<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 MARCH 31, 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 May 8, 1996, there were 18,538,697 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 - March 31, 1996 and December 31, 1995 . . . . . . . . . . . . 1
Consolidated Statement of Operations - Quarterly periods ended March 31, 1996
and April 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Consolidated Statement of Cash Flows - Quarterly periods ended March 31, 1996
and April 2, 1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statement of Changes in Stockholders' Equity - Quarterly period
ended March 31, 1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . 5
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 5. OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
</TABLE>
_____________
Note: Items 2, 3, and 4 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>
MARCH 31, DECEMBER 31,
1996 1995
------------- -----------
<S> <C> <C>
Current assets:
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . $ 6,016 $ 10,658
Marketable securities . . . . . . . . . . . . . . . . . . . . . . . 4,200 8,484
Accounts receivable -
Trade, net of allowance for doubtful accounts of $621 and $690 . 5,889 5,384
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 428 871
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 3,237 3,987
Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,901 5,612
Prepaid expenses . . . . . . . . . . . . . . . . . . . . . . . . . 2,310 2,921
------------- -----------
Total current assets . . . . . . . . . . . . . . . . . . . . 26,981 37,917
Property, plant and equipment, net . . . . . . . . . . . . . . . . . 5,759 5,630
Goodwill, less accumulated amortization of $1,938 and $1,869 . . . . 8,968 9,036
Notes receivable - related parties . . . . . . . . . . . . . . . . . -- 469
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,258 1,262
------------- -----------
$ 42,966 $ 54,314
============= ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . $ 17,013 $ 14,147
Wages, commissions and bonuses . . . . . . . . . . . . . . . . . . 4,755 4,712
Accrued workers' compensation . . . . . . . . . . . . . . . . . . . 2,047 2,059
Current portion - long-term debt . . . . . . . . . . . . . . . . . 52 50
Other accrued liabilities . . . . . . . . . . . . . . . . . . . . . 14,204 16,760
------------- -----------
Total current liabilities . . . . . . . . . . . . . . . . . . 38,071 37,728
------------- -----------
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 227 241
------------- -----------
Total liabilities . . . . . . . . . . . . . . . . . . . . . . 38,298 37,969
------------- -----------
Commitments and contingencies
Senior Convertible Redeemable Preferred Stock - $.10 par value;
300,000 shares issued and outstanding, liquidation
value of $10 per share . . . . . . . . . . . . . . . . . . . 3,060 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, 20,000,000 shares
authorized, 14,739,989 and 14,573,493 shares issued; 14,127,791
and 13,351,295 shares outstanding . . . . . . . . . . . . . . . . 147 146
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 23,262 25,486
Retained deficit . . . . . . . . . . . . . . . . . . . . . . . . . (16,641) (1,986)
------------- -----------
6,768 23,646
Less: Treasury stock, at cost (612,198 and 1,222,198 shares) . . . (5,160) (10,301)
------------- -----------
Total stockholders' equity . . . . . . . . . . . . . . . . . 1,6O8 13,345
------------- -----------
$ 42,966 $ 54,314
============= ===========
</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
--------------------------------------
MARCH 31, 1996 APRIL 2, 1995
-------------- ---------------
<S> <C> <C> <C>
Contract revenues . . . . . . . . . . . . . . . . . . . . . . . . . $ 45,602 $ 60,885
Contract costs . . . . . . . . . . . . . . . . . . . . . . . . . . 15,805 20,525
-------------- ---------------
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . 29,797 40,360
-------------- ---------------
Branch operating expenses . . . . . . . . . . . . . . . . . . . . . 5,166 4,795
Marketing expenses . . . . . . . . . . . . . . . . . . . . . . . . 20,463 17,958
Selling expenses . . . . . . . . . . . . . . . . . . . . . . . . . 10,582 12,047
License fees . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,521 7,274
General and administrative expenses . . . . . . . . . . . . . . . . 4,985 4,981
-------------- ---------------
44,717 47,055
-------------- ---------------
Operating loss . . . . . . . . . . . . . . . . . . . . . . . . . . (14,920) (6,695)
Investment income . . . . . . . . . . . . . . . . . . . . . . . . . 165 287
Other income (expense), net . . . . . . . . . . . . . . . . . . . . 100 74
-------------- ---------------
Loss before income taxes . . . . . . . . . . . . . . . . . . . . . (14,655) (6,334)
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,439)
-------------- ---------------
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,655) $ (3,895)
============== ===============
Net loss per share . . . . . . . . . . . . . . . . . . . . . . . . $ (1.06) $ (.29)
============== ===============
Cash dividends declared per share . . . . . . . . . . . . . . . . . $ -- $ .03
============== ===============
Weighted average shares outstanding . . . . . . . . . . . . . . . . 13,731 13,306
============== ===============
</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 CASH FLOWS
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTER ENDED
-------------------------------------
MARCH 31, 1996 APRIL 2, 1995
-------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ (14,655) $ (3,895)
------------ ------------
Adjustments to reconcile net loss to net cash
used in operating activities:
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,439)
Depreciation and amortization . . . . . . . . . . . . . . . . . 746 727
Provision for doubtful accounts . . . . . . . . . . . . . . . . 252 (137)
Other non-cash items . . . . . . . . . . . . . . . . . . . . . 100 32
Cash receipts of (payments for) income taxes . . . . . . . . . 747 --
Changes in assets and liabilities:
Accounts receivable and other . . . . . . . . . . . . . . . . (314) (1,061)
Inventory . . . . . . . . . . . . . . . . . . . . . . . . . . 711 (316)
Prepaid expenses and other assets . . . . . . . . . . . . . . 575 (600)
Accounts payable . . . . . . . . . . . . . . . . . . . . . . 2,866 (74)
Other liabilities . . . . . . . . . . . . . . . . . . . . . . (2,522) 1,202
------------ ------------
Total adjustments . . . . . . . . . . . . . . . . . . . . 3,161 (2,666)
------------ ------------
Net cash used in operating activities . . . . . . . . . . . . . . (11,494) (6,561)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of marketable securities . . . . . . . . . . . . . . . . . 9,915 16,465
Purchase of marketable securities . . . . . . . . . . . . . . . (5,660) (9,804)
Notes receivable . . . . . . . . . . . . . . . . . . . . . . . 469 --
