UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 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 Executive Offices) (Zip Code)
(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 $500,000 as of March 29, 2000. Determination of affiliate status
for this purpose is not a determination of affiliate status for any other
purpose. As of March 29, 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 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
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INDEX
PART I
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Item 1. Business....................................................................................... 3
Item 2. Properties..................................................................................... 6
Item 3. Legal Proceedings.............................................................................. 6
Item 4. Submission of Matters to a Vote of Security Holders............................................ 6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters.......................... 7
Item 6. Selected Financial Data........................................................................ 8
Item 7 Management's Discussion and Analysis of Financial Condition and Results of Operations.......... 9
Item 7a. Qualitative and Quantitative Disclosures About Market Risk.....................................12
Item 8. Financial Statements and Supplemental Data.....................................................12
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure...........26
PART III
Item 10. Directors and Executive Officers of the Registrant.............................................26
Item 11. Executive Compensation.........................................................................27
Item 12. Security Ownership of Certain Beneficial Owners and Management.................................28
Item 13. Certain Relationships and Related Transactions.................................................29
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K...............................30
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PART I
ITEM 1. BUSINESS
GENERAL
Welcome Home, Inc., (the "Company" or "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
$1,500, with an average sales transaction for the year ended December 31, 1999
of approximately $20.52.
HISTORY
The predecessor to the Company was organized in 1966 as Cape Craftsmen, Inc.
("Cape Craftsmen"), a manufacturer, importer and distributor of a variety of
giftware including wood, ceramic, picture frames and brass items, and operated
its business through two divisions: the wholesale division (the "Wholesale
Division") and the retail division (the "Retail Division"). The business now
conducted by the Company was formerly the Retail Division, which began
operations in the mid 1970's. Cape Craftsmen was acquired in 1983 in a leveraged
buyout and was owned primarily by partners, principals and affiliates of the
Jordan Company (the "Jordan Group"). In November 1985, Cape Craftsmen filed for
bankruptcy protection pursuant to Chapter 11 of the United States Bankruptcy
Code (the "Bankruptcy Code") primarily due to a serious decline in the Wholesale
Division's sales. The Company emerged from Chapter 11 proceedings in 1989. In
1991, the Company was acquired by Jordan Industries, Inc. ("Jordan Industries"),
an affiliate of the Jordan Group and spun off the Wholesale Division, which
continues to operate under the name "Cape Craftsmen" and is owned by Jordan
Industries. The Company was renamed Welcome Home, Inc. on March 22, 1991.
Thereafter, the Company continued the business previously conducted by the
Retail Division.
From 1989 to 1995, the Company expanded from 45 to 215 stores and net sales
increased from $13.5 million to $93.2 million. In September 1994, the Company
completed an initial public offering of Common Stock (the "IPO"). The Company
sold 2.5 million shares in the IPO and used the proceeds to repay Welcome Home's
inter-company debt to Jordan Industries. During 1996 and 1997, however, the
Company curtailed its expansion into new markets, with only nine new store
openings during the period, and closed 100 stores. As a result, net sales
decreased to $62.6 million for 1997. The Company closed five stores and opened
three new stores during 1998. This reduced net sales to $54.3 million for 1998.
In order to restructure its financial obligations and to implement a strategy to
reverse declining operating results, the Company filed a voluntary petition for
relief under Chapter 11 of the Bankruptcy Code in January 1997. The resulting
Plan of Reorganization was confirmed in September 1998 and the Company emerged
from Chapter 11 Proceedings in June 1999. See "Item 3. Legal Proceedings".
BUSINESS STRATEGY
The Company's objective is to return to profitability by building upon its
position as a specialty retailer of home decor and gifts with a national
presence in both outlet malls and conventional malls. Through its direct
sourcing capabilities, Welcome Home offers a unique and often exclusive
collection of value priced, fashion forward accents and gifts for the home. This
attractive merchandise mix, accompanied by a friendly customer service oriented
environment, is expected to encourage repeat business as well as a constant flow
of new customers. To accomplish this objective, the Company's management team
has outlined a business strategy for 2000 and beyond which emphasizes the
following principles:
MARGIN BUILDING. Management believes the key to making Welcome Home a
profitable, growth-oriented company is margin building. During 1999, the Company
was able to increase its margins while continuing to offer Welcome Home
customers competitive pricing. This was accomplished in two ways: first, more
direct import buying from better sources, better price negotiation and better
product selection; second, identifying quality close out opportunities from
domestic sources that offered quick turnover potential at higher margins and
lower prices for customers.
APPROPRIATE MERCHANDISE MIX. During 2000, the Company will continue to
modify its merchandise assortment as management identifies new product lines
with long-term growth potential. By improving the mix and management of product
lines within its assortment plan, the Company will seek to maximize the
performance of each store.
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AGGRESSIVE MERCHANDISING AND STORE SIGNAGE. The success of the Company's
value pricing program that began in 1998 and continued in 1999, indicates that
customers are looking for value. The Company has positioned itself to appeal to
this market segment by introducing promotional tables and floor stacks of value
buys and calling attention to them with larger in-store signage. By the summer
of 2000, the Company will have remodeled 110 of its 119 stores. In all of these
stores the Company has replaced old fixtures with fixtures that provide
flexibility in showing much of the decorative accessory products now in its
inventory.
BUILDING THE WELCOME HOME BRAND. The Company continued to implement a number
of branding programs in 1999 designed exclusively for Welcome Home. Exclusive
Welcome Home merchandise achieves two things: first, it allows the Company to
price product based on its value and uniqueness; second, it encourages customers
to return to Welcome Home stores either to buy more of that unique Welcome Home
product or to see new Welcome Home products. Where appropriate, the Company will
create more exclusive Welcome Home products in 2000.
EVENT MARKETING. Again in 2000, creative events in the stores are expected
to be a key ingredient in driving sales. While the Company's major seasonal
business is Christmas, Welcome Home will also provide special products to create
events around Valentine's Day, Easter, Mother's Day, Father's Day, the Fourth of
July, Halloween and Thanksgiving. Management plans to have the Company's major
seasonal programs exclusively designed and packaged for Welcome Home so that the
merchandise will be truly unique in the marketplace. By creating weekly events
in the stores, management expects to encourage repeat business and thereby
increase net sales. The Company's advertising budget provides for participation
in mall coupon books, flyers distributed in the malls to highlight Welcome Home
values, limited local newspaper advertising and certain mailings with vendor
participation. Welcome Home will utilize all of these methods in 2000 in an
effort to attract the shopper who has come looking for value.
EFFECTIVE MANAGEMENT INFORMATION SYSTEMS. The Company has implemented a
fully integrated retail computer system consisting of inventory control,
purchase order management, accounting and general ledger systems This system is
currently in use in hundreds of retail chains across the United States and
Canada. The systems are designed to provide SKU-level perpetual inventory
tracking as well as SKU-level sales tracking. This "core" package was augmented
by the purchase of a decision support/marketing system that allows the
merchandising and advertising departments the ability to perform strategic
promotional advertising by gathering customer purchase information gleaned at
the point of sale.
TARGETED STORE GROWTH. As of December 31, 1999, the Company had 124 stores.
Four stores were closed in January 2000 and one store in February 2000, bringing
the current store count to 119. In 2000, the Company plans to expand the store
group into new conventional mall and outlet mall locations. Management also
believes that by moving some current fixturing and taking a low-cost approach to
opening these new stores, Welcome Home can accomplish two important goals:
first, add sales volume in 2000; and, second, continue the process of improving
the store portfolio.
PURCHASING AND DISTRIBUTION
The Company maintains its own central buying staff, comprised of four senior
buyers. Management believes that this centralized purchasing function provides
the Company with better control of its inventory and positions it to negotiate
cost concessions from vendors. These buyers are responsible for identifying home
fashion trends and making sure that the Company's merchandise assortment is
current. These buyers are also responsible for designing and developing
proprietary merchandise.
The Company purchases its merchandise from over 75 suppliers. In 1999, the
Company's largest supplier accounted for approximately 57% of the Company's
merchandise purchases and the Company's ten largest suppliers accounted for
approximately 77% of such purchases. The Company has no long-term contracts for
the purchase of merchandise. Although the Company's sales are not dependent on
any single supplier, there can be no assurance that the Company's operating
results would not be adversely affected if any of its ten largest suppliers were
unable to continue to fill the Company's orders for such supplier's products.
Approximately 70% - 80% of the Company's merchandise is sourced from
distributors purchasing abroad. Although the Company believes that it has
established close relationships with its principal foreign manufacturing
sources, the Company's future success will depend in some measure upon its
ability to maintain such relationships. The Company believes that no foreign
supplier offers such unique product that it could not be replaced, after
temporary shortages, with merchandise from other foreign or domestic suppliers.
The Company currently maintains multiple suppliers for each foreign and domestic
product category.
