<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 May 3, 1997 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 May 30, 1997.
32,751,639 shares of Class A Common Stock, $.10 par value
9,572,871 shares of Class B Common Stock, $.10 par value
<PAGE> 2
HECHINGER COMPANY
INDEX TO FORM 10-Q
THIRTEEN WEEKS ENDED MAY 3, 1997
<TABLE>
<CAPTION>
DESCRIPTION
- -----------
<S> <C>
Part I. Financial Information:
Item 1. Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Part II. Other Information:
Item 6. Exhibits and Reports on Form 8-K
Index to Exhibits
</TABLE>
<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 MAY 3, 1997 MAY 4, 1996 % CHANGE % CHANGE
- ------ ----------- ----------- -------- --------
<S> <C> <C> <C> <C>
Thirteen weeks $508.0 $561.3 (10%) (9%)
</TABLE>
For the thirteen weeks ended May 3, 1997, the decreases in total sales and
comparable store sales were due primarily to increased competition and
unseasonably cool weather. Since May 4, 1996, the Company has relocated one
store and closed one additional store. As of May 3, 1997, the Company operates
117 stores.
For the thirteen weeks ended May 3, 1997, cost of sales was 79.8% of sales
compared with 79.4% 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. As a percent of sales, the
increase in cost of sales is due primarily to less leverage of distribution,
buying and occupancy expenses as a result of lower sales this year compared
with last year. This increase was partially offset by an improvement in
merchandise margins.
For the thirteen weeks ended May 3, 1997, selling, general and administrative
expenses were 20.8% of sales compared with 20.1% of sales for the corresponding
period last year. As a percent of sales, the increase in selling, general and
administrative expenses was due primarily to less leverage of selling, general
and administrative expenses as a result of lower sales this year compared with
last year.
For the thirteen weeks ended May 3, 1997, interest expense was $10.6 million,
2.1% of sales, compared with $9.8 million, 1.7% of sales, for the corresponding
period last year. The increase was due primarily to higher borrowings under the
Company's revolving credit facility this year compared with last year.
For the thirteen weeks ended May 3, 1997 and the corresponding period last
year, the effective tax rate was 0%. No tax benefits have been recorded as all
potential benefits have been recorded in prior periods.
For the thirteen weeks ended May 3, 1997, the net loss was $13.5 million, $.32
per share, compared with a net loss of $6.0 million, $.14 per share, for the
corresponding period last year.
For the thirteen weeks ended May 3, 1997, expenditures for employee termination
costs associated with the merger reserve recorded in 1995 totaled $0.8 million.
The remaining balance of $1.6 million has been recorded as a current liability
as of May 3, 1997. The Company believes that the balance remaining in the
reserve is adequate to cover future expenses related to the employee
termination costs resulting from the merger of its Hechinger and Home Quarters
operations.
For the thirteen weeks ended May 3, 1997, expenditures for carrying costs of
closed stores associated with the store closing reserve recorded in 1994
totaled $1.8 million. The remaining balance of $8.6 million has been recorded
as a current liability as of May 3, 1997. 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.
<PAGE> 4
As of May 3, 1997, the Company had outstanding loans of $81.2 million under its
revolving credit facility. In addition, the Company had issued and outstanding
letters of credit of $42.8 million under this facility.
As of May 3, 1997, the Company has approximately $50 million in real estate and
other assets that are currently not being used in its retail operations;
including approximately $9 million of real estate that has been previously
written down to their estimated net realizable values as a part of the charge
recorded in fiscal year 1995 for the adoption of SFAS 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of."
The Company is actively pursuing the disposition of these assets and does not
anticipate that such disposal will have a material adverse effect on the
Company's consolidated financial position or results of operations.
Cash and cash equivalents were $45.6 million as of May 3, 1997 compared with
$36.7 million as of February 1, 1997. The increase in merchandise inventories
from year-end was due primarily to normal seasonal increases in addition to
lower than expected sales. Accounts payable and accrued expenses are
higher due to higher inventories. Expenditures for property, furniture and
equipment and other assets were $6.5 million for the thirteen weeks ended May
3, 1997. These expenditures are related primarily to the Company's store
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 in this Form 10-Q. Investors are
cautioned that all forward-looking statements involve risks and uncertainty.