Capital expenditures . . . . . . . . . . . . . . . . . . . . . (938) (314)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 100 --
------------ ------------
Net cash provided by investing activities . . . . . . . . . . . . 3,886 6,347
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Payments on long-term debt . . . . . . . . . . . . . . . . . . (12) --
Issuance of common stock . . . . . . . . . . . . . . . . . . . 2,978 --
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . -- (386)
------------ ------------
Net cash provided by (used in) financing activities . . . . . . . 2,966 (386)
------------ ------------
Net change in cash and cash equivalents . . . . . . . . . . . . . (4,642) (600)
Cash and cash equivalents at beginning of period . . . . . . . . 10,658 7,927
------------ ------------
Cash and cash equivalents at end of period . . . . . . . . . . . $ 6,016 $ 7,327
============ ============
</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 CHANGES IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TREASURY STOCK
------------------- PAID-IN RETAINED -------------------
SHARES AMOUNT CAPITAL DEFICIT SHARES AMOUNT
------ ------ ---------- -------- ------ ------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 . . . . . 14,573 $ 146 $ 25,486 $ (1,986) (1,222) $(10,301)
Net loss . . . . . . . . . . . . . -- -- -- (14,655) -- --
Preferred Stock Dividends . . . . . -- -- (60) -- --
Issuance of Stock . . . . . . . . . 38 -- 189 -- -- --
Exercise of Options . . . . . . . . 129 1 (2,353) -- 610 5,141
------ -------- -------- --------- ------ --------
Balance, March 31, 1996 . . . . . . . 14,740 $ 147 $ 23,262 $ (16,641) (612) $ (5,160)
====== ======== ======== ========= ====== ========
</TABLE>
4
<PAGE> 7
AMRE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1 - UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
Basis of presentation - The accompanying interim consolidated financial
statements of AMRE, Inc. and its subsidiary, American Remodeling, Inc. (the
"Company" or "AMRE") as of March 31, 1996 and for the quarterly periods ended
March 31, 1996 and April 2, 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 financial
statements and related notes included in the Company's December 31, 1995 Annual
Report on Form 10-K.
On April 25, 1996, the Company consummated a merger with Facelifters Home
Systems, Inc. ("Facelifters"). Although the merger will be accounted for as a
pooling of interests for accounting purposes, the accompanying unaudited
consolidated financial statements do not give retroactive effect to this
transaction as the merger was consummated subsequent to the date of the
consolidated financial statements. See Note 5 for a description of the merger
and unaudited pro forma combined results of operations.
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
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
registered service mark and trade name styled "21st Century Home Improvement."
The plaintiff alleges, among other things, that the CENTURY 21 Home
Improvements(SM) 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, 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, the owner of the CENTURY 21 Home
Improvements name, that it gave notice to counsel for the owner of the "21st
Century Home Improvement" mark that the latter mark infringed on Century 21's
federally registered mark. AMRE has further been advised by Century 21 that :
(i) it is its policy and practice to vigorously defend its trade name, (ii)
Century 21 has successfully litigated in the past to protect its trade name and
federally registered mark, and (iii) it has obtained a number of judgements
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 has advised AMRE that Century 21's federal registration
predates the use of the "21st 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 name 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.
The Company has an agreement with a financial institution which makes
financing available to the Company's customers. The customer executes a
Revolving Credit Agreement with the lender and the lender pays the Company on
completion of the installation.The agreement provides the financial institution
with right of first refusal on substantially all of the Company's customer
credit applications, and provides for the Company, a minimum
5
<PAGE> 8
acceptance rate of customer credit applications based on specified criteria.
The Company's credit risk is limited to its normal warranties and
representations regarding materials and workmanship. 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 - 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 $5.9 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 and expected first
quarter 1996 operating loss, (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 if the mergers were consummated make it difficult to estimate when
the Company will 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 in 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 no historical or objective evidence to determine its impact on
future taxable income. Therefore, based on the 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
March 31, 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 4 - CAPITALIZATION
Revolving credit facility - At March 31, 1996, no loans had been made under
the credit facility.
Senior Convertible Redeemable Preferred Stock - At March 31, 1996, no
dividends had been declared or paid 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 in Private Placement - 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
6
<PAGE> 9
expenses. The accompanying unaudited consolidated financial statements do not
give retroactive effect to this transaction since it was not completed until
after the current reporting period ended March 31, 1996.
NOTE 5 - MERGER WITH FACELIFTERS
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 will be issued to holders
of Facelifters Common Stock. In addition, AMRE will reserve approximately
368,255 shares of AMRE Common Stock for issuance upon the exercise of
outstanding options to acquire Facelifters Common Stock.
The merger will be accounted for as a pooling of interests, however, the
accompanying unaudited consolidated financial statements do not give
retroactive effect to this transaction since it was not completed until after
the current reporting period ended March 31, 1996. The supplemental unaudited
pro forma combined results of operations are as follows:
UNAUDITED PRO FORMA COMBINED RESULTS OF OPERATIONS
The unaudited pro forma combined results of operations are based on the
unaudited consolidated financial statements of the Company for the quarterly
periods ended March 31, 1996 and April 2, 1995 and the unaudited consolidated
financial statements of Facelifters for the quarterly periods ended March 31,
1996 and 1995. The unaudited pro forma combined results of operations reflect
the effect of the pro forma combining adjustments described below.
