<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
CHECK ONE
x Quarterly report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934 for the thirteen weeks ended July 29, 1995 or
Transition report pursuant to Section 13 or 15(d) of the Securities
----- Exchange Act of 1934
COMMISSION FILE NUMBER 0-7214
HECHINGER COMPANY
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 52-1001530
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification No.)
3500 PENNSY DRIVE, LANDOVER, MARYLAND 20785
(Address of principal executive offices) (Zip Code)
</TABLE>
Registrant's telephone number, including area code: (301) 341-1000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
----- -----
Indicate the number of shares outstanding of each of the registrant's
classes of Common Stock, as of September 7, 1995.
30,856,248 shares of Class A Common Stock, $.10 par value
11,468,262 shares of Class B Common Stock, $.10 par value
1 of 16
<PAGE> 2
HECHINGER COMPANY
INDEX TO FORM 10-Q
THIRTEEN WEEKS ENDED JULY 29, 1995
<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 - 5
Part II. Other Information:
Item 1. Legal Proceedings 6
Item 4. Submission of Matters to a Vote of Security Holders 6
Item 6. Exhibits and Reports on Form 8-K 7
Index to Exhibits 9
</TABLE>
2
<PAGE> 3
PART I
ITEM 1. FINANCIAL STATEMENTS
The information called for by this item is hereby incorporated by reference
from Exhibits 99(a) - 99(e) of this report.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following table sets forth the sales reported by the Company (in millions):
<TABLE>
<CAPTION>
TOTAL TOTAL TOTAL COMPARABLE
SALES SALES SALES STORE SALES
PERIOD JULY 29, 1995 JULY 30, 1994 CHANGE CHANGE
------ ------------- ------------- ------ ----------
<S> <C> <C> <C> <C>
Thirteen weeks $648.6 $708.9 (8)% (7)%
Twenty-six weeks $1,201.8 $1,283.2 (6)% (5)%
</TABLE>
The sales decreases for the thirteen weeks and twenty-six weeks ended July 29,
1995 were due to 14 Home Quarters stores and eight Hechinger stores that have
closed as a part of the store closing plan announced in the fourth quarter of
1994. In addition, weak sales of existing homes and unseasonable weather in
the Company's markets, decline in lumber prices and increased competition have
adversely impacted sales during the periods.
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 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
Fourth quarter 1994 openings - - -
Fourth quarter 1994 closings - - -
As of January 28, 1995 72 61 133
First quarter 1995 openings - 3 3
First quarter 1995 closings (2) (15) (17)
As of April 29, 1995 70 49 119
Second quarter 1995 openings - 2 2
Second quarter 1995 closings (6) (1) (7)
-- -- ---
As of July 29, 1995 64 50 114
== == ===
</TABLE>
3
<PAGE> 4
For the thirteen weeks ended July 29, 1995, cost of sales was 78.6% of sales
compared to 77.3% of sales for the corresponding period last year. For the
twenty-six weeks ended July 29, 1995, cost of sales was 78.5% compared to 77.6%
for the corresponding period last year. Distribution, buying and occupancy
expenses are included in cost of sales and are comprised substantially of fixed
costs. The increases in cost of sales are due primarily to higher
distribution, buying and occupancy expenses as a percent to sales, which was
caused by lower sales this year compared to last year.
For the thirteen weeks ended July 29, 1995, selling, general and administrative
expenses were 18.1% of sales compared to 17.2% of sales for the corresponding
period last year. These figures include preopening expenses of $2.5 million
for the thirteen weeks ended July 29, 1995, compared to $2.0 million for the
corresponding period last year. Excluding these expenses, selling, general and
administrative expenses for the thirteen weeks ended July 29, 1995 were 17.7%
of sales, as compared to 17.0% of sales for the corresponding period last year.
For the twenty-six weeks ended July 29, 1995, selling, general and
administrative expenses were 19.0% compared to 18.3% for the corresponding
period last year. These figures include preopening expenses of $5.2 million
for the twenty-six weeks ended July 29, 1995, compared to $5.0 million for the
corresponding period last year. Excluding these expenses, selling, general and
administrative expenses for the twenty-six weeks ended July 29, 1995 were 18.6%
of sales, as compared to 17.9% of sales for the corresponding period last year.
