<PAGE>
===============================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended July 31, 1996.
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 0-21448
NATIONAL HOME CENTERS, INC.
(Exact name of registrant as specified in its charter)
ARKANSAS 71-0403343
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
HIGHWAY 265 NORTH
SPRINGDALE, ARKANSAS 72765
(Address of principal executive offices, including zip code)
(501) 756-1700
(Registrant's telephone number, including area code)
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 report(s), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
--------- ----------
As of September 9, 1996 National Home Centers, Inc. has 7,142,251 shares of
$0.01 par value Common Stock outstanding.
===============================================================================
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM I - FINANCIAL STATEMENTS
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
==========================================================================
JULY 31, JANUARY 31,
1996 1996
ASSETS (Unaudited) (1)
- --------------------------------------------------------------------------
<S> <C> <C>
Current Assets:
Cash $ 132,345 130,051
Accounts Receivable 14,880,481 11,511,501
Income Tax Refunds Receivable 74,780 1,110,326
Inventories 33,510,182 31,327,877
Other 1,399,114 1,554,135
- --------------------------------------------------------------------------
Total Current Assets 49,996,902 45,633,890
- --------------------------------------------------------------------------
Property, Plant and Equipment 50,736,451 50,254,178
Less Accumulated Depreciation 11,930,279 10,555,500
- --------------------------------------------------------------------------
Net Property, Plant and Equipment 38,806,172 39,698,678
- --------------------------------------------------------------------------
Other Assets, Net of Amortization 2,024,112 1,428,149
- --------------------------------------------------------------------------
$90,827,186 86,760,717
==========================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------
Current Liabilities:
Current Installments of Long-Term
Debt $ 6,623,418 8,373,612
Trade Accounts Payable 17,035,287 15,842,415
Accrued Expenses and Other 3,645,956 2,959,016
- --------------------------------------------------------------------------
Total Current Liabilities 27,304,661 27,175,043
- --------------------------------------------------------------------------
Long-Term Debt, Excluding Current
Installments 34,929,685 30,807,723
Deferred Income Taxes 546,312 510,248
Stockholders' Equity 28,046,528 28,267,703
- --------------------------------------------------------------------------
$90,827,186 86,760,717
==========================================================================
</TABLE>
(1) January 31, 1996 balances are condensed from the audited consolidated
balance sheet.
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
JULY 31, JULY 31,
---------------------------------------------------
(Unaudited) 1996 1995 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET SALES $51,986,866 41,539,527 94,510,358 77,759,596
COST OF SALES 39,303,228 31,061,174 71,517,258 58,031,335
- --------------------------------------------------------------------------------
GROSS PROFIT 12,683,638 10,478,353 22,993,100 19,728,261
- --------------------------------------------------------------------------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
Salaries and Benefits 7,300,449 6,096,781 13,736,148 11,826,593
Rent 596,449 589,345 1,192,803 1,230,998
Depreciation and
Amortization 834,481 677,340 1,644,829 1,340,460
Other 2,671,527 2,243,527 5,030,705 4,490,729
- --------------------------------------------------------------------------------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE
EXPENSES 11,402,906 9,606,993 21,604,485 18,888,780
- --------------------------------------------------------------------------------
OPERATING INCOME 1,280,732 871,360 1,388,615 839,481
Interest Expense, Net of
Amounts Capitalized 893,410 654,665 1,721,243 1,263,543
- --------------------------------------------------------------------------------
Earnings (Loss) Before
Income Taxes 387,322 21,6695 (332,628) (424,062)
Income Taxes 154,929 86,678 (111,453) (169,625)
- --------------------------------------------------------------------------------
NET EARNINGS (LOSS) $ 232,393 130,017 (221,175) (254,437)
================================================================================
EARNINGS (LOSS) PER SHARE $ 0.03 0.02 (0.03) (0.04)
================================================================================
Weighted Average Number of
Common Shares Outstanding 7,142,251 7,142,251 7,142,251 7,142,251
================================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
===============================================================
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JULY 31,
-----------------------
(Unaudited) 1996 1995
- -------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (221,175) (254,437)
Adjustments to Reconcile Net Loss to
Net Cash Provided by (Used in)
Operating Activities:
Depreciation and Amortization 1,644,829 1,340,460
Gain on Disposal of Property,
Plant and Equipment (88,016) (23,611)
Deferred Income Tax Benefit (42,866) (17,729)
Changes in Assets and
Liabilities:
