<PAGE> 1
FORM 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 28, 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 No. 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)
Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
COMMON STOCK, NO PAR VALUE
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. Yes X No
-- --
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 and 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 March 1, 1997, the aggregate market value of the Registrant's
voting stock held by non-affiliates of the Registrant was $11,120,794 determined
in accordance with the highest price at which the stock was sold on such date as
reported by the Nasdaq National Market.
As of March 1, 1997, there were 7,633,859 shares of the Registrant's
common stock issued and outstanding.
<PAGE> 2
DOCUMENTS INCORPORATED BY REFERENCE
The registrant's Proxy Statement for its Annual Meeting of Shareholders
to be held on Wednesday, May 21, 1997, which will be filed with the Securities
and Exchange Commission pursuant to Regulation 14A within 120 days of the close
of the registrant's fiscal year, is incorporated by reference in answer to Part
III of this Annual Report on Form 10-K to the extent noted herein. In addition,
pages 4 through 12 of DIY Home Warehouse, Inc.'s 1996 Annual Report to
Shareholders is incorporated by reference in answer to Items 6, 7 and 8 of Part
II and Item 14(a)(1) of Part IV of this report.
PART I
ITEM 1. BUSINESS
GENERAL
D.I.Y. Home Warehouse, Inc. ("DIY" or the "Company") operates sixteen
retail warehouse-format home improvement centers that sell products primarily to
do-it-yourself home repair and remodeling customers. The Company's "DIY Home
Warehouse" stores are located in Northeast Ohio and range in size from 66,000 to
94,000 square feet of enclosed selling space with an additional 12,000 to 20,000
square feet of outside selling space. Seven of these retail centers are located
in the Cleveland metropolitan area, two are in the Youngstown metropolitan area,
four stores are in the Akron area, and one store each is located in Mansfield,
Canton and Ashtabula. DIY also offers a high level of customer service, making
shopping at its stores easy and convenient and, through its displays and trained
staff, enabling do-it-yourself shoppers to conceptualize, design and complete
their own home repair, maintenance and improvement projects. The Company also
offers kitchen, bath and other product installation for its customers.
MERCHANDISING
DIY offers a wide selection of home improvement products at everyday
low prices. Each store carries approximately 33,000 SKUs, including variations
in color and size. Brand name products are carried throughout each store. In
addition, the Company carries several private label products, including paints
and doors.
The Company seeks to carry a broad and deep product selection in its
core product areas. Core product areas are characterized by a high need for
specialized customer service. The Company's four core product areas consist of
(a) Kitchen, Plumbing and Bath, (b) Paint, Home Decorating and Floorcoverings,
(c) Lawn and Garden, and (d) Lumber, Building Materials and Doors and Windows.
In its non-core product areas, DIY seeks to carry as deep a selection as its
competitors, but does not seek to carry a broad selection of products within the
same category. Non-core product areas are characterized by products which do not
require a high level of specialized service, but which are better stocked and
sold in traditional warehouse-format for customer convenience. The Company's
non-core product areas are Electrical, Lighting and Fans, and Hardware and
Tools.
The following table depicts the percentage of total net sales data for
the periods indicated, by product area.
2
<PAGE> 3
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-----------------------------------------------------------------------
PRODUCT AREA DECEMBER 28, 1996 DECEMBER 30, 1995 DECEMBER 31, 1994
- ------------ ----------------- ----------------- -----------------
<S> <C> <C> <C>
A. Kitchen, Plumbing and Bath 21.5% 22.7% 22.5%
B. Paint, Home Decorating and
Floorcoverings 16.3 15.8 15.8
C. Lawn and Garden 14.6 15.1 14.4
D. Lumber, Building Materials and
Doors and Windows 29.6 28.5 29.6
E. Electrical, Lighting and Fans 10.3 10.8 10.9
F. Hardware and Tools 7.7 7.1 6.8
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
Kitchen, Plumbing and Bath. The Company carries a wide selection of
kitchen cabinets, sinks, toilets, bathtubs, faucets, showerheads, bathroom
vanities and cabinets, tub and shower surrounds and enclosures, and other items
used for kitchen and bathroom remodeling projects. DIY offers four complete
lines of kitchen cabinets for custom order and two lines which are stocked for
customer carryout. All products are offered over a broad range of price and
quality levels. Each store has up to 40 vignette displays, showing full room
depictions of completed projects. Salespeople are readily available to assist
customers in planning and designing remodeling projects as well as assisting in
product selection. Salespeople use computers in planning projects, which provide
a three dimensional graphic depiction of the finished project, and generate a
materials list and cost estimate.
Paint, Home Decorating and Floorcoverings. The Company offers a wide
assortment of interior and exterior paints, stains, varnishes and other surface
applications, as well as sundry related supplies such as paint brushes, sand
paper, paint thinner, glues and other similar items. Blinds and window
treatments, closet and storage materials, wall coverings, floorcoverings (rugs,
tiles and similar items), and other home decorating items are also featured in
this product area. In addition to budget priced DIY "house label" products, DIY
offers products from manufacturers such as Dutch Boy, Pittsburgh Paint,
Enterprise, Behr, Levolor and Armstrong. Salespeople are readily available to
computer custom match and mix paint colors, and otherwise assist customers in
planning and selecting products for their home decorating projects.
Lawn and Garden. The Company carries a wide selection of seasonal items
relating to landscaping and yard beautification and maintenance, such as annual
flowers and other nursery stock, fertilizers, lawn mowers and garden tractors,
barbecues and grills, soils and mulches, lawn and garden maintenance tools, and
similar items. DIY seeks to provide a large selection of lawn and garden goods,
at high quality and low prices. This department provides both significant sales
primarily in the second and third quarters of the year and substantial traffic
of potential customers for other departments. Three of DIY's stores have indoor
garden centers which provide year-round climate controlled accommodations for
tropical house plants, live goods and accessories.
Lumber, Building Materials and Doors and Windows. The Company carries a
broad selection of exterior and interior doors, storm windows and doors, steel
entry doors, pre-hung doors, window units, skylights, security doors and bars,
moldings, glass blocks and similar items. These items are displayed "as
installed," similar to the full room vignette presentations utilized by the
Kitchen, Plumbing and Bath Department. Such "as installed" presentations offer
the customer the opportunity to physically operate the door or window and to
explore its features and benefits. The Company's stores feature, on average,
approximately 160 "as installed" presentations. This product area also offers
treated and dimensional lumber, plywood, pine boards, particle board and other
wood product items. Salespeople will also custom cut most stock pieces.
Electrical, Lighting and Fans and Hardware and Tools. The Company
offers a selection of heaters and fans, lights, lighting fixtures, switch
plates, light bulbs, outlets, switches, electrical wire and conduit, fuses and
circuit breakers, related electrical products, hand and power tools and
accessories, fasteners, chains, and other related tools and items. The Company
features a large attractive lighting display area with over 700 working samples.
The Company's Hardware and Tools product area provides all necessary equipment
to complete a customer's project.
3
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CUSTOMER SERVICE
DIY seeks to provide superior service for every customer by hiring
experienced personnel, including people with experience in the building trades
such as plumbers and electricians, and by providing these employees with
in-store and vendor-supported product training. Specially trained personnel are
available in every product area (or "department"), particularly in the core
departments, to help customers conceptualize and plan virtually any home
improvement project.
Customer questions, problems, returns and exchanges are handled at a
convenient service desk near the main entrance to the store. Virtually all
items offered by the Company carry the manufacturers' full product warranties.
The Company has a "no-hassle" return policy for all of its products. If the
customer is not satisfied, the Company will have the product repaired, exchange
the product or refund the product purchase price. The Company does not operate
a repair department.
The Company hosts "how-to" clinics at all of its stores on a weekly
basis. At these clinics, experienced employees demonstrate products and conduct
classes on home improvement and remodeling projects.
The Company offers kitchen, bath and other product installation,
catering to customers who do not have the time or skills for home repair,
maintenance, or improvement projects.
The Company offers DIY credit card programs to three purchaser classes:
consumer, professional and non-profit institutional, with modified terms and
benefits for each card and class. These programs are all owned and operated by a
third party. Customers can also pay by cash, check, Visa, MasterCard and
Discover. DIY home centers are open seven days a week, from 7:00 a.m. to 10:00
p.m. on weekdays and Saturdays and from 8:00 a.m. to 7:00 p.m. on Sundays.
PURCHASING AND DISTRIBUTION
The Company purchases over 92% of its merchandise directly from
manufacturers. The balance, which are generally high turnover but long lead time
items, are purchased through and stocked by distributors. Product re-orders are
initiated at the store department level, after review of available stock and
applying local knowledge as to sales patterns for particular items. Merchandise
selection is centrally handled by buyers at the headquarters level to attain the
most attractive volume discounts and programs available. DIY has a staff of
eight merchandisers, one of whom serves as the Company's Vice President-General
Merchandising Manager. Each merchandiser has responsibility for specified
product categories.
During fiscal 1996, the Company's top 10 vendors accounted for
approximately 24% of its purchases, with no single supplier accounting for more
than 7% of Company purchases. The number of active vendors is approximately 600.
The Company is not dependent on any one vendor for any significant product. The
Company does not license or contract the operating of departments within its
stores to outside providers.
The majority of the merchandise purchased by the Company is shipped by
the vendors directly to its stores. The Company thereby largely avoids the costs
associated with maintaining a distribution center or warehouse, and does not
incur costs of moving inventory from storage sites to the stores. In some
limited situations involving import and/or seasonal product categories, a third
party warehouse location is used for cross docking and/or temporary storage
where a cost-benefit advantage exists. All merchandise is displayed on the sales
floor in the lower levels of warehouse type racks, with stock stored in the
upper racks. In this way, on-site storeroom space requirements are minimized,
and utilization of available store space for sales is maximized.
4
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The Company stocks inventory at levels appropriate to support its
warehouse home center format and its wide product selection consisting of
approximately 33,000 SKUs. The Company generally experiences its highest working
capital requirements with respect to inventory during March and April when
inventory quantities are increased in anticipation of higher spring and summer
sales.
MANAGEMENT INFORMATION SYSTEMS
The Company's information system strategy is to provide excellent
customer service and reliable, timely information to manage DIY. The
infrastructure for the Company's Local Area Network (LAN) and Wide Area Networks
(WAN) consists of the IBM AS/400 processor for its mission critical
applications, Microsoft NT and Novell for its networked servers and personal
computers. Margin, sales and inventory information is delivered through the DIY
Network and processed at headquarters daily. The Company's strategic IT
architecture is flexible enough to accommodate a mix of systems while retaining
the ability to centralize or delegate management and control of these systems.
MARKETING
The Company's marketing program is designed to create an awareness of
DIY's comprehensive selection of brand name merchandise, superior customer
service and everyday low prices. The Company's primary advertising vehicle is
local newspaper advertising, which currently consists of circulars, tablets or
flyers included with the Sunday newspaper in its markets. These are published 50
weeks per year. In addition, the circulars are supported by limited full or
partial page advertisements in the newspapers and local newspaper advertising.
The Company also engages in electronic advertising--both television and
radio--in order to enhance consumer recognition of the DIY Home Warehouse name
and product assortment or to promote a sense of urgency regarding the purchase
of a particular product or group of products.
COMPETITION
DIY's principal competitors are warehouse-format stores. The
warehouse-format competitors in the Company's Greater Cleveland market and
outlying markets are Builders Square (a division of Kmart Corporation) and
Lowe's, respectively. In addition, in the Youngstown market, the Company
competes with Stambaugh-Thompson. Recently, Home Depot, Inc. has announced its
intentions to enter the Northeast Ohio market.
DIY also competes with a large number of smaller plumbing, electrical,
garden, lumber and building supply stores, mass merchants (such as Sears,
Walmart, Kmart and Meijer) and catalog companies for certain hardware and tool
items, some of which may be more conveniently located near customers. Although
these stores do not offer the breadth or depth of selection or the everyday low
prices of the Company's home centers, they do offer certain customers
convenience and service.
No assurance can be given that other larger national or regional chains
with similar warehouse-format stores will not enter DIY's present or expansion
markets. DIY may be adversely affected if such competitors enter DIY's markets.
The additional presence of these competitors, or an attempt to increase market
share by existing competition through lower margins, could negatively impact the
Company's profitability.
Competitive factors in the warehouse-format home improvement industry
include price, selection and service. Some of the Company's warehouse-format
competitors provide a larger selection of items in the Company's non-core
product areas and provide certain customer services which the Company does not
offer. Many of DIY's competitors also have greater resources than the Company,
and certain competitors, including Lowe's and Builders Square, are designed to
serve the do-it-yourself customers targeted by DIY.
5
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EMPLOYEES
Each DIY home center employs approximately 80 to 165 employees,
supervised by a store manager, three to five assistant managers and 10 to 12
department heads. As of December 28, 1996, the Company employed approximately
1,334 persons, approximately 77% of whom were full-time employees. DIY is not a
party to any collective bargaining agreements. The Company considers its
relations with its employees to be excellent.
ITEM 2. PROPERTIES
Each DIY home center is individually designed based on the particular
characteristics of the property, with the overall goal of achieving a relatively
uniform "look" among all the stores, including the same product areas. All
stores are conveniently located near major roads and each provides parking for
customers. The following table sets forth the location, opening date and
approximate size of each of the Company's home centers.
<TABLE>
<CAPTION>
Area in Square Feet
Leased -------------------
Store Location Opening Date or Owned Interior Selling Garden Greenhouse
- -------------- ----------------- -------- ---------------- ------ ----------
<S> <C> <C> <C> <C> <C>
Cleveland, Ohio........... March 1985................. Leased........... 93,000 12,000 --
North Randall, Ohio....... October 1985............... Leased........... 83,000 17,000 --
Eastlake, Ohio............ August 1990................ Leased........... 66,000 17,000 --
Elyria, Ohio.............. February 1992.............. Leased........... 72,000 16,200 --
Bedford, Ohio............. August 1992................ Leased........... 94,000 18,000 --
Brook Park, Ohio.......... March 1993................. Leased........... 93,000 18,000 --
Boardman, Ohio............ September 1993............. Leased........... 81,900 18,000 --
Warren, Ohio.............. January 1994............... Owned,Land Lease. 79,000 18,000 --
Mansfield, Ohio........... March 1994................. Owned............ 80,000 18,000 --
North Canton, Ohio........ May 1994................... Owned............ 86,000 18,000 --
Akron, Ohio (Northeast)... September 1994............. Owned............ 89,800 18,000 --
Medina, Ohio.............. March 1995................. Owned............ 83,200 20,000 3,200
Mentor, Ohio.............. April 1995................. Leased........... 86,100 15,000 --
Akron, Ohio (Northwest)... May 1995................... Leased........... 96,800 16,500 --
Akron, Ohio (Southeast)... June 1995.................. Owned............ 85,400 15,000 3,200
Ashtabula, Ohio.............. November 1995.............. Owned, Land Lease 84,200 15,750 3,200
</TABLE>
The Company's headquarters consist of approximately 12,100 square feet
of leased space in Valley View, Ohio, near Cleveland.
