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
October 28, 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 November 25, 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 39 Weeks Ended
------------------------------------------------ ---------------------------------- --------------------------------
October 28, October 30, October 28, October 30,
2000 1999 2000 1999
------------------------------------------------ ---------------- ----------------- --------------- ----------------
<S> <C> <C> <C> <C>
Net sales $ 334,350 $ 379,167 $ 1,107,185 $ 1,198,127
Cost of sales, including buying and
occupancy costs 269,431 296,236 887,784 936,315
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Gross profit 64,919 82,931 219,401 261,812
Selling, general and administrative expenses 77,939 75,876 234,088 232,894
Pre-opening expenses 4,782 705 5,535 3,707
Reversal of store closures and other charges (2,450) - (6,450) -
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Operating income (loss) (15,352) 6,350 (13,772) 25,211
Interest on debt and capital leases, net 1,018 234 2,976 1,943
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Income (loss) before income taxes (16,370) 6,116 (16,748) 23,268
Provision (benefit) for income taxes (6,051) 2,263 (6,193) 8,609
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Income (loss) before extraordinary gain (10,319) 3,853 (10,555) 14,659
Extraordinary gain on early extinguishment of
debt, net of tax - - 576 -
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Net income (loss) $ (10,319) $ 3,853 $ (9,979) $ 14,659
================================================ ================ ================= =============== ================
Basic net income (loss) per share:
Income (loss) before extraordinary gain $ (0.27) $ 0.10 $ (0.28) $ 0.39
Extraordinary gain - - 0.01 -
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Net income (loss) $ (0.27) $ 0.10 $ (0.27) $ 0.39
================================================ ================ ================= =============== ================
Diluted net income (loss) per share:
Income (loss) before extraordinary gain $ (0.27) $ 0.10 $ (0.28) $ 0.36
Extraordinary gain - - 0.01 -
------------------------------------------------ ---------------- ----------------- --------------- ----------------
Net income (loss) $ (0.27) $ 0.10 $ (0.27) $ 0.36
================================================ ================ ================= =============== ================
Weighted average common and common equivalent shares used in computation of net
income (loss) per share:
Basic 37,597 37,875 37,600 37,877
Diluted 37,597 47,662 37,600 47,821
</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>
----------------------------------------------------------------- ---------------- ----------------- ---------------
October 28, January 29, October 30,
2000 2000 1999
----------------------------------------------------------------- ---------------- ----------------- ---------------
ASSETS
Current assets:
<S> <C> <C> <C>
Cash and cash equivalents $ 16,697 $ 26,747 $ 69,307
Marketable securities - 15,020 16,880
Accounts receivable (net of allowance for doubtful
accounts of $86, $39 and $120, respectively) 23,677 29,439 32,220
Merchandise inventories 395,650 371,060 387,330
Current deferred income taxes 5,113 5,676 9,059
Prepaid expenses and other current assets 2,846 4,507 9,056
Prepaid and refundable income taxes 5,785 - -
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total current assets 449,768 452,449 523,852
Property and equipment, net 258,258 257,726 258,868
Property under capital leases, net 4,429 4,759 4,869
Deferred income taxes 5,527 6,856 10,069
Other assets 4,917 5,952 5,032
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total assets $ 722,899 $ 727,742 $ 802,690
================================================================= ================ ================= ===============
LIABILITIES
Current liabilities:
Accounts payable $ 119,551 $ 108,823 $ 155,921
Restructuring reserve 353 1,771 1,687
Accrued expenses and other current liabilities 82,841 73,195 81,649
Accrued income taxes - 635 10,255
Obligations under capital leases due within one year 363 327 315
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total current liabilities 203,108 184,751 249,827
Long-term debt 90,182 92,382 100,000
Obligations under capital leases, less portion due
within one year 7,763 8,040 8,126
Noncurrent restructuring reserve 1,664 5,003 2,107
Other noncurrent liabilities 35,173 42,880 45,151
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total liabilities 337,890 333,056 405,211
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, par value $.01 per share; 190,000,000
shares authorized; 37,866,548, 37,874,798 and
37,875,461 shares issued and outstanding, respectively 379 379 379
Additional paid-in capital 374,691 374,728 374,728
Retained earnings 10,840 20,819 22,850
Common stock in treasury at cost, 270,400 shares (818) (818) -
Unearned compensation (83) (348) (422)
Unrealized holding losses - (74) (56)
