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 29, 2000 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 26, 2000, there were 37,596,148 shares outstanding, excluding 270,400
shares held in treasury.
<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 29, July 31, July 29, July 31,
2000 1999 2000 1999
------------------------------------------------ ---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 407,068 $ 453,667 $ 772,835 $ 818,960
Cost of sales, including buying and
occupancy costs 325,934 353,064 619,250 640,080
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Gross profit 81,134 100,603 153,585 178,880
Selling, general and administrative expenses 77,263 82,458 155,252 157,017
Pre-opening expenses 753 1,433 753 3,002
Store closures and other charges - - (4,000) -
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Operating income 3,118 16,712 1,580 18,861
Interest on debt and capital leases, net 825 638 1,958 1,709
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Income (loss) before income taxes 2,293 16,074 (378) 17,152
Provision (benefit) for income taxes 846 5,921 (142) 6,346
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Income (loss) before extraordinary gain 1,447 10,153 (236) 10,806
Extraordinary gain on early extinguishment of
debt, net of tax - - 576 -
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Net income $ 1,447 $ 10,153 $ 340 $ 10,806
================================================ ================ ================= =============== ================
Basic net income (loss) per share:
Income (loss) before extraordinary gain $ 0.04 $ 0.27 $ (0.01) $ 0.29
Extraordinary gain - - 0.02 -
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Net income (loss) $ 0.04 $ 0.27 $ 0.01 $ 0.29
================================================ ================ ================= =============== ================
Diluted net income (loss) per share:
Income (loss) before extraordinary gain $ 0.04 $ 0.23 $ (0.01) $ 0.26
Extraordinary gain - - 0.02 -
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Net income (loss) $ 0.04 $ 0.23 $ 0.01 $ 0.26
================================================ ================ ================= =============== ================
Weighted average common and common equivalent shares used in computation of net
income (loss) per share:
Basic 37,600 37,877 37,602 37,878
Diluted 37,600 47,951 37,602 47,877
</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 29, January 29, July 31,
2000 2000 1999
----------------------------------------------------------------- ---------------- ----------------- ---------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 43,265 $ 26,747 $ 73,860
Marketable securities 8,815 15,020 14,962
Accounts receivable (net of allowance for doubtful
accounts of $82, $39 and $257, respectively) 26,826 29,439 32,138
Merchandise inventories 382,279 371,060 354,283
Current deferred income taxes 5,278 5,676 8,908
Prepaid expenses and other current assets 3,319 4,507 8,671
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total current assets 469,782 452,449 492,822
Property and equipment, net 252,070 257,726 259,703
Property under capital leases, net 4,539 4,759 4,978
Deferred income taxes 7,040 6,856 10,103
Other assets 5,286 5,952 5,116
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total assets $ 738,717 $ 727,742 $ 772,722
================================================================= ================ ================= ===============
LIABILITIES
Current liabilities:
Accounts payable $ 124,783 $ 108,823 $ 129,346
Restructuring reserve 768 1,771 1,221
Accrued expenses and other current liabilities 76,289 73,195 81,125
Accrued income taxes 1,241 635 10,678
Obligations under capital leases due within one year 350 327 304
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total current liabilities 203,431 184,751 222,674
Long-term debt 90,182 92,382 100,000
Obligations under capital leases, less portion due
within one year 7,859 8,040 8,209
Noncurrent restructuring reserve 5,464 5,003 2,694
Other noncurrent liabilities 36,534 42,880 45,610
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total liabilities 343,470 333,056 379,187
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; 190,000,000
shares authorized; 37,867,798, 37,874,798 and
37,875,461 shares issued and outstanding, respectively 379 379 379
Additional paid-in capital 374,697 374,728 374,733
Retained earnings 21,159 20,819 18,997
Common stock in treasury at cost, 270,400 shares (818) (818) -
Unearned compensation (143) (348) (532)
Unrealized holding losses (27) (74) (42)
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total stockholders' equity 395,247 394,686 393,535
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total liabilities and stockholders' equity $ 738,717 $ 727,742 $ 772,722
================================================================= ================ ================= ===============
</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 29, July 31,
2000 1999
------------------------------------------------------------------------- ------- ---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 340 $ 10,806