The Company leases or subleases nine of its properties. In addition,
two of the Company's retail stores are subject to land leases. The various lease
terms expire between 1 and 12 years, and certain store leases have renewal
options ranging from 10 to 45 years. The leases generally provide for additional
rental payments based upon a percentage of gross or net store sales above
various levels. The Company subleases portions of premises not being used by the
Company to various third parties.
The Company owns most of the equipment and trade fixtures throughout
its stores and headquarters and has made leasehold improvements at most
locations. Management believes all of the Company's facilities are in excellent
condition.
ITEM 3. LEGAL PROCEEDINGS
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Company's security holders
during the fourth quarter of the fiscal year covered by this Annual Report on
Form 10-K.
6
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER MATTERS
From 1985 to May 18, 1993, the Company's stock was privately held. From
May 25, 1993, to the present, the Company's Common Stock has been traded on the
National Market of Nasdaq (Nasdaq NM) under the symbol of "DIYH."
Prior to listing on Nasdaq NM, there was no established public trading
for the Common Stock. During the year ended December 28, 1996, the reported
average daily volume of shares traded was 8,482 shares.
As of March 1, 1997, the closing price for the Company's Common Stock
on Nasdaq NM was $4.00 and there were approximately 226 holders of record of
Common Stock. Based on information provided to the Company by certain holders of
record, the Company estimates there are in excess of 2,000 beneficial
shareholders. The Company has not paid any cash dividends on its Common Stock in
the past two fiscal years. Management intends to follow a policy of retaining
earnings in the foreseeable future in order to finance the continued growth and
development of its business. The declaration and payment of dividends will be
within the discretion of the Company's Board of Directors and would depend,
among other factors, on the Company's earnings, financial condition, capital
requirements, level of indebtedness and contractual restrictions with respect to
payment of dividends.
The following table sets forth a quarterly summary, for the years ended
December 28, 1996 and December 30, 1995, of the high and low closing sales
prices as reported by Nasdaq NM.
<TABLE>
<CAPTION>
1996 1995
---------------------------------------------------------
FISCAL QUARTER HIGH LOW HIGH LOW
- -------------- ---- --- ---- ---
<S> <C> <C> <C> <C>
1st $5.00 $3.38 $8.50 $5.75
2nd 6.00 4.13 8.00 6.00
3rd 5.75 4.25 8.25 6.25
4th 5.63 4.00 6.75 3.50
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The information for the fiscal years 1992-1996 under the heading
"Selected Financial Data and Operating Highlights" contained in the Company's
Annual Report to Shareholders for the fiscal year ended December 28, 1996, on
page 12 of Exhibit 13.1 hereto, is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
The information under the heading "Management's Discussion and Analysis
of Financial Condition and Results of Operations" contained in the Company's
Annual Report to Shareholders for the fiscal year ended December 28, 1996, on
pages 4-5 of Exhibit 13.1 hereto, is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The information under the headings "Statement of Income, Statement of
Shareholders' Equity, Balance Sheet, Statement of Cash Flows, Notes to Financial
Statements and Report of Independent Accountants" contained in the Company's
Annual Report to Shareholders for the fiscal year ended December 28, 1996, on
pages 6-11 of Exhibit 13.1 hereto, is incorporated herein by reference.
7
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEMS 10, 11, 12, 13.
The information required by ITEMS 10, 11, 12 AND 13 will be included in
the Company's Proxy Statement for its 1996 Annual Meeting of Shareholders to be
held on May 21, 1997, and is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this Annual Report on
Form 10-K:
(1) Financial Statements:
The following financial statements of D.I.Y. Home
Warehouse, Inc. are filed herewith by incorporation
by reference from pages 6 through 11 of the
Registrant's Annual Report to Shareholders for the
fiscal year ended December 28, 1996, as provided in
Item 8 hereof:
Statement of Income for the Years Ended December 28,
1996, December 30, 1995 and December 31, 1994;
Statement of Shareholders' Equity for the Years Ended
December 28, 1996, December 30, 1995 and December 31,
1994;
Balance Sheet as of December 28, 1996 and December
30, 1995;
Statement of Cash Flows for the Years Ended December
28, 1996, December 30, 1995 and December 31, 1994;
Notes to Financial Statements;
Report of Independent Accountants.
(2) Financial Statement Schedules:
Financial Statement Schedules have been omitted
because they are not required, are not applicable, or
the required information is included in the financial
statements or the notes thereto.
(3) A list of the exhibits required by Item 601 of
Regulation S-K to be filed as a part of this Form
10-K is shown on the "Exhibit Index" filed herewith.
(b) Reports on Form 8-K
The Company did not file any reports on Form 8-K regarding events
occurring during the months included in the fourth quarter of the
Company's 1996 fiscal year.
8
<PAGE> 9
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
Date: March 27, 1997 D.I.Y. HOME WAREHOUSE, INC.
By: /s/ FRED A. ERB
------------------------
Fred A. Erb,
Chairman of the Board of Directors
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Annual Report on Form 10-K has been signed by the following persons on
behalf of the registrant and in the capacities and on the dates indicated.
/s/ FRED A. ERB /s/ GREGORY K. JONES
- -------------------------- -----------------------
Fred A. Erb Gregory K. Jones
Chairman of the Board of Directors Director
Dated: March 27, 1997 Dated: March 27, 1997
/s/ CLIFFORD L. REYNOLDS /s/ JOHN A. SHIELDS
- -------------------------- -----------------------
Clifford L. Reynolds John A. Shields
Director and President Director
(principal executive officer) Dated: March 27, 1997
Dated: March 27, 1997
/s/ R. SCOTT EYNON /s/ MARK A. TIMMERMAN
- -------------------------- -----------------------
R. Scott Eynon Mark A. Timmerman
Vice President-Operations and Director Director
Dated: March 27, 1997 Dated: March 27, 1997
/s/ DENNIS C. HOFF /s/ MARILYN A. EISELE
- -------------------------- -----------------------
Dennis C. Hoff Marilyn A. Eisele
Vice President-General Merchandising Vice President -
Manager and Director Administration and Finance,
Dated: March 27, 1997 and Chief Financial Officer
Dated: March 27, 1997
/s/ JOHN M. ERB
- -----------------------
John M. Erb
Secretary and Director
Dated: March 27, 1997
9
<PAGE> 10
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
3 Articles of Incorporation and By-Laws:
--------------------------------------
3.1 Articles of Incorporation of D.I.Y. Home Warehouse, Inc.
as amended (A)
3.2 Amended and Restated Code of Regulations of D.I.Y. Home
Warehouse, Inc. (A)
10 Material Contracts:
-------------------
10.1 Sublease between D.I.Y. Ohio Real Estate Associates
Limited Partnership and D.I.Y. Home Warehouse, Inc.,
dated August 1, 1992 (A)
10.2 Indenture of Lease between Smith - D.I.Y. Center Limited
Partnership and D.I.Y. Home Warehouse, Inc., dated
December 27, 1985 (A)
10.3 Amendment to Lease between D.I.Y. Center Associates
(successor in interest to Smith - D.I.Y. Center Limited Partner-
ship) and D.I.Y. Home Warehouse, Inc., dated July 2, 1991 (A)
10.4 Amendment to Lease between D.I.Y. Center Associates, L.P. and
D.I.Y. Home Warehouse, Inc. dated March 21, 1995 (C)
10.5 Lease between Fred A. Erb and D.I.Y. Home Warehouse, Inc.,
dated March 1, 1993 (A)
10.6 Lease Agreement between West Park Limited, Inc. and D.I.Y.
Home Warehouse, Inc. dated August 2, 1991 (A)
10.7 Addendum #1 to Lease Agreement between West Park Limited,
Inc. and D.I.Y. Home Warehouse, Inc., dated September 2,
1991 (A)
10.8 Addendum #2 to Lease Agreement between West Park Limited,
Inc. and D.I.Y. Home Warehouse, Inc., dated September 16,
1991 (A)
10.9 Sublease between The Wholesale Club, Inc. and D.I.Y. Home
Warehouse, Inc., dated May 14, 1992 (A)
10.10 Sublease between The Wholesale Club, Inc. and D.I.Y. Home
Warehouse, Inc., dated November 25, 1992 (A)
10.11 Lease between Myron S. Viny, dba Central Valley Properties,
and D.I.Y. Home Warehouse, Inc., dated February 26, 1993,
but effective beginning May 1, 1993 (A)
10
<PAGE> 11
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.12 Modification and Supplement to lease between the Estate of Myron S.
Viny (formerly DBA Central Valley Properties) and D.I.Y. Home
Warehouse, Inc. dated November 27, 1995 (G)
10.13 D.I.Y. Home Warehouse, Inc. 1993 Long Term Incentive Plan as
Amended February 23, 1994 and Approved by Stockholders
May 25, 1994# (A)
10.14 Form of Non-Qualified Stock Option Agreement under the D.I.Y. Home
Warehouse, Inc. 1993 Long Term Incentive Plan as Amended# (G)
10.15 Indemnification Agreement between D.I.Y. Home Warehouse,
Inc. and Clifford L. Reynolds (A)
10.16 Indemnification Agreement between D.I.Y. Home Warehouse,
Inc. and R. Scott Eynon (A)
10.17 Indemnification Agreement between D.I.Y. Home Warehouse,
Inc. and Dennis C. Hoff (A)
10.18 Indemnification Agreement between D.I.Y. Home Warehouse,
Inc. and John M. Erb (A)
10.19 Indemnification Agreement between D.I.Y. Home Warehouse,
Inc. and Fred A. Erb (A)
10.20 Tax Indemnification Agreement among D.I.Y. Home Warehouse,
Inc. and Fred A. Erb, Clifford L. Reynolds, R. Scott Eynon,
Dennis C. Hoff and John M. Erb (A)
10.21 D.I.Y. Home Warehouse, Inc.'s 401K Plan# (A)
10.22 $1,250,000 Promissory Note from D.I.Y. Home Warehouse,
Inc. to Edgemere, Inc. f/k/a Erb Lumber Co., dated July 1, 1991 (A)
10.23 Security Agreement between D.I.Y. Home Warehouse and
Erb Lumber Co., dated November 14, 1985 (A)
10.24 Agreement of Lease (Boardman Facility) between DIY Ohio Real
Estate Associates Limited Partnership and D.I.Y. Home Ware-
house, Inc. dated as of October 1, 1993 (B)
10.25 Lease between Elmhurst Properties, Inc. and D.I.Y. Home
Warehouse, Inc., dated May 26, 1993 (B)
10.26 Real Estate Purchase Agreement (Mansfield) between DIY Ohio Real
Estate Associates Limited Partnership and D.I.Y. Home Warehouse,
Inc. dated as of March 1, 1994 (B)
10.27 Assignment and Assumption of Lease and Sublease between Kmart
Corporation and D.I.Y. Home Warehouse, Inc. dated December 22, 1994 (C)
<PAGE> 12
Exhibit
Number Description of Exhibit
- ------ ----------------------
10.28 Shopping Center Lease between KCHGC, Inc. and D.I.Y. Home
Warehouse, Inc. dated January 12, 1995 (C)
10.29 Revolving Credit Agreement and Security Agreement dated December 7,
1994 between D.I.Y. Home Warehouse, Inc. and National City Bank,
Columbus, and Old Kent Bank and Trust Company (C)
10.30 Loan and Co-lender Agreement and Open-End Mortgage, Assignment of
Rents and Security Agreement dated December 23, 1994 between D.I.Y.
Home Warehouse, Inc. and National City Bank, Columbus, and Old Kent
Bank and Trust Company (C)
10.31 Line of Credit Agreement for Real Estate Loans, Open-end Mortgage,
Assignment of Rents and Security Agreement, and Mortgage Notes
between D.I.Y. Home Warehouse, Inc. and National City Bank,
Columbus and Old Kent Bank dated April 28, 1995 (D)
10.32 First Amendment to Line of Credit Agreement; Open-end Mortgage,
Assignment of Rents and Security Agreement (Leasehold) for Trumbull
County; Open-end Mortgage, Assignment of Rents and Security Agreement
for Summit County; Mortgage Note to National City Bank, Columbus dated
September 15, 1995; Mortgage Note to Old Kent Bank dated September 15,
1995 (F)
10.33 First Amendment to Revolving Credit Agreement dated December 22,
1995 between D.I.Y. Home Warehouse, National City Bank, Columbus,
and Old Kent Bank (G)
10.34 Amended and Restated Revolving Note dated December 22, 1995 in the
amount of $10,000,000 to National City Bank, Columbus (G)
10.35 Amended and Restated Revolving Note dated December 22, 1995 in the
amount of $10,000,000 to Old Kent Bank (G)
10.36 Amended and Restated Revolving Note dated December 22, 1995 in the
amount of $1,500,000 to National City Bank, Columbus (G)
10.37 Amended and Restated Revolving Note dated December 22, 1995 in the
amount of $1,500,000 to Old Kent Bank (G)
10.38 First Amendment to Security Agreement dated December 22,
1995 between D.I.Y. Home Warehouse, National City Bank, Columbus,
and Old Kent Bank (G)
10.39 First Amendment to Subordination Agreement dated December 22,
1995 between D.I.Y. Home Warehouse, National City Bank, Columbus,
and Old Kent Bank, and Edgemere Enterprises, Inc. (G)
10.40 Second Amendment to Line of Credit Agreement dated December 22,
1995 between D.I.Y. Home Warehouse, National City Bank, Columbus,
and Old Kent Bank (G)
12
<PAGE> 13
Exhibit
Number Description
- ------ -----------
10.41 First Amendment to Loan and Co-Lender Agreement dated December 22,
1995 between D.I.Y. Home Warehouse, National City Bank, Columbus,
and Old Kent Bank (G)
10.42 Modification to Revolving Credit Agreement, Line of Credit Agreement,
and Loan and Co-lender Agreement between D.I.Y. Home Warehouse, Inc.,
National City Bank, Columbus, and Old Kent Bank dated February 20, 1996
(G)
10.43 1994 D.I.Y. Home Warehouse, Inc. Employee Bonus Plan dated
May 25, 1994# (C)
10.44 1995 D.I.Y. Home Warehouse, Inc. Employee Bonus Plan dated
May 24, 1995# (G)
10.45 Amended and Restated Employment Agreement between Clifford L.
Reynolds and D.I.Y. Home Warehouse, Inc.# (E)
10.46 Amended and Restated Employment Agreement between R. Scott
Eynon and D.I.Y. Home Warehouse, Inc.# (E)
10.47 Amended and Restated Employment Agreement between Dennis C.
Hoff and D.I.Y. Home Warehouse, Inc.# (E)
10.48 Employment Agreement between Marilyn A. Eisele and D.I.Y. Home
Warehouse, Inc.# (E)
10.49 D.I.Y. Home Warehouse, Inc. 1996 Retainer Stock Plan for Non-
Employee Directors (G)
10.50 General Business Lease Agreement with IBM Credit Corporation dated May
30, 1996 (I)
10.51 Amended and Restated Employment Agreement between Clifford
L. Reynolds and D.I.Y. Home Warehouse, Inc. dated November 21,
1996#
10.52 Second Amendment to Revolving Credit Agreement dated
December 23, 1996 between D.I.Y. Home Warehouse, Inc.,
National City Bank of Columbus and Old Kent Bank
10.53 Third Amendment to Line of Credit Agreement Dated December 23,
1996 between D.I.Y. Home Warehouse, Inc., National City Bank
of Columbus and Old Kent Bank
10.54 Second Amendment to Loan and Co-Lender Agreement dated
December 23, 1996 between D.I.Y. Home Warehouse, Inc., National
City Bank of Columbus and Old Kent Bank
11 Earnings Per Share:
-------------------
11.1 Computation of Earnings Per Common Share
<PAGE> 14
13 Annual Report:
--------------
13.1 Annual Report to Shareholders of D.I.Y. Home Warehouse, Inc.
for the fiscal year ended December 28, 1996, certain portions
of which are incorporated by reference herein.