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The Company's distribution center, located in Wilmington, North Carolina, is
used to temporarily warehouse merchandise, where it is broken down into
individual store orders and shipped directly to store locations. Approximately
33% of the total merchandise mix flows through the Wilmington distribution
center and is currently being shipped to the stores on a weekly basis. The
distribution center is also used to assemble merchandise that is shipped to new
stores for initial stocking upon their opening. Otherwise, all domestically
sourced inventory is shipped directly to the stores. This strategy avoids
incremental costs associated with maintaining inventory on a centralized basis.
MANAGEMENT
At all store locations, there is a store manager and an assistant store
manager. Depending on the size and sales volume, the store may have one to four
additional sales clerks. The store manager is responsible for the overall
management and maintenance of the store including sales and receipt of
merchandise, record-keeping and reporting, displays, customer service and
security. The assistant store manager is equally trained in all of these areas.
The store manager reports to a district manager. On average, each district
manager has responsibility for 13 stores. As of December 31, 1999 , the Company
had nine district managers.
EMPLOYEES
As of December 31, 1999, the Company had 288 full-time and 635 part-time
employees. 145 employees are in managerial positions, with 19 at the central
office, and the remainder in store operations. As of December 31, 1999, the
labor force in store operations consisted of 888 people, including nine district
managers, 126 store managers, 118 assistant store managers and 635 hourly,
part-time sales clerks and cashiers. None of the Company's employees are covered
by collective bargaining agreements. The Company believes that the dedication of
its employees is critical to its retailing success, and that its relations with
employees are excellent.
COMPETITION
Competition is highly intense among specialty retailers, traditional
department stores, mass merchant discounters and other high traffic retail
locations. The Company competes for customers principally on the basis of
product assortment, convenience, customer service, price and the attractiveness
of its stores. The Company also competes against other retailers for suitable
locations and qualified management personnel. Because of the seasonal nature of
its business, competitive factors are most important during the summer and
Christmas selling seasons.
The Company has limited competition with different types of retail stores
where some of the Company's products are offered. Many of these competitors have
substantially greater financial, marketing, advertising, store distribution and
other resources than the Company. The Company also believes that the dedication
of its employees and emphasis on customer service provides an important
competitive advantage for the Company.
SEASONALITY
The Company historically has experienced and expects to continue to
experience significant seasonal fluctuations in its net sales and net income.
The Company generally has experienced losses and relatively lower sales for the
first half of the calendar year as compared to the summer vacation season
through the Christmas holiday season. As a result, the Company's outstanding
borrowings under its line of credit have been significantly higher during the
year than at year end.
TRADE NAMES, SERVICE MARKS AND FRANCHISE AGREEMENTS
The Company generally uses the "Welcome Home" name as a trade name and as a
service mark in connection with retail services. In Northern California, the
Company uses the "Home Again" name as a trade name and service mark in
connection with retail services. The Company has registered the "Welcome Home"
and "Home Again" logos as service marks with the United States Patent and
Trademark office. Management believes that the names "Welcome Home" and "Home
Again", and growing customer recognition of these names, are important elements
of the Company's merchandising strategy.
The Company is not a party to any franchise agreements and does not intend
to enter into franchise relationships in the future.
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ITEM 2. PROPERTIES
The Company had 124 stores with 347,820 square feet as of December 31, 1999,
all of which are leased. In most cases, the Company pays a minimum fixed rent
plus a contingent rent based on net sales of the store in excess of a certain
threshold. Certain of the Company's store leases contain restrictive covenants
regarding, among other things, pricing and product offerings, none of which the
Company believes have or may have a material adverse effect on the way it
conducts its business. The Company currently expects that its policy of leasing
rather than owning will continue. The Company's leases generally provide for
original lease terms of five or ten years, with renewal options generally for an
additional five or seven years at moderately increased rents, generally based
upon consumer price indexes. Welcome Home was able to renegotiate most of these
leases during the Bankruptcy proceedings. These proceedings resulted in 38
assumed leases and 80 amended leases. Most of the amendments reduced the lease
term to a maximum of three years.
The Company's corporate headquarters, which is also leased, is located in
Wilmington, North Carolina and occupies 34,000 square feet, of which 24,000
square feet serves as a distribution center and 10,000 square feet serves as
office space. The central warehouse is used to temporarily store merchandise for
distribution and used to initially stock new stores upon their opening
The Company's mix of 124 stores at December 31, 1999 consisted of 31 stores
of less than 2,400 square feet, 34 stores of 2,400 - 2,800 square feet, 36
stores of 2,800 - 3,300 and 23 stores of 3,300 - 4,600 plus square feet.
ITEM 3. LEGAL PROCEEDINGS
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
were 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.
The Company is not involved in any other legal proceedings, which are
expected to have a material effect on the Company's results of operations or
financial condition, nor is it aware of any threatened litigation.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were voted upon during the fourth quarter of the year ended
December 31, 1999.
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PART II
ITEM 5 . MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The common stock is traded on the OTC Bulletin Board System operated by the
National Association of Securities Dealers, Inc. As of March 20, 1999 there were
approximately 60 holders of record of the Company's common stock. The Company
believes that the number of beneficial holders of its common stock is
substantially higher. The following table sets forth the high and low bid prices
of the Company's common stock for each quarter in the two year period ended
December 31, 1999. These quotations reflect inter-dealer prices, without retail
markup, markdown or commission and may not necessarily represent actual
transactions.
First Second Third Fourth
Quarter Quarter Quarter Quarter
1999:
High bid $ .75 $ .19 $ ** $ **
Low bid $ .05 $ .04* $ ** $ **
1998:
High bid $ .40 $ .19 $ .19 $ .22
Low bid $ .03 $ .03 $ .11 $ .13
*The "Old Common Stock" traded under the symbol "WELC" until July 16, 1999. The
"New Common Stock" trades under the symbol "WHMI".
**The Company has not been able to obtain reliable prices during these periods
due to the stock conversion.
The Company has not paid dividends since its initial public offering, and
does not anticipate paying dividends in the foreseeable future.
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ITEM 6. SELECTED FINANCIAL DATA
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Year Ended December 31
----------------------------------------------------------------------
1999 1998 1997 1996 1995
- ---------------------------------------------------------------------------------------------------------------------
(in thousands except per share data)
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Net sales $ 56,574 $ 54,254 $ 62,590 $ 81,855 $ 93,166
Gross profit 26,448 24,000 23,817 33,121 35,662
Selling, general and administrative expenses
(excluding depreciation) 22,200 20,795 25,397 38,757 36,586
Restructuring charges - - - 8,106 5,913
Other non-recurring charges - 476 - - 1,016
Operating income (loss) 2,284 537 (3,765) (15,838) (9,974)
Interest expense - Jordan Industries 61 99 234 323 655
Interest expense - other 848 885 1,162 1,552 865
Bankruptcy reorganization costs (credits) 140 (14,750) 1,130 - -
Provision (benefit) for income taxes (1) 5 60 - 2,185 (1,190)
Net income (loss) $ 1,220 $ 14,234 $ (6,266) $ (20,339) $(10,449)
Basic and diluted income (loss) per common share (2) $ 0.14 $ 1.54 $ (0.75) $ (2.27) $ (1.16)
Weighted average number of common shares
outstanding (2) 9,000 9,000 9,000 9,000 9,000
SELECTED OPERATING DATA:
Stores opened during the period 6 3 0 9 39
Stores closed during the period 4 5 62 38 13
Number of stores open at period end 124 122 124 186 215
Total square feet of store space (in thousands) 348 343 350 514 587
Sales per average square foot of total store space (3) $ 163 $ 158 $ 158 $ 144 $ 177
Percentage increase (decrease) in
comparable store sales (4) 2.2% (1.6%) 2.4% (15.7)% (8.1)%
OTHER OPERATING DATA:
Capital expenditures $ 921 $ 498 $ 134 $ 1,638 $ 5,021
Depreciation 1,964 2,192 2,185 2,096 2,121
BALANCE SHEET DATA:
Working capital (deficiency) $ 348 $ (2,194) $ (25,084) $(18,972) $(2,154)
Total assets 16,428 17,777 18,668 26,314 29,176
Total debt 5,087 6,154 7,556 15,869 11,029
Shareholders' equity (deficiency) 4,071 2,851 (18,527) (12,236) 3,627
</TABLE>
(1) Reflects only state income taxes as the Company and Jordan
Industries had Federal net operating loss carryforwards during
these periods. See Note 7 to the Financial Statements.
(2) Reflects weighted average outstanding shares retroactively adjusted
to reflect the reverse 4.9828 for 1 stock split in 1999 in
association with the issuance of the "New Common Stock."
(3) Calculated by dividing the net sales for the period by the average
square feet of total store space. The amounts have not been
adjusted for the seasonal nature of the Company's sales or for the
impact of opening stores in different periods each year.
(4) Calculated using net sales of stores which have been open during at
least one full calendar year.
