<PAGE> 1
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED OCTOBER 1, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-9632
AMRE, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 75-2041737
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
8585 N. STEMMONS FREEWAY, SOUTH TOWER 75247
DALLAS, TEXAS (Zip Code)
(Address of principal executive offices)
Registrant's telephone number, including area code (214) 658-6300
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------ ------
As of November 1, 1995, there were 13,075,434 shares of the registrant's
stock, $.01 par value, outstanding.
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<PAGE> 2
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
PAGE NO.
--------
<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheet - October 1, 1995 and December 31, 1994 . . . . . . . . . . . 1
Consolidated Statement of Operations - Three-month periods ended October 1, 1995
and September 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Operations - Nine-month periods ended October 1, 1995
and September 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows - Nine-month periods ended October 1, 1995
and September 25, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Stockholders' Equity - Nine-month period
ended October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
- -------------
Note: Items 2 through 5 of Part II are omitted because they are not
applicable.
<PAGE> 3
ITEM 1. FINANCIAL STATEMENTS
AMRE, INC.
CONSOLIDATED BALANCE SHEET (UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
OCTOBER 1, DECEMBER 31,
ASSETS 1995 1994
--------------- ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . $ 6,633 $ 7,927
Marketable securities, including restricted securities
of $1,250 and $1,250 . . . . . . . . . . . . . . . . 12,255 19,370
Accounts receivable:
Trade, net of allowance for doubtful accounts of $775
and $1,098 . . . . . . . . . . . . . . . . . . . . 10,244 6,792
Other . . . . . . . . . . . . . . . . . . . . . . . . 854 612
Income taxes . . . . . . . . . . . . . . . . . . . . 2,800 575
Inventories . . . . . . . . . . . . . . . . . . . . . . 5,095 5,538
Deferred income taxes . . . . . . . . . . . . . . . . . 1,767 1,767
Prepaid expenses . . . . . . . . . . . . . . . . . . . 4,876 4,698
--------------- ----------
Total current assets . . . . . . . . . . . . . . 44,524 47,279
Property, plant and equipment, net . . . . . . . . . . . 5,813 6,251
Goodwill, less accumulated amortization of $1,801 and
$1,597 . . . . . . . . . . . . . . . . . . . . . . . . 9,104 9,308
Notes receivable - related parties . . . . . . . . . . . 4,217 4,217
Other assets . . . . . . . . . . . . . . . . . . . . . . 461 1,772
--------------- ----------
$ 64,119 $ 68,827
=============== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . $ 15,618 $ 18,645
Wages, commissions and bonuses . . . . . . . . . . . . 7,265 4,098
Accrued workers' compensation . . . . . . . . . . . . . 1,276 2,021
Current portion of long term debt . . . . . . . . . . . 54 --
Other accrued liabilities . . . . . . . . . . . . . . . 12,027 10,653
--------------- ----------
Total current liabilities . . . . . . . . . . . . 36,240 35,417
--------------- ----------
Commitments and contingencies
Long term debt, net of current portion . . . . . . . . . 254 --
--------------- ----------
Total liabilities . . . . . . . . . . . . . . . . 36,494 35,417
--------------- ----------
Stockholders' equity:
Preferred stock - $.10 par value, 1,000,000 shares
authorized; none outstanding . . . . . . . . . . . . -- --
Common stock - $.01 par value, 20,000,000 shares
authorized, 14,072,020 shares issued; 12,849,822
and 12,849,822 shares outstanding . . . . . . . . . . 141 141
Additional paid-in capital . . . . . . . . . . . . . . 22,400 22,400
Retained earnings . . . . . . . . . . . . . . . . . . . 15,385 21,170
--------------- ----------
37,926 43,711
Less: Treasury stock, at cost; 1,222,198 and
1,222,198 shares . . . . . . . . . . . . . . . . . . (10,301) (10,301)
--------------- ----------
Total stockholders' equity . . . . . . . . . . . 27,625 33,410
--------------- ----------
$ 64,119 $ 68,827
=============== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
1
<PAGE> 4
AMRE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE-MONTH PERIODS ENDED
---------------------------------------
OCTOBER 1, 1995 SEPTEMBER 25, 1994
--------------- ------------------
<S> <C> <C>
Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 76,993 $ 80,744
Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 24,248 26,303
-------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,745 54,441
-------------- ---------------
Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 5,210 4,875
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 19,217 18,008
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 13,096 13,347
License fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,262 9,731
General and administrative expenses . . . . . . . . . . . . . . . . 5,013 5,811
-------------- ---------------
51,798 51,772
-------------- ---------------
Operating income . . . . . . . . . . . . . . . . . . . . . . . . . 947 2,669
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 263 274
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . 243 93
-------------- ---------------
Income before income taxes . . . . . . . . . . . . . . . . . . . . 1,453 3,036
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 509 1,179
-------------- ---------------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 944 $ 1,857
============== ===============
Net income per share . . . . . . . . . . . . . . . . . . . . . . . $ .07 $ .14
============== ===============
Cash dividends declared per share . . . . . . . . . . . . . . . . . $ .00 $ .03
============== ===============
