<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 April 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 June 1, 1995.
30,834,707 shares of Class A Common Stock, $.10 par value
11,489,803 shares of Class B Common Stock, $.10 par value
1
<PAGE> 2
HECHINGER COMPANY
INDEX TO FORM 10-Q
THIRTEEN WEEKS ENDED APRIL 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 - 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 APR. 29, 1995 APR. 30, 1994 CHANGE CHANGE
- ------ ------------- ------------- ------ ------------
<S> <C> <C> <C> <C>
Thirteen weeks $553.2 $574.3 (4)% (2)%
</TABLE>
The sales decrease for the thirteen weeks ended April 29, 1995 was due to 14
Home Quarters stores and two Hechinger stores closed during the first quarter
of 1995 as a part of the store closing charge recorded in the fourth quarter of
1994. In addition, weak sales of existing homes and unseasonable weather in
the Company's markets adversely impacted sales during the quarter.
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 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
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
==== ==== ====
</TABLE>
For the thirteen weeks ended April 29, 1995, other income, which consists
primarily of interest income, was $1.0 million, .2% of sales, compared to $0.4
million, .1% of sales, for the corresponding period last year. The increase
was primarily the result of a loss of $0.6 million on the sale of an excess
parcel of land during the first quarter of last year.
For the thirteen weeks ended April 29, 1995, cost of sales was 78.4% of sales
compared to 78.0% of sales 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 increase in cost of sales is
due primarily to higher distribution, buying
3
<PAGE> 4
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 April 29, 1995, selling, general and
administrative expenses were 20.1% of sales compared to 19.6% of sales for the
corresponding period last year. These figures include preopening expenses of
$2.7 million for the thirteen weeks ended April 29, 1995 and $3.0 million for
the corresponding period last year. Excluding these expenses, selling, general
and administrative expenses for the thirteen weeks ended April 29, 1995 were
19.6% of sales, as compared to 19.0% of sales for the corresponding period last
year. This increase is due primarily to lower sales this year compared to last
year.
For the thirteen weeks ended April 29, 1995, interest expense was $7.3 million,
1.3% of sales, compared to $7.2 million, 1.3% of sales, for the corresponding
period last year.
For the thirteen weeks ended April 29, 1995, the effective tax rate was 37.0%
compared to 34.0% for the corresponding period 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 April 29, 1995, net earnings were $1.2 million,
$.03 per share, compared to $4.6 million, $.11 per share, for the corresponding
period last year.
As of April 29, 1995, 14 Home Quarters stores and two Hechinger stores have
been closed as a part of the store closing plan announced in the fourth quarter
of 1994. As of April 29, 1995, $23.2 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 $9.5 million;
2) losses on disposal of furniture, fixtures, equipment and other assets
totaling $10.7 million;
3) cash expenditures for carrying costs of the stores vacated, including
rents, utilities and other expenses subsequent to the store closing of
$1.5 million; and
4) cash expenditures for employee termination costs of $1.5 million, including
severance pay and related benefits.
In accordance with the Company's original plan, the remaining six Hechinger
stores are scheduled to close during the second and third quarters of 1995.
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 $38.7 million, $30.5 million has been recorded as a
current liability as of April 29, 1995.
Cash and cash equivalents and marketable securities were $127.4 million as of
April 29, 1995 compared to $95.2 million as of January 28, 1995. The increase
in cash provided from operations was due primarily to the increase in accounts
payable and accrued expenses, net of the increase in inventory, compared to the
corresponding period last year. The increase in merchandise inventories is
primarily due to the normal inventory build-up that occurs during the spring
selling season and increased inventory levels at existing stores as a result of
lower than planned sales in the first quarter of this year. The increase in
inventories was not as large as compared to prior periods due to the
liquidation of inventories in the stores closed in the first quarter of 1995.
The increase in accounts payable and accrued expenses was due to a combination
of an unusually low accounts payable balance at January 28, 1995 and the
increase in inventory levels at April 29, 1995. Net expenditures for property,
furniture and equipment and other assets were $29.7 million and $34.7 million
for the thirteen weeks ended April 29, 1995 and April 30, 1994, respectively.
These expenditures are related primarily to the Company's ongoing store
expansion and remodeling programs.
The Company is a party to numerous legal proceedings and claims arising in the
ordinary course of business, including several suits alleging wrongful
employment practices. 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.
4
<PAGE> 5
PART II
ITEM 1. LEGAL PROCEEDINGS
On March 17, 1995, an action was filed against the Company and one of its
senior vice-presidents by a former employee (Circuit Court for Prince George's
County, Maryland, Case No. CAL 95-04532). In this case, plaintiff asserts
harassment-related claims against such senior vice-president. Plaintiff also
asserts that the Company was negligent in hiring and retaining such senior
vice-president, and that it interfered with plaintiff's subsequent employment.
Plaintiff seeks $20 million in compensatory and punitive damages, among other
relief. The Company and such senior vice-president believe they have
meritorious defenses, and will defend this lawsuit vigorously. They filed a
motion to dismiss all counts in the Complaint on May 18, 1995.
