<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 3, 1999
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 3, 1999
- -------------------------- ----------------------------
Common Stock, no par value 7,276,059
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DIY HOME WAREHOUSE, INC.
<TABLE>
<CAPTION>
INDEX PAGE NO.
----- --------
<S> <C>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Balance Sheet -
April 3, 1999 and January 2, 1999.............................................. 3
Condensed Statement of Income -
Three Months Ended April 3, 1999 and April 4, 1998............................. 4
Condensed Statement of Shareholders'
Equity - Three Months Ended April 3, 1999...................................... 5
Condensed Statement of Cash Flows -
Three Months Ended April 3, 1999 and April 4, 1998............................. 6
Notes to Condensed Financial Statements........................................ 7
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations............................... 8 - 11
PART II OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K............................................... 12 - 13
</TABLE>
2
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PART I - FINANCIAL INFORMATION
DIY HOME WAREHOUSE, INC.
CONDENSED BALANCE SHEET
<TABLE>
<CAPTION>
April 3, 1999 January 2, 1999
------------- ---------------
Assets (Unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 514,731 $ 128,149
Refundable federal income taxes 706,545 706,545
Merchandise inventories 39,041,030 31,261,721
Deferred income taxes 1,542,590 1,542,590
Prepaid expenses and other assets 859,974 780,086
------------ ------------
Total current assets 42,664,870 34,419,091
------------ ------------
Property and equipment, at cost 53,903,946 53,750,759
Less accumulated depreciation and amortization 18,762,752 17,878,455
------------ ------------
Property and equipment, net 35,141,194 35,872,304
Other assets 359,637 385,910
------------ ------------
Total assets $ 78,165,701 $ 70,677,305
============ ============
Liabilities and Shareholders' Equity
Current liabilities:
Note payable, affiliate $ 300,000 $ 300,000
Current maturities of long-term debt 1,319,350 1,288,330
Accounts payable 13,119,357 8,462,635
Accrued expenses and other 4,129,541 5,527,386
------------ ------------
Total current liabilities 18,868,248 15,578,351
------------ ------------
Revolving credit 15,501,562 10,134,153
Long-term debt 4,002,962 4,438,867
Deferred income taxes 2,887,269 2,887,269
------------ ------------
Total liabilities 41,260,041 33,038,640
Shareholders' equity:
Preferred stock, authorized 1,000,000 shares,
none issued -- --
Common stock, no par value, authorized
10,000,000 shares, 7,276,059 shares
outstanding as of April 3, 1999 and
January 2, 1999 22,955,462 22,955,462
Retained earnings 14,151,639 14,884,644
------------ ------------
37,107,101 37,840,106
Less common stock in treasury, at cost:
357,800 shares (201,441) (201,441)
------------ ------------
Total shareholders' equity 36,905,660 37,638,665
------------ ------------
Total liabilities and shareholders' equity $ 78,165,701 $ 70,677,305
============ ============
</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 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Net sales $ 29,162,507 $ 37,412,172
Cost of sales 20,752,216 26,727,920
------------ ------------
Gross profit 8,410,291 10,684,252
Store operating, general and administrative
expenses 9,060,924 11,271,427
Store closing and development costs 259,656 205,773
------------ ------------
Operating loss (910,289) (792,948)
Other expense, net (332,080) (557,979)
------------ ------------
Loss before income taxes (1,242,369) (1,350,927)
Income tax benefit (509,364) (553,882)
------------ ------------
Net loss $ (733,005) $ (797,045)
============ ============
Earnings (loss) per common share,
basic and diluted $ (0.10) $ (0.10)
============ ============
Weighted average common shares
outstanding 7,276,059 7,633,859
============ ============
</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 3, 1999
(Unaudited)
<TABLE>
<CAPTION>
Common Stock Retained Treasury Shareholders'
Shares Amount Earnings Stock Equity
------ ------ -------- ----- ------
<S> <C> <C> <C> <C> <C>
Balances, January 2, 1999 7,276,059 $22,955,462 $14,884,644 $(201,441) $37,638,665
Net loss (733,005) (733,005)
--------- ----------- ----------- --------- -----------
Balances, April 3, 1999 7,276,059 $22,955,462 $14,151,639 $(201,441) $36,905,660
========= =========== =========== ========== ===========
</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 3, 1999 April 4, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (733,005) $ (797,045)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization 884,297 953,741
Loss (gain) on sale of property and equipment -- 2,752
Changes in operating assets and liabilities:
Refundable federal income taxes -- 365,963
Merchandise inventories (7,779,309) (3,882,301)
Prepaid expenses and other assets (53,615) 48,232
Accounts payable 4,656,722 2,499,951
Accrued expenses and other current liabilities (1,397,845) (1,223,386)
----------- -----------
Net cash (used in) operating activities (4,422,755) (2,032,093)
----------- -----------
Cash flows from investing activities:
Acquisition of property and equipment (153,187) (1,006,475)
----------- -----------
Net cash (used in) provided by investing
activities (153,187) (1,006,475)
----------- -----------
Cash flows from financing activities:
Principal payments under capital lease
obligations (45,421) (43,699)
Proceeds from revolving credit 5,367,409 3,625,000
Principal payments of long-term debt (359,464) (191,410)
----------- -----------
Net cash provided by financing activities 4,962,524 3,389,891
----------- -----------
Net increase in cash and cash equivalents 386,712 351,323
Cash and cash equivalents, beginning of period 128,149 141,401
----------- -----------
Cash and cash equivalents, end of period $ 514,731 $ 492,724
=========== ===========
</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 3, 1999 and the results of operations and cash flows for the three months
ended April 3, 1999 and April 4, 1998 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.
