and performance share
awards after application of the treasury stock
method 188 327 62,068 5,126
-------------- --------------- -------------- --------------
Common and common equivalent shares
outstanding for fully diluted earnings per share 42,499,572 42,011,171 42,505,171 41,934,245
============== =============== ============== ==============
Primary earnings per common share $ 0.08 $ 0.06 $ 0.69 $ 0.56
============== =============== ============== ==============
Fully diluted earnings per common share $ 0.08 $ 0.06 $ 0.69 $ 0.56
============== =============== ============== ==============
</TABLE>
(1) The 5-1/2% Convertible Subordinated Debentures were antidilutive for the
13 weeks ended Oct. 29, 1994 and Oct. 30, 1993 and the 39 weeks ended
Oct. 29, 1994 and Oct. 30, 1993.
8
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-28-1995
<PERIOD-START> JAN-30-1994
<PERIOD-END> OCT-29-1994
<CASH> 27,269
<SECURITIES> 138,599
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 511,617
<CURRENT-ASSETS> 751,713
<PP&E> 475,051<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,350,402
<CURRENT-LIABILITIES> 384,190
<BONDS> 385,498
<COMMON> 4,231
0
0
<OTHER-SE> 518,249
<TOTAL-LIABILITY-AND-EQUITY> 1,350,402
<SALES> 1,917,045
<TOTAL-REVENUES> 1,919,986
<CGS> 1,496,322
<TOTAL-COSTS> 1,853,423
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 22,197
<INCOME-PRETAX> 44,366
<INCOME-TAX> 15,083
<INCOME-CONTINUING> 29,283
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 29,283
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
<FN>
<F1>Property, furniture and equipment, net of accumulated depreciation
</FN>
</TABLE>
<PAGE> 1
EXHIBIT 99(a)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED 39 WEEKS ENDED
OCT. 29, 1994 OCT. 30, 1993 OCT. 29,1994 OCT. 30, 1993
------------- ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 633,870 $ 524,264 $ 1,917,045 $ 1,612,641
Other (principally interest) 1,272 3,098 2,941 5,302
------------- ------------- ------------ -------------
Total Revenues 635,142 527,362 1,919,986 1,617,943
COSTS AND EXPENSES
Cost of sales 500,248 412,732 1,496,322 1,255,875
Selling, general and administrative expenses 122,503 106,291 357,101 312,864
Interest expense 7,440 4,867 22,197 15,123
------------- ------------- ------------ -------------
Total Costs and Expenses 630,191 523,890 1,875,620 1,583,862
------------- ------------- ------------ -------------
EARNINGS BEFORE INCOME TAXES 4,951 3,472 44,366 34,081
INCOME TAX EXPENSE 1,683 1,077 15,083 10,564
------------- ------------- ------------ -------------
NET EARNINGS $ 3,268 $ 2,395 $ 29,283 $ 23,517
============= ============= ============ =============
PRIMARY AND FULLY DILUTED EARNINGS
PER COMMON SHARE $ 0.08 $ 0.06 $ 0.69 $ 0.56
============= ============= ============ =============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 42,499 42,011 42,443 41,929
Fully diluted 42,500 42,011 42,505 41,934
DIVIDENDS PER SHARE:
Class A common stock $ 0.04 $ 0.04 $ 0.12 $ 0.12
Class B common stock $ 0.02 $ 0.02 $ 0.05 $ 0.05
</TABLE>
See notes to consolidated financial statements.