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total stockholders' equity 385,009 394,686 397,479
----------------------------------------------------------------- ---------------- ----------------- ---------------
Total liabilities and stockholders' equity $ 722,899 $ 727,742 $ 802,690
================================================================= ================ ================= ===============
</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>
39 Weeks Ended
------------------------------------------------------------------------- ------- ----------------------------------
October 28, October 30,
2000 1999
------------------------------------------------------------------------- ------- ---------------- -----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income (loss) $ (9,979) $ 14,659
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Depreciation and amortization 22,681 21,240
Extraordinary gain on early extinguishment of debt (914) -
(Gain) loss on property disposals 1,752 (472)
Amortization of discount (premium) on marketable securities 82 (205)
Other non-cash items 209 322
Deferred income taxes 1,892 880
Increase (decrease) in cash due to changes in:
Accounts receivable 5,762 (11,461)
Merchandise inventories (24,590) (47,680)
Prepaid expenses and other current assets 1,661 7,988
Other assets 365 507
Accounts payable 10,728 52,673
Restructuring reserve (4,757) (1,645)
Accrued expenses and other current liabilities 9,685 4,643
Income taxes (6,420) 9,621
Other noncurrent liabilities (7,707) 32
------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash provided by operating activities 450 51,102
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of marketable securities - (11,198)
Sales of marketable securities 15,012 5,220
Maturities of marketable securities - 17,164
Property additions (24,073) (21,330)
Property disposals 84 169
------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash used in investing activities (8,977) (9,975)
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 (241) (209)
Debt issuance costs (30) (200)
Proceeds from sale and issuance of common stock 19 20
------------------------------------------------------------------------- ------- ---------------- -----------------
Net cash used in financing activities (1,523) (7,398)
------------------------------------------------------------------------- ------- ---------------- -----------------
Net increase (decrease) in cash and cash equivalents (10,050) 33,729
Cash and cash equivalents at beginning of year 26,747 35,578
------------------------------------------------------------------------- ------- ---------------- -----------------
Cash and cash equivalents at end of period $ 16,697 $ 69,307
========================================================================= ======= ================ =================
Supplemental cash flow information:
Interest paid $ 567 $ 3,314
Tax refunds received, net (616) (4,626)
Non-cash financing and investing activities:
Tax benefit of employee stock options $ - $ 57
========================================================================= ======= ================ =================
</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 - - - - - - - 14,659 14,659
Unrealized holding losses - - - - (78) - - - (78)
Exercise of stock options 5 - 20 - - - - - 20
Income tax benefit of
stock options - - 57 - - - - - 57
Amortization of
restricted stock grants - - - 328 - - - - 328
Cancellation of
restricted stock grants (9) - (54) 48 - - - - (6)
----------------------------- --------- -------- ----------- ------------ ----------- -------- ---------- ----------- --------------
Balance, October 30, 1999 37,875 $ 379 $ 374,728 $ (422) $ (56) - $ - $ 22,850 $ 397,479
============================= ========= ======== =========== ============ =========== ======== ========== =========== ==============
----------------------------- ------------------ ----------- ------------ ----------- ------------------- ----------- --------------
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 loss - - - - - - - (9,979) (9,979)
Unrealized holding gains - - - - 74 - - - 74
Amortization of
restricted stock grants - - - 241 - - - - 241
Cancellation of
restricted stock grants (8) - (37) 24 - - - - (13)
----------------------------- --------- -------- ----------- ------------ ----------- --------- --------- ----------- --------------
Balance, October 28, 2000 37,867 $ 379 $ 374,691 $ (83) $ - (270) $ (818) $ 10,840 $ 385,009
============================= ========= ======== =========== ============ =========== ========= ========= =========== ==============
</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
October 28, 2000 and October 30, 1999 are referred to herein as the "third
quarter of fiscal 2000" and the "third 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 $0.9 million and $1.7 million in the third quarter of fiscal 2000 and
fiscal 1999, respectively. For the 39 weeks ended October 28, 2000 and October
30, 1999, interest on debt and capital leases is presented net of interest and
investment income of $2.8 million and $3.7 million, respectively.