The increases, excluding preopening expenses, were due primarily to less
leverage of selling, general and administrative expenses as a result of lower
sales this year compared to last year.
For the thirteen weeks ended July 29, 1995, interest expense was $7.8 million,
1.2% of sales, compared to $7.6 million, 1.1% of sales, for the corresponding
period last year. For the twenty-six weeks ended July 29, 1995, interest
expense was $15.1 million, 1.3% of sales, compared to $14.8 million, 1.2% of
sales, for the corresponding period last year.
For the thirteen weeks and twenty-six weeks ended July 29, 1995, the effective
tax rate was 37.0% compared to 34.0% for the corresponding periods last year.
The effective tax rate increase was due primarily to the increase in state
taxes and expiration of the Targeted Jobs Tax Credit program as of December
1994. The effective tax rates differ from the statutory Federal tax rate due
primarily to the effect of tax credits, tax-free earnings on funds available
for investment and state taxes.
For the thirteen weeks ended July 29, 1995, net earnings were $9.1 million,
$.22 per share, compared to $21.4 million, $.48 per share, for the
corresponding period last year. For the twenty-six weeks ended July 29, 1995,
net earnings were $10.3 million, $.24 per share, compared to $26.0 million,
$.60 per share, for the corresponding period last year.
As of July 29, 1995, 14 Home Quarters stores and eight Hechinger stores have
been closed as a part of the store closing plan announced in the fourth quarter
of 1994. As of July 29, 1995, $28.2 million has been recorded against the
$61.9 million store closing reserve. The main components of the charges were
as follows:
1) losses on liquidation of inventories totaling $11.8 million;
2) losses on disposal of furniture, fixtures, equipment and other assets
totaling $10.4 million;
3) cash expenditures for carrying costs of the stores vacated, including
rents, utilities and other expenses subsequent to the store closing of $3.6
million; and
4) cash expenditures for employee termination costs of $2.4 million, including
severance pay and related benefits.
Management believes that the remaining reserve is adequate to cover future
losses and cash expenditures in completing this store closing plan. Of the
total remaining accrual of $33.7 million, $25.5 million has been recorded as a
current liability as of July 29, 1995.
Cash and cash equivalents and marketable securities were $99.0 million as of
July 29, 1995 compared to $95.2 million as of January 28, 1995. The increase
in cash provided from operations was due primarily to the decrease in
inventories. The decrease in inventories is a result of a net decrease of 19
stores in operation since January 28, 1995. The increase in accounts payable
and accrued expenses was less compared to the same period last year due to an
unusually low accounts payable balance at January 28, 1995. Net expenditures
for property, furniture and
4
<PAGE> 5
equipment and other assets were $65.9 million for the twenty-six weeks ended
July 29, 1995 and $81.2 million for the corresponding period last year. These
expenditures are related primarily to the Company's ongoing store expansion and
remodeling programs.
In August, 1995, the Company announced plans to combine its Hechinger Stores
and Home Quarters Warehouse operations under one management team. As a result
of these actions, the Company expects to record a charge of approximately $20
to $25 million (pre-tax) in the fourth quarter of 1995. The charge will cover
costs of severance, the write-off of certain assets, and other related costs.
In August, 1995, several suits alleging wrongful employment practices were
settled and dismissed. The Company does not anticipate that the settlement,
net of expected insurance recoveries, will have a material adverse effect on
the Company's consolidated financial position.
The Company is a party to other legal proceedings and claims arising in the
ordinary course of business. Although the outcome of such proceedings and
claims cannot be determined with certainty, based upon evaluation by legal
counsel, management believes that the outcome of such proceedings and claims
will not have a material adverse effect on the Company's consolidated financial
position.