The Company and Facelifters incurred nonrecurring charges to operations
currently estimated at approximately $1.5 million for certain costs associated
with combining the operations of the two companies. The estimated charges of
$1.5 million are reflected in the unaudited pro forma combined results of
operations. This preliminary estimate is subject to change based upon
additional information.
7
<PAGE> 10
Weighted average shares outstanding reflect the issuance of one share of
AMRE Common Stock for each share of Facelifters Common Stock. The AMRE Senior
Convertible Redeemable Preferred Stock was not considered a common stock
equivalent for any of the periods presented.
UNAUDITED PRO FORMA COMBINED RESULTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------
MARCH 31, 1996 APRIL 2, 1995
-------------- -------------
<S> <C> <C>
Contract revenues:
AMRE . . . . . . . . . . . . . . . . . . . . . . $ 45,602 $ 60,885
Facelifters . . . . . . . . . . . . . . . . . . . 10,360 10,667
------------ ------------
Combined . . . . . . . . . . . . . . . . . . . . $ 55,962 $ 71,552
------------ ------------
Net loss:
AMRE . . . . . . . . . . . . . . . . . . . . . . $ (14,655) $ (3,895)
Facelifters . . . . . . . . . . . . . . . . . . . (2,751) (163)
------------ ------------
Combined . . . . . . . . . . . . . . . . . . . . $ (17,406) $ (4,058)
------------ ------------
Loss per share:
AMRE . . . . . . . . . . . . . . . . . . . . . . $ (1.06) $ (.29)
Facelifters . . . . . . . . . . . . . . . . . . . (.79) (.05)
Combined . . . . . . . . . . . . . . . . . . . . $ (1.01) $ (.25)
============ ============
</TABLE>
NOTE 6 - PENDING MERGER
On December 30, 1995, the Company and Congressional Construction
Corporation ("Congressional") entered into an agreement whereby a newly formed
subsidiary of the Company shall be merged with and into Congressional. The
merger is expected to be accounted for as a pooling of interests.
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. The merger is expected to be
consummated in the Company's second quarter of 1996. In connection with the
merger, approximately 900,000 shares will be issued to the existing
stockholders of Congressional, and Congressional shall become a wholly- owned
subsidiary of the Company.
Beginning in January, 1996, Congressional and the Company have entered
into a sublicense agreement pursuant to which the Company has granted to
Congressional, under the terms of the Century 21 License Agreement, the right
to market and sell and install certain home improvement products in specified
markets under the name CENTURY 21 Home Improvements. The sublicense agreement
provides for sublicense fees equal to the greater of 8% of the sublicense
contract revenues subject to certain rebates and certain guaranteed minimums.
8
<PAGE> 11
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. 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 quarterly periods ended March
31, 1996 and April 2, 1995.
<TABLE>
<CAPTION>
PERCENTAGE OF CONTRACT REVENUES
QUARTERS ENDED
-------------------------------
MARCH 31, APRIL 2,
1996 1995
--------- --------
<S> <C> <C>
Contract revenues . . . . . . . . . . . 100.0% 100.0%
Contract costs . . . . . . . . . . . . 34.7 33.7
----- -----
Gross profit . . . . . . . . . . . . . 65.3 66.3
----- -----
Branch operating expenses . . . . . . . 11.3 7.9
Marketing expenses . . . . . . . . . . 44.9 29.5
Selling expenses . . . . . . . . . . . 23.2 19.8
License fees . . . . . . . . . . . . . 7.7 11.9
General and administrative expenses . . 10.9 8.2
----- -----
Loss from operations. . . . . . . . . . (32.7) (11.0)
Other income and expense, net . . . . . .6 .6
----- -----
Loss before income taxes . . . . . . . (32.1) (10.4)
Income taxes . . . . . . . . . . . . . -- (4.0)
----- -----
Net loss . . . . . . . . . . . . . . . (32.1)% (6.4)%
===== =====
</TABLE>
9
<PAGE> 12
RESULTS OF OPERATIONS
QUARTER ENDED MARCH 31, 1996 COMPARED WITH THE QUARTER ENDED APRIL 2, 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. when it expired on
December 31, 1995.
The Company made the decision to not renew the Sears License Agreement and
to enter into the Century 21 License Agreement believing that the latter
provides better opportunities for growth and profitability, including access to
additional geographic markets, a greater array of home improvement products and
the ability to grant sublicenses as well as the use of the CENTURY 21 Home
Improvements name.
Although the CENTURY 21 Home Improvements name was not used in the home
improvement industry prior to 1996, the Company's management believes the name
will also be well recognized. The advertising response rates improved during
the quarter and while it is too soon to draw any conclusions, the early results
have been consistent with the Company's expectations. 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 the Company. In addition, there is no way to estimate
the time required to build brand awareness of the CENTURY 21 Home Improvements
name in order to receive advertising response rates similar to those under the
Sears brand name.
While the Sears License Agreement was in effect in 1995, the Company
received approximately 20% of its leads through Company employees working in
the Sears retail stores (in-store leads). This lead source will have to be
replaced under the Century 21 License Agreement, and to this end the Company
opened in the first quarter of 1996 approximately 100 free standing kiosks in
major shopping malls across the country and increased its presence at home
shows. The Company also substantially increased its reliance on telemarketing
as a lead source and opened two outbound telemarketing centers in December
1995, and January 1996, in order to accomplish this objective. In addition,
the Company is working with Century 21 to develop a program of lead referrals
from the Century 21 real estate broker network.