Note 5 - Net Income (Loss) Per Share
The following is a reconciliation of the numerator and the denominator used in
the calculation of net income (loss) per share:
<TABLE>
<CAPTION>
13 Weeks Ended 39 Weeks Ended
------------------------------------ ---------------------------------- ----------------------------------
October 28, October 30, October 28, October 30,
(In thousands) 2000 1999 2000 1999
------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator:
Income (loss) before
<S> <C> <C> <C> <C>
extraordinary gain $ (10,319) $ 3,853 $ (10,555) $ 14,659
Extraordinary gain - - 576 -
------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator for basic net
income (loss) per share (10,319) 3,853 (9,979) 14,659
Effect of dilutive securities:
5.25% convertible
subordinated notes - 913 - 2,736
------------------------------------ ---------------- ----------------- ---------------- -----------------
Numerator for diluted net
income (loss) per share $ (10,319) $ 4,766 $ (9,979) $ 17,395
==================================== ================ ================= ================ =================
13 Weeks Ended 39 Weeks Ended
------------------------------------ ---------------- ----------------- ---------------- -----------------
October 28, October 30, October 28, October 30,
(In thousands) 2000 1999 2000 1999
------------------------------------ ---------------- ----------------- ---------------- -----------------
Denominator:
Denominator for basic net
income (loss) per share -
weighted average shares 37,597 37,875 37,600 37,877
Effect of dilutive securities:
Employee stock options - - - 157
Assumed conversion of 5.25%
convertible subordinated
notes - 9,787 - 9,787
------------------------------------ ---------------- ----------------- ---------------- -----------------
Denominator for diluted net
income (loss) per share -
weighted average shares 37,597 47,662 37,600 47,821
==================================== ================ ================= ================ =================
</TABLE>
Note 6 - Supplemental Balance Sheet Information
Property and equipment consists of the following:
<TABLE>
<CAPTION>
------------------------------------------------- ----------------- ------------------ -------------------
October 28, January 29, October 30,
(In thousands) 2000 2000 1999
------------------------------------------------- ----------------- ------------------ -------------------
<S> <C> <C> <C>
Land and buildings $ 159,436 $ 157,932 $ 157,868
Leasehold improvements 77,054 72,795 72,206
Furniture, fixtures and equipment 183,462 170,316 167,300
------------------------------------------------- ----------------- ------------------ -------------------
419,952 401,043 397,374
Accumulated depreciation (161,694) (143,317) (138,506)
------------------------------------------------- ----------------- ------------------ -------------------
Property and equipment, net $ 258,258 $ 257,726 $ 258,868
================================================= ================= ================== ===================
</TABLE>
Property under capital leases consists of the following:
<TABLE>
<CAPTION>
------------------------------------------------- ----------------- ------------------ -------------------
October 28, January 29, October 30,
(In thousands) 2000 2000 1999
------------------------------------------------- ----------------- ------------------ -------------------
<S> <C> <C> <C>
Property under capital leases $ 9,696 $ 9,696 $ 9,696
Accumulated amortization (5,267) (4,937) (4,827)
------------------------------------------------- ----------------- ------------------ -------------------
Property under capital leases, net $ 4,429 $ 4,759 $ 4,869
================================================= ================= ================== ===================
</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>
Balance, January 29, 2000 $ 6,774 $ 11,171
Cash expenditures incurred during the period (2,712) (1) (2,483) (2)
Reversal of reserves and other charges (2,045) (3) (4,405) (4)
------------------------------------------------------------------- ------------------ -------------------
Balance, October 28, 2000 $ 2,017 (5) $ 4,283 (6)
=================================================================== ================== ===================
</TABLE>
(1) Cash expenditures during the 39 weeks ended October 28, 2000 consisted
primarily of lease obligations on closed facilities and other related
operating costs and $1.4 million for a lease settlement related to a
previously closed store.
(2) Cash expenditures during the 39 weeks ended October 28, 2000 included $1.7
million in lease termination costs related to a previously closed store as
well as lease obligations on closed facilities.
(3) Includes $2.5 million reversal of reserves for a closed store for which a
lease settlement was reached.
(4) Includes $4.0 million reversal of reserves for a closed store reopened as a
House2HomeTM 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 2006.
(6) The ending balance consists primarily of lease obligations on closed
facilities, which extend through 2002.
Note 8 - Subsequent Event
On December 5, 2000, as part of a major effort to effect a corporate turnaround
and reposition itself in the marketplace, the Company announced that its Board
of Directors approved a plan to initiate a broad expansion of the new
House2Home(TM) retail concept, reflecting a change in corporate focus toward the
home decorating retail market. As part of its repositioning, the Company will
exit the home improvement sector, converting an additional 62 of its HomeBase
stores to the House2Home format and closing the remaining 22 stores.
The financial impact of the conversion program will begin in the fourth quarter
of fiscal 2000. The Company will take a reserve of approximately $55 million
for the liquidation of inventory at all 84 remaining HomeBase stores. In
addition, the Company will accelerate the depreciation on fixed assets totaling
approximately $34 million for its 84 HomeBase stores, of which $13 million will
be charged in the fourth quarter, and anticipates approximately $4 million in
severance costs.
