UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
( ) TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission File Number 0-24912
WELCOME HOME, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 56-1379322
(State or other jurisdiction (I.R.S. employer
of incorporation or organization) identification no.)
309-D RALEIGH STREET, WILMINGTON, NORTH CAROLINA 28412
(Address of principal executive offices)
(Zip code)
(910) 791-4312
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year, if changed since last
report)
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 and 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_____
Number of shares of common stock of registrant outstanding at May 15, 1996:
7,453,615
<PAGE>
INDEX
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets as of March 31, 1996
and December 31, 1995. . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Operations for the Three Month
Periods Ended March 31, 1996 and 1995. . . . . . . . . . 4
Consolidated Statements of Cash Flows for the Three Month Periods
Ended March 31, 1996 and 1995 . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements. . . . . . . . . 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations . . . . . . 9
PART II. OTHER INFORMATION . . . . . . . . . . . . . . . 14
Signatures. . . . . . . . . . . . . . . . . . . . . . . . . 15
<PAGE>
WELCOME HOME, INC.
Consolidated Balance Sheets at
March 31, 1996 and December 31, 1995
(in thousands of dollars)
(Unaudited)
March 31, December 31,
1996 1995
ASSETS
Current assets:
Cash and cash equivalents $ 122 $ 7
Inventories 18,819 16,798
Prepaid assets 653 810
Deferred income taxes 470 470
Other current assets 50 8
_______ ______
Total Current Assets 20,114 18,093
Property & equipment, net 8,528 8,826
Deferred income taxes 2,971 1,715
Other assets 704 542
Total Assets $32,317 $29,176
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Note payable - line of credit $12,713 $ 5,213
Accounts payable 11,138 11,703
Accrued expenses 1,287 2,817
Current portion of capital lease obligation 527 514
Total Current Liabilities 25,665 20,247
Capital lease obligation 1,037 1,174
Note payable to Jordan Industries 4,128 4,128
Shareholders' equity:
Common stock, $.01 par value; 13,000,000 shares
authorized; 8,500,000 shares issued 85 85
Preferred stock, $.01 par value; 1,000,000
shares authorized; none outstanding --- ---
Additional paid-in capital 8,832 8,832
Cumulative translation adjustment (37) (37)
Retained earnings (deficit) (2,508) (368)
Subtotal 6,372 8,512
Less treasury stock, at cost
(1,046,385 shares) 4,885 4,885
Total Shareholders' Equity 1,487 3,627
Total Liabilities and Shareholders' Equity $32,317 $29,176
See Notes to Consolidated Financial Statements
<PAGE>
WELCOME HOME, INC.
Consolidated Statements of Operations
for the Three Month Periods Ended March 31, 1996 and 1995
(in thousands of dollars except per share amounts)
(Unaudited)
1996 1995
Net sales $12,482 $12,137
Cost of sales 6,558 6,742
Gross margin 5,924 5,395
Selling, general and administrative expenses
(excluding depreciation) 8,514 7,376
Depreciation 471 449
Operating income (loss (3,061) (2,430)
Interest expense:
Jordan Industries 89 231
Other 277 32
Other expense (income) (31) -
Pretax income (loss) (3,396) (2,693)
Provision (benefit) for income taxes (1,256) (1,122)
Net income (loss) ($2,140) ($1,571)
Net income (loss) per share ($0.29) ($.19)
Weighted average shares outstanding
(in thousands) 7,454 8,080
See Notes to Consolidated Financial Statements
<PAGE>
WELCOME HOME, INC.
Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 1996 and 1995
(in thousands of dollars)
(Unaudited)
1996 1995
Cash flows from operating activities:
Net income (loss) $(2,140) $(1,571)
Adjustments to reconcile net income (loss) to
net cash used in operating activities:
Depreciation and amortization 491 449
Deferred income taxes (1,256) (1,041)
Changes in operating assets and liabilities:
Inventories (2,021) (812)
Prepaid expenses and other assets 113 25
Accounts payable (565) (6,970)
Accrued liabilities (1,530) (1,513)
Income taxes payable -- (408)
Payables to Jordan Industries -- 232
Net cash used in operating activities (6,908) (11,609)
Cash flows from investing activities:
Capital expenditures (173) (1,105)
Other (180) --
Net cash used in investing activities (353) (1,105)
Cash flows from financing activities:
Proceeds from advances from Jordan Industries -- 12,900
Proceeds from line of credit 7,500 --
Purchases of treasury stock -- (811)
Other (124) (89)
Net cash provided by financing activities 7,376 12,000
Net increase (decrease) in cash and cash equivalents 115 (714)
Cash and cash equivalents at beginning of period 7 836
Cash and cash equivalents at end of period $ 122 $ 122
See Notes to Consolidated Financial Statements
<PAGE>
WELCOME HOME, INC.
Consolidated Statements of Cash Flows
for the Three Month Periods Ended March 31, 1996 and 1995
(in thousands of dollars)
(Unaudited)
(Continued)
1996 1995
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - Jordan Industries $ -- $ --
Interest - third party $ 194 $ 32
Income taxes $ 41 $ 439
Noncash investing and financing activities:
Capital leases $ -- $ 666
See Notes to Consolidated Financial Statements
<PAGE>
WELCOME HOME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
1. BASIS OF PRESENTATION
These consolidated financial statements have been prepared by Welcome Home, Inc.
(together with its subsidiary the "Company" or "Welcome Home") pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations. These consolidated
financial statements should be read in conjunction with the audited consolidated
financial statements included in the Company's Annual Report to Shareholders for
the year ended December 31, 1995.
The financial information included herein reflects all adjustments (consisting
of normal recurring adjustments) which are, in the opinion of management,
necessary to a fair presentation of the results for interim periods.
The Company's sales volumes have historically varied between quarters based on
factors such as the Christmas shopping season; accordingly, the results of
operations for the three month period ended March 31, 1996 are not necessarily
indicative of the results to be expected for the full year.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
The Company is a leading specialty retailer of gifts and decorative home
furnishings and accessories in North America, with 215 stores located primarily
in outlet/off-price malls in 41 states as of March 31, 1996. Welcome Home's
products, which currently range in price up to $1500, cover a broad line of
8,000 to 12,000 Stock Keeping Units and consist of twelve basic groups,
including textiles, afghans, framed art, home fragrance, stationery, brass and
silver pieces, picture frames, doilies, crystal, chimes and bird feeders, wood
and seasonal products. The Company's average sales transaction was approximately
$13.29 for the quarter ended March 31, 1996.
During the fourth quarter of 1995, the Company planned and began implementing a
series of strategic restructuring initiatives designed to improve profitability
and better position the Company for a return to profitability and future growth.
The major elements of these initiatives include a change in the Company's
merchandising strategy and the liquidation of merchandise which is not
consistent with that strategy, closing unprofitable stores, and strengthening
the Company's executive team and information systems as necessary to success-
fully implement the above strategies. The Company recorded a $5.9 million
restructuring charge in the fourth quarter of 1995 for the cost of these
initiatives.