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ITEM 7. 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 119 stores located primarily in factory
outlet centers in 36 states. Welcome Home's products, which currently range in
price up to $1,500, cover a broad product line of 1,500 to 2,500 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. The Company's average
sales transaction was approximately $20.52 for the year ended December 31, 1999
as compared to $19.08 for the year ended December 31, 1998.
During the fourth quarter of 1995 and continuing in 1996, the Company
planned and implemented a series of strategic restructuring initiatives designed
to improve profitability and better position the Company. The major elements of
these initiatives included a change in the Company's merchandising strategy and
the liquidation of merchandise which is not consistent with that strategy,
closing unprofitable stores, and strengthening the Company's information systems
as necessary to successfully implement the above strategies. The Company
recorded an $8.1 million restructuring charge in 1996 and a $5.9 million
restructuring charge in 1995 for the cost of these initiatives.
As of December 31, 1998, accrued restructuring charges consisted of
severance for a former employee and estimated costs of closing non-profitable
stores. The decrease in the restructuring accrual during 1998 is related
primarily to the bankruptcy proceedings and severance payments to a former
executive. The company has remaining accrued restructuring charges as of
December 31, 1999 of $126 thousand consisting of estimated costs of closing
non-profitable stores in 2000. The decrease in the restructuring accrual during
1999 is related to severance payments to a former executive and store closing
expenses.
On January 21, 1997, the Company filed a voluntary petition for relief under
Chapter 11 of the Bankruptcy Code. In connection with this bankruptcy
proceeding, management closed 38 non-profitable stores in 1996, 62
non-profitable stores in 1997 and five non-profitable stores in 1998. The
Bankruptcy Court granted a request by Welcome Home to emerge from the Chapter 11
proceeding on May 19, 1999 and a formal order of closure was issued on July 21,
1999. See "Item 3. Legal Proceedings." The Company also closed four stores in
1999, closed four store in January 2000, closed one store in February 2000,
opened three new stores in 1998 and opened six new stores in 2000, bringing it
to a core group of 119 stores.
Approximately 70% - 80% of the Company's merchandise is sourced overseas.
These imports are purchased with U.S. dollars and therefore the Company does not
engage in any foreign currency hedging activities. Also, of the 124 stores open
at December 31, 1999, none were located in a foreign country. Therefore, any
exposure to foreign currency exchange rate risks are minimal and are immaterial
to the Company's financial statements.
RESULTS OF OPERATIONS
The following table sets forth certain selected income statement data of the
Company expressed as a percentage of net sales:
1999 1998 1997
---- ---- ----
Net Sales 100.0% 100.0% 100.0%
Cost of Sales 53.3 55.8 61.9
Gross Profit 46.7 44.2 38.1
Selling, General, and Administrative Expenses
(Excluding Depreciation) 39.2 38.3 40.6
Other Non-recurring Charges - 0.9 -
Operating Income (Loss) 4.0 1.0 (6.0)
Interest Expense 1.6 1.8 2.2
Bankruptcy Reorganization Costs (Credits) 0.2 27.2 1.8
Provision (Benefit) For Income Taxes 0.0 0.1 -
Net Income (Loss) 2.2% 26.2% (10.0)%
1999 AS COMPARED WITH 1998
NET SALES. Net sales for 1999 increased by $2.3 million, or 4.3%, as
compared to 1998. This increase reflects an increase in average number of stores
opened for 1999 of 122 as compared to 120 in 1998. Net sales on a comparable
store basis increased by $1.2 million, or 2.2%. The increase in comparable store
sales is attributed to an increase in the average sale per transaction. Despite
a 3.1% decline in the Company's number of sales transactions on a same store
basis in 1999, the Company increased its average sales transaction to $20.43 in
1999, compared to $19.36 in 1998 on a same
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store basis.
GROSS PROFIT. Gross profit for 1999 increased $2.4 million, or 10.2%, as
compared to 1998. Gross profit as a percentage of sales increased to 46.7% in
1999 from 44.2% in 1998, due primarily lower markdowns as a percentage of sales
and higher initial markups on import products. The cost of markdowns remained
the same at $4.0 million for 1999 and 1998. But the markdowns as a percentage of
sales decreased to 7.1% in 1999 compared to 7.4% in 1998.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1999 increased by $1.4 million, or 6.8%, as compared
to 1998, largely as a result of the Company's new store openings. In addition,
selling, and administrative expense as a percentage of net sales increased to
39.2% in 1999 as compared to 38.3% in 1998. This increase was due to store
expenses of $18.3 million in 1999 as compared to $17.0 million in 1998. The
increase in store expenses was due primarily to increased payroll costs and
increased costs for rent.
INTEREST EXPENSE - JORDAN INDUSTRIES. Interest expense to Jordan Industries
remained the same at $0.1 million in 1999.
INTEREST EXPENSE - OTHER. Interest expense - other remained relatively
consistent at $0.8 million in 1999 and $0.9 million 1998. See Note 6 of the
Financial Statements.
BANKRUPTCY REORGANIZATION COSTS (CREDITS). The Company recorded $14.8
million of bankruptcy reorganization credits in 1998 compared to $0.1 million of
bankruptcy reorganization costs in 1999. These credits represent the adjustments
to the pre-petition liabilities in accordance with the provisions of the Plan,
netted against $1.0 million of reorganization costs.
NET INCOME (LOSS). The Company's net income for 1999 was $1.2 million, as
compared to net income of $14.2 million in 1998. The decrease in net income of
$13.0 million was primarily due to the bankruptcy reorganization credits.
1998 AS COMPARED WITH 1997
NET SALES. Net sales for 1998 decreased by $8.3 million, or 13.3%, as
compared to 1997. This decrease reflects a decline in average number of stores
opened for 1998 of 120 as compared to 142 in 1997. Net sales on a comparable
store basis decreased by $0.9 million, or 1.6%. The decrease in comparable store
sales is attributed to a sales decline in the outlet malls of 2.9% on a
comparable store basis. Despite a 4.9% decline in the Company's number of sales
transactions on a same store basis in 1998, the Company increased its average
sales transaction to $19.09 in 1998, compared to $18.45 in 1997 on a same store
basis.
GROSS PROFIT. Gross profit for 1998 increased $0.2 million, or 0.8%, as
compared to 1997. Gross profit as a percentage of sales increased to 44.2% in
1998 from 38.1% in 1997, due primarily to markdowns taken during the first seven
months of 1997 on inventory items sold in "Going Out of Business" sales in the
stores that were closed. The cost of markdowns decreased to $4.0 million in 1998
from $6.2 million in 1997.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for 1998 decreased by $4.6 million, or 18.1%, as compared
to 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 38.3% in 1998 as compared to 40.6% in 1997. This decrease was due
to home office expenses of $3.8 million in 1998 as compared to $4.5 million in
1997. The decrease in home office expenses was due primarily to decreased
payroll costs for corporate office personnel associated with a corporate layoff
necessitated by the Company's closing of 62 stores in 1997 and 38 stores in
1996.
INTEREST EXPENSE - JORDAN INDUSTRIES. Interest expense to Jordan Industries
decreased from $0.2 million in 1997 to $0.1 million in 1998 primarily as a
result of the reduction in the borrowings by the Company with Jordan Industries.
INTEREST EXPENSE - OTHER. Interest expense - other decreased from $1.2
million in 1997 to $0.9 million in 1998 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. See Note 6 of
the Financial Statements.
BANKRUPTCY REORGANIZATION COSTS (CREDITS). The Company recorded $14.8
million of bankruptcy reorganization credits in 1998 compared to $1.1 million of
bankruptcy reorganization costs in 1997. These credits represent the adjustments
to the pre-petition liabilities in accordance with the provisions of the Plan,
netted against $1.0 million of reorganization costs.
10
<PAGE>
NET INCOME (LOSS). The Company's net income for 1998 was $14.2 million, as
compared to a net loss of $6.3 million in 1997. The increase in net income of
$20.5 million was primarily due to the bankruptcy reorganization credits.
LIQUIDITY AND CAPITAL RESOURCES
The Company had a $0.3 million working capital at December 31, 1999 compared
to a $2.2 million deficiency at December 31, 1998. The increase in working
capital was due primarily to the reduction in the notes payable line of credit
of $1.9 million, the reduction of $0.7 million for accrued expenses and the
reduction in accounts payable of $0.8 million offset by the increase in notes
payable to Jordan Industries of $0.5 million.
The Company's net cash provided by operating activities for the year ended
December 31, 1999 was $1.8 million as compared to net cash used in operating
activities of $0.8 million for the fiscal year ended December 31, 1998. The
change was primarily due to net income in 1999 of $1.2 million as compared to a
loss of $1.5 million prior to considering adjustments to pre-petition
liabilities in 1998. The net cash used in investing activities for the year
ended December 31, 1998, was $0.5 million as compared to $0.9 million for the
same period in 1999, due to higher capital expenditures. The net cash provided
by financing activities for the year ended December 31, 1998, was $1.2 million
as compared to net cash used of $1.1 million for the same period in 1999 due to
net repayments of $1.9 million under the credit facility in 1999 compared to net
borrowings of $0.2 million in 1998.