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 16,247 14,028
Extraordinary gain on early extinguishment of debt (914) -
Loss on property disposals 727 11
Amortization of discount on marketable securities 47 (222)
Other non-cash items 174 213
Deferred income taxes 214 997
Increase (decrease) in cash due to changes in:
Accounts receivable 2,613 (11,379)
Merchandise inventories (11,219) (14,633)
Prepaid expenses and other current assets 1,188 8,371
Other assets 232 438
Accounts payable 15,960 26,098
Restructuring reserve (542) (1,801)
Accrued expenses and other current liabilities 3,133 4,920
Accrued income taxes 606 10,049
Other noncurrent liabilities (6,346) 492
------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash provided by operating activities 22,460 48,388
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities - (8,249)
Sales of marketable securities 6,205 5,220
Maturities of marketable securities - 16,164
Property additions (10,610) (16,143)
Property disposals (84) 32
------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash used in investing activities (4,489) (2,976)
CASH FLOWS FROM FINANCING ACTIVITIES:
Early extinguishment of long-term debt (1,271) -
Repayment of long-term debt - (7,009)
Repayment of capital lease obligations (158) (137)
Debt issuance costs (24) (3)
Proceeds from sale and issuance of common stock - 19
------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash used in financing activities (1,453) (7,130)
------------------------------------------------------------------------- ------- ---------------- -----------------
Net increase in cash and cash equivalents 16,518 38,282
Cash and cash equivalents at beginning of year 26,747 35,578
------------------------------------------------------------------------- ------- ---------------- -----------------
Cash and cash equivalents at end of period $ 43,265 $ 73,860
========================================================================= ======= ================ =================
Supplemental cash flow information:
Interest paid $ 1,521 $ 1,877
Taxes paid (refunds received), net 100 (4,794)
Non-cash financing and investing activities:
Tax benefit of employee stock options $ - $ 62
========================================================================= ======= ================ =================
</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 Treasury Stock Total
------------------- Paid-In Unearned Gains ------------------- Retained Stockholders'
Shares Amount Capital Compensation (Losses) Shares Amount Earnings Equity
----------------------------- --------- --------- ----------- ------------ ----------- -------- ---------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
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
============================= ========= ========= =========== ============ ========== ========= ========== =========== =============
----------------------------- ------------------- ----------- ------------ ----------- ------------------- ----------- -------------
Unrealized
Common Stock Additional Holding Treasury Stock Total
------------------- Paid-In Unearned Gains ------------------- Retained Stockholders'
Shares Amount Capital Compensation (Losses) Shares Amount Earnings Equity
----------------------------- --------- --------- ----------- ------------ ----------- -------- ---------- ----------- -------------
Balance, January 29, 2000 37,875 $ 379 $ 374,728 $ (348) $ (74) (270) $ (818) $ 20,819 $ 394,686
Net income - - - - - - - 340 340
Unrealized holding gains - - - - 47 - - - 47
Amortization of
restricted stock grants - - - 184 - - - - 184
Cancellation of
restricted stock grants (7) - (31) 21 - - - - (10)
----------------------------- --------- --------- ----------- ------------ ---------- --------- ---------- ----------- -------------
Balance, July 29, 2000 37,868 $ 379 $ 374,697 $ (143) $ (27) (270) $ (818) $ 21,159 $ 395,247
============================= ========= ========= =========== ============ ========== ========= ========== =========== =============
</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 consolidated 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 29, 2000. The January 29, 2000 balances reported herein are
derived from the audited consolidated financial statements included in the
Annual Report on Form 10-K for the fiscal year ended January 29, 2000.
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 27, 2001 and January 29, 2000 are referred to
herein as "fiscal 2000" and "fiscal 1999", respectively. The 13 weeks ended July
29, 2000 and July 31, 1999 are referred to herein as the "second quarter of
fiscal 2000" and the "second quarter of fiscal 1999", 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 restructuring 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, Net
Interest on debt and capital leases is presented net of interest and investment
income of $1.0 million and $1.2 million in the second quarter of fiscal 2000 and
fiscal 1999, respectively. For the first half of fiscal 2000 and fiscal 1999,
interest on debt and capital leases is presented net of interest and investment
income of $1.9 million and $2.1 million, respectively.