Factors that could cause actual results to differ materially include, but are
not limited to the following: the strength and extent of new and existing
competition; the Company's ability to maintain competitive pricing in its
markets; the Company's ability to maintain adequate levels of vendor support;
the ability of the Company's customer service programs, Better Spaces store and
commercial business programs to increase sales; the Company's ability to
attract, train and retain experienced, quality employees; the Company's ability
to dispose of excess real estate and other assets; general economic conditions;
housing turnover; interest rates; weather; and other factors described from
time to time in the Company's Securities and Exchange Commission filings.
<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
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>
(b) REPORTS ON FORM 8-K
None.
<PAGE> 6
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: June 10, 1997 HECHINGER COMPANY
-----------------
Registrant
/S/W. CLARK McCLELLAND
----------------------
W. Clark McClelland
Executive Vice President and Chief Financial Officer
(Principal Financial Officer)
<PAGE> 7
HECHINGER COMPANY
INDEX TO EXHIBITS
FORM 10-Q FOR THE THIRTEEN WEEKS ENDED MAY 3, 1997
<TABLE>
<CAPTION>
EXHIBIT NO.
- -----------
<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 Statements of Stockholders' Equity
99(e) Notes to Consolidated Financial Statements
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
HECHINGER COMPANY
STATEMENT REGARDING COMPUTATION OF EARNINGS PER SHARE
(unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED
MAY 3, 1997 MAY 4, 1996
----------------- ------------------
<S> <C> <C>
Net loss $ (13,544) $ (5,990)
Interest on 5-1/2% convertible debentures, net of tax benefit (1) - -
----------------- ------------------
Net loss for primary and fully diluted earnings per share $ (13,544) $ (5,990)
================= ==================
Weighted average shares outstanding 42,187 42,176
Dilutive effect of stock options and restricted stock and performance
share awards after application of the treasury stock method (1) - -
Additional shares issuable assuming full conversion of the 5-1/2%
convertible debentures into Class A common stock (1) - -
----------------- ------------------
Common and common equivalent shares outstanding for primary
earnings per share 42,187 42,176
Additional dilution from stock options, restricted stock and
performance share awards after application of the treasury stock
method (1) - -
----------------- ------------------
Common and common equivalent shares outstanding for fully diluted
earnings per share 42,187 42,176
================= ==================
Primary loss per common share ($0.32) ($0.14)
================= ==================
Fully diluted loss per common share ($0.32) ($.14)
================= ==================
</TABLE>
(1) The 5-1/2% Convertible Subordinated Debentures, stock options, restricted
stock and performance share awards were antidilutive for the 13 weeks
ended May 3, 1997 and May 4, 1996.
See notes to consolidated financial statements.