10
<PAGE> 1
EXHIBIT 99(b)
HECHINGER COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
(unaudited)
OCT. 29,1994 JAN.29,1994
------------ -----------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 27,269 $ 19,675
Marketable securities at fair value 138,599 150,989
Merchandise inventories 511,617 400,366
Other current assets 74,228 50,200
------------ -----------
Total Current Assets 751,713 621,230
PROPERTY, FURNITURE AND EQUIPMENT, NET 475,051 482,503
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 55,840 57,098
LEASEHOLD ACQUISITION COSTS, NET 53,104 54,812
OTHER ASSETS 14,694 13,599
------------ -----------
TOTAL ASSETS $ 1,350,402 1,229,242
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $375,648 $291,182
Income taxes payable 5,268 -
Current portion of long-term debt and
capital lease obligations 3,274 3,068
------------ -----------
Total Current Liabilities 384,190 294,250
LONG-TERM DEBT 385,498 386,116
CAPITAL LEASE OBLIGATIONS 18,977 21,757
DEFERRED RENT 28,147 28,493
DEFERRED INCOME TAXES 11,110 4,759
STOCKHOLDERS' EQUITY
Class A common stock, $.l0 par value, authorized
50,000,000 shares; issued 30,789,113 and
28,812,090 3,079 2,881
Class B common stock, $.l0 par value, authorized
30,000,000 shares; issued 11,524,628 and
13,312,356 1,152 1,331
Additional paid-in capital 238,153 236,543
Retained earnings 282,197 256,836
Unearned compensation (1,751) (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 522,480 493,867
------------ -----------
TOTAL LIABILITIES AND STOCKHOLDERS'EQUITY 1,350,402 1,229,242
============ ===========
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 1
EXHIBIT 99(c)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
39 WEEKS ENDED
OCT. 29,1994 OCT. 30,1993
------------ ------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings $ 29,283 $ 23,517
Adjustments to reconcile earnings to net cash provided by
operating activities:
Unusual charges (3,949) (14,208)
Depreciation and amortization 38,395 32,904
Deferred income taxes 6,274 8,496
Deferred rent expense (346) 912
------------ ------------
69,657 51,621
------------ ------------
CHANGE IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories (111,862) (119,724)
Other current assets (24,415) (17,417)
Accounts payable and accrued expenses 89,595 101,653
Income taxes payable 5,732 (4,229)
------------ ------------
(40,950) (39,717)
------------ ------------
NET CASH FLOWS PROVIDED FROM OPERATIONS 28,707 11,904
------------ ------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for property, furniture, equipment and other
assets, net of disposals (128,220) (105,753)
Marketable securities:
Purchases (203,607) (61,666)
Proceeds from sales 215,997 174,639
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES (115,830) 7,220
------------ ------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Net proceeds from sale and leaseback transaction 99,295 -
Net proceeds from issuance of 6.95% Senior Notes - 98,799
Dividends paid to stockholders (4,221) (4,079)
Stock options exercised 2,284 181
Other (2,641) (774)
------------ ------------
NET CASH FLOWS FROM FINANCING ACTIVITIES 94,717 94,127
------------ ------------
INCREASE IN CASH AND CASH EQUIVALENTS 7,594 113,251
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 19,675 12,341
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 27,269 $ 125,592
============ ============
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $ 3,456 $ 5,879
Cash payments for interest, net of amount capitalized $ 19,473 $ 18,648
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 1
EXHIBIT 99(d)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS'EQUITY
(in thousands except share data)
<TABLE>
<CAPTION>
CLASS A CLASS B ADDITIONAL
COMMON COMMON PAID-IN RETAINED
STOCK STOCK CAPITAL EARNINGS
--------- --------- ------------ ----------
<S> <C> <C> <C> <C>
BALANCE, JAN. 30, 1993 $ 2,877 $ 1,348 $238,356 $ 237,517
Restricted stock awards, 20,000 Class A common shares 2 - 178 -
Restricted stock awards earned, net of forfeitures (15) - (1,811) -
Exercise of stock options including income tax benefit (32,519
Class A common shares were issued from the treasury) - - (180) -
Conversions from Class B to Class A common stock 17 (17) - -
Purchase of treasury stock (1 8,938 Class A common shares and
1 Class B common share) - - - -
Cash dividends, Class A common stock ($.16 per share) - - - (4,587)
Cash dividends, Class B common stock ($.06 per share) - - - (854)
Net earnings - - - 24,760
--------- --------- ------------ ----------
BALANCE, JAN. 29, 1994 2,881 1,331 236,543 256,836
Restricted stock awards earned, net of forfeitures - - - -
Performance stock awards earned and issued 5 - 576 -
Exercise of stock options including income tax benefit (92,670
Class A common shares were issued from the treasury) 14 - 1,009 -
Conversions from Class B to Class A common stock 179 (179) - -
Conversion of 5-1/2% Convertible Subordinated Debentures into
shares of Class A common stock - - 25 -