Pursuant to the Sears License Agreement, 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. The new outbound telemarketing centers, the
in-mall program and the Century 21 lead referral program will not produce any
significant amount of cost-effective leads for several months. Therefore, 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.
In addition to the above factors, the significant increase in the mix of
telemarketing leads, the new lead generation programs, and adverse weather
across much of the country all reduced the number of appointments which
actually resulted from the leads obtained. The dollar amount of sales orders
declined approximately 45% from the prior year period due to fewer appointments
as well as lower sales closing rates. Management believes the lower sales
closing rates reflect a short term impact resulting from an increased mix of
leads generated from general broadcast media which do not permit precise
customer targeting, as well as higher customer financing application reject
rates. As a result of the lower amount of sales orders, contract revenues
declined from $60,885,000 in the prior year period to $45,602,000 in the
current year period. The decline in contract revenues of 25% was less than
10
<PAGE> 13
that of sales orders due to the availability of the production backlog at the
beginning of the current period. However, the production backlog at March 31,
1996 was approximately $15 million, about 42% below the same period last year.
Gross profit margin as a percentage of contract revenues declined from
66.3% in the prior year period to 65.3% in the current year. Nearly half of
the jobs installed in the current year period were sold late in 1995 when, in
order to maximize the remaining available leads, the Company tended to discount
its selling prices. The Company also discounted heavily in launching the
CENTURY 21 Home Improvements brand name throughout most of the current year
period. While management is reviewing opportunities for improving margins, it
is not anticipated that margin increases will be realized in the second quarter
of 1996.
Branch operating expenses increased from 7.9% of contract revenues in the
prior year period to 11.3% 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 $371,000 from the prior year period due mainly to increased
staffing.
Marketing expense increased from $17,958,000 or 29.5% of contract revenues
to $20,463,000 or 44.9% of contract revenues. The increase in marketing
expenses principally reflects the transition to the CENTURY 21 Home
Improvements brand name. 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. As discussed above, the Company 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 program and the two telemarketing call centers
increased marketing expenditures during the period but were not expected to
generate a significant lead flow during their start-up phase.
Selling expenses increased to 23.2% of contract revenues as compared to
19.8% in the prior year period. Sales compensation, excluding management
salaries, increased from 11.9% to 12.9% of contract revenues due to changes in
the Company's commission and sales incentive compensation plans designed to
retain the Company's sales force during the brand transition. Other selling
expenses, primarily composed of sales manager salaries and training, insurance
costs, recruiting and travel, increased from 7.9% of contract revenues in the
prior year period to 10.3% in the current year. Other selling expenses are
primarily fixed in nature and as such, increased in percentage terms largely
due to lower contract revenues.
License fees decreased to 7.7% 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. As noted above,
nearly half of the jobs installed in the current year period were sold late in
1995 under the Sears License Agreement which had a 12% license fee. Contract
revenues generated under the Sears License Agreement are expected to be
relatively insignificant in the second quarter.
General and administrative expenses increased from 8.2% of contract
revenues in the prior year to 10.9% in the current year. In the 1995 period,
general and administrative expenses included a $550,000 charge associated with
a separation agreement between the Company and it's former President and Chief
Executive Officer. 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 was unchanged 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 no historical or objective evidence to determine its
impact on future taxable income.
11
<PAGE> 14
Therefore, based on the 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 March 31, 1996.
Although the Company was unable to achieve a satisfactory level of
appointments or sales closing rates in its first quarter, both the number of
appointments and the sales closing rates improved in each monthly period of the
quarter and management expects this improvement to continue in the second
quarter. However, sales staffing levels must be ramped up substantially for
the expected higher appointment levels and this may require much of the second
quarter period to achieve optimum levels. In addition, while each of the
in-mall and Century 21 referral programs and the new outbound telemarketing
centers generated leads in the first quarter, it will require more time before
each of these sources is generating sufficient quantities of cost-effective
leads. Consequently, the marketing cost per appointment will likely remain
high in the second quarter of 1996 as compared to the prior year period.
As a result of these factors, and considering the low level of backlog at
March 31, 1996, the Company expects a significant decline in contract revenues
in the second quarter period of 1996 as compared to the prior year period, and
expects to incur a loss from operations. Furthermore, because of the
uncertainties associated with the time and cost to build awareness of the
CENTURY 21 Home Improvements name, the Company's ability to generate
significant amounts of cost- effective leads and the integration of the
Facelifters Home Systems, Inc. and Congressional Construction Corporation
operations due to the mergers, it is not possible to estimate when the Company
will return to profitability.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its liquidity needs with internally
generated funds. Net cash used in operations in the first quarter period ended
March 31, 1996 was $11,494,000 principally due to the operating loss. The
Company received proceeds of approximately $2,978,000 from the issuance of
common stock principally from the exercise of stock options. Capital
expenditures totaled $938,000 and consisted primarily of in-mall kiosk units.
In the aggregate, cash and marketable securities totaled approximately
$10,216,000 at March 31, 1996.
The promising early results of the in-mall kiosk program and the new
outbound telemarketing centers has prompted the Company to plan the opening of
additional in-mall locations and an additional outbound telemarketing center.
The additional telemarketing center and another 100 in-mall kiosks would
require capital expenditures of approximately $2,000,000.
The Company expects it will utilize significant amounts of cash in 1996 to
complete its transition to the CENTURY 21 Home Improvements name, including
investments to expand the in-mall kiosk program and for a new outbound
telemarketing center, as well as in the integration of the companies resulting
from the mergers. Accordingly, on April 30, 1996, the Company completed a
private placement with institutional investors pursuant to which the Company
issued 800,500 shares of AMRE common stock. The Company received approximately
$12 million of net proceeds after transaction expenses.
