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 October 4, 1997
( ) 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 preceeding 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 August 25, 1997:
7,453,615
1
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page No.
<TABLE>
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets as of October 4, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the Three Months
Ended October 4, 1997 and October 5, 1996 4
Consolidated Statements of Cash Flows for the Three Months
Ended October 4, 1997 and October 5, 1996 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 7
PART II. OTHER INFORMATION 10
Signatures 10
Exhibit Index 11
</TABLE>
2
<PAGE>
WELCOME HOME, INC.
PART I
Item 1. Financial Statements
Consolidated Balance Sheets at October 4, 1997 and December
31, 1996
(in thousands of dollars)
<TABLE>
<S> <C> <C>
October 4, December 31,
1997 1996
ASSETS (Unaudited)
Current assets:
Cash and cash equivalent $ 329 $ 612
Inventories 14,832 16,291
Prepaid assets 105 626
Total Current Assets 15,266 17,529
Property & equipment, net 6,929 8,563
Other assets 265 222
Total Assets $22,460 $26,314
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Note payable- line of credit $10,557 $12,123
Note Payable to Jordan Industries 0 1,224
Accounts payable 6,666 14,894
Accounts Payable to Jordan Industries 1,159 0
Accrued expenses 2,314 7,787
Current portion of capital lease obligation 0 473
Total current liabilities 20,696 36,501
Pre-Petition liabilities:
Accounts payable 12,306 0
Accrued expenses 6,646 0
Capital lease obligation 912 0
Note payable to Jordan Industries 1,583 0
Total Pre-Petition liabilities 21,447 0
Capital lease obligation 0 454
Note payable to Jordan Industries 1,914 1,595
Shareholders' equity (deficiency)
Series A Redeemable Preferred stock, $0.01 par value;
11,100 shares authorized, 4451 shares issued
4510 4510
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 0 0
Additional paid-in capital 8,832 8,832
Cumulative translation adjustment (37) (12)
Retained earnings (deficit) (30,102) (20,766)
Subtotal (16,712) (7,351)
Less treasury stock, at cost
(1,046,385 shares) 4,885 4,885
Total Shareholders' Equity (Deficiency) (21,597) (12,236)
Total Liabilities and Shareholders' Equity (Deficiency)
$22,460 $26,314
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE>
WELCOME HOME, INC.
Consolidated Statements of Operations for the Three and Nine Months
Ended October 4, 1997 and October 5, 1996
(in thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
October 4, October 5, October 4, October 5,
1997 1996 1997 1996
(13 wks) (14 wks) (39 wks) (40 wks)
<S> <C> <C> <C> <C>
Net sales $13,621 $20,655 $40,679 $51,874
Cost of sales 7,887 11,981 26,088 29,195
Gross margin 5,734 8,674 14,591 22,679
Selling, general and admin-
istrative expenses 5,468 9,950 20,031 27,895
(excluding depreciation)
Depreciation 558 501 1,582 1,455
Operating loss (292) (1,777) (7,022) (6,671)
Interest expense:
Jordan Industries 0 88 0 279
Other 341 465 1,165 1,102
Bankruptcy Fees 363 0 1,134 0
Other expense 0 0 0 19
Pretax loss (996) (2,330) (9,321) (8,071)
Provision (benefit) for
income taxes 15 0 15 (1,256)
Net loss ($1,011) ($2,330) ($9,336) ($6,815)
Net loss per share ($0.14) ($0.31) ($1.25) ($0.91)
Weighted average shares
outstanding 7,454 7,454 7,454 7,454
(in thousands)
</TABLE>
See Notes to Consolidated Financial Statement
4
<PAGE>
WELCOME HOME, INC.
Consolidated Statements of Cash Flows
For the Nine Months Ended
October 4, 1997 and October 5, 1996
(in thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
(39 wks) (40 wks)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($9,336) ($6,815)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 1,680 1,525
Deferred income taxes 0 (1,256)
Changes in operating assets and liabilities:
Inventories 1,459 (5,705)
Prepaid expenses and other assets 380 227
Accounts payable 5,237 1,657
Accrued liabilities 1,173 (1,471)
Net cash provided by (used in) operating activities
593 (11,838)
Cash flows from investing activities:
Capital expenditures 52 (1,134)
Net cash provided by (used in) investing activities 52 (1,134)
Cash flows from financing activities:
Proceeds (repayment)from line of
credit, net (1,566) 13,299
Proceeds (repayment)from Jordan
Industries, net 678 562
Loan fees, line of credit, net 0 (402)
Other (40) (492)
Net cash (used in) provided by financing
activities: (928) 12,967
Net increase (decrease) in cash and cash equivalents
(283) (5)
Cash and cash equivalents at beginning of period 612 7
Cash and cash equivalents at end of period $329 $2
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE>
WELCOME HOME , INC.
Consolidated Statements of Cash Flows for the Nine Months Ended
October 4, 1997 and October 5, 1996
(in thousands of dollars)
(Unaudited)
(Continued)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - third party $970 $973
Income taxes $6 $44
Non Cash Investing and Financing Activities:
Capital Leases $0 $3,200
</TABLE>
See Notes to Consolidated Financial Statements
6
<PAGE>
WELCOME HOME, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(in thousands of dollars)
(Unaudited)
1. BASIS OF PRESENTATION
The 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 on Form
10-K for the year ended December 31,1996.
