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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) November 11, 1997
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HomeBase, Inc.
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(Exact name of registrant as specified in its charter)
DELAWARE
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(State or other jurisdiction of incorporation)
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1-10259 33-0109661
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(Commission File number) (I.R.S. Employer Identification No.)
Support Center Offices 3345 Michelson Drive, Irvine, California 92715
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (714) 442-5000
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(Former name or former address, if changed since last report)
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INFORMATION TO BE INCLUDED IN THE REPORT
Item 5. Other Events.
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On November 11, 1997, HomeBase, Inc. (the "Company") issued a press
release in the form attached hereto as Exhibit 99.1.
An investment in the Company's common stock and its other securities involves
a high degree of risk. Prospective investors should carefully consider the
following risk factors, in addition to the other information publicly disclosed
by the Company.
The Company's press releases, public filings and other information provided to
investors contain forward looking statements within the meaning of Section 27A
of the Securities Act and Section 21E of the Exchange Act, that involve risks
and uncertainties. These statements include statements regarding the intent,
belief or current expectations of the Company, its directors or its officers
with respect to, among other things: (i) the financial prospects of the Company;
(ii) the number and location of stores to be opened or remodeled in future
periods; (iii) the Company's financing plans; (iv) trends affecting the
Company's financial condition or results of operations; (v) the Company's growth
strategy and operating strategy; (vi) trends in the home improvement industry;
(vii) utilization of the Company's capital resources; and (viii) the declaration
and payment of dividends. Prospective investors are cautioned that any such
forward looking statements are not guarantees of future performance and involve
risks and uncertainties, and that actual results may differ materially from
those in the forward looking statements as a result of various factors. The
accompanying information contained in this Form 8-K under "Risk Factors,"
identifies important factors that could cause such differences.
RISK FACTORS
ACCELERATED GROWTH STRATEGY. The Company is implementing a strategy designed
to strengthen its market position in the western United States and improve its
profitability. Specifically, the Company plans to accelerate its store
remodeling program, to increase the pace of new store openings and to close
three unprofitable stores. The Company expects to complete the remodeling of
approximately eight stores during fiscal 1997 and 17 stores in the first quarter
of fiscal 1998. The Company estimates that this remodeling program will require
additional capital expenditures aggregating $17 million over approximately the
next six months. The Company expects to fund this remodeling program with its
capital resources. There can be no assurance that the Company will be able to
complete this remodeling program on schedule or that remodeled stores will
realize an improvement in net sales or comparable store sales. Furthermore, the
Company may experience a negative impact on sales and margins at remodeled
stores during the remodel period.
The Company opened two new stores in fiscal 1997 and intends to open
approximately two to four new stores during fiscal 1998. The Company expects
that the pace of expansion will increase to opening eight to ten stores in
each of fiscal 1999 and fiscal 2000, instead of the previously planned two to
four stores per year. The Company estimates that it will cost approximately
$4.5 million to open each of these new stores (excluding land acquisition and
building development costs). The Company's ability to open new stores on a
timely and profitable basis is subject to various contingencies, some of which
are beyond the Company's control. These contingencies include the Company's
ability to (i) find suitable new warehouse store locations of sufficient size
and at acceptable prices, (ii) acquire the necessary governmental and
regulatory permits and approvals, including all necessary zoning and
development permits, (iii) construct the warehouse stores at budgeted cost and
in a timely manner, (iv) hire and train sufficient numbers of qualified store
managers and staff for new stores, and (v) integrate these new warehouse
stores into the Company's operations. There can be no assurance that the
Company will achieve its planned expansion or that the Company's new or
remodeled stores will achieve sales, gross profit or operating income
comparable to existing stores. Although the Company's management carefully
selects new store locations, there can be no assurance that the opening of
additional HomeBase stores in existing markets will not negatively impact same
store sales at existing locations.
