<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 30, 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 0-21768
D.I.Y. HOME WAREHOUSE, INC.
---------------------------
(Exact name of registrant as specified in its charter)
STATE OF OHIO 38-2560752
(State of Incorporation) (I.R.S. Employer I.D. No.)
5811 CANAL ROAD
VALLEY VIEW, OHIO 44125
(216) 328-5100
(Address of principal executive offices and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
----------- -----------
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at March 30, 1996
- - ------------------------------- -----------------------------
Common Stock, no par value 7,625,000
Total pages:
Index to Exhibits:
<PAGE> 2
D.I.Y. HOME WAREHOUSE, INC.
<TABLE>
<CAPTION>
INDEX
-----
PAGE NO.
--------
PART I FINANCIAL INFORMATION
<S> <C> <C>
Item 1. Financial Statements
Condensed Balance Sheet -
March 30, 1996 and December 30,
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Condensed Statement of Income -
Three Months Ended March 30,
1996 and April 1, 1995 . . . . . . . . . . . . . . . . . . 4
Condensed Statement of
Shareholders' Equity - Three
Months Ended March 30, 1996 . . . . . . . . . . . . . . . 5
Condensed Statement of Cash Flows -
Three Months Ended March 30,
1996 and April 1, 1995 . . . . . . . . . . . . . . . . . 6
Notes to Condensed Financial
Statements . . . . . . . . . . . . . . . . . . . . . . . . 7 - 8
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations . . . . . . . . . . . . . . . . 9 - 10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K . . . . . . . . . . . . . 11 - 12
</TABLE>
2
<PAGE> 3
PART I - FINANCIAL INFORMATION
D.I.Y. HOME WAREHOUSE, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
March 30, 1996 December 30, 1995
-------------- -----------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 517,580 $ 1,468,897
Accounts receivable, trade 85,216 97,584
Merchandise inventories 50,629,033 39,928,793
Deferred income taxes 685,312 685,312
Prepaid expenses and other assets 640,339 662,991
---------- ----------
Total current assets 52,557,480 42,843,577
---------- ----------
Property and equipment, at cost 48,187,411 46,956,706
Less accumulated depreciation and
amortization 7,763,984 6,985,653
---------- ----------
Property and equipment, net 40,423,427 39,971,053
Other assets 655,215 685,180
---------- ----------
Total assets $93,636,122 $83,499,810
========== ==========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable, affiliate $ 900,000 $ 900,000
Current maturities of long-term debt 661,385 552,670
Accounts payable 19,579,682 13,067,899
Accrued expenses and other 4,270,636 5,025,712
---------- ----------
Total current liabilities 25,411,703 19,546,281
---------- ----------
Revolving credit 17,300,000 13,300,000
Long-term debt 16,494,834 16,115,153
Deferred income taxes 1,099,016 1,099,016
Shareholders' equity:
Preferred stock, authorized 1,000,000
shares, none issued -- --
Common stock, no par value, authorized
10,000,000 shares, 7,625,000 shares
outstanding 22,912,521 22,912,521
Retained earnings 10,418,048 10,526,839
---------- ----------
Total shareholders' equity 33,330,569 33,439,360
---------- ----------
Total liabilities and
shareholders' equity $93,636,122 $83,499,810
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
D.I.Y. HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 30, April 1,
1996 1995
---------- ----------
<S> <C> <C>
Net sales $ 39,143,905 $ 30,257,805
Cost of sales 28,378,802 21,070,348
---------- ----------
Gross profit 10,765,103 9,187,457
Store operating, general
and administrative expenses 10,370,512 7,447,880
Store preopening costs -- 646,758
---------- ----------
Operating income 394,591 1,092,819
Other expense, net (575,913) (270,057)
---------- ----------
Income (loss) before income taxes (181,322) 822,762
Income taxes (72,531) 319,511
---------- ----------
Net (loss) income $ (108,791) $ 503,251
========== ==========
Earnings (loss) per share $ (0.01) $ 0.07
========== ==========
Weighted average
common shares outstanding 7,625,000 7,625,000
========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
4
<PAGE> 5
D.I.Y. HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 30, 1996
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Total
----------------------- Retained Shareholders'
Shares Amount Earnings Equity
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at December
30, 1995, as previous-
ly reported 7,625,000 $22,912,521 $10,252,424 $33,164,945
Adjustment for the
cumulative effect of the
change in accounting for
merchandise inventories 274,415 274,415
--------- ----------- ----------- -----------
Balances at December 30,
1995, as adjusted 7,625,000 22,912,521 10,526,839 33,439,360
Net loss (108,791) (108,791)
--------- ----------- ----------- -----------
Balances, March 30, 1996 7,625,000 $22,912,521 $10,418,048 $33,330,569
