UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTER ENDED APRIL 03, 1999
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.
DELAWARE 56-1379322
(State of other Jurisdiction of (I.R.S. EMPLOYER
Incorporation or Organization) IDENTIFICATION NO.)
309 Raleigh Street
Wilmington, NC 28412
(Address of Principal (Zip Code)
Executive Offices)
(910) 791-4312
(Registrant's Telephone Number, Including Area Code)
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
Form10-K. (X)
The aggregate market value of the voting stock held by non-affiliates of the
registrant was $1,991,237 as of April 15, 1999. Determination of affiliate
status for this purpose is not a determination of affiliate status for any other
purpose. As of April 15, 1999, there were 7,453,615 shares of the registrant's
common stock outstanding.
Indicate by check mark whether registrant has filed all documents and reports
required to be filed by Section 12, 13, or 15(d) of The Securities Exchange Act
of 1934 subsequent to the distribution of securities under a plan confirmed by a
court. Yes (X) No ( )
Documents Incorporated by Reference: None
<PAGE>
INDEX
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
<S> <C> <C> <C> <C>
Balance Sheets as of April 3, 1999 and December 31, 1998................................................3
Statements of Operations for the Three Months Ended
April 3, 1999 and April 4, 1998.....................................................................4
Statements of Cash Flows for the Three Months Ended
April 3, 1999 and April 4, 1998.....................................................................5
Notes to Financial Statements...........................................................................6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS...................................................................6
PART II. OTHER INFORMATION
Signature...............................................................................................10
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2
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PART I
ITEM 1. FINANCIAL STATEMENTS
WELCOME HOME, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
April 3, December
1999 31, 1998
------------- -------------
(Unaudited) (Audited)
---------------------------
(in thousands of dollars
except share data)
- --------------------------------------------------------------------------------- ---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 673 $ 784
Inventories 11,981 11,352
Due from affiliates 531 530
Prepaid and other assets 103 66
- --------------------------------------------------------------------------------- ------------- -------------
Total Current Assets 13,288 12,732
Property & equipment, net 4,417 4,769
Other assets 270 276
- --------------------------------------------------------------------------------- ------------- -------------
Total Assets $ 17,975 $ 17,777
================================================================================= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 654 $ 1,191
Notes payable - line of credit 8,838 6,154
Accounts payable 1,397 715
Accounts payable to affiliates 1,891 2,409
Accrued expenses 2,959 4,010
Accrued restructuring charges 324 447
- --------------------------------------------------------------------------------- ------------- -------------
Total Current Liabilities 16,063 14,926
Note payable to Jordan Industries 800 -
- --------------------------------------------------------------------------------- ------------- -------------
Total liabilities 16,863 14,926
Shareholders' equity:
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 20,790 20,790
Retained deficit (14,878) (13,139)
- --------------------------------------------------------------------------------- ------------- -------------
Subtotal 5,997 7,736
Less treasury stock, at cost
(1,046,385 shares) 4,885 4,885
- --------------------------------------------------------------------------------- ------------- -------------
Total Shareholders' Equity 1,112 2,851
- --------------------------------------------------------------------------------- ------------- -------------
Total Liabilities and Shareholders' Equity $ 17,975 $ 17,777
================================================================================= ============= =============
See Notes to Financial Statements
3
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
Three Months Ended
April 3, April 4,
1999 1998
------------- -------------
(in thousands of dollars
except per share data)
- --------------------------------------------------------------------------------- ---------------------------
Net Sales $ 9,459 $ 9,607
Cost of sales 5,247 5,799
- --------------------------------------------------------------------------------- ------------- -------------
Gross margin 4,212 3,808
Selling, general and administrative expenses
(excluding depreciation) 5,178 5,038
Depreciation 516 545
- --------------------------------------------------------------------------------- ------------- -------------
Operating loss (1,482) (1,775)
Interest expense - Jordan Industries 10 38
Interest expense - other 194 197
Other expense 3 -
- --------------------------------------------------------------------------------- ------------- -------------