Weighted average shares outstanding . . . . . . . . . . . . . . . . 12,850 12,982
============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
2
<PAGE> 5
AMRE, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
NINE-MONTH PERIODS ENDED
----------------------------------------
OCTOBER 1, 1995 SEPTEMBER 25, 1994
--------------- ------------------
<S> <C> <C>
Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 211,615 $ 210,458
Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 68,484 67,283
-------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 143,131 143,175
-------------- ---------------
Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 15,131 14,185
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 56,661 52,280
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 38,575 36,848
License fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 25,386 25,019
General and administrative expenses . . . . . . . . . . . . . . . . 15,834 16,306
-------------- ---------------
151,587 144,638
-------------- ---------------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . (8,456) (1,463)
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 818 855
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . 475 247
-------------- ---------------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . (7,163) (361)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,149) (146)
-------------- ---------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,014) $ (215)
============== ===============
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . $ (.39) $ (.02)
============== ===============
Cash dividends declared per share . . . . . . . . . . . . . . . . . $ .06 $ .09
============== ===============
Weighted average shares outstanding . . . . . . . . . . . . . . . . 12,850 12,920
============== ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
3
<PAGE> 6
AMRE, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE-MONTH PERIODS ENDED
----------------------------------------
OCTOBER 1, 1995 SEPTEMBER 25, 1994
--------------- ------------------
<S> <C> <C>
CASH FLOWS FROM OPERATIONS:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (5,014) $ (215)
------------ ---------------
Adjustments to reconcile net loss to net cash
from operations:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . (2,149) (146)
Depreciation and amortization . . . . . . . . . . . . . . . . . 2,257 2,425
Provision for doubtful accounts . . . . . . . . . . . . . . . . 477 748
Other non-cash items . . . . . . . . . . . . . . . . . . . . . 148 139
Cash receipts of (payments for) income taxes . . . . . . . . . (115) (142)
Changes in assets and liabilities:
Accounts receivable and other . . . . . . . . . . . . . . . . (4,171) (2,930)
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . 443 (219)
Prepaid expenses and other assets . . . . . . . . . . . . . . 1,132 (1,040)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . (3,027) 2,207
Other liabilities . . . . . . . . . . . . . . . . . . . . . . 3,834 2,549
------------ ---------------
Total adjustments . . . . . . . . . . . . . . . . . . . . . . . . (1,171) 3,591
------------ ---------------
Net cash from operations . . . . . . . . . . . . . . . . . . . . (6,185) 3,376
------------ ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities . . . . . . . . . . . . . . . . . 24,089 10,084
Purchase of marketable securities . . . . . . . . . . . . . . . (17,132) (8,582)
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (1,616) (792)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 32
------------ ---------------
Net cash from investing activities . . . . . . . . . . . . . . . 5,354 742
------------ ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Note payable . . . . . . . . . . . . . . . . . . . . . . . . . 308 --
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (771) (1,157)
------------ ---------------
Net cash from financing activities . . . . . . . . . . . . . . . (463) (1,157)
------------ ---------------
Net change in cash and cash equivalents . . . . . . . . . . . . . (1,294) (2,961)
Cash and cash equivalents at beginning of period . . . . . . . . 7,927 1,333
------------ ---------------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 6,633 $ 4,294
============ ===============
</TABLE>
See accompanying Notes to Consolidated Financial Statements and
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
4
<PAGE> 7
AMRE, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------------ PAID-IN RETAINED ------------------------
SHARES AMOUNT CAPITAL EARNINGS SHARES AMOUNT
---------- ---------- ----------- ---------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1994 . . . . . . . . . . . 14,072 $ 141 $ 22,400 $ 21,170 (1,222) $ (10,301)
Dividends . . . . . . . . . . . . . . . . . . . -- -- -- (771) -- --
Net loss . . . . . . . . . . . . . . . . . . . -- -- -- (5,014) -- --
--------- --------- ---------- ---------- -------- ---------
Balance, October 1, 1995 . . . . . . . . . . . . 14,072 $ 141 $ 22,400 $ 15,385 (1,222) $ (10,301)
========= ========= ========== ========== ======== =========
</TABLE>
5
<PAGE> 8
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
OCTOBER 1, 1995
NOTE 1 - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation - The accompanying interim consolidated financial
statements of AMRE, Inc. (the "Company") as of October 1, 1995 and for the
three-month and nine-month periods ended October 1, 1995 and September 25, 1994
are unaudited; however, in the opinion of management, these interim statements
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the financial position, results of
operations and cash flows. These financial statements should be read in
conjunction with the consolidated financial statements and related notes
included in the Company's December 31, 1994 Annual Report on Form 10-K.
