<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 April 4, 1998
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 April 4, 1998
- ------------------------------------ ----------------------------
Common Stock, no par value 7,633,859
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DIY HOME WAREHOUSE, INC.
<TABLE>
<CAPTION>
INDEX PAGE NO.
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PART I FINANCIAL INFORMATION
<S> <C>
Item 1. Financial Statements
Condensed Balance Sheet -
April 4, 1998 and
January 3, 1998..................................................... 3
Condensed Statement of Income -
Three Months Ended April 4, 1998
and March 29, 1997.................................................. 4
Condensed Statement of Shareholders'
Equity - Three Months Ended
April 4, 1998....................................................... 5
Condensed Statement of Cash Flows -
Three Months Ended April 4, 1998
and March 29, 1997.................................................. 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
DIY HOME WAREHOUSE, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
April 4, 1998 January 3, 1998
------------- ---------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 492,724 $ 141,401
Accounts receivable, trade 75,063 100,389
Refundable federal income taxes -- 365,963
Merchandise inventories 44,039,057 40,156,756
Deferred income taxes 278,565 278,565
Prepaid expenses and other assets 749,686 745,961
----------- -----------
Total current assets 45,635,095 41,789,035
----------- -----------
Property and equipment, at cost 53,322,465 52,326,680
Less accumulated depreciation and amortization 14,327,199 13,381,396
----------- -----------
Property and equipment, net 38,995,266 38,945,284
Other assets 448,257 474,888
----------- -----------
Total assets $85,078,618 $81,209,207
=========== ===========
Liabilities and Shareholders' Equity
Current liabilities:
Note payable, affiliate $ 600,000 $ 600,000
Current maturities of long-term debt 967,178 946,183
Accounts payable 13,114,990 10,615,039
Accrued expenses and other 4,553,529 5,776,915
----------- -----------
Total current liabilities 19,235,697 17,938,137
----------- -----------
Revolving credit 10,000,000 6,375,000
Long-term debt 13,952,482 14,208,586
Deferred income taxes 2,547,927 2,547,927
Shareholders' equity:
Preferred stock, authorized 1,000,000 shares,
none issued -- --
Common stock, no par value, authorized
10,000,000 shares, 7,633,859 shares
outstanding as of April 4, 1998
and January 3, 1998 22,955,462 22,955,462
Retained earnings 16,387,050 17,184,095
----------- -----------
Total shareholders' equity 39,342,512 40,139,557
----------- -----------
Total liabilities and shareholders' equity $85,078,618 $81,209,207
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
3
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DIY HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
April 4, March 29,
1998 1997
------------ ------------
<S> <C> <C>
Net sales $ 37,412,172 $ 39,652,011
Cost of sales 26,727,920 27,990,581
------------ ------------
Gross profit 10,684,252 11,661,430
Store operating, general and
administrative expenses 11,271,427 11,501,540
Store development costs 205,773 --
------------ ------------
Operating income (loss) (792,948) 159,890
Other expense, net (557,979) (311,782)
------------ ------------
Loss before income taxes (1,350,927) (151,892)
Income tax benefit (553,882) (62,276)
------------ ------------
Net loss $ (797,045) $ (89,616)
============ ============
Earnings (loss) per common share, basic
and diluted $ (0.10) $ (0.01)
============ ============
Weighted average
common shares
outstanding 7,633,859 7,633,719
============ ============
</TABLE>
See accompanying notes to condensed financial statements.
4
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DIY HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED APRIL 4, 1998
(Unaudited)
<TABLE>
<CAPTION>
Total
Retained Shareholders'
Shares Amount Earnings Equity
--------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Balances at January 3, 1998 7,633,859 $22,955,462 $17,184,095 $40,139,557
Net loss (797,045) (797,045)
--------- ----------- ----------- -----------
Balances, April 4, 1998 7,633,859 $22,955,462 $16,387,050 $39,342,512
========= =========== =========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
5
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DIY HOME WAREHOUSE, INC.
