<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 SEPTEMBER 29, 1996
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 October 27, 1996, there were 21,237,728 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.
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<S> <C> <C>
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED):
Consolidated Balance Sheet - September 29, 1996 and December 31, 1995 . . . . . . . . . . 1
Consolidated Statement of Operations - Quarterly periods ended September 29, 1996
and October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Operations - Nine-month periods ended September 29, 1996
and October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Cash Flows - Nine-month periods ended September 29, 1996
and October 1, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Stockholders' Equity - Nine-month period
ended September 29, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
</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)
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 29, DECEMBER 31,
1996 1995
----------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . $ 24,921 $ 13,177
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . . 2,660 9,523
Accounts receivable -
Trade, net of allowance for doubtful accounts of $1,182 and $891 . 9,854 8,806
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 938 913
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 3,987
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,284 7,370
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . . 3,824 3,983
----------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . . 48,506 47,759
Property, plant and equipment, net . . . . . . . . . . . . . . . . . . 9,134 9,291
Goodwill, less accumulated amortization of $2,343 and $2,164 . . . . . 9,045 9,768
Notes receivable - related parties . . . . . . . . . . . . . . . . . . -- 469
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,552 1,499
----------- -----------
$ 68,237 $ 68,786
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . $ 26,547 $ 16,516
Wages, commissions and bonuses . . . . . . . . . . . . . . . . . . . 6,130 5,698
Accrued workers' compensation . . . . . . . . . . . . . . . . . . . . 1,901 2,076
Current portion - long-term debt and capital lease obligations . . . 1,199 2,283
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . . 18,627 20,678
----------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . . 54,404 47,251
----------- -----------
Long-term debt and capital lease obligations . . . . . . . . . . . . . 5,884 6,120
----------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . . 60,288 53,371
----------- -----------
Commitments and contingencies
Senior Convertible Redeemable Preferred Stock - $.10 par value;
300,000 shares issued and outstanding, liquidation
value of $10 per share . . . . . . . . . . . . . . . . . . . . 3,181 3,000
Stockholders' equity:
Preferred stock - $.10 par value, 1,000,000 shares
authorized; 300,000 Senior Convertible shares outstanding . . . . . -- --
Common stock - $.01 par value, 40,000,000 shares
authorized, 21,780,213 and 18,872,039 shares issued; 21,225,120
and 17,649,841 shares outstanding . . . . . . . . . . . . . . . . . 218 189
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . . 62,944 34,293
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . . (48,375) (6,446)
----------- -----------
14,787 28,036
Less: Treasury stock, at cost (555,093 and 1,222,198 shares) . . . . (4,955) (10,301)
Unearned ESOP compensation . . . . . . . . . . . . . . . . . (5,064) (5,320)
----------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . . 4,768 12,415
----------- -----------
$ 68,237 $ 68,786
=========== ===========
</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>
QUARTER ENDED
-----------------------------------
SEPTEMBER 29, OCTOBER 1,
1996 1995
----------- ------------
<S> <C> <C>
Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 65,020 $ 96,891
Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 21,961 31,825
----------- ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 43,059 65,066
----------- ------------
Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 5,975 6,235
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 22,029 22,892
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 12,960 15,867
License and finance fees . . . . . . . . . . . . . . . . . . . . . 6,077 11,493
General and administrative expenses . . . . . . . . . . . . . . . . 6,879 6,548
Provision for plant closing . . . . . . . . . . . . . . . . . . . . -- 1,065
----------- ------------
53,920 64,100
----------- ------------
Operating income (loss) . . . . . . . . . . . . . . . . . . . . . . (10,861) 966
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 135 415
Other income (expense), net . . . . . . . . . . . . . . . . . . . . (149) 278
----------- ------------
Income (loss) before income taxes . . . . . . . . . . . . . . . . . (10,875) 1,659
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 549
----------- ------------
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . . $ (10,875) $ 1,110
=========== ============
Net income (loss) per share . . . . . . . . . . . . . . . . . . . . $ (.55) $ .07
=========== ============
Weighted average shares outstanding . . . . . . . . . . . . . . . . 20,059 17,146
=========== ============
</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
-----------------------------------
SEPTEMBER 29, OCTOBER 1,
1996 1995
----------- ------------
<S> <C> <C>
Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 186,496 $ 261,931
Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 66,577 87,590
----------- ------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 119,919 174,341
----------- ------------
Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 18,137 17,823
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 67,217 66,730
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 38,604 46,229
License and finance fees . . . . . . . . . . . . . . . . . . . . . 14,680 31,075
General and administrative expenses . . . . . . . . . . . . . . . . 21,094 20,122
Provision for plant closing . . . . . . . . . . . . . . . . . . . . -- 1,065
Non-recurring charges . . . . . . . . . . . . . . . . . . . . . . . 2,500 --
----------- ------------
162,232 183,044
----------- ------------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . (42,313) (8,703)
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 606 1,151
Other income (expense), net . . . . . . . . . . . . . . . . . . . . (154) 225
----------- ------------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . (41,861) (7,327)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . 50 (2,085)
----------- ------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (41,911) $ (5,242)
=========== ============
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . $ (2.20) $ (.31)
=========== ============
Cash dividends declared per share . . . . . . . . . . . . . . . . . $ -- $ .05
=========== ============
Weighted average shares outstanding . . . . . . . . . . . . . . . . 19,128 17,128
=========== ============
</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
----------------------------------------
SEPTEMBER 29, 1996 OCTOBER 1, 1995
------------------ ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (41,911) $ (5,242)
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . 50 (2,085)
Depreciation and amortization . . . . . . . . . . . . . . . . . 2,503 2,947
Provision for doubtful accounts . . . . . . . . . . . . . . . . 1,138 477
Other non-cash items . . . . . . . . . . . . . . . . . . . . . 1,335 550
Cash receipts of (payments for) income taxes . . . . . . . . . 3,918 (289)
Changes in assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . (2,212) (5,179)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 1,086 (241)