5
<PAGE> 6
PART II
ITEM 1. LEGAL PROCEEDINGS
On August 11, 1995, the United States District Court for the District of
Maryland approved the settlement and dismissal of litigations brought by former
Hechinger employees alleging unlawful age and race bias on the part of the
Company. The suits settled and dismissed include Robert Miller et al. v.
Hechinger Co. et al. and Hudie Fleming et al. v. Hechinger Co. et al. as
previously described in the Company's Form 10-K dated January 28, 1995. The
settlement expressly recognizes that the Company and the individual executives
named in the lawsuits specifically deny any wrongdoing. The Company does not
anticipate that the settlement, net of expected insurance recoveries, will have
a material adverse effect on the Company's consolidated financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a). The Annual Meeting of stockholders was held on June 13, 1995.
(b). Not applicable.
(c). At such meeting all eight of the nominees for election as directors were
elected to hold office until the next Annual Meeting. The votes cast with
respect to each nominee for election as a director were as follows:
<TABLE>
<CAPTION>
Nominee For Abstain
<S> <C> <C>
John W. Hechinger 135,491,777 374,902
Herbert J. Broner 135,497,777 368,902
John W. Hechinger, Jr. 135,485,256 381,423
S. Ross Hechinger 135,492,211 374,468
Ann D. Jordan 135,495,640 371,039
David O. Maxwell 135,498,259 368,420
W. Clark McClelland 135,499,109 367,570
Alan J. Zakon 135,498,366 368,313
</TABLE>
At such meeting the stockholders ratified the appointment of Ernst & Young LLP
as the Company's independent accountants for the fiscal year ending February 3,
1996. The votes cast with respect to such matter were as follows:
<TABLE>
<S> <C>
For 135,638,181
Against 137,157
Abstain 91,341
</TABLE>
At such meeting the stockholders approved the amendment to the Company's 1991
Stock Incentive Plan. The votes cast with respect to such matter were as
follows:
<TABLE>
<S> <C>
For 122,123,976
Against 13,400,135
Abstain 342,568
</TABLE>
(d). Not applicable.
6
<PAGE> 7
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
27 Financial Data Schedule
</TABLE>
(b) REPORTS ON FORM 8-K
The Company filed a current report on Form 8-K dated August 23, 1995,
containing the Company's press release announcing its plans to combine its
Hechinger Stores and Home Quarters Warehouse operations under one management
team.
7
<PAGE> 8
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.
September 12, 1995 HECHINGER COMPANY
-----------------
Registrant
/S/W. CLARK McCLELLAND
----------------------
W. Clark McClelland
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
8
<PAGE> 9
HECHINGER COMPANY
INDEX TO EXHIBITS
FORM 10-Q FOR THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 29, 1995
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
----------- ----
<S> <C> <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 Statements of Stockholders' Equity
99(e) Notes to Consolidated Financial Statements
27 Financial Data Schedule
</TABLE>
9
<PAGE> 1
Exhibit 11
HECHINGER COMPANY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
JULY 29, 1995 JULY 30, 1994 JULY 29, 1995 JULY 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net earnings $ 9,139,000 $21,368,000 $10,306,000 $26,013,000
Interest on 5-1/2% convertible debentures, net of
tax benefit (1) - 1,106,000 - 2,212,000
------------ ------------- ------------- -------------
Net earnings for primary and fully diluted earnings
per share $ 9,139,000 $22,474,000 $10,306,000 $28,225,000
============ ============= ============= =============
Weighted average shares outstanding 42,111,221 42,031,775 42,106,049 41,948,484
Dilutive effect of stock options and restricted
stock and performance share awards after
application of the treasury stock method 53,694 554,866 131,301 466,479
Additional shares issuable assuming full conversion
of the 5-1/2% debentures into Class A common stock (1) - 4,419,899 - 4,420,348
------------ ------------- ------------- -------------
Common and common equivalent shares outstanding for
primary earnings per share 42,164,915 47,006,540 42,237,350 46,835,311
Additional dilution from stock options and
restricted stock and performance share awards after
application of the treasury stock method (1) - 101 - 93,009
------------ ------------- ------------- -------------
Common and common equivalent shares outstanding for
fully diluted earnings per share 42,164,915 47,006,641 42,237,350 46,928,320
============ ============= ============= =============
Primary earnings per common share $0.22 $0.48 $0.24 $0.60
============ ============= ============= =============
Fully diluted earnings per common share $0.22 $0.48 $0.24 $0.60
============ ============= ============= =============
</TABLE>
(1) The 5-1/2% Convertible Subordinated Debentures, stock options, restricted
stock and performance share awards were antidilutive for the 13 weeks and
26 weeks ended July 29, 1995.