<PAGE> 1
EXHIBIT 99(a)
HECHINGER COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
13 WEEKS ENDED
MAY 3, 1997 MAY 4, 1996
--------------- --------------
<S> <C> <C>
REVENUES
Net sales $507,981 $561,317
Other (principally interest) - 516
--------------- --------------
Total Revenues 507,981 561,833
COSTS AND EXPENSES
Cost of sales 405,330 445,472
Selling, general and administrative expenses 105,603 112,596
Interest expense 10,592 9,755
--------------- --------------
Total Costs and Expenses 521,525 567,823
--------------- --------------
LOSS BEFORE INCOME TAXES (13,544) (5,990)
INCOME TAX EXPENSE - -
--------------- --------------
NET LOSS ($13,544) ($5,990)
=============== ==============
PRIMARY AND FULLY DILUTED LOSS PER COMMON SHARE ($0.32) ($0.14)
=============== ==============
AVERAGE NUMBER OF COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING:
Primary 42,187 42,176
Fully diluted 42,187 42,176
DIVIDENDS PER SHARE:
Class A common stock $0.00 $0.00
Class B common stock $0.00 $0.00
</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)
MAY 3, 1997 FEB. 1, 1997
--------------- ----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ 45,618 $ 36,727
Merchandise inventories 491,746 414,980
Other current assets 44,017 66,637
--------------- ----------------
Total Current Assets 581,381 518,344
PROPERTY, FURNITURE and EQUIPMENT, NET 454,696 461,752
COST IN EXCESS OF NET ASSETS ACQUIRED, NET 51,645 52,066
LEASEHOLD ACQUISITION COSTS, NET 46,319 46,876
OTHER ASSETS 24,925 26,065
--------------- ----------------
TOTAL ASSETS $ 1,158,966 $ 1,105,103
=============== ================
</TABLE>
<TABLE>
<CAPTION>
(unaudited)
MAY 3, 1997 FEB. 1, 1997
--------------- ----------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Revolving credit facility $ 81,229 $ 84,814
Accounts payable and accrued expenses 291,142 220,296
Current portion of long-term debt and capital lease
obligations 3,439 3,657
--------------- ----------------
Total Current Liabilities 375,810 308,767
LONG-TERM DEBT 380,703 380,868
CAPITAL LEASE OBLIGATIONS 13,187 13,610
DEFERRED RENT 28,491 27,602
STOCKHOLDERS' EQUITY
Class A common stock, $.10 par value; authorized
50,000,000 shares; issued 32,751,639 and 32,608,139 3,275 3,261
Class B common stock, $.10 par value, authorized
30,000,000 shares; issued 9,572,871 and 9,716,371 957 971
Additional paid-in capital 238,248 238,248
Retained earnings 119,370 132,914
Unearned compensation (190) (253)
Less treasury stock at cost, 97,265 Class A
common shares and 14,497 Class B common shares (885) (885)
--------------- ----------------
TOTAL STOCKHOLDERS' EQUITY 360,775 374,256
--------------- ----------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 1,158,966 $ 1,105,103
=============== ================
</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
MAY 3, 1997 MAY 4, 1996
------------------ -----------------
<S> <C> <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES
Net loss $ (13,544) $ (5,990)
Adjustments to reconcile earnings to net cash provided by
operating activities:
Unusual charges (2,583) (8,768)
Depreciation and amortization 14,418 14,473
Deferred rent expense 889 (189)
CHANGES IN OPERATING ASSETS AND LIABILITIES
Merchandise inventories (76,766) (59,335)
Other current assets 22,620 (4,723)
Accounts payable and accrued expenses 73,429 109,781
------------------ -----------------
NET CASH FLOWS FROM OPERATING ACTIVITIES 18,463 45,249
------------------ -----------------
CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES
Property, furniture, equipment and other assets:
Additions (6,470) (18,932)
Disposals 1,226 136
------------------ -----------------
NET CASH FLOWS USED IN INVESTING ACTIVITIES (5,244) (18,796)
------------------ -----------------
CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES
Proceeds from revolving credit facility 99,619 109,378
Payments to revolving credit facility (103,204) (87,072)
Other (743) (645)
------------------ -----------------
NET CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES (4,328) 21,661
------------------ -----------------
INCREASE IN CASH AND CASH EQUIVALENTS 8,891 48,114
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 36,727 35,785
------------------ -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 45,618 $ 83,899
================== =================
SUPPLEMENTAL INFORMATION
Cash payments for income taxes $ - $ 364
Cash payments for interest, net of amount capitalized $ 11,398 $ 9,577
