UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
QUARTERLY REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For Quarterly Period Ended Commission File Number
July 31, 1999 1-10259
HomeBase, Inc.
(Exact name of Registrant as specified in its charter)
DELAWARE 33-0109661
(State or other jurisdiction of incorporation or (I.R.S. Employer
organization) Identification No.)
3345 Michelson Drive
Irvine, CA 92612
(Address of principal executive offices) (Zip Code)
(949) 442-5000
(Registrant's telephone number, including area code)
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
At August 28, 1999, there were 37,875,461 shares outstanding.
<PAGE>
Part I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 453,667 $ 424,625 $ 818,960 $ 773,521
Cost of sales, including buying and occupancy
costs 353,064 327,208 640,080 599,166
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
Gross profit 100,603 97,417 178,880 174,355
Selling, general and administrative expenses 82,458 73,035 157,017 148,703
Pre-opening expenses 1,433 1 3,002 2
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
Operating income 16,712 24,381 18,861 25,650
Interest on debt and capital leases, net 638 649 1,709 1,767
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
Income before income taxes 16,074 23,732 17,152 23,883
Provision for income taxes 5,921 9,039 6,346 9,099
- -------------------------------------------------- --------------- ---------------- --------------- ----------------
Net income $ 10,153 $ 14,693 $ 10,806 $ 14,784
================================================== =============== ================ =============== ================
Net income per share:
Basic $ 0.27 $ 0.39 $ 0.29 $ 0.39
Diluted $ 0.23 $ 0.32 $ 0.26 $ 0.35
Weighted average common and common equivalent
shares used in computation of net income per share:
Basic 37,877 37,860 37,878 37,812
Diluted 47,951 48,111 47,877 47,999
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
July 31, January 30, August 1,
1999 1999 1998
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 73,860 $ 35,578 $ 89,150
Marketable securities 14,962 27,939 13,993
Accounts receivable (net of allowance for doubtful
accounts of $235, $220 and $283, respectively) 32,138 20,759 29,099
Merchandise inventories 354,283 339,650 317,946
Current deferred income taxes 8,908 9,803 12,349
Prepaid expenses and other current assets 8,671 17,044 15,293
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total current assets 492,822 450,773 477,830
Property and equipment, net 259,703 256,835 255,097
Property under capital leases, net 4,978 5,198 5,417
Deferred income taxes 10,103 10,205 13,539
Other assets 5,116 5,971 6,353
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total assets $ 772,722 $ 728,982 $ 758,236
================================================================= ================ ================= ===============
LIABILITIES
Current liabilities:
Accounts payable $ 129,346 $ 103,248 $ 126,928
Restructuring reserve 1,221 2,066 6,467
Accrued expenses and other current liabilities 81,125 75,838 77,499
Accrued income taxes 10,678 691 2,397
Current installments of long-term debt - 6,716 6,713
Obligations under capital leases due within one year 304 284 265
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total current liabilities 222,674 188,843 220,269
Long-term debt 100,000 100,293 100,333
Obligations under capital leases, less portion due
within one year 8,209 8,366 8,513
Noncurrent restructuring reserve 2,694 3,862 4,868
Other noncurrent liabilities 45,610 45,119 49,787
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total liabilities 379,187 346,483 383,770
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; authorized
190,000,000 shares; issued and outstanding 37,875,461,
37,879,044 and 37,879,622 shares 379 379 379
Additional paid-in capital 374,733 374,705 374,732
Unearned compensation (532) (798) (1,256)
Unrealized holding gains (losses) (42) 22 (1)
Retained earnings 18,997 8,191 612
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total stockholders' equity 393,535 382,499 374,466
- ----------------------------------------------------------------- ---------------- ----------------- ---------------
Total liabilities and stockholders' equity $ 772,722 $ 728,982 $ 758,236
================================================================= ================ ================= ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
26 Weeks Ended
- ------------------------------------------------------------------------- ------- ----------------------------------
July 31, August 1,
1999 1998
- ------------------------------------------------------------------------- ------- ---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 10,806 $ 14,784
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 14,028 13,523
Loss on property disposals 11 149
Amortization of discount on marketable securities (222) (42)
Other non-cash items 213 314
Deferred income taxes 997 50
Increase (decrease) in cash due to changes in:
Accounts receivable (11,379) (3,702)
Merchandise inventories (14,633) (3,758)
Prepaid expenses and other current assets 8,371 1,877