10
<PAGE> 1
Exhibit 99(a)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
JULY 29, 1995 JULY 30, 1994 JULY 29, 1995 JULY 30, 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $ 648,649 $ 708,874 $ 1,201,822 $ 1,283,175
Other (principally interest) 948 1,247 1,948 1,668
------------- ------------- ------------- -------------
Total Revenues 649,597 710,121 1,203,770 1,284,843
COSTS AND EXPENSES
Cost of sales 510,118 547,923 943,744 996,074
Selling, general and administrative expenses 117,202 122,261 228,560 234,597
Interest expense 7,770 7,561 15,106 14,758
------------- ------------- ------------- -------------
Total Costs and Expenses 635,090 677,745 1,187,410 1,245,429
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES 14,507 32,376 16,360 39,414
INCOME TAX EXPENSE 5,368 11,008 6,054 13,401
------------- ------------- ------------- -------------
NET EARNINGS $ 9,139 $ 21,368 $ 10,306 $ 26,013
============= ============= ============= =============
PRIMARY AND FULLY DILUTED EARNINGS
PER COMMON SHARE $0.22 $0.48 $0.24 $0.60
============= ============= ============= =============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 42,165 47,007 42,237 46,835
Fully diluted 42,165 47,007 42,237 46,928
DIVIDENDS PER SHARE:
Class A common stock $0.04 $0.04 $0.08 $0.08
Class B common stock $0.02 $0.02 $0.03 $0.03
</TABLE>
See notes to consolidated financial statements.
11
<PAGE> 1
Exhibit 99(b)
HECHINGER COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
(unaudited)
JULY 29, 1995 JAN. 28, 1995
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 20,238 $ 26,252
Marketable securities at fair value 78,765 68,911
Merchandise inventories 427,716 453,529
Other current assets 68,281 66,742
-------------- --------------
Total Current Assets 595,000 615,434
PROPERTY, FURNITURE AND EQUIPMENT, NET 533,576 504,132
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 54,582 55,421
LEASEHOLD ACQUISITION COSTS, NET 50,233 52,541
OTHER ASSETS 28,468 33,701
-------------- --------------
TOTAL ASSETS $ 1,261,859 $ 1,261,229
============== ==============
</TABLE>
<TABLE>
(unaudited)
JULY 29, 1995 JAN. 28, 1995
-------------- --------------
<C> <C> <C>
LIABILITIES and STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 323,023 $ 327,587
Income taxes payable 7,997 10,493
Current portion of long-term debt and capital lease
obligations 3,610 3,453
-------------- --------------
Total Current Liabilities 334,630 341,533
LONG-TERM DEBT 384,440 384,969
CAPITAL LEASE OBLIGATIONS 17,115 18,408
DEFERRED RENT 27,833 26,846
OTHER LONG-TERM LIABILITIES 8,200 8,200
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value; authorized
50,000,000 shares; issued 30,848,707 and
30,797,512 3,085 3,080
Class B common stock, $.10 par value, authorized
30,000,000 shares; issued 11,475,803 and
11,518,729 1,148 1,152
Additional paid-in capital 238,248 238,182
Retained earnings 248,910 240,919
Unearned compensation (1,125) (1,553)
Less treasury stock at cost, 29,249 and 17,213 Class A
common shares and 14,497 and 14,497 Class B
common shares (625) (507)
-------------- --------------
TOTAL STOCKHOLDERS' EQUITY 489,641 481,273
-------------- --------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,261,859 $ 1,261,229
============== ==============
</TABLE>
See notes to consolidated financial statements.
