<PAGE> 1
FORM 10-Q
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 28, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 0-21768
D.I.Y. Home Warehouse, Inc.
---------------------------
(Exact name of registrant as specified in its charter)
State of Ohio 38-2560752
(State of Incorporation) (I.R.S. Employer I.D. No.)
5811 Canal Road
Valley View, Ohio 44125
(216) 328-5100
(Address of principal executive offices and telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No_____
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Class Outstanding at June 28, 1997
- -------------------------- ----------------------------
Common Stock, no par value 7,633,859
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D.I.Y. HOME WAREHOUSE, INC.
INDEX
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<TABLE>
<CAPTION>
PAGE NO.
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<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet - June 28,
1997 and December 28, 1996..................................................... 3
Condensed Statement of Income -
Three and Six Months Ended June 28,
1997 and June 29, 1996......................................................... 4
Condensed Statement of
Shareholders' Equity - Six Months
Ended June 28, 1997............................................................ 5
Condensed Statement of Cash Flows -
Six Months Ended June 28, 1997
and June 29, 1996.............................................................. 6
Notes to Condensed Financial
Statements..................................................................... 7
Item 2. Management's Discussion and
Analysis of Financial Condition
and Results of Operations...................................................... 8-10
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 11-12
</TABLE>
2
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PART I - FINANCIAL INFORMATION
D.I.Y. HOME WAREHOUSE, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
June 28, 1997 December 28, 1996
------------- -----------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 153,664 $ 161,360
Accounts receivable, trade 75,520 51,812
Refundable federal income taxes 248,688
Merchandise inventories 46,632,946 38,462,125
Deferred income taxes 280,791 280,791
Prepaid expenses and other assets 608,056 850,113
----------- -----------
Total current assets 47,750,977 40,054,889
----------- -----------
Property and equipment, at cost 49,670,746 49,518,669
Less accumulated depreciation and amortization 11,807,384 10,186,763
----------- -----------
Property and equipment, net 37,863,362 39,331,906
Other assets 622,102 577,442
----------- -----------
Total assets $86,236,441 $79,964,237
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable, affiliate $ 600,000 $ 900,000
Current maturities of long-term debt 823,033 798,377
Accounts payable 18,313,538 12,278,455
Accrued expenses and other 6,702,638 5,189,499
----------- -----------
Total current liabilities 26,439,209 19,166,331
----------- -----------
Revolving credit 3,500,000 6,000,000
Long-term debt 15,637,186 16,030,953
Deferred income taxes 1,512,923 1,512,923
Shareholders' equity:
Preferred stock, authorized 1,000,000 shares,
none issued -- --
Common stock, no par value, authorized
10,000,000 shares, 7,633,859 and 7,630,685
shares outstanding as of June 28, 1997
and December 28, 1996, respectively 22,955,462 22,942,005
Retained earnings 16,191,661 14,312,025
----------- -----------
Total shareholders' equity 39,147,123 37,254,030
----------- -----------
Total liabilities and shareholders' equity $86,236,441 $79,964,237
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
<PAGE> 4
D.I.Y. HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended For the six months ended
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Net sales $ 66,857,265 $ 68,168,668 $ 106,509,276 $ 107,312,573
Cost of sales 49,473,971 51,282,094 77,464,552 79,660,896
------------- ------------- ------------- -------------
Gross profit 17,383,294 16,886,574 29,044,724 27,651,677
Store operating, general
and administrative expenses 13,563,021 12,822,932 25,048,804 23,193,444
------------- ------------- ------------- -------------
Operating income 3,820,273 4,063,642 3,995,920 4,458,233
Other expense, net (498,699) (623,668) (826,298) (1,199,581)
------------- ------------- ------------- -------------
Income before income taxes 3,321,574 3,439,974 3,169,622 3,258,652
Income taxes 1,352,270 1,410,389 1,289,686 1,337,858
------------- ------------- ------------- -------------
Net income $ 1,969,304 $ 2,029,585 $ 1,879,636 $ 1,920,794
============= ============= ============= =============
Earnings per share $ 0.26 $ 0.27 $ 0.25 $ 0.25
============= ============= ============= =============
Weighted average
common shares outstanding 7,633,859 7,625,000 7,633,789 7,625,000
============= ============= ============= =============
</TABLE>
See accompanying notes to condensed financial statements.