Other assets 438 (1,113)
Accounts payable 26,098 30,806
Restructuring reserve (1,801) (1,353)
Accrued expenses and other current liabilities 4,920 8,276
Accrued income taxes 10,049 13,077
Other noncurrent liabilities 492 (598)
- ------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash provided by operating activities 48,388 72,290
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities (8,249) (12,447)
Sales of marketable securities 5,220 1,504
Maturities of marketable securities 16,164 2,865
Property additions (16,143) (20,200)
Property disposals 32 282
- ------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash used in investing activities (2,976) (27,996)
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of long-term debt (7,009) (41)
Repayment of capital lease obligations (137) (98)
Debt issuance costs (3) (250)
Proceeds from sale and issuance of common stock 19 642
- ------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash (used in) provided by financing activities (7,130) 253
- ------------------------------------------------------------------------- ------- ---------------- -----------------
Net increase in cash and cash equivalents 38,282 44,547
Cash and cash equivalents at beginning of year 35,578 44,603
- ------------------------------------------------------------------------- ------- ---------------- -----------------
Cash and cash equivalents at end of period $ 73,860 $ 89,150
========================================================================= ======= ================ =================
Supplemental cash flow information:
Interest paid $ 647 $ 970
Tax refunds received, net (4,794) (4,135)
Non-cash financing and investing activities:
Tax benefit of employee stock options $ 62 $ 415
========================================================================= ======= ================ =================
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
HOMEBASE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
- ------------------------------- ------------------- ----------- -------------- ----------- ----------- ---------------
Unrealized
Common Stock Additional Holding Retained Total
------------------- Paid-In Unearned Gains Earnings Stockholders'
Shares Amount Capital Compensation (Losses) (Deficit) Equity
- ------------------------------- --------- --------- ----------- -------------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 31, 1998 37,707 $ 377 $ 375,026 $ (1,570) $ 6 $ (14,172) $ 359,667
Net income - - - - - 14,784 14,784
Unrealized holding losses - - - - (7) - (7)
Exercise of stock options 181 2 640 - - - 642
Income tax benefit of
stock options - - 415 - - - 415
Amortization of
restricted stock grants - - - 262 - - 262
Cancellation of
restricted stock grants (8) - - 52 - - 52
Equity transfer
adjustment related to
spin-off of BJ's
Wholesale Club, Inc. - - (1,349) - - - (1,349)
- ------------------------------- --------- --------- ----------- -------------- ----------- ----------- ---------------
Balance, August 1, 1998 37,880 $ 379 $ 374,732 $ (1,256) $ (1) $ 612 $ 374,466
=============================== ========= ========= =========== ============== =========== =========== ===============
- ------------------------------- ------------------- ----------- -------------- ----------- ----------- ---------------
Unrealized
Common Stock Additional Holding Total
------------------- Paid-In Unearned Gains Retained Stockholders'
Shares Amount Capital Compensation (Losses) Earnings Equity
- ------------------------------- --------- --------- ----------- -------------- ----------- ----------- ---------------
Balance, January 30, 1999 37,879 $ 379 $ 374,705 $ (798) $ 22 $ 8,191 $ 382,499
Net income - - - - - 10,806 10,806
Unrealized holding losses - - - - (64) - (64)
Exercise of stock options 6 - 19 - - - 19
Income tax benefit of
stock options - - 62 - - - 62
Amortization of
restricted stock grants - - - 218 - - 218
Cancellation of
restricted stock grants (9) - (53) 48 - - (5)
- ------------------------------- --------- --------- ----------- -------------- ----------- ----------- ---------------
Balance, July 31, 1999 37,876 $ 379 $ 374,733 $ (532) $ (42) $ 18,997 $ 393,535
=============================== ========= ========= =========== ============== =========== =========== ===============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
<PAGE>
HOMEBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Basis of Presentation
The accompanying interim consolidated financial statements are unaudited and
have been prepared in accordance with the instructions to Form 10-Q and Article
10 of Regulation S-X. In the opinion of management, all adjustments (consisting
of normal and recurring accruals) considered necessary for a fair statement of
the results have been included. These interim financial statements should be
read in conjunction with the consolidated financial statements and related notes
contained in the Annual Report on Form 10-K for the fiscal year ended January
30, 1999. The January 30, 1999 balances reported herein are derived from the
audited financial statements included in the Annual Report on Form 10-K for the
fiscal year ended January 30, 1999.