Accounts Receivable (3,368,980) (1,110,873)
Inventories (2,182,305) 2,440,113
Other Current Assets 1,269,497 (56,836)
Accounts Payable 1,192,872 4,364,054
Other Current Liabilities 686,940 (196,966)
- -------------------------------------------------------------------
Net Cash Provided by (Used
in) Operating Activities (1,109,204) 6,484,175
- -------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and
Equipment (668,308) (9,689,961)
Proceeds from Sale of Property,
Plant and Equipment 138,400 32,823
Increase in Other Assets (321,576) (228,207)
- -------------------------------------------------------------------
Net Cash Used in Investing
Activities (851,484) (9,885,345)
- -------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-Term Debt 5,942,787 4,683,944
Repayments of Long-Term Debt (3,979,805) (1,322,654)
- -------------------------------------------------------------------
Net Cash Provided by
Financing Activities 1,962,982 3,361,290
- -------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH 2,294 (39,880)
Cash at Beginning of Period 130,051 176,795
- -------------------------------------------------------------------
Cash at End of Period $ 132,345 136,915
===================================================================
SUPPLEMENTAL DISCLOSURES:
Interest Paid (Net of Amounts
Capitalized) $ 1,559,194 1,231,893
Acquisition of Other Assets for
Notes Payable 408,786 -
===================================================================
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
JULY 31, 1996
1. Basis of Presentation
---------------------
The accompanying unaudited condensed consolidated financial statements have
been prepared in accordance with generally accepted accounting principles
for interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities and Exchange Commission.
Accordingly, the financial statements do not include all of the information
and notes required by generally accepted accounting principles for complete
financial statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Results of operations for the three months
and six months ended July 31, 1996, are not necessarily indicative of the
results to be expected for the year ending January 31, 1997. For further
information, refer to the consolidated financial statements and related
notes thereto included in the Company's Annual Report on Form 10-K
--------------------------
filed with the Commission on April 29, 1996.
2. Income Taxes
------------
Income taxes for the three months and six months ended July 31, 1996 and
1995, do not bear a normal relationship to the statutory federal income tax
rate of 34%, primarily because of state income taxes.
ITEM 2
- ------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
--------------------------------------------------
OPERATIONS AND FINANCIAL CONDITION
----------------------------------
GENERAL
-------
National Home Centers, Inc. is a full line retailer of home improvement products
and building materials. The Company believes it is unique in its ability to
serve both retail consumers and professional contractors by operating large home
center superstores in tandem with complete building supply operations.
Quarterly results of operations may fluctuate significantly depending on the
timing of new store openings and related preopening expenses. New store
openings are likely to have a relatively greater impact on operating results due
to the Company's small base of existing stores. New stores have shown to be
unprofitable during their first few years of operation. Additionally, because
the Company amortizes store opening costs over the twelve-month period following
the date of opening, such openings can be expected to affect operating results.
No new stores were opened in the first six months of fiscal 1996.
5
<PAGE>
Over the last year, the Company has experienced increased competition in its
markets from other national and/or regional chains who are seeking to gain or
retain market share by reducing prices. This has continued to place pressure on
all of the Company's stores and their respective sales, gross margins and
operating income. The increased competition may continually and adversely
affect the Company's earnings. There can be no assurance that other larger
national or regional chains will not enter the Company's present or planned
markets which could possibly have an adverse effect on the Company. The Company
has become aware of planned openings of at least one store in Little Rock,
Arkansas by The Home Depot, Inc. and by Lowes Companies, Inc., in both Conway
and Russellville, Arkansas. These stores are expected to open in the fall of
1996 and could adversely effect the Company's sales levels in these markets.
RESULTS OF OPERATIONS
---------------------
Three Months Ended July 31, 1996 and 1995
- -----------------------------------------
Net sales for the second quarter of fiscal 1996 were up 25.2% to $52.0 million,
compared to $41.5 million for the second quarter of fiscal 1995. Comparable
store sales in the second quarter of fiscal 1996 were up 10.4% over the same
period of fiscal 1995. Increased competition has affected sales volume and
pricing.
Gross profit as a percentage of net sales for the second quarter of fiscal 1996
decreased to 24.4 % from 25.2% for the same period last year. Increased
competition and promotional pricing led to the decrease in gross margin.