The Company expects to satisfy its anticipated demands and commitments for
cash in the next 12 months primarily from operating activities and borrowings
under its credit facility with Fleet Capital Corporation. The terms of this
facility are as follows:
o Borrowing base of $15.0 million of which $4.3 million was outstanding as
of December 31, 1999.
o Commencing on October 29, 1998 and continuing until October 29, 2003.
o Secured by substantially all assets of the Company.
o Interest calculated at 1 1/4% above prime.
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 income tax purposes ("NOL's"). See Note
7 of the Financial Statements.
YEAR 2000
The company successfully completed the conversion of its information
technology computer hardware and software and its non-information technology
equipment to enable effective functioning on and after January 1, 2000. The
total costs for the year 2000 system conversion were $0.1 million.
IMPACT OF INFLATION
General inflation has had only a minor effect on the operations of the
Company and its internal and external sources for liquidity and working capital.
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 report 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 U.S. Securities and Exchange Commission and the
discussion of "Business Strategy" appearing elsewhere in this report.
11
<PAGE>
ITEM 7A. QUALITATIVE 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.
As noted in Item 7, exposure to foreign currency exchange rate risks are
considered minimal.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
<TABLE>
<CAPTION>
Index to Financial Statements Page
<S> <C>
Balance Sheets at December 31, 1999 and 1998............................................................13
Statements of Operations for the Years Ended December 31, 1999, 1998 and 1997...........................14
Statements of Cash Flows for the Years Ended December 31, 1999, 1998 and 1997...........................15
Statements of Shareholders' Equity (Deficiency) for the Years Ended December 31, 1999,
1998 and 1997..................................................................................16
Notes to Financial Statements...........................................................................17
Report of Independent Auditors..........................................................................25
</TABLE>
12
<PAGE>
WELCOME HOME, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
At December 31,
1999 1998
- ----------------------------------------------------------------------------------------------------------
(in thousands of dollars
except share data)
- ----------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 550 $ 784
Inventories 11,479 11,352
Due from affiliates - 530
Prepaid and other assets 409 66
- ----------------------------------------------------------------------------------------------------------
Total Current Assets 12,438 12,732
Property & equipment, net 3,726 4,769
Other assets 264 276
- ----------------------------------------------------------------------------------------------------------
Total Assets $16,428 $17,777
==========================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Bank overdraft $ 792 $1,191
Notes payable - line of credit 4,287 6,154
Note payable to Jordan Industries 533 -
Accounts payable 362 715
Accounts payable to affiliates 2,375 2,409
Accrued expenses 3,615 4,010
Accrued restructuring charges 126 447
- -----------------------------------------------------------------------------------------------------------
Total Current Liabilities 12,090 14,926
Note payable to Jordan Industries 267 -
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
New common stock, $0.01 par value;
10,000,000 shares authorized; 9,000,000 shares issued & outstanding 90 -
Additional paid-in capital 15,900 20,790
Retained deficit (11,919) (13,139)
- -----------------------------------------------------------------------------------------------------------
Subtotal 4,071 7,736
Less treasury stock, at cost
(1,046,385 shares) - 4,885
- -----------------------------------------------------------------------------------------------------------
Total Shareholders' Equity 4,071 2,851
- -----------------------------------------------------------------------------------------------------------
Total Liabilities and Shareholders' Equity $16,428 $17,777
===========================================================================================================
</TABLE>
See Notes to Financial Statements
13
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
- -------------------------------------------------------------------------------------------------------------------
(in thousands of dollars except per share data)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net Sales $ 56,574 $54,254 $ 62,590
Cost of sales 30,126 30,254 38,773
- -------------------------------------------------------------------------------------------------------------------
Gross margin 26,448 24,000 23,817
Selling, general and administrative expenses
(excluding depreciation) 22,200 20,795 25,397
Other non-recurring charges - 476 -
Depreciation 1,964 2,192 2,185
- -------------------------------------------------------------------------------------------------------------------
Operating income (loss) 2,284 537 (3,765)
Interest expense -Jordan Industries 61 99 234
Interest expense - other 848 885 1,162
Other (income) expense 10 9 (25)
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before bankruptcy reorganization costs (credits)
and income taxes 1,365 (456) (5,136)
Bankruptcy reorganization costs (credits) 140 (14,750) 1,130
- -------------------------------------------------------------------------------------------------------------------
Income (loss) before provision for income taxes 1,225 14,294 (6,266)
Provision for income taxes 5 60 -
- -------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 1,220 $14,234 $ (6,266)
===================================================================================================================
Net income (loss) available to common shareholders $ 1,220 $13,900 $ (6,711)
===================================================================================================================
Basic and diluted income (loss) per common share $ 0.14 $ 1.54 $ (0.75)
===================================================================================================================
Weighted average common shares outstanding (in thousands) 9,000 9,000 9,000
===================================================================================================================
</TABLE>
See Notes to Financial Statements
14
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
- -----------------------------------------------------------------------------------------------------------------
(in thousands of dollars)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from operating activities:
<S> <C> <C> <C>
Net income (loss) $1,220 $14,234 $ (6,266)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation 1,964 2,192 2,185
Adjustments to pre-petition liabilities - (15,780) -
Other 10 476 (98)
Changes in operating assets and liabilities:
Due from affiliates 530 (530) -
Inventories (127) (457) 5,396
Prepaid expenses and other assets (341) 148 408
Accounts payable (752) 389 (560)
Accrued liabilities (716) (312) 2,428
Payables to affiliates (34) (1,154) 2,764
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 1,754 (794) 6,257
- -----------------------------------------------------------------------------------------------------------------
Cash flows used in investing activities:
Capital expenditures (921) (498) (134)
Other - (9) 122
- -----------------------------------------------------------------------------------------------------------------
Net cash used in investing activities: (921) (507) (12)
- -----------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Proceeds from advances from Jordan Industries 800 1,237 1,223
Repayment of advances from Jordan Industries - (1,237) (1,223)
Proceeds from line of credit 59,119 57,906 71,858
Repayments - line of credit (60,986) (57,712) (78,021)
Contributed capital - 1,059 -
Loan fees - line of credit - (50) -
Other - 37 (952)
- -----------------------------------------------------------------------------------------------------------------
Net cash (used in) provided by financing activities (1,067) 1,240 (7,115)
- -----------------------------------------------------------------------------------------------------------------
Net decrease in cash and cash equivalents (234) (61) (870)
Cash and cash equivalents at beginning of period 784 845 1,715
- -----------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 550 $ 784 $ 845
=================================================================================================================
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest - Jordan Industries $ 55 $ 99 $ 234
=================================================================================================================
Interest - third party $ 855 $ 885 $ 1,137
=================================================================================================================
</TABLE>
See Notes to Financial Statements
15
<PAGE>
WELCOME HOME, INC.
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIENCY)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1998 AND 1999
(in thousands of dollars)
<TABLE>
<CAPTION>
Series A
Redeemable Additional Retained
Preferred Preferred Common Paid-In Translation Earnings Treasury
Stock Stock Stock Capital Component (Deficit) Stock Total
- ----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1996 $ 4,510 $ - $ 85 $ 8,832 $ (12) $ (20,766) $(4,885) $(12,236)
Net loss - - - - - (6,266) - (6,266)
Translation component - - - - (25) - - (25)
Accrual of preferred stock
dividends in arrears 445 - - - - (445) - -
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 4,955 - 85 8,832 (37) (27,477) (4,885) (18,527)
Net income - - - - - 14,234 - 14,234
Translation component - - - - 37 - - 37
Accrual of preferred stock
dividends in arrears 334 - - - - (334) - -
Adjustment for bankruptcy
settlements (5,289) - - 11,958 - 438 - 7,107
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 - - 85 20,790 - (13,139) (4,885) 2,851
Issuance of new common stock
and cancellation of old
common stock - - 5 (4,890) - - 4,885 -
Net income - - - - - 1,220 - 1,220
- ----------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ - $ - $ 90 $ 15,900 $ - $ (11,919) $ - $ 4,071
============================================================================================================================
</TABLE>
See Notes to Financial Statements
16
<PAGE>
NOTES TO FINANCIAL STATEMENTS
1. CHAPTER 11 BANKRUPTCY PROCEEDINGS
On January 21, 1997, Welcome Home, Inc. (the "Company") filed a voluntary
petition for relief under Chapter 11 ("Chapter 11") of title 11 of the United
States Code in the United States Bankruptcy Court for the Southern District of
New York (the "Bankruptcy Court"). In Chapter 11, the Company managed its
affairs and operated its business as debtor-in-possession while it developed a
reorganization plan that restructured the Company and allowed its emergence from
Chapter 11. As a debtor-in-possession in Chapter 11, the Company was not allowed
to engage in transactions outside of the ordinary course of business without
approval, after notice and hearing, of the Bankruptcy Court. Liabilities subject
to compromise as a result of Chapter 11 primarily included unsecured trade
payables and those resulting from the rejection of executory contracts,
including leases.
