<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
August 3, 1996 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.)
1801 MCCORMICK DRIVE, LARGO, MARYLAND 20774
(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 9, 1996.
31,258,821 shares of Class A Common Stock, $.10 par value
10,986,395 shares of Class B Common Stock, $.10 par value
1 of 15
<PAGE> 2
HECHINGER COMPANY
INDEX TO FORM 10-Q
THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED AUGUST 3, 1996
<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 4. Submission of Matters to a Vote of Security Holders 6
Item 6. Exhibits and Reports on Form 8-K 6
Index to Exhibits 8
</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 AUG. 3, 1996 JULY 29, 1995 CHANGE CHANGE
- ------ ------------ ------------- ------ ------------
<S> <C> <C> <C> <C>
Thirteen weeks $665.9 $648.6 3% (1)%
Twenty-six weeks $1,227.2 $1,201.8 2% (2)%
</TABLE>
The sales increase for the thirteen weeks ended August 3, 1996 was due
primarily to seven stores opened since the second quarter of last year which
have generated higher sales volumes than the four stores closed during the same
period. The comparable store sales decrease was due primarily to increased
competition and disruption in the Company's stores caused by remerchandising
and remodeling programs.
The following table sets forth the number of stores operated by the Company:
<TABLE>
<S> <C>
As of July 29, 1995 114
Third quarter 1995 openings 5
Third quarter 1995 closings (1)
As of October 28, 1995 118
Fourth quarter 1995 openings -
Fourth quarter 1995 closings -
As of February 3, 1996 118
First quarter 1996 openings 1
First quarter 1996 closings (1)
As of May 4, 1996 118
Second quarter 1996 openings 1
Second quarter 1996 closings (2)
---
As of August 3, 1996 117
===
</TABLE>
For the thirteen weeks ended August 3, 1996, cost of sales was 79.0% of sales
compared to 78.6% of sales for the corresponding period last year. For the
twenty-six weeks ended August 3, 1996, cost of sales was 79.2% of sales
compared to 78.5% 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 increases in cost of sales
during the thirteen weeks and the twenty-six weeks ended August 3, 1996
compared to the same periods last year are attributable to the impact of
competitive pricing in certain markets, among other factors.
For the thirteen weeks ended August 3, 1996, selling, general and
administrative expenses were 17.8% of sales compared to 18.1% of sales for the
corresponding period last year. These figures include preopening expenses of
3
<PAGE> 4
$0.9 million for the thirteen weeks ended August 3, 1996 and $2.5 million for
the corresponding period last year. Excluding these expenses, selling, general
and administrative expenses for the thirteen weeks ended August 3, 1996 were
17.6% of sales compared to 17.7% of sales for the corresponding period last
year. For the twenty-six weeks ended August 3, 1996, selling, general and
administrative expenses were 18.8% of sales compared to 19.0% of sales for the
corresponding period last year. These figures include preopening expenses of
$1.9 million for the twenty-six weeks ended August 3, 1996 and $5.2 million for
the corresponding period last year. Excluding these expenses, selling, general
and administrative expenses for the twenty-six weeks ended August 3, 1996 were
18.7% of sales compared to 18.6% for the corresponding period last year.
For the thirteen weeks ended August 3, 1996, interest expense was $9.8 million,
1.5% of sales, compared to $7.8 million, 1.2% of sales, for the corresponding
period last year. For the twenty-six weeks ended August 3, 1996, interest
expense was $19.6 million, 1.6% of sales, compared to $15.1 million, 1.3% of
sales for the corresponding period last year. The increases were due primarily
to interest on borrowings under the revolving credit facility and lower
interest capitalized on construction-in-progress as a result of fewer stores
under construction.
For the thirteen weeks and twenty-six weeks ended August 3, 1996, the effective
tax rates were 0% compared to 37.0% for the corresponding periods last year.
The decreases in the effective tax rates reflect management's estimates of
the effective tax rate for the fiscal year ending February 1, 1997.
For the thirteen weeks ended August 3, 1996, the net earnings were $12.2
million, $.28 per share, compared to net earnings of $9.1 million, $.22 per
share, for the corresponding period last year. For the twenty-six weeks ended
August 3, 1996, the net earnings were $6.2 million, $.15 per share, compared to
net earnings of $10.3 million, $.24 per share, for the corresponding period
last year.