========= =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
<PAGE> 6
D.I.Y. HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
March 30, April 1,
1996 1995
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $ (108,791) $ 503,251
Adjustments to reconcile net (loss)
income to net cash provided by
(used in) operating activities:
Depreciation and amortization 778,331 423,575
Changes in operating assets and
liabilities:
Accounts receivable, trade 12,368 (159,196)
Merchandise inventories (10,700,240) (10,231,408)
Prepaid expenses and other assets 52,617 24,642
Accounts payable 6,511,783 11,409,300
Accrued expenses and other current
liabilities (755,076) 180,511
----------- -----------
Net cash (used in) provided by
operating activities (4,209,008) 2,150,675
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (585,860) (7,084,888)
----------- -----------
Net cash used in investing
activities (585,860) (7,084,888)
----------- -----------
Cash flows from financing activities:
Principal payments under capital
lease obligations (14,092) --
Principal payments, note payable -- (50,578)
Proceeds from revolving credit 4,000,000 5,000,000
Principal payments of long-term debt (142,357) (45,079)
----------- -----------
Net cash provided by financing
activities 3,843,551 4,904,343
----------- -----------
Net decrease in cash and cash
equivalents (951,317) (29,870)
Cash and cash equivalents, beginning of
period 1,468,897 937,477
----------- -----------
Cash and cash equivalents, end of period $ 517,580 $ 907,607
=========== ===========
</TABLE>
Supplemental schedule of non-cash investing and financing activities: Capital
lease obligations of $644,845 were incurred when the Company entered into leases
for vehicles during 1996.
See accompanying notes to condensed financial statements.
6
<PAGE> 7
D.I.Y. HOME WAREHOUSE, INC.
Notes to Condensed Financial Statements
(Unaudited)
1. Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position as of
March 30, 1996 and the results of operations and cash flows for the three months
ended March 30, 1996 and April 1, 1995. The condensed financial statements
should be read in conjunction with the financial statements and notes contained
in the Company's Annual Report filed on Form 10-K. The results of operations for
any interim period should not necessarily be considered indicative of the
results of operations for the full year.
2. Summary of Significant Accounting Policies:
During the first quarter of 1996, the Company changed its method of
accounting for merchandise inventories from the last-in, first-out (LIFO) method
to the first-in, first-out (FIFO) method. As required by generally accepted
accounting principles, the Company has retroactively adjusted prior years'
financial statements for this change. The new method of accounting for inventory
was adopted in recognition of industry practice and to provide for a better
matching of costs and revenues. The Company will apply to the Internal Revenue
Service to change to the FIFO method of inventory valuation for income tax
purposes. The effect of the change in accounting method had no effect on net
income or earnings per share as previously reported for the three months ended
April 1, 1995.
The Company will restate each of its 1995 quarters as well as its 1995 and
1994 annual results to provide retroactive application of the effect of the
accounting change. Had the Company not changed its method of inventory costing,
the impact on net income and earnings per share for the three months ended March
30, 1996 would not have been material.
3. Earnings Per Share:
Earnings per share are computed using the weighted average number of shares
of common stock outstanding for the periods. Earnings per share have not been
adjusted for the effect of stock options as the dilutive effect would be less
than three percent for each period.
4. Stock Options:
The Company has a Long Term Incentive Plan (the Plan) which reserves
850,000 shares of the Company's authorized common stock for issuance. Options
granted under the Plan vest over five years at the rate of 20% each year and
7
<PAGE> 8
expire no more than ten years from the date of grant. A summary of activity
under the Plan for the three months ended March 30, 1996 is as follows:
<TABLE>
<CAPTION>
Average Option
Shares Subject Price
to Options Per Share
---------- ---------
<S> <C> <C>
Outstanding December 30, 1995 673,000 $10.18
Granted 165,000 $ 4.59
Canceled (9,000) $ 5.68
-------
Outstanding March 30, 1996 829,000 $ 9.12
=======
</TABLE>
At March 30, 1996, 184,600 options were exercisable and 21,000 shares were
available for future grant. The Company does not expect to adopt the recognition
provisions of recently issued SFAS No. 123, Accounting for Stock-Based
Compensation. Disclosures required by new accounting standard will be included
in future financial statements pursuant to the effective date criteria.