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 (H)
23 Consents:
23.1 Consent of Independent Accountants
27 Financial Data Schedule
27.1 Financial Data Schedule for the year ended December 28, 1996
- -------------
# Management contract or compensatory plan or arrangement required to be
identified by Form 10-K Item 14.
(A) Incorporated by reference to Exhibits to the Registrant's Registration
Statement No. 33-60012 on Form S-1 filed May 18, 1993.
(B) Incorporated by reference to Exhibits to the Registrant's Report on
Form 10-K for the fiscal year ended January 1, 1994.
(C) Incorporated by reference to Exhibits to the Registrant's Report on
Form 10-K for the fiscal year ended December 31, 1994.
(D) Incorporated by reference to Exhibits to the Registrant's Report on
Form 10-Q for the quarter ended April 1, 1995.
(E) Incorporated by reference to Exhibits to the Registrant's Report on
Form 10-Q for the quarter ended July 1, 1995.
(F) Incorporated by reference to Exhibits to the Registrant's Report on
Form 10-Q for the quarter ended September 30, 1995.
(G) Incorporated by reference to Exhibits to the Registrant's Report on
Form 10-K for the fiscal year ended December 30, 1995.
(H) Incorporated by reference to Exhibits to the Registrant's Report on
Form 10-Q for the quarter ended March 30, 1996.
(I) Incorporated by reference to Exhibits to the Registrant's Report on
Form 10-Q for the quarter ended June 29, 1996.
14
<PAGE> 1
EXHIBIT 10.51
<PAGE> 2
AMENDMENT NO. 1 TO
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED EMPLOYMENT AGREEMENT is
executed as of November 21, 1996 by CLIFFORD L. REYNOLDS ("Executive") and D.I.Y
HOME WAREHOUSE, INC., an Ohio corporation (the "Company").
WHEREAS, Executive and the Company are parties to a certain Amended and
Restated Employment Agreement dated as of January 1, 1995 (the "Agreement"); and
WHEREAS, the parties desire to amend the Agreement to correct certain
typographical errors and ensure that the Agreement is the same as similar
agreements with other executives of the Company.
THE PARTIES AGREE AS FOLLOWS:
1. Section 7(b)(ii) of the Agreement is hereby amended to read, in its
entirety, as follows:
(ii) if Executive's employment is terminated pursuant to the
provisions of subsection 5(a)(iii) or subsection 5(a)(iv), and the
Company, in its sole and absolute discretion, continues to pay
Executive his base salary in the amount and manner set forth in
subsection 2(a) above and provide Executive with the same medical and
insurance benefits, but no other fringe benefits, which it provided to
Executive under this Agreement immediately prior to the actual
termination date, the period commencing on the Effective Date and
ending on the first to occur of (1) the date the Company ceases to pay
Executive such base salary or provide Executive such medical and
insurance benefits, or (2) the fifth anniversary of the Effective Date;
2. Section 8 of the Agreement is amended to provide that the required
copy for notices sent to Executive shall be sent to:
Gardner, Carton & Douglas
Quaker Tower
321 North Clark Street
Chicago, IL 60610
Attn: Glenn W. Reed
<PAGE> 3
3. As modified above, the Agreement shall continue in full force and
effect, and is hereby ratified and confirmed. This Amendment No. 1 may be
executed in two or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF the undersigned have executed this Amendment No. 1
as of the date set forth above.
/s/ Clifford L. Reynolds
------------------------
CLIFFORD L. REYNOLDS
D.I.Y. HOME WAREHOUSE, INC.
By: /s/ Fred A. Erb
----------------------
Fred A. Erb, Chairman of the Board
2
<PAGE> 1
EXHIBIT 10.52
<PAGE> 2
SECOND AMENDMENT TO
REVOLVING CREDIT AGREEMENT
--------------------------
THIS SECOND AMENDMENT TO REVOLVING CREDIT AGREEMENT
("Amendment") is made as of the 23 day of December, 1996, among
D.I.Y. HOME WAREHOUSE, INC., an Ohio corporation, with its principal place of
business located at 5811 Canal Road, Suite 180, Valley View, Ohio 44125 (the
"Borrower"), as borrower, NATIONAL CITY BANK OF COLUMBUS, formerly known as
National City Bank, Columbus, a national banking association, with its principal
office located at 155 East Broad Street, Columbus, Ohio 43251 ("NCBC"), and OLD
KENT BANK, f/k/a Old Kent Bank and Trust Company, a Michigan banking
corporation, with its principal office located at One Vandenberg Center, Grand
Rapids, Michigan 49503 ("Old Kent"), as lenders, (NCBC and Old Kent each herein,
separately, called a "Bank" and, collectively, called the "Banks"), and NCBC, as
agent for itself and Old Kent (the "Agent").
RECITALS
A. The Banks and the Borrower have entered into a certain Revolving
Credit Agreement dated December 7, 1994, as amended by the First Amendment to
Revolving Credit Agreement dated as of December 22, 1995 (collectively, the
"Loan Agreement"), pursuant to which the Banks have agreed to loan to the
Borrower on a revolving credit basis ("Loan") an aggregate amount not to exceed
Twenty-Three Million Dollars ($23,000,000.00).
B. The Loan is evidenced by two (2) Amended and Restated Revolving
Notes dated December 22, 1995, by the Borrower to each of NCBC and Old Kent,
each in the principal amount of Ten Million Dollars ($10,000,000.00) and two (2)
Amended and Restated Revolving Notes dated December 22, 1995, by the Borrower to
each of NCBC and Old Kent, each in the principal amount of One Million Five
Hundred Thousand Dollars ($1,500,000.00) (collectively, the "Revolving Credit
Notes").
C. The Banks and the Borrower have agreed to certain amendments with
respect to the Loan.
NOW, THEREFORE, for and in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Banks agree as follows:
1. ACKNOWLEDGMENT OF EXTENSION OF MATURITY. The Borrower and the Banks
hereby acknowledge that, pursuant to the terms of the Loan Agreement, the
Original Commitment Maturity Date has been extended to January 1, 2000, and the
Supplemental Commitment Maturity Date has been extended to December 1, 1997. The
Original Commitment Maturity Date and the Supplemental Commitment Maturity Date
may be further extended pursuant to the terms of the Loan Agreement as provided
for therein.
<PAGE> 3
2. DEFINITIONS.
The following shall be added to the defined terms contained in Section
1.1 of the Loan Agreement:
"Documentary Letter of Credit Outstandings" shall mean at any
time the sum of (i) the aggregate undrawn face amount of outstanding
Documentary Letters of Credit and (ii) without duplication, the
aggregate amount of all unpaid and outstanding Reimbursement
Obligations relating to Documentary Letters of Credit.
"Standby Letter of Credit Outstandings" shall mean at any time
the sum of (i) the aggregate undrawn face amount of outstanding Standby
Letters of Credit and (ii) without duplication, the aggregate amount of
all unpaid and outstanding Reimbursement Obligations relating to
Standby Letters of Credit.
3. INTEREST RATES.
(a) The first sentence of Section 2.4(a) of the Loan Agreement
is modified to provide that each Prime Loan shall bear interest on the
outstanding principal amount thereof, for each day from the date such
Loan is made until it is repaid, at a rate per annum equal to the sum
of the Prime Rate for each such day PLUS the number of basis points set
forth in the pricing schedule contained in subsection (d) below, based
on the Fixed Charge Coverage Ratio (as hereinafter defined) of the
Borrower determined as set forth in subsection (d) below.
(b) The first sentence of Section 2.4(b) of the Loan Agreement
is modified to provide that each CD Loan shall bear interest on the
outstanding principal amount thereof, from the date such Loan is made
until the final day of the Interest Period applicable thereto, at a
rate per annum equal to the sum of the Adjusted CD Rate applicable to
such Interest Period PLUS the number of basis points set forth in the
pricing schedule contained in subsection (d) below, based on the Fixed
Charge Coverage Ratio of the Borrower determined as set forth in
subsection (d) below.
(c) The first sentence of Section 2.4(c) of the Loan Agreement
is modified to provide that each Euro-Dollar Loan shall bear interest
on the outstanding principal amount thereof, from the date such Loan is
made until the final day of the Interest Period applicable thereto, at
a rate per annum equal to the sum of the London Interbank Offered Rate
(LIBOR) applicable to such Interest Period PLUS the number of basis
points set forth in the pricing schedule contained in subsection (d)
below, based on the Fixed Charge Coverage Ratio of the Borrower
determined as set forth in subsection (d) below.
(d) For the purposes of determining the pricing of any Prime
Loan, Euro-Dollar Loan and/or CD Loan, the Fixed Charge Coverage Ratio
of the Borrower at the date such Loan is made shall be deemed to be the
fixed charge coverage ratio as shown
2
<PAGE> 4
on the compliance certificate last delivered to the Banks. Any change
in the Fixed Charge Coverage Ratio shall be effective sixty (60) days
after the end of the fiscal quarter during which such change occurs;
provided, however, that if the compliance certificate evidencing the
computation of the Fixed Charge Coverage Ratio is not delivered on a
date that is on or before sixty (60) days after the end of a fiscal
quarter, the interest rate on any Loan made between, and the interest
rate on any CD Loan or Euro-Dollar Loan the Interest Period for which
commences between, the date that is sixty (60) days after the end of
such fiscal quarter and the date on which such compliance certificate
is delivered to the Banks shall be determined as if the Fixed Charge
Coverage Ratio during such period were 1.40x less than or equal to
1.49x; provided, further, that any change in the Fixed Charge Coverage
Ratio shall affect only (i) Loans made subsequent to such date and (ii)
the interest rate on any CD Loan or Euro-Dollar Loan the Interest
Period for which commences subsequent to such date.
The pricing schedule is as follows:
<TABLE>
<CAPTION>
=============================================================================================================================
Pricing Options
- -----------------------------------------------------------------------------------------------------------------------------
Fixed Charge Ratio Prime LIBOR CD Rate
(Euro-Dollar)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
greater than or equal to 1.95x +0 bp +125 bp +137.5 bp
- -----------------------------------------------------------------------------------------------------------------------------
1.75x less than or equal to 1.94x +0 bp +145 bp +157.5 bp
- -----------------------------------------------------------------------------------------------------------------------------
1.50x less than or equal to 1.74x +35 bp +160 bp +172.5 bp
- -----------------------------------------------------------------------------------------------------------------------------
1.40x less than or equal to 1.49x +45 bp +170 bp +182.5 bp
=============================================================================================================================
<FN>
bp = basis points
</TABLE>
4. LETTERS OF CREDIT. The following language is added to the Loan
Agreement as Section 2.13:
2.13 LETTERS OF CREDIT.
(a) The Borrower may request the issuance of (or modification
of any issued) commercial letters of credit in connection with the
Borrower's purchase of goods and services (each a "Documentary Letter
of Credit") and standby letters of credit for the benefit of any third
person in support of obligations of the Borrower (each a "Standby
Letter of Credit" and together with Documentary Letters of Credit
referred to as "Letters of Credit" in the aggregate or individually as
a "Letter of Credit") on its behalf by delivering by no later than
10:00 a.m., Columbus, Ohio time, two (2) Domestic Business Days prior
to the requested date
3
<PAGE> 5
of issuance of such Letter of Credit to the Agent a written notice
specifying the proposed beneficiary, date of issuance and expiry date
for such Letter of Credit or modification to an existing Letter of
Credit and the nature of the transactions to be supported thereby (a
"Letter of Credit Notice"). Upon the receipt of a Letter of Credit
Notice, the Agent shall promptly notify each Bank in writing, or orally
and promptly confirmed in writing, of the contents thereof and such
Letter of Credit Notice shall not thereafter be revocable by the
Borrower. Subject to the terms and conditions hereof and to the
execution of a completed application and agreement for letters of
credit in such form as NCBC may specify from time to time, NCBC will
issue a Letter of Credit provided that each Letter of Credit shall (i)
have a maximum maturity of 364 days from the date of issuance, (ii) in
no event expire later than five (5) Domestic Business Days prior to the
Original Commitment Maturity Date and provided further that in no event
shall (a) the Documentary Letter of Credit Outstandings exceed, at any
one time, $4,000,000 or (b) the Standby Letter of Credit Outstandings
exceed, at any one time, $500,000 and (c) the sum of the Documentary
Letter of Credit Outstandings plus the Standby Letter of Credit
Outstandings plus the sum of all outstanding Loans made pursuant to the
Original Commitment exceed, at any one time, $20,000,000. In the event
of any conflict between the terms of this Agreement and the terms of
NCBC's application and agreement for letters of credit, the terms of
this Agreement shall control (provided that terms of NCBC's application
and agreement for letters of credit which are in addition to those
contained herein and which do not expressly conflict with the terms
contained herein shall not be deemed to be in conflict with this
Agreement).
(b) Immediately upon issuance of each Letter of Credit, and
without further action, Old Kent shall be deemed to, and hereby agrees
that it shall, have irrevocably purchased for Old Kent's own account
and risk from NCBC an individual participation interest in such Letter
of Credit and drawings thereunder in an amount equal to fifty percent
(50%) of the maximum amount which is or at any time may become
available to be drawn thereunder, and Old Kent shall be responsible to
reimburse NCBC immediately for its share of any disbursement under any
Letter of Credit which has not been reimbursed by the Borrower in
accordance with subsection (e) hereof by making its share of the Prime
Loans referred to in subsection (e) available to NCBC. Upon the
issuance of a Letter of Credit and upon request of Old Kent, NCBC shall
notify Old Kent of the amount of issued Letters of Credit.
(c) The Borrower shall pay to the Agent (i) fees ("Documentary
Letters of Credit Fees") with respect to Documentary Letters of Credit
in the amount of 0.25% per annum times the average daily Documentary
Letter of Credit Outstandings and (ii) fees ("Standby Letters of Credit
Fees") with respect to Standby Letters of Credit, in the amount of
1.00% per annum times the average daily Standby Letter of Credit
Outstandings. The Agent shall pay to NCBC one
4
<PAGE> 6
hundred percent (100%) of the Documentary Letters of Credit Fees and
fifty percent (50%) of the Standby Letters of Credit Fees and shall pay
to Old Kent fifty percent (50%) of the Standby Letters of Credit Fees.