4
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D.I.Y. HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 28, 1997
(Unaudited)
<TABLE>
<CAPTION>
Total
Retained Shareholders'
Shares Amount Earnings Equity
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at December 28,
1996 7,630,685 $22,942,005 $14,312,025 $37,254,030
Shares issued under the
Retainer Stock Plan for
Non-employee Directors 3,174 13,457 13,457
Net income 1,879,636 1,879,636
--------- ----------- ----------- -----------
Balances, June 28, 1997 7,633,859 $22,955,462 $16,191,661 $39,147,123
========= =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
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D.I.Y. HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the six months ended
June 28, 1997 June 29, 1996
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 1,879,636 $ 1,920,794
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Depreciation and amortization 1,664,351 1,587,600
Shares issued under Retainer Stock Plan 13,457
Gain on sale of property (262,668)
Changes in operating assets and liabilities:
Accounts receivable, trade (23,708) 22,906
Refundable federal income taxes 248,688
Merchandise inventories (8,170,821) (4,843,103)
Prepaid expenses and other assets 197,397 29,073
Accounts payable 6,035,083 2,885,627
Accrued expenses and other current liabilities 1,513,139 1,064,730
----------- -----------
Net cash provided by operating activities 3,094,554 2,667,627
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (760,740) (906,595)
Proceeds from sale of property 850,911
----------- -----------
Net cash provided by (used in) investing
activities 90,171 (906,595)
----------- -----------
Cash flows from financing activities:
Principal payments under capital lease
obligations (69,284) (35,905)
Principal payments of note payable, affiliate (300,000)
Proceeds from revolving credit 6,000,000 4,000,000
Principal payments of revolving credit (8,500,000) (5,800,000)
Principal payments of long-term debt (323,137) (291,627)
----------- -----------
Net cash (used in) financing activities (3,192,421) (2,127,532)
----------- -----------
Net (decrease) in cash and cash equivalents (7,696) (366,500)
Cash and cash equivalents, beginning of period 161,360 1,468,897
----------- -----------
Cash and cash equivalents, end of period $ 153,664 $ 1,102,397
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
6
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D.I.Y. HOME WAREHOUSE, INC.
Notes to Condensed Financial Statements
(Unaudited)
1. Basis of Presentation:
In the opinion of management, the accompanying unaudited condensed
financial statements contain all adjustments (consisting of only normal
recurring adjustments) necessary to present fairly the financial position as of
June 28, 1997 and the results of operations and cash flows for the three and six
months ended June 28, 1997 and June 29, 1996. The condensed financial statements
should be read in conjunction with the financial statements and notes contained
in the Company's Annual Report filed on Form 10-K. The results of operations for
any interim period should not necessarily be considered indicative of the
results of operations for the full year.
2. Earnings Per Share:
Earnings per share are computed using the weighted average number of
shares of common stock outstanding for the periods. Earnings per share have not
been adjusted for the effect of stock options as the dilutive effect would be
less than three percent for each period.
3. Sale of Property:
During the first half of fiscal 1997, the Company sold property,
resulting in net proceeds of approximately $851,000 and net gains of $263,000.
4. Note Payable, Affiliate:
In April 1997, the Company made a principal payment of $300,000 on the
Note payable, affiliate to Edgemere Enterprise, Inc., an entity owned by the
Company's majority shareholder, in accordance with the terms of the
subordination agreement with the Company's banks.
7
<PAGE> 8
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATIONS - Three Months Ended June 28, 1997
Compared to Three Months Ended June 29, 1996
Net sales for the quarter ended June 28, 1997 were $66,857,000 compared
to $68,169,000 for the comparable quarter of fiscal 1996. Comparable sales
decreased 2% reflecting lower sales due to the cold weather conditions in April
and May which significantly impacted the spring lawn and garden seasonal
business.