COMPUTATION OF EARNINGS PER COMMON SHARE
(BASIC AND DILUTED)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended
April 3, 1999 April 4, 1998
----------- -----------
(Unaudited)
<S> <C> <C>
Net loss applicable to common
shares $ (733,005) $ (797,045)
=========== ===========
Weighted average common shares
outstanding for the period 7,276,059 7,633,859
Dilutive effect of exercise of
stock options -- --
----------- -----------
Weighted average common shares,
assuming issuance of the above
securities 7,276,059 7,633,859
=========== ===========
Earnings (loss) per common share:
Basic $ (0.10) $ (0.10)
Diluted $ (0.10) $ (0.10)
</TABLE>
7
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OPERATIONS - Three Months Ended April 3, 1999
Compared to Three Months Ended April 4, 1998
Net sales for the quarter ended April 3, 1999 were $29,163,000 compared
to $37,412,000 for the quarter ended April 4, 1998. Excluding the closing of the
Company's two stores in the fourth quarter of 1998, comparable store sales for
the quarter decreased $5,843,000 or 17.1% resulting from additional national
warehouse competition in the Company's markets.
Gross profit decreased by $2,274,000, or 21.3%, from $10,684,000 in the
first quarter of fiscal 1998 to $8,410,000 in the first quarter of fiscal 1999.
Gross profit, as a percentage of net sales, was 28.8% in the first quarter of
fiscal 1999 compared to 28.6% in the first quarter of fiscal 1998.
Store operating, general and administrative expenses decreased
$2,210,000, or 19.6%, to $9,061,000 in the quarter ended April 3, 1999 from
$11,271,000 in the quarter ended April 4, 1998. The decrease is due to the
Company's ongoing efforts to reduce operating costs. As a percentage of net
sales, these expenses increased slightly to 31.1% in the first quarter of fiscal
1999 compared to 30.1% in the comparable quarter of fiscal 1998 due to lower
sales on which to leverage expenses.
During the first quarter of fiscal 1999, the Company incurred
approximately $260,000 in operating costs related to the two stores closed in
the fourth quarter of fiscal 1998.
During the first quarter of fiscal 1998, the Company incurred $206,000
in store development costs as part of completing new merchandising, marketing
and other strategic initiatives implemented in fiscal year 1997.
Other expense, net, was $332,000 for the quarter ended April 3, 1999
compared to $558,000 for the quarter ended April 4,1998. The net decrease is
primarily due to a net reduction in interest expense of $182,000.
LIQUIDITY AND CAPITAL RESOURCES
During the three months ended April 3, 1999 and April 4, 1998,
operating activities used net cash of approximately $4,423,000 and $2,032,000,
respectively. The primary use of cash from operating activities for the three
months ended April 3, 1999 and April 4, 1998 was $7,779,000 and $3,882,000 to
fund seasonal increases in inventories offset by an increase in accounts payable
of $4,657,000 and $2,500,000, respectively. The Company continues to focus on
its balance sheet. Inventories were reduced by $4,998,000 in the first quarter
of fiscal 1999 compared to the comparable quarter of fiscal 1998 primarily due
to the closing of its two stores.
8
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Net cash used in investing activities was $153,000 for the three months
ended April 3, 1999 for the acquisition of computer hardware and software
compared to $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 financing activities was $4,963,000 and $3,390,000
for the three months ended April 3, 1999 and April 4, 1998, respectively,
reflecting net borrowings primarily under the revolving credit facility to fund
seasonal increases in inventories.