12
<PAGE> 15
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 . . . . . . . . . . . . . . $ 60,885 $ 73,737 $ 76,993 $ 59,722
Gross profit . . . . . . . . . . . . . . . . 40,360 50,026 52,745 39,755
Nonrecurring charges . . . . . . . . . . . . -- -- -- 11,000
Operating income (loss) . . . . . . . . . . . (6,695) (2,708) 947 (17,280)
Net income (loss) . . . . . . . . . . . . . . $ (3,895) $ (2,063) $ 944 $ (17,371)
Net income (loss) per share . . . . . . . . . $ (.29) $ (.16) $ .07 $ (1.33)
March 31,
YEAR ENDED DECEMBER 31, 1996 ----------
Contract revenues . . . . . . . . . . . . . $ 45,602
Gross profit . . . . . . . . . . . . . . . 29,797
Operating loss . . . . . . . . . . . . . . (14,920)
Net loss . . . . . . . . . . . . . . . . . $ (14,655)
Net loss per share . . . . . . . . . . . . $ (1.06)
</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 5. OTHER INFORMATION
Effective May 2, 1996, the Company entered into an amendment to the
agreement it has with a financial institution which makes financing available
to the Company's customers. The amendment is intended to increase the minimum
acceptance rate of customer credit applications based on specified criteria
using a sliding scale, in exchange for the Company receiving proceeds for each
contract which have been reduced by a discount tied to the same sliding scale.
Had the amendment been in effect during the first quarter of 1996, the Company
would have received proceeds reduced by a discount of 5.45% of every contract
funded by the financial institution and the acceptance rate of customer credit
applications would have increased from approximately 60% to approximately 80%.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS:
NUMBER AND DESCRIPTION OF EXHIBIT
---------------------------------
10.42 First Amendment to Amended and Restated Merchant Agreement between
Household Bank (Nevada) N.A. and AMRE effective as of May 2, 1996.
11. Calculations of weighted average common shares outstanding for the
quarterly periods ended March 31, 1996 and April 2, 1995.
27. Financial Data Schedule.
__________________________
(B) REPORTS ON FORM 8-K: No current reports on Form 8-K were filed by the
Company during the quarter ended March 31, 1996.
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: May 13, 1996 /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
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER NUMBER AND DESCRIPTION OF EXHIBIT
- ------- ---------------------------------
<S> <C>
10.42 First Amendment to Amended and Restated Merchant Agreement between
Household Bank (Nevada) N.A. and AMRE effective as of May 2, 1996.
11. Calculations of weighted average common shares outstanding for the
quarterly periods ended March 31, 1996 and April 2, 1995.
27. Financial Data Schedule.
</TABLE>
<PAGE> 1
EXHIBIT 10.42
FIRST AMENDMENT
TO
AMENDED AND RESTATED MERCHANT AGREEMENT
This First Amendment to Amended and Restated Merchant Agreement ("First
Amendment") is made and entered into effective as of May 2, 1996 ("Effective
Date") by and between Household Bank (Nevada), N.A. ("Household") and AMRE, Inc.
for the benefit of AMRE, Inc. and all of its operating subsidiaries
(collectively referred to herein as "AMRE") to amend that certain Amended and
Restated Merchant Agreement ("Restated Agreement") dated April 24, 1995 by and
between Household Bank (Illinois), N.A. ("HBIL") and AMRE. For purposes of the
Restated Agreement, as Amended by this First Amendment, Congressional
Construction Corporation ("Congressional") shall be treated as an operating
subsidiary of AMRE as of the Effective Date and shall be entitled to participate
in the Program in consideration of AMRE's agreeing to be liable for any breach
of any term of the Restated Agreement, as Amended by this First Amendment, by
Congressional or its authorized agents.
WHEREAS, on March 1, 1996 HBIL assigned to Household all of its rights, title,
interests in and obligations under the Restated Agreement; and
WHEREAS, Household and AMRE have decided to modify the Restated Agreement in a
manner set forth in this First Amendment.
NOW THEREFORE, in consideration of the foregoing and the mutual promises,
covenants, and agreements set forth below and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
Household and AMRE agree to modify the Restated Agreement as follows:
1. Subsection b of Section 2 of the Restated Agreement shall be deleted and
replaced with the following:
"Subject to the following sentence, all completed applications for
Accounts submitted by AMRE to Household whether mailed, telephoned or
otherwise electronically transmitted, will be processed and approved
or declined in accordance with Household's credit criteria and
procedures from time to time established by Household for the Program,
with Household having and retaining all rights to reject or accept
such applications. The foregoing sentence notwithstanding, from the
Effective Date of this First Amendment, Household agrees to maintain
an application approval rate ("Approval Rate") as set forth in Column
C of Table A below which corresponds to the applicable "Application
Quality Measurement %" set forth in Column A of Table A. All
percentages in Table A shall be based upon the total applications
by AMRE to Household during the most recent six month Billing Cycle
period commencing with the Effective Date.
================================================================================
TABLE A
<TABLE>
<CAPTION>
A B C
APPLICATION QUALITY APPROXIMATE
MEASUREMENT %(1) DISCOUNT(2) APPROVAL %
-------------------------------------------------------------------------------------
<S> <C> <C>
45.00-49.99% 8.10% 74.00-76.99%
-------------------------------------------------------------------------------------
40.00-44.99% 6.50% 77.00-81.99%
-------------------------------------------------------------------------------------
35.00-39.99% 5.45% 82.00-84.99%
-------------------------------------------------------------------------------------
30.00-34.99% 4.65% 85.00-86.99%
-------------------------------------------------------------------------------------
25.00-29.99% 4.25% 87.00-88.99%
-------------------------------------------------------------------------------------
20.00-24.99% 3.30% 89.00-90.99%
-------------------------------------------------------------------------------------
15.00-19.99% 2.50% 91.00+%
-------------------------------------------------------------------------------------
</TABLE>
(1) - In the event that the Application Quality Measurement % is
greater than 49.99% or less than 15.00% Household and AMRE
agree to reevaluate the Program pricing. The Application
Quality Measurement % will be reviewed on a monthly basis.