CONDENSED STATEMENT OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the three months ended
April 4, 1998 March 29, 1997
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (797,045) $ (89,616)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 953,741 837,489
Shares issued under Retainer Stock Plan -- 13,457
Loss (gain) on sale of property and equipment 2,752 (225,000)
Changes in operating assets and liabilities:
Accounts receivable, trade 25,326 (51,996)
Refundable federal income taxes 365,963 248,688
Merchandise inventories (3,882,301) (11,224,050)
Prepaid expenses and other assets 22,906 (721,920)
Accounts payable 2,499,951 5,971,373
Accrued expenses and other current liabilities (1,223,386) (452,718)
----------- ------------
Net cash used in operating activities (2,032,093) (5,694,293)
----------- ------------
Cash flows from investing activities:
Acquisition of property and equipment (1,006,475) (371,464)
Proceeds from sale of property -- 806,146
----------- ------------
Net cash (used in) provided by investing
activities (1,006,475) 434,682
----------- ------------
Cash flows from financing activities:
Principal payments under capital lease
obligations (43,699) (34,271)
Proceeds from revolving credit 3,625,000 6,000,000
Principal payments of long-term debt (191,410) (163,685)
----------- ------------
Net cash provided by financing activities 3,389,891 5,802,044
----------- ------------
Net increase in cash and cash equivalents 351,323 542,433
Cash and cash equivalents, beginning of period 141,401 161,360
----------- ------------
Cash and cash equivalents, end of period $ 492,724 $ 703,793
=========== ============
</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
April 4, 1998 and the results of operations and cash flows for the three months
ended April 4, 1998 and March 29, 1997. 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. Basic and fully diluted
earnings per common share are identical.
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATIONS - Three Months Ended April 4, 1998
Compared to Three Months Ended March 29, 1997
Net sales for the quarter ended April 4, 1998 were $37,412,000 compared
to $39,652,000 for the quarter ended March 29, 1997. Comparable store sales for
the quarter decreased 6% resulting from additional national warehouse
competition which moved into the Company's markets.
Gross profit decreased by $977,000, or 8%, from $11,661,000 in the
first quarter of fiscal 1997 to $10,684,000 in the first quarter of fiscal 1998.
Gross profit, as a percentage of net sales, was 28.6% in the first quarter of
fiscal 1998 compared to 29.4% in the first quarter of fiscal 1997. This decrease
in gross profit percentage is due to a decrease in vendor rebates and discounts
resulting from decreased inventory purchases in the first quarter of fiscal 1998
compared to the comparable quarter of fiscal 1997. During the first quarter of
fiscal 1998, the Company focused on reducing inventory levels and increasing
inventory turns to improve the inventory efficiencies. As a result, inventory
purchases in the first quarter of fiscal 1998 were approximately $10,000,000
lower than purchases during the first quarter fiscal 1997.
Store operating, general and administrative expenses decreased
$231,000, or 2.0%, to $11,271,000 in the quarter ended April 4,1998 from
$11,502,000 in the quarter ended March 29, 1997. The decrease is due to the
Company's ongoing efforts to reduce operating costs. As a percentage of net
sales, operating expenses increased to 30.1% in the first quarter of fiscal 1998
compared to 29.0% in the comparable quarter of fiscal 1997 due to lower sales on
which to leverage expenses.
The Company incurred $206,000 related to store development costs in the
quarter ended April 4, 1998. During the first half of 1997, management assessed
the business strategies and opportunities of the Company to differentiate itself
in the warehouse-format home improvement retail market. This process resulted in
development of new merchandising, marketing and other strategic initiatives to
strengthen the Company's market position.
Other expense, net, was $558,000 for the quarter ended April 4, 1998
compared to $312,000 for the quarter ended March 29,1997. The net increase is
primarily due to a $219,000 gain on the sale of a parcel of property in the
first quarter of 1997.
8
<PAGE> 9
OPERATIONS - Three Months Ended April 4, 1998
Compared to Three Months Ended March 29, 1997
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended April 4, 1998 and March 29, 1997,
operating activities used net cash of approximately $2,032,000 and $5,694,000,
respectively. The primary use of cash from operating activities for the three
months ended April 4, 1998 was $3,882,000 to fund seasonal increases in
inventories compared to $11,224,000 for the comparable period of fiscal 1997,
offset by an increase of $2,500,000 and $5,971,000, respectively, in accounts
payable. The Company continued to focus on enhancing its balance sheet in the
first quarter of fiscal 1998 which included inventory reductions of $5,647,000
compared to the same period of fiscal 1997.