12
<PAGE> 1
Exhibit 99(c)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
26 WEEKS ENDED
JULY 29, 1995 JULY 30, 1994
-------------- --------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings $ 10,306 $ 26,013
Adjustments to reconcile earnings to net cash provided by
operating activities:
Unusual charges (18,641) (3,465)
Depreciation and amortization 28,949 25,071
Deferred income taxes 5,716 859
Deferred rent expense 987 (516)
-------------- --------------
27,317 47,962
-------------- --------------
CHANGE IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories 25,508 (76,435)
Other current assets (1,539) (19,160)
Accounts payable and accrued expenses 24,767 49,059
Income taxes payable (2,496) 9,444
-------------- --------------
46,240 (37,092)
-------------- --------------
NET CASH FLOWS PROVIDED FROM OPERATIONS 73,557 10,870
-------------- --------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for property, furniture, equipment and other
assets, net of disposals (65,894) (81,196)
Marketable securities:
Purchases (108,380) (103,560)
Proceeds from sales 98,526 184,042
-------------- --------------
NET CASH USED IN INVESTING ACTIVITIES (75,748) (714)
-------------- --------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Dividends paid to stockholders (2,831) (2,804)
Stock options exercised 74 2,203
Other (1,066) (3,037)
-------------- --------------
NET CASH USED IN FINANCING ACTIVITIES (3,823) (3,638)
-------------- --------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (6,014) 6,518
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,252 19,675
-------------- --------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 20,238 $ 26,193
============== ==============
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $ 2,853 $ 3,010
Cash payments for interest, net of amount capitalized $ 15,619 $ 12,711
</TABLE>
See notes to consolidated financial statements.
13
<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. 29, 1994 $ 2,881 $ 1,331 $ 236,543 $ 256,836
Restricted stock awards earned - - - -
Performance stock awards earnined and issued 5 - 577 -
Exercise of stock options including income tax benefit (92,670
Class A common shares were issued from the treasury) 15 - 1,037 -
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 (17,114 Class A common shares) - - - -
Adjustment to fair value of marketable securities - - - (371)
Cash dividends, Class A common stock ($.16 per share) - - - (4,883)
Cash dividends, Class B common stock ($.06 per share) - - - (752)
Net earnings - - - (9,911)
----------- ----------- ------------ -----------
BALANCE, JAN. 28, 1995 3,080 1,152 238,182 240,919
Restricted stock awards earned - - - -
Exercise of stock options including income tax benefit 1 - 73 -
Conversions from Class B to Class A common stock 4 (4) - -
Purchase of treasury stock (17,315 Class A common shares) - - (7) -
Adjustment to fair value of marketable securities - - - 516
Cash dividends, Class A common stock ($.08 per share) - - - (2,464)
Cash dividends, Class B common stock ($.03 per share) - - - (367)
Net earnings - - - 10,306
----------- ----------- ------------ -----------
BALANCE, JULY 29, 1995 (UNAUDITED) $ 3,085 $ 1,148 $ 238,248 $ 248,910
=========== =========== ============ ===========
</TABLE>
<TABLE>
<CAPTION>
UNEARNED TREASURY
COMPENSATION STOCK TOTAL
-------------- ------------ -----------
<S> <C> <C> <C>
BALANCE, JAN. 29, 1994 $ (2,201) $ (1,523) $ 493,867
Restricted stock awards earned 648 - 648
Performance stock awards earnined and issued - - 582
Exercise of stock options including income tax benefit (92,670
Class A common shares were issued from the treasury) - 1,260 2,312
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 (17,114 Class A common shares) - (244) (244)
Adjustment to fair value of marketable securities - - (371)
Cash dividends, Class A common stock ($.16 per share) - - (4,883)
Cash dividends, Class B common stock ($.06 per share) - - (752)
Net earnings - - (9,911)
------------- ------------ -----------
BALANCE, JAN. 28, 1995 (1,553) (507) 481,273
Restricted stock awards earned 428 - 428
Exercise of stock options including income tax benefit - - 74
Conversions from Class B to Class A common stock - - -
Purchase of treasury stock (17,315 Class A common shares) - (118) (125)
Adjustment to fair value of marketable securities - - 516
Cash dividends, Class A common stock ($.08 per share) - - (2,464)
Cash dividends, Class B common stock ($.03 per share) - - (367)
Net earnings - - 10,306
------------- ------------ -----------
BALANCE, JULY 29, 1995 (UNAUDITED) $ (1,125) $ (625) $ 489,641
============= ============ ===========
</TABLE>
See notes to consolidated financial statements.