For the thirteen weeks ended August 3, 1996, the number of shares used to
compute earnings per common share were 46.7 million compared to 42.2 million
for the corresponding period last year. The increase in the number of shares
used to compute earnings per common share is a result of the 5 1/2% Convertible
Subordinated Debentures being dilutive for the thirteen weeks ended August 3,
1996. The Convertible Subordinated Debentures were antidilutive for the
corresponding period last year. For the twenty-six weeks ended August 3, 1996,
the number of shares used to compute earnings per common share were 42.3
million compared to 42.2 million for the corresponding period last year as the
5 1/2% Convertible Subordinated Debentures were antidilutive.
The following table reflects the activities recorded during the twenty-six
weeks ended August 3, 1996 for the $25 million reserve recorded in 1995 related
to the Company's decision to combine its Hechinger Stores and Home Quarters
operations:
<TABLE>
<CAPTION>
($ in millions) Balance Balance
Remaining Utilized in 1996 Remaining
Feb. 3, 1996 Cash Non-cash Aug. 3, 1996
------------ ---- -------- ------------
<S> <C> <C> <C> <C>
Employee termination costs $11.0 $ 4.8 - $6.2
Pension termination and other 7.1 5.4 - 1.7
Disposal of furniture, fixtures and
equipment and other assets 2.0 - $1.1 .9
----- ----- ---- ----
$20.1 $10.2 $1.1 $8.8
===== ===== ==== ====
</TABLE>
The remaining balance of $8.8 million has been recorded as a current liability
as of August 3, 1996. Management anticipates that the combination will be
substantially completed by the end of fiscal 1996. The Company believes that
the balance remaining in the reserve is adequate to cover future expenses
related to the cost of combining its Hechinger Stores and Home Quarters
operations.
For the twenty-six weeks ended August 3, 1996, expenditures for carrying costs
of closed stores associated with the store closing reserve recorded in 1994
totaled $6.4 million. Of the $15.7 million remaining, $7.5 million has been
recorded as a current liability. The Company believes that the balance
remaining in the store closing reserve is adequate to cover future expenses
related to the carrying costs of the closed stores.
4
<PAGE> 5
In February 1996, the Company's operating subsidiaries entered into a new
senior secured revolving credit facility, which permits borrowings of up to
$200 million, with preauthorization from the lender to utilize the last $25
million. This facility replaced the existing revolving credit facility and all
letter of credit facilities. This facility is secured by merchandise
inventories and expires in February 1999. Interest on borrowings under this
facility is at prime plus 1% or LIBOR plus 2.75% at the option of management.
As of August 3, 1996, the Company had outstanding loans of $66.2 million under
this facility. In addition, the Company had issued and outstanding letters of
credit of $29.5 million under this facility.
Cash and cash equivalents were $89.8 million as of August 3, 1996 compared to
$35.8 million as of February 3, 1996. The increases in merchandise inventories
and accounts payable and accrued expenses from year-end were due primarily to
normal spring selling seasonal increases and lower than expected sales level.
Expenditures for property, furniture and equipment and other assets, net of
disposal of a company-owned store and other disposals, were $13.3 million for
the twenty-six weeks ended August 3, 1996. These expenditures are related
primarily to the Company's store relocation and remodeling programs.
The Company is a party to 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 outcome of such
proceedings and claims will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
Forward-looking statements in this Form 10-Q are made pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of 1995.
There are various factors that could cause results to differ materially from
those anticipated by some statements made above. Investors are cautioned that
all forward-looking statements involve risks and uncertainty. Factors that
could cause actual results to differ materially include the following: general
economic conditions, housing turnover, interest rates, weather, impact on sales
and margins from both existing and new competition, product mix, lumber prices,
and other risks described from time to time in the Company's SEC filings.
5
<PAGE> 6
PART II
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a). The Annual Meeting of stockholders was held on June 11, 1996.
(b). Not applicable.
