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 01, 2000.
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.
(Exact name of Registrant as specified in its Charter)
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 Executive Offices) (Zip Code)
(910) 791-4312
(Registrant's Telephone Number, Including Area Code)
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 ( )
As of May 15, 2000, there were 9,000,000 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 Sections 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 ( )
<PAGE>
INDEX
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Balance Sheets as of April 1, 2000 and December 31, 1999......................3
Statements of Operations for the Three Months Ended
April 1, 2000 and April 3, 1999...........................................4
Statements of Cash Flows for the Three Months Ended
April 1, 2000 and April 3, 1999...........................................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
2
<PAGE>
PART I
ITEM 1. FINANCIAL STATEMENTS
WELCOME HOME, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
April 1, December
2000 31, 1999
------------- -------------
(Unaudited) (Audited)
---------------------------
(in thousands of dollars
except share data)
- --------------------------------------------------------------------------------- ---------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 1,157 $ 550
Inventories 13,317 11,479
Prepaid and other assets 419 409
- --------------------------------------------------------------------------------- ------------- -------------
Total Current Assets 14,893 12,438
Property & equipment, net 3,531 3,726
Other assets 259 264
- --------------------------------------------------------------------------------- ------------- -------------
Total Assets $ 18,683 $ 16,428
================================================================================= ============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 604 $ 792
Note payable - line of credit 8,313 4,287
Note payable to Jordan Industries 733 533
Accounts payable 1,102 362
Accounts payable to affiliates 2,486 2,375
Accrued expenses 3,020 3,615
Accrued restructuring charges 126 126
- --------------------------------------------------------------------------------- ------------- -------------
Total Current Liabilities 16,384 12,090
Note payable to Jordan Industries 67 267
- --------------------------------------------------------------------------------- ------------- -------------
Total liabilities 16,451 12,357
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 - -
New common stock, $0.01 par value;
10,000,000 shares authorized; 9,000,000 shares issued & outstanding 90 90
Additional paid-in capital 15,900 15,900
Retained deficit (13,758) (11,919)
- --------------------------------------------------------------------------------- ------------- -------------
Total Shareholders' Equity 2,232 4,071
- --------------------------------------------------------------------------------- ------------- -------------
Total Liabilities and Shareholders' Equity $ 18,683 $ 16,428
================================================================================= ============= =============
</TABLE>
See Notes to Financial Statements
3
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 1, April 3,
2000 1999
------------- -------------
(in thousands of dollars
except per share data)
- --------------------------------------------------------------------------------- ---------------------------
<S> <C> <C>
Net Sales $ 9,250 $ 9,459
Cost of sales 5,035 5,247
- --------------------------------------------------------------------------------- ------------- -------------
Gross margin 4,215 4,212
Selling, general and administrative expenses
(excluding depreciation) 5,343 5,178
Depreciation 516 516
- --------------------------------------------------------------------------------- ------------- -------------
Operating loss (1,644) (1,482)
Interest expense - Jordan Industries 11 10
Interest expense - other 179 194
Other expense 3 3
- --------------------------------------------------------------------------------- ------------- -------------
Loss before bankruptcy reorganization costs
and income taxes (1,837) (1,689)
Bankruptcy reorganization costs - 35
- --------------------------------------------------------------------------------- ------------- -------------
Loss before provision for income taxes (1,837) (1,724)
Provision for income taxes 2 15
- --------------------------------------------------------------------------------- ------------- -------------
Net loss $ (1,839) $ (1,739)
================================================================================= ============= =============
Net loss available to common shareholders $ (1,839) $ (1,739)
================================================================================= ============= =============
Basic and diluted loss per common share $ (0.20) $ (0.19)
================================================================================= ============= =============
Weighted average common shares outstanding (in thousands) 9,000 9,000
================================================================================= ============= =============
</TABLE>
See Notes to Financial Statements
4
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
April 1, April 3,
2000 1999
---------------------------
(in thousands of dollars
except per share data)
- --------------------------------------------------------------------------------- ---------------------------
Cash flows from operating activities:
<S> <C> <C>
Net loss $ (1,839) $ (1,739)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 516 516
Changes in operating assets and liabilities:
Due from affiliates - (1)
Inventories (1,838) (629)
Prepaid expenses and other assets (5) (31)
Accounts payable 552 145
Payables to affiliates 111 (518)
Accrued liabilities (595) (1,174)
- --------------------------------------------------------------------------------- ------------- -------------
Net cash used in operating activities (3,098) (3,431)
- --------------------------------------------------------------------------------- ------------- -------------
Cash flows used in investing activities:
Capital expenditures (321) (164)
- --------------------------------------------------------------------------------- ------------- -------------
Net cash used in investing activities (321) (164)
- --------------------------------------------------------------------------------- ------------- -------------
Cash flows from financing activities:
Proceeds from advances from Jordan Industries - 800
Proceeds from line of credit 13,523 13,535
Repayments - line of credit (9,497) (10,851)
- --------------------------------------------------------------------------------- ------------- -------------
Net cash provided by financing activities 4,026 3,484
- --------------------------------------------------------------------------------- ------------- -------------
Net increase (decrease) in cash and cash equivalents 607 (111)
Cash and cash equivalents at beginning of period 550 784
- --------------------------------------------------------------------------------- ------------- -------------
Cash and cash equivalents at end of period $ 1,157 $ 673
================================================================================= ============= =============
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - Jordan Industries $ 17 $ 3
================================================================================= ============= =============
Interest - third party $ 169 $ 270
================================================================================= ============= =============
</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 U.S. Securities
and Exchange Commission (the "SEC"). 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 31,1999.