Reclassifications - Reclassifications have been made to the prior period
statements to conform to the current presentation.
Fiscal period - The Company's quarterly periods end on the Sunday nearest
to the last day in the calendar quarter except at year end which is December
31.
NOTE 2 - COMMITMENTS AND CONTINGENCIES
The Company is a party to certain legal proceedings arising in the ordinary
course of business, none of which are believed to be material to the financial
position of the Company.
The Company has a credit agreement with a bank under which it has a standby
letter of credit in the amount of approximately $1.2 million issued in
connection with its' workers' compensation and general liability insurance
plans. The Company has set aside, in a restricted collateral account,
marketable securities equivalent to the amount of the standby letter of credit.
The Company has agreements with financial institutions which make financing
available to the Company's customers. In the majority of cases, the customer
executes a revolving credit agreement with the lender and the lender pays the
Company on completion of the installation. The Company assumes no recourse
liability or credit risk in these transactions, other than normal
representations and warranties regarding material and workmanship. Under
previous revolving credit financing agreements, the Company had assumed some
recourse liability or credit risk if customer defaults exceed specified levels.
The Company has provided a reserve for estimated losses on these agreements.
NOTE 3 - LONG TERM DEBT
The Company has a note payable to a bank bearing interest at the rate of
8.75% secured by certain machinery. The note is payable in equal monthly
installments of $6,552 (plus accrued interest), and matures on July 10, 2000.
NOTE 4 - DIVIDENDS
On September 22, 1995, the Company suspended its quarterly cash dividends
of $.03 per share.
6
<PAGE> 9
NOTE 5 - SUBSEQUENT EVENTS
On October 17, 1995, the Company, TM Acquisition Corporation and Century 21
Real Estate Corporation, subsidiaries of HFS Incorporated, entered into an
agreement effective January 1, 1996, pursuant to which the Company has been
granted an exclusive 20 year license to operate under the name CENTURY 21 HOME
IMPROVEMENTS for the marketing, sales, and installation of certain home
improvement products in the United States, Canada, and Mexico. The Company
also has the right to grant sub-licenses under the license agreement and will
pay fees equal to the greater of 3% of revenues or certain guaranteed minimums
during the term of the license agreement, starting at $11 million in 1996. The
Company has notified Sears, Roebuck and Co. of its intention not to renew its
license agreement with Sears when it expires on December 31, 1995.
Concurrent with the execution of the license agreement, the Company, HFS,
and a private investor entered into other agreements pursuant to which HFS will
provide the Company with a $4 million revolving credit facility and HFS and a
private investor will purchase an aggregate of $4 million in common and
preferred stock of the Company.
The Company expects to record a non-recurring charge of up to $5 million in
the fourth quarter ending December 31, 1995, for expenses associated with these
transactions. Included in this charge are non-cash expenses related to the
issuance of common stock and common stock options to an unrelated individual as
compensation for services provided in connection with these transactions.
On October 31, 1995, the Company and Facelifters Home Systems, Inc. entered
into an agreement under which all of Facelifters outstanding common stock would
be acquired by the Company in a merger to be accounted for as a pooling of
interests, subject to regulatory and stockholder approval. Facelifters has
notified Sears of its intention to not renew its license agreement with Sears
on expiration in January of 1996.