</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, FEB. 3, 1996 $ 3,089 $ 1,143 $ 238,248 $ 157,990
Restricted stock awards earned - - - -
Conversions from Class B to Class A common stock 172 (172) - -
(1,715,558 Class A common shares)
Purchase of treasury stock (57,940 Class A common shares) - - - -
Net loss - - - (25,076)
---------------- ------------- -------------- ---------------
BALANCE, FEB. 1, 1997 3,261 971 238,248 132,914
Restricted stock awards earned - - - -
Conversions from Class B to Class A common stock 14 (14) - -
(143,500 Class A common shares)
Net loss - - - (13,544)
---------------- ------------- -------------- ---------------
BALANCE, MAY 3, 1997 (unaudited) $ 3,275 $ 957 $ 238,248 $ 119,370
================ ============= ============== ===============
</TABLE>
<TABLE>
<CAPTION>
UNEARNED TREASURY
COMPENSATION STOCK TOTAL
-------------- -------------- --------------
<S> <C> <C> <C>
BALANCE, FEB. 3, 1996 $ (759) $ (672) $ 399,039
Restricted stock awards earned 506 - 506
Conversions from Class B to Class A common stock - - -
(1,715,558 Class A common shares)
Purchase of treasury stock (57,940 Class A common shares) - (213) (213)
Net loss - - (25,076)
-------------- -------------- --------------
BALANCE, FEB. 1, 1997 (253) (885) 374,256
Restricted stock awards earned 63 - 63
Conversions from Class B to Class A common stock - - -
(143,500 Class A common shares)
Net loss - - (13,544)
-------------- -------------- --------------
BALANCE, MAY 3, 1997 (unaudited) $ (190) $ (885) $ 360,775
============== ============== ==============
</TABLE>
See notes to consolidated financial statements.
<PAGE> 1
EXHIBIT 99(e)
HECHINGER COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THIRTEEN WEEKS ENDED MAY 3, 1997
(unaudited)
A. BASIS OF PRESENTATION
In the opinion of the 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 May 3, 1997 are not necessarily
indicative of the results to be expected for the fiscal year ending January 31,
1998.
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 1, 1997.
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 May 3, 1997 and February 1, 1997 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 $20.8 million and $20.5 million higher than reported at May 3, 1997 and
February 1, 1997, respectively.
C. TAXES ON INCOME
For the thirteen weeks ended May 3, 1997 and the corresponding period last
year, the effective tax rate was 0%. No tax benefits have been recorded as all
potential benefits have been recorded in prior periods.
D. EARNINGS PER SHARE
Statement of Financial Accounting Standards No. 128 ("SFAS 128"), "Earnings per
Share" was issued in February 1997. The statement is required to be adopted by
the Company for the periods ending January 31, 1998. Early adoption of SFAS 128
is not permitted. The statement requires companies to change the method
currently used to compute earnings per share and to restate all prior periods.
Under the new requirements for calculating primary earnings per share, the
dilutive effect of stock options will be excluded. Adoption of SFAS 128 is not
expected to have a material impact in either the primary or fully diluted
earnings per share of the Company. If the Company had adopted SFAS 128 as of
the first quarter of 1997, the impact on earnings per share would not have been
material.
E. REVOLVING CREDIT FACILITY
<PAGE> 2
As of May 3, 1997, the Company had outstanding loans of $81.2 million under its
revolving credit facility. In addition, the Company had issued and outstanding
letters of credit of $42.8 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.
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1998
<PERIOD-START> FEB-02-1997
<PERIOD-END> MAY-03-1997
<CASH> 45,618
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 491,746
<CURRENT-ASSETS> 581,381
<PP&E> 454,696<F1>
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,158,966
<CURRENT-LIABILITIES> 375,808
<BONDS> 380,703
0
0
<COMMON> 4,232
<OTHER-SE> 356,545
<TOTAL-LIABILITY-AND-EQUITY> 1,158,966
<SALES> 507,981
<TOTAL-REVENUES> 507,981
<CGS> 405,330
<TOTAL-COSTS> 521,525
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,592
<INCOME-PRETAX> (13,544)
<INCOME-TAX> 0
<INCOME-CONTINUING> (13,544)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,544)
<EPS-PRIMARY> (0.32)
<EPS-DILUTED> (0.32)
<FN>
<F1>Property, furniture and equipment, net of accumulated depreciation
</FN>
</TABLE>