Purchase of treasury stock (6,607 Class A common shares) - - - -
Adjustment to fair value of marketable securities - - - 299
Cash dividends, Class A common stock ($.12 per share) - - - (3,653)
Cash dividends, Class B common stock ($.05 per share) - - - (568)
Net earnings - - - 29,283
--------- --------- ------------ ----------
BALANCE, OCT. 29, 1994 (unaudited) $ 3,079 $ 1,152 $ 238,153 $ 282,197
========= ========= ============ ==========
</TABLE>
<TABLE>
<CAPTION>
UNEARNED TREASURY
COMPENSATION STOCK TOTAL
------------ -------- --------
<S> <C> <C> <C>
BALANCE, JAN. 30, 1993 $(4,367) $(1,807) $473,924
Restricted stock awards, 20,000 Class A common shares (172) - 8
Restricted stock awards earned, net of forfeitures 2,338 - 512
Exercise of stock options including income tax benefit (32,519
Class A common shares were issued from the treasury) - 361 181
Conversions from Class B to Class A common stock - - -
Purchase of treasury stock (1 8,938 Class A common shares and
1 Class B common share) - (77) (77)
Cash dividends, Class A common stock ($.16 per share) - - (4,587)
Cash dividends, Class B common stock ($.06 per share) - - (854)
Net earnings - - 24,760
------------ -------- ----------
BALANCE, JAN. 29, 1994 (2,201) (1,523) 493,867
Restricted stock awards earned, net of forfeitures 450 - 450
Performance stock awards earned and issued - - 581
Exercise of stock options including income tax benefit (92,670
Class A common shares were issued from the treasury) - 1,261 2,284
Conversions from Class B to Class A common stock - - -
Conversion of 5-1/2% Convertible Subordinated Debentures into
shares of Class A common stock - - 25
Purchase of treasury stock (6,607 Class A common shares) - (88) (88)
Adjustment to fair value of marketable securities - - 299
Cash dividends, Class A common stock ($.12 per share) - - (3,653)
Cash dividends, Class B common stock ($.05 per share) - - (568)
Net earnings - - 29,283
------------ -------- ----------
BALANCE, OCT. 29, 1994 (unaudited) (1,751) $(350) $ 522,480
============ ======== ==========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 1
EXHIBIT 99(E)
HECHINGER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN AND THIRTY-NINE WEEKS ENDED OCTOBER 29, 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 thirty-nine weeks ended October 29, 1994 are not
necessarily indicative of the results to be expected for the fiscal year ending
January 28, 1995.
Certain amounts in the financial statements for the periods ended October 30,
1993 have been reclassified to conform to the presentation for the periods
ended October 29, 1994.
The financial statements presented herein should be read in conjunction with
the financial statements incorporated by reference in the Company's Annual
Report on Form 10-K for the year ended January 29, 1994.
B. CHANGE IN ACCOUNTING PRINCIPLE
In May 1993, Statement of Financial Accounting Standards No. 115 ("SFAS 115"),
Accounting for Certain Investments in Debt and Equity Securities, was issued.
The Company adopted this statement as of the first quarter of 1994 and is
classifying its investments in marketable securities as available-for-sale.
Under this classification, marketable securities are carried at fair value,
with unrealized gains and losses excluded from earnings and instead reported in
stockholders' equity until realized. In accordance with SFAS 115, prior period
financial statements have not been restated to reflect the change in accounting
principle. The cumulative effect of adopting SFAS 115 in the first quarter of
1994, as well as the effect as of October 29, 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 October 29, 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 $20.5 million and $17.0 million higher than reported at October 29,
1994 and January 29, 1994, respectively.
D. TAXES ON INCOME
For the thirteen and thirty-nine weeks ended October 29, 1994, the effective
tax rate was 34.0% compared to 31.0% for the corresponding periods last year.
The effective tax rate increase was primarily due to the increase in the
Federal income tax rate and increases in state income tax rates. The effective
tax rates differ from the statutory tax rate primarily due to the effect of tax
credits and tax-free earnings on funds available for investment.
14
<PAGE> 2
E. SALE AND LEASEBACK
In August 1994, the Company sold 13 stores for $99.3 million, net of expenses,
and concurrently leased the properties back for an initial term of 25 years.
The leases are renewable at the Company's option for nine additional terms of
five years each. The Company has recorded these leases as operating leases.
F. CONTINGENCIES
The Company is a party to several pending legal proceedings and claims arising
in the ordinary course of business. Although the outcome of such proceedings
and claims cannot be determined with certainty, management believes that the
final outcome should not have a material adverse effect on the Company's
consolidated financial position.
15