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 29, July 31, July 29, July 31,
(In thousands) 2000 1999 2000 1999
------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator:
Income (loss) before
<S> <C> <C> <C> <C>
extraordinary gain $ 1,447 $ 10,153 $ (236) $ 10,806
Extraordinary gain - - 576 -
------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator for basic net
income per share 1,447 10,153 340 10,806
Effect of dilutive securities:
5.25% convertible
subordinated notes - 912 - 1,823
------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator for diluted net
income per share $ 1,447 $ 11,065 $ 340 $ 12,629
==================================== ================ ================= ================ =================
13 Weeks Ended 26 Weeks Ended
------------------------------------ ---------------------------------- ----------------------------------
July 29, July 31, July 29, July 31,
(In thousands) 2000 1999 2000 1999
------------------------------------ ---------------- ----------------- ---------------- -----------------
Denominator:
Denominator for basic net
income per share -
weighted average shares 37,600 37,877 37,602 37,878
Effect of dilutive securities:
Employee stock options - 287 - 212
Assumed conversion of 5.25%
convertible subordinated
notes - 9,787 - 9,787
------------------------------------ ---------------- ----------------- ---------------- -----------------
Denominator for diluted net
income per share -
weighted average shares 37,600 47,951 37,602 47,877
==================================== ================ ================= ================ =================
</TABLE>
Note 6 - Supplemental Balance Sheet Information
Property and equipment consists of the following:
<TABLE>
<CAPTION>
------------------------------------------------- ----------------- ------------------ -------------------
July 29, January 29, July 31,
(In thousands) 2000 2000 1999
------------------------------------------------- ----------------- ------------------ -------------------
<S> <C> <C> <C>
Land and buildings $ 157,992 $ 157,932 $ 157,830
Leasehold improvements 73,317 72,795 71,343
Furniture, fixtures and equipment 175,177 170,316 162,258
------------------------------------------------- ----------------- ------------------ -------------------
406,486 401,043 391,431
Accumulated depreciation (154,416) (143,317) (131,728)
------------------------------------------------- ----------------- ------------------ -------------------
Property and equipment, net $ 252,070 $ 257,726 $ 259,703
================================================= ================= ================== ===================
Property under capital leases consists of the following:
------------------------------------------------- ----------------- ------------------ -------------------
July 29, January 29, July 31,
(In thousands) 2000 2000 1999
------------------------------------------------- ----------------- ------------------ -------------------
Property under capital leases $ 9,696 $ 9,696 $ 9,696
Accumulated depreciation (5,157) (4,937) (4,718)
------------------------------------------------- ----------------- ------------------ -------------------
Property under capital leases, net $ 4,539 $ 4,759 $ 4,978
================================================= ================= ================== ===================
</TABLE>
Note 7 - Restructuring Reserve and Store Closures and Other Charges Reserve
<TABLE>
<CAPTION>
------------------------------------------------------------------- ------------------ -------------------
Fiscal 1997
Fiscal 1993 Store Closures
Restructuring and Other Charges
(In thousands) Reserve Reserve
------------------------------------------------------------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Balance, January 29, 2000 $ 6,774 $ 11,171
Cash expenditures incurred during the period (947) (1) (2,410) (2)
Reserve re-evaluation adjustment 405 (4,405) (4)
------------------------------------------------------------------- ------------------ -------------------
Balance, July 29, 2000 $ 6,232 (3) $ 4,356 (5)
=================================================================== ================== ===================
</TABLE>
(1) Cash expenditures during the 26 weeks ended July 29, 2000 consisted
primarily of lease obligations on closed facilities and other related
operating costs.
(2) Cash expenditures during the 26 weeks ended July 29, 2000 included $1.7
million in lease termination costs related to a previously closed store as
well as lease obligations on closed facilities.
(3) The ending balance consists primarily of lease obligations on closed
facilities, which extend through 2006.
(4) Includes $4.0 million reversal of reserves for a closed store which will be
reopened as a House2HomeTM new concept store and another store for which a
favorable lease termination was negotiated.