(2) - The discount in Column B will be adjusted semi-annually
based upon the Application Quality Measurement % for the most
recent six month Billing Cycle period.
================================================================================
<PAGE> 2
The "Application Quality Measurement %" in Column A of Table A for any
given period of time shall be the percentage obtained by dividing the
number of applications for Accounts submitted by AMRE for such period
which meet one or more of the following adverse credit criteria: (a) 3
or more derogatory trade lines or derogatory public records over
$250.00 (Derogatory trade Lines shall include, but not be limited to,
chargeoff, repossessions, foreclosure, held with collection agency,
judgments, historic 90 day plus delinquency or other adverse action.);
(b) bankruptcy; (c) less than 18 months of credit history; (d)
currently 60 days past due; or (e) no credit file or zero (0)
satisfactory trade lines on the credit bureau file BY the total number
of applications for Accounts submitted by AMRE during the same period.
The Application Quality Measurement % shall be determined by
Household. The Approval Rate shall be reviewed on a semi-annual basis
("Semi-annual Review") running concurrently with the six month Billing
Cycle period and commencing from the Effective Date of this First
Amendment and shall include any Renewal Term. Household's failure to
maintain the Approval Rate as set forth herein after the Effective
Date and during any subsequent Semi-annual Review shall be deemed a
material breach of the Restated Agreement, as Amended by this First
Amendment, and AMRE shall have the right, in its sole discretion, to
terminate the Restated Agreement, as amended by this First Amendment,
pursuant to Section 15. Household will only accept applications for
revolving credit pursuant to the credit card it issues for individual,
personal, family or household use. Household or its Affiliates shall
own the Accounts and shall bear the credit risk for such Accounts,
except as otherwise provided in Section 6 and 15.e of the Restated
Agreement. AMRE acknowledges and agrees that it shall have no interest
in the Accounts except as otherwise provided in Sections 6 and 15.e of
the Restated Agreement. Household shall not be obligated to take any
action under an Account, including making future advances or credit
available to Cardholders. Household shall not be obligated to accept
applications for a Card or to approve any Card Sale for consumers that
do not have their principal residence and billing address in the
Continental United States.
Notwithstanding the foregoing, Household agrees that after the
Effective Date, Household shall review all applications which were
previously submitted by AMRE for the period from April 1, 1996 through
the Effective Date and which were previously declined by Household
(the "Declined Applications"), and Household shall approve any such
Declined Applications to meet the new Approval Rate percentages and
criteria established above."
2. Subsection a of Section 3 shall be deleted and replaced with the
following:
"Consumer Rate. For the period from the Effective Date of this First
Amendment until the second anniversary of the Effective Date, the
consumer rate to be charged on purchases with the Card shall (i)
remain 15.90% for all Cardholders whose application for an Account was
received and approved by Household prior to the close of business on
May 7, 1996, and (ii) be 16.99% for all Cardholders whose application
for an Account is received and approved by Household after the close
of business on May 7, 1996. Beginning on the third anniversary of the
Effective Date and on each anniversary of the Effective Date
thereafter, the consumer rate on all Accounts and new applications
submitted under the Program shall be changed to the consumer rate set
forth in Column B of Table B below which corresponds to the applicable
one year U.S. Treasury Bill interest rate range set out in Column A of
Table B."
2
<PAGE> 3
================================================================================
TABLE B
<TABLE>
<CAPTION>
A B
--------------------------------------------------------------------------------
ONE YEAR T-BILL RATE(1) CONSUMER RATE(2)
--------------------------------------------------------------------------------
<S> <C> <C> <C>
4.26% - 4.75% 15.49%
--------------------------------------------------------------------------------
4.76% - 5.25% 15.99%
--------------------------------------------------------------------------------
5.26% - 5.75% 16.49%
--------------------------------------------------------------------------------
5.76% - 6.25% 16.99%
--------------------------------------------------------------------------------
6.26% - 6.75% 17.49%
--------------------------------------------------------------------------------
6.76% - 7.25% 17.99%
--------------------------------------------------------------------------------
7.26% - 7.75% 18.49%
--------------------------------------------------------------------------------
7.76% - 8.25% 18.99%
--------------------------------------------------------------------------------
8.26% - 8.75% 19.49%
--------------------------------------------------------------------------------
8.76% - 9.25% 19.99%
--------------------------------------------------------------------------------
9.26% - 9.75% 20.49%
--------------------------------------------------------------------------------
</TABLE>
(1) - The 1 year Treasury Bill rate will be determined by taking the average
of the highest rate published in the Wall Street Journal for each of
the 10 business days preceding the first Tuesday of the month that
falls three calendar months prior to the first anniversary of the
Effective Date of the First Amendment and which falls on each annual
anniversary of such date thereafter.
(2) - For each subsequent 50 basis point increase or decrease above or below
the highest or lowest stated T-Bill Rates in Table B above, the
consumer rate will increase or decrease by a corresponding 50 basis
points.