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 1999 amounts have been reclassified to conform with the 2000
presentation. Such reclassifications had no effect on previously reported net
loss or shareholders' equity.
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 1, 2000 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 119 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 $1,600, with an average sales transaction of $20.06 for the quarter
ended April 1, 2000, as compared to $20.34 for the quarter ended April 3, 1999.
6
<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:
Three Months Ended
April 1, April 3,
2000 1999
------------- -------------
Net sales 100.0% 100.0%
Cost of sales 54.4 55.5
Gross profit 45.6 44.5
Selling, general and administrative
expenses (excluding depreciation) 57.8 54.7
Depreciation 5.6 5.5
Operating loss (17.8) (15.7)
Interest expense 2.1 2.2
Bankruptcy reorganization costs 0.0 0.4
Provision for income taxes 0.0 0.2
Net loss (19.8)% (18.4)%
OPERATING STATISTICS:
Stores open at period end 119 120
Total square feet of store space at
period end (in thousands) 336 337
Percentage decrease in
comparable store sales (3.1) (2.1)
THREE MONTHS ENDED APRIL 1, 2000 AS COMPARED TO THREE MONTHS ENDED APRIL 3, 1999
NET SALES. Net sales for the three months ended April 1, 2000 decreased by $0.2
million or 2.3%, as compared to the three months ended April 3, 1999. This
decrease reflects a decline in comparable store sales of 3.1%. The Company
showed a decrease in its average sales transaction to $20.18 for the quarter
ended April 1, 2000 compared to $20.42 for the quarter ended April 3, 1999 on
the same store basis. This comparable store sales decline and the decline in
average sales transaction was due primarily to the shift of Easter sales from
March in 1999 to April in 2000.
GROSS PROFIT. Gross profit for the quarter ended April 1, 2000 increased $3
thousand, or 0.1%, as compared to the quarter ended April 3, 1999. Gross profit
as a percentage of sales increased to 45.6% from 44.5%, due primarily to lower
markdowns taken during the first quarter of 2000. The cost of markdowns
decreased by 9.2% to $0.7 million for the quarter ended April 1, 2000 compared
to $0.8 million for the quarter ended April 3, 1999.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and administrative
expense for the quarter ended April 1, 2000 increased by $0.2 million, or 3.2%,
as compared to the quarter ended April 3, 1999, due primarily to additional
expenses at six new stores. In addition, selling, and administrative expense as
a percentage of net sales increased to 57.8% in the first quarter of 2000 as
compared to 54.7% in the first quarter of 1999. This increase was due to the new
stores and a decrease in the Company's comparable store sales.
BANKRUPTCY REORGANIZATION COSTS. The Company recorded $35 thousand of bankruptcy
fees in the first quarter of 1999 and $0 in 2000. 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 1, 2000 and April 3, 1999.
NET LOSS. The Company's net loss for the quarter ended April 1, 2000 was $1.8
million as compared to $1.7 million for the quarter ended April 3, 1999.
7
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The Company had $1.5 million working capital deficit at April 1, 2000 as
compared to $0.3 million working capital at December 31, 1999. The increase in
working capital deficit was due primarily to an increase in notes payable - line
of credit offset by an increase in inventory.
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 31,1999, the Company had approximately $34.2 million of net
operating loss carryforwards for Federal and State income tax purposes
("NOL's"). Based on the uncertainty of future earnings, management believes it
is appropriate to fully reserve the deferred tax asset.
FORWARD-LOOKING STATEMENTS
This 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 report 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 other filings with the SEC and the discussion of "Business
Strategy" appearing in the Company's Annual Report on the Form 10-K for the year
ended December 31, 1999.
ITEM 3. QUANTITATIVE AND QUANTITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's income is affected by changes in short-term interest rates as a
result of its borrowings under its credit facility with Fleet Capital
Corporation. However, management believes that the Company's exposure to
short-term interest rate market risk, which is based on the United States prime
interest rate as it relates to its credit facility, is not material.
8
<PAGE>
PART II. OTHER INFORMATION
WELCOME HOME, INC.
ITEM 1. LEGAL PROCEEDINGS: NONE
ITEM 2 CHANGES IN SECURITIES AND USE OF PROCEEDS: 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: Financial Data Schedule, Exhibit 27.
(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, 2000
9
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922817
<NAME> WELCOME HOME, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-END> APR-1-2000
<CASH> 1,157
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 13,317
<CURRENT-ASSETS> 14,893
<PP&E> 14,633
<DEPRECIATION> 11,103
<TOTAL-ASSETS> 18,683
<CURRENT-LIABILITIES> 16,384
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 2,142
<TOTAL-LIABILITY-AND-EQUITY> 18,683
<SALES> 9,250
<TOTAL-REVENUES> 9,250
<CGS> 5,035
<TOTAL-COSTS> 5,858
<OTHER-EXPENSES> 3
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 190
<INCOME-PRETAX> (1,836)
<INCOME-TAX> 2
<INCOME-CONTINUING> (1,838)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1,838)
<EPS-BASIC> (0.20)
<EPS-DILUTED> (0.20)
</TABLE>
