UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED APRIL 04, 1998
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-24912
WELCOME HOME, INC.
309 Raleigh Street
Wilmington, N.C. 28412
(910) 791-4312
INCORPORATED IN I.R.S. EMPLOYER
DELAWARE IDENTIFICATION NO.
56-1379322
Securities registered pursuant to Section 12(b) of the Act:
None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, Par Value $.01 Per Share
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 ( )
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of
registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form
l0-K or any amendment to this Form 10-K. (X)
The aggregate market value of the voting stock held by non-
affiliates of the registrant was $1,991,237 as of May 15,
1998. Determination of affiliate status for this purpose is
not a determination of affiliate status for any other
purpose. As of May 15, 1998, there were 7,453,615 shares of
the registrant's common stock outstanding.
Documents Incorporated by Reference: None
1
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1. Financial Statements
Consolidated Balance Sheets as of April 4, 1998
and December 31, 1997............................................... 3
Consolidated Statements of Operations for the Three
Months Ended April 4, 1998 and April 5, 1997........................ 4
Consolidated Statements of Cash Flows for the Three
Months Ended April 4, 1998 and April 5, 1997........................ 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
Signatures.......................................................... 10
</TABLE>
2
<PAGE>
Part I
Item 1. Financial Statements
WELCOME HOME, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
April 4, December 31,
1998 1997
(Unaudited) (Audited)
(in thousands of dollars)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 858 $ 845
Inventories 10,901 10,895
Prepaid and other assets 165 131
______ ______
Total current assets 11,924 11,871
Property & equipment, net 6,032 6,488
Other assets 288 309
______ ______
Total assets $18,244 $18,668
======= =======
LIABILITIES AND SHAREHOLDERS' DEFICIT
Current liabilities:
Bank overdraft $ 453 $ 1,179
Notes payable - line of credit 8,613 5,960
Note payable to Jordan Industries 1,270 1,356
Accounts payable 255 338
Accounts payable to affiliates 5,039 4,018
Accrued expenses 3,862 4,164
Accrued restructuring charges 438 605
______ ______
Total current liabilities 19,930 17,620
Note payable to Jordan Industries - 240
Pre-petition liabilities:
Accounts payable 2,843 2,843
Accounts payable to affiliates 11,045 11,046
Accrued expenses 2,040 2,133
Accrued restructuring charges 3,238 3,313
______ ______
Total pre-petition liabilities 19,166 19,335
Shareholders' deficit:
Series A redeemable preferred stock,
$0.01 par value; 11,100 shares
authorized; 4,451 shares issued 5,066 4,955
Preferred stock, $0.01 par value;
1,000,000, shares authorized;
none issued - -
Common stock, $0.01 par value;
13,000,000 shares authorized;
8,500,000 shares issued 85 85
Additional paid-in capital 8,832 8,832
Cumulative translation adjustment (37) (37)
Retained deficit (29,913) (27,477)
________ ________
Subtotal (15,967) (13,642)
Less treasury stock, at cost
(1,046,385 shares) 4,885 4,885
________ ________
Total shareholders' deficit (20,852) (18,527)
________ ________
Total liabilities and shareholders'
deficit $18,244 $18,668
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
3
<PAGE>
WELCOME HOME, INC.
Consolidated Statements of Operations
<TABLE>
<CAPTION
Three Months Ended
April 4, April 5,
1998 1997
____ ____
(Unaudited) (Unaudited)
(in thousands of dollars)
<S> <C> <C>
Net sales $ 9,607 $13,324
Cost of goods sold 5,799 9,079
_______ _______
Gross margin 3,808 4,245
Selling, general and
administrative expenses
(excluding depreciation) 5,038 7,890
Bankruptcy fees 300 316
Depreciation 545 521
_______ _______
Operating loss (2,075) (4,482)
Interest expense:
Jordan Industries 49 70
Other 186 269
_______ _______
Pretax loss (2,310) (4,821)
Provision (benefit) for income taxes 15 -
________ ________
Net loss ($2,325) ($4,821)
======== ========
Net loss available to common shareholders ($2,435) ($4,932)
======== ========
Basic and diluted loss per common share ($0.33) ($0.66)
======== ========
Weighted average common shares outstanding
(in thousands) 7,454 7,454
======== ========
See Notes to Consolidated Financial Statements
</TABLE>
4
<PAGE>
WELCOME HOME, INC.