On September 28, 1998, the Bankruptcy Court approved the Company's Plan of
Reorganization (The "Plan"). The Plan was previously approved by the impaired
pre-petition creditors and stockholders. Under the Plan, the Company is still a
majority-owned subsidiary of Jordan Industries, Inc. ("Jordan Industries"). Upon
its legal emergence from Chapter 11, Jordan Industries owns 8.5 million shares
of the Company, 0.5 million shares of the stock is being publicly traded and 1.0
million shares is reserved for future issuance. The 0.5 million shares of New
Common Stock were distributed on June 18, 1999 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. The Bankruptcy
Court granted a request by Welcome Home to emerge from the Chapter 11 proceeding
on May 19, 1999 and a formal order of closure was issued on July 21, 1999.
The accompanying financial statements have been prepared in accordance with
the provisions of Statement of Position 90-7 FINANCIAL REPORTING BY ENTITIES IN
REORGANIZATION UNDER THE BANKRUPTCY CODE ("SOP 90-7"). Under SOP 90-7,
adjustments to the pre-petition liabilities is appropriate as of the
confirmation date or as of a later date when all material conditions precedent
to the Plan's becoming binding are resolved. These conditions were met as of
November 15, 1998. Accordingly, the accounts affected by the Plan have been
adjusted in accordance with its provisions, which are as follows:
(i) Unsecured trade creditors, including landlords of rejected leases,
received $.12 per $1 of pre-petition claims. This settlement reduced
the pre-petition liability by $6.9 million.
(ii) There is a related party, through common ownership, that received no
payments for its unsecured claims, which totaled $9.9 million.
(iii) Outstanding preferred stock, including cumulative dividends, which
amounted to $5.3 million, were repurchased by the Company for $1.
(iv) Outstanding debt of approximately $5.6 million owed to Jordan
Industries was forgiven.
Under the Plan, secured creditors received a dollar per dollar settlement on
their claims. Jordan Industries paid both the $.12 per $1 to settle with the
unsecured creditors and the full amount to settle with the secured creditors.
Jordan Industries' payment of these liabilities, the forgiveness of debt owed to
them and the repurchase of the preferred stock represented contributed capital
and is recorded as an increase to additional paid-in capital of $12.0 million.
The reduction in the pre-petition liabilities resulted in bankruptcy
reorganization credits of $14.8 million, which is net of $1.0 million in fees
incurred related to the bankruptcy proceedings.
2. ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
The Company, which is a majority-owned subsidiary of Jordan Industries is a
retailer of gifts, decorative home furnishings and accessories. After the legal
emergence from bankruptcy Jordan Industries owns approximately 94% of the
Company's outstanding common stock. The Company offers a broad product line of
1,500 - 2,500 Stock Keeping Units categorized into 11 basic groups of
merchandise; including decorative home textiles, framed art, furniture, candles,
lighting, fragrance, decorative accessories, decorative garden, music, special
opportunity merchandise and seasonal products. As of December 31, 1999, the
Company operated 124 retail locations in 36 states, all in leased locations.
Approximately 97% of the stores are located in outlet malls; accordingly, the
Company's results of operations would be significantly impacted by any
nationwide trends in customer buying patterns, occupancy expense or other
factors affecting these malls.
17
<PAGE>
BASIS OF PRESENTATION
For 1997 and prior years, the financial statements were consolidated and
included the accounts of the Company and its wholly-owned subsidiary, Home Again
Stores, Inc. Significant intercompany accounts and transactions among the
Company and Home Again Stores Inc. were eliminated in consolidation. Home Again
Stores, Inc. was dissolved on September 28, 1998.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
INVENTORIES
Inventories are carried at the lower of cost or market. Cost is determined
on the first-in, first-out ("FIF0") basis using the retail inventory method. All
inventory consists of finished goods.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation is computed using
the straight line method over the estimated useful lives of the assets. The
useful lives of property and equipment for computing book depreciation are five
to seven years. For income tax purposes, accelerated depreciation (Accelerated
Cost Recovery System and Modified Accelerated Cost Recovery System) methods are
used.
The carrying values of property and equipment are reviewed if the facts and
circumstances indicate potential impairment of their carrying value. Any
impairment in the carrying value of such intangibles is recorded when
identified.
INCOME TAXES
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). FAS 109 requires recognition of deferred tax assets and liabilities for
the expected future tax consequences of temporary basis differences that have
arisen between financial statement and income tax reporting.
ADVERTISING COSTS
The Company expenses advertising costs as incurred on an annual basis.
Advertising expense amounted to $40 thousand, $43 thousand and $111 thousand in
1999, 1998, and 1997 respectively.
STORE OPENING COSTS
Salaries, training and travel costs relating to opening new retail locations
are expensed as incurred.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
REVENUE RECOGNITION
Revenue is recognized upon sales to customers.
NEW ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board (the "FASB") issued
Statement of Financial Accounting Standards No. 133, "Accounting for Derivative
Instruments and Hedging Activities" ("FAS 133"), which was required to be
adopted in years beginning after June 15, 1999. In 1999, the FASB issued
Statement of Financial Accounting Standards No. 137 "Accounting for Derivative
Instruments and Hedging Activities-Deferral of FASB Statement No. 133" ("FAS
137"). FAS 137 deferred the effective date of adoption until all fiscal quarters
of all fiscal years beginning after June 15, 2000. Management does not
anticipate that the adoption of FAS 133 will have a significant impact on net
income or the financial position of the Company.
18
<PAGE>
RECLASSIFICATIONS
Certain 1998 and 1997 amounts have been reclassified to conform with the
1999 presentation. Such reclassifications had no effect on previously reported
net income (loss) or shareholders' equity (deficit).
3. RESTRUCTURING CHARGES
In the fourth quarter of 1995, the Company adopted a restructuring plan. The
major elements of the plan included a change in the Company's merchandising
strategy and the liquidation of merchandise which was not consistent with that
strategy, closing unprofitable stores, and strengthening the Company's executive
management team and information systems as necessary to successfully implement
the above strategies.
The Company continued the implementation of the restructuring plan in 1996.
In accordance with the plan, the Company recorded a restructuring charge of $8.1
million representing costs of closing 38 stores in 1996, the cost of 62 planned
store closings in 1997 and severance to two former executives. The store closing
costs, $7.2 million, consist of the write-off of the recorded investment in
furniture, fixtures and leasehold improvements at these stores, lease
termination costs and other related store closing costs. The severance costs for
the two former executives amounted to $873 thousand.
As of December 31, 1997, accrued restructuring charges consisted of
landlord rejection claims on leases for closed stores, estimated costs of
closing four stores in 1998 and severance for a former executive. The decrease
in the restructuring accrual during 1997 is related primarily to payments made
for expenses associated with closing stores totaling $275 thousand and severance
payments made to a former executive totaling $225 thousand.
As of December 31, 1998, accrued restructuring charges consisted of
severance for a former employee and estimated costs of closing non-profitable
stores. The decrease in the restructuring accrual during 1998 is related
primarily to the bankruptcy proceedings and severance payments to a former
executive. The company has remaining accrued restructuring charges as of
December 31, 1999 of $126 thousand consisting of estimated costs of closing
non-profitable stores in 2000. The decrease in the restructuring accrual during
1999 is related to severance payments to a former executive and store closing
expenses.
4. SHAREHOLDERS' EQUITY
SERIES A REDEEMABLE PREFERRED STOCK
On November 12, 1996, the Company entered into an agreement with Jordan
Industries in which the Company issued 4,451,000 shares of a newly designated
class of non-voting Series A Redeemable Preferred Stock to Jordan Industries as
repayment of $4,451 thousand outstanding under the Subordinated Credit
Agreement. The holders of this series of preferred stock were entitled to
cumulative annual dividends of 10% of the liquidation value of the stock. The
Company recorded an accrual for the preferred stock dividends in arrears of $334
thousand and $445 thousand during the years ended December 31, 1998 and 1997,
respectively. No dividends were paid by the Company during 1998 and 1997. The
Company could not declare or pay any dividend or distribution on any shares of
stock that rank junior to this series of preferred stock as long as any shares
of the series were outstanding. Welcome Home paid $1 to the holders of the
shares on November 15, 1998 as a part of the Plan, and canceled all Series A
Redeemable Preferred Stock.
19
<PAGE>
EARNINGS PER SHARE
The following table sets forth the computation of basic and diluted
earnings per share in accordance with FASB Statement of Financial Accounting
Standards No. 128, EARNINGS PER SHARE for the years ended December 31. The
weighted average number of shares outstanding reflects the issuance of the New
Common Stock retroactively to all years presented.
