<PAGE>
=========================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
/X/ For the quarterly period ended April 30, 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 June 7, 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>
APRIL 30, JANUARY 31,
1996 1996
(Unaudited) (1)
<S> <C> <C>
ASSETS
- - ---------------------------------------------------------------------------
Current Assets:
Cash $ 131,217 130,051
Accounts Receivable 14,474,652 11,511,501
Income Tax Refunds Receivable 1,337,353 1,110,326
Inventories 33,289,598 31,327,877
Other 1,577,241 1,554,135
- - ---------------------------------------------------------------------------
Total Current Assets 50,810,061 45,633,890
- - ---------------------------------------------------------------------------
Property, Plant and Equipment 50,474,685 50,254,178
Less Accumulated Depreciation 11,290,048 10,555,500
- - ---------------------------------------------------------------------------
Net Property, Plant and Equipment 39,184,637 39,698,678
- - ---------------------------------------------------------------------------
Other Assets, Net of Amortization 1,697,483 1,428,149
- - ---------------------------------------------------------------------------
$91,692,181 86,760,717
- - ---------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- - ---------------------------------------------------------------------------
Current Liabilities:
Current Installments of Long-Term Debt $ 7,674,849 8,373,612
Trade Accounts Payable 17,544,389 15,842,415
Accrued Expenses and Other 3,432,614 2,959,016
- - ---------------------------------------------------------------------------
Total Current Liabilities 28,651,852 27,175,043
- - ---------------------------------------------------------------------------
Long-Term Debt, Excluding Current Installments 34,723,255 30,807,723
Deferred Income Taxes 502,939 510,248
Stockholders' Equity 27,814,135 28,267,703
- - ---------------------------------------------------------------------------
$91,692,181 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
APRIL 30,
- - --------------------------------------------------------------------
(Unaudited) 1996 1995
- - --------------------------------------------------------------------
<S> <C> <C>
NET SALES $42,523,492 $36,220,069
COST OF SALES 32,214,030 26,970,161
- - --------------------------------------------------------------------
GROSS PROFIT 10,309,462 9,249,908
- - --------------------------------------------------------------------
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES:
- - --------------------------------------------------------------------
Salaries and Benefits 6,435,699 5,729,812
Rent 596,354 641,654
Depreciation and Amortization 810,348 663,120
Other 2,359,178 2,247,201
- - --------------------------------------------------------------------
TOTAL SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 10,201,579 9,281,787
- - --------------------------------------------------------------------
OPERATING INCOME (LOSS) 107,883 (31,879)
Interest Expense, Net of Amounts Capitalized 827,833 608,878
- - --------------------------------------------------------------------
Loss Before Income Taxes (719,950) (640,757)
Income Taxes (266,382) (256,303)
- - --------------------------------------------------------------------
NET LOSS $ (453,568) $ (384,454)
- - --------------------------------------------------------------------
LOSS PER SHARE $(0.06) $(0.05)
- - --------------------------------------------------------------------
Weighted Average Number of
Common Shares Outstanding 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>
THREE MONTHS ENDED
APRIL 30,
- - ------------------------------------------------------------------
(Unaudited) 1996 1995
- - ------------------------------------------------------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (453,568) (384,454)
Adjustments to Reconcile Net Loss to
Net Cash
Provided by (Used in) Operating
Activities:
Depreciation and Amortization 810,348 663,120
Gain on Disposal of Property, Plant (22,556) (7,352)
and Equipment
Deferred Income Tax Expense (Benefit) (39,356) 2,509
Changes in Assets and Liabilities:
Accounts Receivable (2,963,151) (207,533)
Inventories (1,961,721) (1,599,502)
Other Current Assets (218,086) (61,093)
Accounts Payable 1,701,974 4,972,846
Other Current Liabilities 473,598 25,189
- - ------------------------------------------------------------------
Net Cash Provided by (Used in) (2,672,518) 3,403,730
Operating Activities
- - ------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to Property, Plant and (245,021) (5,120,074)
Equipment
Proceeds from Sale of Property, Plant 28,250 13,550
and Equipment
Increase in Other Assets (326,314) (267,653)
- - ------------------------------------------------------------------
Net Cash Used in Investing Activities (543,085) (5,374,177)
- - ------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from Long-Term Debt 4,921,714 2,617,047
Repayments of Long-Term Debt (1,704,945) (643,216)
- - ------------------------------------------------------------------
Net Cash Provided by Financing 3,216,769 1,973,831
Activities
- - ------------------------------------------------------------------
NET INCREASE IN CASH 1,166 3,384
Cash at Beginning of Period 130,051 176,795
- - ------------------------------------------------------------------
Cash at End of Period $ 131,217 180,179
- - ------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES:
Interest Paid (Net of Amounts $ 663,203 598,011
Capitalized)
- - ------------------------------------------------------------------
</TABLE>
SEE ACCOMPANYING NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
4
<PAGE>
NATIONAL HOME CENTERS, INC. AND SUBSIDIARY
NOTES TO CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS
APRIL 30, 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
ended April 30, 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 ended April 30, 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 quarter 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, 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 April 30, 1996 and 1995
- - ------------------------------------------
Net sales for the first quarter of fiscal 1996 were up 17.4% to $42.5 million,
compared to $36.2 million for the first quarter of fiscal 1995. Comparable
store sales in the first quarter of fiscal 1996 were up 3.3% 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 quarter of fiscal 1996
decreased to 24.2 % from 25.5% 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 24.0% of net sales for
the first quarter of fiscal 1996 compared to 25.6% of net sales for the same
period last year. A strong emphasis was placed on cutting 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 1.9% for the quarter ended
April 30, 1996, compared to 1.7% for the same period last year, primarily due to
increased borrowings and increased interest rates. There was no interest
capitalized in the first quarter of 1996 compared to approximately $55,000
interest capitalized in the first quarter of 1995.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The Company's working capital at April 30, 1996 increased to $22.2 million from
$18.5 million at January 31, 1996, due to increases in accounts receivable and
inventories.