Net cash used in investing activities was $1,006,000 for the three
months ended April 4, 1998 due to store development capital expenditures
associated with the comprehensive renovation of certain store locations. Net
cash provided by investing activities was $435,000 for the three months ended
March 29, 1997 due to net proceeds of $806,000 from the sale of a parcel of
property offset by cash used of $371,000 for the acquisition of property and
equipment.
Net cash provided by financing activities decreased by $2,412,000 to
$3,390,000 for the three months ended April 4, 1998 from $5,802,000 for the
comparable period in fiscal 1997. The decrease is due to a reduction in the net
borrowings under the revolving credit facility as a result of lower inventory
purchases.
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.
FORWARD-LOOKING STATEMENTS
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
9
<PAGE> 10
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.
Competition
The home improvement, hardware and garden businesses are all highly
competitive. The Company competes against traditional hardware, plumbing,
electrical and home supply retailers, as well as warehouse-format and discount
retail stores and many of the Company's competitors have substantially greater
resources than the Company. Builders Square and Lowe's Company have had stores
in the Company's markets since 1985 and 1994, respectively. Lowe's continued to
expand with additional locations in 1996 and 1997. In the fourth quarter of
1997, Home Depot began operations in several of the Company's markets. Home
Depot continued to expand in the first quarter of 1998 and has announced further
expansion plans in 1998. Lowe's has announced further expansion plans in 1998.
In addition, there has been increasing consolidation within the home improvement
industry, which may provide certain entities increased competitive advantages.
Specifically, increased competition including, but not limited to, additional
competitors' store locations, price reductions, and advertising and marketing
campaigns could have a material adverse effect on the Company's business,
recoverability of asset values, financial condition and operating results.
Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four digits to define the applicable year. Any of
the Company's computer programs that have date-sensitive software may recognize
a date using "00" as the year 1900 rather than the year 2000. This could result
in a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions or
engage in similar normal business activities. The Company has assessed the Year
2000 Issue with regard to its internal financial and operational systems as well
as its external financial vendors and determined that the costs to complete the
related compliance will not materially affect future financial results. The
Company anticipates its Year 2000 Issues to be completed and tested by the end
of fiscal year 1998.
10
<PAGE> 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits:
A list of the exhibits required by Item 601 of Regulation S-K to
be filed as a part of this Form 10-Q is shown on the "Exhibit
Index" filed herewith.
(b) Reports on Form 8-K:
None
Signature
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
D.I.Y. HOME WAREHOUSE, INC.
(Registrant)
DATED: May 15, 1998
By: Marilyn A. Eisele
-------------------------------------
Vice President - Administration
and Finance, Chief Financial Officer
11
<PAGE> 12
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- -----------------------
11 Earnings Per Share:
-------------------
11.1 Computation of Earnings Per Common Share
27 Financial Data Schedule:
------------------------
27.1 Financial Data Schedule for the quarter ended
April 4, 1998
12
<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
April 4, 1998 March 29, 1999
------------- --------------
(Unaudited)
-----------
<S> <C> <C>
Loss applicable to common shares $ (797,045) $ (89,616)
=========== ===========
Weighted average common shares
outstanding for the period 7,633,859 7,633,719
Dilutive effect of exercise of stock
options -- --
----------- -----------
Weighted average common shares,
assuming issuance of the above
securities 7,633,859 7,633,719
=========== ===========
Earnings per common share:
Basic $ (0.10) $ (0.01)
Diluted $ (0.10) $ (0.01)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-02-1999
<PERIOD-START> JAN-04-1998
<PERIOD-END> APR-04-1998
<CASH> 493
<SECURITIES> 0
<RECEIVABLES> 75
<ALLOWANCES> 0
<INVENTORY> 44,039
<CURRENT-ASSETS> 45,635
<PP&E> 53,322
<DEPRECIATION> 14,327
<TOTAL-ASSETS> 85,079
<CURRENT-LIABILITIES> 19,236
<BONDS> 25,520
0
0
<COMMON> 22,955
<OTHER-SE> 16,387
<TOTAL-LIABILITY-AND-EQUITY> 85,079
<SALES> 37,412
<TOTAL-REVENUES> 37,412
<CGS> 26,728
<TOTAL-COSTS> 11,477
<OTHER-EXPENSES> (16)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 574
<INCOME-PRETAX> (1,351)
<INCOME-TAX> (554)
<INCOME-CONTINUING> (797)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (797)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