All Documentary Letters of Credit Fees and Standby Letters of Credit
Fees (collectively, "Letters of Credit Fees") shall be computed on the
basis of a year of 365 or 366 days, as the case may be, and actual days
elapsed and shall be payable quarterly in arrears commencing with the
first (1st) Domestic Business Day after the end of each fiscal quarter
following issuance of each Letter of Credit and on the earlier of the
Original Commitment Maturity Date or the acceleration of the Revolving
Credit Notes.
(d) The Borrower shall also pay to NCBC for its sole account
(i) a fronting fee as determined by NCBC and the Borrower and (ii)
NCBC's then in effect customary issuance fees and administrative
expense payable with respect to its Documentary Letters of Credit and
Standby Letters of Credit as NCBC may generally charge or incur from
time to time in connection with the issuance, maintenance, modification
(if any), assignment or transfer (if any), negotiation, and
administration of commercial letters of credit, payable at such times
as NCBC may specify.
(e) The Borrower shall be obligated immediately to reimburse
NCBC (each a "Reimbursement Obligation") for all amounts which NCBC is
required to pay pursuant to the Letters of Credit issued by NCBC on or
before the date on which NCBC is required to make payment with respect
to a draft presented thereunder; provided, however, that a
Reimbursement Obligation with respect to a Documentary Letter of Credit
time draft which has been accepted for payment by NCBC shall not arise
until the date on which NCBC is obligated to make payment with respect
to such draft which it has accepted for payment. NCBC will promptly
notify (i) the Borrower of each demand or presentment for payment or
draft accepted for payment or other drawing under each Letter of Credit
issued by NCBC and (ii) the Agent of the amount required to be paid by
NCBC pursuant to each such Letter of Credit. The Agent shall promptly
notify each Bank of the amount required to be paid by such Bank as a
result of a drawing upon such Letter of Credit if NCBC shall have
notified the Agent that the Borrower has not timely reimbursed NCBC for
such draw. If such notice is received by a Bank before 1:00 p.m.,
Columbus, Ohio time, such Bank shall deliver such Bank's ratable share
of such payment in immediately available funds to the Agent on that
Domestic Business Day. If such notice is received by a Bank after 1:00
p.m., Columbus, Ohio time, such Bank shall before 10:00 a.m., Columbus,
Ohio time, on the next succeeding Domestic Business Day deliver to the
Agent such Bank's ratable share of such payment as a Prime Loan from
such Bank in immediately available funds. Upon receipt of each Bank's
ratable share of such payment, the Agent shall immediately deliver such
Bank's ratable share of such payment to NCBC.
5
<PAGE> 7
(f) The Borrower agrees to be bound by the terms of NCBC's
application and agreement for letters of credit and NCBC's written
regulations and customary practices relating to letters of credit,
though such interpretation may be different from the Borrower's own. It
is understood and agreed that, except in the case of gross negligence
or willful misconduct, NCBC shall not be liable for any error,
negligence and/or mistakes, whether omission or commission, in
following the Borrower's instructions or those contained in the Letters
of Credit issued by NCBC or any modifications, amendments or
supplements thereto.
(g) In determining whether to honor any request for drawing
under any Letter of Credit by the beneficiary thereof, NCBC shall be
responsible only to determine that the documents and certificates
required to be delivered under such Letter of Credit have been
delivered and that they appear to comply on their face with the
requirements of such Letter of Credit.
(h) In addition to amounts payable as provided in subsections
(c) and (d) above, the Borrower hereby agrees to pay and to protect,
indemnify and save harmless NCBC from and against any and all claims,
demands, liabilities, damages, losses, costs, charges and expenses
(including reasonable fees, expenses and disbursements of counsel and
allocated costs of internal counsel) which NCBC may incur or be subject
to as a consequence, direct or indirect, of (i) the issuance of any
Letter of Credit, other than as a result of (A) the gross negligence or
willful misconduct of NCBC as determined by a final judgment of a court
of competent jurisdiction or (B) subject to the following clause (ii),
the wrongful dishonor by NCBC of a proper demand for payment made under
any Letter of Credit or (ii) the failure of NCBC to honor a drawing
under any such Letter of Credit as a result of any act or omission,
whether rightful or wrongful, of any present or future de jure or de
facto government or governmental authority (all such acts or omissions
herein called "Governmental Acts").
(i) As between the Borrower and NCBC, the Borrower assumes all
risks of the acts and omissions of, or misuse of the Letters of Credit
by, the respective beneficiaries of the Letters of Credit. In
furtherance and not in limitation of the foregoing, NCBC shall not be
responsible for: (i) the form, validity, sufficiency, accuracy,
genuineness or legal effect of any document submitted by any party in
connection with the application for an issuance of any Letter of Credit
issued by NCBC, even if it should in fact prove to be in any or all
respects invalid, insufficient, inaccurate, fraudulent or forged (even
if NCBC shall have been notified thereof); (ii) the validity or
sufficiency of any instrument transferring or assigning or purporting
to transfer or assign any such Letter of Credit or the rights or
benefits thereunder or proceeds thereof, in whole or in part, which may
prove to be invalid or ineffective for any reason; (iii) failure of the
beneficiary of any such Letter of Credit to comply fully with any
conditions required in order to draw upon such Letter of Credit; (iv)
errors, omissions,
6
<PAGE> 8
interruptions or delays in transmission or delivery of any messages, by
mail, cable, telegraph, telex or otherwise, whether or not they be in
cipher; (v) errors in interpretation of technical terms; (vi) any loss
or delay in the transmission or otherwise of any document required in
order to make a drawing under any such Letter of Credit or of the
proceeds thereof; (vii) the misapplication by the beneficiary of any
such Letter of Credit of the proceeds of any drawing under such Letter
of Credit; or (viii) any consequences arising from causes beyond the
control of NCBC, including any Governmental Acts, and none of the above
shall affect or repair, or prevent the vesting of, any of NCBC's rights
or powers hereunder.
(j) In furtherance and extension and not in limitation of the
specific provisions set forth above, any action taken or omitted by
NCBC under or in connection with the Letters of Credit issued by it or
any documents and certificates delivered thereunder, if taken or
omitted in good faith, shall not put NCBC under any resulting liability
to the Borrower or Old Kent.
(k) Old Kent may not commence a proceeding against NCBC for
wrongful disbursement under a Letter of Credit issued by NCBC as a
result of acts or omissions constituting gross negligence or willful
misconduct of NCBC, until the Banks have made the Prime Loans described
in subsection (e) and the Borrower may not commence a proceeding
against NCBC for wrongful disbursement under a Letter of Credit issued
by NCBC as a result of acts or omissions constituting gross negligence
or willful misconduct of NCBC, until the Banks have made and the
Borrower has repaid the Prime Loans described in subsection (e);
provided, however, that nothing in this Section 2.13 shall adversely
affect the right of the Borrower, after such payment, to commence any
proceeding against NCBC for any breach of its obligations hereunder.
5. FIXED CHARGE COVERAGE. Section 7.2 of the Loan Agreement is deleted
in its entirety and the following inserted in lieu thereof:
7.2 FIXED CHARGE COVERAGE. Permit the ratio of (a) the sum of
its net income before taxes for the preceding twelve (12) month period
plus its interest, rent and lease expense for the same period to (b)
the sum of its interest, rent and lease expense for the same period
(the foregoing ratio, the "Fixed Charge Coverage Ratio") to be less
than 1.40 to 1.00 as measured at the end of the fiscal quarter ending
September 28, 1996; and less than 1.50 to 1.00 at the end of the fiscal
quarter ending December 28, 1996 and at the end of each fiscal quarter
of the Borrower thereafter.
6. LEVERAGE. Section 7.5 of the Loan Agreement is deleted in its
entirety and the following inserted in lieu thereof:
7
<PAGE> 9
Section 7.5 LEVERAGE. Permit the ratio of (a) its total
liabilities less its Subordinated Indebtedness to (b) the sum of its
tangible net worth plus its Subordinated Indebtedness to be greater
than the following during the periods specified herein as measured at
the end of each fiscal quarter of the Borrower:
For the first fiscal quarter annually, 1.75 to 1.00;
For the second, third and fourth fiscal quarters ending
in the fiscal year ending December 28, 1996, 1.50 to 1.00;
and
For the second, third and fourth fiscal quarters ending
in the fiscal year ending January 3, 1998 and thereafter,
1.35 to 1.00.
7. INDEBTEDNESS. Section 7.7(c) of the Loan Agreement is hereby amended
by excluding from the term "leases" (a) those thirteen (13) truck leases
described on Schedule A, attached hereto and incorporated herein by reference
and (b) that certain General Business Lease Agreement, Agreement No. G00266385,
between Borrower and IBM Credit Corporation, executed by Borrower on June 3,
1996.
8. RATIFICATION AND CERTIFICATION AS TO REPRESENTATIONS AND WARRANTIES.
The Loan Agreement is in all respects ratified and confirmed by the parties
hereto, and the Loan Agreement and this Amendment shall be read, taken and
construed as one and the same instrument. Except as modified herein, the Loan
Agreement remains unchanged and in full force and effect. Except as otherwise
defined herein, all capitalized terms shall have the meanings ascribed to them
in the Loan Agreement. The Borrower hereby acknowledges and certifies that all
other representations and warranties made in the Loan Agreement continue to be
true and correct as of the date hereof and that there are no defaults existing
under the covenants or other terms of the Loan Agreement. The Borrower hereby
ratifies and confirms the Borrower's obligations and all liability to the Banks
under the terms and conditions of the Loan Agreement and the Revolving Credit
Notes, and acknowledges that the Borrower has no defenses to or rights of setoff
against the Borrower's obligations and all liability to the Banks thereunder.
The Borrower hereby further acknowledges that the Banks have performed all of
the Banks' obligations to date under the Loan Agreement.
9. REFERENCES TO CREDIT AGREEMENT. All references in each of the
Revolving Credit Notes to the Credit Agreement shall mean and refer to the Loan
Agreement, as amended by this Amendment.
8
<PAGE> 10
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by each in manner and form sufficient to bind them and duly authorized
in the premises as of the day and year first above written.
NATIONAL CITY BANK OF COLUMBUS, D.I.Y. HOME WAREHOUSE, INC.
formerly known as National City
Bank, Columbus
By: /s/ Ralph A. Kaparos By: /s/ Marilyn A. Eisele
----------------------------- -------------------------------
Its: Senior Vice President Its: Vice President
----------------------------- -------------------------------
OLD KENT BANK NATIONAL CITY BANK OF COLUMBUS,
formerly known as National City
Bank, Columbus, as Agent
By: /s/ Peter T. Campbell By: /s/ Ralph A. Kaparos
----------------------------- -------------------------------
Its: Vice President Its: Senior Vice President
----------------------------- -------------------------------
9
<PAGE> 11
"SCHEDULE A"
<TABLE>
<CAPTION>
CAPITAL LEASES SIGNED DELIVERY LEASE FIXED TOTAL 1995 LEASES,
AT DATE EXPIRES COST COST IN 1996
MO. THE LIFE COMMENCEMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLEVELAND FLAT 50665 06/26/95 02/01/96 02/01/01 1,179 70,740
CLEVELAND BOX 50853 06/26/95 02/01/96 02/01/01 1,043 62,580
RANDALL FLAT 50666 06/26/95 02/01/96 02/01/01 1,179 70,740
RANDALL/BEDFORD BOX 50854 06/26/95 02/01/96 02/01/01 1,043 62,580
EASTLAKE FLAT 50667 06/26/95 02/01/96 02/01/01 1,179 70,740
EASTLAKE/MENTOR BOX 50856 06/26/95 02/01/96 02/01/01 1,043 62,580
BEDFORD FLAT 50668 06/26/95 02/01/96 02/01/01 1,179 70,740
BROOKPARK FLAT 50669 06/26/95 02/01/96 02/01/01 1,179 70,740
BROOKPARK/MEDINA BOX 50855 06/26/95 02/01/96 02/01/01 1,043 62,580
MEDINA FLAT 50670 06/26/95 02/01/96 02/01/01 1,179 70,740
MENTOR FLAT 250671 06/26/95 02/01/96 02/01/01 1,179 70,740
ARLINGTON FLAT 50672 06/26/95 02/01/96 02/01/01 1,179 70,740
W MARKET FLAT 50673 06/26/95 02/01/96 02/01/01 1,179 70,740
KITCHEN WAREHOUSE BOX 06/26/95 02/01/01 1,043 62,580
</TABLE>
<PAGE> 1
EXHIBIT 10.53
<PAGE> 2
THIRD AMENDMENT TO
LINE OF CREDIT AGREEMENT
------------------------
THIS THIRD AMENDMENT TO LINE OF CREDIT AGREEMENT ("Amendment") is made
as of the 23 day of December, 1996, among D.I.Y. HOME WAREHOUSE, INC., an Ohio
corporation, with its principal place of business located at 5811 Canal Road,
Suite 180, Valley View, Ohio 44125 (the "Borrower"), as borrower, NATIONAL CITY
BANK OF COLUMBUS, formerly known as National City Bank, Columbus, a national
banking association, with its principal office located at 155 East Broad Street,
Columbus, Ohio 43251 ("NCBC"), and OLD KENT BANK, f/k/a Old Kent Bank and Trust
Company, a Michigan banking corporation, with its principal office located at
One Vandenberg Center, Grand Rapids, Michigan 49503 ("Old Kent"), as lenders,
(NCBC and Old Kent each herein, separately, called a "Bank" and, collectively,
called the "Banks"), and NCBC, as agent for itself and Old Kent (the "Agent").
RECITALS
A. The Banks and the Borrower have entered into a certain Line of
Credit Agreement for Real Estate Loans dated as of April 28, 1995, as amended by
the First Amendment to Line of Credit Agreement dated as of September 15, 1995,
and as amended by the Second Amendment to Line of Credit Agreement dated as of
December 22, 1995 (collectively, the "Loan Agreement"), pursuant to which the
Banks have loaned to the Borrower an aggregate principal amount of Seven Million
Nine Hundred Seventy-Five Thousand Dollars ($7,975,000.00) ("Loan").
B. The Loan is evidenced by two (2) Mortgage Notes dated April 28,
1995, by the Borrower to each of NCBC and Old Kent, each in the original
principal amount of One Million Six Hundred Eighty-Seven Thousand Five Hundred
Dollars ($1,687,500.00) and two (2) Mortgages Notes dated September 15, 1995, by
the Borrower to each of NCBC and Old Kent, each in the original principal amount
of Two Million Three Hundred Thousand Dollars ($2,300,000.00) (collectively, the
"Notes").
C. The Banks and the Borrower have agreed to certain amendments with
respect to the Loan.
NOW, THEREFORE, for and in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Banks agree as follows:
1. FIXED CHARGE COVERAGE. Section 7.2 of the Loan Agreement is deleted
in its entirety and the following inserted in lieu thereof:
7.2 FIXED CHARGE COVERAGE. Permit the ratio of (a) the sum of
its net income before taxes for the preceding twelve (12) month period
plus its interest, rent and lease expense for the same period to (b)
the sum of its
<PAGE> 3
interest, rent and lease expense for the same period to be less than
1.40 to 1.00 as measured at the end of the fiscal quarter ending
September 28, 1996; and less than 1.50 to 1.00 at the end of the fiscal
quarter ending December 28, 1996 and at the end of each fiscal quarter
of the Borrower thereafter.