6. Income Taxes:
A reconciliation of the Statutory federal income tax rate to the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
Three months ended
--------------------
March 30, April 1,
1996 1995
-------- --------
<S> <C> <C>
Statutory federal income tax rate 34.0% 34.0%
State and local income taxes,
net of federal benefit 6.0% 6.0
Tax credits and other -- (1.2)
-------- --------
Effective income tax rate 40.0% 38.8%
======== ========
</TABLE>
8
<PAGE> 9
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
STATEMENT OF INCOME - Three Months Ended March 30,
1996 Compared to Three Months Ended April 1, 1995
Net sales increased by $8.9 million, or 29%, to $39.1 million in the first
quarter of fiscal 1996, from $30.3 million in the first quarter of fiscal 1995.
This increase in net sales was attributable primarily to the full period sales
in 1996 for the five DIY locations which were opened in 1995. Comparable store
sales decreased 4.0% for the quarter. Comparable store sales were below
expectations due to severe winter weather. In addition, sales were further
impacted by the announcement and commencement of the liquidation by a competitor
which formerly was a large player in the Company's markets.
Gross profit increased by $1.6 million, or 17%, to $10.8 million in the
first quarter of fiscal 1996 from $9.2 million in the first quarter of fiscal
1995. As a percentage of net sales, gross profit decreased to 27.5% in the first
quarter of fiscal 1996 compared to 30.4% in the first quarter of fiscal 1995,
due primarily to vendor discounts received in 1995 on the initial inventory for
new stores. No such discounts were realized in the first quarter of fiscal 1996
as there were no new store openings in the period.
Store operating, general and administrative expenses were $10.4 million for
the quarter ended March 30, 1996 compared to $7.4 million for the quarter ended
April 1, 1995. As a percentage of net sales, operating expenses increased to
26.5% in the first quarter of fiscal 1996 compared to 24.6% in the first quarter
of fiscal 1995 as the sales softness impacted the Company's ability to leverage
expenses.
There were no store pre-opening costs in the first quarter of fiscal 1996,
compared to $646,758 in the first quarter of fiscal 1995 as a result of the
timing of new store openings in the respective periods.
Other expense, net, increased from $270,057 (0.9% of net sales) in the
first quarter of fiscal 1995 to $575,913 (1.5% of net sales) in the quarter
ended March 30, 1996 due to interest expense incurred on higher levels of debt
outstanding in the first quarter of 1996.
The effective income tax rate was 40.0% in the first quarter of fiscal 1996
up from 38.8% in the first quarter of fiscal 1995. This increase was due
primarily to the legislative termination of the targeted jobs tax credit
effective December 31, 1994. Final tax benefits relative to this tax credit were
realized in the first quarter of 1995.
9
<PAGE> 10
BALANCE SHEET - March 30, 1996
Merchandise inventories increased $10.7 million and accounts payable
increased $6.5 million since December 30, 1995 due primarily to the seasonal
increases in inventory levels. During the first quarter of fiscal 1996, the
Company changed its method of accounting for inventories from the last-in,
first-out (LIFO) method to the first-in, first-out (FIFO) method. As required by
generally accepted accounting principles, the Company has retroactively adjusted
prior years' financial statements for this change. Property and equipment, at
cost, increased approximately $600,000 due to remodeling and lighting projects
in certain stores. Indebtedness under the Company's revolving credit facility
increased $4.0 million since December 30, 1995 in order to finance the increase
in merchandise inventories and property and equipment.
LIQUIDITY AND CAPITAL RESOURCES
Net cash used in operating activities was $4.2 million for the three months
ended March 30, 1996. The primary use of cash from operating activities for the
three months ended March 30, 1996 was $10.7 million to fund the seasonal
increase in inventories offset by an increase of $6.5 million in accounts
payable. Net cash used in investing activities was $1.2 million relative to the
acquisition of property and equipment. Net cash provided by financing activities
was $3.8 million reflecting net borrowings.