Under the terms of the agreement and plan of merger, each share of
Facelifters common stock will be exchanged, at closing, for AMRE common stock
in accordance with an exchange ratio described in the agreement and the plan of
merger. In general, the exchange ratio will be determined by calculating the
average closing price per share of AMRE common stock on the New York Stock
Exchange for the fifteen trading days prior to the day three days before AMRE
requests acceleration of effectiveness of the Registration Statement containing
the Joint Proxy Statement/Prospectus. If the average closing price of AMRE
common stock for such period is between $9.50 and $6.50 per share then the
exchange ratio will be 1.41 shares of AMRE for each share of Facelifters common
stock. If the average closing price for AMRE common stock on the New York
Stock Exchange for such period is greater than $9.50 per share, then the
exchange ratio will be determined by dividing 11.28 by the sum of (i) the
average closing price minus $9.50 and (ii) 8.00. If the average closing price
for AMRE Common Stock on the New York Stock Exchange for the period is less
than $6.50 but not less than $5.00 per share, then the exchange ratio will be
determined by dividing 11.28 by the difference between (i) 8.00 minus (ii) the
difference between 6.50 minus the average closing price. If the average
closing price of AMRE common stock is less than $5.00 per share for the period,
then AMRE may terminate the agreement and plan of merger or proceed with the
transaction at an exchange rate which is determined by dividing 8.20 by the
average closing price. In conjunction with the merger, the combining companies
expect to record a non-recurring charge of approximately $4 million.
7
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is engaged, under a license from Sears, Roebuck and Co.
("Sears"), in direct marketing, sales and installation of siding and related
exterior home improvement products, kitchen cabinet refacing and custom
countertops, replacement windows, and in certain of its territories, exterior
coating. The business of the Company is characterized by the need to
continuously generate prospective customer leads. Marketing and selling
expenses thus constitute a substantial portion of the overall operating
expenses of the Company.
The following table indicates the percentage relationship of various income
and expense items included in the Statement of Operations for the three-month
and nine-month periods ended October 1, 1995 and September 25, 1994.
<TABLE>
<CAPTION>
PERCENTAGE OF CONTRACT REVENUES
THREE-MONTH PERIODS ENDED NINE-MONTH PERIODS ENDED
---------------------------- ---------------------------
OCT 1, SEPT 25, OCT 1, SEPT 25,
1995 1994 1995 1994
---------- ------------ ---------- -----------
<S> <C> <C> <C> <C>
Contract revenues . . . . . . . . . . . 100.0% 100.0% 100.0% 100.0%
Contract costs . . . . . . . . . . . . 31.5 32.6 32.4 32.0
------ ------ ------ ------
Gross profit . . . . . . . . . . . . . 68.5 67.4 67.6 68.0
------ ------ ------ ------
Branch operating expenses . . . . . . . 6.8 6.0 7.2 6.7
Marketing expenses . . . . . . . . . . 25.0 22.3 26.8 24.8
Selling expenses . . . . . . . . . . . 17.0 16.6 18.2 17.5
License fees . . . . . . . . . . . . . 12.0 12.0 12.0 11.9
General and administrative expenses . . 6.5 7.2 7.4 7.8
------ ------ ------ ------
Operating income (loss) . . . . . . . . 1.2 3.3 (4.0) (.7)
Other income and expense, net . . . . . .7 .5 .6 .5
------ ------ ------ ------
Income (loss) before income taxes . . . 1.9 3.8 (3.4) (.2)
Income taxes . . . . . . . . . . . . . .7 1.5 (1.0) (.1)
------ ------ ------ ------
Net income (loss) . . . . . . . . . . . 1.2% 2.3% (2.4)% (.1)%
====== ====== ====== ======
</TABLE>
RESULTS OF OPERATIONS
NINE MONTHS ENDED OCTOBER 1, 1995 COMPARED WITH THE NINE MONTHS ENDED SEPTEMBER
25, 1994
Contract revenue was approximately the same as last year. The current
period operating loss was $8,456,000 as compared to a loss of $1,463,000 in the
prior year. Due to lower sales closing rates and an imbalance between leads
and sales staffing levels in some key markets, the dollar amount of orders
declined 6% compared to the prior year although the Company generated
approximately 2% more appointments. Higher appointment costs, as well as
higher fixed branch and selling expenses, contributed to the loss during the
period. The production backlog at October 1, 1995 was $27,699,000. The
Company's installation rate (the rate at which sales orders are converted to
installed revenue) improved over the prior year period reflecting milder
weather conditions as well as reduced installation cycle times and improved
installation staffing.