2. LEVERAGE. Section 7.5 of the Loan Agreement is deleted in its
entirety and the following inserted in lieu thereof:
Section 7.5 LEVERAGE. Permit the ratio of (a) its total
liabilities less its Subordinated Indebtedness to (b) the sum of its
tangible net worth plus its Subordinated Indebtedness to be greater
than the following during the periods specified herein as measured at
the end of each fiscal quarter of the Borrower:
For the first fiscal quarter annually, 1.75 to 1.00;
For the second, third and fourth fiscal quarters ending in
the fiscal year ending December 28, 1996, 1.50 to 1.00; and
For the second, third and fourth fiscal quarters ending in
the fiscal year ending January 3, 1998 and thereafter, 1.35
ffto 1.00.
3. INDEBTEDNESS. Section 7.7(c) of the Loan Agreement is hereby amended
by excluding from the term "leases" (a) those thirteen (13) truck leases
described on Schedule A, attached hereto and incorporated herein by reference
and (b) that certain General Business Lease Agreement, Agreement No. G00266385,
between Borrower and IBM Credit Corporation, executed by Borrower on June 3,
1996.
4. DEFINITION. The definition of "Revolving Credit Agreement" is
deleted in its entirety and the following inserted in lieu thereof:
"Revolving Credit Agreement" means that certain
Revolving Credit Agreement by and among the Borrower and the
Banks dated as of December 7, 1994, as amended by a certain
First Amendment to Revolving Credit Agreement dated as of
December 22, 1995, as amended by a Second Amendment to
Revolving Credit Agreement, dated of even date herewith.
5. RATIFICATION AND CERTIFICATION AS TO REPRESENTATIONS AND WARRANTIES.
The Loan Agreement is in all respects ratified and confirmed by the parties
hereto, and the Loan Agreement and this Amendment shall be read, taken and
construed as one and the same instrument. Except as modified herein, the Loan
Agreement remains unchanged and in full force and effect. Except as otherwise
defined herein, all capitalized terms shall have the meanings ascribed to them
in the Loan Agreement. The Borrower hereby acknowledges and certifies that all
other representations and warranties made in the Loan Agreement continue to be
true and correct as of the date hereof and that there are no defaults existing
2
<PAGE> 4
under the covenants or other terms of the Loan Agreement. The Borrower hereby
ratifies and confirms the Borrower's obligations and all liability to the Banks
under the terms and conditions of the Loan Agreement and the Notes, and
acknowledges that the Borrower has no defenses to or rights of setoff against
the Borrower's obligations and all liability to the Banks thereunder. The
Borrower hereby further acknowledges that the Banks have performed all of the
Banks' obligations to date under the Loan Agreement.
6. REFERENCES TO LOAN AGREEMENT. All references in each of the Notes to
the Loan Agreement shall mean and refer to the Loan Agreement, as amended by
this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by each in manner and form sufficient to bind them and duly authorized
in the premises as of the day and year first above written.
NATIONAL CITY BANK OF COLUMBUS, D.I.Y. HOME WAREHOUSE, INC.
formerly known as National City
Bank, Columbus
By: /s/ Ralph A. Kaparos By: /s/ Marilyn A. Eisele
----------------------------- -------------------------------
Its: Senior Vice President Its: Vice President
----------------------------- -------------------------------
OLD KENT BANK NATIONAL CITY BANK OF
COLUMBUS, formerly known as National
City Bank, Columbus, as Agent
By: /s/ Peter T. Campbell By: /s/ Ralph A. Kaparos
----------------------------- -------------------------------
Its: Vice President Its: Senior Vice President
----------------------------- -------------------------------
3
<PAGE> 5
"SCHEDULE A"
<TABLE>
<CAPTION>
CAPITAL LEASES SIGNED DELIVERY LEASE FIXED TOTAL 1995 LEASES,
AT DATE EXPIRES COST COST IN 1996
MO. THE LIFE COMMENCEMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLEVELAND FLAT 50665 06/26/95 02/01/96 02/01/01 1,179 70,740
CLEVELAND BOX 50853 06/26/95 02/01/96 02/01/01 1,043 62,580
RANDALL FLAT 50666 06/26/95 02/01/96 02/01/01 1,179 70,740
RANDALL/BEDFORD BOX 50854 06/26/95 02/01/96 02/01/01 1,043 62,580
EASTLAKE FLAT 50667 06/26/95 02/01/96 02/01/01 1,179 70,740
EASTLAKE/MENTOR BOX 50856 06/26/95 02/01/96 02/01/01 1,043 62,580
BEDFORD FLAT 50668 06/26/95 02/01/96 02/01/01 1,179 70,740
BROOKPARK FLAT 50669 06/26/95 02/01/96 02/01/01 1,179 70,740
BROOKPARK/MEDINA BOX 50855 06/26/95 02/01/96 02/01/01 1,043 62,580
MEDINA FLAT 50670 06/26/95 02/01/96 02/01/01 1,179 70,740
MENTOR FLAT 250671 06/26/95 02/01/96 02/01/01 1,179 70,740
ARLINGTON FLAT 50672 06/26/95 02/01/96 02/01/01 1,179 70,740
W MARKET FLAT 50673 06/26/95 02/01/96 02/01/01 1,179 70,740
KITCHEN WAREHOUSE BOX 06/26/95 02/01/01 1,043 62,580
</TABLE>
<PAGE> 1
EXHIBIT 10.54
<PAGE> 2
SECOND AMENDMENT TO
LOAN AND CO-LENDER CREDIT AGREEMENT
-----------------------------------
THIS SECOND AMENDMENT TO LOAN AND CO-LENDER CREDIT AGREEMENT
("Amendment") is made as of the 23 day of December, 1996, among
D.I.Y. HOME WAREHOUSE, INC., an Ohio corporation, with its principal place of
business located at 5811 Canal Road, Suite 180, Valley View, Ohio 44125 (the
"Borrower"), as borrower, NATIONAL CITY BANK OF COLUMBUS, formerly known as
National City Bank, Columbus, a national banking association, with its principal
office located at 155 East Broad Street, Columbus, Ohio 43251 ("NCBC"), and OLD
KENT BANK, f/k/a Old Kent Bank and Trust Company, a Michigan banking
corporation, with its principal office located at One Vandenberg Center, Grand
Rapids, Michigan 49503 ("Old Kent"), as lenders, (NCBC and Old Kent each herein,
separately, called a "Bank" and, collectively, called the "Banks"), and NCBC, as
agent for itself and Old Kent (the "Agent").
RECITALS
A. The Banks and the Borrower have entered into a certain Loan and
Co-Lender Credit Agreement dated as of December 23, 1994, as amended by the
First Amendment to Loan and Co-Lender Credit Agreement dated as of December 22,
1995 (collectively, the "Loan Agreement"), pursuant to which the Banks have
loaned to the Borrower an aggregate amount not to exceed Nine Million Dollars
($9,000,000.00) ("Loan").
B. The Loan is evidenced by two (2) Mortgage Notes dated December 23,
1994, by the Borrower to each of NCBC and Old Kent, each in the original
principal amount of Four Million Five Hundred Thousand Dollars ($4,500,000.00)
(collectively, the "Mortgage Notes").
C. The Banks and the Borrower have agreed to certain amendments with
respect to the Loan.
NOW, THEREFORE, for and in consideration of the foregoing and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the Borrower and the Banks agree as follows:
1. FIXED CHARGE COVERAGE. Section 7.2 of the Loan Agreement is deleted
in its entirety and the following inserted in lieu thereof:
7.2 FIXED CHARGE COVERAGE. Permit the ratio of (a) the sum of
its net income before taxes for the preceding twelve (12) month period
plus its interest, rent and lease expense for the same period to (b)
the sum of its interest, rent and lease expense for the same period
to be less than 1.40 to 1.00 as measured at the end of the fiscal
quarter ending September 28, 1996; and less than 1.50 to 1.00 at the
end of the fiscal quarter ending December 28, 1996 and at the end of
each fiscal quarter of the Borrower thereafter.
<PAGE> 3
2. LEVERAGE. Section 7.5 of the Loan Agreement is deleted in its
entirety and the following inserted in lieu thereof:
Section 7.5 LEVERAGE. Permit the ratio of (a) its total
liabilities less its Subordinated Indebtedness to (b) the sum of its
tangible net worth plus its Subordinated Indebtedness to be greater
than the following during the periods specified herein as measured at
the end of each fiscal quarter of the Borrower:
For the first fiscal quarter annually, 1.75 to 1.00;
For the second, third and fourth fiscal quarters ending in
the fiscal year ending December 28, 1996, 1.50 to 1.00; and
For the second, third and fourth fiscal quarters ending in
the fiscal year ending January 3, 1998 and thereafter, 1.35
to 1.00.
3. INDEBTEDNESS. Section 7.7(c) of the Loan Agreement is hereby amended
by excluding from the term "leases" (a) those thirteen (13) truck leases
described on Schedule A, attached hereto and incorporated herein by reference
and (b) that certain General Business Lease Agreement, Agreement No. G00266385,
between Borrower and IBM Credit Corporation, executed by Borrower on June 3,
1996.
4. DEFINITION. The definition of "Revolving Credit Agreement" is
deleted in its entirety and the following inserted in lieu thereof:
"Revolving Credit Agreement" means that certain
Revolving Credit Agreement by and among the Borrower and the
Banks dated as of December 7, 1994, as amended by a certain
First Amendment to Revolving Credit Agreement dated as of
December 22, 1995, as amended by a Second Amendment to
Revolving Credit Agreement, dated of even date herewith.
5. RATIFICATION AND CERTIFICATION AS TO REPRESENTATIONS AND WARRANTIES.
The Loan Agreement is in all respects ratified and confirmed by the parties
hereto, and the Loan Agreement and this Amendment shall be read, taken and
construed as one and the same instrument. Except as modified herein, the Loan
Agreement remains unchanged and in full force and effect. Except as otherwise
defined herein, all capitalized terms shall have the meanings ascribed to them
in the Loan Agreement. The Borrower hereby acknowledges and certifies that all
other representations and warranties made in the Loan Agreement continue to be
true and correct as of the date hereof and that there are no defaults existing
under the covenants or other terms of the Loan Agreement. The Borrower hereby
ratifies and confirms the Borrower's obligations and all liability to the Banks
under the terms and conditions of the Loan Agreement and the Mortgage Notes, and
acknowledges that the Borrower has no defenses to or rights of setoff against
the Borrower's obligations and all
2
<PAGE> 4
liability to the Banks thereunder. The Borrower hereby further acknowledges that
the Banks have performed all of the Banks' obligations to date under the Loan
Agreement.
6. REFERENCES TO LOAN AGREEMENT. All references in each of the Mortgage
Notes to the Loan Agreement shall mean and refer to the Loan Agreement, as
amended by this Amendment.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by each in manner and form sufficient to bind them and duly authorized
in the premises as of the day and year first above written.
NATIONAL CITY BANK OF COLUMBUS, D.I.Y. HOME WAREHOUSE, INC.
formerly known as National City
Bank, Columbus
By: /s/ Ralph A. Kaparos By: /s/ Marilyn A. Eisele
------------------------------ -------------------------------
Its: Senior Vice President Its: Vice President
------------------------------ -------------------------------
OLD KENT BANK NATIONAL CITY BANK OF
COLUMBUS, formerly known as National
City Bank, Columbus, as Agent
By: /s/ Peter T. Campbell By: /s/ Ralph A. Kaparos
------------------------------ -------------------------------
Its: Vice President Its: Senior vice President
------------------------------ -------------------------------
3
<PAGE> 5
"SCHEDULE A"
<TABLE>
<CAPTION>
CAPITAL LEASES SIGNED DELIVERY LEASE FIXED TOTAL 1995 LEASES,
AT DATE EXPIRES COST COST IN 1996
MO. THE LIFE COMMENCEMENT
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CLEVELAND FLAT 50665 06/26/95 02/01/96 02/01/01 1,179 70,740
CLEVELAND BOX 50853 06/26/95 02/01/96 02/01/01 1,043 62,580
RANDALL FLAT 50666 06/26/95 02/01/96 02/01/01 1,179 70,740
RANDALL/BEDFORD BOX 50854 06/26/95 02/01/96 02/01/01 1,043 62,580
EASTLAKE FLAT 50667 06/26/95 02/01/96 02/01/01 1,179 70,740
EASTLAKE/MENTOR BOX 50856 06/26/95 02/01/96 02/01/01 1,043 62,580
BEDFORD FLAT 50668 06/26/95 02/01/96 02/01/01 1,179 70,740
BROOKPARK FLAT 50669 06/26/95 02/01/96 02/01/01 1,179 70,740
BROOKPARK/MEDINA BOX 50855 06/26/95 02/01/96 02/01/01 1,043 62,580
MEDINA FLAT 50670 06/26/95 02/01/96 02/01/01 1,179 70,740
MENTOR FLAT 250671 06/26/95 02/01/96 02/01/01 1,179 70,740
ARLINGTON FLAT 50672 06/26/95 02/01/96 02/01/01 1,179 70,740
W MARKET FLAT 50673 06/26/95 02/01/96 02/01/01 1,179 70,740
KITCHEN WAREHOUSE BOX 06/26/95 02/01/01 1,043 62,580
</TABLE>
<PAGE> 1
EXHIBIT 11.1
<PAGE> 2
EXHIBIT 11.1
D.I.Y. HOME WAREHOUSE, INC.
FORM 10-K
COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months Ended Fiscal Year Ended
December 28, December 30, December 28, December 30,
1996 1995(1) 1996 1995(1)
---------- ---------- ---------- ----------
(Unaudited)
-----------
<S> <C> <C> <C> <C>
Income applicable to common shares $ 676,831 $ 22,930 $3,785,186 $3,109,843
========== ========== ========== ==========
Weighted average common shares
outstanding for the period 7,630,685 7,625,000 7,626,702 7,625,000
Dilutive effect of exercise of stock
options - - - -
---------- ---------- ---------- ----------
Weighted average common shares,
assuming issuance of the above
securities 7,630,685 7,625,000 7,626,702 7,625,000
========== ========== ========== ==========
Earnings per common share:
Primary $ 0.09 $ 0.00 $ 0.50 $ 0.41
Fully diluted $ .09 $ .00 $ .50 $ .41
<FN>
(1) Effective December 31, 1995, 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.
</TABLE>
<PAGE> 1
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS D.I.Y. Home Warehouse, Inc.
Results of Operations
The following table sets forth, for the periods indicated, certain information
derived from the Company's Statement of Income expressed in dollars (000's) and
as a percentage of net sales.