================================================================================
3. Subsection b of Section 3 of the Restated Agreement shall be deleted
and replaced with the following:
"Merchant. Merchant agrees to pay Household the following
nonrefundable fees, charges and discounts (some of which are more
fully described in the Restated Agreement):
(i) "Discount": 5.45% of the amount of each Sales Slip which is
accepted and funded by Household under the Program during the
first six (6) Billing Cycles which follow the Effective Date
of this First Amendment; and during any Billing Cycles
thereafter, the percentage of the amount of each Sales Slip
accepted and funded by Household under the Program which is
set forth in Column B of Table A and which corresponds to the
then applicable Approval Rate in Column C of Table A as
determined by the provisions of Paragraph I the First
Amendment. Notwithstanding the foregoing and in consideration
of Household's reviewing the Declined Applications, AMRE also
agrees to pay Household a discount of 5.95% of the amount of
each Sales Slip accepted and funded by Household relating to a
Card Sale which occurred between April 1, 1996 and the close
of business on May 7, 1996.
(ii) "Credit Promotion Discount": In addition to the discount set
forth in 3.b.(i), a percentage of the amount of each Sales
Slip accepted and funded by Household during a credit
promotion as follows:
(a) 90 day no interest/no payment deferred
promotion: 1.5%
(b) 6 month no interest/no payment deferred
promotion: 5.5%
(iii) "Convenience Usage Charge": 0% of all finance charges that
would otherwise be paid by the Cardholder but for the payment
in full of the outstanding Account balance during any grace
3
<PAGE> 4
period or promotional period. (Under the Program, Household
may permit Cardholders to pay the entire outstanding balance
due without finance charges during any applicable grace period
or promotional period).
(iv) "Returned Merchandise Charge": 100% of the accrued finance
charges on Accounts with respect to Goods that are returned
and a credit is not applied prior to the end of the billing
cycle period in which the Card Sale was made.
(v) "Start:up Fee": $0.00.
(vi) "Forms Fee": $0.00.
(vii) "Excessive Chargeback Fee": $0.00 per Sales Slip subject to
Chargeback under this Restated Agreement.
(viii) "Application Fee": $0.00 per Cardholder Application presented
to Household under the Program."
4. Subsection c of Section 3 of the Restated Agreement shall be deleted
and replaced with the following:
"It is the intent of Household and AMRE that Household shall have no
further obligation to AMRE for any Merchant Participation Fees after
the March 1996 Billing Cycle, whether based on AMRE's Annual Sales Slip
Volume or otherwise, and that any Merchant Participation Fee provided
for in the Restated Agreement shall be terminated as of such March
1996 Billing Cycle date.
Except as otherwise stated in subsection 3.a. of the Revised
Agreement, as Amended by this First Amendment, and unless mutually
agreed upon by the parties, the rates, fees, discounts and charges
described above in this Section 3 shall not be subject to change by
Household for 3 years from the Effective Date of the Restated
Agreement, as revised by this First Amendment."
5. Subsection j of Section 4 of the Restated Agreement shall be revised
to replace the words "July 1, 1995," with the words "with the
Effective Date of the First Amendment.,".
In addition, Subsection j of Section 4 shall be revised to delete the
following sentence:
"Notwithstanding anything to the contrary contained herein, the
parties agree that consumer credit applications and transactions
resulting from specified "Sears Credit Promotions" shall not be
subject to Household's Right of First Refusal and shall not be
included in determining AMRE's total Credit Sales. AMRE agrees that it
will not run more than two Sears Credit Promotions during any calendar
year nor will any such promotions exceed 45 days in duration."
Finally, Subsection j of Section 4 shall be revised to replace the
word "90%" with the word "99%" wherever it appears therein.
6. Notwithstanding any provision in Subsection a of Section 15 of the
Restated Agreement, this First Amendment and the Restated Agreement
shall be effective as of the Effective Date of this First Amendment
and shall remain in effect for a period of three (3) years from such
date ("Revised Initial Term"), subject to early termination as set
forth in Paragraph 7 below and in the Restated Agreement, as amended
hereby. Thereafter, this First Amendment and the Restated Agreement
shall be automatically renewed for successive one year terms (the
"Renewal Term(s)") unless and until terminated as provided herein. The
termination of this First Amendment and the Restated Agreement shall
not affect the rights and obligations of the parties with respect to
transactions and occurrences which take place prior to the Effective
Date of any termination, except as otherwise provided herein or the
Restated Agreement. The foregoing shall not be construed to create any
obligation an behalf of Household to pay or owe AMRE any Merchant
Participation Fee other than that set forth expressly in this First
Amendment.
4
<PAGE> 5
7. Subparagraph (i) of Subsection b of Section 15 of the Restated
Agreement shall be deleted and replaced with the following:
"By Household or AMRE at the expiration of the Revised Initial Term or
any Renewal Term upon not less than one hundred eighty (180) days
prior written notice prior to the end of such Revised Initial Term or
Renewal Term, provided, however, that AMRE may, in lieu of its rights
under such termination provision, terminate the Restated Agreement, as
Amended by this First Amendment, on or at any time after the one (1)
year anniversary of the Effective Date of this First Amendment if AMRE
(1) provides Household with one hundred eighty (180) days prior
written notice in advance of such requested termination date (the
"Requested Termination Date") and (2) pays Household a fee equal to
(x) 1.5% of the aggregate amount of all Account balances outstanding
as of the Requested Termination Date if the Requested Termination Date
occurs on the first anniversary of the Effective Date of this First
Amendment or (y) 1.0% of the aggregate amount of all Account balances
outstanding as of the Requested Termination Date if the Requested
Termination Date occurs in the period which is after the first
anniversary of the Effective Date and through the second anniversary
of the Effective Date or (z).75% of the aggregate amount of all
Account balances outstanding as of the Requested Termination Date if
the Requested Termination Date occurs in the period which is after the
second anniversary of the Effective Date and through the third
anniversary of the Effective Date. If the Requested Termination Date
occurs after the third anniversary of the Effective Date or and during
any Renewal Term, AMRE shall only be required to provide Household
with one hundred eighty (180) days prior written notice of any
termination request and no fee shall be required."
