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 April 5, 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 May 23, 1997:
7,453,615
1
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION Page No.
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ITEM 1. Financial Statements
Consolidated Balance Sheets as of April 5, 1997
and December 31, 1996 3
Consolidated Statements of Operations for the Three Months
Ended April 5, 1997 and March 23, 1996 4
Consolidated Statements of Cash Flows for the Three Months
Ended April 5, 1997 and March 23, 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
Other Information 10
Signatures 10
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2
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WELCOME HOME, INC.
PART I
Item 1. Financial Statements
Consolidated Balance Sheets at April 5, 1997 and December
31, 1996
(in thousands of dollars)
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<S> <C> <C>
April 5, December 31,
1997 1996
ASSETS (Unaudited)
Current assets:
Cash and cash equivalent $ 653 $ 612
Inventories 13,122 16,291
Prepaid assets 395 626
Total Current Assets 14,170 17,529
Property & equipment, net 7,995 8,563
Other assets 424 222
Total Assets $22,589 $26,314
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIENCY)
Current liabilities:
Note payable- line of credit $10,539 $12,123
Note Payable to Jordan Industries 0 1,224
Accounts payable 3,065 14,894
Accrued expenses 620 7,787
Current portion of capital lease obligation 0 473
Total current liabilities 14,224 36,501
Pre-Petition liabilities:
Note payable - Line of credit 571 0
Accounts payable 13,251 0
Accrued expenses 6,174 0
Capital lease obligation 912 0
Note payable to Jordan Industries 4,305 0
Total Pre-Petition liabilities 25,213 0
Capital lease obligation 0 454
Note payable to Jordan Industries 234 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) (25,587) (20,766)
Subtotal (12,197) (7,351)
Less treasury stock, at cost
(1,046,385 shares) 4,885 4,885
Total Shareholders' Equity (Deficiency) (17,082) (12,236)
Total Liabilities and Shareholders' Equity (Deficiency)
$22,589 $26,314
</TABLE>
See Notes to Consolidated Financial Statements
3
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WELCOME HOME, INC.
Consolidated Statements of Operations for the Three Months
Ended April 5, 1997 and March 23, 1996
(in thousands of dollars except per share amounts)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Net sales $13,324 $12,482
Cost of sales 9,079 6,558
Gross margin 4,245 5,924
Selling, general and administrative expenses 7,890 8,514
(excluding depreciation)
Depreciation 521 491
Operating loss (4,166) (3,081)
Interest expense:
Jordan Industries 0 89
Other 339 257
Bankruptcy Fees 316 0
Other expense 0 (31)
Pretax loss (4,821) (3,396)
Provision (benefit) for income taxes 0 (1,256)
Net loss ($4,821) ($2,140)
Net loss per share ($0.65) ($0.29)
Weighted average shares outstanding 7,454 7,454
(in thousands)
</TABLE>
See Notes to Consolidated Financial Statement
4
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WELCOME HOME, INC.
Consolidated Statements of Cash Flows
For the Three Months Ended
April 5, 1997 and March 23, 1996
(in thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Cash flows from operating activities:
Net loss ($4,821) ($2,140)
Adjustments to reconcile net loss to
net cash used in operating activities:
Depreciation and amortization 521 491
Deferred income taxes 0 (1,256)
Changes in operating assets and liabilities:
Inventories 3,169 (2,021)
Prepaid expenses and other assets (19) 113
Accounts payable 1,422 (1,339)
Accrued liabilities (993) (756)
Payables to Jordan Industries 1,720 0
Net cash provided by (used in) operating activities
999 (6,908)
Cash flows from investing activities:
Capital expenditures 95 (173)
Other 0 (180)
Net cash provided by (used in) investing activities 95 (353)
Cash flows from financing activities:
(Repayments)proceeds from line of credit (1,013) 7,500
Other (40) (124)
Net cash (used in) provided by financing
activities: (1,053) 7,376
Net increase (decrease) in cash and cash equivalents
41 115
Cash and cash equivalents at beginning of period 612 7
Cash and cash equivalents at end of period $653 $122
</TABLE>
See Notes to Consolidated Financial Statements
5
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WELCOME HOME , INC.
Consolidated Statements of Cash Flows for the Three Months Ended
April 5, 1997 and March 23, 1996
(in thousands of dollars)
(Continued)
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<CAPTION>
(unaudited)
1997 1996
<S> <C> <C>
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - third party $339 $194
Income taxes $0 $41
</TABLE>
See Notes to Consolidated Financial Statements
6
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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 period ended April 5, 1996 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 153
stores located primarily in outlet centers in 39 states as
of April 5, 1997. Welcome Home's products, which currently
range in price from $.25 to $1,500, cover a broad line of
6,000 to 10,000 Stock Keeping Units ("SKU's") and consist of
eleven basic groups, including textiles, afghans, framed
art, home fragrance, stationery, brass, picture frames,
doilies, chimes and bird feeders, wood and seasonal
products. The Company's average sales transaction was
approximately $16.48 for the quarter ended April 5, 1997 as
compared to $13.29 for the quarter ended March 23, 1996.
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 quarter of 1997,
the Company closed 33 non profitable stores and, as of May 20, 1997
the Company has closed an additional 13 non profitable stores. The
Company also plans to close an additional 15 non profitable
stores by the beginning of the third quarter. This will result
in a core group of approximately 125 stores.