Prepaid expenses and other assets . . . . . . . . . . . . . . (319) 1,013
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 10,031 (2,667)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . (1,799) 5,306
--------- ---------
Total adjustments . . . . . . . . . . . . . . . . . . . . 15,731 (168)
--------- ---------
Net cash used in operating activities . . . . . . . . . . . . . . (26,180) (5,410)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities . . . . . . . . . . . . . . . . . 15,850 24,790
Purchase of marketable securities . . . . . . . . . . . . . . . (9,031) (17,332)
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . 469 137
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (2,391) (2,180)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 237 13
--------- ---------
Net cash provided by investing activities . . . . . . . . . . . . 5,134 5,428
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable . . . . . . . . . . . . . . . . . . -- 521
Payments on long-term debt . . . . . . . . . . . . . . . . . . (1,399) (724)
Issuance of common stock . . . . . . . . . . . . . . . . . . . 34,207 81
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . (18) (822)
--------- ---------
Net cash provided by (used in) financing activities . . . . . . . 32,790 (944)
--------- ---------
Net change in cash and cash equivalents . . . . . . . . . . . . . 11,744 (926)
Cash and cash equivalents at beginning of period . . . . . . . . 13,177 9,344
--------- ---------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 24,921 $ 8,418
========= =========
</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>
ADDITIONAL UNEARNED
COMMON STOCK PAID-IN RETAINED ESOP TREASURY STOCK
--------------------- -------------------
SHARES AMOUNT CAPITAL DEFICIT COMPENSATION SHARES AMOUNT
-------- ------ -------- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 . 18,872 $ 189 $ 34,293 $ ( 6,446) $ (5,320) (1,222) $ (10,301)
Net loss . . . . . . . . . . -- -- -- (41,911) -- -- --
Preferred stock dividends . . -- -- (181) -- -- -- --
Common stock dividends . . . -- -- -- (18) -- -- --
Issuance of stock . . . . . 1,989 20 29,507 -- -- -- --
Exercise of options . . . . . 919 9 (675) -- -- 667 5,346
Compensation expense for
ESOP shares released . . . -- -- -- -- 256 -- --
-------- ----- -------- --------- -------- ------ --------
Balance, September 29, 1996 . 21,780 $ 218 $ 62,944 $ (48,375) $ (5,064) (555) $ (4,955)
======== ===== ======== ========= ======== ====== ========
</TABLE>
5
<PAGE> 8
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 29, 1996
NOTE 1 - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation - The accompanying interim consolidated
financial statements of AMRE, Inc. (the "Company" or "AMRE") and its
subsidiaries, American Remodeling, Inc., Facelifters Home Systems, Inc.,
Congressional Construction Corporation and Century 21 Home Improvements, Inc.
as of September 29, 1996 and for the three-month and nine-month periods ended
September 29, 1996 and October 1, 1995 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 annual financial
statements and related notes included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995 and the post-merger consolidated
annual financial statements and related notes included in the Company's
Registration Statement on Form S-3 filed on September 3, 1996.
On April 25, 1996, the Company consummated a merger with Facelifters
Home Systems, Inc. ("Facelifters"). The merger is accounted for as a pooling
of interests. The accompanying unaudited consolidated financial statements
give retroactive effect to this transaction.
On May 28, 1996, the Company consummated a merger with Congressional
Construction Corporation ("Congressional"). The merger is accounted for as a
pooling of interests. The accompanying unaudited consolidated financial
statements give retroactive effect to this transaction.
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
Litigation - AMRE has been named as a defendant in a proceeding filed
on February 29, 1996 in the Superior Court of California by a party who claims
ownership of a service mark registered only in the State of California styled
"21st Century Home Improvement." AMRE has been advised by Century 21 Real
Estate Corporation, the owner of the CENTURY 21(R) Home Improvements(SM) name,
that the action has been moved from state court to federal court. The
plaintiff alleges, among other things, that the CENTURY 21 Home Improvements
name is an infringement of the plaintiff's trade name and registered mark and
constitutes an unfair business practice. The plaintiff seeks a preliminary and
permanent injunction enjoining AMRE from operating under the CENTURY 21 Home
Improvements name in California, general damages according to proof, all
profits realized by AMRE from operating under the CENTURY 21 Home Improvements
name in California and costs and attorneys' fees.
AMRE has been advised by Century 21 Real Estate Corporation that it
gave notice to counsel for the owner of the "21st Century Home Improvement"
mark that the latter mark infringed on Century 21 Real Estate Corporation's
federally registered mark. AMRE has further been advised by Century 21 Real
Estate Corporation that: (i) it is its policy and practice to vigorously
defend its trade name, (ii) Century 21 Real Estate Corporation has successfully
litigated in the past to protect its trade name and federally registered mark,
and (iii) it has obtained a number of judgments against such entities which had
used "21st CENTURY" or marks containing the word "CENTURY" in connection with
remodeling or home construction services. In addition, Century 21 Real Estate
Corporation has advised AMRE that Century 21 Real Estate Corporation's federal
trademark registration predates the use of the "21st
6
<PAGE> 9
Century Home Improvement" mark, and for the above-listed reasons, AMRE believes
at this time that it is legally entitled to use the CENTURY 21 Home
Improvements mark in California.
The Company is a party to certain other legal proceedings arising in
the ordinary course of business, none of which is believed to be material to
the financial position of the Company.
Credit Agreement - AMRE has an agreement with a financial institution
which makes financing available to its customers. The agreement provides the
financial institution with a right of first refusal on substantially all of
AMRE's customer credit applications and provides AMRE with a minimum acceptance
rate of customer credit applications based on specified criteria. AMRE's risk
under the agreement is limited to its normal warranties and representations
regarding materials and workmanship. AMRE has experienced lower customer
credit ratings during 1996 which, during the first four months of the year,
resulted in higher sales credit rejects than in prior years and lower net sales
closing rates. On May 8, 1996, the agreement was amended to provide for (i) an
increased minimum acceptance rate regardless of the specified credit criteria
and (ii) a fee to be paid by AMRE on every customer loan provided by the
financial institution. The fee amount, which was set initially at 5.45 percent
of the loan amount, is tied to the specified credit criteria and is subject to
adjustment every six months.
AMRE estimates that approximately 75 to 80 percent of its contract
revenues are financed under this agreement. While the amendment is designed to
provide increased revenue dollars, net of the fee, and therefore increased
profitability, there can be no assurance that revenues will increase.
Prior to 1995, the Company assumed some recourse liability, or credit
risk in certain customer financing agreements, if customer defaults exceed
specified levels. The Company has provided a reserve for estimated losses
under the recourse liability. However, customer defaults may differ from the
estimated amount and therefore the reserve may be adjusted in future periods.
