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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): FEBRUARY 24, 2004
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HOME INTERIORS & GIFTS, INC.
(Exact name of registrant as specified in its charter)
TEXAS 333-62021 75-0981828
(State or other jurisdiction of (Commission file number) (I.R.S. Employer
incorporation or organization) Identification No.)
1649 FRANKFORD ROAD WEST
CARROLLTON, TEXAS 75007-4605
(Address of principal executive offices)
Registrant's Telephone Number, Including Area Code: (972) 695-1000
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ITEM 9. REGULATION FD DISCLOSURE
On February 24, 2004, Home Interiors & Gifts, Inc. (the "Company")
entered into a commitment letter with two financial institutions pursuant to
which the Company intends to refinance loans outstanding under its existing
senior credit facility. The financial institutions' commitments to make such
facilities available to the Company are subject to conditions precedent that are
customary for a financing of this type. Pursuant to the commitment letter, the
financial institutions named therein have committed to provide the Company with
a term loan facility of up to $320 million and a $50 million revolving credit
facility (which represents an increase over the Company's existing term loan and
revolving credit facilities of $168.7 million and $30.0 million, respectively).
It is anticipated that the proceeds of the new term loan and revolving credit
facilities will be used (i) to refinance the Company's existing senior debt,
including partial year interest thereon (approximately $169.8 million), (ii) to
repurchase all or a portion of the Company's outstanding convertible preferred
stock (approximately $139.0 million), (iii) for general working capital purposes
(approximately $2.0 million) and (iv) to pay transaction fees and expenses
(approximately $9.2 million) The Company's outstanding preferred stock is
currently held by affiliates of the Company's controlling shareholders. On a pro
forma basis after giving effect to the refinancing as currently contemplated and
the anticipated use of the proceeds from the refinancing, as of December 31,
2003, the Company would have had approximately $474.6 million in total debt (as
compared to approximately $323.2 million in total debt as of December 31, 2003
on an actual basis).
In connection with the proposed credit agreement refinancing, the
Company will be providing certain selected financial data to institutions that
may participate, as lenders, in the new credit facility.
FORWARD LOOKING INFORMATION
This release contains forward-looking statements. These statements
involve known and unknown risks, uncertainties and other factors that may cause
Home Interiors & Gifts actual results to be materially different from any future
results expressed or implied by such forward-looking statements. In some cases,
forward-looking statements are identified by terminology such as "may," "will",
"should," "expects," "plans", "anticipates," "believes," "estimates",
"predicts," "potential," or "continue," or the negative of such terms or other
comparable terminology. All of these forward-looking statements are based on
estimates and assumptions made by management of Home Interiors & Gifts which,
although believed to be reasonable, are inherently uncertain. Therefore, undue
reliance should not be placed upon such statements. Neither Home Interiors &
Gifts nor any other person assumes responsibility for the accuracy and
completeness of such statements.
REPORTED RESULTS
Net sales were $617.4 million for the year ended December 31, 2003.
This amount is an increase of $42.9 million or 7.5% over net sales from the year
ended December 31, 2002. Gross profit for the year ended December 31, 2003
increased to $329.2 million, a $6.5 million or 2.0% increase from the year ended
December 31, 2002. Although gross profit increased, operating income declined
8.5% or $7.2 million from $84.8 million for the year ended December 31, 2002 to
$77.6 million for the year ended December 31, 2003. The decline in operating
income was due to an increase in selling, general and administrative expenses of
$13.7 million or 5.7% from prior year. The Company ended the year with a net
income of $32.4 million, a 9.2% decrease from net income reported at December
31, 2002.
As of December 31, 2003, the Company had $36.6 million in cash and
cash equivalents and approximately $323.2 million in total debt, as compared to
$68.1 million and $344.9 million, respectively, for the year ended December 31,
2002.
SELECTED DATA
The following table is intended to highlight certain consolidated
financial information for years ended December 31 (in thousands):
2003
2002 UNAUDITED
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Net sales............................. $ 574,499 $ 617,444
Gross profit.......................... 322,751 329,211
Net income............................ 35,648 32,361
Adjusted EBITDA(1).................... 106,473 105,288
Interest expense...................... 27,497 27,506
Capital expenditures.................. 14,168 14,561
Cash.................................. 68,111 36,636
Total assets.......................... 234,593 235,923
Total debt............................ 344,916 323,238
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(1) See below for the definition of Adjusted EBITDA and a reconciliation of
Adjusted EBITDA to Net Income.
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The following table is intended to highlight certain segment
information for years ended December 31 (in thousands):
DIRECT DIRECT
SELLING SELLING
DOMESTIC INTERNATIONAL DOMISTYLE ELIMINATIONS CONSOLIDATED
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2002
Net sales to non-affiliates... $ 528,710 $ 36,723 $ 9,187 $ (121) $ 574,499
Net sales to affiliates....... 17,173 -- 136,149 (153,322) --
2003 (UNAUDITED)
Net sales to non-affiliates... $ 525,479 $ 61,629 $ 30,336 $ -- $ 617,444
Net sales to affiliates....... 28,950 -- 145,801 (174,751) --
The following table is intended to highlight certain domestic
displayer information for years ended December 31:
2002 2003
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Numbers of orders shipped................. 926,934 1,067,671
Average order size........................ $ 570 $ 492
Active displayers at end of period........ 64,500 70,800
Average active displayers................. 62,000 66,500
NON-GAAP MEASURES
The Company measures the ability to incur and service debt and evaluates
the business performance based upon earnings before taxes, effects of SAB 101,
depreciation and amortization, reorganization costs, non-cash expense for stock
options, losses on debt restructure, gains or losses on disposition of assets,
and other income expense (defined as "Adjusted EBITDA"). In addition, the
Company uses Adjusted EBITDA as a performance measure due to the Company's
required compliance with certain financial covenants contained in its senior
credit facility. Adjusted EBITDA is a financial measure that is not prepared in
accordance with accounting principles generally accepted in the United States,
and may be different from non-GAAP financial measures used by other companies.
Adjusted EBITDA, as defined, should not be considered in isolation, as a
substitute for net income, cash flows from operations or other consolidated
income or cash flow data prepared in accordance with generally accepted
accounting principles, or as a measure of a company's profitability or
liquidity.
The following table represents a reconciliation of consolidated net income
to Adjusted EBITDA, as defined, for the years ended December 31 (in thousands):
2003
2002 UNAUDITED
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Net income................................ $ 35,648 $ 32,361
Effect of SAB 101......................... (1,003) 395
Depreciation and amortization............. 11,715 15,663
Loss on debt restructure.................. 7,188 --
(Gain) loss on disposition of assets...... (361) 108
Stock option expense...................... 1,267 4,207
Reorganization costs...................... 2,892 7,330
Interest expense and other, net........... 28,464 28,276
Income tax provision ..................... 20,663 16,948
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Adjusted EBITDA........................... $ 106,473 $ 105,288
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SIGNATURE
Pursuant to the requirements of the Securities and Exchange Act of
1934. The registrant has duly caused this report to be signed on its behalf by
the undersigned, hereunto duly authorized.
HOME INTERIORS & GIFTS, INC.
Date: February 27, 2004 By: /s/ Kenneth J. Cichocki
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Kenneth J. Cichocki
Sr. Vice-President of Finance
and Chief Financial Officer
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