The accelerated growth strategy will require an increase in Company
personnel, particularly store managers and sales associates, who possess the
training and experience necessary to meet the Company's customer service
standards. The Company may find it difficult to attract, develop and retain
the personnel necessary to pursue its growth strategy successfully. The
Company will also need to continually evaluate the adequacy of its management
information systems, including its inventory control and distribution systems,
and in the future will
need to upgrade or reconfigure its management information systems to support its
planned expansion. Moreover, as the Company grows, it will need to continually
analyze the sufficiency of its warehouse and distribution space and will require
additional facilities in order to support such growth. The inability of the
Company to attract and retain the necessary personnel, to expand and enhance its
management information systems, or to increase its warehouse and distribution
space to support its growth strategy could have a material adverse effect on the
Company's results of operations and financial condition.
The Company's operating results and financial condition could be materially
adversely affected if it encounters difficulties in implementing any part of its
accelerated growth strategy. There can be no assurance that the Company will be
able to successfully implement its accelerated growth strategy or that such
strategy, if successfully implemented, will result in an improvement of the
Company's operating results.
COMPETITION. The home improvement, hardware and garden businesses are all
highly competitive. The Company competes with a large number and variety of
wholesalers and retailers, including several large national chains in the home
improvement warehouse merchandising business, some of which have significantly
greater financial and marketing resources than the Company. Major competitors of
the Company that use the warehouse store format include The Home Depot, Inc.,
Eagle Hardware & Garden, Inc. and Builder's Square Inc. Competition exists
primarily in the areas of price, product selection, location, service and name
recognition. Competitive factors could require price reductions or cause an
increase in operating costs, including increases in expenditures for marketing
and customer service, that would adversely affect the Company's operating
results. The Company will also experience competition for qualified personnel
and for suitable new store locations of sufficient size at acceptable prices.
There can be no assurance that the Company will be able to continue to compete
effectively.
Some markets in which the Company currently operates or might operate in the
future may already be at or near the saturation point in terms of warehouse
stores competitive with the Company's. Certain of the Company's principal
competitors appear to have a strategy of clustering stores within or saturating
markets in which they operate, or of placing their warehouse stores so close to
the Company's stores as to directly challenge the Company's competitive position
in such markets. Such strategies could have a material adverse effect on the
Company's current operations and upon the profitability of the Company's
accelerated growth strategy. Approximately 95% of the Company's stores have at
least one home improvement warehouse retailer within their trading areas at an
average distance of approximately three miles. The Company expects that its
existing competitors, some of whom have either expansion plans in place or may
seek to imitate the Company's strategy, will open additional stores in the
Company's current market areas, which could adversely affect the Company's
competitive position.
ABSENCE OF OPERATING HISTORY AS A SEPARATE COMPANY. Prior to July 28, 1997,
the business of the Company was operated as a division of a much larger company,
and the Company thus does not have a significant operating history as a separate
stand-alone company. Prior to July 28, 1997, the Company, then known as Waban
Inc. ("Waban"), operated through two divisions--the HomeBase Division (the
"HomeBase Division") and the BJ's Wholesale Club Division (the "BJ's Division").
As of July 26, 1997, the Company transferred all of the net assets of its BJ's
Division to its newly-formed subsidiary, BJ's Wholesale Club, Inc. ("BJI"). On
July 28, 1997, the Company distributed to its stockholders on a pro rata basis
all of the outstanding common stock of BJI (the "Distribution").
Prior to the Distribution, each of the BJ's Division and the HomeBase Division
had access to the cash flow generated by the other and to Waban's credit, which
was based on the combined assets and operating results of the BJ's Division and
the HomeBase Division. The ability of the Company to access credit facilities
and capital markets in the future will depend on its financial performance as a
separate stand-alone company. To the extent the Company experiences reduced
access to capital or higher capital costs, the Company may have difficulty
financing its growth strategy, which could have a material adverse effect on the
Company's results of operations and financial condition.