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended
April 4, April 5,
1998 1997
____ ____
(Unaudited) (Unaudited)
(in thousands of dollars)
<S> <C> <C>
Cash flows from operating activities:
Net loss ($2,325) ($4,821)
Adjustments to reconcile net cash
provided by (used in) operating activities:
Depreciation and amortization 545 521
Changes in operating assets and liabilities:
Inventories (6) 3,169
Prepaid expenses and other assets (13) (19)
Accounts payable (809) (1,017)
Payables to affiliates 1,020 1,605
Accrued liabilities (636) 697
_______ _______
Net cash provided by (used in)
operating activities (2,224) 135
_______ _______
Cash flows from investing activities:
Capital expenditures (90) 95
_______ _______
Net cash provided by (used in)
investing activities (90) 95
Cash flows from financing activities:
Repayments to note payable
Jordan Industries (326) -
Proceeds from line of credit 12,565 12,320
Repayments to line of credit (9,912) (13,333)
Other - (40)
_______ ________
Net cash provided by (used in)
financing activities: 2,327 (1,053)
_______ ________
Net increase (decrease) in cash
and cash equivalents 13 (823)
Cash and cash equivalents at
beginning of period 845 1,715
_______ _______
Cash and cash equivalents at
end of period $ 858 $ 892
======= =======
See Notes to Consolidated Financial Statements
</TABLE>
5
<PAGE>
WELCOME HOME, INC.
Consolidated Statements of Cash Flows
(continued)
<TABLE>
<CAPTION>
Three Months Ended
April 4, April 5,
1998 1997
____ ____
(Unaudited) (Unaudited)
(in thousands of dollars)
<S> <C> <C>
Supplemental disclosures of
cash flow information:
Cash paid during the period for:
Interest - Jordan Industries $ 38 $ -
======= =======
Interest - third party $ 189 $ 339
======= =======
</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 31,1997.
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.
Certain 1997 amounts have been reclassified to conform with
the 1998 presentation. Such reclassifications had no effect
on previously reported net loss or shareholders' deficit.
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 4, 1998 are not
necessarily indicative of annual results of operations.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, Reporting Comprehensive Income ("SFAS 130").
This Statement established standards for reporting and
display of comprehensive income and its components in the
financial statements. The Company adopted SFAS 130 on January
1, 1998. The Company has determined total comprehensive loss
to be ($2,325) and ($4,846) for the three months ended April
4, 1998 and April 5, 1997, respectively. The Company's total
comprehensive loss represents net loss plus the change in the
cumulative translation adjustment equity account for the
periods presented.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
General
Welcome Home, Inc. (together with its subsidiary, the
"Company" or "Welcome Home") is a specialty retailer of gifts
and decorative home furnishings and accessories in North
America, with 120 stores located primarily in factory outlet
centers in 36 states. Welcome Home stores offer a broad
product line of 1,500 to 2,500 Stock Keeping Units ("SKUs")
consisting of 11 basic groups, including decorative home
textiles, framed art, furniture, candles, lighting,
fragrance, decorative accessories, decorative garden, music,
special opportunity merchandise and seasonal products.
Welcome Home's products currently range in price up to
$1,500, with an average sales transaction for the quarter
ended April 4, 1998 of $17.31 as compared to $16.53 for the
quarter ended April 5, 1997.
On January 21, 1997, the Company filed a voluntary petition
for relief under the provisions of Chapter 11 of the
Bankruptcy Code in the United States Bankruptcy Court for the
Southern District of New York. The filing is intended to
allow the Company to restructure its financial obligations
through a plan of reorganization. Fleet Capital Corporation
has extended a post-petition credit facility to the Company
to enable it to continue to conduct its business while the
bankruptcy proceeding is pending.