The Company's primary capital needs are to finance inventories, accounts
receivable and store expansion. During the three months ended April 30, 1996,
operating activities used net cash of $2.7 million. Primary sources of cash
from operating activities included approximately $ .4 million from net earnings
and depreciation and approximately $1.7 million from increases in accounts
payable. The primary uses of cash were approximately $3.0 million to finance
increases in accounts receivable and $2.0 to finance increases in inventory.
6
<PAGE>
Net cash used in investing activities for the first three months of fiscal 1996
was approximately $0.5 million, principally due to purchases of equipment. Net
cash provided by financing activities during the first three months of fiscal
1996 totaled approximately $3.2 million, primarily from long-term borrowings.
At April 30, 1996, the Company owed a bank $26.4 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. As of April 30, 1996,
the Company had approximately $2.2 million of additional available borrowing
capacity under the revolving credit agreement. The Company was in violation of
one of these financial covenants at April 30, 1996, however the bank has agreed
to waive compliance with respect to such default.
The Company has financed construction of the Rogers, Arkansas home center
superstore through the revolving line of credit. Subsequent to April 30, 1996,
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 rates
on inventory under the revolving credit agreement will return to the normal rate
of 55%.
The Company has also received a commitment, subsequent to quarter ended April
30, 1996, for a three year renewal term on the construction note for the
Fayetteville, Arkansas home center. This note has been classified as current in
the balance sheet dated April 30, 1996, and upon receiving an executed
agreement, this loan will be classified as long term.
In May 1996, the Company purchased certain assets of a competitor whose
facilities were destroyed by a tornado in Fort Smith, Arkansas. The Company has
also purchased a non-competition agreement with the competitor. The total net
purchase price of the acquisition is estimated to be approximately $1.5
million.
7
<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.
Not applicable.
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>
10.1 First 10-12
Amendment to
Loan and
Security
Agreement with
BankAmerica
Business
Credit, Inc.
27.1 Financial Data 13-14
Schedule
(b) Reports on Form 8-K.
Not applicable.
- - --------------------------------------------------------------------------------
</TABLE>
8
<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: June 7, 1996 /s/ Dwain A. Newman
--------------------------------
Dwain A. Newman
Chief Executive Officer and
Chairman
Date: June 7, 1996 /s/ Brent A. Hanby
--------------------------------
Brent A. Hanby
Executive Vice President and
Chief Financial Officer
9
<PAGE>
EXHIBIT 10.1
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
This First Amendment to Loan and Security Agreement ("Amendment") is
entered into as of May _____, 1996, by and between National Home Centers, Inc.
(the "Borrower"), an Arkansas corporation, and BankAmerica Business Credit, Inc.
(the "Lender"), a Delaware corporation.
RECITALS
--------
This Amendment is entered into in reference to the following facts:
(a) The Borrower and Lender entered into a certain Loan and Security
Agreement ("Loan Agreement"), dated as of December 19, 1995. All capitalized
terms not expressly defined herein, shall have the meanings assigned to such
terms in the Loan Agreement.
(b) The Borrower desires to amend the Loan Agreement in certain
respects. Lender is willing to amend the Loan Agreement subject to the terms
and conditions contained herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties hereto hereby agree as follows.