RELIANCE ON CERTAIN MARKETS. The Company's home improvement stores are located
in the western United States, more than half of them in California. The Company
has been adversely affected from time to time by economic downturns experienced
in its geographic markets, and future economic downturns in such regions could
adversely affect the Company. In particular, the performance of the Company's
stores in recent years has been affected by the downturn in the Southern
California housing market. Although the Company believes that the Southern
California housing market is experiencing a recovery, there is no assurance that
such recovery will
continue or that such recovery, if sustained, would improve the Company's
operating results. In addition, the Company is subject to other regional risks,
including those related to or arising out of weather conditions, natural
disasters, and state and local government regulation. The occurrence of any of
the events described above may have a material adverse effect on the Company's
results of operations and financial condition, and on its store expansion and
remodeling program.
SEASONALITY AND QUARTERLY RESULTS. The Company's quarterly operating results
have fluctuated in the past and are expected to fluctuate in the future as a
result of a variety of factors, including the timing of store openings and
related preopening expenses, weather conditions, price increases by suppliers,
actions by competitors, conditions in the home improvement industry in general,
regional and national economic conditions and other factors. The Company's sales
and earnings are typically lower in the first and fourth fiscal quarters than
they are in the second and third fiscal quarters, which correspond to the most
active season for home improvement. The Company believes its financial results
will continue to reflect these seasonal patterns.
COMPARABLE STORE SALES. A variety of factors affects the Company's same store
sales, including, among others, the timing and concentration of new store
openings, actions of competitors (including the opening of additional stores in
the Company's markets), the retail sales environment, general economic
conditions, weather conditions and the Company's ability to execute its business
strategy effectively. In recent years, the Company's comparable stores sales
have been negatively affected by increased competition and the depressed
economic conditions in its major markets, particularly Southern California.
There can be no assurance that these and other factors will not result in
further declines or fluctuations in comparable store sales, which could have a
material adverse effect on the Company's results of operations and financial
condition.
ENVIRONMENTAL RISKS AND REGULATIONS. As is the case with any owner or operator
of real property, the Company is subject to a variety of federal, state and
local governmental regulations relating to the use, storage, discharge, emission
and disposal of hazardous materials. Failure to comply with environmental laws
could result in the imposition of severe penalties or restrictions on operations
by governmental agencies or courts of law which could adversely affect
operations. The Company does not have environmental liability insurance to cover
such events. The Company has engaged and may engage in real estate development
projects and owns several parcels of real estate on which its stores are
located. While the Company is unaware of any significant environmental hazard on
properties it owns or has owned, or operates or has operated, in the event of
any discovery of such hazard, severe penalties, including the costs of
remediation, could be sought against the Company, which could have a material
adverse effect on the Company's results of operations and financial condition.
DEPENDENCE ON KEY INDIVIDUALS. The Company's success depends in large part on
the abilities and continued service of Herbert J. Zarkin, the Company's Chairman
of the Board, and Allan P. Sherman, the Company's President and Chief Executive
Officer. There can be no assurance that the Company will be able to retain the
services of Messrs. Zarkin and Sherman. The loss of the services of either of
Messrs. Zarkin or Sherman could have a material adverse effect on the Company's
results of operations and financial condition.
CONSEQUENCE OF FAILURE TO QUALIFY AS TAX FREE SPIN-OFF. Prior to the
Distribution, the Company received a letter ruling (the "Letter Ruling") from
the Internal Revenue Service ("IRS") to the effect that, for Federal income tax
purposes, the Distribution and certain related asset transfers would qualify as
a spin-off under Section 355 of the Internal Revenue Code of 1986, as amended
(the "Code") that would be tax free to the Company and the holders of the
Company's Common Stock at the time of the Distribution. The Letter Ruling is
based on and subject to certain assumptions, facts, representations and advice
provided by the Company, BJI, holders of 5% or more of the Company's Common
Stock and the Company's financial advisor at the time of the Distribution.
Although the Company is not aware of any facts or circumstances that would make
such assumptions, facts, representations and advice unobtainable or untrue,
certain future events not within the control of the Company and BJI, including,
for example, an IRS challenge to the Distribution in the event that BJI or the
Company is acquired before the end of the Company's fiscal year 1999, could
cause the Distribution not to qualify for tax-free treatment, resulting in
adverse consequences to the Company.