(5) The ending balance consists primarily of lease obligations on closed
facilities, which extend through 2002.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Organization and Presentation
The fiscal years ending January 27, 2001 and January 29, 2000 are referred to
herein as "fiscal 2000" and "fiscal 1999," respectively. The 13 weeks ended July
29, 2000 and July 31, 1999 are referred to herein as the "second quarter of
fiscal 2000" and the "second quarter of fiscal 1999," 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 29, July 31, July 29, July 31,
2000 1999 2000 1999
--------------------------------------------------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales 100.0 % 100.0 % 100.0 % 100.0 %
Cost of sales, including buying and occupancy
costs 80.1 77.8 80.1 78.2
--------------------------------------------------- ------------ ------------- ------------- -------------
Gross profit 19.9 22.2 19.9 21.8
Selling, general and administrative expenses 19.0 18.2 20.1 19.2
Pre-opening expenses 0.1 0.3 0.1 0.3
Store closures and other charges - - (0.5) -
--------------------------------------------------- ------------ ------------- ------------- -------------
Operating income 0.8 3.7 0.2 2.3
Interest on debt and capital leases, net 0.2 0.2 0.3 0.2
--------------------------------------------------- ------------ ------------- ------------- -------------
Income (loss) before income taxes 0.6 3.5 (0.1) 2.1
Provision (benefit) for income taxes 0.2 1.3 - 0.8
--------------------------------------------------- ------------ ------------- ------------- -------------
Income (loss) before extraordinary gain 0.4 2.2 (0.1) 1.3
Extraordinary gain on early extinguishment of
debt - - 0.1 -
--------------------------------------------------- ------------ ------------- ------------- -------------
Net income 0.4 % 2.2 % - % 1.3 %
=================================================== ============ ============= ============= =============
</TABLE>
Net Sales
Net sales for the second quarter of fiscal 2000 were $407.1 million, compared
with $453.7 million for the second quarter of fiscal 1999, reflecting a
comparative store sales decline of 10.9% for the quarter. The results also
reflect three fewer stores in operation at the end of the current second quarter
versus the prior year comparable period, the result of one store opening in the
fall of fiscal 1999, and closure of four locations during the second quarter of
fiscal 2000 for conversion into House2HomeTM stores. At July 29, 2000 there were
84 stores in operation versus 87 open at the end of the second quarter of fiscal
1999. A number of additional factors impacted sales in the fiscal second
quarter, including continuing competitive pressures, deflationary pricing in
lumber, a milder summer which affected the sales of cooling products, as well as
the absence this year of a 10%-off sales promotion held during the second
quarter of the prior year.
Net sales for the 26 weeks ended July 29, 2000 declined 5.6% to $772.8 million
versus $819.0 million in the comparable prior year period. Comparable store
sales declined 7.9% driven by a decline in the number of transactions, offset
only slightly by an increase in the average transaction amount.
Gross Profit
Gross profit, including buying and occupancy costs, was $81.1 million, or 19.9%
of net sales for the second quarter of fiscal 2000, compared with $100.6
million, or 22.2% of net sales, for the comparable prior year period. For the 26
weeks ended July 29, 2000, gross profit was $153.6 million, or 19.9% of net
sales, compared to $178.9 million, or 21.8% of net sales, for the 26 weeks ended
July 31, 1999. The drop in gross profit as a percentage of sales from the
corresponding prior year periods was due to the impact of liquidation sales at
the four stores converting to the House2HomeTM format, as well as to the overall
decline in sales which provided less leverage for occupancy costs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") was $77.3 million, or
19.0% of net sales, for the second quarter of fiscal 2000 and $155.3 million, or
20.1% of net sales, for the first half of fiscal 2000. This compares with $82.5
million, or 18.2% of net sales, and $157.0 million, or 19.2% of net sales, for
the second quarter and first six-month comparable prior year periods. The
increase in SG&A as a percentage of sales this year resulted from both
incremental costs associated with the House2HomeTM test as well as less leverage
due to lower sales.
Pre-opening Expenses
Pre-opening expenses were $0.8 million for the second quarter of fiscal 2000
compared to $1.4 million for the second quarter of fiscal 1999. Pre-opening
expenses for the 26 weeks ended July 29, 2000 were $0.8 million compared to $3.0
million for the comparable prior year period. In fiscal 2000, the expenses are
attributable to the planned opening of five House2HomeTM stores in September
2000. The expenses reported in fiscal 1999 were 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 $0.8 million for the second
quarter of fiscal 2000 versus $0.6 million for the second quarter of fiscal
1999. Interest on debt and capital leases for the first half of fiscal 2000 was
$2.0 million versus $1.7 million for the first half of fiscal 1999. Interest on
debt and capital leases is presented net of interest and investment income of
$1.0 million for the second quarter of fiscal 2000 and $1.2 million for the
second quarter of fiscal 1999. Interest and investment income for the fist half
of fiscal 2000 was $1.9 million versus $2.1 million for the first half of fiscal
1999. The changes for both the quarter and six-month periods are the result of
the decrease in investment income and slightly higher commitment fees in the
current year associated with the Company's $250 million credit facility.