NOTE 3 - SUPPLEMENTAL CASH FLOW INFORMATION
The Company recorded non-cash items as follows:
<TABLE>
<CAPTION>
NINE-MONTH PERIODS ENDED
-------------------------------------
SEPTEMBER 29, OCTOBER 1,
1996 1995
--------------- -------------
<S> <C> <C>
Amortization of investment premium and discounts . . . $ 44 $ 159
Compensation expense for ESOP shares released . . . . . 256 402
Leaseholds and other assets written off . . . . . . . . 990 --
Other . . . . . . . . . . . . . . . . . . . . . . . . . 45 (11)
--------------- -------------
$ 1,335 $ 550
=============== =============
</TABLE>
7
<PAGE> 10
NOTE 4 - NON-RECURRING CHARGES AND PROVISION FOR PLANT CLOSING
AMRE incurred a non-recurring charge to operations of approximately
$2.5 million during the first quarter of 1996 to reflect costs associated with
the mergers, and the integration of Facelifters and Congressional. This
estimate is subject to change based upon additional information. In the third
quarter of 1995, Facelifters decided to consolidate all manufacturing at one
facility and accordingly recorded a provision for plant closing of $1,065,000.
NOTE 5 - INCOME TAXES
The Company has recorded a valuation allowance to reflect the
uncertainties associated with the ultimate realization of its deferred tax
asset. Management periodically reviews the expected realization of the
deferred tax asset and makes adjustments to the valuation allowance, as
appropriate, when existing conditions change the probability of ultimate
realization. The Company established a valuation allowance of $6.4 million at
December 31, 1995 which equaled 100% of its deferred tax asset.
Management's evaluation as to the realizability of the deferred tax
asset took into consideration available evidence, both positive and negative,
regarding ultimate realization. Negative evidence considered by management
included (1) a significant loss in 1995, (2) operating losses in two of the
last three years, (3) the expected decline in revenues in 1996, (4) the
uncertainties associated with the time and cost to build awareness of the
CENTURY 21 Home Improvements name and generate significant amounts of
cost-effective leads and the process of integrating the companies when the
mergers were consummated made it difficult to estimate when the Company would
return to profitability and (5) costs relating to the brand transition and the
mergers.
Positive evidence considered by management included (1) a 3.0% license
fee (subject to an $11.0 million minimum relating to 1996) to be paid for use
of the CENTURY 21 Home Improvements name as compared to a 12.0% license fee
paid to Sears in 1995 and (2) expanded geographic and product opportunities
under the Century 21 License Agreement.
Until the Century 21 License Agreement is in operation for a period of
time, there is insufficient historical or objective evidence to determine its
impact on future taxable income. Therefore, based on the lack of existing
objective evidence, management believes it is more likely than not that the
Company will be unable to generate sufficient taxable income to utilize the
deferred tax asset and that a reserve should be provided for the entire
deferred tax asset. No tax benefit has been provided for the pre-tax loss of
the current period ended September 29, 1996. Management will review the
valuation allowance in the future as the results and impact of the CENTURY 21
Home Improvements license arrangement are known.
NOTE 6 - CAPITALIZATION
Revolving credit facility - At September 29, 1996, no loans had been
made under the credit facility.
Long-term debt and capital lease obligations - The balance of the ESOP
loan at September 29, 1996 was approximately $5,064,000, of which $799,000 was
classified as current in the accompanying balance sheet. The Company will
terminate the ESOP as soon as practicable and is cooperating with the ESOP
Trustee to determine the most appropriate means to accomplish the termination.
The ESOP owns 599,998 shares of AMRE common stock, of which 434,515 shares have
not been allocated to participants' accounts. Upon termination of the ESOP,
the unallocated shares will be sold and the proceeds applied to the balance of
the ESOP loan. Any excess of such proceeds after repayment of the ESOP loan
would be for the account of the participants. Any shortfall between the
proceeds and the ESOP loan balance would be provided by the Company. The
lender has requested that a restricted cash collateral account be funded with
an amount equal to 100% of the unpaid balance of the ESOP loan. The
8
<PAGE> 11
Company funded the cash collateral account with an amount equal to
approximately $2,227,000 on October 17, 1996 and will fund the remaining
balance of approximately $2,837,000, less monthly principal payments,
in November, 1996.
Senior Convertible Redeemable Preferred Stock - At September 29, 1996,
$181,000 of dividends have been accrued on the Senior Convertible Redeemable
Preferred Stock.
Amendment to Certificate of Incorporation - In connection with the
Facelifters merger, on April 25, 1996, the stockholders of the Company approved
an amendment to the Certificate of Incorporation to increase the number of
authorized shares of common stock of the Company from 20 million to 40 million
shares.
Common Stock Issued - On April 30, 1996, the Company completed a
private placement with institutional investors pursuant to which the Company
issued 800,500 shares of its common stock. The purchasers had not previously
owned any common stock of the Company. The common stock was sold at a discount
to the then current market price in exchange for an agreement with the
investors not to sell the shares for a minimum of 180 days. The Company
received approximately $12 million of net proceeds after transaction expenses.
On September 13, 1996, the Company completed a public offering of
1,621,250 shares of its common stock. Of the shares sold in the offering,
1,100,000 shares were newly issued shares sold on behalf of the Company and
521,250 shares were sold for the accounts of two former executives of
Facelifters. The Company received approximately $17 million net of offering
expenses, from the sales of the shares offered by Company, which will be used
for working capital and general corporate purposes.
NOTE 7 - MERGERS WITH FACELIFTERS AND CONGRESSIONAL
On October 31, 1995, the Company and Facelifters entered into an
agreement whereby a newly formed subsidiary of the Company would be merged with
and into Facelifters. Facelifters designs, manufactures, markets, sells and
installs kitchen cabinet refacing products utilized in kitchen remodeling,
directly to consumers in 23 markets, primarily markets in which the Company did
not operate.
On April 25, 1996, the stockholders of the Company and Facelifters
approved the merger ("Facelifters Merger") and Facelifters became a direct,
wholly-owned subsidiary of AMRE. Each outstanding share of common stock of
Facelifters, $.01 par value per share (the "Facelifters Common Stock"), was
converted into one share of AMRE Common Stock. Based on the number of shares
of Facelifters Common Stock outstanding upon consummation of the Facelifters
Merger, approximately 3,578,439 shares of AMRE Common Stock were issued to
holders of Facelifters Common Stock. In addition, AMRE reserved approximately
368,255 shares of AMRE Common Stock for issuance upon the exercise of
outstanding options to acquire Facelifters Common Stock.
On December 30, 1995, the Company and Congressional entered into an
agreement whereby a newly formed subsidiary of the Company would be merged with
and into Congressional. Congressional markets, sells, furnishes and installs
home improvement products, including siding, fencing, wooden decks, replacement
vinyl windows, roofing and patio enclosures directly to consumers in certain
markets, primarily markets in which the Company does not currently operate. In
connection with the merger, which was consummated on May 28, 1996, 899,998
shares of AMRE Common Stock were issued to the existing stockholders of
Congressional.