The results for the interim periods are not necessarily indicative of results
for the full fiscal year because, among other things, the Company's business is
subject to seasonal influences. Sales and earnings for the Company have
typically been higher in the second and third quarters of the fiscal year, which
include the most active seasons for home improvement sales, and lower in the
first and fourth quarters.
The fiscal years ending January 29, 2000 and January 30, 1999 are referred to
herein as "fiscal 1999" and "fiscal 1998", respectively. The 13 weeks ended July
31, 1999 and August 1, 1998 are referred to herein as the "second quarter of
fiscal 1999" and the "second quarter of fiscal 1998", respectively.
The consolidated financial statements of the Company include the financial
statements of the Company's subsidiaries, all of which are wholly owned.
Note 2 - Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities (e.g.,
co-operative advertising and rebate reserves, self-insurance reserves, store
closure and restructure reserves and inventory reserves), disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Note 3 - Reclassifications
Certain prior period amounts have been reclassified to conform to the current
year presentation.
Note 4 - Interest on Debt and Capital Leases
Interest on debt and capital leases in the consolidated statements of income is
presented net of interest and investment income of $1.2 million and $1.3 million
in the second quarter of fiscal 1999 and 1998, respectively, and $2.1 million
for the first half of both fiscal 1999 and fiscal 1998.
<PAGE>
HOMEBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Note 5 - Net Income Per Share
The following is a reconciliation of the numerator and the denominator used in
the calculation of net income per share:
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
- ------------------------------------ ---------------- ----------------- ---------------- -----------------
July 31, August 1, July 31, August 1,
(In thousands) 1999 1998 1999 1998
- ------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator:
<S> <C> <C> <C> <C>
Net income $ 10,153 $ 14,693 $ 10,806 $ 14,784
- ------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator for basic net
income per share 10,153 14,693 10,806 14,784
Effect of dilutive securities:
5.25% convertible
subordinated notes 912 896 1,823 1,787
- ------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator for diluted net
income per share $ 11,065 $ 15,589 $ 12,629 $ 16,571
==================================== ================ ================= ================ =================
13 Weeks Ended 26 Weeks Ended
- ------------------------------------ ---------------- ----------------- ---------------- -----------------
July 31, August 1, July 31, August 1,
(In thousands) 1999 1998 1999 1998
- ------------------------------------ ---------------- ----------------- ---------------- -----------------
Denominator:
Denominator for basic net
income per share -
weighted average shares 37,877 37,860 37,878 37,812
Effect of dilutive securities:
Employee stock options 287 464 212 400
Assumed conversion of 5.25%
convertible subordinated
notes 9,787 9,787 9,787 9,787
- ------------------------------------ ---------------- ----------------- ---------------- -----------------
Denominator for diluted net
income per share 47,951 48,111 47,877 47,999
==================================== ================ ================= ================ =================
</TABLE>
Note 6 - Supplemental Balance Sheet Information
Property and equipment consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------- ----------------- ---------------- -----------------
July 31, January 30, August 1,
(In thousands) 1999 1999 1998
- ----------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Land and buildings $ 157,830 $ 157,760 $ 157,626
Leasehold improvements 71,343 69,577 65,875
Furniture, fixtures and equipment 162,258 148,674 142,834
- ----------------------------------------------------- ----------------- ---------------- -----------------
391,431 376,011 366,335
Accumulated depreciation (131,728) (119,176) (111,238)
- ----------------------------------------------------- ----------------- ---------------- -----------------