Net cash provided by operating activities was $2.2 million for the three
months ended April 1, 1995, and was provided by net income plus depreciation and
amortization and an increase in accounts payable which exceeded the increase in
merchandise inventories. Net cash used in investing activities of $7.1 million
represents property and equipment acquisition relative to new stores. Net cash
provided by financing activities was $4.9 million reflecting net borrowings to
fund the acquisition of property and equipment.
Management believes cash on hand, cash from operations and cash available
through the Company's financing agreements will be sufficient to meet short-term
and long-term working capital requirements.
10
<PAGE> 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
A list of the exhibits required by Item 601 of Regulation S-K to
be filed as a part of this Form 10-Q is shown on the "Exhibit
Index" filed herewith.
(b) Reports on Form 8-K:
None
Signature
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.
D.I.Y. HOME WAREHOUSE, INC.
(Registrant)
DATED: May 9, 1996
By: /s/ Marilyn A. Eisele
------------------------------------
Vice President - Administration
and Finance, Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- - ------ ----------------------
11 Earnings Per Share:
------------------
11.1 Computation of Earnings Per Share
18 Change in Accounting Principles:
-------------------------------
18.1 Preferability Letter from Coopers & Lybrand L.L.P.
dated April 17, 1996 regarding the change in
accounting for merchandise inventories from the
last-in, first-out (LIFO) method to the first-in,
first-out (FIFO) method.
27 Financial Data Schedule:
-----------------------
27.1 Financial Data Schedule for the quarter ended
March 30, 1996.
12
<PAGE> 1
EXHIBIT 11.1
D.I.Y. HOME WAREHOUSE INC.
FORM 10-Q
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
March 30, April 1,
1996 1995
---------- --------
<S> <C> <C>
Income applicable to common shares $(108,791) $503,251
========= =========
Weighted average common shares
outstanding for the period 7,625,000 7,625,000
Dilutive effect of exercise of stock
options -- --
--------- ---------
Weighted average common shares, assuming
issuance of the above securities 7,625,000 7,625,000
========= =========
Earnings per common share:
Primary $(0.01) $ 0.07
Fully diluted $ -- $ --
</TABLE>
<PAGE> 1
EXHIBIT 18.1
Coopers Coopers & Lybrand L.L.P.
&Lybrand
a professional services firm
D.I.Y. Home Warehouse, Inc.
5811 Canal Road
Suite 180
Valley View, Ohio 44125
We are providing this letter to you for inclusion as an exhibit to your Form
10-Q filing pursuant to Item 601 of Regulation S-K.
We have read management's justification for the change in accounting from the
last-in, first-out (LIFO) method of inventory valuation to the first-in,
first-out (FIFO) method contained in the Company's Form 10-Q for the quarter
ended March 30, 1996. Based on our reading of the data and discussions with the
Company officials of the business judgment and business planning factors
relating to the change, we believe management's justification is reasonable.
Accordingly, in reliance on management's determination as regards elements of
judgment and business planning, we concur that the newly adopted accounting
principle described above is preferable in the Company's circumstances to the
method previously applied.
We have not audited any financial statements of D.I.Y. Home Warehouse, Inc. as
of any date or for any period subsequent to December 30, 1995, nor have we
audited the application of the change in accounting principle disclosed in the
Form 10-Q of D.I.Y. Home Warehouse, Inc. for the three months ended March 30,
1996; accordingly, our comments are subject to revision on completion of an
audit of the financial statements that include the accounting change.
Coopers & Lybrand L.L.P.
Cleveland, Ohio
April 17, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> MAR-30-1996
<CASH> 518
<SECURITIES> 0
<RECEIVABLES> 85
<ALLOWANCES> 0
<INVENTORY> 50,629
<CURRENT-ASSETS> 52,557
<PP&E> 48,187
<DEPRECIATION> 7,764
<TOTAL-ASSETS> 93,636
<CURRENT-LIABILITIES> 25,412
<BONDS> 33,795
<COMMON> 22,913
0
0
<OTHER-SE> 10,418
<TOTAL-LIABILITY-AND-EQUITY> 93,636
<SALES> 39,144
<TOTAL-REVENUES> 39,144
<CGS> 28,379
<TOTAL-COSTS> 28,379
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 680
<INCOME-PRETAX> (181)
<INCOME-TAX> (73)
<INCOME-CONTINUING> (109)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (109)
<EPS-PRIMARY> (0.01)
<EPS-DILUTED> (0.01)
</TABLE>