9
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The Company is engaged through direct consumer marketing, in the
in-home sale 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, wooden decks, fencing,
roofing and patio enclosures. The business of the Company is characterized by
the need to continuously generate prospective customer leads, and in this
respect, marketing and selling expenses constitute a substantial portion of the
overall expense of the Company.
To assist in understanding the Company's operating results, 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 September 29, 1996 and October 1, 1995.
<TABLE>
<CAPTION>
PERCENTAGE OF CONTRACT REVENUES
----------------------------------------------------------------
THREE-MONTH PERIODS ENDED NINE-MONTH PERIODS ENDED
-------------------------- ----------------------------
SEPTEMBER 29, OCTOBER 1, SEPTEMBER 29, OCTOBER 1,
1996 1995 1996 1995
---------- --------- -------- --------
<S> <C> <C> <C> <C>
Contract revenues . . . . . . . . . . . 100.0 % 100.0% 100.0 % 100.0 %
Contract costs . . . . . . . . . . . . 33.8 32.8 35.7 33.4
---------- --------- -------- --------
Gross profit . . . . . . . . . . . . . 66.2 67.2 64.3 66.6
---------- --------- -------- --------
Branch operating expenses . . . . . . . 9.2 6.4 9.7 6.8
Marketing expenses . . . . . . . . . . 33.9 23.6 36.0 25.5
Selling expenses . . . . . . . . . . . 19.9 16.4 20.7 17.6
License and finance fees . . . . . . . 9.3 11.9 7.9 11.9
General and administrative expenses . . 10.6 6.8 11.4 7.7
Non-recurring and plant closing charges -- 1.1 1.3 .4
---------- --------- -------- --------
Income (loss) from operations . . . . . (16.7) 1.0 (22.7) (3.3)
Other income and (expense), net . . . . -- .7 .3 .5
---------- --------- -------- --------
Income (loss) before income taxes . . . (16.7) 1.7 (22.4) (2.8)
Income taxes . . . . . . . . . . . . . -- .6 .1 (.8)
---------- --------- -------- --------
Net income (loss) . . . . . . . . . . . (16.7)% 1.1% (22.5)% (2.0)%
========== ========= ======== ========
</TABLE>
10
<PAGE> 13
RESULTS OF OPERATIONS
NINE-MONTH PERIOD ENDED SEPTEMBER 29, 1996 COMPARED WITH THE NINE-MONTH PERIOD
ENDED OCTOBER 1, 1995
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 was
granted an exclusive 20-year license to operate under the name CENTURY 21 Home
Improvements in the marketing, sale, and installation of certain home
improvement products in the United States, Canada, and Mexico. The Company
also has the right to grant sublicenses under the agreement. The Company did
not renew its license agreement with Sears, Roebuck and Co. ("Sears") when it
expired on December 31, 1995.
By switching from the Sears to the CENTURY 21 Home Improvements name,
AMRE implemented a strategic decision to alter significantly the marketing and
distribution focus of its existing home improvements operations as well as to
expand into new product lines and geographical territories. The Company
realized that the Sears brand name is widely accepted in the home improvement
industry and has significant brand name appeal to a wide variety of customers.
However, the Company believes that, over the long term, the CENTURY 21 Home
Improvements name provides the Company with a better opportunity for growth and
profitability, including access to additional geographic markets, a larger
array of licensed products, the ability to expand through sublicensing, a
significantly lower royalty obligation and a 20-year term, facilitating
long-term planning.
AMRE's conversion to the CENTURY 21 Home Improvements brand is taking
a longer period of time and requiring greater capital than initially
anticipated, however, management is encouraged by customer receptivity of the
brand as measured by the number of leads generated, and remains optimistic
about the ultimate prospects of both the Company's core product operations as
well as the Company's franchise opportunities. As discussed below, the
Company is addressing a number of challenges as it simultaneously continues to
develop the CENTURY 21 Home Improvements name, adapts to a new marketing model
involving new marketing media and customer demographics and begins franchising
the name into new product lines. These challenges include, but are not limited
to, building consumer awareness of the brand, developing cost-effective sources
of sales leads, integrating the operations of Facelifters and Congressional and
maintaining liquidity throughout the transition. Although management remains
confident that AMRE's long-term business strategy is sound, it is not possible
to estimate when the Company will return to profitability in light of the
transitional challenges and uncertainties which lie ahead. As discussed below
under "Liquidity," the Company will require outside sources of capital to fund
its working capital requirements during 1997.
AMRE now conducts its advertising using the CENTURY 21 Home
Improvements name. There is no way to estimate the time required to build
brand awareness of the CENTURY 21 Home Improvement name. Although the CENTURY
21 Home Improvements name was not used in the home improvement industry before
1996, at which time AMRE began using the name, AMRE's management continues to
believe such brand name should also be well recognized; however, there can be
no assurance that revenues under the CENTURY 21 Home Improvements name will be
similar to or greater than those under the Sears brand name. If the CENTURY 21
Home Improvements name does not result in advertising response rates and sales
rates equal to or better than those experienced under the Sears brand name, it
will likely have an adverse effect on the business, operating results and
financial condition of AMRE.
Leads on potential customers are critically important to AMRE's
business. Under the Sears brand name, AMRE generated approximately 20% of its
leads through AMRE-staffed kiosks located inside of Sears stores and 80% of its
leads through television, radio, direct mail, telemarketing and alternative
media sources. AMRE's transition strategy was to replace its prior Sears
in-store lead source with a multi-faceted field marketing program consisting of
free standing kiosks located in malls across the country, increased AMRE
presence in home shows and a cooperative referral program with the CENTURY 21
real estate broker network. AMRE opened more than 200
11
<PAGE> 14
kiosks during the first nine months of 1996, and during the third quarter was
generating approximately 20% of its appointments from its kiosks, although the
appointments are not yet as cost-effective as those previously obtained under
the Sears in-store program.
In addition to the mall kiosks, in July 1996, the Company announced
an agreement with Montgomery Ward & Co., Inc. to operate branded kiosks in
certain Montgomery Ward stores and to market its products and services to all
Montgomery Ward charge card holders and other Montgomery Ward mailing and
marketing lists. As of September 29, 1996, the Company operated kiosks in 40
Montgomery Ward stores.
AMRE's marketing strategy also included substantially increasing its
reliance on telemarketing as a lead source and AMRE opened two outbound
telemarketing centers during the brand transition in order to accomplish this
objective. While management continues to be optimistic about the ultimate
prospects for AMRE's new marketing strategy, there can be no assurances that
AMRE's new lead sources will produce a quantity and quality of leads comparable
to that produced under the Sears name at an equivalent per-lead cost, and the
failure to obtain a sufficient number of quality, cost- effective leads could
have a material adverse impact on AMRE's business, operating results and
financial condition.