Loss before bankruptcy reorganization costs
and income taxes (1,689) (2,010)
Bankruptcy reorganization costs 35 300
- --------------------------------------------------------------------------------- ------------- -------------
Loss before provision for income taxes (1,724) (2,310)
Provision for income taxes 15 15
- --------------------------------------------------------------------------------- ------------- -------------
Net loss $ (1,739) $ (2,325)
================================================================================= ============= =============
Net loss available to common shareholders $ (1,739) $ (2,435)
================================================================================= ============= =============
Basic and diluted loss per common share $ (0.23) $ (0.33)
================================================================================= ============= =============
Weighted average common shares outstanding (in thousands) 7,454 7,454
================================================================================= ============= =============
See Notes to Financial Statements
4
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
Three Months Ended
April 3, April 4,
1999 1998
---------------------------
(in thousands of dollars
except per share data)
- --------------------------------------------------------------------------------- ---------------------------
Cash flows from operating activities:
Net loss $ (1,739) $ (2,325)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 516 545
Changes in operating assets and liabilities:
Due from affiliates (1) -
Inventories (629) (6)
Prepaid expenses and other assets (31) (13)
Accounts payable 145 (809)
Payables to affiliates (518) 1,020
Accrued liabilities (1,174) (636)
- --------------------------------------------------------------------------------- ------------- -------------
Net cash used in operating activities (3,431) (2,224)
- --------------------------------------------------------------------------------- ------------- -------------
Cash flows used in investing activities:
Capital expenditures (164) (90)
- --------------------------------------------------------------------------------- ------------- -------------
Net cash used in investing activities (164) (90)
- --------------------------------------------------------------------------------- ------------- -------------
Cash flows from financing activities:
Proceeds from advances from Jordan Industries 800 -
Repayment of advances from Jordan Industries - (326)
Proceeds from line of credit 13,535 12,565
Repayments - line of credit (10,851) (9,912)
- --------------------------------------------------------------------------------- ------------- -------------
Net cash provided by financing activities 3,484 2,327
- --------------------------------------------------------------------------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents (111) 13
Cash and cash equivalents at beginning of period 784 845
- --------------------------------------------------------------------------------- ------------- -------------
Cash and cash equivalents at end of period $ 673 $ 858
================================================================================= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - Jordan Industries $ 3 $ 38
================================================================================= ============= =============
Interest - third party $ 24 $ 189
================================================================================= ============= =============
</TABLE>
See Notes to Financial Statements
5
<PAGE>
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
The financial statements have been prepared by Welcome Home, Inc. (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 financial statements should be read in conjunction with the
audited financial statements included in the Company's Annual Report on Form
10-K for the year ended December 31,1998.
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 1998 amounts have been reclassified to conform with the 1999
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 3, 1999 are not
necessarily indicative of annual results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
GENERAL
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 of $20.34 for the quarter
ended April 3, 1999, as compared to $17.31 for the quarter ended April 4, 1998.
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.
On September 28, 1998, the United States Bankruptcy Court for the Southern
District of New York approved a Plan of Reorganization (the "Plan") for Welcome
Home. The Plan became effective on November 2, 1998 and Jordan Industries
purchased the secured and unsecured claims amounting to approximately $6.9
million (excluding all Jordan Industries and Cape Craftsmen claims) for
approximately $1.1 million. The Plan also provided that shareholders of the
Company would receive shares of a new class of common stock of Welcome Home
("New Common Stock") on a prorated basis. The 500,000 shares of New Common Stock
is being distributed to owners of Welcome Home's old Common Stock based on the
shareholders' percentage of total old Common Stock outstanding excluding old
Common Stock held by Jordan Industries.