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands)
Numerator:
<S> <C> <C> <C>
Net income (loss) $1,220 $ 14,234 $ (6,266)
Cumulative preferred stock dividends - (334) (445)
------ --------- --------
Numerator for basic and dilutive earnings per share -
Income (loss) available to common shareholders $1,220 $ 13,900 $ (6,711)
Denominator:
Denominator for basic and dilutive earnings per share -
Weighted average shares 9,000 9,000 9,000
------ --------- --------
Basic and diluted income (loss) per share $ 0.14 $ 1.54 $ (0.75)
====== ========= ========
</TABLE>
5. PROPERTY AND EQUIPMENT
Property and equipment consists of the following at December 31:
1999 1998
---- ----
(in thousands)
Leasehold improvements $ 1,856 $ 1,646
Fixtures and equipment 13,336 13,306
------- ------
15,192 14,952
Less: accumulated depreciation (10,584) (8,787)
Impairment reserve (882) (1,396)
------- --------
Property and equipment, net $ 3,726 $ 4,769
======= ========
6. NOTES PAYABLE
Subsequent to filing Chapter 11, the Company reached an agreement with Fleet
Capital Company ("Fleet") to provide secured debtor-in-possession financing in
the form of a credit facility. On October 29, 1998, the Company entered into an
Amended and Restated Loan and Security Agreement with Fleet. This agreement
allows maximum borrowings of $15.0 million; actual outstandings are based on a
borrowing base formula. Initial interest rates are, at the Company's preference,
Eurodollar rate plus 3.25% or Fleet's Base Rate plus 1.25%. These rates reduce
upon the Company meeting certain operating performance benchmarks. The agreement
is secured by essentially all the assets of the Company, and includes covenants
standard for this type of financing. In addition, the company pays in
availability fees 1/4 of 1% of the unused portion of the $15.0 million revolver
balance. It expires October 29, 2003. At December 31, 1999, borrowings
outstanding under the Amended and Restated Loan and Security Agreement were $4.3
million and had a weighted average interest rate of 9.8%.
Simultaneously with the closing of the Amended and Restated Loan and
Security Agreement, 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. At December 31, 1999, the Company had
an outstanding balance on this note of the full $800 thousand.
The Company estimates that the fair value of notes payable approximates the
carrying value based upon its effective borrowing rate for debt with similar
terms and remaining maturities. Disclosure about fair value of financial
instruments is based upon information available to management as of December 31,
1999. Although management is not aware of any factors that would significantly
affect the fair value of these amounts, such amounts have not been
comprehensively revalued for purposes of these financial statements since that
date.
20
<PAGE>
7. INCOME TAXES
The provision (benefit) for income taxes consists of the following for the years
ended December 31 (in thousands):
Current: 1999 1998 1997
---- ---- ----
Federal $ - $ - $ -
State and local 5 60 -
Deferred - - -
--------- --------- ---------
Total $ 5 $ 60 $ -
======== ======== ========
The provision (benefit) for income taxes differs from the amount of income
tax expense (benefit) computed by applying the United States Federal income tax
rate to income (loss) before income taxes. A reconciliation of the differences
is as follows (in thousands):
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
<S> <C> <C> <C>
Computed statutory tax provision (benefit) $ 427 $ 5,394 $ (2,131)
Increase (decrease) resulting from:
Increase (decrease) in valuation allowance 3,240 (5,334) 2,325
State and local taxes 24 - (194)
Change in NOL carryforward (3,686) - -
---------- --------- ---------
Provision for income taxes $ 5 $ 60 $ -
======== ======== ========
</TABLE>
Deferred income taxes at December 31 consist of the following (in thousands):
1999 1998
---- ----
Current deferred tax assets:
Inventory markdowns $ 185 $ 222
Other 146 141
--------- ---------
Total current deferred tax asset 331 363
Less valuation allowance (331) (363)
---------- ----------
Net current deferred tax asset $ - $ -
======== ========
1999 1998
---- ----
Noncurrent deferred tax liabilities:
Excess tax over book depreciation $ 790 $ 834
Other 749 1,270
---------- ---------
Total noncurrent deferred tax liabilities 1,539 2,104
--------- ---------
Noncurrent deferred tax assets:
NOL carryforwards 12,647 9,892
Writedowns of property and equipment 326 517
AMT credit carryforward 213 114
Other 139 95
--------- ---------
Total noncurrent deferred tax assets 13,325 10,618
Net noncurrent deferred tax assets 11,786 8,514
Less valuation allowance (11,786) (8,514)
---------- ----------
Net noncurrent deferred tax assets $ - $ -
======== ========
At December 31, 1999, the Company had a net operating loss carryforward of
approximately $34.2 million which begins expiring in 2009 and is available to
offset the Company's future taxable income on a stand-alone basis. This net
operating loss carryforward was reduced by $15.9 million in 1999 to offset the
discharge of indebtedness while under bankruptcy. This amount was excluded from
taxable income under I.R.C. Sec. 108.
The Company is required to establish a valuation allowance for any portion
of the deferred tax assets that management believes will not be realized. Based
upon the uncertainty of future earnings, management believes it is appropriate
to fully reserve the deferred tax asset at December 31, 1999 and 1998.
21
<PAGE>
8. OPERATING LEASES
The Company leases its administrative facilities under an operating lease
with stipulated annual rentals payable monthly. The Company also leases retail
outlet stores under operating leases which generally have initial terms of five
to ten years with renewal options usually encompassing five to seven additional
years. Retail outlet store leases generally provide for minimum rentals plus
contingent rentals for (a) a percentage of sales in excess of stated amounts and
(b) a pro rata share of common area operating expenses. Total rental expense
under these operating leases was approximately $4.6 million, $3.9 million and
$5.3 million for the years ended December 31, 1999, 1998 and l997, respectively.
Contingent rent expense was not material in 1999, 1998 and l997.
Future minimum lease payments, excluding contingent rentals under
noncancelable operating leases with initial or remaining terms of one year or
more as of December 31,1999 are as follows:
(in thousands)
2000 $ 4,092
2001 3,155
2002 1,602
2003 989
2004 431
Thereafter 904
-----------
$ 11,173
===========
9. OTHER RELATED PARTY TRANSACTIONS
The Company purchases inventories from Cape Craftsmen, Inc., an affiliate
through common ownership. Such purchases amounted to approximately $15.2
million, $14.0 million and $10.5 million for the years ended December 31, 1999,
1998 and 1997, respectively.
10. BENEFIT PLANS
The Company sponsors a 401(k) savings plan for substantially all employees
who meet certain age and service requirements. The Company does not currently
match employee contributions to the 401(k) Plan.
22
<PAGE>
11. STOCK OPTION PLAN
On September 29,1994, the Company's Board of Directors instituted the Welcome
Home, Inc. Stock Option Plan (the "Option Plan"). Under the Option Plan, options
to purchase the Company's common stock and stock appreciation rights are granted
for the purpose of attracting and motivating key employees and non-employee
directors of the Company. All options available for grant were terminated on
July 21, 1999 when the Bankruptcy Court granted the Company a formal order of
closure.
Options to purchase the Company's common stock outstanding under the Option
Plan were as follows:
Number of Shares Weighted Average
Available for Awards Exercise
Grant Outstanding Price
----- ----------- -----
December 31, 1996 36,300 263,700 $ 5.65
Granted - - -
Exercised - - -
Terminated 59,200 (59,200) $ 7.87
------------------------------------------------
December 31, 1997 95,500 204,500 $ 5.01
Granted - - -
Exercised - - -
Terminated 204,500 (204,500) $ 5.01
------------------------------------------------
December 31, 1998 300,000 - -
Granted - - -
Exercised - - -
Terminated (300,000) - $ -
------------------------------------------------
December 31, 1999 - - $ -
================================================
No effect is given to the options outstanding as of December 31, 1997 in
computing earnings per share for the years then ended, as their effect is
anti-dilutive.