Among the challenges in switching from the Sears to the CENTURY 21
Home Improvements name, the Company was required to deliver to Sears in January
1996, all of the leads it generated under the Sears name through December 31,
1995. Thus, in January 1996, the Company had to quickly generate as many leads
as possible and had to do so without in- store leads, a major 1995 lead source.
Since the new outbound telemarketing centers, the in-mall kiosk program and the
CENTURY 21 lead referral program were not anticipated to produce any
significant amount of cost-effective leads for several months, lead generation
in early 1996 emphasized quick response media, such as television and radio, as
well as telemarketing leads purchased from a third party vendor, which
increased lead generation costs and resulted in fewer leads at higher costs.
Furthermore, the significant increase in the mix of telemarketing leads and new
lead generation programs, and an inability to achieve adequate sales staffing
levels, all reduced the number of appointments during the first nine months as
compared to the prior year period.
In addition to the above factors, the Company experienced a decline in
the sales dollars generated per appointment during the first nine months
resulting from lower sales closing rates coupled with selling price discounting
in connection with launching the CENTURY 21 Home Improvements brand name. The
lower number of appointments and lower sales dollars generated per appointment
resulted in a 30% decline in the dollar amount of sales orders as compared to
the prior year period and consequently contract revenues declined from
$261,931,000 to $186,496,000 in the current year. Production backlog was
approximately $29 million at September 29, 1996, approximately 26% below the
same period last year.
Gross profit as a percentage of contract revenues declined from 66.6%
in the prior year period to 64.3% in the current year. The Company discounted
its selling prices heavily in launching the CENTURY 21 Home Improvements brand
name throughout most of the current year period, as it had also discounted
prices on jobs sold in late 1995 but installed in 1996 under the Sears name in
order to maximize the revenue generated from the remaining available Sears
leads.
Branch operating expenses increased from 6.8% of contract revenues in
the prior year period to 9.7% in 1996. Branch operating expenses are primarily
fixed costs, and as such, increased in percentage terms largely due to lower
contract revenues. Branch operating expenses increased in dollar terms
approximately $314,000 from the prior year period largely due to increased
staffing.
12
<PAGE> 15
Marketing expense increased from $66,730,000 or 25.5% of contract
revenues to $67,217,000 or 36.0% of contract revenues. The increase in
marketing expenses principally reflects the transition to the CENTURY 21 Home
Improvements brand name during which the Company has experienced a decline in
the sales dollars generated per appointment as well as a higher marketing cost
per appointment. As discussed above, the Company initially concentrated its
advertising efforts in quick response media, such as television and radio, as
well as telemarketing leads purchased from a third party vendor, all of which
are higher cost media as compared to the Company's other lead generation
sources. Additionally, the in-mall kiosk programs, the two telemarketing call
centers, and the CENTURY 21 real estate broker referral program increased
marketing expenditures but were not expected to generate either a significant
quantity of, or cost-effective leads during the period. In the Company's
normal operating cycle, advertising expenses can precede the securing of sales
orders by up to two months, and precede completion of installations by up to
four months, depending upon the responsiveness of the advertising media
selected and the production cycle time of the product. This also contributes
to a higher level of marketing expense as a percent of contract revenues when
the production backlog increases.
Selling expenses increased to 20.7% of contract revenues as compared
to 17.6% in the prior year period. Sales compensation, excluding management
salaries, was approximately 11.8% in both periods. Other selling expenses,
which include sales manager salaries, and training, insurance costs, recruiting
and travel, all of which are primarily fixed expenses in nature, increased in
percentage terms due to the decline in contract revenues from the prior year
period.
License and finance fees decreased to 7.9% of contract revenues as
compared to 11.9% in the same period last year. The decrease in percentage
terms reflects the lower license fee rate under the Century 21 License
Agreement partially offset by financing fees under the Company's new customer
financing credit agreement. In addition, a portion of the contracts installed
in the current year period were sold late in 1995 under the Sears License
Agreement which had a 12% license fee.
General and administrative expenses increased from 7.7% of contract
revenues in the prior year to 11.4% in the current year. In 1996, the Company
incurred increases in bad debt and legal expenses as compared to the prior year
and therefore, in the aggregate, the dollar amount of general and
administrative expenses increased a net $972,000 from the prior year period.
The Company had recorded a 100% valuation allowance at December 31,
1995 to reflect the uncertainties associated with the ultimate realization of
its deferred tax asset. Management periodically reviews the expected
realization of the deferred tax asset and makes adjustments to the valuation
allowance, as appropriate, when existing conditions change the probability of
ultimate realization. Until the Century 21 License Agreement is in operation
for a period of time, there is insufficient historical or objective evidence
to determine its impact on future taxable income. Therefore, based on the lack
of existing objective evidence, management believes it is more likely than not
that the Company will be unable to generate sufficient taxable income to
utilize the deferred tax asset. No tax benefit has been provided for the
pre-tax loss of the current period ended September 29, 1996.
THREE-MONTH PERIOD ENDED SEPTEMBER 29, 1996 COMPARED WITH THE THREE-MONTH
PERIOD ENDED OCTOBER 1, 1995
Overall for the third quarter, the Company's performance failed to
meet management's expectations and plans. The planned increases in operating
efficiencies as compared to the second quarter of the year did not occur in the
third quarter, as the Company experienced a weak sales trend due to
lower-than-expected sales closing rates. The decrease in sales closing rates
was attributable to the hiring of a large number of new, inexperienced sales
personnel during the quarter. Weak sales were compounded by the Company's
increased dependence on telemarketing leads during the quarter, which generally
require a higher level of sales skills to close. The lack of adequate sales
staffing combined with the lower sales dollars generated per appointment
resulted in lower than planned contract revenues for the quarter and a lower
than planned production backlog entering the fourth quarter.
13
<PAGE> 16
The dollar amount of sales orders in the third quarter declined
approximately 26% from the prior year period due to fewer appointments because
of inadequate sales staffing levels, and lower sales dollars generated per
appointment resulting from selling price discounting as well as lower sales
closing rates. As a result of the lower amount of sales orders, contract
revenues declined from $96,891,000 in the prior year period to $65,020,000 in
the current year period. The operating loss was $10,861,000 as compared to
operating income of $966,000 in the prior year period.
Gross profit as a percentage of contract revenues declined from 67.2%
in the prior year period to 66.2% in the current year. Contract installations
during the period included sales orders received in the prior quarter in which
the Company had discounted its selling prices in launching the CENTURY 21 Home
Improvements brand name. Early in the third quarter, the Company selectively
increased prices in certain markets and modified its sales compensation program
in order to discourage excessive sales price discounting. Consequently, while
margins declined from the prior year period, margins improved over the second
quarter of 1996.