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
None.
5
<PAGE> 6
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
<TABLE>
<S> <C> <C>
Date: June 13, 1995 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 APRIL 29, 1995
<TABLE>
<CAPTION>
EXHIBIT NO. PAGE
- ----------- ----
<S> <C> <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 Statements of Stockholders' Equity
99(e) Notes to Consolidated Financial Statements
</TABLE>
7
<PAGE> 1
EXHIBIT 11
HECHINGER COMPANY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED
APR. 29, 1995 APR. 30, 1994
------------- -------------
<S> <C> <C>
Net earnings $ 1,167,000 $ 4,645,000
Interest on 5-1/2% convertible debentures, net of tax benefit (1) - -
------------ ------------
Net earnings for primary and fully diluted earnings per share $ 1,167,000 $ 4,645,000
============ ============
Weighted average shares outstanding 42,100,876 41,865,193
Dilutive effect of stock options and restricted stock and performance
share awards after application of the treasury stock method 208,907 378,092
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 42,309,783 42,243,285
Additional dilution from stock options and restricted stock and
performance share awards after application of the treasury stock
method (1) - 185,916
------------ ------------
Common and common equivalent shares outstanding for fully diluted
earnings per share 42,309,783 42,429,201
============ ============
Primary earnings per common share $0.03 $0.11
============ ============
Fully diluted earnings per common share $0.03 $0.11
============ ============
</TABLE>
(1) The 5-1/2% Convertible Subordinated Debentures, stock options, restricted
stock and performance share awards were antidilutive for the 13 weeks
ended April 29, 1995 and the 5 1/2% Convertible Subordinated Debentures
were antidilutive for the 13 weeks ended April 30, 1994.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> FEB-03-1996
<PERIOD-START> JAN-29-1995
<PERIOD-END> APR-29-1995
<CASH> 41,370
<SECURITIES> 85,980
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 501,554
<CURRENT-ASSETS> 692,600
<PP&E> 510,712<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,342,358
<CURRENT-LIABILITIES> 422,542
<BONDS> 384,866
<COMMON> 4,232
0
0
<OTHER-SE> 477,139
<TOTAL-LIABILITY-AND-EQUITY> 1,342,358
<SALES> 553,174
<TOTAL-REVENUES> 554,174
<CGS> 433,626
<TOTAL-COSTS> 544,985
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 7,336
<INCOME-PRETAX> 1,853
<INCOME-TAX> 686
<INCOME-CONTINUING> 1,167
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,167
<EPS-PRIMARY> 0.03
<EPS-DILUTED> 0.03
<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
APR. 29, 1995 APR. 30, 1994
--------------- ---------------
<S> <C> <C>
REVENUES
Net sales $ 553,174 $ 574,301
Other (principally interest) 1,000 420
--------------- ---------------
Total Revenues 554,174 574,721
COSTS AND EXPENSES
Cost of sales 433,626 448,151
Selling, general and administrative expenses 111,359 112,336
Interest expense 7,336 7,197
--------------- ---------------
Total Costs and Expenses 552,321 567,684
--------------- ---------------
EARNINGS BEFORE INCOME TAXES 1,853 7,037
INCOME TAX EXPENSE 686 2,392
--------------- ---------------
NET EARNINGS $ 1,167 $ 4,645
=============== ===============
PRIMARY AND FULLY DILUTED EARNINGS
PER COMMON SHARE $0.03 $0.11
=============== ===============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 42,310 42,243
Fully diluted 42,310 42,429
DIVIDENDS PER SHARE:
Class A common stock $0.04 $0.04
Class B common stock $0.02 $0.02
</TABLE>
See notes to consolidated financial statements.