Gross profit increased by $496,000, or 2.9%, to $17,383,000 in the
second quarter of fiscal 1997 from $16,887,000 in the second quarter of fiscal
1996. As a percentage of net sales, gross profit increased to 26.0% in the
quarter ended June 28, 1997 compared to 24.8% in the comparable quarter of
fiscal 1996. This increase is due primarily to comprehensive programs and
initiatives underway aimed at improving margins, such as freight and logistics
programs and enhanced information systems which provide tools to better manage
this aspect of the business.
Store operating, general and administrative expenses were $13,563,000
for the quarter ended June 28, 1997 compared to $12,823,000 for the quarter
ended June 29, 1996. As a percentage of net sales, operating expenses increased
to 20.3% in the first quarter of fiscal 1997 compared to 18.8% in the comparable
quarter of fiscal 1996. Operating expenses in the second quarter of 1997
increased over the comparable quarter of 1996 as the result of general increases
in certain expenses including rent, real estate tax and personal property tax
assessments and insurance, among others. The second quarter of fiscal 1997 also
includes certain one-time expenses relative to certain new merchandising,
marketing and strategic initiatives which are underway to strengthen the
Company's market position. In addition, operating expenses in the quarter ended
June 28, 1997 include expenses of new information systems implemented in the
second half of fiscal 1996 which will provide long-term benefits to the Company.
Other expense, net, decreased from $624,000 in the quarter ended June
29, 1996 to $499,000 in the quarter ended June 28,1997 due primarily to a
decrease in interest expense of $84,000 associated with the benefits of reduced
debt levels as average amounts outstanding under the revolving credit facility
were approximately $8,941,000 and $14,381,000 in the second quarters of fiscal
1997 and 1996, respectively.
8
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OPERATIONS - Six Months Ended June 28, 1997
Compared to Six Months Ended June 29, 1996
Net sales for the six months ended June 28, 1997 were $106,509,000
compared to $107,313,000 for the six months ended June 29, 1996. Comparable
store sales for the six months ended June 28, 1997 decreased by less than 1.0%
reflecting reduced sales due to the adverse weather conditions in April and May
which significantly impacted the spring lawn and garden and other seasonal
business.
Gross profit increased by $1,393,000, or 5.0%, to $29,045,000 for the
six months ended June 28, 1997 from $27,652,000 for the six months ended June
29, 1996. As a percentage of net sales, gross profit increased to 27.3% in the
first half of fiscal 1997 compared to 25.8% in the first half of fiscal 1996.
The increase in gross margin percentage of 1.5% is a result of the Company's
continued emphasis on initiating new programs to improve margins, such as
freight and logistics programs and enhanced information systems which provide
tools to better manage this aspect of the business.
Store operating, general and administrative expenses were $25,049,000
for first half of fiscal 1997 compared to $23,193,000 for the first half of
fiscal 1996. As a percentage of sales, operating expenses increased to 23.5% in
the first half of 1997 compared to 21.6% in the first half of fiscal 1996.
Operating expenses for the six months ended June 29, 1996 were favorably
impacted by the reversal of bonus provisions as a result of a decision in the
first quarter of fiscal 1996 to eliminate the discretionary store and management
bonus provision which had been expensed in prior periods. Further, operating
expenses in the first half of fiscal 1997 increased over the same period in
fiscal 1996 as a result of general increases in certain expenses including rent,
real estate tax and personal property tax assessments and insurance, among
others. The second half of 1997 also includes one-time expenses relative to
certain new merchandising, marketing and strategic initiatives which are
underway to strengthen the Company's market position. Lastly, operating expenses
in the first half of 1997 include expenses of new information systems
implemented in the second half of 1996 which will provide long-term benefits to
the Company.
Other expenses, net, decreased by $374,000, from $1,200,000 for the six
months ended June 29, 1996 to $826,000 for the six months ended June 28, 1997.
The decrease is due primarily to gains of $263,000 from the sale of property in
the first half of fiscal 1997 and a decrease in interest expense of $190,000 due
to the benefits of reduced debt levels as average amounts outstanding under the
Revolving Credit Agreement were approximately $9,206,000 and $14,934,000 in the
first half of fiscal 1997 and 1996, respectively.