Branch operating expenses increased from 6.4% of contract revenues in
the prior year period to 9.2% in 1996. Branch operating expenses are primarily
fixed costs, and as such, increased in percentage terms largely due to lower
contract revenues.
The Company generated 9% fewer appointments than in the prior year
period and spent 4% less in dollar terms. However, because of the lower sales
dollars generated per appointment, marketing expense increased from 23.6% of
contract revenues to 33.9% of contract revenues. The Company's marketing
programs consist primarily of costs which are relatively fixed in nature. The
Company attempted to reduce marketing spending as the sales shortfall became
apparent, however, only a small portion of field marketing, telemarketing,
appointment scheduling or committed media spending is variable. Additionally,
the Company was testing and will continue to test a number of new marketing
programs for 1997. In the fourth quarter, the Company plans to produce several
new television commercials for use in the 1997 advertising campaign as well as
run a significant year-end sales promotion in its kiosks and telemarketing
programs. AMRE has historically reduced media spending during the holiday
season in the fourth quarter and seen a corresponding substantial fall-off in
sales staffing. The plan for the fourth quarter of 1996 is to continue to
generate leads for the sales organization throughout the holiday season in an
effort to retain more of the sales force for 1997.
Selling expenses increased to 19.9% of contract revenues as compared
to 16.4% in the prior year period. Sales compensation as a percent of contract
revenues, excluding management salaries, increased from 11.4% to 11.8% of
contract revenues reflecting modifications of the sales compensation plan
during the period. Other selling expenses, which include sales manager
salaries, and training, insurance costs, recruiting and travel, all of which
are primarily fixed expenses in nature, increased in percentage terms largely
due to lower contract revenues.
License and finance fees decreased to 9.3% of contract revenues as
compared to 11.9% in the same period last year. The decrease in percentage
terms reflects the lower license fee rate under the Century 21 License
Agreement partially offset by financing fees under the Company's new customer
financing agreement.
General and administrative expenses increased from 6.8% of contract
revenues in the prior year to 10.6% in the current year. The increase in
percentage terms principally reflects the lower contract revenues in the
period. General and administration expenses increased in dollar terms largely
resulting from higher legal and bad debt expenses.
LIQUIDITY AND CAPITAL RESOURCES
Prior to 1996, the Company financed substantially all its liquidity
needs with internally generated funds. Due to the magnitude of the operating
loss resulting from the transition to the CENTURY 21 Home Improvements name for
the first nine months of 1996, the Company has had to resort to outside sources
of funds to meet its liquidity
14
<PAGE> 17
needs. Net cash used in operations during the nine-month period ended
September 29, 1996 was $26,180,000 principally due to the operating loss.
Capital expenditures totaled $2,391,000 and consisted primarily of in-mall
kiosk units. The Company received proceeds of approximately $33,307,000 from
the issuance of common stock, including the exercise of stock options and the
sale of 1,938,500 common shares. In addition, in connection with the
Montgomery Ward agreement discussed above, the Company received, on August 2,
1996, approximately $900,000 from the sale of 50,000 shares of AMRE Common
Stock and a Warrant to acquire up to 150,000 additional shares of AMRE Common
Stock at an agreed price of $18 per share (the closing price of AMRE Common
Stock on the New York Stock Exchange on July 17, 1996).
In the aggregate, cash and marketable securities totaled approximately
$27,581,000 at September 29, 1996. The Company had negative working capital at
September 29, 1996 and, under the terms of its license agreement with HFS, made
its initial cash payment of license fees of approximately $1,400,000 during the
fourth quarter and is required to pay the balance of the $11,000,000 minimum
fee no later than January 31, 1997. In addition, as discussed in Note 6 of the
Notes to Consolidated Financial Statements, the Company will fund a restricted
cash collateral account related to the ESOP loan in the amount of approximately
$5,000,000 during the fourth quarter.
Based on the lower than expected level of installable backlog carried
into the fourth quarter and continued high marketing expense, the Company
expects to incur a substantial operating loss during the fourth quarter. In
addition, given the historical trend toward lower sales and installations in
the weather-affected first quarter, the Company would expect to incur a
significant operating loss in the first quarter of 1997, although management
anticipates the magnitude of the operating loss would be substantially less
than the operating loss incurred in the first quarter of 1996. As a result,
the Company expects to utilize significant amounts of cash during the remainder
of 1996 and 1997 to fund such anticipated losses, and therefore the Company
anticipates the need for substantial additional working capital no later than
the first quarter of 1997.
As noted above, the execution of the Company's conversion to the
CENTURY 21 Home Improvements brand and launch of its franchise system have
taken longer and required greater capital than initially anticipated. In order
to return to profitability, the Company must improve its sales performance (in
terms of sales dollars generated per appointment), further lower its marketing
cost per appointment and expand its franchising system. Consequently, it is
not possible to estimate the timing of the Company's return to profitability.
In order to meet the Company's increased working capital needs,
management has engaged Bear Stearns & Co., Inc. to serve as financial advisor
with respect to an anticipated financing transaction by the Company, involving
either debt or equity, which would be intended to provide the Company with
sufficient cash to meet the Company's anticipated working capital needs. In
this regard, the Company is currently engaged in discussions relating to
possible financing strategies with several groups, including HFS Incorporated,
and the Company anticipates finalizing plans for raising additional capital in
the fourth quarter. Notwithstanding these discussions, no assurance can be
given that the Company will successfully complete any financing transaction or
otherwise maintain adequate liquidity, and any such failure would have a
material adverse effect on the Company's overall financial condition and would
severely constrain the Company's ability to operate its business as currently
conducted.
In addition to its proposed capital raising efforts, management is
also reviewing operational options for addressing the Company's working capital
situation. These options include, among other things, accelerating the
expansion of its franchise operations, aggressively divesting or closing
certain marginal sales offices and further reducing overhead. In this regard,
the Company is evaluating the cash flow and profit impact of such options. If
these options are implemented before the end of 1996, it will result in a
one-time charge in the fourth quarter. Since the decisions on cost reduction
options have not been finalized, it is difficult to estimate the amount of the
related one-time charge, however, it is expected to be in the range of
$4,000,000 to $6,000,000. Management believes that this combination of
aggressive cost reduction, focus on franchising and contemplated infusion of
additional capital will enhance the Company's ability to complete the successful
implementation of its business plan.