<PAGE>
Results of Operations
The following table sets forth selected income statement data of the Company as
a percentage of net sales and certain operating statistics of the Company:
Three Months
Ended March 31
1996 1995
Selected income statement data
as a percentage of net sales:
Net sales . . .... . . . . . . . . . . .100.0% 100.0%
Cost of sales . .... . . . . . . . . . 52.5 55.5
Gross profit. . . . .... . . . . . . . 47.5 44.5
Selling, general and administrative
expenses (excluding depreciation).... 68.2 60.8
Operating income (loss). . . . . .... (24.5) (20.0)
Interest expense..... . . . . . .... . 2.9 2.2
Provision (benefit) for income
taxes. . . . . . . . . . . . . .... . (10.1) (9.2)
Net income (loss) . . . . . . . . .... (17.1)% (12.9)%
Operating Statistics:
Stores open at period end ..... . . .. 215 194
Total square feet of store space at
period end (in thousands) . . . . .. 583 501
Percentage increase (decrease) in
comparable store sales . . . . . .... (12.0)% (3.9)%
Three Months Ended March 31, 1996 as compared to Three Months Ended March 31,
1995 Net Sales. Net sales for the three months ended March 31, 1996 increased
by approximately $0.3 million or 2.8%, as compared to the three months ended
March 31, 1995. This increase reflects 21 net additional stores, net of a 12%
decrease in comparable store sales. The Company believes the decrease in compar-
able store sales was primarily the result of a weak overall retail environment,
lower levels of traffic in outlet malls (where approximately 91% of the
Company's stores are located) and a decline in the sales of afghans from
approximately $1.6 million in the three months ended March 31, 1995 to
approximately $0.9 million in the three months ended March 31, 1996. Management
believes that all of the above contributed to a 8.7% decrease in the number
of sales transactions on a same store basis for the three months ended March 31,
1996, as well as a decrease in the average sales transaction of 3.6% on a same
store basis to $12.88 for the three months ended March 31, 1996 from $13.36 for
the three months ended March 31, 1995.
Gross Profit. Gross profit for the three months ended March 31, 1996 increased
by $0.5 million, or 9.8%, as compared to the three months ended March 31, 1995,
largely reflecting an increase in gross profit as a percentage of sales to 47.5%
from 44.5% due primarily to clearance and liquidation markdowns for de-
emphasized
and discontinued merchandise categories having been included in the Company's
restructuring charge recorded in the fourth quarter of 1995.
<PAGE>
Selling, General and Administrative Expenses. Selling, general and administra-
tive expenses for the three months ended March 31, 1996 increased $1.1 million,
or 15.4%, as compared to the three months ended March 31, 1995. Selling, general
and administrative expenses as a percent of net sales increased to 68.2% for the
three months ended March 31, 1996 as compared to 60.8% for the three months
ended March 31, 1995. The increase as a percentage of net sales is due primarily
to the decrease in same store sales combined with the additional payroll and
occupancy expenses associated with 21 net additional stores at the end of the
first quarter of 1996 versus 1995. Corporate general and administrative
expenses were approximately $1.2 million in the first quarter of both 1996 and
1995. Total selling, general and administrative expense per square foot of
selling space decreased 0.8% from $14.72 in the first quarter of 1995 to $14.60
in the first quarter of 1996.
Interest Expense. Interest expense increased from $0.3 million for the three
months ended March 31, 1995 to $0.4 million for the three months ended March 31,
1996 primarily as a result of an increase in the average borrowings outstanding
in 1996. The increase in average borrowings is due primarily to the larger
outstanding borrowings at December 31, 1995 as compared to December 31, 1994.
Net Loss. Net loss for the three months ended March 31, 1996 was approximately
$2.1 million, as opposed to a net loss of approximately $1.6 million for the
three months ended March 31, 1995. The increase occurred primarily as a result
of increases in selling, general and administrative expenses and in interest
expense, partially offset by increased sales and decreased cost of sales.
Liquidity and Capital Resources
The Company had $(5.6) million of working capital at March 31, 1996 as compared
to $(2.2) million at December 31, 1995. The decrease in working capital was due
primarily to an increase in notes payable, partially offset by higher
inventories. The increase in notes payable at March 31, 1996 is due partially to
the Company's operating losses during the quarter then ended and partially to
the Company's increase in inventory during the same period. The increase in
inventories at March 31, 1996 is primarily due to the Company's unusually low
reported level of inventory at December 31, 1995, as a result of the $2.4
million restructuring charge recorded by the Company in the fourth quarter of
1995.