6
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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:
Three Months Ended
April 3, April 4,
1999 1998
------------- -------------
Net sales 100.0% 100.0%
Cost of sales 55.5 60.4
Gross profit 44.5 39.6
Selling, general and administrative
expenses (excluding depreciation) 54.7 52.4
Depreciation 5.5 5.7
Operating loss (15.7) (18.5)
Interest expense 2.2 2.4
Bankruptcy reorganization costs 0.4 3.1
Provision for income taxes 0.2 0.2
Net loss (18.4%) (24.2%)
OPERATING STATISTICS:
Stores open at period end 120 120
Total square feet of store space at
period end (in thousands) 337 337
Percentage increase (decrease) in
comparable store sales (2.1) 9.9
THREE MONTHS ENDED APRIL 3, 1999 AS COMPARED TO THREE MONTHS ENDED APRIL 4, 1998
NET SALES. Net sales for the three months ended April 3, 1999 decreased by $0.1
million or 1.5%, as compared to the three months ended April 4, 1998. This
decrease reflects a decline in comparable store sales of 2.1%. The Company
showed an increase in its average sales transaction to $20.39 for the quarter
ended April 3, 1999 compared to $17.28 for the quarter ended April 4, 1998 on
the same store basis.
GROSS PROFIT. Gross profit for the quarter ended April 3, 1999 increased $0.4
million, or 10.6%, as compared to the quarter ended April 4, 1998. Gross profit
as a percentage of sales increased to 44.5% from 39.6%, due primarily to lower
markdowns taken during the first quarter of 1999. The cost of markdowns
decreased by 13.9% to $0.8 million for the quarter ended April 3, 1999 compared
to $0.9 million for the quarter ended April 4, 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense for the quarter ended April 3, 1999 increased by $0.1 million, or 2.8%,
as compared to the quarter ended April 4, 1998, due primarily to additional
expenses at four new stores. In addition, selling, and administrative expense as
a percentage of net sales increased to 54.7% in the first quarter of 1999 as
compared to 52.4% in the first quarter of 1998. This decrease was due to the new
stores and a decrease in the Company's comparable store sales.
BANKRUPTCY REORGANIZATION COSTS. The Company recorded $0.3 million of bankruptcy
fees in the first quarter of 1998 and $35 thousand in 1999. These charges
represent the expenses associated with the Chapter 11 bankruptcy proceedings.
INTEREST EXPENSE - OTHER. Interest expense - other remained at $0.2 million for
the quarters ended April 3, 1999 and April 4, 1998.
7
<PAGE>
NET LOSS. The Company's net loss for the quarter ended April 3, 1999 was $1.7
million as compared to $2.3 million for the quarter ended April 4, 1998. The
decrease in net loss of $0.6 million was due to higher gross margin offset by
slightly higher selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
The Company had $2.8 million working capital deficit at April 3, 1999 as
compared to $2.2 million deficit at December 31, 1998. The decrease in working
capital was due primarily to an increase in notes payable - line of credit
offset by a decrease in accrued expenses.
The Company expects to satisfy its anticipated demands and commitments for cash
in the next 12 months primarily from borrowings under its credit facility with
Fleet Capital Corporation. The terms of this facility are as follows:
o Borrowing base of $15.0 million
o Commencing on October 29, 1998 until October 29, 2003
o Secured by substantially all assets of the Company
o Interest calculated at 1 1/4% above prime.
The Company signed a commitment to enter into an $800 thousand Promissory Note
with Jordan Industries that bears interest at 8.5%. The note calls for monthly
payments of interest only through April 30, 2000, and commencing on May 1, 2000,
the Company shall pay monthly payments of $66,667 plus accrued interest until
paid in full. Welcome Home received the funds for this Promissory Note on
February 11, 1999, of which the entire amount is still outstanding.
NET OPERATING LOSS CARRYFORWARDS AND DEFERRED TAX ASSETS
At December 31,1998, the Company had approximately $26.7 million of net
operating loss carryforwards for Federal income tax purposes ("NOL's"). Due to
the uncertainty of generating future taxable income, management believes it is
appropriate to fully reserve the deferred tax asset.
YEAR 2000
The past practice of computer programs being written using two digits rather
than four to define the applicable year has resulted in the "Year 2000 Issue."
Any of the Company's computer programs or hardware that has date sensitive
software or embedded chips may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in a system failure or
miscalculations causing disruptions of operations or a temporary inability to
engage in normal business activities. In response to this issue, the Company
developed a Year 2000 Task Force ("Task Force") whose project scope included the
assessment and ongoing monitoring of all information technology computer
hardware and software and non-information technology equipment affected by the
Year 2000 Issue. The Company's plan to resolve the Year 2000 Issue involves the
following four phases: assessment, remediation, testing and implementation.