<TABLE>
<CAPTION>
1996 1995(1) 1994(1)
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net sales $212,068 100.0% $178,008 100.0% $136,369 100.0%
Cost of sales 156,612 73.8 128,672 72.3 98,202 72.0
- ---------------------------------------------------------- ------- ---- ------- ---- ------ ----
Gross profit 55,456 26.2 49,336 27.7 38,167 28.0
Store operating, general and administrative expenses 46,954 22.2 40,935 23.0 30,333 22.2
Store preopening costs -- -- 1,778 1.0 1,200 0.9
- ---------------------------------------------------------- ------- ---- ------- ---- ------ ----
Operating income 8,502 4.0 6,623 3.7 6,634 4.9
Other (expense) income, net (2,147) (1.0) (1,431) (0.8) 101 0.1
- ---------------------------------------------------------- ------- ---- ------- ---- ------ ----
Income before income taxes 6,355 3.0 5,192 2.9 6,735 5.0
Income taxes 2,570 1.2 2,082 1.2 2,654 2.0
- ---------------------------------------------------------- ------- ---- ------- ---- ------ ----
Net income $ 3,785 1.8% $ 3,110 1.7% $4,081 3.0%
========================================================== ======= ==== ======= ==== ====== ====
<FN>
References to the years 1996, 1995 and 1994 relate to the fiscal years ended
December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
(1) Effective December 31, 1995, 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. Merchandise inventories are now stated at the
lower of cost or market, cost being determined on a 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.
</TABLE>
Fiscal 1996 Compared to Fiscal 1995
Net sales increased by $34 million, or 19%, to $212 million in fiscal 1996
from $178 million in fiscal 1995. Comparable store sales for fiscal 1996
increased 7%. Sales during the first half of 1996 were negatively impacted by
adverse weather conditions and the liquidation of a competitor which had
competing stores in the Company's market. Sales during the second half of the
year were strong as the Company realized comparable store sales increases of 14%
and 13% during the third and fourth quarters of the year, respectively. The
Company continues to focus on its core strategy of improving customer service
and loyalty which translates into increased sales. Programs completed in 1996
include remodeling and re-merchandising of the Company's older stores and
expansion of the DIY Installation Program, development of the DIY Pro Club, and
extensive product knowledge and management training programs.
Gross profit increased by $6.1 million, or 12.4%, to $55.5 million in fiscal
1996 from $49.3 million in fiscal 1995. As a percentage of net sales, gross
profit was 26.2% and 27.7% in fiscal 1996 and 1995, respectively. The decrease
is due primarily to vendor discounts received in 1995 on the initial inventory
for five new stores opened during 1995. There were no new store openings in
fiscal 1996.
Store operating, general and administrative expenses for fiscal 1996 were
$47.0 million compared to $40.9 million in fiscal 1995. As a percentage of net
sales, these expenses decreased to 22.2% in fiscal 1996, from 23.0% in fiscal
1995. This decrease reflects the benefit of sales leveraging and continuing
progress in expense reduction efforts. There were no store preopening costs in
fiscal 1996 as there were no new stores opened in 1996. Store preopening costs
were $1.8 million in fiscal 1995 relative to five stores opened during the year.
Other expense, net increased to $2.1 million in fiscal 1996 compared to $1.4
million in fiscal 1995 due primarily to an increase in interest expense on
mortgage debt outstanding for the entire fiscal 1996 as compared to being
outstanding for a portion of fiscal 1995. In addition, approximately $190,000 of
construction period interest expense was capitalized in fiscal 1995 associated
with the five new stores opened in 1995. There was no capitalized interest in
fiscal 1996 as there were no new stores in the year. Interest expense on the
revolving credit facility remained relatively constant in fiscal 1996 compared
to fiscal 1995 although borrowings were at a higher level during the first half
of 1996. The Company's ability to manage cash and make repayments on the credit
facility in the second half of 1996 resulted in the average outstanding
borrowings for 1996 to be the same as fiscal 1995 and the average interest rate
was 7% during both years.
The effective income tax rate was 40.4% in fiscal 1996 compared to 40.1% in
fiscal 1995.
This Annual Report may contain statements that are forward-looking, as that
term is defined by the Private Securities Litigation Reform Act of 1995 or by
the Securities and Exchange Commission in its rules, regulations and releases.
The Company intends that such forward-looking statements be subject to the safe
harbors created thereby. All forward-looking statements are based on current
expectations regarding important risk factors. Accordingly, actual results may
differ materially from those expressed in the forward-looking statements and the
making of such statements should not be regarded as a representation by the
Company or any other person that the results expressed therein will be achieved.
Important risk factors include, but are not limited to, the following: general
economic conditions; consumer spending and debt levels; housing turnover;
weather; impact on sales and margins from both existing and new competition;
changes in operating expenses; changes in product mix; interest rates; changes
in and the application of accounting policies and practices; adverse results in
significant litigation matters; adverse state and federal regulations and
legislation; the occurrence of extraordinary events including events and acts of
nature or accidents; and the risks described from time to time in the Company's
Securities and Exchange Commission filings.
Fiscal 1995 Compared to Fiscal 1994
Net sales increased by $41.6 million, or 30%, to $178.0 million in fiscal
1995 from $136.4 million in fiscal 1994. This increase in net sales was
attributable to five new stores opened in 1995 and the effect of full period
sales for the four stores opened in 1994. Comparable store sales were down 5%
compared to fiscal 1994. Net sales and comparable store sales were below
expectations due to conservative consumer spending patterns, a softness in
housing turnover which is a key indicator of sales in home improvement products,
and poor weather during the spring selling season and an early and severe winter
in November and December. The Company opened five stores in Ohio in 1995, in
Medina, Mentor, northwest Akron, south Akron, and Ashtabula in March, April,
May, June and November, respectively.
Gross profit increased by $11.2 million, or 29%, to $49.3 million in fiscal
1995 from $38.2 million in fiscal 1994. As a percentage of net sales,
D
I
Y
- ---
4
<PAGE> 2
gross profit was 27.7% and 28% in fiscal 1995 and 1994, respectively. This
decrease was primarily due to competitive pricing pressures.
Store operating, general and administrative expenses for fiscal 1995 were
$40.9 million compared to $30.3 million in fiscal 1994. As a percentage of net
sales, these expenses were 23.0% in fiscal 1995 compared to 22.2% in fiscal
1994. This increase was attributable primarily to the comparable store sales
decrease and lower-than-expected sales at non-comparable stores which impacted
the leveraging of expenses. In view of the lower-than-forecasted sales, the
Company responded by controlling and reducing expenses. Store operating, general
and administrative expenses were reduced to a per store average of approximately
$2.9 million in fiscal 1995 compared to approximately $3.1 million in fiscal
1994, a 5% decrease, based on full year store equivalents.
Store preopening costs increased $578,000 to approximately $1.8 million (1.0%
of net sales) in fiscal 1995 from $1.2 million (0.9% of net sales) in fiscal
1994 as a result of the timing and number of new store openings in the
respective periods. Other income (expense), net, was $101,000 in fiscal 1994
compared to ($1,431,000) in fiscal 1995. The Company had amounts outstanding
under its revolving credit facility and mortgage debt throughout the entire 1995
fiscal year. This debt was incurred to fund the Company's expansion and for
working capital needs. Lower levels of debt were outstanding for a portion of
fiscal 1994.
The effective income tax rate was 40.1% in fiscal 1995, up from 39.4% in
fiscal 1994. This increase was primarily due to the legislative termination of
the targeted jobs tax credit effective December 31, 1994. This tax credit
provided tax benefits to the Company in fiscal 1994.
Seasonality
The Company's business is seasonal in nature. On a per store basis, the
Company generally experiences its lowest sales during the first and fourth
quarters of each fiscal year. The Company believes the seasonality is caused by
the effect of winter weather on consumers' willingness to undertake outdoor home
improvement projects and the lack of significant sales of lawn and garden
products during the first and fourth fiscal quarters. In addition, a longer or
harsher period of winter weather than is usual in the Company's markets, or an
excessively rainy or unseasonably cold spring season, could have a material
adverse effect on the Company's sales. On a per store basis, the Company
generally experiences its highest sales during the second and third quarters.
However, gross profit margins are lower during the second quarter than in the
third quarter due to higher sales of lawn and garden and lumber and building
materials which generally carry lower gross profit margins than the Company's
average gross profit margin. The Company's gross profit margins on kitchen,
plumbing, bath, electrical and hardware are generally higher than the Company's
average gross profit margin, and sales of such products are not as seasonal as
sales of lawn and garden and building material products.
The Company's quarterly results of operations may also fluctuate materially
depending on the timing of new store openings and related preopening expenses.
The Company believes new stores opened later in a fiscal year may have an
adverse impact on the Company's profitability in that year, because it is the
Company's experience that stores opened early in the year achieve higher levels
of profitability sooner than stores opened later in the year.
Liquidity and Capital Resources
The Statement of Cash Flows reflects cash inflows and outflows from the
Company's operating, investing, and financing activities. The Company's primary
capital needs are to finance merchandise inventories and store expansion.
Cash Flows from Operating Activities
During the year ended December 28, 1996, operating activities provided net
cash of $8.4 million. The primary source of cash from operating activities was
$7.0 million from net income plus depreciation and amortization, and $1.5
million from a decrease in merchandise inventories. Average merchandise
inventories per store were $2.4 million in fiscal 1996 compared to $2.5 million
in fiscal 1995 reflecting a successful program by management to continue to
control inventory levels while maintaining good in-stock positions and
increasing sales and inventory turnover.
During the year ended December 30, 1995, operating activities provided net
cash of $4.5 million. The primary source of cash from operating activities was
$5.4 from net income plus depreciation and amortization. The primary use of cash
was $8.3 million to fund the increase in merchandise inventories offset by an
increase of $5.3 million in accounts payable. The increase in merchandise
inventories attributable to new stores in fiscal 1995 was $12.3 million offset
by a decrease in merchandise inventories at pre-existing stores of $4.0 million.
Average merchandise inventories per store were $2.5 million in fiscal 1995
compared to $2.8 million in fiscal 1994, reflecting a successful program to
control inventory levels while maintaining good in-stock positions.
Cash Flows from Investing Activities
Net cash used in investing activities was $1.7 million and $18.2 million in
fiscal 1996 and 1995, respectively, due to the remodeling initiatives in the
Company's older stores in 1996 and the acquisition of property and equipment
related primarily to the Company's five new stores in fiscal 1995.
The Company did not open any new stores in fiscal 1996. Further expansion is
not anticipated in 1997, however expasion is being explored for 1998 and beyond.
Cash Flows from Financing Activities
Net cash used in financing activities during fiscal 1996 totaled $8.0
million, as a result of net repayments of the Company's revolving credit
facility of $7.3 million and principal payments of debt and a capital lease
obligation of approximately $700,000. During 1996, the Company entered into a
capital lease obligation of approximately $800,000 for computer hardware and
software.
Net cash provided by financing activities during fiscal 1995 totaled $14.3
million primarily from financing under a revolving credit facility of $7.3
million and long-term mortgage loans of approximately $8 million.
The Company has an agreement with two banks at December 28, 1996 which
provide for borrowings under a revolving credit facility of up to $23.0 million.
The agreement extends through January 1, 2000 with annual renewal options
thereafter on the first $20.0 million. The commitment for the remaining $3.0
million extends through December 1, 1997, with annual renewal options
thereafter. The Company had $6 million and $13.3 million outstanding under these
agreements at December 28, 1996 and December 30, 1995, respectively. The Company
also had $16.8 million and $16.7 million outstanding at December 28, 1996 and
December 30, 1995, respectively, under mortgage loans with the banks and under a
capital lease obligation.
The terms of the revolving credit facility and mortgage loans require the
Company to maintain certain levels of net worth, liquidity, and cash flow, and
limit the level of additional indebtedness and capital expenditures. 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.
Inflation
General inflation has not had a significant impact on the Company during the
past three years. The Company's commodity products, primarily lumber and certain
building materials, experience unusual deflation or inflation due to a
combination of price volatility, increased demand and supply levels. Resulting
price increases or decreases are generally passed on to customers through retail
price changes and, accordingly, do not significantly impact the Company.
D
I
Y
---
5
<PAGE> 3
STATEMENT OF INCOME D.I.Y. Home Warehouse, Inc.
- -------------------------------------------------
<TABLE>
<CAPTION>
for the years ended December 28, 1996, As adjusted (Note 1) As adjusted (Note 1)
December 30, 1995 and December 31, 1994 1996 1995 1994
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net sales $212,068,262 $178,008,474 $136,368,915
Cost of sales 156,611,900 128,672,389 98,201,511
- ------------------------------------------------- ------------ ------------ ------------
GROSS PROFIT 55,456,362 49,336,085 38,167,404
Operating expenses:
Store operating, general and administrative 46,954,847 40,934,818 30,332,875
Store preopening costs -- 1,778,418 1,200,716
- ------------------------------------------------- ------------ ------------ ------------
TOTAL OPERATING EXPENSES 46,954,847 42,713,236 31,533,591
- ------------------------------------------------- ------------ ------------ ------------
OPERATING INCOME 8,501,515 6,622,849 6,633,813
Other income (expense):
Interest expense, net (2,452,575) (1,911,003) (33,115)
Other income, net 305,816 479,730 134,089
- ------------------------------------------------- ------------ ------------ ------------
Income before income taxes 6,354,756 5,191,576 6,734,787
Income taxes 2,569,570 2,081,733 2,653,850
- ------------------------------------------------- ------------ ------------ ------------
NET INCOME $ 3,785,186 $ 3,109,843 $ 4,080,937
================================================= ============ ============ ============
EARNINGS PER SHARE $ 0.50 $ 0.41 $ 0.54
================================================= ============ ============ ============
Weighted average common shares outstanding 7,626,702 7,625,000 7,625,000
================================================= ============ ============ ============
</TABLE>
STATEMENT OF SHAREHOLDERS' EQUITY D.I.Y. Home Warehouse, Inc.
- -------------------------------------------------
<TABLE>
<CAPTION>
for the years ended December 28, 1996, December 30, 1995 and December 31, 1994
-------------------------------------------------------------------------------
Common Stock Total
--------------------------- Retained Shareholders'
Shares Amount Earnings Equity
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
BALANCES, JANUARY 1, 1994, AS
PREVIOUSLY REPORTED 7,625,000 $22,912,521 $ 2,888,944 $25,801,465
Adjustment for the cumulative effect of the change in
accounting for merchandise inventories (Note 1) 447,115 447,115
- -------------------------------------------------------- --------- ----------- ----------- -----------
BALANCES, JANUARY 1, 1994, AS ADJUSTED 7,625,000 22,912,521 3,336,059 26,248,580
Net income 4,080,937 4,080,937
- -------------------------------------------------------- --------- ----------- ----------- -----------
BALANCES, DECEMBER 31, 1994, AS ADJUSTED 7,625,000 22,912,521 7,416,996 30,329,517
Net income 3,109,843 3,109,843
- -------------------------------------------------------- --------- ----------- ----------- -----------
BALANCES, DECEMBER 30, 1995, AS ADJUSTED 7,625,000 22,912,521 10,526,839 33,439,360
Shares issued under the Retainer Stock Plan for
Non-Employee Directors 5,685 29,484 29,484
Net income 3,785,186 3,785,186
- -------------------------------------------------------- --------- ----------- ----------- -----------
BALANCES, DECEMBER 28, 1996 7,630,685 $22,942,005 $14,312,025 $37,254,030
======================================================== ========= =========== =========== ===========
</TABLE>
See Notes to Financial Statements.