8
<PAGE> 11
Contract revenues from the Company's siding and related exterior home
improvement product line decreased approximately 4% to $110,030,000 as compared
to $115,128,000 in the prior year period. The number of installations for
these products declined 8%, and average selling price, which is affected not
only by price levels, but by the mix and size of jobs installed, increased 4%.
Contract revenues from kitchen cabinet refacing were relatively unchanged
at $52,484,000 as compared to $52,374,000 in the prior year. Average selling
price, which is affected not only by price levels, but by the mix and size of
jobs installed, increased 12% over the prior year period, however, the number
of units installed declined.
Contract revenues from replacement windows increased to $42,175,000 from
$31,701,000 in the prior year. The number of installations increased
approximately 22% reflecting the continued growth of this product line as well
as a higher installation rate.
Gross profit margin as a percentage of contract revenues decreased from
68.0% to 67.6%. The decline in gross margin was principally due to increased
installation cost in the windows' product line and higher service costs in all
product lines. While gross profit margin percent declined from the prior year
period, margin increased from 66.3% in the first quarter of the current year to
68.5% in the third quarter reflecting lower service costs and other measures
implemented by management.
Branch operating expenses, which are primarily fixed in nature, increased
from 6.7% of contract revenues in the prior period to 7.2% in the current
period. Branch operating expenses in dollar terms increased approximately
$946,000 largely due to higher staffing levels.
Marketing expense increased from $52,280,000 or 24.8% of contract revenues
in the prior year period, to $56,661,000, or 26.8% of contract revenues in the
current period. The increase in marketing expense as a percentage of contract
revenues is due to lower sales closing rates and an increase in the cost per
appointment resulting from a decline in response rates.
Selling expenses increased to 18.2% of contract revenues as compared to
17.5% in the prior year period. Sales compensation declined from 12.0% to
11.6%. Other selling expenses, primarily composed of insurance costs, sales
manager salaries and training, recruiting and travel, increased to 6.7% of
contract revenues from 5.5% in the prior period. The increase is principally
due to additional management staffing.
General and administrative expenses decreased from 7.8% to 7.4% of contract
revenues. General and administrative expenses decreased in dollar terms
principally due to cost control efforts by management, partially offset by a
one-time charge in the first quarter of 1995 resulting from a separation
agreement between the Company and its former President and Chief Executive
Officer.
The Company's ability to tax benefit the pretax loss at the statutory rate
is uncertain, therefore, the tax benefit has been provided at a lower rate.
On October 17, 1995, the Company, TM Acquisition Corporation and Century 21
Real Estate Corporation, subsidiaries of HFS Incorporated, entered into an
agreement effective January 1, 1996, in which the Company has been granted an
exclusive 20 year license to operate under the name Century 21 HOME
IMPROVEMENTS for the marketing, sales, and installation of certain home
improvement products in the United States, Canada, and Mexico. The Company
also has the right to grant sub-licenses under the agreement, and will pay fees
equal to the greater of 3% of revenues or certain guaranteed minimums during
the term of the license agreement, starting at $11 million in 1996. The
Company has notified Sears of its intention not to renew its license agreement
with Sears, when it expires on December 31, 1995. The Company currently pays
fees to Sears at 12% of revenues.
9
<PAGE> 12
Concurrent with the execution of the license agreement, the Company, HFS,
and a private investor entered into other agreements pursuant to which HFS will
provide the Company with a $4 million revolving credit facility and HFS and a
private investor will purchase an aggregate of $4 million in common and
preferred stock of the Company.
In connection with these agreements, the Company expects to record a
non-recurring charge of up to $5 million in the fourth quarter ending December
31, 1995. In addition to this one-time charge, the Company expects to also
incur incremental marketing costs to effect the transition to the CENTURY 21
HOME IMPROVEMENTS brand name, including development of advertising materials
and television commercials, as well as advertising to generate leads for the
first quarter of 1996. Concurrently, the Company will continue to advertise to
generate leads under the Sears name. Consequently, the Company anticipates a
loss from operations in the fourth quarter ending December 31, 1995, as well as
for the year then ended. Leads generated under the Sears name could revert to
Sears at December 31, 1995. The Company and Sears are negotiating this and
other matters related to the expiration of the license agreement.