LIQUIDITY AND CAPITAL RESOURCES
During the six months ended June 28, 1997 and June 29, 1996, operating
activities provided net cash of $3,095,000 and $2,668,000, respectively. The
primary source of cash from
9
<PAGE> 10
operations was $3,544,000 and $3,508,000 from net income plus depreciation and
amortization for the six months ended June 28, 1997 and June 29, 1996,
respectively. The primary use of cash for the six months ended June 28, 1997 and
June 29, 1996 included $8,171,000 and $4,843,000, respectively, to fund seasonal
increases in inventories offset by an increase of $6,035,000 and $2,886,000,
respectively, in accounts payable.
Net cash provided by investing activities was $90,000 for the six
months ended June 28, 1997, due primarily from the net proceeds of $851,000 from
the sales of several parcels of property offset by cash used of $761,000 for the
acquisition of property and equipment. Net cash used in investing activities for
the six months ended June 29, 1996 was $907,000 due to remodeling initiatives in
the Company's older stores.
Net cash used in financing activities for the six months ended June 28,
1997 was $3,192,000, as a result of net repayments to the Company's revolving
credit facility of $2,500,000 and principal payments on the mortgage notes and
capital lease obligations of $392,000. The Company also reduced the note
payable, affiliate by $300,000 in the second quarter of 1997. Net cash used in
financing activities during the six months ended June 29, 1996 totaled
$2,128,000, as a result of net repayments to the Company's revolving credit
facility of $1,800,000 and principal payments of debt and capital lease
obligations of $328,000.
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. The Company has an
agreement with two banks which provide for borrowings under a revolving credit
facility of up to $23,000,000 of which $3,500,000 was outstanding as of June 28,
1997.
OTHER
This Quarterly Report on Form 10-Q 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.
10
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PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
A list of the exhibits required by Item 601 of Regulation S-K to
be filed as a part of this Form 10-Q is shown on the "Exhibit
Index" filed herewith.
(b) Reports on Form 8-K:
None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.I.Y. HOME WAREHOUSE, INC.
(Registrant)
DATED: August 6, 1997
---------------------
By: Marilyn A. Eisele
--------------------------------------
Vice President - Administration
and Finance, Chief Financial Officer
11
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
11 EARNINGS PER SHARE:
11.1 Computation of Earnings Per Share
27 FINANCIAL DATA SCHEDULE:
27.1 Financial Data Schedule for the quarter ended
June 28, 1997
12
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EXHIBIT 11
EARNINGS PER SHARE
<PAGE> 2
EXHIBIT 11.1
D.I.Y. HOME WAREHOUSE, INC.
FORM 10-Q
COMPUTATION OF EARNINGS PER COMMON SHARE
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 28, June 29, June 28, June 29,
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income applicable to common shares $1,969,304 $2,029,585 $1,879,636 $1,920,794
========== ========== ========== ==========
Weighted average common shares
outstanding for the period 7,633,859 7,625,000 7,633,789 7,625,000
Dilutive effect of exercise of stock
options -- -- -- --
---------- ---------- ---------- ----------
Weighted average common shares, assuming
issuance of the above securities 7,633,859 7,625,000 7,633,789 7,625,000
========== ========== ========== ==========
Earnings per common share:
Primary $ 0.26 $ 0.27 $ 0.25 $ 0.25
Fully diluted $ 0.26 $ 0.27 $ 0.25 $ 0.25
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-03-1998
<PERIOD-START> DEC-28-1997
<PERIOD-END> JUN-28-1997
<CASH> 154
<SECURITIES> 0
<RECEIVABLES> 76
<ALLOWANCES> 0
<INVENTORY> 46,633
<CURRENT-ASSETS> 48,123
<PP&E> 49,671
<DEPRECIATION> 11,807
<TOTAL-ASSETS> 86,236
<CURRENT-LIABILITIES> 26,439
<BONDS> 19,137
<COMMON> 22,955
0
0
<OTHER-SE> 16,192
<TOTAL-LIABILITY-AND-EQUITY> 86,236
<SALES> 106,509
<TOTAL-REVENUES> 106,509
<CGS> 77,464
<TOTAL-COSTS> 25,049
<OTHER-EXPENSES> (322)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,148
<INCOME-PRETAX> 3,170
<INCOME-TAX> 1,290
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,880
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