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
April 5 March 23
1997 1996
<S> <C> <C>
Selected income statement data
as a percentage of net sales:
Net sales 100.0% 100.0%
Cost of sales 68.1 52.5
Gross profit 31.9 47.5
Selling, general and administrative
expenses (excluding depreciation) 59.2 68.2
Operating income (loss) (31.3) (24.7)
Interest expense 2.5 2.8
Benefit for income taxes 0 (10.1)
Net income (loss) (36.2%) (17.1%)
Operating Statistics:
Stores open at period end 153 215
Total square feet of store space at
period end (in thousands) 430 583
Percentage decrease in
comparable store sales (14.7) (12.0)
</TABLE>
Three Months Ended April 5, 1997 as compared to Three Months
Ended March 23, 1996
Net Sales. Net sales for the three months ended April 5,
1997 increased by approximately $0.8 million or 6.7%, as
compared to the three months ended March 23, 1996. This
increase reflects an additional $1.7 million of sales in
1997 as a result of the first quarter of 1997 having 95 days
versus the first quarter of 1996 which had only 83 days.
Without the additional days in the 1997 period net sales for
the quarter would have declined $0.8 million, or 6.7%. This
decline reflects a 14.7% decrease in comparable store sales
(as adjusted to reflect the change in number of days during
the periods). The Company believes the decrease in
comparable store sales was primarily the result of the
Company filing a voluntary petition for relief under Chapter
11 of the Bankruptcy Code in January 1997, which resulted in
inventory levels being reduced and lower levels of traffic
in outlet malls, where 96% of the Company's stores are
located.
Gross Profit. Gross profit for the three months ended April
5, 1997 decreased $1.7 million, or 28.3%, as compared to the
three months ended March 23, 1996. The Company recorded
large markdowns in the first quarter of 1997 due primarily
to liquidation markdowns instituted in the 44 stores that
ran "Going Out of Business" sales. The Company recorded
unusually low markdowns in the first quarter of 1996 due to
discontinued merchandise categories having been included in
the Company's restructuring charge recorded in the fourth
quarter of 1995.
Selling, General and Administrative Expenses. Selling, general
and administrative expenses for the three months ended April 5, 1997
decreased $0.6 million, or 7.3%, as compared to the three months
ended March 23, 1996. Selling, general and administrative expenses
as a percentage of net sales decreased to 59.2% for the three months
ended April 5, 1997 as compared to 68.2% for the three months ended
March 23, 1996. The decrease is primarily due to the decrease in
the average number of stores open for the quarter (42 stores) and the
reduction in payroll and occupancy expenses associated with fewer
stores. Corporate general and administrative expenses were approximately
$1.3 million in the first quarter of both 1997 and 1996.
8
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Interest Expense. Interest expense for both the three months
ended April 5, 1997 and the three months ended March 23, 1996,
was approximately $0.3 million.
Net Loss. The net loss for the three months ended April 5, 1997
was approximately $4.8 million as opposed to $2.1 million for the
three months ended March 23, 1996. The increase occurred primarily
as a result of the comparable store sales decline and the increase
in markdowns in the first quarter of 1997. Additionally, the
Company recorded an income tax benefit of $1.3 million in the first
quarter ended March 23, 1996.
Liquidity and Capital Resources
The Company had $25.3 million working capital deficit at
April 5, 1997 as compared to $19.0 million deficit at
December 31, 1996. The decrease in working capital was due
primarily to a decrease in inventory levels from $16.3
million at December 31, 1996 compared to $13.1 million as of
April 5, 1997 along with an increase in accounts payables.
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
provided 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 facility,
as amended, was secured by substantially all of the Company's assets.
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 1 1/2% 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.
Net Operating Loss Carryforward
At December 31, 1996, the Company had approximately $22.3
million in net operating loss carryforwards for Federal
income tax purposes. Due to the uncertainty of generating
future taxable income, management believes it is appropriate
to fully reserve the deferred tax asset.
9
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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:
On February 1, 1997, the Company filed a current report on
form 8-k reporting that (i) it had filed a petition in the
United States Bankruptcy Court for the Southern District of
New York seeking reorganization under Chapter 11 of the
United States Bankruptcy Code and (ii) the NASDAQ Stock
Market, Inc. had notified the Company that its common stock
had been delisted from the NASDAQ National Market System due
to the Company's failure to meet the total asset and bid
price requirements.
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: May 23, 1997
10
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<ARTICLE> 5
<CIK> 0000922817
<NAME> WELCOME HOME, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> APR-5-1997
<CASH> 653
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 13,122
<CURRENT-ASSETS> 14,170
<PP&E> 13,280
<DEPRECIATION> 5,825
<TOTAL-ASSETS> 22,589
<CURRENT-LIABILITIES> 39,437
<BONDS> 0
0
4,510
<COMMON> 85
<OTHER-SE> (16,792)
<TOTAL-LIABILITY-AND-EQUITY> 22,589
<SALES> 13,324
<TOTAL-REVENUES> 13,324
<CGS> 9,079
<TOTAL-COSTS> 9,079
<OTHER-EXPENSES> 8,750
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 339
<INCOME-PRETAX> (4,821)
<INCOME-TAX> 0
<INCOME-CONTINUING> (4,821)
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<CHANGES> 0
<NET-INCOME> (4,821)
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