Provision for Income Taxes
The income tax rate was 37.0% for fiscal 2000 and fiscal 1999 and reflects the
realization of certain federal income tax credits.
Net Income
Net income for the second quarter of fiscal 2000 was $1.4 million, or $0.04 per
diluted share, compared with net income of $10.2 million, or $0.23 per diluted
share, in the comparable prior year period. Excluding the costs associated with
the development and launch of the Company's five House2HomeTM test stores, net
income for the second quarter of fiscal 2000 would have been $2.8 million, or
$.07 per diluted share.
Net income for the first half of fiscal 2000 was $0.3 million, or $0.01 per
diluted share, including an extraordinary gain of $0.6 million on the early
extinguishment of debt during the first quarter of fiscal 2000, associated with
the Company's previously announced securities repurchase program. Excluding
House2HomeTM related expenses, net income for the six-month period would have
been $3.8 million, or $0.10 per diluted share. Net income for the first half of
fiscal 2000 also reflects a $4.0 million pre-tax credit ($2.5 million after
taxes) related to the reversal of reserves on two previously closed stores, one
which will be reopened as a House2HomeTM store and the other for which a
favorable lease termination was negotiated. The current year results compare
with net income of $10.8 million, or $0.26 per diluted share, for the first half
of the prior fiscal year.
Liquidity and Capital Resources
Cash flows from operating activities provide the Company with a significant
source of liquidity. At July 29, 2000, the Company had $52.1 million in cash,
cash equivalents and marketable securities. At that date, there were no
borrowings under the Company's $250 million revolving credit facility. Letters
of credit outstanding as of July 29, 2000 were $10.6 million.
On November 16, 1999, the Company announced several important initiatives to
build shareholder value. These included a securities repurchase program as well
as an initiative to develop a new retail concept, subsequently named
House2HomeTM, that could serve as an expansion vehicle. It is envisioned that
House2HomeTM could provide the Company an opportunity to have a stronger
position within some of the existing key product categories in which the Company
now operates, as well as allow for entry into new, related businesses in which
the Company does not currently participate. The Company is on track to open five
House2HomeTM test stores in early September 2000. The Company estimates the
incremental charges to the Consolidated Statement of Income this year to develop
and launch the five House2HomeTM test stores will be between $7 million and $8
million, net of tax.
As announced in November 1999, the board of directors authorized the Company to
spend up to $20 million to repurchase HomeBase common stock and 5.25%
convertible subordinated notes periodically in the open market, as market
conditions warrant. Through July 29, 2000, the Company had repurchased 270,400
shares of common stock at an average price of approximately $3.00 per share, and
$9.8 million in face value of convertible notes for $5.8 million. The repurchase
program will extend through December 31, 2001.
Restructuring Reserve and Store Closures and Other Charges Reserve
As of January 29, 2000, $6.8 million of the fiscal 1993 restructuring charge
remained accrued on the Company's consolidated balance sheet. During the 26
weeks ended July 29, 2000, the Company incurred cash expenditures of $1.0
million primarily related to lease obligations on closed facilities. In
addition, the Company determined that an additional $0.4 million was required in
the Restructure Reserve. During the second quarter of fiscal 2000, $0.4 million
was reclassified from the Store Closures and Other Charges Reserve to the
Restructure Reserve. As of July 29, 2000, $6.2 million remained accrued on the
Company's consolidated balance sheet, consisting primarily of lease obligations
on closed facilities, which extend through 2006.
As of January 29, 2000, $11.2 million of the fiscal 1997 store closures and
other charges reserve remained accrued on the Company's consolidated balance
sheet. During the 26 weeks ended July 29, 2000, the Company incurred cash
expenditures of $2.4 million, primarily related to lease obligations on closed
facilities and lease termination costs related to a previously closed store. In
addition, the Company reversed $4.0 million of reserves for a closed store that
will be reopened as a House2HomeTM new concept store and another store for which
a favorable lease termination was negotiated. During the second quarter of
fiscal 2000, $0.4 million was reclassified to the Restructure Reserve. As of
July 29, 2000, $4.4 million remained accrued on the Company's consolidated
balance sheet, consisting primarily of lease obligations on closed facilities,
which extend through 2002.