(c). At such meeting all nine 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 142,354,050 568,721
Herbert J. Broner 142,376,021 546,750
Kenneth J. Cort 142,353,962 568,809
John W. Hechinger, Jr. 142,347,910 574,861
S. Ross Hechinger 142,358,285 564,486
Ann D. Jordan 142,372,164 550,607
W. Clark McClelland 142,377,282 545,489
Melvin A. Wilmore 142,370,813 551,958
Alan J. Zakon 142,376,072 546,699
</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 1,
1997. The votes cast with respect to such matter were as follows:
<TABLE>
<S> <C>
For 142,504,235
Against 229,711
Abstain 188,825
</TABLE>
(d). Not applicable.
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.
6
<PAGE> 7
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: September 17, 1996 HECHINGER COMPANY
-----------------
Registrant
/S/W. CLARK McCLELLAND
----------------------
W. Clark McClelland
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)
7
<PAGE> 8
HECHINGER COMPANY
INDEX TO EXHIBITS
FORM 10-Q FOR THE THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED AUGUST 3, 1996
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<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 Statements of Stockholders' Equity
99(e) Notes to Consolidated Financial Statements
</TABLE>
8
<PAGE> 1
EXHIBIT 11
HECHINGER COMPANY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
AUG. 3, 1996 JUL. 29, 1995 AUG. 3, 1996 JUL. 29, 1995
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
Net earnings $12,215,000 $9,139,000 $6,225,000 $10,306,000
Interest on 5-1/2% convertible debentures, net of tax
benefit (1) 1,072,000 - - -
----------- ---------- ---------- -----------
Net earnings for primary and fully diluted earnings per
share $13,287,000 $9,139,000 $6,225,000 $10,306,000
=========== ========== ========== ===========
Weighted average shares outstanding 42,150,716 42,111,221 42,163,452 42,106,049
Dilutive effect of stock options and restricted stock and
performance share awards after application of the
treasury stock method 152,269 53,694 100,728 131,301
Additional shares issuable assuming full conversion
of the 5-1/2% debentures into Class A common stock (1) 4,419,899 - - -
----------- ---------- ---------- -----------
Common and common equivalent shares outstanding for
primary earnings per share 46,722,884 42,164,915 42,264,180 42,237,350
Additional dilution from stock options and restricted stock
and performance share awards after application of the
treasury stock method - - 58,255 -
----------- ---------- ---------- -----------
Common and common equivalent shares outstanding for
fully diluted earnings per share 46,722,884 42,164,915 42,322,435 42,237,350
=========== ========== ========== ===========
Primary earnings per common share $0.28 $0.22 $0.15 $0.24
=========== ========== ========== ===========
Fully diluted earnings per common share $0.28 $0.22 $0.15 $0.24
=========== ========== ========== ===========
</TABLE>
(1) The 5-1/2% Convertible Subordinated Debentures were antidilutive for the 26
weeks ended August 3, 1996 and 13 weeks and 26 weeks ended July 29, 1995.
9
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> FEB-01-1997
<PERIOD-START> FEB-04-1996
<PERIOD-END> AUG-03-1996
<CASH> 89,808
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 460,910
<CURRENT-ASSETS> 630,647
<PP&E> 472,639<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,235,163
<CURRENT-LIABILITIES> 397,595
<BONDS> 383,106
0
0
<COMMON> 4,232
<OTHER-SE> 401,171
<TOTAL-LIABILITY-AND-EQUITY> 1,235,163
<SALES> 1,227,219
<TOTAL-REVENUES> 1,228,580
<CGS> 971,811
<TOTAL-COSTS> 1,202,800
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,555
<INCOME-PRETAX> 6,225
<INCOME-TAX> 0
<INCOME-CONTINUING> 6,225
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,225
<EPS-PRIMARY> 0.15
<EPS-DILUTED> 0.15
<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 26 WEEKS ENDED
AUG. 3, 1996 JUL. 29, 1995 AUG. 3, 1996 JUL. 29, 1995
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
REVENUES
Net sales $665,902 $648,649 $ 1,227,219 $1,201,822
Other (principally interest) 845 948 1,361 1,948
---------- ---------- ------------- ------------
Total Revenues 666,747 649,597 1,228,580 1,203,770
COSTS AND EXPENSES
Cost of sales 526,338 510,118 971,811 943,744
Selling, general and administrative expenses 118,394 117,202 230,989 228,560
Interest expense 9,800 7,770 19,555 15,106
---------- ---------- ------------- ------------
Total Costs and Expenses 654,532 635,090 1,222,355 1,187,410
---------- ---------- ------------- ------------