On October 31, 1995, the Company and Facelifters Home Systems, Inc. entered
into an agreement under which all of Facelifters outstanding common stock would
be acquired by the Company in a merger to be accounted for as a pooling of
interests, subject to regulatory and stockholder approval. Facelifters has
notified Sears of its intention to not renew its license agreement with Sears
on expiration in January of 1996. Facelifters designs, manufacturers, markets,
sells and installs home improvement products, primarily kitchen cabinet
refacing, directly to consumers in 25 markets, in most of which the Company
does not currently operate.
Under the terms of the agreement, each outstanding share of the common
stock of Facelifters will be converted into the right to receive 1.41 shares of
the common stock of the Company, subject to adjustment as determined by the
average closing price of the Company's common stock on the New York Stock
Exchange during a specified period as more fully described in Note 5 to the
Consolidated Financial Statements herein. In connection with the merger, the
combining companies expect to record a non-recurring charge of approximately $4
million.
10
<PAGE> 13
THREE MONTHS ENDED OCTOBER 1, 1995 AS COMPARED WITH THE THREE MONTHS ENDED
SEPTEMBER 25, 1994
Contract revenues declined approximately 5% to $76,993,000 from $80,744,000
in the prior period. Operating income for the period was $947,000 as compared
with $2,669,000 last year. Sales orders declined 7% from the prior year period
primarily due to fewer appointments resulting from lower response rates and
sales staffing shortages.
Contract revenues from the Company's siding and related exterior home
improvement product line decreased approximately 9% from $44,250,000 in the
1994 period to $40,459,000 in 1995. The number of installations for these
products declined 11%, and average selling price, which is affected not only by
price levels, but by the mix and size of jobs installed, increased 2%.
Contract revenues from kitchen cabinet refacing were essentially unchanged
at $18,664,000 in the 1994 period and $18,717,000 in 1995. Average selling
price, which is affected not only by price levels, but by the mix and size of
jobs installed, increased 9% over the prior year period.
Contract revenues from replacement windows increased 11% from $13,878,000
to $15,430,000 in the current period. The number of installations increased
approximately 8% reflecting the continued growth of this product line.
Gross profit margin as a percentage of contract revenues increased from
67.4% to 68.5%. The increase in gross margin was due to lower service costs
and higher selling prices. Margin has increased from a low of 66.3% in the
first quarter of the current year to 68.5% in the current quarter reflecting
lower service costs and other measures implemented by management.
Branch operating expenses, which are primarily fixed in nature, increased
to 6.8% of contract revenues from 6.0% in the prior period. Branch operating
expenses in dollar terms increased approximately $335,000 largely due to higher
staffing as compared to the prior year.
Marketing expense increased from $18,008,000, or 22.3% of contract revenues
in the prior year period, to $19,217,000, or 25.0% of contract revenues in the
current period. The increase in marketing expense as a percentage of contract
revenues was due to lower sales closing rates and an increase in the cost per
appointment resulting from a decline in issue rates partially caused by sales
staffing shortages.
Selling expenses increased from 16.6% of contract revenues to 17.0% in the
current year period. Sales compensation was unchanged at 11.3%. Other selling
expenses, primarily composed of insurance costs, sales manager salaries and
training, recruiting and travel, increased to 5.7% of contract revenues from
5.3% in the prior period. The increase was principally due to additional
management staffing.
General and administrative expenses, which are primarily fixed in nature,
decreased from 7.2% to 6.5% of contract revenues.
LIQUIDITY AND CAPITAL RESOURCES
The Company finances its liquidity needs with internally generated funds.
Net cash used in operations for the nine months ended October 1, 1995 was
$6,185,000. Cash requirements during the period were principally due to the
operating loss and an increase in accounts receivable. Cash and marketable
securities totaled approximately $18,888,000 at October 1, 1995.
11
<PAGE> 14
The Company's capital expenditures totaled approximately $1,616,000 for the
nine month period ended October 1, 1995. The increase in expenditures as
compared to the prior year period is principally due to the purchase of
manufacturing equipment associated with the Company's newly designed cabinet
product line. The Company estimates capital expenditures will aggregate
$2,500,000 for the calendar 1995 period. The Company plans to open two
additional telemarketing call centers before December 31, 1995 for which the
Company will execute operating leases for equipment and facilities at an
estimated aggregate cost of $4 million over the next 5 years.
The Company has a standby letter of credit with a bank in the amount of
approximately $1.2 million issued in connection with its' workers' compensation
and general liability insurance plans. The Company has set aside in a
restricted collateral account, marketable securities equivalent to the amount
of the letter of credit.