7
<PAGE>
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>
Three Months Ended
April 4, April 5,
1998 1997
____ ____
<S> <C> <C>
Selected income statement data
as a percentage of net sales:
Net sales 100.0% 100.0%
Cost of sales 60.4 68.1
Gross profit 39.6 31.9
Selling, general and administrative
expenses (excluding depreciation) 52.4 59.2
Depreciation 5.7 3.9
Bankruptcy fees 3.1 2.4
Operating loss (21.6) (33.6)
Interest expense 2.4 2.6
Provision for income taxes 0.2 0.0
Net loss (24.2%) (36.2%)
Operating Statistics:
Stores open at period end 120 153
Total square feet of store
space at period end (in thousands) 337 430
Percentage increase (decrease) in
comparable store sales 9.9 (14.7)
</TABLE>
Three Months Ended April 4, 1998 as compared to Three Months
Ended April 5, 1997
Net Sales. Net sales for the three months ended April 4,
1998 decreased by $3.7 million or 27.9%, as compared to the
three months ended April 5, 1997. This decrease reflects a
decline in the average number of stores open during the
quarter ended April 4, 1998 of 120 compared to 168 for the
quarter ended April 5, 1997. This decline is offset by a
9.9% increase in comparable store sales. The Company believes
the increase in comparable store sales is attributed to
modifications of the Company's merchandise assortment
implemented during the latter half of 1997. The Company also
showed an increase of 3.4% in the number of sales
transactions on a same store basis in the first quarter of
1998 along with an increase in its average sales transaction
from $17.28 for the quarter ended April 4, 1998 compared to
$16.25 for the quarter ended April 5, 1997 on the same store
basis.
Gross Profit. Gross profit for the quarter ended April 4,
1998 decreased $0.4 million, or 10.3%, as compared to the
quarter ended April 5, 1997, largely reflecting the closure
of 30 stores in the first quarter of 1997. Gross profit as a
percentage of sales increased to 39.6% from 31.9%, due
primarily to markdowns taken during the first quarter of 1997
on inventory items sold in "Going Out of Business" sales in
the stores that were closed. The cost of markdowns decreased
by 63.3% to $0.9 million for the quarter ended April 4, 1998
compared to $2.4 million for the quarter ended April 5, 1997.
Selling, General and Administrative Expense. Selling, general
and administrative expense for the quarter ended April 4,
1998 decreased by $2.9 million, or 36.2%, as compared to the
quarter ended April 5, 1997, largely as a result of the
Company's store closings in 1997. In addition, selling, and
administrative expense as a percentage of net sales decreased
to 52.4% in the first quarter of 1998 as compared to 59.2% in
first quarter of 1997. This decrease was due to the increase
in the Company's comparable store sales.
Bankruptcy Fees. The Company recorded $0.3 million of
bankruptcy fees in the first quarter of 1998 and 1997. These
charges represent the expenses associated with the Chapter 11
bankruptcy proceedings.
8
<PAGE>
Interest Expense - Jordan Industries. Interest expense to
Jordan Industries was $0.1 million in the first quarter of
1998 and 1997.
Interest Expense - Other. Interest expense - other decreased
to $0.2 million for the quarter ended April 4, 1998 as
compared to $0.3 million for the quarter ended April 5, 1997
due to lower interest expense on its post-petition credit
facility. Borrowings under the facility were lower due to
reduced inventory levels required for a fewer number of
stores.
Net Loss. The Company's net loss for the quarter ended April
4, 1998 was $2.3 million as compared to $4.8 million for the
quarter ended April 5, 1997. The decrease in net loss of
$2.5 million was due to lower selling, general and
administrative expenses and interest expense.
Liquidity and Capital Resources
The Company had $27.2 million working capital deficit at
April 4, 1998 as compared to $25.1 million deficit at
December 31, 1997. The decrease in working capital was due
primarily to an increase in notes payable - line of credit.
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. On March 12, 1998 the
Company amended and extended the post petition financing
arrangement with Fleet Capital to be effective through
January 31, 1999 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 commitments for cash from
borrowings under this post-petition credit facility.
Net Operating Loss Carryforward
At December 31, 1997, the Company had approximately $36.1
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
<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
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)
MAY 15, 1998
10
<PAGE>
EXHIBIT INDEX
INDEX DESCRIPTION
27 Financial Data Schedule
11
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922817
<NAME> WELCOME HOME, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> APR-4-1998
<CASH> 858
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 10,901
<CURRENT-ASSETS> 11,924
<PP&E> 11,630
<DEPRECIATION> 7,189
<TOTAL-ASSETS> 18,691
<CURRENT-LIABILITIES> 39,096
<BONDS> 0
0
5,066
<COMMON> 85
<OTHER-SE> (21,118)
<TOTAL-LIABILITY-AND-EQUITY> 18,691
<SALES> 9,607
<TOTAL-REVENUES> 9,607
<CGS> 5,799
<TOTAL-COSTS> 5,799
<OTHER-EXPENSES> 5,883
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 235
<INCOME-PRETAX> (2,310)
<INCOME-TAX> 15
<INCOME-CONTINUING> (2,325)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,325)
<EPS-PRIMARY> (0.33)
<EPS-DILUTED> (0.33)
</TABLE>