EARNINGS BEFORE INCOME TAXES 12,215 14,507 6,225 16,360
INCOME TAX EXPENSE - 5,368 - 6,054
---------- ---------- ------------- ------------
NET EARNINGS $ 12,215 $ 9,139 $ 6,225 $ 10,306
========== ========== ============= ============
PRIMARY AND FULLY DILUTED EARNINGS PER
COMMON SHARE $0.28 $0.22 $0.15 $0.24
========== ========== ============= ============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 46,723 42,165 42,264 42,237
Fully diluted 46,723 42,165 42,322 42,237
DIVIDENDS PER SHARE:
Class A common stock $ - $0.04 $ - $0.08
Class B common stock $ - $0.02 $ - $0.03
</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)
AUG. 3, 1996 FEB. 3, 1996
-------------- --------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 89,808 $ 35,785
Merchandise inventories 460,910 414,974
Other current assets 79,929 79,533
-------------- --------------
Total Current Assets 630,647 530,292
PROPERTY, FURNITURE AND EQUIPMENT, NET 472,639 497,577
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 52,905 53,743
LEASEHOLD ACQUISITION COSTS, NET 48,057 49,128
OTHER ASSETS 30,915 19,681
-------------- --------------
TOTAL ASSETS $1,235,163 $1,150,421
============== ==============
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
AUG. 3, 1996 FEB. 3, 1996
------------- ---------------
<S> <C> <C>
LIABILITIES and STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 66,212 $ -
Accounts payable and accrued expenses 327,202 313,067
Current portion of long-term debt and capital lease
obligations 4,181 3,806
------------- ---------------
Total Current Liabilities 397,595 316,873
LONG-TERM DEBT 383,106 383,709
CAPITAL LEASE OBLIGATIONS 14,716 15,821
DEFERRED RENT 26,143 26,779
OTHER LONG-TERM LIABILITIES 8,200 8,200
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value; authorized
50,000,000 shares; issued 31,323,618 and 30,892,581 3,132 3,089
Class B common stock, $.10 par value, authorized
30,000,000 shares; issued 11,000,892 and 11,431,929 1,100 1,143
Additional paid-in capital 238,248 238,248
Retained earnings 164,215 157,990
Unearned compensation (506) (759)
Less treasury stock at cost, 64,797 and 39,325
Class A common shares and 14,497 and 14,497 Class B
common shares (786) (672)
------------- --------------
TOTAL STOCKHOLDERS' EQUITY 405,403 399,039
------------- --------------
TOTAL LIABILITIES and STOCKHOLDERS' EQUITY $ 1,235,163 $ 1,150,421
============= ==============
</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>
26 WEEKS ENDED
AUG. 3, 1996 JUL. 29, 1995
-------------- ---------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net earnings $ 6,225 $ 10,306
Adjustments to reconcile earnings to net cash provided by
operating activities:
Unusual charges (17,705) (18,641)
Depreciation and amortization 28,866 28,949
Deferred income taxes - 5,716
Deferred rent expense (636) 987
CHANGES IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories (45,936) 25,508
Other current assets (11,698) (1,539)
Accounts payable and accrued expenses 31,840 24,767
Income taxes payable 11,302 (2,496)
-------------- ---------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 2,258 73,557
-------------- ---------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Property, furniture, equipment and other assets:
Additions (29,990) (68,430)
Disposals 16,737 2,536
Marketable securities:
Purchases - (108,380)
Proceeds from sales - 98,526
-------------- ---------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (13,253) (75,748)
-------------- ---------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from revolving credit facility 268,355 -
Payments to revolving credit facility (202,143) -
Dividends paid to stockholders - (2,831)
Other (1,194) (992)
-------------- ---------------
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES 65,018 (3,823)
-------------- ---------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 54,023 (6,014)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 35,785 26,252
-------------- ---------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 89,808 $ 20,238
============== ===============
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $ - $ 2,853
Cash payments for interest, net of amount capitalized $ 20,132 $ 15,619
</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 UNEARNED TREASURY
STOCK STOCK CAPITAL EARNINGS COMPENSATION STOCK TOTAL
-------- --------- ---------- -------- ------------ -------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JAN. 28, 1995 $3,080 $1,152 $238,182 $240,919 $(1,553) $ (507) $481,273