15
<PAGE> 18
SEASONALITY
Generally, because of the holiday season and weather conditions, the
Company's revenues and net income decline during the cold weather months
(especially in the first quarter). The following table sets forth the
Company's unaudited quarterly financial information:
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------
APRIL 2, JULY 2, OCTOBER 1, DECEMBER 31,
--------- --------- ---------- -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1995
Contract revenues . . . . . . . . . . . . . . $ 74,831 $ 90,209 $ 96,891 $ 77,976
Gross profit . . . . . . . . . . . . . . . . 48,764 60,511 65,066 50,255
Nonrecurring charges . . . . . . . . . . . . -- -- -- 11,800
Operating income (loss) . . . . . . . . . . . (7,067) (2,602) 966 (18,260)
Net income (loss) . . . . . . . . . . . . . . (4,515) $ (1,837) $ 1,110 $ (18,620)
Net income (loss) per share . . . . . . . . . $ (.26) $ (.11) $ .07 $ (1.07)
</TABLE>
<TABLE>
<CAPTION>
MARCH 31, JUNE 30, SEPTEMBER 29,
--------- --------- -------------
<S> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1996
Contract revenues . . . . . . . . . . . . . . $ 58,601 $ 62,875 $ 65,020
Gross profit . . . . . . . . . . . . . . . . 37,216 39,644 43,059
Nonrecurring charges . . . . . . . . . . . . 2,500 -- --
Operating loss . . . . . . . . . . . . . . . (19,015) (12,437) (10,861)
Net loss . . . . . . . . . . . . . . . . . . $ (18,942) $ (12,094) $ (10,875)
Net loss per share . . . . . . . . . . . . . $ (1.05) $ (.63) $ (.55)
</TABLE>
16
<PAGE> 19
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
10.1 Amendment No. 5 to the AMRE, Inc. Savings Investment Plan, effective
January 1, 1996.
11. Calculations of weighted average common shares outstanding for the
three-month and nine-month periods ended September 29, 1996 and
October 1, 1995.
27. Financial Data Schedule.
__________________________
(B) REPORTS ON FORM 8-K: There were no current reports on Form 8-K filed by
the Company during the quarter ended September 29, 1996.
17
<PAGE> 20
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, 1996 /s/ John S. Vanecko
----------------------------------
John S. Vanecko
Vice President and Chief Financial Officer
(Principal financial officer and
duly authorized officer of registrant)
18
<PAGE> 21
EXHIBIT INDEX
EXHIBIT
NUMBER NUMBER AND DESCRIPTION OF EXHIBIT
- ------- ---------------------------------
10.1 - Amendment No. 5 to the AMRE, Inc. Savings Investment Plan,
effective January 1, 1996.
11 - Calculations of weighted average common shares outstanding for the
three-month and nine-month periods ended September 29, 1996 and
October 1, 1995.
27 - Financial Data Schedule.
<PAGE> 1
EXHIBIT 10.1
AMENDMENT NO. 5 TO
THE AMRE, INC. SAVINGS INVESTMENT PLAN
WHEREAS, AMRE, Inc., a Delaware corporation (the "Company"), has
heretofore adopted The AMRE, Inc. Savings Investment Plan (the "Plan"); and
WHEREAS, pursuant to those provisions of the Plan permitting the
Company to amend the Plan from time to time, the Company desires to amend the
Plan in certain respects as hereinafter provided;
NOW, THEREFORE, the Company does hereby amend the Plan in the following
particulars, effective January 1, 1996, except as otherwise provided herein:
1. SECTION 3.01 OF THE PLAN IS HEREBY AMENDED TO BE AND TO READ AS
FOLLOWS:
"3.01 Participation
(a) In General -- Subject to the provisions of Section 3.03
hereof and except for any Employee (i) who is a member
of a collective bargaining unit, the recognized
representative of which has not agreed to Participation
in the Plan by its members or (ii) except to the extent
that paragraph (c) of this Section 3.01 is effective,
who is a leased employee, an Employee shall become a
Participant in this Plan as follows:
(1) Any Employee as of the Effective Date who was
included under the provisions of the Prior Plan
shall continue to participate in accordance
with the provisions of this Plan.
(2) Any other Employee as of the Effective Date who
has completed one (1) year of Service shall
become a Participant on the Effective Date.
(3) The Participation of any Employee who is
eligible to become a Participant thereafter
shall commence on the first day of the
calendar quarter as of which he has completed
one (1) year of Service.
Any active Participant who, on or after the Effective
Date, incurs a Severance from Service and who is
subsequently re-employed by a Participating Employer
shall, subject to the provisions of Section 3.03
hereof, immediately
<PAGE> 2
re-enter the Plan as an active Participant on his
Re-employment Commencement Date. An Employee who
completes one (1) year of Service and, prior to
Participation hereunder, incurs a Severance from
Service shall, upon re-employment, be credited with
such prior Service and be entitled to commence
Participation on the first day of the next following
calendar quarter, if he is employed on such date. For
purposes of this Section 3.01, an Employee shall be
credited with Service for periods of employment with an
Affiliate (determined as if such Affiliate were an
Employer), but, subject to the provisions of Section
3.03 hereof, shall not commence Participation hereunder
prior to the date on which he commences employment
with an Employer.
(b) Special Rule re Predecessor Employers -- In the case of
any Employee who became an Employee as a result of the
acquisition by the Company of Facelifters Home
Systems, Inc. (hereinafter "FI"):
(1) if such Employee is employed by a Participating
Employer immediately following the closing
date of such acquisition; and
(2) if such Employee was a participant under the
Facelifters, Inc. 401(k) Plan;
then such Employee shall become a participant in this
Plan as of such closing date. Former employees of FI
who do not satisfy the requirements of subparagraph
(2) of this paragraph (b) shall be eligible to
participate in the Plan as provided under paragraph
(a), above.
(c) Leased Employees -- Effective as of the date of
approval of this paragraph (c) by the Internal Revenue
Service, leased employees shall be eligible to
participate in the Plan. For purposes of this paragraph
(c), the term "leased employee" shall be defined as
provided in Code Section 414(n)(2) and shall
specifically include any "direct seller," as defined in
Code Section 3508, who, (i) pursuant to such Section
3508, is not otherwise treated as an Employee, (ii)
receives compensation from a Participating Employer and
(iii) agrees in writing to participate in this Plan.
Subject to the provisions of Code Section 401(a)(4),
determinations of any such direct seller's Service shall
include all periods, prior to the effective date of this
paragraph (c), during which such direct seller received
compensation from, for services rendered to, a
Participating Employer. No such direct seller shall
become a Participant hereunder earlier than the first
day of the calendar quarter on, or immediately
following, the effective date of this paragraph (c)."