Property and equipment, net $ 259,703 $ 256,835 $ 255,097
===================================================== ================= ================ =================
</TABLE>
<PAGE>
HOMEBASE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS-CONTINUED
Property under capital leases consists of the following:
<TABLE>
<CAPTION>
- ----------------------------------------------------- ----------------- ---------------- -----------------
July 31, January 30, August 1,
(In thousands) 1999 1999 1998
- ----------------------------------------------------- ----------------- ---------------- -----------------
<S> <C> <C> <C>
Property under capital leases $ 9,696 $ 9,696 $ 9,696
Accumulated depreciation (4,718) (4,498) (4,279)
- ----------------------------------------------------- ----------------- ---------------- -----------------
Property under capital leases, net $ 4,978 $ 5,198 $ 5,417
===================================================== ================= ================ =================
</TABLE>
Note 7 - Pension Plan
On July 26, 1997, the Board of Directors approved the termination of the Waban
Inc. Retirement Plan (the "Plan"). In accordance with generally accepted
accounting principles, the costs to terminate the Plan were not recognized until
the Plan was settled, which occurred in the first quarter of fiscal 1998. Net
income for the 26 weeks ended August 1, 1998 includes a charge of approximately
$0.7 million, net of taxes, related to the settlement of the Plan.
Note 8 - Restructuring Reserve
As of January 30, 1999, $5.9 million of the Company's fiscal 1993 restructuring
charge remained accrued on the Company's consolidated balance sheet. During the
26 weeks ended July 31, 1999, the Company incurred net cash expenditures of $2.0
million primarily related to lease obligations on closed facilities and costs
associated with the closure in July of an older, under-performing store. As of
July 31, 1999, $3.9 million remained accrued on the Company's balance sheet
consisting primarily of lease obligations on closed facilities, which extend
through 2007.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Organization and Presentation
The fiscal years ending January 29, 2000 and January 30, 1999 are referred to
herein as "fiscal 1999" and "fiscal 1998", respectively. The 13 weeks ended July
31, 1999 and August 1, 1998 are referred to herein as the "second quarter of
fiscal 1999" and the "second quarter of fiscal 1998", respectively.
The following table presents the results of operations for the periods indicated
as a percentage of net sales.
<TABLE>
<CAPTION>
13 Weeks Ended 26 Weeks Ended
- -------------------------------------------------- --------------------------- ---------------------------
July 31, August 1, July 31, August 1,
1999 1998 1999 1998
- -------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales, including buying and occupancy
costs 77.8 77.1 78.2 77.5
- -------------------------------------------------- ------------- ------------- ------------- -------------
Gross profit 22.2 22.9 21.8 22.5
Selling, general and administrative expenses 18.2 17.2 19.2 19.2
Pre-opening expenses 0.3 - 0.3 -
- -------------------------------------------------- ------------- ------------- ------------- -------------
Operating income 3.7 5.7 2.3 3.3
Interest on debt and capital leases, net 0.2 0.1 0.2 0.2
- -------------------------------------------------- ------------- ------------- ------------- -------------
Income before income taxes 3.5 5.6 2.1 3.1
Provision for income taxes 1.3 2.1 0.8 1.2
- -------------------------------------------------- ------------- ------------- ------------- -------------
Net income 2.2 % 3.5 % 1.3 % 1.9 %
================================================== ============= ============= ============= =============
</TABLE>
Net Sales
Net sales for the second quarter of fiscal 1999 increased 6.9% to $453.7 million
from $424.6 million in the second quarter of fiscal 1998. There were 87 stores
in operation at the end of the second quarter of fiscal 1999 versus 83 open at
the end of the second quarter of fiscal 1998. Comparable store sales grew 2.0%,
driven by an increase in the size of the average transaction.