14
<PAGE> 1
EXHIBIT 99(e)
HECHINGER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN AND TWENTY-SIX WEEKS ENDED JULY 29, 1995
(unaudited)
A. BASIS OF PRESENTATION
In the opinion of management of Hechinger Company (the "Company"), the
accompanying unaudited consolidated financial statements include all
adjustments (which consist of normal recurring accruals) considered necessary
for a fair statement of the results for the interim periods presented. The
operating results for the twenty-six weeks ended July 29, 1995 are not
necessarily indicative of the results to be expected for the fiscal year ending
February 3, 1996.
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 28, 1995.
B. MERCHANDISE INVENTORY
An actual valuation of inventory under the LIFO method can be made only at the
end of each year based on the inventory levels and costs at that time.
Accordingly, interim LIFO calculations are based on management's estimates of
expected year-end inventory levels and costs. Interim results are subject to
the final year-end LIFO inventory valuation.
All inventories reported at July 29, 1995 and January 28, 1995 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 $21.9 million and $18.9 million higher than reported at July 29, 1995
and January 28, 1995, respectively.
C. TAXES ON INCOME
For the thirteen weeks and twenty-six weeks ended July 29, 1995, the effective
tax rate was 37.0% compared to 34.0% for the corresponding periods last year.
The effective tax rate increase was due primarily to the increase in state
taxes and expiration of the Targeted Jobs Tax Credit program as of December
1994. The effective tax rates differ from the statutory Federal tax rate
primarily due to the effect of tax credits, tax-free earnings on funds
available for investment and state taxes.
D. UNUSUAL CHARGE
As of July 29, 1995, 14 Home Quarters stores and eight Hechinger stores have
been closed as a part of the store closing plan announced in the fourth quarter
of 1994. As of July 29, 1995, $28.2 million has been recorded against the
$61.9 million store closing reserve. The main components of the charges were
as follows:
1) losses on liquidation of inventories totaling $11.8 million;
2) losses on disposal of furniture, fixtures, equipment and other assets
totaling $10.4 million;
3) cash expenditures for carrying costs of the stores vacated, including
rents, utilities and other expenses subsequent to the store closing of $3.6
million; and
4) cash expenditures for employee termination costs of $2.4 million, including
severance pay and related benefits.
Management believes that the remaining reserve is adequate to cover future
losses and cash expenditures in completing this store closing plan. Of the
total remaining accrual of $33.7 million, $25.5 million has been recorded
as a current liability as of July 29, 1995.
15
<PAGE> 2
D. SUBSEQUENT EVENTS
In August, 1995, the Company announced plans to combine its Hechinger Stores
and Home Quarters Warehouse operations under one management team. As a result
of these actions, the Company expects to record a charge of approximately $20
to $25 million (pre-tax) in the fourth quarter of 1995. The charge will cover
costs of severance, the write-off of certain assets, and other related costs.
E. CONTINGENCIES
In August, 1995, several suits alleging wrongful employment practices were
settled and dismissed. The Company does not anticipate that the settlement,
net of expected insurance recoveries, will have a material adverse effect on
the Company's consolidated financial position.
The Company is a party to other legal proceedings and claims arising in the
ordinary course of business. Although the outcome of such proceedings and
claims cannot be determined with certainty, based upon evaluation by legal
counsel, management believes that the outcome of such proceedings and claims
will not have a material adverse effect on the Company's consolidated financial
position.
16
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