D
I
Y
- ---
6
<PAGE> 4
BALANCE SHEET D.I.Y. Home Warehouse, Inc.
- -------------------------------------------------
<TABLE>
<CAPTION>
As adjusted (Note 1)
as of December 28, 1996 and December 30, 1995 1996 1995
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 161,360 $ 1,468,897
Accounts receivable, trade 51,812 97,584
Refundable federal income taxes 248,688 --
Merchandise inventories 38,462,125 39,928,793
Deferred income taxes 280,791 685,312
Prepaid expenses and other assets 850,113 662,991
- --------------------------------------------------------------------------------------- ----------- -----------
TOTAL CURRENT ASSETS 40,054,889 42,843,577
- --------------------------------------------------------------------------------------- ----------- -----------
PROPERTY AND EQUIPMENT, AT COST:
Land 4,476,301 4,516,301
Buildings 19,823,392 19,707,438
Furniture, fixtures and equipment 17,284,376 15,246,103
Leasehold improvements 7,934,600 7,486,864
- --------------------------------------------------------------------------------------- ----------- -----------
49,518,669 46,956,706
Less accumulated depreciation and amortization 10,186,763 6,985,653
- --------------------------------------------------------------------------------------- ----------- -----------
Property and equipment, net 39,331,906 39,971,053
Other assets 577,442 685,180
- --------------------------------------------------------------------------------------- ----------- -----------
TOTAL ASSETS $79,964,237 $83,499,810
======================================================================================= =========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Note payable, affiliate $ 900,000 $ 900,000
Current maturities of long-term debt 798,377 552,670
Accounts payable 12,278,455 13,067,899
Accrued expenses 3,140,735 2,797,215
Accrued sales and property taxes 1,056,267 969,862
Accrued income taxes 437,914 586,019
Customer deposits 554,583 672,616
- --------------------------------------------------------------------------------------- ----------- -----------
TOTAL CURRENT LIABILITIES 19,166,331 19,546,281
- --------------------------------------------------------------------------------------- ----------- -----------
Revolving credit 6,000,000 13,300,000
Long-term debt 16,030,953 16,115,153
Deferred income taxes 1,512,923 1,099,016
Commitments -- --
SHAREHOLDERS' EQUITY:
Preferred stock, authorized 1,000,000 shares, none issued -- --
Common stock, no par value, authorized 10,000,000 shares, 7,630,685 and 7,625,000 shares
outstanding at December 28, 1996 and December 30, 1995, respectively 22,942,005 22,912,521
Retained earnings 14,312,025 10,526,839
- --------------------------------------------------------------------------------------- ----------- -----------
TOTAL SHAREHOLDERS' EQUITY 37,254,030 33,439,360
- --------------------------------------------------------------------------------------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $79,964,237 $83,499,810
======================================================================================= =========== ===========
</TABLE>
See Notes to Financial Statements.
D
I
Y
---
7
<PAGE> 5
STATEMENT OF CASH FLOWS D.I.Y. Home Warehouse, Inc.
- -------------------------------------------------
<TABLE>
<CAPTION>
for the years ended December 28, 1996, As adjusted (Note 1) As adjusted (Note 1)
December 30, 1995 and December 31, 1994 1996 1995 1994
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $3,785,186 $ 3,109,843 $ 4,080,937
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 3,201,110 2,353,851 1,413,753
Amortization of deferred gain on sale of property -- (36,905) (36,905)
Deferred income taxes 847,912 346,412 51,231
Changes in operating assets and liabilities:
Accounts receivable, trade 45,772 78,176 (99,440)
Refundable federal income taxes (248,688) -- --
Merchandise inventories 1,466,668 (8,289,333) (14,218,370)
Prepaid expenses and other assets (187,122) (78,102) (191,657)
Other assets 107,738 12,027 (647,903)
Accounts payable (789,444) 5,316,280 625,208
Accrued income taxes (148,105) 82,103 (207,390)
Accrued expenses and other liabilities 311,892 1,590,117 1,177,284
- ---------------------------------------------------------------------- ---------- ----------- -----------
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 8,392,919 4,484,469 (8,053,252)
- ---------------------------------------------------------------------- ---------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (1,745,975) (18,233,696) (15,428,174)
- ---------------------------------------------------------------------- ---------- ----------- -----------
NET CASH USED IN INVESTING ACTIVITIES (1,745,975) (18,233,696) (15,428,174)
- ---------------------------------------------------------------------- ---------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Accounts receivable, affiliate -- -- 2,495,829
Proceeds from notes payable -- -- 2,087,176
Principal payments, notes payable -- (687,176) (1,400,000)
Proceeds from long-term debt -- 7,975,000 9,000,000
Principal payments under capital lease obligation (56,970) -- --
Principal payments of long-term debt (597,511) (307,177) --
Proceeds from revolving credit 4,000,000 10,800,000 12,000,000
Principal payments, revolving credit (11,300,000) (3,500,000) (6,000,000)
- ---------------------------------------------------------------------- ---------- ----------- -----------
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (7,954,481) 14,280,647 18,183,005
- ---------------------------------------------------------------------- ---------- ----------- -----------
Net (decrease) increase in cash and cash equivalents (1,307,537) 531,420 (5,298,421)
Cash and cash equivalents, beginning of year 1,468,897 937,477 6,235,898
- ---------------------------------------------------------------------- ---------- ----------- -----------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 161,360 $ 1,468,897 $ 937,477
====================================================================== ========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for interest, net of capitalized interest $2,571,345 $ 1,680,658 $ 122,742
====================================================================== ========== =========== ===========
Cash paid for income taxes $2,146,248 $ 1,653,259 $ 2,810,404
====================================================================== ========== =========== ===========
SUPPLEMENTAL INVESTING AND FINANCING INFORMATION:
Capital lease obligations incurred $ 815,988 $ -- $ --
====================================================================== ========== =========== ===========
</TABLE>
See Notes to Financial Statements.
D
I
Y
- ---
8
<PAGE> 6
NOTES TO FINANCIAL STATEMENTS D.I.Y. Home Warehouse, Inc.
- -------------------------------------------------
- ---------------------------
1. Organization and Summary of Significant
Accounting Policies
D.I.Y. Home Warehouse, Inc. (DIY or the Company) operates sixteen retail
warehouse-format home improvement centers that sell products primarily to
do-it-yourself home repair and remodeling customers. The Company's "DIY Home
Warehouse" stores are located in Northeast Ohio and range in size from 66,000 to
96,800 square feet of enclosed selling space and 12,000 to 20,000 square feet of
outside selling space.
The significant accounting policies followed in the preparation of the
accompanying financial statements are summarized below.
Fiscal Year
The Company's fiscal year is comprised of 52 or 53 weeks, ending on the
Saturday nearest December 31. Unless otherwise stated, references to the years
1996, 1995 and 1994 relate to the fiscal years ended December 28, 1996, December
30, 1995 and December 31, 1994, respectively. Fiscal years 1996, 1995 and 1994
consisted of 52 weeks.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Financial Instruments
The Company has provided fair value estimates and information about valuation
methodologies of financial instruments in this note and Note 2 to the financial
statements. The Company's financial instruments consist of investments in cash
and cash equivalents and obligations under notes payable and long-term debt.
Cash and Cash Equivalents
Cash equivalents consist of short-term, highly liquid investments, with a
maturity of three months or less, carried at cost plus accrued interest, which
are readily convertible into cash. The carrying value for cash and cash
equivalents approximates fair value.
Merchandise Inventories
Effective December 31, 1995, 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. Merchandise inventories are now stated at the
lower of cost or market, cost being determined on a 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
Internal Revenue Service granted permission to the Company to change to the FIFO
method of inventory valuation for income tax purposes. The effect of the change
increased net income as previously reported by $13,300 for the year ended
December 30, 1995 and did not impact earnings per share. Net income and earnings
per share as previously reported for the year ended December 31, 1994 decreased
by $186,000 and $0.02, respectively. Had the Company maintained the LIFO method,
net income for the year ended December 28, 1996 would have been lower by
$390,000 or $0.05 per share. The balances of retained earnings for 1995 and 1994
have been adjusted for the effect (net of income taxes) of applying
retroactively the new method of accounting.
Property, Equipment and Depreciation
Property and equipment are stated at cost and are depreciated for financial
reporting purposes using the straight-line method over estimated useful lives of
thirty-nine years for buildings and five to ten years for furniture, fixtures
and equipment. Leasehold improvements are amortized by the straight-line method
over the initial term of the lease. At retirement or sale, the cost of the
assets and related accumulated depreciation are removed from the appropriate
accounts, and any resulting gain or loss is included in current income. Routine
maintenance, repairs and renewals are expensed as incurred. Renewals and
betterments which substantially increase the life of property and equipment are
capitalized.
During 1994, the Company revised the estimated useful lives of certain
property and equipment to reflect the Company's actual experience. The Company
changed the estimated useful lives of furniture, fixtures and equipment from
five to ten years and MIS equipment from three to five years. The effect of this
change in estimate increased income before income taxes, net income, and
earnings per share $309,000, $190,000, and $0.02, respectively, for the year
ended December 31, 1994.
Advertising Costs
Advertising and promotion costs are charged to operations in the year
incurred. Advertising expense was $2,064,058, $2,753,145 and $2,314,948 in 1996,
1995 and 1994, respectively.
Store Preopening Costs
Non-capital expenditures associated with new store preopening costs are
expensed as incurred.
Earnings Per Share
Earnings per share are computed using the weighted average number of shares
of common stock outstanding for the period. Earnings per share have not been
adjusted for the effect of stock options as the dilutive effect would be less
than 3 percent for each period.
Income Taxes
Income taxes are provided based upon income for financial reporting purposes.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Tax credits are applied
to reduce the provision for income taxes in the year in which the credits arise.
- ----------------
2. Debt
The Note payable, affiliate of $900,000 represents a note payable to Edgemere
Enterprise, Inc., an entity owned by the Company's majority shareholder, which
is due on demand. The note bears interest at three-quarters of one percent above
the base lending rate of Comerica Bank and is subordinated to the Company's
revolving credit facility and other debt with its banks. Interest expense on the
Note payable, affiliate was $82,544, $87,203 and $77,263 in 1996, 1995 and 1994,
respectively.
The Company has an agreement with two banks at December 28, 1996, which
provide for borrowings under a revolving credit facility of up to $23,000,000
with interest at the Company's option of either the prime rate, LIBOR for
specified maturities, or the banks' certificate of deposit rate for specified
maturities each adjusted by varying basis points in accordance with the debt
agreement. The agreement extends through January 1, 2000, with annual renewal
options thereafter on the first $20,000,000. The commitment for the remaining
$3,000,000 extends through December 1, 1997, with annual renewal options
thereafter. A commitment fee of .25 percent per annum is charged on the unused
credit facility. Borrowings under this agreement are collateralized by the
Company's merchandise inventories and receivables. The Company had $6,000,000
and $13,300,000 outstanding under this agreement at December 28, 1996 and
December 30, 1995, respectively, at a weighted average interest rate of 7
percent at December 28, 1996 and December 30, 1995.
D
I
Y
---
9
<PAGE> 7
Long-term debt consists of the following:
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
Mortgage loans due in monthly
installments of $98,206 including
principal and interest at 10.3
percent per annum through January
1, 2005 and $4,833,044 due
January 1, 2005. Collateralized
by certain real property. On
December 23, 1999, the interest
rate adjusts to 2.5 percent plus
the then current 5
year Treasury Securities yield $ 8,491,497 $ 8,767,338
Mortgage loans due in monthly
installments of $34,796 including
principal and interest at 9.28
percent per annum through May 1,
2005 and $1,751,090 due May 1,
2005 collateralized by certain
real property. On April 28, 2000,
the interest rate adjusts to 2.5
percent plus the then current
5 year Treasury Securities yield 3,207,204 3,316,461
Mortgage loans due in monthly
installments of $44,480 including
principal and interest through
October 1, 2005 and $1,696,964
due October 1, 2005. Interest is
at the Company's option of either
the prime rate plus .125 percent,
LIBOR for specified maturities
plus 1.625 percent, the banks'
certificate of deposit rate for
specified maturities plus 1.75
percent, or the 5 year Treasury
Securities yield plus 2.5 percent
(7.19 percent as of
December 28, 1996). Collateralized
by certain real property 4,371,611 4,584,024
Capital lease obligations (Note 4) 759,018 --
- ------------------------------------------ ----------- -----------
Long-term debt 16,829,330 16,667,823
Less current maturities of long-term debt 798,377 552,670
- ------------------------------------------ ----------- -----------
Long-term debt, net of current maturities $16,030,953 $16,115,153
========================================== =========== ===========
</TABLE>
Principal amounts of long-term debt payable, including capital lease
obligations in fiscal years 1997 through 2001 are $798,377, $854,874, $957,633,
$1,061,482 and $1,045,859, respectively.
During fiscal years 1996, 1995 and 1994, interest expense incurred and
capitalized was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- --------
<S> <C> <C> <C>
Interest expense incurred $2,491,845 $2,153,005 $308,060
Interest capitalized -- 190,800 167,588
- ------------------------- ---------- ---------- --------
Interest expense, net $2,491,845 $1,962,205 $140,472
========================= ========== ========== ========
</TABLE>
The carrying amount of the Company's notes payable and borrowings under the
revolving credit facility approximate fair value. The fair value of the
Company's long-term debt was estimated using a discounted cash flow analysis
based on the Company's current incremental borrowing rate for similar types of
borrowing arrangements. The carrying value of this debt, $16,829,330, was
estimated to have a fair value of $17,697,069 at December 28, 1996.
The terms of the revolving credit facility and mortgage loans require the
Company to maintain certain levels of net worth, liquidity, cash flow and fixed
charge coverage, and limit the level of additional indebtedness and capital
expenditures.
- -----------------
3. Income Taxes
Income taxes include the following:
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Federal $1,307,458 $1,328,683 $1,981,333
Deferred 859,083 346,412 51,231
State and local 403,029 406,638 621,286
- ---------------- ---------- ---------- ----------
$2,569,570 $2,081,733 $2,653,850
================ ========== ========== ==========
</TABLE>
A reconciliation of the statutory federal income tax rate to the Company's
effective income tax rate follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Statutory federal income tax rate 34.0% 34.0% 34.0%
State and local income taxes, net of federal benefit 6.2 6.3 6.4
Tax credits and other 0.2 (0.2) (1.0)
- --------------------------------------------------------- ---- ---- ----
Effective income tax rate 40.4% 40.1% 39.4%
========================================================= ==== ==== ====
</TABLE>
Deferred income taxes are provided for the temporary differences between the
financial reporting basis and the tax basis of assets and liabilities. The net
deferred taxes shown on the balance sheet are as follows:
<TABLE>
<CAPTION>
1996 1995
----------- ---------
<S> <C> <C>
Depreciation $(1,411,338) $(761,127)
Vacation accrual 97,076 244,938
LIFO (281,729) (337,889)
Other accrued liabilities 66,266 351,042
Workers' compensation 142,282 89,332
State income tax 155,311 --
- ------------------------------ ----------- ---------
Net deferred tax (liability) $(1,232,132) $(413,704)
============================== =========== =========
</TABLE>
- ----------------------
4. Leases and Commitments
The Company leases nine retail stores and its corporate offices under
operating leases. In addition, two of the Company's retail stores are subject to
land leases. The Company's operating leases have remaining terms from 1 to 12
years and have renewal options varying from 10 to 45 years. Six leases require
additional lease payments based upon a percentage of sales above certain sales
levels. Percentage lease payments were $42,463 in 1996. There were no percentage
lease payment requirements for fiscal years 1995 or 1994.