Net sales for the 26 weeks ended July 31, 1999 increased 5.9% to $819.0 million
versus $773.5 million in the comparable prior year period. The increase was
driven in part by the previously announced sales initiatives and in part by the
contributions from the new store openings. Comparable store sales grew 2.3%
versus the first six months of fiscal 1998.
Gross Profit
Gross profit was 22.2% of net sales in the second quarter of fiscal 1999
compared to 22.9% in the second quarter of fiscal 1998. Gross profit for the 26
weeks ended July 31, 1999 was 21.8% of net sales compared to 22.5% for the 26
weeks ended August 1, 1998. These decreases were the result of a shift in the
mix of sales during fiscal 1999, favoring merchandise categories with lower
gross margins. The sales mix during fiscal 1999 versus the comparable prior year
periods reflect a larger proportion of lumber and building materials sales which
generally have a lower gross profit than does the overall mix of goods.
<PAGE>
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") increased to 18.2% of net
sales for the second quarter of fiscal 1999, from 17.2% of net sales for the
second quarter of fiscal 1998. Higher advertising and payroll expenses related
to the Company's previously announced sales initiatives were partially offset by
the leverage provided by comparable store sales increases.
For the 26 week periods ended July 31, 1999 and August 1, 1998 SG&A was 19.2%.
This year's results include additional costs related to the Company's sales
initiatives; the results for the 26 weeks ended August 1, 1998 include
incremental remodel costs as well as a pre-tax settlement cost of approximately
$1.1 million associated with the termination of the Waban Inc. Retirement Plan.
Pre-opening Expenses
Pre-opening expenses were $1.4 million for the second quarter of fiscal 1999
compared to $0.0 million for the second quarter of fiscal 1998. Pre-opening
expenses for the 26 weeks ended July 31, 1999 were $3.0 million compared to $0.0
million for the comparable prior year period. The expenses are attributable to
the opening of one store in March 1999 and three stores in May 1999.
Interest on Debt and Capital Leases
Interest on debt and capital leases, net, was $0.6 million for both the second
quarter of fiscal 1999 and fiscal 1998 and approximately $1.7 million for the 26
week periods ended in fiscal 1999 and fiscal 1998. Interest on debt and capital
leases is presented net of interest and investment income of $1.2 million for
the second quarter of fiscal 1999 and $1.3 million for the second quarter of
fiscal 1998 and $2.1 million for the first half of both fiscal 1999 and fiscal
1998.
Provision for Income Taxes
The income tax rate was 37.0% for the 26 weeks ended July 31, 1999 compared to
38.1% for the comparable prior year period. The decrease in the rate in fiscal
1999 reflects state income tax credits and interest income from municipal bond
investments not subject to federal income taxation.
Net Income
Net income for the second quarter of fiscal 1999 was $10.2 million, or $0.23 per
diluted share, compared to $14.7 million, or $0.32 per diluted share, in the
comparable prior year period. Net income for the second quarter of fiscal 1999
includes pre-tax costs of $1.4 million for pre-opening expenses as well as
incremental spending for increases in payroll and advertising related to the
previously announced sales initiatives.
Net income for the 26 weeks ended July 31, 1999 was $10.8 million, or $0.26 per
diluted share, compared to $14.8 million, or $0.35 per diluted share, in the
comparable prior year period. Included in net income for the 26 weeks ended July
31, 1999 were pre-tax costs of $3.0 million for pre-opening expenses coupled
with incremental spending related to the current year's sales initiatives. Net
income for the 26 weeks ended August 1, 1998 included a pre-tax charge of $1.1
million for the termination of the Waban Inc. Retirement Plan and incremental
costs related to store remodeling.