The Company adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock-Based Compensation" ("FAS 123") in 1996. In accordance
with FAS 123, the Company has elected to follow Accounting Principles Board
Opinion No. 25 "Accounting for Stock Issued to Employees" and present pro forma
net income (loss) and income (loss) per share. The Company estimated the fair
value of the options granted during 1996 using a Black-Scholes option pricing
model. There were no options granted during 1999, 1998 or 1997. The following
assumptions were used:
Risk free interest rate 6.70%
Dividend yield 0%
Volatility factor .592
Expected life 10 years
The Company's pro forma information for the years ended December 31, is as
follows:
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
(in thousands, except per share data)
<S> <C> <C> <C>
Pro forma net income (loss) available to common shareholders $ 1,220 $ 13,878 $ (6,826)
Pro forma basic and diluted income (loss) per common share $ .14 $ 1.86 $ (0.92)
</TABLE>
23
<PAGE>
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
The table below sets forth selected financial information for each quarter of
the last two years:
<TABLE>
<CAPTION>
Year Ended December 31,1999
(dollars in thousands except per share data)
- -------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 9,459 $11,843 $ 13,966 $ 21,306
Gross profit $ 4,212 $ 5,563 $ 6,701 $ 9,972
Net income (loss) $ (1,739) $ (531) $ 233 $ 3,257
Net income (loss) available to common shareholders $ (1,739) $ (531) $ 233 $ 3,257
Basic and diluted income (loss) per share $ (0.19)** $ (0.06) $ 0.03 $ 0.36
<CAPTION>
Year Ended December 31,1998
(dollars in thousands except per share data)
- -------------------------------------------------------------------------------------------------------------------
First Second Third Fourth
Quarter Quarter Quarter Quarter
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 9,607 $11,211 $ 12,616 $ 20,820
Gross profit $ 3,808 $ 5,153 $ 5,654 $ 9,385
Net income (loss) $ (2,325) $ (947) $ (776) $ 18,282*
Net income (loss) available to common shareholders $ (2,435) $(1,058) $ (887) $ 18,280
Basic and diluted income (loss) per share** $ (0.27) $ (0.12) $ (0.10) $ 2.03
</TABLE>
* Net income during the fourth quarter of 1998 included net bankruptcy
reorganization credits of $14.8 million relating to the provisions of the Plan.
**Basic and diluted income(loss) per share restated to reflect 9.0 million
shares outstanding.
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Shareholders
Welcome Home, Inc.
We have audited the accompanying balance sheets of Welcome Home, Inc. and the
related statements of operations, shareholders' equity (deficiency), and cash
flows for each of the three years in the period ended December 31, 1999. Our
audits also included the financial statement schedule listed in the Index at
Item 14(a). These financial statements and schedule are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Welcome Home, Inc. at December
31, 1999 and 1998, and the results of its operations and cash flows for each of
the three years in the period ended December 31, 1999, in conformity with
accounting principles generally accepted in the United States. Also, in our
opinion, the related financial statement schedule, when considered in relation
to the basic financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ Ernst & Young, LLP
Raleigh, North Carolina
February 18, 2000
25
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth certain information regarding the current
executive officers and directors of the Company.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Thomas H. Quinn 52 Chairman of the Board and Chief Executive Officer
John J. Hillmann 54 President, Director
Mark S. Dudeck 42 Vice President, Treasurer and Chief Financial Officer
John W. Jordan II 52 Director
Thomas C. Spielberger 38 Vice President and Secretary
Gordon L. Nelson, Jr. 42 Vice President and Assistant Secretary
</TABLE>
THOMAS H. QUINN has served as Chairman and Chief Executive Officer of the
Company since March 1991. Mr. Quinn has served as President, Chief Operating
Officer and a director of Jordan Industries, a privately-held diversified
industrial holding company, since 1988. Mr. Quinn is also Chief Executive
Officer of Archibald Candy Company and a director of other privately-held
companies.
JOHN J. HILLMANN has served as President of Welcome Home since May 1997 and
has served as President of Cape Craftsmen since June 1992.
MARK S. DUDECK was appointed Vice President, Treasurer and Chief Financial
Officer of the Company in August 1996. From July 1994 through June 1996, Mr.
Dudeck served as Director of Financial Planning and Analysis at Camelot Music,
Inc. and from February 1992 through June 1994, he was Director of Investor
Relations for Mercantile Stores, Inc.
JOHN W. JORDAN II has served as a director of the Company since March 1991.
Mr. Jordan is the founder and managing partner of The Jordan Company, a private
merchant banking firm which he founded in 1982. Mr. Jordan is also a director of
Jordan Industries, Carmike Cinemas, Inc., and a director of other privately-held
companies.
THOMAS C. SPIELBERGER has served as the Company's Vice President and
Secretary since January 1997. Since 1989, Mr. Spielberger has been employed in
various positions by Jordan Industries and has served as the Senior Vice
President of Finance and Accounting since January 1998 and Vice President,
Controller of Jordan Industries since January 1993. Mr Spielberger is also a
Director of Healthcare Holdings, Inc., Lakeshore Staffing, Inc. and Jordan Auto
Aftermarket, Inc.
GORDON L. NELSON, JR. has served as Vice President and Assistant Secretary
since January 1997. He is Senior Vice President of Treasury at Jordan
Industries. Prior to joining Welcome Home and Jordan Industries, he was a
Director at the Bank of Boston from January 1992 through July 1996.
All of the Company's executive officers and directors, with the exception
of Mr. Hillmann, were incumbent in January 1997 when the Company filed a
voluntary petition for reorganization under the provisions of Chapter 11 of the
Bankruptcy Code. Mr. Jordan was director of Jones Plumbing Systems, Inc. in
November 1995 when the company and its wholly owned subsidiary, Jones
Manufacturing Company, Inc. (the "Jones Companies"), filed voluntary petitions
for reorganization under Chapter 11 of the Bankruptcy Code. The Jones Companies'
reorganizations were subsequently converted to liquidation proceedings under
Chapter 7 of the Bankruptcy Code.
26
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid by the Company for services rendered during 1999, 1998, and 1997 as
applicable, to (i) its chief executive officer, (ii) its three most highly
compensated employees at December 31, 1999 who were paid in excess of $100,000
during 1999; and (iii) one individual who were among its four most highly
compensated employees during 1999 but no longer are executive officers at
December 31, 1999 (the "Named Executives").
SUMMARY COMPENSATION TABLE
Annual
Compensation
--------------------------
Name and Principal Position Salary ($) Bonus ($)
- --------------------------- ---------- ---------
Thomas H. Quinn (1) 1999 - -
Chairman of the Board and Chief Executive Officer 1998 - -
1997 - -
John J. Hillmann (2) 1999 - 255,000
President 1998 - 50,000
1997 - -
Mark S. Dudeck 1999 115,000 30,000
VP, Treasurer and CFO 1998 115,000 46,500
1997 115,000 33,333
Edward J. Kleiger (3) 1999 154,539 -
Former President and Chief Operating Officer 1998 205,000 -
1997 205,000 -
Debora A. Williamson 1999 90,000 20,000
VP, Stores 1998 90,000 23,250
1997 85,000 17,000
(1) Does not reflect compensation paid to Mr. Quinn by Jordan Industries, the
Company's majority shareholder. See "Item 13. Certain Relationships and Related
Transactions."
(2) Does not reflect compensation paid to Mr. Hillmann by Cape Craftsmen. See
"Item 13. Certain Relationships and Related Transactions."
(3) Mr. Kleiger resigned in May 1996. See "Termination Agreement"
COMPENSATION OF DIRECTORS
Directors who are not employees of the Company receive $8,000 per year for
serving as a director of the Company. In addition, the Company reimburses
directors for their travel and other expenses incurred in connection with
attending meetings of the Board of Directors and its committees. The Company did
not have any Independent Directors in 1999 therefore the Company did not pay any
directors fees.
27
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Messrs. Jordan and Quinn were members of the compensation committee of the
Company's Board of Directors during 1999. Mr. Quinn serves as the Chief
Executive Officer. Mr. Quinn received no compensation during 1999 from the
Company for his service as an officer of the Company. Messrs. Jordan and Quinn
are directors of Jordan Industries. Mr. Quinn also serves on its compensation
committee. Jordan Industries is the majority shareholder of, and directly and
indirectly engages in certain transactions with, the Company. See "Item 13.
Certain Relationships and Related Transactions."
TERMINATION AGREEMENT
In September 1994, simultaneously with the completion of its initial public
offering, the Company entered into an employment agreement with Mr. Kleiger.
Under the agreement, Mr. Kleiger agreed to serve as the Company's President and
Chief Operating Officer for a five-year term at an annual base salary of $190
thousand. The agreement provides for successive one-year extensions unless, 180
days prior to the scheduled expiration date, either the Company or Mr. Kleiger
notifies the other of a decision not to extend the agreement. In May 1996, Mr.
Kleiger resigned as President and Chief Operating Officer of the Company and,
pursuant to the termination provisions of the agreement, will continue to
receive payments equal to his base salary through September 1999. The agreement
also provides that Mr. Kleiger may not exploit for the benefit of anyone, other
than the Company, any Confidential Information (as defined therein) concerning
the Company and includes a covenant by Mr. Kleiger not to (i) own or engage in
any Competitive Business (as defined therein) which competes with the Company,
(ii) induce or otherwise influence certain persons associated with the
Competitive Business to employ certain employees of the Company for a period of
two years subsequent to termination of his employment.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth as of December 31, 1999 certain information
with respect to the number of shares of the Company's common stock beneficially
owned by (i) each current director of the Company; (ii) each Named Executive;
(iii) all current directors and executive officers of the Company as a group;
and (iv) based on information available to the Company and a review of
statements filed with the Securities and Exchange Commission pursuant to Section
13(d) and 13(g) of the Securities Act of 1934, as amended (the "Exchange Act"),
each person or entity that beneficially owns more than 5% of the Company's
common stock. The Company believes that each individual or entity named has sole
investment and voting power with respect to shares indicated as beneficially
owned by them.