Also, on December 5, 2000, the Company announced that it had entered into an
underwritten commitment letter agreement to amend the existing credit facility
to provide added flexibility to support the conversion program.
<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
October 28, 2000 and October 30, 1999 are referred to herein as the "third
quarter of fiscal 2000" and the "third 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 39 Weeks Ended
--------------------------------------------------- -------------------------- ---------------------------
October 28, October 30, October 28, October 30,
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 80.6 78.1 80.2 78.1
--------------------------------------------------- ------------ ------------- ------------- -------------
Gross profit 19.4 21.9 19.8 21.9
Selling, general and administrative expenses 23.3 20.0 21.1 19.4
Pre-opening expenses 1.4 0.2 0.5 0.3
Reversal of store closures and other charges (0.7) - (0.6) -
--------------------------------------------------- ------------ ------------- ------------- -------------
Operating income (loss) (4.6) 1.7 (1.2) 2.2
Interest on debt and capital leases, net 0.3 0.1 0.3 0.2
--------------------------------------------------- ------------ ------------- ------------- -------------
Income (loss) before income taxes (4.9) 1.6 (1.5) 2.0
Provision (benefit) for income taxes (1.8) 0.6 (0.5) 0.8
--------------------------------------------------- ------------ ------------- ------------- -------------
Income (loss) before extraordinary gain (3.1) 1.0 (1.0) 1.2
Extraordinary gain on early extinguishment of
debt - - 0.1 -
--------------------------------------------------- ------------ ------------- ------------- -------------
Net income (loss) (3.1)% 1.0 % (0.9)% 1.2 %
=================================================== ============ ============= ============= =============
</TABLE>
Net Sales
Net sales for the third quarter of fiscal 2000 were $334.4 million, compared
with $379.2 million for the third quarter of fiscal 1999, reflecting a
comparative store sales decline of 12.5%. At October 28, 2000 there were 84
HomeBase stores and five House2HomeTM stores in operation versus 88 HomeBase
stores open at the end of the third quarter of fiscal 1999. The decline in
comparable store sales was driven by continuing competitive pressures, declines
in the average ticket, declines in the average number of transactions and
deflationary pricing in lumber. The decrease in sales was partially offset by
sales of $14.6 million in the Company's new House2HomeTM stores for the
eight-week period in which they were open.
Net sales for the 39 weeks ended October 28, 2000 declined 7.6% to $1,107.2
million versus $1,198.1 million in the comparable prior year period. The decline
was driven by a comparable store sales decline of 9.4%, the result of a drop in
the average number of transactions per store as well as deflationary pricing in
the lumber business. The drop in sales was also partly due to the sales
disruption at four HomeBase stores that were liquidated, closed and converted
into the Company's new House2HomeTM format.
Gross Profit
Gross profit, including buying and occupancy costs, was $64.9 million, or 19.4%
of net sales, for the third quarter of fiscal 2000 compared with $82.9 million,
or 21.9% of net sales, for the comparable prior year period. For the 39 weeks
ended October 28, 2000, gross profit was $219.4 million, or 19.8% of net sales,
compared to $261.8 million, or 21.9% of net sales, for the 39 weeks ended
October 30, 1999. The drop in gross profit as a percentage of sales from the
corresponding prior year periods was due to the overall drop in sales providing
less leverage for buying and occupancy costs, occupancy costs for the
House2HomeTM test stores which continued during the construction phase with no
sales to offset these expenses, and a drop in gross margin at HomeBase stores
due to an increase in promotional pricing. Conversely, the decline in gross
profit were partially offset by a gross profit contribution from the new
House2HomeTM stores that was significantly higher as a percentage of sales as
compared to the HomeBase business.
Selling, General and Administrative Expenses
Selling, general and administrative expenses ("SG&A") were $77.9 million, or
23.3% of net sales, for the third quarter of fiscal 2000 and $234.1 million, or
21.1% of net sales, for the 39 weeks ended October 28, 2000. This compares with
$75.9 million, or 20.0% of net sales, and $232.9 million, or 19.4% of net sales,
for the third quarter and nine-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 $4.8 million for the third quarter of fiscal 2000
compared to $0.7 million for the third quarter of fiscal 1999. Pre-opening
expenses for the 39 weeks ended October 28, 2000 were $5.5 million compared to
$3.7 million for the comparable prior year period. In fiscal 2000, the expenses
are attributable to the five House2HomeTM stores, which opened in September
2000. The expenses reported in fiscal 1999 were attributable to the opening of
one store in March 1999, three stores in May 1999 and one store in October 1999.