On May 15, 1996 the Company closed the Waiver and Amendment No. 1 to the Loan
and Security Agreement (the "New Bank Credit Facility") with Fleet Capital
Corporation (formerly Shawmut Capital Corporation). The New Bank Credit Facility
provides for borrowings of up to 65% of Eligible Inventory (as defined), with
the
maximum borrowings of $20 million. As amended, the New Bank Credit Facility also
provides for up to $4 million in additional borrowings through December 31, 1996
("Additional Borrowings"). The Company's majority shareholder, Jordan Industries
Inc., has agreed to purchase a fifty percent participation in any Additional
Borrowings. Additional Borrowings accrue interest at the lesser of the lender's
prime rate plus one percent or LIBOR plus three percent; other borrowings accrue
interest at the lesser of the lender's prime rate or LIBOR plus two percent. The
New Bank Facility, as amended, is secured by substantially all of the Company's
assets and contains covenants requiring minimum levels of tangible net worth and
cash flow and restricting capital expenditures, mergers and consolidations and
the payment of dividends. The Waiver and Amendment No. 1 to the Loan and
Security Agreement waived the Company's violations of certain financial
covenants under the New Bank Credit Facility prior to its amendment and revised
such covenants for future periods. The original term of the New Bank Credit
Facility, as amended, is through May 22, 2000, after which it will automatically
renew for one year periods unless terminated by the lender or the Company.
For the remainder of 1996, the Company plans to de-emphasize new store growth
and
the expansion and remodeling of existing stores. The Company estimates it will
require capital expenditures of approximately $1.1 million for such expansion
during the remainder of 1996. To fund this growth, the Company expects to
utilize cash provided by operations and revolving borrowings under the New Bank
Credit Facility, as amended. In addition, the Company plans to replace its
existing information systems with a fully integrated retail information system
at an approximate cost of $3.0 million, which management plans to finance via
capital leases. On the basis of these sources, the Company believes that it can
finance its store expansion, remodeling, business and operations and pay its
debts as they are due through 1996.
Net Operating Loss Carryforward
At December 31, 1995, the Company had approximately $8.5 million in netoperating
loss carryforwards for Federal income tax purposes. The Company will be able to
utilize these NOLs to offset future taxable income without significant
limitations through 2010.
Impact of Inflation
General inflation has had only a minor effect on the operations of the Company
and its internal and external sources for liquidity and capital.
<PAGE>
PART II. OTHER INFORMATION
WELCOME HOME, INC.
ITEM 1. LEGAL PROCEEDINGS: NONE
ITEM 2. CHANGES IN SECURITIES: NONE
ITEM 3. DEFAULTS UPON SENIOR SECURITIES: NONE
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS: NONE
ITEM 5. OTHER INFORMATION: NONE
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS: The separate Index to Exhibits accompanying this filing is
incorporated by reference.
(b) REPORTS FILED ON FORM 8-K: NONE
27. EDGAR Financial Data Schedule
<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.
WELCOME HOME, INC.
By: /s/ Neal Walker
_____________________________
Neal Walker
Chief Financial Officer
(Principal Financial Officer)
DATE: May 15, 1996
<PAGE>
INDEX TO EXHIBITS
Sequentially
No. Description Numbered Pages
10.1 Employment and Non-competition Agreement
between the Registrant and Thomas H. Hicks
dated December 11, 1995
10.2 Incentive Stock Option Agreement between
the Registrant and Thomas H. Hicks dated
January 2, 1996
10.3 Agreement and Release between the
Registrant and Dolores Kridel dated
February 1, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 122
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 18,819
<CURRENT-ASSETS> 20,114
<PP&E> 13,004
<DEPRECIATION> (4,476)
<TOTAL-ASSETS> 32,317
<CURRENT-LIABILITIES> 25,665
<BONDS> 0
0
0
<COMMON> 85
<OTHER-SE> 6,287
<TOTAL-LIABILITY-AND-EQUITY> 32,317
<SALES> 12,482
<TOTAL-REVENUES> 12,482
<CGS> 6,558
<TOTAL-COSTS> 6,558
<OTHER-EXPENSES> 8,985
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 366
<INCOME-PRETAX> (3,396)
<INCOME-TAX> (1,256)
<INCOME-CONTINUING> (2,140)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,140)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> 0
</TABLE>