As more fully described in Note 5 to the Consolidated Financial Statements,
the Company, HFS Incorporated, and a private investor entered into agreements
under which, on the effective date of the license agreement, HFS will provide a
$4 million revolving credit facility, and HFS and a private investor will
purchase an aggregate of $4 million in common and preferred stock.
12
<PAGE> 15
SEASONALITY
The Company has found that customers are typically reluctant to commence
home improvement projects during the December holiday season. In addition,
installation of siding and related exterior home improvement products may be
delayed due to poor weather conditions prevalent during the winter months.
Therefore, contract revenues and net income have historically been lowest
during the first quarter.
The following table sets forth, on an unaudited basis, the Company's
quarterly financial information:
<TABLE>
<CAPTION>
QUARTER ENDED
--------------------------------------------------------------------
MARCH 27, JUNE 26, SEPTEMBER 25, DECEMBER 31,
----------- ------------ --------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1994
Contract revenues . . . . . . . . . . . . . . $ 52,125 $ 77,589 $ 80,744 $ 75,472
Gross profit . . . . . . . . . . . . . . . . 35,241 53,493 54,441 49,655
Operating income (loss) . . . . . . . . . . . (5,232) 1,100 2,669 2,500
Net income (loss) . . . . . . . . . . . . . . $ (2,984) $ 912 $ 1,857 $ 1,674
Net income (loss) per share . . . . . . . . . $ (.23) $ .07 $ .14 $ .13
</TABLE>
<TABLE>
<CAPTION>
APRIL 2, JULY 2, OCTOBER 1,
------------- ------------ --------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Contract revenues . . . . . . . . . . . . . . $ 60,885 $ 73,737 $ 76,993
Gross profit . . . . . . . . . . . . . . . . 40,360 50,026 52,745
Operating income (loss) . . . . . . . . . . . (6,695) (2,708) 947
Net income (loss) . . . . . . . . . . . . . . $ (3,895) $ (2,063) $ 944
Net income (loss) per share . . . . . . . . . $ (.29) $ (.16) $ .07
</TABLE>
- -------------------
13
<PAGE> 16
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Reference is made to Note 2 of Notes to Consolidated Financial Statements
herein for a discussion of legal proceedings.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
NUMBER AND DESCRIPTION OF EXHIBIT
<TABLE>
<S> <C>
10.1 License Agreement, dated October 17, 1995, among TM Acquisition Corp. and Century 21 Real Estate
Corporation and American Remodeling, Inc. (Incorporated by reference to Exhibit 7.1 to the
Company's current report on Form 8K dated October 17, 1995).
10.2 Preferred Stock Purchase Agreement, dated October 17, 1995, between AMRE, Inc. and HFS
Incorporated. (Incorporated by reference to Exhibit 7.2 to the Company's current report on Form 8K
dated October 17, 1995).
10.3 Credit Agreement, dated October 17, 1995, between AMRE, Inc. and HFS Incorporated. (Incorporated
by reference to Exhibit 7.3 to the company's current report on Form 8K dated October 17, 1995).
10.4 Letter Agreement, dated October 17, 1995, between AMRE, Inc. and David Moore. (Incorporated by
reference to Exhibit 7.4 to the Company's current report on form 8K dated October 17, 1995).
10.5 $5.00 Stock Option Agreement, dated October 17, 1995, between AMRE, Inc. and David Moore.
(Incorporated by reference to Exhibit 7.5 to the Company's current report on Form 8K dated October
17, 1995).
10.6 $5.50 Stock Option Agreement dated October 17, 1995, between AMRE, Inc. and David Moore.
(Incorporated by reference to Exhibit 7.6 to the Company's current report on Form 8K dated October
17, 1995).
10.7 Stock Purchase Agreement between David Moore or his designees and AMRE, Inc. (Incorporated by
reference to Exhibit 7.7 to the Company's current report on form 8K dated October 17, 1995).
10.8 Agreement and Plan of Merger dated as of October 31, 1995, among AMRE, Inc., AMRE Acquisition,
Inc., a Delaware corporation, Facelifters Home Systems, Inc., a New York corporation, and
Facelifters Home Systems, Inc., a Delaware corporation, together with all exhibits thereto.
(Incorporated by reference to Exhibit 7.1 to the Company's current report on Form 8K dated October
31, 1995).