<TABLE>
<CAPTION>
AMOUNT
AND NATURE
OF BENEFICIAL PERCENT OF
NAME OF BENEFICIAL OWNER OWNERSHIP (1) CLASS (1)
- ------------------------ ------------- ---------
Current Directors and Named Executives
<S> <C> <C>
Thomas H. Quinn (2) 10,000 *
John J. Hillmann (3) 1,000 *
All directors and executive officers as a group (2 persons) 11,000 *
PRINCIPAL SHAREHOLDER
Jordan Industries, Inc. (2) 8,500,000 94.4%
</TABLE>
(*) Indicates beneficial ownership of less than 1% of the outstanding shares of
the Company's common stock.
(1) Calculated pursuant to Rule 13d-3(d) under the Exchange Act. Under Rule
13d-3(d), shares not outstanding which are subject to options exercisable
within 60 days are deemed outstanding for the purpose of calculating the
number and percentage owned by such person, but not deemed outstanding for
the purpose of calculating the percentage owned by any other person listed.
As of December 31, 1998, the Company had 7,453,645 shares of common stock
outstanding.
(2) Address is Arbor Lake Center, Suite 550, 1751 Lake Cook Road, Deerfield,
Illinois, 60015.
(3) Address is c/o Welcome Home, Inc., 309 Raleigh Street, Wilmington, North
Carolina 28412.
28
<PAGE>
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
SUBORDINATED CREDIT AGREEMENT WITH JORDAN INDUSTRIES
Welcome Home signed a commitment to enter into a Promissory Note on October
29, 1998, with Jordan Industries for $800,000. This note bears interest at 8.5%
and calls for monthly payments of interest only through April 30, 2000, and
payments of $66,667 plus accrued interest starting May 1, 2000, 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.
CAPE CRAFTSMEN PURCHASES
Cape Craftsmen, Inc., an affiliate of Jordan Industries ("Cape Craftsmen")
supplies various inventory items to the Company. In 1999, the Company purchased
approximately $15.2 million of merchandise from Cape Craftsmen, which
represented approximately 57% of the Company's total 1999 merchandise purchases.
Management believes that the pricing of inventory items purchased from Cape
Craftsmen is comparable to that which the Company would obtain from a
non-affiliated supplier, while the payment terms extended by Cape Craftsmen are
considerably more favorable to the Company than those likely to be extended by a
non-affiliated supplier. The Company expects to continue this relationship with
Cape Craftsmen so long as its pricing and terms remain competitive.
COMPENSATION OF CERTAIN EXECUTIVE OFFICERS
Mr. Quinn does not receive compensation directly from the Company. Rather,
Mr. Quinn receives compensation from Jordan Industries in his capacity as its
Chief Operating Officer. Prior to the Company's initial public offering in
September 1994, Jordan Industries was the Company's corporate parent and is
currently the majority shareholder of the Company. Mr. Quinn's duties to the
Company include monthly meetings with the Company's executives and day-by-day
telephonic contact regarding, among other things, marketing strategy, results of
operations, personnel management and financial matters.
Mr. Hillmann receives a bonus from the Company, but no other direct
compensation. Rather, Mr. Hillmann receives compensation from Cape Craftsmen in
his capacity as its President. Mr. Hillmann's duties to the Company include
day-to-day working with Company's executives regarding, among other things,
marketing strategy, results of operations, personnel management and financial
matters.
29
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) Documents filed as a part of this report:
1. FINANCIAL STATEMENTS. See Index to Financial Statements at Item 8 of
this report.
2. FINANCIAL STATEMENT SCHEDULES. See Index to Financial Statements at
Item 8 of this report. All other schedules are not applicable or the
information is presented in the Financial Statements.
3. EXHIBITS. List of Exhibits:
2.1 Plan of Reorganization (1)
3.1 Amended and Restated Certificate of Incorporation of Welcome
Home, Inc. (2)
3.2 Amended and Restated By-laws of the Registrant (2)
10.1 Trademark Security Agreement between the Registrant and Shawmut
(predecessor by merger to Fleet) Capital Corporation dated May
30, 1995 (3)
10.2 Agreement ('Trademark) between the Registrant and Jordan
Industries, Inc. Dated May 30, 1995 (3)
10.3 Amended and Restated Loan and Security Agreement dated October
29, 1998 between the Company and Fleet Capital Corporation (4)
10.4 Promissory Note dated October 29, 1998 between Welcome Home, Inc.
and Jordan Industries, Inc. (4)
27.1 Financial Data Schedule (for Securities and Exchange Commission
use only)
(1) Incorporated by reference to the Registrant's Current Report
on form 8-K filed with the Securities and Exchange Commission
(the "SEC") April 14, 1999.
(2) Incorporated by reference to the Quarterly Report on
Registrant's Form 10-Q for the period ended September 30,
1994 (File No.0-24912).
(3) Incorporated by reference to the Registrant's Current Report
on the Form 8-K filed with the SEC on June 30, 1995.
(4) Incorporated by reference to the Registrant's Annual Report
on Form 10-K filed with the SEC on March 31, 1999.
(b) Reports on Form 8-K. The Registrant filed a Current Report on Form 8-K on
April 14, 1999 to report the confirmation of its Plan of Reorganization
which occurred on September 28, 1998.
30
<PAGE>
WELCOME HOME, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
(in thousands of dollars)
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---- ---- ----
VALUATION ALLOWANCE FOR DEFERRED TAX ASSETS
<S> <C> <C> <C>
Balance, beginning of period $ 8,877 $14,211 $11,886
Additions charged to income tax expense - - 2,185
Increase (decrease) related to deferred tax assets 3,240 (5,334) 2,325
-------- ------- -------
Balance, end of period $ 12,117 $ 8,877 $14,211
======== ======= =======
ACCUMULATED DEPRECIATION - PROPERTY AND EQUIPMENT
<CAPTION>
<S> <C> <C> <C>
Balance, beginning of period $ 8,787 $ 6,644 $ 5,978
Additions charged to depreciation reserve 1,964 2,192 2,185
Reductions (167) (49) (1,519)
-------- ------- --------
Balance, end of period $10,584 $ 8,787 $ 6,644
======= ======= =======
RESTRUCTURING AND IMPAIRMENT RESERVES
<CAPTION>
<S> <C> <C> <C>
Balance, beginning of period $ 1,396 $ 1,396 $ 3,860
Additions charged to restructuring expense - - 1,833
Reductions (514) (2,464)
-------- ------- -------
Balance, end of period $ 882 $ 1,396 $ 1,396
======== ======= =======
</TABLE>
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized, as of the
29th of March, 1999.
WELCOME HOME, INC.
By: /s/ Mark S. Dudeck
----------------------
Name: Mark S. Dudeck
Title: Vice President, Treasurer
and Chief Financial Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capabilities as of the 29th day of March, 2000.
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C>
/s/ Thomas H. Quinn Chairman of the Board and Chief Executive Officer
------------------------- (Principal Executive Officer)
Thomas H. Quinn
/s/ John J. Hillmann President
-------------------------
John J. Hillmann
/s/ Mark S. Dudeck Vice President, Treasurer and Chief Financial Officer
------------------------- (Principal Financial and Accounting Officer)
Mark S. Dudeck
/s/ John W. Jordan II Director
-------------------------
John W. Jordan II
/s/ Thomas C. Spielberger Vice President and Secretary
--------------------------
Thomas C. Spielberger
/s/ Gordon Nelson, Jr. Vice President and Assistant Secretary
--------------------------
Gordon Nelson, Jr.
</TABLE>
32
<TABLE> <S> <C>
<ARTICLE> 5
<CIK> 0000922817
<NAME> WELCOME HOME, INC.
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 550
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 11,479
<CURRENT-ASSETS> 12,438
<PP&E> 14,310
<DEPRECIATION> 10,584
<TOTAL-ASSETS> 16,428
<CURRENT-LIABILITIES> 12,090
<BONDS> 0
0
0
<COMMON> 90
<OTHER-SE> 3,981
<TOTAL-LIABILITY-AND-EQUITY> 16,428
<SALES> 56,574
<TOTAL-REVENUES> 56,574
<CGS> 30,126
<TOTAL-COSTS> 24,164
<OTHER-EXPENSES> 150
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 909
<INCOME-PRETAX> 1,225
<INCOME-TAX> 5
<INCOME-CONTINUING> 1,220
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,220
<EPS-BASIC> 0.14
<EPS-DILUTED> 0.14
</TABLE>