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 volume has historically varied between
quarters based on several factors including the Christmas
shopping season and accordingly, the results of operations
for the three month and nine month periods ended October 4, 1997
are not necessarily indicative of annual results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
The Company is a specialty retailer of gifts and decorative
home furnishings and accessories in North America, with 124
stores located primarily in outlet centers in 36 states as
of October 4, 1997. Welcome Home's products, which currently
range in price from $.25 to $1,500, cover a broad line of
2,500 Stock Keeping Units ("SKU's") and consist of six basic
groups, including framed art, decorative home textiles, decorative
garden, candles, home fragrance, accessory furniture and seasonal
gift items. The Company's average sales transaction was approx-
imately $18.27 for the quarter ended October 4, 1997 as
compared to $15.96 for the quarter ended October 5, 1996, an
increase of 14.5%. For the nine months ended October 4, 1997,
the average sales transaction increased 15.5% from $15.17 to $17.52.
On January 21, 1997, the Company filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code"). During the first nine months of 1997,
the Company closed 62 non-profitable stores as of October 4, 1997,
this gives the Company 124 stores. The Company may close additional
stores in late 1997, depending on the performance of the stores as
well as obtaining rent concessions from landlords.
7
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Results of Operations
The following table sets forth certain selected income
statement data of the Company expressed as a percentage of
net sales and certain operating statistics of the Company :
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
October 4 October 5 October 4 October 5
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Selected income statement data
as a percentage of net sales:
Net sales 100.0% 100.0% 100.0% 100.0%
Cost of sales 57.9 58.0 64.1 56.3
Gross profit 42.1 42.0 35.9 43.7
Selling, general and administrative
expenses (excluding depreciation) 40.1 48.2 49.2 53.8
Operating loss (2.1) (8.6) (17.3) (12.9)
Interest expense 2.5 2.7 2.9 2.7
Benefit (provision) for
income taxes (0.1) 0.0 (0.0) 2.4
Net loss (7.4) (11.3) (23.0) (13.1)
Operating Statistics:
Stores open at period end 124 199 124 199
Total square feet of store space at
period end (in thousands) 387 546 387 546
Percentage decrease in
comparable store sales (5.8%) (12.6%) (3.8%) (14.6%)
Percentage decrease in
comparable stores/weeks sales 2.4% n/a (0.6%) n/a
</TABLE>
Three Months Ended October 4, 1997 as compared to Three Months
Ended October 5, 1996
Net Sales. Net sales for the three months ended October 4,
1997 decreased $7.0 million or 34.0%, as compared to the three
months ended October 5, 1996. This decrease reflects a $6.4 million
decrease attributable to stores closed in the Fall of 1996 and the
first nine months of 1997 along with a $1.2 million decrease due to
an additional week in 1996 vs. 1997 offset by new stores opened in
1996. Net sales increased $0.3 million, or 2.4% in comparable store
sales (as adjusted to reflect the same number of weeks). The 124
stores remaining open after July 31, 1997 had an increase in sales
of $0.6 million, or 4.6%. These 124 stores had a comparable store
increase of $0.3 million, or 2.4%.
Gross Profit. Gross profit for the three months ended October
4, 1997 decreased $2.9 million, or 33.3%, as compared to the
three months ended October 5, 1996. The gross margin percentage
increased to 42.1% for the three months ended October 4, 1997, as
compared to 42.0% for the three months ended October 5, 1996.
The company's improvement in gross margin was achieved despite
recording additional markdowns at the beginning of the third
quarter of 1997 due primarily to liquidation markdowns instituted
in the three stores that ran "Going Out of Business" sales.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the three months ended October 4,
1997 decreased $4.5 million, or 45.0%, as compared to the three months
ended October 5, 1996. Selling, general and administrative expenses
as a percentage of net sales decreased to 40.1% for the three months
ended October 4, 1997 as compared to 48.2% for the three months ended
October 5, 1996. The decrease is primarily due to the reduction in
the average number of stores open for the quarter and the reduction
in payroll and occupancy expenses associated with fewer stores.
Corporate general and administrative expenses decreased $0.5 million,
or 33.3% for the three months ended October 4, 1997 compared to the
three months ended October 5, 1996. The decrease is primarily due
to a reduction in payroll and occupancy expenses associated with a
corporate layoff.
8
<PAGE>
Interest Expense. Interest expense decreased for the three months
ended October 4, 1997 to $0.3 million as compared to $0.6 million
for the three months ended October 5, 1996. This decrease is primarily
a result of lower debt due to a decrease in merchandise purchases
which results in lower inventory levels.
Net Loss. The net loss for the three months ended October 4, 1997
was $1.0 million as compared to $2.3 million for the three months
ended October 5, 1996. The decrese occurred primarily as a result
of a reduction in the SG&A expenses along with an increase in the
gross margin percentage.