Interest on Debt and Capital Leases
Interest on debt and capital leases, net, was $1.0 million for the third quarter
of fiscal 2000 versus $0.2 million for the third quarter of fiscal 1999.
Interest on debt and capital leases for the 39 weeks ended October 28, 2000 was
$3.0 million versus $1.9 million for the 39 weeks ended October 30, 1999.
Interest on debt and capital leases is presented net of interest and investment
income of $0.9 million for the third quarter of fiscal 2000 and $1.7 million for
the third quarter of fiscal 1999. Interest and investment income for the 39
weeks ended October 28, 2000 was $2.8 million versus $3.7 million for the 39
weeks ended October 30, 1999. The decline in interest and investment income, for
both the quarter and nine-month periods, is a result of a decrease in investment
activity and slightly higher commitment fees in the current year associated with
the $250 million credit facility put in place last December.
Provision (Benefit) 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 (Loss)
The net loss for the third quarter of fiscal 2000 was $10.3 million, or $0.27
per diluted share, compared with net income of $3.9 million, or $0.10 per
diluted share, in the comparable prior year period. The net loss for the third
quarter of fiscal 2000 reflects a $2.5 million pre-tax credit ($1.6 million
after taxes) related to the reversal of a reserve for a closed store for which a
lease settlement was reached.
The net loss for the 39 weeks ended October 28, 2000 was $10.0 million, or $0.27
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. The net loss
for the 39 weeks ended October 28, 2000 also reflects a $6.5 million pre-tax
credit ($4.1 million after taxes) related to the reversal of reserves on three
previously closed stores, one which has been reopened as a House2HomeTM store,
one for which a favorable lease termination was negotiated and another where a
lease settlement was reached. The current year results compare with net income
of $14.7 million, or $0.39 per diluted share, for the 39 weeks ended October 30,
1999.
Liquidity and Capital Resources
At October 28, 2000, the Company had $16.7 million in cash and cash equivalents.
At that date, there were no borrowings under the Company's $250 million
revolving credit facility. Letters of credit outstanding as of October 28, 2000
were $4.5 million. On December 5, 2000, the Company announced that it had
entered into an underwritten commitment letter agreement to amend the existing
credit facility to provide added flexibility to support the House2HomeTM
conversion program.
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.
In September 2000, the Company made its entry into the home furnishings market
with the grand opening of five House2HomeTM test stores. All five stores are
converted HomeBase stores. On December 5, 2000, after careful evaluation of the
test store results and consideration of a variety of alternatives, the Company
announced that its board of directors approved a plan to initiate a broad
expansion of the Company's new House2HomeTM retail concept, reflecting a change
in corporate focus toward the home decorating retail market. As part of its
repositioning, the Company will exit the home improvement sector, converting an
additional 62 of its HomeBase stores to the House2HomeTM format and closing the
remaining 22 stores.
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 has
formed many strategic partnerships to bring added value to House2HomeTM
customers, including the opening of Jitters Gourmet Coffee and Cafes in all five
test stores and the offering of a new signature collection of area rugs by
Bob Mackie, the well known fashion designer to celebrities.
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 October 28, 2000, the Company has 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. It
is contemplated that the amendment to the credit facility will impede the
Company's ability to purchase any securities under the repurchase program.
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 39
weeks ended October 28, 2000, the Company incurred cash expenditures of $2.7
million primarily related to lease obligations on closed facilities and lease
termination costs related to a previously closed store. 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. In
the third quarter of fiscal 2000, the Company reversed $2.5 million of reserves
for a previously closed store for which a lease settlement was reached. As of
October 28, 2000, $2.0 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 39 weeks ended October 28, 2000, the Company incurred cash
expenditures of $2.5 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
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 October
28, 2000, $4.3 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; a change in the on-going positive trends at House2Home
stores; House2Home fails to become a substantial growth opportunity for the
Company, thereby decreasing the potential to increase returns and stockholder
value; the accuracy of all assumptions upon which the Company's earnings
estimates are based; the Company's ability to successfully complete a
conversion program within a 12-month period and return to profitability by
the fourth quarter of fiscal 2001; the competitive marketplace; economic
conditions in the Company's markets 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
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits
27 Financial Data Schedule
99.1 Press Release dated December 5, 2000
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: December 7, 2000 /s/ HERBERT J. ZARKIN
------------------ ---------------------------------
Herbert J. Zarkin
Chairman of the Board, President
and Chief Executive Officer
Date: December 7, 2000 /s/ WILLIAM B. LANGSDORF
------------------ ---------------------------------
William B. Langsdorf
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