2
<PAGE> 3
2. SECTION 3.02 OF THE PLAN IS HEREBY AMENDED BY ADDING AT THE END
THEREOF THE FOLLOWING NEW PARAGRAPH (d) TO BE AND TO READ AS FOLLOWS:
"(d) Special Rule re Predecessor Employers -- In the case of any
Employee who became an Employee as a result of the acquisition
by the Company of FI, if such Employee is employed by a
Participating Employer immediately following the closing date
for such acquisition, all determinations of such Employee's
Service shall include his period of employment with FI as though
it were employment with a Participating Employer under this
Plan."
3. THE FIRST PARAGRAPH OF SECTION 4.04 OF THE PLAN IS HEREBY
AMENDED TO BE AND TO READ AS FOLLOWS:
"With the approval of the Committee, any Employee who was a participant
in another plan of deferred compensation which is qualified under
Section 401(a) of the Code may contribute to this Plan a portion or all
of the amount of any "qualifying rollover distribution" received by him
from such other plan. In the event that any amount is so contributed
prior to the time that such Employee becomes eligible to participate in
the Plan, pursuant to Section 3.01 hereof, then, until such eligibility
requirements have been satisfied, such Employee shall be treated as a
Participant hereunder only to the extent of his interest in such
contribution and for no other Plan purposes. Any amounts contributed to
the Plan under this Section shall be held in a subaccount of the
Participant's Employer Contribution Account. Such subaccount shall be
100% vested in the Participant, shall share in Income allocations in
accordance with Section 5.02(a), but shall not share in Employer
contribution or Forfeiture allocations. The total amount in such
subaccount shall be distributed in accordance with Article VI. The term
"qualifying rollover distribution" is herein defined as any amount
which, pursuant to Section 402(c)(4) of the Code, may be transferred to
this Plan and thereby not be includible in the gross income of the
recipient for the taxable year in which paid."
4. THE SECTION 5.02(a) OF THE PLAN IS HEREBY AMENDED TO BE AND TO
READ AS FOLLOWS:
"(a) Income -- The Income of the Trust Fund for each calendar
quarter shall be allocated in the following manner:
(1) The Income (hereinafter, the "Fund Income")
attributable to each investment fund (hereinafter,
"Fund") established pursuant to Article VII hereof
(including, as a separate investment fund, assets, if
any, invested at the discretion of the Trustee) shall
first be determined.
3
<PAGE> 4
(2) Fund Income for such calendar quarter shall then be
allocated to the accounts of Participants, Former
Participants and Beneficiaries who had unpaid balances
in their accounts invested in such Fund on the last day
of such calendar quarter in proportion to the balances
in such accounts invested in such Fund at the beginning
of the calendar quarter increased by (i) one-half (1/2)
of all Salary Reduction Contributions contributed to the
Trust during such calendar quarter and invested in such
Fund, and (ii) one-half (1/2) of all Matching Employer
Contributions contributed to the Trust during such
calendar quarter and invested in such Fund, plus (iii) a
pro rata portion (based on actual days invested in such
Fund) of all qualifying rollover distributions
contributed to the Trust during such calendar quarter
pursuant to Section 4.04 hereof and invested in such
Fund, and decreased by all amounts withdrawn and
distributed during such calendar quarter from such
accounts but only to the extent theretofore invested in
such Fund for such calendar quarter.
If, upon a Participant's Severance from Service, a significant
change (as determined by the Committee) in the value of the
assets has occurred since the last Valuation Date, the Committee
shall instruct the Trustee to determine the Income since the
last Valuation Date, in which event the accounts of such
Participant, if he incurs a Severance from Service prior to the
next Valuation Date, shall be adjusted to reflect this
determination. Each valuation shall be based on the fair market
value of assets in the Trust Fund on the Valuation Date."
IN WITNESS WHEREOF, the Company, AMRE, INC., has caused this Amendment
No. 5 to be executed in its name and on its behalf on this 30th day of
September, 1996, effective as of the dates set forth above.
AMRE, INC.
By: /s/ ROBERT M. SWARTZ
---------------------------------
Name: Robert M. Swartz
--------------------------------
Title: President & CEO
-------------------------------
ATTEST:
/s/ JOHN H. KARNES
- ------------------------------
Corporate Secretary
4
<PAGE> 5
THE STATE OF TEXAS )
)
COUNTY OF DALLAS )
This instrument was acknowledged before me on the 30th day of
September, 1996, by Robert M. Swartz, President & CEO of AMRE, Inc., a Delaware
corporation, on behalf of said corporation.
/s/ CAROLYN L. LOOS
-------------------------------------
Notary Public in and for
the State of Texas
My Commission Expires: Printed Name of Notary:
October 26, 1996 Carolyn L. Loos
- ---------------------- --------------------------------------
5
<PAGE> 1
EXHIBIT 11
AMRE, INC.
COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------
SEPTEMBER 29, OCTOBER 1,
1996 1995
------------- ----------
<S> <C> <C>
Common Stock outstanding . . . . . . . . . . . . 20,059 17,146
Common Stock equivalents . . . . . . . . . . . . -- --
--------- ---------
Weighted average number of shares outstanding . . 20,059 17,146
========= =========
</TABLE>
<TABLE>
<CAPTION>
NINE-MONTH PERIODS ENDED
-----------------------------------
SEPTEMBER 29, OCTOBER 1,
1996 1995
------------- ----------
<S> <C> <C>
Common Stock outstanding . . . . . . . . . . . . 19,128 17,128
Common Stock equivalents . . . . . . . . . . . . -- --
--------- ---------
Weighted average number of shares outstanding . . 19,128 17,128
========= =========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-29-1996
<CASH> 24,921
<SECURITIES> 2,660
<RECEIVABLES> 11,036
<ALLOWANCES> 1,182
<INVENTORY> 6,284
<CURRENT-ASSETS> 48,506
<PP&E> 26,622
<DEPRECIATION> 17,488
<TOTAL-ASSETS> 68,237
<CURRENT-LIABILITIES> 54,404
<BONDS> 5,884
3,181
0
<COMMON> 218
<OTHER-SE> 4,550
<TOTAL-LIABILITY-AND-EQUITY> 68,237
<SALES> 65,020
<TOTAL-REVENUES> 65,020
<CGS> 21,961
<TOTAL-COSTS> 21,961
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 579
<INTEREST-EXPENSE> 336
<INCOME-PRETAX> (10,875)
<INCOME-TAX> 0
<INCOME-CONTINUING> (10,875)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,875)
<EPS-PRIMARY> (.55)
<EPS-DILUTED> (.55)
</TABLE>