Nine Months Ended October 4, 1997 as compared to Nine Months
Ended October 5, 1996
Net Sales. Net sales for the nine months ended October 4, 1997
decreased by $11.2 million or 21.6%, as compared to the nine
months ended October 5, 1996. This decrease is attributable to
stores closed in the Fall of 1996 and the first nine months of
1997. Net sales decreased $1.3 million, or 3.8% in comparable
store sales. The 124 stores remaining open after July 31, 1997
had an increase in sales of $0.1 million, or 0.3%. These 124
stores had a comparable store sales decrease of $1.0 million,
or 2.9%. These 124 stores had a comparable store sales (as
adjusted to reflect the same number of weeks) increase of $0.1
million, or 0.3%.
Gross Profit. Gross profit for the nine months ended October 4,
1997 decreased $8.1 million, or 35.7%, as compared to the nine
months ended October 5, 1996. The Company recorded large markdowns
in the first nine months of 1997 due primarily to liquidation mark-
downs instituted in the 62 stores that ran "Going Out of Business"
sales.
Selling, General and Administrative Expenses. Selling general and
administrative expenses for the nine months ended October 4, 1997
decreased $7.9 million, or 28.3% as compared to the nine months
ended October 5, 1996. Selling, general and administrative expenses
as a percentage of net sales decreased to 49.2% for the nine months
ended October 4, 1997 as compared to 53.8% for the nine months ended
October 5, 1996. The decrease is due primarily to the decrease in the
average number of stores open for the first nine months and the reduction
in payroll and occupancy expenses associated with fewer stores. Corp-
orate general and administrative expenses decreased by $0.5 million, or
11.9% for the nine months ended October 4 1997 as compared to the nine
months ended October 5, 1996.
Interest Expense. Interest expense decreased for the nine months ended
October 4, 1997, to $1.2 million as compared to $1.4 million for the
nine months ended October 5, 1996. This decrease is primarily a result
of lower debt due to a decrease in merchandise purchases which results
in lower inventory levels.
Net Loss. The net loss for the nine months ended October 4, 1997
was $9.3 million as compard to a $6.8 million for the nine months ended
October 5, 1996. This increase occurred primarily as a result of
higher markdowns associated with the liquidation of 62 stores that
ran "Going Out of Business" sales and additional expenses associated
with the bankruptcy proceedings.
Liquidity and Capital Resources
The Company had $26.9 million working capital deficit at
October 4, 1997, including pre-petition liabilities, as compared
to $19.0 million deficit at December 31, 1996. The decrease in
working capital was due primarily to an increase in accounts payable
of $5.2 million, along with a decrease in inventory levels from
$16.3 million at December 31, 1996 compared to $14.8 million as of
October 4, 1997.
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 and
also provided for up to $4 million in additional borrowings
through December 31, 1996 ("Additional Borrowings"). The
Company's majority shareholder, Jordan Industries Inc.,
("Jordan Industries") purchased a fifty percent
participation in the additional borrowings. The New Bank Credit
Facility, as amended, is secured by substantially all of the
Company's assets.
9
<PAGE>
On January 21, 1997, in connection with the Chapter 11
Bankruptcy filing, Welcome Home closed the second waiver and
amendment to allow for post-petition advances up to
$12.0 million. This amendment was effective through March 31,
1997.
On March 28, 1997, the Company closed the third waiver and
amendment, to continue to allow post-petition advances, up
to $12.75 million. In connection with this amendment, Jordan
Industries purchased a $0.75 million junior participation in this
facility. This amendment is effective through March 31, 1998 and
it carries an interest rate of one and one half percent above the
lender's prime rate. The Company expects to satisfy its anticipated
demands and committments for cash from borrowings under this post-
petition credit facility.
PART II. OTHER INFORMATION
WELCOME HOME, INC.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K NONE
(a) EXHIBITS: The separate Index to Exhibits accompanying this
filing is incorporated by reference.
(b) REPORT ON FORM 8-K. None.
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/ Mark S. Dudeck
__________________
Name: Mark S. Dudeck
Title: Vice President,
Treasurer and
Chief Financial Officer
(Principal Financial Officer)
Date: November 18, 1997
10
<PAGE>
EXHIBIT INDEX
INDEX DESCRIPTION
27 Financial Data Schedule
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 000922817
<NAME> WELCOME HOME, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> OCT-4-1997
<CASH> 329
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 14,832
<CURRENT-ASSETS> 15,266
<PP&E> 13,149
<DEPRECIATION> 6,220
<TOTAL-ASSETS> 22,460
<CURRENT-LIABILITIES> 42,143
<BONDS> 0
0
4,510
<COMMON> 85
<OTHER-SE> (16,422)
<TOTAL-LIABILITY-AND-EQUITY> 22,460
<SALES> 40,679
<TOTAL-REVENUES> 40,679
<CGS> 26,088
<TOTAL-COSTS> 26,088
<OTHER-EXPENSES> 21,613
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,165
<INCOME-PRETAX> (9,321)
<INCOME-TAX> 15
<INCOME-CONTINUING> (9,336)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (9,336)
<EPS-PRIMARY> (1.25)
<EPS-DILUTED> (1.25)
</TABLE>