Selling, general and administrative expenses decreased to 21.9% of net sales for
the first quarter of fiscal 1996 compared to 23.1% of net sales for the same
period last year. An emphasis was placed on reducing expenses, which have been
higher than normal due to the opening of four new superstores over the past
three years.
Net interest expense as a percentage of net sales was 1.7% for the quarter ended
July 31, 1996, compared to 1.6% for the same period last year, primarily due to
increased borrowings and higher interest rates. There was no interest
capitalized in the second quarter of 1996 compared to approximately $106,000 in
the second quarter of 1995.
Six Months Ended July 31, 1996 and 1995
- ---------------------------------------
Net sales for the six months ended July 31, 1996 were up 21.5% to $94.5 million,
compared to $77.8 million for the same period of fiscal 1995. Comparable store
sales for the six months ended July 31, 1996 were up 7.1% over the same period
of fiscal 1995. Increased competition has affected sales volume and pricing.
Gross profit as a percentage of net sales for the first six months of fiscal
1996 decreased to 24.3% from 25.4% for the same period last year. Increased
competition and promotional pricing led to the decrease in gross margin.
Selling, general and administrative expenses decreased to 22.9% of net sales for
the first six months of fiscal 1996 compared to 24.3% of net sales for the same
period last year. An emphasis was placed on reducing expenses, which have been
higher than normal due to the opening of four new superstores over the past
three years.
6
<PAGE>
Net interest expense as a percentage of net sales was 1.8% for the six months
ended July 31, 1996, compared to 1.6% for the same period last year, primarily
due to increased borrowings and higher interest rates. There was no interest
capitalized in the first six months of fiscal 1996 compared to approximately
$169,000 in the second quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital at July 31, 1996 increased to $22.7 million from
$18.5 million at January 31, 1996. This increase is primarily due to increases
in accounts receivable and inventories, which were partially offset by an
increase in accounts payable, as well as a decrease in current installments of
long-term debt principally due to the refinancing and related reclassification
of a real estate construction note in the second quarter.
The Company's primary capital needs are to finance inventories, accounts
receivable and store expansion. During the six months ended July 31, 1996,
operating activities used net cash of $1.1 million. Primary sources of cash
from operating activities included $1.4 million from net earnings and
depreciation, $1.2 million from increases in accounts payable and $1.3 million
from decreases in other current assets resulting primarily from the collection
of income taxes receivable. The primary uses of cash were $3.4 million to
finance increases in accounts receivable and $2.2 to finance increases in
inventory.
Net cash used in investing activities for the first six months of fiscal 1996
was $0.9 million, principally due to purchases of equipment. Net cash provided
by financing activities during the first six months of fiscal 1996 totaled $2.0
million, due to net long-term borrowings.
At July 31, 1996, the Company owed a bank $26.5 million under its revolving
credit agreement, which expires in December, 1998. The agreement provides the
Company with the option of borrowing rates based on either (a) the London
Interbank Offered Rate ("LIBOR") plus 2.5%, or (b) the bank's Reference Rate,
which reflects the bank's prime rate. The facility limits availability to a
borrowing base of 85% and 60% of eligible accounts receivable and inventory,
respectively. Borrowings under the revolving credit agreement are collateralized
by the Company's accounts receivable and inventory. In addition, the agreement
requires the Company to maintain certain ratios, meet minimum levels of tangible
net worth, and limits amounts of capital expenditures. The Company was in
violation of one of these financial covenants at July 31, 1996, however the
lender has agreed to waive compliance with respect to such default. As of July
31, 1996, the Company had approximately $2.7 million of additional available
borrowing capacity under the revolving credit agreement.
The Company has financed construction of the Rogers, Arkansas home center
superstore through the revolving line of credit. The Company has received a
commitment from a lender for a $5 million real estate loan with a three year
term. If this financing is obtained, the advance rate on inventory under the
revolving credit agreement will return to the normal rate of 55%.
The Company has also obtained a three year renewal term on the construction note
for the Fayetteville, Arkansas home center. The note was classified as a
current maturity at January 31, 1996 but has been classified as long-term at
July 31, 1996.
7
<PAGE>
The auditor of the State of Arkansas has submitted proposed findings to the
Company resulting from an audit pursuant to the Arkansas Unclaimed Property Act
(the "Act"). The proposed findings, if upheld, would require the Company to pay
$92,724 to the State for unclaimed property which is more than seven (7) years
old and reserve an additional liability for $250,610 for such items which are
not yet seven (7) years old. The applicable statutes of limitations set forth
in Arkansas law have run with respect to each of those choses in action.