================================================================================
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 matters discussed in this document include forward-looking
statements that involve risks and uncertainties that could cause results to
differ materially from those expressed. Such risks and uncertainties include,
but are not limited to; the development of a new retail concept; the ability to
improve HomeBase's core business; general economic conditions prevailing in the
Company's markets; the competitive marketplace and the factors set forth in the
Company's annual report on Form 10-K for the fiscal year ended January 29, 2000
under the heading "Risk Factors" and in the Company's other filings with the
Securities and Exchange Commission.
================================================================================
<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 1, 2000, the following matters were acted upon by the stockholders
of the Company:
Proposal 1 - Election of Harold Leppo and Edward J. Weisberger as directors for
the ensuing three years.
The number of shares of Common Stock outstanding and entitled to vote at the
Annual Meeting was 37,603,148. A quorum of 34,160,849 shares was present at the
meeting. The other directors of the Company, whose terms of office as directors
continued after the Annual Meeting, were John D. Barr, Robert W. Cox, Ernest T.
Klinger, Lorne R. Waxlax, and Herbert J. Zarkin. The results of the voting on
the matter presented to stockholders were as follows:
Election of Directors For Against Withheld
--------------------- ---------- --------- -----------
Harold Leppo 32,684,480 - 1,476,369
Edward J. Weisberger 32,692,521 - 1,468,328
ITEM 5. OTHER INFORMATION
On August 29, 2000, the Board of Directors voted unanimously to adopt Amended
and Restated By-laws for the Company, in the form attached hereto as Exhibit
3.3. Among other changes, the Amended and Restated By-laws: modernize the by-law
provision relating to the date of the annual meeting of stockholders; amend and
standardize the time period and information requirements contained in the by-law
advance notice provision for stockholder proposals (other than stockholder
proposals included in the Company's proxy materials pursuant to Rule 14a-8 under
the Securities Exchange Act of 1934, as amended (the "Exchange Act")) and
stockholder nominations of director candidates; modernize the by-law provisions
relating to the appointment and power of committees of the Board of Directors to
reflect changes permitted by 1996 amendments of the Delaware General Corporation
Law; modernize the by-law provision on notice to directors of meetings of the
Board of Directors to permit notice by facsimile or electronic means; add a
provision with respect to the qualification of directors in order to promote the
independence of any person nominated to be a director of the Company by any
party to a proposed Business Combination (other than a nominee whose
relationship to a party to the Business Combination exists solely because the
nominee is an employee or officer of the Company, who receives normal and
customary compensation as such, and/or is a stockholder or affiliate of the
Company) during the pendency of the proposed Business Combination; and add a
by-law section on indemnification and insurance of directors and officers in
order to permit the Company to be better able to attract and retain qualified
persons to serve as directors and officers of the Company.
Stockholders should note that, as a result of the amendments to the by-law
advance notice provisions described above, the disclosure set forth in the
Company's proxy statement to its stockholders dated April 25, 2000 must be
updated as follows. The Company's Amended and Restated By-laws continue to
require that the Company be given proper advance written notice of stockholder
nominations for election to the Company's Board of Directors and of other
matters which stockholders wish to present for action at an annual meeting of
stockholders (other than matters included in the Company's proxy materials in
accordance with Rule 14a-8 under the Exchange Act). To be timely, a
stockholder's notice must be sent via registered or certified mail addressed to
the Secretary at the Company's principal executive offices; the Secretary must
receive such notice not less than 90 days nor more than 120 days prior to the
first anniversary of the preceding year's annual meeting; provided, however,
that in the event that the date of the annual meeting is advanced by more than
30 days, or delayed by more than 90 days, from such anniversary date, the
Secretary must receive such notice not earlier than the 120th day prior to such
annual meeting and not later than the close of business on the later of the 90th
day prior to such annual meeting or the 7th day following the day on which
public announcement of the date of such meeting is first made. Assuming that the
2001 Annual Meeting is held during the period from May 2, 2001 to August 30,
2001 (as it is expected to be), in order to comply with the time periods set
forth in the Company's Amended and Restated By-laws, appropriate written notice
would need to be received by the Secretary of the Company at the address noted
above no earlier than February 1, 2001 and no later than March 3, 2001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
3.3 Amended and Restated By-laws
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 6, 2000 /s/ HERBERT J. ZARKIN
---------------------------- ----------------------------
Herbert J. Zarkin
Chairman of the Board,
President and Chief
Executive Officer
Date: September 6, 2000 /s/ WILLIAM B. LANGSDORF
---------------------------- ----------------------------
William B. Langsdorf
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