In 1996, the Company entered into a capital lease for a new management
information computer system. The lease is for 5 years and the lease can be
renewed or the assets purchased at the end of the initial lease term.
Future minimum rental payments required under operating and capital leases
that have non-cancelable lease terms in excess of one year and sublease rentals
due the Company under non-cancelable subleases are as follows:
<TABLE>
<CAPTION>
Capital
Operating Leases Leases
----------------------------------- ---------
Lease Sublease Net
Payments Rentals Payments
----------- --------- -----------
<S> <C> <C> <C> <C>
Year ending:
1997 $ 4,070,706 $ 214,762 $ 3,855,944 $ 201,336
1998 3,622,107 206,760 3,415,347 201,336
1999 3,263,040 137,640 3,125,400 201,336
2000 3,100,888 104,810 2,996,078 201,336
2001 2,934,270 100,800 2,833,470 115,227
Later years 7,618,430 122,805 7,495,625 --
- -------------------------------- ----------- --------- ----------- ---------
Total minimum
lease payments $24,609,441 $ 887,577 $23,721,864 $ 920,571
================================ =========== ========= ===========
Less amounts
representing interest 161,553
---------
Present value of net
minimum lease
payments $ 759,018
=========
</TABLE>
Total net rental expense for all operating leases for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994 was approximately
$3,738,000, $3,397,000 and $2,816,000, respectively. Rental expense is net of
sublease rental income of $252,000, $223,000 and $169,000 for the years ended
December 28, 1996, December 30, 1995 and December 31, 1994, respectively.
The Company leases four of its retail stores from the Company's majority
shareholder or entities affiliated with him. Rents associated with these leases
were $1,837,403, $1,794,940 and $1,833,755 for the years ended December 28,
1996, December 30, 1995 and December 31, 1994, respectively.
- --------------------
5. Stock Options
The Company has a Long Term Incentive Plan (the "Plan") which reserves shares
of the Company's authorized common stock for issuance. On May 22, 1996, the
Company's shareholders authorized an increase of the number of shares authorized
for issuance under the Plan from 850,000 shares to 1,350,000 shares. The Plan
provides for the granting of incentive stock options to purchase shares of
common stock at a price not less than 100% of the fair market value of the stock
on the dates options are granted. Options granted under the Plan vest over five
years at the rate of 20% each year and expire no more than ten years from the
date of grant.
D
I
Y
- ---
10
<PAGE> 8
A summary of stock options is as follows:
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Options outstanding beginning of year 673,000 503,000 286,000
Granted 159,000 205,000 221,000
Cancelled (31,000) (35,000) (4,000)
- --------------------------------------- -------- -------- --------
Options outstanding end of year 801,000 673,000 503,000
======================================= ======== ======== ========
Options exercisable at end of year 286,000 163,500 57,000
- --------------------------------------- -------- -------- --------
Exercise price per share for options $3.63 to $6.44 to $9.00 to
exercisable at end of year $ 4.69 $ 7.25 $ 16.13
Weighted-average fair value of options
granted during the year $ 4.62 $ 6.98 $ 12.59
</TABLE>
All options issued were granted at 100 percent of the fair market value of
the Company's common stock on the date of grant. Options outstanding as of
December 28, 1996 had a weighted-average exercise price of $9.15 and will expire
at various dates between November 18, 1998 and September 6, 2001. At December
28, 1996, there were 549,000 shares of common stock reserved for future growth.
The Company applies APB Opinion Number 25 and related interpretations in
accounting for its stock option plan. Accordingly, since all options are granted
at a fixed price not less than the fair market value of the Company's common
stock on the date of grant, no compensation expense has been recognized relative
to its stock option plan. Had compensation expense for the Company's stock-based
plan been determined based on the fair value at the 1996 and 1995 grant dates
for awards under the plan consistent with the method of FASB Statement Number
123, the Company's net income and earnings per share would have been reduced to
the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C> <C>
Net income As Reported $3,785,186 $3,109,843
Pro Forma $3,683,661 $3,051,592
Earnings per share As Reported $0.50 $0.41
Pro Forma $0.48 $0.40
</TABLE>
The fair value of each option grant was estimated on the date of grant using
the Black-Scholes option pricing model with the following assumptions for 1996
and 1995: risk free interest rates of 5.4 percent to 5.7 percent in 1996 and 5.9
percent to 7.8 percent in 1995; no dividend yield in either year; expected lives
of five years; and volatility of 36 percent for each year. Option valuation
models, like the Black-Scholes model, require the input of highly subjective
assumptions including the expected stock price volatility. Since changes in the
subjective input assumptions can materially affect the fair value estimate, in
management's opinion, the existing models do not necessarily provide a reliable
single measure of the fair value of its stock options or the resultant
compensation expense for stock option awards.
- -----------------
6. Employee Benefit Plan
The Company has a contributory 401(k) savings and investment plan for all
employees who have obtained certain age and length of service requirements.
Eligible employees may contribute up to 15 percent of their compensation to the
plan, subject to any limitations imposed by federal income tax regulations. The
Company partially matches participants' contributions. The matching contribution
is made with cash at a rate of 33.3 percent of a participant's contribution up
to 6 percent of their compensation. Effective February 1, 1997 such matching
contribution was increased to 66 percent of a participant's contribution up to 6
percent of their compensation. Each employee controls the investment of funds
credited to their respective account. Company contributions to this plan were
$211,789, $177,126 and $124,731 for fiscal years 1996, 1995 and 1994,
respectively.
- -------------------------
7. Related Party Transactions
D.I.Y. Home Warehouse, Inc. is majority-owned by Mr. Fred A. Erb ("Mr. Erb").
In 1993, the Company paid on behalf of a partnership affiliated with Mr. Erb,
$2,426,829 during the building construction phase of its Boardman location. The
Company leases its Boardman location from this partnership. On March 24, 1994,
the amounts due to the Company were paid by the partnership. In addition, on
March 22, 1994, the Company purchased from the partnership affiliated with Mr.
Erb, the land and building for its Mansfield location in the amount of
$1,280,000. The cost to the Company for the land was equal to the amount paid
during 1993 by the partnership to a third party.
- -----------------------------
8. Quarterly Financial Data (Unaudited)
<TABLE>
<CAPTION>
1996 1st 2nd 3rd 4th Total
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 39,143,905 $68,168,668 $56,806,258 $47,949,431 $212,068,262
Gross profit 10,765,103 16,886,574 14,903,928 12,900,757 55,456,362
Net income (loss) (108,791) 2,029,585 1,187,561 676,831 3,785,186
Earnings (loss)
per share $(0.01) $0.27 $0.16 $0.09 $0.50
Weighted average
common shares
outstanding 7,625,000 7,625,000 7,626,125 7,630,685 7,626,702
</TABLE>
The sum of 1996 quarterly earnings (loss) per share does not equal fiscal 1996
earnings per share due to the effects of rounding.
<TABLE>
<CAPTION>
1995 1st 2nd 3rd 4th Total
------------ ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Net sales $ 30,257,805 $58,411,111 $47,308,171 $42,031,387 $178,008,474
Gross profit 9,187,457 16,292,609 12,227,877 11,628,142 49,336,085
Net income 503,251 2,135,002 448,660 22,930 3,109,843
Earnings per share $0.07 $0.28 $0.06 $0.00 $0.41
Weighted average
common shares
outstanding 7,625,000 7,625,000 7,625,000 7,625,000 7,625,000
</TABLE>
REPORT OF INDEPENDENT ACCOUNTANTS
- ------------------------------------------------
Coopers COOPERS & LYBRAND L.L.P
& Lybrand
a professional services firm
To the Shareholders and Board of Directors
D.I.Y. Home Warehouse, Inc.
We have audited the accompanying balance sheet of D.I.Y. Home Warehouse, Inc.
as of December 28, 1996 and December 30, 1995, and the related statements of
income, shareholders' equity, and cash flows for each of the three years in the
period ended December 28, 1996. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of D.I.Y. Home Warehouse, Inc. as
of December 28, 1996 and December 30, 1995, and the results of its operations
and its cash flows for each of the three years in the period ended December 28,
1996 in conformity with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, the Company changed its
method of accounting for inventories in 1996 and restated prior period financial
statements to reflect the change.
/s/ Coopers & Lybrand L.L.P.
Cleveland, Ohio
February 14, 1997
D
I
Y
---
11
<PAGE> 9
SELECTED FINANCIAL DATA AND OPERATING HIGHLIGHTS D.I.Y. Home Warehouse, Inc.
- ---------------------------------------------------
<TABLE>
<CAPTION>
Fiscal Year
------------------------------------------------------------
(Amounts in thousands, except per share data) 1996 1995(1) 1994(1) 1993(1) 1992(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net sales $212,068 $178,008 $136,369 $88,022 $68,003
Cost of sales 156,612 128,672 98,202 62,602 48,252
- ---------------------------------------------------------- -------- -------- -------- ------- -------
Gross profit 55,456 49,336 38,167 25,420 19,751
Store operating, general and administrative expenses 46,954 40,935 30,333 18,451 16,971
Store preopening costs -- 1,778 1,200 1,309 1,182
Other expense (income), net 2,147 1,431 (101) (315) (30)
- ---------------------------------------------------------- -------- -------- -------- ------- -------
Income before income taxes (2) 6,355 5,192 6,735 5,975 1,628
Income taxes (3) 2,570 2,082 2,654 1,844 --
========================================================== ======== ======== ======== ======= =======
Net income (3) $ 3,785 $ 3,110 $ 4,081 $ 4,131 $ 1,628
========================================================== ======== ======== ======== ======= =======
Earnings per share (3) $ 0.50 $ 0.41 $ 0.54 $ 0.62 $ 0.32
========================================================== ======== ======== ======== ======= =======
Weighted average common shares outstanding 7,627 7,625 7,625 6,705 5,136
Pro forma results: (4)
Pro forma income before income taxes $ 5,975 $ 3,208
Pro forma income taxes 2,450 1,315
========================================================== ======= =======
Pro forma net income $ 3,525 $ 1,893
========================================================== ======= =======
Pro forma earnings per share $ 0.53 $ 0.37
========================================================== ======= =======
<CAPTION>
1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA
Number of stores open at end of period 16 16 11 7 5
Selling square footage at end of period 1,353,000 1,353,000 918,000 583,000 408,000
Comparable store sales increase (decrease) 7% (5)% 8% (3)% 1%
Number of employees 1,334 1,325 939 669 462
<CAPTION>
(Amounts in thousands) 1996 1995(1) 1994(1) 1993(1) 1992(1)
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA (at period end)
Working capital $ 20,889 $23,297 $20,769 $16,285 $ 2,287
Total assets 79,764 83,500 58,519 36,963 14,691
Notes payable and current maturities of long-term debt 1,698 1,452 1,820 900 2,900
Long-term debt 22,031 29,415 14,767 -- 725
Shareholders' equity 37,254 33,439 30,330 26,249 5,155
</TABLE>
(1) Fiscal years 1995, 1994, 1993 and 1992 have been restated to reflect the
change in method of accounting for merchandise inventories. In 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 retoactively adjusted prior years' financial statements for
this change. The effect of the accounting change on net income as
previously reported is as follows:
<TABLE>
<CAPTION>
(Amounts in thousands, except per share data) 1995 1994 1993 1992
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net income as previously reported $3,097 $4,267 $4,140 $1,424
Adjustment for effect of a change in accounting principle 13 (186) (9) 204
--------------------------------------------------------------------- ------ ------ ------ ------
Net income as adjusted $3,110 $4,081 $4,131 $1,628
===================================================================== ====== ====== ====== ======
Earnings per share as previously reported $ 0.41 $ 0.56 $ 0.62 $0.28
Adjustment for effect of a change in accounting principle -- (0.02) -- 0.04
--------------------------------------------------------------------- ------ ------ ------ ------
Earnings per share as adjusted $ 0.41 $ 0.54 $ 0.62 $0.32
===================================================================== ====== ====== ====== ======
</TABLE>
(2) Income before income taxes reflects payment of shareholder bonuses for the
year ended January 2, 1993 in the amount of $1,580,000. Such shareholder
bonuses were paid by the Company to fund shareholders' federal, state and
certain local income tax liabilities attributable to the income of the
Company.
(3) For the period January 2, 1993 through May 18, 1993 and fiscal year 1992,
the Company was treated for federal income tax purposes as an S corporation
and, accordingly, income tax was taxed directly to the shareholders. See
(4) for Pro forma results.
(4) Pro forma results assume the Company had been taxed as a C Corporation for
the entire period and exclude $1,580,000 in shareholder bonuses paid in
1992 to fund shareholders' income tax liabilities attributable to the
income of the Company. Pro forma results are not applicable in 1996, 1995
and 1994.
D
I
Y
- ---
12
<PAGE> 1
EXHIBIT 23.1
<PAGE> 2
EXHIBIT 23.1 TO ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996
BY D.I.Y. HOME WAREHOUSE, INC.
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in the Registration Statement of
D.I.Y. Home Warehouse, Inc. on Form S-8 (File No. 33-87020) of our report, dated
February 14, 1997, on our audits of the Financial Statements of D.I.Y. Home
Warehouse, Inc. as of December 28, 1996 and December 30, 1995 and for each of
the three years in the period ended December 28, 1996, which report is included
in Exhibit 13.1 of this Form 10-K.
/s/ Coopers & Lybrand
Cleveland, Ohio
March 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<CASH> 161
<SECURITIES> 0
<RECEIVABLES> 52
<ALLOWANCES> 0
<INVENTORY> 38,462
<CURRENT-ASSETS> 40,055
<PP&E> 49,519
<DEPRECIATION> 10,187
<TOTAL-ASSETS> 79,964
<CURRENT-LIABILITIES> 19,166
<BONDS> 22,031
<COMMON> 22,942
0
0
<OTHER-SE> 14,312
<TOTAL-LIABILITY-AND-EQUITY> 79,964
<SALES> 212,068
<TOTAL-REVENUES> 212,068
<CGS> 156,612
<TOTAL-COSTS> 156,612
<OTHER-EXPENSES> 46,648
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 2,453
<INCOME-PRETAX> 6,355
<INCOME-TAX> 2,570
<INCOME-CONTINUING> 3,785
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,785
<EPS-PRIMARY> .50
<EPS-DILUTED> .50
</TABLE>