<PAGE> 1
EXHIBIT 99(b)
HECHINGER COMPANY
CONSOLIDATED BALANCE SHEETS
(in thousands except share data)
<TABLE>
<CAPTION>
(unaudited)
APR. 29, 1995 JAN. 28, 1995
------------- -------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 41,370 $ 26,252
Marketable securities at fair value 85,980 68,911
Merchandise inventories 501,554 453,529
Other current assets 63,696 66,742
------------ ------------
Total Current Assets 692,600 615,434
PROPERTY, FURNITURE AND EQUIPMENT, NET 510,712 504,132
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 55,001 55,421
LEASEHOLD ACQUISITION COSTS, NET 50,774 52,541
OTHER ASSETS 33,271 33,701
------------ ------------
TOTAL ASSETS $ 1,342,358 $ 1,261,229
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable and accrued expenses $ 409,320 $ 327,587
Income taxes payable 9,698 10,493
Current portion of long-term debt and capital lease
obligations 3,524 3,453
------------ ------------
Total Current Liabilities 422,542 341,533
LONG-TERM DEBT 384,866 384,969
CAPITAL LEASE OBLIGATIONS 17,761 18,408
DEFERRED RENT 27,618 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 30,827,095 and
30,797,512 3,083 3,080
Class B common stock, $.10 par value, authorized
30,000,000 shares; issued 11,494,503 and
11,518,729 1,149 1,152
Additional paid-in capital 238,229 238,182
Retained earnings 240,940 240,919
Unearned compensation (1,339) (1,553)
Less treasury stock at cost, 34,528 and 17,213
Class A common shares and 14,497 and 14,497
Class B common shares (691) (507)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 481,371 481,273
------------ ------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 1,342,358 $ 1,261,229
============ ============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 1
EXHIBIT 99(c)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
13 WEEKS ENDED
APR. 29, 1995 APR. 30, 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings $ 1,167 $ 4,645
Adjustments to reconcile earnings to net cash provided by
operating activities:
Unusual charges (12,972) (1,698)
Depreciation and amortization 14,431 12,277
Deferred income taxes 348 639
Deferred rent expense 772 (472)
---------------- ----------------
3,746 15,391
---------------- ----------------
CHANGE IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories (48,102) (89,224)
Other current assets 3,046 (6,932)
Accounts payable and accrued expenses 105,458 111,424
Income taxes payable (795) 1,447
---------------- ----------------
59,607 16,715
---------------- ----------------
NET CASH FLOWS PROVIDED FROM OPERATIONS 63,353 32,106
---------------- ----------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Expenditures for property, furniture, equipment and other
assets, net of disposals (29,668) (34,713)
Marketable securities:
Purchases (46,218) (60,783)
Proceeds from sales 29,149 92,584
---------------- ----------------
NET CASH USED IN INVESTING ACTIVITIES (46,737) (2,912)
---------------- ----------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Dividends paid to stockholders (1,416) (1,391)
Stock options exercised 47 1,422
Other (129) (106)
---------------- ----------------
NET CASH FLOWS FROM FINANCING ACTIVITIES (1,498) (75)
---------------- ----------------
INCREASE IN CASH AND CASH EQUIVALENTS 15,118 29,119
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,252 19,675
---------------- ----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 41,370 $ 48,794
================ ================
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $ 1,250 $ 290
Cash payments for interest, net of amount capitalized $ 9,140 $ 6,984
</TABLE>
See notes to consolidated financial statements.
<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 ($.06 per share) - - - (752)
Net earnings - - - (9,911)
------ ------ -------- --------
BALANCE, JAN. 28, 1995 3,080 1,152 238,182 240,919
Restricted stock awards earned - - - -
Exercise of stock options including income tax benefit - - 47 -
Conversions from Class B to Class A common stock 3 (3) - -
Purchase of treasury stock (17,315 Class A common shares) - - - -
Adjustment to fair value of marketable securities - - - 270
Cash dividends, Class A common stock ($.04 per share) - - - (1,232)
Cash dividends, Class B common stock ($.02 per share) - - - (184)
Net earnings - - - 1,167
------ ------ -------- --------
BALANCE, APRIL 29, 1995 (UNAUDITED) $3,083 $1,149 $238,229 $240,940
====== ====== ======== ========
<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 ($.06 per share) - - (752)
Net earnings - - (9,911)
-------- ------ --------
BALANCE, JAN. 28, 1995 (1,553) (507) 481,273
Restricted stock awards earned 214 - 214
Exercise of stock options including income tax benefit - - 47
Conversions from Class B to Class A common stock - - -
Purchase of treasury stock (17,315 Class A common shares) - (184) (184)
Adjustment to fair value of marketable securities - - 270
Cash dividends, Class A common stock ($.04 per share) - - (1,232)
Cash dividends, Class B common stock ($.02 per share) - - (184)
Net earnings - - 1,167
-------- ------ --------
BALANCE, APRIL 29, 1995 (UNAUDITED) ($1,339) ($691) $481,371
======== ====== ========
</TABLE>
See notes to consolidated financial statements.
<PAGE> 1
EXHIBIT 99(e)
HECHINGER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED APRIL 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 thirteen weeks ended April 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 April 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 $20.4 million and $18.9 million higher than reported at April 29,
1995 and January 28, 1995, respectively.
C. TAXES ON INCOME
For the thirteen weeks ended April 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 the 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 April 29, 1995, 14 Home Quarters stores and two Hechinger stores have
been closed as a part of the store closing plan announced in the fourth quarter
of 1994. As of April 29, 1995, $23.2 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 $9.5 million;
2) losses on disposal of furniture, fixtures, equipment and other assets
totaling $10.7 million;
3) cash expenditures for carrying costs of the stores vacated, including
rents, utilities and other expenses subsequent to the store closing of $1.5
million; and
4) cash expenditures for employee termination costs of $1.5 million, including
severance pay and related benefits.
In accordance with the Company's original plan, the remaining six Hechinger
stores are scheduled to close during the second and third quarters of
1995. Management believes that the remaining reserve is adequate to cover
future
<PAGE> 2
losses and cash expenditures in completing this store closing plan. Of the
total remaining accrual of $38.7 million, $30.5 million has been recorded
as a current liability as of April 29, 1995.
D. CONTINGENCIES
The Company is a party to numerous legal proceedings and claims arising in the
ordinary course of business, including several suits alleging wrongful
employment practices. 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.