ARTICLE 1 - AMENDMENTS
----------------------
1.1 Amendment of Section 9.20. Section 9.20 of the Loan Agreement is
-------------------------
amended and restated to read in its entirety as follows:
"Section 9.20 Minimum Adjusted Tangible Net Worth. The Borrower and
-----------------------------------
its Subsidiaries on a consolidated basis will not permit Adjusted Tangible Net
Worth to be less than the following amounts at the end of the Fiscal Years
specified below:
<TABLE>
<CAPTION>
Fiscal Year Amount
------------------ -----------
<S> <C>
Fiscal Year ending $27,400,000
January 31, 1997
Fiscal Year ending $28,100,000
January 31, 1998
Fiscal Year ending $28,700,000
January 31, 1999
</TABLE>
<PAGE>
ARTICLE 2 - CLOSING CONDITIONS
------------------------------
2.1 Conditions Precedent. As a condition precedent to this
--------------------
Amendment becoming legally binding on the Borrower and the lender, the Borrower
shall execute and deliver to the Lender this Amendment and a related certificate
of resolution, and (b) the Borrower shall pay to the Lender an amendment fee of
$5,000 which the Lender may, at its option, charge to the Borrower's loan
account as a Revolving Loan.
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES
------------------------------------------
3.1 Acknowledgment of Borrower. The Borrower hereby represents and
--------------------------
warrants that (a) the execution and delivery of this Amendment and compliance by
the Borrower with all of the provisions of this Amendment (i) are within the
powers and purposes of the Borrower; (ii) have been duly authorized or approved
by the Borrower; and (iii) when executed and delivered by or on behalf of the
Borrower, will constitute valid and binding obligations of the Borrower,
enforceable in accordance with its terms. The Borrower reaffirms its obligation
to pay all amounts due the Lender under the Loan Agreement in accordance with
the terms thereof, as modified hereby.
3.2 No Conflicts with Other Agreements. The execution and delivery
----------------------------------
of this Amendment by the Borrower will not (a) violate or contravene in any way
any indenture, agreement, or other instrument to which it is a party or by which
any of its property may be bound, or (b) be in conflict with, result in a breach
of, or constitute (with due notice and/or lapse of time), a default under any
such indenture, agreement, or other instrument, or (c) result in the creation or
imposition of any lean, charge or encumbrance of any nature whatsoever upon any
of the property or assets of the Borrower except as contemplated by the
provisions of this Amendment and the Loan Agreement, and no action or approval
with respect thereto by any third person is required, or (d) contravene any law,
order, decree, rule, or regulation to which the Borrower is subject.
ARTICLE 4 - GENERAL PROVISIONS
------------------------------
4.1 Loan Agreement Unmodified. Except as otherwise specifically
-------------------------
modified by this Amendment, all terms and provisions of the Loan Agreement and
all liens and security interests created thereby shall remain unmodified and in
full force and effect. Nothing contained in this Amendment shall in any way
impair the validity or enforceability of the Loan Agreement, as modified hereby,
or alter, waive, annul, vary, affect, or impair any provision, condition, or
covenant contained in the Loan Agreement as modified hereby, or any rights,
power, or remedy granted therein.
4.2 Construction of Amendment. Each party hereto has cooperated in
-------------------------
the drafting and preparation of this Amendment and, as a result, this Amendment
shall not be construed against any party. This Amendment may be amended or
modified only by a written agreement signed by the parties hereto. This
Amendment may be executed in separate counterparts, each of which shall be an
original, but all of which together constitute one and the same agreement.
4.3 Severability. To the extent any provision of this Amendment is
------------
not enforceable under applicable law, such provision shall be deemed null and
void and shall have no effect on the remaining portions of the Amendment.
<PAGE>
4.4 Total Agreement. This Amendment, and all other agreements
---------------
referred to herein or delivered in connection herewith, shall constitute the
entire agreement between the parties relating to the subject matter hereof and
shall not be changed or terminated orally.
4.5 Legal Fees. The Borrower shall pay all costs (including the
----------
internally allocated costs of in-house staff counsel) incurred by the Lender in
the negotiation and preparation of this Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of
the day and year first above written.
"Borrower"
National Home Centers, Inc.
By:
___________________________
Its:
___________________________
"Lender"
BankAmerica Business Credit, Inc.
By:
__________________________
Its:
__________________________
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JAN-31-1997
<PERIOD-START> FEB-01-1996
<PERIOD-END> APR-30-1996
<CASH> 131,217
<SECURITIES> 0
<RECEIVABLES> 14,474,652
<ALLOWANCES> 0
<INVENTORY> 33,289,598
<CURRENT-ASSETS> 50,810,061
<PP&E> 50,474,685
<DEPRECIATION> 11,290,048
<TOTAL-ASSETS> 91,692,181
<CURRENT-LIABILITIES> 28,651,852
<BONDS> 0
0
0
<COMMON> 74,660
<OTHER-SE> 27,739,475
<TOTAL-LIABILITY-AND-EQUITY> 91,692,181
<SALES> 42,523,492
<TOTAL-REVENUES> 42,523,492
<CGS> 32,214,030
<TOTAL-COSTS> 32,214,030
<OTHER-EXPENSES> 10,201,579
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 827,833
<INCOME-PRETAX> (719,950)
<INCOME-TAX> (266,382)
<INCOME-CONTINUING> (453,568)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (453,568)
<EPS-PRIMARY> (0.06)
<EPS-DILUTED> 0
</TABLE>