8. Subparagraph (ii) of Subsection b of Section 15 of the Restated
Agreement shall be deleted and replaced with the following:
"By AMRE if Household fails, pursuant to Section 2.b as revised by the
First Amendment, to maintain the required Approval Rate set forth
under the terms of revised Section 2.b. during any subsequent
Semiannual Review which occurs during the term of the First Amendment
or the Restated Agreement, provided, however, that AMRE shall have the
option, in lieu of termination, to eliminate the requirements of
Section 4.j as revised by the First Amendment."
9. This First Amendment may be executed by facsimile transmission in two
counterparts, each of which shall be an original, but together shall
constitute one and the same instrument.
[THIS SPACE LEFT BLANK INTENTIONALLY]
5
<PAGE> 6
To the extent that the provisions of the First Amendment are
inconsistent with the Restated Agreement, this First Amendment shall govern.
This First Amendment supersedes all prior communications and shall be
binding upon and inure to the benefit of the parties and their respective
successors and assigns.
Except as otherwise modified herein, all terms and conditions of the
Restated Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have executed this First Amendment as
of the date provided above.
HOUSEHOLD BANK (NEVADA), N.A. AMRE, INC.
By: /s/ JOSEPH W. HOFF By: /s/ JOHN S. VANECKO
-------------------------- ------------------------------
Title: Vice President Title: VP & CFO
----------------------- ---------------------------
ATTESTED OR WITNESSED ATTESTED OR WITNESSED
By: /s/ TIMOTHY F. FOLEY By: /s/ JOHN H. KARNES
-------------------------- ------------------------------
Printed Name: Timothy F. Foley Printed Name: John H. Karnes
----------------- ---------------------
6
<PAGE> 7
[AMRE, INC. LETTERHEAD]
May 3, 1996
Household International
Household Bank (Nevada), N.A.
2700 Sanders Road
Prospect Heights, Illinois 60070
Re: Supplement to First Amendment to Amended and Restated Merchant
Agreement, dated as of May 2, 1996
Ladies/Gentlemen:
This letter is entered into concurrently with the above-referenced
amendment and supplements the terms thereof.
As we discussed, Facelifters Home Systems, Inc. ("Facelifters"), a
wholly owned subsidiary of AMRE, Inc., is currently party to a program
agreement (the "Pre-existing Agreement") with Associates Investments
Corporation. The Pre-existing Agreement requires Facelifters to use its best
efforts to refer to Associates an annual loan volume of at least $15 million
and is terminable only upon 180 days notice.
Household Bank (Nevada), N.A. ("Household") has agreed that,
notwithstanding any right of first refusal under Section 4(j) of the Amended
and Restated Merchant Agreement requiring Facelifters to present 99% of its
credit applications to Household, Household agrees that (i) Facelifters shall
be allowed to participate in the Amended and Restated Merchant Agreement during
the pendency of its termination of its obligations under the Pre-existing
Agreement, (ii) Facelifters may continue to perform its minimum obligations
under the Pre-existing Agreement until it is able to terminate such agreement,
and (iii) Facelifter's aforementioned performance shall not constitute a
violation of Section 4(j) of the Amended and Restated Merchant Agreement.
As consideration for Household's foregoing agreement, AMRE, Inc.
warrants and covenants that it will cause Facelifters (i) to give a termination
notice under the Pre-existing Agreement as soon as practicable, (ii) during the
pendency of such termination, not to refer to Associates substantially more
loan volume than is absolutely required under the terms thereof, (iii) to use
all commercially reasonable efforts to negotiate a settlement and release of
its obligations under the Pre-Existing Agreement as soon as practicable in
order to allow Facelifters to comply with Section 4(j).
<PAGE> 8
Please indicate your consent and agreement to the terms of this Letter
in the space provided below.
Very truly yours,
/s/ JOHN S. VANECKO
John S. Vanecko
Vice President and
Chief Financial Officer
AGREED AND ACKNOWLEDGED, May 3, 1996
HOUSEHOLD BANK (NEVADA), N.A.
By: /s/ JOSEPH W. HOFF
-------------------------------
Name:
Title:
<PAGE> 1
EXHIBIT 11
AMRE, INC.
COMPUTATION OF WEIGHTED AVERAGE SHARES OUTSTANDING
(IN THOUSANDS)
<TABLE>
<CAPTION>
QUARTERLY PERIODS ENDED
--------------------------
MARCH 31, APRIL 2,
1996 1995
--------- --------
<S> <C> <C>
Common Stock outstanding . . . . . . . . . . . . 13,731 12,850
Common Stock equivalents . . . . . . . . . . . . -- 456
------ ------
Weighted average number of shares
outstanding . . . . . . . . . . . . . . . . . 13,731 13,306
====== ======
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 6,016
<SECURITIES> 4,200
<RECEIVABLES> 6,937
<ALLOWANCES> 621
<INVENTORY> 5,315
<CURRENT-ASSETS> 26,981
<PP&E> 20,092
<DEPRECIATION> 14,333
<TOTAL-ASSETS> 42,966
<CURRENT-LIABILITIES> 38,071
<BONDS> 227
<COMMON> 147
3,060
0
<OTHER-SE> 1,461
<TOTAL-LIABILITY-AND-EQUITY> 42,966
<SALES> 45,602
<TOTAL-REVENUES> 45,602
<CGS> 15,805
<TOTAL-COSTS> 15,805
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 252
<INTEREST-EXPENSE> 6
<INCOME-PRETAX> (14,655)
<INCOME-TAX> 0
<INCOME-CONTINUING> (14,655)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,655)
<EPS-PRIMARY> (1.06)
<EPS-DILUTED> (1.06)
</TABLE>