The Company's information technology infrastructure consists primarily of
externally developed software running in a mainframe environment. The Company
also has a network of personal computers, through local area networks. The local
area networks of personal computers and related software are substantially Year
2000 compliant.
The Company's information technology mainframe software applications that
support its critical processes have been remediated, tested and determined to be
Year 2000 compliant. However, the ultimate effectiveness of the information
technology will be unknown until January 1, 2000, and there is no assurance that
there will not be a material adverse effect.
The Company has no significant single supplier, vendor or customer ("external
agents") that is critical to its ongoing operations. To date, the Company is not
aware of any external agent with a Year 2000 issue that would materially impact
the Company's results of operations, liquidity or capital resources. However,
the Company has no means of ensuring that external agents are Year 2000
compliant. The inability of external agents principally financial institutions,
insurance companies, energy suppliers and other third party employee benefit
related providers - to complete their Year 2000 resolution process in a timely
manner could materially impact the Company. The effect of non-compliance by
external agents in not determinable.
8
<PAGE>
The Company has and will continue to renovate, test and implement the software
and operating equipment for Year 2000 modifications. The total costs of the Year
2000 projects are estimated to be approximately $0.1 million. The results of
ongoing remediation and testing, however, could result in additional costs to
the Company.
Management of the Company believes it has an effective program in place to
resolve the impact of the Year 2000 issue in a timely manner and does not expect
the Year 2000 issue to have a material adverse effect on the Company . But, as
noted above, the Company has not yet completed the conversion of all information
technologies identified in its Year 2000 program. If the Company does not
complete any further Year 2000 work, the Company might be unable to effectively
account for or report its financial position and results of operations using its
current information technology. In addition, the ultimate effectiveness of the
remediated information technology will be unknown until January 1, 2000, and
there is no assurance that there will not be a material adverse effect. The
amount of the potential liability and lost revenue, if any, resulting from these
risks cannot be reasonably estimated at this time.
The Company currently has no formal contingency plans in place if it does not
complete all phases of the Year 2000 program. However, the progress of the Year
2000 program is being closely monitored, and additional measures will be taken
as risks are identified. The Company plans to evaluate the status of completion
in the first half of 1999 and determine whether such a plan is necessary.
FORWARD-LOOKING STATEMENTS
This Quarterly Report contains statements that constitute "forward-looking
statements" within the meaning of Section 27A of the Securities Act of 1933 and
Section 21E of the Securities Exchange Act of 1934. Investors are cautioned that
all forward-looking statements involve risks and uncertainties, including those
arising out of economic, climatic, political, regulatory, competitive and other
factors. The forward-looking statements in this document are intended to be
subject to the safe harbor protection provided by Sections 27A and 21E. For a
discussion identifying some important factors that could cause actual results to
vary materially from those anticipated in the forward-looking statements, see
the Company's filings with the Securities and Exchange Commission.
9
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<CAPTION>
PART II. OTHER INFORMATION
WELCOME HOME, INC.
<S> <C> <C>
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
</TABLE>
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, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922817
<NAME> WELCOME HOME, INC.
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> APR-03-1998
<PERIOD-END> APR-03-1999
<CASH> 673
<SECURITIES> 0
<RECEIVABLES> 531
<ALLOWANCES> 0
<INVENTORY> 11,981
<CURRENT-ASSETS> 10,288
<PP&E> 10,523
<DEPRECIATION> 9,106
<TOTAL-ASSETS> 17,975
<CURRENT-LIABILITIES> 16,063
<BONDS> 0
0
0
<COMMON> 85
<OTHER-SE> 1,027
<TOTAL-LIABILITY-AND-EQUITY> 17,975
<SALES> 9,459
<TOTAL-REVENUES> 9,459
<CGS> 5,247
<TOTAL-COSTS> 5,694
<OTHER-EXPENSES> 38
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 204
<INCOME-PRETAX> (1,724)
<INCOME-TAX> 18
<INCOME-CONTINUING> (1,739)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,739)
<EPS-PRIMARY> (0.23)
<EPS-DILUTED> (0.23)
</TABLE>