POTENTIAL CONFLICTS OF INTEREST; MANAGEMENT OVERLAP. The interests of BJI and
the Company may potentially conflict due to the ongoing relationships between
the companies. Such sources of conflict include the fact that the Company
remains liable for certain contractual obligations of BJI, including BJI leases,
and the other arrangements between the parties regarding lease liabilities. In
addition, Herbert J. Zarkin currently holds the executive offices of Chairman of
the Company's board of directors and Chairman of the BJI board of directors,
Lorne R. Waxlax serves as a member of the board of directors of both the Company
and BJI and Edward J. Weisberger serves as an officer and director of both the
Company and BJI. Appropriate procedures are being followed by the board of
directors of the Company to limit the involvement of Messrs. Zarkin, Weisberger
and Waxlax in conflict situations, including requiring them to abstain from
voting as directors of the Company on certain matters.
SUBORDINATION. The 5.25% convertible subordinated notes due 2004 (the "Notes")
intended to be sold as described in the press release in the form attached to
this Form 8-K as Exhibit 99.1, will be unsecured and subordinated in right of
payment to all existing and future Senior Debt of the Company. As a result, in
the event of the Company's liquidation or insolvency, a payment or covenant
default with respect to Senior Debt, or upon acceleration of the Notes due to an
event of default, the assets of the Company will be available to pay obligations
on the Notes only after all Senior Debt has been paid in full, and there may not
be sufficient assets remaining to repay in full all of the Notes then
outstanding. The Notes will also be effectively subordinated in right of payment
to all indebtedness and other liabilities, including trade payables, of the
Company's subsidiaries. The incurrence of additional indebtedness and other
liabilities by the Company or its subsidiaries could adversely affect the
Company's ability to pay its obligations on the Notes. Senior Debt includes
substantially all indebtedness of the Company other than all indebtedness that
is made subordinate to or pari passu with the Notes by the instrument creating
the indebtedness. As of October 25, 1997, after giving effect to the sale of the
Notes and the application of the net proceeds therefrom, the Company would have
had approximately $29.2 million of Senior Debt outstanding, and the Company's
subsidiaries would have had approximately $0.5 million of indebtedness and other
liabilities.
REPURCHASE OF NOTES AT THE OPTION OF HOLDERS UPON CERTAIN EVENTS; AVAILABILITY
OF FUNDS. If certain events occur, each holder of the Notes will have the right
to require the Company to repurchase the Notes in whole or in part at a
redemption price of 100% of the principal amount thereof, plus accrued interest
to the repurchase date. If such an event were to occur, there can be no
assurance that the Company would have the financial resources or be able to
arrange financing on acceptable terms to pay the repurchase price for all the
Notes as to which the purchase right is exercised. Further, any repurchase in
connection with such an event could, depending on the circumstances and absent a
waiver from the holders of Senior Debt, be blocked by the subordination
provisions of the Notes. Failure by the Company to repurchase the Notes when
required may result in an event of default with respect to the Notes (and with
respect to Senior Debt) whether or not such repurchase is permitted by the
subordination provisions.
ABSENCE OF PRIOR PUBLIC MARKET; TRANSFER RESTRICTIONS; LIMITED TRADING
HISTORY. The Notes have not been registered under the Securities Act and will be
subject to significant restrictions on resale. There is no existing market for
the Notes and there can be no assurance as to the liquidity of any markets that
may develop for the Notes, the ability of the holders to sell their Notes or the
price at which holders of the Notes may be able to sell their Notes. Future
trading prices of the Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results, the price of
the Common Stock and the market for similar securities. The initial purchaser of
the Notes has informed the Company that it intends to make a market in the Notes
offered hereby; however, such initial purchaser is not obligated to do so, and
any such market making activity may be terminated at any time without notice to
the holders of the Notes. The Notes have been designated for trading in the
Private Offerings, Resales and Trading through Automated Linkages ("PORTAL")
market; however, the Company does not intend to apply for listing of the Notes
on any securities exchange.