Liquidity and Capital Resources
Cash flow from operating activities provides the Company with a significant
source of liquidity. Additionally, the Company has a revolving line of credit of
$105 million to provide capital as needed for corporate growth and working
capital purposes.
At July 31, 1999, the Company had no borrowings under its revolving credit
facility, and had $15.1 million in letters of credit outstanding. At August 28,
1999, the Company had $92.4 million available for borrowing under the revolving
credit facility.
In May 1999, the Company repaid the remaining $6.6 million outstanding balance
of its 11% senior subordinated notes. In July 1997, the Company purchased U.S.
Treasury securities, which matured in May 1999 and were used as the source for
this debt repayment.
At July 31, 1999, the Company had $88.8 million in cash, cash equivalents and
marketable securities. The Company believes that its current resources, together
with internally generated cash flow from operations, lease financing and amounts
available under its revolving credit facility will be sufficient to finance
expansion plans and other operating needs during fiscal 1999.
Restructuring Reserve
As of January 30, 1999, $5.9 million of the Company's fiscal 1993 restructuring
charge remained accrued on the Company's consolidated balance sheet. During the
26 weeks ended July 31, 1999, the Company incurred net cash expenditures of $2.0
million primarily related to lease obligations on closed facilities and costs
associated with the closure in July of an older, under-performing store. As of
July 31, 1999, $3.9 million remained accrued on the Company's balance sheet
consisting primarily of lease obligations on closed facilities, which extend
through 2007.
Year 2000 Compliance
The Company has conducted a review of its computer systems and has identified
the systems that could be affected by the Year 2000 issue. The Year 2000 issue
relates to the inability of information systems to recognize and process
date-sensitive information beyond December 31, 1999. In addition, many systems
and equipment that are not typically thought of as "computer-related" contain
embedded hardware and software that may be date-sensitive and can be impacted by
the Year 2000 issue. If the Company's computer systems cannot recognize a date
using "00" as the Year 2000, it could result in miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoice payments or engage in other normal
business activities.
Early in fiscal 1996, the Company commenced a program to address the Year 2000
issue and to pursue compliance with vendors. The scope of the project includes:
ensuring the compliance of all applications, operating systems and hardware on
mainframe, personal computer and local area network platforms; addressing issues
related to systems and equipment that do not contain embedded hardware and
software; and addressing the compliance of third party vendors.
The Company estimates the total cost of this compliance program to be
approximately $2.0 million, including internal staff costs and the cost to write
off any unamortized existing hardware and software that may need to be replaced.
The Company has incurred approximately $1.5 million in costs through the second
quarter of fiscal 1999, with the remaining $0.5 million in projected
expenditures expected to be incurred by the end of fiscal 1999.
The Company believes that more than 98% of its mainframe applications, including
all financial and accounting systems, are now Year 2000 compliant. The Company
expects that the remaining mainframe systems will be Year 2000 compliant by the
third quarter of fiscal 1999. All other equipment and systems, including
personal computers, local area networks, and other peripherals, are also
expected to be Year 2000 compliant by the end of the third quarter of fiscal
1999.
Although management anticipates that its systems and applications will be
substantially Year 2000 compliant on a timely basis, there can be no assurance
that the systems of other companies with which the Company does business will be
Year 2000 compliant on a timely basis. In March 1998, the Company established a
Year 2000 committee, which includes senior members from various business units
within the Company. The committee members identified the major third party
vendors from their respective business units. The Company sent Year 2000
compliance questionnaires and, to date, has received responses from more than
91% of the vendors polled. Management is reviewing their responses and assessing
the need to develop contingency plans for those vendors who may not be Year 2000
compliant. The risks involved with not solving the Year 2000 issue include, but
are not limited to, the following: loss of local or regional electric power,
loss of telecommunication services, delays or cancellations of shipping or
transportation, the inability to process credit card transactions and bank
errors.