Recently, an Order was entered by the Honorable Annabelle Clinton Imber on
August 20, 1996, in the case of Baptist Health, et al v. Gus Wingfield, et al,
---------------------------------------------
Pulaski Chancery No. 95-5627, regarding the Act. According to the decision by
Judge Imber, Ark. Code Ann. 18-28-216 is unconstitutional and it is the
Company's position that the Act cannot be relied upon by the Auditor of the
State of Arkansas to collect from the Company on claims for which the applicable
statute of limitations has run. If any litigation is brought by the State of
Arkansas, the Company intends to defend the claim vigorously. The Company
currently has no reserve for the proposed assessment.
8
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
Not applicable.
Item 2. Changes in Securities.
Not applicable.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders.
The Company held its Annual Meeting of Stockholders on June 6, 1996.
For purposes of voting for the election of Directors and upon such
other business as may have properly come before the meeting, there
were 7,465,958 shares of outstanding Common Stock entitled to vote at
the meeting. Of those outstanding shares, 7,158,744 were represented
either in person or by proxy at the meeting. The stockholders voted on
the following items:
<TABLE>
<CAPTION>
Election of Directors:
----------------------
Name For Authority Withheld
---- --- ------------------
<S> <C> <C>
Larry C. Chumley 7,127,793 30,951
Richard D. Denison 7,129,343 29,401
Danny R. Funderburg 7,126,293 32,451
Brent A. Hanby 7,105,293 53,451
Roger A. Holman 7,127,793 30,951
Dwain A. Newman 7,128,793 29,951
David W. Truetzel 7,128,793 29,951
</TABLE>
Amend the 1993 Long-Term Tandem and Stock Incentive Plan:
---------------------------------------------------------
For Against Abstain/Non-Vote
--- ------- ----------------
6,998,441 50,561 109,742
No other matters to be voted upon were brought before the meeting.
Item 5. Other Information.
Not applicable.
Item 6. Exhibits and Reports on Form 8K.
<TABLE>
<CAPTION>
(a) Exhibits Description of Sequentially
Exhibits No. Exhibit Numbered Page
------------ --------------- ----------------
<S> <C> <C> <C>
27 Financial Data 11-12
Schedule
(b) Reports on Form 8-K.
Not applicable.
</TABLE>
9
<PAGE>
SIGNATURES
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 thereto duly authorized.
NATIONAL HOME CENTERS, INC.
Date: September 9, 1996 /s/ Dwain A. Newman
-------------------------------------
Dwain A. Newman
Chief Executive Officer and
Chairman
Date: September 9, 1996 /s/ Brent A. Hanby
-------------------------------------
Brent A. Hanby
Executive Vice President and
Chief Financial Officer
10
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS
<FISCAL-YEAR-END> JAN-31-1997 JAN-31-1997
<PERIOD-START> MAY-01-1996 FEB-01-1996
<PERIOD-END> JUL-31-1996 JUL-31-1996
<CASH> 132,345 132,345
<SECURITIES> 0 0
<RECEIVABLES> 14,880,481 14,880,481
<ALLOWANCES> 0 0
<INVENTORY> 33,510,182 33,510,182
<CURRENT-ASSETS> 49,996,902 49,996,902
<PP&E> 50,736,451 50,736,451
<DEPRECIATION> 11,930,279 11,930,279
<TOTAL-ASSETS> 90,827,186 90,827,186
<CURRENT-LIABILITIES> 27,304,661 27,304,661
<BONDS> 0 0
0 0
0 0
<COMMON> 74,660 74,660
<OTHER-SE> 27,971,868 27,971,868
<TOTAL-LIABILITY-AND-EQUITY> 90,827,186 90,827,186
<SALES> 51,986,866 94,510,358
<TOTAL-REVENUES> 51,986,866 94,510,358
<CGS> 39,303,228 71,517,258
<TOTAL-COSTS> 39,303,228 71,517,258
<OTHER-EXPENSES> 11,402,906 21,604,485
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 893,410 1,721,243
<INCOME-PRETAX> 387,322 (332,628)
<INCOME-TAX> 154,929 (111,453)
<INCOME-CONTINUING> 232,393 (221,175)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 232,393 (221,175)
<EPS-PRIMARY> 0.03 (0.03)
<EPS-DILUTED> 0 0
</TABLE>