The Common Stock of the Company on a stand-alone basis has a very limited
trading history. The unadjusted reported sales prices for Common Stock for all
periods prior to July 29, 1997 (the first date after the Distribution on which
the Company's Common Stock was traded on the NYSE) reflect the sales prices for
the combined Waban enterprise including the BJ's Division and the HomeBase
Division. Accordingly, purchasers of the Company's securities will incur the
risks associated with the reduced predictability and potentially greater Common
Stock price volatility arising from such a short trading history.
DIVIDEND POLICY. The Company has never paid or declared a cash dividend and
the Company does not intend to pay or declare any cash dividends on the Common
Stock in the future. The principal bank credit facility to which the Company is
a party does not permit the Company to pay cash dividends. The declaration and
payment of dividends by the Company will be at the discretion of the board of
directors of the Company. There can be no assurance that any dividends will be
paid in the future.
CONTINUING OBLIGATIONS OF THE COMPANY FOR CERTAIN LEASE LIABILITIES AFTER THE
DISTRIBUTION. Pursuant to the Distribution, BJI assumed all liabilities to
third-party lessors with respect to leases entered into by the Company with
respect to the BJ's Division. While the Company will continue to be liable, by
law, with respect to such lease liabilities, BJI has agreed to indemnify the
Company for such liabilities. However, there is no assurance that BJI will be
able to make payments under the indemnity.
CERTAIN ANTITAKEOVER FEATURES. The Company's Certificate of Incorporation and
Bylaws contain certain provisions designed to deter or prevent takeover
attempts. The Company has also adopted a stockholders rights plan designed to
have a similar effect. The Company is subject to Section 203 of the Delaware
General Corporation Law, which also may have a similar effect.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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c. Exhibits
99.1 November 11, 1997 Press Release of HomeBase, Inc.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be filed on its behalf by
the undersigned hereunto duly authorized.
Date: November 12, 1997
HomeBase, Inc.
/s/ Allan P. Sherman
By______________________________
Allan P. Sherman
President and Chief Executive Officer
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EXHIBIT 99.1
News Release
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[HomeBase logo]
FOR IMMEDIATE RELEASE
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CONTACT: Suki Shattuck, Director of Investor Relations
HomeBase, Inc.
(714) 442-5448
Roger S. Pondel/Michele Feller
Pondel Parsons & Wilkinson
(310) 207-9300
HOMEBASE ANNOUNCES $100 MILLION PRIVATE
PLACEMENT OF CONVERTIBLE DEBT
Irvine, California -- November 11, 1997 -- HomeBase, Inc. (NYSE:HBI) today
announced that it has entered into a purchase agreement with an investment
banking firm for the sale by the Company of $100 million of seven-year, 5.25%
convertible subordinated notes due November 1, 2004 through a Rule
144A/Regulation S offering. The notes are non-callable for three years and
convertible into shares of HomeBase, Inc. common stock at a conversion price of
$10.2175 per share, a 22% premium over the $8.375 per share closing price of the
Company's common stock on the NYSE on November 10, 1997. The transaction is
scheduled to close on November 17, 1997.
Net proceeds from the offering will be used for the remodel of 17 existing
stores, with completion expected in the spring of 1998, for capital expenditures
in conjunction with new store openings planned over the next three years, and
for working capital and other general corporate purposes.
The notes have not been registered under the Securities Act of 1933, as
amended, and may not be offered or sold in the United States absent registration
or an applicable exemption from registration requirements.
Headquartered in Irvine, California, HomeBase, Inc. was founded in 1983 and
operates 85 home improvement warehouses in 10 western states. HomeBase, Inc.
(formerly Waban, Inc.) is traded on the New York Stock Exchange under the symbol
"HBI" and can be located on the Internet at http.//www.homebase.com.
Except for historical information, the matters discussed in this document
are forward-looking statements that involve risks and uncertainties that could
cause results to differ materially from those expressed in any of the forward-
looking statements. Such risks and uncertainties include, but are not limited
to the Company's ability to execute its accelerated remodel and store-operating
plan, the Company's ability to consummate the private placement, and the factors
under the heading "Risk Factors" in the Company's Proxy Statement/Prospectus for
the 1997 Annual Meeting of Stockholders and risk factors detailed in the
Company's other filings with the Securities and Exchange Commission.
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