11. Calculations of weighted average common shares outstanding for the quarterly period ended October
1, 1995.
27. Financial Data Schedule
</TABLE>
- --------------------------
(b) Reports on Form 8-K:
No reports on Form 8-K were filed by the Company during the quarter ended
October 1, 1995.
14
<PAGE> 17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMRE, Inc.
DATE: November 13, 1995 /s/ John S. Vanecko
------------------------------------------
John S. Vanecko
Vice President and Chief Financial Officer
(Principal financial officer and
duly authorized officer of registrant)
15
<PAGE> 18
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
- ------- -----------
<S> <C>
10.1 License Agreement, dated October 17, 1995, among TM Acquisition Corp. and Century 21 Real Estate
Corporation and American Remodeling, Inc. (Incorporated by reference to Exhibit 7.1 to the
Company's current report on Form 8K dated October 17, 1995).
10.2 Preferred Stock Purchase Agreement, dated October 17, 1995, between AMRE, Inc. and HFS
Incorporated. (Incorporated by reference to Exhibit 7.2 to the Company's current report on Form
8K dated October 17, 1995).
10.3 Credit Agreement, dated October 17, 1995, between AMRE, Inc. and HFS Incorporated. (Incorporated
by reference to Exhibit 7.3 to the company's current report on Form 8K dated October 17, 1995).
10.4 Letter Agreement, dated October 17, 1995, between AMRE, Inc. and David Moore. (Incorporated by
reference to Exhibit 7.4 to the Company's current report on form 8K dated October 17, 1995).
10.5 $5.00 Stock Option Agreement, dated October 17, 1995, between AMRE, Inc. and David Moore.
(Incorporated by reference to Exhibit 7.5 to the Company's current report on Form 8K dated
October 17, 1995).
10.6 $5.50 Stock Option Agreement dated October 17, 1995, between AMRE, Inc. and David Moore.
(Incorporated by reference to Exhibit 7.6 to the Company's current report on Form 8K dated
October 17, 1995).
10.7 Stock Purchase Agreement between David Moore or his designees and AMRE, Inc. (Incorporated by
reference to Exhibit 7.7 to the Company's current report on form 8K dated October 17, 1995).
10.8 Agreement and Plan of Merger dated as of October 31, 1995, among AMRE, Inc., AMRE Acquisition,
Inc., a Delaware corporation, Facelifters Home Systems, Inc., a New York corporation, and
Facelifters Home Systems, Inc., a Delaware corporation, together with all exhibits thereto.
(Incorporated by reference to Exhibit 7.1 to the Company's current report on Form 8K dated
October 31, 1995).
11. Calculations of weighted average common shares outstanding for the quarterly period ended October
1, 1995.
27. Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 11
AMRE, INC.
COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
(IN THOUSANDS)
<TABLE>
<CAPTION>
Three-month Nine-month
periods ended periods ended
----------------------------- ------------------------------
October 1, September 25, October 1, September 25,
1995 1994 1995 1994
------------ --------------- ----------- ---------------
<S> <C> <C> <C> <C>
Common Stock outstanding . . . . . . . . . . . . 12,850 12,850 12,850 12,850
Common Stock equivalents . . . . . . . . . . . . -- 132 -- 70
------ ------ ------ ------
Weighted average number of shares
outstanding . . . . . . . . . . . . . . . . . 12,850 12,982 12,850 12,920
====== ====== ====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> OCT-01-1995
<CASH> 6,633
<SECURITIES> 12,255
<RECEIVABLES> 11,019
<ALLOWANCES> 755
<INVENTORY> 5,095
<CURRENT-ASSETS> 44,524
<PP&E> 20,202
<DEPRECIATION> 41,389
<TOTAL-ASSETS> 64,119
<CURRENT-LIABILITIES> 36,240
<BONDS> 254
<COMMON> 141
0
0
<OTHER-SE> 27,484
<TOTAL-LIABILITY-AND-EQUITY> 64,119
<SALES> 211,615
<TOTAL-REVENUES> 211,615
<CGS> 68,484
<TOTAL-COSTS> 68,484
<OTHER-EXPENSES> 97,178
<LOSS-PROVISION> 477
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> (7,163)
<INCOME-TAX> (2,149)
<INCOME-CONTINUING> (5,014)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,014)
<EPS-PRIMARY> (0.39)
<EPS-DILUTED> (0.39)
</TABLE>