Total current and long-term debt was $21,124,000 at April 3, 1999
compared to $25,520,000 at April 4, 1998. 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 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. However, Builders
Square announced in the first quarter of 1999 that it will exit the marketplace
in Northeastern Ohio. Lowe's continued to expand with additional locations in
1996, 1997 and 1998. Beginning in the fourth quarter of 1997 and in 1998, Home
Depot began operations in several of the Company's markets. Home Depot and
Lowe's have announced further expansion plans in 1999 and 2000. In addition,
there has been increasing consolidation within the home improvement
9
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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
BACKGROUND. Some computers, software, and other equipment include
programming code in which calendar year data is abbreviated to only two digits.
As a result of this design decision, some of these systems could fail to operate
or fail to produce correct results if "00" is interpreted to mean 1900, rather
than 2000. These problems are widely expected to increase in frequency and
severity as the year 2000 approaches, and are commonly referred to as the
"Millennium Bug" or "Year 2000 Problem."
ASSESSMENT. The Company has reviewed its internal computer programs and
systems to ensure that the programs and systems will be Year 2000 compliant. The
Company presently believes that its computer systems will be Year 2000 compliant
in a timely manner. The Company has incurred approximately $300,000 and does not
expect to incur additional material costs to complete these efforts.
INTERNAL INFRASTRUCTURE. The Company believes that it has identified
substantially all of the major computers, software applications, and related
equipment used in connection with its internal operations that must be modified,
upgraded, or replaced to minimize the possibility of a material disruption to
its business. The Company has commenced the process of modifying, upgrading, and
replacing those systems that have been identified as affected, and expects to
complete this process by the middle of the third quarter of fiscal 1999.
SYSTEMS OTHER THAN INFORMATION TECHNOLOGY SYSTEMS. In addition to
computers and related systems, the operation of office and facilities equipment,
such as fax machines, photocopiers, telephone switches, security systems, and
other common devices may be affected by the Year 2000 Problem. The Company is
currently assessing the potential effect of, and costs of remediating, the Year
2000 Problem on its office and facilities equipment.
The Company does not expect to incur any material costs to complete
these efforts. Such costs are included in the estimate discussed above under
"Assessments."
SUPPLIERS. The Company has initiated communications with third party
suppliers of the major computers, software, and other equipment used, operated,
or maintained by the Company to identify and, to the extent possible, to resolve
issues involving the Year 2000 Problem. However, the Company has limited or no
control over the actions of these third party suppliers. Thus, while the Company
expects that it will be able to resolve any significant Year 2000 Problems with
these systems, there can be no assurance that these suppliers will resolve any
or all Year 2000 Problems with these systems before the occurrence of a material
disruption to the business of the Company or any of its customers. Any failure
of these third parties to resolve
10
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Year 2000 problems with their systems in a timely manner could have a material
adverse effect on the Company's business, financial condition, and results of
operation.
Based on the progress the Company has made in addressing its Year 2000
issues and the Company's plan and timeline to complete its compliance program,
the Company does not foresee significant risks associated with its Year 2000
compliance at this time. As the Company's plan is to address its significant
Year 2000 issues prior to being affected by them, it has not developed a
comprehensive contingency plan. The Company expects to be complete its Year 2000
compliance testing by the middle of the Company's 1999 third quarter. At that
time, the Company will assess the need for a contingency plans as deemed
necessary.
11
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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: May 13, 1999
------------
By: Eric I. Glassman
--------------------------------------
Vice President-Chief Financial Officer
12
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EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------ ----------------------
27 Financial Data Schedule:
------------------------
27.1 Financial Data Schedule for the quarter ended April 3, 1999
13
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-01-2000
<PERIOD-START> JAN-03-1999
<PERIOD-END> APR-03-1999
<CASH> 515
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 39,041
<CURRENT-ASSETS> 42,665
<PP&E> 53,904
<DEPRECIATION> 18,763
<TOTAL-ASSETS> 78,166
<CURRENT-LIABILITIES> 18,868
<BONDS> 19,505
0
0
<COMMON> 22,754
<OTHER-SE> 14,152
<TOTAL-LIABILITY-AND-EQUITY> 78,166
<SALES> 29,163
<TOTAL-REVENUES> 29,163
<CGS> 20,752
<TOTAL-COSTS> 9,321
<OTHER-EXPENSES> (60)
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 392
<INCOME-PRETAX> (1,242)
<INCOME-TAX> (509)
<INCOME-CONTINUING> (733)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (733)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