The discussion of the Company"s efforts, and management's expectations, relating
to Year 2000 compliance are forward-looking statements. The Company's ability to
achieve Year 2000 compliance could be affected by, among other things, the
availability of programming and testing resources, failure to identify all
susceptible systems, non-compliance by third parties, and other similar
uncertainties. These and other unforeseen factors could harm the Company's
financial position, liquidity and results of operations.
- --------------------------------------------------------------------------------
Forward-Looking Information
- --------------------------------------------------------------------------------
This report on Form 10-Q contains "forward-looking statements" within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended. When used in this
report, the words "believe," "estimate," "expect," "anticipate," "plans," and
similar expressions are intended to identify forward-looking statements. For
this purpose, any statements contained herein that are not statements of
historical fact may be deemed to be forward-looking statements. Such statements
are subject to certain risks and uncertainties that could cause actual results
to differ materially from those expected. Although the Company believes that
comments reflected in such forward-looking statements are reasonable, they are
based on information existing at the time made. Important factors that could
cause actual results to differ materially from expectations include, but are not
limited to, the Company's ability to successfully implement the new operating
and sales strategy, its ability to execute its accelerated store opening plan,
the competitive marketplace, and the risk factors described in the Company's
Annual Report on Form 10-K for the fiscal year ended January 30, 1999.
- --------------------------------------------------------------------------------
<PAGE>
Part II - OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
At the 1999 Annual Meeting of Stockholders of the Company (the "Annual Meeting")
held on June 3, 1999, the following matters were acted upon by the stockholders
of the Company:
Proposal 1 - Election of John D. Barr and Lorne R. Waxlax as directors for the
ensuing three years.
Proposal 2 - Re-Approval of Management Incentive Plan
Proposal 3 - Re-Approval of Growth Incentive Plan
The number of shares of Common Stock outstanding and entitled to vote at the
Annual Meeting was 37,881,636. The other directors of the Company, whose terms
of office as directors continued after the Annual Meeting, were Robert W. Cox,
Harold Leppo, Allan P. Sherman, Edward J. Weisberger and Herbert J. Zarkin. The
results of the voting on each of the matters presented to stockholders are set
as follows:
<TABLE>
<CAPTION>
For Against Withheld
Election of Directors
<S> <C> <C> <C>
John D. Barr 33,159,847 0 2,241,388
Lorne R. Waxlax 33,159,847 0 2,241,388
Re-Approval of Management Incentive Plan 34,391,630 853,637 155,968
Re-Approval of Growth Incentive Plan 34,395,633 865,012 140,590
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule
b) Reports on Form 8-K
None
<PAGE>
SIGNATURES
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.
HomeBase, Inc.
Date: September 8, 1999 /s/ ALLAN P. SHERMAN
Allan P. Sherman
President and Chief Executive Officer
Date: September 8, 1999 /s/ WILLIAM B. LANGSDORF
William B. Langsdorf
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-29-2000
<PERIOD-START> JAN-31-1999
<PERIOD-END> JUL-31-1999
<CASH> 73,860
<SECURITIES> 14,962
<RECEIVABLES> 32,373
<ALLOWANCES> (235)
<INVENTORY> 354,283
<CURRENT-ASSETS> 492,822
<PP&E> 391,431
<DEPRECIATION> (131,728)
<TOTAL-ASSETS> 772,722
<CURRENT-LIABILITIES> 222,674
<BONDS> 108,209
0
0
<COMMON> 379
<OTHER-SE> 393,156
<TOTAL-LIABILITY-AND-EQUITY> 772,722
<SALES> 818,960
<TOTAL-REVENUES> 818,960
<CGS> 640,080
<TOTAL-COSTS> 640,080
<OTHER-EXPENSES> 160,019
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,709
<INCOME-PRETAX> 17,152
<INCOME-TAX> 6,346
<INCOME-CONTINUING> 10,806
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,806
<EPS-BASIC> 0.29
<EPS-DILUTED> 0.26
</TABLE>