Restricted stock awards earned - - - - 794 - 794
Exercise of stock options including income
tax benefit - - 66 - - 66 132
Conversions from Class B to Class A common
stock (86,800 Class A common shares) 9 (9) - - - - -
Purchase of treasury stock (27,391 Class A
common shares) - - - - - (231) (231)
Adjustment to fair value of marketable
securities - - - 371 - - 371
Cash dividends on common stock:
Class A - $.16 per share - - - (4,931) - - (4,931)
Class B - $.06 per share - - - (733) - - (733)
Net loss - - - (77,636) - - (77,636)
-------- -------- ---------- ---------- ------- ------- ----------
BALANCE, FEB. 3, 1996 3,089 1,143 238,248 157,990 (759) (672) 399,039
Restricted stock awards earned - - - - 253 - 253
Conversions from Class B to Class A
common stock 43 (43) - - - - -
(431,037 Class A common shares)
Purchase of treasury stock (25,472 Class A
common shares) - - - - - (114) (114)
Net earnings - - - 6,225 - - 6,225
-------- -------- ---------- ---------- ------- ------- ----------
BALANCE, AUG. 3, 1996 (unaudited) $3,132 $1,100 $238,248 $164,215 $ (506) $ (786) $405,403
======== ======== ========== ========== ======= ======= ==========
</TABLE>
See notes to consolidated financial statements.
13
<PAGE> 1
EXHIBIT 99(e)
HECHINGER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS AND TWENTY-SIX WEEKS ENDED AUGUST 3, 1996
(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 and twenty-six weeks ended August 3,
1996 are not necessarily indicative of the results to be expected for the
fiscal year ending February 1, 1997.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the amounts reported in the financial statements and accompanying
notes. Actual results could differ from those estimates. 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 February 3, 1996.
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 August 3, 1996 and February 3, 1996 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 $23.8 million and $21.5 million higher than reported at August 3,
1996 and February 3, 1996, respectively.
C. TAXES ON INCOME
For the thirteen weeks and twenty-six weeks ended August 3, 1996, the effective
tax rates were 0% compared to 37.0% for the corresponding periods last year.
The decreases in the effective tax rates reflect management's estimates of
the effective tax rate for the fiscal year ending February 1, 1997.
D. UNUSUAL CHARGES
For the twenty-six weeks ended August 3, 1996, the Company utilized
approximately $11.3 million of the reserve recorded in 1995 related to the
Company's decision to combine its Hechinger Stores and Home Quarters
operations. The remaining balance of $8.8 million has been recorded as a
current liability as of August 3, 1996. Management anticipates that the
combination will be substantially completed by the end of fiscal 1996. The
Company believes that the balance remaining in the reserve is adequate to cover
future expenses related to the cost of combining its Hechinger Stores and Home
Quarters operations.
For the twenty-six weeks ended August 3, 1996, expenditures for carrying costs
of closed stores associated with the store closing reserve recorded in 1994
totaled $6.4 million. Of the $15.7 million remaining, $7.5 million has been
recorded as a current liability. The Company believes that the balance
remaining in the store closing reserve is adequate to cover future expenses
related to the carrying costs of the closed stores.
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E. REVOLVING CREDIT FACILITY
In February 1996, the Company's operating subsidiaries entered into a new
senior secured revolving credit facility, which permits borrowings of up to
$200 million, with preauthorization from the lender to utilize the last $25
million. This facility replaced the existing revolving credit facility and all
letter of credit facilities. This facility is secured by merchandise
inventories and expires in February 1999. Interest on borrowings under this
facility is at prime plus 1% or LIBOR plus 2.75% at the option of management.
As of August 3, 1996, the Company had outstanding loans of $66.2 million under
this facility. In addition, the Company had issued and outstanding letters of
credit of $29.5 million under this facility.
F. CONTINGENCIES
The Company is a party to 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 outcome of such
proceedings and claims will not have a material adverse effect on the Company's
consolidated financial position, results of operations or liquidity.
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